into believing that they were right, even though I am confident they are 100-percent wrong. What you need here, gentlemen, is for Congress to tell the Commission, "We probably meant this in 1920 when we gave you full power to prescribe car rental charges. But some people have apparently misunderstood what we meant in 1920. We are telling you now, gentlemen, that if and when you are called upon to prescribe these car rental charges, for God's sake, make them high enough to make car ownership attractive and stop these recurrent freight car shortages." That is the purpose of it. It is in part psychological, Mr. Grinstein. Mr. GRINSTEIN. You are saying to the Commission now, "We mean it"? Mr. MARTIN. Yes. Mr. GRINSTEIN. So really the problem is a Commission fearful to act because of the uncertainty of the Palmer case? Mr. MARTIN. That comes very close to stating it correctly, Mr. Grinstein. I might add a few words to your statement, but that is substantially correct. Mr. GRINSTEIN. How do you arrive at a per diem charge? How did you advance from $2.40 to $2.75 to $2.88? Mr. MARTIN. This is a very involved accounting process. I wouldn't bore you with it, if I knew enough to state it fully, which I don't. They take original cost, they take reproduction cost, they take depreciation Mr. GRINSTEIN. Who does this? Does the Commission do it? Mr. MARTIN. Not yet. So far, it is the committees of the Association of American Railroads. The Commission is going to have to do it in pending cases. But up to this moment their formula, if you please, hasn't been the adoptive formula. The Commission hasn't really had a formula up until now. They are going to have to evolve one in the current litigation. But up until now this has been worked out by committees of the Association of American Railroads. And I might say, just because I think it is important, these committees always have come up with compromises. I don't care what the charge was, if you go back to $2.00 or $2.40, or $2.75, or $2.88, in the first place there is a lag of about a couple of years on the figures you are using, and this is harmful to the interests of the car owner because he is getting less, he is working on outdated figures. Then, when they come up with elaborate computations, to say, as I think they did when $2.75 was prescribed they came up with $2.78 as the proper cost-"We will round it out to $2.75," but the rounding out is always in the downward direction, and always the poor car owner gets stuck, and the car user gets the benefits, and that is why you have this national car shortage. This is an elaborate accounting point which considers various factors that I think have been prejudicial to the car owners. This idle-car day is, I think, an important factor. When you have determined all the money that ought to be allocated to car ownership costs, you have to then convert that into a per day figure somehow. You do that through the use of what the experts call a car-day divisor, and it is intended to reflect a proper measure of active car days during the 365-day year, and the current charges and the variable system charges that have been projected are based on a car-day divisor of 91.12 percent. And this is ridiculous. The proper car-day divisor ought to be in the range of 75 percent. The lower the divisor, the higher the per diem charge. And 91.12 divisor creates this too low per diem charge. That is one element. I wouldn't attempt to get into it all. This is the Commission function under this bill. Mr. GRINSTEIN. Whose divisor is that? The Commission's or AAR? Mr. MARTIN. The AAR divisor. Mr. GRINSTEIN. And that is the association, voluntary association, to which you committed yourself? Mr. MARTIN. What do you mean committed myself? Mr. GRINSTEIN. You are a member. Mr. MARTIN. Certainly we are members. And we voted for the variable system. But we are on record as stating that this is only a step in the right direction. It doesn't do the job properly. We just think it is better than what we have now, which is God-awful. Mr. GRINSTEIN. In other words, through this voluntary association in the AAR, you haven't been able to come to the right decision insofar as the per diem goes? Mr. MARTIN. Correct. And I don't think we ever will be able to do that. That is another reason why S. 1063 is needed legislation, because there is litigation pending before the Commission in which they must now exercise that authority. That is telling them to exercise it in the right direction so we will get more freight cars. Mr. GRINSTEIN. The Commission has to work out the formula now, I take it? Mr. MARTIN. That is my opinion; yes, sir. Mr. GRINSTEIN. And we have no idea what that formula might be. It might be extremely favorable to the owning railroads, such as the Burlington? Mr. MARTIN. It might be. We might be unhappy about it, too. I don't know. Mr. GRINSTEIN. You want to take the chance? Mr. MARTIN. I am certainly willing to take the chance. Whether I am willing to take it or not does not seem to me to be important from the viewpoint of this committee. I don't want you to consider what is good for the Burlington Railroad or good for the 20 roads I represent, or bad for somebody else. I don't think that is your function; nor is it the function of the Interstate Commerce Commission. You shouldn't be too much concerned about the effect of right action. The right action here is to enact this bill and tell the Commission that you want to get more freight cars in the United States, and tell them that that is their function. That is in the public interest, the national interest, regardless of its effects on individual roads. Mr. GRINSTEIN. Probably the statement of fact is that there is a great car shortage. But when you are working through these things it becomes very material to find out what effects the formula is going to have. There may be different ways of increasing the number of freight cars in the country. As I recall, 2 years ago someone recommended that you set up a federally owned pool of freight cars that you inject into the system, or rent them to the system, at such times as they are needed. You are trying to minimize, through that system, the effect possibly on railroads that are not in a financial position to afford more cars. Mr. MARTIN. No matter who is making the investment, he must have an investment that is attractive, or else he won't make it. Or he will be out of his mind. So the freight car pool is not a solution. You still have got to make freight car ownership attractive if you are going to get an adequate national supply, Mr. Grinstein. You can't get away from that as a matter of basic economics. At least, so it seems to me. Mr. GRINSTEIN. The point here is not the goal of more freight cars, it is the method of how you get at it. Mr. KENNEY. As I understand the bill, after it is enacted the Commission will still have to go through a proceeding to set the thing? Mr. MARTIN. Yes, sir. Mr. KENNEY. Did I understand Chairman Walrath to indicate that the proceeding presently before the Commission involves a per diem charge set about 10 years ago? Mr. MARTIN. I didn't know it went back that far. The proceeding now before the Commission involves prior per diem charges fixed within the industry of $2.40, maybe even earlier than that. The past effective per diem charges, those of less than $2.88 a day, are involved because some roads wouldn't pay those which were established by the association agreement. Those of us who are the creditors in that situation want our money. And so we went to court to make them pay and the court said we want to know what the Commission thinks were reasonable charges in the past before we give you a judgment. That is what the Commission is doing as to the past charges of $2.75, $2.88, if you please, and $2.40, and perhaps even earlier charges. But in this same proceeding they inevitably must, I think, decide what they ought to be for the future. Mr. KENNEY. Do you think it will take the Commission 5 or 8 years to arrive at new per diem charges under this legislation? Mr. MARTIN. No, I don't think it will take that long. I certainly hope it won't take that long. They are going to have to make some determinations within the next year or two. Mr. KENNEY. Based on this present law? Mr. MARTIN. Yes. Mr. KENNEY. Which you imply would be adequate for the purpose anyway, if the Commission properly interpreted it? Mr. MARTIN. I can't take a chance on it. Mr. KENNEY. I understand. You want Congress to tell them to raise it? Mr. MARTIN. I think Congress should tell them not to raise itdon't put those words in my mouth-I think Congress should tell the Commission that we want you to fix per diem charges at a level which will provide an adequate national car fleet and will encourage the acquisition and construction of more cars. Mr. KENNEY. Do you think Congress would be justified in writing into its criteria some other factors, including the average mileage haul? Mr. MARTIN. I don't think so, Mr. Kenney, although what I am concerned about are the last three lines of the bill. I think rather than to add more criteria, we might even have less. Mr. KENNEY. As long as it provides an incentive. Mr. MARTIN. That is right. As long as Congress is told, and if you will just read the last three lines of the bill, the bill in my view, its most important element is the last few phrases which in effect are these that the Commission would be told, whenever it is asked to prescribe these per diem charges, to consider the national freight car supply, and to fix such charges as will encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense. That is the essence of it and that is what they ought to be told. Senator PROUTY. Mr. Martin, regardless of what one may think of your views, I must confess you have been a very effective and interesting witness. Mr. MARTIN. I enjoyed being here. Thank you, Senator Prouty. (Mr. Martin's prepared statement follows:) STATEMENT OF ELDON MARTIN, VICE PRESIDENT AND GENERAL COUNSEL, BURLINGTON LINES My name is Eldon Martin. I am vice president and general counsel of Burlington Lines, with headquarters at Chicago. I am here to speak for a group of important railroads, including: The Atchison, Topeka & Sante Fe Railway Co. The Chesapeake & Ohio Railway Co. Chicago, Burlington & Quincy Railroad Co. The Colorado & Southern Railway Co. The Denver & Rio Grande Western Railroad Co. Fort Worth & Denver Railway Co. Great Northern Railway Co. Gulf, Colorado & Sante Fe Railway Co. Gulf, Mobile & Ohio Railroad Co. Illinois Central Railroad Co. Louisville & Nashville Railroad Co. Northern Pacific Railway Co. Pacific Coast R.R. Co. Panhandle & Sante Fe Railway Co. Sacramento Northern Railway Spokane, Portland & Seattle Railway Co. Tidewater Southern Railway Co. Walla Walla Valley Railway Co. The Western Pacific Railroad Co. Collectively, these railroads operate more than one-fourth of all the railroad mileage in the country, and own about one-third of all the railroad freight cars now available for service. We favor and support S. 1063, the bill now before you for consideration. As you know, S. 1063 was introduced March 14, 1963, by Chairman Magnuson for himself and 34 other Senators. This bill is the same as S. 1789 in the 86th Congress, which was favorably reported by this committee (Rept. No. 452, 86th Cong. 1st sess., Senate Calendar No. 447). Because that report is so persuasive, and because it recommended enactment of an identical bill, I will try to be brief in this presentation. I should and will, however, bring the record down to date, and demonstrate that the need and justification for this legislation is greater now than ever before. The purpose of this bill is "to insure the adequacy of the national railroad freight car supply." In substance, it would direct the Interstate Commerce Commission (in the exercise of its long-existing power to fix car rental or per diem charges) to consider "the adequacy of the national freight car supply" and prescribe such charges "as in its judgment *** will encourage the acquisition and maintenance of a car supply adequate to meet the needs of commerce and the national defense." The quoted phrases state the essence of the bill. At this point, a few general comments will set the stage and serve as background. The freight cars of the United States move indiscriminately over all railroads. When a particular car is used by a nonowner railroad, the owner receives daily rental payments, known as per diem charges, which, currently, are $2.88 per day, and have been at this level since 1959. We believe that car rental per diem charges are an important factor in car supply and distribution, during car shortages and otherwise. We strongly favor legislation such as S. 1063 which, if followed by proper ICC action, will provide a powerful, automatic incentive for increased car ownership. Let me state, if I can— (1) The problem to be solved, (2) The conditions or causes which created it, and (3) The solution, as we see it. Briefly, the basic problem or objective is to get more frieght cars. We don't have enough because we have actually discouraged the acquisition or construction of new cars. The solution lies in substitution of an incentive which will make car ownership more attractive. I want to develop each of these points, but it will be helpful if you will bear in mind this simple statement of the problem, its cause, and its cure. THE PROBLEM As this committee said in its report on S. 1789, "freight car shortages, of varying duration and severity, have plagued this country and its shippers for more than a generation." Since that committee report was submitted, the national freight car supply has continue to decline, precipitously, and car shortages-particularly of boxcars have become increasingly more frequent, more severe, and more damaging to the interests of the railroads, our shippers, and the national economy. Gone are the days when severe shortages were limited to the harvest seasonduring the late summer and early autumn-and when their impact was felt primarily by railroads and shippers serving the granger States. These areas still suffer most from the now almost continuous car shortage, but in the earlier months of this year, 1963, a national shortage occurred which has been described as the "worst yet." Its effects are still felt in parts of the grain belt and, as the grain harvest approaches this year, it is a frightening fact that, on a national basis, fewer freight cars, and fewer boxcars, are now available for service than at any time in this century. This is a prospect of grave importance, both to the national economy and the national defense. During the twenties and early thirties, freight car ownership of class 1 railroads exceeded 2 million cars. The fleet declined during the depression of the middle and late thirties, and increased during World War II. Beginning in 1945, total ownership figures, and the number of serviceable cars, are as follows: |