Mr. BEARDSLEY. The shipper ordinarily as a practical matter deals with the carrier who picks up his freight. He may know that the shipment is going to move joint rate but his contract is with the carrier who comes to his dock and picks up the shipment.

Mr. KUYKENDALL. It may be any combination of rail or truck? Mr. BEARDSLEY. Yes.

Mr. FRIEDEL. Mr. Devine.

Mr. DEVINE. No questions.

Mr. FRIEDEL. I want to thank you very much, Mr. Beardsley.
Mr. BEARDSLEY. Thank you.

Mr. FRIEDEL. Our next witness will be Mr. J. William Harrell, Baltimore Shippers & Receivers Association, Inc. With him there will be Ronald N. Cobert, Esq.

STATEMENT OF J. WILLIAM HARRELL, GENERAL MANAGER, BALTIMORE SHIPPERS & RECEIVERS ASSOCIATION, INC.; ACCOMPANIED BY RONALD N. COBERT, GENERAL COUNSEL, AMERICAN INSTITUTE FOR SHIPPERS ASSOCIATIONS, INC.

Mr. HARRELL. I intend to introduce my written statement into the record. I will say no more unless the chairman would like me to identify myself and say who I am and what I am doing.

Mr. FRIEDEL. You may do that. I understand you have an amendment to offer?

Mr. HARRELL. First, I am John William Harrell. I am the general manager for the Baltimore Shippers & Receivers Association in Baltimore. I am authorized to testify here in behalf of Baltimore Shippers and its membership of 478 small and large manufacturers.

I am also the chairman of the board of the American Institute for Shippers Associations which represents shipper associations all over the country. Mr. Cobert is the general counsel of both of these associations.

Mr. FRIEDEL. Thank you, Mr. Harrell.

Your full statement will be included in the record at this point.
Mr. HARRELL. Thank you, Mr. Chairman.

(Mr. Harrell's prepared statement follows:)

STATEMENT OF J. WILLIAM HARRELL, GENERAL MANAGER, BALTIMORE SHIPPERS & RECEIVERS ASSOCIATION, INC.

My name is J. William Harrell. I am General Manager of Baltimore Shippers & Receivers Association, of Baltimore, Maryland. I have been authorized by the association to testify in opposition to H.R. 10831 unless it is amended to include within its scope shippers' associations operatng under secton 402 (c) of the Interstate Commerce Act.

Baltimore Shippers & Receivers Association, Inc., is a non-profit membership association incorporated under the laws of the State of Maryland. We are an association of 478 Baltimore and national shippers and operate under section 402 (c) of the Interstate Commerce Act. We arrange for the movement of freight in interstate commerce for our members on a non-profit basis for the purpose of securing economical transportation through volume rates. The association, which has been in existence for 20 years, ships freight between points in the State of Maryland and points in the States of California, Illinois, Missouri, Louisiana, and Michigan. The association arranges for the movement of diverse commodities through the instrumentalities of rail and motor carriers. Baltimore Shippers & Receivers Association, Inc., as all other shippers' associations, operates physically in a manner similar to interstate freight forwarders which

are subject to regulation by the Interstate Commerce Commission under part IV of the Interstate Commerce Act.

Baltimore Shippers & Receivers Association opposes H.R. 10831 in its present form for several reasons. First, we believe that the railroads should not be in the position to discriminate against shippers' associations by negotiating a lower rate with the freight forwarder for the latter's traffic. It is our position that this discrimination would be evident since the railroad performs the exact same service for both freight forwarders and shippers' associations. As I have indicated, freight forwarders and shippers' associations physically operate in the same manner. Second, it is our position that if the freight forwarders and railroads should negotiate rates lower than the prevailing tariff rates, then Baltimore Shippers & Receivers Association will be placed in the position of subsidizing the operations of the freight forwarders on the same type of transportation services. The railroads at the present time are continually seeking increases in rates to justify their low net revenue operations. These increases would be magnified to shippers' associations, such as our association, if the railroads reduced their rates to the freight forwarders.

However, Baltimore Shippers & Receivers Association would not object to H.R. 10831 if the bill is amended to include within its scope shippers' associations operating under section 402(e) of the Interstate Commerce Act. We support the position of the national trade organization, the American Institute for Shippers' Associations, Inc., which is submitting an amended bill to the subcommittee. We see substantial benefits accruing to shippers if these associations are included in H.R. 10831. Because of the nature of a shippers' association being non-profit, the association passes all savings back to the membership. Therefore, if the association is able to obtain a lower rail rate, then those savings will be passed back to the shippers who are members of the association. The same is not necessarily true with the freight forwarder who is neither required to nor has a history of passing back savings to its accounts.

We urge that H.R. 10831 be defeated unless it is amended to include shippers' associations.

Mr. HARRELL. One other thing. After Mr. Cobert concludes his remarks I am sure he will be in a position to answer any questions because he is very well versed in this field.

Mr. FRIEDEL. Mr. Cobert.

Mr. COBERT. Mr. Chairman, members of the subcommittee, my name is Ronald N. Cobert, and I am general counsel for both Baltimore Shippers and American Institute for Shippers' Associations. We have a statement which I will ask be admitted into the record and with the indulgence of the subcommittee I would ask to summarize our position and set forth certain additional comments which have been prompted by the record today.

Mr. FRIEDEL. Your full statement will be included in the record. Mr. COBERT. Thank you, sir.

(Mr. Cobert's prepared statement follows:)

STATEMENT OF RONALD N. COBERT, GENERAL COUNSEL, AMERICAN INSTITUTE FOR SHIPPERS' ASSOCIATIONS, INC.

My name is Ronald N. Cobert, I am General Counsel of the American Institute for Shippers' Associations, Inc. (AISA). We oppose H.R. 10831 in its present form; however in the event that this Bill is deemed worthy of passage, AISA urges this Subcommittee to adopt the amended Bill which I am attaching to my testimony. The amended language which we propose is underscored in the attachment.

American Institute for Shippers' Associations, Inc. is a nonprofit Delaware trade organization doing business in the District of Columbia. The membership of AISA which numbers 50 is composed of shippers' associations and groups operating under section 402 (c) of the Interstate Commerce Act. These associations operate in interstate commerce throughout the United States. The purposes of AISA include the promotion and protection of shippers' associations and the mandate to act as a representative of and spokesman for shippers' associations before the Congress of the United States.

The purpose of my testimony today is twofold. First, AISA voices its opposition to H.R. 10831 for reasons to be set out below. Second, my testimony will spell out the operations, both practieal and legal, of shippers' associations which establish that the latter operate physically in the same manner as the freight forwarder. We conclude therefore that if H.R. 10831 is to be passed, it should also extend privileges to shippers' associations.

In order to establish that there is no justification or public interest in passage of the bill it is necessary to discuss the history of section 409 of the Interstate Commerce Act. Until the early twenties in this Country freight forwarders were limited to operations between points served by railroads. The advent of motor carriage proved a real boon to the forwarder because it enabled him to expand and improve his service. There developed arrangements between freight forwarders and motor carriers whereby two types of motor services were commenced. First, motor carriers moved less-than-truckload freight to a consolidating station of the forwarder or distributed less-than-truckload freight from a forwarder's break-bulk station to ultimate consignees. This became known as an assembling and distribution service. The second type of motor service was that in which motor carriers were used for shorter distances either between consolidating stations or in a terminal to terminal service, i.e., between concentration and breakbulk stations. Thus it can be seen that while the first type of service was strictly complementary to rail service, the second type had characteristics which were both complementary and in substitution of rail service.

Prior to regulation of either the motor carrier or freight forwarder these two transportation organizations had numerous joint rate arrangements. In other words, while the forwarder charged his shipper account a through rate, the motor carrier would receive from the forwarder an agreed division of that through rate. These joint arrangements were found unlawful by both the Commission and the Courts. When part IV of the Interstate Commerce Act was passed, Congress saw fit to enact section 408 thereof which was a substitute for the joint rate arrangements which existed between the forwarder and the motor carrier.

In the years immediately following the freight forwarder legislation, section 408, pertaining to the establishing of assembling and distribution motor rates lower than local rates, was not accepted nor used generally at that time. Such nonacceptance of section 408 appears to have prompted passage of the present section 409 which enabled forwarders and motor carriers to make lawful agreements for motor service at compensation less than that afforded by those carriers to shippers generally. The exception, however, is that no compensation to motor carriers for terminal to terminal over 450 miles could be less than the legal rate under tariffs filed by the motor carrier with the Commission. That exception thus applies to "terminal to terminal" operations over 450 miles. Thus Congress under present section 409 recognized no justification for lower "terminal to terminal" rates than offered to shippers generally. Section 409 as originally contemplated appears to have attempted to alleviate any problems that existed under joint assembling and distribution services and not "terminal to terminal" services. H.R. 10831 in its present form would give to the forwarders the right to negotiate lower terminal to terminal charges with the railroads. Such a right is contrary to the basic philosophy behind the Interstate Commerce Act and the National Transportation Policy. There is little or no difference in the cost of handling terminal to terminal traffic of forwarders and in the cost of handling nonforwarder carload or truckload traffic. Thus a lower rate to the forwarder for the same service would be discriminatory on its face. The Nation's shippers' associations, especially since they operate physically in the same manner as a freight forwarder, would be forced to subsidize the freight forwarder at the expense of the associations' memberships. By the very nature of its nonprofit membership status a shippers' association operating under section 402 (c) of the Act passes back to its member shippers all savings. Likewise, its member shippers must absorb any cost increases. The result is that manufacturers and retailers throughout this Country will be indirectly forced to pay higher freight charges through the passage of this legislation. Moreover, in answer to any claims that shippers will benefit from H.R. 10831 because of lower forwarder rates, we contend that such is a spurious justification. First, H.R. 10831 contains no provisions making it mandatory that savings be passed back. Second, history exhibits a failure by the forwarders to return some of the benefits derived through such innovations as piggyback rail service and rates.

Today, any legislation which impairs the operations of shippers' associations is detrimental to the national economy. These associations serve a wide range of economic interests and are important distribution instrumentalities. A recent study conducted under AISA direction of six shippers' associations having a total of 951 shipping members established that the numerous member companies whose distribution is aided by their associations cover a broad range of manufacturing activity. All major manufactured product groupings included in the Standard Industrial Classification employed by the Bureau of the Census were represented by the associations except primary metal products and transportation equipment. Shippers' associations provide a valuable economic function through their freight consolidation and as a result, the traffic tendered to carriers has highly favorable transportation characteristics. Shippers' associations play a significant dual role in the national transportation picture. On the one hand, these associations provide significant revenue to the common carrier tendering the most favorable type of traffic, while, on the other hand, these associations enable their shipping members, whether manufacturers or retailers, to attain the lowest possible transportation costs. This dual role will be significantly impaired by passage of H.R. 10831 in its present form.

The only possible manner in which passage of H.R. 10831 could be justified without substantially impairing the national transportation system is to include shippers' associations within the scope of the Bill as set forth in the attachment. The practical effects of the inclusion of associations would be (1) the removal of the possibility of discrimination on similar traffic, and (2) the existence of some assurance that savings will be returned to the shippers.

Both the Interstate Commerce Commission and the federal courts have recognized that the physical operations of an association operating under 402 (c) of the Interstate Commerce Act closely parallel the physical operations of a regulated freight forwarder as defined in Section 402(a) (5) of the Act. Baltimore Shippers and Receivers Association v. Public Utilities Commission of the State of California, 268 F. Supp. 836 (N.D. Calif. 1967), aff'd. per curiam, No. 846, Jan. 15, 1968 (S. Ct.); National Motor Freight Traffic Association v. New Hampshire Shippers Co-operative, Inc., 323 I.C.C. 658 (1964). In other words, shippers' associations under the law perform for their members the same physical services that freight forwarders offer to the general public for compensation, that is, they provide for assembly and consolidation of shipments of their members, provide for break-bulk and distribution of such shipments, and use regulated railroads, motor carriers or water carriers for the whole or any part of the transportation of such shipments.

Passage of H.R. 10831 without the inclusion of shippers' associations would frustrate and be inconsistent with section 2 of the Interstate Commerce Act. That section declares unlawful and directly prohibits a railroad from receiving less compensation from any person for service rendered that it receives from any other person for performing "a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions." The conditions and circumstances under which the freight forwarder and shippers' association tender traffic to a railroad are exactly the same.

AISA urges defeat of H.R. 10831. If such is not defeated in its entirety, AISA urges that H.R. 10831 be amended to include within its scope shippers' associations operating under section 402 (c) of the Interstate Commerce Act.

Mr. COBERT. The position of the American Institute for Shippers' Associations is to oppose this legislation in its entirety. We feel, however, that should the subcommittee accept the legislation then we ask that the bill be amended to include within its scope shippers associations operating under section 402 (c) of the Interstate Commerce Act.

Justification for our opposition to this bill dictates briefly some history of the legislation antedating sections 408 and 409 of the Interstate Commerce Act.

As this subcommittee has already heard, prior to regulation of motor carriers and freight forwarders, situations existed where there were joint rates in existence between the forwarders and the motor

carriers. These joint rates were basically for assembling and distribution operations and not for terminal-to-terminal operations.

An assembling and distribution operation is the operation by a motor carrier for a forwarder in either assembling merchandise to bring to a consolidation point or distributing the merchandise at the break bulk point for the freight forwarder. This is as opposed to terminal-to-terminal operations in which freight moves for shorter distances between consolidating stations or in a terminal-to-terminal service, that is, between the concentration and break bulk points of the freight forwarder.

Joint assembling and distribution rates were the situation that existed when legislation came about in 1942. In order to keep that situation status quo Congress inserted section 408 into the Interstate Commerce Act. However, section 408 did not accomplish everything that here the forwarders wanted it to accomplish and therefore section 409 was included in 1950. However, we contend that both of these pieces of legislation, namely sections 408 and 409, were designed to satisfy any problems that existed with respect to assembling and distribution operations.

This was the basic problem. Now what we have here being proposed by the freight forwarders is to negotiate rates on terminal to terminal operations with the railroads. It has to be terminal-to-terminal for basically these are the only services that a railroad holds out for the freight forwarders.

Everybody testifying here has apparently failed to realize one point. Section 409, first of all, is not quite as simple as the freight forwarders would have us believe. It goes a lot further than simply negotiating a transportation rate with the railroad. It goes into such matters as leasing, for example, which presently must be published in a tariff. Now when we look at this terminal-to-terminal operation that the railroads will be able to negotiate on with the freight forwarders we find one thing exists there that does not exist with an assembling and distribution operation.

The thing that is different is that on a terminal-to-terminal operation everybody is in the same boat. The railroad handles that type of traffic no different than it would handle the traffic of a nonforwarder such as the shippers association.

Therefore, as my statement contends, the shippers association here are urging this committee to recognize that a discrimination will be worked upon the shippers association by passage of this bill. This we contend will do violence to certain principles under the Interstate Commerce Act such as section 2.

We further contend that this is no justification at this time for the passage of H.R. 10831 in its present form. For example, I point to the hue and cry raised by Mr. Chambers of Clipper Carloading in his statement. He has attempted to say that this legislation is necessary for economic reasons. However, Mr. Beardsley of ATA referred to certain 1966 statistics and a figure of $526 million for the freight forwarders in that year.

Those same statistics published by the Interstate Commerce Commission also show an average operating ratio of 87.31 percent, the lowest in years for the freight forwarders.