American Lines v. Louisville & N. R. Co., 392 U.S. 571 (1968)
American Lines v. Louisville & Nashville Railroad Co.
No. 797
Argued April 23-24, 1968
Decided June 17, 1968 *
392 U.S. 571
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF KENTUCKY
Syllabus
Since 1953, ingot molds have moved almost exclusively by combination barge-truck service from Neville Island and Pittsburgh, Pa. to Steelton, Ky. The overall service charge since 1960 has been $5.11 per ton. In 1963, appellees Pennsylvania Railroad and the Louisville & Nashville Railroad, in order to compete for this traffic, lowered their joint rate from $11.86 to $5.11 per ton. The barge lines, joined by intervening trucking interests, protested to the Interstate Commerce Commission (ICC) that the new railroad rate impaired or destroyed the barge-truck service’s "inherent advantage," and thus violated § 15a(3) of the Interstate Commerce Act and the National Transportation Policy. Under § 15a(3), a carrier’s rates
shall not be held up to a particular level to protect the traffic of any other mode of transportation, giving due consideration to the objectives of the national transportation policy declared in this Act.
The congressional intent stated in the National Transportation Policy is to provide for fair regulation of all transportation modes subject to the Act, administered so as to preserve "the inherent advantage of each." The ICC found that the per ton fully distributed cost of moving the traffic was $7.59 for the railroads and $5.19 for the barge-truck service, and the long-term out-of-pocket cost was $4.69 for the railroads and estimated to be about $5.19 for the barge-truck service and, in any event, higher than $4.69. Uncontroverted shipper testimony was that price solely determined which service would be used, but that all traffic would go to the railroads if their rates were the same as those of the barge-truck combination. The ICC rejected the railroads’ contention that out-of-pocket costs should be the basis on which "inherent advantage" should be determined, observing that it had regularly viewed fully distributed costs as the proper basis for determining the lower cost mode of two competing modes for particular traffic; that legislative history indicated that Congress intended fully distributed costs to be the basis for comparison when it inserted into § 15a(3) the reference to the National Transportation Policy, and that a rulemaking proceeding was pending involving the whole question of costing in situations involving intermodal competition, and that a radical departure from the fully distributed cost norm would not be warranted on the record before it. Utilizing the fully distributed costs comparison to determine inherent advantage, the ICC ordered the railroads’ rate canceled, having concluded that such a rate would infringe upon the barge-truck carriers’ ability competitively to assert their inherent advantage because it would compel them to go well below their own fully distributed costs to recapture the traffic from the railroads. The District Court reversed. After analyzing this Court’s opinion construing § 15a(3) in ICC v. New York, N.H. & H. R. Co., 372 U.S. 744 (1963) ("New Haven"), and the legislative history of § 15a(3), it concluded that the ICC order contravened the Act, and held that Congress intended that inherent advantage should be determined in most cases by a comparison of out-of-pocket costs, and that, therefore, competing carriers should generally be free to offer any rates as long as they were compensatory. It also held that the ICC had not articulated the reasons for deciding that inherent advantage should be determined by reference to fully distributed costs.
Held: The ICC properly exercised its discretion in disallowing the rate reduction proposed by the appellee railroads as inconsistent with § 15a(3) of the Interstate Commerce Act and the National Transportation Policy, and adequately articulated its reasons for disallowing the proposed rate. Pp. 579-594
(a) Before enacting § 15a(3), following railroad complaints that the ICC had maintained artificially high rates to protect competing modes from being driven out of business by the railroads, Congress rejected language that would have required looking only to the effect of a rate reduction on the proponent carrier.
The principal reason for [the reference to the National Transportation Policy] . . . was to emphasize the power of the Commission to prevent the railroads from destroying or impairing the inherent advantages of other modes.
New Haven, supra, at 758. Pp. 579-582.
(b) The District Court erred in concluding from the New Haven decision and its own interpretation of § 15a(3) that the ICC had the burden of justifying a departure from using out-of-pocket cost to determine inherent cost advantage, since New Haven did not require any particular method of costing to be used as a standard. Pp. 583-584.
(c) Section 15a(3), in conjunction with the National Transportation Policy, was not enacted to enable the railroads to price their services in such a way as to obtain the maximum revenue therefrom. P. 589.
(d) The ICC has the authority to exercise its informed judgment in determining the method of costing which is to be used under § 15a(3), and has reasonable latitude to determine where and how it will resolve that complex issue. Pp. 590-592.
(e) The District Court erred in not recognizing the ICC’s ample authority to decline to deal with the railroads’ broad contentions in this individual case pending its evaluation in the context of a rulemaking proceeding of the effects on the transportation industry as a whole of the alternatives of a departure from the fully distributed cost standard which the ICC had been using in passing upon individual rate reductions. See Permian Basin Area Rate Cases, 390 U.S. 747. Pp. 590-593.
(f) The ICC was not required to explain why it permitted out-of-pocket ratemaking for unregulated carriers and not where the competition was regulated, since § 15a(3), by its own terms, applies only to regulated carriers. P. 593.
(g) The ICC adequately explained how the railroads’ rate would impair the barge-truck inherent advantage, for, as the ICC pointed out, the ratemaking principle proposed by the railroads would have permitted them to capture all the traffic presently handled by the barge-truck combination because the railroads’ out-of-pocket costs were lower than those of the barge-truck service. Pp. 593-594.
268 F.Supp. 71, reversed and remanded.