1. After finding that the existing class freight rate structure
discriminates in favor of the northeastern portion of the United
States and against the southern and western portions contrary to §
3(1) of the Interstate Commerce Act, the Interstate Commerce
Commission issued an interim order under § 15(1) increasing class
rates within the northeastern area by 10 percent and reducing those
elsewhere east of the Rocky Mountains by 10 percent, pending the
formulation of a national uniform classification of freight and
effectuation of greater national uniformity in the class freight
rate structure.
Held: the order did not exceed the Commission's
authority. Pp.
331 U. S.
296-300,
331 U. S.
340-349.
(a) Whatever doubt may have existed as to applicability of the
prohibitions of § 3(1) of the Interstate Commerce Act to regional
discriminations in rates was removed by the 1940 amendment. P.
331 U. S.
300.
(b) The addition of the words "region, district, territory" to §
3(1) did not require national uniformity in rates regardless of
differing costs of the service; but made plain the duty of the
Commission, in determining whether discrimination exists, to
consider the interests of regions, districts, and territories, and
to eliminate territorial rate differences which are not justified
by differences in territorial conditions. Pp.
331 U. S. 300,
331 U. S. 305,
331 U. S.
350.
2. The basic finding of the Commission -- that class rates
within Southern, Southwestern, and Western Trunk Line Territories,
and from those Territories to Official (northeastern) Territory,
are generally much higher, article for article, than the rates
within Official Territory -- is abundantly supported by the
evidence. Pp.
331 U. S.
301-305.
Page 331 U. S. 285
3. An unlawful discrimination in class rates against regions or
territories is not dependent on a showing of actual discrimination
against shippers located in such regions or territories or
negatived by the fact that only a minor portion of freight moves by
class rates. Pp.
331 U. S.
306-309.
4. The Commission's finding -- based upon a broad inquiry into
the effect of class rates on the economic development of Southern,
Southwestern, and Western Trunk Line Territories -- that prejudice
to these territories had been established, is supported by
substantial evidence. Pp.
331 U. S.
310-315.
5. The Commission's finding that conditions peculiar to the
respective territories did not justify the difference in the
territorial class rate structure is supported by the evidence. Pp.
331 U. S.
315-332.
(a) The Commission's judgment that the differences in consists
between the territories do not justify the present differences in
interterritorial class rates is an expert judgment entitled to
great weight, and this Court could not disturb its findings on the
facts of this record without invading the province reserved for the
expert administrative body. P.
331 U. S.
326.
(b) The earning power of the carriers, their freight operating
ratios, their rates of return, the estimate of the volume of
traffic in the future, and the nature and amount of traffic
presently involved in the class rate movements are all relevant to
the finding of unlawful discrimination, and this Court cannot say
that these considerations do not counterbalance or outweigh the
higher operating costs in the West, since the appraisal of these
numerous factors is for transportation experts, and the error of
judgment on their part, if any, is not of the egregious type which
is within the reach of this Court on judicial review. P.
331 U. S.
331.
(c) An assumption that a reduction in the western rate
structure, which, as compared with the eastern, is not warranted by
territorial conditions and which prejudices the growth and
development of the West, would have no effect in increasing the
traffic of the western carriers would fly in the face of history,
is contrary to the Commission's expert judgment, and would protect
a discriminatory rate structure from the power of revision granted
the Commission under § 3(1). P.
331 U. S.
332.
6. Notwithstanding the Commission's finding that less than
carload traffic as a whole is carried at a deficit in all
territories, except possibly in the South, this Court will not set
aside the order temporarily reducing the class rates on that
traffic -- especially in
Page 331 U. S. 286
view of the Commission's findings that such traffic constitutes
less than 2 percent of the total railroad freight tonnage, that
much of it moves on exception rates and commodity rates, instead of
class rates, and that, if less than carload rates were left
unchanged while class rates were reduced, the competitive relations
between shippers of less than carload quantities and those shipping
in carloads would be materially affected. Pp.
331 U. S.
332-340.
(a) In eliminating unjust discrimination against entire regions
and establishing the uniformity required by law in a complete rate
structure, the Commission was warranted in making minor collateral
readjustments so as to avoid creating new discriminations. P.
331 U. S.
334.
(b) This Court would not be justified in setting aside the
Commission's order on the ground that the new less than carload
rates are confiscatory -- especially in view of the facts that the
order is of an interim nature, this reduction has since been offset
by a nationwide increase in all freight rates, the Commission
invited the carriers to apply promptly for adjustments to insure
that the rates on such traffic are on a compensatory level, and it
has not been clearly shown that the result of the order will be
confiscatory. Pp.
331 U. S.
334-340.
(c) If additional evidence was necessary to pass on an issue of
confiscation raised in a petition for rehearing before the
Commission but not supported by the introduction of additional
evidence there, the district court should have remanded the cause
to the Commission for a further preliminary expert appraisal of the
facts which bear on that question, instead of receiving the
evidence itself as though it were conducting a trial
de
novo. Pp. 335-336.
(d) The district court amply protected appellants when it
overruled their claim that the interim rates are confiscatory
without prejudice to another suit to challenge the legality of
those rates if, after a fair test, they prove to be below the
lowest reaches of a reasonable minimum or if the permanent rates do
not meet that standard. P.
331 U. S. 340
7. Where the Commission finds that an existing rate results in
unlawful discrimination contrary to § 3(1), it may, under § 15(1),
prescribe a new rate which will be just and reasonable. Pp.
331 U. S.
340-343,
331 U. S.
345.
(a) It is not prevented from doing so by the fact that all rates
involved in the rate relationship are not controlled by the same
carriers. Pp.
331 U. S.
342-343.
Page 331 U. S. 287
(b) It may take one step at a time, and is not required to
eliminate all evils in the rate structure or none. P.
331 U. S.
343.
8. In prescribing a 10 percent increase in class rates in the
Northeast, as part of a general adjustment of the rate structure
for all of the United States east of the Rocky Mountains in order
to eliminate unjust territorial discriminations prohibited by §
3(1), the Commission did not exceed its authority, even though the
existing class rates in the Northeast were within the zone of
reasonableness. Pp.
331 U. S.
343-349.
(a) The Commission having given due consideration, as required
by § 15a(2), to the effect of the rates on the movement of traffic,
the need of adequate and efficient railway transportation service
at the lowest cost consistent with the furnishing of such service,
and the need of revenues sufficient to enable the carriers to
provide such service, the weight to be given those factors, and
especially the weight to be given the rate of return in current
years, as opposed to that in the preceding decade, is for the
Commission to determine, and this Court would usurp the
administrative function of the Commission if it overruled the
Commission's judgment and substituted its own appraisal of these
factors. Pp.
331 U. S.
347-349.
9. The fact that the Commission subsequently granted a
nationwide increase in all freight rates does not render the
interim orders involved in this case obsolete and unenforceable,
since the order granting the rate increase emphasizes the
distinction between revenue and rate relationship cases and in no
way impairs the finding in the present case that the existing class
rate structure that has prevailed in the several territories
violates § 3(1). Pp.
331 U. S.
349-350.
65 F.
Supp. 856 affirmed.
Finding that the existing class freight rate structure
discriminates in favor of the northeastern portion of the United
States and against the southern and western portions, contrary to §
3 (1) of the Interstate Commerce Act, the Interstate Commerce
Commission issued interim orders under § 15(1) increasing class
rates in the Northeast by 10 percent and reducing those elsewhere
east of the Rocky Mountains by 10 percent pending formulation of a
national uniform classification and effectuation of
Page 331 U. S. 288
greater national uniformity in the class freight rate structure.
In suits by or on behalf of northern and New England States and
western railroads to set aside these orders, the District Court
sustained the orders.
65 F.
Supp. 856.
Affirmed, p.
331 U. S.
351.
Page 331 U. S. 289
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
The orders of the Interstate Commerce Commission which
appellants seek to have set aside resulted from two separate
investigations instituted by the Commission on its own motion in
1939 to inquire into the lawfulness or unlawfulness of most of the
then existing ratemaking standards for interstate railroad class
freight rates in the United States. One investigation related to
classification [
Footnote 1]
Page 331 U. S. 290
under which commodities move by rail freight. The other related
to class rates. [
Footnote 2]
The two investigations were consolidated, and were covered by one
report, as the problems of classification and of class rates
[
Footnote 3] are closely
interrelated. The findings of the Commission as to classifications
are not directly involved here, for the orders of the Commission
under attack are interim orders which affect only class rates,
increasing them in some areas and decreasing them in others. But a
review and summary of the Commission's findings both on
classifications and
Page 331 U. S. 291
on class rates are essential for an understanding of the
problem.
While there are three major classification territories, there
are five major rate territories. [
Footnote 4] Official Territory, roughly speaking, lies
east of the Mississippi and north of the Ohio and Potomac Rivers;
it includes most of Virginia. Southern Territory lies south of
Official Territory and east of the Mississippi. Western Trunk Line
Territory is located approximately between Official Territory and
the Rocky Mountains. Southwestern Territory lies south of Western
Trunk Line Territory and west of the Mississippi and includes
Arkansas, Texas, Oklahoma, and part of Louisiana. Mountain-Pacific
Territory includes Montana and New Mexico and all territory west of
the Rockies. Only Mountain-Pacific Territory is not involved in
these cases.
The three major classifications are Official, Southern, and
Western. [
Footnote 5] But there
is great lack of uniformity in the classifications. The problem is
one with which the Commission has long wrestled. [
Footnote 6] But, prior to the present
Page 331 U. S. 292
investigation, its chief accomplishment in this field had been
to establish classification uniformity within the separate
territories. National classification uniformity was still, in the
main, lacking. Many differences between classifications on a
particular rating are matters of substance; others are matters of
nomenclature. Moreover, there has been a tendency among carriers to
work against the evolution of uniform classifications by making
exceptions which remove commodities from the classifications for
ratemaking purposes.
Section 1(4) of the Interstate Commerce Act as amended, 24 Stat.
379, 54 Stat. 899, 900, 49 U.S.C. § 1(4), provides that it shall be
the duty of common carriers to establish just and reasonable
classifications applicable to through freight rates and charges.
Section 1(6) prohibits every unjust and unreasonable
classification. Section 3(1) prohibits discrimination. And § 15(1)
empowers the Commission to prescribe just, fair, and reasonable
classifications after a finding that existing classifications are
unlawful. The Commission found that the existing classifications
are unlawful, and will continue to be unlawful until there is
national uniformity of classification. It found that differences in
the applicable classifications affect the levels of the class rates
as much as or more, in some instances, than the differences in the
levels of the class rate scales themselves. It found that shippers
in one territory pay more than shippers in another territory on the
same article because of classification differences; that
territorial boundaries separating classification territories are
artificial, and cause serious complications; that, where geographic
conditions produce divergent costs, revenue requirements, or other
conditions requiring rate adjustments, the adjustments should be
made not in the basic classification itself, but in the rate levels
or by the creation of legitimate exceptions to the classification;
that, amongst the classifications, there was no real uniformity
Page 331 U. S. 293
of classification ratings, although the same classification
principles are applicable throughout the nation. It concluded that,
without such uniformity, it is impossible to maintain just and
reasonable relationships between class rates for competing
commodities; that it is feasible for the carriers to establish a
uniform classification. The Commission gave the railroads the
opportunity to take the initiative in preparing the new uniform
classification -- an invitation which, we are advised, has been
accepted.
Prior to this proceeding, the Commission made four major class
rate investigations -- one for each of the rate territories except
Mountain-Pacific. [
Footnote 7]
These established class rate structures on a regional basis --
i.e., they established some degree of uniformity in class
rates within each territory or subdivision of a territory. But they
did not deal with interterritorial class rates by harmonizing
regional rate adjustments one with the other. As a result, there
are separate interterritorial rate structures applicable to freight
traffic moving from one territory into another.
These territorial class rate structures are exceedingly
complicated. There is no basic uniformity amongst them, and they
are computed by varying formulae.
The Commission found that class rates within Southern,
Southwestern, and Western Trunk Line territories, and from those
territories to Official Territory, were generally much higher,
article for article, than the rates within Official Territory. It
found that higher class rates have impeded the development and
movement of class rate
Page 331 U. S. 294
freight within Southern, Southwestern, and Western Trunk Line
territories, and from those territories to Official Territory. It
concluded that neither the comparative costs of transportation
service nor variations in the consists [
Footnote 8] and volume of traffic within the territories
justified those differences in the class rates. The Commission also
determined that equalization of class rates is not dependent on
equalization of nonclass rates, and that interterritorial rate
problems can be solved only by establishing substantial uniformity
in class ratings and rates.
Section 1(4) and (5)(a) of the Act require rates and charges to
be just and reasonable. The Commission found that the
intraterritorial class rates applicable to the territories in
question and the interterritorial class rates between the
territories violate those provisions.
Section 3(1) of the Act outlaws undue or unreasonable
preferences or advantages to any region, district, or territory.
The Commission found that the relation between the interterritorial
class rates to Official Territory from the other territories in
question and the intraterritorial class rates within Official
Territory results in an unreasonable preference to Official
Territory as a whole, and to shippers and receivers of freight
located there, in violation of § 3(1). The Commission, acting
pursuant to its authority under § 15(1) of the Act, prescribed
reasonable and nondiscriminatory class rates to cure the preference
found to exist, the new rates to become applicable simultaneously
with the new revised classification which, as we have noted, the
Commission ordered to be established.
But time will be required to formulate a uniform classification.
And the Commission concluded that, pending completion of that
undertaking, certain interim readjustments in the existing basis of
class rates, based on existing
Page 331 U. S. 295
classifications, could be made -- readjustments which would be
just and reasonable, and which would reduce to a minimum the
preferences and prejudices which the Commission found to be
unlawful in the existing system. It determined that the several
intraterritorial freight rate structures should be brought closer
to the same level and be constructed on the same pattern or scheme.
It concluded that as many differences as possible between the
interterritorial rates and the intraterritorial rates should be
eliminated. It accordingly ordered that existing interstate class
rates [
Footnote 9] applicable
to freight traffic moving at the classification ratings within
Southern, Southwestern, and Western Trunk Line territories
interterritorially between those territories, and
interterritorially between each of those territories and Official
Territory, be reduced 10 percent, subject to qualifications not
important here. It also ordered that interstate class rates for
freight traffic moving at classification ratings within Official
Territory be increased 10 percent, subject to qualifications not
relevant to our problem. It found the new interim class rates just
and reasonable. 262 I.C.C. 447, supplemental report, 264 I.C.C.
41.
The new interim rates were ordered to become effective January
1, 1946. Prior to that date, New York and other northern States,
appellants in No. 343, filed their petition in the District Court
to set aside the orders of the Commission. A statutory three-judge
court was convened, and a temporary injunction was issued
preventing the orders from going into effect. 38 Stat. 208, 220, 28
U.S.C. § 47. The Governors of the six New England States (three of
whose successors in office have been substituted as appellants in
No. 344) intervened on the side of the plaintiffs, as did most of
the appellants in
Page 331 U. S. 296
No. 345. The Commission and others [
Footnote 10] intervened on the side of the United
States. Appellants in No. 345, including most of the western
railroads, also filed their petition in the District Court seeking
substantially the same relief as appellants in No. 343. The cases
were consolidated and tried together, the District Court receiving
additional evidence offered by the western railroads. The court
sustained the orders of the Commission in all respects,
65 F.
Supp. 856, but continued the injunction pending appeal to this
Court. [
Footnote 11]
Judicial Code § 210, 28 U.S.C. § 47a.
First. The principal evil at which the Interstate
Commerce Act was aimed was discrimination in its various
manifestations.
Louisville & N. R. Co. v. United
States, 282 U. S. 740,
282 U. S.
749-750. Until 1935, § 3(1) of the Act prohibited
discrimination only against a "person, company, firm, corporation,
or locality, or any particular description of traffic." 24 Stat.
379, 380. The question arose whether "locality" included a port
insofar as the port was not a point of origin or destination, but a
gateway through which shipments were made. The Court held by a
closely divided vote, and contrary to the ruling of the Commission,
that it did not.
Texas & Pacific R. Co. v. United
States, 289 U. S. 627.
Thereafter, Congress amended § 3(1) so as to extend the prohibition
against discrimination to include a "port, port district, gateway,
transit point." 49 Stat. 607.
And see Albany Port
District
Page 331 U. S. 297
Commission v. Ahnapie & W. R. Co., 219 I.C.C. 151.
That was in 1935. In 1940, Congress went further. By § 5(b) of the
Transportation Act of 1940, 54 Stat. 899, 902, known as the
Ramspeck Resolution, it authorized and directed the Commission to
institute an investigation into rates on commodities between points
in one classification territory and points in another territory,
and into like rates within territories, for the purpose of
determining whether those rates were
"unjust and unreasonable or unlawful in any other respect, in
and of themselves or in their relation to each other, and to enter
such orders as may be appropriate for the removal of any
unlawfulness which may be found to exist. . . . [
Footnote 12]"
Congress also extended the prohibition against discriminations
by adding to § 3(1) the words "region, district, territory."
[
Footnote 13]
It is now asserted that the Commission has misunderstood its
duties under these 1940 amendments. It is said that the Commission
has construed this mandate of Congress to mean that identical
rates, mile for mile, should be
Page 331 U. S. 298
established everywhere in the country, in face of a long
standing practice of ratemaking (which the legislative history of
the 1940 amendments shows was not intended to be changed) that
allowed differences in rates which were based on differences in the
length of haul, character of the terrain, density of traffic, and
other elements of the cost of service. Thus, it is argued that the
Commission runs afoul of
Ann Arbor R. Co. v. United
States, 281 U. S. 658,
which involved the construction of a joint resolution of Congress
directing the Commission to make an investigation to determine
whether existing rates and charges were unjust, unreasonable, or
unjustly discriminatory so as to give undue advantage "as between
the various localities and parts of the country. . . ." 43 Stat.
801, 802. The Commission, relying on that mandate, condemned
certain existing rates between California and eastern points. The
Court set aside the order of the Commission, holding that the joint
resolution did not purport to change the existing law, but left the
validity of rates to be determined by that law.
But the Commission in the present cases did not proceed on the
assumption that the Ramspeck Resolution changed the substantive
law. As we read its report, the Commission took the resolution only
as a directive to investigate and correct violations of substantive
law as it deemed that law broadened by the amendment to § 3(1). It
said:
"By the amendment to the substantive antidiscrimination
provisions of section 3(1), all discriminations in the form of
undue or unreasonable preference or advantage, or undue or
unreasonable prejudice or disadvantage, as between regions,
districts, or territories, viewed as separate entities, were
brought directly within the purview of the act, along with all the
other inhibitions previously included. We were then authorized and
directed by the other provisions mentioned
Page 331 U. S. 299
to remove any such discriminations found to exist in a proper
proceeding. This means that such discriminations as those mentioned
which result from differences in the methods of distributing the
general rate burden in the several ratemaking territories, or from
any other cause, if not justified upon proper consideration of
recognized elements of ratemaking applied in the light of the
amended law are unlawful, and should be corrected."
262 I.C.C. p. 692.
From this statement, it is apparent that the Commission
concluded that the 1940 amendment to § 3(1) enlarged the scope of
the section. The Commission, indeed, stated that
"it is clear that the main purpose which Congress had in mind
was to bring about a greater degree of equalization, harmony, and
uniformity in the different regional or territorial rate structures
of the country."
Id., p. 692.
And see id., pp. 688-691. But it
is suggested that discriminations based on geographic factors were
outlawed prior to the 1940 amendment to § 3(1), as evidenced by its
longstanding condemnation of "undue or unreasonable prejudice or
disadvantage" to any "locality" and, since 1935, to any "port, port
district, gateway, transit point." [
Footnote 14] It is, moreover, suggested that even the
prohibition of discriminations against shippers was broad enough
all along to ban discriminations based on the geographic location
of the shippers. The contention is that, without a change in the
law, the present orders were unwarranted; it is pointed out that
the class rates now condemned had been found by the Commission
itself to be just and reasonable in recent years. And it is
asserted
Page 331 U. S. 300
that the Commission did not take its present action on a showing
of changed circumstances since those times. The conclusion,
therefore, is that the present orders are not warranted by §
3(1).
We need not determine whether, prior to the 1940 amendment, §
3(1), by its ban on unlawful discriminations against a "locality,"
would have permitted the Commission to eradicate regional
discriminations in class rates. For whatever doubt may have existed
in the law was removed by the 1940 amendment, which made abundantly
clear that Congress thought that the problem of regional
discriminations had been neglected, and that, if any such
discriminations were found to be present, they should be
eradicated. [
Footnote 15]
But, as the Commission concedes, the addition of "region, district,
territory" to § 3(1) did not change the law respecting
discrimination by authorizing uniform freight rates, mile for mile,
without regard to differing costs of the service. Congress, by
adding those words, made plain the duty of the Commission in
determining whether discriminatory practices exist to consider the
interests of regions, districts, and territories, and to eliminate
territorial rate differences which are not justified by differences
in territorial conditions. In other words Congress did not
introduce a new standard of discrimination by its amendment to §
3(1); it merely made clear its purpose that regions, districts, and
territories should be the beneficiaries of the law against
discrimination.
Page 331 U. S. 301
Second. It is argued, however, that the findings of the
Commission concerning regional discriminations in class rates are
not supported by substantial evidence.
The great differences between territorial class rate levels are
shown by the following table. It gives a comparison (in cents per
100 pounds) between the first-class rate scale within Official
Territory and that within each of the other territories:
bwm:
--------------------------------------------------------------------------------
Western trunk line scale
--------------------------------------------------------------------------------
Southern
scale
East- Zone I Zone II Zone III
Distance ern
--------------------------------------------------------
scale
rate Per- Per- Per- Per-
cent- cent- cent- cent-
Rate age of Rate age of Rate age of Rate age of
East- East- East- East-
ern ern ern ern
--------------------------------------------------------------------------------
50 miles . . . 47 57 --- 53 --- 61 --- 65 ---
100 miles. . . 62 79 --- 73 --- 83 --- 90 ---
150 miles. . . 73 96 --- 86 --- 98 --- 107 ---
200 miles. . . 80 112 --- 97 --- 111 --- 123 ---
300 miles. . . 96 134 --- 117 --- 134 --- 147 ---
400 miles. . . 109 156 --- 136 --- 156 --- 172 ---
500 miles. . . 122 173 --- 156 --- 178 --- 196 ---
600 miles. . . 135 189 --- 176 --- 200 --- 220 ---
700 miles. . . 149 206 --- 196 --- 222 --- 244 ---
800 miles. . . 160 222 --- 210 --- 239 --- 263 ---
900 miles. . . 171 235 --- 226 --- 256 --- 282 ---
1,000 miles. . 182 240 --- 240 --- 273 --- 300 ---
----------------------------------------------------------------
Average. . 137.1 129.6 144.4 159.4
--------------------------------------------------------------------------------
ewm:
These first-class intraterritorial rates are used as bases in
formulating rates on other classes of freight in the respective
territories. [
Footnote
16]
The following tables compiled by Government counsel show the
first-class rates for interterritorial movements to Official
Territory from each of the other territories as compared with
intraterritorial movements for approximately equal distances within
Official Territory:
Page 331 U. S. 302
bwm:
----------------------------------------------------------------------------------
Disadvantage
of Southern
Southern v. Official Territory ship-
per compared
with Official
First Territory
Miles class shipper
------------------------------------------------- rates
---------------
In In per-
From To cents cent
----------------------------------------------------------------------------------
Nashville, Tenn. Indianapolis, Ind. 297 135 --- ---
Indianapolis, Ind. Kent, Ohio 296 96 39 41
Knoxville, Tenn. Columbus, Ohio 395 155 --- ---
Baltimore, Md. Warren, Ohio 392 103 52 50
Birmingham, Ala. Muncie, Ind. 536 179 --- ---
Pittsburgh, Pa. Rockford, Ill. 538 128 51 40
Chattanooga, Tenn. Chicago, Ill. 594 187 --- ---
Philadelphia, Pa. Toledo, Ohio 595 135 52 39
Atlanta, Ga. Chicago, Ill. 731 210 --- ---
Danville, Ill. Washington, D.C. 733 151 59 39
Macon, Ga. Chicago, Ill. 819 223 --- ---
Trenton, N.J. Danville, Ill. 819 163 60 37
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Disadvantage of
Southwestern
Southwestern v. Official Territory ship-
per compared
with Official
First Territory
Miles class shipper
------------------------------------------------- rates
---------------
In In per-
From To cents cent
----------------------------------------------------------------------------------
Little Rock, Ark. Detroit,Mich. 785 222 --- ---
Official Territory Point Detroit, Mich. 785 160 62 39
Oklahoma City, Okla. Cincinnati, Ohio 882 244 --- ---
Official Territory Point Cincinnati, Ohio 882 171 73 43
Sheveport, La. Cleveland, Ohio 1,013 264 --- ---
Official Territory Point Cincinnati, Ohio 1,013 185 79 43
Dallas, Tex. Pittsburgh, Pa. 1,224 304 --- ---
Official Territory Point Pittsburgh, Pa. 1,224 207 97 47
----------------------------------------------------------------------------------
Page 331 U. S. 303
----------------------------------------------------------------------------------
Disadvantage
of Western
Trunk-Line
Western Trunk-Line v. Official Territory
shipper comp-
pared with
First Official Terri-
Miles class tory shipper
------------------------------------------------- rates
---------------
In In per-
From To cents cent
----------------------------------------------------------------------------------
Des Moines,Iowa Toledo, Ohio 558 142 --- ---
Official Territory Point Toledo, Ohio 558 118 24 20
St. Paul, Minn South Bend, Ind. 491 138 --- ---
Official Territory Point South Bend, Ind. 491 111 27 24
Lincoln, Nebr. Evansville, Ind. 612 169 --- ---
Official Territory Point Evansville, Ind. 612 125 44 35
Denver,Colo. Cleveland, Ohio 1,329 289 --- ---
Official Territory Point Cleveland, Ohio 1,329 200 89 45
----------------------------------------------------------------------------------
ewm:
The disadvantage to the Southern or Western shipper who attempts
to market his product in Official Territory is obvious. Thus, the
first of these tables shows that a Nashville shipper pays 39 cents
more on each 100 pounds of freight moving to Indianapolis, Indiana
than one who ships from Indianapolis to a point of substantially
equal distance away (Kent, Ohio) in Official Territory. Similar
disadvantages suffered by Southern and Western Shippers are
revealed in the other comparable interterritorial freight movements
set forth in the tables.
That disadvantage is emphasized if the effects of classification
differences on rates for identical commodities are considered. A
comparison of rates in cents per 100 pounds for 200 miles shows
that, even though shippers in the South and West have the same or
lower classification ratings for identical commodities, they
nevertheless, on the whole, pay higher charges than the shippers in
Official Territory for equivalent service. Thus, there are, in
class 100 (first class), for less than carload lots, 2092 items
Page 331 U. S. 304
common to the three classifications. In Official Classification,
all of these move at a rate of 80 cents per 100 pounds for a haul
of 200 miles. In Southern, 2076 of these items are classified 100,
and move at a rate of $1.12. Of the remaining 17 items, 5 are
classified in Southern in class 85 with a rate of 95, 2 in class 70
with a rate of 78, 7 in class 55 with a rate of 62, 2 in class 45,
with a rate of 50, 1 in class 40 with a rate of 45. In Western
Trunk Line Zone I, 2076 of the 2092 items are classified 100 with a
rate of 97, 4 in 85 with a rate of 82, 10 in 70 with a rate of 68,
2 in 55 with a rate of 53.
In class 100 for carload lots there are 213 common items. In
Official Classification, all of these move at a rate of 80 cents
for a haul of 200 miles. In Southern, 199 of these items are
classified 100 and move at a rate of $1.12 for 200 miles. Of the
remaining 14, 7 are classified in Southern in class 85 with a rate
of 95, 2 in 75 with a rate of 84, 5 in 70 with a rate of 78. In
Western Trunk Line Zone I, 202 of the 213 items are classified 100
with a rate of 97, 7 in 85 with a rate of 82, 3 in 70 with a rate
of 68, 1 in 55 with a rate of 53. Additional illustrations are too
numerous and detailed to include in this opinion. But the ones
given are representative of the rest, and show how disparities in
the rate levels are aggravated when the effects of classification
differences on rates are considered.
There is rather voluminous evidence in the record tendered to
show the effect in concrete competitive situations of these class
rate inequalities. The instances were, in the main, reviewed by the
Commission. They are attacked here on various grounds -- that some
of them involved rates other than class rates; that others were
testified to by shippers who made no complaint of class rates; that
others showed shippers paying higher rates, yet maintaining their
competitive positions and prospering. We do not stop to
Page 331 U. S. 305
analyze them or discuss them beyond saying that some of the
specific instances support what is plainly to be inferred from the
figures we have summarized -- that class rates within Southern,
Southwestern, and Western Territories, and from those territories
to Official Territory, are generally much higher, article for
article, than the rates within Official Territory. That was the
basic finding of the Commission, and it is abundantly supported by
the evidence.
Thus, discrimination in class rates in favor of Official
Territory and against the Southern, Southwestern, and Western Trunk
Line territories is established. But that is not the end of the
matter. For "mere discrimination does not render a rate illegal
under section 3."
United States v. Illinois Central R.
Co., 263 U. S. 515,
263 U. S. 521.
Section 3 condemns "any undue or unreasonable preference or
advantage" and "any undue or unreasonable prejudice or
disadvantage" to any territory. And, as we have said, the 1940
amendment to § 3, by its addition of "region, district, territory,"
did not change the prevailing rules respecting unlawful
discrimination; it merely enlarged the reach of § 3. Hence, we must
determine from the preexisting law whether a discrimination against
a territory is obnoxious to § 3. The rule is stated in
United
States v. Illinois Central R. Co., supra, at
263 U. S. 524,
as follows:
"To bring a difference in rates within the prohibition of
section 3, it must be shown that the discrimination practiced is
unjust when measured by the transportation standard. In other
words, the difference in rates cannot be held illegal unless it is
shown that it is not justified by the cost of the respective
services, by their values, or by other transportation
conditions."
It is on this principle that the findings of the Commission
under § 3 are both defended and attacked.
Page 331 U. S. 306
Third. The Commission's findings under § 3(1) are first
challenged on the ground that there is no finding that the
corresponding class rates are actually charged to or demanded of
competing shippers in the several territories. That is to say, no
unlawful discrimination in favor of a shipper in Official Territory
and against a shipper in Southern Territory can be said to exist
unless it is shown that the southern competitor is actually
required to pay the higher interterritorial class rates. It is
contended that the record negatives the existence of facts which
could support such a finding, and that no such finding was made.
Reliance is placed on two circumstances. In the first place,
reference is made to the effect of classification rations on class
rates which we briefly summarized above. It is noted, for example,
that the southern shipper in some instances actually pays less for
the shipment of the same commodity than the shipper in Official
Territory --
e.g., where the Southern Classification
carries the commodity in a lower class, which in turn exacts a rate
less than that required of the higher classification granted by
Official. It is apparent from the illustrations we have given that
such is true in some cases. But that is not the dominant pattern.
In the vast majority of the instances, the classification ratings,
like the class rate structure, work to the benefit of Official
Territory and against the others. But the greater reliance is
placed on the second circumstance -- that only a minor portion of
freight moves by class rates, and, of that, a greater percentage
moves in Official Territory than in the others. This point requires
a more extended answer.
The Commission, indeed, found that, by reason of nonuse, the
class rates have become obsolete, and no longer serve the purposes
for which they were designed. They move a relatively small amount
of freight. The following table indicates the percentages of
carload traffic carried at class rates within and between
territories in 1942:
Page 331 U. S. 307
-----------------------------------------------------------------
To
From
Official Southern South- Western
western trunk-line
-----------------------------------------------------------------
Official . . . . . . . 5.8 12.6 22.5 12.3
Southern . . . . . . . .9 1.8 6.1 1.5
Southwestern . . . . . 1.5 1.2 2.4 2.0
Western Truck Line . . 3.1 6.1 13.0 .6
-----------------------------------------------------------------
In September, 1940, for example, less than carload ratings on
about 3,000 commodities were removed from the Southern
Classification by classification exceptions. The great bulk of the
freight moves on exception rates and commodity rates. [
Footnote 17] This trend, according
to the Commission, has been the result of competitive forces. The
creation of the exceptions has "shorn the ratings in the
classifications of much of their usefulness and proper function."
262 I.C.C. p. 504. The record is replete with evidence supporting
this finding of the Commission. And appellants seize on it as
supporting their claim that, since class rates have largely become
paper rates, they are not the source of injury to shippers from the
South and the West; that, if the latter are prejudiced by the rate
structure, the injury must flow from the exception rates and
commodity rates not involved in this proceeding, and that, in any
event, the case of unlawful discriminations in favor of Official
Territory and against the other territories has not been founded on
the actual use of disadvantageous class rates by shippers in the
Southern, Southwestern, and Western Trunk Line territories.
But that takes too narrow a view of the problem confronting the
Commission. We start, of course, with some showing of actual
discrimination against shippers by reason of their use of class
rates. But the main case of discrimination made out by the record
is one against
Page 331 U. S. 308
regions and territories. We assume that a case of unlawful
discrimination against shippers by reason of their geographic
location would be an unlawful discrimination against the regions
where the shipments originate. But an unlawful discrimination
against regions or territories is not dependent on such a showing.
As we stated in
Georgia v. Pennsylvania R. Co.,
324 U. S. 439,
324 U. S. 450,
"[d]iscriminatory rates are but one form of trade barriers." Their
effect is not only to impede established industries, but to prevent
the establishment of new ones, to arrest the development of a State
or region, to make it difficult for an agricultural economy to
evolve into an industrial one. Nondiscriminatory class rates remove
that barrier by offering that equality which the law was designed
to afford. They insure prospective shippers not only that the rates
are just and reasonable
per se, but that they are properly
related to those of their competitors. Shippers are then not
dependent on their ability to get exception rates or commodity
rates after their industries are established and their shipments
are ready to move. They have a basis for planning ahead by relying
on a coherent rate structure reflecting competitive factors.
If a showing of discrimination against a territory or region
were dependent on a showing of actual discrimination against
shippers located in these sections, the case could never be made
out where discriminatory rates had proved to be such effective
trade barriers as to prevent the establishment of industries in
those outlying regions. If that were the test, then the 1940
amendment to § 3(1) would not have achieved its purpose. We cannot
attribute such futility to the effort made by Congress to make
regions, districts, and territories, as well as shippers, the
beneficiaries of its antidiscrimination policy expressed in §
3(1).
Page 331 U. S. 309
So far as the remedy is concerned, the present cases might, of
course, be different if the Commission had no power to prescribe
classifications. But § 15(1) of the Act grants it full power, on
finding that a classification is "unjust or unreasonable or
unjustly discriminatory or unduly preferential or prejudicial," to
determine and prescribe what classification will be "just, fair,
and reasonable." The Commission's over-all conclusion was that the
classifications in force, and the class rates computed from them,
harbor inequities which result in unlawful discriminations in favor
of Official Territory and against the other territories. The fact
that relatively small amounts of freight move by class rates proves
not that the regional and territorial discrimination is slight, but
that the rate structure, as constituted, holds no promise of
affording the various regions or territories that parity of
treatment which territorial conditions warrant. The Commission, in
substance, concluded that that result could not be achieved unless
traffic was, in the main, moved on class rates. We will discuss
later the appropriateness of the relief granted by the interim
orders here challenged. It is sufficient here to note that the case
of unlawful discrimination against these territories was chiefly
founded on the absence of nondiscriminatory class rates and uniform
classifications which would remove the features of existing rate
structures prejudicial to Southern, Southwestern, and Western Trunk
Line territories.
We are thus not primarily concerned with the adequacies of the
Commission's findings showing discrimination against actual
shippers located in a territory (
cf. Florida v. United
States, 282 U. S. 194;
North Carolina v. United States, 325 U.
S. 507;
Interstate Commerce Commission v.
Mechling, 330 U. S. 567),
but with prejudice to a territory as a whole.
Page 331 U. S. 310
Fourth. The inquiry of the Commission into the effect
of class rates on the economic development of Southern,
Southwestern, and Western Trunk Line territories took a wide range.
It concluded that prejudice to the territories in question had been
established. We think that finding is supported by substantial
evidence.
It is, of course, obvious that the causal connection between
rate discrimination and territorial injury is not always
susceptible of conclusive proof. The extent of that causal relation
cannot, in any case, be shown with mathematical exactness. It is a
matter of inference from relevant data. The Commission recognized,
for example, that the fact that the South has fewer industries than
the East results from a complex of causes -- that the
"industrial development of the East is due to many factors other
than transportation services and costs -- such as climate, soil,
natural resources, available water power, supplies of natural gas
and coal, and early settlements of population which antedated the
building of the railroads."
262 I.C.C. p. 619. It noted that, in 1939, freight revenues on
commodities in the manufactures and miscellaneous group were but
5.3 percent of the destination value of manufactured goods, and
that differences in freight charges resulting from differences in
class rate levels were only a small fraction of that figure. But it
nevertheless concluded that
"Nearness to markets and ability to ship to markets, on a basis
fairly and reasonably related to the rates of competitors, are
nevertheless potent factors in the location of a manufacturing
plant. In fact, rate relations are more important to the
manufacturer and shipper than the levels of the rates."
262 I.C.C. 619, 620.
The great advance in industrialization of Official Territory
over the other territories need not be labored, for it is obvious.
Some manifestations of that development may be illustrated by the
following tables:
Page 331 U. S. 311
-------------------------------------------------------------------------
Value of Value added
Gainful manufactured by manu-
Territory Land area workers, products, facture,
1940 1930 1939 1939
-------------------------------------------------------------------------
Official . . . . . . . . 13.5 51.1 67.8 71.4
Southern . . . . . . . . 13.3 16.8 10.0 9.4
Western Trunk Line . . . 20.9 13.5 9.9 8.7
Southwestern . . . . . . 14.2 9.3 4.5 3.3
Mountain Pacific . . . . 38.1 9.3 7.8 7.2
-----------------------------------------------
Total . . . . . . . . 100.0 100.0 100.0 100.0
-------------------------------------------------------------------------
Another measure of industrial growth is shown by the number of
gainful workers and the manufacturing industries in the several
territories:
-------------------------------------------------------------------------
Actual increase Actual Increase
Actual increase in value of in value added
Territory in total gainful products in all by manufacture in
workers from manufacturing all manufacturing
1910 to 1930 industries from industries from
1909 to 1939 1909 to 1939
-------------------------------------------------------------------------
Official. . . . . . . 6,230,273 $23,561,190,000
$11,284,350,000
Southern. . . . . . . 652,755 4,299,396,000 1,662,336,000
Western Trunk Line. . 904,986 3,117,079,000 1,662,336,000
Southwestern. . . . . 1,011,151 1,942,378,000 580,388,000
Mountain Pacific. . . 1,863,419 3,320,930,000 1,341,785,000
-------------------------------------------------------------------------
The value added by manufacture in all industries from 1849 to
1939 is shown for all the territories by the chart on the following
page.
From this chart, it is apparent that Official Territory has
maintained its commanding lead in spite of recent market increases
elsewhere, especially in the South. Similarly, for the period 1929
to 1939, the number of wage earners in manufacturing industries in
the entire country decreased 11 percent; in Official Territory, 12
percent; while, in the South, there was an increase of 5 percent.
For the same period, values of manufactured products increased 1
percent in the South, while they decreased 21 percent for the
entire country and 25 percent in Official Territory. From 1930 to
1940, the number of gainfully
Page 331 U. S. 312
image:a
occupied workers in manufacturing in Official Territory
decreased from 70.5 percent to 69.4 percent of the nation's total,
while, in the South, there was an increase from 10 percent to 11.9
percent. A number of manufacturing activities have increased more
rapidly in the South than in Official Territory, though the reverse
has been true in other industries. But, in spite of the growth in
industrial activities in the South and West (which appellants
Page 331 U. S. 313
stress heavily), the percentage comparisons are not particularly
revealing because of the great disparity between the bases on which
they are computed.
The fact remains that economic development in the South and West
has lagged and still lags behind Official Territory. In 1940, the
average annual dollar income per person employed in Official
Territory was $1,988; in Southern, $940; in Southwestern, $1,177;
in Western Trunk Line, $1,411. Official has 69 percent of all
workers engaged in manufacturing in the United States, and 29
percent of all workers in extractive industries. It has, for
example, a high concentration in the manufacture of steel and
copper products, though less than 4 percent of the iron ore
reserves, and no reserves of metallic copper. The South and West
furnish raw materials to Official, and buy finished products back.
They are also dependent to a great extent on the markets for their
products in Official, which has over 48 percent of the population
of the country, 76 percent of the national market for industrial
machinery and raw materials, 64 percent for all goods and sources,
62 percent for consumer luxuries, and 53 percent for consumer
necessities. Yet the South and West suffer rate handicaps when they
seek to reach those markets. [
Footnote 18] One of the many illustrations will suffice.
Cottonseed oil is a basic agricultural commodity. Class rates on it
are
Page 331 U. S. 314
7 percent higher from Southern to Official Territory than they
are within Official Territory. If the cottonseed oil is
manufactured into oleomargarine, the rates from Southern to
Official Territory are 35 percent higher than the rates within
Official Territory.
It is said in reply, however, that the disparities which we have
mentioned reflect only natural advantages which justify differences
in rates. The great concentration of population in the East is said
to show that its more favorable rates are justified by the fact
that it has many more people to support the roads. The unfavorable
income comparisons with the East are thought to establish one of
the handicaps under which the roads in the South and West operate.
It is pointed out that the heavy preponderance of the nation's
total natural resource of energy supply is located in Official
Territory -- 40 to 45 percent of the total bituminous and
semi-bituminous coal supply, practically all of the anthracite
resources; 60 percent of all electric energy originates there. It
is said that Official Territory is the logical location for
industries which use metals from other territories, since it has
the natural supplies of coal. It is also pointed out that the gross
income from crops and livestock in Official Territory is the
highest
Page 331 U. S. 315
in the country, amounting to 31 percent of the total. From these
and comparable data, it is argued that the lower rates in Official
territory reflect only inherent advantages which the other
territories do not enjoy. It is therefore argued that what the
Commission has sought to do is to equalize economic advantages, to
enter the field of economic planning, and to arrange a rate
structure designed to relocate industries, cause a redistribution
of population, and in other ways to offset the natural advantages
which the territory has over another. It is asserted that such a
program is unlawful under
Interstate Commerce Commission v.
Diffenbaugh, 222 U. S. 42,
222 U. S. 46,
where the Court held that the Act, in its condemnation of
discrimination, "does not attempt to equalize fortune,
opportunities, or abilities."
And see United States v. Illinois
Central R. Co., supra, at
263 U. S. 524;
Texas & Pacific R. Co. v. United States, supra, at
289 U. S.
637-638.
We will revert to this matter when we come to consider whether
territorial conditions justify the differences in rates. It is
sufficient at this point to say that the record makes out a strong
case for the inference that natural disadvantages alone are not
responsible for the retarded development of the South and the West,
that the discriminatory rate structure has also played a part. How
much a part cannot be determined, for every effect is the result of
many factors. But the inference of prejudice from the
discriminatory rate structure is irresistible. If this
discriminatory rate structure is not justified by territorial
conditions, then its continued maintenance preserves not the
natural advantages of one region, but man-made trade barriers which
have been imposed upon the country. Such a result cannot be
reconciled with the great purposes of § 3(1) as amended in
1940.
Fifth. The Commission found that conditions peculiar to
the respective territories did not justify the differences in the
territorial class rate structures. In reaching that
Page 331 U. S. 316
conclusion, it first inquired whether the differences in the
costs of furnishing the railroad service in the several rate
territories justified the existing differences in the levels and
patterns of the class rate scales. [
Footnote 19] The basis of its inquiry was a cost study
submitted by its staff. For cost analysis purposes the United
States is divided into areas roughly but not exactly approximating
the classification territories. Thus, there are three districts:
Eastern, Southern, and Western. Southern district is further
divided into Pocahontas region and Southern region. Eastern
district plus Pocahontas region is substantially the equivalent of
Official territory. [
Footnote
20] In the cost study, railroads were assigned to geographical
areas; expenses for individual roads were divided into groups, each
group being associated with appropriate service units which
included revenue car-miles, revenue gross ton-miles, and cars
originated and terminated; unit costs were then obtained by
dividing the aggregate of the territorial expenses in each group by
the applicable territorial units; the costs of particular services
were then built up from the unit costs. Costs were put into two
classes -- (1) out-of-pocket or variable expenses which vary
directly with the kind of traffic handled; (2) constant or fixed
costs not capable of assignment to particular kinds of traffic
costs [
Footnote 21]
which
Page 331 U. S. 317
normally must be borne by the various types of traffic in
proportion to the ability of each to pay. The details of the cost
study are too intricate and voluminous to relate here. They have
been summarized by the Commission. 262 I.C.C. pp. 571-592. It
should be noted, however, that allowances for return -- computed at
both 4 percent and 5 3/4 percent -- were included among costs. The
allowances for return were based on recommended ratemaking values
furnished by the Bureau of Valuation. The territorial cost
comparisons were principally based on he 4 percent return figure,
the Commission noting that the figure was relatively close to the
return earned by the carriers in the year covered by the study --
viz., 1939.
To summarize very briefly, the expenses of the carriers were
first broken down and translated into territorial average unit
costs of performing each of the kinds of services involved in
moving a specific shipment or in furnishing a given amount of
transportation service in each territory. These unit costs were
then multiplied by the number of units of each of the services
found to be employed in moving the specific shipment or furnishing
the given amount of service in the territory. The process was
repeated for a series of different shipments or services sufficient
to make the result representative of territorial conditions. Once
the average costs for each rate territory were computed,
territorial average costs were compared. The principal comparisons
were based on the year 1939, although supplementary studies were
also made for the periods 1930-1939, inclusive, 1937-1941,
inclusive, and 1941. The territorial cost comparisons showed, for
example, the costs of hauling given weight loads in a certain type
of car for given distances in each territory. They also showed the
relative costs of handling the entire traffic consist of each
territory. This was designed to eliminate the effects of any
differences in consists of traffic between territories compared, by
determining first the cost in the territory
Page 331 U. S. 318
in which it actually moved, and then the cost in each of the
other territories. The cost study gave consideration to freight
moving for various distances in all kinds of equipment -- box,
hopper, gondola, tank, stock, flat, and refrigerator cars. Costs
were compared for identical loads hauled in the principal types of
equipment. Standard loads were then taken. The average weight loads
experienced in each territory for various types of equipment were
also taken. The aim was to make adjustment for the different types
of equipment used and the different average loads between
territories. Likewise, comparisons were made of the cost of hauling
the entire consist of the traffic of one territory at the average
loads and unit costs applicable in that territory, with the cost of
hauling the identical traffic at the average loads and unit costs
applicable to the other territories. Comparisons were also made
(for the distances the traffic actually moved, by classes of
equipment, and at actual average loads) of the relative cost of
hauling the consist of traffic of the entire United States, and the
costs of carrying the Eastern, Southern, and Western consists,
respectively, in each of the several territories.
When it came to the Eastern district, computations were made
which both excluded and included the Pocahontas region. That
region, for purposes of the study, represented the operation of
three railroads -- Chesapeake & Ohio, Norfolk & Western,
and the Virginia -- about 84 percent of whose freight traffic is
coal. For purposes of such a comparative study as this, the
exclusion of Pocahontas is considered desirable, since its costs
are low because of the very heavy coal tonnage. [
Footnote 22]
Page 331 U. S. 319
The Commission attached principal weight to the haul of 300
miles per shipment originated, as that distance most closely
approximated the length of haul in each territory in 1939. Relative
territorial [
Footnote 23]
costs (fully distributed) for traffic moving that distance in box
car and gondola cars were as follows:
bwm:
[U.S. average=100]
---------------------------------------------------------------------------------------
Box cars Gondola and hopper cars
----------------------------------------------------
Assumed Actual Assumed Actual
25 ton load average load 50 ton load average load
---------------------------------------------------------------------------------------
Eastern (excl. Pocahontas) . . . . 102 103 100 100
Southern . . . . . . . . . . . . . 96 97 99 102
Western. . . . . . . . . . . . . . 108 108 109 115
---------------------------------------------------------------------------------------
ewm:
The Commission computed that, on the foregoing analysis for 100,
300 and 500 miles, the fully distributed costs for the South are
generally a little lower than for the East, Pocahontas excluded,
while the fully distributed costs in the West exceed those of the
East by from 6 to 15 percent. Similar cost comparisons were made
for the several territories for stock-car, refrigerator car, tank
car, and flat car traffic. Based on the actual average loads
experienced for each class of equipment, the Commission found the
costs for the South lower than those for the East (Pocahontas
excluded) for traffic moving in all those classes of equipment. The
costs for the West are also lower than those for the East as to
stock car, refrigerator car, and flat car traffic, but higher for
tank car traffic.
Page 331 U. S. 320
A territorial comparison of fully distributed costs for carload
traffic moving 300 miles in all classes of equipment shows the
following: [
Footnote 24]
[U.S. average=100]
----------------------------------------------------------------
Identical Actual
loads average
loads
----------------------------------------------------------------
Eastern (excl. Pocahontas) . . . . . . . . . . 102 102
Pocahontas . . . . . . . . . . . . . . . . . . 67 67
Eastern including Pocahontas . . . . . . . . . 95 85
Southern . . . . . . . . . . . . . . . . . . . 98 101
Western. . . . . . . . . . . . . . . . . . . . 108 110
----------------------------------------------------------------
The fully distributed costs on identical loads in the South are
4 percent below those for the East, excluding Pocahontas. The same
comparison shows the costs for the West 6 percent higher than those
in the East, excluding Pocahontas. Costs in the South, based on the
actual average loads are 1 percent below those for the East,
excluding Pocahontas. In the West, they are 8 percent higher than
the latter.
Territorial comparisons based on average net ton-mile carload
costs (1930-1939) adjusted for differences in the length of haul
and the consist of the traffic were made. They showed that the
costs for the South are approximately 1 or 2 percent below those
for the East, excluding Pocahontas. On the other hand, those costs
for the West exceeded those of the East, excluding Pocahontas by
from 5 to 7 percent.
Territorial comparisons of the less than carload costs were also
prepared. They showed that those costs are lower in the South than
in the East, whether assumed identical loads or actual average
loads are taken, and even if
Page 331 U. S. 321
Pocahontas is included in the East. They are higher in the West
than in the East. If Pocahontas is excluded from the East, the
following table shows the comparison for a 300-mile haul:
bwm:
[U.S. Average=100]
----------------------------------------------------------------------------------------
Assumed identical load Actual average load
-----------------------------------------------------
Out of Out of pocket Out of Out of pocket
pocket plus constant[1] pocket plus constant[1]
----------------------------------------------------------------------------------------
Eastern (excl. Pocahontas) . . . 105 101 94 93
Southern . . . . . . . . . . . . 89 87 88 86
Western. . . . . . . . . . . . . 104 109 120 121
----------------------------------------------------------------------------------------
ewm:
1. Out-of-pocket costs common to all traffic are not
included.
In all territories less than carload traffic (1939) was carried
at a deficit, Southern making the best showing, Western the worst.
That is revealed in the following table:
bwm:
------------------------------------------------------------------------------
Revenues Costs[1] Deficit
------------------------------------------------------------------------------
Eastern (excl. Pocahontas). . . . $107,155,756 $133,308,907
$26,153,151
Southern. . . . . . . . . . . . . 46,635,725 47,451,184
815,459
Western . . . . . . . . . . . . . 88,797,938 123,146,215
34,348,277
------------------------------------------------------------------------------
ewm:
1. Out-of-pocket cost plus total solely related expenses plus
collection and delivery.
The Commission found that the difference in fully distributed
costs for all traffic between the East and we West is largely in
the constant or fixed expenses and the passenger and less than
carload deficits. Out-of-pocket expenses in the South and West are
frequently as low as, or even lower than, the out-of-pocket costs
in the East. The Commission further found that the increase in
freight traffic volume received by the carriers subsequent to 1939
served to reduce the unit costs of transportation in the South and
West in a proportionately greater degree than in the East. A
somewhat larger percentage of out-of-pocket expenses in the East is
variable with added traffic than is true of the South and West, due
apparently to the fact that the East, with its higher traffic
density, is closer
Page 331 U. S. 322
to its maximum capacity than is true of the others. Thus, the
influence of added traffic in reducing average costs is greater in
the West. On the other hand, constant costs (proportionately larger
in the South and West) do not increase with added traffic. As
illustrative of those circumstances, the Commission noted the
effect of increases in 1941 of the ton-miles of revenue freight.
They increased in 1941, as compared with 1939, 43 percent in the
East, 27 percent in Pocahontas, 44 percent in Southern and 46
percent in Western Territory. The cost per revenue ton-mile
decreased by only about 5 percent in the East and in Pocahontas, as
compared with decreases in excess of 10 percent in the South and
West.
The Commission summarized the results of the territorial cost
comparisons as follows: there is little significant difference in
the cost of furnishing transportation in the South as compared with
the East, Pocahontas excluded. It is principally the low terminal
costs in the South that account for its relatively low total costs.
Based on the year 1939 and the period 1930-1939, the costs in the
South are equal to or a little lower than those in the East. Based
on the period 1937-1941, the costs in the South are substantially
lower than those in the East. [
Footnote 25] Based on the year 1939 and the period
1930-1939, the cost of rendering transportation service in the West
is between 5 and 10 percent higher than in the East, excluding
Pocahontas. Based on 1941, that difference is reduced to 5 percent
or less. [
Footnote 26]
The Commission recognized, of course, that carriers must obtain
their revenue from the traffic which moves in
Page 331 U. S. 323
their respective territories. Hence, the revenue-producing or
rate-bearing characteristics of the different commodities which
compose the traffic of the several territories --
i.e.,
the consists and volumes of traffic -- are also important in
determining whether territorial conditions justify differences in
territorial rates.
The percentage distribution of total tons carried and revenue by
commodity groups for 1939 is shown in the following table:
bwm:
----------------------------------------------------------------------------------------------------------------
Eastern
Eastern (including Southern Western
district Pocahontas) region district
-------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent Percent Percent
Percent
of ton- of rev- of ton- of rev- of ton- of rev- of ton- of
rev-
nage enue nage enue nage enue nage enue
----------------------------------------------------------------------------------------------------------------
Group I: Products of
agriculture . . . . . . 6.57 8.73 6.07 8.03 10.8 17.73 18.88
23.7
Group II: Animals
and products. . . . . . 1.64 4.72 1.47 4.23 1.45 3.51 3.00
6.3
Group III: Products
of mines. . . . . . . . 58.06 34.85 61.53 40.24 46.39 23.65
36.64 13.98
Group IV: Products
of forests. . . . . . . 2.43 2.74 2.43 2.69 11.4 9.45 10.59
9.31
Group V: Manufactures
and miscellaneous . . . 29.57 41.41 26.89 37.75 27.21 34.66
29.38 39.94
-------------------------------------------------------------------------------------
Total all carload
traffic . . . . . . 98.27 92.45 98.39 92.94 97.25 89.00 98.49
93.23
All less-than carload
traffic . . . . . . . . 1.73 7.55 1.61 7.06 2.75 11.00 1.51
6.77
----------------------------------------------------------------------------------------------------------------
ewm:
The Commission also considered the distribution of carload
traffic based on revenue ton-miles for 1939 which it summarized as
follows:
bwm:
-----------------------------------------------------------------------------
Eastern Pocahontas Southern Western
Item district region region district
-----------------------------------------------------------------------------
Products of agriculture. . . . . . . 10.7 2.7 15.8 26.8
Animals and other products . . . . . 3.8 .5 2.2 4.5
Products of mines. . . . . . . . . . 49.3 87.4 40.8 20.1
Products of forests. . . . . . . . . 3.1 1.6 11.6 13.6
Manufactures and miscellaneous . . . 33.1 7.8 29.6 35.0
----------------------------------------
Grand total, carload. . . . . . . 100.0 100.0 100.0 100.0
-----------------------------------------------------------------------------
ewm:
Page 331 U. S. 324
And the contribution which the major classes of commodities
(carload lots) make in excess of out-of-pocket costs (1939) appears
as follows:
bwm:
---------------------------------------------------------------------------------
Eastern Pocahontas Southern Western United
Item district region region district States
---------------------------------------------------------------------------------
Products of Agriculture . . . . 4.2 3.1 15.8 18.0 10.8
Animals and products. . . . . . 1.5 1.1 3.4 4.3 2.7
Products of mines . . . . . . . 38.0 73.4 21.2 13.9 29.7
Products of forests . . . . . . 2.8 2.8 9.4 8.1 5.7
Manufactures and
miscellaneous . . . . . . . . 53.5 19.6 50.2 55.7 51.1
------------------------------------------------
Grand total, carload. . . . 100.0 100.0 100.0 100.0 100.0
---------------------------------------------------------------------------------
ewm:
A large volume of all traffic moves across territorial
boundaries, and therefore becomes common to two or more
territories. And, as respects the balance, the Commission found
striking similarity in the consists of the traffic so far as its
revenue-producing characteristics are concerned. The manufactures
and miscellaneous commodity group embraces traffic which moves at
relatively high rates --
i.e., rates which, ton-mile for
ton-mile, make a substantially greater than average contribution to
the constant costs. The percentages of the total tons carried in
that group and the corresponding percentages for revenue produced
by them ar e quite close to each other -- particularly the East and
the West.
The Commission stated that the revenue-producing qualities, or
rate-bearing characteristics, of the commodities which compose the
traffic in those several territories constituted "the governing
factor" so far as the problem of the consists and volume of traffic
was concerned. 262 I.C.C. p. 694. It appraised the evidence we have
related as meaning that
"the differences that exist in the consists of traffic in these
respective territories are not so substantial
Page 331 U. S. 325
or of such character as to warrant the present differences in
class rates."
Id., p. 695.
The findings of the Commission both as to the consists of the
freight and the costs of rendering the service in the respective
territories are vigorously challenged, especially by the western
roads.
As to the consists, it is said that the eastern roads have a
much heavier percentage of freight of a kind that produces excess
revenue to carry the general expenses. Findings of the Commission
are relied upon as showing that the eastern roads' preponderance of
high-grade traffic affords a greater source of revenue than does
the high percentage of law rate products carried by the western
roads. [
Footnote 27] These
undisputed facts are said to disprove
Page 331 U. S. 326
the Commission's finding that the consists of traffic in the
respective territories do not warrant the present differences in
class rates.
These facts, however, relate to density of traffic, [
Footnote 28] the effect of which is
merged in the final cost figures. But the relation of the consist
problem to the problem of rate structures is somewhat different. It
is relevant, in order to determine whether the consists of traffic
are so different in the several territories, that separate rate
structures with different distributions of the transportation
burden amongst commodities and classes of freight are necessary. It
is apparent from the statistics which we have reviewed that, while
there is a diversity in traffic moved in the several territories,
the diversity largely disappears when commodity groups are
considered. Then, also, the percentages of the total traffic in
each territory which fall under the several commodity groups are
not only very similar in the East, South, and West, but each group
yields about the same percentage of the total revenues in each of
the territories. The choice of groupings is plainly a specialized
problem in transportation economics upon which the Commission is
peculiarly competent to pass. Its judgment that the differences in
consists between the territories do not justify the present
differences in interterritorial class rates is, indeed, an expert
judgment entitled to great weight. We could not disturb its
findings on the facts of this record without invading the province
reserved for the expert administrative body.
Page 331 U. S. 327
As to the cost study, little need be said concerning the South.
Once the integrity of the cost study is assumed, [
Footnote 29] the finding of the Commission
that there is little significant difference in the cost of
furnishing transportation in the South as compared with the East
has support in the facts. Moreover, the data on rates of return and
freight operating ratios, to which we will shortly refer,
corroborate the conclusion reached from the cost study that the
differences in class rates between the East and the South are not
justified by territorial conditions. The finding that the
discrimination against the South is unlawful under § 3(1) is thus
amply supported -- a conclusion that the southern carriers do not
challenge here.
The question is a closer one when we turn to the West. For, as
we have seen, the costs in the West, on the average, run higher
than those in the East. Based on the year 1939 and the period
1930-1939, the cost of rendering transportation service in the West
is between 5 and 10 percent higher than in the East, excluding
Pocahontas. Based on 1941, that difference is reduced to 5 percent
or less.
Page 331 U. S. 328
As we have seen, the class rate structure is discriminatory as
between the East and the West. The level of class rates in the West
is from 30 to 59 percent higher than that in the East. The problem
of the Commission, therefore, was to determine whether that
disparity is justified by territorial conditions. The Commission
found that it was not so justified. The problem for us is whether
the Commission had a basis for its conclusion.
While the western roads vigorously challenge the Commission's
finding, their argument is, in the main, directed to the point that
some disparity in rates between East and West is justified by
differing territorial costs. No particular effort is made to prove
that those costs are a fair measure of the existing rate
differences.
We start, of course, from the premise that, on a subject of
transportation economics such as this one, the Commission's
judgment is entitled to great weight. The appraisal of cost figures
is itself a task for experts, since these costs involve many
estimates and assumptions, and, unlike a problem in calculus,
cannot be proved right or wrong. They are, indeed, only guides to
judgment. Their weight and significance require expert
appraisal.
The Commission has concluded that, while cost studies are highly
relevant to these rate problems, they are not conclusive. It said
in this case:
"Discretion and flexibility of judgment within reasonable limits
have always attended the use of costs in the making of rates. Costs
alone do not determine the maximum limits of rates. Neither do they
control the contours of rate scales or fix the relations between
rates or between rate scales. Other factors, along with costs, must
be considered and given due weight in these aspects of
ratemaking."
262 I.C.C. p. 693.
In appraising the cost figures relevant here, the Commission
proceeded on the assumption that the 1941 traffic
Page 331 U. S. 329
level is most likely to prevail in the post-war period. It
therefore started with the assumption that the margin of difference
between the costs in the West and those in the East was slight, and
not accurately measured by 1939 figures, and that if, as has been
the fact, [
Footnote 30] the
freight carried in the West increased above that level, the unit
costs of transportation in the West would be reduced to a greater
degree than those in the East, for reasons which we have already
stated.
The Commission also had before it certain data relative to the
financial condition of the various roads -- data which we have not
yet discussed. Thus, comparative analyses of the rates of return of
the roads in the several territories showed that, while the western
roads have had many lean years, the recent period has put them
ahead of the roads in the East. The following table shows the rates
of return in percentages based on the net railway operating income
and the book investment, increased for cash, materials, and
supplies:
---------------------------------------------------------------------------
1936 1937 1938 1939 1940 1941 1942 1943
---------------------------------------------------------------------------
Eastern district. . . . 2.67 2.27 1.26 2.34 2.66 3.62 4.9
4.32
Southern region . . . . 2.52 2.35 1.9 2.5 2.57 4.24 6.51
5.73
Pocahontas region . . . 7.58 6.61 4.54 5.89 6.21 6.67 5.29
5.22
Western district. . . . 1.88 1.71 1.09 1.65 2.06 3.36 5.8
5.22
---------------------------------------------------------------------------
The Commission also considered the territorial freight operating
ratios -- the percent of operating revenues from freight absorbed
by operating expenses attributed to the freight. [
Footnote 31] They are shown in the
following table:
Page 331 U. S. 330
bwm:
---------------------------------------------------------------------------------------------
1936 1937 1938 1939 1940 1941 1942 1943
---------------------------------------------------------------------------------------------
Eastern district . . . 64.95 67.86 68.98 64.88 63.92 63.04 61.93
66.23
Southern region. . . . 65.38 67.77 66.73 64.99 65.34 61.07 56.84
59.41
Pocahontas region. . . 47.04 50.63 53.59 50.71 49.77 48.12 49.62
52.86
Western district . . . 65.07 66.93 67.13 65.01 63.63 60.98 55.79
59.47
---------------------------------------------------------------------------------------------
ewm:
In light of such data the Commission said:
"Making due allowance for a substantial decline in traffic from
the war peak and for the fact that in the decade preceding 1940 the
earnings of the western rail respondents were relatively low,
nevertheless, insofar as the prospects of traffic and revenues in
the immediate future can be foreseen, there is no reason to
conclude that the interim adjustment will have any serious effect
upon those respondents."
264 I.C.C. 63-64.
The Commission went on to note that intrastate class rates
generally in most of the western States and many of the interstate
class rates in western territory were already lower than those
prescribed in the interim orders. It accordingly concluded that the
western roads "cannot consistently maintain these subnormal class
rates and continue to maintain the relatively high basis of
interstate class rates." 264 I.C.C. p. 64.
Moreover, as we have already noted, class rates have, to a great
extent, fallen into disuse. This fact is relevant here in two
respects. In the first place, the orders of the Commission affect
class rates, and class rates alone, the Commission not dealing with
exception and commodity rates by the interim action which it has
taken. So far as present freight movement is concerned, the orders
affect a much smaller fraction of the traffic in the West than in
the East. The Commission said:
"The record does not support the contention that the revenue
needs of the western rail respondents with
Page 331 U. S. 331
respect to their class rate traffic are greater than those of
the eastern rail respondents. From the carriers' reports to us for
the years 1942, 1943, as shown in our original report, and 1944, it
clearly appears that there is a greater need for revenue by rail
carriers in the eastern district, as compared with rail carriers in
the western district or in the southern region. The report shows
also that a much larger percentage of the total traffic in the
eastern district moves on class rates than in the western district
or in the southern region."
264 I.C.C. pp. 64, 65.
In the second place, the existing rate structure single out the
class rate traffic in the West for the payment of unusually high
rates. The class rate traffic is largely that of small shippers,
who do not have the ability to obtain the benefit of the lower
exception or commodity rates.
We cannot, therefore, treat this case as if it were one where
the Commission, in spite of a showing of some increased cost in the
West, reduced all freight rates to a level of equality with the
East. It is a case of determining whether the discrimination
against one small class of traffic is warranted by the showing of
some increased cost in the West. The earning power of the carriers,
their freight operating ratios, their rates of return, the estimate
of the volume of traffic in the future, the nature and amount of
traffic presently involved in the class rate movements are all
relevant to the finding of unlawful discrimination. We cannot say
that these considerations do not counterbalance or outweigh the
disparity in costs between East and West. The appraisal of these
numerous factors is for transportation experts. They may err. But
the error, if any, is not of the egregious type which is within our
reach on judicial review.
As we have noted,
Interstate Commerce Commission v.
Diffenbaugh, supra, at
222 U. S. 46,
held that the Act, in its
Page 331 U. S. 332
condemnation of discrimination, "does not attempt to equalize
fortune, opportunities, or abilities." But the Commission made no
such effort here. It eliminated inequalities in the class rates
because it concluded that the differences in them were not
warranted by territorial conditions. We think that the findings
supporting that conclusion are based on adequate evidence.
It is argued that the comparison of rates of return and freight
operating ratios overlooks the fact that both reflect the higher
freight revenue level that prevails in the West. And it is urged
that, without the rate advantage which the western carriers now
enjoy, any comparison which now appears to favor the western
carriers would disappear. That argument assumes a constancy in
freight traffic, and, on that assumption, could be mathematically
demonstrated. But we are dealing here with a problem of
discrimination -- a western rate structure which, as compared with
the East, is not warranted by territorial conditions, and which
prejudices the growth and development of the West. It would be a
large order to say that the removal of that trade barrier will have
no effect in increasing traffic. The assumption on which the
finding of prejudice is made is, indeed, to the contrary. Moreover,
that argument would protect a discriminatory rate structure from
the power of revision granted the Commission under § 3(1) by the
easy assumption that, without discrimination, the carriers would
not thrive. But that flies in the face of history, and is contrary
to the Commission's expert judgment on these facts.
Sixth. An extended argument is made by the western
roads challenging the class rate reduction on less than carload
lots. The argument is two-fold -- first, that the case of unlawful
discrimination has not been made out for this type of class rate
traffic; second, that the new less than carload class rates are
confiscatory.
Page 331 U. S. 333
We have referred to some of the cost figures on less than
carload lots. We have seen that those cost figures run higher in
the West than in the East; that, even when no constant costs common
to all traffic are allocated to less than carload traffic, the
deficit in the West is substantially higher than that in the East.
The Commission noted that less than carload traffic, as a whole, is
carried at a deficit in all territories, except possibly in the
South. It also noted that, in all territories, it was not bearing
its proper share of the costs of transportation; that, apart from
wartime loading, it was not yielding, on the average, its
out-of-pocket costs plus constant expenses solely related to less
than carload traffic [
Footnote
32] plus the cost of collection and delivery, in any territory
except possibly the Southern. 262 I.C.C. p. 697.
Little need be said concerning the argument that a case of
unlawful discrimination has not been established in the case of
less than carload traffic. The Commission concluded that, if less
than carload class rates were left unchanged while carload class
rates in Southern, Southwestern, and Western Trunk Line territories
were reduced 10 percent, "the competitive relations between
shippers shipping in less than carload quantities and those
shipping in carloads" would be materially affected. 264 I.C.C. p.
66. Less than carload traffic is less than 2 percent of total
railroad freight tonnage, and much of that moves not on class
rates, but on exception rates and commodity rates. In Western Trunk
Line and Southwestern territories, many intrastate and interstate
class rates are now voluntarily maintained on less than carload
traffic which are lower than the corresponding reduced interstate
class rates required by the interim orders. There are other
Page 331 U. S. 334
circumstances, to which we will shortly advert, which reinforce
the action of the Commission in reducing class rates on less than
carload traffic. But the ones we have mentioned are adequate to
support the Commission on the discrimination phase of the problem.
The Commission was dealing not with discrimination against a
particular commodity, but with discrimination against entire
regions. It was a complete rate structure that was subject to
inquiry and revision. Once the Commission concluded that unlawful
discrimination existed in the main features of that rate structure,
it was justified in removing it. In eliminating the discrimination
and establishing the uniformity required by the law, it was
warranted in making minor collateral readjustments so that the
Commission itself would not, in turn, create new discriminations.
The adjustment of the less than carload class rates was permissible
on that ground alone. The traffic affected was only a fraction of 2
percent of the total traffic. Without that readjustment, that class
of traffic would be prejudiced. With that readjustment, the
prejudice would be removed, and the entire rate structure --
intrastate and interstate -- would be more nearly rationalized.
That does not, of course, answer the argument on confiscation.
The latter requires more extended treatment.
The western roads, in their petition for rehearing before the
Commission, raised the confiscation point. But, in doing so, they
rested on the record before the Commission, and tendered no
additional evidence. In the District Court, however, they presented
further evidence which was received over objection and considered
by that court.
This, therefore, is not a case like
Baltimore & Ohio R.
Co. v. United States, 298 U. S. 349,
298 U. S. 363,
298 U. S.
371-372, where the Commission refused to receive
evidence proffered on the point of confiscation. Here, as we have
said, the Commission received all evidence that was offered,
and,
Page 331 U. S. 335
when its order was announced and made known and the petition for
rehearing was filed, the opportunity to tender additional evidence
to bolster the confiscation point was not accepted. As stated in
Manufacturers R. Co. v. United States, 246 U.
S. 457,
246 U. S.
489-490, and in
St. Joseph Stock Yards Co. v. United
States, 298 U. S. 38,
298 U. S. 53-54,
correct practice requires that, where the opportunity exists, all
pertinent evidence bearing on the issues tendered the Commission
should be submitted to it in the first instance, and should not be
received by the District Court as though it were conducting a trial
de novo. The reason is plain enough. These problems of
transportation economics are complicated and involved. For example,
the determination of transportation costs and their allocation
among various types of traffic is not a mere mathematical exercise.
Like other problems in cost accounting, it involves the exercise of
judgment born of intimate knowledge of the particular activity, and
the making of adjustments and qualifications too subtle for the
uninitiated. [
Footnote 33]
Moreover, the impact of a particular order on revenues, and the
ability of the enterprise to thrive under it, are matters for
judgment on the part of those who know the conditions which create
the revenues and the flexibility of managerial controls. For such
reasons, we stated in
Board of Trade v. United States,
314 U. S. 534,
314 U. S.
546:
"The process of ratemaking is essentially empiric. The stuff of
the process is fluid and changing -- the
Page 331 U. S. 336
resultant of factors that must be valued, as well as weighed.
Congress has therefore delegated the enforcement of transportation
policy to a permanent expert body, and has charged it with the duty
of being responsive to the dynamic character of transportation
problems."
Thus, we think that, if the additional evidence was necessary to
pass on the issue of confiscation, the cause should have been
remanded to the Commission for a further preliminary appraisal of
the facts which bear on that question. But we do not take that
course here for reasons which will shortly appear.
The Commission explained its finding that less than carload
traffic was being carried at large deficits and was not bearing its
proper share of transportation costs. That finding was based on the
operation of the roads in 1939, when the average load per car of
less than carload shipments amounted to only 4.3 tons in the West.
Since 1939, there has been a substantial increase in the average
loading of such shipments, which was brought about under wartime
conditions and which has materially decreased the unit costs
attributable to less than carload traffic. In the judgment of the
Commission, it was not shown that loadings in the immediate postwar
period were likely to decline to 1939 levels. Moreover, the cost
data on less than carload traffic related to such traffic as a
whole and not solely to that moving on class rates. As we have
noted, much of this traffic moves not on class rates, but on
exception rates and commodity rates. The class rate traffic bears
the highest rates. The past failure of this traffic, as a whole, to
carry its proper share of the costs may well have been due in large
measure to the maintenance of exception and commodity rates.
The western roads present elaborate analysis (based both on the
Commission's cost figures and on costs as adjusted by the evidence
introduced in the District Court)
Page 331 U. S. 337
which shows less than carload traffic largely carried at
deficits irrespective of the class rate paid under the interim
orders. They contend that the loading figure of 4.3 tons is the
only reliable one to use in projecting the costs and revenues into
the postwar period, since it was, in fact, the average loading
prior to the war, and will be once more, as soon as the order of
the Office of Defense Transportation which requires ten-ton loading
is revoked. And computations are presented based on that figure,
which shows deficits in less than carload traffic -- deficits which
are increased when the Commission's cost figures are adjusted to
reflect cost increases to January 1, 1946. All of those
computations include as constant costs only those which related to
this traffic. And it is pointed out that, if all constant costs
were included, the computed deficits would substantially
increase.
On the other hand, the Commission shows that, on the basis of
the new interim rates, this traffic in the West would produce
revenues in excess of out-of-pocket expenses plus 4 percent return
plus collection and delivery expenses plus loss and damage
payments. That computation is based on a ten-ton loading figure.
And, on the basis of those types of costs, there is an excess of
revenue, even though the costs are increased to the January 1, 1946
level. The 1939 less than carload costs [
Footnote 34] in the West were 30 percent greater than
revenues from all such traffic. If the class rate portion of less
than carload traffic is taken, the costs are 81 percent of the
revenues, provided certain adjustments are made: (1) increased
revenues from the increase in the minimum charge per shipment from
55 to 75 cents which the Commission authorized in this proceeding;
(2) the elimination of less than carload traffic moving on
exception, commodity, and intrastate rates; (3) a 10-ton load, and
(4) a 2.47 percent rate of return, which was the actual rate of
return of 1939.
Page 331 U. S. 338
We do not stop to analyze the various computations in order to
ascertain the exact relation between revenues and costs of less
than carload traffic. That, indeed, would not be feasible on this
record. For even the Commission made no attempt to determine what
share of all costs should fairly be allocated to less than carload
traffic. Hence, if the Commission had spoken its final word, and if
it were believed necessary as a matter of constitutional law,
see Northern Pacific R. Co. v. North Dakota, 236 U.
S. 585;
cf. Federal Power Commission v. Hope Natural
Gas Co., 320 U. S. 591,
320 U. S. 602,
to fix a less than carload class rate which produced a fair return
on that particular traffic, the case would have to be remanded to
the Commission for appropriate findings on this phase. The
difficulty of treating the issue on the present record is
illustrated in another way. Less than carload traffic, more than
carload traffic, carries costs which, to a degree, are dependent on
the carrier. Heavy or light loadings, speed of service, ratio of
empty return cars, methods of loading freight so as to reduce
damage claims, substitution of auxiliary truck service, and the
like turn on competitive conditions. Certainly rates need not
compensate carriers for the most expensive way of handling less
than carload service. Yet the present findings do not illuminate
that problem, nor provide the standard in terms of service for
measuring the compensatory character of the less than carload class
rates. And, on such a problem, the Commission's highest expert
judgment would be called into play.
But the Commission has not finished with this problem. In the
first place, as we point out hereafter, the Commission, subsequent
to the issuance of these interim orders, granted a nationwide
increase in freight rates, including an increase on less than
carload rates. The temporary injunction has prevented the interim
orders reducing class rates in the West by 10 percent from going
into effect.
Page 331 U. S. 339
When, therefore, the interim orders do go into effect, the
actual rates chargeable presumably will be increased from the level
fixed by the interim orders to the level prescribed by the recent
order increasing all freight rates. Thus, no loss has been suffered
by the 10 percent reduction on less than carload class rates, and
any loss which would have been suffered by that rate reduction has
probably been at least lessened, if not eliminated, by the general
rate increase. Though it is argued that such is not the case, the
showing is too speculative on this record for us to decide what the
precise effect of the revised class rates on less than carload
traffic will be. In the second place, as we have noted, the
Commission made the present interim adjustment of class rates on
less than carload traffic as a consequence of its reduction in
carload class rates so that less than carload shippers would not
suffer a disadvantage from the removal of the major discrimination
in the class rate structure. The interim or temporary nature of the
adjustment was recognized by the Commission when it admonished the
carriers
"to give careful consideration to the rates maintained by them
on less than carload traffic with a view to making readjustments in
ratings or rates, as promptly as possible, which will insure that
the rates on such traffic are on a compensatory level."
264 I.C.C. 66-67. And it recognized, but left untouched, the
problem of determining what would be the proper share of
transportation costs to be borne by less than carload traffic.
The justification the Commission had for leaving the problem in
that condition at this stage of the proceedings is apparent. The
carriers are now preparing the new uniform classification. They
have it within their power to follow the lead suggested by the
Commission, and to propose classification differences between
carload and less than carload traffic which will obviate any issue
of confiscation respecting less than carload rates. And it
Page 331 U. S. 340
has likewise left open the question of readjustment of the class
rates on less than carload traffic when the total program, of which
these interim orders are but a part, is put into effect.
Where the result of a rate order is not clearly shown to be
confiscatory, but its precise effect must await operations under
it, the Court has refused to set it aside despite grave doubts as
to its consequences.
See Knoxville v. Knoxville Water Co.,
212 U. S. 1,
212 U. S. 17-18.
And see Willcox v. Consolidated Gas Co., 212 U. S.
19,
212 U. S. 54-55;
Darnell v. Edwards, 244 U. S. 564,
244 U. S. 570;
Brush Electric Co. v. Galveston, 262 U.
S. 443,
262 U. S. 446;
St. Joseph Stock Yards Co. v. United States, supra, at
298 U. S. 69.
The reasons for following a like course are equally impelling here.
The Commission has not placed the western roads in a
straightjacket. It has made an interim reduction on less than
carload class rates as an incident to its removal of
discriminations in carload class rates. It has indicated the course
to be followed by the carriers, as a part of the overall
classification and class rate problem, to make certain that these
rates are compensatory. We are thus dealing with a problem which is
in flux -- an interim order made necessary as a result of a
comprehensive revision of entire rate structures. Moreover, the
conclusion to be drawn from the recent general increase in freight
rates is too uncertain and speculative on this record for us to
pass on the confiscation issue.
See Brush Electric Co. v. City
of Galveston, supra. The District Court amply protected
appellants when it overruled their claim that the interim rates are
confiscatory without prejudice to another suit to challenge the
legality of those rates if, after a fair test, they prove to be
below the lowest reaches of a reasonable minimum, or if the
permanent rates do not meet that standard.
See Darnell v.
Edwards, supra, at
244 U. S.
570.
Seventh. It was held in
Texas & Pacific R. Co.
v. United States, supra, at
289 U. S. 650,
that, where the Commission makes
Page 331 U. S. 341
an order under § 3 to remove an unlawful discrimination, the
carriers must be afforded the opportunity to "abate the
discrimination by raising one rate, lowering the other, or altering
both." But that ruling was qualified by the statement that the
Commission need not follow that course in case it acts under §
15(1).
Id., p. 650,
note 39 Section 1(5)(a) of the Act provides that all
charges for the transportation of property
"shall be just and reasonable, and every unjust and unreasonable
charge for such service or any part thereof is prohibited and
declared to be unlawful."
And see § 1(4). Section 15(1) provides that, when the
Commission finds that "any individual or joint rate, fare, or
charge" of a common carrier is "unjust or unreasonable or unjustly
discriminatory or unduly preferential or prejudicial," the
Commission may determine and prescribe "what will be the just and
reasonable" rate.
And see § 15(3). The words "unjustly
discriminatory or unduly preferential or prejudicial" plainly refer
to practices condemned by § 3(1). A proper finding of unlawful
discrimination under § 3(1) thus enables the Commission not only to
direct the carriers to eliminate the practice, but also, pursuant
to § 15, to prescribe the alternative.
See Youngstown Sheet
& Tube Co. v. United States, 295 U.
S. 476. Thus, the Commission, in this type of situation,
as in the case where intrastate commerce is involved,
Georgia
Public Service Commission v. United States, 283 U.
S. 765, may remove unlawful discriminations and
prescribe new rates.
In
Texas & Pacific R. Co. v. United States, supra,
at
289 U. S. 650,
it was also stated that
"A carrier or group of carriers must be the common source of the
discrimination -- must effectively participate in both rates -- if
an order for correction of the disparity is to run against it or
them."
And it was held in
Central R. Co. v. United States,
257 U. S. 247,
257 U. S. 259,
that mere participation in joint rates does not make connecting
carriers partners in discrimination;
Page 331 U. S. 342
that they can be held responsible for unjust discrimination only
if each carrier has participated in some way in the practice which
causes the discrimination, "as where a lower joint rate is given to
one locality than to another similarly situated." It is argued that
the same rule applies in this case, since, for example, the western
carriers have no control of or participation in the lower Official
intraterritorial rates, although they do participate in the joint
or through interterritorial rates.
In reply, it is said that carriers in Official Territory control
rates within that area, and also control, jointly with the carriers
in each of the other territories, the rates from each of them into
Official. That common stock of discrimination is said to be
sufficient to sustain the Commission's action.
See St. Louis,
Southwestern R. Co. v. United States, 245 U.
S. 136;
Chicago I. & L.R. Co. v. United
States, 270 U. S. 287. But
we do not need to decide the question. For the principle announced
in
Central R. Co. v. United States and
Texas &
Pacific R. Co. v. United States, supra, is applicable only
where the Commission is directing the carriers to remove the
discrimination. Those cases hold that the Commission may not
require carriers to do what they are powerless to perform. But the
Court recognized in
Central R. Co. v. United States,
supra, at
257 U. S. 257,
that, where the Commission acts pursuant to § 1 to require carriers
to establish, in connection with through routes and joint rates,
reasonable rules and regulations, that problem is not involved. For
then, the Commission corrects the unlawful discriminatory practice
in the case of each carrier by prescribing the just and reasonable
rate or practice. The same is true where, as here, the Commission
in order to eliminate territorial discriminations, proceeds under §
15(1) to fix new reasonable rates. If the hands of the Commission
are tied, and it is powerless to protect regions and territories
from discrimination unless all rates involved in the rate
relationship are controlled
Page 331 U. S. 343
by the same carriers, then the 1940 amendment to § 3(1) fell far
short of its goal. We do not believe Congress left the Commission
so impotent.
It may not be said in this case, as it was held in
Texas
& Pacific R. Co. v. United States, supra, at
289 U. S. 633,
that there was no evidence of the unreasonableness of the rates, or
that that question was not in issue. The Commission here found that
the rates were unjust and unreasonable under § 1, and it proceeded
to fix new rates under § 15(1). The facts which establish that the
differences in rates as between the several territories are not
warranted by territorial conditions plainly sustain its findings
under § 1.
As we have said, this proceeding pertains only to class rates,
which move but a small percentage of the traffic. It is therefore
argued that the Commission should not have made adjustments in
those rates without bringing about some equalization of exception
and commodity rates under which the bulk of the traffic is moved.
But there is no reason in law why the Commission need tackle all
evils in the rate structure or none. It may take one step at a
time.
Cf. United States v. Wabash R. Co., 321 U.
S. 403. The 10 percent interim rate order did not
attempt to bring about complete elimination of the discriminatory
features of the class rate structure. It was only an approximation
of that result, the complete step awaiting the new uniform
classification. But the reasons justifying that partial measure
likewise support the action of the Commission in commencing with
class rates when it tackled the problem of territorial
discriminations.
Eighth. A different problem is presented when we turn
to the 10 percent increase in class rates which the Commission
prescribed for Official Territory. Appellants strenuously urge that
this action of the Commission was unauthorized under the Act, even
if the other portions of its orders were justified.
Page 331 U. S. 344
The finding of the Commission on this phase of the case was that
the present class rates in Official Territory were below a just and
reasonable level, and should be increased 10 percent as a part of
the adjustment of the rate structure in order to remove the
unlawfulness both as respects their unreasonable low level and
their unduly preferential character. 262 I.C.C. 700, 701, 704, 705;
264 I.C.C. 62. That finding is said to be without support in the
record, and to lack the preliminary findings necessary to support
it.
It is argued that rates are not unreasonably low in violation of
§ 1 unless they are either noncompensatory or otherwise threaten
harmful effects upon the revenues and transportation efficiency of
the carriers in question, or of their competitors. It is said, as
is the fact, that no such findings were made by the Commission, and
that, on this record, there are no facts which could support such a
finding.
If this were a case of determining whether existing rates passed
below the lowest or above the highest reaches of reasonableness,
the point might be well taken. [
Footnote 35]
See United States v. Chicago, M. St. P.
& P. R. Co., 294 U. S. 499,
294 U. S. 506.
But we do not have here such a revenue problem. This case presents
problems in rate relationships -- that is to say, problems of a
discriminatory rate structure condemned by § 3(1). The Commission
may remove a discrimination effected by rates, even when they are
within the zone of reasonableness, if the discrimination is
forbidden by § 3(1). As Mr. Justice Brandeis stated in
United
States v. Illinois Central R. Co., supra, at
263 U. S. 524,
the
Page 331 U. S. 345
mere fact that one rate is
"inherently reasonable and that the rate from competing points
is not shown to be unreasonably low, does not establish that the
discrimination is just. Both rates may lie within the zone of
reasonableness and yet result in undue prejudice."
The Commission has the power to adjust the rates, upwards and
downwards, within that zone in order to eradicate the
discrimination. That power is not unlimited; there are standards
which control its exercise. But, as we shall see, the Commission
acted within permissible limits here.
Once the Commission has found rates to be "unjust or
unreasonable or unjustly discriminatory or unduly preferential or
prejudicial," it is empowered to prescribe rates which are "just
and reasonable" or "the maximum or minimum, or maximum and minimum,
to be charged. . . ." § 15(1). In
Youngstown Sheet & Tube
Co. v. United States, supra, the Commission, acting under §
15(1), increased rail rates by prescribing what it found to be
reasonable minimum rates. There was no finding that the existing
lower rates were not compensatory. The finding of reasonableness
was premised on the grounds that
"lower rates would create undue discrimination against shippers
in origin districts who cannot use the water-rail route, and would
tend to disrupt the rate structure and to destroy the proper
differentials between various producing districts on shipments to
Ohio destinations."
P.
295 U. S. 479.
The Commission relied not only on evidence bearing upon the
character of the service and cost, but also on a comparison of
other rates in the same or adjacent territory. The Court sustained
the order, saying, "[t]he existing rate structure furnished support
for the finding of reasonableness." P.
295 U. S. 480. In
Scandrett v. United States, 32 F.
Supp. 995, 996,
aff'd, 312 U.S. 661, the Commission
had found that proposed reduced rates were "compensatory,
considering all costs," but that they were below a minimum
Page 331 U. S. 346
reasonable level, and therefore unlawful. It took that action to
prevent destructive competition between rail, water, and motor
carriers. The court sustained the order.
And see Jefferson
Island Salt Min. Co. v. United States, 6 F.2d
315.
These cases, to be sure, recognize the power of the Commission
so to fix minimum rates as to keep in competitive balance the
various types of carriers, and to prevent ruinous rate wars between
them. That plainly is one of the objectives of the Act, and one of
the reasons why the Commission was granted the power to fix minimum
rates by the Transportation Act of 1920.
See H.R.Rep.
No.456, 66th Cong., 1st Sess., p. 19.
Cf. Mississippi Valley
Barge Line Co. v. United States, 292 U.
S. 282. But the elimination of discrimination occupies
an equally high place in the statutory scheme. And, as we have
said, the power granted the Commission under § 15(1) includes the
power to prescribe rates which will substitute lawful for
discriminatory rate structures. If the Commission were powerless to
increase rates to a reasonable minimum in order to eliminate an
unlawful discrimination, unless existing rates were shown to be
noncompensatory or unless ruinous competition would result, it
would in some cases be powerless to prescribe the remedy for
unlawful practices. The present case is a good illustration. A 10
percent reduction of rates in the South and West would remove only
part of the discrimination. On this record, it is most doubtful
that a full reduction of those rates to the level of Official
Territory would be warranted. Yet, if the rates in Official
Territory may not be increased unless the present ones are shown to
be noncompensatory, discrimination against the South and West and
in favor of Official Territory would continue to thrive. For
shippers in Official Territory would still have a preferred rate,
as compared with shippers from the South and West, in reaching the
great markets of the East -- a preference not
Page 331 U. S. 347
shown to be warranted by territorial conditions. The raising of
rates to a reasonable minimum was therefore as relevant here as it
was in
Youngstown v. United States, supra, to the
Commission's task of providing a rational rate structure.
The authority of the Commission to increase rates in order to
remove discrimination, even though existing rates may be
compensatory, is not unlimited. Section 15a(2) of the Act
provides:
"In the exercise of its power to prescribe just and reasonable
rates, the Commission shall give due consideration, among other
factors, to the effect of rates on the movement of traffic by the
carrier or carriers for which the rates are prescribed; to the
need, in the public interest, of adequate and efficient railway
transportation service at the lowest cost consistent with the
furnishing of such service, and to the need of revenues sufficient
to enable the carriers, under honest, economical, and efficient
management, to provide such service."
The balancing and weighing of these interests is a delicate
task.
"Whether a discrimination in rates or services of a carrier is
undue or unreasonable has always been regarded as peculiarly a
question committed to the judgment of the administrative body,
based upon an appreciation of all the facts and circumstances
affecting the traffic."
Swayne & Hoyt, Ltd. v. United States, 300 U.
S. 297,
300 U. S. 304.
And see United States v. Chicago Heights Trucking Co.,
310 U. S. 344,
310 U. S.
352-353;
Barringer & Co. v. United States,
319 U. S. 1,
319 U. S. 6-7. We
may assume, however, that, if the rates of return of the eastern
carriers were substantially above that for the South and the West,
an increase of the rates for the former would not be permissible
even in order to remove a discrimination. But, as we have seen, the
rate of return in recent
Page 331 U. S. 348
years [
Footnote 36] has
favored the southern and western carriers, as have the freight
operating ratios. The Commission took those factors, as well as the
others we have reviewed, into consideration in determining that an
increase in rates in Official Territory was warranted. 264 I.C.C.
61, 62.
Revenue needs, like costs of rendering the transportation
service, are germane to the question whether differences in
territorial rate structures are justified by territorial
conditions. They are amongst the standards written into § 15; they
reflect the totality of conditions under which the carriers in the
respective territories operate. Should the Commission fail to
consider them in determining whether the discrimination inherent in
the rate structures
Page 331 U. S. 349
was unwarranted, it would have not completed its task. There may
be differences of opinion concerning the weight to be given those
factors, especially the weight to be given the rate of return in
the current years, as opposed to that in the preceding decade. But
their significance is for the Commission to determine, and, though
we had doubts, we would usurp the administrative function of the
Commission if we overruled it and substituted our own appraisal of
these factors.
Ninth. After the present interim orders were issued,
the Commission granted a nationwide increase in all freight rates.
[
Footnote 37] It is argued
that this rate increase has rendered the interim orders with which
we are here concerned obsolete and unenforceable. It is said that,
in making the general rate increase, the Commission found greatly
different conditions affecting transportation rates from those it
found in these proceedings; that the greater increases allowed in
Official Territory [
Footnote
38] undo the uniformity policy on which the interim orders are
framed, and that the enforcement of the interim orders in light of
these changed conditions would produce results plainly not
contemplated.
This is not a case where by reason of changed conditions the
record is stale. The changed circumstances do not affect the issues
here.
Cf. Interstate Commerce Commission v. Jersey City,
322 U. S. 503,
322 U. S. 515;
United States v. Pierce Auto Freight Lines, 327 U.
S. 515,
327 U. S. 35. To
repeat,
Page 331 U. S. 350
this is a proceeding to eliminate territorial rate differences
not justified by territorial conditions. The general rate increase
recently granted by the Commission was a revenue proceeding.
Revenue adjustments can be and are superimposed on such rate
structures as exist. The fact that revenue adjustments may produce
lack of uniformity in rates is not inconsistent with the decision
in the present case. As we said earlier, § 3(1) does not dictate a
policy of national uniformity in rates; it only requires that the
lack of uniformity in rates among and between territories be
justified by territorial conditions. The finding of the Commission,
if supported by evidence, that the revenue needs of carriers in one
territory demand a lower or a higher rate in that territory is a
justification for a difference in rates as between that territory
and other territories. The order of the Commission granting the
general rate increase is not before us, and we intimate no opinion
on it. It is sufficient for our present purposes to say that it
emphasizes the distinction between revenue and rate relationship
cases, and in no way impairs the finding in the present case that
the existing class rate structure that has prevailed in the several
territories stands condemned under § 3(1). Nor is there any
inherent inconsistency between the interim orders reducing class
rates and the recent order increasing all rates. The latter was
based on conditions in a period subsequent to the discrimination
proceedings. Whether the general rate increase will require
adjustments in the new permanent uniform scale which awaits the new
uniform classification is a question for the Commission when the
new classification is ready. [
Footnote 39]
Page 331 U. S. 351
Other issues raised by appellants need not be discussed. The
injunction staying the orders of the Commission is vacated, and the
judgment of the District Court dismissing the petitions is
Affirmed.
* Together with No. 344,
Hildreth, Governor of the Maine, et
al. v. United States et al., and No. 345,
Atchison, Topeka
& Santa Fe R. Co. et al. v. United States et al., also on
appeals from the same Court.
[
Footnote 1]
Commodities are grouped into classes, those commodities in each
class paying the same freight rate per 100 pounds. Frequently a
commodity is in several classes, depending upon whether carload or
less than carload lots are involved, and upon the method of
packaging. One class is called first-class or class 100, and each
other class has been fixed as a percentage, or multiple, of
first-class. Thus, the freight
classifications involved in
these cases consist of lists containing descriptions of every
commodity moving by freight and the class or classes to which it is
assigned --
i.e., its
classification rating or
ratings. See 262 I.C.C. pp. 465-472.
[
Footnote 2]
The
class rates are in the form of a schedule which
shows the price per 100 pounds for moving first-class freight every
possible distance it may be moved. The cost of shipment for a given
commodity is determined by ascertaining its classification rating,
the first-class rate per 100 pounds or the haul involved, and the
percentage of the first-class rate to which the classification
rating in question is subject.
See 262 I.C.C. pp.
515-519.
[
Footnote 3]
There are three other kinds of rates:
Exception rates are rates resulting from the transfer
of a commodity our of its regularly assigned class in the
classification and into another class.
Commodity rates are special rates established for
particular commodities. For purposes of these rates, a commodity is
not given a classification rating; the result is that the commodity
rates have no fixed percentage relationships to first-class
rates.
Column rates are fixed as definite percentages of
first-class rates, but, like commodity rates, they apply only to
particular commodities, and are assigned to regular class.
See 262 I.C.C. p. 562.
[
Footnote 4]
Some rate territories have subdivisions in which rate
differentials are applicable which vary the class rates within the
territory in question.
[
Footnote 5]
The Official Classification applies within Official Territory
and from Western Trunk Line Territory to Official. The Southern
Classification applies within Southern Territory, between Official
and Southern, and from Western Trunk Line to Southern. Western
Classification includes Western Trunk Line, Southwestern, and
Mountain Pacific rate territories. It applies within those three
territories, between Southwestern and Official, between
Southwestern and Southern, from Official to Western Trunk Line,
between Mountain Pacific and Official, from Southern to Western
Trunk Line, and between Mountain-Pacific and Southern.
[
Footnote 6]
Western Classification, 25 I.C.C. 442;
Consolidated
Classifications, 54 I.C.C. 1;
Southern Class Rate
Investigation, 100 I.C.C. 513;
Consolidated
Southwestern, 123 I.C.C. 203;
Western Trunk Line Class
Rates, 164 I.C.C. 1;
Eastern Class Rate
Investigation, 164 I.C.C. 314.
[
Footnote 7]
Eastern Class Rate Investigation, 164 I.C.C. 314, 171
I.C.C. 481, 177 I.C.C. 156, 203 I.C.C. 357;
Southern Class Rate
Investigation, 100 I.C.C. 513, 109 I.C.C. 300, 113 I.C.C. 200,
128 I.C.C. 567;
Western Trunk Line Class Rates, 164 I.C.C.
1, 173 I.C.C. 637, 178 I.C.C. 619, 181 I.C.C. 301, 196 I.C.C. 494,
197 I.C.C. 57, 204 I.C.C. 595, 210 I.C.C. 312, 246 I.C.C. 119;
Consolidated Southwestern Cases, 123 I.C.C. 203, 205
I.C.C. 601.
See the discussion in 262 I.C.C. pp. 526
et seq.
[
Footnote 8]
The consist of freight in a given territory is the totality of
commodities carried in that territory.
[
Footnote 9]
No change in intrastate class rates was made. Nor was any change
made in existing exception, column or commodity rates.
See
note 3 supra.
[
Footnote 10]
Alabama, Arkansas, Florida, Georgia, Kansas, Louisiana,
Mississippi, Minnesota, Nebraska, North Carolina, North Dakota,
Oklahoma, South Carolina, South Dakota, Tennessee, Texas, the State
Commissions of a number of these States, the Southern Governors'
Conference, and the Southeastern Association of Railroad and
Utilities Commissioners.
[
Footnote 11]
We denied the motion of the United States to dissolve the
injunction. 328 U.S. 824.
See Fed.R.Civ.P. 62(g).
[
Footnote 12]
The Commission advised Congress that its investigations
instituted in 1939 (the basis of the orders challenged in the
present cases) would be carried out pursuant to this mandate.
See 262 I.C.C. p. 689.
[
Footnote 13]
Section 3(1) now reads:
"It shall be unlawful for any common carrier subject to the
provisions of this part to make, give, or cause any undue or
unreasonable preference or advantage to any particular person,
company, firm, corporation, association, locality, port, port
district, gateway, transit point, region, district, territory, or
any particular description of traffic, in any respect whatsoever;
or to subject any particular person, company, firm, corporation,
association, locality, port, port district, gateway, transit point,
region, district, territory, or any particular description of
traffic to any undue or unreasonable prejudice or disadvantage in
any respect whatsoever:
Provided, however, That this
paragraph shall not be construed to apply to discrimination,
prejudice, or disadvantage to the traffic of any other carrier of
whatever description."
[
Footnote 14]
It is pointed out in this connection that
Texas &
Pacific R. Co. v. United States, supra, while holding that a
port was not a "locality" when it was only a gateway through which
shipments were made, recognized that a port was a "locality" when
it was a point of origin or destination. 289 U.S. at
289 U. S.
638.
[
Footnote 15]
Senator Wheeler, who had charge of the bill on the floor of the
Senate, stated concerning the amendment to § 3(1):
"The previous provision with regard to 'discrimination' simply
referred to discrimination as to 'locality, port, port district,
gateway, transit point,' without specifying the region, district,
or territory. So we felt that, by broadening the language, we would
at least take away that excuse, and we would provide expressly that
the Commission should not discriminate in its rate structures."
84 Cong.Rec. p. 5889.
[
Footnote 16]
See note 2
supra.
[
Footnote 17]
See note 3
supra.
[
Footnote 18]
The Commission stated, 262 I.C.C. pp. 695, 696:
"Although manufacturing has grown in the South and Southwest and
to a lesser extent in western trunk-line territory in the last
decade, it is still vastly less in diversification and amount than
in official territory. The increases in manufacturing in these
territories has created a demand for rates which will at once
permit the free movement of the manufactured articles, but, because
of the level of the intraterritorial and interterritorial class
rates, such free movement has been impeded insofar as such
commodities move at class rates. In most instances, it has been
necessary either to reduce the class rate levels or to establish
exception or commodity rates in order that the manufactured
products may move freely, and this action has frequently been
subject to long delays because of the failure of individual
carriers or groups of carriers to agree upon a basis."
"Official territory is the greatest consuming territory in the
country, and is the market that nearly all manufacturers desire to
reach, particularly where they have a surplus of their products to
sell. In shipping to official territory, manufacturers in the other
territories not only have the disadvantage of location, but are
subjected to an additional burden in those instances where they
must pay class rates on a much higher level than their competitors
in official territory. This situation reacts to the disadvantage of
manufacturers in the other territories, and to the advantage of
those in official territory, tends to restrict the growth and
expansion of the manufacturers in the other territories, and, to
some extent, to prevent the establishment of new manufacturing
plants in those territories."
[
Footnote 19]
In
Northern Pacific R. Co. v. North Dakota,
236 U. S. 585,
236 U. S. 597,
the Court stated,
"The outlays that exclusively pertain to a given class of
traffic must be assigned to that class, and the other expenses must
be fairly apportioned. It may be difficult to make such an
apportionment, but, when conclusions are based on cost, the entire
cost must be taken into account."
[
Footnote 20]
For description of exact boundaries,
see 262 I.C.C.
605. For some cost purposes, the United States is also divided into
11 cost territories, various combinations of which are equivalent
to the rate territories. For definitions of these cost territories
and a collection of a substantial portion of the Commission's cost
data,
see S.Doc. No. 63, 78th Cong., 1st Sess.
[
Footnote 21]
The sum of the out-of-pocket costs plus a
pro rata
distribution of the constant or fixed costs is referred to as fully
distributed cost.
[
Footnote 22]
262 I.C.C. p. 578. Similar conditions call for the exclusion of
Kentucky in considering figures for the Southern region.
And
see General Commodity Rate Increases, 223 I.C.C. 657.
[
Footnote 23]
Not including Pocahontas in Eastern Territory figures. Relative
costs were not shown separately for Western Trunk Line,
Southwestern, and Mountain Pacific territories, the Commission
noting that differences between costs for the total West and for
each of those three rate territories were relatively small. 262
I.C.C. p. 578.
[
Footnote 24]
Weighting given to the costs for each class of equipment was
based on the volume of traffic handled in each type of equipment in
the United States. Terminal costs for each class of equipment were
weighted for the total United States traffic handled in each class
of equipment as measured by tons originated plus tons terminated.
Line-haul costs by classes of equipment were weighted for the
ton-miles of traffic handled in each class of equipment.
[
Footnote 25]
If Pocahontas is included in the East, the costs for the South,
based on the year 1939, are between 3 and 6 percent above those for
the East; for the years 1930-1939, between 6 and 8 percent higher;
for the years 1937-1941, about the same.
[
Footnote 26]
If Pocahontas is included in the East for 1930-1939, the cost in
the West is 18 percent higher; based on 1939, approximately 15
percent higher; based on 1941, about 10 percent higher.
[
Footnote 27]
It is pointed out, as the Commission found, that livestock is a
commodity which cannot do more than pay its own way; that products
of the forest are subject to freight rates below the higher
brackets; that agricultural products carry a low rate. The western
district roads originated 36.91 percent of the total tons of
carload traffic originated in the United States (excluding
Pocahontas) in 1941, while the eastern roads originated 47.40
percent. To that disparity is added the fact that, of the total
agricultural products originated in the country in 1941, the
western district roads originated 68.82 percent, as contrasted to
20.88 percent by the eastern carriers, excluding Pocahontas. For
manufactures and miscellaneous tonnage, the percentages were 28.06
percent and 60.66 percent, respectively. It is pointed out that,
while the difference between the percentage of agricultural
products originated by the western carriers (68.82 percent) and the
percentage of manufactures and miscellaneous originated by the
eastern carriers (60.66 percent) is only 8 percent, the eastern
roads' tonnage of the latter group of commodities (which are
high-grade traffic) is almost three times the tonnage of products
of agriculture originated by the western carriers. Like comparisons
are made between other groups of commodities carried by the eastern
and western carriers, respectively. Of the total tons of animals
and products originated in the country in 1941 (excluding
Pocahontas), the western roads originated 63.03 percent, the
eastern, 28.51 percent. Of the total tons of products of forests
originated in 1941, the respective percentages were 58.73 percent
and 7.52 percent. And for products of mines, the percentages were
33.31 percent and 49.85 percent, respectively.
[
Footnote 28]
The 1941 revenue ton miles per mile of line were as follows:
Eastern District (excluding Pocahontas) . . . 3,392,964
Pocahontas Region . . . . . . . . . . . . . . 7,519,840
Western District. . . . . . . . . . . . . . . 1,358,041
[
Footnote 29]
Costs developed in the cost scales and the carriers' total known
expenses by cost territories were reconciled with a very close
margin as appears from the following table:
--------------------------------------------------------------------------------
Aggregate ex-
penses, increased
for a 4-percent re- Actual expenses
turn computed as reported by Ratio (present)
by applying carriers increased of computed ex-
costs to traffic for a 4-percent penses in actual
Territory handled (1939) return (1939) expenses
--------------------------------------------------------------------------------
Eastern . . . . . . $1,426,950,260 $1,451,484,949 98.3
Pocahontas. . . . . 183,076,590 185,387,990 96.8
Southern. . . . . . 450,448,155 449,001,663 100.3
Western . . . . . . 1,382,549,982 1,395,188,845 99.1
United States . . . 3,443,024,987 3,481,063,447 98.9
--------------------------------------------------------------------------------
The Commission stated,
"Judging from the above table, whatever errors may exist in the
. . . studies, they have not had the effect of overstating or
understating the carriers' costs in the aggregate to any
appreciable degree."
262 I.C.C. p. 587.
[
Footnote 30]
In the twelve months ended October 31, 1946, the revenue tons
carried in the West were 26 percent higher than for the year 1941,
and the revenue ton miles were 43 percent higher than in 1941.
[
Footnote 31]
See White, Analysis of Railroad Operations (1946) pp.
14, 15, pp. 69,
et seq.; Locklin, Economics of
Transportation (1938) p. 581; Miller, Inland Transportation (1933)
pp. 500-502.
[
Footnote 32]
Constant costs solely related to less than carload traffic are
those costs which do not vary with the volume of the traffic, but
which could be eliminated if no less than carload traffic were
handled.
[
Footnote 33]
See Hamilton, Cost as a Standard for Price, 4 Law &
Contemp.Prob., 321, 329:
"Now and then, a hardy soul, equipped with simple faith and a
calculating machine, essays the adventure of rates based upon the
true costs of particular services. The feat is, of course,
technically impossible, for value judgments or empirical rules are
essential to the distribution of overhead. A calculation of the
real cost of transporting cottonseed in less than carload lots from
Lampassas, Texas to Kankakee, Illinois, is a stubborn exercise in
imputation."
[
Footnote 34]
Out of pocket costs plus solely related constant costs.
[
Footnote 35]
The point might also be well taken if this were a proceeding
under § 13(4) to determine whether intrastate traffic was producing
its fair share of the earnings required to meet maintenance and
operating costs and to yield a fair return on the property devoted
to interstate and intrastate transportation.
Florida v. United
States, supra; United States v. Louisiana, 290 U. S.
70;
North Carolina v. United States, supra.
[
Footnote 36]
As we point out hereafter, after the present interim orders were
issued, the Commission granted a general freight rate increase.
See Ex parte No. 162, note 37 infra. In that case, it reviewed the
rates of return of the roads in the several territories based on
the rates in effect at the time -- which, of course, did not
include the 10 percent increase in class rates for Official
Territory authorized in this proceeding but stayed by the District
Court. What the Commission said in
Ex parte No. 162
corroborates its finding in the present case concerning the greater
relative revenue needs of the roads in Official Territory:
"On the basis of the interim rates in effect since July 1, 1946,
the rate of return for the eastern district will be considerably
less for 1946 than in the Pocahontas region, the southern region,
or the Western district, even though an additional increase of 5
percent in certain rates in official territory was authorized and
has been in effect since July 1, 1946. It also appears that, even
on the basis of the increases sought in
Ex parte No. 162
and the railroads' estimates of revenue, the rate of return in the
eastern district for 1946 will be less than the rate of return in
the Pocahontas region, the southern region, or the western
district."
266 I.C.C. 548. The latter estimates of the rate of return in
percent are as follows:
Eastern District . . . . . . . . 2.06
Pocahontas Region. . . . . . . . 6.26
Southern Region. . . . . . . . . 4.01
Western District 3.31
[
Footnote 37]
Ex parte No. 162, interim report 264 I.C.C. 695, final
report December 5, 1946, 266 I.C.C. 537. This increased most basic
freight rates by 15 to 25 percent. Rates on articles under the
general commodity grouping of Manufactures and Miscellaneous, class
rates and rates on less than carload and any-quantity traffic were
increased 25 percent in Official Territory, 20 percent within and
between other territories, and 22.5 percent between Official
Territory and points in other territories. Express rates were
increased October 28, 1946.
Ex parte No. 163, 266 I.C.C.
369.
[
Footnote 38]
See note 37
supra.
[
Footnote 39]
That the order granting the general freight rate increase did
not affect the orders in the present proceeding is made clear by
the following provision:
"That outstanding unexpired orders in other proceedings are
hereby modified so as to permit the increases in freight rates and
charges herein authorized to be established;
Provided,
however, that the provisions of this paragraph shall not be
construed to suspend or supersede or modify or affect the findings
and order entered in
Class Rate Investigation, 1939,
Docket No. 28300, the operation of which is stayed by court order.
. . ."
See Ex parte No. 162, supra, note 37
MR. JUSTICE FRANKFURTER, dissenting.
In the case involving issues much narrower than those now here,
the Court, only the other day, struck down an order of the
Interstate Commerce Commission for want of adequate findings.
Interstate Commerce Commission v. Mechling, 330 U.
S. 567. Although, in that case, there were explicit
findings, the Court deemed them inadequate because they were based
on "unsifted averages." In a series of cases, the Court has set
aside orders of the Interstate Commerce Commission because of the
failure of the Commission to ascertain and to formulate with
clarity and definiteness the transportation and economic
circumstances which alone could justify the order, and thereby
afford this Court assured basis for concluding that the Commission
had duly exercised its allowable judgment on the factors underlying
the ultimate issues.
See Florida v. United States,
282 U. S. 194;
United States v. Baltimore & Ohio R. Co., 293 U.
S. 454;
Atchison, Topeka & Santa Fe R. Co. v.
United States, 295 U. S. 193;
United States v. Carolina Freight Carriers Corp.,
315 U. S. 475;
City of Yonkers v. United States, 320 U.
S. 685;
Eastern-Central Motor Carriers Association
v. United States, 321 U. S. 194;
North Carolina v. United States, 325 U.
S. 507;
Alabama
Page 331 U. S. 352
v. United States, 325 U. S. 535. Not
one of these cases involved an order having a reach comparable to
the reach of the order now before us. We are asked to sustain an
order that readjusts the class rates of the whole country, barring
only the territory west of the Rockies -- an order that changes not
only the rates within the various rate territories in this vast
region, but changes the relation of the rates interterritorially. I
am not unmindful of the complicated nature of the problem which
confronted the Commission, of the empiric character of the process
of ratemaking, of the limited scope for judicial review in this
process, of the respect to be accorded to the Commission's
conclusions.
Board of Trade v. United States, 314 U.
S. 534. But when the outcome of legal issues is bound to
cut deeply into economic relations on such a scale, it is not
asking too much to ask the Commission to be explicit and definite
in its findings on the elements that are indispensable to the
validity of its order.
When interterritorial discrimination is complained of, at least
two basic issues confront the Commission: (1) is there
discrimination? (2) if there is, how is the discrimination to be
abated? The Commission cannot eliminate discrimination --
i.e., harmonize the rate relations between territories --
in disregard of the reasonableness of the readjusted rates within
each territory. The Interstate Commerce Act must be applied in its
entirety, and the different sections which make an articulated
whole cannot be treated disjointedly. Such is the teaching of our
cases, especially of
Texas & Pacific R. Co. v. Abilene
Cotton Oil Co., 204 U. S. 426, and
Intermountain Rate Cases, 234 U.
S. 476 -- the two cases which, beyond all others, give
the controlling considerations in construing the Interstate
Commerce Act.
And so, the Commission is not empowered to remove discrimination
between two territories without, at the same time, considering
whether the remedies proposed for such
Page 331 U. S. 353
removal fit the requirement of reasonableness of rates. It may
not lower the rates in a territory beyond the level which gives the
carriers an income sufficient to enable them to operate effectively
as part of the nation's transportation system. And the Commission
may not raise rates to a level which would exact freight charges
from shippers beyond a rate structure that is reasonable. The small
proportion of freight that moves on class rates is no measure of
the importance of those rates to the total earnings of carriers.
Unreasonable rates -- whether unreasonably high or unreasonably low
-- even on a fraction of the freight, may make the difference
between earnings to which carriers are entitled under the
Interstate Commerce Act and those to which they are not entitled
for discharging their duty as part of the national transportation
system. We are without informing findings on these issues. But,
even if one were to consider questions of discrimination in
isolation, inequality -- the essence of discrimination -- cannot be
dealt with mechanically by taking a percentage off one territory
and adding it to another. The Procrustean bed is not a symbol of
equality. It is no less inequality to have equality among unequals.
The findings do not reveal how it happened that putting 10% on and
taking 10% off, respectively, will beget just the right adjustment.
I am not suggesting that one might not dig out of the record
inexplicit argumentative support for the view that an increase of
10% in Official Classification Territory rates will still leave the
level of rates within that Territory not unreasonable, and that a
decrease of 10% in Western Territory will leave the carriers the
required reasonableness of rates within that Territory. But it is
not conducive to a fair administration of the Interstate Commerce
Act, nor is it consonant with the proper discharge of this Court's
task, to require us to dig out indications or evidence giving
appropriate answer to these issues from a record consisting of
nearly 13,000 pages spread over
Page 331 U. S. 354
21 volumes, which led to a report by the Commission of 320
pages.
The District Court acknowledged the absence of finding on such
issues. Said the court:
"it has been argued that there can be no increase in class rates
in Official Territory unless there is first a so-called primary
finding, supported by substantial evidence, that the present rates
are not compensatory. While that fact, if proved, would have been
of much significance, the failure to prove it, and the consequent
lack of a finding that present rates are confiscatory, do not leave
the Commission's finding that the rates are unlawful unsupported by
substantial evidence."
65 F.
Supp. 856, 873. But the fact that the rates in Official
Territory may, as a matter of abstract comparison, be out of line
with the rates in Western or Southern Territory is hardly proof
that the rates in Official Territory should be increased by the
same flat percentage as the rates in the other territories should
be decreased. Such a flat increase in Official Territory may make
the proposed new rates unlawful because unreasonable. While a 10%
decrease in rates in Western Territory may eliminate unfairness to
shippers in that territory, it does not follow that a corresponding
10% increase in Official Territory rates will not result in
unfairness to shippers there.
One can hardly read the concurring and dissenting views to the
Commission's Report without being left with uncertainty regarding
the basis of the Commission's order.
"The report does not show, except in nebulous fashion, that the
cost figures represent apportionment of totals, based on estimates;
that they involve many assumptions and acts of judgment, and are
not computations from direct, original cost figures for particular
movements. These, however, are the facts. It omits evidence showing
that 59 out of 117 items of basic data used in the studies were
estimated, and that 458 out of 500 sequences were wholly or partly
estimated.
Page 331 U. S. 355
It fails to disclose clearly that, when making the studies, it
was assumed that the consist of the traffic is the same in the
different territories, when the fact is, as I have pointed out,
that the traffic consist differs widely in the respective
territories. The result is that theoretical costs are produced,
based upon assumptions which are not facts, and upon comparisons of
unlike things."
(Commissioner Porter, dissenting, 262 I.C.C. 447, 709, 717,
and see dissenting views of Commissioner Barnard,
id. at 725.) According to two of the Commissioners, the
record is wholly inadequate to support a finding that class rates
within Official Territory are unreasonable under § 1 of the Act.
See 264 I.C.C. 69, 70. Certainly the Commission did not
make an explicit finding that they are unreasonable. If there is
any such finding, it must be sought for as would a needle in a
haystack. The Commission's order ought not to be allowed to rest on
such dubious foundations.
Nor can such a mechanical or abstractly mathematical
readjustment of rates interterritorially be justified as a
tentative adjustment. Of course, the Commission may generalize a
sufficient number of typical instances and make a flat readjustment
within a territory, leaving instances of unreasonableness to be
taken out of such an order upon individual application. This is
what the Commission did, and what this Court sustained, in the
New England Divisions Case, 261 U.
S. 184. The order in that case, directing a 15% increase
in the share of the New England railroads in the joint through
freight rates, was based upon evidence
"which the Commission assumed was typical in character, and
ample in quantity, to justify the finding made in respect to each
division of each rate of every carrier."
261 U.S. at
261 U. S.
196-197. The Court found that the established practice
in rate litigation, the nature of the hearing before the
Commission, the evidence submitted, the findings made, the
opportunities to
Page 331 U. S. 356
apply for modifications in typical situations, amply supported
the Commission's findings. The present record, as reflected in the
Commission's report, does not present a comparable situation. One
gets the impression that the adjustment of a flat 10% decrease in
the rates outside the Official Territory and a flat increase of 10%
within that Territory is attributable, fundamentally, to a laudable
desire on the part of the Commission to secure uniform
classification throughout the country. The Commission was not
prepared to make such a classification, but it made these rate
changes in the hope that they would exert pressure on the carriers
to agree upon a uniform classification. It is in relation to that
hope that it is urged that the order is merely a conditional or
tentative order -- conditioned upon agreement by the carriers upon
a uniform classification. But to condition the order on the
realization of that hope is to condition it, if experience be any
guide, on the Greek kalends.
What this Court said in
United States v. Chicago, Milwaukee,
St. Paul & Pacific R. Co., 294 U.
S. 499,
294 U. S.
510-511, involving a rate adjustment within a very
limited territory, with no such far-reaching consequences as the
order now under review, has enhanced applicability to the present
order of the Commission.
"We would not be understood as saying that there do not lurk in
this report phrases or sentences suggestive of a different meaning.
One gains at places the impression that the commission looked upon
the proposed reduction [initiated by a carrier] as something more
than a disruptive tendency. . . . The difficulty is that it has not
said so with the simplicity and clearness through which a halting
impression ripens into reasonable certitude. In the end, we are
left to spell out, to argue, to choose between conflicting
inferences. Something more precise is requisite in the
quasi-jurisdictional findings of an administrative agency.
Beaumont, S.L. & W. Ry. Co. v. United States,
282 U. S.
74,
282 U. S. 86;
Florida
v.
Page 331 U. S. 357
United States, 282 U. S. 194,
282 U. S.
215. We must know what a decision means before the duty
becomes ours to say whether it is right or wrong."
Administrative experts no doubt have antennae not possessed by
courts charged with reviewing their action. And so it may well be
that, to the expert feel, the justifiable correction of an
imbalance between Official Territory rates and the rates of other
territories is a shift of 10% in the respective rates -- Official
Territory rates increased 10%, and rates elsewhere decreased 10%.
But courts, charged as they are with the review of the action of
the Commission, ought not to be asked to sustain such a
mathematical coincidence as a matter of unillumined faith in the
conclusion of the experts.
I would reverse the decree and order the proceedings returned to
the Interstate Commerce Commission.
MR. JUSTICE JACKSON, dissenting.
I find it impossible to agree with this extraordinary decision.
I will discuss but one of its phases -- that which is treated in
subdivision Eighth of the Court's opinion. This holds that the
Interstate Commerce Commission has, and rightfully has exercised,
the power to add 10% to certain basic freight rates affecting the
Northeastern part of the United States. This increase was not asked
by the railroads, goes to the prosperous and the insolvent ones
alike, and is not even claimed to be necessary to pay the cost of
service and a fair return on the property used in rendering it.
This additional assessment is in no sense compensation for handling
the traffic which the railroads concede was adequately compensated
before. It is really a surtax,
see Brandeis, J., in
New England Divisions Case, 261 U.
S. 184,
261 U. S. 196,
added solely to increase shipping costs in the Northeastern part of
the United States for the purpose of handicapping its economy and
in order to make transportation cost as much there as it does in
areas where there
Page 331 U. S. 358
is less traffic to divide the cost. The surcharge burdens the
territory where fifty percent of the consuming population of the
United States resides by adding an estimated $15,000,000 per year
to its shipping bills. It adds that much to the revenues of the
Northeastern railroads with no showing or finding that it is needed
to meet costs of furnishing railroad service.
The most important reason advanced for sustaining this order is
the claim that this surcharge is to cure a discrimination in favor
of the Northeastern territory against the South and West. Briefly
and generally, the discrimination is said to consist in this: mile
for mile, a higher average charge is made for transportation under
the present classifications in the more sparsely settled areas of
the South and West than is more in the denser traffic regions of
the Northeast. Why, then, should not the alleged discrimination be
removed by lowering the high rates of the South and West? The
answer is that they cannot be reduced further than the ten percent
already ordered in this proceeding, because the railroads of the
South and West, in view of their costs, could not bear further
decrease. So the only other way of equalizing the rates, and making
it as costly to move goods there as anywhere in the United States,
is to make the shippers in the Northeastern territory pay the
railroads this additional 10% which they have not asked and do not
need.
The Court's approval of this order is based on an entirely new
theory of "discrimination." It has never before been thought to be
an unlawful discrimination to charge more for a service which it
cost more to render. Discrimination heretofore has been found to
exist only when an unequal charge was exacted for a like service,
or vice versa. But now it is held to be an unlawful discrimination
if railroads of the Northeast do not make the same charge as other
railroads in the South or West for a different transportation under
different cost conditions.
Page 331 U. S. 359
The Government frankly advocates this new concept of
discrimination as necessary to some redistribution of population in
relation to resources that will reshape the nation's social,
economic, and perhaps its political life more nearly to its heart's
desire. It says in its brief to us:
"There is no direct relation between the distribution of natural
resources and the distribution of population in the United States.
It happens that some of the areas richest in natural resources in
the United States are sparsely populated. If the raw materials
making up those natural resources are to be converted into finished
products in that vicinity, allowing the area some economic benefit
from their conversion, it will be necessary to transport
considerable volumes of finished goods for long distances.
Necessarily, minerals are obtained where the deposits occur, and
agricultural products must be produced in areas of suitable soil
and climate. It is the task of the transportation system to carry
commodities from points of production to consuming centers
throughout the United States and to the ports for export. The more
freely and cheaply the products are carried, the more competition
there will be, the more production there will be, and the better
will our transportation system serve our national economy."
"The maintenance of a sound national economy requires the proper
use of natural resources to insure reasonable economic opportunity
of a stable nature for the people in each of the regions of the
country. As indicated, population distribution is not in accord
with the distribution of natural resources, and it would require
many years for people to move to where these resources are,
assuming it possible to induce such millions to migrate, or that it
would be wise policy to do so, even if possible. There are also
areas of one-crop agriculture in which the people face
readjustments
Page 331 U. S. 360
to restore and protect the land and to obtain additional sources
of livelihood."
"In view of all this, one of the basic principles in making
freight rates should be the elimination of rate barriers against
regional development, not to charge our economy, but to remove
discriminatory conditions which unfairly and unlawfully prevent the
possibility of change."
The Court's entire discussion of the discrimination feature of
this case is an acceptance of the Government's position, without
which the last support for this order would fail.
No authority can be found in any Act of Congress for the
imposition of this surcharge on the Northeast solely to penalize it
for being able to transport goods cheaper due to its density of
population and volume of traffic . The policy of Congress remains
as it long has stood: "adequate and efficient railway
transportation service at the lowest cost consistent with the
furnishing of such service." Interstate Commerce Act, § 15a(2), 48
Stat. 220, 54 Stat. 912, 49 U.S.C. § 15a(2). Congress has never
intimated, much less declared, a purpose to deprive the territory
in which fifty percent of the nation's consumers reside of the
benefit of this policy. The Ramspeck resolution did no more than to
direct the Commission's attention to earnest complaints that the
South and West were being mistreated in the matter of rail rates,
and very properly to direct that they determine such complaints on
their merits. True, in 1940, the provision prohibiting undue
prejudice and preference was amended by the addition of "region,
district, territory," to the list of persons or things not to be
unduly prejudiced or preferred. Transportation Act, 1940, § 5(a),
54 Stat. 902, 49 U.S.C. § 3(1). But the Act already prohibited
undue prejudice or preference to any "locality," and it is conceded
that
Page 331 U. S. 361
the 1940 Act made no change in the substantive law of
discrimination. Senator Wheeler, Chairman of the Interstate
Commerce Committee of the Senate, showed clearly that, while it
would "make toward the equalization of rates," 84 Cong.Rec. 6072,
it was not intended to accomplish what is here attempted. The
following colloquy occurred:
"MR. FRAZIER. Is it the expectation of the committee that, by
the amendment in section 52 [now section 5(b) of the Act], the
rates in the various classification territories will be equalized
or made the same in different territories?"
"MR. WHEELER. I do not think that is possible."
"MR. FRAZIER. I do not see how it is possible. I was wondering
what the intention was."
"MR. WHEELER. It is not possible for a number of reasons. For
example, it costs more to carry freight over the mountains in two
trains than to carry it on the plains in one train. Likewise, we
must recognize the fact that railroad transportation service and
rates depend somewhat on the intensity of the traffic. In long
stretches of territory with no traffic, shippers must pay more for
railroad service than do shippers in a densely settled part of
country where traffic is plentiful and where there is much
competition from busses, trucks, and things of that kind. However,
it seems to me from my study of the question that apparent
inequalities ought to be corrected. . . ."
"MR. FRAZIER. In North Dakota, we have a large volume of wheat
to transport in the fall of the year, and because we have that
large volume, and because our territory is practically level, we
have a rather beneficial rate on wheat as compared with some other
territories. Our railroad commission and traffic experts are afraid
that the provision to which reference
Page 331 U. S. 362
has been made will take that special rate away from us."
"MR. WHEELER. I believe this provision will help the people of
the Senator's State, rather than harm them in many respects."
"MR. FRAZIER. We have a much lower rate than prevails in many
other sections of the country. If rates are to be equalized, it
will mean raising our rates."
"MR. WHEELER. The bill does not mean that rates are to be
equalized. . . . The people of the Senator's State might just as
well disabuse their minds of the fear that, as a result of the
bill, they will lose any benefit which they now have. . . ."
(84 Cong.Rec. 5890.)
The Court never before has confided to any regulatory body the
reshaping of our national economy. In
Texas & Pacific R.
Co. v. United States, 289 U. S. 67, the
following statement of the law was made:
"A tariff published for the purpose of destroying a market or
building up one, of diverting traffic from a particular place to
the injury of that place, or in aid of some other, is unlawful, and
obviously, what the carrier may not lawfully do, the Commission may
not compel."
289 U.S. at
289 U. S. 637.
See also Southern Pacific Co. v. I.C.C., 219 U.
S. 433;
I.C.C. v. Diffenbaugh, 222 U. S.
42,
222 U. S. 46;
United States v. Illinois Central R. Co., 263 U.
S. 515,
263 U. S.
524.
The Interstate Commerce Commission also accepted this as the
law. In
Stoves, Ranges, Boilers, etc., 182 I.C.C. 59, the
majority said, "It is not within our power to equalize natural
disadvantages of locations," 182 I.C.C. at 68, the Commissioner
Eastman was even more explicit, saying, 182 I.C.C. at 74:
"However, it is undeniable, I think, that, in the past, both
southern manufacturers and southern carriers
Page 331 U. S. 363
have shows a tendency to demand that the rates to the North be
equalized in level with those within the North, on the ground that
such equalization is commercially essential to the southern
industries. It is a sufficient answer to say that it is not our
province to equalize commercial conditions. However, the evidence
in this case has served a useful purpose in making it quite clear
that the southern manufacturers have certain advantages over their
northern rivals, so far as operating and overhead costs are
concerned, which would have to be taken into consideration if it
were our duty to equalize commercial conditions through an
adjustment of freight rates."
The Court shrouds this simple legal issue as to whether there is
power to levy this surtax on the Northeast, in elaborate
discussions of the evils of existing freight classifications and
affirmations of the Commission's power to correct them. Neither of
these propositions has ever been in doubt. But what importance can
the Commission's power over classifications have in testing
validity of this order? To correct classification was the asserted
object of this proceeding, but that power has not been exercised at
all. Not one classification is changed. Instead, a flat boost is
made against traffic in the Northeast and a flat reduction for
traffic in the South and West is ordered, leaving every inequality,
discrimination, injustice or illegality in classifications just
where the Commission found them. If there is proof of specific
discrimination, injustice, and illegalities in this case, why are
they not now ordered corrected? If there is not sufficient proof of
any specific discrimination, how can we hold that there is a
general discrimination so extensive as to warrant this levy on the
Northeast to correct them?
Perhaps the most incomprehensible of the Court's grounds for
sustaining this order is that we do not have
Page 331 U. S. 364
here a "revenue problem." It is admitted that the Northeastern
rates before increase are not proved nor found by the Commission to
be noncompensatory to the railroads or otherwise to threaten
harmful effects upon the revenues and transportation efficiency of
the carriers who get the increase. It also is admitted that the
absence of such proof and findings might be fatal to this increased
rate, for,
"If this were a case of determining whether existing rates
passed below the lowest or above the highest reaches of
reasonableness, the point might be well taken."
Can the label affixed to a proceeding make legal what under
another label would be invalid? Because the proceeding professes to
correct classifications, a purpose now long and indefinitely
deferred, may it be used incidentally to raise the rates of the
whole Northeastern territory without any showing of need therefor?
Whether we call the case a "revenue case" or something else, and
whether we decline to denominate the problem a "revenue problem"
and style it something else, the order under review is a revenue
order and nothing else. It adds 10% to the revenues of the
Northeastern roads from traffic moving under the rates in question;
it knocks 10% off from the Southern and Western traffic under them.
It exacts for the railroads added revenues; it lays on shippers the
burden of providing those added revenues. This order admittedly
might be invalid if the increased revenue were given to the
railroads because they had made a claim to need it, and had only
the present evidence and findings to support an allowance of their
claim. So the conclusion is that the order is valid only because
the railroads have no revenue problem and have not made a case
entitling them to increased revenue. That is all I can get from the
answer that it is a valid order only because "we do not have here
such a revenue problem."
Page 331 U. S. 365
I long have heard the complaint that freight rates
discrimination against the South. I have been inclined to suspect
it to be true, and have hoped to see an impartial and exhaustive
study and decision on the subject. But this case does not meet that
description. The student of economics will be puzzled at the
Court's citation of the fact that the average employed person in
the South earns only half as much as those in the Northeast as
being in some way attributable to these freight rates. And the
student of the judicial process will find instruction in the
contrast between today's decision and that of
Interstate
Commerce Commission v. Mechling, 330 U.
S. 567, in its regard for inherent advantages, in its
attitude to "unsifted" averages as a basis for raising rates and in
its deference to the administrative expertise of the Interstate
Commerce Commission.
I am not unaware of the difficult position in which the
Interstate Commerce Commission finds itself in cases of this
character. Commissioner Eastman gave voice to it in dissent in
Alabama v. New York Central R. Co., 235 I.C.C. 255, 333,
as follows:
"The Commission is called upon to decide this case, on the
record, after it had in effect been decided, in advance and without
regard to the record, by many men in public life, of high and low
degree, who have freely proclaimed their views on what they
conceive to be the basic issues. Their thesis has been that the
section of our country generally known as the South is our
'Economic Problem No. 1,' because, among other things, it is low in
industrial development, and that a major reason for this condition
has been and is an unfair adjustment of freight rates which has
favored the producers of the North and burdened those of the South.
It has become a political issue. While, however, the South gave
birth to
Page 331 U. S. 366
the issue, public representatives of the West now cry out
against like supposed oppression, and public representatives of the
North or East, as it is variously called, have risen in defense of
their section."
"Under such conditions, it is not easy to decide the case
without being influenced by emotional reactions, one way or the
other, which should play no part in the decision."
But, by administrative succession and judicial fiat, the
regulatory power of the Federal Government over commerce is now
used to force a surtax on transportation of one section of the
country admittedly not needed to compensate the railroad for the
carriage, but to take away from its inhabitants one of the
advantages inherent in its density of population, regardless of the
disadvantages which density of population also causes.
The observation of Commissioner Mahaffie in this case seems to
me appropriate and accurate:
". . . In a country so vast as this, with its widely varied
resources and differing transportation needs, it seems to me a
mistake to try to compel general equality in rates except to the
extent equality is justified by transportation conditions. I think
the effort to do so must necessarily fail. But I am afraid the
process of finding out whether it can be done will be painful and
costly. The prejudice finding on which the new adjustment is
largely predicated are calculated, if carried to a logical
conclusion, to lead to a rigid rate structure based on mileage.
While this may seem on its face to be equitable, its accomplishment
would entail radical industrial and agricultural readjustments. I
doubt if the country should be required to incur the expense of
making them."
(262 I.C.C. at 708.)
MR. JUSTICE FRANKFURTER joins in this opinion.