America's railroads plan to ask the Interstate Commerce Commission this week for approval to increase annual freight rates by $1.7 billion, effective Dec. 15.
The proposed rate boost, which would affect transportation costs for a broad range of products used by industry and consumers, will provide an early test of how independent regulatory agencies plan to follow general guidelines of the Carter administration's new anti-inflation program.
Moreover, the rail rate case may provide a hint of ICC reaction to growing impatience in the industry over the agency's recent record, which rail executives contend has been at odds with a law mandating a reduced government role in setting freight tariffs.
According to railroad officials, the proposed rate increase will be filed at the ICC on Wednesday morning, in the form of 6 1/2 tons of documents detailing a sharp deterioration in industry profitability as well as specific commodity rate increases or decreases proposed to cover higher costs that mostly have taken place.
The documents show that freight rate increases will average 8.3 percent. But, in terms of overall rail company revenues, the proposal means an increase of about 8.1 percent.
President Carter's guidelines limit price hikes to one-half percentage point below a company's average annual rate increase for the past two years - in the case of railroads, one-half percentage below 8.4 percent, the average level for 1976 and 1977.
But Richard Briggs, vice president for economics at the Association of American Railroads, forecast that the rail increase would be in line ultimately because the industry expects "at a maximum" to yield 95 percent of its request - and that would bring the total increase to a level 7.9 percent or lower.
The average freight rate boost of 8.3 percent is based on an across-the-board increase of 8 percent applied to about two thirds of traffic revenues plus higher price increases, lower price increases and some actual decreases, affecting about a third of revenues.
Thus, proposed rates for some commodities will be greater than Carter's 9.5 percent ceiling on price boosts. Citrus fruit rates from the South to the Northeast would be boosted 12 percent, soybean and wheat shipping rates would jump 10 percent and pulpwood chip rates would be increased 15-percent between the East and West - to cite a few examples.
The largest revnue increases would be for coal, grain, sawlogs, pulpwood, flour and meal products and sand, gravel and limestone. There would be decreases for piggyback-container traffic, frieght in closed cars, household appliances, machinery and coal tars.
Althoug administration officials declined any immediate comment on the rail industry proposal, the concept of some larger rate increases as part of an overall package that falls within the price guidelines is thought to be accepatable under the Carter program.
The ICC itself has asked the railroads to file specific commodity rate boosts to reduce unprofitable business and to shun across-the-board hikes.
According to industry spokesmen, a maximum of $1,725 billion in new annual revenues would be generated only if applied immediately at intrastate as well as interstate levels - an unlikely event because state agencies must act independently on various rail proposals. The actual interstate rate hike being sought is $1.58 billion.
One possible snag the railroads could face with the administration's guidelines is the request that price increases not take place all at once, if possible.
The most recent general rail rate increase was 3.3 percent last summer, to bring in 650 million in new revenues.
Rail officials, citing their own studies as well as a gloomy economic forecast from the ICC, said their industry will quick approval for the entire rate hike. The ICC said recently that without a rate increase, the industry would operate with a deficit of 1.7 billion in calendar year 1979.
According to the rail industry:
More than 1.1 billion of new revenues are needed to cover higher costs already on the books and some 163 million of cost increases scheduled to take place before year's end.
Even with the rate hikes, industry profits would remain among the lowest ever recorded. Operating profits dipped in 1977 to the lowest level in 39 years, with a further decline in the year ended June 30. The industry rate-of-return on investment was 0.89 in 1977, the lowest in history and a twelfth of that "considered necessary in most regulated industrues . . ." The figure declined to 0.24 percent in fiscal 1978.
Rail cost increases are for fuel, material, equipment rents, fixed charges and depreciation plus a 3 percent hike Oct. 1 and a 25 cents cost-of-living allowance due Jan. 1, plus higher rail retirement payments.
By Jan. 1, according to rail officials, the industry will be absorbing uncovered cost at the rate of 95 million a month.
The White House program offers an exception to firms that cannot meet price standards "because of uncontrollable price increases." Such firms must show profit margins no higher than the average of the best two of three prior fiscal years, and Briggs said the depressed rail industry should qualify.
If not, Briggs said a "hardship" exemption probably would be applied - a statement based on his discussions with Carter inflation fighters. "The gruesome fact is, if there was no change in the next nine months in traffic and we had the inflation of 6.5 percent that is Carter's goal, we still wouldn't make any money in the next nine months even if this rate increase is approved," Briggs added.
ICC Chairman Daniel O'Neal said yesterday his agency is planning to take into account the White House inflation guidelines and he emphasized that the railroads will have to demonstrate that increased rates are "fully justified."