for transportation services state that a service created by a merger will benefit them, we must weigh such evidence heavily in our decisionmaking process.

Railroads compete with each other for the longest haul and maximum revenue on traffic. At the same time they must cooperate when and where traffic is interchanged. Because of this "Balkanization" of the railroad industry, BN and Frisco independently have not taken steps to develop single-line service or innovative rates. Since railroads compete for any traffic that can be handled by more than one railroad, railroad management should not be expected to sacrifice potential revenue on which that railroad's facilities and investors could rely. Without a merger this single-line service could not be provided without bringing into question management's duty to investors and the public.

A direct result of single-line service will be faster transit times (e.g., transit time between Minneapolis and Memphis will be reduced by 49 percent, from 94 hours to 49 hours) due to reduced intermediate switching. With reduced switching, handling of shipments and incidental loss and damage also will be reduced.

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Freight car and locomotive availability on the merged BN will improve because of: a combination of both fleets, resulting in 131,358 freight cars and about 2,824 locomotives; better utilization of equipment because of faster transit times and the inapplicability of car service rules; and use of standard fleet management maintenance policies. In order to manage its car fleet, the merged company will use a computerized information system for centralized freight car location and distribution. This will allow BN expeditiously to inform a shipper of the location and delivery date of his shipment and efficiently to match-up the supply of available empty freight cars with shipper demand.

Freight car utilization is an extremely serious problem facing the railroad industry. The current environment in which railroads. operate results in the inefficient use of cars.62 This in turn results in higher rates to improve a poor return on investment for the cars. We have tried to usc artificial prodding to increase the utilization and turnaround time for cars. 63 Action by the railroad industry which can increase car utilization and availability is in the public interest.

IBN-Frisco estimate elimination of over 5 million empty car-miles annually. "Sixteen percent of time in movement and 24 percent empty. Seminar by Dr. J. M. Sussman, Massachusetts Institute of Technology, Center for Transportation Studies. Freight Transportation Program (August 18, 1977), "Railroad Reliability and Freight Car Utilization: An Introduction" (M.I.T. report No. CTS 75-8).

Car Service Compensation-Basic Per Diem Charges, 359 I.C.C. 138 (1978).

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The merged company will provide more frequent service for shippers in major traffic corridors by increasing the net number of trains operated daily. Between points on the merged system, traffic will follow the shortest and most expeditious route instead of the longest route within each system, as is now done. The merged company will also have greater flexibility to reroute traffic to avoid delays or interruptions on its system.

A function of adequate transportation service to the public is the ability of a railroad to maintain its facilities. BN and Frisco currently do not have, and do not anticipate any diffuculties in maintaining their facilities. The merged company will present an attractive target for investment. Thus capital should be available to finance necessary improvements to maintain its facilities.

Once the merger is fully consummated, BN will have additional net income of about $33 million annually. This too will strengthen the merged company and make it attractive in the capital markets. This increased net income is composed of $20,303,549 in net operating savings and $16,856,314 net income from diverted traffic (less employee protection costs of $4,638,597).

The operating savings will come from: (1) eliminating independent operations at the common points of Kansas City and St. Louis (including facilities, equipment, and manpower); (2) combining the overhead functions of BN and Frisco; (3) increasing car utilization and thus operating efficiency; and (4) unifying maintenance of roadway, locomotive, and freight equipment.

The financial stability posited by the merged company was supported by shippers (including Weyerhaeuser, Shell, and Amax)65 and DOD.

Contrary to these bright expectations, Rock Island indicates that no redundant plant will be eliminated, except at the common points of Kansas City, St. Louis, and Dallas-Fort Worth. No abandonments are contemplated as a result of the merger because facilities are not duplicative except at the connecting points. At Kansas City and St. Louis the merged system would reduce redundant facilities, equipment, and personnel. Rock Island's argument ignores the facts of this particular merger, but instead looks back to past mergers of different configurations.66

"Twelve new trains will be added daily by applicants, while four presently scheduled trains will be removed.

See appendix C.

See generally Pennsylvania R. Co.-Merger-New York Central R. Co., 327 1.C.C. 475 (1966); Great Northern Pac.-Merger-Great Northern, 331 I.C.C. 228 (1967); and Seaboard Air Line R. Co-Merger-Atlantic Coast Line. 320 I.C.C. 122 (1963).

Katy argues that the merged company's increase in net income from operational savings is not a benefit. This argument ignores the financial malaise of the railroad industry. Any cost savings will benefit not only an individual railroad, but the industry as a whole and the public. A savings of over $20 million is sorely needed relief. Even if we were disposed to condition this merger so that no traffic diversion would occur (which we are not, since we believe that lower rates and improved service resulting from increased competition benefit both the railroads and public), the benefit from cost savings is substantial and beneficial. The savings of over $20 million is nearly 25 percent of the 1976 combined net income for BN and Frisco.

The merger will open the southeastern and southwestern Sunbelt growth areas to BN through improved single-line service. This should enable BN customers to develop new markets for such raw materials as coal from the Powder River Basin.

The merger will also make BN a competitive force in the northsouth corridor between the Great Lakes and Canadian border and the gulf coast. Currently to reach the gulf from the eastern portion of its system, BN routes via Denver and then south along the C&S and FW&D. The addition of Frisco will permit direct, competitive, single-line service by eliminating circuity.

Frisco will benefit from the merger by becoming part of an originating and terminating carrier, instead of relying greatly on intermediate or overhead traffic. The merger also will expand Frisco's financial base and insure that funds are available for maintenance of facilities and equipment. Additionally, Frisco will have access to major new markets in the Midwest and West for the shippers it currently serves in the Sunbelt. This new single-line service from the Sunbelt through the North and Northwest will expand marketing potential for commodities developed in the Sunbelt.

The protestants to this merger generally argued that it is solely a merger for profit and that they will be significantly injured in the event the merger is approved and protective conditions not imposed.

To begin with, the statute does not require that we approve only consolidations between weak and strong carriers, but permits mergers between strong carriers. It is not necessary for a railroad to be a failing company before its merger into another railroad can be

approved." This merger may be approved, as the Commission has ruled in the past, if it is consistent with the public interest. If the merger is in the public interest, the applicants have a right to its approval. Hence, protestants' opposition to the creation of a financially strong carrier is unfounded.

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Additionally, protestants argue that the diversion of traffic to the new merged system is an invasion of territories which will result in a decreased rate of return for these companies and underutilization of their facilities. We must point out that a railroad has no proprietary right to carry traffic. For that matter, the statute" clearly gives shippers the right to route traffic. Shippers may opt for a service. which is more efficient and possibly more economical. Because protestants do not believe that they can meet the competition is not a valid reason for us to find a merger not in the public interest. A domino type effect from a merger of this sort is not necessarily contrary to the public interest. Indeed, where rail carriers are forced to look to rationalization, operating efficiencies, elimination of redundant facilities, and improved service through some form of consolidation or restructuring to continue essential services, the public interest can only benefit.

Clearly, the merger will heighten intramodal competition. The ability of the merged company to provide service from the Northwest and Central States into the Southeast and portions of the Southwest in single-line service with limited interchanges will increase the shippers' options for type of service and probably the cost of service.

The merged company will provide strong competition to other railroads in all markets where they compete. These companies will be required to improve service or face a situation where certain service is no longer essential since it is being performed by the merged and other competitive companies. We look for this new intramodal competition to result in innovative rates and service improvements for the benefit of the shipping public.

Although BN and Frisco are not able to quantify new business resulting from intermodal competition, the ability to provide expeditious single-line service between the Northwest and the Sunbelt, resulting in reduced cost of operation and possibly reduced freight rates or foregone freight rate increases, along with improved

See Florida East Coast Railway Co. v. United States. 259 F. Supp. 933. 1010 (1966) and Louisville & N. R. Co-Merger-Monon Railroad. 338 LC.C. 134, 141 (1970).

See Id.. and Pennsylvania R. Co-Merger-New York Central R. Co.. supra at 498. 49 U.S.C. 10763.

car supply, will make them a strong intermodal competitor. Carriers connecting with BN should also benefit from this increased intermodal competition since the merged company would have to interline a large amount of traffic with other railroads in order to provide door-to-door rail service for a number of customers.

One of the major benefits from this merger will be a reduction in the number of currently interlined shipments. Interchanging traffic adds to the total cost of handling traffic, including operational cost (car-switching) and clerical cost (recordkeeping). Interchanging freight also adds significantly to delivery time, since the time a railcar spends in a yard or terminal is most of its time in transit and an inefficient use of cars. Superior service should not be penalized because weak carriers cannot meet the competition.

Another benefit to shippers would be the ability to control and trace shipments through one railroad where the shipments are being handled in single-line service. Shippers are attracted to a sole source of carrier responsibility for loss and damage, along with single carrier responsibility for expediting shipments when necessary.

The merger presents the opportunity for innovative ratesetting. Standing alone, a bridge carrier like Frisco has neither the financial ability nor sufficiently long hauls to take these actions on a scale equivalent to that of the merged company. However, in conjunction with BN, Frisco will create a new system with financial strength, long hauls, a great proportion of origin and destination traffic, and access to numerous gateways. A company of this size can initiate imaginative or aggressive pricing.

The merger will also result in improved utilization of physical assets. The merger itself will not require a substantial investment of capital, since only 55 locomotive units and 17 cabooses need be added to accommodate the anticipated traffic increase. Savings from unifying terminal facilities at the congested rail centers of Kansas City and St. Louis will be substantial. They will also serve to eliminate delays that currently occur at interchanges at these two points. The merged company will also be able to provide coordinated train schedules, yard consolidations, preblocking, and creation of new run-through train service to alleviate congestion at Kansas City and St. Louis on traffic bound to points on the extremities of its system. This type of consolidation rationalizes facilities without straining management or capital.

None of the shippers served currently by BN or Frisco will lose service. Additionally, despite protestants' somewhat exaggerated