not less than $1.05, to the basis of the first-class rate for 100 pounds, but not less than $1.25.5 The minimum charge here in issue duplicates that which was considered in the cited proceeding to the extent indicated above, and apparently would result in lower charges on articles rated lower than first class than those approved in Minimum Charges in Central Territory, supra. It has, therefore, become moot.

Relation of class rates.-At the time the first of these proceedings was instituted, the respondents' rates for each class lower than first class reflected a uniform percentage relation to first class. That is, between any two points, classes 1, 2, 3, F, and 4 represented 100, 85, 70, 55, and 50 percent, respectively, of the first-class rate. The emergency charges of 1 cent on truckloads and 2.5 cents on less than truckloads disturbed this percentage relation somewhat, but after the flat increase of 20 cents on shipments under 5,000 pounds, regardless of commodity, rating, or distance, became effective, there no longer was any uniform relation between the lower classes and first class on such shipments. Moreover, the increase of 20 cents was greater, proportionately, in the lower classes, and thus the normal spread between the classes was reduced. Consequently, certain protestants contended, among other things, that a percentage increase would have been a preferable way to gain the necessary revenue. Other protestants questioned whether the rate-break point for small shipments should not have been set at a weight lower than 5,000 pounds.

The considerations which led to the imposition of the flat increase of 20 cents were as follows: After the cessation of hostilities, it became apparent to the respondents that the proportion of shipments weighing less than 5,000 pounds was increasing and that the cost of handling any shipment which required pick-up and delivery service or handling through a terminal was rising rapidly. It was felt, too, that there was little difference in terminal costs due to the classification of the article or the extent of the line haul. The rates then in effect were patterned on the rail structure which had not been substantially altered at the time the rail carriers inaugurated free pick-up and delivery service on less-than-carload traffic. Respondents urge, therefore, that the flat increase of 20 cents represents a correction in their basic rate structure which was long overdue.

The respondents' evidence included extensive studies regarding the expenses incurred in transporting small less-than- truckload shipments in relation to the expenses for larger shipments. A natural breaking point is around 5,000 pounds, as loads in excess of this quantity are not ordinarily moved over the terminal platforms or transferred from or

The latter minimum was increased to $1.50 in February 1948.

to collection and delivery vehicles. Variations in less-than-truckload rates based on the weight of the shipments have been a common feature of the rate structure of the motor carriers in the past. For a short time these so-called rate breaks were eliminated, but when again imposed in the form of increased rates on shipments weighing less than 5,000 pounds, no decline in traffic was experienced. The examiner concluded there was no substantial evidence that a higher level of rates for small shipments than for larger less-than-truckload shipments is per se contrary to the national transportation policy or unduly prejudicial or unjustly discriminatory. He further found that the cost evidence sustained the main contentions of the respondents that the cost of handling and transporting less-than-truckload shipments weighing less than 5,000 pounds is greater than that of heavier less-than-truckload shipments, and that a differential of approximately 20 cents per 100 pounds is necessary from the viewpoint of cost alone to establish a proper relation. No exceptions were filed thereto. Upon this record, we adopt the examiner's conclusions as our own.

6

General.-Extensive evidence of the increased and increasing operating expenses of the respondents, both individually and collectively, as well as other financial data, was submitted. Despite the establishment of successive general increases by the respondents, including those in issue herein in No. MC-C-496 and No. MC-C-518, the average operating ratio of 205 intercity carriers of general commodities for the first half of 1947 was 94.9, which the respondents contended illustrated that their financial plight was still extremely hazardous. The Department of Agriculture, hereinafter called the Department, contended, however, that the proper guide to be used in determining the financial needs of motor carriers is the rate of return on investment, and urged that the accumulation of large equity surpluses and a tremendous expansion in plant during a period of war and high prices demonstrates that the rates were adequate. Evidence was submitted by the Department in support of these contentions. The examiner concluded, among other things, that average operating ratios are a convenient and important index in ascertaining fair profits, and that by their use a standard is set which is based neither on the high costs of the inefficient carrier, nor on the low costs incurred in an unusual or specialized service. He found, in general, that the rates and charges under consideration in these proceedings were not unlawful. As already stated, only the Department filed exceptions, and the respondents replied. The evidence will be reviewed only in connection with the points raised in the exceptions.

• Operating ratio indicates the relation, in percent, of the operating expenses to the operating revenues.

The operating ratios for the period 1941-45 of 43 respondents in the central region which had annual revenues each in excess of one million dollars in 1945 were as follows: In 1941, from 89.5 to 100; in 1942, from 88.6 to 101.1; in 1943, from 89.6 to 110.7; in 1944, from 94 to 109.5; and in 1945, from 93.6 to 108.9. The average operating ratios for those years were 95, 96.1, 98.5, 98.8, and 100, respectively. Operating ratio of 2427 intercity carriers of general commodities in the central region, taken from annual and quarterly reports filed with us, were as follows: In 1944, from 59.9 to 112; in 1945, from 71.6 to 133.3; in 1946, from 72.2 to 120.9; and in the first half of 1947, from 64 to 120.6. The average operating ratios in those periods were 98.2, 99.9, 95.2 and 94.9, respectively. A study by the Department, in which the data of 44 class I carriers in central territory with operating revenues of one million dollars or more in 1946 were used, discloses that the average operating ratio of that group in 1946 was 95.1.

In every period there was a substantial number of carriers with operating ratios in excess of 100. It is urged by the respondents that an over-all operating ratio of 95 or higher indicates an unhealthy condition in the industry and that to be in a healthy and thriving condition, a ratio of not more than 90 is essential. Experience of the past decade indicates to respondents that when an operating ratio reaches or exceeds 95, a carrier does not have adequate working capital to meet the contingencies of its business, there is a tendency to curtail service, impose embargoes, select the more profitable traffic, and dip into sinking fund reserves to meet operating losses, with the general result that poor and inadequate service is rendered to the public. The use of depreciation reserve funds to provide working capital tends to delay the replacement of equipment, results in its purchase on credit, on which finance charges accrue, and in the leasing of vehicles. An additional consequence of delayed replacement is excessive garage and maintenance expense. It does not appear, however, that the general average operating ratio at any time since the advent of Federal regulation was as low as 90. The range in operating ratios discloses wide variations in operating results by numerous carriers maintaining the same rates. This comes about in various degrees from the character of the traffic handled, the method of operation, as for example, the extent to which leased equipment is utilized, the amount of specialization and concentration on certain types of traffic and shippers, individual situations involving labor difficulties, financial distress, and possibly in some instances excessive rewards to owner-management or inefficient or improvident operation.

Some of these carriers did not report for every period.

The Department argues, however, that the operating ratio does nothing more than indicate the profit realized from each dollar of revenue, and does not in any way measure the adequacy or justice of that profit, or make any allowance for inequities or different levels in revenues of the individual carriers.

The operating data of 44 class I motor carriers in central territory with operating revenues of 1 million dollars or more in 1946 were analyzed by a witness for the Department. For 40 of these carriers, this analysis disclosed that from 1939 to 1946 the aggregate operating revenues of those carriers increased from $50,560,803 to $99,324,694, or 96.4 percent, operating expenses from $47,626,019 to $94,538,612, or 98.5 percent, net operating income from $2,888,373 to $4,783,482, or 65.6 percent, "quick assets" (cash, working funds, and materials and supplies) from $2,385,576 to $4,788,451, or 101 percent, operating property less depreciation from $5,150,166 to $13,331,166, or 159 percent, and total capitalization from $6,453,190 to $15,541,963, or 141 percent. It is the growth revealed by these figures which indicates to the Department that the respondents enjoyed sufficient revenues during the war and postwar period as a whole.

The gross revenues of these carriers in 1941, however, was $83,197,526, indicating that less than 15 percent of the increase occurred in the 5-year period from 1942 through 1946, which includes the war and postwar periods. Moreover, although the revenues in 1946 after February 28 reflect all of the general increases established to and including that date, including those here in issue in No. MC-C-496 and No. MC-C-518, the operating ratio was less favorable than in 1939, having been 94.2 and 95.2, respectively.

The investment in operating property, less depreciation, of all 44 of the carriers in the analysis was $14,013,133 for 1946, which represented only small fractions of their annual operating revenues and expenses, as indicated by the data for 40 of those carriers shown in the preceding paragraph. The net operating income, before income taxes, of the 44 carriers aggregated $5,226,896, and, after income taxes, $3,265,213. The working capital of these carriers, including cash, working funds, and materials and supplies, amounted to $5,289,564. The latter amount, in relation to the annual operating expenses already shown, was sufficient for less than 3 weeks' operation. The Department, giving consideration only to the depreciated investment in operating property and net income before taxes, contends that the return on investment in operating property was 37.3 percent. When, however, the working capital is added to the depreciated investment in operating property, the investment base is increased to $19,302,697.

The latter amount, in relation to the income after taxes, results in an average net return of about 17 percent.

The Department in its exceptions does not agree that working capital and income taxes are properly included in determining the rate of return, but insists that in any event an average net return of 17 percent is more than adequate.

We do not believe it is necessary to consider what measure of return on investment would be appropriate, for we are convinced that, in adjustments involving general increases such as those here in issue, the important guide is the cost to the carrier for performing the service, the relation of which to the revenues of the carrier is expressed in the operating ratio.

It is also contended by the Department that the rates under consideration were and are predicated upon the railroad rates, and that it is contrary to the Interstate Commerce Act and the congressional intent in respect thereof to do so. As hereinbefore indicated, the rates of the respondents on shipments under 5,000 pounds are generally materially higher, and on larger shipments generally somewhat lower, than the corresponding rail rates.

The Department also excepts to the conclusions of the examiner that comparisons of the salaries of officials of a number of motor carriers with those of a number of railroads, mostly subsidiary lines, having comparable revenues, does not indicate that the payments to motor-carrier officials were excessive. It now contends that its purpose was to establish that respondents' officials were not underpaid, and that no increased revenue was needed for them. There is no claim by respondents that additional revenues are needed to compensate their officers.

The record reveals in detail the impact on the respondents of the rising spiral in prices and wages during the war and postwar period with particular reference to the period from July 1, 1945, to June 30, 1947. Periodically, as their costs of operation rose, the respondents were confronted with the problem of how best to augment their revenues to restore the normal relation between revenues and expenses. The record indicates that the carriers as a whole have been diligent in their search for the causes of loss due to inefficiencies in their operations, and that efforts in good faith have been made to improve their operating practices. Proof is lacking that as a group the compensation to management for services rendered has been excessive, or that other expenditures have been improvident. There is evidence of added costs in certain instances resulting from a lack of capital or an inability to secure long-term loans, but this cannot be attributed to an