to insure prompt loading and unloading, insofar as shippers and receivers are concerned. These charges, of course, do not apply to the handling of cars by carriers. We have attempted to alleviate the impact of car shortages through the issuance of service orders. Car service orders have been issued requiring the prompt handling of cars by carriers, prescribing the return of certain cars to owning lines, restricting the loading of certain cars to specified areas, and prohibiting the circuitous routing of traffic. Just last Friday, for example, the Commission issued service order No. 968, which became effective yesterday, October 4, 1965. This order requires plain boxcars which are at least 50 feet long, as well as those cars which are at least 40 feet long with side doors 8 feet or wider, to be returned promptly to owning roads or in the direction of owning roads. In addition, we issued orders yesterday, to become effective on Thursday, which require particular railroads to turn over a specified number of empty cars to other railroads serving areas where the shortage is most acute. This is an example of robbing Peter to pay Paul; although Peter is needy. Paul's needs are the greater. In short, our existing authority enables us to engage in a sort of share-the-poverty program, and we are asking for this authority in the hope that we will be able to get the railroads in a position where they can share an abundance of the freight car equipment. During the past 15 years, the divergent views of railroads as to the proper charges to be paid each other for the use of freight cars have culminated in proceedings before the Commission. The charges paid by one railroad to another for the time it has the other's car on its line are established by vote of the members of an agreement approved pursuant to section 5a of the Interstate Commerce Act and administered generally by the Association of American Railroads. A number of railroads are of the view that the per diem charges promulgated since 1953 have been unreasonably high, while others contend that they are too low and, as a result, have encouraged delay in the return of cars and contributed to the decline in the total supply of cars in interchange service. The problem is complicated by the inherent conflict that exists between the two highly desirable objectives: 1. The prompt return of cars from major terminating areas to major originating areas, and 2. Return loading to make the most economical and efficient use of freight cars. Delays necessary to return a car with a revenue-producing load frequently are preferable to extensive crosshauling of empty cars. However, any undue delay or failure to comply with rules for return of cars naturally would aggravate the car shortage problem. Car service rules of the Association of American Railroads are designed to promote efficient use of cars. They prohibit a terminating carrier from loading its own car for an off-line movement if it has 54-899-65 available a car of another carrier which can be loaded for movement back to the owning line. An increase in the supply of cars owned by railroads which terminate substantially more traffic than they originate would not necessarily improve the car supply situation since the ability of such carriers to load their own cars in interchange service is limited. The Commission believes that in view of the recurring critical shortages of freight cars, it is imperative that ownership of such equipment be increased, and that it be maintained at a level capable not only of meeting the needs of the shipping public during normal times but at the same time providing a reasonably adequate supply during periods of emergency. It is extremely difficult to determine whether the number of cars owned by a particular carrier represents a fair and equitable contribution to the total number required for a reasonably adequate national supply. In general, however, it would seem that each railroad should own freight cars of various types which, together with foreign cars used in strict accordance with car service rules, are sufficient in number to protect the loadings it originates. This does not mean, I hasten to add, that we prejudge any car ownership formula or obligation that may be proposed in proceedings before the Commission. The earning value of freight cars generally exceeds the current per diem charges, which today range from $2.16 to $12.18, depending on the value of the car. The largest number of cars, 649,883, is in group 2, valued at $1,001 to $5,000 and having a per diem rate of $2.79. Before the sliding scale based on value was established, the standard rate was $2.88. The next largest group of cars, 377,385, is group 3. These are relatively new cars, valued at $5,001 to $10,000 and carry a per diem rate of $3.58. The first value group has 348,756 cars. Cars in this group are valued at less than $1,001 and they carry a per diem rate of $2.16. Some carriers find it more attractive to pay the car rental charge than to own cars. Carriers in this position obviously have no economic incentive to purchase the cars necessary to enable them to provide their fair share of an adequate car supply. We believe that the Commission should be authorized to make the advantages of ownership more attractive in the interest of encouraging carriers to make a just and equitable contribution to the national car fleet. The Commission at one time attempted to increase car ownership by the imposition of per diem charges designed to encourage such ownership by the railroads increased per diem charges on freight cars, 268 I.C.C. 659 (1947). However, in Palmer v. United States, 75 F. Supp. 63 (1947), a three-judge district court set aside the Commission's order on the ground that the Commission could not prescribe per diem charges for regulatory purposes. Although the legal implications on the Palmer case decided in 1947, are not entirely clear, the decision reasonably may be construed as precluding the Commission from prescribing per diem which would not only produce a fair return on investment, but would also provide an added incentive for car ownership, recognize the value of the use of freight cars, and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and of the national defense. Accordingly, we believe that the Commission should be clearly authorized to established per diem charges at a level or levels that would make ownership of equipment more attractive. The Commission should not be prevented from fixing per diem charges which would, in the languge of the bills under consideration: "** * provide just and reasonable compensation to freight car owners, contribute to sound car service practices and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense." It should be emphasized that large net per diem debits do not necessarily indicate that the debtors are deficient in car ownership. Some railroads which supply great numbers of cars to the interchange fleet are net per diem debtors. Other railroads terminate so much more traffic than they originate that they would be substantial net per diem debtors even if they owned more cars than they needed. Conversely, it is conceivable that railroads which consistently show net per diem credits may not own enough freight cars of a particular type. We recognize that an indiscriminate increase in the number of freight cars could result in an uneconomic surplus of cars of various types and in wasteful transportation practices. Accordingly, if the proposed legislation were approved, the Commission would exercise extreme caution in setting incentive per diem rates. In addition, I would like to point out that no sudden change in per diem charges would be effected by the proposed legislation. Section 1(14) of the act, as proposed to be amended, provides for hearings. The Commission's decision, after hearings, would be subject to judicial review. Hearings would be necessary in any event to determine, among other things, deficiencies by type of cars and by carriers, and the most equitable means of correcting these deficiencies. A comprehensive study of traffic requirements, including peak loadings, would be necessary. Separate studies would be required for particular types of equipment, such as box, gondola, flat, hopper, refrigerator, and other special types of cars. In addition, it would be necessary to consider the type and flow of traffic and the extent to which particular carriers are originating, terminating, or bridge lines. In fixing the compensation to be paid for the use of freight cars, the Commission would have to determine what basis of compensation would provide a fair return on investment to freight car owners, contribute to sound car service practices, and encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense. It would be necessary for us to determine whether the compensation should be computed on the basis of elements of ownership costs involved in owning and maintaining freight cars including a fair return on investment, whether compensation should include an element reflecting the value of use of freight cars, or whether it should be fixed upon some other basis or combination of bases. It would also be necessary to determine whether to prescribe incentive per diem rates industrywide, or to prescribe separate incentive rates for individual carriers by type of car. Some of the information required for such a determination is being developed in Ex parte 241. This proceeding was instituted on December 20, 1963, to obtain specific and current information on the adequacy of freight car ownership and to formulate, if possible, more effective rules for the alleviation of car shortages. Carriers were required to collect and submit statistical data. This information has been filed recently with the Commission. The Commission is now reviewing this data in an effort to determine the extent of the freight car shortage and will attempt to formulate rules, including car service rules, which will help to alleviate this perennial shortage. As you know, the language of H.R. 7165 is virtually identical to that of S. 1098, as introduced in the Senate. However, the Senate added an amendment to its bill which empowers the Commission to make the incentive element of any per diem rate applicable: 1. To carriers determined by the Commission as owning an adequate number of freight cars to meet their responsibilities to the needs of commerce and the national defense; 2. To carriers which terminate a substantially higher percentage of interline traffic than they originate; 3. To types of freight cars the supply of which the Commission finds to be in the public interest. The Commission did not object to the Senate amendment because all the factors specified therein would have been considered under the language of the bill, as introduced, and would be considered, of course, under the language of H.R. 7165. Should the proposed legislation be enacted, the Commission would move promptly to initiate proceedings to establish per diem rates to accomplish the objectives of the proposed legislation. However, even if the proposed legislation were enacted in this session of the Congress, it would require considerable time for the Commission to hold hearings and to reach a decision. In addition, there is always the possibility of judicial review. Consequently, incentive per diem rates could probably not be established until late 1966. For the foregoing reasons, we urge prompt and favorable consideration of H.R. 7165. For the convenience of the committee, three exhibits are attached to my statement. Exhibit A indicates the trend in ownership of cars, serviceable and unserviceable, during the past 17 years. Exhibit B indicates the trend in plain and equipped boxcar ownership. Exhibit C indicates the loss in plain serviceable boxcars from 1956 to 1965. (Exhibits referred to follow :) EXHIBIT A.-Unserviceable and serviceable freight cars, class I railroads, total freight cars |