j

FEDERAL MARITIME COMMISSION

SPEIAL DOKET Nos 437 AND 443

COMMOOTTY CRlmrr CORP AS AGENTS FOR WORLD FOOD PROGRAM

V

SAN Rocco LIN ANCIIOR SHIPPIKG CORP GEN AHENTS

Decided AUY lst 2 197i

Application for lean to waiye collection of anr amount in XltS of the agrl f

d

rate glantert

REPORT

By THE COMmssION Helen Delich Bentley Chairman George H

Hearn Vice Chairman Ashton C Barrett James V Day and

Clarence Morse Commissioners

San Rocco Line San Rocco a common carrier by water through

its agent Anchor Shipping Corporation filed an application to waive

collection of a portion of the freight charges representing the differ

encebetween rates on filewith the Commission and lesser rates charged

to Commodity Credit Corporation CCC agents for theWorId Food

Program in connection with a shipment of all purpose flours from

Milwaukee Vlisconsin to Beirut Lebanon Examiner Herbert K

Greer has issued an Initial Decision dismissing the carrier s applica

tion to which exceptions were filed

This proceeding wasoriginally initiated by San Rocco with the filing

of Special Docket 437 wherein permission was sought to waive col

lection of a portion ofthe freight charges on a shipment ofall purpose

flours total weight 338 148 pounds carried from Milwaukee Wiscon

sin to Beirut Lebanon

Prior to movement of the cargo San Rocco had agreed with the

CCC as evidenced by the carrier s bill of lading that the flour would

be carried at the rate of 32 00 per long ton instead of the application

rate on file of 84 75 per long ton for cargo N O S not dangerous or

hazardous San Rocco however inadvertently failed to filethe agreed

1

16 F MC
2 FEDERAL MARITIME COMMISSION

mte nnll on discovery of this oversight instituted the aforementione

pecial Docket No 437

Because its first application Special Docket No 437 containe

errors San Rocco withdrew this application anlllimultaneously file

llew llpptiClltllm thereM rdMlgM1Jd l

ecjllJ lJOket No 443 in

olving the same shipment wherein it requested permission to waiv

olllction of any amount in excess of the agreed rate of 32 00 pe

long ton 2

Priorto the withdrawal ofits application in Special Docket No 4 1

and in rellponSll to an inquiry of the Examinel regarding the Rtatus o

that application an Rocco by letter of March 3 1972 stated

that as of the present time all matters have been completel

settled Thereupon the EXflIDll W notified the carrier that anYllettle

ment of a freight charge less than the tariff rate without the Commis

sion s approval would be in violation of section 18 b 3 of th

Shipping Act 1916 46 U S C 817 the Act

Believing that theExaminer wasmisinterpreting its letter ofMarc

3 1972 San Rocco via a subsequent letter ofApril 21 1972 submitte

an explanation of the statement that all matters have been com

pletely settled It RtatAd that what was meant by this remark wa

that it hlil d agreed with the Department of Agriculture that the 32 0

pel long ton rate had inadvertently failBd to be filed and that it ha

taken the propel action by filing a waiver lJpplication as provided b

Public Law 90298 noting also that final and complete settleme

of this matter must wait for the approval of the Commis

Never

theless the Examiner determined that San Rocco s explanation coul

not be reconciled with the fact that it had received payment for th

shipment nor the fact that the payment was a settlement of th

account The Examiner placing heavy reliance on Applicant s state

ment of March 3 1972 that the matter waS completely settled con

cluded that under the circumstances nothingremains to be done wit

respect tothe application Thus he dismissed Special Docket No 44

The errors in qUestion brouglit to San Rocco s attention by the Examiner resulte

tam the act that althoulih San Roeco ght to l Jilply rate of 82 @0 per long toll 

reterr d to a tarm filla which only reduced the rat to 00 75 p r

long tOI

ItRhould be not d that prior to filing It application In Special Uocket No 443 Sa

Rocco Oled frelgbt tarl1r No I el v ntb r vl d page 2ft llcltYlIlll tbe ra 01 32 O@ pe

Ivng ton on Oour NO S for aCCOilnt of US D A Rat to InclUd 011 Terminal Chg

and SeawR Y rolls from Milwaukee to Beirut

PubllnLaw 9 298 6 uac Uf whlck amooded a ctlon 18 b of tile Sblppl g Ac

101ti provides inpart as folioW8

the F deral Ma ltIm ComlBlsBlon may 18 Its tli etloll and for good caus

011 p rmlt a CO carrt hy wat In f 11lJl mmlm1 l ce or conf e jlf lc

carriers to refund a

pOJ UOD of fretabt cha es collect d from l ship per or waive tb

eot1eetton o do portnm ottlle charges l1 U 8 ship per whereit appears tbatthere tB a

error in atariff of a clerical or administrative nature or an error due to inadvertenc

tn alUng to file a new tarir and tbat such refund or waiver will not result i

discrimination among shippers

16 FlVIC
COMMODITY CREDIT CORP V 8AN ROCCO LINE 3

and granted permission to withdraw the application in Special Docket

Xo 137

Both Applicant San Rocco and eee have expected to the Initial

Decision askinl that the decision be lcated and their application in

Special Docket o 443 be approved by the Commission

DISCUSSION XD COXCLUSION

In its exceptions CCC contends that at no time did it acquiesce

ina settiement wIth San Rocpo Iespite payment to tile carrierofthe

IIgreed rate of a2 00 lWI long ton cce explains that all it has done

is seek to obtain relief through the Commission s splcial docket pro

cedure realizing that the matter can only be settled either by pay

ment of the application rate nt the time of the shipment 84 75 per

long ton or waiver by the Commission of the collection of a portion

of this applicable rate Clearly CCC is cOTed in its appraisal of

existinglawand procedure

Section 18 b 3

requires that no cunier may charge less than the

filed tariff in effect at the time of the shipment unless it is granted

permission by the Commission The information submitted in support

of the application clearly evidences the fact that San Roccos failure

to file the agreed tariff was the result of inadvertence

Regardless of the facts relating to the settlement between the ca Il ier

and shipper the parties are plainly in violation of the Act hy not

acquiring the Commission s approval oftheir action Also as we have

stated in Oppenheimer Intercontinental Oorp v South Africa1 Ma

lvine Oorpy Special Dockets 429 and 430 15 FMC 49 52 Decemher 2

1971

It is equally dear that lJefore anr fill h p

l

lllission can be granted thEeurrier

JUUHt first file a new tariff and tllereafter file an application requesting the new

tariffbe made applicahle to the prior Hhipment

Thus since the carrier s application was in order and duly filed and

based upon the type of administrative error contemplated by section

18 b 3 we are granting its application Accordingly

It 18 O1 dered That the application of San Rocco Line in Special

Vocket No 443 be and is hereby granted An appropriate order will

be entered

r

SEAL FRANCIS C HURN y

Seaetf1ry

S ctton 18 b 3 of the Act provides that shippers would not be penalized for clerical

mistnke8 or inadvertent failures on the part of the carrier to file new tariff rates for

sbipmentA which they nave agreed to arryas such rates

16 F U C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET N08 437 AND 443

CcmMODITY CREDIT CORP AS AGENTS FOR WORLD FOOD PROGRA

V

SAN Riocco LINE ANCHOR SHIPPING CORP GEN AGENTS

ORDER

The Federal Maritime Commission having this date entered 

Report in these proceedings which report is made a

part hereof 

reference

It is ordered That the application in Special Docket No 437 

deemed withdrawn

Itis further ordered That applicant in Special Docket No 44

authorized to waive collection of 7 963 08 of the charges previo

assessed Commodity Credit Corp

It is further ordered That applicant shall publish promptly 

its appropriatetariff the following notice

Notice Is hereby given as required by the decision of the Federal Marit

Commission In Special Docket Nos 437 and 448 that effective December 2 1

the rate on Flour N O S for account of U 8D A to Include all Terminal Cha

and Seaway tolls for purposes of refund or waiver of freight charges on 

shipments which may have been shipped from Milwaukee Wisconsin to Be

Lebanon during the period from December 2 1971 to February 28 1972 

82 00 W subject to all applicable rules r8lO1latlons terms and conditions 

said rate and this tariff

Itis further ordered That waiver of the charges shall be effectua

within 30 days of service of this order and applicant shall within

days thereafter notify the Commission of the date and manne

effectuating the waiver

By the Commission

SEAL S FRANCIS C HURNEY

S eCl

etaf

4

16 F M 
16 F M C

FEDERAL MARITIME COMMISSION

INFORMAL DOCKET No 288 1

EMBASSY OF SWITZERLANll

V

LYKES BRos STEAMSHIP CO INC

Deided August 16 197

Reparation awarded

REPORT

lh THE COMMISSION Helen Delich Bentley Chairman George H

Hearn Vice Chairman Ashton C Barrett James V Day Clar

enceMorse Commissioners

On July 18 1972 we decided to review the decision of Examiner

Charles E Morgan in this proceeding The facts as found by the Ex

aminer appear below with quotation marks omitted

The Embassy of Switzerland claimant is the officialrepresentative

of the Government of Switzerland to the United States By its com

plaintfiled March 15 1972 the claimant seeks reparation not to exceed

1 000 00 ona shipment of225 skids of262 125 pounds ofmilitary tank

parts made on June 14 1970 from New Orleans La toAntwerp Bel

gium The tank parts were licensed by the United States for ultimate

destination in Switzerland

These tank parts were to be used by the Swiss Army and were

assessed a rate of49 75 per ton of2 240 Ibs The freight charges based

on 117 02 tons were 5 82175 A similar shipment of tank parts was

transported by the respondent Lykes Bros Steamship Co Inc from

New Orleans to Antwerp ultimately destined to Austria for use by

theAustrianArmy at a lower rate of 40 25 per ton

The claimant was charged the applicable tariff rate of 49 75 per

ton on military tank parts for its shipment and thus there was no

overcharge under section 18 b 3 of the Shipping Act 1916 the
6 FEDERAL MARITIME COMMISSION

Ad However the claimant sepks repllration under sections 16 

17 ofthe Act

Lykes Bros has acknowledged tlmt there is no basis for the differe

in the rate on tank parts ultimately destined to Switzerland compa

withthe rate on tank parts ultimately destined to Austria Lykes B

has taken steps to reduce the Swiss rate to the level ofthe Austrian r

on tank parts

On the basis of the foregoing the Examiner concluded that Ly

had violated section 17 oftheAct and llwarded reparation to claim

in the amount of 1 000 00 Our determination to review the decis

was based on our inability to tellfrom it the basis for the lower 4

rate charged by Lykes on the Austrian shipment We were una

to letermine from the decision whether the lower rate was prop

filedwiththe Commission Of course ifthe lower rate wasnot prop

filed then section 18 b would have required that the Examiner d

reparation to claimant and orderLykes to collectthe undercharge fr

the shipper ofthe Austrian tank parts

Examination of Lykes tariff shows that there was in fact a rate 

40 25 on file for Austrian tank parts thus the Examiner s conclus

that the assessment ofthe higher49 75 rate 011 the shipment in ques

is unjustly discriminatory in viohttion of section 17 was proper 

North Atlantic Mediterranean F1 eight Oonference Rate8 on Hou

hold Good8 11 F MC 202 1967

Claimant is awarded reparation in the amount of 1 000 00

SEAL S FRANCIS C HURNEY

Secretar

Section lB b forbids a common carrier by water from charging a greater les

different compensation than the rates and charges on file with the Commiss

16 F M
1 United Stevedoring did not participate inthe remand proceeding

16 F MO 7

FEDERAL MARITIME COMMISSION

DOCKET No 70 3

UNITED STEVF DORING COllP

t

BOSTON SHIPPING ASSOCIATIO

ON REMAND FROM THE UNITED STATES COURT OF

APPEALS FOR THE FIRST CIRCUIT

Decitlc lAuuust 24 1972

Boston Shipping Association BSA found to be subject to the Shipping Act

1916 the Act

Incorporation papers and hy Iaws of the BSA inasmuch as they do Hot on their

face purport to exceed the purpose of creating a multiemployer collective

bargaining unit found to be entitled to labor exemption and therefore not

required to be filed and approyed under section 15 of theAct

Agreement amoug and between members of the BSA as to allocation of labor

gangs amoug stevedores fouud to be entitled to labor exemption and there

fore notrequired to hefiled and approyed under section 15of theAct

Agreenlent among and between melnuers of the BSA as to the first call recall

system found to be entitled to labor exemption and therefore notrequired to

he filed and approved under section 15 of theAct

Evidence adluced insufficient to declare the practices of the BSA violatiye of

sections 16 andjor 17 of theAct

Robert N Kharasch and Olga Boike88 for United Stevedoring

Corp l

Leo F Glynn and Fml1cis A Scanlan for Boston Shipping

Association

O P Lambos Francis A Scanlan Dennis Lindsay and Abgate

DueT for Kew York Shipping Association Inc Philadelphia Marine

Trade Association Mastel Contracting Stevedore Association ofthe

Pacific Coast Inc and Steamship Trade Association of Baltimore

Inc
8 FEDERAL MARITIME COMMISSION

Thomas E Kimbull for Pacific MaritimeAssociation

Robert Eikel for West Gulf MaritimeAssociation

EdwardS Bagley for New Orleans Steamship Association

Irwin A Seibel and Robert B Nicholson for the Department 

Justice

Glen M Bendiwsen Stanley Brown and Patrick Hardin for th

Kational LaborRelations Board

Seth D Zinman and Oraig A Berrington for the Department 

Labor

Donald J BrUnner and Norman D Kline for Hearing Couns

REPORT

Ih THE COMMISSION Helen Delich Bentley Chairman Ashton 

Barrett andJames V Day Commissioners

This case comes before us by remand of our original decision fro

the First Circuit Court of Appeals In that decision rved Novem

ber 9 1971 15 F MC 33 we found that the Boston Shipping Associ

tion BSA is subject to the Shipping Act 1916 the Act in add

tion we found to be subject to section 15 oftheAct and ordered to 

filed with us for approval the following

1 The Incorporation papers and by Inwsof theBSA

2 The alreement amonl and between members of the BSA as to allocation 

labor gangs among stevedores and

3 The agreement among and between members of the BSA as to the fir

call recall system

We also found that the practices of the BRA were not violative 

sections 16 and or 17 ofthe Act

Ve denied reconsideration of our decision on January 10 197

Following this denial BSA filed suit inthe Court ofAppeals for th

First Circuit seeking review of our decision Seven maritime trad

associations sought and were granted leave to intervene before th

court2

The views of the Department of Labor Labor and th

National Labor Relations Board NLRB werecontained in the bri

filed by the Department of Justice Justice statutory respondent 

the courtproceeding

Prior to oral argument before the court we requested the court 

remand the proceeding in order for us to consider the views of th

various governmentlligencies and intervenors none of which had a

peared in thhe initial proceeding This motion wasgranted onMay 3

2

These intervenors are Pacific Maritime Association j West Gulf Maritime Associatio

Steamship Trade AS8ociaUon of Baltimore Inc New Orleans Steamship Associatio

Master Contracting Stevedore AS80clatlQD of the Pacific Coast j bnadelphla Marine Tra

Association j and New York Shipping Association

16 F M C
NOTICE OF ADOPTION OF INITIAL DECISION 9

1J72 on the condition that we stay ourOrder of November 9 1971

and further that the proceeding be concluded within ninety days

Accordingly opening and reply briefs werefiled by the variousparties

and we heard oral argument onAugust 2 1J72

The facts of this case are undisputed and are adequately set forth

in ouroriginal decision 3The issues to be determined on this remand

lire 1 whether the Federal Maritime Commission has jurisdiction

under section 15 of the Shipping Act 1916 46 D S C 814 overarti

cles of incorporrution or association and by Iaws or a maritime trade

association one of whose purposes is multi employer collective bar

gaining and 2 whether the Federal Maritime Commission likewise

has jurisdiction over agrecments otherwise subject to section 15 but

yhich a re embodied in a collectivebargaining agreement

DISCUSSION AND CONCLUSION

1 Juri8diction Over the BSA

A threshold issue in this proceeding is the question of whether the

BSA is under section 1 of the Act subject to the jurisdiction of the

FMC The Examiner concluded that the BSA was not an other

person within the meaning of section 1 This conclusion is based

exclusively it would appear 011 findings 1 that the BSA is a non

profit corporation formed under the general laws of Massachusetts

2 that the BSA is not a business corporation and is without business

functions which may be just another way of saying that the BSA is

a nonprofit corporation and 3 that the BSA is not carrying on

the business of forwarding or furnishing wharfage dock warehouse

or ather terminal facilities within the meaning of the definition of

an other person here the Examiner is concerned solely with that

corporate entity which is the BSA and not at all with its individual

members

While it is true that the BSA as an entity does not engage in any

of the activities enumerated in the definition of other person it

cannot be gainsaid that its individual members do Asimilar argument

was raised with respect to the conference situation in Far East Oon

ference v F MO 337 F 2d 146 1964 The court there swiftly

rejected the theory that a conference is not an entity to which a section

21 order may be applied Conferences were held to be agents of the

carrierswhich compose them

8 In order that this decision be self contained pertinent portions of our discussion of

the proceeding andstatement of facts are hereby incorporated by reference and are attached

hereto as Appendix A

16 F M C
10 FEDERAL MARITIME COMMISSION

BSA Itttempts to distingumh an association from a confere

by asserting that

the relationship amonjl members of a Conference Is determined b

contract which establ1shes the Conference and the CoIiunlsslon haR jurisdi

ab initio over the contract and theconference It creates The relationship a

members oia conference Is defined by a conference agreeJIl enh whlch the 

mission must consider and over which the Commission Inherently re

jurisdiction

We are of the opinion that the two situations are indistinguisha

Aside from the fact thatsomemembers of the BSA may norbe su

toour jurisdiction th reare members of the BSA which clearly 

subject tothe Act Whether ornot stevedoring contractors are su

to the Act terminal operators and steamship lines clearly aie t

we find members of theAssociation in their individual capacities 

subject to our jurisdiction To argue that these individuals can b

together and form an association which although as an entity does 

do any of the things enumerated in the section 1 definition of o

person but does otherwise engage in matters which are or mayb

Shipping Act concern would frustrate the entire purpose of the

We will not tolerate such a device to blunt our regulation of 

nation s maritimeindustry

II JI1h i8diction Over the Subject Matter

A The Labor Exemption

TIte subject matter with which we are here concerned consis

three agreements the incorporation papers and by laws of the B

hereinafter the organic agreements the agreement as tothe orig

allocation of gangs and the first call recall agreement

The immediate problem we encounter is that of reconciling o

commodating Shipping Act policies with labor act policies We 

not unaware of the ill effllCts which any untoward intrusion into 

matter of collective bargaining might cause in the already st

ridden maritime labor world On the other hand wemust adhere to 

guidelines set forth in Volkswagervwerk AktiengeseUschaft v F M 

390 US 261 1968 hereinafter Volkswagen in which we wer

proached for taking an extremely narrow view of astatute that 

expansive language 390 U S at273 Itwill be recalled in that 

that we initially refused to entertain jurisdiction of the assess

agreement there involved e

Overlooked inthis Udtstlnctton is tl1e fact that of course the Conference ltsel

Dot solicit orbook cargo does not collect freight or operate Ships Its members do 

things

There Is amle evidence In the record that most Ifnotall of these stevedoring contra

are also terminal operatol B

6

The asselSment agreement inVolkswagen was not embodied inthe collective barg

agreement but was inimplementation ot a provlBion therein

16 F 
UNITED STEVEDORING CORP V BOSTON SHIPPING ASSOC 11

We have attempted to apply the rather imprecise guidelines of

Volk8wagen to the agreements herein although they differ to a certain

extent from those inVolk8wagen Thoseguidelines have been tempered

by the views expounded by the various parties who participated in

this remand and we are indebted to them especially to the NLRB for

the light shed on the matter of creating a so called labor exemption

The labor exemption originated in the area of accommodation of

the labor laws and the antitrust laws To preclude the application of

the antitrust laws to various collective bargaining agreements entered

into between labor and management the courts carved out of the

antitrust laws a labor exemption by means of which such agree

ments wereheld to be immune from attack under antitrust laws Thus

the analogy to a labor exemption from the shipping laws is obvious

We arein agreement with the view that such a labor exemption should

exist However the problem is one of line drawing ie

just how far

should that labor exemption extend and at whatpoint should the ship

ping laws be activated Inevitably the criteria for that point of de

marcation are inexact and impossible of general application These

criteria do however provide a sound point of embarkation for an ad

hoc resolution of a problem involving the accommodation of the

policies of the la bor laws with the policies of the antitrust laws and

thus by amtlogy with the policies ofthe shipping laws Abrief discus

sion of three ofthe leading cases will suffice to establish the criteria to

be considered for the labor exemption

The first ofthese was Allen Bradley Go v Local 3 Internati01wl

Bhd of Electrical Worker8 325 US 797 1945 which exemplified the

problem of harmonizing conflicting policies of the antitrust laws and

the labor laws The Supreme Court attempted to balance the interests

of both policies so that only legitimate collective bargaining ob

jectives would be without the scope of the antitrust laws The union

was found to have conspired with employers to give the employers a

monopoly in the industry in a certain area in return the union was

given a monopoly of work opportunity Notwithstanding the fact that

this conspiracy was embodied in the collective bargaining agreement

the Court refused to exempt it from the antitrust laws Had the union

acted alone said the Court and achieved the same result its activities

would have been exempt So from Allen Bmdley came the criterion

that concerted union management activity to eliminate competitors

would failto be entitled to the laborexemption

A similar problem was raised in United Mine Worker8 v Penning

ton 381 US 657 1965 and Local 189 Meat Gutter8 v Jew6l Tea Go

381 US 676 1965 In the former the union agreed not to oppose

automation in the coal industry and that it would impose the terms

16 F M C
12 FEDERAL MARITIME COMMISSION

of the agreement on all operators regardless of their ability to 

The complaint alleged that it was the purpose of the agreemen

eliminate small operators from the industry The union claime

was exempt from the antitrust laws since the agreement dealt 

wage standards amandatory subjectof collectivebargaining

The Supreme Court again held that the labor exemption f

the antitrust laws would be inapplicable toa fituation in which it 

found that the union had conspired with its employers to elimi

competitors from the industry The Court s rationale was base

several principles two ofwhich were

1 A union wage lgreement with a multi employer bargaining unit doe

per se violate the antitrust laws

2 By the same token however the mere fact that a collective barga

agreement Involves a mandatory Subject of bargaining does not Ipso facto ex

the agreement from the antitrust laws

On the other hand in Jewel Tea it was alleged that the union 

violated the Sherman Act by engltging in an illegal conspiracy 

various food stores to prevent night operations by large self se

stores such as Jewel Tea The Court however distinguished Jewe

from Pefll 2ington on the ground that in the former there was no 

dence of a union employer conspiracy but rather the union on its 

had attempted to obtain the same terms from Jewel Tea as it 

obtained from other employers

Absent evidence of a

conspiracy between the union and other 

ployers the issue was whether the hours of operation provision 

so intimately related towages hours and other terms and condit

of employment as to be a mandatory subject of bargaining S

unionshave adirectinterest in thehours they work the hours of op

tion provision was held to be amandatory subject of collective 

gaining Thus the laborexemption washeld to apply and the un

activities were not violativeoftheantitrust laws

Itance from these cases have evolved the various criteria for de

mining the labor exemption from the antitrust laws and which 

herewith adopt for purposes of assisting us in determining the la

exemption from the shipping laws with this caveat These crit

are by no means meant to be exclusive nor are they determinativ

each and every case Just as in the accommodation of the labor 

and the antitrust laws the courts have resolved each case on an ad 

hasis so too will we Each ofthe followingcriteria deserves consid

tion but it is obvious that each element is not in and of itself con

ling They are rather guidelines or rules of thluub for each fac

si tllntion These criteria are as follows

16 F M 
UNITED STEVEDORING CORP V BOSTON SHIPPING ASSOC 13

1 The collective bargaining which giVPH rise to the activity in question must

be in good faith Other expressions used to characterize this element ore arms

length or eyeball to eyeball

2 The matter is a mandatory subjeet of bargaining e g wages hours or

working conditions r

rhe matter must lJe a proper subject of union eDnCEI ll Le

it is intima telrelated or limarily and communly associated with a hOlla fide

labor purpose

3 The result of the collective bargaining does not impose terms on entities

outside of the eolledive bargaining gl

oup

4 Che union is not acting at the behest of or in combination with nonlabol

groups Le there is no conspiracy with management

In the final analysis the IUtture of the activity must be scrutinized

to determine whether it is the type ofactivity whieh attempts to affect

competition under the antitrust laws 01 the Shipping Act The impuet

upon business which this activity has must then be examined to deter

mine the extent of its possible effect upon eompetition and whethpr

any such effect is a direct and probable result of the activity 01 only

remote Ultimately the relief requested or the sanction imposed by

law must then be weighed against its effect upon the collective bar

gaining agreement In balancing the equities the above criteria will

no doubt be of value rVe cannot however subscribe to the view that

collective bargaining agreements be granted a blanket labor exemption

from the Shipping Act For as MI Justice Harlan stated in his con

curring opinion in Volkswagen Isee no warrant for assuming in

advance that a maritime agreement must always fall neatly into

either the LaborBoard or Maritime Commission domain a single con

tract might well raise issues of concern to both 390 U S at 286

Since maritime employers are permitted to bargain as a group

and since they are required to bargain about certain subjects the

mandatory subjects ofcollective bargaining the resulting agreements

must have some exemption from the requirements of section 15 Fur

ther each such agreement will be entitled to labor policy considerations

on an ad hoc basis with respect to possible violations of sections 16

and 17 of the Shipping Act

B The Labor Exemption as Applied to the Instant Agreements

1 The Organic Agreements

As to articles of incorporation and by laws of maritime collective

bargaining associations Volkswagen cannot be read as denying that

those agreements are subject to the requirements of section 15 of

the Act The Court was simply not concerned with any agreements

other than

the one among members of the Assoeiation allocating the impact of the

Mech Fund levy We are not coneerned here with the agreement creating thp

16 F M C
14 FEDERAL MARITIME COMMISS ON

Association or with the collective bargaining agreement between the Asso

tion and the ILWUi No claim has been made In this case that either of t

agreements was subject to the 1l1lng requirements of section 11 890 U S 

278

Uponthorough review of the views presented on this issue we c

clude that no valid regulatory purpose would be served in requi

organic agreements of pure collective bargaining units tobe filed 

approved pursuant to section 15 However to the extent that 

organic agreements provide for purposes other than collective b

gaining no labor exemption from section 15 would apply to th

portions of the organic agreements and filing and approval of th

provisions would be required

Thus the line is drawn at the point where purely labor matt

cease and shipping matters begin In the instant situation we 

satisfied that insofar as the BSA is primarily a collective bargain

unit the labor exemption should be given effect and the organic ag

ments exempted from the requirements of section 15 Although 

purposes of the Association as set forth in the organic agreements 

extremely broad we see nothing which in itself is specifically s

ject to the requirements of section 15 However any and all o

agreements concerning ShippingAct matters entered into by the m

bers of the BSA pursuant to its organic agreements are of course 

quired to be filed for section 15 approval

2 The Allocationof Labor

We have been convinced that the original allocation of labor ga

following the Final Shape although that allocation of necessity 

competitive overtones and effects in actuality amounted to noth

more or less than the hiring by employers of employees Because 

the strong labor considerations involved and minimal and rem

effects upon competition in the industry we find that this unwrit

allocation agreement between BSA and the Union is exempt from 

requirements of section 15

3 First Call Recall Agreement

This agreement was embodied in the written collective bargain

agreement This fact alone however cannot serve as the basis 

a distinction between the instant situation and that of the Volkawag

case As Mr Justice Harlan pointedout

t he fact that the labor agreemeIlt and the assessment agreement were 

dillerent pieces of paper Is of course not critical What Is Important Is 

the whole process raised both labor problems and distinct Shipping problems 

would notbe impossible forthere to be a single agreement raising some probl

of Labor Board concern and other separate problems appropriate to C

mlsslon revlew 390 U S at 291 n 7

16 FM
UNITED STEVED6RING CORP Vi BOSTON SHIPPING ASSOC 1 5

The mere factj therefore that aeertain agreement is part of a

collective bargaining agreement does not automatically immunize that

agreement from the antitrust laws Authority for this proposition is

the three leading cases dealing with the labor exemption discussed

heretofore Pennington Jewel Tea and Allen Bradley In the same

manner ill which offensive collective bargaining agreements in general

are challenged under the antitrust laws collective bargaining agree

ments in the shipping industry can be challenged under the shipping

laws with due regard for the labor policy considerations discussed

above

We find however that the first call recall agreement before us

is entitled to a labor exemption from the provisions of section 15

Although this agreement goes beyond the mere hiring of employees

and provides for the assignment and reassignment of those employMs

strictly within the discretion of management and does in fact have

some competitive effects and overtones it nonetheless is aproduct of

bona fide arms

length collectiye bargaining MOl l ovcr its subject

matter is apparently a mandatory subject of collective bargaining and

no terms verI imposed on entities outside the collective bargaining

group Thus this provision of the collective bl rgainillg agreement

falls within the guidelines set forth above and is entitlecl to It labor

exemption from therequirements of section 15

While we cannot here decide that every such collective bargaining

agreement is entitled to a labor exemption Hearing Counsel and the

Department of Justice recommend the consideration of a section 15

rulemaking proceeding in order to exempt for the future this class

of agreements from some or all of the requirements of section 15 ofthe

Shipping Act 1916 thereby not jeopardizing collective bargaining

by any threat of pre approval implementation penaltv This we in

tend to do

C The Alleged Violations ofSections16 and 17

The Examiner concluded that even werethe jurisdictional quesrions

resolved in favor of United the record failed to establish that Ullited

had been harmed by the practices of the BSA The case is built upon

gang shortages on peak days and necessarily upon gang shortages

undeI precise and specific circumstance Thus in order to show that

it has been prejudiced under section 16 or that the practices of the

BSA are unfair or discriminatory under section 17 United must

show

1 That it has more than one vessel in port on a givpn day thus establishing

a need for additional gangs

1 Section 35 of the Shipping Act grants U8 the authority to exempt for the future any

class of agr ements from any requirement of the Shipping Act 1916

16 F MC
16 FEDERAl MARITIME COMMISSION

2 That all other ganlUl are unavallable because tllw have been calle

recalled and

3 That at least one of United s stevedore competitors Is working only 

vessel withall of Its seven gangs

Any thing less than this which is the allegation of United 

Hearing Counsel might constitute prejudice or discrimination 

it would not be undue or unjust Although the allocation of ga

and the first call recall agreements do give special accommodation

other special privileges or advantages to certain members ofthe B

we have studied the record in this proceeding and have found no 

dence to support any findings that the above practices are unju

discriminatory or otherwise in violation of sections 16 and 17 In f

those special accommodations or privileges would appear to be ju

fied on the ground that United refused to hire another walk

boss which was the criterion for receiving more gangs Thus 

fil10 no violations ofsections 16 and 17

Ur lDIAl E CONCLUSIONS

For the foregoing reasons we conclude that 1 the BSA is 

ject to our jurisdiction 2 the BSA organic agreements are enti

to a labor exemption from the requirements of section 15 3 

allocation of labor gangs is entitled to a labor exemption from 

requirements of section 15 4 the agreement as to first call reca

entitled to a labor exemption from the requirements of section 

and 5 the practices of the BSA pursuant to these agreements h

resulted in no violations ofsections 16 andor 17 of the Act

VICE CHAmlllAN GEORGE H HEARN cONoUllRING AND DISSENT

Iconcur that the BSA is subject to the Shipping Act 1916 t

the mrious agreements are cooperative working arrangements wi

the meaning ofsection 15 and that the labor exemptionisjustified w

respect to the incorporation papers and by laws of the BSA 

also the original allocation agreement However I dl not agree 

the first call recall arrangement is entitled to exemption from 

provisions of section 15 on the basis of labor policy consideratio

even though it may be cOlltained within the collective bargain

agreement

In my opinion the first call recall agreement does not meet 

criteria for finding a labor exemption as set forth in the majo

opinion It is not merely a situation where management hires 

ployees The primary purpose of first call recall is to vest in m

agement the sole discretion for the collective allocation of ga

which can resut in competitive effects upon the shipping indu

1Ai1t U 
UNITED STEVEDORING CORP V BOSTON SHIPPING ASSOC 17

for outweighing the Teason for not interfering with collective bar

gaining This provision while eventually approved by the union

wasnot so much the product ofbargaining but the cause of it and tbe

union obtained something entirely unrelated in consideration for their

acceptance of this provision which is obviously not in their own self

interest For this reason the negotiations leading to this agreement

can hardly be aid to be bona fide bargaining upon a subject commonly

associated with wages hours or working conditions and the first call

recall provision is therefore the type of cooperative working arrange

ment contemplated by section 15 requiring filing with and approval

by the Commission

In so holding however Iam not unmindful of section 15 s effect

upon the entire collective bargaining agreement and woUld welcome It

type of section 35 exemption referred to in the majority opinion tb

relieve the pre approval implementation penalty of certain labor

related section 15 agreements Here however the record does not in

dicate any violation of section 16 or 17 and Isee no other reason

why the first call recall arrangement should not be approved by the

Commission under section 15

In all other respects I

agree with the majority opinion

CO HtISSIONER CLARENCE MORSE CONCURRING AND DISSENTING

Iconcur that the agreements under consideration do not require Sec

tion 15 approval but in so doing I

follow a path different from that

followed by the majority

The majority opinion is premised on the conclusion that the agree

ments involved 1 articles and bylaws of BSA 2 agreement among

and between members of the BSA as to allocation of labor gangs

among stevedores and 3 agreement among and between members of

theBSA as to the first call recall system 8are agreements which fall

within the intent and scope of Section 15 Shipping Act 1916 but

ncyertheless should and do receive from us labor exempt status under

cases such as Labor Board v Tr uck Drivels 353 US 87 9496 Jewel

Tea 381 US 676 Volksloagemoerk 390 US 261 Iwould oncur in

nllowing the labor exempt status if Iwere to agree that the three

agreements are Section 15 agreements My basic premIse is that be

8 Note that items 2 and 3 are Imrt nod parcel of the collective bargaining agreement and

the direct result of coIlective bargaining between the ILA and BSA No one to my knowl

edge asserts that that collective bargnlnlng agreement itself is a Section 15 agreemem

Jtence the majority in eonclmUng hat said items 2 and 3 are S ction 15 agreements enn

only do so 80 the blsis that before and as preliminary to BSA signing the collective

bargaining agreement with lLA the BSAmembership must necessarily have agreed intra

BSA to the inclusion of these two terms as part of the collective bargaining agreement

Itis this preliminary intra BSA agreement which the majority asserts is a Section 15

agreement and to which this opinion 18 addressed in addition to the articles and by laws

16 F M C
18 FEDERAL MARITIME COMMISSION

cause of mixed membership none ofthese agreements is a Sec

15 ltgreement and therefore we do not reach the question whe

labor exempt status should be granted

The shareholders in BSA are companies which are common 

riers by water steamship agents stevedoring contractors term

operators lighterers contracting guard service and renters of f

lifts Exhibit 10 If to qualify BSA as coming within our ju

diction ie over common carriers by water and other persons 

ject to the Act we say that BSA conducts the business of 

nwmbership or if we disregard the corporate fiction and look at 

membership of RSA it is obvious that the membership indudes c

panies which are neither common carriers by water nor other 

ons in that they do not carry on the business of forwarding 

furnishing wharfage dock warehouse or other terminal facilitie

Section 1 Shipping Act 1916

In order to highlight my disagreement with the majority it m

behelpful to give twoexamples

Fil St example Ocean Common Carrier A and Ocean Comm

Carrier R enter into an agreement to establish an association for 

purpose of fixing orregulating transportation rates by water in 

foreign commerce and file the agreement with us for our appro

lindeI Section 15 Slich an association is in our parlance a conferen

The majority and Iarc in agreement that this clearly is an 

able Section 15 agreement After receiving ollrapproval lawful 

tivities thereunder are immune from antitl Ust Thereafter if 

npproved association enters into an agreement with for exampl

freight broker as to brokerage rates to be paid by the ocean carr

that agreement with thl freight broker il not Section 15 becaus

is not an agreement with a common carrier by water or o

person

0

Section 15 Shipping Act 1916

Second example Ocean Common Carrier A Ocean Common C

rier R and Rail Common Carrier R enter into an agreemen

establish an association for the purpose of fixing or regulating tra

portation rates by water in our foreign commerce and file the ag

ment with us for our approval under Section 15 This is a mi

membership agreement for it includes a person who is neithe

common carrier by water nor an other person subject to the A

Hnder the reasoning of the majority the majority could approve 

u s V AUT In 327 US 437 1946 at pages 4ll1 4ns

10 In Re Gulf Brokerage and Foard ng Agre ment 1986 1 UBSBB M8 

flBrokers are not subject to theShipping Act 1910 and consequently agreements bet

cortier Ubject to that act and brokers are not of the character required to be filed u

section US thereot However If carriers enter Into aarreements with each other rela

to their @mployment of brokers such agreements must be submitted forthe Departm

consideration

16 FJlf 
UNITED STEVEDORING CORP V BOSTON SHIPPING ASSOC 19

agreement as a Section 15 agreement despite the presence of R as

a member thereof for 80 they assert A Ijnd B are agreeing and by

the device of including R as a party in the association they cannot

defeat our jurisdiction over an agreement between ocean common

carriers which but for the presence of R is clearly a Section 15 type

agreement Such an assertion means that if approved by us when the

association fixes such rates A and B would be immune from antitrust

by the terms of Section 15 but R would be exposed to antitrust12

Ianalyze the second example from a different approach Iview the

basic philosophy of our laws as being antitrust oriented that immu

nity from antitrust is an exception and in order to qualify for the

exception onemust litthe statutory guidelines

Section 15 contains two essential elements or conditions namely

parties and subject matter the seven categories of agreements For

this discussion we need only consider parties but in my opinion it

is essential to our jurisdiction that the parties test must be squarely

satisfied 13

The critical words are

every common carrier shall file every agreement with another

8uoh oa rrier

Ul1less one fragmentizes the agreement the Second Example is

an agreement between three peoph or in the language ofSection 15

A is agreeing 1vith Band R B is agreeing witl A and R and R is

agreeing with A and B Ifail to find any indication that A and B

independently of R are agreeing to anything separate and dIstinct

from the agreement with R Hence while there is an agreement by a

common carrierwith anothprcommon carrier and a rail carrierthere

is no agreement by a common carrier with another such carrier

only Hence in this mixed membership situation Ifind that there is

and can be no basis for asserting it is a Section 15 agreemenUn any

respect

11 In this example I outline a multiparty agreement wherein all three part1es have a

common objective I distinguish that type agreement from an agreement betwoon X and Y

on one side Of the bargaining table negotiating at arms length with Z on the opposite side

of the bargaining table In this latter situation the interests of X and Y on the one hand

and Z on the other hand are opposed IfX and Yare common carriers by water and the

subject matter of their joint actions falls within any of the seven categories detaUed in

Section 15 then the relationship of X andYmay be aSection 15 agreement

I wonder what the majority would do as to approvabflity it presented with a mult1

party agreement having many strangers to the Act as members but only two common

carriers as members

12 ImpUcit inthe majority s determination that the three BSA agreements are Section 15

agreements are two conclusions 1 The agreements infact are subject to Section 15 and

may be approvable and 2 Carrying out the agoreements prior to Section 15 approval

exposes the members to Section 15 penalties and to antitrust penalties Oarnation 383

US 213

13 I

analogize with Allen B1adley Co v Union 325 US 797 1945 In that case labor

lost its antitrust immunity by collaborating with management

U

SeeTransshipment Agreement 10 FMC 201 215 1966

16 F lIC
20 FEDERAL MARITIME COMMISSION

1

Itif my view that in Section 15 the Congress clearly indicated 

only those agreements which are between common carriers and o

persons are approvable Ifstrangers totheAct are included as pa

to a mixed membership agreement the agreement is not approv

under section 15 and all parties are exposed to antitrust Ifind i

possible to believe the Congress gave US authority to grant anti

immunity to common carriers and other persons parties to a m

membership agreement whereas strangers to the Act but partie

said agreement are exposed to antitrust No court case has squ

held we can approve mixed membership agreements There are 

which discuss for example shippers rate agreements as being 

proved Section 15 agreements but a careful examination establ

that the court was approving our action validating the shippers 

agreement form as part of a dual rate system not that the court 

approving the Bhippers rate agreement as aSection 15 agreemen

tween carriers and shipper Anglo Oanadian Shipping 264 F 

405 Martra lU3 9 FMC 431 436 Tra lU3shipment 10 FMC 199 2

Volkswagervwerk supra has been cited at times as holding th

mixed membership agreement is approvable In that case the 

eral Maritime Commission stated in part 9 FMC 77 81 1965

The Examiner found that the Mech fun i agreement which res

ents had entered lnto with the othel members of PMA all of whom he fou

be common carriersor otherpersons subject to theAct

and went on tosay page 82 Even if we assume all ofthe membe

PMA are other persons within the meaning of the Ship ing 

1916 Hence it is clear at the Commission level the agreement 

treated as one between common carriers and otherpersons only 

that the Supreme Court never considered the case as being a Se

15 mixed membership agreement

Fortifying my position is the fact that Section 22 Shipping 

1916 grants to us jurisdiction in complaint cases only over acom

carrier by water or other persons subject to this Act Except f

violation of the Act we have no jurisdiction over a stranger to 

Act but party to amixed membership agreement even if we ass

wecould approve amixed membership agreement 1G

Note also that Section 15 provides inpartthat

Every agreement lawful under this section shall be excepted

us v AUT supra at 448

Thst the Commls lon may have jurisdictIon over one of the two parties 

dl crlmlnatory 8ll1eement or arranlfOlDent hardly means that It shall not have 

dIctIon over both Indeed unle the jurlsdlctlcn Includes both It may be 

as to the one covered for the Commls lon then mIght lack the neee oarmea

obtaInIng orcheckIng upon Informatliln of 121 nece ary to a certaln tho exI

of Q dlscrlmlnstloD orto tske other sctlon comman led bY the statute

16 FM
from the federal antitrust laws It is the agreement and lawful ac

tivities thereunder which are exeepted The parties to approved

agreements receive exception only through the agreement so we are

again full circle back to the language of Section 15 that every com

mon carrier shall file eVeN agreement with another such

carrier or other Pe1 son subject to this Act Icannot read the above

without concluding it was the intent of the Congress that only those

agreements whose membership is confined to common carriers by

water and other persons are subject to Section 15

The early Commission cases squarely held that an agreement be

tween two or more common carriers and a

stranger to theAct is not

approvablc under Section 15 In re Gulf Brokerage 1 USSBB 533

534 Wharfage Oharges 2 USMC 245 251 see also Agreement No

76f30 2 USMC 749 754 Grace Line 7 FMC 432 448 Fortalatin 10

FMC 362 371 I see no reason for departing from that holding I

would ovelTUle subsequent decisions to the contrary such asM art1nB

9 FMC 431 436 Investigation of Overland OOF Rates 12 FMC 183

216 1969 and theReport in theinstant case

On the foregoing bases the articles and by laws are not Section 15

agreements because the shareholders members of BSA include not

only common carriers and other persons subject to the Act but also

strangers to theAct

On the foregoing bases the intra BSA gang allocation and the

first call recall agreements likewise are not Section 15 agreements

because they are mixed membership agreements

An appropriate order will be entered

SEAl S JOSEPH C POLKING

Assistant Secretary

UNITED STEVEDORING CORP V BOSTON SHIPPING ASSOC 21

FEDERAL MARITIME COMMISSION

DOCKET No 70 3

UNITED STEVEDORING CORP

V

BOSTON SHIPPING ASSOCIATION

ORDER

The Federal Maritime Commission has this day served its Report

in the subject proceeding which is hereby incorporated herein in

16 F M C
22 FEDERAL MARITIME COMMISSION

which it found several agreements among and between parties su

to the Shipping Act 1916 to be elempt from the requirements of 

tion 15 oftheAct

Therefore for thereasonsarticulated insaidReport

Itis O1 dered That our Order of November 9 1 71 served in 

proceeding be vacated

By the Commission

SEAL JOSEPH C POLKING

As8ista n Secreta

APPENDIX A

STATEMENT OF THE PROCEEDING A D FACTS

This proceeding was initiated by theCommission upon a petition of the U

Stevedoring Corp United alllllrtnlt that the Boston Shipping Assoc

BSA had violated section 15 of the Shipping Act because it had not obt

Commission approval for its concerted activities in the allocation of steved

gangs at thePort of Boston As a result of the petition the Commission dir

the BSA to show cause why it should not cease and desist from its activiti

allocatinggangs for failing to obtain the required Commission approvnl

Upon consideration of theaffidavits of fact and memoranda of law flied b

parties the Commission referred the case to the Office of Hearing Examine

an evidentiary hearing to resolve the disputed issues of fact posed by the p

ings of the parties and for the issuance of an initial decision

Following a request by United the Commission expanded the scope o

proceeding to include the issue of whether the practices of BSA in the alloc

of stevedOring gangs on the Boston piers result in violations of sections 16 a

of the Shipping Act 1916

Broadly stated United s position is that the BSA pursuant to Artic

of its collective bargaining agreement with the International Longshorem

Association which reserves to the BSA the right to determine the numb

gangs to be employed and how they are to be distributed on the vessel 

con1lne d to four favored stevedores all of whom are competitors of Un

effective daily control of the longshore work force in the Port of Boston 

effective control has resulted in the ships served by the favored steve

obtaining preference over all other ships calling at Boston and prevents 

other stevedore from offering fairly comparable service and obtaining custom

Moreover this control asserts United Is exercised pursuant to an unw

and unllled working arrangement among the BSA members which govern

exercise of rights reserve to management under a collective bargaining a

ment United asserts that it is a stevedore directly harmed by these prac

In his Initial Decision Examiner Richard M Hartsock ultimately conc

1 that the BSA is not an other person subject to the Shipping Act 2 

the collective bargaining agreement entered into by the BSA Is not an agree

subject to approval by the Commission under section 15 hence the BSA 

not violated section 15 by effectuating an unapproved agreement 3 tha

agreement between the members of the DIM to collectively bargain for h

gangs and flrst call and recall rights with the ILA is not subject to sectio

but If It is the agreement Is not unreasonable Or illegal or otherwise con

16 FM
STATEMENT OF FACTS

UNITED STEVEDORING CORP V BOSTON SIDPPING ASSOC 23

to the Act and 4 that the BSA has not violated sections 16 and 17 of the

Shipping Act

United and Hearing Counsel except to each basic conclusion of the Examiuer

Thus the Comimssion is coufronted with a threshold issue of its jurisdiction

over the parties in the case and their agreements in addition to the question of

the lawfulness of the particular activity in question under sections 16 and 17 of

theAct

After charging that the decision is not a fair balanced orcomplete analysis of

either the Commission s

jurisdiction or the testimony or exhibits of record

and after taking some 16 general exceptions to the decision United regretfully

asks the Commission to start from scratch to disregard the initial decision

and to consider anew our United s opening and reply briefs to the Wx

aminer In much thesame vein Hearing Counsel assert that not only did

the Elxaminer commit serious errors of law regardiug the Commission s juris

diction he also ignored significant pontions of the record relied on

innuendo and concentrated on the portion of therecord where no violations of

the Shipping Act are shown ignoring that portion of the record which demon

strates violations In short theexceptions call for an examination of the tran

script of testimony and exhibits in the record in order to fill in the gaps left

by the Examiner so as to construct a factual foundation upon which theCm

mission may proceed to a determination of the issues

United Stevedoring Corporation is a locally owned stevedore at the Port of

Boston United has been in business at Boston since some time in the 1930 s

The Boston Shipping Association is an association of carriers stevedores ship

agents terminal operators and other maritime concerns at Boston The BSA is

a noonprofit corporation organized under the general laws of Massachusetts

primarily for the purpose of negotiating and admiuistering collective bargain

ing agreements with labor The Board of Governors of the BSA is composed

of four officers and six members Of the five general cargo stevedores operating

in the Port of Boston all but United are directly represented on the Board

Except foran annual membership meeting decisions of theBSA are made by the

Board and ingeneral theBoard s action do notappear to need ratification by the

membership

In September 1964 the United States Department of Labor published a study

entitled Manpower Utilization Job Security in the Longshore Industry Bos

ton known as the Stow Report Among the various findings dealing with the

decline in longshore emplOyment were underutilization of members of the work

force archaic hiring procedures lack of permanent gangs frequent shortage

of sufficient gangs to work ships in port and resistance to technological change

incargo handlingmethods

The basic reform arising out of theStow Report was a fundamental change in

the gang and hiring systems After an informal comparison of prevailing prac

tices at other East Coast ports the International Longshoremen s Association

local inBoston decided to replace the previous hiring method with a system of

1IThe BSA sby laws state that its other purposes are to endeavor to promote and to

assiSt in encouraging friendly and harmonious relations between shipowners shipping

agents etc to improve working conditions in th shipping industry to encourage

sound business relationships between both the members And between the members and

theemployees

16 F M C
24 FEDERAL MARITIlIiIE COMMISSION

permanent gangs and a central hiring hall The permanent gangs were 

by what has become known as the Final Shape On December 6 1966 

stevedore employer of longshore labor having been notl1ied in advance w

vited to send hiring bosses to a place in Boston known as Castle Island 

hiring bosses stood on piles of lumber and each longshoreman chose the bo

whom he wanted to work This Final Shape resulted in the formation 

permanent gangs the number remains the sametoday

At the time of the Final Shape there were seven stevedores operat

Boston six general cargo and one scrap metal Schiavonne The six g

cargo steved6res were J T Clark Sons ITO Corporation Jarka Nac

Atlantic Gulf Bay Siate and United According to a general understa

among the ILA and stevedores each hiring boss or foreman sent bY a ste

wonld be entitled to hire two gangs Only United apparently had some dif

with this nnderstanding since it contends that it had no such undergta

Clark Jarka Nadrema and Atlantic Gulf put up three bosses each and 

six gangs apiece Bay State put up two bosses and hired four gangs U

Imt up one foreman but hired only one gang Apparently United had som

cuIty in ftlUng even one gang since the men were prone to go where the 

was and werereluctant to shape in front of United s boss

In thefirst half of 1967 one of the leading stevedores Atlantic Gulf 

nated its operations in Boston making its Eflx gangs available for redIstrib

among the remaining stevedores Through the etrorts of the BSA and w

cooperation of the ILA these gangs were redistributed in June 1967 in 

that United picked up two more gangs while its competitors piCked up one 

The reallocation left the distribution at Clark Jarka and Nacirema 

gangs Bay Stlltefive gangs United three gangs and Schiavonne the 

metal stevedore onegang This distribution is in etrect today

Between the Final Shape and October 1 1969 the assignment system op

in such a way that considerable rotation of gangs among stevedores wa

mitted Thus if gangs were not requested by the stevedore to whom the

been assigned they were free to work for other stevedores Also it appear

no single walking boss could secure more than three gangs This seems to 

meant that a stevedore with a single sMp to servLce was etrectlvely limi

theuse of three gangs even if he had five orsix assigned to him This par

part of the system was modified on October 1 1969

2 Under the old system longshoremen would congregate d ny on the streets an

around to shape in front of a

hiring boss On an ad hoc basis and then move off to 

the ships It was felt that this system was not only undignified but extremely ine

since the absence of permanent gangs prevented the development of those skllIs att

to an experienced team on which each member is famUiar with each other s work 

streJlgths and weaknesses

In 1969 United attempted to obtain another gang and requested the BSA to a 

The Board of GovernorB Interceded on behalf of Un1t d with theUnion but decided 

return for the additional gang United should employ a second permanent hiring boS

Board felt this condition reasonable and necessary to persuade the Union that 

could produce the work Slgnlficantly other general cargo stevedores at Boston b

or three such bosses For reasoDsnot entirely clear from the record the matter w

pr ed and United did not get an additional gang

At this point it should be noted that neither United nor Heartng Counsel ch

the basic concept of the house gang system orthe 68tabUshment of a central hirin

Nor do they quarrel too strenuously with the present allocation oigangs to the v

stevedores

16 F 
UNITED STEVEDORING CORP V BOSTON SHIPPING ASSOC 25

The change in the assignment system stemmed from the decision of the BSA

to secure for management a greater control overthe work force for the professed

purpose of improving service to theships calling at Boston Consequently one of

themajor objectives during the collective IJargaining in 1968 was the modifica

tion of the then existing gang assignment practices so as to estaIJlish a strength

ened first call recall system This was met by resistance by the ILA who

wished to preserve the method of rotation of gangs under which the gangs

were dispatched by the Union from the hiring hall insequelWe so as to distribute

the work more equally and improve the position of low hour gangs

So insistent were the parties that the Port of Boston remained On strike in

1969 for several months beyond theend of the strike at other ports on the East

Coast The issue was finally resolved by the Union trading first call recall rights

for a guaranteed annual wage program The change in the gang assignment prac

tices was embodied inArticle X of thecollective bargaining agreement

Article X Gang Assignment Until Ootober 1 1969 thepresent system whereby

each employer s hiring foreman controls a speCific number of gangs shall remain

ineffect Gangs notworking fortheir regular Hiring Foreman shall be dispatched

by theDispatcher inaccordance withthepresent procedures rhe Employer shall

determine the number of gangs to be employed and how they will initially be

distributed on thevessel to which they have been ordered

As of October 1 1969 the effective date of the Guaranteed Annual Income

Program each Employer will have first call on all the regnlar gangs assigned

to his company An Employer whose regular gang is working for another Em

ployer at a time when the regular Employer has no work for them may recall

his regular gang when he has work available at the start of thenext work period

In such instances the work commenced will be completed by other gangs Gangs

not working for their regular Employer shall be dispatched by the Dispatcher

in accordance with the present procedure The Employer shall determine the

number of gangs to be employed and how they will initially be distributed on

thevessel to which they have been ordered

By the exercise of first call recall rights provided inArticle X a stevedore in

addition to having the first call on any of the gangs assigned to him may

recall any of his assigned gangs to any single vessel even though the recalled

gangs may not have completed work on the vessels from which they are recalled

Under the system embodied inArticle X the stevedore exercising recall could

employ his full quota of assigned gangs seven In the cases of Clark Jarka or

Nacirema on a single vessel leaving the stevedore from whom the gangs were

recalled as few as three gangs in the case of United even though United was

working more than one ship Apparently under the old system a vessel with a

single hiring boss or walking boss would have been limited to three gangs in

such circumstances

Barely two months after Article X went Into effect the Union complained to the

BSA that certain gangs were not getting snfficient work and suggested that the

Union be allowed to rotate those low hour gangs away from their assigned

stevedores in this case United and Bay State The BSA considered any such

rotation to be a breach of the collective bargaining agreement but after a period

of negotiation it was agreed that seven gangs would be adopted by other

stevedores Under the adoption system stevedores who were designated adopt

ing stevedores had first call on their adopted gangs over all other stevedores

16 F MC
26 FEDERAL MARITIME COMMISSION

except the stevedore to whom the adopted gang was primarily assigned 

system was tried on an experimental basis for three months but appa

because of problems arising under It no attempt was made to continue It b

the experimental period

The ILA next made known Its intention to return to the old system In 

prior to October 1 1969 where the Union would till out gangs for any part

ship by Its own selection of low hour gangs except for the two orthree ass

to the particular walking boss for that ship Management again considere

a breach of the collective bargaining agreement Ultimately arbitration re

In a mocJIflcatlon of the bargaining agreement by which the Union was perm

to select the fourth and fifth gangs dispatched to any stevedore while the 

dore retained the right to call his regularly assigned first three gangs an

sixth and seventh gangs If he was entitled by assignment to a sixth and se

gang This was the last modl1lcatlon of the tlrst call recall system repres

an attempt to distribute the work aDlong the 30 gangs more evenly and th

support that number of gangs at thePort

The original allocation at the Final Shape which resulted In a 641 1 arr

Dlent corresponded roughly to the previous year s volume of work per stev

and reflected the ILA on the spot estimate of who could olrer the most 

United did proportionately better than Its competitors receiving one gan

40 000 hours worked the previous fiscal year to one gang per 75 740 for Nacl

one gang per 63 615 for Atlantic Gulf one gang per 51 781 for Clar

Again when Atlantic Gulf went out of business and Its gangs were 

tributed so as to give United two more United did proportionately bette

Its competitors Thus although United now had three gangs It only pro

48 000 hours of work for the three quarters prior to June 1967 compared 

Nacirema s 310 000 Olark s 270 000 Jarka s 240 000 and Bay State s 11

Proportionately this means that Naclrema had two and one third the num

gangs assigned United but produced overeight times as much work

On days when therjl Is no congestion of vessels at the port and more 

enough gangs are available the distribution of gangs seems to present no 

lems The dally aver lge of gangs worldng has been declining overthe pas

years due to the general decline In activity at the Port In 1969 an avera

17 94 gangs were hired dally while the tlrst six months of 1970 showed a 

average of only 15 99 gangs In 1968 thll dally average was 20 15 Thu

quiet days obtaining gangs presents no problem even under first call 

since the Union would always have gangs available and would be on

happy to dispatch them However vessels do not can at conveniently s

Intervals but tend to cluster on busy days On these days a st evedore has 

called upon with some frequency to work three ships simultaneously Th

theory at least even If each stevedore were assigned the same number of 

there could still be labor shortages and of course any stevedore with 

number of assigned gangs vis a vis his competitors would have greater 

in securingsutllclent labor

Latest BSA records show that United continues to be the low hour stevedore Th

competitor who had proportionately moregangs th n United per hour was Bay Stat

five gangs Its hours wereonly 69 9015 to United s fa 1527

16 F M C
16 F LC 27

FEDERAL MARITIME COMMISSION

DOCRET No 72 5

AUSTRALIA U S ATLANTIC GULF CONFERENCE PROPOSED

IMPOSITION OF CURRENCY ADJUSTMENT SURC ARGE

Decided September II 1912

Rejection uf tariff filing under sections 141 and 18 b of the Shipping Act 1916

without a hearing proper where statutory violations exist and premise used

to support the filing is an obvious nullity as a matter of subStantive law

The dear language of Article 23 a Shippers Rate Agreement as it relates 110

currency devaluation by governmental action presupposes the action of the

government issuing the currency under which the terms of the contract are

yritten

Elmer O Mculdy and BaldvinEiJnarson for Australia U S Atlantic

Gulf Conference respondent

Nm mJlJ1 D Kline and Donald J Brwnner Hearing Counsel

REPORT

BY THE COMMISSION Helen Delich Bentley Ohai fllUlnjGeorge

H Hearn Vice fJhr ti7na jAshton C Barrett JMIles V Day

oommi8sioners

This proceeding arises from an order served by the Commission

upon the Australia U S Atlantic Gulf Conference Conference or

respondent directing respondent to show cause why the Federal

Maritime Commission Commission should not find the imposition

of a currency devaluation surcharge to be in violation of sections

18 b 1 3 and 4 and 14b or the Shipping Act 1916 and con

sequently should not order respondent to cease and desist from

assessing and collecting such surcharge

On December 18 1971 the United States in the Communique or

the Group of Ten agreed to propose to the Congress a suitalble means

for devaluing the United States dollar in relation to other world

currencies by means of a change in the existingpar value ofthe dollar
28 FEDERAL MARITIME COMMISSION

Subsequent thereto on December 22 1971 the Australian Gov

ment revalued the Australian dollar appreciating it a total of 

percent as against the United States dollar The same day the 

ference which covers the trade from ports in Australia to Un

States Atla nic IIlnd GuN politi filed cUl UellcydeveJua tion t

surcharge of 8 57 percent tobecome effective January 8 1972 L

on December 24 1971 the eon ference reduced the amount of 

charge to 6 32 percent

The Conference and its members file tariffs pursuant to se

18 b of theShiPfling Allt itllil TM Conferehce1s allproved 

rate sySllem additioilll U wbfects ccmfwence increases in rates to 

90 day notice requirement of section 14b of the Act This partic

increase did not comply with the DO day notice requirement The 

ference grounded its failure togive tlke uquired 90 days notic

Article 23 0 of the Rhippers Rate Agreement which provide

relevant part

In the I

llt Of curioellCY de IjR lbvi1l CvernlllVl1tat on reUlatioDs

et y WernDlenal uijullitiV pertUnlng reto or any Pliher 01llclal 

1eretl el w4tb meroial 11l lOOlIrse adsl trlm tile abov e coD41UOJ1ll

A llUMMge ilia be tmpllsedOB lld86s notlee

By telegram of December 23 1971 the Bureau of Compli

diViosell tlleC0nf fllee that its fltilure to give the required 00 

notice was not justified by the CUrll6JlQY devaJuatWIl poovisi

Article 00 a of its IlOntmct 1IDd tbatthe lIurchaqre could be imp

only upon 90 days notice

The Conference by telegmm 01 December 29 1971 exprelB

disa eement with the Bureaus position and offered its opinion 

Article 23 0 diel support the lack of 96 days Wiktennotioo 

January 7 1972 the eitedttve date of the sl1rcharge mB delferr

J

anuary 15 1972

By teleglIIIm dat edJan1 l8Y

12 1972 and letter dted Januar

1972 the Conference wasin edtha1 theCommission at its me

611 J

nnuary 11 1912 had rejected the Confir oes surcharge sin

failed to confol nto the requillem ntsofseotioDs 14b and 18 b 

the Shippmg Act 19111 and advised the Conference that reje

tariff matwr is void and its use unlawful and the rateg quoted i

rejected filings may not be implemented until lawfully refiled 

in effect Notwithstandingthis rejection the Comerence by teleg

lated January 14 1972 infolnled the Commission that the me

lines intended toassess thesurcllarge on orafter Jltnuary 15 

O January 15 1979 Ju ge Edward Weinfeld of the United S

District Court for the Southern District 01 New York granted 

Commission s motion for a temporary restraining order prohib

16 F ld 
AUSTRALIAU S ATLAlotTIC AND GULF CONFERENCE 29

the Conference and its member lines from giving effect or takingany

action pursuant to the rejected tariff filings with respect to the cur

rency devaluation surcharge until further order of the Court

On January 18 1972 the Commission issued an Order to Show

Cause why the Commission should not find the imposition of the sub

j

ect currency devaluation surcharge to be in violation of sections

18 b 1 18 h 3 and 18 b 4 and section 14b of the Shipping

Act 1916 and should notorder the Conference tocease and desist from

assessing and collecting the surcharge

DISCUSSION AND CONCLUSION

Respondent contends that we exceeded our authority in summarily

rejecting the surcharge without affording the respondent the benllfit

of an evidentiary hearing In the alternative respondent urges that

even if we should conclude that an evidentiary hearing was unneces

sary Article 23 of the Shippers Rate Agreement fully authorized the

imposition ofthe surcharge on less than 90 days notice

Respondent s

argument that the rejection wasimproper is grounded

primarily upon our decision in Rejeotion of TariffFilings ofSea LGJnd

Se1 Vioe Ino 13 F M C 200 1970 In that case the Bureau of Com

pliance had rejected a tariff filing on the ground that itviolated sec

tions 14b and 15 of the Shipping Act 1916 We found that rejection

improper because the asserted violations turned on the resolution of

several issues of fact which could only have been resolved after a

hearing Accordingly the failure to afford respondent a hearing had

denied it due process of law

While respondent seems to recognize the Commission s

right to

reject a tariff filingunder section 18 b when it results in aper se or

obvious violation of another section of the Act it is respondent s

contention that very real questions of fact are presented here in this

case Thus no per se or obvious violation can be found to exist and an

evidentiary hearing was anecessary condition precedent to any rejec

tion of the surcharge But despite a number of assertions that the

Commission necessarily arrived at certain factual conclusions in

rejecting the tariff respondent specifically points to only two areas

which it contends may hold disputed issues of factia the precise

actions taken by the International Monetary Fund and the actions of

the Australian Government in making effective itJhe fact of de

valuation of the dollar Of all the facts alluded toby respohdent

1 However in concluding that the Sea Land rejection was improper we expressly

stated no we de not here decide that a

rejection under sectlon 18 b may not be sup

ported by aviolation at another section of the Shipping Act

16 F MC
30 JIIlIEat MlUtiTIMil CGMMlSSiON

not one is disputed and in view of the eonstruction we place 

Article 23 lVeagree with Hearing Coonsel thatthose facts have 

relevance 110 the iss1ie at hand This clearly tElJilders Iliuy evident

hearing uatleCllIiISat Y to a VIlilid rejection of a tarif filing which 

patent nullity See MwnWiprit Light BJIfl f

ReoJJi flfltfJ Wtikefl

AlIM8 v FerlMaJ pUJi Oa fflllni88ion 450 F 2d 1841 D C Cir 19

For much the lame reason we feel that little additional aid woul

forlhooming if oralllirgtlment were held as requested by l6IiIp0ndent

There remains only the proper oonstructian fArticle 23 of 

Shippers RateAgreement

Respondent s proposed construction turns on the assignment 

broad meanings tocertain operative terms in the phrase Inthe ev

of currency devaluationby governmental action or regulat

of any governmental authority pertaining thereto or other off

interferences To respondent it is obvious that the term gove

mental action cannot be restricted toaction by Congress in offici

devaluing the price of gold and must include other actions by 

government As for the term currency devaluation respondent ur

that it cannot mean only US governmental action devaluing curren

Finally by way of saying somewhat the same thing slightly d

ferently the terms governmental action governmental authorit

and any other official interferences must of necessity include acti

by governments other than that of the United States Le the Gove

ment of Australia

Using its interpretation of the operative terms in Article 23 a

springboard respondent argues that even though Congress had 

officially devalued gold currency at the time of its short notice fili

devaluation nevertheless had in fact taken place because of cert

acts taken by the U S Government

Two considerations belie any such interpretation First the c

rency devaluation clause was a later amendment to Artide 23 

came some time after the official British devaluation ofthe pound T

direct relationship of the clause to the British experience is stro

ground for restricting the operation of theclause to a situation wh

a

country devalues its own currency by whatever official means 

particular country adopts Secondly as Judge Weinfeld pointed 

in granting his injunction both the contract and respondent s ta

are written in terms of United States currency and therefore i

highly unlikely that the clause in qu ion was meant to refer 

S

Pointing out that the clause in question originated with the Commission s decisio

Th Dual Rat Oas s iii F M C 16 478 1964 pondent quotes at length from 

decision in an attempt to support its IntenpretatloB ot the pbraaeB In question We a

withHearing Counsel that The Dual RafeOoB88 are inapPOSite since the currency cl

here In issue was not a

part of the contractconsidered inthat decision

16 FM
AUSTRALIA trs ATLANTIC AND GULF CONEERENCE 31

devaluation oj that CUyrllllCY by a gOV0mIDent other than tlul Umood

States Thus we are not swayed by Y88pondent s argument thatbIlcause

the tariff wasamended toplovide 1mI the conversion oBc in rates

intoAustralian cUl l

ency an acti m by theAustmlian

govel1llJnentcan

work to invoke Article 23 Were the action ofany govltnil lilllnt suffident

to invoke clauses such asArticle 23 shippers would asHearing Co1Usel

point out be buffeted by an unforeseeable number of shol tootice in

creltSeSlt result grossly out of harmony with the avowed pu f

dual rate contracts

Moreover ifrespondent had ilittendedto seek our approval of such

a broad clause however doubtful the success of such an at llllpt olear

language was readily at hand g governmental action could jilJ5t

as readily have become action of any government and devaluation

could have included de facto devaluation We cannot hollp ut con

clude that what is really the case here is an example albeit under

standable ofa later expedient construction overridingoriginal under

standing and intent

We think then the resolution ofthismatter is relatively simJlllle At

the time the surcharge wasfiled there existed no actnal dev 1uatiDll

no action by Congress the only governmental body with the authority

to devalue U S currency Thus any filingby respmuient purp0l ting

to implement a clause authorizing the imposition of a short notice

surcharge because ofdevaluation was a nullity creating clearsilatutolY

violations which werenot dependent upon the resoluti ODofanyf1Wtual

issues The rejection of such filing without hearing pUl1SlIant to sec

tions 14b and 18 1 of the Shipping Act 1916 was therefOiI equite

proper Of course the substantive problem in thiscase th0 imXlSition

of the surcharge has been mooted by the actions of the Secretary of

the Treasury on May 8 1972 when he formally introduced the ae

valuation package tothe International Monetar Fund Respondent

has effectuated the pertinent prOVIsions of Article 23 of the Shippers

Rate Agreement wd is assessing the surcharge in question Accord

ingly it is unnecessary to issue an order in this proceeding and the

proceeding is herllby discontinued

COMMISSIONER CLARENCE MORSE CONCUIlRING AND mSSENTING

Idissent

There are two basic problems involved one being procedural the

propriety of the ex parte actions taken by the Commission s staff on

December 23 1971 and the Commission itself on January 11 1972 in

rejectingthe tariff filing without giving the Conference a

hearing and

an opportunity to present its justifications and the second being sub

16 F MC
32 FEDERAL MARITIMl l COMMlSBlON

stantive the right of the Conference undertJheexisting facis to in

ate a tariff increase under Article 23of the Shippers RateAgrelIDl

Prlioed rwPe r have no doubts of our authority ina proper case 

reject a tariff filing without ahearing Section 18 b 4 Shipp

Act 1916 a

Rejeotion of Tariff FWi ng8 of S Larwi SefVW e Inc 

F MD 200 1970ButrejilCtions without ahearing based on def

in form orsubstance are permisSible only when so patently a nullit

a matter of substantive law thatadmfuistrative efticiencyand jus

are furthered by such rejection Mwnicipal Light BO1f1 deta Ma

8Upra 450 F 2d at 184l l146 Inmyopillion this filing was not su

patent nullity

We are not concerned with a

rejection based on It dlfect In fo

Therefore we are faced only with an asserted deflct in substance 

within this limited framework the thl ll8holdqul stion whether 

tariff filing was a patent nullity is the interpretation of the phr

currency devaluation by governmental action II Does it mean only 

jure devaluations currency devaluations enacted by tM COllgres

the United StatesW Does it include defaetodeveluations 8uchlts ce

tionofpaymentofgold by theUnited States onAugust 15 1911 01 

impact on the dollar in ii1ternational currency markets resulting fr

the agreements reached between the President and the Group of 

on December 18 1971W 4 Doesit include the revaluation upward of 

Australian dollar W Does it have some othermeaning The phras

notclear and unambiguous onits face lhequestioncannot beansw

withii1 the four cornersofthedocument Thenegotiations and illten

the parties at the time the language was adopted should have b

and must be developed and considered in arrivingatits interpretat

Section 18 b 4 the CoDimls lon Is authli ed to reNct any tarllr dIed 

It whIch Is not In conformity wIth tht ctlon and with such regula tloDB

The mltllsonlan meetlng prOduCed a multllate l agreement by tnePresldent and

Gronp Of Ten to Immediately realign the currencies of the major tradlng natlous S

countrlee Includlnll Germany Japan the etherlands and Jelglum revalned theIr 

renel wlth reopect to gold Othere Inclndlng the U K and France mahitalned the 

valueS U1lehanred For It part In the realignment package the Preeldellt of the Un

States agreed to prope to the Congress a devaluation Of the dolIar by 7 89 In term

gold But the ImmedIate Impact of the agreement In e ha markets was de facto dev

tIon of the dolIar wIth reference to gold and Jso theBrItIsh pound and the French fra

by 7 89 and b varylng percentage ratwIth referenele to the currencIes of other c

tries ThUS Trealury recognized that Ud efacto devaluation resulted trom the P

dent s agreement wIth the Group of Ten on December 18 1971 See Statement by 

Honorable John B ConnalIy Secretary of the Treasury before the BankIng and Curr

CommIttee U S House of Repr enttlves Mareh 1 1972 Statement of Deputy U

8Bcre ry for Monetary Alrars of the TreasurY Department Jack F Bennett before 

SuboomiBlttee on International COIlImerce and Tonrlsm of the Senate Commerce Comm

on January 24 1972 StatEment ot PflUl A

Volf lffr TrellR1try TT1derflP rpt81T

npel1

In the W IIBtreet Jourflal April 4 1972 and U S Treasury sNews Release C S05 d

May 5 1972

16 F H
AUSTRALIAU S AllLANT C AND GULF CONFERENCE 33

Its interpNtationis amixed question oflaw and fact Hence the tariff

filing was not a

patent nullity and its ex parte rejection constituted a

denial of due pr0ce88 gtlaranteed by Section 23 of tl eShipping Act

1916 and Section 5 of the Administrative Procedure Act and a re

versible J1 cedulal error

In this case in my opinion it is unfortunate that the tariff filing

warejected Tt was not until May 8 1972 at the earliest that the

Conference waspermitted tofile for a 15 day noticerate increase and

during the interval between December 23 1971 plus 15 days ltnd

May 8 1972 plus 15 days the Conferpnce was precluded from as

sessing higher rates to offset the effectof devaluation That

loss cannot

be recovered On the I

ontrary had the filing been accepted but its

propriety questioned by appropriate Commission action on shippers

complaints under Section 22 then if we ultimately foun ithe filing

to have heen improper we could have ordered reimbursement by the

oarriers of the improper rate increase As Itnow standr and if my

analysis is correct shippers have received a windfall at the expenStl

of the carriers contrary tothe intent and terms of the Shippers Rate

Agreement

Substantive We have for interprptation the phrase in Article 23 of

the Shippers RateAgreement reading

In the vent of currency devaluationby governmental action regulations

of aUf governmental authol ltypertalnlng thereto or any other official Inte1

ferences with commerchlllntercourse arjsng from the above condltlQils

The critical phrase is currency devaluation by governmental action

In respect to United States dollars the majority herein relate gov

ernmental action solely and exclusively to de jure or constitutional

devaluation which may be declared only by the Congress Had the

phrase read de jure devaluation or devaluation by the Congre lS

then there would be no question of interpretation But it IS not so

phrased for it identifies devaluations by governmental action and

its coverage includes regtllations or other official interferences

with commercial intercourse arising froin devaluation by govern

mental action The phIase devaluation by governmental action is

certainly inclusive of de jure devaluation or devaluation by the

Congress The issue here is whether devaluation by governmental

action is synonymous with and limited to de jure devaluation or

devaluation by the Congress

I eontend weCan bave de facto devaluation by governmental action Which in fact may

not amount to de jure devaluation directed by theCongress under Article If Sec 8 of the

ConMftutfon I analogize to anothfr

governmental activity While negotiatfons tOward a

treaty with aforeign pc wer are conducted by the President tbe power to authorize

16 FM C
34 FEDERAL MARITIME COMMISSION

The ultimate issue here isthe intent ofthe parties when tlleyadop

the phNUle under consideration and even more critiila the inteI

the CommiSsion when it approved the phrase ullder cOllsiderat

True the phrase under consideration was adQpted lllnd aspprove

the result Qf a letter from the Commission s staff which advised C

ferences that it was doubtful the then existing contrm provis

cover devaluation situations and this letter lriginasted beeaus

uncertainty resulting from currency devaluation by the British G

ernment and other governments But the fact that an ftl6ial 

valuation by the Britlsh Government may have triggered the asdop

ofthe staff letter or the phrase itself does not standing alone estab

that the approved phrase Was intended to apply in the case of 

United States only to devaluations authorized by the Congre

Neither Conference nor Hooring C1 unselllddressed themselves Ol 

mitted affidavits to establisl twhat in fact wasin the contemplatio

the Commission itself when itapproved the specific phrasethat is 

the specific question whether the Comnllssionapproved the phras

applying only to Cbngression ftny approved devaluati Oll or whe

the Commission approved the phrase as applying to any devalua

by or flowing from governmental action s That faiIll1e may have 

sulted from an absence of any dooumentaTY record in tbe files Qf 

commlttlnlf till al ver nment to a treaty wJtI1 a forelgll countr Is v lIted III the S

us Const Art II Sec 2 ljeverthele8fl tlIe Pre llIent acting without the advic

consent of the Senate bas entered Into many international Executive Agreem nts w

wnUe binding en this government do aot aohl the status of a treat v and lUay be 

by ome to Infrlng upotbe Senate onstltuUlllllIl power ov rtroaty making 

oomulM Of UIIl 6 S o 0 mll A II848 and n

ertir ttJIIM US 

Pl

tlng Omee Ul64 I

484 t

fl

Swlf 00 11 PMO 80 F 2d 277 281 DC Clr 19621 The Commls lon lUn

gioven refIODable Jeewap indeJlneatlng the Soope of theagreement and ttletet ethe e

of its prl r 8lPPro l

We are h re dealing with the interpretation of acommerclal document The parl

bus1l1essmell may comllel a broad lnterpretotlon thlln might iKl the oa e If we 

Interpreting a

dOOUl entexchallaed on the level between the lJ S Irrea ury and the I

national Monetary Fund

Allldavlt of WliU m Levenst lnatmched to Brlsf fHearing Coun 1 to Rllapont

Memorandum of Law Thf letterw wrltten despite the a tlon ot tho COIUIUI slon 

on December 21 1967 OPPro1lng the rate Increa e

by NAWFA where the Shippers 

Agreement contained a force majeureclause butwith no rretezenoe to devaluattoUII as 

Only the Congr l8l may autl1orl cllanllloln th 1HU value of tho dollar US Qon

wn article 1 Section S Clau e 5 S ctlonlli b Bl e ron WooAgr n AO 22 

28lle

Tile sct lon ot tha Pr s1dollt on Augu t 15 11171 In dl contlnuUlIl 1l0Id llaYIU nts fo

practical purpo may have constituted a de tacto devaluation ot the donar by go

mental actton for It permitted the dollar to float In terQlB of other major curren

seeking Its own value on the open mark t Th Smlth onlan Agreem nt ot DecelUb 

1971 between the President and the Group of Ilen tor aU practical purllOmay 

amounted to a de facto devaluation of the doUar 1Iy gov rnlUental aotlon H nce depen

on how the pertln nt phrase Is to be construed w mll7 haTe II factual B1tuatlon whlo

fact ju tlfled and validated the tarur filing which was relectsdby ths stollon Decembe

1971 and by theComml lonon January 11 1972

16 FM
AUSTRALIAU S A ANTIC AND GlPLlr CNFERENCE 85

Commission or may have resulted from failure to make a

thorough

search of the recorda o

The District Court lInd Hellring Counsel suggest that the phrase

should not be interpreted as meaning other than de jure or Congres

sional devaluation because 1 for eign governments frequently take

action affecting thevMue of their currencies 2 If any governmental

action affecting valuation of the U S dollar were enough to justify

shOlt notice rate increases shippers oould conceivably be buffeted by

any number of 15 dlly

notice rate increases lInd 3 it is questionable

that the pll rti es would have agreed upon or the Commission approved

a rate agreement which could have been so easily and often changed

on short notice 11 The rev erse of that coin means that it is perfectly

OK for the carriers to be buffeted about by devaluations which could

have been so easily and often changed on short notice The Court s

statement relative to Commission non approval is self serving and not

supported by anything in this record The foregoing contentions are

but arguments used to buttress an interpretation not sound deter

minations of the basic intent of the phrase itself as based on proper

evidence culled from records at the Commission

The only pertinent facts of record presented to the Commission by

Hearing Counsel relative to interpretation of the phrase under con

sideration are contained in the affidavit of William Levenstein Ap

pendix to Reply of Hearing Counsel to Respondents Memorandum of

Law That affidavit is of littlehelp in providing the facts establishing

what was intended by the pertinent phrase or why the more precise

phrases de juredevaluation or official devaluation or devaluation

by the Congrea s were not used In our deHbevations in tihe instant

proceeding we had before us the rejection telegram of December 23

1971 which recited in part Notwithstanding recent governmental

agreement to revalue certain currencies including US dollar US

Government has not yet officially devalued hence Article 23 b not

presently applicabIe Based on said telegram and affidavit Hearing

Counsel contends that the pertinent phrase applies only to official

JO My CWn l1mited research of Commtssion files uncovered a letter florn William Leven

stein to Mr Jack L WLlson aated Setember 20 1968 Attached Appendix A That

letter is indicative of the Commission statr s then interpretation of the phrase under

COD1dderation and appears broad enough to encompass revaluation of the Australian dollar

on December 22 1971 and at least arguably de facto devaluation of the US dollar due

to the actions of thePresident on August Hi 1971 and December 18 1971

11 How do such statements squRre witb the fact that this Commission heretotoreapproved

the following phrases in Shippers Rate Agreements

a currency devaluations Conference agreements 8220 5660 9 615 and 9616

b in the vent of a devaluation of at least 5i in any of the currencies capable

of being used for the payment of freight as compared to other such currencies

Conference Agreement 5850

c currency devaluation by any government Conference Agreements 7100 7670

7770

16 F MC
36 FEDERAL MARITIME COMMISSION

devaluations which I

interpret as being synonymous with de jure

valuation that there wasno official devaluation at that time bec

the Congress had not acted and that the phrase did not apply to 

devaluation which existed as a result of the action of the Pres

and theGroup ofTen on December 18 1971

On the limited record in this docket IfLm unable todetermine to

satisfaction whether the Commission intendedtoapprove the perti

phrase as applying only toCongressionally approved devaluation

whether it intended to approve the pertinent phrase as also app

to fact situations wl1ich included de facto devaluations by or resu

from governmental action Hence absent satisfactory proof of 

intent I would construe the pertinent phrasestrictly adversely to 

Conference and as applying only to Congressionally approved 

valuations of the dollar To me such construction results not from 

interpretation based on an evaluation of all the surrounding circ

stances but rather from a default in production of evidence

SEAL FRANCIS C HURNEY

SeJteta

APPENDIX A

SEPTEMBER 20 19

AI7 91 57 D R 32 B

Mr JACK L WILSON

Weil Brother8 Gotton Inc

MontgOOleT lAla 86104

DEAB Ms WILSON Reference Is made to your letter of September 17 

written In your capacity of Chairman Transportation Insurance Comm

American Cotton Shippers Association concerning the Pacific Westbound 

ference s Notice of Amendment to Shippers RateAgreement dated August 5 

To recapLtulate brletly lIhe proposed modification would establish curr

devaluation by governmental action all a force majeure circumstance var

Ing either a

suspension at the contract system by the carriers pursua

Article 13 a of the Agreement or b an Increase in freight rates on sh

ten

notice provided for In Article 18 b

While we do not profess to Ie

intimately versed in all the complexit

International financial transactions our expectation is that a devaluotlon o

franc or pound sterling would not directly atreet rates estabHshed by the 

Inasmuch as the Conference s rates are quoted In dollars and all goods 

services necessary to the operation and maintenance of steamship service

paid for with dollars here yen In Japan pesos in the Philippines and Hong 

dollars there There might be an indirect affect depending upon what ac

1

A contract susceptible to two constructions by reason of uncertainty as to the me

of amblguou language hould be construed agaln t the party by whom or In who e b

the contractwaoprepared 17A aJ B aOfltrOot ec 324 page 217

16 F M
AUSTRALIAU S ATLANTIC AND GULF CONFERENCE 37

these governments take to counter the impact of any devwluation of the pound or

franc This wouid deP lnd upon the importance of the BritiSh or French markets

and or reLIance upon British or French goods A devaluation of the Japanese

yen Phflippine peso or Hong Kong dollar would probably have no effect upon

Conference rates forthe slmple reason that the American doHar would have

appreciated in terms of those currencies ie anAmerican dollar can be exchanged

for more units of the local currency Conversely should either the yen the

peso or the Hong Kong dollar be appreciated by governmental action the

American dollar will have been devalued in effect and undoubtedly the Con

ference would probably seek to adjust its freight rates to account for the fact

the American dollar no longer commands the purchasing power of other cur

rencies to theextent enjoyed in thepast

Insofar as the mechanics are concerned we interpret devaluation by govern

mental action to mean just that that the responsible financial Institution of

any of the various governments would make an official pronouncement to the

effect that the value of its currency has been altered On this basis and only on

this basis would the Conference be free to resort to the options provided for in

its Shippers Rate Agreement

We hope that the foregoing Is helpful If we may be of further assistance

please do nothesitate to contact us

Sincerely yours

S William Levenstein

WILLIAM LEVENSTEIN

Ohief Office of OMrier Agreements

Foreign Oommerce Bureau of Oompliance

16 F M C
FEDERAL MARITIME COMMISSION

VASHINGTON D C

SPECHL DOCKET No 441

CONSUL GENERAL OF INDONESIA

V

XEDLI OlD INC

GENERAL AGENTS FOR HOEGH LINES

KOTICE OF ADOPTION OF INITIAL DECISION AN

ORDER PERMITTING REFUND OF CHARGES

Adopted September 20 1972

No exceptions having been taken to the initial decision of the 

siding judge in this proceeding and the Commission having d

mined not to review same notice is hereby given that the in

dedsion became the decision ofthe Commission onSeptember 20 1

It IS ordered that applIcant is authorized to refund 20168 2

the charges previously assessed the Consul General of Indonesia

It is further ordered that applicant shall publish promptly i

applOprillte tariff the following notice

Notice is hereby given as reqnired by the decision of the Federal Mar

Commission in Special Docket 445 that ellective June 30 1972 the arb

charge for Rice inBags to Balik Papan ports for purposes of refund orw

of freh ht charges on any shipments which may have been Shipped du

the period from June 30 1972 through August 8 1972 Is 3 00 metric ton su

to all nppllcable rules regulations terms and conditions of said rate and 

turill

Itis further ordered that refund of the charge shall be effectu

within 30 days of service of this notice and applicant shall within 

days thereafter notify the Commission of the date and manne

effectuating the refund

By the Commission

SEAL FRANCIS C HURNEY

Seoretar

38 16 l
16 F MC 39

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 445

CONSI i1GENERAL OF INDONESIA

V

NEDLI OYD INC

GENlRAL AGENTS I OR IIOF OJl LIKES

Respondent is permitted to refund the sum of 20 168 25 as part of the freight

charges previously aSlessed and collected

M S Albe ga for respondent

INITIAL DECISION 01STANLlW M JlEVY

PRESIDING TUDGl

Nedlloyd Inc General Agents for Hoegh Lines respondent has

filed an application to refund to the Consul General of Indonesia

complainant 20 168 25 being a portion of the freight charges ag

gregating 102 797 87 on ashipment ofbagged rice weighing 6 636 257

pounds from Mobile Alabama to Balik Papan Borneo under a bill

of lading dated June 30 1972 aboard the MS Hoegh Pri d6

The rate applicable at the time of shipment was 23 7o Metric Ton

including 4 percent currency adjustment charge Basis onc load

port one discharge port Indonesia plus 35 for each additional port

used For West Irian ports and Balik Papan arbitarary charge

9 00 Metric TonThe aggregate freight charge applicable and actu

ally collected was 102 797 87

Pursuant to a tariff filed by respondent effective August 8 1972

Hoegh Lines Atlantic Gulf and Great Lakes Indonesia Singapore

1

This decision became the decision of the Commission Sept 20 1972

2

Hoegh Lines Atlantic Gulf and Great Lakes Indonesia Singapore Malaysia and

Thailand Freight Tarl No 1 F M C No 12
40 FEDERAL MARITIME COMMISSION

Malaysia Freight Tariff No 1 F M C No 12 21st Rev p

80 

basic rate remains unchanged but the Balik Papan arbitrary 

duced to 3 00 Metric Ton Under the new tariff the aggregate fre

charges for this shipment would amount to only 82 629 62 Iti

difference between the 102 797 87 previously applicable and 

82 629 62 that is sought to be refunded

The reduction in theBalik Papanarbitrary from 9 00 to 3 0

metric ton is requested because of an administrative error in filin

earlier tariff at 9 00 per metric ton Theearlier tariff should have 

filed at 3 00 pel metricton which is the prevailing standard arbi

charge for thisport 3

Section 18 b 3 of the Shipping Act 1916 as amended by P

Law 90298 75 Stat 764 provides that the Commission may i

discretion and for good cause Rhown permit a common carrie

water in foreign commerce or a conference of such carriers to re

aportion of freight charges where it appears that there is an err

a tariff of a clerioal or administrative nature and that such w

will not result in discrimination among shippers The opplication 

closes a set of fact and circumstances which fall within the pur

and intent of the statute Having complied with the requiremen

the staute and good cause appearing applicant is permitted tore

tothe Consul General of Indonesia the sum of 20 168 25 The n

of waiver required by the statute shall be published in the approp

tariff

S STANLEY M LEVY

Pre8idiJng Jud

See pare 162 slxtb revl ed YO lUDe 16 1972 AtlaDtlc aDd Gulf IDd

Coaterence Frel cbt Tarltr No 14 Il MO3

16 
sut FRANCIS C HURNEY

Seoreta r1f

41

FEl9EHAL MARITIME COMMISSION

DOOKET No 714

UnTED STATES OF A RICA

V

F ARREm fINES fNORPURATED

ADOPTION OF INITIAL DECISION

Novemli ff 11 1912

This proceeding is before us on exceptions to the Initial Decision

of Administrathe Law Judge Herbert K Greer served July 12 1972

in which the Administrative Law Judge concluded that complainant

United States ofAmerica failed to adduce sufficient evidence to indi

cate with reasonable cerlainty that a

shipment of plastic pipe from

Bayonne New Jersey to Freetown Sierra Leone should have been

rlI IledIlB plumbingsuppliM N O S and accordingly denied reparation

C Jl13iinan6 s atgl1ments on exception to the Administrative Law

Judge s Initial Decisill lltle essentially a restatement of its case in

bl iej

Riesf lld l

tl has I

elied tlo those arguments

Upon review and careful consideration of the entire record the ar

gument1s un llxcepiiion and the specific allegations of error raised by

clkimant ai8 well as respondent s

reply we conclude that theAdminis

trative Law Judge s factullll findings and his conclusion with respect

thereto are supported by the record and correct We therefore adopt

the Initial Decision as our own and make it a part hereof Accordingly

the complaint is hereby dismissed

13y the Commission

16 F MC
FEDERAL MARITIME COMMISSION

No 714

UNITED STATES OF AMERIOA

v

FARRELL LINES INO

Shipper having failed to adduce evidence sufficient to Indicate with reaso

certainty that a shipment of plastic pipe from Bayonne New Jer8e

Freetown Sierra Leone should have been rated as plumbing supplies N 

reparation denied

ThomUlJ L Jones for complainant

ElmeT O Maddy and Baldwin EinaTson for respondent

INITIAL DECISION OF HERBERT K GREER

PRESIDING EXAMINER 1

The United States of America complainant represented by 

Department of Justice seeks to recover reparation in the amou

22 586 29 plus interest from Farrell Lines Inc respondent a

ing an overcharge on a shipment by complainant s General Ser

Administration GSA from Bayonne New Jersey to Free

Sierra Leone in violation of section 18 b 3 of the Shipping 

1916 theAct The parties filed opening briefs and though resp

ent filed an answer brief complainant did not

THE FMlTS

1 Respondent is a common carrier by water between United S

Atlantic and Gulf ports and various foreign ports and at ma

times was a member of the American West African Freight Co

ence the conference

1

Tbls dsclslon becams tbe decision of tbe Commission Nov 14 1972

42

16 F 
UNITED STATES OF AMERICA V FARRELL LINES INC 43

2 On May 29 1967 complainant s Agency for International De

velopment AID issued to GSA a Project Implementation Order

Commodities in connection with its Rural and Community Develop

ment Program in Sierra Leone requisitioning commodities which

included

Items 1

through 16Plumbing items for village water systems

plastio items

Items 1

through 4 were Plastic tubing 100 coil and the remaining

items werenylon tees elbows and couplings

3 On March 5 1968 a contract was awar ded to PrecisionPolymers

Inc for the furnishing of Pipe Plastic Polyethylene

4 On or about November 31 1968 GSA delivered to respondent

at Bayonne New Jersey certain of the articles which had been pro

cured for shipment aboard respondents SS Afrioan Glade to CARE

Warehouse Freetown Sierra Leone and prepared a bill of lading

which described the shipment as 213 crates PlasticPipe measuring

57 362 cubic feet and weighing 151 503 pounds Atthe time ofthe ship

ment no other information of the character 01 intended use of the ar

ticles shipped was made available torespondent orits employees

5 There having been no item in respondent s tariff describing plastic

pipe the rating clerk applied the Cargo General N O S rate of

64 50 per 40 cubic feet

6 The bill oflading was marked prepaid but respondent submitted

its voucher to complainant for 93 398 18 on December 2 1968 and

prior toaudit and on January 15 1969 complainant paidthat amount

7 Subsequent to payment and after the shipment had left the cus

tody of the carrier complainant s auditors found in the tariff a rate on

Plumbing Supplies N O S of 48 75 per 40 cubic feet and on Sep

tember 30 1969 issued to respondent a Notice of Overcharge which

was not recognized by respondent as justified

8 The shipment consisted of two inch polyethylen l

PBC poly

vinyl chloride semi rigid in 100 foot coils and intended for use as a

plumbing item in a village water system The parties by stipulation

adopted this description

9 The description of the commodity upon whichthe requisition was

basedan d as set forth in theGSA stock catalogue furnished for guid

ance to government agencies in submitting requisitions to GSA was

PLASTIC TUBING 1 Corrosive resistant polyethylene plastic pipe Use

above or below ground for cold water lines nontoxic Imparts no taste to

liqulds safe for drinking water Has NSF approval May also be used for elec

trical conduit sprinklers pump Installations air conditioner water lines irri

gation and host of other uses Unaffected by freezing or sunlight It slight

16 FMC
44 lIEDERAL MARl DIME ClOl itMIIil illON

welght aIlOUt one elghth weight of conventlODllpjpes Cuts eAlsll8 With lln 

handsaw Jolns readily with Insert fittings listed below 100 teqt coils Int 

Elpec L P3111a

of

j

1

47107561206 2

10 The conference turiff provided rates for pive cement asb

cement vitrifiea as well as for steel pipe with colt tar felt plast

other wrapping and steel pipe cement coated also rates on p

ethylene bags at 64 50 per 40 cubic feet and on polyetlJiyltl11e film

sheeting at 56 75 per 40 cubic feet No specific itltm d6ll11ribed pl

pipe

11 The tariff provides a rate of 48 75 weight 01 meailurem

under the general heading of Plumbing EquipmQnt llnd Supp 

Item 1647A and specifically names the following itllmS

Bathtubs Sanitary ware

Bidets ShowQr StIllls

Bowls toilet Sinks

Lavatories Tanks toilet

Lavatory trays Tubs Bath Non collapsible W

Plumbing supplles N O S Urinals

12 Under the heading Tariff Rules and Regnlations Qlig

page 8 paragraph 1 g the taTiff provided

Articles not specifically provided for herein will be freighted at the 

named In the classification of Cargo General N O S

1

DISOlJSSION

The issue is whether respondent in charging and collecting 

64 50 pel 40 cubic feet rate applicable to Cargo General NO 

instead of the 48 75 per 40 cubic feet rate on Plunihing Sup

N O S violated section 18 b 3 of the Act which provides

No common carrier by waterilL foreign conllnerceorconterffiCQ ot s lbt ca

shall charge or demand or collect or

recelve

a greater or 1ess or dlJ ferent co

sation for the transportation of property or for any service In connection 

with than the rates and charges which are specified in Its tarMf on Ale W

Commission and duly published and In eflect at the time

Itis complainant s position that

lherecan be no doubt that under the evidence presented III this case tll

item shipped can reasonably be Identified by the tarlll description plu

supplies N

O

S It Is a

commonly known fact that plastic PlllyetbyJeae 

has been for many years wldelr used as a plumbtag Item Ln homes am 

internal water systems Further the description and picture cotalned 

GSA catalogue upon whleh the original AID request was based clearly M

lies this Item as falling within the description Ilf plumblng supJlIles N 

W F 
UNITED T Al1ES OF MBBI 4 V FM ELL LINES INC 45

intended me whleb may also be consldeled fUitber supports its ilentiJicatlQn as

a plumbing sullply

Respondent conrends th t complainant has not met the llJulden of

plomto demQnl ltraka violation citing Oolgate PI

lmwlive PeetOom

papy

fJ Unit6a IFruit Oampany Pooket No lW I llwed SePtem

bel 30 1970 wherein it was abated

Fhe empbasis in terms Qf evidenco hasbeen in setting fOFth sufficient facts to

indicate with reasonable certainty or definiteness thl validity of tbe claim

OlaiJllS lnvQlvlng allege er ors Qf welg 1t measurement ordescription of neces

sity Involve heavy burdens Qf proof once the Shipment in qpestion has left the

custody of the carrier

In a reeent report Ooean Freight Oonsultants lno v

ltalpaoifio

Eine Docket No 11 81 15 F MC 312 served June 20 1972 it was

held

The Importance of declaring in bills of lading the correct description of the

IllJO sllippe canoot Jle pveremphasw ed i

he carrier has a right to elpect that

a

iiIPIlr will IIrQperly Identify tbesblpment The shiPPer similarly has t1e

right to expect the carrierto charge the proper rate for tlleMtlJal goQ4s cnried

Where a mistake occurs the party who commits it has theheavy burden of proof

to sUFport aclalm for rectification

The evidence presented by complainant consists of documents rellJt

ing tothe requisitioning and procurement ofthe article shipped AID

re uisitioned Plumbing itpms for village water systems plastio

items which were intendedfor use with potable water in connection

with the Rural and Community Develqpment PrRgra ll in Sierra

Leone A contract was aWlrd fqr Ptpe PJ tic PolyethYle e 2

inches in diameter The picture in the Gi3 at logue

Jlpon which

the requisition wasbased portrays a coil ofplasticp peun ir the head

ing

of Plastic Tubipg a d re a to a

dl lS J iptjpn ofthe pjpe or

tubing as for use above or below ground for cold water Jinl lS nd a

host of other usea See Finding of Fact No 9 The description of

the shipment on the billof lading prepar d by cOllplail jtnt is PI stic

Pipe The argument that it is commonly know u that such pipe is

widely used ag a plumbjng item in intemal waj er systems is not re

Iated to 2iuch pipe whieh respondent llorgyes ilot used in oonne tion

witlvtlle itemstlpeeifically named in tariff item 1647A seeIFindingof

Foot No l1 which require oonnections Yf smaller dia ter No evi

limce was adduced to Bupport eitherargum0llt N itheris addressed

to COOlmcm luw wle lg ilather to plumbing expertise 1100 term

lpbIm illg aRPearsqnly iwthe requisitiGn

Jomplainant iting Watiorwl Oable and Metal Oo v American

HtllWaiia t

SS Oo 2 U SJtIf C 1 473 1941 ifohmManvilk PlO

uctS OlJ lp

1 F C lliI21 1lYlVnitedStaUB v Strickland lmnsp

lI6 FJtC
46 FIDDERAL MARITIME COMMISSION

00 200 F 2d 34 235 5th Cir 1 52 and 001 nProdUcts 00 v H

burg Amerika Lines 10 F M C 388 1967 contends that the evide

demonstrates that the plastic pipe may be reasonably identified by 

description set forth intariffitem 1647A PlumbingSupplies N O 

which is more specific than the general cargo N O S item and w

more precisely describes and betterfits the shipment

In Nati01wl Oable and Metal 00 the frequently applied rule 

tariff interpretation wasestablished p

473

In interpreting a tariff the terms nsed must be taken in the serse in which 

are generally nnderstood and accepted commercially and neither carrlllrs 

shippers should be permitted to urge for their own pUrPoses a strained and 

uutural construction Tariffs are to be interpreted according to the reuso

construction of their language 0 0 o A proper test is whether the article m

reasonably identified by thetariff description

In applying the rule the factual situation found wasthat p4

Compainant s testimony and exhibit admit of no dispute that the art

shipped were parts or equipment of metal for self propelling vehicles w

nrenot otherwise specified in the governing tariff

National Oable and Metal 00 was concerned with the applicatio

tariff items other than general cargo N O S as was United State

Stlickland COl llProducts involved the application of rntes on 

diments N O S Onions N O S or General Cargo N O S 

commodity being dehydrated onion powder Itwas found that as 

soning onion powder is unquestionably a condiment In these 

ceedingS as well as in Johns Manville Products dictionary definit

were resorted to in order to determine the nature of the commo

shipped that is whether the commodity could reasonably fall with

specific tariff item

Plumbing as defined in lVebster s Third New International 

tionary is

o 0 0 plumber s work the pipes fixtures d otherapparatus concerned i

introduction distrilmtlon and disposal of waterin a building 0 0 o

The tariff item complainant would have applied is hended Plum

Equipment and Supplies Dndei that heading specific articles 

named all cleadyfor indoor construction The inclusion of the t

Plumbing Supplies N O S must reasonably be considered as r

ing to articles having similar characteristics Norris Stamping M

00 v Pennsyl Qaia R 00 259 IGC 593 597 1945 The burde

on complainant toestablish that the plastic pipe shipped may rea

ably be included in the tariff item Thcfact that the individual 

paring the requisition used the Fcrm plumbirtg supplies with

more wouldMt conetituteproof that the plastic pipefell within 

16 F 
UNITED STATES OF AMERICA V FARRELL LINES INC 47

category nor would the description in the GSA catalogue which

demonstrates that the pipe is for use above orbelow ground in connec

tion with cold water lines and many other uses including those ob

viously not properly classified as plumbing such as electrical conduit

irrigation and sprinklers satisfy the burden ofproof

Complainant relies on Johms jJ anmille Products to support the pro

position that the intended use ofthe commodity shipped may be con

sidered as reasonably identifying it as plumbingsupplies Inthat pro

ceeding the Commission noted the Interstate Commerce Commission

decision in Kelly Pipe 00 1 AlIw1 ieltn Hmoaiian S S 00 286 IC C

328 1952 which stands for the proposition that it is the nature or

character of a commodity not its use which determines the applicable

rate Itwas found unnecessary to apply that concept because

according to dic tionary definitions the tariff terms considered conIdbe

used interchangeably with the comlllodity desCl iptions and that the

IC C rule

only comes into play when it is not clear whether a commodity would be

carried under a specific description or when there aretwo rather specific descrip

tions under which the commodity mi ht he curried and it must be determiufd

which is more applicahle page 195

InKelly Pipe 00 reference to the nse of an article wasnot completely

rejected Itwas held

While eYidence of the UHf for which articles were purchased and the use to

which they were actually put Illay properly be considered in determining the

nature of the articles uch l idence is not the controlling factor where the

articles clearl comE within n description cOlltahlPd in the applicable tariffs

page 330

The evidence relating to the use of the plastic pipe shows that it was

intended for use for village water systems in connection with the

AID Rural and Community Development Program in Sierra Leone

Whether the water system included indoor construction and could rea

sonably be considered as plumbing was not established On the con

trary the testimony of a witness familiar with rural Sierra Leone

renders doubtful that plumbing is found in such rural areas Thus the

evidence concel lling the intended use oftheplastic pipedoes not satisfy

the burden of proof that itt was in the category ofplumbing supplies

that is that it was concerned with the introduction distribution and

disposal ofwater in a building

The principal distinction between this proceeding and Johns Man

viIle Products and Oorn Products is that the terms plastic pipe and

plumbing cannot be used interchangeably as were the terms of the

tariff and the bills oflading in those proceedings Nor may it be found

16 FMO
48 FEDE RA MARITThm COMMISSION

that pl8 ltftc pipe is iIiiqueaeionalUy a pliilrtbing 8uP111y PIastic

hara host l

dlnaes In United States Ii St1 io1cVa nd 8ttp Plli tIli C

refitsed toconsider lts elntI6lling ehe evitlilllce whilJhshowed wha

article iliight well Be used fui JlIOWeverj hi that case tJhere W

tariff item which defitlitllly described the ttlicle slUpped which is 

the situation liete Corti lainant dblis nbli contend that artBigui 

respondent s taritf is an issue

Respondent further defends on the grollnd tfuat cothplhinant fA

to exerciSe reaSbnable diligence in describing the shipment In 

Frf3ignf Oorl8uZta nt8 I1w vltialpaeifib lAM 8lWl J empliasis 

pUtced on the impottartce of dilclitring ebe ctIlect dmription 

shipment in the iU of lading and iti was found tl1at tHe carriet 

right to expect a shipper fa properly idill1tify the slHpirtent See 

ErnOa 88Y lYltit1ibntingOo Ind v Wf38tern Ia1 loJit1 go 2801 F 

229 232 1951 1 illite the slHpmetie was noe hlcorrectil d s ribe

plastic pipe The complainant as a

shipper was on notice of tihe 

visions ofthe tariffand should have been awwrethat itdidnotpro

a rate OIi such pipe StkntrSiOU Jj OOrp v OlltlcagocfJ No ftli W68

By 0 262 F 2a 474 476 8th Cit i9l59No atfempt was m

de

have the tariff amended to include a specific rate on tlie commod

RespondentJ s rating clerk was not negiligeI1tl in applyiRgtlhe tat

general cargo N O S as there was no item describjI1 nDlasliic Jlip6 

the tariffrequired that articles not specifically described therein w

be classified as Clllrgo GeReral N O S Under the cireums tance 

appearirtg applicatioll of the raw ort plumbing slippHes would 

been coIitrli1y

jjo the tari fP

ULTItiTE CONOll1lfSION

Complainant has not adduced suffiCient evidence to iI1Hcate 

reasonable certainty tliat the plastic pipecarried by respondent sh

have been rated as Plumbing Supplies NO S

Reparation denied

8 HERBERT It GREER

P168idmg 

Re8pindlllit clt 17rildri oowca e Por llllos LUl DOcket No 2411 1 JllitliD1lnilli

slon wherein It was beld that the failure o l11e shipper to atate on a bill of l

characteristics of Ii commodity partiCUlar wttiiln Its kliowledge barred relief i

proceeding Is pending review by the Commission It Iii b llOdsllletild1q pleCtfdebt 

Inaofar as confirmed by Qoean Frelghr Oonsultants whiCh plaee responsibility o

aillppedo properl fdl crlbe tlie sillpmetit

ItIs tioted tlilit tlie cbtifetedoe tarid ilreilenllili ptllvllli s It rate of iI cro 4 

feet on plastic pipe shipped to range 2 the rang soutb of Sierra Leon

There aYe polyethYle e lirt clos d scrllled Iii tlie tarlbut tliere is no contentlon 

they ntbr 61 ornlbr prllelsel dilllcrl1ietlie sHlpmedt

1S I1 
FEDERAL MARITIME COMMISSION

DOCKET No 70 14

MCCABE HAMILTON RENNY CO lim

v

C BREWER CORP D B A HILa TRANSPORTATION AND TERMINAL Co

November 17 1972

ADOPTION OF INITIAL DECISION 1

By THE COMMISSION Helen Delich Bentley Chairman Ashton C

Barrett James V Day Commissioners

This proceeding is before us on exceptions to the Initial Decision

of Administrative Law Judge John Marshall served February 2

1972 in which theAdministrative Law Judge concluded that McCabe

did not demonstrate by substantial proof that HT T s practices of

self preference and allocation of its work force subjected McCabe to

undue or unreasonable prejudice or disadvantage Further the Ad

ministrative Law Judge found that the record did not reveal any

impropriety in the formation of the rates used by HT T for its labor

loans toMcCabe so as to violate either section 16 First or section 17 of

theShipping Act 1916 46 U S C 815 816

McCabe excepted to the Initial Decision while HT T

supported

theAdministrative LawJudge s position

These exceptions fall into three distinct categories The first is a

disagreement with the Administrative Law Judge that there is no

evidence of record to substantiate that McCabe is unduly prejudiced

by HT T preference of cargo which is shipped by companies con

trolled by C Brewer Co parent company of HT T The second

1Commissioner Clarence Morse did not participate

2

Subsequent to the issuance of the Initial Decision the title Examiner was changed

to Administrative Law Judge

16 F MC

49
50 FEDERAL MARITIME COMMISSION

relates toHT T smonopoly of the work force which McOabe al

has deprived it from effectively competing with HT T at Hilo 

third is directed at the method ofascertaining HT T s overhead 

labor loaned to McCabe devised by HT T and approved by the 

ministrative Law Judge whereby the 2 00 per hour overhead is j

fied on a cost basis McCabe contends that because it uses its 

equipment and provides its own supervision it cando theSllllle lim

services performed by HTTfor 0 25 per hour

We find that the exceptions of McCabe are essentially a

reargu

of contentions which were exhaustively briefed and considered by 

Administrative Law Judge in his Initial Decision Upon careful 

sideration of the record the exceptions briefs and argument of c

sel we conclude that the Administrative Law Judge s factual find

and his conclusions with respect thereto were well supported and 

rect Accordingly we hereby adopt the Initial Decision as our own 

make it apart hereof

Vice 0 hai1man GEORGE H HEARN concurring and dis8enting

I

agree with the conclusions ofthe majority report except as t

level ofthelabor loan rates

The majority adopts the Administrative Law Judge s

finding 

the 58 38 or 2 00 per hour overhead charge by HT T is just

On the basis of the facts of record the overhead cha rge appears 

prima facie excessive and necessary of further proof

The industry rate in Hawaii forthe laborloan administrative ch

is only 3 The substantial disparity between this 9JIlount and 

chargedby HT T indicates the need for further evidence as towhe

the 2 00 rate is reasonable

The centralquestion on this issue is whether the charge levi

reasonably related to the service rendered Volk8wagervwerk v F

390 U S 261 282 1968 On the evidence in this case it is impos

to determine whether the 2 00 per hour charge meets thllit test

According tothe computations ofrecord there is insufficient sup

for respondent s allocation of its costs to its specific labor loan a

ties Witnesses who were employees of respondent were unab

specify the portion of respondent s total resourceswhich were us

the labor loan functions Furthermore it appearsthat the labor 

activities were but a small portion of respondent s overall busi

thereby causing considerable doubt as to the reasonableness o

practice of HT T in charging fully allocated costs to McOabe

In addition HT T cannot as it appears to have done justif

labor loan rate on the ground that HT T would have made 

money if it had not engaged in labor loaning Notwithstanding 

16 F MC
16 F MC

MoCABE HAMILTON RENNY CO LTD v 51

C BREWER CORP D B A HILO TRANSPORTATION AND TERMINAL CO

circumstance respondent is bound to maintain just and reasonable

practices and to assess charges reasonably related to the service

rendered Pittston Stevedoring Oorp v New Haven Terminal Inc

13F M C 33 434 1969

Consequently Iconsider the record before us to be inadequate as to

whether HT T violated sections 16 or 17 with respect to the labor

loan rates Iwould therefore remand the case to theAdministrative

Law Judge for the taking offurther evidence on thisissue

SEAL FRANCIS C HURNEY

Secretary

FEDERAL MARITIME COMMISSION

No 70 14

MCCABE HAMILTON RENNY Co Lrn

v

C BREWER CORP DB A HILO TRANSPORTATION AND TERMINAL Co

Respondent not found to have been in violation of sections 16 First or 17 of the

Shipping Act 1916 1 unduly or unreasonably preferring itself in labor

loaning 2 in failing to reasonably share thelabor force with complainant

on an equitable hasis or 3 in assessing excessive overhead in labor loans

Complaint dismissed

Clarence Morse and John Jubinsky for complainant

O Jepson Garland for respondent

INITIAL DECISION OF JOHN MARSHALL PRESIDING

EXAMINER 1

Complainant McCabe Hamilton Renny Co Ltd McCabe and

respondent C Brewer Corporation d b a Hilo Transportation and

Terminal Company HT T are corporations organized and exist

ing under the laws oftheState ofHawaii Complainant does notmain

tain terminal facilities at any island port but rather is a travelling

stevedore furnishing contract services to common carriers by water

1

This decision became the decision of the Commission November 141972

2 Hereinafter the term stevedore refers to stevedoring companies or collective entitles

notindividuals
52 FEDERAL MARITIME COMMISSION

where they berth These services include tieingup vessels discha

and loading cargo sorting cargo on the docks connecting hoses f

and molasses and delivering cargo to consignees HT T furn

terminal facilities in Hilo including abulk sugar elevator leased 

Matson Navigation Company Matson This consists of four 

silos that receive sugar from six plantations This is the initial 

for loading sugar on common carriers by water by a

conveyanc

tem at the pier

McCabe alleges that HT T in its operations at the Port of 

has been and is inviolation of sections 16 First and 17 of theShi

Act 1916 the Act in preferring itself in labor loaning in fa

to share the labor force with McCabe on an equitable basis a

assessing excessive overhead on labor loans HT T denies McC

allegations adding that the complaint fails to comply with the p

sions set forth in46 CFR 502 44 having failed to name as respon

all necessary and proper parties and finally to the extent repa

is sought that the cause of action did not accrue within two 

nextbefore the filingofthe complaint

THE FACTS

1 In the State of Hawaii all longshore laborers are membe

the International Longshoremen s Warehousemen s Union 

No 142 hereinafter the union There are no hiring halls as o

mainland and employment is dependent upon collective barga

with the union and the resulting agreement between the stevedo

the union recognizes that the longshoremen are employees ofthe

dore The agreement relates only to the conditions or the longs

men s employment

2 The longshore workforce in outer ports in the State of H

is customarily employed by one stevedore A stevedore who co

the entire local labor force understandably prefers its regula

tomers over others wlere the work exceeds the capacity of the 

shore workforce Conflicts in requirements for longshoreme

avoided to a considerable degree by virtue of the fact that ou

have only one deep water berth allocated for intrastate and fo

vessels and ship operators try to schedule to avoid a

rriving 

another ship is in port Furthermore stevedores tryto handle ILll 

expeditiously

3 Ordinarily when work exceeds the capacity of the work

of a stevedore the labor loan is resorted to as one expedient 

effective only if the lending stevedore has at least temporarily 

46 use 81G and 816

16 FMO
MOCABE HAMILTON RENNY CO LTD V 53

C BREWER CORP D B A HIT O TRANSPORTATION AND TERMINAL CO

plus longshoremen The borrowing stevedore pays the lending steve

dore the industry or reciprocal rate for loaned labor The Stevedore

Industry Negotiating Committee Agreement established the lndu8try

or reciprocal rate for labor loan as wages plus 3 administrative costs

where two 8tevedore8 wereewchanging labor

4 The labor loan on a reciprocal basis was understood to be ap

plicable only to exchanges between two or more stevedores each with

a workforce It was not applicable within any port in which there

was only one stevedore and one workforce Therefore at Hilo labor

loan on a

reciprocal basis is economically precluded Furthermore

in an outport where the workforce is at times inadequate evento per

mit labor loaning the stevedore who does not control the local work

force must bring in off island longshore labor gangs with consequent

added costs for transportation and maintenance

5 TIle financial burden of this situation was for a time eased by

the Wage or Workforce Supplementation Utilization Plan

WS UP which was established for the purpose of more economical

use of the Hawaii longshore labor foree under an arrangement

whereby employers of longshoremen would fly gangs from island to

island in order to distribute work opportunity more evenly among the

available workforce Travel costs weresegregated and charged against

theWS UP

6 Subsequently in negotiations with the union the stevedores

obtained agreement that the statewide work equalization program was

expensive and that its purposes were not being accomplished The

requirement of travel to equalize the work hours was contractually

discontinued in 1969 The result at least technically was that re

quired travel was for the account of whoever needed the men In

some instances however arrangements were made for sharing these

costs

7 Late in 1966 Matson awarded a statewide stevedoring contract

to McCabe whichthen succeededto the business oftheother stevedores

inthe ports ofKahului in Maui and Nawiliwili in KauaL McCwbe now

employs the entire union longshore workforce on those islands com

prising 50 men in Maui and about 34 in Kauai in addition to a force

of 350 in Honolulu In the Port of Hilo the longshore workforce

ranged from about 52 in 1967 to 44 in 1970

8 Before McCabe began stevedoring for Matson in Hilo HT T

handled this work However after the award of the Matson contract

to McOrube HT T remained in business to continue serving its other

customers and in so doing retained the workforce WhenMcCabe nego

16 F M C
54 FEDERAL MARITIME COMMISSION

tiated with both the local international representatives of the u

and the Hilo leadership first in an endeavor to employ all and t

after 55 percent of the longshoremen in Hilo it was informed 

its offer would be taken up with the membership As of the concl

ofthishearing therehad been no response

9 At about this time HT T increased its group life insu

benefits for longshoremen and wharf clerks from 3 000 to 1

The work opportunities for stevedores in Hilo is low The av

number of longshoremen on labor loan in Hilo is 12 to 14 men 

for about 26 days amonth In October 1968 Ma1 son changed 

application of demurrage charges and assessed demurrage as so

the vessel was alongside the dock Where there is an inade

number ofmen tosupply HT T s

requirements and McCabe s req

ments atthe same time if the HT T vessel was carrying FIO c

HT T wasobliged to prefer itself

10 In an FIO situation Ultramar the bulk fertilizer ship

or anyone of the half dozen shippers of bulk sugar pays for loa

and unloading until the cargo is delivered to the consignee In 

instance of bulk sugar H T has trained men who must be prom

employed Nevertheless HT T hasshared on numerous occasions 

they had twoshifts going requiringa total of35 men and the w

force was reduced by vacations and other circumstances to 40 

which left only five for McCllIbe

11 Further self preference wasexperienced by HT T in a p

of labor shortage during late December 1969 This was due to 

large bulk fertilizer shipments necessitating full utilization o

workforce by HT T Admittedly these were unusual or aggrava

situations The experience with respect to these fertilizer shipm

by Ultramar wasthat out of ten vessels worked by local people i

outport only two were handled in the entirety by the port workf

Duringother times outside people had to be broughtin

12 HT T s labor loan rates to McCabe have not been the in

try or reciprocal rate but ratherthe so called Schedule A Rate w

carries an overhead factor but no profit The overhead on labor 

by HT T to McCabe has beenapproximately 58 percent The fo

ing method which was unrebutted by McCabe was used in arr

at theoverhead rate The actualoverhead costs incurredby HT T 

ing the preceding year in its stevedoring operations were first 

puted From such overhead the administrative portion of the 

FIO cargo 18 tree In and out Thl8 mean8 It18 the re8pon81blllty ot the charterer to 

or the consignee to discharge the cargo tortheir respective accounts free of expense 

carrier

16 FMC
MoCABE HAMILTON RENNY CO LTD v 55

C BRiWER CORP D B A HILO TRANSPORTATION AND TERMINAL CO

ice charges made by Brewer the parent corporation were deducted

so that the resulting overhead included only that portion of the serv

icecharge incurred for direct services rendered to HT T Then HT T

computed the total man hours worked by its longshoremen during the

preceding year in its stevedoring operations categorized by the nature

of the work It then determined what percentage the man hours of

work allocable to labor loans to McCabe was of the total man hours

worked duringthe year The resulting percentage was then applied to

the overhead for such year excluding the administrative portion of

Brewer s service charge to HT T in order to determine the amount

of such overhead which was fairly attributable to labor loans to Mc

Cabe during the course of the preceding year The weighted average

of thlstraight time base rates of pay for HT T s stevedore machine

operators winchmen leadermen foremen warehousemen and

straddle operators was based upon actual hours worked during the

preceding year and current rates of pay which had been established in

negotiations with the union The resulting figure was the weighted

average straight time rate of pay per hour for HT T s workforce

This figure was multiplied by the total direct man hours worked dur

ing the previous year by HT T employees while on labor loan toMc

Cabe The result was a reasonable estimate of the aggregate direct

straight time labor costs which would be incurred by HT T in the

current year in connection with its labor loans to McCabe HT T then

determined what percent the aggregate amount of overhead fairly

attributable to the labor loans made to McCabe duringthe preceding

year was of the estimated labor costs which would be incurred by

HT T in connection with its labor loans to McCabe during the cur

rent year The result was the total overhead charge expressed as a

percentage of the direct labor costs which was to be charged to Mc

Cabe for laborloans duringthe current year

DISCUSSION

Jurisdiction

Despite the fact that it is the rates that are complained of the

essential question is whether the practice of lending longshoremen by

a stevedore employing the whole work force in a

port to another

stevedore in the port that is not so advantaged is within the reach

of the Shipping Act and therefore subject to the Commission s

reg

ulation or is a labor practice and as such subject to the exclusive pur

view of anotheragency Notwithstanding the fact that ocean

transportation is dependent upon the services of stevedores and long

16 FMC
56 FEDERAL MARITIME COMMISSION

I

i

shoremen and that the Act does not regulate in any respect the 

ditions of employment of maritime workers the activity of an e

that is not a common carrier by water may be subject tothe Com

sion s

jurisdiction if it is an other person subject to this act 

term is defined in section 1 thereofas any person carrying on the 

ness of forwarding or furnishing whar liage dock warehouse or 

terminal facilities in connection with a common carrier by wa

GilZen 8 Sona Lighterage v American Stevedore8 12 F MC 

1969 and cases there cited

Where stevedores engage in activities of a kind which independ

makes them subject to theAct such as operating a terminal fa

then such stevedores are deemed to be engaged in the furnishi

wharfage dock warehouse or other terminal facility in conne

with common carriers by water and are within the Commission s

diction Gillen 8upra at page 337 This interpretation was exte

to publicly owned terminals in Oalifornia v Un ted State8 320 

577 1944 Moreover expansion of this interpretation was rec

made in United Stevedori ng Gorp v B08ton Shipping A88oci

Docket No 70 3 Commission s

report served November 9 1971 

FMC 33 There an agreement between members of a shippingas

tion regarding allocation of labor among stevedores was held 

ject to section 15 of the Act because apart from the fact tha

members of the association in their individual capacities wou

subject to the Commission sjurisdiction theAct defined the term 

son to include associations and by virtue of such membership j

diction was also secured Such is the situation here as regards H

which furnishes terminal facilities for common carriers by wate

The matter in issue is primarily concerned with practices re

to the handling of cargo and only incidentally involves l

management questions Recognizing that related agreements a

inference also practices may fall in an area of concern of diff

agencies the Court in Volk8wagenwerk v FMG 390 U S 261 1

concluded that the collectivebargaining agreement between the P

Maritime Association an employer organization of common ca

by water stevedoring contractors and marine terminal operato

the one hand and the union on the otherhand wasin the area o

cern of the National Labor Relations Board whereas the Mecha

tion and Modernization Fund an agreement among members o

same association allocatingthe impact ofthe assessment upon stev

ing contractors and terminal operators was in the area of conce

the Federal Maritime Commission Under that interpretllltion o

16 F M C
MoCABE HAMILTON RENNY CQ LTD v 57

C BREWER CORP D B A HILO TRANSPORTATION AND TERMINAL CO

Act which was characterized as a statute that uses expansive lan

guage p

273 there is enough of that area of corncern to subject

the practiye of lending of longshoremen by a stevedore employing the

whole workforce in a

port to another stevedore in the port that is not

so advantaged to regulation by the Commission

Undue 01 unreasonable preferences orpractices

With respect to the allocation of HT T s workforce and the asso

ciated issue of self preference by HT T that gives undue 01 unrea

sonable preference or advantage to itself and subject McCabe to undue

or unreasonable prejudice or disadvantage within the meaning of

section 16 First of theAct it is well settled that the existence of undue

prejudice and preference isa question of fact which must be clearly

demonstrated by substantial Proof Phila Ocean Traffic Bureau v Ew

port S S Corp 1 US S BB 538 541 1936 H Kramer 1 Co v

Inland Waterways Corp et al 1 U S MC 630 633 1937 L A Traf

Mgrs Conf Inc v S Calif Carldg Tariff Bur 3 F M B 569 576

1951 Isbrandtsen 00 Inc v Stdtes Marine Corp of Delaware 4

F MB 511 514 1954 and Charges Delivery Atlantic Gulf Puerto

Rico Trades 11 F MC 222 235 1967 The record does not reveal

such substantial proof In the year or year and a half before the hear

ing McCabe s witness could specifically recollect only one period

where McCabe had to fly longshoremen in during labor shortages and

aspreviously found that was in late December 1969

I

think over a period of approximately two weeks we had to tly men from

Maui for about eight of those days and for about four of those days we had no

men allocated to us from Hilo and on anotherday one man and on a couple of

days twenty men it depended completely on the requirements of the De

Metra III with their difficult cargoat the time

The generalized statements of McCabe that a good deal of diffi

culty was encountered with the cargo or where we had late arrivals

and whether the men if they work the night shift are available the

following morning combined with the fact that the average number

of longshoremen on loan labor basis is 12 to 14 men a day for about

26 days a month almost a third of HT T s workforce for the better

part of each month do not evidence undue or unreasonable ad

vantage to HT T Further support for thisconclusionis found inChr

Salvesen 1Co Ltd v West Mich Dock 1Marlcet Corp 12 F M C

135 1968 which held that the failure of a stevedore to apportion

its available workforce more equitably due to shortage of shore labor

wasnot violative ofsection 16 Fi rst

16 F M C
58 FEDERAL MARITIME COMMISSION

Labor loan rate8

With respect ttthe issue of rates of HT T for loaned lllbor b

excessive arbitrary unfair or unreasonable and subjecting McC

to undue or unreasonable prejudice or disadvantage within the m

ing of section 16 First of the Act and also constituting a prac

which is unjust and unreasonable in connection with the receiv

handling storing or delivering of property within the meanin

section 17 oftheAct the Commission inPett8ton Stevedoring Oor

New Haven Terminal Inc 13 F MC 33 1969 reiterated the 

terion laid down in Ar In8trong Oork 00 v Ame1ioanHawa

Stea in8hip 00 1 U S M C 719 723 1938 tbtthe language of 

tion 16 forbidding lliny undue or unreasonable prejujiice or dis

vantage in any respect whatsoever is specifically directed aga

every form of unjust discrimination against the shipping public T

prinCiple of equality forbids any difference in charge which is 

based upon adifference in service Eden Mining 00 v Bluefield8F

1S S 00 1 US S B 41 45 1922 Not only potential discrimina

in unequal application of a tariff but the mere possibility of a v

ance between regulation and practicerender both regulation and p

tice unreasonable where the issue was the difference accorded 

respondent to itself as a stevedore on the one hand as compared w

the treatment of the complainant stevedore on the other hand O

Stevedore 1 BallaBt 00 et al v Stookton Elev Ino 8 F MC 

105 1964 citing Lopez Truoking Ino et al v Wiggin Termin

Inc 5 F M B 3 15 1956

Despite these rather broad statements the record with respec

labor loan rates does not reveal undue or unreasonable preju

within the meaning of section 16 First of theAct or a practice w

is unjust and unreasonable in connection with the receiving hand

storing or delivering of property within the meaning of section 1

the Act The basis of the charge and the manner in which it 

applied has been as noted in accordance with Schedule A the la

loan rate which carries overhead hut no profit wherelliS the indu

or reciprocal rate for labor loan 8upra is composed of wages plu

3 percent administrative charge

A Schedule A labor loan rate as earlier detailed is made up o

rect payroll costs of the loaned labor fringe benefits applicableinco

taxes and an overhead charge which is allocated on a labor do

basis HT T s three page justification entitled Stevedoring S

ices Labor LoansPort of Hilo1967 1968 and July 1 196

date submitted in response to complainant s

interrogatories c

ports with its method of construction of labor loan rates set fort

16 FMC
MoCABE HAMILTON RENNY CO LTD v 59

C BREWER CORP D B A HILO TRANSPORTATION AND TERMINAL CO

the above found facts Under the subheading Overhead Cost all

three periods are broken down by Salaries Fringes Brewer service

Charges excluding the administrative portion thereof leaving only

the direct service charge that is that charge directly related to the

labor loan relationship General Overhead that is expense incurred as

a result of operating a workforce or maintaining it and under the

itemization ofStevedoring Costs sufficient exemplification fora typical

year is adduced to adequately identify the general and indirect ex

penses lJnd finally a category described as AllOthers which repre

sents thesmallest amount

The percent of overhead to straighttime laborcost in 1967 was4187

percent in 1968 it was 58 38 percent and July 1 1969 to date it was

63 69 percent However HT T s management authorized charges at

the rate of 58 38 the previous years

charge The method now com

plained of had been established with sufficient specificity and particu

larity tobe used when HT T stevedored for Matsonwith no complaint

by Matson Moreover HT T makes no profit on labor loan The al

location of overhead expressed as a

percentage ofthe direct labor costs

which is charged to McCabe inthe maintenance ofthe longshore work

force after excluding Brewer s administrative overhead charges made

against H T is satisfactorily justified on a cost basis and reflects only

the costs incurred in providing labor on loan Observing that the

goal is not slavish adherence to any particular formula but a method

of computation which takes into account direct and indirect expenses

and projects an accurate estimate of costs of providing the particular

service and rate of return the court in Oity of Los Anfleles v

Federal Maritime OOfflllnission 385 F 2d 678 682 D C Cir 1967

affirmed the Commission in Agreement No T 1768 Terminal Lease

Agreement 9 F MC 202 1966

Monopoly

With respect to the secondary accusation that HT T has amonop

oly over longshore labor atthe Portof Hilo and thereby transgresses

the holding of Oalif Stevedore supra which condemned an agree

ment between elevators and apOItdistrict that established astevedor

ing monopoly in a national port preventingcommon and contract car

riers by water from selecting stevedores oftheir choice as prime facie

unjust and unreasonable that decision must be regarded as inappli

cable forthe reason that labor negotiations are beyond the reach ofthe

The Examiner Is referring to OaU Stevedore If Ballast 00 v Stockton Port Di8t

7 F M C 75 1962L which Is also relied on by McCabe inits briefs

16 F MC
60 FEDERAL MARITIME COMMISSION

Act Calif Stevedore involved an agreement between persons subj

to the Act and the practice resultingtherefrom was also subject to

Act which differentiates it from the instantsituation Here the agr

ment between HT T and the union is not between persons subject 

the Act one being alabor union although the practice resulting the

from that is labor lending may be subject to the Act Fairly ch

acterized this agreement is a labor agreement that is one involv

collective bargaining labor management problems within the a

of concern of the NLRB Since it is not a section 15 agreement it 

not entitled to antitrust immunity and the aggieved party rema

free toseek whatever remedy itmay have under the antitrust laws 

the United States courts

Otherdefense8

Turning to HT T s affirmative defenses the first is that the co

plaint failed to name as respondents all the necessary and prop

parties Rule 3 d of the Rules of Practice and Procedure 46 C

502 44 Nece88ary andproper partie8 in certain complaint proceedin

in relevant part provides If the complaint relates to more than o

carrier orother person subject to the shipping acts all carriers orot

persons against whom a rule ororder is sought shall be made respo

ents The complaint describes respondent as C Brewer Co Ltd 

corporation individually and doing business as Hilo Transportat

and Terminal Company This according to respondent is a misnom

Aftera

rapidsuccession of corporate changes and atall times pertin

tothe complaint C Brewer Corporation whichis notnamed respo

ent has been doing business under the name Hilo Transportation a

Terminal Company Under Rille 3 c 46 CFR 502 43 Sub8t

tion of partiea thepresiding officer may order an appropriate subst

tion of parties and by such authority C Brewer Corporation do

business asHilo Transportation and Terminal Company is hereby s

stituted as respondent

The second defense that the cause of action did not accrue with

two years next before the filing of the complaint is insufficient to b

consideration of the alleged violations two years or less antedating t

filing ofthe complaint which wereof a

continuing nature The failu

to obtain aportion of the labor force was a distinct occurrence but 

earlier discussed is not a

cognizable violation under the statutes t

Commission administers and hence any discussion relating to sect

22 is unnecessary See Grace Line Inc v Skip8 AIS Viking Line et 

7F MC 432 447 1962

However with regard to labor lending every time McCabe did n

receive the number of longshoremen it requested that presumably co

16 F M C
OCO 

V 61

C BREWER CORP D B A HILO TRANSPORTATION AND TERMINAL CO

stituted an accrual of action with occurrences antedating two years

being barred and those subsequent thereto being a possiblebasis for an

award ofreparation Vhatever the case may be itis entirely academic

since thepractice is not found to beviolative oftheAct 5

ULTIMATE CO CLUSIO S

This record does not show theHT T in its operations at thePortof

Hilo has been or is in violation of sections 16 First or 17 of the Ship

pingAct 1916 in unjustly and unreasonably preferring itself in labor

loaning in failing to reasonably share the labor force with McCabe

on an equitable basis or in assessing excessive overhead in labor loans

The complaint herein is dismissed

JOHN MARSHALL

Presiding Examiner

WASHINGTON D C FebTUary 2 1972

1 Consolo v Federal Maritime Oomm n 383 U S 607 10966 Elyria Lorain Broadcast

ing Co v LorainJournal 00 358 F 2d 790 1966 Flata Mercante Grancolombiana B A

v Federal Mar Com 373 F 2d 674 1961 He8s v Anderson Olayton cE Co 20 F R D 466

1957 1 0 C v Unitea States 289 US 385 1933 IJawlor v National Screen Service

349 US 322 1955 and US Bor JJ cE Ohem Corp v Pac OOMt European Con 11

F M C 451 1968 in complainant s

opening brief dealt with damages and therefore are

inapplicable III like manner tbe following authorities cited in complainant s reply brief

dealt with damagea and therefore ATe inapplicable Adams v Mills 286 U S 397 1932

AtlatUc Citll Electric Company v General Electric Company 226 F Supp 59 70 1964

Chattanooga lioundry v Atlanta 203 U S 390 1906 Oommonwealth Edison 00 v AUis

Ohalmers Mfg Oa 225 F Supp 332 334 1963 FUntkote 00 v Lv fiora 246 F 2d 368

1957 Hanover Shoe v United Shoe Mach 392 U S 481 1968 and Southern PQc 00

v DarneU Taenser 00 245 U S 531 1918

16 FM C
FEDERAL MARITIME COMMISSION

SPEOIAL DOOKET No 448

OVERSEAS IMPEX INO

v

LYKES BROS STEAMSHIP CO INC

NOTICE OF ADOPTION OF INITIAL DECISION AN

ORDER PERMITTING REFUND OF CHARGES

November 9a8 197

No exceptions having been taken to the initial decision in this 

ceeding and the Commission having determined not to review sa

notice is hereby given that the initial decision became the decisio

the Commission on November 28 1972

Itis ordered That applicant is authorized to refund 257 53 of 

charlEes previously assessed Overseas Impex Inc

Itis further ordered That applicant shall publish promptly in 

appropriate tariff the followingnotice

Notice is hereby given as required by the decision of the Federal Mari

Commission in Special Docket 448 that el fective August 14 1972 the rate 

Sponges artificial for purposes of refund or waiver of freight charges on 

shipments which may have been shipped during the periOd from August 14 

through October 5 1972 Is 355 W subject to all applicable rules regulati

terms and conditions of said rate and this taril f

Itis further ordered That refund of these charges shall be ef

tuated within 30 days of service of this notice and applicant s

within five days thereafter notify the Commission of the date 

manner ofeffectuating the refund

By the Commission

SEAL FRANCIS C HURNEY

Seoretary

62 16 F M
16 F M C 63

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 448

OVERSEAS IMPEX INC

V

LYKES BROS STEAMSHIP Co INO

Carrier permitted to r fund the sum of 257 53 being a part of thefreight charges

assessed and collected for one shipment of artificial sponges

INITIAL DECISION OF JOHN MARSHALL

ADMINISTRATIVE LAW JUDGE 1

This case concems an application by Overseas Impex Inc Over

seas for permissi on to refund 257 53 being a portion of the freight

charges asslssed on a shipment of artificial sponpes from Antwerp

BelpiulII to New Orleans Louisiana under Lykes Bill ofLading No

22 issued August 14 1972

The rate applicable at the time of shipment was 68 50 per cubic

meter as prescribed in Lykes Bros Continental Gulf Tariff No 7

F MC 76 effective Tuly 7 1972 Total charges collected werebased

upon a measurement of 4 821 cubic meters and accordingly totalled

330 24 This was lIIore than 350 percent in excess ofprevious charges

under tariffs which prescribed weight rather than measurement as the

rate basis The change from weight to measurement was an oversight

by Lykes and clearly falls within the provision of section 18 b 3

of the Act supra which permits the refund of a portionof the freight

charges where it appears that the relevant errorin a tariff is of a cleri

calor administrative nature

Lykes has filed a new tariff effective October 5 1972 setting forth

the rate on which this requested refund is based 3the application

1

This decision became the decision of the Commission Nov 28 1972

3

Shipping Act 1916 section 18 b 3 as amended

3

Lykes Bros Steamship Co Inc Conttnental Gulf Tariff No 7 F M C 78 3rd Rev

p 94
therefore is timely filed and contains the statement that there we

other shipments of the Same or similar commodities which move

Lykes during approximately the same period at the rate he

question

Good cause appearing Lykes is hereby permitted torefund to O

seas the sum of 257 53 The notice of waiver required by the st

shall be published in theLykes tariff

JOHN MARSHALL

AdmifliBtrative LIW Judg
FEDERAL MARITIME COMMISSION

WASlIINGTON D C

SPECIAL DOCKET No 449

U S DEPART iIENT OF AGRICULTURE

V

TROPWOOD LINES

NOTICE OF ADOPTION OF INITIAL DECISION AND

ORDER PERMITTING WAIVER OF CHARGES

Nm ember 928 1 9792

No exceptioilS haying bepn taken to the initial depision in this pro

ceeding and the Commission ha ing dptermineel not to I e1I W same

notice is herpby giyen that the initial decision became the decision of

the Commission on Novembpr 28 1972

Itis O1 dered That applicant is authorized to waiye collection of the

terminal transfer charges nnd seaway tolls pr iously assessed rs

Department ofAgriculture

Itis further ordered That applicant shall publish promptly in its

appropriate tariff the followingnotice

Notice is hereby gh en as required by the decision of the Federal lIa ritime

COUlmission inSpecial Doclu t No 449 that effective tptpllllJer 16 1972 for PUI

pOReH of refund 01 waiver of freight chaiges on any Rhipments which muhave

been shipped during the periOd from September 16 1972 through October 21

1972 the rates to Bangladeshon Corn Sweetened Soya Milk and Wheat Sweet

ened Soy Blend are 42 W the rate to Bangladesh on Paper Bag llinclUding

wire ties is 42 LIT and the rate to Mauritius on Flour N O S is 48 W

ai l rates inchHlin ttl minul transfer chalgps and Great I akeH Seaway to1l8

and subject to all applicable ruleR regulations terms and conditions of said

rates and this tariff

Itis further o1Ylered That waiver of the charges shall be effectuated

within 30 days of service of thisnotice and applicant shall ithin five

days thereafter notify the Commission of the date and manner of

effectuating the waiyer

By the Commission

SEAL FR NCIS C HURNEY

CI
FEDERAL MARITIME COMMISSION

SPECIALDOCKET No 449

U S DEPARTMENT OFAGRIOULTURE

V

TROPWooD LINES

Carrier permitted to wah e tile coHt Ctlon of cprtaln tprmlnal transfer 

and seaway tolls

INITIAL DECISION OF TOHN MARSHAl

ADMINISTRATIVE I

AW JUDGE 1

By joint application tiwely filed the U S Dllpartment of Ag

ture Agriculture Ol hehalf of the Commodity Credit Corpo

as Agent for A ID and Tropwood Lines Tropwood a co

carrier by water in forei ll commerce have requested permiss

waive the collection ofcertain charges for one shipment Septem

1972 and three shipments September 22 1972 of cOl llsweetened 

milk flour N O S wheat sweetened soy blend and paper bags i

ing ties from Green Bay and Milwaukee Wisconsin to Chitta

Bangladesh and Port Louis Mauritius

Priorto the booking ofthese cargoes for shipment it wasunde

between Agriculture and Tropwood that theeffective freight ra

to be inclusive of terminal transfer charges and seaway tolls T

verified by the terms specified on the Cargo Booking Confirm

documents However through clerica errorj Tropwood sTariff 

Agent failed tocarry outTropwood s instructions to file the tar

rections needed to permit TrolHvood s absorption of these 

charges and tolls This filinghas now been accomplished

There were no other shipments of the same or similar nature 

moved by Tropwood in thistrade during approximately the sa

riod at the rate here in question The relief sought is clearly 

the provisions of section 18 b 3 of the Shipping Act 19

amended

1

This decision becamethe decision ot the Commission Nov 28 1972

See Tropwood A G Freiilht Tilrltr No 4 F M C No 4 Rev 6th p 18
Good cause appearing Tropwood is hereby permitted to waive the

collection from Agriculture of the terminal transfer charges and sea

way tolls incident to the above four shipments The notice of waiver

required by the statute shall be published in Tropwood s tariff

JOHN MARSHALL

Administrative Law Judge

16 l M C
FEDERAL MARITIME COMMISSION

WASHINGTON D C

No 7215

RATES PRACTIOES RULES AND REGULATIONS OF NORTH 

MEDITERRANEAN FREIGHT CONFERENCE RELATING TO THE 

OF HEAVY LIFT CARGO

NOTICE OF ADOPTION OF INITIAL DECIS

Deoember 12 1972

No exceptions having been taken to the initial decision in 

ceeding and the Commission having determined not to rev

notice is hereby given that the initial decision became the d

the Commission onDecember 12 1972

Discontinuance of this proceeding will be ordered upon

1 Filing by respondent of appropriate tariff rules 

ing the proposed changes in heavy lift charges outlined 

acceptable in theinitial decision and

2 Notification by respondent to the Secretary of 

mission that the appropriate tariff rules have been file

By the Commission

SEAL FRANCIS C HURN

68 
No 7215

FEDERAL MARITIME COMMISSION

BATES PRACTICES RULES AND REGULATIONS OF NORTH ATLANTIC

MEDITERRANEAN FREIGHT OONFERENCE RELATING TO THE MOVEMEN I

OF HEAVY LIFT OARGO

Proposed new tarlll rule providing that the total heavy lift charges for pieces

of cargo up to nine tons moving to certain specified ports will be fifty per

cent of the Conference s Rule 27 heavy lift charges is not unlawful

Proposed new tarlllrule providing for a positioning lashing and securingcharge

equal to 65 percent of the heavy 11ft charge to be assessed In lieu of hea vy lift

charges on the carriage of wheeled or tracked roadbuilding machinery and

tractors to certain specified ports notwithstanding the type of vessel used

is not unlawful

Adoption of proposed new tarill rules would not be contrary to the public inter

est detrimental to the commerce of the United States nor be otherwise

unfair unreasonable or unjustly discriminatory in violation of the provi

sions of sections 15 16 17 and 18 b 5 of the Shipping Act 1916

Proceeding discontinued

Stomley O Sher and PaUl M Tschirhart for North AtlanticMedi

terranean Freight Oonference

Jannes N Jacobi for American Export Lines Inc respondents

Donald J Brunner NorrnanD Kline and JosephB Slwnt asHear

ing Oounsel

INITIAL DECISION OF STANLEY M LEVY

ADMINISTRATIVE LAW JUDGE 1

This proceeding was instituted by the Oommission in order to deter

mine the lawfulness ofcertain provisions relating to the assessment of

heavy lift charges published in the tariff of respondent North At

lantic Mediterranean Freight Oonference NAMFO or the Oonfer

ence The Oommission was specifically concerned over the fact that

despite the admission of carriers operating vessels ofadvanced design

1

This decision becamethe decision of the Commission Dec 12 1972
70 FEDERAL MARITIME COMMISSION

and technology into Conference membership the Conference ha

fused to amend its heavy lift rules so as to reflect the changing 

tion with regardto cost reductions Instead the Conference cont

to assess the regular heavy lift charges predicated upon conven

breakbulk operator s costs even on Cllrgoes moving entirely w

containers or rolled on and off vessels Hence it appeared to the

mission that shippers were being IlSsessed charges for which 

no services were rendered or if serviees were performed at 

which werenotrelated to carriers actual expense

The Commission expressed further concern over the fact tha

refusal of the Conference to adjust their heavy lift provisions 

be unfair to carriers as well as harmful to ship Iers inasmuch a

tainerized and roll on roll off vessel operators would be prevent

the Conference from passing on to shippers the savings realiz

the new technology This attitude on the part of the Conference 

raised serious questions as to whether the Conference wasactin

manner contrary to the public interest detrimental to the com

of the United States or otherwise unfairly unreasonlllbly or un

in violation of the provisions of sections 15 16 17 and 18 b 

theShippingAct 1916

As the Commission s order made clear the Commision wa

merely interested in determining the question ofthe lawfulness 

Conference s heavy lift provisions but in fashioning an appro

amelioratory remedy such as opening rates governing heav

cargoes or otherwise modifying the Conference agreement

Respondent conference believing that it had resolved the issue

concerns which were raised by the Commission s order and in 

erence to a continuance of litigation submitted an Offer of 

promise and Motion toDiscontinue Proceeding

BAOKGROUND

NAMFC is a conference of steamship lines serving the east

trade from United States North Atlantic ports in the Ham

Roads Eastport Maine range to various ports primarily on the 

terranean Sea The Mediterranean ports include those in 

France Greece North Africa Turkey Lebanon and others ap

mately 50 percent of the Conferencecarryings are destined for 

The nature of the trade is quite broad cargo moves both to h

industralizedcountries of Southern Europe and to other signific

less developed countries

There are 11 memoorsof the Conference Three carriers offer 

containerized service American Export Lines AEL 

Line and Sea Land Service Inc One operates LASHships Pr

16 
HEAVy LIFT CARGO

RATES ETC NORTH ATLANTIC FREIGHT CONFERENCE 71

tial Grace Lines Inc One member employs 10 10 ships AEL The

breakbulk orunitized carriers are Concordia Line Constellation Line

Hellenic Lines Italian Line Torm Lines Zim Line Nordana Line

and AEL It is apparent that the Conference represents a broad and

exceedingly diverse panoply ofcarrier operations andit is asserted that

it is the only conference in the United States foreign trades in which

every type ofcargo carrying operation is active

The commodities moving in the trade and transported by the Con

ference members are of a general nature but lack the emphasis of

finished and manufactured goods There exists substantial non

conference competition in the trade

Generally the container services by Conference members have been

limited to the five ports of Marseilles Genoa Leghorn Naples and

Piraeus Likewise 10 10 ships are best suited for service to these ports

and suchvessels call only at these five ports

The movement of heavy lift pieces of cargo and the revenue from

such carriage varies markedly among the Conference members The

container carriers move heavy lift pieces in only the most unusual

circumstances and many container voyages show no heavy lifts what

soever

Neither the Conference nor the carriers maintain records which

show whether heavy lift cargo is on tracks or wheels and therefore

capable of being rolled on and off a suitable vessel The Conference

however believes the amount ofthiscargo is small

To the conventional or breakbulk carriers heavy lift movements and

revenue are of more importance For these carriers the percentage

of heavy lift revenue compared to total freight is on the average

2 In 19711 the top ten commodities carried by the Conflrence In order of importance

i e numberof long tons I are as follows

1 Rags

2 Tinplate

3 Waste Paper

41 TalIow

I Automobiles Trucks and Parts

6 Synthetic Resin

7 Copper Basic Shapes

8 Insecticides

9 Cotton HuH Shaving Pulp

10 Lube 011

8

The Conference estimates that In 1971 greater than 40 percent of the ItaHan cargO

moving in the trade was carried by non oonference lines

The revenue the container carriers derive from application of beavy l1ft charges is

substantially less than one tentb ot 1 percent of groBs revenues

16 FMC
72 FEDERAL MARITIME COMMISSION

about 2 percent Heavy lift revenue to the NASH carrier is 

significant approximately 10 percent

A review of the type of heavy lift cargo carried by each lin

dicated that approximately one half of the heavy lift movement

pieces of cargo which weigh nine tons and less Some Confe

breakbulk vessels do not have gear to handle lifts in excess of 

tons The container operators in contrast carry no cargo whats

in excess of nine tons Container operations of course do not re

lend themselves to larger pieces of cargo Any cargo overtwenty 

cannot be carried in a container due to legal over the road w

restrictionsof approximately 45 000 lbs as well as the phy

limitations of the containers Further there may be additional 

on those occasions when containercarriers do move heavy lift carg

In those instances where container type cargo may take heav

charges the Conference has nevertheless adjusted its tariff rul

reduce oreliminate such charges 7

Ro Ro ASPECTS

There are only four vessels in the tradeall operated by A

which are capable of having wheeled or tracked cargo rolled on 

off the vessel as opposed to being lifted on and off These vessels 

ever are essentially containerships with limited spacewbout 1

square feetfor ro ro cargo

s The ro ro space on these vess

an odd configuration with the result that large ro ro cargo su

generators cannot be accommodated

The ro ro cargoes most frequently moving in this trade for w

the ro ro vessels are suited are tractors and roadbuilding mach

Despite the ro ro capacity of the vessels suitable tracked and wh

cargo such as tractors and roadbuilding machinery cannot us

be rolled offthe vessels thisis because all of the Conference disch

ports in the Mediterranean save Genoa do not have suitable 

ro ro ramps and therefore the cargo must be lifted off And ev

the United States the facilities used by AEL do not always hav

proper stern ramps for rolling on tracked or wheeled cargo Sp

cally AEL rollstractors and roadbuilding machinery only at No

G This mode loads and discharges cargo into barges which have no gear at all and 

must always obtain such equipment at extra cost to the carrier

e

Sea Land has special intracompany clearances and procedures tor treating it

heavy lift cargo to ensure that it is properly braced protected and stowed in the con

I

In the case of tinplate an important commodity which moves in containers 

be shipped In quantities up to 11 200 tbe or dve tons without paying heavy lift c

Earlier theAEL ro ro vessel had slgnltleantly more ro ro spaapproximately 

feet they were recently moditled reducing the ro ro capacity by almost two thirds 

lieu adding eontalner eapaelty As a rssult the ro ro eapaelty In the trade Is s

below that which existed earlier

16 F
COMPROMISE PROPOSAL

RATES ETC NORTH ATLANTIC FREIGHT CONFERENCE 73

8illd Baltimore and lifts such cargo on with traditional gear at New

York Bostonand Philadelphia

Virtually all of the ro ro tractors and roadbuilding machinery

moving in the trade are nine tons or more As is the case with con

tainer type cargo in situations where cargo usually moves on tracks

or wheels the Conference tariff has been appropriately adjusted For

example automobiles up to and including 8960 Ibs Tour tons do

not pay heavy lift charges nor do trucks under five tons

It is difficult to calculate the exact cost involved in loading and

discharging roadbuilding machinery and tractors via the roll on roll

off method it is however AELs best estimate that a charge for this

service equal to 65 percent of the Conference s heavy lift scale is a

reasonable charge in light of all the circumstances Apart from AEL

the Conference members are of the unanimous view that the costs to

roll on and roll off cargo including proper allocation of capital costs

expenses of longshoremen who drive the vehicle lashing securing

positioning the cargo etc are fully comparable to the total Confer

ence heavy 11ft scale rates

Believing that a resolution of the issues herein is susceptible by

adoption of certain rules in the Conference s tariff respondents pro

pose that

1 A new tariff rule will be added to the Conference tariff which shall

provide that the total heavy lift charges for pieces of cargo up to and includ

ing nine tons moving to the Ports of Genoa Leghorn Naples Marseilles and

Piraeuswill be 50 percent of the Rule 27 heavy lift scale charges

2 A new tariff rule will be added to the Conference tariff providing for

a positioning lashing and securing charge equal to 65 percent of the heavy

lift charge to be assessed in lieu of heavy lift charges on the carriage of

wheeled or tracked roadbuilding machinery and tractors to the Ports of

Genoa Leghorn Naples Marseilles and Piraeus notwithstanding the type

of vessel used

The diversity of operations utilized by the C

mference members

results in both advantages and disadvantages Itis clear that shippers

and consignees are offered the greatest variety of services from which

to choose and this flexibility offered by the Conference members is a

decided advantage to shippers Different methods of carrier opera

tion however entail different costs timetables and types of service

it As Is apparent the proposed tarllt changes are carefully tailored In terms of ports

weight type of cargo etc to the container and ro ro shippers about which the Commis

sIon expresses concern in its Order of Investigation Ifoperating orcompetitive circum

stances change indlcatlng that the new rules sho uldbe extended beyond the five enumerated

ports the Conferenee in its compromise submission agrees that it will give lair consid

eratfon to daing sa

16 FMd
74 JIJDERALYARITIME CDMMlSION

Consequently this sharp diversity among its members is II dirm

tlge in resolving certl in problems which affect the members in d

ent ways

Thus the Conference members appear willing to grant sign

heavy lift rate reductions to shippers and give up certain rev

which they now receive foJ the carriage ofheavy lift cargo in r

for asettlement ofthis litigation 10

The main feature ofthe Offerof Compromise is that the Confe

will reduce by fifty percent all heavy lift charges for cargoes 

and including nine tons moving to the ports presentlj served by 

tainer and ro ro vessels This reductionwill apply to cargo carr

breakbulk and LASH vessels as well as to cargo carried on co

erized and 10 10 vessels Ifthis proposal is implemented the C

ence will in effect be passing onto all shippers of heavy lift ca

cost savings which have occurred as a result of the advent o

tainerized and ro ro vessels to Conference service Furthermore 

the majority of all heavy lift cargoes are actually carried on b

bulk and LASH vessels the application ofa partial reduction 

heavy lift shippers willprobably result in a greater overall ben

the shipping public than would even a fullteduction applied o

container and 10 10 traffic

The reasons for the tonnage and port limitations in the pro

rule are several The nine ton limitation is based upon the fac

all heavy lift cargoes carried within containers are under nine 

and not all breakbulk vessels have gear for handling cargoes ove

tons The five ports are the only ones at which containerized and 

vessels generally call

The Commission s Order stated that the assessment of heav

charges on house to house containerized cargoes might be imp

where the carrier is not required to handle the cargo separate

because no services are performed However the record show

there are some additional costs and services attributable to the 

dling of heavy lift cargo even if such cargo moves within conta

Apparently the advent of new containerized technology does no

essarily result in the total elimination ofall extra costs attributa

the handling of heavy lift cargoes This does not mean that the

not substanti LI cost reductions nonetheless resulting from utiliz

ofadvanced technology nor that a 50 percent reduction exactly m

the savings in costs attributable to containerization Howeve

proceeding is concerned not with individual clrrier but with 

ference rate making where different considerations come into pla

10 Hearing Counsel recommends that the Offer of Compromise be accepted and t

motion to discontinue be granted

III 
RATES ETC NORTH ATLANTIC FREIGHT CONFERENCE 75

The reduction of thirty five percent for roadbuilding machinery

and tractors also offers substantial benefits to the shippingpublic since

it applies to traffic carried on breakbulk and LASH vessels as well

as that carried on ro ro vessels This extension of the reduction

beyond ro rovessels is especially significant since the majority ofroad

building machinery and tractors actually move via breakbulk ships

and the ro ro capacity in the trade which is offered by only one Con

ference member American Export Lines has been substantially

reduced

The application of this reduction to roadbuilding machinery and

tractors is based upon the fact that this is the type of traffic subject

to heavy lift charges which in fact most frequently moves via ro ro

vesselsand which is most suited to thistype ofhandling

The Commission s Order expressed concern over the possibility that

the assessment of a heavy lift or equivalent type chatge oh any cargo

predicated on the conventional costs of breakbulk operators might

be improper since a to ro operation does not involve mechanical lift

ing by special vessel rigging or shoreiide crahe Hence maintenance

of a full heavy lift level of assessment without regard to the cost sav

ings inherent in a ro ro operation would be of doubtful propriety

In raising this issue the Commission may have assumed that the

Conference had been assessing a heavy lift equivalent charge on what

in fact constituted a full scale ro ro operation It now appears that

the service offered by the only Conference member operating ro to

vessels is in fact not fully ro ro since only three ports Norfolk Balti

more and Genoa have suitable facilities permitting cargo to be rolled

on or off At New York Boston Philadelphia and all Mediterranean

ports except Genoa such cargo is handledwithtraditional gear Acom

plete ro ro service would exist therefore only from Norfolk to Genoa

and from Baltimore to Genoa

As in the case of the other Conference proposal the 35 percent

reduction does not appear to be based upon a precise individual car

rier s cost study but rather reflects the Conference consideration ofthe

advent of the new technology into overall Conference operations as

well as competitive factors Furthermore considering the fact thatthe

so called ro ro service for most ports served is actually a partial serv

iceand that Conference rate making is based upon a number offactorS

besides costs the importance of a fully developed individual carrier s

cost study is significantly reduced

The Commission expressed a desire for the investigation to deter

mine appropriate ameliotatory action Although teduction of heavy

lift charges solely in reliance on one cartier s

fully developed cost ex

perience might have constituted one approach to amelioration the

16 F

M C
76 FEDERAL MARITIME COMMISSION

Conference s proposal which considers factors other than merely 

is an acceptable alternative

DISCUSSION

The Commission has long recognized that a conference is an 

ciation of carriers having divergent interests but who nevert

attempt to reconcile them for the sake of maintaining staJbility 

e

g Agreement No 15o 1 TrOl 1JJPaoijic Freight Oonferen

Japam 9 F MC 355 370 1966 Atlatntia GUlf West Oo

Sooth Ame lica Oonference Agreement No 744 et at 13 F M C 

126 127 1969 We may generally agree to the concept that C

enCe rate making is based upon anumber offactors in additionto 

among which competition is of great significance Investigat

Ocean Rate Strucrures 12 F M C 34 36 37 1968 Initial Decis

Examiner E Robert Seaver served Jaooar 31 1968 DKT 64

Were we to proceed on the rigid basis that every carrier s 

should be geared only to its own coste a conference system mig

impossible Itis probable that for the sake of certainbenefite in 

of frequency of service and st8Jbility of rates shippers may be p

higher rates than those which would exist if rate competition 

upon individual carrier s costs weretoprevail

Carriers ofmany countries with widely varying costs band to

in a conference to offer uniform rates which are set not on the 

of one carrier s cost but as an average of all The legislative h

of the ShippingAct makes this clear

No extended discussion Is needed ot the tact that the operating and 

costs ot American Bag oceancommon carriers areconsiderably higher tha

ot any other nat1on Since most carriers cannot operate as cheaply as som

petitor which possesses national cost advantages th conterence a1ords a 

whereby all carriers working as 11 group set rates at a point where s

advantage Is not absolutely control11ng 8teamsMp Oonferenoes S Re

860 87th Cong 1st Sess I 1961

Inherent in this Offer of Compromise is the desire of the me

of the Conference to maintain uniform heavy lift charges with

Conference In orer to avoid litigation and tomaintain these un

rates theConference members are apparently willing tocomprom

the matter of their heavy lift expenses and offer certain rate 

tions to all shippers This compromise shoud have the same 

greater effect as a larger reduction in heavy lift charges appl

only rofro and container traffic Thus though the Offer m

merely a compromise designed to accommodatethe desires of the 

ference members it not only serves the needs of the Conference 

16 
16 F M C

S Francis C Hurney

Secretary

RATES ETC NORTH ATLANTIC FREIGHT CONFERENCE 77

also bestows immediate benefits on all heavy lift shippers in the trade

beyond the scopeoftheOrderofInvestigation

The Offer of Compromise is admittedly not an exact procedure cal

culated to pass on to 10 10 and container shippers the precise savings

inherent in the carriage of heavy lift cargoes on these new types of

vessels However 10 10 and container shippers will be benefiting from

the innovations present in these services as their heavy lift charges

will be reduced In addition all other Conference shippers will share

in the benefits ofthe new technology as all heavy lift charges for car

goes nine tons and under will be reduced This will of course not

take any other advantages such as faster service reduced cargo dam

age etc away from the shippers utilizing the 10 10 and container

vessels Thus the Offer should not discourage innovations within the

trade or hinder the flow of cargo to 10 10 and container carriers

Adoption by the Conference of the proposed rules indicate that

benefits which would immediately redound to shippers are

1 Significant immediate reduction in heavy lift charges

2 Continued options for shippers of heavy lift cargoes to use the

variety of services offered by Conference members at uniform and

therefore predictable rates

3 Maintenance of rate stability in the trade and avoidance of a

possible debilitating rate warsuch as is alleged to have plagued other

trades notably the North Atlantic Northern European trades

4 Preservation of the integrity of the Conference

CONCLUSIONS

For all of the foregoing reasons the Conference s Offer while ad

mittedly a compromise is responsive to the Commission s expressed

desire for amelioratory action The Offer is accepted and the Motion to

Discontinue is granted conditioned upon implementation of the Offer

U

Furthermore the volume of heavy Uft eargoes moving in the trade for most carriers

Is relatively small and tn the case of containerized operators Is miniscule Consequently it

would be dImcult to argue that containerized operators would be disconraged from entering

the trade unless they would enjoy a rate advantage with regard to heavy 11ft cargoes

DISCONTINUANCE OF PROCEEDING

January 16 1973

Respondent has now satisfactorily complied with conditions as set

forth at page 68 supra

Accordingly it is ordered that proceedings in this matter are hereby

discontinued
FEDERAL MARITIME COMMISSION

DOCKET No 71 97

INDEPENDENT OCEAN FREIGHT FORWARDER ApPLICATION ALV

SHIPPING CO INC

Applicant because of unlicensed forwarding operations in violation of s

44 found not titto properly carryon thebusiness of forwarding and its 

cation for license as an independent ocean freight forwarder denied

M01 1isHonig for Respondent

Donald J Brwnne1 andStephen Rud1lUJn as Hearing Counsel

REPORT

Tanuary 9 1973

By THE COMMISSION Helen Delich Bentley Chairman Ashto

Barrett and James V Day Commissioners

This proceedingis before us upon the exceptions ofhearing Co

to the Initial Decision of the Administrative Law Judge wh

Alvarez Shipping Co Inc Respondent was granted a license 

independent ocean freight forwarder The Commission s Order o

vestigation and Hearing in this proceeding served December 23 

wasissued todetermine whether in view of its past activities Resp

ent is fit willing and able properly tocarryon the business of forw

ing and to conform tothe provisions ofsection 44 oftheShipping 

1916 the Act 46 US C 841 b within the meaning of that 

ute and whether its application should be granted or denied

The Commission s Order states that Respondent had engaged 

least 142 instances of illegal freight forwarding during the p

from approximately December 1 1969 through March 22 1971 wit

having obtained an independent ocean freight forwarder license i

parent violation of section 44 a ofthe Act There is no dispute 

the Respondent engaged in the business of forwarding without 

cense over a substantial period of time beginning approximately 

ceII ber 1 1969

16 F 
INDEPENDENT OCEAN FREIGHT FORWARDER

APPLICATION ALVAREZ SHIPPING CO INC

79

Section 44 provides that aperson desiring to engage in the business

offorwarding must first secure a license from the Commission The

Commission inturn must issue the license if the applicant is fit will

ing and able tocarryon the business of forwardingand to conform to

the provisions oftheAct and the rules and regulations ofthe Commis

sion issued thereunder Operation without a license constitutes a vio

lation ofsection 44

Respondent aNew York corporation was organized in 1966 Iten

gages illocal and interstate moving but its principal activity is over

seas shipment of household goods and privately owned automobiles

Respondenttook over in 1966 the movingand shipping business which

had been operated by Alvarez as an individual since 1953 serving

almost exclusively Spanish speaking residents of New York City and

nearby states About 70 to 75 percent of Respondent s income is de

rived from NVOCC movements between the United States and Puerto

Rico under a tariff filed with this Commission and consists almost ex

clusively ofhousehold furnishings and privately owned automobiles of

persons returning to Puerto Rico after a period of residence in the

United States rhe balance ofRespondent s overseas business consists

oishipments ofthesame kind ofgoods but in which Respondent acts as

freightforwarder These are for the most part to Santo Domingo but

include to a lesser extent shipments to Mexico Panama Central and

SouthAmerica Respondent carries on its interstate shipments under a

certificate from the Interstate Commerce Commission

On January 28 1971 the Commission s staff wrote to counsel for

Alvarez informing him that it appeared that Respondent was operat

ing as an unlicensed freight forwarder A copy of the letter was dis

patched to Alvarez cautioning him to cease all forwarding activities

untilhe had obtained a license On March 18 1971 Respondent filed its

license application By letter dated March 31 1971 receipt of the ap

plication wasacknowledged by the Commission s staff and Respondent

was informed that if it engaged in forwarding before receiving a

license it would be subject to penalties provided by law By certified

letter ofOctober 27 1971 Respondent and its president and principal

stockholder Jose Alvarez Alvarez werenotified ofthe intention of

the Commission to deny the application Respondent by return letter

asked for the opportunity at a hearing to show that the intended denial

of its application was unwarranted Hearing was held in New York

City onMarch 21 197

Although as indicated Alvarez was warned in January and March

1971 that his engaging in the freight forwarding business without a

license was contrary to the law and that his continuing to so engage

would jeopardize his obtaining a freight forwarder s license he none
80 FEDERAL MARITIME COMMISSION

theless continued to accept a limited number of shipments with re

to which he acted as freight forwarder until January 1972 Alv

readily admitted these actions stating that the shipments were 

warded for customers storing goods in hiswarehouse or for frien

those customers

On the basis of the foregoing facts the Administrative Law J

found that the application should be granted adding an admon

that Respondent carefully assess its responsibilities as a licensed 

warder to insure full compliance with theAct and Commission re

tions The decision is based upon theAdministrative Law Judge 

liefthat whileAlvarez s conduct may not be overlooked or excuse

violation of the Act may from a practical point of view be consid

as somewhat technical in nature

Judge Bryant cited various reasons to support his findings

1 Respondent s president appears to be an honest hard working busines

who Is attempting to serve the special transportation needs of a mostly Sp

speaking minority

2 Respondent has filed an NVOCC tarllwith this Commission and Is lic

by the Interstate Commerce Commission but did not realize that It was req

to obtain a freight forwarder s license until notltled by the Commission s 

In January 1971

3 Respondent made no attempt to collect brokerage from the carriers 

whom It placed Its Illegally forwarded shipments nor Is there any eviden

Improper dealing orunconscionable protlt

4 With regard to the forwarding activities conducted after Responden

Informed of the illegality of Its acts they were somewhat technical In natur

should not serve as a death sentence onAlvarez s future business as a

f

forwarder

On exceptions Hearing Counsel contend that the Administr

Law Judged erred in concluding that Respondent s willful and k

ing violations of the Act were technical in nature and thus di

bear on Respondent s fitness to engage in the business of ocean fre

forwarding

Hearing Counsel distinguish this proceeding from earlier Com

sion decisions where applications weregranted eventhough the a

cant had engaged in illegal forwarding activities The present 

ceeding involves an applicant who continued its illegal operations 

being notifiedof their illegality on two occasions and whose illega

warding wasneither limited as to number of shipments nor as top

OItuJepenll mt 00 FreIght 1l 0l lOtIlder Lloen Appl cetlon llGbIo A Dug Doc

71 91 16 lIJl O 848 served June 6 1972 wherein applicant tnowlnllly made 

shipments but ceased when warned not to continue I d p d 00 lI relglI o 

Lloens AppllcationL T O Air Oargo 1 0 18 F M C 267 1970 wherein applica

warded Shipments knowlnll that such action was mellal but the torwardlnll was lim

two shipments

16 FM
tNDEPE DE T OCEAN FREIGHT FORVVARDER

APPLICAT10N ALVAREZ SHIPPING CO INC

81

oftime Hearing Counsel contend that a denial ofthe application now

would not be a death sentence but that Commission could deny with

leave toreapply after a certain amount oftime

Respondent contends in its reply that the only shipments forwarded

after it became aware of the illegality of its activities involved goods

in its warehouse which it felt compelled tocomplete as part of its over

all obligation to its customers Respondent further contends that the

Administrative Law Judge correctly found that Respondent waspres

ently fit willing and able to conduce the business of an independent

ocean freightforwarder inthe mannerprescribed by law and thwt the

license should be granted

We do not agree with the finding of the Administrative Law Judge

that Respondent wasfit to be licensed as an independent ocean freight

forwarder

We have no dispute with the facts as presented in the Initial Deci

sion However the conclusions drawn therefrom cannot be reconciied

with these facts We can accept Respondent s explanation for the nu

merousinstances of illegal forwarding between approximately Decem

ber 1 1969 and January 28 1971 as being unculpable inasmuch as it

appeared to be unaware of the Commission s

licensing requirement

This is not to say however that we find the illegal activities excusable

However on January 28 1971 and again on March 31 1971 Respond

ent was cautioned about the illegal activities in which it was then

engaging Respondent nonetheless oontin lU3d to illegally forward ship

ments until approximately January 30 1972 We cannot accept Re

spondent s explanation for these later illegal forwardingactivities No

business obligation that Respondent felt it owed to its clients or their

friends by virtue of its warehousing activities warrants an obvious

disregard for the provisions of the law governing freight forwarders

Respondllnt cannot now contend that it is ready to abide by the Com

mission s rules when it has twice chosen to violate them

We concur with Hearing Counsel in their distinctions drawn be

tween the Rui and L T C Cargo cases and this proceeding Clearly

Respondent s violations cover a much greater period of time and a

greater number ofinstances

The Commission has an obligation to maintain and preserve the in

tegrity of the freight forwarding industry This proceeding clearly

offers the Commission the opportunity to fulfill that obligation We

must therefore conclude that Respondent s application for a license

as an independent ocean freight forwarder be denied

16 F M C
82 nlOImllL XloUtIl 1l1M E COIrOIimSI0N

Oorwmi8sioner Clarence Morse dissentitng with whom Vice Ohai

ko1geN rH9IZTm joiM

dissent Ithinkthe severity of the pUl lislunent deniwl 0f alioo

far exceeds the severity of the Oifenae He IIis an applicant who 

r

tslthllthan er8tingwlthout aUoonse is aperson pl OViding 

needed and Bli tisfaotorysei 1iaeto itsooatomerB No onehas1Jeen 

agedb yappl unsmiseonduet Thooeillhere noaotual wNmgdoi

thata stmner waeol Teoohar ar falsely chatged or tile8eTvioos

illtl0ttlpeWfttlyperfurmed Applicant is not an evil doer Itcrim

I 4oMtcondooe applicant s filure to obtain It lillllll S6 Ido a8S6r

Pfll ttws atreayhean Qdequat61y punisheliin that it bas h

bear the expense and inconvenience of this prooeeilifnd IlmB 

unable to conduct its forwarding MtivitiesWhllethis proeeetii lg

been pending lwouldiS Uethe license now

The suggestion is made that

11 dentl11 of the appl1C1ltlllIl now would Ilotbe a deathsen

bttt th

Commluloncould lnywith leave to reaWly after a OOltaln amount Of tIm

I

give scant weightto such a

sugg tionfor two reasons one being 

thestalf and the Commission williend to consider applicant as 

by virtue ofthe denial herein directed As the old phrase goes 

bitten twice shy 1

Secondly Iam unaware of any reasonswhy a

delay of one month six nlonths one year or even ten years in w

period applicant will not have been permitted toperform freight 

waldel activities applicant wi l1 be or will be libleto estalllish 

tobe any more flt willing or able prope1 ly to carryon the busine

ocean freightforwardingthan it istoday Row does enforced no

formance establish improved fitness orwillingness

tSEAJ Signed FRANCIS C HURNEY

Sey

16 FM
The Commission having fully considered the above matters and hav

ing this date made and entered of record a Report containing its con

clusions and decision thereon which Report is hereby referred to and

madeapart hereof

Itw ordered That the application for license of Alvarez Shipping

Co Inc is hereby denied pursuant to section 44 Shipping Act 1916

By the Commission

SEAL Signed FRANCIS C HURNEY

Secretary

16 F M C

83

FEDERAL MARITIME COMMISSION

DOCKET No 71 97

INDEPENDENT OCEAN FREIGHT FORWARDER ApPLICATION ALVAREZ

SHIPPING Co INC

ORDER
FEDERAL MARITIME COMMISSION

DoOXET Nos 7146 AND 71 67

JOHNSON JOHNSON INTE1INATIONAJ

v

VENEZUELAN LINES

ADOPTION OF INITIAL DECISION

JarviU1Il1 9 1979

This joint proceeding is before us on exceptions tothe Initial D

sion of Administrative Law J dge Ashbrook P Bryant se

October 3 1972 in which theadministrativeLaw Judge concluded 

claimant had not proved that something other than that which 

described on the bill of lading was actually shipped and thus 

failed to establish any basis for a grant of relief

On exception the claimant argUes that the Administrative 

Judge has cast upon the claimant the burden of proving be

reasonable doubt that the articles shipped werenot surgical dress

and in so doing has misconstrued the tariff Claimant also argues 

by so doing the Administrative LawJudge has by his decision m

it virtually impossible for a

shipper ever toprove an overcharge 

which reparation could be granted Claimimt takes issue with 

Administrative Law Judge s decision that manufacturing can ch

the characteristics of a product for rating purposes To support 

point claimant cites the Board s

rejection ofthe possible use test 

forth in MiaclaaBifiaation arW Miabilling of Glaa8 Article8 6 F

153 159 1960

Possible use does not change the essential character of the article and 

a lawful basis for a dUference in freight rates

Claimant also reiterates its arguments that the carrier has the 

sponsibility to properly limit its tariff classification and urges 

respondent has not so done and that it is patent error for the Ad

84 16 FM
JOHNSON JOHNSON INTERNATIONAL V VENEZUELAN LINES 85

istrative Law Judge to now find some sort of limitation in the de

scription Gauze Viz Surgical so asnot toinclude a product marketed

as sponges Further says claimant theAdministrative Law Judge does

not findthat the articles in question were not surgical gauze and the

respondent on page 47 of the transcript admits that it is

Claimant proffers several other allegations of error Itargues the

Administrative Law Judge erred by casting upon the claimant the

burden of provingbeyond reasonable doubtthat an improper rate had

been charged and collected Further claimant says that the Admin

istrative Law Judge stated on page 9 ofhis Initial Decision that all

reasonable doubt should be resolved in the carrier s favor Claimant

calls these novel conclusions and states that this exceeds the standard

heavy burden of proof normally placed on claimants and also

changes the settled rule of tariff construction that tariff ambiguities

are to be resolved against the tariff framer

Lastly claimant attempts to rebut the several descriptions it has

applied tothe cargo in its attempts toseek lower rates asonly proving

that shippers are seldom experts in tariff construction and they

can be confused

The claimant argues thatthe only question beforethe Commission is

whether itis reasonable to include the articles in question in the car

rier s tariff description for Gauze Viz Surgical

Finally claimant requests oral argument

We do not feel that anything can be elicited at oral argument that

would change the Administrative Law Judge s initial findings The

essential question in this case is whether the claimant has established

that something other than that which was described on the bill of

lading was actually shipped Itis obvious that claimant through its

multiple changes in nomenclature and description of the commodities

in question has attempted after the fact to locate a lower rate deem

ingthat ratenow applicable

We note that the Administrative Law Judge in his Initial Decision

makes the statement where ithas been established beyond reaMnable

doubt that an improper rate has been charged and collected the

carrier must make reparation We wish to make clear that

the test is not so stringent as to require proof beyond a reasonable

doubt Rather the proper test we have required is forthe claimant to

sustain a heavy burden of proof Ocean Freight 001 l8UUant8 Inc v

Italpacific Line Docket No 718 served June 20 1972 15 F MC

312

Although the language in the Initial Decision may appear mislead

i

lg a review of the record and the Initial Decision does not convince

us that the Administrative Law Judge placed a greater burden of

16 FM C
86 FEDERAL MARITWE COMMISSION

proof on claimll lt

toestablish its ClLIl6 thaI that set fortp above 

therofQre find no basis for support of claimaI ts con ti9ns to 

end or further that

respondent admittedtl1at the COIllm04ities inq

tion were other thl1n tIiatwhich they were described on the b

lading andaccor4ingly rlted

In short claiIDllnt has failed tosu in its Case Accordingly u

careful copsider ttion of the record the ex

ceptioI S 4Id the ro

thereto weconclude that theAdministrative Law Judge factual 

ings and his conclusions with respect thereto weresupported and 

recto We therefore adopt the InitiAl Decision as our own and ma

1 part hel of

lly the Commission

lEA FIlANCIS c HUJlNEY

10 If M 
i

This decision became the decision of the Commission January 29 1978

S Tr p 3 a180 NotIce of Hearing April 18 1972

16 F lIC 87

FEDERAL MARITIME COMMISSION

No 7146

JOHNSON JOHNSON INTERNA fIO l

V

VENEZUELAN LINES

No 71 67

JOHNSON JOHNSON INTERNATIONAL

V

VENEZUELAN LINES

Complaint should be dllimlilsed

William Levemtein for complainant

John Lamb Jr for respondent

INITIAL DECISION OF ASHBROOK P BRYANT

ADMINISTRATIVE LAW JUDGE 1

This matter arose on two complaints filed by Johnson Johnson

International against Venezuelan Lines originally served on April 29

1971 D ket 7146 and June 2 1971 Docket 71 67 seeking repa

ration in a combined total sum of 3 945 20 and other appropriate

relief The shortened procedure provided by Rule 11 of the Commis

sion s Rules of Practice and Procedure Subpart K46 CFR 502 181

187 was requested Respondent answered agreeing to the shortened

procedure but denying that overcharge had occurred or that repara

tion or other relief was justified The Presiding Administrative Law

Judge then Examiner decided that the record made by the parties

did not prGvide an adequate basis for making the technical and tariff

determinations necessary to decide the matter and directed that an

oral hearing be held
88 FEDERAL MARITIME COMMISSION

Amended complaints were filed in both actions Docket 

served May 31 1972 and Docket 71 67 June 6 1972 seeking re

tionin the combined total sum of 2 839 45 plus 6 percent interes

other appropriate relief In each case respondent answered an

quested dismissal of the amended complaint As the issues in 

cases werevirtu ally identical the complaints wereheard togeth

the same proceeding on July 26 1972 It wasagreed between the pa

and ordered by the Presiding Administrative Law Judge that the 

dence presented under the initial procedure be ignored and tha

matter be decided on the basis ofthe evidence and exhibits produc

tho oral hearing S

FACTS

The shipment in Docket 7146 moved under bill of lading d

February 27 1970 and was described ail 2185 Ctns Surgical D

ings and in Docket 71 67 the shipment moved under bill of la

dated March 27 1970 and was described thereon as 787 Ctns Sur

Dressings weighing 10 096 pounds In each instance the billof la

was prepared and the commodity description viz Surgical Dress

was provided by claimant or by his freight forwarder Both 

ments were via ad De Barquisimeto from New York New Yo

La Guaira Venezuela Freight was assessed by respondent and pa

complainant at the Class 1 rate of 86 per 40 cubic feet provide

1 st Revised Page 89 of United StatesAtlantic and Gulf Venezuela 

Netherlands Antilles Conference Freight Tariff F M C No 2 

Dressings viiSurgical N O S in the sums of 8 514 and 3 6

respectively a total of 12 117 40

Claimant now alleges that in addition to articles properly rat

class 1 the shipment in Docket 7146 included 2997 cubic fe

Ray Tec Sponges J J Code 7438 329 1 cubic feet of Ray 

Sponges J J Code 7404 282 cubic feet of Lap Sponges J 

Code 7442 324 9 cubicfeet of Gauze Sponges J J Code 2318 

cubic feet ofGauze Sponges J J Code 7624 and 786 cubic fe

Topper Sponges J J Code 2436 and that tJe shipment in Do

71 67 included besides articles correctly classified atclass 1 621 

feet of Gauze Sponges J iJ Code 2317 331 5 cubic feet of G

Sponges J J Code 2319and 185 cubic feet of Ray Tee Spo

1

Tr p8 10

Later re pondent ought to have the clas 7 rate applied On MarQh 13 1971 resp

denied the claim on the ground tbat the Item In que tlon had been properly classi

dressings and urecommended that to avoid slmUarproblems inthe future claimant p

to the conference fla list of tbettems shipped by Johnson Johnson relularly and en

to work out classification and rates whlcb will be mutually satisfactory

1611
JOHNSON JOHNSON INTERNATIONAL V VENEZUELAN LINES 89

J J Code 7438 The complaints allege that these specified articles

are properly chargeable atthe class 7 rate of 53 per 40 cubic feet on

the basis of the classification for Gauze viz Surgical in 1st Revised

page 96 ofthe tariff

The testimony showed that above articles may be divided into

three general groups i e Gauze Sponges Ray Tee Sponges and

Topper Sponges Gauze Sponges Codes 2317 2318 2319 and 7624

are simply gauze folded into a number of plies They range between

8 and 16 ply meaning just the number of thicknesses They are used

in surgical operations to absorb blood That is why they are caUed

sponges They come in two basic types One patient ready sterile and

one not sterile They all are cut and folded by machine from 20 x 12

mesh gauze The difference between the sponges identified by different

code numbers are in 1 size 2 number of plies 3 packaging and

4 whether sterile or unsterilized

The articles designated Ray Tee Sponges Code 7438 7404 and

7442 are gauze sponges in which during the cutting folding and

packaging process a blue barium sulfate coated cotton thread or mono

filament is woven into the sponge making it Xray detectable The

addition ofthe blue thread is highly functional as it enables the sponge

to be located by Xray in the event it is left in a wound after an

operation

Topper Sponges have threelayers the outer cover a soft non woven

gauze the middle a viscose filament oflong staple cotton and the inner

layer cellulose A non woven fabric is the same material as gauze but

has two layers of threads laminated together rather than woven as is

gauze The main advantage is that non woven fabric has more ab

sorbency one sponge absorbs more blood Also Topper Sponges cost

about 33 less than equivalent gauze sponges and are used in almost

all sponging cleaning and dressing functions where aU gauze sponges

were formerly employed

All of these sponges are made in exactly the same way Rolls of

material are fed into one end of a machine which cuts folds inserts

stitches and packages the sponges and the same process is used for all

gauze products regardless of size Even 100 yard gauze rolls are cut

and packaged by the same sort of machine However each of the

articles is processed by claimant for a specific purpose which is effectu

ated by themanufacturing process

The articles in question have been variously described by claimant

at different stages of this proceeding and the negotiations which pre

ceded it The items covered by Docket 7146 were first described by

claimant in the bill of lading February 27 1970 as Surgical Dress

16 F MC
90 FEDERAL MARITIME COMMISSION

ingsj Johnson Johnson s refund claim to Venezuelan Line 

tember 11 1970 and its original complaint to the Commission s

that the article in question should have been described as g

bandages The amended complaint May 30 1972 asserts tha

correct description should have been gauze vis Surgical

The articles in 71 67 were described by claimant in bill of la

March 27 1970 as Surgical Dressings Freight refund clai

8 18 70 asserted that the bill of lading description for those ar

described as Surgical Combine Dressings and Band Aid B

Surgical Dressings should have been Rolls Surgical Dressings 

sorbent cotton and absorbent cellulose combined Amended fre

claim of 9 1170 and original complaint filed with the Commi

7 2 72 claimed proper description of all articles should have 

gauze bandages Amended complaintfiled June 5 1972 claime

proper description should have been Gauze viz Surgical

At the time of the shipments here involved the United S

Atlantic Gulf Venezuela and Netherlands AntillesConference Fre

Tariff FMC No 2 shows the following classifications to have be

effect

Dressingg viz Surgical N O S

Class 1 letRev page 89

Gauze viz Surgical

Class 7 1st Rev Page 96

DISCUSSION

The physical description of the items of merchandise here invo

i not in doubt Examples of all such items were received in evid

without objection and they were described in detail by the witne

The dispute concel l1S the tariff category in which these items s

properly be included The essential question is whether the cu

shaping folding packaging sterilizing and in the cases of Ray 

and Topper Sponges the addition of other material conceded

functional purposes so changes the character of the end products 

they can no longer be considered tobe simply surgical gauze bu

in fact surgical dressings This question is not entirely free 

doubt but on the basis of the whole record the complainant ha

sustained the burden to show by clear and convincing evidence 

the various kinds of glze sponges here involved may proper

classified as surgical gauze Indeed the evidence appears to esta

that claimant was correct in its original description of these item

surgical dressings

16 FM
JOHNSON JOHNSON INTERNATIONAL V VENEZUELA LINES 91

Claimant asserts that while there are some physical and functional

differences among them the end products involved are all essentially

gauze sponges used in operative procedures and should properly have

been described and rated as surgical gauze Even though some contain

other material the principal component of each is gauze and all are

manufactured by similar processes on virtually identical machines for

virtually identical functional purposes Despite differences in cata

logue designations each of these items is a variety of gauze sponge

designed for use in connection with surgical procedures Claimant con

cludes that in the case of those items designated simply as gauze

sponges and made entirely of gauze there can be no dispute as to

the correctness of describing them as surgical gauze It further con

tends that the addition of minor material elements in the course of

manufacture of Ray Tee and Topper sponges does not and should not

change the essential character of the article from surgical gauze to

something else These additional elements are not sold or shipped

separately from the gauze sponges but are a minute part of the

entire sponge These elements are specially made for use with and

are components of the gauze sponges in which they appear The

complete articles are designed and used for one purpose sponges to

assist in surgical procedures Claimant also points out that the gov

erning classification ie gauze viz Surgical in the tariff does not

differentiate between the various kinds of surgical gauze On a rea

sonable interpretation of the tariff according to claimant the ques

tioned articles are covered by the tariff description Gauze viz

Surgical Claimant also asserts that if thereis any doubt as to what is

covered by that description the tariff should have been clarified by the

carrier Failing that the words of the tariffshould be construed against

the carrier and according to claimant require the interpretation here

put forward

Respondent s position in essence is that in the manufacturing process

functional items are produced which are in fact surgical dressings

The process by which the basic material loses the characteristics of

surgical gauze and becomes surgicaJ dressings in the preparatory

process appears from the testimony of respondent s witness Tr ps

47 50

the dictionary meaning of ganze is any light transparent woven

material You take any light transparent woven material and further manufac

ture it you cut it you fold it you sterilize it you package it you aredoing that

for a certain purpose What is that purpoEe To save the time and money and

expense of theparty that is going to use that product They are willing to pay

you for it because they feel it costs them less to take a product that has been

manufactured for their own convenience

16 F M C
92 FEDERAL MARITIME COMMISSION

They could buy the gauze and make these things themselves but then 

means cutting and these varlous operations In making these products and t

the sterilization process and this and tbat and the other They apparently pr

not to do that They want the product ready made and properly packed and 

on and so forth

So I would say that If the material Is originally surgical gauze prior to 

It was what we call unbleached gauze and It WIIS further manufactured 

Jdhnson and Johnson to make It surgical gauze when they bleached It It 

simple operation but they changed It Then they further changed that by cut

and packing and sterilizing and so forth so the fact that these things were 

Into the catalogue specifically at the request of Johnson Johnson Indicated 

at that time they knew what they were shipping

Now time elapses and someone comes on and say oh no we have been wr

all of this time We werentshipping the Items In accordance with the catalog

we have something else

Then you say no that Isn t so this cannot be regarded as surgical dres

with cellulose and cotton combined and they say well maybe you areright 

gauze bandages

Then we don tbuy that and they come along and say now we weren tq

right on that lets try surgical gauze so wha Is the answer

They should know what they are shipping They have been manufactu

these commodities for years

EXAMINER BRYANT

once having designated X as X how would he get that changed

THIIi WITNESS

He could go to the conference and file a request of the conference and say

we don t think this Is such and uch and and we ask you to go Into 

matter and amend the tarltt declaration

EXAMINER BRYANT

So Igather that the procedure Is that If at some point even though the pro

hasn tchanged If In the opinion of the shipper either he has made a mistak

for some other reason there ought to be a

change In the classification which 

entitle him to a lesser freight rate what he should do Is make app

tion to the conference Is that It

THE WITNESS

Yes

EXAMINER BRYANT

You don tgo to the carrier but go to the conference

THE WITNESS

Yes

Itis of course true that a shipper is not bounq to pay the char

in the bill of lading without recourse simply because they are based 

IIdescription provided by the shipper whether or not that descrip

is erroneous In We8tem Publi8hing 00 Ino v Hapag Lloyd A 

Docket No 283 1 served April 4 1972 not published in F M C 

ports the Commission squarely negated the notion if such existe

16 FM
JOHNSON JOHNSON INTERNATIONAL V VENEZUELAN LINES 93

that once having described the consist of a shipment in abill of lading

prepared by him or on his behalf ashipper is forever bound by that

description There the Commission reasserted the principlethat

the description on the blIl of lading should not be the single controlling

factor Rather the test Is what claimant can now prove based on all the evidence

as to what was actually shipped even If the actual shipment differed from the

blIl of lading description

This principle is a necessary derivative from Section 18 b 3 of

the Act which provides that no carrier or conference in the foreign

commerce of the United States shall charge or demand or collect or

receive a greater or less ordifferent compensation thanthat specified

in the appropriate tariff filed with the Commission

Even the fact that an erroneous description of the goods actually

shipped in effect induced the carrier s violation ofthe Act can not vary

the express words of the statute Where it has been established beyond

reasonable doubt that whatever the cause an improper rate has been

charged and collected the carrier has violated the Act and must make

reparation in an appropriate case However it is also well established

that a carrier should not be lightly or perfunctorily found to have

violated theAct and hence liable forreparation Each claim should be

carefully weighed on its own merits and reparation awarded only

where th evidence of violation ofthe Act is clear and convincing and

the liability ofthe carrier is free from reasonable doubt especially

where the goods in question have left the carrier s custody and control

In this case as noted above there is no dispute as to the physical

description of the goods shipped It is nonetheless incumbent on

claimant to establish his claim by clear and convincing evidence

Claimant now seeks to change its own interpretation of the tariff in

its own favor and to the detriment of respondent carrier long after

transit is complete and the goods have come to rest in the hands of the

consignee Fairness and equity would seem to require that in circum

stances such as these all reasonable doubt should be resolved in the

carrier s favor In this case after all the evidence is weighed there re

mains at least reasonable doubt if not certainty that the products in

question may not rationally be considered surgical gauze but are

indeed surgical dressings as respondent contends

Claimant is correct in his contention that t4e fact of its resting its

claim on different bases at different times is not determinative of the

issues herein As above stated the inquiry is simply 1 what was actu

ally shipped and 2 what was the proper freight compensation due

the carrier under the tariff However claimant has a substantial eco

nomic motive to establish that the original description and classifica

tion were made by it in error and that it is entitled tothe lower rate

16 F I
94 FEDERAL MARITIME COMMISSION

Claimant s original interpretation of the tariff at a time whe

controversy had not yet arisen may be given weight in decidin

correct description and rate now to be applied to hegoods inque

This is in accord with accepted principles and is in no sense i

sistent with the Commission s holding that the description on th

of lading should not be the single controlling factor

Complainant s present position verges on an assertion that no m

how or to what extent gauze may be cut folded packaged some

sterilized or whetherit may contain a blue X ray detectable mon

ment or layers of viscose and cellulose may be added the materia

rating purposes still retains its characteristics as surgical gauze 

interpretation seemsto stretch the realities beyond permissiblebo

Claimant places reliance for its present position on the fact tha

tariff was prepared by or on behalf of the carrier and hence s

be construed strictly against it In this connection claimant point

that the description gauze viz Surgical in the tariff is not qua

or limited as to size color shape degree of manufacture packag

quality and argues that if the carrier had intended to excep

specific kind of surgical gauze from the description it had a

resp

bility tosay so in the tariff Claimant does not differentiate amon

gauze sponges involved and asserts that by nature use cha

andmanufacture they are all the same

On the other hand respondent asserts that the distinction be

gauze and the end products manufactured from it are clearly r

nized in the tariff and that the distinction between gauze whic

not been processed into sponges and that which has been so proc

is the type of distinction which must form the foundation of 

rational view of tariff interpretation Respondent adds that o

substantial period these distinctions have been recognized and 

upon by claimant and points out that there are many instances w

processing alone justifies rate distinctions between products ma

the same material Itcites several examples from the tariff he

volved of instances where such is the case In these instances as i

case of gauze sponges no other material has been added to chang

nature of the article shipped Hespondent concludes that the rat

interpretation of the tariff which has been followed by respo

over a period of time establishes that the end products eme

from the manufacturing process are not gauze but are intend

be and are used as surgical dressings

The shipper and not the carrier must bear a heavy burden of 

to establish his claim in cases such as this Claimanthere has fail

provide the requisite proof of its contention Indeed it would a

from the record that there is a functional difference between gau

16 F
16 M J

JOHNSON JOHNSON INTERNATIONAL V VENEZUELAN LINES 95

such and the sponges which are manufactured to be used as surgical

dressings Inany event where amistake in description orclassification

is asserted as the grounds for a finding that section 18 b 3 of the

Act has betnviolated by thecarrier as thebasis for a

reparation award

the party who originally provides the commodity description now

claimed to be in error in this casethe shipper has a heavy burden to

establish the requisite factual basis for his claim Complainant has

failed to sustain that burden

Both complaints shouldbe dismissed

Signed ASHBROOK P BRYANT

Administrative Law Judge
FEDERAL MARITIME COMMISSION

FEDERAL MARITIME COMMISSION

DOCKET No 71 18

MATSON NAVIGATION COMPANY GENERAL INCREASE 

RATES IN THE U S PACIFIC HAWAllAN TRADE

Increased rates and charges of Matson Navigation Company in the 

Pacific Hawaiian trade are found not to be unjust unreasonable or

wise unlawful under section 18 a of the Shipping Act 1916 and orsec

and 4 of the Intercoastal Shipping Act 1933

ApPEARANCES Same as in the Administrative Law Jud

initial decision

Decided January 29 1973

REPORT

BY THE COMMISSION Helen Delich Bentley Chairman Ge

H Hearn Vice Chairman Ashton C Barrett James V 

Clarence Morse Commissioners

We instituted this proceeding to determine whether the 

posed increased rates and charges of 12112 percent filed by 

son Navigation Company Matson were unjust unreason

or otherwise unlawful under section 18 a of the Shipping 

1916 and or sections 3 and 4 of the Intercoastal Shipping 

1933

Hearing was held before Administrative Law Judge Sta

M Levy 1 who thereafter issued his initial decision He 

cluded inter alia that the rates under investigation are 

unjust or unreasonable or otherwise unlawful except to the 

tent that westbound general cargo is increased more tha

percent Matson the State of Hawaii hereinafter the Sta

1

Presiding Examiner at the time of issuance ofthe initial decision

96 16 F M C
DOCKET NO 71 18 MATSON NAVIGATION COMPANY 97

Sears Roebuck and Company hereinafter Sears and the

Pineapple Growers Association of Hawaii hereinafter PGA

Lewers Cooke Inc 2and Hearing Counsel filed exceptions to

his decision Oral argument has been heard by the Commission

Upon consideration of the record and the contentions of the

parties we find ourselves in agreement with the initial decision

with the exception tothe conclusion that the increasedrates and

charges should be limited to 11 percent We conclude that the

Matson proposed increases of 12 percent are not unjust or

unreasonable or otherwise unlawful

The positions ofthe parties and the factspertinent thereto are

set forth in detail in the initial decision and will be repeated only

tothe extent necessary for clarity ofdiscussion The exceptions

for the most part ofthe State3

and Sears4

are merely arestate

ment oftheir arguments and contentions presented during the

hearing and on brief On the other hand it is apparent that

Matson and Hearing Counsel would have supported the initial

decision in all respects had not the Administrative Law Judge

determined to reduce the proposed increases from 1212

percent

to 11 percent PGAgenerally excepts to the suggestion that the

rates on eastbound general cargo should be increased 11 percent

and the reasoning behind the suggestion

The State develops over a few pages in its exceptions and

again in oral argument its views that Matson failed to sustain

its burden of proving that the proposed rates were just and

reasonable sInreality itobjects not to the issue ofthe standards

involved but rather to the decision on the merits The State

continues to argue as ithas from the beginning that Matson s

proposed increases should be denied because of inefficiencies

mismanagement and excess fleet capacity The factual matter

contained in the State s exceptions is generally in the same vein

as that already in the record l

nd treated in the initial decision

In our opinion the Administrative Law Judge s approach to

these contentions and to the evidence is both reasonable and

meaningful and provides a highly rational basis for decision in

this case Certainly it cannot be contended with fairness that

theAdministrative Law Judge displayed a carrier knows best

attitude in histreatment ofthose areasofdisagreement with the

2

Lewers Cooke supports and adopts the exceptionsof the State and Sears

3The State did not fUe a

reply to the exceptions of other parties

Sears reinforced its arguments relating to the application of the economic stabilization program by

reference to recent regulations

S Assuming thatMatson had the burdenof proof fortheentire rateincrease includingthat portion ofthe

increased rates not under 8uspension See The Commonwealth of Puerto Rico v Federal Maritime

Commis8ion 468 F 2d 872 DC Cir 1972Matson has demonstra d persuasively andwithan abundance of

evidence that the rates are justified

16 F MC
98 FEDERAL MARITIME COMMISSION

State s position A fair appraisal of the facts particularly t

depicting Matson s vessel capacity scheduling practices t

ment ofautomobiles crane productivity and port time and 

zation ofterminalfacilities lead inevitably toa realization 

the Administrative Law Judge gave them careful atten

Both Matson and Hearing Counsel in particular painstak

have refuted each ofthe major contentionsposed by the Stat

large measure the replies by these parties rely mainly upo

review ofthe evidence contained in the initial decision Acc

ingly we find it necessary as to these issues to summ

discuss the fundamental disputes between the positions o

State and to a degree Sears on the one hand and the in

decision Matson and Hearing Counsel on the other hand

The State directed its principal attack against the all

operating inefficiencies of Matson claiming that without 

ficiencies mismanagement and an excess fleet capacity Ma

would have a reasonable rate ofreturn without havingneed 

rate increase or at least a lesser increase than proposed

These topics reach into conflicting evidence and argum

covering Matson s operations regarding excess fleet capa

scheduling crane productivity the treatment of automobile

container demand cargo and bear upon Matson s manage

decisions in fleet implementation or replacement and op

tions

As tofleet scheduling and vessel deployment the Admini

tive LawJudge found thatthe record fails tosupport aclaim 

Matson improperly utilizes its vessels The State argues 

Matson should operate direct shuttle service between Oak

and Honolulu rather than triangular service between Oak

LosAngeles and Honolulu The State contends that triang

service is inefficient and conceals idle capacity The Admini

tive LawJudge on the otherhand found that ifcargo flow 

ports generating cargo were strictly uniform a shuttle mig

possible but since cargo flow and port generated cargoes are 

even regular it requires triangulation We agree and furt

more the evidence reflects problems of possible congestion 

shipper market disadvantages under the State s proposal

The State also criticized Matson s crane productivity 

length oftime in port Afteranalyzing the conflicting claims 

Administrative Law Judge reasoned that an average of 

containers net pervesselhours berthtime compares favor

with the State s estimated 35 containers per hour ofactual c

operations since the balance of time is attributable to 

16 F M C
DOCKET NO 71 18 MATSON NAVIGATION COMPANY 99

productive crane work for otheroperations orpurposes He also

reasoned correctly that port time must be determined on a

carrier by carrierbasis since factors ofdistance fleet configura

tion and availability of port facilities among others vary so

greatly

The State also claims mismanagement by Matson because of

its decision in 1967to buildtwonew ships instead of one arguing

that the company is turning to the rate payers for relief because

the decision was a mistake producing excess capacity Matson

presented evidence that utilization of container slots including

the two new ships for all vessels ofall carriers in the trade for

the constructive year 1971 72 would amount to 74 to 78 percent

Even though there might be aslight overcapacity it would only

be atemporary situation because at the expected rate oftraffic

growth 9 percent annually the present fleet would be totally

incapable of accommodating the demands of the trade by 1974

This Commission s experience is sufficient to demonstrate to it

that if one waits until the demand is greater than the supply

both the cost ofvessels and carriage historically have been sub

ject to unusually large increases

The Administrative Law Judge correctly observed that

Matson s containerfleet capacity the relationship ofcapacity to

expected demand and the proper treatment of overcapacity in

ratemaking are key issues in the proceeding Such market or

demand forecasting is amatter ofapplying judgment to known

factors The State introduced evidence and argued that Matson

has provided excessive capacity relative to current and

forecasted market demand Matson contended that acapacity of

20 percent over probable demand would be necessary to main

tain a reasonable level of service and reasonably satisfy peak

demands even 25 to 30 might be necessary to accommodate

customer demands The Administrative Law Judge observed

thatthe precise amount of excess capacity to be made available

is necessarily an economic judgment He reasoned that even if

one wereto conclude that overtonnaging exists the building of

an extra ship would be merely a mistake of managerial judg

ment He concluded that Mistakes ofjudgment made in good

faith are insufficient to come within the doctrine of imprudent

investment which would require elimination of the investment

from the rate base That is not to say that more could not have

been done by the management of Matson or could not now be

done but on the present record he found and we agree that

Matson has not demonstrated grave mismanagement gross in

16 F MC
100 FEDERAL MARITIME COMMISSION

efficiencies serious inadequacies of service or indifferenc

the public need We agree with hs observation that The re

reflects a reasonably high standard and quality of servic

Matson

The major dispute and one that the State seems most 

cerned about is the handling ofautomobiles The Stateconte

that automobiles should notbe considered asbona fideconta

cargo in measuring cargo demand against fleet capacity B

cally the State objects to the inclusion ofautomobiles in d

mining a prudent level of fleet capacity because the reve

derived from such carriage are below the average revenue 

container and if automobiles were legitimate container ca

then they should be charged at ahigher rate in ordertoobt

more reasonable revenue One automobile carried in aconta

yields only 209 there is also testimony that it yields 

which falls below the average 597 per container for dry ca

However the revenue yielded falls between directcosts 1

1970 165 in 1971 and fully distributed costs found by the 

ministrative Law Judgetobeapproximately 400 We agree

theAdministrative LawJudgethatthose automobiles that

to move in container slots are alegitimate factor in determ

the overall container slotdemand Furthermore evenwith 

elimination of automobile carriage from container demand 

would notresult in establishing anexcess capacity which w

operate toburden the rate payers as torequire areduction o

rate base or adjustment of the rate of return In fact the 

ministrative Law Judge s treatment of the issues coverin

cess capacity Matson s rate base and the State s other co

tionshave beenthoroughly covered inthe initialdecision an

findings and conclusions on these matters are adopted by us 

principal area ofdisagreement with him falls in our next dis

sion

Matson claimed that rising costs werethe primary reaso

the rate increases including other factors such as incre

investment in new vessels and competition from Seatrain S

the increases wereselective evidence wasintroduced to sup

holddowns on certain cargoes For example refrigerated car

were not increased since there was still wide disparity in 

net to vessel contribution of dry and reefer cargoes Iron 

steel articles were held down because it was a relatively 

item inthe tariff firstappeared onNovember 15 1970 The 

controversial items are eastbound containercargoes princi

canned pineapple which remained atthe 1961 level as ares

16 F MC
eThis figure should be 69 964 000

DOCKET NO 71 18 MATSON NAVIGATION COMPANY 101

a business judgment based on the backhaul nature of the car

goes Awitness testified that the eastbound dry container busi

ness was profitable on an incremental basis but that no fully

distributed cost studies had ever been made

Itis in this areawhere theAdministrative LawJudge caused

the principal concern of Matson Hearing Counsel and the

Pineapple Growers Association Basically he rationalized that

westbound cargoes are more consumeroriented and eastbound

cargoes more industry oriented Thus he reasoned thatby rais

ing the westbound and holding down the eastbound rates the

Hawaiian consumer must subsidize the Hawaiian industry

Principally from these considerations he reached his ultimate

conclusion of reducing the proposed westbound increases from

121f2 percent to 11 percent and suggested that Matson increase

its eastbound rates 11 percent The steps he used were basically

that there is insufficient evidence for concluding that the

pineapple growers are less able topass on addedshippingcosts or

to absorb them than others involved in westbound shipments to

do the same He then concluded that eastbound dry container

rates are not based on fully distributed costs and that west

bound cargo to that degree subsidizes eastbound cargo He fig

ured that of the projected operating revenues totalling

69 594 000 6

resulting in 8 53 percent return 4792 000 is

eastbound cargo not subject to any rate increase He found the

average revenue for eastbound pineapple to be 252 per con

tainer as opposed to other eastbound commercial dry cargo of

324 while westbound the average is approximately 600 for

commercial dry cargo The heart of his reasoning lies in his

statement that

Without the increase the westbound and eastbound projected revenues for

containerized general cargo would amount to 37 032 128 As noted above Mat

son says revenues totaling 41 964 000 arisingoutof containerized general cargo

are necessary when combined with other projected revenues to achieve its

requested rate of return An increase of 4 032 822 in the combined westbound

and eastbound general cargo revenues would realize thisgoal An increase of 11

percent on both westbound and eastbound general cargo including pineapple

would realize additional revenues of 4 073 539 By reducing the 12h percent

increase onwestbound to 11 percent and increasing eastbound 11 percent Mat

son could achieve its requested rate of return and at the same time not unduly

burden westbound cargo

As noted above itwashis conclusion thatwestbound rated be

reduced from 121 2 percent to an 11 percent increase and his

suggestion that the eastbound rates be increased 11 percent

16 F M C
102 FEDERAL MARITIME COMMISSION

which precipitated the excepttons to his decision by three 

ties i e Matson Hearing Counsel and the Pineapple Gro

Association

HearingCounsel argue thatthis conclusion ignores the re

made by Matson who showed aneed for the only rate increas

issue i e the 121h percent general increase on most westb

cargoes and on automobiles They viewed his suggestion o

creases on the eastbound cargoes as amounting to an invita

to immediately increase these rates especially on ca

pineapples They also argue that the record indicates that 

bound rate payers more than reimburse Matson for increme

costs and thus are not burdening westbound rate payers

They point out that the Administrative Law Judge s co

sion would deny Matson 483 404 in revenuesand reduceits 

ofreturn from 8 53 percent of8 09 percent They argue that w

would justify a reduction from 121h to 11 percent would 

showing that 121h percent would produce an excessive ra

return or thatitwasattributabletothe failureofeastbound 

payers to bear the direct costs of carrying their commod

Neither of these situations exist since the 8 53 rate ofretu

admittedly low and the Administrative Law Judge found 

the eastbound rate payers contribute revenues per conta

which are well above incremental costs

Additionally they arguethat it is nottrue that Matson ha

increased any eastbound rates by pointing to bulk raw su

autos andhousehold goods increases the latter delayed bec

of Phase II ofthe Economic Stabilization Program

The holddowns on eastbound containerized cargo w

reasonable exercise ofbusiness judgment to prevent diver

principally to competitive charter vessels The evidence sh

thatthe eastbound containermovement is essentially back 

in nature ie the preponderance of cargo moves westbo

resulting in intense competition for eastbound cargoes 

though the Administrative Law Judge was not persuaded 

diversion of canned pineapple wasprobable no one for ce

knows what would happen and we cannot find that Mats

judgment based onthe threatofcompetition and loss ofreve

wasnot reasonable Matson s records reflect adecline in vo

of pineapple carried to a level below that of 1969

In fact the chartering is an actuality and not amere pos

ity since the PGA have set up an organization for this pur

and are chartering vessels to carry pineapple to East C

destinations The PGA assert and the evidence shows tha

16 F MC
DOCKET NO 7l 18 MATSON NAVIGATION COMPANY 103

increase in those rates would shift the cost advantage to the

charter operation

Pineapple is profitable cargo on an incremental basis and if

diversion occurs the loss of revenue would adversely affect the

westbound rate payers whowould beobliged tocarry thatpart of

the cost burden now borne by the pineapple cargo

We agree that to the extent Matson held down eastbound

container cargo rates they are justified as amatter of business

judgment on the back haul nature ofthe cargo We also find and

conclude that Matson s decision not to increase eastbound gen

eral cargo rates is supported by evidence ofrecord and Matson

should be allowed its requested 121 2

percent rate increases as

proposed

We have carefully reviewed the contentions ofthe parties re

garding the establishingofminimum standard load factors the

minimum bill of lading charge and other matters appearing in

the briefs ofthe parties We do not deem it necessary for the

purpose of this investigation to establish minimum standard

load factors and require Matson to attain this standard before

allowing the authorized rate of return

Although the establishment of a minimum load factor stan

dard may be auseful tooltoenable regulatory agencies toprotect

rate payers against situationswhere excess capacity and under

utilization have developed over theyears into serious problems

such as in the airline industry the record in this case does not

establish that aproblem ofsuch magnitude existswith regard to

Matson in the Hawaiiantrade On the contrary the record indi

cates that even ifthere does exist a current slight overcapacity

the present fleet would be totally incapable of accommodating

the demands ofthe trade by 1974 Finally evenifthe record had

shown a history of excess capacity and underutilization which

would constitute a significant burden on rate payers in the fu

ture in the Hawaiian trade there is insufficient evidence in the

record to enable the Commission to determine a proper load

factor standard Furthermore it must be recognized that the

primary basis for decision by an administrative agency in any

proceeding is the record compiled therein as affected by the

applicable law To this interpretation may be added that the

record fully supports the requested rate increase as proposed

Our future actions if any in the field ofestablishing minimum

standard load factors or requiring Matson to submit periodic

reports in the future regarding its vessels utilization and

scheduling does notaffectourdecision on the merits in this case

16 FM C
104 FEDERAL MARITIME COMMISSION

One final issue should be resolved Sears has made a len

and determined argument that the proposed rate increase

subject tothe Price Commission sregulations The Admin

tive Law Judge summarily dismissed Sears arguments st

in a footnote that the Economic Stabilization Act of 197

D S C 1904 note Supp 1971 did not apply to Matson s 

increase He found

Inasmuch as the increases became effective June 20 1971 this assertio

not be further discussed The recently promulgated regulations of the Co

sion recognize that rates which are the subject of pending proceedings 

underthe policy guidelines However no provision ofthe EconomicStabili

Actof 1970 norany regulation of the Cost of Living Council orthePriceCo

sion purports to requirea rollbackof a regulated rate which was in effectd

the base period This of course does not preclude an investigation as 

reasonableness under the regulatory statutes such as the shipping acts

Basically the purpose of the Economic Stabilization Ac

the initial wage price freeze wastostabilize wages and pric

then existinglevels and tomonitor any subsequent increas

those wages and prices under stricteconomicguidelines In 

proceeding it is uncontested by all parties that Matson s 

went into effect by operation of law prior to the impositi

wage pricecontrols onAugust 15 1971 Further theCommi

had approved anine percent increase in these particular rat

March 6 1971 prior tothe freeze Consequently we are at 

concerned with the remaining 31h percent of increase and 

application of the economic regulations thereto which be

effective June 20 1971 at the expiration ofthe four month 

pension Matson began chargingthe fullincreased rates on 

20 1971

In August subsequent to the expiration of the suspe

period the Presidentissued Executive Order No 11615 3 C 

199 1972 exercising his authority7 under the Act to issu

propriate orders forthe stabilization of prices rents wages 

salaries

In reviewing the implementing regulations under 

Economic Stabilization Act it is apparent that the progra

designed to exercise controls over any price or wage incre

above those levels which existed prior to the freeze In ord

determine these levels abase period wasestablished for w

and prices known as the freeze base period 8 from July 16 

toAugust 14 1971 The regulations further providethat the 

The delegation of authority was upheld In Amalgamated Meat Cutter ButollerWorkmen vC

337 F Supp 737 DC DC 1971 three judge court

6 CFR I 800 6

16 F M C
16 F MC

DOCKET NO 71 18 MATSON NAVIGATION COMPANY 105

price is the highest price charged in a substantial number of

transactions duringthat period 9

There is nolimiting language

as to what kindofcharge can be made during the base period i

e

final price approved price lawful price etc but merely the

highest price In Matsons case this highest price was the in

creased rates which were lawfully in effect during the entire

base period

Operating from that premise and as the scope ofthe regula

tion is limited to increases in prices after November 13 1971 10

there has been no increase in Matson s rates since prior to the

freeze hence no increase upon which the stabilization regula

tions can act This point is further borne out by looking at the

interim rate provisions 11

as issued on June 2 1972 12 bythe Price

Commission upon which Sears bases its most recent argument

That regulation in its definitions establishes that an interim

rate means anincreased rate allowed to go into effect by opera

tion oflaw emphasis ours l3 In light ofthe purposes and

scope of the Act this would make the interim rate regulation

applicable to any rate increased overthose base levelsthat were

established in mid July to mid August Here as Hearing Counsel

contend andwe agree no increase existsupon whichtheAct can

operate The interim regulations as part of the stabilization

guidelines must work to effectuate the scope and intent ofthat

law and must find their powers and limitations underthat law

Sears would seem to have theCommission believe that somehow

the interim regulations go beyond the scope purpose and ap

plicability of the Economic Stabilization Act to regulate in

creases in prices after November 13 1971 and require arollback

of a price upon which there has been no increase to levels of

January and February 1971 afulleight months before the price

regulations were even promulgated

In essence Sears would allow any party affected by a rate

increase to pick a base period that best suits itself Itis not we

think the purpose of the economic stabilization program to

punish persons charging prices valid at the inception of the

program by a later promulgation ofretroactive or ex post facto

regulations which have no legitimate application to earlier

increases 14

Id

106 CFR 300 I

11 6 CFR 300 16a

12 These regulations were republished September 18 1972 with no appreciable modifications

136 CFR 300 168

14 On January 11 1973 Executive Order 11695 amended the Economic Stabilization Act of 1970 by

abolishing the Price Commission and Pay Board whi1 retaining the Cost of Living Council
106 FEDERAL MARITIME COMMISSION

Accordingly except as noted herein we adopt the Admin

tive Law Judge s initial decision as ourown and make it a

hereof This decision is not a major federal action signific

affecting the quality of the human environment within 

meaning of the Nation l Environmental Policy Act of 196

This proceeding is discontinued

SEAL FRANCIS C HURNEY

Secreta

16 F MC
FEDERAL MARITIME COMMISSION

No 71 18

MATSON NAVIGATION COMPANY GENERAL INCREASE IN

RATES IN THE U S PACIFIC HAWAIIAN TRADE

Increased rates and charges of Matson Navigation Company in the U S

Pacific Hawaiian trade for the most part are found notto be unjust un

reasonable orotherwise unlawful under section 18 a of the Shipping Act

1916 and or sections 3 and 4 of the Intercoastal Shipping Act 1933

George D Rives David F Anderson and PeterP Wilson for

Matson Navigation Company respondent

George Pai Richard S Sasaki andWalton Hong for the State

ofHawaii ThomasM Knebel for Lewers Cooke Inc StantonP

Sender David W Raymond Vincent W Jones and Joseph L

Davis for Sears Roebuck and Co and CarlA Leonard for the

Pineapple Growers Association of Hawaii interveners

Donald J Brunner Norman D Kline and Paul J KaUer as

Hearing Counsel

INITIAL DECISION OF STANLEY M LEVY PRESIDING

EXAMINERl

On January 5 1971 Matson Navigation Company Matson

filed with the Commission its Westbound Container Freight

Tariff FMCF No 146 and Second Revised page 9 to Tariff

FMCF No 143 to become effective March 1 1971 generally

increasing rates and charges from U S Pacific coast ports to

ports in Hawaii On February 24 1971 the Commission ordered

an investigation and hearing todetermine whethertheproposed

12 percent increase was unjust unreasonable or otherwise

unlawful under section 18 a of the Shipping Act 1916 and or

sections 3 and 4 ofthe Intercoastal Shipping Act 1933 However

the Commission granted Matson authority to publish a script

JThis decision became the decision of the Commission January 29 1973

16 F MC 107
108 FEDERAL MARITIME COMMISSION

clause notation to provide for a percentage increase not to 

ceed 9 percent to become effective not earlier than Marc

1971 The balance ofthe tariffincreases were suspended to 

including June 19 1971

TariffFMCF No 146 cancelled all dry cargo LCL commo

rates which include pickup service causing future LCL s

ments to be assessed cargo no s rates which do not inc

pickup service thereby effectively increasing rates on 

shipments requiring pickup service by 11 to 86 percent To e

nate this and certain other controversial aspects of the ta

Matson amended its filing and reinstated the LCL commo

rates to reflect anincrease of 1212 percent Thereafter var

protestants withdrew from the proceeding

Hearings were held in San Francisco California from Ma

through May 26 August 17 and 18 and inWashington D C 

October 26through 29 1971 Participants wereMatson the S

of Hawaii the State Sears Roebuck and Company Sears 

Pineapple Growers Association of Hawaii PGA Lewers 

Cooke Inc 2

and Hearing Counsel In addition a numbe

Hawaiian interests filed statements of position detailing 

expected impact ofthe increases on various types oftheir op

tions

BACKGROUND

Matson a common carrier of property by water betw

United States Pacific coast ports and ports in the Sta

Hawaii is awholly owned subsidiary ofAlexander Bald

Inc A B a diversified company headquartered in Hono

and operates a fleet of 12 specialized containerbulk and 

sugar automobile vessels includingthe barge Islander Ma

has leased or been assigned preferential terminal facilitie

Los Angeles California Portland Oregon Seattle Washing

and Honolulu Kahului Hilo and Nawiliwili Hawaii

Although the great bulk ofMatson scargoes move under

to port tariffs filed with the Commission it does carry 

cargoes underjoint through rates with land carriers subje

tariffs filed with the Interstate Commerce Commission 

Matson has equipment interchange agreements withconne

rail and motor carriers to facilitate through movement 

containers to and from inland points including the Midwe

The basic pattern of Matson s operation is the carriag

lOt the participants PGA and Lewers and Cooke did not file opening orreply briefs Lewers an

however subscribes to supports and adopts the openin briefof the State

16 F MC
DOCKET NO 71 18MATSON NAVIGATION COMPANY 109

containerized cargo automobiles and bulk fuel oil westbound

and bulk raw sugar bulk molasses and containerized cargo

eastbound The great preponderance of the movement of con

tainerized cargo and automobiles is westbound Bulkraw sugar

is loaded at all of the principal ports of Hawaii and carried to a

sugar refinery atCrockett California about three hours steam

ing time from Oakland

Unlike its containership competitors Matsoncurrently offers

the public both containerload and less than containerload ship

ments For many years ithas been themajor carrierin the trade

and for some of those years it enjoyed a monopoly or near

monopoly position However beginning in 1969 with the entry of

Seatrain into the trade Matson began to face substantial com

petition Seatrain is considered to be the major competitor for

westbound dry container cargo with about 22V2 percent penetra

tion U S Lines penetration is estimated at about 4 percent

and barge operators 1 percent All of the foregoing percentages

ofcompetitive carriage are estimates by Matson based on some

what imperfect economic and business intelligence and were

compiled prior tothe recent introduction by Seatrain ofanaddi

tional ship into the trade which may reduce Matsons share to

some unknown degree

The overall total of 72 percent ofwestbound commercial dry

cargowhich Matson estimates as its share ofthetrade is derived

however from carrying 98 percent ofthe containers moving out

ofthe Pacific Northwest 75 percent ofthe containers moving out

ofLosAngeles and only 64 percentofthe containers moving out

ofOakland The Oakland percentage reflectsabasic difference in

the operations of Matson and Seatrain Operationally Seatrain

uses overland carriers from the Northwest and Southern

California to connect with their ships sailing from Oakland U S

Lines sails out of Los Angeles as well as Oakland

Except for Matson offering LCLservice forwhichitmaintains

and operates container freight stations Matson concedes that

the services offered by the containership carriers in the trade

are generally parallel Although therehas been some suggestion

that cream skimming may exist in the trade no evidence to

this effect waspresented and there is testimony that the cargo

mixof Matson and Seatrain are generally similar Matson con

tinues to have a monopoly on westbound commercial reefer

cargo 90 percent and on westbound vehicles 96 percent East

bound it has approximately 93 percent of the dry container

cargo and 97 percent of the reefer container cargo

16 F M C
110 FEDERAL MARITIME COMMISSION

Tariff increases and holddowns

The increases which are the subject of this proceeding 

found inWestbound ContainerFreight TariffNo 14B FMC 

146 and Second Revised page 9 ofFreight TariffNo 27 FM

No 143 automobile rates The holddowns in Tariff 14B 

household goods iron orsteelarticles tinplate coins and re

erated cargo Matson introduced evidence thatwestbound re

rates have notbeen increased because the difference in ave

per containerrevenues for reefer and dry containers alread

existence under the old rates does not justify any increase b

on added costs of carrying reefer containers Hence altho

claiming rising costs have finally forced it to apply for its 

general rate increase in ten years respondent has neverthe

held down rate increases for the transportation of fresh 

frozen food The company s rationale strongly suggests 

based on lower than current costs of carriage the Haw

housewife over the past ten years may have been paying 

much for the transportation of fresh and frozen foods

Subsequent to the institution of the proceeding a numb

changes weremade in the rates havingthe effect ofrolling 

to the 12112 percent increase level all rates except the minim

bill of lading charge which had been increased more than 

percent The less than containerload rates also were resto

The minimum bill of lading charge was increased from 6 

25 admittedly forthe purpose ofdiscouragingthe traffic w

Matson suggests could otherwise move by means of freigh

warders parcel post orair carriers The rate increases with 

roll backs noted above became effective June 20 1971 a

expiration of the four month suspension In accordance 

authorization in the Order of Investigation 9 percent icre

became effective on March 6 1971 Thus on June 20 the r

were increased an additional 3 percent

Althoughthe witnesses primarily addressed themselvesto

westbound container tariffs it is not accurate to characte

the rate increases as limited to westbound cargoes Additi

revenues will be received from a new Sugar Freighting Ag

mentand Freight TariffNo 12 C FMC F No 147 which bec

effective July 1 1971 The increase in annual revenues from 

carriage of sugar under the new tariff if applied to the 

sugar tonnage would amountto 2 500 000 3In addition to e

I Eastboundsugar comprisesabout 25 percent of thetotal revenuetons that are transported inth

and accountls orapproximately 10 percent of the trade revenues Matson has 100 percent of th

carrial e

in the trade

16 F M C
16 F M C

DOCKET NO 7l 18MATSON NAVIGATION COMPANY 111

bound sugar the increasein automobile rates inTariff27 applies

to eastbound as well as westbound traffic although Matson con

cedes that the movement is predominantly westbound

Eastbound Container Freight TariffNo 15A FMC F No 139

containing among others rates for the movement of canned

pineapple household goods and refrigerated cargo is not under

investigation in this proceeding Matson does not propose to

increase the eastbound container rates However it was

Matson s intent only to defer an increase in household goods

rates and torequest a121f2 percent increase both eastbound and

westbound effective November 1 1971 Most household goods

move under a government bill of lading negotiated with the

Government and bidding and contractprocedures established by

theGovernment permit changes in the household goods movers

rates onlytwice ayear Accordingly Matson intended todefer its

increases tothe household goods movers so thatthey might have

an opportunity to increase their rates to the Government before

having to pay the increased rates Matson did file 121f2 percent

increases in household goods rates to be effective at the expira

tion ofPhase IoftheEconomic Stabilization Program butPhase

II ofthe program has further delayed the effective date

For the constructive year approximately 65 percent of the

total revenue tonsofcargo are subjectto rate increases includes

increases in sugar tariff and projected increases in household

goods

Matson has filed increases in its joint rail water and motor

water tariffs filed with the ICC comparable tothe increases filed

with this Commission in order thatthe relationship between the

two can be maintained Respondent s westbound ICC revenues

constitute about 7 percent ofits total westbound revenue ICC

Tariff Nos 20 21 and 22

Matson projects that a 121 2percent rate increase will yield an

overall rate ofreturn on rate base of8 53 percent or8 75 percent

return on common equity Priorto the 121 2percent increases the

rates under investigation were generally at the same level as

they were in 1961 The rates publishedin 1961 were approved in

General Increases in Rates 1961 7 F M C 260 In that decision

the Commission found not excessive a rate of return on rate

base of 10 59 percent The rate of return of 8 53 percent is pre

mised on net income after taxes which takes into account not

only the 121 2 percent increase under investigation but also the

increase for sugar Ifand when the household goods increase of

121 2percent goes into effect the increase in netresulting there
112 FEDERAL MARITIME COMMISSION

from will enhance Matson s rate of return The degree to wh

the 8 53percent will be increased is notestablished by the rec

though presumably it will not be substantial Without the 

posed rate increases Matson believes that its earnings wil

seriously inadequate and that with the full proposed increa

its earnings will not be excessive

POSITIONS OF HEARING COUNSEL AND INTERVENE

With the exception of the increase in minimum bill oflad

charge Hearing Counsel supports the rate increase

The State s position in essence is that respondent failed 

sustain its burden of proof and that the present rates are a

quate to generate sufficient revenues to cover all of Matso

revenue requirements at areasonable load factor performan

and in the alternative that adjustments in individual comm

ity rates tocompensatory levels will produce sufficient reven

to cover all revenue requirements It further asserts that 

company has failed to show that the new rate structure or 

mannerofdistributingthe costburden is not discriminatory 

large measure theState attempts torebutthe claim ofneed f

rate increase by asserting that the container vessel capacit

unreasonably excessive in relation to market demand

Sears asserts that the increase would be violative of 

economic stabilization program instituted in Executive Or

No 11627 October 15 1971 4

In agreement with the State it 

asserts thatMatson has failed toprove that its projected rat

return is based on a prudent rate base because its rate b

includes an overtonnaged fleet Finally it contends that 

increase is unjust and unreasonable because the major port

ofthe increase is arbitrarily imposed on westbound shipper

EFFICIENCY OF OPERATION

The State urges that Matson be denied its requested r

increase or be allowed a lesser rate increase than request

because it is operating inefficiently it being asserted that e

cientoperation would permit areasonablerate ofreturnwitho

the necessityof arate increase or atleast necessitating ales

rate increase than requested

4

Inasmuehas the increases became effective June 20 1971 this assertion will notbe further discu

The recently promulgated regulations of t

eCommission recognize that rates which are the subj

pending proceedings comeunder thepolicyguidelines However no provision oitha EconomicStabiliz

Actof1970 norany regulation of theCost of Living Councilor ofthe Price Commission purports to req

rollback of a

regulated ratewhich was in effect duringthe base period This arcourle does notpreclu

investigation as to ita reallonablenen underthe regulatory statutes such as the shipping acts

16 F MC
DOCKET NO 71 18MATSON NAVIGATION COMPANY 113

Resolution ofthis issue requires ninquiry into Matson s fleet

scheduling and operation necessarily involving consideration of

cargo availability cargo patterns terminal facilities and the

relationship offleet capacity to demand particularly as it bears

on management decisions relating to fleet implementation or

replacement It also requires inquiry into crane productivity

berth conflicts and port time as well as the company s practice

regarding the carriage of automobiles

Fleet scheduling and operation

Matson operates its fleet in the following manner The

Enterprise and Progress are on a 14 day triangular cycle from

Los Angeles to San Francisco toHonolulu to Los Angeles carry

ing containers bulk fuel oil vehicles and conventional cargo

westbound and containers vehicles conventional cargo and

bulk molasses Progress only eastbound The Queen and

Monarch are on a21 day triangular turn from San Francisco to

LosAngeles to Honolulu to San Francisco carrying containers

bulk fuel oil and vehicles eastbound The Californian and

Hawaiian are on a24 day schedule from San Francisco toSeattle

to Portland to Honolulu to San Francisco carrying containers

bulk fuel oil and vehicles westbound and bulk raw sugar bulk

molasses and containers eastbound The Legislator or the

Motorist is on a 14 daydirect turn from Los Angeles toHonolulu

to Los Angeles every thirdweek to fill in the gap in the schedule

oftheMonarch and Queen andgives Los Angeles adirect depar

ture for Honolulu each week

In addition to the basic schedules outlined above the

Legislator Motorist and Citizen make additional voyagesduring

peak demand periods and when other vessels are in annual

layup The Kopaa a bulk sugar carrier has only two voyages

scheduled for the constructive year the Citizen only five Be

cause ofthis limited use no inactive vessel expense forthosetwo

vessels is allocated to the trade for the constructive year

The basic fleet schedule gives San Francisco area shippers a

fixed day of the week departure5

on eithertheEnterprise orthe

Progress every Friday morning Los Angeles area shippers are

provided one indirect departure each week Le through San

Francisco on the Enterprise or Progress which departs Los

Angeles each Tuesday The Monarch orQueen supplemented

every third week by the Legislator orMotorist gives the Los

Angeles area shippers a fixed day of the week direct departure

S

Seatrain offers aweekly service but the day may vary from sailing to sailing

16 F M C
114 FEDERAL MARITIME COMMISSION

for Honolulu Fixed day of the week service toPacificNorthw

ports cannot be achieved because of the 24 day turn of 

Californian and Hawaiian but 12 day departure frequency 

offered

Although it was the position of a witness for the State t

Matson by triangulating instead of shuttling was failing 

obtain maximum productivity from its fleet because ofits des

to maintain consistent day of the week departures from O

land and Los Angeles the weight ofthe evidence is thatsched

ing and operational advantages are the principal reasons 

triangulating and fixed day of the week service There is 

doubt thatitalso is advantageous from amarketing standpo

but the State switness contended that this advantage accrue

only a few shippers at the expense of efficiency The great

beneficiaries of day of the week sailings are shippers of c

cargo which comprises about 39 percent on aweight basis 

westboundreefer container cargo The chill cargo is regarded 

the most time sensitive cargo in that shippers desire arrival

phase with greater requirements ofend of week shoppers

The Enterprise and Progress notonly cannot reasonably m

theirtriangular Honolulu Los Angeles San Francisco Hono

run in less than 14 days but have difficulty making t

schedule Matson has a continuous problem of getting em

containers back to themainland from Honolulu and ifposs

would have desired tofill theEnterprise and Progress with e

ties for most eastbound voyages TheEnterprise Progress o

carry more westbound than eastbound containers because 

14 day turn schedule does notallow sufficienttime tocomple

fillout the vesselswith eastbound empty containers This ma

alleviated with the addition of another long reach crane 

under consideration Thus these vessels instead ofbeing d

erately slowed down as alleged by the State switness are in 

operated on a tight schedule In addition triangular ser

improves utilization ofthese ships because there is insuffic

cargo at either Oakland or Los Angeles alone

The Citizen Motorist and Legislator when operating are 

14 day turn between Los Angeles andHonolulu and cannot 

faster The Hawaiianand Californianare triangulatingthro

the Northwest at their maximum continuous capacity S

they are not on afixed day ofthe week schedule any conten

that scheduling has been slowed to accommodate fixed da

the week service could have no application tothem TheMona

and Queen have aminimum turn time of19 days and 11 hou

16 F MC
DOCKET NO 71 18 MATSON NAVIGATION COMPANY 115

their triangular runs which include eastbound carriage ofbulk

raw sugar to Crockett To avoid berth conflicts and port conges

tion that would arise if theMonarch and Queen were not oper

ated inphase with theEnterprise Progress Motorist Legislator

and Citizen which are on 14 day turns the Monarch andQueen

have been slowed down from the 19 day ll hour turn to a21 day

turn However even if Matson attempted to operate them on a

19 day ll hour turn portcongestion expecially at the Honolulu

apex ofthe triangle whichcan be viewed as the spout ofafunnel

being force fed by four West coast ports would be such that the

shorter schedule could not be maintained An accelerated

schedule with reduced turnaround time notonly would produce

berthing problems but would cause load factors to decline A

Matson exhibit illustrates that a reduction in turnaround time

fortheMonarch andQueen although physically possible results

in a decline in load factor to a 75 percent level

Mr Plymale Matson s assistant general manager for freight

operations wasofthe opinion that it would not be feasible from

an operations standpointtooperate the fleet on ashuttle basisor

with only one of the new Enterprise class vessels He testified

that one such 23 knot vessel could not be properly integrated

into the fleet where the others are 15 knot vessels to provide an

acceptable service package because of the different turn times

and different vessel capacities Ifcargo flow and ports generat

ing cargo were strictly uniform a shuttle might be possible but

since cargo flow and port generated cargoes are not evenregular

itrequirestriangulation Once avessel is forced into atriangular

operating pattern a single vessel would create service patterns

incompatible with other fleet units and would result in uneven

utilization ofport facilities An even utilization ofport facilities

is necessary to prevent berth congestion and disruption of ser

vice Two vessels in triangular service on a 14 day turn best meet

the phasing demands of the traffic other fleet units and port

facilities

Inconsideration ofall thefactors the record does notestablish

that Matson has improperly utilizedits ships in amannerwhich

would require that the rate increase be denied

Crane productivity and port time

Another area ofcriticism by theState involves Matson s crane

productivity and length of time in port The State s witness

Tucker relied on the MRC Impact study the PRC study plus

personal observation all of which caused him to conclude that

16 F M C
116 FEDERAL MARITIME COMMISSION

efficient crane productivity should range from 20 to 40 conta

ersper hour instead of15 at Honolulu and 20 at Oakland wh

he contends is Matson s case Matson s actual experience atO

land for the Monarch and Queen revealed however that on 

voyage samples in 1969 productivity was 28 5 containers 

hour if total berth time was considered but 44 containers 

hour if only actual crane operation time was considered

The MRC study relied on by the State does not indic

whether the total time or merely productive time was con

ered and itis also possible thatthe study did not mean 40 c

tainers per hour for one crane but for two ie 20 per hour T

PRC study is also notentirely comparable because it did not 

total berth time so that its conclusion regarding 35 contain

per hour must be reduced If so Matson suggests the PRC stu

would have found 20 as the correct figure rather than 35

AtHonolulu crane productivity is reduced because ofthe la

of adequate long reach cranes to service the Enterprise 

Progress In order to speed loading and unloading Matson 

considering the economic feasibility of converting one of 

short reach cranes Ifanadditional long reach crane is install

itwould not only serve to increase productivity but would se

to alleviate the problem relating to leaving empty contain

behind in orderto maintain schedules

The average of 281h containers net per vessel hours of be

time compares most favorably with the State s witness e

mated crane productivity of 35 containers per hour of act

crane operation when it is considered that the 281h contain

per berth hour is achieved when only 15 7 hours of the 48 3ho

on berth were productively utilized in loading and unloadi

The balance oftime is attributable tononproductive cranew

for otheroperations or purposes

Mr Tuckerquestioned Matson sefficiency by contending th

its port time was an undulyhigh percentage oftotal voyage tu

time Various trades willhave adifferent percentage genera

relating to total sea time Thus for the EuropeanJapan tra

route the percentage ofport time would be quitelow whereas 

a short trade route as for example New YorkPuerto Ri

where the total steaming time is about 21h days each way t

percentage of port time is quite high The rule of thumb of 

percent on which Mr Tucker relies is suggested for the No

Atlantic trade and cannot be construed to show that Matson 

inefficient in this regard Itis apparentthat the reasonablera

of steaming to port time insofar as it reflects on operatio

16 F M C
DOCKET NO 71 18 MATSON NAVIGATION COMPANY 117

efficiency must be determined on acarrier by carrierbasis since

factors of distance fleet configuration and availability of port

facilities among others vary so greatly

On the basis of the foregoing Matson s average port time of

37 2 percent is not unduly high

Matson s utilization of port and terminal facilities has ex

ceededminimum use wharfage charges every yearto date Thus

payment of penalties for underuse of the facilities has been

avoided Avoidance ofpenalties is apositive factorin evaluating

the issue of Matson s operating efficiency

Itis concluded andfound that Matson s operations are reason

ably efficient as reflected in crane productivity port time and

utilization of terminal facilities and that the record does not

support areduction in the rate base orthe adjustment ofthe rate

ofreturn by reason thereof

Efficiency and its relationship to permissible rates

Carriers orpublic utilities may be denied rate increases ormay

be ordered to improve service where inefficiencies or misman

agement have been demonstrated See for example Market

Street Railway Co v Railroad Commission of California 324

U S 548 556 563 1948 American Export Isbrandtsen Lines

Inc et al v FederalMaritime Commission United States Court

of Appeals for D C Circuit No 22 820 June 11 1970 In such

instances however the record must demonstrate grave mis

management gross inefficiencies or serious inadequacies of

servIce

The State claims mismanagement by reason ofthe decision in

1967to build both theEnterprise and theProgress instead ofjust

one vessel and charges thatthe company is turning to the rate

payers for reliefbecause ofits bad judgment Mr Tucker for the

State concluded that Matson has overtonnaged the trade by at

least 24 58 percent He recommends two methods by which the

excess imprudent capacity may be eliminated in determining

Matson s allowable revenues and returns either by inflatingthe

traffic base tobring traffic andcapacity intoproper balance orby

reducingthe rate base by disallowing apro rata share ofthe rate

base fleet again to bring capacity and demand into a proper

balance Mr Tucker calculated under the first method that traf

fic must increase by 24 6 percent presumably producing a cor

responding increase in revenue and approximately equal in

crease in certain costs The results ofsuch computations are that

Matson would enjoy a return of 10 53 percent on its rate base

16 F MC
118 FEDERAL MARITIME COMMISSION

without any rate increase based upon Mr Tucker s lowest e

mates of surplus capacity Under his second approach 

Tuckerwould disallow 24 58percent ofMatson s vesselportio

the rate base or some 10 677 000 which would raise the rate 

return to 10 08 percent

Matson denies that it has overtonnaged the trade and c

tends that it has a prudent reserve lift capacity of about 

percent relative to annual westbound requirements Mr Yat

for Matson asserted that utilization of container slots dur

the constructive year July 1971June 1972 for all vessels in 

trade operated by Matson Seatrain and U S Lines wo

amount to some 74 percent 124 917 demand divided by 168 

total capacity with all vessels in continuous service and some 

percent with the HawaiianCitizen operating only an assigne

voyages per year 124 917 divided by 159 726 By 1974 furth

more at an expected rate oftrafficgrowth of9 percent annua

utilization would rise to over 91 percent with all vessels in c

tinuous service Mr Yates concluded that by 1974 the pres

fleet would be totally incapable of accommodating the dema

of the trade

Mr Yates criticizes the MRC 1970 Impact study which 

Tucker quoted regarding overtonnaging in the Hawaiiantra

This study relied on a 1968 cargo base and determined that a 

percent rate of traffic growth would be necessary to prop

utilize capacity in 1974 However Mr Yates states that 

study omittedthe requirement tocarry automob les and tha

wasunable todetermine how the 12 percent figure wasderiv

Atmost Mr Yateswould admit thatthere is aslight overcap

ity today but that thiswould not be true next year nor the y

after when there would be an inadequacy 6

Another way in which Matson refutes Hawaii s content

regarding overcapacity is to construct a fleet operation un

the assumption that the second new containership theProgre

had never entered the fleet Under this assumption exc

capacity would amount to only 11 9 percent if the fleet w

operated on acoordinated basis On an uncoordinated basis 

on accelerated voyages without regard toberthconflicts orp

congestion excess capacity would rise to 17 6 percent With

the Progre88 Matson s overall rate of return following the r

increase would rise from 8 53 percent to8 87 percent Return 

IIThis could occur if fully depreciated ships such as the Californian and Hawaiian are retired 

Legislator willbe fully dpreciated by September1978 Matson has no preunt plan fol fleet implemen

orreplacement Mr Tucker however calculated that excess capacity would not faUinto the 20 p

range until 1975

16 F MC
DOCKET NO 71 18 MATSON NAVIGATION COMPANY 119

equity rises from 8 75 percent with the Progress in the fleet to

9 24 percent without her

Excess capacity

Matson s container fleet capacity the relationship ofcapacity

toexpected demand and the proper treatmentofovercapacity in

rate making are key issues in this proceeding Whether agiven

amount of capacity is reasonable or unreasonable is largely de

pendent on the prevailing degree of overcapacity relative to

demand with due consideration given to the demand charac

teristics of the Pacific coast Hawaii trade

Market ordemand forecasting in the finalanalysis is amatter

ofapplying judgment to known factors Matson utilized a trend

line based on historical factors to forecast the market for the

constructive year Tucker for the State criticized this method

suggesting that acorrelation analysis would yield betterresults

Although the witnesses differed on the preferable method

either method is susceptible to errorand actual deviations in the

Hawaiian trade have not varied materially from the trend line

in the vicinity ofplus or minus 10 percent 7

The public interest is not served by fleets which are either too

small ortoo large for the demand ofthe marketplace To this end

the State introduced evidence contending that the instant con

tainer tradeis seriously overtonnaged and thatMatson has pro

vided excessive capacity relative tocurrent and forecasted mar

ket demand

At the heart of the question of capacity is a determination of

the point atwhichcapacity becomes excessive Matsonwitnesses

postulated that a capacity 20 percent over probable demand

would be necessary to maintain areasonable level ofservice and

reasonably satisfy peak demands The State s witnesses accept

the proposition that a20 percent level ofcapacity over demand is

prudent and necessary They contend however that any capac

ity in excess of 20 percent of demand is imprudent aburden on

the rate payers and that rate base or rate ofreturn should be

adjusted to eliminate thatburden Matson s witnesses have de

nied that 20 percent is an absolute but rather assert that it is

only a bench mark They testified that even 25 to 30 percent

might be necessary to accommodate customer demand

Itis axiomatic thatthe greater the excess capacity the greater

7 TheState introducedeconomic testimony indicating that the island s economy will not seethe growth

trendsof the late 60 s

If 80 Matson may overestimatethe market It isnot possible however to determine

the accuracy of either prediction

16 F M C
120 FEDERAL MARITIME COMMISSION

the ability to meet sudden surge in demand and to that ext

the greater the percentage of time the carrier can sat

everybody s demands The precise amount of excess capacity 

be made available is necessarily aneconomic judgment It t

requires abalancing between capacity which may be idleforp

or even much of the year and meeting the fluctuating requ

ments of customer demand

Regarding Matson s method of forecasting market deman

is found tobe reasonably accurate and should be relied on in t

proceeding It is also found and concluded that a 20 perc

excess capacity is not excessive However it is not impruden

provide excess capacity of 25 percent or even 30 percent un

circumstances where peak or seasonal demand require it 

other proper reasons exist which may temporarily cause s

higher excess capacities as for example when new large 

faster ships firstbecome available in atrade whichis expected 

grow

Even if one were to conclude that overtonnaging exists wh

would not have resulted ifmanagement had decided tobuildo

theEnterprise yet thiswould be merely amistake ofmanage

judgment Mistakes ofjudgment made in good faith are insu

cienttocome within the doctrine ofimprudent investment wh

would require elimination of the investment from the rate ba

It is not to be presumed that there may not be room for 

provement in Matson s present operations Undoubtedly i

business as large and involved as this many improveme

might be suggested and implemented but the present rec

does not demonstrate grave mismanagement gross ineffici

cies serious inadequacies of service or indifference tothe pu

need Quite the contrary The record reflects a

reasonably h

standard and quality of service by Matson and no evidence w

offered of customer complaint ordiscontent in terms ofserv

On this record itis concluded that claims of mismanagem

and inefficiency relating to the construction oftwo vessels ha

not been proved

j

Carriage of automobiles

On the issue ofMatson sactual capacity the State estimate

tobe 126 430 annual container slots whereas Matson estimate

to be 114 786 slots

The State computes Matson s capacity over demand to 

52 140 containers or 412 percent of total capacity Matson co

16 F MC
16 F MC

DOCKET NO 71 18 MATSON NAVIGATION COMPANY 121

putes acapacity excess of 17 659 containers over demand or 15 4

percent of total capacity

The reason for the wide discrepancy in the above calculations

is the different treatment ofautomobiles in the demand portion

ofthe calculation the use of scheduled capacity of26 voyages of

the Motorist andLegislator as opposed topotential capacity with

50 voyages ofthese specialized auto carriers and the inclusion

by the State of 25 voyages ofthe Citizen instead of the five that

are actually charged to the trade

It is apparent that the determination of Matson s excess

capacity will vary depending upon how one considers au

tomobiles and whetherone uses actual scheduling as opposed to

potential capacity of Matson s ships The automobiles which are

the bone of contention number 44 968 in the constructive year

but they do not all move in containers or container slots 17 331

move in garage stow aboard specialized vessels or vessels par

tially adapted for such carriage 8

9 600 in racks 9and only 18 037

actually in containers to Although the State contends that au

tomobiles should not be included in demand it concedes that

not all ofthe 44 968 automobiles could be carried in garage stow

even ifthe four ships8 made every voyage annually which they

are theoretically capable of making Some 15 900 automobiles

would still have to move in container slots This portion of the

automobile carriage is in any event a legitimate factor in de

termining container slot demand

Allthings being equal Matsonprefers tocarry automobiles in

garage stow on its specialized auto carrying vessels and would

prefer to sail acontainership completely filled with cargo other

than autos in containers or in auto racks The sheer economics of

the situation dictates this preference since the averagerevenue

per container slotfor dry containerized cargo is in excess of 600

whereas the average per slotfor autos in containers is 209 and

418 per slot when two autos per auto rack are carried

As between carrying autos in garage stow on specialized ves

sels or on container vessels Matson would prefer to carry them

in garage stow since they can be moved more cheaply in that

fashion However the overall economics offleet operation may

dictate carrying autos in anotherwise empty containerin order

to avoid additional round trip voyage costs of automobile ships

The fully distributed costs for a container are approximately

400 Though not meeting the fully distributed costs the car

8

Motorist Legislator Monarch and Queen

9

Two autos per rack occupying one container slot

toOne autopel container
122 FEDERAL MARITIME COMMISSION

riage of an auto in a container at 209 is in excess of the 

incremental cost of loading carrying and unloading and 

418 revenue per auto rack is in excess of the fully distribu

cost

The issue of whetherautos should be excluded from conta

demand in determining excess capacity over demand is furt

complicated because Matson s fleet under any plan ofschedu

is not capable of carrying all automobiles in garage stow 

schedule an additional 24 voyages of specialized vessels as 

gested by the State to reduce container slot demand by 11 

autosll is economically unsound Even if all the 11 758 a

werecarried in containers the revenue therefrom would exc

incremental costs ifall werecarried in auto frames the reve

would be in excessoffully distributed costs The State s propo

alternative would be to make 24 additional voyages with 

specialized vessels with aresulting increase in excess conta

slot capacity of 11 758 assuming all shifted autos would ot

wise be shipped in containers 5 879 ifinauto frames This wo

cause the excess capacity to increase from 17 659 as 

scheduled to 23 538 or29 417 depending on how the autos wo

otherwise have been carried

Ifcontainerdemand is reduced by 11 758 by assuming tha

autos transferred from the containerships would otherwise h

been carried in containers the demand would be 85 369 inst

of97 127 as computed byMatson whoincluded automobiles T

shows an excess capacity of 25 6 percent instead of15 4 perc

as computed by the company Ifcontainerdemand is reduce

5 879 by assumingthat all autos transferred from the conta

ships would otherwise have been carried in auto frames 

demand would be 91 2481llots rather than 97 127 and the ex

capacity would be 20 5 percent rather than 15 4 percent Th

increases in excess capacity are within acceptable limits 

scheduling ofthe extra voyages would be a high price indee

pay for the privilege ofasserting that Matson has greater ex

capacity because autos are notproperly includable in conta

demand

It is concluded and found that elimination of auto carri

from container demand would not result in establishing an 

cess capacity whichwould so burden therate payers as toreq

11 Capacity Canst Yr Canst yr Potential Potential

Motorhst 617 autos 11 voyages 5 687 autos 25 voyages 12 925 autos

Legislator 462 autos 15 voyages 6780 autos 25 voyages1l 80Q autos

12467 24 225

16 F MC
DOCKET NO 7l 18 MATSON NAVIGATION COMPANY 123

areduction ofthe rate base or adjustment ofthe rate ofreturn

The foregoingdiscussion has beenlimited toexcess capacity by

reason of auto carriage Whetherexcess capacity may existif the

Citizen is scheduled at 25 voyages instead of the five voyages

scheduled forthe constructive yearwillbe discussed separately

Extra scheduling of the Citizen

The Citizen is fully depreciated and there is an assignment of

only scrap value tothe rate base Itis scheduled for five voyages

during theconstructive year The State asserts thatthe vessel is

capable of 25 voyages per year and that fleet capacity should

reflect thispotential Matson charges no inactive vesselexpense

to the Citizen by reason of only five sailings instead of 25 The

State assumes thatthe rate payers would be benefited by elimi

nation of excess capacity from the rate base that is by exclud

ing anEnterprise class vessel Respondent contends thatifit has

excess capacity this surplus might more properly be eliminated

by retirement of fully depreciated vessels such as the

Californian Hawaiian and Citizen

The Hawaiian and Californian each has potential container

capacity of7 905 forthe constructive year and theCitizen has a

capacity for 12 200containers for atotal of28 010 container slots

and computed by the State as part ofcapacity Ifthese vessels

are retired the capacity would be reduced more than the State s

suggested increase in capacity of26 854 slots through increased

voyages and exclusion of autos 2

and they approximate the

29 200 annual slots of anEnterprise class vessel

The foregoing analysis indicates that the rate payers are not

required tocarry an inflated rate base comprised ofsuperfluous

capacity Ifsuperfluous capacity exists it would appear to be

dedicated tothe public atminimal cost and for minimal return 13

Itis found and concluded thatthe scheduling oftheCitizen for

only five voyages a yearimposes no burden on the rate base and

does not distort capacity capabilities

12 The State alleges superfluous orexcessive to be all capacity above the 20 percent prudent level of

capacityoverdemand Totalpotentialcontainer slots are 126 430 includingextra20 voyagesoftheCitizen

Twenty percent prudent excess is25 286 slots leaving101 144 against which demand should be measured

Matson s

anticipated container demand is 74 290 excluding all autos Theexcess of prudentcapacity of

101 144 over74 290 demand equals 26 854 superfluous slots

13 Matson computes thatthe totalnetcontribution to earnings of theCalifornian Hawaiian and Citizen

at the851percent which willaccure by reason of therateincreases under investigationwill be 16 400 outof

the total of 5 413 000 net

16 F MC
124 FEDERAL MARITIME COMMISSION

RATE BASE CAPITAL STRUCTURE AND

RATE OF RETURN

Matson s rate base forthe constructive yearis 69 320 000 

net income aftertaxes is projected at 5 911 000 which resul

an overall rate of return on rate base of 8 53 percent

Respondent s capital structure is comprised of 35 02 perc

long term debt and 64 98 percent common equity The averag

long term debt is currently 81 percent Thus the 853 perc

return on rate base which is projected as a

consequence of 

rate increases implies a return of 8 75 percent on the com

equity portion of the captialization This is illustrated by 

following table

Long term debt 3502 x 8 1 2 84

Common equity 6498 x 8 75 5 69

100 8 53

The company s rate of return witness Mr Roseman 

cluded on the basis of his study that the 8 75 percent return 

equity which the 8 53 percent overall rate of return would 

duce is clearly on the low side No other party made a rate 

return comparability study

The criteria for determining what eonstitutes a fair rat

return wereset forth by the SupremeCourt in theBluefield 

Hope cases

14 Under those decisions three factors must be 

viewed in determiningfair rate ofreturn 1 what rate ofre

is necessary to attract and retain capital 2 what rate fre

is being earned by other enterprises and 3 what are the r

tive risks of the subject company compared with other en

prises

Mr Roseman testified that because Matson is awholly ow

subsidiary ofA B the marketprice data onMatson s secur

required toestimate directly the return whichit needs toatt

capital are not available The company has no equity secur

traded on the open market Nor can A B smarket pricedat

used to determine cost of capital or rate of return for the 

sidiary since the former s otheroperations are ofsuch dissim

character from that of Matson that the parent s cap

attraction rate provides no reliable indication of the return 

quired to attract capital to Matson s ocean freight busines

Mr Roseman s approach was first to examine the actua

turns on common equity earned by enterprises in awide rang

businesses and then toconsider the elements ofrisk in Mats

business as compared with the risks ofthe other industries 

14 Blllefie dCo vPub SerIJ Comm 262 U S 879 1923 PowqrComm nvHopeGas Co 320US 691 

16 F MC
16 F M C

DOCKET NO 71 18 MATSON NAVIGATION COMPANY 125

conclusion was that in awide range of both regulated and unre

gulated industries the average rate ofreturn on common equity

is generalIy above 12 percent In some cases it is 15 percent or

more for unregulated industries These returns are actual earn

ings however and should not be construed as earnings allowed

by regulatory bodies in rate of return cases In many cases ac

tual earnings exceed the estimated earnings which underlie

rate of return decisions The next step wasto consider the risks

faced by Matson In aqdition to competition of other steamship

lines the company is subjectto some riskofcompetition from its

own shippers some of whom are large enough to threaten to

provide vessels oftheir own Matson also has various otherrisks

the existence and effect ofwhich are reflected in the variability

ofits earnings Between 1947 and 1969 it experienced an extra

ordinary degree ofvolatility in earnings During thisperiod its

rate of return ranged from minus 652 percent in 1949 to 19 60

percent in 1964 Year to year fluctuations are significant

though less dramatic than the extremes Laborcosts are amajor

element in Matson s operating expenses and these costs can

escalate sharply and suddenly and may bear no relation to the

trend in revenues One cause of fluctuation in its earnings is

strikes avery serious example ofwhich lasted from July 1 1971

to February 1 1972

Mr Roseman wasofthe opinion thatthe risks faced by Matson

are of a greater order of magnitude than those faced by the

electric utilities who have been averaging returns on equity in

excess ofthe 8 75 percent sought herein

The risks faced by the airline industry are more comparable to

those ofMatson and this is reflected in the fairlyclose compara

bility ofvariation in earnings experienced by the airlines and by

Matson The airlines on average earned 12 percent on equity in

19651969 and the Civil Aeronautics Board CAB has approved

rates designed to yield 16 75 percent on common equity How

ever itwould be misleading to construe the approved 16 75 per

cent as approximately double the rate ofreturn Matson is con

tending for in this proceeding This is because the capital struc

tures of the airlines differ radically from Matson s the CAB

allowed the 16 75 percent on an optimum capital structure

substantially different from the airlines actual capital struc

ture Itis reasonable toconclude nevertheless that on areason

able basis of comparison the rate of return permitted airlines

indicates that 8 53 percent sought herein is on the low side

The State questions Matson s true rate ofreturn Mr King
126 FEDERAL MARITIME COMMISSION

for the State pointed out that in early years when the inv

ment is new net investmentwill appear quite high and the r

of return will seem very low Later when the investment 

become largely depreciated the same income willprovide am

higher rate ofreturn The solution proposed by Mr King is 

the investment base against which the rate of return is 

puted be normalized That is the rate of return be comp

on the average long term levelofoutstandingnet investmen

noted that of Matson s claimed rate base of 69 320 000 s

66 386 000 is in depreciable vessels of which 46 597 000 is 

thantwo years old As aresult 70 percent ofthe depreciable 

is less than six percent depreciated As these vessels age 

return on investmentwill increase and thus areturn of 85

the constructive yearwillgenerate avery much higher retu

few years hence From this he ultimately determined that 

son would earn 16 85 percent with the proposed rate increa

apd 1150 percent evenwithout a rate increase These retu

however are based on and adjusted for excess fleet capaci

reflected by witness Tucker who thereupon postulated 

creased revenues Inasmuch as not ev nMr Tucker sugge

Matson would actually realize his postulated revenues o

million Mr King s return projections to the degree they 

premised on such revenues exaggerate the return which 

son would earn Ifanormalized reduced rate base of 63 515 

as proposed by Mr King is utilized and the projected cons

tive year net income of 5 9 million is utilized rather than 

Tucker s inflated traffic base the result is an overall rat

return of 93 percent

There is much merit in Mr Kings approach but Matson 

jects tonormalization because inthe early yearsitreflects a

base somewhat less than the actual net investment It ha

objection toearning between rate cases arate ofreturn base

apreviously established netrate base which base may be hi

then actually exists subsequently Ifadditions torate base 

formly offset annual depreciation no distortions ofrate ofre

would occur between rate cases The realities of the ship

industry are such however that new investments 

lumpy that is in large amounts at uneven inter

whereas depreciation is more even overthe useful life He

a distortion occurs which normalization seeks to elimin

Nevertheless there is insufficient evidence towarrant ado

ofthe normalization theory in the present case

Itis not inappropriate to consider how the return which 

16 F MC
RATE INCREASES

DOCKET NO 71 18MATSON NAVIGATION COMPANY 127

proposed rates would produce compares with the return which

the Commission found to be not unreasonable in Matson s last

rate case decided in 1962 16 The Commission therefound that a

10 59percent returnon rate base would notbeexcessive without

making aseparate determination ofwhatwould be areasonable

or nonexcessive return on common equity Matson s capital

structure at that time wasabout 67 percent equity and 33 per

cent debt quite similar to the present structureand its debt

had an imbedded costof5 5 percent With thiscapital structure a

10 59 percent return overall would produce 13 1 percent on com

mon equity 16

In light ofall the foregoing and considering the Commission s

decision in 1962 itis concluded and so found that on arate base of

69 320 000 an overall return of 8 53 percent with a resulting

returnon common equity of8 75 percent as sought herein would

not be excessive

In support of its need for rate increases Matson introduced

evidence that itearned only 177 percent on its rate base in 1969

and thatthe return was6 38 percent for 1970 The revenues and

return for 1970 were higher because a substantial quantity of

cargo that was strikebound in late 1969 moved in the first quar

ter of 1970 But if the strike inflated the 1970 return it also

decreased the 1969 return On balance the two years averaged

408 percent return For the constructive year July 1971June

1972 without the rate increases the rate ofreturn on rate base

would be 4 59 percent

Minimum bill oflading charges

Matson proposes to increase its minimum bill oflading charge

from 6 86 to 25 00 FMC F No 146 Rule 5 Hearing Counsel

objects to such increase on the ground thatMatson did not offer

any cost justification for the increase and further objects that

the increase is for the purpose of placing an embargo on small

shipments

While Matson introduced no specific cost evidence it did intro

duce evidence that only very small shipments moved under

U

General Increal168 in Rates 1961 7 F M C 260

16 Debt 33 x 5 5 1815

Equity 67 x 13 101 0 8 775

100 10 59

16 F MC
I

I

128 FEDERAL MARITIME COMMISSION

minimum bill oflading charges and thatthe problems inhe

in handling such shipments were highly disproportionate 

revenues realized Its witness pointed out that a variety o

ternatives were available tothe shipper of very small packa

such as use of freight consolidating NBOCC s parcel post 

air freight

Matson alone of all the containership carriers in the tr

offers a service in handling and transporting less th

container10ad shipments Itshould not Qe required to charg

rate which encourages what are essentially troublesome s

ments when adequate alternative means are available to 

shipping public It would be doubly ironic to preclude Mat

from discouraging these types of shipments by raising 

minimum charge at the same time that its competitors do 

offer an LCL service at any price and could not be require

offer such service Thus if these small shipments are deeme

be embargoed it is not Matson who has done so

The increase in minimum bill of lading charges will undo

edly discourage traffic moving under such charge and proba

cause ittoutilize otheravailable services but inconsideratio

the physical difficulty of handling very small shipments 

high incidence ofdamage and loss and disproportionately la

claims which such traffic generates the increase is found no

be unjust unreasonable or otherwise unlawful

c

1

Containerized cargo

Matson switnesses testifiedthat risingcostswere the prim

cause of the request for rate increases although other fac

were increased investment in new vessels and competition f

Seatrain Because the request wasselective ratherthan ac

the board Matson introduced evidence to support its holdd

position For example rates for refrigerated cargoes had 

been increased eventhough they have been in effect since 1

because there is still a wide disparity in the net to vessel 

tribution of dry and reefer cargoes During the pre incre

year 1970 the average revenue from a refrigerated conta

was 850 as compared to an average revenue of 623 perc

tainer of nonrefrigerated cargo After deducting variable 

penses and certain fixedexpenseswhich are analogous toha

ing expenses

17 refrigerated cargo yielded a net to vessel 

tribution of 526 per containeras compared to 376 per conta

for nonrefrigerated cargo a difference of 150 per contai

1Matson has no commodity cost studies It computed overall costson thenumberof containers ha

16 F MC
16 F MC

DOCKET NO 71 18 MATSON NAVIGATION COMPANY 129

After increasing dry cargoes and holding down the rates on

refrigerated cargoes refrigerated cargo makes a net to vessel

contribution of 520 percontainer as compared to 416 for adry

cargo container a difference of 104 Thus even after the in

creases to dry cargoes the refrigerated cargoes without an in

crease are still significantly more profitable This despite rising

costs since 1961

The holddown on iron or steel articles applies only on long

length iron orsteel tendered for shipment in 40foot half high

flatrack containers This is anew item in the tariff having first

become effective on November 15 1970 Since this is compara

tively a new rate no new factors arose in the short period until

the filing on January 5 1971 of FMC F No 146 which Matson

deemed would warrant increasing it As for tinplate the rates

thereonwereincreasedby about 45percent less thanthree years

ago Accordingly an additional 12V2 percent atthis time wasnot

sought

The most controversial of the holddown items are eastbound

container cargoes principally canned pineapple the rate for

which has not been increased since 1961 Matsons vice president

and chief marketing officer explained that the decision to hold

down eastbound container rates was a business judgment based

on the backhaul nature of those cargoes The great preponder

ance of container cargoes in the trade moves westbound This

results in intense competition for the limited volume of east

bound container cargoes Matson s share of the eastbound

pineapple market is approximately 77 percent 19 000containers

a year It could handle in excess of twice that amount The

business judgment to increase westbound rates 18

wasmade in

dependently ofand without regard towhat competitorsmight do

and whetherthey might reap the harvestby maintaining lower

rates In fact the principal competitor Seatrain did enjoy a

competitive advantage for ashort period oftime butthen it also

filed for a rate increase comparable to Matson s and thus lost its

competitive advantage The testimony was tothe effect that the

factor ofprice toservice is 9 to 1The cheaper tariffis persuasive

tomost shippers Customerswith time sensitive cargomay place

service considerations first and price second But this applies

only to a small fraction ofthe total cargo Ifprices are compara

18 The 121h percent increase wasarrived at 8S a businessjudgment It was not reached on the basis of

any cost studiesorother scientific analyses Norwerethere any specific cost studiesorscientific analyses

prepared with regard to the holddown Matson officials had concluded its net was toolow and that a 12h

percent increase would improve the financial picture The management decision to seek a 12h percent

increase was reached in late 1970 Matson s tonnage forecasts and rateofreturn evidence were prepared

subsequently
130 FEDERAL MARITIME COMMISSION

ble then service becomes paramount in the eyes of custom

The same witness testified that the eastbound dry conta

business wasprofitable on an incremental basisbut that no f

distributed cost studies had ever been made on this phase 

needfor additional revenue is predicated upon amyriad ofri

expenses such as interest on secured debt reasonable 

vidend requirements cost of fuel oil the amount we a

ally pay the state of use ofits port facilities and increase

labor costs Quite obviously these expenses as well as o

factors which caused Matson toseek rate increases are attri

able to the movement of all freight not just westbound 

containers Itisconceded thatthe incremental costs ofmovi

container eastbound are very much the same as moving 

westbound

Matson never conducted a cost study with respect to 

specific commodity encompassed within tariffs under which 

seeking rate increases Only a general cost study applicab

all carriage supports its contention for the rate ofreturn 

average projected composite handling cost per westbound 

tainer dry orreefer is 156 per container This includes the 

of returning empty containers eastbound It also includes 

proximately 70 for stuffing

The westbound cargoes are more consumer oriented and 

eastbound cargoes more industry oriented Thus raising 

westbound and holding down the eastbound rates means 

the Hawaiian consumer must subsidize Hawaiian industr

the theory apparently that what is good for Hawaiianindu

is good for Hawaiianconsumers

The witness for PGA testified thatthe pineapple growers w

already chartering vessels for carriage of canned pineapp

the U S East coast He said that if Matson s rate for eastbo

pineapple wereincreased by 121h percent tonnage now mo

to West coast ports and thence by rail to midwestern des

tions would be diverted to the growers chartered vessels g

toEast coast ports This could occurif the overall costs oftra

portation were thereby lower but the evidence on this poi

not conclusive orpersuasive At stake are approximately 132 

tonsof canned pineapple which are now moving via Pacific c

ports but which formerly moved via eastern or Gulf ports

Mr Roseman for Matson stated that the risk of loss of b

ness to proprietary carriage in the event rates are increa

would be self defeating ifit were notbased on corresponding

increases Clearly if there are corresponding cost increa

HIF MC
16 F MC

DOCKET NO 71 18MATSON NAVIGATION COMPANY 131

and Matson has put in a strong case that its costs have in

creased substantially since 1961 then any person who might

wantto carry hisown goods would of course be subject tothese

same cost increases There is no evidence that the pineapple

growers could own and operate orcharteroperators could oper

ate more efficiently and at lower cost than Matson Nor is there

any evidence that such threatened charter alternativewould be

available with the frequency reliability and speedy transit now

made available by Matson to the pineapple growers

Although both Matson s witness and the PGA s witness tes

tified as to the economic detriment which the industry would

suffer ifeastbound container rates were raised thereis insuffi

cient evidence for concluding that this industry is less able to

pass on added shipping costs or in the alternative to absorb

them any more than industrieswhichare involved in westbound

shipments are able to pass on or are required to absorb the

increased rates It is concluded from the evidence that east

bound dry containerrates are not based on fully allocated costs

and that westbound cargo to that degree subsidizes eastbound

cargo see page 34

On the basis of the tariffincreases including raw bulk sugar

Matson projects operating revenues for the constructive year

totalling 69 594 000 resulting in an overall rate ofreturn of8 53

percent on the rate base Of the 69 594 000 Matson projects

36 272 000 for westbound general cargo Of this westbound

revenue 4 030 022 is attributable to the increase in rates and

presumably at least as far as containerized general cargo is

concerned is the revenue necessary to achieve therate ofreturn

requested 19 Respondent also projects revenues for eastbound

containerized general cargo and canned pineapple totalling

4 792 000 This eastbound cargo is not subject to any rate in

crease Hence the gross revenues required to be realized from

containerized general cargo including pineapple in order to

achieve the requested rate of return is 41 064 000

It is readily apparent as seen by the following chart

19 Westbound general cargo would tlmount to 32241 978 without the increase 32 241 97B plus 12th

percent thereof 36 270 000
132 FEDERAL MARITIME COMMISSION

PROJECTIONS FOR CONSTRUCTIVE YEAR

JULY 1 1971 JUNE 30 1972

Revenue Revenue ton8 Contain

Gen cargo westbound 86 272 000 818 193 64 06

Gen cargo eastbound

including pineapple 4 792 000 309 871 26 38

Percentapeastbound

to westbound 18 88 41

Gen cargo

41 064 000 1 126 664 90 39

Gen cargo westbound 36 272 000 816 163 64 06

Percentage westbound

to total trade 88 8 72Ih 71

that the proportion of revenue raised eastbound is gro

disproportionate to the volume Put another way to incre

westbound rates while holding down eastbound rates unju

and unreasonably burdens westbound cargoes to the detrim

of westbound shippers and Hawaiian consumers for the be

of eastbound shippers

The disparity in charges is evident from the fact that 

number of weight or measurement tons in a container does 

materially affect Matson s cost in handling carrying or 

charging that container There is a difference in costs 

stuffing the average cost for stuffing dry or reefer contai

being 70 Yet the average revenue for eastbound pineapp

252 per container asopposed toother eastbound commercia

cargo of 324 As previously noted westbound the averag

approximately 600 for commercial dry cargo

Without the increase thewestbound and eastbound proje

revenues for containerized general cargo would amoun

37 032 128 As noted above Matson says revenues tota

41 964 000 arisingoutof containerized general cargo are ne

sary when combined with other projected revenues to ach

its requested rate of return An increase of 4 032 822 in 

combined westbound and eastbound general cargo reven

would realize this goal An increase of 11 percent on both w

bound and eastbound general cargo including pineapple w

realize additional revenues of 4073 539 By reducing the 

percent increase on westbound to 11 percent and increa

eastbound 11 percent Matson could achieve its requested ra

return and at the same time not unduly burden westbo

cargo

To the extent that westbound general cargo rate incre

16 F MC
STANLEY M LEVY

Presiding Examiner

DOCKET NO 71 18 MATSON NAVIGATION COMPANY 133

exceed 11 percent they are unjust unreasonable and otherwise

unlawful To the extent that eastbound rates have been in

creased in the same amount as westbound as in the case for

automobiles the foregoing rationale is not applicable and those

increase s in excess of11 percentare notunjust unreasonable or

otherwise unlawful Recognizing that a rate increase has not

been filed for eastbound general cargo no increases can here by

granted for such cargo A rate ofreturnwhich would be realized

by an increase of11 percent on the westbound cargo only would

be less than 8 53 percent Ifrates on eastbound general cargo

however were also increased 11 percent the rate ofreturnwould

be raised to 8 53 percent Ifthe rate ofreturn werethus raised to

8 53 percent such return previously discussed in greater detail

elsewhere would not be excessive

ULTIMATE CONCLUSIONS

The increased rates which are the subject ofthisinvestigation

are not unjust or unreasonable or otherwise unlawful except to

the extent thatwestbound general cargo is increased more than

11 percent

WASHINGTON D C

March 9 1972

16 F MC
FEDERAL MARITIME COMMISSION

DOCKET No 69 56

AGREEMENT No 9827 BETWEEN UNITED STATES LINES 

AND SEA LAND SERVICE INC AND WALTER KIDDE 

INC AND R J REYNOLDS TOBACCO CO GUARANTORS

DOCKET No 70 51

AGREEMENT OF MERGER No 9827 1 AMONG R J REYNO

TOBACCO COMPANY RJI CORPORATION SEA LAND SERV

INC AND WALTER KIDDE COMPANY INC UNITED STA

LINES INC

Decided February 8 1973

Amended Order March 22 1973

Agreement to merge United States Lines Inc and RJI Corporation is s

to the approval of the Commission under section 15 of the Shipping 

1916

Agreement No 9827 1 as modified herein that RJI Corporation shall ac

United States Lines Inc and that United States Lines Inc sha

tinue as an independent carrierin all respects in competition in the 

commerce of the United States is subject to the approval of the Co

sion under section 15 of the Shipping Act 1916 and is so approved s

to the conditions set forth herein said approval conditional upon the 

of evidence of acceptance by all signatories to said agreement

Supplemental agreement attached to the merger agreement but not file

approval under section 15 found subject to section 15 and disapprov

view of ourapproval of Agreement No 9827 1 as modified herein

Promissory note of Reynolds to Kidde for the purchase of United States L

Inc attached to the merger agreement but notfiled for approval 

section 15 found subject to section 15 and approved

John Mason John W McConnell Jr Edward M S

William F Ragan and Paul J McElligott for R J Reyn

Tobacco Company RJI Corporation and Sea Land Ser

Inc

Edward Schmeltzer Robert A Peavy James R Withrow 

134 16 F 
REPORT

MERGER AGREEMENT U S LINES INC 135

Sanford M Litvack andJohn J McGrath Jr for Walter Kidde

Company Inc and United States Lines Inc

Warner W Gardner and Mark L Evans for American Mail

Line Ltd and American President Lines Ltd

Richard W Kurrus Howard A Levy Milton Handler David

Klingsberg Lawrence S Feld and Theodore J Fischkin for

American Export Isbrandtsen Lines Inc

Marvin J Coles Paul M Tschirhart and Neal Mayer for

Seatrain Lines Inc

Richard W McLaren Joseph J Saunders Richard Favretio

Robert T Stern Bernard Wehrman Norman Seidler and

Donald Flexner for United States Department ofJustice

Abraham E Freedman Stanley B Gruber and George J

Capiello Jr for National Maritime Union of America AFL

CIO

Louis Waldman and Seymour M Waldman for International

Longshoremen s Association AFL CIO National Marine En

gineers Beneficial Association AFL CIO and International

Organization of Masters Mates and Pilots AFL CIO Howard

Shulman for Seafarers International Union of North Ameri

ca H Clayton Cook Jr for Maritime Administration

Department of Commerce Marshal P Safir for himself and

Arnold Weisberger for himself interveners

Donald J Brunner Margot Mazeau and Joseph B Slunt

Hearing Counsel

BY THE COMMISSION George H Hearn Vice Chairman James

V Day and Clarence Morse Commissioners Helen Delich

Bentley Chairman and Ashton C Barrett Commissioner

dissenting and concurring

We instituted these separate proceedings to determine

whether inter alia three agreements and a promissory note

involving United States Lines Inc USL Sea Land Service

Inc Sea Land Walter Kidde and Company Inc Kidde R J

Reynolds Tobacco Co Reynolds and RJI Corporation were

subject to our jurisdiction and if so whether they should be

Commissioner James V Day holds that the Commission iswithout jurisdiction overthe agreements

and promissory note submitted to U8 but since the majority of the Commission votes affirmatively on

that issue he joins Vice Chairman Hearn and Commissioner Morse in theirfindings of fact and ultimate

conclusions

16 F MC
136 FEDERAL MARITIME COMMISSION

approved disapproved or modified pursuant to the prov

of section 15 of the Shipping Act 1916 A1U

In Docket No 6956 dealing with the Charter Agree

Agreement No 9827 Paul D Page Jr then Chief Exa

since retired concluded that we have jurisdictionA2 ove

agreement and that it should be approved pursuant t

provisions of section 15 of the Shipping Act Before excep

werefiled USL announced anew service between the eas

west coasts of the United States and the Far East via Ha

The Commission reopened the proceeding for further he

on the new service In his Supplemental Initial Decisio

Examiner adhered to the conclusions contained in his e

decision Prior to the issuance of the aforementioned Su

mental Initial Decision Agreement No 9827 1 an agree

to merge USL and Sea Land was filed with the Comm

for approval pursuant to section 15 of the Shipping Act 

We suspended the time for filing exceptions in the ch

case instituted an investigation Docket No 7051 int

approvability oftile merger agreement and denied reques

Since we haveincluded in this decision the complete initial decision of the Chief Administr

Judge in Docket No 7051 and flodin it necessary to distinguish the footnoteein each wehav

our footnotes with the letter A

A Section 15 as amended provides as far as pertinent

Sec 16 That every common carrier by water orother person subject to this Act sha

mediately with the Commission a true copy or if oral a true and complete memorandum 

agreement with another Buch carrier orother person subject to this Act ormodification orca

thereof to which it tnaybe aparty orconform in whole orin part fixing orregulating trans

rates orfares giving orreceiving special rates accommodations orother special privileges 

tages controlling regulating preventing ordestroying competition pooling orapportioning 

losses ortraffic allotting ports orrestricting orotherwise regulating the number and charac

ings between ports limiting orregulating in any way the volume orcharacter of freight or

traffic to be carried orin any manner providing for an exclusive preferential orcooperativ

arrangement The term agreement in this section includes understandings conferences 

arrangements

The Commission shall by order after notice and hearing disapprove cancel ormodify a

ment orany modification orcancellation thereof whether ornotpreviously approved by it th

to be unjustly discriminatory orunfair as between carriers shippers exporters importers o

between exporters from the United States and their foreign competitors orto operate to the 

of thecommerce of the United States orto be contrary to the public interest orto be inviolat

Act and shall approve all other agreements modifications orcancellations

Any ail eement and any modification orcancellation of any agreementnot approved ordis

by the Commission shall be unlawful and agreements modifications and cancellations shall 

only when and as long as approved by the Commission before approval orafter disapproval 

unlawful to carry out in whole orin part directly or indirectly any such agreement modif

cancellation

Everyagreement modification orcancellation lawful under this section orpermitted und

14b shall be excepted from the provisions of the antitrust laws

AIThe Charter Agreement basically pro ided for the time charter to Sea Land of 16 conta

owned by U S Lines fora20 yearperiod withan option forSea Land to purchase the vessels 

of thecharter period Comprehensive treatment of the Agreement andthe issues involved app

decisions of the ChiefExaminer See 11 S R R 759 1970 and 11 S R R 1122 1970

16 F 
16 F MC

MERGER AGREEMENT U S LINES INC 137

certain opponents to the charter agreement to discontinue

Docket No 69 56 A3

In his Initial Decision served on October 21 1971 in Docket

No 70 51 16 FMC 142 Chief Administrative Law Judge C W

Robinson Presiding Examiner at the time of issuance of his

decision concluded thatthe merger agreement is subject to the

jurisdiction of the Commission and that the agreement should

not be approved A

He also found that the supplemental agree

ment between Kidde and Reynolds and the promissory note to

Kidde described later are not subject to Commission jurisdic

tion he suggested that ifwe found such jurisdiction the supple

mental agreement should not be approved and that the amount

of the promissory note is fair and reasonable The positions of

those opposing the approval of the agreements by and large

have remained consistent in both proceedings As

The merger agreement was approved by the respective

Boards of Directors and was filed with the Commission on

November 9 1970 It is in the form of an amendment to the

Charter AgreeJ1lent Attached to the merger agreement as ex

hibits but not part thereof were a document entitled the sup

plemental agreement and an unsigned copy of Reynolds prom

issory note in the principal sum of 65 million drawn to the

order of Kidde and dated November 9 1970

The Charter Agreement which the merger agreement

amends provides for a the time charter to Sea Land ofthe 16

Lancer and Leader containerships owned by USL for a20 year

period with an option for Sea Land to purchase the vessels at

the end of the charter period b the lease and sub lease to

Sea Land ofcontainers and related equipment used in connec

tion with the chartered vessels c the transfer to Sea Land of

certain USL facilities located in the Far East and d the

guarantee of USL and Sea Land s obligations under the

Agreement by their respective parents Kidde and Reynolds

In addition to certain amendatory changes to the Charter

the merger agreement provides that on the effective date of

the merger ten days after the last required approval RJI will

be merged into USL and that U S Lines will be the surviving

A3 In denying the request weconsidered

it advisable to keep proceedings openin the charter case to permit consideration ofthe charter

Docket No 6956 when the merger agreement proceeding Docket No 7051 is ready for Commission

decision 12 SRR 93 94 1971

M

He specifically found the merger agreement anticompetitive in character and not required by seri

oustransportation need necessary to secure important public benefits orin furtherance of avalid reg

ulatory purpose of the Shipping Act

A5 Hearing Counsel however urged approval of the Agreement considered in the Charter case and

disapproval of the Agreement in the Merger case
138 FEDUAL MARITIME COMMISSION

corporation Kidde upon delivery af the outstanding shares 

USL to Reynolds wilt receive a promissory note from Reyno

in the amount of 65 million

The merger agreement is expressly conditicmed upon the 

ceipt of approvals from this Commission the Interstate Co

merce Commission and such approval of the Maritime A

ministration as may be required The agreement provides th

the merger will be consummated ten days after receipt of t

last required approval unless a the agreement has been t

minated prior to that time by the mutual consent of the p

ties b the required approvals shall have been granted up

terms or conditions unacceptable to Reynolds and Reyno

shaH have elected not to consummate the transaction or 

the consummation ofthe merger shall have been enjoined b

court of competent jurisdiction

The merger agreement modifies the Charter in that it elim

nates the guarantees by the parent stockholders of their s

sidiaries obligations under the time charter and provides th

the effective date for the implementation of the Charter will 

the effective date of the merger The merger agreement a

provides that if the merger is approved and the Charter is d

approved then the Charter is automatically cancelled unle

such cancellation would adversely affect the approval of t

merger The merger agreement also provides that if t

merger is disapproved the time charter and related agr

ments shall be cancelled

By the terms of the merger agreement Kidde and USL a

obligated to operate USL in a

reasonably prudent comp

tive businesslike manner consistent with business practic

generally prevailing in the shipping industry at all times s

sequent to the date of this agreement and prior tothe effect

date of the merger

The supplemental agreement attached as an exhibit to t

merger agreement is an agreement solely between Reyno

and Kidde The supplemental agreement provides that if t

merger agreement does not receive the required approvals 

if the merger is enjoined by a court of competent jurisdictio

or if required approvals are not received prior to Novembe

1975 an independent financial institution will have the 

sponsibility of making an alternative disposition of USL w

Reynolds guaranteeing Kidde that it will receive 65 milli

for its interest in USL

If consummation of the merger becomes impossible for a

16 F MC
16 F MC

MERGER AGREEMENT U S LINES INC 139

reason the supplemental agreement provides that neither

Reynolds nor any subsidiary or affiliate shall have any control

over the finding and designation of any substitute party

Reynolds will have no standing to object to a substitute

purchaser chosen by the independent financial institution un

less Kidde requests a Reynolds guaranty of the substitute

purchaser s credit and Reynolds has a good faith doubt as to

the credit worthiness of the substitute purchaser or the price

offered by the substitute purchaser is determined to be below

the fair market value of USL as a going concern

If a substitute purchaser is located by the independent fi

nancial institution then the sale to that purchaser would be

consummated Of course if disposition pursuant to the sup

plemental agreement results in a sale to another common car

rier by water or other person subject to the Act such a trans

action would be subjected to Commission scrutiny under sec

tion 15 Ifthe value paid by the substitute purchaser to Kidde

is less than 65 million the difference between the sales price

and 65 million will be made up by Reynolds

Ifthe independent financial institution is unable to locate a

substitute purchaser the institution is obligated to make an

alternative disposition of USL In that event the institution

may arrange a public underwriting of USLs stock it may dis

tribute USLs stock on a pro rata basis to Reynolds share

holders or as a last alternative it may se l USLs assets at

competitive bidding The supplemental agreement provides

that the independent financial institution shall make every

possible effort to assure that USL continues as a going viable

shipping company

The promissory note is a note drawn by Reynolds to Kiddein

the principal sum of 65 million Although the note bears an

annual interest rate of 8 percent and the computation of in

terest commences on November 9 1970 the interest is payable

only after the note has been delivered to Kidde The due date

to be inserted on the promissory note is the effective date of

the merger ten days after the last required approval or

November 9 1974 whichever is later Ifthe effective date of

the merger does not occur prior to November 9 1975 the date

to be inserted as the payable date ofthe note will be November

9 1976

By our action herein we are taking jurisdiction over the

merger supplemental agreement and promissory note in addi

tion to the charter agreement We are not however approving
140 FEDERAL MARITIME COMMISSION

the charter orthe proposed merger What we are doing is mo

ifying the proposed agreement and approving the acquisiti

of USL by Reynolds upon certain conditions to permit co

tinued Federal Maritime Commission surveillance over the a

quisition reserving to ourselves the authority the Commissi

has over all agreements approved by us under section 15 of t

Shipping Act 1916 In addition and as part of our approval 

that acquisition we disapprove the supplemental agreeme

and approve the promissory note

We are formulating herein amaritime decision in light of t

overall domestic and international merchant marine situatio

of the day and we were giving notice as to what the Comm

sion will accept in furtherance of the effort to enable t

American merchant marine to compete with the mercha

fleets of other countries who espouse and utilize consort

mergers and other cartel type activities in this industry A

though we appreciate the position of the Department of Ju

tice as well as the other interested parties to this proceedin

we find that our decision herein is required by our overridi

duty to protect the foreign waterborne commerce of the Unit

States and a

very important tool in the implementation 

that responsibility is an American merchant marine which 

permitted to have active companies as strong financially 

the commercially or governmentally mandated conglomerat

offoreign merchant marines

The Department of Justice has not taken a position wh

foreign countries and their merchant marines have form

corporate combinations which are contrary to our antitru

policy and laws It appears that while such is permissible 

foreign participants in our ocean commerce when the same 

engaged in by our own carriers the arsenal of federal an

trust weapons is leveled against it For the Justice Depa

ment to acquiesce in actions taking place in other countri

which have a direct effect on our foreign commerce and th

attempt to restrain American firms from competing with t

same tools in our opinion is not in the best interests of t

foreign commerce ofthe United States This negative approa

by the Department ofJustice and the other parties to this ca

will seriously hamper and limit the competitive thrust of t

American merchant marine and negate the mandate of o

shipping laws for equal treatment of all flag carriers Such 

result is especially odious when the balance is weight

against our own merchant fleet particularly at a time wh

16 F MC
16 F M C

MERGER AGREEMENT U S LINES INC 141

our country is attempting to do everything possible to alleviate

trade deficits and place American corporations which must

compete internationally in a viable competitive position

Kidde has made no attempt to develop the field of water

borne transportation and now gives evidence of intending to

dismember USL if prevented from a complete divestiture of

the whole On the other hand we see Reynolds wishing to ac

quire United States Lines having experience in the foreign

waterborne commerce by the U S by virtue ofits ownership of

Sea Land and willing to inject financial life into USL with a

fresh approach to the operation of USL as a viable member of

our merchant marine

The proponents have stated that they will keep USL inde

pendent of Sea Land in all ways and we are attaching condi

tions under which Reynolds through RJI can operate USL

and implement their willingness to keep USUs identity in all

respects separate from Sea Land s The conditions will permit

us to follow the progress ofthe acquisition and at any time in

the future demand Reynolds divestiture of USL ifoperations

are not in character with our original approval We are insur

ing this among other ways be requiring that all types of con

certed action between USL and Sea Land receive prior ap

proval ofthe F M C In addition Reynolds has a history of con

trol over independent competing interests as in the tobacco

industry

The agreement we are approving is not the type merger as

were the Prudential Grace or the proposed APLlPFELlAML

mergers whereby independent identities were either effec

tively blended into one or the same result reserved by the par

ties to accomplish We are empowered to keep and are intent

upon keeping avery close regulatory watch on the relationship

of Sea Land and USL following their activities as the Con

gressionally established trustee for the public interest in the

foreign waterborne commerce of the United States

With respect to the primary Justice Department concern

that being the carriage of military and other government

cargo in our approval of amodified acquisition we are placing

regulatory restraints on the carriers dealings with the Mili

tary Sealift Command including the requirement that the par

ties submit reports to the Commission and grant the Commis

sion access to their records Also other types of information

may be required to be filed with the F M C to insure against

the government being charged unreasonably high rates
142 FEDERAL MARITIME COMMISSION

In consideration of Reynolds willingness to help ensure th

USL will remain a continuing viable company in the absen

of any other financial interest coming forward and with th

knowledge that Kidde wants to be rid ofUSL and may in fru

tration dismantle the company we are taking an action whi

will permit Reynolds to infuse new private money into US

and the merchant marine

While our ultimate conclusions differfrom those of the Ch

Administrative Law Judge our examination of his findings 

fact and the exceptions thereto convince us thatthose finding

were well founded and proper and we adopt them as our ow

In order to place our discussion and conclusions in their prop

context we set forth immediately below the initial decision 

its entirety A6

INITIAL DECISION OF C W ROBINSON

PRESIDING EXAMINER 1

The agreement here involved the agreement or merg

agreement dated November 9 1970 was filed with the Co

mission on the same date for approval under section 15 of th

Shipping Act 1916 the Act 2

The agreement provides amo

other things that RJI Corporation RJI a newly formed co

poration wholly owned by Reynolds Tobacco Compa

Reynolds shall be merged into United States Lines In

USL wholly owned by Walter Kidde Company Inc Kidde

and that RJI shall cease as a corporate organization In e

change for Reynolds promissory note see second paragrap

below Kidde willdeliver to Reynolds all the outstanding sto

of USL and USL will be a wholly owned subsidiary 

Reynolds Upon failure of approval by this Commission the I

terstate Commerce Commission or the Maritime Administr

tion or approval on terms and conditions not acceptable 

Reynolds the agreement shall be automatically canceled 

will the proposed charterby Sea Land Service Inc Sea Land

wholly owned by Reynolds of USUs vessels under Agreeme

No 9827 Docket No 69 56 3

If both the charter and th

108 Only the style of thecase headnotes appearances etc have been omitted We have not renumbe

his footnotes

I

This decision bec me the decision of the Commission Feb 8 1973

2

Approval also is sought from the Interstate Commerce Commission and the Maritime Administra

of the Department of Commerce

3

Agreement No 9827 dated October 27 1969 and filed with the Commission for approval under sec

15 of the Act proposed that USL will charter to Sea Land 16 containerships and related equipment f

period of 20 years withthe option to purchase at the end ofthe charter The total paymentto USLwo

he over 1 billion Thematter proceeded through hearing an Examiner s

initial decision areopening 

16 F MC
16 F MC

MERGER AGREEMENT U S LINES INC 143

merger agreements are approved the effective date of the

charter is to be deferred until consummation of the merger in

which case the charter will be an intra corporate transaction

between two wholly owned subdivisions of Reynolds

A supplemental agreement attached to the agreement sets

forth the duties and obligations of Reynolds to Kidde should

the merger not be consummated more details later The sup

plemental agreement will not be affected by the disapproval of

the agreement or approval on terms and conditions not ac

ceptable to Reynolds

A second attachment to the agreement is an 8 percent prom

issory note of Reynolds to Kidde for 65 million dated and

bearing interest from November 9 1970 and maturing either

in 1974 at the earliest or in 1976 at the latest

By order served December 16 1970 the Commission insti

tuted this proceeding to determine whether the agreement

should be approved disapproved or modified The order states

that the supplemental agreement and the promissory note al

though attached to the agreement werenot specifically filed

for approval The parties are directed by the order to address

themselves to the following matters verbatim

1 The transportation needs which necessitate the merger and the deriva

tive benefits to the public of any approval

2 Whether the Commission has section 15 jurisdiction over the parties

and the Merger Agreement

3 Whether the Supplemental Agreement and the promissory note are sec

tion 15 agreements and if so should they be approved

4 The nature scope and characteristics of the presently competing trans

portation systems

5 The impact of approval upon container breakbulk commercial and

military movements

6 The impact f approval on proponents competitors both U S and

foreign

7 Reynolds plans for merging USL into its corporate structure and its

plan for the operation and control of USL

8 The effect on the current USL and Sea Land vessel deployments of the

merger

9 The future service intentions of Reynolds Sea Land and USL assuming

approval and disapproval of the merger

10 The possible loss of benefits from the maintenance of an independent

USL which would have existed under the charter but would not exist if the

Merger is effectuated

11 The impact of approval upon labor

the Commission and asupplemental initial decision The charter was approved by the Examiner The

Commission suspended the timefor filing exceptions to the initial decisions and denied amotion to dis

continue the proceeding in order to permitconsideration of the charter when the merger agree

mentproceeding is ready forCommission decision It is agreed that reference may be made in the

present proceeding tothe evidence in No 69 56
144 FEDERAL MARITIME COMMISSION

12 The relevant market

13 The basis for determining the amount of payment under the merg

and

14 Alternatives available for satisfying any asserted transportation nee

realizing any asserted public benefits orfacilitating Kidde s disposal of US

The following intervened Maritime Administration of t

Department of Commerce International Longshoremen s A

sociation AFL CIO lLA National Marine Engineers Bene

cial Association AFL CIO MEBA International Organiz

tion of Masters Mates and Pilots AFL CIO MMP Marshal 

Safir and Arnold Weisberger Although named as parties 

the order of investigation neither Pacific Far East Line In

PFEL nor Prudential Grace Lines Inc P G participated 

the hearing or filed briefs

The hearing consumed 26 whole or partial days 25 witness

testified 193 exhibits were received or marked for identific

tion and the transcript totaled 3676 pages

BASIC FACTS

Preliminary

1 The house of Reynolds one ofthe country s largest bu

ness concerns wholly owns McLean Industries Inc which 

turn wholly owns Sea Land Kidde is also a many faceted co

pany with about 80 subsidiaries in the United States a

abroad Kidde first acquired a stock interest in USL late 

January 1967 in January 1969 complete ownership was 

complished At the end of 1970 Kidde s assets were 514 m

lion its net sales and operating revenue for that year we

818 million

2 From the deposition taken of him on January 21 19

the chairman of Kidde Fred R Sullivan seemed pleased w

the performance of USL One month later Sullivan and t

president of Kidde informed USUs president John J McM

len that USUs results were unsatisfactory and that th

would consider the sale of USL McMullen expressed an 

terest in buying the company but after considerable dickeri

the matter fell through In the meantime Kidde enlisted t

services of several investment firms to explore the possibi

of sale but again the efforts were unavailing Kidde was 

vised by these firms that the charter wasnot the answer to t

problems of Kidde and USL

4 The discussion and conclusions will not always correspond withthe exact wording ofthe order b

subjects will be covered

Other facts will be found under the hearing DISCUSSION AND CONCLUSIONS

16 F MC
U S jZag container services

5 For many years USL as a subsidized line operated a

large number of breakbulk vessels in the North Atlantic

Europe and Atlantic coast Far East trades Its subsidy con

tract under which it had received about 18 percent ofthe total

subsidy paid to all operators expired in 1969 The renewal ap

plication was never carried through and a temporary exten

sion on one route ended in 1970

6 In 196869 USL put into service in the North Atlantic

trade its eight Lancer class containerships having indi

vidual capacity of about 1200 20 foot container equivalents and

16 F M C

MERGER AGREEMENT U S LINES INC 145

3 In October 1970 at breakfast in Sullivan s home Sullivan

and Malcolm McLean a director of RJI and president of

McLean Industries Inc initiated discussions on what very

shortly became the merger under consideration Whether

McLean had previously telephoned Sullivan to find out about

the status of the charter proceeding as is McLean s

recollection or whether he telephoned to ask whether Kidde

was interested in selling USL to Reynolds as Sullivan

recalls is wholly immaterial Neither the president nor vice

president of USL was aware ofthe negotiations

4 As already seen in case the merger is disapproved or

approved on terms not acceptable to Reynolds the supplemen

tal agreement comes into play Under it Reynolds is obligated

not later than November 9 1976 to find a substitute buyer

who will assume Reynolds obligations under the merger

agreement The substitute has a choice of merger stock ac

quisition or purchase of assets and liabilities Selection by

Reynolds of a substitute is vested in a financial institution of

Reynolds choice subject to veto by Reynolds if Kidde exer

cises its right to secure a guarantee by Reynolds of the

substitute s note or if the fair value of USL in Reynolds

judgment is in excess of the price offered by the substitute

The financial institution is to credit any proceeds received

from the disposition of USL as a part payment of the Reynolds

note which unless fully satisfied will be delivered to Kidde

Disposition may b accomplished by public sale of USL stock

distribution of the stock to Reynolds stockholders public auc

tion of USLs assets or a combination of these alternatives

but there is a preference for preserving USL as an operating

entity so long as this is not materially disadvantageous to

Reynolds
146 FEDERAL MARITIME COMMISSION

a speed in excess of 23 knots The company also converte

eight Mariner vessels into containerships now referred to 

Leader vessels with individual capacity of 929 20 foot co

tainer equivalents and a speed in excess of20 knots These tw

types are excellent vessels and constitute the second large

containership fleet in the world Six Leaders are used in tw

weekly services between Atlantic ports and western Europ

and represent the largest containership operation in th

sphere The other two Leaders together with the eight La

cers operate on a six day schedule between east and we

coast ports on the one hand and the Far East on the oth

hand in what is known as the Seabridge or tricontinent

service established in September 1970 Transshipment at Ne

York eastbound and westbound enables USL to supply 

through service between Europe the North Atlantic the we

coast Hawaii and the Far East as well as an intercoastal se

vice Both the North Atlantic and the Far East services a

connected with feeder services at their foreign destinations

7 In addition to its containership fleet USL has 14 Ch

lenger class breakbulk vessels under charter to the militar

These have a speed in excess of 22 knots and an average dea

weight capacity of 13 500 tons 11 have an above deck capac

for about 128 20 foot container equivalents each

8 USL operated profitably until 1966 In 1967 it sustaine

an operating loss of 2 million in 1968 a loss of 9 million 

1969 the first full year in which the Lancer vessels were use

a profit of 8 million and in 1970 a

year of transition wh

subsidy had expired a loss of 3 million The 1968 loss is a

counted for to some significant extent by write offs The pro

for 1969 would have been only 600 000 without reserves a

in 1970 the loss would have been 12 6 million without r

serves The company s net cash outflow in 1970 was about 5 

million excluding the cost of long term debt In the last qua

ter of 1970 the company was unable to meet day by day e

penses and obligations Losses for the first two months of 19

were estimated at 1 million before taxes and application 

reserves for the entire year the estimate was that operati

revenue would exceed cash requirements by 35 million

9 As of the time of the hearing the principal bank debt 

USL approximated 27 6 million and was to mature on Mar

31 1971 subsequent to the compfetion of the hearing T

company being unable to make payment negotiations we

under way among Kiddie USL and the banks looking towa

16 F MC
MERGER AGREEMENT U S LINES INC 147

an acceptable refinancing program in place of 30 day exten

sions the latest of which expired on May 31 1971 Late filed

exhibit no 193 aletter from Kidde s attorney to the Examiner

dated May 27 1971 states that a further extension was ex

pected until June 30 1971 In May uSL secured 15 million

from another source secured by a mortgage on two unencum

bered Lancer vessels plus aguarantee by Kidde to advance 2

million additional collateral in case of USUs default or in the

alternative at Kiddes option for Kidde to purchase USUs

total obligations under the mortgage agreement As of the

time of hearing Kidde had advanced to USL a total of 9 mil

lion After allocating to Kidde 2 million from the new loan the

balance of 13 million was applied as follows approximately

5 3 million for USL operating working capital and approxi

mately 7 6 million as payment to the banks which reduced

bank loans to 20 million

10 Sea Land an unsubsidized company began a coastwise

containership service in 1956 This wasexpanded in due course

to Puerto Rico the intercoastal trade Alaska the Dominican

Republic Jamaica and otherCaribbean islands More relevant

to the present proceeding however are the services between

the U S North Atlantic and northern Europe and the

Mediterranean and between the Pacific coast and the Far

East about which more will be said hereafter Suffice it to say

at this point Sea Land is the world s

largest containership

operator

11 The carriage by Sea Land of military cargo in contain

erships began in 1966 from the Pacific coast to the Far East

There followed at the end of 1968 an eastbound commercial

service to the Pacific coast from the Far East with vessels

which carried military cargo westbound Finally in early 1971

a westbound commercial service in that trade was started in

order to fill space not used for military cargo In January 1971

the North Atlantic northern Europe commercial service was

twice weekly to the Mediterranean onceweekly The various

U S foreign services utilize chartered foreign flag feederships

and U S flag feederships are used in the domestic relay sys

tem a total of 15 ships with a capacity of over 2700 20 foot

container equivalents

12 At the time of hearing Sea Land either owned or char

tered 63 linehaul containerships two ofwhich with a speed in

e

This number has been settled upon after examination of the whole record The parties do not agree on

a

number Sea Land sexhibits 49 and 125 are notcompatible as understood by the Examiner

16 F M C
148 FEDERAL MARITIME COMMISSION

excess of22 knots wereunder construction in Germany in 1

for Matson Navigation Company and purchased at that t

for 30 million by aReynolds subsidiary on behalf of Sea La

a third may be acquired 7

The capacity of the 63 ships 

34 644 20 foot container equivalents plus 646 40 foot cont

ers To be added to the foregoing are eight vessels financed 

Reynolds and under construction in Germany and the Neth

lands each with a capacity of 1948 20 foot container equi

ents and geared to 33 knots and will be chartered by S

Land These will be the largest and fastest containerships 

the world Delivery is estimated to commence in January 1

the last one to be received in September 1973 or shortly th

after

13 The two Matson ships and the eight ships being bui

Europe will offer more container capacity than that of 

other American flag operator The 17 vessels used in 

domestic trades also exceed the number of ships operated 

any other U S flag operator in both the foreign and dome

services Aside from the Matson vessels the presently ow

fleet is composed principally of vessels constructed du

World War II and later converted and are slow and of lim

capacity From four to six of the oldest vessels may be ret

by 1974

14 The commencement by USL ofthe Seabridge servic

1970 made that company the only direct competitor of S

Land in the total U S foreign commerce As already noted 

two companies are the largest containership operators in 

North Atlantic Now served by relay via Puerto Rico Sea L

has been considering a direct service between the Atla

coast and the Far East 8

There also are expansion plans 

that trade irrespective of the outcome of the present proce

ing Sea Land and USL are highly competitive for the carri

of military cargo For instance under RFP 500 July 19

June 1971 USL underbid Sea Land in five of the seven tra

pacific trade zones and the same was true in all three No

AtlanticMediterranean zones In June 1971 Sea Land rece

a two year 71 million contract to carry military cargo to V

nam

15 Sea Land s marketing methods are extensive and 

signed to take advantage of all trade possibilities in the Un

7 One was ehartered to Sea Land on DtIClember 81 1970 for aterm of five yean the second i

delivered in 1971 under aOyear eharter

Official notice i taken that SeaLand became amember of the FarEast Conference Route 

August 20 1971

16 F M
MERGER AGREEMENT U S LINES INC 149

States and abroad Its domestic relay activities provide a vast

and unique opportunity to gather cargo for its linehaul ships

in the foreign trade no other U S flag containership operator

is able at present to match these competitive efforts This ex

ertive force will be further expanded through 1975 even should

the merger not be approved

16 For the first three quarters of 1970 Sea Land s profit

or loss for its various services here concerned was as follows

North Atlantic 363 000

Mediterranean 3 793 000

Viet Nam 18 802 000

OkinawaPhilippines 5 043 000

Far East commercial 4 632 000

Foreign commercial 1 202 000

Military contracts 23 845 000

The profit of 1 202 000 on foreign commercial shipments was

derived from revenues of 70 045 000 and is a rather low re

turn In contrast the profit of 23 845 000 on military contracts

was predicated on revenues of 74 999 000

17 American Export Isbrandtsen Lines Inc AEIL has a

weekly service on Trade Route 57 89 utilizing three new

Seawitch class containerships with an individual capacity of

928 20 foot container equivalents and a speed of 21 knots This

is the most important route in American foreign commerce

North Atlantic U K Ireland the Continent Germany south

of Denmark to northern border of Portugal it also has the

largest percentage of cargo moving in containers about 60

percent in 1969 which has brought U S flag breakbulk opera

tions to a virtual halt

18 There also is anAEIL weekly Mediterranean service on

Trade Route 10 North Atlantic Mediterranean in which

there are utilized four modern Seabridge class roll on roll off

containerships recently purchased from Moore McCormack

Lines Incorporated with an individual capacity of 824 20 foot

container equivalents and a speed of 24 knots and one con

verted containership also a fortnightly service with four

breakbulk ships This route has been the company s basic area

of operation and is the oldest American flag service in the

area About 30 percent of the cargo on the route is tied in to

foreign flag vessels and only about 30 percent of the general

li9Cr cargo is containerized because of the underdeveloped

economy ofthe area Sea Land entered the trade several years

ago as the result of a low bid on military cargo its financial

results therefrom have been so unsatisfactory that it recently

16 F MC
150 FEDERAL MARITIME COMMISSION

announced a switchover to foreign flag vessels AEIL also 

erates on two other trade routes a fortnightly service on 

18 Atlantic and GulfIndia Persian Gulf Red Sea with n

breakbulk ships and a 12 day service on No 12 Atlantic 

East with seven partial containerships about 10 years old

19 Three more Seawitch vessels are scheduled for deliv

to AEIL in 1972 73 The company also must take further st

to upgrade its fleet in order to fulfill obligations un

operating differential subsidy contracts with the Marit

Administration If the Seabridge vessels are jumboized th

container capacity would be nearly doubled There are a 

breakbulk vessels which could be converted to containershi

20 American President Lines Inc APL operates th

all freight subsidized services competitive to some extent w

Sea Land and USL A weekly transpacific service betw

California and the Far East utilizes five new breakbulk ves

with ondeck container capacity two largely containerized 

sels and usually one additional such vessel this service is 

fitable The round the world service operates on fortnig

frequency using seven Mariner vessels capable of carry

containers on deck and in the square ofthe hatches there 

marginal results from this service The Atlantic Straits ser

serves the Atlantic coast California the Far East 

Malaysia with seven breakbulk vessels on a 15 day freque

and is not profitable

21 There are under construction for APL four Paceset

class containerships having an individual capacity of 1

20 foot container equivalents and a speed of 23 knots Deliv

is called for between July 1972 and March 1973 and they 

scheduled for the transpacific service Five Sea Master c

vessels in the transpacific service are to be converted to 

tainerships having aspeed of 23 knots and an individual ca

ity of 876 containers these are planned for delivery betw

February and August 1972 and eventually will be used in 

Atlantic Straits service The Mariner vessels probably wil

converted to full containerships for the round theworld 

vice There will be containership operation in some form in 

three services by 1973

22 Completely owned by APL 9

American Mail Line L

AML has two subsidized services both competitive w

Sea Land and USL One service between the Pacific No

west and the Far East utilizes five C5 vessels and 

IIThis has come about since the hearing

16 F M
MERGER AGREEMENT U S LINES INC 151

Mariner breakbulk vessels on a 9 10 day frequency The Ct s

can carry 469 containers on deck and in the hatch wings and

at the time of hearing they were the largest freighters in the

world The other service on amonthly schedule originates in

the Pacific Northwest and proceeds to Southeast Asia turning

at Calcutta and East Pakistan and returning via California

Three Mariners which can carry some deck containers ply

this route the service is unprofitable The company is convert

ing three Mariners to full containerships with an individual

capacity of 892 20 foot container quivalents to be used bet

ween the Pacific Northwest and Japan Four of the C5 s will

be kept on the Far East run and one may join the other two

Mariners in the Southeast Asia Bay of Bengal service

23 In addition to its domestic container services

Atlantic Puerto Rico west coast Hawaii and Guam Seatrain

has anAtlantic North Europe container service and is consid

ering awest coast Far East service Its North Atlantic fleet is

being replaced with four containerships having individual

capacities of 1900 20 foot container equivalents and a speed of

about 25 knots under construction in Germany for operation

under the British flag The company has no long range plans

to operate under the American flag on the North Atlantic In

addition to its common carrier services Seatrain owns and op

erates tankers and bulk vessels some under foreign flag

under charter for the carriage principally of oil and grain

Another endeavor is the operation of the ex Brooklyn Navy

Yard The company s assets have increased from 72 million in

1966 to 206 million in 1969

24 Although as mentioned PFEL and P G were named as

parties to the proceeding they did not participate in the hear

ing and did not file briefs PFEL operates aweekly subsidized

service on Trade Route 29 transpacific broadly speaking with

nine breakbulk vessels Recently it purchased from The

Oceanic Steamship Company four ships which had been oper

ated on Trade Route 27 Pacific coast Australia and New Zea

land and two containerships under construction the latter

having an individual capacity of about 1450 20 foot container

equivalents and a speed of23 knots these should enterservice

in 1972 73 and it is contemplated that they will ply Route 29 in

exchange for two vessels now operating thereon In addition to

the above PFEL has six LASH type ships on order or under

construction with an individual capacity of about 1500 20 foot

container equivalents and a speed of 23 knots to be used on

Route 29

16 F MC
152 FEDllRAL MARITIME COMMISSION

25 P G a subsidized operator is acquiring five LASH t

vessels for operation on Route 10 at least one has been de

ered with an individual capacity of about 1500 20foot c

tainer equivalents and a speed of 23 knots Since consolida

of Prudential and Grace there is a subsidized service betw

the Atlantic and Pacific respectively and the Caribbean 

east and west coast ofSouth America which have no U S 

competition

26 Not a party to the proceeding Lykes Bros Steams

Co Inc has under construction three Seabee type ves

with an individual capacity of 1800 20 foot container equ

lents and a speed of 20 knots for probable operation on Ro

21 Gulf western Europe In addition there are nine u

scheduled for conversion to part containerships with an i

vidual capacity of fewer than 200 20 foot containers an

speed of under 18 knots The company also operates in o

important trades

27 Another line not made a party to the proceeding 

rell Line Incorporated operates a subsidized service on Ro

16 Atlantic GulfAustralia and New Zealand rather rece

purchased from USL for which it has under construction 

containerships with an individual capacity of 978 20 foot 

tainer equivalents and a speed of 23 knots for delivery 

1971 72 The company also has two newish part containersh

with an individual capacity of 232 20 foot cont iners an

speed of 21 knots In addition to the southwest Pacific 

there is a service to South and East Africa from the Atla

Route 15A which is the company s original area of op

tion

28 Moore McCormack Lines Incorporated not a party 

the proceeding formerly operated a service on Route 57 

but its four new roll on roll off ships in that service were 

recently to AEIL as previously mentioned It owns six p

containerships about five years old with an individual ca

ity of 301 20 foot containers and a speed of 21 knots and 

older and slower part containerships

29 The last of the U S flag containership operators to 

here mentioned also not a party to the proceedingis St

Steamship Company tO This line has five ships with an i

vidual capacity of 200 20 foot containers and a speed o

knots plus six which can carry 167 20 foot containers each 

10 Delta Steamship Lines Ine asubsidized operator has services fiom the Gulf to South Americ

to Africa but the record contains no information as to it whJch is comparable to that ofthe other 

16 F M
MERGER AGREEMENT U S LINES INC 153

speed of 20 knots Both classes of ships serve the transpacific

trade in its broad connotation 11

Foreign fia competition

30 Without going into detail the record is replete with the

many combination and individual company operations of

foreign flag containerships in direct competition with U S

flag counterparts The principal areas of this competition

are Atlantic North Europe Atlantic Mediterranean Pacific

Far East and Atlantic Far East These operations continue to

grow as new and efficient vessels are added

31 Itwas estimated by the economic witness for APL AML

that by mid 1971 the one way annual container capacity on the

routes just mentioned would be as follows

u s Flag

240 452

62 882

46 147

152 756

Foreign Flag

No 5 78 9

No 10

No 12

No 29

344 003

38 189

None

108426

Total 502 237 490 618

Relevant market

32 As already seen the routes where competition between

U S flag and foreign flag containership services are most

acute are Atlantic North Europe Atlantic Mediterranean

Atlantic FarEast and Pacific Far East Responsible witnesses

for Sea Land and USL agree that vessels carrying only con

tainers are the most economically practical for a container

service Furthermore containership operation is generally

considered to be one that is apart from other types of service

33 Almost hopelessly irreconcilable are the statistics per

taining to the available containerable 12 commercial cargo on

the relevant routes Here as in most cases where cargo esti

mates are made there is a technical battle between the pre

parers of the estimates representing as they do opposing in

terests in the matters at issue The Examiner does not propose

to enterthis mental arena as he believes it to be unnecessary

for present purposes It is sufficient under the circumstances

to conclude that in 1970 a reasonable estimate of such cargo

II Some of the information concerning the carriers referred to has been obtained from Essential

United States Foreign Trade Routes December 1969 published by the Maritime Administration of the

Department ofCommerce

12 The Examiner prefers this spelling to containerizable

16 F MC
154 FEDERAL MARITIME COMMISSION

was in the general magnitude of 8 000 000 long tons in 

out on Route 5789 2 000 000 long tons in and out on R

10 4000 000 long tons in and out on Route 12 and 3 000 

long tons in and out on Route 2901 atotal of 17 000 000 

tons 13

Containerized cargo carried

34 In 1969 the only year of record and limited to ro

5789 and 29 the two largest areas 3 078 257 long ton

and out of containerized cargo were carried by U Sflag 

foreign flag lines on the former the U S flag vessels acc

ing for 60 percent on Route 29 there were 2 093 379 long 

in and out ofcontainerized cargQ with 61 percent handle

U S flag vessels The figures for both routes include com

cial military and mail cargo Limited to commercial c

2 769 097 tons were carried by all flags on No 5789 56 

cent of which was on U S flag vessels on No 29 1 20

tons of commercial cargo were carried 34 percent of which 

on U S flag vessels

Cargo reserved to U S flag

34 In 1969 the only year of record and limited to ro

57 89 and 29 the two largest areas 3 078 257 long ton

and out of containerized cargo were carried by U S flag 

foreign flag lines on the former with U S flag vessel

counting for 60 percent on Route 29 there were 2 093 379 

tons in and out of containerized cargo with 61 percent h

led by U S flag vessels The figures for both routes inc

commercial military and mail cargo Limited to comme

cargo 2 769 097 tons were carried by all flags on No 57 8

percent of which was on U S flag vessels on No 29 1 20

tons of commercial cargo were carried 34 percent of which 

on U S flag vessels

Cargo reserved to U S flag

35 Certain cargoes are reserved by law to vessels flying 

U S flag One such type is military cargo the othe

government impelled commercial cargo These two classes 

very important to the welfare of the American lines

36 In 1969 on Route 57 89 military cargo amounte

13 To enable the reader to avoid plodding through amass of data seeExhibit 423 table B44 

rected in Docket No 696

16 F M 
16 F M C

MERGER AGREEMENT U S LINES INC 155

36 percent of all U S flag outbound traffic on Route 29 81

percent Outbound and inbound 19 percent of the U S flag

container cargo on No 57 89 was military on No 29 66 per

cent Government impelled cargo constituted 21 percent of the

commercial liner exports in 1969 61 percent of which was car

ried by U S flag vessels

37 Sea Land carries about 95 percent of the transpacific

military cargo Receipts of about 91 million in 1969 from

military cargo were nearly twice that of any competitor In

the same year military and government impelled cargoes

amounted to 62 percent of the revenue tons handled by Sea

Land in its foreign services For the first three quarters of

1970 Sea Land s revenues from military cargo represented

about 60 percent ofthe company s total revenues and about 50

percent of its cash return For APL and AML military and

government impelled cargoes were about 70 percent of their

outbound transpacific volume in 1969 and 1970

Cargo wedded to foreignflag

38 A part of the cargo in the foreign commerce of the

United States moves by foreign flag vessels because of

nationalistic preference This is quite easily understood and

appreciated About 40 percent of the desirable liner cargo

from the Pacific coast toJapan finds itself in Japanese vessels

Sea Land in its projections estimates that 4550 percent of

the U S Japanese trade will be garnered by the Japanese

lines USL agrees that the Japanese lines will predominate

The Japanese situation is largely the result of immense busi

ness combines that include steamship companies To a lesser

extent the flag conscious situation exists in other transpacific

trades It was estimated that about 30 percent of the

AtlanticEurope trade is safely within the province of foreign

flag lines

Plans of Reynolds USL Sea Land

Item 7 ofpage 3 ofthe order ofinvestigation as seen earlier

calls for Reynolds plans for merging USL into its corporate

structure and its plan for the operation and control of USL

and item 9 seeks The future service intentions of Reynolds

Sea Land and USL assuming approval and disapproval of the

merger As it would be quite difficult to divorce the two items

U

There seems to be agrowing feeling in this country that amodicum of U S flag preference is emerg

ing
1

156 FEDERAL MARITIME COMMISSION

in any discussion they will be handled together for co

nience and comprehensive understanding The statem

below unless indicated to the contrary are those of the 

spective parties and are not necessarily the conclusions of 

Examiner

39 If merger is approved Following approval Reyn

would maintain USL as a wholly owned subsidiary with 

tinued operation under the existing name and independe

Sea Land USL would have its own management accoun

labor relations and construction funds Ifthe charter betw

Sea Land and USL is approved Docket No 6956 USL 

man and operate its 16 containerships for the account of 

Land for a 20 year period subject to all the terms of the c

ter agreement As pointed out earlier approval of the cha

would mean more than 1 billion for USL over the 20 

period 30 million annually and Reynolds would nego

with the Maritime Administration for a tax deferred f

under the Maritime Act of 1970 to enable construction of v

ous types of ships Should there be competing operati

Sea Land vis a vis USL this would be eliminated to en

dependable service to shippers

40 It has been the policy of Reynolds to contribute its 

sources and skills to assist acquired concerns in order to p

them on a sound financial basis Furthermore Reynolds 

to it that its subsidiaries are operated in a reasonable 

prudent business and financial manner In the case of U

Reynolds would render assistance through capital advan

renegotiation of outstanding debts and whatever else w

be necessary to assure that USL would have a current 

status

41 USL would expand its operations into other areas 

would operate its 14 Challenger breakbulk vessels under 

merger regardless of whether the charter is approved 

thermore they will not be used by or for Sea Land Reyn

would accept as a consideration for approval of the me

that it would obtain prior approval of the Commission shou

decide to transfer the use of the Challengers from US

Sea Land As another concession Reynolds would obtain 

proval of the Commission before a change is made in the c

ter Now under charter to the military as previously m

tioned USL would prefer to keep the Challengers on milit

charter Should the military terminate the charters U

couid operate all or some of the ships in commercial break

16 F M
MERGER AGREEMENT U S LINES INC 157

services convert all or some to containerships charter all or

some to other operators or sell one or more

42 Sea Land will obtain the use of the 16 USL container

ships upon approval of both the merger and the charter These

vessels will upgrade Sea Land s fleet ofvintage ships and will

be integrated into Sea Land s worldwide system of terminals

and services to achieve high productivity As of the time of the

hearing Sea Land had not established fixed deployment of

USLs containerships for the 20 year charter period Although

there was a suggestion as to how the combined Sea Land and

USL fleets might be used by 1973 74 the prognostication is of

little value inasmuch as many factors would have to be con

sidered in the meantime As for its own ships it was stated

that the first two of the eight large SL 7 vessels building or on

order in Holland and Germany would be used in the trans

Atlantic trade and that the next several would be used in the

transpacific trade After the implementation of the charter

Sea Land would maintain basically the same level ofservice in

each trade as did USL

43 If merger is disapproved In this event USL would con

tinue to operate its containerships as at present pending

eventual disposition of the company in accordance with the

supplemental agreement The principal witness for Reynolds

testified that following disapproval USL would be sold as a

going concern As already pointed out an independent finan

cial institution will dispose of USL but the operation of the

company will not be affected and Reynolds will have no legal

right to interfere with USLs general competitive capability

Reynolds can only take steps to protect itself against guaran

teeing the credit of a poor risk purchaser and seeing to it that

the price received for the sale of USL is reasonably related to

fair market value at the time of sale

44 Sea Land would follow through with plans to broaden

its operations both as to sailings and areas served and would

take whatever steps necessary for an aggressive and well run

company to maintain its place in the sun Between 1973 and

1975 the following deployment of its vessel is either proposed

or contemplated

In 1973 five additional SL 7s and one additional Matson type vessel will be

come part of the fleet One SL 7 will be added to the North Atlantic joining

the earlier SL7 vessel placed in this trade providing weekly service in each

direction with these high speed ships The remaining SL 7 ships will be placed

in the Far East service With a call every week in the Far East four additional

feeders will be necessary to collect the cargo from the outports to fill these

vessels

16 F M C
158 FEDERAL MARITIME COMMISSION

With the expected drop in military cargo the six C4J vessels will be t

ferred from the Viet Nam service to the Intercoastal service where they 

serveNew York directly The added space will be necessary to handle th

pected East Coast Far East commercial freight in both directions

A shuttle service will be instituted on the West Coast to collect and dis

ute the SL7 cargo and the Texas service will increase capacity from 225 

per week to 360 vans per week to handle the extra freight needed for Eur

The two Matson ships released from the North Atlantic and an addit

vessel of similar characteristics which will have to be acquired will be p

in the Mediterranean service Feeder capacity will have to be expande

three vessels in order to fill the weekly capacity of the Matson type vesse

With the additional capacity delivered and redeployment of the fleet to 

vide maximum competitive service six C2 vessels with cranes and two 

vessels without cranes will be excess and are not included in the deploy

schedules Such vessels can then either be sold sub chartered or used t

velop market opportunities not yet fully explored

45 Although Sea Land s deployment by its very nat

must be tentative and flexible in the next few years 

foregoing excerpt represents management s best judgment 

reason appears why it should not be accepted for what i

namely an educated forecast

Impact upon labor

46 ILA is the longshore union whose members load and 

load vessels serving Atlantic and Gulf ports irrespectiv

flag It also performs termipal functions such as stuffing 

stripping containers and loading and unloading trucks 

gardless of whether the merger is approved this union 

continue to perform those functions Its principal concer

that the proposed merger would reduce the numbe

longshoremen needed to handle the traffic Sea Land and U

use different terminals if the merger is approved and to 

extent possible Sea Land would consolidate its operation

each port at a single terminal and USL terminals would ce

to be utilized As a

consequence Sea Land projects a los

several million dollars in longshore wages a

year in loa

and unloading operations There also is another factor 

number of longshoremen has decreased with the advent 

development ofcontainerization and as breakbulk transpo

tion lessens it is likely that fewer longshoremen wil

needed This could be counteracted to some extent of cours

port coverage is increased and increased foreign to fore

cargo is transshipped at American ports

47 MEBA and MMP supply the licensed officers and 

gineers for both Sea Land and USL and to that limited ext

16 F M
MERGER AGREEMENT U S LINES INC 159

would not be affected by the merger There is some slight indi

cation however that if the merger is approved Sea Land

would cut back on its own replacement program which could

mean a reduction in the number of ships in the combined fleet

bearing in mind that Sea Land intends in the not too distant

future to rid itself of a number of older ships Ifthis chain of

events takes place it could result in a decrease in the use of

MEBA and MMP personnel This would be true even though

the merger technically is not between Sea Land and USL But

afair and reasonable appraisal ofthe entire record leads to the

probability that the premise is not true even though as one of

Sea Land sprincipal witnesses testified itwould obviously be

a tremendous advantage to Sea Land to be rid of USL

Furthermore it is possible that at the end of the charter

period USL will have enlarged its fleet perhaps by as many

as 20 vessels

48 NMU unlicensed personnel man USUs vessels con

tainer and breakbulk To allay any fears that the union might

have if the merger is approved Reynolds and Sea Land agree

that USL would be bound by all collective bargaining agree

ments in effect at the time of change of ownership and that

under the charter USL would continue to operate its contain

erships with NMU personnel These conditions are also ac

ceptable to Kidde and USL

49 Seafarers International Union furnishes the unlicensed

personnel for Sea Land vessels It is informally agreed by

Reynolds and the union that the latter s members would not

lose any of their traditional work under the merger and char

ter agreements and that there would be no jurisdictional dis

putes in the menning of the two fleets

50 Shoreside personnel of Sea Land and USL is another

factor to consider USL already has reduced its personnel con

siderably a situation which naturally concerns the rest ofthe

organization under the proposed merger It cannot be deter

mined at this time what the real effect would be on USL per

sonnel ifthe merger is approved or for that matter whether

USL would be forced to further reduce its clerical force if the

merger is not approved but see later the discussion as to

USUs financial condition and general competency of USLs

operations One thing can be said however any USL em

ployee who might be released would have under the Reynolds

corporate policy a preference for employment at Sea Land or

other Reynolds subsidiaries In that connection Sea Land has

16 F M C
160 FEDERAL MARITIME COMMISSION

plans in the next few years for a rather substantial incre

in people The charter agreement provides that USL per

nel in the Far East would be retained by Sea Land

Container oapaoity and oontainerable oargo by 1974

51 The parties have centered their thoughts on the 

1974 as the outermost period for comparative purposes bot

to container capacity and as to the volume of container

cargo In that year Sea Land may well have been on its 

toward completion of its expansion program as outlined in 

five year forecast 1971 1975 of McLean Industries Inc A

much if not all of the building by foreign flag lines will h

been put into service by that time

52 Container oapaoity The predictions of the econo

witness for Sea Land and USL as to containership capacit

1974 on the principal trade routes here involved is show

Table 1

TABLE 1

Annual oapatlitu one 

Trade No 0 ships Annual voyages JW oont equiV8

Route

U S Foreign U S Foreign U S Fore

6 739

11 86 208 494 246 190 

9 169 205 409

10

11 8 162 104 189 068 

14 178 186 423

12

14 18 86 100 67 676 

12 78 79 768

29

60 88 436 269 887 664 

33 828 316 084

No merger

Merger

53 In comparison with Table 1 the economic witness 

APL AML predicts the container capacity by 1974 as show

Table 2

16 F M
86 461 89 490

95 741

MERGER AGREEMENT U S LINES INC 161

TABLE 2

Trade No of ships Annual voyages

Route

U S Foreign U S Foreign

789

19 28 253 416

11 221

10

11 8 156 100

14 182

12

19 7 110 52

19 117

29

47 21 443 231

40 376

Without merger

With merger

Annual capacity one way

20ftcom equivs

U S Foreign

339 438 392 756

312 317

135 622 63 500

132 987

406 745 177 144

339 111

54 Because of the differences in the basic approaches of

the respective witnesses the answer to the container capacity

by 1974 probably lies somewhere between the extremes shown

in the two tables however in view of such faraway estimates

complete accuracy is neither required nor expected for present

purposes

55 Containerable cargo In Docket No 69 56 the economic

witness for some of the lines opposing the Sea Land USL char

ter estimated the volume ofcontainerable cargo by 1974 on the

trade routes here principally involved These estimates were

based on a review ofliner cargo movements for which data was

then available through 1968 Since the time of that estimate

the actual data for 1969 have become available These confirm

says the witness the accuracy of the projections made in No

6956 The economic witness for Sea Land USL also has made

a similar computation in the present proceeding The two es

timates are shown in Table 3 the figures are approximate

16 F MC
162 FEDERAL MARITIME COMMISSION

TABLE 3

Trade Route Opposing Merger S LandIUSL

17 89 4 174 000 4 869 000

10 2 206 000 2 128 000

12 8 498 000 8 688 000

29 4 075 000 6 870 000

56 There is relatively little difference between the two 

jections except for Route 29 The reasonable estimate for 

route is somewhere between the two extremes

Containerable cargo vis a vis capacity 1974

57 Table 4 shows the estimated containerable cargo 

container capacity on the principal routes in 1974 15

TABLE 4

Trade

Route

C ntainerable cargo

long tons

approximate

Container capacity long tona approximate

eight ton8 percontainer average

Total u s

1 789 4 500 000 6 800 000

6 600 000

2 700 000

2 460 000

10 2 200 000 1 550 000

1 660 000

1 000 000

1 000 000

12 3 500 000 1 400 000

1 450 000

700 000

725 000

29 6 500 000 4 600 000

4 100 000

3 000 000

2 600 000

Total 16 700 000 13 350 000

12 700 000

7 400 000

6 676 000

No merger

Merger

It Thecargo figures are areasonable compromise between thosegiven in Table 3

16 F M
DISCUSSION AND CONCLUSIONS

MERGER AGREEMENT U S LINES INC 163

58 From Table 4 the figures in which are naturally quite

fluid since they represent estimates three years hence it can

be seen that only Route 57 89 would be overtonnaged in 1974

if the combined U S and foreign capacities are considered

Insofar as U S flag totals are concerned the capacity would

be considerably below the available cargo on Route 57 89

about half on Route 10 far below on Route 12 and respectable

on Route 29 The total capacity on the four routes would be

approximately 85 percent of the containerable cargo available

in 1974 6

Jurisdiction

Merger agreement As might reasonably be expected the De

partment of Justice Justice takes the position that the Com

mission has no jurisdiction under section 15 to entertain appli

cations for approval of ocean carrier mergers The Examiner

feels that he need not go into this phase in depth as he is

bound by prior rulings that the Commission does have such

jurisdiction Merger American Mail Line and Pacific Far East

Line 11 F M C 53 1967 affd sub nom Matson Navigation Co

v Federal Maritime Com n 405 F 2d 796 9th Cir 1968

Agreement No 8555 7 F MC 125 1962 and denial by the

Commission of motion to stay the present proceeding served

February 17 1971 With due respect the Examiner under all

the circumstances declines to be bound by the opinion of the

United States District Court for the District of New Jersey

filed April 7 1971 in United States ofAmerica v R J Reynolds

TobaccoCompany etal Civil ActionNo 1668 70 325 F SUPP656

whichheld thattheCommission does nothavejurisdiction under

section 15topass upon the instantapplication As ofthiswriting

the Commission has not been ordered by the Court to refrain

from the further processing of the matter see Commission s

denial of appeal served May 17 1971 7

Supplemental agreement As previously stated the supple

mental agreement comes into play only if the merger is disap

proved or approved on terms and conditions not acceptable to

Reynolds

18 The Examiner is not unaware of statements made publicly in the past few months that certain

trades either are orwill be overtonnaged He can only say that if the figures here used do not coincide

with thoseof others he is bound by what this record shows

17 Jurisdiction is not defeated simply because some of the parties to the agreement are not carriers or

other persons subject to the Act N Atlantic Mediterranean Frt Conf and United Arab Co 9 F M C 431

486 1966

16 F M C
164 FEDERAL MARITIME COMMISSION

Reynolds Sea Land and KiddelUSL take the position 

the supplemental agreement is not subject to approval un

section 15 for the following reasons first it is not an ag

ment between common carriers by water orother persons 

ject to the Act second it does not control regulate preven

destroy competition and third it does not fit into any of 

other kinds of agreements contemplated by section 15 Jus

supports this view

APL and AML maintain that the supplemental agreeme

subject to section 15 because it has a shipping effect 

spective of the fact that the parents of Sea Land and U

signatories thereto are neither common carriers nor o

persons subject to the Act They further argue that the 

plemental agreement has been carried out without the req

ite approval Hearing Counsel concede that Reynolds 

Kidde are not common carriers or other persons subject to 

Act as traditionally understood but insist that the real 

ties to the supplemental agreement are Sea Land and U

and that all agreements controlling regulating or destro

competition must be filed for approval whether they be m

directly by carriers or other persons subject to the Ac

through the interposition ofother parties having effective 

trol over the carriers or other persons involved Hearing C

sel further argues that the approvability of the suppleme

agreement is premature since it has not been filed as an 

reement requiring Commission action

Whether the supplemental agreement is subject to sectio

is a close question one which can be argued with equal fac

on both sides In approaching the problem the follow

among other factors which probably could be mustered m

be considered 1 the supplemental agreement cannot be 

plemented in some respects except through the action of 

under Kidde s orders 2 Reynolds primary consideration 

secure the USL fleet for the use of its subsidiary Sea Land 

the supplemental agreement is a means by which Reyn

and more importantly Sea Land coul acquire USL 

all that goes with it upon disapproval of the merger 4 

supplemental agreement section 14 provides that 

Agreement the Merger Agreement and the Related D

ments embody the entire agreement and understanding 

ween all of the parties hereto relating to the subject ma

hereof 5 Reynolds has been actively behind Sea Land 

erations including its building program 6 Reynolds 

Kidde have undertaken considerable financial and manag

16 F M
16 F MC

MERGER AGREEMENT U S LINES INC 165

responsibilities on behalf oftheir subsidiaries 7 Reynolds has

certain veto powers over the sale of USL 8 according to wit

ness McLean Reynolds would expect to be heard should USL

be disposed of by an institution selected by Reynolds and 9

USL would continue to be an operating entity to the extent it

would not be materially disadvantageous to Reynolds

Much could be said for the contention that the supplemental

agreement is part and parcel of and inextricably interwoven

with the merger agreement and that it would be unrealistic

to hold that the supplemental agreement is not subject to sec

tion 15 This theory must depend however upon the further

theory that although signed neither by carriers nor by other

persons subject to the Act nevertheless the document really

has been executed by Reynolds and Kidde as the alter egos of

Sea Land and USL This position would of course take careof

any situation where legal parents or other relatives execute

documents or perform acts permitting carriers or other per

sons subject to the Act to escape the responsibilities cast upon

them by the Act Whereas this would fit neatly into the gen

eral scheme of regulation the Examiner is of the opinion that

it stretches the skein too far under the facts here involved

The fact that an agreement has a shipping effect does not

mean necessarily that it automatically comes within the pur

view of section 15 Although Sea Land and USL would be

affected to some extent by the supplemental agreement they

are not the real parties in interest thereunder Should the

merger not be approved the supplemental agreement comes

into full bloom the charter application is abandoned and

Reynolds Sea Land terminate their interest in USL 8 19

Promissory note Although the order of investigation calls

for a review of the promissory note both as to the

Commission s jurisdiction thereof and as to whether approval

should be given thereto there is a dearth of briefing on the

jurisdictional point Kidde USL merely give a short summary

ofthe terms of the note and then state later in bold type THE

SUPPLEMENTAL AGREEMENT AND THE PROMISSORY

NOTE ARE NOT SECTION 15 AGREEMENTS There is no

discussion as to whether the note comes within section 15 Jus

tice states that the note does not fall within section 15 as

Reynolds and Kidde are not common carriers that it is not a

16 The Examiners

decision in Agreement NQ DC7 10 SRR 725 727 1968 cited by the parties has

been considered but is not persuasive in view of the dissimilarityof facts

IIShould the Commission disagree with this conclusion the discussion found in APPENDIX AU is

submitted as an aid to the Commission in its determination as to whether the supplemental agreement

should be approved
166 FEDERAL MARITIME COMMISSION

working agreement of the type covered by section 15 and 

it is notrelated to the operation ofshipping companies on 

contrary it is a contract creating rights and obligations 

tween two parties not subject to FMC jurisdiction in the e

that the Agreement of Merger is frustrated by agency orc

disapproval Finally Hearing Counsel states simply tha

note raises no legal issues other than those discussed in 

nection with the Merger Agreement and the Supplementa

reement

If the premise is correctnamely that the suppleme

agreement is not subject to section 15 it follows that 

promissory note is not subject to section 15 and it is so fou

Impact ofmerger on US competitors

APL AML These two companies which have served 

transpacific trade for some years and which have close 

tionships with their shippers both in the United States an

the Orient are troubled by the thought that the merger c

blanket their spheres of operation This could be accomplis

it is said by deploying six to eight SL7 s or eight Lance

the various segments ofthe Pacific coast Far East trade 

lines have been and still are proceeding with their expa

containership program a costly step which they would ha

take were they too much concerned with the approval o

merger Referring to tables 1 and 2 and irrespective of w

estimates are used APL AML Sea Land and USL agree 

there will be fewer U S flag containerships on Route 2

1974 if the merger is approved

Itcannot be overlooked that APL and AML have electe

accept operating differential subsidies which contain t

somewhat as far as concerns their independent flexibility 

maneuverability

Ifthe merger is approved Sea Land and USL will accep

following conditions relating to Route 2

two sailing per week originating and terminating on the West Co

the United States but only one sailing per week if the entire service i

formed by SL7 class vessels

APL AML are not satisfied with these conditions They 

that 1 Sea Land offers no substantial outbound comme

service on Route 29 2 USL has only a top off service on 

80 Should the Commission disagree with this conclusion the discussion found in APPENDIX 

submitted as an aid to the Commission in its determination as to whether the amount of the no

and reasonable

16 F M
16 F MC

MERGER AGREEMENT U S LINES INC 167

Pacific coast in its Route 12 service Atlantic Far East 3 the

proposal would allow two sailings a week plus a maximum of

two calls aweek by Route 12 vessels and 4 though Sea Land

now offers two inbound commercial sailings a week with ves

sels that sail outbound with military cargo the proposal would

leave the military service unrestricted and add two round

boyage commercial sailings aweek This situation they argue

would sanction from three to six times the sailings and capac

ity of its largest competitor

APL AML want the Route 12 sailings from theAtlantic to be

confined to the basic route and not be used to double the two

sailings aweek limitation on Route 29 They will accept two

sailings a week in the thought that it is probably coming

anyway but will not accept the added service of the return

ing military carriers which at the present level would double

the inbound commercial service on T R 29 Since it is stated

the ordinary practice of the fullmilitary carriers such as

States Marine is to ballast inbound Sea Land should do

the same ifit wants to continue as the dominant military car

rier in the Pacific while also maintaining the largest commer

cial service in the Pacific

Limitation II porposed by Reynolds and as here pertinent is

as follows

Reynolds subsidiaries shall average in any given year computed from

the date of consummation of Agreement 9827 1 through the 364th day thereaf

ter no more than the number of weekly round commercial containership sail

ings round commercial containership sailings shall not include sailings

where either the outbound or the inbound portion thereof is devoted 90 or

moreby measurement tonsto the carriage of Department of Defense or

other Government impelled cargo designated in the four trade areas noted

below

There would be no opposition by APL AML to the merger if 1

the foregoing provision is amended to read as follows

Reynolds subsidiaries shall average in any given year computed from

the date of consummation of Agreement 9827 1 through the 364th day thereaf

ter no more than the number of weekly commercial containership sailings in

either direct on designated in the four trade routesnoted below

2 the description of Route 12 were amended to preclude calls

at Pacific coast ports and 3 condition E here quoted were

amended to add at the end the words after hearing

the 14 Challenger class vessels owned by USL shall not be transferred

to Sea Land or converted into containerships without prior application to and

approval by the Commission
168 FEDERAL MARITIME COMMISSION

These suggestions by APL AML seem a small price to pa

Reynolds for transpacific operations after the merger par

larly since Limitation IIprovides that Sea Land may re a

to the Commission on and after January 1 1974 to e

abolish or modify the sailing limitations set outhereinabov

a permanent basis

AEIL This carrier is awed by what the size of Sea L

would be ifthe merger is

approvr

d and believes that appr

would allow Sea Land to blanket sailings and arrivals par

larly in the North Atlantic trade Especially is it worrie

the possible diversion through Canada of cargo originatin

such States as Illinois Michigan Wisconsin and Minne

which could be handled by Sea Land s proposed service 

Halifax on the two Matson vessels and one USL Mariner 

sel From this area in 1970 AEIL obtained cargo which 

counted for 17th percent of its outbound house to house 

tainer traffic Furthermore there is concern lest its c

moving from the southeast and the Rocky Mountain a

destined for its Norfplk based vessels be lost to Sea L

because of the latter s additional direct Baltimore No

North Atlantic service with three USL Mariners The s

east quadrant accounted for 29 percent of AEILs outbo

house to house North Atlantic container traffic in 1970 T

is a positive feeling by the carrier that even its latest 

vessels and those recently acquired are not and will be too 

to offer effective competition

The result of the Sea Land service just mentioned acco

to AEIL would result in severe competitive inroads a

European ports of call which Sea Lane would not serv

rectly without the merger Thus each of Sea Land s three 

weekly services would call at and blanket AEILs oncewe

service at Felixstowe England and would affect its servic

Le Havre France

It is pointed out by AEIL that in No 6956 the evid

showed that Sea Land s revenue projections for 1974 fo

charter service would attain the magnitude on Route 57 

of 87 percent of the total potential realistically obtainabl

all containership operators U S and foreign and that u

its projected deployment in 1974 under the merger it w

have over 30 percent more annual capacity than unde

charter Under these circumstances it is concluded A

would be destroyed

In spite of its pessimism AEIL has committed itself to 

construction and acquisitions Another development sh

16 F M
16 F MC

MERGER AGREEMENT U S LINES INC 169

blunt somewhat the fears ofthe company Itis common know

ledge in the shipping industry that the containership

operators in the North Atlantic trade are working on an

agreement to pool revenues As soon as the matter comes to

fruition the agreement will be submitted to theCommission for

its approval As understood by the Examiner U S flag

operators will receive 55 percent of the revenues The Ex

aminer feels under the circumstances that he can afford to be

optimistic that the proposal if approved would have a very

stabilizing effect upon AEILs position Another encouraging

angle is the fact that Sea Land and Reynolds if the merger is

approved are receptive to amaximum ofthree sailings aweek

on Route 57 89 as contrasted with four weekly sailings pres

ently offered by Sea Land and USLY

Under all the circumstances it is concluded that the merger

would not be unduly harmful to AEIL on Route 5789 Espe

cially is this true since the responsible witness for Reynolds

stated that the merger would not be used as an instrument to

take unfair advantage of U S flag competitors Ifthese assur

ances should prove unreliable the Commission has plenary au

thority to intervene

In the Mediterranean trade Route 10 the traditionally

operating area for AEIL Sea Land admittedly has found the

going pretty rough and as stated earlier presently is using

foreign flag vessels in that service As in the case of the North

Atlantic AEIL fears that the merger would enable Sea Land

to blanket the area to AEILs detriment since there is little

carto subject to diversion from the breakbulk and foreign con

tainerships On this route U S flag preference cargo accounts

for about 40 percent of AEILs carriage and military cargo

produces 30 percent of its revenue It is stated by AEIL that

Sea Land s low bid enabled it to start service on this route

with an immediate base of75 percent of its eastbound Mediter

ranean capacity and that Sea Land s ability underthe merger

to absorb increasing levels of military cargo would threaten

AEILs viability since such cargo is essential to an economi

cally feasible U S flag service on the route As previously

noted Prudential Grace a subsidized operator is acquiring a

fleet of LASH type vessels for its Mediterranean service

AEILs three Bath containerships scheduled for delivery in

1973 are destined for use on Route 10 with the present Sea

Bridge vessels making seven of the ten existing or projected

containerships for operation on this route Sea Land s plan to

II See however the first paragraph under heading Diversification of direct service page 45 hereof
170 FEDERAL MARITIME COMMISSION

use four USL Mariners on the route in 1974 under the 

posed charter would have earned Sea Land 41 percent o

potential revenues available to containership operators 

AEIL and the revenue left to the latter would be sma

cause foreign lines would not be affected by the merge

because a substantial portion would not be realized by an 

tainership carrier since not all potential containerable c

would move in containers

Here again however AEIL should not be too much 

cerned since Reynolds agreesalthough unwillingly to 

the sailings of its subsidiaries to one aweek on Route 10 

merger is approved

AEIL also is concerned lest USL s 14 Challengers unde

merger might be used as competition on Route 18 Atl

and Gulf India Persian Gulf and Red Sea or converte

containerships for use in other trades served by AEIL Ne

the merger agreement nor the charter agreement provide

the use of these vessels by or for Sea Land and Reynolds 

not intend to authorize a lease or transfer of them to 

Land Furthermore Reynolds has agreed that the Challen

will not be transferred to Sea Land or converted into co

erships without prior application to and approval by 

Commission see discussion heretofor as to the APL AML 

gestion that there should be no Commission action until a

hearing

Seatrain As already observed Seatrain an American 

pany is building large containerships abroad for oper

under foreign flag two already are in service At the 

time it has applied for construction aid on at least one v

to be built in its shilbuilding facility at the former Bro

Navy Yard This hot and cold practice is not a

very ed

spectacle and very little consideration should be given t

future of the company s position in the North Atlantic 

tainership competition should the merger be approved In 

case any possible harm to the company in that area cer

would be tempered by the porposed pooling agreement an

agreement of Sea Land to confine itself to three sailin

week in that trade both already mentioned Seatrain doe

serve the transpacific trade but is considering such a 

vice in spite of this its general complaint and fear o

merger covers this trade as well At this point then th

Cussion of the effect of the merger on Seatrain will be dir

to the company s domestic services in which areas it 

more palatable standing

16 F 
MERGER AGREEMENT U S LINES INC 171

As already seen Seatrain has domestic containership ser

vices in the Atlantic Puerto Rico west coast Hawaii and Guam

trades Although it states that the domestic trades are over

tonnaged Seatrain has no intercoastal or coastwise services

In the Atlantic Puerto Rico trade Sea Land s southbound car

ryings are about 60 percent of the total northbound about 75

percent Sea Land does not have a great deal ofcompetition in

the coastwise Alaska or GulfPuerto Rico trades USL has a

faster intercoastal service It is contended by Seatrain that

dominance of the domestic trades affects the foreign trade be

cause a domestic service frequently feeds traffic in a carrier s

foreign operation which ties the shipper to one carrier fur

thermore the domestic service acts as a reserve fleet for de

ployment as the competitive situation demands

Seatrain argues that Sea Land should be prohibited from

transferring into the domestic trades its vessels which would

be released from the foreign trades if the merger is approved

In the absence of Seatrain witnesses although in the early

stages of the proceeding Seatrain s counsel stated that there

would be witnesses there has been no real opportunity to

probe the effect on that company s domestic services if the

merger is approved That the other domestic operators have

not intervened or otherwise expressed opposition to the

merger would seem to indicate no real fear on their part that

the merger would be injurious to them

Impact of merger on foreign competitors

As already seen there has been a rapid growth of container

ship consortia among the foreign flag lines in the North Atlan

tic and transpacific trades Each member of the Japanese con

sortia builds owns and operates its vessels and in spite of

joint scheduling to eliminate duplication of sailings each line

is free to compete for cargo for its own vessels or to fill space

chartered on the vessels of the other members This increases

competition Although the foreign flag containership competi

tion in the Atlantic Far East trade is presently of little mo

ment this will change drastically by 1972 when five Japanese

lines in a consortium will enterthe trade with probably seven

large and fast containerships offering a weekly service

Furthermore there is some talk of an agreement among one or

more Japanese lines and English and or West German

operators

It is interesting to note that no foreign flag containership

16 F MC
172 FEDERAL MARITIME COMMISSION

operator with the exception of Seattain whose peculiar s

tion already has been mentioned contests the merger The

another angle to consider at this point however By 

Sea Land alone will have about twice the capacity on R

5 7 89and three times the capacity on Route 29 of the lar

consortium serving those areas This might stimulate the 

sortia to further growth see more on this later on her

Based upon the statistics reproduced above and bearin

mind his many years in the regulation of ocean transportat

it is extremely difficult for the Examiner to believe that 

merger would have any appreciable effect on foreign flag 

tainership competition except as stated possible incentive 

the foreign interests to step up their competition

Impact ofmerger onbreakbulk movement

Sea Land claims that the merger would enable it to att

cargoes now carried by foreign flag lines particularly br

bulk operators Shippers generally prefer containeriza

over breakbulk because of the expanding idea of door to 

service speed and a reduction in damage and pilferage

Routes 57 89 and 29 have the heaviest movements of 

tainerized cargo Containerable cargo on those routes is in 

general area of 75 percent ofthe total For the last six mo

of 1969 41 percent of the total cargo on those routes was 

tainerized On 57 89 the effect of containerization o

S flag breakbulk operators has been very telling to such 

tent that this type of service is almost athing of the past 

ing no 18 The total volume handled by U S flag break

operators on the route decreased from 680 000 tons in 196

33 000 tons in 1969 At the same time the volume movin

foreign flag breakbulk ships increased by 15 percent As 

lier mentioned a substantial amount of Mediterranean c

goes on breakbulk vessels because of the relatively unde

veloped economy of the area

The Maritime Administration reports that at least 70 

cently built vessels or scheduled for 1972 delivery will be f

to handle containers as well as breakbulk cargo The 

LASH and Seabee vessels are capable of handling both t

of cargo AEILs official recognized that there may b

reasonable future for his company with semicontainersh

basically breakbulk RJls witness sees no commercial t

which could be profitable for USLs completely breakbulk C

lengers USL probably is correct when it says that it is 

16 F M
MERGER AGREEMENT U S LINES INC 173

possible to foresee with accuracy the lengths to which

changes and improvements in ocean transportation will go

and what willbe the future interface between breakbulk con

tainer and LASH systems

Itis generally agreed that the expansion ofcontainerization

has made sizeable inroads into the volume of breakbulk cargo

which normally would move on conventional style ships

Whether and to what extent the merger would result in Sea

Land being able to penetrate the foreign flag breakbulk com

petition is anyone s guess but the Examiner ventures the

thought that it will not be considerable as far as this record

shows Itwould seem reasonably clear that a nucleus of break

bulk vessels is highly desirable for the national defense of this

country Unloading facilities may not be available or adequate

for containerships in the early stages of an international

emergency situation If the merger would result in the

weakening of the basic breakbulk reserve of vessels that

would be a high price to pay Furthermore much of the world

is not yet prepared or equipped to handle containerships in

peacetime a fact which makes it all the more necessary to pro

tect adequate breakbulk services

Impact of merger on military movements

Seatrain maintains that one of the troubles with the merger

is that it would permit the straddling ofbids for military cargo

and that Seatrain would be faced with a low bid and a high bid

which would enable the combined companies to obtain cargo at

different rates depending on the competitive situation In

other words Sea Land s capacity could be shifted between the

two companies to meet the military s entire need Further

more it is argued Sea Land s flexibility and fleet size would

enable it to deploy its vessels wherever the military cargoes

are available to the detriment of other carriers To forestall

these possibilities Seatrain suggests a

requirement if ap

proval is given that Sea Land alone be permitted to bid for

military cargo Sea Land does not address itself to this ques

tion in its reply brief

APL AML say that by 1974 and in view of its size and sail

ing frequency Sea Land alone and without the merger would

be in a position to bid low and get virtually all the military

cargo orbid in the middle ranges with reasonable assurance of

cargo at the higher rate These opponents of the merger point

out that in the transpacific trade the inbound volume is con

16 F MC
174 FEDERAL MARITIME COMMISSION

siderably larger than the outbound that the operator w

substantial military cargo might have a balanced service 

that Sea Land s plan to employ under the American flag 

large and fast containerships now under construction abr

is to qualify them for military cargo

In view of the fact that Sea Land is the only U S flag 

rier able to bid on Vietnam cargo and has been awarded 

tracts because it has cranes a fleet of trucks and a size

shore organization at destination APL AML contend 

USL which sumitted a bid would have had to abandon o

verely curtail its other services in order to fulfill the contr

after merger Sea Land would eliminate its only compet

Some of the unions add that Sea Land would be able to su

higher bids and be certain that it would be successfull wi

possible increased eost to the Government

Any present advantage to Sea Land in being able to bid 

cessfully for military cargo is the result of sheer size and 

company quite likely will continue to grow even without 

merger Advantages derived from size alone are not gene

censurable absent some legal violation Merger with 

largest competitor however might enable Sea Land to furt

enhance its position at the expense of its competitors a si

tion which should not be allowed in the absence of w

bottomed reasons All the avowed separation following me

would not prevent an understanding of some kind between 

two companies if it was desirable or expedient to have bid

different levels Without some conditions attached thereto 

merger would put Sea Land in a

very favorable spot in bidd

on military cargo

Justification of the merger

Section 15 of the Act as here pertinent provides

The Commission shall by order after notice and hearing disapprove c

ormodify any agreement that it finds to be unjustly discriminato

unfair as between carriers shippers exporters importers orports orbet

exporters from the United States and their foreign competitors orto op

to the detriment of the commerce of the United States or to be contrary t

public interest or to be in violation of this Act and shall approve all 

agreements

Although this proceeding is not strictly antitrust in nat

nonetheless it has a

strong anticompetitive flavor In 

words of Sea Land s counsel the elimination of competition 

twe n itself and USL is the anticompetitive nut He furt

says The jurisdictional question aside all parties agree 

16 F M
MERGER AGREEMENT U S LINES INC 175

approval hinges upon whether or not the anticompetitive ef

fects in the negative cup of the Svenska scale are outweighed

by public benefits transportation needs and or valid regula

tory purposes in the positive cup of the Svenska scale

In FMC v Svenska Amerika Linien 390 U S 238 245 1966

the Supreme Court said that once an antitrust violation is es

tablished this alone will normally constitute substantial evi

dence that the agreement is contrary to the public interest

unless other evidence in the record fairly detracts from the

weight of this factor The Court quoted with approval the

pronouncement of the Commission in the proceeding that

proponents must bring forth such facts as would demonstrate

that the agreement was required by serious transpor

tation need necessary to secure important public benefits or in

furtherance of a valid regulatory purpose of the Shipping Act

10 F M C 45 The merger must therefore be tested in the light

ofSvenska and the Commission s declaration just quoted The

following discussion is not necessarily in the order of impor

tance of the particular subject

More effective vessel utilization It is generally recognized

that Sea Land has made rapid and expansive strides in con

tainership operation so much so and as previously noted that

it is the largest such operator in the world Sea Land is not

quite satisfied however with the status quo and believes that

the merger would make for a more effective utilization

On an average round voyage in the North Atlantic trade

USL handles about 400 more containers than Sea Land on an

average transpacific eastbound voyage about 200 more con

tainers Comparing the utilized capacities of the two lines in

the transpacific trade USL filled its larger vessels 96 percent

at the commencement of the Seabridge service in 1970 as con

trasted with 94 percent for Sea Land with smaller ships that

had commenced its service ayear earlier

In the North Atlantic trade Sea Land and USL carried 88

percent of all U S flag container cargo during the first half of

1969 and 55 percent of the total commercial container cargo

By 1974 after merger the two companies would have 71 per

cent of all U S flag container capacity and 36 percent of all

flag capacity

It was estimated that during 1971 Sea Land would carry 21

percent of the U S flag container cargo without merger and 60

percent with the merger on Route 5 7 89 on Route 10 26 per

cent without the merger and 35 percent with the merger on

Route 12 no cargo without the merger and 100 percent with

16 F MC
176 FEDERAL MARITIME COMMISSION

the merger on Route 29 51 percentwithout the merger an

percent with the merger In 1974 the estimates were as 

lows Route 57 89 29 percent without the merger and 66 

cent with the merger Route 10 33 percent without the me

data unavailable under the merger Route 12 none with

the merger and 59 percent with the merger and Route 29 

percent without merger and 53 percent with the merger

Sea Land states in its brief that the evidence overwh

ingly shows that based on past performance Sea Land wi

able to increase the productivity of these vessels 

gratuitous assertion cannot be accepted at face value 

foregoing statistics present a good picture of the service

both Sea Land and USL but whereas the lines may thin

better utilization of vellsels would result from the merger 

would be a matter primarily for their benefit and does 

satisfy the pronouncement of the Commission that an ag

ment such as this must be required by serious transporta

need necessary to secure important public benefits

New direct port services Sea Land suggests that the me

would permit new direct services between Europe and 

ports of Houston New Orleans and Halifax and between 

and the ports of San Juan and Balboa There is no evide

however that such new services are either needed or des

by shippers importers or ports orthat the suggested serv

would be superior to those now offered Direct calls woul

eliminated at Baltimore Norfolk and Los Angeles now ca

by USL in its Seabridge service And it must be recalled 

Sea Land has agreed to make one fewer calls on Route 5

ifthe merger is approved

It has not been shown that the possible direct services 

required by serious transportation need necessary to se

important public benefits

Diversification of direct service It is contended t

through redeployment Sea Land would be able to reduce 

number of direct sailings between such over directly se

places as New York Rotterdam Norfolk Antwerp and 

man and U K ports It is all right to say that sailings wi

reduced but that does not take into consideration the fact

Sea Land s new large and fast containerships probably 

wipe out any advantage to be gained by reduction in 

number of sailings This type of reductionwould not of cou

redound to the benefit of the public on the contrary it w

simply enable Sea Land to use fewer ships

Increased feeder and relay services Sea Land plans un

16 F M
MERGER AGREEMENT U S LINES INC 177

the merger to redeploy its war built fleet in strictly foreign

to foreign and domestic to domestic ports thus it is urged

adding substantially to its relay and feeder system and im

proving the balance of payments of the United States This

would contemplate the tying of 20 U S ports into services

reaching 12 European ports and 14 Asian ports

The use of Sea Land s older vessels for foreign to foreign

trading has little relevance in a proceeding of this kind and it

is doubtful besides that this type of operation can be beneficial

in any significant extent to the foreign commerce ofthe United

States No substantial reason has been given as to how it

would assist in improving the balance of payments of the

United States Sea Land admits that it now carries foreign to

foreign container cargo and believes it has the capability to

handle Europe Far East cargo without regard to the charter

or the merger

As some of the unions point out the proposal to use older

vessels in foreign to foreign trading is an admission that

there is no crying need for this merger in American foreign

commerce and that this service would be primarily for the

financial benefit of Sea Land Another possible result would be

the loss ofjobs for American longshoremen and seagoing per

sonnel there is no indication as to whether the ships to be so

used would continue to fly the U S flag or be transferred

foreign The Examiner already has stated that he is not par

ticularly enamoured of the practice of American companies

operating under foreign flags for convenience and cheaper

cost the present suggestion would be particularly unsavory if

the vessels were transferred foreign considering the fact that

Sea Land seeks to merge with its largest competitor with pos

sible adverse effects on other U S competitors The proposal

would not satisfy a serious transportation need and is not

necessary to secure important public benefits

The redeploying of some of its war built ships following the

merger Sea Land says would permit the expansion of its al

ready highly efficient relay system to new ports increase the

frequency at ports presently served and bring the benefit of

container services to a wider range of commodities and ship

pers But the record is convincing that USL itself has a well

working relay system possibly more effective than that of

Sea Land and designed to enable shippers anywhere within

the total network to ship to any other place within the over

all service

16 F MC
178 FEDERAL MARITIME COMMISSION

USL also has a door to door service that permits inla

shippers in the United States Europe and Asia to deli

their goods to an inland consignee in those areas One 

Sea Land s principal witnesses concedes that the Seabrid

service of USL serves the same purpose as Sea Land s re

system The intercoastal service of USL is faster than tha

Sea Land and Sea Land recognizes it as highly competit

Even USLs Seabridge service with more direct calls th

Sea Land can reduce the number of relays necessary to m

containers from the Far East to Europe A customhou

broker in Baltimore was quite emphatic that Sea Land s re

system in his experience and as gathered from shipping 

terests elsewhere is uncertain and confusing The only ot

cargo connected witness a shipper produced by Sea Land 

rebuttal did not comment on this matter

Sea Land s deployment plan without the merger calls 

relay service to those ports that Sea Land now feels would 

added by using some of its older vessels following consumm

tion of the merger That being so Sea Land would accomp

nothing more in that respect under the merger than what 

already been contemplated without the merger There th

appears to be no public need for the merger on that score 

that any benefit would result therefrom except possibly 

Sea Land itself It is questionable too whether it would 

fully practical for Sea Land to interchange USLs 20 foot a

40 foot containers with its own standard 35 foot containers

Additional domestic service Overall Sea Land proposes 

increase its domestic frequency by 27 percent and contai

availability by 63 percent

a In the Atlantic Puerto Rico trade it is well known t

competition is severe and aSea Land witness testified in 

6956 that his company had withdr wn vessels from the s

vice late in 1969 because it became obvious that we had 

much space In Docket No 71 43 now in process of heari

Seatrain s general traffic manager testified that in the Pue

Rico trade it is difficult to foresee any appreciable gain 

cargo at this time

b It is contemplated that the capacity in the So

Atlantic Puerto Rico trade will be more than doubled Th

has been no showing that there is a pressing need for this st

on the other hand some of this cargo may simply be lu

away from other gateways It seems reasonably clear that 

merger would bring no needed improvement to this trade

c A direct service willbe started to Ponce There is no e

16 F MC
MERGER AGREEMENT U S LINES INC 179

dence that this is so essential as to justify approval of the

merger

d Between the Gulf and Puerto Rico Sea Land has a new

service contrary to its position in No 69 56 that such a service

could not start unless the charter was approved There has

been no showing that the merger would be of any particular

benefit to this trade

e A study sponsored by the Department of Commerce in

1970 showed that the service from the Pacific coast to Hawaii

is especially over tonnaged The Examiner has been quite

familiar with this trade over the years and has watched the

constant coming and going of new services of various forms

and types and this record certainly does not support the need

of expansion of service by Sea Land at the expense of other

carriers ifthe merger is approved

1 The intercoastal trade as previously noted is more

satisfactorily served at present by USL than by Sea Land

With or without merger Sea Land proposes to transfer to this

trade by 1973 six vessels from its Far East service The evi

dence does not show thatthe intercoastal trade needs orwould

benefit by the merger On the contrary it is entirely possible

that the trade would be harmed by the curtailment of USLs

service

g The east coast shuttle service of Sea Land would be af

fected adversely by the merger in that there would be a net

decrease of about 300 35 foot containers aweek

h With or without the merger there will be no change in

Sea Land s Alaska Texas New York and west coast shuttle

services

Cross trading It is Sea Land s

thought that the merger

would afford the opportunity to start a direct service between

Halifax and Europe and would present a greater opportunity

to participate in cargo movements between Europe Asia and

Canada Caribbean areas This in Sea Land s nomenclature is

cross trading The record does not show whether the Canada

services would involve strictly foreign to foreign cargo or

cargo originating in or destined to the United States and

using aCanadian port or ports as a gateway Ifthe latter this

would require a fuB blown evaluation of the possible benefits

to Sea Land and or shippers consignees vis a vis the loss of

such cargo to U S flag competitors serving Atlantic or Gulf

ports This cannot be done on the present record To conclude

22 See the discussion supra on the Halifax question as it might affect AEIL

16 F M C
180 FEDERAL MARITIME COMMISSION

there is no worthwhile evidence that the suggestions of S

Land on the possibilities ofcross trading would in anyposit

way be required by a public need tobe gained from the merg

Greater oapaoity and frequenoy faster time According to 

effectuation of the merger would mean that virtually ev

port now served by Sea Land would receive a higher quality 

service either by more regular or more frequent calls o

terms of faster vessels with greater capacity This would e

ble the linking up of a given port with nearly every import

port in the United States Europe and Asia in a competit

manner Of the 720 port pairs served by Sea Land 527 or 

percent are served by direct one relay or two relay servic

In 1973 if the merger is approved Sea Land says that 898 

of 1040 port pairs or 86 percent would be served by such 

vices

There of course is another phase to be considered in ana

ing Sea Land s position As pointed out by APL AML 

merger would not be entirely serene insofar as full utilizat

of USL equipmentships and containers is concerned To 

Sea Land s 35 foot containers on USL vessels which han

40 foot and 20 foot containers probably would require reva

ing of USL vessels to some extent The plugging of some c

to accommodate 35 foot containers would result in the loss 

about VB of underdeck capacity Furthermore Sea Land s c

tainers are 8112 feet high as compared with 8 feet for USL 

difference in sizes caused Reynolds to lower by 20 percent 

projected revenues to be received from USL USLs Lanc

would decrease in capacity from 1200 20 foot equivalents 

1122 and the Mariners from 929 to 851 On these calculati

the overall loss in use would be about 1248 20 foot equivale

or about the capacity of one Lancer

The foregoing is not the whole story however For sev

years Sea Land has been adding 40 foot containers to its 

ventory principally for light weight but higher measurem

cargo at the same time recognizing that containers of 

same size are not desirable or practical for all shippers 

that there is a continuing trend away from port to port serv

to point to point service Furthermore the new European b

vessels of Sea Land are designed to carry 40 foot as wel

35 foot containers Instead of being eight feet high howe

they are nine feet six inches high Whether this would mak

significant difference when used on USL vessels does not 

pear of record but presumably that would be the case In 

event some of the possible difficulties and results interpo

16 F M
MERGER AGREEMENT U S LINES INC 181

by the opponents of the merger as pointed out in the para

graph next above may not be as great as predicted On the

other hand the difference in the height of the 40 foot contain

ersmight present more of a problem than supposed

There is little if any evidence of real value to support

Sea Land s contention that the merger would provide faster

service DSL s vessels would not increase their speed and the

ports standing to lose direct calls by the merger such as

Baltimore would not be as well off as at present under sepa

rate operation

Cargo savings Sea Land USL say that the merger would re

sult in economies of nearly 24 million with respect to vessel

equipment utilization and container yard operations will have

a tendency to permit decreases in rates will weigh against fu

ture rate increases better earnings will afford the companies

the opportunity to deposit earnings for new vessels to be con

structed in American years there will be an American flag

operator capable of meeting the scope frequency and regular

ity of foreign flag consortia will contribute to the balance of

payments of the United States equipment as well as terminal

and container operations will be cheaper and lower value and

marginally containerable cargo will be carried economically at

present rate levels

a Although Sea Land s witness stated that the cost per

box on a Lancer or a Mariner is substantially less than the

cost of one using war built converted ships the company ad

mits that any such savings produced by the merger cannot be

quantified but concludes that this result is axiomatic When

it is considered that Sea Land plans to use its older vessels on

other routes the axiomatic argument loses much of its

weight The merger in this respect would not result in an as

certain ably public benefit or solve a transportation need

b A witness for Sea Land estimated that the merger

would produce savings of over half a million dollars annually

to USL because of reduced interest expense on the assump

tion that the interest rate upon renewal of notes would be 8

percent Another witness stated that the banks were thinking

in terms of a rate of 11 2 percent over the prime rate if they

agreed to renew on due date Interest savings by admission

however would benefit only the stockholders of USL Fur

thermore whatever lower interest rate there might be would

be illusory since USL would be operating no vessels to which

the savings could be passed on Whether DSL without the

16 F MC
182 FEDE RAL MA RITIME COMMISSION

merger could borrow money at less than 8 percent is p

ently conjectural especially since the earnings of USL h

taken a turn for the better see later herein Also there i

assurance that USL under the merger could borrow f

Reynolds at 6 percentas suggested by Sea Land beca

this figure is less than that on any indebtedness of Sea L

to Reynolds

c There are estimated annual savings of 20 million 

stevedoring expenses by reason of the merger This co

about says Sea Land from a comparison of the past 

formances of both carriers The witness for Sea Land prio

preparing his comparison did not discuss with anyone f

USL the latter s stevedoring costs per container and did 

know what expenses were included in USLs cost data 

USL data was prepared by the company s planning group 

not by its financial department the former being only on

the sources from which the latter draws its information 

president of USL believes that the planning group s pro

tions are not wholly reliable Sea Land s witness is of the 

that the USL figures for the latter s cost per container are 

high

There is an unwarranted assumption that Sea Land wil

erate the USL vessels under the same deployment that 

contemplates without the merger Whether stevedoring c

for USL vessels would be reduced by the merger cannot be 

from the record The evidence is to where and at what 

USL vessels would be serviced in the United States follow

the merger is hazy and generally unsatisfactory as is the 

of handling mixes of 20 35 and 40 foot containers As p

ously seen the whole question of how Sea Land would 

with multisize containers is far from clear Just how the 

version of USL vessels to accommodate 35 foot containers 

be accomplished has not been shown nor the cost thereo

whether alleged stevedoring economies will be offset by 

costs Finally in appraising the validity of the contention 

the cost of handling containers decreases as the numbe

units increases the evidence shows that at the same Atla

ports served by USL on two of its services this premise i

correct

d Sea Land estimates that the merger would result 

saving of about 1 000 000 a year in advertising Base

USLs 1970 costs the witness conceded that no account 

taken ofthe fact that USL incurred high expenses in pro

16 F M
MERGER AGREEMENT U S LINES INC 183

ing the Seabridge service announced in August and com

menced in September of that year While he assumed that his

company s budget would cover all USL vessels without added

cost he agreed that additional advertising would be necessary

in the case of a Sea Land Atlantic Far East service

It is reasonable to assume that some advertising expenses

would or could be eliminated by reason of the merger but the

record does not show with any reasonable certitude what they

would be indeed it would be difficult at this time to do so In

any case the small saving would not standing alone be

enough to justify approval of the merger

e The witness for Sea Land compared his company s past

container space utilization with USUs own projected slot utili

zation and estimated that an annual saving of over 2 million

would accrue from the merger by virtue of Sea Land s better

vessel utilization This of course does not take into considera

tion the possibility of a different deployment by Sea Land of

USUs vessels under the merger As already noted any de

ployment plans on a scale as large as here contemplated after

merger can be nothing more than well intended guesses inas

much as many things could warrant a change in Sea Land s

plans between approval date and the end of a reasonable

period of trial and error Again there might well be problems

arising from the various sizes of containers This latter brings

forward once more the fact that Sea Land offered no positive

plans for alterations to the configuration ofUSL vessels to suit

the needs as well as convenience of Sea Land

What was said in connection with acknowledged possible sav

ings in advertising expenses applied equally well to savings in

vessel utilization namely some savings could very well follow

the merger even though they cannot now be pinpointed The

subject is nebulous by its very nature Itcan be said however

that any such savings would be more for Sea Land s benefit

than to satisfy a public need

f

USUs president thinks the present rate structures are

too low and sees no early prospect for decreases in rates after

the merger Reynolds principal witness said that he has no

plans to reduce rates Sea Land speaks of rate level increases

in 1971 and makes projections based on general rate increases

of5 percent a year for 19721975 A Sea Land witness admitted

that while cost savings could not be translated at once into

reduced rates directly benefiting the public nevertheless

since such savings increase the return on investment and

16 F MC
184 FEDERAL MARITIME COMMISSION

1

1

since a carrier having a satisfactory return has no incentive 

increase rates indirect benefit to the public would result 

logic of this view does not coincide entirely with the gen

history of business which shows fairly conclusively that m

agement ordinarily is not very mindful of the public intere

Considering the available testimony the hope that shipp

might receive a rate break from the merger is quite dim

g Proponents of the merger contend that cost savings 

sulting from the merger will permitthe carriage of lower va

and marginally containerable commodities at present r

levels Sea Land has shown very little inclination to ob

low rated cargo even though its ships do not always run 

and one of its witnesses testified that much of this type 

cargo would continue to be carried by breakbulk vessels Ba

upon the factthat Sea Land has given every indication tha

is going to raise rates periodically for the next few years 

hardly likely that itwill seek low rated cargo or that increa

rates would attract low value cargo

Efficiency of USL Since its entry into the field of contai

ship operation just a short time ago USL has become a v

efficient and respected operator with a strong following 

shippers and importers and its president is ofthe opinion t

the competence and expertise of the company s manage

staff compare quite favorably with that of Sea Land Altho

he concedes that Sea Land s marketing personnel becaus

longer experience may be better attuned to intermodal op

tions this gap is expected to be bridged in short order Per

nel is being added to increase the overall capability of 

company There is no denying that the company has been 

disadvantage to some extent by lack of terminal facilitie

certain ports the situation is rapidly improving and more 

better equipment is being acquired One ofAEILs

top offic

does not agree that Sea Land s operations are more effic

than that of other U S flag operators the company simply 

been in business longer He is inclined tothe thought that 

and flexibility notefficiency are the crucial factors in the 

cess of a competitor

All in all and considering the financial wringer thro

which it has been but now seems to have overcome to an 

preciable extent see elsewhere herein there is no reaso

believe that USL with its long background will not in tim

as relatively efficient as Sea Land albeit on a more mo

scale

16 FM
MERGER AGREEMENT U S LINES INC 185

USL as a viable company Itis urged that underthe merger

USL will continue as a viable company This position must be

taken with a grain of salt On the one hand it is maintained

that USL will go on its merry way after the merger buttressed

by financial help from Reynolds but on the other hand

Reynolds let it be known at the hearing that if USL got in the

competitive way of Sea Land it would have to yield Reynolds

witness did say that the company would accept as a condition

to approval the requirement that USL be continued as a viable

company Itis very doubtful however that it would be practi

cal to police this type of situation to complete satisfaction of

everyone including the Commission It does not seem there

fore that the prospects for a viable USL would be too bright

One of the reasons given in support of the merger is that it

would assure that USUs container fleet would be utilized by

a carrier having the ability and competence to maximize the

effectiveness of its participation in foreign and domestic com

merce It already has been mentioned that how this would

come about is somewhat hazy in view of the possibility of

countless changes made necessary through trial and error As

also noted USL generally is considered to be a good and effi

cient operator

There is the assertion by Sea Land that the record shows

that the only U S flag operators opposing the merger are in

terested only in maintaining their relative market share vis

a vis other U S flag operators In addition it is claimed that

such lines do not seriously intend to compete with foreign flag

lines As already seen from the data the opponents in their

smaller way are seriously trying to keep abreast ofthe foreign

competition The fact that they are also trying for a share of

the U S flag market takes nothing away from their efforts di

rected at foreign flag competition

Mention already has been made that USL after termination

ofthe hearing took certain steps to improve its financial posi

tion Recently in the companion proceeding before the Inter

state Commerce Commission intercoastal operations the

president of USL said that the company was now operating in

the black Official notice is taken of the report in the Wall

Street Journalof an interview with Kidde s chairman Sullivan

published on September 22 1971 wherein he said in part as

follows

I think U S Lines is stronger than before It is making a smallprofit

Most of the capital expenditures needed for the next few years have already

16 F MC
186 FEDERAL MARITIME COMMISSION

been made And there are signs that there will be greater stability 

freight rates in the near future Obviously though we don twant it ba

cause of the earnings uncertainty the high capital requirements an

specialized skill it requires

USL is now forging ahead but Kidde wants to rid itself o

child because the return of the latter do not satisfy the f

cial requirements of the parent this position is quite norm

the business world It must not be overlooked in appra

USLs difficulties that the principal reasons for its money 

were the capital requirements involved in the new conta

ships inability to obtain the vessels on time and the 

resumption of operating differential subsidy USL of cour

not completely out of the financial woods far from it But 

hard to believe that one of America s oldest and best kn

ocean common carriers given what appears to be good le

ship plus the improvement in its resources should be c

dered such a bad risk that the public would be benefite

merger with its largest competitor Granted that the pos

of Reynolds is such that it could be of real assistance in 

ing USL to tide itself over the shortage of capital all in

tions are that USL can and will eventually extricate 

from its present financial morass and remain a formid

and therefore a highly desirable competitor of Sea Lan

Generation of new commerce Sea Land believes that th

creased container capability brought about by the m

would stimulate expanded marketing concepts by ship

through opening the accessibility and convenience of 

world markets The increased productivity of the com

U S Lines Sea Land fleet will give the shipping public r

access to abroad spectrum of markets which had not been 

sidered in the past resulting in the generation of new o

commerce

Since no studies have been made or economic facts 

sented it cannot be known whetherthe rates to be struct

by Sea Land would be such as to induce new shippers to 

foreign markets or whether the rates to be charged w

produce enough revenue to justify the effort There 

proof indeed it probably would be very difficult to 

that the maybe results here proclaimed would offse

effect of removing amost important competitor from the 

The argument of Sea Land while intriguing is suppo

by natllre and therefore notbasically strong enough to su

13 In cordance with Rule 13 0 any party upon timely request will be afforded an oppo

show thecontrary

16 F 
MERGER AGREEMENT U S LINES INC 187

the conclusion that such efforts by Sea Land in respect to pos

sible new markets are required by serious transportation

need necessary to secure important public benefits or in

furtherance of a valid regulatory purpose

The critical period need of USL ships One of the reasons

Sea Land is anxious to have the merger approved is the fear

that foreign flag competition will become so strong in

1971 1972 that traffic patterns will be set in such fashion as to

cause Sea Land to lose a large part of the market before its

own superior European built vessels are delivered and the

Matson vessels which it purchased will be ready This general

belief was shared by other witnesses for and against the

merger It might be added that the new U S flag vessels also

would appear on the competitive scene

About half of the so called critical period is gone and Sea

Land appears not to have lost stature in the world wide con

tainership field By the nature of the judicial process most of

the critical period will have elapsed before a final determina

tion is made as to the approvability of the merger In the

meantime Sea Land s new vessels will be coming into the ser

vice as willthe two Matson vessels One of Sea Land s

top offi

cials admitted that the new highspeed European vessels would

neutralize any competitive disadvantages that might other

wise accrue to the company during the critical period The

president of USL admitted that shippers no longer blindly

utilize particular carriers The critical period if it were a

valid argument at all does not retain much of its vigor and

might be likened to the subsidence of a hurricane

As already pointed out one of the possible reasons for the

rapid development of foreign containership operation is the

position attained by Sea Land so quickly in world trade Com

petition sometimes can get out of hand and thus defeat the

very purpose for which it is intended The fact that Sea Land

is building very large and fast containerships plus the pur

chase of the two Matson ships with the third a distinct possi

bility plus the possible acquisition of USL might be an incen

tive for further foreign flag consortia This kind of maritime

merry go round might be injurious in the long run to the

American merchant marine

It can be appreciated that Sea Land s position might be im

proved by the acquisition of USUs new vessels for at least par

tial replacement of Sea Land s old vessel But the USL vessels

will continue in the foreign trade without the merger Sea

Land and Reynolds would be the principal beneficiaries from

16 F MC
188 FEDERAL MARITIME COMMISSION

the turn over to them ofUSLs fleet Naturally there migh

some benefit to the public and or the American merch

marine but the degree thereof would not be to the ex

necessary to satisfy the requirements of the Svenska doct

and the Commission s guidelines

Increased American shipbuilding One of the arguments 

vanced by Sea Land is that the proceeds over 1 billion f

the charter of USL vessels of Sea Land No 69 56 would 

ble USL to construct new American flag vessels 24 This w

include specialty vessels for use in nonliner trades wh

about 98 percent of the service is furnished by foreign flag 

sels USLs president believes this to be a good opportunity 

did his predecessor Itis said that the Alaska oil strike wil

for vessels to transport oil and liquid natural gas Sea L

says that any future building by USL would not interfere 

Sea Land s construction plans

There is no gainsaying that the above suggestion has s

appeal even though the thinking thereon has not been c

talized by Sea Land and USL Suffice it to say here that 

argument will be put in the plus column when at the en

this decision a final determination is made as to whethe

merger will be approved

Possible loss to USL charter vis a vis merger

Item 10 of the order of investigation calls for an inquiry 

the possible loss of benefits from the maintenance of an i

pendent USL which would have existed under the charter 

would not exist ifthe merger is effectuated

USL claims thatthe merger would mean the continuatio

the company as a viable on going shipping organization 

it is not possible to determine the precise fate of USL if 

merger is not approved that the funds received by USL u

the charter would be invested in new ships that as a 

sidiary of Reynolds it would have access to the resource

Reynolds which would mean stability and the ability to 

pand its shipping services and that USLs fleet woul

utilized by a carrier having the ability and competence to m

imize the effectiveness of its participation in foreign 

domestic commerce

Each of the foregoing contentions already has been 

cussed so there need be no repetition thereof at this point 

TheExaminer gels that under the order of inv81tilfttion in the present proceeding he is

authority to approve ordisapprove the charter albeitthe two proceedinl8 have an undo bteda

16 F M 
16 F MC

MERGER AGREEMENT U S LINES INC 189

principal loss to USL from the merger would be the 1 billion

charter hire over a 20 year period if Sea Land charters the

vessels after approval of the merger it would seem that USL

would still lose its independence This must be balanced

against a free and unfettered USL if the charter is not ap

proved leaving the company as a first class competitor of

Sea Land

Valid regulatory purpose

Sea Land is of the belief that disapproval of the merger

surely would guarantee the continued balkanization with the

accompanying vulnerability to the economic ups and downs of

the industry of the American Merchant Marine USL argues

that approval will assure the operation of an efficient and

productive American flag carrier in all the major foreign

trades This will in turn assure that America s best interests

will be represented effectively by a substantial member of the

international shipping conferences This Agreement will en

hance to some extent the Commission s ability to monitor and

regulate the activities of all carriers serving the U S foreign

commerce It further says that the absence of strong

American flag competition would lessen the Commission s

voice in the international shipping field that foreign lines

are rationalizing and improving their competitive positions

with no hindrance from their governments and that unless

American companies are permitted to do likewise the Commis

sion and the American merchant marine will lapse into secon

dary roles in this country sforeign commerce

There is no indication that failure to approve the merger

would have a pernicious effect on the American merchant

marine On that contrary it would simply allow the American

flag containership operators to remain in a healthy competi

tive state Nor are there substantive prospects that approval

of the merger is needed to stiffen American flag competition

against foreign flag services To repeat what already has been

noted the merger might even stimulate further foreign flag

competition by consortia or otherwise Furthermore with

Reynolds backing there certainly is no well founded reason to

believe that Sea Land would be placed in a precarious position

if the merger is disapproved
190

i

FEDERAL MARITIME COMMISSION

ULTIMATE CONCLUSION

It is important to distinguish between the kind of p

necessary to justify approval of an ordinary run of the 

agreement and the proof required for approval of an ag

ment with antitrust overtones and therefore possibly aga

the public interest Svenska and the Commission s dec

there under review by the Supreme Court point up the d

ence Although it cannot be denied as pointed out that s

of the arguments advanced in support of the merger may 

sibly have merit within the guidelines set out by the Com

sion most of the results claimed as favorable are in reality 

the benefit ofSea Land alone

The single plausible ground for the merger is the protec

of USLs financial stability But a fair comparison of 

company s recent troubles with its apparent renascenc

that respect leads to the conclusion in the Examiner s j

ment that USL has weathered its monetary crisis to the p

where its independent position in the foreign commerce o

United States outweighs the desirability or necessity o

takeover by Reynolds

The proceeding is discontinued

C W ROBINSON

Presiding Examin

Washington D C

October 21 1971

16 F M
16 F MC

MERGER AGREEMENT U S LINES INC 191

APPENDIX A

Kidde USL contend that the supplemental agreement does

not violate any part of the Act that its provisions would be

beneficial to the shipping industry and the commerce of the

United States and that it would assure the continuation of

USL as a strong competitor and amajor factor in the shipping

industry Without it they further maintain Kidde would be

obliged to again find a way to dispose ofUSL and Kidde might

be forced to liquidate USL ifit could not promptly find a buyer

They conclude that the agreement would relieve the pressure

on all parties

The supplemental agreement would permit Kidde and

Reynolds to achieve what they would be denied ifthe merger is

disapproved Denial would place Reynolds in the driver s seat

in determining the future of USL It could chose any financial

institution to find a purchaser and McLean agrees that

Sea Land s voice would be heard in that connection The

agreement permits the disposal of USL by public auction of its

assets or sale of its stock or by distribution of the stock to

Reynolds stockholders Neither Reynolds nor Sea Land could

be prevented from bidding at any public auction or from pur

chasing USLs stock to protect the 65 million investment a

possibility which a Reynolds witness said would be seized

upon iflawful inasmuch as Sea Land would like the use of the

USL ships The agreement certainly contains the seeds of pos

sible control prevention or destruction of competition Fur

thermore the agreement is primarily for the benefit of Kidde

and Reynolds not for the benefit of the public

The supplemental agreement as now composed should be

disapproved
192 FEDERAL MARITIME COMMISSION

APPENDIX B

In the nine years prior to its acquisition by Kidde the v

of USL in the open market wasnot in excess of 55 perce

book value No responsible buyer other than Reynolds 

found for USL by investment bankers and the latter conv

to Kidde the opinion that the underwriting and public sa

USL stock was well nigh impossible because of poor ma

conditions and the poor operating results of the company

During the discussions between Mr Sullivan of Kidde 

Mr McMullen of USL looking toward the sale of the com

to the latter the initial figure mentioned was approxima

50 million in cash cash equivalents and notes plus deli

to Kidde of 816 000 shares of Kidde stock This general b

was carried forward in the meetings between Mr Sullivan 

Mr McLean The final consideration was 65 million wit

stock transfer Kidde was advised by a financial an

specializing in the maritime industry that the price was j

reasonable and prudent

Whereas Mr McMullen when testifying declared that 

value of USL an organization close to his heart was w

considerably more than the price agreed upon the fina

facts of life cannot be ignored actual market value ha

prevail over possible value were the company one of soun

nancial standing at the time the agreement was made

16 F 
Discussion and Conclusion

MERGER AGREEMENT U S LINES INC 193

The opponents to the agreements under consideration in

both proceedings have consistently argued that approval of

either the charter of merger agreements would produce over

whelming competitive advantages to Sea Land and a disas

trous effect upon the U S flag competitors Most of the oppo

nents did not file exceptions to the Examiner s decision in the

Charter case principally because Commission affirmation of

the Chief Administrative Law Judge s decision in the Merger

Case wherein he determined it should not be approved would

operate as a simultaneous termination of the Charter

Agreement A1On the otherhand some ofthe opponents viewed

the decision in the Merger Case as correct in its conclusions

but argUed that it should have included a stronger antitrust

case that it failed to appreciate the full impact of the merger

upon the competitors and that the decision that the supple

mental agreement and the promissory note are not subject to

section 15 waswrong The proponents ofthe agreements are in

accord with the conclusions that the merger agreement falls

within the purview of section 15 and that the supplemental

agreement and promissory note do not They except to the

Chief Administrative Law Judge s conclusion that the merger

should be disapproved and the suggestion that if the supple

mental agreement is within section 15 the merger agreement

as now composed shoud be disapproved

1 JURISDICTION

The Chief Administrative Law Judge found jurisdiction in

this case on the basis of Commission precedents Continuing

arguments as to the propriety of those precedents compels us

to expand somewhat on their rationale

As we said in an earlier report the threshold issue here is

A1Article 6 3 ofthe proposed merger agreement provides

6 3 The parties hereto agree that a

if this Agreement orthe Merger is disapproved orapproved on

terms and conditions not acceptable to Reynolds and Reynolds shall have 80 notifiedKidde this Agree

ment the Basic Agreement the Time Charter and the Equipment Lease the Related Documents

shall be automatically cancelled but the Supplemental Agreement shall remain in full force and effect

and b if this Agreement and the Merger are approved on terms and conditions acceptable to Reynolds

butthe Basic Agreement the Time Charterorthe Equipment Lease are disapproved such disapproved

instrumentshall be automatically cancelled orif any such instrumentisapproved on terms orconditions

unacceptable to Reynolds and ReynQld shall have so notified Kidde this Agreement shan remain in

effect but the Basic Agreement TimeCharter orthe Equipment Lease as defined in the Basic Agree

ment orwhichever of them isapproved on terms unacceptable to Reynolds as the case may be shall be

automatically cancelled unless under the terms of any of the Required Approvals such cancellation

would adversely affect the approval of this Agreement orthe Merger butthe Supplemental Agreement

shaJl remain in full force and effect

16 F MC
194 FEDERAL MARITIME COMMISSION

that of our jurisdiction over the agreement to merge

AS Ju

cial developments since our decision in the AML merger c

make it necessary to treat the jurisdictional issue once ag

Since the Court of Appeals for the Ninth Circuit upheld 

finding of section 15 jurisdiction over merger agreements 

two other United States courts have considered the issue 

reached the opposite Conclusion In United States v 

Reynolds Tobacco Company 325 F Supp 656 U S D C 

1971 Judge Garth concluded that all of the agreements 

luded to in section 15 ofthe Shipping Act are of an on goi

nature and that a single discrete event such as a merge

not within the intended coverage of section 15 In Seat

Lines Inc v F M C 460 F 2d 982 947 D C Cir 1972 

United States Court of Appeals for the District of Colum

Circuit found that the word agreements as used in sectio

did not include mergers acquisitions and like Alo

It is hardly necessary to say that we find ourselves alig

with the majority of the Ninth Circuit Court of Appeals 

Matson and in respectful disagreement with Judge Garth 

Reynolds and the D C Circuit Court ofAppeals in the Seat

case That court speaking through Judge Wilkey conside

the specific language of section 15 The language of cont

porary statutes the legislative history of the Shipping Act 

the administrative and judicial construction of section 15 s

its enactment and as already noted concluded that merg

are not within the ambit of the section

For the discussion of those basic considerations w

prompted us to find merger jurisdiction within the scop

section 15 we refer to our earlier report in the AML 

Supra note AS We shall in this report confine ourselve

an application of that earlier discussion to those consid

tions which led Judge Garth and the court in Seatrain to 

clude thatjurisdiction over mergers is not to be found in 

tion 15

A The Language ofSection 15

Section 15 vests in the Commission jurisdiction over 

agreements

1

8

Merger Amerioan Mail Line AmericanPresident LinesandPacific FarEast Line 11 F M C 5

hereafter the AML case See also the discussion of ourjurisdiction contained in the Initial Dec

ChiefExaminer Page in Docket No 6956 We agree with his wellreasoned discussion and his app

of legal principles Accordingly wewill not repeat here the arguments thoroughly covered ther

B R R 759 763778HI970

1

8 Mat80n Navigation Co vF M C 405 F 2d 796 9th Cir 1968

1 10 The FMC s

petition for certiorari in FMC v

Seatrain Line et al No 71 1647 was granted 

Supreme Court on December 11 1972

16 F M
MERGER AGREEMENT U S LINES INC 195

1 fixing or regulating transportation rates or fares

2 giving or receiving special rates accommodations or

other special privileges or advantages

3 controlling regulating preventing or destroying compe

tition

4 pooling or apportioning earnings losses or traffic

5 allotting ports or restricting or otherwise regulating the

number and character of sailings between ports

6 limiting or regulating in any way the volume or charac

ter of freight or passenger traffic to be carried

7 or in any mannerproviding for an exclusive preferential

or cooperative working arrangement

Under the provisions of the section all such agreements

must be filed with the Commission and the Commission is em

powered to approve disapprove cancel or modify agreements

filed with it with all agreements approved by the Commission

being exempted from the antitrust laws From a literalreading

of the third category an agreement to merge would clearly

seem embraced within its language for what better way to

work the destruction of competition than through a merger

The Court in Seatrain while admitting this nevertheless con

cluded that both the language and context of section 15 itself

and the legislative history accompanying it demonstrate that

an agreement calling for the single discrete event amerger

is not included among those agreements which destroy com

petition

This of course attaches to the word agreement ameaning

distinctly different from that understood in common usage

However this result is said to be dictated by the context of

section 15 and the section s legislative history To the court in

Seatrain the first six categories of agreements covered by sec

tion 15 of necessity imply the continued existence of the par

ties and their participation in such agreements over time e g

fixing or regulating rates pooling or apportioning earnings

losses or traffic allotting ports or restricting sailings between

ports etc Seatrain supra at 93 935 We agree thatthe fix

ing of rates the apportioning ofearnings and the restriction of

sailings presuppose operations over time but the destruction

of competition that category with which we are here con

cerned can be more readily accomplished by the single dis

crete eventthe merger than by an on going agreement and

the inference that continuous operations are required in ag

reements destroying competition is not justifiable

16 F MC
196 FEDERAL MARITIME COMMISSION

Inherent in the argument that our jurisdiction is restric

to agreements involving continuous operations is the assu

tion that the Commission labors under some disability 

found in the Department of Justice or the courts should 

need arise for a post approval dissolution of a merger Th

the court in concludes In the case of arrangements of a m

permanent nature the sale of all the assets of one comm

carrier by water to another subsequent Commission cance

tion or modification of such a previously approved agreem

would be very difficult if not impossible to implement S

train supra at 935 The relevance of this difficulty to 

question of our jurisdiction particularly if applied to the 

stant case is obscure

To begin with there is nothing in the relevant statu

which in any way limits the manner in which the Commiss

may implement its disapproval of an agreement Section 

states that The Commission shall by order disappro

cancel ormodify any agreement whether or notpreviou

approved by it that it finds violative of any of the standa

set forth in that section Consequently there being no lim

tion on the latitude of the Commission s authority to dis

prove cancel or modify an approved agreement there can 

no justifiable restriction on the scope of approval agreeme

based upon the availability of an adequate remedy for vi

tion of the approval As we said in our earlier opinion in 

AML case

We are necessarily given the power to stop ormodify any continuing pra

if we find that it has become detrimental to the commerce of the United S

or contrary to the public interest even though we have previously appr

the practice But even here ourdisapproval ormodification is only prospec

we cannot undo what has already been done We arenow concerned with 

approval of a merger of three steamship lines approval of which is t

granted unless we find that the mergerwould operate to the detriment o

commerce of the United States be contrary to the public interest orunfa

between carriers or otherwise in violation of the Shipping Act 1916 It 

not follow of course that ourapproval of the agreement once granted 

never be withdrawn orthat we cannot order the agreement modified

The Supreme Court has specifically addressed itself to 

point In California v US 577 584 1944 the Court said A

Finding a wrong which it is duty bound to remedy the MaritimeCommis

may within the general framework of the Shipping Act fashion 

tools for doing so

All See also the Matson case 8upra note 7 citingVolk wagenwerk v FMC 390 U S 261 278276 

23 1968 and Pan American World Airway IM vU S 871 U S 296 812 n17 1963

16 F M
MERGER AGREEMENT U S LINES INC 197

There is therefore no lack of authority in the Commission to

devise the appropriate remedy for the situation in which the

terms of a merger approval are violated and because we can

provide such a

remedy it is irrelevantwhether there are con

tinuous operations as defined by the court in Seatrain Cer

tainly moreover we cannot see how others may accomplish

the same result with any less of the difficulty suggested by

the Seatrain court

Further this case is sufficiently different from Seatrain to

render the court s argument inapposite First there is a fun

damental difference in the nature of the agreements for which

approval was in Seatrain and is now sought The Seatrain

situation was described by the court as follows

This sale comprises all of Oceanic s assets although Oceanic retains

its corporate existence and is not restricted by the agreement from reentering

the trade Al2

the type of agreement here at issue is the acquisition of all the assets

of one common carrier by water by another carrier Al3

The court then concluded that

Section 15 does notprovide for FMC jurisdiction over a sale of ships

absent either a

provision limitingcompetition among the parties or a provision

of some other type requiring continuing supervision A14

Consequently the court in Seatrain was concerned with an

agreement very different from the proposed merger herein

and certainly from the agreement as modified and conditioned

by us The proposed agreement is a total merger ofone carrier

into the other As modified and conditioned the agreement we

are approving and as is discussed fully infra requires both

the continued existence of USL the acquired carrier and the

retention by USL of all its assets thereby necessitating con

tinuing Commission supervision to ensure that the approved

anticompetitive activity remains within bounds ofthe enabling

agreement

The import of Seatrain is therefore that either a more an

ticompetitive agreement or one not finite as there at issue

would be within the ambit of section 15 As the court said

Thus it is not the complexity of the antitrust issues involved which

determines if the FMC has jurisdiction A

0 12 Seatrain 8upra at 933

AIsId at 938

If d at 945

Al d at946

16 F MC
198 FEDERAL MARITIME COMMISSION

For example

a contract coupled with an agreement not to compete 

may involve more complicated antitrust issues than the more simple sal

tract is required to be filed and the Commission may have jurisdiction to 

on all questions including antitrust issues A16

In the instant case what is involved is not as in Seatra

sale of assets without a sale ofthe corporate identity Here 

rathera sale ofthe corporate equity with the requirement 

the acquiring company Reynolds maintain both the a

and stock ofthe acquired company USL identifiable to in

the continuing operativeness of the assets and the con

availability of the stock for such disposition as we might o

as a remedy for violation of the terms of the acquisition N

less to say such a transaction requires continuous regula

oversight to ensure the conservation of USL s assets and 

vent the total absorption of USL by Sea Land a result w

we conclude must not be permitted under the approved a

ment

By our act of approval therefore neither of the prin

parties herein Sea Land and USL will vanish forever 

acquired company USL will remain intact as a compe

entity retaining its assets in operative form and the ob

tion of ensuring the continuation of this status between 

Land and USL and of assessing the subsequent and con

ing competitive impact of the approved agreement is sp

cally assigned by Congress to this Commission under sectio

which gives us the responsibility for day to day surveillan

the activities of common carriers by water in our foreign 

merce Should future circumstances warrant we are expre

empowered to disapprove any agreement previously appro

or should something less than disapproval be called for we 

modify such an agreement even if the particular modific

would require divestiture ofpreviously merged or acquire

sets or companies

B The Legislative History ofSection 15

Itis said however that the construction of section 15 w

would limit the Commission s jurisdiction to on go

agreements is reinforced by the legislative history behin

enactment

The Shipping Act 1916 was primarily the result of the w

of the House Committee on the Merchant Marine 

Fisheries of the 63rd Congress under the direction o

AIS Id at 945

16F M
MERGER AGREEMENT U S LINES INC 199

Chairman Representative J W Alexander A selective reading

of the Committee s

report might lead one to the view that the

Committee was basically concerned with those arrangements

which fixed rates or rotated sailings or apportioned earnings

etc all of which called for operations over time Thus the

court in Seatrain quotes with approval the Supreme Court s

characterization of the Committee s work as an exhaustive

inquiry into the practices of shipping conferences supra at

938 To be contrasted with this rather restricted description of

the Committee s area of concern is the designation which the

Committee itself gave to the reportwhich embodied the results

of its efforts House Committee on the Merchant Marine and

Fisheries Report onSteamship Agreements and Affiliations in

the American Foreign and Domestic Trade H Doc No 805

63rd Cong 2d Sess 1914 This report called the Alexander

Report after the Committee s Chairman makes it clear that

the Committee was indeed concerned with more than under

standings and arrangements to the exclusion of mergers

and acquisitions In fact Congressman Alexander himself

introduced H Res 587 which broadened the scope ofthe inves

tigation to include ownership by other ship lines or

companies A17

Reprinted at pages 1017 of the Alexander Report are a

number of questionnaires sent by the Committee to steamship

lines in both the foreign and domestic trades As might be ex

pected the questionnaire sent to domestic water carriers

sought much more detailed information on stock ownership

control and affiliations than did the questionnaire sent to

steamship lines engaged in the American foreign trade

Nevertheless U S flag carriers had to answer the same ques

tions concerning understandings and arrangements as did the

foreign flag carriers Additionally American diplomatic and

consular officers abroad had to respond to a questionnaire

which included the question Report any instances known to

you where steamship lines and companies engaged in the

foreign commerce of the United States are owned orcontrolled

by railway companies or by the same interests owning or con

trolling railway companies

The responses to the questionnaires formed the basis for the

conduct of the Committee s hearings and citations to the Re

port could be multiplied to show the degree of the Committee s

concern with the problem of the merger device as one of the

Al7The resolution is included at page 9 of the Alexander Report

16 F MC
200 FEDERAL MARITIME COMMISSION

major methods to control or destroy competition Als Per

more importantly Congressman Alexander himself in a sp

reprinted in the Congress onal Record characterized the s

tion as follows

To sum up the entire situation investigation will prove that over 90 

regular line coastwise and practically the entire foreign American shipp

allied through interlocking directorates with the National City Bank U

States Trust Company National Bank of Commerce Guarantee Trust 

pany all of which have for theirfountainhead the Rockefeller Morgan P

interests 62 Congo Rec Appendix 112 at 118

It seems clear therefore from the Chairman s comm

and the conduct of the Committee s activities that the 

mittee and its Chairman thought something more and d

ent than fixing rates or allocating ports was invo

whereby competition was being controlled or destroyed 

the Committee wasaware that concentration of control in 

shipping industry was amajor problem

The opponents of our merger jurisdiction however ta

peculiar view of the work of the Committee They virtuall

nore all but the last nine pages of the four volumes which 

prise the total of the Committee s

report In these 

pages the Recommendations of the Committee appear 

it is primarily on the basis of a supposed dichotomy in the 

ommendations for domestic and those for foreign comm

that the opponents of merger jurisdiction rely most hea

Additionally both Judge Garth in Reynolds and the cou

Seatrain find in the Recommendations of the Alexander C

mittee an intention to use the word agreement in a sp

or restricted sense i

e to include only those understand

or arrangements of an on going nature Thus the cou

Seatrain concludes

the subject of the Committee s investigations was agreements 

ference arrangements and gentlemen s

understanding

all of which 

sion the continued existence of the parties and their participation in suc

reements e g in fixing rates apportioning traffic pooling earnings 

There is no intention on the part of the Committee to include noris ther

language in fact so including the type of arrangements in the case at ba

acquisition of all the assets of one steamship line by another The Comm

employed terms other than the word agreement to refer to transaction

of a

continuing nature

The numerous methods of controlling competition between water ca

in the domestic trade referred to in the preceding pages may be grouped u

three headings viz 1 control through acquisition of waterlines orthe o

AI8 See eg Proceedfnka of the Committee on the MerchantMarine and Fisheries in the Invest

ofShipping Combinations Under H Res 587 atVol I

9093 128 and 851

16 P M
MERGER AGREEMENT U S UNES INC 201

ship of accessories of water lines 2 control through agreements or under

standings and 3 control through special practices

It would be superfluous then for the Committee to have made this distinc

tion if the Commission were correct in asserting that the Committee used the

term agreement to encompass transactions other than those constituting

cooperative working arrangements fIeatrain supra at 939 Y9

There are severlll difficulties with these contentions as to

the workof the Committee To begin with the asserted distinc

tion between agreements and mergers or acquisitions is not

tenable and the Committee did in fact use the term agree

ment in discussing mergers acquisitions etc Equally unten

able is the opponents attempted distinction between the

Report s applicability to domestic and foreign shipping The

Report indicates a clear intention to regulate mergers and ac

quisitions in the domestic trades butthe Committee is equally

clear in its extensive interest in corporate combinations in the

foreign trades This combined with the fact that section 15

which was enacted about two years after the Committee s

work makes no domestic foreign distinction negates the

dichotomy suggested by the opponents

The Committee dealt specifically with the International

Mercantile Marine Company sometimes referred to as the

Shipping Trust the most notorious of the companies

dominating our foreign trade A20 As Congressman Alexanaer

said

Let me give you a chapter from the recent investigation of the so called

Shipping Trust The same interests are associated in both the foreign

and coastwise shipping The most prominent shipping corporation controlled

by American interests are owned by the International Mercantile Marine

A21

The distinction between agreements and acquisitions drawn

by theSeatrain court cannot be sustained upon close examina

tion of some of the methods of control allegedly excluded

from the meaning of agreement It is of course to be re

membered that section 15 requires the filing of agreements

controlling competition

Twenty eight methods of control are set out at pages

AI In asimilar vein Judge Garth concluded The agreements represented in the Report are all on

going in nature Most of these agreements describe practices orregular activities in which two ormore

shipping companies have agreed to participate overa

considerable period of time None of the agree

ments studied by the Alexander Committee bears the slightest resemblance to an agreement of merger

which isessentially asingle discrete event which transforms the relationship of the merging parties at

the instant of merger 325 F Supp 656 658659

1010 See Alexander Report VolIII at p139 Congressional investigations into shipping in the foreign

trade began in 1910 with aresolution to investigate the Shipping Trust H J Res 23 The textof the

resolution canbe found in 47 Congo Rec 8108 1910

101152 Congo Rec Appendix 112118 1915

16 F MC
202 FEDERAL MARITIME COMMISSION

40912 of the Report and under the heading of Co

through acquisition there appear such methods as

3 Control by lease

6 Joint control of a water line by several railroads

6 Control by one or more officers in common or by common 

resentation on the board of directors

7 Control indicated by a community of interest through influential 

holders

8 Railroad control of competing water or canals through the owners

control of forwarding companies thus diverting traffic to their own r

water lines by refusing to exchange through freight with independent 

lines the latter are thus forced to depend upon local business which 

limited to maintain the efficiency of the line

10 Ownership or control of bulk carriers by producing and trading 

panies which while controlling a large portion of the traffic in a given 

modity also act as common carriers These companies may also charter bo

independent lines on such favorable terms as to induce such lines to obs

certain policy in the fixing and maintenance of rates Emphasis added

Such methods of controlling compe ition are as much in 

nature of cooperative working arrangements on go

agreements as in the nature of corporate acquisitions 

Committee therefore was concerned with establishing 

fact of controlled combinations by uncovering and exam

the various devices employed

Thus the exclusion of mergers acquisitions etc from 

meaning of agreements as used in Section 15 based up

supposed distinction between the on going understandin

arrangement on the one hand and the single discrete me

acquisition etc on the other is not one which existed with 

Committee

Moreover the Committee itself sometimes used the w

agreement in its broad commonly accepted sense For e

ple in Volume III of the Proceedings A22 at page 140 a me

is described as an agreement

An Agreement was concluded between Mr J Pierpont Morgan the fa

American financier and organizer of the Shipping Trust for the purcha

Oceanic shares The basis of the agreement was that the shareholde

Oceanic Co should receive cash and securities representing 10 times th

profits of that company The terms of the agreement were publish

the Daily Mail of May 9 and October 31 1902 Emphasis added

Again in Volume Iof the Proceedings at page 351 we find 

Hamburg American Line Union Line merger called 

agreement

AU See note Ala supra

16 F M
MERGER AGREEMENT U S LINES INC 203

Union Line was practically under an agreement acquired by the

Hamburg American Line Emphasis added

We thinkthe attempted distinction between agreements and

consolidations is too imprecise and undefined to form any part

of a statute designed to do no less than regulate the gamut of

anticompetitive conduct of an entire industry Having devoted

considerable attention to concentrations in shipping both in

the foreign and domestic trades it seems unfair to attribute to

the Committee an intent to ignore the problem and concen

trate solely on agreements to fix rates apportion earnings

or rotate sailings That the Committee did not have any such

thing in mind is demonstrated by its specific allusion to the

then recently enacted Panama Canal Act Aug 24 1912 ch

390 37 Stat 560

Section 11 of the Panama Canal Act also provides for the divorcing of com

moncarriers by water from the railroads under certain conditions These legis

lative requirements go far towards eliminating some of the undesirable prac

tices which were found by this Committee to exist in the domestic commerce of

the United States Report p 422

As for the remaining undesirable practices the Committee s

specific recommendations included

2 that water carriers be required to file for approval with the Interstate

Commerce Commission all agreements or arrangements affecting interstate

transportation whether written or oral and all modifications or cancellatio 1s

thereof with water carriers with railroads orother transportation agencies or

with shippers Report p 423

12 that all interstate traffic on canals be placed under the supervision of

the Interstate Commerce Commission and that the railroads be prohibited in

the future from acquiring either directly orindirectly ownershipor control in

interest in canals or water lines forwarding companies and other navigation

facilities on such canals when the same are used in interstate transportation

Report p

424

No clearer indication is needed to show the Committee s un

derstanding that effective legislation would have to include

regulatory or supervisory control over acquisitions and trans

fers of ownership and as has been discussed supra no dis

tinction between domestic and foreign mergers or acquisitions

can be engrafted upon section 15 based upon the Alexander

Report or the work of the Committee

Additional clarification is available moreover in the legisla

tive history between the Alexander Report issued in February

1914 and the enactment of the Shipping Act 1916

The Alexander Report revealed not only that the American

16 F MC
204 FEDERAL MARITIME COMMISSION

i

merchant marine was becoming heavily monopolized but a

that there was a severe shortage of U S flag shipping W

Europe at war by August of 1914 Congress became even mo

aware of the need for rebuilding the merchant marine a

thus the first shipping bills introduced after the Alexand

Report were concerned only with promotion of the mercha

marine Thus in September of 1914 Congressman Alexand

introduced H R 18666 which proposed government ownersh

and operation of merchant vessels acting through a shippi

board Government ownership was sought topromote the m

chant marine and was expected to have a de facto regulato

effect on conference rates However in 1915 Congressm

Alexander introduced a bill which contained both regulato

and government ownership provisions Congress adjourned b

fore any action was taken and the bill was introduced in t

next Congress as H R 450 Almost immediately thereaft

Alexander introduced another proposal H R 10500 and he

ings were held on it in February March and April of 1916 

introduced H R 10500 had no antitrust exemptions and co

tained no requirements for the filing of agreements Howev

section 9 of the bill incorporated by reference the Intersta

Commerce Act making that Act applicable to the Shippi

Board giving the Board complete power to regulate rates 

the industry A23 Section 10 of the bill required licensing by t

Board of vessels in both domestic and foreign commerce Af

hearings the Committee rejected the philosophy of sections 

and 10 of H R 10500 24 and in April of 1916 Alexander int

duced H R 14337 Finally in May Alexander synthesized 

previous legislative proposals into a single bill H R 15455 a

it was this bill that was finally passed by Congress

Section 16 of H R 15455 enacted verbatim as section 15 w

a redrafting of section 3 of H R 14337 which latter section 

quired the filing of every agreement understanding conf

ence or arrangement and such agreements understanding

conferences and arrangements if approved were exempt fro

the antitrust laws Section 16 of H R 15455 and section 15 

the Shipping Act merely use the word agreement and at t

end of the first paragraph a sentence was added The te

agreement in this section includes understandings conf

ences and other arrangements Thus the significance of t

only amendment concerning agreement appears to be in t

AU 5Srd Congo Rec 80771916

AN The Inter tate Commerce Act at that time contained no antitrust exemptions It was not ame

to provide for antitrust exemption of any lort until 1920

16 F MC
16 FM C

MERGER AGREEMENT U S LINES INC 205

restoration to it of its commonly accepted meaning as OrIgI

nally used in H R 14337 and a specific provision that it include

such novel things as conferences and the less formal terms

understanding and arrangements The term agreement

was understood to include the other terms which therefore

became redundant We think thatcommonly accepted and used

meaning included agreements which called for mergers ac

quisitions and the like

C Legislative History The 1961 Amendments

It was not until 1961 that the first really comprehensive

reexamination of antitrust problems in the shipping indus

try wasundertaken by Congress The genesis of this reexami

nation was the supreme court s decision in FMC v

Isbrandtsen 356 U S 481 1958 which declared conference

dual rate systems unlawful Itwasthe original intention ofthe

Antitrust Subcommittee of the House Committee on the

Judiciary under the Chairmanship of Congressman Celler to

restrict the scope of its inquiry to abuses of the dual rate sys

tem however the initial investigation

revealed such diverse and widespread anticompetitive practices in the

industry that the Chairman decided to expand the subcommittee inquiry to

embrace within its scope notonly the problem of dual rates and pricing prac

tices but the entire gamut of antitrust problems in the ocean freight

industry A25

This expansion in turn resulted in an exhaustive and com

prehensive study extending over a period of three years con

suming nine volumes containing about 12 000 pages of tes

timony and exhibits A26

To place the work of the Antitrust Subcommittee in its

proper context two facts should be noted First Congressman

Celler was co author of the 1961 amendments and the inves

tigation by his committee is part of the legislative history of

the amendments and second although the Celler Report was

not printed and generally distributed until 1962 it was made

available to the drafters of the bill the House Merchant

Marine and Fisheries Committee in unpublished form A27

There is abundant support in the Celler Report for the inclu

AUH R Rep No 1418 The Ocean Freight Industry Report of the Antitrust Subcommittee of the

House Committee on the Judiciary 87th Cong 2d Sess 1962 the Celler Report

AleHearings Before Antitrust Subcommittee of the House Committee on theJudiciary 86th Cong 1st

and 2d Sess pt I Vols I V and pt 2 Vola I II 195960 id 87th Cong 1st Sess pt 3 Vola 1 11 1961

the Celler Hearings

AISee Sen Rep No 760 87th Cong 1st Sess fl961 US Code Congo Admin News 87th Cong 1st

Ses 8 1961 3108at 31163117 also 107 Congo Rec 10065 1961
206 FEDERAL MARITIME COMMISSION

sion of merger jurisdiction under section 15 The Antitru

Subcommittee s use of the word agreement clearly and sp

cifically included agreements of merger Additionally and t

Court inSeatrain notwithstanding the word agreement w

also used in connection with the acquisition ofthe stock of o

carrier by another Thus at page 47 of the Celler Report 

find

In the fall of 1960 Isbrandtsen acquired a controlling interest in Americ

Export through the purchase of approximately 26 percent of the lat

company s outstanding stock Under an agreement recently approved 

the Federal Maritime Commission this purchase constitutes the initial step 

a program leading to the consolidation of the maritime operations of the t

companies The 14 vessels owned oroperated by Isbrandtsen are to be tra

ferred to its subsidiary Isbrandtsen Steamship Co for about 6 million 

promissory notes Isbrandsten Steamship Co will then be sold to Americ

Export for about 11 million Emphasis added

Congress was well aware that section 15 had been constru

to include merger jurisdiction yet it made no attempt to red

fine the word agreement

Congress was repeatedly informed thatthe administrators 

section 15 considered mergers to be included within th

jurisdiction under that section By Reorganization Plan No 

of 1961 75 Stat 840 President Kennedy proposed the esta

lishment of an independent Federal Maritime Commission e

clusively charged with responsibility for regulation of t

shipping industry During the hearings on the Reorganizati

Plan Admiral Ralph E Wilson a member of the Fede

Maritime Board expressed his concern of possible administ

tive problems in handling transactions thatrequired approva

by both the Commission under the Shipptng Act and t

Maritime Administration under the Merchant Marine Act 

1936 He stated

For example there is an important matter now pending before the Bo

which involves merger of assets determination of the adequacy of Americ

flag shipping on certain essential trade routes the granting of additio

operating subsidy and the legality of intent which would require distinct 

termination by both the Commission and the Maritime Administrati

Emphasis ours

AliiSee Celler Report 48 dealing with aprotest to this l

agreement It is interesting to note that 

Department of Justice was quite aware of this assertion of merger jurisdiction by the Commission 

yet Justice never once suggested that the meaning of 4agreement be clarified so 8S to leave merg

etc at large under the antitrust laws See CeUer Hearing Part III 124 1263 The Department s

sile

before Congress then isindeed to be contrasted with its vociferous opposition in the courts now

I

Hearings Before aSubcommittee of the House Committee on Government Operations Reorgan

tion Plan No 7 of 1961 Maritime Functions 87th Cong 1st Sess 1961 at 46 Congressman Ema

Celler was the first witness to appear at these hearings

16 F M C
MERGER AGREEMENT U S LINES INC

The reference was to the then pending American Export

Isbrandtsen merger agreement Two members of this sub

committee Edward A Garmatz and F Bradford Morse also

sat on the House Merchant Marine and Fisheries Committee

Appearing before the committee Admiral Wilson reiterated

his comment on the merger issue

207

We have now pendingan important matter which involved a mergerofassets

an additional operating subsidy as part of this whole package and a deter

minatory freezing out of competition and that sort of thing Emphasis

added A30

Thus two different committees with an interest in the particu

lar functions to be exercised by the newly proposed Federal

Maritime Commission were informed that at least one ofthose

functions would be the exercise of merger jurisdiction

Congressman Celler who was quite instrumental in bringing

about the creation of the new Commission A31 and his subcom

mittee held hearings in 1962 to review the regulatory efforts of

the Commission after its first year of experience under the

newly amended Shipping Act At the opening of these hear

ings Chairman Celler made the following statement charac

terizing the functions and purpose of regulatory agencies such

as the Federal Maritime Commission A32

When the Congress created administrative agencies to supervise the indus

trial and commercial machinery in certain areas of our economy it acted in

the belief that these specialized commissions would be effective at the same

time in protecting the consumer from the self same evils which the Sherman

and Clayton Acts were designed to eliminate In many instances these reg

ulatory bodies were given the power and authority to exempt certain conduct

from the antitrust laws that is to say to approve agreements activities or

acquisitions that W011d otherwise runafoul of the antitrust statutes Thus the

agency may to an extent substitute regulation for competition by permitting

competitors to merge or collaborate in ratemaking for example Emphasis

ours

A33

Lest it be thought that the Commission was not one of those

regulatory agencies to which had been given the power and

authority to substitute regulation for competition by permit

ting mergers etc the following colloquy between the Sub

committee and the Commission s Chairman Thomas Stakem

A30 Hearings before the House Committee on the Merchant Marine and Fisheries Reorganization Plan

No 7 of 1961 87th Cong 1st Sess 91 92 1961

31 His personal intercession by letterto President Kennedy and his other endeavors on behalfof rear

ganization are set out at page 3 ofthe Celler Report

AUThese hearings canbe placed in their proper context only by keeping in mind the active participa

tion of Chairman Celler the membership and the staffof the Subcommittee in draftingand enacting the

legislation amending the Shipping Act

13 Hearings before the Antitrust Subcommittee of the House Committee on the Judiciary Progress

Report from the Federal Maritime Commission 87th Cong 2d Seas Ser No 34 at 2 1962

16 F MC
208 FEDERAL MARITIME COMMISSION

leaves no doubt that the Commission itself thought it had th

power and authority

MrAppel Turning to another topic in the section 16 category Iwould like 

ask you a few questions about the implications of the Commission s approva

the lsbrandtsen American Export merger under the mechanism of section 

of the 1916 Act

Prior to the time that this case went to the Maritime Administration 

subsidy consideration the Federal Maritime Commission in February of t

year upheld its initial decision did it not

Mr Stakem Yes it did

Mr Appel And in this case it granted approval under section 16 of the A

to an agreement between the lsbrandtsen Co and American Export the ov

all effect of which was in the words of the Commission

for lsbrandtsen to transfer its liner fleet of some 14 ships and its en

business to American Export agreeing as part of the transaction not to co

pete without Export s consent

The Commission concluded that this constituted an agreement controll

regulating and destroying competition that the agreement which had be

filed with the predecessor Board fell squarely within the clear unqualif

language of section 16 requiring action by the Commission to either appro

ordisapprove cancel ormodify

And the Commission further held that the agreement was not in violation 

any proscription of the Act is that not so

Mr Stakem Yes The Commission felt that the language of the law cle

gives it an interest in this sort of an arrangement

A

Mr Johnson Mr Stakem let me cut in there for a momentfor just one qu

tion The Celler Kefauver Act of course provides that where an agreemen

approved to the extent that the Commission can give it immunity from 

antitrust laws it receives that immunity does it not

Mr Stakem Yes sir

Mr Johnson In passing on a merger does the Commission take into acco

the standards of the Celler Kefauver Act namely whether the merger 

tend to substantially lessen competition orto create a monopoly in any lin

commerce

Mr Stakem I would like to have counsel answer that if you wi 1

Mr Pimper Of course Ithink the answer to that is yes

A

Mr Appel Does the Commission s approval of the Isbrandtsen Exp

merger grant to these parties the same antitrust exemption accorded to 

other parties who have their agreements approved under section 16 of theA

Mr Stakem Yes Ithink it carries withit the immunity but Ithink we m

also keep in mind that if upon a complaint that this was operating to the 

riment of U S commerce that there is always the possibility of complaint 

review by the Commission A

AlH Id at 40

AMId at 21

A361d at 21 22 Of course it is argued that the key to the Commission s jurisdiction in 

Isbrandtsen Export merger was the non complete clause ABide from the fact that the Commiss

decision was not baaed on any such clausB 888 11 F M C at 6288 the notion that jurisdiction tur

non complete clauses canonly make possible lIaganey shopping much like the kind of forumsho

so deplored by the courts The leIauae canbe either put in orleft out dependin upon whethe

parties to the agreement desire to deal with the Commis lonorthe Justice Department We ca

underestimate the ingenuity of the industry in producing apparently valid non compete claus

merger situations

16 F M
MERGER AGREEMENT U S LINES INC 209

We thinkthe foregoing discussion ofthe legislative history of

section 15 both before and after 1916 shows something more

than jurisdictional wishful thinking on our part A 7

It shows

that in 1916 Congress was well aware of the problems of con

centration in the Merchant Marine and that the term

agreement was used in section 15 in its generally accepted

sense it was also defined to include the rather specialized

term conferences To define agreement so as to exclude

single discrete events is to attribute to Congress the intent to

ignore a major problem in the industry after having devoted

considerable time to the study and discussion of it

Additionally the meaning of the term agreements was reex

amined in both the period preceding the 1961 amendment and

reenactment of section 15 and in the period immediately

thereafter During this time Congress was on a number of oc

casions specifically informed that the agency to which it had

entrusted the administration of section 15 considered that its

jurisdiction underthat section included agreements to merge

Thus as has been discussed and as will be developed more

fully the Commission s

jurisdiction herein is being applied not

to a single discrete event merger butto an agreement which

is within the jurisdiction ofthe Commission whether ornot our

section 15 authority applies to the mergers which Justice

tries to distinguish from other agreements Nevertheless even

ifthe agreement we are approving is a merger it is our con

clusion that merger agreements are among those over which

we have jurisdiction under section 15 In either event all the

agreements involved the charter the proposed merger the

supplemental agreement and the promissory note are subject

to Commission jurisdiction as indispensible parts of a whole

arrangement The supplemental agreement and promissory

note are discussed fully infra

2 Merits

Our decision and order is founded on approval of an on going

agreement under statutory continuing surveillance by the

Commission with a system of policing and review of the activ

ites of Reynolds Sea Land and USL based upon an amplifica

tion of our Congressional mandate

We have accomplished this by the binary nature of our ac

tion herein First we are approving the proposed agreement in

a form so modified as to continue USL as an independent car

A31Seatrain Lines Inc vF M C supra

16 F MC
210 FEDERAL MARITIME COMMISSION

rier entity Second we are attaching conditions to our 

proval to assure the intended result

The conditions which are set forth and discussed furth

infra are designed to prevent the disappearance of USL 

the corporate structure of Reynolds and insure our ability 

maintain our surveillance and policing functions manda

under section 15 with respect to all agreements approved 

the Commission

Conditions LA and B require that the USL stock be nei

transferred nor encumbered by RJI the Reynolds subsid

which will acquire the stock This assures that the stock 

always be intact and reachable in the event we should su

quently disapprove or further modify the agreement In a

tion with respect to USL the corporate ownership pat

among Reynolds RJI and USL may not be altered without 

approval

This is important because in condition LD we include d

titure of USL stock as one of the possible remedies availab

the Commission in the event we should at some time fin

necessary to disapprove the agreement A38 As provided in 

condition a breach of any of the conditions could pro

grounds for disapproval and divestiture Further cond

III first paragraph provides for constant Commis

scrutiny of the parties activities to insure that any altera

in competitive circumstances is consistent with the condit

as a whole An investigation into that aspect of the par

activities may be initiated by the Commission on its own 

tion or on petition to the Commission by a person havin

interest therein

Although our general obligation to exercise contin

Commission surveillance is required by the Shipping Act u

section 15 we nevertheless restate that obligation in cond

IC additionally providing for specific review of the appr

agreement and activities thereunder at least every five ye

To aid us in pursuing this responsibility other conditions 

included which will constantly provide us with informatio

the parties actions Condition IILA Irequires that one co

rate director of USL and one corporate director of Sea Lan

a public member These directors are to be appointed b

independent and neutral source and are to report to u

inter alia the parties decisions relating to matters of com

tion There is also to be a semiannualreporting to the Com

0 31 See note A54 i fra See also text accompanying note All upra

16 F M 
MERGER AGREEMENT U S LINES INC 211

sion by the parties with respect to their adherence to all the

conditions and the Commission is to have access to all the

records of the parties This is required in conditions IV and

IV A

Other conditions e gIIIC D E and F contemplate the

need for further specific Commission action These listed con

ditions prohibit various activities by the parties e gcommon

terminal facilities pooling service rationalization without our

prior authorization Thus there will be a continuum of permis

sible activity under the approved agreement subject to change

and modification only by order of the Commission

The remaining conditions contain generally additional re

strictions on the activities ofthe parties and supplement those

just discussed Taken in toto the conditions require constant

activity on the part ofthe Commission to ensure compliance by

the parties to enable us to further modify the agreement if

required by changed circumstances and to disapprove the

agreement ifthe situation warrants

It is argued by the Agreement s opponents however that

regardless of the defensibility of our philosophy conclusions

and methodology we may not take the action herein It is con

tended that because the agreement being approved was pro

posed in our Order Reopening Proceeding for Limited Purposes

served June 7 1972 itwas therefore not subjected to evidence

at the hearing to enable the making of the necessary support

ing findings of fact

First it would hardly have been in keeping with the

Commission s

responsibilities for us to have simply disap

proved the agreement on the ground that its original terms

were inadequate to achieve the full measure of the

agreement s benefits Such an action would be an exercise in

negative regulation a condition totally unacceptable for pro

gressive regulation in an age of intermodal transportation

modernity The Commission has rejected such an attitude as

exemplified by the Commission s decision in Disposition of

Container Marine Lines 11 F M C 476 1968 and cases cited

therein

In that case the Commission was presented with an innova

tive and controversial tariff filing which was acceptable in

principle but unacceptable by reason of technical deficiencies

Consequently we set forth in our report the mannerin which

the tariffs could be made suitable to the desired result and ac

cepted the filings upon condition that the faults be remedied in

the manner prescribed In reaching that result we said

16 F MC
212 FEDERAL MARITIME COMMISSION

the Commission need be ever mindful of its responsibilities as a bod

which Congress has delegated certain responsibilities The exercise of tha

legated authority was intended by Congress and must be interpreted by u

be performed in the most judicious manner in ourquasi judicial capacity 

in our best discretion The administration of the Commission s duties requ

flexibility of action and purpose when necessary and possible As

Second there was no denial of due process rights relatin

a fair hearing on the conditions and the agreement as he

approved The issue of alternatives to the agreement as f

and the issue of an acquisition and or merger without a c

ter were always in this proceeding A40 explored at the hea

and considered by the Chief Administrative Law Judge A4

our Order of June 7 1972 we provided the parties an oppor

ity to comment on the conditions we proposed A42 and inv

them to offer their own additional conditions

One other preliminary matter is also pertinent here Tha

the relationship between antitrust and Shipping Act cons

ations in cases before the Commission concerning section 

agreements

Essentially it is the duty of the regulatory agencies and 

courts to accommodate or harmonize antitrust and regula

principles See Seaboard Airlines V V v US 382 U S 154 

1965 Regulatory agencies have long used the antitrust l

to give understandable content to the broad statutory 

cept of the public interest contained in their statu

standards A43

In the instant case even though the antitrust laws emb

at least a part of the public interest which this Commis

considers in acting on section 15 agreements in the 

analysis the regulatory laws must take precedence A reg

tory agency which like the Federal Maritime Commis

while reconciling its policies with antitrust philoso

nevertheless must apply its own laws and standards not th

of the antitrust laws A44 The Commission must use its expe

Ale Disposition of Container Marim Lines 11 F M C 476 4823 1968 See also American T

A ns t ne vA T S F RU Co 387 U S 397 416 1967 cited at p 489 of the Container Marin

ease

OSee list of issues contained in our Order of Investigation supra at p

143

AfISUpra at p 185 and infra at pp 228

42 In fact wehave been persuaded by the comments of the opponents as to certain conditions 

have rejected certain of proponents suggested changes especially in dealing with all importan

tions relatin to the competitive relationship among the corporations See pp 146148 i1fra

11 43 F M C v Sven8ka Ametika Linien 390 U S 238 244 1966 j Volk8wagenwerk Aktienge8ell8

FM C 390 U S 261 274 n

20 1968 Denvet Rio Grande We8tern R R Co v U S 387 U S 485 

1967 California v

F P C 369 US 482 48485 1962 j U S v RCA 858 U S 334 861 1959 

Trucking Co v U S 321 U S 67 7980 1944 City ofPittsburgh vF PCoo 99 U S App D C 113 2

741 1966

11 44 F M C v Svenaka Amerika Linien supra at 243 Minneapolis St Louis R Co v

U S 

16 F M
MERGER AGREEMENT U S LINES INC 213

in its specialized field to give viability to the antitrust laws in

the area of the Commission s ocean trade jurisdiction

The Federal Maritime Commission provides the nexus for

our basic national antitrust philosophy and the national

maritime policy as expressed in our shipping statutes Al

though the Commission is not the agency that exercises pri

mary jurisdiction over our antitrust laws the principles em

bodied in those laws are always present in Commission delib

erations concerning especially agreements filed for approval

under section 15 The Congress when drafting the Shipping

Act and establishing the Commission mandated this responsi

bility by permitting agreements approved by the Commission

to be exempt from application of the antitrust statutes A4S Thus

because of this consequence of its approval of a section

15agreement the Commission pursues its obligation to con

sider the anticompetitive implications of such action We strike

a balance by determining whether the public interest as set

forth in our governing statutes will be served by sanctioning

an anticompetitive activity in the interest of our maritime pol

icy

We must therefore approach the merits of this case from

two convergent lines of reasoning One involving shipping

statute considerations and those of the antitrust laws

To begin with and as we said at the outset the agreements

at issue must be tested against the standards for approvability

set forth in section 15 A46 Additionally the Commission must

examine the agreements to determine whether they meet

those standards as amplified by the Commission with the af

firmation of the Supreme Court in FMC v Svenska Amerika

Linien 390 U S 238 1968 In our report precursing that Sup

reme Court decision we said that proponents of an agreement

must bring forth such facts as would demonstrate that the

agreement was required by serious transportation need

necessary to secure important public benefits or in further

ance ofa valid regulatory purpose ofthe Shipping Act A47

The Chief Administrative Law Judge utilizing this test re

1973 rehearing den d 361 U S 945 1960 Seaboard Airlines RR Co v

U S supra and on remand 81lb

nom Florida East Coast Ry Co v US 259 F Supp 993 M D Fla 1966

A

Section 15 provides in pertinent part

Everyagreement modification or cancellation lawful under this section orpermitted under section

14b shall be excepted from the provisions of the Act approved July 2 1890 entitled An Act to protect

trade and commerce against unlawful restraints and monopolies and amendments and Acts sup

plementary thereto and the provisions ofsections 73 to 77 bothinclusive of the Act approvedAugust 27

1894 entitled An Act to reduce taxation to provide revenuefor the Government and for other pur

poses and amendments and Acts supplementary thereto

M

For the textof section 15 as far as pertinent see note Al 8upra at p

136

A

111tlestigation ofPas8enger Tralel Agents 10 F M C 27 45 1966

16 F MC
214 FEDERAL MARITIME COMMISSION

jected the agreements This we believe is a concession to 

philosophy that FMC jurisdiction is narrow and restrict

We however reach the opposite conclusion and find that 

standards of section 15 and Svenska are fully met The C

Administrative Law Judge rejected the plans of the pr

nents as being more self serving than accruing to the pu

benefit in the form of a transportation need or pu

benefits It is apparent therefore that although we gener

accept the findings of factin the initial decision we view s

in an entirely different perspective Our view is that of 

overall approach to all the agreements at issue and alte

tives to the proposed merger agreement as opposed t

limited and particularized view of various facets of the pro

nents plans This can best be seen in the Commission s O

Reopening Proceeding for Limited Purposes ofJune 7 197

hereinafter sometimes Order and in the comments of 

parties filed pursuant thereto

The Order which was served fOllowing oral argumen

reopened the proceeding and announced our preparedness 

approve the acquisition by Reynolds of all the outstand

common stock ofUSL held by Kidde subject to proposed co

tions which assure the maintenance of USL as a viable in

pendent corporation with Reynolds providing financial as

ance to maintain USL as such a corporation We stated in 

Order that

We aredisposed to make this determination to help create continued subs

tial Americanflag participation in international maritime competition 

approach is with a view toward maintaining USL as a strong indepen

U S flag carrier and precluding its dismemberment The latter possibilit

very real under the intent of the Supplemental Agreement as indicated by 

terms and to permit such an eventuality would be a disservice to the Amer

merchant marine and a severe detriment to the public interest in a strong 

competitive American merchant fleet

Under the current and developing structure of international ocean c

merce there is a great need to assure the continued operation of efficient 

productive U S flag carriage in all major trades Consequently ourinclina

to approve the acquisition would not result in an approval of the type of co

rate consolidation wherein one company survives and the other does not 

desire is rather to ensure the survival of existing American flag service 

permitting the infusion of new and private capital into our merchant ma

fleet What we envision here are two independent companies to be oper

under a

continuing Sec 15 agreement

As a result we envision stronger U S flag competition in internatio

maritime markets vigorous competition for United States military and 

M Chairman Bentley and Commissioner Barrett voted against the issuance of the Order

M

In view of our action herein the Motions to Strike portiona of the Oral Argument are denied

16F MC
MERGER AGREEMENT U S LINES INC 215

ernment controlled cargo and FMC access to carrier data used in arriving at

rates for government cargo

On the strength of the conditions to approval set forth below and others

which may be suggested the Commission will be able to assure the above

benefits and we will be able also to prevent any restraint of trade without

need or justification to assure our continuing surveillance and review of

Reynolds Sea Land and USL activities through receipt of periodic reports and

to retain a practicable option to dissolve the acquisition upon breach of any

conditions attached to the acquisitions Emphasis added

We also posed numerous conditions geared to obtain the de

sired result and ordered the parties to submit memoranda and

replies tothose conditions including any other conditions to be

suggested by the parties

The underscored language of our Order supra is crucial to

our disagreement with the Chief Administrative Law Judge

and the philosophy expressed forms an essential part of the

basis for our ultimate conclusions

Some opponents to our Order point to the Svenska case and

the doctrine that agreements must be justified by public

benefit or serious transportation need sufficient to outweigh

any injury to competition They claim that the Commission s

Order would serve to approve a merger while rejecting all

grounds for approval In that respect it is argued that all the

claims of record for approval will have evaporated since USL

would be maintained as a viable independent corporation

and not the combination sought through the proposed merger

Proponents counter by claiming there is an abundance of

evidence to support Svenska tests that the single greatest

transportation need is the accomplishment of rationalization

obtained through approval and by providing USL with a stable

financial base to provide shippers with effective and dependa

ble service

Itis argued by some opponents that the decision to approve

the acquisition in order to prevent the dismemberment of

USL is a fabricated strawman since that possibility they

claim exists only because of the supplemental agreement

They contend that since the Commission concluded that it has

jurisdiction over the stock acquisition it should also have

jurisdiction over the supplemental agreement and prevent

dismemberment by disapproving it or alternatively the dis

memberment could be stopped by injunctive relief It is also

claimed that dismemberment isn teven necessary in view of

recent profitable operations of USL

The status of the supplemental agreement and the signifi

16 F MC
216 FEDERAL MARITIME COMMISSION

cance of USLs financial condition are problematic matte

Yet the opponents attempt to employ an interconnection 

tween them to dissuade us from our conclusions is not s

ported by the record It arises from a misinterpretation of 

reasoning in our Order and out of a misunderstanding of 

nature of the supplemental agreement What the oppone

fail to recognize is the relationship among the premise of 

supplemental agreement our jurisdiction over it and our 

proval of the proposed agreement in amodified form

The parties fully intend by virtue of the suppleme

agreement the destruction liquidation or dismembermen

USL as a single common carrier entity to be a possible re

of this entire proceeding if the Commission disapproves 

merger as proposed A50 This much is indisputable

Reynolds Sea Land and Kidde USL argue however that 

supplemental agreement which is intended to take effe

the proposed merger is disapproved is not subject to sectio

since it is not an agreement between common carriers or 

sons subject to the Act Reynolds and Kidde are the only 

ties signatory and does not affect competition or otherw

come within the boundaries of the Act APL and AML c

that it is subject to the Act because of its shipping eff

and further that it has been carried out without the requ

approval Hearing Counsel argue that the real parties to 

agreement are Sea Land and USL

Justice agrees with the proponents view that the sup

0

The supplemental agreementprovides in part as follows

Section 3 Unless the acquisition shall have been accomplished as provided in the Merger 

ment oras provided in Section 1 above the financial institution selected as provided in Section 

shall be authorized and empowered to make disposition of U S Lines its Common Stock oras

gether with assumption of its liabilities in public orprivate ute orsales orotherwise in the 

hereinafter specified in Section 4 Kiddeagrees to cooperate fully to effect such disposition and to 

best efforts to obtain all necessary approvals

Section 4 In order to effect the disposition of U S Lines 8S desired by Kidde in the eve

neither Reynolds nor asubstitute party as provided in Section 1 is available and able to accom

acquisition the financial institution chosen as provided in Section 2 hereof shall

i Cause a

public sale of all ofU S Lines Common Stock to be made or

ii Cause adistribution ofthe U S LinesCommon Stock to be made to the stockholders of R

and promptly thereafter deliver orcause to be delivered to Kidde the Note or

iii Cause the vessels and related containers chassis and other equipment necessary in th

tion of such vessels of U S Linel to be lold at competitive biddinir and cause the other assets 

Lines to be sold in each case at prices acceptable to Reynolds and resulting in the satisfactio

liabilities of U S Lines or their assumption by a purchaser orpurchasers with credit accep

Kidde

iv Utilizeany combination of the methods set forth in 0ii or Hi hereinabove in orderto 

of the U S Lines Common Stock orthe 88sets and liabilities of U S Lines as the case may be 

ensure to Kidde s satisfaction consideration to Kidde of a

value equal to the Note it being und

that ifnot materially disadvantageous to Reynolds it is intended that such disposition shall be b

the methods set forth in 1 in or Hi in orderto preserve U S Lines as an operating entity

See also Initial Decision Appendix A Bupra at p 191 and footnote A7 8upra

16 F M
MERGER AGREEMENT U S LINES INC 217

mental agreement is not subject to Commission jurisdiction

under section 15 and consequently can be governed by court

action under the antitrust laws

Although the Chief Administrative Law Judge concluded

that the supplemental agreement is not subject to section 15

he did state

Should the Commission disagree with this conclusion the discussion found

inAppendix A is submitted as an aid to the Commission in its determination

as to whether the supplemental agreement should be approved ASl

In Appendix A he noted The agreement certainly con

tains the seeds ofpossible control prevention or destruction of

competition Furthermore the agreement is primarily for the

benefit of Kidde and Reynolds not for the benefit of the pub

lic Accordingly he concluded that it should be disapproved

The Chief Administrative Law Judge pointedly recognized

that The supplemental agreement would permit Kidde and

Reynolds to achieve what they would be denied if the merger

were disapproved Denial would place Reynolds in the driver s

seat in determining the future of USL A52 AEIL has argued

that the so called Supplemental Agreement now looms as the

important tactical device whereby Reynolds Sea Land can de

stroy Sea Land s major competitor U S Lines They also con

clude that Viewing the matter properly there is an agree

ment between Reynolds and Kidde whereunder Reynolds had

agreed to take U S Lines off of Kidde s hands irrespective of

any Federal Maritime Commission approval

We agree with some of the possibilities inherent in these ob

servations We are also impressed with the argument that

Kidde would be obliged to again find away to dispose of USL

and Kidde would be forced to liquidate USL if it could not

promptly find a buyer A53

Consequently if we were to simply terminate the matter by

disapproving the basic merger agreement we would nullify the

benefits which we conclude will result from the activities au

thorized by our approval of the modified agreement as set

forth herein In practice most section 15 agreements are not

approved as initially presented to the Commission It is after

consultation between the parties or applicants and the Com

mission resulting in modifications that the section 15 agree

ment is approved in final and different form

A51Supra at p 165 note 19

A

ISupra at p 191

ld

16 F M C
218 FEDERAL MARITIME COMMISSION

I

j

The dismemberment of USL as an end result of these 

ceedings is a possible if not probable consequence of all 

various alternatives which we could reach except the 

herein proposed by us if accepted by the proponents

Thus regardless of our disposition of the charter and 

posed merger and regardless of any action we andor the 

tice Department might take with respect to the suppleme

agreement it is still open to Kidde to relieve itself of the 

assets which Kidde apparently regards as an expendable 

unnecessary burden to its corporate operations Whe

jurisdiction over the supplemental agreement is ultima

found to be with the Commission or the courts Kidde c

easily select a method of disposing of USLs physical as

which offends neither the Shipping Act standards on the 

hand nor the antitrust policy of Justice on the other

In either event the net result would be the disappearanc

USL as a single common carrier entity The immediate 

primary beneficiary would be Reynolds Sea Land who w

lose USL as a hetherto significant competitor A similar e

would of course be felt by the various common carrier o

nents of the proposed merger These benefits however 

ously do not inure to the overriding public interest in 

maintenance of healthy competition in the merchant ma

industry Our action by keeping USL afloat provides our 

chant marine with tools to insure the viability of the indus

The Chief Administrative Law Judge premised his d

proval of the agreement on his finding that the results o

porposed merger would redound foremost to the benefit o

proponents Yet disapproval will have the same result 

manently Once dismantled neither we nor Justice nor 

the kings men will be able to put USL together again

Contrarily with the approval we grant herein the Com

sion will maintain continuing surveillance not over fragm

of carriers but over whole entities operating under impr

competitive circumstances and if future activities unde

approved agreement should fall short of our judgment an

pectations orif the parties should violate any ofthe condi

of approval it will be possible for the Commission to d

prove the agreement already approved or fashion any o

appropriate remedy As has been said by the Supreme Co

Finaing a wrong which it is duty bound to remedy the MaritimeCo

sion as the expert body established by Congress for safeguardin

16 F 
MERGER AGREEMENT U S LINES INC 219

specialized aspect of national interest may within the general framework of

the Shipping Act fashion the tools for doing so

AM

In the same case the Supreme Court also said as follows

It can hardly be suggested that the protection of the national interest in

interstate and foreign commerce oreven the convenience of the parties would

as a matter of sensible and economic administration limit the Commission to

negative means of dealing with the evils revealed on this record A55

Although that case dealt with the evils of violations of sec

tions 16 and 17 of the Shipping Act the reasoning may be ap

plied with equal vigor to preventing evils which would result

from a negative Commission decision culminating in our fail

ure to take appropriate action The ultimate result would be

contrary to the public interest and the general welfare

Consequently the Commission is obligated not only to pre

vent implementation of the supplemental agreement by disap

proving it we are equally obligated to approve an agreement

which will both produce the benefits of the proposed corporate

consolidation and also prevent the evil which might result with

or without use of the supplemental agreement Our ultimate

conclusion herein approval of the basic agreement with cer

tain conditions is dedicated to that purpose

From the foregoing it can be seen that there are ample

grounds for our conclusion that the supplemental agreement is

within the Commission s jurisdiction Additionally however

the Chief Administrative Law Judge although arriving at the

opposite conclusion based his decision upon findings which we

believe upon careful analysis cast more weight toward our

point ofview Recognizing that it is a close question he posed

the following considerations about the supplemental agree

ment 1 it cannot be implemented in some respects except

through the action of USL under Kidde s orders 2 Reynolds

primary consideration is to secure the USL fleet for the use of

its subsidiary Sea Land 3 it is a means by which

Reynolds and more importantly Sea Landcould acquire

USL upon disapproval of the merger 4 it states that it em

bodies the merger agreement and related documents between

the parties 5 Reynolds has been actively behind Sea Land s

operations including its building program 6 Reynolds and

Kidde have undertaken considerable financial and managerial

responsibilities on behalf oftheir subsidiaries 7 Reynolds has

certain veto powers over the sale of USL 8 according to a

AM California v

U S 320 U S 577 584 1944

AS d at 582

16 F M C
I

220 FEDERAL MARITIME COMMISSION

witness Reynolds would expect to be heard should USL 

disposed of by an institution selected by Reynolds and 9 U

would continue to be an operating entity to the extent it w

not be materially disadvantageous to Reynolds 6

In viewing the above considerations and the argument

the parties he concluded that in this instance he could 

agree with the theory that the document really has been 

cuted by Reynolds and Kidde as the alter egos of Sea Land 

USL and the fact that there is a shipping effect does 

necessarily bring it within the purview of section 15 s

Sea Land and USL even though affected to some extent 

not the real parties in interest He concluded Should 

merger not be approved the supplemental agreement come

full bloom the charter application is abandoned 

Reynolds Sea Land terminate their interest in USL 7

To this last statement we cannot subscribe As discus

supra Reynolds Sea Land will not terminate their intere

USL if the proposed merger is disapproved A56 and thus 

proposed merger and supplemental agreement are inextric

related

We will not permit corporate devices to prevent us from 

ognizing that the real parties in interest in the suppleme

agreement are the two common carriers by water USL 

Sea Land The very reasons cited by the ChiefAdministra

LawJudge in finding no jurisdiction persuade us that the 

plemental agreement is within our jurisdiction under se

15 and further that it should not be approved A5s

AMSupra at p 184

Supra at p

166

AliiThe supplemental agreement provides in part 88 tollows

Section 2 It is understood and agreed that neither Reynolds nor any subsidiary oraff

Reynolds lhall have any control overthe finding ordesignation of any Bubstitute party purs

Section 1 above or88 hereinafter provided Such control shall be vested in Buch financial instit

shall be designated by Reynolds withinthirty days after itbecomes obligated under Section 1 to 

Bubstitute party to be found Neither Reynold norany subsidiary oraffiliateofReynolds shall h

standing to object to any substitute party underSection 1 designated by such financial Institu

acceptable to Kidde unleu such urcha86r T6pT6s8nta a credit with respect to ita note inthe p

Gmount oll65ooo Ooo which i determined by Kidde to be unGcceptable without the gUGmnty of R

or the fGir VG1U8 of U S Linea i8 in the judgment 0 Reynolds in 82Ce88 0 the price ol ered 

substitute party Emphasis added

Section 4 In order to effect the disposition of U S Lines as desired by Kidde in the ev

neither Reynolds nor asub8titute party as provided in Section 1 isavailable and able to accom

acquisition the financial institution chosen as provided in Section 2 hereof shall

tv Utilize any combination ofthe methods set forth in I ii or Iii hereinabove inorder to 

of the U S Lines Common Stock orthe assets and liabilities of U S Lines as the case may be 

ensure to Kiddes satisfaction consideration to Kidde of avalue equal to the Note it being und

that ilnot materiGUy diaadvcmtageou8 to Reynolds it is intend d that such disposition shall be b

the methods set forth in IIiorill in order to preserve U S Lines as an operating enti

Emphasis added

AIiSupra at p 191

16 F M
MERGER AGREEMENT U S LINES INC 221

As noted earlier one of the arguments of the opponents is

that our ultimate conclusion in this case is not justified to pre

vent dismemberment of USL because of the recent improved

financial condition of USL

The Chief Administrative Law Judge stated his views as fol

lows

The single plausible ground for the merger is the protection of USL s finan

cial stability But a fair comparison of the company s recent troubles with its

apparent renascence in that respect leads to the conclusion in the Examiner s

judgment that USL has weathered its monetary crisis to the point where its

independent position in the foreign commerce of the United States outweighs

the desirability or necessity of its takeover by Reynolds A80

Granted that the position of Reynolds is such that it could be of real assist

ance in helping USL to tide itself over the shortage of capital all indications

are that USL can and will eventually extricate itself from its present financial

morass and remain a formidableand therefore a highly

desirable competitor of Sea Land A8I

We disagree with that conclusion based primarily on the

same reasoning we have applied with respect to the supple

mental agreement The perspective of the Chief Administra

tive Law Judge was limited to consideration of the various is

sues in their relationship to the total merger proposed in the

filed agreements Thus his evaluation of both the financial

condition of USL and the significance of the supplemental

agreement was made only within the framework of the prop

osed merger

As we have said our view is much broader The Chief Ad

ministrative Law Judge considered any indications of an im

provement of USLs financial structure to present a more de

sirable alternative to the proposed merger With that we do

not totally disagree except that a financially sound USL is

not under existing circumstances a viable alternative The

Chief Administrative Law Judge gave insufficient weight to

the possibility that regardless of USLs financial posture

Kidde as evidenced by the agreements is determined to be rid

of USL Consequently we have opted for a result which will

include both a financially sound USL whether or not the

record establishes that to be the fact now and the acquisition

of USL by Reynolds Contrary to the conclusion of the Chief

Administrative Law Judge we find these two results not to be

mutually exclusive but mutually dependent

In arriving at a conclusion opposite to that of the Commis

II IfISupra Jlt

p

90

M1Supra at p 186

16 F MC
222 FEDERAL MARITIME COMMISSION

sion the ChiefAdministrative Law Judge took official notic

certain material outside the record AS2 to make the follow

observations

USL is now forging ahead but Kidde wants to rid itself of the child be

the returns of the latter do not satisfy the financial requirements or the 

ent this position is quite normal in the business world It must not be 

looked in appraising USUs difficulties that the principal reasons fo

money bind were the capital requirements involved in the new containe

inability to obtain vessels on time and the nonresumption of operating d

ential subsidy USL of course is not completely out of the financial wood

from it But it is hard to believe that one of America s oldest and best k

ocean common carriers given what appears to be good leadership plu

improvement in its resources should be considered such a bad risk tha

public would be benefited by merger with its largest competitor Granted 

the position of Reynolds is such that it could be of real assistance in he

USLto tide itself overthe shortage of capital all indications are that US

and will eventually extricate itself from its present financial morass a

main a formidableand therefore a highly desirable competitor 

Sea Land A

Predictably the use of official noticed material gener

motions and pleadings culminating in proponents not ava

themselves of a Commission opportunity to rebut the no

materials on the basis of the restrictive limitations pl

therein

The record however provides sufficiently detailed evid

casting doubt upon a conclusion that USL can continue 

viable participant in the American merchant marine an

disregard and exclude from our findings and conclusions 

material officially noticed by the Chief Administrative 

Judge

Although it has been argued that the financial conditio

USL is not a factor relevant to our considerations we t

this view negates a considerable portion of the record 

issue wasextensively litigated A64

The record on the financial condition of USL reflects 

from 1968 through 1970 excluding accounting reserves 

lost approximately 22 million had defaulted on a bank lo

27 million and Kidde was required to advance it 9 millio

million of which was applied toward current obligations 

four month period For 1971 USL would have a neg

cash flow of approximately 35 36 million Two new La

All A report in the Wall StreetJournal of an interview with Kidde s chairman published on Se

22 1971 and his conclusorycharacterization of a

portion of testimony of the president of USL 

companion proceeding before the Interstate Commerce Commission See Bupra at p

186

AASupra at p

186

AI4 During thecourse of the hearing 29 exhibits were received in the record concerning the 

structure and condition of USL

16 F M
MERGER AGREEMENT U S LINES INC 223

vessels were mortgaged with the proceeds utilized as partial

payment on the overdue bank loan and to make up cash de

ficits attributed to operations And despite the many varia

tions on the theme on the actual financial condition of USL

raised by the opponents the record supports a finding that

USLs financial instability is basic and might very well con

tinue as such in the future AG5

Furthermore Kidde wants to sell its holdings in USL and

even assuming an improvement in USLs financial condition

such improvement is not likely to be considered sufficiently

promising to justify a reversal of Kidde s intention Certainly

we would not be dissuaded from our conclusions as to the pros

pects for USLs financial stability by any such possible tem

porary improvement

Even however assuming a substantial improvement in

USLs financial condition there is no assurance either that the

improvement will continue or that USLs financial health will

be maintained We are acutely aware of the historic cycle of

peaks and valleys in the financial condition of U S flag car

riers and the Chief Administrative Law Judge found this con

dition to exist with respect to USL AGG

Our resolution of this case whereby we combine an indepen

dent USL with the acquisition by Reynolds looks toward

avoiding such vagaries in our merchant marine industry or at

least alleviating their effects In addition regardless of USLs

actual andor potential financial soundness we must also

weigh Kidde s determination to dispose of USL Our considera

tion of the financial circumstances of USL relates not only to

the alternatives consislered by the Chief Administrative Law

Judge but even more to our determination of whether alleged

anticompetitive consequences resulting from our approved al

ternative are offset by Svenska and public interest standards

It must be remembered that the Chief Administrative Law

Judge concerned himself primarily with a proposed merger

which would permit USLs fleet of containerships to be at the

disposal of another company specifically Sea Land Our deci

sion eliminates that concern by tying the independence of USL

to the prospects of its financial stability and under strict con

ditions designed to help ensure the maintenance ofthat result

The framework ie that ofthe proposed merger within which

the Chief Administrative LawJudge and the opponents viewed

Il05Supra at pp 146147

A

Chief Administrative Judge s finding of fact No 8

8upra at p

146

16 F M C
224 FEDERAL MARITIME COMMISSION

USLs financial condition is modified so as to restrict the 

ties permissible sphere of activity This has been accomplis

through a series of conditions to our approval which are f

explained iYIra

Finally in response to a request of the Commission 

submitted its certified financial statement for the year en

December 31 1971 and the unaudited financial statemen

the three month period ending March 31 1972 In so d

they stated

This material is being tendered at this time solely because it has bee

quested by the Commission and not in support of the Commission s app

of these agreements The record developed in these proceedings specif

the portion of the record dealing with the financial condition and postu

U S Lines provides ample justification for approval of these agreemen

This submission of USL led to the following observat

from the opponents either USL has had a spectacular 

provement in netrevenues orthe statements are incompa

and unreliable it has not been subjected to crossexamina

but on its face shows improvement in USL financial situa

it can in no way support any conclusion that the company 

financial difficulty rather the financial future of the 

would seem to be one of the brightest in the American 

chant marine Without specifically commenting on the 

recent data submission Justice observed that USL is seco

none competitively has sufficient resources and manage

skill to deal with its temporary cash shortages and has wo

out a refinancing program with the banks

To the proponents

The record which was develoPfld on this issue 0 0 0 and which must for

basis from the Commission s findings 0 0 0 shows that USVs financial 

bility is basic and will continue until adequate rationalization is forthco

USLs long term debt is tremendous and unfortunately 

ternational trade and commerce does not wait for the rain

around the corner American commerce and industry at 

time in our financial and economic history cannot and sh

not be hampered by unrealistic impediments and unna

fears

Regardless of the conclusions which USLs submission 

mits we agree generally with the preliminary observatio

USL 8upra with respect to the evidentiary status of the l

USL financial data We therefore disregard that offic

noticed material in our findings and conclusions

In summary even if the prognosis were that USL cou

16 F M
MERGER AGREEMENT U S LINES INC 225

main a formidable competitor of Sea Land it is abundantly

clear that Kidde wants to rid itself of USL Certainly

Reynolds with its resources can contribute to the establishing

of a financially sound and stable USL to the benefit of the

shipping community with both Sea Land and USL operated as

equal subsidiaries but separate and competitive entities owned

by Reynolds awilling and experienced company

In addition we have developed conditions to our approval

which will ensure the separation and competitiveness of Sea

Land and USL and if the parties should fail to fulfill the ob

ligations under our conditioned approval we can subsequently

disapprove the agreement

Another point on this issue which wasargued by the parties

is the relevance ofthe failing company principle First of all

this is not an antitrust case in which we must measure the

evidence to the strict standards of that principle ifindeed it is

applicable here Although we do find on the record that USLs

financial problems are fundamental in view of our reasoning

set forth supra our conclusions would not be materially al

tered by a finding that USL is in sound financial condition

Such a circumstance bears no guarantee as to its longevity

and would not alter Kidde s intentions as to its holdings in

USL Furthermore the record establishes that for Kidde the

only options have been the sale to Reynolds or disposition of

the USL assets under the provisions of the supplemental

agreement Investment bankers searched for a buyer for USL

but found no responsible buyer other than Reynolds The

bankers conveyed to Kidde the opinion that the underwriting

and public sale of USL stock waswell nigh impossible because

ofpoor market conditions and the poor operating results of the

company USL A67 Thus no other realistic offer to purchase

USL as an operating entity has been made available so as to

lead the Commission to any different view as to the signifi

cance of USLs financial condition A68

As we said earlier although the Commission does approve

agreements of the kind before us solely on the basis of section

15 considerations in all such cases there are mixed questions

of shipping and antitrust law and policy We must weigh the

balance between Shipping Act and antitrust considerations

and determine whether the activities to be approved do not

invade the prohibitions ofthe anti trust laws any more than is

At1Supra lat pp 192

A

ld

16 F MC
226 FEDERAL MARITIME COMMISSION

necessary to serve the purposes of the regulatory statues 

A further consideration is whether there is an alterna

course of action which would accomplish the same purp

with comparable benefits but with lesser anticompetitive 

fects

In the end however the balance must be weighed in favo

Shipping Act considerations The Celler Report A70 in dis

sing the anticompetitive practices in the shipping indu

dealt specifically with this subject

The Anti trust Subcommittee recoghizes the unique character of the 

shipping industry with respect to the application of the anti trust law

other governments inhibit their carriers by anti trust laws and Ame

ocean carriers must compete not within the framework of our domestic 

trust laws but in jungle world of ocean shipping The Alexander Comm

when drafting the Shipping Actof 1916 recognized this difficulty and gr

a limited exemption to the industry from certain provisions of the anti 

laws conditioned upon submission to regulation by the Fe

Maritime Commission

And further

ourtraditional antitrust concepts cannot be fully applied to this a

of international commerce and any attempt to affect regulation o

commerce in a measure comparable to that applied to our domestic com

would be highly detrimental to our essential American Flag Mer

Marine A72

The proponents of the agreements have never argued 

the agreements would not eliminate some competition 

tween USL and Sea Land They claim however that the 

tial decision never comes to grips with the issue of whe

any anticompetitive impact would be produced by effectu

the agreements and if so the magnitude of the impact 

dictably the opponents have argued that the merger w

threaten economic disaster for Sea Land s other U S 

competitors

The main thrust of argument in this area is the consi

tion of the relevant markets within which to assess the im

of the proposed merger We agree to some extent with 

market share analysis provided in the initial decision whe

the relevant markets were identified as full containers

service on each of the major U S foreign trades and 

Al8 sbrandta6n v u s 211 F 2d 51 67 1964

101h6 Ocean FNJight lndu8trv Report of the Antitrust Subcommittf16oj the House Committe

Judiciary 87th C01l J

2d S888 1962 The CellerReport

AnId at 382 See a180 note A45 supra

A1I Op cit at 13

16 F 
MERGER AGREEMENT U S LINES INC 227

U S flag submarket within each ofthese markets A73 Certainly

one of the advantages ofcontainership service is that it is gen

erally preferred carriage over breakbulk Obviously the advan

tages offered by a merger approved without restrictive com

petitive conditions would undoubtedly lead to sailing frequen

cies producing an advantage in cargo carriage affecting other

U S flag lines Our point here is that the unmistakable thrust

of the findings contained in the initial decision is that the

merger as proposed would result in the elimination ofthe com

petition of USL and would insure Sea Land s position as a

dominant carrier in the U S foreign trades with the same

rationale applying equally to the arrangements under consid

eration in the Charter proceeding For example in discussing

Sea Land s containership operation generally recognized as

the largest in the world the Chief Administrative Law Judge

stated

It was estimated that during 1971 Sea Land would carry 21 percent of the

U S flag container cargo without merger 60 percent with the merger on

Route 5 7 89 on Route 10 26 percent without the merger and 35 percent with

the merger on Route 12 no cargo without the merger and 100 percent with

the merger on Route 29 51 percent without the merger and 87 percent with

the merger In 1974 the estimates were as follows Route 57 89 29 percent

without the merger and 66 percent with the merger Route 10 33 percent

without the merger data unavailable under the merger Route 12 nonewith

out the merger and 59 percent with the merger and Route 29 41 percent

without the merger and 53 percent with the merger

The foregoing statistics present a good picture of the services of both

Sea Land and USL but whereas the lines may think a better utilization of

vessels would result from the merger that would be a matter primarily for

their benefit and does notsatisfy the pronouncement of the Commission that

13 The Department ofJustice 1968 Merger Guidelines provides the following standards

3 Market Definition A rationale appraisal of the probable competitive effects of amerger normally

requires definition of one ormore relevant markets A market is any grouping ofsales orother commer

cial transactions in which each of the firms whose sales are included enjoys some advantage in compet

ing with those firms whose sales are not included The advantage need not be great for 80 long as it is

significant it defines an area of effective competition among the included sellers in which the competition

of the excluded sellers is ex hypothesi less effective The process of market definition may result in

identification of several appropriate markets in which to test the probable competitive effects of apar

ticular merger

A market is defined both in terms of its product dimension line of commerce and its geographic

dimension Section of the country

i

Line of Commerce The sales of any product orservice which is distinguishable as a matter of

commercial practice from other products orserviceswill ordinarily constitute arelevant product market

even though from the standpoint of most purchasers other products may be reasonably but not per

fectly interchangeable with it in terms of price quality and use On the other hand the sales of two

distinct products to a particular group of purchasers can also appropriately be grouped into a single

market where the two products are reasonably interchangeable for that group in terms of price quality

and use In this lattercase however it may be necessary also to include in that market the sales of one

ormore other products which are equallyinterchangeable with the two products in terms of price qual

ity and use from the standpoint ofthat group of purchasers forwhom the two products are interchange

able Department of Justice Merger Guidelines issued May 30 1968 3

16 F M C
228 FEDERAL MARITIME COMMISSION

an agreement such as this must be required by serious transportation 

necessary to secure important public benefits

I

With this conclusion we do not entirely disagree and we 

agree with most of the findings and conclusions in the in

decision relating to the justifications offered for the propo

merger The salient point is however that we are not app

ing the proposed merger

What the Chief Administrative Law Judge did was to 

the proposed merger in light of theSvenska case and he fo

the criteria ofthat case not to be met What he did not do 

to test an alternative course e g the modified agreemen

are approving herein Although there is some discussion in 

initial decision of the possibility of an independent USL u

the merger as proposed the ChiefAdministrative Law J

dismissed that result as unfeasible He observed

It is urged that under the merger USL will continue as a viable com

This position must be taken with a grain of salt On the one hand it is 

tained that USL will go on its merry way after the merger buttressed 

nancial help from Reynolds but on the other hand Reynolds let it be kno

the hearing that if USL got in the competitive way of Sea Land it would 

to yield Reynolds witness did say that the company would accept as a 

tion to approval the requirement that USL be continued as a viable com

It is very doubtful however that it would be practical to police this ty

situation to complete satisfaction of everyone including the Commiss

does not seem therefore that the prospects for a viable USL would 

bright

1

We arrive at the opposite conclusion

We find the benefits to be derived from the agreeme

modified and conditioned by us to be sufficiently desirab

to render it acceptable where the Chief Administrative 

Judge found the proposed agreement unapprovable

We find a substantial transportation need for such a

proved agreement which will in turn secure important p

benefits for the commerce of the United States

By virtue of the agreement in the form herein approved 

the conditions we attach thereto and for the reasons the 

Administrative Law Judge found the benefit inuring main

proponents we find the public interest to be the 

beneficiary to the agreement as we approve it

In weighing the balance between the benefits to be de

from the proposed merger and the anticompetitive effects 

Chief Administrative Law Judge found the latter to be 

Af4Supra at pp 175 176

A75Supra at p 185

16 F 
MERGER AGREEMENT U S LINES INC 229

weightier He concluded further that the benefits claimed

would inure more to the proponents than to the public interest

Our differences with him are not in his judgment as to that

balance but rather as to the alternatives placed in the scale

Whereas the Chief Administrative Law Judge rejected any

third possible result we consider three possible outcomes of

this proceeding disapproval approval of the proposed merger

agreement and approval of the agreement as modified and

conditioned herein by us Inasmuch as we reject the agree

ment in the form proposed the comparison for us is between

disapproval and the modified agreement

As we discussed at length earlier simple disapproval is com

pletely unacceptable The ramifications of such an action are

totally antithetical to the attainment and maintenance of

healthy competition in our foreign waterborne commerce We

conclude that the public interest will best be served by the

continuance of USL asa whole entity able through willing

and available financial assistance from Reynolds to achieve

financial stability The result will be the participation in our

commerce of USL as a

company with the resources to offer

competitive services to the shipping public Mere disapproval

of the proposed agreement will create a void in the American

merchant marine and in the field of international competition

in general which will increasingly leave the American im

porter and exporter at the mercy of well financed foreign

maritime consortia and reduce the available competition for

our government controlled cargo

Accordingly our decision and the reasoning set forth in our

Order of June 7 represents our determination to provide for

our commerce the benefits to be derived from an agreement

maintaining USL as a strong independent and competitive

U S flag carrier

Our approval herein is coupled with the imposition ofrestric

tive conditions which willensure that result and effectuate our

resolve to prevent any possible dismemberment of USL

We therefore approve the agreement as modified and con

ditioned herein and hold that the supplemental agreement is

within the purview of section 15 but because of our other ac

tion herein it is disapproved

With respect to the promissory noteA76 the ChiefAdministra

tive Law Judge concluded that if he were correct in his

MeThis isin an eight percent note ofReynolds to Kidde for 65 000 000 dated and bearing interest from

November 9 1970 and maturing either in 1974 at the earliest orin 1976 at the latest

16 F M C
230 FEDERAL MARITIME COMMISSION

premise regarding the supplemental agreement ie that it 

not subject to section 15 it follows that the promissory note 

not subject as well Again he offered his thoughts on the que

tion should the Commission disagree In Appendix B he co

cluded that the actual market value had to prevail ov

possible value were the company one of sound financial stan

ing at the time the agreement wasmade

The promissory note is an integral part of the transactions 

the proponents As such it too is within the purview of secti

15 For the reasons stated in Appendix B to the initial de

sion and because if is an indispensible part of the modifi

agreement approved herein the promissory note is approv

also

Itshould be understood that our reasons for approval of t

proposed agreement as modified by us with the estricti

conditions attached apply to our consideration of the char

agreement No 9827 As we have explained and as shall 

shown further infra our determination that USL continue 

a viable and independent carrier obviously precludes approv

of the charter arrangement which was under considerati

primarily in Docket No 6956

As noted above our Order of June 7 1972 set forth num

ous conditions which we proposed to attach to the approval 

were prepared to give to a modified agreement and afford

the parties an opportunity to file memoranda containing th

views on those conditions as well as suggestions for other co

ditions

In response many of the opponents collectively demo

strated a fear that USL would not be maintained as a stro

and independent U S flag carrier They implied generally th

any proposed common ownership of USL and Sea Land 

Reynolds in and of itself is sufficient to destroy the compe

tive independence of USL that Reynolds as a common pare

of both lines must consider the competitive impact of the op

ations and plans of the one subsidiary on the other that 

strains credulity to believe that Reynolds can own 100 perce

of the stock of both lines and yet provide each benevolent 

couragement to take cargo from the other and that t

Reynolds Sea Land goal is to dominate those markets wh

Sea Land serves and to move into new markets They warn

us that the Board of Directors of Reynolds will be as clos

attentive to the plans and operations of USL as it has been 

those of Sea Land and surely would be aware of those 

stances where the competitive plans of one threaten to 

16 F MC
MERGER AGREEMENT U S LINES INC 231

minish the market shares and revenue levels of the other It

was even argued that any assumption that the independence

of USL from Sea Land can be maintained by Commission

supervision plus a court appointed director are a testament

to a faith in mankind not usually shown by a regulatory

agency

Here we find the oft stated broad generalized an unproven

arguments that private American enterprise is inherently

predatory greedy and destructive ofits own best enlightened

long range interests

The view is glibly stated that the competitive American sys

tem will simply gobble up its own children to fatten its coffers

no matter how talented productive orprofitable those children

may be as members ofthe family This we do not accept

Proponents on the other hand tell us that it is the intention

of Reynolds to operate USL as an energetic and effective com

petitor not only with foreign competition but with American

flag as well including Sea Land Both Sea Land and USL we

are told will be operated as equal subsidiaries without prefer

ences between them and without serious problems to

Reynolds USL adds that the assurance that it will be main

tained as a competitive independent steamship company

which will receive financial support and stability more than

outweighs any possible anticompetitive effect

The conditions which we are attaching to our approval we

conclude are sufficient to allay the fears expressed by the op

ponents and to insure that the proponents implement their

professed intentions Further our conditions provide that a

breach of any ofthe conditions may provide grounds for disap

proval of the agreement and divestiture of Reynolds of USL

stock and our disapproval of the supplemental agreement

prevents its implementation upon such an eventuality

Justice views the goals of our Order as 1 the financial re

vitalization of USL 2 continuation of U S flag participation

in international competition and 3 the preclusion of USLs

dismemberment through the terms of the supplemental ag

reement They claim the first two objectives are based on as

sumptions unsupported by substantial evidence of record and

the final point will be governed by future activity in the courts

As to the first point we find there is sufficient evidence in

the record to support the conclusion that USLs financial con

dition is not secure

A77 Further however the financial plight of

An See notes A64 A65 and A66 supra and accompanying text

16 F MC
232 FEDERAL MARITIME COMMISSION

USL is not crucial to our decision because as we said su

Kidde is determined to terminate its interest in USL an

unlikely to reverse its position based upon an improvem

possibly transitory in USL s posture Consequently ther

nodoubt that USL must either stand on its own receive fin

cial support from another source or be dismembered

The latter possibility must be avoided or all the content

in this case in support of strong competition within the 

merchant marine will be vitiated Dismemberment is utt

unacceptable and would produce the contrary result to 

desired by all parties continued healthy competition

As to the first possibility USL being self contained 

have shown that the probability of success is not sufficie

favorable but in any event USLs stock must be purcha

from Kidde and the offer by Reynolds herein is the one 

stantive offer which has been made to purchase USL 

maintain it as a competitive entity

The second point made by Justice in response to our Ord

perplexing The purport of Justice s entire case is that the 

come of this proceeding must be such as to preserve a pr

level of competition among U S flag carriers At the s

time however Justice repeatedly argues that the statu

U S flag competition in international ocean commerc

either of no importance or irrelevant to this case Justice 

tends that one of the fundamental considerations is the s

of competition for U S government controlled or imp

cargo for which the competition of foreign flag carrie

strictly limited by law A78

Granted that U S government cargo provides a substa

and vital source of revenue for our carriers the availabil

commercial cargo for our merchant fleet is vital notonly to 

vessel operators but to the overall trade and commerce o

United States Section 15 of the Shipping Act is not so lim

as to permit the Federal Maritime Commission when actin

an agreement to disregard all interests except those in 

tive government cargo Our authority to approve disapp

or modify an agreement is based upon a broad range o

terests and considerations carriers shippers exporters 

porters ports and above all the public interest in the ge

welfare of a viable American merchant marine and its a

to serve competitively in the foreign waterborne trade 

commerce of the United States A79

A71 See e

g

u s Department ofJustice Reply to Exceptions to the Examiners Initial Decison 

No 70 61 March 6 1972 pp 610

UI Section 15 second par lITaph statea in pertinent part a8 tollowa

16 F 
MERGER AGREEMENT U S LINES INC 233

The trade and commerce of the United States depends

greatly on the ability of our commercial enterprises to compete

in foreign markets and to obtain the use of certain foreign pro

ducts A

great part of this is accomplished by use of ocean

transportation If we are forced to rely on foreign flag

operators and resulting conferences of foreign flag composi

tion the effects may be highly inimical to the commerce of the

United States and our regulation of our foreign waterborne

transportation will be increasingly the regulation solely of

foreigners whose overwhelming major concern too often is

different from that of the United States Some of the most in

tense competition in ocean commerce is that for commercial

liner cargo and there are strenuous competitive efforts being

made in that area especially by foreign flag carriers operating

not individually but in the form of consortia mergers and

other types of corporate combinations involving large scale

aggregations of capital Furthermore these consolidations are

precipitated both by commercial action and at the direction of

foreign governments

Consequently we cannot concede our ocean trade to

foreign flag interests by eliminating factors of international

competition from our consideration under section 15 of what is

best for the competitive well being of the American merchant

marine The maritime policy ofthe United States is not formu

lated by the Congresl and our courts with such an intention

We need only look at the Merchant Marine Act of 1970A80 and

the circumstances surrounding its enactment to understand

the import ofour nation sphilosophy in this area

A81 This is but

one of a series of congressional enactments

We do however recognize the importance of maintaining

healthy competitive conditions with respect to the carriage of

The Commission shall by order after notice and hearing disapprove cancel ormodify any agree

ment orany modification orcancellation thereof whether ornot previously approved by it that it finds

to be unjustly discriminatory orunfair as between carriers shippers exporters importers 07

Ort8 01

between exporters from the United States and theirforeign competitors orto operate to the detrtmtlnt of

the commerce of the United Staus orto be contrary to the public interest orto be in violatonof this Act

and shall approve all other agreements modifications orcancellations

AM Public Law 91469 84 Stat 1018 Earlier government aids provided by Congress to the U S me

chant marine include TheShipping Act 1916 39 Stat 728 Merchant Marine Acts of 1920 41 Stat 988

and 1928 45 Stat 689 Merchant Marine Act 1936 49 Stat 1986 Merchant Ship Sales Act of 194 60

Stat 41 and see also The Ocean Freight InduBtry House Report No 1419 87th Congress 2d seSSIon

pages 18 to 26 The need for an American nag merchantfleet was highlighted n

the ear y part of W rld

War I when the breakdown in shipping facilities produced tremendous mcreases

1n ocean frel ht

rates The Ocean Freight InduBtry page

19 in the late summerof 1914 the United States hlch

had depended on foreign flag vessels to carry roughly 90 of its foreign trade was confronted with a

critical shipping crisis Ocean Transportation McDowell Gibbs 1964 page412

A l

uThe restoration of our merchantfleet to aposition ofleadership on he world soceans ISon 0 o

most urgent tasks Our merchant ships are essentialparts of our economIC and defense systems

Presitknticd Proclamation No 8976 April 6 1970 Fed Reg Vol 35 No 68 April 8 1970

16 F M C
234 FEDERAL MARITIME COMMISSION

government impelled cargo and in the conditions to our 

proval we deal specifically with this matter Condition I

prohibits USL and Sea Land from placing any limitation 

competition between them for government cargo and Co

tion IV A reminds the parties of the seriousness of our in

tion to insure against variance from that restriction

The third point made by Justice with respect to our Ju

Order is that the preclusion of the dismemberment of USL 

be accomplished through court action What we have alre

said concerning the supplemental agreement is a full resp

to this contention Our approval herein of the modified ag

ment and disapproval of the supplemental agreement reso

the problem completely Surely injunctive relief may be iss

as well as other legal restraints against the supplementa

reement But our main concern is that of a maritime na

and the continuance of USL through commercial managem

and economic decisions and they should preclude action

the courts

One further contention in response to our Order needs t

mentioned here The opponents allege that our proposed a

amounts to an approval of the proposed merger but arejec

of all grounds for approval It is said that the asserted cl

for approval willbe negated because the result will be a v

independent USL and not the combination originally soug

The discussion supra of our disagreement with the co

sions of the Chief Administrative Law Judge lays that a

ment to rest It suffices to say at this point that as de

strated by the entire foregoing elucidation of our reaso

there is ample basis in law and fact for our ultimate co

sions

Before proceeding to a discussion of the conditions to ou

proval several additional issues raised by the parties wa

comment

Both Hearing Counsel and AEIL raise ajurisdictional q

tion claiming in substance that the proposed conditions w

result in Sea Land ceasing to be a party to the agreement 

consequently the agreement would no longer be one betw

common carriers by water and subject to Commission scru

The proponents correctly point out that the merger a

ment provides that if the charter agreement is disappro

the merger agreement continues in full force and effe

Both Sea Land and USL are parties to these agreements 

481 See note A7 supra for the textofArtiele 6 3 ofthe proposed merger agreement

16 F M
16 F MC

MERGER AGREEMENT U S LINES INC 235

fact that the charter is not approved here does not impair the

obligations and duties under the merger agreement 9827 1 of

Sea Land and DSL who under the common control of

Reynolds willbe indispensable parties tothe res ofthe merger

agreement which is approved but modified and subject to con

ditions imposed by us

Further whether or not Sea Land is technically a party to

the agreement is not relevant As we have already noted with

respect to the supplemental agreement AS3 the fact that

Reynolds and or Kidde may be the only apparent parties does

not preclude us from either looking beyond the signature and

determining the true parties in interest or from finding

Reynolds and or Kidde to be persons subject to our jurisdiction

in view of their immersion in shipping matters

Seatrain raises a question about the participation in the

substantive issues by Commissioner Day The contention re

volves around his position that the Commission lacks jurisdic

tion over the agreements under consideration however the

Commission has initially voted 41 on this issue and we are not

cited to any legal support which would bar Commissioner Day

from then proceeding to participate in proper conclusions on

the merits The Commission has a responsibility to reach for

clear cut conclusions on all matters that are brought before it

for adjudication and guidance

Whatever an individual s view may be on jurisdiction he

may well contribute to the effort of his colleagues to resolve

the paradoxes and dilemmas which are the everyday fare of

the judicial process

The jury in thiscase has labored long and arduously and it

has reached despite awide variety of differences a majority

opinion that offers a solution in keeping with logic and respon

sibility Certainly this is far more to be desired in the service of

justice through law than would be aninsoluble impasse among

the members of the Commission

Certain unions AS4 responded to our Order in the same vein

as opponents NMDASS submitted conditions for our

consideration AS6 SID AS7 filed a motion for leave to intervene

AII3See supra at pp 216221

A84 International Longshoremen s Association AFL CIO National Marine Engineers Beneficial As

sociation AFL CIO and International Organization of Masters Mates and Pilots AFL CIO

AIU NationalMaritime Union ofAmerica AFL CIO

A86Their proposed conditions are

1 It is further ordered that USL will continue to recogni2eNMU 8S the exclusive bargaining rep

resentative forthe unlicensedpersonnel employed aboard its vessels includingany replacements oraddi

tions thereto subject to any appropriate rulings by the NLRB orcourts of appropriate jurisdiction

2 It isfurtherordered that USLwill continue to operateits vessels under theterms and conditions of

the collective bargaining agreement now in effect between NMU and USL and at the expiration of said
236 FEDERAL MARITIME COMMISSION

I

they werea party to the charter proceeding arguing tha

Commission lacks jurisdiction to impose provisions dea

with labor relations NMU attacked the motion of SIU on 

basis that it fails to demonstrate a substantial interest a

untimely Some of the positions raised by the labor inter

were covered in the initial decision A88 and were similar tot

posed by opponents in response to our Order or are unne

sary for resolution in this proceeding

As to those conditionsA88 proposed by NMU the first 

seek to insure the continued status of that union as the co

tive bargaining representative for USLs unlicensed sea

Although proponents have no objection to them both are 

ject to any appropriate rulings by the NLRB or courts o

propriate jurisdiction We think that these proposed c

tions are unnecessary since jurisdiction over these partic

matters would primarily rest with the NLRB or the co

The third condition proposed would preclude any USL v

from being transferred sold or chartered to Sea Land 

have adequately covered such a contingency in the condi

required for approval The fourth proposed condition si

invites issues of conflicting jurisdictional problems betw

the NLRB and the Commission In any event proponents 

stated to us it has been and is our position that th

quisition should have no adverse impact on NUM or any o

union In view of the arguments raised we hold that it i

necessary to impose any restrictive conditions affecting 

unions It is our opinion that union leadership and the 

and file merchant marine are eminently in a better pos

with an existing USL viable and active as an employer 

contributor to union sponsored retirement and other u

welfare funds or activities

In summary we have fashioned in our conditions pr

limitations upon the future intercorporate relations

among Reynolds USL and Sea Land while reserving 

jurisdiction to provide a continuing surveillance over the

collective barreintn alrfeement upon receipt ofproper notice USL wUl bar in with NMU with 

to term and condition of aubllquent colleetlve bareainln reementa subject to appropriate 

by the NLRB orcourt ofappropriate jurisdiction

3 In no event hallany USL VUIe be tran terred sold orchartered to Sea Land

4 It i8 furtherordered that In the event alub equentdetermination ofthe NLRB orcourtof 

riate jurisdiction hold that NMU i not entitled to be lawfully recornized as the exclusive ba

repreBentative tor the licensed eamen employed aboard USL vellel thi matter willrever

Commillion for the purpouof adoptina appropriate protective proviaiona which will prevent e

harm to the affected eamen and theirpenaion fund

AlfSealarera International Union of North America Atlantic Gulf Lakea and Inland Watera 

AIIlnitial Deciaion pp 160162 IUprG

AllSee note AB6 IUpt tl

16 F M
MERGER AGREEMENT U S LINES INC 237

erational and other activities In addition to those reasons

stated in our Order of June 7 1972 we are recognizing the

dramatic effects of the new technologies in ocean shipping By

our imposition of restrictive conditions we are offering an as

surance that USL will be maintained as a competitive inde

pendent steamship company with financial support Itwillfree

tJSL from the Kidde influence which has not shown aninterest

or desire to advance the economic assistance necessary to be

nefit USL or show an effort to actively participate in our

waterborne commerce

Ifopponents aim is to perpetuate a financially distressed

competitor we find and conclude such is not in the public in

terest If opponents aim is to achieve a dismemberment of

USL as a viable competitor we find an conclude such aim is not

in the public interest Ifopponents aim is to prevent aconsoli

dation of the operations of Sea Land and USL into amassive

single operation we agree with that aim and have adopted

conditions and restrictions which will effectively prevent that

result Ifopponents are sincere in their statements that they

welcome competition from a financially healthy and indepen

dent USL then we have lffectively assured that desired result

3 THE CONDITIONS TO BE IMPOSED

After reviewing the submissions by the parties to our prop

osed conditions we will approve the acquisition by RJI as a

presently wholly owned subsidiary of R J Reynolds Indus

tries of all ofthe outstanding common stock of USL subject to

the following conditions

I The Stock of USL transferred to RJI is to be held by RJI

to insure the independence of USL

A There shall be no substitution for RJI as the owner of

USL stock without FMC approval Reynolds RJI shall not sell

pledge or in any way encumber the USL stock

B The corporate ownership among Reynolds RJI and USL

shall be irrevocable except as may be ordered by the FMC

C This approval shall be subject to constant surveillance

and to review by the Commission at least every 5 years with

records and reports remaining confidential

D Reynolds RJI acknowledge that the FMC can and may

require them to divest themselves of USL stock upon order of

the FMC for breach of any condition herein and agree to com

ply with any such order of divestiture

E Reynolds RJI shall not sell or otherwise dispose of or

16 F MC
238 FEDERAL MARITIME COMMISSION

encumber by lien mortgage or otherwise the assets of 

except upon approval of the FMC

F No scheme or device may be adopted by USL RJ

Reynolds which would result in the distribution or dissipa

of the assets or revenues of U8L except that reasonable 

dividends on USL stock may be paid but in no event to ex

net operating profits of USL for the prior corporate fiscal y

based upon sound accounting principles and after adeq

provision for debt servicing

II All expenses debts and financing of USL operations 

isting at the time of the consummation of this transac

shall be assumed by Reynolds and Reynolds in the spi

presentation made in this proceeding will assist USL in fu

financing

A No loans or advances of funds by Reynolds to US

RJI for the benefit of USL may be secured by the existing 

sets or future revenues of USL or by USL voting stock or 

dence of voting interest in USL and USL shall notify the 

of any inter company loans and the terms thereof

III USL is to be operated as an independent carrier i

respects in competition with Sea Land Upon the adoptio

USL and orSea Land of any alteration in their competitiv

lationship the FMC on its own motion or on petition 

party or person having an interest may institute a procee

to determine whether such alteration is consistent with 

terms and conditions herein

A McLean Industries and Sea Land shall not have 

employees officers or directors in common with RJI a

USL except with respect to public members of the Boar

Directors

1 One director of USL and one director of Sea Land 

be a public member persons experienced in maritime t

portation and corporate finance who shall be appointed b

Chief Judge of the U S Court of Appeals for the Distr

Columbia or another independent source to be selected b

FMC These directors shall also be members of the Exec

Committees of the Boards of Directors and shall report to 

FMC as to any and all competitive service decisions an

otherwise may be required by the FMC

B USL and Sea Land shall establish and maintain 

rate bids and tariffs for the carriage of military or othe

ited States Government controlled 01 generated cargo

C USL shall be a member in its own name in confere

16 F 
MERGER AGREEMENT U S LINES INC 239

pools and otheragreements approved by theFMC or hereafter

filed for approval except as otherwise authorized by the FMC

D USL and Sea Land may not have common soliciting or

general agents attorneys or accountants except to the extent

authorized by the FMC

E USL and Sea Land shall not share in any pool percen

tages except as authorized by the FMC

F USL and Sea Land shall not enter into any ship sale

ship charter space charter equipment interchange trans

shipment or any similar type of arrangement or any type of

service rationalization arrangement with each other without

FMC approval

IV USL RJI Reynolds Sea Land and McLean Industries

shall submit to the FMC in form as prescribed by the FMC

semiannual reports verified by the president and the treasurer

orsecretary of such corporations with respect to the adherence

to all the conditions contained herein

A The FMC shall have access at all times to all records of

USL RJI Reynolds Sea Land and McLean Industries with

respect to the maintenance of these conditions particularly

but not limited to Condition IIIB

V Any party or any person having an interest in the sub

ject matter may at any time petition the FMC for modification

of any ofthese conditions and jurisdiction shall be retained by

the FMC to amend modify or cancel these conditions in part

or in whole pursuant to such petition or on the Commission s

own motion after notice and hearing when required

VI As used in these conditions Reynolds unless other

wise identified Ileans R J Reynolds Industries Inc Sea

Land Reynolds Tobacco Reynolds Industries McLean Indus

tries RJI and USL mean those companies so identified pro

vided that common employees among these companies shall

not be prevented except as provided in Condition IIIA No

subsidiary parent successor or other organizations or corpo

rations similarly or otherwise affiliated with Sea Land

Reynolds Tobacco Reynolds Industries McLean Industries

RJI and USL shall be used orshall take anyaction to obstruct

prevent or otherwise impair the requirements of these condi

tions

VII Reynolds undertakes to place all eight SL7s under

United States documentation as rapidly as the vessels are de

livered With the exception of the eight SL7s and with the ex

ception of other vessels now owned by Reynolds or Sea Land

16 F MC
240 FEDERAL MARITIME COMMISSION

already built or converted outside the United States and 

documented under the laws of the United States Un

States Lines and Sea Land shall operate only vessels b

andor converted in the United States documented under 

laws of the United States and manned by American cr

provided that existing operations of foreign flag vessels 

be continued but not beyond a period of two years from d

Further provided subject to Federal Maritime Commis

approval Sea Land and United States Lines shall not be 

cluded from using foreign flag vessels for feedership orlike 

erations under circumstances where because of the econo

of the situation or the laws of other countries the use of 

foreign flag vessels is required

For the most part these conditions speak for themselve

some respects however they require amplification

Condition III as originally proposed to the parties was 

USL is to be operated by RJI as an independent carrier i

respects in full competition with Sea Land

Proponents consider that amplification of the words 

competition is necessary

AgO

We thinkthe opponents correctly view some of the ampl

tions posed by proponents as a reservation on their part t

cide when competition between Sea Land and USL is w

ful duplication Under these views proponent can conceiv

reach into activities contrary to the very concept of ou

proval and their independent action would affect the ver

AIO To this end they construe thole words to include

1 Full competition means giving USL the full ability to compete in every way

2 Fullcompetition does not nec8ss1rily mean ship forship ortype ofship for type of ship on 

everyservice that Sea Land operates

S USL would not be required orprohibited from instituting anewservicejust because Sea L

already in that particular service assuming of course the institution was consistent withgood 

judgment for example Sea Land now serves Alaska USL does not and full competition doe

quire USL to serve Alaska However if it is conceived that the Judgment of USL Alaska p

attractive market albeit in competition with Sea Land USL would not be prohibited from in

such aservice simply because Sea Land was servin that area also

4 Full competition does not meanwasteful duplification merely to maintain competition

6 Full competition wiu be consistent with revenuepooUng agreements and conferences

6 If aserviceis available which neither carrier now servesand two carriers canserve th

present no problem if both desire the service If however it is patently obvious that the r

support only one carrier a

bUliness judgment willbe necessary conlidering all factors if both 

seek the same route Otherwise wasteful and perhaps suicidal competition could result contra

best interest of the commerce of the United States

7 Where both carriers lerve the sameTrade Route it will not be necelsary for each carrie

each and every port

8 This clause does not lock either company at the prelent timeinto anyparticular service

Thekey to Buccess and the advantage of operating without subsidy is nexibility It has been ag

no routes now lerved by the carrier will 10le service as aresult ofthe acquisition

9 Full competition will not be deemed to prevent elimination ofwasteful duplification of se

effort that canbe approved under condition III D

16 F M 
MERGER AGREEMENT U S IJNES INC 241

sence of our decision to require that USL be maintained as a

viable and independent entity

As is made clear in our previous discussion ofthe merits and

in the specific conditions we are approving a modified agree

ment which is subject to the continuing scrutiny of the Com

mission This may seem to be a statement of the obvious in

view of our statutory obligations under section 15 In view

however of the contentions of opponents as to our basic juris

diction we repeat here what we set forth more fully supra

Not only do we have jurisdiction over the proposed agreement

but regardless of the definition of our jurisdiction over mer

gers we are approving an agreement herein which is of a con

tinuing nature and clearly within at least the conceded scope

of section 15

Consequently we intend to exercise as a condition of our

approval surveillance to insure that USL is to be operated as

an independent carrier in all respects in its competition with

Sea Land A91

Accordingly we do not adopt any amplifications of competi

tion as construed by proponents We are reserving to our dis

cretion all decisions upon the adoption of any alteration

in the competitive relations with of course notice and op

portunity for all parties to be heard

As to the matter of notice and hearing some parties raised

questions as to its applicability with respect to certain of the

conditions Itshould be fully understood thatwhereever an ac

tion by the Commission is contemplated by the conditions we

will act pursuant to the notice and hearing requirement as re

quired by law Authorizations by the FMC required in any of

the conditions will not be unreasonably withheld provided

only that they do not unreasonably impair the intent or effect

of this acquisition

Our failure to address ourselves to any particular comment

in response to our Order of June 7 is neither an agreement

with nor disapproval of such comment as it may seek to amp

lify or interpret the conditions we have adopted

Finally we have carefully weighed all of the positions of the

many parties to these proceedings and consider it unneces

sary to repeat the extensive findings and conclusions of the

Chief Administrative Law Judge We find in the main that

those differences are primarily only judgment factors Our

principal difference of course is that we would permit the ac

Ail We havefurther provided in condition III AIthat the public members to be appointed report to us

any and all competitive service decisions supra at p

238

16 F MC
242 FEDERAL MARITIME COMMISSION

quisition but only with the restrictive conditions imposed 

nature of this departure makes it unnecessary to point 

tenceby sentence to differences in our decision which ma

in conflict with some findings or conclusions contained in 

initial decision In addition we find it equally unnecessar

repeat the many detailed arguments contained in the num

ous pleadings we have considered in reaching our deci

many of which are reptitious and covered in the initial d

sion Upon careful examination of the record and the b

and argument of counsel we conclude that the Chief Adm

trative Law Judge sdisposition of those issues is Well foun

and proper

Again we depart from his ultimate conclusion only to 

extent that on the basis of the record we have modified 

reement No 9827 1 and as modified given it our appr

conditioned upon proponents evidence of acceptance withi

days

Accordingly except as noted herein we adopt the Chief 

ministrative LawJudge s initial decision as our own and m

it a part hereof This decision is not a major federal ac

significantly affecting the quality of the human environm

within the meaning of the National Environmental Policy 

of 1969

DISSENTING AND CONCURRING OPINION OF CH

MAN HELEN DELICH BENTLEY AND COMMISSIO

ASHTON C BARRETT

The majority would approve the merger but only upon 

imposition of conditions which in their view are designe

enable USL to remain a viable and independent company 

doing so the majority ignores the lengthy record befor

misapplies the governing principles of the applicable law 

ultimately proffers a solution that is at best exceedingly 

practical and at worst totally unworkable Based upon a 

tively few questions posed during the course of the hea

the majority have thrust aside acarefully compiled record 

decided to approve a stock acquisition by Reynolds w

leaves it as the parent of two presumably independent 

competing subsidiaries a probable first in the real

mergers

It is unnecessary to burden our discussion here with u

length since we agree with virtually all of the findings o

Chief Administrative Law Judge and commend him for hi

tient and painstaking sifting of the facts in this case

1d 1ft 
MERGER AGREEMENT U S LINES INC 243

Carefully considered the record amply demonstrates that

the Chief Administrative Law Judge correctly concluded that

the proposed merger should not be approved He tested the

proposal in light of FMC v Svenska Amerika Linien 390 U S

238 1966 A92 and ultimately found that most of the results

claimed as justification for the proposal are in reality for the

benefit of Sea Land alone See p 190

These very same considerations were summarily ignored by

the majority Indeed in an easy quick way they put these cru

cial considerations to one side A93 The majority puts out of

sight as it were what is basic to a disposition of this case

namely the required public benefits transportation need

and or valid regulatory purposes needed for justification for

the proposed merger What emerges in their decision is the

completely unwarranted expansion of a concept that ofmak

ing USL a separate and viable company under Reynolds into a

vehicle used to justify their actions The very way in which the

concept entered the case by way of a suggestion by coun

sel at oral argumentA94 is enough to characterize it as an af

terthought by proponents of the merger Without further in

vestigation to determine the impact of the suggestion upon the

public interest the majority has seized this bootstrap in an

attempt to squeeze an overly large foot into a very small shoe

While the lack of record support alone is sufficient ground to

reject the majority s decision a few observations on the

majority s reasons for their action will seem to place in proper

perspective the magnitude of their error

The majority is convinced although without supportive find

ings that USL is in financial distress and requires financial

backing which in its view can only be supplied by Reynolds

But the fact is that USL is a very efficient and respected

operator who enjoys a strong following of shippers and impor

ters The record clearly establishes that USL is second to

none competitively with sufficient resources and management

92

In thatcase the Court upheld the Commission s

requirement thatconference restraints which inter

fere with the policies of antitrust laws be approved only if the conferencecan bring forth such facts as

would demonstrate that the restraint is required by aserious transportation fleed or in order to se

cure important public benefits All parties to the merger proceeding herein agreed that the

Commission s testapplied See p 174

ArI As the majority puts it It isapparent therefore that although we generally acceptthe findings of

fact in the initial decision we view some in an entirely different perspective See p 214

AH

As counsel for the proponents put it this Commission should come out wnh aruling in the

future which would allow Reynolds to acquire U S Lines and would require Reynolds to continue to

operate U S Lines as aviable company in its existingservice as acompetitive company with Sea Land

as an equal subidiary with Sea Land then Reynolds would agree to accept this condition Transcript

Oral Argument pp 223224 This statement was the subject of motions to strike which were like so

many other parts ofthe record apparently ignored by the majority

16 F M C
I

I

1

244 FEDERAL MARITIME COMMISSION

capability to deal with peaks and valleys of temporary c

shortages If USL were in true financial straits banks w

not have carried out negotiations for mortgage refinan

programs if they were not convinced that USL was a via

company with a prosperous future The conversion from 

breakbulk to full container operator in less than three ye

the creation of the finest full containerships presently ope

ing the initiation of the first tri continental or seabridge 

vice linking Europe the United States and the Far Eas

indicate that USL has sufficient resources and managem

skills to extricate itself from its present or future short t

cash shortages

The majority decision is devoted chiefly to the task of 

laining why it will not decide any of the substantive iss

raised by this case and consists mainly of the extended rep

tion of the proposition that affords the real motivation 

their approval ie Kidde wants to rid itself of USL 

e

g pp 221 223 225 231 237 The majority has seized u

the Chief Administrative Law Judge s statement that Ki

wants to rid itself of the child because the returns of the la

do not satisfy the financial requirements of the parent A95 

cannot agree to decide this case let alone reach the major

unsupported alternative solution on any such slim ground 

Moreover in our view the majority s alternative solu

goes too far The majority say Consequently there is 

doubt that USL must either stand on its own receive finan

support from another source or be dismembered See p 

emphasis ours So far as this record is concerned USL 

maintains a

healthy competitive position and its so ca

dismemberment can readily be prevented by the disapprova

the supplemental agreement alone That agreement as fo

by the Chief Administrative Law Judge is primarily for 

benefit of Kidde and Reynolds not for the benefit ofthe p

lic See p191 The majority disapproved that agreement 

it should have stopped there

Furthermore the majority as grounds for approval are c

cerned over the protection of U S flags from the inten

competition offered for commercial liner cargo by the forei

flag interests operating in the forms of consortia mergers 

other types of corporate combinations See p 233 Ifthis is 

A

See p 186

AIM As late as December 1970 Kidde was claiming that it could not and would not make any fu

Joans to USL orguarantee theobligations ofthat line However since then Kidde has made advan

9 million to USL

16 F M
MERGER AGREEMENT U S UNES INC 245

real concern the obvious answer would be the unconditional

approval of the merger which would have placed the USL fleet

at the disposal of Reynolds and Sea Land thereby creating a

single entity for use against foreign competition The majority

instead seems far more concerned with the preservation of

competition between U S flag lines a course which does not

quite square with its preoccupation with foreign flag competi

tion Be that as it may the Chief Administrative Law Judge

found that even if the proposed merger were approved and

Sea Land were provided the added strength of USUs fleet the

resulting combination would not have any appreciable effect

on the foreign flag containership competition which finding

affords yet another instance ofthe majority s ability to ignore

or distort salient portions of the record in this case The

majority s ultimate conclusion that Consequently we cannot

concede our ocean trade to foreign flag interests by eliminat

ing factors of international competition from our consideration

under section 15 of what is best for the competitive well being

of the American merchant marine is somewhat suspect See

p

233 We simply cannot see how the competitive well being of

the American merchant marine viz a viz its foreign flag com

petition can be preserved by having both Sea Land and USL

operating as separate entities competing with each other

The majority also seem to think they can ensure the sur

vival of USL by placing it under the financial umbrella of

Reynolds This type ofreasoning can only charitably be termed

as naive There is neither positive evidence of record nor any

commitment by Reynolds that it will provide the capital re

quirement for acquisition by USL of new ships additional con

tainers or new terminal facilities We can only wonder how

much financial aid and comfort any parent can be expected to

expend to finance internecine warfare within its own family It

blinks reality to argue that Reynolds as owner of 100 percent

of the stock of both lines would encourage either one to com

petitively seek cargo from the other

Even were the majority s alternative solutions desirable the

conditions which the majority feel are necessary to its adop

tion pose insurmountable administrative difficulties How can

this Commission with its limited staff not only police the day

to day activities of the companies involved but also authorize

the innumerable dealings with common soliciting or general

agents attorneys or accountants See condition III D p

237

Whatclearly emerges from a careful review ofthese conditions

16 F M C
246 FEDERAL MARITIME COMMISSION

is that the majority is trying to convert this Commission int

bureaucracy for the operation of a steamship line Neit

Congress nor the Courts have ever sanctioned such an ext

sion of our current statutory authority In view of the deg

of surveillance required by the conditions of the major

it is simply not enough to provide for public directors for U

and Sea Land to act as watchdogs over the day to day op

ations of the companies involved This is particularly t

when we consider the ChiefAdministrative Law Judge s s

ous misgivings over the practicability of devising effec

policing measures when he was considering the far less co

plex situation of USL merely stripped of its containersh

See p185 The already noted lack ofstaff and the myriad pr

lems posed by the alternative solution of the majority wo

when more realistically appraisedleave the Commission ph

cally unable to cope with the inevitable steps toward coope

tive operation between Sea Land and USL In sheer numb

alone the foreseeable mass of decisions on future coopera

matters would preclude active protest by interested parties 

careful analysis and surveillance by the Commission

While we share the majority s enthusiasm in striving to 

plement progressive regulation as spelled out in Disposit

o Container Marine Lines 11 F MC 476 1968 See p

211 

cannot let our enthusiasm for progress lead us into amisap

cation of the statutes we administer Much more is at st

than a tariff filing here Since we view as inevitable the u

mate cooperation between USL and Sea Land there is a 

of gigantic proportions here As each aspect of a self contai

USL operation is relinquished in favor ofjoint operations w

Sea Land the propsect of restoring USL to an independ

status disappears the loser being notonly USL but the pu

as well

F1lrthermore there is no indication that disapproval of 

merger would have a pernicious effect on the American m

chant marine The Chief Administrative Law Judge fo

that On the contrary it would simply allow the Americ

flag containership operators to remain in a healthy comp

tive s ate See p 189

Like the majority we too are committed to the concep

preserving competition Competition has fostered the 

velopment by USL of the second largest containership flee

the world The stimulus of competition led USL to becomin

pioneer in establishing the intermodal processes which cha

16 F M
MERGER AGREEMENT U S LINES INC 247

terize today s shipping community and it is because we simply

cannot argue that the alternative solution of the majority will

insure the continuance of that competition that we would dis

approve the merger

To summarize our discussion aclose study ofthe record fails

to lend any support to the action by the majority The pro

nouncements contained in the Svenska case supra have been

ignored by the majority who have fashioned an approval ofthe

proposed merger agreement with conditions that are neither

workable justified by the record or supported by realistic ap

plication

We would disapprove the proposed merger on the basis ofthe

findings and conclusions contained in the Chief Administrative

Law Judge s initial decision

We concur in the decision of the majority that we have juris

diction over the agreements under consideration and would

disapprove the supplemental agreement

SEAL 8 FRANCIS C HURNEY

Secretary

16 F MC
248 FEDERAL MARITIME COMMISSION

FEDERAL MARITIME COMMISSION

DOCKET No 69 56

AGREEMENT No 9827 BETWEEN UNITED StA TES LINES 

AND SEA LAND SERVICE INC AND WALTER KIDDE 

INC AND R J REYNOLDS TOBACCO CO GUARANTORS

DOCKET No 7051

AGREEMENT OF MERGER No 9827 1 AMONG R J REYNO

TOBACCO COMPANY RJI CORPORATION SEA LAND SERV

INC AND WALTER KIDDE COMPANY INC UNITED STA

LINES INC

ORDER

As Amended March 22 1973

This proceeding having been instituted by the Fed

Maritime Commission and the Commission having fully 

sidered the matter and having this date made and entere

record a Report containing its findings and conclus

thereon which Report is hereby referred to and made a 

hereof the Commission has found that Agreement No 982

as modified in the Report is not unjustly discriminatory o

fair as between carriers shippers exporters importers p

or between exporters from the United States and their for

competitors nor detrimental to the commerce of the Un

States contrary to the public interest or violative of the S

ping Act 1916 if the conditions set forth in the Report are 

Therefore it is ordered That Agreement No 9827 1 as 

ified in this Report and subject to the conditions conta

therein is approved that proponents of the approval of 

reement No 9827 1 granted herein need not refile the Ag

ment with the modifications and conditions in conformity 

our Report unless further ordered to do so

16 F M
MERGER AGREEMENT U S LINES INC 249

By the Commission

It is further ordered That the promissory note described in

the Report is found subject to section 15 of the Shipping Act

1916 and is approved

It is further ordered That the supplemental agreement de

scribed in the Report is found subject to section 15 of the Ship

ping Act 1916 but is disapproved

By the Commission

SEAL S FRANCIS C HURNEY

Secretary

16 F MC
FEDERAL MARITIME COMMISSION

Washington D C

SPECIAL DOCKET No 446

COMMODITY CREDIT CORP

1

HELLENIC LINES LIMITED

NonCE OF ADOPTION OF INITIAL DECISION AND

ORDER PERMITTING WAIVER OF CHARGES

leb iUary 9 1973

No exceptions having been taken tvthe initial decision of the pr

ing judge in thIS proceeding and the Commission having determ

not toreview same notice is hereby given that the initial decisio

came the decision of the Commission on February 9 1973

It i8 ordered That applicant is authorized to waive collectio

25 626 50 of the charges previously assessed Commodity Credit 

poration

Itis further ordered That applicant shall publish promptly 

appropriate tariff the followingnotice

Notice is hereby given as required by the decision in Sp

Docket No 446 that effective June 22 1972 the rate on 

in Bajls to Banjlladesh for purposes of refund or waive

freight charges on any shipments which may have been sh

during the period from June 22 1972 through August 11 19

68 00 w plus 15 surcharge subject to all applicable rules 

lations terms and conditions of said rate and this tariff

Itis further ordered That waiver of the charge shall be effect

within 30 days of service ofthis notice and applicant shall within 

days thereafter notify the Commission of the date and mann

effectuating the waiver

By the Commission

SEAL FRANOIS C HURNEY

I
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 446

COMMODITY CREDIT CORP

V

HELLENIC LINES LIMITED

Respondent is permitted to waive 25 626 50 in freightcharges

INITIAL DECISION OF ASHBROOK P BRYANT

ADMINISTRATIVE LAW JUDGE 1

This is an application by respondent under Public Law 90 298 90th

Congo Section 18 a 3 Shipping Act 1916 for permission to waive

collection of 25 626 50 freight charges for transportation ofthe cargo

referred to below

On June 22 1972 complainant shipped rice in bags totalling

1 122 589 lbs from Lake Charles Louisiana to Chittagong Chalna

Bangladesh Consignee UNROD United Nations Relief Operations

Dacca Bangladesh via respondent s steamship M S Hellenic Pionee1

Aggregate freight charges of 39 190 38 were actually collected by re

spondent on September 1 1972 as per bill of lading No 1 issued on

June 22 1972 at New Orleans Louisiana Freight was assessed and

paid on the basis 68 00 w plus 15 surcharge The rate applicable at

the time of shipment for cargo N O S was 90 00 w m plus 15 sur

charge aceonling to IIellpnic Lincs Atlantie Gulf India Pakistan

Ceylon Burma Freight Tariff FMe No 28 The difference is ac

counted for by the fact that due to inadvertency the appropriate tariff

had not been filed An amended tariff pstablishing the lower rate was

filed 22nd Rev page 29 U S Atlantic Gulf India Pakistan

Ceylon Burma Tariff FMC No 28 effective August 11 1972 Due

to an overload oftraffic vacations and insufficient personnel this matter

had been turned over toaclerk who delayed in following through as

instructed in filing withthe FMC As soon as the errorbecame evident

steps weretaken to rectify the mistake and the revision of the tariff

wasduly filed Application for waiver was filed with the Commission

within 180 days from the date ofshipment

1

This decision became the decision of the Commisston Februarv 9 1973
252 COMMODITY CREDIT CORP V HELLENlC LINES LIMITED

Section 18 b 3 of the Shipping Act 1916 as amended by P

Law 90 298 referred toabove provides that the Commission m

its discretion and for good cause shown permit a common carr

water in foreign commerce or a conference of such carriers to 

a portion of freight charges collected where itappears that there 

error in a tariff of a clerical or administrative nature and that 

refund Willllot result in discrimination among shippers The ap

tion herein discloses facts and circumstances which fall withi

purview and intent of the statute Having complied with the re

ments ofthe statute and good cause appearing applicant is perm

to waivecollection of the Sum of 26626 50 The notice required b

statute shall be published in the appropriate tariff and waiver 

be made within 30 days of such notice Within five days there

applicant shall notify the Commission of the date of the waive

the mannerin which it wasmade

W shington DC

JANUARY 17 1978

AsHB1U O P BRYANT

Admini8trative LOIW Jud

11l1 
16 F M C

253

FEDERAL MARITIME COMMISSION

WASHINGTON D C

SPECIAL DOCKET No 447

COMMODITY CREDIT CORP

v

HELLENIC LINES LIMITED

NOTICE OF ADOPTION OF INITIAL DECISION

AND ORDER PERMITTING WAIVER OF CHARGES

February 9 1973

No exceptions having been taken to the initial decision of the

presiding judge in this proceeding and the Commission having

determined not to review same notice is hereby given that the

initial decision became the decision of the Commission on

February 9 1973

It is ordered That applicant is authorized to waive collection

of 523 80 of the charges previously assessed Commodity Credit

Corporation

It is further ordered That applicant shall publish promptly

in its appropriate tariff the following notice

Notice is hereby given as required by the decision in

Special Docket 447 that effective May 5 1972 the rate on

soybean salad oil in cases to Calcutta for purposes of

refund or waiver of freight charges on any shipments which

may have been shipped during the period from May 5 1972

through September 15 1972 is 62 00 W including sur

charge subject to all applicable rules regulations terms

and conditions of said rate and this tariff

It is further ordered that waiver of the charge shall be

effectuated within 30 days of service of this notice and ap

plicant shall within five days thereafter notify the Commission

of the date and manner of effectuating the waiver

By the Commission

SEAL

S FRANCIS C HURNEY

Secretary
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 447

COMMODITY CREDIT CORP

V

HELLENIC LINES LIMITED

Respondent is permitted to waive the sum of 623 80 freight charge

INITIAL DECISION OF ASHBROOK P BRYANT

ADMINISTRATIVE LAw JUDGE 1

This is an application under Public Law 90 298 90th 

gress Sec 18 a 3 Shipping Act 1916for permissio

waive the sum of 523 80 as part of freight for transport

of the cargo referred to below

On May 5 1972 complainant shipped 64 422 lbs of soy

salad oil in cases from New Orleans Louisiana to Calc

India via M S Hellenic Challenger on bills of lading Nos 3 

4 dated May 5 1972 Freight charges of 1 713 10 wer

sessed and actually collected on September 1 1972 on 

basis of 62 00 w including surcharge The applicable ra

time of shipment was 69 75 plus 15 percent surcharg

contained in Hellenic Lines U S Atlantic Gulf India Pak

Ceylon Burma Freight Tariff FMC No 28 Through 

vertency revised tariff rates had not been timely filed 

to overload of traffic vacations and insufficient personnel 

matter was turned over to a clerk who delayed in follo

through as instructed in filing tariff revision with the F 

As soon as the error was discovered steps were immed

taken to rectify the error 25th Revised page 28 effective 

11 1972 Application for waiver was made after the filing 

been made and within 120 days of the shipment as req

by the statute

Section 18 b 3 of the Shipping Act 1916 as amende

Public Law 90 298 referred to above provides that the 

mission may in its discretion and for good cause shown p

1

This decisIon became the decision of the Commission February 9 1978

254

16 F 
COMMODITY CREDIT CORPORATION V HELLENIC LINES LTD 255

a common carrier by water in foreign commerce or a con

ference of such carriers to waive a portion of freight charges

collected where it appears that there is an error in a tariff

of a clerical or administrative nature and that such refund

will not result in discrimination among shippers The applica

tion discloses a set of facts and circumstances which fall

within the purview and intent of the statute Having complied

with the requirements of the statute and good cause appearing

applicant is permitted to waive collection from complainant

523 80 freight charges The notice required by the statute

shall be published in the appropriate tariff and refund shall

be made within 30 days of such notice Within five days there

after applicant shall notify the Commission of the date of the

waiver and the manner in which waiver has been made

S ASHBROOK P BRYANT

Administrative Law Judge

Washington D C

JANUARY 17 1973

16 F MC
FEDERAL MARITIME COMMISSION

DOCKET No 71 15

HARRY KAUFMAN D B A INTERNATIONAL SHIPPERS CO

OF NY INDEPENDENT OCEAN FREIGHT FORWARDER

LICENSE No 35 AND FORWARDING ACTIVITIES OF

IRVING BETHElL AND STEPHEN M BETHElL

DOCKET No 71 47

INDEPENDENT OCEAN FREIGHT FORWARDER LICENSE

ApPLICATION SUPREME SHIPPERS INC

ADOPTION OF INITIAL DECISION

February 9 1973

BY THE COMMISSION Helen Delich Bentley Chairman 

ton C Barrett and James V Day Commissioners

The proceeding in Docket No 71 15 was instituted 

Commission issued Order of Investigation and Hearing 

February 18 1971 to determine whether freight forwa

license No 35 issued to Harry Kaufman d b a Internat

Shippers Co of New York International should be rev

on the grounds that the licensee 1 had failed to notify 

Commission of a change in ownership and had transferred 

license without prior approval by the Commission 2 

permitted Irving and or Stephen M Betheil to use Int

tionals name and license and 3 had accepted employ

with Irving Betheil Betheil and permitted Betheil to 

trol and direct the business of International in violatio

General Order 4 46 CFR 510 5 c 510 8 d 510 23 a 

510 23 b after the freight forwarder rights and privil

256
FEDERAL MARITIME COMMISSION 257

of Betheil had been revoked It was further ordered that a

determination be made whether Betheil and or Stephen M

Betheil son of Irving in carrying on the business of for

warding after January 1 1969 without a license from the

Commission violated 46 CFR 510 3 a and section 44 of the

Shipping Act 1916 the Act 46 USC 481 b

On November 12 1970 Supreme Shippers Inc Supreme

applied for a license as an independent ocean freight for

warder The application shows that Stephen M Betheil is

Treasurer and 50 percent owner and Kaufman is Vice Presi

dent and Secretary and 50 percent owner of the corporation

and asks that FMC license No 35 be transferred from Harry

Kaufman d b a International Shippers Co of New York to

Supreme On May 3 1971 the Commission ordered pursuant

to sections 22 and 44 of the Act that a proceeding be in

stituted to determine whether the application of Supreme

should be denied Docket No 71 47 Inasmuch as the grounds

alleged for denial included several which were under investiga

tion in Docket No 71 15 the proceedings were consolidated

Also at issue was the question of whether Stephen M Betheil

furnished to the Commission s staff conflicting and misleading

documents and statements regarding the acquisition and opera

tion of the freight forwarder business of Kaufman by Stephen

M Betheil and or Irving Betheil and or Kaufman and the

establishment of Supreme

A hearing was held in New York on January 24 and 25

1972 presided over by Administrative Law Judge Ashbrook

P Bryant

In his Initial Decision served June 29 1972 the Administra

tive Law Judge found as follows

1 Harry Kaufman violated section 44 of the Act and section 510 23 a

of the Commission s Regulations General Order 4 by permitting and

assisting Irving Betheil to use Kaufman s license FMC License No 35 in

performing freight forwarding services

2 Harry Kaufman transferred his freight forwarder license to Irving

Betheil without the prior approval of the Commission in violation of section

44 of the Act and section 510 8 d of the Commission s Regulations General

Order 4

3 Harry Kaufman accepted employment to perform forwarding services

on export shipments as an associate and or employee of Irving Betheil after

Betheil s license as an independent ocean freight forwarder had been revoked

by the Commission in violation of General Order 4 510 23 b

4 Stephen M Betheil Treasurer and 50 percent stockholder of Supreme

Shippers Inc applicant herein has failed to demonstrate that h is a person

16 FM C
258 HARkY KAUFMAN INDEPENDENT OCEAN

It willing and able to properly carryon the business of freight forw

in that a he has knowingly assisted Irving Betheid and Harry Kau

in a course of conduct to enable Irving Betheil to engage in the busine

ocean freight forwarder without a license in violation of 46 CFR 510 

and section 44 of the Act and b that in the event the application 

proved he intends to associate Irving Betheil in the freight forwarder 

ness of Sup reme in violation of section 510 23 b of the Commission s 

and Regulations

5 Harry Kaufman Vice President Secretary and 50 percent stock

of Supreme for the reasons stated herein is found not to be fit willing 

able properly to carryon the business of freight forwarder

The Administrative Law Judge thus concluded that fre

forwarder license No 85 issued to Harry Kaufman d b a 

ternational Shippers of New York should be revoked and 

application of Supreme for a freight forwarder license sh

be denied

With regard to the question of whether Stephen M Be

furnished to the Commission s staff conflicting and mislea

documents and statements regarding the acquisition and o

tion of the freight forwarder business of Kaufman by Ste

M Betheil and or Irving Betheil and or Kaufman and 

garding the establishment of Supreme the Administrative 

Judge concluded that there was not sufficient evidence 

which to base a finding of deliberate and willful misreprese

tion by Stephen M Betheil to the Commission s staff 

further stated that it appeared that Stephen M Betheil 

not a principal in International but that his role seemed 

clearly to have been that of a subordinate or employee a

under his father s direction

Respondents excepted to the Administrative Law Judge s 

ing of fact that Irving Betheil s application for an ocean fre

forwarder s license under the name of International Ame

Forwarding Corporation IAFC was denied and the gr

father rights of S C Forwarding Corporation S C 

which Irving Betheil was formerly President and sole s

holder were revoked inasmuch as Rule 18 f a of the 

mission s Rules of Practice and Procedure 46 CFR 502 226 

requires that official notice may not be taken of a material 

not appearing in the record unless the fact of official n

is stated in the decision and opportunity is allowed the pa

to show the contrary

Respondents further contended that there was no evid

th tSupreme had ever operated as an ocean freight forwa

16 F 
EDERAL MARITIME COMMISSION 259

Respondents excepted to the Administrative Law Judge s

findings that Stephen Betheil knowingly assisted his father

and Kaufman in a course of conduct that enabled his father

to engage in the business of forwarding without a license

Finally Respondents denied that Harry Kaufman permitted

his license to be used by Irving Betheil transferred his license

to Irving Betheil without prior Commission approval and ac

cepted employment to perform forwarding services as an

associate and or employee of Irving Betheil after the latter s

license had been revoked

Hearing Counsel sreply acknowledged that the Administra

tive Law Judge s third finding of fact wherein he quoted from

a letter written in 1964 by which the Commission notified

Irving Betheil of its intent to deny his application for a freight

forwarder s license and revoke the grandfather rights of his

wholly owned forwarding company was entered without the

Administrative Law Judge s

taking official notice thereof as

required by Rule 13 f a of the Commission s Rules of Prac

tice and Procedure 46 CFR 502 226 a Hearing Counsel

contended that the Administrative Law Judge s third finding

of fact and the first sentence of the fourth finding of fact 1

should be stricken and that a finding of fact which reflects

the admissions of Respondents in their Answer to Request for

Admissions dated November 29 1971 be substituted This

substituted finding would reflect the fact that Irving Betheils

wholly owned and half owned corporations had had respec

1

The Administrative Law Judge in his Initial Decision 266 stated

3 On April 28 1964 the Commission revoked the grandfather rights of S C and denied

the ocean freight forwarder application of Betheil in connection with IAFC On May

13 1964 Betheil was informed that the grounds for the Commisison s action were

1 you knowingly and wilfully made false statements on your application for an

independent ocean freight forwarder license in violation of 18 US C 1001

2

you knowingly and wilfully carried on the business of ocean freight forwarding

on the basis of falsely obtained grandfather rights during the period August 1962 through

December 1962 in violation of Section 44 a Shipping Act 1916 46 US C 841 b

Betheil was advised that unless within twenty days he requested opportunity to show at a

hearing that denial of the application and the revocation of the grandfather rights is

unwarranted such denial and revocation would be finfl1

4 Betheil did not request a hearing and on June 9 1964 he was notified that the

application of IAFC was denied and the grandfather operating rights of S C were

revoked

11 On June 9 1964 the grandfather rights of SC Forwarding Corp FMB Registration

No 1414 were revoked and the ocean freight forwarder application of International Amercian

Forwarding Corp was denied Irving BetheiJ was President and sole stockholder of SC

Forwarding Corp at the time its grandfather rights were revoked He was also President

and 50 percent owner of International American Forwarding Corp and managed its daily

operations at the time ita license application was denied

16 F M C
260 HARRY KAUFMAN INDEPENDENT OCEAN

tively grandfather rights revoked and license application 

nied on June 9 1964

Inasmuch as the Administrative Law Judge did not find 

Supreme had operated as an ocean freight forwarder Hea

Counsel argued in reply that Respondents exceptions b

upon this contention were unfounded

Further Hearing Counsel contended that the Administra

Law Judge correctly found that Stephen Betheil asss

Irving Betheil and Harry Kaufman in a course of con

that would enable Irving Betheil to continue in the forward

business after Irving Betheil s license had been revoked

Finally Hearing Counsel submitted that the Administra

Law Judge correctly found that Harry Kaufman perm

his license to be used by Irving Betheil transferred his lic

to Irving Betheil without prior Commission approval 

accepted employment to perform forwarding services as 

associate and or employee of Irving Betheil after Beth

license had been revoked

With regard to the first exception based upon Rule 13 f 

of the Commission s Rules of Practice and Procedure we 

clude that the Administrative Law Judge erred in inclu

in his findings of fact matters not of record and of w

he had failed to properly take official notice We there

serve official notice upon Respondents that we adopt 

substituted finding the following

On June 9 1964 the grandfather rigthts of S C Forwarding Corp 

Registration No 1414 were revoked and the ocean freight forwa

Application of Internaticnal American Forwarding Ccrp IAFC 

denied on the grounds that Irving Betheil 1 knowingly and wi

made false statements on the application of IAFC for an indepe

ocean freight forwarder s license in violation of 18 U S C 1001 and 

knowingly and willfully carried on the business of ocean freight 

warding on the basis of falsely obtained grandfather rights during the 

August 1962 through December 1962 in violation of Section 44 a Sh

Act 1916 46 U S C 841 b Irving Betheil was President and sole 

holder of S C Forwaiding COl p at the time its grandfather rights 

revoked He was also President and 50 percent owner of Interna

American Forwarding Corp and managed its daily operations at the tim

license application was denied

Respondents shall be afforded thirty 30 days to show 

contrary

Upon review of the remaining exceptions we conclude 

they are but a restatement of the contentions already adva

16 FM
FEDERAL MARITIME COMMISSION 261

before the Administrative Law Judge and that his findings and

conclusions on these contentions were proper and well founded

Accordingly we adopt the Initial Decision a copy of which

is attached to and made a part hereof revised to the extent

of inclusion of the substituted finding of fact set forth in

the preceding paragraph

We would also include the following proviso with respect

to the application of Supreme Shippers Inc for an independent

ocean freight forwarder license that being that Supreme be

allowed to reapply for a license at such time as the defects

leading to this denial are cured

Vice Chairman George H Hearn concurring and dissenting

with whom Commissioner Clarence Morse joins

I dissent from that portion of the majority report which

adopts the Administrative Law Judge s conclusion that the

application of Supreme Shippers Inc be denied Supreme s

application for a freight forwarder license should be granted

now upon certain conditions

The majority report finds defects in the application which

require denial At the same time however the majority an

nounces that it will entertain a renewed application when

those defects are cured I cannot see how the applicant would

be in any better position upon such reapplication than he could

be if the application were granted now upon condition that

the defects be cured within a specified time Furthermore

it is now more than two years since Supreme filed its applica

tion and the applicant has thus been compelled to suffer a

delay sufficient to serve the purpose the majority seems to

pursue in its action

In addition it appears that the only reason for finding

Stephen M Betheil unqualified to hold a license is that he

would permit his father Irving Betheil to continue in the

freight forwarding business The Administrative Law Judge

concluded that Stephen s role seems quite clearly to have been

that of a subordinate or employee acting under his father s

direction Initial Decision at 275 Consequently the majority

decision is finding Stephen M Betheil guilty by association

16 F MC
262 HARRY KAUFMAN INDEPENDENT OCEAN

There is no reason why that association cannot be disso

forthwith thus curing the defects in Supreme s applica

and rendering it approvable upon that event To now d

the application and require that it be filed anew will re

in a redundant exercise of regulatory activity

S FRANCIS C HURNEY

SEAL Secreta

I

I

16 F 
263

FEDERAL MARITIME COMMISSION

DOCKET No 71 15

HARRY KAUFMAN D B A INTERNATIONAL SHIPPERS CO

OF N Y INDEPENDENT OCEAN FREIGHT FORWARDER

LICENSE No 35 AND FORWARDING ACTIVITIES OF

IRVING BETHElL AND STEPHEN M BETHElL

DOCKET No 71 47

INDEPENDENT OCEAN FREIGHT FORWARDER LICENSE

ApPLICATION SUPREME SHIPPERS INC

ORDER

The Commission having fully considered the above matters

and having this date made and entered of record a Report con

taining its conclusions and decision thereon which Report is

hereby referred to and made a part hereof

It is Qrdered That independent ocean freight forwarder Li

cense No 35 issued to Harry Kaufman d b a International

Shippers of New York is hereby revoked pursuant to section

44 Shipping Act 1916 effective 30 days from the service date

of this order during which time respondent is directed to ter

minate his current business obligations but shall not be author

ized to solicit or accept any new business and

It is further ordered That the application for license of Su

preme Shippers Inc is hereby denied pursuant to section 44

Shipping Act 1916

By the Commission

SEAL

S FRANCIS C HURNEY

Secretary

16 F MC
FEDERAL MARITIME COMMISSION

No 71 15

HARRY KAUFMAN D D A INTERNATIONAL SHIPPERS CO

OF N Y INDEPENDENT OCEAN FREIGHT FORWARDER

LICEN sE No 85 AND FORWARDING ACTIVITIES OF

IRVING BETHElL AND STEPHEN M BETHElL

No 7147

INDEPENDENT OCEAN FREIGHT FORWARDER LICENSE

ApPLICATION SUPREME SHIPPERS INC

Supreme Shippers Inc found not to be fit willing and able to ca

the business of freight forwarding The ocean freight forw

license of Harry Kaufman d b a International Shippers Co o

should be revoked because 1 he permitted the use of his lice

another person 2 he transferred his license to another person w

Commission approval and 8 he performed independent ocean f

forwarder services as an associate and or employee of another 

whose license as ocean freight forwarder had been revoked b

Commission

Maurice A M Edki88 for respondents

C Dauglas8 Miller and Dcmald J Brunner as Hearing Co

INITIAL DECISION OF ASHBROOK P BRYANT

PRESIDING EXAMINER 1

On February 18 1971 the Commission served an ord

investigation and hearing pursuant to sections 22 and 

the Shipping Act 1916 the Act to determine whether fr

forwarder license No 85 issued to Harry Kaufman d b 

1

This decision beeame the decision of the Commission February 9 1973

264

16 F
FEDERAL MARITIMJ COMMISSION 265

ternational Shippers Co of N Y International should be

revoked on the ground that the licensee 1 had failed to

notify the Commission of a change in ownership and had

transferred the license without prior approval by the Commis

sion 2 had permitted Irving and or Stephen M Betheil

to use Internationals name and license 3 that the licensee

had accepted employment with Irving Betheil Betheil and

permitted Betheil to control and direct the business of Inter

national after the freight forwarder rights and privileges of

Betheil had been revoked in violation of General Order 4

46 CFR 510 5 c 510 8 d 510 23 a and 510 23 b It

was further ordered that a determination be made whether

Betheil and or Stephen M Betheil son of Irving in carrying

on the business of forwarding after January 1 1969 without

a license from the Commission violated 46 CFR 510 3 a and

section 44 of the Act 46 USCA 841 b

On November 12 1970 Supreme Shippers Inc Supreme

the stock of which is owned in equal shares by Harry Kaufman

Kaufman and Stephen M Betheil applied for a license as an

independent ocean freight forwarder The application shows

that Stephen M Betheil is Treasurer and Kaufman is Vice

President and Secretary of the corporation and asks that FMC

license No 35 be transferred from Harry Kaufman d b a In

tenational Shippers Co of N Y to Supreme On May 3 1971

the Commission ordered pursuant to sections 22 and 44 of the

Act that a proceeding be instituted to determine whether the

application of Supreme should be denied Docket No 71 47

As the grounds alleged for denial included several which were

under investigation in No 71 15 the proceedings were con

solidated Another facet of No 71 47 concerns the question of

whether Stephen M Betheil furnished to the Commission s

staff conflicting and misleading documents and statements re

garding the acquisition and operation of the freight forwarder

business of Kaufman by Stephen M Betheil and or Betheil

and or Kaufman and the establishment of Supreme

THE FACTS

1 When treasurer and 25 percent owner of the outstanding

stock of Arista Shipping Co Inc Betheil with others were

arrested in 1956 and charged in the U S District Court

Southern District of New York with violation of the Bills of

Lading Act 49 USC 81 124 When arraigned Betheil pleaded

16 F MC
266 HARRY KAUFMAN INDEPENDENT OCEAN

guilty to conspiracy and on April 14 1959 a sentence 

year and a day against him was suspended

2 At or about the above time Betheil was president 

sole stockholder of S C Forwarding Corp S C a 

warder operating with grandfather rights of the Fe

Maritime Board the Commission s predecessor He form

second corporation International American Forwarding 

poration IAFC and applied for a license as an indepen

ocean freight forwarder in that name He was President 

ager and 50 percent owner of IAFC and his wife Sylvia 

Vice President Secretary and 50 percent owner Sylvia n

took an active part in the day to day management of the 

pany s affairs

3 On April 28 1964 the Commission revoked the g

father rights of SC and denied the ocean freight forwa

application of Betheil in connection with IAFC On May 

1964 Betheil was informed that the grounds for the 

mission s action were

1 you knowingly and wilfully made false statements on your appl

fOr an independent ocean freight forwarder license in violation Of 18 

1001 2 yau knOwigly and wilfully carried an the business Of Ocean f

farwarding On the basis Of falsely Obtained grandfather rights duri

periad Augu st 1962 thraugh December 1962 in vialatian Of Secti On 

Shipping Act 1916 46 D S C 841 b

Betheil was advised that unless within twenty days h

quested opportunity to show at a hearing that denial o

application and the revocation of the grandfather righ

unwarranted such denial and revocation would be fina

4 Betheil did not request a hearing and on June 9 

he was notified that the application of IAFC was denied 

the grandfather operating rights of S C were revoked 

June 9 1964 Betheil has not applied for nor held an 

freight forwarder license issued by the Commission

5 During the latter part of 1968 Betheil was hire

Kaufman Kaufman had operated International for abou

years when he became 65 years of age and he wanted to r

On January I 1969 he entered into a contract to se

business to Betheil Jacob S Schulman an attorney who 

previously represented Betheil drew the contract of sale 

man did not employ an attorney to represent him but 

on Schulman The contract in effect transferred respons

for the operation of the forwarding business to Betheil 

was to hold Kaufman harmless for any debts or obliga

16 F 
FEDERAL MARITIME COMMISSION 267

of the business arising out of any transaction after January

1 1969 All income after that date was to belong to BetheiI

who was to pay all debts incurred after that date The con

tract did not provide for the transfer of the license Kaufman

agreed however to cooperate in its transfer to the buyer

by the Commission The transfer was not guaranteed by Kauf

man There was no provision which would delay application

for transfer of the license until the purchase price had been

paid The agreement provided that the buyer might assign

it to a corporation already formed or to be formed in which

event the buyer will deliver to his attorney all the stock

certificates in the said corporation to be by him held in escrow

until the said purchase price is fully paid

6 The first contract dated January 1 1969 shows the

purchase price of Kaufman s business to be 25 000 00 4 500 00

paid in January 1969 4500 to be paid before January 1970

10 000 00 in weekly installments of 200 00 and 6 000 00

in 20 monthly installments of 300 00 It makes no mention

of employment of Kaufman by Betheil and does not speak of

salary The 50 weekly installments of 200 each are clearly

stated as part of the purchase price The second contract which

bears the same date shows the purchase price as 15 000 00

and provides for a weekly salary to Kaufman of 200 00 for

one year

7 The first contract was supplied by Betheil to the

Commission s staff at the outset of the investigation In this

proceeding respondents denied that this first contract ex

pressed the whole agreement The second contract which

was identified by respondents as containing the entire agree

ment among other things contained the following provision

3 The Buyer hereby hires the Seller and the Seller agrees to work for the

Buyer for one year from the date hereof at a weekly salary of 200 00 The

said seller will advise the Buyer as to operating the business herewith sold

and will assist him in every way Said Seller will devote his full time and

attention to the operation of the business herewith sold and will not while

employed by said buyer work anywheres sic else After April 1st 1969

either party to this contract may elect to terminate the said employment

Said cancellation shall be in writing addressed to the other party and shall

be sent by registered or certified mail return receipt requested Upon said

cancellation there shall be no further obligation on the part of the Seller to

work for said Buyer or for said Buyer to employ said seller

8 As of the date of the staff s investigation Betheil had

not paid the entire purchase price but the accounts indicated

16 F M C
268 HARRY KAUFMAN INDEPENDENT OCEAN

that initially in January 1969 4 600 00 was paid and 

sequently there were some other payments Kaufman 

received the 200 00 weekly payments as salary in additio

some monthly payments of 300 00 Betheil occasionally w

drew money for personal items such as clothing and autom

expenses

9 In April 1970 Kaufman told the Commission s staf

response to inquiry as to who was running his business 

he had entered into an agreement with Betheil to sell 

business About the same time Betheil told the same 

representative that as of January I 1969 he Betheil 

the owner of the business The staff representative tes

that during a three week period in April 1970 he visited 

offices of Supreme about eight or nine times On each occa

Betheil was in charge The representative testified that

When Ifirst went in I contacted Harry Kaufman There was an 

in the front or on my right as I went in and in the back was a des

Harry had There was another desk immediately outside the Office 

Stephen Bethell worked on it and a

young lady whom I believe is L

Alonzo

Irving was the one who would answer the telephone when it rang 

give the instructions to these people who were working in the Office

Mr Kaufman was in the back and yOu very seldom heard from him 

fact after my initial contact on Aprll 15 I no longer dealt with him 

always Irving Any Oe that came in always dealt with Irving Bethe

that give sic you the impression that this was Mr Bethell s ope

that he ran it

10 Betheil brought approximately 23 clients with him 

he became associated with International In April 1970 I

national had a total of 53 clients including those broug

by Betheil Betheil told the Commission s

investigator th

the year prior to April 1970 the company handled 

thousand shipments approximately and that he himself 

dled about 1 300 Betheil determined how the work wou

apportioned among those employed in the office assigning 

commercial accounts to his son Stephen and the GSA 

counts to Lillian Alonzo a woman in his employ Be

would prepare shipping documents when he had time from 

other activities in managing the business A typical ship

involved preparing the bill of lading presenting the in

to the customer for freight forwarding charges and prep

the shipper s export declaration

16 F 
FEDERAL MARITIME COMMISSION

11 Kaufman entered into a contract with General Services

Administration GSA on July I 1969 to perform freight

forwarding services As the holder of the license from the

Commission Kaufman signed the contract as required by GSA

But the agreement was negotiated by Betheil Stanley Wamil

of GSA was in charge of making arrangements with Interna

tional for processing shipments under the agreement Although

Miss Alonzo normally handled GSA shipments Wamil dealt

with Betheil when he had any problems under this agreement

12 As previously mentioned Stephen M Betheil is the son

of Irving Betheil and had from time to time been employed by

International He had recently graduated from business school

On July 24 1970 the Commission received an application for

an ocean freight forwarder s license in the name of Stephen

M Betheil d b a International Shippers Co of N Y in which

it was stated in answer to Item 11

We are buying a

going business The name is International Shippers Co

of NY FMC 35 120 Liberty Street New York NY 10006

In response to a request by the Commission s staff Stephen M

Betheil wrote on August 17 1970

I am purchasing from Mr Harry Kaufman a

foreign freight forwarding

business known as International Shippers of NY Mr Kaufman operated

under FMC No 35

I have very recently attempted to incorporate the above mentioned finn

Due to a name conflict I have been unable to do so Thus please be advised

that the ocean freight forwarding license I seek should be applied for under

the name of Supreme Shippers Inc This corporation of which I am presi

dent was incorporated in 1969 under the laws of the state of New York

and will assume the business of International Shippers

13 An agreement dated October 9 1970 recites that Kauf

man had agreed to sell International to Irving Betheil for 15

000 00 payable in installments and that title to said business

would remain with Kaufman until full payment of the purchase

price Under this agreement Kaufman acknowledged receipt of

the full purchase price and stipulated that title to the freight

forwarder business would transfer to Supreme one day after

the Federal Maritime Commission transfers to said corpora

tion the Independent Forwarders License lATA License

35 heretofore held by said Harry Kaufman or issues another

license to said Supreme Shippers Inc whichever is sooner

There is no specific provision in either of the two contracts of

January 1 1969 that title to the business would remain with

16 F MC

269
270 HARRY KAUFMAN INDlllPlllNDENT OCEAN

I

Kaufman until the full purchase price was paid How

each contract does provide that in the event the contra

assigned to a corporation already formed or to be form

the buyer Betheil will deliver to his attorney all the 

certificates in said corporation to be by him held in es

until the entire purchase price is fully paid This is the 

mention in either the first or second contract of an es

arrangement the stock certificates do not appear to have 

delivered to the attorney

14 At the staff s request Stephen Betheil met with the

November 12 1970 to further explain the arrangements 

that time he filed a new application in the name of Supr

The officers and directors shown on the application were S

Betheil President Harry Kaufman Vice President and 50 

cent stockholder and Stephen M Betheil Treasurer an

percent stockholder The articles of incorporation of Supr

attached to the application showed that they were filed 

the State of New York on February 18 1969 The minute

the first meeting of the board of directors of Supreme r

that it was formed to purchase International s freight forw

ing business They also reflect that Betheil assigned the 

ness to Stephen Betheil on February 18 1969 and he in 

assigned it to Supreme on the same day The written as

ment from Irving to Stephen is dated February 18 1969 

the assignment from Stephen to Supreme is dated Februar

1970 Stephen stated that the written assignment from 

father to him had not been executed on February 18 1969 

had only recently been written down to confirm a prior 

agreement No explanation was made by respondents a

Kaufman s 50 percent stock interest in Supreme

15 Stephen told the staff that he was running the bus

but that he would need his father s advice and participatio

the business for an indeterminate time if and when the 

mission approved the transfer of license No 85

16 Neither Kaufman Irving Betheil nor Stephen Be

notified the Commission of any transfer of the business 

cense between January 1 1969 and July 22 1970

17 The agreement of January 1 1969 appears to have 

effect at the date of execution Irving Betheil stated to 

Commission s investigator that the reason he had not no

the Commission of the contract and his purchase of the 

ness was because title had not passed He said the pa

16 FM
FEDERAL MARITIME COMMISSION 271

regarding the transfer were being held in escrow by attorney

Jacob Schulman until the entire purchase price was paid Schul

man was asked during the investigation in the spring of 1970

to identify the papers which he was holding He replied that

he had only a copy of the contract and made no reference to

stock being held in escrow However at the hearing Schulman

testified that he advised Betheil and Kaufman that the trans

action could not be completed until the full purchase price was

paid and that he agreed to act as a sort of escrow agent first

to hold the papers until the consideration had been paid and

if the corporation was formed to hold the stock of the cor

poration until the consideration was paid Schulman believes

that later he formed the corporation and held the stock in

escrow

DISCUSSION AND CONCLUSIONS

Section 44 of the Act imposes the duty on the Commission

to see that access to the profession of freight forwarding is

limited to those licensees who are found to be fit willing and

able to conduct their business in accordance with high stand

ards of conduct Independent Freight Forwarder Application

Guy G Sorrentino Docket No 71 48 15 FMG 127 March 3

1972 See also section 44 of the Act It is crucial to his fit

ness that it appear that the applicant intends to and will in

good faith adhere to such high standard of conduct and that

he intends to and will obey the Commission s rules and policies

for the conduct of licensed freight forwarders In Dixie For

wardi lJ Co Inc Application for License 8 F MC 109 1964

the Commission said at page 118

The insiness integrity of one who occupies the position of freight for

warder ahould be above reproach and he should clearly demonstrate a com

plete awreness of and a willingness to accept the responsibilities that the

preferred position imposes the philosophy of section 44 is such that the

shipping public should be entitled to rely upon the responsibility and in

tegrity as weIl as the technical ability of a freight forwarder

The record in this case does not provide the necessary basis

for an implied assertion to the public and the shipping com

munity that the Commission has examined the applicant s con

duct and found applicant fully competent and qualified to act

in a forwarding capacity

A freight forwarder s license may be revoked if the Commis

sion finds that because of a change of circumstances he no

16 F M C
272 HARRY KAUFMAN INDEPENDENT OCEAN

longer is qualified or that his conduct has rendered him 

to carry on the business of freight forwarding A license 

be revoked for willful failure to comply with any provisio

the Act or any rule or regulation promulgated by the Com

sion thereunder The record herein establishes that H

Kaufman is no longer fit willing and able properly to c

on the business of freight forwarder

As stated earlier since June 9 1964 when his license 

revoked Betheil has not applied for or obtained a fre

forwarder license However since at least January 1 196

has been actively engaged in ocean freight forwarding u

the name of International Shippers Co of N Y the trade n

of Harry Kaufman His formal relationship with Kaufma

not entirely clear but there appears to be little doubt 

Betheil has for all practical purposes been the controlling 

son of International and has conducted and directed that 

ness as if it were his own He has made use of Kaufm

license with Kaufman s knowledge assistance and coopera

Respondents seek to explain and justify Betheil s manage

and control of International as those of a general manage

that Kaufman retained title to and control of the business 

the full purchase price was paid This is of course inconsi

with the claim that Kaufman became Betheil s employee T

is substantial doubt that either was the case Kaufman s s

in the business seems to have been purely formal

As above stated in April 1970 the Commission s repres

tive interviewed both Kaufman and Betheil in detail as to 

ownership control and operation of International He wa

told by either Kaufman or Betheil then or at any other 

during the approximately eight visits he made to the 

pany s offices over a three week period that Kaufman wa

employee of Betheil To the contrary Betheil told him 

International was his business that he owned it that he 

purchased the business from Kaufman he produced the 

contract dated January 1 1969 No mention was made o

arrangement between Kaufman and Betheil other than th

seller and buyer as described in the first contract unt

response to Hearing Counselsrequest for admissions in 

cember 1971 Betheil provided a

copy of the so called s

contract Be that as it may the real situation appears to 

been that Kaufman s connection with the business after 

ary 1 1969 was a pure formality presumably to enable B

16 F 
FEDERAL MARITIME COMMISSION 273

to conduct an ocean freight forwarder business on the strength

of Kaufman s license

That such was the case is further indicated by the fact that

under the first contract as well as the second Kaufman was

relieved of responsibility for the debts of the business incurred

after January 1 1969 and was not to participate in the profits

subsequent to that date Betheil directed the day to day opera

tions of the business during all of the period involved herein

subsequent to January 1 1969 he managed the office made ar

rangements with prospective shippers solicited accounts and

generally carried on business relationships He brought a

substantial number of his shipper clients into the business di

rected operations and policy and apportioned the work in the

manner heretofore mentioned Betheil performed the executive

duties usually associated with proprietorship and management

Kaufman was present in the office until he had a heart attack

but the record does not disclose that he performed any function

in connection with the business other than to sign a freight

forwarder agreement with GSA on which International had

been the successful bidder Kaufman acted because GSA re

quired a licensed freight forwarder to sign Except for this

one occasion which was the only contract of its kind entered

inot by International since January 1969 the record does not

disclose that Kaufman did more than sit in the back of the

office

In neither contract did Kaufman guarantee the transfer of

his license to BetheiI He did agree to cooperate in the

transfer of the license to Betheil or his nominee and to sign

all documents and consents required by Betheil to expedite

the transfer Kaufman considered his customers his greatest

property right in the business but he was aware that with

out the license you can toperate the freight forwarding busi

ness Kaufman testified that his understanding was that he

would not turn over the business to Betheil until payment had

been completed There is nothing in either written agreement

however to bear this out or to indicate that ownership of

the business did not pass at the time of execution of the con

tract on January 1 1969 except possibly the provision that

in the event the contract was transferred to a corporation its

stock would be placed in escrow until the purchase price was

fully paid This provision however would appear merely to

have been a means of securing the debt owing to Kaufman

16 F MC
274 HARRY KAUFMAN INDEPENDENT OCEAN

and did not impinge or confine Betheil s activities as an oc

freight forwarder Indeed such arrangement would appea

be entirely cosnistent with the assumption of operational 

directional control and responsibility of International s b

ness by Betheil

At the time of his testimony on January 25 1972 Kaufm

had been paid the full purchase price and the only condit

of the transaction which is lacking is the transfer of 

license by the Commission If the Commission does not app

the transfer of the license Kaufman does not know what w

happen to the freight forwarder business which he sold 

Betheil Either he Kaufman would have to take it 

or it is abandoned or something In any event however 

would not repay the purchase price to Betheil It is appa

that in order to effectuate the agreement under considera

and to operate the business as contemplated by the cont

Betheil required a freight forwarder license which he did 

have and presumably could not get Betheil regularly d

money from the firm s account for his personal expenses 

paid Kaufman 200 00 per week from the company s mo

Whether the 200 00 weekly payments are considered to 

installments on the purchase price of the business under 

first contract or as salary for services rendered as 

ployee as described in the second contract there can be 

doubt that the business on or about January 1 1969 was tr

ferred from Kaufman to Betheil and that the business op

tions were carried on under License No 85 issued to H

Kaufman d b a International Shippers Co of N Y with K

mans knowledge cooperation and consent The arrangem

was not disclosed to the Commission and constituted a tran

of the license to Betheil without prior consent of the C

mission

Stephen Betheil s role in the freight forwarding busines

International was to assist his father He was attending 

lege during much of the time covered by the inquiry he

he was present in the office during this period on a part 

basis at least some of the time and he actively particip

in the freight forwarder business being conducted and m

aged by his father As above indicated when asked by 

Commission s staff for an explanation of his purchase of 

ternational he simply said that he was purchasing the g

business of Harry Kaufman operated under FMC License 

16 FM
FEDERAL MARITIME COMMISSION

35 He added that he had tried to incorporate but had en

countered a name conflict He said that he would apply in

Supreme s name and would assume International s business

Stephen M Betheil does not appear to have been a principal

and the extent of his competence to take managerial control

of the business cannot be resolved on the basis of the record

herein However it appears that Irving Betheil if the ap

plication were granted would continue to exercise a predominant

influence in the business Stephen made it clear that he will

employ his father and it may be assumed indeed it is con

templated that for a substantial period Irving Betheil will

continue in his present role as chief executive officer and real

party in interest in the business No adequate explanation was

made by respondents to account for the lapse of a year be

tween the assignment of the contract of sale from Irving to

Stephen and the assignment from Stephen to Supreme But

the close relationship between the parties and their intent to

continue that relationship indicates the real nature of the

transactions here involved Their principal objective appears

to be to enable Irving Betheil to continue in the freight for

warding business

There is not sufficient evidence upon which to base a finding

of deliberate and willful misrepresentation by Stephen M

Betheil to the Commission s staff As above indicated it ap

pears that he was not a principal in International His role

seems quite clearly to have been that of a subordinate or

employee acting under his father s direction

SUMMARY

Harry Kaufman Stephen M Betheil and Irving Betheil have

engaged in a course of conduct the object and result of which

was to enable Irving Betheil to engage in the freight forwarder

business without a license In particular 1 the ocean freight

forwarder license No FMC 35 issued to Harry Kaufman d b a

International Shippers Co of N Y in practical effect was trans

ferred with the knowledge cooperation and consent of the

licensee to Betheil and or his nominee without the knowledge

or prior approval of the Commission 2 Kaufman permitted

his license to be used by Betheil a person not employed by

him 3 Kaufman associated Betheil with himself in an ocean

freight forwarder business conducted under a Commission li

16 F MC

275
216 HARRY KAUFMAN INDEPENDENT OCEAN

cense after the license of Betheil as ocean freight forwa

had been revoked 4 Stephen Betheil acted in concert w

his father Irving Betheil and Kaufman to enable Irving Be

to conduct and to continue to conduct an ocean freight 

warder business without a license as required by section 44 

the Act and Commission General Order 4 and 5 if an oc

freight forwarder license is granted to Supreme Stephen Be

intends to employ his father in the business

ULTIMATE CONCLUSIONS

1 Harry Kaufman violated section 44 of the Act and 

tion 510 23 a of the Commission s Regulations General O

4 by permitting and assisting Irving Betheil to use Kaufm

license FMC License No 35 in performing freight forw

ing services

2 Harry Kaufman transferred his freight forwarder lic

to Irving Betheil without the prior approval of the Commiss

in violation of section 44 of the Act and section 510 8 d of 

Commission s Regulations General Order 4

3 Harry Kaufman accepted employment to perform 

warding services on export shipments as an associate an

employee of Irving Betheil after Betheil s license as an 

dependent ocean freight forwarder had been revoked by 

Commission in violation of General Order 4 510 28 b

4 Stephen M Betheil treasurer and 50 percent stockho

of Supreme Shippers Inc applicant herein has failed 

demonstrate that he is a person fit willing and able to prop

carryon the business of freight forwarder in that a he 

knowingly assisted Irving Betheil and Harry Kaufman i

course of conduct to enable Irving Betheil to engage in 

business of ocean freight forwarder without a license in v

tion of 46 CFR 510 8 a and section 44 of the Act and 

that in the event the application is approved he intends 

associate Irving Betheil in the freight forwarder business 

Supreme in violation of section 510 28 b of the Commiss

Rules and Regulations

5 Harry Kaufman Vice President Secretary and 50 

cent stockholder of Supreme for the reasons stated herei

found not to be fit willing and able properly to carryon 

business of freight forwarder

16 F M 
FEDERAL MARITIME COMMISSION 277

Freight forwarder license No 35 heretofore issued to Harry

Kaufman d b a International Shippers of N Y should be re

voked and the application of Supreme for a freight forwarder

license should be denied

S ASHBROOK P BRYANT

Presiding Examiner

Washington D C

JUNE 28 1972

16 F MC
FEDERAL MARITIME COMMISSION

WASHINGTON D C

SPECIAL DOCKET No 450

US DEPARTMENT OF AGRICULTURE

v

WATERMAN STEAMSHIP CORPORATION

NOTICE OF ADOPTION OF INITIAL DECISION AND

ORDER PERMITTING WAIVER OF CHARGES

February 23 1973

No exceptions having been taken to the initial decision 

this proceeding and the Commission having determined no

review same notice is hereby given that the initial dec

became the decision of the Commission on February 23 1

It is ordered That applicant is authorized to waive collec

of 78 983 77 of the charges previously assessed the U S 

partment of Agriculture

It i3 further ordered That applicant shall publish prom

in its appropriate tariff the following notice

Notice is hereby given as required by the decision of 

Federal Maritime Commission in Special Docket 450 

effective August 8 1972 for purposes of refund or wa

of freight charges on any shipments which may have 

shipped during the period from August 8 1972 thro

January 8 1973 the rate from Houston to Aqaba 

Bulgar Wheat in bags is 5115 W subject to 25 

charge plus 3 00 per ton bunker surcharge plus 31

currency surcharge and subject to all applicable r

regulations terms and conditions of said rates and 

tariff

It is further ordered That waiver of the charges sha

effectuated within 30 days of service of this notice and 

plicant shall within five days thereafter notify the Commis

of the date and manner of effectuating the waiver

By the Commission

SEAL

S FRANCIS C HURNEY

Secreta
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 450

US DEPARTMENT OF AGRICULTURE

v

WATERMAN STEAMSHIP CORPORATION

Respondent is pennitted to waive 78 983 77 in freight charges

INITIAL DECISION OF ASHBROOK P BRYANT

ADMINISTRATIVE LAW JUDGE 1

This is an application by respondent under Public Law 90

298 90th Congo Section 18 a 3 Shipping Act 1916 for

permission to waive collection of 78 983 77 freight charges for

transportation of the cargo described below

On August 8 1972 complainant shipped 14 332 pkgs of

Bulgar Wheat aggregate weight 721 976 lbs Est measurement

28 764 cu ft from Houston Texas to Aqaba Jordan consignor

Commodity Credit Corporation USDA consignee UNDP Resi

dent Representative via SS Noonday of Waterman Steamship

Corporation on B L No 3 dated August 8 1972

On May 30 1972 respondent booked the movement of the

cargo above described and agreed to establish a rate of 5115

w plus 25 percent surcharge plus bunker surcharge of 3 00

per ton and currency surcharge of 3VJ percent to be applied

to this shipment Through error respondent failed to file the

appropriate amendment to its tariff Waterman Steamship

Corporation Freight Tariff No 1SUS Atlantic and Gulf

Ports Red Sea Gulf of Suez Aqaba and Aden Base Ports It

is not until after billing had been submitted to the Department

of Agriculture for freight charges that the error was discovered

The only applicable tariff rate on the commodity in question

at the time this shipment moved was 106 50 W M for Cargo

N O S as published in said Tariff No FMC 18 plus surcharges

as above stated Respondent says the Cargo N O S rate is

unquestionably high for this carge

t This decision became the decision of the Commission February 23 1973
280 U S DEPT OF AGRI v WATERMAN STEAMSHIP CORP

Effective July 7 1972 through July 31 1972 a rate of 5

was established on flour from Houston to Aqaba Respond

intended to establish the same rate on Bulgar Wheat fr

Houston to Aqaba to cover the August 8 shipment here involv

On January 8 1973 Revised Page 119 of the said ta

was duly filed establishing the rate of 5115 On January 

1973 this application was made to the Commission to wa

collection of the difference between the rate of 5115 p

surcharge and the Cargo N O S rate of 106 50 W1M

Section 18 b 3 of the Shipping Act as amended by Pu

Law referred to above provides that the Commission may 

its discretion and for good cause shown permit a comm

carrier by water in foreign commerce or a conference of s

carriers to refund or waive a portion of the freight cha

where it appears that there is an error in the tariff of 

administrative or clerical nature or an error due to in

vertance in failing to file a new tariff and that such wa

or refund will not result in discrimination among shipp

The application herein discloses facts and circumstances wh

fall within the purview of and intent of the statute

Having complied with the requirements of the statute and g

cause appearing is permitted to waive collection of the 

of 78 983 77 The notice required by the statute shall 

published in the appropriate tariff and waivers shall be m

within 30 days of such notice Within five days therea

respondent shall notify the Commission of the date of 

waiver and the manner in which it was made

S ASHBROOK P BRYANT

Administrative Law Judg

Washington D C

JANUARY 81 1978

16 F M 
281

FEDERAL MARITIME COMMISSION

WASHINGTON D C

SPECIAL DOCKET No 451

US DEPARTMENT OF AGRICULTURE

V

WATERMAN STEAMSHIP CORPORATION

NOTICE OF ADOPTION OF INITIAL DECISION AND

ORDER PERMITTING WAIVER OF CHARGES

February 23 1973

No exceptions having been taken to the initial decision in

this proceeding and the Commission having determined not to

review same notice is hereby given that the initial decision

became the decision of the Commission on February 23 1973

It is ordered That applicant is authorized to waive collection

of 21 96141 of the charges previously assessed the U S De

partment of Agriculture

It is further ordered That applicant shall publish promptly

in its appropriate tariff the following notice

Notice is hereby given as required by the decision of

the Federal Maritime Commission in Special Docket 451

that effective September 8 1972 for purposes of refund

or waiver of freight charges on any shipments which may

have been shipped during the period from September 8

1972 through January 8 1973 the rate from New Orleans

La to Aqaba on Flour in bags is 5542 W subject to

25 surcharge and subject to all applicable rules regula

tions terms and conditions of said rates and this tariff

It is further ordered That waiver of the charges shall be

effectuated within 30 days of service of this notice and applicant

shall within five days thereafter notify the Commission of the

date and manner of effectuating the waiver

By the Commission

SEAL

S FRANCIS C HURNEY

Secretary
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 451

U S DEPARTMENT OF AGRICULTURE

11

WATERMAN STEAMSHIP CORPORATION

Respondent is permitted to waive 21 96141 freight charges

INITIAL DECISION OF ASHBROOK P BRYANT

ADMINISTRATIVE LAw JUDGE 1

This is an application by respondent under Public Law 

298 90 Congo Sec 18 a 3 Shipping Act 1916 for p

mission to waive collection of 21 961 41 freight charges 

transportation of the cargo described below

On September 8 1972 complainant shipped 4 000 bags 

flour aggregate weight 201 320 lbs estimated measurem

8 000 cu ft from New Orleans Louisiana to Aqaba Jord

consignee UNRWA c o Port Officer consignor Commodity Cre

Corporation U S D A via respondent s steamship SS Cit

Packer on B L No 4 issued by respondent dated Septem

8 1972

On July 24 1972 respondent booked the above shipment 

the understanding that the ocean freight rate would be 55 

per 2 240 lbs plus 25 percent surcharge Based on this 

derstanding and in good faith complainant moved the ca

to respondent s piers where it was loaded on the above ves

and transported to destination However through error 

spondent failed to establish the rate agreed upon with co

plainant Through inadvertance respondent failed to flle 

appropriate revision of its tariff Waterman Steamship C

poration No 18B However respondent billed freight at 

new agreed rate

It was not until after the billing had been made that it w

discovered that respondent had failed properly to amend 

tariff to provide for the rate of 5542 W plus surcharge T
U S DEPARTMENT OF AGRICULTURE 283

only applicable rate on the commodity in question at the time

of shipment due to respondent s error was the Cargo N O S

rate of 112 75 W1M as provided in Waterman Tariff 18A

FMC 69 which respondent states constitutes an unreasonable

rate for this movement

Respondent filed effective January 8 Item 4602 of its Freight

Tariff 10 B FMC 73 Page 119 an appropriate amendment to

its tariff establishing the rate agreed upon with complainant

The complaint was filed on January 26 1973

From August 9 1972 through September 13 1972 respondent

had in effect a rate of 5542 plus surcharge on flour from

Galveston to Aqaba and subsequently that rate was extended

to apply from Galveston Beaumont and Houston to Aqaba

It had been the intention of respondent to provide the same

rate from New Orleans but as above stated through inad

vertance this was not accomplished

Section 18 a 3 of the Shipping Act 1916 as amended by

Public Law 90 298 referred to above provides that the Com

mission may in its discretion and for good cause shown per

mit a common carrier by water in foreign commerce or a

conference of such carriers to waive a portion of freight

charges where it appears that there is an error in a tariff

of a clerical or administrative nature or an error due to in

advertance in failing to file a new tariff and that such refund

will not result in discrimination among shippers The com

plaint herein discloses facts and circumstances which fall

within the purview I1nd intent of the statute

Having complied with the requirements of the statute and

good cause appearing complainant is permitted to waive collec

tion of the sum of 21 961 41

The notice required by the statute shall be published in the

appropriate tariff and waiver shall be made within 30 days

of such notice Within five days thereafter respondent shall

notify the Commission of the manner in which it was made

S ASHBROOK P BRYANT

Administrative Law Judge

Washington D C

JANUARY 31 1973

16 FM C
FEDERAL MARITIME COMMISSION

DOCKET No 70 9

BOLTON MITCHELL INC INDEPENDENT

OCEAN FREIGHT FORWARDER LICENSE No 516

REPORT ON RECONSIDERATION

March 7 1979

BY THE COMMISSION George H Hearn Vice Chairman Ja

V Day and Clarence Morse Commissioners

On June 9 1972 the Commission issued its decision in 

proceeding and allowed respondent Bolton Mitchell 

BMI subject to certain conditions to retain its license a

independent ocean freight forwarder BMI was required 

cease and desist from certain activities and to submit a ti

report to the Commission setting forth the manner of 

pliance On July 28 1972 respondent filed a petition 

reconsideration urging inter alia that the Commission re

sider and reverse its findings that

1 BMI is not independent of shipper connections

2 BMI violated section 16 First of the Shipping Act 1916 by obt

transportation by water at less than the applicable rates

3 BMI violated various provisions of General Order 4 46 CFR 510

Alternatively respondent requested clarification of the rea

ing behind the Commission s conclusion that BMI was ship

connected Respondent urges that in reaching this conclu

the Commission in rejecting the testimony of BMls only 

ness Spencer gave no indication in the report that the C

mission had considered the written and sworn evidence 

exhibits corroborating of Spencer s testimony

On July 25 1972 Hearing Counsel also filed a petition 

reconsideration of the Commission decision in this case

Hearing Gounsels total argument simply stated is tha

Commission correctly determined thatBMI was guilty o

specifications as cited but erred in 1 concluding tha

284

16 F M
FEDERAL MARITIME COMMISSION 285

spondent acted in good faith on advice of counsel when it

violated the pertinent statutes and 2 allowing respondent

BMI to retain its license

The Commission granted both the petitions and directed the

filing of appropriate replies Respondent s request for further

oral argument was denied

The facts and applicable law in this case are set forth in

our prior report served June 9 1972 and will not be repeated

here The issues here are the same as were previously con

sidered and resolved by the Commission in that report They

are

1 Does BMIs conduct render it free from shipper connectians as required

by statute

2 Daes BMIs canduct merit retention Or revocation of its license as an

independent Ocean freight forwarder

3 Has respondent violated section 16 First of the Act by obtaining trans

partation by water at less than the applicable rates as a result of its

receiving campensation on its own shipments

4 Has respondent violated certain pOrtions of General Order 4 ta wit

Sec 510 5 e

failing ta shaw license number On invoices and shipping

dacuments

Sec 510 23 d imparting false infarmation ta its principals

Sec 510 23 e withhalding infarmatian as ta actual price Of mer

chandise

Sec 510 23 f

failing ta pramptly accaunt ta its principals

Sec 510 23 h filing false dOcuments

Sec 510 23 j

failing to use invaices which stated separately the actual

amaunt Of Ocean freight price Of merchandise and

Sec 510 9 c willfully making false statements in connectian with an

applicatian far a license Or its cantinuance in effect

In our opinion nothing has come to light upon reconsidera

tion of this case to materially alter the conclusions we reached

and the position we adopted in our previous report we still

find respondent in violation of all sections of the Shipping Act

1916 as previously determined and we also continue to be

constrained not to revoke respondent s license because we feel

that BMI has acted in good faith on advice of counsel in this

matter We do however order respondent to cease and desist

from the activities complained of and submit the proper report

as required in the order accompanying our report of June 9

1972

Accordingly we approve and adopt verbatim our report and

order of June 9 1972 15 FMC 248 and make it a part hereof

16 F MC
286 BOLTON MITCHELL INC

Helen Delich Bentley Chairman and Ashton C Barrett C

missioner dissenting

We dissent

The reconsideration of this case presented the Commis

with an unique opportunity to rectify an error in judgm

fraught with potential for future harm

We have here a freight forwarder who fails to even 

proach the statutory definition

We have no complaint with the majority s opinion as fa

it went but unfortunately it did not go far enough The 

jority found respondent guilty of nine separate violation

the Act yet they were somehow constrained not to take B

freight forwarder license It is with this conclusion we 

issue The facts in this case speak for themselves A 

mission investigator found respondent s books to indicate 

for the period reviewed fully 68 percent of BMls

total 

disbursements went for merchandise purchases tQtalling 

million dollars At the same time respondent s account led

showed that 66 percent of its total sales disbursements 

for merchandise an obvious buy sell business operation

In the various transactions surveyed in this case a s

of constants show up regularly The most unwholesome 

tice appearing regularly is the retention by respondent o

discount it received on the bulk purchases while invoicing 

full individual price to the consigneeand the record de

strates this without the consignee s positive knowledge 

acquiescence Another interesting practice is respond

charges for start up service which consisted of nothing 

than placing the order and processing same for the consi

Along with that charge respondent assessed his princip

finders fee and required payment for purchasing w

The only distinction between a start up charge and a fin

fee is that the latter was acceptable to Peruvian officials 

dollar exchange arrangements and allowed the foreign 

signees to obtain US dollars at a more favorable rat

exchange

Section 1 Shipping Act 1916 IJI ecUiea the criteria for independent ocean freig

warders as follows

An independent ocean freight forwarder Is a person carryIng on the business 

warding for a consideration who Is not a shipper or consignee or a seller or pu

of shipments to forelp countries nor has any beneficial interest therein nor 

or indirectly controls or is controlled by such shipper or consianee or by any 

bavlnsr such a bene1lcial intereat

16 F 
FEDERAL MARITIME COMMISSION 287

Interestingly the moneys paid and collected from the con

signees for the finders fee were redeposited in the con

signee s private account or refunded under the table thus

effectively assisting the consignee to possibly violate Interna

tional Currency Exchange laws

Respondent also charged its customers a finance fee for

the funds it utilized in purchasing allegedly for the clients

account Additional charges crop up from time to time fees

for purchasing services technical services and buying

commissions which were all charged to consignees

Additionally nowhere on any of the documents used in the

transactions does this forwarders FMC license number appear

making virtually certain that BMIs suppliers had no inkling

that BMI might be purchasing for anyone but its own account

Perhaps if they had they would not have been as inclined to

grant the discounts to BMI

Throughout the testimony and transcript of interviews there

are inconsistent statements by Spencer BMIs president which

attempt to explain away the proven facts of record and which

indeed strain the limits of our credulity The majority would

appear equally unimpressed with them

Lastly there is the admission of Spencer that in addition to

the buying selling financing and retaining secret profits BMI

collected ocean freight brokerage on the same shipments The

only explanation for this is that the company could not sustain

itself on sales commissions alone and needed the additional

revenue from the freight forwarding operation And as if all

this were not enough Spencer further admitted giving false

statements to the Commission s investigators

With all of this the majority of course does not quarrel

indeed it cannot since the record stands uncontroverted How

then can the majority allow BMI to retain its license By the

simple expedient of shifting the responsibility for the violations

to respondent s counsel the majority concludes that BMI acted

in good faith upon advice of counsel and should be allowed

to retain its license and incidentally to continue its relation

ship of trust with its clients The Shipping Act of course

does not excuse violations committed on advice of counsel but

we presume that the majority is unable to find the requisite

willfullness on the part of BMI and thus is constrained to

continue its license in effect We have no such difficulty

16 F MC
288 BOLTON MITCHELL INC

BMI when licensed by the Commission was found fit wi

and able That BMI was willing is amply demonstrate

its zeal in concocting schemes to exact fees from its shi

clients but it is the presumed fitness that should give 

majority pause as it does us A freight forwarder hold

unique position of trust and responsibility He must act 

fiduciary and in that capacity his conduct and integrity m

be above reproach The Commission addressed itself to 

responsibility in Dixie Forwarding Co Inc Application 

License 8 F M C 109 at 116 when it said

The record in this proceeding reveals that forwarders frequently ha

their possession large amounts of their clients funds They also frequ

hold negotiable documents for others Moreover forwarders have acce

contldential business secrets Anyone acting in such a

fiduciary ca

should of his own initiative seek to attain the highest degree of bus

responsibility and integrity

See also Compania Antonima Venezolana De Navigacio

A J Perez Export Campany 303 F 2d 692 CA 6 1962 

den 371 US 942 1962

When we review the record we do not find that the 

spondent has displayed the high degree of business resp

bility and integrity required of a freight forwarder There

it is our view that Bolton MitcheH is not fit to carr

the business of freight forwarding

We are also troubled concerning BMls ability to re

in business A licensee of this Commission is charged with 

ability to carryon the business of forwarding and no s

part of the proper conduct of that business is sufficient kn

edge of the law to insure that the business is carried on w

the confines of that law How then can lack of knowledge 

acceptance of erroneous advice by counsel excuse violation

the kind here spread over the record We of course t

it cannot for ignorance of the law is not now and has n

been an excuse More seriously perhaps to aHow BMI to 

tain its license appears to us to forever foreclose this 

mission s ability to police the industry How do we here

find any freight forwarder guilty of any violations of suff

gravity to warrant revocation of a license Under the 

joritys doctrine violations will not result in revocation fo

and when a forwarder is charged with a violation he need 

plead advice of counsel

16 F M 
FEDERAL MARITIME COMMISSION 289

We of course did not take this stand in the earlier Com

mission report We could have refrained from doing so now if

it were not for our sober reconsideration of this case and our

grave concern for future efforts by the Commission at regulat

ing the forwarder industry We would revoke the license

SEAL

S FRANCIS C HURNEY

Secretary

16 F MC
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 452

ASIATIC PETROLEUM CORPORATION

V

STATES MARINE LINES

NOTICE OF ADOPTION OF INITIAL DECISION

AND ORDER PERMITTING WAIVER OF CHARGES

March 8 1973

No exceptions having been taken to the initial decision 

this proceeding and the Commission having determined no

review same notice is hereby given that the initial dec

became the decision of the Commission on March 8 1973

It is ordered That applicant is authorized to waive colle

of 21 477 30 of the charges previously assessed Asiatic 

troleum Corporation

It is further ordered That applicant shall publish prom

in its appropriate tariff the following notice

Notice is hereby given as required by the decisio

the Federal Maritime Commission in Special Docket 

that effective November 29 1972 for purposes of re

or waiver of freight charges on any shipments which 

have been shipped during the period from Novembe

1972 through December 22 1972 the rate to Mena 

Fahal on steel casing subject to a minimum tonnag

1 000 payable tons from one shipper on one vesse

40 50 W M including 171 2 surcharge subject to 

applicable rules regulations terms and conditions of 

rates and this tariff

It is further ordered That waiver of the charges sha

effectuated within 30 days of service of this notice and 

plicant shall within five days thereafter notify the Commi

of the date and manner of effectuating the waiver

By the Commission

SEAL

S FRANCIS C HURNEY

Secreta

Qn
291

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 452

ASIATIC PETROLEUM CORPORATION

11

STATES MARINE LINES

Application to waive a portion of freight charges granted

INITIAL DECISION OF HERBERT K GREER

ADMINISTRATIVE LAW JUDGE 1

States Marine Lines Inc applicant a common carrier by

water in the foreign commerce of the United States has ap

plied for permission to waive collection of a portion of the

freight charges on a shipment of steel casings carried for

Asiatic Petroleum Corporation shipper from New Orleans

Louisiana to Mena Al Fahal Sultanate of Muscat and Oman

pursuant to a bill of lading dated November 29 1972 At the

time of the shipment applicant s tariff on file with the Com

mission for the commodity shipped was 52 50 W1M plus a

surcharge of 17 percent 8900 Rate Agreement No 2

FMC 2 The shipment measured 37 398 cubic feet and weighed

2 270 402 pounds

Prior to the shipment and on November 3 1972 the Sec

retary of the 8900 Group advised the shipper that a special

rate of 34 50 W1M plus a 17 percent Cape Surcharge was

offered through December 31 1972 On November 6 1972

booking of the cargo on applicant s vessel was confirmed On

November 29 1972 a forwarder acting on behalf of the

shipper presented documents to applicant s agent in New

Orleans Louisiana covering the cargo and at a rate of 34 50

W1M plus the surcharge The agent was unable to verify this

1This decision beeame the decision of the Commission March 8 1973
292 FEDERAL MARITIME COMMISSION

i

rate in the 8900 Group tariff and by telephone contacted 

plicant s office at Stamford Connecticut The tariff was che

by that office and as the rate change was not in the file

was assumed that the correction pages had been delayed by m

The 34 50 rate was nevertheless confirmed

The cargo was loaded aboard applicant s vessel which s

on November 30 1972 During December of 1972 appli

discovered that the shipper had failed to advise the 8

Group of its booking and that the agreed reduced rate 

steel casings had not been filed with the Commission 

records further disclosed that the shipper had paid 41 16

the charges applicable at the reduced rate the rate which 

plicant had intended to apply but had inadvertently faile

timely file

Public Law 90 298 authorizes the Commission for good c

shown to permit a common carrier by water in the for

commerce of the United States to waive collection of a po

of the freight charges when there is an error in a tariff 

clerical or administrative nature or an error due to i

vertence in filing a new tariff The facts demonstrate 

inadvertent failure to file the rate of 34 50 W1M plus a 

percent surcharge a situation within the purview of P

Law 90 298 The application was filed within 180 days of 

date of the shipment and no other shipments of the same 

similar commodity moved on applicant s vessels during 

proximately the same time as the shipment here involved 

other proceeding involving the same rate situation is 

pending

Good cause appearing and applicant having complied 

the provisions of Public Law 90 298 permission to waive 

lection of 21 477 30 the difference between the rate 

vertently not filed and the rate on file at the time of the 

ment is granted The waiver of the charges here autho

shall be effectuated within 30 days of service of this n

and applicant shall within five 5 days thereafter notify 

Commission of the date and manner of effectuating the wa

Applicant shall publish the proper notice in its tariff as 

quired by the statute

8 HERBERT K GREER

Administrative Law Jud

Washington D C

FEBRUARY 8 197a

16 F M
QQ

FEDERAL MARITIME COMMISSION

DOCKET No 71 71

AGREEMENT No 9932 EQuAL ACCESS

To GOVERNMENT CONTROLLED CARGO AND

INTERIM COOPERATIVE WORKING ARRANGEMENT

AGREEMENT No 9939 POOLING SAILING AND EQUAL ACCESS

To GOVERNMENT CONTROLLED CARGO AGREEMENT

March 20 1973

Agreement No 9939 not found to be discriminatory or unfair as between

carriers shippers exporters or ports or between exporters from the

United States and their foreign competitors or detrimental to the com

merce of the United States or contrary to the public interest or other

wise in violation of the Shipping Act 1916

Agreement No 9939 approved

Odell Kominers and Stephen F Eilperin for Prudential Grace

Lines Inc

Richard G Ashworth and John Jo Reilly for Compania

Peruana de Vapores S A

Gilbert C Wheat Thomas E Kimball and Richard E Gutting

Jr for Westfal Larsen Co A So

Donald J Brunner and Paul J Kaller as Hearing Counsel

REPORT

BY THE COMMISSION Helen Delich Bentley Chairman George

H Hearn Vice Chairman Ashton C Barrett and James

V Day Commissioners

This proceeding is before us upon exceptions to the Initial

Decision of Administrative Law Judge Ashbrook Po Bryant

ALJ The proceeding was instituted to determine whether

Agreement Nos 9932 and 9939 should be approved under sec
294 FEDERAL MARITIME COMMISSION

tion 15 of the Shipping Act 1916 The Administrative 

Judge would disapprove Agreement 9989 Exceptions to 

Initial Decision were filed by the parties to Agreement 

9939 Prudential Grace Lines PGL and Compania Peru

de Vapores CPV and by Hearing Counsel

FACTS

Agreement No 9939 between PGL and CPV covers sa

requirements equal access to government cargoes and po

of revenue with certain cargo excluded carried southb

under local bills of lading from U S West Coast ports to p

in Peru This U S West CoastPeru trade is but a part o

overall U S West Coast South America trade

PGL serves the West Coast Peruvian trade by alterna

six C 3 vessels via the East and West Coasts of South Ame

The southbound West Coast of South American service w

includes Peru serves British Columbia the full range of 

West Coast ports Mexico Central America the West C

of South America and the East Coast of South Americ

Rio de Janiero where the vessels turn homebound and s

the same range of ports in reverse order northbound 

under an operating differential subsidy contract operates 

only US flag liner service between the U S West Coast 

Peru and has been in this trade for close to one hundred y

PGLs plans for the future call for 12 to 18 sailings a

substituting modern C 4 vessels for the C 8 s now in se

CPV the other party to Agreement 9939 is owned by 

Peruvian government and is an instrument of Peruvian 

ernmental policy It is not primarily profit motivated 

owns and operates twelve modern cargo vessels and has 

ditional vessels under time charter It became active in 

southbound trade in about March of 1971 CPV s U S 

Coast to Peru service is part of a triangular Japan Califo

Peru service in which CPV employs three vessels southb

1

Agreement No 9932 was an lItntertm agreement flied with the Commission 

form of a letter of intent No 9982 expired by its own terms and was superseded 

9939 Its approval is no longer Bought and No 9982 wlll be discussed only Insofa

sheds light on the provisions of 9989

I Exceptions to certain of the Administrative Law Judge s findings were taken b

However they were directed to the failure of the Administrative Law Judge to de

amplify certain matters presented by PGL Our findings take care of the basic ob

of PGL and In view of our decision it Is unnecessary to deal in detail with the 

exoeptions of PGL

16 F 
PGL

WL

Flota

1968

60 8

24 9

13 8

1969

52 3

317

10 5

1970

48 1

44 8

7 0

AGREEMENT NO 9932AGREEMENT NO 9939 295

to Peru on a monthly schedule It would appear that GPV

has now placed two vessels in a monthly shuttle service between

Peru and the full range of U S West Coast ports

Westfal Larsen Co A S WL is a Norwegian company

which owns seven tankers seven bulk carriers and nine dry

cargo vessels Under a general agency agreement with General

Steamship Company Ltd WL maintains a liner service in the

southbound U S West Coast South America trade with six

dry cargo vessels comparable in speed and cubic capacity to

the vessels now operated by PGL and CPV WLs

voyage pat

tern in the U S South America trade includes calls at British

Columbia and U S West Coast ports thence to Mexico down

the West Coast of South America through the Straits of

Magellan then northbound to East Coast of South America

ports returning through the Panama Canal to U S West

Coast and British Columbia ports WL does not offer a north

bound service from Peru In its southbound service WL covers

the same general range of ports as PGL and in addition WL

regularly serves Coos Bay Oregon where it picks up 80 per

cent to 90 percent of its lumber cargoes to Peru Lumber

represents about half of its U S West Coast Peru cargo

The U S West Coast to Peru trade has generated an esti

mated 3 000 000 annually in freight revenues on a movement

by liner vessels of from 44 000 to 48 000 tons of cargo The

respective participation of the three active carriers PGL CPV

and WL for the period available has been as follows

The best estimate is tnat the current level of traffic will

continue with perhaps a modest increase Among the principal

commodities shipped from U S West Coast ports are lumber

a

This is based on advertisements appearing in the Pacific Shipper Nov 15 1971 and

March 27 1972 We are asked by PGL to take official notice of them WL and Hearing

Counsel object arguing that Rule 13 f 46 CFR 502 226 does not permit official notice of

a mere advertisement apparently because CPV should have introduced evidence at the

hearing of its then future plans We will take official notice of the advertisements themselves

their existence is not questioned Our experience shows that a line rarely if ever advertises

sailings that it does not intend to make and a reasonable inference is that CPV will in

all probability expand its service as advertised However this inference is not necessary to our

conclusions in this decision

Prior to CPV s entry into the trade Flota Mercante Grancolumbiana provided liner

service in the trade

16 F M C
296 FEDERAL MARITIME COMMISSION

wood pulp alkane mining machinery newsprint beans 

and lentils and flour and wheat More than 76 percent of 

lumber moves through Coos Bay destined to Callao Peru t

is a lesser volume to Paita Peru Portland accounts 

virtually all of the remainder of the lumber traffic to P

The U S West Coast Peru segment is but a part of W

overall Pacific Coast South America trade WLs revenues f

this segment were eight and nine percent respectively o

service revenues in 1969 and 1970

Since 1962 the Government of Peru has sought to main

a program for the development of a national flag merc

marine This was done through the issuance of a serie

decrees which culminated in the conditions instrumenta

producing Agreement 9939 On January 9 1962 Peruvian 

No 13836 declared the shipbuilding industry a public u

and enacted a variety of promotional measures including 

establishment of a ship construction fund aimed at fostering 

construction of a national flag fleet In February of 1962 

No 13996 established a Peruvian National Commission am

the duties of which was that of periodically proposing to 

Executive Power the percentages of import and export c

to be carried in Peruvian national flag ships On January 

1966 by Supreme Decree No 3

thel e was established a 

quirement reserving 20 percent of all import and export car

to Peruvian ships with provision for increasing that per

age to 60 percent as Peru s fleet increased These percen

restrictions were restated in May of 1966 by Supreme De

No 12 Other measures designed to promote the Peru

merchant marine were soon to follow

Supreme Decree No 13 issued in ugust of 1967 prov

that contracts with the government and governmentcontr

entities contain a provision requiring the contractor to co

with cargo reservations in favor of the Peruvian merc

marine Supreme Decree 221 H of September 1 1967 req

that all purchases by government controlled entities be ca

by Peruvian ships unless none were available Next Sup

Decree No 2 H of January 6 1968 authorized exemptions 

custom duties on private import cargoes provided they 

brought in aboard CPV ships or any other Peruvian ve

If national flag ships were not available ships of associa

lines could be used

I Associated lines are those that have an qreement with CPV approved by the P

8overnment

16 F 
AGREEMENT NO 9932AGREEMENT NO 9939 297

The earlier decrees were modified and amplified by Supreme

Decree No 016 69 TC issued in December of 1969 This decree

established the order of vessel precedence for cargoes exonerated

from customs duties 1 vessels of Peruvian national lines

2 foreign flag vessels chartered by Peruvian flag lines 3

where ships of the first two categories were unavailable on

ships of foreign lines associated with Peruvian flag lines Ex

empted from this decree were cargoes from ports in geographical

areas not regularly served by Peruvian ships or when there

were international agreements on flag preferences Supreme

Resolution No 003 70 TC AC included within the meaning of

international agreements on flag preference an equal access

agreement if approved by Peru s Minister of Transport and

Communications

As matters stood in December 1970 just prior to CPV s

entry into the trade 50 percent of the import cargoes were

reserved to Peruvian vessels and for the most part only cargoes

shipped on those vessels could be exonerated from customs

duties On the other hand and by another decree an indeter

minate percentage of the cargo apparently could be exonerated

in full or relieved in part from customs duties through de

cision of the Peruvian Ministry of Industry and Commerce

PMIC These requirements were not mutually exclusive how

ever The extent of the customs relief and the conditions upon

which such relief would be granted might change from time to

time According to PGL this was well illustrated when PMIC

ruled in September 1971 that the Peruvian flag preference re

quirements for customs exoneration affected only imports ex

onerated completely from customs duties Since under the

Peruvian industrial law no cargoes are exonerated in full

from Peruvian customs duties but rather on a sliding scale

of 20 to 90 percent based on an evaluation made by the

Peruvian Minister of Transport and Communications of the

commodity s end use the decree requiring cargo exonerated

from Peruvian customs duties to be carried on Peruvian flag

ships currently has no impact In any event however Peruvian

decrees now require 50 percent of Peru s

imports to be carried

by Peruvian flag vessels In addition if the customs exonera

tion decrees become effective through changed interpretation

by the Minister of Transport and Communications some 60 65

percent of the imports would require routing on Peruvian flag

vessels The 50 percent reservation affects talc and purchases

16 F M C
298 FEDERAL MARITIME COMMISSION

by Peruvian government controlled companies and contrac

Beyond this the record does not identify particular com

dities included in the 50 percent reservation decrees nor 

it identify which commodities would receive a customs d

advantage should the Minister of Transport and Commu

tions rescind its present interpretation of the customs 

oneration decrees

PGL first felt the impact of the Peruvian decrees not in 

trade here involved but in the U S Atlantic Peru trade 

the U S Gulf Peru trade and in 1967 PGL and the Gul

South American Steamship Company G SA the two 

flag carriers in these trades negotiated an equal access a

ment which this Commission approved on October 17 

Peru however failed to act on the agreement The situ

in Atlantic and Gulf Peru trades worsened as CPV s se

increased Further attempts were made to secure Peru s 

proval of the equal access agreement and on February 

1970 the approval was granted for 150 days during w

time two pools were negotiated Agreement No 9849 bet

PGL and CPV in the U S Atlantic Peru trade and Agree

No 9865 between G SA and CPV in the US Gulf Peru t

were approved by this Commission and the Governme

Peru in July of 1960

Six months after the approval of Agreements 9849 and 

PGL learned of CPV s intention of establishing a direct se

between Peruvian and Japanese ports calling homeward 

Japan at US West Coast ports to lift cargo for Peru 

had by then taken delivery of its 12 new ships and had 

tional tonnage under time charter This together with th

crees effecting cargo reservations created the climate in w

the agreement in issue was negotiated In such a climate 

could have either negotiated a pool or sought some so

counter balancing regulations from the Commission unde

tion 19 of the Merchant Marine Act of 1920 46 US C 

Of course PGL could have done nothing thereby possibly 

fering fatal detriment and consequently PGL felt some 

tive action was called for PGL felt that the issuance of 

lations under section 19 would exacerbate the already 

diplomatic relations between Peru and the United States 

chose the agreement as the less troublesome alternative

As above stated Agreement No 9939 between PGL 

CPV covers sailing requirements equal access to govern

16 F 
AGREEMENT NO 9982 AGREEMENT NO 9939 299

controlled cargo and pooling of revenue on all cargo with cer

tain cargo excluded carried southbound under local bills of

lading from West Coast U S ports to ports in Peru The cargo

is to be freighted and carried in accordance with the contract

noncontract rates rules and regulations of the Latin America

Pacific Coast Steamship Conference Agreement No 8660 as

amended of which both PGL and CPV are members The

agreement has the obvious bilateral characteristics which have

become familiar in similar agreements in Latin American trades

PGL is a party to several agreements of this type

PGL is accorded the status of a Peruvian flag line south

bound CPV shall have the right to participate equally with

US flag carriers in the carriage of cargo controlled by the

US government and PGL agrees to support applications for

waivers to place CPV on a basis of equal opportunity with PGL

with respect to such cargo The parties agree to request that

the competent authorities of their respective countries publicize

among their representatives the status of the association of

these carriers which are accorded equal access to cargo by the

agreement

Each party may transfer part of its pool share sailing and

space requirement to other national flag carriers Pool account

ing arrangements exchange of manifests and or freight lists

and provisional and final statements of pool revenues are to be

prepared and delivered by each party to the other

Nothing contained in the agreement shall limit the right or

duty of either carrier to provide service at any US Pacific

port or Peruvian port where suitable cargo is offered or avail

able or to carryall of the cargo offered or available The car

riers will use their best efforts to encourage and promote com

merce in the trade and to resolve any differences that may arise

under the agreement they agree to consult at least once a year

Any controversy or claim arising under the agreement will be

settled by binding arbitration in Lima or San Francisco in ac

cordance with the Rules of Procedure of the Inter American

Commercial Arbitration Commission

The pool shares of PGL and CPV shall be 50 percent each of

the total cargo carried with certain cargo excluded If either

party should earn a gross revenue in excess of its pool share

then subject to a 50 000 deductible the overcarrying party

shall pay over to the other party 20 percent of the gross reve

nue obtained in excess of its pool share These pooling arrange

16 F MC
300 FEDERAL MARITIME COMMISSION

ments were included at the insistence of CPV on prompting 

its government Without inclusion of the pool it app

highly improbable that there would have been any agreem

Article 10 embodies the equal access agreement and 

vides in pertinent part

EQUAL ACCESS TO CARGO

10 a As a condition of this agreement PGL shall be accorded the s

of a Peruvian flag line with respect to the carriage of southb

cargo in the foreign commerce of Peru from the West Coa

United States

c In view of the fact that the United States government has gra

to carriers of other naitons the right to carry government 

trolled cargo exported from the United States CPV has the 

subject to any act or policy of the government of Peru to pa

pate equally with United States flag carriers in the carriag

government controlled cargo moving from United States ports i

Pacific Coast of USA to ports in Peru which include char

cargoes and those cargoes controlled by the following firms

Agency for International Development AID

Care Inc

Catholic Relief Services

Church World Services

Lutheran World Relief Inc

Seventh Day Adventist Welfare Service Inc

World Food Program

World Relief Commission Inc orothers

PGL will support and will not contest appUcations for wa

which shall place Peruvian flag vessels owned or operated by 

on a basis of equal opportunity with PGL vessels with respe

the total carriage of such cargo

US government controlled cargoes approximate 10 pe

of the US West Coast southbound cargoes to Peru Q

naturally the predicted effect of the agreement on the trade 

the lines in it is hotly disputed On the one hand WL u

that the agreement will leave it with little if anything bu

lumber carryings something less than half of its past c

ings and that it cannot survive in the trade without a rea

able mix of cargoes On the other hand PGL vigorously 

tends that the agreement will have little or no effect on W

position in the trade We will deal with this question when 

discuss the reasons behind our approval of the agreement

The ALJ also found that WL produced evidence tendin

show that the agreement between CPV and PGL as to the 

ciate status of the latter had been effectuated prior to app

16 F M 
AGREEMENT NO 9932AGREEMENT NO 9939 301

by the Commission Initial Decision pages 13 14 However

he neither discusses the evidence nor draws any conclusions

from it Our review of the record demonstrates that this evi

dence can more readily be interpreted as showing unilateral

action on the part of the Peruvian government in routing car

goes pursuant to its decrees

In the order instituting this proceeding the inclusion of a

reporting requirement as a condition of approval was suggested

The requirement would provide that copies of all quarterly

provisional and final pool statements pursuant to Article 8 of

the agreement be furnished the Commission also that a new

Article 18 be included to read as follows

Further Agreement of the POJrties Any further agreement Or understanding

Of the parties pursuant ta Or giving effect ta Articles 5 11 and 17 shall nat

be effective Or implemented prior to the time that an appropriate amend

ment with respect thereto has been filed with and approved by the Federal

Maritime Commission pursuant to Section 15 of the Shipping Act 1916

The parties have stipulated to its inclusion and it will be so

ordered

DISCUSSION AND CONCLUSION

Section 15 of the Shipping Act 1916 requires that we dis

approve Agreement 9939 if we find that it will be discrimina

tory or unfair as between carriers or shippers operate to the

detriment of the commerce of the United States be contrary to

the public interest or otherwise be in violation of the Shipping

Act If the agreement is approved those activities of the par

ties which are within its scope are exempted from the antitrust

laws This exemption has given rise to an antitrust test to be

used in determining whether to approve a given agreement

Under this test we must

scrutinize the agreement to make sure the conduct thus legalized does

not invade the antitrust laws any more than is necessary to serve the pur

poses of the regulatory statute Isbrandtsen Co v U S 211 F 2d 51

C A D C 1954

This scrutiny of course requires information or data if it is to

produce an intelligent judgment on the approvability of the

agreement and

Almost uniformly the kind of information necessary to this judgment is in

the hands of those seeking approval of the agreement it is incumbent

upon those in possession of such information to come forward with it

Mediterranean Pools Investigation 9 F M C 264 289 90 1966

16 FMC
302 FEDERAL MARITIME COMMISSION

Once the proponents of the agreement have produced their 

it is equally incumbent upon any person protesting approv

an agreement to come forward with all relevant informatio

his possession which would bear upon the agreement s d

proval The weighing of the case presented by the propon

of approval against the case made by those protesting appr

of course resolves the question of whether the ultimate bu

of proof has been sustained In this case the ALJ conc

that the parties to Agreement 9939 had failed to clearly 

onstrate that the agreement was not discriminatory as 

tween carriers or shippers was not detrimental to the 

merce of the United States and was in the public interest 

key to this conclusion would appear to lie in two general p

sitions 1 the nationalistic nature of Agreement 9

and 2 the finding that it appears reasonably prob

that approval of No 9939 would have a substantial ad

effect on the carryings and opportunities in the trade

No one seriously challenges the motives of CPV and the 

ernment of Peru in negotiating the agreement It is des

to bring to some fruition Peru s cherished aspirations to s

as a maritime nation by securing a larger portion of the 

riage of its imports and exports for CPV To achieve 

Peru has utilized the medium of government controlled 

governmentimpelled cargo which can be loosely define

any cargo over which and for whatever reason the govern

controls the routing or booking There is nothing novel in 

concept It is utilized by virtually all the Latin American 

time countries and in our own country Public Resolutio

and section 901 b of the Merchant Marine Act 1936 giv

government control over the routing and booking of ce

governmentimpelled cargoes Agreement 9939 is designe

give each of the parties equal access to the cargoes cont

by their respective governments

The Administrative Law Judge found the bilateral in

of the agreement clear noting that CPV made no bones 

its wanting a bilateral pooling agreement thereby ex

ing WL from the pool The Administrative Law Judge 

cluded that bilateralism or national intent was not ap

fulcrum for approving an agreement Bilateralism is 

rently amuch used and frequently abused tag in some seg

of our foreign trade and it bears some reexamination in 

of the misconceptions apparently attending it

To all intents and purposes they are one and the same

16 F 
AGREEMENT NO 9932 AGREEMENT NO 9939 303

Complete bilateralism would mean simply that all cargo mov

ing in a trade is by some means probably governmental re

served for carriage by the national flag lines of the trading

partners Le the countries at either end of the trade No US

trade has yet become so bilateralized Bilateralism is considered

a panacea by developing countries and as an anathema by mari

time nations whose carriers are traditionally third flag lines or

cross traders Whatever the economic or political merit of bi

lateralism our concern is the validity and extent of its applica

tion under the statutes we administer Of more relevance how

ever is the role of bilateralism as a product of the national

interest factor in the development of a particular commercial

agreement

In this foreign trade as in many foreign trades there are

two pools of cargo moving One pool consists of cargo moving

in normal commercial trade channels and all common carriers

engaged in the trade normally have access to that commercial

cargo The other pool consists of government owned or govern

ment controlled cargo and only those common carriers in the

trade selected or designated by that government have access to

that cargo In the United States we have government controlled

cargo under PR 17 PL 664 and PL 480 which moves in our

foreign commerce on liner vessels The government of Peru

as elsewhere detailed herein has identified certain categories

of import cargo which it declares is government controlled

cargo The routing of government controlled cargoes can be and

is directed by the government s involved If the involved

government decrees that a third flag vessel shall not participate

in the carrying of that government controlled cargo then that

cargo ceases to be a part of the commercial pool and is no longer

accessible to third flag vessels That is the problem and facts

of life confronting WL Peru by decrees and otherwise has

reduced the pool of commercial cargo to which WL once had

access and has placed much of that cargo in the government

pool to which WL does not have access Whether we approve

or disapprove the agreements before us does not decrease or

have any effect on the pool of cargo inaccessible to WL

We are told by WL quite naturally that approval of the

agreement here will involve the United States in national in

terest discrimination This particular piece of hyperbole is

grounded on a poor choice of words By approving Agreement

9939 we are not adopting bilateralism as part of the maritime

16 F M C
304 FEDERAL MARITIME COMMISSION

policy of the United States see Revenue Pools U S B

Trade 14 F M C 149 1970 and neither are we giving 

endorsement to another government s expression of nat

interest in the carriage of its cargo for the purpose of enh

ing its merchant marine WLs concern is its exclusion 

the carriage of the cargoes covered by the agreement 

this may not be unlawful discrimination As we unders

discrimination there must first be a right enjoyed and 

right abrogated before there can be discrimination We 

find no such right of WL to the cargo covered by Agree

9939 WL certainly has no right to cargo controlled by 

Peruvian government unless that government says it has 

of course Peru has expressly denied any such right The 

holds true for cargoes controlled by our own government 

lic Resolution 17 authorizes the Maritime Administratio

grant waivers for cargoes shipped under it to the nationa

carriers of the countries receiving those cargoes Indeed to 

extent that Public Resolution 17 restricts waivers to 

granted to the national flag carriers of the recipient na

it embodies a form of bilateralism Section 901 b of the 

Act leaves to the discretion of the Maritime Administratio

grant of waivers to particular flags Discretionary action 

no rights Since WL enjoys no right to the cargoes in que

there can be no discrimination as between carriers in the 

utory sense at least Consequently all we are doing he

judging an agreement under the criteria of section 15 o

Shipping Act If the agreement meets those criteria it s

be approved whatever nationalistic motives may have e

dered it

We are also told that approval of Agreement 9939 wou

detrimental to the commerce of the United States within 

meaning of section 15 This detriment would come from 

elimination of WL from the U S West Coast Peru trade w

WL says is the purpose of the agreement and the possibl

sult of any approval of it WL reminds us that our du

accord all carriers regardless of flag equal treatment u

the Shipping Act demands that we preserve WLs servic

this trade Inter American Freight Conference 14 F M C 

1970 In other words WL has a right to preserve 

share of the trade Even if any nation s carriers can be 

to enjoy a right to participate in the commerce of an

sovereign nation such a right is in no sense an unlimited 

16 F 
AGREEMENT NO 9932 AGREEMENT NO 9939 305

Any right granted to WL to participate in this country s com

merce is enjoyed subject to the limitations imposed by the

Shipping Act and any other relevant federal law It stems from

the proposition that since carriers as well as cargoes are part

of the commerce of the United States anything detrimental to

carriers may be detrimental to that commerce But this propo

sition is grounded upon a

very practical reality Rarely if

ever has anyone country had a merchant fleet sufficient to

carry its total foreign commerce The insufficiency is made up

from ships of the fleets of other maritime nations It is for

this reason that third flag or cross traders are considered an

important part of the commerce of the United States And

what we say here should not be taken as demonstrating any

diminishing of our concern for their well being It is simply

that they are but one of many interests all of which are owed

our concern and protection It is impossible to completely sat

isfy all of those interests All that this Commission can do is

balance the interests and reach our best judgment under the

laws we administer

Under section 15 we must and do give the same measure of

fair protection to a third flag vessel that we do to an Ameri

can flag vessel This does not necessarily mean that the third

flag vessel always receives identical treatment for that third

flag vessel may be burdened by handicaps or impediments not

burdening an American flag vessel Thus WL cannot qualify

to become an associated line of CPV because it WL unlike

PGL cannot assist CPV in obtaining access to U S govern

ment controlled cargo whereas PGL can do so In this we find

nothing startling for even vessels under U S flag do not oper

ate with identical rights and privileges Thus foreign built

vessels with minor exceptions may not operate in our coast

ing trades 46 US C 11 Thus foreign flag vessels which are

placed under U S flag must be documented under US flag for

a period of three years before they become eligible to carry

government impelled cargo 46 U S C 901 b 1

We think it abundantly clear that the Shipping Act is not

an insurance policy granting unqualified protection to all car

riers serving our commerce at any given point in time The

Act only affords protection to a carrier from those statutorily

prohibited actions of others Agreements between carriers are

of course permitted by section 15 of the Act and it is an agree

ment which WL asserts may cause its elimination from this

16 F M C
306 FEDERAL MARITIME COMMISSION

trade While we do not from the record before us think 

WL will leave the trade WL asserts that its departure stand

alone would create such a detriment to commerce as wo

warrant disapproval of the agreement We think not D

mental to the commerce of the United States is but one 

the criteria of section 15 While a contrary finding under 

one of the four criteria of section 15 can support disappro

all of the parts make a legislative whole and must be con

ered The Shipping Act itself and section 15 especially is 

prime example of this necessary balancing of interests 

antitrust laws represent a national policy of this country w

is considered to be in the public interest Section 15 prov

an exemption from those laws but only if the agreement 

empted is not found inter alia detrimental to the commerc

the United States And so any grant of the exemption m

be scrutinized to insure that it does not invade the prohibit

of the antitrust laws any more than is necessary to serve 

purposes of the Shipping Act Just so must detriment to c

merce be tested against the public interest

The public interest in intergovernmental harmony is c

That Agreement 9939 is a factor in continuing harmon

relations between our government and the government of P

seems equally clear But it is nevertheless asserted by 

that the agreement is contrary to the public interest bec

it will reduce competition without any showing that the ag

ment is designed to secure important public benefits

In this case we have a series of decrees patently demon

ing that Peru has embarked upon the same course as 

taken by most other Latin American maritime nations 

experience has shown that absent commercial resolution thro

agreements such as No 9939 or otherwise governmental 

frontation follows When no agreement can be reached 

tween the carriers the trade is disrupted malpractices e

and virtually everybody suffers The public interest dict

that this state of affairs is to be avoided wherever poss

Here the agreement between the national flag carriers has 

reached The prospects for continued harmony are good 

the agreement would appear to be in the public interest 

tainly this result is not contrary to the public interest

The Administrative Law Judge s conclusion that the ag

ment would have a substantial adverse effect on WL is b

on the testimony of WL s witnesses all of whom admitted 

16 F M
AGREEMENT NO 9932 AGREEMENT NO 9939 307

control over the future of WL was in the exclusive control of

the home office in Norway No witness from the home office

testified The same witnesses agreed that in a

reasonably accu

rate forecast of WL s future in the Peru trade consideration

must be given to the overall operation of WL Le not only the

southbound Peru trade but the southbound trade to all of

South America plus the wayport cargo between South Ameri

can countries plus the northbound trade No such evaluation

of the overall trade had been made by any of the witnesses

The conclusion that WL would be harmed appears to be based

on the testimony quoted at page 15 of the Initial Decision

It is Ithink a fairly safe statement that no line serving in this trade around

South America could survive on nothing but base cargo any line that

operates must have a reasonable mix of base cargoes and the higher rated

cargoes which are available in order to make a reasonable return

in order to maintain our service we are going to have to be able to

participate in the other cargoes that do move the other better paying cargoes

that move

One can hardly quarrel with this truism the difficulty lies

in finding support in the record for the forecasted exclusion of

WL from the better paying cargoes The Administrative Law

Judge admits that the record here is insufficient to allow an

accurate forecast as to what cargoes will be left to WL if the

agreement is approved and we agree with him We do not

however agree that the reasonable probability of substantial

adverse effect on WL has been shown That there will be some

cargo lost to WL everyone seems to admit but on how much

there is wide disagreement On balance we conclude that WL

has failed to demonstrate such a reasonable probability of harm

sufficient to warrant disapproval when weighed against the

benefits gained by approval of the agreement In sum we can

not find from this record that approval of Agreement 9939 will

be discriminatory or unfair as between carriers detrimental to

the commerce of the United States or contrary to the public

interest

However our Brother Morse notwithstanding his arrival at

this same conclusion doubts WL s future survival in the trade

and would condition his approval on the requirement that

PGL obligate itself to initiate and maintain adequate and regu

lar service to those shippers of lumber and woodpulp now

served by WL in the event WL withdraws from the trade dur

16 F M C
308 FEDERAL MARITIME COMMISSION

ing the existence of Agreement No 9939 We think the im

sition of any such future operational requirement ill advi

We see no difference between the disapproval of agreem

because of future speculative possibilities 7

and the impos

of operational requirements as a condition to approval beca

of doubts as to what the future holds for a line in the tra

But more importantly perhaps we do not see and neither w

it appear does our Brother Morse the nexus between appr

of No 9939 and the future demise of WL If it should t

out that WL withdraws from the trade for reasons other t

the agreement it is hardly just to require PGL to under

the abandoned service without regard to either PGLs op

tional needs and desires or the needs and desires of the s

pers under the guise of conditioning our approval of 

agreement If on the other hand the reasonable likelih

arises that WL is to be forced out of the trade because of 

future impact of the agreement an event we view as ent

unlikely then is the time to reexamine the agreement and 

whatever action is required

The Administrative Law Judge further concludes that if 

proved Agreement 9939 would subject the particular tr

involved to undue or unreasonable prejudice or disadvanta

in violation of section 16 of the Shipping Act Presuma

this conclusion is grounded on some detriment to shippers 

the traffic involved who are now using WL and would no

able to do so if the agreement is approved This in tur

presumably predicated at least in part upon WL s aban

ment of the trade We say presumably because the Adm

trative Law Judge does not preface this conclusion with 

of his reasons for it However we do not think on the b

of the record before us that any particular traffic will be 

duly prejudiced by approval of the agreement

There remains the issue of whether approval of the ag

ment would be contrary to the terms of the 1928 Treat

Friendship Commerce and Navigation between the Un

States and Norway Article 7 of which provides in relevant p

All articles which are or may be legally imported from foreign cou

into ports of the United States or are or may be legally exported there

7See Alcoa S 8 Co Inc v Cia Anonima Vene2iolGna 7 F M C 345 1962 West 

Line Inc v Grace Line Inc S F M B 586 1961

8

In his concurring opinion Commissioner Morae says Whether Agreement No 9

approved or disapprover I

am not convinced WooL will be unable to survive in the 

provided the existina level of unreserved cargo Is not materially reduced

16 F M
AGREEMENT NO 9932 AGREEMENT NO 9939 309

in vessels of the United States may likewise be imported into those ports or

exported therefrom in Norwegian vessels without being liable to any other

or higher duties or charges whatsoever than if such articles were imported or

exported in vessels of the United States

We conclude that our approval of the agreement does not

violate the Treaty Our obligations under the Treaty are not

enlarged by the action of the Peruvian government in estab

lishing cargo preference rules The Treaty provisions are lim

ited to prohibiting restrictions imposed by the signatory gov

ernments and do not prevent this Commission from approving

a commercial agreement although it may be precipitated in

part by restrictions of another trading partner WL s status

in the oceanborne commerce of the United States is effected

not by the Commission s action on the agreement but by the

action of the government of Peru In any event there is an

other controlling factor While treaties and federal statutes

are on equal footing under the Constitution as the supreme

law of the land the latest action expresses the controlling law

Tag v Rogers 267 F 2d 664 C AD C 1959 The treaty with

Norway was proclaimed in 1932 while Public Resolution No

17 was enacted in 1934 and section 901 b 1 of the Mer

chant Marine Act 1936 was enacted in 1954 Thus the latter

two control and the treaty is not violated by our approval

On the basis of the foregoing we conclude that Agreement

9939 should be approved under section 15 of the Shipping Act

1916 An appropriate order shall be entered

Commissioner Clarence Morse concurring

In concurring with the majority to approve Agreement No

9939 I do so subject to the following comments and conditions

It is to be noted that Agreement No 9939 is so drawn that

W L as a third flag operator cannot qualify for admission

The aggregate tonnage carried annually in the years 1968

1969 and 1970 ranged from 44 000 to 48 000 tons In 1970

lumber aggregated 11 122 tons and therefore all other cargo

constituted 36 811 tons The record does not disclose which

commodities were reserved cargo but bearing in mind that

W L carried nearly 90 of the lumber in 1970 it is reasonable

to assume that little or no lumber was in the reserved cargo

category Accordingly if we apply the 50 the minimum

16 F M C
310 FEDERAL MARITIME COMMISSION

J

I

J

estimate for reserved cargo to the 36 811 ton figure i

obvious that no more than 18 405 tons of cargo is not 

served This 18 405 tons of unreserved cargo which is f

accessible on a competitive basis to all three competing l

is to be compared with W L actually carrying in 1970 11 

tons of cargo exclusive of its lumber carrying and it is 

likely that W L will be able to obtain this high proportion 

the unreserved cargo if Agreement No 9939 is approved

We are faced with the question whether the Agreement u

consideration is unjustly discriminatory or unfair to W L 

tion 15 does not authorize us to disapprove an agreem

merely because the agreement is discriminatory or unfai

an American flag vessel or is discriminatory or unfair t

Norwegian flag vessel Section 15 authorizes disapproval 

if the agreement is unjustly discriminatory or unfair H

the unjust discrimination or unfairness stems immediately f

the Peruvian laws and decrees not from our approva

Agreement No 9939 Here undoubtedly there will be s

additional minor discrimination or unfairness to W L if 

approve Agreement No 9939 but in my opinion neither 

pooling of revenues nor the provision obligating PGL to a

CPV in obtaining access to U S impelled cargoes nor the 

visions relating to sailings constitute unjust discriminatio

unfairness to W L The revenue pooling affects only CPV 

PGL not W L The sailings provisions of Agreement No 

do affect W L but not in an unjust degree They con

W L with a more rationalized competition but not with a 

stantially greater degree of competition Heretofore W L 

had access to such reserved cargo which CPV itself was 

able to carry CPV is now placing additional vessels in 

trade and thus CPV will carry more reserved cargoe

self so that prospectively there would be much less opport

for W L to gain access to any such cargo even absent Ag

ment No 9939 Hence enabling PGL to become an asso

of CPV may prejudice W L but it does not unduly preju

W L The access by CPV to U S impelled cargoes affects 

only in a minor way for all U S impelled cargoes are but 

of the trade and at most W L has had access to but 

thereof

Lumber and wood pulp Because of the possibility that 

may withdraw from the trade and thereby leave a void ins

as shipping services to US exporters of lumber and wood 

16 F M 
AGREEMENT NO 9932 AGREEMENT NO 9939 311

are concerned I condition my approval of Agreement No 9939

with the requirement that PGL obligate itself to initiate and

maintain adequate and regular service to those shippers of

lumber and wood pulp now served by W L in the event W L

withdraws from this trade during the existence of Agreement

No 9939

Over the years W L has provided a needed and efficient serv

ice to this Pacific Coast export commerce of the United States

Its elimination from the trade could impair that commerce

Until the Congress or the Executive Branch adopts the prin

ciple of bilateralism as a policy it is my view that this Com

mission should endeavor to make some accommodations to as

sure the opportunity of established third flag vessels in our

trades to survive The majority makes no attempt toward such

an accommodation That accommodation exists by agreement

of the involved parties in Agreements 10027 10028 and 10029

covering the trades from Brazilian ports to U S Atlantic and

Gulf ports which we approved on January 30 1973 That type

of accommodation would be consistent with the philosophy of

section 15

We would be buying a pig in a poke to accept the Peruvian

decrees as a fact of life and to unconditionally approve an

agreement granting to the two national flag carriers equal ac

cess to Peruvian reserved U S export commercial cargo

the tonnage of which and the commodities covered determined

or to be determined solely by existing or by future Peruvian

decrees and actions Iwould reconsider my approval if I

thought

that the Peruvian laws and decrees are or will be so imple

mented that substantially less than 50 of the aggregate cargo

9

Agreement No 9939 in my mind is inextricably intertwined with Peruvian laws and

decrees and is one of the means utilized to accomplish Peruvian shipping goals But equal

access to our commercial cargoes is the shipping philosophy the Con ress has expressed in

our many treaties of friendship commerce and navigation We are not here dealing with a

simple agreement between two commercial interests We are dealing with an agreement

virtually dictated by the Peruvian Government acting through CPV See Footnote 6 It is

unlawful to carry out that agreement absent our approval When this Commission approves

an agreement under section IS it places the Government s thumb of approval upon the

scales PUC v Pollak 343 US 451 462 1952 Hence when this Commission approves

that agreement we tlre not too far removed from establishing a governmentto government

agreement Thus the question arises whether this Commission at its level in Government is

authorized to take action which would appear to run counter to our treaty obligations Hence

the question arises whether this Commission at its level in Government has jurisdiction under

section 15 to approve an agreement which departs from our treaties shipping philosphy or

alternatively whether that philosophy is but one of many factors as for example the

antitrust laws which we must take into consideration under section 15 in reaching adecision

to approve or disapprove Sacramento Yolo Port District v PCEC 15 F M C 15 DKT 70 18

1971 Isbrandtsen CO V US 211 F 2d 61 67 CA DC 1964

16 F M C
i

i

312 FEDERAL MARITIME COMMISSION

is classed as unreserved cargo accessible to W L and 

other two carriers The concept of full bilateralism by the u

lateral action of one of two trading partners to the exclus

of third flag operators is one which I am not prepared to acc

as a basis for approval of section 15 agreements Our conc

of equal access to commercial cargoes should compel some r

sonable accommodation between the desires of countries striv

to build up their national merchant fleets and the rights 

US flag and third flag operators

We must grant the same even handed justice to W L wh

we would grant to an American flag line or to a Peruvian 

line We must do this not only because of the directives of 

Shipping Act 1916 but also because of our Treaty with N

way In actions taken under section 15 we need not treat W 

any more favorably than we would treat an American flag o

ator suffering under the same impediments which apply in 

trade to W L i

e the inability to assist CPV in gaining ac

to carry U S Government controlled cargo Hence I ask 

self Would I

approve Agreement No 9939 if the oppon

were an American flag operator subject to the same imp

ments which are applicable to W L My answer to that q

tion for the reasons herein stated is Yes subject to the 

dition and the reservation herein mentioned

It must always be remembered that the major impedime

to W L are the increased number of Peruvian flag vessels 

the trade and the Peruvian laws and decrees not Agreem

No 9939 Whether Agreement No 9989 is approved or 

approved I am not convinced W L will be unable to sur

in the trade provided the existing level of unreserved ca

is not materially reduced It is urged by PGL that if we 

prove the Agreement the Peruvian laws and d crees will 

enforced in a manner not seriously impairing the opportun

of W L That remains to be seen We have little control o

the increase in the number of Peruvian flag vessels in the tra

Likewise the Peruvian laws and decrees are actions taken 

a sovereign in its self interest But we do have available to 

section 26 Shipping Act 1916 46 US C 825 which c

be utilized on behalf of PGL and we also have available 

tion 19 Merchant Marine Act 1920 46 U S C 876 wh

enables us to make rules and regulations to adjust or m

general or special conditions unfavorable to shipping in 

foreign trade and which arise out of or result from 

16 FM 
SEAL

S FRANCIS C HURNEY

Secretary

AGREEMENT No 9932 AGREEMENT No 9939 313

eign laws rules or regulations The options available to

us are to approve the Agreement with or without conditions

or modifications or to disapprove the Agreement and resort

to sections 19 or 26 I have opted to approve the Agreement

but with the caveat that Peruvian laws and decrees be not

implemented in a manner which burden W L beyond that de

gree which in practice presently exists We by our actions

must not unjustly worsen the position of W L and this with

reservations Iconclude we do not do

Attached as an Appendix to the Initial Decision Apr 5 1972

is a listing of approved pooling agreements With the exception of

Agreements 9020 9233 9847 and 9848 the Agreements were not

protested A few of these agreements are true bilateral agree

mentsother are multi party agreements including third flag

lines In my opinion the approval of a pure bilateral agree

ment absent any protest does not establish ipso facto Com

mission policy to approve all such agreements Such agreement

had protest been filed would have proceeded through a con

tested hearing in which facts and circumstances may have been

developed and which were not developed where no protest was

filed compelling disapproval under section 15 Hence I find

policy is not necessarily established by an approval absent any

protest

If my condition relative to W L is not adopted I would dis

approve Agreement No 9939

16 F M C
FEDERAL MARITIME COMMISSION

DoCKET No 71 71

AGREEMENT No 9982EQuAL ACCESS

To GOVERNMENT CONTROLLED CARGO AND

INTERIM COOPERATIVE WORKING ARRANGEMENT

AGREEMENT No 9989 POOLING SAILING AND EQUAL ACCES

To GOVERNMENT CONTROLLED CARGO AGREEMENT

ORDER

This proceeding having been instituted by the Federal M

time Commission and the Commission having fully consid

the matter and having this date made and entered of reco

report containing its findings and conclusions thereon w

report is hereby referred to and made a part hereof

It is ordered That Agreement No 9989 is hereby mod

to add to Article 8 a

requirement that copies of all qua

provisional and final pool statements pursuant to Article 

the agreement be furnished the Commission also that a 

Article 18 be included to read as follows

Further Agreement of the POh ties Any further agreement or u

standing of the parties pursuant to or giving effect to Articles 6 11 a

shall not be effective or implemented prior to the time that an appro

amendment with respect thereto has been filed with and approved b

Federal Maritime Commission pursuant to Section 16 of the Shipping 

1916

It is further ordered That Agreement No 9989 as so m

fied is hereby approved under section 15 of the Shipping 

1916

By the Commission

SEAL

314

S FRANCIS C HURNEY

Secret
315

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 455

MAGNOLIA FORWARDING COMPANY

v

DELTA STEAMSHIP LINES INC

NOTICE OF ADOPTION OF INITIAL DECISION AND

ORDER PERMITTING WAIVER OF CHARGES

April 10 1973

No exceptions having been taken to the initial decision in

this proceeding and the Commission having determined not to

review same notice is hereby given that the initial decision

became the decision of the Commission on April 10 1973

It is ordered That applicant is authorized to waive collection

of 2513 00 of the charges previously assessed Magnolia For

warding Company

It is further ordered That applicant shall publish promptly

in its appropriate tariff the following notice

Notice is hereby given as required by the decision of the

Federal Maritime Commission in Special Docket 455 that

effective February 19 1973 for purposes of refund or

waiver of freight charges on any shipments which may

have been shipped during the period from February 19

1973 through February 26 1973 the rate on Boats viz

Aluminum is 32 50 W1M subject to all applicable rules

regulations terms and conditions of said rates and this

tariff

It is further ordered That waiver of the charges shall be

effectuated within 30 days of service of this notice and appli

cant shall within five days thereafter notify the Commission

of the date and manner of effectuating the waiver

By the Commission

SEAL

S FRANCIS C HURNEY

Secretary
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 455

MAGNOLIA FoRWARDING COMPANY

v

DELTA STEAMSHIP LINES INC

Application to waive a portion of freight llhargeB granted

INITIAL DECISION OF HERBERT K GREER

ADMINISTRATIVE LAw JUDGE

i

I

Delta Steamship Lines Inc a common carrier by wate

the foreign commerce of the United States has applied 

permission to waive a portion of the freight charges on a s

ment of aluminum boats for Magnolia Forwarding Comp

from New Orleans Louisiana to Puerto Cortez Hondu

pursuant to a bill of lading dated February 19 1973 The s

ment weighed 2 868 pounds and measured 2365 18 cubic 

Prior to the shipment applicant s tariff on file with the C

mission provided no specific rate for boats and the Cargo N 

rate of 75 00 W1M was applicable On or about Februar

1973 Magnolia Freight Forwarding Company offered appli

16 aluminum boats destined for Puerto Cortez but stated 

were unable to pay the 75 00 W1M rate which would re

in an exhorbitant charge Applicant realizing that the 

applied to the commodity involved would be excessive ag

to carry the boats at a rate of 32 50 W1M Applicant inten

to file this rate with the Commission but through inadverte

it failed to do so and the applicable rate on file at the tim

the shipment was 75 00 W1M When applicant became aw

of its oversight it promptly filed 3rd revised page 57 effe

February 26 1973 to its tariff which specified

1

This decision became the decision of the Commleslon April 10 1978

R1A
MAGNOLIA FORWARDING COMPANY

Boats viz

Aluminum W1M 32 50

The difference between the freight collectible at the rate on file

at the time of the shipment and the freight which would be

collected at the rate applicant intended to file is 2 513 00 the

sum sought to be waived

The facts demonstrate a situation within the purview of

Public Law 90 298 which authorizes the Commission for good

cause shown to waive collection of a portion of the freight

charges when there is an inadvertent failure on the part of a

carrier to file a new tariff The application was filed within

180 days of the days of the date of the shipment and no other

shipments of the same or a similar commodity moved on appli

cant s vessels during approximately the same time as the ship

ment here involved No other proceeding involving the same

rate situation is now pending

Good cause appearing and applicant having complied with

the provisions of Public Law 90 298 permission to waive col

lection of 2 513 00 of the freight charges on the shipment

above described is granted Applicant shall publish notice in

its tariff as required by the statute The waiver of the charges

here authorized shall be effectuated within 30 days of the serv

ice of the notice and within 5 days thereafter applicant shall

notify the Commission of the date and manner of effectuating

the waiver

8 HERBERT K GREER

Administrative Law Judge

Washington D C

MARCH 21 1973

317

16 F MC
FEDERAL MARITIME COMMISSION

DOCKET No 73 6

IN THE MATTER OF AGREEMENT No T 2719

Louis Dreyfus Corporation determined not to be an other person 

to the Shipping Act 1916 within the meaning of section 1 of tha

Accordingly Agreement No T 2719 found not to be agreement b

two persons subject to the Shipping Act 1916 which must b

for approval under section 15 of that Act

William E Stapp Clifford W Youngblood and Max Hen

III for Port of Houston Authority

John H Perkins Jr for Louis Dreyfus Corporation

Judah Best for Cook Industries Inc

Robert Eikel for West Gulf Maritime Association

Donald J Brunner and Patricia E Byrne as Hearing Co

REPORT

April 20 1973

BY THE COMMISSION George H Hearn Vice Chair

Ashton C Barrett James V Day and Clarence M

Commissioners

By Order served February 26 1973 the Port of Ho

Authority PHA and the Louis Dreyfus Corporation Dre

were directed to show cause why 1 Dreyfus should n

found to be an other person subject to the Act as d

in section 1 of the Shipping Act 1916 and 2 Agree

No T 2719 between PHA and Dreyfus should not be 

subject to section 15 of the Act The Commission s Ord

Show Cause limited the proceeding to the submission of affid

and memoranda of law and replies thereto and further 

procedure to be followed by any party requesting an evide

hearing
FEDERAL MARITIME COMMISSION 319

Respondents Dreyfus and PHA have now filed memoranda

of law and affidavits of fact to which Cook Industries Inc

Cook and Hearing Counsel have replied Cook in accordance

with the procedure set forth in the Commission s Order has

also submitted a

request for an evidentiary hearing 1

to which

PHA and Dreyfus have filed responses in opposition 2

FACTS

This proceeding was prompted by the filing of an agreement

subsequently designated Agreement T 2719 between Dreyfus

and PHA whereby PHA will lease the grain elevator facilities

at Houston Texas to Dreyfus for a period of ten years

The lease provides inter alia that Dreyfus will operate these

facilities as a grain elevator in connection with shipments to

and from Houston will receive prior right to use the berths

and breathing facilities in conjunction therewith will not be

required to hire PHA employees or to assume any employee

agreement that pre existed the lease and will establish rules

and regulations governing the operation of the grain elevator

and the use of the berths and berthing facilities

Finally the Agreement is subject to a prior lease of a

portion of the facilities to the IS Joseph Company Joseph

which is engaged in pelletizing a number of different soft

or powdery substances or ingredients and in exporting the

pelletized product Presently PHA loads this pelletized product

into vessels including common carriers calling at the elevator

facility

Dreyfus has heretofore filed a proposed tariff provision which

provides inter alia that

Common carriers by water as defined by the Shipping Act of 1916 shall

not be accepted for loading at the elevator

Mr Burton M Joseph President of the I S Joseph Com

pany has filed an affidavit on behalf of his company advising

that it would be bound by the provision in the proposed

West Gulf Maritime Association WGMA has filed a document In support of Cook s

request for evidentiary hearing and has alternatively requested permission to intervene

herein While the petition to intervene was not timely filed we wi1l nevertheless grant it

Accordingly any discussion directed to Cook s request for evidentiary hearing will apply

equally to WGMA

2To the extent Dreyfus Response to Request for Evidentiary HearingH improper

constitutes a

reply to the formal Replies flied by Cook and Hearing Counsel it is stricken

from the record and not subject to consideration by the Commission in its disposition of

this proceeding

16 F M C
320 IN THE MATTER OF AGREEMENT NO T 2719

Dreyfus tariff that common carriers are excluded from 

elevator facility and that accordingly it will not use com

carriers for shipping its products from this elevator fac

once the lease between Dreyfus and PHA becomes effe

DISCUSSION AND CONCLUSION

Section 15 of the Shipping Act 1916 requires in pert

part that

Every common carrier by water or other person subject to the 

shall ftIe immediately with the Commission a true copy of 

agreement with another such carrier or other person subject to thi

to which it may be a party

An other person subject to the Act is defined in secti

thereof as being

any person not included in the term common carrier by water 

ing on the business of forwarding or furnishing wharfage dock ware

or other terminal facilities in connection with a common carrier by 

The Port of Houston Authority is clearly such an 

person It operates terminal facilities at Houston inclu

at the present the grain elevator in question here and 

result furnishes wharfage and other services in conne

with common carriers for which it has terminal tariffs o

with this Commission

Since there is no reason to believe that Dreyfus 

common carrier by water the basic issue to be resolve

this proceeding remains whether Dreyfus is an other pe

within the meaning of the Act If Dreyfus is in fact 

an other person then Agreement No T 2719 between i

PHA is one between two persons subject to the Act w

must be filed and approved by the Commission pursua

section 15 prior to its effectuation Thus the jurisdict

issue presented here is very narrow and turns entirel

Dreyfus status under the Act

a

In making this determination we have rejected 8S being wholly without merit 

alternative contention that even were it found to be a person subject to the A

Commission nevertheless lacks jurisdiction over the agreement under section 15 

the agreement is a

simple landlord tenant lease and does not contain and pr

which would require Dreyfus to act in a restrictive discriminatory or anticom

fashion In cases too numerous to mention the Commission has found arrangem

the type reRected in the lease between PHA and Dreyfus to be subject to the requ

of section 15

Section 15 requires inter alia Rling of the agreements which provide for

Footnote co

16 F 
FEDERAL MARITIME COMMISSION 321

On this point we find the Commission s decision in New

Orleans Steamship Association v Bunge Corporation 8 F M C

687 1965 to be controlling In that case the Commission held

that an operator of a terminal grain elevator who had filed

a tariff indicating that common carriers would not be served

at that facility was as a result no longer subject to the Act

because it was not furnishing services in connection with a

common carrier by water and therefore was not required to

file certain agreements for Commission approval The situation

here closely parallels the one existing in Bunge and the dis

tinctions that might be drawn between the two are not we

believe material

The determinative factor here is that neither Dreyfus nor

Joseph the holder of a lease to which Agreement T 2719 is

made subject intends to serve common carriers by water at

the grain elevator facilities under consideration herein Under

the proposed tariff filed by Dreyfus to which Josephs has stipu

lated it would be bound common carriers shall not be accepted

for loading at the elevator Since this is the identical wording

of the exclusionary tariff provision which was found to oust

this Commission of jurisdiction in Bunge and since we see no

reason to distinguish the two cases on other grounds we

conclude that Dreyfus is not an other person subject to the

Act within the meaning of sections 1 and 15 thereof As we

have heretofore indicated this determination alone is disposi

3 Continued

fixing or regulating transportation rates or fares giVing or receiving special rate

accommodations or other special privileges 01 advantages or in any manner

providing fol an exclusive preferential or cooperative working Rl rang ement

Agreement T 2719 falls squarely within the three above listed catagories determinative of

section 15 agreements

As Hearing Counsel have so succinctly pointed out since the agreement at issue provides

for 1 an exclusive arrangement whereby only Dreyfus will occupy and operate the grain

elevator at Houston and 2 a preferenUal arrangement whereby Dreyfus is given prior

right to use the berthing failities at such elevator it is clearly one providing for special

accommodations or privileges and for an exclusive or preferential working arrangement

within the meaning of section 15 Moreover sin ePHA under the Agreement agrees not

to increase dockage fees at the Leased Premises above its published dockage fee applicable

at all public wharf facilities at the Port Agreement T 2719 would also appear on its

face to provide for the fixing or regulating of transportation rates as used in that section

In addition the Commission has by interpretative rule 46 CFR 530 6 c

required the

filing of agreements between persons subject to the Act which inter alia deviate from

established tariff charges through fixed rental in liu

of tariff rates Since the rentals pro

vided in the lease here are fixed and are in lieu of the otherwise applicable terminal tariff

rates Agreement T 2719 would under the Commission s own clear and unambiguous ruling

be required to be submitted for approval given two persons subject to the Act

Thus contrary to Dreyfus assertions the Commission s jurisdiction over the subject matter

of the Agreement at issue here is supported by anyone of a number of reasons

16 F M C
822 IN THE MATTER OF AGREEMENT NO T 2719

I

I

tive of the jurisdictional issue before us Accordingly Ag

ment T 2719 is found not to be one subject to the provisi

of section 15 which must be submitted to the Commission 

approval

The fact that Agreement T 2719 does not itself prec

Dreyfus from serving common carriers at the leased facil

does not sway us from this view There is nothing in 

Shipping Act 1916 or specifically section 15 thereof w

militates against our going outside the provisions of an ag

ment to determine the status of the parties thereto Ind

in A P St Philip Inc V Atlantic Land Improvement 

18 F M C 166 1969 the Commission in reviewing a term

lease agreement found it necessary to go beyond the spe

provisions of the lease to ascertain whether Atlantic 

of the parties thereto was a

person subject to the Ship

Act Although the lease under consideration in A P St Ph

supra indicated on its face that Atlantic was not a furnis

of terminal facilities within the meaning of section 1 of 

Act and therefore not an other person subject to the 

the Commission relying on Atlantic s own admissions and 

actual activities found that Atlantic was in fact such 

other person

Dreyfus here has posted an appropriate exclusionary t

provision and otherwise made it clear that common carr

by water will not be served at the lease facilities The C

mission simply cannot ignore this tariff nor the affidavits w

have been submitted indicating that common carriers will 

be served at the lease premises These matters are determ

tive of Dreyfus status under the Act upon which our juris

tion is dependent and therefore must be considered by 

Commission along with the Agreement itself Certainly if 

Commission can as it did in A P St Philip supra go 

side the provisions of an agreement to find a party th

a person subject to the Act the obverse also applies 

the Commission should consider matters extrinsic to an ag

ment even if they should serve to oust it of jurisdiction

While it may conceivably be argued that the Commis

cannot take into consideration in this proceeding the prop

tariff provision that no common carriers will be served a

subject grain elevator because Dreyfus presently lacks 

control over the lease facility necessary to issue such a ta

such an argument clearly evades the issue The fact is 

16 F M 
FEDERAL MARITIME COMMISSION 323

Dreyfus and Joseph which has elected to be governed by

Dreyfus tariff provision have served notice that common

carriers will not be accommodated at the grain elevator The

obvious intentions of these parties in this regard can not be

disregarded To do so and require the Agreement under con

sideration to be subjected to a hearing solely because it does

not on its face preclude the serving of common carriers at the

leased facilities is not only to overlook the realities of the

situation but also to impose on the Commission the performance

of a meaningless act Since Dreyfus and Joseph have already

formally advised that they do not intend to load common

carriers at the elevator facility we fail to see why the parties

to this proceeding and the Commission should be subjected to

the lengthy and costly hearing which the approval of Agree

ment T 2719 might entail only to have Dreyfus subsequently

oust the Commission of section 15 jurisdiction through the filing

of an appropriate tariff In this era of enlightened regulation

we can conceive of no purpose to be served by such an exercise

While not conceding that the Dreyfus tariff or the Joseph

affidavit are relevant to the Commission s consideration of

Agreement T 2719 Cook has taken the position in this pro

ceeding that even if these matters are considered they are not

sufficient to support the conclusion that the terminal facilities

will not be open to common carriers by water In support of

its argument that the matters indicating that Dreyfus is not

an other person subject to the Act are inconclusive Cook

contends that the jurisdictional question presented herein raises

disputed material issues of fact which can only be resolved

in a full evidentiary hearing Accordingly we have been re

quested to consolidate this proceeding for hearing with the

investigation now under way in companion Docket No 73 7

5

Specifically the disputed material issues of fact which Cook

maintains can only be resolved through an evidentiary hearing

i This is not to mention the possible needless hardship and financial detriment which a

delay in reaching the necessary conclusion in this proceeding occasioned by any unneces

6ary evidentiary hearing might inflict on the parties 0 the Agreement

I The Commission instituted Docket No 73 7 to dettrmine

1 Whether Agreement T 2719 if found subject to the requirements of section 15

should be approved disapproved or modified pursuant to that section

2 Whether the implementation of Agreement T 2719 will result in any practice which

will subject any person locality or description of traffic to undue or unreasonable

prejudice or disadvantage in violation of section 16 of the Shipping Act 1916 and or

3 Whether the implementation of Agreement T 2719 will result in any practice which

is unjust or unreasonable in violation of section 17 of the Shipping Act 1916

16 F M C
324 IN THE MATTEROF AGREEMENT NO T 2719

I

are whether under the Agreement the subject terminal f

cilities 1 are open to use by common carriers by water 

2 will be used by common carriers by water In suppo

of the proposition that the terminal facilities are open to comm

carriers and will be used by such carriers Cook states that 

intends to prove that 1 PHA s residual rights under Agre

ment T 2719 to use the berths will keep the subject termin

facilities open to common carriers 2 the Joseph Lease w

require or will in fact result in use of the elevator 

common carriers 3 the rights of PHA or Dreyfus under t

subject Agreement will inevitably result in use by comm

carriers and 4 there is sufficient likelihood that Dreyf

itself will resort to common carriers notwithstanding its o

tariff

We cannot agree that an evidentary hearing is necessary 

resolve the narrow jurisdictional issue presented in this p

ceeding We have carefully reviewed the basis of Cook s reque

for evidentiary hearing and we find that the matters which 

would allegedly develop at a hearing are either already 

tablished to the contrary irrelevant to the present inquiry 6

wholly speculative in nature and not facts which could 

adduced at a hearing

The matters upon which Cook urges the need for a heari

are for the most part not facts at all but rather challeng

directed to the intentions of Dreyfus as expressed in its p

posed tariff provision and to the veracity of the Joseph affida

Thus Cook in questioning the bona fides of the parties 

Agreement T 2719 is in effect presenting facts not yet 

existence and then disputing them In this regard we ag

with Dreyfus that nJ 0 issue of fact is presented by Coo

bald assertion that Dreyfus does not intend to do what 

has bound itself to do We find therefore that Cook h

identified no material issue of fact upon which a hearing 

necessary To direct such a hearing then would be who

unjustified under the circumstances Accordingly we rem

of the opinion that the facts are such that the Commiss

8

Thus one of the material facts which Cook intends to prove if a

hearing is he

that PHA s right to use the berths adjacent to the elevator will keep the subject term

facilities open to common carriers An examination of Agreement T 2719 and the 

annexed thereto and made a part thereof clearly indicates that the berths are not part o

leased property Since the facility in question is the grain elevator and the berths refe

to by Cook are not part of those leased premises no hearing is necessary to establish 

fact and any suggestion that the leased facUlties will be open to common carriers Is pu

speculative

16 F M C
FEDERAL MARITIME COMMISSION 325

can as it has resolve the jurisdictional question presented as a

matter of law

We might point out however that in finding that Dreyfus

is not an other person subject to the Act we have done so

with the understanding that Dreyfus will in fact place in effect

its proposed tariff provision excluding common carriers from

the lease facilities and abide thereby If it should happen

however that the tariff provision upon which our decision

herein is primarily based is cancelled or common carriers are

served either directly or indirectly 8

at the lease facility in

question notwithstanding that tariff provision then the Com

mission will take appropriate action as it does in any case

involving an unapproved section 15 agreement

An appropriate order will be entered

Chairman Helen Delich Bentley dissents

8 FRANCIS C HURNEY

SEAL Secretary

Chairman Helen Delich Bentley dissenting

The ultimate result reached by the majority in this proceed

ing i

e that Agreement T 2719 need not be filed with the

Commission for approval pursuant to section 15 is based on

the singular finding that Dreyfus one of the parties to the

terminal lease agreement is not an other person subject to

the Act within the meanings of sections 1 and 15 thereof

While it may well be that in the final analysis Dreyfus is in

fact not an other person I cannot agree that this determina

tion can be made on the basis of the facts and information

presently before the Commission

I cannot agree with the majority decision as I believe it is

based on an unduly strict and narrow interpretation and ap

plication of section 15 The logic of the majority appears to

be that if a lessee of a terminal facility announces in a

proposed tariff that common carriers will not be served at the

facility once the lease agreement is executed this is without

1 In view of our findings and conclusion herein Cook s

request for an evidentiary hearing

and its request for oral argument are both denied

8

This should serve to allay the fears implicit in Hearing Counsel s support of Cook s

request for hearing that common carriers who arc not served directly at the grain elevator

may be served indirectly elsewhere at the Port

16 F M C
1

326 IN THE MATTER OF AGREEMENT NO T2719

adducing any further probative evidence as to the lessee s sta

sufficient to remove such person from the regulatory amb

section 15 With all deference to my fellow Commission

there are in my opinion sufficient material issues of fac

this proceeding regarding Dreyfus status under the Ac

necessitate a full evidentiary hearing

It has long been the established policy of this country 

full and open competition is to be encouraged and that 

certed action by members of all segments of our business 

munity is to be avoided but if permitted strictly and stro

regulated In enacting section 15 and thereby permitting 

tain forms of concerted activity which would otherwise 

unlawful under the antitrust laws Congress confided in 

agency extensive powers of approval and control as the 

dition precedent to the carry out of any of such conce

activities covered by the section s rather all inclusive langu

While section 15 admittedly had for its primary purpose 

recognition of anticompetitive combinations of common car

in our waterborne foreign commerce along lines which w

eliminate the evils flowing therefrom the legislative his

of the Shipping Act makes it clear that Congress was 

seriously concerned with terminal lease agreements In

one of the specific recommendations of the so called Alexa

Committee which recommendations were generally follo

in framing the Shipping Act 1916 was that terminal ow

be required to make their terminal facilities availabl

water carriers on equal terms

Section 15 therefore in investing terminal leases and 

would particularly apply to those involving public facilit

with a strong public interest clearly imposed on us the 

of insuring that those who are permitted to enter into 

agreements and thereby engage in activities which would o

wise be unlawful satisfy its statutory standards at the 

that they file as well as continuously thereafter In Re P

Coast Eu opean Conference 7 F M C 27 35 1961 As 

court explained in Isbrandtsen Co Inc v United States 

F 2d 51 D C Cir 1954

The condition upon which such authority under section 15 is gran

that the agency entrusted with the duty to protect the public in

scrutinize the agreement to make sure that the conduct thus legalized 

not invade the prohibitions of the antitrust laws any more than is nec

to serve the purposes of the regulatory statute 211 F 2d at page 57

e 16 

C
FEDERAL MARITIME COMMISSION

To now hold as the majority has done that a party to a

terminal lease agreement can avoid the Commission s scrutiny

over such leases by the single simple expedient of proposing

a so called exclusionary tariff clause is to emasculate one of

the very powers which Congress intended the Commission to

have in order to more properly supervise the shipping in

dustry I submit that more is required to oust this agency

of jurisdiction over an agreement which on its face meets the

applicability criteria of section 15 To rule as the majority

has done here is to provide a vehicle for parties to agreements

otherwise subject to section 15 to manipulate the Commission s

authority under that section To the extent that it will allow

for such manipulation Iam seriously concerned with the breadth

of the majority s action

As I

interpret today s action by the majority it means that

mere representations by a

party will be conclusive as to that

party s status under the Act regardless of the fact that such

status is not supported by the clear and uncontested language

of the agreement in question or otherwise established on the

record The Commission has afforded Dreyfus in this proceed

ing ample opportunity to supply whatever facts and or informa

tion were necessary to support its position regarding its non

person status under the Act Rather than responding in par

ticulars Dreyfus has been content to rely on its exclusionary

tariff provision and the Joseph affidavit which states that

Joseph will not use common carriers at the grain elevator

facility While Joseph in that same affidavit also indicates that

it will in all likelihood continue to make some use of com

mon carriers at Houston intend s to load such vessels

at other facilities in the Port absolutely no explanation is

offered as to how this will be accomplished As noted by the

Commission s own Hearing Counsel w ithout this factual

information the Commission cannot determine whether Dreyfus

will be obligated to serve common carriers by water because

its lease is subject to the Joseph lease

Clearly if Joseph intends to service common carriers by

loading grain from the Dreyfus elevator into such carriers

elsewhere at the Port then such action will reflect on Dreyfus

status under the Act Confronted with this possibility the

majority summarily dismisses it with the threat of future

appropriate action if the situation turns out to be different

than what it understands it to be Thus rather than in

16 FMC

327
828 IN THE MATTER 01 AGREEMENT NO T2719

vestigating the matter thoroughly before denying jurisdict

the majority is content to adopt a waitand see attit

and indulge in some Monday morning quarterbacking So

how I don tbelieve that this regulation in retrospect appro

is what Congress contemplated when it enacted section 15 

vested its administration in this agency The mandates 

section 15 are not to be taken so lightly

In conclusion therefore I must reiterate that while 

not necessarily disagree with the conclusion reached by 

majority I do disagree with the means used to achieve 

result My opinion is that there exists in this procee

material issues of fact as yet unresolved which require a 

evidenitary hearing for their ultimate disposition Absent 

information that this hearing would elicit especially the e

of Joseph s operations on Dreyfus status under the Act 

Commission cannot make the necessary findings and determ

tions in this proceeding

S FRANCIS C HURNEY

Secreta

16 F 
329

FEDERAL MARITIME COMMISSION

DOCKET No 73 6

IN THE MATTER OF AGREEMENT No T 2719

ORDBR

This proceeding having been initiated by the Federal Mari

time Commission and the Commission having this day made

and entered a report stating its findings and conclusions herein

which report is made a part hereof by reference

It is ordered That this proceeding be and hereby is dis

continued

By the Commission

SEAL

8 FRANCIS C HURNEY

Secretary
FEDERAL MARITIME COMMISSION

WASHINGTON D C

SPECIAL DOCKET No 454

COLORADO BEVERAGE CO INC

11

LYKES BROS STEAMSHIP CO INC

May 8 1978

NOTICE OF ADOPTION OF INITIAL DECISION

No exception having been taken to the initial decision in 

proceeding and the Commission having determined n

review same notice is hereby given that the initial de

became the decision of the Commission on May 8 1973

By the Commission

SEAL

S FRANCIS C HURNEY

Secret

I
FEDERAL MARITIME COMMISSION

SPI CIAL DOCKET No 454

COLORADO BEVERAGE CO INC

V

LYKES BROS STEAMSHIP CO INC

May 8 1978

Aplllication to waive a

llorlion of freight charges granted

INITIAL DECISION OF CHARLES E MORGAN

ADMINISTRATIVE LAW JUDGE 1

This application filed February 26 1973 by respondent Lykes

Bros Steamship Co Inc asks permission to refund a portion

of the ocean freight charges on 2925 cases of rose wine listed

on three bills of lading shipped in three forty foot containers

975 cases in a container from Bilbao Spain via Bremer

haven Germany to Houston Texas on August 31 1972

From Houston the wine was transported by rail piggyback to

the complainant Colorado Beverage Co at Denver Colorado

The charges for inland transportation are not in issue

The applicable rate on wine when the three shipments moved

was on the weight basis of 70 15 per ton of 1 000 kilos But

this rate was subject to rule 18 2C of the tariff which pro

vided that the minimum ocean freight per container was 27 00

per cubic meter based on the inside measurement of the con

tainer in the case of transshipped cargo as distinguished from

direct call cargo where the similar container minimum was

21 per cubic meter The cargo in issue herein was pre

carried by the SS Cometa from Bilbao to Bremerhaven and

there transshipped onto the SS Ashley Lykes

J

This decillion beeame the deeilion of the Commission lI8 I 1973
COLORADO BEVERAGE v LYKES BROS STEAMSHIP

The three containers were furnished by Lykes Bros Two 

the containers apparently each measured about 67 3 cu

meters and the third container measured about 66 9 cu

meters all being inside measurements The bills of lading 

dicate freight charges on the basis of rule 18 2C respective

of 1 817 10 plus 5 5 percent currency surcharge of 99 94 

a total of 1 917 04 for each of two of the containers a

1 806 80 plus 99 85 or a total of 1 905 65 for the th

container The total charges for the three containers bas

on the bill of lading figures is 5789 73 The application ho

ever states that the aggregate freight charges actually c

lected were 5 702 70

The consignor of the wine was Hiram Walker Europa S 

The consignee of the wine is the complainant At the time 

the rate quotation the consignee complainant was not inform

of the existence of rule 18 2C above and of the consequ

minimum container charge in the tariff Complainant ba

its costs and sales prices for the wine erroneously on the r

of 70 15 per 1 000 kilos

Since the complainant s shipments moved the rate on w

has been reduced in that there became effective on Decem

11 1972 a lump sum minimum of 1 450 per container wh

the wine is shipped in carrier supplied forty foot long c

tainers This new minimum applies to the same rate of 70 

per 1 000 kilos

The application seeks a refund based on the new 1 

container minimum which makes charges of 4 350 on th

forty foot containers of wine The refund sought is 1 352 

the difference between 5702 70 and 4850

This is not an instance of an inadvertent error in the ta

but it is a situation where the tariff has been changed after 

shipments moved The present application is not the t

provided for under section 18 a 8 of the Shipping Act 19

Carriers must charge their lawfully published rates

Accordingly the application for permission to refund a

p

tion of the ocean freight charges is denied

S CHARLES E MORGAN

Administrative Law Judg

Washington D C

APRIL 12 1973

382

16 F M 
FEDERAL MARITIME COMMISSION

DOCKET No 71 9

Ross PRODUCTS A DIVISION OF NMS INDUSTRIES INC

AND TAUB HUMMEL SCHNALL INC POSSIBLE VIOLATIONS OF

SECTION 16 FIRST PARAGRAPH SHIPPING ACT 1916

ADOPTION OF INITIAL DECISION

May 30 1973

This proceeding is before us on exceptions to the Initial

Decision of Administrative Law Judge John Marshall served

October 16 1972 in which the Administrative Law Judge con

cluded that the record did not demonstrate that the practice

of Taub Hummel Schnall Inc Taub of showing indif

ference to apparent discrepancies of descriptions as between

shipping documents was of such a degree to constitute a

violation of section 16 First of the Shipping Act 1916 46

D S C 815 the Act Further the Administrative Law Judge

found that the record did reveal that Ross Products Ross

as a consignee did violate section 16 First of the Act indirectly

by knowingly and willfully consenting to the misdescription by

the foreign shippers of various commodities on the bills of

lading in order to obtain transportation by water of those

articles at rates less than those which would otherwise be

applicable

Hearing Counsel excepted to the Initial Decision while Taub

supported the Administrative Law Judge s decision Ross did

not file an exception to the Initial Decision

The exceptions fall into three distinct categories The first

is a disagreement with the conclusion of the Administrative

Law Judge that there is no evidence of record to substantiate

that Taub being the expert was not in possession of suf
SS4 FEDERAL MARITIME COMMISSION

ficient facts that a misclassification of cargo may have resu

in an improper assessment of freight rates

The second relates to the standard of duty imposed on T

Hearing Counsel contend that Taub who holds itself ou

be qualified to render valuable service to an importer w

have the working knowledge of Customs tariff schedules 

definitions to conclude that the commodities in question sh

not have been classified as toys

The third is directed at Taub s assertion that it is a l

corporation with many clerks who simply do not com

information on various documents which were handled 

them Hearing Counsel argue not only is the case law 

that a corporation such as Taub is not exculpated becaus

action which resulted in a violation of law was performe

its employees but also that the record reflects no evid

presented by Taub that it is a large corporation with m

clerks or that more than one such clerk prepared and or 

documents on behalf of Ross by simply copying inform

from one document to another without knowledge as to 

documents contents

We find that the exceptions of Hearing Counsel are 

sentially a reargument of contentions which were exhaus

briefed and considered by the Administrative Law Judge i

Initial Decision Upon careful consideration of the re

and the exceptions we conclude that the Administrative 

Judge s factual findings and his conclusions with respect th

were well supported and correct Accordingly we hereby a

the Initial Decision as our own and make it a part he

Therefore it is ordered That this proceeding as to T

will be discontinued

By the Commission

SEAL

8 FRANCIS C HURNEY

Secret

16 F 
No 71 9

FEDERAL MARITIME COMMISSION

Ross PRODUCTS A DIVISION OF NMS INDUSTRIES INC

AND TAUB HUMMEL SCHNALL INC POSSIBLE VIOLATIONS OF

SECTION 16 OPENING PARAGRAPH SHIPPING ACT 1916

Ross Products found to have violated section 16 opening paragraph of the

Shipping Act 1916 TauHummel Schnall Inc not so found

Seymour Kligler and David R Kay for respondent NMS

Industries Inc

Albert Adams for respondent Taub Hummel Schnall Inc

Paul J Kaller and Donald J Brunner Hearing Counsel

INITIAL DECISION OF JOHN MARSHALL

ADMINISTRATIVE LAW JUDGE 1

By Notice of Investigation and Hearing served January 22

1971 the Commission initiated this proceeding pursuant to

sections 16 and 22 of the Shipping Act 1916 46 USC 815

821 to determine whether Ross Products a division of NMS

Industries Inc and or Taub Hummel Schnall Inc violated

section 16 opening paragraph of the Shipping Act 1916 the

Act by obtaining transportation by water for shipments of

mirrors immersion heaters photo albums glass animals window

chimes and grass beach mats at less than the applicable rates

by miscIassifying the shipments as toys

THE FACTS

1 Ross Products Ross an importing firm located in New

York City was the consignee of the nine shipments here in

1This decision became the decision of the Commission May 30 1973
336 FEDERAL MARITIME COMMISSION

volved NMS Industries Inc NMS is a corporation 

which Ross is a division Taub Hummel Schnall Inc Ta

is a customhouse broker and independent ocean freight 

warder FMC License No 148 who entered and endeav

to clear these shipments with the Bureau of Customs Custom

2 The bills of lading all of which were within the pe

April through October 1969 and all of which described 

contents of the nine shipments involved in the Commiss

Order of Investigation and Hearing as toys were prep

in Japan by either Kansai Glass Industries Co Ltd 

Osaka Japan or Far East Trading Corp of Osaka Ja

and or their foreign freight forwarders Rengo Tsuun Co 

of Kobe Japan and Daido Soko Unyu KK of Kobe Ja

As all of these parties are domiciled in Japan they are 

course outside the direct jurisdiction of the United State

3 The Consumption Entry or C E and the Transporta

Entry and Manifest of Goods Subject to Customs Inspe

and Permit otherwise known as the LT are the docum

Customs uses for inspection TheC E is evidence of 

ment of the duty and is therefore requir13d by Customs 

release of the mechandise The LT is a description of 

merchandise and a statement as to the quantity in the shipm

4 Taub prepared and filed the C E with Customs 

information received from Ross All of the C E s desc

the shipments as specific commodities and not as toys 

carrier prepared and filed the LT s with Customs from 

formation contained in the bills of lading All of the 

with Customs form information contained in the bills 

lading All of the LT s therefore described the shipment

toys and not as specific commodities

5 Customs does not inspect the cargo until the LT is 

ceived Customs verifies the bill of lading description as 

forming to the description in the C E when the billing c

ing payment of the duty is given back to the broker How

Customs examination of a shipment revealed that it cons

of specific commodities whereas the IT s described the 

chandise collectively as toys While the record is not 

clusive as to the exact amount it is clear that the p

rates applicable to specific commodities contained in the 

shipments totaled between 1 800 and 2 000 more than 

toys

16 F 
ROSS PRODUCTS AND TAUB HUMMEL SCHNALL INC 337

DISCUSSION

Preliminarily reference should be given to respondents joint

motion seeking the dismissal actually discontinuance of this

investigation on the grounds that the Commission lacks au

thority to investigate violations of section 16 by consignees

and or customhouse brokers Although the motion which was

coupled with a contingent request for leave to appeal to the

Commission was denied in its entirety by ruling of the Ex

aminer prior to the hearing herein and has not since been

renewed on brief or otherwise the substance and arguments

remain of some relevance

The opening paragraph of section 16 provides as follows

That it shall be unlawful for any shipper consignor consignee for

warder broker or other person or any officer agent or employee thereof

knowingly and wilfully directly or indirectly by means of false billing

false classification false weighing false report of weight or by any other

unjust or unfair device or means to obtain or attempt to obtain transporta

tion by water for property at less than the rates or charges which would

otherwise be applicable Emphasis added

Section 22 provides

That any person may file with the board a sworn complaint setting forth

any violation of this Act by a common cafrier by water or other person sub

ject to this Act and asking reparation for the injury if any caused thereby

The board shall furnish a

copy of the complaint to such carrier or other

person who shall within a reasonable time specified by the board satisfy

the complaint or answer it in writing If the complaint is not satisfied the

board shall except as otherwise provided in this Act investigate it in such

manner and by such means and make such order as it deems proper The

board if the complaint is filed within two years after the cause of action

accrued may direct the payment on or before a day named or full repara

tion to the complainant for the injury caused by such violation

The board upon its own motion may in like manner and except as to

orders for the payment of money with the same powers investigate any

violation of this Act Emphasis added

By definition contained in section 1 it is provided that

The tenn common carrier by water means a common carrier by water

in foreign commerce or a common carrier by water in interstate commerce

on the high seas or the Great Lakes on regular routes from port to port

The tenn other person subject to this act means any person not included

in the term common carrier by water carrying on the business of for

warding orfurnishing wharfage dock warehouse or other terminal facilities

in connection with a common carrier by water

Respondents reason that since the shipments were consigned

to Ross and since Taub was the customhouse broker they are

16 F MC
338 FEDERAL MARITIME COMMISSION

encompassed within the section 16 reference to consign

and broker respectively It is then contended that sec

22 in setting forth the Commission s jurisdiction in regard 

investigations of alleged violations of the Act permits 

complaint to be filed only against a common carrier 

water or other person subject to this Act As nei

consignees or brokers are within the section 1 definitions 

such common carriers or other persons respondents conc

that they are not subject to complaints filed with the C

mission pursuant to the first paragraph of section 22 and 

the same jurisdiction limitation is applicable to the C

mission s power to investigate a violation of the Act un

authority of the second paragraph of section 22

Formal adjudication proceedings of the Commission w

include all section 22 proceedings fall within two categor

1 There are complaint cases which are instituted by any 

son filing with the Commission a complaint in proper f

setting forth alleged violations of one or more sections of 

Act and usually though not necessarily seeking reparation 

injury caused thereby and 2 there are investigation c

which are instituted by order of investigation issued by 

Commission Such orders are customarily as in this c

upon the Commission s own motion This is the practice 

though reference may be directed to protests filed by oth

Complaint cases originate are processed and finally 

cluded in accordance with the provisions of the first parag

of section 22 Investigation c es are completely and exclus

governed by the second paragraph of section 22 The fact 

the second paragraph is spared needless repetition by u

the proviso that the Commission may in like manner and

with the same powers as in the first paragraph investi

2The single case cited by respondents United States v American Union 7 ranspor

282 F Supp 700 1964is not relevant here insofar as it Is addressed to the abse

exclusive primary jurisdiction in the Commission over conduct on which criminal c

are based However this decision at page 702 does offer a severable finding which 

point i

e that USectklDs 22 through SO of the Act empower the Commission to inve

on the complaint of any person or on its own motion any violation of the Shippin

1916 including section 16 and to make after a hearing an order to remedy any v

found Respondents reliance on a portion of the legislative history of Public Law 

as drawn from Senate Document No 100 87th Congo 2d Sess at page 185 is als

placed The reference there was to complaints claiming reparation against sh

Moreover the Commission sproposed legislation cited by respondents was as found 

above mentioned prior ruling herein for the purpose of obtaining clarifying leg

as to existing authority and not enabUna legislation with respect to new authority

a

Special Dockets which concern applications unrelated to section 22 are authori

special legislation and are therefore not included

16 F M 
ROSS PRODUCTS AND TAUB HUMMEL SCHNALL INC 339

any violation of this Act does not result in the incorporation

into the second paragraph of any further requirements or

restrictions from the first paragraph Had the second paragraph

been written to provide that the Commission upon its own

motion may investigate any violation of this Act in such

manner and by such means and except as to orders for the

payment of money make such order as it deems proper it

would say nothing more or nothing less than it now says It

would apply as it now does to any violation of any section

of the Act including the opening paragraph of section 16 by

anyone including shippers consignees and brokers perhaps

more patently but no more certainly than in its present form

Continuing emphasis must however be given to the equally

certain fact that the second paragraph has no concern with

complaint cases or provisions for the award of reparation

Reliance upon decisions or legislative histories having to do

with such matters are therefore misplaced when applied to

Commission investigations under this paragraph At the time

of the violations here in issue decisions and legislative histories

concerning penalties for violations were likewise inappropriate

because the Commission had no authority to impose penalties

It was required to forward all cases involving findings of viola

tions appearing to deserve penalties to the Department of

Justice for whatever action the Department deemed fit

Beyond further question the Commission s jurisdiction under

the opening paragraph of section 16 and the second paragraph

of section 22 extends to shippers consignees brokers and any

and all other persons This is emphatically but unnecessarily

confirmed by the cited amendment 5

The Evidence of Violations

By way of confession and avoidance Ross argues that even

if its actions are found to be within the Commission s jurisdic

tion there would be no culpability because on the basis of

the record there is no proof that it misclassified the shipments

See Luis Louis A Pereira CQllection of Brokeraue 5 F M B 400 1958 Misclass

jication and Misbilling of GlaSB Articles 6 F M B 155 1960 aff d in part rev d in part

8ub nom Royal Netherlands Steamship Co v Federal Maritime Bd 304 F 2d 938 D C

Cir 1968 and States MarineMHohenberg 8708 Sec 16 Violation 7 F M C 1961

6

Public Law 92M416 92nd Congress HR 755 approved August 29 1972 amends the Act

by converting certain criminal penalties into civil penalties and providing that these may

be either compromised by the Commission or recovered by the United States in civil actions

Section 16 in pertinent part is specifically included

16 F M C
340 FEDERAL MARITIME COMMISSION

knowingly and willfully The record is typically diffuse an

encumbered with irrelevancies regarding this legalism Neve

theless there is sufficient evidence to find that Ross did violat

the Act This is because the Commission s interpretations 

scienter as set forth in the statute require strict busines

propriety It has been held that persistent failure to infor

or even attempt to inform himself by means of normal bus

ness resources might mean that a shipper consignee

was acting knowingly and willfully in violation of the Ac

Diligent inquiry must be exercised by shippers consignees

in order to measure up to the standards set by the Ac

Indifference on the part of such persons is tantamount 

outright and active violation Parenthetical references added

Misclassijication of Tissue Paper 4 F M B 483 486 Ross ha

indicated that it was familiar with the applicable rates 

the exhibits herein some of the Consumption Entries are copi

from the files of the United States Customs Court New Yor

N Y Decisions of this court are subject to official noti

by this Commission This includes decisions concerning protes

instituted by importers of merchandise to challenge the a

praisement or classification of imported goods or other d

cisions of the Bureau of Customs arising out of the administr

tion of the tariff laws and schedules

Appeals from the Customs Court are to the Court of Custom

and Patent Appeals A number of decisions of these Court

indicate that Ross has been an established importer doi

business since 1932 7 and that it has had long and profoun

experience with the problems of classification of cargoes

The penchant for making a decision in one s own favor 

the fundament of business ethics was legislatively recogniz

and is the essence of the offense here concerned Regulato

recognition of this goes as far back as the year followin

the establishment of the Interstate Commerce Commission

Underbilling in its devices and ite fruits must necessarily be participa

in by the owner of the goods Re Underbilling 1 IC R 813 821 188

6ROBS Produots Inc v Unit6d States 62 CCR 688 CD 8849 1969 RoB Produots Ino 

U ited Stat 62 CCR 61 CD 2486 1964 Ro Produ ts 1 v U ited State 46 C

290 Ab 64608 1960 Ro Produ ts 1 V U it d Stat 48 CCR 186 CD 2124 196

BOB8 Products Inc v United Stats 48 CCR 74 CD 2106 1959 ROBS Products Ino 

United Statea 41 CCR 560 RD 9225 1968 ROBS Product Inc v

United States 

CCR 168 CD 1976 1967 Ro Produ ts 1 v U ited Stat 89 CCR 197 CD 1927 19

ROB Product Inc v United States 15 CCR 227 Aba 50829 1957

1 Mr Hyman Ross was a partner in a partnership which he established in 1982 It 

incorporated in 1948 as Rose Products Inc and he became Chairman of the Board 62 C

688 supra at 689

16 F MC
ROSS PRODUCTS AND TAUB HUMMEL SCHNALL INC 341

Title 19 USC 1202 Customs Duties Tariff Schedules of the

United States Sched 7 Part 5 2 indicate For the purposes

of the tariff schedules a toy is any article chiefly used for

the amusement of children or adults If Ross had a doubt

as to the proper tariff designation of its commodity it had

a duty to make diligent and good faith inquiry of the carrier

or conference publishing the tariff Emphasis added Rubin

Rubin Rubin Corp et al 6 F MB 235 239 1961 If

these questions are presented they have been brushed aside

in the race for business which absorbs the entire community

Re Underbilling supra at page 814 On this record it is a

fair conclusion that Ross has disregarded those means which

normal business resource and acumen dictate as requiring

reference in determining proper classifications Rates from

Japan to United States 2 U S M C 426 434 1940 This is

buttressed by the fact that where discrepancy was found

supplemental billing was paid without objection by Ross or

NMS Moreover Ross Products had imported mirrors FOB

factory in Japan at over 120 a dozen for approximately the

preceding two years After such extensive and regular business

experience complete familarity with the applicable tariffs and

proper interpretation thereof must be a certainty It is beyond

cavil that mirrors immersion heaters photo albums glass

animals window chimes and grass beach mats are no more

toys than glass tumblers would be jars or glass cooking ware

would be bottles A construction which does such violence to

the clear meaning of a tariff at best manifests such an

indifference and lack of care in construing the tariff as to

constitute a deliberate violation of section 16 See Rates for

United States to Philippine Islands 2 U S M C 535 542 1941

Otherwise stated Ross knowingly and willfully by means

of false classification obtained transportation by water at

less than the rates or charges which would otherwise have been

applicable

With respect to Taub however there is insufficient evidence

to sustain a finding that it violated the Act

By definition a customhouse broker is an agent who acts

for merchants in entering and clearing goods and vessels

Webster s Third New International Dictionary of the English

Language Unabbridged 1967 Customhouse brokers are licensed

by the Secretary of the Treasury Title 19 use 1641 Licens

ing requires among other things that qualification to render

16 F MC
842 FEDERAL MARITIME COMMISSION

valuable service to importers and exporters be conside

Licenses may be revoked or suspended on grounds of inco

petency disreputableness or refusal to comply with the ru

and regulations issued under the section or with intent 

defraud to willfully and knowingly deceive mislead or threa

any importer exporter claimant or client by word circu

letter or advertisement

As observed before Taub is also a licensed independent oc

freight forwarder While there is authority vested in the C

mission over freight forwarders there is no such autho

over customhouse brokers Nevertheless the functions of cust

house broker and freight forwarder overlap and blend 

each other i

e good and valuable service to importe

Moreover in General Order 4 Rev 46 CFR 510 510 2 

Definitions the term freight forwarding service me

a service which includes among many other things clea

shipments in accordance with United States Government reg

tions etc Accordingly a customhouse broker s functions 

this situation are con uent with those of a freight forwa

and it is this nexus or area of concern that settles 

question of the Commission s jurisdiction in the affirma

at least in this instance See Volkswagenwerk V FMC 

U S 261 1968

Testimony of the Customs witness indicates that Taub 

the bills of lading in their possession The record also indic

that the bills of lading were in the possession of the car

The source of information used by Taub in the prepara

of the Summary of Entered Values is not revealed by 

record The C Es were prepared by Taub from informa

furnished by Ross The Request for Return of the B L 

prepared by Taub from the B L It has been observed t

A freight forwarder in following written instructions from its prin

is not thereby insulated from a finding of a violation of section 16 o

Act as to the forwarder A registered freight forwarder holds iteelf o

the shipipng public as an expert in the handling of ocean freight an

expertise includes a knowledge of applicable tariffs The forw

has a duty to take reasonable steps to inform itself as to the natu

the cargo it is handling and to act lawfully with respect thereto Huzel

Glus8 So MisclCUlsificuticm of GlaBs Tumbl8 l

8 5 F MB 515 520

As observed in Misclassification and Misbilling of G

Articles suP 1

a at page 159 Section 16 is violated by ship

and forwarders if the false classification and the false bi

16 F M 
ROSS PRODUCTS AND TAUS HUMMEL SCHNALL INC 343

were knowingly and willfully made Whether Tauh is con

sidered as customhouse broker or freight forwarder the out

come is the same The record is insufficient to show that Tauh

was in pari delicto with Ross or that its acts were other than

honest inadvertance or oversight There is then no showing

of scienter on the part of Tauh Hence Tauh did not know

ingly and willfully participate in the false classifications of the

shipments involved

ULTIMATE CONCLUSIONS

Upon consideration of all the foregoing facts it is con

cluded and found

1 that Ross Products a division of NMS Industries Inc

violated section 16 opening paragraph of the Shipping Act

1916 and

2 that the record does not show that Tauh Hummel

Schnall Inc violated the Act

S JOHN MARSHALL

Administrative Law Judge

Washington D C

OCTOBER 16 1972

16 F MC
FEDERAL MARITIME COMMISSION

DOCKET No 70 28

GENERAL INVESTIGATION OF PICKUP AND DELIVERY

RATES AND PRACTICES IN PUERTO RICO

June 5 1973

Carriers rate increases for pickup and delivery services in Puerto 

found just and reasonable since they covered only the increas

carriers fixed costs

The practice of permitting shippers or consignees who elect to use 

pickup and delivery service offered by the ocean carriers in P

Rico to select the truckers who will transport the shipments bet

ocean terminals and inland points found unlawful as constitutin

unreasonable practice within the meaning of section 18 a Shipping 

1916 and section 4 of Intercoastal Shipping Act 1933 and respon

ordered to cease and desist from such practice

Ambiguous tariff provisions with respect to area included within pickup 

delivery point Catano found unlawful under section 2 of Interco

Shipping Act 1933 and tariff amendment ordered

A tariff provision which constitutes an offer to arrange pickup and 

livery on behalf of shippers and consignees for shipments not acc

respondents pickup and delivery service found not unlawful

Transamerican Trailer Transport Inc and Sea Land Service Inc 

to have violated section 2 of the Intercoastal Shipping Act 193

waiver of their tariff forced delivery rules

Tariff provisions defining a trailerload as less than the capacity of a 

trailer for pickup and delivery purposes found not unlawful

Transamerican Trailer Transport Inc found to have violated section 

the 1933 Act by carrying out a special arrangement with a sh

contrary to its tariff in providing service to a shipper contrary 

stop off rule and in failing to set forth in its tariff a description o

service whereby it arranges as shippers agent for pickup and de

for shipments not accorded the carriers pickup and delivery servic

Warren Price Jr R L Dausend and Frank Hiljer Jr 

respondent Sea Land Service Inc
FEDERAL MARITIME COMMISSION 345

S S Eisen and Joseph Hodgson Jr for respondent Seatrain

Lines Inc

George F Galland Amy Scupi and David T Stitt for re

spondent Transamerican Trailer Transport Inc

Mario F Escudero and Dennis Barnes for petitioner Com

monwealth of Puerto Rico

Amadeo 1 D Francis for intervener The Puerto Rico Manu

facturers Association

Donald J Brunner and Margot Mazeau Hearing Counsel

REPORT

BY THE COMMISSION Helen Delich Bentley Chairman rllorge

H Hearn Vice Chairman Ashton C Barrett James V

Day and Clarence Morse Commissioners

We instituted this proceeding to determine whether certain

increased pickup and delivery charges in Puerto Rico filed by

respondents Sea Land Service Inc Sea Land Seatrain Lines

Inc Seatrain and Transamerican Trailer Transport Inc

TTT are unjust unreasonable or otherwise unlawful under

section 18 a of the Shipping Act 1916 the 1916 Act and or

sections 3 and 4 of the Intercoastal Shipping Act 1933 the

1933 Act and further to determine whether the charges and

practices of the respondents related to their pickup and deliv

ery services in Puerto Rico may be in violation of section 18 a

of the 1916 Act and or sections 2 3 and 4 of the 1933 Act

Administrative Law Judge Herbert K Greer issued an initial

decision in which he found that the carriers rate increases for

pickup and delivery services in Puerto Rico were not unjust

unreasonable or otherwise unlawful but held that certain prac

tices of respondents relating to the services were unlawful

Exceptions to the initial decision have been filed by Sea Land

and Hearing Counsel and replies thereto by Sea Land Hearing

Counsel TTT and Seatrain We have heard oral argument

FACTS

1 TTT Sea Land and Seatrain are common carriers by

water and in connection with ocean transportation they offer

pickup and delivery service the service in Puerto Rico be

1No exceptions were filed to the Administrative Law Judge s findings of fact and we

hereby adopt them as our own omitting onlY quotation marks for convenience

16 F M C
846 PICKUP AND DELIVERY PUERTO RICO

tween their terminals and the places of business of shippers 

consignees their tariffs providing charges for the service s

rate and apart from the ocean transportation rates

2 Trailerload TL service where not restricted by ta

is optional however Sea Land and TTT make delivery ma

tory for certain less than trailerload LTL shipments

3 The service is performed by independent Puerto R

truckers and the practice is to permit the shipper or consig

to designate the trucker

4 Truckers performing the service are required by resp

ents to execute Trailer Interchange Agreements under the te

of which the trucker is required to carry a liability in

ance b comprehensive fire theft and damage plus coll

and upset insurance covering respondents trailers and c c

insurance The insurance under b and c may be prov

by respondents under their own policies and if so provide

combined rate of 8 is deducted from payments due the tr

ers

6 The rates for the service as set forth in respond

tariffs vary according to zones on the island which are n

bered 1 lA 2 8 4 6 6 and 7 Prior to December 10 1

the rates ranged from 30 00 to 60 00 per trailerload dep

ing upon the zone in which the pickup or delivery poin

located A point or station refers to a particular 

town village or other area which is treated as a unit in a

ing the charges

6 Respondents tariffs provide for base points at San J

Ponce or Mayaguez however they provide a substituted 

ice through San Juan for cargo rated for Ponce and Maya

and absorb the cost of the substituted service

7 For years after the institution of the service the truc

of containerized cargo was stabilized by an agreement whe

respondents paid the charges assessed by truckers and in 

filed these charges with this Commission however as 

passed truckers increased their charges for zones 3 4 5 6 

7 and until the increased rates here at issue were filed 

spondents absorbed the excess over rates paid to truckers 

the charges assessed by them to shippers or consignees

8 The rate increases here under consideration are fo

purpose of eliminating respondents absorptions of tru

charges to zones 3 to 7 inclusive

16 F 
FEDERAL MARITIME COMMISSION 347

9 The Puerto Rico Public Service Commission requires

truckers to file pickup and delivery tariffs however the re

quirement is not enforced Machinery to enforce the require

ment is being established and it is anticipated that in approxi

mately one year trucker tariffs and cost information will be

on file

10 Pickup and delivery charges by Puerto Rico truckers

including the organized truckers are not uniform Truckers

may provide the service at the rates set forth in respondents

tariff or may and at times do compete against other truckers

by negotiating rates directly with the shippers consignees

which are lower than respondents rates

11 The pickup and delivery charges for TL and LTL ex

ceeding 8 000 pounds which have been negotiated between

truckers and shippers consignees were generally lower than

the corresponding rates set forth in respondents tariffs truck

ers charging the lower rates considering volume contract terms

and availability of backhauV

DISCUSSION AND CONCLUSIONS

The Increased Rates

No exceptions were taken to the Administrative Law Judge s

disposition of the issue of the reasonableness of respondents

rate increases We adopt the Administrative Law Judge s con

clusions as our own His discussion of the issue is set out below

and again quotation marks have been omitted

There is no contention that the increased rates have been

shown to be unlawful Hearing Counsel point out that the

failure of the Puerto Rico Public Service Commission to re

quire submission by truckers of cost information is the reason

this Commission has no basis for determining the reasonable

ness of the underlying trucker charges However the rates and

practices of Puerto Rican truckers are matters over which this

Commission has no jurisdiction since it has not been shown

that the truckers engage in an activity covered by section 1

of the 1916 Act which in part provides

The term other person subject to this act means any person not included

in the term common carrier by water carrying on the business of for

2 To avoid undue repetition the Administrative Law Judge made further findings of fact

in the discussion portion of his opinion Where necessary we have adopted the same eourse

16 F MC
848 PICKUP AND DELIVERY PUERTO RICO

warding or furnishing wharfage dock warehouse or other terminal faci

in connection with a common carrierby water

Portalatin Velasquez Maldonado v SeaLand Service Inc 

F M C 862 1967 The pickup and delivery charges and 

zones to which they apply are negotiated by respondents 

four trucking associations representing the Puerto Rican tru

ers As Hearing Counsel state citing Matson Navigation C

Container Freight Tariffs 7 F M C 480 492 1968 a 

established by means over which this Commission has no 

risdiction becomes a fixed charge to the ocean carrier As 

increased rates were filed for the purpose of equalizing 

charges paid to the truckers by respondents and the amo

collected under the tariffs by respondents from shippers 

consignees it is concluded that they are not unjust or un

sonable or otherwise unlawful

Pickup and Delivery Practices

1 Designation of Truckers by Shippers and Consignees

When shippers or consignees elect to use respondents ser

the practice is to permit them to select the Puerto Rican tru

who will transport the shipments between the ocean term

and inland points Hearing Counsel urge that the Commis

order respondents to discontinue this practice because it t

to foster and facilitate rebating between shippers consign

and truckers and is thus in violation of section 18 a o

1916 Act 4

and section 4 of the 1988 Act5The Administra

Law Judge however concluded that no violation existed 

found that elimination of the practice would result in cu

ment of the door to door service offered by respondents 

a Unless otherwise specified or unless the context requires shippers 8S used 

includes col1shrnees

40 Section 18 provides in pertinent part That every common carrier by w

interstate commerce shall establish observe and enforce just and reasonable rates 

oharsre classifications and tariffs and just and reasonable regulations and practices 

thereto Whenever the Commission finds that any rate fare charge classification 

replation or practice demanded charged collected or observed by such carriers is 

or unreasonable it may determine prescribe and order enforced a just and rea

maximtlm rate fare or charge or a just and reasonable classification tariff reg

or practice

e Section 4 provides in pertinent part Whenever the Commission finds that an

fare charae classification tariff reifUlation or practice demanded charged collec

observed by any carrier subject to the provisions of this Act Is unjust or unreason

may determine prescribe and order enforced a just and reasonable maximum or minim

maximum and minimum rate fare or oharge or a just and reasonable classification 

reauIation or practice

16 F 
FEDERAL MARITIME COMMISSION 349

intermodaI system of transportation beneficial to Puerto Rico s

commerce The Administrative Law Judge found that the

truckers were not the agents of respondents and thus what

Hearing Counsel was seeking to accomplish was the elimina

tion of rebating involving persons not subject to the shipping

acts We disagree with the Administrative Law Judge

Respondents offer pickup and delivery service in Puerto Rico

between their terminals at San Juan Ponce and Mayaguez and

the places of business of shippers consignees pursuant to com

prehensive tariff rules regulations and charges Since respond

ents service is optional shippers consignees in effect have

three choices 1 to perform the pickup and delivery them

selves using their own equipment and personnel 2 to hire

independent truckers and pay them directly for the service

frequently at lower rates than those charged in respondents

tariff Ex 27 p3 or 3 to avail themselves of the pickup

and delivery service offered by respondents Shippenl who

choose to use respondents pickup and delivery service are per

mitted to designate the trucker to be engaged by respondents

to perform the service Under the present practice the shipper

may reduce his overall transportation cost by designating a

trucker who will agree to perform the pickup and delivery

service at less than the respondents tariff rates The trucker

then refunds to the shipper a portion of the charge paid him

by the respondent carrier Thus respondents are absorbing

a portion of the pickup and delivery charge or to put it an

other way the shipper is receiving a rebate of a portion of

the pickup and delivery charge

We agree with Hearing Counsel that respondents practice

of providing for the designation by shippers and consignees of

truckers to furnish the P D pickup and delivery service

which respondents are obligated under their tariffs to perform

and for which they are responsible is an unreasonable practice

within the meaning of section 4 of the 1933 Act and section

18 a of the 1916 Act and that respondents should be ordered

under these statutory provisions to establish the reasonable

practice of disaIlowing shipper or consignee designation of

truckers who furnish a part of respondents services

Respondents contention that the truckers furnishing respond

ents pickup and delivery services are not their agents and

thus they are not responsible for any rebates by the truckers

is clearly erroneous First of all the significant consideration

16 FM C
350 PICKUP AND DELIVERY PUERTO RICO

in this proceeding is not whether the truckers furnishing 

spondents pickup and delivery service are agents in s

abstract sense or for all purposes but only whether they 

agents in the sense that respondents must bear the respo

bility of insuring that no portion of the rates paid for 

pickup and delivery service is refunded or remitted

Respondents need not furnish any pickup and delivery ser

However if they choose to do so such service is subject to 

Commission s jurisdiction and respondents must adhere to t

rates filed with us for the service Sea Land Service Inc 

Federal Maritime Commission 404 F 2d 824 827 D C 

1968 Alaska Steamship Company V Federal Maritime C

mission 399 F 2d 623 627 9th Cir 1968 Matson Naviga

Co Container Freight Tariffs supra Certain Tariff Prac

of SeaLand Service 7 FM C 504 1963 Common car

who undertake to perform a service cannot lawfully escape 

responsibility for the proper performance of the service by 

simple expedient of designating the person actually perform

the service the agent of the shipper or consignee Ban

Kentucky V Adams Ex Co 93 U S 174 182 1876 Resp

ents tariffs covering their pickup and delivery services in 

state on their face that they are applicable only when resp

ents or their agents perform the pickup and delivery se

Respondents cannot insulate themselves from the respons

for the proper performance of the service by attemptin

relieve themselves of accountability for their agents acts 

aYroved Sec 15 Agreements Spanish Portuguese Trad

F M C 596 609 1965 Hellenic Lines Ltd Section 16 F

and 17 Violations 7 F M C 673 676 1964 The fact 

remittances resulting in the obtaining of transportation a

than tariff charges may be made indirectly by agents 

are not authorized to make them and even of whose co

the carriers may be ignorant is immaterial to the questio

the lawfulness of the carriers conduct Docket 68 44 Mal

tices Brazil United States Trade December 13 1971 15 FM

The fact that the interchange agreements which respon

have entered into with truckers who furnish P D services 

that the trucker is not the agent or employee of the L

Section 2 of the 1988 Act forbids carriers to flrefund or remit in any manne

any device any portion of the rates fares or charges specified in their tar

with the Commission fI

16 F 
FEDERAL MARITIME COMMISSION 351

respondent for any purpose whatsoever is inconsistent with

both respondents obligations and the wording of their own

tariffs The reason for this language in the interchange agree

ments appears to be that the same agreements are required by

respondents from all truckers who pick up or deliver in Puerto

Rico cargo carried by respondents whether or not the pickup

and delivery is performed as a part of respondents transpor

tation obligation In other words identical interchange agree

ments are executed by truckers who furnish respondents P D

services shippers and consignees who provide their own pickup

and delivery using their own equipment and employees and

truckers who do not furnish P D services under respondents

tariffs but are hired directly by shippers and consignees Obvi

ously shippers and consignees and truckers who do not furnish

pickup and delivery as part of respondents P D services are

not respondents agents for P D purposes

To insure that confusion does not arise in the future with

respect to respondents responsibility for the P D services they

undertake to perform we will require that respondents amend

the form of those interchange agreements they require of

truckers who furnish P D services respondents undertake to

perform as part of their transportation obligations to remove

any language which indicates that such truckers are not re

spondents agents for the purpose of insuring that the rates

paid by shippers and consignees for respondents pickup and

delivery services are those contained in respondents tariffs

Respondents contention that the record does not show that

rebating has actually occurred misses the mark Where as

here the practice is potentially capable of resulting in vio

lations of our statutes our role is remedial and not punitive

and we need not wait until the potential evil has actually oc

curred Rates Hong Kong United States Trade 11 F M C 168

175 1967 Introductory Statement to F M C Rules requiring

filing of tariffs by terminal operators now contained in 46 CFR

533 printed at 30 F R 1268 Cf North Atlantic Mediterranean

Freight Conference 11 F M C 202 220 1967 reversed on

other grounds sub nom American Export Isbrandtsen Lines

Inc v F M C 409 F 2d 1258 2nd Cir 1969 It is further

more well settled that activities which tend to foster and facili

tate rebates of carriers tariff rates are practices which we can

16 F M C
352 PICKUP AND DELIVERY PUERTO RICO

and must order terminated Intercoastal Investigation 193

U S S B B 400 414 1985 7

Finally we are not persuaded by the argument that eve

trucker designation is removed as a source of potential re

ing shippers and consignees will still find a way to em

truckers who will perform the pickup and delivery service 

less than the tariff rates and thus continue the practice u

another guise which is entirely lawful Shippers and cons

ees are and should remain insofar as this Commission is 

cerned fully free in the matter of contracting for the serv

of any trucker they desire or to furnish their own truc

services for pickup and delivery purposes We are not 

concerned with pickup and delivery services performed by s

pers and consignees or by truckers for them Weare ra

concerned with the pickup and delivery service offered by 

spondents and have outlawed trucker designation when use

a part of that service because it facilitates arebating for w

respondents are in law and under their own tariff represe

tions responsible

The suggestion that shippers consignees may devise o

ways to achieve rebates of part of the rates for pickup 

delivery service is hardly a reason for us to sanction the tru

designation practice Having found the existence of the un

sonable practice we are empowered to fashion the tools to 

rect it California v U S 320 U S 577 583 584 1944 

believe that the elimination of trucker designation by ship

and consignees as a part of respondents pickup and del

service is a reasonable means of eliminating the rebates w

can now occur Shippers and consignees will no longer be 

to utilize a feature of respondents transportation service w

we have found facilitates obtaining transportation at less 

respondents tariff rates for such service

That the present practice of respondents allowing shippers and consignees to de

the truckers they wish respondents to use in furnishing PID does facilitate rebating 

be seriously questioned The Administrative Law Judge sfinding that under the 

practice the shipper or consignee may reduce the overall cost of transpo

by engaging a trucker who wlll agree to perform the service at less than respondents 

rate and refund a portion of the charge paid to him by the ocean carrier is also 

lenged The record moreover in addition to this acknowledged potential capability 

practice of shipper and conshrnee designation of truckers respondents are to use i

P ID srvice does reveal some evidence in the form of a letter to the Commissio

testimony by the then chairman of PROSA a Commission approved agreement co

with i

te7 alia enforcement of respondents tariff rates for PID services indicating t

practice had actually resulted insuch rebates

8 Presumably they would use one of the two other options available to them

16 F M
FEDERAL MARITIME COMMISSION 353

Our action wiJI not moreover result in any improper limi

tation of respondents door to door intermodal system of trans

portation to and from Puerto Rico Intermodal transportation

with through rates and through responsibility is a goal which

we encourage but one which we cannot allow to be achieved

at the expense of a practice which is unreasonable under the

statutes we administer In ordering this practice abated we

but adhere to the requirement we have made of those offering

through intermodal service that the manner in which such

service is offered is fully consistent with the dictates of our

regulatory obligations

2 Pickup and Delivery Service for Bacardi

The Bacardi plant is located within the limits of the Munici

pio of Catano but outside the limits of the town of Catano

Respondents tariffs designate Catano as the pickup and de

livery point with no distinction between the town and the

municipio The point for zone 3 is Palo Seco The Bacardi

installation is physically situated in both Catano and Palo Seco

A trucker entering the installation through the main gate re

mains in zone 1A unless he picks up or delivers a shipment at

a building located in zone 3 The back gate is in zone 3 but a

shipment may be picked up or delivered in either zone Bacardi

insists that the zone 1A rate of 35 00 per trailer is applicable

to its shipments but the truckers demand the zone 3 rate of

45 00 For many years respondents have acceded to both

contentions and absorbed the 10 00 per trailer difference be

tween the rate charged Bacardi and the amount paid to the

trucker

The Administrative Law Judge found respondents tariff am

biguous and applied the rule that tariff ambiguities are to be

resolved in favor of the shipper He then concluded that there

were no refunds or extensions of privileges contrary to the

respondents tariffs nor were respondents violating section 2

by charging Bacardi a different compensation than required by

their tariffs The Administrative Law Judge also found the

e

Thus eg in Diaposition of Container Marine Linea 11 F M C 476 484R485 492 1968

we refused to sanction a through intermodaI service until the carrier providing such service

had filed a specimen bill of lading all the articles of which provided for common carrier

liability for the through movement consistent with the holding out in the remainder of the

carrier s tariff filing

16 F MC
854 PICKUP AND DELIVERY PUERTO RICO

practice reasonable under section 18 a of the Shipping 

1916 Hearing Counsel except to these conclusions O

The fact remains however that the word Catano as u

in respondents tariffs is ambiguous since it fails to indic

whether the pickup and delivery point designated as Cata

is intended to be the town or the municipio Although we a

with the Administrative Law Judge that because of such am

guity Bacardi was properly assessed the lower PID rate 

the rate for zone lA the ambiguity in the tariff itself is 

lawful under section 2 of the 1988 Act See e g Intercoa

Lumber Rate Charges 1 U S M C 656 658 1987 Pu

Rican Rates 2 U S M C 117 129 180 182 1989 Acc

ingly we will require that language be added to responde

tariffs to clarify the meaning of Catano as used therein

3 Definition of Trailerload

The Administrative Law Judge found no violations resu

from the alleged disparity between respondents tariff defin

of trailerload and their actual practices when applying 

definition to particular shipments No exceptions were ta

and we adopt the Administrative Law Judge s conclusions 

our own They are set forth below

Prior to recent amendments TTT s tariff defined a trailerl

for purposes of the service as

a shipment wherein the shipper laads the cantents Of the trailer and 

cansignee unlaads the cantents Of the trailer and the shipment w

8 000 paunds Or more Or measures 700 cubic feet Or mare

Hearing Counsel refer to the definition as amended by Sec

Revised Page 69 FMC F No 1 note 2 effective August 

1970 which provides

A trailerlaad shipment is defined far purpases Of this Rule as a a 

ment that weighs 8 000 paunds Or mare Or measures 700 cublic fee

more

This amendment further provides that TTT is not liabl

loading or unloading is performed by the shipper or consig

Hearing Counsel argue that

10 Subsequent to oral argument Sea Land informed the Commission and all the 

to the proceeding that the trucker used by respondents to serve the Bacardi plan

agreed that lithe BacaId plant is located in Catano zone lA and that all abso

have been eliminated

11 Quotation maIbhave been omitted

16 F M
FEDERAL MARITIME COMMISSION 355

TTTs recent amendment which deletes the loading and unloading require

ment solves the specific problem but creates a new one instead The amend

ment is ambiguous in that it lends support to an argument that the car

rielwill load and unload any shipment as long at it exceeds the minimum

weight and volume requirement Hearing Counsel doubt that it was TTTa

intention to provide free loading and unloading for all TL shipments

TTT replies to this argument by reference to note 3 of an

amendment effective January 10 1971 prior to the close of the

hearing which provides

The truckload per trailer charges named herein include only the setting

of the trailer by the carrier at a site designated by the shipper or consignee

for loading or unloading by the shipper or consignee

This amendment in providing that TL shipments will be loaded

or unloaded by the shipper or consignee removes the ambiguity

alleged by Hearing Counsel

The definition of a trailerload in the tariffs of Seatrain and

Sea Land are similar to TTT s present definition and provide

that the TL rate includes only the setting of the trailer at a

site designated Should any respondent load or unload a trailer

charging the TL rate would be contrary to the tariff Hearing

Counsel contend that in practice respondents so violated their

tariffs and thus failed to observe just and reasonable practices

as required by section 18 a of the 1916 Act The record does

not disclose incidents involving relieving a shipper or consignee

of loading or unloading trailers The testimony referred to

by Hearing Counsel does not establish such violations but shows

that for shipments of less than 8 000 pounds which are LTL

under the definition the TL rate has been charged for delivery

of a partial trailerload to a consignee when the consignee does

unload the trailer Seatrain handling rail car shipments which

at times exceed the capacity of one trailer has a tariff provi

sion that

When a shipment see item 192 Note 3 subject to a rate predicated on a

minimum quantity is loaded by the carrier or his agent and such shipment

equals or exceeds the minimum quantity specified the rate will apply on

the actual weight or measurement of the shipment without regard to the

number of containers or trailers used

The transaction of record was not in violation of this provision

but in accord with it

12 The allegation that The Stanley Works paid only TL rates but was accorded delivery is

hereinafter discussed

16 F MC
356 PICKUP AND DELIVERY PUERTO RICO

Hearing Counsel s position is

If as the record suggests practical considerations in performing the pi

and delivery service make it impossible to abide by the tariff requirem

the obvious answer is to change those requirements rather than to ig

them

The record suggests difficulties Under the tariff defin

of a trailerload a trailer with a capacity of 40 000 pounds 

contain more than one trailerload or a trailerload mixed w

LTL shipments Several shipments may be loaded into 

trailer at respondents mainland terminals When such a tra

is unloaded from the ship it could be necessary to strip i

the terminal in Puerto Rico and make delivery on a truck

equipment to various destinations In that event truc

would charge according to the service performed applying 

LTL rate and loading or unloading the shipment As to ac

practices much is left to assumptions and speculations T

is of course the possibility that shippers or consignees 

be charged the TL rate by respondents although contrary 

the definition the truckers will load or unload the shipment

Hearing Counsel propose that the Commission require 

spondents to bring their practices in conformity with the ta

either through a change in practice or change in tariff 

the evidence persuasively demonstrated that it is responde

practice to load or unload shipments carried in the servic

TL rates a cease and desist order would be justified Var

modifications of the definition of a trailerload are possible 

any increase in weight or measurement would serve to incr

the cost of the service for shippers of more than 8 000 po

or 700 cubic feet but less than a full trailerload

The definition as it now stands benefits smaller shippers 

the possibility or even probability that violations may o

is insufficient to warrant a finding that it is unreasonable

4 Forced Delivery Rule

TTT and SeaLand provide in their tariffs that all LTL 

ments weighing less than 8 000 pounds and measuring less 

700 cubic feet must be accorded delivery service Sea L

began the practice of exempting Westinghouse Company 

the rule and TTT adopted the practice for competitive rea

extending it also to Pantasia No monetary advantage acc

to the shippers TTT admits that the practice of exemp

16 F M
FEDERAL MARITIME COMMISSION 357

Westinghouse and Pantasia was in violation of its tariff but

states that the violation is only technical and that the waivers

were motivated by serious considerations of business efficiency

Sea Land did not deny the exemption as to Westinghouse but

sets forth similar reasons for the practice TTT has withdrawn

the rule

The Administrative Law Judge concluded that Sea Land and

TTT violated section 2 of the 1933 Act in exempting Westing

house from the forced delivery rule and ordered Sea Land to

cease and desist from continuing the practice Sea Land has

excepted to the Administrative Law Judge s conclusions

Sea Land maintains that it did not exempt Westinghouse

from the rule but merely held the shipments for Westinghouse s

preferred trucker paying the trucker the same amount it col

lects from Westinghouse The only evidence that it excepted

Westinghouse from its forced delivery rule Sea Land contends

is a statement by a TTT witness which is pure hearsay and

not of probative value and thus should be disregarded On the

other hand Hearing Counsel assert that the facts of record are

sufficient to support the Administrative Law Judge s finding

that Sea Land unlawfully exempted Westinghouse from its

forced delivery rule However Hearing Counsel urge should

we find that Sea Land s practice with respect to Westinghouse

does not constitute a violation it should also exonerate TTT

for its Westinghouse practice

Both the language of TTT and Sea Land s forced delivery

rules and our treatment of Sea Land s rule in Charges Delivery

Atlantic Gulf Puerto Rico Trade 11 F M C 222 1967 con

vince us that shippers do not have the power under these rules

to utilize their own truckers nor demand that shipments be

held for truckers which the shippers wished respondents to use

The purpose of the forced delivery rule was to require removal

of cargo subjected to such rule by the first available trucker

We therefore agree with the Administrative Law Judge s find

ing that TTT and Sea Land s activities under their forced de

livery rules were violative of section 2 of the 1933 Act whether

the carriers allowed shippers and consignees to arrange for

their own pickup and delivery or only as Sea Land alleges it

had done requested that cargo be held for a certain trucker

In any event however our action with respect to trucker des

ignation should remove any further problems with respect to

forced delivery To the extent respondents provide for any

16 F MC
858 PICKUP AND DELIVERY PUERTO RICO

pickup and delivery service including forced delivery ship

and consignees who use such service will have no voice 

respect to utilization of any particular truckers

TTT has withdrawn its forced delivery rule from its ta

and SeaLand is free to do the same We note however 

this connection that in Charges Delivery Atlantic Gmt Pu

Rico Trades supra where we found Sea Land s practice 

providing forced delivery of minimum shipments to be law

we observed that the forced delivery rule goes a long 

toward eliminating a problem of congestion at 286 

choice is one we leave to the exercise of Sea Land s operati

judgment

5 TTT s Insurance Charges

TTT was alleged to have violated section 18 a of the 

Act by collecting from truckers a charge for insurance w

in fact TTT did not provide The Administrative Law Ju

over the objection of Hearing Counsel accepted TTT s com

ment to stop the practice Hearing Counsels concern was 

TTT s commitment while commendable was not legally 

forceable We like the Administrative Law Judge think 

commitment sufficient

6 Abraham Nieves Special Arrangement with TTT

In the absence of exceptions we adopt the Administr

Law Judge s conclusions on this issue as our own They 

set out below

This shipper s plant is located at Guayama which is bet

San Juan and Ponce but 15 miles closer to Ponce TTT 

ries trailerloads of freight all kinds FAK for Nieves 

tariff restricts FAK delivery to zones 1 lA and 2 and if 

Juan is the base port of destination Nieves would be in 

7 and not entitled to delivery Nieves like any other shi

may designate either Ponce or San Juan as the port of d

nation If Ponce is designated Nieves would be require

transport the trailer to its place of business at a cost of 6

TTT as do other respondents utilizes a substituted se

from San Juan to pick up and deliver cargo to inland p

If Ponce is the port of destination the cost of trucking 

San Juan to Ponce is 95 00 Thus the total trucking 

involved for a trailer destined for Ponce would be app

mately 160 00

16 F 
FEDERAL MARITIME COMMISSION 359

In this situation TTT and Nieves entered into an arrange

ment whereby Nieves would designate San Juan as the port of

destination and TTT acting as Nieves agent for delivery of

trailerloads would arrange for a trucker to deliver the trailer

direct to Guayama The trucker would bill TTT for 50 00

which TTT would not charge Nieves The trucker would bill

Nieves for 25 00 TTT not being involved in that transaction

TTT saved 45 00 per trailer load under this arrangement

Nieves also made a saving

Hearing Counsel contends and TTT acknowledges that this

special arrangement violated section 2 of the 1933 Act Nieves

has been billed for the undercharges resulting from the ar

rangement and the bill has been paid by Nieves The arrange

ment has been abandoned and a cease and desist order is un

necessary Nevertheless it is found that TTT violated section

2 of the 1933 Act when carrying out the special arrangement

with Nieves

7 TTT s Stop Off Rule

Again no exceptions were filed to the resolution of this issue

by the Administrative Law Judge and we adopt his conclusions

as our own

TTTs tariff provides

B Puerto Rico

2 Delivery service as provided herein will be made on portions

of a

single truckload shipment to more than one address but not more than

four different addresses bt

destinations named herein taking the same

basing point upon payment of the highest rated zone rate at which delivery

is made plus an additional charge of 14 56 for each delivery except the last

C No stopoffs for partial loading or unloading will be made unless all

pickup points or all delivery points lie in a direct route overwhich operations

are generally conducted between the carrier s terminal and the pickup or

delivery point farthest from that terminal

TTT admits that contrary to this rule Plaza Provision received

the service at TL rates although the delivery points did not

lie in a direct regular route and were not from the same basing

points It considers the situation as showing only a technical

violation hurting no one and resulting from geographic hap

penstance with only one shipper and short distances involved

and questions whether any regulatory benefits flow from regu

lation on this level of zealotry The purpose of this investiga

16 F MC
860 PICKUP AND DELIVERY PUERTO RICO

tion is to determine whether any respondent has violated spe

fied sections of the shipping acts and not whether violatio

are merely technical or of such gravity as to warrant im

sition of penalties It is found that TTT violated section 2 

the 1988 Act 13

8 Improper Rating of Bills of Lading by TTT for Stan

Works

The Administrative Law Judge found that TTT s alleged u

lawful charging of the Stanley Works the trailerload oce

rate rather than the less than trailerload ocean rate was outs

the scope of this proceeding as this proceeding is limited 

the rates and practices related to P D service and does 

concern rates and practices pertaining to water transportatio

We agree with this conclusion and hereby adopt it as our ow

9 Arrangements for Pickup and Delivery for Shipments 

Entitled to the Service Under TTT s Tariff

TTT s tariff provides that certain shipments are entitled 

only limited pickup and delivery service or none at all Ho

ever upon request of a shipper or consignee TTT will arran

with a trucker to pick up or deliver the exempted shipmen

advance the trucker s charge and collect the amount advanc

from the shipper or consignee either by direct billing or 

addition of the charge to the bill of lading The trucker s cha

may be less than the charge set forth in TTTs tariff for pick

and delivery to the zone involved Prior to January 10 19

TTT s tariff did not include a provision for this service He

ing Counsel contended that although TTT did not profit fr

the service it had violated section 2

14 of the 1933 Act 

rendering a service not provided for in its tariff Intercoas

Investigation 1935 supra at 440 447

The Administrative Law Judge concluded that TTT had v

lated section 2 of the 1933 Act and we agree However T

13 The AdmlnlstraUve Law Judae ordered TTT to cease and desist from charwina 

Provision les8 than required by the rule quoted above and related tariff provisions S

however there is no evidence of continuing violation and since the language of the 

in the tariff has been modified substantially since the Initial decision herein we wlll 

no cease and desist order with respect to thts matter

U

no person shall enKage in transportation as a

common carrier by water In 

coastal commerce unless and until IbI iechedules as provided by this section have 

duly and properly posted

16 F M
FEDERAL MARITIME COMMISSION 361

in an amendment to its tariff filed to become effective January

10 1972 adopted the following rule

SHIPMENTS NOT AFFORDED PICKUP AND DELIVERY SERVICE IN

PUERTO RICO

Transamerican Trailer TransP Ort Inc an request Of shippers Or cansignees

will arrange far pickup and delivery Of shipments which by specific rule Or

reference mark are nat pravided pickup and delivery service as pravided

in this tariff

TTT will advance the charges to the matar carrier perfarming such pickup

and delivery service which charges will be billed far the acc Ount Of the

shipper Or cansignee ordering the service TTT as carrier will have na

respansibility fOr the carga On which such pickup Or delivery service is

arranged while such carga is in the passessian Of the matar carrier per

farming such services Transamerican Trailer Transpart Inc Freight Tariff

NO 1 FMC F Na 1 Rule 565

Hearing Counsel challenged the rule on the ground that it

permits shippers of cargo which is accorded restricted or no

delivery to obtain lower rates than those charged for cargo

moving in TTT s P D service Hearing Counsel would have

amended the rule so as to provide that the rates under the rule

would in any case be no lower than those charged under TTT s

P D service

We see nothing wrong in principle however with tariff pro

visions whereby a carrier as agent offers to arrange for serv

ices in addition to those for which it is responsible No legal

obligation has been imposed upon respondents to furnish P D

services for all cargo and they may in the absence of unrea

sonable preference or prejudice to a particular description of

traffic limit the categories of cargo for which they provide

such services See Charges Delivery Atlantic Gulf Puerto Rico

Trades supra As we have stressed in our discussion of the

practice of shipper designation of truckers as a part of respond

ents P D services there is a great difference between pickup

and delivery offered as a part of respondents services and

pickup and delivery made by or on behalf of shippers and con

signees In the former respondents bear the legal obligation

of insuring that their tariff rate for such service is paid by

shippers and consignees In the latter shippers and consignees

bear the responsibility of paying whoever performs the service

whatever he lawfully charges for such service There is no

reason in law why respondents should be obligated with respect

to adherence to charges made for a service they do not under

take or why respondents may not offer to arrange for such

16 F MC
362 PICKUP AND DELIVERY PUERTO RICO

service as agents So long as respondents offer transportat

under a system of rates which excludes as well as under 

other system of rates which includes P D services and so lo

as they publish and file tariff provisions indicating clearly w

services are offered under each type of rate no difficulty sho

arise

Any matters raised by the parties to this proceeding 

specifically discussed herein have been considered and rejec

as immaterial or unnecessary for purposes of decision

An appropriate order will be entered directing that respo

ents within 60 days of the date of service of such order ce

and desist from engaging in certain practices herein found 

be unlawful and include in their container interchange ag

ments and published tariffs filed with the Commission s

amendments therein as we have here required

S FRANCIS C HURNEY

Secretar

SEAL

16 F M 
QaQ

FEDERAL MARITIME COMMISSION

DOCKET No 70 28

GENERAL INVESTIGATION OF PICKUP AND DELIVERY

RATES AND PRACTICES IN PUERTO RICO

ORDER

This proceeding having been instituted by the Federal Mari

time Commission and the Commission having fully considered

the matter and having this date made and entered of record a

report containing its findings and conclusions thereon which

report is hereby referred to and made a part hereof

Therefore it is ordered That within 60 days of the date of

service of this order

1 Respondents Sea Land Service Inc Sea Land Seatrain

Lines Inc Seatrain and Transamerican Trailer Transport

Inc TTT cease and desist from the practice of permitting

shippers or consignees who elect to use the pickup and delivery

services in Puerto Rico which such respondents offer as a part

of their transportation obligations to designate the truckers as

such shippers or consignees wish to transport shipments be

tween ocean terminals and inland points

2 Respondents Sea Land Seatrain and TTT amend the form

of the Trailer Interchange Agreements which they use when

entering into arrangements with truckers who furnish the pick

up and delivery services such respondents undertake to perform

as part of their transportation obligations to remove from the

final sentence of paragraph 34 of such interchange agreements

as well as other places in such agreements any language which

indicates that such truckers are not respondents agents for
864 PICKUP AND DELIVERY PUERTO RICO

the purpose of insuring that the rates paid by shippers 

consignees for respondents pickup and delivery services 

those contained in respondents tariffs and

3 Respondents Sea Land Seatrain and TTT amend 

tariffs specifically to indicate whether the pickup and de

point designated therein as Catano is intended to be the 

or the municipio of that name

By the Commission

SEAL

8 FRANCIS C HURNEY

Secret

16 F
FEDERAL MARITIME COMMISSION

DOCKET No 70 45

NORMAN G JENSEN INC INDEPENDENT

OCEAN FREIGHT FORWARDER LICENSE No 800

June 11 1973

Respondent independent ocean freight forwarder found to control or be

controlled by a

person who is a shipper by virtue of its beneficial interest

in shipments to foreign countries Respondent allowed to retain

forwarder license upon condition that it relinquish all control of or

terminate all control by shipper within time specified

Joe A Walters and Howard G Feldman for respondent

Joseph B Slunt and Donald J Brunner Hearing Counsel

REPORT

BY THE COMMISSION Helen Delich Bentley Chairman Ash

ton C Barrett and James V Day Commissioners 1

This proceeding is before us upon respondent s exceptions to

the June 19 1972 Initial Decision of Administrative Law Judge

John Marshall to which Hearing Counsel replied Oral argu

ment was heard on March 15 1973

On November 24 1970 the Commission served Notice of In

vestigation and Hearing to determine basically whether the

financial connection between Norman G Jensen Inc respond

ent a licensed independent ocean freight forwarder and Inter

national Traders Counsellors Inc ITC leaves respondent in

the position of independence from shippers or from those having

a beneficial interest in shipments to foreign countries required

by section 1 of the Shipping Act 1916 the Act 46 VS C

801 An ancillary issue is whether respondent willfully falsi

fied its license application by failing to divulge the questioned

financial connection

1 Commissioner Clarence Morse did not participate
366 FEDERAL MARITIME COMMISSION

In his Initial Decison Judge Marshall concluded that resp

ent is not independent inasmuch as it controls and or is 

trolled by lTC a person both shipper connected and havi

beneficial interest in shipments to foreign countries in viola

of section 16 of the Act 46 V S C 815 He further concl

that respondent had willfully concealed this relationship 

the Commission by falsification of its license application 

thus that respondent s license should be revoked

Respondent excepted to the entire Initial Decision as we

to the Judge s ruling of April 29 1971 denying its motio

dismiss the proceeding Hearing Counsel replied in suppo

the Initial Decision

Thereafter on November 20 1972 respondent filed a m

submitting an offer of settlement and termination of the 

ceeding This offer of settlement contained the following 

visions

1 Gardan W Jensen will resign as an Officer and director Of lTC a

and his wife will sell to Bent Jensen Or ITC all Of their ITC stack

2 Bent Jensen will resign as an Officer and directar Of Narman G J

Inc Jensen

3 Bent Jensen will retain his twa shares Of stack in Jensen but will e

an irrevacable praxy ta vate his stock the same way Gard On W J

vates his stock

4 An agreement will be entered inta between Gardan W Jensen an

whereby Gardan agrees nat ta compete with ITC for a 10 year peria

5 An emplayment cantract will be executed between Jensen and 

Jensen whereby Bent will be emplayed in a sales capacity Bent J

will have na managerial duties and will be engaged salely in sale

mational activities

Hearing Counsel filed a reply to this motion urging reje

because of the remaining connections between respondent 

ITC as set forth in Items 3 and 5 above

By Commission order served January 9 1973 the motion 

denied and the proceeding continued

Respondent s exceptions are essentially a

reargument of 

tentions that were exhaustively briefed and considered by J

Marshall in his Initial Decision We concur in the Ju

denial of respondent s motion to dismiss and upon careful 

sideration of the record the exceptions briefs and argume

counsel we conclude that the factual findings and conclu

with respect thereto as set forth in the Initial Decision 

16 F 
NORMAN G JENSEN INC 367

except as hereinafter noted well supported and correct Ac

cordingly except as noted hereinafter we adopt the Initial

Decision as our own and make it a part hereof

We do not however agree with the Judge s conclusions in the

following respect Judge Marshall found that respondent s re

lationaship with ITC was willfully concealed from the Commis

sion by falsification of its application for the license JD

16 FMC 378 Although we consider the status of ITC to be thatof

a shipper and respondent s connection with ITC as an example of

illegal shipper connected forwarding operations we do not find

sufficient evidence of record to warrant a conclusion that re

spondent was aware that the relationship was illegal and there

fore that it intentionally withheld information pertaining to

the existence of the relationship from the Commission We

therefore do not find that the record of the proceeding would

justify a conclusion of willful falsification of the license appli

cation

During oral argument before the Commission counsel for

respondent revealed that the transfer of stock which it had

proposed in its offer for settlement had indeed been consum

mated The remaining connection between respondent and lTC

according to counsel for respondent is the two shares of stock

in respondent owned by Bent Jensen who is now the sole

stockholder of lTC in addition to the services of Bent Jensen

as a director and compensated employee of respondent As

previously stated the Commission has denied respondent s mo

tion for settlement based upon this arrangement by an earlier

order Our decision with respect to that divestiture plan has not

changed

We are of the opinion however that respondent should be

allowed the opportunity to totally eradicate the remaining con

nections between itself and ITC as an alternative to revocation

of its license Inasmuch as we have found that the respondent s

failure to divulge the relationship between itself and ITC was

not willful we conclude that respondent should be allowed ninety

90 days in which to terminate all current relationships be

tween its operations and those of ITC This would include the

transfer of the two shares of respondent s stock currently

owned by Bent Jensen to some entity not connected with ITC

or of similar persuasion as well as the resignation of Bent

Sl That portion of the attached Initial Decision containing the headnotes and appearances

has been omitted

16 F M C
368 FEDERAL MARITIME COMMISSION

Jensen as both a director and an employee of Norman G 

sen Inc This condition for retention of respondent s forwa

license meets the requirements of section 9 b of the Adm

trative Procedure Act which requires that a licensee be 

corded the opportunity to achieve compliance with the la

requirements of the applicable licensing statute before its lic

can be revoked in cases where as here the licensee s ac

omission was not willful

Should respondent fail to submit an affidavit witnessing 

pliance with the conditions set forth herein within the 

scribed period its license will be revoked

An appropriate order will be entered

Vice Chairman George H Hearn diltsenting

I do not agree with the majority s conclusion that the st

of ITC is that of a shipper and Iwould permit the respon

to continue its initial or voluntarily revised relationship 

activities with ITG

To find under the facts here that ITC has a beneficial inte

in foreign shipments is to stretch the scope of the sta

beyond any reasonable purpose behind its enactment W

the application of the statute becomes such as to hinder 

commerce intended to be protected it must be concluded 

the statute is being applied in an arbitrary manner inconsis

with our statutory obligations We must not apply statu

provisions as if they operate in a vacuum but rather as 

of a statutory framework with an overriding public interes

the well being of the foreign waterborne commerce of the Un

States

It is apparent from the record that ITC is performin

service valuable to the expansion of our foreign trade and 

in the absence of such services being available our export t

efforts would be hampered This of course is no reaso

countenance a violation of the law should one exist On 

other hand we should not seek to find violations where t

are none especially when to do so requires a strained statu

application an overextension of the beneficial interest rule 

ultimately the creation of an obstacle to our foreign trade

Furthermore the evidence herein does not establish to 

satisfication that ITG has a beneficial interest in foreign 

16 F M
NORMAN G JENSEN INC 369

menta There is no evidence at all that ITC promotes sales

develops markets negotiates sales or obtains any right title

or other interest in the shipments of its clients

None of the cases cited by the majority are in point but in

volve relationships directly between a forwarder and shipper

The Judge was compelled therefore to say that merely

because ITC provides a remunerative service to its clients with

respect to foreign shipments it profits from the shipments

When carried to ita logical extreme that reasoning can be seen

to require an unnatural application of the beneficial interest

rule If fully extended the reasoning would prohibit a for

warder from also being a customhouse broker who provides

services for the same client Thus if a shipper s exportation

of manufactured goods deepnds on his importation of raw ma

terials then the customhouse broker profits from the export

shipments by virtue of his being paid for brokerage services

for imports which would not exist if the shipper did not have

an export market

This result is absurd but necessarily follows from the ma

joritys conclusion and demonstrates the statutory overreach

ing exercised in the majority report

Consequently I would reverse the Administrative Law Judge

on all issues

SEAL

S FRANCIS C HURNEY

Secretary

16 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 70 45

NORMAN G JENSEN INC INDEPENDENT 1

OCEAN FREIGHT FORWARDER LICENSE No 800

INITIAL DECISION OF JOHN MARSHALL PRESIDING EXAMIN

By Notice of Investigation and Hearing served Novembe

1970 the Commission initiated this proceeding pursuant to 

tions 22 and 44 of the Shipping Act 1916 46 USC 821 8

the Act to determine

1 whether Norman G Jensen Inc respondent conti

to qualify as an independent ocean freight forwarder 

whether its license should be continued in effect or revoked 

suant to section 44 of the Act and the Commission s Ge

Order 4 46 CFR 510 9

2 whether respondent is in fact independent of connec

with shippers consignees sellers or purchasers of shipmen

foreign countries as defined by section 1 of the Act

3 whether any violation of section 16 of the Act wa

curred by virtue of the relationship between respondent 

International Traders Counsellors Inc ITC and

4 whether respondent willfully falsified its application 

the forwarder license

Restated the basic questions go to whether respon

through its connection with lTC had or has any direct o

direct relationship with shippers consignees sellers purcha

1This proceedlnw was discontinued February 26 1971 as to World Freight Forwarder

also named respondent in the Commission s Notice of Investigation and Hearing upon 

that it bad divested itself of all interest in other specified forwarders

i This decision became the decision of the Commission June 11 1978

O
NORMAN G JENSEN INC 371

of shipments to foreign countrie6 or has any beneficial interest

in such shipments

Hearing Counsel in accordance with Rule 13 a of the Com

mission s Rules of Practice and Procedure and at the request

of respondent filed a clear and specific statement of proposed

findings of fact and conclusions This was done for the purpose

of enabling respondent to know with certainty the relevant facts

and legal issues to which it should devote its defenses There

after simultaneous opening and reply briefs were filed by re

spondent 3

and Hearing Counsel

THE FACTS

1 Respondent a Minnesota corporation incorporated in

1942 and registered with the Commission in 1950 is a freight

forwarder but primarily a U S custom house broker It is con

nected with lTC also a Minnesota corporation incorporated in

1954 through common ownership and officers It acts as the

freight forwarder for lTC s ocean shipments except in those

instances where from past experience ITC knows that another

forwarder is involved

2 Gordon W Jensen is the president and treasurer of

respondent Jointly with his wife he owns 74 of 150 shares

of its stock He also is the secretary and treasurer of ITC and

again jointly with his wife owns 50 percent of its stock Bent

Jensen is the vice president and secretary of respondent He

owns 2 shares of the stock and also jointly with his wife owns

50 percent of the stock of ITC Norman G Jensen and his

family own 74 of the outstanding 150 shares of respondent s

stock

3 ITC states that i n general terms its services con

sist of preparing certain documents required by importers or

exporters and also translations of documents and correspond

ence Further testimony indicates that it also advises its

clients as to inland shipping arrangements Export declara

tions and consular invoices are prepared by either the freight

forwarder or ITC depending upon the circumstances of the

shipment or the regulations of the consignee s country

4 ITC has four main clients all located in Minnesota These

are the Lindsay Company a manufacturer of water softening

3 Respondent s reply was in the form of a letter

16 FMC
372 FEDERAL MARITIME COMMISSION

and purifying equipment the DeZurik Corporation a ma

facturer of industrial valves and controls for paper m

Watkins Products Inc a manufacturer of feed suppleme

spices cosmetics and patent medicines and Polaris Industr

a manufacturer of snowmobiles The services performed 

these clients are detailed hereunder

5 Ordinarily ITC is compensated for services perform

for its clients in one of two ways One is pursuant to a retai

arrangement and the other a service fee per shipment compu

on the basis of a percentage of the sales price of the merch

dise In either instance it is reimbursed for certain ou

pocket expenses

6 Respondent or its correspondent forwarder at the p

city prepares the bills of lading and books the cargo 

shipment It also arranges for inland transportation ma

insurance and letters of credit if those services are reques

by ITC Gordon Jensen has a general idea but does not kn

what services other than the above may remain to be p

formed in an export shipment

7 Sixty to 70 percent of respondent s gross revenues 

derived from custom house brokerage while 5 percent is 

lated to ocean freight brokerage and ocean freight forward

fees combined and the remaining 35 to 25 percent to 

freight forwarding It had total gross revenues in 1970 

1 200 000 ITC related shipments constitute 5 percent of 

spondent s ocean forwarding activities In 1969 it colle

ocean brokerage payments of 1 490 and in 1970 2 490 

ocean brokerage payments resulting from ITC related shipme

were under 100 in i969 and under 185 in 1970

8 Lindsay shipments ITC performs or has respond

perform all required services in connection with the expor

Lindsay products to its warehouse in Antwerp Belgium T

includes the transportation from interior points in the Un

States j the completion of all necessary export documents j 

submission of invoices packing lists and serial numbers 

Lindsay s European warehouse In addition ITC mainta

records as to Lindsay s warehouse inventory and the value 

the merchandise in the warehouse While in the warehouse 

property which usually moves in full container lots rema

the properW of Lindsay

9 In 1969 Lindsay paid ITC 10 percent of the value of 

goods exported ITC paid respondent s full invoice and 

16 F M 
NORMAN G JENSEN INC 373

then reimbursed by Lindsay for ocean freight and miscellaneous

charges However ITC did absorb respondent s forwarding

fees on all Lindsay shipments Lindsay currently pays ITC

a retainer fee of 30 000 per year plus out of pocket expenses

ITC sends respondent s

freight forwarder charges to Lindsay

who remits a check to ITC which ITC in turn forwards to

respondent

10 DeZurik shipments ITC handles DeZurik exports

when special forms or special handling is required It also

provides translation services including the translation of De

Zurik s

replies to potential customers into Spanish It then

sends these replies direct to the customer using DeZurik s name

but lTC s address Thereafter it receives the orders and for

wards them to DeZurik It also sends out the invoice to the

customer using DeZurik s name and receives payment which

it forwards to DeZurik

11 ITC makes the export arrangements for some but not

all of the shipments it handles for DeZurik DeZurik does not

know which documentation and transportation functions are

performed by ITC and which are performed by respondent or

other ocean freight forwarder ITC selects respondent as the

ocean freight forwarder if the consignee does not designate an

other freight forwarder

12 ITC pays the ocean freight forwarders for their serv

ices and expenses DeZurik reimburses ITC for these forwarder

fees and expenses and ill addition pays ITC a fee based on 10

percent of the value of the goods exported

13 Polaris shipments Most of lTC s services for Polaris

are related to the importation of engines from Japan for the

snowmobiles which Polaris manufactures It also performs ex

port services and makes all arrangements in connection with

the shipment of Polaris parts to Norway Again ITC selects

respondent as the ocean freight forwarder unless the consignee

designates another Polaris is not aware of which services

ITC performs and which services the freight forwarder per

forms in connection with any particular shipment

14 ITC invoices the customers in the name of Polaris for

the cost of the goods exported and remits the payments to

Polaris If a payment is not received Polaris consults lTC and

either ITC or Polaris then writes to the customer ITC is paid

a retainer fee of 7 200 per year by Polaris

16 F MC
814 FEDERAL MARITIME COMMISSION

15 Watkins shipments ITC receives orders from buy

of Watkins products It investigates the credit size and 

tential ability of prospective distributors for these products 

final decision rests with Watkins Exports are handled in 

same way it handles those of other clients It makes all 

necessary export arrangements and turns the shipments 

to an ocean freight forwarder for further processing

16 It bills the customer for the cost of the exports 

receives payments therefor from which it deducts forward

fees forwarders expenses distributors commissions and 

own fee It then pays these fees and expenses to the appro

ate parties and remits the balance to Watkins Watkins p

ITC a 20 service fee plus 10 percent of the net proceeds 

each sale

17 Bent Jensen receives a salary from and participates 

the profit sharing plans of both respondent and ITC He 

active in both from 1958 to 1965 Gordon Jensen is pa

salary by both respondent and ITC He participates in p

sharing plans of both companies Richard E Gudmund

presently respondent s controller and general manager wo

for both ITC and respondent from early 1964 until late 1

He was paid by both firms ITC now has two employees 

addition to Bent Jensen One performs export work for 

clients and the other is a secretary

18 Respondent s application for a license as an indepen

ocean freight forwarder was prepared January 10 1962 

Norman Jensen at that time its chief operating officer 

was functioning substantially as at present

19 In its application respondent denied that any off

director or stockholder was an owner of in control of or a

ciated or connected with any shipper consignee seller or 

chaser of shipments to foreign countries or that any of 

above persons carried on any activities related to shipp

selling or purchasing of exports to foreign countries

DISCUSSION AND CONCLUSIONS

Respondent contends 1 that it is an independent o

freight forwarder 2 that it does not control ITC nor 

4

The Act at 46 use 801 defines the term independent ocean freight forwarde

follows

An independent ocean freight forwarder is a person carrying on the busine

forwardina for a consideration who isnot a shipper or cODshrnee or a seller or PU

16 F M
NORMAN G JENSEN INC 375

ITC control it 3 that although both companies are controlled

by the same individuals they are operated and managed inde

pendently of each other have their own employees and keep

separate books and records 4 that ITC is not a shipper or

consignee or purchaser of shipments to foreign countries nor

does it have a beneficial interest 5in such shipments 5 that

ITC is neither directly nor indirectly controlled by or in control

of a shipper or consignee or by a person having a beneficial

interest in shipments 6 that ITC does not perform any serv

ice involving or relating to sales promotion sales representa

tion or sales negotiations and 7 that there is no evidence

indicating that respondent willfully falsified its freight for

warder application or that its relationship with ITC has been

employed to violate section 16 of the Act

On October 6 1969 Norman Harris then District Investi

gator and now Deputy Director with the Commission s New

Orleans office interviewed Bent Jensen and Richard E Gud

mundson the latter now General Manager and Controller of

respondent

Harris abbreviated notes made at the time of the interview

show that Gordon Jensen described the substance of ITC func

tions as sales promotion sales representation and those of a

shipper s export department Compensation for such services

was on a commission basis usually a

percentage of the sales

or invoice value At his request Gordon Jensen was furnished

a

copy of Harris notes made at the time of the investigation

and raised no question as to any reference However at the

hearing he denied describing the functions of ITC as noted but

testified I

really don t have a clear recollection because it is a

long time ago Gudmundson testified that he learned how to

handle sales correspondence while working for ITC Having

heard and observed all witnesses and following study of the

entire record this Examiner accepts the testimony of Harris

of shipments to foreign countries nor has any beneficial interest therein nor directly

or indirectly controls 01 is controlled by such shipper or consignee or by any person

having sUfh a

beneficial interest

fiBeneficial interest is defined by the Commission s General Order 4 46 CFR 510 21 1

as follows

1

The term Beneficial interest for the purpose of these rules includes but is not

limited to any lien interest in right to use enjoy profit benefit or receive any ad

vantage either proprietary or financial from the whole or any part of a shipment

or cargo arising by financing of the shipment or by operation of law or by agree

ment express or implied provided however that any obligation arising in favor of a

licensee by reason of advances of out of pocket expenses incurred in dispatching of

shipments shall not be deemed a beneficial interest

16 FMC
876 FEDERAL MARITIME COMMISSION

Respondent urges that the prohibition of section 1 of the 

regarding the independence of forwarders disqualifies only th

who are shippers consignees seUers or purchasers of s

ments or who have a beneficial interest therein Thus w

confirming lTC s direct relationship with its shipper cli

engaged in export trades respondent takes the position 

what is off limits to an ocean freight forwarder is for the 

warder to be a shipper consignee seller or purchaser of s

ments or to have a beneficial interest in such shipments

The Commission s definition of beneficial interest is held 

respondent to be so vague and indefinite and susceptible 

different interpretations as to be violative of the Due Pro

Clause of the Fifth Amendment to the Constitution and 

Sixth Amendment U S v Cohen Grocery Store 255 US 

89 1921 A B Small Ca v American Sugar Refinery 

267 U S 233 239 1925 CUne v Frilnk Dairy Ca 274 

445 1927

As Hearing Counsel point out the issue involving the alle

vagueness of the Commission s definition of beneficial inte

was resolved seven years ago in New York Freight F 

Ass n v Federal Maritime Commission 337 F 2d 289 

1964 wherein the court stated

Although the challenged rule may limit some benign financing activ

by forwarders it provides a means to curb an evil Congress sought to 

rectthe collection of compensation from carriers by persons who have 

interest in the goods being shipped We hold that the rule is reaso

and necessary to prevent forwarders from selling goods under the guis

financing and then using this subterfuge to receive a discounted fre

rate Cert denied 380 U S 910 1965 Emphasis added

The rule is not restricted to financing but applies to 

interest including the right to profit from shipments in for

commerce ITC clearly profits from and therefore has a b

ficial interest in such shipments under its retainer and c

mission agreements Because of its relationship with lTC 

spondent shares this beneficial interest Respondent fur

benefits from the freight forwarding business flowing f

shippers served by ITC

On opening brief Hearing Counsel detail the history and b

ground of section 44 of the Act PL 87 254 for the purp

of emphasizing the intent of Congress to ban anyone not c

pletely independent from being licensed or maintaining a 

cense as an independent ocean freight forwarder In con

16 F M 
NORMAN G JENSEN INC 377

sion License No 790 North American Van Lines 14 F M C

215 221 1971 is cited as follows

AU of the legislative history points out clearly that exceptions to the clear

and unambiguous language of the statute were to be excluded and that the

inherent prohibition vis a vis control is absolute and we have so held in

numerous proceedings See Application for Freight Forwarding License

Louis Applebaum 8 FMC 306 1964 Application for Freight FO1WGIrding

License Wm V Cady 8 FMC 352 1964 Application for Freight For

wOlfding License Del Mar Shipping Corp 8 FMC 493 1965 Application

for Freight FOrWIf ding License York Shipping Corp 9 FMC 72 1965

In view of the above found overlapping of officers and owner

ship between ITC and respondent the contention that there is

no present active or actual inter company control direct or

indirect cannot be accepted as satisfying the statutory require

ment for independence The Commission has consistently held

that the mere possibility of control which most certainly exists

here is sufficient to remove a forwarder from an independent

status Respondent s nonconformance with the Act in this re

gard is not cured by going through the motions of operating

the two companies independently and maintaining separate

books and records It is settled law that corporate entities

may be disregarded where they are made the implement for

avoiding a clear legislative purpose Schenley Corp v United

States 326 U S 432 437 1945

Going to the significance of nonexercise of control the Com

mission held in Cady supra at 360 that

To license Cady would continue the same structure susceptible at any

time of use in flagrant violation of the purpose of the statute The present

intentions of Cady and his employer are immaterial since the statute makes

licensing depend upon the existence of control and not upon its exercise

ornonexercise

In further urging that the Commission has ruled that the

requirement that forwarders must be completely independent

regardless of the actual exercise of control Hearing Counsel

cite Del Mar Shipping supra at 497 a case quite parallel to

the situation here at bar wherein it was held that

In determining the applicable law the principal fact herein is that Waldeck

the owner of an exporting firm owns 50 percent of the stock of the respond

ent freight forwarder As owner of 50 percent of the stock Waldeck is in a

position where he might exercise control overthe forwarder Accordingly

it is concluded and found that respondent is not an independent ocean freight

forwarder The application should be denied

8 See also York Shipping lIupra at 76

16 F MC
378 FEDERAL MARITIME COMMISSION

Thus the ban against the licensing of forwarders w

independence is subject to breach either actual or potentia

absolute There must be complete independence and respon

is not independent

Respondent also contends that its relationship with ITC 

not violate section 16 of the Act as it does not result in reb

to shippers The fact however is that direct payment to 

shipper or owner of the goods is not necessary A forwa

who has any beneficial interest in a shipment and acc

brokerage thereon is guilty of accepting a rebate in viola

of section 16 New York Freight Forwarder Investigatio

U S MC 157 164 1949 Also see Brokerage on Ocean Fre

Max Le Pack et al 5 F M B 435 439 440 1958 re 

absence of evidence of payment to the shipper and the us

a corporate form or veil to evade a statute

In United States v Braverman 373 U S 405 406 19

the Supreme Court in interpreting the Elkins Act as proh

ing rebates by rail carriers as does section 16 by ocean 

riers held that

the Elkins Act outlaws solicitations of rebates by any person wha

no matter for whose benefit the rebate is sought Nowhere does the s

section 1 of the Elkins Act say or imply that rebates are unlawful 

it they are given to or are for the benefit of a shipper

Despite respondent s generalized contention that it did 

knowingly or willfully conceal from the Commission info

tion a reasonable man could assume the Commission sough

its application form the record herein requires the above 

ings of fact numbered 18 and 19 and offer no basis for fin

that the false representations concerned were other than k

ing and willful

ULTIMATE CONCLUSIONS

1 Respondent is not independent in that it directly and 

directly controls and or is controlled by lTC a person wh

shipper connected and in addition has a beneficial interes

shipments to foreign countries

2 Respondent s relationship with ITC is in violation of 

tion 16 of the Act

3 Respondent s relationship with ITC waswillfully conc

from the Commission by falsification of its application for 

license

16 F M 
NORMAN G JENSEN INC 379

4 Respondent s license as an independent ocean freight for

warder should be revoked pursuant to section 44 of the Act

and the Commission s General Order 4 46 CFR 510 9

8 JOHN MARSHALL

Presiding Examiner

Washington D C

JUNE 19 1972

16 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 70 45

NORMAN G JENSEN INC INDEPENDENT

OCEAN FREIGHT FORWARDER LICENSE No 800

ORDER

i

This proceeding was initiated by the Federal Maritime C

mission to determine inter alia whether Norman G Jen

Inc continues to qualify as an independent ocean freight 

warder and whether its license No 800 should be contin

in effect or revoked and the Commission has fully consid

the matter and has this date made and entered of reco

Report containing its findings and conclusions thereon w

Report is hereby referred to and made a part hereof The C

mission found that Norman G Jensen Inc did not possess 

required independence from shipper connections necessary t

an ocean freight forwarder but declined to revoke Norma

Jensen Incs license as an independent ocean freight forwa

due to mitigating circumstances but subjected the reten

of said license to certain specific conditions

Therefore it is ordered That Norman G Jensen Inc b

lowed to retain its license as an independent ocean freight 

warder subject to the following conditions

1 Norman G Jensen Inc shall immediately terminate 

relationships between its operations and those of Internat

Traders and Counsellors Inc found in the Report to vi

the Shipping Act 1916 and certain Commission regulation

orders and

2 Norman G Jensen Inc shall submit in the form o

affidavit a full report to the Commission on the manner in w

it has complied with the requirements to so terminate as 

tofore set out within 90 days of service of the Report 

Order If Norman G Jensen Inc fails to submit the req

report its license as an independent ocean freight forwa

will be revoked without further proceedings

By the Commission

SEAL

380

S FRANCIS C HURNEY

Secreta
FEDERAL MARITIME COMMISSION

DOCKET No 72 51

NEW YORK SHIPPING ASSOCIATION

NYSA ILA MAN HoUR ToNNAGE METHOD OF ASSESSMENT

POSSIBLE VIOLATION OF SECTIONS 15 16 AND 17

SHIPPING ACT 1916

June 12 1973

The assessment formula agreement between the New York Shipping Associ

ation and the International Longshoremen s Association is subject to

the jurisdiction of the Federal Maritime Commission under section 15

of the Shipping Act 1916

The assessment formula agreement is not labor exempt from the require

ments of section 15 Shipping Act 1916

No violations of sections 16 and 17 Shipping Act 1916 appear from the

record in this show cause proceeding

C P Lambos Donato Caruso Thomas W Gleason Jr and

Julius Miller for New York Shipping Association Inc and In

ternational Longshoremen s Association AFL CIO

John S Rogers for Union Minerals and Alloys Corporation

Alan F Wohlstetter for Wallenius Line

Marvin J Coles and Neal Michael Mayer for Seatrain Lines

Inc

Mario F Escudero and Robert J Hickey for the Common

wealth of Puerto Rico

Ronald A Capone and Stuart S Dye for Transamerican

Trailer Transport Inc

Joseph F Kelly Jr for Daniels Kennedy Inc and The

Madden Corporation

Philip Elman and Berna d J Wald for Wolfsburger Trans

port Gesellschaft

Norman D Kline and Donald J Brunner as Hearing Counsel

Gerald A Malia for Sea Land Service Inc

Stanley O Sher and Paul M Tschirhart for Prudential Grace

Lines Inc
382 FEDERAL MARITIME COMMISSION

REPORT

BY THE COMMISSION Helen Delich Bentley Chairman Ge

H Hearn Vice Chairman Ashton C Barrett and Jame

Day Commissioners

The New York Shipping Association and the Internati

Longshoremen s Association 1

were ordered to show cause 

the latest man hour tonnage formula contained in their 

lective bargaining agreement was not subject to section 

of the Shipping Act 1916 and not in violation of sec

16 and 17 of that Act as well Both the NYSA 8

and the 

were made respondents in the proceeding

FACTS

Two affidavits furnish the background of this proceed

1 the affidavit of James J Dickman President of the NY

and 2 the affidavit of Thomas H Gleason Sr the Pres

of the ILA The facts set forth below are drawn from the 

affidavits

The issue of assessments to fund collectively bargained fr

benefit programs has plagued the longshore industry sinc

advent in the 1968 collective bargaining agreement 

July of 1971 the voting members of the NYSA were 

clusively carriers agents and charterers The disputes bet

the voting members over the methods of assessing the va

types of cargoes were frequent and bitter This interne

warfare between competing modes of cargo movement d

the last 21 years of the 1968 71 labor contract almost b

rupted the longshoremen s fringe benefit fund During 

last contract period several monetary crises developed w

impaired and almost prevented the various fringe benefit f

from meeting their obligations to the employees

In July of 1971 the NYSA passed a resolution transfor

the NYSA from an association controlled by the carriers 

1

They are variously referred to as NYSA or the AS80eiatlon and the ILA or the u

e

The assessment formula Is the al1eement under which the monies necessary t

the various fringe benefits agreed to by the Alsotoation and the union wUl be rai8ed

a

The NYSA Is a

nonprofit multl empIoyer bargahllng aBBOClatlon made up 01 bot

and Indirect users of lonphore labor in the Port of New York

Intervenors are Transamerlcan Trailer Transport Inc j Wolfsburger TransportGes

mb H Union Minerals Bnd Alloys Corp d b a River Development Co and Lipse

Produots Inc jointly Wallen ius Line Seatrain Line Inc Daniels Kennedy In

The Madden Corp jointly Commonwealth of Puerto Rico and SeaLand Service Inc

16 F 
NEWYORK SHIPPING ASSOCIATION 383

an association where the voting power reposed in the major

stevedores The NYSA as it is now structured is a non

profit membership corporation of a bipartite nature con

sisting of the major stevedoring companies which are full

voting members and ocean carriers carrier agents terminal

operators and other maritime concerns operating in the Port

of New York which are nonvoting associate members

The NYSA hoped that the stevedores as the direct employers

of ILA labor could bring order out of chaos The stevedores

were deemed to be more intimately aware of the industry s

labor problems and thus better equipped to deal with the ILA

in controlling the skyrocketing labor costs especially in the

area of the Guaranteed Annual Income GAl It was also

hoped that the stevedores being neutral entities could de

velop a fair and equitable formula for allocating the fringe

benefit costs By this time the ILA had made up its mind

that when negotiations began on the new contract it was

going to demand full participation in the formulation of the

assessment formula because Hard workers on the docks were

going to have their welfare clinics and GAl benefits protected

The ILA was determined to become a full partner in the

assessment method 6

The bargaining began in September of 1971 and among the

goals of the NYSA were 1 finding some method of cur

tailing GAl costs and 2 eliminating the shortfall concept

and the forty million man hour guarantee To these ends the

NYSA proposed the end of casual hiring and demanded that

every ILA employee become a permanent employee of some

direct employer in the Port The NYSA s primary objection

was the payment of GAl benefits to the indolent worker

who would not accept work when work was available In

itially the ILA vehemently opposed the new employment sys

tem and in turn demanded that the assessment formula itself

become an issue of bargaining

6

It is virtually impossible to categorize the members of NYSA Some stevedore members

are also terminal operators Some carrier members perform their own stevedoring functions

Suffice it to say that the members of NYSA consist of pure stevedores pure carriers pure

terminal operators pure agents pure watching agencies as well as hybrid organizations

engaged in various maritime functions

Under the old collective bargaining agreement the construction of a

formula by which

the NYSA would assess its members for the monies necessary to finance the frinae benefit

programs was left in the exclusive province of the NYSA

16 F MC
384 FEDERAL MARITIME COMMISSION

In November of 1971both sides agreed to certain b

principles which included 1 GAl benefits would be availa

only to those employees who would accept work when it 

available and 2 the assessment issue would become the 

ject of bargaining with full ILA participation Subseque

the assessment formula presently before us was agreed 

DISCUSSION AND CONCLUSIONS

This case is before us as a result of the Supreme Co

decision in Volkswagenwerk V Federal Maritime Commiss

390 U S 261 1968 Some understanding of that decision 

background and subsequent events is necessary to place 

jurisdictional issues presented here in their proper perspec

In late 1960 the Pacific Maritime Association the PMA 

multi employer bargaining association and the Internatio

Longshoremen s and Warehousemen s Union the ILW

reached a milestone agreement which it was hoped w

end a long history of labor discord on the West Coast wa

front The ILWU agreed to the introduction of labor sa

devices and the elimination of certain restrictive work practi

In return the PMA agreed to create over the period f

1961 to 1966 a Mechanization and Modernization Fund 

29 000 000 the Mech Fund to be used to mitigate the im

upon employees of technological unemployment The agreem

specifically reserved to the PMA alone the right to determ

how to raise the Fund from its members at the rate of s

5 000 000 a year An assessment formula based solely 

tonnage was ultimately adopted by PMA

Volkswagen filed a complaint with this Commission alle

that the PMA was dominated by common carriers who 

agreed upon the formula in order to shift a disproportion

share of the Mech Fund assessment onto Volkswagen 

did not patronize those common carriers Volkswagen alle

that the Mech Fund assessment agreement was subject to 

I A strike was called by the ILA on October 1 1971 which aftected Atlantic and 

Coast ports including the Port of New York The strike continued for 57 days until 

ended by injunctions under the TaftHartley Act

8 Originally a member of the PMA brought an action in a Federal court against Volks

seeking to collect assessments stnst Volkswagen which it had refused to pay Volks

obtained a stay of the action to permit it to invoke the primary jurisdictIon 

Commission

16 F M 
NEWYORK SHIPPING ASSOCIATION 385

provisions of section 159 of the Shipping Act 1916 46 U S C

814 and had not been filed with the Commission nor ap

proved by it and that the assessments on Volkswagen under

the agreement violated sections 16 and 17 of the Shipping Act

46 U S C 815 816

The Commission held that although the Mech Fund assess

ment formula was a cooperative working agreement within

the plain language of section 15 it nonetheless was not the

kind of agreement required to be filed under that section The

agreement it was thought did not affect that competition

which in the absence of the agreement would exist between

the parties when dealing with the shipping or traveling public

or their representatives The Commission concluded that

What must be demonstrated before a section 15 agreement may be said to

exist is that there was an additional agreement by the PMA membership

to pass on all or a portion of its assessments to the carriers and shippers

served by terminal operators 9 F MC at 83

The Supreme Court in overturning the Commission s de

cision thought that too narrow a view had been taken of a

statute that uses expansive language and that the assessment

formula was subject to section 15 The Court found that most

if not all of the members of the PMA had passed on the

assessments and that competition was affected within the mean

ing of section 15 In concluding that the assessment formula

was subject to section 15 the Court felt that it was necessary

to emphasize that the only agreement before it was the one

between the members of the PMA and that

We are not concerned here with the collective bargaining agreement

between the Association PMA and the ILWU No claim has been made

in this case that either of those agreements was subject to the filing require

ments of 15 Those agreements reflecting the national labor policy Of free

cOlIective bargaining by representatives Of the parties Own unfettered choice

fall in an area of cOncern tn the Nati Onal Labor Relati Ons Board But

in neg Otiating with the ILWU the Association insisted that its members

were to have the exclusive right tO determine hOw the Mech Fund was to be

9 Section 15 requires every common carrier by water or other persons subject to the

Shipping Act to file with and have approved by the Commission every agreement

fixing or regulating transportation rates or fares giving or receiving special rates accomR

modations or other special privileges or advantages controlling regulating preventing or

destroying competition pooling 01 apportioning carnings losses 01 traffic allotting ports

or restricting or otherwise regulating the number and character of sailings between ports

limiting or regulating in any way the volume or character of freight or passenger traffic

to be carrier or in any other manner providing for an exclusive preferential or cooperative

working alrangement The term agreement includes understandings conferences and

other arrangements

16 F M C
386 FEDERAL MARITIME COMMISSION

assessed That assessment arrangement affecting only relations

among Association members and their customers is all that is b

us in this case 390 U S at 278 10

In Docket No 69 57 Agreement No T 2336 New York S

ping Association Cooperative Working Arrangement 15 F

259 June 14 1972 the agreement of the NYSA member

providing for an assessment formula generically indistingu

able from the PMA agreement before the Court in Volkswa

supra was before the Commission However in that case 

question of the Commission s jurisdiction never arose

However in Docket No 70 3 United Stevedoring 

tion v Boston Skipping Association 16 FMC 7 August 

1972 the Commission was confronted with another agreem

involving a multi employer bargaining association except 

this time the agreement in issue was a part of the colle

bargaining agreement itself Briefly it was alleged that purs

to Article 10 of the collective bargaining agreement betw

the Boston Shipping Association BSA and the ILA the 

plainant United Stevedoring was being denied access to l

shore labor United charged that Article 10 and certain o

agreements were subject to section 15 and since the a

ments had neither been filed with nor approved by the Com

sion they were unlawful Activities under the agreement 

also said to violate sections 16 and 17 of the Shipping Act

In its first decision served November 9 1971 15 FMC 33 

Commission found the BSA subject to its jurisdiction and Ar

10 and the other agreements subject to the provisions of se

15 That decision was appealed to the First Circuit Cou

Appeals Seven maritime associations were granted leav

intervene and the views of the Department of Labor and 

National Labor Relations Board were presented to the C

in a brief filed by the Department of Justice statutory 

spondent in the proceeding Prior to oral argument the C

10 Justice Harlan in a

concurrinK opinion dIscussed more fully the problem of reco

multi employer collective bargaining with the sometimes competing philosophies of 

laws promoting and regulating competition i e in the case of maritime labor regu

the Shipping Act

11 The case involved the collective bargaining agreement and the assessment formula 

immediately preceded the one here under consideration

Bo ton Shipping A n

Inc v United State No 72 1004 decided May 81 197

Court of Appeals First Circuit

16 F M 
NEW YORK SHIPPING ASSOCIATION 387

mission requested the Court to remand the proceeding to it for

consideration of the views of the various government agencies

and intervenors none of which had appeared in the initial

proceeding before the Commission The motion was granted

and for the first time the Commission was faced with the

problem alluded to by Justice Harlan in Volkswagen the prob

lem of reconciling multi employer bargaining with the some

times competing policies of Federal laws promoting and regu

lating competition ie the Shipping Act

On remand the Commission concluded that while the agree

ments were of a kind which fell within section 15 the na

tional policy of fostering and protecting the collective bargaining

process require that the agreements be declared labor exempt

In that decision served August 25 1972 the Commission formu

lated a test for use in determining whether a labor exemption

should be granted Four criteria or rules of thumb were

established

1 The collective bargaining which gives rise to the activity must be in good

faith Other expressions used to characterize this element are arms length

or eyeball to eyeball

2 The matter is a mandatory subject of bargaining e g wages hours

or working conditions The matter must be a proper subject of union

concern ie it is ultimately related or primarily and commonly associated

with a bona fide labor purpose

3 The result of the collective bargaining does not impose terms on entities

outside of the bargaining group

4 The union is not acting at the behest of or in combination with non

labor groups i e there is no conspiracy with management BSA supra

at page 8

We shall have more to say about these criteria later in this

report and with this background we turn to the issues at

hand

A threshold we must cross before the disputed agreement

itself can be dealt with is the question of jurisdiction over the

parties to the agreement The argument against our jurisdic

tion is two pronged 1 since the NYSA is an association

with some members who are stangers to the Act it is not

subject to the Shipping Act and 2 since one of the parties

to the collective bargaining agreement is a union the ILA

over which we have no jurisdiction there can be no jurisdic

tion over the agreement Both of these arguments have already

16 F MC
388 FEDERAL MARITIME COMMISSION

been rejected and both are based upon the language of sec

15 that submits to our jurisdiction only agreements which 

between common carriers by water and or other perso

subject to the Shipping Act

Our jurisdiction over the NYSA is not dependent upon e

and every member of the Association being either a comm

carrier or other person What we said in the BSA c

is equally applicable here

Aside from the fact that some members of the BSA may not be sub

to our jurisdiction there are members of the BSA which clearly are 

ject to the Act Whether or not stevedoring contractors are subject to 

Act terminal operators and steamship lines clearly are thus we find m

bers of the Association in their individual capacities to be subject to 

jurisdiction To argue that these individuals can band together and f

an association which although as an entity does not do any of the th

enumerated in the section 1 definition of other person but does other

engage in matters which are or may be of Shipping Act concern w

frustrate the entire purpose of the Act BSA supra at page 4 foot

omitted

A moment s reflection will show that acceptance of any mi

membership theory of jurisdiction would effectively end 

regulation of the myriad restrictive agreements which cha

terize this country s oceanborne commerce The conference 

tem itself would elude all regulation by the simple exped

of each conference adding a stranger to the Act say a p

steamship agent to its membership The difference betw

the addition of a pure stevedore as a party to an agreem

and the inclusion of a pure agent in conference member

is merely one of degree To hang regulation of our fore

waterborne commerce on so slender a thread was most certa

not the purpose of Congress nor is it the result of any 

guage in the Shipping Act

The assessment formula before us is for jurisdictional 

poses at least the same as was before us in Docket 69 57 su

except for the presence of the union

The introduction of the lLA into the situation does not h

ever alter the picture Here again whether or not there is 

conceivable Shipping Act jurisdiction over a labor union 

18 See United Stevedoring Corporation v Boston Shipping AS8ociation 8Upra

14 Section 1 of th Shipping Act defines the term Uother person as any person n

eluded in the term common carrier by water carrying on the business of forwardi

furnishing wharfage dock warehouse or other terminal facilities In connection w

common carrier by water

16 FM
NEWYORK SHIPPING ASSOCIATION 389

jurisdiction over the parties who are subject to the Act is suf

ficient Thus the inclusion of the ILA as a nominal party to

the assessment formula agreement otherwise among persons

subject to our section 15 jurisdiction and the fact that there

is a party on one side of the collective bargaining agreement

who is not subject to such jurisdiction are considerations of no

legal significance Our jurisdiction over those persons who are

subject to the Act suffices so long as the agreement itself falls

within one of those categories of agreements which section 15

submits to our regulation We cannot hold otherwise without

emasculating the Congressional regulatory program for our

waterborne commerce Ifthe agreement is not amenable to our

surveillance although within our section 15 jurisdiction it

will be because the national policy to encourage and protect

collective bargaining requires the agreement to be declared labor

exempt not because it is included in a collective bargaining

agreement with the union on one side or because the union is

made a party

The assessment formula before us was the product of nego

tiations between the union and the Association and is incor

porated into the basic collective bargaining agreement itself

This alone it is urged is enough to entitle the agreement to

the labor exemption because Volkswagen is seminal authority

for the principle that negotiated labor agreements reflect

ing the national labor policy of free collective bargaining

fall into an area of concern to the National Labor Relations

Board 390 U S at 278 to the exclusion of any juris

diction under the Shipping Act Respondents proposition while

valid in the abstract must fail in the specific because of its in

herent assumption that their particular agreement reflects and

is in furtherance of the national policy of free collective bar

16 Several types of arrangements among persons subject and a person not subject to the

Act have clearly been held subject to section 15 eg the incorporation papers of an

association of carriers and stevedores United Steved01 ing v

Boston Shipping Assn 8upm

understandings agreements concerning interdependent rail overland ocean rates between

carriers and railroads Investigation of Overland OCP Rates and Absorptions 12 F M C

184 216 1969 affirmed sub nom Port of New York Authority v F M C 429 F 2d 663

5th Cir 1970 a requirements contract not an interstitial operation under a

conference

agreement between carriers and a shipper N Atlantic Mediterranean Frt Conf and United

Arab Co 9 F M C 431 436 437 1966 a rate agreement implementing an intercUlrier

dual rate system between carriers and shippers Anglo Canadian Shipping Company v

United States 264 F 2d 405 411 1959 See also generally Volkswagenwerk v F M C 390

US 261 275 76 1967 Cf Wharfage Charges and Practices at Boston Mass 2 US M C

245 250 251 1940 Agreement No 7620 2 US M C 749 754 1945 Grace Line Inc

v Skips A S Viking Line et al 7 F M C 432 448 1962 and PQrtalatin Velazquez

MauwnadQ v Sea Land Service Inc 10 F M C 362 363 364 1967

16 F MC
390 FEDERAL MARITIME COMMISSION

gaining Volkswagen does not stand for any absolute or t

exemption of all collective bargaining agreements from o

Federal laws As Justice Harlan said in the Volkswagen 

itself

Multi employer collective bargaining must therefore be reconciled 

the competing policies of Federal laws prompting and regulating com

tion viz the antitrust laws and in this case of maritime labor relat

the Shipping Act This is a problem on which Congress has provided 

tively little guidance but it is one of a kind that the Court has repea

grappled with since Allen Bradley Co v Local Union No 9 eta 325 

797 It is a problem of linedrawing 6

It was precisely in aid of the required line drawing that 

set out the criteria or guidelines in the BSA case supra I

of course respondents position and assurance that the ass

ment formula fully meet all the criteria of BSA Interve

and Hearing Counsel are equally sure that the agreement 

to meet some if not all of the criteria Failure to meet any

of them is sufficient to consider withholding the exemption 

say consider withholding the exemption because as we fo

in BSA

In the final analysis the nature of the activity must be scrutinized to d

mine whether it is the type of activity which attempts to affect compe

under the antitrust laws or the Shipping Act The impact upon bus

which this activity has must then be examined to determine the exte

its possible effect upon competition and whether any such effect is dire

remote Ultimately the relief requested or the sanction imposed by law 

then be weighed against its effect upon the collective bargaining agree

This final analysis must await examination of the assess

formula under the criteria for the labor exemption

Good faith in the bargaining between the NYSA and 

ILA is somewhat grudgingly assumed by all the parties 

cept Transamerican Trailer Transport Inc TTT who 

lenges the good faith of the respondents TTT finds it in

ceivable that certain members who have with uncompro

ing hostility fought and are still fighting Puerto Rico s 

empt status under the old formula could have engaged in 

faith arms length bargaining to preserve that stat

III Justice Harlan went on to say I

see no warrant in assuming in advance that a 

time agreement must always faU neatly into either the Labor Board or Maritime Comm

domain a single contract might well raise issues of concern to both

17 For a discussion of the Uexempt status of Puerto Rico under the old formula as 

fled by this Commission see Docket 6951 Agreement No T 888 New York Sh

ASBociation Cooperative Working Arrangement 16 FMC 269 261

16 F 
NEWYOBK SHIPPING ASSOCIATION 391

recognizes that resolution of the good faith issue would require

an evidentiary hearing and it requests one but since our deci

sion here does not turn on the issue of good faith we will not

order an evidentiary hearing and we reach no conclusions con

cerning the good faith of either the NYSA or the ILA during

their negotiations

Respondents seem inclined to skirt the question of whether

the assessment formula is a mandatory subject of bargaining

ie whether the assessment formula itself concerns wages hours

or other terms and conditions of employment Their whole argu

ment appears to be included in the single sentence The As

sessment Formula is a proper subject of bargaining of para

mount concern since the lLA would be remiss if it permitted

its members to lose the fringe benefits which they had obtained

in the collective bargaining arena The ILAs concern over

the possible loss of fringe benefits stems from the NYSA mem

bers failure to agree on a formula for the assessments neces

sary to fund the fringe benefits the Association was obligated

to pay under the old collective bargaining agreement 18 and the

several crises which developed from the failure of the mem

bers to agree Neither the amount nor character of the fringe

benefits is at issue They have already been negotiated and are

not challenged by the NYSA What is at issue between the ILA

and the NYSA is the timely payment of the necessary monies

and the question remains whether that issue is a mandatory sub

ject of bargaining

The mandatory bargaining criteria stem from the proposition

that Congress only intended to exempt from other Federal laws

those collective bargaining agreements which dealt with legiti

mate employer employee disputes which in turn are subjects

on which labor and management are required by law to bargain

This intention of Congress found expression in section 8 d of

the National Labor Relations Act 49 Stat 452 which im

poses the duty to bargain in good faith concerning wages

hours or other terms and conditions of employment That

unions and employers may bargain about other subjects is be

yond doubt but when they leave the area of the mandatory

and enter other fields they run the risk that their agreements

may violate other Federal laws Meat Cutters v Jewel Tea Co

381 U S 676 1965 The assessment formula does not involve

18 See our decision and the record in Docket 69 57 8upra note 16 for the lamentable

history of disagreement under the old agreement

16 F MC
392 FEDERAL MARITIME COMMISSION

wages and hours nor does it in our view involve other te

and conditions of employment

Fringe benefits themselves would we think quite clearly 

within other terms and conditions of employment but as 

have already noted we are not here dealing with the am

or kind of fringe benefits What the ILA wants here is 

some new agreement on fringe benefits as such but a guara

that fringe benefits already negotiated will in fact be tim

paid We have a great deal of sympathy for the ILA s con

sympathy prompted by our experience with the old as

ment formulabut we cannot let this sympathy lead us to g

a labor exemption to an agreement which is and should be 

ject to our jurisdiction

In Excello Dry Wall Company 145 NL R B 663 1963 

union sought a security fund to insure the payment of w

and benefits because the need for such a fund had been cle

demonstrated by earlier evidence of delinquency on the pa

the employer The NLRB citing over 20 years of prece

found that the union had committed an unfair labor pra

by insisting upon the security fund as a condition precede

concluding a collective bargaining agreement In short sec

funds performance bonds or other guarantees of payment 

not mandatory subjects of bargaining

In this case the motivating factor in the union s the I

demand of full participation in the assessment formula is s

its concern that the fringe benefits be paid for by the emp

the NYSA We see nothing in the situation confrontin

here to distinguish it from that confronting the NLRB in 

Excello case 8upra Accordingly we conclude that the as

ment formula now before us did not result from negotia

concerning a mandatory subject of bargaining

Respondents would also have us find that the assess

formula does not impose terms upon persons or entities ou

the bargaining group because by its terms the assessment 

mula applies only to cargo loaded or discharged by ILA m

bers in the Port of New York As respondents put it

The NLRB has certified that all langshare emplayees engaged in the 

ing and unloading of vessels ill the Part of New York constitute the p

unit for collective bargaining The assessment formula does nat pu

to apply ta longshare employees in the Port Of Philadelphia or any athe

19 As the NLRB pointed out The statutory obligation to bargain Is not just lim

financially responsible parties whether employer or labor union146 N LRB ai 6

16 F
NEWYORK SHIPPING ASSOCIATION 393

in the United States It assesses only cargo that has enjoyed the services of

ILA labor in the Port of New York the area that the NLRB has certified

to be the proper bargaining unit

Of course respondents completely miss the point and in

doing so misread United Mine Workers of America v Penning

ton et al 381 U S 657 1965 In the first place the col

lective bargaining unit is not just the ILA Nor is the whole

Port of New York regardless of who may be performing

services there The NLRB did not certify the area of the

Port of New York itself although the area covered by the

bargaining unit is the Port of New York It did certify both

the ILA and the NYSA These two associations taken together

constitute the bargaining unit

Pennington supra makes it glaringly clear that the bar

gaining group includes both sides of the table the union and

the employees In Pennington the union agreed to the rapid

mechanization of the mines which would substantially reduce

employment and in return the large mining companies agreed

among other things to increase wages as productivity increased

The wage increases were to be demanded from the smaller

companies by the union whether or not they were mechanized

and without regard to their ability to pay The purpose of

the agreement was to eliminate the smaller companies In con

cluding that the bargaining agreement was not entitled to a

labor exemption under the antitrust laws the Court said

There is nothing in the labor policy indicating that the union and the em

ployers in one bargaining unit are free to bargain about the wages hours

and working conditions of other bargaining units or to attempt to settle

these matters for the entire industry The union s obligations to its

members would seem best served if the union retained the ability to respond

to each bargaining situation as the individual circumstances might warrant

The persons or entities upon whom the terms and conditions

of the collective bargaining agreement were being imposed were

also employers not just the union

Clause H of the collective bargaining agreement entitled

Settlement of Port of Greater New York Conditions provides

in part

This agreement shaH be executed by the ILA on behalf of itself and its

affiliated locals and by the New York Shipping Association Inc for and on

behalf of its employer members and by each contracting stevedore and vessel

carrier who directly or indirectly utilizes the services of any employees

covered by this agreement and who by such execution binds itself and its

16 F MC
1

394 FEDERAL MARITIME COMMISSION

successors to each and every term and condition of the agreement inc

without limitation the contribution of its proportionate share of the h

and tonnage contributions provided herein and no contracting stev

shall perform services for any carrier private or govenmental unless 

carrier has subscibed to this agreement

Article 2 of the assessment formula provides

Any direct employer who performs work for any carrier who Is not a 

to the collective bargaining agreement shall be responsible for the to

assessment that should have been paid by such carrier

In order to enforce this provision the ILA NYSA Con

Board has directed the execution of an agreement bet

direct employers and carriers who are not members of N

or parties to the NYSA ILA collective bargaining agree

which binds the nonmember carriers to each and every 

of the collective bargaining agreement and by which the 

member carrier agrees without limitation that it will 

tribute its proportionate share of its contributions and as

ments required to be paid by the carrier under the colle

bargaining agreement

Many if not all of the direct employers referred to 

terminal operators and it is unnecessary to even allude t

vital importance of terminal services to the common ca

Under the above provisions a nonmember carrier must 

condition precedent to receiving terminal services at the 

of New York sign an agreement levying assessments u

yet another agreement in the negotiation of which he 

played no part Thus it is clear that entities outside 

bargaining group must either submit to the terms of the 

lective bargaining agreement and the assessment formul

incur the sanctions contained therein

No party to this proceeding alleges any conspiracy 

tween the NYSA and the ILA Even TTT which as 

charges a lack of good faith on the part of certain mem

of the NYSA does not argue that they conspired with 

ILA The conspiracy criteria is really a corollary of the 

faith criteria and here there is no evidence of record of 

conspiracy For the same reasons that we found it unnece

to order an evidentiary hearing to establish good faith o

lack on the part of respondents we find it equally unnece

to order such a hearing to determine whether any consp

16 F 
NEWYORK SHIPPING ASSOCIATION 395

existed our disposition of this case turns neither on lack of

good faith nor the existence of a conspiracy o

As for whether in the final analysis the activity under the

assessment formula is the type of activity which affects com

petition under the Shipping Act that question would appear to

have been answered in the affirmative in the Volkswagen case

supra Just as the PMA members passed on their assessments

under the Mech Fund agreement so must the members of the

NYSA pass on their levies under their assessment formula

Competition is thus affected This effect on competition is not

remote it is the direct result of the agreement which we here

find subject to section 15 In this area we agree with Hearing

Counsel who points out that the impact assumes greater pro

portions than appear from the mere fact that a total fund of

over 100 million must be raised by some form of cargo tax

The difference in productivity in the shipping industry makes

the particular formula adopted of crucial importance For in

stance if a straight tonnage rate is chosen cargoes such as

newsprint or automobiles which move arelatively large volume

of tons would bear the heaviest burden Similarly highly pro

ductive containerized or roll onjroll off operators would bear

a greater proportion of the total obligation than breakbulk

operators under a tonnage assessment Some of these carriers

may be able to absorb the assessments others may be forced

to pass them on to their shippers It is obvious that the formula

chosen has a direct impact upon their respective competitive

positions

We do not view our assertion of jurisdiction over the assess

ment formula as an unwarranted intrusion into the collective

bargaining process Respondents view the collective bargaining

agreement including the assessment formula as part of a

complete package We of course do not dispute this view

They are perfectly free to view their agreement in any light

they desire What we do disagree with is respondents asser

tion that our jurisdiction over the assessment formula would

preclude implementation of any part of the collective bargaining

package Admittedly the assessment formula here found subject

to section 15 has not been approved by this Commission and

until it is approved the NYSA may not collect assessments

lO

It may well be that conspiracy is a misnomer It is of course an antitrust test

Section 15 unlike the Sherman Act speaks only of agreements and it may be that some

thing Jess than an actual conspiracy is needed under that section

16 F MC
396 FEDERAL MARITIME COMMISSION

under it without violating section 15 The situation is a g

deal like that which confronted us early in the proceeding

Docket 69 57 supra where we granted an interim approv

Agreement T 2390 so as to allow the NYSA to continu

collect assessments necessary to fund the fringe benefits 

tablished in its contract with the ILA The fact that 

assessment formula in Docket 69 57 was not an actual pa

the document comprising the collective bargaining agree

as it is here is of no significance The assessment formu

severable

We are not disposed to jeopardize relations between 

NYSA and the ILA by withholding our approval of the as

ment formula If for no other reason our experience u

the old agreement would preclude such an action on our 

Labor peace is crucial to the well being of our maritime 

dustry and we will take an action which disturbes that p

only when there are no other reasonable alternatives H

however the course is clear we will grant the assess

formula an interim approval just as we did in Docket 6

and we will condition our approval upon any adjustments w

may be found necessary as a result of the proceeding whic

have this day instituted

We cannot accept intervenors contention that the assess

should be disapproved because it violates sections 16 an

of the Act In advancing this contention the intervenors 

to the fact that the present assessment formula is in 

essential respects the same as T 2390 which we found un

ful in Docket 69 57 It follows therefore to the interve

at least that the present assessment formula is also unla

and all we need to do is take official notice of the reco

Docket 69 57 and find as a fact that the new agreeme

indeed the same as the old T 2390 and thus conclude 

matter of law that the new formula is unlawful It is 

quite that simple

Intervenors theory rests upon an assumption which we 

is clearly unwarranted that the same circumstances and 

ditions in all the trades covered by the agreement as ex

when we found T 2390 unlawful still exist today This 

though unlikely may be the case we would be remiss 

we to assume such a crucial fact Accordingly any determ

tion that the present assessment formula violates section

and 17 under the circumstances and conditions existing in 

16 F 
NEWYORK SHIPPING ASSOCIATION 397

various trades today must await the development of a fresh

record clearly establishing those conditions and circumstances

There remains only the charge that the assessment formula

is within the exclusive jurisdiction of the National Labor Re

lations Board and thus beyond any jurisdiction under the

Shipping Act Respondents assert that we lack the acute

expertise and sensitivity in administering the National Labor

Relations Act which the NLRB has developed 2The Com

mission should not we are told usurp the jurisdiction of the

NLRB for should we impose another regulatory statute upon

labor negotiations we would present respondents with prob

lems which would almost be insurmountable We must agree

with the intervenors and Hearing Counsel in that we too find

the respondents arguments to be based upon several erroneous

assumptions

The basic misconception of respondents is that the NLRB

has exclusive and unlimited jurisdiction over all matters which

arise or may arise from collective bargaining This is of

course not the case as the Supreme Court has so clearly

stated in Meat Cutters V Jewel Tea Co supra In that case

the Supreme Court entertained the proposition that the ques

tion of what constituted a mandatory subject of collective bar

gaining was within the exclusive primary jurisdiction of the

NLRB In rejecting this contention the Court said at page

687

we must reject the unions primary jurisdiction contention because Of

the absence of an available procedure for obtaining a Board determination

The Board does not classify bargaining subjects in the abstract but only

in connection with unfair labor practice charges of refusal to bargain

The typical antitrust suit however is brought by a stranger to the bargain

ing relationship and the complaint is not that the parties have refused to

bargain but quite the contrary that they have agreed Agreement is of

course not a refusal to bargain and in such cases the Board affords no

mechanism for obtaining a classification of the subject matter of the agree

ment Moreover even in the few instances when the antitrust action could be

framed as a refusal to bargain charge there is no guarantee of Board action

It is the function of the Board s General Counsel rather than the Board or a

private litigant to determine whether an unfair lalror practice complaint

will ultimately issue And the six month limitation period of 10 b

21 Respondents also would include the Department of Justice as one to whom jurisdiction

over lahor negotiation should be left but the reason for this is unexplained Obviously

respondents have in mind the inescapable fact that some labor agreements fall within

the ambit of the antitrust laws which are under Justice Department jurisdiction This of

course weakens the basic premise that all labor negotiations and their consequences fall

within the exclusive province of the NLRB

16 F MC
398 FEDERAL MARITIME COMMISSION

of the Aet would preelude many litigants from even filing a eharge 

the General Counsel

The analogy to Jewel Tea supra is clear Here strangers to 

bargaining relationship are challenging the agreement th

can be no refusal to bargain charge and it has been m

than six months since the agreement was signed There is 

jurisdiction of the NLRB with which our decision here 

terferes

The assessment formula embodied in Attachment B of 

collective bargaining agreement entitled Settlement of Por

Greater New York Conditions is hereby assigned Commis

No T 2804 and is hereby approved provided however 

approval granted herein is subject to such additional adj

ments as the ultimate decision in Docket No 73 34 New Y

Shi JYing AssociationNYSA ILA Assessment Formula Ag

ment demonstrates are required to render the assessment 

mula just and lawful under the Shipping Act

Commissioner Clarence Morse concurring and dissenting

Concurring Irrespective of the answer to the ques

whether for section 15 purposes NYSA is a mixed mem

ship group I concur in the majority s conclusion that 

lawfulness of the assessment formula under sections 16 

17 of the Shipping Act 1916 must be tested under a f

record establishing the conditions and circumstances as 

plicable thereto It is implicit in such a conclusion that 

assessment formula is not a mandatory subject of labor m

agement bargaining that labor exempt status therefore 

not automatically apply and that whether we will or 

not grant a labor exemption to the assessment formula turn

a resolution of a line drawing problem as between the S

ping Act 1916 and the National Labor Relations Act w

can be accomplished only after full exposure to the applic

facts

1111 Ea ceUo Dry Wan Company supra Compare NLRB v American Compress Ware

850 F 2d 865 6 Cir 1965 c

rt d 882 U S 982 1965 I terMUo al Hcd Carri r 

108S 150 NLRB 158 1964 enfd sub nom Internaticmal Hod Car rieTB v NLRB 

F 2d 55 9 Olr 1968 cert d 890 U S 920 1968 NLRB V Davillo 818 F 2d 

CIr 1965 Local 164 Brotherhood of Painter v NLRB 298 F 2d ISB D C Cir 

c

rt d 868 US 824 Sylva ia El ctric Product I

c V NLRB 291 F 2d 128 

1961 cTt d 868 U S 926 1961 Sylvania El ctric Products I

c

V NLRB 85

591 1 Olr 1966 crt d 885 U S 852 1966

16 F M 
NEWYORK SHIPPING ASSOCIATION 399

If I were able to find the existence of proper parties to

constitute a section 15 agreement I would associate myself

with the majority s statement that the assessment formula

is hereby approved provided however the approval

granted herein is subject to such additional adjustments as

the ultimate decision in Docket No 73 34 New York Shipping

AssociationNYSA ILA Assessment Formula Agreememt

demonstrates are required to render the assessment formula

just and lawful under the Shipping ActSuch review by the

Commission compels a complete re examination of the assess

ment formula in all its aspects and as I view the matter the

report in Docket No 69 57 Agreement No T 2336 New York

Shipping Association Cooperative Working Arrangement supra

is not controlling in such re examination Pending a final de

cision on the merits of the assessment formula the parties

must have this or some similar authorized vehicle under which

they can be collecting funds with which to meet their con

tractual obligations Otherwise there will be chaos

Dissenting This proceeding gives rise to two basic inquiries

one being our jurisdiction and the other assuming we find

jurisdiction exists whether we should grant labor exempt status

The jurisdictional issue in turn has two aspects one being

whether an agreement exists which meets the standards of

section 15 in respect to parties and subject matter and the

other being whether the agreement or the parties are subject

to sections 16 and 17 It is clear to me that sections 16 First

and 17 do apply Hence my difference with the majority ex

ists only in respect to section 15 If we have jurisdiction under

sections 15 16 or 17 we are then confronted with the second

basic inquiry which is the question whether we should declare

the matter is labor exempt as to one or all of those three

sections of the Shipping Act Docket No 70 3 United Steve

doring Corp V Boston Shipping Association supra clearly and

adequately declares our guidelines in determining whether to

grant labor exempt status

There is little I need add relative to mixed membership

and section 15 jurisdiction which I have not said in my con

curring and dissenting opinions in Docket No 69 57 supra

June 14 1972 15 FMC 285 and Docket No 70 3

supra August

25 1972 16 FMC 17 21 incorporated herein by reference

Jl3 The philosophy of Federal Maritime Comm1 88wn V Seatrain Lines Inc 411 U S 726

decided MaY 14 1978 fortifies my views

16 F MC
400 FEDERAL MARITIME COMMISSION

In the instant case the majority asserts two propositi

mimeo decision pages 10 11 First it states that the 

clusion of the union as a nominal party to the agreement d

not alter the application of section 15 That statement is m

leading because it fails to distinguish between the labor m

agement agreement wherein NYSA and ILA are on oppos

sides and the intra NYSA agreement wherein the voting m

bers of NYSA authorized NYSA to enter into the labor m

agement agreement with the ILA The union is not a mem

of the intra NYSA group or the agreement within that gro

The union may be a party to the assessment formula ag

ment by reason of the inclusion of the formula in the NYS

ILA contract but the union is never a party nominal 

otherwise to the intra NYSA group or agreement which 

ceded and authorized on behalf of NYSA the signing of 

NYSAjILA labor management contract and for our juris

tional purposes this is the critical agreement The intra NY

section 15 type agreement See Docket 703 mimeo decisio

footnote 8 on page 15 and footnote 11 on page 17 to e

into an agreement with the ILA can itself be a section 

agreement provided only the intra NYSA group is not m

membership and the agreement meets any of the seven sub

matter criteria of section 15

As I understand the majority report the majority at no t

contends that the collective bargaining agreement itself 

agreement to which the assessment formula is attached as 

hibit B is a section 15 type agreement because lLA is 

essential party to that agreement and ILA is neither a comm

carrier by water nor another person subject to the Act 

majority contends that the intra NYSA agreement to enter 

the assessment formula Attachment B of that agreement 

section 15 and the mere fact the assessment formula is a p

of the collective bargaining agreement thereby making ILA 

lK At page 10 of mimeo decision it 18 stated tiThe difference between the addition 

pure stevedore as a party to an agreement and the InclusIon of a pure agent in c

ence membership Is merely one of deKree Not so Agreement No 160S 2 USMC 749 1

and In the Matter of Agreement No T 719 Docket No 78 6 mimeo decision served 

20 1978 46 CFR Part 522 and Part 528 our guidelines for flling of freight confe

agreements rate agreements pooling agreements etc are clearly limited to filing

agreements between common carriers by water to the exclusion of llpure agents In 

Instances where an agent has been accepted as a member of a section 15 type agreeme

acceptance has been on the sole premise that it is si8natory thereto as alter ego fo

principal a common carrier by water or other person

lIS Compare Transahipment Agreement Indone ia United States 10 FMC 183 196 

shipment AgTeement between S Thailand and US 10 FMC 199 216

16 F M 
NEW YORK SHIPPING ASSOCIATION 401

nominal party to the assessment formula does not alter the

situation

Ifone considers the entire membership of NYSA both voting

and non voting members it is obvious that there are some

members who are neither common carriers by water nor other

persons subject to the Act See Footnote 5 supra Hence

under such a test mixed membership exists In my desire to

find a controlling group to which mixed membership would

not apply I would even confine my examination to the members

of NYSA which after July 1971 were granted sole voting

power for NYSA to approve or disapprove an agreement with

ILA namely the major stevedores in the Port 21 This is the

furthest I am willing to go in seeking to find an approvable

section 15 type membership After July 1971 NYSA adopted

a resolution transforming NYSA from an association controlled

by the carriers into an association where the voting power re

posed in the major stevedores in the Port The seven voting

stevedores are International Terminal Operating Co Inc

John W McGrath Corporation Maher Stevedoring Co Inc

Nacirema Operating Co Inc Northeast Stevedoring Co Inc

Pittston Stevedoring Corp and Universal Terminal Steve

doring Corp 28

Of the foregoing seven voting members all but Northeast

Stevedoring Co Inc have terminal tariffs on file with this

Commission and therefore constitute other persons subject

to the Shipping Act 1916 Northeast Stevedoring does not have

a terminal tariff on file with us and unless it is operating a

terminal without filing a tariff in violation of our General Order

15 there has been no showing that Northeast Stevedoring is

carrying on the business of forwarding or furnishing wharf

age dock warehouse or other terminal facilities in connection

2t1 Affidavit of James J Dickman Avpendix page 3a fn 3 Respondents Joint Memorandum

of Law and Appendix filed October 10 1972 after naming the seven stevedoring companies

which comprise the voting members of NYSA including Northeast Stevedoring Co Inc

states inpart

In addition to the voting major stevedores NYSA s membership also consists of

non voting associate members comprised of ocean carriers carrier agents terminal opera

tors sugar stevedores watching agencies other stevedoring companies and other mari

time concerns operating in the Port Some stevedore members are also terminal operators

at some or all of their waterfront facilities Others are pure stevedores Moreover some

carrier members perform their own stevedoring functions NYSA is truly a mixed mem

bership association

tn ld

ld

16 F M C
402 FEDERAL MARITIME COMMISSION

with a common carrier by water Section 1 Shipping 

1910 46 D S C 801 While the fact that Northeast has 

term Stevedoring as part of its name is of little significa

in establishing the nature and scope of its business activi

the absence of a terminal tariff filing is significant Furt

more it is my understanding that Northeast Stevedoring 

wholly owned by Lester Wolff and performs stevedoring serv

at Northeast Marine Terminal s facilities which latter comp

does conduct a terminal operation has a terminal tariff on 

with this Commission and is 50 owned by Lester Wolff 

50 by Mitsui O S K Lines Ltd Northeast Stevedoring 

Northeast Marine Terminal have a common address and 

phone number Had these two companies had a common pa

or had there been a parent subsidiary relationship I m

even have disregarded the corporate fiction and concluded 

Northeast Stevedoring is conducting a terminal business 

reason of its affiliation with Northeast Terminal but I am 

willing to take that step here because of the diverse stock o

ership in the two companies Hence I conclude that the pre

voting power in NYSA is vested in six stevedoring compa

which also conduct terminal operations and thereby qualify 

other person subject to the Act plus one stevedoring 

pany Northeast Stevedoring Co Inc which is neither a 

mon carrier by water nor an other person subject to the 

and therefore we have a classical case of mixed membersh

Hence I conclude that there is no approvable section 15 ag

ment intra NYSA because of mixed membership but 

the agreement is subject to sections 16 and 17 unless by 

drawing we should grant labor exemption

The second point made by the majority mimeo decisio

page 10 is the stated fear that mixed membership th

of jurisdiction would effectively end any regulation of the 

riad restrictive agreements which characterize this coun

oceanborne commerce That comment is unsupported by 

29 In Docket No 78 6 In the Matter of Agreement No 1 719 16 FMC 818 

April 20 1978the Commission ruled Chairman Bentley dissenting that the leaae 

public port grain elevator from Port of Houston Authority to Louis Dreyfus Corporatio

not subject to section 16 ShippiniJ Act 1916 because lessee was ruled to be not an 

person subject to the Act In that case after the lease was executed and after it wa

for our approval but before lessee took p08session under the lease the lessee flIed wi

Commission a proposed tariff provision which stated inter alia Common carrie

water shall not be accepted for loading at the elevator Absent such tariff filing 

would have been ruled to be an other person because of operation of a port facility 

common carriers by water Compare the consistency of the above stated fear w

majority s ready acceptance in Docket No 73 6 of a proposed tariff provision as 

adequate basis for permittiua lessee to escape our reaulatory supervision

16 F M 
NEWYORK SHIPPING ASSOCIATION 403

records at this Commission Where parties think they are sub

ject to section 15 and realize they may be able to obtain im

munity from antitrust laws by having agreements filed and

approved under section 15 they hasten to do so I know of no

instances where parties have knowingly and voluntarily con

ducted their affairs so they would expose themselves to anti

trust instead of so conducting their affairs that they could

assert the exemption which section 15 affords against antitrust

The experience before the Congress of the railroads airlines

truckers labor unions agricultural co ops export trade

corporations and others seeking to obtain a section 15 type

umbrella against the application of antitrust laws in their in

dustries is persuasive against the possibility that common car

riers by water and other persons in this industry will rush

to add a stranger to the Act as party to a section 15 type agree

ment in order to get out from underneath the umbrella of sec

tion 15 All one need do is ask common carriers by water if

they want to dispense with section 15 protection from antitrust

and instead subject all their anticompetitive agreements to

antitrust and the answer is a

resounding NO And even if

there were to be such a rush to escape the protection of section

15 then absent a basis for granting labor exemption the

parties and their anticompetitive agreements would still be sub

ject to the other applicable provisions of the Shipping Act

1916 and to them an even much more frightening prospect

they would be exposed to the surveillance of the Federal Trade

Commission and the Antitrust Section of the Department of

Justice each of which treat anticompetitive agreements in a

much more critical and restrictive atmosphere and philosophy

than that existing in this Commission Finally even if such a

rush away from section 15 jurisdiction should occur and I am

convinced it would not then section 15 could be readily amend

ed by the Congress should it consider such action desirable

Hence let us not be influenced by such a frivolous contention

1049 U S C 5

1149 US C 1384

49 US C 6

15 U S C 17 29 U S C 62 and 106

15 U S O 17 7 U S C 291 292

15 U S C 62

16 F MC
404 FEDDAL MARITIME COMMISSION

I conclude that because of mixed membership the assess

ment formula is not a section 15 type agreement and woul

dismiss all section 15 issues from the proceeding

8 FRANCIS C HURNEY

SEAL SecretaT JI

16 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 73 11

KRAFT FOODS

J

PRUDENTIAL GRACE LINES

NOTICE OF ADOPTION OF INITIAL DECISION

June 13 1973

No exceptions having been filed to the initial decision of the

Presiding Judge in this proceeding and the Commission having

determined not to review same notice is hereby given that the

decision became the decision of the Commission on June 13

1973

It is ordered That respondent pay to complainant the sum

of 180 92 plus 6 percent interest per year if not paid within

30 days

It is further ordered That respondent notify the Commission

promptly of the date and manner of payment

By the Commission

S FRANCIS C HURNEY

Secretary

SEAL

405
FEDERAL MARITIME COMMISSION

No 78 11

KRAFT FOODS

11

PRUDENTIAL GRACE LINES

Reparation awarded

William Levenstein for Complainant

D J Hartigan for Respondent

INITIAL DECISION OF ASHBROOK P BRYANT

ADMINISTRATIVE LAw JUDGE 1

Complainant claims reparation in the amount of 180 92 f

respondent on account of alleged overpayment of freight 

100 cartons of shortening shipped on B L No 37 dated 

22 1971 via SS Santa Cruz from New York to Curacao N

erlands Antilles The cqmmodity was rated as shortening 

accordance with second revised page 126 of U S Atlantic

Gulf Venezuela and Netherlands Antilles Conference Tariff 

Ven H and freight charges of 305 59 were assessed and 

lected on the basis of 174 cu ft at the applicable rate of 6

per 40 cu ft plus surcharge Complainant contends that 

commodity comes within Item 415 of 11th Revised page 

of the tariff the applicable rate of which was 44 50 per 2 

pounds plus surcharge At this rate the total charges w

have been 124 67 making a difference of 180 92 in comp

ant s favor

1

This decision became the decision of the Commission June 18 1971
KRAFr FOODS v PRUDENTIAL GRACE LINES 407

Complainant also has moved for summary judgment and asks

for interest at 6 percent from date of payment of the freight

The BIL describes the commodity as 100 CTNS SHORTEN

ING GENERAL CARGO and the shipper s export declaration

likewise indicated simply that the shipment was 100 cartons

of shortening However other evidence now submitted estab

lishes that the commodity shipped was Kraft Red Label Short

ening and is composed of a mix of cottonseed oil and soyabean

oil

When presented respondent apparently denied the claim solely

on the ground that it was time barred under the applicable

provision of the conference tariff Respondent points out that

its rating personnel relied on the commodity description in the

bill of lading and the dock receipt Having no indication as

to what type of shortening was involved in the shipment its

personnel had no choice but to assess the highest rate provided

in the tariff for shortening

The complaint was served on March 12 1973 and among

other things requested that the matter be heard under the

Commission s shortened procedure provided by Rule 11 of the

Commission s Rules of Practice and Procedure 46 CFR 502 181

to 187 On March 23 1973 respondent by letter with a

copy

to Kraft Foods acknowledged receipt of the complaint and

consented to the claim being informally adjudicated in ac

cordance with the provisions of Rules 19 a to 19 d 46 CFR

502 301 to 502 304 By letter of March 26 1973 to the pre

siding officer respondent briefly stated its side of the story

and submitted copies of relevant documents Among other

things it was said

We feel we rated the bill of lading correctly and we trust our explanation

will assist you in determining if Prudential Grace Lines Inc adhered to the

rules and regulations in this respect

On April 25 1973 respondent was reminded by letter from

the presiding officer that the complaint is a formal one and

that complainant had requested that the matter be heard in

accordance with the Commission s rules 46 CFR 502 181 to

502 187 which is a different procedure from that set out in

Subpart S of the Rules Informal Procedure for Adjudication

of Small Claims 46 CFR 502 301 to 502 304 to which re

spondent had consented in its letter of March 23 As a result

16 F MC
408 FEDERAL MARITIME COMMISSION

respondent agreed to the shortened procedure and submit

the appropriate verified consent

Both parties having requested shortened procedure and 

appearing that this is an appropriate case for the use of t

procedure the request is granted and the matter has been c

sidered and decided without oral hearing

DISCUSSION

Complainant s claim was originally denied by respondent 

the basis that it was timebarred under the cOnference r

However the Commission has repeatedly held that in an ac

such as this which is brought under the Shipping Act 1916 

claim arising from overcharge cannot be barred from a de

mination on the merits by a conference rule if as here 

claim is filed with the Commission within two years of 

accrual Hence the actual description of the shipment as 

appears now of record governs the determination of the iss

The conference tariff has a listing in Commodity Index 

Revised page 126 of SHORTENING viz Vegetable 

as Oil Cottonseed Peanut or Soyabean Liquid Packed It

415 N O S as shortening Vegetable Oil Item 415 11th 

vised page 42A has a specific listing for oil with a spe

rate to Curacao reading

OIL Packed Liquid Flaked Solid or Hydrogenated viz

Corn Cottonseed or Soyabean to Aruba and Curacao only

The commodity here involved comes within this item

The evidence supports the conclusion that the shipment sho

have been rated under Item 415 of the tariff subject to 

applicable rate of 44 50 per 2 000 pounds Complainant 

overcharged 180 92 which respondent is directed to pay p

6 percent interest per year if not paid within 30 days 

motion for summary judgment is moot Complainant s

requ

that interest be allowed from the date of payment of the frei

is denied

Washington D C

MAY 22 1978

S ASHBROOK P BRYANT

Administrative Law Judg

16 F M
409

FEDERAL MARITIME COMMISSION

DOCKET No 72 57

UNIROYAL INTERNATIONAL

v

FARRELL LINES

NOTICE OF ADOPTION OF INITIAL DECISION

June 20 1973

No exceptions having been filed to the initial decision of the

Presiding Judge and the Commission having determined not

to review same notice is hereby given that the Commission on

June 20 1973 adopted the ultimate conclusion of the Presiding

Judge in dismissing the complaint Nothing herein shall be

deemed to constitute adoption of the discussion or conclusion

of the Presiding Judge with respect to assignment of the claim

on which the complaint is based The Commission takes no

position in this proceeding on that issue

By the Commission

S FRANCIS C HURNEY

Secretary

SEAL
FEDERAL MARITIME COMMISSION

No 72 57

UNIROYAL INTERNATIONAL

11

FARRELL LINES

Complainant has standing as assignee to file claim

Complaint dismissed

William C Whittemore for complainant

Bald1lin Einarson for respondent

INITIAL DECISION OF STANLEY M LEVY

ADMINISTRATIVE LAw JUDGE

1

This proceeding arises from a complaint filed by Unir

Inc through its Uniroyal International Division served O

ber 12 1972 Complainant seeks reparation in the amoun

7 546 88 the difference between the freight charges of 

281 88 assessable on 7 000 cubic feet of Miticide Omite 80 

under the commodity classification pesticide 2and charge

18 685 00 under the commodity classification insecticide

The position of respondent Farrell Lines Inc is that 

complainant is not a real party of interest in this dispute 

lacks standing to bring this complaint and further that 

cargo involved was correctly rated as pesticide

A hearing was held in Washington D C on March 20 

1

This decision became the decision 01 the Commission June 20 1978

lilSouth and East Africa Conference Southbound Freight Tariff No 1 F M C No 2 S

p 811 Item No 2695

B South and East Africa Conference Southbound Freight Tariff No 1 F M C No 

rev p 282 Item 1840
UNIROYAL INTERNATIONAL 11 FARRELL LINES 411

POI ty in Interest

Respondent s argument that complainant is not the real party

in interest is not weIl founded

The shipper of the cargo was Fisons Pest Control The terms

of the sale of this cargo by Uniroyal were FAS The assign

ment of the claim and Uniroyal s standing to bring this com

plaint was in the following terms

We hereby assign the claim and transfer all rights to claim for over

charges On shipment 600 fibre drums omite 30 which sailed on steamer SS

African Dawn September 10 1971 B L number 2 from Baltimore USA to

Capetown South Africa

This assignment is clearly sufficient for complainant to bring

this action seeking reparation for the alleged overcharge Ocean

Freight Consultants 11 Bank Line Ltd 9 FM C 211 1966

And this is so whether or not such assignment passes beneficial

or equitable title since the assignee may recover damages in

an action brought in his own name but for the benefit of an

equitable owner of the claim Spiller 11 Atchison Topeka and

Santa Fe Railway Co 253 U S 117 1920

The complainant having standing the complaint is not dis

missible for lack thereof and accordingly must be considered

on its merits

DISCUSSIONS AND CONCLUSIONS

The underlying shipping documents ie the bilI of lading

and export declaration described the product as MITICIDE

OMITE 30 W The export declaration contained the additional

description PESTICIDE PREPARATIONS Also contained

on the export description was the United States Department

of Commerce Schedule B Commodity Number 5992030

In the normal course of events FarreIl s rate clerk rates the

commodity based on the description on the bilI of lading and

when in doubt looks to the export declaration for aid and

possible clarification The bilI of lading described the shipment

as Miticide Omite 30 W without denominating it as either

a pesticide or an insecticide The export declaration described

The commodity number used 8S an aid in identifying product classifications is titled

Chlorinated hydracarbon pesticidal preparations primarily for agricultural use except

aerosols fty sprays and preparations containing DDT Listed under this classification are

some 19 different products under generic or trade names many of which are insecticides

although the listing does not denominate the products as insecticides or pesticides or suitable

a8 either

16 F M C
412 FEDERAL MARITIME COMMISSION

I

the shipment as Miticide Omite 30 W Pesticide Prepar

tions No conflict exists between the two documents t

export declaration merely containing a fuller description

Pesticide is a broad generic term that means literally 

kill pests As such it is a broader term than insecticide whi

is limited to insect pests

Complainant in support of its position contends that Webste

Third New International Dictionary of the English Langua

Unabridged includes mites in its non technical definition of 

sects although entomologically insects are limited to the cla

Insecta It further contends that the Federal Insecticide Fun

cide and Rodenticide Act 7 USC Sec 36 for the purposes 

administering that Act defines insecticides as including all pre

arations intended for preventing destroying repelling or m

gating any member of the Class Insecta or any classes in t

Phylum Anthropoda for example products intended for u

against mites

Thus amiticide intended to destroy mites of the class Phylu

Anthropoda which are not insects would at least for the p

pose of administering that Act be identified as an insecticid

However considerations for administration under one statu

are not controlling when another statute is specifically co

cerned with the matter in issue Section 18 b 3 of the Sh

ping Act 1916 provides that no carrier shall charge other th

the compensation specified in the appropriate tariff filed w

this Commission That tariff provides different rates for pes

cides and insecticides and hence it is within that framewo

that evidence as to the particular properties of the shipme

must be sought

In its application for a patent for Omite 30 W Uniroy

stated in pertinent part that

The new COmpounds of the present invention are useful as insecticides p

ticularly for the control of mites

This example illustrates the effectiveness of the chemicals of the pres

invention for control1ing mites The control of mites by the chemic

of the present invention at various concentrations is shown in the follow

table

The chemicals of the present invention may bol applied in various mann

for the control of insects may be applied directly to loci to be protec

against insects may be applied to loci to be protected against inse

by the aerosol method

16 F M 
UNIROYAL INTERNATIONAL V FARRELL LINES 413

The chemicals may be used admixed with carriers that are active of them

selves for example other insecticides fungicides or bactericides

Having thus described our invention what we claim and desire to protect

by Letters Patent is

1 The method of protecting plants against attack by insects which

comprises applying to the plants a compound represented by the formula

From the foregoing it appears that complainant clearly in

tended the compound to be primarily a specific against certain

species of mites which as hetefore set forth are not insects

It further appears that complainant considered mites in the

non technical sense Unquestionably complainant did not limit

its application by specifically stating that its product was to be

limited solely to combating mites but rather implying that it

might well be utilized against other unnamed and unspecified

insects either alone or in conjunction with other insecticides

fungicides or bactericides

In seeking to determine the nature of the product in issue

in this proceeding it is necessary to examine other material

prepared by complainant This material consists of the techni

cal data sheet and advertising material circulated to potential

users and the label placed on the product These items refer

only to Omite 30 W s utilization for the control of specified

mite species Thus in a

very real and practical sense consider

ing the patent application and other data prepared by com

plainant relating to Omite 30 W complainant specifically pro

duced and sold Omite 30 W for the control of mites

Whether or not a miticide could be classified as an insecti

cide under tariff Item No 1840 it certainly could be properly

classified under tariff Item No 2695 as a pesticide in that a

mite is a pest within the class Phylum Anthropoda In fact

complainant so classified it in its shipping documents

A shipper is not bound to pay the charges in a bill of lading

without recourse simply because they are based on a descrip

tion provided by the shipper The test is what a claimant can

now prove based on all the evidence as to what was actually

shipped even if the actual shipment differed from the descrip

tion in the documents supplied to the carrier by the shipper

Johnson Johnson lnte rnational v Venezuelan Lines Docket

Nos 71 46 71 67 13 S R R 305 1972

The tariff clearly intended to distinguish between products

denominated insecticides and those denominated pesticides

Where a product might be utilized in either category its chief

16 F MC
1

114 FEDERAL MARITIMB COMMISSION

effectiveness and utilization is certainly a reasonable basis 

determining its commodity rating for application of pr

freight charges

The Commission has required a complainant seeking rep

tion to sustain a heavy burden of proof Colgate Palmolive 

v United Fruit Informal Docket No 115 I 11 S R R 

1970 Complainant herein has failed to meet its burden 

indeed has it established by any preponderance of the evide

that the shipment should have been rated as an insecticide

Complaint dismissed

Washington D C

MAY 24 1978

S STANLEY M LEvY

Administrative Law Judg

16 F M 
H

FEDERAL MARITIME COMMISSION

DOCKET No 71 37

PURCHASE OF SHIPS MATSON NAVIGATION COMPANY

SEA LAND SERVICE INC REYNOLDS LEASING CORP

June 20 1973

Respondents failure to file for Commission approval their agreements for

the sale and purchase of two uncompleted containerships did not violate

section 15 of the Shipping Act 1916

Francis T Greene and Brian D Fix for respondent Matson

Navigation Company

Gerald A Malia Edward M Shea and Brian P Murphy for

respondents Sea Land Service Inc and Reynolds Leasing Corp

James L Malone and Donald J Brunner Hearing Counsel

REPORT

By THE COMMISSION Helen Delich Bentley Chairman George

H Hearn Vice Chairman Ashton C Barrett James V

Day and Clarence Morse Commissioners

PROCEEDING

This is an investigation on our own motion to determine

whether an agreement to sell two container vessels under con

struction without Commission approval violates section 15 of

the Shipping Act 1916 We ordered respondents Reyonlds

Leasing Corp Reynolds Sea Land Service Inc Sea Land

and Matson Navigation Company Matson to show cause why

the agreements among them regarding the sale and purchase

of the two containerships under construction did not require

our approval The proceeding was limited to affidavits of fact

and memoranda of law with oral argument if requested or
j

416 FEDERAL MARITIME COMMISSION

deemed necessary by the Commission The order initiating t

proceeding was published in the Federal Register 36 F 

7621 1971 and interested persons were invited to petit

for intervention none did The parties submitted extens

memoranda and affidavits urging that the agreements were 

subject to section 15 Neither an evidentiary hearing nor 

oral argument was requested or found necessary

BACKGROUND

In mid 1968 Matson decided to expand its Hawaiian 

Far East services and as a

consllquence new vessels w

required On July 24 1968 Matson s Board of Directors 

thorized its management to negotiate with Bremer Vul

Schiffbau und Maschinenfabrik Bremer Vulkan for the c

struction of two containerships for the trans Pacific tra

Matson and Bremer Vulkan concluded two contracts each 

the construction of one containership on August 23 19

The ships designated Builders Hulls Nos 957 and 958 w

to be delivered in late 1970

However in early 1970 Matson s operations were com

hensively reviewed and the Board of Directors of Alexan

Baldwin Inc Matson s parent corporation decided to aban

the expansion effort Matson s Board on June 30th authori

A L Burbank Co Ltd Burbank ship brokers to 

the vessels under construction subject to its approval of ter

There had been preliminary contact between vice preside

of Matson and Burbank on June 15 1970 and Burbank c

tactedpotential buyers including Sea Land before formal 

proval of the brokerage by Matson s Board At that time S

Land indicated it was not interested in the hulls Thereaf

Burbank contacted about 460 brokers and owners in an atte

to reach all possible buyers Several were interested and 

August Zim Israel Navigation Co Ltd Zim agreed to p

chase the hulls for 13 250 000 if the German construc

subsidy was available or 13 750 000 if not each Zim 

unable promptly to secure financing and on September 

1970 formally notified Matson through Burbank that it 

unable to make the purchase

Burbank then renewed contacts with other prospects 

during a routine check Sea Land expressed interest A m

1

American Export Isbtandtsen Lines Inc attempted to file after the uptratlon of 

allowed and eubeequently withdrew It petition

16 F M 
PURCHASE OF SHIPS 417

ing was held on October 2nd between Burbank and Sea Land

officials and on October 5th Reynolds presented an option letter

and a deposit of 100 000 to Burbank which was accepted on

behalf of Matson Up to this point there had been no direct

contact between Matson and Reynolds or Sea Land The option

was exercised October 9th and an agreement of sale at a

price of 13 750 000 each if Matson did not receive the German

construction subsidy or 13 250 000 if it did formalized on

October 30 1970 Under the agreement Matson had no con

tinuing responsibility to or relationship with Sea Land or

Reynolds following delivery of the ships Nor were there any

side agreements operating agreements exclusive or preferential

agreements or covenants not to compete either in general or

in a particular trade

The original intent was to effect a novation but Bremer

Vulkan was reluctant to have a new buyer at a late stage of

construction and retention of the German construction subsidy

was uncertain As a result Matson s

rights under the con

struction contracts were assigned to Reynolds and title to the

ships passed directly from Bremer Vulkan to Reynolds on

delivery

DISCUSSION

Section 15 of the Shipping Act 1916 requires the filing of a

copy of memorandum of any agreement between a common

carrier by water or other person subj ect to the Act and any

other common carrier by water or other person subject to the

Act if the agreement

1 Fixes or regulates transportation rates or fares

2 Gives or receives special rates accommodations or any

other special privileges or advantages

3 Controls regulates prevents or destroys competition

4 Pools or apportions earnings losses or traffic

5 Allots ports or restricts or otherwise regulates the num

ber and character of sailings between ports

6 Limits or regulates in any way the volume or character of

freight or passenger traffic to be carried or

7 In any manner provides for an exclusive preferential or

cooperative working arrangement

SHull 957 was delivered Deeember 31 1970 and Hun 968 on March 16 1971 The ships

were chartered by Reynolds to SeaLand for operation in the North Atlantic trade

16 F M C
418 FEDERAL MARITIME COMMISSION

Prior to the recent decision of the Supreme Court in Fed

Maritime Commission V SeotraJin Lines Inc et al 411 

726 May 14 1973 section 15 arguably required the fi

of the Matson Reynolds agreement The court in that c

held the Commission without power to approve a one t

acquisition which left one party a paper corporation with

physical assets In so doing the extent of the third and seve

section 15 categories was clarified and limited to agreeme

which establish on going activity requiring the Commis

supervision

While we recognize that the instant situation is not preci

equivalent to that in Seatrain supra we are convinced that 

differences do not support the applicability of section 15 

absence of side agreements covenants not to compete o

fact any obligation beyond the transfer of rights in the 

incomplete vessels precludes Commission jurisdiction under 

Supreme Court s reading of the Shipping Act 1916 and 

legislative history

This proceeding is hereby dismissed

S FRANCIS C HURNEY

SEAL Secreta

j

1

16 F M
419

FEDERAL MARITIME COMMISSION

DOCKET No 71 37

PURCHASE OF SHIPsMATSON NAVIGATION COMPANY

SEA LAND SERVICE INC REYNOLDS LEASING CORP

ORDER

This proceeding was initiated to determine whether section

15 of the Shipping Act 1916 required filing of agreements

between Matson Navigation Company Sea Land Service Inc

and Reynolds Leasing Corp for the sale and purchase of two

containerships under construction Full consideration having

been given to the matters herein involved and the Commission

this day having entered a Report of its findings and conclusions

which Report is made a part hereof

It is ordered That these proceedings be dismissed

By the Commission

SEAL

S FRANCIS C HURNEY

Secretary

16 F M C
FEDERAL MARITIME COMMISSION

WASHINGTON D C

SPECIAL DOCKET No 444

INTERNATIONAL PAPER COMPANY

v

DELTA STEAMSHIP LINES INC

j

NOTICE OF ADOPTION OF INITIAL DECISION AND

ORDER PERMITTING REFUND OF CHARGES

AugUBt 24 1972

No exceptions having been taken to the initial decision of th

Examiner in this proceeding and the Commission having d

termined not to review same notice is hereby given that th

initial decision became the decision of the Commission on A

gust 24 1972

It is ordered That applicant is authorized to refund 1 040 

of the charges previously assessed International Paper Co

pany

It i8 further ordered That applicant shall publish prompt

in its appropriate tariff the following notice

Notice is hereby given as required by the decision of th

Federal Maritime Commission in Special Docket 444 th

effective February t1972 the rate basis on Tabulatin

Index Boards for purposes of refund or waiver of freigh

charges on any shipments which may have been shippe

during the period from February 4 1972 through May 1

1972 is dollars per 2 240 lbs subject to all applicab

rules regulations terms and conditions of said rate an

this tariff

It is further ordered That refund of the charge shall be effe

tuated within 30 days of service of this notice and applica

shall within five days thereafter notify the Commission of th

date and manner of effectuating the refund

By the Commission

SEAL

420

S JOSEPH C POLKING

A si8tant Secretary

16 FM
16 F M C 421

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 444

INTERNATIONAL PAPER COMPANY

V

DELTA STEAMSHIP LINES INC

Respondent is permitted to refund to complainant the sum of 1 040 01 as

part of the freight charges assessed and collected for the transportation

of tabulating index boards

E R Mooney for complainant

Robert G Hughes Jr for respondent

INITIAL DECISION OF STANLEY M LEVY

PRESIDING EXAMINER 1

This is an application by Delta Steamship Lines Inc re

spondent for permission to refund 2

1 040 01 being a portion

of freight charges for the benefit of International Paper Co

complainant in connection with a shipment of tabulating index

cards from New Orleans to Lobito Angola aboard respondent s

vessel Delta Paraguay per Bill of Lading No RL 6 dated Feb

ruary 4 1972

The rate applicable at the time of shipment was 64 50 per

2 240 pounds or 40 cubic feet per American West African

Freight Tariff 13 FMC 13 effective January 2 1972 The ship

ment weighed 131 088 pounds and aggregated 2 933 cubic feet

Respondent collected 5 168 66 on a measurement basis and

seeks permission to refund 1 040 01 by charging on a weight

basis

1

This decision became the decision of the Commission August 24 1972

I Shippina Act 1916 section 18 b 3 as amended
422 INTERNATIONAL PAPER COMPANY V DELTA STEAMSHIP

1

I

i

AWAFC Eastbound Tariff No 13 FMC 13 became effec

September 1 1970 and for the goods of the type involved 

this application the rate was assessed per 2240 pounds only

The conference on August 1 1971 revised page 104 of 

tariff In so doing inadvertently by printer s error and with

inten ing to do so the revision changed the rate from 

computed on a weight basis only to a weight or measurem

basis As a consequence computation on a measurement b

increased the cost for a shipment of the type involved he

by approximately 25 percent The conference and shipper w

unaware of the change and only when it was billed did 

shipper realize what had occurred and brought it to the at

tion of the carrier It was then recognized that the tariff sh

have continued to be based on weight only rather than o

weight or measurement basis A new tariff was filed to e

nate measurement as a basis and restore weight as the 

basis for assessing charges and waiver was applied for

Section 18 b 3 of the Shipping Act 1916 as amended 

Public Law 90 298 referred to above provides that the C

mission may in its discretion and for good cause shown pe

a common carrier by water in foreign commerce or a con

ence of such carriers to refund a portion of freight cha

where it appears that there is an error in a tariff of a cle

or administrative nature and that such waiver will not re

in discrimination among shippers The application disclose

set of facts and circumstances which fall within the purv

and intent of the statute Having complied with the req

ments of the statute and good cause appearing applican

permitted to refund to complainant the sum of 1 040 01 

notice of waiver required by the statute shall be publishe

the conference tariff

i

I

I

i

S STANLEY M LEVY

Presiding Examin

Washington D C

JULY 26 1972

j

a

American West African Freisht Conference Eastbound Tariff No 13 F M C No 

4th reviled PIP 104 efteetive May 10 1972

16 F MC
16 FMC 423

FEDERAL MARITIME COMMISSION

WASHINGTON D C

No 72 56

UNITED NATIONS CHILDREN S FUND

v

THE DELTA STEAMSHIP LINES INC

NOTICE OF ADOPTION OF INITIAL DECISION

November 9 1972

No exceptions having been taken to the initial decision in

this proceeding and the Commission having determined not to

review same notice is hereby given that the initial decision be

came the decision of the Commission on November 9 1972

Copy of initial decision attached

By the Commission

S FRANCIS C HURNEY

Secretary

SEAL
FEDERAL MARITIME COMMISSION

No 72 56

UNITED NATIONS CHILDREN S FUND

11

THE DELTA STEAMSHIP LINES INC

Rate charged found so unreasonably high as to be detrimental to the fo

commerce of the United States and no bar found to the refund of 2 

E F Kenny for the complainant

Thomas E Stakem for the respondent

INITIAL DECISION OF CHARLES E MORGAN

ADMINISTRATIVE LAW JUDGE 1

1

By complaint served October 6 1972 the complainant Un

Nations Children s Fund alleges that the freight charges 

shipment of 150 drums of DDT insecticide made on Novem

12 1970 from Houston Texas to Iquitos Peru via Be

Brazil were based in error on the rate of 108 50 weigh

measurement rather than on the rate of 108 50 per long 

that the charges were unlawful and that the amount of 2 

should be ordered refunded

The respondent Delta Steamship Lines Inc admits the 

legations in the complaint and further states that the only 

ment of DDT transported by the respondent under the 

roneous rate was that shipped by the complainant on Novem

12 1970 and that no other shipper has been overcharge

will be discriminated against if a refund is awarded the 

1

1

This decision became the decision of the CommllBion November 9 1972

424 16 F 
UNITEt NATIONS CHILDREN S FUND V DELTA STEAMSHIP 425

plainant Respondent desires that this proceeding be handled

without oral hearing and that the Commission issue an order

authorizing the refund of 2080 to the complainant

The shipment herein was made by a charitable organization

endeavoring to assist the underprivileged children of the world

The facts stated in the complaint and admitted in the an

swer are a sufficient basis for a decision in this matter The

shipment weighed 32 100 pounds and measured 1 340 cubic

feet or 33 5 measurement tons Based on the measurement rate

of 108 50 per ton the charges assessed were 3 634 75 Based

on the long ton rate of 108 50 per 2 240 pounds the charges

would have been 1 554 75

On or about October 25 1970 the respondent quoted to the

complainant the rate of 108 50 per long ton but this quote was

incorrect The respondent s tariff had been copied from a Booth

Line tariff filed with the Commission but in transcription the

Delta tariff was converted inadvertently from the straight

weight basis published in the Booth Line tariff to the er

roneous weight or measurement basis Effective December

10 1970 the respondent amended its tariff by changing the

rate to a weight basis only

The complainant had urged the respondent to file an ap

propriate special docket application but the respondent failed

to act timely and the present complaint therefore was filed

It is concluded and found that the rate charged the com

plainant was based on an error in the tariff and that permit

ting the respondent to refund a portion of the freight charges

will not result in discrimination among shippers A finding

under section 18 b 3 of the Shipping Act 1916 the Act

cannot be made because an appropriate application was not

made within 180 days of the date of the shipment 2

Under section 18 b 5 of the Act the Commission is re

quired to disapprove any rate or charge filed by a common

carrier by water in the foreign commerce of the United States

which after hearing it finds to be so unreasonably high as to

be detrimental to the commerce of the United States While

there has been no oral hearing in this proceeding the matter

has been heard in the sense that a formal complaint and formal

answer have been filed and the parties have relied on the facts

therein adduced and have waived further formal proceedings

2 Special Docket Application No 429 Oppenheimer Intercontinental Corp 11 MOO1e

McCormack Lines Inc December 2 1971

16 F MC
426 FEDERAL MARITIME COMMISSION

Accordingly hearing having been had in all the circumsta

it is concluded and found that the rate charged the complai

herein was so unreasonably high as to be detrimental to 

commerce of the United States and therefore unlawful 

further concluded and found that under section 18 b 5 t

is no bar to the refund by the respondent of 2 080 to 

complainant and that such a refund would not be detrime

to the commerce of the United States

Washington D C

OCTOBER 17 1972

8 CHARLES E MORGAN

Administrative Law Judg

16 F M 
16 FMC 427

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 453

PHILIPP BROTHERS

v

AMERICAN MAIL LINE LTD

NOTICE OF ADOPTION OF INITIAL DECISION AND

ORDER PERMITTING REFUND OF CHARGES

April 3 1973

Notice is hereby given that the Commission on April 3 1973

determined to adopt the initial decision in this proceeding sub

ject to the modification described hereinafter

The initial decision authorized a refund of 1 52149 based

on a rate of 42 50 2000 lbs said by applicant to be applicable

to the carriage of Manganese Metal Review of the appro

priate tariff indicates that the application and the initial de

cision are in error and that the correct applicable rate should

be 40 50 2000 lbs Computed on this basis the amount of re

fund would be 1 677 41

It is ordered That applicant is authorized to refund 1 677 41

of the charges previously assessed Philipp Brothers

It is ftwther ordered That applicant shall publish promptly

in its appropriate tariff the following notice

Notice is hereby given as required by the decision of the

Federal Maritime Commission in Special Docket 453 that

effective August 23 1972 for purposes of refund or waiver

of freight charges on any shipments which may have been

shipped during the period from August 23 1972 through

October 1 1972 the rate from Japan on Manganese Metal

is 40 50W subject to all applicable rules regulations

terms and conditions of said rate and this tariff

It is further ordered That refund of the charges shall be

effectuated within 30 days of service of this notice and appli

cant shall within five day thereafter notify the Commission of

the date and manner of effectuating the refund

By the Commission

SEAL

S FRANCIS C HURNEY

Secretary
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 453

PHILIPP BROTHERS

v

AMERICAN MAIL LINE LTD

Respondent is pennitted to refund 1 52149 in freight charges

INITIAL DECISION OF ASHBROOK P BRYANT

ADMINISTRATIVE LAW JUDGE 1

This is an application by respondent under Public Law 90 

90th Congo section 18 b 3 Shipping Act 1916 for 

mission to refund 1 52149 freight charges for transporta

of the cargo referred to below

On bills of lading Nos JY WS 5002 and JK WS 5201 da

August 23 and September 13 1972 issued by respondent c

plainant shipped Manganese Metal of an aggregate weigh

156 044 63 lbs via SS Japan Mail and SS Philippine Mai

American Mail Line from Kobe and Yokohama Japan 

Seattle Washington Total freight charges actually collected 

respondent were 5 169 04 At the time of shipment the e

tive tariff rate was 62 00 per 2 000 lbs Tariff Trans Pa

Freight Conference of Japan No 34 FM C 3

The amount of freight charges actually collected was due 

error Item 8040 which set a rate of 42 50 per 2 000 lbs 

inadvertently deleted frOm Trans Pacific Freight Conference 

Japan Tariff No 34 FMC 3 on August 1 1972 and was 

reinstated until October 1 1972 Aggregate freight charges 

that rate now sought to be applied to the shipments of Man

nese Metal here involved would be 3647 55 As above i

1

This decision beeame the decision of the Commission April 3 1978

428 16 F M 
S ASHBROOK P BRYANT

Administrative Law Judge

PHILIPP BROTHERS v AMERICAN MAlL LINE LTD 429

cated respondents assert that the higher rate was charged and

collected through inadvertence that discrimination will not re

sult if relief is granted and that equity and justice warrant

the relief requested

Section 18 b 3 of the Shipping Act 1916 as amended by

Public Law 90 298 referred to above provides that the Com

mission may in its discretion and for good cause shown permit

a common carrier by water in foreign commerce or a confer

ence of such carriers to refund or waive as the case may be a

portion of the freight charges collected or assessed where it

appears that there is an error in a tariff of a clerical or ad

ministrative nature and that such refund or waiver will not

result in discrimination among shippers The application here

in discloses facts and circumstances which fall within the pur

view and intent of that section Having complied with the re

quirements of the statute and good cause appearing applicant

is permitted to refund to complainant the sum of one thousand

five hundred and twenty one dollars and forty nine cents

1 52149 The notice required by the statute shall be pub

lished in the appropriate tariff and refund shall be made within

30 days of such notice Within five days thereafter applicant

shall notify the Commission of the date of the refund and the

manner in which it was made

Washington D C

MARCH 9 1973

16 F M C

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