The Interstate Commerce Commission (ICC), pursuant to § 15(6) of
the Interstate Commerce Act, ordered new divisions for North-South
joint rail rates, finding that the Northern lines' costs warranted
an increased share of the revenues. The North-South traffic, the
costs for which were not isolated in the ICC's findings, represents
6% of the total North traffic and 21.4% of the total South traffic.
The average costs used by the ICC relate to all Northern and all
Southern traffic, although 80% of all Northern traffic is
intra-territorial. The District Court ruled that territorial
average costs did not meet the statutory requirements for precise
and relevant findings absent evidence relating the territorial
average to North-South traffic, and held that the ICC's order was
not supported by substantial evidence and reasoned findings, and
remanded for further proceedings.
Held:
1. While mathematical precision and exactitude are not required,
the nature and volume of the traffic must be known and exposed if
costs are to govern rate divisions. Pp.
393 U. S.
91-92.
2. If average territorial costs are shown to be a distortion
when applied to particular North-South traffic, reliance on
administrative "expertise" is not sufficient, but it must be shown
that there is, in fact, no basic material difference, or there must
be an adjustment which fairly reflects the difference in costs. Pp.
393 U. S.
92-93.
3. On remand, the ICC must make specific findings to adjust
average territorial costs with respect to commuter deficits,
interchange of cars in North-South traffic at territorial border
points, and empty freight car return ratios. Pp.
393 U. S.
93-95.
270 F.
Supp. 695, affirmed as modified.
Page 393 U. S. 88
MR. JUSTICE DOUGLAS delivered the opinion of the Court.
In these cases the Interstate Commerce Commission undertook to
prescribe just, reasonable, and equitable divisions of joint rates
pursuant to § 15(6) of the Interstate Commerce Act, 24 Stat. 384,
as amended. [
Footnote 1]
The
Page 393 U. S. 89
Commission found that existing divisions violated § 15(6)
because they allocated to Northern lines a lesser share of the
revenues from the joint rates than would be warranted by their
share of the expenditures made in providing the joint service. 325
I.C.C. 1, 50.
The Southern lines brought suit before a three-judge District
Court to enjoin and to set aside the Commission's order. The
District Court set aside the Commission's order and remanded the
case for further proceedings.
270 F.
Supp. 695. We noted probable jurisdiction. 390 U.S. 940.
Both Northern and Southern lines used Rail Form A as their basic
formula, that form being a rail freight formula for determining
freight service costs which utilizes the expenses and statistics
for a given year as reported to the Commission by the carriers and
supplemented by special studies of the carriers.
The Southern lines proposed 12 adjustments, five of which the
Commission accepted and seven of which it rejected. The year 1956
was the one both Southern and Northern lines used in the final cost
analysis. The cost level for that year, said the Commission, was
higher in the North than in the South for like services, and it
concluded that that situation would most likely continue in the
immediate future. In that year, the Northern lines received 44.64%
of the revenues while incurring 46.35318% of the fully distributed
costs. Accordingly, the Commission prescribed new divisions based
on the fully distributed costs, and divided the revenues in the
same proportion to those costs. The shift in revenues resulting
from the new divisions was approximately $8,000,000 a year, giving
the Northern lines an overall increase in revenues from the traffic
involved of 3.5% and reducing the revenues of Southern lines by
about 3%.
Page 393 U. S. 90
When the Southern lines sued to set aside the new divisions, the
Northern lines intervened as defendants. The District Court held
that the Commission's order was not supported by substantial
evidence and reasoned findings within the meaning of §§ 8(b)
[
Footnote 2] and 10(e)
[
Footnote 3] of the
Administrative Procedure Act and, as noted, remanded the case for
further proceedings.
The present problem of divisions deals only with North-South
traffic which represents 6% of the total traffic of the North and
21.4% of the total traffic of the South. The costs of that
North-South traffic are not isolated in the findings. The average
costs used relate to all Northern traffic and to all Southern
traffic. Nearly 80% of the total Northern traffic is
intra-territorial, and handled entirely in the North, and it is
therefore argued that that traffic has the dominant influence on
the Northern average. As the District Court said, it is difficult
to maintain that these intra-territorial Northern costs are the
same or approximately the same as Northern costs in handling
traffic between North and South. In another divisions case, the
Commission ruled
Page 393 U. S. 91
that territorial average costs are entitled to little weight in
determining the costs of handling particular movements.
Increased Freight Rates, 1967, 332 I.C.C. 280, 303. The
use of "unsifted averages" of costs does not necessarily establish
greater costs either in rate cases (
ICC v. Mechling,
330 U. S. 567,
330 U. S. 583)
or in divisions cases. The ruling of the District Court was not
that territorial average costs were irrelevant or that Rail Form A
was not a usable and useful tool for cost determination, but that
territorial average costs could not be used consistently with the
statutory requirements for precise and relevant findings without
any evidence relating the territorial average costs to North-South
traffic. While Southern lines had offered evidence showing the
costs of handling North-South traffic in the South, there was not
always any such Northern offer; nor did the Commission always
exercise its undoubted authority to gather it on its own.
On the question whether territorial average costs represent
costs of the North-South traffic, the Commission only replies that,
where particular traffic uses physical facilities and employees'
services in common with other traffic "and has been shown to have
no distinguishing characteristics," the application of Rail Form A
costs is proper. Yet the Commission stated "its exclusive standard"
for resolving this divisions question to be "the relevant cost of
handling the specific freight traffic to which the divisions
apply." 270 F. Supp. at 710.
We agree with the District Court that there is no substantial
evidence that territorial average costs are necessarily the same as
the comparative costs incurred in handling North-South freight
traffic. If we were to reverse the District Court, we would, in
effect, be saying that the expertise of the Commission is so great
that, when it says that average territorial costs fairly represent
the costs of North-South traffic, the controversy is at an
Page 393 U. S. 92
end, even though the record does not reveal what the nature of
that North-South traffic is. The requirement for administrative
decisions based on substantial evidence and reasoned findings --
which alone make effective judicial review possible -- would become
lost in the haze of so-called expertise. Administrative expertise
would then be on its way to becoming "
a monster which rules
with no practical limits on its discretion.'" Burlington Truck
Lines v. United States, 371 U. S. 156,
371 U. S. 167.
That is impermissible under the Administrative Procedure Act. If
indeed that lax procedure were sanctioned in a North-South
divisions case, whose solution turns solely on costs, the class
rate discrimination in favor of the North and against the South
which we condemned in New York v. United States,
331 U. S. 284,
could well flourish in another form.
Rail Form A was used in
Chicago & N.W. R. Co. v.
Atchison, T. & S.F. R. Co., 387 U.
S. 326, and we approved its use. Moreover, ever since
the
New England Divisions Case, 261 U.
S. 184, at
261 U. S.
196-197, it has been held that mathematical exactness in
dividing each rate of each carrier is not necessary, because
practical necessities demand otherwise. In addition, we repeat what
we said in
Chicago & N.W. R. Co. v. Atchison, T. & S.F.
R. Co., supra, at
387 U. S. 358,
that there are no "mechanical restrictions on the range of remedies
from which the Commission may choose" in solving a divisions case
or making its expert judgment as to what scale of costs should be
used in making the allocation. Precision and exactitude in the
mathematical sense are not possible. Yet the nature and volume of
the traffic in question must be known and exposed if the costs of
other traffic are to govern a division of rates. Moreover, where
Rail Form A costs are shown to be a distortion when applied to the
particular traffic over which the divisions dispute arises, some
effort must be exerted to make an adjustment which
Page 393 U. S. 93
fairly reflects the difference in the costs or to make clear
that there is, in fact, no basic, material difference. The
Commission states to us that it cannot be expected to know whether
peculiar characteristics may exist respecting the traffic involved
in the divisions dispute, or whether special studies may be needed.
Yet ,if that is true, the Commission's expertise is not equal to
the task, and the opposed carriers must be directed to expose the
various versions of the conflict so that the Commission may make
its informed decision. That was done on aspects of the present
cases (325 I.C.C. at 25), and no reason is apparent why it cannot
be done on other aspects of the controversy.
The Commission, in its argument before us, said that Rail Form A
territorial average costs were "adjusted" to reflect the costs
attributable to the North-South traffic issue, which is true as
respects five [
Footnote 4] of
the 12 adjustments proposed by the Southern lines.
On remand of the cases to the Commission, we think specific
findings must be made on the several items of so-called
"adjustment" of average territorial costs, to which we now
turn.
One is the question of commuter deficits, which swell the
average territorial costs in the North, while they are less
important in the South, that does not yet have substantial commuter
operations. Passenger deficits generally are considered as part of
the costs of providing freight service, since the common facilities
that support each must be maintained for both types of service.
There is, however, evidence that, in some territories, as much as
one-half of the track facilities are maintained solely because of
the company's suburban service, and even a larger
Page 393 U. S. 94
proportion of other facilities, such as stations, terminals,
coach yards, and repair shops, is maintained exclusively for
commuter service.
The Commission, however, ruled that costs of commuter service
include "common costs which must be incurred to provide freight
service or inter-city passenger service," and that the deficit from
suburban operations was properly included in "the constant costs."
The Commission, on the other hand, found that "many individual
items of suburban service can be considered solely related . . . to
suburban service." 325 I.C.C. at 78. How these two findings can be
reconciled is not apparent. The Commission, in its argument before
us, rests primarily on revenue needs -- "Such losses must be
recovered from railroad freight operations if railroads are to
remain solvent." Section 15(6) makes plain that revenue needs come
into focus in divisions cases. Revenue problems under § 15(6) at
times have resulted in putting a part of one area's transportation
costs upon other sections of the country.
See New England
Divisions Case, 261 U. S. 184,
261 U. S.
191-195. But that issue is not presented in these cases.
The issue in the present cases was costs, not revenue. [
Footnote 5] The allocation either to
the North or to the South of costs peculiar to its territorial
traffic is a task with which the Commission is familiar. Thus, in
these very cases it excluded certain platform deficits incurred by
the Northern lines because they were not related to North-South
freight traffic. 325 I.C.C. at 56. There is no apparent reason why
costs related solely to commuter service in the North cannot be
determined.
As to the costs of interchanging cars in North-South traffic at
territorial border points, there is evidence in
Page 393 U. S. 95
the record that the interchange operations performed by Northern
lines are no more costly than those performed by Southern lines.
Yet the Commission allowed the Northern lines a border interchange
cost that is 58 higher than the one allowed the Southern lines.
That apparently was done solely because Rail Form A showed higher
interchange costs when all territorial interchanges were
considered. We cannot bridge the gap by blind reliance on expertise
which in this instance would be a mere assertion that no difference
means a substantial difference.
The empty freight car return ratios is another example of
deficient findings. There is evidence that higher costs of Northern
lines result from the Commission's use of higher Northern
territorial average empty return ratios. There was no attempt made
to show that the latter were at all applicable to North-South
traffic. The problem arises in the North by reason of boxcars on
shuttle from Detroit to automobile plants, most of which are in the
North. These shuttle boxcars return empty to Detroit. We know from
the record that this is a major cost item, as 800,000 carloads of
automobile parts move out of Detroit each year. The record does not
show the extent to which these empty returns swell the territorial
average costs in the North, though it does show that Northern use
of these shuttle boxcars is substantially higher than the Southern
proportion. The District Court concluded the territorial average
boxcar empty return ratios could not be said, absent specific
findings, to reflect the costs of the North-South freight traffic
relevant to this problem of divisions.
There are other proposed adjustments [
Footnote 6] on which we think the Commission's findings
are adequate.
Page 393 U. S. 96
The judgment of the District Court is modified, and, as
modified, it is
Affirmed.
* Together with No. 15,
Interstate Commerce Commission v.
Aberdeen & Rockfish Railroad Co. et al., on appeal from
the same court.
[
Footnote 1]
49 U.S.C. § 15(6) provides in relevant part:
"Whenever . . . the Commission is of opinion that the divisions
of joint rates, fares, or charges, applicable to the transportation
of passengers or property, are or will be unjust, unreasonable,
inequitable, or unduly preferential . . . the Commission shall by
order prescribe the just, reasonable, and equitable divisions
thereof to be received by the several carriers. . . . In so
prescribing and determining the divisions of joint rates, fares,
and charges, the Commission shall give due consideration, among
other things, to the efficiency with which the carriers concerned
are operated, the amount of revenue required to pay their
respective operating expenses, taxes, and a fair return on their
railway property held for and used in the service of
transportation, and the importance to the public of the
transportation services of such carriers, and also whether any
particular participating carrier is an originating, intermediate,
or delivering line, and any other fact or circumstance which would
ordinarily, without regard to the mileage haul, entitle one carrier
to a greater or less proportion than another carrier of the joint
rate, fare, or charge."
[
Footnote 2]
Section 8(b), 60 Stat. 242, now 5 U.S.C. § 557(c) (1964 ed.,
Supp. III), provides in relevant part:
"The record shall show the ruling on each finding, conclusion,
or exception presented. All decisions, including initial,
recommended, and tentative decisions, are a part of the record and
shall include a statement of -- "
"(A) findings and conclusions, and the reasons or basis
therefor, on all the material issues of fact, law, or discretion
presented on the record; and"
"(B) the appropriate rule, order, sanction, relief, or denial
thereof."
[
Footnote 3]
Section 10(e), 60 Stat. 243, now 5 U.S.C. § 706 (1964 ed, Supp.
III), provides in relevant part:
"The reviewing court shall . . ."
"(2) hold unlawful and set aside agency action, findings, and
conclusions found to be . . ."
"(E) unsupported by substantial evidence. . . ."
[
Footnote 4]
These five constituted way and through train separation,
platform costs, switching and terminal companies, short lines
(Class II railroads), train tonnage adjustment -- all as discussed
in Appendix B to the Commission's opinion. 325 I.C.C. at 55
et
seq.
[
Footnote 5]
On revenue needs, the Commission said:
"We find that no affirmative reasons appear in this record which
would warrant any adjustment of the divisions in question over and
above the relative costs of service, either on the grounds of
greater revenue needs or otherwise."
325 I.C.C. at 49.
[
Footnote 6]
Car costs. The Southern lines sought to substitute
average car costs for the entire country in lieu of Rail Form A
territorial average. The Commission concluded that the
"use of a national average car cost conceals territorial
differences in cost which are important in the consideration of
divisions between the two involved territories."
325 I.C.C. at 64.
Cars Interchanged between rail and water carriers at
ports. The Southern and Northern lines submitted opposed
evidence and views, and the Commission concluded that the count of
cars in Rail Form A was warranted. 325 I.C.C. at 58-60.
Transit commodities. They move under a single published
rate, and receive some kind of storage or processing in transit,
and the rate covers the movement of the raw material into, and the
movement of the finished product beyond, the transit or processing
point. The Southern lines would include deficits on pulpwood and
wet phosphate rock, which they claim to be related in transit to
the outbound movement of paper products and dry phosphate rock. But
these were intra-territorial costs of the Southern lines which the
Commission found were not properly transferable to the
inter-territorial costs, the only costs pertinent to this divisions
case. 325 I.C.C. at 80.
Switching costs. The Southern lines made special
studies of switching costs, which the Commission reviewed at
length. 325 I.C.C. at 71-77. The Northern lines sought to discredit
the studies and the sample on which they rested. The Commission
took Rail Form A territorial average switching costs as the most
accurate measure of the relative switching costs, saying:
"Territorial average costs are particularly appropriate to the
traffic in this case because it is a large and varied body of
traffic moving to and coming from terminals in all parts of both
territories. In our opinion, and we so find, the depressing effect,
if any, of volume switching commodities on the average would affect
both territories and, for purposes of comparison, would be largely
offsetting."
325 I.C.C. at 76. Contrary to the District Court, we believe
these are adequate findings.