This same legislation changed the definition of freight forwarder to specifically recognize the obligation, which forwarders have always had, of common carrier liability in their relations with their customers. This, of course, in no way altered the forwarders' relationship to the carriers regulated under parts I, II, and III of the act.

In the hearings on H.R. 9548 in the 84th Congress, to which I have referred, an ATA witness pointed out that the fears we expressed at the time section 409 was amended to allow forwarders to make contract rates with motor carriers had been substantiated. He referred to our testimony in 1950 in which we had opposed the amendment of section 409 to allow forwarders to make contract rates with motor common carriers.

He noted that we had said that forwarders would obtain rate concessions from the motor carriers; that because the ICC's authority to administer the provisions of section 409 was extremely limited it would, at best, be able to make only a token effort to police the contracts; and that section 409 had proven to be weak and completely ineffective.

If any further proof of that, Mr. Chairman, is needed, I think the letter which the Commission directed to you under date of January 23, with respect to amendments which they say are needed, even if this bill is approved, clearly indicates their present inability in any real way to regulate the operations which are going on now pursuant to section 409.

He further stated:

In all my experience in the transportation field over the years, and in contacts with our carriers and their representatives, I have found that no section of the Forwarder Act is subject to so much criticism as is section 409 (a). I know of no provision that has caused so much frustration among our motor carriers in their dealings with their freight forwarder friends as has this provision.

I am not unmindful of the fact that section 409 was the outgrowth of effort to compromise conflicting interests. The difficulties predicted by our industry have mushroomed into an unbearable situation. For example, the section authorizes motor carriers to establish just and reasonable conditions and compensation, but no one seems to be able to determine where the burden of proof lies in establishing the reasonableness of the level of the compensation. Proceedings before the Commission have been frustrating and unavailing.

Then too, in the second proviso, the term "in truckload lots" is used. The absence of any definition of the term "in truckload lots" has rendered this limitation completely ineffectual.

There have been patent departures from the provisions but there appears to be no penalty for the departures. (Hearings, Subcommittee on Transportation and Communications of the House Committee on Interstate and Foreign Commerce, 84th Cong., second sess., p. 815 (1956).)

I think the Commission said the same thing in the letter I just referred to. To which I would only add that in the intervening years the situation has not improved. The Commission can still apparently do nothing to assure that the "contract" rates which the forwarders pay motor carriers are reasonable or, for that matter, that they even equal the cost of performing the service.

The bill under consideration would compound the problem by vastly increasing the ability of forwarders to profit-not because of the serv ice they render-but because of the economic power they wield through the tonnage they control.

One of the numerous witnesses who testified in opposition to H.R. 9548 in 1956 was the late Fred Carpi, vice president of the Pennsyl vania Railroad Co.

He concluded his statement by saying that:

The eastern railroads for which I speak earnestly ask that there be no relaxation from the salutary principle adopted by the Congress in the original well considered legislation, that freight forwarders should pay the published rates of the railroads for all services rendered to them.

He summarized the forwarder position and rebutted it so well that his reasoning bears repeating today (hearings, supra, pp. 1211–1212) :

*the principal argument offered by the proponents of H.R. 9548 is that freight forwarders are in competition with motor common carriers, that the latter can make joint rates with railroads covering piggyback service, and that unless contract rates between railroads and forwarders for such services are authorized, the forwarder will be prejudiced in such competition.

The principal answers to this argument may be summarized as follows: 1. Freight forwarders and motor common carriers are not comparable types of transport agencies.

Motor carriers, like railroads, provide actual physical carriage and supply the necessary facilities therefor. Moreover their operating routes are fixed as to location. Ownership or control of the facilities for physical carriage by freight forwarders is not essential to their operation, and they customarily provide little physical transportation service. Also they can shift their operations to different routes as they wish.

There is, therefore, no such similarity in their situations as to require an identity or similarity of treatment. This is doubtless the basic reason why Congress authorized joint rates between railroads and motor carriers and not with forwarders.

2. The relation between railroads and motor carriers in the piggyback operation is that of connecting carriers participating in joint rates. A freight forwarder, not being a physical carrier, cannot be said to connect with a physical carrier, and cannot properly be a participant in joint carriage under a joint rate.

*

Normal competition between carriers for the traffic of the shipping public should rest upon the relative economies inherent in the several types of carriage. But authorizing forwarders to make contracts covering their rail service would not award their traffic to the carrier or types of carrier having the lowest real costs, but would throw it to the lowest bidder without regard to the relative economies actually inherent in the several types of carriage or as among individual carriers.

I would say, Mr. Chairman, that that is just as true with respect to the present situation in which motor carriers or at least some of them handle the traffic for much less than the going rates for other shippers.

In conclusion let me say with deference, that allowing forwarders to contract with motor carriers for lower rates than those paid by other shippers of similar goods was a bad mistake.

The forwarders now ask you to compound that error. Not satisfied with their free rein to obtain unreasonably low rates from motor carriers by virtue of the traffic they control, they again seek to increase their profits, by increasing their ability to play railroads against motor

carriers.

For the reasons so clearly expounded by Congressman Wolverton when Congress first regulated freight forwarders, we ask that you reject H.R. 10831.

At the same time, we urge that you do equity in the area involved; that is, that you take away the privilege the forwarders enjoy-with no economic justification therefor-to make what amount to secret contracts with motor carriers at unconscionably low rates, by repeal of section 409 of the Interstate Commerce Act. To that end, we urge that you enact H.R. 14733.

Mr. Chairman, that completes my statement.

Mr. FRIEDEL. In the early part you said you would be in favor of H.R. 14733, repealing section 409 of the Interstate Commerce Act. You are in favor of that?

Mr. BEARDSLEY. Yes, sir.

Mr. FRIEDEL. Would you be in favor of repealing the right that you have to negotiate with the railroads?

Mr. BEARDSLEY. I am not in favor of repealing any joint rates between carriers if that is what you mean, Mr. Chairman.

Mr. FRIEDEL. Is it just because of competition or are you fearful that the freight forwarders will get more business if this bill went through and they could give better service to the public?

Mr. BEARDSLEY. The freight forwarders in my estimation are entitled to get as much business as they can on the basis of legitimate competition. In that sense I am talking about the freight forwarders traditional function of consolidating small shipments into large ones and living on the spread between the rates they charge and the difference they pay.

I don't think anybody, carrier or forwarder or anyone else, has the right to in effect get rate concessions not on the basis of the ability to handle the traffic at lower cost but simply because they have a tremendous amount of tonnage which they say, "Here it it, bid for it."

Mr. FRIEDEL. You realize that there are a great many shippers who can't get their products to the different markets and the freight forwarders and also the shipping associations do a wonderful job on less than carload lots.

I think the general public benefits by that, yes.

Mr. BEARDSLEY. Yes, I don't doubt that. I was sort of frankly amused yesterday when one of the forwarders remarked something about the selectivity of motor carriers.

I think of all the people who should be talking about selectivity that it ill behooves any forwarder to do it. I think the motor carriers are handling the bulk of the small shipment traffic particularly at outlying points.

I would not have made any remarks about this except for a previous remark of a forwarder witness because I don't criticize anyone for wanting to make a living in the job he is doing.

The problem of the small shippers by and large I think is simply that a lot of people expect a lot of service for less money than it costs to render it.

Mr. FRIEDEL. I have been told that the motor carriers, short haul, would be in favor of the bill. It is only the ones that have the long haul who are opposed to this bill.

Mr. BEARDSLEY. I don't believe that, Mr. Chairman. I certainly think this: The forwarders have succeeded over the years in finding carriers which for one reason or another, take a situation, where a carrier has a backhaul situation where he may take forwarder traffic at much less than his going rates. This is for the traffic he can get, but he can't get this at going rates.

You certainly can't divide the motor carrier industry and say only the long-haul carriers would be opposed to this and the short-haul

carriers would be in favor of it. That is not the situation I am certain. Mr. FRIEDEL. On the first page you say:

This bill would enable freight forwarders to enter into contracts with the railroads for the transportation of bulk traffic at the rates below those charged other shippers.

Mr. BEARDSLEY. Yes.

Mr. FRIEDEL. Do you think they would get rates lower than the rates you get today?

Mr. BEARDSLEY. We don't get below-we don't get lower rates from the railroads. This is a situation where two common carriers join together to file a joint rate. I don't know what they would get. I know they don't intend to enter into any contract rates with the railroads which are not lower than they are now paying.

Mr. FRIEDEL. Mr. Pickle.

Mr. PICKLE. Thank you, Mr. Chairman.

Mr. Beardsley, I was unavoidably detained and did not get here to hear your whole statement. I am going to read it carefully. I am interested in getting your views. I hope that I will have a chance to visit later with you if you-if all the questions have not been brought out at this hearing.

Now the hearings that have been going on thus far have had a lot of talk about giving the freight forwarder the right to make contract rates with the rails and particularly they point out because of the innovations in shipping, containerization, this creates the need for a change in law.

Now as a practical matter if this particular bill, H.R. 10831, were passed, what type of rail transportation would most be used by the freight forwarders? Would it be a specific TOFC type of expansion or would this be a new approach? What is your judgment?

Mr. BEARDSLEY. This is an assumption on my part, Mr. Pickle. More and more as the years go by the forwarders are getting more and more into the piggyback service. It represents a better service than boxcars.

Certainly I don't criticize them for wanting that piggyback service which they get under plans 3 and 4.

Mr. PICKLE. If TOFC then were the expanded area and it would be used by the freight forwarders too, what specific plan would most create competition for you as a trucker?

Mr. BEARDSLEY. I am not certain that I understood what you said, Mr. Pickle. The forwarders would presumably continue to rely on the plans 3 and 4 rates of the railroads to move their tonnage.

5!

Mr. PICKLE. Actually Ex parte 230 sets out plans 1, 3, 4, and what

Mr. BEARDSLEY. Yes.

Mr. PICKLE. I assume that the ICC felt this was an attempt to equalize the problem involved. Then it really addresses itself to the services to be met under these plans rather than rates of contract? Mr. BEARDSLEY. Yes.

Mr. PICKLE. There is a possibility that under Ex parte 230, the ICC could make further recommendations that might address themselves to the problem involved rather than relying on specific legislation.

89-367-68– -7

Mr. BEARDSLEY. There is nothing about the Commission's decision in Ex parte 230 as I read it or understand it that in any way goes, for example, to the level of the rates or anything of that nature.

As you pointed out that dealt essentially with the service to be provided and to whom it was to be provided, not at what rates it was provided.

Mr. PICKLE. I am a little surprised that you would recommend the repeal of section 409. I see in your testimony that you think then it probably was a mistake to have allowed the freight forwarder to negotiate with the motor carriers for a rate?

Mr. BEARDSLEY. Yes, sir.

Mr. PICKLE. Therefore you want to take that away. I assume then this will let everything operate on a published rate basis?

Mr. BEARDSLEY. No; as I pointed out section 408 would remain in the act. Section 408 says that the motor carriers can charge forwarders less rates than they charge the general shipping public if the forwarders can show as I pointed out, as they always have claimed they can, that the transportation of their traffic is less costly than the transportation of other shippers' traffic.

Section 408 would still allow motor carriers to quote lower rates to forwarders but they would have to make this showing, not on the basis of how much traffic we have and what do you bid for it.

Mr. FRIEDEL. Mr. Kuykendall.

Mr. KUYKENDALL. Let me continue on Mr. Pickle's line for a moment. In the matter of section 408 you suggested that if the forwarder can prove to the carrier that the cost of handling is less than normal freight he may be given a lower rate.

I suppose in case of this decision on the part of the carrier to give a reduced rate, if this were being questioned this would have to be done through the ICC; is that right?

Mr. BEARDSLEY. Yes, sir.

Mr. KUYKENDALL. On whom does the burden of proof lie, with the shipper, the carrier or the ICC, or the plaintiff in this case, to prove what the cost of handling really is?

Mr. BEARDSLEY. The section itself does not say on whom the burden of proof would lie. This is one of the problems.

Mr. KUYKENDALL. Whom would you assume it would lie with, the plaintiff?

Mr. BEARDSLEY. I would assume it would lie probably with the plaintiff.

Mr. KUYKENDALL. Would it be a competing truckline?

Mr. BEARDSLEY. Yes.

Mr. KUYKENDALL. Do you know of such a case?

Mr. BEARDSLEY. No, because the forwarders have not chosen to use 408. Those rates have to be published. You have to make proof that these differences in the charges are justified by differences in the conditions under which the freight is transported.

That is the real reason as the forwarder witness said yesterday that assembly and distribution rates under 408 are not satisfactory. He meant they were not satisfactory to the forwarders. I can understand why they would not be.

Mr. KUYKENDALL. This is strictly a hypothetical question. I am asking for a personal answer here. Which would you object to the