Freight forwarders historically live off the differential between the rates they charge and the levels at which they purchase transportation from other modes of carriers, including railroads. The rates they charge in transporting small shipments which they then consolidate are generally at or near the level of rates on the same size small shipments published by the motor carriers.

The forwarders thus thrive within the differential or so-called small shipment arbitraries. That differential has been growing in recent years, and there is reason to believe that it will continue to grow, leaving the freight forwarders with a larger margin between revenues and cost. The forwarders' economic health under such conditions argues strongly against granting them the additional leverage contemplated in the proposed legislation.

The simple fact is that the effect of the proposal before you today would be to place the freight forwarders in the role of preferred rail shippers. In the past and at the present time, freight forwarders are required to use published railroad tariff rates and charges, on file with the Interstate Commerce Commission, which are available to all shippers alike.

The National Industrial Traffic League opposes the proposed amendment to section 409 (a) which would allow a freight forwarder to get together with the railroads and agree on a level of charges. We see no reason why the freight forwarders should not utilize the published railroad tariff rates and charges, just as do shippers, large, medium, or small, or shippers' associations.

We are genuinely concerned that using the bargaining powers they would have in conjunction with this proposed amendment, these freight forwarders will exact unduly low or otherwise economically unsound rates from the railroads, and the burden of this will fall directly upon the shipping public. This is intolerable and uniustified. In summary, the National Industrial Traffic League urges Congress to reject in its entirely H.R. 10831. It urges that the contract rate basis sought by the freight forwarders be not extended to encompass railroads.

As users of transportation, freight forwarders are to be recognized as shippers.

The Supreme Court of the United States in Chicago, Milwaukee, St. Paul, and Pacific Railroad Company v. Acme Fast Freight, 336 U.S. 465, in 1949, pointed out, and I quote:

In its relations with these carriers (under parts I, II, and III), however, the status of the forwarder is still that of a shipper.

A major purpose of the freight forwarders in seeking this legislation is transparent. They are seeking substantially cheaper purchased transportation from the railroads.

If they succeed in this, they will obtain substantially lower rates than other shippers for the same service. Further, the economic burden of such reductions in the cost of purchased rail transportation by the freight forwarders will have to be borne by shippers generally.

This is not in the public interest and this proposed "private interest" legislation should be rejected. The National Industrial Traffic League asks that H.R. 10831 be disapproved.

89-367-68- -9

On behalf of the league, I wish to state our appreciation for the opportunity to appear and express our views in opposition to H.R.

10831.

Mr. FRIEDEL. Thank you very much for your statement. Do you have any questions, Mr. Adams?

Mr. ADAMS. I have one. On page 11 you have a very interesting concept set forth that the differential is growing that is available to the freight forwarders.

Since you have a great deal of statistical information and work in this field is it your feeling and your statement here that the motor carriers and the railroads are moving out of the small shipment business, the 1.c.l. business and small pick up business, and therefore the small shipper is now and in the future going to have to, probably, pay higher rates which will provide a greater differential for the freight forwarders?

Mr. FLINT. Basically what I intended was that the difference between the carload rates applying on smaller shipments was increasing. In each one of these general rate increases with which we are confronted

Mr. ADAMS. It is less and less attractive we will say for motor carriers to handle this and therefore those left in the field are charging more for it?

Mr. FLINT. That is right.

Mr. ADAMS. And also as then it becomes less attractive competitors tend to move out of the field?

Mr. FLINT. That is right. The railroads as you know have very largely moved out.

Mr. ADAMS. I understand there is almost no 1.c.l. handled by the railroads?

Mr. FLINT. That is correct, very little of it left.

Mr. ADAMS. Thank you.

Mr. FRIEDEL. On page 12 of your statement you state: "If they succeed in this, they will obtain substantially lower rates than other shippers for the same service." Would they get lower rates than the truckers get today?

Mr. FLINT. I would think probably they would. This is a matter of speculation I would think. Actually the distinction made there was between other shippers, the relationship of the motor carriers

Mr. FRIEDEL. With the shipper and not carriers, is that it?

Mr. FLINT. Yes, sir; I was speaking of shippers; that is right. Mr. ADAMS. Mr. Chairman, could I interject here?

Mr. FRIEDEL. Yes.

Mr. ADAMS. Describe for me the limitation on what can be done by truckers and under plan 1 in making special contracts for carrying the piggyback goods?

Is there a limitation on there which says you must either charge the shipper no more than the established motor truck rate between the areas or is there a limitation on that?

Mr. FLINT. No, sir; under plan 1, as I understand it-I stand subject to correction-the railoads and motor carriers are allowed to make contacts.

But this is, if I may make this distinction, this is in the form of a substituted service. In other words, the motor carriers have authority, they have equipment

Mr. FRIEDEL. Again, is it that they cannot charge the shipper any more than what is the published truck rate between those two points? Mr. FLINT. That is right; they can't charge the shipper any more. Mr. ADAMS. The trucker can put it on the railroad if he wants or he can ride it between the points, but his rate to the shipper must be what he says it is?

Mr. FLINT. That's right.

Mr. FRIEDEL. Also truckers can enter into contracts with the railroads?

Mr. FLINT. Yes, sir.

Mr. FRIEDEL. That is for reduced rates?

Mr. FLINT. That is right; as a substituted service.

Mr. FRIEDEL. Gentlemen, the meeting will stand in recess until 2 p.m. We have asked for permission to sit while the House is in session this afternoon and I am confident that it will be given.

Mr. FLINT. Thank you very much, sir.

(Whereupon, at 12:15 p.m., the subcommittee recessed, to reconvene at 2 p.m.)

AFTER RECESS

(The subcommittee reconvened at 2 p.m., Hon. Samuel N. Friedel, chairman, presiding.)

Mr. FRIEDEL. The subcommittee will come to order.

Our first witness this afternoon will be Mr. Leonard Joseph, executive director of the Manufacturers & Wholesalers Association, San Francisco, Calif.

Is your statement brief?

STATEMENT OF LEONARD JOSEPH, EXECUTIVE DIRECTOR, MANUFACTURERS & WHOLESALERS ASSOCIATION OF SAN FRANCISCO

Mr. JOSEPH. I would like to file my statement for the record and make a brief oral statement.

Mr. FRIEDEL. Fine.

Mr. JOSEPH. Mr. Chairman, my name is Leonard Joseph. I am executive director of the Manufacturers & Wholesalers Association of San Francisco, a position which I have held for the past 16 years. The association is composed of about 100 small manufacturers and wholesalers of apparel.

We are not a shippers association but the individual member firms ship freight, mostly textiles and apparel, by rail from the east coast and the South, from hundreds of locations, in small shipments to the San Francisco area. These are less-than-carload lots and are almost entirely handled by freight forwarders.

The speed of delivery and the cost of delivery are vital to the members of our industry who must compete with manufacturers in many places who are much closer to their sources of raw materials and textiles.

The freight forwarders who serve us advise us that they can improve and expand services and at least hold the line on steadily rising costs if they can make contracts with railroads. Our board of directors believe this and felt it important enough, therefore, to send me here to urge you to pass H.R. 10831. Thank you.

(Mr. Joseph's prepared statement follows:)

STATEMENT OF LEONARD JOSEPH, EXECUTIVE DIRECTOR, MANUFACTURERS AND WHOLESALERS ASSOCIATION OF SAN FRANCISCO

I wish to thank your committee for giving me this opportunity to appear before you today and to testify in favor of House of Representatives bill, H.R. 10831. I would like to introduce myself to the committee. My name is Leonard Joseph. I am executive director of the Manufacturers and Wholesalers Association of San Francisco. The Manufacturers and Wholesalers Association of San Francisco is made up of over 100 manufacturers and wholesalers of men's, women's and children's ready-to-wear.

My board of directors requested that I appear before your committee in favor of H.R. 10831 as our directors believe that the Interstate Commerce Commission Act as it is today is discriminatory against the freight forwarding industry. Freight forwarders, under the present Interstate Commerce Act, do not have the right to make contracts with the railroads, whereas the trucking industry enjoys this privilege. We believe, and have been told by the freight forwarders who serve our industry, that if they have the right to make more flexible arrangements with the railroads they will be able to improve and possibly expand their services. The freight forwarders are governed by tariffs and we feel that one mode of transportation should not have an advantage over any other mode.

Our industry, which is probably the most competitive in the world, has thrived on competition. I am sure the Department of Commerce figures will bear out that the apparel industry is second to the food industry in manufacturing. The total membership of the Manufacturers and Wholesalers Association of San Francisco receives less-than-carload lots of freight from small packages to larger shipments and for over 25 years has used freight forwarder service. The association I represent receives finished goods as well as piece goods in the San Francisco area from the east and southeastern states in excess of 60,000,000 pounds a year. California has become second to New York in apparel manufacturing and if all the freight received by apparel manufacturers and wholesalers and the retailers in California was added up I can assure the members of the committee that this would amount to over 250 million pounds consisting of small shipments to one State, California, in one year.

From my background and knowledge I am quite positive that the freight forwarding industry has received and is receiving the bulk of this freight. If the freight forwarders are permitted to make contracts with the railroads on an equal basis with the trucking industry, our industry would have to benefit from an expanded service that the freight forwarders would be able to give as a result of the passage of H.R. 10831.

Again, I wish to thank the members of the committee for permitting me to testify on behalf of the Manufacturers and Wholesalers Association of San Francisco in favor of this bill.

Mr. FRIEDEL. I want to thank you for your brief statement. You have come right to the point. They feel it would be cheaper if the freight forwarders could make contracts with the railroads. Mr. JOSEPH. That is our understanding, yes, sir.

Mr. FRIEDEL. Mr. Kuykendall.

Mr. KUYKENDALL. What do you mean by expand service?

Mr. JOSEPH. I think that expanded services probably mean faster delivery times and delivery from more points than now exist.

Mr. KUYKENDALL. You feel you are not getting as good service as you would like?

Mr. JOSEPH. Yes, I think we are getting a good service now, but I feel it could be a better service both on delivery time and the cost factor.

Mr. KUYKENDALL. Thank you.

Mr. FRIEDEL. Thank you.

I am going to call Mr. Leonard A. Cohn, purchasing and traffic manager of Koret of California.

STATEMENT OF LEONARD A. COHN, PURCHASING AND TRAFFIC MANAGER, KORET OF CALIFORNIA, INC.

Mr. Coнx. I would like to submit my statement for the record. I will read a brief part and paraphrase.

My name is Leonard A. Cohn, purchasing and traffe manager for Koret of California. We do a business of over $38 million a year and ship over 4 million pounds a year of less-than-carload freight by freight forwarder service. The large majority of our shipments orig nate in the South and in the Southeast and are 300, 500 pounds, 2.02 5,000-pound shipments. Daily shipments are made from the mills be cause in a fashion business we have a fast turnover.

We cannot accumulate goods. It is necessary for us to use freight forwarders to consolidate service. The apparel industry, which next to foodstuffs is one of the largest industries in the world, secures their fabrics from mills which for the most part are located in rural areas in the Southern States. It certainly seems to our company that the railroads should have available to them the right to deal with freight forwarders on at least as flexible and favorable a basis as they deal with motor carriers. The railroads will still have control of the arrangements based on contracts to the same degree-indeed to a greater degree than under published rates. The railroads as well as the freight forwarders would therefore benefit themselves and their customers.

In summation, we feel that it is only healthy for the economy of the Nation to have all modes of transportation working under similar regulations. My company is opposed to one form of transportation having an advantage over another form offering similar services. (Mr. Cohn's prepared statement follows:)

STATEMENT OF LEONARD A. COHN, PURCHASING AND TRAFFIC MANAGER, KORET OF CALIFORNIA, INC.

I wish to thank the Committee of Interstate & Foreign Commerce for per mitting me to testify today on the House of Representatives Bill No. 10881.

My name is Leonard A. Cohn. I am purchasing agent and traffic manager for Koret of California. Koret of California is one of the nation's largest manufac turers of women's wearing apparel. Our volume of business is over $58.000.000 $ year. Besides the manufacture of women's apparel. Koret of California also owns Koratron and its patents covering permanent press wearing apparel. Koratroa has licensees throughout the United States. Canada, and practically every country of the world. Koret of California receives over four million pounds of lessthan-carload freight a year and all of it moves via freight forwarder service and we find freight forwarder service extremely satisfactory.

I appear before the Committee with the consent of our top management who are in favor of the passage of House bill 10831, as our company believes the Interstate Commerce Act in its present form is highly discriminatory by not permitting freight forwarders to have the right to make contracts wih the railroads. We claim this is discrimination between one mode of transportation and another because the Interstate Commerce Act in its present form permits trucking companies to make such contracts with the railroads. Our company is aware of the importance of freight forwarders due to the vast amount of freight they generate. Freight forwarders by the nature of their business convert vast quantities of miscellaneous less-than-carload or less-than-truckload freight into earload or volume lots. The flow of this type of traffic is relatively steady and predictable, permitting advance planning which also permits the railroads to plan in advance the allocation of railroad equipment. We know from our experience with freight forwarders that their long distance hauls move almost exclusively by railroad. It is our belief if H.R. 10831 is passed that freight forwarders will be able to expand their service into areas which they cannot effectively serve.