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readily apparent that the freight forwarders are not interested in the public interest, but in a very specific private interest dictated by selfish motives.
The Interstate Commerce Commission itself has become the unwitting tool of the freight forwarders in their recommendation to Congress that legislative standards are needed for shipper associations. Perhaps an analysis of the background of the Interstate Commerce Commission's recommendation would be helpful. This recommendation has regularly been made since the decision in the Pacific Coast Wholesalers Association case wherein the Supreme Court upheld the right of shippers to consolidate their own freight. Much has been made of this case by the Freight Forwarder Institute by their statements that it completely freed associations from any investigation by the Interstate Commerce Commission. This is not true. A review of the Pacific Coast Wholesalers Association's case brings forth some interesting facts. In the extensive investigation conducted by the Commission's staff their original order gave the associations a clean bill of health stating clearly Pacific Coast Wholesalers Association's operations were those of a bona fide association. The freight forwarders then objected to this report and asked for reconsideration. Upon reconsideration and review, the Interstate Commerce Commission decided that so far as the shipments moving in the pool on a collect basis were concerned Pacific Coast Wholesalers Association was still operating as a bona fide association, but so far as the shipments moving on a prepaid basis only were concerned their operations were those of a freight forwarder. Thus, the Commission itself decided that only an extremely small part of the operation of Pacific Coast Wholesalers Association representing something less than 20 percent of its total operation was susceptible of a holding that it was that of a freight forwarder. The Supreme Court, of course, subsequently overturned the Interstate Commerce Commission decision with respect to this small segment of traffic. Now, however, we find the Commission and the freight forwarders using this decision as a springboard for legislation to completely outlaw all shipper association operations including those originally found to be bona fide in the Commission's own investigation. If the Commission were to be strictly accurate and logical it would appear they should seek legislation dealing exclusively with the small portion of traffic their own investigation indicated to them was that of a freight forwarder. There can be no justification for seeking such a change as here proposed.
If we were to summarize the special interest legislation presently before the 84th Congress sponsored by the freight forwarders, we believe the pattern of control being sought by this group becomes very apparent.
Firstly, H. R. 6141 and H. R. 6142 would completely eliminate all shipper associations establishing a virtual monopoly of this traffic in the hands of a few freight forwarders.
Secondly, S. 3365 would result in freezing the holders of freight forwarder authority at present levels and completely restrict free entry to the field in the future.
Thirdly, S. 3366 would permit the freight forwarders to negotiate with the underlying rail carriers for special rates not available to the shipping public in general. This legislation is opposed by the railroads themselves inasmuch as they realize the tremendous bargaining power the freight forwarders could have but one result, namely, the impairment of revenues to the rail carriers and the subsequent necessity of increased freight rates from the shipping public.
Fourthly, S. 3367 would amend the Interstate Commerce Act to permit freight forwarders to control one or more carriers subject to parts 1, 2, and 3 of the act (rails, motor, or water).
Putting all of these proposals together presents a rather frightening picture. It would permit a few large freight forwarders to gain control of the underlying carriers which they utilize, negotiate special reduced rates with those carriers, prevent the entry of additional competition to the field and eliminate the rights of shippers to consolidate their own freight. There is no question but what the end result would be a complete monopoly in the class of traffic presently handled by freight forwarders and increased shipping costs to the public.
The specific language of section 19, H. R. 6141 and H. R. 6142 is completely impossible. Our analysis of these provisions follows:
1. Proposed language of section 19, H. R. 6141 is so broad and indefinite that the power to legislate against many for the benefit of a few would be delegated to the Interstate Commerce Commission. The proposed legislation sets up the
following as criteria for the Commission to follow in making a determination as to the exempt status of any association.
(a) “Making such exemption inapplicable to such person is necessary to carry out the purposes of * * * the National Transportation Policy declared in this act."
(6) "The Commission shall consider, among other things, which in its opinion are pertinent and revelant.”
(c) “The facts and circumstances surrounding the organization and establishment of such activities."
(d) “The scope of the activities (1) geographically, (2) and as to commodities handled (3) and persons served.”
(e) “The basis of charges if any for the service, or services provided.”
(f) “The extent such activities are in competition with the services of freight forwarders subject to this part.”
Under (a) there could be a complete lack of violation so far as points (6) through (f) are concerned, yet the association could still lose its exemption under some administrative ruling purporting to relate to the “National Transportation Policy.” Similarly under (b) assuming the organization had a clean bill of health so far as points (c) through (f) were concerned, the Commission could look to “other things” which it thought pertinent and relevant in order to find a basis for revoking the exemption. No hint as to what these "other things” might be is given. There is no definition under (c) as to which might be considered favorable facts and circumstances surrounding the organization and which might be considered unfavorable facts and circumstances surrounding the organization of various shippers' associations. Certainly, by so stretch of the imagination could this language be construed as a standard since no elements either good or bad are set forth to enable a determination Point (d) implies that substantial quantities of freight, large geographic areas, many commodities and a large number of persons are all bad so far as determining exempt status is concerned. Conversely, it would imply that little freight, small areas, few commodities and few persons might be more favorably considered. This section might be paraphrased to state that if the association is handling sufficient quantities of freight on behalf of its members to make its volume attractive to any freight forwarder, the Commission should remove its exempt status so that the freight forwarder could inherit the traffic. Point (e) would appear to deal with the method of handling overhead expenses in connection with the consolidation services. This is pure speculation since the language itself is simply not understandable. However, if overhead is the element involved we again would presume that large overhead expenses are bad and small overhead expenses are good. To this we will readily agree since any businessman today makes every effort to keep his overhead down and we can assure you that shippers in operating their association make the same effort. It is difficult to see the connection so far as the exemption is concerned, however. Point (f) is the catchall phrase. All else failing to remove the exemption the mere fact that freight forwarder service was available in the area involved in the shippers' consolidation would be grounds sufficient for the removal of the exemption. Thus, the bill seems to be saying that if any shippers' association is fortunate enough to retain its exemption through points (a) through (e) their efforts have been wasted since point (f) automatically knocks all associations out.
The only beneficiary under this change in the law would be the freight forwarders themselves. In fact, not all of the freight forwarders would benefit proportionately since 3 of the larger freight forwarders control over 75 percent of the freight forwarder business. Thus, the legislation would have the effect of legislatively creating a monopoly for three freight forwarding companies and seriously injuring thousands of small shippers across the country, many trucklines and the railroads. The small shippers would be substantially penalized in the increment in their freight charges on the shipments presently moving in the association cars. This penalty, in some instances would be so severe as to prevent the purchasing of goods from some areas causing either a shift in purchasing to closer markets, or the inability to merchandise that particular commodity. The trucklines would be injured to the extent that the rates presently paid by the freight forwarders to the trucklines handling traffic to the various consolidating points of the freight forwarders are by and large substantially less than the charges paid on the same merchandise by shipper associations. This impairment of revenues can have but one result and that is an increase so far as freight rates are concerned on the traffic other than freight forwarder being handled by these
trucklines. This is also true with respect to the rail carriers since the freight forwarders with their tremendous bargaining power and their battery loading pay substantially less in freight charges than do the shipper associations. These elements coupled with a shift of sources for purchasing or the discontinuance of certain lines could have only one result and that is the reduction of revenues to the underlying common carriers.
2. Shipper associations perform a needed service to the small business. It has been the experience of our association that apart from costs, a much more flexible service can be performed by an association than can be performed by the freight forwarders. Each member can exercise such control over individual shipments moving through the association that in many cases the association becomes a second warehousing organization and many orders can be filled directly through the association without taking materials into stock. This again permits greater economies in operation and gives a small business additional help in combating the large chain organizations. It must be remembered always that associations such as are under attack in section 19, H. R. 6141 and H. R. 6142, permit the small business to do what the large chain organizations have been able to do always. By joining forces with other small organizations sufficient quantities of freight can be pooled to make carloads where the large chain organization has that quantity of freight within its own control. Thus, the removal of the exemption so far as associations are concerned would, in effect, mean abandoning the small business to its fate while permitting the large business to continue its pooling operations between various branches of the company. As to what the fate of the small business would be if left in the tender hands of the freight forwarders, we labor under no delusions. Prior to the formation of our pool-car association we were dependent on these freight forwarders for our LCL shipments from the East. Because of our long distance from the suppliers, freight costs represent a tremendous portion of our laid-in costs on all merchandise jobbed in this area. During this period, on literally thousands of commodities, the receivers of freight in the intermountain area were paying substantially more to the freight-forwarding companies for the movement of merchandise from the East than were our competitors, located on the Pacific coast, even though the Pacific coast destinations were some 800 miles farther west. Our complaints to the forwarders respecting this situation were completely to no avail and since the freight forwarders are not subject to any long- and short-haul restrictions, there was no further remedy available. We have no doubt that this same situation would again result if we were forced to revert to the freight forwarder monopoly suggested by this legislation.
3. Revision of existing legislation completely unnecessary. This legislation is in reality a request for the right to liquidate shipper associations rather than police shipper association. The right to police is already available under the present section 402 (c) providing the exemption, and section 402 (a) defining a freight forwarder. This definition sets forth clear statutory standards for determining whether the status in question is that of a freight forwarder. If these elements are missing in a determination so far as a shippers' association, then that association would be exempt under the provisions of section 402 (c). In fact, when the original freight-forwarder legislation was passed, section 402 (c) was not contemplated, since it was felt the definition of a freight forwarder was sufficient to exempt bona fide shipping associations as such. However, in order that no mistake would possibly be made in the interpretation of the law, section 402 (c) was added as a clarifying provision.
That this view has merit is supported by the statement of Charles Sawyer, Secretary, Department of Commerce, in 1952 before a subcommittee of the 828 Congress holding hearings on S. 2713. S. 2713, 82d Congress, 2d session, amended in the nature of a substitute April 1, 1952, by Mr. Johnson of Colorado contained the identical language as section 19, H. R. 6141, here under consideration. Secretary Sawyer had this to say: "With respect to S. 2713, the main objections are the indefiniteness of the standards provided for decisions as to removing exemptions to shippers and shipper agents, and the breadth of discretion granted the regulatory body in applying these standards. While it may be that exemptions under section 402 (c) have been extended to an unwarranted degree-perhaps even to the detriment of the regulated freight forwarders—this situation might better be remedied by more stringent enforcement of existing law rather than by new legislation. Should the Congress feel that new legislation is desirable, we believe that such legislation should define the extent of the exemptions permissible under section 402 (c) and should limit the authority of the Commission
in this connection to application of such exemption on a case-by-case basis in conformance with definite criteria. With reference to the criteria proposed in S. 2713 it may be noted briefly that they are in some cases vague or unwarranted, i. e., the character or variety of the commodities handled, and the extent of competition with regulated freight forwarders. The amendment in the nature of a substitute to S. 2713 as introduced, would appear to further broaden the criteria rather than limiting it."
We heartily subscribe to Secretary Sawyer's statement to the effect that the present law could be enforced by more diligent application and, of course, recognize the Commission's limited funds with which to carry on these investigations. However, under section 19, H. R. 6141 and H. R. 6142, the Commission must on complaint investigate each such association. You may be assured that in the event this section becomes law the day following such enactment will find the Commission's office flooded with complaints directed at each and every shippers' association or pool car arrangement in the country. The staff of the Commission would thus be involved in making hundreds of investigations merely at the whim of the freight forwarders. There is no question but what every single association would have a complaint filed against it by the freight forwarders. Under the present law the Commission can similarly make such investigations, but would not be subjected to such wholesale floods of complaints.
4. Section 19 of H. R. 6141 is inconsistent with the avowed purpose and broad scope of the remaining provisions of that bill. It has been said that H. R. 6141, purporting to implement the Cabinet Committee report, is in essence a bill to free transportation enterprises from regulation. Much has been made of “free enterprise.” Here, however, we are faced with an anomaly in that the freight forwarders are seeking more regulation in an attempt to secure a monopoly, and as previously pointed out this monopoly would injure thousands of receivers of freight throughout the country and prefer three large freight forwarders. A companion measure also sponsored by the freight forwarders provides for a change in the language granting permits to operate as a freight forwarder. It is proposed to substitute the language "certificate of convenience and necessity" which to all intents nd purposes would prevent free entry into the field, thus, completing the stranglehold that the freight forwarders would secure on the transportation of small shipments.
There is nothing inherently sacred about the freight forwarding business as bas been pointed out many times. The forwarders occupy the position of shippers with respect to the underlying transportation carriers with the exception that they perhaps do not pay as adequate freight rates as other shippers have to pay. They have no large investment in equipment or facilities and certainly should not be treated as a vested interest to the exclusion of all other businesses. We think inherently it is bad legislation to place the control of such an important segment of our economy as represented by LCL freight shipments in the hands of just a few people controlling three freight forwarders. This is particularly distasteful in an era where the Government is making every effort to save small business and prevent monopoly as has been the trend in the last few years.
5. H. R. 6141 embodies the identical language of S. 2713 as considered by the Senate Committee on Interstate and Foreign Commerce in the 82d Congress, 2d session. That this bill is repugnant to a large segment of the users of transportation becomes apparent in reviewing the record of hearings before the Senate Committee on Interstate and Foreign Commerce relative to S. 2713. Voluminous testimony from organizations representing thousands of shippers was presented at that hearing. Complete opposition was expressed by several national traffic organizations representing shippers large and small throughout the entire country. We have no doubt a perusal of this record would prove informative in connection with the instant hearings.
6. It would appear from the report of the Presidential Advisory Committee that they were not properly informed as to the true functions of shipper associations and may well not have realized their importance to thousands of businesses throughout these United States. The following statement appeared in their report: “Some shipper or shipper associations involved in consolidation or distribution of volumes of freight on a nonprofit basis for the purpose of securing lower rates although termed nonprofit in fact absorbed costs which include overhead, and the expenses involved go beyond those paid to a carrier." It is elementary that in any consolidation irrespective of any other factor there must be some expenses “beyond those paid to a carrier.” Overhead expenses are a perfectly normal incident to doing business of any kind. In fact it would be
impossible to conduct a consolidation without paying something to someone for physically receiving the freight and loading it into a car, subsequently unloading and distributing the car at destination and, further, certain clerical and managerial expenses to properly take into account moneys handled and so forth. Apparently, the Advisory Committee did not understand the fundamental principles of freight consolidation if the mere fact that payments are made to someone other than a carrier imply that a shipper association is nonprofit.
To the best of our knowledge, no representatives of any shipper associations were asked to consult with the Advisory Committee in the preparation of its report and we would doubt that the Committee could have been fully informed as to its subject matter so far as section 19, H. R. 6141 is concerned.
1. The right of shippers to consolidate their own freight for the purpose of effecting the savings in freight charges and thus further their own business is fundamental. It is not susceptible to removal through administrative rulings and perhaps is not susceptible to removal through legislative processes because of constitutional guaranties.
2. The Interstate Commerce Commission under the present law is vested with adequate power to determine whether any shippers association or shipper is functioning as a freight forwarder or as a bona fide association exempt under the provisions of section 402 (c).
3. The proposed legislation is inspired by and promoted by the freight forwarding companies for the purpose of securing a monopoly on the handling of L. C. L. shipments to the exclusion of all others and the subsequent injury to small businesses. Their goal would be entirely a selfish one not dictated by considerations of the overall welfare of this country or the public interest.
4. The goal of this legislation is entirely contrary to the concepts found throughout the balance of the proposed bill which are primarily deregulatory in nature. The provisions of this bill impose more strict regulation on a large segment of our economy, increase monopoly and place the control of this segment of our economy in the hands of a very few. This is diametrically opposed to the stated policies of this and previous administrations whose every effort has been to maintain free enterprise.
5. The language of this bill is so broad and ambiguous as to place the legislative function in the hands of the Interstate Commerce Commission. There would be absolutely no means whereby any shipper or group of shippers could predetermine whether their operations were within or without the law. Each would be subject to an investigation by the Interstate Commerce Commission and could be forced to cease operations without any idea as to where the exact fault might lie. Subsequent appeals to the courts as to the constitutionality of the provision would certainly not be the answer since irreparable damage would have already been done. No legislation should be passed which carries within it such an obvious angle of attack from constitutional ground.
Mr. HARRIS. We have a request from the California Manufacturers Association to submit a statement for the record of their opposition to section 19 of the proposed bill. (The statement is as follows:)
CALIFORNIA MANUFACTURERS ASSOCIATION,
Los Angeles, May 2, 1956. Subject: Recommended opposition to section 19, S. 1920. Hon. OREN HARRIS, House Office Building,
Washington, D. C. DEAR CONGRESSMAN HARRIS: I am enclosing an additional copy of my letter of November 17, 1955, relative to the above subject.
Please consider this recommended opposition to section 19, S. 1920, and corresponding provisions of H. R. 6141 and H. R. 6142 in the hearing now being conducted by your subcommittee. Yours very truly,
L. E. OSBORNE, Director, Freight Traffic Department.