Appendix — Crounse Corp. v. Interstate Commerce Commission

85-2138

Supreme Court, U.S.

a i & DD

In the

JUN Se TER

JOSEPH F SPANIOL, Jk

CLERK

na

Supreme Court of the United States

OctoBer TERM, 1985

CROUNSE CORPORATION, er Au.,

PETITIONERS

v.

INTERSTATE COMMERCE COMMISSION, er Atv.

RESPONDENTS

APPENDIX TO PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH C

IRCUIT

RicHarD A. ZFLLNER

Mark E. StTais

SMITH R. BrittincHaM, III

HauHN Loeser & Parks

800 National City E. 6th Bldg.

Cleveland, Ohio 44114

A. DUNCAN WHITAKER, P.C.

ALAN M. WISEMAN

Rosert M. Bruskin

Howrey & SIMON

1730 Pennsylvania Ave., N.W.

Washington, D.C. 20006

James F. BROMLEY

BROMLEY, Brown & WALSH

1625 Eye St., N.W.

Washington, D.C. 20006

Counsel for Petitio

WivuraM L. Patron

Counsel of Record

Tuomas H. Hannican, Jr.

Ropes & Gray

225 Franklin Street

Boston, MA 02110

(617) 423-6100

WituaM E. Hynan

Perer A. GABAUER

1130 17th St., N.W.

Washington, D.C. 20036

NicHowas J. SPAETH

LYNN L. SCHLOESSER

Mary ANN JOHNSON

State Capital

Bismark, N. Dakota 58505

ners

Blanchard Press, Inc., Boston, Mass. — Law Printers [617] 426-6690

TABLE OF CONTENTS

Page

APPENDIX A

January 23, 1986 Opinion of the United States Court of

Appeals for the Sixth Circuit...................... la

APPENDIX B

January 23, 1986 Judgment of the United States Court of

Aappeens COr Tee TE CCU... 5 cence. 42a

APPENDIX C

March 28, 1986 Order of the United States Court of Ap-

peals for the Sixth Circuit Denying Rehearing En

ae OO a Ee ee eater Rane ee deste omen ae 43a

APPENDIX D

April 11, 1986 Dissenting Opinions of Judges Merritt and

Jones from Order of Sixth Circuit Denying Rehearing

eT eee re Te ee ee re eer 44a

APPENDIX E

August 27, 1984 Decision of Interstate Commerce Com-

(BRS IE, reg ak oF iyi ieg Sch PENS eI an Oe Rata a Rede 47a

APPENDIX F

UN IE Sg bh a cree ed egy 2lla

1. Chapter 390, § 11, 37 Stat. 566-68 (1912)........ 2lla

Be a We, SCR IPL ETD COTTE: vo wk ck oe eet eee bi 215a

pe Ge Whe, UU COGS Ghee Gus esae ness 217a

APPENDIX G

Information on Petitioners Required by Supreme Court

| sD rota rior errr ee eG ere 219a

la

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Nos. 84-3743 THROUGH 84-3753,

84-3842, 84-3865 \

CROUNSE CORPORATION, Et AL.,

PETITIONERS,

v.

INTERSTATE COMMERCE COMMISSION

AND UNITED STATES OF AMERICA,

RESPONDENTS.

ON PETITION FOR REVIEW OF A DECISION OF THE

INTERSTATE COMMERCE COMMISSION

DecIDED AND Fitep January 23, 1986

Before: KENNEDY and Krupansky, Circuit Judges: and

TimBers,* Senior Circuit Judge.

KeNNepy, Circuit Judge, delivered the opinion of the Court

in which Krupansky, Circuit Judge, joined. Timbers, Senior

Circuit Judge (pp. 33-42) delivered a separate dissenting

opinion.

* The Honorable William H. Timbers, Senior Circuit Judge, United States

Court of Appeals for the Second Circuit, sitting by designation

2a

KeNNepy, Circuit Judge. In this appeal, petitioners! contest

the August 27, 1984 decision of the Interstate Commerce Com-

mission (Commission or ICC) approving the acquisition by CSX

Corporation, the nation’s second largest railroad, of American

Commercial Lines, Inc. (ACL), which owns the nation’s largest

bargeline, American Commercial Barge Lines (ACBL). Peti-

tioners and intervenors claim that the ICC erred in holding that

the transaction violates neither the Panama Canal Act, 49

U.S.C. § 11321, nor section 11344 of the Interstate Commerce

Act, 49 U.S.C. § 11344. We find that neither statute prohibits

the transaction and, therefore, we uphold the ICC’s interpreta-

tion and application of the statutes. We also find that the ICC

took the requisite “hard look” at the potential consequences of

the merger in its Environmental Assessment of the proposed

transaction. We therefore affirm the Commission's order.

Liquid chemicals, farm products and coal are the three prin-

cipal commodities served by railroads and bargelines. Over its

27,000 route miles, CSX—the largest railroad east of the

Mississippi River—transports 47.9% of chemicals, 31.6% of

farm products and 48.3% of the coal moved by all Class I

railroads in the East. ACBL, the nation’s largest bargeline,

covers 7,500 water route miles and is the only for-hire water

carrier which is among the top three for-hire bargelines in each

of the three principal commodity markets. In some areas, CSX

and ACBL routes parallel each other to a significant degree.

On November 4, 1983, CSX and ACL jointly filed with the

ICC an application for CSX to acquire control of ACL and

ACBL. In support of the application, the companies asserted

that the transaction would achieve substantial public benefits in

the form of reduced costs, innovative joint marketing and

ratemaking opportunities and other benefits of integrated

operations. The companies claim they would be able to offer

' Petitioners are eleven water transport companies, the Tennessee Valley

Authority, and the Iilinois Legislative Director for the United Transportation

Union. They are joined by numerous intervenors.

3a

shippers more efficient, better coordinated, intermodal ser-

vices, which would expand shippers’ marketing options. In this

way, the consolidation would allegedly make CSX and ACL

more competitive, thereby enhancing the overall com-

petitiveness of the market.

Various parties participated in the public hearings held

before an Administrative Law Judge between February 22 and

May 11, 1984. Numerous shippers, states, utilities, water car-

riers and labor organizations opposed the application on various

grounds. Some shippers and states supported the application.

The ALJ made no findings of fact, nor did he prepare a recom-

mended decision. He simply oversaw the hearings. With the

benefit of the record generated by the hearings, the ICC heard

oral argument on June 21, 1984. On August 27, 1984, in a

lengthy written decision, the ICC approved the acquisition sub-

ject to certain oversight and reporting conditions which the ICC

imposed as a precaution, to enable it to take corrective action

against unforeseen anticompetitive effects.

Essentially, petitioners object to the Commission's decision

on the ground that it eviscerates the Panama Canal Act, 49

U.S.C. § 11321, which prohibits railroad ownership of

bargelines except under certain specified conditions. Petitioners

do, however, suggest various other grounds for reversal: that

the Commission arbitrarily and capriciously concluded that the

merger would not result in any reduction of competition pro-

hibited by the Interstate Commerce Act, 49 U.S.C. § 11344;

that the Commission denied the public a full and fair hearing

by deciding the case without the benefit of an initial ALJ deci-

sion; that the Commission has no authority to impose oversight

conditions in a Panama Canal Act case; that the Commission

failed to impose protective conditions for the benefit of

employees or other railroads; and that the Commission failed to

assess the potential environmental effects as thoroughly as is re-

quired by the National Environmental Policy Act of 1969, 42

U.S.C. § 4321. We address each of these issues in turn.

4a

Yielding to public concern over the anticompetitive effects of

some rail-barge consolidations, Congress passed the Panama

Canal Act (the Act) in 1912. The Act generally proscribes

railroad ownership of or interest in a water carrier on a water

route with which the railroad does or may compete for traffic.

The proscription, however, is not absolute. The Commission

may authorize the acquisition of such an interest

when the Commission finds that ownership, operation,

control, or interest will still allow that water common car-

rier or vessel to be operated in the public interest advan-

tageously to interstate commerce and that it will still allow

competition, without reduction, on the water route in

question.

49 U.S.C. § 11321(b).

Only a finding of competition between the acquiring railroad

and the acquired bargeline triggers the statutory prohibition

and necessitates inquiry into the applicability of the exception.

49 U.S.C. § 11321(a). If the Commission finds no such com-

petition, the Act does not preclude the merger. See generally

American Waterways Operators, Inc. v. United States, 386

F.Supp. 799 (D.D.C. 1974).

Upon examination, the Commission determined that CSX

and ACL do compete, within the meaning of the Act. The

Commission then analyzed the merger in terms of the above

exception’s two prongs—the public interest prong and the com-

petition prong. Viewing the two prongs as closely related, the

Commission found that the public interest prong was satisfied

by a showing that the CSX-ACL combination would not be

able to flout the public interest by engaging in anticompetitive

behavior ultimately allowing it to charge supracompetitive

prices. In the Commission’s view, a finding that that particular

harm would not ensue sufficiently ensured the continued opera-

tion in the public interest contemplated by the statute.

Nonetheless, the Commission also pointed out that anticipated

improvements in operating efficiency and quality of service also

indicated that the water carrier would continue to be operated

in the public interest.

\

5a

Leaving the public interest prong and turning to competi-

tion, the Commission analyzed the competitive nature of the

barge industry and concluded that the merger would not be

harmful to competition on the waterways. The Commission

conceded that the merger could harm individual competitors

but, rejecting its own precedent in Jllinois Central Railroad Co.

—Control—John 1. Hay Co., 317 1.C.C. 39 (1962), ruled that

harm to competitors is not harm to competition within the

meaning of the statute. The commission also rejected Hay’s

holding that the exception required not only a finding that com-

petition would not be reduced among water carriers, but also a

finding that competition would not be reduced between water

carriers and railroads, including competition between the

acquired carrier and the acquiring railroad. The Commission

therefore looked only at the effect the merger would have on

competition among water carriers, and ignored the effect on

rail-barge competition. The Commission found that the com-

petitive structure of the barge market is such that the merger

does not threaten to harm competition between water carriers.

In petitioners’ view, the Commission has misinterpreted the

Act. According to petitioners, the Act reflects Congress’ desire

to implement a policy of strict rail-barge separation, subject to

only the narrowest exceptions. Petitioners argue that nothing

could be further from the narrow exception contemplated by

Congress than this merger of giants in their respective modes of

> The Commission also suggested that a finding of no harm to competition

could be made if competition between CSX and ACL was so minimal that the

merger could not have a substantial anticompetitive impact. Petitioners argue

strenuously that finding competition between CSX and ACL to be minimal is

arbitrary and capricious. We would agree that such a finding might very well!

be arbitrary and capricious, but our reading of the ICC decision indicates that,

if such a finding was in fact made (the Commission did refer to CSX-ACL

competition as “modest”), it did not form the basis for the Commission's con-

clusions about harm to competition. Rather, the Commission's analysis of the

competition prong relies on its view that only barge competition and not rail-

barge competition, is relevant under the statute.

Da

transportation. Petitioners also argue that the exception pro-

vided for in the Act requires consideration of the effect on rail-

barge competition, not just barge-barge competition.

Zealously as petitioners contest the Commission’s interpreta-

tion of the Act, they nevertheless also argue that even if that

interpretation is correct, the Commission has misapplied the

Act. Petitioners submit that the Commission’s application of the

Act is flawed because it is based upon factual determinations

regarding the barge industry which petitioners contend are

arbitrary and capricious. Specifically, petitioners object to the

Commission’s findings that the barge industry is highly com-

petitive and relatively unconcentrated, and that barriers to

entry in the industry are not high.

Although substantially intertwined, our review of the Com-

mission’s interpretation of the statute naturally differs

somewhat from our review of the Commission’s application of

the statute. While an agency’s interpretation of a statute is

entitled to deference, “federal courts bear the ultimate respon-

sibility for interpreting federal statutes.” Meade Township v.

Andrus, 695 F.2d 1006 (6th Cir. 1982). Our task, however, is

not to determine whether we think the Commission’s construc-

tion is the best construction, but only to determine whether the

Commission's construction was “sufficiently reasonable.” Train

v. Natural Resources Defense Council, 421 U.S. 60, 75 (1975).

“To satisfy this standard it is not necessary for’ a court to find

that the agency’s construction was the only reasonable one or

even the reading the court would have reached if the question

initially had arisen in a judicial proceeding.” Federal Election

Commission v. Democratic Senatorial Campaign Committee,

454 U.S. 27, 39 (1981).

The characterization of the Panama Canal Act as a strict pro-

hibition against railroad ownership of bargelines runs through

all of petitioners’ arguments, and petitioners would have us

consider all of their arguments against the imposing back-

ground of this characterization. Such characterization, if accu-

7a

rate, would make it difficult to interpret a narrow statutory

exception to encompass a merger between companies the size of

CSX and ACL. Our reading of the statute, the legislative history

of its initial passage in 1912, and the legislative history of its

reenactment in 1940, convinces us, however, that Congress did

not intend to mandate absolute rail-barge separation, but,

rather, meant to remedy a particular evil which frequently

accompanied railroad acquisition of bargelines.

The “evil” which spurred Congress to action in 1912 was the

distasteful propensity of railroads to buy up a bargeline with

which they actively competed, lower barge rates on that line

sufficiently to drive other barge competitors out of business,

then close the acquired bargeline or raise its rates to the level of

rail rates, leaving shippers no genuine alternative to rail

transport. The large financial resources of the railroads allowed

them to weather the short-term loss associated with the reduced

barge rates, while forcing the smaller, independent barge comi-

panies from the water.

The legislative history is replete with references to this prac-

tice. For example, Senator Chamberline remarked:

The people of Portland, Oregon, are practically at the

mercy of the same Southern Pacific Co. That company

operates a line of railroad from Portland, Oreg., to San

Francisco, and at the same time they operate the only line

of steam ships between Portland and San Francisco. What

is the effect? If they charge a rate which is unfair or too

high, an independent line of steamers is out on the river

and ocean route. Immediately the railroad-controlled

steamers and the railroad itself reduce the rate to a figure

which will not afford a reasonable or any compensation to

the independent line of steamers. These must then operate

at a loss. Then what happens? The independent line of

necessity withdraws from competition to avoid bank-

ruptcy, and immediately the railroad company and the

railroad-controlled line of steamships raise the rate to more

—

8a

than a remunerative basis. Experience has proven that

railroad-controlled stearners can afford to create large

deficiencies, which are paid by the railroad company in

order to enable the latter to maintain a higher level of

rates.

48 Cong. Rec. 10,373 (1912).

Petitioners contend that Congress’ solution to that problem

was a strict prohibition against railroad ownership of

bargelines. Doubtless some, perhaps many, of the legislators

who supported the Act favored strict rail-barge separation. See,

e.g., 48 Cong. Rec. 9238 (1912) (“So far as our internal affairs

are concerned it would be well to confine our common carriers

strictly and exclusively to transportation—the railroads on the

land, the boats on the water.”) (Remarks of Senator

Townsend). Other supporters of the Act favored the least

restrictive legislation necessary to combat the “evil.” Not sur-

prisingly, the legislative history does not conclusively reveal

which attitude prevailed. We therefore think it appropriate to

heed the oft-cited “canon of construction of the wag who said,

when the legislative history is doubtful, go to the statute.”

Greenwood v. United States, 350 U.S. 366, 374 (1956).

The Act does not absolutely proscribe railroad ownership of

bargelines. Rather, in recognition that the railroads’ motives in

such acquisitions were frequently anticompetitive, the Act

promulgates the general rule that railroads shall not own barge-

lines. The Act includes the exception, however, and that excep-

tion must be read in light of the evil with which the Act con-

cerns itself. The Commission may allow railroad ownership of a

bargeline if such ownership “will still allow that water common

carrier or vessel to be operated in the public interest advan-

tageously to interstate commerce,” (as opposed to the water car-

rier eventually being shut down) and such ownership “will still

allow competition, without reduction, on the water route in

question” (as opposed to reducing competition on the water

route by driving other water carriers out of business). The final

Ya

form of the Act, with its general prohibition and its exception,

indicates to us that Congress intended only to end the specific

anticompetitive practice which prompted it to act. Congress

declined to go further and enact the strict prohibition which

some called for and which petitioners now ask us to read into

the Act.

This view of the Act finds support both in contemporaneous

ICC decisions and in events surrounding the Act’s reenactment

in 1940. Among the very first ICC applications of the Act were

Lake Line Applications Under Panama Canal Act, 33 1.C.C.

790 (1915), and Ocean Steamship Company of Savannah, 37

1.C.C, 422 (1915). In Lake Line, the Commission considered

the applications of several railroads seeking permission for con-

tinued ownership of the bargelines which they had owned prior

to passage of the Act. The Commission discussed the problem

which the statute had addressed, see 33 1.C.C. at 712-13, and,

rather than rely on a perceived strict mandate of rail-barge

separation, made a searching inquiry into whether the excep-

tion should apply. Because the joint operations at issue in Lake

Line had attempted “by an artificial rate structure to deprive

the public of the natural benefits that would flow from a free

use of this waterway” and had caused rates to be “steadily

advanced,” 33 1.C.C. at 713-14, the Commission found that the

exception did not apply and denied the applications.

Only seven months later, in Ocean Steamship, the Commis-

sion applied the exception and granted a railroad permission to

continue its ownership of a steamship line with which it com-

peted within the meaning of the Act. The Commission con-

cluded that:

Upon all the facts of record we are of opinion and find that

the present operation of the steamship company as a whole

is in the interest of the public; that it is of advantage to the

convenience and commerce of the people; and that its con-

tinued ownership and operation by the Central of

Georgia, as at present conducted, will neither exclude,

10a

prevent, nor reduce competition on the routes by water

under consideration, and that the application should be

granted, subject to such further order or orders as may

hereafter be entered by the Commission.

37 I.C.C. at 429. From the beginning, then, the exception has

been given weight.

In 1940, Congress reenacted the Act. Vigorous debate arose,

focusing on a change in wording intended to clarify that the

exception could be applied not only to applications for continu-

ing joint operation, but also to application for new joint opera-

tions. The ICC had held precisely this in Southern Pacific Com-

pany’s Ownership of Atlantic Steamship Lines, 77 1.C.C. 124

(1923). Again, the debates reveal some sentiment for stricter

rail-barge separation, see 86 Cong. Rec. 11537-11544 (1940),

but that sentiment did not find its way into the statute as

reenacted. As stated by the only other court to consider the

question since the 1940 reenactment, “Congress clearly ex-

pected rail carriers to be able, with ICC approval, to acquire

competing water carriers.” Water Transport Association v.

I.C.C., 715 F.2d 581, 590 (D.C. Cir. 1983).

Petitioners argue that the ICC’s reading of the Act renders

the Act’s prohibition meaningless. If the exception can be read

so broadly as to apply to this merger, so the argument goes, it is

inconceivable that any other merger could fail to fall within the

exception; in effect, the Act no longer prohibits anything. This,

say petitioners, amounts to administrative repeal of a statute.

While this argument has some merit, it is flawed in that it is

subtly wedded to the notion that Congress intended the Act to

do more than just address the particular evil discussed above.

Assuming for the moment that it is true, as it may well be,

that the Commission’s interpretation of the statute would allow

almost any rail-barge merger, the Commission is not necessarily

guilty of repealing the Act. Rather, that a merger of this

magnitude could, upon analysis, fall within the Act’s exception

suggests that the evil which the statute was carefully designed to

lla

curtail in 1912 and 1940 is not likely to occur in the transporta-

tion industry of 1985. Nor does this amount to administrative or

judicial redetermination of a legislatively determined fact. The

Act’s flexibility is deliberate. Congress did not determine that

all rail-barge mergers worked the same evil. If it had, it would

have enacted an absolute prohibition. Rather, Congress con-

templated that some mergers might not pose a threat, and those

mergers could be allowed. The notion that the day might come

when the economics of the transportation industry would

preclude many rail-barge mergers from posing a threat to com-

petition is not contrary to any legislative determination. While

the findings in the instant case strongly suggest that the Com-

mission believes that day has come, we need not expressly deter-

mine that. The Act remains in full force, and the Commission,

of course, will continue to analyze acquisitions under the Act on

a case-by-case basis.

Petitioners challenge the Commission’s interpretation of the

Act in another respect. Petitioners contend that in determining

whether the merger “will still allow competition, without

reduction, on the water route in question,” the Commission is

required to consider the effect of the merger on rail-barge com-

petition, rather than just the effect on barge-barge competition.

Under petitioners’ analysis, the elimination of the substantial

(or “modest”) competition between CSX and ACL constitutes a

reduction in competition under the Act.

The Commission itself previously adhered to that interpreta-

tion. In Illinois Central Railroad Co. - Control - John I. Hay

Co., 317 1.C.C. 39 (1962), the Commission refused to allow an

acquisition because it found that a reduction in competition

would follow:

The question is whether the transaction would eliminate,

diminish, forestall, hinder, or frustrate competition on the

route by water in any manner and to any material degree;

as, for example: between Hay and the controlling rail car-

riers; between Hay and the competing water carriers; or

12a

between the competitive water carriers. To decide this

question in applicants’ favor it would be necessary to con-

clude that Hay’s competitive status under the control of

the railroads would compare favorably with its present

status as an independently operated water carrier.

However, such a finding cannot be made on this record

and would be improbable in any event in view of the

directly competitive nature of the water carrier operations

of Hay and the rail operations of the railroad appli-

cants.... The transaction would reduce competition bet-

ween Hay and the railroads.

317 I.C.C. at 54 (emphasis added) (citations omitted). In its

decision in the instant case, however, the Commission an-

nounced that it was changing course:

Finally, in evaluating whether competition will be re-

duced, we note that preservation of competition in a par-

ticular transportation market is not synonymous with the

preservation of the position of each competitor.... We

must consider whether market forces would preserve the

level of competition on the water route generally even

though the competitive relationship between the railroad,

the acquired water carrier, and other water carriers would

be altered. Harm to competitors does not imply harm to

competition. Consequently, the holding in John I. Hay, to

the extent inconsistent with this decision, that a finding of

no reduction of competition on the involved water route

requires a supporting conclusion that the involved water

carrier's competitive status in relation to other carriers (in-

cluding the acquiring railroad) would compare favorably

with its competitive status as an independent carrier, is

rejected and will no longer be followed.

Commission Decision at 19.

Administrative agencies are not bound by their own prior

construction of a statute. They are free to reject prior construc-

tions which have not been endorsed by the courts. See NLRB v.

13a

Local Union No. 103, International Association of Bridge, Struc-

tural ¢¢ Ornamental Iron Workers, 434 U.S. 335, 351 (1978)

(“An administrative agency is not disqualified from changing its

mind; and when it does, the courts still sit in review of the

administrative decision and should not approach the statutory

construction issue de novo and without regard to the ad-

ministrative understanding of the statutes.”) We therefore

review the Commission’s construction of the statute without

regard to the shift it represents from the construction in Hay.

Petitioners point out that the Act’s prohibition is only trig-

gered by a finding that the acquiring railroad and the acquired

bargeline compete. They would argue that it is not reasonable to

focus on rail-barge competition in triggering the prohibition,

and then to ignore rail-barge competition in construing the

exception. We disagree. For one thing, the language of the Act

reads, “will still allow competition, without reduction, on the

water route in question.” Barges, not trains, operate on water

routes. Further, the Commission’s construction is faithful to the

Act’s purpose. To prevent the disreputable practice that

prompted the Act, it was sensible to use rail-barge competition

as a triggering mechanism. No railroad would be tempted to

eliminate barge service against which the railroad did not com-

pete for traffic.

Thus triggered, however, no apparent necessity exists for con-

tinuing to focus on rail-barge competition. Congress intended to

prevent railroads from running their barge competitors ashore.

A reduction in competition, even a significant one, between a

railroad and a bargeline does not automatically portend a reduc-

tion in competition among the various bargelines. If the Com-

mission concludes that no reduction in competition will occur

among bargelines, it is irrelevant that some reduction in rail-

barge competition may ensue. We therefore hold that it was

reasonable for the Commission to construe the competition

prong of the Act’s exception as requiring only an analysis of the

harm to competition between bargelines.

l4a

Even allowing that the Commission was correct to look only

at competition between bargelines, petitioners argue that the

Commission employed a “destruction of the industry” standard,

rather than a mere reduction in competition standard. Peti-

tioners contend that the Commission would not find any reduc-

tion in competition unless it determined that all bargelines

would be put out of business. Again, petitioners misapprehend

the objective of the Act. The Act was not intended to protect

bargelines from the threat of having to compete with a rail-

backed bargeline. Had that been the goal, Congress would have

enacted a flat prohibition on railroad ownership of barges.

Rather, Congress intended the Act to protect the shipping

public from the artificially high rates a railroad could charge

after eliminating barge competition. See Steamer Lines on the

Chesapeake Bay, 35 1.C.C. 692, 696 (1915) (legislative purpose

to insure that “under railroad ownership the lines render service

as good as they would render if independently owned and

operated, and that railroad ownership does not deprive the

public of substantial benefits of competition, either in service or

in rates”); Lake Line Applications under Panama Canal Act, 33

I.C.C. 700, 712 (1915) (legislative purpose to insure that “[t]he

rates charged fluctuate according to economic principles, and

the shipper enjoys invariably, as a result, lower charges for the

transportation routed over such waterways and thereby reaps a

return from the ‘nation’s highway’ ”). In the instant case, the

Commission construed the Act to require an actual reduction in

competition as opposed to simply harm to particular bargelines

due to intensified competition. As long as the Commission finds

that competition will not be so intensified as to drive other

bargelines completely out of the market, the interests of the

shipping public are protected. We therefore hold that in this

respect as well the Commission reasonably construed the Act.

We now turn from petitioners’ objections regarding the Com-

mission’s interpretation of the Act to petitioners’ objections

regarding the Commission’s application of the Act. The factual

l5a

determinations which an agency makes in the course of apply-

ing a statute, while subject to “searching and careful” review of

the whole record, including “the body of evidence which

opposes the [agency's] decision,” Unien Carbide Corp. v.

NLRB, 714 F.2d 657 (6th Cir. 1983), can be rejected only if we

find no substantial evidence supporting the conclusion or if we

find the conclusion to be so out of touch with the reality

revealed by the whole record as to be arbitrary and capricious.

See 5 U.S.C. § 706(2).

Petitioners contend that the Commission erred in concluding

that both prongs of the Act’s exception were satisfied by the

facts in the present case. Petitioners object to the Commission's

treatment of the public interest prong, claiming that the Com-

mission reduced it to mere surplusage by failing to make a

specific finding that the merger is essential to the public good.

The Act requires no such finding, however. The Commission

must find that the acquisition “will still allow that water com-

mon carrier or vessel to be operated in the public interest

advantageously to interstate commerce.” This is merely a re-

quirement that the public interest not be adversely affected. In-

creased benefits to the public are not required.

The Commission found that there would be no damage to the

public interest, since ACL would continue to operate as an

active competitor on the waterways, rather than be shut down

by CSX. This finding sufficiently satisfies the public interest

prong. Ample evidence supports the finding, and we cannot say

that it is arbitrary or capricious.

We now come to the most vigorously debated aspect of the

Commission’s decision. In ruling that a CSX-ACL merger “will

still allow competition, without reduction, on the water route

in question,” the Commission necessarily probed the current

nature of the water transportation industry. The Commission

was forced to determine facts with respect to various hotly con-

tested questions. The voluminous record generated below con-

tains evidence upon which the Commission might have based

conclusions more favorable to petitioners. But other evidence

supports the Commission’s findings.

l6a

It is with respect to these questions, questions intimately

entwined with the nature of the industry, that we owe the

Commission the greatest deference.

Resolving these considerations is a complex task which re-

quires extensive facilities, expert judgment and con-

siderable knowledge of the transportation industry. Con-

gress left that task to the Commission “to the end that the

wisdom and experience of that Commission may be used

not only in connection with this form of transportation,

but in its coordination of all other forms.” 79 Cong. Rec.

12207... . If the Commission did not exceed the statutory

limits within which Congress confined its discretion and its

findings are adequate and supported by evidence, it is not

our function to upset its order.

McLean Trucking Co. v. United States, 321 U.S. 67, 87-88

(1943). See also Cleveland Electric Illuminating Co. v. ICC,

685 F.2d 170, 173 (6th Cir. 1982).

The first question is whether, in its competitive analysis of

the barge industry, the Commission erred in its market defini-

tion. Applying the Department of Justice Guidelines it found

the product to be water carrier transportation. It found that

although rail transportation afforded some competition to

water carriage, that competition was limited because barge

rates and costs were so much lower than rail rates and costs and

gave only limited consideration to competition from rail and

other modes of transportation and only to the extent that they

effectively disciplined barge rates on the routes in question.

Thus the Commission, rather than distinguishing the three

main commodity markets—liquid chemicals, farms products,

and coal—initially lumped them all into a single market. Defin-

ing the market this way has obvious consequences. The barge

industry as a whole appears far less concentrated than, for

example, that segment of the barge industry devoted solely to

coal transportation. The Commission’s broad market definition

reflected an industry in which the leader hauled slightly over

l7a

five percent of all barge traffic, and the top twelve companies

hauled only twenty percent of all traffic. Petitioners point out if

the barge transportation of coal is treated as a separate market,

three bargelines haul fifty percent of all coal moving on the

Ohio River System, which is where the vast majority of coal

moves, and the top six bargelines account for seventy percent of

that coal movement. Petitioners also object to including private

barge fleets in the relevant markets.

The Commission found that barge equipment was suffi-

ciently interchangeable to permit carriers to switch from one

commodity to another and that therefore water carriers

specializing in the transport of one commodity can and do

switch to other commodities when to their advantage. It also

found that the private carriers were competition in the market.

With respect to a geographic market, the Commission in-

cluded the Mississippi River System and the Gulf International

Waterway since equipment was generally interchangeable, and

there was no physical barrier to movement throughout those

systems. The selection of the relevant market seems to us to be

the very type of “complex task which requires. . . expert judg-

ment and considerable knowledge of the transportation in-

dustry” where the reviewing court should defer to the

Commission.

Intervenors challenge the Commission’s findings with respect

to interchangeability of barge equipment. They argue that

some barges are specialized; those for coal hauling, for example,

sometimes have greater inner bottom steel thickness so they will

not wear out as soon. The Commission found this to be a car-

rier’s operational choice but not one that significantly affected

the interchangeability. It reached a similar conclusion with

respect to problems of covers interfering with the unloading of

coal from barges. The evidence that many barges are used inter-

changeably even with these differences is substantial evidence

to support the Commission’s findings.

18a

Intervenors also argue that the Commission’s finding that

there is ease of interchangeability of a coal barge to a grain

barge by the addition of a cover is arbitrary since a cover for a

typical $225,000 barge costs approximately $50,000, or almost

twenty-two percent of the cost of the barge. The $50,000 cost is

a substantial sum.

The significance of this sum, however, as an obstacle to

transferring barges from coal hauling to grain hauling depends

upon numerous factors, such as the profit margin, capital costs,

long-term contracts, shipper backing of capital needs, etc. All

of these matters are within the special competence of the

Commission.

Further, even if we were to hold that the Commission’s find-

ing of interchangeability was arbitrary and capricious the

remedy would be remand for analyses of separate commodity

markets. Even though the Commission thought such analysis

was unnecessary, the Commission did perform the analysis

noting that “[b]ecause of the importance of coal and

agricultural commodities in the traffic bases of the applicants,

we will look at those movements separately and determine

whether the transaction would have any adverse impacts on the

transportation of those commodities.’”” Commission Decision at

25,

The Commission analyzed competition for coal hauls and

grain hauls in depth. See Commission Decision at 49-58. We see

no need to repeat the Commission’s analysis. The data

employed all find support in the record. Petitioners’ objection

amounts to simple disagreement with the Commission on a

matter of judgment. Petitioners contend that CSX will channel

all of the coal shipments originating with it to ACBL and away

from other bargelines. Petitioners fear that ultimately they

would experience higher unit costs due to lower traffic density,

driving them out of business and leaving CSK— ACL to prac-

tice monopoly pricing.

19a

The Commission envisioned the ultimate consequences dif-

ferently. Even looking at a worst-case scenario, where most

CSX traffic would eventually be diverted to ACBL from other

bargelines, the Commission still concluded that although this

would mean diminished traffic for some of ACBL’s com-

petitors, those competitors could still continue to maintain

viable operations. The Commission conceded that “any carriers

which experience loss of CSX-originated traffic would have to

adjust their fleet sizes and operating schedules to the traffic

remaining.” Commission Decision at 52. This, however,

represents only harm to competitors, not harm to competition,

and as the Commission concluded,

we do not think that the assumed “worst case” traffic

diversion would harm barge lines competing with ACBL

beyond the loss of revenue attributable directly to CSX-

originated traffic and associated backhauls. Since these

carriers would remain viable competitors, ACBL would

face no fewer competitive constraints in its pricing of coal

movements after the consolidation than it faces today.

Commission Decision at 52-53.

Petitioners urge upon us that harm to competitors would, in

this case, translate into harm to competition by creating an

atmosphere in which competitors could not survive. But this is

precisely the type of judgment call on which we must defer to

the Commission’s expertise in the transportation industry, so

long as the judgment is a reasonable one. If competitors will

survive, then competition, as contemplated by the Act, will

continue unabated. That some competitors may suffer a reduc-

tion in traffic does not mean that the competition which

benefits shippers will be diminished to any degree. We

therefore must decide whether the Commission’s determination

that competitors will survive was reasonable.

Petitioners suggest two possible ways in which a CSX-ACL

combination could eliminate bargeline competitors: predatory

pricing, which prompted passage of the Act; and “rate scissors,”

20a

a sophisticated form of predatory pricing by which a rail-barge

combination lowers barge rates and recoups the loss by raising

rail rates. The Commission found that neither practice could be

successfully implemented by CSX-ACL.

Predatory pricing in these situations was a serious threat in

1912, when a well-financed railroad could absorb a short-term

loss while driving less well-financed competitors off the water.

The Commission found that predatory pricing would not suc-

ceed today, since the barge industry is now “comprised of a large

number of firms, many owned or controlled by large and well-

financed corporate parents.” These large corporate parents,

such as United States Steel and Archer Daniels Midland, are

capable of absorbing some losses themselves without throwing in

the towel. Further, the Commission reasoned that if predatory

pricing could potentially succeed, one of these large corporate

parents might already have attempted to eliminate their com-

petitors. Because this has not occurred, the Commission inferred

that market forces prevent it.

In the “rate scissors” scenario, a railroad theoretically may

engage in predatory pricing without having to absorb any loss;

it could, therefore, continue the practice long enough to

discourage even the most well-financed competitor. “Rate

scissors” is simply a scheme whereby the company sets its barge

rates below what its competitors can bear, and makes up the

difference in the rail rates it charges customers who have no

alternative rail service.

The Commission dismissed the “rate scissors” threat as well,

noting that many rail rates are constrained by competition or

regulation. If the CSX rail rates rose, many shippers could turn

to alternate non-rail options, such as trucks. There was

evidence in the record suggesting that the rate scissors approach

could actually cause CSX-ACL to lose business. Further, the

Commission concluded that CSX-ACL would be likely to

employ competing water carriers themselves, in instances

where an ACL carrier did not provide the most efficient move-

2la

ment. There was evidence in the record that ACL and other

water carriers in fact already do contract outside their own

companies when more efficient services are available.

The above factors alone indicate that the Commission's con-

clusion that neither predatory pricing nor rate scissors pose a

genuine threat to competition is based on a reasoned appraisal

of the evidence of record. But the Commission made additional

findings that reinforce the conclusion that these threats are

illusory. Most significantly, the Commission determined that

there are no significant barriers to entry into the barge industry.

This ease of entry would tend to discourage predatory practices,

since any subsequent attempt to charge supracompetitive rates

would likely be met by an influx of competitors undercutting

that rate.

Petitioners object that the finding on ease of entry ignores

overwhelming evidence to the contrary. They point to the

testimony of several large bargeline executives who attempted

to break into the market for coal hauls and incurred substantial

losses before giving up. This, however, only shows that it is

difficult to enter the market at present, when rates and service

are presumably optimal, due to competition. The Commission

only made the point that because there are no significant

regulatory barriers to entry, and because economies of scale

may be realized at a relatively low level, a bargeline may enter

the market at a reasonable cost, and would be likely to do so

should the prevailing rates become artificially high.

We reiterate that the record contains conflicting evidence on

all of these points. But, again, our review is limited. When

evidence exists to support more than one conclusion, it is best to

leave the determination with the Commission, in deference to

its familiarity with the industry.

We conclude that the Commission’s interpretation of the

Panama Canal Act was reasonable, and its application of the

Act’s exception was based on a reasoned and justifiable view of

the evidence of record. We affirm the Commission’s decision

that the CSX-ACL merger does not violate the Act.

22a

49 U.S.C. §§ 11343-11344 also apply to this transaction. Sec-

tion 11343 provides that various transactions, including “con-

solidation or merger of the properties or franchises of at least 2

carriers into one corporation for the ownership, management,

and operation of the previously separately owned properties,”

may take place only with the Commission’s approval and

authorization. Section 11344(d) provides that, except in the case

of the merger of two class I railroads, the Commission shall

approve the transaction unless

(1) as a result of the transaction, there is likely to be

substantial lessening of competition, creation of a

monopoly, or restraint of trade in freight surface

transportation in any region of the United States; and

(2) the anticompetitive effects of the transaction outweigh

the public interest in meeting significant transporta-

tion needs.

The inquiry under section 11344 is broader than the previous

inquiry, in that the Commission must consider the effect on

competition in the industry generally, rather than just among

bargelines. The Commission did this, and concluded that the

transaction will have no adverse effects on either horizontal or

vertical competition in the industry. The Commission’s analysis

is thorough and rooted in the record. See Commission Decision

at 45-49. It is not our function to reconsider the issue de novo as

petitioners would have us do.

Intervenor National Coal Association argues that the Com-

mission failed to expressly weigh the anticompetitive effects

against the public interest. This argument overlooks the Com-

mission’s conclusions that no anticompetitive effects would

ensue and that the public interest would not be diminished.

Given those findings, an explicit balancing of these two factors

would be supererogatory. We affirm the Commission’s ruling

that the transaction is permissible under 49 U.S.C. § 11344.

We are also presented with a question regarding the Com-

mission's authority to impose oversight conditions. Petitioners

23a

argue that the Panama Canal Act grants no such authority to

the Commission. As noted above, however, this transaction also

falls within the compass of 49 U.S.C. § 11344. Section 11344(c)

expressly provides that the Commission may impose conditions

on any transaction approved under that section. Petitioners’

argument to the contrary is without merit.

We also reject petitioners’ contention that the Commission

erred in deciding on the contested application without the

benefit of an initial or recommended decision by an Adminis-

trative Law Judge. While an ALJ oversaw the hearings which

generated the record, the Commission waived the requirement

of a separate initial decision by the ALJ. Petitioners argue that

this contravenes the Administrative Procedure Act, 5 U.S.C.

§ 557(b), which requires an initial decision by the person who

presides at the hearings.

Section 557(b)(2), however, provides that, in rulemaking

procedures or initial licensing applications, an agency may

waive this requirement if the “due and timely execution of its

functions imperatively and unavoidably” so require. The Com-

mission waived the requirement on this ground.’

Petitioners object that this case involved neither a rule-

making nor an initial licensing and therefore no waiver is per-

mitted. However, both 49 U.S.C. § 10327(c) and 49 U.S.C.

§ 11345(f) expressly provide that, in proceedings such as the

instant one, the Commission may waive the initial ALJ decision

if such waiver is required “for the timely execution of its func-

tions.” It is true, as petitioners point out, that statutes may not

be interpreted to modify the hearing provisions of the Ad-

ministrative Procedure Act except to the extent that thev do so

expressly. See 5 U.S.C. § 559. We find, however, that sections

> “Timely execution” of the Commission's functions in this instance meant

adherence to 49 U.S.C. § 11345(c)(3)’s requirement that the Commission issue

a final decision “by the 90th day after the date on which it concludes the

evidentiary proceedings.”

24a

10327(c) and 11345(f) constitute express modifications. It was

therefore within the Commission’s discretion to waive an initial

decision in attempting to conply with statutorily imposed time

limits.*

Petitioner Simmons, the Illinois Legislative Director for the

United Transportation Union, takes issue with the Commission’s

failure to consider the impact upon and impose protective con-

ditions for employees of non-CSX railroads. He points out that

49 U.S.C. 11344(b)(1)(B) specifically provides that the Com-

mission shall consider “the interest of carrier employees affected

by the proposed transaction.” He cites our decision in Detroit,

Toledo & Ironton R. Co. v. United States, 725 F.2d 47 (6th Cir.

1984), in support of his argument that we ought to apply this

provision in the instant case. See id. at 50 n.2.

Section 11344(b), however, is expressly restricted to mergers

involving at least two class I railroads. Detroit, Toledo & Iron-

ton involved such a merger. The instant case does not. The

instant case is subject to the provisions of section 11344(d),

covering mergers other than of class I railroads. Section

11344(d) does not contain a requirement similar to section

11344(b)’s requirement to consider the impact on all carrier

employees. Section 11344(d) requires only that the Commission

consider the public interest. Since section 11344(b) also

specifically requires consideration of the public interest, in

addition to consideration of the effect on employees, we con-

clude that Congress did not contemplate that the general notion

of “public interest” included the concern about effect on

employees.

* Petitioners’ primary concern over the waiver of an ALJ decision is that they

were denied the potential benefit of conclusions the ALJ] would have made

regarding witness credibility. In this respect, however, it does not appear that

petitioners suffered any real harm. Witness credibility would bear only on a

limited range of issues in the instant case. The major issues are tied less to the

question of whose purported facts to believe than to the question of how to

analyze economic data and presage market behavior. Witness credibility plays

little or no role in answering this question.

25a

Simmons argues that I1.C.C. v. Railway Labor Association,

315 U.S. 373 (1942), and United States v. Lowden, 308 U.S.

225 (1939), hold that, as a matter of law, the general term

“public interest,” in railroad transactions, includes the interest

of railroad employees. We find that Railway Labor and

Lowden are inapposite. Each case basically held that because

the Commission had authority to impose conditions in fur-

therance of the public interest, it could impose restrictions

designed to protect the employees of railroads directly involved

in transactions requiring Commission approval. Neither case

goes on to hold that “public interest” necessarily includes the

interest of employees not directly affected. We hold that the

Commission was not required to consider the interests of such

employees in the instant transaction.

Simmons also argues that 49 U.S.C. § 11347 requires the

Commission to impose protective conditions for the benefit of

non-CSX rail employees. Section 11347 provides that in trans-

actions under sections 11344 and 11345, the Commission “shall

require the carrier to provide a fair arrangement. . . protective

of the interest of employees who are affected by the trans-

action... .”

Simmons acknowledges that there is a “split” as to whether

this provision applies to employees of carriers not directly in-

volved in the transaction. It is not a very serious split, however.

Every court of appeals that has considered the question has con-

cluded that section 11347 does not apply to employees not

directly involved in the transaction. See Southern Pacific

Transportation Co. v. I.C.C., 736 F.2d 708, 725 (D.C. Cir.

1984); Lamoille Valley Railroad v. 1.C.C., 711 F.2d 295,

323-34 (D.C. Cir. 1983); Brotherhood of Maintenance of Way

Employees v. 1.C.C., 698 F.2d 315, 316-18 (7th Cir. 1983),

cert. denied, 105 S.Ct. 1172 (1985). Simmons cites two district

court opinions to the contrary, Soo Line Railroad Co. v. United

States, 280 F.Supp. 907 (D. Minn. 1968), and Railway Labor

Executives’ Association v. United States, 216 F.Supp. 101 (E.D.

Va. 1963).

26a

In Railway Labor, the court interpreted the statute to require

protection of employees whom the Commission conceded

would be affected even though they were not employed by the

railroad involved in the transaction. The court found that

although the Chesapeake & Ohio Railway Company was not

actually a party to the Commission proceeding, it was “in

actuality deeply and unavoidably involved,” and that, due to

overlapping interests in a particular train station, many

Chesapeake employees “were in reality, though not in contract,

as much the employees of Seaboard [the acquiring party before

the ICC] as of Chesapeake.” 216 F.Supp. at 103. The court

therefore looked only at employees so intimately connected with

the transaction as to be “affected” in a meaningful sense.

Railway Labor, therefore, does not stand for the broad proposi-

tion Simmons urges.

Only Soo Lines stands for the broad proposition that protec-

tion must be afforded to all rail employees. See 280 F.Supp.

907, 923-26. We reject the reasoning employed in Soo Lines

because it fails to give any meaning to the statute’s use of the

word “affected.” Had Congress intended such broad protec-

tion, it would not have limited its grant of protection to carrier

employees “affected by the transaction.” We hold that section

11347 did not require the Commission to impose protective con-

ditions for the benefit of non-CSX rail employees.

Led by TVA, petitioners contend that the Commission’s

environmental review of the proposed merger is inadequate

under the National Environmental Protection Act, 42 U.S.C.

§ 4321-4347 (NEPA). NEPA requires that an agency prepare an

Environmenta! Impact Statement (EIS) before approving any

major action that will significantly affect the quality of the

human environment. 42 U.S.C. § 4332(2)(C). To determine

whether the effect on the environment will be significant

enough to warrant an EIS, agencies prepare an environmental

assessment (EA). 40 C.F.R. § 1501.4(b)-(c).

27a

An agency decision, based on an EA, that no EIS is required,

can be overturned only if it is arbitrary, capricious, or an abuse

of discretion. See Sierra Club v. Peterson, 717 F.2d 1409, 1413

(D.C. Cir. 1983); Cabinet Mountains Wilderness v. Peterson,

685 F.2d 678, 681 (D.C. Cir. 1982). It is not for us to substitute

our judgment of the environmental impact for the judgment of

the agency, once the agency has adequately studied the issue. It

is our role, however, to determine whether the agency has, in

fact, adequately studied the issue and taken a “hard look” at the

environmental consequences of its decision. See Kleppe v. Sierra

Club, 427 U.S. 390, 410 n.21 (1976); Sierra Club v. Peterson,

supra.

In the instant case, the Commission, pursuant to its regula-

tions, directed its Section of Energy and Environment (SEE) to

prepare an EA. The EA concluded that the consolidation would

have no significant impact warranting preparation of an EIS.

The EA purported to examine two sources of potential environ-

mental impact: impacts arising from market extensions of car-

rier operations and impacts arising from capital improvements

projects, such as the three intermodal transfer structures that

CSX proposed to construct following approval of the merger.°®

The Commission concedes that the scope of its analysis was

limited with respect to the contemplated intermodal transfer

facilities. The Commission justifies the limited scope on two

grounds: first, that the lack of final design and engineering

plans made it impossible to conduct an in-depth analysis; and,

second, that before the facilities could actually be constructed,

in-depth environmental review would be conducted by other

authorities.®

* CSX indicated that, subsequent to the merger, it would seek approval to

build new rail-barge transloading facilities at Decatur, Alabama and

Philadelphia, Pennsylvania, and to upgrade and add to an existing facility at

Louisville, Kentucky.

* The Commission notes that construction at the Louisville site would re-

quire some form of approval by the United States Army Corps of Engineers,

the Federal Railway Administration, the Kentucky Department of Transpor-

tation, the Kentucky Department of Environmental Protection and the Jeffer-

28a

Petitioners argue that NEPA requires some degree of

speculative forecasting and that, therefore, the lack of definite

design information does not justify the Commission’s limited

analysis. See, e.g., Scientists’ Institute for Public Information,

Inc. v. Atomic Energy Commission, 481 F.2d 1079, 1092 (D.C.

Cir. 1973). We would agree that the lack of final design plans

does not excuse an agency from conducting the most thorough

analysis possible of a proposed action. In the instant case,

however, the Commission did not have before it a proposal to

construct intermodal transfer facilities. Rather, the Commis-

sion was addressing a proposal that two companies merge. The

merger does not inherently require construction of new

facilities.

When construction of the new facilities is proposed, the

Commission will not be the authority charged with responsi-

bility for deciding on the proposal or preparing any en-

vironmental analyses with respect to it. These contemplated

facilities are significantly removed from the proposal the Com-

mission was approving. Petitioners argue that CSX and ACL

would not desire the merger if they could not build the new

facilities. That, however, is a risk that CSX and ACL choose to

take. The Commission’s decision in no way permits, nor could it

permit, CSX-ACL to construct the contemplated facilities.’

son County Air Pollution Control Office; construction at the Decatur site

‘ould require approval by the Army Corps of Engineers, TVA and the

Alabama Department of Environmental Management; construction at the

Philadelphia site would require approval at least by the Philadelphia Water

Department and the Philadelphia Department of Licenses and Permits.

’ Petitioners also contend that it is arbitrary for the Commission to view

these projects as too speculative for environmental analysis on the one hand,

but definite enough to amount to public benefits of the merger on the other

hand. We agree that the Commission’s dual approach to the projects is

troubling on the surface, but our analysis of the public benefits issue renders

this concern moot. The Commission's discussion of the public benefits of the

merger included reference to the efficiencies to be gained from projects such as

these. As we said in our earlier discussion of the Panama Canal Act, however,

the Commission did not need to go so far as to find increased public benefits,

but only that there would be no diminution of public benefits. This conclusion

29a

We believe this is precisely the type of situation to which the

Supreme Court spoke in Kleppe v. Sierra Club, 427 U.S. 390,

410 n.20 (1976), where it wrote that NEPA

speaks solely in terms of proposed actions; it does not

require an agency to consider the possible environmental

impacts of less imminent actions when preparing the im-

pact statement on proposed actions. Should contemplated

actions later reach the stage of actual proposals, impact

statements on them will take into account the effect of

their approach upon the existing environment; and the

condition of that environment presumably will reflect

earlier proposed actions and their effects.

We do not believe that, in assessing the environmental impact

of the merger, the Commission was obligated to assess the

impact of contemplated projects which the Commission has no

power to approve, which are not an inherent component of the

proposed merger, and which will be subject to environmental

review should they ever reach the actual proposal stage.

The Commission's assessment of the environmental impact of

traffic increases which may potentially flow from CSX-ACL’s

operational changes presents a more difficult problem. 49

C.F.R. § 1105.7 requires merger applicants to file an Environ-

mental Report (ER) answering, among other things, the follow-

ing question:

Will the proposed action result in (i) a minimum increase

in rail traffic of 50 percent or three trains per day on an

affected rail line, (ii) an increase in rail yard activity of 20

percent as measured in carload activity or (iii) an increase

in motor carrier traffic of either 50 vehicles per day or an

increase in truck traffic exceeding 10 percent of the

average daily traffic on a given highway segment?

would have been reached by the Commission even without the slightest sugges-

tion that such plants might someday be built. In any event, that the Commis-

sion believed construction of the facilities to be probable enough to merit con-

sideration as a peripheral public benefit of the merger did not in itself place the

facilities within the scope of issues calling for an environmental analysis by the

Commission.

30a

49 C.F.R. § 1105.7(c)(5). If any of those three thresholds will

be exceeded, the applicant is required to address, in the ER, the

issues of increased air emissions and increased noise levels.

The EA expressly dealt with thresholds (i) and (ii), but did

not directly address threshold (iii). When TVA pointed this out

in its comments on the EA, the Commission responded, in its

Supplemental EA, by stating that, “It is difficult to respond to

these arguments except to point out that TVA is simply

speculating as to what the actual highway traffic increase might

be.” Supplemental EA at 18.

It is unclear whether the Commission’s statement in the EA

meant that it was speculative whether CSX-ACL would obtain

certain Texas utilities as customers and what percentage of their

coal needs it would supply or whether it overlooked CSX-ACL’s

comments in which it conceded, that based on certain assump-

tions “an increase of more than 50 vehicles per day would be

experienced for the entire route from each barge unloading site

to [certain utilities].”* Comments of CSX and ACL at 14.

In light of the opening paragraph of the Supplemental EA

which states,

We do not believe that CSX-ACL’s proposals for capital

improvement and operation change have been developed

to a point where more meaningful environmental analysis

of these proposals is possible,

it is reasonable to infer that the Commission took the hard look

and concluded that this was not a proposed action. This is con-

firmed by the Commission’s opinion.

Several commenting parties argue that the environmen-

tal consequences of Commission approval of the consolida-

tion warrant preparation of an environmental impact

statement (EIS). They contend that NEPA requires that

’ Presumably, this increase in traffic would result from CSX-ACL’s suc-

cessful diversion of traffic from competitors which currently ship point to point

by rail only, to CSX-ACL, which would make the same point to point ship-

ment by rail-barge-truck, thus adding truck traffic where none had previously

existed.

3la

we assess in detail the impacts of the ten potential opera-

tional changes and three contemplated capital improve-

ment projects. We disagree. Applicants’ proposals for

capital improvement and operational changes have not

been developed to a point where more meaningful envir-

onmental analysis of these proposals is possible. Ap-

plicants’ proposed operating plan considers potential

changes and improvements illustrative of what would or

might occur as a result of the consolidation. The exact

nature or form of the changes and improvements with

respect to environmental analysis is at this point still

speculative.

The proposed action before us is our approval of the

consolidation. We must consider the environmental im-

pacts of that approval. We are not required, however, to

consider the possible environmental! impacts of less immi-

nent actions. Kleppe v. Sierra Club, 427 U.S. 390, 410

n.20 (1976). Applicants’ contemplated intermodal plans

are less imminent actions. TVA argues that we are the only

agency in a position to look at the cumulative impacts of

our approval of the consolidation. In respect to such

cumulative impacts, however, we are not required to con-

sider actions that are merely contemplated. Hart and

Miller, Etc. v. Corps of Engineers, Etc., 505 F.Supp. 732,

752 (1980). Furthermore, because applicants have alter-

nate location, for their contemplated facilities on the Ten-

nessee and Ohio Rivers, their plans are not proposed

actions. South La. Environmental Council, Inc. v. Sand,

629 F.2d 1005, 1015-16 (1980).

Commission Decision at 64 & 65. The Commission has taken

the requisite hard look.

Accordingly, the decision of the Commission is affirmed.

32a

Timbers, Circuit Judge, dissenting. I regret that I am

unable to join in Judge Kennedy’s thoughtful, comprehensive

majority opinion. I am unable to do so because in my view the

ICC has erroneously interpreted and applied the Panama Canal

Act, 49 U.S.C. § 11321 (1982) (the “Act”), so as to approve for

the first time during the seventy-three year history of the Act

the acquisition by a railroad of a bargeline.' Today’s decision by

our Court is one of first impression among the courts of the

United States, for no court has ever approved such an acquisi-

tion. The acquisition in question is one of enormous impor-

tance: it concerns the acquisition by the nation’s second largest

railroad (CSX Corporation) of American Commercial Lines,

Inc. (ACL), which owns the nation’s largest bargeline. In

approving the acquisition, the ICC rejected and overruled its

own prior controlling decisions.

While the independent regulatory agencies, such as the ICC,

have broad discretionary power when acting pursuant to their

statutory mandates, that discretion is not unbridled. It is the

responsibility of the reviewing courts to see to it that the law has

been properly interpreted and applied, and that the decision in

question has been based on substantial evidence.? Northern

Lines Merger Cases, 396 U.S. 491, 503 (1970). Regardless of the

ultimate merits, or even lawfulness, of the acquisition here in

question, I am convinced that the ICC plainly failed to apply

the proper legal standards under the Act. In short, the ICC’s

new interpretation of the Act is not “sufficiently reasonable”.

See majority op. at 6. In my view, the ICC decision should be

vacated and the case should be remanded for proceedings in

accordance with proper legal standards. See Coal Exporters

Ass'n v. United States, 745 F.2d 76, 80 (D.C. Cir. 1984), cert.

denied, 53 U.S.L.W. 3769 (U.S. April 30, 1985).

' Throughout this dissenting opinion, the transaction involved is referred to

interchangeably as an “acquisition” or “merger”.

? Since I believe that the Act has been improperly interpreted and applied by

the ICC, this dissenting opinion is addressed solely to that issue, it being neither

necessary nor appropriate in my view to reach any other issues.

33a

I.

Several aspects of the ICC’s decision raise especially serious

doubts about the result reached. I agree with the majority’s

holding that the Act does not provide for an absolute prohibtion

of railroad ownership of bargelines. I do take issue, however,

with the method by which the ICC and the majority conclude

that this acquisition is permitted under the Act. The essential,

and fatal, error upon which the ICC’s decision is based, is its

utter failure to consider the effect of this acquisition on com-

petition between railroads and bargelines. Since the very pur-

pose of the Act was to foster and maintain rail/barge competi-

tion, this failure strikes me as curious. Indeed, it suggests an at-

tempt to frame the analysis in such a way as to support a result-

oriented decision.

While I acknowledge that the majority's statement of the

facts is straightforward and accurate, the following brief

reference to some of the relevant facts as found by the ICC may

help to place in perspective the issue to which this dissent is

addressed.

CSX and its rail subsidiaries operate over 27,000 miles of

track. CSX is the leading carrier of solid bulk commodities by

any mode. In 1981, for example, CSX moved 541 million tons of

traffic. This constitutes one-half of all coal and chemical

shipments and nearly one-third of all agricultural products

shipped by rail in the eastern United States. Most importantly,

CSX controls primary access to one-half of all the rail/barge

coal-loading capacity on the Ohio River system, including all of

the terminals along one important 300 mile stretch of the Ohio

River. CSX and two other railroads account for 86% of all

eastern Class I rail revenues. Revenues for 1982 totalled nearly

$5 billion, with net income for that year amounting to

$338 ,400,000.

ACL operates its barge lines over 7,500 miles of the 15,000

miles of inland waterways. ACL is the nation’s largest line-haul

bargeline. ACL is one of the top three for-hire bargelines in the

34a

transport of coal, chemicals and agricultural products on the

inland waterways. ACL and five other carriers transport 70%

of all eastern coal shipments to utilities along water routes.

ACL’s revenues for 1982 totalled $295,000,000, with net in-

come for that year amounting to $21,000,000.

CSX and ACL directly compete for customers to transport

coal, chemicals and agricultural products in 12 states and 59

metropolitan areas, including Chicago, Cincinnati, Louisville,

Memphis, Mobile, New Orleans and Pittsburgh. CSX and ACL

directly compete at 163 points along the inland waterway

system in these states. Thirty utility plants have the capacity to

receive either the rail or water services provided by CSX and

ACL.

II.

The ICC found that CSX and ACL compete in three ways.

First, they directly compete for business to and from the 163

points along the water route mentioned above and to and from

points within a band extending 25 to 200 miles on either side of

the water route, depending on circumstances. Second, they

compete for service to the same destination from different

points of origin where the end-user has the option of buying

from two different sellers, one with access to water routes and

the other with access to rail routes. Third, there is some com-

petition for the carriage of goods and commodities where both

destination and origin are different but the products compete in

the same end-use market.

Thus, the ICC found that ACL and CSX actually do compete

for traffic. Indeed, absent such direct competition, ICC

approval of the acquisition would not be required. The Act only

prohibits a rail carrier from maintaining an interest in a water

carrier “with which it does or may compete for traffic.” 49

U.S.C. § 11321(a)(1) (1982). The ICC referred to specific

examples of instances in which CSX and ACL sought traffic

from the same shipper, including a bidding competition to sup-

ply the Tennessee Valley Authority’s Cumberland, Tennessee,

iat

35a

plant. CSX and ACL submitted the two lowest bids, with ACL

eventually winning the contract to supply 120 million tons of

coal over a 20 year period.

Nevertheless, in pursuing its analysis under § 11321(b), the

ICC completely disregarded the effect of the acquisition on

rail/ barge competition and considered only competition among

water carriers. In defining the relevant product market, the

ICC stated it would “focus on water carrier transportation”.

(Dec. at 24). In its view, railroads are not effective constraints

on barge rates because barge rates are so much lower. I believe

that this conclusion reached by the ICC is highly questionable

and probably erroneous—-for the following reasons.

First, this conclusion ignores the [CC’s other finding that

ACL and CSX directly compete for the same traffic. Second, it

ignores specific instances in which CSX and ACL. were the two

lowest bidders on the same contract, such as the TVA's

Cumberland plant contract. Third, it ignores the historic

ability of railroads in general, and CSX in particular (as

demonstrated by the evidence), to reduce rates to levels that are

competitive with barges. P.D. Locklin, Economics of Transpor-

tation 729 (6th ed. 1966); Mapes, Competition Between

Railroads and Water Carriers: A Comparison of the Kegulatory

and Antitrust Approaches and a Proposal for Reform, 39 U.

Pitt. L. Rev. 653, 657 (1978). Fourth, it ignores the ICC’s own

prior decisions in which it relied on the competition provided by

barges to justify railroad mergers. In CSX Corp.—Con-

trol—Chessie System, Inc., and Seaboard Coast Line Indus.,

Inc., 363 I1.C.C. 521 (1980), for example, the ICC approved the

consolidation of three railroads which now constitute the

present CSX. The ICC stated at that time that “(t]he affiliated

carriers will be able to compete more effectively with truck and

barge operations” (emphasis added) by offering “single-system

service” to shippers. Jd. at 563. See also Norfolk Southern

Corp.—Control—Norfolk & W. Ry., 366 I.C.C. 173, 201-02

(1983). The ICC’s convenient manipulation of the facts and the

law to reach the result it did in the instant case strikes me as

nothing short of astounding.

36a

The ICC’s slight of hand, moreover, does not end there. On

this appeal, it argues that § 11321(b) is concerned only with

competition among water carriers on the route in question and

that competition between the rail and water carriers involved in

the acquisition is irrelevant. It argues that § 11321(b) would be

superfluous if rail/barge competition were considered because

§ 11321(a) requires direct competition for the section to be

operable and in every such case some reduction of competition

will result.

In its decision in this very case, however, the ICC has defined

the competitive analysis under § 11321(b) as follows:

“The involved competition has many facets. Competi-

tion between the involved water carrier and the acquiring

railroads, between the involved water carrier and other

water carriers, and among the non-included water carriers

all may effect the level of competition on the water route

in question.” (Dec. at 18) (emphasis added)

This standard is consistent with the ICC’s decisions in prior

similar cases. E.g., Illinois Central R. Co.—Control—John I.

Hay Co., 317 1.C.C. 39, 55 (1962); Lake Line Applications

Under Panama Canal Act, 33 1.C.C. 699, 715-16 (1915). In

short, the ICC either has failed to follow its own interpretation

of the statute in its decision in the instant case or it seeks to alter

that interpretation on appeal in an attempt to avoid what even

it thought would likely be an adverse result.

Unhappily, this is not the first time that the ICC has resorted

to such questionable attempts to impose its will over that of

Congress. It has not been successful in the past. As the District

of Columbia Circuit so succinctly stated in vacating another

result-oriented ICC decision, “[a]n agency cannot hide the stan-

dards under which it operates, for we are unable to evaluate

whether its reasoning meets the reasoned decision making re-

quirement unless we know against what standards its factual

findings have been judged.” Coal Exporters, supra, 745 F.2d at

99; see also id. at 90.

37a

Whatever deference must be accorded “the interpretation of

a statute by an agency charged with its enforcement”, Meade

Township v. Andrus, 695 F.2d 1006, 1009 (6th Cir. 1982), such

an agency, at the very least, must be held to its own interpreta-

tion. While an agency may not be “disqualified from changing

its mind”, it must give sufficient reasons for its new interpreta-

tion. Otherwise, a reviewing court cannot “approach the

statutory construction issue...with[] regard to the ad-

ministrative understanding of the statute[ |.” NLRB v. Local

Union No. 103, 434 U.S. 335, 351 (1978); see majority op. at 13.

No reasons whatsoever were given by the ICC for the broad

change in its interpretation of the Act in the instant case.

Moreover, the ICC’s new interpretation of the Act utterly

fails to satisfy Congress’ intent to prohibit all rail/ barge mergers

that effect any reduction in competition on the water routes in

question. 49 U.S.C. § 11321(b) (ICC may permit merger of rail

and bargelines only if “it will still allow competition, without

reduction, on the water route in question.”) (emphasis added).

Aside from the ICC’s own past practice of examining the level

of rail/barge competition, basic competition principles require

such an examination to determine the effect of the merger, not

only on rail/barge competition, but on competition among

bargelines as well.

This merger has vertical as well as horizontal aspects in that

CSX transports cargo from inland points to points on the

water's edge for loading on barges. Of all the coal shippers in

CSX’s operating region, 85% are limited to using CSX. Com-

pounding this control is CSX’s substantial control of rail/ barge

loading terminals along the most significant coal transport

water routes. Accordingly, the ICC concluded that “the merger

is likely to lead to diversion to [ACL] from other carriers of

some CSX-originated ‘~affic”. (Dec. at 44). The ICC assumes,

however, that only a small amount of such traffic will be

diverted to ACL because ACL will not always be the most “cost

effective barge partner for CSX”. (Dec. at 43).

38a

Even if only “some” traffic in this concentrated market is

diverted to ACL solely because ACL is affiliated with CSX,

necessarily there has been a prohibited reduction in competi-

tion. Moreover, the ICC made no attempt to ascertain the

extent to which other water carriers will be foreclosed from this

traffic; it only assumed the amount would be “small”. Finally,

the assumption that other barge carriers will have a nearly

equal opportunity to compete with ACL for CSX-generated

traffic is belied by the ICC’s heavy emphasis on the supposed

“efficiencies” that will result from this merger. If those “effi-

ciencies” are as great as the ICC suggests, other water carriers

will not be able to compete effectively with ACL even if given

the opportunity; and, it can be predicted, the ICC will rely in

the future on this imbalance to justify mergers of other water

carriers with railroads, ultimately defeating Congress’ goal of

separate ownership of water and rail carriers.

Most significant for the instant case, however, is the potential

for predatory pricing designed to drive other water carriers

from ACL's routes. Such an attempt to monopolize would be

made possible by the railroad’s ability to “subsidize” reduced

rates on water routes with higher rates on all-rail routes. While

it is true that an increase in price, made possible by ACL-CSX

achieving market power, might encourage other barge oper-

ators to enter the market, the real danger lies in driving com-

petitors from ACL’s water route with price reductions.

The ICC discounted this admittedly real possibility by stating

that

“The barge industry is comprised of a large number of

firms, many owned or controlled by large and well-

financed corporate parents... . It would not be in the best

interests of these large corporate parents to sit back and

allow CSX-ACBL to destroy their investments in the barge

industry. Instead, they could be expected to exert pressure

on CSX, both through antitrust actions and competitive

responses, to forego any attempt to monopolize the

market....” (Dec. at 36).

39a

Such abdication of responsibility on the part of ICC makes a

mockery of its regulatory functions. It is difficult to fathom this

reasoning—by any agency created to regulate an industry of the

very highest national priority—which suggests that private

enterprise must fill the role entrusted to the ICC, and that

private antitrust actions are the most efficient way to preserve

the competitive market that Congress intended in enacting the

Panama Canal Act. Congress already has recognized the

inadvisability of this proposition. Under 49 U.S.C. § 11341(a)

(1982), ICC approval of a carrier consolidation immunizes the

transaction from the applicability of the antitrust laws. By

building competitive principles into Panama Canal Act, Con-

gress clearly intended not only that the ICC regulate rail/ barge

consolidations in the public interest but also that the ICC police

competition in the two industries.

As the ICC itself held in Lake Line Applications Under

Panama Canal Act, 33 1.C.C. 699 (1915), in which divestiture

of bargelines by the railroads was first ordered:

“These boat lines under the control of the petitioning

railroads have been first a sword and then a shield. When

these roads succeeded in gaining control of the boat lines

which had been in competition with parallelling rails in

which they were interested, and later effected their com-

bination. .., by which they were able to and did drive all

independent boats from the through lake-and-rail

transportation, they thereby destroyed the possibility of

competition with their railroads other than such competi-

tion as they were of a mind to permit. Having disposed of

real competition via the lakes, these boats are now held as

a shield against possible competition of new independents.

Since it appears from the records that the railroads are able

to operate their boat lines at a loss where there is now no

competition from independent lines, it is manifest that

they could and would operate at a further loss in a rate

war against independents. The large financial resources of

40a

the owning railroads make it impossible for an indepen-

dent to engage in a rate war with a boat line so financed.”

Id. at 716.

The ICC’s argument that rail/ barge competition is irrelevant to

the determination of whether a merger will reduce competition

on water routes is confounded by the facts and by its own prior

decisions.

The majority's two paragraph discussion of this issue strikes

me as blinking at a most serious deficiency in the ICC decision.

See majority op. at 13-14. While it is true that “[b]arges, not

trains, operate on water routes”, in the Act Congress obviously

concluded that railroad entry into the barge market might have

an adverse effect on competition for water routes. Moreover, in

view of the structure of thé industries, it was well nigh impos-

sible for the ICC “reasonably” to conclude that it could

disregard rail/barge competition when considering the effects

of a merger on a given water route.

It appears that, despite more than 70 years of separate

ownership of barge and rail lines, during which time, as the

ICC itself stated, “the barge industry has developed into an effi-

cient, effective competitor for intercity freight traffic” (Dec. at

14), if the instant ICC decision is permitted to stand, history

will be allowed to repeat itself and the very evil the Panama

Canal Act was intended to prohibit will be permitted to

flourish.

4la

Ill.

To summarize:

The ICC has failed to consider the effect of the acquisition on

rail/ barge competition—as has been the ICC’s practice in prior

cases—and has failed to consider the effect that a reduction in

rail and water competition would have on purely water carrier

competition.

Until Congress sees fit to amend or repeal the Panama Canal

Act—something it has repeatedly refused to do—the ICC and

the courts are duty-bound to apply it properly. Since I am con-

vinced that the ICC has committed serious errors of law in its

interpretation and application of the Act, I would vacate the

decision of the ICC and remand the case for further proceedings

in accordance with proper legal standards. From the majority's

refusal to do so, I respectfully dissent.

42a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Nos. 84-3743 THRU 84-3753, 84-3842/84-3868

CROUNSE CORPORATION, ET AL.,

PETITIONERS,

v.

INTERSTATE COMMERCE COMMISSION

AND UNITED STATES OF AMERICA,

RESPONDENTS.

Before:

KEeNNepY and Krupansky, Circuit Judges;

and Timsers, Senior Circuit Judge.

JUDGMENT

On Petition To Review a decision of the Interstate Com-

merce Commission.

Tuis Cause came on to be heard on the transcript of record

from the said Agency and was argued by counsel.

On CONSIDERATION WHEREOF, It is now here ordered and

adjudged by this court that the decision of the said Agency in

this cause be and the same is hereby affirmed.

No costs taxed.

ENTERED BY ORDER OF THE COURT

Joun P. Henman, Clerk

(s) Joun P. Henman, Clerk

FILED

Jan. 23, 1986

Joun P. Henman, Clerk

43a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Nos. 84-3743 THRU 84-3753, 84-3842/ 84-3868

CROUNSE CORPORATION, ET AL.,

PETITIONERS,

v.

INTERSTATE COMMERCE COMMISSION and

THE UNITED STATES OF AMERICA,

RESPONDENTS.

Before:

Live.ty, Chief Judge, ENceL, KeirH, Merritt, KENNEDY,

MarTIN, JoNEs, CoNTIE, KRUPANSKY, WELLFORD, MILBURN,

Guy, NeLson and Ryan, Circuit Judges

ORDER

The Court having received a petition for rehearing en banc,

and the petition having been circulated not only to the original

panel members but also to all other active judges of this Court,

and less than a majority of the judges having favored the sug-

gestion, the petition for rehearing has been referred to the

original hearing panel.

The panel has further reviewed the petition for rehearing

and concludes that the issues raised in the petition were fully

considered upon the original submission and decision of the

case. Accordingly, the petition is denied.

ENTERED BY ORDER OF THE COURT

(s) JouN P. HEHMAN

Joun P. Henman, Clerk

FILED

Mar. 28, 1986

Joun P. Henman, Clerk

44a

APPENDIX D

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Nos. 84-3743 THRU 84-3753, 84-3842/84-3868

CROUNSE CORPORATION, ET AL.,

PETITIONERS,

v.

INTERSTATE COMMERCE COMMISSION and

THE UNITED STATES OF AMERICA,

RESPONDENTS.

Before:

ENGEL, KEITH, MERRITT, KENNEDY, MARTIN, JONES, CONTIE,

KRUPANSKY, MILBURN, Guy, NELSON and Ryan, Circuit Judges *

ORDER

Upon consideration, it is OnpERED that the order entered in this

case on March 28, 1986 denying the petition for rehearing en

banc be amended to add the following dissents:

“Merritt, Circuit Judge, dissenting from denial of petition for

rehearing en banc, in which Circuit Judges Keith, Martin and

Jones joined. Jones, J. delivered a separate dissent.

“I believe that we should have granted rehearing en banc in

this important antitrust case. Congress has enacted a law flatly

prohibiting a merger between a railroad and a barge line if that

merger results in any reduction in competition. Never before has

a railroad been permitted to merge with a competing barge line,

regardless of the political cast or regulatory philosophy of the

Commission or the antitrust philosophy of the courts. Yet in this

* Chief Judge Lively and Circuit Judge Wellford recused themselves from

participation in this case.

45a

case the Interstate Commerce Commission has refused to look

at what effect the merger of the largest railroad east of the

Mississippi with the largest barge line in the nation will have

on rail-barge competition, and at whether the lessening of rail-

barge competition will lead to a lessening of competition

among barge lines. As Judge Timbers correctly observes in his

dissent, such refusal is an “abdication of responsibility on the

part of the ICC” that “makes a mockery of its regulatory func-

tions.” Slip op. at 40. We do not perform our judicial function

when we uphold it.

“In terms of its economic impact, this case is significant.

Our decision will affect the price of coal, grain, and other

commodities for many years in the Ohio and Tennessee

Valleys and beyond. The railroad in question controls 50% of

the barge terminals on the river system in question, and all of

the terminals on large stretches thereof. If, after buying the

barge line in question, the railroad restricts the use of its termi-

nals to that barge company, it will eliminate competition

among barge lines that haul coal and other commodities to

and from those terminals. Given the number of terminals in-

volved, it is inconceivable that the merger in question will not

result in a reduction of competition on the water routes in

question.

“Yet that—no reduction in competition—is what Congress

required the Commission to find before permitting the merger

of a railroad with a barge line. 49 U.S.C. § 11321(b). It is

nonsense to suggest, as the Commission does, that any anti-

competitive effects of the merger will be remedied by com-

petitive pressures and private antitrust actions. The size of the

parties being merged, their market shares, and the near-

stranglehold that the resulting entity will have on many

routes, makes it unlikely that competitive pressures will pre-

vent the misuse of its market power, which is precisely why

Congress forbade such mergers in the first place. And the

statute in question, the Panama Canal Act, immunizes ICC-

min 8 ome) (CeO. ed ee Be eee

46a

sanctioned mergers from the antitrust laws, thus eliminating

any chance of the private antitrust actions in which the com-

mission rests its faith. See 49 U.S.C. § 11341(a) (1982).

“Congress presumably knew what it was doing when it

found, after considerable investigation and debate, that

mergers such as the one in question posed serious dangers to

the freedom of transportation markets. The provision in ques-

tion was reenacted, after considerable debate, some years later

in 1940. Perhaps, as the majority opinion seems to suggest (slip

op. at 7, 11), predatory pricing is not the serious threat that it

was in 1912 (or even in 1940), so that the policy behind the

statute is obsolete. However, it is not generally the province of

courts to make such determinations. Even if the Commission

and the courts think it foolish and outdated to bar mergers be-

tween railroads and barge lines except where competition is

not affected, Congress has declared otherwise and we are

bound to respect that declaration. For these reasons, and for

those expressed in Judge Timbers’ dissent, I believe that the

panel’s majority erred in affirming the Commission’s decision

to approve the merger and that we should reconsider the case

en banc.

“Jones, Circuit Judge. I join in Judge Merritt’s dissent to

the denial of the petition for rehearing en banc out of concern

for the importance of the issue which is so well stated therein.

It is my view that the issue invites and requires the attention of

the full court. I regret that an en banc exploration will not

occur.

ENTERED BY ORDER OF THE COURT

(s) JoHN P. HEHMAN

Joun P. HEHMaN, Clerk

FILED

Apr. 11, 1986

JoHN P. HeHMan, Clerk

47a

APPENDIX E

INTERSTATE COMMERCE COMMISSION

DECISION

FINANCE Docket No. 30300

CSX CorporaTION —- CONTROL-

AMERICAN COMMERCIAL LINES, INC.

TABLE OF CONTENTS

Page

GR 8) re 50a

i; Gi es aS cee ie cewek inis 5la

A. SUMMARY OF DECISION..................... Sla

B. PROCEDURAL AND PRELIMINARY MATTERS....... 33a

a ee 53a

2. No. 39599—ACBL Tariff Exemption.... 54a

Il. NATURE anp SCOPE or APPLICATION....... 55a

ATL. GPA its PE. oo ie ascan eens Se

i SoG i knob ae eae 57a

Ba ES ra a a ele oes ee eee 57a

ee igre ee ng he a 58a

3. Phosphates and Potash................ 59a

es es

DS. Weems: SAAS, Sc ooo wn ce ee aes 60a

1. ACL’s Louisville Terminal............. 60a

2. New Transloading Facility............. 60a

Te - - e as v e e 6la

C. OvnHer CHANGES AND BENEFITS.............. 6la

Re. QR IIE obs Oy Sense ne aed was 6la

eee ee 62a

3. Coordinated Information System....... 62a

iV. POST Mame OF Pik PAR Ties. «ces is... aes: 63a

I ot aig ee er ee ae 63a

ee WM I eo ooo oe eee kes kee wie 63a

i= TIS ori Oe ror ea ours 9s a> w 63a

2. U.S. Department of Transportation... .. 64a

3. State and Local Governments. ........ 64a

ee eres 65a

48a

TABLE OF CONTENTS

Page

C. PARTIES IN OPPOSITION.................-45. 66a

1. U.S. Department of Agriculture........ 66a

2. State and Local Governments.......... 66a

3. Water Transport Association........... 67a

4. National Coal Association.............. 68a

i: ET a es are eS ee en wo xe wa tl 68a

i - Se ites oS Le Oe wk rae 69a

7. United Transportation Union........... 69a

BD: WRU SOI os wa 6 vie ph cum av cteans 69a

1. U.S. Department of Energy............ 69a

2. State and Local Governments.......... 70a

3. U.S. Department of Justice............. 70a

V. DISCUSSION anno CONCLUSIONS............ 70a

A. Sraruromy COOTMMMA...........00.c cece. 70a

1. Panama Canal Act, 49 U.S.C. 11321..... 70a

2. 49 U.S.C. 11343-11344(d)...... anes 8la

a ee 83a

4. Antitrust Considerations............... 84a

eS 85a

6. Environment and Energy Factors....... 85a

x: Spl oe es ees vac esau. 86a

ee ee 87a

@:. Peed Beet... ee 87a

b. Geographic Market............... 90a

ole wa sah ve cscs ees 9la

me “I os og vans canoe an 93a

a. Panama Canal Operations......... 93a

b. Competition without reduction. .... 94a

O.* FY IIs 55 5 5 OS a es oan vee 120a

S. TOUR Bes oc ee ex canes 122a

a. Competitive Effects.............. 122a

5S. Specific Commodities................ 127a

a. Coal Transportation............. 127a

b. Agricultural Markets............. 134a

E.

F

A

B.

C

mo

1.

49a

TABLE OF CONTENTS

Rte I 6 ee ee vas Gk es ce es

een age Pig oe Oe ee

Oversight & Reporting Conditions. . . .

2. Public Interest Conditions...........

eg ne a rr

. ENVIRONMENTAL IMPACTS................

VI. FINDINGS

es Ges he Oe kak eo

APPENDIXES

pI a

COMMENTING PARTIES..................

. SUMMARY OF COMPETITIVE ANALYSES.......

SUI Sac re SS ee ah

. amos Maneer AMALYSIS................

FINANCIAL ANALYSIS... ... ae eae

OVERSIGHT AND REPORTING CONDITIONS. . .

Page

143a

145a

145a

l47a

149a

I5la

57a

l57a

159a

160a

165a

165a

75a

l77a

180a

ISla

19la

194a

195a

202a

208a

|

’

|

50a

CSX CorporaTION-CONTROL-AMERICAN

COMMERCIAL Lines, INC.

Decipep: Aucust 27, 1984

Acquisition of control of American Commercial Lines, Inc., and

its water carrier subsidiary American Commercial Barge Lines

Company is authorized, subject to conditions.

Mark Aron, Alan Geolot, David M. Levy, R. Eden Martin, CG.

Paul Moates, Michael Nemeroff, John J. Paylor, and Vincent P.

Prada for applicant CSX Corporation.

Richard B. Felder, Michael Harris, Kathryn H. Klassen, and

Charles H. White, Jr., for applicant American Commercial Lines,

Inc.

Robert M. Bruskin, Roxann Henry, Paul A. Koches, Suzanne

Nyland, Eberhard Phailer, A. Duncan Whitaker, and Alan M.

Wiseman for American Waterways Operators, Inc.

Smith R. Brittingham Ill, Gregory M. Gordon, Mark E. Staib,

and Richard A. Zellner for Water T ransport Association, Canal

Barge Company, Inc., Crounse Corporation, Dixie Carriers, Inc.,

S.C. Loveland Company, M/G Transport Services, Inc., The Ohio

River Company, SCNO Barge Lines, Inc., and the Valley Line

Company.

Peter A. Gabauer and Robert F. Stauffer for National Coal

Association.

Donald G. Avery for Louisville and Jefferson County Port

Authority and Eastern Coal Transportation Conference.

James F. Bromley and Donald MacLeay for Tampa Electric Com-

pany, Gatliff Coal Company, and TECO Transport & Trade Cor-

poration.

Edward H. Comer, Michael F. McBride, and Leonard M. Trosten

for Edison Electric Institute.

George J. Ryan for Lake Carriers Association.

John Barry Kelly Il, Brent R. Marquand, Herbert S. Sanger,

Gregory R. Signer, and Lewis E. Wallace for Tennessee Valley

Authority.

Arthur Perry Bruder and Paul Phillips for United States Depart-

ment of Energy.

Rosalind A. Knapp, Diane R. Liff, Jim J. Marquez, James P.

Moore, Joseph Pomponio, and Mary Bennett Reed for United States

Department of Transportation.

Gordon MacDougal for Patrick W. Simmons, Illinois Legislative

Director for United Transportation Union.

William L. Hammond, John A. Matta, John A. Vuono, and

Richard R. Wilson for PPG Industries, Inc.

Donald A. Tracy for United States Department of Agriculture.

Priscilla R. Budeiri, Douglas H. Ginsberg, J. Paul McGrath, James

R. Rattner, Elliott M. Seiden, R. Timothy Slattery, and James R.

Weiss for United States Department of Justice.

5la

DECISION

BY THE COMMISSION:

I. INTRODUCTION

A. SUMMARY OF THE DECISION.

General. On November 4, 1983, CSX Corporation (CSX)

and American Commercial Lines, Inc. (ACL) jointly filed an

application under 49 U.S.C. 11321, 11343, and 11344 seeking

authority for CSX to acquire control of ACL and its certificated

water carrier subsidiary, American Commercial Barge Line

Company (ACBL).' No related applications were filed. On

November 25, 1983, applicants filed their response to the sup-

plemental information request contained in Decision No. 3,

served October 19, 1983.

We accepted the application and supplementary informa-

tion for filing and published notice of acceptance in the Fed-

eral Register on December 2, 1983, 48 Fed. Reg. 54402 (1983).

Many shippers and several States filed comments in support

of the proposed consolidation, while a number of shippers,

States, utilities, water carriers, and labor organizations filed

statements in opposition. Several conditions, such as labor pro-

tection, route, rate, traffic protection, and reporting require-

ments were sought. No responsive applications were filed.

Public hearings on the application were conducted by Chief

Administrative Law Judge David H. Allard from February 22,

1984, to May 11, 1984. The evidentiary record was closed on

June 18, 1984. Oral argument was heard June 21, 1984. An

open voting conference was held on July 24, 1984.

The application seeks authority for CSX to acquire and exer-

cise control over ACL and its carrier subsidiary, ACBL. CSX

has already acquired ACL’s corporate parent, Texas Gas Re-

sources Corporation (TGR). The ACL stock has been placed in

an independent voting trust. Under the proposed transaction,

' The list of abbreviations used throughout this decision may be found in

Appendix A. Reference to CSX embraces its rail carrier subsidiaries, includ-

ing the C&O, B&O, and SBD. Reference to ACL includes its water carrier

subsidiary, ACBL.

52a

the voting trust would be dissolved and ACL will become a

direct subsidiary of CSX. ACL will retain its separate corpo-

rate identity.

Section 11321. In considering the consolidation of a rail

carrier and a water carrier, the Commission is required to

determine if the two carriers compete. If we find that they do

compete, we must determine whether the consolidation will

still allow competition without reduction on the water route in

question and will still allow the water carrier to be operated in

the public interest advantageously to interstate commerce. We

conclude that CSX and ACL do compete because they serve

common points and solicit the same traffic.

We have analyzed the possible anticompetitive effects of the

transaction on the barge industry and conclude that, due to

the highly competitive nature of the barge industry and the

relative ease of entry associated with it, no reduction in com-

petition will occur. We also conclude that ACL will continue

to operate in the public interest advantageously to interstate

commerce. We are imposing oversight and reporting condi-

tions to allow the Commission to review periodically the effects

of the transaction on competition.

Section 11344. In considering a consolidation application of

this type, the Commission is primarily required to consider the

competitive impacts. We conclude that the transaction will

not result in a substantial lessening of competition in freight

surface transportation in any region of the United States. Pos-

sible anticompetitive effects on the transportation of coal and

agricultural commodities have been analyzed, and no adverse

impacts have been found. In addition, public benefits will

result from a combination of CSX and ACL. These benefits

generally consist of improved efficiency and service options

resulting from the creation of an integrated, intermodal

system.

53a

Labor Issues. Railroad employees of CSX will be protected

by the standard labor conditions for railroad consolidations.

No other labor protection conditions will be imposed.

Energy and Environment. The transaction presents no

energy conservation or significant environmental impact prob-

lems. Thus, we are imposing no energy or environmental con-

ditions.

No need has been shown for any other conditions proposed

by any party. Therefore, all requests for relief, other than

those discussed above, are denied.

B. PROCEDURAL AND PRELIMINARY MATTERS.

1. Procedural Objections. During the proceedings, WTA

raised several procedural objections. These objections have

been renewed on brief.* In various interlocutory decisions, all

of WTA’s petitions alleging procedural errors were denied.

WTA’'s brief raises no new arguments regarding the procedures

followed in the disposition of this proceeding. Therefore, we

will deny WTA’s requests for relief on these matters for the

reasons set forth in our prior decisions. ?

In our various interlocutory decisions, we noted the applica-

bility of the time frames of 49 U.S.C. 11345(c). The procedural

schedule in this case was designed to comply with statutorily-

mandated deadlines. During the proceeding, the Administra-

* WTA's objections, as summarized in its post hearing brief, WTA 216,

volume II, include: (1) failure to initiate a rulemaking proceeding to pro-

mulgate regulations governing railroad-water carrier consolidations;

(2) waiver of information required der the railroad consolidation regula-

tions and acceptance of an incomplete application; (3) designation of this

transaction as “significant”, rather than “major”, under 49 U.S.C. 11344(d);

(4) waiver of an initial decision by the Administrative Law Judge; (5) setting

a procedural schedule not permitting a full and fair hearing; (6) failure to

disqualify Commissioner Gradison from participating in the proceeding; and

(7) failure to address adequately environmental and energy issues.

® Decision No. 5, served November 15, 1983; Decision No. 6, served

December 2, 1983; Decision No. 12, served January 27, 1984; and Decision

on Motion to Disqualify, served February 10, 1984.

54a

tive Law Judge took into consideration numerous requests to

extend or modify the procedural schedule. Where necessary

and appropriate, extensions of time were granted. As a result

of the flexibility in scheduling, a full and fair hearing was held

while conforming as closely as possible to the statutory dead-

lines. In view of the full hearing and the substantial record

developed, we find no merit in WTA’s allegation that the pro-

cedures for hearing this case did not provide for an adequate

hearing. ‘

2. ACBL Tariff Exemption. In No. 39599, American Com-

mercial Barge Line Company — Petition for Exemption from

Tariff Filing Requirements (not printed), served January 19,

1984, we exempted ACBL from contract carrier tariff filing

requirements, thereby placing its contract services on an equal

footing with those of rail and motor carriers. We recognized

the pendency of the CSX control application, but concluded

that the present voting trust arrangement obviated any need to

incorporate intermodal competition issues in the January 1984

exemption decision. Instead, we conditioned the exemption on

a requirement that ACBL resubmit its exemption request

within 30 days if control is authorized, so that issues related to

intermodal competition and possible revocation of the exemp-

tion could then be addressed. We need not further consider the

exemption in the present proceeding. ACBL will be expected,

however, to resubmit its exemption request within 30 days of

the consummation of CSX’s acquisition of control.

* WTA notes in its post hearing brief, WTA-215, page 11-33: “In all, Veri-

fied Statements by over 200 witnesses were filed and 54 appeared to give oral

testimony. The evidentiary record exceeds 15,000 pages, including testimony

by no less than 14 economists, and detailed traffic and financial data submit-

ted by numerous carriers, shippers and various government agencies.”

55a

Il. NATURE AND SCOPE OF THE APPLICATION

CSX proposes to acquire control of ACL and its water carrier

subsidiary, ACBL. CSX has acquired ACL's corporate parent,

TGR, and placed the ACL stock in an independent voting

trust. At present, CSX and its carrier subsidiaries have no offi-

cers or directors in common with ACL or its carrier subsidiary

ACBL. If the Commission approves control, the voting trust

will be dissolved when the Commission's decision becomes ef-

fective and ACL will become a wholly-owned subsidiary of

CSX. No further cash transactions or securities issuances or ex-

changes are planned.

CSX is a non-carrier holding company® with subsidiaries

engaged in railroad operations, real estate and land develop-

ment, energy and natural resource development, and motor car-

rier operations.® Its gross revenue for 1982 was $4,908,600,000

and net income was $338,400,000. Based on revenues, the

principal commodities handled by CSX’s rail subsidiaries in

1982, were coal. paper, phosphates, chemicals, and grain.

* Rail carrier subsidiaries of CSX include: the Chesapeake and Ohio

Railway Company (C&O) and its subsidiaries the Baltimore & Ohio Rail-

road (B&O), Akron and Barberton Belt Railroad Company, Baltimore and

Ohio Chicago Terminal Railroad Company, Staten Island Railroad Corpo-

ration, Monongahela Railway Company, Terminal Railroad Association of

St. Louis, Belt Railway Company of Chicago, Chicago South Shore and

South Bend Railroad, Nicholas, Fayette and Greenbrier Railroad Company,

Norfolk and Portsmouth Belt Railroad Company, and the Toledo Terminal

Railroad Company; the Seaboard System Railroad, Inc. (SBD) and its sub-

sidiaries Atlanta and West Point Railroad Company, Carrollton Railroad

Company, Chicago and Western Indiana Railroad Company, Clinchfield

Railroad Company, Columbia, Newberry and Laurens Railroad Company,

Gainesville Midland Railroad Company, Glasgow Railway Company,

Paducah and Illinois Railroad Company, Western Railway of Alabama,

Winston-Salem Southbound Railway Company, and the High Point,

Thomasville and Denton Railroad Company; and the Richmond, Fred-

ericksburg, and Potomac Railroad Company.

® Motor carrier subsidiaries of CSX include Chessie Motor Express, Inc.

(CMX) and Seacoast Transportation Company.

56a

CSX’s rail subsidiaries operate 27,000 route miles in the Dis-

trict of Columbia and the 21 States of: Alabama, Delaware,

Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana,

Maryland, Michigan, Mississippi, Missouri, New Jersey, New

York, North Carolina, Ohio, Pennsylvania, South Carolina,

Tennessee, Virginia, and West Virginia.

ACL’s also a non-carrier holding company with subsidiaries

engaged in water carrier operations,’ boat building, and

marine terminal operations.*® Its gross revenue for 1982 was

$295,000,000 and net income was $21,000,000. Based on rev-

enues, the principal commodities handled by ACBL in 1982

were coal, grain, and liquids such as chemicals and food oils.

ACBL operates on approximately 7,500 miles of inland

water ways. Operations are conducted on the following rivers:

Ohio River and all navigable tributaries between Pittsburgh,

PA, and the Mississippi River; Illinois River; Upper Mississippi

River from Minneapolis, MN, to Cairo, IL; Lower Mississippi

River, from Cairo to New Orleans, LA; the Gulf Intracoastal

Waterway from Florida to Brownsville, TX; Tennessee River;

Cumberland River; Warrior River; Alabama River; and Mis-

souri River (rarely). These rivers serve portions of the follow-

ing States: Alabama, Arkansas, Florida, Georgia, Illinois,

Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota,

Mississippi, Missouri, Nebraska, Ohio, Oklahoma, Pennsy]l-

vania, Tennessee, Texas, West Virginia, and Wisconsin. ACBL

and the CSX _ rail subsidiaries can interchange traffic at

numerous points along the above-listed waterways. The con-

solidated companies propose to offer an integrated, single-

system transportation service over the 29 State area that will

be jointly served by CSX and ACBL.

7 American Commercial Barge Line Company.

* ACL’s major non-carrier subsidiaries include: Jeffboat Incorporated, a

major inland shipbuilding company; Louisiana Dock Company, Inc., a

marine services, maintenance, and repair company; and American Commer-

cial Terminals Inc., a cargo transfer and storage company.

57a

III. OPERATING PLAN

The appiicants have submitted a detailed post-approval

operating plan. They anticipate that most of the operational

changes described in the plan will commence during the first

year after the consolidation is approved. Applicants seek to

take advantage of opportunities to operate more efficiently

and to provide improved service.

Operating improvements and changes were proposed in ex-

isting patterns of service for coal, grain, phosphate/potash,

and chemical traffic. Also discussed were changes to ACL’s

Louisville, KY, coal terminal; development of a new trans-

loading facility along the Tennessee River; and the creation of

a new Thru-Bulk Service facility. These changes are discussed

below.

A. New SERVICE.

1. Coal. Applicants anticipate that the combined company

will be able to compete in coal markets where neither company

now competes effectively. These new marketing opportunities

include the extension of the market for eastern Kentucky coal

to Texas and Upper Midwest utility customers, to compete

with western coal. Applicants foresee coal moving from mines

on SBD’s lines in the eastern Kentucky coal fields to Louisville

(or other terminals on the Ohio River) to be loaded into ACBL

barges. The barges would travel via Cairo, IL, or New Orleans,

LA, to such possible destinations as Houston or Corpus Christi,

TX, or destinations on the Upper Mississippi River in Minne-

sota and Wisconsin. Applicants also foresee an increase in the

tonnage of western Kentucky coal being exported via New

Orleans or moved to utilities in the Upper Mississippi River.

This coal could be carried by SBD to Mt. Vernon, IN, then

transferred to covered barges moving north to Minneapolis

and St. Paul, MN. This traffic would reduce empty backhaul

mileage for ACBL covered barges moving grain from Minne-

sota to New Orleans for export.

58a

2. Grain. Applicants contend that consolidation would

permit new, intermodal movements of grain. They argue that

at present there is little exchange between rail and barge on

grain movements because of a lack of coordination.

Applicants note that CSX and ACBL now serve distinctly

different markets. With consolidation, new service could be

offered to grain producers in Iowa, Indiana, and Ohio by

opening the Gulf export market to shippers that presently

either lack access to river terminals or the necessary volumes to

move grain in unit trains. New domestic markets could also be

explored.

In the export market, the transaction would allow CSX to

act as a gatherer bringing grain to the river. CSX’s greater

gathering range, as compared to trucks presently being used,

will permit more shippers to send their grain to the river for

export, thus broadening the grain producers’ marketing op-

tions. CSX would have a new incentive to pursue these move-

ments on a regular basis in conjunction with ACBL, because

close coordination will permit important efficiencies for im-

proved equipment use, quicker turnarounds, and increased

volumes.

In the domestic markets, applicants argue that a large mar-

ket now exists in the Southeastern United States for grain

grown in the Midwest to be used as feed for poultry and live-

stock. Most of this grain currently moves all-rail. The proposed

consolidation offers the prospect of intermodal moves as sub-

stitutes for this all-rail service to areas like Florida and Georgia.

An example is grain moving from a Midwest point, e.g. Terre

Haute, IN, by rail to Evansville, IN, for transfer to barge;

barge down the Ohio and Tennessee Rivers to a transloading

point, e.g. Decatur, AL, where it would be reloaded on rail

cars for shipment to consumption points. This type of move-

ment could reduce costs by 40 to 60 cents per ton as compared

to an all-rail movement.

59a

3. Phosphates/Potash. The applicants are considering the

initiation of two new rail-barge movements of phosphates.

First, ACBL is exploring the acquisition of an ocean-going tug/

barge to transport phosphate rock from the Bone Valley in

Florida to fertilizer producers on the Lower Mississippi River

or Texas Gulf Coast. Approximately 700,000 to 900,000 tons

would be involved in this movement. This proposed move-

ment would improve the east-west balance of CSX-ACBL

traffic in conjunction with the proposed new grain movements

from the Mississippi River to Florida.

Second, applicants propose to transport phosphatic chemi-

cals from the Bone Valley by unit train to an interchange point

along the Tennessee River, such as Decatur. This traffic, ex-

pected to be approximately 400,000 to 500,000 tons a year,

would be transloaded to ACBL barges for movement to points

along the Mississippi and Illinois Rivers in the Midwest.

Applicants also expect to offer a new transportation option

for shipping Canadian potash to the Southeast. The potash

currently moves in all-rail service. The new service would

transport potash by rail from Canada to St. Paul, by barge toa

Tennessee River transloading point, and then by rail to final

delivery. They expect that about 180,000 to 235,000 tons of

potash could be accommodated by the new service. These pro-

posed southward movements would also partially balance the

proposed northbound phosphatic chemical movement.

4. Chemicals. Applicants propose to penetrate new markets

in the Northeast by promoting the rail-barge transportation of

chemicals from points on the Texas-Louisiana Gulf Coast,

such as Houston, Galveston, and Port Arthur, TX. The traffic

would move by barge via the Gulf Intracoastal Waterway and

the Mississippi and Ohio Rivers for transloading into rail cars

at Ohio River ports such as Cincinnati, OH. The chemicals

would be transloaded at Philadelphia, PA, into trucks (owned

by CMX) for delivery. Much of this traffic currently moves all-

water. Construction of a new rail-truck terminal in Philadel-

phia would be required for this service to be instituted.

B. TERMINAL CHANGES.

1. ACL’s Louisville Terminal. Applicants could make sub-

stantial changes at the Louisville terminal if the new coal mar-

kets they propose develop as projected. The Louisville terminal

currently can handle 3 million tons of coal a year by operating

two shifts a day. By making the physical changes discu:;ed

below, the terminal’s capacity could be increased to approxi-

mately 3.5 million tons, while still operating only two shifts.

Joint ownership will allow continuous communication be-

tween the barges and the railroad, resulting in better coordi-

nation and substantial savings. This would substantially re-

duce the turnaround time of rail cars to approximately 24

hours, and eliminate at least 5 hours of work by a switch crew

of 4 employees per day.

If consolidation is approved, and the coal volumes justify it,

CSX proposes to construct a new lead track to by-pass the cur-

rent lead track entering the ACL terminal. This would elimi-

nate a 14-degree curve immediately adjacent to the terminal

that limits deliveries to 40-car blocks instead of the more effi-

cient 80-car blocks. Elimination of the curve would, therefore,

end the need to break larger trains down into 40-car blocks

before entering the terminal.

In addition, CSX proposes to build a loop track at the termi-

nal to allow an 80-car train to be run through the ACL bottom

dumper without uncoupling. This would minimize time re-

quired to unload the trains. The estimated cost of construction

of the new lead track and loop track is approximately $920,000,

with an estimated annual savings to the consolidated compa-

nies from more efficient operation of $1,530,000.

2. New Transloading Facility. Applicants are considering

the development of a new transloading facility along the

Tennessee River for use in the phosphate/potash interchanges

previously described and also, for the interchange of rail-barge

grain shipments. Decatur, AL, is a possible location because

an existing CSX facility could be expanded to handle the ex-

pected traffic.

6la

CSX’s Tennessee River facility at Decatur has two 15-car

tracks that run perpendicular to the river and two other parallel

tracks of equal length that are used to load another barge line.

CSX could acquire adjacent property and construct three more

tracks of equal length. For the phosphate traffic, applicants

would use a bottom dumper to unload and a conveyor to move

the phosphate to the barge slip. Unloading grain and potash

would be accomplished by a 5-yard clam shell crane to be

located at the site. The cost of these improvements at the ter-

minal would be approximately $1,950,000 and could be com-

pleted within the first year after consolidation.

3. Thru-Bulk Facility. At the CSX Snyder Avenue Yard in

Philadelphia, CSX intends to construct a new facility to trans-

load chemicals and plastic pellets to CMX trucks for delivery

to destinations in the Northeast. The facility would contain

sufficient equipment to handle the expected volumes of liquid

and dry bulk commodities. Existing tracks would be relocated

and new tracks and switches added. A new fleet of trucks

would have to be acquired at an estimated cost of $350,000.

The new facility would cost approximately $1.1 million and

require at least 3 months to construct and place in service.

C. OTHER CHANGES AND BENEFITS.

1. Joint Purchasing. Applicants state that control of ACL

by CSX will afford the applicants opportunities to realize sav-

ings through joint purchasing, particularly of steel products.

Both ACL and CSX are large purchasers of steel plate; ACL

for the production of barges and CSX for production of rail

cars. CSX uses approximately 40,000 tons of plate and struc-

tural steel a year. ACL, in recent years, has purchased annual

amounts of between 30,000 and 185,000 tons of steel plate. By

combining orders applicants estimate that they could save $2

million annually through volume discounts.

62a

2. Communications. CSX owns and operates a modern

microwave network for internal communications to which

ACL would have access upon consolidation. Adequate capacity

exists to handle ACL’s communication traffic at no additional

cost once the initial connection costs are incurred. ACL would

also be able to reduce its internal communication costs by ap-

proximately $300,000 per year.

CSX may also assist ACL in the construction of a modern in-

land waterways communication system. An ACL subsidiary,

Waterways Communication System, Inc. (WATERCOM),

has been licensed by the Federal Communication Commission

to construct and operate such a system. Applicants propose

that WATERCOM would handle radivtelegraph service to

vessels and allow vessel operators to originate direct-dial calls

onto the land-based telephone network. There are a number

of TGR properties that could be used for the location of

WATERCOM facilities. Applicants estimate that WATER-

COM could save $900,000 in land acquisition, site prepara-

tion, and construction costs by using the availabe TGR sites.

3. Coordinated Information System. Applicants also repre-

sent that the control of ACL by CSX would allow ACL to take

advantage of CSX’s sophisticated data processing service.

ACL’s data processing services are presently provided intern-

ally by a staff with an annual budget of $1.7 million. Appli-

cants argue that ACL would realize substantial savings in pur-

chasing new computer hardware and software by combining

its purchasing with that of CSX. Savings of 25-50 percent are

typically obtained by volume purchasing. Furthermore, ACL

would gain access to CSX’s large and ' ighly skilled technical

staff and to CSX’s extensive library of software.

Finally, ACL would be able to use CSX’s training and edu-

cational facility in Jacksonville, FL. CSX has contracted for a

number of training programs at a discount rate that ACL

would have available for its use. While these benefits are not

generally quantifiable, the parties expect substantial savings as

a result of ACL’s access to CSX’s information services.

63a

IV. POSITIONS OF THE PARTIES

A. GENERAL. A number of United States Congressmen, the

United States Departments of Transportation and Agriculture,

State transportation departments, and other public entities

have participated in the proceeding. Water carriers and public

utilities have participated actively because they foresee being

substantially affected by the proposed transaction. Numerous

shippers have participated, both supporting and opposing the

application.

B. PARTIES IN SUPPORT.

1. Applicants. Applicants contend that this transaction

will result in the availability of an integrated, single-system

transportation service over the entire 29-State area currently

served by CSX and ACL. They argue that creation of this inte-

grated rail-barge operation will enhance transportation com-

petition by offering more efficient service to the shipping pub-

lic. Applicants contend that the new combined CSX-ACL will

offer additional transportation options to shippers and permit

them to arrange their total transportation packages through a

single organization.

Applicants assert that control by CSX of ACL offers a num-

ber of important advantages. They contend that a common

control will: (1) make possible operating efficiencies, through

coordination, that will help reduce the total costs of transpor-

tation services; (2) allow intermodal services to be priced at

more optimal levels and on a joint-rate basis, predicated on

costs and demand for the entire through service; and (3) make

new marketing opportunities available to shippers, particularly

new markets for commodities such as coal, grain, and chemicals.

Applicants contend that the proposed transaction is not pro-

hibited by the Panama Canali Act because the CSX railroads

and ACBL do not compete. They argue that there are very

few, if any, common points of service between ACBL and CSX.

64a

They assert that this lack of competition is due mainly to the

relative cost advantages of barges that allows barges to offer

rates that railroads generally cannot meet.

Further, applicants argue that, even if they do compete, the

transaction will not reduce the level of competition and, there-

fore, is permissible under section 11321(b). They represent

that no one entity, not even a combined CSX-ACL, could ex-

ploit customers, lessen competition, or create a monopoly.

They assert that entry into the barge industry is relatively easy.

Thus, CSX-ACBL would have neither the incentive nor the

ability to engage in predatory practices in an effort to gain

monopoly power. In sum, applicants contend that the consoli-

dation will increase competition, offer more efficient service,

possibly lower transportation costs, and result in no adverse

competitive effects of any kind.

2. United States Department of Transportation

(DOT). DOT, an active participant, recommends approval of

the application. It contends that competition will not be

reduced as a direct result of the acquisition. DOT argues that

CSX and ACL will have an enhanced ability to coordinate

their operations and marketing, allowing them to offer the

shipping public an improved intermodal service. DOT argues

that intermodal ownership is consistent with the National

Transportation Policy and, therefore, the consolidation is in the

public interest.

3. State and Local Governments. A number of State and

local governments filed letters or comments in support of the

application. These include: Alabama, Georgia, Florida, Indi-

ana, Illinois, (Office of the Governor and Department of

Transportation), Louisiana, New York, South Carolina, Ten-

nessee, Texas, Virginia, Mayor of the City of Louisville, KY,

Mayor of the City of Decatur, AL, and the Maryland Port

Administration.

Indiana, Illinois, and Ceorgia support the transaction

because they believe it will increase competition for grain pro-

duced in those States by offering cheaper transportation result-

65a

ing in an over-all lower price for the grain. They contend that

new intermodal service, with its resulting efficiencies, will

open new markets for their grain producers.

Alabama, New York, and Tennessee assert that consolida-

tion of available barge and rail service under one corporate

structure will benefit shippers in their States who now find it

difficult to coordinate separate rail and barge .ra..sportation.

They argue that “one-stop shopping” will provide efficient

transportation of the many raw materials, finished products,

and agricultural products moving in and out of their States.

Florida, Texas, South Carolina, and the City of Decatur

support the application, and represent that intermodal ship-

ping options will increase competition, resulting in the devel-

opment of new markets and more efficient movements to exist-

ing markets. They are particularly enthusiastic about proposed

new chemical and phosphate movements to and from their

States.

Finally, Texas, the Maryland Port Administration, the City

of Louisville, and others support the application, because they

forecast that the combined CSX-ACBL system will offer new

domestic and export coal markets.

4. Shippers. A number of verified statements by shippers®

were included as part of the application. These shippers pro-

duce and ship a wide variety of commodities including: glass

containers, clay, automobiles, fertilizer, feed, plywood, chem-

icals, and coal. They support the application because a single-

system service would result in lower transportation costs. In

addition, linking the CSX railroads to the waterways would

* American Colloid Company, Anchor Glass Container Corporation,

Dundee Cement Company, Englehard Corporation, GAF Corporation,

General Motors Corporation, Georgia Poultry Federation, Creat Southern

Paper, H.C. Spinks Clay Company, Land O'Lakes, Incorporated, Leckie

Fuel, Incorporated, Mobay Chemical Corporation, Northwestern Steel and

Wire Company, Reading and Bates Coal Company, South/East Coal Com-

pany, Summer's Fuel Incorporated, and UNIMIN Corporation.

66a

permit coordinated, efficient, intermodal service throughout

most of the eastern United States. They argue that coordina-

tion is difficult today, causing shipping delays and higher

costs.

In addition to the shippers filing verified statements, a large

number of shippers filed letters supporting the application.

These shippers also argue that the “one-stop shopping” that

will be possible if this transaction is approved will lower trans-

portation costs and increase the efficiency of the transporta-

tion system.

C. Parties in Opposition.

1. United States Department of Agriculture (USDA).

USDA, an active participant, recommends that the Commis-

sion deny the proposed transaction. USDA contends that the

transaction has the potential to cause a substantial reduction

in competition, would result in no legitimate public benefits

but rather would produce net public costs, and could have

major anticompetitive consequences on the transportation of

grain and other agricultural products.

2. States and Local Governments. A number of State gov-

ernments submitted verified statements in opposition, with the

sponsors subject to cross-examination.

West Virginia is concerned that the consolidation would

decrease coal shippers’ transportation options. It argues that

this would ultimately increase shipper costs while providing no

meaningful benefits that could not be achieved without joint

ownership. West Virginia is concerned that the consolidation

will reduce competition between railroads and barge lines,

and within the barge industry.

Minnesota fears that shippers along CSX lines will lose their

option of selecting from competing water carriers, because

CSX will have the ability to tie its traffic to ACBL. Minnesota

is also concerned that a rail-barge consolidated entity could

engage in predatory pricing without effective regulatory

restraints.

————————

67a

Several other States filed comments in opposition, including

Kentucky, Oklahoma, and the Illinois Department of Agricul-

ture. These States fear, generally, that the transaction could

result in monopolistic practices that would be detrimental to

the competitive structure of the transportation industry. They

are concerned that CSX may serve ACL terminals to the exclu-

sion and detriment of public facilities. In addition, they argue

that, if this application is approved, other similar transactions

will occur and will result in the eventual domination of the

barge industry by the railroads.

3. Water Transport Association (WTA). The WTA" op-

poses the application. WTA contends that the consolidation

would violate the Panama Canal Act (49 U.S.C. 11321) and is

contrary to the public interest. WTA argues that CSX and

ACBL compete on a daily basis, with overlapping routes be-

tween major cities and ports along the inland waterways, and

often bid on the same traffic. It asserts that competition be-

tween CSX and ACBL will end if the transaction is approved.

WTA contends, therefore, that the consolidation would signi-

ficantly reduce the competitive alternatives of shippers that

can now choose between ACBL and CSX.

WTA further contends that a combined CSX-ACBL would

be able to manipulate its rates to divert traffic from terminals

not served by ACBL to terminals that are served by ACBL. It

argues that the combined entity could raise the rail portion of

the rate while reducing the water portion (the so-called rate

° The WTA's arguments have been adopted and incorporated by refer-

ence into the comments of several other parties. These parties are: the Ameri-

can Waterways Operators, Inc.; a number of independent barge lines in-

cluding Canal Barge Co., Inc., Crounse Corporation, Dixie Carriers, Inc.,

S.C. Loveland Company, M/C Transport Services, Inc., National Marine

Service, Inc., The Ohio River Company, SCNO Barge Lines, Inc., and the

Valley Line Company; and a number of independent waterway operators in-

cluding Agri-Trans Corporation, Arkansas River Company, Brent Towing

Co., Inc., Dravo Mechling Corporation, Express Marine Inc., Harbor Tow-

ing & Fleeting Inc., Hollywood Marine Inc., Park Towing Co, Inc., and

Shaver Transportation Company.

68a

scissors), thus eliminating independent barge operators who

could not lower their rates to meet the ACBL rate. WTA asserts

that, since many shippers are captive to CSX for originating

traffic, they could be forced to use ACBL if CSX refuses to co-

operate with other barge lines. This would drive independent

barge lines out of business and reduce competition.

Further, WTA argues that barriers to entry will prevent

new barge carriers from counteracting any abuses by combined

CSX-ACBL. It argues that new entrants would not have access

to the large quantity of CSX-orginated traffic and thus would

be unable to develop sufficient traffic density and operating

efficiency to challenge CSX-ACBL. Finally, WTA asserts that

no rationally directed business would invest the necessary cap-

ital to start a new barge line knowing that CSX-ACBL could

exercise the same leverage that had been used to eliminate

other competing carriers. ''

4. National Coal Association (NCA). NCA opposes the ap-

plication.'* NCA contends that, if approved, the consolida-

tion would reduce competition for the transportation of coal

and other bulk freight, would not be in the public interest,

and would give the consolidated companies excessive, unwar-

ranted, and inappropriate market power over movements of

coal in the eastern United States.

5. Utilities. The Tennessee Valley Authority (TVA), opera-

tor of the largest power system in the nation and a major ship-

per of coal, opposes the application. TVA argues that the ac-

quisition of ACBL by CSX will be contrary to the public inter-

est because it will disrupt the competitive balance between

railroads and barge companies. TVA contends that water car-

riers restrain rail rates by providing a competitive alternate

'* Two other parties, PPC Industries, Inc. and Harvest States Coopera-

tive, filed verified statements in opposition. Their arguments duplicate,

essentially, those presented by WTA and need not be detailed here.

'® Its members account for nearly 60 percent of the total coal tonnage pro-

duced in the United States.

69a

source of transportation. It argues, therefore, that the consoli-

dation of the region’s dominant railroad and the largest water

carrier on the inland waterways will significantly reduce this

constraint on CSX’s market power. TVA also contends that a

combined CSX-ACBL will be able to eliminate barge competi-

tors for CSX-originated coal by publishing single factor CSX-

ACBL rates while publishing higher rail rates for use in combi-

nation with other barge lines that now compete with ACBL.

Tampa Electric Company (TEC) "* contends that a combined

CSX-ACBL could price its service so as to eliminate competing

barge lines, without cost to the combined entity, by apportion-

ing the joint rail-barge rate to undercut all competing barge

lines while maintaining the same overall rate. TEC argues

that this would substantially reduce competition and would

eventually raise rates, because new entrants would not appear

since investors could not be sure that CSX-ACBL would not

eliminate them as it had earlier competitors.

6. Shippers. A number of shippers submitted letters in op-

position. Generally these letters express a fear that shippers

will become captive to a combined CSX-ACBL and lose one of

the transportation options they now enjoy. They argue that

this will result in a serious lessening of competition.

7. United Transportation Union (UTU). The UTU opposes

the application. It has requested, however, that if the proposal

is approved, labor portective conditions be imposed for the

benefit of all affected railroad employees.

D. Neutra Parties.

1. United States Department of Energy (DOE). DOE par-

ticipated but maintained a neutral position. It recognized

that, while there are a number of positive aspects to the propo-

sal (including possible increased trarnsportation efficiency),

there are also negative aspects, such as the possible increase in

the transportation cost for coal.

'? TEC was joined in its opposition by Gatliff Coal Company and TECO

Transport & Trade Corporation

70a

2. State and Local Governments. Although Mississippi did

not file a verified statement, it did file a comment. Mississippi

notes that the transaction would encourage intermodal ship-

ments that might result in lower transportation costs. It also

notes that serious questions have been raised about the nega-

tive aspects of the merger on competition.

3. United States Department of Justice (DOJ). DOJ filed a

letter stating that it did not intend to file comments or partici-

pate in this proceeding. It did file a post-hearing brief endors-

ing the Commission’s proposed analysis.

V. DISCUSSION AND CONCLUSIONS

A. Statutory Criteria. The statutory criteria of 49 U.S.C.

11321 and 11344 govern our consideration of the control appli-

cation. Further, other statutes, including the antitrust laws,

provide guidance in our evaluation under the statutory criteria.

As set forth in the following discussion of specific statutory cri-

teria, our main concern is the protection of the public interest

through the preservation of competitive transportation mar-

kets and of adequate transportation to the public.

1. The Panama Canal Act - 49 U.S.C. 11321. Section

11321 was originally enacted as section 11 of the Panama

Canal Act, Pub. L. No. 62-337, 37 Stat. 560, 566 (1912). This

section was enacted to bar railroad-owned ships from

operating through the Panama Canal and undermining water

carrier competition with transcontinental railroads. As

enacted, section 11 also included limitations on railroad

ownership of competing water carriers. The legislative history

of section 11 clearly shows that Congress intended that these

statutory limitations should be used only to prohibit those rail-

water combinations which could be expected to have an

adverse effect on competition. See Water Transport

Assn.- Petition for Declaratory Order, 367 1.C.C. 559 (1983),

for a more complete examination of the legislative history of

section 11.

T7la

At the time of the enactment of the Panama Canal Act, the

railroads were, by far, the dominant mode handling intercity

freight traffic. Water carrier service provided the only effec-

tive alternative to the railroads in many instances. Thus, Con-

gress was greatly concerned that railroad ownership of water

carriers was stifling potential competition for intercity freight

traffic and depriving the shipping public of competitive alter-

natives. See H. R. Rept. 423, 62d Cong., 2d sess. 12 (1912).

Since 1912, the barge industry and the surface transporta-

tion industry generally have changed dramatically. At that

time, barges handled only a minute part of all intercity freight.

As of 1912, traffic on the Mississippi and Ohio Rivers equaled

less than one percent of the tonnage handled by the railroads

in the United States. Further, barge industry operations were

relatively primitive. Tow boats mostly used steam power and

barges were generally made of wood. Tows often consisted of

only one or two barges (the average barge carried about 250

tons of freight).

Today, railroads handle only about 36 percent of intercity

freight tonnage (down from about 90 percent in 1912) and in-

land river barges now handle about 13 percent of that traffic

(up from about 1 percent in 1912). Diesel towboats now handle

tows of as many as 30 to 45 barges and barges now often can

carry 1,600 tons of cargo. Thus, the barge industry has devel-

oped into an efficient, effective com «*'tor for intercity freight

traffic.

Further, changes have occurred in the overall structure of

transportation regulation since 1912. At the time of the enact-

ment of the Panama Canal Act, the government fostered a

policy of modal separation. Although railroad ownership of

barges was not strictly prohibited at any time, regulatory phi-

losophy in the early part of this century disfavored such inter-

modal ownership. This approach carried over to railroad-

motor carrier regulation after the motor carrier industry

became prominent in the 1930s and was made subject to this

72a

Commission’s jurisdiction. In recent years, more emphasis has

been given to intermodal coordination in regulatory policy.

See, e.g., 49 U.S.C. 10101(a)(5). We have given railroads

greater freedom in acquiring motor carriers and motor carrier

operating authority. Ex Parte No. 438, Acquisition of Motor

Carriers by Railroads (to be printed at 1 1.C.C.2d___), served

July 20, 1984, and Motor Carrier Operating Authority - Rail-

roads, 132 M.C.C. 978 (1982). We will examine transactions

proposing rail-barge affiliations under the standards of the

Panama Canal Act consistent with these evolving policies of

increased competition and intermodalism.

The provisions of 49 U.S.C. 11321(a)(1) prohibit a railroad

from owning, operating, controlling, or having an interest in a

water carrier or vessel operating on a water route with which

it does or may compete for traffic. However, pursuant to 49

U.S.C. 11321(b), the Commission may authorize a rail carrier

to own, operate, control, or have an interest in a water carrier

or vessel, not operated through the Panama Canal, if the pro-

posed interrelationship with the water carrier will still allow

the water carrier or vessel to be operated in the public interest

advantageously to interstate commerce and will still allow

competition, without reduction, on the water route in ques-

tion.

Our analysis under section 11321, therefore, must begin

with a determination of whether CSX and ACL do, or may,

compete for traffic. The Commission has used a two part test

to determine whether the rail and water carriers compete. This

test consists of determining (1) whether the railroad and water

carrier serve two or more common points, and (2) whether

they actively compete for the same traffic or, except for the

common ownership, would actively compete for the same traf-

fic between such common points. Southern Ry. Co. Section

5(15) Application, 342 1.C.C. 416 (1972), aff'd sub nom.

American Waterway Operators, Inc. v. United States, 386

F.Supp. 779 (D.D.C. 1974), aff'd sub nom. Water Transport

73a

Ass’n v. United States, 421 U.S. 1006 (1975).'* In Southern

Ry., the Commission rejected arguments that it should in its

evaluation of the competition issue, give consideration to the

broader markets that would be relevant in an antitrust pro-

ceeding. See Appendix C, particularly Applicants’ arguments.

The application of this test to the facts of a particular pro-

ceeding depends upon the meaning of common service point.

The meaning of “common service point” is not precise and fixed,

_but must be determined within the context of the particular

facts and circumstances of each case. Prior decisions, however,

provide guidance regarding the proper analytical framework.

It is not necessary that a point be served directly by both

carriers to come within the meaning of “common service

point.” The Commission has found that a carrier, by partici-

pating in through rates, serves a point beyond its line and may

compete with another carrier operating to that point. S.P. Co.

Ownership of Oil Steamers, 34 1.C.C. 77, 80 (1915), See also

Southern Ry. Co. Section 5(15) Application, 342 I1.C.C. 416

(1972). Thus, a railroad serves any point reached by its lines or

reac’ ed by lines of connecting carriers. Further, this principle

supports a conclusion that water carriers serve points within a

reasonable distance of waterway terminals to the extent that

other carriers provide gathering service to the water terminal.

For example, a water carrier serves a coal mine if the mine is

located on the waterway or if the mine has available to it eco-

nomically feasible transportation service to docks on nearby

waterways. In Southern Ry., the Commission found that the

railroad and water carrier did not compete because the rail-

road did not serve the new coal mines that would be the sole

customers of the water carrier. The water carrier, however,

could not serve those mines directly either. The shipper would

provide private carriage from the origin point of the move-

ment to the water. The coal would move from the mines to the

'* At the time these cases were decided, 49 U.S.C. 11321 (a)(1), 11321 (a) (2)

and 11321(b) were, respectively, codified at 49 U.S.C. 5(14), 5(15), and 5(16).

74a

docks by private rail shuttle service and by conveyor. At least

one of the moves from mine to dock would be about 5% miles

long. For purposes of applying section 11321(a), however, we

see no reason to distinguish the Southern Ry. situation from a

situation where « shipper uses for-hire carriage to move its

commodities iv the docks. Limiting the meaning of origin point

to waterside points where the traffic either originates or is

delivered by the shipper would produce a strained and inap-

propriate reading of section 11321(a). Defining a point served

by a carrier as including inland points with existing or poten-

tial connection to that carrier is consistent with Decision No. 3

in this proceeding. In Decision No. 3, we requested traffic lane

data for origin-destination pairs served by ACBL by interlin-

ing with another carrier (other than CSX) in competition with

CSX. Decision No. 3, Appendix A, II. 1.d.

The definition of the geographic scope of an origin or desti-

nation point also depends upon the facts and circumstances of

the particular proceeding. In Southern Ry., the Commission

construed the origin point relatively narrowly because the

water carrier proposed to perform contract carrier operations

serving specified facilities of a single shipper. It was further

noted in Southern Ry. that, in a different factual situation, a

railroad and its affiliated water carrier need not serve identical

places and facilities in common, or even the same customers,

before finding competition to exist within the meaning of sec-

tion 11321(a). 342 1.C.C. at 435. Thus, origin and destination

points, for purposes of deciding a particular case, must take

into account the relevant markets for the commodities

shipped. A point is not defined by narrow, mechanical stan-

dards artificially limited to a specific dock or transloading

facility. The origin and destination points include commer-

cially feasible gathering and distribution areas along the

waterways, giving consideration to the facts of a particular

proceeding and the nature of the proposed operations.

75a

The market analysis under section 11321(a) to determine

whether the applicants do or may compete, however, is not as

broad as an antitrust analysis. Our determination under sec-

tion 11321(a) is limited, essentially, to direct competition,

within the meaning of antitrust laws. The legislative history of

the Panama Canal Act clearly shows that the statute was not

intended to apply where the railroad is a feeder to the water-

ways.'® Thus, where a railroad operates between point A and

point B feeding traffic to a water carrier operating between

point B and point C, the Panama Canal Act does not apply. Of

course, in some circumstances, points A and C may be so close

together that they might arguably be considered to be a single

point. That question, however, is a matter of fact to be deter-

mined on a case-by-case basis.

The words “may compete for traffic” are construed narrowly.

A finding of competition requires a showing that the railroad

and water carrier actually solicit the same traffic; that but for

an existing interrelationship, if any, the carriers would com-

pete for the same traffic; or that it is probable that the carriers

will compete for particular traffic in the future (absent any in-

terrelationship). A mere possibility of competition is insuffi-

cient to support a finding of competitiveness under section

11321(a). Southern Ry., 342 1.C.C. at 431. If the railroad and

the water carrier do not compete, within the meaning of sec-

tion 11321(a), then consolidation is not prohibited by that sec-

tion, and specific approval of the transaction under section

11321(b) is not necessary.

Approval of an application under section 11321(b) requires

findings that the transaction will still allow (1) the water car-

rier to be operated in the public interest advantageously to in-

terstate commerce, and (2) competition, without reduction,

on the water route in question.

'S For example, See 48 Cong. Rec. 6591 (1912), comments of Rep. Adam-

son, “I have no objections to theiz [railroads] running ships where, as the

gentleman say, they are feeders, to gather up and distribute business. That is

all right.” Rep. Adamson sponsored the bill that was enacted as the Panama

Canal Act.

ae

76a

The public interest test is closely related to the competition

test. If the water carrier continues to operate as an active com-

petitor, its operations will be in the public interest and advan-

tageous to interstate commerce. This test has remained essen-

tially unchanged since its enunciation in the earliest cases

under section 11 of the Panama Canal Act (the original enact-

ment of current section 11321). In one of the leading early

cases'® the Commission analyzed the purposes of the Panama

Canal Act and discussed the meaning of “operated in the pub-

lic interest”:

On a watercourse where the boats and boat lines are free

from domination or control by the railroads, and where

they are left to survive as their own merit or the ingenuity

of their owners makes possible, there will be, and always

is, a healthy rivalry and striving between such boat lines

themselves and with paralleling railroads for all suitable

and available traffic. There is competition. This rivalry

manifests itself in several ways. The rates charged fluctu-

ate according to economic principles, and the shipper en-

joys invariably, as a result, lower charges for the trans-

portation routed over such waterways and thereby reaps

a return from the “nation’s highway”. Necessarily, coin-

cident with the lowering of the rate, there is a rivalry in

service which is an equally strong weapon of competition.

In Lake Line, the Commission went on to conclude that

usually railroad ownership will have an adverse impact on a

water carrier's competitive stature and, thus, on its ability to

operate in the public interest. This is because the rail-controlled

water carrier does not respond solely to market forces in set-

ting rates and services, but also takes into account the interests

of the railroad. Our public interest analysis, therefore, has

turned on the issue of whether the natural advantages of the

water carrier would be preserved, or would be affected by the

'6 Lake Line Applications under Panama Canal Act, -33 1.C.C. 699, 712

(1915).

77a

interests of the railroads. The Commission has found, in earlier

cases decided under the Panama Canal Act, that usually the

water carrier's natural advantages would not be preserved

under rail control and has only approved applications where

the railroad has shown some circumstances demonstrating that

the water carrier would continue to operate in the public in-

terest. These types of circumstances are discussed below with

respect to the competition test.

In Lake Line, the Commission perceived the major threat to

the public interest arising from rail control of competing water

carriers to be the potential for predatory practices driving out

competition. The Commission concluded that railroads had

used their substantial resources to enable their controlled water

carriers to cut water rates to an unprofitable level and drive

out competition. Thereafter, water rates could be raised to the

level of rail rates, thus protecting railroad profits. The exis-

tence of the controlled water carriers discouraged real compe-

tition from re-emerging because of the prospect of further rate

wars. Therefore, applicants under section 11321 and its prede-

cessors have been required to show that a realistic potential for

this type of practice does not exist in order to prove that the

water carrier will continue to be operated in the public inter-

est advantageously to interstate commerce. Under the public

interest test, however, improvements in operating efficiency

and quality of service are also relevant.

Approval! of an application under section 11321(b) also re-

quires a finding that the transaction will allow competition,

without reduction, on the water route in question. This stan-

dard is stricter than the standards for evaluating competitive

impacts under 49 U.S.C. 11344(b) and (d). Under 11321(b)

we not only must evaluate competitive impacts, but also must

deny an application that would result in any lessening of the

level of competition, regardless of whether approval of control

would produce offsetting public benefits.

_——————————

78a

The section 11321(a) competitive analysis focuses on the

competing rail-water routes only. Vertical connections are not

always relevant to this analysis.'’ See Southern Ry., 342

1.C.C. at 441. Further, monopoly on rail services for the rail

portion of a connecting (rather than parallel) rail-water route

by the acquiring railroad does not bar a transaction under sec-

tion 11321. See Southern Ry., 342 1.C.C. at 442.

Analysis of the competitive effects begins with identification

of the relevant markets. A relevant market is the area of effec-

tive competition and has two dimensions: product and geo-

graphic. Union Pacific-Control-Missouri Pacific; Western

Pacific, 366 1.C.C. 459, 503 (1982), (Union Pacific).

The “product” provided by the involved carriers is transpor-

tation. Although section 11321(b) limits our concern to the

level of competition “on the water route,” the competitive

analysis under that section is not limited to water carrier trans-

portation. The involved competition has many facets. Compe-

tition between the involved water carrier and the acquiring

railroads, between the involved water carrier and other water

carriers, and among the non-included water carriers all may

effect the level of competition on the water route in question.

Illinois Central R. Co.-Control-John 1. Hay Co., 317 L.C.C.

39, 55 (1962).

The geographic element of the market for purposes of sec-

tion 11321 (b) is defined in reference to the water route in ques-

tion. The involved routes include the rivers connecting the

commonly served points reached directly or indirectly by the

applicants. We conclude that our analysis of competition on

the route between the common service points should contain

an analysis of the entire market for transportation services that

includes traffic moving between the involved points. Although

the scope of our concern under section 11321 (b) is not as broad

in scope as it would be under the Clayton Act, competition

” However, as discumed below, vertical connections are relevant to the

Commission's analysis of the transaction under section 11321 (b) to the extent

they have an effect on competition

79a

takes place in markets and no economically meaningful analy-

sis can be done regarding competition on a particular route

without considering effective competitive alternatives to ser-

vice over the route. In recent consolidation decisions, the

Commission has recognized the importance of competitive

analysis of the type performed under the Clayton Act and has

accorded great, though not controlling importance to this

analysis. See Union Pacific, 366 1.C.C. at 501-06.

In the past, the Commission had frequently denied applica-

tions under section 11321(b) where the involved railroads and

water carriers were direct competitors on the routes in ques-

tion. Where such direct competition had been shown to exist,

the Commission often concluded that it could not find that

competition would continue without reduction unless appli-

cants had shown some extraordinary circumstances. The Com-

mission however, in four types of circumstances approved the

acquisition or retention of a railroad interest in a water carrier

that competes over a parallel route. First, the Commission has

often approved unopposed applications because the lack of op-

position indicated that the proposal would not be harmful to

competition or to the public interest.'* Second, the Commis-

sion has approved an application where it has found a high

level of existing competition that would not likely be reduced

by a proposed rail-water transaction. See e.g., Steamer Lines

Norfolk to Baltimore and Other Points, 41 1.C.C. 285, 294

(1916). Although Steamer Lines involved an application to re-

tain ownership of boats acquired before passage of the Pan-

ama Canal Act, its rationale is applicable to proceedings in-

volving acquisition of a water carrier. Third, the Commission

has approved transactions where a railroad would acquire a

non-controlling interest in a competing water carrier when

such interest would be insufficient to enable the railroad to

* See Peninsular & O.S.8. Co., WA 1LC.C. 142 (1934); Direct Navigation

Co., 46 1.C.C. 378 (1917); $.P. Steamboats on Sacramento River, 34 1.C.C.

645 (1915); and O.W_ALA. GN. Co. Ownership of Steamboats, 33 1.C.C

658 (1914)

influence the competitive position of the water carrier. Fourth,

the Commission has approved applications where the evidence

has shown that the level of competition between the involved

railroad and water carrier over the route in question was mini-

mal and, thus, the transaction could not have a substantial

anticompetitive impact.

The application in this proceeding is for approval of control

of ACBL and the application is vigorously opposed. Therefore,

the first and third circumstances set forth in the preceeding

paragraph are not present here. Applicants, however, have

argued that competition on the involved water routes is in-

tense and would not be reduced by CSX acquiring control of

ACBL. Further, applicants argue that competition between

CSX and ACBL is minimal or non-existent on the water routes

in question. Therefore, we will consider whether the proposed

transaction comports with either the second or fourth of the

above circumstances warranting approval ot an application

under section 11321.

Finally, in evaluating whether competition will be reduced,

we note that preservation of competition in a particular trans-

portation market is not synonymous with the preservation of

the posit

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