and total expenses -- this was true before and is true after the Iron or Steel Scrap case. Carriers utilizing owner-operators before the controversial decision, had to furnish the same evidence to prove compensativeness. Now, after that decision, the carrier using owner-operators, has only to show (1) that its retained revenue substantially exceeds its own costs, and (2) that the amount paid to the owner-operators is sufficient to acquire and retain the services of owner-operators.
The second requirement is based on the assumption that an owner-operator will hire himself out to the carrier only if his earnings from his operations will exceed his costs or expenses. This is patently questionable. 'The owner-operator's bargaining power is governed by the demand for his service. With investments in his vehicle, no other employment in sight, and perhaps stranded away from home, he is not in a good position to hold out for revenue certain to return his costs, assuming that he knows what they are. This precarious condition of owner-operators has also been known to contribute to violations of the hours-of-service regulations, endangering safety on the public highways.'
Other economic factors also could persuade the owner-operator to accept non-profitable employment, e.g., the need to keep his equipment in use, or pressure for future contracts. The Commission, in fact, has expressly recognized that some owner-operators are not profiting from their operations with carriers.
Thus a carrier can attract an owner-operator willing to be employed when the owner-operator's income will not defray his expenses. Obviously, this makes a rate non-compensatory and, therefore, unjust and unreasonable -- contrary to Section 216(b) and 216(d) of the Interstate Commerce Act.
The whole is the sum of all its parts. Let us equate the 'whole' with the total revenue-expense comparison. Under the owner-operator situation, there are two parts of this whole, viz., that part dealing with the carrier's revenue and expense, and that part concerning the revenue and expenses of the owner-operator. This second part may vary so as to make the applicable rates non-compensative. This same varying part, under the Commission's decision in Iron or Steel Scrap, is not even examined.
There are no regulations, presently in force, governing the splitting of revenue between carriers and owner-operators. This means that by hiring an owner-operator who provides his part of the carrier operation at less than cost, the certificated carrier can indiscriminately lower rates while still realizing a profit and meeting the requirements of the Iron or Steel Scrap case.
It is important to note that the costs evidence problem arises because of competition between the various carriers to obtain a greater share of the available traffic.
Carriers with self-sustaining operations are vying with carriers employing owner-operators. Each faction would like to keep its rates lower than the other while realizing a profit. The Commission must require that the rates be just and reasonable, i.e., they must be compensative; and that when costs data are proffered to prove compensativeness, the revenue must exceed the costs. For self-sustaining carriers this means that their total revenue is to be compared with their total costs. Under the criterion of the Iron or Steel Scrap case, applicable here, the same standard is not applied to carriers using owner-operators. They have only to prove that part of the revenue, the part they retain, exceeds their costs. The other costs are not examined. This part not examined, in the cases drawn to the attention of the court (including the second Drugs decision), comprises approximately 60-70 per cent of the cost of operation.
In this manner, the real carrier of the goods goes unregulated in a regulated industry and the purpose and design of the Interstate Commerce Act is circumvented. Unequal treatment is accorded on the one hand to the carriers who own and operate the equipment and who are required to submit refined and detailed costs data to assure compensativeness and, on the other hand, to the carriers who lease the equipment and crew and who submit a lump sum covering the cost of rental equipment and crew and add to that only administrative and overhead costs and profit. This, in our opinion, is unjust discrimination against the self-sustaining carrier, as prohibited by the National Transportation Policy.
In reaching our decision, we are not unmindful of the function that the Interstate Commerce Commission is to perform and the discretion that it has. 'Expert discretion is the lifeblood of the administrative process, but 'unless we make the requirements for administrative action strict and demanding, expertise, the strength of modern government, can become a monster which rules with no practical limits on its discretion".
In this case, the court is not questioning the selection of methods used to prove that rates are compensative. All that this court holds is that, in absence of sufficient reasons, when the costs method is used to prove the compensativeness of reduced motor carrier rates, that full production of evidence is required for both the self-sustaining carrier and the carrier using owner-operators, in order to meet the requirements of the National Transportation Policy and Sections 216(b), (d) and (g).
Accordingly, the order in Drugs and Related Articles -- New Jersey to Chicago, I. & S. Docket No. M-17133 (August 8, 1963), is vacated, set aside, and remanded for action consistent with this opinion.