Note on distribution of expenses.-The above distribution of expenses is not an accurate reflection of fixed and variable costs. It is based on the account groups used by regulatory agencies and differs from carrier to carrier. A much more accurate distribution from "Passengers and Profits," by Transportation Facts, Inc., appears below. The detailed accounts of each carrier (for 1955) were reclassified on a uniform basis for this purpose.

Note on estimate of profits. Due to lack of comparable data for rate bases and the wide disparity of capital turnover, rates of return on investment could not be used for a meaningful intermodal comparison. The chosen operating ratio, 93 percent after taxes and charges, is illustrative only. It has been used as a test by several regulators and is comparable to the earnings of the better managed air and bus lines in good years.

EXHIBIT VII (PT. 1)

Private auto operating expense per mile and passenger-mile

4 Basis for depreciation: 10-year average life.

Reflects low first cost of contract purchase and average use in excess of 5 to 10 years varying with agency. AAA increases depreciation 1.8 cents per mile for annual operation over 18,000 miles.

Sources: American Automobile Association, annual pamphlet "Your Driving Costs," prepared by Runzheimer & Co., Chicago, Ill., based on 1960 Chevrolet Bel-Air V-8 sedan.

Bureau of Public Roads, staff study presented before highway research board Jan. 9-13, 1961. This is a revision of an article in Public Roads, June 1951. Data is for actual average life (10 years) experience of Big 3 4-door sedan.

General Services Administration, Annual Motor Vehicle Report Fiscal Year 1959. These costs are for Government-owned sedans operated in fleets under a variety of annual mileages.

Wall Street Journal, article of Aug. 23, 1960, comparing operating expenses of compact and full-size autos. Illustrations based on 1960 Ford Falcon and full-size Ford V-8.

EXHIBIT VII (PT. 2)

Private airplane operating expense of selected airplanes used for intercity transportation

1 These prices include "standard" equipment. Due to wide variety of optional equipment many aircraft cost more or less than these prices.

2 These aircraft have a total of 4 seats and are costed here without professional pilots. This assumes that business users will have necessary pilot training.

Includes reserve for engine overhaul and pilot's overnight expenses.

Most recent FAA survey shows annual average hours of use to be less than 300.

Source: Basic data furnished by National Business Aircraft Association.

EXHIBIT VIII

Corporate financial results, common carriers of passengers, 1940-59

CHAPTER 6. LONG AND SHORT HAUL

The sixth in the list of specified items contained in Senate Resolution 244 directs examination of

the problems arising from action by the Interstate Commerce Commission in permitting the charge of more for a short than a long transportation haul over the same line in the same direction.

This subject is properly a part of the whole question of pricing discussed in part VI of this report. Adoption of a cost-related pricing policy would automatically eliminate the fourth section problem. An extended time period, however, must intervene before the effects of the new policy could be felt; therefore, this chapter summarizes an interim position in relation to section 4 of the act and relief from the provisions thereof.

The fourth section of the Interstate Commerce Act prohibits

(a) a common carrier subject to Part I or Part III charging or receiving greater aggregate compensation for transportation of passengers or of like kind of property for a shorter than a longer distance over the same line or route in the same direction, the shorter being included in the longer distance; and

(b) the charge of a greater compensation as a through rate than the aggregate of the intermediate rates subject to the provisions of Part I or Part III— and further specifically states

this shall not be construed as authorizing any common carrier within the terms of Part I or Part III to charge or receive as great compensation for a shorter as for a longer distance." [Emphasis added.]

The portions of section 4 quoted above clearly indicate an understanding on the part of Congress that longer hauls cost more in the aggregate than shorter hauls and show an intent that these added costs be reflected in pricing. Recognition is also extended to the fact that longer hauls cost less proportionally than short hauls_and therefore should never be priced above the sum of prices charged for segments thereof. Most clear is the specific injunction that authority is not granted to charge as much for a short as for a longer haul.

Railroads have consistently sought repeal of the fourth section of the act to enable them to price services at competitive points below the price charged for similar service at intermediate, noncompetitive points, without the necessity of seeking fourth section relief in each case from the regulatory agency.

As between railroads, a circuitous railroad or combination of railroads can thus "meet the competition" and share the traffic of a more direct railroad between traffic centers served by each regardless of the added cost of the longer haul and of any necessary interchange. These in principle constitute an avoidable cost to our national transportation that is not justified under any theory of economics so long as adequate lower cost direct service is available and adequate. Furthermore, the delay incident to unnecessary circuity, particularly if interchange is involved, lessens the attractiveness of rail service in many cases.

Recent changes in section 4 have relieved the ICC of the burden of requests for relief to equalize circuity of competitive carriers of the same mode. This amendment unquestionably reduced administrative workload and costs but it has the effect of perpetuating avoidable economic waste in the transportation system in order to artificially equalize competition between direct and indirect routes.