Transit Privileges - Past, Present, and Future (?)

l.|NE OF the mosr importanr facV tors in the marketing of lumber and other forest products is the cost of delivering the finished products to their ultimate destinations. This includes not only the transportation charges from the point of manufacture, but the cost of bringing the inbound raw material to the mill, either by rail or by truck.

Freight rates for rail shipments from Western mills to destinations east of the Rocky Mountains are grouped, so that rates from a manufacturing facility in Sacramento, Ca., for example, are the same or nearly the same as rates from the sawmill in Oregon to the various eastern destinations. The inbound costs mav varv substantially, depending on itre tocations of the individual plants.

In order to equalize the competitive positions of various mills, and promote the growth of industry on their lines, railroads many years ago conceived the idea of granting transit privileges for millingi reatiig, storage, and other operations. This was a good selling point for the railroads, and many new industries were established irr locations which would not otherwise be competitive, using land obtained with the assistance of the carriers, and in many cases on property which was purchased or leased from the railroads.

As many of our readers already know, transit privileges are based on the principle that both the inbound and outbound freieht movements are parts of one continious shipment from the origin of the lumber to the final destination, which has been stopped at the mill or other facility for further manufacturing or storage. When the transit operator reships the lumber, freight is assessed on the basis of the through rate from the inbound origin to the final destination, less inbound freight charges on the outbound weight, plus an additional charge, known as a transit charge. This charge is intended to cover the additional costs to the carrier resultins from the switching to and from the- siding at the transit station. as well as the costs of keeping transit records and policing to insure that the transit is used in accordance with the requirements published in the tariffs.

In addition. charses are sometimes added to cover out--of-line hauls, in cases where the transit stations are not directly intermediate between the sawmills and the ultimate destinations.

By B. R. Garcia Transportation Consultant, B. R. Garcia Traffic Service San Francisco, Ca.

This arrangement works well both for carriers and for shippers. Very seldom can a location be found for a milling facility which includes all of the elements necessary to a successful operation; such diverse factors as relative proximity to raw material, availability of an ample labor force, government services such as fire protection, and adequate utilities services.

For this reason, many manufacturing plants are built at some location which, in the judgment of management, offers the best compromise between these factors. Therefore, transit manufacturing and storage facilities are often built close to population centers, and at a distance from the raw material. Transit privileges offer the best available method of making such a location feasible from the standpoint of transportation costs.

Story at a Glance

In addition to benefiting the transit operators, this arrangement gives the railroads an advantage over their truckine competition. Due to the inherent -advaniage of the railroads in their ability to haul large shipments for long distances at operating costs which cannot be met by trucks, hansit privileges give the railroads an extra selling point. Trucks cannot afford to offer this service.

Judging from the developments in recent years, and statements by carrier pricing representatives, it appears that the railroads are not happy with transit privileges, and feel they are losing money on this service.

Ten years ago, the transit charge was 7 cents per 100 pounds. By 1975, this charge, due to various general rate increases approved by the Interstate Commerce Commission. had risen to l4r/z cents. In 1976. the carriers attempted to apply a selective increase to transit charges, setting a floor of 19 cents per 100 pounds. Acting on protests of numerous shippers, including a petition for suspension which we initiated for one of our clients, the Interstate Commerce Commission suspended application of the 19 cent charge, and conducted an investigation to determine whether or not the proposed increase was lawtuI.

ln 1977 , the commission issued its decision, in whch they found the proposed 19 cent charge to be prejudicial to the Western transit operators, and ordered the railroads to cancel the suspended tariffs.

The railroads appealed this decision to the commission, and this appeal was subsequently denied. The carriers then took their case to the courts. In a decision rendered October 2, 1979, the United States Court of Appeals for the Fourth Circuit took exception to the findings of the Interstate Commerce Commission, and remanded this matter to the commission for further consideration on the existing record. Upon reconsideration, the commisison earlier this year reversed its previous decision.

By June 5, 1979, due to general rate increases, the former charge, which was l4Yz cents in 1975, had risen to l9Vz cents, and the carriers proposed a new selective transit charge increase.

Following public hearing, carriers approved the proposal, and tariffs were filed, showing an effective date

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