# Appendix — Interstate Commerce Commission v. Brae Corporation > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0336%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1985 - **Citation:** 471 U.S. 1069 ## 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 , 1983 No. 83-1462 And Consolidated Cases BRAE CORPORATION, PETITIONER Vv. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS CONSOLIDATED RAIL CORPORATION, EK. F. HUTTON CREDIT CORPORATION, SEATTLE & NORTH COAST RAILROAD COMPANY, INTERVENORS [Filed Aug. 27, 1984] ORDER Before: ROBINSON, Chief Judge; WALD AND MIKVA, Circuit Judges On consideration of the Petitions for Rehearing of Respondent, Interstate Commerce Commission and of Intervenor Consolidated Rail Corporation, it is ORDERED by the Court that the aforesaid Petitions for Rehearing are denied. Per Curiam For the Court: GEORGE A. FISHER, Clerk By: ROBERT BONNER Chief Deputy Clerk 97a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT September Term, 1983 No. 83-1462 And Consolidated Cases BRAE CORPORATION, PETITIONER v. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS CONSOLIDATED RAIL CORPORATION, E. F. HUTTON CREDIT CORPORATION, SEATTLE & NORTH COAST RAILROAD COMPANY, INTERVENORS |Filed Aug. 27, 1984] ORDER Before: ROBINSON, Chiej Judge; WRIGHT, TAMM, WILKEY, WALD, MIKVA, EDWARDS, GINSBURG, BORK, SCALIA AND STARR, Circuit Judges The 4. -stions for Rehearing en banc of Respon- dent, terstate Commerce Commission and of Inter- veno onsolidated Rail Corporation have been circu- lated » the full Court and no member has requested the taking of a vote thereon. On consideration of the foregoing, it is 98a ORDERED by the Court en banc that the Sugges- tions for Rehearing en banc are denied. Per Curiam For the Court: GEORGE A. FISHER, Clerk By: ROBERT BONNER Chief Deputy Clerk Circuit Judge Bork did not participate in this order. 99a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT September Term, 1983 No. 83-1462 And Consolidated Cases BRAE Cu..?ORATION, 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 Filed Aug. 27, 1984 ORDER BEFORE: ROBINSON, Chief Judge; WALD AND MIKVA, Circuit Judges On consideration of the conditional motion for exten- sion of time to respond to motion for clarification, it is ORDERED by the Court that the aforesaid motion is dismissed as moot. Per Curiam For the Court: GEORGE A. FISHER, Clerk By: ROBERT A. BONNER Chief Deputy Clerk 100a UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT September Term, 1983 No. 83-1462 And Consolidated Cases BRAE CORPORATION, PETITIONER Vv. UNITED STATES OF AMERICA AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS CONSOLIDATED RAIL CORPORATION, E. F. HUTTON CREDIT CORPORATION, SEATTTLE & NORTH COAST RAILROAD COMPANY, INTERVENORS Filed Aug. 27, 1984 RESPONSE TO PETITION FOR CLARIFICATION Before: ROBINSON, Chief Judge; WALD AND MIKVA, Circuit Judges Conrail has filed a petition requesting clarification as to wheather our holding vacates the exemption as ap- plied to all joint rates or only to those involving class IIT railroads. The basis for our vacation of the ICC order as to joint rate provisions was the failure of the Commission to ex- plain adequately the likely effect of deregulation of joint rates on rate divisions. Given this failure, we are in no position to decide at this time whether any part of the joint rate exemption is justifiable. The initial decision as to the scope of the exemption is for the Commission to make and to explain. In its original decision, the ICC exempted all boxcar traffic from statutory joint rate 10la provisions without distinguishing class III railroads from larger railroads. We vacated that exemption in to- tal. On remand, the ICC is of course free to revisit its decision. Our task is solely to insure that it provides ad- equate justification for whatever it does. Per Curiam For the Court: GEORGE A. FISHER, Clerk By: RoBERT A. BONNER Chief Deputy Clerk 103a APPENDIX D 31447 INTERSTATE COMMERCE COMMISSION Ex PARTE No. 346 (SuB-No. 8) EXEMPTION FROM REGULATION —BOXCAR TRAFFIC 104a |424| INTERSTATE COMMERCE COMMISSION REPORTS TABLE OF CONTENTS Page I. Introduction----------------------------------------------------------- 425 II. Exemption of boxcar traffic from rate regulation--------------- 426 A. Background-------------------------------------------------------- 426 B. Overview of public comments ---------------------------------- 428 C. Threshold issues-------------------------------------------------- 431 D. Maximum reasonableness -------------------------------------- 432 1. General constraints on boxcar rates------------------------- 433 2. Measures of ability to abuse market power ---------------- 434 3. Commodities---------------------------------------------------- 436 a. Auto parts ---------------------------------------------------- 436 b. Paper and forest products ---------------------------------- 437 c. Grain ---------------------------------------------------------- 438 d. Metals -------------------------------------------------+-------- 439 e. Other commodities ------------------------------------------ 439 4. Conclusion: maximum reasonableness --------------------- 440 E. Predatory pricing ------------------------------------------------- 44] F. Rate discrimination----------------------------------------------- 442 G. Joint rates ------------------20-------0------22--- on nen ene nen eee ee e- 443 H. Through routes -----------------------------+--------------------- 444 I. Tariff publication -------------------------------------------------- 445 J. Benefits of exemption -------------------------------------------- 445 K. Conclusion: exemption from rate regulation ---------------- 446 III. Exemption of boxcar equipment charges ---------------------- 447 A. Background-------------------------------------------------------- 447 B. Comments of pariticipants -------------------------------------- 449 C. Evaluation of proposal ------------------------------------------- 450 1. Effect on car use ----------------------------------------------- 450 2. Effect on boxcar investment --------------------------------- 451 3. Effect on shippers ---------------------------------------------- 454 D. Retention of jurisdiction ---------------------------------------- 454 E. Benefits of exemption ------------------------------------------- 455 F. Conclusions: exemption of equipment charges -------------- 455 SV. Cthher Giattggg qcocccccccccccccccccocncccccccccccccccccccccccosececece 456 - Regulatory flexibility analysis -------------------------------------- 456 Energy and environmental considerations -------------------------- 458 V. PimGins and Qader s that it printed 5 1/2 million pages of tariffs in 1980. With deregulation, it would sain- tain its boxcar rate information on computers. 367 LC.C. 109a EXEMPTION FROM REGULATION—BOXCAR TRAFFIC (429) requirements and administrative proceedings. It would also lead to simpler and more responsive rate quotations tailored to the circum- stances of particular movements, and would facilitate the adjustments needed to keep each rate both competitive and compensatory. An exemption would also give Conrail more freedom to negotiate satisfactory divisions of revenue from joint rates or to establish propor- tional rates to assure the profitability of interline traffic.'® Although 49 U.S.C. 10705a enables a carrier to cancel or apply surcharges to joint rates, Conrail views this remedy as less than satisfactory since it applies only to traffic making little or no contribution to overhead costs, requires time-consuming preparation for administrative proceedings and possible litigation, and leads to a proliferation of surcharges, making tariffs more complex. Conrail states that the value of pricing flexibility and ratemaking simplicity has already been shown in the context of other exemptions. On tresh fruits and vegetables traffic, for example, carload volume increased by 23 percent the first year after exemption, ° and by an additional 11 percent the next year. Conrail predicts that the threat of existing and potential motor carrier competition, as well as competition between railroads and other market forces, such as geographic and product competition would check the railroads’ ability to abuse any market power they may possess on boxcar traffic. Further, Conrail submitted da.a substantiating its claim that it has little or no market power over most boxcar traffic. Although Conrail peti- tioned for an exemption applicable only to its own traffic, it states that application of the exemption to all railroads would be desirable to facili- tate negotiations on jointly provided services. Among the railroads, the Southern Pacific Transportation Company (SP) and its subsidiary, the St. Louis Southwestern Railway Company, also support a nationwide exemption of boxcar traffic from rate regula- tion. Their experience under the Commission’s exemption of TOFC/ COFC traffic is favorable, and they believe that similar results would occur if regulatory ratemaking restraints were removed from boxcar traf- fic. They state that the railroads reversed a trend of decline in TOFC/ COFC shipments in 1981 after the traffic was exempted from regulation in March of that yeas, while boxcar loadings continued to decline. SP credits the TOFC/COFC success to the carriers’ greater willingness to commit capital, time, manpower, research and service to TOFC/COFC operations given the assurance that prospective regulatory action would not negate the benefits of the commitments. Eighty percent of Conraii’s boxcar traffic is interlined. ( onrail states that revenue division arrange- ments have forced it to handle most of this traffic at a loss © Rail General Exemption Authority, 361 1.C.C. 211 (1979) 367 LCC. 110a 1430) INTERSTATE COMMERCE COMMISSION REPORTS The Federal Trade Commission (FTC), the Department of Transpor- tation (DOT), and the Department of Justice (DOJ) strongly support an exemption of boxcar traffic applicable to all railroads. They argue that maximum reliance on freely competitive ratemaking is the most cost- effective approach to meeting shipper needs and protecting them from abuse of market power. They also contend that railroad pricing freedom is constrained not only by truck competition but also by intramodal com- petition and by the ability of users of a given commodity to draw from more than one source of supply or use substitute products. DOJ suggests that the Commission exclude from the exemption any individual com- modities found subject to abuse of railroad market power. Shippers supporting the exemption state that their traffic in many cases has already shifted substantially from boxcars to trucks or TOFC/COFC service. They expect a boxcar exemption to enable the railroads to offer more flexible and responsive service. Some of the supporting shippers deal in commodities such as coal that do not move in boxcars. They con- tend that they are paying unnecessarily high rates to subsidize unprofit- able rail operations such as boxcar service, and they support an exemp- tion to allow the railroads to rationalize their boxcar rate levels. A user of refrigerated boxcars, lowa Beef Processors, Inc., states that the refrigerated car supply has gravitated toward traffic now exempt from regulation, to the detriment of shippers of regulated commodities, such as meat. It seeks an exemption for all commodities transported in refrigerated boxcars. Many railroads, on the other hand, oppose the exemption, believing that rate exemption of all traffic transported in boxcars is too large a step to take at one time. They urge the Commission to pursue exemptions on a commodity-by-commodity basis. Carriers connecting with Conrail fear that the latter’s free use of proportional rates will cause overall rate leveis on through shipments to rise to noncompetitive levels and cause diver- sion to trucks. Short-line railroads fear that selective joint rate cancella- tions by Conrail will leave them without connections and leave their shippers without service. The Departments of Defense (DOD) and Agriculture (USDA) also oppose a boxcar exemption. DOD regards regulation as necessary to as- sure that boxcar service will continue to be provided. USDA fears increased food transportation costs and loss of service to certain destina- tions. The Commission’s Office of Special Counsel, although not opposed to an exemption for refrigerated and livestock boxcars, would limit any further exemption to individual commodities identified as not being subject to abuse of market power. 367 L.C.C. llla EXEMPTION FROM REGULATION—BOXCAR TRAFFIC [431] A number of shippers, along with several State and local agencies, also oppose a boxcar exemption. Some assert that the absence of tariffs would mzan a loss of stability in transportation rate levels and would deprive shippers of knowledge of the rates paid by their business competitors. Small shippers say that they lack leverage to negotiate favorable rate levels and fear that an exemption would encourage rate discrimination. There is also a fear that car supply would become unreliabie if carriers are exempted from the common carrier obligation to provide equipment for loading upon request. Many shippers regard themselves as captive to railroads and believe that an exemption would expose them to excessive ra.es. Finally, certain motor carriers and a water carrier seek continued box- car regulation to protect them from predatory pricing. Several State reg- ulatory commissions ask that the boxcar exemption be applied to intra- state traffic only at their discretion. Other groups seek assurance that uniform packaging recuirements and loss and damage liability would continue. C. Threshold issues.—Some participants argue that an exemption from rate regulation for all boxcar traffic is beyond our authority. They con- tend that Congress intended our exemption authority to extend only to single commodities or minor segments of railroad’service. We reject this view. Our mandate is framed in very broad terms and extends to exemp- tions for ‘ta person, class of persons, or a transaction or service’’'’ whenever we make the findings required. Our action here is applicable to a class of persons (railroads subject to our jurisdiction) and to a service (transportation provided in boxcars). Congress specifically sanctioned a comparably broad interpretation of these terms in stating that it would permit an exemption of TOFC/COFC service.'* Moreover, Congress must have foreseen that for the Commission to ‘‘eventually reduce its exercise of authority to instances where regulation is necessary to protect against abuses of market power,’’'’ it must apply the exemption authority to broad categories of service where circumstances permit. Futhermore, our prior equipment exemptions have been sustained by the courts and by all reports are working quite well, see e.g., Ex Parte 230 (Sub-No. 5), Improvement of TOFC/COFC Regulation (not printed), served February 19, 1981, affirmed sub. nom. American Trucking Associations v. 1.C.C., 656 F. 2d 115 (Sth Cir. 1981). In any event, we have given considerable attention here to the commodities normally transported in boxcar. T56e note 1, supra. eg ection 10505(N. 9See note 12, supra. 367 LC.C. 112a 432) INTERSTATE COMMERCE COMMISSION REPORTS Another general argument made by opponents is that the railroads do not need an exemption of boxcar traffic because of the other freedoms they have been granted under the Staggers Act. In effect, they argue tha: regulation should be retained, because it is not unduly burdensome. This argument fundamentally misconceives the mandate of section 10505(a). Congress has directed that the Commission shall grant exemptions wherever it finds that continued regulation is not necessary. The ultimate issue is not whether regulation is harmless, but only whether it must be retained to carry out the rail transportation policy and protect shippers from market power abuse. If regulation is not necessary under these cri- teria, Our instructions are to grant the exemption. The great depth of the congressional commitment to use of the exemp- tion power is further revealed by the SRA’s modification of the earlier version of section 10505 so as to eliminate a requirement that the Com- mission act ‘‘only after an opportunity for a proceeding.” In other words. the statute no longer even requires us to develop a public evidentiary record before we utilize our exemption power. (Nevertheless, out of a desire to act with the best possible record before us, we solicited and received substantial public commentary.) Although one of the options before us is to grant an exemption for Conrail alone, this approach has virtually no support in the record and requires little discussion. Conrail and virtuaily every other party recog- nize the desirability of applying any exemption to all railroads. To exempt! the boxcar traffic of Conrail while subjecting the traffic of other carriers to continued regulation would give Conrail a competitive advantage not warranted by economic considerations. In addition, it would introduce greater complexity into the provision of boxcar service by railroads and its use by shippers. For these reasons and in light of our action on the broader exem ‘ion, we will reject the Conrail-only option without fur- ther discussior. and focus our attention on the question of exempting the boxcar traffic of all railroads. To grant an exemption, we must find both (1) that continued regula- tion is not necessary to carry out the policy of section 10101a, and (2) that either the transaction is of limited scope or that regulation is not needed to protect shippers from the abuse of market power. We grant the exemption on the basis that continued regulation is not necessary either to carry out the rail transportation pclicy of section 10101a or to protect shippers from the abuse of market power. Therefore, there is no need to determine whether a boxcar exemption is a matter of limited scope. We next discuss whether continued regulation of boxcar traffic is nec- essary with regard to each of the major aspects of rate regulation addressed by the participants in this proceeding. D. Maximum reasonableness.—Whether continued regulation of box- car traffic is necessary to prevent unreasonably high rates is an important 367 “Fe 113a EXEMPTION FROM REGULATION—BOXCAR TRAFFIC [433] question under the exemption criteria of section 10505(a). One aspect of the rail transportation policy is to maintain reasonable rates in the absence of effective competition (section 10101a(6)). Controlling unreasonable rates is also an essential component of protecting shippers from the abuse of market power. 1. General constraints on boxcar rates.—The fundamental premise underlying the proposal for a boxcar exemption is that truck competition for the transportation of boxcar commodities is pervasive and limits the railroads’ pricing freedom. The typical boxcar commodity is a packaged or palletized commodity loaded by a forklift truck—the same type of commodity that is typically transported in motor carrier van trailers. Vir- tually anything that can be transported in a boxcar can be transported in a truck. Motor carriage tends to be faster, more accessible, more conve- nient, and sometimes less damaging to freight than rail service, meaning that boxcar transportation generally must be priced to reflect these serv- ice differences to compete successfully. Thus, the market itself places an effective ceiling on rail rates for boxcar transportation, and regulation is unnecessary to assure that boxcar rates do not rise to unreasonably high levels. A number of parties contend, nonetheless, that maximum rate regula- tion of boxcar traffic is necessary. They argue that, where the cost of truck service is much higher than the cost of reasonably Priced rail serv- ice, truck competition does not prevent boxcar rates from rising to exor- bitant levels. They cite long distance, large volume, and special! loading characteristics as factors that can make truck transportation more costly and, in effect, of negligible competitive importance. Shippers will not have to rely on truck competition alone to control boxcar rates. Alternate routes over different railroads are often available, especially over longer routes, giving shippers the benefit of intramodal price competition.” Moreover, most boxcar commodities can also be transported in other types of rail equipment. Since shippers control the type of car ordered, they can turn to nonboxcar equipment if threatened with unreasonable boxcar rates. On TOFC/COFC equipment, rates are strictly controlled by truck competition, while on other types of equip- ment, market dominant rates remain regulated. A shipper’s transportation options are not the only market constraint on boxcar rates. Carriers are aware that there is a certain rate level above which a shipment simply will not move. The shipper must set a market price for his product at a level that covers, among other things, the cost Even though a shipper's plant may be served directly by only a single railroad, we can require that railroad to provide switching services for other railroads serving the same vicinity. We are retaining jurisdiction to require reciprocal switching of or joint use of terminal facilities for boxcar traffic. Shippers themselves may dictate routing of any shipment. 367 LC.C. ll4a [434] INTERSTATE COMMERCE COMMISSION REPORTS of transportation. At a given market location, if the delivered price of the product exceeds the cost to a buyer of purchasing from another source or purchasing a substitute product, the shipper cannot compete in that market and will cease shipping to it. Carriers have no incentive to price their shippers out of their markets and thereby lose their own profitable business. Geographic and product competition, then, often set effective limits on the carrier’s pricing freedom. It should also be recognized that powerful shippers can exert leverage to control transportation rates in markets where competition may be weak. Many rail shippers are large companies shipping or receiving a va- riety of commodities regularly at a number of points. The railroads serv- ing them simply cannot afford to lose their patronage. Thus, even if a car- rier 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 loca- tions where competition exists. 2. Measures of ability to abuse market power.—The record contains two types of general quantitative data on the railroads’ ability to abuse market power in pricing boxcar commodities. Modal share figures show the per- centage of total traffic of particular commodities that have been handled by boxcars and by trucks. Revenue to variable cost ratios provide a basis for judging rate levels on particular commodities.”! Conrail adduced 1980 modal share figures for 18 groups of com- modities moving to, from, or within the Northeast.”? These 18 groups account for over 70 percent of total boxcar tonnage in 1980. For the majority of the groups, trucks transported well over 50 percent of the traffic. In all but two groups, the boxcar share is below 40 percent. Boxcar shares increase substantially for shipments moving farther than 1,000 miles, but exceed 90 percent for only 3 of the 18 commodity groups even at that distance. Boxcar shares also increase for shipments over 60,000 pounds, again exceeding 90 percent for 3 of the 18 groups. Commodities moving by design or choice in larger shipments will tend to move more in boxcars than in trucks as compared to smaller shipments. However, as noted by Conrail, shipment size ‘‘ * * * reflects the actual loaded weight of boxcars and trucks, not the inherent commodity characteristics or order quantities which might limit a product to a single mode.”’ In addi- tion, DOT presented 1977 nationwide figures for 25 groups of com- modities which show that none had a truck market share lower than 20 The statistics cited in the parties’ comments, referring to 1980 or earlier, do not fully reflect the present stength of truck competition. The Motor Carrier Act of 1980 resulted in significant new entry into the business of common carrier trucking, while contract and private motor carriage have benefited from the removal of operating and equipment leasing limitations, and recent legislation has relaxed truck size and weight limits. 22 , — 367 LC.C. 115a EXEMPTION FROM REGULATION—BOXCAR TRAFFIC [435] percent and most were well above 50 percent.” These data show that trucks have already captured the lion’s share of the market. Further, these statistics on market share percentages are more indicative of what transportation alternatives have been selected in the past as opposed to what alternatives are currently available, especially as a result of the more recent regulatory reform legislation. Exemption opponents raise two major questions about the market share data. First, they contend that the commodity groups analyzed by Conrail and DOT are aggregations of many individual commodities. Thus, the market share figures are averages that may mask high boxcar market shares for certain commodities within the groups. Second, they argue that even though trucks may transport a high share of a particular commodity, the traffic in that commodity which continues to move by boxcar may have different characteristics making it captive to railroads.’ Conrail also provided revenue to variable cost ratios for the 18 com- modity groups in its study.** The ratio for the highest group is only 154 percent; all but four groups have ratios below 120 percent. The Commis- sion has no jurisdiction even to examine the reasonableness of any rate producing a ratio below 170 percent.” Thus, it is clear that rates on all these commodity groups are severely constrained by market forces. Exemption opponents challenge Conrail’s reliance on average ratios for aggregations of commodities. A witness for Itel Corporation, Robert L. Banks, used data from a 1977 report by A. T. Kearney to show that some of the commodities included in Conrail’s study have ratios above 180 percent for some of their movements on a nationwide basis.”* Rates by themselves do not indicate the degree of market power possessed by the railroad, since they do not tell us whether a proposed rate will actually move traffic over an extended period of time. If the rate is high, shippers may find alternatives more attractive, forcing the rate back down again. Some may accept the high rate because of a preference for the carrier or because of a premium service associated with it. The market share data and revenue/cost ratios clearly show, however, that on the vast majority of boxcar traffic railroads are experiencing severe competition from motor carriers and are under stringent market constraints in setting box- car rates. Moreover, we have criticized on a number of occasions the va- lidity of the Kearney report data. Exemption opponents, at best, have raised the possibility that there may be occasional exceptions to this general conclusion among the particular commodities transported by boxcar. 5ee appendix B. (9 U.S.C. 1070914) (2) (C). See appendix C. 367 LCC. 1l6a [436| INTERSTATE COMMERCE COMMISSION REPORTS Moreover, we would be totally unable to exercise our powers to exempt a “‘class of persons’’ or a ‘‘service’’ under section 10505 if we were required to find that every person in the class (rather than the class as a whole) or every recipient of the service (rather than the recipients as a group) satisfied the requirements for an exemption. Of course, in an investigation under section 10505, reasonable classes of persons and categories of service should be defined to guide the investigation. Here, the evidence of record divided boxcar commodities into reasonably related groups under a standard classification system. We do not believe that, once reasonable classes and categories have been defined, as they have been here, the statutory criteria could feasibly be applied to individual shippers and movements within each class. 3. Commodities.—While we see no need to examine every possible boxcar commodity individually, we shall review specifically those few commodities about which the greatest cause for concern has been pre- sented. These are: auto parts, paper and forest products, grain, and metals. a. Auto parts.—The major American automobile manufacturers oppose a boxcar exemption, arguing that transportation of motor vehicle compo- nents by truck is not an economical alternative because the traffic is geared to boxcar transportation. Auto parts are transported in high volume on specially designed reusable racks in extra large (86 foot) box- cars. Shippers assert that the same volume could not be handled effi- ciently in truck-sized shipments. The market share and revenue/cost data submitted by Conrail and DOT on automotive equipment unfortunately lump together auto parts transported in boxcars and finished vehicles transported in a different type of freight car.’’ An attachment to the statement of Ford Motor Com- pany shows that about half of the 1977 shipments of automobile parts within the Eastern United States were transported by truck. Conrail indicates that automobile manufacturers are now shifting more of their parts traffic to trucks as they attempt to minimize in-process inventory. Conrail also states that there is strong competition between railroads to transport automobile parts. Of the 38 automotive assembly plants in the eastern ratemaking territory, 28 have direct access to more than one railroad. Even plants served by a single carrier receive traffic for which many routings are possible. Although boxcars may be the lowest cost mode of transportation for many shipments of automobile parts, it does not necessarily follow that boxcar rates on this traffic would rise to unreasonable levels in the "The overall boxcar share for parts and vehicles considered together is only 26.6 percent. See appen- dix A. 367 LCC. 117a EXEMPTION FROM REGULATION—BOXCAR TRAFFIC [437] absence of regulation. With trucks already heavily involved in this market, any increase in boxcar rates can be expected to cause some diversion of traffic. Intramodal competition also exists to prevent any individual carrier from pricing at unreasonable levels. Finally, au- tomobile manufacturers are a classic example of large shippers that can exercise economic leverage to deter unreasonable pricing by the carriers serving them. We have little Joubt that this combination of factors would suffice to preclude any significant abuse of market power on auto parts traffic in the absence of regulation. Indeed, rail carriers have entered into a number of contracts with auto parts shippers. This reflects the relatively equal bargaining power of the two groups and the carriers’ desire to retain this traffic. Furthermore, high revenue/cost ratios do not necessarily mean that market power is or can be abused. It may, instead, reflect a shipper’s willingness to pay more for a premium service, see also 49 U.S.C. 10709(d) (4). b. Paper and forest products. — The category of paper and forest products embraces a large array of commodities, only a few of which present any serious question concerning market power. Conrail’s market share data” show an overall boxcar share of 85 percent for pulp.”? The boxcar share rises to 96 percent for shipments over 1,000 miles. Paperboard has an overall boxcar share of 75 percent, rising to 96 percent for shipments over 60,000 pounds. Comparable figures for paper are 40 percent and 94 percent. The boxcar share of millwork is only 37 percent overall, rising to 90 percent for movements over 1,000 miles. On the other hand, accord- ing to Conrail data, none of these commodity groups has an average revenue to variable cost ratio above 122 percent. Itel’s evidence shows that about 15 to 25 percent of the shipments of these commodities moved at revenue to variable cost ratios above 180 percent; newsprint stands out with 64 percent of shipments above that level. Even though boxcars transport relatively high percentages of the ship- ments of these commodities, it is nonetheless apparent that railroads are generally subject to severe market constraints in pricing that transporta- tion. Trucks already participate substantially in the shorter movements and smaller shipments. Even in the case of newsprint, Conrail states that it has received requests from shippers for competitive rate reductions, showing that trucks are increasingly viable competitors even at fairly remote origins in Eastern Canada. Intramodal competition also exists for the transportation of paper and forest products, even where only one rail carrier directly serves a 28 , See appendix A. DOT's nationwide data show a rail share of only 58 percent for pulp (appendix B) 367 LCC. 118a (438) INTERSTATE COMMERCE COMMISSION REPORTS receiver. Reciprocal switching is available at many points. At others, rail competitors interline with trucks to effect delivery —as CSX is doing on pulpboard shipments to points in Conrail’s territory. Conrail states that it experienced a precipitous falloff in weekly carloadings of SP when it put a surcharge into effect, showing heavy diversion to rail and truck competi- tors. Finally, these commodities are available from a number of pro- ducers, so that no carrier can price a movement excessively without mak- ing its shipper’s product uncompetitive and thereby drying up the flow of traffic. We conclude that continued regulation of boxcar transportation of paper and forest products is not necessary to protect shippers from unreasonably high rates. c. Grain. —Several grain shippers oppose a boxcar exemption, although others support it. Conrail’s study shows only 23 percent of grain mill products moving by boxcar, with an average ratio of revenue to variable cost of only 107 percent, and 41 percent of the traffic moving by truck. DOT’s nationwide figures show the truck share to be even greater. Much of the truck and boxcar traffic appears to be grain in packages or bags. The only serious question of market power in grain transportation con- cerns bulk shipments. The Miller’s National Federation alleges that revenue to variable cost ratios on grain are frequently in excess of 200 percent and would rise to 300 or 400 percent in the absence of regulation. It cites the recent decision of an Administrative Law Judge which deter- mined that a raiiroad’s rates on wheat and barley transported from Mon- tana to the Pacific coast produced ratios of nearly 300 percent, a level which the Administrative Law Judge found to be unreasonably high.” Other evidence in the record substantially mitigates these concerns in our view. Boxcars transport only a minor and rapidly decreasing share of bulk grain traffic, with most rail transportation provided in covered hop- per cars. For example, in North Dakota, boxcars transported 31 percent of the interstate tonnage in 1979, but only 2 percent in 1981.*' This record, and our knowledge of transportation issues generally, convince us that the 40-foot boxcars used to transport bulk grain are obsolete and eventually will all be retired from service and branch lines may be upgraded to accommodate larger covered hoppers. As long as shippers have the option of shipping in regulated covered hopper cars and in trucks, exemption of boxcar rates will not expose them to abuse of market power by railroads. We note that the Commission will retain, as WNno. 37809, McCarthy Farms, Inc. v. Burlington Northern, Inc., (not printed), served December 14, 1981. The Commission has reopened this proceeding for further consideration. 3 Source: ALK Associates, 1979-1981 ICC 1|-percent waybill sample. Transmitted to Chairman Taylor by letter of November 30, 1982, from Charles N. Marshali of Conrail, in response to a question asked at oral argument. 67 LCC. 119a EXEMPTION FROM REGULATION—BOXCAR TRAFFIC | 439) part of its jurisdiction over car sup™'v © gations, its ability to ensure that ratiroads provide shippers with an appropriate supply of available regu- lated. equipment. d. Metals.—Comments submitted by shippers of metals are evenly divided between supporters and opponents of a boxcar exemption. Con- rail’s evidence shows high truck shares and low revenue to variable cost ratios for steel mill products, nonferrous metal products, and nonferrous metal shapes. Although shippers of aluminum and aluminum products claim to be defenseless against boxcar rate increases, large amounts of their traffic move by truck or by other types of rail equipment. The average revenue to variable cost ratio that they claim for their boxcar movements, ‘‘well over 160 percent,”’ is below our jurisdictional threshold. Aluminum shippers argue that railroads have a substantial cost advan- tage over trucks in carrying large items such as aluminum ingots over long distances. They have cited a pending Commission proceeding in which rates on aluminum ingots from the Northwest to the East, Mid- west, and South were shown to produce revenue to variable cost ratios averaging 227 percent, which an Administrative Law Judge deemed to be unreasonably high.*? Even if, as these shippers contend, some aluminum shipments are tied to railroads, they are not tied to boxcars. The traffic at issue in the cited Aluminum Association case moved in bulkheaded flatcars, gondola cars, and boxcars. Some of it, indeed, moved by truck, on flat-bed trailers. As long as shippers have the option of using regulated service, their boxcar rates can be expected to remain competitive with the regulated service rates. Again, we note that the Commission will retain its ability to ensure that railroads provide shippers with an appropriate supply of availabie regulated equipment. In the case of those aluminum products that do move chiefly by boxcar, other market forces exist to control rail rate levels. An Administrative Law Judge recently found that shipments of ‘aluminum can sheet’’ face both geographic and product competition.” We conclude that continued regulation of boxcar rates is not necessary to protect aluminum shippers from the abuse of market power. e. Other commodities.—We have specifically discussed those com- modities about which the most plausible concerns have been expressed. Some shippers of a number of other commodities have claimed to be ““captive’’ to railroad boxcar transportation and unable to resist the No. 37466, Aluminum Association, Inc., v. Akron, Canton & Youngstown Railrcad Co. (not printed) served August 5, 1981. We have reopened this proceeding for further consideration. 33No. 37715S, Aluminum Company of America v. Burlington Northern, Inc. (not printed), served April 11, 1983. 367 LC.C. 120a (440) INTERSTATE COMMERCE COMMISSION REPORTS imposition of unreasonably high freight rates. In no case, however, have we found reason to believe that the boxcar rates on these commodities are unconstrained by the market forces we have discussed. However, we will not exempt nonferrous recyclables from regulation in boxcar service, only because Congress itself has singled them out for the application of special standards. In section 10731(e), Congress directs that rates on these commodities may not produce a revenue/cost ratio higher than necessary to cover a pro rata share of the railroads’ fixed costs, a ratio that currently stands at 146 percent.* In view of this specific provision, Congress apparently did not intend our exemption authority under section 10505(a) to apply to nonferrous recyclable commodities. 4. Conclusion: maximum reasonableness.—Rate regulation is argue ‘ity necessary to prevent abuse of market power only if market forces would permit railroads to increase rates on the service to unreasonably high leveits without experiencing a severe loss of traffic. After careful con- sideration of the present record, we conclude that railroads could not suc- cessfully maintain unreasonably high rates on any commodity transported by boxcar. On most boxcar commodity groups, trucks already are the dominant transportation mode. Even in cases where they are not, boxcar rate levels are generally well below our jurisdictional threshold. We have separately considered the few commodity groups of most apparent concern and found the existence of ample market forces to control boxcar rate levels. Although it may be that occasional boxcar shipments move at rates above a 180-percent revenue to variable cost ratio, that ratio is only a jurisdiction test, not a reasonableness one. In fact Congress explicitly Stated that no presumption of unreasonableness or market dominance attaches to a rate above the threshold level. 49 U.S.C. 10709(d) (4). We have often held rates at higher levels to be reasonable. The present record identifies no commodity moving chiefly by boxcar on which the rate levels are now being controlled by Commission maximum rate prescriptions rather than by market forces. 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 ise to very "J. levels in the absence of regulation. We do not totally rule out the possible existence of such a situation. Nonetheless, the Commission must not succumb to “‘paralysis by analysis.’’ Congress desires that we move aggressively forward in extending the exempt sec- tor of rail transportation, without laboriously erasing every shadow of a ME, Parte No. 394, Cost Ratio for Recyclables— 1980 Determination (not printed), decided November 30, 1982 367 LCC. 12la EXEMPTION FROM REGULATION—BOXCAR TRAFFIC (441| doubt before we act. Indeed, it is not possible to erase all doubts about the consequences of an exemption before the fact. Thus, Congress de- clared that we should instead make exemptions effective and then deal with any special problems ‘‘after the fact,’’ not on a priori possibilities. (As noted supra, we are no longer even required to provide an ‘‘oppor- tunity for a proceeding’”’ before we create an exemption under section 10505.) In this spirit, we find no reason to delay further in exempting boxcar traffic from maximum rate regulation. ; E. Predatory pricing.—A few participants contend that continued reg- ulation is necessary to prevent boxcar rates from being set at levels so low as to be predatory. One goal of the rail transportation policy is to encourage the elimination of noncompensatory rates (section 10101a(10)). Another is to prohibit predatory pricing and practices (sec- tion 10101a(13)). Nonetheless, we conclude that there are probably no instances where predatory pricing by railroads on boxcar traffic is a realistic possibility. Rate decreases are a desired outcome in a competitive environment and ordinarily are not to be discouraged. They become predatory only under a special set of circumstances. These are that the carrier cuts its rates to a level below its marginal costs for the purpose of driving a com- petitor out of business, so that the carrier can then raise its rates to mo- nopolistically high levels and recoup the losses incurred with the rate cuts. Predatory pricing cannot succeed where the competitor is strong enough to withstand a rate war or where new competitors can quickly enter the market when the carrier attempts to raise its rates to monop- olistic levels. We do not regard railroad predatory pricing on boxcar traffic as a realistic concern for waier carriers, motor carriers, and other large railroads. Water carriers operating within the United States mainly transport large volume bulk shipments and depend little, if at all, on the types of commodities transported in boxcars.*> Motor carriers have the ability to enter any transportation market quickly, so that a railroad could not drive them out of a market long enough to enjoy a sustained period of monopoly pricing. Large railroads have the resources and diversity of 35 An exception is the Aleske trade, where boncers moving in weter-rail service between the West coast and Alaska compete with trailers and containers moving in water-truck service. Sea-Land Service, Inc. contends that regulatios. of the Alaska Railroad (ARR) is necessary to prevent predatory pricing since ARR is publicly owned and could rely on subsidies to price below cost. We regard true predatory pricing on the part of ARR as highly unlikely. In 1981, we determined that the rates of ARR cover the cost of service. Study of Alaska Railroad Water/Rail Contract Rates and Water/ Rail Tariff Charge Rates (served June 15, 1981). As DOT notes, competitors of ARR transport 75 per- cent of the freight moving between the continental United States and the area served by ARR. Finally, since there would be no barrier to rapid reentry of competing water-motor service, ARR could not enjoy a sustained period of poxt-predation monopoly pricing. 367 LCC. benim 122a (442| INTERSTATE COMMERCE COMMISSION REPORTS { other business to withstand any rate war that could be waged on boxcar traffic, making it extremely unlikely that predation against them would ever be attempted. Predatory pricing on boxcar traffic might be of theoretical concern in a situation where a large railroad’s only competition for the transportation of boxcar commodities is a short-line rail carrier with limited resources. However, given .ne normally intense intermodal competition for boxcar traffic, these situtions must be extremely rare. Furthermore, it is impor- tant to emphasize that the mere cutting of rates in a competitive situation is not predatory where the rates cover the carrier’s marginal costs, and these costs are difficult to measure precisely. For this reason, the Com- mission, at the direction of Congress, refuses to interfere in rate decreases except in extreme situations. Even on regulated traffic, we do not disapprove rate decreases where the rate covers that small portion of railroad costs we have labeled as ‘‘directly variable.’’** It is also important to recognize that the antitrust laws provide a remedy against attempted monopolization by means of predatory pricing. We conclude that predatory pricing on boxcar traffic is highly unlikely to occur, and even in those few instances where it is a remote possibility, the antitrust laws exist to provide a sufficient deterrent and remedy. Con- gress’ instruction is that we regulate only in those instances where reg- ulation is necessary to protect against market power abuse and other Federal remedies are inadequate for the purpose. See footnote 12, supra. Continued regulation of boxcar traffic is not necessary to prevent preda- tory pricing, nor does it mest Congress’ tests for a continued Commis- sion role. F. Rate discrimination.—The third reason urged for coniinued regula- tion of boxcar traffic is to prevent discrimination among shippers. A goal of the rail transportation policy is to prohibit ‘‘unlawful’’ discrimination (section 10101a(13)). The field of ‘‘unlawful’’ discrimination, however, is a limited one. Regulation has never sought to eliminate all railroad rate discrimina- tion, but only those variances which caused ‘‘unjust’’ discrimination. Pricing differences have always been permitted, whether known as “value of service ratemaking,’’ ‘‘differential ratemaking, or, more recently, ‘Ramsey pricing.’’ Rates have also commonly beefi allowed to vary at different locations depending upon competitive circumstances. To the extent that the Commission formerly attempted to achieve comparability on rates charged for different movements of a commodity over a broad area, a rigid and uneconomic rate structure resulted which 36E x Parte No. 355, Cost Standards for Railroad Rates, 364 1.C.C. 898 (1981) 367 LE. 123a EXEMPTION FROM REGULATION—BOXCAR TRAFFi® 1443 | unduly inhibited the carriers’ pricing flexibility and handicapped them in adapting to changing competitive environments. The thrust of regulation today has moved away from this focus on rate comparability and toward freedom for individual carrier pricing initiatives to maximize revenues in competitive markets. Of particular significance are two actions taken by Congress in the SRA to minimize regulation of rate discrimination. First, Congress provided that prohibitions against discrimination do not apply to rail rates applicable over different routes (49 U.S.C. 10741(f)(4)). This provision removed from the Commission’s jurisdiction many of the situations in which discrimination complaints had previousiy been filed. Second, Congress expressly authorized rail carriers to enter into con- tracts with individual shippers and almost entirely removed contract service from regulation under 49 U.S.C. Subtitle IV (49 U.S.C. 10713(a) and (i)). 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 dis- crimination among shippers of boxcar 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 discrimi- natory impetus. We conclude that continued regulation of boxcar traffic is not necessary to carry out the objective of prohibiting unlawful dis- crimination. G. Joint rates.—A number of parties argue that continued regulation of boxcar traffic is necessary to preserve joint rates for transportation of through boxcar traffic. They view joint rates as essential to the develop- ment and continuation of a sound rail transportation s;stem (section 10101a(4)) and to «ffective coordination among railroads (section 10101a(S), and apparently fear that an exemption would end them. There is no reason to expect that an exemption would iead to cancella- tion of all joint boxcar rates. In the face of truck competition, carriers have strong incentives to make through rail service as attractive as possi- ble. One way of doing this is to offer joint rates. Where carriers cannot resolve disputes over revenue divisions, they may resort to proportional rates instead, but this action need not disrupt through movements. As ’ Section 10713(d) allows a brief period after the filing of a contract with the Commission during which a complaint seeking review of the contract may be filed. As pertinent, only the following grounds for complaint are recognized: (1) the contract undu!: impairs the ability of the carrier to serve the com- plainant; (2) the contract will result in unreasonable discsimination against a port, and (3) in the case of agricultural commodities (including forest products and paper), the carrier has discriminated against the complainant by refusing to enter into a contract with it under similar conditions. Discrimination for these purposes has no broader meaning than under section 1074 b(f) (4), i.e., it does not pertain to rail tates applicable over different routes. 367 L.C.C. 124a (444 INTERSTATE COMMERCE COMMISSION REPORTS ‘ong as the revenue available from a movement is sufficient to afford a revenue contribution above costs to both carriers, they can be relied upon to set their rates, whether joint or proportional, at a level that will keep the traffic moving.* In reaching agreement on divisions on joint rates, neither carrier will insist on a division of profits so disproportionate as to force the other to withdraw from the movement to avoid a loss and thus to forfeit the traffic for both carriers. On the other hand, if the revenue available from the traffic is not great enough to allow even a small revenue contribution for both carriers, no shipper could reasonably expect joint rates to be maintained whether or not the traffic is exempt from regulation. This is especially true since the SRA included new pro- visions facilitating unilateral cancellation of unprofitable joint rates which has been used extensively by carriers. H. Through routes.—Some parties contend that continued regulation is necessary to prevent carriers from closing through routes for boxcar commodities by refusing to maintain any rates, joint or otherwise, under which through shipments could be transported. These parties contend that through route closings could cripple short-line carriers that depend upon interline boxcar traffic and could deprive shippers on their lines of all access to the rail system. In addition, through route closings could as- sertedly be used to eliminate intramodal competition and leave shippers without routing alternatives. Thus, they argue that in these respects box- car regulation is needed un2**r the rail transportation policy to allow com- petition to establish reasonable rail rates (section 10101a(1)) and to ensure the development and continuation of a sound rail transportation system with effective competition among rail carriers (section 10101a(4)). We see no reason to expect large railroads to cancel through routes with originating or terminating short-line railroads. Of course, route clos- ings might occur if a carrier wishes to close routes that involve long hauls over the lines of connecting railroads in order to concentrate the traffic on routes that involve long hauls over its own lines. Nonetheless, it is unlikely that a carrier acting in an economically rational manner would close efficient routings, and the statute (section 10705(e)) specifically recognizes distance and fuel efficiency as factors corroborating the public interest of closing joint routings. Moreover, the Commission will retain jurisdiction”? over mandatory interchange, reciprocal switching and joint use of terminal facilities which should allow for remedial action should it be necessary. 3B indeed, Conrail indicates that the exemption of fresh fruits and vegetables has enabled carriers to make interline arrangements on short notice and to increase the volume of traffic they transport. 39 Discussed below under the heading ‘*Retention of Jurisdiction.” 367 L.C.C. 125a EXEMPTION FROM REGULATION—BOXCAR TRAFF'° (445) I. Tariff publication. —Some exemption opponents contend that con- tinued publication of tariffs for boxcar service is necessary to maintain rate stability, to prevent unmanageable ratemaking complexity, and to inform shippers of rates paid by their competitors. This is a legitimate concern. Nonetheless, we do not expect either undue instability or unmanageable complexity to result from this exemption. Flexibility to adjust rates quickly to meet changing market needs does not imply that rates will change with a frequency that would be disruptive to the business of shippers. Often, rate changes serve to allow a shipper quick access to a new marketing opportunity. This has certainly been our experience with requests to make contracts effective on short notice. Where rate stability is important to a shipper’s operations, there is every reason to expect that carriers will provide it in order to retain the ship- per’s patronage. Indeed a shipper can assure itself of rate stability for exempt services by entering into transportation contracts.” It is difficult to imagine how rates quoted directly to a shipper for exempt transportation could be more complex than some tariff rates. In fact, a major benefit anticipated .rc .. his exemption is rate simplitica- tion. Railroad tariffs are so complex that we have found it necessary in the past to maintain a staff of tariff experts to find and interpret them for our attorneys and accountants. Under other broad exemptions applying to fresh fruits and vegetables and TOFC/COFC service, rail traffic has increased, suggesting that exemptions make rail service easier and more attractive for shippers to use. Finally, we recognize that published tariffs provide shippers a conve- nient source of useful information about their own competitive environ- ments, of which transportation is often an important part. Nonetheless, there is nothing in the rail transportation policy that calls for publicizing railroad rates other than as a tool of rate regulation. Shippers function without knowing their competitors’ nontransportation costs. We have consistently resisted attempts to retain regulation merely to serve tangential interests outside of the scope of our direct statutory respon- sibilities. Freedom from tariff filing requirements is an essential part of the ratemaking flexibility being sought in this proceeding. J. Benefits of exemption.—We have focused on claims of negative effects of a boxcar rate exemption, since section 10101a requires us to find continued regulation unnecessary in granting an exemption. It is ap- Nor do we believe that boxcar tariffs are necessary for the long-term predictability and stability of rates which Lykes Bros. Steamship Company considers to be essential to the flow of import/export traf- fic. We discounted similar arguments when we granted the TOFC/COFC exemption, and railroads con- tinue to participate in import/export shipments of containerized goods. Water-rail breakbulk traffic, which relies mainly on boxcars for inland movement, should be no less adaptable to exempt rail ‘ransportation. 367 LC.C. 126a 1446) INTERSTATE COMMERCE COMMISSION REPORTS propriate to recognize, however, that the exemption will actively pro- mote the objectives of the rail transportation policy in a number of ways. Clearly, it will: (1) allow competition and the demand for services to es- tablish reasonable rates (section 10101a(1)); (2) minimize the need for Federal regulatory control over a substantial portion of the rail transpor- tation system (section 10101a(2)); (3) promote more efficient pricing and service on boxcar traffic and allow carriers, to the extent possible, to earn adequate revenues on this traffic, by removing procedural regulato- ry burdens and allowing rail management to respond flexibly to market conditions (section 10101a(3)); (4) promote effective competition with motor carriers (sections 10101a(4) and (5));(5) encourage efficient railroad management and elimination of noncompensatory rates by allowing full flexibility to manage boxcar service in the most economic manner (section 10101a(10); and finally, (6) to the extent that it enables railroads to retrieve business lost to the motor carrier industry, promote energy conservation ° section 10101a(15)). K. Conclusion: exe» ‘ion from rate regulation. —Taking the transpor- tation of boxcar comm. Jities as a class of service, and excluding only the carriage of nonferrous recyclable commodities, we find that continued rate regulation is not necessary either to carry out the rail transportation policy or to protect shippers from the abuse of market power. Conse- quently, we shal! grant en exemption under section 10505(a).*' To allow the rail industry and its customers a reasonable period of time to prepare for the implementation of this exemption, we shall delay its effective date for a period of 6 months. Implicit in the granting of this exemption is the removal of antitrust immunity for collective ratemaking on boxcar traffic. As DOJ observes, removal of antitrust immunity is the quid pro quo for the bestowal of freedom from regulation. Meaningful deregulation is more than a selec- tive relaxation of the regulatory constraints most disliked by the industry. It fosters vigorous competition among the railroads themselves as well as between the railroads and their rival modes of transportation. Removing antitrust immunity for collective ratemaking has been our uniform pre- clude requisite in exempting other commodities and services from rate regulation. There has been no showing that the public interest requires a different approach in this proceeding. However, our removal of antitrust immunity is not intended to pre- clude collective agreements relating to per diem, mileage, demurrage, “'This exemption also applies to intrastate regulation of boxcar traffic. Once a particular category of traffic is exempted by the Commission, this becomes a standard from which a State cannot deviate, unless we find that conditions within the State warrant an exception. State /ntrastate Rail Rate Au- thority— P.L. 96-448, 367 1.C.C. 149 (1983). 367 LCC. 127a EXEMPTION FROM REGULATION—BOXCAR TRAFFIC |447| storage agreements. As explained infra, we are retaining jurisdiction over car hire and car service, with certain limited w Spunod yo9 1200 SjuswdiYyS S21W OOO | 4240 SIU2WIAO; iS y Aupqonfosd pun Sasoys jays0u 109K0g - ™ Vv XIGN4ddV 2 150a {470} INTERSTATE COMMERCE COMMISSION REPORTS APPENDIX B Modal share of three-digit STCC commodities: ranked by percent of rail tons moved by boxcar 1977 tonnage Percent of tonnage by all modes! mode (1977)? Commodity code Commodity (000s) Rail Truck Other 263 Fiberboard, paperboard or pulpboard ---------------- 27,629 67 30 3 264 Converted paper or paperboard products ----------- 14,728 35 62 3 262 Paper 30,768 49 44 7 325 Structural clay products 24,218 24 76 0 301 Tires or inner tubes 5,067 39 60 0 243 Millwork or prefabricated wood products ----------- 26,258 ce 62 a 261 Pulp or pulpmill products 9,381 58 21 21 335 Nonferrous metal basic shapes 13,213 18 81 | 266 Building paper or building board 2,618 29 66 5 249 Miscellenous wood products 23,967 29 69 2 333 Nonferrous metal primary shelter products -------- 13,986 42 $2 6 371 Motor vehicles $0,734 49 47 4 242 Sawmill or planing mill products 60,707 26 70 4 204 Grain mill products 109,538 37 61 2 206 Sugar, beet or cane 21,036 32 56 12 208 Beverages or flavoring extracts 80,713 17 82 l 402 Waste or scrap N/A N/A N/A N/A 329 Abrasives or asbestos products 56,985 % 4 l 203 Canned or preserved fruits 36,825 27 69 4 289 Miscellaneous chemical products 23,421 22 71 * 282 Plastic materials 29,733 44 $2 4 209 Miscellaneous food preparations 69,557 29 64 7 011 Field crops N/A N/A WN/A N/A 331 Steelworks or rolling mill prducts 130,195 % 60 3 281 Industrial inorganic chemicals 197,352 33 39 28 21977 Census of Transportation, Commodity Transportation Survey. NOTE: Mode shares may not sum to 100 due to rounding. APPENDIX C Boxcar commodities with some r/vc ratios exceeding 180 percent SPC Percent in Traffic ex- code Commodity boxcars? — ceeding 180 percent r/vc Percent l Cotton - - 944 13.4 27 Phosphate fertilizers 10.2 18.9 30 Canned fruits and vegetables 90.9 5.6 See footnotes at end of table 367 LC.C. 15la EXEMPTION FROM REGULATION —BOXCAR TRAFFIC |471] Boxcar commodities with some r/vc ratios exceeding 180 percent —Continued SPC Percent in Traffic ex- code Commodity boxcars? ceeding 180 percent r/vc Percent 31 Other canned footstullls ---------...2.-.2-.2...200e.eeeeseccsccceees 929 53 32 Frozen fruits and vegetables -------------------------------------- 979 78 33 Wheat mill products ---------200.00c222.2.sccccccccccecececscocees $06 6.0 34 Dry cornmill products --------------.-----------cessseseeeceeeenees 64.7 33.3 35 Other grein mill products ----------.-.2...2.2.2c2.-senceccceceeeeee 60.1 12.6 37 Cereal preparations ------------.--.----22--00.seececeeeseceneaceeeees 99 6 6.7 38 SUGAl -----------------0--ennnnnnennnrennneennnnnaneneneencecenesecensees 31.3 30.7 39 Malt liquors -----------2222--200-eeenenenrorecncssscccenecesenesecesens 98.4 11.6 40 Wines and brandy --------------------cececeseoeeccoe-coscncnceeeeees 75.4 1.4 44 TOBACCO PrOduUctS ---------------------e--nnne-neenenecececeeceeceeees 96.0 1.6 45 Tentile prOducts------------2-200---oceecceocecscececccscecsencesecees 72.0 0.5 48 Te 429 11.5 51 Millwork --------------------0000-eeceeeecene-- cneeeneeeeeeeeeeeees 96.3 5.0 52 eee din» snciinhinitiiasiniiatipen 97.1 14.2 54 Particle Board --------2--.2.--0ccnccrccecccncscecesecscncscnceceesecees 83.7 17.9 55 Furniture -----------------------0e0eeeeennneenennnnnsnnnnececncecececes 91.4 2.5 56 Wood pull --------------------00000-0e0--nen-e---nencececeeeeseeneeeees 97.8 24.1 57 NEWSPPiNt ---------------------0-0-000eeeeneneneeenneeneneneneeeneeenee 98.5 63.6 58 Ground wood paper --------------------------------eeeeeeeeeseeeeeee 98 > 198 59 Printing paper ----------- (eet tee enn neneneneeneneeeeeeeeeeeseeenees “oe 91.7 14.9 60 Wrapping paper ---------------2--.-.---------0---eenesenseeeeeeceeee 97.6 19.5 61 Pulpboard -----------------------0-----0--e-neeeensenennesececeececees 98 6 14 62 Pulpboard, corrugated ------------------0.-..cecececesecececeeeecene 98.7 26.1 63 Sanitary paper products-----------------------------2--0-------000-- 99.2 47 64 Paperboard boxes -----------------------------e---eee-eeeeeeeseeeeeee 96.9 10.2 65 Food containers ---------------------------------seeceeeeeeeeeseessees 93.0 74 66 Building paper ---------------------------------2--enee-eeeeeeeeeeeeeee 81.5 6.3 76 Agricultural chemicals ----------------------------.----------------- 12.5 28.7 78 Bi eeetteeceeisccrcnennccnnsencocastananesensseccntenceumsennesons 72.2 46.4 79 Detergents -------------------------------0-00---eeeeeeneeneneeeeeeeee 54.9 18.2 86 Construction materials --------.-.-.-.-----.-.2.0.-.-.sceseseeeeeees 843 21.6 89 Uc 92.1 13.5 90 Plastic PrOGUcts --------2022--2022-----eeeenneceneeencccsccececcscness 96.0 11.6 93 Bricks -- .---------------0-------------+----0-000-- eeeseenececceccceneeee 95.2 19 94 Clay refractories --------------.------0--0--e0neeeeneeeeseececesescees 94.6 12.6 97 Mineral wool ------------------------+---+++000-0-eeeeneeeeeeeneeeeeee 95.1 10.9 104 Primary copper products ------------.----------------0--se0eeeeeee- $6.0 536 105 Primary zinc products ------------------------------+---------++---- 100.0 36.2 106 Primary aluminum products-------------------- eoeeeeeeeeeeeenenee 61.1 47.8 107 Brass shapes --------------------------------0-000-02c0e2-eeceeeeeeeees 647 492 108 Aluminum shapes ----------------------- 76.1 $0.7 109 Metal containers --------------------------- +++ --2-0++theee-eeseseeee- 11 20.2 112 Major appliances -------------------------+-----+---------+-----+-+- 817 256 116 Motor vehicle parts ------------------------------++--200-+--2-00+0- 94 3 $2.3 119 Nonferrous metal scrap ----------------------------------+----+-++- 70.7 30.7 120 Textile waste ---------------------------+-0+-0-0+eeeeeeeeeeeneee enone 97.2 21 121 Paper waste ----------------0------0.-2000--nenenenenenenceceeeseceenes 99.0 6.6 123 Shipping containers -----------------------------+-++---2-2-e0eeee00- 60.6 5.4 367 LCC. 152a (472| INTERSTATE COMMERCE COMMISSION REPORTS Excerpted from Robert L. Banks’ table 9, based on A. T. Kearney study of April 29, 1977. Percent of rail traffic, not of total commodity traffic. Most commodities below 50 percent and fresh fruits and vegetables omitted. Percent of rail traffic between points in U.S. APPENDIX D Chapter X of Title 49 of the Code of Federal Regulations is amended by the addition of a new section 1039.14 as follows: 1039.14 BOXCAR TRANSPORTATION EXEMPTION (a) The rail transportation of all commodities in boxcars is exempt from the provisions of 49 U.S.C. Subtitle IV except as otherwise provided in this section. (b) The Commission retains jurisdiction in the following areas. (1) Car hire and car service. (2) Mandatory interchange of equipment. (3) Reciprocal switching or joint use of terminal facilities. (4) Car supply. (S) Rates for the transportation of recyclable or recycled materials other than ircn and steel. (6) Freight carpooling agreements. (c) Rail carriers are authorized to take the following actions with respect to boxcar equip- ment use: (1) Assess charges for empty movement of cars where movements are made at the request of the carowner, the Association of American Railroads, or the Commission. The empty mileage charge is subject to a maximum of 35 cents per mile, as adjusted for infla- tion or deflation using the rail cost adjustment factors published periodically by the Com- mission in Ex Parte No. 290 (Sub-No. 2), Railroad Cost Recovery Procedures. \n applying those factors, the figure of 35 cents shall be treated as having been in effect on October |, 1982. (2) Store empty cars and reclaim car hire payments beginning at the expiration of a 72- hour grace period after the car is made empty. (3) Negotiate bilateral agreements governing car hire rates, empty movements, and storage. (d) Carriers must continue to comply with Commission accounting and reporting requirements. Railroad tariffs pertaining to the exempted transportation of commodities in boxcars will no longer apply. This exemption shall remain in effect. unless modified or revoked by a subsequent order of this Commision. (Authority 49 U.S.C. 10321 (a), 10505 and 11122.) 367 LCC. 153a APPENDIX E Served November 3, 1983 IIIs s——"_""_"{_"=={{aq{E[{={=_—_— 31473 INTERSTATE COMMERCE COMMISSION Ex PARTE No. 346 (SuB-No. 8) EXEMPTION FROM REGULATION—BOXCAR TRAFFIC 154a |746| INTERSTATE COMMERCE COMMISSION REPORTS TABLE OF CONTENTS Page I. INTRODUCTION -------cccccscscesscenccsesousssvansunsumneumenns 747 Il. THE FREIGHT RATE EXEMPTION -------------------------- 748 A. Exclusion of Alaska Railroad -------------------------------- 748 B. Other freight rate exemption issues ------------------------- 752 Ill. THE CAR HIRE EXEMPTION ---------------------------0--0-- 755 a | eT 755 B. Nature of enemgtlen -~---cccccecsecernccccsesacenenineennnsnes 757 C. Lawfulness of exemption under 49 U.S.C. 10505 (a)------ 758 D. Lawfulness of exemption under 49 U.S.C. 1] 122 --------- 759 E. Incentive effects of exemption ------------------------------- 761 F. Requests for enclusions ----cccc-cnecececesecusersseseneneceuns 764 G. Bargaining strength ---- The very purpose of a section 10505 exemption is to eliminate unnecessary regulatory restraints on price and service changes which may be found in our governing statute. Given the pervasive competition for boxcar traffic, the rail transportaion policy of section 10101a does not require retention of restrictions on ratemaking for through boxcar service involving class III carriers. As already noted, we expect no loss of service on efficient routes. No new arguments were raised in the petitions concerning other as- pects of the freight rate exemption. Thus, we reaffirm our previous con- clusions on this subject without further discussion. **See, e..,49 U.S.C. 10101a(10) and 10707a(e)(2)(C), both of which favor the elimination of non- compensatory rates. 5The Commission has clearly stated that it does not favor rate equalization between efficient and inefficient routes, as follows Nor do we think it would be in the public interest for carriers to attempt to maintain equalized rales Over competing joint routes. Obviously, some of the many routes between two points will be much more costly than others. If railroa are to compete effectively with other modes, a more efficient route must be permitted to carry a lower rate. It should not be priced at the same level as other joint rates between the points involved. The railroads, faced with a declining market share, must be free to make rate adjustments necessary to attract or retain traffic. Traffic Protective Conditions, 366 1.C.C. 112 at p. 122 (1982). See also Guilford Transp. Industries, Inc. — Control—D&H Ry. Co., 366 1.C.C. 396, 408-09 (1982). %7LCOC 163a EXEMPTION FROM REGULATION—BOXCAR TRAFFIC (755) Ill. THECAR HIRE EXEMPTION A. Background.—Car hire regulation, like freight rate regulation, has been an obstacle to pricing flexibility and cost reduction in boxcar serv- ice. The rentals railroads pay for use of one another’s cars are based on a formula prescribed by the Commission.” Each day that a car is on the lines of another carrier, the car’s owner collects the prescribed rental charge, not only while the car is loaded, but even after it is unloaded, regardless of whether the car stands idle on the other carrier’s lines, is reloaded for return movement, or returns empty. A phenomenon caused by this system especially during periods of low traffic movement, such as the present, is the unnecessary cross hauling of empty cars. A carrier with a shipment to load for transport to a destina- tion on another carrier’s lines, and with an empty car of that carrier available, generally returns that carrier's car empty and loads the ship- ment in its own car. When the shipment is delivered and the other carrier has a shipment to load in the reverse direction, it too returns the availa- ble car empty, and loads the shipment in its own car. Under the present roles, each carrier often finds that it is a net benefit to load its own car and collect car hire from the other carrier, rather than to load the other car- rier’s returning car and collect only its share of the freight revenue.”’ Obviously, this unnecessary hauling of empty cars inflates each carrier’s operating costs compared to costs that would be incurred in loading the returning foreign car and avoiding unnecessary movement of the orig- The formula distributes the annual car ownership costs, including return on capital investment, over the number of days that a car is “‘active’’ (i.€., not stored on the owner's lines). Given the purchase price and age of a car, this formula produces the daily and per-mile rental charge that the car is entitled to earn. See Car Service Compensation— Basic Per Diem Charges, 358 1.C.C. 715 (1977) and 362 LC.C. 884 (1980). 7 2 In each case the carrier musi compare the following costs and benefits: Using a system car Using a foreign car 1. Car-hire cost of foreign car returned empty to gateway Car-hire cost on foreign car returned loaded to gateway 2. Operating cost of moving foreign car empty to gateway 3. Operating cost of repositioning system car for loading 4. 5. Operating cost of moving system car loaded to gateway 6. Car hire revenue earned by system car while off line Operating cost of moving foreign car loaded to gateway Operating cost of repositioning foreign car for loading Car-hire cost of holding and repositioning foreign car for loading (footnote continued on next page) 367 LC.C. 164a (756| INTERSTATE COMMERCE COMMISSION REPORTS inating carrier’s car. The receiving carrier is unable to discourage this inefficient loading pattern, since it is required to accept the other carrier’s loaded car and pay the prescribed rental rate. Another defect of prescribed car hire is that it creates at least the illu- sion of a guaranteed refurn on investment, encouraging investors to acquire cars without regard to the adequacy of the existing car fleet. Because prescribed car hire provides earnings proportional to a car’s purchase price, it also encourages the acquisition of expensive cars, even though their higher rental costs must ultimately be passed on to shippers, making boxcar service less competitive with truck transportation. Finally, because a carrier that loads a shipment in its own car can always earn the prescribed rental rate, it seldom charges less, even though our regulations permit it to do so.”* Thus, most car rental rates do not fall when the demand for cars is weak.”” This unresponsiveness of prescribed car hire to market conditions discourages freight rate reduc- tions that might attract additional traffic. (footnote 27 continued) Under the present system, the originating carrie: disregards the costs and benefits that his decision creates for the delivering carrier, which are as follows: Using originating carrier's (o.c.) cars 1. Operating cost of moving o.c. car loaded from gateway to destination 2. Operating cost of moving o.c. car empty from destination to gateway (if no return load available) 3. Car-hire cost on o.c. car moving loaded from gateway to destination 4. Car-hire cost on 0.c. car moving empty from destination to gateway (if no return load available) 5. Car hire earnings on d.c. car moving empty to gateway 6. Using delivering carrier's (d.c.) car Operating cost of moving d.c. car loaded from gateway to destination Car hire sarnings on dc. car moving loaded from origin to gateway Car hire earnings on d.c. car being held and repositioned for loading. The car hire exemption’s effect on the loading carrier's incentive to use its own car is discussed in part IIL.E. of this decision. 25 Flexibility in Setting Railroad's Per Diem Levels, 364 1.C.C. 107 and 291 (1980). 29 indeed, the prescribed car hire level rises when demand is weak because car ownership costs are dis- tributed over fewer active car days under the car hire formula. Because of this and other aspects of the formula, the AAR has alleged that the prescribed car hire level would have jumped by 25 percent in 1983. Recognizing the inappropriateness of this increase under current economic conditions, the Asso- ciation of American Railroads and The American Short Line Railroad Association petitioned us for (footnote continued on next page) 367 LCC. 165a EXEMPTION FROM REGULATION—BOXCAR TRAFFIC | 757) B. Nature of exemption.—Conrail initially proposed a full exemption of car hire from regulation. Most parties to the proceeding objected because they felt that prescribed car hire was needed to ensure order and coordi- nation among railroads in the use of the boxcar fleet. In response, Con- rail submitted a modified proposal which retains the prescription of car hire rates but encourages voluntary agreements between carriers to reduce car compensation and car handling costs when traffic levels are low, and enables receiving carriers to reduce car rental costs on idle cars even in the absence of agreements. We adopted Conrail’s modified pro- posal. The conditioned exemption is a useful step toward greater respon- siveness of car rental rates to market conditions. At the same time, because it does not completely abandon the established car hire system, it lends itself to prompt implementation.” Under the adopted proposal, carriers have the option of reaching bilat- eral agreements on car compensation to. apply in lieu of prescribed car hire. These agreements can embrace all matters that the parties regard as pertinent, including car reloading practices and freight rate reductions. Where agreements are not reached, carriers will be allowed (but not required) to charge car owners as much as 35 cents per mile for returning empty cars when ordered to do so. Carriers may also reclaim (cancel) car hire payments on cars stored empty on their lines for more than 3 days. Our action exempts carriers from 49 U.S.C. 11122 to the extent that they do not have to observe the car hire rates we prescribe. In the present decision, we shall refer to this action, for convenience, as the ‘‘car-hire exemption.’”?' Certain details of this exemption have been misun- derstood by some parties. For clarification, we will state that, in the absence of a contrary agreement by the parties, the prescribed car hire rates continue to appy to empty movements, whether or not empty return charges are imposed by the carriers handling the car. In addition, cars stored off line are subject only to a reclaim or cancellation of the applicable car hire for the storage period, not to the imposition of other storage charges. (footnote 29 continued) a postponement of the updating of the car hire level. We granted a pcstponement pending receipt of comments in Ex Parte No. 334, Car Service Compensation— Basic Per Diem Charges (not printed), served March 30, 1983. Notwithstanding the counterproductive impacts that this car hire increase could have had on freight rates, ihe postponement was challenged by ltel Corporation, a firm that leases boxcars to short line railroads in exchange for car hire revenue. (Per diem leases are discussed in part III.1. of this decision.) Itel’s petition to stay the postponement pending judicial review and to proceed with updating of the car hire level was denied by our decision served June 23, 1983 (not printed) The Commission did not reject in principle the notion of complete deregulation of car hire. A pro- ceeding inviting comment on that and other car compensation options for all types of freight cars will be instituted soon, as Ex Parte No. 334 (Sub-No. 6), Review of the Car Hire Compensation System. ‘More precisely, our action constitutes a partial exemption from regulation subject to conditions, as discussed in part III.C. of this decision. 367 LC.C. 166a |758| INTERSTATE COMMERCE COMMISSION REPORTS C. Lawfulness of exemption under 49 U.S.C. 10505(a).—In adopting the modified Conrail proposal, we acted under 49 U.S.C. 10505(a). That sec- tion authorizes us to grant exemptions from provisions of 49 U.S.C. Sub- title IV when we find that continued regulation is not necessary to carry out the rail transportation policy of 49 U.S.C. 10101a or to protect ship- pers from abuse of market power. Certain parties contended that the proposal would result in inadequate compensation to car owners, choking off new investment and reducing the availability of boxcars. They asserted that these consequences would be contrary to requirements of the rail transportation policy to ensure the development and continuation of sound rail transportation (section 10101a(4)), to foster sound economic conditions in transportation (sec- tion 10101a(5)), and to promote an efficient rail transportation system (section 10101a(3)).°? We recognized that permitting supply and demand to influence car compensation would result in some financial burdens on suppliers when supply greatly exceeds demand (conversely, potential financial benefits when demand exceeds supply), but we con- cluded that any adverse effects would be limited in extent and duration especially if [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0336%3A03. Public record. Not legal advice.