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FEDERAL MARITIME COMMISSION

DOCKET No 6948

INDEPENDENT OCEAN FREIGHT FORWARDER

LICENSE No 1092

SPEED FREIGHT INC

Decided August 11 1910

License revoked Respondent found to be connected with and controlled by a

shipper in foreign commerce to have submitted false statements in its

freight forwarder application to be without personnel qualified in freight

forwarding and to have failedto report to the Commission required changes

of facts as required

NicholCM Stecopoulos for respondent

Donald J Brunner and Paul J Kaller as hearing counsel

REPORT

By THE COJ MISSION Helen Delich Bentley Ohairman James F

Fanseen Vice Ohairman Ashton C Barrett James V Day

George H Hearn Oommissioners

This proceeding was instituted to determine 1 Whether Speed

Freight Incorporated is connected with and or controlled by a

shipper

to foreign countries contrary to sections 1 and 44 oftheShipping Act

1916 46 US C 801 841 b and section 510 2 a of Federal j1ari

time Commission General Order 4 46 CFR 510 2 a 2 whether

Speed Freight submitted willfully false statements in connection with

its application for a license 3 whether Speed Freight s present finan

cial position and personnel no longer qualify it as an independent

freight forwarder 4 whether Speed Freight violated section 510 5

c General Order 4 by failing to submit required reports ofchanges

of facts and 5 ultimately whether Speed Freight continues to

qualify for a

freightforwarder s license

1l
2 FEDIDRAL MARITIME COMMISSION

Examiner John Marshall issued an initial decision in which he

concluded that Speed Freight 1 Is connected with and controlled

by CaIson Co a shipper to foreign countries contrary to sections 1

and 44 of the Shipping Act 1916 2 has through its president and

owner submitted willfully false statements to the Commission in con

nection with its application for a license contrary to section 510 9 c

of General Order 4 3 has changed its personnel to the extent that

it no longer qualifiies as an independent freight forwarder contrary

to section 510 9 c of General Order 4 and has failed to report such

changes to the Commission as required by section 510 5 c of General

Order 4 The examiner on the basis of the foregoing revoked Speed

Freight s

forwarding license pursuant to section 44 d ofthe act and 

section 510 9 of General Order 4 Speed Freight has filed exceptions

hearingcounsel have replied We heard oral argument

FACTS 1

arion Calas is managing partner of CaIson Co and president

of Calsonaire Inc CaIson is an exporter shipping by air and water

Nicholas Stecopoulos is theowner president treasurer director stock

holder and attorney of record of Speed Freight His principal occu

pation is attorney associated with a prominent New York law firm

Calas and Stecopoulos have been friends for many years For the

past 9 years Stecopoulos has been the attorney for CaIson and Calson

aire During that time period Stecopoulos earned approximately 150

per year in legal fees from Calas Certain services however were per

formed gratis such as those relatingto Oalas purchase of the interest

ofhis partner r Pearson in CaIson and Calsonaire and Mrs Calas

claim arising out of an automobile accident Calas feels a moral obli

gation to help Stecopoulos vhenever he needs help Itwas Calas who

suggested that Stecopoulos enter the freight forwarding business by

employing Eugene Pagano a prior employee of CaIson with approx

imately 17 years experience in freightforwarding

As vice president Pagano alone handled all aspects of Speed

Freight s operations Stecopoulos had no knowledge ofthe freight for

warding business Throughout Pagano s tenure CaIson and its affiliates

were Speed Freight s principal customers Approximately 80 percent

of Speed Freight s work was for CaIson Pagano came to believe that

he wasactually working for Calas

1

The facts set out here are those found by the examiner

14 F M C
SPEED FREIGHT INC

In addition to the regular freight forwarding service performed by

Speed Freight a special forwarding service was performed almost

daily whereby it delivered CaIson packages to the airport presumably

tTohn F Kennedy International 2 The delivery charge was 2 25 per

package irrespective of the number Although this charge was com

paratively high it was agreed to by Calas Pagano picked up the pack

ages from CaIson s office and ordinarily the vehicle used was a station

wagon belonging to Calas partner Pearson The special forwarding

service consumed approximately 3 hours of Pagano s vwrkday Yhen

he found this to be too much he complained to Galas Although the

problem was never discussed with Stecopoulos Calas prevailed upon

him to continue the service

Throughout Pagano s tenure as vice president Speed Freight lost

money During this time Octavio Romaro a full time CaIson book

keeper maintained all of Speed Freight s books and records These

were kept at his Galson office Therefore in order to keep Romaro

appraised of Speed Freight s financial affairs it was necessary for

P3Jgano to visit CaIson s office almost daily Romaro as treasurer of

Speed Freight had the authority and responsibility to countersign

with Pagano all Speed Freight checks hen on one occasion Pagano

eashed an uncountersigned check it vas Calas who advised him not

to doso again

Pagano was fired from Speed Freight in October 1966 He was

first informed ofthis by Calas andthereafter received confirmation by

ealling Stecopoulos

Some time after Pagano left Speed Freight Joseph VV Dueber was

hired as traffic and office manager Having had 12 years of forwarding

experience he had the qualifications necessary for an ocean freight

forwarder He was initially interviewed by Stecopoulos at a meeting

with Calas and Stecopoulos in CaIson s office

In the latter part of 1966 there was an interim period between the

firing of Pagano and the hiring of Dueber during which time Adji

Tjokronolo ran the entire Speed Freight operation He was then

named and continues to be a vice president of Speed Freight Adji

as he is referred to throughout the record has been employed by

Galson continuously since 1963 Except for work in that company s

exporting business his only freight forwarding experience has been

with Speed Freight Even after Dueber was hired Adji continued to

frequent the Speed Freight office to oversee the operation and assnre

that it was going alongthe way it wassupposedto Duringthe month

ofJanuary 1967 he spent up to half of each workday at Speed Freight

2 CaIson has now hired a manto provide this truck service

14 F M C

3
4 FEDEoRAL MARITIME COMMISSION 

teaching Dueber the details and technical features of certain ac

counts For a couple of weeks he continued to sign all documents

and correspondence Thereafter Dueber began to exercise this func

tion However even after Dueber s initial training period Adji

continued to visit the Speed Freight offices especially in regard to

CaIson business CaIson had merchandise stored at Speed Freight and

Adji would go there to pack it and to assist Dueber if the volume of

work required

During Dueber s employment 1967 and 1968 Romaro continued as

Speed Freight s main financial officer maintaining complete control

over its financial records which he kept at his CaIson office It was

therefore necessary for Dueber to visit the CaIson office in order to

deliver Speed Freight invoices or other financial papers to Romaro

Dueher at no time had authority to draw Speed Freight checks that

function being performed jointly by Adji and Romaro

During 1967 60 70 percent of Speed Freight s work was for CaIson

Since then 40 50 percent has been for CaIson

When Dueber felt the speci al forwarding service was taking too

much time he complained to Adji who then came to Speed Freight

to provide assistance Whenever Dueber had questions or complaints

as to theSpeed Freight operation he consulted Adji

Adji continues to serve both as vice president of Speed Freight

and manager ofCaIson Although since Dueber s departure the latter

part of 1968 Adji alone has run the entire Speed Freight operation

he has received no salary from Speed Freight His entire salary has

been paid by Calson 3

He maintains one office at Speed Freight and

another at Oalson spending approxim1ate1y 50 percent of his work

day at each place Adji is the only person now having authority to

sign Speed Freight checks He infrequently receives instruction

direction orguidance from Stecopoulos

On October 7 1969 Herbert Cooper senior district investigator for

the Federal Maritime Commission attempted to serve a subpoena

upon Adji In an effort to reach hi m he called the Speed Freight

office He was informed that Adj i had been transferred to the m ain

office The address given for the main office was 27 Union Square

New York City the address ofthe CaIson office

Romaro is still Speed Freight s main financial officer Although he

is employed asa full time bookkeeper by CaIson he continues to

maintain all of Speed Freight s books and financial records These

include the Cash Receipts Journal Cash Disbursements Journal

3 Calas testified that Speed Freight recently reimbursed CaIson three or four thousand

dollars forAdji s services during fiscal year ended Apr 30 1969

14 F M C
SPEED FREIGHT INC 5

Sales Journal and Accounts Receivable Subsidiary Ledger He is

assisted by the C P A firm of Osterweil Oshrin and Grulm which

firm also represents Oalson Hereceives no salary from Speed Freight

his entire salary being paid by CaIson He has no experience as a

freight forwarder

ROlnaro s affiliation with Speed Freight was a result of the close

relationship between Calas and Stecopoulos Stecopoulos knew that

he could use whatever Calas had avai1able One evening Stecopoulos

mentioned to Cal3s that somebody has to do the books Galas

suggested that he use Romaro Stecopoulos an old friend of Romaro

then asked him to become treasurer of Speed Freight on a part time

basis

Romaro left CaIson and Speed Freight in J

anuary 1968 to go to

California When he returned 1 year later he was immedi3 tely rehired

by both companies During his absence Adji maintained Speed

Freight s books and records

Speed Freight s rental for its original office at 2426 13th Street

New York City was 300 per month CaIson or its affiliate Calsonaire

paid 200 of this as compensation for storage space A company

called Jalma s

Importers of Antiques also rented stoIage space from

Speed Freight at something like 25 or 35 per month Recently

Speed Freight purClhased its own premises at 153 07 Rockaway Boule

vard Jamaica N Y paying a deposit of 1 500 Caison continues to

rent space thereat 200 per month 4

At the present time Speed Freight is paying salary to no one A

Mr Loffredo is stationed at 153 07 Rockaway Boulevard to make

deliveries for CaIson from its stock stored at that location He also

answers the phone for Speed Freight but is paid by CaIson

During the period 1965 67 over 11 000 was billed to CaIson for

the special forwarding service Only 3 060 was paid or credited to

Speed Freight s accounts receiv3Jble Up until the time that Romaro

left in 1968 that debt had not been paid This was so even though

Speed Freight according to Romaro was and is operating at a 10ss 5

Romaro never had authority to sign CaIson checks Iowever on

occasion immediate payment by CaIson would be required when no

one with authority to sign the check was available Romaro then hav

ing authority to draw Speed Freight checks would pay the bill with

Testimony of Calas which conflicts with that of Romaro indicates that the new

building was purchased jointly by Calas and Stecopoulos as individuals Calas owning

two thirds and Stecopoulos one third

6

Stecopoulos testified that the balance due Speed Freight has been paid and that

Speed Freight presently shows a profit of 1 800 However he could not remember when

it was paid

14 F l1C
SPEED FREIGHT INC 5

Sales Journal and Accounts Receivable Subsidiary Ledger He is

assisted by the C P A firm of Osterweil Oshrin and Grulm which

firm also represents Oalson Hereceives no salary from Speed Freight

his entire salary being paid by CaIson He has no experience as a

freight forwarder

ROlnaro s affiliation with Speed Freight was a result of the close

relationship between Calas and Stecopoulos Stecopoulos knew that

he could use whatever Calas had avai1able One evening Stecopoulos

mentioned to Cal3s that somebody has to do the books Galas

suggested that he use Romaro Stecopoulos an old friend of Romaro

then asked him to become treasurer of Speed Freight on a part time

basis

Romaro left CaIson and Speed Freight in J

anuary 1968 to go to

California When he returned 1 year later he was immedi3 tely rehired

by both companies During his absence Adji maintained Speed

Freight s books and records

Speed Freight s rental for its original office at 2426 13th Street

New York City was 300 per month CaIson or its affiliate Calsonaire

paid 200 of this as compensation for storage space A company

called Jalma s

Importers of Antiques also rented stoIage space from

Speed Freight at something like 25 or 35 per month Recently

Speed Freight purClhased its own premises at 153 07 Rockaway Boule

vard Jamaica N Y paying a deposit of 1 500 Caison continues to

rent space thereat 200 per month 4

At the present time Speed Freight is paying salary to no one A

Mr Loffredo is stationed at 153 07 Rockaway Boulevard to make

deliveries for CaIson from its stock stored at that location He also

answers the phone for Speed Freight but is paid by CaIson

During the period 1965 67 over 11 000 was billed to CaIson for

the special forwarding service Only 3 060 was paid or credited to

Speed Freight s accounts receiv3Jble Up until the time that Romaro

left in 1968 that debt had not been paid This was so even though

Speed Freight according to Romaro was and is operating at a 10ss 5

Romaro never had authority to sign CaIson checks Iowever on

occasion immediate payment by CaIson would be required when no

one with authority to sign the check was available Romaro then hav

ing authority to draw Speed Freight checks would pay the bill with

Testimony of Calas which conflicts with that of Romaro indicates that the new

building was purchased jointly by Calas and Stecopoulos as individuals Calas owning

two thirds and Stecopoulos one third

6

Stecopoulos testified that the balance due Speed Freight has been paid and that

Speed Freight presently shows a profit of 1 800 However he could not remember when

it was paid

14 F l1C
6 FEDE RAL MARITIME COMMISSION

Speed Freight funds and CaIson would thereafter make reimburse

ment Permission for thisprocedure wasgrantedby Stecopoulos while

acting in his capacity as attorney for CaIson

In 1965 Calsonaire paid a 1 000 security deposit to Speed Freight

for the space used at its premises 6 The security deposit which Steco

poulos was required to pay on the entire premises was only 600 To

date neither the 1 000 nor the 400 excess has been returned to Calas

In 1966 the financial condition of Speed Freight necessitated a

2 000 loan which was arranged with Chemical Bank New York Trust

Co Repayment of the loan was guaranteed by Calas and his then

partner Pearson

Stecopoulos specifically requested that Calas watch over the Speed

Freight operation This was because Calas was Speed Freight s most

important customer and because of their long time friendship

In his application for an independent ocean freight forwarder li

cense Stecopoulos listeq theofficers as follows

President Treasurer Nicholas Stecopoulos

FirstVice PresidentEugene Pagano

Assistant Treasurer acta vioRomaro

Secretary Palma Pirrallo

Stecopoulos admitted under oath that his present operation is in

violaJtion of the Shipping Act and that an intolerable situation e ists

because the entire operation is being runby an employee of a shipper

for whom he does over 50 percent of his forwarding He also admitted

several violations of Commission regulations bec ause of his failure to

report changes He failed to report that Romaro was employed by

CaIson that Romaro left hi position with Speed Freight that Miss

Pirrallo had resigned as secretary that 1rs Stecopoulos had become

secretary and that Adji WITO was known by him to be shipper con

ne0ted had joined Speed Freight

The license application form contains a question as to whether the

applicant or any officer director stockholder or employee of the

applicant is an owner in control of or associated or connected with

tny ashipper consignee seller or purchaser of shipments to

foreign countries Although knowing that Romaro was employed by

CaIson Stecopoulos staJted Octavio Romaro is employed as a book

keeper by theIndonesi aSupply Mission 5 East 68th Street New York

City

6Calas could not remember exactly why this was done but thought that it was because

Stecopoulos wanted it

14 F M C
SPEED FREIGHT INC 7 

On May 23 1969 Stecopoulos informed the Commission by letter

thatthe present officers ofSpeed Freight vere

President Treasurer NicholasStecopoulos

Vice PresidentAdji Tjokronolo

Secretary IreneStecopoulos

That letter failed to inform the Commission that Adj i was at this

time a m

anager of CaIson At the time Romaro was reinstated Steco

poulos knew that he was putting a man in charge of Speed Freight s

books who wasin fact shipper connected 7

Inhis application Stecopoulos stated further that applicant shares

officespace or office expenses with no one

Two and one half years ago two Commission investigators ques

tioned Stecopoulos in regard to violations by Speed Freight They dis

cussed the whole problem and Stecopoulos was thus put on notice

that there was a need to clear up this situation

DISCUSSION AND CONCLUSIONS

Speed Freight has taken some 11 numbered exceptions to the find

ings and conclusions of the examiner s These exceptions all deal with

the Examiner s

findings of fact or the inferences he drew therefrom

We have carefully and thoroughly reviewed the transcript of the

hearing and the other pleadings of record and we conclude thak all

ofthe examiner s

findings were well founded and proper and that the

inferences he drew were permissible and valid Therefore we shall

specifically not treat each exception in this opinion rather a few

examples should suffice to show the nature of Speed Freight s objec

tionsto theexaminer s decision to revoke its license

Speed Freight takes exception to the examiner s

finding that CaI

son is an exporter shipping by air and water In the words of Mr

Stecopoulos 9

Nowhere in the hearing is it ever brought out that

CaIson ships by ocean going carrier Yet Eugene Pagano testified

that CaIson Co supplied Speed Freight with both air freight and

ocean freight Speed Freight attempts to counter the testimony of

Pagano on the grounds that he was a disgruntled ex employee whose

credibility should be questioned Yet respondent made no attempt

whatsoever to discredit Pagano s testimony at the hearing In fact as

7 When asked what office he currently holds with Speed Freight Romaro replied

Treasurer Stecopoulos then testified that while Romaro maintains and has control of

all of the books and records he Is not the treasurer does not know what my

books contain Is not an officer at this time

8

Although the exceptions are set forth In 11 numbered paragraphs the actual number

of specificexceptions taken exceeds 11

o Mr Stecopoulos acted as counsel forSpeed Freight

14 F M C
8 FEDEiRAL MARITIME COMMISSION

hearing counsel point out Pagano s

testimony is wholly uncontra

dicted Itwasup to Speed Freight to challenge Pagano s credibility at

the hearing and when it failed to do so it can hardly charge the

examiner with error because he ignored the fact that Pagano was a

disgruntled ex empl Oyee But the charge that CaIson was not a

shipper by water is even more difficult to understand in view of the

following which appears in the exceptions of Speed Freight

Even if CaIson Co did have a number of shipments go overseas by ocean

carrier as an incidental part of its business which shipments did not amount

to more than 1 000 annually in freight charges would that make Cl

lson Co

R shipper within the contemplation of Public Law 87 254 and therefore be

reason enough to force respondent outof business

The examiner s

finding was fully supported by the record and clearly

correct

Speed Freight also excepts to the examiner s

finding that 2 25

charged for the special forwarding service was comparatively

high Speed Freight says of that finding by the examiner This is

his own conclusion and not proven by the facts or by any comparison

with trucking rates charged at that time by others Here again this

finding was solidly based upon the testimony of Pagano Und here

again this testimony was wholly uncontroverted Itwas certainly not

the eXruminer s duty to introduce the then current truck rates into

evidence to prove or disprove testimony otherwise unohallenged by

the respondent at the hearing And it is too late for respondent to gra

tuitously offer to make such a comparison now

One otherexample should suffice Speed Freight takes as its eighth

exception the following The examiner states that the 1 000 security

deposit paid by OaIson Co to Speed Freight has not been returned

The said deposit was returned on September 1 1969 The examiner s

finding was based on the following colloquy concerning the security

deposit which took place at the hearing

Q Has any amount ofit everbeen paidback

A Ifithasn titwill be Upto this time ithas not

The witness was Mr Stecopoulos himself and this exception is neces

sarily based upon a

challenge of his own credibility

After a careful review of the record and the exceptions taken by

Speed Freight we conclude that the following conclusions reached

by the examiner in his decision are well founded and proper

Beginning with its initial conception then formation and continu

ously in its operations thereafter Speed Freight has maintained the

14 F M C
SPEED FREIGHT INC 9

closest imaginable cooperative and supporting relationship with Calas

company Oalson a shipper of goods by water in foreign commerce

Pagano Speed Freight s vice president who handled all aspects of

its operations actually thought that he wasworking tor Calas Oalas

through his companies provided persollllel two thirds of the rent

up to 80 percent of the forwarding business plus economic support

through the guise of an overpriced so called special forwarding serv

ice Calsonaire s payment of the 1 000 security deposit to Speed

Freight and the CalaiS and Pearson guarantee of the 2 000 loan are

merely further proof of the connection of Oalas Calson and Oal

sonaire with Speed Freight

Adji while employed full time as manager of CaIson runs the

entire Speed Freight operation He maintains an office at both com

panies spending approximately half ofhis time at each

Romaro also a full time employee of CaIson maintains complete

control of Speed Freight s books and financial records They are ac

tually located in his CaIson office At no time have either ofthese men

received any salary from Speed Freight As hearing counsel put it

the entire Speed Freight operation rests in the hands of and is under

the direct control of full time fully salaried employees of OaIson

a

company which accounts for more than half of the business of this

forwarder Since Dueber there has been no one with Speed Freight

who has had any experience in freight forwarding and consequently

no one who could possibly qualify it as a freightforwarder

Itis true as hearing counsel contend that Speed Freight is neither

an independent nor a qualified ocean freight forwarder and therefore

it cannot qualify to be licensed as such Sections 1 and 44 of the act

46 U S C 801 841 General Order 4 sections 510 2 a 510 5 a 46

CFR 510 2a 510 5 a See Application for Freight ForwarderLi

cense Willia1n V Oady 8 F M C 352 360 1964 Application for

Freight Forwarder LicenseYorkShipping Oorp 9 F MC 72 1965

and Application for Freight Forwarder LicenseDel Mar Shipping

Oorp 8 F M C 493 497 1965

The Commission has held that this licensing statute like other

licensing statutes should be applied with a liberal attitude to the

end that licenses may be granted to qualified applicants but that if

the applicant is not fairly within the definition of independent ocean

freight forwarder set forth in section 1 of the act there is no room

for the exercise ofliberality Oady supra at 357

Accordingly we adopt the foregoing conclusions as our own and

while the shipper connection alone is sufficient to revoke Speed

Freight s license the record equally supports the other conclusions

14 Jj M C
10 FEDEHAL MARITIME COMMISSION

of the examiner That Speed Freight submitted false statements in

connectionwith its application for alicense contraryto section 510 9 c

of General Order 4 has changed its personnel to the extent that it

no longer qualifies as an independent ocean freight forwarder con

trary to section 510 9 d ot General Order 4 and has tailed to report

such changes to the Commission as required by section 510 5 c ot

GeneralOrder4

Accordingly pursuant to section 44 d ofthe Act and section 510 9

General Order 4 Independent Ocean Freight Forwarder License No

1092 issued to and now held by Speed Freight Inc is hereby revoked

An appropriate order will be entered

BytheCommission

SEAL FRANCIS C HURNEY

Secretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 6948

INDEPENDENT OCEAN FREIGHTFORWARDER

LICENSE No 1092

SPEED FREIGHT INC

ORDER

The Commission having fully considered the above matter and

having this date made and entered of recorda report containing its

conclusions and decision thereon which report is hereby referred

to andID adeapart hereof

It is ordered That the Independent Ocean Freight Forwarder

License No 1092 issued to and now held by Speed Freight Inc is

hereby revoked pursuant to section 44 d Shipping Act 1916 and rule

510 9 ofGeneral Order 4

Itis further ordered That notice of this order be published in the

Federal Register

Bythe Commission

SEAL FRANCIS C HURNEY

SeMetary

11
FEDERAL MARITIME COIVIl1ISSION

WASHINGTON D C

SPECIAL DOCKET No 423

THE EREGLI PURCHASING MISSION EREGLI IRON STEEL WORKS CO

EREGLI TURKEY

v

LYKES BROS STEAMSHIP CO INC

Adopted August 12 1970

NOTICE OF ADOPTION OF INITIAL DECISION AND

ORDER GRANTING REFUND

No exceptions having been taken to the initial decision ofthe exam

iner 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 August 12 1970

Itis ordered1 That Lykes Bros Steamship Co Inc is authorized to

refund to the Eregli Purchasing Mission Eregli Iron Steel Works

the amount of 52 728 64

Itis further ordered That applicant publish promptly in its appro

priate tariff the following notice

Notice is hereby given as required by the decision of the Federal Maritime

Commission in Special Docket No 423 that effective February 20 1970 the

project rate for machinery equipment supplies and parts Proprietary Cargo

for expansion and construction of Steel Mill in Eregli Turkey for purposes of

refunds or waiver of freight charges on any shipments which may have been

shipped during the period from February 20 1970 to March 13 1970 is 52 00

wlm subject to all other applicable rules regulations terms and conditions

of the said rateand this tariff

It is further oraered That refund shall be made within 30 days of

this notice and Lykes Bros Steamship Co Inc shall within 5 days

thereafter notify the Commission of the date of the refund and of the

mannerin which payment has been made

By the Commission

SEAL FRANCIS C HURNEY

Seoretary

12
FEDERAL MARITIME COMl1ISSION

SPECIAL DOCKET No 423

THE EREGLI PURCHASING MISSION EREGLI IRON STEEL WORKS CO

EREGLI TURKEY

v

LYKES BROS STEAMSHip CO INC

Lykes Bros Steamship Co permitted to refund a portion of the freight charges

coIled on three shipments of building material from Mobile Ala to Eregli

Turkey

T S Buchanan Jr for applicant

INITIAL DECISION OF HERBERT Ie GREER PRESIDING

EXAMINER 1

Lykes Bros Steamship Co Inc applicant a member of the

Gulfll1editerranean Ports Conference and a common carrier by water

in foreign commerce has filed an application for permission to refund

52 728 64 a portion of the freight charges collected from Eregli Pur

chasing l1ission Eregli Iron Steel Works Eregli Turkey shipper

on three shipments of building material from Mobile Ala to Eregli

Turkey which material was to be used in the construction of a steel

mill and in connection with an agency for International Development

loan program

On February 20 and 25 1970 applicant issued three bills of lading

on the shipments as follows

BIL No Commodity weight Charge

1 1 613 S99Ibs fire brick n n n n uuuu uuun nn u n hu u n n 59 753 15

2 1 607 360 lbs firebrick n u u u u u n nh u u h n n n n 59 511 21

3 206 544Ibs castable refractories uuu huh h n u u n nu 7 244 36

Totalcharged and collected nu n un nnuu u n u 126 50S 72

1 This decision became the decision of the Commission August 12 1970

13
14 FEDERAL MARITIME COMMISSION

The amount assessed and collected was pursuant to the conference

tariff No 11 FMC 7 effective at the time the bills of lading were

issued and when carriage began

Applicant alleges that prior to the shipment the shipper s agent

contacted applicant s New York office and was erroneously informed

that the conference tariff contained a project rate identical to the

project rate ofthe North Atlantic Mediterranean Freight Conference

for cargo to be used in the construction of the steel mill at Eregli

Itfurther alleges that applicant s conference had previously published

a project rate for cargo to be used in this construction but had can

celed this rate effective July 31 1965 because cargo for the project

had not been offered to the conference or any of its members how

ever that it is conference procedure to reestablish a project rate in

the event such cargo is offered It appears that the conference was

not promptly notified by applicant that the cargo had been offered

and by concurring in this application the conference agrees that had

it been approached to reestablish the project rate for the Eregli Steel

1i11 project it would have promptly done so It further appears that

the project rate here sought to be applied became effective on March 13

1970 prior to the delivery ofthecargo onMarch 16 19 1970 and prior

to payment of the charges on March 26 1970

The conference tariff in effect at the time of the shipnlents included

an arbitrary charge on cargo unloaded at Eregli a bill of lading

charge and a heavy lift charge on packages weighing 801 kilograms

or more The project rate which became effective on March 13 1970

eliminated the arbitrary charge and the bill of lading charge The

heavy lift charge was applicable only on packages weighing over

4800 pounds The fire brick involved in these shipments was packed

on skids each of which weighed approximately 2 629 pounds and the

castable refractories were shipped on pallets each weighing approxi

mately 3 129 pounds thus under the new tariff the heavy lift charge

was not applicable Applicant seeks to apply the project rate and to

refund the difference between the amount collected and the charges

at this new rate which it applied would be as follows

B L No Freight at project rate

1 34 943 76

2

34 802 14

3 4 034 18

Total 73 780 08

14 F IC
The charges at the project rate would be 52 728 64 less than the

amount collected

Public Law 90 928 75 Stat 764 authorizes the Commission to

permit a common carrier by water in foreign commerce to refund a

portion of the freight charges collected from a shipper where there is

an error due to inadvertence in railing to file a new tariff It is

found that the conference of which applicant is a member under its

existing procedure would have promptly filed the new rate on cargo

to be used in the Eregli Steel Mill project had it been notified bJ

applicant that such cargo had been offered and applicant s failure

to notify the conference until after the bills of lading had been

issued and the cargo had been shipped was an error due to in

advertence which prevented the timely filing or the new rate

The application was filed within 180 days of the date ofthe ship

ments No other shipments of the same or similar commodities moved

on conference vessels during approximately the same time as the

shipments here involved There are no special docket applications

or other proceedings involving the same rate situation now pending

It appearing that the application involves a situation within the

purview of Public Law 90 298 and good cause appearing the appli

cant is permitted to refund to the shipper the sum of 52 728 64 The

notice referred to in the statute shall be published in the conference

tariff The refund shall be effectuated within 30 days after publication

of the notice and within 5 days thereafter applicant shall notify the

Commission of the date of the refund and the manner in which pay

ment was made

HERBERT K GREER

Presiding Examiwr

WASHINGTON D C July 15 1970

14 F M C
FEDERAL MARITIME COlVIMISSION

DOCKET No 6847

VALLEY EVAPORATING CO

V

GRACE LINE INC ET AL

Deciclecl August 12 1970

Respondents failure to retain a commodity rate on dried fruit items is found

to be unjustly prejudicial to shipments of that commodity in violation of

section 16 of the Shipping Act 1916

Respondents assessment of an 88 W1M N O S rate on dehydrated apples has

notbeen shown to be unjustly discriminatory inviolation of section 17 of the

act or so unreasonably high as to be detrimental to the commerce of the

United States in vio ation of section 18 b 5 of the act

Reparation for injury caused as a result of the established violation of the

act is awarded to Valley Evaporating 00 in the amount of 8 876

William L Dwyer for complainant

F 0onger Fawoett for respondents

REPORT

By THE COMMISSION Helen Delich Bentley Ohairmanj James V

Day George H Hearn Oommissioners

Dhis proceeding was initiated by the complaint of Valley

Evaporating Co 1gainst Grace Line Inc vVestfal Larsen and Co

and the Pacific Coast River Plate Brazil Conference alleging that

respondents subjected complainant to the payments of rates with re

spect to two shipments of dellydrated apples from Argentina to the

Pacific Coast of the United States which wereviolative of sections 16

first 17 and 18 b 5 ofthe Shipping Act 1916 For injury allegedly

incurred as a result of the unlawful rates complainant seeks repara

tion from Grace and Vestfal Larsen in the total amolmt of 11 912 47

Examiner Jolm Marshall issued an initial decision dismissing the

complaint to which exceptions and replies have been filed Ve have

heard oral argument

16
II DISCUSSION AND CONCLUSIONS

The examiner in his initial decision found no violations of either

section 16 17 or 18 b 5 of the act resulting from respondents

assessment of an 88 W1M N O S rate on the above described ship

ments of dried fruit In dismissing the complaint the examiner de

termined that

the carriers were legally bound to collect the NO S rate and that no duty

was imposed upon the conference or the carriers to provide complainant with

actual notice of the tariffrevision

Respondents except to the examiner s conclusions and his dismissal

of the complaint and interpret his failure to rule specifically on each

of the substantive allegations as an attempt to evade the central

questions or the case by simply concluding that since the challenged

rate was contained in a published tariff it was perforce lawful re

gardless of its size We are in agreement with theexaminer s ultimate

disposition of the issues in this proceeding with one very important

exception For reasons set forth below it is our opinion that the flacts

presented here do support the findingthat Valley has been unduly and

unreasonably prejudiced in vioLation of section 16 of the act

Before addressing ourselves to each of the specific provisions of

the act relied upon we should like to first dispose of another issue raised

by complainant in its exceptions Complainant interprets the exam

iner s decision as standing for tJhe proposition that a carriers

filing

under section 18 b 3 of the act 4

automatically exempts the r3Jte

from all substantive requirements and that thereafter the mte

no matter how outrageously high ordiscriminatory becomes the only

lawful rate While we do not read the examiner s decision as pre

cluding the challenging of a published rate as being otherwise unlaw

ful under the Shipping Act we should like to dispel any mistaken

notions that may have been inadvertently created

In enacting section 18 b it certainly was not the intent of Con

gress to repeal the other substantive provisions of the act land leave

carriers free to charge unreasonable and unjustly discriminatory or

prejudicial rates by the simple device of first filing such rates with the

Commission The distinction here is between a rate that is lawful and

one that is merely legal Indealing with shippers the carrier is required

under section 18 b 3 to conform the freight charges actually col

lected to the amount fixed in its published tariffs In that sense the

Section 18 b 3 provides in pertinent part that

No common carrier by water in foreign commerce or conference of such carriers shall

charge or demand or collect or receive a greater or less or different compensation for the

transportation of property than the rates and charges which are specified in its

tariffs on file with the Commission and duly published and in effect at the time

14 F M C
20 FEDERAL MARITIME COMMISSION

published rate in effect at the time of the movement is the legal

rate But a rate may be legal in the sense that it is the regularly pub

lished rate land yet be unlawful if it violates other provisions of the

act Thus in publishing a rate or schedule of rates the carrier or con

rerence acts under the admonition or the statute and if it establishes

a rate which is unreasonable or unduly discriminatory or prejudi

cial it Inay be subject to tIle payment of preparation for any injury

caused by such rate To hold otherwise would be to make the mere

establishment of rates by a carrier conclusive of their reasollJableness

and justness while in effeot

vVhat we have stated here is by no means novel As early as 1915

the Supreme Court in Louis Nash R R v Maxwell 237 U S 94

97 held that the rate of a oorrier duly filed pursuant to section 6 ofthe

Interstate Commerce Act after which our own section 18 b 3

was patterned is the only legal charge and that shippers and carriers

must abide by it unless it is found by the 001nndssion to be

unreasonable Emphasis added This principle was reaffirmed in

Arizona Grocery v Atchwon Ry 284 U S 370 384 1932 where

the court after discussing the duties of a carrier at common law with

respect to theexacting of rates explained

In order to render rates definite and certain and to prevent discrimination

and other abuses the statute Interstate Commerce Act required the filing

and publishing of tariffs specifying the rates adopted by the carrier and made

these the legal rates that is those which must be charged to all shippers alike

Any deviation from the pUbliShed rate was declared a

criminal offense and also

a civil wrong giving rise to an action for damages by the injured shipper Al

though the Act thus created a legal rate it did not abrogate but expressly af

firmed the common law duty to charge no more than a reasonable rate and left

upon the carrier the burden of conforming its charges to that standard In

other words the legal rate was not made by the statute a lawful rateit was

lawful only ifit was reasonable Under 6 the shipper was bound to pay the legal

rate but ifhe could show that it was unreasonable he might recover reparation

Likewise while the publication of rates by carriers and conferences

operating in the foreign commerce of the United StJates in the manner

required by section 18 b 3 ofthe act fixes the standard of legal rates

for the time being and so long as such published rates are in effect

this standard is by no nleans conclusive of their reasonableness and

justness under other provisions of the act 5

The lllere publiCiation of

a rate cannot make that rate lawful in the sense of being immune

from attack either with respect to past or future shipments if it is

5

For example see Investigation of Ocean Rate Str1lctm esJ 12 Fl 1 C 34 1968 where

the Commission found that the North Atlantic United Kingdom Conference had established

rates on specific commodity rates and general cargo NO S which were so unreasonably

high as to be detrimental to the commerce of the United States in violation of section

18 b 5 of the act

14 F M C
otherwise unjust or unreasonable vVe move now to a consideration of

the specific provisions of the act allegedly violated by respondents

Section 16 first of the act makes it un awful for any common car

rier with n the purview thereof directly or indirecJtly

To make or give any undue or unreasonable preference or advantage to any

particular person locality or description of traffic in any respect whatsoever or to

subject any particular person locality or description of traffic to any undue or

unreasonable prejudice or disadvantage in any respect whatsoever I

Respondents maintain that to estaJblish a violation ofthissection itis

generally necessary to show an existing and effective competitive

relationship beJtween the prejud ced and the preferred shipper or

cargo They submit that the complainant has failed to make the re

quired showing here and accordingly no violation of section 16 has

been established Without deciding the validity of respondents alle

gatJion that no competitive relationship has demonstrated herein we

find that the unlawful prejudice to which complainant and its ship

ments of dried apples have here been subjected is not dependent on the

existence of such a relationship

In suppori of their contention that a competitive relationship is an

essentJial ingredient of an alleged section 16 violation respondents

rely on several Commission decisions involving alleged discrimination

or preference West Indies Fruit 00 v Flota Mercante 7 FM C 66

1962 UniteclStates v AmericanEXP01 tLines 8 F MC 280 1964

North Atlantic Mediterranean Freight Oonference 11 F MC 202

1967 ThSe cases however are nolt pertJinent here For while an

effective competitive relationship is a

necessary part of liaJbility under

section 16 in situations where the allegedly preferential or prejudiicial

rates or charges are geared to transportation fadtors or the differing

characJteristics of commodities it is not required where dlle carrier s

obligation to render a

p

artJicu ar service is absolute and not depend

ent upon such factors or differences As theSupreme Court recognized

in Volks1 agenwerk v FMO 390 U S 261 280 1968 the

Comm ssion in cases not involving freight rates has often

found section 16 violations even in the aJbsence of a competitive rela

tionship We have such a case before us here

In an effort designed to delete paper rates on nonmoving com

modities the Conference and its member lines set abouit updaJting their

tariffs 6The process by which thlis wastohelaccomplished wasfor each

ofthe lines involved in a given trade to compile a list ofthe commodi

ties moving on its vessels in sufficient volunle to warrant retention

ofa specific rate which lists would then be and subsequently were

6

The elimination of paper rates in and of itself was not only proper but consistent

with the then indicated desire of the Commission s staff

14 F M C
22 FEDERAL MARITIME COMMISSION

correlated by the Conference secretary 7The Grace Line effort was to

list all commodities moving in excess of 25 tons or more per year

While the record does not indicate what volume cutoff point Westfal

Larsen adopted as a standard the record does make it clear that West

fal Larsen established specific commodity rates on a number or com

modities that moved in much smaller quantities during the relevant

period than did the dried apple items It was in determining what

constituted sufficient volume to justify the retention of a commodity

rate that all of the transportation factors and cargo characteristics

ofthe various commodities should have been taken into consideration

And were the attack upon the rates in question prompted by a fail

ure of dried apples to meet the sufficient volume criteria lack of

competiti YIl could well be a defense But such is not the case here

Having once established the sufficient volume criteria using what

ever fadtors were warranted respondents in determining what com

modity rates were to be discarded were then required to apply them

in a totally fair and impartial manner At this poinlt the single ques

tion involved was whether a given commodity moved in sufficient vol

ume or not Questions as to the characteristics inherent in the

particular commodity involved were irrelevant as were questions of

whether the particular commodity competed with any other commod

ity Thus as we stated in Investigation of Free Time Praotices

Port of San Diego 9 FMC 525 547 1966 the equality oftreatment

required in situaJtions of thiskind is absolute and not conditioned on

such things as competition The sitU3Jtion here is analogous to that

existingin New Yark Foreign Freight F ill B Association v Federal

Maritime Oommission 337 F 2d 289 299 2d Cir 1964 where the

court in concluding that no competitive relationship need beshown

where there was substantial evidence that forwarders in random

fashion charged shippers m1arkups or widely va rying amounts

stated

Transportation or wharfage charges are dependent upon the partiCUlar

commodity involved the cost forshipping or storing bananas for example bears

no relation to the fees levied for heavy industrial equipment To find an un

lawful discrimination in transportation charges thus quite properly requires

a showing of competitive relationship between two shippers who are cbarged

different prices But forwarders render substantialJy

the same service to all

shippers in procuring insurance or arranging for cartage the commodity being

7

The lists of the individual lines were prepared and presented to the Conference

secretary who prepared a composite list On his own initiative he added certain additiona

commodities for which rates had recently been established plus others which moved from

time to time of which he had personal knowledge The resulting composite list was

subsequently used as the basis for specific rate adjustments pursuant to the conference s

rateincrease decision

14 F M C
shipped has littleor nothing to do with the reasona bleness of the fee exacted for

the forwarder s service The very practice of charging shippers disguised

markups of widely varying amounts on substantially identical services with

out justification seems to us to be prima facie discriminatory ina regulated

industry

Thus while the respondents had an obligation under section 16 to

administer the established volume standards equally to all commodi

ties the record shows that no commodity rate was adopted on dried

fruititems although commodity rates were established on other items

that had moved in smaller quantities duringthe period involved herein

This without more establishes a clear situation of undue prejudice to

a description of traffic namely dried fruit vis a vis other commodi

ties in violation of section 16 ofthe act

Respondents freely admit that the volumemovement ofdried apples

had been such that a commodity rate on that item should have been

retained Respondents however ascribed their failure to establish a

commodity rate on dried fruit to an inadvertent oversight on the

part of amember line 9

Ve are not impressed by this argument Vhile

we have no reason to doubt respondents bona fides in this matter the

fact remains that good faith will not save an otherwise unjustly prej

udicial practice from condemnation The equality of treatment re

quired by section 16 of the act is not conditioned on a carrier s inten

tions As we stated in A1Jlte1 ican Tobacco 00 v oornpagnie Gene ale

Tran8atlantiq te 1 D S S B 53 56 1923 if a carrier s conduct sub

jects a shipper to undue discrimination the carrier s knowledge or

lack of I010W ledge of such condition is plainly ilnmaterial

9We cannot agree with the eXllJminer s dismissal of this oversight as one not

of the t pe falling within the scope of Public Law 90298

PubUc Law 90298 enacted in 1968 to amend section 18 b 3 of the act authorizes

the Commission to permit a common carrier by water in foreign commerce or conference

of such carriers to refund a portion of the freight charges collected from II shipper or

waive the collection of aportion of such charges where it appears that there is an error in

a tariff of a clerical or administrative nature 01 where through inadvertence there has been

a failure to file a particular tariff reflecting an intended rate lroYided i ntel Ilia that the

al plicatlon for refund is filed with the Commission within 180 days from the date of ship

ment This amendment was designed to prevent injustice in situations where it WQuld

be ineqll itable to charge the filed rateas required by law

While it would indeed appear that Public Law 90 298 would have permitted corrective

action in the situation now before us we are not here deciding the merits of that issue

nor do we need to do so in view of the fact that the Issue has been rendered mQot b the

carriers failure to file an application for refund within the prescribed time Suffice it to

say that we are somewhat dismayed at resPQndents failure to utilize existing Commission

procedures to rectlf their alleged oversight even after llll ing been encouraged to do so

b the CommisSion s own staff

Respondents have made it known during the course of this proceeding that their

refusal to file a

so called special docket Itppliclltion was grounded on the belief that this

was not the kind of oversight intended to be covered by Public Law 90298 While we

appreciate their uncertainty in this matter we cannot understand their reluctance to

submit an application and allow the Commission to decide for itself whether its Qversight

was one intended to be covered by the special docket legislation

14 F M C
24 FEDERAL MARITIME COMMISSION

Once having found a violation ofthe Shipping Act the Commission

is empowered under section 22 of the act to direct the pay

ment of full reparation to complainant for the injury caused

by such violation For immediate and direct injury allegedly suf

fered complainant here requests the Commission to order respondents

to pay it an amount based on the difference between the 88 W1M

N O S rate actually assessed andthe preexistingcommodity rate of 52

per longton

Respondents whilenot abandoning their position that the repara

tions issue need and should never be reached argue that in any

event complainant did not suffer any injury compensable by repara

tion under section 22 In this regard they argue that the showing nec

essary for a

reparations award under section 16 presumably remains

as enumerated in the West Indies Fruit case supra at 70 thus

Proof of the character intensity and effect of the competitive relationship is

necessary to prove the amount of damages and sustain an award of repara

tions 1 I Emphasis supplied

Respondents point out that in this proceeding complainant s only

claim and sole showing of injury wasthat itpaid more dollars for the

transportation of the dried apples here concerned than it

would have had some other rate applied This respondents submit is

insufficient to establish any legally compensable measure of damages

VTere we considering here a request for reparation based on unlaw

ful preference orprejudice in rates based on the kind oftransportation

factors or commodity characteristics noted above we would be in

clined to agree with respondents Since in such a case the existence

of a competitive relationship between the preferred and the pre

judiced shipper is an essential element of a violation involvingalleged

preferential or prejudicial rates or charges any award of reparation

premised on such violation must take into consideration the charac

ter intensity and effect ofthis competitive relationship And in cases

of this character it may very well be that the injury sustained by the

complainant because of the unlawful discrimination suffered may be

greater or lesser than the amount of the difference between the rates

charged them and those charged the preferred shipper As we ex

plained in Agreement No 8905 Port of Seattle and Alaska SS 00

7 F MC 792 800 1964 a case involving alleged unlawful discrimi

nation and prejudice in tariff charges Past decisions ofthe Commis

sion and its predecessors make clear that the person claiming illegal

prejudice or disadvantage must establish damage with respect to its

ability to compete Emphasis added Thus this Commission has

historically recognized that the extent of damages in rate discrimina

tion cases being dependent largely on competitive factors is a question

14 F lIC
offact which must be clearly demonstrated by substantial proof Port

of NewYork Authority v AB Svenska et al 4F M B 202 205 1953

However we have already determined that the equality oftreatment

required here in this case is absolute and not conditioned on com

petition Therefore the character intensity and effect of competi

tion becomes irrelevant and the measure of damages simply becomes

the difference between therate charged and collected and the ratewhich

would have applied but for the unlawful discrimination or prejudice

To the extent that the proper measure of damages is the amount of

unlawful excess exacted it is akin to an overcharge and the same

principles apply

Applying these principles to the present situation the measure of

damages is the difference between the amount of freight charges

assessed and collected on the basis of the cargo N O S rate of 88

i

7 1V and the amount offreight charges which would have been pay

able under the preexisting commodity rate on dried apples of 52 per

long ton On this basis the amount of reparation due complainant on

the Grace shipment is 7 882 14 Computed on the basis of the 52

per long ton rate the total charge on the Westfal Larsen shipment

would have been 1 435 56 Although complainant was ultimately as

sessed freight charges onthis shipment of 5 336 23 or an overcharge

of some 3 900 67 it has to date only paid 2 4292 less wharfage and

handling Therefore the measure of complainant s damage on the

Westfal Larsen shipment is 993 86 the difference between what was

actually collected and what should have been paid Thus the total

amount of reparation to which complainant is entitled on the two

shipments combined is 8 876

On the theory that the two sections overlap and that a violation

of one is often a violation ofboth Valley also alleged that therespond

ents violated section 17 of the act as well as section 16 We disagree

Unlike section 16 first which by its terms prohibits any unjust

preference or prejudice between shippers and commodities in any

respect whatsoever the first paflagraph of section 17 concerns itself

only with an unjustly discriminatory rate fare or charge 10 And

as the Commission explained in North Atlantic Mediterranean Freight

Oonfe1 ence 11 F l1 C 202 213 1967 to establish unjust rate dis

crimination withinthe meaning of section 17

there must be two shippers of like traffic over the same line between the

same points under the same circumstances and conditions but who are paying

differentrates 11 F M C 213

10 Section 17 also declares it unlawful for a carrier to charge any rate which is unjustly

prejudicial to exporters of the United States as compared with their foreign competitors

This portion of section 17 is clearly Thot applicable here however since the alleged unlawful

rate Is being assessed complainant as an importer of the United States not as an

exporter thereof

14 F M C
26 FEDERAL MARITIME COMISSION

Quite obviously when considered in the light of the above criteria

the present factual situation falls far short of establishing a violation

of section 17 Complainant has failed to establish the essential element

of a section 17 violation the existence of another similarly situated

shipper The record is clear that Valley wasthe only shipper of dried

apples in the relevant trade from Buenos Aires to the Pacific North

west In fact there was no other movement of dehydrated apples or

other dried fruit commodity in the entire northbound range served

by the Conference other than those ofcomplainant Manifestly there

can be no discrimination let alone unjust discrimination where there

is but one shipper involved By definition you cannot have discrimi

nation between a

single shipper Clearly no violation of section 17

by respondents has been shown on thepresent record

Finally Valley argues that the N O S rate of 88 W1M as applied

to the two shipments ofdried apples herein involved wasso unreason

ably high as to be detrimental to this country s commerce in violation

of section 18 h 5 of the act Whatever might have been the merits

of this contention had that rate been maintained it is clear that re

spondents reinstatementof a

specific commodity rate on complainant s

product has mooted that issue

Section 18 b 5 does not by its terms forbid any specific activity

It merely empowers the Commission to disapprove any rate

or charge which after hearing it finds to be so unreasonably

highor low as to be detrimental to the commerce ofthe United States

This section is purely prospective in nature and as the court explained

in Federal lI aritime Oommission v Oaragher 364 F 2d 709 717

1966

III simply reflects Congresss awareness that whether a certain rate is

unreasonable is often a

close question and that consequently a

regulated car

rier should be liable for penalties only if it continues to charge unreason

able rates after the Commission has determined they are unreasonable Empha

sis added 11

We see no reason to distinguish the situation where an allegation of

unreasonableness under section 18 b 5 forms the basis for a re

quest for reparation rather than a suit for penalties Therefore we find

that the court s rationale in the Oaragher case supra applies with

equal force to the present situation and conclude that only after the

Commission has determined a particular rate to be unreasonable under

section 18 b 5 may a carrier s continued assessment of that rate

11 Tbis holding is fully supported by the legislative history of section 18 b whl b

section was added to the Shipping Act in 1961 In fact the court Itself points out that

during the course of congressional deliberations on the 1961 amendments a specific

provision making It unlawful for a regulated carrier to reduce its rates unreasonably

was considered llnd rejected and thereafter section 18 b j was enacted

14 F M C
be considered a violation of section 18 b 5 for which reparation may

be awarded Complainant s reliance on the provisions of section 18

b 5 in this proceeding is therefore clearly misplaced Since the

alleged unreasonable vate is no longer in effect the Commission has

nothing before it to consider for disapproval under the provisions

of section 18 b 5

III ULTIMATE CONCLUSIONS

On the basis of all ofthe foregoing we find and conclude that

1 Respondents failure to retain a commodity rate on dried fruit

is unjustly prejudicial to that commodity in violation of section 16 of

the act

2 Respondents assessment of an 88 W1M N O S rate on dehy

drated apples has not been shown to unjustly discriminate in viola

tion ofsection 17 ofthe act orso unreasonably high as to be detrimental

to the commerce of the United States in violation of section 18 b 5

of theact and

3 Reparation for injury caused as a result of the established viola

tion of the act is awarded to Valley in the amount of 8 876

An appropriate order will be entered

oowmusione1s ASHTON C BARRETT and JAMES F FANSEEN dusenting

After a thorough examination of the law and a most ooreful and

deliberate consideration of the powers delegated by Congress to the

Commission it is our opinion that no award of reparation should be

made in this case under section 22 of the Shipping Act 1916 the

act for injury allegedly incurred resultingfrom unlawful rates held

to be in violation of sections 16 first 17 and 18 b 5 of the act

We not only concur in the conclusions of the hearing examiner in

his initial decision but would make the additional specific findings

that Grace Line Inc Westfal Larsen and Co and the Pacific Coast

River Plate Brazil Conference published and charged rates on two

shipments of dehydrated apples from Buenos Aires to Seattle 1

which did not subject complainant the Pacific Northwest or the

commodity dehydrated apples to undue and unreasonable prejudice

and disadvantage in violation of section 16 first ofthe act 2 which

did not unjustly discriminate between shippers from Argentina to the

Pacific Northwest between such shippers and shippers from else

where between Pacific Northwest ports and ports elsewhere and be

tween foreign ports shipping the same and competing commodities

to the Pacific Northwest and were not unjustly prejudicial to United

14 F lIC
28 FEDERAL MARITIME COMMISSION

States exporters in violation of the first paragraph of section 17 of

the act and 3 which were not so unreasonably high as to be detri

mental to the commerce ofthe United States under section 18 b 5

ofthe act

In finding a sectron 16 first violation the majority chooses not to

follow the legal precedent of developing a competitive relationship

showing alleged preferential or prejudicial rates or charges being

charged arelationship which the complainant has continually tried

to establish in its briefs as well as in its oral presentation before

the Commission Instead the majority attempts to estaJblish prejudice

and preference by adopting the approach tJhat the respondents were

under an absolute obligation to render a service aJt a certain ratea

rate resulting from the fact thata sufficient quantity of a commodity

justified the retention of acammodity raJte in the conference s tariff

whether or not a

finding Of actual impairment Do the movement ofthe

cammodity in question has been made or whetJher or nat any eyidence

was introduced showing an advantage to a competitar in the same

trade Cases supporting tlhis manner of treatment were cited how

ever the cases presented evolved from those siltnations in whi h other

factors than commadity rates gave rise to the causes of action e g

shoreside services in Volkswagenwerk v FMO 390 U S 261 1968

free time terminaldemurrage practices in Investigation of Free Time

Practices PortofSan Diego 9 F MC 525 1966 freight farwarder

pradtices in Ne1o York Foreign Freight F B Association v Fed

eral Maritime Oom mission 337 F 2d 289 2d Cir 1964

The minority prefers to followthe principle ofrequiring the devel

opment of a competitive relation in proving a section 16 first violation

a time hanored practice firmly established Port 0

f

New York

Authority v A B Svenska 4 F MC 202 205 1953 Philadelphia

Ocean Traffic Bureau v Export S S 00 1 VS S B B at 541 1936

As Justice Douglas remarks in Volkswagenwerk v FMO 390 U S

261 314

The Maritime Commission s refusal to require a competitive relationship in

certain cases however has diluted the principle only in those situations in

which there are services that are not dependent upon the nature of the cargo

and the various charges therefor

We maintain that the alleged injury resulting from competing

manufacturers and imparters of dehydrated a

pples foreign and

domestic is the cause Of actian tJhe complainant must prove We

remain convinced that it is only throughthe development of the com

petitive relationship that afinding ofpreference orprejudice existing

14 F M C
between shippers localities or cormllodities can be eStablished As

was stated in U S v AmerioanExport Lines et al 8 F MC 280 291

Ifcommodity rates are compared to establish a violation orf these sections sec

tions 16 first and 17 of the act there must be a

showing of the character and

intensity of the competition that the difference in rates has oPerated to ship

per s disadvantage in marketing the commodity the deferring of one person

to another or the preferring of one person to another and unequal treatment

between competing shippers or ports

The mere allegation Of a violatian is nat enaugh and in tJhis case the

general representatians remain unsupported The Only fareign pro

ducer Or exparter similarly located and disclosed as Offering direct

campetitian to the complainant was a person wha nat Only shipped a

different praduct but shipped his praduce in a different trade Na

meaningful camparative situatian is therefare presented NOr can

a shawing Of prejudice Or preference be estahlished fram the attempt

Of camplainant ta campare dried fruit rates witJh respandent s rate

where the rates being campared apply in different trade rautes

On tJhis recard a

finding Of preference or prejudice could not be

supparted even if One assumes tJhat the same cammodity was being

campared in the same trade As respandents carrectly cited in their

Opening brief ta theexaminer

Existence of different rates on analrog us commodities moving in this trade or

a Showing that respondents rates on the same commodity are higher than those

of other carriers in other trades is of itself insufficient Evidence as to volume

and claims bandling costs and the type of vessels operated both as t

the trade

involved and in compared trades should also have been submitted Puerto

Rico Rates 2U S M C 117 119 1936

In this praceeding na daroa Or evidence Of prabative value substan

tiating a vialation has been intraduced

Even in the domestic trade praaf is lacking far any finding Of

preference Or prejudice the recard shaws Only that tJhe competitars

with whom camplainant ultimately competed were either 1 busi

nesses which did na imparting Or 2 a praducer which imparted

solely from a different hemisphere Raviga Italy

The case Of praving the alleged prejudice against Seattle as a

part

and lacality all parts an the WestCaast and the River PIate area alsa

remains unsupparted There is na shawing that the flaw Of trnffic ta Or

frOm any lOcality wasin any way affected by the level Of the commad

ity rate There is na shawing Of a campetitive disadvantage Or a

lacality being preferroo

The fact remains that na finding Of a sectian 16 first vialatian can

be made when pr Oaf Of actual injury is based an mere hypothetical

14 F MC
30 FEDERAL MARITIME COM MISSION

speculative or conjectural loss West Indies Fruit 00 v Flota Mer

cante 1 F M C 10 Agreement No 8905 Port of Seattle and Alaska

SS 00 1 F MC 192

If however a section 16 first violation be found we cer1Jainly feel

that the aJIIlount or reparations should be determined only after an

exhaustive study ofthemitigatingcircumstances presented here While

all parties acknowledge the oversight of tilie conference the con

ference and its members have concern for literally hundreds of rates

As a practical approach to business the conference had no list or

other means of notifying shippers receivers of general cargo except

for those suhscribing to its tariff The cost of suCh a subscription is

currently and wasthen 25 per year amost inexpensive precaution

ary measure to employ when one consideI S the economic facets of a

successful business Incontradistiinction amajor function of a freight

forwarder is to keep its client informed oftransportation costs When

its services are utilized The services of freight forwardeI S wereem

ployed n1t only in Argentina but in Seattle as well Little attempt if

any was made by the freight forwarders or complainant to ascertain

the proper transportJation costs prior to shipmenta clear finding of

gross negligence

In summary no violation has resulted from the failure ofrespo d

ents to file a

commodity tariff similar to one which as a business judg

ment they had once filed and maintained Ifcomplainant had exer

cised simple ordinary business prudence before the time the two ship

ments inquestion weretransported the prohlem could have been caught

before it became an issue and almost surely the carriers would have

responded favorably just as they did a shorttime thereafter when the

matter wasbroughtto their attention

Uponhearing oral argument and studying the record before us we

remain convinced thatthecomplaint shouldbe dismissed

We would therefore find no violation ofthe act or make any award

of reparations

SEAL FRANCIS C HURNEY

Secretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 6847

VALLEY EVAPORATING CO

v

GRACE LINE INC ET AL

ORDER

This proceeding being at issue upon complaint having been duly

heard and full investigation having been had and the Commission

on this day having made and entered a report stating its findings and

conclusions which report is hereby referred to and made a part hereof

Therefore it is o7de1 ed That respondents be and hereby are di

rected to paytoValley Evaporating Co on or before 60 days from the

date hereof 8 876 with interest at the rate of 6 percent per annum on

any amount unpaid after 60 days as reparation for the injury caused

by respondent s violation of section 16 first of theShipping Act 1916

By the Commission

SEAL FRANCIS C HURNEY

Secretary

31
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 424

AIR AMERICA LTD HONG KONG

V

TRANS PACIFIC FREIGHT CONFERENCE OF HONG KONG

August 19 1970

NOTICE OF ADOPTION OF INITIAL DECISION AND ORDER GRANTING

REFUND

No exceptions having been taken to the initial decision of the ex

aminer in this proceeding and the Commission having determi Qed not

to review same notice is hereby given that the initial decision became

the decision of the Commission on August 19 1970

Itis ordered That applicant is authorized to refund to AirAmerica

Ltd Hong I

ong the amount of 267 14

Itis further ordered That applicant publish promptly in its appro

priate tariff the followingnotice

Notice is hereby given as required by the decision ofbhe Federal Maritime Com

mission inSpecial Docket No 424 that effective March 1 1970 the non contract

rate for Tyres Aircraft Return ed forReconditioning for purposes of refunds or

waiver of freight charges on any shipments which may have been shipped during

the period from March 1 1970 to May 3 1970 is 110 75 W subject to all other

applicable rules regulations teJ lIl1s and conditions of said rate and this tariff

Itis further ordered That refund shall be made within 30 days of

this notice and applicant shall within 5 days thereafter notify the

Commission of the date ofthe refund and ofthe mannerin which pay

ment has been made

By the Commission

SEAL FRANCIS C HURNEY

Secretary

32
FEDERAL MARITIME COMMISSION

SPEOIAL DOOKET No 424

Am AMERIOA LTD HONG KONG

v

TRANS PAOIFIO FREIGHT CONFERENOE OF HONG KONG

INITIAL DEOISION OF HERBERT Ie GREER PRESIDING EXAMINER 1

Trans Pacific Freight Conference applicant seeks permission to

refund toAir America Ltd shipper a portion ofthe freight charges

collected on a

shipment from Hong Kong to Los Angeles Calif Under

its bill of lading dated April 7 1970 applicant carried cargo for the

shipper described as 12 coils Aircraft Tyres The rate effective at

the time of the shipment was 93 per 40 cubic feet M orper 2 000

pounds W whichever produced the greater revenue Applying the

measurement rate applicant collected the sum of 325 50 from the

shipper based on 140 cubic feet

Effective March 1 1970 applicant s conference filed an amendment

to its tariff with the Commission 23 FMC8 Through typographi

cal error however the rate for Types Aircraft Returned for Re

conditioning was left blank Correction ofthis error was made by fil

ing effective 1ay 3 1970 and the noncontractrate of 110 75 W was

published Under thisrate which is for weight only the charges would

have been 58 36 or 267 14 less than collected The shipment weighed

1 054 pounds

Public Law 90928 75 Stat 764 authorizes the Commission to per

mit a COffilnon carrier by water in foreign commerce to refnnd a

por

tion of the freight charges collected from a shipper where there is an

error due to inadvertance in failing to filea new tariff From the evi

dence presented it appears that leaving a blank space in the rate

column after the commodity description ofAircraft Tyres in thetariff

filed on March 1 1970 was an inadvertent typographical error and

thus thisapplication involves a situation withinthe purview of Public

Law 90 298

1

This decision became the decision of the Commission Aug 19 1970

33
34 FEDERAL MARITIME COMMTSSION

The application was filed within 180 days of the date of the ship

ment no other shipments of the same or similar commodity moved

on conference vessels duringapproximately thesame time as the ship

ment here involved and no otherproceedings involvingthe same rate

situation are pending Good cause appearing applicant is permitted to

refund to the shipper the sum of 267 14 The notice referred to in the

statute shall be published in the conference tariff and the refund shall

be effectuated within 30 days thereafter Within 5 days after making

refund applicant shall notify the Commission ofthedate of the refund

andthe manner in which payment wasmade

HERBERT K GREER

P1esiding Examine1

WASHINGTON D O July 3 1970

14 F M C
FEDERAL MARITIME COMMISSION

DOOKET No 69 21

TRANSOONEX INO GENERAL INOREASE IN RATES IN THE US SOUTH

ATLANTIO PUERTO RIOoVIRGIN ISLANDS TRADES

DOCKET No 69 29

CoNSOLIDATED EXPRESS INO GENERAL INOREASES IN RATES IN THE

U S NORTH ATLANTIC PUERTO RIOO TRADE

Decided August O 190

Increased rates of Transconex Inc and Consolidated Express Inc nonvessel

operating common carriers in the trade betwen U S Atlantic ports on the

one hand and Puerto Rico and the Virgin Islands on the other not shown

to be unjust or unreasonable or otherwise unlawful

Herbert Burstein Arthwr Liberstein and Morri8 Kassiln for re

spondents Transconex Inc and Consolidated Express Inc

Edward Schmeltzer Mario F Escudero and Robert A Peavy for

Commonwealth ofPuerto Rico

Donald J Brunner Paul M Tschirhart and Paul J Kaller hearing

counsel

REPORT

By THE COMMISSION Helen Delich Bentley Ohairmanj James F

Fanseen Vice Ohairmanj Oorrvmissioners Ashton C Barrett

James V Day and George H Hearn

Transconex Inc Transconex and Consolidated Express Inc

Consolidated nonvessel operating common carriers by water

NVOOCs individually filed with the Commission increased rates

applicable to the domestic offshore commerce ofthe United States On

April 28 and Juna 6 1969 the Commission instituted proceedings to

determine the lawfulness ofthe increases of Transconex and Consoli

dated respectively Although the proceedings were not formally con

35
36 FEDERAL MARITIME COMMISSION

solidated the similar nature of the operations of Transconex and

Consolidated resulted in the two proceedings being treated together

reference to the record in each proceeding being allowed by stipulation

for evidence applicable to either All parties filed single briefs appli

cable to both proceedings and Examiner Herbert Ie Greer issued

one initial decision in which he found the increased rates of the two

NVOOCs not unjust or unreasonable or otherwise unlawful Excep

tions to the initialdecision werefiled by the Commonwealth of Puerto

Rico Puerto Rico which was a party to both proceedings and by

hearing counsel Replies to exceptions were filed by hearing counsel

and jointly by Transconex and Consolidated There was no oral

argument

FACTS

Transconex is an NVOCC operating between Jacksonville and

Miami Fla on the one hand and on the other Puerto Rico and the

Virgin Islands

Consolidated is an NVOCC operating between New York on the

one hand and on the other Puerto Rico and the Virgin Islands

Both Transconex land Consolidated have filed rate increases which

vary as to commodity

The services provided by respondents and included in a

single factor

rate are the pickup and delivery of cargo at the shippers or con

signees door in Puerto Rico and on the mainland at terminals main

tained by respondents all necessary documentation assumption of

responsibility for the goods from door to door and the arranging

for water transportation via an underlying carrier Respondents are

usually able to expedite shipments Respondents collect small ship

ments and at a terminal provided for that purpose consolidate them

into containers which are delivered by respondents to the underlying

carrIer

Many major moving commodities handled by respondents are es

sential to the economy of Puerto Rico and because the majority of

these commodities consist of small shipments the services of NOVCCs

are vital to that economy

At Jacksonville an independent company handles the terminal

serviCBS for Transconex except that Transconex employees perform

the paper work and documentation Transconex pays this operator

from 75 to 80 per trailer and an additional 10 cents per CWT if

inland carriers equipment is unloaded at the terminal The principal

underlying carrier at Jacksonville handles the cargo from theterminal

14 F l1C
to the port however the underlying carrier handling approximately

20 percent ofthe carriage does not perform this service and respondent

arranges for it with independent operators AtMiami the underlying

carrier provides the pickup and delivery service to and tro111 the

Transconex terminal and the clock The terminal in Miami is leased

In Puerto Rico Consolidated represents Transconex providing pickup

and delivery service stuffing and unstuffing containers clocumentllition

and other services The contract between these respondents provides

for a

charge of 20 cents per cubic foot and contains a provisions for

adjustment ofthe rate based on projected cost increases

Consolidated conducts its business in New York through an agent

Valroy Realty which is owned by the two principal stockholders of

Consolidated Roy Jacobs and Rudolfo Catinchi This agency con

tracts with an independent firm to provide leased trucks drivers and

dock workers for cartage stuffing and unstuffing of containers In

Puerto Rico Consolidated rents terminals and office space in San Juan

Ponce and Bayamon and operates a trucking concern to provide

cartage and pickup and delivery service Approximately 30 pieces of

inland transportation equipment are owned by this respondent Addi

tional equipment is leased when needed An unrelated trucking opera

tion in Puerto Rico provides Consolidated with approximately 10

percent ofits gross revenue which is arbitrarily applied as an offset to

reduce the costs oftotal operations in Puerto Rico

Approximately 40 percent of Consolidated s gross revenue is paid

out for purchasingtransportation from underlying carriers

Labor costs have increased Consolidated experienced an increase of

approximately 34 percent for organized labor and approximately 30

percent for unorganized labor Transconex has experienced a salary

increase of approximately 23 percent in its 1iami operation Cost of

living increases in union contracts have contributed to increased costs

To an undetermined degree respondents costs vary with the amount

of cargo handled

The financial data of record represent actual experience and pro

jected income and expenses based on estimated increases in cargo

handled at the increased rates The value of fixed assets and projected

working capital needs are also established in the record Respondents

estimate a 10 percent increase in cargo handled due to the increased

rates giving the following results as computed by the Commission s

accountant

14 F M C
38 FEDERAL MARITIME COMMISSION

Transconex

xed assets 3 888 19

VVorking capital 36 000 00

Gross revenue 2 190 613 21

Direct e pense 1 58 335 10

Gross profit

G A expense

Net profit before tax

Federal tax approximately 48 percent

Net income

332 278 11

218 918 55

113 359 56

54 412 59

58 946 97

Consolidated

xed assets 148 246 93

VVorking capital 175 000 00

Gross revenue 3 064 653 00

Direct expense 2 570 351 40

Gross profit

G A

expense

Profit before tax

lnsul ar tax estimated 28 7 percent

Net income

494 301 60

330 248 80

164 052 80

47 052 80

117 000 00

Transconex s accountant challenged the item for G A expense and

testified that the following corrections should be made

Gross profit 332 278 11

G A expense

277 330 00

Profit before tax

Federal tax

54 948 11

26 375 09

Net incorne 28 573 02

Hearing counsel using a 20 percent increase in cargo handled for its

computations for Transconex and excluding the expenses to the

NVOCCs for the underlying transportation obtain the following

results

Transconex

Total revenue 2 382 474 37

Less annualized cost of underlyingcarrlage 811 632 53

Gross revenue

Net incorne

1 570 841 84

101 124 73

14 F M C
Consolidated

Total revenue 3 064 653 00

Less annualized cost of underlying carriage 1 234 362 00

Gross revenue 1 830 291 00

Net incoDle 114 836 96

Hearing counsel recognize that their computations ofnet income for

Transconex may be subject to a variation between 101 124 73 and

70 750 78 depending onestablishing acceptable general administrative

and selling expenses and summarize their computations as to both

respondents as follows

Rate base Gross revenue Profit Rate of Operating

adjusted after tax return ratio

Percent Percent

Transconex 39 888 1 570 841 101 124 253 5 93 57

70 750 177 4 95 5

Consolidated 323 246 1 830 291 114 836 35 5 93 7

Hearing counsel refer to the testimony of their expert witness to

the effect that a rate base may be established by adding the value of

fixed assets to working capital necessary for 1 month s operation

Using that ate base concept as to Consolidated fixed assets are valued

at 148 246 93 and working capital required is 175 000 the rate base

being 323 246 93 As the estimated net profit according to data fur

nished is 114 8306 96 a 35 5 percent return is found Transconex s fixed

assets have a value of 3 888 19 and working capital requirement is

36 000 which provides a Date base of 39 888 19 Questioning the

G A expenses claimed by respondent hearing counsel arrive at a

profit of 101 124 73 which is 253 5 percent of the rate base The

Commonwealth computes a

pre tax rate of return of 72 2 percent or

Consolidated and a rate of return in excess of 200 percent

for Transconex

During the past 4 years cargo handled by Consolidated has in

creased threefold

Transconex is the dominant NVOCC carrier in the Florida Puerto

Rican trade

There is sharp competition among NVOCCs in the Puerto Rican

trade Vessel operators handle small shipments but do not seek this

type ofbusiness One vessel operator offers pickupand delivery service

in connection with ocean carriage

Respondents handle large volumes of cargo with comparatively

small investments Transconex as projected for a 10 percent increase

will handle 2 367 232 cubic feet or if hearing counsel s projection of

14 F M C
40 FEDERAL MARITIME COMMISSION

a 20 percent increase is applied 2 507 381 cubic feet Consolidated will

handle 4 800 000 cubic feet Inasmuch as the dollar amount of cargo

is not set forth as to the individual commodities handled profits on

separate commodities cannot be determined

THE EXAlIINER S DECISION

The examiner first of all rejected respondents contentions em

bodied in motions to discontinue the proceedings that the Commission

should determine matters relating to the reasonableness of NVOCCs

rates in a

rulemaking proceeding and that the Commission has no

jurisdiction over rates and charges for pickup and delivery services

Respondents the examiner contended misconceive the purpose of

these proceedings which is not to prescribe general formulas for de

termining the reasonableness of NVOCCs rates but merely to adjudi

cate the reasonableness of particular increases of the respondents and

that respondents rates and charges for pickup and delivery services

are subject to the Commission s

regulatory authority since such serv

ices are accessorial service performed by persons otherwise subject to

the Shipping Acts

The examiner then went on to discuss the various factors which are

of importance in determining reasonableness of rates and indicated

that a primary view of the reasonableness of the rates of NVOCCs

who have small investments compared to their gross incomes may be

had by application of the operating ratio concepti e the mathe

matical relationship between gross income and expenses of operation

Applying this concept and assuming as do respondents a 10 percent

increase in cargo handled due to the increased rates the eXaminer

found an operating ratio of 97 3 percent and a

profit of 2 7 percent

for Transconex using the Commission accountant s computation and

an operating ratio of 98 7 percent and a profit of 13 percent using

Transconex s

figures which reflect a greater G A expense He found

the operating ratio of Consolidated to be 97 22 percent and the profit

2 78 percent

Applying hearing counsel s computation using an estimated 20

percent increase in cargo carried by Transconex and the exclusion of

amounts paid out and recovered from customers for tmderlying inland

and ocean transportation the examiner round Transconex s operating

ratio to be 93 57 percent and net profit after taxes 643 percent or

utilizing the greater G A expense 95 5 percent and 4 5 percent

respectively and Consolidated s operating ratio to be 93 7 percent

and profit 6 3 percent after taxes

14 M l
The examiner concluded that all ofthese figlues are reasonable since

they fall within the 7 percent range of profit i e an operating ratio

upwards of 93 percent which the ICe seems to have accepted

The computation of operating ratio on profit befqre taxes would

produce operating ratios of less than 93 percent based on hearing

counsels

figures 87 62 percent 12 38 percent profit for Transconex

and 9104 percent or 8 96 percent profit for Consolidated The ex

aminer rejected the approach of computing operating ratio on profit

before taxes however since he maintains that the NVOCCs com

pensation is to be judged by money in hand after all charges against

the operation are paid

The examiner additionally indicated that he felt that in computing

operating ratio expenses should include the costs to the NVOCC of

underlying carriage since the NVOCC has the obligation to provide

such carriage and is responsible to the shipper tor loss or damage

occurring when cargo is in the hands of the underlying carrier He

therefore recomputed the operating ratio for Transconex assuming the

20 percent cargo increase postulated by hearing counsel but including

the cost of underlying transportation The result is an operating ratio

of 95 76 percent or a profit of 4 24 percent which he found to be

not unreasonable

Finally the examiner found the increases not shown to be unreason

able in the light of the cumulative effect of the following findings in

addition to the apparent reasonableness of the operating ratio 1

there had been no showing that the increased rates had adversely

affected the Puerto Rican economy 2

respondents have experienced

increased costs of operation 3 respondents operate efficiently 4

respondents operations are increasing 5 the competition in the

trade is sharp and thus tends to hold rates down 6 the value of

respondents service to small shippers is substantial since evidence of

record shows many small Puerto Rican shippers could not engage in

trade with the mainland without their service 7 hearing counsel

did not contend the rates have been shown to be unlawful and 8

the Commonwealth has not presented evidence to support its conten

tions that the increases are unlawful

POSITIONS OF THE PARTIES ON EXCEPTIONS AND REPLIES TO EXCEPTIONS

Puerto Rico excepts to the examiner s ultimate findings that therate

increases ofthe respondent NVOCCs are not unreasonable and main

tains that the increases result in an excessive and unreasonable return

to respondents which the shipping public should not be required to

14 F M C
42 FEDERAL MARITIME COMMISSION

bear In using operating ratio as the primary basis for determining

the reasonableness of respondents rate ofreturn the examiner Puerto

Rico asserts improperly utilized the carriers expenses after taxes If

expenses before taxes had been utilized operating ratios less than the

93 percent generally approved by the Interstate Commerce Commis

sion for its regulated motor carriers would have resulted Moreover

Puerto Rico maintains by overly stressing operating ratio the ex

aminer disregarded two basic matters which must be considered in

determining the reasonableness of a carrier s rate of return and which

a purely numerical operating ratio does not reveal the need for addi

tional revenue and the need for additional capital Finally when the

extremely large returns on the NVOCCs rate bases are considered in

conjunction with the very low operating ratios an additional indica

tion appears Puerto Rico claims that the rate increases are

unreasonable

Hearing counsel agree with the examiner s conclusion that the rate

increases of the NVOCCs here underinvestigation have not been shown

to be unlawfulThey except however to language in theinitialdecision

which indicates that generally speaking an operating ratio of 93

percent orgreater is reasonable on the grounds that the record contains

no economic evidence supporting adoption ofany figure as a reasonable

operating ratio for respondents Hearing counsel support the exam

iner s use ofthe carriers expensesafter taxes in computingtheir perat

ing ratio and agree with the examiner that the Commonwealth must

bear the consequences of the failure ofthe record to reveal what would

be a reasonable operating ratio for respondents

Respondents although preserving their contentions that the pro

ceedings should have been discontinued because the Commission lacks

jurisdiction over pickup and delivery rates and charges and rulemak

ing would have been the proper vehicle for determining the issues

herein urge that theexceptions be rejected and that the initialdecision

be adopted Respondents contend that the examiner properly followed

precedents of this and other regulatory agencies in computing

operating ratio after allowing for taxes as an expense Respondents

maintain that the examiner would have been justified in relying upon

operating ratio alone to determine the reasonableness of the rate

increases Respondents assert however that the examiner considered

all factors which could be considered relevant including the need for

additional revenue and capital in determining the reasonableness of

theincreases

14 F M C
DISCUSSION AND CONCLUSIONS

We agree with theexaminer that these proceedings clearly fallwithin

the scope of our authority and that rulemaking is not the method of

procedure which we are bound to followhere All of respondents rates

and charges for their transportation between the US Atlantic Coast

on the one hand and Puerto Rico and the VirginIslands on the other

hand including rates and charges for incidental pickup and delivery

services are subject to the regulatory control of this Commission 1

Further whilerulemaking may be appropriate in proceedings designed

to establish formulas by which the reasonableness of rates may be

measured rulemakingis not necessary to enable the Commission solely

to investigate the reasonableness ofrates ofparticular carriers without

establishing any such formulas As the examiner correctly indicated

a determination as to the reasonableness of respondents rates is the

sole concern ofthese proceedings

iVe also agree with the examiner that theNVOCC s rates here under

examination have not been shown to be otherthan just reasonable and

lawful vVe find no basis for adopting the approach advocated by

Puerto Rico of determining the reasonahleness of respondents rates

based upon computations which failto take into account the income tax

expenses which they are required to bear iVe have in the past allowed

taxes as an expense in determining reasonableness of rates 2and feel

that the failure to consider taxes as an expense creates an inaccurate

picture ofthe earnings actually available to acorporation for distribu

tion and capital investment and consequently its need for additional

revenue Our treatment of taxes as an expense to be considered in

determining reasonableness ofrates accords moreover withthe general

approach of courts and administrative agencies 3

As the examiner and all parties recognized the considerations with

respect to rates of NVOCCs must necessarily be somewhat different

from those which are of prime importance in proceedings dealing with

the reasonableness ofrates of vessel owning carriers Generally speak

1 See eg Matson Navigation Oo Oontainer Freight Tariffs 7 F M C 480 491 1963

Oertain Tariff Practices of Sea Land Service 7 F M C 504 1963

2

See eg Alaska Seasonal Rate Increases 19628 F M C I 57 1964 Atlantic

Gull Puerto Rican General Increase 7 F M C 87 115 1962

3

See e g Georgia Ry If Power 00 V Railroad Oommission of Georgia 262 U S 625

633 1923 Galveston Electric 00 v Oity oj Galveston 258 U S 388 399 1922

Washington Va If Md Ooach Co Inc Cancellation Tokens 54 M C C 317 324 1952

Fares Motor Between Northern Kentucky and Oincinnati 62 M C C 67 81 2 1953

General Increase Middle Atlantic aml New England Territories 332 I C C 820 837 1969

is not as Puerto Rico contends authority to the contrary There the ICC indicated that

taxes should not be taken into account in determining the efficiency of carriers operations

but did not suggest the taxes should not be considered in establishing the reasonableness of

acarrier s return

H F M C
44 FEDERAL MARITIME COl1MISSION

ing the reasonableness of the rate of return of equipment owning

carriers has been based upon that percentage of their rate base i e

the property devoted to the relevant trade plus sufficient working

capital which is necessary to allow them to earn a reasonable return in

light of the peculiar risks of the service involved See Alcoa Steamship

Co Inc General Increase inRates 9 F LC 220 238 1966 Atlantic

Gulf Puerto Rico General Increase 7 F M C 87 104 108 109 116

1962 vVhere as here however a carrier has little investment in

equipment the traditional rate base approach is not sufficient to allow

a determination of the reasonableness of carriers rates It has been

usual therefore to consider at least as an important fact 7r in pro

ceedings relating to the reasonableness of rates of carriers with little

capital investment in comparison with their total costs of operation

the operating ratio of such carriers i e the margin between revenue

and expenses of operation 4

There is however a basic problem inherent

in the use of operating ratio by itself to determine rate reasonable

ness the ratio by itself fails to indicate the existence and degree of

need for additional capital and revenue

5

Consequently the operating

ratio approach per se may not give a true picture of the revenue

requirements ofa carrier

Evidence of record and the following uncontested findings of the

examiner strongly suggest that respondents increased rates are just

andreasonable Respondents have experienced increased costs ofopera

tion they operate efficiently their operations are increasing competi

tion in the trade is sharp ordinarily a

strong control over rates and

the value of the services rendered by respondents to small shippers is

substantial Such findings tend to justify increases in the charges made

by respondents for their transportation services if not the particular

dollar increases here under investigation

Ve have no basis for concluding however that such increased

charges are unlawful Various computations have been made with

respect to the operating ratios ofthe respondents takinginto considera

tion probable revenues and expenses related to the increases As will be

seen from our discussion of these calculations at p40 supra no

operating ratio derived from any of them other than that excluding

taxes as an expense which we have found to be improper 6

exceeds the

93 percent which the ICC appears frequently to have approved when

considering rate increases of carriers owning little or no equipment 7

4 Mieldle West General Increases 48 M C C 541 5523 1948 Increased Railway Rates

Petres and Charges 264 I C C 695 71213 1946

G See General Increase MiddleAtlantic andNew England Territories 332 I C C supra at

837 838

oSee p 43 supra

See General InCl eases Transcontinental 319 IC C 792 803 1963

14 F M C
We agree with hearing counsel that there has been no showing on this

record that a 93 percent operating ratio is necessarily proper or a

standard for NVOCCs and nothing we say here is to be construed as

implyingthat such operating ratio is in fact proper or a standard

However since we feel that thetraditional rate base approach cannot

be applied to these carriers at least where as here there has been no

showing of any relationship between such rate base and the carriers

operating ratios we cannot disapprove the rate increases Some

indication of need for increases has been shown and no computation

we have been able to make with respect to the increases shows them to

be improper Those challenging rate increases in proceedings where

such increases have not been suspended must bear the consequences of

the failure of the record to contain adequate support for their disap

proval Oharges Delivery Atlantic Gulf Ptte to Rico Trades 11

F MC 222 229 231 1967

These proceedings are hereby discontinued

By the Commission

SEAL JOSEPH C POLKING

Assistant to theSecretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 70 13

NORTH ATLANTIC FRENCH ATLANTIC FREIGHT CONFERENCE PETITION

FOR DECLARATORY ORDER

Decided August O 190

Conference may not lawfully prevent under the provisions of section 15 of

the Shipping Act 1916 and the Commission s general order 9 relating to

withdrawal from a conference member line from withdrawing and operating

independent service in the trade served by the Oonference at any time

Failure of line to comply with notice requirement in approved conference

agreement with respect to withdrawal is breach of agreement

Burton H White and Elliott B Nixon for North Atlantic French

AtlanticFreight Conference

Howard A Levy for American Export Isbrandtsen Lines

Donald J Bmnner and Ronald D Lee Hearing Counsel

REPORT

By THE COMMISSION Helen Delich Bentley Ohairman Tames F

Fanseen Vice Ohairman Ashton C Barrett James V Day

oommi8sioners

On l1arch 12 1970 we instituted this proceeding to determine

whether American ExportIsbrandtsen Lines AEIL could under any

circumstances effectively withdraw from the North Atlantic French

Atlantic Freight Conference Conference The proceeding was

limited to affidavits of fact and memoranda of law Memoranda have

been filedby theConference and hearingcounsel and the Conference in

addition has filed an affidavit AEIL has filed papers which pursuant

to its request have been treated as its memorandum of law 1 We have

heard oral argument

1

AEIL flIed several alternative motions and requests for relief On April 22 1970 the

Commission denied AEILs

request for evidentiary hearing its motion to discontinue

the proceeding and its motion for enlargement of time to submit affidavits of fact and

memoranda of law but granted Its motion to treat its reply to the Conference s petition

for declaratory order as its memorandum of law and its request for oral argument

46
NORTH ATLANTIC FRENCH ATLANTIC FREIGHT CONFERENCE 47

The following are the undisputed facts with respect to the with

drawal ofAEIL from the Conference

Article IIof the Conference agreement agreement No 7770 pro

vides in relevant part

Any Member may withdraw penalty from the Conference effective not less

than 90 days after giving written notice to the Conference office which shall

promptly advise the other Members provided however that the retention of

security for the payment of outstanding obligations hereunder shall not be

considered as a penalty Notice of withdrawal of any party shall be furnished

promptly to theFederal Maritime Commission

On December 8 1969 AEIL advised the Conference that it would

resign from membership therein effective January 20 1970

On the foHowing day the Conference chairman advised AEIL that

the resignation could not be effective on such date since he interpreted

the above quoted provision of the Conference agreement as requiring

not less than 90 days written notice prior to the effective date of termi

nation of Conference membership

On or about December 19 1969 AEIL filed with the Commission

its tariff No 1 F 1C 106 effective January 20 1970 which provided

independent rates for transportation in the trade covered by the Con

ference agreement

By telex of January 16 1970 and letter of January 19 1970 the

Conference protested AEIL s

independent tariff and requested that

it be rejected

By telegram of January 19 1970 confirmed by letter ofJanuary 20

1970 the Commission s staff denied the request for rejection but pre

served the right of the Conference to pursue any remedies it believes

available

On January 23 1970 the Conference filed a petition for a declaratory

order stating thatthe manner in whichAEIL had withdrawn from the

Conference was unauthorized by the Conference agreement and was

then ineffectual On February 5 1970 AEIL replied maintaining that

its manner of withdrawal was authorized by the Conference agree

ment and that it was presently free to operate as a nonconference car

rier pursuant to an independent tariff

DISCUSSION AND CONCLUSIONS

The issue for resolution is simply whether under the provisions of

section 15 of the Shipping Act 1916 and the Commission s general

order 9 relating to withdrawal from a conference the North Atlantic

French Atlantic Freight Conference may lawfully prevent American

ExportIsbrandtsen Lines from withdrawing from the Conference and

14 F M C
48 FEDERAL MARITIME COMMISSION

operating an independent service in the trade served by the Confer

ence until the passage of 90 days from the date of notice of intention

to resign 2

The Conference asserts that since the withdrawal provision of its

tgreement is substantially an incorporation of the language contained

in section 15 ofthe Shipping Act and our general order 9 resdlution

of the issue presented here turns upon ascertaining the intent of the

Congress in enacting the withdrawal provisions in section 15 and the

intent of the Conunission in promulgatingits general order 9 to imple

ment them In requiring conferences to allow their members to with

draw from membership upon reasonable notice without the payment

of a penalty neither the Congress nor the Commission the Conference

contends meant to imply that a penalty could be imposed for with

drawal upon less than reasonable notice The Conference further argues

that the Commission s own decision in the docket promulgating gen

eral order 9 indicates that penalties were never to be assessed for

withdrawal from a conference The requirement of reasonable notice

for withdrawal was intended to bar withdrawal on less than such

notice and a failure to give such notice may not be excused by the

payment of money Withdrawal on less than reasonable notice could

the Conference hints endanger the rights of signatories to dual rate

contracts which are guaranteed 90 days notice of certain changes in

such contracts Althoughthe Conference disclaims the ability to assess

penalties with respect to AEIL s withdrawal it does assert that since

the withdrawal was ineffective it can claim damages from AEIL

under the self policing provisions ofthe agreement for AEIL s action

in filing a separate tariff whilestill a Conference member

AEIL on the otherhand contends that the legiSlativehistory ofthe

withdrawal provision of section 15 and the concurrent study of the

ocean freight industry by the Antitrust Subcommittee of the Com

mittee on the Judiciary clearly show Congress intended to preserve

nonconference competition and the open door policy of conference

admission Essential to both of these goals is the freedom of the ship

owner to decide without economic orlegal coercion whetherto operate

within or without the Conference system and the right to change

such decision To construe the withdrawal provisions of section 15

and general order 9 to require notice of withdrawal as a condition to

its effectiveness would AEIL maintains be contrary to congressional

intent AEIL does not contest the right of the Conference to impose

a penalty for its failure to give 90 days notice ofwithdrawal

2

Section 15 Shipping Act 1916 provides that any member may withdraw from

Conference membership upon reasonable notice without penalty for such with

drawal and general order 9 46 CFR 523 2 f specifies that any party may

withdraw from the Conference without penalty by giving at least 30 days written notice

of intention to withdraw from the Conference

14 F M C
would render a nullity the phrase without penalty for s

drawal in the provision of section 15 providing that any 

may withdraw from Conference membership upon reasona

without penalty for such withdrawal This phrase they a

only be made meaningful by assuming that withdrawal on 

specified notice is possible

We would agree with the Conference insofar as it cont

the resolution of the issue before as turns solely upon the pro

pretation of the provision of section 15 of the Shipping A

relating to withdrawal from a conference and the languag

menting this provision in the Commission sgeneral order 

imposes upon Conferences the obligation to include in their ag

language substantially the same as that set forth therein 

CFR sec 523 2 Thus nothing is to be gained from exam

terminology and syntax of the Conference swithdrawal pro

see how it might differ from that contained in section 15 an

order 9 We think it unnecessary however to dwell at a

length on congressional intent since we find the language 

tion quite free from ambiguity

Section 15 and general order 9 impose two obligations O

hand the conferences are obliged to allow their members to 

from conference membership without penalty when the w

ing member gives reasonable notice while on the other 

drawing member if it desires to avoid penalty is obliged to 

Conference the required notice of its intention to withdraw 

guage clearly presents an eitheror proposition either the w

ing line gives reasonable notice or he becomes subject to a pe

Conference sconclusion that under no circumstances may a w

be effective until the expiration of the notice period complet

out of the statute and the general order the words without 

If a line could not effectively withdraw from a conference 

expiration of the notice period it would be impossible for it 

14 FMC
withdrawal on less than such notice The power to withdraw was nec

sary to preserve nonconference competition since former conferen

members as well as new carriers and presently operating independen

were viewed as necessary sources of nonconference competition T

power to withdraw moreover was characterized not simply as a pow

but as a right There is no indication that this right was in a

way to be lessened

An agreement subject to the Shipping Act 1916 is not simply 

private contract between private parties the intent of the parties 

only one relevant factor and the Board not only can but must weig

such considerations as the effect of the interpretation on commer

and the public Moreover the agreement exists legally only becau

approved by the Federal Maritime Board

We can only conclude that absent the expression by the Congre

of an intention to allow parties to conferences to bargain away the

historic right to operate in any lawful fashion which they feel to 

in their best interests the legislature in enacting the withdrawal pr

vision of section 15 preserved the right of members to resign fro

shipping conferences at will

To the extent the somewhat sparse legislative history of the notic

requirement itself reveals the congressional purpose behind the wit

drawal provision such Legislative history supports this interpretatio

Hearings on HR 6775 before Merchant Marine and fisheries Subcommittee of Sena

Committee on Commerce 87th Cong let sees 597598 1981 107 Congressional Reco

19360 19366 1961 See also In this regard testimony before the Senate Committee 

Commerce during the hearings on HR 6775 indicating that the provisions requirin

conferences to admit or readmit carriers in the trade on reasonable and equal term

and conditions or to provide that any member may withdraw from membership witho

penalty on reasonable notice were considered absolutely essential for otherwise a tig

and objectionable monopoly and the setup as to carriers especially conference carriers 

a given trade would be frozen and could even result to insufficient service should a

substantial increase In commerce develop Hearings on HR 6775 before the Mercha

Marine and Fisheries Subcommittee of the Senate Committee on Commerce 87th Con

rat secs p 585 1961

Slogt Company v Federal Maritime Commission 306 F 2d 277 281 DC Cir 196

See also In Re Pacific Coast European Conference 7 FMC 27 37 1961

s Nothing we say here should be construed as in any way negating or casting doubt upo

the obligations of a member line fully to perform strictly In accordance with the Co

ference agreement so long as it remains a member of a conference

14 FIC
NORTH ATLANTIC FRENCH ATLANTIC FREIGHT CONFERENCE 51

The withdrawal language first appeared in draft revision No 2 of

H R 4299 published April 13 1961 At that time it read any

member may withdraw from membership without penalty upon reason

able notice If the bill as then worded had been enacted into law it

yould have been extremely difficult to read it as preventing the with

drawal of a conference member until the expiration of a

specified no

tice period since to so construe it would appear to render the words

without penalty mere surplusage If withdrawal were only per

mitted upon reasonable notice why werethe words without penalty

put into the provision The logical implication albeit a

negative one

from the statutory language as it then read was that if one could with

draw without penalty upon reasonable notice one could withdraw with

penalty absent reasonable notice

On August 8 1961 the Senate subcommittee print of H R 6775 as

the bill embodyingthis provision which passed the House wasdenom

inated contained the following language identical to the present

provision of section 15 any member may withdraw from mem

bership upon reasonable notice without penalty for such withdrawal

The addition ofthe words for such withdrawal although the reason

nowhere clearly appears in the legislative history of the withdrawal

provision can only be explained as intended to relate back to with

drawal upon reasonable notice and hence the conclusion is inescapable

that a penalty wasto be permissible for withdrawal on other than rea

sonable notice Virtually the sole concern ofthose deliberating on the

withdrawal provision appears to have been the protection of the abso

lute right ofwithdrawal When the notice requirement wasmentioned

at all it wasalluded to in a fashion which indicates it was intended to

establish a

right on the part of the conference membership to be

informed but was not intended to detract in any way from a line s

absolute right to withdraw Thus for example during the Senate

debate on the withdrawal provision Senator Engle of California the

Senate sponsor of H R 6775 in response to indications by the Justice

Department of the necessity of allowing unfettered withdra val from

conferences stated

The common carrier can get out of it All it need do is to serve notice within

the framework of the bill They can get out of it if they want to A common

carrier can get out it it wants to do so 107 Congressional Record 18157

Sept 13 1961

The reference to the service of notice within the framework of the

hill as sufficient to get a carrier out of a conference is inconsistent

with the Conference s contention that withdrawal cannot be effective

until the end of the notice period but is completely in accord with

14 F M C
52 FEDERAL MARITIME COMMISSION

the position that withdrawal may be made whenever a carrier wishes

to withdraw subject to penalties for withdrawal on less than reasonable

notice The service of notice accomplishes the withdrawal but the

framework of the hill allows for a conference to impose penalties

if the withdrawal has been made on less than reasonable notice

In our general order 9 we gave content to the abstract statutory

requirement of reasonable notice by specifying at least 30 days

as the notice period and providing that any party may withdraw

from the Conference without penalty by givingat least 30 days written

notice of intention to withdraw from the Conference The

Conference s contention that this provision of general order 9 was

intended to forbid the assessment of any penalty for withdrawal has

the same defect as the contention that po penalties were to be assessed

underthe geneIal withdrawal authority set forth in section 15 itreads

the language without penalty out of the provision

There is no necessary relationship as the Oonference appears to sug

gest between the 90 day notice provision for withdrawal in its agree

ment and the 90 day notice which is required under section 14b of the

Shipping Act and the Commission s general order 19 for certain

changes in rates and charges subject to dual rate contracts To the

extent that rights ofshippers under dual rate contracts could be af

fected by a carrier s withdrawal from a conference they are protected

by thespecific requirements ofthe provisions of section 14b and general

order 19 The Conference in fact itself acknowledged in our docket

981 the proceeding which formulated general order 9 that there is no

necessary correlation between the notice provisions for withdrawal

from a conference and changes under dual rate contracts

The Conference s suggestion that any conclusion which leaves lines

free to withdraw from a conference on less than reasonable notice

upon payment of a penalty amounts to excusing the failure to perform

a contractual duty by the payment of money is without merit since

it rests upon an incorrect assumption Itassumes th3t there has been

a failure on the part ofAEIL to perform in accordance with the terms

ofthe conference agreement i e that AEIL had a duty to remain in

the Conference or at least not to operate an independent service for

90 days following its notice of intention to withdraw 6

Rather the

6Montana Dakota Utilities 00 v Federal Power 00mmi8sion 169 F 2d 392 8th Clr

1948 Shain v Washington National In8urance 00 308 F 2d 611 8th Clr 1962 and

All States Service Station v Standard Oil 00 120 F 2d 714 DC Clr 1941 which the

Conference cites for the position that withdrawal cannot be effective until the expiration

of a notice period are all inapposite Montana Dakota involved the attempted withdrawal

of a tariff filed with the Federal Power Commission In a manner not authorized by the

Commission s

regulations It did not strictly speaking Involve the question of a notice

period at all To the extent the case is relevant it is distinguishable from the instant

14 F M C
NORTH ATLANTIC FRENCH ATLANTIC FREIGHT CONFERENCE 53

duty of the withdrawing line is to give notice under section 15 and

general order 9 and if the line fails to give reasonable notice here

90 days as stated in the Conference s approved agreement the line

has breached its agreement and is hable to apenalty 7

The question of whether or not a penalty should be imposed for

AEIL s breach of the Conference agreement is outside the scope ofthe

present proceeding One consequence however does flow from our

determination thatAEIL wasauthorized by the statute regulation and

Conference agreement to withdraw at any time once it had withdrawn

from the Conference ie as of January 20 1970 it was free to operate

as an independent carrier and nothing in connection with its opera

tions from that date may be considered in setting a penalty for breach

ofthe withdrawal provision in the Conference agreement Important

considerations in assessing a

penalty would appear to include inter

alia the amount of notice actually given and any fLdjustments that

wererequired withinthe Conference as a result ofthe withdrawal We

also note in passing that the assessment of penalties for breach under

the Conference s position could result in the kind of actions which

we feel Congress could not have intended If all of the activities of

AEIL prior to the expiration ofthe 90 day period constituted breaches

ofthe agreement as appears logically to follow from the Conference s

position the Conference could treat each shipment made under an

individual bill of lading as a

separate breach The penalties flowing

from such approach could be so astronomical as to be confiscatory and

result in driving a carrier from the trade to the detriment of our

commerce and contrary to the public interest Although in fairness to

the Conference we readily acknowledge that there is no indication that

such course would even had the Conference prevailed have been fol

lowed here S

the possibility of such approach under the Conference s

position lends added support to our conclusion that it oannot be the

one to have been intended by Congress An appropriate order will be

entered declaring that AEIL was lawfully without the Conference

proceeding since here as we have seen the manner of withdrawal was fully authorized

by section 15 and general order 9 The language of the contracts involved in the latter

two cases unlike the withdrawal provision here under consideration clearly indicated

that the contracts were to remain in effect until the expiration of the notice period there

was no problem of interpreting words like without penalty These two cases moreover

dealt with private contractual arrangements under which the parties were free to bind

themselves to the expiration of certain notice periods as a condition to the termination

of their agreements Here however the language and legislative history of the withdrawal

provisions of the statute controlling the parties conduct show that conference members

are not free to enter into such arrangements

7

Although free to do so no party challenged the reasonableness of the 90 day notice

period

S Counsel forthe Conference in fact indicated in oral argument that it isn t

a

ghastly

case as far as penalties are concerned

14 F M C
54 FEDERAL MARITIME COMMISSION

as of January 20 1970 and that its failure to give 90 days notice 

its withdrawal constituted a breach of the Conference agreement

oommissioner GEORGE H HEARN concurri g

and dissenting

The majority states the issue to be whether a conference may law

fully prevent a member line from witJhdrawing from the conference an

operating as an independent in the trade served by the conferenc

Ithink this statement of the issue although consistent with our ord

initiating this proceeding misses the point We are not dealing he

with principles ofordinary contract law Itis not argued that a co

ference can compel the specific performance of a member line Som

principles of contract law may apply but agreements entered 

pursuant to section 15 are in the nature of public not private co

tracts In re Pacific Ooast European Oonference 7 FMC 27 1961

The primary issue is not what remedy a conference has against 

member line which contravenes the agreement s withdrawal notic

provision Rather we must decide what authority theFederal Maritim

Commission may and should exercise in such a situation to preserv

the public service the conference agreement wasapproved to insure

The resolution ofthis question depends upon the interpretation to 

giventhe provision in section 15 ofthe 1916 act relating to withdraw

from conference membership The majority r

eport reads the statuto

language as an either orproposition permitting withdrawal on re

sonable notice without penalty or imposition of a penalty ifwithdraw

is not on reasonable notice This assumes that a conference may impos

a penalty for withdrawal under certain circumstances Ido not agre

As Iread section 15 and the Commission s general order 9 a penal

may notbe imposed for withdrawal

The majority argument is that if a member line cannot withdra

from a oonference untilthe expiration of the reasonable notice perio

the line oannot commit a breach of the notice provision and can nev

be liable for a penalty This reasoning is supported by and logical

follows from the majority s assumption that penalties for withdraw

are not completely forbidden However that assumption presuppose

that the impossibility of withdrawing on less than the notice perio

is itself impossible because otherwise there could be no penalty fo

withdrawal This is merely a combination of circular reasoning an

bootstrap argumentation

The illogic ofthe majority s argument can be solved and sense mad

of the matter by use of the alternative assumption that no penal

may be assessed merely for withdrawal First however it must b

recognized that in many instances if a

person can and is determine

14 F M C
NORTH ATLANTIC FRENCH ATLANTIC FREIGHT CONFERENCE 55

to violate the law or commit a civil wrong regardless of the penalty

such action often cannot be prevented Such is the situation here If a

conference member wants to withdraw it can do so Perhaps there

may be a way to compel its continued technical membership until

the specified time to which it contractually agreed However a carrier

cannot be compelled under the legal principles here involved to pro

vide service in the particular trade until such time or at all

Thus as a practical matter it is true as the majority concludes that

a conference cannot prevent a member from withdrawing And it is

conced d Ithink that if a member is in vi olation of the conference

agreement when he withdraws on a lesser period of notice than

provided in the agreement the conference then may seek redress

against the withdrawing member No penalty is necessary to compen

sate the conference The conference may have an action at law for

breach ofcontract Also there m

ay be a

remedy under the conference s

self policing system if for example the withdrawing member fails

to provide service within the scope ofthe conference trade

The remaining question is whether the withdrawing member line

may offer an independent service in the trade served by the conference

prior to the expiration of the conference s notice period Iconclude

thatthe line may not legally do so The line for this purpose remains

a member of the conference until its notice period expires and the

Commission was in err o in not rejecting AEIL sindependent tariff

If a penalty is not necessary to make the conference whole it could

be for the purpose only to act as a deterrent to prevent conference

members from withdrawing on less notice than agreed to contractually

Recognizing that a conference agreement is impressed with the public

interest In re Pacific Ooast European Oonference 7 FMC 27 37

1961 it would have to be concluded that a withdrawal penalty

was established to preserve the public interest in the maintenance of

stabilized conference service and that Congress saw something wrong

in withdrawal on less than reasonable notice

The majority seems to argue however that in these circumstances

the right ofcarriers to operate independently outweighs the need for

stability of rates and service I

think it a more sound contention that

we must balance those tWo interests Swift Oompany v FMO 306

F 2d 277 D C Cir 1962 Surely the majority view is a little narrow

when it sees the notice provision in section 15 as establishing no more

than a

right on the part of the conference membership to be in

formed Ifthat were so there would have been no need for Congress

to have included the requirement of reasonable notice in the statute

14 F M C
56 FEDERAL MARITIME COMMISSION

The legislative history cannot be read so as to impute to Congress

the inclusion of the words reasonable notice without purpose The

majority contends that the conference sinterpretation of section 15

reads the language without penalty out of the statute The same

analysis applies if the provision lor reasonable notice may be avoided

with impunity on payment ofa penalty

What is clear about the legislative history is that itis not persuasive

for either position Consequently we should read the statutory lan

guage in such manner as to impute to Congress the intention ofhaving

given meaning to all the words and so as to further the aims of the

1916 act as a whole As Ihave said we must balance the right of an

need for independent service which Ithink is very important and

necessary on the one hand and on the other the right of conferences

to prevent actions destructive of their system and the need for stable

conference service Mediterranean Pools Investigation 9 FMC 264

288 290 1966 Rate Agreement United States Persian Gulf Trade

8 FMC 712 723 724 1965 Agreement 8765 Gulf Mediterranean

Trade 7 FMC 495 499 1964 The withdrawal provision of section 15

c n be read to give effect to this policy by interpreting it to establish

two elements regarding withdrawal One is that a member line must

give the conference reasonable notice before the line may operate

independently Thus there must beat least 30 days notice general

order 9 46 CFR 523 2 f ora longer period may be freely agreed to

by the contracting parties if approved by the Commission Second

is that there may not be a penalty for withdrawal whether tendered

before or after the expiration of the agreed to notice period The

conference may seek redress under available means such as its self

policingsystem

Consequently Iconclude that the operations of American Export

Isbrandtsen Lines as an independent prior to the expiration of the

90 day withdrawal notice period in agreement No 7770 is a breach of

that agreement and in violat10n of the ShippingAct 1916 and Ameri

can Export Isbrandtsen Lines breached that agreement by failing to

giv 90 days notice and in any other way it may not have performed

its conference obligations before the expiration of the 90 days

SEAL JOSEPH C POLKING

Assistant to theSecretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 70 13

NORTH ATLANTIC FRENCH ATLANTIC FREIGHT CONFERENCE

PETITION FOR DECLARATORY ORDER

ORDER

Full consideration having been given to the matters involved in this

proceeding and the Commission on thisday having made and entered

of record a Report stating its findings conclusion and decision

thereon which Report is hereby referred to and made a part hereof

Therefore itis ordered and declared That

1 The operations of American Export Isbrandtsen Lines on and

after January 20 1970 did not constitute a breach of approved agree

ment No 7770 of the North Atlantic French Atlantic Freight Con

ference from which American Export Isbrandtsen Lines had effec

tively withdrawn as ofthat date and

2 The failure ofAmerican Export Isbrandtsen Lines to give 90

days notice prior to the effective date of its withdrawal constituted

a breach ofarticle IIofagreement No 7770

By the Commission

SEAL JOSEPH C POLKING

Assistant to theSec J etary

57

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 68 10

TNfER AMERICAN FREIGHT CONFERENCECARGO POOLING AGREEMENTS

Nos 9682 9683 AND 9684

Decidecl Attgttst 20 1970

Where two signatories withdraw from pooling agreements pending prior to Com

mission approval tinder section 15 Commission jurisdiction terminates since

section 15 grants jurisdiction only over agreements between persons subject

to the Shipping Act 1916

llarvin J Ooles and Neal M Mayer for Companhia De Navegacao

Loide Brasileiro John Robert Ewers and J1 a L E oers for Moore

McCormack Lines Inc Renato O Giallorenzi for Conipanhia De

Navegacao Maritima Netumar EVrner O Maddy and Balduin

Einarson for Norton Line and Ivaran Lines Thomas K Roche for

Columbus Line Inc Brodin Line and Holland Pan American Line

A S Seymour H Kliger for Empresa Lineas Maritimas Argentinas

ELM A respondents

Stephen J Gross for U S Department ofTransportation and John

R Vaughan for National Coffee Association and Green Coffee Asso

ciation ofNew York interveners

Richard W McOlaren Roland W Donnem Joseph J Saunders and

John H Dougherty for the Department ofJustice

Paul J Fitzpatrick and James L jJ alone hearing counsel

REPORT

By THE COMMISSION Helen Delich Bentley Ohai1 l1Ufn Jam F

Fanseen Vice Ohairman Ashton C Barrett Oommissioner

This proceeding is before us upon exceptions to the supplemental

initial decision of Examiner Clarence V Robinson in which he would

approve agreement No 9683 1

1 Agreement No 9682 expired by its own terms prior to the issuance of a decision

b the examiner and in au earlier initial decision the examiner disapproved agreemen t

No 9684 l foorel1cCormack Lines l Iooremack a signator to all three agreements

took exception to the examiner s

refusal to approve No 9684 In view of our decision

here there isno need to disc uss thoseexceptions

58
INTER AMERICAN FREIGHT CONFERENCE 59

Agreement No 9683 is a pooling arrangement between some of the

members of the Inter American Freight Conference IAFC for the

carriage of green coffee from Brazil to Atlantic ports in the United

States The parties to the agreement are grouped by the flag their

vessels fly

Nationa flag ine8

Oompanhia De Navegacao Loide Brasileiro

Loide

Companhia De Navegacao Maritima Neturnar

Netumar

Moore McCormack Lines Inc Mooremack

Nonnationa flag line8

1 PanAmerican flag lines

Empresa Lineas Maritima Argentina

E LM A

Montemar Sociedad Maritime Montemar

2 Other flag line8

JBrodin Line

Colu Inbus Line

The Holland PanAmerican Line Hopal

Ivaran Line

ortonLine

Brazilian flag

Do

American flag

Argentine flag

Uruguayan flag

Swedish flag

West German flag

Netherlands flag

Norwegian flag

Swedish flag

The agreement further calls for a minimum number of sailings to

be made by each line within each 6 month period for the life of the

agreement Under the agreement each line is given percentage quotas

ofcoffee which it may carry without penalty Again the allocation is

by flag grouping Thus under the first year ofthe proposed 10 year

life of the agreement the national flag lines Loide Netumar and

Mooremack would divide 65 percent ofthe coffee carryings the non

national lines would divide the remaining 35 percent with the Pan

American flag lines ELMA and iontemar taking 9 percent and

the ather flag lines taking the remaining 6 percent 2

These percent

ages are adjusted each year under the agreement until in the 10th and

final year the national flag lines would divide up 80 percent leaving

20 percent to the other or third flag lines Other provisions of the

agreement restrict membership in the pool to members of the Inter

American Freight Conference allow further tonnage sailing and

further rationalization among lines in a given grouping provide for

2 Of the 65 percent allocated to the national flag lines Loide and Netumar would take

32 5 percent and Mooremack would take 32 5 percent The Pan American Bag lines would

split 9 percent and the third flag lines would variously divide the remaining 26 percent

ranging from 6 1 percent for Brodin Columbus varan and Norton to 16 percent for

Hopal

14 F MC
60 FEDERAL MARI l

IME COMMISSION

membership pledges adherence to tariff locations ofpool headquarters

and other provisions more or less standard to agreements ofthis type 3

Subsequent to the issuance of the supplemental initial decision two

of the signatories to Nos 9683 and 9684 Loide and Netumar with

drew from those agreements Thus we have presented the threshold is

sue of whether there remains before us that kind of agreement over

which we may exercise jurisdiction This jurisdiction must come from

section 15 of the Shipping Act 1916 the act which provides in

relevantpart

I

every camman carrier by water ar other persan subject to this Act shall

file immediately with the Cammission a true copy or if aral a true and com

plete memorandum of every agreement with another such carrier or other per

son subject to this Act I The term agreement in this sectian includes

understandings canferences and ather arrangements

Ina situation analogous to the one here Hong Kong Ton1ULge Oeiling

Agreement 10 F11C 134 1966 a party to the originalagreement

pending our approval telegraphed the Commission that even though it

had voted for the agreement it was now opposed to its approval The

agreement in question wasactually a modification to a basic conference

agreement which required a unaninlous vote of all parties to modify or

amend it The repudiation by one of the parties of the proposed

amendment obviously destroyed the required unanimity and we were

faced with the question ofwhetherthere remained any agreement over

which we could exercise jurisdiction We concluded that in order for

jurisdiction to exist under section 15 there must be

I I

an actual viable agreement to which all of the paIties have given and con

tinue to give their cansent until appraval is had

When a group of carriers files a new agreementwiththeCommission it is funda

mental that each member af this group must give its individual assent to the

document purporting to represent the agreement af the parties Ifat any time

prior to approval by the Commission ane of the parties to theagreement changes

its mind and withdraws from the agreement the document previously filed be

carnes at that moment obsolete It no longer constitutes a fair and accurate

descriptian af the agreement between the parties

Ithas been suggested here that the Hong ong case is distinguishable

because we have before us now a new agreement not a modification

to an already approved agreement which requires unanimity for its

approval According to this view the real ratonale of our decision in

the Ilong Kong case was that we could not force a carrier to partici

pate in an agreement to which that carrier did not voluntarily adhere

8

Agreement No 9684 an arrangement for the pooling of cocoa carryings in the trade

from Brazil to United States Atlantic ports is basically the same as No 9683

14 F M C
INTER AMERICAN FREIGHT CONFERENCE 61

and that to condition our jurisdiction on the continued adherence of

all parties to the terms of a proposed new agreement is to deny our

power to nlodify agreements which power is specifically spelled out

in section 15

This argument misconceives the nature of our duties and responsi

bilities when approving agreements under section 15 For as the court

said in Isb1 andtsen 00 v United States 211 F 2d 51 D C Cir

1954 cert denied sub nom Japan Atlantic Gulf Oonference v

UnitedStates 347 U S 990 1954

r he Shipping Act specifically provides machinery for legalizing that which

would otherwise be illegal under antitrust laws The condition upon which such

authority is granted is that the agency entrusted with the duty to protect the

public interest scrutinize the agreement to make sure the conduct thus legal

ized does not invade the prohibitions of the antitrust laws any more than is

necessary to serve the purposes of the regulatory statute

And in scrutinizing theagreement to make sure that the conduct legal

ized by our approval does not invade the prohibitions of the anti

trust laws any more than is necessary to serve the purposes of the

Shipping Act our function is to insure that

l I restraints which interfere with the policies of the antitrust laws will be

approved only if those seeking to impose the restraints can bring forth such

facts as would demonstrate that the restraint was required by a serious trans

portation need necessary to secure important public benefits or in the further

ance of some valid regulator purpose of the Shipping Act FMO v Svenska

Arnerika Linien 390 U S 238 243 1968

Virtually every agreement filed for approval under section 15 alters

the competitive relationships and whether our decision is to approve

disapprove cancel or modify the agreement that decision is neces

sarily reached in the light of the new set of relationships created by

the agreement Thus when prior to our approval of an agreement one

of the parties thereto repudiates orwithdraws fronl the agreement a

completely new set of relationships arises and normally a new begin

ning is required Should the remaining parties to the agreement desire

approval even without the withdrawing party it is incumbent upon

them to reformulate the terms of the agreement so that it may be

tested underthe criteria of section 15

Here we are concerned with the approval of agreements for the

pooling of certain cargoes carried from ports in Brazil to ports on the

Atlantic Coast ofthe United States The agreements include virtually

all common carriers active in that trade and purport to allocate cer

tain percentages to each of those carriers It seems unnecessary to

point out that the withdrawal of even one party to the agreement

presents a whole new picture and requires that the remaining partiec

14 F M C
62 FEDERAL MARITIME COMMISSION

present the Commission with the new agreement representing the

readjustments made necessary by the change in relationships The pres

ent agreements stand repudiated in one form or another by all the

parties thereto except one

4

Thus we do not have even a semblance of

an agreement before us and failing this we simply have no jurisdic

tion under section 15

This is in no way inconsistent with our power to modify agreements

under section 15 The power to modify is not the power to compel

acceptance of the modification When a new agreement filed for ap

proval comports with the requirements of section 15 save in one or

even a number of its provisions we are empowered to modify the

objectionable provisions and condition our approval of the agreement

upon the acceptance of those modifications Thus while the parties

to the agreement should they desire to act in concert must accept the

conditions imposed upon their concerted action by the modifications

they are always free to reject the modifications and continue their

operations as before Itshould be clear that this proceeding presents

us with nothing upon which we could exercise the power to modify

simply because we have no agreement remaining before us

At this point we could simply discontinue this proceeding for lack

of jurisdiction but we have been urged to do more There is we are

told a need for guidelines in order that future agreements of this

kind may avoid the pitfalls encountered by those in this case We are

quite naturally reluctant to make pronouncements in the abstract and

Vould prefer to await specific cases Ho vever because we are acutely

aware of the problems encountered in this proceeding and because

we are equally aware that those problems are not unique to this case

we will attempt to draw together our past decisions and formulate

those principles which must perforce guide our deliberations in cases

like the one here Ve would offer a preliminary caveat however

Guidelines are nothing more than broad canals within which future

action may be channeled with some reasonable assurance of its valid

ity As such guidelines do not decide specific cases Time circum

stance and the facts ofthe individual case can and probably willalter

the guidelines to some greater or lesser extent Ve offer this fact

of administrative life only because our past experience has been that

all too frequently broad and necessarily flexible policy statements

have been played back as narrow and ironclad precedents which are

said to dictate a particular conclusion in a givencase

In order to place the problems presented by the agreements here in

4

As noted above Loide and Netumar have withdrawn all other parties except l ore

mack have excepted to the approval of the agreements

14 F M C
INTER AMERICAN FREIGHT CONFERENCE 63

issue in their proper perspective it is necessary to deal at some length

with the background and circumstances leading to their fOI1nulation

The background statement which follows is essentially that of the

examiner as it appeared in his initial decision of June 24 1969

For some time now the Government of Brazil has by the issuance

of decrees bulletins and resolutions made it clear that itintends to

strengthen its merchant marine and develop its commerce

Brazil s efforts began ith SUl 10C181 of April 22 1959 which

required imports with subsidies to be carried on Brazilian flag ves

sels SUMOC 181 was followed on November 12 1959 by Decree No

47 225 which ordered the movement on Brazilian flag vessels of im

ports benefiting from certaIn governmental faVOls Then on Octo

ber 13 1960 SUMOC 202 limited shipments to lines associated with

Brazilian flag lines under approved agreements Bulletin No 401

of the Brazilian l1aritime Commission CMl1 effective August 28

1964 decreed that up to 40 percent of coffee to the United States

must be carried by Brazilian flag vessels Decree No 60 739 effective

May 24 1967 set up a

reciprocity system whereby under certain cir

cumstances cargo to be carried on Brazilian flag vessels could be

carried by vessels ofthe other nation involved third flag vessels those

flying the flags of neither the Importing nor exporting countries

could carry the cargo if vessels ofneither of the national flag carriers

were available CMl1 Resolution 2995 effective June 5 1967 provided

that the vessels of the exporting and importing countries should

predominate in the handling of cargo this mandate was to be im

plemented after a meeting of vessel owners Effective July 13 1967

Decree 60 994 permitted conference or other agreements only if

Brazilian flag lines were parties thereto Resolution 3022 ofAugust 1

1967 limited exports to the United States and Canada to Inember1ines

of IAFC Conference and pooling guidelines set forth in CMl tI Reso

lution 3131 of November 10 1967 put a ceiling of 35 percent on the

amount of cargo which could be carried by third flag lines

As of June 1967 agreement No 5450 the basic agreement of the

BrazilUnited States Canada Freight Conference was in effect The

Conference embraced the transportation of all cargo exeept passen

gers baggage and refrigerated cargo from Vitoria and ports south

thereof in Brazil to United States Atlantic and Gulf ports and ports

in Eastern Canada All the parties to the present pooling agreements

except Netumar were members of that conference Netumar was not

operating as a common carrier in that trade at the time

6

sUMaC Is a

grouping of letters denoting SuperIntendency of Currency and Credit

an agency of the Brazilian Government

14 F M C
64 FEDERAL MARITIME COMMISSION

In an effort to implement CM 1 Resolution 2995 as provided

thereby Loide entirely owned by the Brazilian Government and act

ing on behalf of CNITh1 called a meeting of the conference principals

for June 26 1967 in Rio de Janeiro to discuss a

pooling agreement

for the carriage of coffee The meetIng lasted until the 30th Loide at

first took the position thatthe provision of No 2995 which stated that

shipowners who are nationals or the countries exporting and import

ing the goods must predominate italic supplied meant that those

owners must be allotted DO percent of the available traffic Eventually

Loide reduced the figure to 80 percent but as the 9 nonnationallines

felt this was wholly unrealistic in view of their past carryings no

agreement was reached The meeting culminated in the resignation

rrom the Conference of the Brazilian lines followed shortly by the

resignations of the other lines except Brodin Columbus Ivaran

Norton Hopal and North Pan American Lines A S Nopal the

latter six being European lines

Invitations later were extended by Loide to all of the conference

lines resignations had not yet become effective to meet in its office

and continue negotiations On July 5 1967 Loide Netumar ELMA

Argentine flag Th10ntemar Uruguayan flag Mooremack and Delta

Steamship Lines Inc an American Gulfline signed amemorandum

of intent to form a new conference to be known as IAFC A formal

agreement and a pooling guidelines agreement were executed on

July 28 and filed on July 31 ror the approval or this Commission

given numbers 9648 and 9649 respectively 6

The European lines

were not members of the new conference and since Resolution 3022

effective August 10 1967 excluded from the trade any earriers not

members of IAFC the European lines henceforth could not lift cargo

northbound

During the summer of 1967 the members of IAFC discussed the

matter of coffee and cocoa pools and on August 16 the lines serving

the Atlantic ports of the United States signed a coff e agreement and

a cocoa agreement and submitted them to this Commission for ap

proval Nos 9649 A and 9649 C respectively 7

The European lines

thereupon filed acomplaint with the Commission against the parties

to those agreements docket No 674 and also instituted actions

against the parties in the U S District Court for theSouthern District

of New York for violation of the antitrust laws The Commission

itself instituted an investigation into the matter docket No 6748

o See footnote 8

7

See footnote 8

14 1I M C
INTER AMERICAN FREIGHT CONFERENCE 65

In late September 1967 the European lines approached the CMM

in an effort to have the entire problem reconsidered On Ootober 23 a

meeting of the principals was called for the purpose of getting the

lines to agree to a coffee pool It was generally understood that the

CM lwould not permit a line to join IAFC unless it participated in

apool Furthermore the lines were informed that only the Brazilian

lines would handle the negotiations with the European lines and that

if agreement was reached and then approved by the CM 1 the other

lines would be urged to adopt the results nine agreements of various

kinds weresigned onOctober 28

One of the agreements was a proposal by Loide and Netumar

acting on behalf of the C f1 and in accordance with otherapplicable

Brazilian decrees and was accepted by the European lines As far

as here pertinent the main provisions of that agreement were 1

the European lines would join IAFC 2 the coffee and cocoa traffic

was allotted in percentages for 6 years split among the national flag

lines as one group even though 100remack had not participated

in the negotiations the European lines as a second group and

EL 1A and Montemar as a third group like 1ooremack Monte

mar and E L 1A did not participate in the negotiations and 3

the European lines were to be guaranteed percentages set forth in

the document of the total freight revenues derived from the carriage

of all cargoes excluding bulk cargoes transported from United

States Atlantic ports to Brazil italic supplied A substantially

similar document provided 1 the Brazilian Government would im

mediately remove all restrictions upon the transportation by the

individually named lines of Brazilian export commodities to the

United States of Americn and 2 theEuropean lines would with

draw both the complaint before the Commission docket No 674

and the court antitrust actions The proposals were not submitted to

this Commission for approval although they were approved by the

C 1 1

The loading ban against the European lines on northbound traffic

was lifted and these lines affixed their signatures on November 21 22

to an amended IAFC agreement The document was filed on Novem

bel 22 for the approval of this Commission with the request that it

be substituted for the original filing Substitution wasgranted 8

Hear

ing in docket No 6748 on the IAFC agreement as amended resulted

in its conditional approval on February 16 1968 for a period of 18

months 11 FMC 332

In the meantime as previously noted CMM Resolution 3131 of N0

vember 10 1967 established new guidelines for flag participation in

8

Agreements 9649 9649 A and 9649 C were withdrawn

14 F M C
66 FEDERAL MARITIME COMMISSION

the Brazil import export trades limiting to 35 percent the traffic that

could be handled by nonnational lines to be redueed to 20 percent

within 10 years Some of the Brazilian lines were of the opinion that

the resolution in effect vitiated the agreements of October 28 The res

olution provided that all conferenoes upon the request of the a

thorized Brazilian shipowners will proceed to adapt their agreements

and cargo and freight pools in accordance with the terms ofthe reso

lution Failure to do so within15 days ofthe official publication ofthe

resolution will imply the automatic cancellation ofthe Merchant Ma

rine Commission s ratification ofthese agreements and cargo or freight

pools thus voiding their effect November 29 was the deadline for

Conference action

A meeting of the Conference was held in Loide s offices on N0

vember 20 Other meetings followed but up to November 29 the ex

piration date no progress had been made A stern warning from the

CMM was read to the members on that day exhorting them to come to

terms If at midnight nothing had been accomplished Loide would

retire from these discussions the Brazilian Government taking into

its mvn hands the destiny of regularizing this traffic abolishing if

necessary all Freight Conferences and exercising the most rigorous

control of shipments from Brazilian ports The present pooling

agreements were signed several minutes before midnight on the 29th

and were filed on December 11 1967 for the approval of this Com

mission Mooremack Montemar and E LMA who had not partici

pated in the negotiations leading up to theagreements of October 28

as previously seen were signatories to the two pooling agreements

On the day before the pooling agreements weresigned the question

of southbound compensation incorporated in the October 28 agree

ments was brought up in Loide s office by representatives of the Euro

pean lines and the commercial director of Loide stated that the

commitments would be respected Upon being asked why the subject

matter could not be included in the coffee and cocoa pools he replied

that it was a southbound matter and would have to be handled sepa

rately Within aweek following November 29 there was a discussion

with the commercial director in his office but the parties were advised

to come back inasmuch as the October 28 documents must be adapted to

reflect the new la year period in the pooling agreements Anew docu

ment was prepared and signed at a meeting of the European princi

pals in New York in April 1968 This document containing the

southbound guarantees and the new la year percentages wasdelivered

to Loide s president on April 9 with the request that it be studied

approved and signed by the CMM The matter was again discussed in

14 F M C
INTER AMERICAN FREIGHT CONFERENCE 67

June and later but nothing happened The presidency of Loide hav

ing changed subsequently a meeting was held with the new official on

January 14 1969 and copies of the document were handed to him on

January 17 he having stated that the original could not be found The

original letter was located and the president promised to study the

situation and contact the representatives As of the time of thehearing

January 21 31 no word had been received from Loide and as far

as is known no action has been taken as yet

In a letter dated April 22 1970 counsel for IOide advised the

Commission

We have just been instructed by Loide to inform the Federal Maritime Com

mission that because a majority of the membership of the Inter American

Freight Conference opposes the pools Loide now withdraws its support of both

the coffee and cocoa pooling agreements on the 40 20 percentage basis

This was followed by a letter from counsel for Netumar stating

Please be advised that my client Companhie De Navegacao Maritima Netumar

Netumar hereby withdraws its support of both the coffee and cocoa pooling

agreements which are the subject of the above proceeding

Finally the Brazilian Government in May 1970 issued Resolution

3669 which divides coffee and cocoa shipments northbound for Brazil

to the United States between Brazilian and United States flag vessels

ona 50 50 basis Brazil has advised that it will implement this decree

by granting 40 percent to United States flag vessels 40 percent to

Brazilian flag vessels and 20 percent to third Hag carriers Thus it

would appear that Brazil is unilaterally allocating the carriage ofcof

fee between flags on the percentage basis which would have applied in

the 10th year of the agreements had they been approved

Before dealing with what we conceive to be the basic difficulty pre

sented by this case we think it useful to again alludebriefly to the bed

rock of our authority and responsibility under section 15

Section 15 was enacted at a time when the economics ofthe steam

ship industry seemed inevitably to lead to anticompetitive coopera

tion between carriers and the ultimate cartelization of almost every

trade in the foreign commerce ofthe United States 9

The history ofthe

conference system is far to well known to go into here o

but one point

stands in need of remaking The problems with which section 15

sought to deal were created by private as opposed to governmental

arrangements between the lines themselves A country s efforts to

o

Hearings before the House Committee on lerchant Marine and Fisheries Investigation

of Shipping Oombinations 62d Cong 2d sess 1913

10 See report of AntitrustSubcommittee of House Committee on the Judiciary H Res 56

87th Cong 2d sess 5 17 1962

J4 F M C
68 FEDERAL MARITIME COMMISSION

foster the well being of its merchant fleet did not at that point in his

tory take the form of overt governmental intervention designed to

acquire a givenpercentage ofa country s import and export traffic for

carriage by its own lines This was left to a later and different era

Thus from its inception section 15 presupposed an absence of overt

governmental intervention into the otherwise private and economi

cally motivated arrangements between competing steamship lines

operating in this country s

foreign trade At the time ofthe Shipping

Acfs passage the problems presented by emerging nations and such

concepts as national flag interest and bilateralism were two world

wars and almost half a century away

These problems are now upon us most acutely in our trades with

the Latin American countries These nations for a variety of reasons

find themselves unable to garner for their nationalized and growing

merchant fleets any substantial portion of their own export and import

traffic a situation not unknown to our own merchant marine In re

cent years these countries have taken steps to secure for their mer

chant fleets a predominant share of their export and import traffic

Itis the form which some ofthese efforts have taken that presents the

overriding difficulties presented here

A whole new set of concepts has arisen The language of govern

ment to government dealings in foreign commerce now includes such

terms as emerging nations the national interest factor and bi

lateralism 11 The national interest factor is that concept which

would give to the exporting and importing countries at either end of

the trade route a predominate share of the water borne traffic be

tween the two countries Bilateralism is the shorthand expression

used to denote the result of the application of the national interest

factor Ultimately bilateralism would exclude third flag carriers or

so called cross traders from the trade leaving all the traffic to be

divided between the national flag lines 12

The first pooling agreements posing problems of bilateralism were

at issue in West Ooast Line lw v Grace Line Inc 3 FMB 586 1951

There the Chilean Government through a system of import licensing

sought to garner 50 percent of its ocean trade with the United States

for its national flag carrier Subsequently its aspirations werereduced

to splitting 50 percent of the trade between Chilean and so called

associated vessels in practical effect the only vessels who could be

1

No attempt will be made here to define an emerging nation which seems to present

much the same problem as attempts to define time everybody is sure they know what

itisuntil theare asked to explain

12 The national flag line is the line flying the flag of the country at either end of the

bilateral trade route

14 F M C
INTER AMERICAN FREIGHT CONFERENCE 69

associated werethose flying the U S flag Two agreements were filed

for approval the effect of which was to split non free list cargo

13

about 50 percent of the total traffic between United States and

Chilean flag vessels Complainants third flag lines operating in the

trade sought access to the pools and weredenied They then charged

that the pools together with Chilean Governmental policies were de

signed to achieve a monopoly for the national flag lines and thereby

exclude all other carriers from the trade

The Federal Maritime Board our predecessor approved the agree

ments In doing so the Board expressly found that the Chilean fleet

wascapable of carrying the proposed allocation and that

The evidence shows that the pooling agreements bave been followed by a re

laxation of Chilean import regulations in a manner which is deemed to be satis

factory to Grace the U S fiagcarrier and at the same Urne are notshown to

have resulted in reducing the participation of complainants in the trades nor

are they Shown to have operated in Other respects to the detriment or prejudice

of complaints

A later case Alcoa S S 00 Inc v Oia Anonima Venezolana 7

FMC 345 1962 involved what ultimately took the form of equal

access agreements By a series of decrees the Government of Vene

zuela sought to insure that a greater share of the traffic between the

United States and that country was carried by its national flag line

Cia Anonima Venezolana CAVN Grace Line the dominant U S

flag carrier in the trade sought to counteract these measures by re

questing the issuance ofrules and regulations nnder section 19 1 b

of the Merchant Marine Act of 1920 46 U S C 876 14 These regula

tions were never issued but they were communicated to the Vene

zuelan Government by the State Department

Under Public Resolution 17 73d Congress when loans are madeby

the Export Import Bank to foster the exportation of agricultural or

other commodities provision shall be made that all such commodities

shall be carried exclusively in U S flag vessels unless the Maritime

Administration grants waivers 15 In a statement of policy the Mari

time Administration announced that it would issue such waivers on

up to 50 percent of such cargo to vessels of the recipient nation pro

vided that nation aocorded U S flag vessels parity of treatment

13Chile established a free list of cargoes which were not subject to the licensing

system and thus could be carried by anl one

1Section 19 authorizes the Commission to make rules and regulations which affect

shippIng in the foreIgn trade not in conflict with law in order to adjust ormeet condi

tions unfavorable to shippi ng

in the foreIgn trade whether in any particular trade or

upon any partlcular route or in commerce generally and which arise out of or result

from foreign laws rules or regulations or from competitive methods or practices

employed by owners operators agents r masters of vessels of a foreign country

16 These cargoes are generally known as Government controlled cargoes

14 F M C
70 FEDERAL MARITIME COMMISSION

Under the system of Venezuelan decrees Grace Line was not accorded

parity of treatment Subsequently Grace hecame an associated J

line

which association made it eligible to carry cargoes otherwise reserved

to Venezuelan lines

By way of formalizing the situation Grace and CAVN entered into

a poolingagr ment to cover the freighting operations southbound

from theUnited States to Venezuela The third flag lines in the trade

complained that the agreement would prefer Grace and CAVN oyer

them to the extent that the agreement would be unjustly discrimi

natory as between ports unfair as between carriers and detrimental to

the commerce of the United States

111 approving the agreement ve much like the Board in the West

Ooast Line case supra found that even ifthe third flag lines predic

tions about the percentage of the total trade to be carried by Grace

and CAVN were correct that percentage would bear a reasonahle

relationship to their past operating experience in thetrade rve further

said

l l l This proceeding lies under section 15 of the Shipping Act 1916 This

section sets out standards for approval and disapproval accotding to its terms

We apply those standards and no others We are not concerned here with any

promotional provision of law and our action is not affected by and does not

affect decisions under section 19 of the Merchant Marine Act of 1920

We are wholly unable to conclude that the reasonably probable operations

under the agreement will or are likely to cause Alcoa Netherlands or Viking

third flag lines to vithdraw from the trade or any part of itl

I

or to take

other action which might be considered a detriment to the commerce of the

United States or contrary to the public interest

At this point the efforts of the Latin American countries to gain a

predominate share of the traffic had centered around the consmn

mation of so called equal access agreements with the United States

These agreernentg generally sought to insure that each national flag

line had equal access to the carriage ofGovernment controlled cargoes

These agreements were normally between the cognizant agency of the

particular Latin American country and QUIMaritimeAdministration

and Department of State But by 1960 the efforts ofBrazil to achieve

bilateralism had resulted in a different kipd of pooling agreement

In Nopal v J oore MoOormack Lines 8 FMC 213 1964 the Com

mission had before it agreement 9040 which purported to pool the

carriage of coffee from Brazil to United States Gulf and Atlantic

ports The agreement was the result of Brazils

long effort to secure

for its national flag line Loide either 50 percent ofthe coffee carry

14 F M C
INTER AMERICAN FREIGHT CONFERENCE 71

ings or a share of the revenue therefrom 16 While the agreement

covered the carriage of coffee to both Atlantic and Gulf ports in the

United States the complainant Nopal was a member of only the

Gulf pool and the case involved the agreement only as it applied to

U S Gulf ports The main bone of contention was the use of the

so called national interest factor in allocUlting quotas under the pool

Under national interest Brazil apparently felt that because it wasthe

exporting country it was entitled to greater preferment than even the

other national flag lines In any event Nopal alleged that the agree

ment was unjustly discriminatory and unfair as between carriers in

violation of sections 15 and 16 of the act and that it h cl signed the

agreement because und2r SUMOC 202 see p

7

supra the only

alternative was complete exclusion from the trade In refusing to

approve the agreement we hadthe followingto say

Every maritime nation in the world is of course intensely and legitimately

interested in the economic well being of its merchant marine Thus national

interest plays an important part in the overall policies of the maritime nations

But it is of overriding importance to properly distinguish between promotional

pQlicies and regulatory policies The Commission of course is a regulatory

agency charged by Congress withthe administration of this country sregulatory

pOlicy as e pressed in the Shipping Act 1916 And while as an ann of the U S

Government we are of course interested in the grawtJh and economic well being

of our own merchant marine we are bound by the Shipping Act to scrupulously

insure that all carriers regardless of flag are accorded equal treatment under the

laws we administer

The Shipping Act 1916 imposes no burden and grants no privilege on the

basis of acarrier s nationality To the contrary it seeks to insure that all

carriers operating in our foreign commerce regardless of flag do so as equals

Thus we are prohibited under the law from approving such an agreement just

as we would be prohibited from using ourl egulatory powers to attempt to insure

that U S flag carriers received a given percentage of this country s export trades

We think it clear that a pooling agreement which allocates percentages or any

portions thereof on the basis of flag or national interest is discriminatory as

between carriers within the meaning of section 15 8 FMC at 229 17

16 Whlle the events leading to agreement 9040 are far too extensive and complex to

repeat here they do provide an interesting and informative backdrop to the present

case See our opinion in Nopal supra pp 213 227 Brazil s insistence on 50 percent

of the coffee carryings was made in the face of the established fact that Loide could not

possibly carry that percentage and had in fact proved unable to carry its previously

allocated percentage of 1941 percent under the predecessor pool agreement 85051

Recognizing this Loide eventually agreed to a reduction of its share but in no event

would it accept a lower percentage than complainant Nopal a third flag carrier whose

past actual carryings had averaged some 32 percent

17 For an earlier expression of this concept see Alleged Rebates of Mitsui S S 00 Ltd

7 FMC 248 1962

14 F M C
72 FEDERAL MARITIME COM MISSION

We thus arrive at the present case and we will now attempt to

express the principles which we are bOlmd by law to apply to future

agreements of this kind when determining whether to approve dis

approve ormodify them under section 15

Although we have not yet alluded to the fact the record establishes

that the third flag lines signed the agreement at issue her only under

duress These lines could either accept the quotas granted to them

by the Government of Brazil or carry no coffee or cocoa at all This

accounts for the strange situation we have here wherein aparty to an

agrement whose signature thereon would ostensibly signify his accord

with the agreement s provisions nevertheless protests its approval

when it is filed with us Insuch a situation we have to agree with the

Department of Justice that where aparty gives its assent to an

agreement to avoid governmental exclusion from the trade there is

ab initio no agreement of the kind over which we may exercise

jurisdiction under section 15 There is simply no room under section

15 for the approval of a pooling agreement which embodies dis

criminatory or unfair quotas dictated by governmenta llaw regulation

decree ukase or fiat

Pooling agreements are the ultimate in anticompetitive combina

tions Traditionally they are proposed when a given trade is disrupted

by real or suspicioned malpractices usually rebating on the part of

carriers in the trade Itis thought that by assigning each carrier in the

trade a percentage ofthe traffic which bears some reasonable relation

ship to his past carryings and by penalizing carriage overthat quota

the incentive to rebate is removed since the rebate is designed to secure

more business Here the incentive to agree is obvious the elimination

of unfair and ruinous competition 18 Thus in theory at least everyone

benefits from such a pool The injection of national interest however

only further disrupts a trade since its sole aim is the preferment of one

group ofcarriers the national flag lines overanother group of car

riers the other flag lines National interest is not grounded on

economic or commercial reality it pays no deference to shipper

desires and does not take into account the efficiency of the operator or

the worth of the service he renders Inshort national interest seeks to

nullify virtually all of the only valid considerations which are rele

vant to our deliberations under section 15 All of which inevitably

destroys that equality of treatment regardless offlag upon

which our

regulatory laws ar based

18 We have had occasion to note however that an effective system of self

policing rather than the complete elimination of all competition is the solution to

rumored malpractices and alleged rebates 8 FMC 232

14 F M C
INTER AMERICAN FREIGHT CONFERENCE 73

Lest we be thought out of sympathy with the efforts of our neigh

bors to the south to secure for themselves a greater share of their

waterborne commerce let us say that just as we are ever mindful of

the plight of our own merchant marine w can easily understand the

concern they have for theirs But it must always be remembered that

we are charged with the impartial administration of a

regulatory

statute in the enactment of which Congress has determined that the

foreign commerce of the United States is best served by treating as

equals all who participate in that commerce We are not free whatever

our inclination to alter that conclusion Just as we are not at liberty to

promote our own merchant marine we cannot in the guise of ap

proving agreements under section 15 acquiesce in the efforts of other

nations to do the same when those efforts runcounter to the laws we

administer Thus so long as any nation attempts to utilize an agree

ment under section 15 as vehicle for the enhancement of its own

national fleet to the detriment of other carriers serving our foreign

commerce we shall whatever our individuall views be compelled to

disapprove those agreements

Bilateralism if it is to become the maritime policy ofthis country

must do so as a result of efforts other than ourown Our position as a

quasi judicial agency charged with the administration of a

regulatory

statute precludes us from participating in the kind ofgovernment to

government negotiations which lead to the adoption of bilateralism as

a national policy We must be ever mindful of our judicial responsibi

lities to the people we regulate and one ofthe most important ofthese

responsibilities is that of making our determinations in controver

sial cases under section 15 only on the record after an opportunity for

hearing has been afforded to all who would be affected by our decision

We are simply not free to negotiate with other governments on mat

ters which may require us later to sit in judgment on their validity

under the Shipping Act Our role in cases such as this is confined to

applying the criteria of section 15 to agreements between persons sub

ject to our jurisdiction and taking such action as is called for underthe

applicable criteria

Since as we have already noted our jurisdiction fails for lack of

an agreement upon which we can act this proceeding is hereby dis

continued

Oommusioner JAMES V DAY concurring and dissenting

The subject agreements have been repudiated and our jurisdiction

has hence terminated

However giving parties some guidelines for formulaJting future

agreements is worthwhile

14 F M C
74 FEDERAL MARITIME COMMISSION

Pursuant to section 15 ofthe Shipping Act we would disapprove a

pooling agreement if it is unjustly discriminatory or unfair as be

tween carriers operates to the detriment of our commerce is contrary

to the public interest or violates some statutory provision

In deciding for instance if a pooling agreement is contrary to the

public interest we would recognize that such an agreement is in

herently difficult to justify unless it is requiredby a serious transporta

tion need or necessary to secure im pOltant public benefits etc 19

Just what constitutes serious transportation need etc depends

on the attendant facts and circumstances 20

The fact that national interest national flag preference wasnot

envisioned by the original drafters of section 15 as synonymous with

public interest or serious transportation need etc does not mean

that such a factor or any other new element could not be included

among the justifications for any agreement before us for approval

Let us not be overwhelmed by any sort of bilateral bogey En

visioning a concept in its ultimate extreme is no reason not to counte

nance a reasonable application of a principle 21 Granting preferred

status to national flag carriers solely on the basis of the flag flown is

of course not a valid factor for determining the pool percentages in

an agreement 22 But some preference for national flag carriers might

possibly be permitted as providing a better 0hance for lower rates the

development ormaintenance of more dependable and efficient services

and general trade stability according to the circumstances 23

Nor should we here suggest an agreement should be automatically

barred merely because a

flag preference principle was urged by gov

ernment decrees rather than carrier demands in formulating the pro

visions of the agreement The real test is whether the agreement is

unjustly discriminatory unfair adverse to our commerce or against

our public interest

In conclusion let us emphasize that all such guidelines as here set

19 By its very nature a pooling agreement is a considerable restraint on theactiolls of

the parties thereto which runs against the very grain of our antitrust laws See FMO v

Sven8ka Amerika Linien 390 U S 238 244 1968 Hence we require that serious need for

such arrangement be shown

20 As the majority would say tlme circumstances and the facts of the individual

case can and probably will alter a situation

21 Ultimately bilateralism would exclude third flag carriers or so called cross traders

from the trade leaving all tee traffic to be divided between the national flag lines

Majority opinion at p 68

22 As we so said in NopaZ v Moore McCormack 8 FMC 213 229 1964

23 I would not want parties to possible future agreements to infer that any national

interest aspect would undoubtedly kill the agreement when submitted for approval

How can we say that national interest inevitably destroys the fairness of treatment

that carriers receive under our laws We must judge on the facts and projections as and

when presented to us

14 F M C
INTER AMERICAN FREIGHT CONFERENCE 75

forth should be correctly read for what they really are direction

signposts and not unalterable restrictions

oommissione1 GEORGE H HEARN concurring and dissenting

Iconcur in the conclusion ofthemajority thatthere is no agreement

before us which is subject to our jurisdiction Also I

agree with the

majority s desire to offer some guidelines for subsequent action in the

trade However Idepart from the majority report in the nature ofthe

guidelines The administrative process by its nature may sometimes

seem to move slowly and to react rather than act Consequently we

should demonstrate that our laws and procedures can be forward look

ing and made flexible enough to adapt to changed conditions

With no agreement to act upon our primary concern should be

how this case can help overcome the undesirable conditions prevailing

in the trade We should extend our efforts toward preventing events

from continuing along their present course of confusion instability

and animosi1ty Stabilization of the trade will serve the best interests

ofthe parties and the commerce of the conntries involved Itis to that

end that Ioffer these comments Within the limits ofthe Commission s

authority and discretion to offer guidelines I

think it should be made

known what action this Commission may be prepared to take to help

resolve the underlying conflicts and issues ofthiscase

We cannot of course offer iron clad guidelines or prejudge future

cases Conditions and circumstances can change rapidly In fact our

experience under the shipping statutes is indicative of the radical

changes which have occurred in ocean commerce just in the last few

years Thus we should strike a balance here between avoiding formula

tion of strict guidelines and adapting our statutory provisions to the

exigencies of current times Under appropriate circumstances and con

ditions what may be nnlawful conduct in one instance may be lawful

in another and what may not have been approvable under section 15

yesterday may be approvable tomorrow And it should be added that

activity which this Commission may be powerless to approve under

section 15 may be permissible or noninterdictable when such approval

is not sought

Thus when agreements proffered for approval nnder section 15 are

entered into by carriers at the insistence by decree or otherwise of

any nation we should be wary lest there result national flag aggran

dizement to the unlawful detriment of our or other flag carriers In

fact it may well be that agreements entered into under threat of ex

clusion from the trade are not approvableunder section 15 Itdoes not

follow however that the same results cannot be achieved in other

ways or that this Commission can or should tell any carrier that it

14 F M C
76 FEDERAL MARITIME COMMISSION

cannot or should not agree to a limitation on its service in return for

continued participationin thetrade

We can offer no rule as to the proper role of national interest in

particular trades And we cannot say that implementation of a na

tional interest factor is generally good or bad Many countries in

cluding our own utilize it in one form 01 another Then the principle

is held above all other considerations it can be destructive of effi

cient and reliable ocean service But national interest when properly

utilized can produce lower rates fully laden ships regular service and

overall stability and this can occur even when the nation at one end of

a trade route tries to exercise considerable control over it That such

stabilization or rationalization may be achieved also by decree should

not bring condemnation from our system which accomplishes things

differently

Consequently we should not now decide when the implementation

of national interest may render an agreement or other action unap

provable Iwould say only that when a nation seeks to promote its

merchant marine in a manner which contravenes the principles and

provisions of fairness of our shipping laws we cannot give such action

our stamp ofapproval However when a group ofcarriers freely enter

into an agreement we should not deny approval solely because the na

tional interestofanother country is a key factor ofthe agreement

Iconsider it very unfortunate that the agreements before us did not

survive to this point in the decisional process Ifind no factor inherent

in such pools or these particular ones which would render them un

approvable if they were still before us And further based upon my

present knowledge of the situation Iwould approve the pools were

they still before the Commission Such approval would presuppose of

course that all the original parties to the pools remained willing

signatories Ifcarriers are agreeable to certain conditions we should

not disapprove their agreement because we think they would be bet

ter off with another or none at all or because the pools resulted from

such factors as negotiations between governments and carriers Ifthe

commerce of the United States is not adversely affected such action

may not be violative of our laws and may be approvable A very

apropos phrase is There is more than one way to skin a cat Ifthe

carriers and governments do not solve their trade problems one way

they will do so another way And the result then may be even more

unsavory to us

What Ihad hoped for in this case whioh has taken so long to reach

this stage was a settlement of the problems in the trade The pools

might have achieved that result orperhaps better pools can be writ

ten which are more acceptable to all parties Itmay be noted that pools

14 F M C
INTER AMERICAN FREIGHT CONFERENCE 77

have been entered into in the southbound trade between the United I

States and Brazil The decision as to them is pending so there is noth

ing Ican say on their merits Suffice it to say that the pending south

bound pools and the government action taken by Brazil as to the

northbound trade may be indicative of the future course of events

Iam loath to let speculation be my guide but Iurge this Con1ll1is

sion to recognize the practicalities of the situation vVe can no longer

sit atop our perch ofplatitudes and espouse principles which have lost

their relevance In equal measure must the participants in ocean

commerce especia lly shippers and carriers realize that they cannot

forestall the changes in technology and politics which are radically

altering traditional rights and prerogati ves

In summary Ithink the parties to this case particularly and the

shipping industry generally should be able to leave with something

more than an abandoned agreement vVe should indicate that an

agreement willingly entered into by the carriers and not unlawfully

detrimental to our commerce would have been approved ifnot other

wise contrary to law Atthe very least we should offer the parties an

indication that they should not despair of receiving a positiveresponse

from this Commission and that whatever solutions they may arrive at

will be considered in light ofthe guidelines Ihave set forth above

JOSEPH C POLKING

Assistant to theSecretary

ISEALI

14 M
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 421

RAYTHEON CO ANDOVER

v

STATES MARINE ISTHMIAN AGENCY INC

Septer nber 28 1910

NOTICE OF ADOPTION OF INITIAL DECISION AND ORDER GRANTING

REFUND

No exceptions having boon taken to the initial decision of the

examiner in this proceeding and the Commission having determined

not to review same notice is hereby giVeil that the initial decision

became the decision of the Commission on September 28 1970

Itis ordered That States 1arine Isthmian Agency Inc is author

ized to refund to Raytheon Co Andover the amount of 1 372 36

Itis further ordered That applicant publish promptly in the appro

priate tariffthe followingnotice

Notice is hereby given as required by the decision of the Federal Maritime

Oommission in Special Docket No 421 that effective March 1 1969 the heavy

lift provision of the Hawk Missile Project Rat Jeddah for purposes of re

funds or waiver of freight charges on any shipments which may have been

shipped during the period from March 1 1969 to June 2 1969 is Heavy Lift

shaN commence for pieces or packages in excess of five 5 long tons forty

percent 40 reduction in Heavy Lift Charges subject to all other applicable

rules regulations terms and conditions of the said rate and this tariff

Iti8 furtlU310 onle1 ed That refund shall be made within 30 days of

this notice and States Marine Isthmian Agency Inc shal J within 5

days thereafter notify the Commission ofthedate ofthe refund and of

the mannerin which payment hasbeenmade

By the Commission

SEAL FRANCIS C HURNEY

Secretary

78
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 421

RAYTHEON CO ANDOVER

v

STATES MARINE ISTHMIAN AGENCY INC

States MarineIsthmian Agency Inc permitted to refund freight charges on

heavy lifts of specially fubricated parts for Saudi Arabia Hawk Program

from New York N Y to Jeddah SaudiArabia

William L Hamm for applicant

INITIAL DECISION OF RICHARD M HARTSOCK PRESIDING EXAMINER 1

States Marine Isthmian Agency Inc States Marine applicant a

member of the US Atlantic and Gulf Red Sea and Gulf of Aden

Rate Agreement has filed an application for permission to refund

1 372 36 the entire freight charges collected from Rayt400n Co

Andover for heavy lift services in the movement of 439 216 pounds

35 594 cubic feet of specially fabricated parts for the Saudi Arabia

Hawk missile program from New York N Y to Jeddah Saudi

Arabia on April 11 1969 in applicant s vessel SS Steel Fabricator

The 34 heavy lifts involved individual lifts of 5 tons or less

The U S Atlanticand Gulf Red Sea and Gulf ofAden Rate Agree

ment is a steamship freight conference duly organized and existing

pursuant to section 15 of the Shipping Act 1916 as approved by the

Commission As originally constituted the geographical scope ofthe

agreement did not inolude thePort of Jeddah Subsequently members

agreed to amend the scope of agreement to include Jeddah and this

amendment was approved by the Commission on October 10 1968

However prior to Commission approval for the inclusion of Jeddah

the members of the conference including applicant here had on file

with the Commission a project rate for material equipment and sup

plies destined to Jeddah for the construction and erection of a missile

defense system As pm of the project rate an exemption was given

1

This decision became the decision of the Commission Sept 28 1970

79
80 FEDERAL MARITIME COMMISSION

from heavy lift charges for lifts which weighed up to and including

5 tons

At a rate agreement meeting held on February 18 1969 the mem

bers of the conference agreed to publish a project rate in the rate

agreement tariff for the same missile defense system on the same terms

and conditions as had been in effect for the individual lines Unaware

of the fact that the individual member lines filings had contained an

exemption for heavy lifts up to and including 5 tons the conference

staff proceeded to publish a reduction of 40 percent on all heavy lift

charges The rate agreement tariff filed lists heavy lift charges begin

ning at two long tons The oversight here resulted in a 40 percent

reduction on heavy lift charges between 2 and 5 tons rather than a com

plete exemption frolll heavy lift charges up to 5 tons The project rate

was filed with the Commission with an effective date of March 1 1969

Priorto this date on October 15 1968 the rate agremnent had put into

effect a general increase on a level 10 percent higher than thrut which

had been in effect for the individual lines both as applicable to rates

and heavy lift charges On FeJbruary 19 1969 the conference advised

Behring Shipping the freight forwarder for Raytheon ofthe estab

lishment by the conference of the project rate In so advising the

conference stated that there would be a 40 percent reduction in heavy

lift rates subject to usual exceptions Vhile the phl ase usual excep

tions was intended by the conference to refer to specific commodities

it was nevertheless subject to the interpretation that the exemption

from heavy lift charges up to 5 tons was a usual exception

Subsequent to theApril 11 1969 shipment ofthe involved commodi

ties the shipper realized that heavy lift charges had not been acoorded

full exemption for lifts lmder 5 tons but only on a 40 percent reduc

tion The conference agreed to exempt the project shipments from

heavy lift charges up to 5 tons but had no means of co rrecting the

tariff retroactively

Public Law 90 928 75 Stat 764 authorizes the Commission to per

mit a common carrier by water in foreign commerce to refund apor

tion of the freight charges coHected from a shipper where there is

an error due to inadvertence in failing to file a new tariff In the

circumstances here it is found that the conference of which applicant

is a member lmder its existing procedures would have promptly filed a

new rate providing exemptions on heavy lift charges up to and includ

ing 5 tons to be used in the Saudi Arabian Hawk missile program

had they been aware of the exemptions in heavy lift charges up to

and including 5 tons as filed by individual members ofthe rate agree

ment Itis further found that the conference s staff s inadvertence in

4 F M C
RAYTHEON CO ANDOVER V STATES MARINE ISTHMIAN AGENCY 81

providing exemption from heavy lift charges up to and including

5 tons in the conferenoe agreement was an error which prevented the

timely filing of a new rate

The applicllition wastimely filed and no 0ther shipments of the same

or silnilar comlnodities moved on conference vessels during approxi

mately the same time as the shipment here involved There are no

specid docket lapplications Or other proceedings involving the same

rate situation now pending

It appearing that the application involves a situation within the

purview of Public Law 90928 and good cause appearing the appli

cant is permitted to refund to the shipper the sum of 1 372 36 The

notice referred to in the statute shall be published in the conference

tariff The refund will be effectuated within 30 days after publication

of the notice and within 5 days thereafter applicant shall notify the

Commission of the date of the refund and the manner in which pay

lnent wasmade

RICHARD M HARTSOCK

Presiding Examiner

WASHINGTON D C September 8 1970

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 70 17

AMERICAN EXPORT ISBRANDTSEN LINES INC ORDER To SHOW CAUSE

Decided September 28 1970

Agreement concerning operating differential subsidies for military

carryings as agreed to during an operating differential subsidy

hearing before the MaritimeSubsidy Board Maritime Adminis

tration provides at least for a

cooperative working arrangement

constitutes a special privilege or advantage and controls or regu

lates competition and is thereby subject to filing and approval

requirements under section 15 of the Shipping Act 1916

Ronald A Oapone and Stuart S Dye United States Lines Inc

Robert N Kharasch States Marine Lines

Joseph A Klausner American MaritimeAssociation

Richard W Kurrus and Howard A Levy American Export Is

brandtsen Lines Inc

Ronald D Lee Donald J Brunner hearing counsel

REPORT

By THE COMMISSION Tames F Fanseen Vice Ohairman Ashton C

Barrett James V Day George H Hearn Oommissioners

On December 17 1969 American Export Isbrandtsen Lines Inc

AEIL filed with the Federal Maritime Commission a petition for a

declaratory order requesting that the Commission declare an existing

stipulation between United States Lines USL States Marine Lines

SML and the American Maritime Association AMA to be an

agreement within the scope of section 15 of the Shipping Act 1916

The Commission subsequently denied the pet tion for a declaratory

order on March 26 1970 and simultaneously instituted this proceed

ing by order to show cause to determine whether the stipulation be

tween USL SML and AMA is an agreement which must be filed with

82
AMERICAN EXPORT LSBRANDTSEN LINES INC 83

and approved by the Commission under section 15 of the Shipping

Act 1916 USL S IL and AMA were made respondents in this pro

ceeding and AEIL was designated petitioner Hearing counsel also

entered an appearance Oral argument before the Commission was held

on June 9 1970

FACTS

The Merchant Marine Act 1936 46 U S C 1101 et seq provides

under title VI for the payment of operating differential subsidies

ODS to contracting US flag steamship lines operating US flag

vessels on essential trade routes under terms conditions and for the

purposes prescribed in the act Such subsidies are payable by the

Maritime Subsidy Board under the MaritimeAdministration and are

designed to equalize US flag operating costs ofthe recipient linewith

foreign flag costs Pursuant to section 605 c of the 1936 act 46

U S C 1175 c a statutory hearing is required prior to the execution

of a

subsidy contract at which opponents of the applicant may raise

a number of issues bearing on the justification for awarding the

subsidy

In accordance with the above act USL in September 1969 applied

to the Subsidy Board for the continuation of ODS payments on its

vessels serving essential trade routeNo 12 The Subsidy Board ordered

a public hearing on the application in a proceeding designated IISB

docket No S 2411

Subsequently SML and AMA as well as other parties including

petitioner AEIL intervened in docket S 241 in opposition to the grant

of subsidy Both SML as an unsubsidized U S flag service on trade

route 12 and theAMA as an association whose membership includes

unsubsidized American flag operators objected to the application only

insofar as it encompassed operating differential subsidies for the car

riage of U S military and otherpreferential cargo Military cargo is

reserved by law exclusively for U S flag ships and therefore not

subject to foreign competition For other such cargo the preference

is not less than 50 percent section 901 b Merchant Marine Act 1936

46 U S C A 1241 b

During thehearing before the examiner in MaritimeAdministration

docket No S 241 December 12 1969 USL SML and AMA entered

into the followingstipulation

1 United States Lines does not seek nor willit accept operat

ing differential subsidy for military carryings whether on break

1United States Lines Inc application for a new 2 year operating differential subsidy

agreement upon the termination of contract No FMB 19 on Dec 31 1969 on trade

route No 12

14 F M C
84 FEDERAL MARITIME COMMISSION

bulk or containerships Itwill seek to have included in any new

operating differential subsidy agreement granted as a result ofthe

pending application a formula for abatement ofoperating differ

ential subsidy similar to that for domestic intercoastal service

2 On the basis of the first paragraph the AMA and States

Marine Lines withdraw from this proceeding with respect to ODS

for both break bulkand containership service

3 Also on the basis of 1 above the first paragraph neither

AMA nor States Marine Lines will oppose any use by United

States Lines of any nonsubsidized vessel in any nonsubsidized

service except that both reserve the right to oppose charter ofany

CDS builtorpriced vesselto themilitary

4 States farine Lines and A fA may continue to participate

in docket S 244

SML and AMA then withdrew from further participation in docket

S 241 Petitioner AEIL a subsidized common carrier by water which

competes for military cargo with USL SML and members ofAMA

in trade Route 12 continued to oppose all aspects of USL s applica

tion for subsidy in docket S 241 and initiated the petition for de

claratoryorder

DISCUSSION AND CONCLUSIONS

The issue before us is whether the above stipulation constitutes a

section 15 agreement subject to the filing and approval requirements

of the Shipping Act 1916 It is our opinion that the agreement is

subject to section 15 and Commission approval

That section provides that there be filedwith the Commission every

agreement among persons subject to theact

fixing or regulating transportation rates or fares giving or receiving

special rates accommodations or other special privileges or advantages con

trolling regulating preventing or destroying competition pooling or apportion

ing earnings losses or traffic allotting ports or restricting or otherwise

regulating the number and character of sailings between ports limiting or

regulating inany way the volume or character of freight or passenger traffic to be

carried or in any mannerproviding for an exclusive preferential or cooperative

working arrangement 2

On the basis of a literal interpretation ofthis language any agree

ment falling within anyone ofthe seven categories ofactivity enumer

ated therein would be subject to filing and approval notwithstanding

the degree or extent ofits involvement or the subjective intent ofthe

parties in entering into the agreement In 1968 the Supreme Court in

Volkswagenwerk v FMO 390 US 261 1968 held in accordance

l 46 U S C sec 814

14 F lfC
AMERICAN EXPORT LSBRANDTSEN LINES INC 85 

with the literal construction that Section 15 requires filing of every

agreement in any ofseven categories 3

The legislative history of the language supports its literal interpreta

tion The following history from the Alexander Report 1914 COll

firms the congressional purpose to insure broad regulation and control

of agreements between and affecting members of the shipping

industry

Nearly all the steamship line representatives expressed themselves as not

opposed to government supervision I and approval of all agreements or

arrangements which steamship lines may have entered into with other steam

ship lines with shippers or with other carriers and transportation agencies

On the other hand the shippers who appeared as witnesses I were in the

great majority of instances favorable to a comprehensive system of government

supervision and the approval of contracts agreements and arrange

ments and the general supervision of all conditions of water transportation

which vitally affect the interests of shippers

Ie

Recommendation That all carriers engaged in the foreign trade of the United

States parties to any agreements understandings or conference arrangements

hereinafter referred to be required to file for approval a copy of all

written agreements or a

complete memorandum if the understanding or agree

ment is oral entered into 1 with any other steamship companies firms or

lines engaged directly or indirectly in the American trade or 2 with American

shippers railroads or other transportation agencies

The Commission itself has spoken in conformity with the Alexander

Report when in docket No 948 the Commission concluded

This philosophy took shape and was enacted as section 15 of the Shipping Act

1916 confiding to the agency administering the Act extensive powers of super

vision and control as the condition precedent to any of the concerted activities

covered by the section s rather all inclusive language

Ie Ie

Only recently in Public Law 87 346 75 Stat 762 amending the Shipping

Act 1916 Congress has reasserted the original philosophy that exemptions from

the antitrust laws must be accompanied by effective governmental supervisioP

and control of the concerted activities covered by section15 5

Again in docket 882 the Comnlission elaborated on the compre

hensive nature ofsection 15 wherein it said

Congress was fully aware furthermore that its plan for effective government

supervision would be largely frustrated unless the Shipping Act were made

broadly applicable to aU agreements understandings and arrangements incluo

3

Volkswagenwerk v FMO 390 US 261 275 n 23 1968

House Committee on Merchant Marine and Fisheries Report on Steamship Agreements

and Affiliations HR Doc No 803 63d Cong 2d sess 1914p 418 419 20

5In Re Pacific Ooast European Oonference 7 FMC 27 3235 196ll

14 F M C
86 FEDERAL MARITIME COMMISSION

ing particularly the kind of informal arrangement which existed among the

respondents here emphasis added

The language of the section thus clearly emiJraces every agreement un

derstanding or arrangement whether formal or informal written or oral

detailed or genera1 6

In 1968 the Supreme Court in V ollc8 Wagen Werlc confirmed the

above analysis ofthe legislative history

Nothing in the legiSlative history suggests that Congress in enacting 15 of

the Act meant to do less than follow this recommenadtion cited cited above

of the Alexander Report and subject to the scrutiny of a specialized government

agency themyriad of restrictive agreements inthemaritime industry

7

Therefore under the facts before us the predominant question is

whether the stipulation infringes upon any of the areas set forth

in section 15 as requiring Commission approval

The subject agreement actually consists of four promises between

USL AMA and SM L USL for its part promised that it 1 would

not seek or accept operating differential subsidy for military carryings

whether on break bulk or containership and 2 would seek to have

included in any new operating differential subsidy agreement granted

as a result of the pending application of a formula for abatement of

operating differential subsidy similar to that for domestic intercoastal

service SML and Al1A for their part agreed that they 3 would

withdraw from docket No S 241 with respect to operating differ

ential subsidy for both break bulk and conbtinership service and

4 would not oppose any use by USL or any nonsubsidized vessel

in any nonsubsidized service

In our opinion the promises as enumerated above collectively cause

the stipulation to be an agreement which at least provides for an ex

clusive preferential or cooperati ve working arrangement constitutes

a special privilege or advantage and controls regulates prevents or

destroys competition

Without question we have a mutual agreement or understanding

between USL Sl1L and AMA concerning operating differential sub

sidy for military carryings The factors of continuing and coordina

tion of effort are present The objective is the elimination of USLs

receipt of ODS for its military carryings The parties through co

operative arrangements attain that objective and thereby are engaged

in a section 15 working arrangement

In addition Al1A and SML s promise not to oppose any use by

USL of any nonsubsidized vessel in any subsidized service accords

6 Unapproved section 15 agreements South African Trade 7 FMC 159 180 191 1962

7

Volkswagenwerk v FMO 390 U S 261 276 1968

14 F M C
AMERICAN EXPORT ISBRANDTSEN LINES INC 87

USL a special privilege or advantage vhich is not currently avail

able to others The value of that privilege or its future availability

to others is not in issue The purpose of section 15 is simply to place

before the Commission information which the Commission may review

and analyze to determine if the actions are in compliance with the

rest of section 15 and the act in general s

Finally the subject agreement comes within the provision on com

petition That provision speaks to those situations which have not

merely a

limiting effect on competition but an effect in general

USL s promise that it will not seek or accept operating differential

subsidy for military carryings affects competition for military

cargoes in the trade between the U S East Coast and the Far East

Under the agreement the competitive positions of both subsidized

and unsubsiclized carriers would be restructured to some extent The

agreement would have an impact onUSL s rates for carrying military

cargo Also to the extent the agreement would direct the flow of mili

tary cargo away from USL and to its competitors it would affect

the volume and character of the cargo carried by USL and their

competitors Quite possibly USL will carry less military cargo than

under prior operations and will be inclined to make up the loss by

increasing its carriage ofcommercial cargo

The exact effect of USL s promise cannot be predicted However

what USL has foregone has a value and is an element of its com

petitive viability Thus the agreement is within the scope of section 15

The respondents contend that section 15 applies only to those agree

ments so enumerated which are restrictive anticompetitive operating

arrangements In their opinion both the literal language and leg

islative history reflect that the purpose of section 15 was to insure

that the Commission would have an opportunity to approve or dis

approve any anticompetitive operations or devices employed by per

sons subj ect to the act Though the agreement in question can be

said to have competitive consequences as explained above to so nar

rowly interpret section 15 is neither in acccrdance with the literal

language of the section nor recent judicial interpretations As the

Supreme Court said in VolkswagenweTlc To limit section 15 to agree

ments that affect competition simply does not square with the

structure ofthe statute 9

The respondents further allege that the stipulation is constitution

ally exempt from Commission control or interference on the basis

8 Oranje Line et al v Anchor Line Ltd et al 6 FMB 199 208 209 1961

o Volkswagenwerk 390 U S 261 275 1968 see also Marine Space Enclosures Inc

v

FMO No 22936 DC Cir July 30 1969 Port ojBoston Marine Terminal Association

v Boston Shipping Association 420 F 2d 419 1st elr 1970

14 F M C
88 FEDERAL MARITIME COMMISSION

that such stipulation is joint or several representation to the govern 

ment SML and USL argue that section 15 cannot be constitutionally 

read to apply to an agreement by way of settlement or otherwise 

which involves nothing but the making of representations to the

Government the speaking of wrds to the Congress or any agency

As authority for their position respondents cite Eastern Rail1oads

Presidents Oonference v Noerr illotorFreight 365 U S 127 1961

United lJline TVorke1 8 ofAmerica v Pennington 381 U S 657 1965

and N A A O P v Button 371 U S 415 1963 These cases advance

the proposition that concerted political activity designed to influence

and promote valid governmental action is a constitutional right

exempt from any government control or interference The respondents

therefore equate the taking of certain positions before a

government

agency i e that S 1L and Al1A will stop litigating and that USL

will stop asking for something with protected concerted political

activity designed to influence governmental action

Their argument of constitutionally protected representations to

government under the facts of the subject proceeding is tenuous at

best The cases cited as precedent by the respondents all speak in

some form either to the constitutional right to petition or to inform

representatives in government of specific desires with respect to the

passage or enforcement of laws or as in the N A A O P case to the

vindication of constitutionally guaranteed civil rights through litiga

tion The object and emphasis is on protecting concerted political

activity designed to influence and promote valid governmental action

Notwithstanding respondents assertions thesubject stipulation does

not involve the concerted action envisioned in the constitutionalright

to petition the government or its representatives Neither does it in

volve the right to joint together for the purposes of obtaining judicial

redress of constitutionally guaranteed rights Itinvolves instead indi

vidual understandings or agreements which were not submitted to the

government or any official with any specific intent of exerting influence

to obtain an objective from the government Respondents attempt

to refer to the stipulation as the mere making of representations to

government results in an exercise of semantics which losses sight

ofthe intent ofthe original grant of constitutional protection

Respondents also contend that the subject stipulation involves only

matters within the sole jurisdiction ofthe faritime Subsidy Board

that is the granting or denial of a subsidy and the conclusion ofMari

time Administration docket No 8 241 Respondents argue that under

these facts settlements ofissues by agreement arewithin the exclusive

province of the 1aritime Subsidy Board under the 1erchant Marine

14 F M C
AMERICAN EXPORT LSBRANDTSEN LINES INC 89

Act of 1936 and are governed by the Board s rules Specifically cited

are subpart J section 201103 Opportunity for Agreement of Parties

and Settlement of Case of the rules of practice and procedure of

the Maritime Administration which provides for submission to and

consideration by thepresiding officer of offers ofsettlement or proposals

of adjustment in all hearings and the Administrative Procedure

Act 5 US C 554 c

requiring such a provision of all agencies

At the same time however the respondents agree with petitioner

and hearing counsel that a Subsidy Board settlement of litigation

incorporating an agreement intended to be within the scope of the

Shipping Act 1916 ould not be immune from review and approval

by the Federal Maritime Commission The distinction they make is

that the subject stipulation as part of a settlement of litigation before

the Subsidy Board deals exclusi vely with litigation before that Board

and is therefore solely withinSubsidy Board jurisdiction

As we have indicated we reject respondents analysis of the stipula

tion and hold that its effect extends beyond the Subsidy Board pro

ceeding and into those areas under section 15 jurisdiction Itis in our

opinion a settlement agreement subject to section 15

In addition it is well settled that two separate government agen

cies may each have jurisdictional interests in the same event or trans

action or series of events or transactions 1o The Commission by

exercising jurisdiction over the instant agreement will in no manner

impede the exercise of the Maritime Subsidy Board s

jurisdiction

to grant orwithhold ODS to USL

Contrary to respondents assertions our holding also is not in conflict

with the policy of encouraging out of court settlements between liti

gants We hold only that a settlement agreement involving section 15

issues must be filed with the Commission independently of its effect

on any administrative proceeding before theSubsidy Board In reach

ing this result we are mindful of the need for expenditiousness in

administrative proceedings Ve are not bent on prolonging them and

we are not unwittingly strengthening the arsenal of delaying tactics

used by parties from time to time Speed should not be sought for its

own sake and when proper surveillance of the industry requires it

this Commission should take the action necessary to promote fair

dealing We should not permit parties to bypass the requirements of

the shipping laws through the use of stipulations settlements or

other devices

100alifornia Steveclore d Ballast 00 v Stockton Port District 7 FMC 75 1962 and

GreaterBaton Rouge Port Oommission v United States 287 F 2d 86 5th Clr 1961

14 F MC
90 FEDERAL MARITIME COMMISSION

We have considered all the arguments of respondents and any

which are not specifically dealt with are rejected as without merit or as

immaterial to ourdecision Accordingly for the reasons set forth we

hold that the agreement between USL S11L and AMA is a section 15

agreement and accordingly subject to appropriate filing and approval

requirements

We reach this decision fully aware that in light of United States

Lines recent decision to terminate all government subsidies the ques

tions presented in this case may in fact be no longer of substantive

import However since the agreement in question involves promises

which remain valid regardless of their current practical effect and

since similar agreements may present similar questions we have de

cided this case on the basis ofthe facts as presented

Ohairman HELEN DELICH BENTLEY dissenting

Idissent from the decision ofthe other members of the Comm

sion

that the subject stipulation is a section 15 agreement and therefore

subject to filing and approval by theCommission

I

agree with my colleagues that section 15 confers a broad jurisdic

tional basis for review by the Commission and that an agreement

falling within anyone of the seven categories enumerated withinthe

section is subject to our jurisdiction However Ido not agree that the

rather all inclusive language of section 15 should be extended to the

agreement in question It is my opinion that the subject stipulation

deals solely with pending and prospective litigation before the Mari

time Subsidy Board The stipulation does nothing but agree upon a

settlement of litigation over matters peculiarly within the Merchant

Marine Act 1936 and the authority of the Maritime Administration

The mutual promises of USL AMA and SML do not in the least

result in any restrictions of their operations Petitioner and hearing

counsel have pointed to no assured commercial effect from the agree

ment other than speculative assertions that the nature of USL opera

tions vis a vis its competitors will change To the contrary USL s

promise to seek and accept less subsidy payments in thecase ofmilitary

cargo does not restrict or inhibit its rights to solicit or carry such cargo

wherever and whenever it chooses and at the rates it chooses Neither

do the promises of S11L and AMA restrict or regulate their sailings

rates or charges

Furthermore no cooperative working arrangement survives theset

tlement agreement No highly sophisticated plan of operations has

resulted from the stipulation Nothing exists requiring coordinated

activity which could only be accomplished by a policy ofcooperation

14 Ifl1C
AMERICAN EXPORT LSBRANDTSEN LINES INC 91

followed by arrangements made at the managerial level among the

participating parties Carriers are not going to be dividing cargo or

costs At most the parties exhibited a cooperative spirit of a non

operational nature in order to settle the proceedings before the Subsidy

Board A

cooperative spirit does not achieve thestatus of a

cooperative

working arrangement that would be included within the scope of

section 15 11 This is true particularly in light of the Administrative

Procedure Act and the Commission s and the Maritime Administra

tion s rules emphasizing the right of the parties to adjudicatory pro

ceedings to resolve their differences by settlement orcompromise These

rights have their basis in a fundamental public policy favoring settle

ment oflitigation and controversy by the parties themselves

The danger I

fear from an indiscriminate broadening of the types

of agreements which require approval by this Commissioll under sec

tion 15 is that it will open wider the doorway ofdelay in the adjudica

tory process Administrative proceedings are particularly susceptible

to tactics of delay or expansive adjudication which in effect hinders

efficient regulation and is contrary to the public interest Within our

own area of regulation the Commission is well aware of the serious

difficulties encountered in international trade and hence the shipping

industry because ofthe narrowing ofgeographic distances in theworld

with the advent of the fast moving age of containerization and house

to house transportation Hence the Commission cannot continue to

perform its regulatory functions in a manner suitable only to slow

break bulk freighters it must move judiciously but rapidly in its de

cisionmaking process and cut through the road blocks of irrelevant

and obsolete legal procedures For many years the chief and most

severe criticism of regulatory agencies in the fields of transportation

and communications has been the charge of overregulation which

discourages and inhibits managerial initiative and in certain areas may

have made a substantial contribution to bankruptcy or other financial

disasters

Therefore it is my opinion that the Commission should invoke

its jurisdiction only when the settlement involves an agreement with

a definitive and assured commercial effect on the operations of the

parties subject to the act When no operational effect is evident as

in the subject agreement to require Commission approval is an un

warranted extension of our jurisdiction under the guise of the ex

pansive language employed within section 15

u

See unapproved section 15 agreements West Coast South AmerIca 7 JrlIC 22 25

1961

14 F MC
92 FEDERAL MARITIME COMMISSION

Certainly with reference to the current proceeding It VaS not thein

tention of Congress to place the Federal Th1aritime Commission in n

position of reviewing every stipulation settlement agreement or posi

tion taken with respect to participation in 1 particular proceeding

under the M erchant Marine Act 1036 before the Maritime Subsidy

Board My point is simply that section 15 should not ue interpreted

to grant jurisdiction which does not serve the essential purpose of

theShipping Act 1916

With regard to the question of concurrent jurisdiction raised by

the respondents it is well settled that two separate government agen

cies may each have jurisdictional interests in the same event or trans

action or series of events or transactions However the multiple regu

lation generally occurs in the operational aspects of the busiIJess in

question and not in a factual situation similar to the subject proeeed

ing In reference to the 1aritime Adrpinistration and the Federal

Maritime Commission there exists recent law both from the Com

mission and the courts which distinguishes to some extent our Over

lapping jurisdictional interests In a case involving Grace Line and

Prudential the Commission replied to a question on subsidies that the

question of who should get subsidies was not vithin its jurisdiction

but one properly addressed to the Maritime Administration 12

At the same time the second circuit was deciding theSapphire case

wherei J

it held that the Maritime Administration must be bound by

the decision of its sister agency the Federal Maritime Commission

finding certain now withdrawn rates unfair That decision has since

been affirmed on appeal 13

Both of the above cases indicate that certain limits to the exercise

of jurisdietion by the two agencies on the same subject are in order

Moreover ifthe Commission assumes jurisdiction its action amounts

to the rendering of an advisory opinion to the MaritimeSubsidy Board

as to the award of subsidy and conduct of its hearings The stipulating

p9 rties would be required to suspend 605 c proceedings and come

before the Commission to resolve the legality of the stipulation and

thEm resume section 605 c hearings The result yould create difficult

administrative problems in the practical administration of subsidy

proceedings Therefore1 where as here the question involves the

12 Agreement No 9Sl0 Stock purchase agreement between Prudential Lines Inc and

W R Grace Co and sale and transfer of Prudential assets and obligations to Grace

Lines Inc 13 FMC 156 1969

a

Safir v Gibson 432 F 2d 137 1970 US Ct of Appeals 2d Clr Slip Opinions 1961

Feb 26 1970 Sa fir v Gibson 417 F 2d 972 1969reversing and remanding Safir v

Gulick 297 F Supp G30 19G9 Rates on U S Goenlment Cargoes 11 FMC 263 1967

14 F M C
AMERICAN EAPORT ISBRANDTSEN LINES INC 93

granting of subsidies and the conditions uncleI yhich they are granted

and where section 15 interests are at the most uncertain it appears

to me that an assumption of jurisdiction over the agreement by the

Commission is not in accordance with its primary interest in regula

tion Section 15 is not intended to and does not regulate the subsidy

program

Finally Iconcur with my colleagues in their rejection of respond

ents argument that the subject stipulation is constitutionally protected

under Noerrand related cases Inaddition Ialso recognize that resolu

tion of the questions presented may have limited effect in light of

United States Lines decision to forego any further government

subsidies

In summary then my position is that section 15 does not speak

to an agreement with which we are concerned The Commission s

jurisdiction under section 15 does not extend in my opinion to set

tlement agreements before other agencies involving solely nonopera

tional matters of pending or prospective litigation before that body

FRANCIS C HURNEY

Secretary

SEAL

14 F M C



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tive bargaining Rather it is an agreement between NYSA members

in the form of a cooperative working arrangement of a substantial

nature inasmuch as it provides for the assessment of about 60 million

or more per year on NYSA members and others This agreement is

clearly subject to section 15 of the act and to the jurisdiction of the

Commission under the standards of the Volkswagenwerk case above

Agreement No T2390 is said to be violative of the antitrust laws

but there is no basis for this contention in this proceeding The agree

ment is not a pricefixing arrangement as it merely provides an assess

ment arrangement to meet the costs of a separate labor contract If

any prices were fixed they were fixed in the labor contract and even

that is extremely doubtful Even if No T2390 were to be considered

one of a nature contemplated by the antitrust laws nevertheless it

would have to be approved under the Shipping Act because there is

such a clear compelling transportation need for this Agreement to

avert chaos at the Port of New York

Another argument is made that there has been no need shown for

Agreement No T2390 but this is contrary to the facts The labor

contract a necessity to the ILA and to NYSA requires that there be

sufficient assessments of NYSA members to meet the needs created by

the labor contract Unless Agreement No T2390 is approved or un

less a substitute agreement of substantial merit is approved there is a

strong likelihood that insufficient funds would be raised to meet the

obligations of the ILA labor contract and consequently that labor

3haos at the Port of New York would result This record demonstrates

an overwhelming transportation need for Agreement No T2390 sub

ject to the modifications herein already discussed

14 FMC
weighed carefully Aside from the inherent justness of Agreement N

T2390 the investment in containerships and roro ships is in large pa

returned to the investor in the form of the benefits received from th

speedier turnarounds in port of these newer type ships with th

resultant savings in vessel time and expenses

Some carrier elements in this proceeding insist that the whole to

nage formula of the prior agreement No T2364 which never becam

effective should be approved herein The time probably will com

sometime in the future when the whole tonnage formula will not on

be reasonable and lawful but also acceptable to substantially all el

ments of NYSA That time however is not here now and to no

approve a whole tonnage formula would be almost as disruptive to th

NYSA industry as to continue the old manhour formula whic

assuredly has outlived its former usefulness and has outlived whateve

lawfulness it had if it had any lawfulness In all the circumstance

herein there appears to be no other reasonable and Lawful alternativ

but to approve the combined manhourtonnage formula of Agreeme

No T2390 and to approve that Agreement subject to certain mod

fications as found justified herein

One further point needs clarification The effective date of our a

proval of Agreement No T2390 is October 1 1969 or the same da

as the beginning of the second year of the threeyear ILA labor co

tract This does not entail any serious administrative problems fo

NYSA because records have been kept of manhours and tons on an

since that date with the exception of one or two carriers One carrie

14 FMC
jj
j
FEDERAL MARITIME COMMISSION

DOCKET No 70 30

AGREEMENT Nos 9847 AND 9848 REVENUE POOLS U S BRAZIL TRADE

Deoided November 17 1970

Agreement 9847 between Moore McCormack Lloyd Brasileiro and Netumar

calling for the apportioning of freight revenue on certain cargo shipped

by those lines from Atlantic ports of the United States and destined to

ports on the coast of Brazil and agreement 9848 between Delta Steamship

Lines Lloyd Brasileiro and Na vegacao Mercantil SjA Na vem calling for

the apportioning of freight revenue on certain cargo shipped by those lines

from Gulf ports of the United States and destined to ports on the Brazilian

Coast between Recife and Paranagua not found to be unjustly discrimina

tory or unfair as between carriers detrimental to the commerce of the

United States or contrary to the public interest or otherwise in violation

of the Shipping Act 1916

Tho l1UL8 E Stakem and Donald MacLeay on behalf ofDelta Steam

shipLines Inc and Moore McCormack Lines Inc

Neal M Mayer and Marvin J Ooles on behalf of Companhia de

Navegacao Lloyd Brasileiro S A

R O Giallorenzi for Companhia de Navegacion Maritima Netumar

Frank J McOonnell for Navegacao Mercantil S A Navem

Thomas K Roche and Raymond de Member for The Northern Pan

American Line

Elmer O Maddy andBaldvin Einarson for Norton Line and Ivaran

Lines

James L Malone and Donald J Brwnne l hearing counsel

REPORT

By THE COMMISSION Helen Delich Bentley Ohairmanj James F

Fanseen Vice Ohairmanj Ashton C Barrett and James V Day

oommi8sioners

This proceeding was initiated by the Commission on August 7 1970

to determine whether proposed pooling agreement Nos 9847 and

9848 are unjustly discriminatory orunfair as between carriers whether

149
150 FEDERAL MARITIME COMMISSION

they will operate to the detriment of the commerce of the United

States or be contrary to the public interest or in violation of the

Shipping Act 1916 within the meaning of section 15 of that act

or whether they will subject particular traffic to undue and unreason

able prejudice and disadvantage in violation of seotion 16 of the act

In order to expedite proced1 lr the Commission sat en bane on Sep

tember 9 10 and 16 1970 for the taking of evidence 1Briefs were

subsequently filed and oral argument held on October 6 1970 This

decision constitutes the Commission s final decision in this

proceeding

Agreement 9847 between Moore McCormack Lines Inc Mormac

a U S flag carrier as one party and Companhia de Navegacao Lloyd

Brasileiro S A Lloyd and companhia de Navegacion Maritima

Netumar Netumar as theotherparties establishes a revenue pooling

and sailing arrangement in the southbound trade between all ports on

the Atlantic Coast of the United States to ports on the Coast of

Brazil in the Fortalez a Porto Alegre range both inclusive 2

Agreement 9848 is between Delta Steamship Lines Inc Delta a

U S flag line and the parties of Lloyd and Navegacao 11erchantil

SIA Navem Navem both Brazilian flag lines This agreement

establishes a similar pooling and sailing arrangement concerning the

southbound trade from U S Gulf ports to ports in Brazil in the

Recife Paranagua range both inclusive 3

The agreements are substantially identical in their provisions Both

agreements covers the carriage of aU cargo carried by the signatories

government and commercial with the exception of dry and liquid

bulk cargo mail cargo of non U S origin transshipped at a U S

Atlantic port and cargo originating in the United States and trans

shipped via any Brazilian port to a destination which is not a pool

port Other relevant and essential provisions of the agreements provide

for the following

a Equal access to cargoes controlled by both the United States

and Brazilian Governments The parties commit themselves to act

through appropriate governmental channels to assure that the legal

andlor administrative regulations and practices in force regarding the

reservation and protection of cargo are extended equally to both

parties

1 Under the Commission s Rules of Practice and Procedure Moore McCormack Lines

Inc Delta SteamShip Lines Inc Companhia de Navegacao Lloyd Brastleiro S A

Companhia de Navegacton Maritima Netumar and Navegacao Mercantil SIA Navem were

designated respondents Norton Line Ivaran Lines and The Northern Pan American Line

weredesignated petitioners

Acopy of agreement 9847 is available at the Federal Martttme Commission

A copy of agreement 9848 isavailableat the Federal Maritime Commission

14 F M C
AGREEMENT NOS 9847 AND 9848 151

b Rationalization of sailings with an agreement that the parties

will provide sufficient cargo capacity to satisfy the needs of the trade

each party having agreed to maintain a minimum number of sailings

per calendar year An increase in the number of minimum sailings

may be agreed upon but is subject to prior approval ofthe appropriate

governmental authorities of the United States and Brazil

0 No infringement on the right of third flag ships to compete

for cargoes availableto them

d The pooling of revenue between the parties with the following

stipulations

1 Sixty percent of average revenue ofboth parties to be con

sidered handling charges

2 No pooling of the first 100 000 of ovelcarriage revenue

after deducting the agreed handling charge

3 Extra length heavy lift and ad valorem charges are in

cluded in the po l account however surcharges taxes and port

differentials are to be excluded

e A 3

year approval

I

Periodic meetings among the principals in order to adjust the

agreements in linewith the needs ofthe trades

g

An exchange of manifests and other shipping documents

through a pool accountanf and

h The rates rules and regulations to be applied are those con

tained in the schedules issued by the parties which at this time are

set forth in the tariff of the Inter American Freight Conference

IAFC ofwhich all parties are members

Petitioners Norton Line Swedish flag and Ivaran Lines Nor

wegian flag appeared in opposition to approval of agreement 9847

The Northern Pan American Line Nopal Norwegian flag ap

peared in opposition to approval of agreement 9848 The Department

of Transportation intervened but did not actively participate in the

proceeding

BACKGROUND

The U S Atlantic Gulf Brazil trade has been in a state ofturmoil

for many years while Brazil has endeavored to unilaterally protect

and foster its Merchant Marine through the issuance of a large num

ber of decrees laws resolutions and bulletins These governmental

edicts going back as far as 1959 may be summarized as follows

a Establishment of a

program to upgrade the foreign commercl

fleet of Brazil with new ships constructed both in Brazil and in for

eign shipbuilding centers

14 F M C
152 FEDERAL MARITIME COMMISSION

b An effort to carry a substantial portion of the foreign com

merceofBrazil in Brazilian ships

0 The stated position that the trade between two nations should

be carried predominantly by the ships ofthose nations

d The understanding that reciprocity in the carriage of govern

ment controlled cargoes should be granted to ships of nations that

guarantee like treatment to Brazilian flag ships

e The position that all cargoes favored with exchange or tax

privileges and all cargoes generated by governmental entities are

considered government controlled cargoes see Decree Law 666 issued

in July 1969

I Equal access to controlled cargoes will depend on the degree

ofreciprocity granted by other nations

g Controlled cargoes may be waived to third flag ships

h No shipping lines may engage in Brazils foreign commerce

unless they belong to conferences participated in by Brazilian carriers

and

i Brazilian lines are encouraged to negotiate agreements vith

other shipping lines in the same trade bearing in mind the Brazilian

Government objective to have Brazilian ships carry a substantial por

tion ofBrazils foreign commerce

Since 1960 numerous efforts to stabilize conditions in the trade have

met with failure A primary issue in the negotiations in both agree

ments has been the question of equal access to Brazilian Govern

ment controlled cargo moving southbound

In October of 1960 10rmac and Lloyd reached agreement on equal

participation by the parties in the transportation of cargo from the

US Atlantic Coast to Brazil The Commission on May 25 1965

dockets 921 and 928 4

approved this southbound pool on two condi

tions a deletion therefrom of all reference to commercial cargo

and b deletion therefrom of article 10 of the agreement which was

concerned with the cooperative solicitation of cargo These conditions

were not acceptable to the Brazilians and the agreement consequently

wasnot effectuated

In June of 1967 at a principal s meeting ofthe then existing seven

conferences in the trade in Rio de Janeiro efforts were made to reach

agreements on northbound coffee pools Since no agreement could be

reached the Brazilian lines withdrew from the conferences and

formed with the U S lines a new conference covering both north

bound and southbound movements of all cargo between the U S At

lantic and U S Gulf ports and the East Coast of South America

Brazil Oonference et aZ v Brasileiro Moore McOormack Lines 8 FMC 476 1965

14 F M C
AGREEMENT NOS 9847 AND 9848 153

This new conference known as the Inter American Freight Confer

ence now is operating under a Commission approved agreement

FMC No 9648 A European third flag lines serving the trade even

tually entered the IAFC and the original seven conferences were

disbanded

Following the withdrawal ofthe U S and Brazilian lines from the

seven original conferences a new principals meeting was held in Rio

de Janeiro in October 1967 at which the Brazilians agreed in prin

ciple with the European lines on northbound coffee quotas together

with certain southbound guarantees for the European third flag

carriers October 28 1967 The Brazilians subsequently assigned

coffee carriage percentages to the American lines without their con

eurrence orparticipation These percentages were totally miacceptable

to the US carriers as being entirely too low and out of concert with

theirpast carryings northbound in the trades

The lines serving the Nolth Atlantic Brazil trade did execute cof

fee cocoa and general cargo pooling agreements FMC Nos 9682

U683 and 9684 following the formation of the IAFC The general

cargo pool expired under its own terms prior to approval and effec

tuation The coffee and cocoa pools were effectively nullified by the

Commission in its decision in docket 68 10 served September 4 1970

when that proceeding was discontinued for lack of jurisdiction

In 1967 Netumar and Navem entered the Atlantic Coast to Brazil

and Gulf to Brazil trades respectively This action was prompted

by a Brazilian Government move to encourage the entrance of pri

v ately owned shipping companies flying the Brazilian flag into the

Brazilian foreign commerce

On June 11 1967 a l1emorandum of Understanding signed by

Maitland Pennington of MARAD and PauloStrauss ofthe Brazilian

Merchant l1arine Commission the predecessor to SUNAl1AN gave

equal access to Brazilian and U S Government controlled cargoes

to both American and Brazilian lines The l1emorandum however

provided only for waivers under P R 17 of Export Import Bank

cargoes but no other US Government controlled cargoes At the

October 1967 IAFC principals meeting the Brazilians feeling this

arrangement too one sided repudiated it

On August 7 1968 Delta Lloyd and Navem reached agreement on

a

equal access to government controlled cargo b rationalization

of sailings and c an equal sharing of cargo to be carried by Delta

and the Brazilian lines on a flexible payment ton formula The

agreement did not provide for the exchange of revenue but called for

adjustments in cargo carrying to reach equality between the parties

14 F M C
154 FEDERAL MARITIME COMMISSION

The agreement was approved by the FM C on December 3 ID68 0

a I

year trial basis Although manifests and other shipping docu

ments were exchanged by the lines for three fourths of a

year th

agreement was never implemented and as permitted to expire N

renewal ofCommission approval wassought

As a result of Brazilian Decree Law 666 on August 13 1969 a

interim Rationalization and Cargo Agreement was drawn up an

signed by 10rmac The National Superintendency of the Merchan

farine SUNAMAN denied approval stating that any agreemen

of such nature can be approved only if it coversboth government COl

trolled and all other cargoes carried by the companies signatories o

the agreement in the traffic between the two interested countries

In March 1970 a Memorandum of Consultation as agreed to b

United States and Brazilian Government representatives The unde

standing covered the following guidelines

a The Brazilian and United States Governments will enter an agreemen

providing for equal access to government controlled cargoes except such gov

ernment controlled cargoes as the Brazilian Government may waive to third

flag lines

b The agreement will provide for the equal division on a revenue basi

Iletween the national lines of the two countries of government controlled cargoes

c Ifthe third flag lines are willing to enter into revenue pools inthe north

bound trade on a basis which is acceptable to the United States and Brazilia

lines then the Brazilian Government will release by waiver sufficient freigh

for the third flag carriers to come up to the southbound share agreed upon fo

them by the lines in the conference

d The United States and theBrazilian lines will enter into a revenue pool i

the southbound trade providing for an equal division of revenue arising from

uch trade as they may carry hetween them

e Pools hased on re enue and specifying shares for all lines serving th

U S North Atlantic and Gulf Brazil trade in coffee and cocoa will be negotiated

by the conference members

f

The details of the pooling agreements such as the number of sailings

over and under carriage provisions and similar matters will be determined by

the lines which are parties to them

g Agreements should not exceed 3 years initially but may be renewable

h Agreements should relate only to cargoes covered by the JAFC

i The southbound equal access provisions will become effective upon agree

ment by all lines participating in the conference to negotiate the northbound

and southbound agreements described herein Equal access agreements shall no

be terminated during the period of negotiations among the lines

j

The Governments of the United States and Brazil will take action to stop

rebating activity in the northhound trade and

k The Government of Brazil and the Government of the United States

will consult with each other before either government terminates the equa

nccess prol isions which have been put into effect

14 F M C
AGREEMENT NOS 984 7 AND 9848 155

In April 1970 the IAFC principals reconvened and again failed

to reach a pooling agreement on a multilateral basis because of con

tinued inability to agree on apportionment of cargo Subsequent to

adjournment 1ormac Lloyd and Netnmar initiated negotiations

which resulted in the signing of agreement FMC No 9847 U S

Atlantic Coast Brazil trade southbound only which is before the

FMC for approval in this docket At the same time Delta Lloyd and

Navenlnegotiated a similar agreement F 1C No 9848 also before the

Commission covering southbound cargo between the U S Gulf Coast

and Brazil

DISCUSSION AND CONCLUSIONS

It is in the best interest of the commerce of the United States to

achieve insofar as posssible stability in the southbound trade between

the United States and Brazil We conclude on the record herein agree

ments 9847 and 9848 will contribute substantially to that stability

thereby benefiting the commerce of the United States without infring

ing upon the requirement under the Shipping Act 1916 that all car

riers regardless of flag be accorded equal treatment under the laws

administered by the Commission 5

No violation of sections 15 or 16

oftheShipping Act exists

The agreements although admittedly anticompetitive devices have

been shown by respondents to be necessary under present conditions

existing in the trade areas served In 1966 in the Mediterranean Pools

Investigation case we explicitly set forth a guide for approving pool

ing agreements wherein we said that

T he question of approval under section 15 requires 1 consideration of

the public interest in the preservation of the competitive philosophy embodied

in the antitrust laws insofar as consistent with the regulatory purpose of the

Shipping Act and 2 a consideration of the circumstances and conditions exist

ing in the particular trade involved which the anticompetitive agreement seeks

to remedy or prevent The weighing of these two factors determines whether

the agreement is to be approved For presumptively all anticompetitive

combinations run counter to the public interest in free and open competition

and it is incumlJent upon those who seek exemption of anticompetitive combi

nations under section 15 to demonstrate that the combination seeks to eliminate

or remedy conditions which preclude or hinder the achievement of the regulatory

purposes of the Shipping Act

6

Again in 1968 in FillO v Svenska Ame rika Linien 390 U S 238

1968 we required that those proponents seeking to impose restraints

Ii Nopal v Moore McOormack 8 FMC 213 1964 AllegedRebates of Mitsui S S 00 Ltd

7 FMC 248 1962

6 Mediterranean Pools Investigation 9 FMC 264 290 1966 For an earlier statement

of the same standards see Oalifornia Stevedore and Ballast 00 v Stockton Port District

7 FMC 75 1962

14 F M C
156 FEDERAL MARITIME COMMISSION

which interfere with the policies of the antitrust las must demon

strate that the restraints are required by a serious transportation need

necessary to secure important public benefits or to be in furtherance

of some valid regulatory purposes

7

Ve now affirm those standards and

base our approval herein on findings consonant with those prior

decisions

Agreements 9847 and 9848 are concerned with an estimated 80 to

85 percent that being the best estimate available on the record 8

of

the cargo moving southbound in the trade from the Atlantic Coast

and Gulf to ports of the East Coast of Brazil together with such

uncontrolled commercial cargo that the signatory lines carry

Respondents and hearing counsel have taken the position with

which we concur that no evidence waspresented which indicates with

any degree of certainty that the competitive situation will be changed

to any significant degree by approval Atthe present time third flag

lines carry approximately 15 percent of the cargo in this trade They

participate to a limited extent in the carriage of cargo controlled by

the Brazilian Government not by any existing right but by virtue

of waivers issued by Brazilian authorities These waivers are granted

when it appears the Brazilian flag vessels first and the U S vessels

second cannot handle the cargo offered Therefore the effect of these

agreements will be to grant the U S lines and Brazilian lines equal

access to the 80 to 85 percent United States and Brazilian Govern

ment controlled cargo moving in the trade It is this equal access

provision which is the heart of the agreements and the primary

reason they werenegotiated Simply the provision calls for reciprocal

rights to carry the controlled cargoes ofthe United States and Brazil

by national flag carriers of each country without the necessity of ob

taining waivers As was repeatedly brought out in the arguments of

hearing counsel and the respondents the mutual benefit accnling to

the signatory lines from such an arrangement is fully apparent The

agreements make participation in the carriage of cargoes otherwise

largely inaccessible to nonBrazilian lines available to the signatory

lines Non government controlled cargo carried by the signatories is

subject to the agreements however third flag lines will remain free

to compete on equal terms forthe carriage ofthat cargo

Therefore the realities of the trades necessitate these agreements

In order to preserve their own participation in the South American

7

FMCV Svenska Amerika Linien 390 u s 238 243 1968

8Whether a certain commodity Is or Is not government controlIed is not capable of a

precise definition as the same commodity may at one time be government controlled but

not at other times The consensus seems to be that the best estimate of government

controlled cargo moving in the southbound trade Is between 80 and 85 percent

14 F M C
AGREEMENT NOS 9847 AND 9848 157

trades certain Scandinavian lines have likmvise entered into agree

ments with Brazilian lines which apportion the cargo carried in the

trades between South America and their own countries 9Those agree

ments show not only the implementation of the policies of Brazil

but they show the willingness of the national flag lines of those Scan

dinavian countries to participate in such agreements In addition as

we stated in docket No 6748 Inter American F1 eight Oonference

Agreements Nos 9648 and 9649 and other Related Agreements 11

F 1C 332 1968 approving the IAFC discussed above

We are notcited to nor can we find anything insection 15 or any

other provision

of the Shipping Act which would render unlawful an agreement between c rriers

operating between two countries to recognize the publicly announced policies

of those countries 10

Itis apparent from the petitioners case opposing approval of the

agreements that central to their concern is the fear that operation

of the agreements will in effect eliminate them from the trades or at

the least cause them sufficient seriolU injury so that the quality of

their service would decline appreciably and that this would be un

justly discriminatory and unfair as between carriers in violation of

the 1916 act detrimental to the commerce of the United States and

contrary to the public interest vVe find ourselves unable to conclude

that this will or is likely to happen As aptly stated by hearing coun

sel the evidence on balance simply does not show that the proposed

agreements will eliminate or seriously restrict them The evidence

adduced at the hearing while indicating that there may be some lim

ited disadvantage to the third flag carriers flowing from these agree

ments does not support their contention that they will be driven from

the trade by virtue of these agreements or indeed even irreparably

damaged Speculation is the principal basis for petitioners conten

tion and the evidence present P

dby them wasof a basically conjectural

nature concerning hat they thought might happen There is no sub

stantial evidence to support either the conclusion that third flag lines

will be deprived ofthe opportunity to equally compete for nongovern

ment controlled cargo or that cargo designated as government con

trolled cargo will be substantially increased resulting in the elimina

tion of or substantial decrease in free noncontrolled cargo available

for third flag competition

9An example of pooling agreements executed by Brazilian lines under government

sanction with carriers of other nations can be found in the Memorandum of Agreement

signed on Oct 9 1969 with the shipping lines of Finland Norway Sweden and Denmark

dealing with the trade of each of these countries with Brazil A copy of this agreement is

a ailable at the FMC and MARAD see exhibits 8 and 9 Agreements of similar nature

have also been executed with other European countries

10 Docket No 6748 Inter American Freight Conference Agreements 11 FMC 332 337

1968

14 F lIC
158 FEDERAL MARITIME COMMISSION

To attribute the conjectured disadvantage to third flag lines to the

agreements before us is unrealistic It is not the agreements which

basically cause limitations on third flag lines Rather itis the Brazil

ian laws and decrees and the U S cargo preference laws which limit

the operations of the third flag lines Historically the US flag lines

have carried the major portion of the cargo moving between the

United States and Brazil The Brazilian Government determined to

insure the participation of its flag vessels in all trades has issued

decrees to effectuate that purpose Likewise the impact of these de

crees especially Decree Law 666 issued in July 1969 has resulted in

a lossof cargo by U S lines Since Decree Law 666 Mormac and Delta s

southbound carryings and their success in obtaining yaivelS to carry

Brazilian Government controlled cargoes have been materially

impaired

Cognizant of these facts we are unable to deduce more from the

petitioners case than a suspicion of possib le increasingly adverse con

sequences of an indirect nature There is no solid evidence that the

presently available commercial cargo whatever its extent will not

continue to be open to petitioners nor that they will not be able to

continue to receive waivers of Government controlled cargo if the

agreements are approved Therefore we conclude that at this time it

does not appear that the status quo will be appreciably altered with

reference to third flag participation in the trade

There is considerable similarity between the problem before us and

the problem presented tv the Commission in Alcoa v Oompania

Anonima Venezolana Navegacion 7 Fl1C 345 1962 aff d sub nom

Alcoa Steamship 00 v Fl O 321 F 2d 756 D C Cir 1963 where

the Commission approved an agreement between a Venezuelan Gov

ernment owned line CAVN and Grace Line Inc Grace In

that case the Venezuelan Government similarly had emphasized a

nationalistic shipping policy with the issuance of numerous decrees

the effect of which was to reduce significantly Grace s participation

in the trade The Commission found that on balance the evidence

did not show that the agreements would eliminate orseriously restrict

he third flag lines in the trade l1 Ittook the view which we now affirm

that something more than a fear of increased competition is neces

sary to justify a

finding that an agreement is unjustly discriminatory

or unfair a between carriers contrary to the public interest or other

wise merits disapproval under section 15 of the act 12

In the Alcoa OA VN case the Commission cited TVest Ooast Line

Inc v Grace Line Inc 3 FMB 586 1951 wherein the Federal Mari

11 Alcoa 8 8 Co Inc v Cia Anomma Venezola1ta 7 FMC 345 359 1962

12Id at361

14 F M C
AGREEMENT NOS 9847 AND 9848 159

time Board in upholding the poolingagreements in question dismissed

the issue of unjust discrimination under section 15 with the following

language particularly relevant to the present agreements

One thing seems reasonably clear and that is that the pooling agreements be

tween respondents were notentered into forthe purpose of eliminating complain

ants as a factor in the trade Itwas readily testified to by a vitness of Grace

that the Chilean regulations were a very important motivating circumstance that

led to the execution of the pooling agreements The pooling agreements developed

as the result of a num Jer of other factors also Jut the Chilean regulations were

clearly dominant

This Board is only able to decide cases on the evidence of existing facts and

the reasonable deductions to be drawn therefrom It is not authorized to base

decisions on speculative posiJilities However the Board points out that a find

Ing at this time that the operations of the pooling agreements inquestion do not

tOday result inunfair discrimination does notclose the door to a reexamination

of the same pooling agreements at a future date if changed conditions bring

about changed results Section 15 of the Shipping Act 1916 expressly provides

that the Board may disapprove cancel or modify any agreement

whether 01 not previously tpp1 oved by it that it finds to be unjustly discrim

inatory or unfair etc Emphasis ours

13

As our predecessors pointed out in that decision our present ap

proval of agreeme lts 9847 and 9848 in no way limits our section 15

right of reexamination at any future date should changed conditions

bring about changed results V

T

e shall closely follow the progress of

these agreements in alleviating the instability that plagues the trades

in question At this time however we find it unnecessary to lll1pose

additional reporting requirements on the parties as requested by hear

ing counsel because any requirements above those provided in the

agreements would not yield benefits commensurate with the work

involved in their preparation

Our decision to approve agreements 9847 and 9848 is not in conflict

with the guidelines established in our decision in docket 68 10 lnter

American Freight Oonference Oa1 goPooling Ag1 eements Nos 9682

9683 and 9684 14 FillO 5862 September 4 1970 Before setting forth

those principles in docket 68 10 which we indicated would guide our

deliberations in cases sllch as this one we offered the following prelim

inary caveat

Guidelines are nothing more than broad canals within which future action

may be channeled with some reasonable assurance of its validity As such guide

lines do not decide specific cases Time circumstance and the fact of the indi

vidual case can and proba Jly will alter the guidelines to some greater or

lesser extent We offer this fact of administrative life only because our past

experience has been that all too frequently broad and necessarily flexible policy

18 West Ooast Line Inc v Grace Line Inc 3 FMB 583 594 195 19M

14 F M C
160 FE ERAL MARITIME COMMISSION

statements have been played back as narrow and ironclad precedents which are

said to dictatea particular conclusion ina given case

14

Therefore it as not ourintent in docket 68 10 to render a blanket

prohibition against approval on all pooling agreements Rather it

was our intent to forewarn potential parties to such agreements that

pools not grounded on economic or commercial reality and based in

stead solely on the grounds of national interest without deference to

shipper desires or the efficiency of the operator or the worth of the

service rendered would not meet the critieria under section 15 for

Commission approval 15

We affirm ourstatement in docket 68 10that

There is simply no room under section 15 for the approval of a pooling agree

ment which embodies discriminatory or unfair quotas dictated by governmental

law regulation decree ukase orfiat 16

However as hearing counsel and respondents have demonstrated no

attempt to unlawfully favor any flag carriers is embodied in these

agreements rather their purpose is remedial to overcome present

inequities prevailing against respondents in their southbound carriage

No treatment ofpetitioners with an uneven hand orattempt to favor

national flag carriers in violation of sections 15 and 16 first of the

Shipping Act exists as was the situation in NopaZ v lJloore lJlcOor

lnack 8 F 1C 213 1964 or in Fl1C docket 68 10 supra

ULTIMATE CONCLUSIONS

In summation and upon the record before us we have reached the

following conclusions

First that the purpose of these agreements is to rationalize sailings

and to provide U S lines with equal access to government controlled

cargo

Second that the participation of third flag lines in carriage of

cargo in this trade will not be affected to any significant degree in

relationto the cargo they now carry

Third that approval of these agreements will contribute substan

tially to stability in the southbound trade between the United States

and Brazil thereby fulfilling a serious transportation need without

constituting unjustly discriminatory orunfair treatment between car

riers The agreements will neither operate to the detriment of the

commerce of the United States or be contrary to the public interest

14 FMC docket 68 10 Inter American Freight OonJerence Oargo Pooling Agreement8

NOB 9682 9688 and 9684 14 FMO 58 62

15Id 72

18 1d 2

14 li M C
AGREEMENT NOS 9847 AND 84 161

ot in violation of the act within the meaning qf se tion 15 nor will

they subject particular traffic to undue and tmreasomtble prejudice and

disadvantage in violation of section 16 of the act

Fourth that should the competitive situation be so adversely af

fected as petitioners fear this Commission retains jurisdiction over

these agreements and upon proper showing may require their modi

fication or disapproval at any time

Agreements 9847 and 9848 are approved for a 3 year period as

requested

oommissioner GEORGE H HEARN concurring

Iconcur in the conclusions reached by the majority in this case

and I

agree generally with the majority report However Iwish to

make a few observations onsome aspects ofthis case

There can be no doubt that the trades involved herein have been in

a state of instability in recent years and that such a situation is un

desirable and detrimental to the foreign commerce of the United

States Furthermore Ifind no factor inherent in the type of agree

ments before us to render them unapprovable and Iconsider them

well suited to overcome the difficulties in the trades to which the agree

ments apply

However Ithink we should realize that these agreements do more

than correct instability The instability involved is not the result pri

marily of commercial interaction but of government action specifi

cally designed to create conditions which would require agreements

ofthe kind we are approving

Thus our approval is a

recognitionof prevailing political and com

mercial realities in international trade And as Isaid in docket No

68 10 17 Under appropriate circumstances and conditions vhat may

be unlawful conduct in one instance may be lawful in another

and activity which this Commission may be powerless to approve

under section 15 may be permissible or noninterdictable when such

approval is not sought Furthermore as to action colored by govern

ment measures and amenable to our approval Ifthe commerce of

the Unitied States is not adversely affected such action may not be

violative of our laws 18 and its approval may be both desirable

and necessary vVe cannot forestall the changes in technology

and politics which are radically altering traditional rights and

prerogatives 19

17 Inter American Freight Oon erence Oargo Pooling Agreements Nos 9682 968S and

9684 14 FMO 58 75

lSld 76

191d 77

14 F M C
162 FEDERAL MARITIME COMMISSION

Nevertheless it should be made clear that there must be a limit not

only to the extent and purpose to which the national interest factor

may be used There is a limit also to the methods by which govern

ments may seek to introduce even a

permissible level of national

interest into commercial activities International shipping policies

ofgovernments and carriers to obtain in the foreign waterborne com

merce of the United States must not transgress the bounds created by

Congress in our antitrust laws Itis only within this framework and

that of our shipping statutes with the exceptions and exemptions

created therein that the Federal aritime Commission may accept

or approve conduct in the foreign waterborne commerce of the United

States

Itcannot be said that utilization of a national interest factor is

generally good or bad Cargo control and preference laws for ex

ample can be ligitimate expressions of the needs of nations When

however national interest is dvanced at the expense ofall other con

siderations it can hinder reliable ocean service But properly utilized

national interest can produce trade stability especially as here where

government activity on both sides is aimed at such goals as elimina

tion ofovertonnaging and maintenance of efficient Service That agree

ments implementing national interests benefit the carriers ofthe coun

tries involved does not per se render themunapprovable

Likewise speculation that such agreements may prove at some fu

ture t

ime to be detrimental to our commerce or otherwise in violation

of our laws is not a

ground for disapproval Section 15 agreements

are restrictive of competition but Congress has determined that this

departure from our antitrust principles is permissible when placed

under appropriate regulation Consequently the Federal IVraritime

Commission has as one ofits functions the surveillance over approved

section 15 agreements to ward against their operation in violation of

law

For the reasons set forth in the majority report and in accordance

with the foregoing comments Iconcur in the conclusions ofthe major

ity in approving agreements Nos 9847 and 9848

FRANCIS C HURNEY

Recreta ry

SEAl

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 7042

AGREEMENT No 9905

Decided November 28 1970

Agreement No 9905 providing for purchase of four vessels uy American Export

Isbrandtsen Lines Inc from MooreMcCormack Lines Inc approved

Richard W Kurrus for respondent American Export Isbrandtsen

Lines Inc

John Mason Edward M Shea and Paul J McElligott for respond

ent Sea Land Service Inc

111arvin J Ooles and Paul N Tschirhart for respondent Seatrain

Lines Inc

Arthur M Becker for intervener Moore McCormack Lines Inc

REPORT 

By THE COM fISSlON Helen Delich Bentley Ohairman James F

Fanseen Vice Ohairman Ashton C Barrett James V Day

George H Hearn Oommissioners

On August 14 1970 Moore McCormack Lines Inc Mormac and

American Export Isbrandtsen Lines Inc AEIL entered into an

agreement of purchase and sale whereby AEIL agreed to purchase

from Mormac four so called ro ro vessels the SS Mormacsea SS

1II01 macsky SS Mormacstar and SS Mormacsun Notice ofthis agree

ment was published in the FEDERAL REGISTER on October 17 1970 and

protests to the approval of the agreement which we have designated

as agreement No 9905 were filed by Seatrain Lines Inc Seatrain

and Sea Land Service Inc Sea Land both of which requested

a hearing Because both protestants indicated that their interests with

respect to the sale of the ro ro vessels centered upon the use to which

AEIL intended to put such vessels the Commission instituted this

proceeding by an order to show cause served October 30 1970 which

provided that AEIL file an affidavit indicating its future operational

163
164 FEDERAL MARITIME COMMISSION

plans for the four Mormac vessels together with other operational

data demonstrating that agreement 9905 should be approved and

ordered Sea Land and Seatrain to show cause why the agreement

should not be approved Mormac intervened on November 5 1970

and it and AEIL have filed affidavits herein

Neither Sea lJand norSeatrain now opposes our approval of agree

ment 9905 Seatrain has by statement filed November 13 1970 with

drawn from the proceeding based upon the statement in AEIL s

affidavit that the acquired vessels will not be used in competition with

Seatrain in the North Atlantic Northern European trade Seatrain

therefore declares that it has no further objection to agreement No

9905 Sea Land on the other hand as was indicated in our order to

show cause in this proceeding is concerned not with the agreement of

sale and purchase as such or even with the authority which must be

obtained from this agency prior to effectuation of the agreement but

only with the use made of the vessels by the buyer pursuant to an

operating differential subsidy contract We have no jurisdiction over

the payment of operating differential subsidies and the use made by

carriers of vessels operating pursUJant to such subsidies Sea Land has

in fact recognized this by saying that it does not object to the Com

mission s passing on the approvability of agreement 9905 without

hearing ifthe Commission holds that the subsidy issue is not reached

in deference to the primary jurisdiction and expertise of the MAl

MSB

We are thus presented with an agreement with respect to which

no party desires a hearing and to which no party objects with respect

to any matter which is within our jurisdiction We believe that the un

contested affidavits in support ofagreement 9905 submitted by 1anuel

Diaz vice chairman and chief executive officer ofAEIL and vVilliam

T Moore chairman ofthe board of directorsand chief executive officer

of Mormac provide a substantial basis for approval of the proposed

agreement As indicated in these affidavits agreement 9905 provides

merely for the sale of the vessels and contains no other commitments

understandings or undertakings of any nature between Mormac and

AEIL AEIL is not purchasingthe Mormac North Atlantic service

there is no merger or consolidation of assets between the companies

there will be no continuing arrangement between the parties as a

result ofthe sale there is no transfer ofoperating subsidy rights from

Mormac to AEIL and there is no understanding between the carriers

in any way restricting or limiting future competition between them

The sale and purchase of the subject vessels was approved by the

Maritime Administrator and the Maritime Subsidy Board on Oc

14 F M C
AGREEMENT NO 9 905 165

tober 19 1970 In fact as the uncontested affidavits of the carrier par

ties indicate the agreement not only has not been shown as likely to

have detrimental effects but appears to afford substantial benefits to

the foreign commerce of the United States and to the public interest

The high speed of the Mormac vessels will allow the AEIL to in

crease its port coverage thus allowing shippers a more comprehensive

direct service and benefiting added ports as well The public will be

afforded the use of a new and modern high speed roll on roll off

service not presently available in the trade in which AEIL states the

acquired vessels will be used The operation ofthe vessels in this trade

furthermore does not appear to result in an appreciable increase of

capacity which could cause overtonnaging

The Commission of course retains jurisdiction under section 15

over agreement 9905 and can at any time either upon complaint or of

its own motion reexamine the agreement to see whether it should be

cancelled disapproved or modified vVe make one final observation

vith respect to the course followed by the Commission in this pro

ceeding although perhaps such is not required because of Seatrain s

withdrawal therefrom Seatrain had maintained that the issuance of a

show cause order in this case improperly shifted the burden of proof

on to the carriers protesting approval of a section 15 agreement The

burden of proof has not been transferred to the protesting carriers by

the issuance of a show cause order in this proceeding The burden of

proof with respect to approval of a section 15 agreement ultimately

rests with the Commission The Commission must of course adduce

substantial evidence to support a finding under one ofthe four stand

ards of section 15 FMO v Svenska Amerika Linien 390 U S

238 244 1968 Similarly the proponent of a

proposed agreement may

be required to come forward with information concerningsuch agree

ment and it is for this reason that the show oause order issued herein

provided thatAEIL furnish information which would tend to demon

strate that agreement 9905 should be approved under section 15 The

requirement that protestants to this iagreement show cause why it

should not be approved merely placed them under the obligation to

come forward with information in support of the allegations made in

their protests

Based upon the uncontested affidavits submitted in this proceeding

we conclude that agreement No 9905 is approvable under section 15

Therefore it is ordered that lagreement 9905 is approved and that

this proceeding is hereby discontinued

SEAL FRANCIS C HURNEY

Secretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 7043

ATLANTIC AND GULF WEST COAST OF SOUTH AMERICA CONFERENCE IM

POSITION OF A BUNKER SURCHARGE ON LESS THAN 90 DAY TARIFF

FILING NOTICE

Decided December 11 1910

Imposition by the Atlantic and Gulf West Coast of South America Conference

of n bunker surcharge in response to rising fuel costs on less than 90 day

notice found to be violative of section 14b 2 of the Shipping Act 1916 and

article 10 c of the Conference s Merchants Freighting Agreement

Rising bunker costs under the facts herein do not constitute an extraordinary

condition within the meaning of Article10 c of the Merchants Freighting

Agreement nor do such increased costs unduly impede obstruct or delay

the carriers service within the context of said clause

David Orlin and Jose A Oabranes in behalf of Atlanticand Gulf

WestCoast ofSouthAmerica Conference

Joseph B Blunt and Donald J Brunner hearing counsel

REPORT

By THE COMMISSION Helen Delich Bentley Ohairman James F

Fanseen Vice Ohairman Ashton C Barrett James V Day

George H Hearn Oommissioners

This proceeding was instituted to determine whether the blUlker sur

charge imposed on 30 days notice by theAtlanticand Gulf West Coast

ofSouth America Conference violates section 14b 2

1

ofthe Shipping

Act 1916 as amended theact and article 10 c

2

oftheir Merchants

1

Section 14b 2 provides

That whenever atariffrateforthe carriage of goods under the contract becomes effective

insofar as it is under the control of the carrier or conference of carriers it shall not be

increased before a reasonable period but in no case less than 90 days

2

Article 10 c provides

In the event of any extraordinary conditions not enumerated in article 10 a which

conditions may unduly impede obstruct or delay the obligations of the carriers the

carriers may increase any rate or rates affected thereby in order to meet such conditions

provided however that nothing in this article shall be construed to Ilmit the provisions

of s tion 18 b of the Shipping Act 1916 in regard to the notice provisions of rate

changes

166
ATLANTIC AND GULF WEST COAST OF SOUTH AMERICA 167

Freighting Agreement and accordingly why the Commission should

not order the respondents o defer the effective date of their bunker

surcharge a sufficientperiod oftime to satisfy the 90 day notice require

ments The proceeding was limited to the submission of affidavits and

memoranda and by agreement of the parties oral argument was dis

pensed with The Conference submitted an opening brief supported by

affidavits of officials of the Conference s two American flag member

lines John J Haggerty of Prudential Grace Lines Inc Prudential

and Lloyd Strickland of Gulf and South American Steamship Co

Inc G SA Hearing counsel subsequently submitted a brief in

reply to which 1r Haggerty was given the right of response by sup

plemental affidavit No petitions to intervene were filed vith the

Commission

FACTS

The Conference operates in the U S Atlantic and gulf to west coast

of South America trade pursuant to Commissioin approved Agree

ment No 2744 Italso maintains a dual rate contract system approved

by the Commission

On October 23 1970 the Conference submitted to the Commission a

telegraphic revision of its Southbound Tariff SA 12 FMC 1 insti

tuting a bunker surcharge of five percent on all contract noncon

tract special charitable and industrial contract rates effective N0

vember 23 1970 On October 26 1970 the staff of the Commission

sent a telegram to the Conference stating its view that the surcharge

required 90 day tariff notice and requested that the effective date be

altered accordingly On October 28 1970 the Conference rejected the

staff s view and requested a formal ruling by the Commission on the

matter To allow for such ruling the Conference deferred the effective

date ofthe surcharge to November 30 1970

The Conference instituted its bunker surcharge relying upon the

authority granted under section 10 c

3

of the Merchants Freighting

Agreement drafted and approved by the Commission to increase on

30 days notice any rate or rates affected by any 1 extraordinary

conditions not enumerated in article 10 a

4

which may 2 unduly

3Id

Article 10 a provides

In the event of war hostilities warlike operations embargoes blockades regulations

of an governmental authority pertaining thereto or any other official interferences with

commercial intercourse arising from the above conditions which affect the operations

of an of the carriers in the trade covered by this agreement the carriers may suspend

the effectiveness of this agreement with respect to the operations affected and shall

notify the merchant of such suspension Upon cessation of any cause orcauses of suspension

set forth in this article and invoked by the carriers said carriers shall forthwith reassume

their rights and obligations hereunder and notify the merchant on 15 days written

notice that the suspension is terminated

4 F M C
168 FEDERAL MARITIME COMMISSION

impede obstruct or delay the obligations ofthe carrier Article 10 c

thus grants an exception under the appropriate conditions to the

ordinary requirement of 90 days notice for a rate increase as required

by section 14b 2 ofthe act

The Commission in its order to show cause or November 4 1970

expressed the opinion that the cost of bunkers transpiring in the

Conference trade since January 1 1970 does not constitute an ex

traordinary condition withinthe meaning of article 10 c ofthe Mer

ehants Freighting Agreement and that sueh inereased costs will

not unduly impede obstruct or delay the carriers service within the

eontext of said clause The Conference on the other hand stated that

it was the view of its members that the increase in bunker prices in

l eeent months went far beyond any situation which could have been

reasonably antieipated by a prudent operator and therefore consti

tuted an extraordinary condition within the meaning of article 10 c

of the 1erchants Freighting Agreement permitting the giving of 30

days notice ofthe surcharge

Therefore the issue before us is whether the recent increases in

bunker prices meet the criteria of article 10 c so as to justify the

imposition of a surcharge on 30 days notice

DISCUSSION

After full consideration of the briefs and supporting affidavits it is

our decision that the increase in bunker prices occurring in recent

months does not represent an extraordinary condition within the

Ineaning of article 10 c and accordingly the Conferenee must be

held to the requirement of 90 days notiee as set forth in section 14b 2

ofthe ShippingAct 1916

Article 10 c approved in The Dual Rate Oases 8 F 1 C 16

1964 was intended to allow conferences and individual carriers

maintaining a dual rate contract system to increase rates on the 30 day

notice provided in seetion 18 b of the act where extraordinary cir

cumstances other than those set forth in article 10 a unduly impeded

or delayed the carriers service In approving clauses to justify rate

increases on short notice we were merely recognizing that there would

almost certainly arise circumstances where carriers might be entitled

to relief from the 90 day notice obligation as prescribed by section

14b 2 Shipping Act 1916 However we think it clear that the in

volved circumstance must be both extraordinary and at the same

time it must unduly impede obstruct or delay the obligations of the

c arriers The current conditions caused by increased bunkering costs

are neither extraordinary within the meaning of article 10 c nor

14 F M C
ATLANTIC AND GULF WEST COAST OF SOUTH AMERICA 169

do they represent an undue impediment or obstruction to the carriers

obligations

Respondents contend that this construction of article 10 c is un

duly narrow and fails to take into account both the severity of the

emergency fuel shortage which they argue has led unexpectedly to a

series of dramatic and unforeseeable price increases in one ofthe car

riers major cost factors and the substantial adverse effects of those

increases upon the financial conditions and operations ofthe carriers

To support their contentions respondents submitted public state

ments and press releases referring to the national fuel shortage and

specifically the shortage of residual fuel including Bunker C residual

fuel upon which the shipping industry relies Supplementing these

statements respondents have submitted statistics verifying the in

crease in costs for Bunker C fuel since J

anuary 1970

We have noted the above data and the definite price trends in the

cost of the Bunker C type of fuel However weare unable to agree

with the conclusions drawn by respondents from that information

As pointed out by hearing counsel and confirmed by respondents

supporting statements the shortage ofresidual fuel oil is not anentirely

new f3Jct of commerciwl operation Rather the shortage has been

developing due to increased demand since 1960 with the current crisis

in supply starting at least 2 years ago Likewise as also noted by

hearing counsel the price information furnished by the Conference

itself as well as that obtained by our own staff clearly shows that

the behavior of the prices was such that a vessel operator using a

reasonable degree of care could foresee that the prices were climbing

to the present levels Prices have consistently risen over a period of

8 months The greatest increase a total of 100 percent occurred at

U S east coast ports However a close examination of that 100 per

cent increase shows that it consisted of a 9 percent increase from

January to March an 8 percent increase from March to May a

13 percent increase from May to June a 16 percent increase from

June to July a 12 percent increase from July to August and a 16

percent increase from August to October Other ports showed similar

increases for the same period These increases are out ofthe ordinary

but in our opinion they cannot be clrussified as drastic overnight

increases amounting toa sudden emergency or an unforeseeable

condition

In docket No 65 7

Imposition of Surcharge at United States

Atlantic and Gulf Ports on Cargo Moving Between Said Ports and

Latin American Ports 10 F M C 13 1966 we had cause to consider

the language of article 10 c as it applied to a longshoremen s strike

whichoccurred in 1965 We said

14 F M C
170 FEDERAL MARITIME COMMISSION

The criteria areapparent the condition mustbe outside or beyond the carrier s

control the condition must impede or delay the carrier s service and there must

be an emergency an abnormal condition or an extraordinary circumstance

The words emergency abnormal extraordinary are subjective

they presuppose some lack offoreseeability

Thus the oarriers must provide 90 days notice of rate increases to

dual rate shippers if the conditions that give rise to the need for the

increase are normal that is foreseeable by the carriers For exam

ple wAere sucA conditions as rising salaries costs of vessels fuel or

increased stevedoring expeme require additional freig At revenue then

90 days notice is required because the carrier is expected to anticipate

these needs This is so because exporters in conducting their business

need the stability afforded by a guarantee of 90 days notice Indeed

this is one of the most important inducements to shippers to commit

themselves to an exclusive patronage contract with a oonference In

this context under the dual rate contract the notice requirement is

highly important Carriers have a strict duty to anticipate the need

for rate increases and give timely notice thereof to dual r3Jte signa

tories The factual question therefore is whether the carriers in

the exercise of a

high degree of diligence should have foreseen or

anticipated the oonditions which unduly impeded obstructed or de

layed theobligaJtions ofthe carriers 5 Emphasis ours

The 90 day notice benefit is one of the most important inducements

to shippers to commit themselves to an exclusive patronage contract

Shippers frequently make contracts and quote prices based on freight

costs having at leasta 90 day duration Ifthe freight costs are increased

on only 30 days notice the shipper in many instances will either have

to absorb the increases on prices already quoted or try to pass on the

increase at the risk of losing the sale These observations are relevant

to the case in issue and further substantiate our inability herein to

recognize or create an exception to the 90 day rule

As we have stated we do not find an existing extraordinary condition

as required under article 10 c However should we have found such

fuel costs to be extraordinary conditions within the meaning of

article 10 c it is our position that such increased costs still would

not unduly impede obstruct or delay the carrier service as required

by said article Respondents have presented no substantial evidence

that they would suffer the type of economic harm that would impede

orobstruct their services InMr Haggerty s supplemental affidavit he

8

Imposition of Surcharge at United States Atlantic IInd Gulf Ports on Cargo Moving

Between Said Ports and Latin American Ports 10 FM C 13 22 23 1966

14 F M C
ATLA rrrIC AND GULF IWE ST COAST OF SOUTH AMERICA 171

speaks to the withdrawing of certain vessels by Prudential from all

service by early 1971 as an impediment to their service However at

the same time he indicates that the cost of Bunker C fuel was not the

only factor contributing to the decision towithdraw these vessels from

service vVithout more facts than presented we are unable to treat the

suggested relationship between the cost of fuel and withdrawal of

service as anything more than conclusory and self serving

Respondents also mention delays of long awaited capital expendi

tures and delays in its service to this trade as a direct consequence

of the rise in fuel price However at no point did they present the

Commission with specific incidents of such delays and therefore the

relationship was again only conclusory and self serving

Finally the Conference urges that they certainly cannot be held

responsible for the increase in fuel prices and with this we agree

However we do not agree that this places the circumstance outside or

beyond the control of the Carrier thus allowing the Conference to

escape responsibility forthe mannerin which itresponds to thechanged

conditions The carriers ofnecessity must be held to a high degree 01

diligence with regard to shippers and the implementation of rate

increases after porper notice The repeated increases as well as the

general worldwide upward movement in bunker costs should have

served as warnings to the carrier members ofthe Conference simply as

prudent businessmen long experienced in dealing with fluctuating costs

and prices

CoNCLUSION

Therefore based on the record before us we conclude that the im

position by respondents of the bunker surcharge under considera

tion herein on less than 90 days notice is violative of section 14b 2 01

the Shipping Act 1916 and article 10 c of the respondents Mer

chants Freighting Agreement Respondents are hereby ordered to

deferthe effective date of their bunker surcharge a sufficient period of

time from October 23 1970 to satisfy the 90 days notice requirement

SEAL FRANCIS C HURNEY

Secretary

4 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 1092

AGREElfENT No 8660 LATIN AMERICA PACIFIC COAST STEAMSHIP

CONFERENCE AND PROPOSED CONTRACT RATE SYSTEM

Deoision December 28 1970

The Latin America Pacific Coast Steamship Conference dual rate contract

system requiring signatory shippers to commit exclusive patronage to the

Conference in an three outbound trade areas found contrary to the Public

interest and accordingly not permitted approval under section 14b of the

Shipping Act 1916

The Conference is required to amend clause 2 of its dua l

rate contracts so that

such contracts be offered separately in each trade area the Conference

serves

Robert L Harmon Esq and William J Ziegler Esq for Latin

America Pacific Coast Steamship Conference and member lines

Donald J Brunner Esq Robe1 tfl Tell Esq G El1 oa1 d Borst

Esq andJames N Albert Esq hearing counsel

REPORT

By THE COlfMISSIONS Helen Delich Bentley Ohairman James F

Fanseen Vice Ohairman George H Hearn OOl11fffltissioner

This proceeding is before us on exceptions to the initial decision of

examiner Edward C Johnson in which he recommended the Latin

America Pacific Coast Steamship Conference be permitted the con

tinued use of its currently employed exclusive patronage dual rate

contract system

BACKGROUND

On January 15 1962 certain steamship lines filed with the Commis

sion Agreement No 8660 for approval under section 15 of the Ship

ping Act 1916 as amended The purpose ofthis agrement was to form

Commissioner Ashton C Barrett did not participate

1f72
AGREEMENT NO 8166 0 173

the Latin America Pacific Coast Steamship Conference Conference

which was to supersede 10 existing conferences serving the trade in

bound and outbound between ports on the west coast of the United

States and Canada and ports in Mexico Central America the Carib

bean and the west coast of South America l Under Agreement No

8660 this trade was divided into five so called trade areas and it

was provided that only carriers actively serving a particular trade

could participate in matters affecting that area e g ratemaking

Subsequently the signatories ofNo 8660 filed a proposed Shippers

Rate Agreement and a Receivers Rate Agreement with the Com

mission for approval under section 14b of the Shipping Act 1916

Itwasproposed that theShippers Rate Agreement entitling shippers

to lower rates for their exclusive patronage to conference lines would

be offered to aN shippers in the three outbound trades whereas the

Receivers Rate Agreement would be offered to all receivers or im

porters in the two inboundtrades

On February 27 1964 we instituted the original proceeding in this

docket to determine

1 Whether Agreement No 8660 establishing the Latin America Pacific

Coast Steamship Conference should be approved under seetion 15 Shipping

Act 1916 and 2 whether the Shippers Rate Agreement and the Receivers

Rate Agreement filed for use in conneetion with Agreement No 8660 if ap

proved should be approved under section 14 b Shipping Act 1916

After hearings Examiner Edward C Johnson issued an initial deci

sion in whioh he approved both the conference agreement and the

dual rate contracts the latter with certain modifications not relevant

here Exceptions to the initial decision were taken by hearing counsel

and certain interveners

On 1arch 30 1964 we issued ourReport in The Dual Rate Cases

8 F M C 16 1964 whioh included our decision on the issues raised

in docket No 1092 along with the decisions in approximately 60 other

dookets then pending before us We approved bothagree ment No

8660 and the Conference s dual rate contract form provided however

thatamerohant notbe required to obligate himself to exclusive patron

1 The 10 predecessor conferences were

No 6670 Camexco Freight Conference

No 6070 Canal Central America Northbound Freight Conference

No 6170 Capaca Freight Conference

No 8390 Caribbean Pacific Northbound Freight Conference

No 7270 Colpac Freight Conference

No 4294 Pacific Coast Caribbean Sea Ports Conference

No 7570 Pacific Coast Mexico Freight Conference

No 7170 Pacific Coast Panama Canal Freight Conference

No 4630 PacificjWest Coast South America Conference

No 6270West Coast South America North Pacific Coast Conference

14 F M C
174 FEDERAL MARI l

IME COMMISSION

age in all the five trade areas In requiring that the Conference offer

its dual rate contract in each ofthe five trading areas which it served

we had the followingto say

The use of a dual rate contract by the new conference presents a special prob

lem however the conference members themselves have recognized that

five separate trade areas are involved and that a carrier who does not serve

a particular trade should not be permitted to control the rates and practices

in that trade Yet ifthe confe r

ence is permitted to offer a single dual rate con

tract which includes all five of the trade areas merchants will be forced to

Obligate themselves to exdusive conference patronage in trade areas not desired

in order to obtain contract rates in a trade area where they feel the dual rate

contract meets their needs This seems to us neither necessary nor fair

We have approved the new agreement on the ground that it is largely con

cerned with providing a means of central administration for a number of confer

ences In keeping with this we are approving the 1lse of a dual rate contract

in each of these five trade a1 eas and merchants must be offere l the p1 i1ilege

of executing a contract for any or all of the trade areas as they desire We find

that it would be both contrary to the public inte1 est and detrimental to commerce

for the conference to require that a merchant obligated himself to exclusive pa

tronage in all of these trade areas in order to obtCllin contract rates in a single

trade Any such requirement would of necessity bring into serious question the

new conference arrangement itself Emphasis ours

The Conference appealed our decision in The Dual Rate Cases

8upra as it related to docket No 1092 to the U S Court of Appeals

for the Ninth Circuit The exact relief sought by the Latin America

Pacific Coast StealI11ship Conference in its appeal was set forth in its

petition for review of an order ofthe Federal Maritime Commission

dated April 10 1964

Petitioners pray that this court declare invalid permanently enjoin set

aside and suspend the enforcement and carrying out of the said order of the

Federal Maritime Commission insofar as the said order prescribes a form of

Shippers Rate Agreement to be used by the Conference and that the said

Shippers Rate Agreement be offered to merchants in each of the five trade

areas covered by the Conference and such other and further relief as may be

proper inthe premises

The Conference s appeal was consolidated for decision with appeals

ofthe Pacific Coast European Conference and the Pacific Coast River

PlateBrazil Conference from the Commission s orders issued in The

pual Rate Cases in docket No 1007 and docket No 1057 respectively

On February 3 1965 the court handed down its decision in Padfio

Ooast European Oonference v United States 350 F 2d 197 C A 9

1965 wherein it remanded the proceeding to allow us to cure certain

procedural defects not relevant here The court however was silent

concerning the Commission s requirement imposed in docket No 1092

that the Conference offer its duaJ rate contract in each of the five

areas in which itoperated

14 F M C
AGREEMENT NO 8 660 175

Subsequently after an evidentiary hearing we reimposed the re

quirement that the Conference offer its dual rate contract in each of

the five trade areas covered by the conference agreement See our

earlier report in this proceeding 12 F MC 149 In doing so we con

cluded that respondents had faioled to meet the test first espoused in

Investigation of Passenger Travel Agents 10 FMC 27 1966 and

affirmed by the Supreme Court in FMO v Svenska Amerika Linien

390 U S 238 1968 that

II conference restraints which interfere with the policies of the antitrust

laws will be approved only if the conferences can bring forth such facts as

would demonstrate that the restraint was required by a serious transportation

need necessary to secure important public benefis or in the furtherance of some

valid regulatory purpose of theShipping Act 390 U S 243

Respondents on February 4 1969 petitioned the Commission to

reopen the proceedingto afford them an opportunity to meet the new

burden of proof imposed by the rule of F MO v Svenska Amerika

Linien supra They took theposition that theSvenska decision which

was not handed down by the Supreme Court until March 6 1968

some 6 months after the close of the evidentiary hearings in this

docket constituted a

changed condition of law and due process

required that they be given an opportunity to prepare the record

necessary to satisfy this ohanged condition of law

We granted respondents petition to reopen and remanded the pro

ceeding to theexaminer

for taking further evidence on the question of whether Respondents

present dual rate contract system is required by a serious transportation need

necessary to secure important public benefits or in the furtherance of some valid

regulatory purpose of theShipping Act

Inhis Initial Decision theexaminer found

that the Latin America Pacific Coast Steamship Conference s present

dual rate contract system has been shown to be required by serious transporta

tion needs is necessary to secure important public benefits and is in furtherance

of the valid regulatory purposes of the Shipping Act

On the basis ofthis finding the examiner concluded that respond

ents present dual rate system should be permitted continued use

and approval

the Commission s decision of January 7 1969 should be modified

and the order served therewith should be vacated and these proceedings should

be terminated

The examiner s

findings and conclusions werehased upon the testi

mony of 11 representative witnesses consisting of shippers car

14 F M C
176 FEDERAL MARITIME COMMISSION

riers freightforwarders andconference officJals 2

The examiner quotes

exhaustively from the testimony of these witnesses and reaches the

following geneval conclusions

1 A representative cross seetion of shippers and receivers and freight for

warders who are intimately connected with the details of shipping arrange

ments have experienced an improvement in the service offered by the confer

ence members since the implementation of the present contract system

2 The present contract system acts as an incentive to the conference member

lines to increase their investments in vessels committed to the conference trade

and that the present improved level of conference service is a primary result

of the present contract system

3 The rule proposed by the Federal Maritime Commission willresult in a de

terioration of service in the area served by Respondents and presents a threat

to the transportation needs of the shipping public

4 Rate stability which is desired by and essential to shippers and receivers is

dependent to a very large degree upon the maintenance of the present contract

system

5 For sound business reasons thetestimony discloses that shippers and for

warders alike desire the type of flexibility provided by the present two contract

system and that the flexibility proposed by Hearing Counsel may well result

indisorganization and trade disruption

6 Shippers and receivers receive fairtreatment under thepresent system and

can see no advantage intampering with or changing their contract arrangements

when they areassured that these ararngements work to their advantage as at

present Actually the record discloses and I so find and conclude that the two

contract system now inuse by the Conference is required by a serious transporta

tion need in the area involved herein is necessary to seeure important public

benefits and is in the furtherance of a valid regulatory purpose Of the Shipping

Act

Hearing counsel excepts principle at least to all of the exami

ner s general conclusions Specificially he objects to the examiner s

basic conclusions that the present contract rate system has 1 Re

sulted in improved service in the conference trade 2 provided an

incentive to member lines to increase their investments in vessels com

mitted to the conference trade and 3 resulted in rate stability in

the various tradelareas

THE CONTRACT SYSTEM AND IllPROVED SERVICE

In concluding that the present improved level of service is a result

of the present contract system the examiner relied principally upon

the testimony of four witnesses Mr John W Flook manager ofthe

trading department of Macondray 00 Mr Edward H Shustack

president ofR H Baker Co Inc l1r Albert A Wright assistant

2

The 11 witnesses who appeared at the hearing may be broken down by category as

follows five shipper witnesses three carrier witnesses two conference witnesses and one

freight forwarder association witness

14 F M C
AGREEMENT NO 8 660 177

manager of traffic and distribution department Standard Oil Co of

California and Mr James R Scott manager of transportation serv

ices of the U S Borax and Chemical Corp of Los Angeles In each

instance the examiner has quoted paraphrased or referred to only

those portions oftestimony which are most favorable to the conclusion

he reached The testimony ofl1r Flook offers an example The exami

ner cited the followingin support of his conclusion that the improved

service lwel wasdue to the present contract rate system

Q Mr Flook you have been a party to signatory to the dual rate contract

since 1961

A Yes

Q And you indicate inyour written testimony that it has been your experience

that the rate agreement covering the three southbound and two northbound has

resulted inimproved service isthat correct

A Yes

Q On the part of the Conference

A Yes

Q What are you comparing thatto

A Well we are comparing that to the previous system where there were

10 individualrate agreements

Q SO since the Federal Maritime Commission s approval of the super con

ferences we might call it you have gotten better service

A Ve have yes

Q In your opinion is this attributable to the amalgamation of separate con

ferences into one

A Yes it is an ability by the Conference Ifeel to better structure rates

Q I don t understand that

A Well with the Conference controlling the five different trade areas three

southbound and two northbound we feel that it offers the lines a greater oppor

tunity through the participation of the Europea lines that do service the area

to offer better service both north and southbound

From the foregoing it is just as easily concluded that the establish

ment and approval of the super conference was the cause of the

increased service level such as it may be The real difficulty lies in con

cluding that it was the present contract rate system that produced the

aUeged result Indeed it would seem that it was the conference agree

ment that enabled the European lines to participate more fully The

same is true of the other testimony relied upon by the examiner in

concluding that improved service was the result of the contract rate

system

THE CONTRACT SYSTEM AND RATE STABILITY

In our earlier report in this case we had the following to say con

cerning the respondents contract system

The contract system as such does not prevent discriminatian in rates The

contract system is a

tying device it does nothing more nor less than obligate

14 F M C
178 FEDERAL MARITIME COMMISSION

a shipper in exchange fora lower rate to the exclusive use of conference vessels

Ve find no persuasive evidence in the testimony of record which demonstrates

that there would be any more or less stability under a one contract one trade

system tllan there is under the present single contract system Emphasis ours

12 F M O at page 157

Again the testimony relied upon by the examiner fails to demon

strate how the single contract system provides rate stability which

would not otherwise prevail under the system which would offer a

separate contract for each ofthe five trade areas The folloing treat

ment of one witness testimony is illustrative

Witness John W Flook testified that the present contract system is important

to maintain stability of rates and that the imposition of the Commission s

proposed rule would probably result ininstability of rates and service inthe trade

areas served by the Conference due to the pOSSibility of disruptive non Conference

service Mr Flook upon cross examination said that as an exporter his

company often sold goods for delivery forward for up to 60 days in advance He

further stated

We require when making these contracts to be assured that at the time of

shipment the rate on which we based our cost calculation would apply

If on the other hand there were non Conference lines within the trade

area and there was a freight war in existence where the Conference and

the non Conference lines were competing for the cargo the natural instabil

ity would exist

In response to an inquiry from the presiding examiner Mr Flook

stated

I think that as far as the imports are concerned I think the general con

sumer will always benefit by the again stability of rates and not having

to pay an increased rate on one occasion and a lower rate on another occasion

if

I relate that to theitem that we areimporting ingreatest volume cocoa beans

that due to the fixed rate that we have had in effect the buyers can anticipate

their costs on a betterbasis

As a matter of fact in that way theconsumer benefits by nothaving a fluctuat

ing rate

Or as another example the examineroffers

Mr M J McCarthy of the Freight Forwarders Association stated that he had

been in the Shipping business for 41 years and that this present contract system

better affords stability of rates and that without the present contract system

there would be no rate stability When hearing counsel asked whether the

shipper should have the option of shipping conference or non Conference

Mr McCarthy stated

Ifyou put it that way Mr Tell forget about the Conference just break

them up and forget about itifyou re going to give thelatitude where he can

ship conference or nonOonference Ifhe has that latitude I seee no reason

whyhe should have a Conference Why don t you walk right into a rate war

14 F M C
AGREEMENT NO 8166 0 179

Here as with almost the entire approach of the examiner and the

respondents to the issue at hand it wasmade to appear that the choice

involved is between the present contract or no contract at all which is

of course not the case vVe do not insist that a

shipper be allowed the

choice of conference or nonconference within a trade area we only

insist that a shipper be allowed to choose whether or not to sign a

contract for each of the five trade areas Nothing in the record supports

the conclusion that rate stability is dependent upon the present con

tract system

THE CONTRACT RATE SYSTEM AND INVESTMENT INCENTIVE

According to the examiner

Mr Robert B Swenson of Balfour Guthrie Co Ltd stated that the present

contract system acted as an inducement to Grancolombiana for whom his com

pany acts as agent to increase their service and investment in the trade and to

maintain theirpresent investment He stated

Well we only recently I should say the last 3 months of 1968 completed

a study we as agents completed a study for Grancolombiana on the future

of the particular trade route and based on this they are presently studying

this and have told us indirectly that they are planning to add to their

fleet and improve their service to some extent

Now of course this study and their planning is based upon the fact that

there willbe certain tonnages moving and ifyou take a way the largerparcels

of course the service could not exist and instead of having a ship every

2 weeks there willbe maybe a ship a month or a

ship every 6weeks

Thus in Mr Swenson s opinion it would appear that the plans of Gran

colombiana to extend their service aredirectly related to the maintenance of the

present contract system and specifically the maintenance of the present level of

service is dependent upon the conference lines carrying certain base parcels

cargo which he felt would be taken away if the Commission s rale went into

effect In light of Mr Swenson s additional statement that the Grancolombiana

Line coversall three of the so called southbound trade areas with the same ship

the importance of one contract covering all three trade areas and of Gran

colombiana s ability to depend upon patronage for the entire conference area

becomes of considerable importance

In light of such testimony it is apparent that the possibilities of the con

ference carriers for maintaining and extending service and for their adding

to their fleets are directly related to the carrier s assurance that the cargo upon

which they are dependent in the Latin American trade area will not be taken

away

I

therefore find and conclude from the testimony that the present level of

conference service isa result of the present contract system now inuse

The record shows that Mr Swenson s complete testimony does not

demonstrate that Grancolombiana s plans are dependent upon the con

tinuation of the present contract system Rather they are tied to the

continuing carriage of certain base parcels cargo Here we would

agree with hearing counsel that even without the single contract system

14 F M C
180 FEDERAL MARITIME COMMISSION

if a nonconference carrier wishes to carry base cargoes he would 1

have to offer a lower rate and 2 convince the base cargo shipper that

regular and dependable nonconference service will be provided Ifthe

Conference service in the particular trade area is dependable and effi

cient and the rates are reasonable it follows that the shippers of any

size in that area will sign contracts and the Conference will be ade

quately protectedin that trade area

THE EFFECT OF THE PROPOSED CONTRACT SYSTEM

The examiner concluded that the rule proposed by the Federal

Maritime Commission which would require the respondent confer

ence to offer its contract separately in its five ratemaking areas would

prove detrimental to the commerce of the United States and would

adversely affect thepublic interest

Here theexaminer relies most heavily on the testimony of Mr Henri

P Blok now chairman of the respondent conference Mr Blok em

phasized two factors which the examiner found to be unique to the

respondent conference First this conference serves a trade area situ

ated in one ofthe most active cross trade routes in the world Second

11 members of the Pacific Coast European Conference and several

transpacific carriers are members of this conference but their mem

bership in the respondent conference is somewhat incidental to the

major trade routes they serve The examiner then had the following

to say concerning the Blok testimony

As a result of the first of these factors he stated that his conference is

peculiarly susceptible to raiding by nonconference members on an occasiona

basis in the cross trade areas that ifsuch raiding should occur it would be an

easy step for those carriers who arealso members of other conferences to with

draw from theirregularly scheduledsailings of the respondent conference because

of the second factor and that resulting chaos and loss of service throughout the

conference would occur

The testimony of Mr Blok is to be contrasted with that ofMr Ray

mond Burley Mr Blok s predecessor in the chairmanship of the

respondent conference and a man whom the examiner re ogniz d a

a distinguished shipping authority of more than 20 years experience

Inrespondingto an inquiry regarding theeffect ofthe super conference

on nonconference competition Mr Burley testified in 1967 The effec

it had on nonconference competition has not been materiaibecause

we did not have a great deal of nonconference competition at the

beginning

The testimony ofMr Blok primarily relied upon by the examine

was

14 F M C
AGREEMENT NO 8 66 0 181

Itis not difficult to recognize that the nonmember European carriers

whose vessels in the exercise of their primary trade route functions also regu

larly traverse farious Latin American trade routes remain an everpresent po

tential to lift an occasional parcel in the Latin American trade whenever they

find cargo offerings on their major trade routes uncomfortably disappointing

In doing so these carriers may be less concerned about any particular return

they receive as long as this return at least covers the outof pocket costs of

handling and contributes something towards the cost of overhead which could

well be preferable to havingto return their vessel partly unfilled

under the present conference contract system whereby shippers in gen

eral have more at stake than losing their privileges to individual limited desig

nations the danger is small that regularly engaged Latin American Conference

carriers will have to face non Conference liftings at rates they or anyone who

could try to make a living in that trade could possibly afford Ifthe present

contract system were broken down under the Commission s proposed rule how

ever Ifear that a good many shippers who regularly ship to a given area

would easily be swayed to rely on the availability of dead space in nonmember

European vessels They would thus cancel their contract to that area butretain

their contracts to other areas in the expectation that the Conference service

there would be maintained This may appear attractive to the shipping public at

first glance but the almost inescapable consequence is that many of the Latin

America Conference member lines willrapidly lose interest in this cross trade

which heretofore assured them of cargo offerings to all areas to remunerative

rates After all it is assured paying rate level which induces the carriers to al

locate a portion of their vessels space to the Latin America trade sometimes

even at the expense of cargo offerings in their primary Europe trade Neces

sarily the end result of the Commission s rule must be a spotty cutrate un

realiable service which is neither responSive or adequate to thedemands to the

shipping public

The validity of this argument depends of course upon the real and

effective presence of competition from nonconference carriers the

mere presence of such carriers in the trade is not enough They must

offer a service which is truly competitive with that offered by the re

spondents To be truly competitive such a service must in the view of

the respondents own shipper witnesses be adequate and dependable

and offer reasonable and stable rates oreover in a statement not

referred to by the examiner Mr Blok places the extent and severity of

the nonconference competition in its proper perspective Mr Blok

after alluding to the 11 members of the Pacific Coast European Con

ference who are members ofthe respondent conference states

At the present time in the same Pacific Coast European trade there are nine

other carriers not members of this conference which are exclusively engaged in

that major trade route Ifit ever appeared that the present members of the

Latin American Conference were unable to cope with the tonnage moving in

the Pacific Coast Mexico Central America Oanal Caribbean trade any of these

non member Eurepean carriers may be interested in joining the Latin American

Conference which after all is open to all qualified carriers As it presently

stands however the present Latin American membership appears to till tIle bill

14 F M C
182 FEDERAL MARITIME COJ1MISSION

and is encouraged to stand by its commitments primarily because of the sta

conditions which prevail under the present contract system

Itis only after this statement that Mr Blok points out that

Itis not difficult to recognize however that these nonmember European c

riels remain an ever present potential to lift an occasional parcel 

cargo whenever they find the cargo offerings on their major trade rou

uncomfortably disappointing

Thus the nonconference competition which respondents cry wou

wreak havoc and chaos in the trade if we wereto modify their prese

contract system as proposed reduces itself to some nine lines whic

might he interested in joining the respondent conference if it a

peared that respondents were unable to cope with the tonnage mo

ing but which also remain every ready to lift an occasional parce

whenthe offerings in their own trade become disappointing

Finally again unmentioned in the initial decision the followin

colloquy between Mr A Wright assistant manager oftraffic and dis

tribution department Standard Oil of California and hearing couns

is illuminating

Q Mr Wright you indicated that you export to all three trade areas 

question

A Yes sir

Q Do you have any idea as far as the percentage breakdown goes whe

your exports go

A No sir Mr Tell We have 13 subsidiaries that are signatories to the i

volved contract here and I

simply have not had an opportunity to refine th

figures to get a percentage breakdown from one area to another

Q Well is there a particular area inyour estimation which occupies a greate

percentage of yourexports than say another

A I would suspect that the areas in Central America and Venezuela for e

ample loom large inthe picture

Q What products do they export

A Petroleum products basically

At the time at the same time we also have a fairly steady movement of i

bound maintenance materials for our installations down there Itcould be m

chinery pipes valves things of that nature

Q SO inother words you areparty to both the shipper s agreement and receiv

er s agreement is that correct

A No sir We do not appear as signatory to the northbound agreements

Q Why is that

A We have very little movement coming north

Q When you come north do you ship Conference

A We ship on theConference lines yes

Q Why in your estimation is there no necessity to become part of the r

ceiver s agreement ifyou utilizeConference service coming north

A The need is so minute that it simply is not worth the necessary policin

activity of maintaining the Conference agreements and maintaining the record

and so forth it just isn t worth it to us

14 F M C
AGREEMENT NO 8660 183

Q Do you utilize anything else but Conference service coming north

A No to my knowledge

Q In your estimation would it not be advantageous to be a party of the re

ceiver s agreement coming north even though your shipments are negligible just

by the fact you get a 15 percent reduction

A It could be and if the movement were ever to escalate it would be I

suspect that wewould

Contrast this statement ofl1r Wright s with our own conclusion as

to one of the primary difficulties we found with present contract rate

system Inour earlier report we said

Whereas before approval of agreement 8660 a shipper could have signed

a dual rate contract with one several or all of ten conferences now a

shipper must obligate himself in all three outbound trades and a receiver in

both inbound trades Thus a shipper who ships the vast majority of his goods

in say trade area A and only rarely bas Shipments in trade area B must

nevertbeless commit rare shipments in B to conference vessels in order to

obtain tbe lower contractrate in A

Nothing in this record causes us to change our mind We have been

offered nothing in the way of transportation need important public

benefits to be secured or valid regulatory purpose to be achieved

by the present system Here as in the earlier hearing the vast bulk of

the testimony is either speculative as to the consequences of modifying

the present system or leads to the conclusion that factors other than

the contract rate system such as the approval of the so called super

conference itself have been the causes of the rate stability depend

able service etc pointed to by respondents as supporting the con

tined use ofthe present system

We have very carefully reviewed the record before us and we

find nothingthat would lead us to change the conclusions reached in

our earlier report which conclusions we set forth below omitting

quotation marks for the sake ofconvenience

In choosing an organizational structure for their amalgamated con

ference the respondents decided to divide it into five trade areas and

to restrict participation in matters relating to those trade areas to

those member lines actively engaged in them Presumably these

trade areas are based upon some geographic and operational logic

Thus within the Conference respondents have insured the autonomy

ofthe groups oflines operating in a giventrade area Should another

linewish to have a

say in matters concerning that area he must insti

tutea service in it Rates are geared to the operational circumstances

and presumably to the needs oftheshippers in a given trade Itis only

when it seeks to obtain a shipper s exclusive patronage that the Con

ference adopts an all or nothing approach Whereas before the ap

proval of Agreement No 8660 a shipper could have signed a dual rate

14 F M C
184 FEDERAL MARITIME COMMISSION

contract with one several or all of 10 conferences assuming they

would all have obtained approval of contracts under 14b now a

shipper must obligate himself in all three outbound trades and a re

ceiver in both inbound trades Thus a shipper who ships the vast

m ajority of his goods in say trade area A and only rarely has ship

ments in trade area B must nevertheless commit those rare ship

ments in B to conference vessels in order to obtain the lower contract

rate in A But what are the legitimate commercial objectives

achieved by the present contract system which objectives fairly detract

from the weight ofthe loss offreedom of choice by the shipper What

transportation need is served by the present system What important

public benefits are secured by it Is the present system imposed in

furtherance of some valid regu1atory purpose of the Shipping Act

It has been suggested that the present contract system affords

increased stability of rates But the evidence of record much more

readily supports the inference that such stability as exists is due to the

concerted ratemaking activity under the conference agreement rather

than the contract system Indeed the record establishes no real con

nection between the present contract system and rate stability or the

prevention ofratewars

a

I

t has also been suggested that the single contract system has pro

vided increased service to conference shippers But here again the

testimony of record convinces us that any increase in service has re

sulted from thenew tradingscope ofthe Conference under Agreement

No 8660 not from the operation of the present contract system

A good deal of time anu testimony was devoted to demonstrating

that the present system has not permitted the member lines of the

Conference to increase rates through monopolistic strength This sim

ply is not relevant to the question at hand To the extent that it shows

anything such testimony simply showsthrut even with a singlecontract

system the Conference falls somewhere short of a complete monopoly

Itdoes not go to any legitimatecommercial objective of the system

Absent the protection of section 14b the exclusive patronage tying

arrangement embodied in a dual rate contract would clearly run

counter to the antitrust laws It is therefore contrary to the public

8Rate wars are almost exclusively due to the ratecutting practices of nonconference

lines yet the record is devoid of any meaningful references to nonconference competition

Indeed the stability alluded to in the testimony is really the absence of discrimination

among shippers apparently as would have been practiced by the member lines themselves

See testimony of Gottshall quoted at 12 F M C at p

156 But such discrimination is

prevented by the fact that once the rates are fixed by the members in concert they are

required to be published and filed with the Commission under section 18 b of the Shipping

Act and the members are then obligated to charge only those rates Whether there be a

single contract system or a sYstem which embodies the one trade one contract requ rement

issimply irrelevant to such stability of rates

14 F M C
AGREEMENT NO 8 660 185

interest unless necessary to pursue some legitimatecorrimercial objec

tive In the normal run of things that legitimate commercial objec

tive will be a conference s need to protect itself from the inroads of

nonconference competition Here Respondents have been granted per

mission to use a dual rate system We will continue that permission

The only change we will require is that the contract be offered sepa

rately in each of the five trade areas and insofar as the record shows

such a contract system will still afford sufficient protection against

nonconference competition We remain unconvinced for the reason set

forth above that the present so called single contractsystem is required

by some serious transportation need necessary to secure important

public benefits or in furtherance of any valid regulatory purpose of

the Shipping Act Accordingly we will not sanction the present sys

tem s unwarranted inroads upon the nation s antitrust policies An

appropriate order will be issued

COMMISSIONER JAMES V DAY DISSENTING

This case concerns the validity of the dual rate system now used by

the Latin America Pacific Coast Conference

The Conference covers five trade areas three outbound from the

United States and two inbound The dual rate contract employed by

the Conference binds a shipper in anyone outbound trade area to the

exclusive use of conference vessels in that area and the two other out

bound trade areas if and when he ships in such other areas Con

versely ashipper receiver in either one of the inbound trade areas

must exclusively use conference vessels in both inbound trade areas

The basic issue in this case is whether such a dual rate contract is

against the public interest as this term is used in section 14b of the

Shipping Act

The majority has again found that the subject dual rate contract is

against the public interest

1 The majority likewise found in a prior opinion wherein it stated that the contract

restricting shipper choice of carriers violated the antitrust laws and was hence against

the public interest absent the Conference showing the necessity for such restriction

Agreement 8660 12 FMC 149 1969

The Conference then objected and petitioned as follows Come now respondents the

Latin America Pacific Coast Steamship Conference and its member lines and respectfully

petition the Commission to reopen the subject docket for further evidentiary hearings in

light of the Commission s

report served on Jan 7 1969

The ba3is for this petition and motion is that the Commission has in its report

unfairly and improperly applied the rule of FM a v Svenska Amerika Linien 390 U S

238 1968 to the respondents for the reason that respondents have not been afforded

an opportunity to meet the new burden of proof imposed by that rule The decision in

Svenska was not handed down by the Supreme Court until Mar 6 1968 some 6 months after

the close of the evidentiary hearings in this docket Nonetheless on the basis of the

Svenska decision the Commission has held in its report that ItIs up to respondents to

14 F M C
186 FEDERAL MARITIME COMMISSION

The majority in this instance has reached the opinion that the con

tract is invalid viathe following legal rationale or route 2

The majority decision states 1 That the subject dual rate con

tract violates the antitrust laws in that it restricts shippers from

going nonconference S

The majority says 2 That the subject contract restriction violat

ing the antitrust laws is in itself sufficient and substantial evidence

thatthe contract is against thepublic interest 4

The majority holds 3 That without countervailing evidence

showing the necessity for this dual rate contract the contract being

inherently against the public interest must be declared invalid s

In

show that the two contract system is required by a serious transportation need necessary

to secure important public benefits or in the furtherance of some valid regulatory purpose

of the Shipping Act

Respondents propose to demonstrate through the Introduction of competent testimony

that the two contract system presently being utlllzed by the Conference is required by a

serious transportation need is necessary to secure Important public benefits and Is there

fore In furtherance of valid regulatory purposes of the Shipping Act Such testimony was

not proffered during the prior hearings because of respondents belief wholly reasonable

we submit In the preSvenska context that before their present contract system could

be disapproved the Commission had the burden of making affirmative findings within th

meaning of the Shipping Act that the present system was detrimental to the commerce

of theUnited States and contrary to thepublIc Interest

Respondents were granted further hearing and the matter Is now decided In thi

opinion italics have been added for emphasis

2 It has followed the test hereinafter spelled out at length which was affirmed by th

Supreme Conrt In FMO v Svenska Ameril a Linien 390 U S 238 2446 19 8 fo

Interpreting sec 15 of the act It has done this as It has said in agreement that the

statuton phrase contrary to the public Interest as it appears in section 14b has the

same meaning as Itdoes In section 15 See Majority Opinion of January 1969 12 FMC

149 153

3 The majority says at p 184 that absent the protection of sec 14b the exclusiv

patronage tying arrangement embodied In a dual rate contract would clearly run counte

to theanti trustlaws

In Its prior opinion 12 FMC 155 the majority emphasized that an exclusive patronag

tying arrangement violates the antitrust laws and Therefore unless there are to b

diametrically opposed meanings attached to the publiC Interest standards as they appea

In secs 14b and 15 there Is without more substantial and sufficient evidence tha

respondent s contract Is contrary to the public interest Footnote omitted

This position of course is consonant with the Court s In Svenska which held as t

sec 15 that once an antitrust violation Is established this alone wlll normally constitut

substantial evidence that the agreement is contrary to the public intere8t

However compare some of the legislative history of sec 14b The Senate Committe

said We believe that any contract which contains the eight safeguards expressly require

by the amended blll makes out a prima facie case that the contract is not contrary t

our public interest S Rept No 860 87th Cong 1st Sess 23 1961

The subject contract of course contains such special sec 14b safeguard provisions an

under the Senate rationale Itcould have been approved by the Commissl n without furthe

evidence The majority holOs otherwise

6 This Is the Court s

pOSition relative to sec 15 namely that once an antitrust violatio

Is established this alone will normally constitute substantial evidence that the agreeme

is contrary to the publlc Interest unless other evidence in the record fairly detracts from

the weight of this factor FMO v Sven8ka Amerika Linien 390 U S 238 244 6 1968

This Is now the Commission sposition relative to sec 14b One should compare howeve

this present position to the Cmmission s statement In The Dual Rate Cases 8 FM

16 50 1964 where In discussing the subject dual rate contract it said One Intervene

In docket No 1092 argues that there Is no need for the extension of the dual rate syste

14 F M C
AGREEMENT NO 8 660 187

this regard the test employed by the majority for such supportive evi

dence is that it show that the contract is required by some legitimate

commercial objective i e

required by a serious transportation need

necessary to secure important public benefits or required in further

ance of some valid regulatory purpose oftheShipping Act 6

The majority also imply that the subject contract must absolutely be

required in order to achieve a valid commercial objective and any

degree of restraint in the contract not necessary to achieve that

legitimate objective will he struck down as not in the public interest 7

to areas included in the new conference agreement which are not now covered by existing

dual rate systems of the individual conferences Sec 14b does not require that the con

ference demonstrate a positive need for the system as a prerequisite for approval Rather

it authorizes the use of dual rate contracts If they meet certain safeguards This state

ment contlrms aprior opinion of the examiner Initial Decision January 1964 at p 31

However regardless of whether the contract Initially be considered as either prima facie

in the public interest and hence not requiring a demonstration of Its need orinherently

against the public interest and thus requiring justification supportive evidence has been

introduced which insures thecontract s validity

6 One ponders the completeness of the majority s

general statement that In the normal

run of things that legitimate commercial objective will be a conference sneed to protect

Itself from the inroads of nonconference competition supra p 18

The legislative history of our law reveals that sec 14b was enacted so as to expressly

authorize the use of dual rate systems by conferences irrespective of the presence or

absence of nonconference competition H R Rept No 498 87th Congo 1st Sess 7 1961

Further the Senate Committee considering this legislation found 1 Oonferences need

the right to use dual rate contracts In order for the ocean common carriers and con

ferences serving our foreign commerce to do so on a

regular dependable and nondis

criminatory basis they must be allowed as they are throughout the rest of the maritime

world to enter into dual rate contracts with shippers and consignees Otherwise the

economics of ocean shipping wlll force the lines concerned Into ratewars among themselves

that might result In the destruction of ocean common carriage Ifthat happens there can

be no doubt that the high cost American lines wlll be the hardest hit S Rept No 860

87th Cong 1st Sess 10 1961

Likewise It has also been noted that sec 14b springs from an appreciation of the

hard fact of international shipping life that the only method that has proved practical

to assure continuity of service on a particular route with a degree of stablUty of rates

in view of the very large investment required In the establishment of a regular service Is

the providing of specific Inducements to Shippers to utilize the services of the par

ticular line or lines regularly serving that route S Rept No 860 87th Cong 1st Sess

2 1961

Shippers are likewise concerned with obtaining sound service for their trade objectives

Further they look to the dual rate system to provide stability of rates and for assurances

that their transportation costs are identical with those of their competitors shipping

within the same conference HR Rept No 498 87th Cong 1st Sess 13 1961 and

S Rept No 860 87th Cong 1st Sess 5 1961 In summary the aim of the law is

the betterment of the American merchant marine and the stablUty of foreign commerce

HR Rept No 498 87th Cong 1st Sess 2 1961

Thus all the above considerations I would say should also be considered within the

scope of legitimate commercial objectlves or pertinent to serious transportation need

Important public benefit orin furtherance of valid regulatory purposes

7

Thus the majority s statement In the normal run of things that legitimate com

mercial objective will be a conference s need to protect Itself from the Inroads of noncon

ference competition Here respondents have been granted permiSSion to use a dual rate

system We wlll continue that permission The only change we wlll require Is that the

contract be offered separately in each of the five trade areas and i sofar as the record

shows such a contract system wlll stlll afford sufficient protection against nonconfereoce

competition p

18

14 F M C
188 FEDERAL MARITIME COMMISSION

Such is the majority rationale But in applying all these principles

Ireach a different result than the majority Iweigh the evidence of

record and Iconclude as has the Examiner that the subject dual rate

contract is in the public interestrequired by legitimate commercial

objective that is required by a serious transportation need necessary

to secure important public benefits and is in furtherance of valid

regulatory purpose

In the aforesaid regard Imore specifically conclude that the present

contract rate system is necessary to maintain the same current level

and degree of 1

improved service in the conference trade 2 real

incentive to member lines to increase their investments in vessels com

mitted to the conference trade 3 sound assurance of rate stability

and 4 particular competitivebenefits now enjoyed by shippers

Ifurther conclude that the majority alternative contract rate system

will not be sufficient to accomplish the same results in support of the

public interest

These conclusions are derived from a review of all the accumulated

evidence in thisrecord now before us The particular evidence which I

find persuasive is as follows

1 Improved service

The testimony ofeight witnesses w s cited by the examiner in sup

port of his conclusion that the present level of improved service is

attributable to the present contract system s

For example witness Warrick testified ID p

11 that the present

system of one contract covering all southbound areas reduces redtape

and paperwork and provides dependability

We know that we arecovered in all of the areas we don thave to worry about

arranging contracts with each and every individual carrier or conference There

is a certain amount of dependability in that respect by having the one arrange

ment under which we areoperating tOday

Mr Swenson testified ID p

13 that the present contract system

has acted as an inducement to increase service

we as agents completed a study for Grancolombiana and they

areplanning to add to their fleet and improve their service to some extent

Now of course this study and their planning is based upon the fact that

there will be certain tonnages moving and if you take away the larger parcels

of course the service could not exist

As the examiner notes it would appear from the above testimony

that Grancolombiana s plans to improve service are related to main

8 Messrs Flook shipper Shustack shipper Wright shipper Scott shipper

Warrick shiprler Rutherford shipper Walker Grace Line Swenson Grancolomblana

Line

14 F M C
AGREEMENT NO 8660 189

tenance of the present dual rate contract coverage securing certain

parcels ofcargo

9

Witness Shustack stated ID at p

8 that the present system has

encouraged a sufficiency of service has ensured his ability to compete

in South America and is of benefit to U S commerce

The service as furnished by the Conference enables a sufficiency of vessels

and availability of the sufficiency of vessels to make the required shipments over

a period of time of these contracts

with this system notadhered to wherein just chance carriers that come

inand scoop upsome of the business and runoff withitand discourage the regular

Conference vessels inmaking these odd ports we might not then be able to com

pete inSouth America

Q Would you say that the single Conference contract system serves a

beneficial need and is of benefit to the commerce of the United States

A From my own experience I have found it has met a need and is so

Witness Scott testified LD at p

9 that the single coIiference

contraot covering all the trade areas serviced by the Oonference pre

sents a potential for satisfying important transportation needs in the

area which could not be obtained under the Commission s pro

posed rule 10

One may also recall earliertestimony ofrecord by witness Hansbrow

carrier agent who said LD 1968 atp23

Q Once having an advantage of a greater number of shippers who are bound

by agreement to Ship on Oonference vessels would you say that it is an incentive

to the line involved to extend its service in order to carry more cargo

A Iwould think very definitely so yes

Further witness Gottsohall of Sea Land earlier stated ID 1968

atp 24

Q Would you say then that the employment by a single Conference of a

single contract system was encouraging to your extension of service in Latin

America

A Yes itwas

In the light of such testimony it is clear that maintenance and

extension of service is directly related to the present single contract

system One thus concludes th3Jt the present level of improved service

is indeed a result ofthepresent system

9The importance of the single contract coverage to Grancolombiana is self evident when

it is noted that the line covers all three southbound areas with the same ship according

toMr Swenson

10 The witness further stated I D at p 10 relative to area that we feel that the

Latin American area is generally one area and that we haven t had any problems on

getting our shipments out on Conference vessels We consider Conference vpssels as awhole

rather than individualllnes

14 F M C
190 FEDERAL MARITIME COMMISSION

2 Real investment incentive

Witness Swenson testified JD at p

13 that the present contrac

system has also acted as an inducement to Grancolombiana to increase

its investment

we as agents completed a study for Grancolombiana on the future o

the particular trade route and based on this they are presently studying this

and have told us indirectly that they are planning to add to their fleet

Now of course this study and their planning is based upon the fact tha

there will be certain tonnages moving and if you take away the larger parcels

of course the service could notexist

I am afraid ifwe broke up the present contract structure that we hav

and allowed a shipper to ship non Conference to Central America and Confer

ence to South America or the Caribbean area this would take away a very sub

stantial portion of their base cargo and obviously it would mean that the

service would be reduced Tr p 127

In view of such testimony one concludes that the present rea

investment incentive is indeed based on having the certain assurance

ofshipper business through the present contract coverage

3 Sownd assurance of rate stability

The Examiner has cited the testimony of eight witnesses in sup

port of his conclusion that the present sound assurance of rate sta

biHty is dependent onthe present contract system

l1

For example Mr Blok the Omference Ohairman stated

These carriers provide this service at agreed dependable and uniform rates

offering regular sailings in response to the need of the traffic More importantly

these carriers arewilling to commit themselves to this incidental trade precisel

because they are assured of a remunerative rate level and of loyalty on th

part of the shipping public

Ilikewise conclude therefore that the particular incentive an

assurance of rate stability now existent is due to the present wide

coverage oftheone contract system

4 Particular cOmpetitive benefits now enjoyed by shippers

The examiner relied on the testimony of seven witnesses to reach

his conclusion that the present contract operates to the particula

benefit of shippers 12

For example the examiner noted that witness Shustack stated h

had found the present system gave his company an availability and 

sufficiency of vessels which allowed his company to compete in area

where theywould not otherwisebe able to compete

11 Witnesses Shustack Warrick Torres Scott Maclnerney Flook McCarthy and Blo

12 Witnesses Scott Shustack Rutherford Flook Warrick McCarthy and Walker

14 F M C
AGREEMENT NO 8 660 191

Witness McOarthy President of the Pacific Coast Customs and

Freight Brokers Association which handles between 50 and 60 per

cent of the total cargo moving in the Latin American trade said

The way it the conference contract system is working now he the shipper

has that flexibility to quote his export price under one contract in the three

trade areas which is flexible to the shipper and flexible to me as a forwarder

Further in late testimony Mr 1JfcOarthy responded ID at p

24

I

thought I answered it sometime ago by stating that the flexibility as

proposed by the Commission as against what the situation is tOday in my

opinion the shipper has more flexibility today than he would have under say two

three or four contract rate systems

I am speaking from experience that I have found in the European Conference

and the Westbound Conference trade that flexiqility within those trades in my

opinion is very very good forthe shipper and I

think the same condition should

exist inthe trades inthe LatinAmerican countries

Now as I

told you before that a shipper by having a contract in the whole

area that we re talking about inSouth America is in a position to quote prices in

any area and thereby no delay in that shipper getting a contract from the

Conference

Now I know that has happened and when you had the Conference before

there was delays I know that the Conference puts out a

contract as quickly as

possible but the shipper has to have that flexibility to say I can go here there

and there and I have one contract

As a ftlrther example of how the present contDact system benefits

shippers in getting business and foster extensions of commerce one

notes the testimony of Mr Walker ID at p

12

rates have been arranged by the conference to Peru and Chile because

there is every evidence that this will expand if successful to every country in

Latin America and this particular shipper has contracts he is particularly

interested in our Conference setup because he has confidence in it that if he Is

treated properly and in a business like way in one area that he can build into

the other area and expect the sametreatment

Ialso refer to prior testimony of record by the respondent Confer

ence chairman stating that under the present contract system

We are better able to assure the shipping public that their competitor is get

ting the same rate freight rate as he is so they have greater surety in the

selling inLatin American markets Agreement No 8660 12 FMC 149 162 1969

Hence Iconclude that such testimony as above noted supports the

view that the present contract system provides particu1ar benefits now

enjoyed by shippers

THE ADVERSE EFFECT OF THE MAJORITY S SYSTEM

The examiner concluded that the majority s alternative would be

detrimental to commerce He reached this conclusion from the testi

14 F M C
192 FEDERAL MARITIME COMMISSION

mony of five witnesses IS He noted that the lines stated they would

lose their particular incentive to maintain their present level of serv

ice and investment and that shippers favoring the present system

were fearful that the majoritys system would result in a disruption

ofservice for our commerce

For example the examiner noted ID at pp 14 and 15 the testi

mony ofConference Chairman Blok who referred to theparticular vul

nerability ofthe respondent conference and the impact which the Com

mission s proposed rule would have on the service which the other

witnesses stated they enjoy and wished to maintain Mr Blok empha

sized that eleven members of the Pacific Coast European Conference

and several transpacific carriers are members of this conference but

their membership in the respondent conference is somewhat incidental

to themajor trade routes they serve

As a result of this factor he stated that he believed it would be an

easy step for those carriers who are also members ofother conferences

to withdraw from their regularly scheduled sailings of the respond

ent conference and that upon such occurring chaos and loss of service

throughout the conference would occur Mr Blok described the sit

uation as follows

If the present contract system were broken down under the Commission s

proposed rule the almost inescapable consequence is that many of the

Latin America Conference member lines willrapidly lose interest in this trade

which heretofore assured them of cargo offerings to all areas at remunerative

rates After all it is an assured paying rate level which induces the carriers

to allocate a portion of their vessels space to the LatinAmerica trade sometimes

even at the expense of cargo offerings in their primary Europe trade Neces

sarily the end result of the Commission s rule must be a spotty cutrate un

reliable service which is neither responsive or adequate to the demands to the

shipping public

Priortestimony ofrecord supports the above evidence

Then Conference Chairman Burley said in 1967

I testified earlier that one of our real problems in the matter of administer

ing a noncontract rate system and keeping rate stability in our trade was the

fact thatthe Latin states areright inthemiddle of the crosstrades

In other words as this map displays vessels traversing the area from the

Orient to the Atlantic coast traverse part through Central America South

America through the Caribbean

They are potential nonconference competition if they so wish

We have the Japanese lines th t come from Japan via the Pacific coast to

the west and east coasts of South America Ifthey werent conference members

they would bepotential competition

I

think that we have kept it fairly well under control through our

single contract system 1967 Tr pp 2628

13 Witnesses Blok Walker Swenson Flook and Shustack

14 F M O
AGREEMENT NO 866 0 193

Iwould further note the testimony of shipper witness Flook who

said ID at p17 that ifthe present contract system were broken up

into a number of separate contracts there would be no incentive for

the present carriers to remain in the trade and that this would resuIt

for a time in a

freight war and could possibly disrupt theservice which

we lare presently enjoying on a relLlly scheduled basis 14

Under all the circumstances above noted Iconclude that switching

to the majority s alternative would prove detrimental to our commerce

and notin the public interest

CONCLUSION

To summarize we here determine the issue of whetherthe Confer

ence s dual rate contract is against the public interest ras this term is

used in section 14b oftheShipping Act

The majority presumes it is useless the contvact is shown to be re

quired by some legitimate commercial objective i e

required either

by a serious transportation need or necessary to secure important pub

lic benefits or required in furtherance of some valid regulatory pur

pose oftheShipping Act

Ihave found that the contract is required in order to maintain the

existing improved carrier service carrier investment incentive as

surance of rate stability and competitive benefits to shippers Each

one of these factors is certainly a legitimate commercial objective rep

resenting a serious transportation need an important public benefit

or furthering a valid regulatory purpose

15

Iwould emphasize that the contract is essential for not merely one

but indeed for all four factors or objectives If the contract related

to just one of course this alone could be support for its continued

use

As a final word on geographic areas Iwould point out that there are

a numberof other conferences cited in the record which offer approved

dual rate contracts covering a geographical area greater than the

areas covered by respondent s contract and which thus bind shippers

to ship only conference in such greater area regardless of the routing

l Witness Edward Shustack summed up the attitude of the shipping public

I would be loath to tamper with a system that is working and working real well

especially when American manufacturers are at adisadvantage shipping to foreign

ports versustheircounterparts in other countries

I would have to be shown a substantial advantage in such a change before I would

want to tamper withwhatI feel to be an unknown situation

16 See the legislative history of section 14b noting these factors of service investment

ratestablUty and shipper benefit Footnote 6 at p 3 supra

14 F MC
194 FEDERAL MARITIME COMMISSION

of their current business Broadness of coverage cannot per Be be

equated withbadness in viewing the history ofrespondent conference 16

Where of course the present shipper contract is here found on the

evidence to be required this is sufficient to justify its use regardless of

whether the conference structure also contributes to the improved

service carrier investment incentive assurance of rate stability o

the competitive benefits to shippers flowing from dual rate contract

coverage

Indeed the evidence is certainly substantial that this long exist

ing dual rate contract is required Testimony wastaken from 11 repre

sentative witnesses consisting ofcarriers conference officials shippers

and freight forwarders Essentially all the testimony is in favor oftJhe

present dual rate contract thatit is required and againstthemajority

substitute not shown to be able to achieve as much for our commerce

our carriers and our shippers Itwould seem far less certain in pro

tection of the public interest to ignore sworn testimony of shippers

and carrier management as to the benefits merely because such benefits

possibly could be more readily attributed to causes other than the

present contract system This is particularly so where the sworn testi

mony was 1 open to the testing of cross examination 2 remains

unrebutted and 3 pertains to actual operating experience over a

number of years Iwould further emphasize that actual experience

must be given proper weight The factor ofactual experience tends to

insure the probative value of testimony pointing out the particular

benefits attributableto the subject system

I

hereby hold in the light ofall the evidence that the existing dual

rate contract accomplishes legtitimate commercial objectives and is in

the public interest Hence and subject always to appropriate Commis

sion review the conference is entitled to continue using its existing

dual rate contract

SEAL FRANCIS C HURNEY

Secretary

18 This long used system of one contract for shipments to Latin America and anothe

for shipments therefrom is consonant with shipper testimony that the Latin American

area Is generally one area and We consider Conference vessels as whole rather than

Individual lines Footnote 10 8upra In this connection asignificant number although

not all of the conference carriers operate inseveral of the five trade areas the conference

has designated regarding carrier operations

In the final analysis it is no more valid to try conforming apples to oranges than to

say that the shipper contract coverage must be splintered in accord with the conference 

internal organizational structure of five carrier areas The conference structure merely

insures that the particular carriers operating in an area have the say in such area

logically they are best equipped through their current operations to vote therein o

pertinent conference matters This ishardly necessary or desirable to the shippers business

operations in this case Certainly the evidence here shows that the present shippe

contract coverage is considered to be at least one necessary support for present and

potential business and benefit to all

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 1092

AGREEMENT No 8660 LATIN AMERICA PACAFIC COAST STEAMSHIP

CONFERENCE AND PROPOSED CONTRACT RATE SYSTEM

ORDER

This proceeding was initiated by the Federal 1aritime Commis

sion to determine whether the Commission should by rule require the

Latin America Pacific Coast Steamship Conference and its member

lines respondents to offer its dual rate contracts in each of the five

trade areas covered by the Conference agreement and the Commission

has fully considered the matter and has 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 The Com

mission found in said report inter alia that the existing Conference

dual rate system requiring signatory shippers to commit their exclu

sive patronage to the Conference in all three outbound tradeareas and

signatory receive s to give their exclusive patronage to the Conference

in both inbound trade areas is contrary to the public interest and can

not be permitted approval pursuant to section 14b of the Shipping

Act 1916

Now therefmoe it is ordered That clause 2 of respondents dual

rate contract be amended to read as follows

2 Trades covered bu this Agreement

This Agreement covers the transportaton by water of goods from Pacific coast

ports of the United States and Canada and the ports in Lation America as set

forth in the five trade areas described in this clause Merchants executing this

contract may do so for any or all of the trade areas as they desire and notation

of the trade areas covered by this contract shall be made at the end thereof 1

from Pacific coast ports of theUnited States and Canada to

Trade area A ports on the Pacific coast of Mexico Gautemala EI Salvador

Honduras Nicaragua Costa Rica and Puerto Armuelles RP

Trade area B Colon and Panama City RP Balboa and Cristobal C Z

ports in Barbados British Guiana British Honduras Atlantic coast of Columbia

Atlantic coast of Costa Rica Cuba Dominican Republic French Guiana French

195
196 FE DERAL MARITIME COMMISSION

West Indies Atlantic coast of Guatemala Haiti Atlantic coast of Honduras

Jamaica Leeward and Windward Islands Netherlands Antilles Atlantic coast

of Nicaragua Atlantic coast of the Republic of Panama Surinam Trinidad and

Venezuela

Trade area C Pacific coast ports in Colombia Ecuador Peru and Cbile

2 to Pacific coast ports of the United States and Canada from

Trade area D Pacific coast ports of Chile and Peru

Tl Iade area E Ca ribbean ports of Cuba Jamaica Haiti Dominican Republic

lrinidad Vindward and Leeward Islands Barbados French and British

Guianas Surinam French West Indies Venezuela Netherlands Antilles and

Colombia Colon and Panama City RP Balboa and Cristobal C Z ports on

the Pacific coast of Mexico Guatemala EI Salvador Honduras Nicaragua and

Costa Rica

It is further ordered That effective 30 days from the date of this

order respondents dual rate contracts amended in accordance with

this order shall be used by respondents to the exclusion of any other

terms and provisions for the purpose of according merchants ship

pers and consignees contract rates

By the Commission

FRANCIS C HURNEY

Secretary

STAY OF ORDER

Granted March 1 1971

The Commission s

report and order in this proceeding served De

cember 31 1970 would require the respondent conference to amend

its dual rate contract to offer a

separate contract rate system in each

offive trade areas whereas the existing contract system binds signa

tories to all inbound oroutbound trade areas The date for compliance

with this order is currently March 31 1971

Respondent has now petitioned for a stay ofthis order pending judi

cial review of the Commission s decision and order in this proceeding

Respondent sets forth various grounds to support its request Essen

tjally respondent seeks to demonstrate that compliance with the order

would be burdensome and costly and that a grant of a stay would

result in no appreciable injury to the shipping public

Good cause appearing respondents request for a

stay of the Com

mission s order in this proceeding pending judicial review is hereby

granted

By the Commission

FRANCIS C HURNEY

Secretary

SEAL

14 F M C
FEDERAL MARITIME COMMISSION 

SPECIAL DOCKET Nos 425 426 REVELL INCORPORATED

v

PACIFIC WESTBOUND CONFERENCE

Febntary 16 1971

NOTICE OF ADOPTION OF INITIAL DECISION AND ORDER GRANTING

REFUND

No exceptions having been taken to the initial decision of the

examiner in these proceedings and the Commission having determined

not to review same notice is hereby given that the initial decision

became the decision of the Commission on Febuary 16 1971

Itis ordered That applicant is authorized to refund to Revell Inc

the amount of 3 199 27

Itis further ordered That applicant publish promptly in its appro

priate tariff the followingnotice

Notice is hereby given that as required by the decision of the Federal Maritime

Commission in Special Docket Nos 425 and 426 that effective July 23 1970

the contract rate on Item 1115 Kits Hobby Plastic Construction for purposes

of refunds or waiver of freight charges on any shipments which may have been

shipped during the period July 23 1970 to January 15 1971 is 48 25 W1M

subject to all other applicable rules regulations terms and conditions of

said rate and this tariff

Itis further ordered That refund shall be made within 30 days of

this notice and applicant shall within 5 days thereafter notify the

Commission of the date of the refund and of the manner in which

payment has been made

By the Commission

SEAL FRANCIS C HURNEY

Secretary

197
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET Nos 425 426 REVELL INCORPORATED

v

PACIFIC WESTBOUND CONFERENCE

Applications to refund a portion of freight charges granted

INITIAL DECISION OF HERBERT K GREER PRESIDING

EXAMINER 1

No 425

Pacific Westbound Conference applicant seeks permission to

refund to Revell Inc shipper a portion of the freight charges

collected on five shipments of Revell Educational Hobby Kits and

Revell Plastic Model Kits carried on vessels of Kawasaki Kisen

Kaisha Ltd I Line a member of respondent conference The rare

applicable at the time ofshipment was 50 50 W1M item 1115 P VC

local tariff 3 FMC 8 and in accordance with the conference tariff

l Line collected a total of 30 835 31 from the shipper The shipments

were delivered to the consignee at various times between August 18

and November 27 1970

At a meeting of the conference held on June 24 1970 the member

lines approved a reduction in the rates applicable to kits hobby plas

tic construction contained in local tariff item 1115 of PWC tariff 3

FMC 8 from 50 50 W1M to 48 25 W1M to become effective June 29

1970 Revell was advised of this reduction Through inadvertence

the reduction was made in the tariff on local item 1115 A oftariff No

3 cOvering kits plastic model industrial construction but not accom

plished for item 1115 which was specifically applicable to the ship

ment here involved Prior to the submission of this application appli

cant filed with the Commission a corrected tariff page setting forth a

rate of 4825 W1M for kits hobby plastic construction the rate here

sought to be applied

1

This decision became the decision of the Commission February 1 1971

198
mit a common carrier by water in foreign commerce to refund a por

tion of the freight charges collected from a shipper where there is

shown to be an error in a tariff of a clerical or administrative nature

The evidence presented by applicant shows that the conference mem

bers at a

regular meeting voted to reduce the rate on thecommodities

involved in these five shipments but inadvertently failed to filea tariff

amendmentreflecting the reduction

The application involves a situation within the purview of Public

Law 90 298 and the application was filed within 180 days of the

shipments No other shipments of the same or similar commodity

moved on conference vessels during approximately the same time as

these shipments and no other proceedings involving the same rate not

disposed of in this initial doc ision are pending Applicant having

complied with the legal requirements and good cause appearing ap

plicant is permitted to refund to the shipper the sum of 3 014 84

The notice referred to in the statute shall be published in the confer

ence tariff and the refund shall be effectuated within 30 days there

after Within 5 days of making the refund applicant shall otify

the Commission of the date of the refund and the manner in which

payment was made

No 426

The facts and circumstances set forth in this application which

involves the same parties are identical with those set forth in No 425

except that the shipment was of a lesser amount of the commodity

was carried by Yamashita Shinnihon Line also a member ofthe con

ference and the bill of lading was dated October 31 1970 The find

ings as to error in a tariff of a clerical or administrative nature as

set forth in No 425 are incorporated herein and as it appears that the

application conforms to the statutory requirements applicant is per

mitted to refund to the shipper the sum of 184 43 Applicant shall

advise the Commission of payment as required in No 425

lIERBERT K GREER

Presiding Examiner

WASIDNGTON D C January 1 1971

14 F M C
FEDERAL MARITIME COMMISSION

No 7046

INDEPENDENT OCEAN FREIGHT FORWARDER LICENSE

No 1132MAroo J MACCHlONE

February 3 1971

NOTICE OF ADOPTION OF INITIAL DECISION ORDER OF SUSPENSION

Notice is hereby giventhat the Commission has determined to adopt

the initial decision of the examiner in this proceeding served F bru

ary 9 1971 the effect of which is to suspend respondent s

freight for

warder license for a period of90 days

Therefore it is ordered that independent ocean freight forwarder

license No 1132 issued in the name of Mario J Macchione is hereby

suspended for a period of 90 days from thedate ofservice ofthisorder

It is further ordered that license No 1132 be returned to the Com

mission to be held during the period of suspension which will expire

May 27 1971

It is further ordered that copy of this notice be published in the

Federal Register

By the Commission

FRANCIS C HURNEY

SeC1etary

SEAl

200
FEDERAL MARITIME COMMISSION

No 7046

INDEPENDENT OCEAN FREIGHT FORWARDER LICENSE

No 1132MARIO J MACCHIONE

Freight Forwarder License No 1132 suspended for90 days

Walter E Doherty Jr for respondent

Oharles Haslup III and Donald J Brunner as hearing counsel

INITIAL DECISION OF HERBERT K GREER PRESIDING EXAMINER

1

This investigation was instituted by the Commission to determine

whether respondent Mario J Macchione has engaged in activity in

violation of sections 510 23 a and 510 24 e of Federal Maritime

Commission Genera Order 4 by permitting his license or name to be

used by another person and by receiving compensation hrokerage

for freight forwarder services through a separate establishment with

out written approval ofthe Commission and to determine whether re

spondent s

freightforwarder license shouldbe revoked

A

stipulation of facts was submitted and no hearing washeld The

facts which have been stipulated by and between the parties insofar

as necessary for resolution of the issues presented are as follows

1 InSeptember 1969 one John F Crowley anemployee ofrespond

ent having obtained an agreement to handle the shipments of Nashua

Corp approached respondent regarding the use ofFreight Forwarder

license No 1132 Respondent being unaware that the arrangement

would be contrary to the Commission s rules and regulations agreed

2 Crowley organized Door to Door International Inc and began

operating as a freight forwarder under respondent s license Crowley

wasnot conversant with Commission rules and regulations

3 Between October of 1967 and February 16 1970 Door to Door

International handled approximately 198 shipments which were for

wardedunder respondent s license No 1132

4 As of February 16 1970 Crowley as Door to Door International

Inc ceased operating as a freight forwarder and turned overall ship

ments he had contracted for torespondent forhandling

1This decision became thedecision of the Commission February 23 1971

201
202 INDEPENDENT OCEAN FREIGHT FORWARDER LICENSE NO 1132

5 During this period Crowley did not share in respondent s

freight

brokerage revenue nor did respondent share in freight forwarder

fees collected by Door to Door International Inc

It is found that respondent violated the Commission s roles and

regulations governing freight forwarders by permitting his license

No 1132 to be used by Door to Door International Inc

Itis concluded that except for the activities above found respond

ent is fit and able to operate as a freight forwarder and that as hear

ing counsel recommends a fair and reasonable penalty for violations

found is suspension of respondent s license No 1132 for a period of

90 days

Respondent s Ocean Freight Forwarder license No 1132 is sus

pended for a period of 90 days from such date as the Commission may

order

IhRBERT K GREER

Presiding Examiner

WAS INGTON D q Febr uary 9 1971

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 70 24

AGREEMENT No 9835 JAPANESE LINES PACIFIC NORTHWEST

CONTAINERSHIPS SERVICE AGREEMENT

Decided Febntary 24 191

Pursuant to all of the standards of section 15 of the Shipping Act 1916 and

pertinent interpretations and adjudications thereof agreement No 9835 is

approved

This agreement as filed with the Commission represents thefull and complete

agreement of the parties

There are no additional ancillary understandings or arrangements among the

various carrier members to thisagreement which have been entered into and

carried out or which have not been filed with and approved by the

Commission

Oharles F Warren John H Oaldwell and William Warfield Ros8

for respondent Japanese Lines

Edward Schmeltzer Edward Aptaker and Edloard J Sheppard

for petitioner city ofPortland Oreg

NormanE Sutherland and Thomas J White for the city of Port

land Oreg and the Dock Commission ofthe city of Portland

Gerald Grinstein and Richard D FO1 d for intervenor port of

Seattle

James Albert and Donald J Brunner as hearing counsel

REPORT

By THE COMMISSION Helen Delich Bentley Ohairman James F

Fanseen Vice Ohairman Ashton C Barrett James V Day

George H Hearn Oommissioner8

Pursuant to section 15 of the Shipping Act 1916 the Commission

on April 17 1970 originally approved agreement No 9835 over the

protest and request for hearing of the city of Portland Commission

of Public Docks hereafter Portland Portland then filed an applica

tion with the Commission seeking a stay ofits order of approval The

application was denied onMay 25 1970 and Portland appealed to the

U S Court of Appeals for the District ofColumbia Circuit for a stay

alleging that an unfiled agreement not to serve Portland existed

between the Japanese Lines party to agreement No 9835

203
204 FEDERAL MARITIME COMMISSION

On June 12 1970 the court in The city ofPortland Oregon v Fed

eral Maritime Oommission and the United States of America No

24182 granted a

stay ofthe Commission s order delaying its effective

date for 60 days and remanded the record to the Commission in order

to expedite the holding of a hearing to determine in light of the pro

test of Portland whether the agreement and the alleged ancillary

agreements if any should be approved The Commission on June 25

1970 ordered pursuant to sections 15 and 22 of the Shipping Act

1916 46 DS C 814 and 821 an expedited investigation and hearing

be held to determine 1 whether agreement No 9835 should be ap

proved disapproved or modified pursuant to section 15 of the Ship

ping Act 1916 2 whether this agreement as filed with the

Commission represents the full andcomplete agreement ofthe parties

and 3 whetherthere are any additional ancillary understandings or

arrangements among the various carrier parties to agreement No 9835

which have been entered into and carried out or which have not been

filed with andapproved by theCommission

Hearings were duly held and Examiner John Marshall s initial

decision recommending approval ofthe agreement wasserved onOcto

ber 5 1970 Parties participating in the hearing were Portland as

protestant six Japanese Lines as respondent l

the port of Seattle as

intervenor and hearing counsel Exceptions to the examiner s decision

were filedby Portland andhearing counsel

Subsequent to filing of the exceptions the Japanese Lines agreed

to institute service to Portland every 20 days and Portland withdrew

its exceptions Hearing counsel excepted to the examiner s rejection of

their proposed modification proscribing the practice of the member

lines to agreement No 9835 of absorbing inland freight on Portland

cargo and Inoving that cargo viaSeattle

milethe Commission concurs with the examiner s ultimate conclu

sion to approve the agreement without the modifications advocated

by hearing counsel the subsequent service to Portland and withdrawal

by Portland of its exceptions renders moot a number of issues dis

cussed by the examiner Therefore in our opinion we think it inappro

priate to treat those issues and accordingly we have restricted our

decision here to conclusions which reflect the existing facts in deter

mining compliance with the standards for approval set forth in section

15 oftheShipping Act 1916 Itis not however our intention to either

reject or affirm the examiner s initial decision Rather our decision

herein merely speaks to the change in circumstances since the issuance

ofthe initial decision

l

Japan Line Kawasaki Kisen Kaisha Ltd Mitsui O S K Lines Ltd Nippon Yujen

Kaijha Showa ShippIng Co Ltd Yamashita Shinnihon Steamship Co Ltd

14 F M C
AGREEMENT NO 983 5 205

FACTS

1 The Japanese Ministry of Transport MOT is responsible for

the formulation and effectuation of policy in connection with the con

struction and operation of Japanese flag vessels Any Japanese car

rier wishing to build a vessel nlust first get the approval of MOT

Moreover financing through the Development Bank of Japan is de

pendent upon such approval MOT with the advice ofthe Shipping

andShipbuilding RationalizationAdvisory Council an advisory body

to the Minister of Shipping and Shipbuilding Policy concluded that

the most economically feasible and efficient service between Japan and

the Pacific Coast ports of North America would consist of a three

vessel system providing inter alia weekly service where possible

interchange of containers space charters and centralization and joint

operation ofcontainer terminal facilities

2 On September 11 1968 the managing directors ofthe respondent

lines were orally directed to work out an arrangement to accomplish

the above objectives and to submit the specific terms of such an ar

rangement to MOT and the FMC for approval The opportunity was

never available to anyone ofthe six lines to build a containership for

operation in the Pacific Northwest trade or to operate a container

venture on any basis other than under the arrangement directed by

MOT

3 InOctober 1969 the carriers agreed on the basic formula that the

arrangement would be designed around Itclosely followed agreement

No 9718 which pertains to Japan U S Pacific Southwest full

containership service 2

Signed by the six lines in December 1969 agreement No 9835 pro

vides for joint containership service between Japan and ports in the

States of Oregon and Washington The service would be provided by

three fully containerized vessels The six participant lines would be

divided into teams of two with each team jointly owning and operat

ing one vessel Sailing schedules would be subject to the unanimous

agreement of all six lines though solicitation and booking of cargo

would be on an individual basis by each line for its own account

Individual bills of lading would be issued There are no provisions

for the pooling of revenues or the sharing of operational expenses

among the parties to the agreement The agreement does provide

however for the sharing of administrative expenses as well as the

2Filed May 10 1968 and approved by the Commission July 3 1968 Four of the six

Japanese lines are included i e Japa Line Kawasaki Klsen Kalsha Ltd Mltsut O S K

Lines and Yamashlta Shlnnihon Steamship Co U S Pacific coast calls under the agreement

are made at Los Angeles and Oakland only

14 F M C
206 FEDERAL MARITIME COMMISSION

interchange of containers and related equipment In addition there is

a

provision providing for the transportation of each line s containers

on any of the three ships by way of a

space chartering arrangement

The agreement is to remain in effect for 2

years with the option to

extend the agreement for another year by unanimous consent of the

parties

4 MOT does not control the selection of ports This is left to the

discretion of the lines In October 1969 all six lines agreed that it

would be best to review the results of the three vessel operations at

least throughthe main winter season of December January and Feb

ruary before deciding whether to call at Portland Portland was so

advised in early February 1970

5 There is no indication that the Lines at any time had decided to

exclude Portland on a permanent basis and as we have already noted

subsequent to the examiner s decision the Lines agreed to serve Port

land Their interim decision not to serve Portland was based on the

factors of cargo opportunities competitive considerations and the

desire to maintain a 30 day turnaround or round voyage schedule The

record indicated 1 that if Portland could produce enough traffic to

justify the call and 2 that ifthe call could be made withinthe 30 day

turnaround time limitation throughout the seasons Portland would

be given direct full containership service Such considerations were

responsive to theMOT directive for regular service

6 As ofthis report Portland has been served under the consortium

arrangement on the followingdates

Arrived

Golden Arrovv 1211 70

IIotaka daru 1230 70

Beishu daru 1 2371

Golden Arrovv 2871

7 As early as February 1970 the Lines advised their agents that

they had temporarily agreed on the calling ports and the schedule for

the first vessel The April 13 1970 issue of the Pacific Shipper con

tained the outbound and inbound schedule of that vessel the Golden

Arrow However such preliminary actions are not subject to section 15

sanctions and no operation was conducted under agreement No 9835

prior to Commission approval on April 17 1970 No cargo wasbooked

andno joint advertisements werepublished

DISCUSSION AND CONCLUSIONS

Section 15 oftheShipping Act 1916 provides in part

The Commission shall by order after notice and hearing disapprove cancel

or modify any a reement vvhether or not previously approved by it that

14 F M C
AGREEMENT NO 983 5 207

it finds to be unjustly discriminatory or unfair as between lit shippers

ports or to operate to the detriment of the commerce of the United

States or to be contrary to the public interest or to be in violation of theAct

and shall approve all other agreements

Consequently the Commission is charged with disapproving a sec

tion 15 agreement based on the following four standards 1 unjust

discriminations 2 detriment to the commerce 3 contrary to the

public interest and 4 violation of the Act Shipping Act 1916

As the court indicated in FMO v Svenska Amerika Linien 390 U S

238 245 1968 the Commission must be presented with substantial

evidence to support a finding under one or more of the above stand

ards On the record before us it is our opinion that such substantial

evidence cannot be found to justify disapproval of Agreement No

9835 As the examiner concluded in his decision a proper juqgment

on balance must be that operations under the agr ement will not be

unjustly discriminatory in any true sense ofthe word will be beneficial

to the commerce in keeping with the public interest and not a viola

tion oftheShipping Act 1916

International shipping is currently experiencing a phenomenal in

crease in the utilization of containerships for the transportation of

cargo It is absolutely essential to the success of this new shipping

system that the high cost vessels supporting equipment and facilities

be utilized in the most economical and efficient manner In the interest

of fulfilling that objective as well as providing regular service inter

change of containers space charters etc MOT directed that full

containership service to the Pacific Northwest be provided through

utilization ofthe consortium arrangement

Agreement No 9835 under the now existing circumstances quite

obviously affords transportation benefits including among others the

regularity of service and the efficient utilization of high cost equip

ment which far outweigh any relevant antitrust considerations which

could be marshaled against its approval under section 15 Investiga

tion of Passenger Travel Agents 10 FMC 27 34 1966 aff dFMO v

Svenska Amerika Linien 390 U S supra We are presented with no

question of merger or consolidation The companies maintain their

separate organizations and identities There is no sharing of revenues

or profits As pointed out by the examiner the agreement merely

provides for a cooperative working arrangement covering space char

tering and interstitial agreements on future sailings and administra

tive details

In addition the question of whether agreement No 9835 is unjustly

discriminatory under section 15 has become essentially moot with the

subsequent decision of the Lines to provide direct containership serv

14 F M C
208 FEDERAL MARITIME COMMISSION

ice to Portland on a 20 day cycle Portland had contended during the

hearing that respondents had entered into a clandestine determination

to restrict or exclude the containership service from calling at Port

land The alleged permanent exclusion of Portland from any direct

service was the only ground upon which the charge of discrimination

was based The new arrangement for direct service is satisfactory to

Portland and constituted the basis upon which they withdrew their

exceptions to the examiner s decision The record reveals no other

facets of the agreement which are potentially unjustly discriminatory

under section 15

In our order of investigation we also questioned the existence of

ancillary understandings or arrangements among the parties which

may have been effectuated without Commission approval As we indi

cated in our original order of approval and no v affirm herein there

is nothingin the agreement filed with the Commission which indicates

that it does not embody the complete understanding of the parties

The subsequent service to Portland by the consortium has negated

considerably the merit of the original objection Even before the ini

tiation of the Portland service the record did not support a finding

that the Lines had entered into any permanent form of ancillary un

derstanding or arrangement not to serve Portland in the future

Further it is our conclusion that the agreement as filed represents

the full and complete agreement of the parties Portland had origi

nally contended that the agreement is incomplete in that it contem

plates future agreements between the Lines with regard to schedules

and advertising space charters mutual accounting procedures and

container interchanges However those matters do not speak to the

essence of the agreement As the examiner indicated the Commission

l10T and the Lines know what the arrangement is Formalization of

the remaining details will not constitute the creation of a new agree

ment or arrangement requiring separate section 15 approval Rather

they refer to what the Commission and the courts have termed inter

stitialsort ofadjustments 3

Those adjustments in terms ofhearing counsel s analysis are merely

ordinary administrative matter among the operators which does not

affect the quality quantity or cost of service to the shipper The

Commission of course retains continuing jurisdiction over operation

ofthese agreements and should any matter other than administrative

oroperational adjustments be the subject offuture agreement between

the lines then appropriate compliance with section 15 requirements

will be required

a

Isbrandtsen 00 v US 211 F 2d 51 56 1954

14 F MC
AGREEMENT NO 983 5 209

There remains before us the question of hearing counsel s proposed

modifications which were rejected by the examiner Specifically they

propose that first a proviso be added to clause 1 Sailings of the

agreement to prohibit the issuance ofbills oflading to portsother than

those ports specified in the bills oflading whidh areserved directly

by the vessel or vessels on the voyage on which the cargo is carried

The intent ofthe proviso is to insure that Portland s growth potential

as a container port is not arrested by absorption practices which divert

cargo vVithout the proviso they maintain that the agreement may be

an instrument by whidh discrimination between ports is effectuated

Second hearing counsel proposes that the Commission for the sake

ofclarity should further modify clause 1 Sailings so that the agree

ment is defined to mean by unanimous assent as per the intent ofthe

parties to the agreement As authority for this modification they cite

the Mediterranean Pools Investigation 9 FMC 264 1966 case

wherein the Commission stated

On several occasions our predecessors have pointed out that all agreements

should be complete and the language used should be so clear as to eliminate all

necessity for the interpretation as to the intent of the parties In the Matter

of Agreement No 6510 1 U S M C 775778 2 U S M C 22 see also Beaumont

Port Oommission v Seatrain Lines Inc 3 F M B 556 581

Itis our opinion that these modifications suggested by hearing coun

sel should be rejected for the reasons set forth by the hearing exam

iner The validity of inland port to port absorption practices was not

an issue in this case The Commission s order of investigation did not

call for an investigation into absorption Absorption between Seattle

and Portland is the subject of FMC docket No 70 19 Intermodal

Service to Portlamt Oregon to which Seattle Portland and the Lines

are parties No direct evidence was received at the hearing on this

issue and it would be inappropriate to modify the agreement on that

ground at this time The pub1ic interest is adequately safeguarded

because ofthe proceeding in FMC docket 7019

As to the proposed modification substituting the words by unani

mous assent for agreement within clause 1 Sailings it is our

opinion that it is unnecessary for approval The terms of the agree

ment as it stands contemplate the unanimous action of the parties

Nothing of substance would be gained by the modification

Hearing counsel on December 30 1970 filed a

paper entitled Reply

to Various Motions for Summary Disposition in which they request

oral argument unless the Commission approve the agreement with

their suggested modifications or approve the agreement without

adopting the examiner s initial decision and with the explicit under

14 F M C
210 FE DERAL MARITIME COMMISSION

standing that the Commission srulings on the absorption of inland

freight in docket No 70 19 will be applied equally both in time and

force to the parties and practices in the instant proceeding

Having dispensed with hearing counsels proposed modifications

we find no reason to grant their request for oral argument Therefore

it is accordingly denied By way of comment however it is clear to

us that insofar as parties and practices in the instant proceeding are

involved in docket No 70 19 then any decision fortJhcoming therefrom

would be wholly applicable to these similar parties orpractices

Finally American Export Isbrandtsen Lines Inc AEIL on

November 2 1970 filed its third petition for leave to intervene This

petition as in the case of their prior petitions was filed for the pur

pose of being given an opportunity to argue to the Commission that

AEIL has a

right to be heard in the event the Commission should

determine that the proceeding herein encompasses the absorption

substituted service issue Having specifically ruled against consider

ation of the absorption issue we therefore deny AEIL s petition to

intervene

We have considered all aspects of agreement No 9835 with refer

ence to the various papers submitted by the parties to the proceeding

and the facts as they have developed Any arguments or positions not

specifically dealt with are rejected as immaterial to our decision based

on the facts as they currently exist before us Accordingly for the

reasons set forth we hold that agreement No 9835 providing for con

tainership service to the Pacific Northwest is approved without modi

fication An appropriateorder will be issued

L

SEAL I

FRANCIS C HURNEY

Secretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 70 24

AGREEMENT No 9835 JAPANESE LINES PACIFIC NORTHWEST

CONTAINERSHIP SERVICE AGREEMENT

ORDER

This proceeding having been instituted by the Federal Maritime

Commission and the Commission having fully considered the mat

ter and having this date made and entered of record a

report contain

ing its findings and conclusions thereon which report is hereby

referred to and made a Part hereof

Itis ordered That agreement No 9835 as filed with the Commis

sion and executed by Japan Line Kawasaki Kisen Kaisha Ltd

Mitsui O SC K Lines Ltd Nippon Yusen Kaisha Showa Shipping

Co Ltd and Yamashita Shinnihon Steamship Co Ltd on Decem

ber 24 1969 is approved and this proceeding is discontinued

By the Commission

SEAL FRANCIS C HURNEY

Secretary

211
FEDERAL MARITIME COMMISSION

No 69 13

GENERAL INCREASES IN RATES IN THE U S GULF PUERTO RICO TRADE

No 69 23

GENERAL INCREASES IN RATES IN THE U S GULF PUERTO RICO ThADE

Decision adopted March 4

1911

Increased rates and other rates under investigation between Gulf of Mexico

ports of the United States and ports of Puerto Rico found just and reason

able and notshown to be unlawful

Mark P Schlefer and John Ounningham for respondent Lykes

Bros Steamship Co Inc

Warren Price Jr Donrild G Ma8singale and Robert L Dausend

for respondent Gulf Puerto Rico Lines Inc

EiVward Schmeltzer Frederic Moring and Mario F Escudero for

intervener the Commonwealth ofPuerto Rico

R Stanley Harsh Norman Kline Ronald D Lee and Donald J

Brunwr as hearing counsel

INITIAL DECISION OF CHARLES E MORGAN PRESIDING EXAMINER 1

The subject two proceedings were consolidated for hearing by the

Commission in its order served on August 7 1969 and its order served

November 6 1969 By notice of reassignment and consolidation by

the chief examiner served October 6 1969 these proceedings also were

consolidated for the issuance of an initial decision There are two

respondent ocean common carriers Lykes Bros Steamship Co Inc

Lykes is respondent in docket No 69 13 and Gulf Puerto Rico

Lines Inc Gulf Puerto Rico is respondent in docket No 69 23

1

The decision in Dkt 6l 13 became the decision of the Commission March 4 1971 The

decision in Dkt 69 23 was remanded to the examiner by Commission Order dated May 13

1971

212 14 F M C
INCREASES IN THE U S GULF PUERTO RICO TRADE 213

Hearings were held in New Orleans La and in Washington D C

In No 69 13 by order ofinvestigation and by supplemental orders

served April 11 1969 May 7 1969 and November 25 1969 certain

increased rates and all of the rates already in effect as well asall future

changes in rates filed during the course ofthis investigation ofLykes

Bros in thisU S Gulf Puerto Rico trade were placed in issue

In No 69 23 by order of investigation and by supplemental order

served May 9 1969 and June 8 1970 certain increased rates of Gulf

Puerto Rico Lines Inc in this US Gulf Puerto Rico trade were

placed in issue

In both subject proceedings the rates are under investigation to de

termine whether they are unjust unreasonable Or otherwise unlawful

under section 18 a of the Shipping Act 1916 and sections 3 and 4

of the Intercoastal Shipping Act 1933 the acts The rates in issue

werenot suspendedand have gone into effect

These are so called general revenue cases In such cases two prin

cipal matters for determination are whether a

respondent common

cavrier hy water is operating at a profit in a trade and if at a

profit

whether it is earning a reasonable rate of return on its investment

Lykes vessels in thistrademake calls at PortArthur Lake Charles

Houston and Galveston among other ports on the Gulf and at San

Juan Mayaguez and Ponce in Puerto Rico Lykes operations in this

Puerto Rico trade are conducted at a loss

Lykes past losses continued in 1969 notwithstanding that most of

the rates under investigation herein were in effect for most of 1969

Itwas stipulatedthat Lykes loss in 1969 was not less than it was in

1968 The 19681088 was 1 246 192

Aquestion was raised as to whether Lykes losses in the Puerto Rico

trade were due to the kind of ships that they are operating in the

trade Evidence introduced by Lykes comparing the results of oper

ating 02 vessels as at present with its newer vessels of the Gulf

Pride class at May 31 1969 oost levels and at the increased rates

under investigation shows that Lykes would suffer a greater loss from

the operation ofGulf Pridevessels than from use of theG2s

Itis concluded and found thatthe increased rates and otherrates of

Lykes under investigation herein are just and reasonable and not

shown to be unlawful underthe acts

Gulf Puerto Rico s operation in this trade has been primarily of

the break bulk type The same is true of its competitors Lykes and

more recently Delta Steamship Co No shipper or receiver has indi

cated any dissatisfaction with the increased rates of Gulf Puerto Rico

so far as thisrecord shows

14 F M c
eudete increased rates the operation of Gulf Puerto Ric

in thistrade has been unprofitable This respondent hopes to replac

its two break hulk vessels with containerships and is hopeful that th

projected containership service will be profitable but its effect o

revenues and expenses will not be known until there has been suff

cient experience with a fullcontainership operation

Gulf Puerto Rico now offers service between Mobile and New O

leans and San Juan Ponce and Mayaguez This respondent los

810 000 in 1969 in this trade and it shows a projected loss for 197

of 1 132 651 Certain evidence was adduced hy the Commonwealt

of Puerto Rico designed to show the future profitability of an al

containership operation by Gulf Puerto Rico but this evidence wa

not at all persuasive and is irrelevant to the main controlling issu

in this procooding of the profitability of the existing service A com

mon carrier cannot be compelled to offer service in thistrade and 

follows that its management cannot be told to provide a particula

type ofship orotherequipment to service thetrade

Ifthe Commission wereto withhold approval of this rate increas

because the respondent Gulf Puerto Rico has not placed full con

tainerships into the service the Commission in effect would be dicta

ing the type of vessels to be used and usurping amanagement pre

rogative or function Of course on the other hand the Commissio

may if it wishes as suggested by hearing counsel in No 59 23 en

courage Gulf Puerto Rico toconvert to containership service as soo

as feasible

Itis concluded and found that the rates ofGulf Puerto Rico unde

investigation herein are just and reasonable and not shown to be un

lawful under the acts

orders should be entered in both subject proceedings No 69 1

and No 69 23 discontinuingtheproceedings

CHARLES E MORGAN

Presiding Examiner

Washington D O December 7 1970

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 684

INDEPENDENT OCEAN FREIGHT FORWARDER LICENSE No 190

NORTH AMERICAN VAN LINES FORT WAYNE IND 46801

Decided March 4191

License revoked Respondent found to be owned and controlled by a shipper in

the foreign commerce of the United States by oceangoing common carriers

no longer qualifies for a license as an independent ocean freight forwarder

within the meaning of sections 1 and 44 of the Shipping Act 1916

Martin A Weissert for respondent

JamesL Malone and Donald J Brunner as hearing counsel

Gerald H Ullman for intervener New York Foreign Freight For

warders and Brokers Association Inc

REPORT

By THE COMMISSION Helen Delich Bentley Ohairman Ashton C

Barrett Vice Ohairman James F Fanseen and George H Hearn

oommissioners

We instituted thisproceeding to determine whether we should revoke

North American Van Lines license as an independent ocean freight

forwarder because it is owned and controlled by PepsiCo Inc which

throughits controlling interest in thePepsi Cola Corp and Frito Lay

Corp is a shipper of goods in the foreign commerce of the United

States

Permission to intervene was granted to the New York Foreign

Freight Forwarders and Brokers Association Inc Subsequently on

March 10 1969 North American voluntarily suspended operations

under its licen epending the outcome of these proceedings

Examiner Richard M Hartsock in his initial decision concluded

that North American VanLines is controlled by a corporation export

ing cargo in the fore gn commerce ofthe United States by oceangoing

common carriers and that continued operation by North American

215
216 FEDERAL MARITIME COMMISSION

Van Lines as an independent ocean freight forwarder is because of

such control inconsistent with sections 1 and 44 of the Shipping Act

1916

Respondent has filed exceptions to which hearing counsel have

replied We heard oral argument

FACTS

North American Van Lines respondent has been an ocean freight

forwarder since 1958 It operated pursuant to Grandfather Rights

until it wasissued license No 790 by the Federal Maritime Commission

on Jun 8 1965 On June 14 1968 PepsiCo Inc acquired 100 percent

ofthe capital stock of North American PepsiCo also owns all of the

stock ofPepsi Cola andFrito Lay corporations Both ofthese corpora

tions export cargoes in the foreign commerce of the United States by

oceangoing common carriers On March 10 1969 North American

voluntarily submitted its license for suspension and ceased ocean freight

forwarding operations pending the outcome of this investigation

While in 1946 respondent was incorporated as an Indiana corpora

tion on June 14 1968 it wasreincorporated as a Delaware corporation

pursuant to the plan ofacquisition by PepsiCo

Respondent has engaged in the businessoftransporting orarranging

for the transportation of household goods and related commodities

since 1933 Surface operations are conducted within the United States

under motor carrier certificates issued by the Interstate Commerce

Commission The certificates authorize the transportation of house

hold goods as defined by the Interstate Commerce Commission be

tween points in the United States They also authorize the transporta

tion ofcertain other commodities such as new furniture store fixtures

and household appliances not contained within the household goods

definition

Atotal of90 percent ofNorth American domestic surface operations

consists ofthe transportation of household goods as opposed to the

other authorized commodities During 1968 the company transported

122 823 shipments of household goods and 40 725 of other authorized

commodities such as new furniture The latter operations constitute

only 10 percent of the company s volume in terms of gross revenues

Respondent s domestic motor carrier fleet consists of 230 company

Wned tractors and 1 201 company owned semitrailers It also leases

an additional 2 581 tractors 3 214 semitrailers and 864 straight trucks

The book value of company owned equipment exceeds 5 million

14 F M C
LICENSE NO 79 O NORTH AMERICAN VAN LINES 217

The company also provides for the transportation of household

goods by air Itsolicits shipments for direct air carriers underIA TA

agency contracts During 1968 it arranged for 292 international house

hold goods shipments in that capacity Respondent also provides a

service to the Department of Defense for overseas household goods

shipments in its capacity as an air freight forwarder approved by

the Civil Aeronautics Board Under this system North American

performs the necessary surface movement and arranges for the inter

mediate air carriage This through bill of Iading service in 1968

resulted in the movement of479 household goods shipments

Respondent also furnishes services from and to overseas points as

an NVO and as an ocean freight forwar ter The latter operations

were commenced some time in 1950 On June 13 1958 it was issued

FMBFreight Forwarder Registration No 2329 Following the amend

ment to the Shipping Act in the early 1960 s the company filed an

application for freight forwarder license in January 1962 The Com

mission assigned No 790 to the application authorizing continued

operations pending disposition of the proceeding A license was is

sued on June 8 1965

Respondent never completely exploited the potential of the freight

forwarder license because during the pendency of the application it

could not risk substantial capital for that operation because there was

no assurance that a license would ultimately be granted and on

ay 31 1966 shortly after the license was issued the company entered

into the purchase agreement with PepsiCo North American thereafter

was reluctant to expand until the potential conflict posed by the

PepsiCo affiliation was resolved The company did conduct some

activity under the license for example during 1966 through 1968

it handled some 395 shipments Gross revenues from those shipments

including advanced charges for land and ocean freight Was 159 088

of this only approximately 1 000 constituted forwarding fees Ocean

freight commissions aggregated 195

Of the commodities which respondent is certified to transport as

an ICG surface carrier only used household goods are moved on

ward as an NVO l The company s ocean freight forwarder activities

are therefore confined to authorized surface commodities which are

not considered as used household goods such as computers exhibits

and displays and new furniture fixtures etc In its freight forwarder

operations its customers can really fall into two categories First

1Nonvessel operatlng common carrier

14 F M C
218 FEDERAL MARITIME COMMISSION

colleges and universities which were in the process of establishing

educational facilities In lureigu countries In this operation the uni

versity would assign instructors to foreign countries and call upon

North American to move the person s used household goods to his

new overseas residence This movement was handled as a combined

surface movement and as NVO In addition to the used household

goods the college would also desire to ship project or educational

supplies to the same foreign facility and ask North American to

provide a service for the transportation of those commodities as well

North American declined to assume full through liability fot those

shipments as an NVO but would assist the shipper by making arrange

ments to move the shipments in its ocean freight forwarder capacity

The second type of customer consisted of manufacturing firms

which North American already served as a domestic carrier for the

transportation of products other than used household goods These

products consisted of electronic equipment exhibits and displays and

new furniture and fixtures Customers became aware of North Amer

ican because of its surface motor carrier operations Occasionally

these companies had a need to ship certain oftheir manufactured goods

overseas and since they were not skilled or experienced in the export

business they turned to North American to make the necessary ar

rangements These needs were accommodated by providing services

as an ocean freightforwarder

PepsiCo a Delaware corporation having its principal offices in New

York City owns 158 subsidiary corporations which in turn are or

ganized into five operating groups or divisions Pepsi Cola Division

Frito Lay Division PepsiCo International PepsiCo Leasing Di

vision and PepsiCo Transporttaion Division The Pepsi Cola Division

sells soft drink concentrates advertising and marketing matter to 500

ind pendent and 25 company owned bottling plants within the United

States The Frito Lay Division manufactures and distributes snack

and convenience products in the United States PepsiCo International

performs for the parent corporation the same as is done by Pepsi Cola

Division and Frito Lay in the domestic market Itsells concentrates

to approximately 500 independent and 25 company owned bottling

plants located overseas The PepsiCo Leasing Division leases items

such as automobiles trucks aircraft office equipment plant equipment

to lesses located principally in the United States The PepsiCo Trans

portation Division engages in the carriage of household goods mobile

homes and certain other products North American operates under the

latter division in its transportation activities

14 F M C
LICENSE NO 790 NORTH AMERICAN VAN LINES 219

PepsiCo exports equipment and supplies for bottlers finished snack

foods and beverages and household goods All such arrangements are

provided by the Traffic Department of PepsiCo International The

principal products for export are equipment and supplies for bottlers

such as plant equipment vending machines advertising materials

which products are actually purchased by overseas franchisers from

third party sources in the United States as PepsiCo neither sells nor

leases equipment to overseas bottlers Overseas bottlers may request

PepsiCo International to assist it in purchasingand making shipping

arrangements in which case such assistance is granted All shipments

of equipment supplies and finished products exported in the name

of PepsiCo International are tendered to ocean freight forwarders

in recent years utilizing services of Maron Shipping and Cobal Inter

national in New York City International Expeditors in Los Angeles

and San Francisco Calif Those from the New York area are tendered

to Maron from the Gulf area to Cobal and from the West Coast to

International Expeditors The North American freight forwarders

service has never been used

PepsiCo International also ships used household goods of its em

ployees and in recent years has tendered most of this traffic to North

American In 1969 North American handled eight overseas shipments

ofhousehold goods for PepsiCo

No director of PepsiCo serves as director of North American but

one ofNorth American s directors is aPepsiCo officer Victor DeMaras

is a vice president of PepsiCo in charge of all the activities of the

transportation division and also serves as a North American director

Harold E Rome is assistant secretary for both North American and

PepsiCo and Edward V Lahey Jr is assistant general counsel for

PepsiCo and a vice president for North American They have been so

placed ostensibly for housekeeping purposes that is to have someone

in New York as well as Fort vVayne to sign corporate documents

While PepsiCo may be termed a holding company with respect to

its subsidiaries North American represents that it is to be run as

a separate and autonomous company and it is a policy of PepsiCo to

procure goods and services at the best price irrespective of subsidiary

operations Thus it is stated further that it has a policy against

cross fertilization tie in sales and reciprocity Each division

or subsidiary is operated as a profit center and each is responsible

for operating in an efficient and profitable manner While subsidiaries

may deal among themselves were an affiliated company s product or

servicesadvantageous all intercompany transactionsmust be approved

14 F M C
220 FEDERAL MARITIME COMMISSION

by PepsiCo and justified for some substantial reason While the

parent of course holds veto power the subsidiary is left to its own

resources to pursue its projected profit goal the parent function being

to provide management expertise to assist in reaching those goals

such as legal advice and counsel in systems analysis and computer

application

DISCUSSION AND CONCLUSIONS

North American has taken some eight numbered exceptions the

first five of which are directed to the examiner s

finding that the

alleged prohibition against forwarder shipper relationships is abso

lute his reasons therefor and the conclusion that license No

790 must be revoked We think the examiner s conclusion that the

prohibition is absolute wascorrect

Section 1 oftheShipping Act 1916 states

An independent ocean freight forwarder is a person carrying on the business

of forwarding for a consideration who is not a

shipper or consignee or a

seller

or purchaser of shipments to foreign countries nor has any beneficial interest

therein nor directly or indirectly controls or is controlled by such shipper or

consignee orby any person having such a beneficial interest

This definition found in S 1368 and H R 2488 87th Congress first

session became law in Public Law 87 254 87th Congress Septem

ber 19 1961 and is clear and unambiguous Thus it requires no

statutory interpretation Oaminetti v United States 242 U S 470

485 1916 The legislative history for the greater part is silent as

to the particular language employed although the vices sought to be

corrected are clear and apparent The language directly or indirectly

controlled or is controlled by such shipper or consignee orby any other

person having such a beneficial interest has its genesis in the state

ment

Forwarders occupy a dual status They areindependent contractors as to shippers

and brokers as to carriers B R Report No 2939 84th Cong 2nd Sess p 38

InH R Report No 2333 85th Congress second session respecting H R

8382 the first like definition is found and reads

An independent foreign freight forwarder is a

foreign freight forwarder who in

connection with shipments dispatched by such forwarder is not a shlpper eyr

consignor or seller or purchaser or common carrier by water of such shipments

nor has any beneficial interest therein nor directly or indirectly controls or is

controlled by the shipper or consignor common carrier by water or by any

person having a beneficial interest in such shipments

14 F M C
LICENSE NO 790 NORTH AMERICAN VAN LINES 221

The report states

Our interest here is to have every person firm or corporation who holds itself

out as a forwarder to be fully competent and qualified to act in the fiduciary

reZationship which such business necessitates Emphasis supplied

The report continues pages 8 9

This would make it clear that all shippers consignees sellers purchasers and

carriers of ocean export cargoes are to be prohibited from obtaining a license

regardless of whether these groups forward only their own cargoes or the cargoes

of others Emphasis uupplied

H R Report No 5068 86th Congress first session considering S

2300 86th Congress first session deletes from the above definition the

terms or common carrier by water of such shipments and common

carrier by water and adds after the words beneficial interest the

words otherthan a lien

In Senate Report No 1682 86th Congress second session the

language page 4 reads

The definition of the term independent ocean freight forwarder made itclear

that only those persons who engage in ocean freight forwarding on behalf of

others will come within the licensing provisions and only independent ocean

freight forwarders may be compensated for service by water common carriers

Emphasis supplied

All ofthe legislative history points outclearly that exceptions to the

the clear and unambiguous language of the statute were to be ex

cluded 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

ApplicationfOrFreight FOrwarding License Wm V Cady 8 FMC

352 1964 Application fOr

Freight FOrwarding License Del Mar

Shipping COrp 8 FMC 493 1965 ApplicatiOnfO rFreight Forward

ing License York Shipping COrp 9 FMC 72 1965

We further agree with the examiner s conclusion that there is no

question that North American is or can be controlled by PepsiCo a

shipper in the foreign commerce of the United States by oceangoing

common carriers Thus it cannot qualify as an independent ocean

freight forwarder by definition and therefore is not entitled to

conduct the business ofa

freightforwarder

Finally respondent excepts to the examiner s failure to exercise

the Commission s discretionary pYWer and permit license No 790

to eontinue in existence subject to an appropriate restriction Here

respondent would distinguish between cases involving new or initial

licenses and those involvinglicenses already issued In the lattr cases

says respondent the Commission Inay by usingits power to amend or

14 F M C
222 FEDERAL MARITIME COMMISSION

modify in whole or in part any license previously issued allow re

spondent to continue its forwarding business subject to the limitation

that it would not serve its owners as a forwarder

The Commission consistently has held that forwarders who contro

or are controlled by shippers in the oceangoing commerce of the

United States are absolutely disqualified from licensing It is imma

terial that such control arises after a license is issued rather than prior

to the application therefor The Commission settled this issue in Ap

plication for Freight Forwardinq

License York Shipping Oorpora

tion supra when it held that it lacked statutory authority to allow

continuance of a license on condition that the licensee will not ship

for theexporter controlling it saying at page 76

There is no proviso inPublic Law 87 254 exempting from the ban on licensing

shipper controlled forwarders who do not forward shipments for their shipper

employees

The factual difference of an application for an initial license in

volved in York and an existinglicense in the instant proceeding while

significant in some respects is not pertinent when as here the question

is one of whether the statutory requirement of independence has

been met Shipper control negates the Commission s authority not only

to issue a license in the first instance but to allow it to continue

regardless of any condition that the licensee may propose Indeed

section 510 9 d of General Order 4 would appear not to impor

what respondent claims but rather that not only to initially qualify

for a license but also to prevent a discretionary revocation a licensee

must undergo no change of circumstances whereby it

no longer qualifies as an independent ocean freight forwarder

We have considered all of respondent s arguments and any which

are not specifically dealt with are rejected as without merit or as

immaterial to our decision Accordingly for the reasons set forth

we hold that the ultimate conclusions reached by the examiner are

well founded and proper The adoption of restrictions to the license

as an alternative to revocation should not be employed

We hold that North American Van Lines is controlled by a shippe

in the foreign commerce of the United States by oceangoing common

carriers and that the continuance of its license is inconsistent with the

provisions ofsections 1 and 44 ofthe Shipping Act 1916 and therefore

it is hereby revoked

An appropriate order will be entered

14 F M C
LICENSE NO 79O NORTH AMERICAN VAN LINES 223

Oommissioner JAMES V DAY Dissenting

The facts here are simple and the applicable law easily determined

Further while the case is one of first impression the key issues are

concise andclear

Factually North American Van Lines commenced operations as an

ocean freight forwarder 20 years ago Since that time it has operated

pursuant to various authorities including the license granted it by

this Commission in 1965 In 1968 its stock was acquired by PepsiCo

Inc which by virtue of holdings in other companies is a

shipper

In view of such acquisition North American consulted with this

Commission and voluntarily surrendered its license pending determi

nation of its qualifications to continue as a licensed forwarder The

respondent s action was specifically prompted by the statutory restric

tion against initially granting licenses to shipper connected entities

Section 17 ofthe Shipping Act of 1916 defines a forwarder as

a person carrying on the business of forwarding for a consideration who

is not a

shipper or consignee or a

seller or purchaser of shipments to foreign

countries nor has any beneficial interest therein nor directly or indirectly

controls or is controlled by such a shipper or consignee or by any person having

such a beneficial interest

The statute states in section 44 b that

A forwarder s license shall be issued to any qualified applicant therefor it is

found by the Commission that the applicant is or will be an independent ocean

freight forwarder and that the proposed forwarding business is or will

be consistent with the national maritime policies declared in the Merchant

Marine Act 1936

The statute also declares in section 44 d that

Any such license may in the discretion of the Commission be amended

or revoked in whole or in part

While we have denied licenses to shipper controlled forwarder

applicants in other cases we have not before determined a case like

this one where the respondent is already licensed and seeks appro

priate remedy in order that it may conform to what the law intends

There are only two key issues First where respondent as holder

of an existing license is acquired by a shipper can the Commission

amend respondent s license to comport with the statute permitting

operations by a forwarder who is independent of a

shipper

The secon lissue is merely if the Commission can amend such

license should it

14 F MC
224 FEDERAL MARITIME COMMISSION

Inmy opinion the Commission can and should

The power to amend an existinglicense is explicit in section 44 d

any such license may in the discretion of the Commission be amended

1

The power to amend an existing license is also impIlcit under the

Shipping Act The act is to be interpreted and implemented in order

to foster commercial services and commerce not to stifle services and

commerce Cf Tariff Filing Practices etd of Oontainerships inc

9 FMC 56 69 1965 and Greater Baton Rouge Port Oommission v

United States 287 F 2d 86 89 at footnote 3 1961

The 1961 freight forwarder amendments to the Shipping Act are

likewise to be interpreted and implemented for the same overall

purposes Their objectives more specifically stated are to preserve

sound forwarder operations by permitting brokerage and to pre

vent a distortion of forwarder operations by prohibiting shipper

control of forwarder operations which could result in illegal rebates

The particular means of implementing the forwarder amendments

are spelled out in section 44 Inthe case of xisting licenses the Com

mission has been giventhe power to amend or revoke The Commission

has thus been provided with an option to achieve statutory goal and

purpose This has been granted because as the court said in New York

Foreign Freight F B Association v FMO 337 F 2d 289 295

1964

Congressional legislation does not undertake to deal with every specific evil

for some are unforeseeable instead Congress often creates an administrative

agency to allow application of experts familiarity with the problems involved

Likewise the court said in State of Oalifornia v United States 320

United States 577 584 1944

Findinga wrong which it is duty bound to remedy theMartime Commission 1

may within the general framework of the Shiping Act fashion the tools for so

oing

Thus by virtue of the explicit language of section 44 d and the

power implicit in the general obj ectives of the Shipping Act and the

subject amendments the Commission can amend the existing license

The law is clear Yet if anyone could doubt it let them seek clarifying

legislation This has been done before and could be done again

1

This general amending authority Is not restricted by such language as appears in

sec 44 b a license shall be issued only if the applicant is an inde

pendent freight forwarder as defined under sec 1 There Is furthermore no

basis for applying such language in sec 44 b to the wording In sec 44 d To do so

would negate the very purpose of this latter sectlrln expressly giving the CommissIon

clear discretion to revoke oramend existing licenses

14 F M C
LICENSE NO 790 NORTH AMElRICAN VAN LINES 225

We hence come to the second issuewhether we should amend this

license Initially we note the statutory goal is certainly to preserve

sound forwarder operations North American has long been licensed

and has been providing a flexible multimodal shipping service to the

public including forwarding and a service on which the public

has come to rely To preserve this operation Would conform to statu

tory objective

But now the subject operation has become shipper controlled Find

ing this wrong the Commission is duty bound to fashion a

remedy

To accomplish this we may first again recall just what Congress was

seeking to accomplish in saying that new applicants for forwarder

licenses could not beshipper controlled

One of the principal purposes of Public Law 87 254 was to authorize payment

of so called brokerage by ocean carriers to freight forwarders but only under

such circumstances as not to result in any benefit to a shipper such as to con

stitute a rebate To prevent the possibility of such indirect rebating the defini

tion of an independent ocean freight forwarder was established and conformity

therewith made a

condition to the granting of a license and carriers were per

mitting to compensate only licensed forwarders The definition was intended to

exclude indirect as well as direct interests including so called dummy for

warders concerns organized for the sole purpose of collecting compensation

from carriers which would find its way back in whole or inpart to the shipperlI

Thus as H R Report No 2333 85th Congress second session states

the congressional intent was

to have every person firm or corpo ation who holds itself out as a

forwarder to be fully competent and qualified to act in the fiduciary relationship

which suchbusiness necessitates

Hence it would seem that what Congress wished to avoid was a

situation where a shipper might exercise undue control over a for

warder e gwhere the shipper had the power and the situation was

susceptible to the use of that power to distort the operational func

tions of the forwarder In sum Congress wished to avoid a control

which could be contrary to thepublic interest

Such need not be thesituation here

We do not have here the situation where a

company seeks coercive

control over a forwarder to distort the captive operations to its own

ends

On the contrary we have here quite a different situation The record

indicates thatthe affiliation between PepsiCo and North American was

not accomplished in order for North American to serve its parent or

affili ted subsidiaries as an ocean freightforwarder PepsiCo has never

2

Freight Forwarding Licen8eWm V Oady 8 FMC 352 358 1964

14 F M C
226 FEDERAL MAR TIME COMMISSION

utilized its subsidiary s

freight forwarder service Further there is

no suggestion that PepsiCo coerces North American to do business

with it or to otherwise conduct forced intraorganization commerce

The record leads us to believe that North American is operated au

tonomously tor its awn profit purposes and not as a captive customer

or supplier for its affiliated companies There appears no management

incentive therefore for either organization to breach any restrictive

condition wemight impose in the license

Further both North American and PepsiCo have fairly demon

strated their ability to conform to regulatory prohibitions When

PepsiCo acquired North American a condition was imposed by the

Interstate Commerce Commission against either organization solicit

ing forthe other 3

Of course to avoid illegal rebates a shipper cannot be allowed the

power to orderthe forwarder to handle his cargo

Further still a shipper should not have the power to control the

forwarder s business with othersany of its day to day operations

Such a prohibition would bar the subject shipper from any real chance

inadvertently orby design to weaken in any way a sound forwarder

operation benefiting the shipping public

Hence Iwould exercise the power present in section 44 d pre

serving an existing public service and removing at the same time any

potential for public harm 4

8

Since PepsICo already controlled other surface carriers at the time of the acquisition

it was required by sec 5

2 a of the Interstate Commerce Act 49 US C sec 5 2 a

to seek approval from the Interstate Commerce Commission to control North American

That approval was issued and has not been revoked

Such action is not without precedent and analogous support The Interstate Commerce

Commission restricted a motor carrier s certificate against serving its affiliated shipper

as an alternative to revocation or denial where such action was sufficient to guard

against the possibility of undue preference which that act prohibits See K Lines Inc

Purchase Shannon Transport Inc 1967 Fed Car Cases sec 36 091 at sec 36 09102

This Federal Maritime Commission has exercised similar discretion Following the

passage of the 1961 forwarder provisions in the Shipping Act a question was raised

whether NVO s should be licensed as freight forwarders in view of the fact they would

have the dual status of shippers as well as being carriers That issue raised such ques

tions as should NVO s be absolutely prohibited from acting as forwarders to avoid any

posslblllty of rebating to themselves or affiliates as shippers or should some less

drastic remedy be devised such as a restriction in their forwarder licenses which would

accomplish the desired legislative purpose short of an absolute prohibition against

licensing under any circumstances Tbe Commission was faced with such indications of

statutory intent as set forth in HR Report No 233 85th Cong 2d sess at Ip 89

shippers and carriers of ocean export cargoes are to be probibited from

obtaIning a license regardless of whether these groups forward only their own cargoes

orthe cargoes of others

The CommIssion chose the alternative course of conditional license rather than no

license Itheld that NVO s could be licensed subject to the condition they could not act

as a forwarderand collect brokerage in instances where they or related persons acted

as the shipper Thus did the Commission act to permit NVOs to provide the shipping

public with flexible services which includ d both forwarder and NVOCC operations

See freightforwarder regulation 510 22 c

14 F M C
LICENSE NO 79O NORTH AMERICAN VAN LINES 227

Iwould amend the existing license to prohibit North American

handling shipments for PepsiCo or its affiliates Further I would

prohibit PepsiCo or its affiliates from having any managerial power

over the forwarder operations of North American 5 Furthermore I

would enforce the above prohibitions through audit and through

sworn affidavit reports from key personnel of PepsiCo and North

American

FRANCIS C HURNEY

Secretar1J

ORDER

This proceeding having been instituted by the Federal Maritime

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 andmade a parthereof

It is ordered That Independent Ocean Freight Forwarder Licen

No 790 issued to and now held by North American Van Lines is

hereby revoked pursuant to section 44 d Shipping Act 1916 and

rule 510 9 ofgeneral order 4

Bythe Commission

SEAL FRANCIS C HURNEY

Secretary

6

Freedom to operate as opposed to loss of license would certainly appear worth

prompt consideration by respondent particularly since even now North American operates

as a separate and autonomous company responsible only for maintaining its projected

profit goals See respondent s mem n

andum of exceptions at p 5 Responsibility for

profits to stockholder PepsiCo after operating periodS are concluded is of course only

appropriate

14 F M C
FEDERAL MARITIME COMMISSION

INFORMAL DOCKET No 76 1

HETEROCHEMICAL CORP

v

PORT LINE LTD

Decided March 8 1971

Reparation in the amount of 37 12 granted to claimant based upon a

shipment

on October 9 1967 of 10 drums of a poultry feed additive called Hetrazeen

REPORT

By THE COMMISSION Helen DeliCih Bentley Ohairman Ashton C

Barrett Vice Ohairman James F Fanseen James V Day

George H Hearn OommissioneTs

Pursuant to the Commission s informal procedure for adjudication

of small claims 46 CFR 502 subpart s Heterochemical Corp here

inafter designated as claimant filed with the Commission on Oc

tober 6 1969 a claim for reparation in the amount of 45 22 based

upon a

shipment October 9 1967 of 10 drums of a poultry feed addi

tive called Hetrazeen The claim was based on an errorin the bill of

lading description wherein Hetrazeen should have been described as

feed cattle poultry or dairy containing not more than 1 percent

antibiotics

On December 17 1969 the examiner s initial decision was served

The examiner granted reparation in the amount of 45 22 based on

the contract rate of the U S Atlantic and Gulf Australia New Zea

land Conference for feed cattle poultry or dairy containing not

more than 1 percent antibiotics

Due to a question as to whether the claimant wasin fact entitled to

a contract rate the original decision of the examiner was remanded

to him onNovember 13 1970 forreconsideration

On January 20 1971 the examiner finding the claimant not to be

a contract rate agreement signatory reversed his earlier decision and

dismissed the original complaint as being fatally defective and hav

ing arisen more than 2 years ago now time barred

228
FEDERAL MARITIME COMMISSION 229

We are unable to accept the examiner s ultimate decision on remand

and therefore grant reparation to the claimant as set forth below

Heterochemical Corp duly presented the Commission a claim for

reparation based on a misdescription of goods The misdescription

was certified by the claimant recognized by the respondent in its let

ters to the Commission of October 17 1969 and February 13 1970

and subsequently upheld by the examiner Therefore the claimant

was entitled to reparation based on a noncontract rate for feed cat

tle poultry or dairy containing not more than 1 percent antibiotics

Under the facts as they developed her in we are unBlble to accept

the examiner s conclusion that the claimant by requesting reparation

under a nonexistent contract rate agreement originally submitted a

fatally defective claim which is now time barred by the Commission s

period of limitations The fact that the claimant asserted reparation

based on a contract rate does not go in this case to the substance of

the complaint which is a misdescription The rate on which recovery

should be awarded concerns only the selection of the appropriate

remedy Dismissal ofthe complaint as time barred assumes the con

tinued running of the period of limitations during the pendency of

the present proceeding an assumption that we think is unwarranted

where as here the gravamen of the complaint a misdescription has

been established Where a complaint is defective only as to a question

of the appropriate remedy or in any other manner not involvingthe

substance or gravamen of the claim the 2 year period of limitations

is tolled once a claim is submitted to the Commission for adjudication

The small claims procedure was established to facilitate the settle

ment of claims with a minimum amount of administrative or regula

tory action Therefore it is incumbent upon claimants to be meticu

lous and precise in the submission of their claims as well as prompt

in compliance with Commission inquiries or requests

The claimant herein has been reticent in enabling the Commission

to promptly dispose ofthis matter However in the interest ofinsur

ing just charges between shippers and carriers and in the interest of

terminating this proceeding in as equitable a manner as possible the

claimant is granted reparation in the amount of 37 12 from the re

spondent based on a noncontract rate for feed cattle poultry or

dairy containing not more than 1 percent antibiotics

Itis so ordered

By the Commission

SEAL FRANCIS C HURNEY

Secretary

14 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 427

AMERICAN ThADE SALES A C CONSULATE OF INDONESIA

v

LYKES BROS STEAMSHIP CO INC

April 19 1971

NOTICE OF ADoPTION OF INITIAL DECISION AND ORDER PERMITrING

WAIVER OF CHARGES

No exceptions having been taken to the initial decision of the ex

aminer in thisproceeding and the Commission having determined not

to review same notice is hereby given that the initial decision became

the decision of the Commission onApril 19 1971

Itis ordered That applicant is authorized to waive 9 929 88 of the

charge previously assessed American Trade Sales A C Consulate of

Indonesia

Itis further ordered That applicant publish promptly in its appro

priatetariff the followingnotice

Notice is hereby given that as required by the decision of the Federal Maritime

0ommf ion in SPE CiAl Docket 427 that effective March 8 1971 the rate on Item

No 2270 cotton yarn for purposes of refunds or waiver of freight chargES on

any shipments which may have been shipped during the period March 8 1971 to

March 9 1971 is 172 00 WT including 2 00 bunker surcharge subject to aU

other applicable rules regulations terms and conditions of said rate and this

tariff

Itis further ordered That waiver ofthe charges shall be effectuated

within 30 days of this notice and applicant shall within 5 days there

after notify the Commission of the date and mannerof effectuating

the waiver

By the Commission

SEAL FRANCIS C HURNEY

SeC1etary

230
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET No 427

AMERICAN TRADE SALES A C CONSULATE OF LOUISIANA

V

LYKES BROS STEAMSHIP CO INC

Application to waivea portion of freight charges granted

INITIAL DECISION OF STANLEY 11 LEVY PRESIDING EXAMINER 1

Lykes Bros Steamship Co Inc applicant respondent seeks per

mission to waive toAmerican Trade Sales A C Oonsulate ofIndonesia

shipper a portion of the freight charges on four shipments of cotton

yarn from New Orleans to Djakarta Indonesia and Soerabaya

Indonesia 2

Because the conference permits shipments under an open rate re

spondent prior to shipment quoted the shipper a tariff rate of 17

per ton including the 2 bunker surcharge which rate was somewhat

lower than thecurrent tariff Dueto inadvertence Lykes failed to notify

the conference ofthe rate change

The rate on fileat the time the shipments weredelivered to thecarrier

was 73 50 W1M per page 190A 13th revised effective Nov 30 1970

Item No 270 Atlantic and Gulf Indonesia Conference No 14

FMC3 which includes a bunker surcharge of 2 The carrier assessed

the shipper 35 98194 based on 302 931 pounds 19 582 cu ft aggregate

weight measurement Payment wasto be against Bank Indonesia letter

ofcredit No 0103 1101 Because ofthe error in charges and the pend

ency of this application Lykes has not exercised its claim for freight

charges againsttheletterofcredit

The conference because of lack ofnotice from Lykes failed to file

a tariff amendment reflecting the reduction Ifthe new tariff had been

filed and had been in effect at the time of the shipment the aggregate

1

This decision became the decision of the Commission Apr 19 1971

1I Bills of lading Nos 25 31 32 and 33 dated Mar 8 1971

231
232 FEDERAL MARITIME COMMISSrON

freight charges would be 26 052 06 or 9 929 88 less than the tariff

then actually on file It is this amount of 9 929 88 that Lykes seeks

to waive

Prior to the submission of this application the conference on

March 9 1971 filed with the Commission a corrected tariff page 190A

setting forth a reduced rate of 172 vVT including a 2 bunker sur

charge which is in accordance with the rate quoted by Lykes

Public Law 90 298 75 Stat 764 authorizes the Oommissionto permi

acommon carrier by water in foreign commerce to waive a portion of

the freight charges billed a shipper where there is shown to be an

error in a tariff of a clerical or administrative nature or due to

inadvertence in failing to filea new tariff

The application involves a situation within the purview of Public

Law 90 298 and the application was filed within 180 days ofthe ship

ments No other shipments of the same or similar commodity moved

on respondent s vessels during approximately the same period oftime

at the rate applicable at the time of the shipments involved in this

application and no other applications or proceedings involving the

same rate situation are pending

Applicant having complied with the legal requirements and good

cause appearing respondent is permitted to waive 9 92988 of he

charges previously assessed theshipper

Notice of waiver shall be published in the cqnference tariff within

30 days ofthis decision Within 5 days ofeffectingthewaiver ofcharges

applicant shall notify the Commission of the date and manner o

effecting the waiver

STANLEY M LEVY

Presiding Ewaminer

WASHINGTON D C March 9 1971

14 F M C


j

j





j



j

j

j


FEDERAL MARITIME COMl1ISSION

No 7044

UNITED STATES OF AMERICA

1

HELLENIC LINES LIMITED

May 11 191

NOTICE OF ADoPTION OF INITIAL DECISION

No exceptions having been taken to the initial decision of th

examiner in this proceeding and the Commission having determine

not to review same notice is hereby given that the initial decisio

became the decision ofthe Commission onMay 14 1971

Itis ordered That reparation in the amount of 6 034 15 is awarde

claimant with interest at 6 percent per annum if not paid within 3

days from thedate ofthis notice

Itis further ordered That respondent within5 days from the da

ofpayment ofreparation notify the Commission ofthe date and ma

ner of payment

Bythe Commission

SEAL

254

Signed FRANCIS C HURNEY

Secretary
FEDERAL MARITIME COMMISSION

No 7044

UNITED STATES OF AMERICA

17

HELLENIC LINES LIMITED

Reparation awarded

Roderick H Potter for complainant

St anley O SMrand AlanS Davis forrespondent

INITIAL DECISION OF STANLEY M LEVY PRESIDING EXAMINER 1

The complainant United States seeks reparation in the amount of

6 034 15 for alleged overcharges by the Hellenic Lines Ltd re

spondent for a

shipment of goods from Bayonne N J to Piraeus

Greece aboard respondent s ship M V Hellos

On Agust 7 8 9 12 and 13 1968 the Military Ocean Terminal at

Bayonne N J tendered to respondent cargo consisting of 320 cases

of new cl thing weighing 233 305 pounds and with a cubic measure

ment of 15 572 cubic feet cu ft Respondent billed at the rate of

86 60 per 40 cu ft per item 0420 ofthe North AtlanticMediterranean

Freight Conference Freight Tariff 10 FMC3 for Clothing N O S

whereas the claimant asserts that it is entitled to a rate of 71 per 40

cu ft per item 0424 ofthetariff for clothing in cases

The description of the cargo in the shipping documents is clear

Whatever the characterization of the cargo might be forthe purposes

of the application of a tariff the parties do not dispute that the ship

ment wasnew clothingof an unspecified type andthat it waspacked in

320 cases as opposed to any othermethod ofpackaging

The issue herein centers on whether in cases is atariff subdivision

of the old clothing category as contended by respondent or whether

in cases is a separate tariff subdivision embracing both old and new

clothing as contended by claimant

1

This decision became the decision of the Commission May 14 1971

255
256 FEDERAL MARITIME COMMISSION

Under the general heading of Clothing viz original page 64 o

the tariff eff tiveApril 1 1968 lists three items under three subhead

ings N O S Item No 0420 Old or Used NOT Effects Persona

in bags bales bundles Item No 0422 in Case8 Item No 0424

On August 19 1968 a first revision or page 64 or the tariff becam

effective This revision under the general heading of Clothing viz

again listed three items under three subheadings N O S Item N

0420 Old or Used NOTEffects Personal in bags bales bundles

Item No 0422 c in cases cartons NOT Barrels Drums Suitcase

Trunks Item No 0424

Thus both in the tariff in effect at the time ofshipment and theon

put into effect a few days after the shipment the classification o

clothing in cases appears although by August 19 1968 item 042

was clarified to include cartons but not barrels drums suitcases o

trunks

At page 8 of the Oommodity Index of the tariff fourth revisio

effective July 15 1968 and fifth revision effective August 19 196

reference is made to Clothing N O S ltem No 0420 Clothing Ol

or Used in Bags Bales BundlesItem No 0422 Clothing in Cases

Cartons Only C Item No 0424

Hellenic in support of its assessed charges asserts that the con

struction of the tariff as claimed by the United States would lead t

an absurd unjust and improbable result which tariff constructio

should avoid Itpoints out that if the classification in cases is no

restricted and is applicable alike to old and new clothing then th

distinction and raItionale in shipping costs relatingto the value ofth

shipment disappear Hence old clothing having possibly little valu

would cost as much to ship in cartons as would new clothing shippe

in cartOons though presumably a much higher value wOould attach t

new clothing Hellenic points out that the raItionale of shipping cos

relating to value is evidenced when clOothing is shipped in bags sinc

new clothing in b osat 86 50 is rated nearly 40 higher than o

clothing in bags shipped to certain base ports This it says showstha

the conference clearly intended to distinguish between old and ne

clothing

It is undisputed that value of the goods shipped is an element i

establishing rates But it is not the only element Among other con

1derations are method of packaging volume weight perishabilit

hazardousness and distance freighted In any given circumstance on

or more of these elements may be given more weight in establishin

the tariff than they would under other circumstances The weight 

14 F M C
UNITED SIIATES OF AMERICA V HELLENIC LINE S LIMITED 257

be given any faotor is to bedetermined by the drafterofthe tariff But

whatever factor or factors are determinative the tariff as published

must make the end result clear

There is no doubt that the conference intended to distinguish be

tween old and new clothing Item 0422 of the tariff clearly refers only

to old clothing But by distinguishing between old and new clothing

insofar as item 0422 is conoorned is not tosay that the otherclothing

items in the tariff are necessarily restricted to either old or new cloth

ing For example old clothing which might be personal effoots ornot

in bags bales bundles would go in item 0420 if in cases or cartons but

would go in N O S item 0420 if in barrels drums suitcases or trunks

Similarly new cl0thin would clearly go in N O S item 0420 if in

bags bales bundles barrels drums suitcases or trunks And itreITIains

to be determined whether new clothing in cases or cartons might go in

item 0424 asmight oldclothing

The tariff is clear as to what shipment is el igible under item 0422

Itmust be old or used clothing excluding personal effects and it must

be packed in bags bales or bundles The conference has no difficulty

in clearly designating the conditions necessary to obtain the rates set

forth in item 0422 Ita1so has no difficulty in designating certain con

ditions necessary to obtain the rate set forth in item 0424 Itmust be

shipped in cases or cartons Itcannot beshipped in barrels drtlms suit

cases 01 trunks There are no other restricti ns prohibitions o classi

fications set forth in thetarifffor item 0424

Ifthe conference desired or intended to exclude new clothing or

personal effects or to exclude any othertype ofclothing or method of

packaging or to affirmatively limit the item to any particuiar type of

clothing it could easily set forth such additional exclusions or limita

tions in tem 0424 It failed to do so Having the ability in the first

instance to control and designatethe coverage ofparticular items in its

tariff the fair and reasonable interpretation ofthe conference s failure

to further limit or exclude is that except for the limitations or exclu

sions set forth there are no other limitations to that item of thetariff

Respondent cites FMC2 the predecessor tariff of FMC3 in sup

port of its contention that the conference carriers intended only therN

O S rate to apply tonew clothing incases Itsays thwt onpage 80of

FMC

t

2in cases isindented tomodify oldor used clothing andis restricted

herebySince new clothing is not specifical1y ratedre spondent

says itwould have been N O S rated inFMC 2Respondent claims

that thefailure toindent inFMC 3was theresult ofan inad vertent

ortypographicalerror14

F M C
258 FEDERAL MARITIME COMMISSIOIN

This is an ingenious argument but for a number af reasons is with

aut substantial support Inthe first place an interpretation of FMC

is not in issue and ifitwere itcannat be said what classificatianwoul

ultimately be determined far new clathing in cases Further wheth

the different indentatian in FMC3 was the result of an inadverte

clerical 01

typagraphica1 error is material anly if it is first presume

that the answer to whetheritem 0424 is or is not separate and distin

from item 0422 depends on whether it is 01 is not indented Tar

classificatian determination however should not be dependent a

typesetting

Hellenic also argues that inasmuch as in cases is nat capitalize

the item is withinthe scope af Old 001 Used category This argumen

however is refuted on the very same page af the tariff by referenc

to Coffee viz For this commodity there are 3 itemsin bags

Instant and N O S The in bags item 0426 is not a

category afeithe

afthe othertwo items althaugh it is nat capitalized and the athers ar

Respandent s argument af typographic or inadvertent erroris als

weakened by reference to thenumeraus revisians ofpage64 Iforigina

page 64 af FMC3 dated April 1 1968 is to be deemed the success

to FMC2 the typagraphicar inadvertent error if any occuJ Ted a

that time Yet the conference failed to correct the alleged typograph

errar until the sixth revisian effective June 18 1970 which indente

and capitalized item 0424

The recard shows that the claimed overcharge was brought to th

carrier s attention by the Government s natice af overcharge date

January 5 1970 By letter dated February 4 1970 Hellenic rejecte

the Government s claim Thereafter there ensued a series af lette

between the parties culminating an June 9 1970 with the carrie

continued rejection ofthe claim Inthe interim and after natice afth

Gavernment s claim of avercharge the conferenceissued fifth revisio

effective January 14 1970 which continued the fOTmat ofthe arigin

and faur revisians af page 64 Ittook the conference hawever av

5 months after natice to ane afits members to change the tariff form

to correct what is alleged to bea

typagraphical error

That page 64 tariff revisians can be accomplished very quickly is ev

dencedby thetime differential af sixth revisian effective June 18 197

and seventh revision effecJtive June 22 1970 eighth revision effectiv

July 30 1970 and ninth revision effective August 17 1970 faurt

revisian effective December 19 1969 and fifth revisian effective Jan

ary 14 1970

The N O S classificatian is a catchall which by definitian is app

cable if no other classificatian is 01 can be specified While ane shou

14 F M C
UNITED STATES OF AMERICA V HELLENIC LINES LIMITED 259

not unduly strain to find a classification for goods nevertheless an

N O S classific3Jtion is a classification which should not be resorted to

if a reasonable classification can otherwise be found in the tariff

Whether a classification is reasonable and not inconsistent with another

classification we look to the irrclusionary or exclusionary language of

the item in conjunction withthe inclusionary orexclusionary language

ofotheritems in the tariff

Inthis case by utilizingthe inclusionary and exclusionary language

of both item 0422 and item 0424 it can readily be seen that afinding

that new clothing in cases is within item 0424 is not violative of nor

inoonsrstent with any of the language of that item or of item 0422

To recapitul3Jte new clothing in cases is within clothing in cases or

cartons NOT Barrels Drmns Suitcases Trunks and nothing in

the classification Old or Used NOT Effects Personal in bags

bales bundles is inconsistent with nor precludes such classification

for new clothes in cases Nor in the language ofthe commodity index

is there anything which precludes or is mconsistent with afindingthat

new clothing in cases is withinthe scope ana purview of item 0424

Hellenic utilizesFMC2 in support ofits positionherein by c1alfuing

that inasmuch as FMC3 was published to effect a general increase in

rates the Government s interpretation ofFMC3 insofar as new cloth

ing in cases is concerned would thwart thatintent and would produce

a rate decrease from 8150 to48 25 This presumes necessarily that

under FMC2 new clothing in cases could be r3Jted only under the

N O S classification No such ruling has been made Further since

clothing in cases would under FMC3 not be charged less than cloth

ing in cases under FMC2 there is no thwarting the intent of FMC3

to effect a general increase in rates National Van Lines v United

States 355 F 2d 326 7th Cir 1966

Respondent contends that to find that the carriage of new clothing

in cases should be rated under item 0424 of the tariff is to engage in an

unnatural or strained construotion To the contrary only by engaging

in an unnatural or strained construction can one find that new clothing

in cases cartons is to be classified only under acatchall N O S Such

a classification on the theory that the tariff never intended under any

circumstances to

carry new clothing at other than an N O S rate

would indeed rquire an unnatural or strained construction ofthetariff

as published Buckley Dwnton Overseas S A v Blue Star Shipping

Gorp 8 F M C 137 1964

Section 18 b 3 of theShipping Act of 1916 recognizes that error

in a tariff may occur by reason ofclerical or administrative error But

in such case the statute only provides retroactive relief for the ship

14 F M O
260 FEDERAL MARITIME COMMISSION

per none for thecarrier Recognizing thepossibility oftariff errorthe

intent ofthe statute appears to be thalt ifthe error causes a lessertarif

to be published than intended no more than the published r3lte can

be charged whereas ifthe errorresults in the publication of ahighe

tariff than intended arefundorwaiver oftheexcess may be permitted

Correction of error in a tariff of a clerical or administrative natur

which willresU1t in an increase in cost to a

shipper can only beaccom

plishedby publication of a new tariff Section 18 b 2

Itis not only incumbent upon the drafter ofthetariff to be precise

it is vital to the interest both of the carrier and the shipper that th

tariff be free from ambiguity or doubt While conciseness is to b

striven for it should nat be achieved at the sacrifice of preciseness

Where a tariff is ambiguous ordoubtful itshould be construed agains

the carrier who prepared it PeterBratti Associates Inc v Prudentia

Lines Ltd 8 F MC 375 1964 See also United States vStrickland

200 F 2d 234 5thCir 1952

Respondent also contends that the claim is barred by the statute o

limitations The clothing was shipped under Government Bill of Lad

ing D 2721289 dated August 7 13 19 8 On October 17 1968 Helleni

submitted a voucher Carrier s Bill No 68465 for transportation

charges standard form 1113 certifying that the account stated

thereon in the amount of 33 674 45 was corroot and just Freigh

charges of 32 895 88 werepaidon November 12 1968 by complainant 

check No 945463 as shown on the same voucher schedule No 1506

In making payment the carrier s bill was reduced by 778 60 which

represented discharge costs for the account of the recipient Govern

ment The complaint was filed herein on November 10 1970 Whethe

the claim is barred by the strutute oflimitations is dependent onwhethe

the cause of action accrued at the time the shipment was received o

delivered by the carrier August 1968 at the time of billing Octo

ber 17 1968 or rut the time when thefreight chargeS werepaid Novem

ber 12 1968 Ifit accrued at the time the shipment was tendered o

delivered or at the time of biTIing the claim is barred by the 2 yea

period within which the statute requires that claims be filed If

occurred at the time when the freight charges were paid then th

claim is not barred until November 12 1970 The rule of law is tha

the cause of action of the shipper shall beheld not to have oc

rued until payment has been made ofthe unreasonable charges

U S ew rel Louisville Oement Oompany v 100 246 US 638 64

1917 See also Aleutian Homes Inc v Ooastwise LiJne et al 

F MB 602 611 The cause of action having accrued on November 12

1968 when payment was made the filing of the complaint on Novem

14 F M C
UNillED STATES OF AME RICA V HELLENIC LINES LlMlTED 261 

ber 10 1970 was withinthe 2 year period of time set by section 22 of

theShippingAot of1916 andis notbarred

The evidence supports and Ifind that the proper freight raJte tobe

applied to the shipment herein is set forth on original page 64 or the

tariff item 0424 effective April 1 1968 Reparation in the amount of

6 034 15 is awarded claimant with interest at 6 percent per annum if

not paid within30 days

STANLEY M LEVY

Presiding Ewamine7

VASHINGTON D C

April2 1971

14 F M C
FEDERAL MARITIME COMMISSION

No 7047

UNION CARBIDE INTER AMERICA

v

NORTON LINE

June 1 1911

NOTICE OF ADOPTION OF INITIAL DECISION

No exceptions having been taken to the initial decision ofthe exam

iner in this proceeding and the Commission having determined not to

review same notice is hereby given that the initial decision became

the decision ofthe Commission on June 1 1971

Itis ordered That reparation in the amount of 1 514 50 is awarded

claimant with interest at 6 percent per annum if not paid within 30

days from the dateofthis notice

Itis further ordered That respondent within 5 days from the date

of payment of reparation notify the Commission of the date and

mannerofpayment

By the Commission

SEAL FRANCIS C HURNEY

Secretary

262
FEDERAL MARITIME COMMISSION

No 7047

UNION CARBIDE INTER AMERICA

V

NORTON LINE

Reparation awarded

V G Wilson for complainant

DanielJ DeMarco for respondent

INITIAL DECISION OF STANLEY M LEVY PRESIDING EXAMINER 1

The complainant Union Carbide Inter America seeks reparation

in the amount of 1 514 50 for alleged overcharges by the Norton Line

respondent for a

shipment 2

from Norfolk Va to Rio de Janeiro

Brazil aboard respondent s vessel DOl otea

The shipment of 174 metal drums measuring 1 865 5 cu ft and

welghing 83 520 lbs was assessed a total of4 217 30 at the rate of

87 50 plus 3 surcharge W1M per 40 cu ft as per item 1 4th revised

page 92 of the Inter American Freight Oonference Tariff No 1

FMC No 1 for Ghemicals N O S Nonhazardous value 1 500

3 000 per 2 240 lbs

Claimant contends that the shipment should have been assessed a

total of only 2 702 80 at the rate of 55 plus 3 surcharge W1M per

40 cu ft as per rate item 9 3d revised page 96 of the tariff for com

pounds surface active wetting agents oremulsifiers

The bill of lading described the shipment as Amine 220 F P 4650

F not inflammable The export declaration listed the goods as sched

ule B No 512 0943 aminesn e c

Claimant claims now that it misdescribed the goods on the bill of

lading and export declaration It contends that the bill of lading

1 This decision became tbe decision of the Commission June 1 19711

2

Blll of lading No 3 dated June 17 1969

263
264 FEDERAL MARITIME COMMISSION

should properly have described the shipment as Amine 220wetting

agent and the proper schedule Bnumber should have been 554 203

surface active wetting agents

Amine 220 is Union Carbide s trade name for 1 hydroxyethyl 2

heptadecenyl Glyoxalidine Amine as described in The Oondensed

Ohemical Dictionary 7th edition Reinbold 1966 is aclass of organic

compounds ofnitrogen Amine 220 is further described as a cationic 

wetting agent

In defense of its assessed charges respondent asserts that there is no

commodity listing in the tariff for Amine 220 and thus in rating

the shipment it merely followed complainant s own classification o

its trade name product which it described as chemical N O S Also

the charges are in accordance with the description in the export de

claration Respondent points out that a

rating clerk is not a chemis

and depends on the description of the commodity as submitted by the

shipper Hence Norton argues that it should not be held accountable

for an errormade hy theclaimant

This case presents the classic dilemma between the concept tha

what was actually shipped determines the applicable rate rather than

what is declared on the bill oflading and the carrier s need to have the

shipper accurately describe theshipment in order that the carrier may

assess the lawful rate Here the shipper admits it misdescribed the

shipment yet oomplains that the carrier charged a rate in accordance

with the misdescription The resolution of the dilemma necessarily

must redound to the detriment of an otherwise fault free carrier or ig

nore the concept that charges must be based onwhat wasactually ca

ried Accordingly the Commission has held that claims for reparation

involving alleged errors of description can be allowed only if the

claimant meets the heavy burdens of proof once the shipment ha

leftthe custody ofthe carrier 4

In this case the claimant s description on the bill of lading and in

voices 5

relating to this shipment establish that the goods carried wer

in fact 1 864 cu ft of Amines 220 packed in 174 metal drums The

record also estaJblishes that Amine 220 is a trade name of an organi

compound of nitrogen demulsifier and it isa surface active cationic

wetting agent Atthe time of the shipment 3d revised page 96 ofthe

respondent s tariff provided a specific rate for compounds surface

3 Cationic surface active positively charged ion

Colgate PalmoZive CO V United Fruit 00 informal docket No 115 I Commissio

order served Sept 30 1970

15 Invoices order No 51 3778 2 dated Apr 28 1969 and No 51 37752 pt 1 date

Feb 28 1969

14 F M O
UNION CARBIDE INTER AMERICA V NORTON LINE 265

active wetting agents or emulsifiers at 55 plus 3 surcharge W1M

Accordingly the evidence in this record supports and itis so found

that the shipment should be rated at 55 plus 3 surcharge W1M

Claimant is awarded reparation on the claim herein in the amount

of 1 514 50 with interest at the rate of 6 percent per annum if not

paid within30 days

STANLEY M LEVY

Presiding E xamine l

WASHINGTON D C May 4 1971

14 F M C
FEDERAL MARITIl1E COMMISSION

DOCKET No 70 11

PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AU 12

TARIFF No FMC 14

Decided June10 1971

Tariff rule 10 and proposed amended rule 10 of the Pacific Coast European Con

ference limiting the number of loading terminals in the San Francisco Bny

area are subject to section 15 of the Shipping Act 1916 and nothaving been

approved areunlawful

Tariff rule 10 and proposed amended rule 10 are unapprovable under section Hi

as contrary to the public interest since they prevent or attempt to prevent

carriers from serving federally improved ports in contravention of section

205 Merchant Marine Act 1936

Tariff rule 12 providing for equali2 ation of shippers inland transportation costs

from point of origin in California to loading terminal is not required to be

filed for approval under section 15 as it is authorized by the terms of the

Conference s presently approved agreement

Neither tariffrule 12 northe deletion thereof isunlawful

Leonard G James and F Oonger Fa1ocett for respondents

Thomas O Lynch Walter S Rountree and Denis Smaage for Gov

ernorofCalifornia

J Richard Townsend and Albert E Oronin Jr for Stockton Port

Distriot J Kerwin Rooney and John E Nolan for Portof Oakland

and Olarence Morse and John Hamlyn Jr for Sacramento Yolo Port

District intervenors

Margot Mazeau R Stanley Harsch and Donald J Brunner hearing

counsel

REPORT

By THE COMMISSION Helen Delich Bentley Ohairman Ashton C

Barrett Vice Ohairman James V Day George H Hearn and

James F Fanseen Oommissioners

We instituted this proceeding to determine whether tariff rules 10

and 12 of the Pacific Coast European Conference hereinafter the

Conference or respondents in their present form or the proposed

charges therein are authorized by respondents agreement No 5200

266
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12 267

and are otherwise lawfulunder seotions 15 16 and 17 ofthe Shipping

Act 1916 the act Rule 10 generally limits the number of terminals

in the San Francisco Bay area at which conference members may call

to pick up cargo to two and the proposed change in rule 10 would

limit such terminals to one Rule 12 establishes a system ofport equali

zation between San Francisco Bay area ports which the Conference

proposes to terminate In addition pursuant to a protest filed by the

Governor ofthe State ofCalifornia undersection 16ofthe act respond

ents were directed to show cause why the proposed changes in rules 10

and 12 should not be set aside as unjustly discriminatory against the

State of California and its products moving in foreign commerce to

Europe withinthe meaning of sections 15 and 17 o the act and con

trary to section 205 Merchant Marine Act 1936 section 205 Stockton

Port Distriot Stockton Port of Oakland Oakland and Sacra

mento Yolo Port District Sacramento intervened Hearings were

held in San Francisco from April 7 through 17 1970 Opening briefs

were filed by all parties and reply briefs by Stockton Sacramento

and respondents Chief Examiner C W Robinson issued an initial

decision in which he found rule 10 in both its present and proposed

forms unauthorized by the Conference s basie agreement but approv

able iffiled in its present form as an agreement modification pursuant

to section 15 ofthe act Hefound the proposed one terminallimitJation

unapprovable as violative of section 16 first and parts of section 15

Finally he determined that rule 12 port equalization system is au

thorized by the conference agreement that itis not otherwiseunlawful

and that its termin1ation likewise would not be unlawful Exceptions

to the initial decision have been filed by the Conference Stockiton

Oakland Sacramento and hearing counsel and replies thereto were

filed by all oftheabove except Oakland 1We have heard oral argument

FACTS

Agreement No 5200 coversthetransportationOf cargo from Alaska

Washington Oregon and California to ports in the United Kingdom

of Great Britain and Northern Ireland Ireland the Scandinavian

Peninsula continental Europe including ports on and in the Baltic

and Mediterranean Seas as well as the s as bordering thereon and

Morocco and to the Atlantic Islands of the Azores Madeira Canary

1

The Governor of the State of Calffornia had maintained before the examiner that the

single terminal lfmltation was unlawful and was especially injurious to the State when

coUtpled with the elimination of the port equalization s

rstem He al so suggested that the

Commission consider declaring the two terminal lfmltatlon unlawful However he urged

retention of the equalization system if the Cmnmisslon held the twoterminal limitation

to be lawfuI

14 F M C
268 FEDERAL MARITIME COMMISSION

and Gape Verdes and by transshipment aft the aforementioned ports

to ports in lceland and West South and East Africa

Amended rule 10 of the tariff now scheduled to become effective

June 30 1971 provides as follows

Shifting of vesseZs Shifting of vessels is permitted within loading ports but

except as otherwise provided there shall be no absorptions for bringing cargo to

from or within such ports Each member shall be limited to a

single terminal

inthe San Francisco Bay area designated semiannually July through December

and January through June except that vessels may shift to additional terminals

for military cargo and cargo loaded in bulk A Member without a sailing from

the San Francisco Bay area fora period of 60 days or more may redesignate its

terminal Calls at additional terminals may be made to load a minimum quantity

of 750 short tons from one shipper For the purposes of this rule Members

participating in a joint service shall be treated as a single Member

The provisions of this rule do notpreclude the loading of cargo at the vessel s

discharging terminal on the inbound call provided that the inbound call does

not also constitute the occasion for vessel to additionally load at its designated

terminal

Jrorthe purpose of this rule the S an Francisco Bay area includes all terminals

and or ports inside theGolden Gate

To coincide with the effectiveness of amended rule 10 respondents

propose to delete rule 12 which provides in pertinent part as follows

Port equaZization Forcargo destined to Groups 1 2 3 and 4 Carriers may

absorb a shippers extra delivering transportation cost based on the lowest

available published rate s between point of origin in California to nearer

declared San Francisco Bay Area loading berth and point of origin in Californi a

to other declared San Francisco Bay Area loading berth defined in Rule 10 as

thelimited two loading berths For the purpose of this rule San Francisco Bay

Area loading berths are limited to berths at Alameda Oakland Redwood City

Richmond Sacramento San Francisco orStockton

lfthe carrier unloads and loads at the same time in the Bay area

and then proceeds to the Northwest for unloading and loading it may

return to the Bay area for loading lat a terminal other than the one

at which it previously unloaded and loaded On the other hand where

thevessel completes its unloading in theBay area and does not proceed

to the Northwest it cannot load at its discharging berth land must

proceed to its designatedloadingberth

Where One shipper at a second terminal offers 750 tons cargo Of

Other shippers can be lOaded Bit that terminal but if there are two or

mOre shippers whose aggregate vOlume exceeds 750 tOns but whose

individual tOtal is less than 750 tons no call can be made at the second

terminal A vessel calling for bulk cargo may not pick up general

cargo ofother shippers the same is true in the case Of military cargo

There is no required minimum for bulk cargo which generally is not

14 F MC
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12 269 

sought after by the lines unless the quantity justifies the carriage a

space needs to be filled or a bottom cargo is needed for stability pur

poses Bulk cargoes usually are open rafted and the lines feel that they

do notneed a protective rule for such cargo

The provisiQn that a Member without a sailing from the San Fran

cisco Bay area for a period of 60 days or more may redesignate its

terminal is designed to cover situations where a carrier serves the

Bay area less frequently and usually goes where some cargo is offered

it is not likely touse morethan one terminal

In1927 the conferencetariff contained a general prohibition against

the shifting of vessels within terminal loading ports This proscrip

tion wasremoved in 1929 and thereafter some ofthe lines began to call

at East Bay terminals Oakland Alameda Richmond in the San

Francsico Bay area for minimum quantities of 100 short tons The

individual terminals competitively solicited shippers to use their re

spective facilities This forced many vessels to call at terminals Hit

all three East Bay ports in addition to their regular loading berths

in San Francisco Where the East Bay terminal failed to offer 100

short tons for a sailing the terminal delivered the cargo to another

East Bay terminal of the carrier s choice Fresh fruit was loaded only

at San Francisco berths

The minimum volume to shiftto anEast Bay terminal wasincreased

by the individual carriers comprising the Conference to I9 short

tons during World War II and the terminals transferred lesser quan

tities to the carrier s berthifthe carrier failed to solicit and receiv the

minimum At about this time the loading of European cargo at San

Francisco had all but stopped Unsuccessful attempts were made in

the early 1950 s to increase the minimum for which vessels would shift

to East Bay terminals The lines tried to adopt a rule for alternate

loadings in the East Bay or to require each member to nominate a

singlesuch terminal for loading An agreement was reached in October

1957 and a rule was adopted limiting calls to two loading terminals

in the Bay area excluding San Francisco and Stockton In August

1964 upon the emergence of Sacramento as a port the rule was re

vised to permit calls at three loading terminals excluding San

Francisco

The rule was altered substantially to its present form on January

1 1965 to limit calls to two loading berths or terminals as they

are how called in the Bay area however vessels could shift to addi

tional berths for military and bulk cargoes as well as for a minimum

of 750 short tons of general cargo from one shipper In June 1969

14 If MC

I
270 FEDERAL MARITIME COMMISSION

the Conference voted to adopt the one terminal rule here under con

sideration andto cancel rule 12

To help stem their increased costs ofoperation in the Bay area the

Conference has explored in recent years the possibility of a single

loading terminal for use by all members Equalization also has been

tried in an effort to minimize the shifting of vessels and this has

resulted in a decrease in the number of additional calls

A

competitive factor as well as possible economies was involved in

the amendment ofrule 10 Some of the lines have weekly sailings some

every 2 weeks and some only once a month Those with monthly sail

ings would not agree to confine their loading to one terminal while

others had the privilege of utilizing four different terminals during

amonth hence thecompromise onone terminal

There is no single terminal provision in the tariff applicable to

ports other than those located in the Bay area because the traffic pat

tern at the latter has certain peculiarities Furthermore the Bay area

does not have industrial activities which produce specialized cargo

movements In contrast and as an example the nature of the cargo

in the Puget Sound and Columbia River areas is such that there is

no pull and tug effortto compel calls at specific terminals the carrier

usually can either control where the cargo will be lifted or will call

at the port or ports to which the cargo is naturally tributary The

number of regularly scheduled ports in the Northwest has been re

duced the main consideration being the type and volume of the offer

ing No pressure upon the lines comparable to that exerted in the Bay

area is found in the southern California ports served by the lines

Operations in this trade like those in many other trades are be

coming more containerized One respondent utilizes containerships

entirely and switched its general operations from Alameda to Oak

land in 1969 Some of its ships are of the converted and jumboized

variety wi h their own cranes Some of the other respondents are

either building or have announced plans for containerships New

larger more costly ships both containerized and breakbulk are being

substituted for older smaller vessels Whereas smaller ships can call

at Stockton some of the newer ones cannot do so as the port does not

have container facilities to service them However in the case of one

newly announced joint service the containerships designed for the

trade will be able to serve both Stockton and Sacramento in most

instances

Containerships require special loading facilities and asingle place

of loading in an area is generally essential for the success of their

operation

14 F M C
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12

The many requirements built into containerships add to the already

high cost oftheir construction but some ofthe new conventional type

ships are as costly as containerships

Stockton and Oakland are the two most competitive ports in the

Bay area at least for the agricultural products originating in the San

Joaquin Valley theValley and moving on the conference lines The

lines have indicated that they will designate only Oakland orAlameda

for the first 6 month period under amended rule 10 and that the same

designation would have been made in 1969 had the proposed rule been

in effect

Only two Conference vessels in each of the years 1967 1968 and

1969 called at Stockton for a 750 ton minimum yet the port is the

nearest one in most instances to the Valley with its rich agricultural

out turn Millions of dollars have been spent by the Government for

the development of the waterway from San Francisco Bay to Stock

ton the present channel being 30 feet deep with a proposed depth of

35 feet The waterway was opened to navigation in 1933 Stockton

itself has spent and continues to spend large sums of money on its

port facilities and improvements

Aside from theEast Bay ports Stockton in recent years has handled

more cargo forthe Conference than any otherport intheBay area and

stands to be affected more than any otherport by the proposed change

in rule 10 Conference loadings at Stockton as well as vessel calls have

decreased markedly since 1965 the decline being caused primarily by

competition in Europe of other food producing countries notably

Australia and SouthAfrica Some ofthe loss of course stems from the

routing of cargo to other ports under the equalization rule

Oakland is the only Bay area port that can handle the largest fully

containerized vessels and more cargo of the Conference lines moves

throughthat port than any otherBay area port Much money has been

and continues to be spent on the improvement and enlargement of

Oakland s terminals some of which are leased to private oompanies

that have their own tariffs but whose rates cannot be changed without

the consent of Oakland The port itself and not the lessee assesses

wharfage dockage wharfage demurrage and storage charges Where

stevedores travel from San Francisco to Oakland the traveltime is an

added expense to this extent Stockton has an advantage over Oak

land Oakland has the largest container facility in the Bay area and

all of it is not being used Ifthe Conference lines wereto use a common

terminal Oakland could take care of their needs Truck traffic at

Oakland apparently experiences some delay at times but port officials

are confident that any problems brought about by an increase in traffic

can be readily solved

14 F M C

271
272 FEDE RAL MARITIME COMMISSION

There were Only 61 oalls by Conference vessels during 1966 69 to

load 750 ton shipments The Conference would be willing to change

theminimum to have it apply to the tota1 to be offered by aU shippers

provided a way could be round to determine where the re ponsibility

would lie among the shippers foor not tendering 750 tons since it is felt

that the basic shipper ca nnot be penalized for the failure of the other

shippers to perform Someofthe lines might feel justifiedin calling at

Stockton for as little as 750 tons depending upon competition but the

oonsensus ofthe testimony placed the figure at 1 000 tons or more One

joint service would not designate Stockton as the single terminal unless

it was assured ofbetween 1 500 and 2 000 tons 20 times a year

Had amended rule 10 been in effect in 1969 Oakland would have

gained32 sailings Alameda would have lost 31 sailingg San Francisco

would have lost one sailing and Stockton would have lost 63 sailings

Stockton would have lost 43 829 tons and the port itself would have

lost revenue of 498 325 The 63 calls eliminated at Stockton represent

a reduotion from 274 to 211

If a vessel proceeds to Stockton after loading at an East Bay ter

minaI there would be pilotage and other fees plus the loss of about

30 hours time in the vessels itinerary These general figures would also

be true of Sacramento When computed on the value of new vessels in

thetrade the totaJ additional costto the carrier in erving Stockton or

Sacramento is about 5 000 For vessels of lesser value the cost would

be lower Shifting a full oontainership to another terminal could cost

as muohas 7 500 8 500 based upon the value of the ship and not

actual cost

Between 1968 and 1970 the lines Mtid shippersthe sum of 53 786 34

asequalization or an average of 171 a ton Most ofthepayments were

to shippers of raisins and canned goods In 1969 94 4 percent of such

payments affected Stockton 5 5 percent involved Sacramento and

cO 1 percent related to Oakland

Eight shippers ofvarious agricultural products to Europe testified

against the amended rule Itwas generally agreed by them that most

shipments to that area are on an FAS or FOB basis with the buyer

paying the ocean freight The examiner Summarized this testimony as

follows

EJJporter of canned peaches and fruit cocktail Needs an up river port as well

as an East Bay port half of the 1969 peach pack moved through Stockton

the remainder through the East Bay Stockton is more advantageous because

of its location to points of production pacl s of 500 tons originating in the Sacra

mento Valley should go through Sacramento rather than Stockton made several

shipments of 1 000 tons via Sacramento in 1969 and the amended rule would not

affect such shipments shipments via the East Bay entail an additional inland

transportation cost and since any increased costs must be accounted for in

14 F MC
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12 273

the selling price there is a possibility that its exports to Europe maybe affected

under the amended rule has received no refusal from a

carrier for as little as

300 tons at Stockton ifthe ship is scheduled distributes cargo among all the lines

and about seven have accepted Stockton calls it is recognized tJhat a rule

permitting calls for an aggregate minimum of 750 tons from more than one

shipper might raise problems when shippers other than the principal one fail to

supply the volume promised it is not necessarily made whole by the payment

of equalization since the cost incidental to preparing papers forsubmission to the

carrier make the process uninviting

Walnut growers assooiation Its plant formerly was in southern California

but was moved to Stockton because of the latter s truck and rail facilities

about 80 percent of the walnut production in CaMfornia is within 50 miles of

Stockton exported approximately 200 tons to Europe in fiscal 1969 and expects

to increase this figure to between 1 500 and 2000 tons in 1970 as the crop is

increasing present shipments are in 100 pound bags but efforts are being made

to develop a market forthe shelled product thus permitting a denser commodity

under betterloading conditions the industry is notable to offer sufficient vol

to attract some of the ships to Stockton hence there must be delivery to whatever

ports are called by the lines being forced to ship via East Bay ports would

increase costs considerably and control of shipments would be lost as would the

liaison with Stockton any increase incost would affect the competition inEurope

from growers in France and Italy the worldprice currently is below the domestic

price hut the export price cannot be increased there would be no insurance avail

able on shipments as large as 750 tons 1a study is being made as to the possi

bility of shipping by rail to Gulf and Atlantic ports and any increased cost of

inland transportation to East Bay ports pOSSibly CQuld be the determining factor

as to whether overland routling could be used the retention of equalization would

lessen the financial sting of shipping via ports other than Stockton

Agricultural cooperati v Shipped about 10 000 tons of food products prin

cipally canned peaches and fruit cocktail to Europe in 1969 thisbeing more than

in 1968 because of the rotation of the stockpile in Germany every 3 years has

four plants in the Valley rubout half of the volume moves through Stockton

unavailability of that port would necessitate the use of East Bay ports at extra

cost where congestion occurs a situation notencountered at Stockton the short

distance from Stockton enables a better utilization of their own trucks particu

larly since they areused for the backhaul of their own cans cartons et cetera

thus reducing the unit cost most cling peaches and fruit cocktail are processed

in northern California it is doubtful whether a 750 ton minimum could be

assembled more than twice a year on account of the European competition

from processors in Australia and South Africa it is problematical whether the

association can stand any further increases in cost inquiry is being made as to

the feasibility of shipping overland and thence out of Gulf and Atlantic ports

there is competition between Valley canners and those in the Santa Clara Valley

south of East Bay terminals and Oakland itself and the latter would not be

affected if Oakland were designated as the single terminal if rule 10 were

changed from a 6 month basis to a shipto ship basis Stockton would have a

chance of yessels calling there

F1Uit cooperative Ships table grapes primarily and some pears and plums

to Europe fruit is placed in area cold storage and shipped out as sold even

1

Ie the cost forinsurance on such shipments would be prohibitive

14 F M C
274 FEDERAL MARITIME COMMIS ON

though it might desire to use Stockton which is somewhat closer and has ample

storage facilities it must haul the fruit to East Bay ports in refrigerated trucks

to be loaded at a time specified by the carrier weather conditions at East Bay

ports ordinarily are more favorable forshipping fresh fruit butthis fact is offset

at times by delays encountered by the trucks the association does notexpect the

lines to call at Stockton for fresh fruit only but it does not subscribe to the

opinion of the carriers that they can do a better job of loading itat one terminal

it is not possible forthe association to assemble a minimum of 750 tons of grapes

at one time the amended rule would not change appreciably the present pattern

for the shipment of grapes

Shipper of canned foods Ships canned peaches fruit cocktail and white

asparagus to Europe butcompetition from suppliers in other countries especially

Formosa in the case of white asparagus has cut into its exports about 2 600

tons of peaches go to Europe every year principally to Germany as well as

about 2200 tons of white asparagus main processing plant is located a very

short distance from Stockton and across the street herefrom the company manu

factures its own cans its own trucks haul cans to its plants and return with

processed food except in peak seasons its own trucks are used from plant to

port trucking to the East Bay area would eliminate all the benefits advan

tages and efficiencies of its total operation since about 75 percent of its com

bined pack moves through Stockton Stockton would be preferred even if the

equalizatiop rule remained fnasmuch as the main plant was erect d at Stockton

because of the existing port facilities at that place any added expense reduces

the effort to compete inforeign countries

Raisin cooperative Represents the largest segment of the raisin industry

and ships about 13 000 tons a year to Europe about half mOving through Stock

ton which is the nearest port to the processing area prefers to use the nearest

port or to equalize via other ports shipments can be delivered to Stockton on

short notice and this is very helpful where the raisins may nothave been packed

butmust be shipped quiCkly to fiU orders the buyer specifies the ship about 80

percent of the time the association would try to pass on to the buyer any

increase in costs resulting from a

change in the rule but in that case there

would be a reasonable possibility that sales in Europe would drop there being

competition from Greece Turkey Australia and South Africa it is seldom that

as much as 750 tons could be assembled at one time for export there was only

one such instance in 1969 European buyers prefer smaller quantities and

more frequent shipments common carriers are used for delivery to the port

where needed applying for equalization payments takes time the shipper s

money is tied up from the time the inland freight is paid the shipper s organiza

tion may be handicapped because of the unavailability of personnel the carrier s

office may be busy and payment may be held up forseveral months

A lmond cooperative Handles about 70 percent of the almond production of

California and exports about 17 000 tons a year to Europe its central plant is

in Sacramento and although it would prefer to use that port it has been ship

ping through Stockton and Oakland congestion sometimes causes trouble at

Oakland which makes the use of that port particularly undesirahle since the

association does not use its own trucks almost all shipments exceed 42000

pounds but no shipment has been as much as 750 tons the almond crop is

expanding and at present there is a seller s market the quality of California

almonds is superior to that of Spain Italy and the Mediterranean area but the

pricing situation is quite close the California price is higher than those of the

14 F M C
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12 275

competitors but buyers cannot always obtain almonds from the association s

competitors any increase in oosts resulting from the carriers proposals would

decrease the association s competitive ability to some extent equalization is

undesirable because of the time involved and the need for personnel to prepare

the papers connected therewith plus the fact that money must be borrowed to

pay the members of the association all of which may result in no net return

Shipper of seeds Exports about 750 tons a year to Europe using commercial

vehicles for transportation to the port many 10 000 pound parcels may go to

the piers consisting of as many as five shipments in a package the company s

freight forwarder in seeking bookings on vessels is requested to use Stockton

Sacramento being the second choice the use of the latter port has about ceased

has about 200 Shipments a year with an exceptional maximum of 150 tons for

pricing purposes an effort is made to have a minimum of five tons when less

than truckloads are shipped to the port there is a heavy trucking penalty the

proposed changes in the rules would penalize the company because it mayormay

not be able to pass on to the buyer the increased costs it would be difficult to

ship via one port since the company s plants are located in various areas equal

ization payments on such small shipments are not worth the effort to recoup

1ilitary cargo no longer moves through Stockton and many long

shoremen most of whom live in the Stockton area have been thrown

out of steady employment The union has been working with port

officials to see if production can be improved to the point that it will

be attractive for ships to call at the port A loss of 63 calls a

year at

Stockton would mean a loss of 1 000 for each vessel and a correspond

ing hardship on the longshoremen The union admits however that

the Conference may have made a wise decision on its part in limiting

calls to one terminal

THE EXAMINER S DECISION

The examiner determined that the basic authority granted the Con

ference by agreement 5200 is not broad enough to permit the Confer

ence to limit the terminals at which its member lines may call in the

Bay area and that tariff rule 10 and any changes therein are unau

thorized and that conference operations thereunder are violative of

section 15

The examiner also found that the equalization system established

by tariffrule 12 is authorized by the language in the conference agree

ment empowering the members collectively to absorb inland trans

portation changes since he concludes that the Commission and its

predecessors have considered the terms absorption and equaliza

tion as interchangeable

The examiner in considering the effects of rules 10 and 12 con

cluded that a limitation of conference members calls generally to a

single terminal in the Bay area during any 6 month period as in

the proposed amendment to rule 10 could not be approved even if

14 F M C
276 FEDERAL MARITIME COMMIS ON

submitted for approval under section 15 as a modification of the

conference agreement since it would violate section 16 first of the

act by subjecting Stockton and possibly other Bay terminals the

State of California and shippers in the San Joaquin and Sacramento

Valleys to undue and unreasonable prejudice and disadvantage and

by giving undue and unreasonable preference to shippers in Santa

Clara County and Oakland The examiner also finds that proposed

rule 10 unjustly discriminates and is unfair between shippers ex

porters and ports in violation of section 15 and could work disad

vantageously against U S exporters as compared with their foreign

competitors

The examiner concludes that proposed rule 10 does not run afoul

of section 17 since he finds it is not applicable to the rule The first

paragraph of section 17 he maintains is restricted to differences in

rates and the terminal limitation rule does not create difference in

rates The second paragraph of section 17 he asserts is concerned

solely with forwarding and the operation ofterminal facilities which

are not involved here

The examiner however concluded that rule 10 in its present form

is lawful aside from the fact that it is not authorized by the Confer

ence s approved agreement He bases this conclusion on the following

factors 1 The rule has been in effect for over 5 years without com

plaints against it 2 Stockton concedes that it has not caused any

appreciable hardship to the port of Stockton 3 hearing counsel

admit that there is no evidence of record whether the present rule 10

accomplished any significant reduction in port calls duringthe earlier

years of its existence and 4 the witness for one of the largest ex

porters of foodstuffs stated twice that his company has no objection

to a two terminalrule

The examiner also determined that section 205 of the Merchant

Marine Act 1936 is not applicable to theterminal limitation provisions

since he holds that provision relates only to differences in rates not

to the curtailment of service and that the 750 ton minimum contained

in the rules as a condition for calls at additional terminals does not

change therate

The examiner ends his consideration of rule 10 by concluding that

the 750 ton minimum if not coupled with the single terminallimita

tion contained in proposed rule 10 is lawful

Lastly the examiner concludes that neither the equalization system

embodied in rule 12 norits termination is unlawful He notes how

ever that it seems unlikely that the Conference would desire to de

lete the system if it could not limit to one its lines loading berths in

theBay area

14 F M C
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12 277

DISCUSSION AND CONCLUSIONS

I AUTHORIZATION TO LIMIT NUMBER OF TERMINALS SERVED UNDER

APPROVED CONFERENCE AGREEMENT

The Conference and Oakland maintain that the examiner erred in

concluding that the Conference s actions in limiting the number of

terminals atwhich its members vessels may call withinthe San Fran

cisco Bay area is unauthorized by the approved Conference agreement

They contend that the practice of limiting the number of terminals

at which Conference members may call is authorized by the Confer

ence s approved agreement since only Conference actions creating

new relationships require specific approval by the Commission prior

to their effectuation and the Conference s practice of limiting berths

is over40 years old The Conference also alludes to general language

in the approved agreement as authorization for the limitation rules

We agree with the examiner s conclusion that the Conference s collec

tive action in limiting the number of terminals served by its members

requires specific approval pursuant to section 15 of the act which

has never been granted

We have traveled much thissame road with these respondents before

and we are prompted to retrace some of our steps here only by the

vigor with which respondents renew old arguments InPacific Ooast

PortEqualization Rule 7 FMC623 1963 aff d sulb nom AmerUflIn

Export Isbrandtsen Lines v Federal MaritiJme Oowmission 334 F 2d

185 C A 9 1964 respondents sought to establish the authority in

the basic agreement for a system of port equalization whereby the

respondents would substitute the payment of overland freight dif

ferentials between ports for direct vessel calls at certain ports Neither

we nor the court could find any such authority Thus it seems to us

perfectly clear that an agreement which fails to authorize equalization

between ports cannot under any reasonable construction proVide au

thority for the more severe system of explicit limitations on the

number of ports served by the parties to that agreement But it is

asserted by respondents that we have injected a new criterion into the

determination of whether a particular course of action is amthorized

by a Conference agreement

Citing our decision in Investigation of Overland OOP Rates and

Absorptions 12 FMO 184 1969 aff d sub nom Port of New York

Authority v Federal Maritime Oorrvmission 429 F 2d 663 C A 5

1970 cert den February 22 1971 respondents contend that now the

question of whether particular activity is authorized by the basic

agreement hinges upon the newness or novelty of that activity

14 F M C
278 FEDERAL MARITIME COMMISSlION

Respondents have misread the OOP decisions The determination tha

the particular rate structure there in question was authorized by the

basic agreements of the conferences employing the rates did not de

pend upon the length of time those rates had been in effect Rather

it was concluded that the rate fixing authority expressly spelled ou

in the agreement could reasonably be construed to include the author

ity to fix rates and further that since the rates in question had been

widely used continuously from a time preceding approval of the agree

ments the approval when granted could be naturally interpreted to

allowa continuation ofthat activity

It is not the newness of an activity which determines whethe

that activity is within the scope of an approved agreement Only the

language of the agreement and its reasonable interpretation can do

that 2This insistence on adherence to the terms of an agreement is

crucial to the continued existence ofthe right of persons dealing with

conferences and other groups enjoying antitrust exemptions unde

section 15 to know how they may reasonably expect to be affected by

the concerted activity Of suoh groups It is an important feature O

our responsibility for a continuing surveillance over the activities o

groups operating underagreements we approve

3

Finally contrary to respondents insistence the Conference s Hmita

tion on loading terminals has not been uninterruptedly practiced since

1927 Between 1929 land 1957 there was no Oonference imposed limi

tation on terminals As shown in the record here and as observed in

Swn Maid Rai8in Growers Association v Blue Star Line Ltd 2

U S M C 31 38 1939 the Conference s practice seems to have been

to allow individual carriers to establish rates to Stockton and othe

ports which have notbeen designated as terminalports

In seeking to establish that their basic agreement does indeed cover

limitations on loading berths respondents offer the first three articles

ofthe agreement which provide

1 This agreement covers the establishment regulation and

2

See pers1an Gull Outward Freight Oonference v Federal Maritime Oommission 3175

F 2d 335 C A DC 1967 where the court held that the fact that the system of disparate

rates based on vessel nationality may have been previously used in the trade was

irrelevant to the question of whether the rates were authorized by the agreement

Respondents seizure of the phrase new relationship from our decision in the Por

Equalization case supra turns upon the happy accident that in that case the activity

in question was indeed new Needless to sar

we do not feel that the decision was based

on thefact nor in our opinion did the court

3 Other examples of activity found not authorized by a general ratemaking and tartt

authority are found in Isbrandtsen 00 v United States 211 F 2d 51 C A DC 1954

establishment of a dual rate system and in Pacific Ooast European Oonference Payment

of Brokerage 4 FMB 696 1955 5 FMB 65 1956 and 5 FMB 225 1957 prohibition

against the payment of brokerage to freight forward rs who dealt with non conference

lines

14 F M C
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12 279

maintenance or agreed rates land charges ror or in connection with

the transportation or all cargo in vessels owned controlled char

tered and or operated by the parties hereto in the trade covered

by this agreement land brokerage tariffs and other matters directly

relating thereto members being bound to the maintenance as be

tween themselves of uniform rreight rates and practices as agreed

upon rromtime totime

2 No party hereto shall engage directly or indirectly in the

arorementioned transportation under terms oonditions and or

rates different rromthose agreed upon by and between themembers

hereto

3 All freight and other charges ror or in connection with such

transportation shall be charged and collected by he parties hereto

based on actual gross weight or measurement or the cargo or per

package according to tariff and striotly in accordance with the

rates charges classification rule and or regullatlons adopted by

the parties There shall be no undue prererence or disadvantage

nor unjust nor unreasonable discrimination or unfair practices

against any consignor oroonsignee by any or the parties hereto

Itis all tooobvious thatthese provisions deal only with that general

ratemaking uthority round in virtUally every conference agreement

They are the same provisions in which we earlier were unable to find

anyauthority ror equalization in thePortEqualization case supra At

the riskor unduly prolonging this discussion we would point out that

the words tariffs and other matters in article 1 relate only to agreed

rates and charges and brokerage and the words rreight rates

and practices are similarly conditioned Article 2 in requiring adher

ence to the terms and conditions and or rates agreed upon

obviously refers back to article 1 Lastly the words classifica

tion rule and or regulations in article 3 relate back to the

words rreight and other charges at the beginning Or th t

provision

While the Conrerence s terminal limitation rules do not limit service

to specifically designated ports they do limit the number or ports

at which members may call Thus they are agreements allotting ports

or restricting or otherwise regulating the number and character or

sailings between ports agreements which section 15 itself distin

guishes in kind rrom those agreements such as respondents which

deal primarily with the fixing and regulatIng or transportation rates

or rares As an agreement which at the least regul tes the character

or the member s sailings it must be approved under section 15 and

this approval cannot be implied from any awareness on the part or

14 F M C
280 FEDERAL MARITIME COMMISSION

the Commission of the Conference s activities There is no room in

section 15 for theories of tacit or implied approval Joint Agree

mentFar East Oonference aM Pacific Westbound Oonfererwe 8

FMC 553 1965 Antitrust exemptions may be enjoyed only with

express Commission approv1al

n LAWFULNESS OF THE CONFERENCE S TERMINAL LIMITATION PRACTICE

APART FROM THE QUESTION OF SECTION 15 AUTHORIZATION

Stockton Sacramento and hearing counsel contend tha the ex

aminer erred in failing to find the Conference s terminal limitation

provisions unlawful as contrary to section 205 ofthe Merchant Marine

Act 1936 and Sacramento in addition maintains that they are unrea

sonable practices within the meaning of the second paragraph of sec

tion 17 ofthe Shipping Aot 1916 The Conference on the other hand

asserts that the examiner erred in finding their terminal limitation

prQvisions unlawful inany respect

The Conference has m1aintained throughout the proceeding that the

Commission cannot declare its limitation rules unlawful under section

205 since the authority to administer that section was not specifically

given to the Commission under reorganization plan No 7 of 19614

The plan did not repeal section 205 and so long as it continues to be a

part of the law of the land it must be considered by the

Commission in exercising its delegated functions Stockton Port Dis

trict v Pacific Westbownd Oonference 9FMC 12 29 1965

The Federal District Court for the Northern District of California

in Sacrfllmento Yow Port District v Pacific Ooast Ewropean Oonfer

ence No C 70499RFP in its order filed May 15 1970 took the same

view of section 205 pointing out that

Even ifthe FMC does not have responsibility for 205 it must take account of

it inits deliberations That which would contravene 205 of the Merchant

Marine Act would surely be grounds for disapproval under 15 of the Shipping

Act 1S

That activity which contravenes the prohibitions or section 205 may

not be approved under section 15 is made clear by the legislative his

tory or section 205 which hows that the purpose of the act was to

Prior to reorganization plan No 7 the Commission spredecessors dealt with the

prohibitions of section 205 in a number of cases See e g Encinal Terminals v Pacific

We8tbound Conference 5 FMB 316 1957 GraY8 Harbor Pulp Paper Co v A F KllWe

ne88 Co A S 2 US M C 366 369 70 1940 Sun Maid Raisin 01OWerS AS80ciation v

Blue Star Line Ltd 2 US M C 31 1939

G There is nothing unusual or unique about such an approach For a similar treatment

of section 8 of the Merchant Marine Act 1920 yet another provision of law not specifically

administered by the Commission see Port of New York Authority v Federal Maritime

Commission supra at 670

14 F M C
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 ANi 12 281

remave the agency s pawer to make determinatians with respect to the

lawfulness af the canference restrictians against federally impraved

parts an a case by case basis under sectians 15 and 16 af theShipping

Act 19i6 and to make all such restrictions illegal per see See for

example Hearings Befare the Cammittee an Cammerce U S Senate

Pursuant to S 5035 72d Cangress 2d sessian 1933 87 90 114

Thus it remains anly to determine whether respandents terminal

limitatian rules are prahibited by sectian 205 which pravides

Without limiting the power and authority otherwise vested in the Commission

it shall be unlawful for any common carrier by water either directly or indi

rectly through the medium of an agreement conference association under

standing or otherwise to prevent or attempt to prevent any other such catrier

from serving any port designed for the accommodation of ocean going vessels

located on any improvement project authorized by the Congress or through it by

any other agency of the Federal Government lying within the continental limits

of the United States at the same rates which it charges at the nearest port

already regularly served by it

There is no dispute with the plainly established fact that all the

parts invaking sectian 205 here are part s designed far the accam

madatian af ocean gaing vessels lacated an any impravement praject

autharized by the Cangress ar thraugh it by any ather agency af the

Federal Gavernment lying withinthe cantinentallimits afthe United

States

Itis equally clear that both praposed and present rule 10 prevent

ar attempt to prevent directly ar indirectly thraugl tQe me

dium af a canference cornman carriers by water fram

serving Sacramento and Stackton A simple reading af the rules

shaws that they restrict service to a limited number of ports or more

exactly terminals within such ports which is an even more severe

limitation In addition the record shows and counsel for respand

ents admit that the terminal limitation rules were designed as a solu

tion of the problem ofthe alleged highcasts afserving Stockton The

fact that certain exceptions are built into the limitatians i e far

bulk and military cargo and far shipments af a

single shipper af at

least 750 short tans daes nat change the essential character af the

rules as restrictions an service The exceptions anly indic8Ite differences

in the degree af the restrictians and this appears to have been recag

nized by aur predecessor 6

Mareaver the exceptians appear to be

6In Grays Harbor Pulp Paper 00 v A F Klavenes8 00 A S supra at 369 70 the

U S Maritime Commission although finding it unnecessary to rule on the point treated a

ton age minimum as falling within the kin i of restriction outlawed by sec 205 as did the

parties to that proceeding San Diego Harbor Oommission v American Ma4l Line Ltd 2

U S M C 661 1987 and Harbor Oommission of San Diego v American Ma4l Line Ltd

2 US M C 23 1939 in which certain conference imposed tonnage minimums at certain

14 F M C
282 FEDERAL MARITIME CO S ON

largely immaterial insofar as Sacramento and Stockton are concerned 7

Even if all of the lines favor the terminal limitations as the Con

ferenoe asserts this attitude would not mean that the Conference lim

itations themselves did not restrict port service But for the existence

or the limitations each member line would be free to serve particular

ports in the Bay area ornot as it chose in the exercise ofits manager

ial discretion subject of course to such limitations on this discretion

which may be validly imposed by law The limitations however pre

vent the exercise of such discretion and it was just such a limitation

on the exercise of the discretion of individual lines that convinced the

Federal Maritime Board of the illegality under section 205 of the

conference restrictions imposed in Encinal Terminals v Pacific West

bound Oonference supra In fact as Stockton observes if it were not

the purpose of the rule to prevent the lines from exercising their dis

cretion as to what ports they desired to serve there would be no need

for the rule at all

The record on the contrary however shows that all lines do not

favor the Conference imposed terminal limitations The proposed

version of rule 10 is contrary to the desires of some of the lines and

would have had it been in effect in 1969 actually resulted in the loss

of sailings cargo and revenue to the Port of Stockton The single

terminal limitation does not reflect the unanimous view of the member

lines but was adopted as a

compromise between those lines which

favored continuing the two terminal rule and lines favoring a

single

terminal rule the obvious result of which is that the latter are fore

closed from serving ports which they desire to serve Moreover had

the single terminal rule been in effect in 1969 as the examiner found

none of the member lines would have designated Stockton as their

single loading terminal and that port would have lost 63 sailings

43 829 tons of cargo and 498 325 in revenue In addition testimony

of witnesses for some of the member lines indicates that they would

call atStockton for cargo inthe absence ofamended rule 10 8

ports were not held to be unlawful are not controlling or indeed relevant here Thes

cases cited to us by respondents were complaint proceedings in which the agency wa

l1mited to the resolution of only those issues raised by the complaints and answer

therein which involved no contentions of illegality under section 205

7

The record herein shows that Stockton handles no bulk or military cargo and onl

two vessels called there for 750 tons for one shipper in each of the years 1967 1968 and

1969 Sacramento had only four calls in 1969 under the 750 ton minimum exception

S The record as all parties agree fails to show whether present rule 10 in actua

practice el1minates any terminals which would be used by the member lines in it

absence This is immaterial however insofar as sec 205 is concerned since the languag

of the rule and evidence of record show it is designed to restrict service to certain ports

and sec 205 makes unlawful the attempt to prevent service as well as the actua

prevention of service

14 F M C
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12 283

It is clear at this point that the respondents terminal limitations

do prevent conference members from serving certain ports within the

Conference range but respondents still contend that this is permissible

undersection 205 since the service prevented is not service at the same

rates As respondents read section 205 they would agree that the

Conference may not impose a higher rate on one port say Sacramento

than another say San Francisco and then prevent a member from

serving Sacramento at the same rate as San Francisco but they may

prevent members from serving Sacramento at any rate whatsoever

Itis always difficult to come togrips with such a reductio ad absurdum

and we would hopethatrespondents position here is prompted by that

venerable but irksome penchant of advocates to use every argument

a free reined imagination can muster The phrase at the same rates

wasobviously included to preclude the use of ratemaking authority

as the means by which a conference concertedly refused to serve a

port Section 205 is a clear bar to any artificial limitation on service

by a conference

As the legislative history of 205 shows its purpose was not only

to prevent collective action designed to create discrimination ilf the

form of a difference in rates at which federally improved ports are

served but more importantly to forbid conferences to impose restric

tions on their member lines which would interfere with the free exer

cise of the lines discretion in the determination of which ports they

choose to serve The so called Allin amendment which was the basis

of section 205 of the Merchant Marine Act 1936 was enacted in re

sponse to the plea of the Port of Stockton to stop conferences from

engaging in allegedly discriminatory pra Ctices against the port The

hearings on the amendment disclose on page after page the intention

of the Congress to outlaw Conference regulations designed to impose

limitations on the free choice of their memhers with respect to the

ports they may serve Representative excerpts from the testimony of

Colonel Allin the chief proponent of the legislation clearly show

this

It is our desire that this legislation be enacted which is purely permissive

simply enabling any steamsh p company which desires to go to any port which

has been approved by Congress without hindrance of any other steamship com

pany or combination of steamship companies 9

We believe that a

steamship company if it so desires of its own free will

and accord should have the right to go there any federally improved port and

pick it a shipment upwithout being hindered 10

9

Hearings before the Committee on Commerce U S Senate pursuant to S 5035 72d

Cong 2d sess 1933 at p 6

10 Ibid at p 7

14 F M C
284 FEDERAL MARITIME COMMISSlION

We merely desire a line if it so desires to extend its service and make

use of theGovernment waterway

u

We do not believe in compelling a ship to go anywhere We would like

the ship to have the right to go there withouthindrance of competing steamship

companies ifthat particular steamship line desires to do SO

12

And all we ask is that if the shipper has a shipment a boat be allowed

to come inand get it this 1s all 13

The committee chairman in interpreting what became section 205

stated

Itsimply says that a steamship company may notwithstanding any conference

agreement if it desires it is purely permlssive in character may go to a port

and attend to the business of thatport14

What I am driving at is this We start then there withwhat you might

term a prohibition that is that the steamship company shall not be denied the

right that is all the inherent right that the carrier has to go to a particular

place 11l

The question of the rates at which federally improved ports were

to be served wasalso important but the question wasviewed as separate

from and subsidiary to the question of service The intent of section

205 as shown by the Senate hearings wasfirst ofall to protect against

Conference restrictions preventingservice at federally improved ports

and then if the individu l member lines of the Conference desire to

serve such ports to allow them to serve them at Conference established

rates so long as the same r3Jtes apply to all such ports See hearings

supra note19 at pp 89 90

From the foregoing it is clear that respondents present and pro

posed limitations on terminals served by Conference members are in

direct contravention of section 205 and as such are contrary to the

public interest within the meaning Of section 15 of the Shipping Act

1916 The rules embodyingthenumber ofports served including mini

mum tonnages Or type Sof cargo which can he lifted at such ports must

bestricken frOm the tariff Our conclusions here are not to be construed

as itrequirement that any particular line serve any particular port or

indeed that any line serve any port Although the record herein does

not indic3Jte that it would be uneconomical for individua l carriers to

serve Stoc on or Sacramento IG such matters are beyond the scope of

thisproooedingand we do not require them to serve these ports so long

U

Ibid at p 8

12 Ibid at p 10

13 Ibid at p 13

14 IbM at p 88

16 Ibid at p 89

16 Although the record herein indicates that shifting of vessels to serve different terminale

entails added expense for the lines it does not indicate either that the lines will be

unduly burdened ftnanciaUy by such added expense or indeed that the shift may not

prove desirable from the viewpOint of added revenues to be derived from cargoes suppHed

by the additional ports to which shifts are made

14 F M C
PACIFIC COAST EUROPEAN CONFERENCE RULES 10 AND 12 285

as they are free to exercise their business judgment with respect to

port service absent Conference imposed restraints The record shows

that at the time ofthe adoption of the single terminal limitation some

lines desired to continue to serve more than one terminal We merely

preserve their ability to do 80

17 In view of the foregoing it is un

necessary for us to consider other challenges to the legality of the

Conference s terminal limitation rules

m CONFERENCE AUTHORIZATION TO ESTABLISH A SYSTEM OF PORT

EQUALIZATION

No party specifically excepts to the examiner s conclusion that the

Conference is authorized by its presentJly approved agreement to

establish a system of port equalization and such conclusion is clearly

proper Subsequent to the decision in our docket No 1102 Pacific 000

European Oonference Port Equalization Rule 7 F MC 623 1963

affirmed sub nom American Export Isorandtsen Lines v Federal

Maritime OOlTVlnission 334 F 2d 185 9th Cir 1964 which held that

at thattime theConference lacked authority toestablish such a system

the basic agreement wasamended toauthorize the Conference to allow

absorption s at loading and discharging ports of rail truck or

coastal steamer freights or other charges directly or indirectly

upon the agreement Of three fourths ofthe member lines In our order

approvingtheamendment we noted This absorption provision will

permit the fiUng by the Conference ofa port equalization tariff rule

IV LAWFULNESS OF RESPONDENTS EQUALIZATION SYSTEM AND PROPOSED

TERMINATION THEREOF

We need not dwell at length on the matters relating tothe Confer

ence s equalization system as embodied in its tariff rule 12 The Oonfer

17 The conference s contention that competitive pressures w111 foree lines to fierve termi

nals which they do not desire to serve is unconvincing One of the ltnes operates large

ships which the record indicates can only be served at Oakland Further the container

l1nes whose operations would most beQefit under the rule because of the higher costs

involved in shifting their larger newer more costly vessels w111 in all probabtuty be

unaffected by it since as the examiner found these vessels would call at one Bay area

terminal irrespective of any conferenceimposed terminal ltmitation Nor do we belteve

that the ltnes wtll call at terminals if they feel such calls are unprofitable Conference

rule orno conference rule The record shows that in 1969 four lines declared only a single

terminal in the Bay area fortheir vessels two lines declared a second terminal on only two

out of 13 and 14 satungs respectively no Hne came close to making the two terminal

calls authorized with all its vessels and one line of its own managerial discretlon with

drew service to Stockton in the case of individual vessels and was considering withdrawing

it altogether The effect of the Conference s terminal ltmttation rules rather than pro

tecting the lines against wasteful competition would be as the examiner observed the

prevention of the noncontainerized lines which the record herein shows to be the over

whelming majority of the Conference from serving other terminals where contaIneriza

etion might not be desirable orfeasible

14 F lC
286 FEDERAL MARITIME COMMISSION 

ence had proposed elimination of the system to be effective concur

rently with the single terminal limitation No party excepted to the

examiner s conclusi on that the Conference may lawfully terminate its

system by the deletion of rule 12 and we agree that nothing has been

presented to indicate that such deletion would be unlawful In the

light of Ur holding with respect to terminal limitations however the

Conference may desire toretain its port equalization system We simi

larly conclude that nothing has been presented herein to convince us

that the retention of the system is unlawful

Only Stockton contends that the examiner erred in failing to find

chat the Conference s equalization system is unlawful That port main

tains that the East Bay ports and the up Tiver ports are in effect two

different harbor complexes and geographic areas and their naturally

tributary cargoes originate in different areas The holding in Stockton

Port District v Pacific Westbound Oonference 9 F MC 12 1965

affirmed sub nom Stockton Port District v Federal MaritVrne Oom

mission 369 F 2d 380 9th Cir 1966 cert den 386 US 1031 1967

that equalization between East Bay ports and up river ports was un

lawful wasbased upon the findings in that proceeding that the up river

and East Bay ports were all in the same port complex and geographic

area andthat the same cargo was naturally tributary to all of them

These findings are not controlling here Stockton asserts because evi

dence of record in this proceeding shows that the East Bay ports and

up river ports are not part of one port complex Stockton places par

ticular reliance for this conclusion upon the Conference s determined

effortto prevent calls at Stockton and the alleged testimony of Con

ference members thatthey do not regard Oakland as being in the same

harbor as Stockton and of shippers that they consider the East Bay

portsand Stockton as separate ports The products affected by the rule

Stockton contends also originate in separate geographical areas i e

the San Joaquin Valley where Stockton is l ated and Oakland and

the Santa Clara Valley south of San Francisco Bay whose shippers

ompete with each other and will be differently affected by the Con

ference s one terminal limitation The examiner s

finding that the

11atural gateway for San Joaquin and Sacramento Valley products

destined for Europe is Stockton and Sacramento shows that such

cargoes are naturally t

ributary to those ports and Stocktoncan offer

adequate service to shippers of equalized cargo Thus under the prin

ciples established in Pacific Westb01tnd supra it maintains the Con

ference s equalization system is unlawful in unduly prejudicing and

unjustly discriminating against the Port of Stockton and unduly

preferred and unjustly discriminating in favor ofthe East Bay ports

14 F M C
PACIFIC COAST EUROPEAN CONFEltENCE RULES 10 AND 12 287 

Lastly Stockton contends that the Conference s equalization rule is

detrimental to commerce and contrary to the public interest because

it diverts cargo naturally tributary to thePort of Stockton contrary

to the policy of secion 8 of the Merchant Marine Act 1920

Contrary to the contentions of Stockton the record herein does not

show that the situation with respect to the equalized ports is otherthan

we found it to be in Stockton Port District v Pacific Westbownd Oon

ference supra Itis clear from the examiner s discussion ofthe shipper

witnesses testimony which we have reproduced at pages 272275

supra that he does not use the term natural gateway as synonymous

with naturally tributary As an examination of this discussion shows

when the examiner spoke of Sacramento and Stockton as the natural

gateways for agricultural products from the San Joaquin and Sacra

mento valleys destined for Europe he meant only that the inland

transportation rates and mileages are less to Sacramento and Stockton

for such products than they would be to other ports The concept that

inland transportation rates and mileages alone determine which areaS

are naturally tributary to which ports was specifically rejected in

Stoclcton Port District v Pacific Westoound Oonfererwe supra at

pages 23 24 as well as in other equalization cases

1S As we ruled in

Stockton areas are naturally tributary to ports if they are centrally

economically and naturally served by such ports at 24 Nothing

has been shown herein to indicate that the entire Bay area is not

naturally tributary to all the ports concerned herein as we found

it to be in Stockton and there is nothing in the record herein to show

that the East Bay ports and up river ports constitute two different

harbor complexes and geographic areas The Conference s attempts to

prevent calls at Stockton rather than suggest it is in a different harbor

complex or geographic area could equally well be said to suggest

that it is in the same area since both ports must compete for the same

cargo otherwise there would be no reason for the Conference to at

tempt to restrict service at Stockton Furthermore the testimony of

both the Conference lines and shippers herein shows contrary to Stock

ton s assertions that they consider the East Bay and up river ports

to be in the same geographic area and competitive for the same cargo

and the Conference s practice has been to define the Bay ports in its

tariff to include all of the ports involved in this proceeding Al

though we do not hold that with changes in transportation circum

stances the East Bay ports and up river ports could never constitute

separate geographic areas with different tributary cargo we conclude

18 See egBeaumont Port Oommission v Seatrain Linesl Inc 2 U S M C 699 1943

14 F MC
288 FEDERAL MARITIME COMMISSION

that nothing has been presented herein to convince us that they are 

such at the present time 

In conclusion we hold that on the basis of the record before us the 

Conference may lawfully either retain or discontinue its equalization

system now embodied in its tariffrule 12

All exceptions to the initial decision or requests for findings not

specifically ruled upon herein have been found to be improper or im

material cumulative or otherwise unnecessary to the decision

An appropriate order will be entered ordering both present and

proposed tariff rule 10 stricken and requiringthe Conference to cease

and desist from in any way restricting the number of U S ports or

terminals at which their member lines may call or the tonnage or

character of cargo which may be liftedat such ports

SEAL1 Signed FRANCIS C HURNEY

Secretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 7011

PAULFlC COAST EUROPEAN CONFERENCE RuLES 10 AND 12

TARIFF No FMC 14

ORDER

The Federal Maritime Commission has this day served its report

in the subjectproceeding which we hereby incorporate herein in which

inter alia it found unlawful any regulations imposed by the Pacific

Coast European Conference restricting the US ports or terminals

served by its member lines or the tonnage or character or cargo to be

lifted at such ports

Therefore for the reasonsenunciated in said report

Itis ordered That both present and proposed tariffrule 10 of tariff

No FMC 14 of the Pacific Coast European Conference be stricken

from the Conference s tariff and

Itis further ordered That said Conference cease and desist from in

any way restricting the number of U S ports or terminals at which

its member lines may call or the tonnage or character of cargo which

may be lifted at such ports

By the Commission

SEAL Signed FRANCIS C HURNEY

Secretary

289
FEDERAL MARITIME COMMISSION

DOCKET No 7041

INDEPENDENT OCEAN FREIGHT FORWARDER LICENSE ApPLICATION

KEY Am FREIGHT INC

Decided June 10 1971

ORDER ON STIPULATION

On April 8 1971 the presiding examiner served his decision in this

proceeding finding that Key Air Freight violated section 44 a of

the Shipping Act 1916 by functioning as an ocean freight forwarder

of 24 shipments between Vebruary 23 1970 and March 13 197 0 He

concluded thatrespondent was presently fit to carryon the business

of forwarding and that it should be licensed conditioned upon one of

its minority stockholders Mr Arthur B Davidson s continued total

disassociation from respondent and disposal of his 9 5 percent stock

interest in respondent within60 days Hearing counsel filed no excep

tions to the initial decision Respondent filed exceptions urging

principally that the requirement that Davidson dispose of his stock

in respondent is inappropriate unnecessary to accomplish the objec

tives sought and in any event is a condition beyond the control of

respondent

Subsequently ajoint motion was filed by hearing counsel and re

spondent the only parties to this proceeding urging that the Com

mission license Key Air Freight and discontinue the proceeding on

condition that Mr Davidson willnot in the futurebecome an employee

officer or director of respondent nor will he become involved in the

day to day management of the business that Mr Davidson will no

increase his stock interest in respondent beyond his existing 9 5 per

cent ownership and that Mr Davidson s stock shall be placed in a

trust withan independent trustee who shall have thepower to vote such

stock on the basis of its independent judgment until Mr Davidson

determines to dispose of his holdings

After careful review and consideration of the record and pleadings

in this proceeding we agree with the examiner s factual analysis and

concur that the case at bar is quite similar to Independent Ocean

290
KEY AIR FREIGHT INC 291

Freight Forwarder Lioe JUJe Applioation Violet A Wilson doing

business as Transmares 13 FMC 30 1969 The examiner stated that

it would be unfair to punish the present officers directors employees

and stockholders of Key for the misdeeds of Davidson who is no longer

active in the affairs of respondent vVe agree and are of the opinion

that theconditions proposedby hearing counsel and respondent in their

joint motion are reasonable and proper under the cfrcumstances

Therefore it is ordered That ey Air Freight Inc be issued an

independent ocean freight forwarder license subj ect to the following

conditions

1 That Mr A B Davidson will not in the future become an

employee officer or director of respondent nor will become in

volved in the day to day management of respondent

2 That Mr Davidson will not increase his percentage stock

interest in respondent beyond his existing 9 5 percent ownership

and

3 That Mr Davidson s stock shall be placed in a trust with an

independent trustee who shall have the power to vote such stock

on the basis of its independent judgment A copy of the executed

trust agreement shall be filed with the Commission and the entire

matter will be reviewed 1 year from date ofissuance ofsaid license

to determine the necessity for continuing the trust arrangement

Itis further ordered That this proceedingbe discontinued

By the Commission

SEAL FRANCIS C HURNEY

Se oretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKDr No 71 28

SURCHARGE OF NORTH ATLANTIC WESTBOUND FREIGHT ASSOCIATION

ON COMMODITIES MOVING UNDER WINE AND SPIRITS CONTRACT

DeciiLeil June 2 1971

Bunker surcharge imposition found to be violative of clause 9 of the wine and

spirits contract between National Association of Alcoholic Beverage Im

potters Inc and North Atlantic Westbound Freight Association

Rising bunker costs under the facts herein do notconstitute an extraordinary

condition within the meaning of clause 4 of the wine and spirits contract

nor do such increased costs unduly impede obstruct or delay the carriers

service within the context of said clause

Thomas E O Neill for National Association of Alcoholic Beverage

Importers Inc

Ronald A Oapone and Russell T Weil lor North Atlantic West

bound Freight Association

Ronald D Lee and Donald J Brunner Hearing Counsel

REPORT

By THE COMMISStoN H len Delich Bentley Ohairman Ashton C

Barrett Vice Ohairman James V Day James F Fanseen

George H Hearn Oommwsioners

This proceeding was initiated by the National Association of

Alcoholic Beverage lmporters Inc hereinafter NAABI against

the North Atlantic Westbound Freight Association hereinafter

NAWFA

NAABI charged that NAWFA filed with the FMC a rate sur

charge or 3 per ton for the carriage of alcoholic beverages Rates

between NAABI and NAWFA are governed hy the conference s

wine and spirits contract which is a dual rate contract the use or

whiCJh was permitted by the Commission under section 14b of the

Shipping Act 1916 Clause 9 of the contract provides that no change

in rates is to be made without prior consultation with NAABI

It is claimed that the imposition of the surcharge haTing been

made without prior consultation is therefore in violation of clause 9

292
SURCHARGE ON NORTH ATLANTIC WESTBOUND FREIGHT ASSOC 293

ofthe wine and spirits contract NAABItherefore requested the Com

mission issue an order to NAWFA to show cause why the surcharge

imposed by NAWFA should not be rescinded NAvVFA in its reply

requested that the Commission deny the NAABI petition for the

show cause order and hold that NAWFAs surcharge is proper and

lawful on the grounds that the rising cost of fuel is an extraordinary

condition necessitating the surcharge

On March 29 1971 the Commission issued an order directing

NAWFA to show cause why its bunker surcharge should not be can

celed as violative of clause 9 of the wine and spirits contract and not

supported by clause 4 of the contract which permits rates to be

changed at any time in the event of extraordinary conditions As

of April 16 1971 both parties as well as hearing counsel had sub

mitted briefs and in the interest of expediency requested that no

oral hearing be held

On April 26 1971 NAABI filed with the Commission a petition for

oral hearing Thereafter NAWFA and hearing counsel both filed

replies in opposition to the request for oral hearing

DISCUSSION AND CONCLUSION

THE PETITION FOR ORAL HEARING

In its petition for oral hearing NAABI claims that the intehven

tion of hearing counsel via their reply of Apri116 1971 in sUpport

of AWFAs position makes this proceeding something other than

a two party controversy Further it is alleged that hearing counsel

introduced new matters not strictly within the scope of the Commis

sion s show cause order ie that the conference has an obligation to

levy surcharges against all its shippers aside from thewine and spirits

contract

NAABI argues that the issue of the foreseeability of escalating

costs of bunker C fuel is an evidentiary question best answerable

through a hearing NAABI itself however introduces the issue of

the reasonableness of the 3 per ton surcharge which again it con

tends is best resolved at an evidentiary hearing Itis also urged that

hearing counsel introduced the question of the fundamental legality

of the wine and spirits contnwt Lastly NAABI claims that since

hearing counsel s

reply supports that ofNAWFA itshould have been

filed by the April 9 deadline rather than by the April 16 deadline

B cause of the latter filing date NAABI was precluded from answer

ing hearing counsel sreply and would otherwise not have conceded

that an evidentiary hearing was not desirable

14 F MC
294 FEDE RAL MARITIME COMMISSlION

Hearing counsel in their reply to thepetition for oral hearing argue

that this was never a two party proceeding since under rule 3 h

ofthe rules of practice and procedure hearing counsel automatically

became a

party to this proceeding when the Commission granted the

original petition and issued the order to show cause

It is contended by hearing counsel that NAABI knew that fore

seeability of the price increases of fuer would be an issue when it

originally petitioned the Commission In general the argument of

hearing counsel is that N AABI has failed to show a dispute as to

the relevant facts which would necessitate an evidentiary hearing

The issue of the reasonableness of the 3 per ton surcharge it is

contended is not within the scope of the order to show cause and it

would be inequitable to permit NAABI to expand the scope of this

proceeding through an evidentiary hearing Hearing counsel vocifer

ously deny having raised the issue of the fundamental legality of

the contrruct

NAWFA in its reply to the petition for oral hearing argues along

the same lines as hearing counsel Itclaims that hearing counsel have

not set forth any new facts orissues which would justify an evidentiary

hearing

We conclude that NAABI has failed to demonstrate why its petition

for oral hearing should not be denied The argument that this pro

ceeding was a two party controversy is specious Itis clearly stipu

lated in semion 502 42 of our rules of practice and procedure that

hearing counsel shall be a party to all proceedings governed by the

rules in this part rule 3 h Regardless of the merits of that

contention NAABI has failed to show a dispute as to relevant facts

the only justification for an evidentiary hearing

We have before us aH the relevant facts necessary for the disposition

of this controversy The ancillary question of the reasonableness

of the 3 per ton surcharge is not properly before us in this proceed

ing and clearly the scope of this proceeding should not be expanded

by the introduction of extraneous matter through an evidentiary

hearing

As for the issue of the fundamental legality of the contract hear

ing counsel have not raised it and it is not of concern to us in this

proceeding The issue of whether the conference has an obligation to

levy the 3 per ton surcharge against all its shippers despite the

0Ontract is a question of law and not one of fact this too is an issue

not raised by the pleadings

The facts concerning the issue of foreseeability are before the Com

mission and are no different from those in docket No 7043 Atlantic

14 F M C
SURCHARGE ON NORTH ATLANTIC WESTBOUND FREIGHT ASSOC 295

and Gulf West Ooast of South America Oonference Imposition of

a Bunker Surcharge on Less Than 90 Day Tariff Filing Notice 14

FMC 166 December 21 1970 in which the same issue was resolved

We therefore conclude that the information before us is dispositive

of this controversy and there is no need for resort to an oral hearing

The petition for 0131 hearing is hereby denied

THE ORDER TO SHOW CAUSE

Under the wine and spirits contract although clause 9 provides that

no rates shall be changed without prior consultation clause 4 0

allows for an increase in rates in the event ofany extraordinary con

ditions which conditions may unduly impede obstruct or delay

theobligations ofthe carrier or carriers

Thus the issue becomes one of determining whether the rise in

bunker fuel costs an admitted fact constitutes an extraordinary

condition which unduly impedes obstructs or delays the carrier s

serVIce

It is NA VFAs contention that there is no question that increases

in the cost of bunker fuel are just such conditions as would justify

the imposition of a surcharge These increases are referred to as

startling and violent and are therefore claimed to have been

unforeseeable and thus extraordinary In a curious argument

NAvVFA contends that clause 4 c has no application where 90 days

notice ofthe increase has been given

NAWFA furbher argues that clause 9 has no application to sur

charges but refers oniy to l3ites and NAvVFA did not intend ifx

restrict its rights to institute surdharges by clause 9

In countering NA VFAs argument that increased fuel costs are

an extraordinary condition NAABI contends our dooision in docket

No 7043 stands for the principle that increased fuel costs are not

extraordinary conditions

Fur ther NAABI claims thaJt even if the increased costs do con

stitute an extraordinary condition Itheyare not such conditions as

unduly impede obstruot or delay service and therefore NAWFA

has failed to sustain the burden of proof las to the legality of the

surcharge

NAABI argues that under the particular wine and spirits contract

the ordinary dual rate contract provision for increases upon 90 days

notioe is not applicable

The argument that an imposition of a surcharge is not an increase

in rates is termed a legal fiction by NAABI It is claimed that if the

14 F M C
296 FEDERAL MARITIME COMMISSlION 

carriers can vary the terms or their obligation under the contract

to stand by rates specified as effective until September 30 1971

through the use Or fuel surcharges then there is no reason why sur

charges ror any other costs could not likewise be imposed

Hearing counsel in this case take a position diametrically different

from that advocated in docket No 7043 which involved similar cir

cumstances In the instant proceeding it is claimed that the increased

ruel costs no greater or different rrom those round in 7043 con

frtitute extraordinary conditions that unduly impede obstruct or

delay service

Curiously hearing counsel claim that the position they advocated

and the conclusion consequently reached by the Commission in 7043

are now not applicabl to this proceeding This is said to be due to

the ract that in that proceeding the issue or extraordinary conditions

was treated in the context or the 30 dayj90 day notice rule discussed

below

Lastly itis claimed that NAWFA at the inception or the contract

had no tangible evidence or tremors in the market ror bunker ruel

and since the contract had fixed rates nothing could be done about

tremors even had they been perceived

Hearing counsel s contract argument seems to conceive of the con

tract as something separate and apart rrom the intent or the parties

Had the tremors existed at the inception the parties could easily

enough have provided in their contract lor contingencies or this

nature They didn t do it and now NA VFA wants to rewrite its

contract Moreover hearing counsel largely ignore the importance 01

the fixed rates to NAABI

In Surcharge at U S Atlantic and Gulf Ports 10 F M C 13 22

1966 the Commission set rorth the criteria ror extraordinary con

ditions The condition must be outside or beyond the carrier s con

trol the condition must impede or delay the carrier s service and

there must be an emergency orabnormal condition or an extraordi

nary circumstance

We conclude that NA VFA has failed to show cause why its bunker

surcharge should not be canceled

In the Surcharge at U S Atlantic and Gulf Ports case supra the

test ror extraordinary conditions was set forth by the Commission

Itis clear that the test reduces to one or roreseeability That is should

the carrier in the exercise or a highdegree or diligence in the exer

cise or business judgment have loreseen oranticipated the conditions

upon whirch the surcharges are based An affirmative answer to this

question leads one to conclude that the condition is not e traordinary

14 F MC
SURCHARGE ON NORTH ATLANTIC WESTBOUND FREIGHT ASSOC 297

In the instant case the issue of whether the condition of increasing

bunker costs is extraordinary need not be reached Conceding argu

endo that suoh a condition is extraordinary although as we have

stated on the facts of docket No 7043 it is not we conclude that

such a condition does not unduly impede or delay the carrier s service

The only difference between the present case and docket No 7043

is that in 7043 the issue was whether 90 days notice was required

for a surcharge due to the increased fuel costs This provision was

a part of the conference s dual rate contract just as in the instant

case the contract provides for no increase at all save for the existence

of extraordinary conditions unduly impeding or delaying the obli

gations of the carrier Clause 4 c of the wine and spirits contract

Thus in 7043 the existence of an extraordinary condition unduly

impeding and delaying service would result in the imposition of a

surcharge upon 30 days notice as opposed 1A 90 days notice lacking

such a condition In the instant case the existence of such aconditioh

would allow for the surcharge in accordance with clause 4 c of the

contrrect upon 30 days notice as opposed to no surcharge imposi

tion lacking the extraordinary condition and lacking prior consulta

tion with NAABI under clause 9

The wording of the contracts in both cases is precisely identical

the only distinction between the two situations lies in the results

which follow a determination of whether an extraordinary condition

exists In the one docket No 7043 the surcharge will be imposed

either upon 30 days notice or 90 days notice In the other docket

No 71 28 the surcharge will either be imposed upon 30 days notice

or not at all

There would appear no reason to interfere with the parti s funda

mental right to freedom of contract the bounds of consistency and

logic call for the wording of the contracts to be interpreted in a like

manner Thus the issue presented what is an extraordinary con

dition which may unduly impede or delay the obligations of the

carrier should be resolved in the same way as docket No 7043

In that proceeding as pointed out above we concluded under simi

lar circumstances that a rise in bunker fuel costs was not such an

extraordinary condition as to unduly impede or delay service We are

compelled to reach that same conclusion in this case as well

We therefore conclude that the rise in fuel costs does not justify

the imposition of a surcharge in this case in violation of clause 9 of

the wine and spirits contract

We find NAWFAs remaining arguments lacking merit vVe cannot

believe that NAABI would enter into a contract which specifically

14 F M C
298 

FEDE RAL MARITIME COMMISSION 

stated that rates were to be fixed for a period of time but whioh

would allow for tJhe imposition of surcharges at will by NAWFA

simply because the contract refers to rates and a surcharge is not

part of a rate as claimed by NAWFA The surcharge here is but a rate

increase by another name

We argree with NAABI that the ordinary dual rate contract pro

vision for increases upon 90 days notice is not applicable This is a

contract freely negotiated by the parties thereto and such a provision

is clearly lacking as pointed out in hearing counsel s brief

NAWFA has failed to meet its burden of proof in showing cause

why its bunker surcharge should not be canceled Accordingly an

appropriate order will be issued prescribing that NAWFA cancel

its surcharge forthwith retroactive to its imposition on March 21

1971

SEAL Signed FRANCIS C HURNEY

Secretary

14 F M C
FEDERAL MARITIME COMMISSION

DOCKET No 71 28

SURCHARGE OF NORTH ATLANTIO VF8TBOUND FREIGHT ASSOOIATION

ON COM rODrIIES MOVING UNDER WINE AND SPIRITS CONTRACT

ORDER

This proceeding was instituted by the National Association of

Alcoholic Beverage Importe rs Inc NAABI by a complaint filed

against the North Atlantic Westbound Freight Association

NAWFA A show cause order was issued by the Commission on

March 29 1971 directing NAWFA to show cause why a bunker

surcharge imposed upon NAABI should not be canceled as violative

of clause 9 of the conference s wine and spirits contract NAWFA s

response to the order to show cause and replies of all other interested

parties have been considered The Commission has this day issued

its report in this proceeding which is hereby incorporated herein by

reference in which it determined that NAWFA has failed to show

cause why its surcharge should not be canceled

Therefore itis ordered That the petition for oral hearing be denied

Itis further ordered That NA VFAforthwith cancel its suroharge

of 3 per ton for the carriage ofalcoholic beverages

It is further ordered That this order is effective retroactive to the

imposition of the surcharge on Ma h 21 1971

By the Commission

SEAL Signed FRANCIS C HURNEY

SeC1 etary

299
FEDERAL MARITIME COMMISSION

INFORMAL DOCKET No 99 1

JOSEPH AND SmYL JAMES

V

SOUTH ATLANTIC CARmBEAN LINE INC

July 24 190

ADOPTION OF DECISION

On June 8 1970 the presiding examiner served his decision in this

proceeding finding that South Atlantic and Caribbean Line Ine

SACAL had engaged in an unreasonable practice in violation of

section 18 a of the Shipping Act 1916 by failing to give adequate

notification to complainants ofthe arrival oftheir cargo Based on this

finding complainants were awarded reparation in the amount of

198 45 On June 23 1970 we served notice ofour intention to review

the decision

While the examineT s ultimate conclusion appears fully supported

by the record his method of reaching this conclusion has given rise to

a procedural difficulty The original claim alleged a violation by

SACAL of section 14 Fourth no mention was made of section 18 a

Thus in reachinghis conclusion theexaminer has relied upon a section

of the act which complainants have not alleged was violated This was

error If section 18 a was to be relied upon complainants should

have been required to amend their claim

As noted previously however the examiner s conclusion appears to

be eminently proper Itis to be noted that SACAL has informed the

Commission that the reparation was made to complainants shortly

after the examiner s decision Accordingly we adopt the examiner s

ultimate conclusion as our own

We wish to emphasize thaJt itis not the intention ofthe Commission

to scrutinize every minute aspect ofthe record in informal complaints

Such a policy would seriously distort the purpose ofthe small claims

procedure In the instant case however we have taken this action in

orderto provide guidance for the future

By the Commission

SEAL

300

FRANCIS C HURNEY

Secretary

14 F M C
FEDERAL MARITIME COMMISSION

INFORMAL DOCKET No 99 1

JOSEPH AND SmYL JAMES

v

SOUTH ATLANTIC CARIBBEAN LINE INO

Adopted JuZy 24 190

INITIAL DECISION

Respondent s arrival notification found to be an unreasonable practice Repara

tion awarded

Joseph andSibyl James for themselves

Bradley R Ooury for respondent

DECISION OF RICHARD M fuRTSOCK PRESIDING EXAMINER

The essential facts involved in thiscomplaint are not in dispute On

July 15 1969 Mrs Joseph James delivered a Chevrolet automobile to

respondent for shipment to San Juan P R on respondent s v l

Floridian on July 30 The carrier s bill of lading No 58 C dated

July 30 1969 shows total freight charges of 218 On the lower right

hand corner of the bill and superimposed over a part ofthe written

matter thereon includingthenameofthe shipping line and asignature

on behalf of the master of the ship appears the followingsomewhat

faint impression of a rubber stamp

ESTE VAPOR LLEGARA

EN 8 2

AL MUELLID 8

CARGA ALMACENA

EL 8 8 4 00 P M

CARRIER not responsible for condition of cargo on outtum

if consignee fails to take delivery of charge immediately upon

trailer being made available by carrier

The Spanish portion of the stamp translates as follows This ship

will arrive in 8 2 at Pier 8 Cargo will begin accumulating storage

charges the8 8 at 4 00 p

m

14 F M C 301
302 FEDERAL MARITIME COMMISSION

An invoice dated July 30 forwarded by respondent to Mrs James

in Juana Diaz P R contained the total charges for the transportation

service the bill or lading number the name or the vessel the ports of

loading and discharging the invoice date the voyage number and the

sailing date The arrival date wasleftblank

The invoice and the bill or lading werereceived by Mrs James dur

ing the first week or August When by August 25 no arrivalnotice had

been received Mrs James checked at San Juan and found that the

automobile had arrived on August 8 and had been placed in storage

ror complainant s account The automobile was released upon payment

or the freight and 198 45 storage charges assessed by the local port

authority While the automobile was clean and in good condition at

the time or delivery to the carrier in Miami when it wastaken posses

sion or in San Juan the upholstery had been soiled a cigaret lighter

was missing and the outside was encrusted with salt Nomoney claim

is made ror thephysical condition or theautomobile

Mrs James asserts that at the time she tendered the automobile

to the carrier its representative advised her that she could expect it to

be delivered in San Juan in approximately 4 weeks and that she

would be notified or its arrival Further that when she received the

envelope containing the invoice and the bill of lading she examined

the papers but was unable to find an arrival date and concluded that

an arrival notice would come later This conclusion was strengthened

by her knowledge that rriends who had shipped automobiles by other

carriers had first received the shipping documents and later a clear

notification or arrival with the words Important Arrival Notice

printed in English on the envelope and at the head of the notice itself

Mrs James contends that the carrier should have provided some mean

ingrul notice ofarrival and that the assessment ofstorage charges was

the direct result ofinadequate notice

Respondent s position is that the bill or lading contained a clear

notification or arrival that the stamp has been in use since 1962 that

no complaints have been received regarding its use that Spanish is

the predominant language in Puerto Rico that pleadings in thecom

monwealth court iffiled in English must be accompanied by a Span

ish translation that road and traffic signs in Puerto Rico are in

Spanish and that utility bills to residents ofPuerto Rico are in Span

ish irrespective or whether they are mailed to Spanish or English

speaking residents Itis inconceivable respondent maintains that the

language or aroreign locale must bend to the needs or inabilities of

American citizens traveling in that country Respondent concludes

that the storage charges accrued because the inability or claimant to

14 F M C
JOSEPH SIBYL JAMES V S ATLANTIC CARIBBEAN LINE INC 303

read Spanish which is not the fault of the carrier In short it is

urged that actual notice was given in the officiallangl age of Puerto

Rico and that nothing further is required As to the condition of the

vehicle when received by complainants respondent alleges that to its

best knowledge and belief the vehicle was properly handled during

all stages oftransit

DISCUSSION AND CONCLUSION

Complainants assert that the circumstances establish a violation of

section 14 Fourth oftheShipping Act 1916 the act which proscribes

unfair treatment of a shipper in the loading and landing of freight

in proper condition As previously noted no money claim has been

asserted for the condition of the automobile The thrust of the claim

is for recovery of storage charges resulting from respondent s inade

quate arrival notice The claim for storage charges is not cognizable

under section 14 Fourth because it does not concern the loading and

landing offreight in proper condition

Incontrast to section 14 Fourth section 18 a provides

That every common carrier by water in interstate commerce shall establish

observe and enforce just and reasonable rates fares charges classifications and

tariffs and just and reasonable regulations and practices relating thereto II

and all other matters relating to or connected with the receiving handling

transporting storing ordelivering of property

Both the bill of lading and the invoice bear the same date July 30

1969 Both were addressed to Mrs Joseph James and were received

by her early in the first week ofAugust The invoice in English shows

a blank entry after arrival date The bill of lading contains in the

right bottom corner a rubber stamp imprint bearly legible which

provides in Spanish that the ship will arrive in 8 2 at Pier 8 Ware

house cargo the 8 8 4 00 P M

2

The stamp impression was placed

over provisions of the bill of lading which provided that the condi

tions on the reverse side thereof were continued on the face of the bill

of lading the typed signature of SACAL ofFlorida Inc signing the

bill of lading as agents and the written signature of someone signing

the bill oflading for the master ofthe ship To persons not acquainted

with the procedures of respondent in providing notification the

stamped notification would have appeared to bear some relationship

to authentication of the bill of lading or some other purpose uncon

nected with the arrival of the vessel The stamp itself as placed would

2

This verbatim translation differs from respondent s translation preumably because

respondents isa free translation carrying with it certain understanding of the words in

the trade

14 F MC
304 FEDERAL MARITIME COMMIiSlSION

not put an ordinary prudent person on notice that the matters therein

were ofimportance

As noted the invoice had left blank the arrival date Mrs James

had been advised by a

representative of the respondent when tender

ing her automobile that it would take approximately 4 weeks for

delivery from Miami to San Juan Friends and acquaintances of hers

who had shipped automobiles to Puerto Rico had first received the

bill of lading and other papers and later received a clear notification

ofarrival by separate correspondence For Mrs James to have waited

until August 25 before making inquiry concerning the arrival of her

vehicle in thecircumstances wasnot unreasonable

Itwasnot unreasonable for Mrs James to have overlooked the notice

of arrival in Spanish stamped on the bill oflading While it is under

stood that everyday social and business affairs in Puerto Rico are

conducted in Spanish here the transaction was between an English

speaking resident ofthe United States and an American common car

rier operating in the offshore domestic commerce ofthe United States

Respondent s notification of arrival was an unreasonable practice in

delivering property and was the proximate cause of the accrual of

storage charges

Complainant is awarded the sum of 198 45 as reparation Interest

at the rate of 6 percent per year will be added if reparation is not

paid within 30 days after the service ofth s decision

RICHARD M HARTSOCK

Presiding Examiner

WASmNGTON D C

June 8 1970 14 F M C
TABLE OF COMMODITIES

Page

Dehydrated apples Argentina to U S Pacific 16

General U S Allantic and Puerto RicoVirgin Islands 35

General U Gulf and Puer to Rico 212

305

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