Appendix — Interstate Commerce Commission v. Brae Corporation
Supreme Court brief1985
Ask Donna
What actually matters in this document.
Text
October Term, 1984
INTERSTATE COMMERCE COMMISSION, PETITIONER
Vv.
BRAE CORPORATION, ET AL.
PETITION FOR A WRIT OF CERTIORARI
= TO THE UNITED STATES COURT OF APPEALS
| FOR THE DISTRICT OF COLUMBIA CIRCUIT
APPENDIX
RoBERT S. BURK
General Counsel
HENRI F. RusH
Associate General Counsel
Louis MACKALL
Attorney
Interstate Commerce Commission
Washington, D.C. 20423
(202) 275-1872
TABLE OF CONTENTS
Page
Appendix A (court of appeals’ opinion (6/27/84). . ia
Appendix B (court of appeals’ order amending
EEE ee ee eee rer 94a
Appendix C (court of appeals’ orders).......... 96a
Appendix D (ICC decision—Ex Parte No. 346
EEG OES SN 103a
Appendix E (ICC decision—Ex Parte No. 346
Nee ee ec eeeneesesene 153a
Appendix F (ICC decision—Ex Parte No. 346
EE ES ee 190a
ee aE a a re 217a
4
=
APPENDIX A
United States Cmut of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
No. 83-1462
BRAE CORPORATION, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION,
E.F. HuTTON CREDIT CORPORATION,
SEATTLE & NORTH CoAST RAILROAD COMPANY,
INTERVENORS
No. 83-1465
BRAE CORPORATION, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
PITTSBURGH & LAKE ERIE RAILROAD COMPANY,
CONSOLIDATED RAIL CORPORATION,
AMERICAN SHORT LINE RAILROAD ASSOCIATION,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
CoMMON CARRIER CONFERENCE-IRREGULAR ROUTE OF
AMERICAN TRUCKING ASSOCIATIONS, INC.,
ANGELINA and NECHES RIVER RAILROAD,
E.F. HUTTON CREDIT CORPORATION,
WEYERHAEUSER COMPANY, et al., INTERVENORS
2a
No. 83-1466
BRAE CORPORATION, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
PITTSBURGH & LAKE ERIE RAILROAD COMPANY,
AMERICAN SHORT LINE RAILROAD ASSOCIATION,
FREIGHT USERS ASSOCIATION OF LONG ISLAND, INC.,
CONSOLIDATED RAIL CORPORATION,
SOUTHERN PACIFIC TRANSPORTATION CoMPANy,
ANGELINA and NECHES RIVER RAILROAD,
E.F. HUTTON CREDIT CORPORATION,
WEYERHAEUSER COMPANY, et al. , INTERVENORS
i
No. 83-1468
BRAE CORPORATION, PETITIONER
V.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION,
FREIGHT USERS ASSOCIATION OF LONG ISLAND, INC.,
SOUTHERN PACIFIC TRANSPORTATION CoMPANY,
E.F. HUTTON CREDIT CORPORATION, INTERVENORS
No. 83-1469
AMERICAN PAPER INSTITUTE, INC., PETITIONER
Vv.
3a
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
BROWN TRANSPORT CORPORATION,
CONSOLIDATED RAIL CORPORATION,
FREIGHT USERS ASSOCIATION OF LONG ISLAND, INC.,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
COMMON CARRIER CONFERENCE-IRREGULAR ROUTE OF
AMERICAN TRUCKING ASSOCIATIONS, INC.,
ANGELINA and NECHES RIVER RAILROAD,
BRICK ASSOCIATION OF NoRTH CAROLINA, et al.,
AMERICAN TRUCKING ASSOCIATIONS, INC., et al.,
NATIONAL GRAIN AND FEED ASSOCIATION,
AMERICAN NEWSPAPER PUBLISHERS ASSOCIATION,
CANADIAN PULP AND PAPER ASSOCIATION, INTERVENORS
No. 83-1479
INTERNATIONAL PAPER COMPANY, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
COMMON CARRIER CONFERENCE-IRREGULAR ROUTE OF
AMERICAN TRUCKING ASSOCIATIONS, INC.,
BRICK ASSOCIATION OF NORTH CAROLINA, et al.,
INTERVENORS
No. 83-1490
THE NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE,
PETITIONER
Vv.
4a
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION,
SOUTHERN TRAFFIC LEAGUE, ING.,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
EASTERN INDUSTRIAL TRAFFIC LEAGUE, INC.,
BRICK ASSOCIATION OF NORTH CAROLINA, et al.,
VOLKSWAGEN OF AMERICA, INC., INTERVENORS
No. 83-1538
I" EL CORPORATION, RAIL DIVISION, et al., PETITIONERS
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION,
EAST CAMDEN & HIGHLAND RAILROAD COMPANY,
FUNDING SYSTEMS RAILCAR, INC., et al.,
SOUTHWEST FOREST INDUSTRIES, INC.,
VALDOSTA SOUTHERN RAILROAD COMPANY,
APALACHICOLA NORTHERN RAILROAD Co., et al.,
SABINE RIVER & NORTHERN RAILROAD COMPANY,
MARINETTE, TOMAHAWK & WESTERN RAILROAD Co.,
LITTLE Rock & WESTERN RAILWAY Corp., et al.,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
INTERVENORS
No. 83-1543
FORD MOTOR COMPANY, PETITIONER
Vv.
—-
5a
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CANADIAN PULP AND PAPER ASSOCIATION,
BRICK ASSOCIATION OF NORTH CAROLINA, et al.,
SoUTHERN PACIFIC TRANSPORTATION CoMPANY,
CONSOLIDATED RAIL CORPORATION, INTERVENORS
No. 83-1544
CONTINENTAL FoREST INDUSTRIES, INC., PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CANADIAN PULP AND PAPER ASSOCIATION,
BRICK ASSOCIATION OF NORTH CAROLINA, et al.,
SoUTHERN PACIFIC TRANSPORTATION COMPANY,
CONSOLIDATED RAIL CORPORATION, INTERVENORS
No. 83-1546
SYSCO CoRPORATION, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
BRICK ASSOCIATION OF NORTH CAROLINA, et al.,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
CONSOLIDATED RAIL CORPORATION, INTERVENORS
No. 83-1547
PATRICK W. SIMMONS, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE CoMMISSION, RESPONDENTS
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
CONSOLIDATED RAIL CORPORATION, INTERVENORS
6a
No. 83-1551
THE ALUMINUM ASSOCIATION, INC., PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CANADIAN PULP AND PAPER ASSOCIATION,
BRICK ASSOCIATION OF NORTH CAROLINA,
BURLINGTON NORTHERN RAILROAD COMPANY,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
CONSOLIDATED RAIL CORPORATION, INTERVENORS
No. 83-1555
THE BANGOR AND AROOSTOOK RAILROAD COMPANY,
DELAWARE AND HUDSON RAILWAY COMPANY and
MAINE CENTRAL RAILROAD COMPANY, PETITIONERS
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
INTERVENORS
No. 83-1558
CANADIAN NATIONAL RAILWAY COMPANY and
CANADIAN PACIFIC LIMITED, PETITIONERS
V.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION,
SOUTHERN PACIFIC TRANSPORTATION COMPANY,
INTERVENORS
Ta
No. 88-1571
NATIONAL RAILWAY UTILIZATION CORPORATION,
PICKENS RAILROAD Co.,
PENINSULA TERMINAL Co.,
THE MISSISSIPPIAN RAILWAY, INC.,
GRAHAM COUNTY RAILROAD, INC.,
ATLANTIC & WESTERN RAILWAY CO., PETITIONERS
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION, INTERVENORS
No. 83-1572
CENTRAL VERMONT RAILWAY, INC.,
DETROIT, TOLEDO AND IRONTON RAILROAD COMPANY
and GRAND TRUNK WESTERN RAILROAD CO., PETITIONERS
V.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION, INTERVENORS
No. 83-1574
SEA-LAND SERVICE, INC. and SEA-LAND
FREIGHT SERVICE, INC., PETITIONERS
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDEN IS
TOTEM OCEAN TRAILER EXPRESS, INC., INTERVENOR
8a
No. 83-1577
H.C. SPINKS CLAY Co., INC., PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
No. 83-1614
BOARD OF TRADE OF THE CITY OF CHICAGO, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
CONSOLIDATED RAIL CORPORATION, INTERVENORS
No. 83-1628
SANDERSVILLE RAILROAD COMPANY, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
No. 83-1655
ILLINOIS CENTRAL GULF RAILROAD Co., et al., PETITIONERS
V.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
9a
No. 83-1665
CHATTAHOOCHEE INDUSTRIAL RAILROAD,
GREAT SOUTHERN PAPER,
LEAF RIVER FOREST PRODUCTS, INC.,
and THE OLD AUGUSTA RAILROAD CO., PETITIONERS
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
No. 83-1763
BESSEMER AND LAKE ERIE RAILROAD COMPANY and
ELGIN, JOLIET AND EASTERN RAILWAY COMPANY,
PETITIONERS
V.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
No. 83-1700
AMERICAN PAPER INSTITUTE, INC., PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
No. 83-1709
LAMOILLE VALLEY RAILROAD Co., OF MORRISVILLE,
LAMOILLE COUNTY, VERMONT, PETITIONER
V.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
10a
No. 83-1710
RUBBER MANUFACTURERS ASSOCIATION, PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE,
INTERVENOR
No. 83-1717
EVANS PRODUCTS COMPANY, PETITIONER
V.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
No. 83-1718
BOARD OF PORT COMMISSIONERS FOR THE
CITY OF OAKLAND, PETITIONER
V.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
No. 83-2245
THE NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE,
PETITIONER
Vv.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION, RESPONDENTS
lla
Petitions for Review of Orders of the
Interstate Commerce Commission
Argued June 5, 1984
Decided June 27, 1984
Robert N. Kharash, Mark L. Evans, Gerry Levenberg,
and John M. Nannes, with whom Peter D. Dickson and
Deborah M. Gottheil, for Brae Corporation, Robert N.
Kharash, Olga Boikess, and Edward D. Greenberg, for
International Paper Company, et al., John F. Donelan,
John M. Cleary, Frederic J. Wood, and Nicholas J. Di-
Michael, for Natienal Industrial Transportation League,
et al., Carl V. Lyon and James P. Tuite, for Itel Rail
Corporation, Rail Division, et al., Charles H. White, Jr.,
for SYSCO Corporation, et al., Gordon P. MacDougall, for
Patsick W. Simmons, Dickson R. Loos and David H.
Baker, for Aluminum Association, Inc., 3rian C. Mohr,
for Bangor and Aroostook Railroad Company, et al., An-
drew P. Goldstein, for National Railway Utilization Cor-
poration, et al., John C. Danielson, fcr Central Vermont
Railroad, et al., Thomas F McFarland, Jr., and Steven
J. Kalish, for Board of Trade o* the City of Chicago,
et al., Peter A. Greene, for Angelina and Neches River
Railroad Co., J. Raymond Clark and Mary Todd Foldes,
for Sandersville Railroad Company, Hanford O’Hara and
Alice C. Saylor, for Bessemer & Lake Erie Railroad Com-
pany, et al., Robert Gensburg, for Lamoille Valley Rail-
road Company of Morrisville, Lamoille County, Vermont,
Martin W. Bercovici, for Rubber Manufacturers Associa-
tion, Robert A. Cantor and David A. Vaughn, for E.F.
Hutton Credit Corporation, Fritz R. Kahn and Russell
E. Pommer, for Pittsburgh and Lake Erie Railroad Com-
pany, Seattle and North Coast Railroad Company, and
Weyerhaeuser Company, et al., Thomas C. Dorsey, for
American Short Line Railroad Association, and Charles
W. Chapman, for East Camden & Highland Railroad
Company, were on the joint brief, for petitioners and
intervenors Brae Corporation, et al., in Nos. 83-1462, 83-
12a
1465, 83-1466, 83-1468, 83-1469, 83-1479, 83-1490, 83-
1538, 83-1543, 83-1544, 83-1546, 83-1547, 83-1551, 83-
1555, 83-1571, 83-1572, 83-1577, 83-1614, 83-1628, 83-1665,
83-1673, 83-1700, 83-1709, 83-1710, 83-1717, and 83-2245.
John F. Donelan, Jr., also entered an appearance for Na-
tional Industrial Transportation League, et al., in Nos.
83-1700 and 83-2245. Harold E. Spencer also entered
an appearance for Evans Products Company in No. 83-
1717. Basil Cole also entered an appearance for Central
Vermont Railway, Inc., et al., in No. 83-1572. Howard
D. Koontz also entered an appearance for Illinois Cen-
tral Gulf Railroad Company, et al., in No. 83-1655.
Richard Flynn, with whom Terence M. Hynes was on
the brief, for petitioners Canadian National Railway
Company, et al., in No. 83-1558. John Will Ongam also
entered an appearance for Canadian National Railway
Company, et al., in No. 83-1558.
John Guandolo, with whom George W. Selby, Jr., for
Sea-Land Service, Inc., et al., and Brock Adams and
Joseph H. Dettmar, for Totem Ocean Trail Express, Inc.,
were on the joint brief, for petitioners and intervenor
Sea-Land Service, Inc., et al., in No. 83-1574. John T.
Downing also entered an appearance for Sea-Land Serv-
ice, Inc., et al., in No. 83-1574.
Michel Joseph, with whom 7.S.L. Perlman was on the
brief, for petitioner Board of Port Commissioners for the
City of Oakland in No. 83-1718.
John Broadley, General Counsel, Interstate Commerce
Commission, with whom J. Paul McGrath, Assistant At-
torney General, Department of Justice, Henri F. Rush,
Associate General Counsel, Louis Mackall and Richard J.
Osterman, Jr., Attorneys, Interstate Commerce Commis-
sion, and Barry Grossman and John P. Fonte, Attorneys,
Department of Justice, were on the joint brief, for re-
spondents.
Paul A. Cunningham, with whom Arthur W. Adelberg,
Bruce B. Wilson and Richard A. Mehley, for Consoli-
13a
dated Rail Corporation, William R. Power, for Burling
ton Northern Railroad Company, Thurmond A. Mille:
and Lois P. Warchot, for Southern Pacific Transporta
tion Company, were on the joint brief, for intervenor
Consolidated Rail Corporrtion, et al., in Nos. 83-1462
83-1465, 83-1466, 83-1468, 83-1469, 83-1479, 83-1490
83,1538, 83-1543, 83-1544, 83-1546, 83-1547, 83-1551, 83
1555, 88-1558, 83-1571, 83-1572 and 83-1614.
Nelson J. Cooney and Kenneth E. Siegel, for America
Trucking Associations, Inc., Marshall Kragen, for Brow:
Transport Corporation, and Edward J. Kiley, for Inter
state Carriers Conference, Inc., were on the joint brie
for intervenors American Trucking Associations, et al.
in Nos. 83-1465, 83-1469 and 83-1479.
William P. Jackson, Jr., was on the statement in lie
of brief for intervenors Eastern Industrial Traffi
League, Inc., et al., in No. 83-1490.
W. Terry Maguire entered an appearance for inter
venor American Newspaper Publishers Association in No
83-1469.
John R. Bagileo and Leo C. Franey entered appear
ances for intervenor Volkswagen of America, Inc., in No
83-1490.
William R. Power entered an appearance for interve
nor Burlington Northern Railroad Company in No. 83
1551.
Before ROBINSON, Chief Judge, and WALD and MIKVA
Circuit Judges.
Opinion per curiam.
l4a
TABLE OF CONTENTS
Il. MAXIMUM RATE EXEMPTION ................................
A. The Commission Decision _...........................
B. Abuse of Market Power .
BOWE cinnpnucneninaeee
C. The Scope of the Maximum Rate Exemp-
GD sain re RF aan. = SR
III. JOINT RATES AND THROUGH RATES ...................
A. The Commission Decision .............................
B. Carrying Out the Rail Transportation Pol-
BAU) _ .~c.sesseccsssnsconsinnensesthingintiiiiaaiiianne
|
:
S8e 8 dcciead
ts
_
1. Incentives for large carriers to close
TL
2. Division of joint rates 00.
DAR” 2 9 PERRO
bd
Saneserseses
+ fF ee
\,: Si | eS ’ 91
15a
PER CURIAM*: We today confront the relationship
between the Interstate Commerce Commission ('CC or
Commission), railroad carriers and shippers, and the de-
regulatory objectives embodied in the Staggers Rail Act
of 1986, Pub. L. No. 96-448, 94 Stat. 1895 (1980). Pe-
titioners in this case seek review of four related Com-
mission decisions that exempt boxcar traffic from rate
regulation and that substantially modify the basis upon
which railroads may use boxcars owned by others. These
decisions, affecting approximately twenty-five percent of
all rail traffic moving throughout the United States,
apply to all geographic regions, to all railroads, and to
all types of boxcars—equipped, unequipped, refrigerated,
and livestock. Thus, it is hardly surprising that nu-
merous parties petitioned this court to review the Com-
mission’s decisions and that our opinion today addresses
the merits of over thirty consolidated cases.
Petitioners assert a host of challenges to the Commis-
sion’s decisions. The petitioners raise questions concern-
ing the Commission’s statutory authority and questions
regarding the substance of many Commission conclusions.
In response, the Commission rests on that section in the
Staggers Act, 49 U.S.C. §10505(a) (Supp. V 1981),
which allows the ICC to deregulate the railroads, and
argues that its decisions are supported in the record and
are consistent with congressional goals. For the reasons
set forth below, we find merit in some of the petitioners’
arguments and conclude that in parts of its decisions the
Commission failed to consider certain factors and, addi-
tionally, exceeded the scope of its statutory authority.
We thus affirm in part, vacate in part, and remand the
case to the Commission.
* The opinion in this case is issued per curiam because the
complexity of the issues raised on appeal made it useful to
share the effort required to draft this opinion among the mem-
bers of the court.
16a
I. BACKGROUND
On May 22, 1981, the Consolidated Rail Corporation
(Conrail) petitioned the Interstate Commerce Commis-
sion (ICC or Commission) to deregulate all aspects of the
transportation Conrail provided in boxcars. Conrail
argued that the rates it received for boxcar traffic did not
cover its variable costs. “The rates are wrong, the divi-
sions are too low, and the car hire rates are unfair.”
Conrail pointed to the nationwide surplus of boxcars as
evidence of problems with the current regulations. In re-
sponse, the ICC instituted a rulemaking proceeding, pro-
posing the application of Conrail’s deregulation petition
to all boxcar traffic nationwide. 47 Fed. Reg. 4100
(1982). Following the Commission’s receipt of many
negative comments, Conrail offered a less extensive
proposal.
In a series of four decisions, issued from April 1983
through December 1983, the Commission adopted Con-
rail’s modified proposal on a national basis. In Exemption
from Regulation—Boxcar Traffic, 367 1.C.C. 424 (1983)
(Boxcars I), the Commission reached its initial decision.
In Exemption from Regulation—Boxcar Traffic, 367
I.C.C. 747 (1983) (Boaxcars II), the Commission denied
petitions for reconsideration and further refined its anal-
ysis. In Exemption from Regulation—Boxcar Traffic,
served November 30, 1983 (not printed) (Bozcars III),
the Commission denied petitioners’ motions for a stay
pending appeal. And, in Exemption from Regulation—
Boacar Traffic, served December 19, 1983 (not printed)
(Boxcars IV), the Commission addressed certain issues
raised by the Association of American Railroads, specifi-
cally focusing on questions of antitrust liability. The Boz-
cars decisions became effective January 1, 1984, with the
exception of the car hire modifications as applied to Class
III carriers (small railroads). As to Class III carriers,
the decisions were to become effective July 1, 1984.
The Commission initially based its decision on its
power to deregulate, 49 U.S.C. § 10505(a), and on its
17a
power to regulate the compensation paid for the use of
freight cars, 49 U.S.C. § 11122. See Boxcars I, 367
I.C.C. at 456 (“We recognize, however, that [Conrail’s
modified proposal] could be construed in some respects as
being new regulation. To allay any doubt about the suf-
ficiency of section 10505(a) as authority for our ap-
proval of Conrail’s modified proposal, we shall take this
action also under section 11122.”). In Boxcars II, how-
ever, the Commission withdrew any reliance on its regu-
latory powers under section 11122. Boxcars II, 367 I.C.C.
at 759. Thus, the Commission’s decision rests entirely on
its deregulatory powers.
The Commission’s deregulatory powers trace to section
10505(a) of the Staggers Act. That section provides:
(a) In a matter related to a rail carrier providing
transportation subject to the jurisdiction of the In-
terstate Commerce Commission under this subchap-
ter, the Commission shall exempt a person, class of
persons, or a transaction or service when the Com-
mission finds that the application of a provision of
this subtitle—
(1) is not necessary to carry out the transportation
policy of section 10101a of this title; and
(2) either (A) the transaction or service is of lim-
ited scope, or (B) the application of a provision of
this subtitle is not needed to protect shippers from
the abuse of market power.
49 U.S.C. § 10505(a) (Supp. V 1981). In turn, section
10101la, referenced in subparagraph 1, lists fifteen dif-
ferent national rail transportation policies. 49 U.S.C.
§§ 10101a(1)-(15) (Supp. V 1981).
The first focus of the Boxcars decisions is the Commis-
sion’s regulation of the rates that a railroad carrier may
charge for the transportation of freight in boxcars
(freight rate). Prior to the decisions under review, the
Commission had jurisdiction to find rates unreasonably
18a
high when such rates exceeded specified ratios of revenue
to variable cost. 49 U.S.C. 10701a(c) (4) (B). Moreover,
the Commission also exercised certain supervisory powers
over the rates for shipments transported jointly by two
or more connecting carriers—that is, joint rates. See,
e.g., 49 U.S.C. §§ 10705, 10705a.
The Boxcars decisions removed all regulations on
freight rates, including joint rates. The Commission
found that freight rates could be deregulated under sec-
tion 10505(a) of the Staggers Act because the regulations
were unnecessary to implement the national transporta-
tion policy and because the regulations were not needed to
protect shippers from an abuse of market power. The
linchpin in the Commission’s “abuse of market power”
analysis was the pervasive pattern of competition between
trucks and rails, as evidenced at least in part by an ad-
mittedly controversial study submitted by Conrail. The
Commission, however, indicated that it would reimpose
freight rate regulations to any commodity in which
shippers subsequently introduced evidence revealing an
abuse of market power and a need for protection. See
Boxcars I, 367 1.C.C. at 40-41.
The Commission also concluded that its deregulatory
posture would not harm Class III carriers (small rail-
roads). These carriers feared that the deregulation of
joint rates would allow large carriers to establish rates
that would undermine the competitiveness of the joint
route, or would otherwise lead to the demise of many
small carriers. The Commission found this argument un-
persuasive and concluded that, in light of the pervasive
truck competition, large carriers would not cancel joint
rates with Class III carriers where the Class III carrier
provided an efficient route. Boxcars II, 367 1.C.C. at 753-
54. Moreover, the Commission concluded that the eco-
nomic disaster forecast by the Class III carriers would
not occur because small carriers have sufficient bargain-
ing power to protect themselves. Jd. at 766-67. The Com-
19a
mission conceded that some inefficient Class III carriers
might be driven out of business, but concluded that the
cancellation of such inefficient routes was in the public
interest. Jd. at 754. The Commission retained jurisdic-
tion over mandatory interchange, reciprocal switching,
and the joint use of terminal facilities.
The next focus of the Boxcars decisions is car hire—
the financial relationship between boxcar owners (orig-
inating carriers) and the railroad over which the cars
travel (destination carriers). Prior to the Boxcars deci-
sions, a carrier that owned or leased boxcars received
compensation from the railroad over which its cars were
traveling. The amount of such compensation, known as
‘the per diem rate, was based on a Commission-established
formula that distributed the costs of car ownership evenly
over the days in which the car was in service. This per
diem rate accrued for all periods that the boxcar was off
line, regardless of whether it was empty or full. Thus,
the destination carrier paid per diem even after. the car
was sitting idly on its tracks. This system of compensa-
tion, the Commission found, created incentives for the
originating carrier to load its own cars and to return
other cars empty. The Commission argued that as a re-
sult of this incentive, American railroads were ineffi-
ciently devoting substantial resources to the movement of
empty boxcars. Moreover, the Commission suggested that
the per diem structure contributed to the current surplus
of boxcars by guaranteeing a return on boxcar costs,
regardless of the ratio of supply to demand.
The Boxcars decisions modify the relationship between
the originating carrier and the destination carrier. The
Commission believed that these modifications, which it
considered a “partial exemption from regulation subject
to conditions”, would ameliorate market efficiencies be-
cause incentives to ship empty boxcars would be reduced
and because market factors would gain importance in the
pricing of car hire. Although leaving untouched the basic
20a
per diem structure, the Commission modified the car hire
relationship in three significant ways. First, the destina-
tion may now impose storage charges on the originating
carrier for boxcars that have been empty for seventy-two
hours. Because these storage charges are designed to off-
set the per diem rate that the destination carrier owes the
originating carrier, the storage charges may not exceed
the corresponding per diem. Second, the destination car-
rier may charge a fee for the return of an empty boxcar
when such return is requested by the originating carrier.
The charge, however, cannot exceed thirty-five cents per
mile. Third, carriers that enter agreements governing
car hire rates, empty movements, and storage are freed
from the Commission’s car hire rules.
Our opinion addresses each major issue seriatim. In
Part II, we find that the Commission’s “abuse of market
power” analysis withstands review. In Part III, we hold
that, the Commission’s analysis of the deregulatory impact
on small carriers and joint rates is arbitrary and capri-
cious. In Part IV, we hold that the Commission exceeded
the scope of the Staggers Act exemption provision in
adopting the new car hire rules. In Part V, we hold that
the Commission improperly included the Alaska Railroad
within the scope of its rate exemption. In the remainder
of the opinion, we address, and reject, the complaints of
the Canadian carriers and the Port of Oakland.
Il. MAXIMUM RATE EXEMPTION
A. The Commission Decision
The Commission exempted freight rates that carriers
charge shippers for boxcar transportation from all regula-
tion because it concluded that rate regulation was not
needed either to further the rail transportation policy of
49 U.S.C. § 10101la, or to protect shippers against abuses
of market power. Its conclusions were based on a finding
that boxcar freight rates would not increase unreason-
ably in the absence of regulation because rail carriers did
2la
not have sufficient market power in the transportation
market for goods that travel by boxce+ *» “spire unrea-
sonably high prices. This finding was reievant to both
inquiries under the Staggers Act exemption provision,
49 U.S.C. § 10505(a). First, one aspect of the rail trans-
portation policy is the maintenance of reasonable rates.
49 U.S.C. § 10101a(6). Second, the existence of unrea-
sonable rates is a sympton of market power abuse.
Focusing primarily on intermodal and intramodal com-
petition, the Commission concluded that “the market itself
places an effective ceiling on rail rates for boxcar trans-
portation, and regulation is unnecessary to assure that
boxcar rates do not rise to unreasona: ly high levels.”
Boxcars I, 367 1.C.C. at 433. The linchpin in the Com-
mission’s analysis is the presence of pervasive truck com-
petition—its conclusion that goods transportable by box-
ears can also, in the vast majority of cases, be carried by
trucks. But the ICC relied as well on intramodal competi-
tion, the shipper’s ability to select aiternative railroad
routes, to use other non-boxcar railroad equipment to
carry goods, or finally to transport goods by trailer on
flat car (TOFC) or container on flat car (COFC).
The Commission further reasoned that rates would be
restrained by the carriers’ reluctance to set a rate so high
that the shipper could not compete in the ultimate product
market. Thus, it concluded, the carrier would not fix its
rates at 2 level that would drive the shipper out of busi-
ness because in that event the railroad iteslf would lose
the shipper’s business. It also focused on the fact that
many large shippers operate from several locations.
“Thus, even if a carrier should find itself in a position
to charge an unreasonably high rate to the company at
one location, it normally would refrain from doing so to
avoid a retaliatory loss of the shipper’s business at that
or at other locations where competition exists.” Bozxcars
I, 367 1.C.C. at 434.
22a
In addition to these generic constraints on boxcar rates
the Commission looked at data on past boxcar transporta-
tion in assessing railroads’ market power and the likeli-
heod of abuse of such power. In particular it looked at
the percentage of total traffic handled by boxcars and by
trucks, and at revenue to variable cost ratios (r/vc) for
boxcar transportation of commodities. According to the
Commission, this data supported a conclusion that rail-
roads lacked the necessary degree of market power over
the transportation of commodities that travel by boxcar
to pose a potential for abuse.
_The primary factual basis for the Commission’s conclu-
sion was a 1980 Conrail study exploring 18 groups of
commodities moving to, from, or within the Northeast.
This report indicated that for each commodity group in
that region, trucks had a substantial share of the market
and r/ve did not exceed the relevant percent threshold
for ICC authority to review rates. See 49 U.S.C.
§§ 10701a, 10709. Within these groups, however, the per-
centage of truck carriage varied substantially, from very
high to very low. The Cemmission also cited a DOT 1977
nationwide study indicating that for 25 groups of com-
modities, all had a truck market share of at least 20%.
Finally, the Commission reviewed specifically “those few
commodities about which the greatest cause for concern
has been presented.” Boacars I, 367 I1.C.C. at 436. The
Commission focused cn auto parts, paper and forest prod-
ucts, grain, and metals, and concluded that in none did
the railroads have market power for section 10505(a)
purposes.
In sum, the Commission relied on the pervasive and
increasing role of trucks in transporting commodities that
typically travel by boxcar, buttressed by the Conrail
study, the DOT study, and general findings about com-
petition in the boxcar freight transportation market, to
corclude the remilations generally were unnecessary to
protect the shippers from an abuse of market power.
23a
It then looked at several specific commodities—those which
petitioners’ comments identified as presenting the closest
questions—and decided that its conclusions that rail car-
riers held no market power over shippers held true for
those specific commodities as well.
The Commission recognized that its determination that
railroads overall were not in a position to abuse market
power could mask individuai situations vis-a-vis particu-
lar shippers, commodities or locations that might hold
a potential for carrier abuse. But in light of the strong
deregulatory thrust of the Staggers Act, especially of the
exemption provision, it decided that an exemption for box-
car rates was nonetheless justified, stating:
Conceivably, there exists a specific commodity that
for some reason can be transported only by boxcar
and on which the rate levels, being uncontrolled by
intramodal competition or other market forces, would
rise to very high levels in the absence of regulation.
We do not totally rule out the possible existence of
such a situation. Congress desires that we move ag-
gressively forward in extending the exempt sector of
rail transportation without laboriously erasing every
shadow of a doubt before we act. . . . Congress de-
clared that we should instead make exemptions effec-
tive and then deal with any special problem “after
the fact,” not on a priori possibilities.
Boxcars I, 367 1.C.C. at 440-41. Petitioners, in the ~uain,
challenge the Commission’s decision to exempt boxcar
rates in the face of these acknowledged uncertainties
about future abuses of market power in particular
situations.
B. Abuse of Market Power
1. The standard of review
This court must review the Commission’s exemption of
boxcar freight rates from regulation, implementing the
exemption provision of the Staggers Act, 49 U.S.C.
24a
§ 10505(a), to see if it was arbitrary and capricious, an
abuse of discretion or otherwise contrary to law. See 5
U.S.C. § 706; National Small Shipments v. Civil Aero-
nautics Board, 618 F.2d 819, 826 (D.C. Cir. 1980) (ap-
plying section 706 to exemption of airlines from regula-
tion) ; American Trucking Associations v. ICC, 656 F.2d
1115, 1125 (5th Cir. 1981) (applying “arbitrary and
capricious” standard to exemption of trailer or flat car
transport from regulation under 49 U.S.C. § 10505(a)).
Petitioners here .*allenge the ICC’s finding that con-
tinued regulation is not necessary to protect shippers
from abuses of market power on the ground that. this
finding was arbitrary and capricious.
“The scope of review under the ‘arbitrary and capri-
cious’ standard is narrow and a court is not to substitute
its judgment for that of the agency.” Motor Vehicles
Manufacturers Association Vv. State Farm Mutual Auto-
mobile Insurance Co., —— U.S. ——, 103 S. Ct. 2856,
2866-67 (1983) [hereinafter cited as Airbags]. Never-
theless, the agency must consider all! critical aspects of
the problems before it, and must articulate a reasoned
explanation for its action, including “a rational connec-
tion between the facts found and the choice made.”
Burlington Truck Lines v. United States, 371 U.S. 156
(1962). Petitioners here suggest that judicial review
must begin with a presumrtion that significant changes
in current policy from tradi’ional norms of regulation
must be explained, and “where, as here, the challenged
action represents ‘a departure from prior policies and
precedents,’ the Court’s ‘level of scrutiny’ is heightened.”
Brief of Petitioners and Intervenors on Common Issues
at 35 (quoting Office of Communication of United Church
of Christ v. Federal Communications Commission, 707
F.2d 1413, 1425 (D.C.Cir. 1983)) [hereinafter cited as
Joint Brief for Petitioners]. But, the Supreme Court has
recently emphasized that abandonments of existing rules
and policies are not to be reviewed under a heightened
standard of scrutiny, see Airbags, 103 S. Ct. at 2865;
25a
rather the agency must explain why the original re=sons
for adopting the rule or policy are no longer dispositive.
See id. at 2866 (“an agency changing its course by
rescinding a rule is obligated to supply a reasoned anal-
ysis for the change”); International Ladies’ Garment
Workers’ Union (ILGWU) v. Donovan, 722 F.2d 795,
813 (D.C. Cir: 1983). We would note as well that this
case differs materially from Airbags and ILGWU in one
respect. Congress itself has found that the structure of
the transportation industry has changed so that “many of
the Government regulations affecting railroads have be-
come unnecessary and inefficient,” H.R. Rep. No. 1430,
96th Cong., 2d Sess. 79 reprinted in U.S. Code Cong. &
Ad. News 4110, 4111 (conference report) [hereinafter
cited as Conference Report], and has furthermore com-
manded the Commission to remove by exemption “as many
as possible of the Commission’s restrictions on changes
in prices and services by rail carriers.” Jd. at 105. Given
that explicit congressional mandate, we do not believe the
Commission need as exhaustively review and explain
away its original justifications for abandoned regulations
as if it were operating under the same statute it always
had.
The Commission, on the other hand, argues that we
must be especially deferential in reviewing its exemption
decisions since they inevitably involve judgments and pre-
dictions of economic consequences and behavior which are
inherently uncertain in nature but which Congress ex-
pressly delegated t- the Commission. Brief for Respond-
ents at 33-34; see also American Trucking Associations,
656 F.2d at 1127. We do, of course, recognize that in
some circumstances “complete factual support in the rec-
ord for the Commission’s judgment or prediction is not
possible or required.” Federal Communications Commis-
sition Vv. National Citizens Committee for Broadcasting,
436 U.S. 775, 814 (1978) ; see also Nationa! Small Ship-
ments v. Civil Aeronautics Board, 618 F.2d 819, 829
(D.C. Cir. 1980) (applying principle to predictions about
26a
deregulation’s effects on airline price competition and
price discrimination). But we must point out as well
that the predictive nature of the ICC’s findings does not,
by itself, alter our basic standard of review, which focuses
on the reasoned nature of the Commission’s decision, tak-
ing into account the nature of that decision and of the
components that can be reasomably expected to go into
it. Thus, when the facts relied upon by the Commission
are insufficient, by themselves, to support its ultimate
conclusion with certainty, it must identify the uncer-
tainties, see ILGWU, 722 F.2d at 814 n.33, explain why
it acted prior to “engaging in a search for further evi-
dence,” Airbags, 103 S. Ct. at 2871, and state what con-
siderations led it to resolve the uncertainties as it did.
See Small Refiner Lead Phase-Down Task Force v. En-
vironmental Protection Agency, 705 F.2d 506, 520 (D.C.
Cir. 1983).
2. “General” market constraints
Petitioners contend that the Commission had no basis
in the record for its conclusions regarding general mar-
ket constraints such as alternative forms of transporta-
tion, leverage of large shippers, and product and geo-
graphic competition. For <ech constraint they cite record
evidence showing substantial numbers of shippers who do
not enjoy the benefits of the constraints. See Joint Brief
for Petitioners at 67-72. They further attack the Com-
mission’s economic analysis, disagreeing with its conclu-
sion that the existence of product and geographic com-
petition, without more, constrains market abuses against
shippers.
But it seems to us petitioners misapprehend the sig-
nificance the Commission allotted to each of these factors.
The Commission recognized that the factors enumerated
above were only general constraints in the transportation
market and that the circumstances of some individual
shippers were such that they might not be constrained by
27a
any or all such factors. See Boxcars I, 367 I.C.C. at 4°2-
34. While the Commission did not always cite specific
record evidence for its conclusions about market con-
straints, our perusal of the record convinces us that it
did in fact rely on uncontroversial facts that were within
its expert knowledge and which petitioners do not contest.
See, e.g., Boxcars I, 367 1.C.C. at 433 (most items that
can be loaded in a boxcar can be loaded in a truck; motor
carriage tends to be faster, more accessible, and more
convenient; alternate rail routes and TOFC/COFC serv-
ice give many shippers the benefit of intramodal rail com-
petition). Furthermore, while we find merit in the peti-
tioners’ argument that absent evidence about cross-
elasticities of particular commodities with substitute prod-
ucts or commodities from other geographical locales, exist-
ence of product and geographical competition says little
about the constraints such competition places on carriers
vis-a-vis shippers, we do not find the Commission relied
on product or geographical cor petition for more than its
limited worth. See Boxcars I, 367 I.C.C. at 434.
In sum, we believe that the Commission recognized full
well the generalized nature of some of its predicted con-
straints on market abuse. While reliance on any one of
these factors alone might not justify a finding that rail-
roads could not abuse their market power, it was not un-
reasonable for the Commission to conclude that together
the factors assured this. The Commission further bol-
stered these constraints with evidence that, in fact, mar-
ket abuse was rare, if not non-existent. The ICC noted
that “the present record identifies no commodity moving
chiefly by boxcar on which rate levels are now being con-
trolled by Commission maximum rate prescriptions rather
than by market forces.” Bozxcars I, 367 L.C.C. at 440;
see also Brief for Respondent at 54-55 & n.29 ( claiming
that there is only one case since the passage of the 4-R
Act in 1976 in which the Commission found either mar-
ket dominance or charging of an unreasonable rate by
a railroad for boxcar transportation of freight). It also
28a
retained jurisdiction to require reciprocal switching and
joint use of terminals allowing one carrier to use another
carrier’s routes and other facilities, see Boxcars I, 367
I.C.C. at 433 n.20, and promised to modify or revoke the
exemption of maximum rate regulation if “the exemption
does not work as planned.” Boxcars III, slip op. at 4.
Finally, the Commission considered the Conrail and DOT
studies, which it found further supported a conclusion
that railroads did not have market dominance.
3. The Conrail study
This brings us to petitioners’ major attack on the Com-
mission decision, which focuses on the study of railroad/
truck market shares and r/ve submitted by Conrail. Peti-
tioners argue that this study, upon which the ICC heavily
relied, does not rati-~ally support the Commission’s “find-
ing that railroads cc 'd not abuse their market power
with respect to ‘any’ « mmodity transported by boxcar”
because the data it reports are too aggregated to justify
such a conclusion about particular commodities. Joint
Brief for Petitioners at 61-62.
Petitioners point to differences in the types of boxcar
services required for different commodities, and contend
that each of the commodity groups in the study repre-
sented several, rather than a single, market for trans-
portation. For example, commodities like certain auto-
mobi'e parts require boxcars with special racks that make
these cars unsuitable for transportation of other goods.
According to petitioners, these special parts comprise a
distinct transportation market that the ICC should have
looked at separately. See Boxcars I, 367 I.C.C. at 436.
Petitioners claim that railroads enjoy high market shares
and r/ve in many of these submarkets. Because the data
from these submarkets are averaged with data from sub-
markets where railroads have very little market share and
low r/ve, they argue, the aggregated data of the Conrail
29a
study masks significant potential for railroads to abuse
market power.
Petitioners cite Chesapeake and Ohio Railway v. United
States, 704 F.2d 878 (7th Cir. 1983). In that case the
Seventh Circuit rejected the ICC’s reliance on aggregated
data about through routes as arbitrary and capricious.
{n Chesapeake the ICC had granted Conrail’s petition to
cancel several thousand joint rates under 49 U.S.C.
§ 10705(e) based on a study Conrail submitted showing
that cancellation of all routes, in the aggregate, would
result in an average reduction of transit time for the
routes remaining open. Chesapeake held that the ag-
gregated data was not sufficiently probative of the ef-
ficiency of individual routes for the court to conclude
that substantial evidence supported the cancellations as
being in the “public interest.” Jd. at 379.
The statutory scheme of section 10505 (a) nonetheless
leads us to conclude that the ICC’s reliance on the Conrail
study was justified. In the Staggers Act, Congress
amended this provision explicitly to authorize Commis-
sion exemptions from regulations that are not limited in
scope. See Conference Report, supra at 104-05, 1980 U.S.
Code, Cong. & Ad. News at 4137. It explained this change
in the Staggers Act conference report:
The conferees expect that, consistent with the poli-
cies of this Act [the Staggers Act], the Commission
will pursue partial and complete exemptions from
remaining regulation. The conferees anticipate that
through the exemption process the Commission will
eventually reduce its exercise of authority to in-
stances where regulation is necessary to protect
against abuses of market power where other federal
remedies are inadequate for this purpose. Particu-
larly the conferees expect that as many as possible
of the Commission’s restrictions on changes in prices
and services by rail carriers will be removed and
that the Commission will adopt a policy of reviewing
30a
carrier actions after the fact to correct abuses of
market power.
Conference Report, supra at 105, 1980 U.S. Code, Cong.
& Ad. News at 4137. Thus, Congress encouraged the
Commission to apply its exemption authority under sec-
tion 10505(a) in a manner of “general applicability,”
and therefore “it is not a condition of [the] validity
{of such an exemption] that there be adduced evidence
of its appropriateness in respect to every railroad to
which it will be applicable.” United States v. Alleghany-
Ludlum Steel, 406 U.S. 742, 749 (1972) (quoting As-
signed Car Cases, 274 U.S. 564, 583 (1927) ).
Of course the evidence that the Commission does con-
sider must be probative of the findings it is required to
make as part of its exemption decision and the Commis-
sion must explain why more probative evidence, if avail-
able, was not collected. Here the ICC claimed that a
commodity-by-commodity approach would involve thou-
sands of commodities and was not feasible. See Boxcars I,
367 I.C.C. at 486. At argument counsel for petitioners
stated that it did not expect the Commission to do a
commodity-by-commodity study, but that the study should
have grouped commodities according to their transporta-
tion characteristics. We do not believe the Commission’s
commodity groups were inappropriate even when viewed,
as petitioners suggest, in terms of transportation char-
acteristics. Although aggregated data is imperfect, it is
reasonable to assume that there is some correlation be-
tween types of commodities and transportation-related
attributes of the goods. For example, we expect that cars
that carry different types of auto parts are more likely to
be interchangeable with each other than either is with
cars that carry grain products, and the routes that auto
parts travel are more likely to overlap with each other
than either is with the routes that grain products travel.
Thus, the Commission did not act arbitrarily and capri-
ciously in concluding that the Conrail study “divided box-
3la
car commodities into reasonably related groups under a
standard classification system.” Boxcars I, 367 I.C.C.
at 436.
Nor do we believe that Chesapeake, 704 F.2d 379, man-
dates a reversal of the ICC decision here. The Chesa-
peake court reviewed a decision to cancel particular
(albeit numerous) through routes under 49 U.S.C.
§ 10705(e). That section envisions a more circumscribed
ICC decision based on an evidentiary hearing focusing on
the particular through routes of particular parties. In-
formation therefore that may be of little probative value
with respect to a particular route, may be highly proba-
tive for the purposes of a policy decision of general ap-
plicability, such as the one Congress envisioned, and the
ICC here effectuated under section 10505(a). Addition-
ally Chesapeake noted that even the aggregate data sub-
mitted in that case was probably meaningful enough for
Conrail to meet its initial burden of production under sec-
tion 10705(e). The court did not so find only because
the aggregated data “was built up from individual
through route comparisons [and] Conrail easily could
have presented the data underlying those comparisons
along with the summary statistics[;] . . . the burden of
production would not have been greater... .” Chesa-
peake, 704 F.2d at 379. In Chesapeake, the Commission
could not give any reason why the full study was not in-
cluded in the administrative record. In this case the
Commission concluded that presenting meaningful less-
aggregated data would impose an impossible burden time
and energy-wise, see Boxcars I, 367 I.C.C. at 436, and
petitioners point to no record evidence undermining this
conclusion. We thus conclude that ICC reliance on the
aggregate data of the Conrail study was not per se
arbitrary and capricious.
Petitioners who assail the Conrail study because it is
limited to rail transportation to, from, or within the
Northeast. They argue that the attributes of freight
32a
transportation markets in other regions of the country
are sufficiently different from those in the Northeast to
render the ICC’s conclusions about national rail trans-
portation based on this data arbitrary and capricious.
The ICC, however, did not consider the Conrail data in
isolation; it relied on many other factors, most impor-
tantly a Department of Transportation (DOT) nation-
wide study done in 1977. In addition one of the peti-
tioners itself submitted comments indicating that Con-
rail’s data was representative of the whole country. See
J.A. 1418-21. The Commission thus had before it nation-
wide data as well as that from the Northeast and indica-
tions that the Northeast data was representative of the
whole country. It therefore had a basis for informed
judgments about boxcar freight transportation markets
throughout the country.
4. Particular commodities
The conclusion that the ICC did not err in relying on
the Conrail data does not, however, comp/etely put to rest
the challenge to its finding that rate regulation is not
needed to prevent abuse of market power, since the Com-
mission must consider all relevant fuctors in the com-
ments it receives. Petitioners submitted evidence demon-
strating that four commodity groups—auto parts, paper
and forest products, grain, and metals—included sub-
markets for transportation within which railroads had
high market shares and in one case were earning suf-
ficiently high r/ve to subject them to regulation. For
these commodity groups the Conrail study would not be
enough to support the Commission’s conclusion on market
abuse since its aggregated data cannot refute this more
specific evidence submitted by petitioners. In every one
ef these potentially problematic groups, however, the ICC
considered record evidence independent of the Conrail
study and concluded that railroads had no market domi-
nance or otherwise were not in a position to abuse market
power within any commodity group.
33a
The petitioners argue that the Commission ignored evi-
dence they submitted tending to show market dominance
in certain submarkets. See Joint Brief for Petitioners at
75-82. While we agree that there is some evidence in the
record tending to support their contentions about market
power as to certain commodities, we do not find it, on
review, compelling enough to render the Commission deci-
sion arbitrary and capricious. It is not our function to
secondguess the ICC on factual matters. See Alleghany-
Ludlum Steel, 406 U.S. at 749 (reviewing court is not to
weigh the evidence before the Commission). The ICC,
in its decision, drew on evidence of such factors as trans-
portation alternatives, trends in the transportation of
these commodities, shipper market power, etc., from
which it was reasonable to conclude that railroads either
do not dominate these submarkets or could not abuse any
market power they did have. See Boxcars I, 367 I.C.C.
at 436-40. Thus, despite the lack of the Conrail study’s
probativeness for the four potentially problematic groups,
the ICC had ample record evidence supporting its conclu-
sions as to rail carriers’ market power over transporta-
tion of commodities within these groups.
5. Conclusion as to rail carriers’ market power
In sum, we conclude that the ICC did not act arbitrarily
and capriciously in finding that rail carriers did not have
monopoly power in the market for transport of commodi-
ties shipped by boxcars. We are relying as well on the
Commission’s position that its authority to revoke the
exemption is an appropriate mechanism to correct any
post-exemption market abuse. See Boxcars I, 367 I.C.C.
at 440-41. This court has previously endorsed such an ap-
proach in approving promulgation of general rules, see, e.g.,
The Process Gas Consumers Group v. United States De-
partment of Agriculture, 694 F.2d 728, 745-46 (D.C. Cir.
1981) ; adopted en banc, 694 F.2d 778, 783 n.3 (D.C. Cir.
1982), cert. denied, 103 S. Ct. 1874 (1983), and we be-
lieve it especially appropriate here for three reasons.
34a
First, the ICC corsidered substantial evidence about par-
ticular commodities as well as commodity groups without
finding any monopoly power by railroads. Second, Con-
gress itself envisioned after the fact review to correct
isolated market abuses that may follow the lifting of pro-
tective regulations under section 10505(a). See Con-
ference Report, supra at 105, 1980 U.S. Code, Cong. &
Ad. News at 4137 (“conferees expect . . . that the Com-
mission will adopt a policy of reviewing carrier actions
after the fact to correct abuses of market power’).
Finally, counsel for the Commission assured us at argu-
ment that the ICC would seriously consider revocation of
the rate exemption and investigation of the boxcar freight
rates charged any shipper upon a demonstration that the
shipper .had no meaningful transportation alternatives
and r/ve for the rail carrier was sufficiently high to sub-
ject the rate to the Commission’s jurisdiction. In the ab-
sence of a showing by petitioners that the railroads en-
joy such market power over the transport of any specific
commudity, and assured by the Commission that it will
likely revoke the exemption with respect to any such com-
modities later identified, we refrain at this juncture from
disturbing the exemption of boxcar traffic from maximum
rate regulation.
C. The Scope of the Maximum Rate Exemption
Petitioners argue that because this exemption was so
much broader than those previously adopted by the ICC,
the Commission must therefore explain why it chose to
proceed in tie sweeping manner it did. See Joint Brief
for Petitioners at 82-83. As previously stated, we believe
that where Congress itself finds that generally continued
regulation is unnecessary and anticipates deregulation of
the entire railroad industry to the maximum extent pos-
sible in conformity with the national rail transportation
policy, the Commission need not make an exquisitely de-
tailed showing of why the broad scope of its exemption
was proper. In this case the Commission noted that “the
35a
premise of both the Railroau Revitalization and Regula-
tory Reform Act of 1976 (4R Act) [, Pub. L. 94-210,
90 Stat. 31 (1976),] and the Staggers Rail Act of 1980,
[Pub. L. 96-448, 94 Stat. 1895 (1980) ] was that trucking
competition had rendered continued railroad regulation,
to a large degree, both undesirable and unnecessary.”
Boxcars I, 367 1.C.C. at 427. It relied on this premise
and the fact that “the typical boxcar commodity is .. .
the same type of commodity that is typically transported
in motor carrier van trailers.” Jd. at 433. It was quite
reasonable then, for the Commission to conclude as it did
that a commodity-by-commodity approach would be un-
necessarily burdensome.
One petitioner, the Port of Oakland, however, attacks
the ICC’s authority to exempt all boxcar traffic, claiming
that this exemption covers more than “a person, class of
persons or a transaction or service,” the terms Congress
used in section 10505(a). See Supplemental Brief of
Petitioner Board of Port Commissioners at 8-9. The Port
attempts to set up a distinction between a “service,”
which the ICC can exempt from regulation, and a “trans-
portation,” which the Port argues includes non-service
activity that the ICC cannot exempt. The Port points to
the Interstate Commerce Act’s (ICA) definition of “trans-
portation” to support this distinction. The ICA defines
“transportation” [to] include—
(A) ... equipment of any kind related to the
movement of passengers or property...
(B) services related to that movement, includ-
ing receipt, delivery, elevation, transfer in tran-
sit, refrigeration, icing, ventilation, storage,
handling, and interchange of passengers and
property.
49 U.S.C. § 10102(25). The Port argues that the blanket
exemption of boxcar transit is not. an exemption of 4
“service” because, under that definition, a service involves
activity ancillary to the movement of freight, but does not
36a
include the actual movement itself. Because the boxcar
exemption involves rates for movement of freight, the
Port says it is an exemption of “transportation,” which
it sees as a much broader classification than the “service”
alluded to in section 10505 (a).
We find the Port of Oakland’s position also to be with-
out merit. At the outset we note that the ICA does not
separately define “service.” While the ICA definition of
“transportation” is broken down into “equipment” related
to the movement of freight and “services” related to that
movement, it is actually silent as to whether the move-
ment of freight is itself a “service.” On the other hand,
the legislative history makes it quite clear that Congress
envisioned exemptions of movements, like that here, under
section 10505(a). The House report on the Staggers Act
explicitly approved the ICC’s efforts under the narrower
pre-Staggers Act exemption provision to exempt “the car-
riage of fresh fruits and vegetables... and... trailer-
on-flat-car traffic’ from regulation. H.R. Rep. No. 1035,
96th Cong., 2d Sess. 60, reprinted in 1980 U.S. Code,
Cong. & Ad. News 3978, 4005. Neither fruit and vege-
thble transport nor TOFC traffic fit into the Pori’s nar-
row interpretation of the term “service.”
We are supported in our reading of section 10505 (a)
as authorizing exemption of boxcar carriage by American
Trucking Associations, 656 F.2d at 1120-21, which af-
firmed the ICC’s exemption of TOFC carriage from all
regulation under section 10505(a). The Port argues that
the TOFC exemption was within the ICC’s authority only
because Congress specifically authorized exemptions of
intermodal transportation in 49 U.S.C. § 10505(f). But
American Trucking Associations viewed the special treat-
ment of intermodal transportation in section 10505(f)
as a clarification that such exemption of such transporta-
tion is authorized by the general provision of section
10505(a), and it specifically re.ied on the latter section
as “the source of the Commission’s authority to grant
37a
[the TOFC] exemption... .” Jd. at 1120. Given the
ambiguity of the language of section 10505(a) in the
face of its clear legislative history, and given further the
persuasive view of the Fifth Circuit in American Truck-
ing Associations, we hold that the Commission acted with-
in its lawful authority in exempting freight boxcar rates
from regulation.
III. JOINT RATES AND 11..20UGH ROUTES
In exempting boxcar transit from rate regulation, the
Commission also exempted railroads from the statutory
provisions dealing with “joint rates” charged for boxcar
service over “through routes.” See 49 U.S.C. $§ 10705,
10705a, 10707. A through route is one in which two or
more rail carriers participate with each carrier trans-
porting, a shipment over part of the route. A joint rate
for that through route is a single rate charged by the car-
riers that together carry a shipment over the route. “In
contrast to ‘combination rate’ service, ‘» which each car-
rier collects its charges separately, in ‘joint rate’ service,
the delivering carrier bills and collects for all participat-
ing carriers and payments are divided among the par-
ticipants according to a ‘division’ formula [that the par-
ticipants agree upon prior to setting the joint rate].”
Ford Motor Co. v. ICC, 714 F.2d 1157, 1159 (D.C. Cir.
1983).
Prior to the ICC exemption, two statutory provisions
governed modification and cancellation of joint rates for
boxcar transit. See 49 U.S.C. §§ 10705, 10705a. If a car-
rier elects to modify or cancel a joint rate under section
10705(e), it has to file its new tariff or cancellation 10
or 20 days prior to the effective date of the change, see
49 U.S.C. § 10762(c) (3), and the Commission reviews
the filed tariff or cancellation to ensure it complies with
the ICA (as amended). See 49 U.S.C. § 10707. As this
court previously noted, a carrier proceeding under section
10705(e) “takes the chance that the ICC might suspend
38a
[the tariff] under section 10707.” Southern Railway Co.
v. ICC, 681 F.2d 29, 82 (D.C. Cir. 1982). If the ICC does
suspend the tariff, the filing carrier has to show, in a full
evidentiary proceeding, that the change or cancellation of
the joint rate is in the public interest.
If the carrier elects to proceed under section 10705a,
upon 45 days notice, see 49 U.S.C. § 10705(a) (f) (2),
it can add a surcharge to or cancel a joint rate if its
revenue from the joint rate is less than 110% of the
variable cost of providing service over its portion of the
route. See 49 U.S.C. § 10505a(1) (A). The carrier, how-
ever, has no right under section 10705a to impose a sur-
charge in such a manner that it receives more than the
110% threshold figure, or even to cancel a rate if its co-
participant counters with a revenue division that ensures
the cancelling carrier a 110% return. If it tries to do so,
the Commission either sua sponte or upon protest by other
participating carriers may impose a new joint rate that
grants the surcharging or cancelling carrier his 110%
return. See 49 U.S.C. §§ 10705a(a) (2) ¢ 10705a(c) (2),
(3), (6). In addition, section 10705a provides special
protections for class III railroads that include the right
to challenge a surcharge or cancellation as adversely af-
fecting competition. See 49 U.S.C. § 10705(i(1). If the
Commission determines that the public interest requires
a return below the 110% threshold to avoid anticompeti-
tive action and to maintain service on the route, it may
order the carrier to provite such unprofitable service.
See 49 U.S.C. § 10705 (i) (2).
Since the exemption went into effect, carriers have been
free te cancel or modify joint rates for boxcar transport
as they see fit. They thus have been relieved of any obli-
gation to provide prior notice of changes and to file
changes with the ICC. In addition, to the extent sections
10705(e) and 10705a give other participating carriers
aright to challenge changes in joint rates, the exemption
extinguishes such rights. In short, while sections 10705
-
39a
(e) and 10705a give carriers “no unfettered right of im-
mediate joint rate cancellation [or modification],” South-
ern Railway, 681 F.2d at 34 n.11, the exemption gives
them precisely such a right.
A. The Commission Decision
The ICC briefly discussed the exemption of joint rates
from regulation in its initial decision. It responded to
comments that joint rate exemption would allow elimina-
tion of joint rates and closing of through routes in dero-
gation of the national rail transportation policy “to en-
sure the development and continuation of a sound rail
transportation system with effective competition among
rail carriers ... ,” 49 U.S.C. § 10101a(4), and “to fos-
ter sound economic conditions in transportation ... ,”
49 U.S.C. §10101a(5). The Commission first noted,
“[t]here is no reason to expect that an exemption would
lead to cancellation of all joint boxcar rates.” Boxcars I,
361 I.C.C. at 444. It reasoned that a carrier would have
no incentive to “insist on a division of profits so dispro-
portionate as to force the other [carriers] to withdraw
from the movement . . . [as that would] forfeit the traf-
fic for [all participating] carriers.” Jd. In the next para-
graph, however, it essentially admitted that such incen-
tives exist since “route closings might occur if a carrier
wishes to close routes that involve long hauls over the
lines of connecting railroads in order to concentrate traf-
fic on routes that involve long hauls over its own lines.”
Id. In essence, the Commission recognized that where a
carrier’s own route competed with the through route it
might benefit from closing the through route since that
would reduce intramodal competition. The Commission
dismissed this possibility by a single cryptic remark that
“[n]onetheless, it is unlikely that a carrier acting in an
economically rational manner would close efficient
routings.” Id,
In its decision denying reconsideration of the boxcar
exemption, the ICC again addressed the exemption of
40a
joint rates from regulation. See Boxcars II, 367 I.C.C.
at 753-54. There the Commission focused on the concerns
of class III carriers that the exemption was inconsistent
with the protections for small railroads contained in 49
U.S.C. § 10705a, which allows carriers under limited cir-
cumstances to add surcharges to or cancel joint rates.
The Commission first stated that its joint rate exemp-
tion did not open small railroads to abuses against which
49 U.S.C. §10705a protected. It noted that section
10705a was merely a shortcut to allow railroads that can
support certain claims of nonprofitability to quickly im-
pose a surcharge on or cancel particularly unprofitable
joint rates. The ICA (as amended) provides an alterna-
tive ground for a carrier to cancel joint rate that the
carrier can show is not in the public interest. See 49
U.S.C. § 10705(e). The ICC pointed out that under this
provision, a carrier could cancel almost any inefficient or
unprofitable rate, and reasoned that the exemption of
joint rate regulation merely allowed such cancellations to
occur without administrative delay and expense. Boxcars
II, 367 1.C.C. at 758 & n.23. The Commission also noted
that the specific provisions of section 10705a do not pre-
vent the exemption of joint rates from regulation. Jd. at
753. The whole point of the exemption provision was to
eliminate the requirements of such provisions once the
ICC shows they neither further rail transportation policy
nor protect shippers from market abuse.
The Commission went on to explain why it believed
the joint rate exemption would not harm class III car-
riers. It stated:
Boxcar traffic is especially subject to diversion to
other modes and consequently will not bear excessive
rate increases. What matters to the shipper is the
origin-to-destination rate, not the size of the con-
necting railroad of origin or destination. In other
words, after excessive rate increases on boxcar traf-
fic, diversion would take place regardless of whether
4la
the traffic moved jointly with a class III railroad or
moved solely on a class I [i.e., large] railroad. This
gives long haul class I railroads an incentive to hold
down rates that they would charge for transporta-
tion to junctions with class III carriers in the ab-
sence of joint (single factor) rates for the origin to
destination movement.
Boxcars II, 367 1.C.C. at 753-54. In essence, the Commis-
sion noted that intermodal competition puts some cap on
the rate a large carrier will set for its portion of transit
in which a small carrier also participates. The Commis-
sion further reasoned that the exemption of boxcar traf-
fic generally would attract bor-ar traffic from shippers,
and the benefits of this increased traffic would inure to
small and large carriers alike. Jd. at 754.
In Boxcars II, the ICC also repeated its assertion that
large carriers would cancel only inefficient routes, this
time explaining that “[c]arriers cannot afford the luxury
of preserving inefficient routes when competitive pres-
sures force them to reduce costs as much as possible.”
Id. at 754. The ICC was satisfied that the exemption was
consistent with the rail transportation policy because it
would result in no cancellations of ,efficient through routes.
The ICC revisited the joint rate exemption one final
time in Boxcars III. There it briefly repeated, without
elaboration, its determinations that carriers will not can-
cel efficient joint routes, and that therefore small carriers
will not suffer from the joint rate exemption. Bozcars
IIT, slip op. at 6.
B. Carrying Out the Rail Transportation Policy
Petitioners contend that before the ICC concludes that
a particular provision of the ICA is “not necessary” to
carry out the rail transportation policy at 49 U.S.C.
$10101a, it must consider why Congress adopted the
provision in the first place. See Joint Brief of Petitioners
at 37. They claim that the Commission did not adequately
42a
consider the balance Congress struck in section 10705a,
“a key objective of which was to protect small railroads
against anticompetitive actions by large carriers.” Jd. at
38. At least in this case we believe that the Commission
must consider the relationship between section 10705a
and the national rail transportation policy as well as the
exemption provision invoked here. Such consideration is
mandated by the Staggers Act itself which requires the
ICC to consider whether regulation is needed to further
the transportation policy set out in the Act. Additionally,
the legislative history shows that section 10705a, adopted
at approximately the same time and as part of the same
Act which contains both the transportation policy in sec-
tion 10101a and the exemption authorization in section
10505a, was specifically designed to address one of the
components of the rail transportation policy set out in
section 10101a, i.e., “the development . . . of a sound rail
transportation system ... .” The Commission counters
that it has indeed considered the interests of small rail-
roads and concluded that large carriers will not divert
traffic from efficient through routes in which small car-
riers participate. It further asserts that this is all the
rail transportation policy requires. We finc. however,
that the legislative history of these three provisions
clearly demonstrates that Congress anticipated that the
ICC would engage in a far broader and more thorough
inquiry into the need for continued joint rate regulation
before granting a total and unconditioned exemption of
joint rates from any oversight or reguation.
1. Incentives for large carriers to close efficient
routes
The first problem with the ICC joint rate exemption is
the Commission’s failure to adequately explain its crucial
assertion that large long-haul carriers will not close off
efficient routes of small short-haul carriers. After ad-
mitting that large carriers have an incentive to close off
efficient competing routes to gain monopoly power over
——
43a
a haul from a given origin to a given destination, it sim-
ply dismissed this possibility as unlikely. 367 I.C.C. at
444. Such bald assertions do not qualify as reasoned
decisionmaking. The government’s brief, attempting to
fill this reasoning gap, explained that in such a monop-
olization situation where “a carrier seeks to foreclose
a smaller carrier from markets it [the small carrier]
could serve as part of an efficient route, antitrust remedies
are available.” Brief for Respondent at 63. The ICC it-
self, however, nowhere mentioned antitrust remedies
either as a deterrent to such monopolizing or as an after-
the-fact remedy that would correct such abuses by large
carriers. We therefore must reject the argument in the
government’s brief as a post hoc rationalization of coun-
sel and not the Commission’s reason. See Airbags, 103
S. Ct. at 2780.
Even if we a‘ .uded counsel’s argument, however, our
perusal of the .egislative history of the Staggers Act
creates doubt that merely noting the existence of the anti-
trust laws sufficiently satisfies the Commission’s statutory
burden of making a finding that large carriers will not
try to drive class III railroads from providing service
over efficient routes. Under pre-Staggers Act law, the
Commission had authority to investigate all joint rate
changes and cancellations in order to ensure they were
in the public interest. See Southern Railway, 681 F.2d at
33-34 & n.11. Presumably, cancellations that significantly
reduced competition over a particular haul would not be
approved. When Congress enacted section 10705a, which
took away the Commission’s authority to review certain
joint rate cancellations, it was careful to preserve a
mechanism by which class III railroads could challenge
the cancellation before the Commission as anticompeti-
tive. It did so “to avoid the need and burden of complex
litigation that might arise out of the need for class III
carriers to resort to the antitrust laws, although an avail-
able alternative, if they feel a carrier is engaging in anti-
44a
competitive activities.” H.R. Rep. No. 1035, 96th Cong.,
2d Sess. 64, reprinted in 1980 U.S. Code, Cong. & Ad.
News 3978, 4009. It is thus clear that Congress itself
rejected the mere existence of antitrust remedies as a
justification for removing the Commission’s authority to
review joint rate cancellations.
We do not mean to suggest that the antitrust remedies
are therefore irrelevant to the Commission’s inquiry into
the need for joint rate regulation. If the Commission had,
for example, shown that the types of monopolistic prac-
tices which the joint rate exemption might permit are in
fact antitrust violations not likely to result in suits in-
volving difficult questions of proof and long drawn out
trials, antitrust remedies might negate the need for con-
tinued regulation. But neither the ICC nor its counsel
made any such showing which would convince us that it
considered factors beyond those which Congress clearly
thought insufficient to justify deregulation of joint rates.
2. Division of joint rates
The second and even more fundamental problem with
the ICC’s finding that regulation of joint rates is not
needed to carry out the rail transportation policy is the
Commission’s assumption that the policy is satisfied as
long as efficient routes are not cancelled or forced out of
service. The ICC apparently conceded that large long-
haul carriers may have monopoly power over small short-
haul carriers where the only alternative to the through
route involving the small carrier is via the large carrier
lines: See Bowcars I, 367 I.C.C. at 444; Brief for Re-
1 This apparent concession is not inconsistent with the Com-
mission’s general determination, affirmed above, that railroads
do not have monopoly market power vis-a-vis shippers. The
latter finding is addressed only to the existence of undue mo-
nopoly power stemming from the lack of competitive alterna-
tives for shippers; it does not encompass an assumption that
rail transportation operates in a perfectly competitive market
where all railroads’ costs (including reasonable returns on
45a
spondents at 63 & n.39. It then reasoned that this poses
no threat to the smaller carrier, at least insofar as its
routes are more efficient than the large carrier’s compet-
ing routes, because the larger carrier can make more
profit by purchasing the service from the small carrier at
a price below its own cost. See Brief for Respondent at
63 n.39. The ICC, however, totally ignored the division
of profits likely to result in such a situation in the ab-
sence of joint rate regulation. At argument, counsel for
the petitioners pointed out that the large carrier could,
and probably would, use its monopoly power to usurp
profits that the smaller carrier deserves because it has
the more efficient route. It seems self-evident to us that
such use of monopoly power by large carriers to usurp
the efficiency gains of the smaller carrier would not com-
port with the_rail transportation policy of 46 U.S.C.
§ 10101a.
One of the key goals of the rail transportation policy is
“to ensure the development and continuation of a sound
rail transportation system with effective competition
among rail carriers.” 49 U.S.C. § 10101a(4). Repre-
sentative Madigan, a sponsor and floor manager of the
Staggers Act, in discussing the joint rate and surcharge
and cancellation provisions, emphasized that this goal
applied to small railroads as well as struggling large
railroads like Conrail:
One of the major purposes of this bill [the Staggers
Act] is to encourage the Development of short line
and feeder line railroads. Therefore we were par-
capital) equal their revenues. In other words, the finding of
no monopoly power vis-a-vis shippers does not, as the Commis-
sion itself reasoned, mean that railroads generally are not in
a position to reap and divide among themselves the rewards of
their operating efficiencies where such efficiencies exist. We
address in this section Congress’ concern that such deserved
rents be fairly appropriated between large and small carriers
participating in through routes.
46a
ticularly careful not to do anything which would
cause economic hardship to existing short line rail-
roads.
126 Cong. Rec. H5902 (daily ed., June 30, 1980). Con-
gress further recognized that “the matter of [joint rate]
divisions is extremely significant to the financial health
of individual carriers and groups of carriers operating
in various regions of the country.” S. Rep. No. 470,
96th Cong., 2d Sess. 9-10.
The Commission’s response that large carriers have no
incentive in the short run to drive more efficient small
carriers out of business simply fails to address Congress’
concerns that rail carriers receive enough revenue to pay
for efficiency increasing improvements and to encourage
further investment to keep the rail system healthy. A
small railroad whose profits are kept to the bare mini-
mum, by a large carrier to which it is captive, may have
little incentive or even capability to make efficiency in-
creasing improvements: even if it could afford them, any
increased profits it obtained from such improvements
would run the risk of being gobbled up by the profit
maximizing large carrier. Thus, while the ICC demon-
strated that the joint rate exemption would not result in
the short run destruction of short line railroads, it did
not even allude to Congress’ other main concern, 1.¢.,
that the division of revenue in joint rates would be such
as to encourage improvements in the system, and that
joint rate regulation was not needed for the long-term
health of the national rail system.
The precise problem that the ICC ignores was iden-
tified by Representative Lee, as the basis of provisions
he introduced into section 10705a explicitly to protect
short line railroads. He stated:
Most of my attention has been directed to section
301, joint rate surcharge and cancellations, because
that is the area where there is room for the greatest
mischief. I want to be clear, however, that it is our
47a
intent to promote development of class II and class
III carriers and other sections of this legislation are
not to be used by the Interstate Commerce Commis-
sion or any other entity in a fashion that intends an
adverse impact on one or more class II or class III
carriers. ...
As a general guideline, I will cite some examples
of the kinds of actions that would not be acceptable
as tools against class II and III railroads by class I
carriers. In this bill we broaden the exemption
clause creating a simpler standard. Jn no case should
the exemption clause be allowed in a circumstance
that would allow a large carrier to utilize its market
power to squeeze a smaller carrier on a joint rate
or division or to force a de facto cancellation. In
other words the exemption clause should never be
used to “end run” the joint rate provisions contained
in section 301... .
The above examples are by no means a complete
list. Simply put, we do not intend that the various
sections of this legislation be used so that the ex-
panded power and flexibility given large carriers can
be applied against class II and class III carriers in
an adverse fashion that would impair a smaller car-
rier’s ability to attain financial health.
126 Cong. Rec. H8553 (1980) (daily ed. Sept. 9, 1980)
(emphasis supplied). In light of Congress’ unquestion-
able concern that large carriers might unfairly squeeze
profits from captive small carriers, we find the ICC’s
total failure to address this highlighted issue renders in-
adequate its finding that small carriers will be protected
in the absence of regulation.
There are additional components of the rail transporia-
tion policy set out in section 10101a which undergird our
belief that the potential for abuse of mono,oly power
through joint rate divisions cannot be ignored by the ICC
in deciding whether to exempt joint rates from regula-
tion. The rail transportation policy, among other things,
48a
aims “to prohibit predatory pricing and practices...
and... unlawful discrimination,” 49 U.S.C. §10101la
(18). This antidiscrimination policy was meant to pro-
vide safeguards against “predatory practices which con-
stitute unfair competition. H.R. Rep. No. 1035, 96th
Cong., .d Sess. 54, reprinted in 1980 U.S. Code, Cong. &
Ad. News 3978, 3999. Certainly, it is unfair competition
for a large long-haul carrier to appropriate a captive
short-haul carrier’s joint rate profits that derive from
the smaller carrier’s efficiency by the threat of the larger
varrier’s monopoly power over the through route even if,
as the ICC predicts, the large carrier allows the small
carrier enough revenue to stay in business. Yet the ICC
totally disregarded the potential for such misappropria-
tion by focusing solely on whether the through route
would, in the short run, remain open.
The rail transportation policy also “encourage(s] .. .
the elimination of noncompensatory rates for rail trans-
portation.” 49 U.S.C. §10101a(10). The Commission
relied on this goal for compensatory rates—tying rail
revenues from a movement to the costs of that move
ment—to justify its conclusion that cancellation of in-
efficient routes comports with the rail transportation pol-
icy. See Boxcars II, 367 1.C.C. at 754 & n.24. The Com-
mission failed to recognize, however, that the goal of
compensatory rates is a two-edged sword: it not only
aims to allow railroads to cover the costs of a movement
(including an adequate return on capital), but it also
contemplates that railroads will not be allowed to gain
disproportionate returns by use of monopoly power over
that movement. In fact, it was just such a fear of
dominant carriers’ ability to use monopoly power to ex-
tract exhorbitant rates that inspired the inclusion of “the
elimination of noncompensatory rates” as part of the
rail transportation policy. The amendment which be
came subsection (10) was added to section 10101la on the
House floor by Representative Eckharct, who stated:
49a
the spirit of the Four-R Act [Railroad Revitaliza-
tion and Regulatory Reform Act of 1976, Pub. L.
No. 94-210, 90 Stat. 31 (1976)] was to encourage
honest and efficient management of railroads and in
particular the elimination of noncompensatory rates
for rail transportation. It was not merely to give
more money to railroads or to permit railroads a
greater leeway in charging all that the market would
bear in a monopoly situation... .
It seems to me that we should make it absolutely
clear in this act, in the policy section of the act,
that we do not retreat from that proposition.
126 Cong. Rec. H6003 (daily ed., July 2, 1980) (explain-
ing his amendment to include section 10101a(10) in the
rail transportation policy) (emphasis supplied). We be-
lieve, accordingly, that the Commission cannot properly
justify its decision as to joint rate exemption by relying
exclusively on one edge of the compensatory rate goal—
allowing carriers to cover their costs—while ignoring en-
tirely the other edge—preventing monopoly carriers from
charging rates that produce an unreasonable return for
their costs.
Because, therefore, the ICC failed to fully consider the
ability of large carriers to gain unfair joint rate divi-
sions by using monopoly power over carriers whose par-
ticipation in through rates is captive to this monopoly,
we remartd the rate exemption as it applies to joint rates.
It is perhaps useful at this point to offer a word of
additional explanation as to the different conclusions we
have reached on the ICC’s justification for its general
rate exemptions and for joint rate exemptions. With
respect to maximum rate exemptions generally, .e ICC
acted broadly to deregulate a particular form ~- trans-
portation on the ground regulation was not necessary to
effectuate any transportation policy. We sustain that
action on the basis of general transportation data in the
record relied upon by the Commission, concluding that
50a
the ICC need not prove its case on a commodity-by-com-
modity basis. At the same time, we rely on the ICC’s
admitted duty to monitor particular transportation mar-
kets and movements, and to correct abuses of market
power brought to its attention after the fact. On the
other hand, with respect to joint rates, we have found
that even using the same broad lens for review, the ICC’s
basic decision is not supported by adequate consideration
of relevant factors. See ILGWU, 722 F.2d at 822 ( “agen-
cies can [not] ignore important factors in making predic-
tions”). The Commission, in its decision, must demon-
Strate that “it identified al! relevant issues, [and] gave
then thoughtful consideration duly attentive to comments
received.” Telocator Network v. Federal Communications
Commission, 691 F 2d 525, 545 (D.C. Cir. 1982) ; see also,
Citizens to Preserve Overton Park, Inc. v. Volpe, 401
U.S. 402, 416 (1971); Ritter Transportation Co. v. ICC,
684 F.2d 86, 88 (D.C. Cir. 1982), cert. denied, 103 S. Ct.
1272 (i983) ; Action for Children’s Television v. Federal
Communications Commission, 564 F.2d 458, 478-79 (D.C.
Cir. 1977) (agency must take a “hard look” at the rele
vant issues). With respect to * .: rates, the text and
legislative history of the Staggers Act demonstrate that
Congress thought a fair division of joint rates was an
important means of carrying out the rail transportation
policy. The Commission’s total failure to consider the ef-
fect of joint rate exemption on this division was therefore
arbitrary and capricious.
IV. CaR HIRE DECISION
A. Background
The next focus of the Commission’s Boxcars decisions
is car hire—the rentals that boxcar owners ( originating
carriers) receive from the carriers that own the tracks
over which the boxcars travel (destination carriers) .?
* The categories “destination carriers” and “originating car-
riers” are not mutually exclusive. Because most carriers own
5la
The car hire decision is the Commission’s response to the
presence of certain indicia of economic inefficiencies in
the boxcar market. For example, railroads have ineffi-
ciently devoted substantial resources to the unnecessary
movement of empty boxcars. Indeed, the movement of
empty boxcars has increased despite a decrease in the
movement of loaded boxcars: although loaded car-miles
for boxcars decreased by 238 million miles in 1980, empty
car-miles increased by 226 million miles for the same
period. Reply Comments of Consolidated Rail Corp. Veri-
fied Statement of Professor Alain L. Kornhauser, Figure
12. Moreover, the current supply of boxcars exceeds the
existing demand, possibly by a margin of 75,000 excess
boxcars. See Commission Brief at 8. From 1970 to 1980,
the size of the national boxcar fleet increased by seventy-
two percent even though the number of boxcar loadings
decreased by four percent. Comments of Consolidated
Rail Corp., Vol. I., Verified Statement of Emmitt Posey
at 9. See also Boxcars I, 367 I.C.C. at 452. And finally,
there is some evidence that the car hire rates received by
boxcar owners can continue to rise, at least theoretically,
during periods when there is a surplus of cars. Boxcars
I, 367 LC.C. 448 & n.43.
Prior to the Boxcars decisions, the originating carrier
received car hire (also known as per diem) for each day
that its boxcars were on the tracks of another carrier.
some boxcars, today’s destination carrier may be tomorrow’s
originating carrier. ;
Moreover, for the purposes of our discussion and analysis of
this issue, we will follow the lead of the petitioners and of the
Commission and will use the label “originating carriers” to
designate carriers that own their boxcars and carriers that
lease their boxcars from companies that are not carriers. Such
a single classification reflects the fact that none of the peti-
tioners argued, much less demonstrated, that, as regards box-
car movements, the economic incentives under discussion, see
infra, would have a different influence on the decisions of
carrier-owners than on the decisions of carrier-lessees.
52a
The per diem formula adopted by the Commission dis-
tributed costs evenly over the days that the car was in
use. The destination carrier, which had to permit the
boxcars’ access to its tracks, could not charge the origi-
nating carriers for the cost of moving the boxcars. The
Commission justified this allocation of costs to the desti-
nation carrier on the policy that the destination carrier
received substantial benefits, both direct and indirect,
from the movement of loaded private boxcars over its
lines, and that the car hire costs represented part of the
expense of providing the transportation services required
for the movement of freight. See generally Indiana Har-
bor Belt Railroad Co. v. General American Transporta-
tion Corp., 577 F.2d 394, 398-401 (7th Cir. 1978).
The Commission’s Boxcars decisions altered some as-
pects of the car hire structure. Not affected, however,
was the basic underlying per diem framework; the desti-
nation carrier will continue to owe per diem for each day
that the originating carrier’s boxcars are on the destina-
tion carrier’s tracks. Moreover, the Commission retained
the power to establish per diem rates and to enforce
mandatory interchange requirements, reciprocal switching
requirements, joint terminal use requirements, and the
railroad’s common carrier obligations to supply boxcar
equipment to shippers for loading upon reasonable re-
quest. Boxcars I, 367 1.C.C. at 454-55. The modifications
nonetheless were significant.
The Commission authorized destination carriers to
charge originating carriers a storage fee, beginning
seventy-two hours after the boxcar is unloaded. This
storage fee is designed to offset the car hire that would
otherwise accrue during this period and accordingly may
not exceed the comparable per diem charges. Boxcars III
at 10 n.14. The Commission also allowed destination car-
riers to charge a fee, not exceeding thirty-five cents per
mile, for the return of empty boxcars, when the originat-
ing carrier requests such return. See, é.g., Boxcars I,
—_ —— a
53a
367 I.C.C. at 451. This thirty-five cents figure, adjust-
able for inflation, represents the typical variable cost of
handling an empty boxcar. Boxcars I, 367 I.C.C. at 451
n.46. Moreover, the Commission freed from all car hire
regulations, including those adopted in the Boxcars deci-
sions, carriers that enter bilateral agreements directed at
the use, storage, and movement of boxcars. Jd. at 451.
The Commission offered three principal justifications
for its car hire decision. First, the Commission suggested
that the car hire modifications will diminish incentives
to haul empty boxcars and thus will promote the efficient
movement of boxcars. The pre-Boxcars system, the Com-
mission reasoned, had created incentives for originating
carriers to load their own cars and to return the destina-
tion carrier’s cars empty. Greatly oversimplified, if an
originating carrier loaded its own car it could enhance
its revenue by the amount of car hire received for the
period that its car was off its lines. Any such benefit, of
course, would be offset by the cost of hauling the destina-
tion carrier’s boxcar empty. See generally Boxcars II,
367 I1.C.C. at 755 & n.27. Under this scenario, the desti-
nation carrier was largely powerless to affect the origi-
nating carrier’s loading decisions. The post-Boxcars sys-
tem, the Commission found, will reduce these incentives.
The primary assumption underlying this conclusion is
that once the destination carrier is empowered to impose
empty return charges and storage fees, the originating
carrier, not wanting to pay these charges, will be more
likely to enter into bilateral agreements. These agree-
ments will then lead to the more efficient movement and
use of boxcars. The Commission repeatedly emphasized
that the purpose of authorizing the empty return fee
and storage charge was to create an incentive for the
originating carrier to enter such bilateral agreements,
that the possibility that the destination carrier will im-
pose such charges will prod originating carriers into en-
tering agreements. See, e.g., Boxcars II, 367 I.C.C. at
763.
54a
The Commission, however, appreciated that bilateral
agreements are not inevitable and that in some situations
the storage fees and empty return charges will be more
than an idle threat. In those situations, the Commission
reasoned, the originating carrier will attempt to avoid
the new charges by returning the destination carrier’s
cars loaded instead of using its own cars. Yet even if the
originating carrier can take no steps to enhance the effi-
ciency of boxcar movements (i.e. if there are no boxcars
belonging to the destination carrier available), these
charges are proper, the Commission argued, since the
costs of moving the originating carrier’s cars should be
borne by the originating carrier. “If the short lines
[originating carriers] cannot or will not load returning
foreign cars instead of their own cars which would then
be returned empty, at least they should pay for the empty
returns that their practices necessitate.” Boxcars II, 367
I.C.C. at 763. As the Commission’s counsel indicated at
oral argument, the originating carrier could thus inter-
nalize its costs and, presumably, could make more effi-
cient economic decisions.
The Commission also argued that its “new” system of
car hire will help eliminate the current boxcar surplus
since the “old” system had created “at least the illusion
of a guaranteed return on investment, encouraging in-
vestors to acquire cars without regard to the adequacy
of the existing car fleet.” Jd. at 756. The new car hire
package allegedly will erase this “illusion” of guaran-
teed returns.
B. Analysis
Petitioners raise several challenges to the Commission’s
car hire package. The petitioners argue that the car hire
“exemption” contained in the Boxcars decisions is, in
fact, not an exemption and that the Commission therefore
exceeded its authority under section 10505(a); that the
car hire “exemption” violates that statutory provision
55a
which addresses the compensation levels for the use of
boxears, 49 U.S.C. 11122 ( Supp. V 1981) (see infra) ;
and that the Commission’s findings that the rules will
yield substantial benefits are unsupported in the record.
We agree with petitioners’ first argument and thus do
not need to reach the other car hire issues.
Petitioners vigorously argue that the Commission ex-
ceeded its statutory authority under section 10505( a)
and improperly adopted something akin to a new regula-
tion. Significantly, the Commission initially shared the
petitioners’ concern that section 10505(a) was an inade-
quate basis for its car hire decision.
Our order . . . is a partial exemption from regula-
tion subject to conditions. We recognize, however,
that it could be construed in some respects as being
new regulation. To allay any doubt about the suffi.
ciency of section 10505(a) as authority for our ap-
proval of Conrail’s modified proposal, we shall take
this action also under section 11122.
Boxcars I, 367 I.C.C. at 456. See also id. at 464 n.63
(Chairman Taylor, dissenting) (“This proposal, which
will authorize the authority to assess charges at certain
levels and to store empty cars while reclaiming car ren-
tal charges, is a regulation—not an exemption.”). Sec-
tion 11122, relied on by the Commission, addresses car
hire rates and sets forth the factors that the Commis-
sion should consider in determining the level of car hire
compensation.
(a) The regulations of the Interstate Commerce
Commission on car service shall encourage the pur-
chase, acquisition, and efficient use of freight cars.
The regulations may include—
(1) the compensation to be paid for the use of a
locomotive, freight car, or other vehicle;
(2) the other terms of any arrangement for the
use by a rail carrier of a locomotive, freight car, or
56a
other vehicle not owned by the rail carrier using the
locomotive, freight car, or other vehicle, whether or
not owned by another carrier, shipper, or third per-
son; and
(3) sanctions for nonobservance.
(b) The rate of compensation to be paid for each
type of freight car shall be determined by the ex-
pense of owning and maintaining that type of freight
ear, including a fair return on its cost giving con-
sideration to current costs of capital, repairs, ma-
terials, parts, and labor. In determining the rate of
compensation, the Commission shall consider the
transportation use of each type of freight car, the
national level of ownership of each type of freight
car, and other factors that affect the adequacy of
the national freight car supply.
49 U.S.C. § 1112 (Supp. V 1981).
In Boxcars II, however, the Commission realized that
reliance on section 11122 would render its initial notice
and comment procedures inadequate and thus, in apparent
fear of jeopardizing its decision, disavowed any reliance
on that section. Boxcars II, 367 I.C.C. at 759. For the
remainder of its decisions, and in its representations to
this court, the Commission has steadfastly emphasized
that its car hire package is a “partial exemption from
regulation subject to conditions.” As the Commission ex-
plained:
[The decision] is an exemption because it allows
carriers to take actions that are inconsistent with
the terms of compensation that we prescribe for
freight car use under 49 U.S.C. 11122. The exemp-
tion is partial because it allows only specified types
of departures from the prescribed terms. The ex-
emption is subject to conditions in that carriers may
not exceed certain limits in exercising it.
Id.
The Commission’s argument that it is empowered to
adopt either partial or complete exemptions from regula-
57a
tions is clearly correct. That Congress intended the Com-
mission to have this power is evidenced in the legislative
history of the Staggers Act. For example, the House
Conference Report provided: “The conferees expect that,
consistent with the policies of this Act, the Commission
will pursue partial and complete exemptions from re-
maining regulation.” H.R. Rep. No. 1430, 96th Cong.,
2d Sess. 105, reprinted in 1980 U.S. Code Cong. & Ad.
News 4110, 4137 (emphasis added). See also H.R. Rep.
No. 1035, 96th Cong., 2d Sess. 60, reprinted in 1980
U.S. Code Cong. & Ad. News 3978, 4005 (“a person or
transaction may be exempted from one or more provi-
sions of Subtitle IV”) (emphasis added). Moreover, we
previously have recognized that the Commission need not
deregulate at one fell swoop. In Simmons v. ICC, 697
F.2d 326 (D.C. Cir. 1982), we noted: “Given the clear
congressional intent to grant the Commission regulatory
flexibility, we hold that the Commission has authority
under section 10505 to order a partial exemption from
Commission regulations ....” Jd. at 334.
To hold that the Commission may grant either com-
plete or partial exemptions pursuant to section 10505 (a)
is not to huld, however, that the Commission has unfet-
tered authority under that section. The plain language
of the statute reveals that Congress envisioned section
10505(a) as an avenue to decreased regulation. Indeed,
section 10505(a) gives the Commission the power to ez-
empt persons, services or transactions from regulations.
Clearly, the plain meaning of the word “exempt” con-
notes a lessening of regulation, a decrease in regulatory
burdens. Cf. Maine Water Co. v. City of Waterville, 93
Me. 586, 45 A. 830, 833 (1900) (“The term ‘exemption’
implies a release from some burden, duty, or obliga-
tion.”) ; Davidow v. Jenks, 48 N.Y.S.2d 586, 588 (N.Y.
Sup. Ct. 1944) (“Exempt means to release, discharge,
waive, relieve from liab‘lity.”). The notion behind de-
regulation is that parties should be allowed to work out
58a
their economic relationships as they see fit, free from
government oversight. In the absence of any contrary
congressional intent, that plain meaning guides our de-
cision. See, e.g., Bread Political Action Committee v.
FEC, 455 U.S. 577, 580 (1982) (“‘[a]bsent a clearly
expressed legislative intention to the contrary, [the statu-
tory language] must ordinarily be regarded as conclu-
sive.’ ’’) ; Addison v. Holly Hill Fruit Products, Inc., 322
U.S. 607, 618 (1944) (“[L]egislation when not expressed
in technical terms is addressed to the common run of
men and is therefore to be understood according to the
sense of the thing, as the ordinary man has a right to
rely on ordinary words addressed to him.”) ; Inner City
Broadcasting Corporation v. Sanders, 733 F.2d 154, 158
(D.C. Cir. 1984) (“Unless contrary indications are pres-
ent, a court can assume that Congress intended the com-
mon usage of [statutory terms] to apply.”).
The legislative history of the Staggers Act strongly
supports this reading of the word “exempt” and indi-
cates that Congress envisioned the Act, in general, and
section 10505(a), in particular, as empowering the Com-
mission to remove regulations and to introduce market
factors into the rail industry. In the Senate, Senator
Cannon noted: “The emphasis in both [the Senate and
House] bills is the elimination of needless regulation and
greater reliance on the market place where there is effec-
tive competition.” 126 Cong. Rec. S14002 (daily ed.
September 30, 1980) (emphasis added). In the House,
Congressman Florio, a leading supporter of the Staggers
Act and floor manager of the bill, described the Act in
tne following terms: “We are trying to deregulate. We
want the marketplace to make the determinations in the
rail industry.” 126 Cong. Rec. H8606 (daily ed. Septem-
ber 9, 1980) (emphasis added). And during the House’s
consideration of the Conference Report, Congressman
Staggers noted that “(t]he exemption authority has been
59a
carefully drafted to limit regulation to the bare essen-
tials necessary to protect against abuses of market
power.” 126 Cong. Rec. H10085 (daily ed. September 30,
1980) (emphasis added). See also id. at H10083 (com-
ments of Congressman Madigan) (“I should also point
out that the conferees accepted the exemption provisions
of the House bill which permit the Commission to ex-
empt from iaw or regulation any of the regulated activi-
ties of railroads which it deems to be warranted in the
future.”) (emphasis added). See generally 126 Cong.
Rec. H6409-12 (daily ed. July 24, 1980) (suggesting that
the purpose of the Staggers Act is deregulation and not
re-regulation). ™
That Congress envisioned section 10505(a) as author-
izing deregulation is further evinced in the Conference
Report.
The policy underlying this provision is that . . . the
Commission is more capable through the adminis-
trative process of examining specific regulatory pro-
visions and practices . . . to determine where they
can be deregulated consistent with the policies of
Congress. . . . Particularly, the conferees expect that
as many as possible of the Commission’s restrictions
on changes in prices and services by rail carriers
will be removed... .
Conference Report, supra, at 105, 1980 U.S Code Cong.
& Ad. News at 4137 (emphasis added).
We thus hold that the Commission’s power under sec-
tion 10505(a) is limited to the power to deregulate; to
remove regulatory burdens and to allow the marketplace
to influence decisions in the rail industry. This reading
is supported by the plain meaning of the section and by
its legislative history. Moreover, any other reading would
give the Commission carte blanche to rewrite the Inter-
state Commerce Act under the umbrella of its exemption
powers. That is, the Commission could invoke section
10505(a) as the authority both for exempting a section
60a
and for then re-regulating the industry under a com-
pletely different format. This would clearly exceed the
powers granted to the Commission under section
10505 (a)
We thus squarely face the difficult issue of deciding
whether the Commission’s car hire actions constitute a
permissible partial deregulation or an impermissible re-
regulation under the guise of section 10505(a). When
we direct our focus at the impact that the car hire deci-
sions will have and at the objectives that the Commission
seeks to achieve, we become convinced that the Commis-
sion here was not deregulating, but rather was imposing
a new regulatory framework over the car hire relation-
ship. Accordingly, we conclude that the Commission’s
ear hire actions constitute an exercise of regulatory over-
sight that cannot be properly founded on section
10505(a). We therefore reverse the Commission on this
issue.
In allowing storage charges and return fees the Com-
mission, rather than merely deregulating, has altered the
relative bargaining positions of the carriers and has in-
fluenced the allocation of the benefits that will flow from
the cost savings associated with decreasing market in-
efficiencies. In its Boxcars decisions, the Commission, by
its own admission, placed two significant bargaining
weapons in the arsenal of the destination carrier. The
destination carrier was empowered to impose these
charges regardless of whatever other market factors
might be present, and regardless of how those market
forces might otherwise interact. At the same time, how-
ever, the Commission retained jurisdiction over the
amount of per diem, and thereby limited the originating
carrier’s ability to increase the rate of per diem in those
instances where that carrier otherwise would be in the
dominant bargaining position. Thus, in a situation where
the originating carrier would be in a relatively strong
bargaining position under unadulterated market forces,
6la
the Commission’s car hire decision gives the destination
carrier significant bargaining weapons and simultane-
ously deprives the originating carrier of the benefits it
could receive under a system of complete deregulation.
Thus, rather than leaving the contours of the car hire
relationship to the market, the Commission skewed the
initial economic relationship in favor of the destination
carrier.
That the Boxcars decisions altered the relative bargain-
ing positions of the parties, rather than redressing regu-
latory burdens, becomes evident when we focus on the
initial position of each party as it enters negotiations.
Prior to the Boxcars decisions, the originating carrier en-
tered negotiations against a background in which it had,
in essence, a statutory entitlement equivalent to the
amount of the per diem. The destination carrier had no
such entitlement and, in fact, confronted a situation in
which, absent agreement, it would have to bear the cost
of returning the boxcar. Under the Boxcars decisions,
the originating carrier enters negotiations against a back-
ground in which it has a statutory entitlement equivalent
to the amount of per diem. The destination carrier, how-
ever, now has a statutory entitlement equivalent to the
storage fees and the empty return charges. In striking
contrast, had the Commission actually deregulated car
hire, then neither party would enter negotiations with
a statutory entitlement and the market alone would es-
tablish the relative bargaining positions of the parties.
It thus becomes obvious that the Commission has shifted
entitlements to a point that represents neither deregula-
tion nor the pre-Boxcars design. Thereby, the Commis-
sion has fixed the initial relative bargaining positions
of the parties at a point that does not necessarily reflect
either the pte-Borcars scheme or what market factors
otherwise might dictate.
Examined in this light, it is clear that the Commis-
sion’s Boxcars decisions do not represent deregulation.
62a
When Congress adopted section 10505(a) it surely en-
visioned the elimination of statutory entitlements, not
the creation of new statutory entitlements, nor the af-
firmative rearrangement of old statutory entitlements.
Simply, while section 10505(a) permits the Commission
to deregulate, the Commission here dictated a substantial
component of the initial economic relationship that will
exist as the parties enter negotiations, regardless of the
alignment of any other market factors. Accordingly, we
must conclude that the Commission’s actions cannot be
characterized as a deregulation and thus cannot properly
be founded on its authority under section 10505(a), the
provision upon which it relied.
The Commission repeatedly attempts to deemphasize
the significance of the storage fees and empty return
charges on the grounds that the car hire provisions are
just incentives to bargain. See, e.g., Boxcars II, 367
I.C.C. at 763 (“We would emphasize that the imposition
of empty return charges is intended, not as the main tool
of exemption, but only as a last resort when carriers do
not reach agreements that otherwise reduce inefficient
loading.” ). Granting destination carriers additional stat-
utory entitlements vis-a-vis originating carriers under a
scheme of continued regulation, however, does not meta-
morphize into a deregulatory exemption simply because
it may encourage some carriers to enter bilateral agree-
ments that will dictate the terms for the use, storage,
and return of boxcars. Had the Commission’s decision
merely permitted bilateral agreements free from regula-
tory constraints, then this case, and its outcome, would be
far different. Here, however, the Commission specifically
maintained all existing car hire regulations and simply
clothed the destination carrier with the additional power
to impose the storage fees and empty return charges.
In addition to finding the Commission’s reliance on the
incentive to bargain rationale unpersuasive, we have
problems accepting the underlying premise of the Com-
—
63a
mission’s assertion that the storage charges and empty
return fees are in fact necessary to create an incentive
to bargain. The Commission’s premise is that the orig-
inating carriers will not enter agreements without these
incentives. The Commission, however, reached this con-
clusion in face of evidence submitt: J by the petitioners
that boxcar owners and originating carriers already are
entering bilateral agreements with destination carriers.
See, e.g., Boxcars II, 367 I.C.C. at 778 n.78 (Chairman
Taylor dissenting). Moreover, in the absence of exter-
nalities, whose existence the Commission never even al-
luded to, there is no theoretical reason to believe that
boxcar owners would not enter such agreements. Presum-
ably, if there are inefficiencies creating unnecer3ary costs,
the parties, inspired by the lure of larger profits, will
negotiate to save these costs regardless of their initial
bargaining positions. The Commission failed to address
why this logical presumption does not hold in the car
hire situation. We therefore cannot accept the ICC’s as-
sertion that the shift in statutory entitlements is neces-
sary to create incentives for carriers to enter bilateral
car hire agreements.
The car hire package strongly suggests to us that the
Commission’s car hire decision was motivated not by a
desire to induce private agreements, but rather by a de-
sire to reduce the current boxcar surplus by discouraging
new investment. Throughout its discussion, the Commis-
sion suggested that its car hire package will influence box-
car investment decisions. See, e.g., Boxcars I, 367 I.C.C.
at 453; see also Boxcars II, 367 I.C.C. at 773. By in-
troducing market factors into car hire, the Commission
contended, supply will be brought more into line with
demand. See, e.g., Boxcars II], 367 L.C.C. at 773. But
despite the Commission’s broad statements of an intent
to introduce market factors into car hire investment deci-
sions, the car hire package itself suggests that the Com-
mission was aiming at a particular result as regards box-
car investment decisions, regardless of how the market
64a
might develop in the future. That is, by exposing boxcar
owners to the possibility of storage fees and empty return
charges while simultaneously prohibiting owners from
freely setting car hire rates, the Commission severely
reduced the attractiveness of boxcar investments. These
disincentives to investments could continue indefinitely.
To the extent that the Boxcars decisions were aimed at
the particular result of discouraging boxcar investments
—as opposed to merely allowing the market to establish
the supply of boxcars—the Commission pursued a regu-
latory goal under the guise of deregulation. In other
words, a decision to introduce certain measures into the
marketplace to induce a particular desired response can
hardly be characterized as deregulation.
The Commission’s modification of the entitlements al-
ternatively may have represented a policy decision. In
fact, at oral argument the Commission’s counsel main-
tained that the car hire modifications were proper be-
cause sound economic policy dictates that the originating
carrier should internalize the costs of moving empty box-
cars, even in those situations in which the originating
carrier is powerless to correct the fact that empty box-
cars need to be moved. (For example, where because of
a geographic imbalance in trade flows, some empty cars
will always have to be moved). That the car hire deci-
sion may represent a policy choice, however, only bolsters
our conclusion that the Commission here in fact was not
deregulating. Deciding which party should bear the cost
of moving empty boxcars, regardless of market factors,
is not the stuff of deregulation; section 10505(a) was
not enacted as a means for the Commission to impose
new regulatory policies on the railroad industries.
We thus hold that the car hire component of the Bor-
cars decisions is not a deregulatory action. Instead of
allowing the market to determine the relationship be-
tween “suppliers” and “purchasers”, the Commission
embraced a system under which certain vital segments
65a
of that relationship were fixed and predetermined, re-
gardless of market forces. Accordingly, section 10505
(a), which only empowers the Commission to deregulate,
does not provide the statutory authority for the Com-
mission’s actions here.
Our conclusion is further supported by the presence of
another statutory section that could have provided an
adequate basis for precisely the type of car hire provi-
sion contained in the Commission’s Boxcars decisions.
As the Commission itself acknowledged in Boxcars I,
that other provision is section 11122, which addresses car
hire rates, and empowers the Commission to adopt and
implement car hire formulas. 49 U.S.C. § 11122 (Supp.
V 1981) (reproduced supra). Thus, section 11122 could
be an appropriate statutory foundation for the Commis-
sion’s decision to redetermine the car hire relationship,
as it attempted to do in its Boxrcars decisions. That the
Commission disavowed reliance on 11122 does not sug-
gest that this section is inapplicable since the Commis-
sion’s disavowal was motivated by procedural problems
rather than substantive defects. See Boxcars II, 367
L.C.C. at 759 (“We agree that the procedure followed
may raise substantive legal questions.”) (emphasis
added). Of course, were the Commission to act under
section 11122, it would have to comport with the require
ments imposed by that provision, see generally Consoli-
dated Rail Corp. v. United States, 619 F.2d 988 (3rd
Cir. 1980), and with any relevant administrative law
restrictions. We intimate no opinion, however, as to
whether the car hire rules promulgated in the Boxcars
decisions would be appropriate under section 11122.
The Commission vigorously argues that the car hire
components of its Boxcars decisions are nothing more
than a permissible “partial deregulation subject to condi-
tions.” The Commission’s primary support for this prop-
osition is Simmons v. Interstate Commerce Commission,
697 F.2d 326 (D.C. Cir. 1982). We find that case in-
66a
apposite. In Simmons, the Commission, pursuant to sec-
tion 10505, granted a partial exemption to state govern-
ments proposing to operate abandoned rail lines. The
Commission permitted state governments, through a
modified certification procedure to start and terminate
service without prior approval from the Commission. We
upheld the Commission’s action, reasoning that nothing
in the statute prohibited partial deregulation or re-
quired the Commission to “first wholly exempt a party,
after appropriate findings, and then make additional
findings in a separate proceeding to revoke partially the
previous exemption.” Jd. at 333. The Commission here
argues that Simmons involved a “partial deregulation
subject to conditions” similar to that which it adopted
in the Boxcars decisions.
We find this argument without force. The Commis-
sion’s action in Simmons was far different than the ac-
tions undertaken by the Commission here. In Simmons,
the Commission eased the burdens that it previously had
imposed on state governments wishing to operate aban-
doned lines. Nothing in that opinion suggests that the
Commission’s aim was anything other than the straight-
forward removal of burdeisome regulations. Nothing
suggests that the Commission had any intention of using
the modified certificate procedure as a means to restrict
market decisions or to superimpose a new regulatory
framework over this area of rail transportation. See,
e.g., id. at 343 (“The effect of the modified certificate
program was to exempt states, or their operators, from
the filing procedures and other restrictions contained in
[certain provisions of the Interstate Commerce Act].’’) ;
id. (“These reasons led the Commission to conclude that
full application of the [Interstate Commerce Act] to the
states was not necessary to carry out the national trans-
portation policy of section 10101(a).”). This is in
marked contrast to the instant case.
Although the Commission did not rely on uon-specific
authority, we pause to note that the Commission’s car
67a
hire actions cannot be upheld under the Commission’s
“discretionary authority”, which the Supreme Court re-
cently has recognized, to take actions that are “legiti-
mate, reasonable, and direct[ly] adjunct to the Commis-
sion’s explicit statutory power’. Interstate Commerce
Commission v. American Trucking Associations, Inc., 52
U.S.L.W. 4709, 4712-14 (June 5, 1984). At issue in
American Trucking Associations was the Commission’s in-
herent authority to implement remedies not specifically
authorized by the Interstate Commerce Act. In essence,
the Court found that the Commission, under certain cir-
cumstances, could “fill the gaps” in the Act because the
“drafters of complex ratemaking statutes like the [Inter-
state Commerce Act] neither can nor do ‘include specific
consideration of every evil sought to be corrected.’” Id.
at 4712 (quoting American Trucking Associations, Inc.
v. United States, 344 U.S. 298, 308 (1953) ).
In the instant case, however, section 11122 forecloses
any possible statutory gap relating to car hire decisions.
That is, section 11122 presents a distinct statutory pro-
vision with specific requirements that the Commission
must satisfy when it chooses to impose a new regulatory
format over the car hire relationship. As explained
above, the Commission’s car hire package, as now struc-
tured, constitutes the type of action that falls within
the ambit of section 11122. Assuming arguendo that the
Commission has discretionary powers adjunct to section
10505 (American Trucking Associations focuses on the
Commission’s discretionary authority in forming reme-
dies), these discretionary powers surely do not allow the
Commission to evade the explicit requirements of section
11122, requirements that directly address the car hire is-
sue and that reflect a specific set of congressional con-
cerns. In the face of section 11122, any discretionary
power held by the Commission—a power upon which the
Commission did not rely and which was mentioned nei-
ther in its Boxcars decisions nor in any representation to
this court—does not authorize the utilization of its de-
68a
regulatory powers as a means to achieve a new regula-
tory format.
Assuming, however, that the “discretionary power”
analysis would be proper in this case, the Commission’s
actions still could not be upheld. As the Court noted in
American Trucking Associations: “To lie within the
Commission’s discretionary powers, the proposed remedy
must satisfy two criteria: first, the power must further
a specific statutory mandate of the Commission, and sec-
ond, the exercise of power must be directly and closely
tied to that mandate.” 52 U.S.L.W. at 4713. Here, the
exercise of broad regulatory powers over the car hire
relationship is not “directly and closely” tied to section
10505’s mandate to deregulate. Because the Commis-
sion’s actions cannot pass this nexus test, this case is
distinguishable from United States v. Chesapeake & Ohio
Ry. Co., 426 U.S. 500 (1976), and Trans Alaska Pipe-
line Rate Cases, 486 U.S. 631 (1978), where the Court
found that the Commission could condition its approval
of proposed tariffs because the conditions furthered the
objective of “just and reasonable” rates. See, e.g., Trans
Alaska Pipeline Rate Cases, 436 U.S. at 653 (finding
that the Commission, in suspending rates, can define a
reasonable rate since any other result would require the
carrier to “submit and resubmit tariffs until one finally
goes below an undisclosed maximum point of reasonable-
ness and is allowed to take effect.) ; United States v.
Chesapeake & Ohio Ry. Co., 426 U.S. at 514 (affirming
ICC discretion to find a rate just and reasonable on the
condition that extra revenues generated by the rate be
applied to certain expenses). Accordingly, we conclude
that even if a “discretionary power” analysis were pro-
per in this case, the Commission’s actions do not meet
the standards necessary to invoke discretionary power.
In sum, we reverse the car hire components in the
Boxcars decisions on the basis that the Commission here
exceeded its statutory authority under section 10505(a).
69a
Because we find for the petitioners’ on the statutory
authority argument, and reverse on those grounds, it is
unnecessary for us to address any other car hire argu-
ment that the petitioners posit.
To foreclose any confusion about our holding today,
we emphasize that we do not hold that the Commission
can never exempt compliance with section 11122, see
supra. Indeed, once the predicate findings under 10505
(a) have been made, the Commission can exempt com-
pliance with section 11122. Thus, contrary to the peti-
tioners’ contention, the Commission could deregulate com-
pliance from its car hire rules and could permit carriers
to enter bilateral agreements free from regulations.
What it cannot do is end run rule-making procedures by
labeling a new regulatory structure as an exemption.
For the reasons set forth above, we vacate the car hire
component of the Commission’s Boxcars decisions.
V. THE ALASKA RAILROAD
Sea-Land Service, Inc., and two other carriers (Sea-
Land)* protest the Commission’s decision to exempt box-
ear freight rates from regulation‘ insofar as it applies
to the Alaska Railroad. Sea-Land contends that the Com-
mission lacks authority to deregulate the railroad’s rates,
and that even if it has such power, its ruling does not
comport with the exemption section of the Staggers Rail
8’ Sea-Land Service, Inc., is an ocean carrier and Sea-Land
Freight Services, Inc., is its motor-carrier subsidiary. Totem
Ocean Trailer Express, Inc. (Totem), another ocean common
carrier, does business in Alaska under joint-rate arrangements
with motor carriers. These three carriers oppose the exemp-
tion of the Alaska Railroad from boxcar freight-rate regula-
tion. These parties are hereinafter referred to collectively as
Sea-Land.
* Exemption From Regulation—Boxcar Traffic (Boxcars 1),
367 I.C.C. 424, 441 & n.35 (1983), on reconsideration, Exemp-
tion from Regulation—Boxcar Traffic (Boxcars II), 367 I.C.C.
745, 748-752 (1983).
70a
Act.’ That section, as we have said, permits Commis-
sion action thereunder only when application of a regula-
tory provision of the Act is unnecessary to effectuate the
national rail transportation policy, which includes pro-
hibitions on predatory pricing, predatory practices and
unlawful discrimination.?. We find that the Commission
erred in embracing the Alaska Railroad within its direc-
tive to deregulate boxcar freight rates.
The Alaska Railroad is a federally-owned and -operated
carrier created by the Alaska Railroad Act of 1914. The
statute delegated administration of the railroad to the
President,? who subdelegated that function initially to
the Secretary of the Interior and later to the Secretary
of Transportation.” The latter’s management role, how-
ever, is restrieted in a very important respect. By vir-
tue of Executive Order 12,434™ rates promulgated by
° 49 U.S.C. § 10505(a) (Supp. V 1981), specifying that the
Commission “shall” exempt a transportation service when it
finds that application of a provision of the Act
(1) is not necessary to carry out the transportation pol-
icy of section 10101a of [the Act] ; and
(2) either (A) the... service is of limited scope, or (B)
the application of the provision . . . is not needed to
protect shippers from the abuse of market power.
* 49 U.S.C. § 10101a(1)-(15) (Supp. V 1981).
7 See id. § 10101a(13).
* Act of Mar. 12, 1914, ch. 37, 38 Stat. 305, codified as
amended at 43 U.S.C. §§ 975-975g¢ (1982) [hereinafter cited
as codified].
* 43 U.S.C. § 975 (1982).
© See Exec. Order No. 3681 (1923), superseded by Exec.
Order No. 11,107, 28 Fed. Reg. 4225 (1963), reprinted in 48
U.S.C. §975f note (1982) (Transfer of Functions). These
subdelegations were authorized by 48 U.S.C. § 975f (1982).
‘' Exec. Order No. 12,434 § 1, 48 Fed. Reg. 33,229 (1983).
71a
the Secretary of Transportation are subject to final ac-
tion by the Commission,” which is authorized to act with
respect to the Alaska Railroad as though it were subject
to designated sections of the Staggers Rail Act and other
legislation.* Included in this enumeration of statutory
provisions is the section conferring the exemption power
upon the Commission."*
12 Id. § 2(a).
* Id. §3. A previous directive, Exec. Order No. 11,107
(1963), reprinted in 43 U.S.C. § 975f app. (1982), left unclear
whether it was the Commission, or instead the Secretary of
Transportation, who possessed this authority. See Sea-Land
Serv., Inc. v. ICC (Sea-Land 1), 225 U.S.App.D.C. 276, 277-
278, 697 F.2d 1166, 1167-1168 (1988). Executive Order 12,434
clarified the meaning of its forerunner in this regard and ex-
plicitly affirmed the Commission’s power to prescribe rates.
See Sea-Land Serv., Inc. v. ICC (Sea-Land II), No. 83-1136,
(D.C. Cir. June 27, 1984) at 4. The Secretary of Transporta-
tion, however, retains a function; he “is authorized to esta-
blish rates and enter into rate arrangements, including con-
tracts, with other parties to the same extent as comparable
rail carriers subject to the jurisdiction of the Interstate Com-
merce Commission. .. .” Exec. Order No. 12,434 § 2(a), 48
Fed. Reg. 33,229 (1983).
Executive Order 11,107 was in effect when the Commission
initially exempted boxcar freight rates. Executive Order
12,434 came into being during the course of the Commission
proceedings and from then on was applied by the Commission.
See, e.g., Boxcars II, supra note 2, 367 I.C.C. at 749 n.12.
Executive Order 12,434 governs here. Bradley v. School Bd.,
416 U.S. 696, 711, 94 S.Ct. 2006, 2016, 40 L.Ed.2d 476, 488
(1974) ; Thorpe v. Housing Auth., 393 U.S. 268, 281-282, 89
S.Ct. 518, 526, 21 L.Ed.2d 474, 484 (1969) ; United States v.
Alabama, 362 U.S. 602, 604, 80 S.Ct. 924, 926, 4 L.Ed.2d 982,
983-984 (1960) (per curiam) ; Sea-Land II, supra, at 6-9.
* See Exec. Order No. 12,434 §3, 48 Fed. Reg. 33,229
(1983) (referencing subchapter I of chapter 105 of the Stag-
gers Rail Act of 1980, which includes 49 U.S.C. § 10505, the
exemption section, as a provision with respect to which the
Commission may act analogously in dealing with the Alaska
Railroad’s rates).
72a
A. Predatory Pricing and Practices
We first address Sea-Land’s claim that the Commi-
sion’s inclusion of the Alaska Railroad within its rate-
deregulation order clashes with the Staggers Rail Act’s
interdiction—as part of the national rail transportation
policy—on predatory pricing and practices.» On this
ground, Sea-Land insists that deregulation of the Alaska
Railroad’s boxcar freight rates exceeds the Commission’s
exemption authority.
As we assess this argument, we bear several considera-
tions firmly in mind. Our responsibility as a court re
viewing informal agency action is to determine whether
is it “arbitrary, capricious, an abuse of discretion or other-
wise not in accordance with law.” * The essence of this
task is to ascertain whether the agency engaged in rea-
soned decisionmaking,” an inquiry which neither allows
us to substitute our own judgment nor to second-guess
conclusions that are rationally supported.'* Beyond that,
** See Joint Brief for Petitioners Sea-Land Service, Inc.,
and Sea-Land Freight Service, Inc., and for Intervenor Totem
Ocean Trailer Express, Inc., at 13-42 [hereinafter cited as
Brief for Sea-Land].
15 U.S.C. § 706(2) (A) (1982).
* Bowman Transp., Inc. v. Arkansas-Best Freight Sys.,
Inc., 419 U.S. 281, 290, 95 S.Ct. 438, 444, 42 L.Ed.2d 447, 458
(1974) ; Burlington Truck Lines v. United States, 371 U.S.
156, 167, 83 S.Ct. 239, 245, 9 L.Ed.2d 207, 215 (1962) ; Office
of Communication of United Church of Christ v. FCC, 228
U.S.App.D.C. 8, 20-21, 707 F.2d 1413, 1425-1426 (19838);
National Small Shipments Traffic Conference v. CAB, 199
U.S.App.D.C. 335, 342-343, 618 F.2d 819, 826-827 (1980).
18 Motor Vehicle Mfg. Ass’n v. State Farm Mut. Auto. Ins.
Co., —— U.S. , , 103 S.Ct. 2856, 2866-2867, 77 L.Ed.
2d 443, 457-458 (1983) ; International Ladies’ Garment Work-
ers’ Union V. Donovan, U.S.App.D.C. —, ——, 722 F.2d
795, 814 (1983) ; National Small Shipments Traffic Conference
v. CAB, supra note 17, 199 U.S.App.D.C. at 342, 618 F.2d at
826.
73a
several features of this case militate in favor of con-
siderable deference to the Commission’s expertise in rail
transportation matters. Although the Commission aban-
doned preexisting regulatory rules and policies, it did so
under an explicit and forceful mandate from Congress.”
Then, too, the Supreme Court has recognized that while
an agency’s predictive decisions must remain rational,”
“complete factual support” is not necessary for agency
conclusions resting upon “judgment and prediction rather
than pure factual determination.” ** Moreover, Congress
itself saw the need to depend upon the Commission’s ex-
19 See note 5 supra; note 22 infra.
* See Motor Vehicle Mfg. Ass’n v. State Farm Mut. Auto.
Ins. Co., supra note 18, —— U.S. at , 103 S.Ct. at 2871,
77 L.Ed.2d at 463. The court must review the record to de-
termine whether the agency “ ‘identified all relevant issues,
gave them thoughtful consideration duly attentive to com-
ments received, and formulated a judgment which rationally
accommodates the facts capable of ascertainment and the poli-
cies slated for effectuation.’” International Ladies’ Garment
Workers’ Union Vv. Donovan, supra note 18, U.S.App.D.C.
at , 722 F.2d at 822, quoting Telecator Network v. FCC,
223 U.S.App.D.C. 336, 355, 691 F.2d 525, 545 (1982). Accord
National Small Shipments Traffic Conference v. CAB, supra
note 17, 199 U.S.App.D.C. at 345-346, 618 F.2d at 829-830
(although complete support is not required, the decision must
be rational, based on consideration of all relevant factors, and
adequately explained).
21 FCC v. WNCN Listeners Guild, 450 U.S. 582, 594, 101
S.Ct. 1266, 1274, 67 L.Ed.2d 521, 534 (1981). Accord FCC v.
National Citizens Comm. for Broadcasting, 436 U.S. 775, 813-
814, 98 S.Ct. 2096, 2121, 56 L.Ed.2d 697, 726 (1978); FTC v.
Transcontinental Gas Pipeline Corp., 365 U.S. 1, 29, 81 S.Ct.
435, 450, 5 L.Ed.2d 877, 395 (1961); Telecator Network v.
FCC, supra note 20, 228 U.S.App.D.C. at 349, 691 F.2d at
538; NAACP v. FCC, 221 U.S. App.D.C. 44, 52, 682 F.2d 993,
1001 (1982) ; Stereo Broadcasters, Inc. v. FCC, 209 U.S.App.
D.C. 229, 234, 652 F.2d 1026, 1081 (1981); United States v.
FCC, 209 U.S.App.D.C. 79, 100, 652 F.2d 72, 93 (en banc
1980) ; National Small Shipments Traffic Conference Vv. CAB,
supra note 17, 199 U.S.App.D.C. at 345-346, 618 F.2d at 829-
74a
pertise to effectuate a revitalization of our national rail
transportation system.”
To gauge the likelihood of predation by the Alaska
Railroad and the corresponding need for continued rate
regulation, the Commission had to engage in an in-depth
inquiry into the railroad’s unique status as a federal
facility. The Commission considered the implications of
governmental ownership and subsidies, and the rail-
road’s immunity from the antitrust laws, and concluded
that predatory conduct by the railroad in the wake of
boxcar freight-rate deregulation was highly unlikely.*
The Commission discounted the ability of rate regulation
to curb below-cost pricing aimed at elimination of com-
petitors, which the subsidies the Alaska Railroad actually
830; Missouri-Kansas-Texas R.R. Co. v. United States, 632
F.2d 392, 406 (5th Cir. 1980), cert. denied, 451 U.S. 1017, 101
S.Ct. 3004, 69 L.Ed.2d 388 (1981).
22 Congress found that “modernization of economic regula-
tion for the railroad industry with a greater reliance on the
marketplace is essential in order to achieve maximum utiliza-
tion of railroads to save energy and combat inflation.” Stag-
gers Rail Act of 1980, Pub. L. No. 96-448, § 2(9), 94 Stat. 1895.
The Commission’s exemption authority was made the “im-
portant cornerstone” of the modernization envisioned by Con-
gress, and was to be used “to actively pursu[e] exemptions
for transportation and service that comply with the section’s
standards.” H.R. Rep. No. 1035, 96th Cong., 2d Sess. 60
(1980), reprinted in [1980] U.S. Code Cong. & Ad. News
3978, 4005. Additionally, the Conference Report made clear
that Congress expected the Commission to remove “as many
as possible of the Commission’s restrictions on changes in
prices and services by rail carriers.” H.R. Rep. No. 1430, 96th
Cong., 2d Sess. 105 (1980), reprinted in [1980] U.S. Code
Cong. & Ad. News 4110, 4137. See also note 30 infra and
accompanying text, discussing the scope of the exemption
power.
23 Boxcars II, supra note 4, 367 I.C.C. at 748-750. See also
Bozcars I, supra note 4, 367 I.C.C. at 441 n.85; Exemption
from Regulation-Boxcar Traffic, Ex Parte No. 346 (Sub. No.
8) (Bozcars III), at 8, Joint Appendix (J. App.) 146 (Nov.
80, 1983).
75a
received made possible. The Commission noted that rate
reduction is limited by carrier costs, but acknowledged
that subsidies could enable pricing below costs. The
Commission did not believe, however, that the Alaska
Railroad’s subsidies, which assist capital expenditures
and passenger service rather than freight operations,
would lead to freight rates that, if reviewed, would be
found by the Commission to be unreasonably low.
In predicting that the Alaska Railroad will not engage
in predation, the Commission also took into account fac-
tors in addition to subsidy, ownership and immunity. It
looked at market share, noting that approximately 75
percent of the freight transported between the continen-
tal United States and Alaska is handled by the railroad’s
competitors, Sea-Land and Totem.” Because the competi-
tors’ market share is so significant, the Commission felt
that the Alaska Railroad would not adopt a predatory
pricing policy as a means of destroying its competitors,
and that if it did “it would be a matter of high visibility,
and [the Commission] could immediately revoke the ex-
emption.” ** Two other factors considered by the Com-
mission in evaluating the likelihood of predatory pricing
were the capacity of the railroad’s competitors to with-
stand vigorous rate competition,”* and the probability that
* Boxcars II, supra note 4, 367 I.C.C. at 749-750. The
Commission noted that rate-reduction is limited by carrier
costs, but acknowledged that subsidies could enable pricing
below costs. Id. at 749. The Commission did not believe, how-
ever, that it could rationally assume that the Alaska Railroad’s
subsidies, which assist capital expenditures and passenger
service rather than freight operations, would lead to rate-
cutting. Id.
6 Id.
2 Boxcars I, supra note 4, 367 I.C.C. at 441 n.35; see Bozx-
cars III, supra note 23, at 8, J. App. 146.
*7 Boxcars III, supra note 23, at 8, J. App. 146.
28 Id.
76a
new competition would emerge if the railroad succeeded
in driving its present rivals out of the market and es-
tablishing a monopoly.”
Despite the Commission’s careful analysis and amply-
supported conclusions, Sea-Land adamantly disputes the
Commission’s prognostication on predation.” Since, how-
ever, Sea-Land’s challenge rests on its disagreement with
forecasts on the railroad’s behavior should rate regula-
tion cease, which the Commission reasonably derived from
the record evidence, we cannot upset the Commission’s
ruling, but must defer to its rational consideration and
evaluation of the relevant factors.™
29 See Boxcars I, supra note 4, 367 I.C.C. at 441 n.35; Boz-
cars II, supra note 4, 367 I.C.C. at 750.
*® Brief for Sea-Land at 15-18. Sea-Land adheres to the
belief that traditional economic models of predation cannot
safely; be applied to a subsidized industry because subsidized
businesses are more likely to engage in below-cost pricing
than non-subsidized businesses. Sea-Land suggests that, in
addition to such economic aims as market-share expansion,
even non-economic factors, such as managers’ desire for
prestige, may lead even subsidized businesses te resort to
predatory pricing. /d. at 23.
81 See text supra at notes 16-21.
Sea-Land argues that the Commission was bound by Ameri-
can Trucking Ass’ns Vv. ICC, 656 F.2d 1115 (5th Cir. 1981), in
which it was held that the Commission acted arbitrarily when
it included the Alaska Railroad in an exemption of rail trans-
portation of containerized cargo. Jd. at 1128. The court’s
justifications for its decision were the Alaska Railroad’s im-
munity from the antitrust laws, its governmental ownership
and subsidization, and its potential for predatory pricing as
indicated by the fact that Congress had mandated studies on
the subject. Jd. at 1127-1128.
We agree with the Commission that it was not controlled by
American Trucking Ass’ns, despite the similarity of the is-
sues there and here. After “closely examin[ing] the factors
that were cited by the court in light of additional facts and
changed laws available on the present record,” Bozxcars II,
supra note 4, 367 I.C.C. at 749, the Commission analyzed the
77a
The Commission recognized that if it has miscalculated
the Alaska Railroad’s propensity for predation, the De
partment of Transportation and Congress can, and ex-
pectably will, step in to check any abuse of the railroad’s
pricing freedom.* Moreover, the Commission is empow-
ered to revoke the railr-ad’s exemption.* Sea-Land con-
tends that administrative and legislative oversight will
not provide adequate protection, and points out that the
railroad’s immunity from suit under the antitrust laws
precludes an effective judicial remedy,* but recent con-
gressional response to concern over the possibility of
predatory pricing indicates that Sea-Land’s fears may
well be unfounded. When Congress passed the Staygers
Act, it ordered a Commission study of the Alaska Rail-
road’s freight charges after “[a]llegations [had] been
made that the [railroad had] been engaged in predatory
pricing to the injury of its privately-owned competi-
strength and position of the Alaska Railroad’s competitors,
Sea-Land and Totem; the railroad’s subsidy and its immunity
from the antitrust laws; and the length of time that had
passed without legislative action after Congress had received
the studies. /d. at 748-751. On this foundation, the Commis-
sion predicted competition without predation, even in the ab-
sence of continued regulation. Jd. at 752. Our function is to
determine whether the Commission engaged in reasoned
decision-making on the basis of the relevant factors, not to
second-guess the agency on matters of judgment. See United
States v. Alleghany-Ludlum Steel Corp., 406 U.S. 742, 755-756,
92 S.Ct. 1941, 1950, 32 L.Ed.2d 453, 464 (1972). See also
notes 17-21 supra and accompanying text. We think it per-
missible for the Commission to reevaluate the Alaskan situa-
tion on a new record instead of clinging exclusively to Ameri-
can Trucking Agss’ns.
%2 Boxcars II, supra note 4, 367 I.C.C. at 750.
5° Jd. “The Commission may revoke an exemption, to the
extent it specifies, when it finds that application of a provi-
sion . . . is necessary to carry out the transportation policy
....” 49 U.S.C. § 10505(d) (Supp. V 1981).
* Brief for Sea-Land at 40-41.
78a
tors.” * The study uncovered no evidence to support the
claim that the railroad had resorted to predatory pric-
ing.** Given that, we deem the Commission’s limited re-
liance on legislative oversight quite reasonable.”
After careful scrutiny, then, we perceive no legal in-
firmity in the Commission’s decision to encompass the
Alaska Railroad in its ruling exempting boxcar freight
rates from regulation. The Commission amply considered
the relevant factors, reached rational conclusions and
gave plausible explanations for its action. Accordingly,
we affirm the Commission’s ruling as consistent with the
rail transportation policy prohibiting predatory pricing
and practices.
B. Discriminatory Ratemaking
As we previously observed, Executive Order 12,434
undertakes to empower the Commission to exempt the
*5 H.R. Rep. No. 14380, 96th Cong., 2d Sess. 143 (1980),
reprinted in [1980] U.S. Code Cong. & Ad. News 4110, 4175;
see also Staggers Rail Act of 1980, Pub.L. No. 96-448, § 709,
94 Stat. 1895, 1996.
36 Section of Cost Development, ICC Bureau of Accounts,
Study of Alaska Railroad Rates Pursuant to Section 709 of
the Staggers Rail Act of 1980 (1981). See also S. Rep. No.
479, 97th Cong., 2d Sess. 10 (1982) (committee acceptance
of findings of study) ; Sea-Land II, supra note 18, at 22 n.17.
%7 The Conference of the House and Senate Appropriations
Committees ordered a second Commission study in 1981 to
determine whether the Alaska Railroad’s rates covered both
its costs and its subsidy. H.R. Rep. No. 1400, 96th Cong., 2d
Sess. 14 (1980). See Section of Cost Development, ICC Bu-
reau of Accounts, Study of Alaska Railroad Water/Rail Con-
tract Rates and Water/Rail Tariff Rates (1981). Both studies
furnish information on the Alaskan economics, and serve to
further weaken Sea-Land’s contention that the market model
upon which the Commission formulated its predictions was
representative only of the lower 48 states.
79a
Alaska Railroad from rate regulation.** Sea-Land claims
that this delegation of purported authority contravenes
the Alaska Railroad Act and is therefore invalid.** Sea-
Land’s thesis ‘is that the Alaska Railroad Act, which lim-
its the President’s power “to fix . . . rates for the trans-
portation of . . . property” to rates that are “equal and
uniform,” *® forbids the President, and in turn the Com-
mission as his delegate, to deregulate such rates.*' In
Sea-Land’s view, a completely unregulated rate, as a
product of negotiation, may well be unique to the ne-
gotiating parties, and very different from a common-
carriage rate, which offers services to an unlimited num-
ber of unspecified potential customers at a specified price
and under designated conditions.
The congressional decision to entrust the Alaska Rail-
road to federal authority seemingly was motivated, at
least in part, by a desire to foreclose inequitable treat-
ment of its patrons.” Considered in conjunction with the
legislative effort to mitigate “prohibitive” rates,“ the pri-
mary impetus behind the “equal and uniform” provision
seemingly was fairness to those to whom the railroads’
rates are offered. Thus, the “equal and uniform” edict
most reasonably is construed as a ban on unlawful dis-
38 See note 14 supra.
*° Brief for Sea-Land at 45-46.
# 43 U.S.C. § 975 (1982).
*! Brief for Sea-Land at 43-44. Sea-Land further argues
that rate regulation is necessitated by the Alaska Railroad
Act’s requireemnt that the Alaska Railroad “perform gen-
erally all the usual duties of a common carrier by railroad.”
43 U.S.C. § 975 (1982) ; Brief for Sea-Land at 52-54. In view
of the disposition we make on Sea-Land’s “equal and uniform”
point, we do not reach the latter question.
*2 See 51 Cong. Rec. 1907 (1914) (remarks of Senator
Jones) ; id. at 2101 (remarks of Senator Thomas).
#8 Jd. at 1576 (remarks of Senator Chamberlain).
80a
crimination, an interpretation in which, in another case,
we today concur.“
The Commission rejected Sea-Land’s analysis of the
reach of the “equal and uniform” provision for two
stated reasons. One was that the Commission felt that
its actions are not subject to that provision:
The requirement that [the Department of Trans-
portation], through authority delegated by the Pres-
ident, establish “equal and uniform rates” for the
[Alaska Railroad], does not create a standard to be
enforced by the Commission. We regulate [the
Alaska Railroad’s] rates under portions of the
[Staggers Rail Act] that are specified by Executive
Order. [The Staggers Rail Act] contains no re-
quirement that rail rates be “equal and uniform.” *
The other reason given by the Commission was that the
“equal and uniform” requirement could no more invali-
date a deregulated rate than a contract rate:
As [the Department of Transportation] correctly
observes, if the “equal and uniform” language pro-
hibited the Commissior. from exempting a service of
the [Alaska Railroad], it would also prevent us from
approving the use of contract rates by the [Alaska
Railroad], since contract rates can be unequal and
nonuniform. Yet Congress itself has acknowledged
the existence of [Alaska Railroad] contract rates
and has not condemned them as inconsistent with the
[Alaska Railroad Act].
We part company with the Commission on both counts.
We think it clear that the Commission must obey the
“equal and uniform” mandate in the exercise of its func-
tions pursuant to Executive Order 12,434. The “equal
“ Sea-Land II, supra note 18, at 10.
*5 Boxcars II, supra note 4, 367 I.C.C. at 751 (footnotes
omitted).
4 Id.
8la
and uniform” requirement was a limit imposed by Con-
gress when it delegated to the President authority over
rates of the Alaska Railroad. The subdelegations by the
President necessarily, then, were encumbered by that re-
quirement. To be sure, Executive Order 12,434 confines
the Commission to action conformable to specific provi-
sions of the Staggers Rail Act and other legislation.*’
But the Alaska Railroad Act, too, imposes on the Com-
mission, no less than on the Secretary of Transportation,
the obligation to respect the “equal and uniform” pro-
vision to the same extent that the President would have
that duty absent subdelegation.**
Nor do we agree with the Commission that deregula-
tion of the Alaska Railroad’s rates is validated merely by
the fact that it can enter into rate contracts with ship-
pers. While Executive Order 12,434 sanctions such ar-
rangements, it incorporates a mechanism safeguarding
against the sort of discrimination that would transgress
the “equal and uniform” provision:
Any contract filed with the Commission shall be
available to any other shipper for rates and serv-
ices for transportation of the same type of commod-
ity under similar conditions to the contract on file,
if the other shipper is able to enter into such con-
47 See note 13 supra and accompanying text.
*® The Commission’s view that the “equal and uniform” pro-
vision restricts the Secretary’s power to initiate rates, but not
the Commission’s exercises of authority over them, is difficult
to understand. The Commission as well as the Secretary exer-
cises powers that the Alaska Railroad Act confers upon the
President. The Commission’s authority respecting the Alaska
Railroad’s rates, though analogous to that over private car-
riers’ rates, nonetheless is derived wholly by delegation from
the President. See Sea-Land II, supra note 13, at 10 & n.8.
Since the President himself is encumbered by the “equal and
uniform” requirement, so also the Commission must be, for
Sea-Land II has determined that final ratemaking power re-
sides in the Commission. See id. at 4.
82a
tract at a time essentially contemporaneous with the
period during which the contract on file is offered.
Indeed, in our decision issued today in Sea-Land II, we
rely on the oversight authority conferred on the Commis-
sion by this provision to ensure that similarly-situated
shippers will be treated identically, thereby guaranteeing
nondiscrimination.” We thus are not prepared to join
the Commission in the view that Alaska Railroad’s ‘‘con-
tract rates can be unequal and nonuniform” in a manner
inconsistent with the “equal and uniform” requirement.
Prohibition of unlawful discrimination, we repeat, is
a goal of the national transportation rail policy, which
any deregulation of carrier rates must abide.** The Com-
mission, in deregulating the freight rates of carriers gen-
erally, proceeded on the premise that this action would
no more encourage unlawful discrimination than the
existing freedom of railroads generally to enter into
contract-rate arrangements. It said:
. . . Congress expressly authorized rail carriers to
enter into contracts with individual shippers and al-
most entirely removed contract service from regula-
tion under the [Staggers Rail Act]. Thus, to the
extent that carriers and shippers resort to contracts,
carriers may lawfully discriminate with virtually
complete freedom.
To the minor extent that legal constraints are still
applicable to discrimination among shippers of box-
car traffic, it is extremely unlikely that exemption
from regulation would give rise to unlawful conduct.
Carriers are essentially free to make contracts of
this nature in any event, and an exemption from
regulation would not seem to provide greater dis-
* Exec. Order No. 12,484 §2(b), 48 Fed. Reg. 33,229
(1983). See also id. §2(a) (authorizing rate contracts by
Alaska Railroad).
% See Sea-Land II, supra note 18, at 17-21.
51 See text supra at notes 6-7.
83a
criminatory impetus. We conclude that continued
regulation of boxcar traffic is not necessary to carry
out the objective of prohibiting unlawful discrimi-
nation.”
This process of reasoning does not adequately support
the Commission’s deregulation of the Alaska Railroad’s
rates in face of the “equal and uniform” provision of the
Alaska Railroad Act. Unlike other rail carriers, the
Alaska Railroad is not legally at liberty to “lawfully dis-
criminate with virtually complete freedom.” On the con-
trary, whenever the Alaska Railroad contracts with a
shipper, it must afford all other similarly-situated ship-
pers the same rates and services for essentially the same
term."* The Commission’s sole justification for its con-
clusion that deregulation of carrier freight rates gen-
erally will not likely incite unlawfully discriminatory
rates simply breaks down in the instance of the Alaska
Railroad. It follows that we must vacate the Commis-
sion’s freight-rate exemption order to the extent that it
applies to the Alaska Railroad, and remand to the Com-
mission for further consideration of the question whether
its freight rates can be deregulated consistently with the
“equal and uniform” requirement of the Alaska Railroad
Act.
VI. THE CANADIAN RAILROADS
Canadian National Railway Company and Canadian
Pacific Limited * protest the application of the Commis-
52 Boxcars I, supra note 4, 367 I.C.C. at 443.
53 See text supra at note 49.
* Canadian National Railway Company, Canada’s largest
railroad, operates both in the United States and transconti-
nentally in Canada. It is owned by the Government of Canada.
Supplemental Brief for Petitioners Canadian National Rail-
way Company and Canadian Pacific Limited at 4-5 [herein-
after cited as Supplemental Brief for Canadian Railroads].
Canadian Pacific Limited, a privately-owned Canadian corpo-
ration, does business in both the United States and Canada.
The cross-border movements of these railroads together total
84a
sion’s freight-rate and car-hire exemptions to their inter-
national boxcar movements.® More specifically, they con-
tend that the Commission acted arbitrarily when it re
fused to exclude boxcar traffic between points in Canada
and the United States from these exemptions. In chal-
lenging the freight-rate exemption, the Canadian rail-
roads pose an issue of Canadian law and assert that a
Commission finding that regulation impedes boxcar trans-
portation from effectively competing with trucks is in-
valid with respect to cross-border movements.” In their
attack upon the car-hire rules, they claim that, because
of the peculiar characteristics of rail traffic between the
two countries, those rules cannot achieve a reduction in
cross-hauling of empty boxcars.*’ We find the Canadian
railroad’s challenge to the freight-rate exemption uncon-
vincing. And since we have already held the car-hire
exemption invalid for other reasons,** we address the
complaints of the Canadian railroads only for possible
guidance in the likely event that the Commission is
called upon to consider them again."
one-third of all their traffic. Supplemental Brief for Canadian
Railroads at 5. These two petitioners will hereinafter be
referred to collectively as the Canadian railroads.
5° The car-hire exemption and the new car-hire rules, more
fully discussed supra Part IV, authorize rail carriers to assess
a maximum charge of 35 cents per mile for movements of
other carriers’ empty boxcars; to negotiate bilateral agree-
ments governing rates for car hire, and for empty-boxcar
movements and storage; and to store empty boxcars and
reclaim car-hire payments after a 72-hour grace period. Boz-
cars I, supra note 4, 367 I.C.C. at 472, Appendix D.
5¢ Supplemental! Brief for Canadian Railroads at 28-30.
57 Supplemental Brief for Canadian Railroads at 14-16.
58 See Part IV supra.
5° Our discussion of the Canadian railroads’ claim regarding
the car-hire rules concerns only the legal adequacy of their
challenges to the Commission’s action in this case. We em-
phasize that this opinion neither forecloses the Canadian rail-
85a
As a threshold matter, the Canadian railroads assert
that the Commission failed to consider issues raised in
comments on the car-hire rules submitted by them.”
We cannot agree. In response to the Commission’s notice
proposing the car-hire exemption, more than 200 parties
filed comments.** For purposes of discussion, the Com-
mission grouped these responses by issues instead of by
participants. Although the Commission has an obligation
to identify and ponder all relevant issues,” it need not
mention by name every commentator whose grievance it
examines. We thus reject the argument of the Canadian
railroads insofar as it is premised upon the absence of
individual references to those submitting comments.
In attacking the freight-rate exemption, the Canadian
railroads first assert that the Commission’s application
of the exemption order to cross-border movements was
not justified because problems of boxcar competitiveness
and profitability vis-a-vis truck transportation do not
exist on rail routes connecting the United States and
Canada.“ This argument, similar to those presented by
several other petitioners,” strikes both at the Commis-
roads from voicing the same or similar concerns in the future,
nor relieves the Commission of its obligation to duly consider
those factors in ai. y subsequent proceeding.
© Supplemental Brief for Canadian Railroads at 19-26.
$1 Jd. at 27.
*2 See Motor Vehicle Mfg. Ass’n Vv. State Farm Mut. Auto.
Ins. Co., supra note 18, —— U.S. at , 108 S.Ct. at 2867,
77 L.Ed.2d at 458; Bowman Transp., Inc. v. Arkansas-Best
Freight Sys., Inc., supra note 17, 419 U.S. at 285, 95 S.Ct. at
442, 42 L.Ed.2d at 455; International Ladies’ Garment Work-
ers’ Union Vv. Denovan, supra note 18, U.S.App.D.C. at
——, 722 F.2d at 814-815; Telocator Network v. FCC, supra
note 20, 228 U.S.App.D.C. at 355-356, 691 F.2d at 544-545.
83 Supplemental Brief for Canadian Railroads at 28-30.
* See Part II, supra, at 31-35, 37-38.
86a
sion’s reliance on the premise underlying enactment of
the exemption provision ® and the Commission’s use of
the Conrail study of boxcar movements in the northeast-
ern United States as a basis for exempting from regul
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.