October 7-8, 1974. Appearances were entered on behalf of complainants and defendants, except the Canadian Lines.4 Briefs were submitted by the parties.

The Canadian railroads withdrew from participation in joint rates on citrus from California and Arizona to destinations in transcontinental territory in 1968. Since then any such transcontinental movement into or through Canada may be only upon a combination of the rates within the United States, plus a separate Canadian proportional rate for the movement in Canada. The only evidence presented as to the level of the rates to any U.S. border crossing was in regard to Detroit, Mich. Thus, no finding could be made that any other rates to the U.S. border are unlawful. Any finding in respect to Detroit would apply as well on shipments through as to that point. Such evidence will be considered later in this report. Separate treatment is not warranted at this point. In addition, there are joint rates in effect on citrus from the origin territory to points in western Canada. However, the Commission has no power to prescribe rates for the future to destinations in Canada. Canada Packers v. Atchison, T. & S. F. Ry. Co., 313 I.C.C. 759, 762 (1961). Thus, except as indicated, rates to points in Canada will not be further considered.

Complainants contend (1) that the present rates on citrus fruit to transcontinental territory which are subject to a minimum weight of 39,200 pounds, fail to provide any incentive for heavier loading, encourage poor utilization of the high cubic capacity refrigerator cars, have aggravated the shortage of refrigerated equipment and are thus unjust and unreasonable; (2) that citrus fruit rates to North Coast territory destinations which are per-car rates subject to a maximum of six tiers also fail to provide adequate incentives to encourage heavier loading and are likewise unjust and unreasonable; (3) that defendants have failed to recognize such important transportation characteristics as product density, claim factors, and regularity of shipments and have failed to establish and observe an appropriate freight classification for citrus fruit in violation of section 1(6); (4) that defendants have also violated section 1(6) by failing to establish and maintain just and reasonable rules, regulations, and practices with respect to citrus fruit which are necessary to secure its safe, prompt, and efficient transportation and distribution; and (5) that the failure to establish just and reasonable rates, rules, practices, and classification subjects their traffic to undue and unreasonable prejudice.

STATEMENT OF FACTS

Rate history From 1885 to 1942, the transcontinental rate on citrus was blanketed. The rate was stated in cents per 100 pounds. In 1940, the rail carriers attempted to convert the cents-per-hundred-weight rates to per-carton rates but the proposed rates were found to be not just and reasonable. The prescribed rate was 135 cents which was published to groups A and B. The rate published to the other transcontinental groups was 131 cents. Effective April 7, 1950, the rates to groups A and B were reduced by 4 cents to the same level as rates to groups C, D, E-4, et cetera. This reduction was because all-rail citrus rates from Florida to the major Atlantic Seaboard markets had been reduced by varying amounts ranging up to 8 cents or more to meet proportional rates established by a water carrier to apply in connection with citrus trucked from inland Florida points to Florida ports. Thus, the blanketing of rates which is still in effect was accomplished by reducing the groups A and B rates to meet the competitive situation.

In 1949, the first generation of mechanical refrigerator cars was placed into service. The cubic capacity of these cars, which was from 2,000 to 2,400 feet, was not much different than the cubical capacity of the ice bunker cars. The second generation of mechanical cars, built in the 1950's and early 1960's, generally had a capacity of about 3,000 cubic feet. In the 1960's, the third generation of mechanical cars was introduced. These cars had an inside length of approximately 50 feet, and a capacity of about 4,000

4 British Columbia Hydro and Power Authority, Burlington Northern (Manitoba) Limited, Canadian National Railways, CP Rail (Canadian Pacific Limited), The Grand River Railway Company, Pacific Great Eastern Railway Company, and The Toronto, Hamilton and Buffalo Railway Company.

cubic feet. These latter cars have been adopted as the standard mechanical refrigerator car, and they constitute the majority of the mechanical cars in service today.

When the larger mechanical refrigerator cars came into service, it became obvious that the greater carrying capacity of these cars had to be more efficiently and more frequently utilized. A system of per-car rates was thought to be the best way to accomplish this. Per-car rates to groups D and west were established July 17, 1964. To the southeast, per-car rates on citrus were established on November 3, 1968. Then, effective November 3, 1969 those per-car rates were reduced to group K-1 to maintain uniformity with rates on citrus which were being reduced from Florida to the West Coast. To groups A, B, and C and subgroups, the proposed per-car rates were suspended and investigated in I.&S. Docket No. 8692 (Sub-No. 1) and disapproved for the lack of a rule 66 provision.

Complainants Sunkist is a cooperative marketing association engaged in the sale and distribution of fresh citrus fruits and products thereof. The shipping characteristics of fresh citrus fruit uniquely qualify it for carriage by rail, especially over middle and long distances. Despite fluctuations caused by weather factors, the historic and forecasted trend for California/Arizona citrus is one of increasing production and shipments. Fresh citrus provides a relatively even flow of traffic for 12 months of the year. Unlike many other fresh fruits and vegetables, it is relatively hardy and is generally able to withstand a degree of handling that would seriously damage or destroy more delicate commodities. (See appendix E for further discussion.) This characterisitc results in a correspondingly low rail claim factor of $0.031 per hundredweight. This is based on loss and damage claims filed by Sunkist. It does not include any filed by receivers. Rail transportation offers the shipper and/or receiver the opportunity to cut his freight costs and maximize his distribution efficiencies. Perishables must be shipped soon after they are harvested and must be sold soon after they arrive at destination. It has been shipper's experience during the past several years that rail service in the handling of perishables has been neither prompt nor dependable, and that equipment availability becomes highly uncertain as soon as there is an upsurge in perishable shipments.

The citrus industry would prefer to ship by rail for longer distances; it is more economic, larger quantities of product can be loaded and sold per shipping unit, and rail transportation is less wasteful of scarce energy resources. Yet there has been a steady erosion of fresh citrus tonnage in recent years from rail to truck, even to long-haul markets such as Cleveland, Columbus, Pittsburgh, and Detroit.

Citrus fruit originates in three identifiable areas or districts. The San Joaquin Valley of California or district I consists of 24 origin points; Southern California, or district II has 32 origin locations, and district III encompasses the California-Arizona desert with 5 origins. All of these origins, which are actually packinghouse locations, are served by the Southern Pacific and/or Santa Fe Railroads, and all origins take the same rate basis for transcontinental movement. Local trains normally move the fruit from packinghouses to classification yards for subsequent through movement beyond. The length of local train service varies from little more than switch movements of 1% or 2 miles to a high of 75 miles for a packinghouse located at Porterville, Calif. The majority of the traffic is handled in local train service for movements of less than 25 miles.

The principal routes to transcontinental territory are the Santa Fe route direct to Chicago, thence via eastern connections to destinations in the East. The Southern Pacific has a central California route from San Joaquin Valley origins via Ogden and thence via the Union Pacific and connections to Chicago and East. Shipments from Southern move via the Southern Pacific either to Santa Rosa and thence via the Rock Island to Chicago or via Corsicana via the St. Louis Southwestern Railroad (Cotton Belt) to East St. Louis.

Sunkist's packinghouses account for approximately 77 percent of the total citrus harvested in California and Arizona and the three complainants handle over 90 percent of the total crop. Most citrus rail shipments terminate in the East. Sunkist shipped 96 percent of its total railcars to points in the Chicago area and East. Almost 16.4 million cartons or about 79 percent of its rail shipments of citrus during the 1972-73 season moved to the nine destinations of Chicago, New York, Philadelphia, Boston, Detroit, Atlanta, Washington, D.C., Montreal, and Toronto. H-M-T terminated 59 percent of its shipments in the

East in 1973 and a majority of the Pure Gold rail shipments over the last 5 years have varied between 38 million and 42 million cartons of fresh fruit annually. Rail shipments have declined from 67 percent of Sunkist's total interstate shipments in the 1968-69 season to 53 percent in the 1972-72 season. H-M-T citrus shipments in 1971 were 54 percent by truck and in 1973 this percentage had increased to 66 percent. Pure Gold showed 54-percent truck shipments in 1971-72 season and 64 percent the next year.

The Pacific Southcoast Freight Bureau publishes rates to the Pacific Northwest. The rates now in effect are per-car rates which contain loading restrictions limiting loadings to six layers of citrus in cartons. Thus, above 70,000 pounds the hundredweight rates become applicable which causes significantly higher transportation charges on such shipments than the charges provided by per-car rates under 70,000 pounds. This is opposite to the result which incentive rates are designed to produce. Maximum revenues which the carriers can realize under the present loading restriction rule are $770 to Portland, Oreg., and $868 to Seattle, Wash. In the 1968-69 season 950,500 cartons of citrus fruit moved to Portland of which 22 percent moved by rail; in the 1972-73 season the total cartons decreased to 805,000 and the railroads were almost totally eliminated handling only 2,500 cartons. In the 1968-69 season 1,485,000 cartons moved by rail; in 1972-73 total cartons dropped off to 1,316,000 of which defendants handled 2 percent.

Until recently, citrus fruit moved predominantly in the so-called RS ice bunker cars which had a capacity of six layers of citrus cartons, a total of 1,116 cartons weighing approximately 44,000 pounds. The amount of lading was restricted by the necessity to provide bunkers for the placement of ice and for stacking procedures which would permit free circulation of cold air among the cartons. As the ice bunker cars were being phased out of service more shipments began moving in variously sized mechanical refrigerator cars which have a capacity up to 90,000 pounds. As a result of the decision in Icing Services, U.S. Railroads, 343 I.C.C. 67 (1973), effective September 1, 1973, most of the Nation's railroads have ceased providing icing services in connection with refrigerator cars. Since that time practically all of Sunkist's shipments have been moving in mechanical refrigerator cars, and their average lading in the first 5 months of 1974 is approximately 55,000 pounds. The minimum weight for rate purposes is about 40,000 pounds. However, there is a reluctance on the part of the trade to increase their loadings substantially without some rate incentives. The standard load of 1,116 cartons of oranges weighing about 44,000 pounds based on a stipulated weight per carton of 39.5 pounds, is well-established dating back to about 1956. Many receivers as well as shippers have found it difficult to switch to much larger loads. When the receiver pays the same freight charges per 100 pounds whether he buys 40,000 or 90,000 pounds of citrus, he is understandably reluctant to commit his capital and incur the additional risk and expense attendant with 90,000 pound loads. If, on the other hand, lower rates per hundredweight were offered for heavier loads it would result in much better utilization of the mechanical refrigerator car. Incentive rates are also necessary to accommodate periods of slack demand for citrus. However, carload rates at lower minimum weights are necessary for those shippers and/or receivers who, because of the small size of their business or local marketing factors, are unable to handle larger loads. Moreover, the elimination of lower minimum carload weights would in turn eliminate many customers in many parts of the country and would be damaging to the distribution system of fresh citrus. Sunkist's experience with ICC service order No. 1185 (which required that mechanical refrigerator cars be loaded to 80 percent of capacity and resulted in 80,000 pound loads of citrus in most cars), illustrates the preceding points. The service order became effective on June 16, 1974, at a time when shipments of deciduous fruits, berries, and melons were steadily increasing in volume. It is a normal characteristic of the fresh citrus business that demand for large orders of citrus declines during June and July as the attention of the consuming public shifts to deciduous fruits, berries, and melons. Chain and wholesale customers, therefore, seek to minimize their inventories of oranges and promote these various competitive fresh fruits. Normally they attempt to holddown citrus inventories by ordering in smaller quantities. The issuance of service order 1185 requiring loads of 80,000 pounds or 2,100 cartons of citrus caused many receivers to switch to truck transportation, buy at auction, or simply discontinue purchasing fresh

citrus-particularly oranges and grapefruit altogether. The choice for these buyers was whether to utilize scarce and valuable refrigerated warehouse space to devote to deciduous fruits, melons, et cetera, or to store the amounts of citrus required by the service order if it was shipped by rail or to pay more for transportation and/or the citrus if bought in an auction or not buy citrus at all.

Obviously, under such circumstances it is not surprising that many chain and wholesale buyers at Eastern and Canadian destinations discontinued the use of rail transportation during the period the service order was effective. This was one of the reasons why service order 1185 was vigorously opposed by many shippers and receivers. However, the order did have the effect of increasing the utilization of available equipment.

The present management of Sunkist favors encouragement of heavy loading, which an incentive rate system will accomplish. Average loads have risen to about 55,000 pounds even in the large mechanical car which can accommodate 80,000 or even 90,000 pound loads. Physical warehouse space will inevitably become a much greater problem and, in fact, in many cases a restriction. The market risk is greater when individual shipments are of a larger volume. All of the cost factors related to cash flow will increase. Out-of-pocket losses due to natural deterioration and spoilage, will also increase as fruit must remain in warehouses for longer periods of time. Fruit quality and condition, hence eventual retail value, will also be adversely affected. Carload weights would probably increase to an average of over 70,000 or 75,000 pounds if the sought rates become effective which is equivalent to about a 40-percent increase in utilization of car capacity. Of course, the greater the differential between the heavier loads and the lighter loads, the greater the incentive. On the other hand, the penalty for lighter loads must not be so great as to put rail transportation out of reach for the smaller shipper and the small distributor.

The present rate structure on fresh citrus fruits to transcontinental territory equalizes freight rates from all of the principal citrus producing origins. In addition as noted, the transcontinental freight rate is blanketed at destination so that the same rate applies to Chicago and points east thereof. Thus, the same rate applies to Boston as to Chicago even though the distance is approximately 1,000 miles greater to Boston.

The present rate on oranges, grapefruit, and tangerines from California/Arizona origins to rate groups A, A-1, B, B-1, C, D, D-Subgroups, E, E-Subgroups, is $3.34 minimum 39,200 pounds. (See appendix D.) The present rate on lemons from the same origins to the same destinations is $3.37 with a 37,200-pound minimum. Tangerines and limes are included in complainant's rate proposal even though they do not move in significant volume by rail. Occasionally, tangerines are "deck-loaded" i.e., placed on the top of a load of oranges.

The rates for transcontinental rate groups K, K-1, K-2, L, L-1, C, C-Subgroups, M and M-1 indicate equivalent dollar per 100 pound rates derived from per-car rates. These rates are also governed by a loading rule providing that oranges in standard containers are not to be loaded in excess of six layers high. For example, certain per-car rates reflect six layer loads of 1,476, 1,596, and 1,770 cartons of oranges depending on the size of the car furnished. The loading weights for these carton counts are 58,302, 63,042, and 69,915 pounds based on the agreed estimated weight for oranges of 39.5 pounds per carton. These weights have provided the basis for converting per-car rates to equivalent dollars per 100 pounds. The effect is to produce the same equivalent rates per 100 pounds for 50,000, 60,000, and 70,000 pound loads; e.g., $2.52 to Atlanta, Ga. The six high layer loading rule precludes weights in excess of 70,000 pounds at the per-car rates. Therefore, the applicable carload rate per 100 pounds must be applied for amounts in excess of 70,000 pounds.

A line-haul revenue per-car comparison of the present transcontinental citrus rates including the increase authorized in Ex Parte 305 and the proposed incentive rates to groups A, A-1, B, B-1, C, and D including the increase authorized in Ex Parte No. 303 shows the following. Today a car loaded to the carload minimum of 39,200 pounds produces $1,309 when destined to Chicago (gp. D) or east; it would generate $1,440 which is $131 or 10 percent more to Chicago at the new 50,000-pound minimum under the proposed rates. A 50,000 pound car destined to New York would yield $1,890 or

$581 over the present rate and minimum weight for a 44-percent increase in revenue. The sought incentive rates would produce loadings which would average in excess of 70,000 pounds versus persent loadings of about 55,000 pounds. A 70,000 pound loading to New England would produce revenue of $2,380 per car under the proposed rate of $3.40, whereas the present $3.34 blanket rate at the 55,000 pound average loading yields $1,837 per car. Therefore, this is a measure of revenue increase compounded by incentive loading and amounts to an increase of $540 per car.

In regard to the costs associated with the sought incentive rates, complainants presented studies analyzing the movements from three Santa Fe origins and three Southern Pacific origins to seven transcontinental destinations via various routes used for handling citrus. No other cost studies were presented in this proceeding..

Cost-rate comparisons are shown for five weight brackets, 50,000, 60,000, 70,000, 80,000, and 90,000 pounds. The costs are compared with the rates which include the general increase authorized in Ex Parte No. 303, effective March 9, 1974. The costs reflect the operations of defendants for the year 1972 with wage and price levels adjusted to reflect the wage and price level as of April 1, 1974. The costs were developed by applying the Cost Section's Rail Form A to the operations of the Santa Fe and Southern Pacific for 1972. The costs for the movement of the traffic in other territories derived from studies which were developed by the Cost Section based on operations in 1972 and are similarly adjusted to reflect wage and price levels as of April 1, 1974. In the contribution study released in the report of the Commission in Investigation of Railroad Freight Rate Structure, 345 I.C.C. 1 (1973) at page 34, fresh fruits were shown to move transcontinentally on rates which are about 88 percent of variable costs. The sought incentive rates exceed variable costs except in a few instances of 50,000 pound shipments. At the higher minima the rates exceed costs by over 170 percent. Thus, the heavier the shipment the more compensatory the rate.

The study shows in detail the costs covering operating characteristics of the various movements. This embraces the actual net weight; the miles of haul in way trains and in through trains; the miles of haul in the respective territories in which the traffic moves; the actual tare weight and return empty haul; the origin and terminal costs; the number of interchanges; and the loss and damage claim payment figures. As to other operating factors, switching at origin and destination and intermediate points and inter-intratrain switching system or territorial figures were used.

The largest movements between any of the involved origins and destinations are from Orange Cove, Calif., on the Santa Fe to New York, Boston and Philadelphia, and from Piru and Ivanhoe on the Southern Pacific to the same three eastern cities. The lowest ratios of sought rates to variable cost are between those origins and destinations where the greatest amount of citrus traffic moves.

At a minimum weight of 50,000 pounds, the sought rates from Piru to the three most important destinations would range from a low of 92 percent of variable cost to a high of 110 percent. At a minimum weight of 90,000 pounds, the ratio would range from 111 percent to 124 percent. From Ivanhoe, at 50,000 pounds, the range of variable costs would be from 95 percent to 102 percent of the sought rates; at 90,000 pounds: 115 to 121 percent. From Orange Cove over the single-line Santa Fe route to the gateway, the range would be 110 to 123 percent and 131 to 143 percent; from Arlington, 117 to 136 percent and 139 to 151 percent. (See appendix H.)

The cost study makes no allowance for costs associated with the return of empty pallets. In computing costs complainants used a car ownership cost of 5.6684 cents per-car mile for Santa Fe and 0.4098 cents per-car mile for Southern Pacific. On the basis of 1973 data such costs are 6.316 cents for the Santa Fe and 6.014 cents for the Southern Pacific. Those calculations take into account only the car-hire costs of cars moving on a straight mileage basis of payment. A great majority of citrus moving out of California and Arizona by rail is moving in rail-owned freight cars. Such cars are moving on time plus mileage charges. Therefore, the use of straight care mileage costs results in an understatement of indeterminate amount. For loss and damage, a figure of 2.75-cents per mile was inflated to