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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 less-thantruckload 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 the 150 mile limitation was not included in the initial proposals to amend this section in 1950 (S. 2113, H.R. 5967, 81st Cong., 1st Sess.,), this proviso was inserted in the final bill, largely to reduce the fears of certain railroads and shippers that, absent this or other limitations, the rights conferred on the forwarders would give motor carriers the ability to underbid the railroads on their profitable forwarder traffic, and that these reduced motor carrier charges might then burden regular commercial shippers with higher rates. 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 Senate Subcommittee on Surface Transportation on S. 3366, a bill to amend section 409(a) to authorize 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, 2.3 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 flat cars. Noting that the Commission had held in 1910 ? 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 S. 3366, if enacted, was to preclude freight forwarders from using "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, is tendered to the railroad for line-haul transportation. The railroad's compensation in such a move is based upon a division of the charges arrived at through negotiations between the two carriers. This division of charges is published as a division sheet. 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 true joint rate-through route arrangement such as plan V. While other aspects of Er 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
1 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.
than other forms of transportation. To the shipping public, particularly the shipper or consignee of small shipments, they are a common carrier engaged in a much-needed service while in their dealings with other carriers they are treated as shippers. Thus, for example, while a forwarder cannot use plan I TOFC service or otherwise make special contracts with the railroads, forwarders can and do make extensive use of other TOFC Plans particularly plans III and IV. In 1965, for example, 22 forwarders filed reports with the Commission showing direct use of piggyback service in plans other than I. Under these arrangements forwarders handled 163,133 trailers or other units carrying 1,777,000 net tons of traffic and involving payments of $51,575,000 for line-haul service to the railroads. With the recent approval by the Supreme Court of the so-called “open tariff” rules issued by Commission in Ex Parte 230 which opens plan III to motor carriers this traffic will of course be subject to possible diversion while at the same time plan I is still closed to forwarders. 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 that 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.
The effect of this bill would be to place the freight forwarders in the role of preferred rail shippers. At the present time, freight forwarders are required to use published rail tariff rates which are available to all shippers alike. The proposed amendment would allow a freight forwarder to get together with a railroad or railroads and agree on a level of charges. Although the resulting contracts would be filed with the Commission and open to public inspection, they would not be published in the manner rates normally are.
While we believe that we have correctly interpreted the Act and, further, believe that our decision in Eæ 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 all TOFC plans 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. We respectfully request the right to offer additional comments on this matter, if the circumstances warrant, after we have reviewed the testimony of other witnesses whose statements we have not yet seen. Sincerely yours,
WILLIAM H. TUCKER, Chairman, Committee on Legislation.
INTERSTATE COMMERCE COMMISSION,
Washington, D.C., September 12, 1967. Hon. HARLEY 0. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C.
DEAR CHAIRMAN STAGGERS: This responds to your letter of July 11, 1967, suggesting that the Commission might wish to supplement our letter of July 5, 1967, commenting on H. R. 10831, in light of the Commission's comments made in 1956 on similar legislation, H. R. 9548, then pending in the 84th Congress.
As the letter to then Chairman of the Committee indicates, our comments on H. R. 9548 were considered in the context of our legislative recommendation No. 30 contained in our 69th Annual Report. This recommendation and the explanatory comment appearing on page 137 of the report is as follows:
"We recommend that section 409 be amended so as to (1) place th: burden of proof on the parties to contracts between freight forwarders and common carriers by motor vehicle subject to part II of the Act for the transportation of freight when such contracts are called into question, (2) prohibit such contracts at compensation lower than the motor carrier's tariff rates in all cases where the line-haul transportation is for a total distance of 450 miles or more, and (3) provide penalties for the offer, grant, giving, solicitation, acceptance,
or receipt of any rebate, concession, or discrimination resulting from the transportation of property at compensation less than that specified in such contract.
No action was ever taken on these three proposals by the Congress. Since we have not renewed this recommendation in recent years, our comments on H. R. 10831 did not take these suggestions of a decade ago into account. In addition, our decision in Er Parte 230, Substituted Service-Piggyback, 322 I.C.C. 301, (1964) may have the effect of altering the competitive relationship between freight forwarders and other modes of transportation ; accordingly, we are in no position at this time to determine whether this recommendation should be renewed or whether these amendments should be incorporated in H. R. 10831. If, for example, competitive circumstances have changed to their detriment, the Congress may wish to accord forwarders a status such that compensation paid under the bill properly would be viewed not as a "rate" but, rather, as in the nature of "divisions" similar to those negotiated by rail and motor carriers under section 216(c) of the Act. In such case the bill in its present form, coupled with its legislative history, may be entirely consistent with the present rights and remedies available under the latter section. Sincerely yours,
WILLIAM H. TUCKER, Chairman, Committee on Legislation.
FEDERAL MARITIME COMMISSION,
Washington, D.C., January 22, 1968. Hon. HARLEY O. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, House of Representa
tives, Washington, D.C. DEAR MR. CHAIRMAN : Reference is made to H.R. 10831 which would enable freight forwarders under Part IV of the Interstate Commerce Act to enter into contracts with railroads to utilize the services of railroads and to pay agreed compensation therefor. The compensation to be paid by the Part IV freight forwarders to the railroads may be lower than such railroads would receive under published rates or charges established under Part I of the Interstate Commerce Act.
The Federal Maritime Commission has responsibility for the regulation of ocean transportation in our foreign commerce under the Shipping Act 1916, as amended, and in our domestic offshore ocean transportation under the Intercoastal Shipping Act of 1933, as amended. The persons whom we regulate are common carriers by water and other persons who carry on the business of forwarding or furnishing wharfage, dock, warehouse or other terminal facilities in connection with a common carrier by water. Among the persons regulated by the Federal Maritime Commission are common carriers by water who do not operate their own vessels but utilize the services of underlying regulated ocean common carriers. These are commonly referred to as “non-vessel operating common carriers”. Actually, most non-vessel operating common carriers in our foreign commerce are the counterparts of domestic freight forwarders who are certificated and regulated by the Interstate Commerce Commission under Part IV of the Interstate Commerce Act.
The Interstate Commerce Commission has exclusive jurisdiction over the activities of freight forwarders under Part IV of the Interstate Commerce Act, and is the agency which would be charged with the implementation of this proposed legislation. However, the Federal Maritime Commission is concerned with any improvements in our domestic land transportation because of the import and impact it will have upon the development of through intermodal containerized cargo movement which necessarily requires efficient coordination between domestic carriers and ocean common carriers in our foreign commerce.
As the Federal Maritime Commission has noted in a recent annual report to the Congress, containerization is probably the most significant technological development that has taken place in ocean transportation since the advent of the steamship. The benefits to shippers which flow from containerized transportation are several and have been demonstrated effectively in our domestic offshore transportation. These benefits cannot, however, be fully achieved unless the regulatory climate is favorable and unless shippers can eventually be afforded through single factor rates and single through bills of lading between interior points in the United States and interior points in foreign countries.
The so-called “Container Revolution" is now in its incipient and most explosive stage in the important North Atlantic trade and in the trans-Pacific trade. These trades, in terms of volume and value of shipments, are the most important trades in our foreign commerce. Realistically, we must recognize that Part IV freight forwarders are common carriers. In this respect, freight forwarders hold themselves out to handle the shipments of all shippers offering cargo under their tariffs. They issue through bills of lading and they accept common carrier liability to the shipper. Freight forwarders, as common carriers, handle small or medium size shipments and their vital role in the overall scheme of our national transportation system is fulfilled in the assembling and consolidation of such shipments.
From the point of view of regulatory authority, Part IV freight forwarders are in a position to offer containerized transportation in our foreign oceanborne commerce for small or medium size shipments. To the extent the services of Part IV freight forwarders in our domestic inland transportation can be improved, this will expedite and improve the development of through containerized cargo movement in our foreign trades.
I shall not be so presumptuous as to attempt to analyze this amendment to Section 409 of the Interstate Commerce Act, the administrative precedents thereunder or the prior legislative history. We favor improvement and expansion of all modes of transportation and their increased cooperation in the expansion of through intermodal foreign trade. If in the judgment of this Committee the legislation here under consideration, introduced by Congressman Friedel, is considered desirable for the purpose of enabling those common carriers to provide an improved service to the shipping public and is not inconsistent with our overall transportation policies, then such legislation should be favorably acted upon in the public interest.
The Bureau of the Budget has advised that there would be no objection to the submission of this letter from the standpoint of the Administration's program. Sincerely yours,
Rear Admiral, U.S. Navy (Retired) Chairman. Mr. FRIEDEL. Our first witness this morning will be Mr. Giles Morrow, general counsel of the Freight Forwarders Institute, and Mr. Russell Moir, who will accompany him. Mr. Moir is chairman of the board of governors of the Freight Forwarders Institute.
Mr. Morrow, if you want you may have your full statement included in the record and just bring out the highlights or you may read your full statement as you wish.
Mr. MORROW. Mr. Chairman, my statement is not as long as it looks because there is not very much on the page, since I am the first witness and have to describe the bill I think if it is permissible I would just like to read it.
Mr. FRIEDEL. You may do so.
STATEMENT OF GILES MORROW, GENERAL COUNSEL, FREIGHT
FORWARDERS INSTITUTE; ACCOMPANIED BY G. RUSSELL MOIR, CHAIRMAN, BOARD OF GOVERNORS, FFI
Mr. MORROW. My name is Giles Morrow. I speak today for the Freight Forwarders Institute as its general counsel. The office is located at 1012 14th Street NW., Washington. I have represented the institute, which is the national trade association of the forwarding industry, for more than 28 years. I was counsel for the institute for 2142 years, 1940 to May 16, 1942, when the original forwarder act was being formulated by Congress.
H.R. 10831 was introduced at our request. It is of major importance to the freight forwarding industry. We think it has considerable significance when viewed in the light of the total transportation system.
It is a simple bill, supported by equity and justified on the basis of economies. But we realize that with transportation as complex and competition as keen as it is, hardly any change in transport law is without controversy. There will be some controversy about this bill
. We will present our justification through three witnesses, confident that on its merits this legislation is unassailable. Our witnesses are Mr. J. Russell Moir, who is sitting on my right, chairman of the board of the institute, and Mr. Jerry Chambers, president of the Clipper Carloading Co., will follow Mr Moir.
What does the bill do? It amends section 409 of part IV of the Interstate Commerce Act so as to authorize contracts between freight forwarders and railroads. Part IV regulates freight forwarders as common carriers of freight and it corresponds in most respects to part I, which regulates rail and express carriers, part II, which regulates motor carriers, and part III, which regulates domestic water carriers.
Section 409, which has been amended several times since it was included in the original act in 1942, now provides that forwarders and motor carriers may operate under contracts with each other.
In principle, section 409 is the counterpart of those sections of parts I, II, and III which authorize rail, express, motor, and water carriers to make joint rates with each other. When Congress provided for contracts under section 409, in 1950, your committee said in its report (No. 2489, 81st Cong.), that it was clear that the compensation which may be agreed upon under the proposed contracts is comparable to compensation which would be received under a division of a joint rather than to compensation received under a published tariff rate."
But section 409 is more restrictive than its counterparts. For example, section 216(c) of part II, authorizes motor carriers to enter into joint rates with railroads, express companies, water carriers, and other motor carriers. Section 409, on the other hand, authorizes contractual arrangements only between forwarders and motor carriers.
H.R. 10831 simply extends the scope of section 409 so that freight forwarders could make contracts with railroads as well as with motor carriers. That is all that the bill does. Thus no objection can be raised to H.R. 10831 on the ground that it presents a new or novel question of law. Any questions of law were settled by Congress when section 109 was enacted in 1942.
The only issue raised by H.R. 10831 is whether freight forwarders and railroads should be permitted to deal with each other on the same basis on which freight forwarders and motor carriers are now permitted to deal with each other.
That single, simple issue should be kept constantly in mind because nothing can be said in opposition to this bill, from a legal or congressional policy standpoint, that was not answered by Congress when it originally enacted section 409 in 1942.
The history of how and why part IV came to be enacted is contained in report No. 1172 of the 77th Congress, 1st Session, filed by the House Committee on Interstate and Foreign Commerce, on August 13, 1911. That historic report shows that when Congress was considering the Transportation Act of 1940, the House included an amendment, and passed it, to regulate freight forwarders simply by regulating them as common carriers under part II—the motor carrier part.