OFFICE OF THE GENERAL COUNSEL

During the past 2 fiscal years the Office of the General Counsel has experienced an unprecedented increase in litigation involving Commission orders. This, too, is an area over which we have no control of the volume. Court cases involving Commission orders are frequently of national importance, have serious impact upon the Nation's economy, and must be carried forward without undue delay to meet deadlines fixed by court rules or orders.

Cases concluded during fiscal year 1963 totaled 120, as compared with 65 in 1961 and 83 in 1962. The total number of cases in process in fiscal year 1963 was 244, as compared with 158 and 232 during fiscal years 1961 and 1962, respectively. At the end of fiscal year 1963, there were 124 cases pending as compared with 93 pending at the end of fiscal year 1961 and 149 pending at the end of fiscal year 1962.

A further upsurge in court cases is anticipated as a result of intense intermodal and intramodal rate competition and rail unifications.

Another important function of our Office of the General Counsel is to furnish legal advice and counsel to the Commission and its staff. During the 1963 fiscal year 302 written legal opinions were submitted as compared to 272 submitted in fiscal year 1962, besides much informal counsel. In view of the increasing volume and complexity of the Commission's work, it is anticipated that the need for this essential nonlitigation legal service will materially increase. The 1965 budget provides three additional positions, namely, two attorneys and one clerk to handle the increased workload.

COST FINDING AND ACCOUNTING EXAMINATIONS

In past budget requests we have expressed the need for increased appropriations to augment staff engaged in cost finding activities. Pressure for increased activity in this area steadily becomes more pronounced. The need is now acute. With the intense competition existing in the transportation industry, the carriers persevere in their efforts to obtain changes in rates and the installation of new and novel service features, thus greatly increasing the demand for more current, diversified, and detailed cost data.

A trend toward the introduction of more complex and voluminous cost evidence in adversary rate proceedings is clearly discernible. Two recent cases point out the complexities of costs brought about largely by a growing competitive struggle among the various modes and greater reliance on "cost-based" pricing. For example, the Southern Grain case (I. & S. 7656-Grain in multiplecar shipments-River crossings to the South) involved 139 days of hearings, 15,815 pages of transcript, and 766 exhibits. A great portion of the testimony and exhibits dealt with cost of service, intermodal cost comparisons, and the determination of the "low-cost mode." In this proceeding, more than 3,000 man-hours were devoted to the analysis of the cost evidence introduced by various parties. Another recent case is the so-called Transcontinental Divisions case (Docket No. 31503) which developed 11,242 pages of transcript, and 834 exhibits totaling about 20,000 additional pages. This proceeding presented three separate cost and traffic studies submitted by the parties of record. The differences in these studies had to be fully explained and reasoned findings and conclusions made on the merits of each study.

Analyses of cost evidence in formal and I. & S. cases must be made promptly to assure that such evidence is available for consideration by the Commission. Delays occur in the disposition of cases under consideration to the extent analyses of cost evidence are not ready as needed. The 1965 budget provides two additional cost analyst positions to handle the increased workload.

There is urgent need to increase the frequency of field examinations of carriers' accounting records and practices. We have not been able to meet our schedule of examinations for an audit of the large transportation companies annually and audit of the smaller companies on a 2- to 6-year-interval basis. Unless we extend our field examination of carrier accounts to include a substantially larger number of carriers, the quality of carrier accounting and reporting will deteriorate. The 1965 budget includes three auditor positions to increase the frequency of accounting examinations of carrier records and practices which are performed at the source.

ENFORCEMENT AND COMPLIANCE

Unlawful transportation, including unlawful transportation of motor vehicles by the driveaway method, and motor carriers operating without or beyond the scope of their certificates and permits continues to be a major problem. The source of this problem lies with those shippers who supply the freight to the unlawful operators in return for cutrate transportation charges. This is at the expense of supporting a sound regulated transportation industry adequate to meet the needs of commerce and the national defense. We go after the shipper as well as the unlawful carrier. We have been and continue to be heavily engaged in investigations of unlawful practices.

In June 1963, we participated with State officials in a road check to obtain information on unlawful motor transportation. Federal and State personnel jointly manning check points established in 40 States stopped trucks around the clock for 7 consecutive days. ICC staff working alone manned check points in three additional States.

Based on information developed from this road check, the Commission estimates that unlawful motor transportation may represent between $500 and $600 million annually in lost revenues to regulated carriers. This estimate takes into account Commission experience that warning of road checks spreads rapidly and unlawful operators either "hole up," use alternate roads to bypass check points, or delay moving until conclusion of the checks.

During the past 7 years the number of court cases on safety violations and unlawful carriage has increased by more than 100 percent, without a commensurate increase in personnel. The number of administrative cases involving rate matters, rulemaking, and carrier fitness qualifications continue to increase. There is increasing emphasis on cases falling within the so-called gray area, such as unlawful leasing, so-called buy-and-sell schemes, fictitious shipper associations, etc. Most of these proceedings require a substantial amount of the time of our attorneys because of the mounting complexity of the issues involved. The 1965 budget provides six additional positions; namely, three attorneys and three clerical employees to handle the additional workload anticipated and to reduce backlogs to a reasonably current level. Additionally, the 1965 budget includes funds for three additional clerical positions for field offices where the existing clerical staff cannot maintain the work output on a suitably current basis for operating purposes.

BUREAU OF TRANSPORT ECONOMICS AND STATISTICS

Intensive studies of the Commission's practices, procedures and organization were conducted by the Commission's Practitioners' Special Advisory Committee on Practices and Procedures, and by the management firm of Booz, Allen & Hamilton, under contract with the Bureau of the Budget. These studies recommended a strengthening of our work on transport policy, analysis, and research activities. In accord with these objectives, the Commission has given added emphasis and active attention to matters falling generally within such fields. Immediate and substantial enlargement of our activities is imperative in the field of transportation research into basic problems and developments as they relate to the responsibilities of the Commission. The 1965 budget includes five positions; namely, three economist and two clerical positions to augment our research staff.

OBJECTS OTHER THAN PERSONAL SERVICES AND BENEFITS

The requested increase of $112,150 for objects other than personal services and benefits is to cover increased costs and to improve efficiency of operations. The $112,150 includes a necessary $53,000 increase in printing funds, primarily for the printing of bound volumes of Commission reports and orders, publication of revised Rules of Practice and reprinting of the Interstate Commerce Act. The last reprint was in 1951 and there are a whole host of changes.

Increases in other items are in proportion to increases requested for additional employees and to provide for the added cost of materials and services. These include $8,240 for heavier telephone costs for additional employees, increased costs of communication services, and larger volume of official mail; $48.630 for office equipment and purchase of automobiles for replacement of currently operated field automobiles; and $34.000 for office supplies, miscellaneous expenses, and shipment of household goods.

The above increases of $143,870 are offset in part by a $31,720 saving in travel funds. This results primarily from a new program of providing many of our

field employees with GSA rental vehicles for use on official business in lieu of reimbursement for use of privately owned automobiles.

The amount requested throughout is essential if the Commission is to carry out its congressional mandates. We earnestly seek favorable consideration of our budget request for fiscal year 1965. We need hardly add that it has been subjected to the most severe scrutiny and substantiation before the Executive Office of the President, Bureau of the Budget.

BOXCAR MODEL

Senator MAGNUSON. Yes; tell me about that.

Mr. GoFF. This boxcar is a scale model of what is known as the "Big John" car. It has a cubic capacity ranging from 3,818 to 4,948 feet. The tare weight: 27 tons as compared with the standard car of 24 tons. It takes two standard boxcars to haul about the same capacity of one of these "Big John" cars.

The 4,713-cubic capacity "Big John" can haul 223,000 pounds or about 111 tons as compared with the standard boxcar hauling 50 tons. "Big John" cars have four compartments which permit mixed commodity shipments, and other standard cars don't do this.

Now, the "Big John" cars range in length from 58 feet, 11 inches to 59 feet 4 inches as compared with the standard boxcars of from 40 to 50 feet, and I might say, that the greatly increased capacity, which is about double the old standard car, has resulted, of course, in great economy of operation, a much cheaper operating expense, and has resulted in one of our major cases where these are used, a reduction in the rate to the farmer or the miller or the processor of something over 53 percent in the rate.

In other words, the shipper is getting the benefit of more than a 50percent cut in his rate.

Senator MAGNUSON. Who uses those cars?

Mr. GoFF. Well, the Southern Railway were the original ones.

ROADS USING "BIG JOHN" CARS

Senator MAGNUSON. Is that the Southern Railroad case? Mr. GoFF. Yes; it is the Southern Railroad case I am referring to. But, of course, a number of other companies have them under order. But this idea extends into a lot of other car construction, the increased capacity of cars, not only these, but for various other commodities.

SOUTHERN RAILWAY RATE APPLICATIONS

Senator MAGNUSON. Has the Southern Railway got any applications in for rate increases?

Mr. GOFF. Well, I don't know that they have.

Senator MAGNUSON. Well, now wait a minute, just let's get right down to it. They reduced the rates because of these cars. They have applications in for certain commodities. What I would like to know is do they have any applications in for rate increases in other commodities or other designations.

Mr. GoFF. Well, Mr. Chairman, I think I will call on Director Corbin.

Mr. CORBIN. As far as I know, sir, they do not have any applications in for increased rates as such. Now, if they have some filings on file that haven't come to our Bureau yet, why Director Cox would know

about it. As far as I know, we are handling no cases in which they are seeking increases.

EFFECT OF COMMODITY RATE DECREASES

Senator MAGNUSON. The only reason I ask the question is, it is all right to reduce rates in one instance, and have your application in if you are not increasing them in other commodities some place else, or other routes or other terminals or terminal points.

Would this decrease their gross revenues?

Mr. CORBIN. No, sir; it will not decrease it.

Senator MAGNUSON. They figure they will get enough more business, if they will reduce the rate and increase the volume and, therefore, the gross revenues will be up?

Mr. CORBIN. Yes, sir.

COMPLAINT ON GROSS REVENUES

Senator MAGNUSON. Because there is no use talking about rates on railroads unless you are talking about gross revenues for all systems. Mr. GoFF. It is not gross; it is net revenue.

Senator MAGNUSON. Their complaint is they don't have enough gross revenue, so if they reduce the rate they have to increase the volume or have to increase the rate to make it up.

REDUCTION IN COST OF HAULING CARS

Senator YOUNG. Mr. Chairman, the cost of hauling these cars is about half you stated; is that right?

Mr. GOFF. Yes, the reduction was, we permitted was, 53.5.

Mr. CORBIN. Almost 54 percent.

Senator MAGNUSON. Was it a commodity or general reduction? Mr. CORBIN. It was a commodity.

Mr. GOFF. It was grain.

Senator MAGNUSON. It is really on a commodity and no other increase in rates in any other commodities that you know of.

Mr. CORBIN. That is right, sir.

Senator MAGNUSON. All right.

Did they join in a general rate increase plea to the Commission? Mr. CORBIN. We do not have one; no, sir.

Mr. GoFF. We haven't had any general increase petitions for rates for some time, Senator.

Senator MAGNUSON. Yes.

CHANGES IN REGULATION PROBLEMS

Mr. GOFF. This is an interesting era we are in for regulation, as far as rates are concerned, because of the intense competition between the different modes it is quite different from what it was maybe 20

years ago.

Years ago, most of the new rates that were filed and were objected to were increases, and the objection was filed by shippers.

Now, with the tremendous transportation plant we have, with the trucks, with the barges, with the railroads, the competition between these different modes is so intense that the vast majority of new rates

that are filed are reductions, and instead of the shipper coming in (of course, he doesn't come in to object to a reduction in rate) it is a competitor, or it is a competing mode that comes in and objects, and why do they object?

Why they say, as was in this Southern Railway case "Your rate is so low that you are not getting back your operating expenses. This is destructive competition against another mode. You are putting this rate in to put us out of business and then you will raise the rate again as soon as you put us out of business.”

Well, they were able to demonstrate that, first, that with the great economy in opeartion, the rate was above their operating costs.

Next that, though the margin was small, the increased volume that the chairman has referred to was such that they are actually making money on cutting their rate to that extent.

But, nowadays, it is this tremendous intermodal competition that keeps the rates down, and what applies to the railroads is also applied to the trucks and bargelines.

Through innovations, through new technology, and equipment and so on, they are able to operate much cheaper than they were in the past, and it is a kind of a shipper's market now.

COMPETITION BETWEEN MODES OF TRANSPORTATION

The big fight is on between the different modes of transportation. Senator MAGNUSON. Of course, there is only so much grain to transport.

Mr. GoFF. That is correct.

Senator MAGNUSON. X number of tons.

Mr. GoFF. That is right.

Senator MAGNUSON. And when they increase their volume they take it away from somebody else.

Mr. GoFF. Necessarily.

Senator MAGNUSON. Presumably.

Mr. GOFF. Well, except where you come into the unlawful operator. Now, you know

Senator MAGNUSON. Let's not leave this. Presumably they take it away from somebody else.

Mr. GOFF. From somebody else.

Senator MAGNUSON. And when they do, they do it only because they presumably give better service and cheaper rates.

Mr. GOFF. That is right, sir.

Senator MAGNUSON. So the other fellow has got to meet that with some comparable service or comparable rates or he loses that volume. Mr. GoFF. That is right, and that has been a tremendous incentive for more efficient equipment in all modes of transportation.

CANADIAN COMPETITION IN WHEAT HAULING

Senator YOUNG. Mr. Chairman, not only is it a question of so much to haul. Now, the Canadians, on the wheat moving from the Prairie Provinces for export, haven't had a freight increase since 1898, and their freight rate is only about 25 or 30 percent of ours for export.

So, they are tough competition for us. It permits them to raise more wheat, and for us to raise less wheat for foreign markets. This