I am enclosing a copy of the opinion of the Western Railroad Traffic Association that should be weighed carefully. If the comments are correct, we should make a real effort to have this bill supported. While time is short-the short haul carriers should be apprised of the provisions of the H.R. 10831, and should make their desires known by sending affirmative telegrams, letters or any means possible. Very truly yours, CHARLES W. OWEN, President. Mr. FRIEDEL. In other words, you are in favor of H.R. 10831? Mr. FRIEDEL. You are in favor of it. Mr. OWEN. Yes, sir. Mr. FRIEDEL. Mr. Devine, are there any questions? Mr. DEVINE. No questions. Mr. FRIEDEL. Mr. Kuykendall, do you have any questions? Mr. FRIEDEL. Thank you very much. This concludes the witnesses for today. The meeting stands adjourned until 10 a.m. tomorrow. (Whereupon, at 3:10 p.m. the committee was adjourned, to reconvene at 10 a.m., Thursday, January 25, 1968.) FREIGHT FORWARDER-TOFC CONTRACTS THURSDAY, JANUARY 25, 1968 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TRANSPORTATION AND AERONAUTICS, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D.C. The subcommittee met at 10 a.m., pursuant to notice, in room 2123, Rayburn House Office Building, Hon. Samuel N. Friedel (chairman of the subcommittee) presiding. Mr. FRIEDEL. The hearing will now come to order. This is a continuation of hearings on H.R. 10831 to amend section 409 of part IV of the Interstate Commerce Act, as amended, to authorize contracts between freight forwarders and railroads. Our first witness is Mr. Charles L. Smith, chairman of the General Freight Traffic Committee, Traffic Executives Association-Eastern Railroads. STATEMENT OF CHARLES L. SMITH, CHAIRMAN, GENERAL FREIGHT TRAFFIC COMMITTEE, TRAFFIC EXECUTIVE ASSOCIATION-EASTERN RAILROADS Mr. SMITH. Thank you, Mr. Chairman. Before I read my statement I would like to point out a correction. If you will turn to page 6, the third paragraph, at the end of that paragraph where it reads "competitive position than the motor carrier.'" In lieu of the words motor carrier will you substitute "freight forwarder"? Also in the very last paragraph on page 7, the second line, where it now reads "to extend its own profit potential," substitute for the word "its" the words "freight forwarders." Mr. FRIEDEL. You may proceed. Mr. SMITH. My name is Charles L. Smith. I am the chairman of the General Freight Traffic Committee of the Traffic Executive Association-Eastern Railroads, with offices at 1 Park Avenue, New York, N.Y. I appear before this subcommittee at the direction and on behalf of the Traffic Executive Association-Eastern Railroads, to express that organization's opposition to H.R. 10831, which, in brief, would amend section 409 of part IV of the Interstate Commerce Act to authorize freight forwarders to enter into contracts with common carriers by railroad for transportation at other than the published rates then and there on file with the Interstate Commerce Commission. (149) The Traffic Executive Association-Eastern Railroads is an organization made up of the principal railroads operating in the territory east of the Mississippi River and north of the Ohio River. The association, hereinafter referred to as the "TEA" is generally charged with the responsibility of reviewing all rates, fares, classifications, and charges established by or which may in any way affect its member carriers. Its members are authorized to enter into joint consideration and determination of such matters pursuant to permission of the Interstate Commerce Commission under section 5(a) of the Interstate Commerce Act. The TEA opposes the proposed measure as an abrupt, abnormal, and wholly unnecessary departure from the longstanding relationship between freight forwarders and common carriers by railroads wherein the freight forwarder occupies the position of an individual shipper, although it is certificated to handle and arrange for the transportation of the goods of others. Under these circumstances, the charges assessed by any railroad for the transportation of freight forwarder traffic are those appearing in the published tariff. Such charges are accordingly available as a matter of information, to competing railroads as well as the shipping public generally. Under the proposal enunciated here, however, it is the opinion of the eastern railroads that the former relationship will deteriorate into a system of give-and-take bargaining for particular portions of traffic. Uncertainty with respect to the charges being offered privately by individual competing railroads, even though such contract may be open to subsequent public inspection, can only lead to reduction in railroad revenues. This committee surely is well aware that freight forwarder traffic has always constituted an important and valuable segment of railroad revenues. It is impossible, therefore, to understate the importance of such revenues to the railroads for the future, particularly in view of the rapid development over the last 10 years or more of railroad trailer on flatcar service, and the variety of rates and arrangements which have been made available to the shipping public, including the freight forwarders. Without question, freight forwarder traffic constitutes a major segment of the total trailer on flatcar traffic handled by the eastern railroads today. In late 1958 and 1959, for example, the eastern railroads pioneered what has come to be known as the plan 3 rate basis of TOFC service. Under this service, which was primarily designed to meet private over-the-road competition-motor carriers, I might add-substantially lower rates were published, and eventually approved by the Interstate Commerce Commission, under which private shippers could tender their own trailers for movement in piggyback service and could also perform their own local drayage service to and from the railheads at origin and destination. The results were beneficial to the railroads in that these plan 3 TOFC rates attracted a substantial portion of traffic formerly moving over the highway in the shippers' own equipment, and the railroads themselves were able to reduce their own costs considerably, particularly in eliminating expensive switching services to individual consignees at congested terminals. In their capacity as members of the shipping public generally, however, the freight forwarders were able to and in fact did make substantial use of these rates, and they continue to represent an extensive, if not the major portion of that traffic today on the eastern railroads. Thus, while they presently enjoy every advantage accorded other private shippers, they now seek a means for negotiating lower rates than those available to the former, to the obvious benefit of the freight forwarding industry and a corresponding disadvantage to the railroads. The idea that freight forwarders should occupy a more advantageous position vis-a-vis the railroads than the shipping public generally is wholly inconsistent with their past history. The freight forwarding industry did not come under regulation by the Interstate Commerce Commission until 1942. As far back as 1910, however, in Interstate Commerce Commission v. Delaware, Lackawanna, and Western Railroad Co., 220 U.S. 235, the forwarders, then generally referred to as "forwarding agents," fought bitterly against certain restrictions which railroads then sought to employ to prevent forwarding agents from the practice of consolidating less-carload shipments from individual consignees into carload shipments. At that time less-carload traffic was a valuable segment of railroad revenues and the consolidation of such shipments into carload lots for tender to the railroads deprived the latter of substantial amounts of revenue. In the case above cited, the forwarders complained of these restrictions to the Commission, and the Supreme Court in sustaining the Commission's decision held that a "forwarding agent" was a "person" as that term is employed in those provisions of the Interstate Commerce Act which prohibit discrimination, preference, and prejudice, and that to permit a carrier to exclude a forwarding agent would clearly produce these very results. Thus, while the freight forwarders, as a result of the decision cited above, have been entitled for the past 58 years to all of the benefits accorded individual shippers, they now seek the advantage of negotiating for rates, described as "contract" or otherwise, which will undoubtedly be lower than those available either to the individual members of the shipping public or to traffic tendered by nonprofit shipper associations, which are, in turn, made up of individual members of the shipping public. It should be also noted that in 1959 one eastern railroad proposed to establish reduced rates on rugs and carpeting. The reduced rates were published in tariff form, but were available only where the shipper agreed to move at least 80 percent of its available traffic between these points over a period of 1 year via the particular carrier (Contract Rates on Rugs and Carpeting from Amsterdam, N.Y., to Chicago, 313 ICC 247 (1961)). The Commission disaproved the proposed tariff schedules on the ground that different charges for the same haul between the same points may be justified only where the lower charge reflects a lower cost of performing the service on one shipment than on another, where the total transportation services rendered two shipments are different, or where in other respects the circumstances directly affect ing the transportation of the respective shipments differ materially. The Commission further stated that: The inevitable effect of a substantially exclusive patronage contract such as is involved here, considering especialy the contractual conditions described herein, is to destroy competition for the duration of the contract. The Commission's decision was subsequently upheld in New York Central R.R. Co. v. U.S., 194 F. Supp. 947 (1961). Under the proposal made here, the Congress is requested to specifically declare in effect that the act shall not be construed so as to prevent contracts for transportation between freight forwarders and common carriers by railroad. It would also be made the duty of the parties thereto to contract on reasonable and equitable terms, conditions, and so forth which will be consistent with the national transportation policy. Obviously these provisions would eliminate the legal basis upon which the railroad contract rates previously referred to were struck down, but these same provisions would not eliminate the result which both the Commission and the Court felt was undesirable and would emanate from the railroad contract rate proposal. At least the railroad's contract rate proposal was published in tariff form. No such requirement is contained in the instant proposal. The proponents of this measure will undoubtedly point to the plan 1 and plan 5 TOFC arrangements now maintained between the railroads and the motor carriers. Those arrangements, however, have been upheld by the Commission as joint rates and services provided voluntarily by the participating rail and motor common carriers and thus wholly lawful as valid through route and joint rate arrangements authorized under section 216 (c) of part II of the act (Ex parte No. 230, Substituted Service-Charges and Practices of for Hire Carriers and Freight Forwarders (Piggyback Service), 322 ICC 301 (1964), p. 349). Notwithstanding the voluntary provisions of section 216 (c) of part II of the act which permit joint rates between railroads and motor carriers, proponents of the measure will undoubtedly charge that it is this permissive action of the act which places motor carriers in a better competitive position than the freight forwarders with respect to rail transportation. The simple answer is that the rail carrier, the motor carriers, and the water carrier provide all of the facilities required and all of the service required for intercity transportation whereas the freight forwarder has been given the unique right to solicit and consolidate freight for transportation without the corresponding requirement that it provide locomotives, tractors, barges, or roadbed. In lieu thereof, it has been given the right to utilize common carrier facilities by rail, highway, and water just as any other member of the shipping public and it is further given the right to utilize these facilities at a profit to itself. It is apparent that the sole purpose of the proposed measure is to extend the freight forwarders' own profit potential. No benefits whatsoever are offered to the general shipping public. I would just like to add a few comments to that statement. During the hearing there have been suggestions that this proposal be amended to also include the nonprofit shipper associations. Now if you divide |