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NATURE OF THE SUBJECT
Part IV of the Interstate Commerce Act regulates freight forwarders, who are defined as persons who hold themselves “out to the public as common carriers to transport freight for compensation, and who, in the process, assemble, consoli. date, and distribute freight through utilization of the services of other regulated carriers, assuming full responsibility therefor."
Section 402 (c) states in part that the provisions of part IV do not apply to operations of nonprofit shipper groups who consolidate or distribute their own freight for the purposes of securing the benefits of volume rates.
Shortly following enactment of part IV of the act, the ICC concluded that 402 (c) was being used to avoid regulation by “associations” ostensibly operating as shipper groups. The Commission in 1945 initiated a test case involving one such organization, but its finding that the organization was in fact a forwarder was reversed by the Supreme Court.
Since then, the Commission has been asking Congress periodically to clarify the law so as to prevent abuses.
Bills were introduced for this purpose in the 820 and 83d sessions of Congress but did not come to a vote.
Strong opposition to various legislative proposals in the past has been based largely on the fear that they might also adversely affect activities of bona fide shippers' groups.
The Cabinet Committee report in spril 1955, recognizing the problem, included the following recommendation: That Congress "provide definite statutory standards for determining which shippers or shipper associations involved in consolidation or distribution of volume freight on a nonprofit basis for securing lower rates are entitled to exempt status."
This proposal was submitted to the panels on April 27 as one of the recommendations of the Cabinet Committee report on which TAA had no position.
ACTION OF THE PANEL
At the June 6 coordinating committee meeting it was reported that the user panel had disapproved the proposal, and more particularly had opposed the language in H. R. 6141 which purported to carry it out. The investor panel took no position because of no particular interest and a lack of experience. The pipeline panel did not oppose, as the proposal does not materially affect pipelines.
The representative of the freight forwarder panel asked that further consideration be given to the matter and it was agreed that he prepare a memorandum for submission to the panels on the subject to point up the injustices which the freight forwarders feel the present law encourages. This was done.
Subsequently, in accordance with agreement at the coordinating committee to set up small subcommittees to discuss controversial subjects, 2 members of the user panel and 2 members of the freight forwarder panel met and agreed on a suggested alternative recommendation which was then referred to the full user and freight forwarder panels. The user panel after consideration preferred instead to change its previous position and support the recommendation in the Cabinet Committee report. Freight forwarder and investor panels then agreed to do the same.
At the Coordinating Committee meeting on December 19, the air transport panel reported approval of the proposal particularly liking the use of the word "statutory” since their representatives felt that the granting of a broad exemption power to an administrative agency permits the whole system of regulation to erode through blanket exemptions granted by the agency. The waterway panel indicated no particular interest but would go along with the recommendation,
The railroad panel took no position. The highway panel preferred to take no position in line with its stated position on the Cabinet Committee report but would probably not object if the subject is considered in a specific bill.
In summary, five panels actively supported the proposal and the others indicated no objections.
COMMENTS OF THE POLICY COMMITTEE (WHICH SUCCEEDED THE POLICY BOARD)
“We believe that the present law has loopholes which permit abuses by certain types of 'associations' under section 402 (c) of the Interstate Commerce Act.
*We recommend that the TAA board take the position that Congress should provide definite statutory standards for determining which shippers or shipper associations involved in consolidation or distribution of volume freight on a bonprofit basis for securing lower rates are entitled to exempt status." (This is a direct quote from the Cabinet Committee report.)
RECOMMENDATION OF THE BOARD OF DIRECTORS The board of directors approved the recommendation of its policy committee. It was understood that this was the full TAA position and that it included no endorsement of any specific legislation.
COMPARISON WITH H. R. 6141
H. R. 6141 provides definite standards intended to carry out the Cabinet Committee recommendation. While we support the general principle of having Constess provide standards, our position does not include endorsement of this or any other specific legislative language.
It has been extremely difficult in the past to get freight forwarders and shippers to even agree on a statement that the law should be clarified in this respect. Through our project operations we have succeeded in getting agreement on this point. That is as far as we have been able to go.
Mr. Baker. Our next position deals with differential rail-water rates,
The TAA board of directors after careful consideration of the views of its eight permanent policy formulating panels and its policy group, approved the following recommendation:
Those provisions of section 307 (d) of the Interstate Commerce Act which relate to the prescription of differential joint rail-water rates in connection with through routes between rail and water carriers should be amended so that the Interstate Commerce Commisison will consider all relevant factors, including costs of service, before prescribing such differential rates.
The board has expressed this in another way, as follows: We believe that amendments to the differential provisions of section 307 (d) eliminating their mandatory character would accomplish our objective. The following change is suggested-language to be deleted struck out and new language italicized:
"In the case of a through route, where one of the carriers is a common carrier by water, the Commission shall may prescribe such reasonable differentials, if any, as it may find to be justified between all-rail rates and the joint rates in connection with such common carrier by water."
H. R. 6141 completely eliminates the sentence in section 307 (d) quoted above.
The TAA recommendation amends the wording so that the Commission is not required to set a rail-water rate that is lower than the all-rail competitive rate, irrespective of cost relationships, as the Commission has appeared to interpret the statute in the past.
By striking the entire sentence, as is done in H. R. 6141, it might . be inferred that there was more of an intent to discourage the whole idea of differentials.
As will be noted in the panel discussions of this subject, TAA's consideration was broader than the mere question of rates, and involved the whole question of compulsory through routes and joint rates, and the various other parts of the act which deal with the congressional policy toward water transportation.
However, the ultimate recommendation of the TAA board was for a change only in the differential provision in section 307 (d).
(Additional statement on differential rail-water rates is as follows:)
DIFFERENTIAL RAIL-WATER RATES
NATURE OF THE SUBJECT
The Interstate Commerce Act charges common carriers by rail and water with the duty of establishing reasonable through roates with one another, of providing reasonable facilities for the operation of such routes, and of maintaining reasonable rates in connection with routes so established. The act also provides that the Interstate Commerce Commission can compel the establishment of through routes and joint rates' when it deems them necessary and desirable, in the absence of voluntary action by the carriers. In addition, the Commission is instructed under section 307 (d) that it "shall prescribe such reasonable differentials as it may find to be justified between all-rail rates and the joint (rail. water) rates” established in connection with through routes between rail and water carriers.
There are no similar statutory requirements compelling carriers other than railroads to establish through routes and joint rates with carriers by different forms of transportation.
The Commission was first authorized to prescribe through routes and joint rates between rail and water carriers by the provisions of the Hepburn Act of 1906. However, it was during and following World War I that agitation for such compulsory through routes and joint rates received its greatest impetus. In 1920 Congress adopted an express policy to encourage the development of inland water transportation * and then incorporated the Inland Waterways Corporation to carry out this policy. A provision of the Denison Act of 1928 specified that the transportation services of the Corporation were to be continued until there had been filed "such joint tariffs with rail carriers as shall make generally available the privileges of joint rail and water transportation upon terms reasonably fair to both rail and water carriers." 6
The Commission took occasion to review the history of congressional policy and legislation and its own various decisions in the field of rail-water rates in the important Rail and Barge Joint Rates case, decided in 1948. In this proceeding the Commission, in a decision upheld by the Supreme Court, determined differential rail-water rates for traffic moving along the Mississippi and Warrior Rivers and their tributaries largely on the basis of the "clear congressional policy" to foster inland water transportation. Weight was also given to the water carriers' slower service and their willingness to absorb the differential. The Commission made no finding as to the cost of conducting the rail-barge service in question and inferred that such service was not now more economical than competing all-rail service, but it rejected the rail carriers' interpretation of section 307 (d) (the provision authorizing the Commission to prescribe differential rail-water rates) which was that diffedentials are justified within the mean.
1 Secs. 1 (4) and 305 (b) of the Interstate Commerce Act.
SA "through route" is an arrangement for the continuous carriage of goods from an originating point on the route of one carrier to a destination point on the route of another carrier. The rates applicable over such through routes are usually joint rates, which are single-factor rates in most cases lower than the sum of the local rates fixed by each carrier participating in the route for its part of the haul.
Secs. 15 (3) and 307 (d) of the act. Sec. 15 (4) of the act provides that, subject to certain limitations, a railroad cannot be compelled to "short haul" itself in establishing a through route with another carrier, except where such carrier is a water line.
The power to compel a through route includes the power to require railroads to interchange cars with common water carriers equipped to transport them. See U. 8. v. Pennsylvania Railroad Co., 323 U. S. 612 (1945).
4 Sec. 500 of the Transportation Act of 1920 (not repealed) reads: "It is hereby declared to be the policy of Congress to promote, encourage, and develop water transportation, service, and facilities in connection with the commerce of the United States, and to foster and preserve in full vigor both rail and water transportation.".
649 U. S. C. sec. 153 (c). The Denison Act also authorized the Commission to grant certificates to inland water carriers and to compel railroads subsequently to establish through routes and differential joint rates with such carriers. These provisions have been replaced by provisions of pt. Ill of the Interstate Commerce Act, including sec. 307 (d) referred to in the text.
& Rail and Barge Joint Rates, 270 I. C. C. 591 (1948). The Commission report mentioned that in the early twenties all-water and rail-water rates had been customarily lower than all-rail rates and that the then prevailing general pattern of a 20-percent differential had been followed ever since. The Commission also called attention to its view previously stated in U. 8. War Department v. A. and S. Ry. Co., 77 1. C. C. 317, 362 (1923) that in the case of rail-barge joint rates the barge line, which usually absorbs the differential. should be given considerable latitude in setting the amount of the differential.
ing of that provision only when it can be demonstrated that the cost of rail-water service is lower than that of comparable all-rail service.
The points at issue in the cooperative project were of broader scope than the questions presented in this court case. They involved the question of whether the existing provisions of law relating to compulsory through routes and joint rates between rail and water carriers were desirable in the public interest and whether they should be retained, modified, or extended.
ACTION OF THE PANELS
There was no support in the panels for the extension of the compulsory through route requirement to any other forms of transportation. On the contrary, the User, Investor, Railroad and Freight Forwarder Panels advocated elimination of the present provisions establishing compulsory rail-water through routes and joint rates.
lo so doing, the user panel in its report recommended that the establishment of through routes between different forms should be on a voluntary basis. There were only two dissents to the opinion that rail and water carriers, if left to themselves in an atmosphere free from compulsion, would voluntarily work out more through routes and joint rates than they do at present. The Investor Panel in its report concurred in the views and recommendations of the User Panel.
The railroad panel strongly advocated in its report the repeal of all of the present provisions covering compulsory through routes and joint rates between water and rail carriers. This panel opposed particularly the establishment of differential joint rates for such transportation when there is no showing that the costs are less for the water-rail movement than for all-rail movement. The railroad panel contended that this encouraged uneconomical services and also unfairly favored the shippers who benefit by the lower rates. It was also the argument of the railroad panel that if the provisions in section 307 (d) of the Interstate Commerce Act relating to the prescription of differentials are intended to favor water over rail carriers, they are incompatible with the National Transportation policy, since one of its objectives is to provide impartial regulation of all forms of transportation.
The waterway panel, on the other hand, favored continuation of the present provisions for compulsory rail-water through routes, rates, and differentials. Its representatives stated that its members felt they needed this protection in order to obtain any traffic moving by other than all-barge transportation and that a great deal of their traffic depended on rail hauls at either or both ends. They also averred that the railroads have obstructed the establishment of through Toutes and joint rates whenever possible.
Further arguments presented by waterway-panel representatives stressed the importance of water transportation to the national defense and the necessity for extending the benefits of water transportation to shippers in the interior through compulsory joint rates between water and rail carriers.
The highway, pipeline, and air-transport panels were opposed to the principle of forcing through routes by Government action, but the highway and pipeline panels took no position on the question of repealing the existing provisions relating to rail-water through routes and joint rates. The air-transport panel did not oppose such repeal.
COMMENTS OF THE POLICY BOARD
No panel has suggested, and we can see no basis for recommending, any extenkion of the statutory provision relating to compulsory through routes and joint rates between different forms of transportation. On the contrary, there is much to be said for the user-panel view that in the long run more through routes are likely to be worked out between carriers of different forms if the carriers are Dot compelled to enter such arrangements.
However, repeal at this time of the existing legislation authorizing the Interstate Commerce Commission to prescribe through routes and joint rates between railroads and water carriers does not appear advisable. Such action now might make difficult the continued maintenance of existing arrangements for interchange of goods and cars between railroads and water carriers.
We do believe that certain changes are called for in the language of section 307 (d) governing the prescription of differential joint rail-water rates. The Commission seems to think that under these provisions in their present form it is free, and, furthermore, is required by congressional policy, to fix differential rail-water rates lower than competing all-rail rates without knowing or considering the cost of the rail-water service for which the differential rates are prescribed and the relationship of such costs to the costs of carriers offering competing service. We are opposed to prescription of differentials on this basis.
This is not to say that differentials must always be based on a finding of lower costs; but cost of service, while not the only factor to be considered in the prescription of rates, is a very important one, particularly when the essential question involved is one of regulating the competition and division of traffic between different forms of transportation. Thus, costs are emphasized by the Commission in minimum rate regulation. They should have a place of equal stature in proceedings relating to the prescription of differential rail-water rates.
The lawfulness of the Commission's failure to consider costs in these differential cases and its interpretation of congressional intent have been upheld by the majority of the Supreme Court. We therefore urge Congress to amend section 307 (d) in order to indicate to the Commission that in the future it should not feel itself bound by congressional policy to establish differentials but rather, in determining whether or not to take such action, it should exercise the same broad judgment based on a weighing of all relevant factors, including costs of service, that it now is expected to employ under the other rate provisions of the Interstate Commerce Act.
We believe that amendments to the differential provisions of section 307 (d) eliminating their mandatory character would accomplish our objective. The following change is suggested (language to be deleted struck out and new language italicized):
"In the case of a through route, where one of the carriers is a common carrier by water, the Commission shall may prescribe such reasonable differentials, if any as it may find to be justified between all-rail rates and the joint rates in connection with such common carrier by water."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors approved the final paragraph of the above comments of the policy board, including the proposed revision of section 307 (d), and also approved the following summary :
“Those provisions of section 307 (a) of the Interstate Commerce Act which relate to the prescription of differential joint rail-water rates in connection with through routes between rail and water carriers should be amended so that the Interstate Commerce Commission will consider all relevant factors, including costs of service, before prescribing such differential rates."
COMPARISON WITH H. R. 6141 H. R. 6141 would repeal outright the provision that requires the ICC to prescribe reasonable differentials between all-rail rates and joint rail-water rates in section 307 (d).
TAA seeks only an amendment to the provision so as to make differential railwater rates discretionary rather than mandatory as is the case today.
Mr. BAKER. Our next position is Roman numeral VII, which deals with the bulk commodity exemption.
The TAA board of directors, after careful consideration of the views of its eight permanent policy formulating panels and its policy group, approved the following recommendation:
The exemption from regulation under which bulk commodities are transported by water should not be repealed.
H. R. 6141 would repeal subsection (b) of section 303, which exempts from regulation the movement by water of 3 or less commodities, in bulk, in a single vessel, which includes 2 or more vessels navigated as a unit.
It would also give grandfather operating rights as common carriers to presently exempt water carriers.
TAA opposes any change in the present exemption provision apply. ing to water carriers of bulk commodities.