IDENTITY AND INTEREST OF THE NATIONAL INDUSTRIAL TRAFFIC

LEAGUE

The National Industrial Traffic League, which I shall sometimes refer to as the league, is a voluntary organization of shippers, shippers associations, boards of trade, chambers of commerce and other entities concerned with rates, traffic, and transportation. The members of the National Industrial Traffic League are located throughout the United States, consist of enterprises large, medium, and small, and use all modes of transportation by land, sea, and air.

Carriers are ineligible for membership in the league.

I would like to say at this point our members not only use but they need all the agencies of transport. The league has absolutely no malicious intent toward any form of transport. Traditionally and consistently we have been concerned with and desire that there be strong, viable competition between all the agencies of transport but under circumstances which promote sound conditions in the transportation industry.

For the more than 60 years of its existence, the National Industrial Traffic League has been dedicated to the development and maintenance of sound conditions in transportation, having in mind the needs of the Nation, the carriers, and the shippers. To that end the members, committees, and officers are constantly studying and acting upon policies with respect to transportation.

Among other things the league has frequently presented its views to the Congress on proposed transportation legislation. We appreciate very much the opportunity afforded us to do so today.

The league opposes the proposed legislation on the grounds that (1) it will give freight forwarders excessive and unnecessary economic power to obtain purchased transportation at dangerously low levels; (2) it will result in excessive pressures on rail carriers to provide transportation services to freight forwarders at levels which are inconsistent with economically sound operations; (3) the deficiencies in rail revenues from freight forwarder traffic will have to be made up on higher rates paid by the public; and (4) shippers other than freight forwarders will be paying substantially more than the freight forwarders for the same transportation services from the railroads.

LEGISLATIVE PROPOSAL HERE UNDER CONSIDERATION

The subcommittee is here considering amendments to subsection (a) of section 409 of the Interstate Commerce Act-49 U.S.C. 1009 (a)as amended. The amendments as proposed by the freight forwarder industry are in the nature of additions to present subsection (a) of section 409 of the Interstate Commerce Act and are indicated by italic:

SEC. 409. (a) Nothing in this act shall be construed to prevent freight forwarders subject to this part from entering into or operating under contracts with common carriers by railroad subject to Part I of this act, or from entering into or continuing to operate under contracts with common carriers by motor vehicle subject to part II of this act, governing the utilization by such freight forwarders of the services and instrumentalities of such common carriers by railroad or motor vehicle and the compensation to be paid therefore; Provided that in the case of such contracts it shall be the duty of the parties thereto to establish just, reasonable, and equitable terms, conditions and compensation which

shall not unduly prefer or prejudice any of such participants or any other freight forwarder and shall be consistent with the national transportation policy declared in this act: And provided further, that in the case of line haul transportation by common carriers by motor vehicle between concentration points and break bulk points in truckload lots where such line haul transportation is for a total distance of four hundred and fifty highway miles or more, such contracts shall not permit payment to such common carriers by motor vehicle of compensation which is lower than would be received under rates or charges established under Part II of this Act.

SEC. 2. The heading of section 409 is changed to read as follows: Utilization by Freight Forwarders of Services of Common Carriers by Railroad and by Motor Vehicle.

The effect of the proposal is to give to freight forwarders the right of a contract basis of charges on forwarder freight moved by railroad, comparable to the contract basis presently provided by section 409 (a) on forwarder freight moving by common motor carrier but without the limiting proviso now in effect in the latter case which requires the payment of rates on no less than the tariff basis when in truckload lots in line haul transportation between concentration points and break bulk points for a distance of 450 or more highway miles. To such a change, the members of the National Industrial Traffic League are emphatically opposed.

While the prior history of section 409 probably will be adequately developed by other witnesses, for the purpose of this statement it is sumarized as follows: Original section 409 of the Freight Forwarders Act outlawed joint rates and concurrences between forwarders and common motor carriers in favor of so-called assembly and distribution rates. In the 1946 amendment to section 409-H.R. 2764, 79th Congress-Congress, at the request of the forwarders and with the acquiescence of shippers, turned over the whole question of the rate relationship between forwarders and motor carriers to the Interstate Commerce Commission, as a body expert in the subject matter and required to exercise its best judgment and discretion within the guidance provided by the national transportation policy.

The Commission, after a proceeding involving over 2 years of hearing and consideration-docket 29493-found unlawful truckload terminal-to-terminal charges on less than a tariff basis (272 ICC 413). As to assembly and distribution traffic the Commission found handling of such movements at less than tariff rates to be proper but subject to further consideration with respect to the adequacy of the compensation in particular proceedings.

H.R. 10831 would now extend to railroad shipments the same freedom of contract without the 450-mile proviso.

During the second session of the 84th Congress, your subcommittee had under consideration a bill, H.R. 9458, to amend section 409 of the Interstate Commerce Act, as amended, to authorize contracts between freight forwarders and railroads for the movement of trailers on flat

cars.

In opposing the bill at that time, the league pointed out that the one distinctive characteristic of forwarders which existed at the time of their first regulation and remains today is their dual character, operating on the one hand in the relation of common carrier to their own shippers, and on the other hand as shippers utilizing the services of the underlying common carriers.

Accepting as valid the idea that the shipper-carrier relation carries with it the obligation of publishing and payment of tariff rates, Congress in 1950 did set up a limited exception dealing with common motor carrier handling of forwarder shipments of certain size and for certain distances.

The fear then expressed by the opponents for such a proposal, including the National Industrial Traffic League, that the breach once made would immediately be subjected to an attempt to widen it into the field of rail transportation became a reality in 1956.

Congress very wisely took no action on the proposal at that time but shippers are once more confronted with a similar proposal.

The valid differences existing in 1956 which fully justified refusal to extend further the concept of contract rates exist today. All of the reasons previously advanced against approval of such contract rate principle in any degree are particularly important in connection with rail lines.

Such contract basis is contrary to the whole scheme of for hire carrier regulation as embodied in the Interstate Commerce Act. The national transportation policy again cannot possibly be furthered by permitting members of one agency to obtain transportation service performed by the members of another agency unless the tariff rates are open to all who use the latter agency.

This thought was expressed by the Commission in its docket 29493 decision (Freight Forwarders, Motor Common Carriers, Agreements 272 ICC 413, 450) when it said:

When forwarders operate under agreements in the handling of terminal to terminal traffic by which they obtain transportation from motor common carriers at compensation less than would accure under the tariff rates of the latter, they depart from their proper sphere as transportaiton agencies, and are improperly invading the recognized field of other carriers. This is contrary to the national tansportation policy.

The ill effects of such departure are even more apparent when the underlying carriers involved are railroads than when they are motor carriers. In the first place the stake involved is much larger. As reported in its 81st annual report to Congress for 1967 by the Interstate Commerce Commisison class A freight forwarders in 1966 paid $345.9 million for purchased transportation. Of this amount, $170.1 million was paid to railroads: $80.8 million was paid to common motor carriers. To the extent that this tonnage and this revenue may be a basis for undue pressure, or may be a method of unjust bargaining, the amount at stake is obviously much greater when railroads are involved. Furthermore, the possible range of departure from a normal basis of compensation-accepting for the moment the published tariff rate as the normal basis-is much greater in the case of rail lines than in the case of motor carriers.

If a motor carrier publishes a particular rate on a particular traffic open to the public, the extent to which that motor carrier can go below such rate on a contract basis for a freight forwarder is severely limited.

The spread between the tariff rate, presumably on a profitable basis, and any lower figure which might be the subject of contract is comparatively small in the case of motor carriers, probably on the order of 10 to 15 percent.

In the case of rail lines, however, with a much higher percentage of fixed cost and a much wider spread between out-of-pocket cost and fully allocated cost, the rail lines under the pressure of traffic necessity may be able and feel compelled to go very much below published tariff rates to their own detriment and the detriment of other rail patrons. While we are mindful of the provisions of section 409 (b) as to the filing of contracts between freight forwarders and common carriers, we must be frank to state that the lack of actual knowledge about these contract arrangements is highly objectionable. As a practical matter in my opinion the shippers throughout the country do not have access to these contracts or any comprehensive knowledge of the actual basis of forwarder payments to motor carriers.

While part 500 of title 49 of the Code of Federal Regulations covers the matter of filing such contracts at the Commission obviously the details of such contracts are not available to the shipping public and to others concerned as is the case with freight rates, charges, and other provisions contained in published tariffs filed by the carriers in the usual manner with the Interstate Commerce Commission and made generally available to the shipping public.

In all candor the so-called protective provisions of section 409 (a) offer no real protection to the shipping public, or to individual shippers, because the burden of trying to enforce such protective conditions would be extremely complex, time consuming, expensive and, we are afraid, illusory.

The tonnage volume controlled by freight forwarders, reflected in the revenue figures I have quoted above is obviously enormous. It should be kept in mind that this volume, so largely concentrated in the hands of the freight forwarders, provides just as tremendous bargaining power as it would in the hands of an individual industry. Or a small group of individual industries who have control over such tonnage.

Realizing that bargaining power in the hands of an industry requires steps to prevent its abuse, under the Interstate Commerce Act, the Commission has set up a system of rate regulation, published tariff rates, mandatory payment of such rates by all who use them, freedom from unjust discrimination, undue preference and prejudice, and so forth. These same protections are equally required to prevent abuse of bargaining power in the hands of freight forwarders.

I wish to make it prefectly clear that the league is opposed to the present provisions of section 409. It regards the proposed amendment as producing an even greater evil and as compounding an existing evil, which should not be permitted by the Congress.

As recently as November 1967 the members of the league at their annual meeting in New York reaffirmed the league's policy relating to freight forwarders. This review and reaffirmation was, I might add, the direct result of our consideration of this pending legislation, H.R. 10831.

League policy J-2 is as follows:

Charges paid by freight forwarders to underlying carriers:

a. Freight forwarders should pay for the transportation services of underlying carriers at the published and filed tariff rates of those carriers, such rates being open and available to all shippers generally for similar services and under similar transportation conditions.

b. No "through" rates, nor divisions of such rates shall be established between freight forwarders and their underlying carriers.

c. No "contract" rates shall be established between freight forwarders and their underlying carriers.

The proposed bill does not provide the 450-mile limitation presently incorporated in section 409(a) with respect to contracts between freight forwarders and motor common carriers. We have earlier indicated our unalterable opposition to this bill. At this juncture we merely state that the 450-mile limitation on freight forwarder-motor carrier contract rates should not be forgotten.

In earlier unsuccessful attempts by the freight forwarders to obtain legislation permitting them to make contracts with railroads, they made reference to piggyback service. As of now, our information is that a very heavy proportion of freight forwarder traffic now moves in rail piggyback service. To be sure the freight forwarders have to comply with published tariffs of the railroads. We would point out that that is exactly the situation with respect to shippers.

The proposed legislation is not excusable or required as a necessary measure to assist freight forwarders as a hard-pressed segment of the transportation industry. The freight forwarders as a group have been achieving extremely profitable and healthy operating results. The recently released "81st Annual Report of the Interstate Commerce Commission," covering the fiscal year ended June 30, 1967, develops several indicia of this freight forwarder health and prosperity including an 80 to 50 ratio of revenue from forwarder operations to net investment in transportation property plus working capital (i.e., pretax return on net investment), and a 56 to 75 ratio of net income to shareholders' equity (i.e., return on net worth). The comparable figures for the last 10 years show the same general health and are reproduced from table 59 at page 166 of the 81st annual report:

RATES OF RETURN OF CLASS A FREIGHT FORWARDERS, 1957-66

1 Data of 1 large corporation in process of reorganization under ch. X of the Bankruptcy Act have been omitted from this item. Inclusion of such data would have distorted ratio of net income to shareholders' equity.

Mr. FLINT. These high returns on equity achieved by the freight forwarders can be compared with the annual rate of profit after taxes on stockholders' equity for manufacturing corporations of 13.4 being achieved in the fourth quarter of 1966 according to the Quarterly Financial Report for Manufacturing Corporations, prepared by the Federal Trade Commission and Securities and Exchange Commission.