No. 34492'

THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, ET AL. v. EARL T. MORRIS, FAY H. MORRIS, AND FRONZIE MORRIS, D.B.A. A. B. & C. MOTOR FREIGHT LINE, ET AL.

Decided August 27, 1971

Upon further hearing, assailed truckload rates on clay and drilling mud from origins in South Dakota and Wyoming to destinations in Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, Texas, Wisconsin, and Wyoming found unjust and unreasonable in certain instances, and not shown to be unjust and unreasonable in others. Findings in prior report, 329 I.C.C. 326, modified. Schedules ordered canceled to the extent found unjust and unreasonable, and proceeding discontinued.

John C. Danielson, Louis T. Duerinck, James W. Nisbet, Thomas A. Phemister, and Richard J. Schreiber for complainants.

Howard N. Dahlsten, Leslie R. Kehl, Alvin J. Meiklejohn, Jr., George D. Michalson, and Earl H. Scudder, Jr., for certain defendants in docket No. 34492.

A. R. Fowler for defendants in docket No. 35135.

Jerry R. Sheahan for intervenor in support of defendants in both proceedings.

REPORT AND ORDER OF THE COMMISSION ON FURTHER HEARING

HARDIN, Vice Chairman:

Exceptions to the examiner's recommended report and order were filed by certain defendants to which complainants replied. Our conclusions differ in part from those recommended. Exceptions and requested findings not specifically discussed in this report nor reflected in our findings or conclusions have been considered and found not justified.

'This report embraces also docket No. 35135, The Atchison, Topeka and Santa Fe Railway Company et al. v. C & H Transportation Company, et al.

In the title proceeding, by amended complaint filed on October 8, 1964, the complainants2 alleged that the rates maintained by the defendant motor carriers on various types of clay and drilling mud from origins in South Dakota and Wyoming to points in Colorado, Illinois, Indiana, Iowa, Kansas, Minnesota, Missouri, Nebraska, Oklahoma, Texas, Wisconsin, and Wyoming were noncompensatory and, therefore, unjust and unreasonable, and constituted a destructive competitive practice. A shipper, the American Colloid Company (American), was permitted to intervene on behalf of the defendants by order entered on November 30, 1964.

In a prior report by division 2, 329 I.C.C. 326, the assailed rates were found unjust and unreasonable to the extent that they were equal to or lower than the out-of-pocket costs set forth in an appendix to that report. This finding was appealed to the United States District Court for the District of Nebraska. The court reversed the prior decision on the grounds that the defendants had been improperly deprived of an opportunity to adduce specific cost evidence that may have rebutted the evidence on which the findings of division 2 were based. United-Buckingham Freight Lines v. United States, 288 F. Supp. 883 (1968).

Upon remand, the proceeding was reopened for reconsideration and further hearing. A prehearing conference was held at which various defendants appeared, but they denied any desire to introduce any additional or new evidence. Upon reconsideration of the entire record, in light of the opinion of the court, an order, 332 I.C.C. 884, dated February 27, 1969, was then issued, affirming and adopting the findings of division 2 in the initial report, as modified by order of May 4, 1967. The order provided, however, that within 30 days of its service date any defendant whose actual costs differed materially from those used therein could file a petition for further hearing for the limited purpose of presenting evidence substantiating such actual

costs.

Certain defendants then petitioned for reconsideration of the order of February 27, 1969, or in the alternative, for further hearing. By order dated August 4, 1969, the proceeding was reopened for further hearing for the limited purpose of affording individual carriers the opportunity of presenting evidence of such actual costs. as may require modification of the prior findings.

In the embraced proceeding, docket No. 35135, by complaint filed on June 24, 1969, the same complainant railroads allege that the The complainants are 26 railroads operating in western trunkline territory and Colorado, Utah, and Wyoming.

rates maintained by C & H Transportation Company, Inc. (C & H), Diamond Transportation System, Inc. (Diamond), and International Transport, Inc. (International), on clay (including bentonite clay) from Belle Fourche, S. Dak., and Colloid Spur, Wyo., to points in Illinois and Wisconsin, and from Greybull, Wyo., and points within 10 miles thereof, to points in Illinois, Indiana, Iowa, Michigan, Minnesota, North Dakota, and Wisconsin, are noncompensatory, and, therefore, unjust and unreasonable, and constitute a destructive competitive practice. American was permitted to intervene, by order of August 22, 1969, on behalf of these defendants.

By order of September 24, 1969, the two proceedings were consolidated for hearing on a common record. The complainants, American, and the defendants in docket No. 34492, Barber Transportation Co. (Barber), C. W. Transport, Inc. (CW), Dahlsten Truck Line (Dahlsten), Huston Truck Line (Huston), and UnitedBuckingham Freight Lines, Inc. (U-B), adduced evidence at the hearing. C & H, Diamond, and International, defendants in docket No. 35135, appeared at the hearing and filed a brief thereafter.

As stated, the further hearing in docket No. 34492 was held solely for the purpose of affording the defendants an opportunity to present specific evidence of their costs of operations in rebuttal of the regional average costs accepted in the prior report as the criteria for determining a minimum reasonable level for comparison with the assailed rates. Consequently, the order of February 27, 1969, 332 I.C.C. 884, adopting and affirming the initial order of division 2, as modified, defines the lawfulness of the rates therein considered to the extent that contrary findings are not made herein.

Dahlsten and Huston, defendants in docket No. 34492, the title proceeding, and C & H, Diamond, and International, defendants in docket No. 35135, the embraced proceeding, are specialized irregular-route carriers employing owner operators extensively in their operations. The examiner made findings regarding the cost of operations for these carriers separately from the costs of the generalcommodity haulers, Barber, U-B, and CW. As no exceptions were taken to those findings, they are affirmed.

Exceptions to the examiner's report and order were filed by Barber and U-B. These carriers transport general freight into the area from which the considered clay products originate, but since the area is sparsely populated there is insufficient outbound freight to balance their operations. Thus, during a 12-month period from October 1968 to September 1969, U-B dispatched from the origin area 994 units completely empty, which were equivalent to 11 percent of the total

units dispatched, and 438 units with less than 10,000 pounds of lading, or about 5 percent of the units dispatched. A study for the period of September 1968, through August 1969, shows that U-B transported 945 truckloads of bentonite clay, which was about 10 percent of the units dispatched from the area in that 12-month period.

Barber dispatched, during the month of September 1969, from Rapid City, S. Dak., its principal terminal and the hub of its service in this area, 192 vehicles of which 21 were totally empty, and 85 were loaded with less than 10,000 pounds. During the 12-week period, June 30 to September 20, 1969, it dispatched from the same terminal 607 vehicles with lading weighing approximately 4.7 million pounds, while, in the reverse direction, approximately 18.7 million pounds were transported, on which the respective outbound and inbound revenues were approximately $67,000 and $604,000. During the first 9 months of 1969, it handled almost 60 million pounds of freight inbound, and only about 16 million pounds outbound. Included in the outbound traffic were over 10 million pounds of bentonite clay, involving about 65 and 31 percent, respectively, of the total outbound weight and revenue.

According to a study conducted by the Middlewest Motor Freight Bureau of 1965 operations, and introduced into evidence by a witness from that Bureau's staff on behalf of Barber and U-B, there were approximately 583 million pounds of freight transported between South Dakota, on the one hand, and, on the other, the States of Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, and Wisconsin yielding about $12 million in revenue. Approximately 60 percent of the tonnage, earning 82 percent of the revenues, was traffic to South Dakota; and 40 percent of the tonnage, earning about 18 percent of the revenues, was traffic from South Dakota to the other States. Barber and U-B are two of the three principal carriers operating to and from South Dakota, and they were participants in this study.

CW, also a general-commodity carrier, transports clay products as a delivering carrier, mainly to destinations in Wisconsin and Illinois, interchanging with Barber and U-B at St. Paul, Minn. Its operations are also imbalanced; during the first 9 months of 1969, 19 percent of its trailers moving from St. Paul were empty.

The complainants refer to duplications which occur in the exhibits. of U-B, prepared from IBM printouts, showing the empty and lightly loaded movements, as described. Specifically, four trailers are shown as having been dispatched from Billings, Mont., on 1 day, and as having been dispatched from Rapid City on the following day. Both

are points in the general origin area. Such scattered duplications, however, in view of the total number of movements involved, do not vitiate the clear showing which is confirmed by other evidence, that substantial imbalances exist in the operations of the generalcommodity carriers from the origin area, despite their participation in the clay traffic.

Bentonite clay, the primary product in controversy, is strip mined in western South Dakota and eastern Wyoming. By an extraction process, the level of moisture in the raw clay is reduced from 35 percent to 6 or 7 percent. The clay is then ground, pulverized, or crushed. It is used as a binding agent for foundry molding sand, as an oil well drilling mud, and as an iron ore pelletizer. It is transported in bulk and in 50- or 100-pound bags throughout this country, and it is also exported. Since its f.o.b. plant value is only about $12.40 per ton, freight charges often constitute as much as 70 percent of its destination value.

The intervenor, American, is the largest producer of bentonite clay. Approximately 85 percent of its traffic moves by rail and the remaining 15 percent by motor carriers. Most, but not all, of its customers are located on rail sidings. Some customers will pay higher rates to obtain faster and more convenient service by motor carriers. The extent, though, to which shipment by truck occurs depends on the disparity between rail and motor rates. To points where there is a disparity of about $5 per ton few shipments move by motor, but to points where the disparity is less there is a greater motor movement. Differences in the respective minimum weights published by motor and rail carriers are of little importance in determining the choice of modes. The motor carriers consider it desirable traffic since it is loaded by the shipper and unloaded by the consignee, and the claims thereon are negligible.

In 1966, the rail and motor carrier rates were on approximately the same level for this traffic to major destinations in the Middle West. However, the motor carrier rates have been increased until at the time of the hearing they were higher than the corresponding rail rates by amounts ranging from $1.30 per ton (for the movement from Belle Fourche to St. Louis, Mo., or Amarillo, Tex.) to $5.50 per ton (for the movement from Belle Fourche to Wichita, Kans.). In the past, American's heaviest motor volume was to Chicago, but that movement has been substantially reduced because of the change in rates. A comparison of shipments moved by American in motor carriage during 4 months (January, April, July, and October) of 1966 and 1969 showed a decline of almost 20 percent.