.17 i I C Q“ 9-. . v v- ABSTRACT THE TRANSPORTATION OF NEW MOTOR VEHICLES: AN ANALYSIS OF COMMISSION AND INDUSTRY PERFORMANCE by C. Joseph Sequin This thesis is a study of the performance of a specialized segment of the transportation industry. Much has been written about the plight of the common carrier, the vicissitudes of contract carriers, and the mushrooming of private carriers. Very little has been done to describe the structure and the performance of markets served by specialized carriers. Because specialized carriers may operate under conditions which differ significantly from those which prevail in common carriage, measures which may be essential to the welfare of common carriers generally may be unnecessary or inappropriate for specialized haulers. The Commission itself provided much of the informa- tion necessary for this investigation either through its printed record or through the dockets stored in its files. In conducting the study, the author also relied upon ma- terials provided by shipper and carrier associations, by shippers and by carriers themselves through letters and in- terviews, and by attorneys admitted to practice before the Commission. Various studies by private groups and by Con— gressional bodies also proved useful for some aspects of the analysis. The body of the thesis includes an account of the -——A» ._. ’5‘- C. Joseph Sequin development of the industry from the turn of the century when railroads began significant movement of automobiles to the recent introduction of multilevel service. One chapter is reserved for a discussion of the nature of the operating rights required of motor carriers hauling new motor vehicles. Subsequent chapters are devoted to an anal- ysis of the characteristics of the demand for and the sup- ply of transportation for new vehicles; to an evaluation of the performance of the Commission and of the industry it- self; and to an examination of the extent to which the protection of the public interest requires regulatory supervision. The general conclusion of the study is that Commission regulation failed to produce an efficient allocation of the resources used in transporting new motor vehicles and, in addition, that the public interest has been subordinated to the interests of the carriers. From the outset, the Commission seemed obsessed with the idea that competition 'was unworkable and so it aided and abetted the carriers in the establishmmnt of a host of petty monopolies. Unlike the public utility commissions, however, the Interstate Commerce Commission neglected to require that the monopo- lies which it created provided the public with efficient service at reasonable rates. The Commission was not alone responsible for the in— ordinate profits and resource misallocation which develOped in the industry. Railroads were painfully slow to assess .1. _ I'F “A ub- vh‘ . o 5., A. ' a .u. .- - ucip Q F .n.... . v . .‘I, :A Iv -I eh . C. Joseph Sequin the impact of motor carriers and, as a consequence, they did not protest the adoption by the Commission of rate policies which deprived them of the cost advantages they enjoyed. In addition, the shippers, although they possessed the ability, did not engage in arm's length bargaining with their motor carriers until late in the 1950's. The most important conclusions of the research have to do with the degree of regulation required to protect the public interest. Specifically, the study reveals no compelling reason for the continuation of economic control by the Commission over motor carriers of new automobiles. So far as intermode competition is concerned, the efficient allocation of the resources committed to this industry re— quires a reorientation of Commission rate policies which will substitute cost of service for value of service as a prime criterion of the reasonableness of rates. OF COM THE TRANSPORTATION OF NEW MOTOR VEHICLES: AN ANALYSIS ‘OFhCOMMISSION AND INDUSTRY PERFORMANCE -‘ By \ C C! Joseph Sequin A DISSERTATION Presented to the Faculty of the Graduate School Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY 1962 a.-. -‘ con. «1 ‘ I he-‘ .- ' 'Qq‘p . ‘ “-g _-. . I. ‘Q' Q «g. Y-v ‘7 TABLE OF CONTENTS Page ACKNOWLEDGMENTS..................................... ii LIST OF TABLES...................................... vi LIST OF ILLUSTRATIONS ............................... vii Chapter I. INTRODUCTION ................................ I II. THE TRANSPORTATION OF MOTOR VEHICLES 1900-1958 ................................. 8 .A. Introduction B. The Era of Rail Dominance C. The Development of Motor Carrier Service D. water Carriers and New Automobile Traffic E. The Rail Counter Offensive F. The New'Automobiles Case G. Unreasonable and Discriminatory Rates: The Chrysler Case H. The Motor Carrier Monopoly I. Conclusion III. THE NEW COMPETITION ....................... 46 A. Introduction B. The Trailer-on-Flatcar Experiment C. The Development of Multilevel Service D. Conclusion IV. THE OPERATING RIGHTS OF MOTOR CARRIERS OF . NEW.AUTOMOBILES ....... . ................... 69 A. Introduction . The Definition of Motor Carrier Rights . Public Convenience and.Necessity . Conclusion com iv V. DEMAND AND SUPPLY CHARACTERISTICS IN THE MARKET FOR THE TRANSPORTATION OF NEW MOTOR VEHICLES ............................. 121 A. Introduction B. The Supply of Transportation Service C. The Demand for the Transportation of New.Automobiles D. Conclusion VI. THE ALLOCATION OF RESOURCES IN THE TRANS— PORTATION OF NEW MOTOR VEHICLES ............ 168 A. Introduction B. The Allocation of New Automobile Traffic: The Philosophy and the Record of the Commission C. Competition and the Allocation of New Automobile Traffic D. Objections to Market Determined Allo-‘ cation of Transportation Resources E. Conclusion VII. REGULATION AND THE TRANSPORTATION OF NEW MOTOR VEHICLES ............................. 192 .A. Introduction B. Intermode Competition C. Intramode Competition D. Public Welfare and Regulation E. Conclusion VIII. CONCLUSION ................................... 217 APPENDIX. ......... . .................................. 226 FOOTNOTES...... ...................................... 231 BIBLIOGRAPHY ......................................... 281 ‘ "9. I ' s "‘ u I - ‘~.§..‘ ‘ O I. \ Oh.. J. . '~~t?: ‘V‘ . ACKNOWLEDGMEN TS In the several years over which the research for this paper was conducted, the writer managed to accwmulate a substantial stockpile of obligations for the many kind- ‘nesses and the helpful advice received from so many quar— ters. Professor Walter Adams, under whose direction the dissertation was written, was uncommonly sympathetic to certain difficulties which beset the writer in addition to offering valuable suggestions for improvement and some badly needed financial assistance. Professor Thomas P. Bergin, Chairman of the Department of Business Organiza- tion and Management in the College of Business Adminis- tration at the University of Notre Dame, was instrumental in securing a reduced schedule and in procuring fUnds to finance several field trips and typing assistance. I am deeply indebted to Professor Bergin and to the Dean of the College, James Culliton, and to the Administration of this University for their generous assistance. I am likewise grateful for the help extended by industry representatives: iMr. E. S. Knudson and Mr. Henry C. Crawford of the Ford IMotor Company; Mr. Rudy T. Fick and Mr. Earl Wiseman of the Studebaker-Packard Corporation; Mr. Paul Fritzching of the Chrysler Corporation; Mr. Richard Mollica of the Chevrolet Division of General Motors Corporation; Mr. Charles Pieroni ii of the Dallas and Mavis Forwarding Company; Mr. J. G. Stark of Howard Sober, Inc.; Mr. Walter Bieneman, attorney for the National Transporters Association; and the many attor- neys, and carrier and shipper representatives whose coop— eration was most generous. I owe a special debt to Mr. George F. Burnett and to Mr. Paul Skipworth of the George F. Burnett Company, Inc. for making material in their files available to me. Mr. Skipworth was called on to bear an unfair share of the burden of this research in spite of which he managed not only to supply valuable in- formation and useful insights but to keep his good humor as well. Finally, my obligation to my wife is incalculable. In addition to offering moral support and encouragement, she contributed to the editing, the typing and the arrange- ment of the tables and appendices. Of course, none of these is responsible for whatever errors may have found their way into the text; for these, the writer assumes full responsibility. iii Table l. 10. LIST OF TABLES Comparison of Rates from.Assembly Plants with Those from Plants of Complainants ........... Truck-away Revenue Earned by Motor Carriers Serving One Automobile Manufacturing Plant.. Gross Freight Revenue Earned by Rail Carriers in the Transportation of Passenger and Freight Automobiles ......................... Trended Rail Out-of-pocket Costs; Also Trended Fully Distributed Costs Adjusted for 20 Per Cent Overstatement ................... Revenues, Net Income, Operating Ratios, and Expenses for Motor vehicles Carriers of Motor vehicles-1960.. ....................... Revenues and Rank of Carriers Under Common Control ..................................... United States Average Motor Common Carrier Costs in Cents per 100 Pounds Including Operating Expenses, Rents, and Taxes, for 1939, Plus Return ........................... United States Average Motor Contract Carrier Costs in Cents per 100 Pounds Including Operating Expenses, Rents, and Taxes, for 1939, Plus Return ........................... 'Waterway Railway, and Four—car Truck-away, Costs in Cents per 100 Pounds from Detroit to Buffalo, Chicago, Cleveland, and Duluth.. for 1939 ........ . .............. . ............ Comparison of Railway Out-of-pocket and Fully Distributed Costs with Highway Four-car Truck-away Costs, Year 1939 ................. vi Page 42 58 123 129 136 141 144 145 151 153 LIST OF ILLUSTRATIONS Figure Page 1. 'Method of Shipping New Motor vehicles from ‘Manufacturing and Assembly Plants ............ l7 2. Comparison of Method of Delivering Ford vehicles: 1948-1959, Actual Experience, 1960- 1970, Forecast .............................. 51 vii “Y “3‘ ‘13- 1 a“! a. 5 1'] {FS' .94 .. ‘Coco.. .- h. u a .,_’ I ‘ ‘ ~.. .AaD- 'VI . 1‘ w n . ' . I Q :. ~n "'-.u. u. . ‘ n- ‘s- v "'5‘ NJ; I ‘U‘..“ 1' ..:e p. ‘ “3‘.” , ‘4‘ ‘.:‘ J'.‘ \ h 0., Je . ‘ e‘ ‘ ‘e T: t“ “s, w, ‘ .g 'C I? e .“.E I , V... 4‘ 9.9“. r; ' ‘ D e H: in c. " "e a .. ‘ . ‘ « ' I S p ‘ 5‘ ‘ . _ - .34 ‘ k CHAPTER I I. INTRODUCTION From whatever quarter one surveys the transporta- tion scene, there are distress signals pointing to a rapidly developing crisis. The railroads are in unenvi— able financial difficulties; the motor common carriers are rapidly losing ground to private carriers; and the inland and the coastal water carriers are in declining economic health. Each of the major transportation agencies has bared the details of its malady before various Congressional committees. Each has also diagnosed the illness plaguing it and has volunteered a prescription. The carriers have not been alone in their concern over the status of the transportation system. Congressional committees, the Inter- state Commerce Commission, the Department of Commerce and countless scholars have all contributed to the rising tide of studies analyzing the problems confronting the industry. The problem facing carriers is undoubtedly complex so that it is not difficult to understand the diversity which characterizes the solutions proffered. The most im— portant controversy swirls around the role to be played by competition (particularly intermode competition) in the allo- cation of transportation resources. In general, the motor .- ‘h iL-mm all a _.. -- - . a.‘ 'II - 'co H . O n. I.’ .‘b A ~ .5- In." .- 0 u.‘ I a “a ......,,. ---e ' I --e..‘ A V..." I ~,\ .. 2 and the water carriers urge that competitive forces be kept under a tight rein by the Interstate Commerce Commission. The railroads, on the contrary, protest that the Commission's past efforts to supplant competition are, in large part, responsible for the plight in which carriers presently find themselves. They, along with a substantial number of econ— omists, argue that competitive forces should have more in- fluence in shaping the character of transportation markets.l 'Much of the blame for the present chaotic state of the industry is laid to antiquated laws and to a heavy- handed Commission. Former Commissioner Anthony Arpaia declared: The fact that the unregulated portion has been gaining and growing so that now it is being used for almost half the transportation service in this country convincingly shows that hamstring— ing those who are charged with doing the job of transportation with economy and eff ciency has not worked. In short the government, although it perhaps did not intend to, sponsored the mess in which we find transportation today. The coercive force of government, by stifling the creative forces of free enterprise in transportation, is driv- in the common carriers to slow but inevitable fa lure.2 President Kennedy's message to the Congress echoed the same sentiment: But pressing problems are burdening our . national transportation system, jeopard zing the progress and security on which we depend. A chaotic patchwork of inconsistent and often obsolete legislation and regulation has evolved from.a history of specific actions addressed to specific problems of specific industries at Specific times. This patchwork does not fully reflect either thejdramatic changes in tech— 0.1: A. \(n .g.. EX vvl'. C r .W -.G Vbak. 0“ “,3. f—... "C W,- ‘3: § 3 nology of the past half century or the parallel changes in the structure of competition. The regulatory commissions are required to make thousands of detailed decisions based on out-of-date standards. The management of the various modes of transportation is subjected to excessive, cumbersome, and time-consuming reg- ulatory supervision that shackles and distorts managerial initiative. Some parts of the trans- portation industry are restrained unnecessarily; others are promoted or taxed unevenly and incon- sistently. Some carriers are required to provide, at a loss, services for which there is little de- mand. Some carriers are required to charge rates which are high in relation to cost in order to shelter competing carriers. Some carriers are prevented from making full use of their capacity by restrictions on freedom to solicit business or adjust rates. Restraints on cost-reducing rivalry in ratemaking often cause competition to take the form of cost-increasing rivalry-- such as excessive promotion and traffic solic- itation, or excessive frequency of service. Some carriers are subject to rate regulation on the transportation of particular commodities while other carriers, competing for the same traffic, are exempt. Some carriers benefit from public facilities provided for their use, while others do not; and of those enjoying the use of public facilities, some bear a large pagt of the cost, while others bear little or none. As has already been suggested, there has been a plethora of studies directed at the transportation problem. ‘What justification is there for yet another investigation? Most of the studies so far undertaken have been concerned with the problems of the railroads, with the plight of the common carrier, with interagency competition, with the role of mergers, and with similar broad issues. The purpose of the present study is to take a single, specialized, readily identifiable segment of the transportation industry and to examine its structural and its behavioral characteristics 4 for the purpose of determining the amount of regulatory supervision necessary to insure optimal performance. In too many instances in the past, it has been assumed that conditions which suggest the need for government regulation of carriers of general commodities apply pari passu to specialized carriers as well. Curiously, the specialized carrier has not been subjected to careful study. Yet, he Operates under circumstances which, in many respects, diverge sharply from those surrounding common carriage gen- erally. It is quite conceivable that certain character- istics of the transportation of general commodities dictate some degree of administrative interference with the opera- tion of market forces. It does not necessarily follow that the same interference is justified or prudent in the case of the specialized carrier. Heretofore, it has been too readily assumed that policies deemed adequate and necessary for one segment of the transportation world have a general validity in all segments. we shall examine this assumption. The "market" we are concerned with is supplied by rail, motor and water carriers, and it is reasonably easily defined. The "industry" we have singled out for special attention consists of those motor carriers who have Com— mission authority to transport new motor vehicles. Mest of these carriers are specialized carriers specifically designated by the Commission and transporting few or no com— modities other than motor vehicles. Common and contract motor carriers of motor vehicles together transport the bulk 0 “an . :0 in: ‘ 1 A 1' "g "$- " 'h‘ ‘v. .4. -. ~ e I It " 3. " " ...e . ::"‘I. a n..: A. - -- v 2'." , K ‘5‘ ‘\‘ H‘- “J" I ta ‘ i‘ ‘u “A2 5. '1 A C 's D ’ 0 s5 ‘ a“ ~ Q‘ ‘~" e‘ Q 0 ‘ ‘ ‘2! . ‘ 5 .. i v s! . Mu ~" I fi“\ \- 5 of the new motor vehicles (90 percent in 1960). The rail carriers at one time carried most of the new motor vehi- cles but, with the advent of the motor carrier, the rail share dropped until, in 1960, it was less than 10 percent. Recently, however, rate reductions and technological change have combined to improve rail participation in this traffic. At one time, water carriers transported new motor vehicles on the Great Lakes, along both the east and west coasts, and on the vast inland waterways. At the present time, two firms carry the bulk of the new automobiles transported by water; and these operate on the Great Lakes only. One of the distinct advantages of regulation is that it provides the researcher with voluminous information which, under other circumstances, would be jealously guarded. From the hundreds of cases involving the transportation of new motor vehicles which are printed (mainly in the reports of the Interstate Commerce Commission) it was possible to secure data on the operations of individual companies and on specific policies of the Commission. The writer also had the Opportunity on two occasions to spend time examining dockets in the files of the Commission in Washington. In addition, extensive use was made of Commission studies and of the various statistical series provided by the Commission. Of course, not all the data provided by the Commission is in useful form. Indeed, there are some important gaps which, because of the inadequacy in the data or the limita— tions of time, could not be filled from Commission records. 6 In order to provide necessary information, industry repre— sentatives were contacted. Shipper and carrier represent- atives were interviewed; motor carrier, rail and industry attorneys supplied copies of briefs and exhibits and pro- vided other desired information; and carrier and shipper associations were asked to provide data not otherwise ob— tainable. Some of the gaps were never filled. This is especially true of contract carriers and water carriers who were unable to supply information on their Operations. These gaps, however, are not such as to complicate the analysis unduly or vitiate the conclusions which are reached. Much additional information, either specifically applic- able to carriers of motor vehicles or of a general theo- retical nature, was culled from books and articles in learned journals, Congressional and other government sources, and from industry publications. As a first step in the analysis of the industry we shall undertake, in Chapters II and III, to examine the history of the industry. We shall carry the story of the industry from the first recorded case to come before the Commission to the development of the new multilevel rack cars. we shall next, in Chapter IV, turn our attention to the limitations imposed upon motor carriers by the law as interpreted by the Commission. With some knowledge of the history Of the industry and fortified by an understanding of the restraints under which carriers must operate, we shall then, in Chapter V, develop the important features which iv.» .no. -§‘ II .'00§"' D 7' “.u—.. ‘ a na- , ,. 5‘ .I on-.. u o . 1“ ,- ,, On...'y'.. Ir- I'3~. 'U M) 7 characterize both the supply and the demand side of the market. Chapter VI will be devoted to an analysis of the conditions under which the industry might function most effectively. Finally, in Chapter VII, we shall attempt to determine whether or not and to what extent public reg- ulation is necessary to protect the public interest in a safe, adequate, and efficient performance by this industry. CHAPTER II THE TRANSPORTATION OF MOTOR VEHICLES 1900—1958 A. INTRODUCTION No analysis of the performance of an industry is possible without a knowledge and an understanding of the conditions surrounding the birth of the industry and of the forces which give it substance and character. The purpose of the present chapter is to supply such knowl— edge and understanding as is essential to an intelligent appraisal of the performance of the carriers, of shippers and of the Commission itself. Chapter II will carry the story of the industry from the early days Of rail monopoly to the end of the decade of the 1950's at which time the railroads had been virtually eliminated from the industry. We shall reserve to a later chapter the discussion of the rail resurgence which began in 1959. B. THE ERA OF RAIL DOMINANCE The classification 2; automobiles. Until the middle 1920's, the railroads, with minor exceptions, enjoyed a monopoly of all but the very short-haul automobile traffic. Transportation by water carriers was competitive with the 8 a.» a ‘.,b 1 -.I 'A: .~ -~/- n .3.‘ AI ...-5 ”In. -O I I. ~- J. a. u, x . 9 railroads in southern and western coastal areas; and within a narrow radius of the manufacturing p1ants,rpri— vate carriage captured most of the traffic. Nevertheless, to most destinations the rails met no effective competition. ' This monopoly position was reflected in the classifi- cation of automobile traffic. The earliest available records reveal that boxed or crated automobiles were rated at one and one-half times first class at actual weight while unboxed and uncrated vehicles were assessed double first class rates with a minimum of 5000 pounds.1 In Official Classification, the rating on unboxed automobiles was two and one-half times the first class rate.2 As the volume of automobiles increased, however, some modifica— tions were made in the classification. A distinction was made, for example, between passenger automobiles and freight automobiles, the latter being rated second class in both Official and Western classifications.3 Moreover, the rating was generally reduced to first class subject to rule 34, a graduated minimum.weight rule. It was not until 1931, when rails were hard-pressed by motor carriers, that the rating was reduced from 110 percent of first class to first class in Official Territory.u The lack of competition was further manifest in the dearth of commodity rates on this traffic. What few such rates existed were generally established to equalize rates over circuitous routes or they were essentially first class rates with more liberal carload minima.5 .p. l I.. ' " .3..£ it new u. v f I" 10 The rail carriers exacted a high toll from shippers of automobiles but, judging from the complaints lodged by the latter, the service rendered was not always commensu— rate with the rates that were levied. In the first place, the equipment employed by rail carriers was not particularly well adapted tO the automobile shipper's needs so that the latter was obliged, at his own expense, to make modifica- 6 In addition: demurrage and storage 7 tions in rail cars. charges were assailed as being unreasonable; there were 8 delays in delivery; there was controversy over what con- stituted adequate crating;9 and, shippers protested that minimum weights could not be loaded.10 Shippers also lodged complaints about rates which they considered to be unreasonable, discriminatory, and prejudicial. Sometimes the Commission was simply called upon to decide which of several conceivably applicable 11 MOre often, shippers alleged rates was appropriate. that the rates charged them were unreasonably high. But, by the time automobiles had begun to move along the na- tion's rail arteries, value—of-service pricing had become so firmly entrenched at the Commission that these protests fell on deaf ears.12 The Commission seemed most uncertain in its handling Of cases involving charges of discrimina— tory rates. In most instances,.so far as rates on motor vehicles are concerned, these cases arose as a result of rail efforts to counter the competition of water carriers. water-rail competition. The completion of the trans- .q' ~- 9‘! vs: a ’f I ._ I. u. I ‘s -_I .‘. K. 'e ll continental rail lines brought the railroads into competi- tion with intercoastal water carriers. Although the rail- roads coveted west coast traffic, they could not secure it under existing rate structures; and they were unwilling to institute general rate reductions. The way out of the di— lemma involved a grouping of points in both east and west with a blanketing of rates over wide areas. In this way, rates to competitive coastal areas were kept low enough to attract traffic without depressing rates to non-competitive inland points.13 For a variety of reasons, the water car- riers had not been able to compete with railroads in the movement Of motor vehicles to the west coast.l# However, when the water carriers finally established a beachhead in 1929, they expanded it so rapidly that by 1932, steam- ship companies had captured 46 per cent of the west coast traffic.15 The rail assessment of the action necessary to counter the water offensive was undeniably realistic. Because of rail service advantages, there was no need for the rail- roads tO match water carrier rates.16 What the railroads requested from the Commission was approval of a rate schedule which would establish a permanent rail-water differential of $.30 per hundred pounds.17 Nevertheless, these pr0posals involved reductions of such magnitude that the rail carriers felt constrained to justify the new charges on a cost basis.18 The Commission’s refusal to accept the proposed rates 12 was based on several factors. Most important perhaps was the fact that the line of action taken by the railroads ran counter to the rate theories of the Commission. Auto- mobiles, from the ICC's vantage point, were high—value com- modities so that it appeared that, "the proposed reductions on this high-grade traffic are lower than reasonable maximum 19 The cost studies introduced by the railroads to rates." prove that the rates were compensatory were not seriously considered by the Commission which dismissed them as "mere approximations." Even if the ICC had had a greater respect for rail cost statistics, however, the evidence introduced would have been inadequate anyway. What a railroad had to prove was not that its total revenue would be improved by the new rate, but that the revenue for all railroads would be enhanced. This meant that the gains of the railroads haul- ing automobiles to the west would have had to exceed the losses incurred by those roads which had transported auto- mobiles to the eastern ports.20 In the absence of such evidence, the Commission adopted its own conclusion that the proposed rates would deplete carrier revenues. There was another factor which figured prominently in the Commission's refusal to sanction the rate proposals. The existing rate schedules already provided for discrim— ination between coastal and inland areas. Under the form- ula urged by railroads, the disparity in rates would be in- creased. The proposed rate from Detroit to Phoenix, Arizona I lol- It. I rc- ”VII 0" In a. “4 u“ a p o . 13 was $4.555 per hundred pounds whereas the proposed rate from.Detroit to Los Angeles (approximately 290 miles more distant) would have been $3.92.21 This was a difference the Commission was not prepared to sanction. The Commission refused the rate latitude sought by rail carriers for the west coast traffic, but it did allow the railroads considerable freedom to counter the stiffer water competition on traffic to southern coastal areas. The rates from.Detroit and Flint were $.135 lower to south Atlantic ports than they were to Birmingham, Alabama. To the Gulf ports, Detroit rates were $.21 less than they were to Birmingham..22 The Commission, with obvious chagrin, approved this rate discrimination declaring that: In previous years we have expressed the view that the rates from the Ohio River to the south Atlantic and Gulf ports were subnormal, .being induced by an active, present, and com— £23: :5 :3:p:§it%gnover which the rail lines When complaints of rate discrimination were received from less favorably located shippers, the Commission merely sat— isfied itself that the assailed rates were no more discrim— inatory than those which were being charged to similarly situated inland stations. In this-first period, which extended until approxi— mately 1925, the railroads enjoyed a substantial monopoly in the transportation of new motor vehicles. In accord- ance with the value-Of-service theory of pricing espoused by the carriers and promoted by the Commission, the rates l4 reflected the inelastic nature of the demand curve for transportation of motor vehicles. The only exception to this occurred in those few places where water carriage was practicable, and, even here, the Commission was reluctant to permit departures from.monopoly-oriented pricing structures. C. THE DEVELOPMENT OF MOTOR CARRIER SERVICE The growth.g£ driveaway and truckaway techniques. The transportation of automobiles by highway had its origin in the difficulties encountered by shippers during WOrld 24 'War I. .After the conflict, many dealers, grieved by the persistent application of first class rates on automobile traffic, began private transportation of automobiles by the driveaway method from the manufacturing and assembly plants 25 to their showrooms. By the middle of the 1920's, some enterprising individuals recognized the possibilities of supplying transportation for dealers and customers and they 26 began actively to solicit driveaway business. So suc- cessful were the efforts of the highway carriers that the portion of motor vehicle traffic transported by highway in- creased from 23 per cent in 1921 to 42 per cent in 1930.27 By 1929, automobiles were being transported by highway from southern Michigan plants to points as distant as Denver, 1300 miles away.28 The driveaway company, nevertheless, Operated under some handicaps the chief of which was the objection of manu- facturers and dealers to the wear and tear on the vehicle 15 29 General MOtors was es— incident to its transportation. pecially Opposed to driveaway operations, and eventually did not permit this method except for delivery within me- tropolitan areas. Ford was also reluctant to resort to driveaway, and imposed limitations on its use so that, by 1939, the average driveaway haul was only fifty—three miles. Chrysler was considerably more tolerant, but it recommended that its dealers not use driveaway beyond 500 miles.30 Other manufacturers were more liberal. The average haul for the George F. Burnett Company (which carried for Studebaker exclusively) was about 725 miles; and some automobiles were delivered to Miami, 1,200 miles from South Bend.31 Because Of the infirmities evident in driveaway op- erations, some of the very early truckers attempted to de- velop trailers for truckaway service. They purchased sixty- foot platform trailers on which they mounted three, and sometimes four vehicles, which they hauled by means of an attached tractor.32 When these rigs were declared unlawful by most states, trailer manufacturers were sufficiently intrigued by truckaway possibilities to design trailers which could carry up to four vehicles and still conform to state length and weight requirements.33 Within a short time, this new truckaway technique became the most impor- tant method of highway transportation of new automobiles. iNOst driveaway companies shifted to the new equipment al- though some tried to remain competitive by using a tow—bar. 16 Nevertheless, by 1939, 88.7 per cent of the automobiles transported by highway moved in truckaway operations whereas only 3.8 per cent moved by tow-bar. Driveaway 34 accounted for 7.5 per cent. Motor carrier advantages. What factors account for the rapid, dramatic shift of motor vehicle traffic from the rails to the highway? A glance at Figure I shows clearly that, except for two brief interruptions, the precipitous decline in the rail share is matched by the equally rapid rise in the motor carrier portion of new automobile traffic. The change in relative participation is a product of many factors, the most important of which were the service ad- vantages of motor carriers and the rate policies of the railroads and the Commission. MOtor carrier service advantages were available both to the automobile manufacturer and to the automobile dealer. So far as the manufacturer was concerned, the use of trucks 35 reduced congestion at his plant. In addition, the cost of loading an automobile for movement by truck was less 36 At the dealers' than the cost incurred for rail movement. end, the advantages of truck service were more pronounced. For one thing, the trucker delivered an automobile com- pletely assembled and ready to drive; and he delivered it to the dealer's door. When shipment was effected by rail, the dealer had to provide for transportation from the rail yard to his showroom. But, a greater inconvenience and expense resulted from the fact that cars shipped by rail 17 Figure 1.- Method of shipping new motor vehicles from manu- facturing and assembly plants Per cent 90 V////,\ 90 80 1/ 80 .\ r A BY HIGHWAYV JJ \ ,/ ‘ 70 ixgl ' ¥§ ~\§ / 70 \ ./V/\ :7/r 60 L 60 BYRAIL/A \\ \* ~~~~ 4/ ‘r 50 \I\75 50 1,! m / b \\ 40 ‘x ' 40 \\+’ \\ 30 ‘3 30 V \ 20 ‘\\ 20 BY BOAT kn-“ 10 %x' ‘~::\ , 10 ’/~-¢’“\— ~~+ ------ _s/"““—'~\a. « ‘“ A~/|-’/’\W J \v/ 0 ’ 0 1920 1925 1930 1935 1940 1945 1950 1955 1960 Source: Automobile Manufacturers Association, Motor Truck Facts (Detroit: Automobile Manufacturers Associ- ation, 1959), p. 31. O. a :5 ‘A -‘ .|II 18 were not in operating condition. For safety reasons and to prevent damage, Oil and gas were removed, bumpers were detached, and springs were sometimes tied down. Moreover, the dealer frequently had to add water and antifreeze and connect batteries and radiators.37 In addition to the cost advantages incident to unload- ing, dealers appreciated other conveniences offered by the truckers. Small dealers with insufficient volume to pur- chase stock in carload lots had to bear high less-than-car- load rates on rail shipments. For them, truckers were willing to make split deliveries or deliveries to off-route points at very modest rates.38 Other dealers bought in carload quantities but, because of demands for different makes and models, they had to purchase from different plants in the Detroit area. In these instances, rails subjected dealers to less-than-carload rates. The truckers, on the other hand, were amenable to making up a load com- posed of vehicles from.different plants in the same area and to transport the load at truck—load rates. One of the really important assets of highway trans- portation was its speed. This was the result of a combi— nation of factors. A dealer shipping by rail could not enter or modify an order after five p.m. since factory shipping offices were closed. He could, however, call a trucker at any time and expect that a load could be made up for him.from the vehicles stored on the carrier's lot and dispatched promptly. For distances under two hundred miles, r I: -. 19 it was even possible for him to get delivery in the morning. Despite the fact that rails were faster for the line-haul portion, the advantage gained by the trucker in loading and dispatching shipments made him, by shipper consensus, the faster carrier for distances up to five hundred miles.39 The truckers were not content to rely upon their ser— vice advantages in the struggle for traffic; they delib- erately set out to undercut rail rates.uo Although it must have become quickly apparent that service advantages would have secured traffic for motor carriers even with rate par- ity, the truck rates remained below the corresponding rail charges.ul One further advantage (which seemed important to the railroads at least) was the fact that dealers and distrib— utors sold motor units to trucking firms. Presumably it was good business for dealers to patronize potential cus— tomers.’42 There were also some serious disadvantages, partic- ularly from the manufacturers' point of view, growing out of new motor truck service. Shipment of new automobiles was purchased and arranged by individual dealers. Some of the truckers selected by dealers were reliable and depend- able while others were irresponsible fly—by-night operators whose inferior or even defective equipment and careless op— eration resulted in damage and delay. Moreover, the situa- tion in the shipper's receiving yards was ordinarily one of unrelieved chaos with rails, truckers and dealers themselves 20 claiming and loading vehicles.l+3 As a result of the mounting dissatisfaction with the lack of order characteristic of highway transport, the automobile manufacturers decided to assume control over the distribution of their motor vehicles. The Chevrolet Division of General Metors pioneered the change when, in 1934, it selected and helped develop seven contract carriers to whom.it entrusted all the traffic from its assembly plants. The contracts assigned generally non-competitive territories to each of the favored carriers. The Buick, Oldsmobile and Pontiac (BOP) assembly plants were included in this scheme.‘+4 Ford followed closely on the heels of General Metors but, although it made use of contract car— riers, it continued to rely primarily on common carriers. Other shippers fell in line somewhat more slowly.‘“5 D. WATER CARRIERS AND NEW.AUTOMOBILE TRAFFIC The water carriers have never been an important factor in the industry from.the point of view of volume handled. Nevertheless, they exerted a strong competitive influence on certain portions of the traffic. During the season of Open navigation, for example, most of the traffic from Michigan points destined for Trunkline, New England, and Northwest territories moved by lake via Cleveland, Buffalo, and Duluth, and Milwaukee.46 In addition, some automobiles moved down rivers on barges. Although several manufacturers made use of barge service, most of this traffic originated at Chrysler's Evansville plant which was ideally located on 21 the Ohio River.’47 There is very little available evidence detailing the origin and the development of water transportation of motor vehicles. We do know that while some vehicles were transported by water in the early part of the 1920's, no serious rivalrv with the railroads was manifest until 1928. In 1927, for instance, lake carriers handled only 9,765 automobiles. In 1928, this mushroomed to 156,573, and by 1937, shipping companies were handling 315,345 motor ve— hicles.“8 Automobiles were carried both by bulk freighters and by specialized motor vehicle transporters. The former stored as many as 140 automobiles on spar decks. Generally, these carriers did not serve automobile manufacturers di— rectly, but they concluded contracts with specialized carriers for the transportation of such vehicles as their schedules and available space permitted.’49 At least two companies, Western Transit Company and Nicholson Universal Steamship Company were engaged primarily in the transporta— tion of motor vehicles. They loaded and unloaded automo— biles, furnished dunnage, assumed liability for loss and damage, and had joint tariffs with rail and highway carriers.50 . The principal inducement to ship by water was that the rates were lower than those of competing modes. There were, of course, other attractions. For example, the water carriers generally had spacious yards near dockside and they were willing to store vehicles for considerable periods 22 of time at nominal rates.51 From the dealer's point of view, this meant that he had a nearby supply of assorted makes, models and colors from which he could draw. This in turn made a smaller investment in inventory possible for him. ‘Water transportation suffered some disabilities. Probably the most important of these was the relatively slow transit time. To some extent, this was ameliorated by the building up of a backlog in storage yards. Very little could be done, however, to ameliorate a second serious disadvantage; namely, the increase in damages which re- sulted from.the necessary transfers of lading. ‘ E. THE RAIL COUNTER OFFENSIVE By 1930 it had become evident to the railroads that the loss Of automobile traffic was serious; furthermore, it seemed increasingly probable that the trucking industry, lusty though it may have been in its infancy, would mature rapidly into an even more formidable rival. The inaction which had been characteristic of rail policy in the 1920's ended in 1930 when the railroads formed the Traffic Exec- utive Association which later came to be known as the CFA Special AutomObile Committee. In November of 1930, this group met with a committee representing the automobile in- dustry to discuss the future role of rail carriers in the transportation of new motor vehicles. The automobile com- panies evidenced a desire for continued rail participation, but they bluntly indicated that they could not foresee much of a future for rail carriers under existing conditions. As a re gassed seve 1112722 rat’. sf firs: ties i: rged the {liege scale C . . 1A.. F - 0- e Ebb'JaPU-Ld . '. “~45 30m: 3 1103' 110: "w :E C x- u ‘rom E Ayn: 'U“s‘ ‘2‘: all.“ C L~'\ w‘\‘l .' -3‘ e ‘s‘ ‘ “et"e N.) .‘e 0’: ‘ e F 5". h, N:“ ~\ e; . S. l {as x m, 23 .As a result Of these meetings, the CFA Committee proposed several changes. In the first place, it suggested that the rating for automobiles be reduced from 110 per cent Of first class to first class in CFA Territory. Secondly, it urged the establishment of commodity rates based on mileage scales up to five hundred miles. Both of these recommendations were adopted, and a scale arbitrarily ar— rived at and known as scale G was accepted.52 The new rates were made effective on April 20, 1931 from CFA pro— ducing points to destinations in CFA Territory. In order to allow more effective competition with trucks, depar- tures from.acale G were allowed to certain cities (referred to as "storm centers") where truck rivalry was particularly pressing.53 .At about the same time, railroads in the southwest sought to recapture traffic lost to truckers through the establishment of a mileage scale. In the southwest, as in CFA Territory, reductions were made on short haul traffic only, since across-the-board decreases seemed wasteful of revenues in view of the fact that truck competition was most severe on short hauls.54 Conferences with shippers by the CFA Committee were held again in 1932 and in 1933, but industry suggestions for further rate reductions were brushed aside. The atti— tude of the rails was primarily the product of two consid- erations: In the first place, the reductions which had been made in 1931 failed to produce diversion to the rails ! 24 because truckers had matched rail cuts. Secondly, many railroad executives felt that selective rate cutting would "jeopardize the whole of an interrelated rate structure."55 In lieu of rate reductions, the rail carriers, in 1933, sought to enhance their competitive position by improving their service through the use of special loading 56 as they were called, per- devices. The Evans Loaders, mitted the loading of four standard size automobiles per boxcar. That the railroads placed their faith in the new devices rather than in rate cuts is evident from the state- ment made by Mr. O.R. Bromley: I repeat that in 1933 it was felt that the efforts of the carriers to retain this traf- fic could best be centered on providing de- vice cars under rates which were established in 1931.57 This view was supported by Mr. A.W. Richardson who testified: So far as boxcar rates are concerned, we learned early in the game that no reasonable rate would be sufficiently low to recapture this business from the trucks....In fact, our investigations with the major automobile pro- ducers convinced me that these advantages offered by trucks would not be overcome through rail rate adjustment.58 Disillusioned by the results of their efforts to regain their former preeminent position in the transporta— tion of new vehicles, the railroads increasingly became con- vinced that the root of the problem rested in the fact that their rivals were not regulated. Railroad executives who had been weaned on the economics of monopoly simply did not understand how to survive in competitive markets. The 25 average American businessman, accustomed to bidding for bus— iness, finds nothing unusual in not being informed about the bids submitted by his rivals. He knows that unless his own bid reflects his costs he is not likely to meet with much success. But the railroad executive habitually com— plained that he could not compete with truckers since he did not know what rates they charged.59 In the upside down world of economics where volume of movement was a desid- eratum in itself, and where the reasonableness and the justice of particular rates depended on demand factors only, this was a legitimate difficulty. It seemed quite apparent, therefore, that the way out of the bothersome quandary was simply to extend regulation to truckers.6O The railroads finally prevailed in their efforts to subject motor carriers to federal supervision, but since the diagnosis of the nature of their affliction was incorrect, the remedy was bound to be ineffective. They soon dis— covered that traffic melted as quickly under regulation as it had under competition. Thus, the rail carriers' efforts to regain automobile traffic had been frustrated at every turn: price cuts had failed; device cars fell short of expectations; and federal regulation could not stem the tide which was running as strongly as ever in the motor carriers' favor. What was there left to try? By this time, there appears some evidence that the realities of competitive life had begun to sift through to railroad leadership. There was, at least, a consensus that 26 traffic could not be regained without some downward re- visions of the rate structures. This does not mean that the railroads were ready to abandon value—of-service; but they did adopt mileage rate scales which paralleled those in use by motor carriers. A feature common to all of the rail rate schedules was that as distance increased (and presumably truck competition decreased) the rate also in- creased until for distances in excess of about four hun— dred and fifty miles, first class rates were levied.6l On some very short hauls where competition was espec— ially stiff, the railroads proposed rates which barely covered out—of-pocket costs.62 Some railroads were skeptical about their chances of getting increased traffic at rates equal to those of the truckers because of the service disabilities associated with rail transportation. In an effort to counter rival service superiority, rate schedules began to reflect ”disability allowances." In effect, the rails deducted from the go— ing truck rates an amount which they estimated was suf— ficient to neutralize the advantages of shipping by truck. The result was, of course, a further scaling down of rail charges; but it is important to note that these rates were oriented to the rates of their competitors rather than to the costs to the rail carriers of moving this particular traffic.63 F. THE NEW AUTOMOBILES CASE In 1938 the rails received permission to increase 27 rates . 61+ Since the railroads had been given reason to be- lieve that truckers were amenable to rate increases, rates on motor vehicles were raised.65 Highway carriers of auto- mobiles, however, did not increase their rates. The con— sequent precipitous decline in the rail share prompted the railroads, after conferences with shippers, to announce a series of reductions from various assembly plants.66 In addition, the New York Central proposed reduced rates from.main factory points in the Detroit area. This was unusual since, up to this time, almost all rate reductions had been made from assembly plants. The action of New York Central precipitated a request by the National Automobile Transporters Association for investigation and suspension of the proposed rates and for a general investigation on the Commission's own motion of the "rates, rules, and reg- ulations governing the transportation of new automobiles in carloads in interstate commerce...."67 On January'27, 1939, the Commission instituted a general investigation into the rates and practices of rail, highway and water carriers of motor vehicles. The views and the Objectives Of the participants were widely diver— gent: motor common carriers sought the cessation of un— duly destructive competition; railroads desired more free— dom.to compete; contract carriers wanted to be left alone; while manufacturers adoPted strikingly different positions concerning ideal regulatory policy. The common carrier argument. The history of 28 Docket 28190 (which swelled to 5000 pages of oral testi- mony and 495 exhibits) must begin with a recital of con- ditions at the assembly plants of General Motors. It will be recalled that in 1934, Chevrolet selected a group of non-competing contract carriers to handle highway traffic from.its assembly plants. The rates charged by these con- tract carriers were lower than those levied by common car— riers for equivalent hauls. The NATA charge, in substance, was not only that these charges were unreasonably low, but that, as a result of duplicity on the part of General Motors, they threatened to destroy the common carrier. General Motors was charged with taking contract carrier rates based on short-haul costs, extending them without allowing for the fact that highway costs increase sharply ‘with distance, and then presenting these to the railroads (after a deduction of $.085 per hundred pounds to compen- sate for service disabilities) as the rates required for rail participation in automobile traffic.68 The consequence of this action, the NATA declared, was the initiation of a chain of destructive competition in violation of the provisions of the Interstate Commerce Act.69 The rates were destructive according to the NATA because: 1. The existence of these rates constituted an Open invitation to the railroads to reduce their rates. 29 2. Such reductions brought rates below a first- class level which has been universally ac- cepted as reasonable for this traffic. 3. The reductions had not resulted in an in- crease in rail traffic but had merely dis- sipated rail revenue. 4. Such reductions had spread to other points.70 The idea of destructive competition appears so regularly in cases involving interagency rate disputes that it is essential to recognize what the motor car- riers understand it to embrace. In the course of the hearings, the NATA attorneys were asked to answer three questions concerning the nature of destructive competition. Let us examine each in turn. 1. Can a rate structure be considered destructive regardless of the rate of return being earned by carriers who are supposedly destroyed? The failure of common carrier attorneys to introduce evidence concerning the financial status of their clients disturbed the hearing examiners who were impressed by Commission studies which revealed that common carriers of automobiles had earned an average return of 28.1 per cent on depreciated investment in 1939.71 Mr. Harry Ames, the chief counsel for the NATA, protested that he did not see the relevance Of the rate of return for the purpose of deciding whether or not competition was destructive as is evident from.the following exchange: 30 Examiner Disque: As to these reductions, your lines may be in such financial condition that they could make these reductions. That is the reason I asked Mr. Ames if he was going to show the financial con— dition of your lines? The public is entitled- Mr. Ames: YOu take me rather by surprise. I am surprised, in a rate case, to have to come over here and prove fitness, will- ingness and ability. I do not know what you want it for. Examiner Disque: You are claiming that these reductions are detrimental to your motor carriers. The public is entitled to reason— able rates. Maybe the public ought to have these reductions. Perhaps the Com- mission should penmit the reducing of these rates. Examiner Laughton: What he has in mind is what financial effect the rate reductions had upon your members....Have they seriously af- fected them from a financial standpoint? Mr. Ames: Every time they reduce the rates eight and a half cents per hundred pounds it is ei ht and a half cents per hundred pounds t mes the weight of the automobile. That seems elementary. Examiner Disque: If you are unduly prosperous the rates ought to be cut. The Commission ought to let these reductions go on. Mr. Ames: You say they should? Examiner Disque: Perhaps. The public is en— titled tO the benefits of truck transpor— tation. If you are making too much money we should let the rates go down. Mr. Ames: I do not agree with all the hypoth- esis.72 So far as the common carrier was concerned, competi- tion was a fair fight; and a fair fight was one conducted on a service rather than a rate basis. "Do you not think," 31 queried Mr. Ames, "it is always profitable for two com- peting agencies to fight it out by not cutting each other's rates."73 2. Could fully compensatory rates be destructive? The NATA’s position on this issue was unequivocal. In its initial brief the association declared: But again we say, if this Commission, having the POWER to suspend, was to look no further than the question: Is it safe to assume that these proposed rates, considered solely as com- petitive rates, are or will be compensatory? And then stOp, then we say to you these proposed rates, ridiculous as they are, are justified to as great an extent as those you have allowed to become effective. These rates were ridiculous according to the NATA because, as the Commission had itself on so many occasions declared, automobiles are a high-value commodity for which first class rates have been "universally accepted as reasonable.”75 If the apprOpriateness of rates depended upon the value of the commodity, and if a carrier, by charging rates which failed tO reflect that value, injured his competitors, then competition was destructive. It should, moreover, be under— stood that in the‘NATA's view, "destructive competition" was rate competition which made it impossible for an agency to get a fair share of available traffic. In its request for suspension, the Association stated: There are here prOposed... many rates which go so far below existing TRUCK RATES that any notion of a real COMPETITION is completely dissipated.76 The question is not, obviously, whether these low rates cover out-Of-pocket or even fully distributed cost; they The NAT Q ‘ ; ‘P A 25351.8(; bana ‘ ‘Ird- J, 5.5:. .A. 12.4. - .1, :1 ._. ‘fll" a me . ‘ we. ~6."_0 .‘ I ‘ “nan“. C ~“ 51:“1. v ‘.. .‘J N ‘ Ioi‘hane. “-t s." ~35. :1 c N a“ ‘Q \ :I ‘: \ ': V I . .Q,‘ 5? t. I 5“ if ‘L I . “i ‘ “SSOA n, . u"? 32 are destructive because they prevent participation by motor carriers. 3. Could a charge of destructive competition be sustained in the absence of evidence of actual destruction of competitors? The NATA had not introduced any evidence which dem- onstrated that any of its members had perished as a result of the rates which it was protesting. Nevertheless, the Association argued that competition was indeed destructive: Basically, destructive competition would be that which destroys one of the competitors. But need it actually destroy——must there be a fait accompli before it falls within the statutory condemnation? We thinknot.7 and again: we contend that competition which has no ob- ject other than to recapture the traffic without regard either to cost or value of service is essentially destructive.78 The common carriers came to the Commission with a scheme designed to prevent destructive competition. The crux of the NATA proposal was that rate competition be eliminated through the imposition of a minimum.rate order "bottomed as nearly as possible on first class rail rates."79 This would have required that both rail carriers and contract carriers raise their rates. The common car- riers, in fact, offered several proposals.80 The plan favored by the NATA would require rail-truck rate equality but the Association expressed its willingness "to go on record as agreeable to the fixation of rates on a parity 9.1.31 rage I... 85“ o 'J..’,,.. V“)V!s"‘ up“. L-AU“ - O 03'. _ la? 0 mated by the I ll" 3; wok Al's... :0 ‘51 mm carrie: .‘ailroas out T":rec‘:er. the fit 23' of f' a; ‘ '7 : 1 ant.) JaI‘TEG “‘:a v . .....:d to 3:1“ as.‘ :fCu.010bi:e e "a I 9 x H... “‘4 «xe u ‘ .3. ' Q ' It i‘ ‘1 ‘ Q‘SJQVH - e \ u.:‘: ‘. ‘ ‘§ 5 h. E ”33"“ t“« I" '\ T‘ \I § e 5‘ Q 31:, .- s'.‘ . ~K ‘ :l \\ 33 with rail rates," because trucking was no longer an "infant industry."81 The position 2: the rail carriers. The concessions Offered by the NATA did not seem very substantial to the railroads who argued that the magnanimous gesture of the common carriers in accepting rate parity would put the railroads out of the automobile carrying business.82 MOreover, the confidence of railroad executives in the efficacy of first-class rates on motor vehicles had been rudely jarred. In their Brief, southern rail carriers replied to NATA contentions with respect to the high-value of automobile traffic in the following language: In passing we cannot refrain from observin that the contention that automobiles are hIgh— priced traffic and should therefore necessar- ily pay class rates is fallacious. Reading petitioners' naive argument one would suppose that the automobile shippers were dependent solely upon the railroads and the common carriers by truck and that there are no such thin s as contract carrier trucks, tow—bar servIce or driveaway practices. The rail carriers for a long time undertook to adhere to the first class rates for the movement of this traffic, and this accounts in large measure for the great volume of business that the members of petitioners organization and others have Been able to divert from the rail lines.8 The railroads gave further evidence in this proceed- ing that they had begun to understand the economics of the transportation industry. They began to realize that, despite regulation, they were competitors and not monop- olists and, while they were not yet prepared to accept all the implications of their status as competitors, they did 34 seek an increase in their ability to compete. They realized the'necessity to abandon first-class rates on automobiles; but they were not yet willing fully to exploit their cost advantages.8’4 The contract carrier view. The contract carriers seemed unhappy throughout the proceeding. They were well satisfied with existing conditions. The NATA proposal would require them to raise their rates, and they ob- jected to this on two grounds: In the first place, they considered their rate of return to be adequate. As a matter of fact, it was almost embarrassing. When Mr. Hugh O’Neil, who testified for the Automobile Contractors Association, was asked by examiner Laughton to state car— rier earnings as related to investment he replied that he hesitated to do so because it was so large. He did vol— unteer that a net return of 50 per cent would not be un— common.85 Secondly, despite the generosity of shippers, contract carriers were apprehensive lest they become so healthy as to be gobbled up in a prOprietary operation by shippers. _This fear of private carriage appeared as the most important Objection of contract carriers to the im— position of a minimum.rate order.86 The common carriers protested to the Commission that the views of contract carriers were irrelevant. In the first place, NATA felt that the embarrassment of riches that had befallen the contract carriers should not be used to dictate appropriate rate levels. Secondly, if the im- 35 position of a minimum rate order should make contract carriers vulnerable to the depredations of private car- riage, this was a risk that had to be faced. The para— mount issue was the protection of the common carrier; if this meant that contract carriage had to be compromised, 87 the price was small enough. The shipper in the New Automobiles Case. The auto- mobile manufacturers were unable to present a united front. General MOtors supported the status quo while the Ford MOtor Company urged the adoption of a minimum 88 rate order based on fully distributed cost. Ford also agreed with the common carriers that the rail disability 89 allowance constituted an illegal rebate. Chrysler pre— cipitated a major controversy by claiming that higher rail rates from.Detroit and Evansville were prejudicial to it.90 The position of Studebaker was expressed by the assistant director of traffic who stated that: As to rates the various forms of transportatimn should charge, it is our thought there should be free competition in making rates. There should be no effort to force rates upon one form Of transportation based on the percentages of rates of some other form of transportation. Each form of transportation should be permitted to make rates upon its actual costs plus a reasonable profit. The decision 2f the Commission. The New Automobiles case is generally considered to be a landmark decision. There is a clearly discernible difference in the Com— mission’s concept of intermode competition which sep— arates this case from those which preceded it. The 36 Commission’s staff, under the competent direction of Dr. Ford K. Edwards, made extensive studies aimed at dis— covering the relative efficiency of carriers and the rates of return earned under existing rate structures in addi— tion to compiling voluminous information on costs, exist— ing rates, and the present as well as the past structure of the industry.92 This data provided the foundation for a decision which held out the hOpe that, henceforth, eco— nomic efficiency and the welfare of the public would be accorded a high priority among the norms to be used in deciding cases involving intermode competition. It was this decision, in fact, which supplied the model for the 1958 amendment of Section 15 (a) (3) of the Interstate Commerce Act.93 On January 15, 1944 the report recommended by exam- iners Laughton and Disque was made public. So far as the key questions raised by the NATA were concerned, the report brushed them.aside in the following language: Despite the harmful effects which the succes- sive rate reductions have had on the carriers, the process cannot be halted by the prescrip- tion of minimum rates unless it appears that the existing rates have fallen below a reason- able minimum level. .According to cost studies the rates of the several forms of transportation are generally compensatory, the only exceptions being sporadic instances. ‘Within reasonable limits, the public is entitled to the reduced rates that competition brings. There is no showing that the rate structure here involved threatens the financial stability of the carriers.... For movements exceeding 200 miles the rate parity... would spread an umbrella over the carriers least fit from a cost stand- point, namely the motor carriers, and bring 37 them much more of the long-haul traffic.9u The decision of the Commission which was handed down February 6, 1945, followed closely along the lines of the examiners' Report. In ruling upon the NATA request, the ICC catalogued the determinants of minimum reasonableness. It declared: 'What constitutes a minimum reasonable rate is a matter to be determined in the light of the facts of record in each individual case, avoid- ing arbitrary action and keeping within stat— utory and constitutional limitations, just as in the case of maximum reasonable rates. Whether a rate is below a reasonable minimum depends on whether it yields a prOper return; whether the carrier would be better off from a.net revenue standpoint with it than without it; whether it represents competition that is unduly destructive to a reasonable rate struc— ture and the carriers; and whether it other- wise conforms to the national transportation policy and the rules of rate-making declared in the act of 1940. 5 So far as intermode rate competition was concerned, the Commission made an important policy pronouncement. It said: A reasonably compensatory rate is one which is remunerative, i.e., covers the out-of—pocket costs... of handling the particular traffic under consideration, including a prOper re— turn on investment.... As Congress enacted separately stated rate-making rules for each transport agency, it obviously intended that the rates of each such agency should be de- termined by us in each case according £2.Ehg facts and circumstances attending the movement of the—EFaffic by that a enc . In other words, There appears no warrant for believing that rail rates, for example, should be held up to a particular level to presegge a motor— rate structure, or Vice versa. ‘With respect to the rates charged by contract carriers the Commission concluded that: The minimum rates of the contract carriers are 38 well above a compensatory level, and in most cases are highly profitable. We are not con- vinced that they are unlawful, and, therefore, we cannot require them to be ingyeased merely to benefit the common carriers. Thus, the motor common carriers were unable to win a single issue. But as Figure I plainly indicates, despite reduced rail rates, motor common carriers continued to increase their share of the traffic. G. UNREASONABLE AND DISCRIMINATORY RATES: THE CHRYSLER CASE The NATA was not the only party chagrined at the rate pattern evolving as a result of the assembly plant situation. Chrysler, in the New Automobiles case, made vigorous protests of unreasonableness and undue preju- dice resulting from the fact that while rail rates avail- able to Ford and Chevrolet: from their assembly plants were steadily drifting downward, the Detroit rates re— mained unchanged. The Commission agreed with Chrysler at least to the extent of stipulating that rates on auto- mobiles would be considered unreasonable if they exceed 75 per cent of first-class rates.98 But, with respect to Chrysler's principal complaint, the Commission, after taking notice of the more intense competition from assem— bly plants, decided: The differences in competitive conditions just- ify rail—rates from.the assembling points on lower bases than from.manufacturing points and are so pronounced as effectively to refute Chrysler's allegations of undue preference and prejudice.9 39 Chrysler's setback was only temporary. Shortly after the record in docket 28190 was closed, Chrysler again confronted the Commission; this time with the support of all important automobile manufacturers except Ford and General MOtors. Among other things, the complainants urged that: 1. 'Rates on automobiles should reflect the depre— ciated value of railroad service resulting from the competition of other forms of transportation. 2. Automobiles are no longer luxury traffic. 3. The rates imposed on complainants plants are unreasonable by comparison with the rates main- tained from assembly points. 4. The rates charged by the railroads tend to impede rail shipment of automobiles.100 The New YOrk Central, which carried the largest volume of automobile traffic, denied the allegations but refrained from active participation in the case. It was nOt represented on any of the defense committees and it Offered no evidence.101 As a matter of fact, the Central had for some time been urging that rates be reduced; and some Of its Own lower rates had been suspended by the Commission.102 In support of their contention that the more severe competition from the assembly plants warranted existing rate differences, the defendant railroads leaned heavily on extensive shipping records supplied to them by Ford and General Motors.103 Chrysler questioned the motive 40 of rival shippers in supplying this data and accused those railroads which were actively defending the case of being leaders "in establishing and preserving an adjustment of freight rates for the transportation of new automobiles preferential of the assembly plants of General MOtors and Ford."104 Since the railroads which were active in the case carried relatively little new automobile traffic, Chrysler rationalized their actions as follows: The only conceivable explanation is that they find it in their interest to maintain so long as possible, a rate adjustment which they be— lieve responsive to the desires and policies of General MOtors under which the rail move- ment of automobiles from the plants of com- plainants, who are competitors of General MOtors is available only at high rates, while General Motors and Ford can ship from their assemblg plants at rates on a much lower level.1 5 The interest of the defending railroads, according to Chrysler, resulted from the fact that although they did not carry many new automobiles, they did carry parts and materials to and from General MOtors and Ford plants.106 How could Chrysler expect that the Commission would reverse the verdict so recently announced in the New Automobile case? In addition to the fact that Chrysler was joined in the complaint by other manufacturers, con- ditions in the industry had changed. In the first place, Chrysler and the other firms had assumed control of ship- ments from.their plants. This eliminated the objection of the Commission which stemmed from.the complaints of railroads to the effect that since shippers had not con- 41 trolled traffic, they could not guarantee that any increase in traffic would follow rate reductions. Moreover, the percentage rate increases which had become effective since the New'Automobiles case had widened the gap between the rates at assembly points and those at Detroit. These differences to important destinations amounted to as much as fifty to sixty dollars on a single automobile.107 The magnitude of the differences in rates is illustrated in the following table in which rates are eXpressed as per- centages of the first class rate. The defendant railroads protested that the complain— ants were not handicapped by these rate differences since, under the uniform system of pricing automobile transpor- tation, customers were charged the rail rate from the manu- facturing plant regardless of the mode of transportation or the source of the vehicle. Moreover, since many of the defendants did not originate traffic at the complainants' plants, they urged that they could not individually or collectively be responsible for rates which they did not 108 It was control or in which they did not participate. further suggested by the railroads that Chrysler’s position and that of the other manufacturers was an outgrowth of their decision not to decentralize their Operations. Mr. J.E. Goggin, an attorney for the defendants argued: My final point is that the complainant has its own remedy in its own hands. Very bluntly they can build assembly plants, and avail themselves of the very same rates of which they complain, and it might reasonably 42 .aommav . .. o no haomaoo ooosawom usoumwobow a aOuouo .aosx< .> ..Ho no oofiuoso OO smamesoo noosoom .osoEwuHom OH OH ocean AHnEommo uoaos>onou .ousuaom .masooamouo .aoasma on as as mm mm m: .... .o .n .couwnaammz so mm no an :m an ..... «scamsso .mmsss as ms me an an an ........ .maws .mamdos as as as m: mm o: .....s .z rseauooamaom as as as mm mm an .... .mm .asnasoomasam ms as as «m m: we ...... .s .z .aaosozmz me as an em on em ......... .oz .aaaaon so as mm mm mm mm ..... asoH .mmaaoz_mma mm as as an an an ..... .aH4 rsaawaaapam as as as an H: Ase ....... .ez..msoaspaam am no «a :m an an ......... .mo .auasw54 £de hvxdn SudOE UHOh mom u. OHOH -oosum -sam a ->oao nuuoam nuaoaeoHquo Bosh muooam kHAEomm<.EOhm muaoaaoaefioo mo sundae Eosm snoop spas sundae hanfioouo Eosm sands MO :Oswhdgfioo 1.H manofi 43 be assumed that if they build assembly plants in new places the rail lines would put in low rates to meet whatever competition they find.109 So far as the motivation for the COOperation between certain defendants and General MOtors and Ford was concerned, Mr. Lawrence Chaffee,testifying for C.F.A. carriers,as— serted that cooperation was prompted solely by the desire of "the railroads... to provide this Commission with a complete record of the facts."110 'Whereas Chrysler im- plied that Ford and General Motors quickly and willingly .came to the aid Of the railroads, Mr. Chaffee testified that, "it took us some timetx>persuade them to let us have all of the detailed information that we needed...."111 Finally, the defendants argued, the lower rates from assem- bly plants reflected more intense competition and any re— duction in the rates from Detroit would be needless squandering of necessary rail revenue.112 The railroads were not successful in convincing the Commission that they should not be held responsible for rates in which they did not participate directly. The Commission emphasized the fact that, from the inception of highway competition, the rates on automobiles were set by the action of rate committees representing railroads in the various territories. In addition, the Commission seemed convinced that the railroads, by joint action through their rate committees, "sought to establish lower n113 rates from assembly points. Chrysler, on the other hand, was unable to persuade 44 the Commission that competition on the long hauls from manufacturing plants was as severe as from the assembly plants. As a result, instead of prescribing uniform rates, the Commission found that rates would, in the future, be unduly prejudicial to the extent that: ...the rates from complainants' plants exceeds or may exceed the level of rates from assembly plants... to the same destinations by more than the difference between 75 per cent of the exceptions first class rate from complainants' plants and 50 per cent of the exceptions first— class rates from assembly plants of the com— petitors named concurrently and in effect.1 The result of the Chrysler decision was that the rail- roads had to find some means of reducing the existing dif- ferential between assembly plants and manufacturing plants. In order to comply with the Commission's decision, the ‘ rail carriers raised rates from the assembly plants and they lowered them from.manufacturing plants. Protests from the railroads postponed the effective date of these changes until 1953. But despite threats from General MOtors that it would discontinue rail service from its southern assembly plants, the ICC reaffirmed its belief that the spread which had been dictated was just and reasonable and would have to be maintained.115 H. THE MOTOR CARRIER MONOPOLY When the new cars began to move off assembly lines after WOrld‘War II, the rail carriers transported 40 per cent of this valuable traffic. By the time the decision in the Chrysler case was handed down, the rail share had 45 fallen to 20 per cent. After 1950, the rails appeared to have abandoned the hope of recovering new automobile traffic.116 Their share continued to decline until, by 1959, it was reduced to 8 per cent. The water carriers were no more successful than the railroads in blunting the motor carrier drive for traffic. In 1949, the water carriers reached their apogee, trans- porting 7.9 per cent of the available new automobile traffic. Subsequently, however, they lost ground steadily so that by 1959, they hauled only 2 per cent of the traffic. Thus, the industry turned into the decade of the 1960‘s with the motor carriers enjoying an overwhelming monOpoly in the transportation of automobiles. In fact, even in their heyday, the rails never accounted for as large a percentage of the total automobile traffic. I. CONCLUSION The story of the automobile transporting industry began with the description of the monOpoly position of the railroads. The first part ends in 1958, with a firmly en- trenched, even more powerful motor carrier monopoly. The startling reversal in the position of rail and motor car— riers was in part a function of the disparate services provided by each mode, but it was also a product of the attitudes and the economic convictions of the carriers, of the shippers and Of the Interstate Commerce Commission. CHAPTER III THE NEW COMPETITION A. INTRODUCTION 'When the dust of World War II settled, it quickly be— came apparent that the rails were not going to improve their position in the struggle with motor carriers for automobile traffic. In 1946 the rails accounted for 40.7 per cent of the motor vehicle traffic. By 1958, the rail share had plummeted to 9.9 per cent. Whatever the nature of the illness plaguing the railroads, the prognosis was not good; the patient appeared iu_extremis. Neverthe- less, a few years later, Mr. Delos Rentzel, Chairman of the Board of the NATA, in testimony before a Senate Committee represented the condition of his membership as critical. "It is now apparent," he confessed, "that the automobile transporters are faced with a fundamental problem of sur- vival and not a mere problem of business competition."1 The purpose of this chapter is to detail the develop- ments since 1958 in order to explain the causes of the rail resurgence; the effect which this recovery has had on other modes of transportation; and the nature of the arguments for and against new rail techniques and modified rail policy. 46 47 Recent Commission decisions, recommended orders and reports of examiners, hearing dockets currently before the Com- mission, briefs and petitions submitted by parties to the various controversies, and interviews with representatives of the various parties in the struggle were primarily re- lied on for the material in this chapter. B. THE TRAILER-ON—FLATCAR EXPERIMENT In 1956, the St. Louis-San Francisco Railroad (The Frisco), decided to make a serious study of the conditions responsible for its chronic inability to secure automobile traffic. In assessing the position of the railroads the study group found that the railroads could provide faster service between terminals; that they offered an all—weather twenty-four hour service; and, that they had lower line- haul costs than the motor carriers. On the debit side, rail service increased the damage hazard in addition to pro- viding a less flexible and less convenient service from the viewpoint of both the automobile manufacturers and dealers. It was quite obvious, of course, that, since the middle of the 1930's, the debits had outweighed the credits. In its attempt to devise a technique which would put the railroads back in the automobile business, the study group reached back into rail history and pulled out the 2 The trailer- idea of placing loaded trailers on flatcars. on-flatcar (TOFC) technique seemed especially promising for automobile traffic since it made possible a combination of 48 rail and motor carrier service advantages. The risk of damage was greatly reduced since no use was made of boxcars and the Evans Loader. MOre important, the railroads were now in a position to offer door-to-door service. At the same time, TOFC permitted railroads to exploit their greater line-haul speed without sacrificing lower rail costs on long hauls.3 In the typical TOFC operation proposed by the Frisco, motor carriers transported a loaded trailer to a convenient railhead where two trailers were secured on each flatcar. Railroads then hauled these trailers to some central point in the distribution area from which motor carriers distrib- uted the vehicles to the various dealers. The railroads stayed out of the short-haul area in the belief that for hauls up to 300 miles the motor carrier enjoyed advantages which could not be overcome.“ Typically, rail interchange points were few in number so that the motor carrier ordi- narily had a substantial haul at both ends of the trip.5 The physical characteristics of the TOFC service offered by different rail and motor carriers were essen- tially the same but there was considerable variation in the arrangements between carriers and shippers. As TOFC developed, various Plans, adapted to fit particular pref— erences and requirements of shippers and carriers, were devised.6 These Plans already enjoyed wide acceptance by the time carriers and shippers of automobiles sat down to discuss the new service. The first TOFC tariff 49 published in May, 1959 provided for transportation between St. Louis as a point of origin and Tulsa, Oklahoma and Irving, Texas under a Plan V arrangement. Subsequently, however, a considerable amount of traffic also moved under Plans I and III. TOFC promoted dissension among participants almost from its inception. The motor carriers, few of whom were overjoyed by the introduction of the new service, disa- greed about the most profitable course of action. Some carriers thought that the best policy was for truckers to 7 Other carriers refuse to participate in TOFC service. tried to preserve some part of their traffic by agreeing to work with rail carriers. A majority of the motor car- riers agreed that Plan I was the least offensive of the possible arrangements. But there was sharp disagreement over the nature of the rights a carrier must possess in order to participate in TOFC Operations. Carriers were also split over the legality of contract carrier partici— pation under any of the accepted Plans.8 The controversy over TOFC was of more than academic interest to motor carriers although some carriers had more cause for worry than others. Since TOFC was practical on long hauls only, this meant that carriers who depended primarily on short-haul business would be left relatively untouched. Carriers serving firms with extensive assembly plants, therefore, appeared to have less to lose than those carriers unfortunate enough to serve firms whose operations 50 were limited to one or two plants. Compare, for example, the anticipated effect on Ford traffic given in Figure 2 with the predictions of Studebaker officials that the rail share of Studebaker transportation would rise from 7 per cent in 1958 to 60 per cent when TOFC operations were in full swing. 9 It is difficult to assess the overall impact of TOFC on motor carriers. Some claims are surely exaggerated.10 On the other hand, a study by the Department of Research and Transport Economics of the American Trucking Associa- tions confirmed a suspicion that automobile carriers were harder hit by TOFC than any of their fellow truckers. This study revealed that eight automobile haulers with rev— enues of $72 million, lost more revenues to TOFC than did seventy-three general freight carriers with revenues ex- ceeding $500 million.11 undoubtedly, some carriers were seriously affected. ‘Mr. Delos Rentzel described the plight of his company in recent testimony: To illustrate, when the rail carriers pub- lished their piggyback rates from St. Louis to Texas and Oklahoma in 1959 the bottom drOpped completely out of the business for our com— pany, United Transports. In the last quarter of 1958 we realized revenue of $879,135.46 on Chrysler traffic moving into Texas and Oklahoma. Though 1959 was a better year in the automobile business, our gross revenue on this same traffic for the fourth quarter of 1959 nose—dived to $251,433.94. A reduction of more than 70 per cent. Commercial Carriers estimated its loss of revenue for the first six months of 1960 to be about $445,000 as a result of 51 mm oaoaowm .Hoos .moms m a H ..xoa s ..os ..ss< .soso mousse --oosoaoo> soooz_uoos=om oan momH woma soma NomH coma mmmH omma :moa NmQH ommH @30H 0 . IHJHWELuu .. ‘1 111. 1n.: - r- - o fflflLWflkWflXWNflwdehfldwddxrflfirdHLSQMKUHfifi Jfl.uflHlLvV .HW. a!THHWJM%I: a a... 20m 5 _ 3. com mm, oom €411.41 OOOH smqommou \wm\\/////z N\\\\ . 324m 30.. - .. > 9.95:8 echo: com... OOOH ooomH t < ooo a ...ruouauuufluwwwwmnwuuu <> \F \ ooo N Essa. < . oomu Moons noooo Aoooo moaoaoob mo .02 I , moaowno> mo .oz umooosom .osoanomma wooowwaooxo amouos .mmmanwsma "mOHOH£o> ouch wagso>fiaoo mo posses mo sonasooaou I.N shaman 52 the diversion on Chrysler traffic from its St. Louis Plant.13 A witness for the Dallas and Mavis Forwarding Company testified in July, 1960 that his company had, in the past year, lost $4 to $5 million worth of traffic repre- senting 35 to 40 per cent of its total business to rail piggyback.lu Most shippers were enthusiastic about TOFC service at the beginning. As they gained experience with the new techniques, however, their interest seemed to wane. For one thing, there was controversy and confusion over the adequacy of the rights possessed by a majority of their regular carriers. The legitimacy of contract carrier par- ticipation was challenged by freight forwarders and by some common carriers. The fact that Commission examiners recommended contrary decisions in some of these cases served further to muddy already cloudy waters.15 Moreover, it was felt in some quarters that some motor carriers made attempts to sabotage the operation. Regardless of the truth of this allegation, there remained some frictions in the distribution of new car traffic. The trailers leased to shippers were often the oldest available and frequently lacked brakes and lights. Because of this, and because four car trailers were used, automobiles had to be reloaded at the rail destination on prOperly equipped trailers or on trailers of greater capacity. The result was that, in practice, TOFC shipments were highly suscep- tible to damage and, frequently, they were slower than 53 all-truck movements.16 C. THE DEVELOPMENT OF MULTILEVEL SERVICE Although some shippers were disillusioned by TOFC service, they were not insensitive to the possibilities of fostering intermode competition. Ford, in particular, prodded railroads to experiment with new techniques. The Frisco was again in the vanguard. At the very time its TOFC experiment was in progress, Frisco engineers were working on a multilevel car.17 In January, 1960, the Frisco in cooPeration with Pullman Standard, produced a prototype trilevel equipped to handle twelve standard or fifteen compact automobiles. The trial runs were so suc— cessful that in June, 1960, the Frisco placed a purchase order for one hundred trilevel cars. Railroads other than the Frisco were quickly im- pressed with the advantages of the rack cars, and rail car manufacturers other than Pullman Standard worked on devel- oping improved equipment. Major rail carriers purchased cars for their own fleet or secured them from leasing come panies such as North American Car. In some cases, clear- ance problems dictated expensive modifications in railroad plant or the use of bilevel cars with smaller capacities 18 In an effort to obviate these dif— than the trilevels. ficulties rail car manufacturers modified equipment. Paragon Bridge and Steel Company developed and introduced in June, 1961, a bilevel which, through slanted stacking, 54 carried twelve standard size automobiles.19 American Car and Foundry (ACF) pioneered the development of a low-level piggyback flatcar (The LoweLevel Hitch Hiker) which carried auto racks and which eliminated many of the existing clear- 20 ance problems. The same basic idea was employed by Pull- man—Standard which offered an eighty-nine foot flatcar, eleven inches lower than conventional flatcars.21 The advantages of the new rack cars were quickly appreciated by shippers. After experiments which were termed outstanding, a Studebaker-Packard representative testified, "I think it is the greatest thing for trans- porting automobiles that I have seen'.’22 Among the advan- tages of the multilevel car, this witness singled out the reduction in damage hazards in addition to a tie-down pro- cedure which adapts the rack car to automobiles of varying length--a highly desirable feature in View of the multi- plicity of models and the constantly varying length of motor vehicles.23 Undoubtedly, the most important advantage of multi- level service from a shipper's point of view is that his cost of distribution is substantially reduced.2u Mr. Rudy T. Fick testified that Studebaker-Packard estimated. that TOFC service would save his company $1,732,545 or $12.47 per vehicle in 1961. As a result of the greater economy of multilevel service, this estimate was raised to 25 $28.68 per vehicle. An official of another firm revealed that it expected its savings from multilevel service to be 55 in the neighborhood of $15 to $20 million per year.2 The development of efficient long haul rail service was of even greater importance than shippers themselves may have realized at the outset. At one time, it was con- sidered that long haul problems were of importance only to firms which did not have extensive assembly plants. While these firms probably still have a higher interest in long haul transportation, recent changes in the automobile market have substantially increased the importance of the long haul to Ford and General MOtors. One of the striking developments in the automobile industry is the prolifer- ation of makes and models with standard and compact auto- mobiles and vehicles tailored to satisfy a seemingly endless variety of psychological yearnings for prestige, power and status symbols. It has not been possible to manufacture or assemble each of the various models in every plant. As a result, both Ford and General MOtors have discovered an in- creasing need for long haul service. They have, in fact, had to make appreciable changes in their system of distri- bution. .A dealer is increasingly likely to order automo- biles which are produced in several different plants. As a result, manufacturers have established a series of con- solidation points to which shipments are made from various manufacturing and assembly plants and from which distribu- tion is made to the various dealers. They have, therefore, been placed in a position in which the character of long haul service is an important consideration. 56 The technological developments which we have been discussing have produced substantial dislocations. As might be expected, the position taken by the various car— riers and by shippers reflected their own self-interests. The Commission, which must eventually make important de— cisions, appears beset by doubts and is clearly lacking any solution acceptable to all the parties to the contro— versy. The development of TOFC precipitated a struggle for position among the motor carriers. Apart from the inter— necine strife over rights, the motor carriers are united in opposition to the nascent rail-motor rate competition which they regard as destructive. They envision an all- Out war by the railroads aimed at the elimination of motor truck competition. In this war, the automobile transporter is singled out as the first victim. Mr. Delos Rentzel recently explained the NATA charge before a Senate com— mittee as follows: It has always been perfectly obvious that the railroads, tremendous corporations serving extensive territories, authorized to haul any and all commodities including many with respect to which they have no competition, and with great financial resources, could and would use unrestrained selective rate-cutting to ruin their smaller and limited competitors. It has been just as Obvious that the most vul- nerable and the first to go in such a cam- paign would be the specialized carrier who must stand or fall with a single commodity.27 In the New Automobiles case, it will be recalled, the NATA charged that the rails were engaging in destructive competition but the Association was either unable or 57 unwilling to introduce evidence relating to the loss suf- fered by its members. TOFC, and especially multilevel service has resulted in severe losses for some firms; and there has been no hesitation about calling these to the attention of the-Commission and the public. In some cases, these losses are dramatic. Table 2, for example, clearly shows the changing fortunes of motor carriers serving one plant of one of the automobile manufacturers. TOFC Oper- ations had cut motor carrier revenues in 1960 but, with the introduction of multilevel service in November of that year, the motor carrier revenue plummeted to all time lows. The amount of diversion differed from shipper to shipper but Specific information cannot be obtained.28 The rail share of automobile traffic as a whole, however, increased from 9.74 per cent in 1960 to 20.5 per cent in 1961.29 The Chrysler Corporation, which provided data for 1961, shipped 26.9 per cent of its new automobiles by rail and 69.2 per cent by truck.30 Essentially, motor carriers protest that their rail rivals are seizing upon technological advances not as a means of "fair competition," but as an excuse for destruc- tive rate wars. In this, they charge the rails have been aided and abetted by the Commission. In order to appreciate the charge levelled against the Commission, it is necessary to understand the contro- versy over the 1958 amendment to the rule of rate—making. The railroads had campaigned for an amendment to the Inter- 58 Table 2.- Truckaway revenue earned by motor carriers serving one automobile manufacturing plant Total . No. Units Per Vehicle MOnth Revenue Shipped Charges 1959 March 1,731,134 15,062 $114.93 April 1,361,998 12,644 107.72 May 1,154,056 10,961 105.29 June 1,026,803 9,774 105.05 July 960,495 9,165 104.80 August 231,410 1,286 179.95 September 958,882 9,526 100.70 October 1,331,586 12,617 105.54 November 1,062,535 10,172 104.46 December 1 233 926 11 168 110.47 Total $1If052f825 162,375 $157.96 1960 January $ 1,237,657 11,932 $103.73 February 1,195,832 10,854 110.17 March 870,061 8,259 105.36 April 885,019 9,240 95.78 May 819,008 7,889 91.14 June 786,830 8,768 89.74 July 597,178 5,544 107.72 August 206,543 1,855 111.34 September 962,507 8,014 120.10 October 945,005 10,128 93.30 November 582,482 6,186 94.16 December 310 828 3 385 91.83 Total $ m m, $101762 1961 January 216,160 2,339 92.41 February 201,639 2,201 91.61 March 248,343 2,805 88.53 April 257,136 2,672 96.23 May 254 978 3 329 76.59 Total $ 1,I78,256 13,346 $ 88.28 Source: This information was provided by the Traffic Department of a company which desires its name not be used. 59 state Commerce Act which would embody principles widely known as the "Three Shall Nots."_ These asserted that in considering the reasonableness of rates as between different modes of transportation, the Commission could not consider: 1. The effect which such rates had on the traf- fic of any other mode. 2. The relation of such rates to the rates of any other mode of transportation. 3. Whether such rates were necessary to meet the competition of any other mode of transportation. .Although Congress rejected the "Three Shall Nots," it did amend the rule of rate making by providing that: Rates of a carrier shall not be held up to a particular level to protect traffic of any other mode of transportation giving due con— sideration to the objectives of the national transportation policy declared in this chapter.... The current controversy concerns the relative emphasis which should be placed on the two parts of the amended section, with the railroads anxious to stress the first part and motor carriers pressing for a greater role for the second.32 As has already been noted, the language of Sec. 15a(3) leaned heavily on the decision in the New Automobiles case. Various parties, therefore, urged that the Congress did not mean to change the rule of rate making followed by the Come mission, but intended to give legislative sanction to the standard employed by the Commission since the New Automobiles 60 case.33 Others argued that the Commission had been incon- sistent in its application of standards in rate contro- versies, and that it frequently held up rates of one mode in order to protect traffic of another mode despite the will of Congress as expressed in the Transportation Act of 1940.34 In any event, motor carrier interests contend that the Commission has, subsequent to the 1958 Amendment, altered its criteria of reasonableness by placing greater emphasis on cost while neglecting long established norms of classification to the detriment of the national trans- portation policy. In the several cases which have come to the Commission involving TOFC or multilevel rail rates on automobiles, the motor carriers have argued: 1. The rates set by the railroads ignore value—of— service considerations. 2. The rates set by rails are, in almost all in- stances, below all-truck rates. Since new rail service has eliminated the rail disability, no rate differential should be countenanced. 3. The rates set by the railroads are destructive of motor carrier competition and are designed to promote a rail monopoly of automobile traffic. 4. The rates set on automobiles are so low as to reduce car-mile earnings on automobiles below the level of earnings on less valuable commodities. 5. The rail reductions on automobiles spread to 61 other commodities and thus reduce rail earnings. 6. The railroads have ignored the rate relationships dictated in the Chrysler case. 7. Rates which provide for the same aggregate charge on each automobile regardless of the weight or the value of the vehicle are unjust, unreason- able and discriminatory.35 8. The Commission has misconstrued the intent of Congress in interpreting Sec. 15 a (3) by stress- ing costs while ignoring the traditional tests of reasonableness. It should be pointed out that the truckers are not challenging these rates essentially on a cost basis.36 Even by their own cost revisions, most rates cover fully distributed costs. For example, in one case, Mr. Gilbert Parr, a consultant for the NATA, found no rate which failed to meet rail out-of-pocket costs and only four of twenty- five which failed to cover fully distributed cost. On an average, the protested rates exceeded out-of-pocket costs by 26 per cent and they were 13 per cent above fully dis- tributed costs.37 The railroads were unable to persuade the Congress that the "Three Shall Nots" should become an integral part of the Interstate Commerce Act. Nevertheless, they now argue that the compromise version that resulted from.Con- gressional deliberation condemns umbrella rate making. In countering motor carrier arguments in the several cases 62 involving rate competition, the railroads urge that: 1. Rates set on automobile traffic should reflect the cost advantage inherent in rail transportation. 2. Rail rates should not be held up to an arbitrary level to provide an umbrella for other modes of transport. 3. Value-of-service pricing is inappropriate in view of motor truck competition. 4. Rail rates on automobiles are compensatory. 5. .Average earnings per carload on automobile traffic are considerably in excess of earnings on low-level commodities and substantially above earnings on all manufactured products. 6. The rates are neither unjust, unreasonable and discriminatory nor destructive.38 7. The Chrysler case rate differential applied to boxcar traffic and.not to TOFC and multilevel service. The shippers, with varying degrees of enthusiasm, have supported the position of the railroads. So far as some of the important issues are concerned, however, there are observable differences in the position taken by the automobile manufacturers. By what cost standard, for ex— ample, should the Commission measure compensativeness? Some shippers confessed to confusion and uncertainty on this score. The Ford MOtor Company, which had supported a min- imum.rate order at the fully distributed cost level in the 63 New Automobiles case, no longer holds this view. .At least one director of transportation still favored the use of fully distributed cost in order to avoid burdening other traffic. MOst shippers seemed content in their conviction that the railroads have not and will not put in rates which are not profitable to them. What position the Commission will take is not clear. Available evidence is inconclusive. In I & S Docket 7269, Examiner George A. Dahan has recommended that rail rates on automobiles be found "unjust, unreasonable and otherwise unlawful, and in contravention of the national transporta- tion policy."39 In condemning the Plan III rates at issue the examiner concluded: Plan III rates provide an incentive for un- bridled competition of unregulated transporta— tion and they obstruct the coordination of transportation by regulated rail and motor common carriers. The development and preser- vation of a.national transportation system adequate to meet the needs of the United States, of the Postal Service, and of the National Defense should not be hampered by a form of rates which obstruct the coordination of dif- ferent transportation modes and provides an incentive to carriage vested with private as distinguished from public interests.’40 The examiner agreed with the motor carriers that con- sideration of "Congressional policy" declared in the Act limited the right of the railroads to exploit their cost advantage.""1 After observing that the demand for trans- portation of automobiles is relatively inelastic, Mr. Dahan suggested that: High-rated traffic must be called upon to bear 64 its full burden so that the public may not be denied the railroad facilities for deficit traffic, such as passenger and less—than-car- load traffic.“2 ‘With respect to an acceptable level of rates, the examiner recommended that: Since rail and rail motor service with TOFC equipment are fully competitive with all-motor service, the finding is inescapable that the Plan III and Plan IV rates 52 the extent that the are lower than the all—motor rates gr aII—rZIIVFegular" rates are unreasonably low.43 The examiner agreed also with motor carriers that the rates were unduly destructive; that they violated the order in Docket 29820; and that rates set without regard to the weight of automobiles were unlawful.“l Just ten days prior to the service of the Dahan report, Examiner T. Russell Roper recommended approval of Plan III rates on automobiles.45 Examiner Roper offered two tests of the lawfulness of rates: 1. "The applicable cost test in these proceed- ings is whether the rate is equal to the minimum.cost level, i.e..out-of-pocket costs."46 2. "The next test under the Act is whether a rate passing the testIEE‘hEIng—equaI to But- of-poéket costs is just and reasonahlzT'-—— This depends on Whether the measure above out—of—pocket costs is just and reasonable in relation to getting all of the contri- bution out of it you can toward the 9verall constant costs or overhead burden."4 Since the cost studies of the protestants and of the reSpandents resulted in different estimates, the Coma Mission's Cost Finding Section restated the costs of per- fOrmiJng the service. The respondents argued that all rates 65 i out-Of-pocket costs. The protestants found two of six rates in question failed to cover out—of—pocket while the Cost Finding Section found but one rate below out—of-pocket costs. On an average, rates ed out-Of-pocket costs by 23 per cent. So far as distributed costs are concerned, eleven of the forty— tes were below the restated standard while, on average, exceeded fully distributed costs by 8 per cent.48 With the exception of one rate (the one from Lorain, to Baltimore, Maryland) all rates were found to meet rst test. But what about the second? Examiner Roper ed: As to whether the rates on this high-grade traffic are sufficiently high for the rail respondents to get all of the contribution out Of this transportation that they can toward the constant cost or overhead burden, it must be borne in mind that even this high- grade traffic when handled over the highways or waterways, in lieu of via rail at rates pro- viding some return, makes no contribution whatever to rail income and the other rail traffic has an even greater burden.“9 The report disposed of motor pleas of destructive ition in the following language: Protestants, however, have made no showing of the level of their rates as compared to their corresponding out-of—pocket costs nor have protestants shown that holding up the considered Plan III rates to a particular level is a final resort to preserve a needed means or mode of transportation.50 With respect to the relationship of the weight of es and the rate charged, Roper pointed to motor car— ariffs whiCh apply identical rates over a wide range 66 icle weights. )ne concession was made to the value-of-service prin- The report urged the Commission to find that rates Iry vehicles were not just and reasonable in relation ting'all of the contribution out of it you can toward erall constant cost or overhead burden."51 The NATA has requested that the Commission review conflicting orders on a consolidated record. It is ous to predict what position the Commission will take. one hand, railroads are encouraged by the Commis— recent reversal of a recommended order by Examiner The Commission in commenting on motor carrier 3 of destructive competition noted: The cost evidence indicates that the rates and charges exceed the cost of the services and provide a substantial contribution to the overhead burden.... The testimony of three motor common carriers regarding traffic lost to Plan III service, partially refuted by the testimony of certain shippers, does not in- dicate that any of them, much less the motor common carrier industry as a whole, is in peril of destruction if the assailed plans are approved.52 It should be stressed, however, that the rates in on were designed to capture traffic which had been in private or exempt carriage. Commissioner Murphy s joined by Commissioner Herring, stressed this point oncurring opinion: I am satisfied that the rates are compensatory and that the extremely low level of most of these rates is necessary to meet private- carrier competition over which the Commission has no control.53 sioner Murphy added: 67 However, a word of caution to the respondents seems to be in order. Some of these TOFC rates are on an extremely low level, so low in fact that because of the effect which they may have upon other rates in the general rate structure of the country, they approach the point where they may be unnecessarily destructive of com- petition Over which the Commission has control. The respondents should keep a constant check on these rates so as to make certain that none of them will at any time drop below the level required to meet the existing competition. Since there is no substantial private transportation of new automobiles, it is uncertain whether the Commission will support the Roper view or that of Examiner Dahan. Obviously, the Commission is impaled on the horns of a dilemma. 0n the one hand it would like to adhere to time— honored principles in deciding competitive rate cases. It has for so long substituted its own judgement concerning maximizing rates for the railroads that it is loathe to let the railroads decide for themselves what rate will contribute most to the overhead burden. The value-of-service princi- ple despite a certain lack of clarity is as comfortable as an old pair Of slippers. On the other hand, these princi- ples have been time-tested and have not scored impressively. There is no disguising the current plight of the common carrier. So far as automobile traffic is concerned, there is no gainsaying the steady decline of rail participation in what once was a profitable traffic. But what of the neW’theories being urged from all sides and in the flood 0f recent studies of the regulatory agencies? Commissioner waIrath expressed the doubts of many when, in the Eastern Mbtor’Carriers Case, he said: 68 Only time will tell whether the railroads and this decision are on the right track but, with so many legal and economic factors favoring traffic diversion to unregulated carriage, in- novation on a trial and error basis is the only approach which seems feasible; the crystal ball is clouded, and I confess to no greater clair- voyance than those whose very survival as common carriers is at stake.... we are insufficiently informed of (i.e. more experience is needed with) the complexities of TOFC rate making and the effect thereof on other railroad traffic and on other carriers, and I do not believe we can afford to forego that experience by striking down the considered rates on the basis of anything on the present record.55 D. CONCLUSION The dramatic revival of the rail carrier as a trans— ' Of automobiles is a result of technological change . effort by the railroads to take advantage of their costs by sharply reducing rates. Motor carriers .ve suffered substantial decreases in revenue have ted to the Commission that the railroads are en— ; in destructive competition. The Commission has .t this writing, indicated the extent to which it .llow the railroads to compete for traffic on a cost CHAPTER IV THE OPERATING RIGHTS OF MOTOR CARRIERS OF NEW AUTOMOBILES A. INTRODUCTION The Operations of motor carriers are limited by the operating rights issued by the Interstate Commerce Com- mission. These Operating rights affect the fortunes of the carriers and they also have a bearing on the quantity and the quality of the services available to shippers. The purpose of the present chapter is to describe those char- acteristics of operating rights which have had an important impact on both motor carriers and shippers of automobiles. B. THE DEFINITION OF MOTOR CARRIER RIGHTS The classification 2: carriers-Ex Parte MC-lO. Section 204 (b) of the Interstate Commerce Act provided that: G . The Commission may from time to time establish just and reasonable classifications of brokers or of groups of carriers included in the term 'common carriers by motor vehicle', or 'contract carrier by motor vehicle', as the special nature of the services performed by such carriers or brokers shall require; and such just and reasonable rules, regulations, and requirements, consistent with the provisions of this part, to be observed, by the carriers or brokers so classified or grouped, as the 69 70 Commission deems necessary or desirable in the public interest. In accordance with the provision of this section the Com- mission classified carriers according to a variety of factors.1 Distinctions were made, for example, between com— mon and contract carriers and between carriers of various commodities. Presumably, the motor carriers of motor ve- hicles operated under circumstances sufficiently different from.those of other motor carriers to warrant separate clas— sification.2 In order to relieve the burgeoning confusion with respect to the boundaries delineating the assorted special- ized carriers, the Commission undertook a definition of the respective jurisdictions of each. Thus, the carriers of motor vehicles were described as follows: This group consists of motor carriers engaged in the transportation of new and used motor ve- hicles, including automobiles, trucks, trailers, chassis, bodies, and automotive display vehicles, wholly or partially assembled, in interstate or foreign commerce. In this group are included: (a) Carriers engaged in the transportation of motor vehicles by truck—away method, in- volving the use of special equipment such as trucks, tractors, trailers, semi— trailers, 4-whee1 trailers, tow cars, wrecking-service cars, and various combi- nations Of the above in or upon which such motor vehicles are loaded. (b) Carriers engaged in the transportation of motor vehicles by drive-away method, in- volving the utilization of the motive power, in whole or in part, of the ve- hicles being transported, either in single drive-away or in combinations of two or more vehicles by use Of tow-bar mechanism, full—mount mechanism or any combination of the above. 71 (c) Carriers engaged in the transportation of motor vehicles within the boundaries of-a city or single commercial zone, by either truck—away method, where such transportation is a part of and is in— cidental to an interstate shipment or a movement in interstate or foreign commerce.3 Th5 3212 2: competition within specialized carrier groups. One of the consequences of the classification of carriers was that carriers were compartmentalized and thus insulated against competition. Although identification of specialized carriers significantly reduced potential com- petition, there were some residual issues of significant import: Should the Commission allow free competition within each specialized carrier group? To what extent should the boundaries between carriers be considered in- violate? So far as competition within the specialized groups was concerned, the Commission unquestionably favored a careful circumscribing of the ability of carriers to compete for traffic. It would be fair to state that, in general, the motor carriers were in sympathy with the Commission's. 'philosophy; although there was a marked ambivalence in the truckers'position. On the one hand, individual truckers were anxious to maximize their opportunities and so they were inclined to apply for broad authority.“ On the other hand, each carrier, intent upon guaranteeing the integrity Of his own little domain, sought to impose a variety of 5 restrictions upon grants to rival carriers. The Commission 72 sought a middle-of—the-road position so that it seldom granted as much as applicants desired while, at the same time, it often fell short of pleasing protestants.6 Competition between carrier groups. The conflict between specialized automobile carriers and other truckers can be understood in terms of the considerations which prompted the internecine struggle discussed above. The automobile carriers, as a group were anxious to preserve the integrity of their own preserve while they were eager at the same time to establish poaching privileges for them- selves in other areas. Since other carriers were similarly motivated, conflict inevitably resulted. The automobile haulers struggled to repel what they considered to be an invasion Of their domain by heavy goods carriers and by movers of household goods; and they challenged carriers of general commodities for authority to carry a wide vari— ety of products. Consistent with its general philosoPhy of limiting intercarrier competition, the Commission generally de- cided against granting overlapping authority to various Specialized carriers. Carriers who could not produce evi- dence that they had transported automobiles prior to the passage of the MOtor Carrier Act were not successful in se- curing authority to engage in such transportation. The Commission did, however, encounter difficult problems in deciding certain borderline cases. Heavy goods haulers argued, for instance, that the transportation of heavy 73 motor vehicles was within the purview of their authority to the extent that special equipment was required in loading, unloading or in the movement of such vehicles. Motor ve- hicle transporters contended that they alone possessed authority to transport motor vehicles and, at the same time, they sought to narrow the definition of "special equipment."7 The Commission, subject to painfully detailed limitations, sided with the heavy goods haulers.8 Despite Commission rulings to the effect that heavy goods haulers could trans— port motor vehicles when special equipment was required, disputes persisted. Finally, the Commission decided upon a weight test which was to be determinative when other ac— cepted criteria proved inadequate. Any vehicle weighing in excess of 15,000 pounds was to be considered as falling within the authority of heavy goods haulers.9 The automobile transporters came into conflict at another point with the movers of household goods. Involved in this dispute was the transportation of show automobiles and paraphenalia connected with their display. Because the household goods carriers transported this material prior to the Act, they are allowed to continue to do so in competi- tion with automobile carriers.10 we might fairly conclude that the Commission took a jaundiced view of efforts by non—motor vehicle transporters to encroach upon the territory reserved for auto haulers. However, the record of the Commission in cases involving attempts by motor vehicle carriers to secure authority for 74 the transportation of other commodities is not nearly so consistent. At times, the Commission, relying upon tor- tured rationalizations of dubious validity denied requests for authority to transport commodities other than motOr 11 In some instances the Commission exhibited a vehicles. stubborn determination to limit the competition between specialized carriers and carriers of general commodities even in cases where refusal meant serious inconvenience for shippers and inefficient Operations for the motor carrier.12 On the other hand, motor vehicle carriers have suc- ceeded in securing authority to haul a wide variety of other commodities. They carry fresh fruits and vegetables,13 boatsll4 and communication shelters15 among other products. The carriers of general commodities have opposed these grants on the grounds that, "the public interest can best be served by confining carriers specializing in one par- ticular sphere of Operations...to their specialty...."16 This is especially appropriate, these carriers argue, in view of the fact that specialized carriers are protected by the Commission from competition by general commodities transporters. It is not easy to decide why such arguments impress the Commission as crucial in some cases and as irrelevant in others. Sometimes the Commission says that the desire to secure backhaul has no bearing upon its 17 decision in cases involving operating rights, other times it appears to be an important consideration in an award of 18 rights. In one case the Commission decides that the 75 specialized trailers of the motor vehicle transporters 19 while in another case should be used to haul automobiles, it may decide that it is perfectly all right to use spec- ialized trailers to haul any commodity for which they are 20 The Commission has had a difficult time in mak— suitable. ing up its mind in such cases; and this indecision is mani- fest in a lack of consistency in the decisions in such cases. Grandfather rights. The general intent of the framers of the MOtor Carrier Act was that existing carriers should be permitted to continue operations in which they had been engaged prior to the passage of the Act, but that Operating rights would have to be secured from the Commission before extensions of routes or additions of commodities could be effected.21 Some of the problems which resulted from the determination of the so-called "grandfather rights" the motor carriers of automobiles shared with motor carriers generally while some applied largely or exclusively to these specialized carriers alone. One of the difficulties encountered by motor carriers (especially the small operator who may not have maintained comprehensive files) was in establishing adequate proof for all of his previous Operations. Many carriers were unsuc— cessful in so doing and, hence, they were left with Oper- ating rights which were so restricted as to preclude suc— cessful Operation.22 Some carriers who had transported automobiles prior to the Act were denied authority on the 76 grounds that their Operation had not been sufficiently in- dependent.23 Carriers who for a variety of reasons failed to fill timely applications for grandfather authority were required to prove that public convenience and necessity required the service they proposed.24 Such proof was also required of some carriers who sought authority for traffic which they once transported but which had been lost prior to the statutory date.25 ‘Whether or not the loss of traffic re- sulted in a denial of grandfather authority hinged upon a determination of the reason for the loss. If the cessation of traffic was due to poor service,26 inability to compete 27 with competitors' rates or the bankruptcy of the parent 28 rights were denied. If the applicant lost the firm, traffic for reasons beyond his control and if he exhibited a willingness to continue such service, the Commission granted the desired authority.29 Motor carriers of automobiles were no more successful in securing a liberal interpretation of grandfather rights than were other carriers. One carrier, for example, unsuc- cessfully argued that its grandfather rights should allow it to serve from all origin points, any state which it had 30 served from any single origin point. Another carrier pro- tested that since it met the requirements for a permit, it should be permitted to transport any commodities within the 31 territory covered by its Operation. The Commission, however, insisted that since the purpose of the Congress 77 was to protect the right of carriers to continue the bus— iness in which they were engaged prior to the statutory dates, it must of necessity, impose limitations not only with respect to territory but also with respect to com— modities.32 Common and contract carriage. The Motor Carrier Act provided for both common and contract service. Section 203 (a) (14) of the Act defined a common carrier as follows: The term.'common carrier by motor vehicle' means any person which holds itself out to the general public to engage in the trans- portation by motor vehicle in interstate or foreign commerce of passengers or property or any class or classes thereof for compen— sation, whether over regular or irregular routes, except transportation by motor ve— hicle by an express company to the extent that such transportation has theretofore been subject to Chapter 1 of this title to which extent such transportation shall con- tinue to be considered to be and shall be regulated as transportation subject to Chapter 1 of this title. A contract carrier was described originally as follows by Section 203 (a) (15): The term 'contract carrier by motor vehicle' means any person which, under individual con- tracts or agreements, engages in the trans- portation (other than transportation referred to in paragraph (14) of this section and the exception therein) by motor vehicle of pas— sengers or property in interstate or foreign commerce for compensation. Although the Motor Carrier Act did not establish a preference for common carriage over contract carriage there is no doubt that the Commission considered the interest of 33 the common carriers to be paramount. To insure that con— tract carriers would not invade the field reserved for 78 common carriers, the Commission issued rules aimed at pre~ venting contract carriers from contracting for individual 34 In addition, in its interpretation of the shipments. statute in cases involving the status of carriers, the Commission managed to define contract carriage in such a way as to limit the number of permits issued while, at the same time, it consistently narrowed the freedom contract carriers might enjoy. An example should suffice to illustrate what has been said. Many automobile carriers were uncertain about .their status under the law. .After all, they rendered a specialized service for few shippers (this was true at least in those cases where the manufacturers had assumed control of transportation). They certainly didrun:hold themselves out to serve the general public; at least not in the same sense as the general commodities carrier did. Many of the auto haulers, therefore, filed for both a per- mit and a certificate and left it up to the Commission to determine the question of status. The Commission developed a set of standards to be applied in deciding such cases. Among the criteria employed were: 1. Contract carriers perform their service under written or oral contracts.35 2. Contract carriers do not interline traffic with common carriers. 3. Contract carriers do not publish rates in tariff form.36 79 4. Contract carriers do not hold themselves out to serve the public.37 The promulgation of such standards seriously limited contract carrier operations and it did so in a manner not specified by the.Act and perhaps not even contemplated by Congress.38 Despite the determination of the Commission to obstruct the development of contract carriers, it was unable to please the common carriers who complained that the former were consummating so many contracts that they were in fact rendering common carrier service. In order to prevent this kind of challenge to the common carrier, the Commission gradually develOped "numbers" and "specialization" tests.39 Under these new rules, in order to qualify as a contract carrier, a trucker had to render a service which was specialized and he must limit himself to serving a limited number of shippers. 40 When the courts invalidated the numbers test, the Commission turned to the Congress where it urged adoption of a bill amending Section 203 (a) (15) as follows: The term 'contract carriage by motor vehicle' means any person which engages in transportation by motor vehicle of passengers or property in interstate or foreign commerce for compensation... under continuing contracts with one person or a limited number of persons for the furnishing of transportation services of a special and individ- ual nature required by the customer and not pro- vided by common carriers. The Congress, after protests from "the contract carriers, some of their supporting shippers, the Department of Com- merce and the Department of Justice,”42 deleted the last 80 phrase of the amendment. Congress Was not willing to make the ability of contract carrier to serve a shipper de— pendent upon the unavailability or the unwillingness of common carriers to offer service. The Commission, despite this rebuff, was determined, nevertheless, to promote common carriers at the expense of contract carriers. In the first test of the new section of the law the Commission denied the application of a motor vehicle con- tract carrier who sought to transport airplane parts for Boeing.)43 Because of the fragile nature of the landing- gear bulkheads to be transported, the shipper claimed need for the specialized service of'a motor contract carrier. One common carrier, U.S.A.C., had authority to perform the service, but its service had been tried and found wanting by Boeing. The Commission said that: ...we believe that our past holdings that existing carriers are entitled to transport all the traffic which they can economically and efficiently handle before additional authority is granted are equally valid today as they were prior to the 1957 amend— ments to the Act. There is, in effect, a presumption that the services of existing carriers will be adversely affected by a loss of 'potential' traffic, even if they may not have handled it before. The Commission also decided, despite protests, that Boeing Would not be adversely affected by a denial of the application of J-T. U.S.A.C., the Commission felt confident, could render adequate service. "In fact," the Commission observed, "its ability to obtain business depends on its ability to satisfy the needs of the shippers....45 81 In remanding the case to the Commission, Judge R. Jasper Smith said that the Commission apparently conceded that it could not deny the application on the grounds that the applicant failed to sustain the burden of proof that common carriers are unwilling or unable to perform the proposed service. But the Commission insisted that, "it is proper to consider the 'adequacy of existing services' in making a determination upon application for new ser- 46 vices." The court disposed of this interpretation in the following language: The consideration of the effect on the services Of protesting carriers is designed to afford a measure of protection for those carriers. This criterion does not contemplate consideration of the mere existence or availability of a pro- testing carrier but rather what effect, if any, granting a permit would have on the services of the carrier. If the protesting carrier was actually serving a shipper and participating in the traffic involved, the granting of a permit would divert traffic from the protesting carrier, and if this diversion would cause the services of the protesting carrier to be ad- versely affected to a material degree, this element certainly should be considered by the Commission. Where, however, the protesting carrier is not participatin in the traffic involved, there can be no d version of traffic and hence ordinarily there would be no adverse 47 effect on the service of the protesting carrier. The court went on to state that the Commission had misin- terpreted the 1957 amendment. The court declared: The statute now contemplates two forms of motor carrier service and quite obviously and clearly, under the statute, a contract carrier's permit cannot be limited and restricted to cases where no common carrier service is available. we conclude that decisions turning solely on the 'adequacyswillingness and ability' test cannot be justified and are clearly erroneous.’48 82' How does the new rule affect automobile shippers? It does not mean that Studebaker (which has expressed a pref- )149 can secure contract carri— erence for contract service age from its old plant in South Bend. It does mean, how- ever, (assuming the decision is not reversed in a higher court) that the chances of securing contract carriage from the site of a new plant are much improved even if there are common carriers already authorized to serve the new site as a place of origin. The penchant for stressing the welfare of the common carrier evident from the foregoing was manifest in other ways. The Motor Carrier Act required that contract carriers sustain a lesser burden of proof in order to obtain permits than was required of common carriers seeking certificates.50 It is difficult, however, to distinguish in what respects the requirements for permits differed from the requirements for certificates. In some cases involving General Motors carriers, the Commission appeared to acknowledge the exist- ence of a double standard. In one instance the Commission declared: Chevrolet...definitely prefers to use contract carriers. we have no desire to coerce it into any different position or control its decision in any way. However, there are many cases in which the Commission did not seem at all disturbed about coercing shippers. As a matter of fact, the Commission stated bluntly in one case: The desire of a shipper to engage the services of a particular person as a contract carrier, 83 standing alone, does not constitute a sufficient basis on which to grant that person the right to enter the motor—carrier field, where the antici- pated traffic may be handled satiSfactorily by existing motor carFIers. The apparent inconsistency of decisions in the cases discussed above can be explained in terms of the policy of protecting the traffic of carriers already in a particular market. A contract carrier can secure a permit if no protest is received from common carriers who have the authority and the ability to perform the desired service. Where such a protest is launched, the Commission is likely to fall back on its dictum that, "existing carriers are entitled to transport all the traffic that they can handle adequately, economically, and efficiently without the competition of new motor service.”53 But what about attempts by common carriers to secure operating rights where contract service is already author- ized? In one case, Arco Auto Carrier's pleas for rights to transport Chevrolet vehicles were opposed by Anchor MOtor Freight, a General MOtors contract carrier which was already serving the destination area from the plant involved. The Commission awarded the operating rights to Arco and observed: 'We may Officially notice the authority which Anchor MOtor Freight holds, but the fact re- mains that a contract carrier is not compelled to serve all shippers desiring to use its‘ facilities; and a shipper is entitled to de- pendable motor-carrier service which is not sub'ect to the contingency of negotiating a sat sfactory agreement for contract carr age, or of assuming the obligations of such a relation- ship.5 84 In another case, ‘however , the Commission reached an opposite conclusions5 The distinguishing characteristic in this particular instance which compelled a departure from the general rule evidenced in the Arco case was that the contract carrier had a contract with the supporting shipper. The Commission reasoned that: ...a contract carrier which has served a shipper for some time under a contract still in effect, and which stands to lose.some of the traffic which it has enjoyed, has a more real and sub— stantial interest as a protestant than a carrier which merely hopes to be able to negotiate a contract, with a possibly unwilling shipper, and thereby obtain additional traffic.5 Before concluding the discussion of the relationships between common and contract carriers we might mention one additional area in which Commission efforts to assist common carriers met with Congressional disapproval. Common carrier complaints that they were unable to compete with contract carriers without knowing what rates the latter charged were sympathetically received by the Commission which finally decided that contract carriers would be re— quired to "file, publish and keep Open to public inspec- tion...copies of each existing contract containing the charges of such carriers."57 The Congress in the 1940 amendment closed these files to the public. As a result, contract carriers have the duty to file with the Com- mission for public inspection, schedules containing "the minimum rates or charges of such carriers actually main— tained and charged for the transportation of passenger or property... and any rule, regulation, or practice affecting 85 such rates as charged, and the value of the service there- under." 58 This means, however, that except where a carrier has but a single contract, the charges for any particular movement cannot be discovered.59 Initial and secondary rights. One of the most signif- icant of the limitations placed upon motor carriers of new motor vehicles concerned the character of the service which could be performed. Under the provisions of Administrative Ruling No. 75, motor carrier operating rights for the trans- portation of new motor vehicles were qualified by use of the 60 Carriers with initial terms "initial" and "secondary." authority served shippers from.points of manufacture or assembly whereas carriers with secondary authority trans- ported the vehicles which they had received from other carriers to connecting carriers or to dealers, Administrative Ruling No. 75 spawned its quota of difficulties. The early problems concerned the determi- nation of the geographical limits of assembly and manu— facturing plant areas and the definition of substantially complete motor vehicles. With respect to the first of these, the Commission has generally ruled that transpor- tation within the limits of a municipality does not destroy the initial character of the movement.61 So far as the second question is concerned, the ICC has consist— ently held that an Operative vehicle which can be driven 62 over the road is substantially complete. By far the most important controversy over the nature 86 of the initial and secondary qualifications of Operating rights grew out of the development of TOFC service. In the typical TOFC operation a motor carrier hauled a loaded trailer to a convenient railhead from which point the rail- road transported the trailer to a rail point in the des- tination territory. In many instances, the originating carrier then distributed the vehicles to the various dealers. The question of whether an automobile hauler who held initial authority could originate and terminate traffic with an intermediate rail TOFC service first arose in an application filed by the Convoy Company. Although exam- iner F. Roy Linn denied the request, he Observed: Consistently with Gilbert Carrier Corp. Extension— Kearney, N.J., 72 MCC 204...it would appear that applicant upon publication of apprOpriate tariff provisions for substitution of rail service law- fully might conduct the proposed Operations under its presently—effective rights. Since its "presently-effective rights" were initial rights, it was assumed by automobile haulers that the substitution of rail for motor service for a portion of the haul raised no question of the adequacy of initial rights in performing TOFC service. Examiner Reece Harrison, in a case involving the Dixie Transport Company, arrived at a position diametrically Op- posed to that of Examiner Linn. In this instance, Dixie (which had initial authority from South Bend, Indiana to Florida points) transported loaded trailers to Cincinnati, Ohio, from which point the Louisville and Nashville Railroad moved the traffic to Atlanta, Georgia, or to some Florida 87 terminal. Dixie then distributed the vehicles to the various dealers.64 The examiner (also relying on the Gilbert case) decided that, "this Operation is unlawful in that applicant is not authorized to serve Cincinnati to Atlanta, thence Atlanta to points in its destination area."65 MOreover, with reference to similar services performed by other carriers, the examiner stated, "All parties partici- pating in such traffic are conducting operations which are unlawful...."66 Under this interpretation, truckers who held initial rights would either have to apply for appro- priate-secondary authority or watch carriers with extensive secondary rights reap a windfall. The NATA, at a special meeting of its Board of Directors on June 8, 1960, decided to request a declaratory order from the Commission to clarify the interpretation of the terms "initial" and "secondary" as used in grants to carriers of motor vehicles.67 The notice of hearing which was issued July 8, 1960, stated: This petitioner seeks a ruling as to whether a motor carrier holding initial authority only from A to D may transport the said traffic to B, -a.non—service point intermediate to D, there load it on a rail flat car, for handling in trailer—on-flat-car, or 'piggy-back' service to C, another non-service point intermediate to D, where it would take possession of the shipment and move it to destination, without first obtaining specific authority either to serve B and C or to operate from C to D.68 The position of the NATA was that: ...a motor carrier authorized to handle initial movements of motor vehicles may accept such traffic at any authorized point of manufacture or assembly and transport same to any point 88 in its initial-movement destination territory, utilizing rail Trailer-on-flat-car service (TOFC), ...Or any comparable rail service, for any portion of the movement, without obtaining additional 0 erating authority from this Commission.68 The shippers strongly supported the interpretation urged by the NATA. In the first place, they had a pref- erence for continuing relations with those carriers who had served them in the pre—TOFC days. Secondly, they ‘were unhappy about the prospects of having to support the many applications for secondary authority that would be made by their carriers should the Harrison view prevail.7O Two railroads filed a joint brief supporting the NATA.71 The interest of the railroads stemmed essentially from the fact that the Harrison ruling had resulted in the abandonment of TOFC service on some lines with a consequent loss of badly needed revenue.72 .The Clark Transport Company and Convoy Company, both of whom are motor carriers with extensive secondary author— ity, appeared in opposition to the interpretation advo- cated by the NATA. These carriers objected that the NATA did not seek a clarification of terms which heretofore had been clearly enough understood, but a redefinition of these terms which would protect their own traffic.73 Convoy and Clark were in a position to reap a windfall at the expense of initial rights carriers and, understandably, they were anxious to secure it against diversion. 89 In his Report and Recommended Order Examiner William Tyers observed that: It is readily apparent that what petitioner seeks here is not an 'interpretation' of Ruling 75, but rather a complete modification thereof in order that certain of its members might lawfully alter their motor operations to meet changing conditions without having to submit to the Commission's usual procedure for the establishment of new services. The examiner decided: ...it is clear that a carrier holding initial rights only must have delivery authority to serve the point at which the traffic is turned over to the railroad, and it must hold either secondary or unrestricted authority to move the traffic from the point at which it re- ceives the traffic from the railroad to ulti— mate destination. It cannot perform the latter service under 'initial' rights because it is not an 'initial'movement and further, because the carrier is not authorized to pick up traffic at that point under any circum- stances.75 'Whether or not Examiner Tyers' decision is sound from a legal point of view is a question best left to those trained in the law. Regardless of whether the recommended interpretation makes legal sense, however, its economic wisdom.is questionable. The framers of the MOtor Carrier Act intended that the Act should strengthen the transpor— tation system.for the purpose of providing an improved service to the public. They did not seek to legislate all the terms and conditions under which transportation service could be provided because they believed that a flexible, expert commission could more effectively c0pe with rapidly changing circumstances. The examiner, by ad0pting an ex- cessively legalistic approach, has forfeited the advantages 90 of flexibility. The initial and secondary restrictions which have been attached to grants of authority to carriers of motor vehicles were designed to deal with the circum— stances which surrounded such transportation service in the 1930's. Surely conditions have been altered. It would, therefore, certainly appear advisable in a proceeding such as this to examine the consequences of alternative decisions on the motor carrier industry and upon the public welfare. Examiner Tyers scrupulously examined the legal aspects of the NATA's petition, but he gave no serious consideration to the impact of his recommended order upon the public. It is difficult to see exactly how the Tyer's inter— pretation strengthens the motor carrier industry. What it means is that intercarrier shifts will occur in which carriers who formerly participated in traffic will forfeit their share to other carriers whose secondary authority has appreciated as a result of rail innovation. This traffic shift is not the result Of improved service, superior ef- ficiency or more effective management; it is purely for— tuitous. It is not likely, therefore, to improve the per— formance of the industry. But what about the public welfare? So far as the interests of the shipper are concerned it is safe to assume that these are not well served by the Tyers report. The practical result-—should the ICC uphold the present report-— is that shippers will have to sever some satisfactory re— lations with carriers and establish contracts with others.76 91 A favored carrier could apply for appropriate authority but his chances of success would be dim. It could be argued that the public welfare includes more than the well—being of shippers. This is certainly true. In this instance, however, it is simply assumed that public welfare is served by the rigid interpretation of a rule promulgated more than twenty years ago. Some more con- vincing showing ought to be required. C. PUBLIC CONVENIENCE AND NECESSITY Carriers who were unable to qualify for ”grandfather” authority were required to secure a certificate or a permit from the Commission prior to engaging in non-exempt trans- portation. Before issuing such certificate or permit, the Commission was required to establish that the applicant was "fit, willing, and able prOperly to perform the service proposed," and to determine that the service "is or will be required by the present or future public convenience and necessity."77 But, Congress did not present the Commission with a comprehensive regulatory scheme; it roughed in the general outlines and gave to the Commission the power to perfect the details.78 The courts alSo allowed the Com- mission a great deal of leeway.79 For example, the court permitted the Commission to foreclose a market to compet- itors in the interest of public convenience and necessity,80 and it allowed the Commission to institute competitive service even where existing carriers might be put out of 92 business as a result.81 TO a considerable extent, the Commission may be held accountable for the interpretation given to the standard promulgated by Congress for the institution of new trans— portation services. The purpose of the discussion which follows is to examine the principles which the ICC has thought important to a definition of public convenience and necessity as these appear in cases involving carriers of new metor vehicles. we might suggest from the outset that the Commission has been particularly impressed by the view of the court 82 in the Texas and N.O. Ry. case. ‘In discussing the pur- pose of requiring carriers to obtain certificates or per- mits before instituting a new service the court declared: The purpose of paragraphs 18 to 22 is to pre- vent interstate carriers from.weakening them- selves by constructing or operating superfluous lines, and to protect them from being weakened by another carrier's Operating in interstate commerce a competing line not required in the public interest.... The question, in substance, is whether the new operation or service is responsive to a public demand or need; whether this purpose can and will be served as well by existing lines or carriers; and whether it can be served by applicant with the new Oper- ation or service proposed without endangering or impairing the Operation of existing carriers contrary to the public interest.33 Public convenience SEQ necessity and shipper p52:- erence $23.5.EEZSE guantum.p£ service. The courts sug- gested that public convenience and necessity encompasses more than the welfare of any individual shipper. The fact that this precept was so often repeated in the early days 93 of government attempts to regulate businesses "vested with a public interest" may reflect the fact that, up to that time, it had been taken for granted that when individuals and firms maximized their own welfare they, pari passu, max— imized the welfare of the public. The stress placed upon public as opposed to private interests may have been nec— essary in the free-wheeling era of the robber barons. we ought not, however, lose sight of the fact thatthe general public interest is tied rather intimately to the interests of shippers. The public (as well as the shipper) benefits from safe, dependable, economical and efficient service. Let us then, examine the weight which the Commission has assigned to shipper desires in the evaluation of "public convenience and necessity." Some shippers,for a variety of reasons,prefer to have available the services of several competingcarriers.84 The International Harvester Company, for example, supported the application of three motor carriers who sought authority to serve its new plant at Emeryville, California.85 Two of these carriers served the shipper's Springfield and Fort wayne plants, and the third served the Emeryville plant under temporary authority. The shipper had long followed a policy of three driveaway companies from all points. Division 5 noted:i That policy which was arrived at after four years of experience, is deemed necessary in order to counter circumstances which might arise, such as fires, alterations in drive- away yards, quarantines, or any other cause, that would prevent one or two of the driveaway 94 companies from properly functioning.86 With one Commissioner, William E. Lee, dissenting, Division 5 granted the request. After a protest by the Pacific Southwest Railroad Association, the Commission reconsidered and noted that the conditions which prompted International Harvester to seek three carriers had never arisen and that "the present or foreseeable future transportation require— ments of Harvester, however, are not such as to provide 87 The deci— profitable Operations to three motor carriersl' sion was reversed. The efforts by Studebaker to secure duplicating authority were generally unavailing. In one case, the Com- mission explained its refusal to grant the desired rights by concluding that: The needs of the manufacturer will adequately be met by the availability of one driveaway carrier in such territory. It is doubtful whether there is sufficient business to sup- port both of these carriers in overlapping territory. Under the circumstances, the instant application, supported only by the menufacturers will be denied....88 On the basis of the two cases cited and of similar decisions in other cases one might well conclude that the Commission sacrificed the shippers' desire for additional service in order to safeguard the interest of the public in a viable and efficient motor carrier service. The Com- mission decided that to divide the available traffic among one or two more carriers would result in so great a dilution that efficiency would be reduced. It could well be argued 95 that this constitutes a valid reason for refusing additional authority. It is, however, less than clear that the Commission's primary interest in such cases is to see to it that traffic is adequate to support the carriers it authorizes. When, for instance, the Chrysler Corporation moved its plant from Evansville to St. Louis, it made a careful evaluation of its transportation needs and concluded that there was just enough traffic to support four efficient, generally non- competing carriers.89 Chrysler selected four carriers from among the nine which served at its Evansville facility and supported their applications for authority from St. Louis to the various destination states. Unfortunately for Chrysler, there were already some carriers in St. Louis with initial authority to a nine—state area. The Commission refused, therefore, to grant authority to the petitioning carriers in these states because, in its view, existing carriers could provide the desired service and the certification of more carriers would dilute available traffic. So far as authority to serve the other states was concerned, however, the Commission didn't pay much attention to Chrysler's pro- test that traffic volume was sufficient for a few truckers only. The Commission decided that, "wherever possible, each applicant handling a substantial volume of Evansville traffic should be granted authority enabling it to serve Chrysler to the same states to which it transported traffic from Evansville."90 96 Perhaps the decision in the Chrysler case is to be explained in terms of the Commission's much repeated rule that, "existing carriers are entitled to transport all the traffic that they can handle adequately, economically, and efficiently without the competition of new motor serVice."9l This rule, however, does not really drive to the heart of the Commission's philosoPhy with respect to the apprOpriate in— terpretation of "public convenience and necessity." The Commission relies on the rule when it produces results which seem desirable to the Commission on some other grounds, and it either forgets it or emasculates it when its application is embarrassing to the achievement of some more desirable objective. .A few examples should suffice to illustrate the point. Arco.Auto Carriers petitioned for authority to serve various midwestern states from Toledo, Ohio. Arco already participated in this traffic by interlining with Dealers Transport at Chicago. Since Dealers did not have sufficient equipment to provide the shipper (Willys) with the service required, it leased Arco vehicles and drivers for the per- formance of the Toledo to Chicago portion of the trip. In other words, the entire trip was made in Arco equipment driven by Arco drivers. This arrangement was unsatisfactory to both Arco and to Willys. The Commission denied the authority and observed: The reasons advanced by Willys in favor of the proposed service of Arco in lieu of the resent Arco-Dealers service do not, in our Opin on, 97 demonstrate any real inadequacy in the present service. Willys now is receiving reasonably satisfactory service from.Arco and Dealers and there is no showing that, at least from a service standpoint, the proposed service would be any improvement thereover. ‘While it may prove more economical and convenient to Arco, this, of itself, is not sufficient to warrant a grant of the requested authority.92 The only thing provided by Dealers in this case was the requisite authority. To conclude that this constitutes adequate service is to endow the concept of adequacy with an unconscionable elasticity. The Commission admitted that Arco could render a more economical service, but it seemed willing to forego the advantages of economy. ~One explanation which suggests itself for the Com— mission's decision in the preceding case is that the denial was based on the probability that a grant to Arco would have resulted in a loss of traffic for Dealers. The interpre- tation would explain the reluctance of the Commission to certify only four carriers in the Chrysler Case. It would also account for a peculiar decision involving Kenosha Auto Transport. In this instance, Kenosha had illegally trans- ported busses for Transit Busses, Inc. Dealers Transport, which had shared in this traffic, Opposed a grant to Kenosha on the grounds that it was willing and able to pro- vide all the service desired by the shipper. The Commission granted the authority nevertheless suggesting that: Dealers' interest in providing an exclusive service cannot serve to bar the grant of authority herein where the reinstitution of competitive service affords advantages to the public without in any material manner 98 adversely affecting existing operations.93 The Commission was willing to protect Kenoshams participation in the traffic even though it was the result of an illegal Operation and in spite of the ability of an existing carrier to provide the necessary service. The Commission is undoubtedly preoccupied with protect- ing the interests of existing carriers, but it is sometimes difficult to decide which interests merit protection. A request for authority by the Pacific Motor Trucking Company (PMT) provides an excellent example of the problems which arise.94 In 1955 and 1956 General MOtors, anxious to secure additional service, supported the application of PMT for authority to serve various destination areas from General MOtors plants at Raymer and South Gate, California. The shipper expressed a preference for the personalized service of the applicant, and represented the conditions in his shipping yards as being of such nature as to permit use by only one carrier. Six rail and seven motor carriers pro- tested. The Commission'denied the grant except for service to points on the rail lines of the Southern Pacific stating that:' ‘We deem it of controlling significance here that in the territory under consideration automobiles are commodities which can be economically and advantageously transported by rail to on-rail points, and that the nature of the movements from these three 99 California plants is such as to render it un— likely that a significant amount of freight would be diverted from the Southern Pacific to its motor contract carrier subsidiary if the proposed service were limited to Southern Pacific Points. ...On the other hand, use by General Motors Of applicant's proposed service on a statewide basis would permit the Southern Pacific to invade the territory served by other rail lines and by existing motor carriers and would in- evitably result in the diversion of a large percentage if not all of the traffic now mov- ing in rail point-line service.95 MOreover, the Commission asserted: The fact that both General Motors and applicant have co0perated to permit the latter to estab- lish receiving yards adjoining the former's assembly plants and thereby block the use by other carriers of normal egress routes, has no bearing on existing motor transportation facilities.96 In application No. 78787 Sub. No. 36 (decided at the same time as the above request) PMT sought authority to transport new automobiles and trucks from Raymer to dealers located at points on the line of the Southern Pacific in Arizona. General MOtors supported an exclusive grant to the applicant because, "use of any other carrier would require outgoing shipments to be dispatched through the shipper's incoming gate, causing confusion and disarranging the oper- ations at the plant which are geared to the use of appli- cant's service from its nearby yard."97 In addition, Gen- eral MOtors gave expression to its preference for the per— sonalized, exclusive service of a contract carrier. The exceptants, all of whom were principally engaged in hauling automobiles for other manufacturers, possessed the 100 authority to transport the considered traffic. The Commis- sion however, decided in favor of an award to Pacific Motor Trucking on three grounds: 1. General Motors had demonstrated a need for a "personalized" service. 2. The applicant had served General Motors for a number of years, and, 3. Inasmuch as the considered traffic has been moving principally by rail, institution of the prOposed service should have no adverse effect on existing carriers.98 It is difficult to understand why General Motors had demonstrated a need for personalized service in one appli- cation and not in the other-~especially since the evidence used to support such a need was the same in both instances. It is equally obvious that the fact that PMT had served General Motors for many years was not material to the de- cisions. This leaves us with the third of the Commission's grounds for its award. In one case, the protesting carriers were presumed to suffer no adverse effects as a consequence of the grant because the traffic had been moving by rail and would continue to do so if the grant were denied. In the other case, the points which PMT sought to serve were off-route points and, therefore, this was traffic which would be lost by other rail and motor carriers.99 This would suggest that if a protesting carrier has no chance of participating in the traffic, the Commission 101 will award authority. But, if a carrier presently sharing the traffic is threatened with loss of that traffic a denial of requested rights can be expected. But, must a carrier be presently sharing in the traf- fic or is it sufficient that a protestant suffer a loss of "potential traffic." This question cannot be answered un— 100 equivocally. In the J-T Case, the Commission took the view that a loss Of potential traffic was sufficient reason for refusing to confer operating rights. In another in- stance a shipper Opened a new plant and made it clear that it "...prefers to use one carrier for the movement of its 101 traffic " One of the protestants, Insured Transporters, Inc., had authority to serve three destination states from the site of the new plant. Division 1 agreed that: Insured Transporters, Inc., is authorized to render truckaway service from the Trailmobile plant site to points in Arizona, Utah, and 'Washington, and should be afforded an oppor- tunity to demonstrate the adequacy of its service before another carrier is authorized to compete with it.102 However in another instance, a General MOtors carrier sought authority Opposed by Central Car Carriers, a small common carrier with authority to serve a three state area from the plant site. The Commission ruled that: Because of the present and anticipated volume of traffic and the necessity for coordinating the services of the delivering carrier with pro- duction in order to eliminate congestion at the plants, Chevrolet desires the services of a motor contract carrier over which it will have complete control in much the same manner as it might control its own employees.103 Again in the Speedway Transports application the Commission 102 denied a protest by Howard Sober, Inc. It stated: Since Sober has not been enjoying any of the shipper's business from Kenosha in the past, it will not be adversely affected by a grant of authority to the extent indicated in our find- ings.108 Single 3, jpipp-line service. The Commission has had occasion to interpret public convenience and necessity in connection with shipper supported carrier requests for rights which would eliminate the need for interlining traffic. In general, shipper objections to joint-line service stemmed from the delays in transit and the imzreased damage hazards characteristic Of such service. These difficulties assumed a special importance when the market under consideration was reached by rival shippers in a single—line service. The Commission recognized from the outset that single- line service was advantageous from the shippers point of view. Division 5 ruled in favor of a contract carrier's petition for single-line rights in one of the first of such cases to come before the Commission. Despite protests of interlining rail and motor carriers, the Division held that, "there is nothing of record to show that any motor carrier other than applicant is offering through service on new automobiles, without change, from Detroit to Amarillo, Texas."105 In another case, the Commission specifically acknowledged that single-line service conferred a competi- tive advantage upon those shippers to whom it was available. In granting the request of the Kenosha Auto Transport 103 Corporation for single—line rights the Commission declared: In our opinion, this evidence, together with the fact that shipper's competitors have single- 1ine service available to the same territory, demonstrates that American MOtors is at a def- inite competitive disadvantage....10 Such grants, however, inevitably resulted in a loss of traffic for carriers with secondary authority so that the Commission was impaled on the horns of a dilemma. The extent to which shipper interests should be compromised so that existing carriers might transport all the traffic they could handle efficiently never has been clearly resolved. In one instance, Division I stated, "We do not conveive our func- tion in proceedings such as this to preserve the status quo at all costs."107 The same Division, in the same year, decided against granting a petition for single-line authority. The Division ruled: On this record we are not convinced that the supporting shipper needs single-line motor service in the transportation of the considered commodities in the area involved. Collectively, the opposing motor carriers have the necessary authority and numerous units of equipment suitable to meet the reasonable transportation require- ments of the supporting shipper.108 This decision suggests that the adequacy of existing joint—line service is a crucial consideration in such in- stances. This conclusion would be reinforced by a decision involving Kenosha Auto Transport. In this case, the entire Commission reversed Division I and decided that American MOtors needed singleéline service, "... to reduce, as far as possible, the disadvantages which are involved in the use of 109 joint-line service ..." Commissioner Minor, speaking for 104 the four dissenters, declared that, "the evidence in this proceeding falls short of showing inadequacy in existing joint-line service."110 It would appear that what separated the Commission in the Kenosha case was a question of the adequacy of the existing joint-line service. Several other decisions sug- gest that adequacy of existing service is of critical im- portance. In the Cassens Case, Division I said that: Although the opposing motor carriers charac- terize the demand for service in the late 1954 and the early 1955 as being temporary during a peak period. We do not believe that shippers should be deprived of suf- ficient transportation service to meet their needs for 4 or 5 months of the year in order that existing carriers will be assurfg of ample traffic throughout the year. 1 In another case, General MOtors supported a carrier request for single-line authority on the grounds that the new air suspension systems used in its automobiles required that carriers employ special equipment. Division I agreed that the special equipment necessary warranted a grant of the requested authority. It is not safe, however, to conclude that where no evidenCe of inadequacy exists the Commission will refuse to grant single-line authority. For example, the Commission granted single-line authority despite the protest of an interlining carrier which admittedly offered adequate service. In this instance, Division 5 stated: Notwithstanding the fact that no occasion for complaining against United Transports, Inc., 105 has arisen, the shipper desires a service without interchange to all points in the United States.1 It should also be pointed out that evidence of inad- equate service does not in itself guarantee single-line authority. General MOtors succeeded in convincing the Commission that its air suspension system required special handling in one instance but failed (on substantially the same technical facts) to do so in another. In this latter case Division I observed: Although the shipper's principal dissatis- faction with the latter service (joint-line) concerns its apprehension that such service is not conducive to the prOper handling of its new automobiles equipped with air sus- pension spring systems, the evidence shows no specific instances where existing car- riers in transporting these cars have failed to provide satisfactory service.113 Again, in the Cassens case, the Commission was im- pressed by the fact that temporary peaks had inconvenienced a shipper. Under similar circumstances, the Commission de— cided in another case that these temporary shortages of equipment presented problems that shippers would have to learn to cope with: The shipper is well aware that such peak periods Occur annually, and with proper ad- ministrative planning, and due regard to adequate notice to carriers which will en- able them.to schedule their operations and utilize their equipment in an orderly manner....114 There may be some explanation for the inconsistency evident in the Commission's handling of the cases discussed above. Obviously, no simple, easily discernible rule can 106 reconcile so many conflicting verdicts. The Commission is obviously torn between the necessity of providing for ship— pers a genuinely adequate, efficient, and economic service, and its duty to promote a healthy carrier system. In a substantial number of instances the Commission is forced to choose between the preferences of shippers and what it considers to be the welfare of existing carriers. When faced with such a choice the Commission most often opts for that course which favors existing carriers. But, depending on the composition of the Commission, and perhaps also the character of the shipper, of the applicants, and, of the protestants, the Commission may reach a different verdict.115 It Often appears that the Commission starts out by acknowl- edging the importance of promoting shipper satisfaction but that its resolve to do so weakens as vested carrier in- terests build up and come in conflict with shipper pref- erences. Such an interpretation is strongly suggested in the Commission's handling of carrier requests to follow traffic to which we turn our attention. The follow-the-traffic principle. How does the move- ment of a plant affect a motor carrier? Is the carrier per- mitted as a matter of course to f0110W’h18 traffic to a new source or must he prove public convenience and necessity? The first major case involving automobile carriers in which the Commission was confronted with this problem.in- volved the movement of a Chrysler Corporation plant from Detroit to Evansville, Indiana. In this instance the 107 Commission took the view that a carrier should follow his traffic. Frank Sober had followed this traffic without bothering to secure the necessary authority. In Spite of this, Division 5 held that: If this Operation were not related to appli- cant's prior operation from Detroit, it would seem.that it should be denied....However, the operation from Evansville is in reality only 6 ,a continuance of a prior Operation from Detroit...)-1 The existence of protesting carriers who possessed requisite authority was not seriously considered in this particular plant movement. Protestant motor carriers a1— leged that they had sufficient equipment to handle the entire output of the Evansville plant. The Commission nevertheless allowed the various carriers to follow their traffic . 117 ‘With the passage of time and the accumulation of broad rights by carriers, the Commission's "followethe-traffic- theory" came into conflict with the principle which allowed existing carriers to handle all available traffic before new carriers were certified. .A new set of rules began, therefore, to emerge. In the Clark Duluth extension, a car- rier sought to follow traffic which was now being delivered at some other port. The entire Commission Observed that: In order to establish a basis for a grant of the requested authority from Duluth, applicant relies heavily on its purported need to follow the traffic of its shippers from the port of Milwaukee. Although a motor carrier does not have an absolute right to handle particular traffic, it has been found in some prior de- cisions that public convenience and necessity required that certain motor carriers be 108 allowed to follow their principal traffic to new sources of supply, where it was shown that existin carriers are unable and unwilling to prov1de a proposed service, that a denial of authority to permit the applicant to follow the traffic of its shipper or shippers would result in irreparable injury, would greatly exceed any adverse effect a grant of authority would have upon existing carriers. In this case Clark was not allowed to follow its traffic. The Commission policy as expressed in the Duluth case above was tested in the recent movement of the Chrysler Company plant from Evansville to St. Louis. In this case, It will be recalled, Chrysler sought what it considered an ideal distribution pattern. Protesting motor carriers who had not served Chrysler, generally held authority to service a.nine-state area in the midwest. Division I in denying the applications in the nine-state area declared that: We have consistently held that existing car- riers should be afforded the opportunity to transport all traffic which they can handle efficiently and economically in the terri- tories they serve, without authorization of a new service. With respect to territories not served by existing carriers, the Commission adhered to a form of the followethe—traffic theory in allowing each applicant to serve the territory served by him from Evansville and in denying rights to new carriers seeking to participate in the traffic.120 Under the more recent interpretation, carriers are not allowed to follow their traffic. They must, in effect, prove that public convenience and necessity requires the 109 service they propose and, of course, where there are exist- ing Carriers willing and able to provide the service it is, to understate the case, difficult so to prove. If there are no existing carriers, applicants who serve the shipper at the old plant are given preference in the distri- bution of grants of authority. Existing rail service and motor carrier operating rights. The conflict between the preferences of shippers and carrier interests is plainly evident in cases in which the Commission is asked to determine whether shippers are to be provided with alternative modes of transportation. In these instances, the Commission's initial inclination to consider Shipper interests to be paramount eventually yielded to considerations of carrier welfare. Let us examine the development of the concept of ”public conven- ience and necessity" as it applied to cases of this type. ‘What bearing does the existence of rail service have on the grant of motor carrier rights? There is no single easy answer to this question. The Commission's decisions have been vitiated by an appalling vacillation. ‘Many of the questions which remained unanswered in the 1930's have still not been answered unequivocally. Evidence of this is the fact that rails are making the very same protests to grants of Operating rights in 1960 that they were making in the 1930's. iMoreover, although the Commission has tried to justify contradictory decisions on the basis of differ— ences of fact, a close reading of the various cases fails 110 to sustain the claim to consistency. Railroad arguments against motor carrier grants have generally been these: 1. The existence of adequate rail service precludes motor carriers. 2. The rails should not be placed in the position of losing the cream of their traffic. 3. MOtor service, where allowed, should be care- fully limited quantitatively and territorially. Let us scrutinize the disposition made by the Commission of each of these contentions. One of the first cases to come before the Commission involving an automobile carrier concerned an application for Operating rights from Detroit to Baltimore.121 The appli- cant sought an agreement with a Baltimore dealer for the transportation of automobiles in direct service in lieu of the existing service which utilized a combination of barge service to Buffalo and truck service to Baltimore. There was no existing direct service by motor carrier. Division 5 denied the application after noting that rail carriers had adequate equipment to take care of "all present and probable future demands for service.122 .At about the same time, a Joint Board awarded motor carrier operating rights in spite of existing rail serv- ice.123 The Board concluded that "... motor transporta- tion of automobiles has certain advantages over rail transportation."124 The Board additionally suggested a 111 test for deciding public convenience and necessity stating, "The fact that the contracting parties desire the services of applicant... indicates a demand and need for his serv- ices."125 If early decisions left some doubt about the position of the Commission in cases involving motor carrier rights with existing rail service, these doubts should have been dispelled by the decision in the Brooks—Gillespie case.126 With regard to rail claims that the existence of adequate rail service precluded grants to truckers, Division 5 stated: ‘We are advised by statute that it is the policy of Congress to foster and preserve in full vigor both rail and water transportation, but we are also directed in section 202 (a) to regulate transportation by motor carriers in such manner as to recognize and preserve its inherent ad- vantages. There are many inherent advantages in the transportation of automobiles by motor vehicle.... That particular territory has ade uate rail service is not sufficient reason for denial of a certificate. Shipper and con- signees of automobiles are entitled to ade uate service by motor vehicle as well as by raII.t27 This principle was adhered to in similar cases subsequently before the Commission. In the Reeser case, for example, Division 5 concluded that: Atlantic City appears to have ade uate rail service, but that is not sufficient reason 1 for the denial of a certificate, because Shippers and consignees are entitled to adequate service by motor vehicles as well as by rail.128 In the Rainville application, the Commission reiterated: ‘While it is true applicant's proposed service would be competitive with rail service, the Commission has heretofore found that communities 112 are entitled to ade uate service by motor vehicle as well as Ey railroad. Despite what must have seemed a well-settled point of law, the railroads continued to oppose motor carrier grants -on the grounds that rail service alone was sufficient; and it finally paid Off. Kenosha.Auto Transport sought author- ity to serve a manufacturer of tractors and handlifts from Gadsden, Alabama. The only service then available was by rail. The motor carriers contended that a shipper was en— titled to adequate service by both rail and motor carrier. The rails urged that rail service was adequate and that no need had been shown for a competitive motor service. Despite its protestations to the contrary, the Commission clearly departed from the rule of its most recent decisions. Division 5 declared that: we are aware that in connection with numerous applications for authority to Operate as a motor carrier in interstate or foreign commerce, it has been found that a shipper is entitled to both motor and rail service. But in so find- ing, the basic issue has always been whether the public convenience and necessity require a proposed Operation. we do not, however, be— lieve that, as a matter of law, a finding of public convenience and necessity must necessarily follow a showing that there is no existing motor service. Rather, the issue of public convenience and necessity is a question of fact which depends, among other things, on whether existing service is or is not adequate.130 That this is a reversal of previous positions is readily apparent by an examination of cases cited above. The Com— mission did not find in these cases that shippers were en- titled to "both rail and motor carrier service." It found 113 that they were entitled to both adeguate rail and motor service. The recurrent use of the word adequate in the decisions cited clearly implies that the burden of proof im- posed on motor carriers did not involve the showing of any inadequacy in existing rail service. The theory of the Gadsden case was reaffirmed in the International Transport case.]‘31 This was a reconsideration of a Division I denial of a grant to several petitioning motor carriers. One of the issues was, "... whether the supporting Shippers who alledgedly are dependent solely upon rail carriers for transportation, are entitled as a matter of laW'tO motor as well as rail service."132 Division I repeated its position in the Gadsden case declaring that: At the outset it is well to stress that the mere absence of motor-carrier service is not, standing alone, sufficient justification for the granting of an application to institute such service. In numerous proceedings where a grant of motor carrier authority has been made, it has been stated that the public is entitled to both motor and rail service. However, in all such proceedings it has been found, as required by statute, that public convenience and necessity required the proposed service, and such findings were based on all the facts of record in each proceeding includ— ing the non-existence of reasonably adequate motor carrier service. Any implication which might be drawn from the reports in these proceedings that the mere absence of motor service, without more, is enough to justify a grant of mogor carrier service is inaccurate.13 What plausible explanation is there for the abrupt about-face executed by the Commission? The most reasonable answer is that by 1950 the financial plight of the railroads 114 had become a matter of serious concern. Prior to the Gadsden case, railroads had urgently called their financial distress to the attention of the Commission in an effort to block the granting of competing motor carrier rights, but the Commission turned a deaf ear to such pleas. "The situation here, however," the Commission said in one such case, "does not permit these facts to outweigh public con- venience and necessity."13u In the Gadsden application the Commission seemed to accept at face value the railroad argument to the effect that, "... any savings shipper would accomplish by use of motor carriage is more than over- balanced by the rail carriers' loss of revenue which would "135 In have to be compensated by other rail patrons. deciding against the motor carrier grant, Division 5 de— clared that, "to deprive the rail carriers of the material volume they are now enjoying for the advantages which may accrue to shipper by use of motor transportation is not warranted."136 There can.be no quibbling about the fact that an in— dustrial economy requires a sound transportation system, but to attempt the promotion of such a system on the basis of the principles declared in the Gadsden case is to let the tail wag the dog. In the first place, the efficiency of the transportation induStry is not served by insulating inef- ficient carriers from the rivalry of more effective modes.1'37 Secondly, the rail argument requires that certain shippers 138 subsidize both the railroads and other shippers. Again, 115 the Commission, in this instance, endeavored to support the railroads without inquiring into the efficiency of rail Operation or the apprOpriateness of rail rates. DeSpite this aberration, and in spite of the fact that the Commission has not Specifically reversed the Gadsden principle, in no case involving the auto carriers were Operating rights denied on the grounds that to grant them would deplete rail revenues. In the Harvester case, how— ever, the Commission reiterated its view that the prOpriety of a grant to a rival mode hinged upon the adequacy of the service performed by existing carriers. The Commission stated in this instance: But we cannot lawfully withhold from the public a needed transportation service solely for the purpose of preventing a diversion of traffic from a transportation agency which is not providing reasonably adequate service. ‘ IRE concept pf adequacy. The Commission has, on numerous occasions, expressed its willingness to grant Oper- ating rights where the existing service is inadequate. But by what standards does the Commission evaluate adequacy? Let us look at the record. In the Metler case, the Commission conceded that, "Conceivably an existing service could be so inadequate to meet a Shipper's or a community's need as to justify author- ization of an additional service...."1l"O This suggests that minor or isolated instances or poor service are not 'sufficient. This suspicion is confirmed in the Gadsden case where the Commission admitted that: 116 In any transportation service reaching the proportion of the movement here involved, there are bound to be some unsatisfactory experiences regardless of the form of transportation service utilized. There have been occasions when the Commission has been tempted to exhibit a magnanimous tolerance of carrier pecca- dillos. In the International case the shippers had com- plained that: Required rail equipment is frequently unavail— able when needed. Shippers are forced to re- ject railcars with rotted flooring or repair the flooring at their own expense to avoid delays attendant on obtaining substitute cars. Many dealers are not located on rail sidings or lack prOper facilities for the unloading of heavy farm.machinery. Others must travel considerable distances to rail stations to pick up their shipments. Delays in transit on nonemergency shipments by rail and the in— ability to obtain expedited service on emer- gency shipments... rank high among the objec- tions of dealers to rail service. The pil- ferage of component parts from the commodities while in transit also results in the immo- bilization of the equipment...."142 On reconsideration, Division I reversed its finding that rail service was adequate but the fact that it ever was con— sidered adequate is a testimony to the leeway permitted the carrier. It is equally obvious from.the fOregoing discussion that adequacy is not to be measured exclusively in terms of Shipper satisfaction. Rail and motor carriers have often argued their service to be adequate while at the same time contending that a grant to a petitioning carrier would mean a diversion of all or a substantial part of the traffic from their lines. 117 How then does the Commission evaluate adequacy? The Commission seems to start from the presumption that the concept of adequacy refers to the physical aspects of transportation. If the applicant can show that the exist- ing carrier is unable to move the desired volume of traffic the services will be judged.inadequate.]'l'L3 This does not, however, necessarily apply to failure to move all the de- sired traffic in peak periods, but only to a failure through— out some longer period of time.144 What about the ability of a carrier to move a given amount of traffic between two points in a given amount of time? The record here is mixed. In some cases, the Commission has considered the time ele— ment an important part of the adequacy of existing service. In the western Auto Shippers case, Division 5 asserted that: "The time between acceptance of the traffic at the dealer's door is clearly shorter than is now required by the railroad. The shorter time in which a purchaser can secure an auto— mobile of the desired color and upholstering, fitted with the desired accessories,... in- dicates its desirability in the public interest.145 In other cases the Commission seemed reluctant to consider the time element seriously.1b'6 In the Gadsden case, the Commission considered the delays in rail service to be ir- relevant in the absence of"... specific instances of any losses of sales occasioned by such delays..."147 Consid- ering the multitude of factors entering into the purchase of a particular type of motor vehicle, the task of segre- gating those losses resulting from delays is formidable. 118 The Commission is very careful not to allow the ques— tion of cost to enter into the determination of adequacy.n+8 With few exceptions, the Commission is unwilling to permit a shipper to benefit from rate competition between author— ized and unauthorized carriers. The fact that a shipper can increase his profit by dealing with one mode rather than another is given no weight in the consideration of the adequacy Of the existing service. The exception to this seems to be when a shipper can prove that the lower rate is needed, not to improve his profit, but to secure business. In the Dallas and Mavis Extension, for example, Division I decided that: The shippers require such service in addition to the existing rail facilities for reasons of economy and in order to meet the competition of other manufacturers of sweepers and eductors with like service available to them. The latter is an important consideration... as here, the units are sold to municipalities under a system of competitive bidding... the fact that insti- tution of service of an additional carrier will result in the diversion of same traffic from the rail carriers is outweighed by the benefits that would flow to the publ (2.149 The failure to consider rates as relevant to the concept of a reasonably adequate service might be defended if fin each case the Commission determined that the rates charged were reasonable. But the Commission does not do this. It is so preoccupied with the idea that competition in transportation is not viable, and it is so convinced that the calamities of destructive rate wars will be triggered lnrany kind of rate competition that it seems to have a 119 pathological fear of a full-blown examination of the justice of specific rates. In the New Automobiles case the Com- mission did investigate the relationship between rates and the profits earned by carriers. On the basis of this study it refused to issue a minimum rate order. The Com— mission did not, however, consider it a part of its obli- gation to promote the public welfare to require the re- duction of the unconscionable and economically wasteful profits being earned by some carriers. If the Commission refuses to consider the lower rate offered by an applicant for Operating rights as relevant to the determination of the adequacy of existing services then it must satisfy it— self, after examination, that the rates and the profits of existing carriers are reasonable. This is especially important in the case of automobile haulers where, as we shall see in a subsequent chapter, a variety of factors com- bined to make unnecessarily high rates the rule. In other words, if the Commission chooses regulated monopoly over competition, then it has a duty to regulate the monopoly. It is too frequently apparent that the Commission devotes too much of its effort to protecting monopoly and too little to regulating it. D. CONCLUSION The legislatiOn enacted by Congress allowed the Com- nussion to exercise reasonable discretion in designing the national transportation system, The Commission might have 120 emphasized the role of competition as an allocating mech— anism-~at least to the extent that competition was consistent with the prevention of destructive rate wars and the main- tenance and the promotion of an efficient, economical and dependable system of transportation Operated in the public interest. In the assignment of grandfather rights, in the prescription of the boundaries separating the various Specialized carriers, in the promulgation of the ground rules for relations between common and contract carriers, and in the definition of the content of "public conven- ience and necessity," the Commission promoted monopoly and hobbled competitive forces. Moreover, while it busily created monOpolies, it failed to regulate these adequately. As a result, reasonable shipper interests consistent with the broad public welfare were denied in order to protect vested carrier interests. The Commission has indeed heeded judicial admonitions to prevent "endangering or impairing the operation of existing carriers," but it has not given equal emphasis to the requirement that it consider the public interest to be preeminent. It has manifested an un- fortunate tendency to identify the public interest with the interests of existing carriers; and where the conflict of these interests is apparent, it has, on too many occasions, sacrificed too much of the public interest to promote the well-being of the existing carriers. CHAPTER V DEMAND AND SUPPLY CHARACTERISTICS IN THE MARKET FOR THE TRANSPORTATION OF NEW MOTOR VEHICLES A. INTRODUCTION we have, SO far, reviewed the develOpment of the industry and we have examined the character of the re- straints imposed upon the motor carrier segment by the law and by administrative and judicial bodies. In order to assess the performance of the industry, it is essential that certain factors operating on both the supply and the demand Sides of the market be recognized and appreciated. The purpose of the present chapter is to identify these characteristics and to indicate the influence these have had on the behavior of the market. we shall first con- centrate on an analysis of the conditions under which rail, motor, and water carriers supply services. Then we shall turn our attention to thoSe aspects of demand which are pertinent to the issues at hand. B. THE SUPPLY OF TRANSPORTATION SERVICE The rail carriers. In the discussion of the service offered by rail carriers of new automobiles we shall examine: 121 122 (a) the number of rail carriers and the extent of the par- ticipation of each carrier as measured by gross revenue; (b) some salient rail cost characteristics; and (c) rail institutions and practices insofar as these affect the nature of the service offered by the railroads. (a) For reasons which are widely understood, rail- roads cannot be cast into the purely competitive mold. As a result of pronounced economies of scale, the purchasers of rail services have typically been confronted by monOp- olistic, or at best, oligopolistic sellers. The shippers of new automobiles have not been exceptions. In some in- stances, the automobile shipper has been able to discern alternative rail carriers. Under no circumstances would the situation be described as anything but a small numbers case; and, as we shall point out later, in the overwhelming majority of cases there has been overt collusion among the carriers. Overall, however, a substantial number of rail- roads participate in the movement of new motor vehicles as is evident from the array in Table 3.1 (b) The literature on rail costs is decidedly not in short supply; and it certainly is not the intention of this section to add to the glut. However, it might be ad- vantageous at this juncture to review certain aspects of rail costs which are pertinent to subsequent discussions. The problem of cost analysis for railroads is com- 2 plicated by the prevalence of joint and common costs. Railroads produce passenger service and a freight service 123 Table 3.- Gross freight revenue1 earned by rail carriers in the transportation of passenger and freight automobiles- 1960 Gross Freight Rail Carrier Revenue Southern Pacific System ..... . ............... 16,908,436 New York Central Lines ...................... 12,651,715 Union Pacific R. R .......................... 9,921,072 Frisco Lines ................................ 5,292,531 Atchisdn, TOpeka & Santa Fe Ry. System ...... 4,977,174 Pennsylvania System. ......................... 4,435,936 Chicago, Milwaukee, St. Paul & Pacific R. R. 3,961,744 Missouri Pacific System ..................... 3,444,728 Chicago & North Western Ry .................. 2,384,704 Great Northern Ry ........................... 2,026,887 Chicago, Rock Island & Pacific R. R ......... 2,002,897 Northern Pacific Ry ......................... 1,765,973 Burlington Route ........................... 1,651,383 Atlantic Coast Line System. .................. 1,642,320 Denver & Rio Grande'Western R. R ............ 1,614,875 New York, New Haven & Hartford R. R.... ..... 1,311,847 Missouri-Kansas-Texas R. R .................. 1,135,627 western Pacific R. R ................... ..... 1,048,948 Chesapeake & Ohio Ry ........ . ............... 813,499 Southern System. ............................. 639,385 Kansas City Southern System. ................ 569,583 Florida East Coast Ry ....................... 548,459 Baltimore & Ohio System ..................... 544,532 Erie-Lackawanna System ...................... 526,584 Canadian National System .................... 511,071 Boston &‘Maine R. R ......................... 443,645 Delaware, Lackawanna &‘Western R. R ......... 439,560 Seaboard Air Line R. R ...................... 406,066 Spokane, Portland & Seattle Ry .............. 384,379 Canadian Pacific System. ..................... 380,603 Illinois Central R. R ....................... 373,209 Gulf, Mobile & Ohio R. R .................... 355,208 New York, Chicago & St. Louis R. R .......... 177,152 Norfolk &‘Western Ry ........................ 159,830 Reading System .............................. 121,423 Lehigh valley R. R .......................... 101,225 Maine Central R. R .......................... 94,430 Central of Georgia Ry ....................... 91,626 Western Maryland Ry ......................... 57,061 124 Table 3--Continued Gross Freight Rail Carrier Revenue Rutland Ry ................................... 47,852 Monon R. R ................................... 45,617 Delaware & Hudson R. R ....................... 44,308 Lehigh & Hudson Ry ........................... 33,309 Chicago Great Western Ry ..................... 31,553 Green Bay & Western R. R ..................... 28,165 Spokane International R. R ................... 18,189 Bangor & Aroostook R. R ...................... 15,895 Minneapolis & St. Louis Ry ................... 14,372 Norfolk Southern Ry .......................... 12,413 Elgin, Joliet & Eastern Ry ................... 10,047 Ch cago & Eastern Illinois ................... 9,799 Duluth, Missabe & Iron Range Ry .............. 8,929 Texas Mexican Ry ............................. 8,738 Richmond, Fredericksburg & Potomac R. R ...... 8,513 Kansas, Oklahoma & Gulf Ry ........ . .......... 7,964 Pittsburgh & West Virginia Ry ................ 7,277 Savannah & Atlanta Ry ........................ 5,151 Toledo, Peoria &‘Western R. R ................ 4,211 Georgia & Florida R. R .......... . ............ 3,504 New YOrk Connecting R. R ..................... 3,288 Piedmont & Northern Ry ....................... 2,993 Atlanta & St. Andrews Bay Ry ................. 2,621 Minneapolis, Northfield & Southern Ry ........ 1,878 Lehigh.& New England R. R .................... 1,213 Pennsylvania-Reading Seashore Lines .......... 874 Tennessee Central Ry ......................... 838 Detroit & Toledo Shore Line R. R ............. 655 ‘Missouri Pacific System ................. ..... 648 Chicago & Illinois Midland Ry ................ 398 Akron, Canton 8: Youngstown R. R .............. 393 Illinois Terminal R. R ................... .... 288 Bessemer & Lake Erie R. R .................... 123 1"Gross freight revenue" means respondent's ross revenue from freight without adjustment for absorptions or corrections. Calculated from: Interstate Commerce Commission, Bureau of Transport Economics and Statistics, Freight Com- modity Statistics, Class I Railroads in the United States, Statement No. 61I00 (washington:‘U.S.IGovernmentPthting Office,19607f 125 which includes the movement of commodities with sharply divergent transportation characteristics. Engine switching expenses, fuel expenses, expenditures for labor, main— tenance of way and miscellaneous expenses such as legal fees and salaries of administrative personnel are incurred in behalf of the transportation of bulk commodities, "high value" commodities, and LTL freight in such a way that the assignment of costs by commodity carried is a difficult if not impossible job. MOreover, movement of freight in one direction necessarily results in the availability of facil- ities for return hauls. The railroad cost expert is beset by another swarm of problems which grow out of the difficulties involved in segregating fixed and variable expenditures. If this task seems easier than the identification of common costs, it is probably the result of a willingness to attribute greater accuracy to Commission techniques than is statistically defensible. The latter identifies the so-called "per cent variable" as a result of an analysis of elementary bivari- ate cross section relationshipswhich ignores the influence of such factors as the average length of haul and the geo— graphic region. MOreover, the analysis is so aggregative, i.e., total expenses include so diverse a group of costs 3 It should be as to adumbrate relevant characteristics. noted, however, that both the Commission and independent scholars have substantially revised their estimates of the magnitude of the fixed factor in rail costs. The early 126 conclusion that fixed costs account for two-thirds of all rail costs has been modified so that the Commission present- ly argues that Operating expenses, rents and taxes are 80 per cent variable and expenditures on road are 50 per cent variable? The problems which arise in the identification of common and joint costs and in the separation of fixed and variable expenditures are challenging enough to tax the ingenuity of any student of rail cost; but there are addi- tional considerations which make costanalysis even more frustrating. For one thing, costs must be culled from accounting data which were devised to meet other needs. The Commission was originally concerned with total revenues and total expenditures for the purpose of providing reason— able earnings while preventing monopoly exactions. It, therefore,structured its accounting procedures to serve that purpose. Unfortunately for the cost analyst, while the Commission's problem.has changed so that it is now interested in costs primarily as a standard to be employed in deciding issues in intermode competition, its accounting procedures have not been sufficiently modified to yield cost data apprOpriate to the new problems.5 There are defects in cost data prepared by the Com— mission and by the carriers themselves. For example, the Commission’s penchant for averaging costs on system or regional bases makes application of much of the data appro- priate only to the most generalized situation. Again, 127 while adversaries in rate matters before the Commission often prepare cost data, there is a frequent substitution of average figures for actual observation. Thus, in I & S Docket 7269, rail costs were adjusted to reflect higher wage and price levels by multiplying rail costs by an index number representing "the increases in wages and price levels 6 for all the railroads in the western District.” Again, in I & S Docket 33392, the examiner observed that: The respondent railroads, other than the Chesapeake & Ohio, based their rail costs on unit expenses as shown in Statement No. 5—59, Rail Carload Cost Scales by Territories for the year 1958 issued by the Bureau of Accounts of this Commission.... On its re- statement of the respondents' rail costs protestants used the cost for the year 1959 shown in Statement No. 5-60.7 Because of these procedures critical decisions may be made on the basis of cost data which do not reflect the actual cost of moving the commodity in question between the points which are actually to be served. I The only comprehensive study of costs involved in the transportation of new automobiles was made by the Bureau of Transport Economics and Statistics in the New'Automobiles case and was based on data for 1939. The Commission de- scribed this study as reflecting: ... the transportation conditions pertaining to the movement of new automobiles, considera- tion being given to the length of the haul, the weight of the train carrying the automobile traffic, the weights of the locomotives used, the amount of helper-locomotive service, the amount of switching service received at origin, intermediate, and destination points, the net weight of the load, the tare weight of the 128 car, the per cent empty return of the equip- ment, and any special services. Quite obviously a study of rail cost made in 1939 is of limited usefulness in 1961 so that no elaborate review of the evidence there provided will be considered. The studies are not completely valueless, however. In comparing rail and motor cost characteristics most, if not all students, recognize the motor carrier to be the low cost carrier on short hauls and the rail carrier to possess a cost advan— tage on long hauls. .A comprehensive recent analysis lends strong support to this conclusion.9 Since rational alloca- tion of motor vehicles is to a significant degree a function of the distance—cost relationship for various transportation modes, we might examine the conclusions of Commission studies in the New Automobile case. The Bureau of Transport Economics and Statistics trended the costs fOr the 175 rail movements it studied. The results of this investigation are shown in Table 4. It will be noted that, for out-of-pocket costs, the trend equa- tion (in the form Yc = a + bx) is approximately Yc = 15.6 + 1.92 (x) where 15.6 is the cost incurred at 0 mileage and 1.92 is the increase in out-of—pocket expenses for every twenty—five mile increment. For fully distributed cost with provision for a four per cent return, the trend line is given by Yc = 21.81 + 2.99 (x).10 Undoubtedly the values of a and b have been substantially altered through time. For present purposes, however, the absolute magni— tude of these values is less important than their size 129 Table 4.- Trended rail out-of—pocket costs; also trended fully distributed costs adjusted for 20 per cent over— statement Cents per 100 pounds Fully distributed costs ad— justed for 20 per cent over— statement and including Bureau's out- returns and passenger deficit Miles of-pocket cost Including Including 4 per cent 5 3/4 per return cent return 25 ..... 17.5 24.8 26.8 50..... 19.4 27.8 30.0 75 ..... 21.3 30.8 33.3 100.... 23.3 33.8 36.6 125.... 25.2 36.8 39.8 150.... 27.1 39.7 43.1 175.... 29.0 42.7 46.4 200.... 30.9 45.7 49.6 225.... 32.8 48.7 52.9 250.... 34.7 51.7 56.2 275.... 36.6 54.7 59.4 300.... 38.6 57.7 62.7 325.... 40.5 60.7 66.0 350.... 42.4 63.7 69.2 375.... 44.3 66.7 72.5 400.... 46.2 69.6 75.8 425.... 48.1 72.6 79.0 450.... 50.0 75.6 82.3 475.... 51.9 78.6 85.6 500.... 53.9 81.6 88.9 600.... 61.5 93.6 101.9 700.... 69.2 105.5 115.0 800.... 76.8 117.5 128.1 900.... 84.5 129.4 141.1 1,000.. 92.1 141.4 154.2 2,000.. 168.6 261.0 284.9 3,000.. 245.1 380.6 415.6 Adapted from; New Automobiles in Interstate Commerce” 259 ICC 475, 574, (19457. 130 relative to those of competing carriers. 'We will return to this point when we examine relative rail-motor costs. (c) we have already alluded to the fact that the railroad industry was characterized by fewness of sellers. The antitrust record is replete with a description of the artifices by which oligopolists have attempted to blunt competition-- especially price competition. Unfortunately, the conduct of the railroads has not been atypical. In point of fact, the collusive activities of the railroads received Congressional imprimatur when rate bureaus were legalized by the Reed-Bulwinkle amendment to the Inter- state Commerce Act. Regardless of the wisdom of the exemp- tion thus provided, it is worth noting that it elicits the wholehearted approval of the majority of railroad executives. Legally and by predilection, therefore, competition on a rate basis between rail carriers is muted. There is, of course, the possibility that a carrier will take independ- ent action, but this is fraught with such difficulties as to be notably infrequent.ll Railroads have competed for automobile traffic on a price basis (to the chagrin of rival rail carriers) but, in the main, price competition has been considered only in connection with intermode struggles for traffic.12 The railroad executive defends his unwillingness to engage in intramode price competition on economic grounds. In the struggle between Communism.and Democracy certain types of competition are considered relatively safe while 131 clashes between the military forces of the principal an- tagonists are eschewed by both sides because of thadanger that such encounters might prelude a nuclear holocaust. The railroad executive considers that competition in the rail- road industry possesses many of the characteristics of the worldwide struggle for power. For him, every competitive price decline raises the ugly specter of a destructive rate war in which some firms collapse and all firms suffer enner— vating losses. However overdrawn the picture might be, and however questionable the logic, few things disturb the equanimity of the railroad leader more than the prospect of intramode price competition. In order to ward off threatened rate wars, railroads resorted to rate bureaus such as the CFA Special Automo- bile Committee. The rate bureau was a tranquilizer duti- fully ingested by the rail system; and, unfortunately, it was not free from.harmful side effects. The railroads be- came so accustomed to the debilitating regimen of monopoly that they lacked the creative, innovating verve needed to counter truck competition. The most attractive suggestion they could offer was to hobble competitors by extending to them the restraining arm of regulation. Price cuts were tried but they were not nearly enough to attract traffic in view of rail service disabilities. Monopoly pricing was so rooted in the ratemaking bodies that rates failed to reflect the main competitive advantage of lOW’COSt possessed by railroads on long hauls.13 To some extent the Commission 132 by its policies governing interagency rate competition in- hibited the railroads; but the railroads nevertheless cannot be considered hapless victims of regulatory shortsighted- ness. Professor Ernest Williams concludes after a thorough study of interagency rate competition: While motor carriers have effectively pursued their highly advantageous policy (adoption of rail rate structure, with a parity of rates for high-rated traffic and minimum-rate stOps and other devices to discourage low-rated traffic), railroads appear to have lost one opportunity after another to establish under regulation a basis for rates in the competitive area which would give scOpe to their cost advantage. If the Commission has refrained from an effort to detect and to recognize the advantages of the rails, it is clear that the fault lies heavily with the rail carriers themselves. In the formative period for the principles we have discussed in the critical years immediately after 1935, railroads were reluctant to focus any attention upon their cost advantages and failed to force the issue. A legislative policy capable of giving the railroads adequate sc0pe for the exerc se of their inherent advantages--of which lOW'COSt for certain types of haul is undoubtedly the greatest-~was allowed by de- fault of the rail carriers during the many Opportunities open to them to develop ad- versely, until the weight of the decided cases has become a serious bar to reform. As a matter of fact, in Passenger Automobiles in Southern Territory, the Commission clearly implied that rails had not attempted to meet competition to a permissible extent from the manufacturing plants.15 In denying a rail request for an increase in the spread of rates between assembly and man- ufacturing plants dictated in the Chrysler case,16 the Com- mission invited the rails to reduce rates from the latter points.17 133 So far as automobiles are concerned, evidence of the fact that rail carriers had not nearly exhausted their ability to increase traffic by reducing rates is supplied by Commission statistics. A weighted average of the ratio of revenue to fully distributed costs reveals that for motor vehicles which the railroads transport in competition with motor carriers, revenues exceeded fully distributed costs by 88.8 per cent. Of the 263 commodities listed in the report, only 12 had a higher ratio; and the majority of these moved in relatively small quantities. For exam- ple, fewer than 10 carloads of 4 of these commodities were transported in the United States in 1958. Seven of the commodities supplied a total of only 102 carloads.18 Whether or not the rails could have recaptured the major portion of the long haul traffic through rate re- ductions is a moot question. Many railroad executives seemed too willing to relinquish this traffic without putting up a fight.19 Traffic managers of several firms agreed in inter- views, however, that realistic rail pricing combined with service improvements then possible would have resulted in a shift of much long haul traffic to the railroads. Unfortu- nately, we shall never know what might have been done since the rail carriers seemed content to wallow in self-pity while plaintively beseeching both the Congress and the Com— mission to come to their assistance. One could argue, how- ever, that when the railroads did venture from the protective 134 cocoon in which they had sought sanctuary; when they started to think in the context of competitive rather than monopo— listic markets, they found the key that opened the door to technological and price innovations which have dramatically improved their position with respect to the transportation of new automobiles. Piggyback techniques were well known even before the motor carriers began their assault on new automobile traffic, and the rails always possessed a cost advantage on long hauls. ‘Why could not the railroads have prevented the diversion which in fact occurred? Thg‘mgtgg carriers. Our discussion of the motor car- riers will parallel the treatment awarded the rail carriers. 'We shall examine: (a) the structure of the industry; (b) the important cost characteristics of motor transporta- tion; and, (c) motor carrier institutions and practices. (a) It is difficult to discover for any particular year exactly how many motor carriers participate in the transportation of new motor vehicles. The Commission is pre— paring an index of carriers which will permit identifica- tion of all carriers who have authority to transport auto- mobiles, but this index is not yet publicly available. The NATA provides a list of all of its members but not all eli- gible carriers are members of the Association. The most sat- isfactbry source which the writer found was the "Financial and Operating Statistics of Class I and II MOtor Carriers of Property" prepared by the Department of Research and Trans~ port Economics of the American Trucking Associations.20 135 Even this source is not perfectly satisfactory. One of the major deficiencfis is that carriers are classified according to the principal commodities carried. This means that a firm such as Pacific Motor Trucking Company is classified as a general commodities carrier although it is one of the larger haulers of new automobiles. Since revenue is not broken down by commodities, there is no way of knowing from such a series what part of the total revenue was earned in the transportation of individual commodities. Of course, carriers who haul automobiles primarily also carry other commodities so that reported total revenue figures cannot be attributed solely to the movement of new automobiles. In some instances there is a substantial distortion resulting from.the inclusion of terminal revenues or Plan I TOFC pay— ments to a motor carrier.21 Since automobile shippers have in most instances been prevented by company policy from.aup— plying information necessary to adjust these shortcomings, the figures had to be used as they were reported by the American Trucking Associations. Subject to these reserva- tions we shall examine some of the characteristics of the structure of the motor carrier segment of the industry. Table 5 lists all of the carriers of new automobiles reported in the.American Trucking Association's report for 1960. Data was reported for seventy-two carriers in 1960. This compares with reports on ninety-eight in 1950. Twelve of the seventy-two carriers for 1960 are contract carriers and these account for 27.7 per cent of total operating 136 mm.s mwmm. m.mm H::.~os H~.~ sma.wms.m ............ .osH ..oo . aozoo>wha Hwousom .h .m mN.H mmsm. H.0m emanmwm as.“ Hmm.uso.ss ..H.oaH .ssmauas mumsmoc No.a Assn. A.mm an: mam om.“ oom.meo.sa .................H.o:H . .mhowhhoo ous< oon< om.s osmm. A.Nm aao.e~m mm.~ oma.wmu.ss ......... .auoo ..w .z «unwfiomm acuoz_ho£o:¢ em. Hem“. m.sw mem.aua.s on.“ nom.usm.ss ..........N.H.o:H ..oo 9 uhommdmhfi Monaco 30mm om.s swam. H.mm sm:.:oe mm.u soo.msm.ss ........m.Haa mo ..ocH .uawa pm.pouoz_poaoe< om. mama. m.om o:s.:o: ma.~ mo~.:ma.ua ..H.oo uncamnmpa newsman mm. emwm. swam mm:.mo~ mm.~ sem.mse.us ....H.oo pacemampa a a m oo.~ swam. w.so www.3HN Hm.u Ho~.mww.us .....H.onH .nmpom eaazom m~.H «Nam. H.ea ema.mmn as.“ Hmm.uso.ss ..... .. .oaH ..oo was IUHQEO mH>mz ow deHwQ um. wean. a.nm mmm.msa.a Hm.s nmm.smo.ma ................. .oaH .unommdoha oawmoaou=< we.s «nos. 0.80 sem.sem mo.e oom.man.eu .................H.onH .mhowhhoo Hofiohoaaoo em.s scam. o.ma onm.mms Hm.e mum.soe.om ......... .H.anoo “you Imam—H Ou5< dimOfiwM «o.s mama. m.sm moo.mum.n om.m mmm.ms:.ms ..Nuaueuna case muoHanc odao>om mwomome waxes mow oscb>om nxm smomdoo ofiuom opomom nuoaooo wag sowhhoo Hana uxm w:« 0800 HdeB mo uuohomo nahoa saga uponooo n:H uoz uswo Mom Hooch ooaa sooHOH£o> nouoz mo maowhaoo moHow£o> Mono: how momcomxm a .mowuom wseuouomo HoEoofiH uoz .oosso>om n.m wands 137 o:.H mm. ma. 0N. mm. mm. H:.H <2. mm. mm. MN.H hm. am. No. m:.H Hm.N om.H mm. om.H NN.H on. mm.H H330. Nwwm. momm. Haom. wmnm. oomN. Amos. moon. mmmm. moNd. Oman. know. dem. thN. NNNM. mnwm. nmmN. mmmN. mums. Nnmu. moon. moan. N.Ja «.mm m.NOH H.mOH «.mm o.mo H.mm n.Hm m.mw n.0m _m.mm m.Hm N.om n.mm 0.00H n.mm N.om N.Nm o.mm m.mw :.Hm o.mm Ndh.~d~ mam.mm mse.sssflev Has.sssfiev asm.om ommnmsm ems amm aes.oss omm.mns mmm.ses noa.mms eso.oss Hmo.ams mm~.om« mam.seHAeV em«.mmm ::~.mse smm.aam HAN.HH« amw.osm assumes moo mm: mm. mm. oo.H mo.H mo.H mo.H mo.H mo.H oa.H mH.H mN.H mu.H Hm.H mm.H hm.H N:.H od.a mn.H Nm.H mm.H :a.a 0H.N mm:.oau.s mmm.amm.s mas.mn:.s sme.~em.s omw.mmm.s mam.ooons on:.a~m : was.uom.s ooa.ooa.s nem.ouasm oms.emm.m «mo.sun.m smm.mmm.m eao.mso.e :mm.~eo.m ums.~om.e mam.moe.c cmo.ssa.s New.ANm.m 030.com.» ANN.Aoo.m mas.:mm.m .................H.o:H .mmm3wsoo o>wuoaous< 0.90.... .00 «WORK—HOD op5¢ .....NddWHsowz mo .ofiH .uewwohm hobo: honod¢ ..............H:owpoao umaoo howahoo pooam ...-ocoooooo..H%.—HNAHEOU uhommdohe hoopouoz ooooooooHoUfl—H “.00 WE Ipaoahom .Ou:< shopmmm ....A.oo puommfimhh xhoao ooooco...ooN.HoOU UZHOQ swoops ous< oHHH>monmh .H.odH .%o>doo honoz.onh . ............N wouoho unhooflH ooMoz.A3 .M H.0flH .mp90doddhh confisb ................H.ofiH .muhommouhh aozpoomm coco-oooooooNsHkWaQEoo uhommdmha whoaooa N.H.ofiH .oupoomnmha cus< concoooooooooflooo khakrgu ............. ... .ocH .muaomoduaa wouwwooom< .. phononoaa cuo<_>oavom .. .odH .mhofiahoo hoonsz 138 mm. No.0 em.“ ms. we. we. HA. on. mm. mm. :m. mm. mm. ms.a mm.~ no. :5. «z :m.H mm. mm.m on. mmwm. momm. wmmm. owed. wmnm. odmm. nnmm. mdwm. Hmwm. Ohms. mmmd. wwwm. adom. mumm. manm. mNNm. mama. Hamn. «mud. mmom. mmmN. wmom. m.mm N.wm o.mm H.mm «.mm w.:m 3.00H :.mw 3.0m o.mm H.©m ©.mm m.ww ©.Hm m.om m.mw o.wm N.nOH m.nm «.mm m.Nm H.00H o:m.a mom.m~ mon.~w mam.m~u :ma.wos moo.mms nmo.~ sum.sum mms.se eom.as me~.mm NNQ.AN mam.amm mm:.osu mm:.smm Hmm.amm ouc.am. o-.e~saev mao.~m use.mu ooo.sHmAe s::.HH Aev mm. on. mm. mm. an. m:. as. we. mm. mm. om. ow. we. as. am. am. mm. mm. am. so. mm. mm. muw.me~.a u:s.asm.a ema.mme.s som.woa.a ans.mma.s Hma.m~o.~ mom.omc.~ mm:.oeH.u ses.mss.~ Hmm.ooe.~ eou.mmm.u mas.aae.u omo.eao.m umu.sms.m Ams.mam.m Ass.:us.m Hmsnmmm.m mum new.m asu.:~m.m mae.oAH.s oomnsnu.s has ::~.s .................H.ofiH ..oo uuodhnm .m owhooo oooooooooooHoOHHH akhmga xo>waa nephew a oumwsm .......%d3l¢.lw>H.HQ CHNHm .................H.oflH .upommowhe HowaumopsH ......OHHH ammmhnmunm kHHNQ .odH .hoxaoz..m uhonom cocooooooH-HH mo oOdHH .uaommsoaa ous¢.z_e m ...H.oo owoupoo poohusoo ..H.oo w:HXoohH HonoHuoz H.00 mwmuhwu men mhmdvm cocooHoOd—H «smokngUUuwz ...: ........... .ofiH H ..OU >o3mo>wha Moxom .................N.odH .muhommeahh oud< moXoB .................H.odH .mhouhommdwhfi pohdmflH "A oooooooooooosooooohfim ..Soo uhommfiohh >33me ...........H.oflH .hoBo ION/HMO HMHOHGEOU h. ~w U ..H.oo uaoamodhh mooomoo so oooooooooooooHoahou mogphoshom moxoq pooao .ofiH .mmohm IXm pnmaho>o kuwmho>wdb .................H.odH .mamwaamo magnoa0u54 oogoooooHonHoHOU 500520305; oooooooooooooooooHoOfiflH .mhommwnm oawn050ud¢ .Aomma,..o:H .mdbwummoomm< wsHMOSpBSmowaoE< unbuwaenmozv monomoam mo whowahoo aouoz.HH paw H momao .momumauopm‘wfiwumaomo a Homodmnwm ..odH .mdofiuowoomm<.wswxodph smowhmaa "oohsom .powhaoo :bp poo omamoxo Hoseshon .Amowfiooxo Hmcfieaou wsaosaoxov mama oaow£o> mafia pom ow oncomxm: .H dwam pops: cowumuaommamae pom maowapmo Hawk on mama onmofiom flowgs madness mopsaode . .HOHHHGU u. 00h.“ SOON .comuowoomm4 maouaoamooah oHHnoEous< HonoHuwz mo honEoZH 139 as. ommm. a.moa Haa.maaev so. ama.maa .........Haaocmempa mama mm. Hmms. :.maa mms.msAeV ao. omm.aam ...a.oaa amzmm>apc ammo <2 mmsm. o.mm moa.ma mo. ma:.mas ...a.oo weasospa amoamaa on. mamm. m.mm aaa.: Aev mm. mmo.som ..a.oca .uamamaa :ampmmm mm. mama. m.mm ama.a as. sma.asm .................a.o:H oow>hom phenomena m.xoo2 mm.a mama. m.moa sam.mmnev ma. mmm.amm ......ooa>aom m.aaonaamo am.a mamm. m.moa ama.asnev as. mmo.aaa .ona .upoamaaaa massage: ma. mamm. a.mm mam.a ma. aam.osm ..oea .aeaa pope: aaaumz sm. msaa. o.mm omo.aa oa. mam.oam ..........oo pmaaumo use Ha. ammm. m.mm mso.m oa. aam.mam ..........o:a .anmeaoo uhommdmpa Hoax mwuaso a:.a mmam. m.am amm.oa Ha. mma.omm .........a.o:a ramumam . . . hosoo>mun whoa: .3..m as.a amam. :.mm ma: am ma. msa oma a ...........a.a acmaaoo mosoo>mao Hoax mz <2 m.mm mmm.mm ma. sam.maa.a .........maxoa mo same 1600 wdgxosah uaooosmhh mm. ommm. m.mm aao.aaa aa. :ma.ama.a ..a.osa .anoamcuaa m a o 140 revenue. Although no single carrier accounts for a partic- ularly large share Of total operating revenue, there is a significant concentration Of revenue in the larger carriers. In 1950, the ten largest carriers accounted for 41 per cent of total operating revenue. Comparable figures for 1955 and 1960 were 39 per cent and 43 per cent respectively. In 1950 and in 1955, approximately half of the revenue was earned by fourteen carriers. For 1960, thirteen of the seventy-two carriers for which data was supplied earned one-half Of all Operating revenue. In 1960, thirty—eight carriers earned less than one per cent each Of the total revenue. The figures on concentration are altered somewhat if common ownership is taken into account as is evident from Table 6. For contract carriers alone, Anchor Motor Freight accounts for approximately 23 per cent Of total contract carrier revenue. In VlQW’Of Complete Auto Transit's 36 per cent share, this means that two carriers earn 59 per cent Of total Operating revenue for all contract carriers. How does the automobile hauler compare with all other regulated carriers? In 1960 there were seventy-one carriers of motor vehicles listed in the ATA's summary report.22 This represented 2.7 per cent of the total Of 2,666 motor carriers included in the summary. The motor vehicle carriers accounted for 7.5 per cent Of total carrier revenue and 18.2 per cent of net carrier income. The Operating ratio Of auto haulers (95.1) compared favorably with the average for all carriers (97.5). 141 Table 6.- Revenues and rank Of carriers under common control Total Size Per Oper- rank cent Of ating total reve- revenue nue earned Group I Automobile Carriers, Inc. .. $ 4,170,619 39 .9 C & J Commercial Driveaway, Inc. ..................... 3,724,447 43 .8 Dealers Transit, Inc. ...... 11,042,551 13 2.5 Group II Nu—Car Carriers ............ 9,584,118 15 2.2 University Overland Express. 3,874,217 40 .9 Group III United Transports, Inc. .... 6,063,934 22 Auto Transports, Inc.1 .... 7,751,036 Texas Auto Transportsl .... 3,016,090 46 H xo raw \JGLP Group IV E & L Transport, Inc. ..... 12,648,964 7 2.8 E & L Transport, Inc. of Kentucky ................ 4,438,429 34 1.0 Central Truckaway2 ........ N. A. Group V Dallas & Mavis Forwarding Co. Inc. ................. 13,861,609 5 2.5 Robertson TruckaAJWays, Inc. 4,276,495 36 1.0 Group VI Anchor Motor Freight Of Del. 11,943,007 9 2.7 Anchor Motor Freight of N . Y. 11 , 288 , 190 11 2 . 6 Anchor Motor Freight of Michigan ................. 4,821,456 30 1.1 lContract carrier. Revenue for Central Truckaway is not available for 1955 or for 1960. In 1950, Central Truckaway had a total of $1,508,241. , Source: American Trucking Associations, Inc. Finan- cial and Operating Statistics, Executive and Ownership7_—_— sectIOn, Class I andUII MOtor Carriers Of Property (Wash- ington: American Trucking AssociatiOns,FInc., 1961). ». 3v yd v 142 The automobile carrier is the largest of the special- ized carrier group and, by the Commission’s standard, the most profitable. Revenues for carriers Of motor vehicles averaged $239,092,783 in the period from 1948 to 1959. The next largest specialized carrier group, the carriers of liquid petrolewm, averaged $184,588,141 in the same period. So far as Operating ratios are concerned, the carriers of motor vehicles for the same period, posted the lowest aver— age of 93.3. This compares with the average for the same period for other specialized carriers of 95.6.23 (b) Attempts to develOp costs for the automobile transporter have generally been abortive. Motor carriers, unlike the railroads, have not regularly introduced cost 24 It is Obvi- data in proceedings before the Commission. ously beyond the resources of a single investigator (particularly one outside the industry) independently to make such a study. Of course, the Commission in the New Automobile case made cost investigations; and the trans- portation of motor vehicles is in many respects similar enough tO the transportation of general commodities to make possible some conclusions about the character Of motor carrier costs. The problem of common costs which afflicts rail cost accountants is of far less importance in the case of truckers. By and large, carriers of motor vehicles are specialized and do not serve shippers Offering a wide diversity of products. It should be understood, however, that, as has 143 been pointed out in Chapter IV, auto haulers do carry other commodities so that there are some common costs. These are, nevertheless,of relatively minor import. SO far as joint costs are concerned, the motor vehicle transporter shares a problem with the rest Of the transpor— tation industry, i.e., movement of traffic in one direction makes available capacity for a return movement. There is no reason tO suspect that the conclusions Of Commission studies Of the variability of motor carrier costs are significantly different for the specialized car- rier Of motor vehicles. The Cost Finding Section concluded that: ... approximately 90 per cent Of the total motor carriers' expenses and taxes vary in proportion to the change in.traffic and 10 per cent remain constant.25 The Commission itself in the New Automobiles case Observed: The Bureau made no attempt to compute the out— Of-pocket costs of motor carriers. It considered that over a long period such costs for carriers engaged almost exclusively in the transporta- tion of new automobiles would closely approach their full costs with the possible exgeption of some part Of the general overhead. 6 How do motor carrier costs vary with the length of the haul? In the NeW'Automobiles case, the Commission made ex- tensive studies of the relationship of cost to the length Of the haul for truckaway and driveaway Operators. It computed these on the basis of a return of 5-3/4 per cent on depre- ciated book investments as well as on returns of 5 and 10 per cent of gross revenues. (See tables 7 and 8). The 145 Table 8.- United States average motorcontract—carrier costs in cents per 100 pounds including Operating expenses, rents, and taxes, for 1939, plus return Costs Truck-away Single drive— Tow—bar four-car away Based on 5 3/u Based on 5 3/4 Based on 5 3/u Distance per cent return per cent return per cent return (miles) on depr. book on depr. book on depr. book investments investments investments 25(2),... 11.9 13.5 ...... 25 . .... 8.6 10.6 5.4 50(2).... 18.6 22.4 ...... 50 .... 13.4 17.0 7.9 75(2).... 25.3 31.3 ...... 75. ... 18.2 23.4 10.3 100(25... 32.0 40.3 ...... 100 ...... 22.9 29.8 12.8 125 ...... 27.7 36.2 15.3 150 ...... 32.4 42.6 17.8 175 ...... 37.2 49.0 20.2 200 ...... 42.0 55.4 22.7 225 ...... 46.7 61.8 25.2 250 ...... 51.5 68.2 27.7 275 ...... 56.3 74.6 30.1 300 ...... 61.0 81.0 32.6 325 ...... 65.8 87.4 35.1 350 ...... 70.5 93.8 37.6 375 ...... 75.3 100.2 40.0 400 ...... 80.1 106.6 42.5 425 ...... 84.8 113.0 45.0 450 ...... 1 89.6 119.4 u7.u 475 ...... 94.4 125.9 49.9 500 ...... 99.1 132.3 52.4 600 ...... 118.2 157.9 62.3 700 ...... 137.2 183.5 72.2 800 ...... 156.3 209.1 82.1 900 ...... 175.3 234.7 92.0 1,000.... 194.4 260.3 101.9 2,000.... 384.9 516.4 200.8 3,000.... 575.4 772.5 299.8 2. For carriers with average haul Of less than 75 miles. Adapted from: New Automobiles in Interstate Com- merce, 259 ICC 475, 579,7(1945), Appendix 12. 146 Bureau's trended costs were given by the equation: Yc = 5.245 + 5.255x, where x is 25 miles and 5.245 is the 27 These costs have,of course, level of cost at zero miles. changed substantially since 1939. We shall reserve to a later section the implications Of these changes. (c) The enterprising group Of small busineSsmen who started out in the decade Of the 1920's to carve a slice Of the transportation pie for themselves had several important assets. Unfettered by venerable traditions, these entre- preneurs concentrated on a realistic appraisal of the de- sires Of the shippers and Of their Own potential in satis- fying that desire. They were willing to experiment with different kinds of equipment inorder to provide most ef- ficient service. They Offered cheap storage, split-de- livery, Off-route service, and other advantages at reason— able cost. They were willing to compete on a rate basis where they had to; but they made rate concessions no deeper than those dictated by competition. Their long suit was service; and this they wisely led. One Of their biggest assets, of course, was the rail unwillingness or inability to adjust to changed conditions and rail distaste for rate competition which would have given effect to the rail cost superiority. The battle between the rails and the motor carriers was a pitifully uneven match; the motor carriers wisely selected weapons to reinforce their inherent abili- ties while the railroads foolishly joined in the fight on the motor carriers'terms and with defenses Obviously 147 unsuited to them. The railroads were sadly outgeneraled. On the whole, it would be inaccurate to suggest that motor carriers were as anxious to compete among themselves as they were to fight with railroads. There is evidence that, at a very early date, motor vehicle transporters formed local or regional associations. Although the activ- ities Of these groups are not part Of the public record, it is not unlikely that efforts to mitigate intramode competi- tion were an integral part Of the association programs.28 The National Automobile Transporters Association, incorpo- rated in Michigan in June, 1931,29 seems effectively to have limited competition between carriers. In response to a question from.NATA.attorney Harry G. Ames inquiring whether efforts had been made to eliminate "destructive com- petitive practices," Mr. Zenzius, General Manager Of the NATA replied: Yes, strong efforts were made in that direction in 1933 when the NRA code was in effect. An association was formed and a great deal of effort was made towards stabilizing the indus- try and stabilizing its rate structure. And I can truthfully say that at that time the in- dustry was more or less char ing a uniform rate for services performed n automobile hauling.3O When asked whether these efforts were continued after the NRA was declared unconstitutional, Mr. Zenzius answered: Yes, we continued the efforts through voluntary action until after federal regulation when we formed the Tariff Bureau Of the NATA for the purposergf setting up uniform association rates. ' There can be no doubt that the purpose of the NATA was 148 to cramp intramode price competition. How well did they succeed? It is unfortunately difficult to assess perform- ance in view Of the lack Of a publicly available record. A former NATA Official describes the Tariff Bureau as a rate publishing agency which dutifully publishes rates submitted to it without entering into squabbles which might divide its 32 On the other hand, there is admittedly consul- members. tation on a local or regional basis before rate changes are made. ‘What happens if one or several carriers refuse to go along with the majority? A vigorous effort is made to con- vince the errant member Of the folly of his ways but if he persists, the rate will be published. One might imagine fliat such action would produce, here as elsewhere,33 a re- quest for suspension from the rate bureau. That it does not is explained by a motor carrier as follows: If a carrier puts in a new low rate, and if other carriers protest the rate, they are running the risk of incurring the displeasure of a shipper who may provide all or a very substantial por- tion of their total revenue}!4 ‘Whatever the situation may have been prior to the emergence of the new rail competi- tion, there certainly have since been cases in which re- duced motor carrier tariffs have been published despite the disapproval and the displeasure of other carriers; and a number of these have come to the author's attention. Efforts to check on.intramode competition through shippers proved inconclusive. One shipper asserted that motor carriers presented a solid front on rates and that he 149 had virtually no bargaining power. Another major shipper, however, referred to motor carriers as competing vigorously among themselves. On balance, most shippers seemed anxious for more competition than already existed between their motor carriers. It might also be pointed out that some shippers are taking positive action to secure increased in- tramode rivalry.35 It is ironic that some motor carriers are making the very same mistakes that the railroads made three decades ago. The motor carrier had succeeded by 1960 in collaring about 90 per cent of the traffic in new motor vehicles. The rails were apparently in a moribund state and water car— riers' competitive capabilities were severely restricted. When the railroads decided it was time to rise from their deathbed and have another fling at life, they sallied forth armed with their sharpest weapon-~1ow cost. The motor carrier has run out on the field but his principal shield seems to be government intervention. The motor car- rier protests rates which cover out-Of-pocket costs and he protests rates which cover an irrelevant fully distributed cost. The government is unlikely to receive warm testimo— nials for the job it did for the railroads; and it is an illusion to think that it will do better by the motor car- rier.. Some of the leaders Of the auto hauling companies are either unwilling or unable to grasp the realities Of the day and to re-orient their thinking so that they can maxi— mize their welfare given the radically altered position izto W5 carriers o 1 l mar d1 150 into which technological change and revitalized rail think- ing have placed them. water carriers. Unfortunately, little can be added to what has already been said about water carriers. There is no recent public record by which this segment of the in- dustry can be analyzed. Officials of the two Great Lakes carriers have been contacted on two Occasions but they either did not answer or they Offered no useful information on their Operations. In order to convey some idea Of the relative cost of water transportation, the results of Com- mission studies are summarized in Table 9. The relative cost of rail - motor — water carriers. One of the things that is badly needed at the present time is reliable and up-tO-date data on the relative cost Of transporting automobiles by various modes. The New.Automo- biles case represented a welcome departure from the incan- tations previously relied upon by the Commission to dis- pose of interagency rate matters. In this instance, the Commission's staff develOped relative costs as a basis for the consideration of the questions of allocation which were being decided. While the absolute level of these costs fluctuated with the passage Of time,re1ative costs most probably were not seriously altered until recently. The motor carrier continued to rely on four-car equipment until 1955 and the railroad stumbled along with the Evans Loader while the water carrier sailed pretty much the same fleet. The pace of innovation has been quite rapid in the last few Table 9.- :csts m ( kicago, C From Berra" t V-' ‘l‘ug is; to-- ‘. - Fwo: “Male. \ “lingo, 111 nonle‘and’ 0 “~- . sun‘- «h, Minn I 151 Table 9.— Waterway, railway, and four-car truck-away,' costs in cents per 100 pounds from.Detroit to Buffalo, Chicago, Cleveland, and Duluth for 1939 ‘Waterwayl Railway Highway Fully distributed From. Out-Of Out—Of costs including Detroit, Mich. pocket pocket 5 3/4 per cent tO-- costs2 costs return Four-car truck- away Common Contract Buffalo, N. Y. 29.5 39.2 80.2 71.9 Chicago, Ill .... 54.0 61.3 54.7 Cleveland, 0. 23.9 28.9 40.3 35.7 Duluth, Minn. 66.4 75.4 168.3 151.7 1$1.25 per car, or 4.2 cents per 100 pounds, should be added for truck-away service covering the movement from plants to docks at Detroit. 2Where companies such as the Detroit & Cleveland Navigation Company and the Nicholson universal Steamship Company operate practically exclusive automobile boats, the out—Of-pocket costs approximate the fully distributed costs. See exhibit 331, textual statement, page 6. Source: Newautomobiles in.Interstate Commerce, 259 ICC 475, 581, (1945), Appendix 14. years, 110': affect Of The altogether iescriptio hence they sf the ind: Amen-11x 11 amt rail- ae hundred 152 years, however, and no systematic effort to consider the effect of these changes has been attempted. The studies made in the New Automobile case are not altogether useless. They provide a reasonably adequate description of relative costs between 1939 and 1958 and hence they supply some yardstick by which the performance of the industry can be evaluated. Table 10 reproduced from Appendix 14 of the New Automobiles case, presents the rel— evant rail—truck comparisons. For hauls under approximately one hundred twenty-five miles the trucker is the low cost carrier while the railroad cost advantage is manifest as the length of the haul increases. The mOst important statistic here is, Of course, the size of b in the trend equation. As has previously been pointed out, rail costs increase about $1.92 for each additional twenty-five mile block whereas the comparable figure for motor carriers is $5.255. How reliable were these relative cost estimates? There was some criticism of the Bureau's procedures by par- ties tO the controversy. By and large, however, it seems fair to suggest that the principal conclusions of the in- vestigators would have been unaltered by any of the alter- native methods proposed. It is highly unlikely that the sloPe of the various trend lines would have changed meas- urably. ‘Moreover,'no one seriously protested the really important contribution of the study which established the areas of relative cost advantage. As we have already seen, I‘~FI\P- ..(Pphu qyfiacc \f—I‘KIVG 1305'»; LQOILSCL 233—swam: e - I ‘I 70:.2+-a_7...~o >H~an K . ‘ 1‘1. \‘ifiw'l P‘ 1 C% L movabonuIMOIc :C Caleb morwhecg'a a xA-flxfi p Hut: {data-run.“ thv F -a ti; l . Par-no - 1“.../ ’11.!!! I .r".lt" . p.-.- ... . ..Ix .. 153 o.m: a.ns o.m: n.m: o.mm w.mm ....oou N.wm o.m: 0.5: «.m: H.mm 0.30 ....omH 3.3m m.wm :.:: m.o: N.Jm «.mm ....oma m.om w.:m w.a: m.wn m.~m 3.0m ....ooa n.0u 3.0m «.mm «.mm n.0m n.mu ....o«H m.NN «.0N o.om m.mn :.wN o.m« ....OOH o.HN H.3N m.mn o.um m.nu c.wN .....om H.oH o.NN 0.3m :.Hm m.o~ H.mN .....om a.na m.mH w.um N.om m.mu N.JN .....on m.mH m.na m.Hm o.mu 0.:N m.m« .....oo :.mH n.mH o.om a.nn n.mu :.NN .....om m.HH o.ma n.m~ 0.0N n.NN m.HN .....o: o.m m.HH a.nu :.mu m.HN o.oN .....om n.n :.m H.mu N.JN m.ou n.mH .....ou m.m m.n w.:u o.mu m.mH m.wa .....OH Aao Ame Ame Ass 5 Ame . has _ mammahoo whomuaoo ammo poo ammo poo Muflmo poo auooo poo AHV uooauaoo :05800 i - {m m a . s\m m a anodes unhom owoao>o sumo onao> oofiwuowm mououm oouwsb "poo8uoo> Houou so saunas use moon oouomoonooo so pom umommoo how umo O=Ho> unwashm cannon uaoo Moo :\m m Immense womooaoam so cannon wagosao wouosaoam ouooo moss oousnmauowo maasm sou poxOOQIMOuuso nxoohu amouasom moshwmm mumoo ooonoau hflBHHom weapon ooH pom muoou Hmmma has» .mumoo thouxOOHu housadom aoknwmc nuw3 mumoo oouonwaummo maasm odd poxOOQIMOIuDO ku3awoh mo :Ommhoofioo 1.0H oHneH 9 as ma 6 3C 0 mu mu. m r .h. masses 0 -mwea N! n H¢V aw. aflrmh m.» ..A..; 154 0.500 N.003 H.H03 0.0N3 0.300 0.030 5.000 0.05N 0.NON 3.30H 0.05H 0.00H N.50H N.0HH H.00 0.00 0.H0 5.50 0.00 H.00 0.05 0.N5 0.00 0.30 o.H0 N.50 3.00 0.03 0.03 0.000 5.H00 5.000 0.503 0.0N3 0.000 0.H30 0.00N 3.50N 3.0HN 3.30H 3.05H 0.NOH 0.HOH 0 OHH H.0OH 0.HOH 5.50 0.00 0.00 H.00 0.00 5.05 0.N5 0.00 H. 30 0. 00 0. 00 3.H0 0.000 0.000 N.500 o.HHO 0.30N 0.00N 0.NON 0.000 0.00H 0.30H H.H3H H.0NH 0.0HH 0.HOH 0.00 N. 00 0. 00 0. H0 3.05 0.05 N.05 0. O5 0. 50 0. 00 5.N0 H.00 0.50 0.30 0.N0 5.000 0.N00 0.000 0.30N o.HON H.50N N.0HN N.00H 0.00H 3.H3H 3.0NH 0.5HH 0.00H 0.00 0.H0 N 05 0.05 3. 35 0. N5 0. 00 N. 50 0. 30 0.N0 H.00 5.50 0.00 0.N0 0.00 H.03 0.00N 0.00N 0.53N 0.0NN 5.00N 0.00H 0.H5H 0.NOH 3.00H 0.3HH 0. 30H N. 00 5. 00 H..05 0. 00 5. 30 0.00 0.00 0.00 H.50 N.00 N.00 0.H0 3.03 0.53 0. 03 5. 03 0. H3 0.00 0.00N 0.00N 0.NON 0.0HN H.50H N.05H 0.HOH 0.03H 3.0NH 0. 50H 0. 00 0. 00 0.00 5.H5 5.N0 0.00 H.00 0.50 0.00 5.00 0.H0 N.00 3.03 0.03 0.33 0.03 N.H3 3.00 0.50 .oom.a .oom.a .oos.a .ooa.a .ooo.a .oomJ .08; .83; .ooaJ .OOOH ..000 ..000 ..005 ..000 . .oom . .oms . .oms . .93 . .oas ..003 ..000 ..000 ..030 ..0N0 ..oo0 ..00N ..00N ..03N ..ONN "MBOHHOM mm m‘uumwfiv OHIQD E04.“ U”U3nwu§°0 “who“ mkwfimanFUFnfi ADV 0U ANV Ugaudfloo CH E050. WCQOPUH odunhmu. 3-0““:0 mV-nu.H?~ mV‘PqunH [Hum-ab": KuQMWN. o newnvc.nfi 155 .3H XH0:oao< .5030HV .H00 .053 00H 00N .othEEOU ououmhopflH :H moamnoaousHm5Ho:H 500 On ANV m:E:Hoo :H :BOnm mumooH a.mam a.mmm m.mms o.omm a.mom a.mma ..ooo.m the motor :0 319 use gency 00m? rails had The tainly of Beaver. t still esset med the o costs on 1: Essentially railroads a 212‘. rail a )0th at wh rotor carrie 1°13 hauls. it.“ “Md Stud: ~33. develo 156 the motor carriers had their own suggestions with respect to the use of cost data in deciding questions Of intera— gency competition, but they did not question the fact that rails had a cost advantage on long hauls.36 The Commission studies based on 1939 data are cer— tainly of limited significance in current controversies. However, the fundamental character of interagency costs is still essentially unchanged. Recent studies have strength— ened the conclusion that rail costs are less than truck costs on long hauls.37 The relationship Of rail-truck costs is not peculiar to the transportation of new automobiles; it applies, with some variation, to nearly all commodities. Essentially, it is a reflection of lower line haul costs Of railroads and the lower terminal costs of the trucker. Re- cent rail and truck innovations have undoubtedly changed the point at which rail and truck costs are equal, but even the motor carriers do not argue that they enjoy lower cost on long hauls. ‘Moreover, some of the automobile firms have con— ducted studies of their own to test the import of technolog- ical development and all agree that beyond three hundred fifty to four hundred miles, rails are low cost carriers.38 The concensus of the Commission, of shippers, of motor car- ‘riers and of scholars is that the rail carrier is the low cost carrier on long hauls. What about the position Of the water carrier? As has already been noted, information on water carriers is not readily available. However, the only traffic for which jay prese‘ Lakes. Th revealed a an“; the fa water afte ,cssess ad cf utter c. 1‘19 costs < carrier is are based c 3633012: to ‘ o « QCK W1 th 3036 eCOROT 157 they presently compete is that which moves via the Great Lakes. The New Automobiles studies, summarized in Table 9, revealed a substantial cost advantage for the water carrier; and the fact that major producers have resumed shipments by water after careful cost analysis indicates that they still possess advantages. Of course, when service disadvantages Of water carriers are priced by manufacturers and added to the costs of water movement, the advantage of the water carrier is reduced. Moreover, the comparisons in Table 9 are based on a one—way movement. Ford does not ship from Detroit to Cleveland by water because it considers the truck with the backhaul obtainable from that point to be 39 more economical. c. THE DEMAND FOR THE TRANSPORTATION OF NEW AUTOMOBILES The analysis of the characteristics of demand for the transportation of new automobiles may be divided con- veniently into three periods. In the first period which stretched from the introduction of the automobile to about 1935, transportation was purchased by a large number of dealers and wholesalers scattered throughout the country. Until the advent of the motor truck and except for points served by water, these buyers were confronted by sellers with substantial monOpoly power. In view of the relatively inelastic nature Of the demand curve for transportation of this particular commodity, a discrimination—minded railroad tiustry e 2120013111 13311: 1958 :rasporta -se th eligopoly present 1 skippers t long posse. We 0: 0f the com 158 industry extracted high rates for service from generally uncomplaining buyers. In the second period, from 1935 to about 1958, the automobile firms assumed responsibility for transportation and prepaid charges. As a result of this change, the market assumed the characteristics of bilateral oligOpOly. The third period, from about 1958 to the present is characterized by a willingness on the part of the shippers to utilize the bargaining leverage which they had long possessed. we ought, perhaps, at the outset, tO clear away some Of the confusion which has surrounded the nature Of the demand curve for the transportation of motor vehicles. The demand curve facing the industry (composed of rail, motor, and water carriers) is indisputably inelastic as a result, essentially, of the fact that the cost of transportation is so small a percentage Of the selling price of the delivered vehicle. The Commission has repeatedly made reference to this inelasticity at some point in almost every rate case involving this commodity.“O It is important, however, to understand that an inelastic industry demand curve does not mean that the demand curves facing individual sellers may not be quite elastic. Obviously, elasticity of demand is a function of many factors including the availability of substitutes which is particularly relevant in this case. The emergence of motor carriers capable of delivering auto- mmbiles not only shifted rail demand curves to the left, it also flattened them; and it flattened them to such an extent that mid have ofzer word: lastic with varied, of ad motor 1 service be recced am Zhless the 71118ny a 11 3145. our" for what i There {0’1 that h in the ear' in perspec 0f the p01 193.. m i men «01‘ arrang iere' a .‘ c 7045801: 5'. N . \oq Clrc 159 extent that an increase in rail rates on this commodity would have reduced rather than increased rail revenues. In other words, the demand curve facing the railroad became e- lastic within the relevant range. The degree of elasticity varied, Of course, with the relative desirability of water and motor substitutes. Generally speaking demand for rail service became more elastic as the length of the haul was reduced and as speed of delivery increased in importance. Unless the Commission considers the cartelization of the in- dustry a legitimate and desirable goal of regulation, the demand curve facing particular carriers should be reviewed for what it is-—re1atively elastic.“1 There isn't a great deal to say about the first per— iod that has not already found its way into the discussion in the earlier chapters. In order to place current events in perspective it is important, however, to understand some Of the policies of shippers in the period between 1935 and 1958 and it is to this that we now turn our attention. When the automobile companies assumed responsibility for arranging for the transportation of automobiles they were in a position to confront the carriers with what Professor Galbraith termed ”countervailing power." Under such circumstances it would appear that the public interest would be reasonably safeguarded. Indeed, serious students .of transportation, speaking of concentration among motor carriers hauling automobiles, concluded that, "Since such large shippers have considerable bargaining power, the 160 present level of concentration represents no problem for 42 The assumption that shippers exercised public policy." bargaining power seems realistic enough but at the same time it is difficult to reconcile with certain available evi- dence. As a matter of fact, it must be recorded that if the railroads lacked a monopoly in the transportation Of new automobiles, they also suffered a lack Of monopoly of uni- maginative and flaccid management. Traffic directors at many automobile companies too Often took the easy way out; and, as one Official pointed out, it was easier to let one “3 Interviews with mode handle 90 per cent of the traffic. various shipper representatives produced many examples of laxity. In some cases at least, motor carriers derived the entire benefit from newly developed five-car equipment. Shippers continued to pay the same rate per vehicle even though costs had been reduced. One carrier used an alter- nate route which was considerably shorter while charging the shipper for the longer haul. One traffic Official bluntly stated that peOple in the traffic department had been "gratuity takers." The rates Paid by the automobile companies are fur- ther proof Of management laxity. For example, what kind Of bargaining was General MOtors engaged in when Commission studies revealed that in 1939, contract carriers had earned a return of 77.4 per cent on their depreciated investment? Is a return of 17.1 per cent of gross revenue for eleven contract carriers in 1940 indication of countervailing power 161 which protects the public? The common carriers, while not so well off, still managed a respectable return of 28.1 per cent on depreciated investment in 1939. The Commission reported that the rates which permitted such returns "are not considered unreasonable by General Motors."’41+ On what grounds did General Motors consider such extraordinarily high returns justified? Mr. Richard J. Mollica of the Traffic Division of the Chevrolet MOtor Company suggested simply, "Our carriers are not overpaid."L‘5 A representative of a trucking firm testified in the New Automobile case to the effect that when he needed extra funds he simply asked the shipper for an increase. When this witness was asked whether or not Chevrolet had ever indicated that the carriers ought to reduce their rates, he replied: I tell you that is our consistent policy, it has been the consistent policy between Chevro- let and ourselves to do this thing. "How much does it cost to Operate? Figure out your costs, and as long as you are good operators and you Operate well for us and give us service, don't talk to us about reducing rates. If you can't give service, come and get increased rates if you need them, to give the service. But make it on a cost plus basis."’+6 Other motor carriers have confided that this arrangement was not peculiar to General Motors. On what grounds did the shipper decide whether or not "how much it cost to operate" was or was not reasonable? The Chevrolet representative refused to discuss the matter but other shippers admitted tO considerable laxity in eval— uating the financial status Of carriers. None of the 162 shippers who discussed the issue had prepared estimates Of the rate of return earned by their carriers. Conceivably, of course, some such studies may have been made in traffic departments that have not come to the attention Of the Offi— cials interviewed. If such is the case it would be inter— esting to discover what characteristics of motor carriage were believed to have necessitated returns at reported levels. On the face of it, the writer sees none. What explanation is there for the attitude Of shippers in the period under discussion? One traffic official ex- plained that most traffic deparUments were filled with peOple trained by the railroads who believed that automo- biles, as high—value commodities, should bear a dispropor- tionate share of the transportation burden. There were, however, more compelling reasons for the rate policies of shippers. .A basing point system in which rail rates from Detroit to destination were charged regardless of the origin of the vehicle or the mode Of transportation was a major factor in shaping the rate pattern which developed. Since the transportation charge assessed to the consumer did not reflect the actual cost of transporting a vehicle, and since it appeared that the burden of high rates had been success— fully passed forward to the consumer, the automobile manu- facturers were not disposed to subject carrier costs to painstaking scrutiny. Of course, shippers were interested in transportation costs, but they were more concerned about relative cost levels than they were about the absolutelewel. 163 A shipper was more concerned about the fact that a rival may have gotten vehicles to market more cheaply than he was about the fact that both may have been paying an unnecessar— ily high rate. It should also be remembered that there has been vig— orous rivalry among automobile manufacturers. As a result, the manufacturer is willing to pay a high price to purchase assurance that firms which supply parts or services will do so without interruption.“7 The prospect Of one automobile firm being closed down while others continued in production is a.nightmare which walter Reuther has capitalized on. To imagine production lines backing up because Of the fail- ure of transportation facilities is intolerable. Some time after 1955, the traffic departments of sev- eral manufacturers were "shaken up" for the express purpose of cleaning house. Mr. Henry Crawford of the Ford Motor Company explained that up to that time, manufacturers had assumed they could simply shift cost increases forward to 'the consumers.“8 The unsatisfactory experience following the record year in 1955 convinced them that the consumer was unwilling or unable to absorb annual price increases. .As a result, there developed a general cost consciousness which 49 The affected the policies of the traffic departments. ‘willingness to exert bargaining power coincided with a marked increase in that power as a result of the develop— ment Of rail TOFC and multilevel service. As evidence of the impact of their new will to bargain, most shippers 164 pointed to a reduction in motor carrier rates or, at the very least, to the fact that no rate increase has been granted in the last several years despite undisputed in- creases in motor carrier costs. The laxity so Often manifested in traffic departments Of auto manufacturers is in sharp contrast to the energetic effort to manage efficiently the transportation affairs of the corporation which is evident in certain companies. One automobile manufacturer submits the financial records of its motor carriers to the scrutiny of its accountants and reworks them.where necessary according to the rules and practices employed in preparing the accounting records of the firm itself. This includes the deflation of salaries which are considered excessive and the elimination of pay— ments to non-working officers in addition to a restatement of expenses.50 The purpose is to arrive at what is con- ceived to be a true rate Of return. The company then bar- gains for rates which will provide for its carriers, returns deemed adequate and necessary for stability, dependability and progress. Because of higher than average obsolescence, this company allows the motor carrier of automobiles a somewhat higher rate of return than that earned by the gen- eral commodities carrier.51 Other companies probably do not keep as close a check on their carriers although some may. The fact that a major shipper is taking advantage Of his bargaining leverage is bound to have an effect in an industry where shippers are 165 still sensitive to relative charges for the transportation of their new motor vehicles. Before concluding the discussion Of the demand side of the market, we might point to some Of the transportation features for which automobile shippers have indicated pref— erence. In the first place, shippers have generally indi— cated that they consider single-line service to be desir- able. .All shippers prefer that their motor carriers use tractors manufactured by the shipper himself. Most shippers do not relish the idea Of carriers mixing their vehicles with those of other manufacturers on a trailer, although the smaller firms such as Studebaker, are not in a position to object very strenuously. The Ford Motor Company tol- erates mixing except where vehicles of General Motors are concerned.52 Again, some shippers prefer to be served by motor carriers who devote all their equipment to a single shipper; others express a desire to see their truckers serve other automobile firms. A spokesman for Studebaker— Packard expressed the view that because of relatively low levels of output and the wide fluctuations in production, carriers serving Studebaker might be better off if they could depend upon other traffic.53 On the other hand, the same shipper at a different time, expressed concern that under such circumstances the carrier might, when confronted with a choice, decide to give preference to the larger shipper.5h Finally, a noticeable change has taken place in the 166 attitude of shippers toward the optimum number of carriers. Most companies seem to be coming around to the point of view long espoused by General Motors, namely; it is better to have a small number of large carriers than to depend upon a large number of small carriers. A representative Of one shipper confided that they were working down to a system in which only one carrier served a particular geographical region from.any one plant. Motor carriers themselves feel that the number of carriers ought to be reduced. Both carriers and shippers repeatedly, in this connection, re- ferred to the situation at the Studebaker—Packard plant where alleged poor service was said to result from too many carriers and too little steady volume. Whether or not the suggested prescription will improve service, it seems likely that the prospect is for further concentration among motor vehicle carriers. The advent of multilevel service which has placed many carriers who depended on long hauls in a precarious position and the drastic reduction in ton miles can be expected to accelerate the pace of concentration. D. CONCLUSION The market for the transportation of new motor vehicles has Operated very imperfectly both on the side Of supply and on the side of demand. On the supply side, carriers have not given expression to the cost Of transporting motor ve— hicles so that a misallocation of transportation resources was develOped and perpetuated. On the demand side, shippers 167 failed, until recently, to bargain vigorously for reason- able rates so that the cost to the public of transporting new automobiles was excessive. Recent developments on both the supply and the demand side of the market encourage the hOpe that improved performance, better service, and more reasonable rates will be forthcoming. CHAPTER VI THE ALLOCATION OF RESOURCES IN THE TRANSPORTATION OF NEW MOTOR VEHICLES A. INTRODUCTION One of the most important functions to be performed by any economic system is the allocation of society's scarce resources. For a substantial segment of the.American economy, allocation is the result Of the interaction of more or less impersonal forces operating in markets with varying degrees Of freedom, In some segments of the trans— portation market, however, allocation is less the result Of competitive forces than it is of legislative, judicial, and, most importantly;Commission policies. In this chapter we shall examine and evaluate the allocation theory of the Commission and we shall suggest an alternative mechanism through which more efficient traffic assignments can be effected. B. THE ALLOCATION OF NEW.AUTOMOBILE TRAFFIC: THE PHILOSOPHY AND THE RECORD OF THE COMMISSION One of the first problems confronting the Interstate Commerce Commission was the selection of standards 168 169 by reference to which critical decisions involving resource allocation might be made. Under competitive conditions, cost is an important factor in deciding what will be pro- duced. But, the Commission and early transportation econ— omists both rejected cost as a major determinant of rail rates. Costs were thought Of primarily as a sum which must be exceeded if the enterprise were to Operate successfully. The rejection of a cost standard was explained by the Com- mission in its First Annual Report in which it declared: It was very early in the history of railroads perceived that if these agencies of commerce were to accomplish the greatest practicable good, the charges for the transportation of different articles of freight could not be apportioned among such articles by reference to the cost of transporting them severally, for this, if apportionment of cost were pos- sible, would restrict within very narrow limits the commerce in articles whose bulk or weight loom large as compared with their value. The Commission further Observed that had pricing been cost oriented, some commodities would not have moved at all and others would have been carried at prices which were "absurdly low"-- low when compared to the value of the ar- ticles, and perhaps not less so when the comparison was with the value of the service in transportation.2 Some of the early transportation economists considered the problem of the determination of apprOpriate rail rates to involve ethics rather than economics. Professor G. Cohn, for example, described railway rate theory as follows: Briefly the theory is that railway rates are fundamentally like taxes. All experience shows thatrail rates are based not on the cost Of 170 furnishing the service, but on what the pur- I chasers can afford to pay.... The problem therefore, is at bottom one of ethics, in- volving those considerations of public policy and of right and wrong which recur in the discussions of prOportional or progressive taxation.3 Professor Taussig, while eschewing Cohn's theory on the grounds that it inevitably leads to "public ownership or public regulation Of rates," lauded the Commission because it had ”mostly refrained from.putting the test of reason— ableness in any assumed cost of services."4 The Commission shared Professor Cohn's view as is clear from its comment with respect to the rate system adopted. "Such a system of rate-making," the Commission observed, "would in principle approximate taxation; the value of the article carried being the most important element in determining what shall be paid upon it." 5 Rather than revamp an existing rate structure, the Commission validated the pattern established by discrim- inating rail mmnopolists, rationalizing this position on two grounds: In the first place, the Commission argued that, as a result of the difficulties incident to the separation of fixed and variable costs and as a consequence of the prevalence of joint and common costs, the isolation ofithe direct costs associated with the movement Of any particular commodity was a virtual impossibility.6 Secondly, it argued that since the public interest is best served by a rate structure "so apportioned as to encourage the largest practicable exchange of products,"rates should not be tied 171 to cost'.’7 This seemed reasonable to the Commission in view of the fact that under cost oriented rate structures, "some kinds Of commerce... could never have existed at all...."8 Obviously, if some commodities moved at rates which fell short of covering full cost, others must-- if transportation is to be sustained without subsidy—- move at rates in excess of costs.9 These rates were, Of course, tO be most effectively determined by considerations of the value of the service performed. The most serious deficiencies Of Commission rate pol- icy were given emphasis by the emergence Of intermode com- petition. The general misallocation of resources which surely followed discriminatory rail pricing was less Ob— vious than the pattern of inefficient use Of transporta— tion facilities which later developedii) There is no point in describing in detail the Commission's rate policy in matters of intermode competition; competent scholars have already worked the field over.11 The consensus seems to be that the ICC has limited rate competition by allowing 12 the intrusion Of value-of-service principles, by enforc- ing a rate parity (sometimes allowing for service dis- abilities) which deprives a carrier of an inherent cost 13 advantage, and by seeking to allocate traffic in such a way that all existing modes can stake out a "fair share" Of available traffic.14 One cannot absolve the Commission of all responsi- bility for the misallocation of the resources used in 172 transporting new motor vehicles. While it is true, as we have already Observed,15 that the railroads did not take advantage of the rate latitude the Commission was prepared to allow, some onus may nevertheless be legitimately placed upon the Commission. After all, it was the Commission which, since its inception, had been beating the drums for value-Of-service pricing. MOreover, despite the suggestion in the Nequutomobiles case that out-Of—pocket costs should be considered to be the apprOpriate minimum in assessing the compensatory character ofrates, and regardless of the injunction found there against "umbrella rate-making," the Commission continued to decide cases in accordance with its hallowed customs. Dr. Ford K. Edwards who played an impor- tant part in shaping the principles upon which the New* Automobiles case was decided, interpreted that decision as signalling the initiation of a policy in which traffic allo- cation would be made a function of "market pricing fac— tors."16 The promise of this decision unfortunately was never realized. In fact, the latitude occasiOnally per- mitted by the Commission is more reasonably explained in terms of a conviction by the Commission that railroads were not getting a "fair share" of the traffic. The Commission has recently permitted many reduced rail TOFC and multilevel rates; but it is not yet evident that it would be prepared to allow rail rates which would give the rail carriers more than their "fair share" of the new automobile traffic. It is not clear, in other words, that the Commission is amenable 173 to placing reliance upon market factors in the determina- tion Of the appropriate allocation Of traffic. C. COMPETITION AND THE ALLOCATION OF NEW AUTOMOBILE TRAFFIC If the policies to which the Commission has sub— scribed have resulted in a misallocation of the resources devoted to the distribution of new automobile traffic what available tolerable alternative is there? An examination of the economic characteristics of the industry suggests that a market oriented pricing policy would result in a reasonably efficient allocation of resources under condi- tions which are equitable to carriers, to shippers and to the public. There is little need to elaborate on the char— acteristics of such a structure since it is pervasive in the economy; it is in fact an integral part of the free enterprise competitive system. Carriers should be free to take advantage of whatever elasticity demand curves may possess. It goes without saying, of course, that the effects of both intermode and intramode competition should not be tempered by collusive arrangements. Carriers, more— over, should be free to exploit whatever "inherent advan- tages" they may have. For the motor carrier,this means that no effort directed at neutralization Of the service advantages detailed elsewhere should be tolerated. On the other hand, the rail carriers should be free to have their rates reflect the lower costs which they enjoy on long hauls. 174 Further, the appropriate cost to consider in evaluating the compensatory character of rates is the economist's long run marginal cost rather than the Commission's out—Of—pocket or fully distributed cost standards.17 What kind of a distribution pattern would such a system spawn? Given, the present state Of the arts, the rails would transport the lion's share Of the long haul traffic to high volume points. On such hauls, rails are the low cost carrier, and except for special circumstances, motor carrier service superiority is insufficient to com— pensate for the high cost of truck operation. Traffic to lowavolume points and traffic destined for delivery within a short distance of the shipper's place of business would move by motor carrier. In addition, of course, the motor carrier would be called upon to distribute much of the traffic from railheads to dealers in the surrounding terri— tory. An industry sensitive to demand and supply factors would in all probability leave the water carrier in sub- stantially the same position in which he presently finds himself.18 What rules should be provided for carrier clashes on traffic to intermediate points? ‘What happens if the long run marginal cost Of the railroad is less than the long run marginal cost of the motor carrier but motor carriers Offer superior service? On a theoretical level, there is nothing particularly difficult in these cases. As a matter of fact consumers have, for a wide range Of products, the choice 175 between products which sell at low prices with a minimum Of service and products for which higher prices are a reflec— tion of attractive fringe benefits. The shipper of auto- mobiles should be allowed the same choice. D. OBJECTIONS TO MARKET DETERMINED ALLOCATION OF TRANSPORTATION RESOURCES Several objections have historically been made to the kind of pricing system suggested above. Some critics urge a much larger role for demand in pricing while they depre— cate the emphasis on costs. Let us examine and evaluate the most important criticisms of market pricing and some of the alternative solutions which have been proposed. Demand pricing: The value-gf-service theory. The NATA has consistently argued that the value-Of—service concept should be given prime consideration in pricing transportation service on new automobiles. It will be re- called that this was the position Of the Association in the New'Automobile case; and an examination of a recent protest against a rail tariff on automobiles suggests that there has been no change in view.19 Since motor carriers base so much of their argument on value-of—service it is essen- tial to appreciate what this rate theory involves. The term "value-Of-service" is not used unambiguously by the Commission.20 MOst recently, GlennIL.Shinn, a Com- mission examiner, described value-Of-service as involving lfour general concepts: 176 1. It gives consideration to the value Of the com- modity transported and tends to justify higher rates on high-priced than on a low-priced com— modity where the two have similar transportation characteristics in other respects. 2. It gives consideration to what has been termed public policy, the advantage to the community of having some kinds of freight carried at a less rate than other kinds. 3. It gives consideration to the relative cost to shippers Of transporting a competitive commodity, also referred to as relative value of service.21 4. It gives consideration to the economic and come mercial conditions surrounding the production and sale of a given commodity, including especially market and carrier competition, or a combination of two or more Of these elements.22 Value-Of—service pricing, as defined by Mr. Shinn, is subject to serious shortcomings, but an important objection is that value-Of-service so defined can be used to justify any rate. .A high rate on automobiles can be justified on the grounds that this is a high—priced commodity able to bear a high rate;23 that the high rate is necessary so that other commodities needed by society may continue to be car- ried by the railroads;214 as well as by arguing that from an economic point of view, "automobiles have a relatively in- elastic demand."25 On the other hand, low rates on ' ~. 1322320131: .' r adhered. use on t o: t..e g: principai these ra‘ loaer rat inition 1 carpetitj 3‘30 comp? T3398 we: 333131312; 3.211031: in effec. 30 1'0th ca MEI": ~11 u ‘ V Q a merstc (n 1.62.110 r, 177 automobiles can be defended equally well on value—Of- service principles. The contract carriers, it will be re- membered, argued against higher rates in the New Automobiles case on the grounds that it would promote "prOprietary car- riage." The rails defended lower rates from assembly plants on the grounds that "economic and commercial conditions," principally the presence of competing motor carriers, made these rates necessary. Examiner T. Russell Roper justified lower rail TOFC rates consistently with Mr. Shinn's def— inition of value-Of-service by pointing out that carrier competition had reduced the value of the rail service. Two completely different decisions involving automobile rates were reached within ten days of each other, both consistent with value-Of-service as defined by Mr. Shinn.26 Obviously, a standard so defined begs the question; it is in effect no standard at all. So far as automobile traffic has been concerned, the motor carriers have identified value-Of-service with the high—value-of-the-commodity concept whereas rails have understood it, recently at least, to include the effects of intermode competition. Since value—Of-service is really an alternative way of giving expression to the concept of 27 both of these factors elasticity Of the demand curve, along with all other factors affecting elasticity have in all cases to be considered for true demand pricing. The failure to do this Often produces consequences which cannot be explained in terms Of demand—~at least not in terms of ized i blame ti on vain: Shim ' 5 mid h it had”; directe cont, ' referee. Of the has COT. T flierst :)‘3? Se Eeasll‘e. 10: arg. Tiferen Pier, ‘ for But is that e N S ‘6’ 1 ... . ~0n t. H. 178 demand as understood by economists. ‘When current critics blame the loss of traffic experienced by the common carrier on value-of-service pricing, they are thinking in terms of Shinn's first concept. A realistic assessment of demand would have led to rate reductions which would have pre- served traffic. The carriers have not lost traffic be- cause they applied demand pricing but because they applied it badly.28 MOst criticism Of value-Of—service is not directed at pricing structures which take demand into ac- count, but at those which assume demand elasticity with reference to a single determinant of e1asticity-—the value of the commodity. This is the error into which the NATA has consistently fallen. The Opposition to value-Of-service stems from an understanding of what its prOponents really intend. What they seek is a rate system based on ability to pay as measured primarily by the value of the commodity. They are not arguing for demand pricing as such—~at least not when reference is to the demand curve facing an individual car— rier. ‘When the NATA and Examiner Dahan argue that demand for automobiles is inelastic, what they are really saying is that intermode competition should not be permitted. Mr. Shinn's defense of value-of—service, in spite of the asser- tion that people have erroneously assumed "that value-Of- "29 makes it clear service relates only to the commodity, also that his preferred interpretation does not include intercarrier competition. ‘With respect to the reduced In other excludes It : I AL... k‘tc . S‘h 179 value-Of-service which results from.intermode competition ‘Mr. Shinn declares: The fact is, however, that in actual practice this meaning generally applies only, and we mean ONLY, in tight carrier competitive sit- uation, and then only when there is no effective regulation of competitive rate making....3O In other words, with "effective regulation," value—Of-service excludes inter-carrier rate competition. It might of course be argued that "high rated" com- modities should bear high rates so that other goods desired by the community might find their way into the channels of commerce. Two comments might be made in this connection. In the first place, as even an elementary economics student knows, man's wants are substantially in excess of his abil— ity to satisfy them so that individuals and societies are faced with a problem of allocation. Economic theorists have convincingly demonstrated that Optimum allocation does not result from the production of goods for which the con- sumer is unwilling to pay prices high enough to cover the costs incurred in their production.31 If,therefore, the consumer is unwilling to pay a price sufficiently high to cover the cost of transporting a particular commodity, a prima facie case against its transportation has been estab- lished. One could argue that the consumer may err in eval- uating the relative merits of various goods, or that long run considerations require the production Of some goods not 32 justified in the short run. Regardless of the wisdom or :ecessit with Key private :ifice o cements its sour tamed ofits p it to de zation o flyover is requit Ru «caier . task. 180 necessity for such a policy, it is difficult to disagree with Meyers that, "It is questionable wisdom to require private firms to execute public policy at the serious sac- 33 rifice of their Own financial health." Meyers further comments that, "If some kind of economic planning is desired 34 The Commission has been its source would not be the ICC." deservedly criticized for its lack Of planning in the sphere of its primary responsibility; it would be folly to expect it to develOp plans for an efficient, economy wide utili- zation of resources. It has neither the information, the manpower nor the competence necessary. If such planning is required it should be entrusted to an agency with a broader constituency35 and with resources adequate to the task. In the second place, it is sheer nonsense to argue that the rails need high rates on automobiles in order to permit the railroads to continue to carry necessary low— rated commodities. The fact is, that under the high rates urged by those who so argue, practically no traffic moves by rail. Dahan's view that,"high rated traffic must be called upon to bear its full burden so that the public may not be denied the railroad facilities for deficit traffic such as passenger and less than carload traffic," is pure Alice in‘W'onderland.36 As Examiner Roper Observed: ... it must be borne in mind that even this high—grade traffic when hauled over the high— ways Or waterways, in lieu of via rail at rates providing some return, makes no contri- bution whatsoever to rail income and the other A m 4"?“ ('3 H- r‘f‘ ' (I‘ 181 traffic has an even greater burden.37 In view of the testimony Of traffic executives that with rail-motor rate equality they would ship by motor carrier, Dahan's prescription of equal rates would bring no revenue to the rails. It would, of course, increase revenue for the truckers, but since these latter carry no low-rated com— modities it would appear that the benefit would be rather narrowly concentrated. The argument that high rates on automobiles are needed to subsidize lowrrated traffic fails on other counts. In the first place, no convincing evidence has been offered that demonstrates that "low rated” commodities cannot move at compensatory rates.38 Secondly, even if demand func- tions dictate prices on some commodities that fail to cover full costs including a reasonable return, the decision with respect to the magnitude Of the contribution to overhead from.any commodity is best left to the discretion Of rail- road mmnagement. Lucile S. Keyes argues: ... the net result of adding regulatory review to managerial initiative can be a gain only if the regulators possess substantially greater commercial ability than the managers, so that the salutary effect of their wisdom will off- set not only its extra administrative cost, but also the other probable harmful effects....39 She then asks, "Is it probable that the regulators are appreciably better businessmen than the mmnagers?" Her answer is bound to be discouraging to those who seek solutions for difficult transportation problems through O H u V‘i“ 't).Dm:-f¢-fr‘fOD 1‘11 NATA . :rat ‘- " LL:. tugs 182 Commission expertise: Does the job of regulation attract peOple whose commercial aptitude is appreciably greater than those attracted to business careers? Does the experience of regulation develop this ap- titude better than managerial experience? I should venture to say that the answer to these questions-- at least in this country at the present time—-must be no.’40 The value-Of-service theory is frequently supported in NATA briefs and by its advocates generally on the grounds that it is the "established," the "traditional" way Of doing things. The most recent articulate defense of value-Of— service by Mr. Shinn refers to ”landmark rate decisions," to "settled legislative policy" and to legislation such as the Hoch-Smith resolution. However, impressive this may be from a legal point of view, it attributes to courts, com— missions and lawmakers a degree of economic wisdom greater than they may in fact possess. An economist, in evaluating alternative market structures, must take note Of whatever contributions these bodies may make, but he obviously can- not confuse such pronouncements with statements Of economic fact. Finally, it might be noted that whatever merit there may be to value—of-service pricing for railroads, this dis- criminatory technique is, as George Wilson has convincingly demonstrated, inappropriate for motor carrier rate determ- ination.41 The Cost Finding Section of the Commission it— self provides evidence Of the inapplicability of value-of— service pricing in motor carrier Operations. It declares: The significance of "cost of service" as Opposed to bri co: Te co ti R The Corn Bureau 0 "for car :ation c .3 costs. 1 second Berke: c 5038 s} argue t‘ other h that an PEtitiC 0:39? 7 183 to "value of service" in rate making may be briefly summed up as follows: Cost of service considerations go principally to the apportion— ment of the out-Of—pocket (long run variable) costs. Value Of service (demand) considera- tions go to the apportionment of the constant and jOInt costs. The Commission in the New'AutomObiles case agreed with its Bureau of Economics and Statistics that out-Of—pocket costs, "for carriers engaged almost exclusively in the transpor— tation of new automobiles would closely approach their full 43 -costs." The role of cost in the determination 2: rates. A second group of Objections to a pricing system which reflects market conditions centers around the use to which cost func- tions should be put. On the one hand, there are those who argue that rates should be tied closely to costs. 0n the other hand, others (and the NATA is in this group) contend that an emphasis on costs is conducive to destructive com- petition in addition to being objectionable on a variety of other grounds. Let us examine each view. The argument that rail rates should equal marginal costs is an outgrowth of the principles of welfare econom— ics. The case for marginal cost pricing is concisely pre- sented by Ralph L. Dewey who contends: ...what is to be the guiding principle in securing this ideal system? The precept I Offer is this: The rate structure must correspond to marginal costs if the optimum allocation of resources is to be achieved. In this way the burden of charges for transportation is mini- mized for each industry and firm, and each unit Of the several factors of production... is em- ployed in the transportation so as to maximize its contributions to the satisfaction of the W A to seri point 0 difficu Comiss cent of really upon t1: pocket mgja PM: as, t 0 184 wants Of the consumers.MIL A system of mandatory marginal cost pricing is Open to serious criticism, In the first place, from a practical point of view, the identification of incremental cost is difficult at best.’45 Of the available measures Of cost, the Commission's out-of-pocket cost comes closest to the con- cept of marginal cost. Out-Of—pocket costs are, however, 46 As a result, depending really average variable cost. upon the behavior of costs as output is expanded, out—Of- pocket costs may either understate or overstate relevant marginal costs.47 Despite this defect, some authorities argue that out-of—pocket costs do serve as rough approx- imations of long run marginal costs and that they are at least of the "same order of magnitude”)48 In any event, the means are at hand, even with the present state of knowledge, to develop much more accurate cost data-~a step which is enthusiastically recommended. A more serious criticism of marginal cost pricing is that under such a standard, railroads would continuously Operate at a loss. This is so because in a declining cost industry marginal cost is below average cost.79 This might be tolerable if there were some accepted and equitable means of raising funds through public levies to cover such deficits as may arise, but no such scheme is at hand. A final criticism of mandatory marginal cost pricing questions the efficacy of the static conditions Of ideal allocation in promoting the dynamic Objectives of growth l . n . HH— Dc '1: n I no I s 0‘1“ s 0 ~11 ‘ MIA AC I .91. a r c n l e a «L m r e a)». C L; r.» u e :3. u- at an .lll..e r: s .? . :1 e. I q . Po 1 a a no US a n C C. a so a o L t ..C hm. a: s o . c a .a m «d. S De 0 e e .C . LL A... is «G. at. f. . .a -. . a e m. . . v a .e e 1 r. .... . .e .. ...a o .... s s u . I. ‘ A . ... . sun. as: x. .1». a . «L or ”we d» .t . «ohm .5 D. . s . P4 «1. LL 3‘ YD.» his. «one» 3.. s 185 and stability. On this subject Tibor Scitovsky writes, "... as concerns dynamic efficiency, perfect competition is far from.being a model Of perfection."50 Even if the above criticisms are invalid and if both static and dynamic Optima are reached by marginal cost pricing, the advantages of such a system should be applied to all industries. Presumably marginal cost pricing would reduce profits;and the transportation industry might well complain if it alone were selected. Quite Obviously, uni- versal enforcement of such a principle would require more government regulation of private business affairs than a democracy is willing to tolerate. For these and for other reasons, some who would argue the general validity of cost-determined prices urge that the appropriate cost concept is fully distributed cost or 51 To the some closely related concept of average cost. extent that it is amenable to the use of costs in matters affecting traffic allocation, the NATA argues in favor of the fully distributed cost standard. The idea that rates must cover fully distributed costs may be, as Professor Roberts has Observed, "good law" but certainly it is poor economics.52 Rates which are adequate to cover long run marginal cost do not burden other traffic; and to the extent that rates exceed this standard they lessen the burden on other traffic. Moreover, this is true regardless of volume. It should be remembered that the assessment of a charge above direct cost is a purely role tc empeig 0 came} “miehi. 5311“ Q 186 arbitrary method of providing for joint and common exPenses and, as such, it is not a reflection of the full cost Of carrying any particular commodity. The NATA insistently argues that tO assign a larger role to costs than has been traditional would herald a rail campaign of destructive competition against the specialized carrier.53 The vulnerability of the auto hauler results from his dependence on a single commodity while the railroads are in a position to compensate for losses on automobiles by raising rates on other commodities.54 The strategic position of the railroads in any predatory campaign is undeniably superior to that of motor carriers and the pos- sibilities for exploitation of this advantage should be carefully examined. At this point, however, it is well to recall the description of "destructive competition" supplied by the NATA as described in chapter ii. TO some extent, the atti— tude of the NATA is a natural product of the anticompeti- tive philosophy Of the CommissiOn which has regularly sought through rate regulation and restriction of entry to insulate certificated carriers against the kind of compe- tition to which the rest Of the business community is ex- posed. Surely, competition which displaces a high cost mode with a more efficient one should not be prohibited on the grounds that it is contrary to the national interest. The extension of such a theory would result in an ossifica— tion of the economic system. Rate reductions which serve to her economi so far growth shipper chmges 187 to increase net Operating revenue are not destructive of economically efficient allocations. What has been destroyed so far by rail rate reductions is a result of an uneconomic growth made possible by the past mistakes of railroads, Of shippers and Of the Commission, and of the technological changes which have occurred. The argument that motor carriers should be preserved so as to provide competition for the railroads is self- serving and patently without merit. In the first place, the devotion to competition now manifested by the motor carriers was sadly not in evidence when they themselves enjoyed a monopoly of the traffic. There was then no ur- gent plea to divert traffic to the rails in the interest of competition. Of course, to argue that an inferior mode be preserved as a competitive check on a superior mode is absurd. One might well have argued on this basis that the price of automobiles should be kept sufficiently high to permit carriage makers to continue to provide competi- tion. ‘ Realistically, the danger of a renascence Of the rail monopoly power on this traffic is slim. There is plenty of evidence that the purchaser of transportation today is more discriminating than he has been. This is certainly true Of the automobile shipper. The present competition is certain— ly not of an "all or nothing" character so that there will be a motor carrier industry ever eager to take any advan- tage rail rate structures allow. Moreover, there is here :he pro dictate: iestruc Sooe sh Bate ca their a 188 the prospect Of private carriage. As a matter of fact, ICC dictated rate levels which ignore rail costs may prove more destructive of motor carriers than cost oriented rates. Some shippers have indicated that they would resort to pri— vate carriage if the Commission rebuffs the railroads in their attempts to adapt realistic rate structures. The Commission sometimes defines competition as de- structive when a carrier succeeds in securing for himself more than his "fair" share of the traffic. The ICC, for example, has approved rail rates below truck rates where these were intended to compensate for rail service disa- bilities. The idea is that under such circumstances car- riers can compete for traffic on a fair basis. Now, it is true that we Americans are great admirers of ”fair con- tests." ‘We match boxers on the basis of weight and exper— ience and we handicap horses to neutralize speed and en- durance. But, however apprOpriate handicapping may be in ”the sport of kings," it has no place in an economic contest in which the purse is the efficient use of resour— ces. In connection with efforts by the Commission to as- sign fair shares, Professor Nelson pointedly commented that, "... no board can determine the economically right sphere for each transport agency.... This must necessarily be de- termined in the market place."55 There is the possibility that the rail carriers will take advantage Of their strategic position to engage in predatory competition. Should this occur, prompt action t u in :05 01. egezen snob a 7.031 0: 189 should be taken to bring such activities to a halt. But what are the prospects of such an undertaking? If the rail- roads are attempting to maximize profit, it is unlikely, as Professor Roberts has pointed out, that they would em- bark on such a venture.56 0n the other hand, if rail man— agement is seeking the maximization of some other variable such as total revenue, they may well consider the destruc— tion Of motor carriers. WOuld rails be likely to engage in predatory compe— tition? WOuld they be likely to quote rates below long run marginal cost for the purpose of driving motor carriers out of business? It's possible but unlikely. For one thing, the rail disability on short hauls is so great that rates would have to be at extremely low levels to attract traffic away from motor carriers. Secondly, railroads are here dealing with informed buyers who would not be likely to sit still and allow the rails to destroy a mode of trans- port shippers consider superior on short hauls; this is es— pecially true if the rail intent is to place themselves in a position to exploit their resulting monOpoly power. .Again, such a policy must surely represent a most shortsighted management appraisal of market prospects. Since there are no substantial scale economies in trucking and since thres- hold costs are low, any effort by rails to raise rates after driving competitors out would certainly result in a resurgence of motor carriers. Finally, it is unlikely that either the Commission or the courts would sanction 190 rail rates which are patently non-compensatory.57 The national transportation policy. At some point in NATA briefs in rate matters there is usually a reference to the mandate contained in the statement Of the "national transportation policy." This policy, as the NATA under— stands it, prohibits "destructive competition" and en- joins the Commission to prevent a return to the ”law of the jungle." The appeal to the "national transportation policy" for the purpose Of limiting rail rate reductions is ques- tionable on several grounds. In the first place, even a casual student of the transportation scene must be aware of the failure to secure a consensus on the interpretation Of the "national transportation policy." Perhaps the re~ quest by President Kennedy that the Department Of Commerce work out some proposals for a "national policy" may bear fruit, but the outlook is not especially bright. A more serious Objection is that rates are condemned as offensive to the "national transportation policy" with- out even a perfunctory effort to demonstrate in what re- spects the proposed rates are deficient. For example, Examiner Dahan recommended that Plan III rates on automo- biles be condemned because they hampered "the develOpment and preservation of a national transportation system ade- ‘quate to meet the needs Of the commerce Of the United States, of the Postal Service, and Of the national de— "58 fense. By what stretch Of the imagination can a rate proposal on automobiles affect the needs of the ”Postal 191 Service?" If this particular rate is to be condemned be- cause it interferes with defense needs, there certainly ought to be some effort to demonstrate how and to what extent the contested rate weakens our defense posture. Despite references in other cases involving automobile rates to the demands of the Postal Service and the needs of defense, the present writer has yet to find a shred of evidence to support the allegation that the proposed rate schedules adversely affected either the national defense or the Postal Service. E. CONCLUSION The misallocation of resources which is evident in the distribution of new automobiles is due in substantial measure to the rate theories Of the Commission. The Ob- stacles to the adoption of a market oriented policy stem from.carriers who feel that they would fare badly under such a system and from traditionalists who either refuse or are unable to grasp the significance of the developments taking place in transportation. Value-Of—service pricing simply doesn't make sense in this particular industry. At the same time, the motor carriers have been unable to make a reasonable case for the destructive nature of competition in free markets. CHAPTER VII REGULATION AND THE TRANSPORTATION OF NEW MOTOR VEHICLES A. INTRODUCTION ‘We have outlined the nature Of the ideal organiza— tion of the motor vehicle transporting industry. Under what circumstances is this ideal most likely to be attained? Is it necessary that there be an overseer with power to assign operating rights and to curb rate competition? The purpose of this chapter is to explore the necessity of regulation. 'We shall look into three questions: (1) does intermode competition require regulatory restraint; (2) is intramode competition possible without Commission super— vision; and, (3) does the welfare of shippers or of the public dictate regulation. B. INTERMODE COMPETITION 22 railroads require protection from.mgtgr carriers? The answer here has to be an emphatic no! None of the legitimate or publicly desirable Objectives Of railroads in the transportation of new motor vehicles requires regula— tory restraints on motor carriers. Of course, if the 192 193 railroads intend to invade the short haul area, Commission action to restrain truckers from exploiting cost and serv- ice advantages would be necessary. Few would argue that this is desirable from.the standpoint of public welfare. In the 1930's the rails argued (and the Commission still does) that without regulation of motor carriers, rail rates are characterized by instability and by an alarming tend- ency to gravitate to unreasonably low levels. It must be remembered, however, that the rails were then trying to insulate discriminatory rate structures from the effects of competition; and an unreasonably low level Of rates was any level below that made possible by monopoly.l The con- tinuation of discriminatory rates is contrary to the pub- lic interest; it isn't even realizable in this particular case. It is not in the public interest because, as we have already noted, value-Of—service pricing sires an uneconomic resource allocation. The fact that enlightened and alert shippers would prefer to resort to private carriage rather than submit to unnecessarily high rates makes the preser— vation of hallowed rate structures unrealizable. The rails, given current technology, can reasonably expect to transport the bulk of the long haul traffic. Is it possible that motor carriers could engage in a campaign aimed at the elimination of rail participation in these movements? It is difficult to visualize the conditions under which such an attempt would be made and even more difficult to understand the circumstances under which it 194 could be successful. For one thing, the motor carriers are relatively small firms with resources entirely inadequate to sustain a predatory venture against the railroads. More- over, out-Of-pocket cost for the motor carrier is very close to full cost so that deep slashes in rates without immed— iately observable losses are not possible. In addition, the motor carrier of automobiles, as a specialized hauler, could.not expect to subsidize a rate war on motor vehicles by maintaining discriminatory rates on other commodities. The possibility that motor carriers can mount an offensive spearheaded by lower rates for the purpose of wresting from the railroads that traffic for which the rails are the more efficient carrier is so remote as to deserve little serious consideration. Anyone foolish enough to argue that the railroads must be protected from.motor carriers by a Commission is invited to examine the record. Some half-hearted (and thoroughly objectionable) attempts to protect railroads have been sporadically attempted.2 Nevertheless, it can- not be contradicted that under Commission ”protection" the share of this traffic going to the railroads declined in spite of the fact that rails were low cost carriers on long hauls. From the railroad viewpoint, Commission pol- icies could hardly have been more detrimental for they neutralized rail cost advantages without limiting the serv- ice superiority of motor carriers. If the Commission sought seriously to promote the welfare of the railroads by 195 these policies, the latter might profitably have prayed, "Lord, spare us from our friends." 22 motor carriers need protection from railroads? It is impossible to answer this question without first agree— ing upon which motor carrier interests ought to be protected. we have already noted that railroads would need Commission interference to register gains in motor carrier short haul territory. Similarly, if the motor carrier is to recapture the long haul traffic, some kind of government action is necessary since, economically, the rails enjoy a superior position. But again, while such action might be to the advantage of motor carriers, it would not be in the public interest since it would substitute a high cost for a low cost agency; Moreover, the perpetuation of the previously uneconomic allocation is neither a legitimate nor a desir- able goal of a regulatory agency except to the extent that it can demonstrate collateral non-economic gains which outweigh the losses of inefficient allocation. This, how— ever, requires more than a perfunctory allusion to the needs of the Postal Service and of the defense establishment. Except to the extent made necessary by non—economic con- siderations, the motor carrier should have assurance that his rivals will not, by predatory actions, deprive him of traffic which he can transport at a lesser cost to society. This is the only kind of protection consistent with the public welfare. It must be conceded that motor carrier fears with respect entirely prevent have per erations they hav tactics . mst likl protest 00399.1:ng 3along; 1 hardly a tage bot} hauls i S ‘ ‘ v Likely. 196 respect to the competitive practices of the rails are not entirely without foundation. The railroads have sought to prevent motor carrier service in numerous instances;3 they have persistently attempted to engage in motor carrier op— erations of their own in competition with truckers;h and they have not been above the use of highly questionable tactics designed to hobble the motor carrier industry.5 Where is the rail threat to motor vehicle transporters most likely to materialize? On long hauls motor carriers protest that the rails, by ignoring value—of-service, are competing unfairly. Since on economic grounds this traffic belongs to the rail carrier in the first place, this is 6 The motor carrier advan~ hardly a legitimate complaint. tage both from a cost and from a service viewpoint on short hauls is such as to make a rail offensive in this area un- likely. In this connection, it is noteworthy that all shippers interviewed stressed the fact that motor carrier service is much superior to rail service on short hauls. It is improbable, therefore, that shippers would sit idly by while rails drove truckers out of business. Between the "short haul" and the "long haul" there is, however, a 7 in which a clear-cut no-man's land of indeterminate size, advantage is not readily discernible. In such instances, the railroads could, by publishing rates which fail to cover long run marginal costs, deprive more efficient motor car— riers of traffic. The NATA has already charged that the New York Central has done this on Detroit to Pittsburgh 197 traffic.8 The NATA claim has been echoed by Senator Mike Monroney who, in a speech before the ATA, asserted that: Dealing with a small number of shippers, the railroads have put into effect rates for the transportation of automobiles which barely return out—of-pocket cost, if that.... He (the motor carrier) is simply and literally put out of business, not because of the rtechnological advances of piggyback but be- cause the railroads have arbitrarily set a rate with which he cannot compete because it bears no relation to the cost of providing service....9 In the event the feared rail depredations should occur, what action should be taken to protect truckers? ‘We will argue later that rail intramode competition probably re- quires regulatory supervision. One of the legitimate functions of the Commission might be to prevent the rail- roads from publishing rates which fail to cover long run marginal costs, especially when the effect of such rates is to deprive a more efficient carrier of traffic. A suit- able alternative would be to allow carriers to publish whatever rates they choose, but to subject them to suits in which triple damages are awarded in cases where non—com~ pensatory rates have injured competing motor carriers.10 Perhaps the most realistic and certainly the most serious threat to motor carriers results from rail efforts to secure authority to engage in unrestricted motor carrier Operations. This is not the place to debate the merits of the so—called "integrated transportation companyy" but the history of the transportation of new automobiles is elo- quent testimony to the sterility of monopoly and the 198 productiveness of intermode competition. Most of the tech— nological improvement that the industry has seen is the product of intermode struggles. There is no doubt that whatever improvement there may have been in rate levels is likewise the fruit of intercarrier competition. The demon— strated advantages of competition should not lightly be ll abandoned . ‘Water carriers and intermode competition. There was a time when the only serious competition for traffic ex— perienced by the railroads came from water carriers. For many commodities between certain points this rivalry is still vigorous and it gives rise to numerous questions of public importance.]'2 This is no longer true, however, in the industry with which we are here concerned. So far as traffic destined for the continental United States is con- cerned, water carriers are in a position to compete only for traffic moving along the Great Lakes between a limited number of ports.13 The rails have made sporadic attempts . to compete for this traffic on a rate basis, but by and 1.1,4 It is large, these efforts have not been successfu true that the water carrier share declined from.an average of about 6 per cent between 1933 and 1950 to a low of 2 per cent in 1959. However, this decline was not occasioned by intercarrier competition; it was rather a product of shipper failure correctly to assess the advantages of lake car- riers.15 The principal competitive advantage of the water l99 carrier is low cost while the main disadvantages have to do with slow transit times, limited navigation seasons, and greater damage risks. For reasons which have been explained elsewhere, water carrier rates should be allowed to reflect lower costs and competing agencies should be permitted to vie for this traffic so long as rates do not fall below long run marginal costs. This, of course, does not mean that the water carrier, as the low cost agency, should be permitted to set a rate as it would "in the absence of com- petition" with assurance that higher cost modes could not undercut the established rate. Such.a.policy sterilizes the intermode relations so that none of the really bene— 16 Because ficial fruits of competition are forthcoming. of cost factors, the motor carriers are not in a position to engage in a rate battle with water carriers and should the railroads attempt this, the Commission or the courts should prevent rates which are below long run marginal cost levels. ‘We conclude, therefore, that so far as intermode com- petition is concerned, the safeguarding of the publicly de- sirable objectives of rail and water carriers does not in— dicate the necessity for economic regulation of motor car— riers. On the other hand, both water and motor carriers require protection from the railroads. Whether or not this protection should be provided by a regulatory com- mission such as the ICC or through special legislation en— forced by the courts is a question we will not debate. 200 C. INTRAMODE COMPETITION The regulation pf intramode competition. Before dis- cussing the characteristics of intramode competition it might be well to place this type of rivalry in proper per— spective. Professor Merrill Roberts has suggested that the gains to be derived from effective intermode competi- tion outweigh, by a considerable margin, the benefits which flow from.intramode struggles. In the first place, Professor Roberts claims that intermode rivalry supplies a greater stimulus to innovation. Secondly, the cost to society of misallocation of traffic between firms of a single mode is substantially less than the cost of misallocation re— sulting from.deficiencies in intermode competition.17 The history of the automobile transporting industry strongly supports the validity of Professor Roberts conclusions. As a matter of fact, some shippers have never sought to en- courage intramode competition. General Motors in its Chevrolet Division specifically eschewed such rivalry. Other shippers, however, have assiduously sought to stim— ulate intramode rivalry as a means of improving service and lowering rates. However, while society might benefit most from a relaxation of controls over intermode competi— tion, the fruits of intramode competition should not escape harvest except upon a showing that such competition is not viable. Rail intramode competition. There is wide agreement that regulations aimed at preventing ennervating rate wars 201 and unreasonable and discriminatory pricing are legitimate goals of public policy. The railroads unquestionably possess many of the classic industry characteristics which are conducive to unstable rate structures: most markets are oligopolistic in character; all firms have relatively high fixed costs; and average costs decline with increased out— put in the relevant range. Does rail intramode competi— tion require regulatory supervision? The present writer has made no systematic study of this problem. It is, how— ever, informative to note that despite the plethora of suggestions for revisions in regulatory statutes and pol- icies, few if any recommendations for rail deregulation are found. While there appears to be a consensus among transportation economists that the Commission's grip over the railroads should be relaxed, there is no substan- tial support for eliminating the Commission altogether. But what powers should the Commission be permitted to exercise? The Commission should be allowed to retain its minimum rate powers. However, this power should be used to Sprevent predatory rate wars; it should not be a device by which the Commission substitutes its judgment of what is best for a carrier for that of the carrier itself. While the Commission should have the authority to require that rates cover marginal costs, it should not attempt to pro- hibit all intramode competition nor should it allow car- 18 riers through rate bureaus to thwart such rivalry. In sum, the powers of the Commission should be oriented toward 202 the preservation of competition insofar as this is con— sistent with the goals of stability, efficiency and justice. Intramode competition and water carriers. The question of intramode competition among water carriers can be dealt with most easily. There are at present only two inland carriers of any consequence and they operate non- competing routes. Motor carrier intramode competition. The debate over whether or not economic regulation of the motor carrier industry is a prerequisite to an efficient and orderly functioning of that industry has persisted for three decades. In general, supporters of deregulation argue with Adams and Hendry that, "the trucking industry epitomizes the classical model of 'perfect competition'."19 Advocates of regulation contend that without regulatory supervision, chaos, inadequate service, and eventual monOpoly result. It is not our present purpose to debate the relative merits of these views. ‘We might even concede for purposes of argu- ment, that motor common carriers of general commodities must be regulated in the public interest.20 Even under these conditions it is still appropriate to inquire into the necessity for regulation of a specialized carrier. No serious analysis of the necessity for regulating motor vehicle transporters has ever been made. Of course, the Commission and the carriers themselves, in speeches and through their attorneys, have argued the case for reg- ulatory supervision. In each instance the defense of the 203 status quo leans heavily on the arguments relied upon in the defense of carriers of general commodities when what is really required is that advocates of control demonstrate that the characteristics of this particular industry are such that regulation is necessary. 'We shall examine the arguments most frequently urged in the defense of regula— tion of motor carrier intramode competition in order to ascertain the extent to which each is justified. l. Unrestrained competition among motor carriers is destructive. The most common defense of motor carrier regulation is that the economic characteristics of motor carriage are such that competition is unworkable. With some variations, the argument usually runs like this: As a result of low threshhold costs and free entry, overcapacity develops. The ensuing struggle for available traffic is conducted under the "law of the jungle" with a consequent "survival of the fittest." The struggle itself is marked by rates which gravitate to out-of-pocket levels; but, in the end, the consumer is left to shoulder the monopoly exactions of the surviving giants.21 To support the validity of this analysis and prog- nosis, its advocates rely heavily on history and upon eco— nomic analysis. The historical part of the argument leans upon references to the disorderly state of the motor car— 22 rier industry prior to 1935. Not all transportation economists ascribe the shabby performance of the industry 204 prior to 1935 to a lack of regulation; many prefer to ex— plain this in terms of the youth of the industry and the 23 We have already generally prevailing business condition. noted that conditions in the motor vehicle transporting in- dustry were chaotic in the early 1930's.24 However, it must be pointed out that this chaos was dissipated as a result of the assumption by manufacturers of responsibility for transportation; and, in some cases, this antedated the Motor Carrier Act. Since all manufacturers now control the transportation of their motor vehicles, the lesson of his- tory (whatever it might be) has no important application in this instance. The basis upon which the economic argument rests centers around the ease of entry and the consequent large number of independent owners, devoid of managerial and bus- iness ability whose behavior sires a perpetually unstable industry.25 Whether or not such an argument is apprOpriate for the carrier of general commodities may be a moot ques— tion, but there can be no serious doubt that it is wholly inapplicable to the specialized carrier with which we are here concerned. This is so, essentially because there exists in this instance a substantial entry barrier which is rooted primarily in the pronounced predilection of shippers for dealing with large, dependable carriers with long records of satisfactory service. 'We have already noted Chevrolet's long established policy of assigning all motor traffic from any particular plant to wide destination seas to ' recalled k'ansvillu aotor car "a limite nost econ cated int The deal With Donation studying their SL1; In con ex; EC pri gi\ sug TTaf-fic < “‘1- A: 5333.11 tn There is barrier I ODEratoI‘: p“Hallie. We PEStl-«airn 205 areas to large, single, non—competing carriers. It will be recalled that Chrysler also, when it moved its plant from Evansville to St. Louis, sought a reduction in the number of motor carriers authorized to serve it on the grounds that "a limited number of motor carriers... will provide it with most economical service."26 Other shippers have also indi- cated interest in service by fewer but larger carriers. The fact that automobile manufacturers prefer to deal with familiar suppliers is not peculiar to the trans- portation of new motor vehicles. Kenneth Alexander in studying the policy of the automobile companies vis-a-vis their suppliers observed: In fact, purchasing officials of automobile companies took pride in pointing out what was expressed by one of them as follows: "If another supplier comes in and offers a lower price there is little chance that he will be given preference over an old and loyal supplier"27 Traffic officials who were interviewed supported Alexander's view. .All agreed it would be very difficult for a new, small trucker to get any traffic even at cut-rate prices. There is, therefore, in this instance, a definite entry barrier so that the specter of myriad, small, fly—by-night Operators preying upon guileless shippers is totally inap- plicable. We do not mean to imply that deregulation would not enlarge the area of intramode competition. The removal of restraints imposed by Operating rights would mean that any 206 carrier could make a bid to transport motor vehicles to any part of the country from any manufacturing or assembly plant. 'Would this presage a struggle under the law of the jungle in which only the fit survive? At least part of the conflict evident in answers to this question results from semantic difficulties. Both the Commission and the carriers themselves appear frequently to use the term "law of the jungle" indiscriminately to refer to desirable as well as to undesirable types of competition. Commissioner Freas declared, "We encourage competition."28 But his definition of "competition" immediately preceding this declaration included monOpolistically determined prices.29 Almost all transportation economists have de- tected that when the Commission talks about protecting "competition," it really means that it is trying to pro- tect competitors. The motor carriers themselves have con- sistently defined "destructive competition" in terms of the failure of all existing companies to survive. Competition, thus defined, is certainly inconsistent with the elimination of regulation. By the same token, however, the "law of the jungle" is the statute under which a vast segment of our economy presently operates; and "destructive competition" characterizes most commercial enterprises. The economist uses terms such as "the law of the jungle" and "destructive competition" to refer to a con- geries of unfair and predatory acts by which one firm seeks to deprive rivals of business. The devices (sales below 207 cost, legal harassment, commercial bribery, unfair and de- ceptive labelling, etc.) under which such competition may be effected are generally understood not to include the exploitation of cost or service advantages enjoyed by the various competitors. The competitive system.does not guar— antee the survival of all participants. As a matter of fact, there is, as an integral part of the system, an assur- ance that inefficient firms will fail. In a truly competi- tive system only the fit survive; but the test of fitness is economic efficiency. In the absence of substantial scale economies this does not mean that monopoly results; and with effective antitrust enforcement it does not imply that firms most willing to employ predatory tactics will eventually dominate. How would the motor carrier segment of the industry be structured in the event economic regulation is abandoned? Potentially, as we have already mentioned, competition would be increased. Theoretically, a carrier heretofore limited to handling secondary movements between various destinations in the southwest could now solicit traffic from South Bend to Michigan points. The probability of sub- stantial traffic shifts is, however, remote. In the first place, a carrier would have to make a relatively substantial investment in an adequate terminal and he would have to establish offices and service depots in the new territory. Secondly, the new carrier would have to counter management preference for dealing with old suppliers since, in view of 208 the frequently repeated desire of shippers to reduce the number of carriers serving them, it is most improbable that there would be a net increase in truckers serving partic- ular plants. On the other hand, there would undoubtedly be inter- carrier traffic shifts. Some of these would represent attempts to correct uneconomic allocations which resulted from awards of rights by the Commission in accordance with the policy of protecting carriers even at the eXpense of 30 efficiency. Some carriers might fail altogether as a result either of past unsatisfactory service or of inef— 31 It should be emphasized, however, that traffic ficiency. would not shift to the extent that only one or two firms would remain as a result of competition. Professor Roberts has convincingly demonstrated the fact that there are no substantial economies of scale in trucking.32 Relatively small carriers could, therefore, hold their own in competi- tion with larger firms. The most probable structure in the majority of markets would appear to be an oligOpOly tempered by the threat of entry. ‘WOuld such a result become intolerable either as a result of collusion or of warfare? ‘We have seen that al- most from birth these specialized motor carriers have sought to mitigate the rigors of competition through collusion. Carriers were encouraged in these efforts by the NIRA codes and later by the Commission. It is reasonable, therefore, to expect that efforts directed at producing concerted action 209 would be attempted even without regulation. There appears to be no sound reason why this segment of the industry should be given immunity from antitrust laws which apply to the rest of the business community. If, however, collusion is thwarted, will warfare re- sult? The possibility of such conflict cannot be entirely discounted although the odds seem very much against it. In the first place, each firm has a large enough share of the market so as to be cognizant of the fact that its actions 33 It is affect rivals who can be expected to retaliate. probable that some kind of quasi-agreement which does not cover the entire range of market variables would be 3h The variable most likely not to be covered by reached. tacit agreement is technological change. This latter is, as Fellner has pointed out, an accepted method by which an oligopolist may seek advantage over rivals.35 Moreover, it is the kind of competition which shippers would eagerly support. ‘We do not mean to suggest that there might be no price competition (especially in the early stages when downward revisions from rail adapted discriminatory rates are to be expected) but simply that, here as elsewhere, oligopolists might be expected to move gingerly in the area of price competition.36 ‘We must conclude, therefore, that the argument center- ing around the destructive nature of unregulated motor car- rier competition does not apply in this instance. ‘Whatever threat there may be to satisfactory performance stems from 210 the fewness rather than from the excess of carriers. With- out regulation, efficiency would probably increase as a re- sult of rational traffic assignments. The rate of techno- logical improvements would probably increase because the Op- portunity of carriers to profit from innovation would be en- 37 So far as rates are concerned, the situation would hanced. be no worse than at present although in all likelihood some downward adjustments would continue to come, as in the re— cent past, from stiffer management bargaining and from rail competition. 2. The common carrier system.which is so vital to national welfare could not survive without regulation. The gist of this argument is that only through a common carrier system can adequate, non—discriminatory service be available to all shippers, big and small, and to every community. The carriers with which we are here con- cerned restrict their service almost completely to producers of motor vehicles, the vast majority of whom.never have had difficulty in attracting carriers. Neither the prosperity nor the adversity of the automobile haulers can have any effect on the fortunes of those carriers upon whom small shippers must rely. Even if the concept Of the "common car- rier" has validity, there is no advantage to be derived from an extension of regulation to specialized automobile trans— porters. 3. Regulation is necessary to insure that the needs of the national defense and of the postal 211 service are adequately served. George Wilson in commenting upon the validity Of eco— nomic arguments in favor of deregulation argues: The economic argument is logically impeccable but the purpose of the Interstate Commerce Act encompasses more than economic efficiency. The interests of national defense and the postal service must also be considered.38 Examiner George A. Dahan, in connection with a case involving the transportation of motor vehicles, has appealed to the needs of the Postal Service and the national de- fense.39 Admittedly, these are worthy non—economic goals. But the burden of proving that these objectives are better attained by regulation rests upon those who advocate regu- lation. No such proof has ever been offered. The foregoing is not, of course, an exhaustive list of the arguments advanced in favor of continued regulation. The arguments presented have been singled out for discussion because they most often appear in motor carrier briefs and in the decisions of the Commission which involve trans- porters of motor vehicles. D. PUBLIC WELFARE AND REGULATION Does the public welfare require protection 22 £23 Commission? It is conceivable that carriers themselves might thrive in the absence of regulation but that the re- sults might be intolerable for shippers or for the public at large. Some assessment of the gains of regulation from this viewpoint ought, therefore, to be made. 212 The best judges of whether or not shippers benefit 40 Certainly from regulation are the shippers themselves. no one is in a better position to judge what advantages are generated for automobile manufacturers by the economic reg— ulation of motor carriers than these manufacturers them- selves. If we accept the judgment of shippers, we must inevitably conclude that automobile manufacturers would be better off without regulation. Traffic Officials at the Ford Motor Company were most emphatic in asserting their desire to see an end to economic regulation Of their motor “1 Mr. Paul Fritzching of carriers transporting vehicles. Chrysler and Mr. Rudy T. Pick and Mr. Earl Wiseman of Studebaker agreed that protection of their interests did not require motor carrier regulation.’+2 Mr. Richard Mollica of the Chevrolet Division of General Motors was noncom- mittal, but he couldn't think of any advantages his com- pany had derived from regulation.43 The attitude of shippers is not very difficult to understand. After all, what advantage do the automobile manufacturers derive from regulation? The Commission first accepted, then actively promoted a discriminatory rail rate structure which it permitted motor carriers to adopt with- out regard for their own cost characteristics. One of the most appealing arguments in favor of regulation is that the Commission will intervene so that firms will not be per- mitted to gather the fruits of mmn0poly. But in this in- stance, the Commission made no systematic, continuing 213 effort to determine motor carrier rates of return. As a matter of fact, in its one major study of the industry, it reported rates of return as high as 77.4 per cent on depre— ciated investment without batting an eye.’4LL About the only rate concession shippers were able to win from the Commis- sion was in the Chrysler case; and an examination of sub- sequent rail shipments from manufacturing plants attests to the fact that this was a hollow victory. If the Commission has showered pitifully few favors upon shippers of automobiles, it has unquestionably taken from them an exasperating toll in time and money. .A sub- stantial amount of time is spent in each traffic depart- ment in preparing exhibits, in conferring with attorneys, and in testifying before the Commission. All shippers have had to sacrifice as a result of the limitations im- posed by Operating rights.“5 Moreover, they have been forced to deal with carriers with whom they prefer not to do business because of higher rates, poorer service or both. In some instances, shippers have had to alter com— pany policy to conform to ICC rulings.46 In addition, some firms which have expressed preference for contract carriage have been forced to rely on common carriers. In view of all of this, it comes as no surprise that shippers subscribe to deregulation. It can, of course, be argued that the interests of shippers do not always coincide with those of the public. A shipper might be content, for example, if he has to pay 214 no more for transportation than is required of his rivals. The public, however, has an interest in rates as low as economically feasible. This is no doubt true. But the Commission has afforded the public no protection; it has been wholly derelict in its efforts to assure that rates charged by automobile transporters did not exceed a rea— sonable maximum. It has on occasion compelled carriers to raise rates but, except in the Chrysler case, no major downward revision was ever ordered. There is not a single instance in the Motor Carrier Reports of a motor vehicle transporter who was compelled to reduce his rates because they were considered unreasonable. HOW”We11 would the consumer's interest be safe- guarded in the absence of motor carrier regulation? In VlEW'Of the structure of the market as a bilateral oli- gOpOly, and considering the past attitude of the Commission, the best protection for the consumer's interest is a willingness on the part of shippers to engage in arm's length bargaining with their carriers. It cannot be gain- said that the benefits which recently have accrued to consumers in the form of lower rates had their roots, not in any ICC action but, rather, in the increased cost con- sciousness of the automobile producers. This was reflected in pressure upon railroads to improve service and in ef- forts to lower motor carrier rates. So long as traffic departments remain cost conscious, the prospects for rea— sonable rates are good. This market is one in which 215 Professor Galbraith's countervailing power is operative. ‘We must, of course, be alert to the possibility raised by George Stigler that the oligopolists will maximize joint “7 But, if this indeed welfare at the consumer's expense. should happen, the consumer is not likely to find a friend at the Commission. The best guarantee that such a con- spiracy does not materialize is to insure that competition among shippers is vigorous so that inefficient and costly distribution patterns are not tolerable. Even if motor carriers are not subjected to economic regulation, the Commission will still have authority over the railroads. Since, as we have already pointed out, the most valuable competition is that which occurs between modes, maximization of consumer interest requires that the Commission remove roadblocks in the way of effective rail competition. In its obsession with preventing price wars, the ICC has neutralized the cost advantages of railroads but it has done little to offset the service advantages of motor carriers. The result has been an inefficient allo- cation of transportation resources. The public welfare demands that the Commission stop providing sanctuary for high cost modes and that it limit itself to condemning rates which are not compensatory, i.e., which are less than long- run marginal cost. E. CONCLUSION We may,therefore,conclude that there is no sound 216 reason for economic regulation of motor carriers. Regula- tory supervision is not dictated by intermode competition, it is not essential to effective intramode rivalry, and neither the needs of shippers nor the public interest are served by such regulation. While rail intramode competi- tion probably demands supervision, this should not give the ICC license to interfere with legitimate intermode competition. CHAPTER VIII CONCLUSION The depression of the 1930's brought Americans face to face with a problem.of staggering proportions. Nearly everyone sought to discern the cause of the economic pes- tilence which had settled on the land. Some perceived the difficulty to be rooted in imbalances in aggregate con- sumption, aggregate saving and aggregate investment. Those who so interpreted the problem urged a congeries of meas- ures subsequently to be included within the context of monetary and fiscal policies. But there were others who identified the culprit as the conflict between modern specialized production techniques and the institutional framework within which business firms had to Operate. Ad- vocates of this view attributed economic paralysis to the competitive orientation of the business community. They offered cooPeration as a substitute for competition; and they sought to encourage this substitution through the imr plementation of the industry codes which were an integral part of the philosophy of the National Industrial Recovery Act of 1933. ‘ In most sectors of the economy, cooPerative experi- ments were abandoned rather quickly. They did, however, 217 218 enjoy an extraordinary longevity in the transportation industry. It was not particularly difficult for the rail— roads to conclude that it was in their interest to limit competition. For one thing, the railroads themselves pos- sessed many characteristics conducive to the existence of destructive rate wars so that they were conditioned to think of competition as "suspect." For another, there was no de— nying that the advent of truck competition had raised havoc with rail institutions. The railroad executives had come to regard monopoly as a.normal state of affairs; it was little wonder, therefore, that they considered competition disruptive. The motor carriers, although they were skeptical about being subjected to Commission supervision, were nonetheless anxious to mitigate the rigors of intramode competition. Again, this can be understood. The industry was in its infancy and had to endure a.normal quota of growing pains. In addition, the ravages of the most severe depression in American history left a full complement of economic mis- eries. In other words, the motor carriers had genuine problems which they were interested in solving. The decade of the 1930's was one of national eXperi- mentation. As a part of its economic experiment, the Con— gress subjected a vast segment of the interstate motor car- riers to regulation by the Interstate Commerce Commission. It was generally assumed that a public overseer would safe- guard and promote the health of the carriers while protecting 219 the interests of shippers and the public alike. By and large, for the industry studied, this assumption has not been warranted. The Interstate Commerce Commission has been an indul— gent parent. It has been afflicted with an almost psychotic fear of competition and, as a result, it has consistently sought to insulate as many carriers as it could from what it considered the noxious effects of genuine rivalry. In the pursuit of its Objectives it has discriminated against potential carriers in favor of existing carriers, and it has given an advantage to carriers Whose operations were extensive on the grandfather date. MOreover, the Come mission has exhibited a marked inclination to give carrier welfare greater weight than shipper welfare. As a result, shippers have been denied reasonable requests for increased or improved service. The Commission is primarily respon- sible for the perpetuation, and, in some instances, for the initiation of countless petty monOpolies. The Commission must also shoulder a share of the responsibility for the missallocation of traffic that has been noted. Because it distrusts price competition, it has not been willing to allow allocation to be determined by cost-oriented pricing. For some time, it shared with rail—~ roads and with other carriers the delusion that a pricing system.anchored in value—of-service principles was an ade— quate and appropriate substitute for cost-based pricing. The railroads have finally seen the light of day, but it 220 remains to be determined whether or not the Commission has at last understood the economic facts of life. One other criticism is certainly justified by the evidence presented in previous discussions. The Commission has been guilty of an appalling lack of consistency. The Commission often attempts to justify contrary decisions by pointing to differences in circumstances surrounding in— dividual cases, but the record too Often fails to support such justification. It would be clearly an error to imagine that all of the ills which beset the industry are to be ascribed to Commission policies. The railroads, until quite recently, doggedly persevered in attempting to make an upside-down world of economics work. Railroad management was neither progressive nor imaginative. For too long, the railroads were content to tell shippers that if the game was not to be played by the railroads' rules, then the rails would pick up their marbles and go home. In the very first cases in— volving rail-motor rate competition, the railroads might well have emphasized that low cost was an inherent advan- tage they intended to exploit. Instead, they concluded that regulation had solved their problems and that everyone could share the fruits of monopoly. 'When they were finally convinced of the error of this view, they had to contend with the task of reversing the precedents which had accumr ulated over a twenty year period. The motor carriers have consistently advocated value- 221 Of-service pricing, and they, at least, have a logical self-interest reason for doing so. Their satisfaction with the status quo is a reflection of the fact that they are the prime beneficiaries of Commission policies. They secured a larger share of traffic than they would have in competi- tive markets, and, at the same time, they were accorded far more security than free markets would have given them, The Commission was reluctant to allow price competition, but it was amenable to the more "gentlemanly" quality competition. This meant that the motor carrier could exploit his service advantage to the fullest while the railroads were permitted to make only limited use of their cost advantages. A good share of the public interest might have been salvaged if the shippers had engaged in vigorous, arms- 1ength bargaining. But most of them seemed content to pay generously for transportation, confident that it was the consumer who ultimately footed the bill anyway. Recent dis— coveries about the elasticity of the demand curve for new automobiles have served, however, to sharpen shipper in- terest in reduced costs of distribution. The pressure from shippers (along with the changed attitudes of rail carriers) has brought to a head the argument over the role of costs in the determination of intermode controversies. In sum, regulation has produced (or at least tolerated) a missallocation of transportation resources devoted to the transportation of new motor vehicles; it has saddled shippers 'with time-consuming litigation while denying them the kind 222 of transportation service they desire; it has spawned an unconscionable and unnecessary fragmentation of motor car— rier rights; and it has fallen short Of serving consumer interests by permitting a system.which exacted tolls that were higher than necessary. 'We have had government inter- ference in private business affairs, but we have had few of the beneficial by-products of government planning. If the community is to be subjected to regulation, it ought at least to gather whatever fruit regulation can produce. If the government promotes monopoly, it ought to do so in accordance with some carefully worked out plan aimed at an efficient use of resources rather than in the haphazard manner which results from.the adjudication of private con- troversies. 'Moreover, if the government sponsors monopoly, it creates for itself an obligation to regulate that monOp- oly. The Commission should do more than collect Operating statistics and balance sheets from the firms it regulates. It should (as was done with public utilities) insist that the rate of return be reasonable. It should scrutinize ex- penses and salaries to guarantee their appropriateness. The Commission should not, as it did in the New Automobiles case, satisfy itself by pointing out that substantial rates of return were even higher because of exhorbitant salaries and expenses. It should not be necessary for an individual shipper to rework and evaluate the financial records of his carriers. This is a task for the regulator. It might be argued that a Commission adequate to such 223 a task would assume gigantic proportions. This is un— doubtedly true. But it suggests that regulation ought to be limited to markets whose economic characteristics are such as to make supervision imperative. The Commission should certainly not have to regulate industries which can Operate efficiently in free markets. Except for the reser— vations expressed in Chapter vii, the segment of the trans— portatiOn industry which we have examined does not require regulatory supervision. The motor carrier segment of the industry protests with considerable vehemence that the industry requires regulation. This position is not difficult to understand. In a free market, the motor carriers would probably lose some traffic to the railroads and they would have to com- pete with other motor carriers. Because they have operated within a monOpolistic framework since the inception of the industry, the transition to a free market would be a shock of substantial proportions. 'Motor carriers are not dif- ferent from.the vast majority of businessmen; they are firm.believers in competition in general and in those mar- kets in which they must purchase inputs, but they sincerely believe that competition in their own industry would be catastrOphic. They seek competitive bids from their sup- pliers and rightfully cherish the opportunity to choose from.among many potential suppliers. But they are unwill- ing to have shippers exercise the same rights. It would probably be both impractical and unwise to 221+ undertake complete and immediate deregulation. Neverthe- less, there are certain steps that can and should be taken by the Commission which would correct some outstanding present deficiencies. For one thing, the Commission can permit genuine intermode competition by allowing the rail carriers to take advantage of their low cost. Value-of- service pricing (at least in the traditional sense) should be promptly interred. This, of course, does not mean that rail carriers should be permitted to engage in predatory competition; it does suggest, however, that so long as rates cover long run marginal cost they should not be set aside. Whether a rate is profit maximizing or not is a decision best left to carrier management. The Commission might also begin to relax its unnec- essarily rigid and legalistic interpretation of motor car- rier rights. Distinctions between initial and secondary rights, for example, decrease competition, and, strictly interpreted, may (as the initial rights carriers have dis- covered) produce unwarranted traffic losses or undeserved windfalls. The Commission ought, moreover, in considering applications for operating rights, give greater weight to shipper views with respect to the kind of service required. If a shipper desires contract carrier service, he should not have to settle for commmn carrier service; if a shipper wants single-line service, or if he seeks duplicating -authority, it should be available to him. For the long run, the public interest as well as the interests 0' ulation of ‘ relaxation though this acteristics pervasive e satisfactol 225 interests of carriers and of shippers requires the dereg— ulation of motor carriers Of new motor vehicles and the relaxation of government controls over rail carriers. Al- though this is not an industry which possess all the char- acteristics of pure competition, competitive forces are pervasive enough to permit a performance which is more satisfactory than has been the case under regulation. 226 APPENDIX A DISTRIBUTION OF TRAFFIC FOR NEW AUTOMOBILES FORD MOTOR COMPANY]- Per cent lOO -___ __’/\/' 80 \ BY MOTOR CARRIERS 6O 40 20 BY BOAT BY RAH. L_[f—CARRIERS CARRIERS 0 -—g:?“ :; :ZZFM_ v=-"'<'F‘“~.:l~_—.=——I- | __ _| 19“? 50 51 52 53 5G 55 56 57 58 59 1Excludes International Division. Source: Page 2 of unnumbered exhibit submitted by the Ford Motor Company in: I & S 33392 et al., Motor Vehicles-— Cleveland, Detroit, Lorain to New England and Trunk Line. Pin 1. Plan II Plan In Plan I. Plan II Plan III 227 APPENDIX B TOFC PLANS Plan I service (sometimes referred to as sub- stituted service) is a motor carrier operation in which the motor carrier originates and term— inates the traffic which moves under tariffs published by the motor carrier and on a bill of lading issued by the motor carrier. These tariffs usually specify that the motor carrier may, at his discretion, substitute rail for motor service for same part of the line-haul unless specifically requested by the shipper not to do so. The railroad is compensated for its portion of the haul by the motor carrier who absorbs the cost out of his charges to the shipper. Under Plan I, the status of the railroad is that of a connecting carrier. Under Plan II, the railroad provides all of the service. It furnishes the flatcar and the trailer; it performs pickup and delivery; and it solicits the traffic. In a Plan III operation, the shipper supplies the trailer~and.is responsible for transportation to the loading ramp. The railroad loads the trailers, performs line haul service and unloads them at Plan IV Plan V 228 destination. The shipper is responsible for ar— ranging transportation to ultimate destination. The railroad charge for Plan III service is usually stated in amounts per flatcar and applies whether trailers are loaded or empty. Plan IV service contemplates the provision of flatcars and trailers and the performance of all delivery and unloading functions by the shipper. The railroad furnishes only the motive power and the rails. Plan V provides for joint through routes. A motor carrier originates the traffic and he de- livers it with the intermediate rail carrier per- forming some part of the line haul. 229 APPENDIX C RAIL MULTILEVEL AND TRUCK PER VEHICLE RATES FROM SOUTH BEND, INDIANA TO SELECTED RAILHEADS—-l9621 Rail Rates Truck Rates Destination Bi- Tri- 5 6 7 level level car car car Albany, N. Y. 51.70 42.27 91.45 76.60 70.60 Atlanta, Ga. 56.20 43.60 80.05 68.90 Baltimore, Md. 53.40 41.40 77.00 65.00 57.20 Belen, N. M. 98.20 77.33 174.30 169.80 Birmingham, Ala. 51.90 40.27 76.10 65.50 Boston, Mass. 65.10 53.27 106.20 93.60 90.20 Buffalo, N. Y. 33.30 26.30 60.20 50.90 43.50 Council Bluffs, Ia. 45.00 35.67 73.40 61.70 Denver, Colo. 78.60 61.93 136.00 132.50 Des Moines, Ia. 33.80 26.60 57.20 48.40 Ernest (Phila.), Pa. 56.90 42.53 85.40 71.70 63.90 E. St. Louis, Ill. 26.10 20.67 48.40 41.70 Houston, Tex. 77.80 61.27 123.00 102.50 Irving (Dallas), Tex. 71.10 56.00 109.60 91.40 Jacksonville, Fla. 74.50 58.67 114.30 111.30 Kansas City, Mo. 41.40 32.80 68.05 51.30 Las Vegas, Nev. 170.30 133.60 244.80 238.40 Laurel, Mont. 95.60 75.27 171.40 167.00 Long Beach, Cal. 170.30 133.60 263.30 256.50 Memphis, Tenn . 43.80 34.00 75.80 72.35 Miami, Fla. 100.20 78.90 140.10 136.40 Minneapolis, Minn. 38.80 30.73 68.00 57.50 New Orleans, La. 67.40 53.07 116.15 100.05 Port of Newark, N. J. 59.60 48.27 72.20 60.90 69.50 Omaha, Nebr. 45.00 35.67 74.00 61.70 Phoenix, Ariz. 135.20 106.40 230.80 224.90 ‘ Pittsburgh, Pa. 30.50 24.13 50.60 42.50 36.70 Portland, Ore. 158.80 118.40 274.10 267.00 St. Louis, MO. 28.50 22.80 49.40 41.70 St. Paul, Minn. 38.80 30.73 66.80 55.90 Salt Lake City, U. 116.20 89.53 190.50 185.60 Sanford, Fla. 82.50 65.08 124.40 121.20 Seattle, Wash. 158.80 125.07 270.60 263.60 Spokane, wash. 135.90 107.00 239.80 233.60 Tampa, Fla. 85.00 66.93 126.40 123.20 230 APPEND IX C - —Con tinned Rail Rates Truck Rates Destination Bi- Tri— 5 6 7 level level car car car Tulsa, Okla. 53.10 41.80 100.10 97.50 ‘Winston Salem, N. C. 62.30 48.07 77.80 74.30 Orlando, Fla. 84.10 66.20 126.20 122.90 1The rail rates do not include costs of loading and unloading. Five unloading cost estimates were provided. In four cases, the cost was $1.50 and in the other, $2.50. Mr. Earl Wiseman, of the Studebaker-Packard Company, es— timates loading costs to be $4.00 per vehicle. Source: Material for this appendix was supplied by Mr. Paul Skipworth of the George F. Burnett Company. FOOTNOTES CHAPTER I 1There are many who will object that competition has always been vigorous in transportation. It should be noted, however, that we are here faced with a semantic difficulty. The term "competition," as it has been used in transpor- tation, has a special meaning. As former Commissioner Anthony F. Arpaia put it, "But competition as it has been construed in the transportation world is quite a different thing. As between carriers controlled by law it means in fact, not the best at the lowest price but trying to pre- serve the existence of all entries in the field to the detriment of the most efficient." Anthony F. Arpaia, Address to the New Haven Traffic Association, September 11, 1961, cited in Traffic WOrld, September 16, 1961, p. 51. When economists and the railroads talk of increasing the role of competition, they are speaking of that kind of com- petition which gives effect to cost and service advantages which are reflected in the rates charged for services. 2Ibid., p. 52. 3U. S. President, l961—-(Kennedy), The Transpor- tation System.of Our Nation; Message from the President of the United States Relative to the TransportatIOn System of Our7Nation, April 5,71962, 87th Cong., 2d Sess., 1962, House Doc. NO. 384, p. 2. CHAPTER II 1 J. A. Whitcomb v Chicago & Northwestern Railway Company et aI., l6 ICC 27, (1909). 2 H. L. Keats Auto Compapij Ore on-Washin ton Rail- road and Navigation Company et al., 28 ICC 4I2, EI9I35. 3 C. R. Gleason Company et al.,v Ann Arbor Railroad Company et al., 140 ICC 461, (1928). 14. New Automobiles in Interstate Commerce, 259 ICC 475, (1945). 231 232 5 C. R. Gleason Com an et al. v Ann Arbor Railroad Company et aI., I40 ICC HCI, 552, (1928). 6For descriptions of early rail equipment and for a discussion of the alterations made by shippers see; Po e Manufacturin Com an v Baltimore & Ohio Railroad et a ., I7 ICC ECC, 9C2, (I9I0); H. IL. Keats Auto Company v Ore on— Washin ton Railroad and NavigatIOn Company et aI} 28 ICC EI2, EI3, (I9I3): .Auburn Automobile Com.an v Penns lvania Railroad Company et a ICC (1929); L E N 'MOtor Com an et al., v Abilene & Southern Railway Coma pany et aI., 2CI ICC 35, (I93472 7Hammond Motor Company et al., v Alabama Great SouthernIRaieraH’Company et al.,7151 ICC 288, (I929). 8W. .A. Pattersm Comm v Pere Marquette Railway Company et al., 87 ICC 357, (I924). In this instance an automObile was shipped from.F1int, Michigan on ‘March 30, 1920, and arrived in Portland, Oregon sometime prior to May 18, 1920. A request for re—shipment to Los Angeles was made by the shipper on June 7,1920, and the car arrived in Los Angeles about October 1,1920. The request for reparation on the grounds that the sale was lost as a result of the delay was denied by the Commission. pp. 357,358. 9F. B. Alexander v Southern Pacific Company et al., 24 ICC 3O6, (19127. 10 MartineNash Motor Company v Chica 0 ‘Milwaukee & St. PaulIRailway Company et aIT, 152 ICC I79, (I9295. see also: Covey BalIErdCMOtor Company_v Chica 0 Milwaukee & St. Paul Railway Company et aI.,7177 ICC 359, (I93I). 11Dallas Freight Bureau v Missouri Kansas & Texas Railway Company et a1. , 12 ICC 427 (I9C75; KIEIre-Smitfi Auto Company et al., v.Atchison, TOpeka and the Santa Fe Rainay Company et al., 52 ICC 507, (19197. 12 See for example: Van D ke Motor Com an v Missouri Pacific Railroad et al., I22 ICC EII, (I927g. lsShippers' Union of Phoenix v The Atchison To eka & Santa Fe RailwaleOmpany et aI., 9 ICC 250, (I992). luThe failure of water carriers to participate in automobile traffic was due principally to three factors: (1) The automobile lants were inland and at points well served by rail. (29 Because of damage hazards, shippers were anxious to minimize the handling of automobiles. (3) There was a widespread belief that automobiles were not adapted to long sea voyages without incurring damage 233 to the mechanism. Transcontinental Westbound Automobile Rates, 209 ICC 549, 552, (1935). 15The low rate charged by the water carrier was the most important factor in explaining the diversion of traffic. 'Water carriers offered a through rate to the west coast made up of the lowest rail rate charged from the manufacturing plant to the nearest eastern port plus the water rate to the west coast terminal. On shipments through ports to which the rail rate was higher, the water carrier equalized the cost to the shipper by lowering the water rate. Ibid., pp. 551, 552, 553. 16The rail service advantage resulted from faster transit times and a reduced damage hazard. From.Michigan and Indiana manufacturing plants the rails could effect delivery to California in ten days compared with twenty- eight and one-half days for water carriers. Ibid., p. 557. 17The $.30 differential was made up of $.20 which, it was estimated, represented the value of superior all— rail service, and $.10 which was the added cost incurred in the transfers of lading necessary in water movements. Ibid., p. 558. 18The proposed schedules would have reduced rates from.group 0 points (which included almost all the major automobile manufacturing areas) from $4.65 to $2.25 per hundred pounds. Ibid., p. 559. 191b1d., p. 555. 201bid., p. 560. 21Ibid., p. 557. 22Birmingham Traffic Bureau v Director General, Alabama Crest Southern Railway Company, et aI},‘115 ICC 33, 37, (1927). 23Ibid. 2LlNewAutomobiles in Interstate Commerce, 259 ICC 475, (1945), testImony ofIMr. Hugh.OTNeil at pp.74055, 4056 of the Transcript of Oral Hearings. 25At this early date, driveaway consisted simply of driving a single vehicle over the road under its own power. Later, tow-bars were used to permit simultaneous trans- portation of two vehicles, and the saddle-mounting tech- nique, which allowed the carriage of two or more commer- cial vehicles at the same time, was initiated. Tech— nically, driveaway refers to the transportation of a vehicle under power supplied by the shipper. In truckaway 234 operations, the carrier provides motive power. 26Statement by Mr. George F. Burnett, personal in- terview, July 18, 1961. 27Automobile Manufacturers Association, Motor Truck Facts, (Detroit: Automobile Manufacturers Association, 'IVBUI, p. 52. 28Coordination of Motor Transportation, 182 ICC 263, 296, (1932). 29Customers were usually unaware that automobiles had been driven to the dealer's showroom because speed— ometers were generally disconnected, and dealers chose not to apprise them.of the method of transport. New'Automo- biles in Interstate Commerce, 259 ICC 475, 48I, (I945). 30Ibid. 31 Ibid., testimony of Mr. George F. Burnett, p. 448, of the Transcript of Oral Hearings. 321bid., testimony of Mr. Hugh O'Neil, pp. 4057, 4058 of tfie Transcript of Oral Hearings. 33Two types of rigs were developed. The Illinois Special permitted two automobiles to be carried on a truck and two more in an attached trailer. In the other type (the clipper or tank type) a tractor pulled a trailer into which up to four vehicles were loaded. See Ibid., test- imony of Mr. H. L. Zenzius, at page 307 of tEe Tran- script of Oral Hearings. 3“Ib1d., p. 505. 35Cars to be shipped by rail were loaded right at the plant so that when difficulties arose, finished auto- mobiles piled up in the manufacturer's yard. The motor carriers provided terminals with adequate storage space, and they ran shuttle trucks which carried automobiles from the end of the production lines to their own lots to be loaded when shipments were requested. 361n the early 1930's, this difference amounted to approximately one to two dollars per vehicle. New Auto- mobiles in Interstate Commerce, 259 ICC 483, (1 37Ibid. 38Ibid., p. 485. 391bid., p. 484. 235 uoIbid., testimony of Mr. Eu ene Casaroll at pp. 314, 315 of the Transcript of Oral Hearings. Allbid. 42Ibid., testimony of Mr. O. R. Bromley at p. 1772 of the Transcript of Oral Hearings. "3Mr. Hugh O'Neil described the situation at a Chevrolet assembly plant in the following words: "In 1933 the Chevrolet assembly plant at Tarry- town, New York, was served by an excess of fifty different carriers, many being individuals Op- erating one or two trucks, and they own approx- imately 167 different pieces of equipment, Operatingnout of as many yards or back yards or gasol e stations and telephones usually answered by some gas station attendant or house— wife who could give no information by which Chevrolet could check its distribution." Ibid., testimony of Mr. Hugh O'Neil at page 4052 of the Transcript of Oral Hearings. ““IbId., p. 4055. hsChrysler Corporation et al.,v Akron Canton & YOun s- town RaiIfoadICOmpany et al., 279 ICC 377, 332, (I950). uaNew Automobiles in Interstate Commerce, 259 ICC 475, 489, (1945). 47Statement by Mr. Charles Pieroni, personal inter- view, January 3, 1962. usNew Automobiles in Interstate Commerce, 259 ICC 475, (1945), testimony ofIEr. O. R. Bromley at p. 1755 of the Transcript of Oral Hearings. thequutomobiles in Interstate Commerce, 2 USMC 359, 360, (1940). SOIbid., pp. 361, 362. 51New.Automobi1es in Interstate Commerce, 259 ICC 475, 488, (1945). 52Ibid., testimony of Mr. O. R. Bromley at pp. 1773, 1774, of tHe Transcript of Oral Hearings. 53Ibid. 5(“Consolidated Southwestern Cases, 173 ICC 263, 306, (1931). 236 55Coordination of Motor Transportation, 182 ICC 331, 332, (1932). Some evidence of the skepticism.of railroad executives with respect to the efficacy of rate cutting is seen in the fact that only 15 per cent of the members of the American Short Line Railroad Association who re- sponded to a Commission questionnaire believed that rate reductions would help regain traffic. Ibid., p. 332. 56"The Auto-loader consists of two frames or racks suspended from the freight car structure by steel arms upon which the automobile or truck is driven and raised by means of a hoist and cable to an angle position in each end of the freight car. Chains and turnbuckles are pro- vided on these frames to tie down the vehicle." ‘Motor Vehicles-Detroit to Texas and Oklahoma, and from.ana to Khnsas City;INo. 33263, (19607, Statement of Mr. ATWJ. Richardson, Exhibit No. 23, p. 8. 57New.Automobi1es in Interstate Commerce, 259 ICC 475, (1945), testimony of Mr. O. R. Bromley at p. 1782 of the Transcript of Oral Hearings. 58Motor Vehicles—Detroit to Texas and Oklahoma, and from.andItoIKansas City; NO 33263, (1960), Statement OfIMr. A; W} RiChardson, Exhibit No. 23, pp. 8, 9. 59New.Automobiles in Interstate Commerce, 259 ICC 475, (1945), testifiOny ofPMr. O. R.IBrOmIey at p. 1782 of the Transcript of Oral Hearings. 60The Interstate Commerce Commission which, after all, had learned its economics in the same school in which railroad leaders had been trained, aided and abetted the railroads in their campaign to re ulate the motor carriers. It is interesting to note that sh ppers did not advocate regulation, and at the outset at least, neither did motor carriers. The ICC confessed that: "So far as this record shows, the demand for Federal regulation of the transpor— tation of prOperty by motor truck comes mainly from.the railroads. There is little present demand by shippers for such regulation." Coordination of Motor Transporta- tion, 182 ICC 331, 332, (I9327. 6]’See for example: Automobiles From Cincinnati, Ohio 219 ICC 381, (1936); AutomObiles to Oklahoma CityéAda- Atoka Railway Points,-2I9ICC 314, (1936); AutomObiles From Buffalo, N. Y., 223 ICC 471, (1937); Automobiles From Dallas, Texas, 226 ICC 705, (1938); Automobiles to Boene and Des Mbines, Iowa, 235 ICC 24, (1939); Automobiles to Iowa, Minnesota and South Dakota, 235 ICC 21 (1939); Automobiles in the Southwest, 278 ICC 437, 438, (1955); Automgbiles and Parts to Southern Territory, 215 ICC 488, 1936 . 7 237 62The Commission approved such rates in: Automobiles and Chassis to Chicago, 111., 227 ICC 223, (1938). 63Mr. O. R. Bromley explained the rail rate-makin technique as follows: "The formula was this: from DetrOIt to New York the existing first-class rate was $1.35, the truck rate ... based on 3000 pounds was $41.93 per machine, the boat—truck rate was $36.69 per machine. Taking the all-truck rate of $41.93 and deducting $2.45 disability resulting in $39.48, and dividing this by 3000 pounds, gives you a rate of $1.32 per hundred pounds. Taking the boat-truck rate of $36.69, deducting a disability of $2.45, gives you $32.24, which divided by 3000 pounds equals $1.14 er hundred pounds. Those two rates thus secured total $2.46, divide this by two, and you get an average which results in $1.23 which is the rate published by the rail lines Detroit to New York." New Automobiles in Interstate Commerce, 259 ICC 475, (1945), testimony of W. C. R. Bromley at pp. 1801 of the Transcript of Oral Hearings. 6 “Fifteen Percent Case, 1937, 1938, 226 ICC 41, (19381 65Ibid. In this case the Commission repeated the view prevIously expressed in General Increases 1937, 223 ICC 657, (1937). The ICC declared: "The fact is well known to us, and it is to some extent develOped in this record, that conditions similar to those which have adversely affected the railroads have Operated to like or possibly greater, financial disadvantage of the motor,and water carriers. It is not unlikely that they would be glad to join with the railroads in an increase in the level of the competitive rates which would leave the relative position of all un- changed and at the same time improve the financial con- dition of all." p. 72. The American Trucking Associations intervened and pleaded that "if the proposed rail rates are authorized and published, the motor carriers will thereby be enabled to increase their rates on like traffic without disturbing the relative competitive position." p. 73. 66NewAutomobiles in Interstate Commerce, 259 ICC 475, (1945), testimony Of Mr. O. R. Bromley at p. 1799 of the Transcript of Oral Hearings. 67NATA,IP£otest and Request For Suspension and In- vestigation of Certain Tariffs and For an Order Instituting a General Investigation Into the subject ofIRates on New AutomObiles, December 21, 1938. 68The NATA made this clear when in its petition it declared: "While it is true that reductions have been made by rail carriers since 1938 in many sections of the country, it is fair to say that the starting point for most of them-— 238 certainly for the most important ones-—has been the alleged necessity in meeting the rates maintained by contract car— riers employed exclusively by the Chevrolet Motor Division of the General Motors Company.” NATA, Petition on Behalf of NATA for Subpoena Duces Tecum, October 21, I941, p.52 69The Association explained its position as follows: "We believe that we have shown that the rates and charges which now are and in the past have been maintained by the contract carriers are in contravention of the National Transportation policy of the act in that they have been primarily responsible for putting in motion a chain of destructive competition within the meaning of that decla- ration of policy. ‘We avert that these rates are 'destruc— tive'. ..." NATA, Brief in Behalf of the National Trans— porters Association, Inc., NOvember 16, 1942, p. 71. 7OIbid. 71New.Automobi1es in Interstate Commerce, 259 ICC 475, 507, (1945). See 5180 Exhibit 331 and pp. 3963, 3964 of the Transcript of Oral Hearings of that proceeding- The profit figures for common carriers are probably under- stated for, as pointed out by the Bureau of Transport Economics and Statistics, "part of what otherwise would be net Operating income is included in salaries of general officers, account 4611." Exhibit 331. 72 73Ibid., Transcript of Oral Hearings, p. 1852. (Emphasis mine.) Ibid., Transcript of Oral Hearings, pp. 3963, 3964. '74NATA, Protest and Request For Suspension and In- vestigation of‘Certaifi”Tariffs and FOr an order Instituting a General InvgstigatIOn Into theISub ect ofCRates on New AEtomobIles, December 2I, I938,‘p.II . 75Ibid., p. 4. 761bid., p. 12. 77NATA, Brief in Behalf of the National Automobile Transporters AssocIation, Inc.,NSvemBer 16,1942, p. 23. 781bid. 79NATA, Protest and Request For Suspension and In- vestigation ofICertain Tariffs and For an Order Instituting a GeneraIInvestigatIOn Into the squect of Rates on New Afitomobiles. December 21, 1938, p. 4. 80 Under the first proposal, rates would be tied to 239 first class which the Association considered reasonable per se. Because of the exigencies of competition and the possibility of private carriage, it was prOposed that rates should begin at 50 per cent of first class for all dis- tances up to one hundred miles and that they should grad- uate into full first class at six hundred miles and remain there. The second alternative specified an acceptable scale of rates while the third provided for stabilization at the going rate level with each agency enjoined against further competitive rate cuts. Brief in Behalf of the National Automobile Transporters Assoéiation, Inc., NOvember16, 1942, pp. 137, 138,_13974140. 81NATA, Protest and Request for Suspension and In- vestigation of Certain‘Tariffs and For an Order Instituting a General InvestIgation Into the Sub'ect of Rates on New AutomObiles, Decembér 21, 1938, p.71 . 82New.Automobi1es in Interstate Commerce, 259 ICC 475, (1945), testimony Of’Mr. O. R. Bromley at p. 1803 of the Transcript of Oral Hearings. 83Answer in Behalf of Southern Carriers to the Petition-3f the National Transporters AssocIatIOnIFor Expedited AEtion and For Other Reliefs, September13: 1941, p. IST 8I'lThis is evident from studies prepared by the Commission's Bureau of Transport of Economics and Statis- tics. For the one hundred and seventy—five movements which the Bureau examined, rates exceeded out-of-pocket costs by 91 per cent on an average, and they exceeded fully dis- tributed costs by 16 per cent. Only fourteen rates were below out-of-pocket costs. Some of these were over intra- state routes, some were paper rates over circuitous routes, and in the other cases, the difference was so small as to be insignificant. Obviously then, the rails still had considerable ability to reduce rates. 85New.Automobi1es in Interstate Commerce, 259 ICC 475, (1945), testimony ofIMr. Hugh.O‘Nei1 at p. 4092 of the Transcript of Oral Hearings. 86"I wish to state", said Mr. O'Neil, "that we agree with the railroads that the rates on automobiles should not be frozen. This is the worst thing that could happen to the carriers of automobiles, because it must not be forgotten that we are here dealing with a commodity that does move and can move in great quantities on its own wheels and with its own power." Ibid., p. 4066. In an earlier portion of the testimony, after stating that rates must reflect the economies of contract carriage, Mr. O'Neil declared, ”Now unless this type of carriage conducts its 240 affairs in this manner, the result will be that industry will undertake to transport its own automobiles in its own trucks." Ibid., p. 4064 87In support of this view the NATA cited the follow- ing passage from the testimony of Commissioner Joseph Eastman before a committee of the House of Representatives: "So far as the regulation of these private and contract carriers is concerned, it seems to me that the important principle which should govern and which justifies any such regulations is the need for_protecting the common carrier or what it takes to serve all the public. The common car— rier is the one, it seems to me, that the government ought, particularly to foster and protect. Now the contract car— rier or private carrier can operate in such a way as to be detrimental, unfairly or improperly, to the interests of the common carrier. To the extent that such conditions exist, the government is justified in interfering for the sake of protecting the common carrier; and it is on that principle that the regulation of the contract carrier in this bill very largely rests." NATA, Brief in Behalf of the National Automobile Transporters AssociationJ Inc., NOvember_I6, 1942, p. 70. 88NewAutomobiles in Interstate Commerce, 259 ICC 475, 531, (1945). 891bid. 901bid., p. 556. l 9 Ibid., testimony of Mr. J. J. Crimmins at p. 2706 of the Transcript of Oral Hearings. 92We shall consider relevant portions of these studies in subsequent chapters. 93Frederick G. Freund, "Statement Before the Senate Committee on Commerce on Bill 1197," May 11, l96l. (Mimeo- graphed.) 9L‘Report and Order Recommended by Examiners H. C. Laughton and“William A. Disque,‘May ll,‘l944, p. 70. 9SNewAutomobiles in Interstate Commerce, 259 ICC 475, 534, (1945). 96Ibid., p. 548. 97Ibid., p. 555. 981bid., p. 556. By order of the Commission dated November 13, 1945, this was raised to 85 per cent of the 241 contemporaneous first class rates. 991bid. 100Chrysler Corporation et al v. Akron Canton & YOungstown Railroad Company et al., 279 ICC 377, 339, 9(1950). 101"Memorandum of the New York Central Railroad Company", March 7, 1949- 102Ibid. ’ 103 Chrysler Corporation et aL v..Akron Canton & YbungstownRailroad Company et al., 279 ICC 377, ([950). 10“Reply of Complainants to the Petition of Certain Defendants For Postponement of Hearing, April 3, 1948, p. 3. 105 Ibid., p. 4. 106Chrysler declared: ”They are plainly concerned because they handle inbound coal and outbound parts from the Michigan plants of General Motors and Ford and, being anxious to maintain themselves in the good graces of those companies, they are responsive to the fact that General Motors and Ford benefit from the continuance of high rates on new automobiles from the plants of complainants and low rates from.their own assembly plants to common desti- nations." Complainants Exceptions to Report Proposed by Paul 0. Carter anleenry C. Laughton, Examiners, January 16, 1950, pp. 24, 25. 107Reply of Complainants to the Petition of Certain Defendants For Postponement of Hearing, April 3, 1948: p. 9. 108Chrysler Copporation et al. V. Akron Canton & Ybun stown Railroad Company et 51., 279 ICC 377, 393, (I959) 109Ibid., testimony of Mr. J. E. Goggin at p. 1681 of the Transcript of Oral Hearings. 110Ibid., testimony of'Mr. Lawrence Chaffee at p. 1644 of the Transcript of Oral Hearings. 111Ibid. 112Ibid. , testimony of Mr. George W. Holmes at pp. 1675, 1676 of the Transcript of Oral Hearings. ll31bid., p. 405. 242 lluIbid., p. 419 115Passen er Automobiles in Southern Territory, 288 ICC 85, 93, (1953} 116There were some exceptions, of course. The New YOrk Central attempted to recapture traffic that had been moving via the Great Lakes by adopting a scale of dras- tically reduced rates that were to be applicable only dur- ing the season of open navigation. A badly split Com- mission approved the new schedules but no diversion of traffic resulted. Automobiles From Detroit to the East, 288 ICC 167, (1954). CHAPTER III _lDelos Rentzel, "Statement Before the Senate Committee on Commerce in Support of Senate Bill 1197, May, 1961." (Mimeographed.) 2The idea of loading freight in one kind of vehicle for transportation in a different vehicle goes back at least to 1843 when sectionalized canal boats were trans- ported on rail flatcars in a joint rail-water service between Philadelphia and Pittsburgh. This and other ex- periments with trailer-on-flatcar (TOFC) techniques are described in: Coordination of Motor Transportation, 182 ICC 263, (1932). 3Despite motor carrier claims to the contraryn TOFC has not entirely eliminated the rail service disability. Shippers have indicated that with identical rail TOFC and motor carrier rates they would continue to ship by truck. Delos Rentzel, "Statement Before the Senate Committee on Commerce in Support of Senate Bill 1197," May, 1961. See also: Motor Vehicles -Kansas City to Ark.,_La. & Tex., testimony of Mr. E. S} Knutson, Director of Corporate Traffic, Ford Motor Company, pp. 413, 414 of the Transcript of Oral Hearings, Ibid., Exhibit 80. uThe development of TOFC service by the Frisco is detailed in: J. E. Gilliland, "Statement Before the Sur— face Transportation Sub-committee of the United States Senate Committee on Interstate'and Foreign Commerce," April 10, 1961. (Mimeographed.) 5Traffic from the Studebaker plant destined for points in the southern states, for example, was transported from South Bend, Indiana, to Cincinnati, Ohio by motor carrier and there loaded on flatcars. The railroad car— ried the vehicles to Atlanta, Georgia from which point 243 they were distributed by truck. Interview with Mr. R. T. Fick and Mr. Earl Wiseman, June 29, 1961. (Mr. Fick was the Director of Traffic for the Corporation and has since been succeeded by Mr.‘Wiseman.) 6The various Plans are described in Appendix B. 7Interview with Mr. J. H. Stark, Jr., Vice-President of Howard Sober, Inc., November 11, 1960. 8"National Automobile Transporters Association, Petition For a Declaratory Order, MC-C-3024, March 7, 1962." (Mimeographed.) 9Interview with Mr. R. T. Pick and Mr. Earl Wiseman, June 29, 1961. 1oM'r. Sidney Zagri, a Teamster attorney, testified that "one third of the National Automobile Haulers have already gone out of business since 1958." No evidence to support this allegation was offered and a letter re- questing further information was never answered. Mr. Zagri's testimony was contained in: "Statement Before the Committee on Interstate and Foreign Commerce of the United States on S. 1197," May 17, 1961, p. 7. (Mimeographed) 11Morris H. Glazer, "Impact of Piggyback," Transport Topics, May 1, 1961, p. 6. 12Delos Rentzel, "Statement Before the Senate Committee on Commerce in Support of Senate Bill 1197, " May 1961, pp. 20, 21. (Mimeographed. ) 13Motor Vehicles—Kansas City to Ark., La. & Tex., I & S 7269, IEXHibit III. lI"Ibid., testimony of'Mr. Charles Pieroni, at p. 113 of the Transcript of Oral Hearings. 15"Nationa1 Automobile Transporters Association, Petition For a Declaratory Order, MC- C- 3024, March 7,1962. " (Mimeographed. ) 16Interviewwith a shipper representative who desires his identity be withheld. 17J. E. Gilliland, "Statement Before the Surface Transportation Subcommittee of the United States Senate Committee on Interstate and Foreign Commerce," April 10, 1961. (Mimeographed.) 18The Indiana Harbor Belt, for example, encountered 244 clearance difficulties in four places. To provide trilevel clearance under bridges, the company lowered its tracks in the problem areas. Railway Age, July 3, 1961, pp. 22, 23. l91b1d., pp. 21, 22, 23. 291E21., July 24, 1961, pp. 12, 13. 21Ibid., p. 19. 22Motor Vehicles- Kansas City to Ark., La., & Tex., I & S 7269: testimony of Mr. Rudy T. Fick at p. 96 of the Transcript of Oral Hearings. 23Ibid. 2”The reduced rate on automobiles is in large part a result of the lower cost of transporting vehicles in the rack cars. One obvious reason for this is the greatly increased capacity of the basic transportation unit. There are other factors to be considered. For example, the cost ‘of the rack car is fairly modest. Moreover, the railroad must haul only 8500 pounds of tare weight per automobile in trilevel service compared with 15,000 pounds tare weight per vehicle in boxcar service. Ibid., testimony of Mr. J. E. Gilliland at p. 156 of the Transcript of Oral Hearings. 25Ibid., Exhibit 9. Studebaker officials confided in an interview that savings might even be more substantial if motor carriers reduced their rates as a result of the increased competition. This has already occurred. One carrier has offered a new seven-car rate which yields only slightly more revenue than the old five-car rate. For example, the rate from.South Bend to Butler, Pa. is $48.80 per vehicle for a five-car load and $35.30 per vehicle for a seven-car load. The carrier is, therefore, handling two additional vehicles for $3.10. The rates to New YOrk. City yield $56.65 more for seven cars than they do for five cars, but to New Castle and Sharon, Pa., they provide only $.60 and $.30 more respectively. I mm indebted to Mr. Paul Skipworth of the George F. Burnett Co. for data on the seven—car rates. 26Interviewwith a shipper representative who de- sires his identity be withheld. 27Delos Rentzel, "Statement Before the Senate Com— mittee on Commerce in Support of Senate Bill 1197," May, 1961, p. 3. (Mimeographed) 28Most shippers contacted stated that company policy prevented them from disclosing information which would 245 indicate the extent of the diversion which has taken place. 29Letter from C. E. Brown, General Traffic Manager, Automobile Manufacturers Association, Inc., February 15, 1962. 30Letter from.Mr. Paul G. Fritzching, Director, Corporate Traffic Office, Chrysler Corporation, February 9, 1962. 31H. S” Statutes at Large, LXXII, p. 572. The section referring to the national transportation policy was added by the amendment of September 18, 1940 and reads: "It is hereby declared to be the national transportation policy of the Congress to provide for fair and impartial regulation of all modes of transportation subject to the provisions of this Act, so administered as to recognize and preserve the inherent advantages of each; to promote safe, adequate, economical, and efficient service and foster sound economic conditions in transportation and among the several carriers; to encourage the establishment and maintenance of reasonable charges for transportation services, without unjust discrimination, undue preferences or advantages, or unfair or destructive competitive prac- tices; to c00perate with the several States and the duly authorized officials thereof; and to encourage fair wages and equitable working conditions;-- all to the end of developing, coordinating, and.preserving a national transportation system by water, highway; and rail, as well as other means, adequate to meet the needs of the commerce of the United States, of the Postal Service, and of the national defense." U. S., Statutes at Large, LIV, p. 899. 32A bill (S. 1197) which would require emphasis on the second part of Section 15 a (3) was the subject of hearings before a Senate Committee. By a vote of twelve to three, consideration of the bill was postponed. Traffic World, September 2, 1961. 33See for example: Peter T. Beardsley, "Statement Before the Senate Committee on Commerce on S. 1197," May 11, 1961 (Mimeographed); and Frederick J. Freund, "Statement Before the Senate Committee on Commerce," May 11, 1961. (Mimeographed.) 3“On this point see the testimony of Senator Burton K. Wheeler who was chairman of the Interstate Commerce Committee and one of the managers of the Transportation Act of 1940. In response to a question by Senator George Smathers, Senator Wheeler explained the intent of the Congress in the Act of 1940. Question: "Was there ever, at any time, an intention eXpressed on the part of any members of the committee, or of the Senate that the 246 Interstate Commerce Commission should in effect, set rates so that one mode of transportation would be protected against another mode?" Answer: "Definitely not. There ‘was'never any such intention. we thought we were making it perfectly clear that there was no way in which water carriers' rates could be raised so as to protect the rail— roads, and nothing to protect the motor carriers, and nothing to protect the railroads. we wanted it so that each one of them.would have full advantage of their inherent advantages." U. S. Congress, Senate, Committee on Inter- state and Foreign Commerce, Hearingsi Rate—MakingRule-- ICC.Act, 85th Cong., 2nd Sess., May 20, 21, 1958, pp. 8, 9. 35On this issue the motor carriers indict the Commission for inconsistency. In Automobiles- Duluth, Minn. to Washington, 308 ICC 523, (1960), the Commission ruled that rates which did not reflect different weights and the different values of the automobiles were unlawful. The Commission declared, "The mere fact that the prOposed rate may be compensatory does not establish its reason- ableness. Compensativeness is only one of the factors to be considered in determining reasonableness. The prOposed rate gives effect to the distance hauled, but the weight and value of the automobile to be transported are ig- nored." p. 526. Since the contested tariffs name flat rates per carload or per vehicle, they obviously fail to meet the criteria of reasonableness suggested in the Duluth case. 36For an exception, however, see: NATA, Petition For Suspension, October 12, 1961. The protest concerns rates published by the New York Central on motor vehicles between Detroit and Pittsburgh. The Commission has sus- pended the rates in docket I & S 7702. 37Motor vehicles -Kansas City to Ark., La., Tex., I & S 7269} ‘Unnumbered eXhibIt submitted"5y‘Mr. GiIbert Parr. 38By this, of course, the railroads do not suggest that they have not been injurious to motor carriers. Mr. Jervis Langdon explained the rail view in recent tes- timony: "To hold that the railroads must stop short of producing an adverse effect upon their competitors is to hold that the railroads cannot compete. For the entire purpose of competition is to allow one competitor to advance against another, and as long as this is done openly and for the purpose of improving net earnings, there can be no valid complaint." Jervis Langdon, "Statement Before the Senate Committee on Commerce", June 15, 1961. (Mimeographed.) 39Motor Vehicles ~Kansas City to Ark., La., Tex., 247 I & S 7269, Report and Order Recommended by George A. Dahan, Hearing Examiher, June15,I96l, p. 1. (Mimeographed) 40 41 42Ibid., p. 17. 43 Ibid., p. 15. Ibid., p. 16. Ibid. (Emphasis mine.) halbid., pp. 17, 18. 45Motor Vehicles ~C1eve1and1_Detroit, Lorain to New England anmerunk Line, I & S 33392, Report and Order Recommendedby T RussellhRoper, Hearing Examiner, June 5, 1961. (Mimeographed) 46Out-of-pocket costs are here taken to be the long- term variable costs which are "the expenses which can be directly assigned to any given product or service and they include the direct costs for labor, material, equipment, supervision, interest, etc., incurred solely as a result of the production of the given product or service." Ibid., p. 20. “71b1d. O usThese averages are not weighted by the volume of movement between the various points. 491b1d., p. 21. ~ 50Ibid. 51Ibid., p. 22. 52Eastern Central Motor Carriers.Association, Inc. v. Baltimore & Ohio Railroad Company et. al.,No. 32533, (1961), p. 64. (Mimeographed) 53 5”Ibid., pp. 65, 66. Ibid., p. 65. 55Ibid., pp. 71, 72. CHAPTER IV 1For a complete description of these factors see: Classification of Motor Carriers of Property in the Matter 248 of the Classification of Brokers and Motor Carriers of Property4gEx parte No. MC-lO, 2 MCC 703, (1937). 2Carriers separately classified by commodity trans- ported included: (1) Carriers of general freight; (2) Car- riers of household goods; (3) Carriers of heavy machinery; (4) Carriers of liquid petroleum products; (5) Carriers of refrigerated liquid products; (6) Carriers of refrigerated solid products; (7) Carriers engaged in dump trucking; (8) Carriers of agricultural commodities; (9) Carriers of motor vehicles; (10) Carriers engaged in armored truck service; (11) Carriers of building materials; (12) Car- riers of films and associated commodities; (13) Carriers of forest products; (14) Carriers of mine ore, not in- cluding coal; (15) Carriers engaged in retail store de- livery service; (16) Carriers of explosives or dangerous articles; (17) Carriers of specific commodities, not sub- grouped. Ibid., pp. 711, 712. . 3Ibid., p. 711. “One carrier, for example, sought to have its authority to transport motor vehicles interpreted in such a way as to authorize it to carry any kind of vehicle. J. A" McDowell, Common Carrier Application, 17 MCC 642, (1939). 5Some carriers sought to have grants of authority limited by specifying the make of automobile which could be transported thereunder. See for example: Pacific Motor Trucking Company Extension-~Oregon, 71 MCC 561, (1957). 6The position of the Commission is illustrated in its decision in a dispute over whether busses might be transported under the authority to transport trucks. Some carriers (with shipper support) argued that a bus was no more than a special body mounted on a truck chassis. If special authority is required to haul a truck chassis with a bus body then special authority should be required to transport all specialized vehicles equipped with special bodies such as fire engines and garbage trucks. The Commission insisted that a bus was a bus and, there- fore, that separate authority was required for its trans- portation. Kenosha Auto Transport, Inc., Union City Ex— tension, 54 MCC 689, (1952). FOr further evidence ongthe View of the Commission in such cases, see also: Kenosha Auto Transport Corporation Extension--Twenty-One States, 61 MCC 41, (195477’Kenosha AutoiTransport Corporation Extension—-Denver, 67 MCC 233, (1956); Dealers Transit, Inc. Extension--Fresno, Calif., 79 MCC 26, 28, (1959);_Zeonard Bros. Transfer & Storage Co., Inc., Extension--Trailers, Ef'fififi 623, (I960). 249 7National Automobile Transporters Association et al. v. Rowe Transfer & Storage Company, Inc., 64 MCC 229, (1955); L. C. Jones Trucking Co., Extension-~the Dakotas, 62 MCC 539, (1954); Convoy Company Extension--Snowmobi1es, 79 MCC 187, (1959); See also United Transports v. Gulf Southwestern Transportation Company, 81 MCC 1, (19595. 8United Transports v. Gulf Southwestern Transpor- tation Company, 81 MCC’l, (1959) may be cited as an example of the Commission's approach in these disputes. The controversy raged around the nature of the authority required for the transportation of a deactivated vehicle which was loaded by a crane. Heavy goods haulers argued that since flat—bed equipment and cranes were employed, their authority was adequate. The Commission's decision hinged upon whether deactivation was "attributable to, and required, by the vehicles themselves, or was caused merely by the desire of the carrier to utilize flat-bed equipment." p. 6. In this particular case, wheels were removed from busses in order to reduce the overall height of the shipment. Division 1 reasoned that if the wheels had not been removed, clearance requirements would have dictated the use of special lowboy trailers. The use of cranes for loading, Division 1 concluded, resulted from.the excessive height of the vehicles so that trans- portation of these vehicles was within the authority of heavy haulers. p. 6. 9Dallas & Mavis Forwarding Co., Inc., Ext.--Ga1ion, Ohio, 72 MCC 653, (1957); Dallas & Mavis Forwardin Co., Inc.,Ext.--Ga1ionj Ohio, 79 MCC 285, (19595; W. J. Dillner Transfer Company--Investigation of Operation, 79 MEG 335, (1959). O , . Automobile Shippers, Incorporatedi Extenslo --Show Cars and7Disp1ays, 67 MCC 201, (1956). llIn one instance, for example, the authority granted to the carrier had provided for the transportation of "new trucks, new tractors, new chassis, and parts thereof." Ka e1 Extension of Operations—-LaPorteJ Ind., 32 MCC 521, ([882). The CommisSion interpreted the phrase, "parts thereof" to be "limited to such parts as are necessary to complete the particular shipment,” and added a gratui- tous comment to the effect that truckaway equipment is not suitable for the transportation of automobile parts such as the radiators applicant sought to transport. In a subsequent case, a carrier's certificate permitted trans- portation of "new automobiles, new tPUCkS and automobile parts in initial and secondary movements, in truckaway and driveaway service..." Convoy Company, Interpretation of Certificate, 52 MCC 191, (1950). Two of the three members of DIVision 5 chose not to read the certificate 250 literally and they prohibited the transportation of automobile parts except to the extent necessary to com- plete a particular shipment. 12See for example: Case Driveaway, Inc., Extension-— Lumber, 51 MCC 659, (1950). *Tn this instance, Case Driveaway, in an effort to balance an otherwise empty backhaul, sought out a group of lumber mill operators in the South who, because of rail deficiencies, were delighted with the prOposed service. Case, likewise, secured cus- tomers one of whom, located in Michigan, had experienced difficulty in securing the green lumber necessary for his Operation. Rails were impractical in his situation since lumber bought in carload lots tended to dry out before it was completely used and the cost of less-than—carload lots was prohibitive. The Commission concluded that the use of the service by the lumber mill operators was problem- atical and speculative; that the receiver at Base Line had never ordered lumber from the South; and, that despite his testimony to the contrary, his Michigan supply was adequate. Division 5 went on to say: Applicant has had no experience in the trans- portation of lumber with its present motor-trans- port equipment or any other type of equipment. The evidence is convincing that it is principally interested in obtaining the considered traffic in order to balance its automobile movements.... p. 663. .After observing that there were motor carriers with author— ity to perform the transportation, (although they had ev- idenced no interest in develOping the traffic) the Com— mission denied the application. 3McDowall Transport, Inc., Extension-~Fruits and Vegetables, 47 MCCS9S7, (19477. 14 15Arco Auto Carriers, Inc., Extension-~Dekalb, Ill., 72 MCC 379, (1957). Convoy Co., Extension-~Board, 71 MCC 57, (1957). 16Western Auto Transports, Inc., Extension--Lumber, 72 MCC 3457’3467 (19577. 17Case Driveaway, Inc., Extension--Lumber, 51 MCC 659, 663, (1950). 18Western Auto Transports, Inc., Extension-~Lumber, 72 MCC 346, (1957). ' 19Case Driveawayiylnc., Extension-~Lumber, 51 MCC 659, 663, (1950). _ 251 20Western Auto Transports, Inc., Extension—-Lumber, 72 MCC 3457 346, (19577. 21warren H. Wagner, A Legislative History of the Motor Carrier Act, 1935 (Dentonz’Rue PubliShin Company, 1935), p. 507 ‘See also: Carolina Freight Carr ers Corp. v. U. S., 38 F. Supp. 549, (1941); 22U. S. Congress, Senate, Select Committee on Small Business, Hearings, ICC Administration of the Motor Carrier Act, 84th Cong., lst Sess., (1955), especially pp. 5-12. 23See for example: Fred H. Nixon-~Common Carrier A lication, 26 MCC 325, 327, (1940). See alsoffiHoward GramlicH-—Common Carrier Application, 26 MCC 431, (1945). 2LiBlain's Drive-A-Way System—~Common Carrier Appli- cation, I6 MCC 583, 585, (1939); JOse h Wiel o olski-- Common Carrier Application, 21 MCC 217, 219, (19395. 25See: Bernice Eaton Common Carrier Application, 22 MCC 791, (19407;7F.7WL‘Myers--Common CarrieriApplica— tion, 23 MCC 451, 469,7(1940). 26F.‘W‘. Myers—~Common Carrier Application, 23 MCC 451, 469, (1940). It is interesting to note here that as will be pointed out later, the desire of a shipper is not of itself sufficient to secure Operatin rights for the favored carrier but apparently, the dec sion by a shipper to make use of the service of another carrier did result in the loss of "grandfather" operating rights. 27See: Bernice Eaton Common Carrier Application, 22 MCC 791, (I94U7. 28Hulbert Forwarding Company, Inc., Common Carrier Application, 28 MCC769, 770, (194I). 29Associated Transports, Inc., Common Carrier Appli— cation, 267MCC'789, 792, (19407. 30Kenosha Auto Transport Corporation, Common Carrier Application, 22 MCC 753, 757, (1940). 31Motor Convoy: Incorporated--Contract Carrier Appli— cation, Z’MCC 197, (1937). 321bid. 33In Contracts of Contract Carriers, l MCC 628, 629, (1937), the Commission observed that the states had placed restrictions on contract carriers in order to protect com- mon carriers. The limitations which the Motor Carrier Act imposed on contract carriers were motivated by the same 252 set of considerations according to the Commission. "The patent object," the Commission stated in speaking of these restrictions, "is to protect the common carrier from cut-throat competition." p. 629. 3“These rules, which refined the definition of con- tract carriage, provided that: All contract carriers shall transport under contracts or agreements which shall be in writing, which shall provide transportation for a par- ticular shipper or shippers, which shall be bilateral and impose specific obligations upon both carrier and shipper or shippers, which shall cover a series of shipments during a stated period of time in contrast to contracts or car— riage governing individual shipments, and copies of which shall be preserved by the carriers parties thereto so long as the contracts or agreements are in force and for at least one year thereafter.... The contracts need not cover long periods of time or fixed amounts of traffic. Contgacts of Contract Carriers, l MCC 628, 629, (1937), pp. 32. 35This in itself was not sufficient to determine status. See: Kenosha Auto Transport Corporation, Common Carrier Applicatidn, 247MCC 753; J. A, MCDowall, Common Carrier AppliCatiOn, 17 MCC 642, (1939). 36See: Associated Transports, Inc., Common Carrier Application, 26 MCC 789m (1940). 37They may not even do this by indirection by inter- lining with other carriers. Commercial Carriers, Inc., et al., v. Auto Carriers, Inc., et al., 66 MCC 247, 249, 'TT955). 38Commissioner Lee objected to the imposition of the restraints imposed on contract carriers on three grounds: (1) The Commission was without authority to impose such conditions. (2) Historically, contract carriers have transported commodities without written agreements; these contracts covered single shipments; and the contracts were "not mutually enforceable as executory agreements." (3) There is nothing in the context of the Act to suggest that Congress intended that the term contract carriers should be given a meaning which differed from.the histor- ical meaning. See: Contracts of Contract Carriers, l MCC 628, 635, (1937). 39J-T Transport Company v. United States, 185 F. Supp. 838, 843. (1960). qugig. v. Contract Steel Carriers, 350 U. S. 409 (1956). 253 41 J-T Trans ort Com an v. United States, 185 F. Supp. 838, 843, 834. (1968). quee: Reddish v. United States, 188 F. Supp. 160, 165, (1960). “BJ-T Transport Company, Inc., Extension--Columbus, Ohio, 7O—MCCW695, C1959). uhlbid., p. 705. The idea that the loss of "poten- tial traffic" adversely affects a carrier while it was also adepted in the PMT case (see below) has not been un- iversally employed by the Commission. Most frequently, the Commission has ruled that since carriers were not participating in the traffic, no injury could be presumed. See for example: Speedway Transports, Inc., Extension-- Secondary.Authority, 76 MCC 275, (I9587. “51b1d., p. 708. héJ-T Transport v. United States, 185 F. Supp. 838, 846. (19607. “71b1d., p. 848. uslbid., pp. 848, 849. The decision in the J-T case was cite335ith approval in a subsequent case, the Reddish case already alluded to and was affirmed by the Supreme Court on December 4, 1961 in Interstate Commerce Commission v. J—T Transport Co., et al.{_368U. S. 81. (1961). Despite the adverse rulings of the courts, the Commission has still found it possible to deny contract carrier service. In the Moyer Case (Carlton M. Mbyer--Contract Carrier Application, MC-ll7957 Sub. No. 1, March 1962) the Commission denied a request for contract carrier authority on the grounds that the proposed service was not "specialized in nature." The Commission considered the willingness of common carriers to spot trailers at the shipper's plant to be equivalent to the exclusive assignment of vehicles and equipment offered by the con- tract carrier. p. 14. The Commission comes perilously close to repeating here that authorization of contract carriers is to be dependent upon the availability and the willingness of common carriers to perform deserved service. 49Interviewwith Mr. Earl Wiseman, Assistant Traffic IManager, Studebaker-Packard Corporation, June 22, (1960). 50U. s. Statutes at Large, XLIX, 551, 552, 553. 51Pacific Motor Trucking Company Extension—-Oregon, 71 MCC 561, 565, (1957). 254 52Edward S. Barrett Contract Carrier Application, 19 MCC 761, (1939). (Emphasis supplied) The ICC indeed seemed prepared to go a pretty long way to coerce shippers into accepting a type of service they did not desire. In one case, a contract carrier sought a permit in order to transport Packard automobiles. Because of the height of the vehicles, he had designed a special trailer not furnished by existing carriers. The Commission admitted that shippers wanted the service and would benefit from the service, but it nevertheless denied the authority sought on the grounds that existing carriers, despite past failures, would render better service in the future. Charles E. Turner Contract Carrier Application, 8 MCC 732, (1938). 53Arco Auto Carriers, Inc., Extension-4Milwaukee, 49'MCC 731, 769, (19497, p. 770. 54ArcoAuto_garriers, Inc., Extension—-North Tarry- town, N.3Y., 74'MCC‘717, (1958), pp. 720, 721. 55Associated Transports, Incq,Extension--Kansas City, Mo., 71 MCC 367, (1957). 56 Ibid., p. 369. 57lpthe'Matter of Filing_Contracts by Conppact Carriers_By'Motdr vehicles.Ex;parte No, MC-g, 2 MCC 581bid., 41 MCC 527, 528, (1942). 59Auto Transports, Inc.; Suspension of Permit, 51 MCC 600, (1950). 60"Questionz‘What do the terms 'Initial'Movements,‘ 'Secondary or Subsequent Movements,’ and rMovements or Transportation for Fleet Users"mean, when used in cer- tificates and permits issued to carriers of automobiles?" "Answer: The term.'Initia1 Mbvements' means transportation of new motor vehicles from.a place of manufacture or assemr bly, specifically authorized to be served as a point of origin by the originating carrier's certificate, or permit, to any point or place upon the authorized route or within its defined territory for delivery to consignee or to a connecting carrier.‘ The term 'Secondary or Subsequent Movements' means transportation of Motor vehicles, except transportation of new motor vehicles from a place of manu- facture or assembly, by a carrier to, from, and between all points and places upon its authorized route or routes or within its authorized territory for delivery to consignee or connecting carriers. Such movements also include cross movements, back hauls and movements to and from body and 255 specialty plants upon the route or routes or within the authorized territory of the Carrier. Automobile Carriers- Initial Movements-Secondary or SubsequentiMovements-or Trans ortation For Fleet Users-JRuling—No. 75, JulyilS, , Sect ons a ; (a); 209 (b). 61Movement from one municipality to another-~even a contiguous one—~does destroy the initial character of sub- sequent movements however. See: Howard Sober, IncriAEx- tension—~California, 49 MCC 615, (19497. See alsofifioward Sober, Inc., Extension--United States, 64 MCC 545, (1955). Since a vehicle mayihave oniy one initial movement, some interesting questions have come before the Commission which involved the movement of trailers. If a new tractor is brought in from some plant outside the commercial zone to which a trailer is attached for delivery to a buyer, the carrier must possess secondary authority for the tractor and initial authority for the trailer. Arco Auto Carriers, Inc., Extension of Operations——Milwaukee, 47 MCC 95, (1947). A change in method of9manufacture which required the import of dollies upon Which trailer- ized tanks were mounted cast doubts upon the validity of the rights under which a carrier had previously transported these trailers. The Commission decided that a dolly is not a vehicle and that the carrier's secondary authority was inappr0priate. Dealers' Transport Co.i Extension of Operations——Cincinnati:Ohio, 48 MCC 471, (1948). 62Dealers Transport Company, Extension--Delaware, Ohio, 499MCC 207, (1949). 63Cited in: Brief of Petitioner in Advance of the Examiner’s Report anthecommend d Order, MC-C¥3024, Sept.30, 1960, p.910. 6“Dixie Transport Company, Extension Several States, MO 88300 (Sub) N . 24), Report and Recommended Order of Examiner Reece Harrison, Aprii78,l960. 651bid. 661bid. 67Petition For Declaratory Order Under Section Five (d) of the Administrative Act, DocketNo.7ME;C-3024, July 27, 1960, Transcript of Oral Hearing. 68Cited in: Brief as Requested by the Trial Examiner, for Kenosha Auto Transport COrp., M ~C-3024, October 24,1960. 69National Automobile Transporters Association, Peti- tion For a Declaratory 0rder,7MCLC-3024,7Report and Order Recommended by William.R. Tyers, July 20, 1961. pp. 2, 3T 256 70Brief of Petitioner in Advance of the Examiner's Report of9Genera1 Motors Corporation, MC-C-3024, Octdber 2i, 1960. 71These were the Louisville and Nashville Railroad and the Atlantic Coast Line Railroad. In addition, Great Northern, Northern Pacific, Chicago and Northwestern, Chicago, Burlington and Quincy, Colorado and Southern, and Fort Worth and Denver railroad companies supported the petition insofar as it related to Plan I TOFC Opera- tions. See: Petition For Declaratory Order Under Section Five (d) of the AdministratiVe Act, MC— C— 3024, Transcript of Oral Hearings, pp. 332, 403. The only other railroad represented at the hearing, the Frisco, expressed oppo- sition to Plan I service but did not object to a ruling which would recognize the authority of a carrier with initial rights to participate in TOFC without securing additional authority for a substituted service between the rail interchange points. Ibid., p. 383. 72The Atlantic Coast Line and The Louisville and Nashville estimated their loss to be about $6000 a month. Brief on Behalf of Atlantic Coast Line and Louisville and Nashville Railroad’Companies, MC- C43024, OEtdber 21,1960, p. 6. 73In its Brief, The Clark Transport Company declared: "In effect, what petitioners are seeking to do is to re- move initial authority restrictions placed in their out— standing certificates. Such restrictions were placed in their grandfather certificates, as that is the type of service they were conducting as of the critical date. On subsequent certificates that they have received from this Commission, these carriers themselves sought authority containing the initial service restriction. How can they sincerely present to this Commission, after twenty-two years of regulation, a request that these restrictions be removed without an iota of proof of public need therefore, merely for the reasons that the rails are, for the first time in years, starting to provide competition for these petitioners. Brief of Clark Transport Company, Intervenor in Opposition, MC- 0:3024, Octdber 24, 919609 p.9I6. 7(""National Automobile Transporters Association, Petition f0 or Declaratory Order, ‘MC9C93024, ‘Report and Order Recommended by William R. Tyers,9Jul9920, 1961, p. 8. 751bid., p. 10. 76Some shipper representatives have confided in in- terviews that they have had to do business with motor car- rier firms with whom they did not want to deal. Shipper objections result from a variety of factors. Sometimes 257 these carriers haul primarily for other firms; sometimes they supply less attractive service; sometimes their at— titude or cooPerativeness is found objectionable by the shipper. Subsequent to this writing, Division 1 served a tentative report (National Automobile Transporters Association, Petition For a Declaratory Order, MC-C—3024, March97,91962.) in which it proposed9substantial modifi— cations in the report of its examiner. The Division aban- doned the narrow, legalistic approach to consider the ec- onomic impact of its decision. "Due to the changes in the physical movement which have occurred, however," the ‘ Division stated, "it is clear that a fresh approach con- cerning the underlying rationale of.grants of initial and secondary authorities is necessary in the interest of es— tablishing a degree of stability in the automobile hauling industry." p. 23. Division 1 ruled that a carrier holding initial rights could participate in Plans I and III with— out securing additional rights. p. 27. The Division also decided that, under certain circumstances, acting as agents for shippers, contract carriers could participate in TOFC movements. p. 30. The Division further prOposed a simplified procedure by which additional rights could be secured "so that the initial carrier can continue to be in a position to participate in traffic in those in— stances where initial authority, as here interpreted, does not cover the movement." p. 32. 77The purpose of requiring a certificate was ex- plained in the New State Ice Co. case. "The introduc— tion in the United States of the certificate of public convenience and necessity marked the growing conviction that under certain circumstances free competition might be harmful to the community and that, when it was so, absolute freedom to enter the business of one's choice should be denied." New State Ice Co. v. Liebmann, 285 U. S. 262, 282 (1932). 78 79 See: 11 Am“ Jur., Commerce p. 242. Ibid., p. 240. 80Empire Trails, Inc. v. U. S., 53 F. Supp. 373, (1942;; Inland9MOtor Freight v. U. S., 60 F. Supp. 520 (1945 . 8]'See for example: North East Transport Co. v. U. S., 54 F. Supp. 448, (1944); A. B. C. Motor Trans . Co., Tnc., v. U. S., 69 F. Supp. 166, (1946); Capital Tiansit 92. v. U. S., 97 F. Supp. 614, (1951). 82Texas and N. O. Ry. Co. v; Northside Belt Ry. Co., 276 U. S. 475, (19287. 258 831bid., p. 479 84Studebaker, for many years sought a duplication of authority for its carriers in the belief that compe- tition would provide improved service. Moreover, a Studebaker traffic official claimed that the temporary authority which the Commission issued to meet emergencies was too slow in addition to being inadequate. Interview with Mr. Earl Wiseman, Assistant Traffic Manager, Studebaker-Packard Corporation, June 22, 1960. 85Howard Sober, Inc., Extension-~California, 49 MCC 615, (1949). 86Ibid., p. 618. 87Howard Sober, Inc., Extension--California, 53 MCC 296, (1950). 88Dallas and Mavis ForwardingCompany, Common Carrier Application, 22 MCC 655, 661, (1940). 89Western Auto Transportsnync.,_Extension--St. Louis 92,, M9,, 81 MCC 291, 300, (195971 (Mimeographed) 90Ibid., p. 307. 91Area Auto Carriers Inc., Extension-~Milwaukee, 49 MCC 731, (19497. 92 Ibid., p. 769. 93KenoshaAuto Transport, Inc., 5 MCC 664, 667. (19381 94Pacific Motor Trucking Company, Extension-~Oregon, 77 MCC 605, (19587} 9Pacific'Mbtor TruCking is a wh011y owned contract carrier subsidiary of the Southern Pacific Company, a rail common carrier. 951bid., p. 620. 961bid. 97Ibid., p. 614. 981bid. 99The Commission reconciled its decision in this instance in the following language: "With one exception the existing motor carriers Sub No. 36 have handled only a very negl gible amount of the freight involved. Such carriers will, therefore, suffer no loss of traffic as 259 a result of the expanded service by applicant. A different result, however, will obtain in the instance of the rail- carrier connections of the Southern Pacific Company. The connecting rail carriers and protestant Transport Storage & DistributingCo. have shown that they will suffer a loss of traffic and the corresponding revenues therefrom to the detriment of their services." Ibid., p. 626. 100J-T Transport Company, inc., Extension-~Columbus, Ohio, 709MCC 695, (195971 101Dealers Transit,_Inc., Extension-~Vina Vista, Calif.,719MCC 657, (1957). 102 Ibid., p. 661. 103Complete Auto Transit, Inc., Extension-4WillOW'Run, 71 MCC 383,9385, (1957). ' 104Speedway Transports, Inc., Extension-~Secondary Authoripy, 76 MCC’275, 277, (1958). 105Lewis Brothers! Extension of Qperations--Amarillo, Texas, since 605, 608, (1938). 10 6Kenosha.Auto Trans ort Co ‘oration Extensio -- Kenosha, Wis., 72 M00 289, 291 (18527. For a simiIar €u11n see: Dallas & Mavis Extension-—Montana, 64 MCC 511, 1955 . 107Cassens Transport Company Extension—~Three States, 67 MCC 410, 413, (195679 108Kenosha Auto Transport Corporation Extension-- Kenosha,7Wis., 689MEC9237, 243, (1956). Cbmmissioner Tuggle in dissenting commented, "The need for filling the present void is shown not only by operational inequities on applicant's side but also by a reasonable shipper testimony describing dates and places of past inadequacies in present service. In addition, the picture is clear that applicant’s main competitors enjoy single-line service to the states involved and that this is considered in the involved industry as a significant advantage. In fact the competitive advantage of single-line service in the initial movement of new automobiles has long been recognized by this Commission. And, as I see it, the instant automobile manufacturer and applicant are standing, almost alone, the victims of an unrealistically strict viewy" p. 244. For another denial of single—line service in the face of existing interline service see: Dallas & Mavis Forwardinngo., Inc.y_Extension—-Toledo, Ohio to Nebraska and Extension--Milwaukee, 49 MCC 731, (19497. 260 109Kenosha Auto Transport Corporation Extension-- KenoshaJ Wis., 72 MCC 289, 291, (1957). llOIbid., p. 292. lllCassens Transport Company Extension-—Three States, 71 MCC 4II, 413. (1957)- 112Central Truckaway System, Inc.y Extension of Op- erations, 47 MCC 552, (1947). 113F. J. Boutell Driveaway Company, Inc., Extension-- Pontiac, 75 MCC 587, 591, (1958). ll’4Howard SoberyInc.J Extension—~Utah, MC 8989 (Sub 161), (1957). (MimeographedT) 115There are not enough cases involving motor carriers to establish whether or not particular shippers or carriers have been favored. 116Frank Sober, Contract Carrier Application, 3 MCC 213., 216, (1937). 117Cassens Transport Company, Extension of Operations, 18 MCC 273, (1939) 118Clark Transport Company, Extension-~Duluth, Minn. 53 MCC 237,244, (1951). 119Western Auto Transports, Inc.J Extension--St. Louis County, Mo., 81 M50 291,305, (1959). 120 Ibid., pp. 306,307. 121George Fairall, Extension of Operations, 1 MCC 769, (1937) 1221bid., p. 770. 123T. A. Darnally_Contract Carrier Application, 3 MEG 415, (1937). 1241bid., p. 418. 12511518. 126Brooks- -Gillespie‘Motors, Inc., Common Carrier Ap- p_ication, , 87 127 Ibid., p. 154. (Emphasis mine.) 128John G. Reeser, Extension-—Camden and Trenton, 261 Atlantic City, 16 MCC 663, 666, (1939). (Emphasis mine.) It must be noted that there was a temporary setback here. In the initial decision in this case, Division 5 had de- cided against a grant, and among the reasons for its find- ing is the conclusion that, "The evidence of record justi— fies a finding that the territory sought to be served is adequately served by existing rail carriers and that no necessity exists for the institution of the prOposed op- eration." John G. Reeser Extension--Camden, N. J.-New Jersey Points, 92MCC'528, 530, (1938). 129Edmond O. Rainville, Contract Carrier Application, 20 MCC 367, 309, (1939). (Emphasis mine.) 130 Kenosha.Auto Transport Corp.j Extension—~Gadsden, Ala., SZWC , 126, (1950). 131International TransportJ Inc.j Extension-~Tractors and Farm.Ma¢h1nery, 66 MCC 241, (1955). 132 Ibid., p. 243. 133Ibid. The Commission explained its REW'pOllCY more completely In a case which did not involve the transpor— tation of new motor vehicles. The Commission declared, "We do not conceive, that every shipper is entitled to have made available to it every mode of transportation without regard to the volume of the available traffic or the adequacy of whatever transportation may be available.... Usually it is desirable from the viewpoint of the shipper and in the public.interest that competition within reason be encouraged... but if sound economic conditions in trans- portation are to be fostered, the advantages of competition ‘must in some instances yield to the need of the existing carrier or carriers, depending upon the amount of the avail- able traffic and the comparative adequacy of the existing services!’ A. J. Metler,_Extension——Crude Sulphur, 62 MCC 143, 148, (1953). It is interesting to note that in this case, the Commission ruled against a grant of authority to the motor carrier and sustained that verdict on reconsid— eration. When the applicant filed a complaint in a District Court, the Commission reversed itself after an expression of doubt from the Justice Department that it could suc— cessfully defend the Commission‘s order. Commissioner Knutson in his dissent complained with obvious justifica- tion, "Thus we have marched up the'hill and down again in the same marching shoes and over the same highway, as far as the evidence of record is concerned." Ibid., p. 150. 134Commercial Carriers, Inc., Extension of Operations, Evansvillé,lndiana, 12’MCC 479, 484, (1939). See also: ClarE Transport Co., Extension-~Oklahoma City, 64'MCC 203, 262 (1955); Andrew ClarkJ Extension of Operations, 16 MCC 535, (1939). In this latter case, a similar plea by water carriers was rejected. 13SKenosha Auto Transport Corp., Extension--Gadsden, Ala., 52 MCC I23, 125, 126, (1950). 136Ibid., p. 127. 137The Commission's evaluation of its power to protect carriers has been overestimated. If a shipper is denied common or contract motor service he may well turn to pri- vate carriage. The automobile manufacturers are in a better position than most shippers so far as private car- riage is concerned. One of the principal handicaps most private carriers encounter is the expense which results from their not being able to get the backhaul available to common carriers. But, motor carriers of automobiles typically have no backhaul. Several shippers have admitted considering private carriage. However, as one shipper pointed out, it would be difficult for a single manu- facturer to undertake private carriage unless he were willing to sacrifice tractor sales. Motor carriers could be expected to boycott the tractors of a manufacturer who undertook private transportation. 138We shall return to this point in a subsequent chapter. l391nternational Transport Inc., Extension--Tractors and FarmiMaEhifiery, 66*MCC241,244, (1955). lqu. J. Hatler, Extension—~Crude Sulfur, 62 MCC 143, 147, (1953). lM‘Kenosha Auto Transport Corp., Extension--Gadsden, Ala., 52"MCC7123, 126, (1950). 1leInternational Transport, Inc., Extension--Tractors and FarmiMachinery,’66'MCC 241, 244, (1955). 143Kenosha Auto Transport Corp., Extension-—Springfield, Ohio, 6813(70 525, (1956). 144International TransportJ Inc., Extension--Tractors and FarmeaEhinery, 66’MCC 241, 244, (1955). luSWestern Auto Shippers, Extension of Operations, 3 MCC 173, (I937). 146Kenosha Auto Transport Corp., Extension-~Gadsden, Ala., 52‘MUU’IIB, 126, (1950). 263 1”711316. 1b’8See for example: George E. Hardy, Contract Carrier Application, 7 MCC 233, (1938). 1M9Dallas and Mavis Forwarding Co. Inc. , Extension-- Swee ers, 67 MCC 35f, 355, 356, (1956). A recent decision By a U. S. District Court would require that the ICC con- sider relative rates in judging adequacy. The Court ex— plained, "Our holding is that where the lower rates re- sult from economies and advantages inherent to contract carrier operation...and there is a showing that efficient business operations require the proposed tailored service-- including the lower rates...the Commission may not dis- regard this evidence in its evaluation of the effect of a denial of the permit upon the applicant's supporting shippers." Elvin R. Reddish v. United States, 188 F. Supp. 160, 167 (1960). CHAPTER V 1The magnitude of the gross revenue figures and perhaps also the relative shares of the various railroads have been changed as a result of TOFC and multilevel service, but the data necessary to examine the shifts is not yet available. 21n economic literature a distinction is made be- tween joint and common costs, the former describing costs in which production of one good necessarily gives rise to creation of another (e. g. wool and mutton) while the latter refers to expenditures incurred in behalf of sev- eral goods or services. See: Joel Dean, Managerial Eco- nomics (New York: Prentice—Hall, 1956), p. 270. 3John R. Meyer et al., The Economics of Competition in the Transportation Industries ("Harvard Economic Studies," Vol. CVII; Cambridge,7Mass.: Harvard University Press, 1959), pp. 274-76. uFor a discussion of rail cost characteristics see: Interstate Commerce Commission, Explanation of Rail Cost Finding Procedures and Principles Relating to the Use of Costs, Statement No. 4L54 (washington: 2U. 8. Government Min ting Office, 1954). 5 R. L. Banks et al., "Study of Cost Structures and Cost Finding Procedures In the Regulated Transportation Industries", (Unpublished study prepared for the U. S. Department of Commerce, November, 1959), chap. iii, p. 2. 264 6Motor Vehicles- Kansas City to Ark., La., & Tex., I & S 7269, (1961). (Mimeographed.) 7Motor vehicles— Cleveland, Detroit, Lorain to New England and Trunk Line,'I & 8333392,3(I961). p. 11. (Mimeographed.) 8New.Automobi1es in Interstate Commerce, 259 ICC 475, 502, (1945). 9Meyer et al., op. cit., chap. iv. 1ONewAutomobiles in Interstate Commerce, 259 ICC 475, 574, (1945). ’These were estimated’from.Appendix 9. llMeyer et al., op. cit., p. 210. 12There isn't much evidence of rate competition be- tween railroads for new automobile traffic. Only rarely is the rate of one railroad attacked by another rail car- rier. A notable exception occurred when the Frisco pro- tested the rate of the Kansas City Southern in I & S 7269. This protest was later withdrawn. See: NATA, Brief of the National Automobile Transporters Associatiyn, I8: 3 7269, October 3, 1960, p. IS. 13The rate reductions in the late 1930's which pre- cipitated the NATA protest and the subsequent eneral in— vestigation support this interpretation. It 11 be re- membered that at this time, the rails sought to remain competitive by deducting from established truck rates an amount just sufficient to reflect rail disabilities. These truck rates were in turn based on rail monopoly rates which had existed prior to 1930. Instead of filing rates based on the cost of providing service, rails attempted minor modification of rates which had been constructed on value-of-service principles. luErnest‘W.‘Williams, Jr., The Regulation of Rail— Motor Rate Competition (New York: Harper &2Brothers,71958), p. 221. 15? assen er Automobiles in Southern Territory 288 ICC mfg, 537. . ’ 16Chrysler Corp. v. Akron C & Y R Co., 279 ICC 377, (1950). . , 17This view is shared by NATA attorneys. A letter reproduced in NATA Bulletin 1624 from the law firm of Matheson, Dixon and Brady to R. E. Beiser of the NATA stated: "In.several instances the Commission report inti— mates that perhaps the rail carriers have not gone far 265 enough to meet their competition from the northern origins and that their insistence on maintaining rates from these origins at the maximum level of 75 per cent is the key to the railroad difficulty." 18Interstate Commerce Commission, Bureau of Accounts, Distribution of the Rail Revenue Contribution by Commodity Groups-—1958, Statement No. 4-60 (washington: U. 8. Government Printing Office, 1960), pp. 34-69. 19For example, see the views of Mr..A. W} Richardson, chap. ii, p. 24. 20American Trucking Associations, Financial & Oper- atingStatistics, Class I and II Motor Carriers of Property, (WhShifigton: American Trucking Associations, Inc., 19607. 2I‘I'This is true, for'example, in the case of Kenosha Auto Transport which maintains a large terminal from.which other American Motors motor carriers are served from the Kenosha plant. Kenosha Auto Transport also originates a considerable volume of TOFC traffic under Plan I so that part of the total revenue earned by it is turned over to railroads for their share of the haul. ' 22American Trucking Associations, 0p. cit., pp. 1—26. 23These averages were computed from the.American Trucking Associations' Financial and Operating Statistics, Class I & II Motor Carriers of Properpy. The Operating ratio is not a sure index to profitability. See: Laurence S. Knappen, "Transit Operating Ratio--Another View," Public Utilities Fortnightly, Vol. 51, Part 2, (1953). Nevertheless, the reportedioperating ratios along with in- formation provided by the Commission in the New'Automobile case suggest that the transportation of new automobiles has been a highly profitable venture. 2“The following letter, dated October 27, 1961, was received from.Mr. Walter N. Bieneman, attorney for the NATA, in response to an inquiry about the possibility that motor carriers would introduce cost data in I & S 7702. A personal reference has been omitted. "We have not previously put motor carrier costs into the proceedings before the Commission because we felt that our rates were not on trial. Furthermore, it is vir- tually impossible to make a fair comparison between our costs and those of the rail carrier. ‘With respect to motor carriers of automobiles, this is our only traffic and it must bear the fully distributed cost, including a reason- able profit. For this reason, you will usually find that 266 our published rates quite closely reflect our cost.... On the other hand, nobody has yet found out how to accurately compute the rail cost for the transportation of a given commodity such as automobiles and there are a great many assumptions involved which are of doubtful va- lidity. Furthermore, the railroads always want to use out-of—pocket costs while we feel that this is highly im- proper for a high-grade commodity which is bulky, and has such a high value of $1.00 or more per pound. Under the Commission's formula, even when computing so—called fully distributed costs, the overhead burden is assigned on a ton—mile basis. This, of course, gives no recognition to the fact that we have a high-valued commodity and that commodities of this character have traditionally carried most of the overhead burden since the low-grade commodi-~ ties are able to carry little more than out-of-pocket cost. Thus, even fully distributed cost is not a fair measure on automobile traffic and should not be compared with motor carrier cost of a specialized automobile hauler. Furthermore, the rail cost is on a ramp-to-ramp movement while motor carrier cost includes pick—up and delivery. For all of these reasons, comparisons are difficult and likely to be misinterpreted by those who don't understand the problem. ‘We have not yet decided whether we will put any motor carrier costs into the record in I & S 7702. For your general information, it is my opinion that motor car— rier costs on automobile traffic will range from about 60 cents a loaded truck mile to 80 cents depending upon the length of the haul, whether the traffic is of con- sistent high volume and other such factors. I sincerely hOpe this will answer your question. Yours very truly, ‘MATHESON, DIXON & BIENEMAN /s/ Walter N. Bieneman 5Interstate Commerce Commission, Bureau of Accounts, Cost Finding and Valuation, Explanation of Motor Carrier Costs with Statements as to Their”Meaning and Significance, StatementWo. 4-59 (Washington: U. 8. Government Printing Office, 1959), p. 26. 26NewAutomobiles in Interstate Commerce, 259 ICC 475, 506, (1945). 27The trend equation is estimated from Appendix ll of New Automobiles in Interstate Commerce, 259 ICC 475,(l945). 267 (1945), p. 578. 28Ibid., testimony of Mr. H. L. Zenzius at p. 185 of the Transcript of Oral Hearings. 291bid. 3 OIbid., p. 316. 3lIbid. (Emphasis mine.) 32Interview with Mr. Paul Skipworth, October 3, 1961. 33 3L‘Interviewwith Mr. Paul Skipworth, October 3, 1961. See Meyer et al., op. cit., p. 213. 35One shipper tells a story, corroborated by a motor carrier, of calling in truckers who shared traffic to a particular point to ask that each submit competitive bids. It was made clear that the bids should not be identical, and that the traffic, henceforth, would go to the low bidder. 36It must be recognized that we are here dealing with averages. On particular hauls, as a result terrain, volume, and the character of available roadbeds and highways, rel- ative costs may be substantially altered. 37 See for example: Pacific Intermountain E . Co.- Control and Purchase, 57 MCC 34I, 358 377 379 EI9505; 9 7 7 Meyer et al., 0 . cit., chap. vi; R. L. Banks et al., 0 . ‘gi£., pp. 76-79. _2' 38When asked about relative cost advantages, manu- facturers stated that trucks were low cost for distances from.350-400 miles and they also added that they considered rails to be competitive beyond these distances. The large discrepancy between the results here obtained and those observed in the New Automobiles case is a reflection of the fact that auto firms put a price on rail service disabil— ities which are then added to other rail costs. This procedure was'not followed by the Commission in the New Automobiles case. 39Interviewwith'Mr. E. S. Knutson and Mr. Henry Crawford, September I, 1961. uOExaminer George A. Dahan recently stated, "Auto- mobiles have a relatively inelastic demand." Motor Vehicles -Kansas City to Ark., La., and Tex., I & S 7269, Report and Order Recommended by George A. Dahan, Hearing_Examiner, JmeTS, 1961, p. 16. 268 ulMotor carrier attorneys who frequently argue that automobile traffic is "high-value traffic" capable of bearing high rates offer convincing evidence to the con— trary. In a recent petition, NATA attorneys cited the testimony of traffic officials at various automobile plants to the effect that the publishing of lower rail rates pro- duced "an almost complete divers on of the automobile traf— fic from.motor to rail." NATA, Petition for Suspension, September 30, 1961, p. 15. This ”compIEte diversion“T would certainly not have taken place if demand curves were in- elastic. uzMeyer et al., 0p. cit., p. 212. 43 1961. Interview with'Mr. Henry Crawford, September 1, 4“New Automobiles in Interstate Commerce, 259 ICC 475, 491, 507, (1945). 45 1961. Interview with Mr. Richard J. Mollica, August 31, uéNequutomobiles in Interstate Commerce, 259 ICC 475, (1945), testimony of Mr. Hugh ML O‘Neil’at pp. 4134, 4135 of the Transcript of Oral Hearings. 47For a discussion of how this policy affects col- lective bargaining in firms which supply the automobile industry see: Kenneth.Alexander, "Market Practices and Collective Bargaining in Automotive Parts," Journal of Political Economy, Vol. 69, No. l, (1961), pp. 15-29. 48 1961. 49 Interview with Mr. Henry Crawford, September 1, Ibid. 50Interviewwith a shipper representative who desires his identity be withheld. SlIbid. 52Interview with'Mr. Henry Crawford, September 1, 1961. 53Interview with Mr. Earl Wiseman, June 22, I960. 5“Interviewwith‘Mr. Rudy Fick and‘Mr. Earl Wiseman, June 29, I961. 269 CHAPTER VI 1Interstate Commerce Commission, First Annual Report of the Interstate Commerce Commission, (washington: U. S. Government Printing Offfée, 1887), p. 30. 2Ibid. 3Professor Cohn is cited in: F. W; Taussig, "A Con- tribution to the Theory of Railway Rates," Quarterly Journal of Economics, Vol. 5, July, (1891), p. 438. 4Ibid., p. 458. 5Interstate Commerce Commission, First Annual Report of the Interstate Commerce Commission, p. 31. 6Haddock v. Delaware, Lackawanns, and Western RR. Co., 3 ICE—302: (1890). The’Commission here declared, "The cost of transportation of any one article of commerce.. can never be arrived at with anything like accuracy.... If the carrier desired to make cost of any particular traffic appear large or appear small, it would not be dif- ficult to swell it or lessen it by such figures as would appear equally plausible in each case...." p. 311. 7Interstate Commerce Commission, First Annual Report of the Interstate Commerce Commission, p.736? 8Ibid. 9Ibid. It should not, however, be concluded that, despite tEe recurring deprecation of cost standards, the Commission paid no attention to cost. Almost from.the outset, parties to controversies before the Commission in- troduced cost evidence which, in most instances, the Com- mission made use of. On this point see: M. B. Hammond, "Railway Rate Theories of the Interstate Commerce Come mission," Quarterly Journal of Economics, Vol. 25, November, (1911), p. 41. 10So far as automobile traffic is concerned, relative rail—motor costs certainly did not justify a motor carrier share of 90 per cent of the traffic. 11See especially: Ernest Williams, Jr. op. cit.; Interstate Commerce Commission, Bureau of Transport Econom- ics and Statistics, IntereAggncy Rate Adjustments, Rail and Motor, Statement No. 567 (Washingtonz‘U. S. Government Printing Office, 1956); Jervis Langdon, "The Re ulation of Competitive Business Forces: The Obstacle Race n Transpor— tation," Cornell Law Quarterly, Vol. 41, No. l, (1955), 270 pp. 57-92. 12Merrill J. Roberts, "The Regulation of Transport Price Competition," Law and Contemporary Problems, Vol. 24, No. 4, (1959), p. 562. 13Professor Ernest W. Williams, Jr. states, "It is difficult to avoid the conclusion that regulation has con- sistently, over the twenty years since the Motor Carrier Act, deprived the low-cost carrier of its low cost advan- tage, a result often tantamount to depriving it of all opportunity to compete for traffic." Ernest W. Williams, Jr., 0 . cit., p. 212. On this point see also: Presiden- tial ngisory Committee on Transport Policy and Organiza- tion, Revision of Federal Transportation Policy, a Re— port to theTresident,(Washington: U. S. Gévernment Printing Office, 1955), p. 10; Ernest WL‘Williams and David 'W. Bluestone, Rationale of Federal Transportation Policy, U. S. Department of Commerce (washington:’U. 8. Government Printing Office, 1960), p. 26. 14The Commission has denied that allocating traffic .is an objective in its rate determinations but as Professor Merrill Roberts pointed out, "The Commission prescribes price relationships producing a specific traffic alloca- tion just as effectively as f it assigned percentages and tried to establish rates that would validate them." ‘Merrill Roberts, op.cit., p. 562. 15See: chap. v, pp. 131-132. l6Ford K. Edwards,UApplication of Market Pricing in the Division of Traffic According to Principles of Economy and Fitness," American Economic Review, Papers and Proceedings, Vol. 45,7No.72, (1955), p. 630? 17 For a defense of long run marginal cost as an appropriate standard see: R. L. Banks, 0p.cit., Part iv; Meyer et al., 0p.cit., p. 182 18Exactly what shares each agency would secure would, of course, vary in individual circumstances. However, given the current technological state and the present preferences of shippers, the rails could expect to trans- port about one-third and the truckers about two-thirds of the total new automobile traffic. The water carrier share probably would not exceed 3 or 4 per cent. 19NATA, Petition For Suspension, September 30, 1961, These are the rail multilevel automobile rates from Detroit to Pittsburgh subsequently suspended in docket I & S 7702. 20For the various definitions offered by the 271 Commission see: Eleanor Heyman, "The Value of Service; Its Various Meanings and Uses," Land Economics, Vol. 9, No. 3, (1933), pp. 252-265. 21"Concept 3" Shinn explains, "refers to situations where a particular shipper is in a position to ship the raw material or component parts of a given commodity to the destination market (or nearby point) and there manu- facture or assemble the given article.” Glenn L. Shinn, "Value of Service in Rate Making," Traffic WOrld, Octo— ber 7, 1961, p. 62. See also: Glenn L. Shinn, Reasonable Frei ht Rates, (washington: The Traffic Service Corpora- tion, , chap. vi. 22Glenn L. Shinn, "Value of Service in Rate Making," Traffic World, October 7, 1961, pp. 62—67. 23Motor vehicles—Kansas City to Ark., La. & Tex., I & S 7269, (1961), p. 16} (Mimeographed.) The NATA peti— tion, in this case, refers to automobiles as "light, bulky, and luxury commodities which have traditionally carried rates at 75 per cent of first class or higher." NATA, Petition for Suspension, October 12, 1961, p. 12. 24Examiner Dahan argued in I & S 7269, "high-rated traffic must be called upon to bear its full burden so that the public may not be denied the railroad facilities for deficit traffic...." p. 17. 25 Ibid., p. 16. 26Motor Vehicles-Kansas City to Ark., La., & Tex., I & S 7269, (1961). (Mimeographed.), Motor vehicles-Cleve— land, Detroit, Lorain to New England and Trunk Line, I & S 33392, (1961). (Mimeographed.) . 27Truman C. Bigham.and Merrill Roberts, Trans or- tation, Principles, and Problems (New York: MbGraweEiIl BOok Company, Inc., 1952), pp. 354-357. 28This point is made forcefully in a study of pri- vate carriage recently concluded in Canada. See: Canadian Industrial Traffic League, Private Motor Trucking, Issue No. 4026, August 4, 1961, pp. 1, 2. 29Glenn L. Shinn, "Value of Service in Rate Making," Traffic World, October 7, 1961, p. 62. 3OIbid., p. 65. 31‘See for example: Tibor Scitovsky, Welfare and Com- etition (Chicago: Richard D. Irwin, Inc., 1951), pp. 173- E77. The condition there given for Optimal product 272 combination is that: MCa/MCb = pa/pb. 32The Commission has, from its inception singled out goods such as soap, flour, salt and fertil zers as necessities entitled to lower rates. 33Meyer et al., Op. cit., p. 184. 3”Ibid., p. 188. 35On this point see the criticism.of Marver Bern- stein, Regulating Business by Independent Commission (Princeton: Princeton UniversityiPress{_1955). 7PrOfessor Bernstein charges that Commissions become subservient to the desires of those they regulate. 36Motor Vehicles- Kansas City to Arkt, La., & Tex., I & S 7269, (1961), p. 17. (Mimeographed.) 37Motor vehicles- Cleveland, Detroit Lorain to New England and Trunk Line, I’& S 33* , , p. 1. (Mimeographed.) 38 See: Meyer et al., op. cit., p. 182. 39Lucile S. Keyes, "The Protective Function of Commission Regulation," American Economic Review, Papers and Proceedings, Vol. 48, No. 2, 1948, p. 550. “OIbid. ulGeorge W}‘Wilson, "The Effects of Value of Service Pricing Upon Motor Common Carriersfl Journal of Political Economy, Vol. 63, No. 4, 1955, pp. 337-344. uzInterstate Commerce Commission, Cost Finding Sec- tion, Explanation of the DeveloPment of MOtor Carrier Costs With Statements as to their Meaning_anfl Significance, Statement No. 4-59 (Washington: U. S. Government Printing Office, 1959) p. 23. #3New.Automobiles in Interstate Commerce, 259 ICC 475, 506, (19457. huRalph L. Dewey, "Criteria For the Establishment of an Optimum Transportation System," American Economic Review, Papers and Proceedings, Vol. 42, NO. 2, pp. 644. FOr similar expressions Of—this point of view, see: Harold Hotelling, "The General Welfare in Relation to Problems of Taxation and of Railway Utility Rates," Econometrica, Vol. 6, NO. 3, (1938) pp. 242-269; Donald wallace, "Kinds of Public Control to Replace or Supplement Antitrust Laws," American Economic Review, Vol. 30, No. l, (1940), pp.194-218; 273 T. N. E. 0., Standards Of Government Price Control, Mono- graph No. 32, SenateiCOmmittee Print, 76th‘COng., 3rd Sess., (1941), pp. 414—415. . usSee: Emery Troxel, "Incremental Cost Determination of Utility Prices," Journal of Public Utility and Land Economics, Vol. 18, No. 4,1I942), pp. 458-467; Emery Troxel, "Limitations of the Incremental Cost Patterns of Pricing," Journal of Public Utility and Land Economics, Vol. 19, No,71, (1943), pp. 28—39; George‘W.iWilson, "Current Crit— icisms of the Interstate Commerce Commission," Current Economic Comment, Vol. 21, No. 31, (1959), pp. 3-I6 “6Lloyd‘Wi1son and J. R. Rose, "Out-of-Pocket Costs in Railroad Freight Rates," Quarter Journal of Economics, Vol. 60, August, 1946, p. 549. 47 pp. 8-9. On this point, see: R. L. Banks, op. cit., chap. ii, usMeyer et al., Op cit., p. 182. 49Robert‘W. Harbeson, "A Critique of Marginal Cost Pricing," Land Economics, Vol. 31, No. l, (1955), pp. 54- 74. See also the statement of Donald P. Kipp on Senate Bill 1197 as reported in Transport TOpics, August 21,1961. 50Tibor Scitovsky, Op. cit., p. 365. 51U. S., Department of Commerce, Unified and Coordi- nated Program for Transportation, Report to the President fme the Secretary of Commerce (washington: 7U. S. Govern- ment Printing Office, 1949), p. 30. The Commission has also on numerous occasions referred to the necessity that rates cover fully distributed costs. 52Merrill J. Roberts, "The Regulation of Transport Price Competition," p. 570. 53See for example: Delos‘W. Rentzel, "Statement of National Automobile Transporters Association Before the Senate Committee on Interstate and Foreign Commerce in Support Of Senate Bill 1197," May, 1961. (Mimeographed.) 54This View is shared by others. See for example: the address by Senator Mike Monroney to the American Truck— ing Associations as reported in Traffic World, October 14, 1961, p. 21. For a dissenting view on the ability of the railroads to subsidize rate wars by raising rates on "captive" commodities see: Fred V. Stone, "Changing Patterns of Competition--Discussion, " American Economic Review, Papers and Proceedings, Vol. 46, No. 2, (1956), p 547. 274 55James C. Nelson, "Revision of National Transport Regulatory Policy," American Economic Review, Vol. 45, No. 5, (1955), p. 912. 56Merrill J. Roberts, "The Regulation of Transport Price Competition,” p. 570. 57A similar competitive situation involving a rail- road and a specialized motor carrier is discussed in Hunter’Morrison, "Economic Justification for Regulating Competitive Truck and Rail Rates," The Journal of Land and Public Utility Economics, Vol. 14, No. 1, (1938), pp. 66-71. *The California Commission in November 1936 ordered rail rates raised to protect motor carriers from destruction, p. 66. Commissioner Carr in his dissenting opinion commented on the probability of rails driving truckers out of business: This is a pure bogey man and entitled to no serious consideration. Under existing rail rate trucks are now hauling 70% of the competitive business. Should rail rates become burdensome, highway carriers will be on hand. Proprietary truck haulage is always available as a check on high rates. The feared result might have been possi- ble years ago. Today there 3 not the slightest chance of its coming to pass. pp. 68, 69. 58Motor Vehicles- Kansas City to Ark., La., & Tex., I & S 7269, (1961), p. 15. (Mimeographed.) CHAPTER VII 1That the Commission still envisages a transpor- tation system based upon monopolistically determined rates seems clear from the following exchange between Senator Smathers and Commissioner Howard Freas: Senator Smathers: Do you mean... that it is your viewpoint that the Commission should give some protection to one type of transportation as distinguished from another, so that the type of transportation which might be hurt by a recommended rate change could continue to Operate? Mr. Freas: No, I mean by that that the low-cost form of transportation should be considered the ratemaking form. It should establish rates the way it normally would in the absence Of competition and then to the extent that the high cost form-- 2/5 U. S. Congress, Subcommittee on Surface Transpor— tation of the Committee on Interstate and Foreign Commerce Hearings, Problems of the Railroads, 85th Cong., 2nd Sess., Part 3,1958: p.7I9Ol. (Emphasis mine.) 2The Gadsen case (Kenosha Auto Transport Co. Ex— tension, Gadsen, Ala., 52 MCC 123, 1950) is perhaps the most notable example. See: chap. iv, p.112. 3See: chap. iv, pp. 109-110, aPacific'MOtor Trucking Companyj Extension-~Oregon, 77 MCC 6U5, (1938). 5See, for example: Eastern Railroads Presidents Con— ference et al., Petitioners v; Noerr MOtor Frei ht Inc., et al., 273 F. 23 213, (1959); 355 U. S. 127, 1%9665. 6This does not mean that motor carriers have not suffered severe losses as a result of the new rail com- petition. It is unfortwnate that through the neglect or the misguided policy of the railroads, of shippers, and of the Commission, this overextension of the trucking firms ever occurred. But it is Obviously profitable to society to increase the efficiency of transportation. 7The indeterminacy results from the fact that rel- ative rail-motor advantages are a function of a variety of factors such as, volume, speed of delivery, and topo- graphical characteristics, all Of which vary from any single shipping point to surrounding destination areas. 8NATA, Petition for Suspension, October 12, 1961. 9Senator‘Monoroney's address is cited in Traffic World, October 14, 1961, p. 21. 10This last suggestion is offered by Professor Merrill J. Roberts in Evaluation of Rate Regulation (Washington: U. S. Department of Commerce,’l959), p. 101. 11For a defense of transport integration see: Lee Melton, Jr., "An Integrated Approach to the Transportation Problem," Southern Economic Journal, Vol. 23, NO. 4, (1957) pp. 3984410. leee, for example: Commodities, PanaAtlantic Stemm- ship Corp., I & S4M-10415 (1961); Piggyback—RateséBetwean East and Texas, I & S 6834, January 14, 196I, p. 73. 13At one time, barges transported a substantial number of vehicles by river but this traffic was lost to the water carrier because of slow transit times. 276 Interview with Mr. Paul Skipworth, October 13, 1961. In a letter to the writer dated January 11, 1962, Mr. Ray Van Beckum, former president of Commercial Barge Lines, Inc., stated, ”It is further a fact that since the spring of 1961, no automobiles have been transported via barge on America's vast inland waterways. 'While this has always been con- sidered a most economical method of transport for vehicles generally, the many changes in merchandising have necessi- tated more prompt dispatch than was afforded via water. This coupled with the necessity in many instances of moving vehicles via highway to and from the inland waterway system has contributed to the diversion of this traffic to other methods." 14See: chap. ii, footnote 116. 15Interviewwith Mr. Henry C. Crawford, September 1, 1961. Ford, for example, which had abandoned water move— ments, plans to ship about 2 per cent of its Detroit traffic via the Great Lakes. The most important movements are from the River Rouge plant to Buffalo and from Muskegon to Milwaukee. 16The idea that the low cost mode should act as a price leader has long been supported by the Commission. It is disturbing to note that the courts have interpreted the amended Sec. 15 (a) (3) to permit such practices. Although the United States District Court rejected an ICC order re- quiring the railroads to "maintain rates no lower than 6 per cent above ... sea land rates" it went on to say that if the Commission found the water carrier to be the low cost mode and if it further found "that value of service considerations demand water carrier rates ... more than their fully distributed costs," it could under certain conditions require "that TOFC rates be set high enough to protect water carrier traffic." This decision was issued in civil action No. 8679, New York, New Haven & Hartford Railroad CO. v. United States of America and Interstate Commerce CommissiOn (Sea-Land Service, Inc., and Seatrain Lines, Inc., Defendants-IntervenersT, and is reported in Traffic World, NOvember 15, 1961, pp. 97-99. 17Merrill J. Roberts, Evaluation of Rate Regulation, p. 123. 18On this point see: Walter Adams, "The Role of Com— petition in the Regulated Industries," American Economic Review) Papers and Proceedings, Vol. 48, No. 2, (1958), especially p. 543} 19U. S. Congress, Senate Select Committee on Small Business, Hearings on Trucking'Mergers and Concentration, 85th Cong., lst Sess., 1957, p. 221. 277 2OActually the case being made for such regulation seems unconvincing. Exempt haulers seem able to avoid the dire perils forecast for a liberated motor carrier in- dustry while providing a satisfactory and a profitable service. Many of the objections to deregulation seem only to emphasize that organization of the economic process is a task of staggering complexity. One might compile as ime pressive a list of difficulties for almost any industry as Smykay has for motor carriers. See: Edward W. Smykay, "An Appraisal of the Economies of Scale in the Motor Car- rier Industry," Land Economics, VOl. 34, No. 2, (1958), p. 148. 21See for example: Hunter Morrison, op. cit., p. 68; J. B. Eastman, "The Adjustment of Rates Between Competing Forms of Transportation," American Economic RQViEW’ Pa ers and Proceedings, Vol. 30, No. I, (19405, p. 125; Edwarg W. Smykay, op. cit., pp. 143—148; Charles S. MOrgan, "Comment" American conomic Review, Papers and Proceedings, VOl. 48, (1958}, p.7562; American7Trucking Associations v. United States, 344 U. S. 298, 312, (1953). 22 See for example: Edward W. Smykay, Op. cit., p. 144. 23See for example: Meyer et al., O . cit., p. 10; James C. Nelson, "Patterns of Competition an Monopoly in Present Day Transport and Implications for Public Policy," land Economics, Vol. 26, No. 3, (1950), p. 243. ZMSee: chap. ii, pp. 18, 19. 25Hunter‘Morrison describes the process as follows: "Itinerant Operators were irresponsible and Often had only sufficient capital to make a down payment on a truck which would be repossessed after a short time because of their inability to meet paymwnts to a finance company which would immediately resell the trucks to other uninitiated individuals who in turn would become bankrupt. This process would go on continually with service furnished at less than total cost. Such demoralizing conditions would affect adversely the more dependable Operators and railroads alike." Hunter Morrison, op. cit., p. 69. 26Western Auto Transports, Inc., Extension-~St. Louis County, Mo., 81 MCC 291, 299, (1959). 27KennethAlexander, Op. cit., p. 19. 28U. S. Congress, Subcommittee on Surface Transpor- tation of the Committee on Interstate and Foreign Commerce, Hearings, Problems of the Railroads, 85th Cong., 2nd. Sess., Part 3,’1958, p. 1901. 278 291bid. 30 See: chap. iv, p. 96. 31Unless the railroads are prevented from exercising the advantages resulting from technological change, it appears likely that some motor carriers are bound to fail anyway. Not even the ICC can assure the continued sur- vival of all motor carriers under present circumstances. Unfortunately, the Commission's policy of protecting car— riers by adhering to the limitations which are embodied in operating ri hts distributes the burden in an indiscrim- inate and ineff cient manner. For example, a carrier who hauled automobiles under initial rights to points presently served by rail multilevel cars may be cut off entirely be— cause he lacks the secondary authority necessary for dis— tribution from the railhead. The carrier with secondary authority, even though he may be less efficient and in spite of the fact that he may never previously have shared in this traffic reaps a windfall. Results of Commission decisions in cases such as these bring to mind a verse from.Gi1bert and Sullivan's "The Mikado”: See how the fates their gifts allot For A is happy -- B is not Yet B is worthy, I dare say, Of more prosperity than A} 32'Merrill J. Roberts, "Some.Aspects of Motor Carrier Costs; Size, Efficiency and Financial Health, " Land Economics, Vol. 32, No. 3, (1956). See also. RoEer t A. Nelson, New England Governors' Committee on Public Trans— portationLjMOtor Freight Transport fOr New England:.A Report to the New England’Governors' Conference, Report NO. 5, OCtOber, 1956. An analysis Of the relationship between average cost per vehicle mile and firm size as measured by total assets for carriers of motor vehicles produced correlation coefficients so small as to be in- significant so that there is no reason to believe that Professor Roberts’ conclusions do not apply in this in- stance. 33This differentiates this situation from that which exists among the retail gasoline dealers described in: Kenneth Boulding, Economic Analysis (2d ed. revy; New York: Harper & Brothers, 1948), p. 590. 37The reasons for the emergence of these quasi- agreements and their consequences are explained in: ‘William Fellner, Competition Among the FeW'CNeW'York: Alfred C. Knopf, 1949), p. 183. sslbid, p. 185. 279 36Any excessive price competition would probably not be tolerated by shippers. For one thing, we have already emphazized that automobile manufacturers place a great deal Of emphasis on having reliable, efficient, and healthy carriers. Shippers have a pretty good idea of what motor carrier costs are. As a matter of fact, some shippers appear to have better cost estimates than the carriers them- selves. It is no secret that shippers have brought consid- erable pressure to bear on motor carriers for lower rates in the past several years but these were aimed at scaling down past excesses. One shipper aims at providing a re- turn on investment of 11 per cent for its motor vehicle transporters. What would happen if rates drifted to a level producing lower returns? The guess here is that shippers would do with their motor carriers what Ford did with its water carriers -- it would raise the rates to in— sure continued efficient and satisfactory service. 37 The present Commission policy of giving preference to carriers presently enjoying particular traffic deadens the incentive to innovate. If, for example, a carrier pioneers some improvement which proves attractive to ship— pers, he cannot expect to take traffic away from.truckers presently serving a particular shipper since these latter are to be given the opportunity to make whatever improve- ments may be necessary in their own service. See: J-T Transport Company, Inc.,_Extension- Columbus, Ohio, 79 MCC 695, 708, (1959). 38George'Wl‘Wilson, "Current Criticisms of the Inter- state Commerce Commission," Current Economic Comment, VOl. 21, No. 31, (1959), p. 4. 39Motor Vehicles- Kansas City to Ark., La., & Tex., I & S 7269, (1961), p. I5. (MimeograpHEd.) uQAt times the Commission seems unsure that shippers can make accurate appraisals of their own best interests. In a speech reported in Railway Digest, Vol. 14, No. 6, June 1959, p. 8, CommissiOner Charles A. Webb charged that shippers who resort to private carriage might not be act— ing in concert with their long run economic interests. ulInterview with Mr. Henry Crawford and Mr. E. S. Knutson, September 1, 1961. uzInterview with Mr. Paul Fritzching, August 31, 1961; Interview with Mr. Rudy T. Pick and Mr. Earl Wiseman, June 29, 1961. 43 Interview with Mr. Richard Mollica, August 31, 1961. 280 uhIt would also be recalled that the Commission's Bureau of Transport Economics and Statistics indicated at that time that it thought these figures understated true profit levels. ‘ 45Both shippers and motor carriers have stated, how- ever, that operating rights have not been as restrictive as they might seem.at first blush. Through various de- vices, shippers and carriers have, to some extent, been able to circumvent many of the provisions of these grants of authority. u6For example, some companies prefer to have avail- able the services Of several suppliers of particular goods or services as a hedge against interruption by strike or by an unforeseen emergency. See: Kenneth Alexander, op, cit., p. 20. The Commission required these firms to make an exception to this general policy in the case of transportation services. u7George Stigler, "The Economist Plays with Blocs," American Economic Review, Vol. 44, NO. 2, (1954) p. 13. BIBLIOGRAPHY Table of Cases Cited A. B. C. Motor Transp. Co., Inc., v U. S. 69 F. Supp. 166, I946. A. J. Metler, Extension--Crude Sulphur. 62 MCC 143, 1953. Alkire—Smith Auto Company et al., v Atchison To eka & the Santa Fe Railway COmpany_et al.52 ICC 507, I9I9. American Trucking Associations v United States. 344 U. S. 7298,1953. Andrew Clark, Extension of Operations. 16 MCC 535, 1939. Arco Auto Carriers, Inc., Extension-~DekalblIll. 72 MCC 379,71957. Arco Auto Carriers, Inc., Extension-AMilwaukee. 49 MCC 731, 19w. Arco Auto Carriers, Inc., Extension--North TarrytownJ N. Y. 71:1400 717, 1958. Arco Auto Carriers, Inc., Extension of Operations-- Milwaukee.i47mMCC 95, 1947. Associated Transports, Inc., Common Carrier Application. 26 MCC 789, 1940. Associated Transports, Inc., Extension-~Kansas City, Mo. 7I MCC 367, 1957. Auburn Automobile Company v Pennsylvania Railroad Company et al.715I ICC 120, I929. Automobiles and Chassis to Chicago, Ill. 227 ICC 223, 1938. Automobiles and Parts to Southern Territogy. 215 ICC 488, 1936. Automobiles-DuluthJ Minn. to Washington. 308 ICC 523, 1960. 281 282 Automobiles From Buffalo, N. Y. 223 ICC 471, 1937. Automobiles From Cincinnati, Ohio. 219 ICC 381, 1936. Automobiles From Dallas, Texas. 226 ICC 705, 1938. Automobiles From Detroit to the East. 288 ICC 167, 1954. Automobiles in the Southwest. 278 ICC 437, 1955. Automobiles to Boone and Des Moines, Iowa. 235 ICC 24, 1939. Automobiles to Iowa, Minnesota and South Dakota. 235 ICC 21,—1939. Automobiles to Oklahoma City-~Ada--Atoka Railway Points. 2I9 ICC 314,1936. Automobile Shippers, Incorporated, Extension--Show Cars and Displays. 67 MCC 20I, 1956. Auto Transports, Inc., Suspension of Permit. 51 MCC 600, ’1950. Bernice Eaton Common Carrier.Application, 22 MCC 791, 1940. Birmingham Traffic Bureau v Director General, Alabama Great SOutEern‘RaiIWay Company, et al. 115 ICC 33,71927. Blain's Drive-Aeway Systema—Common Carrier Application. 167MCC 583, 1939. B & M Motor Company et al., v.Abilene & Southern Railway Company et al. 201 ICC 35, 1934. Brooks-Gilles ie Motors, Inc.,_Common Carrier Application. *IO MOE—TEIT—T938.- Capital Transit Co. v U. S. 97 F. Supp. 614, 1951. Carolina Freight Carriers Corp. v U. S. 38 F. Supp. 549, 194i. Case Driveaway, Inc.,_Extension--Lumber. 51 MCC 659, 1950. Cassens Transport Company, Extension of Operations. 18 MCC 273, 1939. Cassens Transport Company Extension--Three States. 67 MCC 410, I956. Central Truckaway System, Inc., Extension of Operations. 47'MCC’552, 1947. 283 Charles E. Turner Contract Carrier Application. 8 MCC 732, 1938. Chrysler Corporation et al., v Akron Canton & Youn stown Railroad Company et al. 279 ICC 377, [950. Clark Transport Company, Extension—-Du1uth, Minn. 53 MCC 237,'I95I. Classification of MOtor Carriers of Property in the Matter Of the Classification BrOkers andIMOtor Carriers of Property, Ex Parte NO. MC-IU. 2 ECC 703, I937. Commercial Carriers, Inc,,_et al., v Auto Carriers, Inc., et a1. 66IMCC 247,71955. Commercial Carriers, Inc., Extension of Operations, Evans— ville, Indiana. lZ‘MCC 479,1939. Commodities, Pan-Atlantic Steamship Cogp. I & S-M-10415, 1961. Complete Auto Transit, Inc.,,Extension-—Willow Run. 71 MCC 383: 1957. Consolidated Southwestern Cases. 173 ICC 263, 1931. Contracts of Contract Carriers. 1 MCC 628, 1937. Convoy Co., Extension-~Board. 71 MCC 57, 1957. Convoy Company Extension-~Snowmobiles. 79 MCC 187, 1959. Convoy Company, Interpretation of Certificate. 52 MCC 191, 41950. Coordination of MOtor Transportation. 182 ICC 263, 1932. C. G. Gleason et al., v Ann Arbor Railroad Company et al. 140 ICC 461, 1928. Covey Ballard Motor Company v Chica 0 Milwaukee & St. Paul Railway Company et aI.-I,7 ICC 309, I93I. Dallas Freight Bureau v Missouri Kansas & Texas Railwsy Company et EI. 12 ICC 427, 1907. Dallas & Mavis Forwarding Company, Common Carrier Appli- cation. ZZIMCC 655,_I940. Dallas & Mavis Forwarding Co., Inc., Ext.--Galion, Ohio. 72 MCC 353, 1957. 284 Dallas & Mavis Forwarding_Co., Inc., Ext.--Galion, Ohio. 7OUMCC 285,2I959. Dallas & Mavis Forwarding_Co., Inc., Extension-~Sweepers. 677MCC 351, 1956. Dallas & Mavis Forwarding Co. Inc., Extension--Toledo, Ohio to Nebraska and ExtensiOn--Milwaukee. 49 MCC 731, 1949. Dealers Transport Company, Extension-—De1aware, Ohio. 49 MCC 207, 1949. Dealers Transport Co., Extension of Operations--Cincinnati, Ohio. 48‘MCC*471, 1948. Dealers Transit, Inc. Extension-~Fresno, Calif. 79 MCC 26,7I959. Dealers Transit, Inc., Extension-—Vina Vista, Calif. 71 MCC 657,71957. Dixie Transport Company, Extension, Several States. MC 88300 SubINo. 24. Raport and Order Recommended by Reece Harrison, April 8, 1961. Eastern Central Motor Carriers Association, Inc. v Balti— more & Ohio RailroadICompany et a1. NO. 32533, 1961. (Mimeographed.) Eastern Railroads Presidents Conference et al., Petitioners v NOerr MOtor FreiIht fiInc. et aI. 273 F 2d 218, 1959; 365 U. S. 127, £955. Edmond O. Rainville, Contract Carrier Application. 20 MCC 307, 1939. Edward S. Barrett Contract Carrier Application. 19 MCC 761, 1939. Empire Trails, Inc. v U. S. 53 F. Supp. 373, 1942. F. B. Alexander v Southern Pacific Company et al. 24 ICC 306, 1912. Fifteen Percent Case. 1937, 1938, 226 ICC 41, 1938. F. J. Boutell Driveaway Company,_Inc., Extension-~Pontiac. 75 MCC 587, I958. Frank Sober, Contract Carrier Application. 3 MCC 213, 1937. 285 Fred H. Nixon--Common Carrier Application. 26 MCC 325, 1940. F.'W, Myers-—Common Carrier Application. 23 MCC 451, 1940. General Increases 1937. 223 ICC 657, 1937. Geogge Fairall, Extension of Operations. 1 MCC 769, 1937. George E. Hardy, Contract Carrier Application. 7 MCC 233, 1938. Haddock v_Delaware, Lackawanna, and'Western RR. Co. 3 ICR 302, 1890. H. L. Keats Auto Company v Oregon—washington Railroad and ‘Navigation COmpany et a . , . Hammond Motor Company et al., v Alabama Great Southern Railroad COmpany et al. , . Howard Gramlich—-Common Carrier Application. 26 MCC 431, ’1940. Howard Sober, Inc., Extension-~California. 49 MCC 615, 1949. . Howard Sober, Inc,,_Extension-~California. 53 MCC 296, 1950. Howard Sober, Inc., Extension--United States. 64'MCC 545, 1955. Howard Sober, Inc., Extension-~Utah. MC 8989 (Sub 161), 1957. CMimeographedi77 Hulbert Forwarding Company, Inc., Common Carrier Applica- tion. 281/ICC 769 , 194T. Inland Motor Freight v U. S. 60 F. Supp. 520, 1945. International Transport, Inc., Extension--Tractors and ’FarmWMachinegy. 66 MCC 241, I955. Interstate Commerce Commission v J-T Transport Co., et al. 368 U. s. 81, 1961. In the Matter of Filing Contracts by Contract Carriers by I—Mbtor VEhicles,IEx5PartefiNo.‘MC-9T 2 MCC 55, 1937. J. A. McDowall, Common Carrier.Application. l7 MCC 642, 1939. J. A“ Whitcomb v Chicago & Northwestern Railway Company 286 et al. 16 MCC 27, 1909. John G. Reeser, Extension-—Camden and Trenton, Atlantic City.I6‘MCC 663,71939. Joseph Wielg0po1ski-—Common Carrier Application, 21 MCC 217, 1939. J-T Transport Company, Inc., Extension——Columbus, Ohio. 770*MCC’695,71959. J—T Transport Company v United States. 185 F. Supp. 838, 1960. Kappel Extension of Operations--Laporte, Ind. 32 MCC 521, 1942. Kenosha Auto Transport Corporation,_Common Carrier Appli- catiEn. 227MCC7753, 1940. Kenosha Auto Transport Corporation Extension-~Denver. 67 MCC 233, 1956. Kenosha.Auto Trans ort Corp.,_Extension-~Gadsden, Ala. 52 MCC 12 , 1950. Kenosha Auto Transport Corporation Extension--Twenty-One States. 61 MCC 4I, 1954. Kenosha Auto Transport, Inc,, Union City Extension. 54 MCC 689,'I952. L. C. Jones Trucking Co., Extension--The Dakotas. 62 MCC 539, 1954. Leonard Bros. Transfer & Storage Co., Inc., Extension—- ’Trailers. 82 MCC623, 1960. Lewis Brothers, Extension of Operations-—Amarillo, Texas. 8 MCC 605, 1938. Martin-Nash MOtor Company v Chica 0 Milwaukee & St. Paul ‘ Railway Company et al. 152 ICC 179, 1929. McDowall Transport, Inc., Extension--Fruits and Vegetables. 47“MCC*957,'I947. Motor Convoy, Incorporated-~Contract Carrier Application. 2 MCC 197, 1937. MOtor Vehicles—-Cleve1and, Detroit, Lorain to New England and Trunk Line. I 81 S 33392, 1961. Report and Order Recommended by T. Russell ROper, Hearing Examiner. (Mimeographed.) 287 Motor Vehicles--Kansas City to Ark., La. & Tex. I & S 7269, 1961.7Report and Order Recommended by George A. Dahan, Hearing Examiner. (Mimeographed.) National Automobile Transporters Association, Petition For a Declaratory Order, MCéC-3024, March77,7I96l. Tentative Report Of Division 1. (Mimeographed.) National Automobile Transporters Association, Petition For a Declaratosy Order,‘MC-C43024,7Report and Crder Recommended by William R. Tyers, July 20, 1961. (Mimeographed.) National Automobile Transporters Association et al. v Rowe Tiansfer & Storage‘COmpasy, Inc. 64 MCC 229, 1955. New Automobiles in Interstate Commerce. 259 ICC 475, 1945. New Automobiles in Interstate Commerce. 2 USMC 359, 1940. New State Ice Co. v Liebmann. 285 U. S. 262, 1932. North East Transport Co. v U. S. 54 F. Supp. 448, 1944. Pacific Intermountain Exp. Co.--Control and Purchase. 57 MCC 3&1, 1950. Pacific Motor Trucking Company Extension--Oregon. 71 MCC 561, 1957. Passenggr.Automobiles in Southern Territory. 288 ICC 85, ’I953. Piggyback Rates-~Between East and Texas. I & S 6834,1961. Po e Manufacturin Com an v Baltimore 8: Ohio Railroad et al. "2““TETIHfiTIE§%“I9EUTX Reddish v United States. 188 F. Supp. 160, 1960. Shippers' Union of Phoenix v The Atchison To eka & Santa Fe—Railway_Company et a1. 9 ICC 259, E992. Speedway Transports, Inc., Extension--Secondary Authority. 76 MCC 275, 1958. T. A. Darnall, Contract Carrier.Application. 3 MCC 415,1937. Texas and N. 0. Ry. Co. v Northside Belt Ry. Co. 276 U. S. 475, 1928. 288 Transcontinental westbound Automobile Rates. 209 ICC 549, 1935. United Transports v Gulf Southwestern Transportation Com- pany. 81 MCC 1, 1959. U. S. v Contract Steel Carriers. 350 U. S. 409, 1956. Van D ke Motor Com an v Missouri Pacific Railroad et al. 122 ICC HIE E927 , . ‘W. A. Patterson Compasy v Pere Marquette Railway Company et a1. 87 ICC 357, 1924. W. J. Dillner Transfer Company--Investigation of Operations. 79 MCC—335, 1959. Western Auto Transports, Inc., Extension--Lumber. 72 MCC 345, 1957. ‘Western Auto Transports, Inc,,_Extension--St. Louis Co. Mp. 31 MCC 291, 1959. Periodicals Adams, Walter. "The Regulatory Commissions and Small Bus~ iness," Law and.Contempprary Problems. VOl. 24, Winter, 1959 , 147—TOT. . "The Role of Competition in the Regulated In- dustries," American Economic Review, Papers and Proceedings, VO1.*48,_NO. 2;“1953, 527—5432 Alexander, Kenneth. "Market Practices and Collective Bar- gaining in Automotive Parts," Journal of Political Economy, Vol. 69, NO. 1, 1961, 15929. Ashton, Herbert. "Railroad Costs in Relation to the Volume of Traffic," American Economic Review, Vol. 30, No. 2, 1940, 5271-733. 2. Beardsley, Peter T."Restrictions Against Entry Into Other Transportation Fields," Law and Contemporary Prob- lems, Autumn, 1959, 643-652. Bernard, Robert J. "The Truck in Perspective," ICC Prac- tioners' Journal, Vol. 28, No. 4, 1961,2445:469. Bunke, Harvey C. ”A Critical Analysis of Some Aspects of Interstate Commerce Commission Rate Policy," Land Economics, Vol. 32, No. 2, 1956, 134-143. 289 . "The Status of Rate-Making," Land Economics, Vol. 36, No. 2, 1960, 128—141. Canadian Industrial Traffic League. Private MOtor Trucking, Issue No. 4026, August 4, 1961. Dewey, Ralph L. "Criteria For the Establishment of an Op- timum Transportation System," American Economic Review, Papers and Proceedings, VOl.42,3Wo. 2, 1952, 644—653. Eastman, J. B. "The Adjustment of Rates Between Competing Forms of Transportation," American Economic Re- view, Papers and Proceedings, V61. 30,No. I, 1940, 1244I29. Edwards, Ford K. "Cost Analysis in Transportation," Amer- ican Economic Review,_Papers and Proceedings, Vol. 37, No. 2, 441-461. . "Application.of Market Pricing in the Division of Traffic According to Principles of Economy and Fitness," American Economic RevieW' Pa ers and Proceedings, Vol. 45, No. 2, 1955, 621-632. George, John J. and Boldt, Joseph R. "Certification of Motor Common Carriers by the Interstate Commerce Commission," Journal of Land and Public Utility Economics, Vol. 17, No. I: 194I7 82-91. Hammond, M. B. "Railway Rate Theories of the Interstate Commerce Commission," Quarterly Journal of Econom- ics, Vol. 25, November, 191I, 1—66. Harbeson, Robert W. ”A Critique of Marginal Cost Pricing," Land Economics, Vol. 31, No. l, 1955, 54-74. "The Transportation Act of 1958," land Economics, Vol. 35, No. 2, 1959, 156-171. Heyman, Eleanor. "The Value of Service; Its Various Mean— ings and Uses," Land Economics, Vol. 9, No. 3, 1933, 252—263. Hotelling Harold. "The General Welfare in Relation to Problems of Taxation and of Railway Utility Rates," Econometrica, VOl. 6, No. 3, 1940, 194-218. Keyes, Lucile. "The Protective Function of Commission Reg- ulation,” American Economic Review, Papers and Pro- ceedings, VOIZ 48, NO. 2, 1948, 5444552. Knappen, Laurence 8. ”Transit Operating Ratio-~Another 290 View," Public Utilities Fortnightly, Vol. 51, ,Part 2,'I953, ass-497. Langdon, Jervis. "The Regulation of Competitive Business Forces: The Obstacle Race in Transportation," Cornell Law Quarterly, Vol. 41, No. l, 1955, 57, 92. Locklin, D. Philip. "The Attack Upon Section 15a of the Interstate Commerce Act," Journal of Political Economy, VOl. 33, NO. 4, 1925: 4321454. . "Reorganization of the Railroad Rate Structure," American Economic Review, Pspers and Proceedings, V3IT‘36,7N6. 2,*19E6, 466-478. Lorenz, M. 0. "Cost and Value of Service in Railroad Rate- Making," Quarterly Journal of Economics, Vol. 30, February, 1916, 205-232. Maxwell, W. David. "The Regulation of Motor Carrier Rates by the Interstate Commerce Commission," Land Economics, Vol. 36, NO. 1, 1960, 79-91. Melton, Lee, Jr. "An Integrated Approach to the Trans- portation Problem," Southern Economic Journal, v61. 23, No. a, 1957, 398-410? ‘MOrgan, Charles S. "Comment," American Economic Review, Papers and Proceedings, Vol. 487'N6. 2, 1958, ‘562-564. MOrrison, Hunter, "Economic Justification for Regulating Competitive Truck and Rail Rates," Journal of Land and Public Utility Economics, Vol. 14, No. 1, I938, 66-71. Nelson, James C. "Coordination of Transportation by Regu- lation," Land Economics, Vol. 14, No. 2, 1938, 167-181. ”Patterns of Competition and MOnopoly in Present Day Transport and Implications for Public Policy," Land Economics, Vol. 26, No. 3, 1950, 232-248. . "Revision of National Transport Regulatory Pol- icy," American Economic Review, Vol. 45, NO. 5, 1955, 9I0-918. "Effect of Public Regulation on Railroad Per- formance," American Economic RevieW’ Pa ers and Proceedings, V01. 50, NO. 2, 1959, 995-595. 291 Nicholson, Howard W. "Motor Carrier Costs and Minimum.Rate Regulation," Quarterly Journal of Economics, Vol. 72, No. l, 1958, 139—152. Payne, James P. "Regulation and Management Functions," ICC Practioners’ Journal, VOl. 28, No. l, 1960, '27-44. Pegrum, Dudley F. ”The Economic Basis of Public Policy for Motor Transport," land Economics, Vol. 28, No. 3, 1952, 244-263. Peterson, G. Shorey. "Motor-Carrier Regulation and Its Economic Bases," Quarterly Journal of Economics, Vol. 43, August, 1929, 604-647. Railway Age. 1960-1961. Railway Digsst. 1959-1960. Roberts, Merrill J. "Some Aspects of Motor Carrier Costs; Size, Efficiency and Financial Health," Land Eco— nomics, Vol. 32, No. 3, 1956, 228-238. . "Transport Regulation and the Railroad Problem," Southern Economic Journal, Vol. 23, No. 3, 1957, 256-271. . "Maximum Freight Rate Regulation and Railroad Earnings Control," Land Economics, Vol. 35, No. 2, 1959, 125-138. . "The Regulation of Transport Price Competition," Law and Contemporary Problems, Vol. 24,.Autumn, 1959, 557-585. Shinn, Glenn L. "Value of Service in Rate'Making," Traffic ‘World, October 7, 1961, 62-67. Smykay, Edward W; "An Appraisal of the Economies of Scale in the MOtor Carrier Industry," Land Economics, Vol. 34, NO. 2, 1958, 143-148. Spurr, William. "The Case for the Common Carrier in Truck- ing," Land Economics, Vol. 24, No. 3, 1948, 253-263. Stigler, George. "The Economist Plays with Blocs," Amer— ican Economic Review, Vol. 44, NO. 2, 1954, 7—14. Stone, Fred V. "Changing Patterns of Competition--Discus— sion," American Economic Review, Papers and Pro- ceedings, V615'u6,*N6. 2, 1956, 545—548. 292 Taussig, F. W. "A Contribution to the Theory of Railway Rates," Quarterly Journal of Economics, Vol. 5, July, 1891, 438-465. Traffic World. 1958-1961. Transport Topics. 1955-1961. Troxel,Emery. "Incremental Cost Determination of Utility Prices," Journal of Public Utilityand Land Eco- nomics, Vol. 18, No. 4,41942,I458-467. . "Limitations of the Incremental Cost Patterns of Pricing," Journal of Public Utility and Land Economics, VOIT 19, NO.*I,*1943, 28-39. Wallace, Donald. "Kinds Of Public Control to Replace or Supplement Antitrust Laws," American Economic Review, Vol. 30, NO. 1, 1940, 194-218. ‘Williams, Ernest W. "Railroad Rate Levels and Earning Power in an Era of Competitive Transport," Land Economics, Vol. 25, NO. 4, 1949, 405-413. Wilson, George W} "The Effects of Value of Service Pricing Upon MOtor Common Carriers," Journal of Political Economy, Vol. 63, No. 4, 1955, 337-344. . "Current Criticisms of the Interstate Commerce Commission," Current Economic Comment, Vol. 21, NO. 31., 1.959 ,T-TEO Wilson, Lloyd and Rose, J. R. "Out-of-Pocket Costs in Rail- road Freight Rates," Quarterly Journal of Economics, Vol. 60, August, 1946, 5464560. Books American Trucking Associations, Inc. Financial & Operatin Statistics, Class I and II Motor Carriers of Prop- ert . Washington: AmeriEan‘TquEingAEsociations, nc., 1960. Automobile Manufacturers Association. MOtor Truck Facts. Detroit: Automobile Manufacturers Association,71960. Bernstein, Marver. Regulating Business By Independent Com- mission. Princeton: Princeton University'Press, Bigham, Trmman C. and Roberts Merrill J. Transportation, 293 Principles, and Problems. New York: McGrawsHill 360k Company, Inc., 1952. Boulding, Kenneth. Economic Analysis. 2d ed. rev. New York: Harper & Brothers, 1948. Dean, Joel. Managerial Economics. New York: Prentice-Hall, 1956. Fellner,‘William. Competition Among,the Few; New York: Alfred C. Knopf, 1949. Locklin, Philip. Economics of Transportation. rev. ed. Chicago: Business PublicatiEns, I938. Meyer, John R., et al. The Economics of Cospetition in the Transportation Ifidustfies. Harvard EEOnomic Studies, VOIZ’107: cafibridge, Mass: Harvard Uni- versity Press, 1959. Scitovsky, Tibor. Welfare and Competition. Chicago: Richard D. Irwin, Inc., 1951. Shinn, Glenn L. Reasonable Freight Rates. Washington: The Traffic Service Corporation,71952. Taff, Charles A. Opessting_Rights of Motor Carriers. Dubuque: wm. C. Brown Company,II953I_ ‘Wagner, Warren H. A Legislative History of the Mbtor Car- rier Act, I935. Denton: Rue PuBIiShing COmpany, 1935. Williams, Ernest W. The Regulation of Rail-Motor Rate Competition. New York: Harper—E Brothers,'1958. Public Documents Banks, R. L., et a1. "Study of Cost Structures and Cost Finding Procedures In the Regulated Transportation Industries." Study prepared for the U. S. Depart— ment of Commerce, 1959. Interstate Commerce Commission. First Annual Report of the Interstate Commerce CommissiOn.‘Washifigton: UL S. GOvernmentIPrinting—Cffice, I887. Interstate Commerce Commission. Explanation of Rail Cost Finding Procedures and Principles Relatifig to the Use of‘Costs, Statement No.74454.‘Washifigton: U. S. Government‘PrintingCCffice, 1954. 294 Interstate Commerce Commission, Bureau of Transport Eco- nomics and Stattstics. IntereA ency Rate Ad'ust- ments, Rail and MOtor, Statement No. 567. Wash— ifigton: U. S. Government Printing Office, 1956. Interstate Commerce Commission, Bureau of Accounts, Cost Finding and Valuation. Explanation of Motor Car- rier Costs with Statements as to thEir Meaning and Significance,_Statement No. 4¥59.7waahington: U. S. Government Printing Office, 1959. Interstate Commerce Commission, Bureau of Accounts. 21s— tribution of the Rail Revenue Contribution by Come I modity‘Croups——l958,,Statementho. 4:609“WEshing- . ton: U. S. Government Printing Office, 1960. Nelson, Robert A“ New'England Governors' Committee on Pub— - a lic TransportatiOn,—MOtor*FréigfitITransport far New EngIand: A Report to theINew EngIandIGovernors' Conference, ReportINo. ST OEtober, 1956. Presidential Advisory Committee on Transport Policy and Organization. Revision Of Federal Transportation Policy, a Report to the President. Washington: U. S.7GOvernment7Printing Office, 1955. Roberts, Merill J. "Evaluation of Rate Regulation." Study prepared for the U. S. Department of Commerce, 1959. T. N. E. C. Standards of Government Price Control, Mono- graph No. 32, Senate Gomfiittee Print, 76th Cong., 3rd Sess., 1941. U. S., Department of Commerce. Unified and Coordinated Program for Transportatipn, Report to the Presi- dent7from.the Secretary of Commerce.7washington: UT 3. Government Printing Office, I949. U. S. President, 1961, (Kennedy). The Transportation Sys- tem of Our Nation; Messsge_fromfhe President of Ehe United StatesIRelative to Che Transportation System Of Our Nation, April 5, 1962. 87tHIC6ng., 2d 8e33,, 1962, HOuse Doc. No. 384. U. S. Congress, Senate. Committee on Small Business. Hear- ings, ICC.Administration of the Motor Carrier Act. 84th Cong., lst Sess., 1955. U. S. Congress, Senate. Select Committee on Small Business. Hearings on Trucking Mergers and Concentration. SSEHICOng.,‘1st Sass.,‘I957. 295 U. S. Congress, Senate. Committee on Interstate and Foreign Commerce. Hearings, Rate-Makinijule--ICC Act. 85th Cong., 2dISess., 1958. U. S. Congress, Senate. Subcommittee on Surface Transpor- tation of the Committee on Interstate and Foreign Commerce. Hearings, Problems of the Railroads, Parts 1, 2, , tfi COng., 2d Sess., 1958. U. S. Statutes At Largs. Vols. 54, 82. Williams, Ernest W} and Bluestone, David W. Rationale of Federal Transportation Polisy. washington: U. S. Government Printing Office, 1960. Briefs Filed With the Interstate Commerce Commission Answer in Behalf of Southern Carriers to the Petition of the NationaICTransporters AssociationIFOr Exps- ditedIActiOn and FOr Other—Reliefs. Septéfiber 13, 1941. Atlantic Coast Line and Louisville and Nashville Railroad Companies. Brief on Behalf of Atlantic Coast Line and Louisville and Naahville Railroa37COmpafiies, MC-__3C- 024, Octaeril, 1960. Automobile Transport, Inc. Of Delaware, et al. Brief in Advance of Examiner's Report and Recommended Order Filed on Behalf Of Protestants AutOmOBile‘Trans- port, Inc. OfIDeIaware, Baker DriVeaway Company, Fleet Carrier CorporatiOn, E &IL‘TFansport Com- psny, and ROTJert R. Walker, Inc. MC:93890 (SE5 No. 16) et al., Ju1y721,‘l960. Chrysler Corporation et al. Reply of Complainants to the Petition of Certain Defendants‘fOrEPostponement of Hearing. April 3, 1948. . Complainants Exceptions to Repprt Preposed by Paul 0. Carter afid”HenryIC{ILaughton, Examiners. January 16] 1950. Clark Transport Company. Brief of Clark Trans ort Com.an , Intervenor in OppOEitiOn, MCFCT3U24, OctoEer 24, I960. - Freight Forwarders Institute et al. Brief of The Freight 296 Forwarders Institute; Acme Fast Freight Ins, Re— publiE CarIOading_& Distributing C6,, Inc.; and Uniysrsal‘Carloadin & DistributingICo., Inc., MC-C—3024, October 4, 1960. General Motors Corporation. Brief of Petitioner in Advance of the Examiner's Report. MC-C-3024, OctOEEr 21, I960. Howard Sober, Inc. Reply of Protestant Howard Sober, Inc. To Petition OleatIOnal7automBBi1e Transporters AasociatiOn for Leave to Intervene, etcTIMC-88300 (SublNo. 24), OctOber 13, 1960. Kenosha Auto Transport Corp. Brief as Re uested by the Trial Examiner, MC-C-3C24, CctoBer 24, I969. NATA. Protest and Request For Suspension and Investigation of Certain Tariff; andIfOF an‘OrdérIInstituting a General InvestigatiOn“Into the Subject OflRates on New AutomObiIes.*DecemBEr’2l, l . . Petition on Behalf of NATA for Subpoena Duces Tecum. October 21,71941. ‘ . Brief in Behalf of the National Transporters Association, Inc. NOvefiber I6,II942. . Brief of Petitioner in Advance of the Examiner's Report anleecommended 0rdEr,‘MC-C?3024, Saptember 50, 1960. . Brief of the National Automobile Transporters AssociatIOn,‘I'& S 7269, OctOBEr 3, 1960. . Petition For Declaratory Order Under Section Five (d) of the AdfiinistraEIVe Act.INO. MC-C53024, July 27, 1960. . Petition For Suspension. October 12, 1961. . National Automobile Transporters Association, PetitiOn Far a Declaratory CfderQIMarch 7, 1962. McDowall Transport, Inc. Initial Brief to Examiner Abraham J. Essrick, on Behalf of MODowaII”Tfans ort Inc., Applicant, in MC-9389U SuB. No. l6, July 29, 1960. Motor Convoy, Inc. Initial Brief to Abraham Essrick, Exam- iner on Behalf of the MOtor Convo Inc.7Protes- tant, MC49389C (SuE NO. 16) et al., July 22, I960. ‘ ‘1... 297 Transport Storage & Distributing CO. Brief of Transport Storage & Distributing Co. Intervenor in Opposi- tiOn to The PetitiOn,7MC-C-3024, OctOEer_24, 1960. United Transports, Inc., and Auto Convoy. Initial Brief to Abraham J. Essrick, Examiner, on Behalf of (1)’Uniteleransports,_Inc. and T2) Auto‘COnvoy Co., Protestants ,‘MC- 93890 (SubWO. I6) et a1. June 22,1960. Statements Before Congressional Committees ' 1 Beardsley, Peter T. "Statement Before the Senate Committee E on Commerce on S. 1107," May 11, 1961. (Mimeo- 4 graphed.) a Freund, Frederick G. "Statement Before the Senate Committee on Commerce on Bill 1197. " May 11,1961. (Mimeographed. ) Gilliland, J. E. "Statement Before the Surface Transpor- tation Sub- committee of the United States Senate Committee on Interstate and Foreign Commerce." April 10,1961. (Mimeographed.) Langdon, Jervis. "Statement Before the Senate Committee on Commerce." June 15, 1961. (Mimeographed.) Rentzel, Delos. "Statement Before the Senate Committee on Commerce in Support of Senate Bill 1197." May, 1961. (Mimeographed.) Zagri, Sidney. "Statement Before the Committee on Inter- state and Foreign Commerce of the United States on S. 1197." May 17, 1961. Interviews Interviews with Mr. Paul Skipworth of George F. Burnett Company. 1959-1960. Interview with Mr. J. H. Stark, Jr. Vice~President, Howard Sober, Inc. November 11, 1960. Interview with Mr. Earl'Wiseman of the Studebaker-Packard Corporation, June 22, 1960. Interview with Mr. R. T. Fick and Mr. Earl Wiseman of the Studebaker-Packard Corporation, June 29, 1961. 298 Interview with Mr. George F. Burnett, President, George F. Burnett Company, July 18, 1961. Interview with Mr. Richard Mollica, Chevrolet Division, General Motors Corporation. August 31, 1961. Interview with Mr. Paul Fritzching, Director, Corporate Traffic, The Chrysler Corporation. August 31, 1961. Interview with Mr. E. S. Knutson and Mr. Henry Crawford Of the Ford Motor Company. September 1, 1961. Interview with Mr. Charles Pieroni, General'Manager, Dallas & Mavis Forwarding Co., January 3, 1962. Letters Automobile Manufacturers.Association. Letter from C. E. Brown, General Traffic Manager. February 15, 1962. Bieneman, walter N. Letter. October 27, 1961. Chrysler Corporation. Letter from.Mr. Paul Fritzching, Director, Corporate Traffic Office. February 9, 1962. Paxton, H. G. Director of Departmental Operations, Amer- ican MOtors Corporation. Letter, February 8, 1962. van Beckum, Ray. Chairman of the Board, Commercial Car- rier, Inc. Letter, January 11, 1962. GU