CHAPTER 11. SUSPENSIONS

One of the provisions of the Interstate Commerce Act which has become the subject of acrimonious controversy in recent years is section 15 (7) pertaining to suspensions.

The origin of the present provisions is discussed, and the record of suspensions is reviewed. Industry complaints against suspension procedure are cited and an evaluation of these complaints is made. Consonant with our recommendations elsewhere in the report proposing the adoption of rate policies and rules of ratemaking leading to cost related competitive pricing in transportation, the following rule of ratemaking is recommended as a criterion in suspension actions:

When a protest is filed against a proposed rate which departs further from the fully distributed costs of the proponent than does the existing rate the proposed rate should, in the absence of compelling reasons to the contrary, be suspended pending investigation and decision thereon. When the proposed rate is closer to the fully distributed cost than the existing rate it should not normally be suspended.

A new provision for the posting of bond by the initially successful litigant carrier in a suspension action is provided.

CHAPTER 12. IMPLICATIONS OF GOVERNMENT REGULATION OF SERVICE: THE CROSSROADS

Up to now the Civil Aeronautics Board has exercised rigid regulatory control of air transportation by use of its powers over entry, routes, and rates. In effect, these powers were used to control the means by which competition could be expressed.

By recent use of powers over adequacy of service, however, the Board is reaching out to control competition itself.

The power over adequacy of service has been construed to authorize the Board, after a finding that service to any certificated community is inadequate, to require additional or improved service which could include: type of service, coach, first class, etc.; type of equipment; number of flights and time of day; single plane, nonstop, skip-stop or limited-stop service; and satisfaction of individual needs at neighboring airports.

Obviously, this type of authority in a regulatory agency is fraught with the danger of constant and imprudent interference by the Government in essentially managerial functions which have been traditionally lodged in the management of companies dealing in transportation.

The question raised by this sweeping extension of use of control powers is whether the regulatory structure within which competition. is to operate to satisfy air transportation needs is so designed that the profit incentive will not do the job, requiring, therefore, further governmental control, resulting ultimately in governmental assumption of the managerial role as well as that of regulator-and with this, implicitly, the Government paying the bill for the service ordered. If this is going to be the outcome, we ought not stumble into it. The limits which should be placed upon the authority of the regulatory agency should be thoroughly explored before embarking upon a course where the Government, upon assuming the responsibilities of making

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critical managerial decisions may face some responsibility of making the companies whole if this exercise of managerial functions results in a serious financial loss to the companies involved.

It is concluded that it is too soon to decide exactly where this new trend in regulation may lead but close watch is considered essential and congressional inquiry is recommended.

CHAPTER 13. THE NATIONAL RAIL FREIGHT CAR PROBLEM

There are two parts to the overall rail freight car problem. One is the question of the car supply. The other is cost associated with our present practices which might be reduced under other conditions thus reducing the cost of transportation to the national economy.

Freight car ownership is declining. Utilization is presently decreasing. The age factor of the cars is not favorable. The number of bad-order cars is excessive. Taken together, decreasing ownership, poorer utilization and an unfavorable age factor do not promise a car fleet in keeping with projected transportation requirements which accompany increased gross national product. Another problem is the quota of cars to be owned by each railroad-a problem which has not been solved and shows no prospect of solution under present concepts. The present practices in the industry are reviewed and the advantages and objections to a national car pool are considered. The conclusion is reached that industry and Government working together should prescribe the details of a charter for a National Rail Freight Car Corporation to be authorized by Congress after a detailed study of such a program.

PART I

INTRODUCTION

CHAPTER 1. THE STUDY CONCEPT

I am not an advocate for frequent changes in laws and constitutions. But laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times.-THOMAS JEF

FERSON.

Despite the publicly expressed opinions of some who desire to maintain the status quo, recent legislative history, editorial comment from all corners of our Nation, the writings of assorted transportation authorities and a barrage of complaint from various carriers all point to a growing concern with the present and future ability of our transportation plant to "meet the needs of the commerce of the United States, of the postal service and of the national defense." The following quotation from the report of the Kilday subcommittee of the Committee on Armed Services of the House of Representatives (October 10, 1959) pungently expresses the reactions of that group to the situation:

Transportation is one of the tools required by civilized man to bring order out of chaos. It reaches into every phase and facet of our existence. Viewed from every standpoint, economic, political and military, it is unquestionably the most important industry in the world. You can no more operate a grocery store or a brewery than you can win a war without transportation. The more complex life becomes, the more indispensable are the things that make up our transportation systems.

The history of transportation is the history of adjustment to new situations that are constantly arising in a dynamic economy. Knowing its importance, one would expect that this great industry would be striding forward with giant steps to keep pace with all of the incredible achievements of our times. On the contrary, the picture that emerged from our hearings was one of a plethora of outdated and outmoded equipment, deferred maintenance, inadequate highways, depressed earnings, claims of unfair tax regulations, favored treatment of one mode over the other by subsidization, and the like, all of which reflected an unenviable state of suspended animation, detrimental to the economy and dangerous to the defense of the country.

Each mode of transportation had its complaints, both against competing modes and regulatory practices, and none presented the dynamic outlook and hope for the future that should prevail in this era of fantastic progress. The representatives of each of the modes of transportation devoted much time to indicating why theirs was the best, fastest, most economical in the use of fuel and manpower, and like reasons for indicating that each was the indispensable mode. Despite the complete reliance of our economy and defense on all modes of transportation in varying degrees, no one deemed it necessary or desirable to concern himself with suggestions that might work to the benefit of all, economic and defense-wise, through the cooperative actions of each mode, one with the other.

We do not wish to leave the impression that the fault is all with representatives of transportation. On the contrary, the Government bodies most concerned with the health and economic well-being of transportation showed all too little regard for this situation. They tended, rather, to view the present condition of transportation as adequate to perform the task it may be called upon to accomplish, with some possible soft spots. There was no indication of any new thinking in their field but rather an obvious dependence on past experience for guidance. All in all, it was a picture of obsolete equipment, 19th century economics and laws and antiquated thinking.' [Emphasis added.]

There can be little quarrel with the importance attributed to transportation by the Kilday subcommittee. Without it, as a nation in the modern world, we are nothing. Our people have demonstrated their concern in this field from the days of the Cumberland Road to the present merchant marine and local airline subsidies. It is safe to conclude that our people will never permit their future economic progress and their national security to be compromised for long by anything less than the best possible transportation service by all desirable modes.

In addition to the intense interest our Nation has demonstrated in transportation over the years, we are unique among major nations in that we have avoided nationalization in any form. Our policy has been and should continue to be one of reliance on private ownership so long as that ownership fills our transportation needs. It is our opinion that only serious, widespread economic distress among important carriers coupled with a deteriorating transportation system that hinders rather than fosters our economic growth will change our minds on this subject. We should not, however, forget that conditions in 1919 reached the point that sober-minded men seriously considered nationalization as the cure for railroad troubles. Our overall system is not, at the moment, in acute financial distress but, as we point out in Part II-Trends, there are strong indications of trouble ahead in the not-too-distant future. Carrier and shipper managements, perhaps, can be excused for seeking short-term gains there can be no excuse for Government failing to act in the long-run national interest.

The Kilday statement clearly implies the unique position of transportation as compared with industry generally. In our country, most industry is free of price regulation and control of entry, subject only to certain antitrust, fair trade and fair labor laws, and otherwise free to take such action as managerial discretion might dictate. Some industry, because of special considerations, has been established in a monopoly position in the public interest. We have placed transportation between these extremes and, as a result, we must develop a set of rules, practices, and policies suitable to transportation rather than expect to apply either the concepts of unregulated free enterprise or of regulated monopoly to this unique problem. It is of interest, in view of the clamor in some quarters about overregulation, that the tightly regulated public utility monopolies are, generally, in excellent financial health which leads us to believe that the root of transportation problems may partly lie in our interpretation of what is desirable competition in as heterogeneous an industry as transportation.

1 U.S. Congress, House, "Adequacy of Transportation Systems in Support of the National Defense Effort in Event of Mobilization," hearings, Subcommittee of the Committee on Armed Services, 86th Cong., 1st sess., p. XVII.

The Kilday report is properly critical of past failure to achieve voluntary cooperation between the modes toward the end of the best possible total transportation system. We consider that such cooperation, though obviously in the best interests of the Nation, is most unlikely to occur as a result of voluntary action on the part of carrier managements. There are too many carriers, each intent on the natural human objective of promoting his own immediate self-interest and there is entirely too much mutual distrust and antagonism to expect a great deal more from voluntary cooperation in the future than we have found in the past. Couple this atmosphere with the understandable impulses of our most powerful carriers to fill unused capacity by any means and we reach the inevitable conclusion that if intermodal coordination is desirable-and we believe it is-it will have to come about through regulation or as a result of permitting ownership of one mode by another. The latter solution is examined in part V, chapter 3 of this report.

The final sentence of the quotation, from the Kilday report deals with obsolete equipment, out-of-date economics and laws, and antiquated thinking. Of these, the question of obsolete equipment is, perhaps, the least complex. Three things seem essential to modern equipment. They are: technical research, reasonable amortization designed to foster modernization, and adequate capital. The last element, in turn, must result from an earnings ratio calculated to generate and attract capital. In the presence of excess overall capacity, competitive pricing must be related to cost if we are to avoid destructive price wars during the slow process of readjusting capacity to changing requirements. Out-of-date economics seems to result from lack of adequate cost information and economic research based thereon. There are stirrings of activity to be found along these lines, it is true, but much remains to be done and it can be done only if adequate information is available to all who must, perforce, make decisions affecting the transportation economy. Antiquated thinking is chargeable to the lack of identification and analysis of trends in transportation itself and in the industries it serves in time to take preventive rather than corrective action.

It seems to us that there was an amount of punitive intent coupled with some soak-the-rich philosophy in the early days of railroad regulation and taxation of which more than a trace has been carried forward into this era of totally changed conditions. If we are to have a transportation system composed of various modes, each serving the Nation singly and in combination according to the varied needs of many users, large and small, within which each mode can develop its maximum potential as an integral part of the whole, then we must acquire an attitude of consistent impartiality between the modes to replace our past and present tendency to favor first one and then the other according to the exigencies of the moment. the same time we should drop any idea of neutrality as between carriers and the overall long range public interest. The latter must be identified to the best of our ability and pursued with as much consideration for those affected as possible but, nonetheless, pursued relentlessly. We should not interpret impartiality to mean indifference. Impartiality requires, among other things, that the several modes and the carriers within each mode be able to develop and ex