A $937 million annual increase in railroad freight rates was approved yesterday by the Interstate Commerce Commission - just before release of an industry report showing a sharp decline in overall profitability.
The 5 per cent, across-the-board rate boost is scheduled to take effect Nov. 30, adding new costs to a broad range of consumer products ranging from automobiles to fresh produce.
Excepted by the ICC were feed grain shipments between the Midwest and New England, where the rate increase will be limited to 5 per cent; and wood chip shipments on the Missouri Pacific line, where no no increase was allowed.
Although the freight rate increase was opposed by the Carter administration's Council on Wage and Price Stability and shipper organizations, the regulatory agency said yesterday that "without the proposed increase, sufficient funds will not be available for the railroads to defray cost escalations" already identified.
At the same time, the ICC said it would investigate the rates as applied to the following commodities: newsprint paper, sodium alkalies, industrial gases, sulphuric acid, rubber, manufactured iron and steel and recyclables.
By investigating these rates, even as the higher charges take effect, the ICC subsequently could order a rollback if they are found to be improperly high.
The nation's railroad industry, in seeking the higher rates earlier this fall, argued that expenses have increased more than $1.1 billion since last Jan. 1. A number of lines suffered unusual losses during last winter's snow and subsequent spring flooding.
In addition, the general economic weakness has resulted in lower-than-anticipated freight shipments. After current talks with rail unions on new contracts are concluded, the industry will face higher wage costs (effective Jan. 1).
According to the Association of American Railroads, the industry operated with a combined $16.5 million deficit in the third quarter this year compared with profits last year of $78.1 million. A major factor in the quarterly loss was the $54.7 million deficit posted Wednesday by giant Consolidated Rail Corp., which has been hit hard by steel production cutbacks.
According to the AAR's report yesterday, however, significant decreases in earnings were reported among both eastern and western roads. Only in the South, where profits increase slightly on a major boost in freight traffic, was the pattern different.
AAR president William H. Dempsey said yesterday that the declining industry profitability reflects a sharp hike in costs during the third quarter. Overall quarterly revenues rose 6.7 per cent to $5 billion.
For the 12 months ended Sept. 30, the railroads operated with a combined rate of return on investment of 1.27 per cent. Ten of the nation's 52 major railroads operated in the red during the first nine months of the year - five in the East, four in the West and one in the South.
According to the Council on Wage and Price Stability, cumulative general freight rate increases since November 1970 have totaled 96.7 per cent, not counting to boost approved yesterday.
Since some of the increases have not been applied, however, the actual increase in rail rates from June 1970 to June 1977 was 80 per cent while consumer prices rose 55 per cent.
The government monitoring agency told the ICC that across-the-board rate boosts are "needlessly inflationary" and suggested that the process diminishes managerial incentives to hold down costs and to develop efficient rate structures.