are leased at low royalties agreed upon many years ago; and others are leased at high royalties under recent agreements. In 1943, the average royalty on the Mesabi Range (67 mines) was 60 cents per ton on beneficiated ore and 30 cents on direct-shipping ore.

By excluding royalty payments, defendants compute the spread between the sales price and the operating costs in 1943 on the entire Mesabi Range as $1.35 per ton on 47.9 million tons of direct-shipping ore from 45 mines, and as $1.09 per ton on 11.8 million tons of beneficiated ore from 22 mines. The corresponding spread was 95 cents per ton on 2.4 million tons of beneficiated ore shipped by complainant in that year. It was only 8 cents per ton on 607,432 tons which complainant concentrated mainly by separation in heavy-density medium. This medium was a muddy liquid in which rock with a small ore content would float. The sales price of beneficiated ore from the Mesabi Range in that year averaged 24 cents per ton higher than that of the direct-shipping ore. Despite this higher sales price and despite tax concessions made by the State of Minnesota to develop its production, the beneficiated ore yielded smaller profits, on the average, than did the direct-shipping ore.

Nevertheless, complainant has continued to expand its operations. By 1941 it had 25 million tons in its reserves, and those reserves are about the same in amount now as they were then, despite heavy shipments since 1941.

Great Northern service.-The open season of navigation usually extends from the middle of April to December 1 of each year. The 75-year average is 232 days. Both the iron-ore mining companies and the carriers use the closed season extensively for the maintenance and repair of their equipment and facilities.

The Great Northern devotes 7,300 ore cars, a substantial number of locomotives, several assembly and terminal yards, the ore docks, and some 132.5 miles of road almost exclusively to the movement of iron ore. The locomotives used in line-haul service were rebuilt in 1923 and 1940. About 135 miles of this road, principally from Gunn, Minn., to Allouez, is used jointly for ore and other freight.

For the assembling of ore shipments from the Mesabi Range this carrier has a line from Gunn to Virginia, Minn., 56.5 miles, with a ruling grade of 0.6 percent from Hibbing to Kelly Lake, Minn.

Spurs, ranging from 0.4 mile to 4.3 miles, extend from this line to the mines. The total length of these spurs owned and maintained by the Great Northern is 115.9 miles. The average haul from the mines to the assembly yards is 5.3 miles. Changes in tracks occasioned by a shift in mining operations or stockpile loading are made at carrier expense. This road maintains five assembly yards, one of which was not used in 1946. The principal assembly point is Kelly Lake Yard, near Hibbing. This yard employs four switching crews and handles about 59 percent of the carrier's ore shipments from the range. From the assembly yard, transfer trains are operated throughout the range, delivering empty cars to the mines and returning with loaded cars. The average time consumed in loading cars at the mines is about 8 hours, and in the haul from the mines to the assembly yards, about 5 hours. The transfer trains employ 23 crews, receiving road pay during the season. They handled 474 long tons per transfer hour in 1946 and up to 40 or 60 carloads per train in the ore season, depending upon the class or engine used. Beneficiated and direct-shipping ores are assembled in the same manner, and at some mines both grades are loaded into cars through the same hopper. Aside from so-called "rush" cars, the ore is not classified at the assembly yards. An average out-bound train contains iron ore from about 7 mines for delivery to about 14 different boats.

The line-haul ore trains, made up at the assembly yards, average about 180 cars. During the height of the season, 10 or 11 trains are operated daily from the range to Allouez yard. The line-haul movement is over three different routes, depending upon the assembly yard where the train originates. The longest of these routes is used principally for the return of empty cars, making the empty return mileage about 105 percent of the loaded movement. Except for 0.1 percent, the ore cars are returned empty. The weighted-average haul from the mines to the end of the docks, in 1946, was 114.26 miles. The average running time from Kelly Lake Yard to the classification yards, slightly over 100 miles, is about 5.5 hours. The locomotive is almost immediately available for a return trip of empties, which trip requires about 4.5 hours. The Kelly Lake Yard handles about 60 percent of the ore shipped.

At Allouez, the Great Northern maintains a receiving yard, classification yard, empty-car yard, car-repair yard, engine house, track scales, yard office, and facilities for steaming frozen ore in cars. All of these facilities, comprising 56.78

miles of track, are used almost exclusively for the ore traffic. The receiving yard has 19 tracks, each long enough to receive a train of 180 or more cars. Complainant generally uses the letters "A, B, C, D," and sometimes the additional letter "E", to indicate the grade, or chemical content, of the ore in each carload, or group of carloads, covered by one waybill. By so-called block number, such as 8207, complainant also indicates the boat into which the ore shall be dumped. The cars are classified at the Allouez yards according to these block numbers and grades. About 12 trains contribute tonnage to each boatload. The average train of 180 carloads requires approximately 25 cuts, with the use of about 17 tracks for classification, before it can be switched onto the docks. When the shipper fails promptly to indicate the block number and letter designation for a car, such car is known as a "no-grade" car. On the average, a no-grade car receives one extra switching movement for each day it is on hand. In August 1946, 15.3 percent of the average daily tonnage in the yards was in no-grade cars. These cars averaged 575 per day, of which 480 were loaded with beneficiated ore and 95 with direct-shipping ore. Frozen ore in cars or dock pockets must be thawed by steam. In 1946, 2.7 percent of the total ore tonnage, and 5.8 percent of complainant's tonnage, required steaming in cars. There is an adverse grade of 0.8 percent onto the docks, and the distance is about 2 miles. An average of 28 loaded cars are switched at one time. The tracks on the docks and approaches total 10.26 miles.

The Great Northern has four docks, used exclusively for dumping iron ore from cars to vessels. They are about 75 feet high and 2,000 feet long, with facilities for loading 24 ore vessels at one time. On the average, eight boats are loaded per day. Each vessel holds from 90 to 270 carloads or more of ore. Each dock has from 302 to 375 ore pockets, a total of 1,352 pockets. Each pocket holds four to five carloads of ore. The pockets are located on each side of the dock and each pocket is just below two of the dock tracks. They have a sloping bottom permitting the ore to run by gravity. At the lower edge of the pocket is a hinged spout which is lowered when the ore is dumped into the boats. A block of 30 to 60 pockets is designated for each boatload. The cars, pockets, and boat hatches are all of standard size and matched, so that a string of cars can be spotted for dumping in one operation.

The docks operate on a 24-hour day, for 7 days each week. During 1946, some 50 different so-called grades of ore were shipped over the docks. Each vessel carries a grade of designated chemical content, except that occasionally two grades, separated by bulkheads, are carried. The ore in each pocket must meet the requirements for the boatload. The shipper orders a string of "A" cars dumped into the designated block of pockets for the boat, after which the "B, C, D, and E" cars are dumped in the same block of pockets in the order stated. The cars are dumped by a so-called trapping machine, which is a self-propelled unit operated by one man. Dumping in the specified sequence blends the ore in each pocket to a certain degree and the blending is completed by dumping the ore into the vessel through the spout. This blending results in a mixture of the chemical content designated for the boatload. Ore which does not run freely requires the services of laborers, equipped with wooden poles and sledge hammers, to loosen the ore from the sides of the cars and pockets. Beneficiated ore runs more freely than direct-shipping ore. The Great Northern dredges the channel to the docks once every 2 or 3 years, at an expense of about $30,000 for each operation.

After dumping, the empty cars are switched to the classification yards, where they are made into trains and returned to the assembly yards on the range for delivery in transfer trains to the mines. The turn-around time per car averages about 5 days.

Duluth Missabe service.-The Duluth Missabe gathers ore from portions of the Mesabi Range and also from the Vermilion Range, whereas the Great Northern serves only portions of the Mesabi Range. The Duluth Missabe must deliver ore at two widely separated harbors, with separate docks and dockyards for each, whereas the Great Northern delivers ore at one harbor with one set of docks and one dockyard. In 1946, the Duluth Missabe use 11 assembly points on the range, as compared with four used by the Great Northern. At the end of 1947, the Duluth Missabe had 13,817 ore cars, with an average capacity of 49.6 tons, as compared with 7,300 such cars, with an average capacity of 66.9 tons, for the Great Northern. The Duluth Missabe has little traffic other than iron ore, whereas the Great Northern moves grain in trainloads from Gunn to Saunders and coal in the opposite direction.

The average carload of ore on the Duluth Missabe in 1946 was 51.45 tons and on the Great Northern it was 62.85 tons, and the average Great Northern train

from mines to docks was 35.8 percent heavier than the average Duluth Missabe train. However, the average haul from mines to docks was 114.26 miles on the former and 78.82 miles on the latter, and to haul the same tonnage from mines to docks the Great Northern had to expend about 7 percent more train-miles than did the Duluth Missabe. The latter has abrupt grades descending 634 feet in 8 miles, which compel it to break up trains into two or three sections at Proctor, Minn., whereas the Great Northern has a favorable down grade for the loaded haul practically all the way from its assembly yards on the range to Allouez. The Duluth Missabe must switch 7 miles from its Proctor yards to Duluth docks, as compared with only 2 miles from Allouez yards to the Great Northern docks. The Duluth Missabe devotes 471 miles of road almost exclusively to iron ore. It has one assembly yard which is located at the mines, and its average haul in 1946 from mines to assembly yards was 1.8 miles. In 1946, its dock ore volume was 29.6 million tons, as compared with 17.2 million tons on the Great Northern; and in 1947 it was 36 million tons, as compared with 23 million on the Great Northern. The spread between the dock ore tonnage of the respective defendants, or their predecessors, decreased from 15 million tons in 1920 to 12 or 13 million tons in 1946-7. The Duluth Missabe has fewer no-grade cars than the Great Northern, fewer cars held in dockyards 5 days or longer, fewer frozen carloads to be steamed, fewer specifications of grades, and no specification of sequence in dumping instructions. It has more tonnage per dock pocket than the Great Northern and less total tonnage fluctuation from year to year.

Cost studies. In studies made by complainant, costs were developed separately for the Great Northern and the Duluth Missabe, based on the years 1922 to 1946, inclusive. In addition, costs were computed based on the 1946 expenses, adjusted to reflect 1947 conditions. The costs were shown on five different bases, the details of which are outlined in the appendix to this report. A study of costs on its road was also presented by the Great Northern. The more significant bases of these studies will be discussed below.

Great Northern costs.-In 1920, the Mesabi division consisted of 340 miles, and it handled 12,495,732 tons and 1,579 million ton-miles of iron ore, or 85 percent of the ton-miles of all freight on that division. The load of iron ore per car was 43.7 tons, and the trainload was 109 carloads. Total operating expenses for all freight were $9.85 million, or 5.12 mills per ton-mile. See Adriatic Mining Co. v. Chicago & N. W. Ry. Co., 78 I. C. C. 611, 624–9, decided in 1923.

In 1925, this division consisted of 346 miles and handled 1,979 million revenue ton-miles of all freight, 75 percent of which was iron ore. The load per car had increased to 52.5 tons. Total operating expenses, including rents and taxes, were 6.92 million, or only 3,496 mills per ton-mile.

By 1946, for operating and accounting purposes, the Mesabi division had been extended to include 857 miles. The effect of this extension was to include a substantial tonnage of nonore traffic. The extended division handled 2,796 million ton-miles of all freight, 69 percent of which was iron ore. The average trainload of ore had increased to 178 carloads, and the average load per car to 62.85 tons.

Following its own long-established rules of apportionment between the system and divisions thereof, and this Commission's rules of apportionment between passenger and freight, the Great Northern assigned to this extended division total 1946 operating expenses of $14.90 million, or 5.33 mills per ton-mile. Based on total operating expenses so assigned, and using a net ton-mile apportionment without distinction between iron ore and other freight, complainant allocates 57.767 cents per ton iron ore covering 1946 operating expenses.

Tonnages of iron ore in 1946 were as follows: On the Duluth Missabe, system tonnage, 32.7 million tons; dock tonnage, 29.6 million tons; Mesabi Range iron ore on the Great Northern from origin to docks, 14.7 million tons; from interline to docks, 2.56 million tons; from origin to interline, 214 thousand tons; all-rail, 141 thousand tons; iron-formation material, 139 thousand tons; total, 17.7 million tons. On the Great Northern, total dock tonnage was 17.2 million tons, and total originated tonnage, 14.9 million tons.

The term "ton-mile" and "ton-miles" used herein mean net ton-mile and net ton-miles, respectively.

In its reply to exceptions to the examiners' proposed report, complainant in a restatement of the freight operating expenses on the Mesabi division arrives at an average outof pocket cost of handling iron ore on the Great Northern in 1946 of 46.53 cents per ton. This computation is based on several unacceptable assumptions; for example, that the 1946 proportion of the revenue ton-miles to the total ton-miles on the Mesabi division was the same as on the lines of the Great Northern in Minnesota and Wisconsin as a whole, and that the system expense per revenue ton-mile for nonore traffic was the same as for nonore traffic on the Mesabi division. That the assumptions thus made tend to deflate unduly the expense of handling the iron ore traffic is plainly indicated by the fact that, although only 32.5 percent of the revenue net ton-miles of freight operations on the division are assigned to nonore traffic, over 45 percent of such total cost is allocated to the nonore traffic.

The Great Northern failed to submit Mesabi division figures for taxes and rents for 1946, although it previously had submitted such figures for 1925, as above indicated. This road reports "taxes and rents, equipment and joint facility," to the Minnesota State authorities, but not to the Wisconsin authorities. Based in part on the above-mentioned reports, complainant assigns $3,451,936 for taxes and rents to Minnesota and Wisconsin freight traffic. On a ton-mile basis, it apportions 7.434 cents per ton to iron ore. Based on those same reports, complainant shows $2,567,458 as the passenger deficit assigned to Minnesota and Wisconsin freight traffic. On a ton-mile basis, it allocates $979,369 to the iron ore traffic, using 17.71 million tons of Mesabi Range ore to all destinations for this purpose. This resulted in a cost of 5.529 cents per ton.

As indicated, the Great Northern is required to submit reports to the State authorities mentioned. However, it stipulates by a note therein that it does not accept the formula or figures so submitted as being correct. In the main, expenses are localized, as far as possible, and directly assigned to the State in which they are incurred. Expenses common to two or more States are apportioned in accordance with this road's long-established standard rules of apportionment. Freight and passenger expenses were separated according to this Commission's rules. Similar reports were considered in Western Trunk Line Class Rates, 164 I. C. C. 1, 62-4, and the criticisms therein made were found to be sufficient to "cast doubt upon the reliability of operating results subdivided as to States." Based on records of the two State commissioners, complainant assigned $119,712,865 as the 1946 value of Great Northern lines devoted to freight traffic in Minnesota and Wisconsin. It computed return requirements at 4.75 percent, and apportioned the result to iron ore on a ton-mile basis. The cost thus assigned to 17.7 million tons of ore carried by the Great Northern was 12.245 cents per ton. Thus, the fully distributed costs, as estimated by complainant, are 57.767 cents for operating expenses, 7,434 cents for taxes and rents, 5,529 cents for passenger deficit, and 12.245 cents for return requirements, or a total of 82.975 cents. This total is compared with the assailed rate of 92 cents. This rate, however, applied on only 14.65 out of 17.71 million tons of iron ore handled by the Great Northern as a single-line haul. On 3.06 million tons the Great Northern received less than 92 cents per ton.

The value of complainant's computation of the costs for the ore traffic in the determination of a reasonable rate is limited for the following reasons:

(1) The use of a ton-mile apportionment for the ascertainment of the cost for the iron ore traffic, the operating characteristics of which differ from those of the average traffic on the division as a whole, produces inaccurate results, including an overstatement of out-of-pocket costs; that is, those costs which are directly assignable and which vary with the quantity of ore moved.

(2) The distribution of the constant costs on the same basis as the out-ofpocket expenses, as was done bere, results in an understatement, because it apportions a relatively small amount of the constant expenses to the traffic on which the out-of-pocket expenses are lower than on the average traffic. In discussing the distribution of the constant costs in New Automobiles in Interstate Commerce, 259 I. C. C. 475, 503, we said:

It would be more equitable to spread the constant expenses proportionately over the revenue units of traffic handled, that is, on the basis of revenue tons and ton-miles, each ton or ton-mile thus being treated the same as any other ton or ton-mile.

(3) The use of the expense for the Mesabi division and for the lines in Minnesota and Wisconsin for the determination of the fully distributed costs fails to give consideration to the total system revenue needs or transportation burden of the carrier. In a statistical apportionment of the constant costs, consideration should be given to the carrier's total system constant expenses; that is, the constant portion of the total system operating expenses, rents, taxes, passenger and less-than-carload deficits, and return on investment.

(4) As stated, the complaint compares the total cost as estimated of 82.975 cents a ton for handling all iron ore on the Great Northern with the assailed rate of 92 cents. This rate, plus a temporary increase of 3 cents in the linehaul rate and 0.5 cent in the dockage charge for the last half of the year, applied

Some of the methods which were employed in distributing constant costs are (1) those provided in Rail Form B, hereinafter described, (2) the same basis as used for out-of-pocket costs, (3) 20 percent of operating expenses, taxes, and rents for constant costs assigned thereto, and (4) $5 to $7.50 per day per mile of road for the constant portion of transpor tation rail-line expenses.

on only 82.7 percent of the total iron ore tonnage of the Great Northern in that year. On the remainder of the tonnage that road received less than 92 cents, and on 2.57 million tons of interline ore it received an average of only 26.88 cents a ton. The comparison made is thus with unlike things. Since the estimated total cost is for all iron ore, the comparison should be with the average revenue per ton which the Great Northern derived from handling all of the ore on which that estimated cost is based. That average revenue for 1946 was 83.94 cents. Thus, the average revenue exceeded complainant's estimates of cost, without the corrections or considerations above indicated, by only about 1 cent a ton. The corrections and considerations referred to cannot be resolved into specific amounts from the data before us, but from such data it is our judgment that the total costs properly assignable to the iron ore traffic of the Great Northern in 1946 do not exceed those shown in complainant's study.

In 1947, the average revenue per ton from iron ore on the Great Northern was 85.7 cents. Detailed cost data for that year are not of record, but the periodic reports made to us by this road show that costs of labor and materials increased substantially over 1946, and the income-tax credits applicable to former years, which as made in 1946 complainant regarded as applicable to that year, were greatly reduced in 1947.

With minor exceptions, the Great Northern in its study developed the out-ofpocket costs by the use of Rail Form B, designed by the Cost section of our Bureau of Accounts and Cost Finding. This formula was used in the development of costs in New Automobiles in Interstate Commerce, supra, and is described on pages 501-503 of the report therein.

The costs were based on the system operating expenses, rents, taxes, and passenger deficits. No allowance was included for the out-of-pocket portion of the return on the cost of property. The system unit costs for the various service units, such as locomotive-miles, locomotive ton-miles, train-miles, car-miles, and gross ton-miles, were applied to the statistics of the train in which the ore moved. Under this formula the running-service costs for the train handling ore traffic was computed as $1,015.45.

Considering the return movement of empty cars, the equated number of loaded cars per train was 86.77, and the running cost per loaded car was $11.70. This was added to the computed costs per loaded car of $3.34 for origin switching, $2.80 for destination switching, $1.61 for station service, and 83 cents for dock service to produce a total of $20.28 per carload, including nonrevenue freight. The latter figure was increased to $21.31 when adjusted to a revenue carload basis. This total cost, when divided by 62.87 long tons per carload, produces an out-ofpocket cost of 33.9 cents, including 1.39 cents for dockage, and 32.51 cents without dockage.

The Great Northern's witness made a check of the costs by substituting Mesabi division maintenance of way and structures and transportation rail-line expenses for the system figures for such expenses. The results, according to the witness, showed no substantial change in the costs.

Constant costs for the iron-ore traffic as developed by the Great Northern were based on a revenue ton and revenue ton-mile distribution of the system constant costs.10 These latter expenses include the constant portion of the operating expenses, rents, taxes, and passenger deficits, but exclude the constant portion of the return on the cost of property and the less-than-carload deficits. By this statistical apportionment of the constant costs, 57.96 cents per ton was charged to the ore traffic." About 49 percent of system terminal constant costs and 15 per cent of system line haul constant costs were assigned to iron ore.

The fully distributed cost was then computed by adding the out-of-pocket cost and the constant cost developed as described above, producing a total of 91.86 cents per ton. If allowance for return at 4 percent on the carrier's book investment, plus allowance for cash and material and supplies and less depreciation and amortization, be included, namely, 22.44 cents per ton, and fully distributed

10 The study assigns the same constant costs per ton and per ton-mile to iron ore as to traffic of the highest grade. The Great Northern witness, after working in costs for over 30 years, preferred not to endorse any cost formula for rate-making purposes. By using the formula described in Class Rate Investigation, 1939, 262 I. C. C. 447, 571, he computed iron ore costs as $1.50 per ton, as compared with the assailed rate of 92 cents. "The constant costs were 9.14 cents for dockage, about 35.35 cents for operating expenses, rents, and taxes, and about 13.47 cents for passenger deficiencies, the latter amount excluding 0.88 cent constant cost for dockage. Including dockage, the passenger deficiency constant costs were 14.35 cents.