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INVESTIGATION OF RAILROAD FREIGHT RATE STRUCTURE

Lead Industries Association, and

Zinc Institute, Inc. Link, Arthur A., U.S. Representative

from North Dakota Livinston, Henry H., CFA Mansfield, Mike, U.S. Senator

from Montana, jointly with Melcher, John, U.S. Representa

tive from Montana, jointly with Metcalf, Lee, U.S. Senator from

Montana
Manufacturing Chemists Association
Marx, Burt W.
Meat Packers:
B & B Packing Co.
Central Meat Co.
Chicago Meat Packers &

Wholesalers Association
H. Graver Co.
Illini Beef Packers, Inc.
Illinois Packing Co.
L. Mannheimer, Inc.
E. Mimat & Sons
South Chicago Packing Co.
Michigan, Attorney General for

the State of
Mid-America Governors'

Transportation Council
Minneapolis Grain Exchange
Monsanto Company
Montoya, Joseph M., U.S. Senator

from New Mexico Morrison-Quirk Grain Corporation Morton Salt Company, a division of

Morton International, Inc. Murray, Frank, Secretary of State

for Montana
National Association of Cement

Shippers
National Association of Food Chains
National Association of Secondary

Material Industries, Inc.
National Association of Wheat Growers
National Council of Farmer

Cooperatives
National Crushed Stone Association
National Farmers Union
National Grain & Feed Association
National Industrial Traffic League,
The
340 I.C.C.

Nebraska Grain and Feed Dealers

Association
Nebraska State Railway Commission
New England Paper & Pulp Traffic

Association
New York State Department of

Transportation
New York State Electric & Gas

Corporation
Niagara Mohawk Power Corp.
North Carolina Utilities

Commission
North Dakota Public Service
Commission and North Dakota
State Wheat Commission
Northwest Food Processors

Association
Northwest Nitro-Chemicals Sales,

LTD.
Olin Corporation
Oregon Public Utility Commissioner
Pacific Northwest Grain and Grain

Products Association
Partridge, F. L.
Peavey Company
Portland Freight Traffic

Association
PPG Industries, Inc.
Producers Grain Corporation
Property Owners Committee
Quaker Oats Company, The
Radcliff Materials, Inc.,
jointly with
Oyster Shell Products
Oyster Shell Products Co.
Oyster Shell Company
Pelican State Lime Company
Reynolds Metals Company
St. Louis-East Side Traffic

Conference
Schlitz, Jos., Brewing Company
Seattle Traffic Association
Simpson Timber Company
Society of the Plastics Industry,

The
Southern Hardwood Traffic

Association
Southern Forest Products
Association

INTERSTATE COMMERCE COMMISSION REPORTS

Southern Hardwood Traffic
Association, jointly with
Southern Hardwood Lumber

Manufacturers Association Associated Cooperage Industries

of America, Inc.
Southern-Paper Manufacturers

Traffic Conference
Southern Territory Railroads
Staley, A. E., Manufacturing

Company
Sunkist Growers, Inc.
Tennessee Valley Authority
Texas Citrus and Vegetable

Growers and Shippers
Todd, Arthur W.
Transport Associates, Ltd.
Union Carbide Corporation
Upper Great Plains

Transportation Institute
United Fresh Fruit and
Vegetable Commission

Washington (State Commission)
Western Growers Association
Western Railroads:
Burlington Northern, Inc.
Union Pacific Railroad Company
Atchison, Topeka & Santa Fe

Ry. Co.
Chicago and North Western

Ry. Co.
Missouri Pacific Railroad Co.
Western Railroad Association
Chicago, Rock Island and Pacific

Railroad Company
Southern Pacific Transportation
St. Louis-San Francisco Railway

Co.
Western Wood Products

Association
Westinghouse Electric

Corporation Whitten, Herbert O. Williams, B. W., & Associates Wyoming Public Service Commission

340 I.C.C.

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This study, issued as information, has not been adopted by the Interstate Commerce Commission.

340 I.C.C.

INTERSTATE COMMERCE COMMISSION REPORTS

PREFACE

This publication was prepared in response to the Commission's order of December 11, 1970 instituting its Investigation of Railroad Freight Rate Structure, Ex Parte No. 270. It is the first completely priced-out rail burden study since Statement No. 6-64, Distribution of the Rail Contribution by Commodity Groups-1961.

Comparison of the results of this study with the results of the 1961 study would be improper for two reasons. First, the 1961 study was priced-out at the out-of-pocket and fully distributed cost levels, whereas the 1966 study uses the variable and fully allocated cost levels as prescribed by the Commission in Docket No. 34013, Rules to Govern The Assembling and Presenting of Cost Evidence. Secondly, the commodity groupings are dissimilar due to the Commission's adoption, effective January 1, 1964, of a new commodity classification.

A second rail burden study, covering the year 1969, is expected to be released in the near future. The 1966 and 1969 studies can be compared to measure shift among commodities in their relative contribution to the transportation burden. Completion of the 1969 burden study will be contingent upon receipt from the Department of Transportation of waybill data applicable to the year 1969.

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Revenue Contribution to Burden and

Other Data, by Commodity Classes and Territorial Movements, 1966

895-915

340 I.C.C.

INVESTIGATION OF RAILROAD FREIGHT RATE STRUCTURE

INTRODUCTION

The distribution of the rail revenue contribution by commodity groups for the Year 1966 was constructed using the same methods and procedures employed in the 1961 study and previously. Some modifications have been made in the development of costs. For example, the Commission's decision in Docket No. 34013, Rules to Govern The Assembling and Presenting of Cost Evidence, 337 ICC 298, contains findings with respect to cost levels and the elements to be included therein which differ from those employed in past studies. This study applies unit costs for the year 1966 to the service units incurred in handling the traffic covered by the Commission's one percent waybill sample for that year.' The resultant aggregate costs are then compared with the revenue for each commodity to determine the revenue contribution.

The term “revenue contribution", as used in this study, refers to the amount by which carload revenues resulting from the rate structure in effect during the year 1966 exceed or fail to meet the variable costs. Revenue contribution is a function of costs, rates, and volume, and reflects not only cost factors but also the influence of demand for transportation, a value-of-service factor which is independent of direct cost.

COST LEVELS

Aggregate costs are shown at only the variable cost level. Revenue - Cost relationships however are shown at both the variable and fully allocated cost levels.

Variable costs represent those expenses which, over the long-term period, fluctuate with the volume of traffic handled. The variable costs are computed at 80 percent of the freight operating expenses, rents, and taxes. They also include an allowance for the cost of equity capital invested in transportation property plus interest on borrowed capital invested in transportation property. This allowance for the cost of equity capital plus interest on borrowed capital is applied to 50 percent of the road property and 100 percent of the equipment used in freight service. No provision is made in either level of costs for Federal income taxes.

Constant costs represent the remaining body of operating expenses, rents, taxes (other than Federal income taxes) and allowance for the cost of equity capital and interest on borrowed capital which are not included in the variable costs. Unlike previous studies of the rail revenue contribution, the constant costs do not contain the deficits caused by passenger-train service and less-than-carload service. The total constant costs were assigned to the various commodities on a pro-rata ton and tonmile basis regardless of kind or class.

The fully allocated costs in this study refer to the sum of the variable costs and the statistical ton and ton-mile apportionment of constant costs computed as described above.

UNIT COSTS

The unit costs used in this study were prepared by the Section of Cost Finding of the Bureau of Accounts by the application of the rail cost formula, Rail Form A,' to the annual freight operating expenses, rents and taxes and service units of the Class I railroads for the year 1966. These unit costs have not been published and differ from the unit costs published for the year 1966 in Statement No. 2-68, Rail Carload Cost

See Bureau of Economics' Carload Waybill Statistics, 1966, TD-1, Territorial Distribution, Traffic and Revenue by Commodity Classes.

Rail Form A has been published by the Bureau of Accounts as Statement No. 9-66. 340 1.C.C.

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