APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT.
Warren, Black, Douglas, Clark, Harlan, Brennan, Stewart, White, Goldberg
MR. JUSTICE HARLAN delivered the opinion of the Court.
This case, involving four consolidated appeals from a three-judge District Court judgment setting aside an order of the Interstate Commerce Commission to the extent that it rejected certain proposed railroad rate decreases, brings before us important questions relating to the role of the Commission in its task of overseeing competition among different modes of transportation. The case is the first in which this Court has considered the interpretation and application of § 15a (3) of the Interstate Commerce Act, added by Congress in the Transportation Act of 1958.*fn1
The two corporate appellants here, Sea-Land Service, Inc. (formerly Pan-Atlantic Steamship Corporation), and Seatrain Lines, Inc., are common carriers by water engaged in the Atlantic-Gulf coastwise trade; they are the only two companies now performing this service. SeaLand, which had operated as a "break-bulk"*fn2 carrier for many years, in 1957 suspended that service and converted
four ships into crane-equipped trailerships, each capable of holding 226 demountable truck trailers. With these ships, freight could be moved by highway trailers to the port of origin, the trailers lifted onto the ships, and the process reversed at the port of destination. As a result, Sea-Land was able to provide a motor-water-motor service which afforded door-to-door delivery of goods from and to all shippers and consignees, even if not situated on a railroad siding, in containers that would not have to be opened in transit. Traditionally water rates, including water-rail and water-motor rates, have been lower than the corresponding all-rail rates, and when Sea-Land inaugurated its new trailership service in 1957, it published reduced rates which were generally 5% to 7 1/2% lower than the corresponding all-rail boxcar rates. Some 700 of these reduced rates were placed under investigation by the Commission.
In Seatrain's service, freight is transported to the company's dock in railroad cars, the cars and their contents are then lifted onto Seatrain's vessels, and at destination the cars are unloaded and delivered by rail to the consignee. This rail-water-rail service is similar to railroad boxcar service, in that it permits carriage from shipper to consignee without breaking bulk when both shipper and consignee are located on railroad sidings.
Railroad "piggy-back," or trailer-on-flatcar (TOFC), service is like that provided by Sea-Land. A motor carrier trailer is hauled by road to a railhead, loaded onto a flatcar, and demounted at destination for delivery by motor carrier to the consignee.
Before 1957, railroad TOFC rates were generally higher than all-rail boxcar, water, and land-water rates. But in 1957, primarily in answer to the new improved service and lower rates offered by Sea-Land, the appellee railroads proposed to establish, on an experimental basis, reduced rates on 66 commodity movements between certain
eastern points on the one hand and Fort Worth and Dallas, Texas, on the other.*fn3 These rates, which were substantially on a parity with Sea-Land and Seatrain rates on the same traffic, were suspended and placed under investigation by the Commission. In December 1960 the Commission disposed of 43 docket proceedings by issuing a consolidated report embracing the railroad TOFC rates involved here as well as a number of Sea-Land and Seatrain rates not now before us. 313 I. C. C. 23.
The Commission found that the proposed TOFC rates were compensatory, that is, they equaled or exceeded out-of-pocket costs, for all of the listed movements by railroad-leased flatcars capable of carrying two trailers (TTX cars), and for all but six of the listed movements by railroad-owned single trailer cars.*fn4 The Commission further found that the proposed rates equaled or exceeded fully
distributed costs*fn5 for 43 of the 66 movements by TTX cars and 14 of 66 movements by railroad-owned cars.
Having made these findings, the Commission addressed itself to what it considered the "most important" question -- "whether these [TOFC] rates constitute destructive competition." 313 I. C. C., at 44. It noted at the outset that, apart from the question of rates, most shippers prefer rail service to Sea-Land and Seatrain service and that, in order to attract traffic, the latter carriers must therefore establish rates somewhat below those of the railroads. As to relative costs, the Commission stated that Sea-Land costs, both out-of-pocket and fully distributed, were below railroad TOFC costs for all 66 movements using railroad-owned flatcars and for all but 2 of the 66 movements using TTX cars. But the Commission explicitly refrained from relying on these findings. Instead it concluded that because of a number of factors:
"We cannot determine on these records where the inherent advantages may lie as to any of the rates in issue. We must recognize, also, that cost is only one of the elements which may appropriately be considered in passing upon the lawfulness of rates. In the exceptional circumstances here presented, other considerations, herein discussed, appear to us determinative of the issues." 313 I. C. C., at 46. (Emphasis added.)
The Commission acknowledged that the recently enacted § 15a (3) prohibited it from holding rail rates up to a particular level merely to protect the traffic of another
mode but emphasized that the prohibition was qualified by the phrase "giving due consideration to the objectives of the national transportation policy declared in this Act."*fn6 In this case, the Commission stated, the reduced TOFC rates were an initial step in a program of rate reductions that could "fairly be said to threaten the continued operation, and thus the continued existence, of the coastwise water-carrier industry generally." 313 I. C. C., at 47. Since in the Commission's view the coastwise shipping so threatened was important to the national defense, to the shipping public, and to the economy of ports and coastal areas,*fn7 it concluded that the objectives
of the National Transportation Policy required the establishment and maintenance of a differential between rail rates and those of Sea-Land and Seatrain which would enable the coastwise carriers to continue their service. The Commission decided that an appropriate differential to accomplish this purpose would be 6% over Sea-Land rates for TOFC service and somewhat less than 6% for boxcar service. Accordingly, the proposed TOFC rates were ordered to be canceled, without prejudice to the filing of new schedules in conformity with the Commission's views.*fn8
The appellee railroads then brought this action before a three-judge District Court seeking ...