INVESTIGATION OF RAILROAD FREIGHT RATE STRUCTURE Lead Industries Association, and Link, Arthur A., U.S. Representative from North Dakota Livinston, Henry H., CFA Manufacturing Chemists Association B & B Packing Co. Wholesalers Association Illini Beef Packers, Inc. South Chicago Packing Co. Montoya, Joseph M., U.S. Senator Morrison-Quirk Grain Corporation Nebraska Grain and Feed Dealers Nebraska State Railway Commission New York State Department of New York State Electric & Gas Niagara Mohawk Power Corp. North Dakota Public Service Northwest Nitro-Chemicals Sales, Olin Corporation Oregon Public Utility Commissioner Pacific Northwest Grain and Grain Products Association Partridge, F. L. Peavey Company Portland Freight Traffic PPG Industries, Inc. Producers Grain Corporation Oyster Shell Products Schlitz, Jos., Brewing Company Southern Hardwood Traffic Southern Forest Products Association INTERSTATE COMMERCE COMMISSION REPORTS Southern Hardwood Traffic Association, jointly with Southern Paper Manufacturers Southern Territory Railroads Sunkist Growers, Inc. Tennessee Valley Authority Washington (State Commission) 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 Whitten, Herbert O. Williams, B. W., & Associates Wyoming Public Service Commission 340 I.C.C. 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. 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 I.C.C. |