The development of strong competition between modes brought with it a switch from the value of service to it cost of service theory in ratemaking. It also called for changes in emphasis in the application of regulatory factors by the Commission. Thus, in today's ratemaking, carriers consider costs in order that they may secure or hold competitive business, while the Commission considers the proposed rates with a view to avoiding destructive competition while affording the advantages of low-cost transportation to the public. For instance, the Commission is wary of rates on bulk commodities such as wheat which could be low enough to destroy competing water carrier service. A general rule being applied today is that a rate, to be found reasonably compensatory, must ordinarily exceed out-of-pocket costs plus making a contribution of some degree toward the total cost of providing the service. Out-of-pocket costs are those variable costs which could be ivoided if the particular phase of service was not performed. However, full costs plus a reasonable profit must be obtained if the carrier is to remain solvent. Therefore, the needs of commerce and the degree of competition extant are factors to consider in permitting rates which barely more than cover out-of-pocket costs. Fully distributed costs are also an important consideration in ratemaking and passing judgment on rates. In 1939, the Commission established a separate section in its organization to deal with the problem of determining cost of operation of carriers. The C'ommission states that since that time, the lise of cosis has become the foundation of transportation pricing. A precise allocation of costs, however, is difficult if not impossible to determine. And, in concentrating on cost, the clement of demand and of value of service are largely ignored. From this arises much of the criticism leveled toward cost-based ratemaking. cability of barge transportation and to develop a barge sery Secretary of Commerce was given jurisdiction over the Corpo Up until 1953, the Corporation operated the Federal Barge the Vississippi and Vissouri Rivers, around the gulf, and Warrior River in Alabama. The service was to be operate Corporation natil four conditions had been met, as follows: 1. Completion of adequate navigation channels. 3. Publication and filing with the ICC of joint r carrier rates. 4. Availability of private parties ready and willing to common carrier services. These four conclitions were found by the Secretary of Com have been met. Thereupon, the Secretary sold the fac litie Inland Waterways Corporation, with a depreciated book $11,432,126, to the highest bidder, the St. Louis Shipbuildin; Co. for $9 million. The sale was made on July 24, 1953. Three conditions were attached to the sale, namely: 1. The buyer must have no direct or indirect connect a railroad. 2. Facilities were appraised by the ICC and the fair ported to the President. 3. The service was to be operated in common carrier sei manner substantially similar to the service renderi operated by the Corporation. In connection with the third point, the provisions stip minimum number of trips required for specific sections of tl Ways, and the minimum amount of smaller, less-thantraffic to be handled. The service was operated under the title of Federal Watertrays Corporation which was later chi Federal Barge Lines, Inc. The Inland Waterway's Corpora was repealed in 1963, 10 years after the sale, which reli operator of the conditions originally attached to the sale. The sale of the Iuland Waterways Corporation, a form of in itself, did not terminate the interest of the Federal Goveri inland and coastal water carriers. Rather, that interest has recent years; morcover, the amount of funds invested or an makes the operations of the Federal Barge Company loo miniscule. A survey of inland navigation projects completed serious consideration will demonstrate the point. Arkansas River navigation project: Estimated Federal cost. $17 47 Note.-O. & J. funds will tend to increase as addi tional facilities go into operation. Atlantic Intra-Coastal Waterwar: Estimated Federal cost. Total project costs. WATER CARRIERS Aside from direct land grants io canal companies, public aid to water carriers bas historically taken the form, principally, of Government improvement inil maintenance of waterway's. Between 1827 and 1866 the Federal Government granted 6,340,339 acres of public lands to private interests to aid in canal building and river improvement, in addition to right-of-way grants. Further, the Federal Government contributed various suns in the form of direct appropriations, subscriptions to the stock of, or loans to, private canal companies, and also deposited with the States so-called surplus funds derived from the sale of public lands. Even today, the maintenance of waterways, improvement of rivers and harbors, and providing of various navigution aids such as lights and buoys may be considered to subsidize inland and coastal water transportation companies. Indeed, the Federal Barge Lines were established during World War I to facilitate the movement of freight to the seacoast for shipment to Europe in support of the war effort there. It was operated by the U.S. Railroad Administration, and, after the termination of that agency's function, by the War Department. In 1924, the Inland Waterway's Corporation wils created to take over the operation. The stock in the Corporation was owned by the Federal Government. The purpose of the Federal Barge Lines operation was to demonstrate the practi 42 2 2 2 48 $1 $103, 600, 000 10.5, 000 103, 70.3, 000 1 80, 219, 000 23, 381, 000 1, 129, 000 1 4 5,990,000 0 5, 990,000 5, 970, 000 0 115, 000 4 1 3 4, 564, 000 0 4, 564, 000 1 4,564, 000 0 25, 300, 000 521, 000 42. 000 25, 86:3, 000 115, 487, 000 9, 813, 000 2, 700, 000 Mississippi to gulf outlet: Estimated Federal cost. Total project cost. Operation and maintenance, 5-year average.-- Estimated Federal cost.. VOTE.—Local interests have spent an estimated $18,000,000 on construction of terminal and transfer facilities, more will be required as additional facilities go into operation. Operation and maintenance costs, 5-year average. Estimated Federal cost.. Total project cost... Operation and maintenance, 5-year average. Project is essentially complete. Total.. NOTE.-Rehabilitation of locks cost $8,700,000. Operation and maintenance, 1 year average.. Federal cost... Total project cost... Operation and maintenance, 5-year average.. 1 Chesapeake and Delaware ship canal: Estimated Federal cost.. Total project costs. Operation and maintenance, 5-year average. Estimated Federal cost.. Total project cost.- Operation and maintenance, 5-year average. Estimated Federal cost.. Total project cost Operation and maintenance, 5-year average. Estimated Federal cost. Total project cost.- Operation and maintenance, 5-year average.. Estimated Federal cost.. Total project cost--- VOTE.--House has approved $6,000,000, Senate has approved $5,000,000 each, including sí,500,000 placed in budgetary reserve in 1970, to be released in 1971. Balance to complete after fiscal year 1971.. Operation and maintenance, 3-year operation average- Note.— Will tend to increase as additional facilities become operative. Gulf Intra-Coastal Waterway: Estimated Federal cost. !!! 1 169, 200, 000 16, 000.000 185, 200, 000 52, 675, 000 4, 500, 000 1 1 1 111, $2.5, 000 376, 600 111, 203, 300 Total project costs. Operation and maintenance, 5-year average-- Estimated Federal cost.. Total project cost. Operation and maintenance, 5-year average.. Estimated Federal cost.. Total project costs. Operation and maintenance, 5-year average. 0 111, 20:3. 300 111, 203, 300 0 6, 224, 900 35, 593, 000 2, 574, 000 38, 167, 000 135, 593, 000 0 1, 797, 000 34, 917,000 IS, 000 34, 93.7, 000 1 34, 9.53, 000 0 4, 767, 000 51 Reorganization Plan No. 10, which became effective August 1 was provided that on and after October 1, 1953, the Postmaster would pay to each certificated air carrier a fair and reasonable rate for the transporation of mail by aircraft, which would be the Civil Aeronautics Board without regard to a “subsic!y ra Civil Aeronautics Board then pays all compensation in exce "service” rate which will represent the "subsidy" paid by the certificated air carriers. The subsidy payments are detern the Civil Aeronautics Board following formal proceedings portunity for hearing in which the carrier demonstrates as need for a subsidy. The total of the subsidy in any given case upon the volume of service and the extent to which the rev the carrier from all commercial sources (including the serv payments from the Postmaster General) fail to meet its p incurred costs. Obligations for fiscal year 1969 totaled $42 5,789, 000 0 SUMMARY, ALL CERTIFICATED CARRIERS-ESTIMATED SUBSIDY ACCRUING, BY CARRIER GROUPS 1954-70 !In thousands of dollars) In addition, all American water carriers benefit directly from the activities of the U.S. Coast Guard. Various aids to navigation maintained along our coasts and on our inland waterways through the use of tenders and shore facilities will cost some $76,991,000. Verchant marine safety is enforced by the Coast Guard through the reviewing of plans and specifications for the construction or alteration of merchant vessels, by periodic inspections, by conducting marine casualty investigations, and by setting standards, procedures and practices under which merchant marine personnel are regulated. All this will require some $18,678,000 for 1971. Oceanographic, meteorological, and polar operations are anticipated to require $47,778,000 for 1971. Certainly, these services constitute a subsidy to the water carriers who benefit from them. In addition, should a merchant seaman require medical attention, the Public Health Service is authorized to provide that care. It is estimated that the health program for seamen for 1971 will cost $31,977.000. AIR CARRIERS 2,566 3,475 3,089 2. 477 1, 343 I Trunkline accruals for 1964 through 1968 reflect local service operations in New England area. Source: U.S. Civil Aeronautics Board, November 1969. As in shipping, the original subsidies for air transportation took the form of mail subsidies. The Air Vail Act of 1925 provided for the retirement of the Post Office from fiving activities and the awarding of mail contracts to private companies by competitive bidding. At first 10 subsidlr as envisaged, and payments were limited to fourfifths of the airmail revenue. Subsequently, the basis for payment was changeil, (1) to incre:rse compensation to the carriers, and (2) to recluce airmail postage rates. As a result, payments to airmail carriers exceeded estimated airmail revenue in 1929 by nearly $7 million. In 1930 Congress passed the Waters Act which established a new formula for mail payment, providing more liberal compensation, and designed to encourage passenger traffic. This act created an active demand for ne service, and payments to airmail carriers mounted to nearly $20 million in 1932. Charges of collusion between the mail carriers and Post Office officials lead to the cancellation of all airmail contracts in 1934. The Air Vail Act of 1934 restored contract operations and competitive bidding. Total payments to airmail carriers increased from $9 million in 1935 to a little over $14 million in 1938. The Civil Aeronautics Act of 1938 further liberalized airmail payments. During much of our recent history the exact amount of subsidy payments was not segregated from total payments to air carriers. Under In its September 1964 report on subsidy for U.S. certific carriers, the Civil Aeronautics Board describes the purpose subsidy as follows: Provision for payment of subsidy by the Board to air carriers is made 406 of the act [FAX Act of 19.58), which vests the Board with the respon: making subsidy payments to C.S. mail certificated air carriers in such a are found necessary to further the threefold national interest embracing merce, postal service, and the national defense. Subsidy for the various a has materially assisted in achieving national policy objectives set oi Congress. In time of war, a reservoir of trained pilots, airline personnel, ern aircraft is assured. As a result of having been strengthened throug support, the industry is ready at any time to provide such personnel a ment. In addition to assisting in the attainment of national defense consi subsidy has been and will continue to be one of the most effective advancing the commerce of the United States and the postal service. the carriers receive the subsidy, it is in effect, the smaller communitie its direct beneficiaries through the operations of carriers such as the loc airlines. The Congress has chosen to develop modern and efficient air ti tion for these communities by subsidy under section 406, and one of th primary responsibilities in administering this program is to assure public benefit for every subsidy dollar. |