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with motor carriers cannot provide for lesser compensation to the motor carrier party than that which the motor carrier would receive under its regularly established rates or charges under part II of the Interstate Commerce Act.
As noted above, we are of the opinion that joint rate arrangements would be an appropriate arrangement for freight forwarders in dealing with railroads and motor carriers. Nevertheless, we recognize that there is also merit to the appoach of extending the scope of section 409(a) to include the making of contracts between the railroads and the forwarders. As a matter of fair and impartial regulation, it would seem appropriate to accord the forwarders the same treatment in dealing with both railroads and motor carriers. The 450-mile limitation, however, which now exists under present law and which would be retained insofar as forwarder contracts with motor carriers are concerned under H.R. 10831, should be discarded. It would appear that the limitation is largely arbitrary in nature and that with the advent and growth of trailer-on-flat car movements, the rights conferred on forwarders by section 409(a), without the mileage limitation, need not be feared as according motor carriers the ability to underbid the railroads on profitable forwarder traffic.
On balance, the Department would favor the extension of H.R. 6533 to include freight forwarders. As an alternative, the Department would have no objection to H.R. 10831 amended, however, so as to eliminate the 450-mile limitation of the present law.
The Bureau of the Budget advises that from the standpoint of the Administration's program, there is no objection to the submission of this report for the consideration of the Committee. Sincerely yours,
John L. SWEENEY, Assistant Secretary for Publio Affairs.
INTERSTATE COMMERCE COMMISSION,
Washington, D.C., January 23, 1968. Hon. SAMUEL N. FRIEDEL, Chairman, Subcommittee on Transportation and Aeronautics, House of Representatives, Washington, D.C.
DEAR CHAIRMAN FRIEDEL: The Commission has carefully reviewed the provisions of H.R. 10831, a bill to amend section 409(a) of Part IV of the Interstate Commerce Act so as to authorize freight forwarders subject to that part to negotiate special contracts with railroads for the transportation of forwarder traffic by the railroads. On behalf of the Commission, I am authorized to make the following comments.
At the outset we would point out that the Commission, through its Committee on Legislation, has previously commented on this bill in two letters to Chairman Staggers, dated July 5 and September 12, 1967. Since reference will be made to these two letters later in these comments, copies of both letters follow this letter. While our present comments will, to some extent, restate these earlier remarks, it is also our purpose to comment on some additional matters concerning this bill.
As presently worded, section 409(a) permits regulated freight forwarders to enter into contracts with common carriers by motor vehicle subject to Part II of the Interstate Commerce Act. Such contracts govern the utilization by such freight forwarders of the services of motor common carriers and the compensation to be paid for such motor carrier service by the forwarders subject to two basic limitations set forth in the two provisions of section 409(a): (1) that the parties to these contracts establish them on just, reasonable and equitable terms which shall not unduly prefer or prejudice either party to the contract or any other freight forwarder and which shall be consistent with the National Transportation Policy; (2) that, in the case of contracts involving the linehaul transportation of truckload lots of forwarder traffic between concentration points and break-bulk points where the distance is 450 highway miles or more, such contracts cannot provide for a lesser compensation to the motor carrier or carriers involved than that which the motor carrier would receive under its regularly established rates or charges under Part II of the Act.
The provisions of H.R. 10831 would declare that nothing in the Act forbids the making of similar contracts between the railroads and forwarders. While the proviso that contracts be just, fair, and equitable to the contracting parties, be non-prejudicial to other forwarders and be consistent with the National Transportation Policy also would be applicable to contracts between railroads and forwarders, the second proviso containing the 450 highway mile limitation would not be applicable.
At the present time, freight forwarders collect small shipments, consolidate them into truckload or carload lots for movement by a motor or rail carrier at bulk rates, break bulk at a central delivery point, and distribute the component shipments to the consignees. The forwarder charges the shipper the forwarder's less-than-truckload or less-than-carload rate, but is charged the lower truckload or carload rate by the motor or rail carrier; his profit is the difference. The forwarder using railroad service, unlike the situation with respect to motor carriers, must pay the railroads the full applicable rail tariff rate.
Section 409(a) has been revised several times since the enactment of Part IV in 1942, the present wording being enacted in 1950. Although no changes in the relationship between forwarders and the railroads were made in the 1950 revision of section 409(a), hearings' were held in 1956 before the Congress on bills to amend section 409(a) which would have authorized the making of contracts between the railroads and forwarders for the transportation of forwarder traffic loaded in trailers or containers. This legislation was prompted largely by the rapid development of TOFC (“piggyback”) arrangements between carriers and the railroads and a decision by the Commission in Movement of Highway Trailers by Rail, 293 1.C.C. 93, 107–08 (1954), that forwarders could not establish through routes or joint rates with the railroads covering forwarder traffic in trailers or containers moving on railroad flatcars. Noting that the Commission had held in 1940 ? that joint rates and through routes between forwarders and carriers subject to Parts I, II, and III were unlawful and that Congress by successive amendments to section 409 had stayed the effective date of the Commission's order until 1951, shortly after present section 409 (a) became effective, the Commission determined that joint arrangements between forwarders and railroads of any kind were unlawful. Thus, except as modified by present section 409(a), forwarders must pay the full regular published tariff rates established by the carriers they utilize, reflecting the general rule that as to common carriers of other modes, a freight forwarder acts in the capacity of a shipper.
The principal effect of the decision, Movement of Highway Trailers by Rail, which on this point would have been overturned by these prior bills, if enacted, was to preclude freight forwarders from using certain types of "piggyback" seryice, particularly so-called Plan I, on the same terms as motor common carriers. As defined by the Commission in Ex Parte 230, Substituted Service-Piggyback, 322 I.C.C. 301, 309–10 (1964), Plan I TOFC service involves the movement by railroad of trailers or containers under a motor carrier bill of lading, such service being available only between points where there is actually available service by the motor carrier which substitutes rail for motor service. The traffic moves on rates which are the same as the trucker applies on its all-highway service. The motor carriers solicit the traffic for movement in their own trailers, which, unless the shipper forbids the use of substituted rail service, may be tendered to the railroad for line-haul transportation. Plan I is recognized by the Commission as a valid coordinated joint intermodal service even though it does not possess all of the characteristics of a traditional joint rate-through route arrangement such as Plan V. While other aspects of Ex Parte 230 have recently been affirmed by the Supreme Court, the legality of Plan I is presently under attack in a District Court, the principal argument being that such arrangements are not authorized by the Act.
We have presented this background in order to give the Committee some insight into the basic economic and legal problems which have prompted this legislation. Freight forwarders have a distinctly different status under the Act than other forms of transportation. To the shipping public, particularly the shipper or consignee of small shipments, they are common carriers engaged in a much-needed service while in their dealings with other carriers they are regarded as shippers. Thus, for example, while a forwarder cannot use Plan I
1 Transportation Policy, Hearings before a Subcommittee of the Committee on Interstate and Foreign Commerce, House of Representatives, 84th Congress, 2nd Sess., on (as here pertinent) H.R. 9548 (1956). Freight Forwarder Legislation, Hearings before a Subcommittee of the Committee on Interstate and Foreign Commerce, United States Senate, 84th Congress, 2nd Sess., on S. 3365, S. 3366 and S. 3367 (1956).
2 Acme Fast Freight, Inc., Common Carrier Application, affirmed sub nom Acme Fast Freight, Inc. v. United States, 30 F. Supp. 968, affirmed per curiam 309 U.S. 638.
TOFC service or make special contracts with the railroads, forwarders can and do make extensive use of other TOFC plans particularly Plans III and IV. In 1960, for example, 24 forwarders filed reports with the Commission showing direct use of piggyback service in plans other than Plan I. Under these arrangements, forwarders handled 201,327 trailers or other units carrying 2,237,000 net tons of traffic and involving payments of $61,820,000 for line-haul service to the railroads. Freight forwarder service has been and remains essentially a small forwarders and small shipment lic.l. rail service or 1.t.l. motor carrier service. There has always been some overlap between the services offered by freight forwarders and small-shipment 1.c.l. rail service or l.t.l. motor carrier service. Yet, the Commission also has recognized the forwarder service is, both functionally and legally, distinctly different from either of these others because of the manner in which a freight forwarder operates and because of its dual status under the Act, as both a carrier and a shipper.
While we believe that we have correctly interpreted the Act and, further, believe that our decision in Ex Parte 230 will materially assist in the development of a coordinated transportation system, we recognize that the present inability of freight forwarders to participate in Plan I TOFC service or other types of joint arrangements with railroads while such arrangements are, however, available to motor carriers may cause serious economic harm to the forwarding industry. Under these circumstances, some amendment to section 409(a) may be appropriate. It is our view, however, that the questions presented are primarily a matter of policy to be determined by the Congress on the basis of the record developed in the course of these hearings. Should the Subcommittee feel, howerer, that existing law should be changed, we believe that consideration should be given to a number of amendments to this bill which will preserve the principal purpose of this legislation but, at the same time, will enable the Commission to effectively administer its provisions and prevent the possibility of its being used to the detriment of shippers and other carriers. As I have previously pointed out, the Commission has always recognized that freight forwarders have a unique legal status under the Interstate Commerce Act in that a forwarder has certain characteristics of both a shipper and a carrier. The effect of this bill would be to place forwarders in the role of preferred rail shippers and would allow a freight forwarder to negotiate with a railroad or railroads on the level of charges for the transportation provided for the freight forwarder's use. Although the resulting contracts would be filed with the Commission and open to public inspection, they would not be published or otherwise subject to the same regulatory oversight that rates and charges published by common carriers subject to Parts I, II, and III of the Act normally are. Viewed in this light, we believe that certain safeguards should be thrown around these arrangements, not only as presently provided in present section 409(a), as that section relates to contracts between motor common carriers and forwarders, but also under the amendment of that section which is proposed by this bill. These amendments would include the following:
(1) A revision of the second proviso of present section 409(a) ;
(2) Place the burden of proof on the parties to contracts between freight forwarders and common carriers subject to Parts I and II of the Act for the transportation of freight when such contracts are called into question; and
(3) Provide penalties for the offer, grant, giving, solicitation, acceptance, or receipt of any rebate or discrimination resulting from the transportation
of property at compensation less than that specified in such contract. As indicated in our letter of September 12, 1967, to Chairman Staggers, the Commission has made similar legislative proposals of this nature in the past. For example, the Commission recommended, in its 69th Annual Report, to the 84th Congress that these and other amendments be made to section 409. While this recommendation was subsequently introduced in 1957 in the 85th Congress as H.R. 4393 and S. 1382, no hearings were held on this measure. However, the Commission earlier had alluded to these recommendations in commenting on H.R. 9548 at pages 289–91 of the hearings mentioned previously on page 3 of my testimony in a letter dated April 23, 1956, to Congressman Priest, then Chairman of this Committee. In general, these recommendations reflected our belief that, while a freight forwarder legally is a shipper when dealing with other modes of transportation, its relationships with these other carriers are sufficiently distinct and different as opposed to any other large shipper or exempt shipper association, established under section 402(c) of the Act, so as to warrant special consideration. With some modifications, our position on H.R. 10831 is similar to that taken on these earlier bills.
Turning now to the amendments that we are proposing, it should be pointed out that, since these amendments will not only amend section 409(a) but also present section 409(b) and, in addition, add several additional paragraphs to that section, line 3 of this bill should be changed by deleting the words "subsection (a) of” in order to reflect the fact that with our amendments all of section 409 would be subject to revision. The first amendment that we are proposing would change the second proviso in present section 409(a) to read as follows:
"And provided further, That in the case where line-haul transportation by common carriers of motor vehicles is for a total distance of 450 highway miles or more, such contracts shall not permit payment to such carriers of compensation which is lower than would be received under rates and charges established and filed by such common carriers under the provisions of Part II of the Act."
In essence, the purpose of this change is to remove the present language of this proviso in section 409(a) which is limited in its application to transportation by motor common carriers of truckload lots between concentration points and breakbulk points. The effect of this amendment would be to apply the second proviso in all cases where the line-haul transportation by motor common carriers is for a distance of 450 highway miles or more. This amendment is proposed because (1) it would prevent the circumvention of this prohibition (through the use of contract rates which are not subject to any minimum specified weights) by eliminating the term “truckload lots”; and (2) would eliminate the necessity for the Commission to determine what is meant by “truckload lots" as used in the present law, a term which the Commission has considered almost impossible to define with any sufficient exactness.
Our second amendment would add a new paragraph (c) to the present law by providing as follows:
"(c) At any hearing involving an investigation into the terms, conditions, and compensation of any contract, the burden of proof shall be upon the parties thereto to show that the terms, conditions, and compensation thereof are not inconsistent with the provisions and standards set forth in subsection (a) of this section."
This new paragraph would correct what the Commission has considered to be a major defect in the present law by making it clear that the burden of proof shall be upon both the carrier and the forwarder parties to any contract to show that the terms, conditions, and compensation are not inconsistent with the substantive standards of section 409(a) when such contracts are called into question. Although section 406(e) provides, as do similar provisions in Parts I, II, and III of the Act, that the burden of proof shall be upon the proponent of a changed rate, this provision, like its counterparts, relates to the investigation and suspension of the forwarder's own rates that are published for the use of the public. In this regard, we would point out that the Commission in its 1956 comments on H.R. 9548, at page 291, suggested that it be given the power to suspend and investigate these contracts, similar to the power it has over ordinary commercial rates and charges. At this time, however, we know of no need to recommend such a fundamental change in the present law.
Our third amendment is made up of two additional new paragraphs designated as“(d)” and “(e)”, respectively. They are as follows:
"(d) No common carrier by motor vehicle or railroad which has entered into a contract with a freight forwarder for the transportation of property as authorized in this section shall charge, demand, collect, or receive less compensation for such transportation of property between the points named in such contract than that which is specified in the contract filed with the Commission; nor shall any such motor carrier refund or remit in any manner or by any device any portion of the compensation so specified, nor extend to any freight forwarder or person any privileges or facilities in the transportation of property except such as are specified in such contract.
“(e) It shall be unlawful for any person, persons, or corporation to offer, grant, or give, or to solicit, accept, or receive any rebate, concession, or discrimination in respect of the transportation of any property by any common carrier by motor vehicle or railroad under the provisions of this section whereby such property shall by any device whatever be transported at less compensation than that specified in the contract of such carrier and filed with the Commission, or whereby any other advantage is given or discrimination is practiced. Every person or corporation, whether common carrier by motor vehicle or freight forwarder, who shall, knowingly, offer, grant, or give, or solicit, accept, or receive any such rebate, concession, or discrimination shall be deemed guilty of a misdemeanor, and upon conviction thereof shall be punished by a fine of not less than $200 nor more than $2,000 for each offense."
We suggest that these new paragraphs be added to section 409 in order to insure better observance of the terms, conditions, and compensation of such contracts and to provide specific penalties for any rebate, concession, or discrimination resulting from the transportation of property at compensation less than that specified in such contracts. The purpose of these provisions is to prevent the possibility of abuse which could operate to the detriment of both the common carriers utilized by forwarders, other forwarders, and members of the shipping public. Although other sections of Part IV of the Act, specifically section 421, provide for penalties for violating the provisions of Part IV, there appears to be some question as to whether or not the enforcement provisions of this part and/or Parts I and II would be applicable to these contracts. It is for this reason that we are recommending specific language to adequately cover this situation.
In summary, it is our basic position that the decision to permit forwarders to negotiate special contracts for the purchase of underlying transportation from the railroads is essentially one that will necessarily have to be determined on the basis of all of the economic factors presented to this committee in the course of these hearings. We believe, however, if the principles expressed in this bill warrant favorable Congressional action, that the amendments we have proposed should be included. In our opinion, these amendments would not detract from the basic purposes of H.R. 10831 and their inclusion, in our judgment, would render this bill more consistent with the public interest.
Since the Commission will not be appearing before the subcommittee in the hearings scheduled for this week on H.R. 10831, we respectfully request that this letter be included in the record of the bearings on this bill. Sincerely yours,
PAUL J. TIERNEY,
INTERSTATE COMMERCE COMMISSION,
Washington, D.C., July 5, 1967. Hon. HARLEY 0. STAGGERS, House of Representatives, Washington, D.O.
DEAR CHAIRMAN STAGGERS: This responds to your letter of June 19, 1967, requesting a report on H.R. 10831, a bill to amend section 409 of part IV of the Interstate Commerce Act, as amended, to authorize contracts between freight forwarders and railroads, by Congressman Friedel. This matter has been referred to our Committee on Legislation. On its behalf, I am authorized to submit the following comments.
The bill amends section 409(a) of the Interstate Commerce Act which, as presently worded, permits freight forwarders to enter into contracts with motor common carriers, subject to part II of the Act. These contracts govern the utilization by such freight forwarders of the services of such carriers and the compensation to be paid for such motor carrier service by the forwarders subject to two basic limitations set forth in the two provisos of section 409(a): (1) that the parties to these contracts establish them on just, reasonable and equitable terms which shall not unduly prefer or prejudice either party to the contract or any other freight forwarder and which shall be consistent with the National Tansportation Policy; (2) that, in the case of contracts involving the linehaul transportation of truckload lots of forwarder traffic between concentration points and break-bulk points where the distance is 450 highway miles or more, such contracts cannot provide for a lesser compensation to the motor carrier party than that which the motor carrier would receive under its regularly established rates or charges under part II of the Act.
The provisions of the draft would declare that nothing in the Act forbids the making of similar contracts between the railroads and forwarders. While the proviso that contracts be just, fair, and equitable to the contracting parties, be non-prejudicial to other forwarders and be consistent with the National Transporation Policy also would be applicable to contracts between railroads and forwarders, the second proviso containing the 450 highway mile limitation would not be applicable.