EXHIBIT C.-Plain boxcars-Loss in serviceable ownership and percentage of loss by

Eastern

Allegheny.

Pocahontas.

Southern..

Northwestern.

Central western.

Southwestern..

districts

Mr. WEBB. Thank you.

Mr. ROGERS of Texas (presiding). Thank you very much, Mr. Webb.

There are two questions in my mind. The first one is with regard to the Palmer case. Now the court held in that case that you did not have the power under regulatory powers to fix this per diem rate, did it not?

Mr. WEBB. Yes, that is correct, Mr. Chairman. The court held that in setting per diem rates, that we could not be guided by regulatory objectives, such as increasing the total national car supply.

Mr. ROGERS of Texas. Now would they go so far, Mr. Webb, as to say subsequently that because of their position in that case, that a statute could not grant to you powers that you would not have under ordinary regulatory procedures?

Mr. WEBB. Well, I think the court in the Palmer case recognized that what we were attempting to do in 1947 could certainly be accomplished if the Congress amended the Interstate Commerce Act.

Mr. ROGERS of Texas. In other words, creating this as a regulatory power, a power in the regulatory field.

Mr. WEBB. Yes, the Congress has delegated to us authority to set the level of per diem rates, but the court held, in effect, that the Congress had not delegated to us the power to set them for the purpose and at a level designed to increase car ownership.

Mr. ROGERS of Texas. Now the other question is with regard to the language I was asking Senator Magnuson about. I gathered from your statement that you would consider this surplusage, which is what I did at first-it seems to me that you have all the powers in the added language, that you have all the powers in the basic bill that you have in the added language.

Mr. WEBB. Yes, I would agree. We don't believe that the added language is necessary, but as Senator Magnuson indicated, we worked with his committee, and we certainly don't find the additional language objectionable.

Mr. ROGERS of Texas. You don't think the expressions of those four items creates any restrictions on the powers?

Mr. WEBB. No, sir, I do not.

Mr. ROGERS of Texas. Mr. Jarman?

Mr. JARMAN. Thank you.

Mr. Chairman, on page 2 of your statement, you refer to railroad management voluntarily establishing car service rules to promote prompt handling, movement, et cetera. How far back does that go?

Mr. WEBB. I would like to ask Director Pfahler if he knows when those were first established.

Mr. PFAHLER. It goes back at least before the First World War. I can't say specifically, but it has been a longstanding operation of the railroad association.

Mr. JARMAN. As I understand it, the per diem charges are established on a voluntary basis by the railroads. How far back do the per diem rates go?

Mr. PFAHLER. They go back about the same period, as far as I know.

Mr. JARMAN. Mr. Chairman, in your statement on page 4, you refer to a number of railroads of the view that per diem charges promulgated since 1953 have been unreasonably high, while others contend that they are too low.

Mr. WEBB. Yes, sir.

Mr. JARMAN. Has there been a constant change in the per diem rates?

Mr. WEBB. Yes; they have gone up, over the years. These per diem rates are established by the railroads under the permission granted by section 5a of the act, but each rail carrier is guaranteed the right of independent action.

As a result, some railroads, for example, the Boston & Maine and the New Haven, have refused to go along with the rates agreed to by a majority of the carriers, and their attack on the level of the existing per diem charges is now a matter being considered in a proceeding before the Commission.

Mr. JARMAN. I have just two other questions that occur to me. What is considered the average life of a freight car?

Mr. WEBB. I would like to ask Director Pfahler.

Mr. PFAHLER. I think it is about 27 years for tax purposes, but most of the car fleet in service, the cars go back to the 1930's, up until the present time.

Mr. JARMAN. Well, based on the per diem rates that have been referred to in the hearing this morning, can the owner of the average freight car expect a fair return on his investment on the rates that are now determined?

Mr. WEBB. Well, it is our responsibility to assure that the owner receives just compensation. I think one of the problems, Congressman Jarman, is that the railroads, with limited funds for investment, find that investment in special-purpose cars make a greater return to them.

For example, a specially equipped boxcar designed to serve automobile manufacturers costs some $34,000, and it is used exclusively in that particular service. I think the investment being made in such special equipment accounts in part for the very sharp decline in general-purpose boxcars.

Mr. JARMAN. Thank you.

Mr. ROGERS of Texas. Mr. Younger?

Mr. YOUNGER. Thank you, Mr. Chairman.

On page 5, Mr. Webb, you say that the range of the earning value of freight cars is from $2.61 to $12.18, and then you proceed to give certain categories, but you do not give a category that would have a charge of $12.18.

Mr. WEBB. No; I think Director Pfahler could supply that for you right now.

Mr. PFAHLER. $12.18 would be $35,000 or more.

Mr. YOUNGER. What kind of cars are those?

Mr. PFAHLER. Well, they would be the biggest hopper cars that are being built.

Mr. YOUNGER. Now are those rates fixed by the Commission, or are those ARA rates?

Mr. WEBB. Those are the rates voluntarily agreed to by a majority of the railroads operating under the section 5a agreement.

Mr. YOUNGER. Now what is the other rate that you have now, that gave rise to the Palmer case?

Mr. WEBB. The rate which gave rise to the Palmer case, I think at that time, was only about $1.51. The Palmer case was decided in 1947.

Mr. YOUNGER. Yes, but was that a rate fixed by the Commission or was that an ARA rate?

Mr. WEBB. That was a rate fixed by the Commission, for the purpose not only of providing just compensation to the owners of cars, but also designed to increase the total supply of freight cars.

Mr. YOUNGER. Well, now, in the Palmer case, the court held, as I understand, that the Commission had no right to fix a rate that was a penalty rate.

Mr. WEBB. That is true. Another purpose that the Commission had in mind at that time was to establish a much higher per diem rate, and apply it to carriers to the extent that they failed to abide by the Commission's car service rules. That was a penalty provision, and the courts said we had no authority to impose it.

Mr. YOUNGER. But what did they say about your authority to fix a compensation at per diem rate?

Mr. WEBB. Oh, we have that authority, Mr. Younger, at the present time, and we have always had it.

Mr. YOUNGER. Isn't that what the bill says now?

Mr. WEBB. No; the bill would permit us to add to the rate, which is found to provide just compensation, some incentive element to encourage carriers to build more freight cars.

Mr. YOUNGER. If I understand the decision, the decision didn't deny that. All they said was that you hadn't made a case.

So far as fixing rates, that would be compensatory. You hadn't made the case for it. They didn't say that you didn't have the right, as I understand it.

Now, is my understanding correct of that case?

Mr. WEBB. As I pointed out, Congressman Younger, the implications of the decision are not entirely clear, but we fear that it reasonably may be construed to deny the Commission the power to set an incentive per diem rate, which is designed not merely to afford reasonable compensation, but to accomplish regulatory objectives.

Mr. YOUNGER. Yes; but that's just your own decision. This has been running along for a long time. And you haven't tested it out, you haven't done anything about it to find out if that was the decision of the court or to test it.

Now, as I understand, there are a lot of opinions on the side that the court had no intention of saying that you didn't have a right to fix a per diem rental rate, as long as it wasn't a penalty rate.

It could be as high as you wanted to fix, if you made the proper case for it. And the thing that I can't understand is that if the ICC