foundation was established in dealing with service problems, including various suggestions with regard to the publication of service schedules, areas for proposed rulemaking proceedings, and areas for future studies. See, in general, Ex Parte No. 270 (Sub-No. 2), supra, see also Need for Defining Reasonable Dispatch, 351 I.C.C. 812 (1976), where the Commission proposed the adoption of certain performance standards with regard to rail transportation of perishable commodities, as set forth in appendix C to that report. Interested persons have 90 days from the date of service of the order therein, May 3, 1976, to show cause why these regulations should not be adopted. Further, the Railroad Revitalization and Regulatory Reform Act of 1976 (RRRRA), P.L. 94-210, contains provisions for railroad rehabilitation and improvement financing. While the full effect of this aid will not be known for many years, these provisions will be helpful to the railroads, over time, in improving their facilities.

Because of the need shown by the respondents for additional revenues, and the fact that whatever service inadequacies presently exist could not be dealt with by the carriers if their present poor financial condition were to become worse due to failure to obtain authorization for the proposed increases, we are convinced that this general increase should not be disapproved. However, we shall expect the carriers, when filing their mandatory quarterly reports, to show specific efforts to correct definciencies of the types discussed herein and in Ex Parte No. 270 (Sub-No. 2), and, in connection with future general increase proposals, we shall expect the carriers to make a showing that their service has improved.

DIVERSION OF TRAFFIC

The railroads state that every general rate increase involves the possibility that some traffic will be diverted to another mode with a lower rate or that some traffic presently moving to a particular market area will be priced out of that market. However, several traffic officers representing individual railroad respondents expressed the view that the proposed increases would not result in significant diversion or loss of traffic, noting that competing forms of transportation, especially motor common carrier, are subject to the same cost spiral which has affected rail carriers. At the same time, the carriers assert they are cognizant of the fact that after the rate increases some diversion may occur, and they are prepared to respond by prompt downward adjustments. The carriers stress that

they gave full recognition to intermodal competitive factors in proposing this rate increase, and that the effort to retain traffic in the face of this competition is demonstrated by the varying application of the increase reflecting both carrier and territorial exceptions as well as certain maxima and holddowns. A number of protestants dispute the railroads' contentions. They contend that diversion will be extensive if the increases become effective, offsetting benefits which might otherwise be derived from a rate increase. To a great extent, protestants' allegations concerning loss of traffic are general in nature. Various shippers simply state that the carriers have not adequately considered the diversionary effect of the increase or that their traffic is susceptible to diversion to truck. As we have noted in a recent general increase proceeding, statements of this nature have limited probative value and do not warrant the denial of rate increases for which a need has been shown. See, Ex Parte No. 295, supra, p. 626.

Many protestants, however, have provided specific evidence for their individual commodities of the relative costs of rail and motor transportation and data indicating the loss of rail traffic. This evidence is analyzed in more detail in the section dealing with specific commodities. In our judgment, however, it is not clear that diversion has occurred because of recent rate increases, or will occur because of the one proposed. Except for the first 9 months of 1975, overall traffic in terms of revenue ton-miles has increased appreciably in every year since 1971 despite extensive rate increases during this period. In the fourth quarter 1975, traffic increased considerably despite the application of the second portion of the Ex Parte No. 313 increase. Further, in Increased Freight Rates and Charges, 1972, 341 I.C.C. 288, 324, we made the following comments on the issue of diversion:

The level of the rail rates in relation to the level of the charges by truck, of course, is a factor entering into the determination of the demand for rail service. But to suggest that we should not authorize increases in the rates and charges of the railroads, compelled by rising labor and other costs, because of the diversionary effect of such action, assumes that the pressures of escalating costs have not fallen as heavily upon the truckers and that the truckers have been able to avoid increasing their rates and charges to the extent that the railroads have been forced to do. The facts as we know them support neither assumption.

This language can apply here as well. Considering the rising costs of other modes, as well as the overall effort by the railroads to retain traffic by varying exceptions, maxima, and holddowns, and their indications to adjust rates downward in the face of possible

future diversion, the Commission is satisfied that there will be no undue adverse effect on the movement of traffic as a result of the approval of this increase.

TARIFF UPDATING

A number of protestants expressed the need for the railroads to update freight rate tariffs to include recent rate increases. In response to our admonitions in prior cases, we note that respondents have made some progress in incorporating the ex parte general-rate increases in their tariffs. The rail carriers in all districts have now updated almost all tariffs, including both agency and individual publications, through the Ex Parte No. 267 level. Although updating has progressed somewhat to begin to include more recent increases, this effort is far from complete. As pointed out by one protestant, The Aluminum Association, Inc., respondents' own evidence indicates that of 4,308 tariffs reviewed, it appears that less than 2 percent are up-to-date, and that 83 percent of these tariffs will require at least six or seven steps to determine the applicable rate. This protestant asserts, as do others, that it is unfair to burden the shipping public with these complications, and that this failure to properly incorporate general increases in the tariffs makes the determination of correct rates difficult and subject to additional computation errors which are costly to the shippers.

We remind the carriers that authorization of a rate increase carries with it a burden to update tariffs to reflect such an increase at the earliest possible date. It appears the carriers are making a serious effort to update their tariffs. The Western Tariff Publishing Bureau indicated it spent $415,000 attributable directly to tariff update work. They assert that now that the final order in Ex Parte No. 299 has been issued, more progress can be made. At the same time, the Commission acknowledges that much work in this area needs to be done, and we will continue to watch progress in this area very closely. We shall continue to require that respondents report the results of this updating on a quarterly basis. Further, the RRRRA provides in section 209 that the Commission require, beginning 2 years after the date of enactment, that all rates shall be incorporated into the individual tariffs of each railroad or rail ratemaking association within 2 years after the initial publication of the rate. After the enactment of regulations pertaining to this section, this portion of the new legislation will give the Commission and the public a new statutory standard to measure the railroads'

improvement in this area. Pursuant to the RRRRA requirements on tariff updating, the Commission, by order dated July 2, 1976, instituted Ex Parte No. 326.

PORT RELATIONSHIPS-IMPORT/EXPORT TRAFFIC

In recent general increase proceedings, we have recognized the importance of port relationships. The railroads have been required to maintain and preserve such relationships (including those involving Great Lakes and Pacific cost ports), whether established by order of the Commission or recognized customs of the trade. Maintenance of existing relationships is required under our orders of February 20 and March 4, 1976, permitting the establishment of the 7percent increase herein.

Various port interests oppose the increase sought by the railroads on the ground that differing territorial increases on traffic would disrupt port relationships in violation of section 3(1) of the act. One protestant, Puget Sound Traffic Association, alleges that even a generally uniform territorial increase is unjustly discriminatory and unduly prejudicial. This is based on the allegation that a flat percentage increase amounts to a greater increase in dollars and cents on higher rated movements to or from more distant points, thus altering existing rate differentials, between the various markets.

Under the railroads' original proposal (item 120 of the Ex Parte No. 318 master tariff), line-haul rates and charges on export-import traffic would take the proposed increase, subject to exceptions and holddowns on individual items, except that the same increase applicable between stations in Southern Ports Foreign Freight Committee Interior Territory (SPFFC) and the port of Baltimore was to be taken between SPFFC interior stations and southern ports (all ports on the south Atlantic, south Florida, and gulf coasts from Morehead City, N.C., south and west to and including Corpus Christi, Tex.).

As mentioned previously in this report, the nonparticipation of the SP System lines led initially to the flagout of the entire western territory in Supplement No. 2, with only a portion of the West subsequently returning in Supplement No. 7. These developments left gulf ports in western territory (west bank New Orleans and west to Corpus Christi, Tex.) not subject to the Ex Parte No. 318 increase, with all other gulf ports (east bank New Orleans and east to Panama City, Fla.) taking the increase. Because of the

Commission's orders of February 20 and March 4, 1976, requiring respondents to maintain existing port relationships, the carriers amended the master tariff in Supplement Nos. 5 and 7. Under item 120-B of Supplement No. 7, line-haul rates and charges on exportimport traffic will take the proposed increase, except no increase will be taken on SPFFC tariffs between SPFFC Interior Territory stations and southern ports. A second exception provides that no increase on this traffic will be taken between points in eastern and western territories, on the one hand, and North Atlantic ports, on the other hand, nor will the increase be applicable from, to, and within southern territory. However, this second exception does not apply where specific export or import increases are provided for certain trailer-on-flatcar/container-on-flatcar (TOFC/COFC) traffic and for certain commodities such as grain, iron ores, coal, phosphate, and coke.

The above-described supplements have disposed of most of the port relationships problems raised by Houston Port Bureau, Inc., Greater Baton Rouge Port Commission, Mobile Transportation Rate Bureau, Inc., New Orleans Traffic and Transportation Bureau, and Puget Sound Traffic Association. Two recently completed Commission investigations have also resolved persisting issues. regarding port relationships. In Investigation of Railroad Frt. Rate Structure, 345 I.C.C. 423 (1975), the Commission found that there is no existing, established, recognized, or prescribed relationship of rates on export-import transcontinental traffic between the north Pacific coast ports, on the one hand, and Atlantic or gulf coast ports, on the other. In Investigation of Railroad Freight Rate Structure, 345 I.C.C. 1364 (1976), various issues were resolved regarding export-import rates to and from Great Lakes ports and other recognized groups of ports. The Commission found, among other things, that rail rates on general commodities, grain products, TOFC/COFC, and freight, all kinds (FAK) export-import traffic moving to and from the Great Lakes ports were not shown to be unjust and unreasonable, unjustly discriminatory, nor unduly prejudicial or preferential in violation of the act.

Port relationship problems with respect to grain, one of the commodities listed in the second exception of item 120-B which will take an export-import increase, have been raised. As noted previously, the Commission suspended the grain series items in Supplement No. 7 by our order of April 15, 1976. As a result, grain was to take an export or import increase between points referred to