RAIL FREIGHT cm momma POLICY: AICRITECAL REVIEW V . Thesis for the Degree of Fh. 0. MiCHtGAN STATE UNIVERSSTY PAT JAMES CALABRO 19.73 ~~~~~~ LIBRARY Michigan State University This is to certify that the thesis entitled RAIL FREIGHT CAR. SHORTAGE POLICY: .5 A CRITICAL REVIEW presented by , Pet Jame: Galabro has been accepted towards fulfillment of the requirements for Ph. D. degreemmuLAdnmutmuod 1 Date flny .3: ”7/2: 0-7639 k KKK'l's'TR'Ks'fl 9? JK 6W K M M an iamouias lll ‘I I. DI. ABSTRACT RAIL FREIGHT CAR SHORTAGE POLICY: A CRITICAL REVIEW BY Pat James Calabro Railroads have suffered from a declining share of intercity freight tonnage during the past three decades. Freight car supply has been a recurring problem confronting the industry. The federal government recently became directly involved in evaluating proposed financial commit- ments for freight car purchases as one incentive to aid the ailing railroad industry. The government's attempted solution has centered on expenditures to augment the national freight car fleet. Little attention has been given to the possible effects of improved utilization on freight car shortage problems. This research investigated the potential impact of improved freight car utilization upon freight car shortages. The underlying hypothesis was that the national freight car fleet may contain a sufficient number of cars. Perhaps a shortage of cars does not, or never did, exist. Rather, car underutilization has created car shortages. of me criti- ‘a *3: and c fiV‘N‘ Hoot. n! (b ( n Pat James Calabro The research methodology was an historical review of measures employed to improve car utilization during critical shortage periods. Attention focused on three major utilization-improving measures: demurrage, per diem, and car service orders. Each measure was traced from its origin and then evaluated as a utilization improvement measure. The major results of the research indicated the following: 1. Demurrage rate levels were not high enough to discourage user detention. Data suggest that low demurrage rates encourage commodity storage in freight cars as opposed to private warehousing. 2. Per diem rates divided the railroad industry. Disagreement over the per diem charges has never been resolved. Regulating per diem authority was absent and United States Congresses showed no unified desire to resolve the issue. Contemporary ICC per diem prescriptions showed no utilization- improving benefits. Most importantly, there is no clear consensus on the per diem objective to guide decisions. There is a conflict between railroad legal obligation and ability to control freight cars, which must be resolved. Pat James Calabro 3. Car service orders have not improved car utiliza- tion in the long run. Railroad productivity continued to decline. Possible utilization improvements, however, were discovered from the nature of past car service orders. The improve— ments resulting from prOper use of service orders would be greater than that obtainable from any suggested new car expenditure. The research supported the hypothesis that a freight car shortage does not exist. Each period of historical shortage experienced gross operating ineffi- ciencies, inferring that a freight car shortage never existed. This contention was further supported by other underutilization facets. Current attempts to build an increased national freight car fleet should be delayed until possible utilization improvements are measured. Any federal financial assistance to augment the national freight car fleet is a disservice to the public interest and represents a patent waste of resources. RAIL FREIGHT CAR SHORTAGE POLICY: A CRITICAL REVIEW BY Pat James Calabro A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Marketing and TranSportation Administration 1973 Copyright by PAT JAMES CALAB R0 1973 Dedicated to my family ii 9" a: ACKNOWLEDGMENTS Research of this study's nature could not be com- pleted without the contribution of many peOple. Heartfelt appreciation is expressed to all who made it possible. The research committee's encouragement and guid- ance were invaluable. The Chairman of the Committee was Dr. Donald J. Bowersox, Professor of Marketing and Trans- portation Administration, who was instrumental in the develOpment and progression of the research. His probing suggestions, continuing interest, and personal concern provided a needed impetus on many occasions. He also helped me believe in my ability. His contribution is greatly appreciated. The Committee's other members were Dr. Stanley C. Hollander and Dr. Frank H. Mossman, Professors of Market- ing and Tran8portation Administration. Dr. Hollander's universal knowledge and wisdom made a significant con— tribution to the study. My gratitude extends to his personal interest. Dr. Mossman's transportation expertise was an asset to the investigation. His suggested iii appproaches to avenues of exploration are appreciated and gratefully acknowledged. Many specialists from associations, railroads, and Federal agencies freely offered information and advice, for which I truly am thankful. Particular appreciation extends to ICC Commissioner Rupert L. Murphy, who offered assistance from this study's inception. Historical research requires the cooperation of many library personnel. Their patience and assistance is gratefully acknowledged. Particular appreciation is expressed to Miss Eleanor Boyles, Supervisor of Documents, Michigan State University Library. A note of thanks is offered to Sister M. Therese Coyne, R.S.M., who unselfishly contributed her time to review and offer compositional assistance in the research report. Specific enumeration of the many others who contributed to this work is not possible. To all, including my fellow marketing students, I am deeply indebted. iv TABLE OF CONTENTS Page LIST OF TABLES I I O O O O O O O O O O O Viii Chapter I I INTRODUCTION 0 O O O O O O O O O O 1 Freight Car Supply . . . . . . . 3 Freight Car Supply Background . . 4 Research Purpose . . . . . . . . . 5 Research Results . . . . . . . . . 6 Organization of the Study . . . . . . 6 Research Methodology . . . . . . . . 8 Limitations of the Study . . . . . . 9 Footnotes-~Chapter I . . . . . . . . 10 II. DEVELOPMENT OF THE FREIGHT CAR SUPPLY PROBLEM . . . . . . . . . . 12 Critical Periods of Car Shortage . . . . 13 The Current Era . . . . . . . . . 22 Specialized Equipment . . . . . . . 28 History of Specialized Equipment . . . . 28 Appraisal O O O O O O O O O O O 35 Footnotes--Chapter II . . . . . . . 40 III. THE ROLE OF DEMURRAGE . . . . . . . . 47 The ICC and Demurrage . . . . . . . 48 The Industry and Demurrage . . . . . . 50 Appraisal . . . . . . . . . . . 52 Payments for Demurrage . . . . . . . 56 FOOtnOtes--Chapter III 0 o o o o o o 6 2 Chapter Page 'IV. THE PROBLEM OF PER DIEM . . . . . . . . 66 Early History of Per Diem . . . . . . 67 Authority for Per Diem Rates . . . . . 68 Diverse Views on Per Diem . . . . . . 70 The ICC, Congress, and Per Diem . . . . 72 The Level of Per Diem . . . . . . . . 78 First Consideration . . . . . . . . 80 Second Consideration . . . . . . . 81 Third Consideration . . . . . . . . 83 Fourth Consideration . . . . . . . 83 Fifth Consideration . . . . . . . 84 Per Diem Progression from 1947 . . . . . 84 Appraisal . . . . . . . . . . . . 88 Footnotes--Chapter IV . . . . . . . . 103 V. CAR SERVICE ORDERS--NATURE, USAGE, AND EFFECT . . . . . . . . . . . 113 Early History . . . . . . . . . . 113 The ICC and Car Service Orders . . . . . 114 Car Service Agents . . . . . . . . 115 Penalty Violations of Car Service Orders . . . . . . . . . 116 Nature and Some Effects of Car Service Orders . . . . . . . . . 117 Expeditions Routing . . . . . . . . 120 Heavier Car Loadings . . . . . . 123 Unserviceable Freight Cars . . . . . 126 Clean Cars . . . . . . . . . . . 130 Returning Empty Cars . . . . . . . 131 Expediting Car Handling . . . . . . 132 Appraisal . . . . . . . . . . . . 137 Footnotes—-Chapter V . . . . . . . . 145 vi crlapter Page ‘VI. SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS . . . . . . . . . 152 History of Car Supply Problems . . . . 153 Demurrage . . . . . . . . . . . 155 Per Diem . . . . . . . . . . . 157 Emergency Car Service Orders . . . . 163 Bureau of Service . . . . . . . 163 Circuitous Routings . . . . . . . 165 Heavier Car Loadings . . . . . . 166 Unserviceable Freight Cars . . . . 167 Unclean Cars . . . . . . . . . 168 Empty Car Return . . . . . . . . 169 Expedited Car Handling . . . . . . 170 Conclusion . . . . . . . . . . 172 Future Research . . . . . . . . . 176 Dmurrage O O O O O O O O I O 176 Per Diem O O O O O O O O O O 177 Railroad Operations . . . . . . . 177 Footnotes--Chapter VI . . . . . . . 180 BIBLIOGWHY O O O O O O O O I O O O O 181 vii II-l. 11-2 0 II-3. IV-3 o IV-4. V'l. LIST OF TABLES Page Percentage Distribution of Intercity Freight Traffic by Mode, Select Years (Revenue ton-miles) . . . . . . 2 Select Railroad Operating Data for World Wars I and II Eras (Class I RailroadS) o o o o o o o o o o o 19 Select Railroad Operating Data, 1955-1971 (Class I Railroads) . . . . 23 Percentage Distribution of Intercity Freight Traffic by Mode, 1955-1963 (Ton-'HIi 13398) c o o o o o o o o o 24 Number of TOFC Shipments, 1955-1971 (Class I Railroads) . . . . . . . . 34 Assessed Demurrage Charges, 1917-1971 (Class I Railroads) . . . . . . . . 54 Progression of Per Diem Rates, 1902-1949 a o o o o o o o o o o 69 Percentage of Empty Freight Car-Miles to Total Freight Car-Miles, 1901-1971 (Class I Railroads) . . . . . . . . 82 Average Cost of New Freight Cars, 1956-1970 (Class I Railroads) . . . . . . . . 93 Car Delays Caused by Carriers . . . . . 100 Car Service Order Violation Penalties, 1970 O O O O O I I I O O O O O 118 viii Table V-2. Yearly Comparisons: Average Freight Car Capacities and Average Freight Car Loadings, 1929-1971 (Class I Railroads) Annual Percentage of National Freight Car Fleet Represented by Unserviceable Freight Cars (Class I Railroads) . . Yearly Turnaround Time--Freight Cars, 1929, 1939—1972 (Class I Railroads) . Select Railroad Transportation Data, 1947-1951 (Class I Railroads) . . . Monthly Turnaround Time, Select Equipment, 1947—51 (Days) . . . . Select Railroad Transportation Data, 1955-56, 1963-69 (Class I Railroads) . Monthly Turnaround Time on Boxcars: 1955-56, 1963-69 (Days) . . . . . Monthly Turnaround Time on Boxcars: 1969-72 (Class I Railroads) . . . . ix Page 124 128 134 135 136 138 139 159 CHAPTER I INTRODUCTION Railroad freight transportation enjoyed prosperity and aided the growth and economic development of the United States throughout the end of the nineteenth and the first part of the twentieth centuries. The railroads' ability to transport large tonnage shipments long distances at low cost fostered expanded frontiers for industrialization and community formation. The dominance of railroads in early commercial development is evidenced by the fact that 74.9 percent of all intercity ton-mileage was hauled by rail- roads in 1929. The past three decades have experienced a considerable decrease in overall railroad participation in intercity freight transportation. By 1971, market share dropped to 38.6 percent. A review of percentage distribu- tion of intercity freight traffic for major transporters at select intervals is illustrated in Table I-1. Problems increased as railroads became less dominant in the country's freight transportation network. This once-prosperous industry currently is confronted with TABLE I-1 PERCENTAGE DISTRIBUTION OF INTERCITY FREIGHT TRAFFIC BY MODE, SELECT YEARS (Revenue ton-miles) Year Rail Motor Water Pipeline Air 1929 74.9 3.3 17.4 4.4 -- 1939 62.4 9.7 17.7 10.2 -- 1949 58.4 13.8 15.2 12.6 -- 1959 45.0 22.3 15.2 17.5 -— 1960 43.7 22.4 16.6 17.2 .1 1965 43.0 22.5 15.6 18.8 .1 1970 39.8 21.3 16.4 22.3 .2 1971 38.6 21.9 16.0 23.3 .2 Sources: Statistical Abstract of the United States Yearbook of Railroad Facts eight railroads in bankruptcy and reorganization pro- ceedings.l Overall, railroads are seeking abandonments of allegedly unprofitable branch lines, certain to adversely affect economic conditions of the involved communities and possibly increase transportation costs in the impacted areas. The federal government has become highly concerned with restoring the railroad industry to a healthy condi- tion. The Nixon administration suggested completely re- structuring Northeastern railroad operations into three or four major systems.2 The Interstate Commerce Com- mission, hereinafter known as the ICC, suggested a l per- cent tax on all surface freight transportation to rehabilitate ailing railroads.3 The proposed Surface Transportation Acts of 1972 and 1973 included large finan- cial aid provisions for the railroads.4 At the present time, no evidence exists that government policy favors nationalization as opposed to recovery on a private- enterprise basis. Freight Car Supply Among the major problems facing the railroad industry is the freight car shortage situation. The first direct financial involvement of the federal govern- 5 The recommenda- ment in car supply was prOposed in 1950. tion was for a $250 million apprOpriation for government- owned freight cars to augment the national car fleet. In 1957, two congressional prOposals recommended a $500 million appropriation to permit low-interest railroad loans on funds deployed for new equipment purchases.6 Critical freight-car supply problems throughout the latter 19608 precipitated four congressional proposals in 1971.7 In one, 10,000 boxcars were proposed for purchase at a $120 million cost to be maintained by the United States for shipments tendered by the Department of Defense; two others proposed augmentation of the national car fleet in emergencies or short-supply periods at a $3 billion cost; the fourth prOposed to insure railroad debt up to $3 billion on borrowed funds used for new-car purchase. As typical of the 19503, none of these proposals passed the legislative process. The proposed Surface Transportation Acts of 1972 and 1973 specifically included a railroad- debt insurance fund up to a $3 billion maximum. Neither bill was approved and the car supply situation continues to deteriorate. Freight Car Supply Background Freight car supply problems precede the twentieth century. Railroad pricing and freight car supply favor- itism were prime motivating forces leading to the federal regulation of railroad operations through the Act to Regulate Commerce in 1887. The first complaint heard by the ICC after its formation in 1887 concerned a freight car supply problem.8 The Hepburn Act of 1906 made rail— road common carriers responsible to provide freight cars 9 The ICC has conducted for transportation service. numerous car supply deficiency investigations since its inception, the first, in 1907, because railroads were not fulfilling their legal obligation under the Hepburn Act.10 Notwithstanding the many investigative proceedings throughout the century, the problem remained and has intensified to the point wherein the only resolution appears to be direct government involvement. Historically, car supply investigations focused on the aggregate fleet size in an effort to determine the additional cars required to relieve the problem. It has been noted that the underutilization of the fleet has contributed to the shortage. Past and current measures, however, have primarily concerned additional cars with little emphasis on the potential improved utilization of the existing fleet. Additional utilization would naturally diminish new-car requirements, thereby mini- mizing the investment of fixed capital. Research Purpose This research included an historical investiga- tion of the freight car supply problem. Critical shortage periods from the first crisis forward were researched. Transportation problems leading to supply difficultieS‘ were noted. Attempts to improve the situation were examined with a view toward longer range and permanent improvement of today's fleet utilization. The historical impact of selected measures was evaluated in terms of potential contemporary national policy. The basic assumption of the research is that recommendations lead- ing to improved utilization would be in the public interest. Effectiveness of past programs can only be bench marked in terms of freight car supply and utilization. In this study, utilization is the critical area of research concern. Obstacles preventing improved utilization were noted so that future policy may benefit by removal of major impediments. Research Results As a result of this research, recommendations offering potential improvement in rail car utilization are identified. Examples of gross underutilization, particularly during shortage periods, are isolated and substantiated based upon published records. Illustrations are developed to demonstrate the extent of immediate shortage relief obtainable from improved freight car util- ization. It is unlikely that a "true” car shortage has ever existed in railroad transportation. The evidence leads to the conclusion that a freight car shortage cur- rently does not or has not recently existed. The sug- gested utilization improvements and obstacle elimination hypotheses have the potential to alleviate contemporary supply problems and defer any direct governmental freight car supply involvement. Organization of the Study This study is organized in five parts. In Chapter II, the history of freight car shortages is traced to its earliest origin. Legislation stipulating railroad car-supply responsibility is described. Critical car supply periods are isolated and related environmental causal characteristics described. An appraisal is pro- vided concerning continually recurring factors causing freight car shortages. The next three chapters review major methods traditionally utilized to improve freight car availability. Obstacles inhibiting the effectiveness of these methods are presented. Next, an appraisal of each method is given. The three methods explored are as follows: Demurrage: the fee paid per car per day by users for rail-car detention beyond estab- 1ished time limits. Higher demur- rage fees are expected to encourage more efficient user rail-car handling and discourage lading storage in freight cars. Per Diem: the rental paid by the using railroad to the owner. Higher per diem is expected to encourage maximum rail-car utilization and also expedite freight car turnaround to owners. Car Service temporary ICC directives which vacate Orders: contemporary car service rules pre- scribed by the Association of American Railroads, hereinafter known as the AAR. The ICC directives are issued in emergency situations and are intended to increase efficiency and utilization in the public interest. The final chapter presents conclusions of the study and recommendations concerning the formulation of revised railroad Operating policy. The study concludes with recommended areas for continued research. V) VI 0! a‘l FN I. HA Research Methodology The major research orientation was library re- search. The study concentrated on the material available at the library systems of Michigan State University, East Lansing, Michigan; the University of Michigan, Ann Arbor, Michigan; TranSportation Center Library, Northwestern University, Evanston, Illinois; Michigan State Libraries, Lansing, Michigan; and Cleveland Public Library, Cleveland, Ohio. In addition, the Center for Research Libraries services were employed to secure relevant materials not available at the above-noted libraries. The major source references were ICC Annual Reports, I.C.C. Practitioners' Journals, publications of the American Railway Association, American Railway Car Institute, Association of American Railroads, Railway Systems and Management Association, Transportation Association of America, and the United States Departments of Agriculture, Commerce, and Trans- portation. Personal interviews were conducted with repre- sentatives of the ICC and several selected rail carriers. Correspondence and telephone conversations transpired with other representatives of the ICC, rail carriers, and several associations. Limitations of the Study Railroad freight transportation problems are many and varied. This study was not intended as a pana- cea to all railroad problems. Research was restricted to evaluation of selected measures available to improve freight car utilization. This investigation was limited by its inability to conclusively evaluate effectiveness of any specific improvement measure given various economic factors. Many economic factors impinge on the utilization improve- ment measures. Each economic factor can have a varying degree of effect on improvement measures in different time periods. Thus, the interaction of economic factors and improvement measures could not be related. Also, effectiveness of any combination of improvement measures could not be evaluated and was excluded from the study. The many variables which interact with potential improved utilization, therefore, were not considered in this study. The study's primary focus was on freight—car utilization. Any ramifications to the freight car's utilization, such as judgmental scarce resource use, were excluded from the study. FOOTNOTES - -CHAPTE R I 1Association of American Railroads, Information Letter, No. 2056 (February 14, 1973), p. 4. -The raiIroads are: Boston and Maine, Central of New Jersey, Erie Lackawanna, Lehigh and Hudson River, Lehigh Valley, New Haven, Penn Central, and Reading. 2"Nixon PrOposes Railroad Freight Cutback and Re- structuring of Lines in Northeast," Wall Street Journal, March 27, 1973, p. 4. 3"ICC Offers Way to Save Railroads of the North- east," Wall Street Journal, March 26, 1973, p. 4. 4Association of American Railroads, Information Letter, No. 2060 (March 14, 1973), p. l. 50.8., Library of Congress, Legislative Reference Service, Digest of Public General Bills,g81st Congress, 2nd Session (washington, DiC.: GovernmentPrinting Office, 1951), pp. 195-96 (H.R. 9480). 60.8., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected ResolutionsL_85th Congress, lst Session (WaEhIngton, D.C.: Government Printing O fice, 1957), pp. E537, A174 (H.R. 9597, 8.2906). 70.8., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutionggg92nd‘Cangress, lstISESSion (WaShington, D.C.: Government Printing Office, 1971), pp. A180, A246-47, A247 (8.1415, 8.1729, 8.1730, 8.1731). 10 11 8U.S., Interstate Commerce Commission, First Annual Report of the InterstateICommerce Commission (Washington, D.C.: Government Printing Office, I887), p. 86. 9[Hepburn Act] Statutes at Largg, XXXIV, Chap. 3591 (1906), P.L. 337. loU.S., Interstate Commerce Commission, "Car Shortage--Insufficient Transportation Facilities,” Interstate Commerce Commission Reports: Decisions of tHe Interstate Commerce CommiSsion of the UnIted Statesg November, 1906-December, 1907, XII’TWasHington,D.C.: Government—Printing Office, I908), pp. 561-71. CHAPTER II DEVELOPMENT OF THE FREIGHT CAR SUPPLY PROBLEM Transportation problems date from the formation and growth of the railroad industry in the nineteenth century. Railroads were able to transport large tonnage shipments long distances and consequently were in a posi- tion to affect the country's economic activity. The railroads were unregulated and allowed competitive ad- vantage to some of their more favored patrons. The history of the Granger Movement in the second half of the nineteenth century is replete with situations wherein favoritism was shown to select companies in the form of lower rates to more distant points; higher rates were assessed to smaller companies for shorter distances.1 Pricing discrimination commonly is emphasized as the motivating force leading to the Act to Regulate Commerce in 1887. The freight car supply problem has an early role in history. Railroads favored preferred patrons with car supply and withheld cars from others. For example, a 12 13 New York State investigation revealed favoritism to Standard Oil Company by the New York Central and Erie railroads while other shippers waited three to four months for tank cars.2 The Act to Regulate Commerce, although in vague terminology regarding some aspects of the regulation authority, created the ICC and made it responsible to correct railroad transportation abuses. The first ICC docket was a complaint filed on April 18, 1887, against the Saint Paul, Minneapolis, and Manitoba Railroad Company for failure to furnish cars.3 Five other car supply complaints were received that year.4 In 1888, the ICC disclaimed authority to require railroads to supply freight cars when requested.5 Complaints citing favoritism by the carriers continued through the 18905 and into the twentieth century.6 Freight car supply responsibility then was detailed in the Hepburn Act of 1906. The ICC, as enforce- ment agency, was to insure that the act's provisions were followed. Prior to that time, the ICC's authority was restricted to discrimination prevention. Failure to supply freight cars now became a possible violation of the Hepburn Act. Critical Periods of Car Shortage This present study has revealed several critical periods which required direct governmental involvement 14 to placate the demanding railroad patrons. The first period occurred during the early 19003. The ICC cited increased production, high prices, and a general level of prosperity as causes of the car shortage8 and then conducted its first formal car supply investigation.9 It found existing grievous conditions, such as the lack 10 of coal in a blizzard situation and great economic loss in the wheat industry.ll Grave railroad Operating inefficiencies were cited as the cause of the critical situation.12 The ICC called for remedial operational improvement,13 and also requested congressional authority 14 to affect car service. No further action was taken by Congress because of the ensuing business retardation. The World War I era experienced the next critical Aperiod and the ICC conducted its second car supply 15 investigation. The ICC described the problem in the Jinvestigation's report, stating as follows: In some territories the railroads have furnished but a small part of the cars necessary for the tranSportation of staple articles of commerce, such as coal, grain, lumber, fruits, and vegetables. In consequence mills have shut down, prices have advanced, perishable articles of great value have been destroyed, and hundreds of carloads of food products have been delayed in reaching their natural markets. In other territories there have been so many cars on the lines of the carriers and .J in their terminals that transportation service has been thrown into unprecedented confusion, long delays in transit have been the rule rather than the exception, and the operation of established industrial activities has been made uncertain and difficult.15 15 The disproportionate traffic flow from the Southern and western lines caused the car supply difficulty, resulting in large car accumulations in the Northern and Eastern parts of the country. The ICC ordered mandatory ob- servance of car service rules which provided for the return of cars to, or in the direction of, the owning carriers; previously this procedure had been voluntary.l7 Commissioner Clark's dissenting opinion was based on the ICC's lack of authority to so order, in view of the fact that the ICC expressed its inability to affect Operations in several of its annual reports.18 Neglect of car service rules was confirmed by the Car Service Commission of the American Railway Associa- tion, predecessor of the AAR, which found over 40,000 19 rule violations during June, 1916. The ICC then re- tquested car service authority in its 1916 annual report 'to Congress.20 This request was granted in the Esch 21 (Car Service Act of 1917. It allowed the ICC to (establish car service rules during emergencies, stating as follows: Whenever the Commission shall be of Opinion that necessity exists for immediate action . . . at once, if it so orders, without answer or other formal pleading by the interested carrier or carriers, and with or without notice, hearing, or the making or filing of a report, . . . to suspend the Operation of any or all rules, regula- tions, or practices then established with respect to car service for such time as may be determined 16 by the Commission, and also authority to make such just and reasonable directions with respect to car service during such time as in its Opinion will best promote car service in the interest of the public and the commerce of the peOple.22 {the Bureau of Car Service was established on July 9, 1917, 'to transmit car service directives. The heavy fall ‘traffic and the increased volume of war shipments led to :further service deterioration and the federal government iassumed control of the country's railway and railway-water systems on December 26, 1917.23 A Director General of IRailroads was appointed under the Railroad Administration sand the railroads were Operated as a unified transporta- ‘tion system. The increase in car utilization efficiency seas attributed to this unification and the Railroad Ikiministration's unilateral actions.24 The federal government maintained control until March 1, 1920. With the exception of car shortages attributed to Particular circumstances, such as industry strikes or CXDngestions caused by floods, and the seasonal fall har- VeSt car supply difficulties, no further car supply Problems existed until the era following World War II. The war years contained instances of car shortages, but the magnitude of the problem was far less than expected. The phenomenon of railroad freight Operations during WOrld War II was widely acclaimed. The utmost OOOperation of the shippers, receivers, and carriers to improve 17 freight car utilization was cited as the major factor achieving the excellent performance. Professor Stover stated as follows: Complete co-Operation among the railroads was essential as they faced the demands of war in December, 1941. The depression thirties plus the competition of rival transport agencies since World War I had forced a substantial decline in railroad facilities. As compared to the end of 1916, American railroads at the end Of 1941 had 25 per cent fewer freight cars, 30 per cent fewer passenger cars, and 32 per cent fewer locomotives. The number of rail employees in 1941 was down nearly a third from 1916. However, average freight- car capacity and average locomotive tractive effort had grown significantly in the quarter-century. Thus the 1,703,000 freight cars in 1941 had a total carrying capacity (85,682,000 tons) only 7 per cent below those of 1916, and the 41,771 locomotives actually had an aggregate tractive effort slightly above that available in the earlier year. With a total carrying capacity certainly no larger than that of World War I, the nation's railroads in World War II moved a total traffic of much greater volume. The total ton-mileage of freight carried in each of the four war years (1942 through 1945) was more than 50 per cent greater than in 1918, and in the peak year, 1944, the 737,000,000,000 ton-miles was 82 per cent above the top year of the earlier war.25 The ICC credited the carriers in its annual reports to Congress, stating in 1941 as follows: During the first 10 months of 1941, the rail- roads handled the largest amount Of traffic moved in any comparable period since 1930, when the volume was only slightly greater. The number of freight cars available to move the traffic in 1941 was approximately 73 percent of the number available in 1930. To move the same amount of traffic with 27 percent less cars necessitated better utilization. The average turn-around per-car trip in September 1930 was 15.7 days, whereas the average in September 1941 was 12.5 days.26 18 and then in 1943 as follows: Although much credit must be given to the / various transportation agencies for their efficient /', handling of the 1942 and 1943 traffic, the volume ’ of that business has been and is so large that // no such performance could have been attained without close cooperation among carriers, shippers, State and local governments, and various Federal Government" agencies.2 Data presented in Table II-l details freight movements during the two war periods. COOperation among all users, carriers, and governmental agencies was not the sole contributor to the increased efficiency. The Bureau Of Service issued many orders to avoid crises. Through this medium, the Bureau increased demurrage rates, rerouted traffic to avoid congested areas, directed empty-car flow, and allowed the substitution Of available cars to haul commodities not normally permitted in the car types that were in oversupply. Freight car supply problems next occurred at the war's termination and the conversion to a peacetime economy. The war years' efficiency subsequently was hampered by labor strife, a depleted and aging car fleet, and operational inefficiencies. The ICC conducted two investigations in 1947. In 268 ICC 659, Increased Per Diem on Freight Cars, the per diem rate was increased to encourage prompt handling and car return to owners. The ICC's decision was reversed by the courts, a matter muomm umo pmouawmm coflumuuommcmus Omouawmm mmumum confico on» mo mhmsawmm on» no moaumfiumum “mmoudom 19 amn.ooo.flmm oma.mam.aa mam.e~q.a sm~.omp.a mama aqv.o¢~.ump mm~.mos.me Has.amq.a mnm.moa.a Gama mas.mho.ema Hmm.mmq.mv m-.Hmv.H mam.mmh.a mama mom.mmm.nmm ~0H.th.mv SSH.H~¢.H mma.mqh.a mead Hoo.mno.mbv ama.~mm.~v ome.a-.a aom.mo>.a Hema Rma.mm~.mnm 4mm.amm.mm Hmv.aoo.a mom.mmm.~ osma oa~.mom.oav ~54.maa.me Hms.mmm.fl -H.N~m.~ ommfl mmo.mm~.amm mmm.~mm.aa mvv.omo.a ~oa.amm.~ mama smm.mnm.moe mmo.~mm.¢s sqm.mmm.fl mam.m~m.~ mama oos.mma.smm .<.z mao.aom.a mmo.~om.~ Rama xooov m..a.z Km? JAMES THEM. oscm>mm . . . mo umnfisz unmfimum Osco>om til “memouaamm H mmmHOv mama HH 824 H mums name: mom «94o ozHaammao oaoquam somqmm HIHH mflmdfi 20 to be covered in Chapter IV of this work. In 268 ICC 687, Car Service—-Freight Cars, the ICC issued service orders effecting expedient terminal Operations and later rescinded its order upon the AAR's promise to effect the orders' requirements. This issue will be discussed in Chapter V. The next crisis occurred during the latter part of 1950 and continued for the succeeding two years. The normal heavy freight car demand in the fall, coupled with increased commerce due to the Korean conflict, caused large car shortages. The ICC issued service orders in- creasing demurrage, expediting terminal Operations, and ordering minimum loading weights. The first Congressional bill requesting direct federal freight car involvement appeared in 1950. Repre- sentative Ellsworth introduced H.R. 9480 to the Eighty- First Congress, Second Session, providing for a Railroad Car Reserve Corporation within the Department of Commerce, with a $250 million capitalization to establish a car pool for use during national emergencies or temporary shortages.28 After hearings were conducted by the Committee on Interstate and Foreign Commerce, as was typical Of the 1950s, nO further action was taken. The business activity lull which followed the Korean conflict's termination was accompanied by an increase in railroad nonserviceable cars, a rising number 21 Of freight car retirements, and an overall railroad efficiency decrease. Car supply problems existed from 1955 through 1957. Again, the ICC exercised its car service authority, ordering prompt car placing and pulling at industry locations, reducing free time allowed at port locations, and allowing car substitution for commodities other than that for which the car type in oversupply was designated. Congressional representatives introduced two bills in 1957 designed to encourage railroads to augment their diminishing car supply. The Eighty-Fifth Congress, First Session, received H.R. 9597 and 8.2906 on August 30, 1957.29 Identically worded, both bills provided for a Railway Equipment Agency with an initial $500 million capitalization which would provide low-interest railroad loans for new car purchase. Neither bill was reported out of the committees. A relative calm settled prior to the current, most prolonged car shortage period. The railroads' diminishing transportation role was a contributing factor to the lack of a national freight car crisis for approximately five years. The AAR cited the railroad freight participation decline, stating as follows: Between the years 1955 and 1963, the national economic produce increased by 25 per cent; rail- road freight ton—miles increased not at all, the 1963 aggregate not quite equalling that of 1955. 22 Between the same two years total corporate profits of all industries increased by 18 percent; railroad net income in 1963 fell 30 per cent short of equal- ling the net in 1955. Had it not been for more realistic depreciation allowances and the resulting income tax adjustments first authorized in 1963, even that disappointing financial showing would not have been attained; nor would it have been attained in the absence of the self-help measures adOpted by the railroads to the extent that their limited resources permitted.3O Data illustrating railroad activity during this period is presented in Table II-2. The inter-city freight traffic distribution listed in Table II-3, illustrates the constant decline in railroad participation. The Current Era The railroad industry entered the longest period of freight car shortage problems thus far experienced in 1963; this period still exists. General business activity continued its acceleration, aided by the demands of the longest period of international strife in United States history. Labor-management difficulties, carrying with them concomitant freight car detention, were common occurrences. The aggregate freight car fleet continued to decline, as did the railroad distributive share of inter-city freight ton-mileage. Railroad Operating performance showed no material improvement. The ICC freely exercised its emergency car service authority directed toward increased handling efficiency by increasing demurrage rates, reducing free time of cars muomm cmouaamm mo xoonumo» coaumuuommcmue pmouaamm mmumum wouaco on» no mumsaamm on» NO mowumaumum "moousom 23 omm.moe.mmm mmm.om~.m~ ooo.~mm.a aam.-m.a amma amo.mom.mmm mam.oma.mm mam.mmm.a amm.m~v.a omma mmo.mmm.mmm mmm.amm.m~ mmm.mmm.a mmm.vmm.a mmma mmo.mmo.emm amm.~m~.mm mom.amm.a mmm.mmm.a mmma mmm.mmm.mam amm.mmo.m~ mmm.mov.a ama.~mm.a mmma oma.mmm.mmm maa.m~m.m~ ~om.mmm.a maa.mmm.a mmma omo.mmm.mmm mam.mmm.m~ mmm.mmm.a moo.mmm.a mmma -m.mmm.mmm mma.m~o.mm mmm.mmm.a mmm.mmm.a mmma mma.mmm.a~m mam.mmm.mm omo.mm~.a mom.mam.a mmma mam.mmm.~mm mmm.-m.m~ mmm.mmm.a mmo.omm.a mmma amm.omm.mmm omm.mmm.m~ omm.mma.a amm.mom.a amma mam.mom.~mm mam.amm.om mmm.om~.a ~m~.mmm.a omma mmm.m~m.mmm mmm.aao.am ao~.~m~.a mmm.mmm.a mmma oam.mmm.amm mma.-~.om mmm.oma.a mmm.m~m.a mmma mam.mma.mam msa.oom.mm mmm.omm.a amm.mmm.a mmma amo.mmo.amm mmm.vmm.mm mam.mme.a mmm.mom.a mmma mmm.aam.mmm amo.mmm.mm mmm.mmm.a mam.mmm.a mmma aooov m..e.z mmflmmWwoe mpmoaumu ca momowamu mumopmmwwoum new» mscm>mm m5cm>mm amuoe cw omumca who no amnfisz unmaoum Oscm>om xmcmouaamm a manaov ammaummma .«e4o ozaadmmmo OdomaHam somamm NIHH mamfle 24 TABLE II-3 PERCENTAGE DISTRIBUTION OF INTERCITY FREIGHT TRAFFIC BY MODE, 1955-1963 (Ton-mileage) Year Railroad Motor Water 31:2 Air 1955 49.5 17.5 17.0 16.0 -- 1956 48.4 18.4 16.2 17.0 -- 1957 46.9 19.0 17.5 16.8 -- 1958 46.0 21.0 15.6 17.4 -- 1959 45.0 22.3 15.2 17.5 -- 1960 43.7 22.4 16.6 17.2 .1 1961 43.4 22.7 15.9 17.9 .1 1962 43.1 23.8 16.0 17.0 .1 1963 43.1 23.8 16.4 16.6 .1 Source: Statistical Abstract of the United States 25 held at ports, and directing empty-car flow. Eighteen bills concerning the problem were introduced to the Congresses in session from 1963 through 1970. The diminishing number of freight cars, illus- trated in Table II-2, and the increasing complaints received by the ICC prompted another investigation in 1963. At the conclusion of the first stage of that study, the ICC voiced its impatience with the railroads' 31 It continued the promises to correct the situation. study, attempting to determine each railroad's ownership share of the aggregate car fleet. Progress of the study was retarded during the succeeding years because of the infusion of data related to specialized equipment and its capability, a subject discussed in the next section, and because of needed ICC authority to affect the per diem level, a subject treated extensively in Chapter IV. Freight car supply problems continued through the remainder of the 19605. The ICC issued service orders to combat congestion and inefficiency. The ICC judged the freight car supply inadequate in Ex Parte NO. 241, Investigation of Adeguacy of Railroad Freight Car Ownership, Car Utilization! Distribution, Rules, and Practices, and issued an order on September 3, 1969, which required all railroads to Observe seven AAR car service rules. Some carriers objected to the decision 26 and resorted to the courts, a matter which still is pending at the time of this writing.32 Interestingly, the ICC allowed for skepticism in the validity of its judgment in the 1969 annual report to Congress, stating in part as follows: The information submitted in the staff study indicated that much of the difficulty in providing adequate car service to shippers may not be in the number of boxcars but rather in their poor utilization.33 Railroad Operations showed no material improve- ment during this period and service order violations resulted in penalty assessments against the carriers totalling $315,700 in 1969 and $569,425 in 1970.34 Patrons provided ample evidence of unusually poor performance records of the railroads throughout this period.35 The United States Senate received four bills in the Ninety-Second Congress, First Session, in 1971, all directly committing large federal financial Obligations to resolve the freight car problem. Senator James B. Pearson introduced 8.1415 on March 30, 1971, which called for the construction of no less than 10,000 general purpose boxcars to be used to haul Department of Defense freight. A $120 million appropriation was requested.36 Senator Warren Magnuson and twenty-three other United States senators introduced 8.1729 on April 30, 1971, ? 27 which provided for a federal Fast Freight Systems Trans- portation Corporation, authorized to incur government- insured debt not exceeding $3 billion for general freight car purchase.37 Senator Magnuson introduced 8.1730 on April 30, 1971, which differed from 8.1729 mainly in the corporation's organization. Otherwise, the two bills were similar.38 Senator Magnuson also introduced 8.1731 on " April 30, 1971, which provided for the establishment of a federal Railroad Equipment Obligation Insurance Fund in an amount not to exceed $3 billion. The fund would be used to insure interest and principal on railroad loans made for freight car purchases.39 Hearings were held on the above bills by the Special Subcommittee on Freight Car Shortages of the United States Senate's Committee on Commerce. Although none of the bills were reported out of Committee, they reflected the growing congressional impatience for a freight car supply solution. The freight car supply clamor subsided during 1972, partly because of the decline in industrial activity. Spot shortages occurred during the peak harvest season, a perennial reoccurrence, and were met with car service orders relieving the spot crises. The major grain transaction between the United States and the Soviet Union in the fall of 1972 was expected to place a drain on transportation facilities. An inadequate car supply was predicted and materialized in the winter of 1973.40 28 Specialized Egpipment Freight car investigations usually center on the decreasing number of railroad-owned cars. Critics also cite the change in the fleet's composition with an in- creasing number Of specialized cars replacing general purpose equipment.41 The trend toward ownership of specialized equipment allegedly contributes to the overall supply problem because of a reduced number of all-purpose cars, such as the standard forty or fifty-foot boxcar with a wider variety of uses, to fill the needs of a greater majority of users. This topic has been reserved for special treatment because of its prominence in the growth of railroading and the United States economy, as well as the diatribes lodged against current tendencies. History of Specialized Equipment The formation of railroad lines took place in the early nineteenth century and was intended to provide turnpikes for travelers to counteract coach travel incon- veniences. Shippers provided freight cars and railroads provided roadbeds, rails, and motive power. The growing freight traffic volume encouraged the railroads to pro- vide all the facilities; this was the situation by 1845.42 The first attempt to modify the crude, all-purpOse freight car was made by the Pennsylvania Railroad, with the introduction of refrigerated cars to haul fresh meat from 29 Chicago to New York and Boston in the late 18508.43 A more efficient refrigerator car was developed by Mr. J. B. Sutherland of Detroit, Michigan, who received the first patent for such a vehicle on November 27, 1867.44 Shippers returned to more specialized freight cars because of their desire to expand marketing territories. The dressed-beef industry received its start upon further perfection of refrigerator cars in the late 18608. In his quest to expand the dressed-beef industry, Mr. Gustavus Swift requested the Grand Trunk Railroad to supply refrigerator cars in 1875 and, in the face of reluctance, purchased his own refrigerator cars to further develop the business. Stock car development met with similar railroad Opposition and cars ultimately were 45 Rail— developed to haul livestock in the early 18808. roads' attitude toward specialized equipment remained adamant when they refused to deviate from the normal practice of hauling barrels of oil in boxcars. During this time period, Standard Oil Company took the lead in the development and commercial use of tank cars.46 HOpper cars were designed to carry coal, a major railroad freight commodity. Although hopper cars were used for this purpose during the middle of the nineteenth century, it was not until 1880 that all metal hopper cars were 47 being built. It was not until 1900 that the railroad 30 industry provided specialized equipment to any great degree. In that year, the Chicago, Burlington and Quincy Railroad set up a separate refrigerator-car division to stimulate refrigerated business. Its success encouraged other carriers to follow its direction and provide equipment peculiar to a particular industry. The railroads made basic rolling stock modifica- tions throughout the first half of the twentieth century. All freight cars which the railroads maintained and reported to the ICC were classified as following: box, flat, stock, coal, tank, refrigerator, and a small number of "others." At the middle of the 19508, specialized cars were further subdivided and showed an increase in categories. The boxcar classification was split into a general bracket and a specialized or equipped category. The "coal" classification gave way to further subdivision into "gondolas," ”Open-tOp hOppers," and "covered hoppers." Automobile multi-level rack cars were added as a separate classification.48 Design adjustment did not receive a separate record-keeping classification prior to that time. Professor John F. Stover discussed the growth and diversity of specialized freight cars in 1970, saying as follows: 31 The auto rack car was typical Of the innovation and diversity found in recent freight equipment. A long generation ago, in the post-war 'twenties, the average freight car had a capacity of 40 tons and cost perhaps $2000 to build. Today, the average cost of new cars is around $15,000 to $16,000, and the average capacity is 80 tons. A typical railroad in the 'forties owned perhaps seven or eight kinds of freight equipment, while today it may own more than three dozen types of cars. . . . The new generation of freight cars has been tailored to meet the special or particular needs of shippers. Beyond the two fixed limits and standards of height of coupler and track gauge, almost any idea in car design was possible. The larger average size has also permitted heavier loading and "incentive" or lower freight rates. Whale-shaped new tank cars, often called Pregnant Whales, hold 30,000 gallons or more. High-cube box cars became so large as to almost cause clear- ance problems. "All-door" cars permitted easier loading and unloading. New special covered hOpper cars were tailored to hold dry bulk loads of great variety: pumice, salt, cement, grain, dry acids, or ore pellets. The Southern's Big John grain cars were joined by the Southern 100, a four-section articulated hOpper with 16 wheels and a capacity of 260 tons--more than half a million pounds. Another innovation is a stock car called a "pig palace" large enough to accommodate more than 300 hogs. Some Specially equipped cars have schedules so certain that they permit industries to cut back their inventory. Such are the cars which carry auto parts in special racks and rigs to automobile assembly plants. The diversity of the new freight equipment and service was recently well described by Herman H. Pevler, president of the Norfolk and Western, when he said: "We are selling service the way a barber or a beauty shop sells--how do you want it? Plain or fancy, short or long, all the variations."49 The trend toward diversified and specialized equipment was praised by a subcommittee Of the House of Repre- sentatives of the United States Congress in a 1972 report as follows: 6. in l thre 32 One covered hopper holds approximately twice as much grain as a normal box car. Both types of cars, despite significantly different capacities, load in about the same time. Covered hOppers are self-unloading, generally in a matter of minutes, whereas box cars must be manually unloaded, an extremely dirty and time-consuming job for which labor is difficult to obtain. Covered hOppers do not require coopering or other major repairs by the shipper prior to loading, as box cars often do. Covered hoppers clean readily, Often with a simple "hosing down" and do not arrive at a loading dock filled with trash and debris because paper grain doors and lining are not used, and ' Covered hoppers virtually eliminate claims for leakage and weight 1088. Cars which can unload 100,000 pound of coal 2 seconds or unload 100,000 pounds of ore in e seconds are now available. New types of container cars with specialized loading features are being introduced which make greater use of intermodal transportation. This trend should be encouraged.50 car dive to recap dustry. service, known as Perhaps the single most important development in rsification resulted from the railroads' attempts ture volume losses back from the trucking in- The "new" development was known as "piggy—back" or "trailer-on-flat-car" service (hereinafter TOFC). TOFC is a combination truck-rail freight movement wherein railroads haul fully loaded truck trailers between terminals. Delivery is completed at the destination by truck service. TOFC was acclaimed during t he middle 19508 as being faster than truck ship- ments in some instances and resulting in less loss and damage. 33 The advent of TOFC actually occurred in 1926 with less-than-carload shipments loaded in trailer equipment and placed on Specially designed flat cars provided by the Chicago, North Shore and Milwaukee Electric Line. The trailers were placed on the flat cars with wheels intact. It was projected that large savings in time and expense could be expected from less handling, loading, and un- loading.52 The idea was relatively unsuccessful and did not receive concentrated attention again until the middle of the 19508. Published data does not separate TOFC shipments until 1955. Table II-4 illustrates the growth in TOFC usage. Absence of Specialized equipment data isolated from aggregate data prevents in-depth analysis of the effects of this diversified rolling stock on the entire car fleet or on the service factor. There are evidences, however, that the benefits outweigh the disadvantages of one-way traffic and limited use. The Canadian National Railway claimed that turnaround time was improved and damage as well as car supply complaints were reduced.53 Mr. Patrick Boles, of the Economic Research Service of the U.S. Department of Agriculture, praised the growing use of TOFC shipments in 1966, claiming that turnaround 54 time was three times as fast. The ICC stated that faster TOFC turnaround greatly reduced the general boxcar NUMBER OF TOFC SHIPMENTS, 34 TABLE II-4 1955-1971 (Class I Railroads) Year TOFC Shipments Year TOFC Shipments 1955 168,150 1964 890,748 1956 207,783 1965 1,034,377 1957 249,065 1966 1,162,731 1958 279,071 1967 1,207,242 1959 416,508 1968 1,337,149 1960 554,115 1969 1,344,123 1961 591,246 1970 1,257,471 1962 706,441 1971 1,196,519 1963 797,474 Source: Yearbook of Railroad Facts 35 demand.55 The rapid TOFC increase illustrated in Table II-4 is a testimony to its popularity. More importantly, this trend cannot justifiably be cited as a prime cause of car shortage problems. Appraisal Freight car supply problems predated railroad regulation by the federal government. As the economy of the United States grew, railroads experienced increased activity; however, they have suffered a diminishing role in business activity in the past three decades. Freight car unavailability is one of the reasons for the decline. This was verified in an elevator survey seeking grain shipment transportation data conducted during 1958 in 187 55 counties throughout twelve states. In this survey, 614 of 1,096 respondents listed freight car unavailability as the prime disadvantage of shipping grain by rail.56 A180, 180 of 512 respondents cited freight car unavail- ability as the prime factor attributed to the change from rail to highway shipments.S7 Railroad freight trans- portation has continued its decline since that time. In this chapter, car supply problems were traced to their origin. The critical periods received major attention. In each of those periods, the ICC implemented temperary emergency measures, the only authority entrusted to that federal body. The ICC removed its service orders 36 after the crises passed. The nature of those service orders will be explained more fully in Chapter V. Reoccurrence of the problem during each period of national crisis and/or increasing industrial activity proves that no lasting solution has been found. Recent legislative activity which has evolved from complaints lodged directly to congressional representatives indicates the users' growing impatience. Each of the critical periods witnessed formal investigations by the ICC and/or committees and subcommittees of the Congresses. The latest crisis related to the large grain movement men— tioned on page 27 precipitated the latest investigation, held on January 29, 1973.58 Recurring car supply problems give credence to John P. Doyle's contention that complaints and investigations have accomplished nothing more than fill pages of reports.59 The increasing number of legis- lative bills resulted from the inability of the special investigations to arrive at a lasting solution to the problem. Operational inefficiencies occurred during each freight car shortage period. The investigations are replete with car underutilization examples. Major atten- tion has been given to the diminishing freight car fleet owned by United States Class I railroads. Critics have cited this trend as the cause of car shortage problems 37 which have plagued the railroad industry. Testimony, which raises a question as to the importance of the number of cars owned and also as to the possible adverse effects of a larger car fleet, dates from the first formal 60 to the ICC's 1969 annual car shortage proceeding in 1907 report.61 Commissioner Rupert T. Murphy, who has become expert in the freight car shortage problem, reinforces this question, stating in 1970 that efficient freight car use would eliminate 70 percent of the delays currently experienced by shippers in all parts of the country.62 Underutilization was cited as a major problem in the workshop conducted by the National Academy of Sciences-- National Academy of Engineering for the Department of 63 Transportation. Mr. John W. Ingram, Administrator of the Department of Transportation's Federal Railroad Administration,testified to the Special Subcommittee on Investigations of the Committee on Interstate and Foreign Commerce of the House of Representatives as follows: I cannot emphasize too strongly that utilization is just as important as fleet size, and in the context of the present problem it is probably more important. If poor utilization requires the rail- roads to maintain an excessively large fleet, then the cost of that car fleet will not only burden the railroads, but in one way or another it will affect rates and service to the shippers.64 In that investigation, a 10 percent improvement in utilization was cited as equivalent to the addition of 38 65 The Committee 66 170,000 cars to the existing fleet. discouraged the addition of new rolling stock. Users have criticized the carriers for their tendency toward Specialized equipment at the expense of general purpose freight cars. Based on the scanty in- formation available, it seems that this trend has con- tributed to Operating efficiency and prevented larger car shortages. It becomes clear that increasing the national rail car fleet is not a panacea to the freight car shortage problem and may even contribute to a worse situation. It is equally clear that improved utilization can have a major impact on the problem's resolution. Increased utilization should be possible through an improvement on the 2-1/2 hours per day that a freight car is in movement67 and in the 21-p1us days' turnaround required.68 The ICC's service orders have had no lasting effect. The railroad companies appear to permit Opera— \ tional inefficiencies while seeking refuge in federal assistance, catalyzed by the users' growing outcries. In its discussion of railroad Operating inefficiencies at the 1971 workshop mentioned earlier, the ICC advocated as follows: The general conclusion to be drawn from the material that has been developed in this paper is that more, rather than less, regulation is 39 necessary. Although it is hOped that carriers and shippers may take voluntary action to relieve the situation, it is clear than an increased staff of car service agents is fundamental to providing the surveillance Of carrier and shipper practices contributing to the underutilization of existing equipment. Such surveillance is needed not only for purposes of issuing service orders to abate those practices but also to identify problems that the Commission may wish to consider in formal rule-making proceedings.69 Some action is necessary to deter further federal financial involvement or further subsidy to the industry's private enterprise character. If the federal government is to take a further financial role, then it should have further influence to insure more efficient Operations to minimize expenditures. There is considerable advocacy that improved Operations are possible. The nature of the car service orders which have been employed by the ICC in emergency situations will be reviewed in this work to evaluate the ICC's suggestion. If the ICC is unable to effect improved Operations and the carriers are permitted to continue as they have in recent times with federal support, the proponents of nationalized railroads may find the increasing number of advocates sufficient to change the United States railroading structure. FOOTNOTES--CHAPTER II 1For example, see William Larrabee, The Railroad Question (Chicago: The Schulte Publishing Company, 1893); Edward Winslow Martin, History of the Grange Movement (New York: Burt Franklin, 1967; originaIly publisfied Philadelphia, 1873); and George Hall Miller, Railroads and the Granger Laws (Madison, Wisc.: The UniVersity of Wisconsin Press, 1971). 2William Larrabee, The Railroad Question, p. 120. 30.8., Interstate Commerce Commission, First Annual Report of the Interstate Commerce Commission (Washington, D.C.: *GOvernmentiPrinting OffIEe,l887), p. 86. 4Ibid. See Docket 22, p. 93; Dockets 87, 88, and 89, p. 109; Docket 99, p. 111. 50.8., Interstate Commerce Commission, Second Annual Report of the InterstatelCommerce Commission (WaShIngton, D.C.: Government Printing‘OIIIce, 1888), p. 119. ' 6For example, see Frank Parsons, The Heart of the Railroad Problem (Boston: Little, Brown, and Company, 1906), pp. 66-67. 7[Hepburn Act] Statutes at Lagge, XXXIV, Chap. 3591 (1906), P.L. 337. 8U.S., Interstate Commerce Commission, Twentieth Annual Report of the Interstate Commerce Commission (Washington, D.CTE Government Pfinting Office, 1906), p. 16. 40 41 9U.S., Interstate Commerce Commission, "Car Shortage--Insufficient Transportation Facilities," Interstate Commerce Commission Reports: Decisions of the Interstate Commerce CommisSiOn of'the United States, November, 19064Decem5er, 1907, XII (Washington, D. C.: Government Printing Office, 1908), pp. 561- 79. loIbid., p. 561. 12Ibid., pp. 562, 566, 568-70. 131818., pp. 577-78. l4Twentieth Annual Report of the Interstate Commerce CommiSsion, p. 17. 15U.S., Interstate Commerce Commission, "Car Supply Investigation," Interstate Commerce Commission Reports: Decisions of the Interstatet Commerce Commission of the United Statesy_November, I9l6-JanuaryL 1917, XLII (Washington, D.C.: Government Printing Office, 1917), pp. 657- 706. 16Ibid., p. 661. 17Ibid., p. 676. lalbido ' pp. 677-780 19C. O. Ruggles, "Railway Service and Regulation," Quarterly Journal of Economics, XXXIII (Cambridge: Harvard University Press, November, 1918), 151. 200. 8., Interstate Commerce Commission, Thirtieth Annual Reportfi of the Interstate Commerce Comm1881on (Washington, D.C.: Government Printing Office, 1916), p. 91. 42 21[ESCH Car Service Act] Statutes at Large, XL, Chap. 23 (1917), P.L. l9. 22U.S., Interstate Commerce Commission, Thirt - First Annual Report of the Interstate Commerce Comm1881on (Washington, D.CT? Government Printing Office, 1917), p. 65. 231. L[eo] Sharfman, The Interstate Commerce Commission: A Study_in Administrative Law and Procedure, Part One (New York: CThe Commonwealfh Fund, 1931), 24Ibid., pp. 140, 235. 25John F. Stover, The Life and Decline of the American Railroad (New York: Oxford University Press, 1—970) I Pp. ZOT-Bo 26U.S., Interstate Commerce Commission, Fifty- Fifth Annual Report of the Integstate Commerce Commission (Washington, D.C.: Government Printing OffICe,fl941TT p. 126. 27U.S., Interstate Commerce Commission, Fifty- Seventh Annual Report of the Interstate Commerce Commission (Washington, D.C.: Government Printing Office, 1943), p. 9. 28U.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills, 8let Congressy 2nd Session (Washington, D.C.: Government Printing Office, 1951), pp. 195-96. 290.8., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutionsy_85th Congress, lst Sessiog_(Washington, D.C.: Government Printing Office, 1957), pp. E537, A174. 0Association of American Railroads, A Review of Railroad Operations, 1963 (Washington, D.C.: Association of American Railroads, 1964), p. 7. 43 31U.S., Interstate Commerce Commission, "Investi- gation of Adequacy of Railroad Freight Car Ownership, Car Utilization, Distribution, Rules and Practices," Interstate Commerce Commission Reports: Decisions of the Interstate Commerce CommiSSIOn of fhe United States June, 1964-February, 1965, CCCXXIII (Washington, D.C.: Government Printing Office, 1965), p. 60. 32U.S., Department of Transportation, Division of Engineering, National Research Council, National Academy of Science--National Academy of Engineering cooperating, "Freight-Car Supply and Utilization: The Regulatory View" [by Rupert L. Murphy], Improving Railroad Freight-Car Service (Washington, D.C.: Office of fhe Secretary of Transportation, Dept. DOT-OS—00035 Task Order 10, 1971), p. 24. 330.8., Interstate Commerce Commission, Ei ht - Third Annual Report of the Interstate Commerce Comm1881on (Washington, D.C.: Government Printing Office, 1969), p. 109. ' 34U.S., Interstate Commerce Commission, Bureau of Enforcement, personal correspondence. 35For examples, see 0.8., Interstate Commerce Commission, Ex parte 265 Increased Freight Rates, 1970 and Ex arte Increased Freight Rates, 1971, 339 I.C.C. I25 (Washington, D.C.: Government Printing Office, 1971), pp. 141, 144, 146, and 153-54. 36U. 8., Congress, Senate, Committee on Commerce, Freight Car Shortages, Hearings before the Special Sub- committee on Freight Car Shortages of the Committee on Commerce, United States Senate, on 8.1415, 8.1729, 8.1730, 8.1731: Part I, 92nd Cong., lst Sess., 1971, pp. 4-5. 37Ibid., pp. 6-26. 381bid., pp. 27-39. 391bido' pp. 40-50. 44 40"Soviet Grain Order Bogs Down U.S. Rails, Could Foul Up Shipments of Other Goods," Wall Street Journal, January 22, 1973, p. 26. 41For examples, see Eighterhird Annual Report of the I.C.C., p. 7; U.S., Congress, House, Committee on Interstate and Foreign Commerce, Inquiry_Into Freight Car Shortages, Hearings before the Special Subcommittee on Investigations ofvthe Committee on Interstate and Foreign Commerce, House of Representatives: Part I, 92nd Cong., lst and 2nd Sess., 1972, p. 48; and Robert Fellmeth, The Interstate Commerce Omission (New York: Grossman Publishers, 1970), p. 275. 42P. Harvey Middleton, Freight Transport in the United States . . . Prewar, War, andiPostwar (Chicago: Railway Business Assodiation, 1945), p. 37? 43L. D. H. Weld, Private Freight Cars and American Railways (New York: Columbia University, 1908), pp. 11-12. 441bid., p. 12. 4SIbido ' pp. 21-22. 461bid., pp. 23-24. 47John F. Stover, American Railroads (Chicago: The University of Chicago Press, 1961), p. 165. 48U.S., Interstate Commerce Commission, Bureau of Statistics, Statistics of Railways in the United States (Washington, D.C.: Governmentfiiintihg Office, various issues) and U.S., Interstate Commerce Commission, Bureau of TranSport Economics and Statistics, I.C.C. TranSport Statistics in the United States (Washington, D.C.: GovernmentPrinting Office, various issues). 49Stover, The Life and Decline of the American Railroad, pp. 268-69. 45 50U.S., Congress, House, Special Subcommittee on Investigations of the Committee on Interstate and Foreign Commerce, Inquiry_Into Freight Car Shortages, H. Rept. 92-1384, Pursuant to H. Res. 170, 92nd Cong., 2nd Sess., 1972, pp. 25-26. 51U.S., Department of Agriculture, Agricultural Marketing Service, "Recent Developments in Transportation," Marketing and Transportation Situation, MTS llS (WaSHington, D.C.: Government Printing Office, October, 1954), p. 41. 52"North Shore Handles Trailers Intact,” Railway Age, LXXXI (December 18, 1926), p. 1232. 53U.S., Department of Transportation, Division of Engineering, National Research Council, National Academy of Science—-National Academy of Engineering cooperating, "Canadian National Views on Railway Freight— Car Shortages," Improving Railroad Freight-Car Service (Washington, D.C.: Office of the Secretary of Trans- portation, Rept. DOT-OS-00035 Task Order 10, 1971), p. 47. 54U.S., Department of Agriculture, The Frei ht Car Supply Problem and Car Rental Policies, By Patrick P. Bo es, Economic Research SerVice, Marketing Research Report 953 (Washington, D.C.: Government Printing Office, 1972), p. 5. 55U.S., Department of Agriculture, Agricultural Marketing Service, Grain Transportation Statistics for the North Central Region, Transportation and’Facilities Research Division Statistical Bulletin 268 (Washington, D.C.: Government Printing Office, 1960). 56Ibid., p. 98. 57Ibid., p. 102. 58Association of American Railroads, Information Letter, No. 2053 (January 24, 1973), p. l. 46 59John P. Doyle, "National Policy and the Rail Freight Car Shortage," in Business LOgistics--Policies andDecisions, ed. by David McConaughy and C. Joseph Clawson (Los Angeles: University of Southern California, Research Institute for Business and Economics of the Graduate School of Business Administration, 1968), pp. 3-40 6OU.S., Interstate Commerce Commission, "Car Shortage--Insufficient Transportation Facilities." 61U.S., Interstate Commerce Commission, Ei ht - Third Annual Report of the Interstate Commerce Comm1ss1on, pp. 108-9. 2Lawrence M. Lesser, "Can the Freight Car Shortage Problem be Solved?" Traffic Management, IX (December, 1970), p. 29. 63U.S., Department of Transportation, Division of Engineering, National Research Council, National Academy of Science--National Academy of Engineering cooperating, "Comments on Car Shortages," by W. W. Hay, Im rovin Railroad Freight-Car Service (Washington, D.C.: Of%ice of the Secretary ofiTiansportation, Rept. DOT-OS-00035 Task Order 10, 1971), p. 49. 64U.S., Congress, House, Inquiry Into Freight Car Shortages, H. Rept. 92-1384, p. 22. 65Ibid., p. 2. 661bid., p. 34. 67Ibid., p. 23. 68Walter Renz, President, American Railway Car Institute, telephone conversation. 69U.S., Department of Transportation, ”Freight- Car Supply and Utilization: The Regulatory View," p. 44. CHAPTER III THE ROLE OF DEMURRAGE Rail carriers expect users to load and unload freight cars with reasonable efficiency. The railroads assess a penalty charge when the users exceed established loading or unloading free time. This charge, known as demurrage, is an incentive to obtain maximum utilization of the rolling stock when it is not in railroad control. The absence of any such charge would lead to unnecessary delay in releasing the freight cars to the carriers. It is impossible to state the harbinger of these detention charges. Coughlin claimed that a $5.00 penalty after twenty-four hours free time was assessed by the 1 Also, the Pennsylvania Railroad during the Civil War. charges became more common during the 18803 when terminals in large industrial centers became congested. Hartman concurs and also advised that demurrage rebating was used as a competitive tool during that period.2 The carriers' right to assess detention charges was a matter for the courts to resolve. Court decisions on this issue were rendered as early as 1891.3 47 48 The Hepburn Act of 1906 required that railroads file their demurrage rules and charges with the ICC. There was no demurrage uniformity established by the various carriers or among the various states, prompting the National Association of Railway Commissioners to initiate a corrective action in 1908.4 A committee comprised of members from each state and the ICC was formed to establish an harmonious system of intrastate and interstate demur- rage rule system. That railroad association opined that the severe car shortage of the previous year was due to user car detention. The committee's results were presented to the National Association of Railway Commissioners' Twenty-First Annual Convention and uniform intrastate and interstate rules and charges were approved. Uniformity opponents desired flexibility in application for competi- tive reasons. The rules were adopted and provided for a $1.00 per car per day charge after forty-eight hours' load- ing or unloading free time.5 The rules were endorsed by the ICC and the American Railway Association and became effective April 1, 1910.6 The ICC and Demurrage Users appealed to the ICC to invalidate any de- tention charges. The futile attempts ultimately led to the necessity for a court decision on the ICC's decision rendering authority.7 The United States Supreme Court 49 ultimately resolved the dispute and repeated its decision several times during the early 1920s.8 The ICC was empowered to rule on demurrage legal- ity but was without authority to affect its level. The Esch Car Service Act of 1917 corrected this situation.9 This authority has been manifested through service orders during emergencies. Two major methods to discourage detention have been the decreasing of free time allowed or the increasing of the daily charge. Free time altera- tion has only been implemented in isolated instances on select types of equipment. The general forty-eight hour free time allowance, applied since 1910, was never revised until March, 1973. Isolated free time reduction was popular during the 19405. There was a reduction on cars held at the Mexican border in 1943, a cutback on tank cars, which were in high demand, in 1945, and, on boxcars held at ports during 1946. This action was next employed during the Korean conflict in the early 1950s when a large export volume called for reduced free time at ports throughout 1951 and 1952, and again during 1955 and 1956. Heavy port congestion occurred again during the years 1964, 1966, and 1968. The ICC issued service orders which reduced free time. The ICC was not concerned with the demurrage level until the World War II era. Higher demurrage rates 50 were ordered on the popular, high-capacity flatcars in 1943 and then increased on all cars in 1944, 1945, and 1946. The ICC increased demurrage on all cars during the Korean conflict of 1950-52 and then again during 1966-68. At the termination of this latter temporary action, the standard rates prescribed by the industry prevailed. Less than one year later, the ICC issued a service order which increased demurrage to its highest level in history in order to combat the constantly-increasing pressure for a freight car shortage solution. The Industry and Demurrage Demurrage represents a higher user distribution cost and agitates the relationship between the railroads and the users. Its assessment was a haphazard, incon- sistent, and often-neglected procedure prior to the uni- form code of 1910. Various states believed that rigid standards would discourage industrial formation in their territories. The National Association of Railway Com- missioners recognized the situation in 1908 and asserted as follows: It is to the interest of shippers that many concessions made by the railroads in the way of free time for cars should be withdrawn. The individual shipper who succeeds in using a coal car as a warehouse for ten or fifteen days free of charge may profit thereby, but he does so at the expense of other shippers who are entitled to 51 have the use of the car for transportation of their coal. The pressure of the individual ship- pers to secure additional free time is really directed against the proper use of cars and against the best interests of the shipping public as a whole. As the body of freight-car equipment is practi- cally a unit, the system of rules governing its use should be free from conflict. Four days' free time in one State serves simply to give an advan- tage to the shippers of that State at the expense of all other shippers. Cars held beyond a fair time for unloading in New England are withheld, not merely from other New England shippers, but from shippers in all other States. It is evident that local regulation of this subject must have in mind the general good, or local regulation will find itself compelled to yield to national regulation. Good faith and intelligence on the part of local regula- tive bodies will secure uniformity of car-Sfavice rules without any shifting of jurisdiction. The ICC called for uniform national rates to remove the discrimination in its annual report to Congress in 1909.11 It is interesting to note that the absence of demurrage assessment still is used as a competitive tool, as espoused by ICC Commissioner Rupert Murphy in April, 1971.12 Unified industry action to increase the demurrage level from a constant $1.00 per car per day charge first occurred in 1916 because of the huge traffic volume increase precipitated by WOrld War I activity and the need for improved freight car utilization. A progressive scale of charges was introduced, with a $1.00 fee for the first day after free time termination, $2.00 for the second day, $3.00 for the third day, and $5.00 for each 52 subsequent day. These charges were revised in May, 1917, to $2.00 for the first five days and $5.00 thereafter. The Director General of the United States Railroad Administration, responsible for rail transportation during the federal government railroad takeover during World War I, ordered increased rates on February 10, 1918, to $3.00 for the first four days, $6.00 for the following three days, and $10.00 thereafter. After the war, the charges reverted to $2.00 per car per day for the first four days following the free time allowance and a $5.00 assessment for each subsequent day. The next increase was implemented in 1957 with rates rising to $4.00 and $8.00 respectively. In 1964, rates were increased to $5.00 per car per day for the first four days, $10.00 for the next four days, and $15.00 thereafter. The rate level again was increased at the end of 1971 to $10.00, $20.00, and $30.00, respectively. Appraisal Demurrage theoretically is an incentive for efficient freight car utilization and should discourage freight car use for storage purposes, as outlined by the 13 It has not American Railway Association in 1933. served this purpose, judging from a study of critical car supply periods. The ICC cited excessive warehousing in freight cars during the first formal freight car 53 investigation,14 which was confirmed by the National 15 Association of Railway Commissioners. The same condi- tions prevailed during the World War I era, as cited by 16 the ICC in its second freight car investigation. The Louisville and Nashville Railroad confirmed excessive user detention at an informal conference in 1916.17 Professor Moulton discussed car delay even during lax periods in a transportation problem treatise in 1933, adding that terminal congestion was caused therefrom.18 Professor Muhlfeld cautioned against excessive detention 19 The ICC cited innumerable 20 at the start of World War II. detention examples at that same time. The practice of excessive detention remained popular during the middle of the 1950s. Freight cars were in short supply and the federal government conducted another investigation to relieve the situation. At the 1955 hearing, Mr. Arthur Gass, Chairman of the Car Service Division of the AAR, presented numerous excessive deten- tion examples.21 The ICC contributed additional examples during that period.22 Despite an industry-sponsored demurrage increase in 1964, storage in freight cars con- tinued through the latter part of that decade. The ICC reviewed that period and evidenced countless, wasted car-days because of user detention.23 54 A conclusion may be reached that the demurrage level has not served to discourage user detention and lading storage in freight cars. The multitude of historical examples give ample validity to this contention. Payments for Demurrage This study found little attention given to the magnitude of aggregate demurrage charges, save a listing in the yearly statistics reported to the ICC by the individual carriers. Column 1 of Table III-1 lists the yearly aggregate demurrage charges assessed by Class I railroads for the years 1917 through 1971. Before any further reference is made to Table III-1, it is recognized that many infirmities exist when comparisons among years are attempted or when any generalizations are made re— garding the totals. The demurrage assessment listing is imposing when consideration is given to the fact that they represent user detention penalties beyond the forty-eight hour loading or unloading allowance. Clearly, warehousing is being provided by the carriers to the benefit of the patrons at the expense of further freight car utilization. The amounts shown can be reduced to averages, in what may appear to be an oversimplified approach. 55 TABLE III-l ASSESSED DEMURRAGE CHARGES, 1917-1971 (Class I Railroads) Revenue Assessed Yearly Average Freight Average Year Demurrage Revenue Demurrage Originated Demurrage Charges Carloads Per Car in N.T. Per Ton 1, 7/ (000) (1)‘ (2) (3) (4) (5) 1917 26,401,148 n.a. n.a. 1,264,016 .0209 1918 37,342,341 44,592,089 .8374 1,263,344 .0296 1919 28,156,471 41,832,536 .6731 1,096,449 .0257 1920 30,505,039 45,118,472 .6761 1,255,421 .0243 1921 18,705,562 39,323,158 .5757 940,183 .0199 1922 17,570,568 43,207,561 .4067 1,023,745 .0172 1923 27,753,122 49,812,113 .5572 1,279,030 .0217 1924 21,032,518 48,534,433 .4334 1,187,296 .0177 1925 20,391,640 51,224,152 .3981 1,247,242 .0163 1926 21,903,157 53,098,819 .4125 1,336,142 .0164 1927 18,472,560 51,635,806 .3577 1,281,611 .0144 1928 16,957,925 51,589,887 .3287 1,285,943 .0132 1929 19,039,773 52,827,925 .3604 1,339,091 .0142 1930 13,505,874 45,877,974 .2944 1,153,197 .0117 1931 9,256,385 37,151,249 .2492 894,187 .0104 1932 6,139,016 28,179,952 .2179 646,223 .0095 1933 5,137,357 29,220,052 .1756 698,943 .0073 1934 5,987,069 30,845,960 .1941 765,296 .0078 1935 6,096,743 31,504,134 .1935 789,627 .0077 1936 6,875,216 36,109,112 .1904 958,830 .0072 1937 9,080,399 37,670,464 .2412 1,015,586 .0089 1938 5,219,221 30,457,078 .1714 771,862 .0068 1939 6,392,648 33,911,498 .1885 901,669 .0071 1940 7,786,497 36,357,854 .2142 1,009,421 .0077 1941 13,649,039 42,352,127 .3223 1,227,650 .0111 1942 19,777,977 42,771,102 .4624 1,421,187 .0139 1943 27,002,237 42,439,951 .6362 1,481,225 .0182 1944 25,970,627 43,408,295 .5983 1,491,491 .0174 1945 29,371,771 41,918,120 .7007 1,424,913 .0206 1946 33,821,565 41,341,278 .8181 1,366,617 .0247 1947 36,518,828 44,502,188 .8206 1,537,546 .0238 1948 31,971,752 42,718,828 .7484 1,506,878 .0212 1949 19,718,876 35,911,261 .5491 1,226,503 .0161 1950 26,571,752 38,902,641 .6830 1,354,196 .0196 56 TABLE III-1--Continued Revenue Assessed Yearly Average Freight Average Year Demurrage Revenue Demurrage Originated Demurrage Charges Carloads Per Car in N.T. Per Ton (000) (1) (2) (3) (4) (5) 1951 48,295,854 40,499,182 51.1925 1,477,402 .0327 1952 32,855,641 37,985,155 .8649 1,382,604 .0237 1953 25,085,374 38,215,993 .6564 1,384,301 .0181 1954 18,562,854 33,914,953 .5473 1,223,969 .0152 1955 25,972,045 37,636,031 .6908 1,396,339 .0186 1956 33,658,126 37,844,828 .8894 1,447,422 .0233 1957 37,251,096 35,500,148 1.0493 1,380,327 .0270 1958 33,859,721 30,222,145 1.1204 1,190,353 .0284 1959 39,610,963 31,014,549 1.2772 1,232,201 .0321 1960 39,066,500 30,441,415 1.2833 1,240,789 .0315 1961 34,912,285 28,583,780 1.2214 1,193,740 .0292 1962 38,038,593 28,722,437 1.3244 1,233,597 .0308 1963 41,881,154 28,866,619 1.4509 1,285,060 .0326 1964 53,689,278 29,027,186 1.8496 1,355,738 .0396 1965 67,766,078 29,247,637 2.3170 1,387,423 .0488 1966 88,834,546 29,623,115 2.9988 1,448,902 .0613 1967 82,173,145 28,083,751 2.9260 1,407,628 .0584 1968 76,907,130 28,252,541 2.7221 1,431,308 .0537 1969 97,279,316 28,291,939 3.4384 1,473,457 .0660 1970 109,295,201 27,160,247 4.0241 1,484,919 .0736 1971 134,907,119 25,260,858 5.3406 1,392,000 .0969 Sources: Statistics of Railways in the United States I.C.C. Transport Statistics of the Railroads Yearbook of Railroad Facts Association of American Railroads, personal correspondence 57 Column 2 of Table III-l lists the total revenue carloads originated in each year from 1918 through 1971 and Column 3 represents the average demurrage per revenue carload. The average cost per ton declines from the earliest period for which records are available through the lean years of the 19305 and then takes higher pro- portions until the peak of $5.34 per car is reached in 1971. The same approach is used to ascertain the average cost per ton. Column 4 in Table III-1 lists the total carload revenue freight originated by Class I carriers for the years 1917 through 1971. Again, the lean years of the 1930s reveal the lowest per-ton cost, as shown in Column 5. The decade of the 1960s represents a noticeable cost increase and most certainly has been affected by the higher demurrage rates which prevailed in the latter part of the decade. It is stated without reservation that the level of demurrage has not been sufficiently high to generally discourage inefficient freight car utilization. Demur- rage rate increases, whether by action of the ICC or the industry, have not reduced aggregate payments, evidenced by rate increases in late 1944 and in 1945, 1949-51, 1957, 1964, and subsequent years. The ICC recently stated that higher demurrage levels only increase railroad revenue,24 which is confirmed by the data. 58 This study was an investigation into freight car utilization and the measures used to increase efficiency. The evidence presented implies that past demurrage levels have not fulfilled that purpose. Ex-Secretary of the Department of TranSportation Volpe recently advised that the freight car fleet is controlled by the users 40 percent of its available time.25 Any decrease in that percentage necessarily improves utilization. Before any attempt can be made to ascertain the required level of industry rail car ownership, utilization must be improved by placing restrictions on the users. Mr. F. A. Pontious, former manager of the Chicago Demurrage Bureau and former supervisor of Demurrage and Storage on the Chicago and Northwestern Railway, declared in 1920 that an increased car supply cannot be used as a substi- tute for incentive demurrage to improve utilization.26 In conclusion, past studies showed that abnormally high demurrage has materially improved utilization. Pontious advised of a 1913 survey during which the inter- state rate was $1.00 per car per day and the California intrastate rate was $3.00 per car per day.27 The study revealed that 12.87 percent of the cars involved in interstate transportation were held beyond the free time allowance, compared to 2.37 percent on intrastate ship- ments.28 Another study compared different rate levels in 59 the same geographic area during different time periods, the validity of which contains more weaknesses than the earlier-mentioned study, but nevertheless is worth citing. Comparisons of results at a $3.00 rate in Arizona for the 6 months, ending with July of the present year, with a corresponding period of 1913, when a $1.00 rate applied on Interstate traffic and the same rate on State traffic for three months, or half of the period, show an increase in cars re- ported of 20,882, or 26 per cent: a decrease in cars held overtime of 2,698, or 57 per cent; a decrease in demurrage charges of $4,418.00, or about 25 per cent. The percentage of State cars held overtime fell from 03.17 to 00.92; on Interstate cars from 09.899 to 04.04, and on all traffic from 05.87 to 01.99. Mr. L. F. Loree, former president of the Delaware and Hudson Company and former chairman of the Kansas City Southern Railway Company, related studies which measured higher demurrage rates' effectiveness. In one, California used different rates for various periods. Payments averaged 37.42 cents per car with rates of $1 and $2 per car and fell to 10.43 cents per car with a rate of $6 per car, a decrease in detention charges of 70 percent. A rate decrease to $3 then increased detention 233.78 percent.3o Loree reported an American Railway Association study in 1916, with varying interstate rates of $1 and $2 and a constant $4 California intrastate rate over the same period. The percentage of detained interstate ship- ments was 16.2; for intrastate shipments, 1.74. The study projected an 84.24 percent detention decrease 60 nationally under the California scale, or 1,257,486 cars placed into service.31 It becomes increasingly clear that only a relatively high demurrage rate will discourage user detention. A reduction in free time also should improve utilization. The forty-eight hour allowance became standard in 1910 when equipment and technology were not as advanced as in current times. Users in the Soviet ,// Union today are allowed four hours to load or unload cars.32 And, a House of Representatives report on a 1972 car shortage investigation recommended free-time 33 Inter- reduction, and advised of shipper concurrence. estingly, the ICC issued its first general free-time reduction emergency order in March, 1973, and subse- quently rescinded its order the same month because of user protests. In summary, it has been suggested that demurrage levels have not sufficiently discouraged freight car user detention. Earlier studies showed that relatively high rates materially improved utilization. It is suggested, therefore, that rates be established by industry action or government fiat to levels higher than contemporary storage and handling charges. Also, it is suggested that free time allowance permanently be reduced to twenty-four hours. The users' cooperation thus is solicited to attain 61 maximum utilization and further governmental action is deterred. If, however, the freight car is viewed other than as a transportation vehicle, those considerations are beyond this study's purview. FOOTNOTES- -CHAPTER I I I 1E. W. Coughlin, Freight Car Distribution and Car Handling in the United States (Washington: Associa- tion of American Railroads, Car Service Division, 1956), p. 141. 2Harleigh H. Hartman, Law and Theory of Railwgy Demurrage Charges (New York: Traffic PubliShing Company, 19287) p. 2. 3Miller and Co. v; Georgia Railroad and Banking Co., 18 L.R.A. 323 (Ga. Sup. Ct. 1891). 4National Association of Railway Commissioners Proceedings of the Twentieth Annual Convention (Washing- ton, D.E.: Government Printing Office, 1909), p. 133. 5National Association of Railway Commissioners. Proceedings of the Twenty-First Annual Convention (Washington, D.573 GovernmentiPrinting Office, 1910), pp. 207, 217. 6Hartman, Law and Theory of Railway Demurrage Charges, pp. 3-4. 7Michie v. New York, N. H. and H. R. Co., 151 Fed. Rep. 694 (D. Mass. Cir. Ct. 1907). 8For example, see Pennsylvania R. R. Co. v. Kitanning Iron & Steel Co., 253 U.S. 319, 323 (1920); Edward Hines, etc., Trustees v. United States, 263 U.S. 143, 145 (1923); Turner Lumber Co., v. C.M.ST.P. Rwy., 271 U.S. 259 (1926). 62 63 9John J. Esch, "Regulation of Car Service Under Government Control of Operation," War Adjustments in Railroad Regulation, The Annals of the American Academy of Political and Social Science, LXXVI (Philadelphia: The American Academy of Political and Social Science, 1918), p. 39. 10National Association of Railway Commissioners Proceedin s of the Twentieth Annual Convention, Pp. I32-3 e 1J'U.S., Interstate Commerce Commission, Twent - Third Annual Repprt of the Intepstate Commerce Comm1881on (WaShington, D.C.: Government Printing Office, 1909), pp. 13-15. 12U.S., Department of Transportation, Division of Engineering, National Research Council, National Academy of Science--National Academy of Engineering c00perating, "Freight-Car Supply and Utilization: The Regulatory View” [by Rupert L. Murphy], Im rovin Railroad Freight- Car Service (Washington, D.C.: Office of the Secretary of Transportation, Rept. DOT-OS-00035 Task Order 10, 1971), p. 29. 13American Railway Association, The American Railroad in Laboratory (Chicago: American Railway Association, 1933), p. 396. 14U.S., Interstate Commerce Commission, "Car Shortage--Insufficient Transportation Facilities," Interstate Commerce Commission Reports: Decisions of the Interstate Commerce Commission of the United(States, November11296-December ‘1907, XII (Washington, DLC}: Sovernmeanrinting Office, I908), p. 579. 15U.S., Interstate Commerce Commission, Twenty- Third Annual Report of the Interstate Commerce CEmmiSsion, p. 13. 16U.S., Interstate Commerce Commission, "Car Supply Investigation," Interstate Commerce Commission Egports: Decisions of the Interstate Commerce Commission of the United States Novemberli19I6-January, I9I7, XLII (Washington, D. .: Government Printing Office, 1917), p. 668. 64 17"Car Shortage Information," Traffic World, XVIII (November 11, 1916), pp. 966-67. 18Harold G. Moulton and Associates, The American Transportation Problem (Washington, D.C.: The Brookings Institution, 1933), pp. 798-99. 19John E. Muhlfeld, The Railroad Problem and Its Solution (New York: The-Bevin-Adair Company,*l94l), p. 45. 20U.S., Interstate Commerce Commission, Fift - Fifth Annual Report of the Intepstate Commerce Commission (Washington, D.C.: Gover ment Printing Office, 1941), p. 127. 21U.S., Congress, Senate, Committee on Interstate and Foreign Commerce, Frei ht Car ShortageL_Hearing§, before a subcommittee o t e ommittee on Interstate and Foreign Commerce, United States Senate, on the Freight Car Shortage, 84th Cong., 1st Sess., 1955, p. 107. 22U.S., Department of Transportation, "Freight Car Supply and Utilization: The Regulatory View," p. 29. 23Ibid.' pp. 29-33. 24U.S., Interstate Commerce Commission, Ei ht - Fifth Annual Re ort of the Interstate Commerce Commission (WaShington, D.E.: Governmenf Printing Office, 1971), pp. 21-22. 25John F. Donelan, "Demurrage Study Contract," I.C.C. Practitioners' Journal, XXXIX (November-December, 1971), p. 68. 26F. A. Pontious, Demurrage and Car Efficiency (Chicago: La Salle Extension University, 1920), p. 33. 27Ibid., p. 34. 65 28Ibid., p. 35. 291bid., p. 37. 30L. F. Loree, Railroad Freight Transportation (New York: D. Appleton and COmpany, 1922), p. 3282 31Ibid., pp. 323-29. 32"Russian Railroading: Hungering After Growth," Transportation and Distribution Management, XII (OctEber, 1972), p. 38. 33U.S., Congress, House, Special Subcommittee on Investigations of the Committee on Interstate and Froeign Commerce, Inquiry Into Freight Car Shortages, H. Rept. 92-1384, Pursuant to H. Res. 170, 92nd(Cong., 2nd Sess., 1972, p. 17. CHAPTER IV THE PROBLEM OF PER DIEM The tOpic of demurrage, covered in the last chapter, concerns user charges theoretically assessed universally by the railroads when excess delays are incurred. Unified railroad action can be envisioned for two reasons: (1) no individual carrier would be criti- cized by shippers or receivers by what may appear to be an excessive penalty; and (2) the revenue generated would contribute to the railroads' coffers as a recom- pense for their opportunity costs. The issue of per diem charges, the payment to an owning railroad by the using railroad, does not present the same monolithic approach. Opposing views regarding the charges' level are diverse and probably more clearly illustrate the divisive character of the railroad industry than any other aspect. Since its inception, per diem has been one of the most perplexing problems facing the industry, the regulating agencies, and United States Congresses. 66 67 Early History of Per Diem Freight shipments in early railroad history in- volved a cumbersome process. Track gauge differences required lading transfer between freight cars if the consignee was not served by the originating railroad. The second carrier provided its own freight car and rolling stock remained in the possession of its owners. This process caused delay, expense, and avoidable lading damage. Standard track gauge began to appear in 1867,1 eliminating the need for lading transfer. The receiving railroad paid the owner for the car's use. Car inter- 2 as did a quasi-standard change became common by 1872, rate. The rate had been two cents per loaded mile prior to 1872 and was reduced to one cent per mile, loaded or empty, in 1872. Subsequent reductions to three-quarters of a cent and three-fifths of a cent per mile, loaded or empty, occurred during the next three decades.3 Dissatis- faction with the mileage system grew during this period for many reasons: owning companies had no easy method of verifying the user's mileage contention:4 a great amount of underutilization occurred as railroads were using other lines' cars for storage purposes:s low rental rates removed the new car purchase incentive:6 and cars located a long distance from the owners' interchange points were speculatively held rather than returned at 68 large expense.7 The growing mistrust among the railroads led to the need for a more satisfactory car rental method, which was presented by the American Railway Association's Committee on Car Service and was adopted on July 1, 1902.8 The approved method was a twenty-cent daily charge with owner recall provisions. After recall, the rate increased to $1.00 per day if on one non-owner's 9 line for thirty days. The ICC's 1902 annual report praised the new daily charge and cited freight car abuses 10 under the previous mileage system. Its 1903 annual report credited the new method for achieving greater utilization.11 The rate was increased to twenty-five cents per day on July 1, 1906 and then doubled in 1907 because of car supply problems. This latter action returned cars to their owners. Per diem rate progression to 1949 is shown in Table IV-l. Authority for Per Diem Rates Observance of the Code of Per Diem Rules govern- ing freight car usage has been voluntary. It was not until 1970 that the AAR assessed violation penalties against its concurring members. Railroads who would not observe the AAR's rules negotiated rates among them- selves. The Twentieth Annual Convention of the National 69 TABLE IV-l PROGRESSION OF PER DIEM RATES, 1902-1949 Year Per Diem Rate 1902 $ .20 1906 .25 1907 .50 1908 .25 1910 (March to July inclusive) .30 1910 (August to February inclusive) .35 1913 .45 1916 .75 1917 .60 1920 (March 1, 1920) .90 1920 (November 1, 1920) 1.00 1945 1.15 1947 1.25 1949 1.75 Sources: 1902-1920, American Railway Association, The American Railroad in Laborator , p. 386: 1945-1949, Association of Afierican Railroads, personal correspondence. 70 Association of Railway Commissioners in 1908 condemned the voluntary observation, claiming only strict rules and penalties would return owners' cars.12 The ICC had been held powerless to affect per diem rates until the late 1960s. It criticized the 13 voluntary observance in 1907. It cited loaded cars with average moving speed of less than one mile an hour and others standing idle from two to twenty days, solid trains of empty cars standing idle for almost three weeks, and two to three week switching service in Duluth, 14 Minneapolis, and Chicago. It requested remedial car 15 service and per diem authority at that time. Per diem authority was granted in 1966. Diverse Views on Per Diem The standard per diem rate agreement in 1902 did not remove the opposing views of its desired level. Eastern railroads terminated more traffic than they originated in a relatively concentrated area. They preferred a low, mileage-based rate. Western roads originated a greater volume and preferred high, daily rates to increase handling efficiency. Mr. Arthur Hale, former chairman of the American Railway Association's Committee on Car Efficiency at the Twentieth Annual Con- vention of the National Association of Railway 71 Commissioners in 1908, cited the reduced new-car purchase incentive and the lack of Eastern railroad car ownership when the emergency fifty-cent rate was reduced to twenty- five cents.16 At the 1916 ICC car shortage investigation, Mr. George A. Hodges, of the American Railway Association, cited 40,000 car service violations by 107 railroads in one month. He alleged that a higher per diem rate would improve car utilization.17 The low-rate issue next became prominent after World War II. The earlier described Operating ineffi- ciencies prompted an ICC per diem investigation at which the Director of the Bureau of Service, the deputy director of the Office of Defense Transportation, and several car service agents suggested rates as high as $5.50 per 18 Notwithstanding the AAR's day to improve utilization. and the American Short Line Railroad Association's pro- tests of inequity and injustice of penalty per diem, the ICC ordered a $2.00 per car per day rate effective October 1, 1947. Railroad protests resulted in a tem- porary injunction and a subsequent decision in Palmer v. United States, 75 F. Supp. 63, wherein the Columbia District Court of the United States denied the ICC's authority to prescribe per diem for regulatory purposes.19 72 The ICC, Congress, and Per Diem The Court's decision prohibited the ICC from prescribing an efficiency producing per-diem level. It also presented a difficult decision making environment for the ICC and permitted continued division in the AAR. For example, the Western roads sought rates of $2.00 to 3 $2.50 in 1949 while the shorter and Eastern lines asked for a maximum $.95 rate during the post World War II L era. The contested rates had been $1.15, $1.25, and $1.50 over a three-year period. The ICC's 1949 decision claimed the rates were neither too high nor too low.20 In its 1950 annual report, the ICC requested authority to determine per diem levels21 which included current replacement cost of the equipment.22 Senate bill 8.1018 was introduced to the Eighty-Second Congress, First Session, on March 2, 1951;23 hearings were held and no further action was taken. The ICC repeated its request in 1951. The Eighty-Second Congress, Second Session, received Senate bills 5.2350 and 8.2901 on January 10 and March 20, 1952, respectively.24 They were referred to the Senate Committee on Interstate and Foreign Com- merce, but no further action was taken. In that same Congress, the House of Representatives received H.R. 6962. The proposal stipulated that the ICC should establish rates, consider both opportunity and 73 replacement cost, ignore the user's or owner's financial condition, and double the contemporary rates during emergencies.25 No further action was taken after the bill was sent to the House Committee on Interstate and Foreign Commerce. The ICC's identical request in 1952 was met by the introduction of H.R. 538 and H.R. 3788 on January 3 and March 9, 1953, respectively, to the Eighty-Third Congress, First Session's House of Representatives.26 Both bills were similar to H.R. 6962 and had identical results. The ICC's same request in 1953 was ignored. Railroad industry internal strife continued through 1955. The ICC was called upon to rule on the AAR's $1.75, $2.00, and $2.40 rates which were prescribed over a six-year period, and found them to be reasonable.27 The ICC's 1955 annual report requested penalty per diem authority, citing the rapidly-diminishing car 28 fleet. This authority was recommended to the Eighty- Fourth Congress, Second Session, in Senate bills 8.2770 and 8.3509 on January 5 and March 22, 1956, respectively, 29 After the and House bill H.R. 9962 on March 15, 1956. bills were referred to their respective Interstate and Foreign Commerce Committees, hearings were held on 8.2770 and no further action was taken. The ICC com- plained about congressional inactivity when it repeated 30 its request in 1956. The Eighty-Fifth Congress, First 74 Session, received H.R. 3626 dated January 24, 1957, in the House of Representatives, and 8.942 and 8.2030 dated January 29 and May 8, 1957, reSpectively, in the Senate.31 Although H.R. 3626 and 5.942 resembled the 1956 legislative proposals in the ICC's freedom to -- establish per diem rates, 8.2030 was more specific as to the calculation method. It required a daily charge and included opportunity cost consideration.32 Again, no action was taken after these bills were directed to 1' E their respective committees, although a hearing was held on 8.3626.33 The ICC pleaded for per diem authority in its 1957 report to Congress, adding the earning power con- 34 sideration in its recommendation. Nothing was done 35 The and the recommendation was repeated in 1958. ICC's 1955 decision on the reasonableness of the contemporary rates, described on page 73, now was being contested, along with the addition of another AAR- increased rate, and the investigation was reopened.36 At this point, all rates since 1949 were being contested. The proposed legislation in the Eighty-Sixth Congress, First Session, took two approaches. The first entrusted the ICC to rule on the reasonableness of the prescribed standards on which contemporary rates were based, including freight car earning power. Senate 75 bills 8.1789 and 8.1811, introduced on April 24 and April 27, 1959, respectively, and the following House bills Date Bill Number April 16, 1959 H.R. 6468 April 23, 1959 H.R. 6551 April 29, 1959 H.R. 6789 May 7, 1959 H.R. 7008 May 7, 1959 H.R. 7020 May 14, 1959 H.R. 7130 June 23, 1959 H.R. 7925 June 24, 1959 H.R. 7937 would have achieved that goal.37 The second approach would have sanctioned a penalty per diem incentive beyond the contemporary rates. It was advocated in Senate bill 5.1812 on April 27, 1959, and House bills H.R. 5938, H.R. 6138, and H.R. 6469 on March 23, April 7, and April 16, 1959, respectively.38 Hearings were conducted by the respective Interstate and Foreign Commerce Com- mittees. The House Committee's favorable report received no further action.39 The Senate Committee's report acknowledged the AAR's request that no action be taken and its promise of an investigation, expressed skepticism of any intra-industry solution, and strongly recommended 40 complete ICC per diem authority. The bills died on the Senate calendar. The ICC's unrelenting attempts continued in its 1960 annual report, advising of an increased number of 76 unserviceable cars and of car underutilization.41 The Eighty-Seventh Congress, First Session, witnessed four proposals related to the ICC's per diem authority. The Senate received 8.886 and 8.1840 on February 9 and May 11, 1961, respectively; the House received H.R. 2038 and H.R. 7342 on January 6 and May 25, 1961, respec- 42 tively. Hearings were held and no further action taken. The recommendation was repeated in the ICC's 1962 report.43 Senate bill 8.1063 on March 14, 1963, and House bill H.R. 2092 on January 17, 1963, were introduced to the Eighty-Eighth Congress, First Session.44 Hearings were held and the Senate investigating committee issued a report strongly recommending enactment. It also advised of concurrence from the Departments of Agriculture, Commerce, and Defense, the Comptroller General, and the General Services Administration of the United States.45 The ICC's 1963 annual report pleaded for enactment and cited the gravity of the car situation. It advised that the national car fleet had diminished and was comprised of more specialized cars; some carriers had rejected the new AAR prescribed multi-level per diem rates; and freight-car earning power had been excluded from previous per diem levels.46 The prOposed legislation died when Congress adjourned in 1964. At this juncture, the Eighty-Ninth Congress, First Session, was confronted with the throes of the most 77 serious, prolonged car shortage problem, as described in Chapter II. The acceleration of users' demands incited a raft of legislative proposals to endow the ICC with uncontested per diem authority. The Senate received 8.179, 8.1098, and 5.1786 on January 6, February 10, and 47 April 13, 1965, respectively. The House of Repre- sentatives was presented with the following bills in 1965.48 Date Bill Number January 4 H.R. 425 January 4 H.R. 532 January 11 H.R. 2230 January 25 H.R. 3397 February 2 H.R. 4172 February 4 H.R. 4407 February 8 H.R. 4543 March 17 H.R. 6432 April 6 H.R. 7165 May 27 H.R. 8636 June 3 H.R. 8745 June 10 H.R. 8950 June 10 H.R. 8952 Extensive hearings were conducted, amendments were made to restrict application to cars in short supply, and Public Law 89-430 was passed, amending section 1 (14) (a) of the Interstate Commerce Act on May 26, 1966.49 Theoretically, this law ended the ICC's sixteen-year per diem authority struggle. The statute provided as follows: The Commission may, after hearing, on a com- plaint or upon its own initiative without complaint, establish reasonable rules, regulations, and practices with respect to car service by common carriers by railroad subject to this part, including 78 the compensation to be paid and other terms of any contract, agreement, or arrangement for the use of any locomotive, car, or other vehicle not owned by the carrier using it (and whether or not owned by another carrier), and the penalties or other sanctions for nonobservance of such rules, regu- lations, or practices. In fixing such compensation to be paid for the use of any type of freight car, the Commission shall give consideration to the national level of ownership of such type of freight car and to other factors affecting the adequacy of the national freight car supply, and shall, on the basis of such consideration, determine whether compensation should be computed solely on the basis of elements of ownership expense involved in owning and maintaining such type of freight car, including a fair return on value, or whether such compensation should be increased by such incentive element or elements of compensation as in the Commission's judgment will provide just and reasonable compensation to freight car owners, contribute to sound car service practices (includ- ing efficient utilization and distribution of cars), and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense. The Commission shall not make any incentive element applicable to any type of freight car the supply of which the Commission finds to be adequate and may exempt from the compensation to be paid by any group of carriers such incentive element or elements if the Commission finds it be in the national interest.50 The ICC then initiated an investigation, Ex Parte 252L Incentive Per Diem Charges, designed to implement the law as expeditiously as possible.51 The Level of Per Diem Some issues will now be explored prior to an evaluation of the ICC's decisions resulting from its new authority. Two major per diem views are expressed, both based on practicality and motivated by selfish interests. 79 The dichotomy results from the uneven traffic flow charac- teristic of the overall United States economy. More ship- ments originate in the West and Southwest and terminate in the Northeast than move in the Opposite directions. Orig- inating railroads are required to provide cars and, primarily due to the slow or nonexistent empty car return, must maintain a larger proportion of the national fleet to serve the demand. The terminating roads possess other railroads' cars to supply their vendors. The originating lines favor a high, daily per diem rate to increase ef- ficiency and return on investment, while the terminating roads favor a low, mileage rate consistent with the rela- tively shorter distance involved in their participation. A mileage rate also ignores Operational inefficiencies that history reveals to be centered in the Northeast, as illus- trated in the earliest car shortage periods of this century's first two decades, described on pages 14 and 15 of Chapter II. The implications of the unequal traffic distribution and low per diem rates were illustrated by Senator Roman Hruska, of Nebraska, at a 1970 car shortage proceeding. He related a Union Pacific Railroad study which showed 2,900 less cars on its lines than it owned and 4,500 less cars on the Burlington Northern than it owned. The Penn-Central had over 34,000 more cars on its 52 line than it owned. The uneven traffic flow has been a major obstacle precluding a conciliatory per diem rate. 80 Several other impediments prevent an amicable solution. These should be considered to appreciate the difficulties in resolving the issue. First Consideration A theoretically desirable level can be advocated, but the inherent assumptions empirically cannot be satis- fied. Professor Yehuda Grunfeld suggested, in 1959, a rate at which the railroad would be indifferent whether its car is controlled by itself or by another road.53 No attempt is made to offer a critique on his economic analysis because his study attempted to ascertain the per diem level which would aid new freight car purchase decisions. A level of intercarrier rental charges should include an Opportunity cost element. Opportunity cost was not considered when the per diem components were decided by the McCrea Commission, a body of five presi- dents of leading railroads, in 1908. It allowed the elements of repair cost, replacement cost (depreciation and retirements), taxes, interest cost, and other inci- dental allowances.S4 The ICC criticized the 1907 rate, which was twice the 1906 level and was intended to expedite car returns, alleging that users could earn ten times the per diem 81 'with others' cars.55 F. A. Pontious stated, in 1920, that per diem rates at their highest point barely covered invested-capital interest and nowhere approached the cars' value to the owner.56 The polar extreme is an excessively high rate, as was prOposed in Senate bill 8.3334 dated January 26, 1970.57 The ICC opposed the prOposed $100 per car per day minimum rate, cautioning of total traffic diversion to other transportation modes because the high rate would result in higher costs.58 Second‘Consideration A high rate may encourage car underutilization. Oftentimes, utilization is equated with the loaded car mileage percentage of total car miles. Empty car return to owners increases empty car mileage. The empty car mile ratio to total car mileage for the years 1901-1971 is shown in Table IV-2. The unprecedented high empty- mileage ratios in the late 19603 and early 19703 may have resulted from the multi-level per diem rate structure which assessed higher charges on some cars, as will be explained shortly. Empty car mileage produces no revenue but is required if cars are returned to their owners, assuming no available shipments in the owner's direction. Underutilization of the existing rail fleet, then, is inevitable. 82 TABLE IV-Z PERCENTAGE OF EMPTY FREIGHT CAR-MILES TO TOTAL FREIGHT CAR-MILES, 1901-1971 (Class I Railroads) ‘Year Percent Year Percent 1901 30.6 1937 37.0 1902 30.2 1938 38.3 1903 30.6 1939 37.7 1904 31.1 1940 38.2 1905 31.8 1941 36.0 1906 31.1 1942 37.2 1907 29.0 1943 35.7 1908 30.2 1944 34.2 1909 29.1 1945 32.9 1910 29.2 1946 33.0 1911 31.1 1947 33.6 1912 30.5 1948 34.3 1913 29.9 1949 36.2 1914 32.2 1950 34.0 1915 33.6 1951 34.0 1916 29.9 1952 35.3 1917 29.8 1953 35.9 1918 32.3 1954 36.9 1919 31.3 1955 35.5 1920 32.1 1956 35.9 1921 37.0 1957 37.8 1922 32.8 1958 38.8 1923 34.3 1959 37.7 1924 34.9 1960 38.6 1925 35.5 1961 38.8 1926 36.3 1962 38.8 1927 37.1 1963 39.1 1928 37.0 1964 39.4 1929 37.2 1965 39.0 1930 38.6 1966 39.7 1931 39.2 1967 41.1 1932 39.3 1968 40.7 1933 39.0 1969 40.8 1934 39.1 1970 42.2 1935 37.7 1971 43.5 1936 36.9 Sources: Railroad TranSportation Yearbook of Railroad Facts 83 Third Consideration The per diem rate structure should not distort the national car fleet's size and composition or usage. In a per diem rate treatise, Rastatter and Snow suggested that originating railroads may select more expensive but less efficient vehicles for interline movements to profit from the higher per diem.59 They also suggested that higher rates encourage a larger fleet because, histor- ically, cars are Off the owners' lines a great proportion of the time; low rates have the opposite effect.60 Professor Grunfeld's earlier treatise was conceptually similar and added that a high, single per diem rate encourages a larger, lower quality car fleet.61 His suggested multi-level per diem structure became a reality in 1964. Fourth Consideration The basic components of a per diem rate are sub— ject to interpretation and value judgments. Terms such as "compensation," "cost," and "interest" are ambiguous. Grunfeld cited some of the historical difficulties in this respect. He mentioned differences surrounding depreciation and interest and whether they should be calculated on historical or replacement costs. Another facet of the interest rate concerned whether a risk element should be included.62 The ICC became entangled 84 in the same type dilemma and ruled, in 1966, that con- temporary rates were excessive because they included reproduction costs instead of costs that the railroad would have incurred if it were using the cars.63 Fifth Consideration The rate level should not unduly penalize non- owners who provide an efficient through transportation service. An excessive rate would add unnecessary service costs to the public interest's detriment. A low rate, however, discourages efficiency and encourages confis- cation of owners' equipment after the initial service has been performed. With these considerations in mind, we turn to the progression of the AAR's contested rates from 1947 through the ICC's prescribed per diem rates. Per Diem Progression from 1947 The ICC's 1947 decision, described on page 71 intended to resolve the contested $1.15 and $1.25 daily rates. The AAR prescribed rates of $1.75 in 1949, $2.00 in 1952, $2.40 in 1953, $2.75 in 1957, and $2.88 in 1959. A new per diem concept was introduced by the AAR, effec- tive January 1, 1964. Departing from the uniform daily charge, the new multi-scale was based on depreciated car value as shown below. Group Depreciated Per Diem Rates 1 $ 1,000.00 and less $ 2.16 2 1,000.01 to $ 5,000.00 2.79 3 5,000.01 to 10,000.00 3.58 4 10,000.01 to 15,000.00 4.50 5 15,000.01 to 20,000.00 6.15 6 over 20,000.00 7.74 85 Original Cost Per Car The scale subsequently was modified effective April 1, 1965, reflecting higher per diem rates on the more expensive cars, as shown below: Original Cost Per Car Group Depreciated Per Diem Rates 1 $ 1,000.00 and less 5 2.16 2 1,000.01 to 5,000.00 2.79 3 5,000.01 to 10,000.00 3.58 4 10,000.01 to 15,000.00 4.50 5 15,000.01 to 20,000.00 6.15 6 20,000.01 to 25,000.00 7.11 7 25,000.01 to 30,000.00 9.00 8 30,000.01 to 35,000.00 10.18 9 35,000.01 and over 12.18 The ICC prescribed a multi-level rate structure in January, 1968 to resolve contested per diem rates. The promulgated rates were a combination of daily and 64 The components varied, depending mileage elements. upon the original, nondepreciated cost of the equipment. The lowest daily charge was $.63 per day, the highest, $10.22; the lowest mileage charge was 1.39¢ per line-haul mile, the highest, 4.60¢. Proponents of higher daily charges found inequities and resorted to the courts for judgment on the reasonableness of the ICC's finding; this 86 delayed the order's effective data. The litigation pro- cedure ultimately led to a United States Supreme Court ruling on November 1, 1969, affirming the lower court's adjudication in the ICC's favor.65 PrOponents of the higher daily charge resorted to Congress to rectify the alleged injustice perpetrated upon car efficiency by the Supreme Court. Twenty-one United States Senators introduced S.3223 on December 9, 66 The 1969, to the Ninety-First Congress, First Session. bill stipulated that per diem charges be based on current replacement costs, recomputed annually, and assessed as a daily charge. The ICC's opposition to the proposed legislation contended that the ICC's discretion would be impaired and that per diem computation would be a perma- nent ICC function.67 Hearings were held in March and April, 1970, but no further congressional action resulted. In a subsequent action, the ICC revised the basic struc- ture, grouping freight cars into eighty cost brackets with a car value range from $1,000 and under to $159,000.68 In the revision, the lowest daily and per line-haul mile charges remained at $.63 and 1.39¢ respectively, for the Oldest, lowest-valued cars; the highest charges increased to $38.58 per day and 14.03¢ per line-haul mile on the newest, highest-valued cars. The revised rates became effective September 1, 1970, retroactive to August 1, 1969. 87 Results of the ICC's investigation, Ex Parte 252, Incentive Per Diem Charges, mentioned on page 78, first appeared in October, 1967. The ICC ruled that an incen- tive rate would not improve Operating practices, encourage utilization, or increase the national fleet's size. It also acknowledged that the multi-level rate structure did not result in distinctive efficiencies on different-valued cars.69 The investigation, then, was discontinued. In one of two dissenting Opinions, Commissioner Rupert Murphy condemned the ruling as a shirk of the ICC's re— sponsibilities under Public Law 89—430. He cautioned that the low contemporary rates encouraged non-owners to retain freight cars and alleged that incentive charges would increase utilization.70 The investigation was reopened, under Ex Parte 252 (Sub-No. l) Incentive Per Diem Charges--1968, and called for re-examination of the 71 data. As a result, incentive per diem was prescribed on general service boxcars for each September-February period. The incentive revenue was earmarked for new car purchases. The lowest incentive rate was four cents per day on the oldest, lower valued cars; the highest, $12.98, on the newest, higher valued cars.72 Litigation followed the decision, with one court ruling in the ICC's favor73 and two other decisions still pending in the United States Supreme Court at the time of this writing.74 88 In the same month of the ICC's incentive-rate decision, 8.3334, mentioned on page 81, was introduced to Congress. In addition to the $100 per day minimum per diem, it provided for non-compliance penalties ranging from $1,000 to $10,000 plus $200 daily.75 No further action resulted from the hearings on the bill. Appraisal The per diem activities since 1902 indicate that some basic issues have never been resolved. This many- faceted dilemma has persisted because of the carriers, the ICC, and United States Congresses. Apparently, the complexities of property in control of non-owners, divergent utilization interests, and the absence of en- forcement authority have permitted the travesty to exist. The per diem history should raise inquiry seeking more fundamental issues than those which have been treated. The purpose of per diem never has had a strong foundation. It is a basic business philOSOphy that ob- jectives be established if succeeding actions are to be evaluated. The objective, or real per diem purpose, should be posited. Reflecting on the manner in which the continuing difficulties were approached, it seems reasonable to assert that there is no consensus on per diem's purpose. History shows that the earliest inter- carrier rates were established on a mileage basis. Undue 89 detention for Speculative purposes, coupled with sus- picion of dishonesty among the railroads, caused a change to a daily charge. To encourage early return to the owners, a charge of eighty cents per day in addition to the twenty-cent rate was established in 1902, if the freight car was not returned to the owner within thirty days after recall. This penalty charge eventually was drOpped as the daily charge started its ascent. Clearly, the penalty charge had car return as its objective. The McCrea Commission per diem components, mentioned on page 80, did not allow for a car-return incentive. Virtually all of the prescriptions since that time have ignored the car-return incentive. Concilatory rate attempts have focused on owner's cost, depreciation, repairs, and other maintenance expenses. The car's value to the owner has been excluded. The Court's decision in the Palmer case, which precipitated tedious legislative activity, stated the restrictive per diem constraints. The reason for the issue was the owners' desire to recoup more than the "barebone" ownership costs, since they were deprived of the equipment's usage. To the present day, there has not been an intention to include charges to discourage non-owner inefficiencies. This contention is confirmed in the ICC's first prescription of the per diem level in 1968, in which it was stated as follows: 9O . . . the carrier obtaining the use of the car . . . may not be required to pay therefor more than the average cost it would have incurred as owner of the car or by use of its own car. . . . We agree with the conclusion of the examiner that the "compensation" mentioned in section 1 (14) (a) of the act relating to "basic" per diem does not include any element of profit to the owner of the car and may not be measured by the benefit which the user derives from use of the car. Per diem charges are in the nature of a reciprocal charge and are designed to represent the average cost of car ownership. The charge should be equivalent to the average car ownership costs which the users would have to bear if they owned the car.76 This decision contains patent incongruities. The ICC sought per diem authority after its setback in the Palmer case. Public Law 89-430 explicitly allows for a fair return on value consideration, as well as an incentive element, as described on page 78. The evidence of car value or incentive in ICC decisions clearly is lacking. The ICC's per diem decisions have incited contro- versy, giving credence to the dubious improvement which could be expected therefrom. Mr. T. Q. Hutchison, of the U.S. Department of Agriculture's Economic Research Service, attacked the ICC formula in 1968, claiming that utilization had been hampered. He illustrated with a low-valued car which could stand idle for 135 days and then be moved at a $2.00 per ton rate, showing a net profit to the non-owner.77 Mr. Richard C. Grayson, presi- dent of the St. Louis-San Francisco Railway Company, criticized the ICC formula at a 1970 car shortage hearing, 91 using an illustration which reduced the time portion of the new rate over the old rate by 30 percent.78 In a study of the new structure, Mr. Patrick Boles, of the U.S. Department of Agriculture, showed where a non-owner would have saved $741 by using others' cars under the old system, but would have saved only $586 under the new 79 structure, on a car valued at $12,000. Also, a recent article in the Harvard Law Review criticized the ICC for exclusion of Opportunity costs and reduction of charges to the Eastern carriers.80 The examples illustrate the potential and probable abuses to efficient car utilization. Ironically, mileage rental charges were discarded in 1902 because of their inherent abuses. The ICC acknowledged those abuses in its 1902 annual report, as mentioned on page 68 of this work. Granted, the business environment has changed considerably in seven decades and record-keeping has taken on a greater aura of sOphistication. The inherent mileage-rate disadvantages cannot be denied if freight cars are viewed as tranSportation vehicles and if efficiency is to be extracted from movement through time. If the incentive element is eliminated and the objective is cost remuneration, a number of issues are raised. Per diem rates minimally should allow for the equipment cost. Costing methodology is beyond the sCOpe 92 of this work, but analytic acuity is not required to fathom diverse costing approaches. Opportunity costs to the owners, defying description, realistically cannot be included. But serious questions can be raised on past methodology in view of the low per diem rate levels and the trend in new car costs. The rising average new freight car costs between 1956 and 1970 are shown in Table IV-3. The past costing method would seem to have been deficient in compensating owners. And, if the per diem rate is cost-based, the car's primary function, i.e., commodity transportation, is ignored. Then per diem's objective becomes an issue of investment in property. Another of the unresolved issues, if there is to be no incentive in per diem rates, is the selection of the investing railroads. Those primarily terminating railroads control a greater number of empty cars than primarily originating lines. The vehicles are available to supply the terminating roads' shippers and the owners then are in short supply. The ownership risk is assumed by the buyers and the benefit is enjoyed by the users. The owners' loss of business is an opportunity cost which is not included in the per diem rate. Originating Western carriers then evolve as car providers and the terminating Eastern railroads are exempt from ownership risk and capital outlay. To combat this problem, the ICC approved 93 TABLE IV-3 AVERAGE COST OF NEW FREIGHT CARS, 1956-1970 (Class I Railroads) Year General Service Special Service All Freight Box Cars Box Cars Carrying Cars 1956 $ 7,891 $10,276 $ 8,136 1957 8,888 11,023 8,667 1958 8,712 11,111 9,144 1959 9,851 12,618 10,319 1960 10,629 12,767 11,100 1961 10,715 13,000 11,315 1962 11,469 14,803 11,777 1963 14,265 15,679 14,055 1964 13,083 17,534 14,061 1965 14,610 19,821 15,448 1966 12,167 18,129 15,320 1967 11,955 17,877 14,591 1968 14,265 23,731a 13,471 1969 15,334 27,251 15,607 1970 18,401 24,352 17,161 Source: U.S., Congress, House, Committee On Interstate and Foreign Commerce, Inquiry into Freight Car Shortages, Hearings, before theé§pecial Sub- committee on Interstate and Foreign Commerce, House of Representatives; Part II, 92nd Cong., lst and 2nd sess., 1972, p. 702, Supplement C (originally taken from U.S., Interstate Commerce Commission, I.C.C. Transport Statistics in the United States, except I970 from'RaiIroadEAnnual Reports). aSome equipped general service cars may have been classified as special service cars in 1967 and prior years. 94 a car ownership_formu1a designed to determine each rail- road's proportionate share of the national rail car fleet in 1969.81 It also ordered car service rules requiring car return in the direction of the owning lines. The subject of car service rules will be covered extensively in Chapter V. The ICC's rules were designed to force some railroads to buy more cars.82 As a practical matter, there is some question whether the Eastern car- riers can adhere to the ownership formula. First, the conditions which long have existed, allowing them to use the Western roads' cars and to continue gross Operating inefficiencies will be difficult to reverse and will require strict policing and enforcement. Secondly, the Eastern carriers' financial condition, a matter beyond the sc0pe of this work, will be another force precluding fulfillment of the ICC's intention. I An objective in this action, however, appears to be emerging—-the return of owners' cars. Car service rules must be respected and enforced if they are to be effective. History shows that such rules have been less than effective, notwithstanding violation penalty assess- ment. Car service orders are discussed in the next chapter. They cannot totally be ignored at this point because of their relevance as a per diem substitute. In 1956, Coughlin advised of service-order enforcement 95 difficulties and railroads' cognizance of improbable violation detection.83 In 1971, the Southern Pacific's Mr. R. D. Spence pointed out the cumbersome Operational procedure which prohibits adherence to the ICC's orders and suggested: " . . . a rationalized per diem system, . . . would be more effective and economical than inflexible mandatory orders."84 In addition to the lack of per diem objectives is the absence of priorities. The Hepburn Act of 1906, as described in Chapter II, requires all railroads to pro- vide transportation instrumentalities, which includes freight cars. If the common carrier is required to pro- vide transportation equipment and has made the necessary investment, then that road should have access to its property's usage. The nature of rail transportation, with required car interchange, precludes strict adherence to this principle. If provision for the cars' return is not allowed, then the owning line cannot adhere to its legal Obligation. The participants' divisiveness calls for an intermediary's resolution. The AAR has demon- strated its inability to rectify the dilemma. The ICC must take an aggressive role to assure the railroads' wherewithal to fulfill their commercial and legal obli- gation. The only adequate means for such assurance is the expenditure imposed on non-owners. If this expendi— ture is equal to the users' expense if the equipment were 96 his own, he is indifferent and logically will use another's equipment. If the expenditure varies minutely, he still is indifferent because speculation allows car retention rather than return. If the charge is suffi- ciently high to discourage retention, then the equipment will be returned. History shows that the charges have neither attained that level nor had that objective since this century's first decade. History shows that low per diem charges have encouraged inefficiencies. It also shows that freight car supply problems have increased in frequency and magnitude as the equipment's cost has in- creased, with no proportionate increase in the inter- carrier rental rates. If justice is to be served the ICC must rectify the inequity by the imposition of charges which will encourage car return. Logically, if this is not accomplished, then further legislation should be enacted or sections of the Hepburn Act repealed so that railroads are not required to provide freight cars. The chaotic consequences of such an extreme measure need no further elaboration. The ICC may be reluctant to take a more aggressive approach because it feels that proper authority is lacking. This is evidenced in its recommendation to Congress in 85 86 1971 and repeated in 1972 for penalty per diem authority during a "threatened" emergency. The criteria 97 which constitute an "emergency" is lacking. Clearly, some rectification of this problem is required. Legislation implementing the recommendation of the ICC and clarifica- tion of an "emergency," however, would not be adequate to resolve the more basic issues. Constrained ICC authority permits the railroad industry's prolonged divisiveness which has characterized intercarrier relationships for decades to continue. Continuation of the contemporary philosOphy accomplishes nothing more than to give assurance that the AAR's organizational structure will insure the ICC with the security of resolving intercarrier differences through long, involved, and complex procedural protocol. During the interim, low car rental rates will not con- tribute to concentration on the existing fleet's utiliza- tion. With no incentive to increase efficiency, railroads will contribute to further service deterioration and the country's general economy will suffer the adverse effects. Increased inefficiencies and growing discontent will cause a further decline in railroad freight transportation and result in a less profitable operation. The railroads will continue to seek federal government subsidization, the granting of which is tantamount to the sanction of gross operating inefficiencies. The United States Congresses have contributed no small measure to the problems which have evolved. In 98 1950, the ICC requested per diem authority to resolve the problem created by the AAR's inability to effect an amicable solution. The legislative history is less than admirable. Congresses have accepted a multitude of prOposals, conducted innumerable hearings, received an untold number of constituents' complaints, and appeared unmoved by the deteriorating conditions. Implications of political division abound. Treating the symptoms and ignoring the cause certainly invites the illness to return. The process to effect improved freight car util- ization has been less than satisfactory. Prior to the start of the current car shortage era, a United States Senate special study group criticized the historical per diem issue events. The group's report, in 1961, requested that the ICC be freed of legal technicalities 87 which had hampered its efforts. Nothing further was done for five years. The per diem rates continued to encourage ’5 unequal freight car distribution. At the start of the current problem era, the Senate report advocating S.1063's adoption, which would grant the ICC its requested author- ity, advised that the railroads which Opposed the bill had an average of 110 percent of their car ownership on their lines. Four Opponents which exceeded the average were the Pennsylvania, with 128 percent; New York Central, 122.7 percent; New Haven, 175.3 percent; and Boston and Maine, 180.4 percent.88 99 Two years passed before action was effected. The ICC was endowed with per diem authority plus additional incentive authority during emergencies. It then advocated a questionable level of rates. The ICC provided evidence that its prescribed rate level had not increased efficiency--that railroads have purposely delayed portions of unit trains during 1969 and 1970. Table IV-4 has been extracted from the ICC's 1971 presentation. In view of these circumstances, it is difficult to rationalize the ICC's 1971 contention that additional government financial assistance is needed to resolve freight car problems.89 The need for affirmative action is urgent. The basic fundamentals which this writer alleges are lacking must be confronted. Per diem's purpose should be stated to guide policy formation. This policy evidently cannot be determined within the industry and must be superimposed from without. If the federal government is being re- quested to provide freight cars, in any of the forms advocated by the legislative proposals presented in 1971, then it should assert per diem objectives. If railroads are held responsible for freight car provision, then they should have access to their property and per diem rates must be established to assure car return. Resource underutilization should be expected because of the empty car mileage increase. 100 TABLE IV-4 CAR DELAYS CAUSED BY CARRIERS . Number Days Carrier Date of Cars Delayed Involved A Feb. 11, 1970 34 3 to 10 B July 15, 1970 85 16 to 43 C March 17, 1970 592 3 to 17 D Aug. 26, 1969 33 4 to 30 B Oct. 31, 1969 110 3 to 35 F Oct. 1968 to Feb. 1970 236 5 to 19 G Various 1970 463 3 to 50 H May 21, 1970 36 4 to 36 I Various 1969 1,135 3 to 39 J Various 1969 1,302 5 to 19 K Various 1970 182 3 to 16 L Various 1969 202 5 to 23 Source: U.S., Department of Transportation, Division of OOOperating, The Regulatory View" Engineering, National Research Council, National Academy of Science--National Academy of Engineering "Freight Car Supply and Utilization: [by Rupert L. Murphy], Improving Railroad Freight-Car Service (Washington, Office of—the Secretary offlTfansportation, Rept. DOT-OS-00035 Task Order 10, 1971), p. 32, Table 2. 101 In conclusion, the ultimate solution lies with the United States Congress. The federal government has been invited by the railroads to become more involved in the industry in the form of huge monetary expenditure. The invitation should be accepted; the form should be altered. Sufficient evidence exists to warrant an in- creased efficiency demand. Logic appeals that justice be served and inequities rectified. The Congress must pro- vide for and insist upon resolving action by the ICC, not in time of emergency or threatened emergency, but in normal operations. Condoned inefficiencies in normal business conditions are difficult to reverse in emergency situations. There is no rationale for costly inefficiency regardless of the business environment. The American public is paying for the existing inefficiency. Now it is being requested to subsidize further inefficiency so that additional freight cars can be subjected to the same mismanagement. It is reasonable to expect that costly inefficiency will be eliminated or the Offenders will suffer demise. Per diem charges have permitted low- cost inefficiency and underutilization at the expense of the economy, the public, and the owners. High cost commands respect. High per diem will command respect for freight cars. An adequate national car fleet can never be determined without proper utilization that (0.....- . —« ‘\ 102 penalty per diem charges should bring. Congress' mandate to the ICC must be clear. The economy may be expected to absorb the consequences of a less-than-utopian freight transportation system, but the participants are entitled to equity. Congress' reluctance to confront the problem has resulted in a more critical situation. Only a less complacent, more aggressive approach by the federal government will stave off further wasteful expenditure which encourages a deteriorating system to further decline. If this problem is not confronted in the near future, one of greater magnitude awaits. FOOTNOTES--CHAPTER IV 1U.S., Department of Agriculture, Economic Research Service, "The Freight Car Situation and Prospects," Marketing and Transportation Situation, MTS 163 (Washington, D.C.: Government Printing Office, November, 1966), p. 28. 2J. R. Cavanagh, "The Pooling of Freight Cars," Railway and_Traffic Problems, The Annals of the American Academy of Political’and Social Science, XXIX (Phila- delphia: The American Academy of Political and Social Science, 1907), p. 260. 3Ibid. 4John F. Stover, The Life and Decline of the American Railroad (New York: Oxford’University Press, 5John F. Stover, American Railroads (Chicago: The University of Chicago Press, 1961)) p. 156. 6National Association of Railway Commissioners, Proceedings of the Twentieth Annual Convention (Washington, D.C.: Government Printing Office, 1909), pp. 66-670 71bid., pp. 64-65. 8American Railway Association, The American Railroad in Laboratory (Chicago: American Railway Association, 1933), p. 376; and C. O. Ruggles, "Railway Service and Regulation," Quarterly Journal of Economics, XXXIII (Cambridge: Harvard University Fress, November, 1918), p. 150. 103 104 9National Association of Railway Commissioners, Proceedings of the Twentieth Annual Convention, pp. 64-65. 10U.S., Interstate Commerce Commission, Sixteenth Annual Report of the Interstate Commerce Commission (Washington, D.C.: Government Frinfing Office, 1902), pp. 79-800 llU.S., Interstate Commerce Commission, Seventeenth Annual Report_of the Interstate Commerce Commission (Washington, D.C.: Government PrintingOffice, 1903), p. 93. 12National Association of Railway Commissioners, Proceedings of the Twentieth Annual Convention, p. 70. 13U.S., Interstate Commerce Commission, "Car Shortage--Insufficient Transportation Facilities," Inter- state Commerce Commission Reports: Decisions of the Interstate Commerce Commission of the United—States, Ngyember, 1906-December, 1907, XII—TWashingEon, D.C.: GovernmentPrinting‘Office,'l908), p. 573. 14Ibid., pp. 562-70. lsIbid., pp. 577-78. 16National Association of Railway Commissioners, Proceedings of the Twentieth Annual Convention, pp. 66-67. 17"Car Shortage Hearing," Traffic World, XVIII (November 11, 1916), p. 956. 180.5., Interstate Commerce Commission, ”Increased Per Diem Charge on Freight Cars," Interstate Commerce Commission Reports: Decisions of the Interstate Commerce COmmissiOn of the United States, December, 194§1AugustL I947, CCLXVIII (Washington,5:C.: Government Printing Office, 1948), p. 664. 105 19U.S., Congress, Senate, National Freight Car Su 1 , S. Rept. 1192, Calendar 1127,4to accompany 8.1063, 88tE éong., 2nd Sess., 1964, pp. 8-9. 2OE. W. Coughlin, Freight Car Distribution and Car Handling in the United States (Washington, D.C.: AssociatiOn of American Railroads, Car Service Division, 1956), p. 277. 21U.S., Interstate Commerce Commission, Sixty- Fourth Annual Report of the Interstate Commerce Commission (Washington, D.C.: Government Printing Office, I950), p. 128. 22U.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutions, 82nd*CongressL_ISt Session (Washington, D.C.: GovernmentFrinting Office, 1951), p. $.50. 23Ibid. 24Congressional Index, 82nd Congress, 1951-52 (Chicago: Commerce Clearing House, Inc., 1952), pp. 2390, 2411. ZSIbid. 26U.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutions,783rd’COngress, lst SessiOn (Washington, D.C.: Government Printing Office, 1953), no page. 27Association of American Railroads, A Review of Railroad Operations, 1955 (Washington, D.C.: Association of American Railroads, 1956), p. 35. 28U.S., Interstate Commerce Commission, Sixty- Ninth Annual Report of the Interstate Commerce CommiSSion (Washington, D.C.: Government Printing Office, 1955), p. 121. 106 29U.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutions,‘84th Congress, 2nd 5e331on (Washington, D. C. Government Printing Office, 1956T7 pp. A2, A62. 300. 8., Interstate Commerce Commission, Seventieth Annual Report of the Interstate Commerce Commission (Washington, D. C.: GOvernmenE Printing Office, 1956), p. 160. 31U.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutions, 85th Con ress,’lst SessiOn (Waéhington, D.C. Government Printing 0 ice, 1957), pp. E209, A59, A131. 321bid. 33U. 8., Interstate Commerce Commission, Sevenpye First Annual Report of the Interstate Commerce Commission (Waéhington, D. C.: Government PrintingO Off fice,*1957), pp. 136- 37. 34Ibid. 35U. 8., Interstate Commerce Commission, Sevent - Second Annual TReport of the Interstate Commerce Comm1ss1on (Washington,fl D. C.: GovernmentJ Printing Office, 1958), pp. 135- 36. 36Association of American Railroads, A Review of Railroad Operations, 1959 (Washington, D. C.: Association Of American Railroads, 1960), pp. 41- 42. 37U.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutionsi 86th Congress, 1st Session (WaShington, D.C.: Government Printing Office, I959), pp. A148, A151, E437, E442, E456, E469, E470, E480, E527. 38$2i2” pp. A151, E406, E417, E437. 107 39U. 8., Interstate Commerce Commission, Sevent - Fourth Annual Report of the Interstate Commerce CommiSSion (Washington,fi D. C.: Government4 Printing Office, 1960), pp. 183- 84. 40U.S., Congress, Senate, Frei ht Car Su 1 , S. Rept. 452, Calendar 447, to accompany S.I789, 56th Cong., lst Sess., 1959, pp. 6, 9. 41U.S., Interstate Commerce Commission, Seventy- Fourth Annual Report of the Interstate Commerce CommissiOn, pp. 181-84. 42U.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutions, 87th Congress, lst Session (Washington, D. C.: Government Printing Office, 1961?, pp. A50, A113, E132, E413. 43U. 8., Interstate Commerce Commission, Seventy- Sixth Annual Report Of the Interstate Commerce Commission (Washington, D. C.: Governmenf’PrinEing Office, 1962), p. 198. 44U. 8., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutions, 85€h Congress,’1st Session (Washington, D. C.: Government Printing Office, 1963i, pp. A56, E128. 45U.S., Congress, Senate, National Freight Car Supply, pp. 8-9, 16. 46U.S., Interstate Commerce Commission, Sevent - Seventh Annual Report of the Inperstate Commerce Commission (Washington, D.C.: Government Printing Office, 1963), pp. 17-18. 470.8., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutions, 89th Congress, lst Session (Washington, D. C.: Government Printing Office, 1965), pp. A10, A52, A84. 108 48U.S., Interstate Commerce Commission, Eightieth Annual Report of the InterstatetCommerce Commission (washington, D.C.: Government Printing Office, 1866), p. 32. 491bid., pp. E30-31, E39, E116, E161, E185, El94-95, EIUIT'Ezez, E319, E385, E390, E398, E399. soU.S., Interstate Commerce Commission, "Incentive Per Diem Charges," Interstate Commerce Commission Reports: Decisions of the Interstate Commerce Commission of the United States‘ September, 1967:March, 1969, CCCXXXII (Washington, D.C.: Governmentiirinting Office, 1968), p. 12. 5]’U.S., Interstate Commerce Commission, Eightieth Annual Report of the Interstate Commerce Commission, p. 32. 52U.S., Congress, Senate, Committee on Commerce Freight Car Shortgges, Hearings, before the Special Freight Car Shortage Subcommittee of the Committee on Commerce, United States Senate, on S.3223 and 8.3334, 9lst Cong., 2nd Sess., 1970, p. 20. 53Yehuda Grunfeld, ”The Effect of the Per Diem Rates on the Efficiency and Size of the American Railroad Freight-Car Fleet,“ Journal of Business, XXXII (January, 1959), 57. 54Ibido ' pp. 53-540 55U.S., Interstate Commerce Commission, "Car Shortage--Insufficient Transportation Facilities," p. 573. 56F. A. Pontious, Demurrage and Car Efficiengy (Chicago: LaSalle Extension University, I920), pp. 28-29. 57U.S., Congress, Senate, Committee on Commerce, Freight Car Shortages, 8.3223 and 5.3334, pp. 10-11. 109 58U.S., Interstate Commerce Commission, Ei ht - Fourth Annual Report of the Interstate Commerce Commission (Washington, D.C.: Government Prihtifig Office, 1970), pp. 102-3. 59Edward H. Rastatter and John W. Snow, "Car Hire Charges and Railroad Car Shortages," Papers-—Eleventh Annual Meeting: Tackling_the Problem of the 1970's, Transportation Research Forum (Oxford, Ind.: The Richard B. Cross Company, 1970), p. 120. 60Ibid., pp. 119-20. 61Grunfeld, "The Effect of the Per Diem Rate on the Efficiency and Size of the American Railroad Freight- Car Fleet," p. 73. 62Ibid., p. 54. 63John F. Donelan, "Examiner Finds Per Diem Rates Unlawful," I.C.C. Practitioners' Journal, XXXIII, Part 1 (February, 1966}, pp. 435¥36. 64U.S., Interstate Commerce Commission, ”Chicago, Burlington & Quincy R. Co., et al. v. New York Susquehanna & Western Railroad Co., et al.," Interstate Commerce Commission Re orts: Decisions of the Interstate Commerce Commission 0 the United States. (September I967-March 1969, CCCXXXII (Washihgton, DTC.: Government(Printing Office, 1968), pp. 242-43, Rate Table C. 65Boston & Maine Railroad et al. v. United States et al., 396 U.S. 27 (1969). 660.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutions, 91st Con ress, lst Session (WaShington, D.C.: Government Printing 0 ice, 1969), p. A288. 67U.S., Interstate Commerce Commission, Ei ht - Fourth Annual Report of the Interstate Commerce Commission, p. 103? 110 68The Official Railwgy quipment Register, LXXXVIII (New YorKE The Rainay Equipment and Publishing Company, July, 1972), p. 1107. 69U.S., Interstate Commerce Commission, "Incentive Per Diem Charges," p. 11. 79Ibid., pp. 19-20. 71U.S., Interstate Commerce Commission, Eighty- Second AnnualiReport of the Interstate Commerce Commission (Washihgton, D.C.: GOvernment Printing Office, I968T} pp. 70-71. 7ZU.S., Interstate Commerce Commission, ”Incentive Per Diem Charges--l968," Interstate Commerce Commission Reports: Decigions of the Interstate Commerce CommissiOn of the UnitedrStates, March, I970-January, 1971, CCCXYTVTI (Washihgton, D.C.: Government rinting Office, 1971), p. 215. 73U.S., Department of Transportation, Division of Engineering, National Research Council, National Academy of Science—National Academy of Engineering cooperating, "Freight-Car Supply and Utilization: The Regulatory View," [by Rupert L. Murphy], Im roving Railroad Freight-Car Service (Washington, D.C.: Office ofthe Secretary of Transportation, Rept. DOT-OS-00035 Task Order 10, 1971), p. 25. 74Association of American Railroads, Information Letter, No. 2055 (February 7, 1973), p. 1. 7SU.S., Library of Congress, Legislative Reference Service, Digest of Public General Bills and Selected Resolutioneé_915t Con ress, 2nd Session (washington, D.C.: Government Printing Office, 1970), p. A5. 76U.S., Interstate Commerce Commission, ”Chicago, Burlington & Quincy R. Co., et al. v. New York Susquehanna & western Railroad Co. et al.,” p. 186. 111 77U.S., Department of Agriculture, Economic Research Service, "The Freight Car Situation," by T. G. Hutchison, Marketin and Transpprtation Situation, MTS 171 (Washington, D.C.: Government Pfinting Office, November, 1968), pp. 170-71. 78U.S., Congress, Senate, Committee on Commerce, Freight Car Shortages, S.3223 and 8.3334, p. 116. 790.8., Department of Agriculture, The Freight Car Supply Problem and Ca; Rental Policies, y Patric P. Bo es, Economic Research'Service, Marketing Research Report 953 (Washington, D.C.: Government Printing Office, 1972), pp. 21-22. 80"The Freight Car Shortage and ICC Regulation,” Harvard Law Review, LXXXV (June, 1972), 1588. 81U.S., Interstate Commerce Commission, "Investi- gation of Adequacy of Railroad Freight Car Ownership, Car Utilization, Distribution, Rules and Practices,” Inter- state Commerce Commission Reports: Decisions of the Thterstate Commerce Commission of Ehe United StatesL garch, 1969-March! 1970, CCCXXiV (Washington, D.C.: Government PrintingOffice, 1968), p. 309. 820.S., Interstate Commerce Commission, Ei ht - Sixth Annual Re ort of the InteEstate Commerce Commission (Washington, 5.5.: Government Printingfiffice, 1972), p. 24. 83Coughlin, Freight Car Distribution and Car Handling in the United States, p. 106. 84U.S., Department of Transportation, Division of Engineering, National Research Council, National Academy of Science-National Academy of Engineering cooperating, "Position Statement of Southern Pacific on National Freight-Car Shortages," by R. D. Spence, Im rovin Railroad Freight-Car Service (Washington, D.C.: Office 3f:the Secretary of Transportation, Rept. DOT-OS-00035 Task Order 10, 1971), p. 62. 112 85U.S., Interstate Commerce Commission, Ei ht - Fifth Annual Report of the Intggstate Commerce CommiSSion (Washington, D.C.: Government Printing Office, 1971?) p. 112. 860.S., Interstate Commerce Commission, Ei ht - Sixth Annual Report of the Interstate Commerce CommisSion, p. 90. ' 87U.S., Congress, Senate, National Transportation Polic , Preliminary Draft of a Reporf;Prepared for the Committee on Interstate and Foreign Commerce, United States Senate, by the Special Study Group on Transporta- tion Policies in the United States, Pursuant to S. Res. 29, 151, and 244, 86th Cong., 1961, pp. 720-21. 88U.S., Congress, Senate, National Freight Car Supply, p. 10. 89U.S., Interstate Commerce Commission, Eighty- Fifth Annual Report of the Interstate Commerce CommisSion, p. 94: CHAPTER.V CAR SERVICE ORDERS--NATURE, USAGE, AND EFFECT Early History The structure of railroad tranSportation necessi- tated close inter-railroad relationships. Increasing communiques prompted railroad meetings to establish time schedules alleviating the need for regular communication and providing greater performance efficiency. The first meeting on May 14, 1872, was attended by twenty-three railroads.1 The organization, officially named the General Time Convention in 1875, resolved to consider other mutual matters at its 1885 conclave.2 Its actions were recommendatory and not considered binding on any members. The name was changed to the American Railway Association in 1891.3 Uniform car service interchange rules were adopted on October 12, 1892.4 Foreign freight cars were to be given tendering preference for shipments made to or via the home line's territory.S Allowing for various contingencies, the current car service rule structure remained essentially the same. Originally, 113 114 immediate empty car return was not stipulated so that maximum utilization could be realized with fewer freight cars. Strict rule adherence became paramount during the World War I era. The American Railway Association's Commission on Car Service was formulated in 1917 to co— operate with the ICC in effectuating car handling effi- ciency. It was permanently established as the American Railway Association's Car Service Division in 1920. Its -* purpose was to police the rules' application and empty- car return if no loads were available, suspend the rules for contingencies, distribute cars for seasonal or emer— gency movements, and work in conjunction with the ICC in all car service matters.6 Members agreed to abide by the promulgated rules, but violation penalties were not pre- scribed by the AAR, successor to the American Railway 7 A $50 penalty v/ Association, before September 1, 1971. charge now is assessed per car or per order for violations.8 The ICC and Car Service Orders Intercarrier differences affecting efficient car utilization were commonplace throughout the twentieth century's first two decades. The ICC alluded to the problem in its first car shortage investigation report, 9 citing a ” . . . deep-seated and organic trouble." The 115 ICC's 1916 investigation found cars congesting terminals in some territories while car shortages were forcing dis- continued commercial activity in others.10 It requested car service authority, partially blaming non-compliance of 11 The Esch Car car service rules for car shortages. Service Act of 1917, described on pages 15 and 16 of Chapter II, fulfilled the request. It was deficient, however, in the provision to include all vehicles used in railway transportation, which then was incorporated in the 12 \/ Transportation Act of 1920. The Bureau of Service was established to administer the ICC's responsibility during emergency situations. It worked closely with the AAR's Car Service Division policing service rules and encouraging efficiency and also handling car service complaints with all involved entities. Car Service Agents Surveillance of approximately 20,000 railroad stations was conducted by the Bureau of Service's car service agents starting in 1922. The small force increased to seventeen by 1931. Forty temporary agents were added during World War II. The staff's activities were highly praised by the ICC as being responsible for utilization 13 The efficiencies and ameliorating threatened crises. force's size was reduced to thirty in 1949 because of appropriation reversals, but was augmented during the 116 Korean conflict by a Defense TranSportation Administration working fund. The ICC repeatedly requested a larger staff during the early 19505,14 and funds were granted for forty new agents in late 1955, raising the force to seventy. The agents' accomplishments in meeting the post-Korean car shortage problems were highly praised by the ICC in 1956, which cited improved car utilization and greater user and railroad coOperation.15 Subsequent budgetary re- strictions resulted in staff reductions after that period. By 1972, the staff dwindled to forty-six. A 1972 car shortage investigation report addressed the service agent topic.16 The agents' multifarious activities were de- tailed and then the report advocated a larger staff. The report cited $1 million in penalties during 1970 that were added to the U.S. Treasury. The report also criticized the political implications of the Office of Management and Budget's refusal to fulfill Congress' authorization for twenty-three additional agents in 1971 and twenty-one in 1972. Penalty Violations of Car Service Orders Complete penalty-violation data was not available for this study. Penalty assessment infbrmation for 1969 through 1971 was provided and gave some conception of detected non-observance of the ICC's orders by a 117 relatively small service agent staff. Railroads were penalized $315,700 and $569,425 in 1969 and 1970, respec- 17 the total rose to $847,350 in 1971.18 A tively; penalty and offender recap during 1970 is shown in Table V-l, to illustrate the number of railroads involved and the individual claim amounts. In addition to the Bureau of Service's assessed penalties, the AAR penalized members for car rule non-compliance. This recently established procedure resulted in assessments of $44,300 between September 8, 1971, the date of inception, and March 30, 1972, and was comprised of twenty-one citations.19 Nature and Some Effects of Car Service Orders The ICC's car service orders have been consecu- tively numbered since the procedure's inception in 1920, but the approximate 1100 directives issued by the year 1973 are not indicative of the activity involved. Many orders have been expanded, exempted, reinforced, and modified in some manner, with each subsequent action carrying the originally issued number. Service orders have varied--no attempt is made in this work to summarily describe all ICC directives. Rather, separate treatment is afforded commonly-used orders which attempted to in- crease car efficiency or were of paramount importance to the fleet's utilization. The orders which were issued 118 TABLE V-l CAR SERVICE ORDER VIOLATION PENALTIES, 1970 Date Railroad Amount January 12 Gulf, Mobile and Ohio $ 30,000 February 6 Galveston, Houston and Henderson 2,800 February 9 Chicago and North Western 49,875 February 12 Southern Pacific 45,250 February 13 Texas and Pacific 16,700 March 13 Norfolk and Western 87,500 April 17 Burlington Northern 84,500 April 27 Union Pacific 58,450 April 28 Colorado and Southern 15,000 May 12 Seaboard Coast Line 2,600 May 27 Missouri-Kansas-Texas 10,000 June 15 Kansas-City Southern 22,000 July 9 Waterloo 11,200 August 12 Patapsco and Backriver 11,550 November 23 South Buffalo 4,000 November 24 Chicago, Rock Island and Pacific 40,000 November 27 St. Louis-San Francisco 18,000 December 2 Reading 20,000 TOTAL $569,425 Source: U.S., Interstate Commerce Commission, Bureau of Enforcement, personal correspondence. 119 for more specific situations or which were uncommonly employed, authorized such actions as: car substitution, which allowed shipments in freight cars other than those prescribed for the commodities; use of tractage owned by other than the participating carrier for special con- tingencies such as floods or facility braakdown; and shipments to destination points which were embargoed because of congestion. Others prevented shipments to specific destinations which were congested because of labor difficulties or excessively heavy traffic volume; peddling from freight cars, which permitted excessive storage while retail sales were made directly from the cars: and excessive reconsignments or diversions on shipments, which tended to delay tranSportation. In the following discussion, occasional reference is made to turnaround time, a commonly used railroad utilization efficiency measurement. This standard's limitation is recognized at the outset. Turnaround time connotes the interim between the time a freight car is loaded, used in transportation, and then reloaded for another movement. The measurement's weaknesses preclude turnaround comparisons between or among time periods. The economic business environment affects turnaround time. Return load availability in the primary movement's re- verse direction affects turnaround time. A diminishing freight car demand has increased idle equipment, inflating 120 turnaround time. An increasing number of bad-order cars also reduces turnaround time. The enforcement level of car service rules or car service orders affects turn- around time. Closer contemporary rule surveillance, with a greater penalty risk, encourages rule compliance and increases utilization. Demurrage rate levels may affect turnaround time. Higher rates may discourage some ware- housing in freight cars and decreases turnaround time. With freight cars under the users' control approximately “" 40 percent of the time, demurrage rates may have a pro- found effect on this measurement standard. The discussion now turns to the nature of car service orders and possible utilization implications. Expeditious Routing Shippers select desired freight-car routing. In the absence of a shipper designated routing, the carrier selects a route which assures its longest participation in the movement. Constraints are placed on this praCtice to prevent unduly circuitous shipments, but sufficient lee- way is provided to allow more than the shortest distance between two points. The excess mileage in the following discussion will be referred to as the "circuity factor." The circuity factor is the percentage of total mileage which exceeds the shortest rail distance between origin and destination.20 121 During government control of the railroads in the World War I era, the Director General of Railroads, Mr. William G. McAdoo, recognized circuity adversities and eliminated all circuitous routes in his first car 21 service order. Congestion was reduced and existing 22 facilities more fully utilized. The ICC's first direc- tive issued under its new authority contained the same routing restriction.23 The ICC repeated such orders during other critical periods. Railroad tranSportation's competitive nature must allow for a degree of circuity because each road cannot physically provide the shortest distance between two points. The circuity factor provides insight into the additional mileage incurred in railroad transportation. Seven circuity studies have been made; the most recent concerned 1964 data. Listed below are the national 24 circuity factors uncovered in those studies. Circuity Factor Year (percentage) 1933 .11 1938 .12* 1942 .13 1944 .14 1947 .14 1950 .13 1964 .15 *Rail movements of new automobiles only. The effect of permissive circuity on the car fleet and the national economy is imposing. In an 122 oversimplified approach, AAR 1964 data will be used to illustrate its impact. Freight cars traversed 28,921,589,000 miles. The 1964 circuity was 15 percent, which results in 4,338,238,350 excess miles. Using the average 50.0 miles per day per car, 86,764,767 freight- car days were represented by this excess mileage. The turnaround was 20.08 days; thus, a possible 4,320,955 trips could have been achieved. Each car made 18.1 trips. The equivalent, yearly service of 238,727 cars is repre- sented by the circuitous routings. At the average new car cost of $14,061 in 1964, $3.357 billion would have been expended to realize the same results as elimination of circuity. In 1964, there was a critical car shortage problem. The circuity problem was cited in 1944 by a special subcommittee appointed by the Truman administra- tion. In its report, the subcommittee expressed the un— desirability of circuitous shipments during periods when transportation facilities were being strained.25 A circuity issue was raised in a car shortage hearing in 1955.26 Examples of ten to twelve excess transit days, involving an extra 1,000 miles, were given. A lumberman's' association cited an extra twenty shipping days because of circuity. The ICC complained about circuitous slow- routing in 1962 and alluded to the practice's 123 illegality.27 At a 1971 car service workshop, Professor Roy J. Sampson suggested the imposition of additional freight charges on deliberately slow-routed shipments,“ particularly during peak seasons.28 Mr. T. Q. Hutchison stated that both administra— tive means and economic incentive to reduce circuity were lacking.29 It would seem that any effort to correct circuity's dilatory effects would improve freight car utilization. Heavier Car Loadings Unused car capacity has existed throughout the history of railroad freight transportation. Table V-2 lists the annual aggregate car fleet's average capacity and average car loadings in tons for the available years. Heavier car loading increased utilization during the World War I era. A 9.3 percent increase in loading, from 24.8 tons in 1916 to 27.1 tons in 1917, resulted in a saving of 1,350 million car-miles and allegedly con- 30 As a result of tributed to fewer car supply problems. a special program, heavier car loadings in 1923 resulted in a 23 percent increase in ton-mileage over 1915 ship- ments with only a 13 percent increase in freight cars used, as reported by the National Industrial Conference 31 Board. The ICC credited heavier car loadings for the seventy billion ton-mileage increase in 1941 over 1918, 124 TABLE V-2 YEARLY COMPARISONS: AVERAGE FREIGHT CAR CAPACITIES AND AVERAGE FREIGHT CAR LOADINGS, 1929-1971 (Class I Railroads) Average Average Average Average Year Car Car Year Car Car Capacity Loading Capacity Loading (tons) (tons) (tons) (tons) 1929 46.3 35.4 1951 52.9 42.0 1930 46.6 35.7 1952 53.2 41.8 1931 47.0 35.4 1953 53.5 41.8 1932 47.0 34.9 1954 53.7 41.4 1933 47.5 35.5 1955 53.7 42.4 1934 48.0 35.4 1956 54.0 43.1 1935 48.3 35.6 1957 54.5 43.8 1936 48.8 36.3 1958 54.8 43.5 1937 49.2 36.7 1959 55.0 43.5 1938 49.4 35.8 1960 55.4 44.4 1939 49.7 36.8 1961 55.7 44.9 1940 50.0 37.7 1962 56.3 45.4 1941 50.3 38.2 1963 56.8 46.7 1942 50.5 40.1 1964 58.3 47.8 1943 50.7 41.0 1965 59.7 48.9 1944 50.8 40.3 1966 61.4 50.1 1945 51.1 39.9 1967 63.4 51.1 1946 51.3 39.6 1968 64.3 51.8 1947 51.5 41.0 1969 65.8 53.5 1948 51.9 41.6 1970 67.1 54.9 1949 52.4 40.6 1971 68.3 54.9 1950 52.6 41.0 Sources: Railroad TranSportation Yearbook of Railroad Facts 125 32 with one-half million less cars. The Office of Defense TranSportation then ordered all freight cars to be loaded to the cars' marked capacities.33 During that period, the ICC took other measures to utilize car capacity. In one, it disallowed the promiscuous use of cars other than those ordered where weight requirements were ignored. Shippers had been exempted from car weight requirements when desired cars were unavailable. After the order, a survey revealed that the number of cars used at a pier decreased 71.5 percent: average car weights increased 83.8 percent: and total tonnage decreased only 47.7 per- cent. At another pier, number of cars used decreased 53.8 percent; average car weight increased 79.8 percent; and total tonnage decreased 16.9 percent. At a third pier, number of cars used decreased 45.5 percent; average weight increased 73.1 percent; and total tonnage decreased 5.7 percent. All comparisons were made between January 34 The evidence shows that and April, 1942, shipments. heavier car loadings can be encouraged. During the recovery from the post Korean recession, car weight average slipped to 30.91 in 1954 from 31.06 in 1953. The ICC stated that 89,649 fewer shipments would have resulted if the 1953 average had been maintained.35 Using 1953 data, Coughlin showed that a one ton increase in each carload would have resulted in 1,031,257 less 126 shipments.36 The average weight increase of 1956 over 1955 resulted in 565,339 fewer shipments than would have been required at the 1955 average;37 the increase in 1957 over 1956, in 470,520 fewer shipments;38 and 1961 over 1960, 335,439 fewer shipments.39 Heavier car loadings have mitigated the need for a larger car fleet, as shown by the illustrations. Al- though the ICC has placed mandatory minimum weight restric- tions with past service orders, average car loadings still hover around 80 percent of car capacity. \“ Railroads have countered diminishing car fleet complaints by pointing to larger capacity cars, which is validated by Table V-2. The higher capacity cars, how- // ever, offset the fleet's declining size only if the users J exploit the equipment. Car service orders resulted in heavier car loadings, but the averages on the national freight car fleet's usage clearly imply that improvement in this area is possible. Unserviceable Freight Cars The age, mechanical nature, and abuse in car loading and unloading requires that repairs be made to maintain serviceable rolling stock. A high unserviceable car ratio places greater demand on the remaining cars of the national fleet. During emergencies, the ICC has 127 ordered car repair program investigations and has issued service orders expediting repairs. Table V-3 lists the average annual percentage of the national car fleet which was rendered unserviceable. It is of particular interest that the lowest bad-order ratios occurred during the era of World War II, the period acclaimed to be the epitome of railroad trans- portation efficiency. It also is of interest that the periods of high percentage occurred immediately prior to the major car shortage problem periods. To wit, the years preceding World War II, the Korean conflict, and the middle of the 19603 were characterized by unusually high ratios. Improved car repair programs first were solicited at the Twentieth Annual Convention of the National Associ— ation of Railway Commissioners in 1908. The convention criticized the railroad practice of storing unserviceable cars during slack shipping periods, only to face business 40 A similar diatribe was upturn with a diminished fleet. lodged at a 1955 freight car shortage hearing at which it was shown that the lowest bad-order ratios occurred as slack periods in given years approached and highest ratios appeared at the start of peak shipping seasons.41 The ICC criticized the unserviceable car ratios which occurred during the 1957-58 problem period, the highest percentages since 1940. In its 1959 annual ANNUAL PERCENTAGE OF 128 TABLE V-3 (Class I Railroads) NATIONAL FREIGHT CAR FLEET REPRESENTED BY UNSERVICEABLE FREIGHT CARS Year Percentage Year Percentage 1929 6.0 1954 6.2 1939 12.8 1955 6.0 1940 8.8 1956 4.2 1941 5.4 1957 4.6 1942 3.2 1958 7.1 1943 2.7 1959 8.4 1944 2.7 1960 8.2 1945 3.5 1961 9.5 1946 4.2 1962 7.6 1947 4.2 1963 7.0 1948 4.6 1964 5.4 1949 6.2 1965 5.1 1950 6.9 1966 4.4 1951 5.1 1967 4.6 1952 5.4 1968 4.8 1953 5.1 1969 4.9 Sources: Railroad Transportation Yearbook of Railroad Facts 129 report, the ICC revealed that six Eastern carriers held 15.4 percent of their cars unserviceable in 1958, compared to the national average of 7.6 percent. In 1959, the Eastern railroad percentage rose to 20.1 percent; the national average rose to 7.9 percent.42 A special study group commissioned by the United States Senate in 1961 to investigate transportation policies included an unserviceable car discussion in its 7:,C' .43“- reportiv, It claimed that reduced car repair programs during slack periods should be reversed. It referred to the contemporary ratios of 9.2 percent in 1959 and 8.9 percent in 1960. It also suggested that 4 percent was the upper limit expected under good maintenance conditions. The ICC's car-repair directives in 1950 and 1955 may be partially responsible for the decrease in bad- order cars in 1951 and 1956, with the latter years exper- iencing less car shortage problems than the former. The study of this aspect allows another inference. The scanty available information indicates unserviceable car concentration in the Northeastern sector. Low per diem rates may have an interrelationship with unserviceable cars. Some railroads may find it more feasible to rent ./” others' cars than to incur repair expenses on their own. 130 Clean Cars Cars completely free of dunnage and debris after unloading are placed into loading service. Consignees' failure to return freight cars in reusable condition causes reloading delays. Mr. Arthur Gass, former chairman of the AAR's Car Service Division, testified at a 1955 car shortage hearing that receivers were using the vehicles as trash receptacles and subsequent cleaning procedures removed three to four days from a car's useful life.44 The ICC occasionally requested expedited car cleaning through the issuance of service orders. Recog- nizing the problem's source to be the users, the AAR advanced a prOposal in 1967 to elicit patrons' coopera- tion. A penalty assessment of $25 was proposed whenever a receiver returned a dirty car, which constituted non- compliance with Rules 14 and 27 of the Uniform Freight Classification. The request received an unfavorable ruling by an ICC examiner45 and was continued until 1972 at which time it was rescinded. The ICC's 1969 service order required expeditious car cleaning procedures. The ICC also campaigned for enforcement of railroad rules which required clean car return by the consignees. As a result, the car fleet's capacity increased and some carriers closed some cleaning 46 tracks. The campaign's thrust alluded to the 131 illegality of free trash removal service provided by the railroads.47 Interestingly, ICC Commissioner Rupert L. Murphy advised that some carriers recently assured consignees that the clean car rules would not be enforced; this was viewed as a competitive tool.48 From the cited results, it would appear that discouragement of this practice and stricter enforcement of car cleaning rules would con- tribute to lower cost Operations and an improved car supply. Returning Emptngars tr" During periods of car shortages, the ICC has directed empty car redistribution. Two types of orders were issued. The first placed cars in territories which had a greater demand for a particular freight car class. For example, the ICC's second and third service orders at the inception of its car-service authority provided as follows: I (2) that various western carriers should deliver 30,000 open-top cars to eastern connections; and (3) that eastern carriers should deliver 20,000 serviceable box cars to western connections.49 More commonly, the ICC ordered empty car return to, or in the direction of, the owner. The latter type caused considerable difficulty and now raises some question as to the need for the former car distribution method. 132 Car service rule formulation in 1892 provided for empty-car return to, or in the direction of, the owner, as described on page 113. Car return provisions have been a part of the railroad associations' car service rules since then. The ICC issued separate service orders directing compliance with these rules on many occasions, but it was not until August 21, 1969, that it rendered a mandatory-adherence decision that those rules be followed 50 regularly. The decision was appealed and a restraining injunction was issued by a three judge Federal District Court in Pittsburgh on March 18, 1971.51 An ICC appeal resulted in a Supreme Court ruling reversing the Federal District Court's decision, allowing the car service rules' 52 enforcement. It is curious that any protest would be evoked on rules formulated by the railroads' associations. Expediting Car Handling The most commonly used ICC general purpose service orders were those which affected operating performance. Railroad efficiency has been cited as a car shortage con- tributor throughout the twentieth century. Many mentioned terminal congestion and operational disutilization as the causes of the first major car supply problem.53 A tome could be compiled of the operating efficiency criticisms since that time.54 133 The ICC's need to enter the operations area to improve efficiency raises some questions. Logic expects each carrier to expend maximum efficiency effort. On the contrary, the ICC dictated Operating rules because rail carriers have not attempted to achieve maximum produc- tivity. A complete operations investigation is beyond the work's scope. Available information, however, allows some conjecture on total tranSportation efficiency. Annual turnaround time data is listed in Table V-4. It appears that a diminishing car supply and an increasing freight car demand has not materially improved trans- portation service. The same turnaround data will be used in this discussion of the ICC's attempts to improve Operations during critical supply periods. The ICC's first improved productivity thrust 55 The was made in 1947 with its Service Order 778. order's strict Operating rules were rescinded when the AAR appealed and agreed to voluntarily comply. The rules were incorporated into the AAR's Code of Car Service Rules, effective January 1, 1949. In its 1948 annual report to Congress, the ICC praised operational improvements. Demand decreased in the years 1948 and 1949 and started to climb in 1950 with the advent of the Korean conflict, as shown in Table V-5. 134 TABLE V-4 YEARLY TURNAROUND TIME--FREIGHT CARS, 1929, 1939-1972 (Class I Railroads) Year Tufiggggund Year Turgzggund 1929 14.69 1956 16.37 1939 16.18 1957 17.43 1940 15.46 1958 20.17 1941 13.96 1959 19.00 1942 14.96 1960 19.16 1943 15.31 1961 19.85 1944 14.96 1962 19.24 1945 15.00 1963 18.74 1946 14.88 1964 18.42 1947 13.67 1965 18.02 1948 14.29 1966 17.98 1949 16.95 1967 19.02 1950 15.42 1968 18.70 1951 15.35 1969 18.39 1952 16.33 1970 18.73 1953 16.26 1971 20.14 1954 18.31 1972 21.50a Sources: Association of American Railroads, personal correspondence. aWalter Renz, President, American Railway Car Institute, telephone conversation; estimate. 135 TABLE V-5 SELECT RAILROAD TRANSPORTATION DATA, 1947-1951 (Class I Railroads) Revenue Ton-Miles Year Carloadings (000.5) 1947 44,502,188 654,728,304 1948 42,718,828 637,916,742 1949 35,911,261 526,500,360 1950 38,902,641 588,577,756 1951 40,499,182 646,620,439 In 1950, the ICC issued Service Order 866, which required mandatory observance of the newly established AAR rules. It would appear that the absence of car shortage problems may be attributed to decreased demand rather than improved productivity. The turnaround data in Table V-4 and the decreased demand shown in Table V-S allude to this contention. Data presented in Table V-6 details month-by-month turnaround on select equipment. With a greater flow of East to West traffic during the Korean conflict in the early 19503, it might be expected that data would be biased toward shorter turnaround time as compared to 1947, offsetting the normal economy's traffic flow. The data includes no such evidence and indicates no appreciable efficiency increase, but rather the reverse. 136 .mococcommouuoo accomuom .munouawdm cuownoec mo cowum«00mm¢ ”wousom mm.ma ma.ma mn.HH vh.aa mm.aa Hm.ma NH.~H mo.na mv.va mo.>a mm.mH ma.oa Hmma ma.wa m>.ma NO.HH mm.HH mm.HH mh.na H>.~H Oh.ma ov.ma mv.ma mm.am ~>.- omma no.o~ No.ma mm.mm no.ma ha.ma nm.mH um.va vm.ma Hm.ma mm.mm om.ha mo.>a mvma hm.wa o¢.ma mh.aa vb.aa 5H.Ha -.~a mm.oa vm.oa vm.ha mo.ma mm.ma mm.ma mvma o¢.mH hm.ma Hm.aa mm.HH «n.aa v¢.ma mv.HH ov.HH mm.ma Hm.va mm.ma mm.ma hvma muommom mm.ma oo.va om.ma mo.ma on.ma mm.va v0.MH Hm.na mo.va om.¢H vm.ha mH.mH Hmma mm.ma mv.mH mm.~a mm.MH mm.ma mm.ma mm.va mm.va oo.mH n¢.ma mm.ma v¢.ma omma vm.ma mm.ma mm.m~ m>.ha mm.ma mo.mH «H.5H vn.ma mh.ma mm.ma hm.oa HH.OH mvma mm.eH an.ma nv.ma vm.~a om.na mm.ma oa.ma mo.ma Hm.ma mv.mH ma.ma on.mH mvma mh.ea mo.na mo.ma om.ma mm.ma on.mH ms.ma No.ma mm.ma mm.va mh.va mm.ma hvma announce Hm.ma m~.mH OH.vH om.wa m>.va mm.oa mm.ma mo.vH Ho.va mm.ma mv.ma OH.nH Hmma ov.va mo.ma mm.NH o~.ma hm.ua om.¢a va.va mm.ea ma.va hm.va om.mH ma.oa omma mm.ma ma.ma vm.ma an.va H¢.¢H Ha.ma mo.ma om.ma no.ma no.6H m¢.ma mm.ma mvoa ~>.va mm.ma mm.~a ov.ma m~.ma mm.ma mm.ma vm.ma bv.ma ~¢.ma mo.va a~.¢H mvma mm.mH no.~H mm.aa mm.~H m~.NH mo.ma om.~a .m~.mH mm.ma cv.~a mm.~a ha.na hvma .000 .>oz .uoo .umom .ms¢ aanb «saw an: Haunt .uuz .nom .cuo suc02\uuou muuu xom insane Hmunvma .azmzmHoam somqmm .mzHa ozoomazmpa wamezoz ml> age 137 Railroad productivity for the years 1955-56 and 1963-69 is shown in Table V-7. These years were selected because of numerous ICC car service orders which required prompt terminal car handling and, in most instances, specified that cars be placed for unloading, pulled from industrial locations, and forwarded to subsequent junction points within twenty-four hours. Since boxcar demand perenially was heavy and received prominence in most car shortage hearings, its turnaround time was selected to illustrate railroad productivity on a month-to-month basis for these time periods and is shown in Table V—8. Some interesting observations on general purpose boxcars result if the data presented in Tables V-6 and V-8 are compared. Regardless of the diminishing supply criticisms and larger capacity counter arguments, deter- iorating railroad Operations clearly affected car supply. Car Service orders which demanded railroad efficiency were not sufficient to attain the operating levels of 1947, at which time no such orders existed. There is no inference of any detrimental effect of ICC car service orders in this contention. Appraisal Many observations resulted from the Car Service Order study. An important aspect is the.need for an enforcement staff. The body politic of the United States 138 TABLE V-7 SELECT RAILROAD TRANSPORTATION DATA, 1955-56, 1963-69 (Class I Railroads) Year Carloadings Revenue Ton-Miles (000's) 1955 37,636,031 623,614,866 1956 37,844,828 647,077,041 1963 28,866,619 621,737,176 1964 29,027,186 658,638,722 1965 29,247,637 697,878,030 1966 29,623,115 738,395,160 1967 28,083,751 719,497,949 1968 28,252,541 744,023,096 1969 28,291,939 767,867,099 Sources: Railroad Transportation Yearbook of Railroad Facts 139 .oocoocommuuuoo Hucomuom .nomouawom ascended mo coauma00mm< ”condom ma.m~ OO.H~ mm.o~ nh.au mv.H~ mm.mm am.am ww.a~ OO.H~ Hm.om hm.a~ ha.mu mama om.o~ om.om vm.ma om.o~ mv.Hm hh.mn mo.- mm.HN mm.- mo.am mm.am mm.n~ moma an.- mm.a~ m~.H~ mm.m~ ~m.a~ mo.o~ eo.m~ HN.~N mm.o~ ow.o~ vm.H~ ~m.a~ noma mo.am vm.ma mw.ma oo.o~ No.o~ mH.H~ mb.ma m¢.ma ou.ma em.na Hm.ma mm.mH omma Ho.mH mm.ma hn.na an.ma hm.ma ma.o~ hm.ma 0v.ma am.ma mh.ma H~.o~ ~h.ON moma no.H~ mm.ma mm.ma ma.o~ hm.om mo.m~ h~.o~ vu.o~ >~.o~ o~.o~ m~.ma mm.ma vmma ov.a~ on.md ha.nH Hm.ma HH.O~ Hm.o~ mv.ma mm.ma vn.wa mH.mH mm.ma mm.HN mmma mv.na Hm.oa ma.ma om.ma HH.OH mo.na vm.ma mb.ma Hm.ma Hm.ma 5H.ma mm.mH mmma ma.na mo.ma mv.va cm.ma vm.mH ov.ma m~.ma am.ma mm.ma mm.ma mg.ma mm.oa mmma .omo .>oz .uoo .umom .054 Saab mash mm: HAMQd .uuz .num .cmo nucoz\uwou insane mosmpma .omnmmma "mmaoxom zo mzHa azpomezmpa sneeze: ml> Manda. 140 has been critical of the ICC's performance for several years, but has contributed little to improve the quagmire in which the regulating agency is involved. The increas- ing amounts of violation penalty assessments against the carriers indicate that the directives carry a low risk attitude by the railroads. It is incongruous to expect forty-six car service agents to police approximately 20,000 railroad stations, seek developing problems, respond to carrier and user complaints, and rectify in- equities. During less critical times, seventy agents were employed. Car service order effectiveness is pre- dicated on an adequate enforcement staff. Much testi- \ mony exists which cites the need for agents to insure Operational efficiency.56 Rising violation penalties indicate proliferating car service rule non-observance. A 1965 study showed rule violations occurred at certain railroad stations in as many as 94 percent of car load- ings.57 The essence of ICC car service authority depends on enforcement ability, the lack of which materially tempers its efforts during emergencies or normal business activity. The circuity factor is worthy of consideration. A free enterprise system which allows railroad competi- tion contains some waste element. The degree of waste requires additional scrutiny to resolve the instant 141 problem. Circuitous routing provisions should be re- evaluated to maintain competition and also remove dis- torting allowances which favor slow routes for free storage purposes. Excess freight car capacity indicates that util- ; ization can be improved. The data presented illustrate the possible beneficial effects which increased capacity usage can bring. Particular reference is made to the World War II era, wherein freight cars were loaded withingrf ten tons of capacity as compared to twelve or thirteen tons under capacity during the years immediately pre- ceding the war. In the year 1971, the average freight car load was approximately 13-1/2 tons under average capacity. Based on data published by the AAR, the 1,392,000,000 tons of revenue freight hauled by Class I railroads in 1971 could have moved in 24,857,143 shipments instead of the 25,260,858 required shipments, if each car was loaded another 1.1 tons. This calculation still allows for loads 12.3 tons under capacity. A total of 403,715 less loadings would have occurred and an equiva— lent 22,304 freight cars would have been added to the national fleet, using the average 18.1 trips per car made that year. The savings in user and carrier expenses cannot be ascertained, but certainly would be considerable. 142 Responsibility for clean freight cars is easier to theorize about than to suggest Operational correction. The carriers can be ordered to expedite car cleaning procedures, but the symptom rather than the cause is treated. References indicate that the car cleaning function entails three to four days after unloading. The clean car return responsibility is the consignee's. As a practical metter, it is unreasonable to expect the consignee to remove debris unrelated to the inbound shipment and to be confronted with a mounting waste dis- posal problem. Also, the consignee may need the empty car for an outbound shipment.and may not wish to relin- quish an empty car during short supply periods. The debris may be traced back to the shipper, but he may have received the car from another shipper and availed himself of the car after unloading for outbound shipment. Or, he may have received an empty car in a dirty condition and placed it in service rather than wait for another car. If the ICC enforces the clean car rules or the AAR resumes penalty prOposals, empty car switching could precipitate a reeling situation. It is likely that this problem will be around for some time. The unserviceable car problem also is charac- terized by interrelated factors. It is reasonable to expect rail carriers to maintain serviceable rolling 143 stock. Incentive to initiate needed repairs, however, is lacking. During low demand periods, carrier earnings are depressed and normal cost-cutting during slack periods takes its toll on unused equipment. During high demand periods, historically accompanied by short car supply, carriers employ other railroads' freight cars at low per diem rentals rather than outlay car repair expenses or new car capital to purchase equipment. Clearly, a multi- pronged approach is required to keep cars in serviceable condition. Needed operational improvement is incontestable. Data validates that improved operations have been enjoyed under more intense shipping conditions with less sophis- ticated technology. Freight cars move less than three ‘// hours a day. Data show that recent, average turnaround times are at least ten days longer than twenty-five years \ ago. If the average 1971 turnaround time had been re- duced by two days per shipment (not an unreasonable possibility), 50,521,716 car-days would have been saved. The reduced turnaround of 18.14 days per trip would have allowed 2,785,900 additional trips. At the reduced figure, a freight car would have achieved 20.12 trips instead of 18.1, gaining the equivalent yearly service of 138,464 freight cars. At the 1970 average new car cost of $17,161, a $2.376 billion eXpenditure would have 144 been required. Disregarding new car purchases, the saving to the national economy would have been signi- ficant, not to consider the expense of the legislative syndrome that resulted from car shortage problems. Car service orders have not appreciably affected Operations in the long run. It is unlikely that a required policing force ever could be employed to insure ICC directive adherence. Idealistically, a user and carrier effort such as occurred during the World War II period would be a giant stride toward resolving car shortage problems. A serious question is raised regarding the feasibility of augmenting the national freight car fleet. Additional cars will contribute to further con- gestion and inefficiency. In reply to the ICC's state- ments that the car fleet is inadequate and utilization is inefficient, the only confirmation that can be made is that freight car underutilization abounds. The size of an adequate fleet begs for operating improvement before it can be determined. FOOTNOTES - -CHAPTER V 1L. F. Loree, Railroad Freight Transportation (New York: D. Appleton and Company, 1922), p.(177. 21bid., p. 179. 31bid., p. 180. 4Ibid., p. 181. SIbid., pp. 396-97. 6E. W. Coughlin, Freight Car Distripution and Car Handling in the United States (Washihgton, D.C.: Associa- tion of American Railroads, Car Service Division, 1956), p. 315. 7John F. Donelan, "Fifty Dollar Car Service Violations," I.C.C. Practitioners' Journal, XXXIX (November-December, 1971), p. 68. 8The Official Railway EguipmegE_Register, LXXXVII (New York: The Railway Equipment and PublicatiOn Company, January, 1972), p. 1119. 9U.S., Interstate Commerce Commission, "Car Shortage--Insufficient Transportation Facilities," Inter- gEate Commerce Commission Reports: Decisions of the Interstate Commerce Commission of the United States Ngvember, i206-December, 1907, XII (Washington, D.C.: Government Printing Office, 1908), pp. 574-75. 145 146 10U.S., Interstate Commerce Commission, ”Car Supply Investigation," Interstate Commerce Commission Reports: Decisions of the Interstate Commerce Commission of the United JStates, November, 1916¥January, 1917, XLII (Washington,J D. C.: Government Printing Office, 1917), p. 657. 11U.S., Interstate Commerce Commission, Bureau of Statistics, Interstate Commerce Commission Activities-- 1887-1937 (Washington, D.CL: Government Printing Office, p. 155, footnote (7). 12Ibid., footnote (8). 13U. 8., Interstate Commerce Commission, Fifty-Sixth Annual Report of the Interstate Commerce Commission (waEhington, D. C.: Government Prinfing Office, 1942), pp. 123- 24. 14For examples, see U.S., Interstate Commerce Commission, Sixty-Sixth Annual Report of the Interstate Commerce CommiSSion (Washington, D.C.: Government Printing Office, 1952), p. 144; and Sixty-Ninth Annual Report of the Interstate Commerce CommissiOn (WaShington, D.C.: GovernmentfPrinting Office, 1955), pp. 109-10. 15U. 8., Interstate Commerce Commission, Seventieth Annual Report of the Interstate Commerce Commission (Washington, D. C.: GOvernmentPfintingOffice,1956), pp. 94- 95. 16U.S., Congress, House, Special Subcommittee on Investigations of the Committee on Interstate and Foreign Commerce, Inquiry Into Freight Car Shortages, H. Rept. 92-1384, Pursuant to H. Res. 170, 92nd Cong., 2nd Sess., 1972, pp. 9-10. l7U.S., Interstate Commerce Commission, Bureau of Enforcement, personal letter. 18U. 8., Interstate Commerce Commission, Ei ht - Fifth Annual Report of the Interstate Commerce CommisSion (Washington, D. C.: Government Printing'Office, 1971), p. 80. 147 190. 8., Congress, House, Committee on Interstate and Foreign Commerce, Inquiry Into Freight Car Shortages, Hearings, before the Special Subcommittee on Invesfigations of the Committee on Interstate and Foreign Commerce, House of Representatives: Part II, 92nd Cong., lst and 2nd Sess., 1972, p. 636. 200. 8., Interstate Commerce Commission, Bureau of Economics, Circuity of Rail Carload Freight, Statement 68- 1 (Washington, D. C.: Government Printing Office, I938), p. 1. 21John J. Esch, "Regulation of Car Service Under Government Control of Operations," War Adjustments in Railroad Regulation, The Annals of the American Academy ofIPolitical and Social Sciences, LXXVI (Philadelphia: The American Academy of Political and Social Science, 1918). p. 41. 22John F. Stover, American Railroads (Chicago: The University of Chicago Press, 1961), pp.(190- -91. 23U.S., Interstate Commerce Commission, Interstate Commerce Commission Activities--1887-l937, p. 157. 24U.S., Interstate Commerce Commission, Circuity of Rail Carload Freight, p. 2. ZSU.S., Department of Agriculture, Bureau of Agricultural Economics, ”Current Developments in Marketing and TranSportation," Marketing and Transportation Situation, MTS 19 (Washifigton, D.C.: Government Printing Office, March,*I944), p. 12. 26U. 5., Congress, Senate, Committee on Interstate and Foreign Commerce, Freight Car Shortage, Hearings, before a subcommittee of the Committee on Interstate and Foreign Commerce, United States Senate, on the Freight Car Shortage, 84th Cong., lst Sess., 1955, p. 30. 270. 8., Interstate Commerce Commission, Seventy; Sixth Annual Report of the Interstate Commerce Commission (WaShington, D. C.: Government Printing Office, I962), p. 101. 148 28U.S., Department of Transportation, Division of Engineering, National Research Council, National Academy of Science-National Academy of Engineering cooperating, "Remedies for Railroad Freight-Car Shortages," by Roy J. Sampson, Improving Railroad Freight-Car Service (Washington, D.C.: Office of the Secretary of Trans- portation, Rept. DOT-OS-OOO3S Task Order 10, 1971), p. 59. 29T. Q. Hutchison, "Factors in Freight Car Supply," Southern Journal of Agricultural Economics (December, 1971?) p. 169. 30Julius H. Parmalee, "Physical Needs of the Rail- ways Under Government Control." War Adjustments in Rail- road Regulation. The Annals of the American Academy of PolitiCaI and Social Science, LXXVI (Philadelphia: The 31National Industrial Conference Board, Railroad Performance, Research Re ort 71 (New York: Nationa Industrial Conference Boar , 24), pp. 12, 30. 320.S., Interstate Commerce Commission, Fift - Sixth Annual Repgrt of the Interstate Commerce Commission, pp 0 1257-23 0 33Arthur L. Winn, Jr., ”Maximum Loading of Freight Cars," I.C.C. Practitioners' Journal, IX (October, 1942), p. 57. 34U.S., Interstate Commerce Commission, Fifty- Sixth Annual Report of the Interstate Commerce Commission, pp. 16-17. 35U.S., Interstate Commerce Commission, Sixt - Ninth Annual Report of the Interstate Commerce Commission, p. 110. 36Coughlin, Frei ht Car Distribution and Car Handling in the Unite tates, pp. 90egl. 149 37U.S., Interstate Commerce Commission, Seventy- First Annual Re ort of the Interstate Commerce Commission (Washington, D.g.: Government Printing Office,'1958), p. 76. 380.S., Interstate Commerce Commission, Sevent — Second Annual Report of the Ingerstate Commerce Comm1s31on (WaShington, D.C.: Government Printing Office, I958), p. 76. 39U.S., Interstate Commerce Commission, Seventy- Sixth Annual Report of the Interstate Commerce Commission, pp. 996100. 40National Association of Railway Commissioners, Proceedings of the Twentieth Annual Convention (Washington, D.C.: Government Printing Office,'l909), p._132. 41U.S., Congress, Senate, Freight Car Shortage, p. 55. 42U.S., Interstate Commerce Commission, Seventy- Third Annual Report of the Interstate Commerce Commission (Washington, D.C.: Government Printing Office,_1959), pp. 86-87. / 43U.S., Congress, Senate, National Tran3portation Polic , Preliminary Draft of a Report Preparediior the Committee on Interstate and Foreign Commerce, United States Senate, by the Special Study Group on Transporta- tion Policies in the United States, Pursuant to S. Res. 29, 151, and 244, 86th Cong., 1961, pp. 721-22. 44U.S., Congress, Senate, Freight Car Shortage, pp. 107-8. 45U.S., Interstate Commerce Commission, Eighty- §econd Annual Report of the Interstate Commerce Commission (Washington, D.C.: Government Printing Office, 1968), p. 71. 150 46U.S., Department of Transportation, Division of Engineering, National Research Council, National Academy of Science-National Academy of Engineering cooperating, "Freight-Car Supply and Utilization: The Regulatory View," [by Rupert L. Murphy], Improving Railroad Freight Car_Service (Washington, D.C.: Office of the Secretary of TranSportation, Rept. DOT-OS-00035 Task Order 10, 1971), p. 27. 47Ibid., p. 33. ’ 48Rupert L. Murphy, Improving Car Service (un- published remarks before the Annual Meeting of—Efie Southern Traffic League, Birmingham, Alabama, September 19, 1972. 49U.S., Interstate Commerce Commission, Interstate Commerce Commission Activities--1887-1937, pp. 157-59. 50U.S., Interstate Commerce Commission, "Investi- gation of Adequacy of Railroad Freight Car Ownership, Car Utilization, Distribution, Rules and Practices," Interstate Commerce Commission Reports: Decisions of the Interstate Commerce Commission ofithe United States, March, 1969-March, 1970, CCCXXiV(Washington, D.C.: Government Printing Office, 1968), p. 293. 51U.S., Interstate Commerce Commission, Bi ht - Fifth Annual Report of the Interstate Commerce Commission, p. 24. , 520.8., Interstate Commerce Commission, Ei ht - Sixth Annual Report of the Interstate Commerce CommisSion (WaShington, D.Ck: Government Printing Office, I972), p. 24. 53For examples, see C. O. Ruggles, "Railway Service and Regulation," Quarterlngournal of Economics, XXXIII (Cambridge: Harvard UniversityPEEss,’l918), pp. 148-49; U.S., Interstate Commerce Commission, "Car Shortage-~Insufficient Transportation Facilities," p. 562; and National Association of Railway Commissioners, Proceedings of the Twentieth Annual Convention, pp. 131- 32. 151 54For examples, see Harold G. Moulton and Associates, The American Transportation Problem (Washington, D.C.: (The Brookings Institution, 1933), pp. 783-83; and Kenneth H. Tuggle, "Adequate and Efficient Car Service," I.C.C. Practitioners' Journal, XXXV (November, 1957), p. 185. 55U.S., Interstate Commerce Commission, Sixty- Second Annual Report of the Interstate Commerce Commission (Washington, D.C.: Government Printing Office, 1948). PP. 118 19. 56For examples, see Coughlin, Freight Car Distri- bution and Car Handling in the United States, p. 303; U.S., Congress, Senate, Committee on Commerce, Frei ht Car Shortages, Hearings, before the Special Freight Car Shortage Subcommittee of the Committee on Commerce, United States Senate, on S.3223 and 8.3334, 9lst Cong., 2nd Sess., 1970, p. 20; and U.S., Department of Trans- portation, "Freight-Car Supply and Utilization: The Regulatory View," p. 44. 57Hutchison, "Factors in Freight Car Supply," p. 170. CHAPTER VI SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS Railroad freight transportation's relative role in the United States economy has diminished in the past three decades. The industry's problems have caused intensified federal efforts to maintain private enterprise railroading. Freight car supply has been a major issue in the govern- ment's efforts. Although car supply problems predate the 1887 advent of federal railroad regulation, railroads' legal obligation to supply freight cars dates from 1906. Since 1906, critical car supply periods have occurred at irregu- lar intervals. To date, the 19708 have witnessed con- siderable federal effort toward solution of the shortage problem. Contemporary legislative proposals suggest various governmental expenditures which would exceed $3 billion. Augmentation of the national freight car fleet has received primary attention. Resolution of the problem has traditionally centered on increasing absolute car supply with little attention to improved car utilization. 152 153 This study examined the impact of improved car utilization on the shortage problem. The investigation reviewed the problem's history. The focal interest area was past utilization-improvement measures which contained present and future implementation merit. The critical assumption was that any improved utilization recommenda- tions would be in the public interest. The research was organized in five parts. In Chapter II the problem's history was reviewed and criti- cal problem eras were examined. Some environmental con- ditions relevant to each time period were discussed. The next three chapters reviewed traditional methods used to improve utilization. The three methods discussed were demurrage assessment, that is, user detention charges; per diem payments, that is, intercarrier rental charges; and, car service orders, that is, ICC directives affecting freight car handling. The history of each method was traced and appraised. This chapter summarizes the find- ings and conclusions. Recommendations to guide future freight car shortage policy formation are recommended. Research to provide further problem-area insight is sug- gested to conclude this chapter. History of Car Supply Problems Railroad regulation occurred partly because of freight car supply problems. After the Hepburn Act of 1906, railroad freight car supply became a legal 154 obligation. Critical car supply periods occurred at various times throughout the twentieth century. In 1907, railroad inability to transport the industrial spurt was manifested in car supply problems. The first formal ICC car investigation evidenced unequal freight car concen- r—1 tration and gross operating inefficiencies. Industrial prOSperity immediately preceding World War I similarly affected railroad car supply ability. Another ICC inves- tigation found the same railroad operational difficulties, E; causing car underutilization. The ICC was then empowered to affect car handling through the Esch Car Service Act of 1917. The post-world War II industrial acceleration once again witnessed severe freight car problems. Fol— lowing a new investigation, the ICC ordered increased efficiency and the AAR adopted new service rules governing intercarrier Operations. Increased-productivity demands during the Korean conflict of the early 19508 and during the mid-19508 evoked ICC handling directives. The last major critical car supply period started in 1963 with increased United States participation in the Indochina conflict. Car supply problems occurred with increasing intensity. Currently, the freight car strain caused by the United States--Soviet Union grain transactions has again accentuated the problem. The federal government is once again deeply involved seeking resolution. 155 Improved utilization could postpone further private or public investment in freight cars. This study investigated utilization-improvement measures from the user and/or railroad standpoints. First of all, user detention was explored throughout railroad history and improvement possibilities were inferred. Demurrage User detention charges, known as demurrage, date back to the Civil War. It was anticipated that high charges would discourage undue rail car detention. Early studies of the variable demurrage used in the second decade of the twentieth century confirmed this contention. But, more recent aggregate demurrage assessment data, which has received no attention in attempted problem solutions, results in some interesting observations. Considerable user car detention occurred during each post-1920 critical supply period. User detention was not significantly reduced as higher emergency demurrage rates were imposed. Total assessment increased, as did average user costs on a per car or per ton basis. Increased industrial activity allowed user absorption of increased demurrage rates and accomplished little more than in- creased railroad revenue for car usage. It is evident that daily demurrage rates were not raised to levels which improved car utilization. Consequently, patrons were not encouraged to utilize or develop possible 156 private warehousing and manpower. Freight car storage still was a more attractive alternative. Interestingly, a 100 percent increase in rates from 1964 to 1971 resulted in more than a 100 percent railroad demurrage revenue increase, in spite of a four million carload decrease in FE railroad freight shipments. Demurrage potentially can improve car utilization by discouraging undue user detention. The assessment ' rate, however, must exceed private warehousing and E, handling costs. If freight cars are viewed as trans- portation and not storage vehicles, detention charges must encourage transit utility. Unless rates.are suffi- ciently high, commodity storage in freight cars will result and contribute to worsening car shortages. Another aspect of user-detention concerns free- time allowances for loading and unloading. The standard forty-eight hour allowance to perform either function was permanently established in 1910. Since that time, im- proved new car design allows loading and unloading of many cars in minutes. Reduction in free-time allowance is worthy of further consideration. The ICC attempted A general free-time reduction in March, 1973, through a 1 car service order. Undue hardship complaints by some users forced the order's cancellation in the same month.2 Yet, testimony exists which indicates user approval of such a measure. 157 It is recommended that contemporary demurrage rates be significantly increased to a level which will discourage user detention. Past rates did not create cost hardships and consequently freight car shortages resulted from user abuses. Efforts should be directed toward demurrage rate determination which will increase car use as transportation vehicles. Further, it is recommended that free-time allowance be permanently reduced. Improved car design and mechanized loading and unloading procedures are sufficient rationale for an updating of free-time allowance; adherence to standards which applied universally in 1910 cannot be condoned. Per Diem After track gauge standardization permitted car interchange and through transportation service, railroads negotiated per-mile intercarrier car rental charges. Excessive car underutilization, coupled with suspected dishonesty, caused standardized daily car rental charges to be applied in 1902. In this study, it was expected that higher car rental charges, known as per diem, would result in improved untilization. However, it was found that per diem served to divide intra-industry relation- ships. Moreover, the per diem rate charged did not solve problems of car utilization. Two major Opposing views have been held. The primarily originating Western 158 railroads advocated high, daily rates to expedite car handling and return. The primarily terminating Eastern railroads favored low, mileage rental charges. Intra- industry divisiveness intensified as charges incrementally increased until the ICC prescribed rates in 1947. A subsequent court ruling invalidated the action and pre- cipitated a sixteen-year ICC effort tO obtain the needed decision-making authority. During the interim, inter- carrier relationships worsened, railroad Operations deteriorated, and the industry lost its major-mode prominence. United States congresses entertained forty- eight legislative prOposals which cited the grievous situation and would have granted the ICC intermediary rate-setting authority. In 1968, the ICC used its two-year-Old authority to promulgate a multi-level per diem scale. Although the ICC had cited the under- utilization facet Of mileage rates in the early 19003, it advocated a daily-mileage combination rate structure in 3 1968. Substantial criticisms Of the ICC's decision highlighted the new structure's inequities and reduction in charges from earlier rates.4 In another action, the ICC prescribed seasonal, incentive per diem boxcar rates in 1970. The additional rates have not achieved decreased turnaround time on boxcar shipments, as illustrated in Table VI-l. This table lists boxcar turnaround time from 1969, prior to 159 I”: .oocovcomuouuoo asconuom .uusouawsm adoauoaa mo coduswuounc ”cannon .s.c .s.c .s.c .m.c vo.m~ mv.mm >m.m~ Hm.mm ~m.v~ Hm.- mn~.v~ mo.m~ mwma H>.m~ mm.m~ mm.- -.v~ mm.e~ ~¢.m~ hm.v~ mm.m~ mm.m~ ma.mm mo.- vo.¢m Huma m~.m~ ha.m~ mo.mm mv.- vm.- mm.n~ mo.a~ no.0m HN.HN mm.am mm.m~ mm.mm onma ma.m~ vv.a~ mm.o~ >b.H~ mv.a~ mm.m~ Hm.HN mm.a~ OO.HN Hm.om hm.HN ha.m~ moma .Ooo .>Oz .uoo .umom .msd hash «can ma: kumd .usz .nom .aun nucoz\usow iuuaouafium H uuaaoe «sumomfl "mmaoxom zo mzHa azsomazmoa sneeze: HIH> Wanda. 160 the new rates, through part of 1972. Conclusive evidence is not available to critically analyze the increasing turnaround time. It can be stated, however, that car utilization has not improved. The per diem controversy resulted from lack of clear-cut objectives. It will remain a dilemma until such Objectives are postulated. In 1902, established rates compensated owners for cost, maintenance, and in- vestment risk. An owner-recall option stipulated the car's b} return with a follow-up non—Observance penalty. Since that time, the rate bases concentrated on and were obscured by attempted cost and maintenance reimbursement. The evasive car-value element received no consideration. Increased productivity, which accompanies high user costs, was ig- nored in rate setting. Owner Opportunity costs, due to non-possession, were excluded from consideration. A freight car's basic purpose was ignored. If per diem's objective is cost remuneration, then freight cars become strictly a prOperty investment matter. Rate making then centers on "fair" investment return determination. Ques- tions of costing methodology which have complicated the issue throughout history will continue in the future. This Objective, however, evokes a greater problem involving ownership. The Hepburn Act of 1906 required railroads to supply transportation equipment. A greater West to East 161 traffic volume placed the ownership onus on the primarily originating Western carriers. Freight car investment to fulfill railroads' legal Obligation was severely debil- itated by the owners' inability to Obtain and utilize their equipment. Opportunity cost exclusion decreased further F_‘ desire for freight car investment. Primarily originating railroads suffered inequities in per diem rate levels. More importantly, the absence of car control prevented legal obligation fulfillment by originating railroads. 3} The conflict between the law and the rate mechanism is obvious from this standpoint. That conflict points to a new per diem perSpective. Per diem objectives must be established before a problem-solving solution can be reached. If railroads are required to provide freight cars to their shippers, they must be given access to their invested rolling stock. Unless this is permitted, the legal conflict remains and additional problems surrounding the Hepburn Act emerge. Several complexities prevent an easy solution to the per diem problem. High per diem designed to expedite empty car return penalizes non-owners for through- transportation participation. Prescribed rates, however, may be designed to incorporate separate components for reasonable service, excessive inefficiency, and non-return of freight cars. The 1902 per diem rates were so designed and proved effective. In addition, empty car mileage is 162 a consideration. Mandatory car return contains a resource underutilization facet. Empty car movement produces no transportation service or revenue. This unfortunate waste must be accommodated. It may be tempered, however, with per diem modification which allows return loads if adverse owner effects are minimized or non-existent. The primary objective, however, must not be obscured. In conclusion, the railroad industry's demon- strated inability to resolve the per diem issue calls for a more direct, aggressive regulating intermediary role. The ICC's per diem authority should be exercised to re- solve the problem. Recent ICC efforts have been deficient. It is recommended that the per diem objectives be estab- lished. Owners should be given control of their equipment to fulfill their legal obligation. Per diem rates should be set at a level to promote efficient car handling and also allow car return when necessary. Service standards for expected transit time can be established. Per diem rates based on costs, including true car value, can apply to the expected service. Penalty charges should be applied whenever transit time exceeds expectation. Also, owner recall should be re-established. Owners should be cognizant of their shippers' requirements and should exercise their recall option when necessary. Until the Option is exercised, the existing per diem should en- courage efficient Operations. Once the recall option 163 takes effect, the owner can be responsible for empty-haul costs. Effective implementation of these recommendations should encourage efficient operations and also permit owners' control of their freight cars. In the past, the ICC used its emergency car service authority to expedite empty car return. The car service order attempts to improve freight car utilization was the final utilization measure explored. Emergency Car Service Orders The ICC's emergency car service authority origi- nated in the Esch Car Service Act of 1917. It resulted from underutilization and poor service evidences found in car shortage investigations. This study focused on the major types of service orders seeking improved utilization measures for possible permanent implementation. The study started with the ICC's Bureau of Service, which issues and polices car service orders. Then, some of the major aSpects of car service orders were explored. From this investigation, several possibilities for im- proved car utilization emerged. These areas cover cir- cuitous routing, car loadings, unserviceable cars, unclean cars, empty car return, and efficient car handling. Bureau of Service The Bureau of Service was established by the previously mentioned Esch Act and became Operational in 164 1920. Car service agents were employed and increased in number to seventy during the mid-19508 car shortage period. Subsequent budgetary restrictions forced staff reductions to a current staff size of forty-six agents. The agents policed car service order Observance at ap- proximately 20,000 railroad stations, responded to car- rier and user complaints, relieved congestions, and initiated penalty violations for order non-observance. Complete penalty violation data was not available, but this study found that $1,732,475 from assessed penalties V were added to the United States Treasury in the past three years. The significance of the penalty assessments is contained in the fact that they represent only detected violations of ICC orders. The ICC's pleas for additional agents were honored by Congress in the latter 19608. The approved addition of over twenty agents in 1971 and 1972 was with- held by the Office Of Management and Budget, evoking criticisms of political implications. It seems reasonable to conclude that Bureau of Service staff constraints seriously hamper the ICC's improved utilization efforts. The federal government's railroad involvement would be better directed toward insuring efficient Operations through a larger service agent staff than freight car augmentation of the aggregate fleet. It is recommended that the car service agent staff be increased. Only 165 widaa.greater risk of detection and penalty assessment will the railroads adhere to ICC utilization improving directives. The types of expected utilization improve— ments that a larger staff could police are discussed in the following sections. Circuitous Routings The competitive nature of railroad freight trans- portation permits several alternative routings between origin and destination points. Naturally, all routes cannot provide the shortest mileage haul. Some waste, therefore, is inherent in competitive railroading. History reveals seven circuity studies of railroad Opera- tions. The highest circuity factor, which is the excess mileage percentage beyond minimum requirement, was found in 1964, the most recent ICC study. Circuity's impact on car supply causes reflection on its desirability and application. Complete circuity elimination in 1964, admittedly improbable, would have been equivalent to the yearly service of 238,727 additional freight cars. At 1964 car costs, this addition represents equipment investment of $3.357 billion. During 1964, a critical car supply situation existed. The federal government's first World War I car J service action eliminated circuitous routing. The ICC's first service order issued in 1920 eliminated circuity. 166 In other crises, the ICC's authority was similarly exer- Complete circuity elimination is not required to cised. Sufficient testi- realize some improved car utilization. mony citing excessive routing abuses existed to warrant r4 ’7 " , . " attention. r;' and 1,000 excessive miles illustrated possible utilization improvement. Delayed shipments for ”carrier convenience" provide free user storage, higher distribution costs, and car underutilization. Permissive circuitous routes should be reviewed. Any excessive routing beyond competitive requirements A should be immediately eliminated. Competitive circuity , ,5 ., should be reviewed from the public interest's viewpoint.wi Perhaps competitive circuity in some instances is more detrimental to the national economy than the benefits derived from competition. Heavier Car Loadings The ICC has ordered minimum weight loadings to improve car utilization. Studies exist which illustrate fewer car requirements because of heavier loading achieve- ments. The railroads' record freight transportation per- formance during World War II was partially attributed to heavier carloads, as verified by existing data. Rail- roads currently counter diminishing fleet size criticisms with larger capacity car arguments. Available data con- firms non-exploitation of larger capacity potential. For Shipments involving ten to twelve extra days , ‘ 167 example, car capacity exceeded carloadings in 1971 by 13.4 tons, compared to less than 10 tons during WOrld War II. .An additional 1.1 tons loaded in each 1971 ship- ment, reducing unused capacity to 12.3 tons, would have 73'“ been equivalent to the yearly service of over 22,300 % freight cars. At 1970 new car costs, the needed invest- ment to accomplish this result would have been over $382 million. During 1971, congressional proposals supported federal freight car subsidy. Clearly, heavier carloadings would mitigate freight car investment and supply problems. Larger cars reduce car requirement, handling costs, and terminal congestion. The additional capacity, however, must be utilized if the potential benefits are to accrue. Concentration on realis- tic minimum carload shipments could materially improve car utilization, as illustrated with 1971 AAR data. It is recommended, therefore, that minimum weight requirements be established. A review Of historical data should be made so that heavier shipment requirements are imposed on commodities and industries over routings that effectively can improve loading weights. Unserviceable Freight Cars The ICC occasionally has ordered expedited rail- road car'repair programs. Historic data reveals that the q \/ lhighest.relative nonserviceable car ratios existed immed- iately prior to critical car shortage periods. Railroad 168 maintenance orientation, contrary to normal business acumen, tends toward decreased repair activity during slack business Operations. Business upturns thus are confronted with a decreased car supply. Testimony exists which cites higher than average unserviceable car ratios by Eastern railroads. Coupled with relatively low per diem, the higher Eastern ratios contributed to further Per diem payments were more - '_ During the unequal car distribution. attractive than car repair capital outlay. World War II era, unserviceable car ratios reached their historic low point. With contemporary ratios hovering around 5 percent of the aggregate car fleet, approximately 70,000 freight cars are unserviceable on any given day. 1 J.-/ J Federal freight car expenditures will proliferate apathetic car repair programs and incite further railroad- Owned freight car underutilization. Considerably more attention should be given to unserviceable freight cars than has been apparent in recent years. Clearly, unserviceable cars are patent underutilization. Without external prodding, railroads will ignore car repair if alternate sources of car supply are easily and inexpensively available. Unclean Cars Emergency ICC directives have expedited freight car cleaning procedures. The ICC and some railroad officials attest that each cleaning Operation removes 169 three to four days from a car's useful service. The AAR approached this controversial issue by proposing a $25 per car penalty for an uncleaned, consignee-returned car. Although car service rules required complete unloading of tendered shipments, common non-observance has been condoned through inattention. The ICC recently ordered mandatory Observance of clean-car rules. Enforcement, / however, will require the impractical, close surveillance of untold thousands of consignees. The ICC's past directives have treated the symp- toms rather than the cause, but the issue is complex. Consignee cooperation would obviate the utilization delays caused by car cleaning procedures, but monetary penalties as incentive are lacking. Penalty imposition on the surface appears to be a solution. tion presents problems of responsibility for dunnage and debris remaining in an empty car. Actual responsibility could be theoretically applied to previous users of the car. Although aggregate data is not available on which to evaluate freight car underutilization caused by un- clean cars, any ameliorating efforts incontestably would contribute to improved car usage. Empty Car Return Intercarrier operating rules from their inception required empty car return to, or in the direction of, the owning road. These rules, however, have been loosely Penalty applica- , 170 observed. The ICC issued various directives forcing compliance. A permanent order was entered in 1969 and some railroads' opposition was ultimately overruled by the United States Supreme Court in 1972. Sufficient time to evaluate the order's effect has not expired. The order may accomplish what per diem has failed to do. ., Again, a surveillance staff, not now available, will be required for maximum effectiveness of the order's intent. [-1 An interesting Observation which resulted from this aspect 4, of the study was the railroad Opposition to relinquishing each other's freight cars. Although the industry pro- mulgated the rules for over seventy years, mandatory compliance seems to have offended some who no longer can exploit the inequities in past practices. Expedited Car Handling The most commonly employed ICC car service orders concerned improved operating productivity. Contrary to v expectation, railroads have not demonstrated desire to maximize efficient Operations. Contemporary data confirm I that freight cars are in motion less than three hours per “I day. Turnaround time is a commonly used railroad effi- ./ ciency indicator. It represents the interim between the time a car is loaded and the next time it is loaded. Based on this measurement tool, railroad operating effi- ciency has not improved over the long run. The ICC's 171 improved-utilization efforts have had dubious lasting effects. Turnaround increased from 14.69 days in 1929 to 20.14 days in 1971. The ICC's first major car handling efficiency effort in 1947 was rescinded when the AAR promised volun- tary compliance with the orders. During the Korean con- flict, railroad inefficiencies caused a series of ICC car handling directives. Yet, turnaround time never achieved 1947 efficiency levels again and continued to deteriorate. Numerous ICC attempts throughout the 19608 showed no evidences that might be expected from advanced technology. Ironically, railroad inefficiencies in 1947 precipitated the ICC's major car handling activity. Improved turnaround time, manifested through operating efficiency, undeniably would reduce, if not obviate, car shortage problems. Using 1971 AAR data to illustrate, a two-day turnaround reduction would have p‘v" been equivalent to the yearly service of almost 138,500 At 1970 costs, that result would have v/ The freight cars. represented $2.376 billion in new car purchases. reduced turnaround still would have exceeded 1944's average by over three days and 1947's by almost 4-1/2 days. Thus, the suggested improvement most likely was attainable. It is recommended that an extensive program be launched to increase railroad productivity. Idle cars 172 call forth the need for additional equipment. The exam- ples of idle cars found in this investigation illustrate the need for railroad operating improvement. Maximum idle time restrictions should be permanently established. Con- centrated effort should be extended to insure adherence. Past railroad performance infers that great strides in Operating performance are possible. Conclusion A freight car shortage does not exist. Evidences of gross freight car underutilization imply that a freight car shortage never existed. Railroad Operating improve- ments, as summarized in this chapter, would have combined a s‘” to reduce car supply difficulties to manageable propor- hi” ‘1: tions with the added benefit of reducing government in- volvement in the railroad industry. Sufficient examples exist which confirm that improved utilization was and is possible. In 1971, railroads had 80 percent of the V; freight car supply they had in 1944. Yet they required 33 percent more time to transport 60 percent of the volume carried in 1944. In view of the data, accepting the con- cept of a "car shortage” is difficult. The "car shortage”w suggested in contemporary federal involvement is not a reality. The demurrage rate must be increased to discourage x'j user detention. Historically, railroads provided low cost 173 warehousing for users. The demurrage structure provided sufficient time to load and unload freight cars. In- creased aggregate demurrage assessments infer that higher charges have not been sufficient to increase car utiliza- tion. Users have absorbed higher charges." The rates must be increased to a level which will cause users to seek alternative warehousing and release freight cars for transportation purposes. Also, free-time allowance should be permanently reduced. Users are now allowed forty-eight 1‘ hours to perform loading and unloading that realistically The exis- L, can be accomplished in less than half the time. tence of user approval of reduced free time to achieve increased car utilization is sufficient incentive for such an action. The plaguing per diem issue can only be resolved once clear cut Objectives are determined. Past resolu- tion attempts have been complicated by diverse costing The railroads' legal car supply Obligation, V") approaches. The coupled with lack of owner control, has been ignored. ICC must assert itself to resolve the problem. Per diem rates should be structured to encourage efficient car handling as well as penalize inefficiencies. In addition, “’ a recall Option should be provided to the owner. Unless owners are allowed to utilize their equipment to fulfill their legal Obligation, the conflict between the law and railroad Operating procedure will remain. J-I 174 Within the operating realm, several approaches can materially improve car utilization. Obvious waste is incurred by circuitous routing. Total circuity elimina- tion would more than Offset proposed government financial commitment to car supply. Any circuity elimination will Circuity review should remove ex- Also, improve car supply. cessive routings beyond competitive requirements. permitted circuity for competitive purposes should be re-evaluated for its impact on the car shortage problem. Competitive circuity which patently provides less benefit than competition should be eliminated. Heavier car loadings must be encouraged. Larger capacity cars are used as a counter argument to diminish- ing car fleet complaints. Increasing patron car shortage complaints should be met by heavier loading requirements. Lacking shipper cooperation to improve car utilization should be emphasized. The carriers and their associations must review the consist of their shipments to inaugurate higher minimmm loading requirements. Otherwise, larger capacity cars cannot justifiably exonerate railroads for a smaller fleet size. It is recommended that the ICC apply rigorous standards to the allowable unserviceable cars. Some railroads have managed to confiscate freight cars of other railroads and avoid repair expenses on their own. An unfair burden is placed on primarily originating -A.‘ 175 railroads, with terminating roads controlling a greater number of empty cars to supply their shippers. The study has found that a greater unserviceable car ratio is maintained by terminating railroads. Reduced repair time will somewhat Offset unequal car distribution and depress the need for additional freight cars. Perhaps the most important utilization-improvement ,1 Existing ineffi- (H' aspect is that of railroad operations. W ciencies will continue if there is a hint of federal financial assistance. The federal government must cite the deteriorating Operations in railroading. A 50 percent increase in turnaround time since the 19408 is difficult to condone. The railroad industry must be confronted with / the data which shows freight cars in movement less than three hours per day. The economy continues to suffer. The public interest is damaged. International trade is affected. Meanwhile, the railroad industry seeks further federal assistance. In this regard, the industry should be given the mandate and subsidy should be refused. Before any further overtures are advanced, the railroad industry and the ICC collectively can resolve car supply problems without additional freight cars. Rather than risk further terminal congestion and operating ineffi- ciencies, major attention should be shifted toward improved car utilization. Under present circumstances, adequate future car fleet size projections cannot be 176 determined until present cars are utilized with some degree of efficiency. The public interest best would be served if the ICC took a more aggressive approach to the car supply problem's resolution and placed the onus on the industry's participants to properly utilize available rolling stock. Otherwise, the government's desire to maintain private enterprise railroading may be overwhelmed by correctional public demands. The federal government may become more involved in railroading than currently is desired. Future Research Several potential researchable areas resulted from this study. The following discussion of potential re- search follows the format of this work. Demurrage It would be useful to determine the effect of additional storage facilities on the seasonal demand for car types. Problems occur within the grain industry and also on international shipments requiring dock operations. Equipment and warehousing space expenditures at origin and/or destination for certain commodities may tend to reduce seasonal demand for freight cars. Incentive demurrage rates for improved rolling stock utilization may be suggested by a study of storage and handling charges in some industries. The suggested Va“ 177 rates should be slightly higher than the user indifference level. Storage in freight cars would be discouraged. Multi-level demurrage rates may result from an investigation and compilation of car-types on which demurrage historically has been paid. Improved freight- . car design, permitting more expeditious handling, looms F-3 as a possibility. Per Diem ;j A study may be conducted to ascertain reasonable service expectations for different transportation move- ments. Reasonable per diem rates may apply on expected service. Afterwards, penalty per diem can be assessed. The schedule may allow for contingencies, but should deter excessive inefficiency or detention. Multi-level per diem effectiveness may be measured by comparison of freight movements in different- valued cars between the same points and traversing the same routes. Railroad Operations The railroad circuity factor provides some useful researchable areas. A current routing investigation may result in circuity reduction by the elimination of ex- cessively circuitous routes which prevent efficient utilization. Railroad merger activity provides the Opportunity to compare circuity in different time periods. 178 Thus, competitive circuity can be separated from inten- tional "slow routing.” A sample study of the empty-car mileage may provide economic-cost insight of mandatory car-return to owners. Empty-car intraterritorial costs then can be compared. Improper car dispatching may contribute to unused car capacity. Car-placement methodology research may result in greater car capacity utilization. Unserviceable cars contribute to car supply prob- lems. A study of the extent of required repairs may sug- gest preventative maintenance application and avoid costly repairs and excessive delays. A detailed car cleaning analysis may cite prime offenders. Economic cost determination may suggest the degree of attention and enforcement that is required. Freight car utilization may have been severely hampered by railroad service reduction. A study may determine the car-day loss caused by reductions to bi- or tri-weekly service in some areas. Railroad terminal operations have been cited as a major car supply problem contributor. Research may suggest possible joint-terminal Operations in areas which historically experience congestion. This study would be aided by merger activity which has resulted in Operating consolidation, providing a basis for the research. 179 Finally, efficiency measurement of terminal Operations and car utilization may result from freight mpvement comparison of different distances and inter- changes at a varying number of stations. An ancillary benefit of such a study may be the adoption of federal policy standards toward railroad facility abandonment attempts. FOOTNOTES--CHAPTER VI 1ICC Moves to Prod Shippers Not to Hold Onto Freight Cars," Wall Street Journal, March 8, 1973, p. 4. 2"ICC Relaxes a Rule on Rail Freight Cars," Wall Street Journal, March 29, 1973, p. 2. 30.8., Interstate Commerce Commission, "Chicago, Burlington 8 Quincy R. Co., et al. v. New York Susquehanna & Western Railroad Co., at al.,” Interstate Commerce memission Reports: Decisions of the Interstate Commerce Commission Ofithe United States. *Septemher 1967-March I969, CCCXXXII (Washington, D.C.: Government Printing Office, 1968), pp. 242-43, Rate Table C. 4For examples, see U.S., Department of Agriculture, Economic Research Service, ”The Freight Car Situation,” by T. G. Hutchison, Marketin and Transportation Situation, MTS 171 (Washington, D.C.: Severnment Printing Office, NovefiEer, 1968), pp. 170—71; U.S., Congress, Senate, Committee on Commerce, Frei ht Car Shortages, Hearings, before the Special Freight gar Shortage Subcommittee of the Committee on Commerce, United States Senate, on 8.3223 and S.3334, 9lst Cong., 2nd Sess., 1970, p. 116: U.S., Department of Agriculture, The Freight Car Supply Problem and Car Rental Policies, y Patric P. 0 e8, EEOhomic Research Service, Marketing Research Report 953 (Washington, D.C.: Government Printing Office, 1972), pp. 21-22; and ”The Freight Car Shortage and ICC Regula- tion,” Harvard Law Review, LXXXV (June, 1972), 1588. 180 BIBLIOGRAPHY BIBLIOGRAPHY Articles, Reports, Monographs, and Unpubli8hed’Papers American Railway Car Institute. Railroad Car Facts: 1952. New York: American Railway Car Institute, 1953. . Railroad Car Facts: 1958. New York: American Railway Car Institute,71959. 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