FREIGHT FORWARDER-TOFC CONTRACTS

WEDNESDAY, JANUARY 24, 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 2133, Rayburn House Office Building, Hon. Samuel N. Friedel (chairman of the subcommittee) presiding.

Mr. FRIEDEL. The committee will now come to order. This is a continuation of the hearings we are holding on H.R. 10831, to amend section 409 of part IV of the Interstate Commerce Act, as amended. Our first witness this morning is Mr. Beardsley, general counsel of the American Trucking Associations.

STATEMENT OF PETER T. BEARDSLEY, GENERAL COUNSEL, AMERICAN TRUCKING ASSOCIATIONS

Mr. BEARDSLEY. Mr. Chairman, members of the committee, just for the record my name is Peter T. Beardsley, and I am general counsel of the American Trucking Association, Inc., 1616 P Street NW., Washington, D.C.

I might add, as I am sure you know, we are the national trade association for the trucking industry representing all forms of motor carriage for hire.

We appreciate the opportunity to appear here today to record our opposition to H.R. 10831. This bill would enable freight forwarders to enter into contracts with railroads for the transportation of forwarder traffic at rates below those charged other shippers for the same service.

We are strongly opposed to contract rates between freight forwarders and railroads. In addition, we believe the time is long past due when forwarders should be divested of the privileged position they enjoy by virtue of section 409 of the Interstate Commerce Act. I am referring, of course, to their right to make contracts with motor carriers whereby forwarder traffic is handled at much lower rates than that of similar traffic of other shippers.

These forwarder contract rates with motor common carriers are subject to the limitation that where the line haul involved "between concentration points and break bulk points in truckload lots *** is for a total distance of 450 highway miles or more" the contracts may not be for less than the motor carriers' published rates.

We note that H.R. 10831 does not propose to similarly limit the favored treatment which it would extend to forwarder use of rail

transport. We hasten to add, however, that even if such a provision were included, it would not cure the inherent vice of the proposed legislation.

Hearings were held on similar proposed legislation in the 84th Congress in 1956, but it was not enacted. The House bill, H.R. 9548, would have amended section 409 of the Interstate Commerce Act to allow freight forwarders to enter into or operate under contracts with railroads "governing the utilization by such freight forwarders of the services and instrumentalities of such common carriers by railroad and the compensation to be paid therefor, for line-haul movement of freight loaded in or on trailers or other containers and transported on railroad cars suitable for such use."

In short, the proposed 1956 legislation would have allowed forwarders to contract with railroads for lower than published rates in connection with so-called piggyback movements. The forwarders claimed that such legislation was needed because there was "no practical basis on which freight forwarders can legally utilize piggyback service, and second, because the motor carriers who compete with forwarders for traffic already are authorized to use the service on a contractual basis." (Hearings, Subcommittee on Transportation and Communications of the House Committee on Interstate and Foreign Commerce, 84th Cong., second sess., p. 1158.)

Whatever may have been the validity of the claim, in 1956, that forwarders could not use piggyback service, there can be no such claim today. In fact, a very heavy proportion of forwarder traffic now moves in rail piggyback service.

In the recent hearings conducted by the Surface Transportation Subcommittee of the Senate Commerce Committee on mandatory joint rates and through routes, the forwarder spokesman claimed that legislation such as that under consideration here is needed for "equality of regulatory treatment." (Hearings on S. 751, S. 753, and S. 1768, p. 162.)

H.R. 10831 will not achieve equality of regulatory treatment. It will simply intensify an already evil situation, transportationwise, by multiplying the opportunities for forwarders to take advantage of the carriers who transport their traffic.

The proper way to achieve such equality is to repeal the provisions of section 409 of the Interstate Commerce Act. This would place all shippers on an even keel. At the same time it would bring to life the hitherto largely dormant provisions of section 408, which would continue to allow forwarders to have their shipments moved at lower rates than that of other shippers, provided only that the forwarders show— as they have always claimed they can-that the transportation of their traffic is less costly to the carriers which handle it than the traffic of other shippers.

This is the solution which our executive committee, composed of representatives of 51 State trucking associations, at its regularly scheduled meeting on Thursday, January 18, 1968, unanimously directed us to seek. I might add that our executive committee is composed of 105 members, representing all forms and species of motor carriers, forhire and private.

H.R. 14733, introduced by Congressman Adams, would achieve that result-repeal of section 409.

Freight forwarders, of course, have been in business for many years. They were originally successful because of the unwillingness or inability of the railroads to move small shipments with reasonable dispatch. The forwarders solicited these small shipments on the same rate basis as the rail less carload charges, and promised faster service than the railroads gave. By consolidating these small shipments into volume lots, the forwarders were able at one and the same time-to get the much better service the railroads provided for carload traffic, and to live off the spread between the relatively high less carload rates they charged the shipper and the significantly lower volume rates they paid the railroads.

Thus the forwarder achieved the status of a sort of "middleman” in the transportation field. In their relations with the underlying shippers, forwarders accept the responsibility of a common carrier. În their relations with the various common carriers which actually transport the freight, forwarders are shippers-shippers who constantly are seeking special and favored treatment.

The very definition of a "freight forwarder" in section 402 of the Interstate Commerce Act makes the forwarder's status clear. He is (1) a person other than a carrier subject to parts I, II, or III of the Interstate Commerce Act;

(2) who assumes common carrier responsibility with respect to shipments tendered by the shipping public;

(3) who undertakes the assembling and consolidation of shipments, and the break bulk and distribution thereof; and

(4) who uses, for all or any part of the transportation of shipments moving in forwarder service, the services of a rail, motor or water common carrier regulated by the Interstate Commerce Commission.

Early in the day, when the railroads became aware of the inroads by the forwarders into what they considered their exclusive domain, they attempted to charge the forwarders their less carload rates with respect to each individual shipment which the forwarders tendered in consolidated volume lots. Had the railroads succeeded, the forwarders, of course, would have been out of business. But the forwarders contended that their relationship to the railroads was that of a shipper, and that the railroads had to charge them the same rate as they did other shippers for the same volume of traffic.

They were successful in their contention. The Supreme Court, in Interstate Commerce Commission v. D. L. & W. RR., 220 U.S. 235 (1911) said:

The contention that a carrier, when goods are tendered to him for transportation, can make the mere ownership of the goods the test of the duty to carry or, what is equivalent, may discriminate in fixing the charge for carriage, not upon any difference inhering in the goods or in the cost of the service rendered in transporting them, but upon the mere circumstance that the shipper is or is not the real owner of the goods, is so in conflict with the obvious and elementary duty resting upon a carrier, and so destructive of the rights of shippers, as to demonstrate the unsoundness of the proposition by its mere statement.

And in C., M., St. P. & P.R. Co. v. Acme Fast Freight, 336 U.S. 465, 467-68 (1949) the Supreme Court said:

In its relations with its customers, a forwarder is subjected by the act to many of the requirements and regulations applicable to common carriers under parts I,

II, and III of the act. . . . In its relations with these carriers, however, the status of the forwarder is still that of a shipper.

I might add parenthetically here, if I may, it seems to me a little bit late in the day for anyone to express surprise that the ICC or anybody else would consider that forwarders occupy a dual capacity.

Before Federal regulation of either motor carriers or forwarders, motor carriers transported forwarder traffic on a contract basis. When motor carriers came under Federal regulation in 1935, these contact arrangements were declared unlawful by the ICC, whose decision was ultimately upheld by the Supreme Court in U.S. v. Chicago Heights Trucking Co., 310 U.S. 344, 60 S. Ct. 931 (1940).

In its unanimous opinion the Court noted that "forwarders are shippers protected by the Interstate Commerce Act" and that the Commission's action in holding the contract arrangements unlawful was an exercise of its "power to protect and maintain a transportation system free from partiality to particular shippers."

The Court also noted that "forwarders in using railroads enjoy no special tariff rates and pay the same published carload and less than carload rates that other shippers pay."

It was certainly the intention of Congress, in enacting Federal regulation of freight forwarders, to maintain that situation.

When the legislation to provide Federal regulation of freight forwarders (S. 210) was being considered by the House, Congressman Wolverton referred to the abuses which had arisen by virtue of the "large volume of tonnage which (forwarders) control (and use) as a means of inducing the rail lines to establish rates specially designed to accommodate this particular (forwarder) traffic."

He noted that "by playing one railroad against another and by playing railroads against motor carriers, the forwarders have been able to obtain concessions from the railroads which have greatly aided them in extending their operations." He quoted from the decision of the Interstate Commerce Commission in Freight Forwarding Investigation (229 ICC 201, 302 (1938)), as follows:

The significant fact is that each railroad is constantly in jeopardy of losing its forwarder traffic to a competing railroad unless it allows or condones certain practices which are economically unsound, legally questionable, or clearly unlawful.

Congressman Wolverton then referred to some of these "preferential arrangements so secured by the forwarders." as follows:

(a) Occupancy of railroad facilities at inadequate rentals;

(b) The loading and unloading of forwarder freight at below cost charges;

(c) The performance of special train and switching service not provided for shippers generally; and

(d) The observation and application of such "methods and rules as in effect enabled forwarders to have their traffic transported at much more favorable rates of compensation than other shippers could secure."

And he stated "that there should be an end to abuses which impair the revenues of the carriers whose services are utilized and their ability to serve the public in an efficient manner." (87 Cong. Rec. 8217 (1941).)

In his remarks, Congressman Wolverton referred to the fact that "forwarders have favored the authorization of joint rates as a perma

nent matter." His comments are particularly pertinent in connection with H.R. 10831; and I might say particularly pertinent in connection with the contention made by the forwarder witness yesterday as to what the intention of Congress was when it first regulated freight forwarders:

Upon most careful consideration, however, your committee has concluded that the likelihood of abuse is so great, and injury to the underlying carriers so probable, as to make it imperative, in the interest of the public and for the good of the transportation system of the country as a whole, that Congress should adopt the definite policy of forbidding such rates.

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The principle underlying reason why the forwarders desire to obtain authority to make joint rates with the actual carriers whose services they utilize, is in order to enable them to secure transportation at a less price than the regular rate of the carrier, and at a price which will not be open and available to other shippers. Even were such authority surrounded with all possible safeguards, the tremendous bargaining power which the larger forwarders would have by reason of the great amount of traffic which they control, would inevitably enable them to divert from the carriers performing the actual transportation important amounts of revenue greatly exceeding the value of the service contributed by the forwarders themselves. (Id., 8218)

The fear expressed by Congressman Wolverton of the forwarders' power, by virtue of the volume of freight they control, to force concessions from carriers remains entirely justified. The great bulk of the forwarding business is concentrated in the hands of four or five large forwarders or forwarder groups.

One forwarder "family," United States Freight Co., controls a dozen or more freight forwarders, and accounted for $230.5 million, or almost 44 percent of the nearly $527 million of forwarder revenue reported for 1966 to the ICC by 61 class A forwarders.

The same combine paid out over $152 million for purchased transportation in 1966, which constituted 44 percent of the total transportation purchased by these same 61 class A forwarders.

Our organization has opposed the forwarders' continuing efforts, over many years, to achieve a highly favored position in transportation and to enjoy the benefits of either shipper or carrier status whenever one or the other would best suit their convenience and pocketbook.

Almost 18 years ago, we opposed the provisions now found in section 409, whereby forwarders are given the privilege of playing off one motor carrier against another, with the ultimate result that they pay, for essentially the same service, considerably lower rates than other members of the shipping public. See hearings on H.R. 5967, Subcommittee on Transportation of the House Committee on Interstate and Foreign Commerce, 81st Congress, second session (1950), pages 148-181.

In our testimony we pointed out that enactment of the legislation which amended section 409 as it presently reads would ignore the findings and conclusions arrived at by the Interstate Commerce Commission after thorough review of a voluminous record of hearings it conducted in relation to the subject involved.

Nevertheless, the legislation was enacted. The amendment to section 409, of course, placed the forwarders in the same position with respect to contract rates with motor carriers that they had occupied prior to regulation of motor carriers.