30. Grand Total Operating Expenses, Rents and Taxes $8,496, 805 $2,974,846 $2,382,749 $4,126,570 63 187.439 234,299 $6,509,319 $5,207,455 DISTRIBUTION Shipments, Tons, Gross Tons, Cars; Net Ton Miles, Gross Ton Miles; Car Miles, Car Days; Running, Intermediate Terminal, Interchange, Transfer. Classification; Switching, House, Team, Industry; Transfer; Interchange; Station, Clerical, It is next necessary to determine out-of-pocket service unit cost in order to ascertain the expenses respectively attributable to line and terminal services. A service unit is one with which a given expense is deemed to vary. Thus, some car maintenance expenses vary with the number of miles the car is operated, others with the number of car days. Locomotive fuel varies with gross ton miles, train crew wages with train miles, etc. Much of the expense such, as for illustration, "Switching Expense" relates to both line and terminal service. The cost of switching a car from one train or from one track to another in a classification yard will be line or terminal expense, depending upon (a) the purpose of the switch movement and (b) its location with respect to the origin or destination of the shipment. Separation such as this cannot be made upon the basis of recorded data but only by special time and motion switching studies. In Line 32 are listed the important subdivisions of line and terminal expense--the cost of running the train, the cost of switching cars or handling freight at intermediate terminals, the cost of transferring or interchanging freight at intermediate terminals. The terminal expense falls into classification, switching of the car to or from the station, track or industry track, the transfer of the car from one yard to another, or the interchange of the car in a switch movement. The expense at the station is clerical, largely billing, collecting and statistics; platform, chiefly loading and unloading of freight, and finally car accounting and special services. The distribution of the expenses into the various categories of line and terminal expense is largely upon the basis of apportionment. After these line and terminal service costs have been separated, they must be translated into two traffic movement categories, i.e., costs which vary with weight of the shipment and those which vary with the distance transported. This is the most complicated apportionment in the entire process, requiring extensive time and motion studies to develop performance factors and the peculiar characteristics of each type of traffic movement in terms of service units per traffic unit. 78456 056-pt. 2 The foregoing sketchy outline of the costing procedure should reveal the utter absurdity of speaking of either "directly ascertainable" or "ascertainably direct" cost of providing railroad transportation. Strictly speaking, few, if any, costs of transportation can be said to fall within either of those concepts. IT IS IMPOSSIBLE TO ESTABLISH A NON-DISCRIMINATORY RATE STRUCTURE Function of Costs It should be premised that the rate structures of the rail and motor common car riers have never been predicated upon costs. The cost of providing transportation service by the railroads has been of significance chiefly in determining the overall level of rates within a given territory and in more recent years, in determining whether or not a particular rate was compensatory, the latter issue arising in cases where destructive competition was claimed by competing carriers. Entirely aside from the question of desirability of such a structure, it is virtually impossible to establish a cost rate structure which meets the equality requirements of Sections 3 and 4 of the Act. "Whose Costs?" In a homogeneous territory such as, for illustration, the so-called "Official" or "Eastern" territory, there are a large number of competing railroads. These railroads have different topographical, operating and traffic conditions and hence their costs of operation vary significantly. However, since they compete at many common points, it is inevitable that the rates which they charge between the common points will be the same, otherwise the business would move exclusively by the carrier with the lowest rates between those points. If rates between every pair of points (i.e. each origin to each destination) were to be made purely on costs, the first question which would arise is, "whose costs?" those of the lowest cost carrier, those of the highest cost carrier, or the average of all of the carriers? If uniform ity is to be achieved, the same problem would arise at every other pair of points. The hodgepodge rate systems which would result would be equally disserviceable to the shippers, carriers, and the public. "What Costs?" However, this would be a relatively un - important consequence compared with the second problem which would arise that is the determination of the cost rates to be applied to the many thousands of different articles that move in commerce. The last time I had occasion to count them (several years ago) there were over 10,000 commodity ratings in the railroad classification applicable to freight traffic. Laying to one side the almost insuperable task which would thus be imposed, we are next met with the inexorable fact that it is impossible to ascertain with any degree of accuracy the cost of handling any article between any two points by railroad, and it is almost equally difficult to ascertain such a cost with respect to the motor carriers. This will readily appear from consideration of how costs of transportation are determined. Out-of-Pocket Cost Basically out-of-pocket costs constitute the aggregate of all variable costs appli cable to a particular traffic. What constitutes "out-of-pocket cost" varies widely depending on the period of time under study. In the short range view, out-of-pocket costs of transportation will vary from almost nothing to as much as 50% or more of the full cost. This is true because over a short period of time it is impossible to adjust expenses completely as traffic increases or decreases. But in the long range view and particularly over a period long enough to take in the entire cycle or life of the transportation service and the facilities required to provide it, the outof-pocket ccst will vary from around 80% to 100% of the full cost. The Commission's Bureau of Accounts, Cost Finding and Valuation, after exhaustive studies of railroad expenses and their variation with traffic, has found that 20 percent of rail road costs are constant or non-variable with traffic, and the remainder are out-ofpocket costs. On the other hand, motor carrier costs are held by many cost experts to be almost 100 percent variable with traffic, a reflection of the relatively small fixed plant required by these carriers. Constant The full cost (both out-of-pocket and constant) of handling all traffic is ascertain able but the full cost of any particular traffic or movement is not ascertainable because there is no known way of accurately distributing the constant or non-variable elements between the traffics or movements. Probably the least arbitrary method of allocation is that of assigning the constant or non-variable cost among traffics in the same proportion as the variable or out-of-pocket cost is assigned. Another method, and one which the Bureau of Accounts, Cost Finding and Valuation sometimes uses with the caveat that it is wholly arbitrary, is to assign the constant or non-variable cost upon the basis of tons in the case of terminal costs, and upon the basis of ton miles in the case of terminal costs, and upon the basis of ton miles in the case of line-haul costs. This method assumes that the constant cost varies with the weight or the weight distance, an assumption which is known to be contrary to the actual fact. The Transportation These constant or fixed costs, which together with the passenger and 1. c. 1. def icits are called the "transportation burden", must be met from some or all of the traffic if the carrier operation is to remain profitable as a whole. In the past this burden has been assigned among the various traffics largely in accordance with the carriers' managerial judgment as to the ability of the traffic to bear the burden. Thus, commodities where the value of service is quite low have borne a relatively smaller share of the burden, whereas the more highly valued traffic and traffic where the value of service is greater, such as manufactured products, have ordi |