Mr. GRINSTEIN. Then he went on to tell me, according to their statistics, that at one point during this recent car shortage it was indicated that they were short about 12,000 cars a day, but that those figures would not be reliable necessarily because many shippers overstate their needs in fear that they won't be able to get adequate supplies. Mr. WALRATH. That may be true. There is tendency on the part of shippers to order 10 cars if they are sure they need 5. I am not unaware of that sort of request. That is why I say we check these things in the field to find out exactly what they do need. Mr. GRINSTEIN. The purpose of my questioning, and it has been devious, is to find out if it is measurable. Can you measure what the car shortage is at a certain period of time and then take adequate action to meet it if that exists? Mr. WALRATH. Yes. Mr. GRINSTEIN. Can you determine it with any accuracy? Mr. WALRATH. Yes. We can determine it daily, what the shortage may be, by field checking against the requests, and against the railroads' own reports of the orders that they have for cars in that area. You do come to a point of judgment, whether or not the shipper has asked for more than he needs. Our field people are pretty experienced in that. But when you come to a situation like that which existed when we entered Car Service Order 943 on June 6 or June 8, whatever the date was there Commodity Credit Corporation orders were involved, and we found that this agency was not ordering more than they wanted to load out. They knew how many bushels they had to move. There we had a readily identifiable situation of need against the daily known supply. Mr. GRINSTEIN. Does the legislation give you sufficient authority so that you can direct an increased per diem at a certain railroad that is not cooperating, rather than burdening the railroad that is having a great deal of difficulty, such as the New Haven? For instance, suppose the Burlington Railroad would discover a lot of its cars on the Norfolk & Western, could you direct a certain increased level of per diem charge at that road which would, in effect, coerce them to give the cars back? Mr. WALRATH. I hadn't thought of it in that context. Such a situation might lend itself to a consideration of per diem charges based on the nature of the operation, that is, whether it be a terminating road with long port delays and that sort of thing. I hadn't thought of it as a punishment or in the nature of a penalty as such, but rather as an inducement or incentive. Mr. GRINSTEIN. You are just providing a strong incentive? Mr. GRINSTEIN. Let me use your language. Norfolk & Western is a road that is not considered to be in dire economic straits at the present time. Would it be possible to give that economic incentive to the Norfolk & Western to return the cars, where at the same time you dont' burden an already overburdened New Haven Railroad? Or is that not possible? Mr. WALRATH. I am inclined to think that that is something that would be more fairly settled as between connecting railroads. They do that in their division of rates. You have a through rate of x dollars from point A to point B that involves, we will say, all three of the major areas of rail operation from here to the west coast. Normally they agree upon a division of rates and they take into consideration the costs and disabilities and revenue needs. When they can't agree, they present it to us. They may not agree with us, but we try to decide. But equities of that sort are taken into consideration. Mr. GRINSTEIN. It would be on a broad basis? Mr. WALRATH. Yes. Mr. GRINSTEIN. In other words, before you would impose an incentive per diem charge you would consider the economic well-being of the Boston & Maine and New Haven as well as C. & O.? Mr. WALRATH. No. I don't think that we could well justify saying to the C. & O. that "You can afford to pay more than the B. & O. can, therefore we will charge the B. & O. less and charge you more," if that answers your question in spirit. Mr. GRINSTEIN. That is what I was trying to find out. Is it the Commission's judgment that you have exhausted all administrative remedies that you can take? I notice that you mentioned one of the car service orders you put into effect. You have in effect car service order 939 affecting 40- and 50-foot-wide-door boxcars. Mr. WALRATH. Yes. It goes back to May 1962. It is more than a year old. It has been in effect all that time. What that says generally, and this is not stated categorically, is that every railroad is obligated to return to the owner, or in the direction of the owner, off-line cars. They are directed not to keep them or send them off in a direction away from the owner. That is obviously designed to be fair to the owning railroads. It has had some effect. On the other hand it appears to have been cheaper for some deficit railroads to even violate that order, and to do nothing about correcting the situation. We have had in the courts this year-and that means only in recent months-some 250 counts against railroads for failing to comply with that order. Such noncompliance costs them rather heavy fines in criminal courts. That doesn't help the owning railroad. It punishes the violating railroad. Apparently some railroads felt that even under the pressure of our order it was better to provide themselves with cars they needed than to comply because they have shipped in violation of the order. Mr. GRINSTEIN. Then, could you conclude that you have sufficient administrative authority to direct railroads to give up the cars that they don't own, but that the level of the penalty is too low? Mr. WALRATH. Well, you could, if punishment was the objective, and that is a matter for courts. Penalties, as I have said, do not help the railroad which has invested its money in those cars. The orders tend to get them back by punishing the violators. But that doesn't provide service for the shipper. It simply provides a little extra revenue for the Treasury. It is a harsh thing to have to do. It is a problem. It is one of the most unpopular orders we ever entered. But to meet this diminishing supply we found it essential. Mr. GRINSTEIN. Then you do feel that you have exhausted all administrative remedies, including emergency authorities? Mr. WALRATH. I think we have reached the point where further administrative remedies are ineffective. Thus, our current service order 943, though intended to meet a need in Nebraska, created another one elsewhere, and we had to modify that order in an effort to balance out the equities. Order 939 has worked a hardship on roads which had to use those cars or forgo traffic, and in some instances railroads chose to violate our orders. They have ended up with prosecution in criminal courts. Our purpose, of course, is not to punish people but to provide service to shippers. So I think, to answer your question fairly and honestly, that without something such as S. 1063, the Commission has just about exhausted its power to help in this situation. Mr. GRINSTEIN. Are there cases now pending-I believe you mentioned some in your direct testimony-in which railroads are either refusing to pay or are unable to pay the existing per diem level? Mr. WALRATH. I know that there are more than 100 cases pending currently in, I believe, New York State, as to the level of the per diem rate that was agreed upon generally by industry. These proceedings involve to some extent a determination we made of the reasonableness of rates. That, of course, is a pending matter, and I cannot discuss the merits. It is something that sooner or later we will have to vote on. That is the case that Mr. Baumgartner has before him. I mentioned it at the outset of the hearing. Yes, there is litigation over it, there are instances of reluctance to pay, and there are counterclaims which grow out of those situations. The point is that since the Palmer case at least some railroads do not believe that the Commission has the power to fix a rate that is reasonable and make it stand up. It is still open to litigation between the different railroads, which is not a healthy situation. It is true they could go to court from our order. Let's say that we fixed rates or per diems under this legislation. Anybody could take us to court after our final determination and test the validity of our determination. But as between railroads, I don't believe the argument as to the Commission's power would be urged any longer as it has under their voluntarily imposed per diem rates. Mr. GRINSTEIN. If this bill were to be enacted, could the Commission prescribe different per diem requirements, taking into account the age of the car, the characteristics of the car, and the special configuration of the car? Mr. WALRATH. We certainly could, and I think we should. In other words, I am not saying that the AAR may not have the answer in their proposal. We have had no occasion to check it. But they base their sliding scale on the value of the car, which is the original car value minus depreciation. Then they work out a sliding scale charging the lowest rental rate for the car of least value, and the highest per diem rate for the car of most value. On $20,000 or more in value they would charge a rate of $7.74. For cars of $1,000 or less value, which is the depreciated value on an old car, they would charge $2.16 for it. The other rates fall in between. Senator PROUTY. How would that average out? Mr. WALRATH. I haven't averaged it, Senator. About $4 seems to be the median. Mr. GRINSTEIN. Does the Car Service Division of the Association of American Railroads act for the Commission, or independently of the Commission? Mr. WALRATH. May I ask Director Taylor or Paul Rider to answer that for me? Mr. TAYLOR. They do not unless they are appointed agents of the Commission under Commission order. Mr. GRINSTEIN. You can appoint members as your agent, though? Mr. TAYLOR. Yes. Mr. WALRATH. Do you do that? Mr. TAYLOR. Not in the past few years. They have been appointed as agent under some Interstate Commerce Commission orders directing the movement of equipment. Mr. WALRATH. While we have Mr. Taylor on his feet I would like to say to him, Mr. Chairman, that if anything that I have said in answer to questions is not technically correct, I would like him to feel free to correct me, because this is a very technical field. Senator PROUTY. We would be very glad to have you correct any erroneous comments. I was going to say I wouldn't do that under the circumstances. Mr. WALRATH. I invited it, Mr. Chairman. I would be happy to have Director Taylor correct any inaccuracy. We are one team. There is no boss when we get into the area of public interest. Senator PROUTY. I am sure of that. Have you any questions? Mr. KENNEY. Yes. Mr. Chairman, what is the present per diem rate? Mr. WALRATH. The rate is $2.88. Mr. KENNEY. Does that have the Commission approval under section 1, 14(a)? Mr. WALRATH. The answer, Mr. Kenney, is that it is an informally determined rate, one which I think the AAR proposed. It has not reached the point of a formal ruling. There was a declaratory order— establishing $2.75, if I am correct, as a reasonable level-some time ago. That order was objected to, and the matter has not yet been finally determined. We would have to institute a formal rulemaking proceeding and hear all interested parties. We have not yet done that. It is still pending. Mr. KENNEY. I got the impression from what you had said that the Palmer case shed some doubt on your ability to set a purely compensatory rate. Mr. WALRATH. It depends on what we mean by "compensatory." don't think the Palmer case cast doubt on our right to determine a reasonable rate, provided we worked within what some have described as the bare bones cost theory as distinguished from taking into consideration the elements that are in S. 1063. In other words, the term "compensatory" can be treated as representing just your dollar investment, plus depreciation and normal wear and tear. That is oversimplified. However, I don't think the Palmer case would say that we couldn't set a rate at that level. Mr. KENNEY. What is the last per diem rate then that had the Commission's approval? Was that the $2.75 rate? Mr. WALRATH. The last one that had approval, but is still under question, was $2.40, if I am not mistaken. That is the one that is in 21-093-63- -3 litigation now. That is part of the combined proceeding that is before Mr. Baumgartner. It began with the $2 rate. The hearing officer found $2.10 was reasonable, and the appropriate division of the Commission found $2.40. I think much of this litigation turns on the question of what is a reasonable rate as of 1953. Mr. KENNEY. This is 10 years back then? Mr. WALRATH. That is right. The matter comes back to us because the court asks us for an advisory opinion. Mr. Chairman, I left an earlier answer incomplete. I am advised that the $2.75 rate and $2.88 rate are now involved in the current proceeding before us, but the only official action we have taken, I think I am correct in saying, was on the $2.40 rate. Now, since time has passed, in that same litigation pending before us, the same proceedings, the $2.75 and $2.88 rates are before us. Mr. KENNEY. Would the sliding scale rates then under development by AAR eventually have to go through your proceeding, too? Mr. WALRATH. I wouldn't think they would become part of the current proceedings. If we had the S. 1063 as the existing law, we would be in position then to consider their proposal as part of our studies. That is, we could look at these factors that I have outlined for you, that we would want to look at, in order to reach a proper basis or formula basis for setting a reasonably compensatory rate, and if their figures happened to be within the realm of tolerance, our inclination, I think, would be to let industry itself exercise some discretion. If they fell short, we would raise them; if they were too high, we would adjust them. Mr. KENNEY. You could do that under the present law, could you not? Mr. WALRATH. We could again on the basis of absolute costs of ownership, yes. That is part of what is involved in the proceedings over the rates of $2, $2.10, $2.40, and so forth. Mr. KENNEY. The present law wouldn't prohibit a sliding arrangement based on the absolute value of the car? Mr. WALRATH. No. I think you are correct there. It might limit us to doing it in a fashion that would encourage car ownership or encourage the acquisition of other facilities. Mr. KENNEY. Or the penalty provision? Mr. WALRATH. Yes. Of course, at one time the Commission felt we needed penalty powers. That is what brought on the Palmer case. We dropped back a long way from that position. We are talking now about incentives. Mr. KENNEY. Does the per diem apply to bad order cars, off-line bad order cars? Mr. WALRATH. I am of the opinion it does. Let me check with my experts. Mr. TAYLOR. It does unless the car is bad order. Normally bad order cars are under the per diem orders, but if a car with an owner's defect shows up on a foreign road, then they make a reclaim for the period involved in waiting for repair parts, et cetera. Normally it is under per diem orders. |