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Allen, John C., Sr., general manager of ITOFOCA, Inc.; accompanied by
Charles W. Singer, counsel, Chicago, Ill.
Baxter, Charles S., chairman, Traffic Executive Association, Eastern
Railroads, New York, N. Y., accompanied by John A. Daily, assistant
general solicitor, Penn Central Co., New York, N. Y.
Culpepper, Caughey B., chairman of the board, National Conference of
Non-Profit Shipping Associations, Inc.-

Harrell, J. William, general manager, Baltimore Shippers & Receivers
Association, Inc.; John Oliva, Esq., The Charter Oaks Shippers Co-
operative Association, Inc. of Connecticut, accompanied by Ronald N.
Cobert. general counsel, American Institute for Shippers' Associations,
Inc____

Lincoln, John C., general manager, Los Angeles Wholesale Institute &
California Shippers Associates; accompanied by Stanley E. Tobin,
counsel, Hill, Farrer & Burrill, Los Angeles, Calif
Macdonald, Douglas R., general traffic manager of City Products Corp.,
President, Terminal Freight Cooperative Association, Chicago, Ill___

Tierney, Hon. Paul J., Chairman, Interstate Commerce Commission, ac-

companied by Fritz R. Kahn, Deputy General Counsel; Bertram E.

Stillwell, Director, Office of Proceedings; and Bernard A. Gould,

Director, Bureau of Enforcement, Interstate Commerce Commission__

Tyler, Robert J., traffic manager, Chemetron Corp----

Washer, Charles, transportation counsel, American Retail Federation,

Washington, D.C..

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The subcommittee met at 9 a.m. in room 5110, New Senate Office Building, the Honorable Frank J. Lausche, chairman of the subcommittee, presiding.

Present: Senators Lausche, Hartke, and Moss.

Senator LAUSCHE. The meeting will come to order.

The hearing this morning is on S. 3714, a bill proposing to amend section 409 (a) of part IV of the Interstate Commerce Act for the purpose of authorizing part IV freight forwarders to enter into contracts for rail transportation and for the compensation to be paid for such service.

There will be inserted in the record a copy of S. 3714, and the comments submitted by the Interstate Commerce Commission, the Federal Maritime Commission, and the General Accounting Office. (The bill follows:)

[S. 3714, 90th Cong., second sess.]

A BILL To amend section 409 of part IV of the Interstate Commerce Act, as amended, to authorize contracts between freight forwarders and railroads

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That subsection (a) of section 409 of the Interstate Commerce Act (49 U.S.C. 1009 (a)), as amended, is amended to read as follows:

"SEC. 409. (a) Nothing in this Act shall be construed to prevent freight forwarders subject to this part from entering into or operating under contracts with common carriers by railroad subject to part I of this Act, or from entering into or continuing to operate under contracts with common carriers by motor vehicle subject to part II of this Act, governing the utilization by such freight forwarders of the services and instrumentalities of such common carriers by railroad or motor vehicle and the compensation to be paid therefor: Provided, That in the case of such contracts it shall be the duty of the parties thereto to establish just, reasonable, and equitable terms, conditions, and compensation which shall not unduly prefer or prejudice any of such participants or any other freight forwarder and shall be consistent with the national transportation policy declared in this Act: And provided further, That in the case of line-haul transportation by common carriers by motor vehicle between concentration points and break-bulk points in truckload lots where such line-haul transportation is for a total distance of four hundred and fifty highway miles or more, such contracts shall not permit payment to such common carriers by motor vehicle of compensation which is lower than would be received under rates or charges established under part II of this Act."

Staff member assigned to this hearing: Stanton P. Sender.

SEC. 2. The heading of section 409 is changed to read as follows: "UTILIZATION BY FREIGHT FORWARDERS OF SERVICES OF COMMON CARRIERS BY RAILROAD AND BY MOTOR VEHICLE".

INTERSTATE COMMERCE COMMISSION,

OFFICE OF THE CHAIRMAN, Washington, D.C. 20423, July 12, 1968.

Hon. WARREN G. MAGNUSON,

Chairman, Committee on Commerce,
U.S. Senate, Washington, D.C. 20510.

DEAR CHAIRMAN MAGNUSON: This responds to your request of July 3, 1968, requesting the views of the Commission on S. 3714, 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.

Although this bill has not been previously introduced, as such, in the Senate, we have commented on this proposal in connection with the hearings on legislation dealing with joint rates and through routes, before the Subcommittee on Surface Transportation.1

Section 409 (a) of the Interstate Commerce Act presently permits regulated freight forwarders to enter into contracts with common carriers by motor vehicle subject to Part II of the 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 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 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 S. 3714 would provide 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 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 cosignees. 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

1 Through Routes and Joint Rates, Revocation of Motor Carrier Operating, Hearings before the Subcommittee on Surface Transportation, 90th Cong., 1st Sess. (1967) pp. 15557 (letter of former Chairman Tucker to Senator Lausche).

2 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).

the railroads and a decision by the Commission in Movement of Highway Trailers by Rail, 293 I.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 1940s that joint rates and through routes between forwarders and carriers subject to Part 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 forwards from using certain types of "piggyback" service, 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 were upheld by the Supreme Court in 1967, 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 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. Freight forwarder service has been and remains essentially a small shipment service even though forwarders are not legally confined to such service. There has always been some overlap between the services offered by freight forwarders and small-shipment L.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 the rules issued in connection with 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 Committee feel, however, 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

3 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. American Trucking Association Inc., et al. v. Atchison, T. & S.F.R. Co., 389 U.S. 889 (1967).

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