Note: 1973 averages exclude Central Vermont and Penn-Reading Seashore Lines and include Texas Mexican and certain subsidiaries of Southern System. These differences in composition have no material effect on averages shown.

Respondents further state they are aware of existing car shortages and have the strongest possible self-interest motivation to find solutions, solutions they assert will be forthcoming if revenue relief is granted. The carriers believe that funds for acquisition of cars and improvement of yards, tracks, information, and control systems also hold out the greatest promise for more consistent service desired by a number of protestants. As for mandatory reporting, the railroads indicate they are presently filing quarterly service reports pursuant to our order in Increased Freight Rates, 1970 and 1971, supra. This record shows that some progress is being made toward more efficient railroad operations. It is also apparent that forced economy has contributed to service problems. In these circumstances, a finding is not warranted that the railroads are not operated under "economical and efficient" management. We are convinced that denial of the increase would lead to further deterioration in service and would not be in the best interest of the Nation, the carriers, or the protesting shippers.

However, we are less than satisfied with respondents' response to our admonition concerning service in Ex Parte Nos. 265 and 267. While certain improvements, such as acquisition of additional cars, require availability of funds, other internal improvements do not With reference to terminal delays, interchange delays, erratic deliveries, and deliveries not reasonably timed or spaced, we have previously indicated that "in these areas of service the respondents have need for more effective control over operating practices in order to meet the standard of adequate and efficient service required under section 15a of the act." (Increased Freight Rates, 1970 and 1971, supra, at 156.) Yet the record in this proceeding indicates there has been little appreciable improvement in many of these areas.

Protestants have suggested various remedies for service deficiencies, including establishment of service standards, earmarking of all or portions of the increase, and penalties for service failures such as so-called "reverse demurrage." Most of the suggested remedies are presently under consideration on a more complete record in Ex Parte No. 270 (Sub-No. 2), Investigation of Railroad Freight Service. For that reason, we will not adopt sanctions of that nature here. But, unless respondents' quarterly reports,

the filing of which shall continue to be mandatory, show specific efforts to correct deficiencies of the type discussed above, we will take such further action as appears necessary, including possible cancellation of the outstanding special permission order. We also hereby serve notice that future general increase proposals shall be accompanied by a showing of improved service.

Diversion of traffic. One of the criteria to be considered under the rule of rate making, set forth in section 15a(2), is the effect of the proposed rates upon the movement of traffic. Various traffic officers representing individual railroad respondents expressed the view that the proposed increases would not result in significant diversion or loss of traffic, commenting that competing forms of transportation are subject to the same cost spiral which has affected rail carriers. As an indication that past increases have not resulted in reduced volume, western railroads cited the following increases in their tonmiles and revenue:

ent

The carriers consider deterioration in service, which they feel will result without a rate increase, a greater threat to traffic diversion ic than the proposed increases. Should diversion become a factor, respondents state that adjustments will be made in order to retain the traffic.

A number of protestants dispute the railroads' prognostications. They contend that diversion will be extensive if the increases e become effective, thus offsetting benefits which might otherwise be derived from a rate increase. For the most part, protestants' allegations concerning loss of traffic are general in nature." Various shippers, for example, merely state that the railroads have not adequately considered the diversionary effect of the increase or they claim their traffic is susceptible to motor carrier diversion. "Where specific contentions are made based on movements of particular commodities, the issue will be discussed in connection with our analysis of the increase applicable to the considered commodity.

Generalized predictions of this nature have limited probative value and do not warrant denial of increases for which a revenue need has been shown.

The railroads' traffic increased appreciably in 1972 and during the first half of 1973. It is clear, therefore, that recent rate increases have not caused an overall decline in traffic. In Increased Freight Rates and Charges, 1972, 341 I.C.C. 288, 324, we commented as follows 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.

The language is equally appropriate here. Considering the rising costs of other modes, as well as the general territorial uniformity and the moderate level of the authorized increases which should minimize prospects of diversion, we are satisfied that there will be no undue adverse effect on the movement of traffic as a result of our approval of a 3-percent increase subject to holddowns on specified

commodities.

Although we have concluded that the increases authorized herein will not be self-defeating, it should be noted that the rails' percentage share of total intercity ton-miles, public and private, has declined from 43.4 percent in 1966 to 38.5 percent in 1972. One of respondents' witnesses also acknowledged at the oral hearing that there has been a shift over a period of years of relatively high-rated short-haul traffic from rail to motor carrier. Demand for service is of course the result of many factors, and these shifts in traffic patterns cannot be attributed solely to rate levels. This entire matter is presently under study in Ex Parte No. 270, Investigation of Railroad Freight Rate Structure. Nevertheless, we believe it imperative that respondents rely insofar as possible upon greater efficiency and improved service, rather than rate increases, to obtain additional revenues. We shall also expect the carriers to act promptly in making individual rate adjustments which may become necessary following implementation of the general increase authorization. While the record demonstrates the railroads' willingness to make competitive reductions to prevent diversion, protestants have cited

several instances of lengthy delays in correcting particular situations. More expedient action is called for in the future.

PORT RELATIONSHIPS

In all recent general increase proceedings, we have recognized the importance of port relationships, and the railroads have been required to maintain and preserve such relationships (including those involving Great Lakes and Pacific coast ports) whether established by order of the Commission or recognized customs of the trade. Maintenance of existing relationships is required under our order permitting the establishment of interim increases herein.

Various port interests oppose the increases sought by the railroads herein, and presently under suspension, on the ground that differing territorial increases on import-export traffic would disrupt port relationships in violation of section 3(1). These contentions, which have been considered in reaching our ultimate conclusion in this matter, need not be further discussed here in view of our determination that the increases authorized within all territories and interterritorially shall not exceed 3 percent.

Several protestants, however, assert that even a generally uniform fo territorial increase is unjustly discriminatory and unduly prejudicial to west coast ports. This contention, advanced by Puget Sound Traffic Association and the Portland Freight Traffic Association," is based on the fact that a flat percentage increase amounts to a greater increase in dollars and cents on long-haul movements to and from the west coast than to competing port ranges, thus altering existing rate differentials between various ports. To avoid this result, a holddown of not more than 6 cents per hundredweight is requested on all line-haul rates and charges applicable to export or import traffic. In reply to these allegations, respondents assert: (1) a uniform percentage increase treats all ports in a similar manner; (2) there are no recognized relationships on export-import traffic to and from Pacific coast ports vis-a-vis similar traffic to and from gulf or Atlantic ports; and (3) the issue whether such relationships exist or should exist is under investigation in Ex Parte No. 270 (Sub-No. 1A), Investigation of Railroad Freight Rate Structure, Export Rates and Charges-Pacific Coast, and should not be resolved in the instant

is

Port interests represented by Puget Sound Traffic Association include Seattle and Tacoma, Wash., while the Port of Portland Commission and the ports of Vancouver and Astoria are members of the Portland Freight Traffic Association.

proceeding. Respondents also make reference to the continuing and substantial growth of import-export traffic through Northwest and Pacific coast ports.

On this record, we conclude that a specific cents per hundredweight holddown on export-import traffic, which would further diminish revenues anticipated from the increase, is not warranted. As stated in Ex Parte Nos. 265 and 267, "Whether there exists or should exist a particular relationship in rates on import or export traffic passing through various seaports requires careful and detailed consideration of their particular circumstances." Such consideration, with justice to the many interests affected, cannot be accorded in the context of a general increase proceeding where of necessity our primary concern must be directed to general bases of rates and charges. See United States v. Louisiana, 290 U.S. 70, 76.

In addition to requesting a holddown on import-export traffic, Puget Sound Traffic Association alleges that varying territorial increases are disruptive of port relationships and unduly prejudicial to west coast ports. As above indicated, we have afforded relief in this regard by imposition of a maximum limitation in all territories. On the other side of the coin, the Department of Business and Economic Development, State of Illinois, and other Great Lakes interests contest the lawfulness of 2-percent increases proposed on certain specific commodities to or within southern territory, applicable to export-import as well as domestic traffic. They urge that rate increases applicable to import or export traffic should be uniform to preserve port relationships.

Our study of the tariff convinces us that the concern of these protestants is largely misplaced. While the provision applicable to rates and charges on export-import traffic (item 120) generally provides for the same increase as published in other items of the tariff, an exception thereto is made for rates and charges published in a number of Southern Foreign Ports Freight Committee tariffs and a Traffic Executive Association-Eastern Railroads tariff which specifically take the same increase as the port of Baltimore, namely 3 percent. These tariffs, the scope of which is summarized in appendix G, appear to cover substantially all of the export-import traffic moving to or from southern ports. However, in order to insure that there is no disruption of port relationships as a result of the Southern exceptions, we find as follows:

1. Increases on import and export traffic moving through ports on the Great Lakes from or to points as to which similar traffic moving through gulf ports is held to an increase of less than 3 percent shall not exceed that same increase.