FREIGHT CAR SHORTAGE MONDAY, JUNE 17, 1963 U.S. SENATE, COMMITTEE ON COMMERCE, SUBCOMMITTEE ON FREIGHT CAR SHORTAGE, Washington, D.C. The subcommittee met pursuant to notice at 2:30 p.m., Hon. Senator Prouty presiding. Senator PROUTY. The committee will be in order. The purpose of this hearing is to take testimony on S. 1063 in the light of the recent critical freight car shortage. This bill was introduced by the chairman of the committee for himself and 34 cosponsors after the request of the Interstate Commerce Commission. It would amend section 1(14) (a) of the Interstate Commerce Act by allowing the Commission, in fixing the compensation to be paid for the use of freight cars, to give consideration to the level of freightcar ownership and to other factors affecting the adequacy of the national car supply. It also would determine on the basis of such consideration whether such compensation should be calculated on the basis of the elements of ownership expense involved in owning and maintaining freight cars, including a fair return on value or whether it should be computed on the basis of elements reflecting the value of use of freight cars, or upon a combination of bases. In order to accommodate all who wish to testify, an additional hearing on this matter will be held on June 25. (The bill, S. 1063, and the departmental and agency comments submitted to the committee, follow :) [S. 1063, 88th Cong., 1st sess.] A BILL To amend section 1(14) (a) of the Interstate Commerce Act to insure the adequacy of the national railroad freight car supply, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 1(14) (a) of the Interstate Commerce Act is amended by adding at the end thereof a new sentence reading as follows: "In fixing the compensation to be paid for the use of freight cars, the Commission shall give consideration to the level of freight car ownership 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 on the basis of elements of ownership expense involved in owning and maintaining freight cars, including a fair return on value (which return shall be fixed at such level as in the Commission's judgment will encourage the acquisition and maintenance of an adequate freight car fleet), or should be computed on the basis of elements reflecting the value of use of freight cars, or upon such other basis or combination of bases as in the Commission's judgment will provide just and reasonable compensation to freight car owners, contribute to sound car service practices, and encourage the acquisition and maintenance NOTE.-Professional staff member assigned to these hearings, Gerald B. Grinstein. of a car supply adequate to meet the needs of commerce and the national defense." (Departmental and agency comments :) B-101874. COMPTROLLER GENERAL OF THE UNITED States, Hon. WARREN G. MAGNUSON, Washington, March 26, 1963. Dear Mr. CHAIRMAN: We again refer to your letter of March 15, 1963, in which you asked for our comments on S. 1063. The purpose of S. 1063 is to amend section 1(14) (a) of the Interstate Commerce Act, 49 U.S.C. 1(14) (a), to give the Interstate Commerce Commission a greater degree of flexibility and a broader basis for determination in fixing rentals to be paid by rail carriers for the use of freight cars. This bill imple ments legislative recommendation No. 2 made by the Interstate Commerce Com mission (76th Annual Report, page 198). The current rental fee, according to the Commission, is so unrealistically low that rail carriers find it economically advantageous not to make replacements and additions to their own supply of cars, but to use available cars of other carriers. Prior versions of this bill have been introduced in former Congresses; hearings were held by your committee in the 86th and 87th Congresses and S. 1789, 86th Congress, 1st session, was reported favorably. Hearings were also held by the House Interstate and Foreign Commerce Committee in the 86th Congress on H.R. 7937 which was reported favorably. Both Congresses, however, failed to act on these bills. S. 1063, if enacted, would have no direct and immediate effect upon the functions and operations of our Office. The railroad freight car shortage which has continued to increase for some years is, however, a matter of public knowledge and undoubtedly affects the interest of the United States as a user of rail transportation. We think S. 1063 is in the public interest and we recommend that it receive favorable consideration from your committee. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. DEPARTMENT OF AGRICULTURE, Hon. WARREN G. MAGNUSON, Chairman, Committee on Interstate and Foreign Commerce, DEAR SENATOR MAGNUSON: This will reply to your letter of March 15, 1963, inviting comments on S. 1063, a bill to amend section 1(14) (a) of the Interstate Commerce Act to insure the adequacy of the national freight car supply, and for other purposes. To accomplish its purpose it would require the Interstate Commerce Commission, in fixing a rate of compensation paid by one railroad to another for the use of the latter's freight cars, to consider (1) the elements of expense involved in owning and maintaining freight cars including a fair return on value, or (2) the elements reflecting the value of the use of the freight cars or (3) a combination of the two. More important, it would require the Commission also to consider the level of the national freight car ownership and other factors affecting the adequacy of the freight car supply. The Department recommends passage of this bill. The supply of serviceable freight cars is declining by substantial numbers annually. In view of the position taken by most railroads that they do not care to speculate on there being sufficient future traffic to justify expensive purchases of high priced cars, it appears that the introduction by this bill into the car rental situation of some additional elements, including the added advantage of ownership which may be considered, would be desirable in order to provide sufficient incentive for the purchase by the railroads of enough cars to meet the needs of commerce and the national defense and to handle the traffic offered them. The Bureau of the Budget advises that there is no objection to the presentation of this report from the standpoint of the administration's program. Sincerely yours, ORVILLE L. FREEMAN, Secretary. GENERAL COUNSEL OF THE DEPARTMENT OF COMMERCE, DEAR MR. CHAIRMAN: This is in further reply to your request for the views of this Department on S. 1063, a bill to amend section 1(14) (a) of the Interstate Commerce Act to insure the adequacy of the national railroad freight car supply, and for other purposes. S. 1063 would add a new sentence to section 1(14) (a) requiring the Interstate Commerce Commission, in fixing the compensation to be paid for the use of freight cars, to give consideration to the level of freight car ownership and to other factors affecting the adequacy of the national freight car supply. On the basis of such consideration, the Commission would be required to determine whether compensation should be computed on the basis of elements of ownership expense, the value of use, or upon a combination of bases as in its judgment would 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. This legislation has been recommended by the Commission annually since 1955. This proposal stemmed from the decision of the U.S. Court of Appeals for the District of Columbia in the Palmer case, a suit against an order of the Commission increasing per diem from $1.15 to $2.00 for six months, October 1, 1947, to March 31, 1948, to “* * * promote greater efficiency in the use and increase the supply of cars * * *.” The court in holding the order invalid said "the specific power of the Commission to fix compensation for use of freight cars is not coextensive with the general power to regulate use of the cars." The current bill has been introduced to overcome the effect of the Palmer case by legislation which would give the Commission authority to fix the compensation paid for use of freight cars in relation to the national freight car supply, since the court ruled it could not do this under the existing provisions of section 1(14) (a). The purpose of this bill is purportedly to alleviate the freight car shortage, especially the seasonal shortage for boxcars. There are sometimes proclaimed shortages of other type cars, such as refrigerator cars. The Interstate Commerce Commission has made investigations from time to time and increased the per diem rate on boxcars from 20 cents to $2.75 over a period of years, but the problem has not been solved by that method. The first extensive car shortage investigation by the Commission was in 1907, "Car Shortage-Insufficient Transportation Facilities" (12 I.C.C. 561, 1907). The next was in 1917, "Car Supply Investigation" (42 I.C.C. 657). Evidence introduced in cases before the Commission (especially in "Rules for Car-Hire Settlement" (160 I.C.C. 369, 378, 1930)) showed that the per diem rate "*** embraces cost of repairs, cost of taxes, cost of replacements, miscellaneous expenses, and 6 percent interest on the investment." Testimony at the hearings on "Freight Car Supply" in earlier Congresses indicated that the per diem rate included in addition to the interest, participation by the nonowner user in the idle time of the car, and replacement cost based equally on cost of reproduction and on depreciation ledger value. Many specialists have counseled that the base figures used may be subject to question because the railroads follow Interstate Commerce Commission's bookkeeping classifications which do not require the segregation of car-ownership costs from car-use costs and other costs. It would appear appropriate to initiate changes in accounting procedures so that cost of ownership can be segregated from the other costs which are lumped together. The railroads are not uniform in their approach to the problem of freight car supply, the present system of car ownership, per diem car rentals, or the car service rules governing the distribution of freight cars. This divergence occurs generally between originating and terminating roads. Since originating roads must own enough cars to protect their traffic, they desire the prompt return of owned cars (especially during seasonal shortages) even if they must be moved empty. But terminating roads frequently find it advantageous to retain foreign cars and to minimize their own ownership, particularly when the revenue per loaded car-day exceeds the per diem rental and traffic demand is active. Even though the per diem charge may cover the overall cost of ownership and car repair, the method used in assessing the charge-a flat per diem rate regardless of type of car, season of the year, or length of usage-does not provide a rental revenue system which takes varying cost and value situations into ac count. Alternative bases of charges should be considered, and put into effect, which apportion the cost of car ownership more equitably among the various classes of users, particularly those requiring premium service or service exclusively during peak demand periods. Insofar as the railroad industry cannot agree on any suitable system of charges which takes into account an equitable apportionment of the cost of car ownership and repair, it is logical that the regulatory agency should have the authority to assist the industry develop a more suitable system in the public interest. To this end, the present legal restrictions need to be modified through amendments to the Interstate Commerce Act. An equitable apportionment of the cost of ownership among car users does not in any way imply support of penalty charges designed solely to punish railroads and other car users by collecting rentals or other charges over and above the cost of ownership and repair. The objectives of a penalty per diem system can better be met through the Commission's ample authority to move cars under car service orders. A system for the equitable apportionment of car costs is similar to the well accepted principles of utility pricing which assesses premium and peak users differentially higher rates than other users on the ground of the greater cost of providing service. S. 1063 makes possible such differential charges for railroad car use. Because of the need to provide a more equitable apportionment of railroad car costs, and because the railroad industry requires the assistance of the regulatory authorities in developing such a system of charges, the Department favors the enactment of S. 1063 as a means of accomplishing these objectives. The Bureau of the Budget advises there is no objection to the submission of this report from the standpoint of the administration's program. Sincerely, LAWRENCE JONES (For ROBERT E. GILES). GENERAL COUNSEL OF THE DEPARTMENT OF DEFENSE, Hon. WARREN G. MAGNUSON, DEAR MR. CHAIRMAN: This is in reply to your request for the views of the Department of Defense on S. 1063, 88th Congress, a bill to amend section 1(14) (a) of the Interstate Commerce Act to insure the adequacy of the national railroad freight car supply, and for other purposes. The purpose of the bill, which is identical to S. 886, 87th Congress, is to insure the adequacy of the national railroad freight car supply through adjustment by the Interstate Commerce Commission of the compensation to be paid for the use of freight cars. The bill prescribes the criteria to be employed by the Commission in considering methods by which compensation may be adjusted so that it will be just and reasonable, 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. The Department of Defense is vitally interested in an adequate railroad freight car supply in the United States. It appears that enactment of the proposal may contirbute in some measure toward improving the freight car supply situation in the United States in the future. Although it is believed that, under the Interstate Commerce Act as presently written, the Commission could utilize the criteria set forth in the bill, it would be advantageous if the Interstate Commerce Act were amended to be more specific and mandatory on this point. Accordingly, the Department of Defense recommends enactment of this legislation. The fiscal effects of this proposal cannot be estimated. The Bureau of the Budget advises that, from the standpoint of the administration's program, there is no objection to the presentation of this report for the consideration of the committee. Sincerely, JOHN T. MCNAUGHTON. (Identical report sent to chairman, House Committee on Interstate and Foreign Commerce, on H.R. 198 and H.R. 2092, 88th Congress.) GENERAL SERVICES ADMINISTRATION, Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: Your letter of March 18, 1963, requested the views of the General Services Administration on S. 1063, 88th Congress, a bill to amend section 1(14) (a) of the Interstate Commerce Act to insure the adequacy of the national railroad freight car supply, and for other purposes. The purpose of the bill is to amend the Interstate Commerce Act; to grant the Interstate Commerce Commission authority to prescribe charges for the use of railroad freight cars on a basis that will provide an economic incentive to the railroads, to acquire and maintain a supply of freight cars adequate to meet the needs of commerce and the national defense. Under the Federal Property and Administrative Services Act of 1949, as amended (40 U.S.C. 481), GSA is interested in transportation and traffic management on behalf of executive agencies from the viewpoint of a user of transportation services. Inasmuch as we believe that appropriate measures to increase freight car supply are in the interest of shippers, including the executive agencies of the Government, GSA favors the enactment of this measure. The Bureau of the Budget has advised that, from the standpoint of the administration's program, there is no objection to the submission of this report to your committee. Sincerely yours, BERNARD L. BOUTIN, Administrator. EXECUTIVE OFFICE OF THE PRESIDENT, Hon. WARREN G. MAGNUSON, OFFICE OF THE DIRECTOR, Washington, D.C., May 10, 1963. Chairman, Committee on Interstate and Foreign Commerce, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in reply to your request for a report on S. 1063, 88th Congress, a bill to amend section 1(14) (a) of the Interstate Commerce Act to insure the adequacy of the national railroad freight car supply, and for other purposes. Past periods of car shortages and surpluses have shown that the national freight car inventory reflects changes in the level of traffic, rather than changes in the amount charged for freight car hire. While we do not believe that this bill will contribute substantially to strengthening the mobilization base, we have no objection to the proposed authorization of the Interstate Commerce Commission to consider freight car supply as a factor in its determination of rental rates. From the standpoint of the administration's program, the Bureau of the Budget advises that it has no objection to the submission of this report. Sincerely, EDWARD A. MCDERMOTT. (The Justice Department informed the committee it had no comment to offer on S. 1063.) |