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NATIONAL MOTOR FREIGHT TRAFFIC ASSN., INC. v. UNIT

April 28, 1966

National Motor Freight Traffic Association, Inc., Middle Atlantic Conference and Southern Motor Carriers Rate Conference, Inc., Freight Forwarders Institute, Acme Fast Freight, Inc., National Carloading Corporation, and Universal Carloading & Distributing Co., Inc.
v.
United States of America, Interstate Commerce Commission, The New Dixie Lines, Inc., and Montgomery Ward, Inc.



The opinion of the court was delivered by: HART

This action seeks to set aside an Order of the Interstate Commerce Commission, *fn1" jurisdiction being founded upon Sections 1336, 1398, 2284 and 2321 through 2325 of Title 28 of the United States Code. It is concerned with Section 408 of the Freight Forwarder Act *fn2" which permits common carriers to extend lower "assembling" and "distribution" rates not only to freight forwarders but also to other shippers who employ the services of the carriers under like conditions. The plaintiffs contend that the Commission erred in permitting the lower "assembling" rates, which by definition require a forward movement beyond a consolidation point, to be made available to shippers whose forward transportation would be in their own private vehicles rather than through the utilization of the services of the line-haul common carriers.

Plaintiffs are non-profit membership corporations whose members are common carriers of property by motor vehicle operating in interstate commerce. The intervening plaintiffs who join in this challenge to the Commission's Order, are the Freight Forwarders Institute, an unincorporated association representing major freight forwarding companies, and several individual freight forwarders. Defendants, in addition to the United States of America and the Interstate Commerce Commission, are The New Dixie Lines, Inc., a motor vehicle common carrier of property, and Montgomery Ward, Inc., the prime user of the services of New Dixie.

 An adequate presentation of the parties' positions and the disposition of the case necessarily requires a full explanation of the functions performed by freight forwarders and the circumstances precipitating their ultimate regulation by Congress in 1942.

 Freight forwarders collect and consolidate less than carload or less than truckload shipments and secure common carrier transportation for the long haul movement of property owned by individual shippers by carload or truckload. In accomplishing this, the forwarder consolidates several small, less than truckload shipments into a full truckload or carload quantity which then moves over the major portion of the journey by common carrier at the lower truckload or carload rate. In reality what may appear as a single operation actually involves three distinct phases, each phase involving a different common carrier. First the goods of each individual shipper are carried to a central consolidation point. Second, the aggregated property then is transported over the line haul by a common carrier to a break-bulk or distribution point; and finally, the goods are moved from the distribution center to the various ultimate consignees. Without the intervention of the forwarder each small individual shipper would be required to deal with the several carriers involved, paying each carrier the more expensive less than truckload or less than carload rate for the entire movement from pick-up point to the final delivery point. The freight forwarder offers the shippers a more expeditious, comprehensive transportation service at a lesser cost. The details of arranging transportation are completely cared for by the forwarder and some savings are passed on to the shipper through the differential between full capacity truckload and carload rates over the line haul and the more expensive less than truckload or less than carload rates over the line haul.

 Historically, forwarder operations were originally confined to the transportation centers serviced by railroads. The limited mobility of the rail restricted the outlying areas which could be served economically as pick-up or final delivery points. However, with the growth of an unregulated motor carrier industry, forwarders increasingly substituted truck service for rails in all three phases of their operations. This employment of the motor carriers presented forwarders, in addition to the same quantity discounts offered by the railroads on long hauls, an opportunity to profitably expand their assembling and distributing services. Whereas profitability was strictly limited to the margin between carload and less than carload rates applicable to the line haul when forwarders utilized railroads, further rate concessions were secured when truck transportation was substituted.

 The additional rate concessions, which were not available from the already regulated railroads, were in the form of private agreements between the forwarders and the motor carriers. The forwarders charged the shippers a through rate from pick-up to final destination and the motor carriers concurred in this rate. The fee charged the shipper was then divided among the forwarder and the motor carriers on a basis determined from their agreements.

 These revenue divisions operated until 1935 when Congress passed the Motor Carrier Act, 49 U.S.C. § 301 et seq. This Act substantially equalized motor common carriers and the already regulated rail common carriers by requiring the motor carriers to publish tariffs naming their rates and charges, forbidding them from charging more or less than their published rates and prohibiting discrimination in the rates charged different shippers.

 Under the Motor Carrier Act freight forwarders would be required, as any other shipper, to pay the motor carriers' published truckload and less than truckload rates for their services, thus depriving the forwarders of the satisfactory revenue divisions previously established with the motor carriers. In order to avoid this result, the forwarders filed with the Interstate Commerce Commission their through rates from pick up, through long haul to delivery, concurred in by the motor carriers as "joint rates." In Acme Fast Freight, Inc., Common Carrier Application, 8 M.C.C. 211 (1938), 17 M.C.C. 549 (1939), the Commission held that forwarders were not common carriers by motor vehicle subject to the Motor Carrier Act, and that they could not lawfully establish joint rates with the motor carriers. *fn3"

 The Commission's ruling respecting "joint rates" threatened to curtail the growing motor common carriers' business generated by the freight forwarders. To compensate for this anticipated loss of revenue, certain motor carriers established "proportional rates" applicable to less than truckload shipments (a) to a point of consolidation for movement beyond as part of a carload or truckload shipment or (b) from a point of break-bulk following movement thereto as part of a carload or truckload shipment. These "proportional rates" were lower than the motor carriers' less than truckload rates applicable to local shipments not involving a subsequent or preceding truckload movement by common carrier. In practice the "proportional rates" would be available only to freight forwarders and a few other large individual shippers. In Chicago and Wisconsin Points Proportional Rates, 10 M.C.C. 556 (1938), 17 M.C.C. 573 (1939), the majority of the Interstate Commerce Commission held the proposed proportional rates discriminatory because freight forwarders "will be afforded transportation at rates lower than the rates which will be charged certain other shippers under substantially similar circumstances and conditions." *fn4" Chairman Eastman and the other dissenting members of the Commission felt that the work done by the motor carriers for freight forwarders was performed under different circumstances and conditions and therefore different rates would be justified without being discriminatory.

 In 1942 Congress passed the Freight Forwarder Act, 49 U.S.C. § 1001 et seq., to integrate the position of freight forwarders into the overall common carrier transportation industry. The views of Chairman Eastman prevailed and were incorporated as the regulatory scheme selected to balance the interests of the shipping public, the common carriers and the freight forwarders. Chairman Eastman, while concurring in the "joint rates" decision, recognized that "there is need for the adequate public regulation of . . . forwarding companies," *fn5" but stressed a concern for all aspects of the public transportation industry. He stated, "[Freight forwarders] perform a service useful not only to those who have small lots of merchandise or package freight to ship but also to the carriers whose services . . . [they] . . . utilize." *fn6"

 That Congress was concerned with and intended to secure a balancing of interests between the freight forwarders and the common carriers is clearly indicated by the remarks of Congressman Wolverton in support of the Act: "[The] committee entertained the firm conviction that the service rendered by freight forwarders has proved highly beneficial to shippers and, under proper regulation, should be equally helpful to the carriers that perform the actual transportation for the forwarders." *fn7"

 Congress, in adopting the Freight Forwarder Act, rejected the initial Senate proposal which allowed forwarders to enter into joint rate agreements with the carriers. The reason for this rejection was the fear that through the vehicle of "joint rates" forwarders would divert income from the carriers. "[The] tremendous bargaining power which the larger forwarders would have by reason of the great amount of traffic which they control, would inevitably enable them to divert from the carriers performing the actual transportation important amounts of revenue." *fn8" Additionally a "joint rates" solution would jeopardize the careful balancing of interests fostered by the Act. "The forwarders have favored the authorization of joint rates as a permanent matter. Upon most careful consideration, however, your committee has concluded that the likelihood of abuse is so great, and injury to the underlying carriers so probable, as to make it ...


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