FEDERAL MARITIME COMMISSION

DOCKET NO 847

TARIFF COMPLIANCE INTERNATIONAL ACTING ON BEHALF OF

A A INTERNATIONAL A DIVISION OF TANDY CORPORATION

v

KAWASAKI KISEN KAISHA LTD STEAMSHIP COMPANY

NOTICE

July 24 1985

Notice is given that no appeal has been taken to the June 17 1985

dismissal of the complaint in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the dismissal has become administra

tively fina

S BRUCE A DOMBROWSKI

Acting Secretary

28 FM C 1
FEDERAL MARITIME COMMISSION

DOCKET NO 847

TARIFF COMPLIANCE INTERNATIONAL ACTING ON BEHALF OF

A A INTERNATIONAL A DIVISION OF TANDY CORPORATION

v

KAWASAKI KISEN KAISHA LTD STEAMSHIP COMPANY

SETTLEMENT APPROVED COMPLAINT DISMISSED

Finaliud July 24 1985

PRELIMINARY FACTS

On February 16 1984 Tariff Compliance International acting on behalf

of A A International a Division of Tandy Corporation TCI filed a

complaint against Kawasaki Kisen Kaisha Ltd KLine alleging that K

Line subjected TCI to rates and charges greater than those specified in

K Lines applicable tariff In its complaint TCI alleged that in addition

to the violation of section 18b 3 Shipping Act 1916 KLine was also

in violation of section 14 Fourth c since it subjected TCI to unjust

and discriminatory treatment in the adjustment and settlement of claims

TCI sought reparations of 87 096 50 for the alleged overcharges 2 TCI

also made claim for interest and attorneys fees pursuant to 46 CPR 502 250

1984 and section l1 g

of the Shipping Act 1984 46 U S C app

I710g

The overcharge claims involved are derived from 39 shipments bills

of lading and involve 85 separate claims since more than one claim

arises from one shipment or bill of lading The commodities involved

as described by Tel are

1 Keyboards

2 Printing Me 1anism PartslAccessories

3 Joystick Control Assemblies

4 Programmable Calculators

5 Thermal Paper

6 Hand Held Electronic GamesParts

7 Disk Drives

I Transpacitic Freight tw

ww of JapanKorea Tariff No 36FMC1 and Aareement No 10107 Tariff

No 2FMC 3

zThc total amount claimed per arirhmetical calcuJatlcn of the specific rm In lbia docket were miscalcu

lated in Appendix An of the complaint as 13 836 27

2 28 FM C
TARIFF COMPLIANCE INTERNATIONAL V KAWASAKI KISEN 3

KAISHA LTD STEAMSHIP COMPANY

8 Speaker Parts

9 Audio Cassette Tape Cases

10 Printing Mechanisms

II Copy Machine Parts

12 Electric Telephone Directories

13 Public Address Systems Megaphones

14 Audio Goods

15 Container Maximum Rates

An Initial Decision July 25 1984 was originally issued denying TCI s

claims because the complainant had failed to prove what was actually

shipped and that there wasnot sufficient information upon which to establish

the validity of the claim The decision was reached without a hearing

on the basis of the complaint and the parties written submissions under

the Commission s Shortened Procedure 46 CFR 502 187 3 Upon consid

eration of Exceptions Replies to the Exceptions and the record the Com

mission remanded the proceeding Order of Remand November 28 1984

finding that the Shortened Procedure was inappwp ate under the cir

cumstances and directing that an oral evidentiary hearing be held on

the issues identified in the Joint Prehearing Statement filed on May 21

1984 In the Prehearing Statement the parties narrowed their dispute noting

that as to some commodities the only issue was whether TCI had met

its burden of proving that the commodities had actually been shipped

and as to the remaining commodities there was the additional issue of

tariff interpretation and application In the Prehearing Statement the parties

also agreed that all allegations were in dispute regarding any violation

of section 14 Fourth of the Shipping Act 1916 by K Line by virtue

of its requirements in the adjustment and settlement of freight claims

The oral evidentiary hearing directed by the Commission was held on

February 26 and 27 1985 Numerous exhibits were presented including

demonstrations of the various products involved Each side presented expert

wimesses The record was then closed and a briefing schedule was estab

lished It was postponed so that settlement discussion could take place

with the result that the parties have reached a basis of settlement for

which they now seek approval

Settlement Proposal

The parties have agreed to settle this controversy as follows in pertinent

part

1 K Line will pay TCI 65 000 00

3The first Administrative Law Judge initially rejected the use of the Shortened Procedure but later con

sented 10 its use

28 F M C
4 FEDERAL MARITIME COMMISSION

2 TCI will withdraw its complaint and will not purSue any of the

claims made before the Commission or in any othef forum

3 Neither party including successors and assignees will initiate

any new claim relating to the shipments involved hefe except

to enforce the provisions of the settlement

4 The settlement does not constitute an admission of liability or

wrongdoing

In requesting approval for the settlement agreement the parties emphasize

that it is a bona fide commercial resolution of a genuine controversy

Law and Conclusions

It is well established that settlements of administrative proceedings are

favored by the Congress the Courts and the administrative agencies them

selves Section 5 b I of the Administrative Procedure Act 5 U S C

554c 1 provides

The agency shall give all interested Parties opportunity for

1 The submission and consideration of facts arguments offerS

of settlement Of proposals of adjustment when time the nature

of the proceedings and the public ihterest permit

In Penn sylvania Gas Water Co v Federal Power Commission 463 F 2d

1242 1247 D C Cir 1972 the Court noting its legislative history

referred to the above provision as being of the greatest importance

to the functioning of the administrative process and stated

The whole purpose of the informal settlement provision is to

eliminate the need for often costly and lengthy formal hearings

in those cases where the parties are able to reach a resulr of

their own which the a ate agency finds compatible with

the public interest

4Seollte Judiciary ConunAdministrative Procedure Act Leiislative tlistory S Doe No 248 79th

Cang 2d Sus 203 194S In COnsidering the settlement provision in S 7 79th

Cong 1st Sess 1945

which ultimately became Section SS4c of the Administrative Procedure Act see note 5 supra the Senate

Judiciary Committee stated

Subsection b now Section 554c of the Administrative Procedure Act provides that even where

fonnal hearing and decision procedures are available to parties the agencies and parties arc author

lzed to undertake the lnfonnal settlement of cases in whole or in part before undertaking the more

fannal hearing procedure Even courts throuSh pretrial proceedlnls dispose of much of their busi

ness in that fashion There Ismuch morereason to do so in the administrative process forlnfonnal

procedures constitute the vast bulk of administrative adjudication and are truly the lifeblood of the

Administrative process The statutory recoJnition of such inf methods should both

strengthen the administrative arm and serve to advise private parties that they may legittmately at

tempt to dispose of cases at least in part through conferences agreements orstipulations It should

be noted that the precise nature of infonnal procedures is left to development by the agencies them

selves

S Doc No 248 Jupra at 24

28 F M C
TARIFF COMPLIANCE INTERNATIONAL V KAWASAKI KISEN 5

KAISHA LTD STEAMSHIP COMPANY

Finally the Commission has by rule encouraged settlementsS and has often

favorably looked upon them as amatter of policy 6

Over and above the legal justification for settlement the record in this

case demonstrates the desirability of a mutual joint agreement in settlement

of the issues The record discloses there are numerous claims involved

in this proceeding covering numerous commodities tariff revisions and

legal issues There are questions as to whether or not certain commodities

were shipped and whether or not the correct tariff rate was used regarding

the shipments The commodities themselves are for the most part computer

andor computer type items which require technical expertise to even arrive

at a proper description Evidence of the difficulty encountered includes

the voluminous documentary evidence which was presented The complaint

alone was accompanied by almost 500 pages of appendices including cata

logues packing lists bills of lading invoices tariff pages and other docu

ments In addition some of the items themselves were brought into the

courtroom Despite all of the above the two experts could not agree as

to what the items were much less which tariff should apply

In short it is clear that if this case were to proceed to its conclusion

it would involve a considerable amount of time and money It would

require briefs another Initial Decision Commission review of that decision

and possibly an appeal Given the complexity of the tariff issues involved

and the importance of the section 14 Fourth issue there is a strong likeli

hood of more prolonged litigation should this settlement agreement be

rejected For this reason we agree

with the parties when they state that

they believe the settlement to be a rational valid and fair resolution

of the dispute obviating the need for further extensive and expensive

litigation of genuine disputes of fact and law 7

In so stating we wish

to clarify our conclusion insofar as it relates to the section 14 Fourth

issue Basically the issue arises as a result of Rule 19 of the Trans

Pacific Freight Conference of JapanKorea which requires that before claims

such as those involved here can be honored the claimant must supply

commercial invoices customs entry permits import declarations and other

documents to the carrier The complainant here argues that the rule is

being applied by the Conference in a discriminatory fashion and that in

sRule 91 of the Commission s Rules of Praclice and Procedure 46 CPR 502 91 provides in pertinent part

Where time the nature of the proceeding and the public interest pennil all interested parties shall have

the opponunity for the submission and consideration of facls argument offers of settlement orproposal of

adjustment

6In furtherance of this policy the Commission has authorized settlements of administrative proceedings

on the basis of a

compromised reparation payment absent admissions of findings of violation of the Shipping

Act FossAklska Line Inc Proposed General Rate Increase Between Seattle Washington and Points inWest

ern Alaska Docket No 7954 1979 Com Co Paper Stock Corporation v Pacific Coast Australasian Tariff

Bureau Docket No 71 83 1978 Robinson Lumber Co Inc v Delta Steamship Lines Inc Docket No

75 22 1978 Old Ben Coal Co v Sea Land Service Inc Docket No 7813 1978 Organic Chemicals

v At anttrafik Express Service Docket Nos 782 783 1979

7 Celanese Corporation v The Prudential Steamship Company Docket No 7814 Seulement Approved

Complaint Dismissed May 30 1980 20 SRR 27 32

28 F M C
6 FEDERAL MARmME COMMISSION

any event it was adopted by the Conference before the shipments involved

here took place In our view this issue does not precludeselllement between

these two parties even though the issue it raises may ultimately prove

to have a wider impact The fact is thaI there are no other parties involved

in this proceeding and conjecture as to the scope propriety and effect

of the Conference Rule 19 ought not to prevent a settlement reached

by the parties to this proceeding

In light of the above facts the desirability of settlement as reflected

in the law and the entire record it is held that the settlement agreement

reached by the parties is in the public interest and is approved 8 It is

therefore

Ordered that

1 TCI claims arise from a genuine dispute as to tariff applications

and commodity descriptions and the settlement agreement represents a fair

and equitable settlement of that dispute

2 No liability attaches to either party as a result of the manner in

whichTels cargo was rated

3 Final approval of this settlement agreement does not constitute an

admission of liability by either party

4 Upon final approval of the settlement agreement the complaint in

this proceeding is thereby dismissed and the proceeding discontinued

5 Upon approval of the settlement agreement all parties including A A

International will be bound by its terms

S JOSEPH N INOQLlA

Administrative Law Judge

8

The settlement qreement is attaehed to this holdina and is thoreby incorporated in it

2S F M C
TARIFF COMPLIANCE INTERNATIONAL V KAWASAKI KISEN 7

KAISHA LTD STEAMSHIP COMPANY

BEFORE TIlE FEDERAL MARITIME COMMISSION

TARIFF COMPLIANCE INTERNATIONAL

ACTING ON BEHALF OF A A

INTERNATIONAL A DIVISION OF TANDY

CORPORATION

V KAWASAKI KISEN KAISHA LTO

DOCKET NO 847

AGREEMENT OF SETTLEMENT AND MUTUAL RELEASE

IT IS HEREBY AGREED by and between the undersigned Tariff Com

pliance International Acting on Behalf of A A International a Division

of Tandy Corporation TCI Complainant in Commission Docket No

847 and Kawasaki Kisen Kaisha Ltd K Line l Respondent in said

Docket that Docket No 847 will be terminated by mutual accord on

the terms and conditions hereinafter set forth and for the reasons stated

in the accompanying Memorandum in Support of Settlement and Motion

to Dismiss

1 K Line will pay to TCI the sum of Sixty Five Thousand Dollars

and No Cents 65 00000

2 TCI will in consideration of the action of K Line described in para

graph I above withdraw its Complaint in Commission Docket No

847 and will not pursue at the Commission in Court in any other forum

the claims made by TCI relating to the specific shipments included in

Docket No 847 and the handling thereof by Respondents

3 Neither TCI nor K Line including successors and assignees in interest

of either such party will initiate any new claim against the other party

arising in connection with or in any way relating to the specific shipments

included in Docket No 847 and the handling thereof except for enforce

ment of any provision of this Agreement of Settlement and Mutual Release

and TCI and K Line each hereby releases the other from without limitation

all sums of money accounts actions suits proceedings claims and de

mands whatsoever which either of them at any time had or has up to

the date of this Agreement against the other for or by reason of any

act cause matter or thing arising from the transactions giving rise to

Docket No 847

4 TCI represents that it has authority to act on behalf of A A Inter

national a Division of Tandy Corporation A A in this matter and

that execution of this Agreement and other documents in this proceeding

by TCI is binding onA A

5 It is understood and agreed that this Agreement of Settlement and

Mutual Release is in full accord and satisfaction of all disputed claims

in Docket No 847

28 F M C
8 FEDERAL MARITIME COMMISSION

6 It is further understood and agreed that this Agreement of Settlement

and Mutual Release is not in any sense an admission of liability by

any party or an admission of any violation of law by any party

7 This Agreement of Settlement and Mutual Release will be submitted

for approval to the U S Federal Maritime Commission and will become

effective and binding upon the parties when such final approval is obtained

8 This Agreement of Settlement and Mutual Release constitutes the

entire agreement between the parties relating to the claims in this Docket

PMC 847

9 In the event this Agreement of Settlement and Mutual Release is

disapproved by the Federal Maritime Commission or is approved on condi

tions which are unacceptable to either party then this Agreement will

be null and void ab initio and of no effect whatsoever for any purpose

Dated May 23 1985

TARIFF COMPUANCE INTERNATIONAL

AcnNO ON BEHALF OF A AINTERNATIONAL

A DIVISION OF TANDY CORPORATION

By ISI

KAWASAKI KISEN KAlSHA LTD

By ISI

2S F M C
FEDERAL MARITIME COMMISSION

46 CPR 580

DOCKET NO 8427

PUBLISHING AND FILING TARIFFS BY COMMON CARRIERS IN

THE FOREIGN COMMERCE OF THE UNITED STATES CO

LOADING PRACTICES BY NVOCCS

July 3 985

Final Rule

On May 8 1985 the Commission deferred the effective

date of its Final Rule until August 13 1985 in order

to consider comments of certain NVOCCs The Commis

sion has decided to implement the Final Rule without

any substantive change However the language of the

Rule is modified to clarify that all NVOCCs are required

to comply with these requirements whatever the type

of co loading relationship that exists between the partici

pating parties The Rule has also been modified to clarify

that the name of any NVOCC with which a shipment

has been co loaded shall be shown on the face of the

bill of lading in a clear and legible manner

DATES Effective September 5 1985

SUPPLEMENTARY INFORMATION

The Final Rule governing co loading practices of Non Vessel Operating

Common Carriers NVOCCs originally scheduled to become effective on

May 15 1985 Federal Reqister Notice 5014704 April 15 1985 was

deferred until August 13 1985 due to an uncertainty as to its application

expressed by segments of the NVOCC industry Questions were raised

both with respect to the intended application of the Rule as it involves

the co loading of cargo under a carrier to carrier agreement and the docu

mentation requirements

The application of the Rule was alleged to be unclear in a situation

where 1 two or more NVOCCs co load pursuant to the terms of a

carrier to carrier agreement and 2 the NVOCC with which the cargo

is co loaded does not issue a bill of lading or assume the liability and

responsibility for the cargo as is customary in a shipper carrier arrangement

The Commission believes that the Rule is clear as to its application in

the described circumtances However to avoid any further possible mis
10 FEDERAL MARITIME COMMISSION

to the Final Rule In the interest of clarity the Rule has also been reorga

nized

Co loading which is defined in 46 CPR 580 d 14 i as the com

bining of cargo in the import or export foreign commerce of the United

States by two or more NVOCCs for tendering to an ocean carrier under

the name of one or more NVOCCs recognizes no exception for co

loading performed pursuant to an agreement between or among NVOCC s

Where a carrier to carrier agreement exists the Rule would require the

NVOCC which receives the cargo from the shipper to issue the shipper

a bill of lading annotating thereon for shipper informational purposes

the name of the NVOCC to which the cargo has been tendered 46 CPR

580 5 d 14 iii The publishing NVOCC s tariff need only relate that

co loading is performed subject to a carrier to carrier agreement section

580 5 d 14 ii B

In response to inquiries received with respect to application of the docu

mentation requirements the Commission has revised section 580 5 d 14 iii

of its Final Rule as previously published to clarify that this requirement

is applicable to any NVOCC which coloads under either a shipper to

carrier or a carrier to carrier arrangement and to require additionally that

the annotation revealing the name of any NVOCC with which cargo has

been coloaded be shown on the face of the bill of lading in a clear

and legible manner This clarification should satisfy those concerned with

the manner in which the annotation is to be revealed on the bill of lading

It will also affirm that the annotation requirement is intended to apply

in situations where the co loading involves either a shipper to carrier or

carrier to carrier relationship

The Commission has determined that this Final Rule is not a major

rule as defined in Executive Order 12291 dated February 17 1981 because

it will not result in

1 An annual effect on the economy of 100 million or more

2 A major increase in costs or prices for consumers individual indus

tries Federal State or local government agencies or geographic regions

m 4

3 Significant adverse effects on competition employment investment

productivity innovations or on the ability of United States based enterprises

to compete with Foreign based enterprises in domestic or export markets

Collection of Information requirements contained in this regulation have

been approved by the Office of Management and Budget under provisions

of the Paperwork Reduction Act of 1980 P L 96511 and have been

assigned control number 3072 0046

List of Subjects in 46 CPR Part 580

Cargo Cargo vessels Exports Harbors Imports Maritime carriers Rates

and fares Reporting and recordkeeping requirements Water carriers Water

transportation

28 F M C
CO LOADING PRACTICES BY NVOCCS 11

Therefore pursuant to 5 U S C 553 and sections 8 and 17 of the Shipping

Act of 1984 46 U S c app 1707 and 1716 the Federal Maritime Commis

sion is amending Title 46 CPR Part 580 as follows

PART 580AMENDED

1 The authority citation to Part 580 continues to read

Authority 5 U S c 553 46 U S c

app 1702 1705 1707 1709 1712

17141716 and 1718

2 Section 580 is amended by adding paragraph d 14 to read as

follows

580 5 Tariff contents

d

14 Special Rules and Regulations applicable to co loading activities

ofNon Vessel Operating Common Carriers NVOCCs

i Definition For the purpose of this section Co loading means the

combining of cargo in the import or export foreign commerce of the

United States by two or more NVOCCs for tendering to an ocean carrier

under the name of one or more of the NVOCCs

ii Filing Requirements All tariffs filed by an NVOCC shall contain

a rule describing its co loading activities as follows

A If an NVOCC does not tender cargo for coloading its

tariff s shall so indicate

B If two or more NVOCCs enter into an agreement which

establishes a carrier to carrier relationship for the co loading of

cargo then the existence of such agreement must be noted in

each of the NVOCC s tariffs

C If two NVOCCs enter into a co loading arrangement which

results in a shipper to carrier relationship the tendering NVOCC

shall describe in its tariff its co loading practices and specify

its responsibility to pay any charges for the transportation of

the cargo A shipper to carrier relationship shall be presumed to

exist where the receiving NVOCC issues a bill of lading to the

tendering NVOCC for carriage of the co loaded cargo

iii Documentation Requirements NVOCCs which tender cargo to an

other NVOCC for coloading whether under a shipper to carrier or carrier

to carrier relationship shall annotate each applicable bill of lading with

the identity of any other NVOCC to which the shipment has been tendered

for co loading Such annotation shall be shown on the face of the bill

of lading in a clear and legible manner

iv Co Loading Rates No NVOCC shall offer special co loading rates

for the exclusive use of other NVOCCs If cargo is accepted by an NVOCC

from another NVOCC which tenders that cargo in the capacity of a shipper

28 F M C
12 FEDERAL MARITIME COMMISSION

it must be rated and carried under tariff provisions which are available

to all shippers

3 580 91 is amended by adding the following to the Table at the

end

58091 OMB control numbers assigned pursuant to the Paperwork Reduc

tion Act

580 5 d 14 3072046

By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

28 F M c
FEDERAL MARITIME COMMISSION

46 CFR PART 552

DOCKET NO 85 17

FINANCIAL REPORTS OF VESSEL OPERATING COMMON

CARRIERS BY WATER IN THE DOMESTIC OFFSHORE TRADES

ACTION

SUMMARY

DATES

July 31 1985

Final Rule

The Federal Maritime Commission amends its rules gov

eming financial reports required of vessel operating com

mon carriers in the domestic offshore waterborne com

merce of the United States This action is necessary

to conform the reporting form Form FMC 378 to the

Uniform Financial Reporting Requirements 46 CFR Part

232 of the Maritime Administration U S Department

of Transportation These requirements replaced the Uni

form System of Accounts for Maritime Carriers 46 CFR

Part 582 upon which the report form was previously

based Other minor reporting changes delete unnecessary

information reporting requirements

September 9 1985

SUPPLEMENTARY INFORMATION

The Federal Maritime Commission is required to evaluate the reasonable

ness of rates in the domestic offshore trades filed by vessel operating

common carriers To provide for the orderly acquisition of the data essential

to this evaluation the Commission promulgated what is now 46 CFR Part

552 Self propelled vessel operators report the required financial and oper

ating data on FMC Form 378 Statements of Financial and Operating

Data It has been the policy of the Commission to base these statements

on the chart of accounts prescribed by the Maritime Administration U S

Department ofTransportation MARAD It is the intention of the Commis

sion to continue this policy Therefore because MARAD has recently re

vised its chart of accounts through the publication of Uniform Financial

Reporting Requirements 46 CFR Part 232 the Commission is amending

46 CFR Part 552 49 FR 42934 to conform its reporting form to the

revised chart of accounts

A proposed rule was published in the FEDERAL REGISTER on June 3

1985 50 FR 23318 with comments due on July 3 1985 No comments

were received

2S F M C 13
14 FEDERAL MARITIME COMMISSION

The Commission has determined that this rule is not a major rule

as defined in Executive Order 12291 46 CFR 12193 February 27 1981

because it will not result in

I An annual effect on the economy of 100 million or more

2 A major increase in costs or prices for consumers individual indus

tries Federal State or Local government agencies or geographic regions

or

3 Significant adverse effect on competition employment investment

productivity innovations or on the ability of United States based enterprises

to compete with foreign based enterprises in domestic or export markets

Collection of Information requirements contained in this regulation have

been approved by the Office of Management and Budget under provisions

of the Paperwork Reduction Act of 1980 PL 96511 and have been

assigned control numbers 3072008 3072029 and 3072030

List of Subjects in 46 CFR

Cargo vessels Freight Maritime carriers Rates and fares Reporting

and recordkeeping requirements

PART 552 AMENDED

Accordingly pursuant to 5 U S C 553 46 U S C app 817 a 820

841a 843 844 845a and 847 the proposed rule published in the FEDERAL

REGISTER at 50 FR 23318 on June 3 1985 is hereby adopted as final

By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

28 F M C
FEDERAL MARITIME COMMISSION

46 CFR PART 552

DOCKET NO 85 17

FINANCIAL REPORTS OF VESSEL OPERATING COMMON

CARRIERS BY WATER IN TIlE DOMESTIC OFFSHORE TRADES

ACTION Proposed Rule and Request for Comments

SUPPLEMENTARY INFORMATION

The Federal Maritime Commission is required to evaluate the reasonable

ness of rates in the domestic offshore trades filed by vessel operating

common carriers To provide for the orderly acquisition of the data essential

to this evaluation the Commission promulgated what is now 46 CFR Part

552 Self propelled vessel operators report the required financial and oper

ating data on FMC Form 378 Statements of Financial and Operating

Data It has been the policy of the Commission to base these statements

on the chart of accounts prescribed by the Maritime Administration U S

Department of Transportation MARAD It is the intention of the Commis

sion to continue this policy Therefore because MARAD has recently re

vised its chart of accounts through the publication of Uniform Financial

Reporting Requirements 46 CFR Part 232 the Commission is amending

46 CFR Part 552 49 FR 42934 to conform its reporting form to the

revised chart of accounts

These amendments which do not result in any substantive modification

of financial reporting requirements and reflect only new terminology are

summarized as follows

ISection 552 0 and p the addition of new definitions voyage

expense and voyage expense relationship are new terms replacing ves

sel operating expense and vessel operating expense relationship respec

tively

2 Section 552 6

a 2 substitution of MARAD s new designation Uni

form Financial Reporting Requirements for the former designation Uni

form System of Accounts for Maritime Carriers

3 Section 552 6 b 4 i reflects the use of a combined schedule for

self propelled vessel operators Form FMC 378 reporting assets and accu

mulated depreciation and substitutes the term voyage expense relation

ship for vessel operating expense relationship

4 Section 552 6 b 5 reflects the new terminology used for average

voyage expense definition

5 Section 552 6 b 7 reflects the inclusion of other assets with Invest

ment in Other Property and Equipment Schedule A V for self propelled

vessel operators Form FMC 378

6 Section 552 6b 9 and 10 reflects renumbering of schedules

28 F M C 15
16 FEDERAL MARITIME COMMISSION

7 Section 552 6

c 2 reflects usage of new terminology in designating

voyage expense accounts

8 Section 552 6

c 4 reflects consolidation of line item accounts under

Administrative and General Expense schedules

In addition to the changes necessitated by the revision of MARAD s

chart of accounts other changes have been made amending or removing

certain provisions of the regulations These changes concern information

which the Commission considers no longer necessary to the effective admin

istration of its regulatory responsibilities and which do not result in substan

tial changes in the calculations of Rate Base or Net Income of reporting

carriers They are summarized as follows

ISection 552 4 cross referencing exhibits and schedules to under

lying workpapers deleted as duplicative of 552 4a

2 Section 552 6

a

1directors and stockholders need not be disclosed

because it is irrelevant to the Commission s rate of retum methodology

3 Section 552 6 b 1 gross amounts for additions and deductions to

vessel investment need not be disclosed because pro rata allQCation for

the reporting period is the relevant information from which gross amounts

can be calculated if necessary

4 Section 552 6 b 1 iiallocation of vessel costs to Other Cargo need

not be disclosed because the allocation to the Trade is the relevant informa

tion from which Other Cargo can be calculated if necessary

5 Section 552 6 b 2 idepreciable life and residual value of vessels

need not be disclosed because accumulated depreciation is the relevant

information

Finally the citation of statutory authority is being revised to reflect

only United States Code citations in accordance with required Federal

Register format

The Commission has determined that this proposed rule is not a major

rule as defmed in Executive Order 12291 46 CFR 12193 February 27

1981 because it will not result in

I An annual effect on the economy of 100 million or more

2 A major increase in costs or prices for consumers individual indus

tries Federal State or local government agencies or geographic regions

or

3 Significant adverse effect on competition employment investment

productivity innovations or on the ability of United States based enterprises

to compete with foreign based enterprises in domestic or export markets

The Vice Chairman of the Federal Maritime Commission certifies thllt

this proposed rule will not have a

significant economic impact on a substan

tial number of small entities including small businesses small organizations

and small governmental jurisdictions

The primary economic impact of this rule would be on ocean common

carriers which generally are not small entities A secondary impact may

28 F M C
FINANCIAL REPORTS OF VESSEL OPERATING COMMON 17

CARRIERS BY WATER IN THE DOMESTIC OFFSHORE TRADES

fall on shippers some of whom may be small entities but that impact

is not considered to be significant

Collection of Information requirements contained in this regulation have

been approved by the Office of Management and Budget under provisions

of the Paperwork Reduction Act of 1980 P L 9651 and have been

assigned control numbers 3072008 3072 O29 and 3072030

TIlEREFORE pursuant to 5 U S C 553 sees 18 a 21 and 43 of

the Shipping Act 1916 46 U S c app 817 a 820 841 a and secs

I 2 3 a 3 b 4 and 9 of the Intercoastal Shipping Act 1933 46 U S C

app 843 844 845 845 a and 847 Part 552 of Title 46 Code of Federal

Regulations is amended as follows

IThe Authority Citation for Part 552 is revised to read

Authority 5 U S C 553 46 U S C app 8l7 a 820 841a 843 844

845 845a and 847

2 Section 552 4c is removed

3 Paragraphs 0 and p

of Section 552 are amended to read as

follows

552 5 Definitions

0 Voyage Expense means

I For carriers required to file Form FMC 378 the total of Vessel

Operating Vessel Port Call and Cargo Handling Expenses less Other Ship

ping Operations Revenue

2 For carriers required to file Form FMC 377 the total of Direct

Vessel and Other Shipping Operations Expenses less Other Revenue

p Voyage Expense Relationship means the ratio of total Trade Voy

age Expense to total Company Voyage Expense

4 Section 552 6 is amended by revising paragraphs 6 a 6 b I

6b l

ii 6 b 2 i 6 b 4 i 6 b 5 6 b 7 6 b 9 Title only

6b 1O 6 c 2 and 6 c 4 to read as follows

552 6 Forms

a General

I The submission required by this part shall be submitted in the pre

scribed format and shall include General Information regarding the carrier

as well as the following schedules as applicable

Exhibit A Rate Base and supporting schedules

Exhibit B Income Account and supporting schedules

Exhibit C Rate of Return and supporting schedules

Exhibit DApplication for Waiver and

Exhibit EInitial TariffFiling Supporting Data

28 F M C
18 FEDERAL MARITIME COMMISSION

2 statements containing the required exhibits and schedules are de

scribed in paragraphs b c d e and f

of this section and are

available upon request from the Commission The required General Informa

tion schedules and exhibits are contained in forms FMC377 and FMC

378 For carriers required to file form FMC 378 the statements are based

on the Uniform Financial Reporting Requirements prescribed by the Mari

time Administration U S Department of Transportation For carriers re

quired to file Form FMC 377 the statements are based on the accounts

prescribed by the Interstate Commerce Commission for Carriers by Inland

and Coastal Waterways The schedules contained in these statements are

distinguished from those contained in the Form FMC378 statements by

the suffix A e g

Schedule A IV A

b Rate Base Exhibits A and A A

I Investment in Vessels Schedules A Iand A lA

Each cargo vessel excluding vessels chartered under leases which are

not capitalized in accordance with 5S2 6b l0 employed in the Service

for which a statement is filed shall be listed by name showing the original

cost to the carrier or to any related company plus the cost of improvements

conversions and alterations less the cost of any deductions All additions

and deductions made during the period shall be shown on a pro rata

basis reflecting the number of days they were applicable during the period

The result of these computations shall be called Adjusted Cost

i

H The total of the adjusted cost of all vessels employed in the Service

during the period which has not been allocated to Other Services as required

in SS2 6b I i B shall be allocated to the Trade in the cargo cube

mile relationship

2 Accumulated DepreciationVessels Schedule A ll and A ll A

i Each cargo vessel excluding vessels chartered under leases which

are not capitalized in accordance with 552 6b 10employed in the

Service shall be listed separately For vessels owned the entire year accumu

lated depreciation as of the beginning and the end of the year shall be

reported and the arithmetic average computed This amount shall be allo

cated to the Service and to the Trade in the same proportions as the

cost of the vesseL was allocated on Schedule A lorA I A Ifthe depre

ciable life of any equipment installed on a vessel differs from the deprecia

tion life of the vessel the cost and the depreciation bases shall be set

forth separately

H

iH

3

4 Investment in Other Property and Equipment Accumulated Deprecia

tion Other Property and Equipment Schedules A lV and A lV A and

A V A

28 F M C
FINANCIAL REPORTS OF VESSEL OPERATING COMMON 19

CARRIERS BY WATER IN THE DOMESTIC OFFSHORE TRADES

i Actual investment representing original cost to the carrier or to any

related company in other fixed assets employed in the Service shall be

reported as of the beginning of the year Accumulated depreciation for

these assets shaH be reported both as of the beginning and as of the

end of the year The arithmetic average of the two amounts shall also

be shown and shall be the amount deducted from original cost in deter

mining rate base Additions and deductions during the period shall also

be reported and the carrier shall reports as though all such changes took

place at midyear except for those involving substantial sums which shaH

be prorated on a daily basis Allocation to the Trade shaH be based upon

the actual use of the specific asset or group of assets within the Trade

For those assets employed in a general capacity such as office furniture

and fixtures the voyage expense relationship shaH be employed for aHoca

tion purposes The basis of aHocation to the Trade shaH be set forth

and fully explained

ii

5 Working Capital Schedule A V

Working capital for vessel operators shall be determined as average voy

age expense Average voyage expense shaH be calculated on the basis

of the actual expenses of operating and maintaining the vessel s employed

in the Service excluding lay up expenses for a period represented by

the average length of time of all voyages excluding lay up periods during

the period in which any cargo as carried in the Trade Expenses for oper

ating and maintaining the vessels employed in the Trade shall include

Vessel Operating Expense Vessel Port Call Expense Cargo Handling Ex

pense Administrative and General Expense and Interest Expense allocated

to the Trade as provided in paragraphs c 2 c 4 and 5 of this section

For this purpose if the average voyage as determined above is of less

than 90 days duration the expense of hull and machinery insurance and

protection and indemnity insurance shaH be determined to be 90 days

provided that such allowance for insurance expense shall not in the aggre

gate exceed the total actual insurance expense for the period

6

7 Investment in Other Assets Schedule A VIl A Accumulated Depre

ciation Other Assets Schedule A V1Il A

For carriers required to file Form FMC 377 any other assets claimed

by the carrier as components of its rate base shaH be set forth separately

in a schedule The basis of aHocation to the Trade and computations of

percentages employed shaH be set forth and fuHy explained Where other

assets are subject to depreciation the amount of accumulated depreciation

to be subtracted from the original cost in determining the component of

rate base shaH be the arithmetic average of both the beginning and the

end of the year Capital ConstrUction Funds and other special funds are

specifically excluded from rate base For carriers required to file Form

28 F M C
20 FEDERAL MARITIME COMMISSION

FMC 378 other assets and the related accumulated depreciation are to

be included on Schedule A IV

8

9 Capitalization of Interest During Construction Schedules A VII and

A IX A

i

ii

iii

iv

10 Capitalization of Leases Schedules A Vlll and AX A

Leased assets which are capitalized on the carrier s books and which

meet the AICPA guidelines for capitalization may also be included in

rate base Schedule A VITI or A X A Capitalization of Leases shall

be submitted setting forth pertinent information relating to the lease and

the details of the capitalization calculation Allocations to the Trade shall

follow the requirements of paragraphs b I and b 4 of this section

c Income Account Exhibits B andB A

I

2 Voyage Expense Schedule B 1I

A schedule of voyage expense shall be submitted for any period in

which any cargo was carried in the Service Allocations to the Trade

shall be on the following basis

i For all voyages in the Service vessel expense shall be allocated

to the Trade in the cargo cube mile or cargo cube relationship as appro

priate Should any of the elements of vessel expense be directly allocable

to specific cargo such direct allocations shall be made and explained

ii Vessel port call and cargo handling expenses shall be assigned di

rectly to the extent possible by ports at which incurred to the Trade

and Other Cargo or otherwise allocated on the basis of cargo cube loaded

and discharged at each port

Ui Other Shipping Operations Revenue shall be deducted from Vessel

Operating Expense Other Shipping Operations Revenue should be assigned

directly to the extent possible or otherwise allocated on the basis of

cargo cube loaded and discharged at each port Any direct assignments

shall be fully set forth and explained

3

4 Administrative and General Expense Schedules B III and B lllA

Administrative and general expenses A G shall be allocated to the

Trade using the voyage expense relationship Direct assignments should

be made where practical particularly with respect to advertising expense

related to the operation of passenger and combination vessels Any direct

assignment shall be set forth and explained Charitable contributions shall

not be a

located to the Trade In those instances where a carrier is engaged

in other business in addition to shipping A G should be allocated to

each business in the ratio of total operating expenses for each business

28 F M C
FINANCIAL REPORTS OF VESSEL OPERATING COMMON 21

CARRIERS BY WATER IN THE DOMESTIC OFFSHORE TRADES

less A G and income taxes to total company operating expenses less

A G and income taxes

By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

28 F M C
FEDERAL MARITIME COMMISSION

46 CFR PART 552

DOCKET NO 85 17

FINANCIAL REPORTS OF VESSEL OPERATING COMMON

CARRIERS BY WATER IN THE DOMESTIC OFFSHORE TRADES

October 22 1985

Final rule corrections

This document corrects administrative errors resulting in

two incorrect citations in a final rule on financial reports

of vessel operating common carriers in the domestic off

shore trades that appeared at page 32068 in the Federal

Register of Thursday August 8 1985 50 FR 32068

This document also revises two corresponding references

to the corrected citations which were not included in

this rule making due to administrative oversight

The following corrections are made in PR Doc 85 18513 appearing

on page 32068 in the issue ofAugnst 8 1985

1 On page 32069 on lines 4 5 and 6 of column three 9 Capitaliza

tion of Interest During Construction Schedules A VIl and A IXA is

corrected to read 9 Capitalization ofInterest During Construction Sched

ules A VI and A IX A

2 On page 32069 on lines 8 and 9 of column three 10 Capitalization

of Lease Schedules A Vlll and A X A is corrected to read 10 Cap

italization of Leases Schedules A VIl and A X A

3 Add the following amendatory item

5 In 552 6 paragraphs b 9 iii and b lO are revised to read

as follows

ACTION

SUMMARY

552 6 Forms

b

9

iii A detailed description of the interest calculations shall be submitted

for each capital asset included in the rate base of the carrier in the first

year of its inclusion Such description shall be set forth on Schedule

A VI or A IX A Capitalization of Interest During Construction Capital

ized interest shall be included in the rate base when the asset is included

in the rate base in accordance with paragraph b of this section and

in the same allocable amounts as the asset A schedule shall be provided

each time a rate base statement is submitted setting forth the year in

22 28 F M C
FINANCIAL REPORTS OF VESSEL OPERATING COMMON 23

CARRIERS BY WATER IN THE DOMESTIC OFFSHORE TRADES

which an interest calculation statement was submitted for each asset which

included capitalized construction interest in the rate base

iv

10 Capitalization of Leases Schedules A VII and A X A Leased

assets which are capitalized on the carrier s books and which meet the

AICPA guidelines for capitalization may also be included in rate base

Schedule A VII or A X A Capitalization of Leases shaH be submitted

setting forth pertinent infonnation relating to the lease and the details

of the capitalization schedule AHocations to the Trade shaH foHow the

requirements of paragraphs b I and b 4 of this section

By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 41

WILMINGTON STEVEDORES INC

v

THE PORT OF WILMINGTON DELAWARE

ORDER ADOPTING INITIAL DECISION

August 7 1985

This proceeding was initiated by a complaint filed by Wilmington Steve

dores Inc WS or Complainant against the Port of Wilmington Delaware

the Port or Respondent alleging that certain indemnity and exculpatory

provisions of the Port s tariff are unjust unreasonable vague and indefinite

and therefore unlawful in violation of section 17 of the Shipping Act

1916 1916 Act 46 D S C app 816 Administrative Law Judge Charles

E Morgan issued an Initial Decision finding both provisions of the Port s

tariff at issue to be unlawful under section 17 of the Act to the extent

that they would relieve the Port of liability for its own negligence The

Port has filed Exceptions to the Initial Decision to which WS and the

Commission s Bureau of Hearing Counsel have replied

BACKGROUND

The complaint in this proceeding arose out of court proceedings involving

an accident in September 1982 in which a Port crane leased by WS

and operated by two Port employed crane operators tumbled into the hold

of a ship while unloading a cargo of steel coils Both crane operators

were killed in the accident In a civil action against WS for recovery

of damages for the death of the two crane operators the Port as a third

party defendant raised as an affirmative defense the exculpatory and indem

nity provisions of its tariff The court proceedings were stayed pending

a determination of the lawfulness of the Port s tariff provisions by the

Federal Maritime Commission

WS is the major user of Port equipment to perform stevedoring functions

at the Port The Port s tariff requires stevedores who use the Port to

use the Port owned cranes when they are available and suitable for the

user s needs For use with bulk or general cargo the Port provides the

I Complainant also alleged that the provisions were unlawful under section 18 oflhe 1916 Act 46 US C

app 817 This portion of the complaint was dismissed by the Presiding Officer on grounds that the Re

spondent is not acommon carrier by water and therefore not subject to section 18 of the 1916 Act Complain

ant has not excepted to thatruling

24 28 F M C
WILMINGTON STEVEDORES INC V THE PORT OF 25

WILMINGTON DELAWARE

crane operators as well as the cranes

2

Although the crane operators operate

the cranes in response to hand signals from employees of the stevedoring

company and according to a plan of loadingunloading determined by the

stevedoring company the stevedoring company does not hire fire discipline

or train the crane operators and does not have the right to choose who

among the ten or eleven Port employed crane operators will be assigned

to operate the cranes on any particular day The stevedoring company

can however request a change of operators The crane operators are paid

hired fired trained disciplined and assigned by the Port

The Port s tariff contains rates and charges for the use of its cranes

and crane operators These rates and charges are established by the Port

without negotiation so as to recover its direct costs and overhead and

to be competitive with the rates at other ports in the area The Port

does not specifically consider the impact of the indemnity and exculpatory

provisions of its tariff in setting its crane rental or other rates and does

not offer different crane rental rates based upon assumption or non assump

tion of liability by stevedores The Port s tariff provides that neither the

Port nor the city shall be liable for damages resulting from the use of

leased equipment or from the acts or omissions of Port furnished operators

of such equipment and that lessees of such equipment and labor shall

indemnify the city from any such damages 3

The Presiding Officer found both provisions of the Port s tariff at issue

to be unjust unreasonable and unlawful in violation of section 17 of

the 1916 Act to the extent that they would relieve the Port of liability

for its own negligence He rejected the Port s argument that the provisions

did not relieve the Port of liability for its own negligence because the

cranes and their operators were under the full control of the lessees during

operation The Presiding Officer explained that although the cranes and

their operators may be acting for a time under the complete direction

and control of a stevedore the ultimate authority to exercise control

remained with the Port JD 17 The Presiding Officer noted that this

2

For container operations the Port requires stevedores to rent Port owned cranes but does not supply crane

operators The container cranes are operated by employees of the stevedoring companies The difference in

treatment arises from differences in labor jurisdiction of the two longshoremen s unions which work at the

Port 1 0 5

3

The Port s tariffprovisions relating to non liability fordamages provide

Section II Paragraph 14 Responsibility for Equipment and Labor

Neither the Port nor the City shall be liable for any damages resulting from the use of equipment

leased orfrom activities oromissions of any operator and orother labor furnished by the tenninal

on alime basis All parties who lease any such equipment andor use such an operator andorother

labor shall indemnify the tenninal and the City against and shall save them harmless from any

and all liability for loss damage expense and cost resulting from the use of such equipment while

50 leased and or from any act oromission on the part of such operator andorother employee so

furnished by the Tenninal

Section II Paragraph 17 Non Liability

Neither the Port nor the City shall be liable for loss ordamage to any merchandise in orupon

or moving or being moved over in through or under any wharf or other structure or property

owned controlled oroperated by the Port resulting from any cause whatsoever

28 F M C
26 FEDERAL MARITIME COMMISSION

I

conclusion was consistent with the Port s tariff which did not specifically

state that the crane operators would be under the exclusive direction and

control of lessees of the cranes In this respect the Port s tariff provisions

were found to differ from those held lawful in West Gulf Maritime Associa

tion v Port of Houston Authority 22 FMC 420 1980 and to be more

like the indemnity provisions held unlawful in West Gulf Maritime Associa

tion v The City of Galveston 22 FMC 101 1970 4

DISCUSSION

In its Exceptions to the Initial Decision Respondent concedes that its

tariff provisions for indemnity may not be applied in future but argues

that relief should be prospective only The Port alleges that Complainant

was aware of the existence of these tariff provisiClIIS had provided itself

with liability insurance to cover its assumed responsibilities and had never

complained about the provisions The Port contends that the Presiding Offi

cer failed to address the tariff provisions past effectiveness as tariff

defenses and the evidence that private crane rental agreements identical

to those entered into by WS which shift liability for damages from lessors

to lessees are enforceable under Delaware state law

We do not find the Port s Exceptions persuasive The Initial Decision

is well reasoned in its findings of fact and conclusions of law which

are consistent with Commission precedent S

Respondent srequest that relief

be prospective only would permit it to enforce by asserting in its own

defense provisions which have been found unlawful under the 1916 Act

Such a result would be unwarranted

Similarly the Port s argument that past application qf its tariff provisions

should be permitted because those provisions are no more burdensome

to stevedores than liability shifting provisions contained in private crane

rental agreements upheld by state courts is unavailing As the Presiding

Officer noted the Port s tariff is not as explicit as the terms of such

agreements nor is the Port s tariff a bargained for agreement among the

parities 6

TIffiREFORE IT IS ORDERED That Respondents Exceptions are de

nied and

We note that tho Pon s tariff provlalona also differ in thia samo respect from thoprovla1ons of various

rental agreement fonnaprovldod by private crane rental companies from which WS has rented cranes

These rental 8reemenl and equipment tickets forms Illned by only one pany the Jellleeprovlde

in specific terms that the crane and crane operatan supplied arc under the dlretand solc supervision of

lessee

e mral National Corp v Port of Houston Authority 26 FMC 296 2989 1984 22 S R R 795 797

West Gulf Marilime Assoc Q11n v The City of Galveston supra

6

See footnote 4 suprQ

2S F M C
WILMINGTON STEVEDORES INC V THE PORT OF 27

WILMINGTON DELAWARE

IT IS FUR1HER ORDERED That the Initial Decision served in this

proceeding is adopted and made a part hereof

By the Commission

8 BRUCE A DOMBROWSKI

Acting Secretary

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 41

WILMINGTON STEVEDORES INC

v

THE PORT OF WILMINGTON DELAWARE

Certain tariff provisions of the Port of Wilmington Delaware found unjust and unreasonable

per se in violation of section 17 of the Shipping Act 1916 as amended insofar as

such tariff provisions would relieve the Port of Wilmington from its own negligence

Eugene L Stewart Terence P Stewart Mary E Tuck and Ronald M Wis a for the

complainant Wilmington Stevedores Inc

Jerome M Capone for respondent the Port of Wilmington Delaware

John Robert Ewers and Stuart James as Hearing Counsel

INITIAL DECISION 1 OF CHARLES E MORGAN ADMINISTRATIVE

LAW JUDGE

Adopted August 7 1985

GENERAL BACKGROUND

On September 27 1982 the complainant Wilmington Stevedores Inc

was engaged in unloading a shipment of steel coils from the hold of

the motor vessel NOFNED THOR at the Port of Wilmington Delaware

The complainant had rented a land based crane provided by the Port

of Wilmington Delaware the respondent Two employees of the respondent

namely the crane operator and the crane oiler crane maintenance man

were in the crane It is customary for the crane operator to work for

a time and then shift jobs with the oiler who then operates the crane

so that both the operator and the oiler are known as crane operators

Shortly after the unloading operation began the crane toppled into the

hold of the NORNED THOR killing the two crane operators and causing

property damage

In a District Court of the United States certain pretrial testimony of

the president and of a supervisor of Wilmington Stevedores tended to

show that the president had instructed his employees to load no more

than 12 coils of steel to the crane on each lift but that when the accident

occurred 15 coils had been attached to the crane s hook by Wilmington

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

28 28 F M C
WILMINGTON STEVEDORES INC V TIfE PORT OF 29

WILMINGTON DELAWARE

Stevedore s employees as was evident when the coils later were taken

out of the river at the Port ofWilmington

A civil action was instituted in the United States District Court for

the Eastern District of Pennsylvania to recover damages for the death

of the two crane operators Numerous lawsuits related to this tragic incident

have been consolidated before the said Court

The Port of Wilntington is a third party defendant in the above lawsuit

and raised among its several defenses certain provisions of its General

Tariff No 21 FMC T No 7 In particular the Port refers to two tariff

provisions section II paragraph 14 its so called indemnity provision

and section II paragraph 17 its exculpatory provision

Mter the Port of Wilmington raised these Ulriff provision defenses the

complainant filed the subject complaint with the Federal Maritime Commis

sion The civil litigation has been stayed so that the Commission may

determine the lawfulness of the said tariff provisions at the port

No judgment is made herein as to whether the crane operators were

negligent or whether the stevedore s employees or any other persons were

negligent The issue of negligence is to be resolved in the suit in the

District Court The present initial decision relates only to whether the

Port s tatiff provisions are lawful

THE COMPLAINT

By complaint served September 13 1983 the complainant Wilmington

Stevedores Inc alleges that certain provisions of the tariff of the respond

ent The Port of Wilntington Delaware are unjust unreasonable vague

indefinite an therefore unlawful in violation of sections 17 and 18 of

the Shipping Act 1916 the Act The Comntission is requested to find

that these tariff provisions are unlawful and to order the respondent to

cease and desist from seeking to enforce these tatiff provisions against

the complainant in any way so as to make the complainant liable for

the debts and obligations of others

The Port of Wilmington insofar as it furnishes terminal facilities is an

other person subject to the provisions of section 17 of the Act The

Port of Wilntington is not a common carrier by water and therefore is

not subject to the provisions of section 18 of the Act which provisions

relate only to common carriers by water Accordingly the complaint insofar

as it relates to section 18 is dismissed Further discussion herein relates

to the allegation of violation of section 17

THE FACTUAL SITUATION

Wilmington Stevedores WS is a

stevedoring company principally en

gaged in providing stevedoring and terminal services at the Port of Wil

mington WS is the busiest stevedore at the Port of Wilntington PW

The Port of Wilmington is located at the confluence of the Delaware

and Christina Rivers and is an instrumentality of the City of Wilmington

28 FM C
30 FEDERAL MARITIME COMMISSION

Delaware City PW was set up to own operate and maintain the port

facilities PW s main function is to provide a place where ships can dock

either to pick up or to discharge cargo PW provides warehouse space

for cargo moved through the Port

Also located on the Delaware River within 27 miles off the Port are

the Ports of Camden and Philadelphia which are in direct competition

with PW Also the Port of Baltimore and the Port of New York are

regional competitors The closest competitor is the Port of OJoucester New

Jersey

PW is the smallest of these competing ports in size and business PW

has 6 berths and 3 cranes Philadelphia has 40 berths and 18 cranes

Baltimore has 50 berths and 25 cranes The Ports of Camden and Gloucester

together have 10 berths and 8 cranes

The City owns three land based cranes one of which the C 3 crane

is for handling containerized cargo and cost 1 356 200 Funds for this

crane were acquired through the issuance of general obligation bonds in

1980 The C 3 crane waspurchased in 1982

The C 1 crane a crane handling cargo not in containers referred to

as bulk or general cargo by the parties was purchased in 1962 for

234 000 The C8crane also is one for handling cargo not in containers

Itwas purchased in 1959

In order to recover the City s investment in the three cranes PW requires

the stevedores who use the Port to load or unload ships to use city

owned cranes when they are available and suitable for the user s needs

City owned cranes also are referred to as Port cranes

If a Port crane is not available or is not suited for a user s particular

need the user is permitted to use a crane or cranes not owned by the

City and supplied by independent operators

In situations where the cargo is not in containers but is bulk or general

cargo the City provides not only the cranes but also the crane operators

to the stevedoring company However where containerized cargo is being

loaded or unloaded the City s container crane is driven by an employee

of the stevedoring company The above distinction between who may oper

ate the cranes arises from differences in labor jurisdiction among the two

longshoremen s unions which work at the Port

The PW or City cranes are maintained by the Port of Wilmington

PW holds itself out as providing qualified crane operators PW has senior

crane operators and utility crane operators To qualify as a utility operator

a person must have completed a minimum of 60 working days of training

Such a working day is eight hours

A stevedoring company does not have the right to choose which of

the Port employed crane operators will operate a crane for the stevedore

on a particular day

PW is responsible for the hiring firing training assigning and discipline

of the Port s crane operators A stevedore such as WS does not have

28 F M C
WILMINGTON STEVEDORES INC V THE PORT OF 31

WILMINGTON DELAWARE

the right to fire or discipline a City crane operator The stevedore may

request a change of operators

The Port of Wilmington pays its crane operators and in turn is reimbursed

by a stevedoring company through the fees paid by the stevedore for

the rental of the City s cranes along with their operators WS is billed

on an hourly basis and charges include labor equipment crane and over

head

The complainant has used the Port s cranes since the complainant first

began operations at the Port in 1978 About 75 80 percent of all Port

crane rentals are made to the complainant In other words about 70

80 percent of the man hours that Port crane operators spend operating

cranes are spent working on behalf of the complainant in furtherance of

the complainant s business

The Port of Wilmington is not itself in the business of loading and

unloading cargo from ships which dock at its facilities

Five stevedoring companies currently are working at the Port of Wil

mington but only two regularly do business there One of these is WS

The president of Wilmington Stevedores knows most of the Port s crane

operators by name and he knows them all by sight There are about

10 or II Port crane operators At times some crane operators are more

efficient than others with their productivity measured by time elapsed and

tons loaded or unloaded When WS has been dissatisfied with the perform

ance of a city crane operator generally in the past this dissatisfaction

was because of the rate ofproductivity

A stevedore s crew could vary in size from 15 people to as much

as 45 on a break bulk vessel or as much as 110 on a general cargo

ship

For stevedoring general cargo a typical longshore crew would be 19

men Twelve men would work in the hold of the ship three would be

deckmen who would give signals and operate the ship s winch or the

ship s crane and four men would be on the dock landing the cargo

In the case of export cargo the latter four men would hook up the cargo

In addition to the above stevedoring crew of 19 men there is a checker

with each gang He tallies the cargo both off or on the ship If necessary

there is also a sorter who sorts the cargo by the various bills of lading

Also there is a hatch foreman in charge of the longshore gang unit or

crew All of these men are employees of the stevedore such as Wilmington

Stevedores

In addition to the above 19 or so employees there are two crane opera

tors employed by Port or City of Wilmington No other Port or City

personnel are used in the stevedoring operation

The training period for Wilmington Stevedore s crane operators is about

14 working days These WS crane operators were trained by Port of Wil

mington crane operators This training was conducted on an idle container

28 F M C
32 FEDERAL MARITIME COMMISSION

I

ship WS considers that certain PW crane operators are better qualified

than others to train new crane operators

When not using PW container cranes Wilmington Stevedores has from

time to time rented land based cranes including crane operators from inde

pendent crane owners such as Active Crane entals Inc Robert Haw

thorne Inc and the Marvin Group Inc all located in Wilmington Del

or Philadelphia Pa Wilmington Stevedores also has rented a floating

rig from the M J Rudolph Corporation to discharge salt from a ship

The mailing address of Rudolph is Staten Island New York The floating

rig had to be towed to and from Wilmington

The president of Wilmington Stevedores stated that the Rental Agree

ment form provided by Active Crane Rentals Inc and the Equipment

Ticket Rental Agreement form provided by Robert Hawthorne Inc are

nothing other than acknowledgements of the number of hours worked and

time of rental of the cranes and their crews These rental agreements

and Equipment Ticket Rental Agreements are signed only by one party

that is the president of Wilmington Stevedores and he states that he

did not read and considers that he is not bound by the fine print on

these rental forms

The Active Crane Rentals form above states in the fine print in part

that the Active Crane Rentals Oessor agrees to supply the crane and

necessary personnel under the direct and sole supervision of the lessee

and that lessee agrees to hold lessor harmless for loss damage and expense

resulting from the operation of the crane either bodily injury or property

damage and agrees to defend lessor from all suits etc

The Hawthorne form provides similarly for indemnification of lessor

including that lessor s employees are under lessee s exclusive jurisdiction

supervision and control etc

The costs of rental of cranes with their operators as between the rental

of City cranes and cranes from independent companies are substantially

the same but no transportation costs are involved in the rental of City

cranes while some transportation costs for transporting the cranes to and

from the Port of Wilmington are involved or may be involved in the

rentals from independents

The President of WS has found from his experience that outside pri

vately owned cranes are of equal efficiency to the cranes of the Port

At times the outside ctanes ate more efficient than the Port s cranes

Inasmuch as in the opinion of the President of WS the privately owned

and operated cranes do not break down as much

In the typical case of loading or unloading of a

ship at the Port of

Wilmington the deckmen of the stevedore s crew are responsible for

giving operating signals to the City s crane operators The deckmen are

necessary because the crane operators often are unable to see into the

holds of the ships in which they are working The crane operators at

least at times are totally reliant on the instructions of the deokmen Even

I

28 FM C
WILMINGTON STEVEDORES INC V THE PORT OF 33

WILMINGTON DELAWARE

in some instances where a crane operator may be able to see the cargo

his vantage point is not as good as that of the deckman and the crane

operator must still rely on the deckman s instructions

The crane operator relies on and obeys the hand signal or other signal

given to him by the deckman In the ordinary operation the crane operator

becomes part of the total stevedore procedure usually functioning under

the direction and control of the stevedore

Before cargo operations begin on any ship it is the common practice

for the stevedore s president or other person in charge to meet with his

foremen that is with his ship superintendent hatch foreman and ship

foreman to discuss the upcoming stevedoring operation The foremen are

instructed on how to conduct the cargo operation Neither the crane opera

tors nor any other PW City employee is consulted on how to conduct

the loading or unloading operation

The crane operators at the Port of Wilmington assist the stevedore in

loading or unloading a ship in the manner decided by the stevedore The

stevedores provide the rigging which is used in the bundling of the cargo

and hooking it onto the crane Whether a City crane is supplied with

a bucket or a hook either of these is provided by the City

When a ship is being loaded or unloaded at the PW by Wilmington

Stevedores no one other than the employees of Wilmington Stevedores

gives any directions to the City s crane operators

The President of Wilmington Stevedores states that there have been occa

sions wben a City crane operator has refused to follow the signals of

the deckman employed by WS The one example given is that a deckman

may direct the Port crane operator to put a bucket in a certain place

but the crane operator will not do what he is directed Specific examples

or occasions were not supplied

The deckman s hand or other signals instruct the crane operator as

to the disposition of the cargo such as move it up or down left or

right or when to close the bucket and when the bucket or hook is in

position The crane operator decides which lever in the crane s cab he

will use to accomplish the instructions of the deckman The Port of Wil

mington s crane supervisor does not give the Port s crane operators instruc

tions as to specific cargoes being loaded or unloaded In other words

the PW supervisor does not interfere with the stevedore s operation

The Port of Wilmington periodically issues tariffs which set out the

terms under which the Port does business with Port users The Port lists

among other things the rates charged by the Port for its services and

certain indemnity and exculpatory provisions The Port first filed a tariff

with the Federal Maritime Commission in 1966 It contained indemnity

and exculpatory provisions substantially identical to the corresponding provi

sions in the current Port tariff

The Port has never offered a choice of crane rental rates in exchange

for the assumption or non assumption by stevedores such as Wilmington

28 F M C
34 FEDERAL MARITIME COMMISSION

l

Stevedores of the risks resulting from the enforcement of the indemnifica

tion and exculpatory clau es in the Port s tariff

Wilmington Stevedores has not been permitted to negotiate or bargain

with Port officials over the rates to be charged for the rental of the Port s

cranes

In fact the crane rental rates of the Port of Wilmington lJe set so

as to recover its direct costs and overhead and also to be oompetitive

with rates of the competitors of the Port of Wilmington such as the

rates of the Port of Gamden Port ofPhiladelphia and Port of Baltimore

Wharfage dockage and crane rental rates for the Ports of Wilmington

Camden Philadelphia and Baltimore are competitil e

The existence of the tariff exculpatory clauseis not a specific factor

considered by the PW in setting tariff rates However to the extent that

potential losses would be considered as overhead and to the extent that

the PW s

liability for a particular loss might be limited by the existence

of the exculpatory clause the exculpatory clause may then have an effect

on tariff rates ofthe PW

Crane rental sales as ofAugust 31 1984 at Wilmington were

Gantry Crane 165 or 185 per hour

Container Crane 425 per hour 325 per hout with hook 325

per hour with bucket

Crane rental rates at Camden were

Gantry Crane 161 per hour

Container Crane 432 per hour

Crane rental rates at Baltimore were

Gantry Crane 120 per hour

Container Crane 475 per hour

Crane rental rates at Philadelphia as of August 31 1984 were included

in the stevedoring rate

The indemnity and exculpatory tariff provisions in issue herein

are

Section II Paragraph 14 Responsibility for EquiJlnlent and LabQr

Neither the Port nor the City shall be liable for any dama es

resulting from the use of equipment lease9 or from activities

or omissions of any operator andor other labor furnished by

the Tel llina on a time basis All parties who lease any such

equipment aridor use such an operator andor other labor shall

indemnify the Terminal and the City against and shall save them

harmless from any and all liability for lossdamage expense

and cost resulting from the use of such equillment while so leased

andor from any act or omission on the part of such operator

andor other employee so furnished by the Terminal

I

1

1

2S P M C
WILMINGTON STEVEDORES INC V THE PORT OF 35

WILMINGTON DELAWARE

Section II Paragraph 17 Non Liability

Neither the Port nor the City shall be liable for loss or damage

to any merchandise in or upon or moving or being moved over

in through or under any wharf or other structure or property

owned controlled or operated by the Port resulting from any

cause whatsoever

GENERAL DISCUSSION

The Port s tariff in its so called indemnity provision Paragraph 14 pro

vides in part that neither the Port nor the City shall be liable for any

damages resulting from the use of equipment leased or from activities

or omissions of any operator andor other labor furnished by the Tenninal

on a time basis Emphasis supplied

It is a well established principle that persons such as the respondent

Port cannot by tariff provision relieve themselves of liability for their

own negligence

The question follows whether the Ports tariff provision above would

relieve the Port from its own negligence The Port interprets tariff Paragraph

14 as providing that the Port shall be held harmless from any liability

arising out of the operation of its cranes Complainant and Hearing Counsel

disagree

The respondent Port states that the fairness of its tariff provision can

be judged only under the circumstances under which the Port cranes are

leased

Respondent insists that Paragraph 14 does not relieve the Port of responsi

bility for its own negligence during operation of the cranes because any

stevedore who leases a crane assumes full control over the crane and

its operator during the operation of the crane under the borrowed servant

doctrine The complainant and Hearing Counsel dispute the contention that

the stevedore who leases a crane assumes full control over the crane and

its operator

The Port s cranes are rented by the hour with the rental including

both the cranes and their operators when the stevedore does not provide

operators As seen the stevedore provides the operators only for the con

tainer crane

Depending upon the factual situations certain Port tariff provisions pur

porting to make the user of cranes liable for damages have been found

lawful and unlawful

In Docket No 74 15 West Gulf Maritime Association v Port of Houston

Authority 22 F M C 420 1980 the Commission found that tariff items

involving the liability of users for the negligence of crane operators were

reasonable The Commission added at page 422 that monopolistic conditions

28 F M C
36 FEDERAL MARITIME COMMISSION

which were present in the towing industry at the time of Bisso 2 and

were crucial to the Court s decision are not present with respect to the

instant crane rental operations and that Port users can and do obtain crane

services other than from the ports

In the West Gulf case above at page 441 th facts were Generally

the tariffs provide that cranes rented from the ports will include a crane

operator paid by the port although the port will charge the user for the

operator s services that in engaging the operator and paying for his serv

ices the port acts as the agent for the user that when using the port s

crane the operator will be under the direction and control of the user

that the operator is considered the servant of the user that the port makes

no warranties regarding the competency of the operator and the user must

satisfy himself in this respect and that if the crane is negligently operated

under the control and direction of the user the user assumes full responsi

bility for the negligent operation including the operator s negligence

By contrast in Docket No 77 56 West Gulf Maritime Association v

The City of Galveston 22 F M C 101 1979 the Commission found that

an indemnification requirement in a terminal tariff which would relieve

a port from liability for its own negligence is an unreasonable practice

violative of section 17 of the Act

In the case decided in 1979 next above tariff item 981 provided in

effect briefly Indemnity each user shall indemnify and save harmless

the City of Galveston from all claims etc occurring in connection with

the use of any of the facilities of the Port of Galveston caused in whole

or in part by any such user

The Port pointed out that indemnification was required only where the

user was at least partially responsible for damage and not where the

Port was solely responsible It was contended by WGMA and Hearing

Counsel that the tariff item would require indemnification even when the

Port was primarily negligent in an accident and the user only slightly

at fault The Commission at page 103 stated that it is well established

that exculpatory clauses are invalid as a matter of law in common carrier

and public utility relationships

In the present proceeding paragraph 14 is far different from the tariff

provisions in the first cited 1980 West Gulf case above wherein among

other things it was provided that the cranes and their operators would

be under the direction and control of the users Nothing is said in the

present case paragraph 14 about direction and control of the cranes and

operators

Returning to the wording of Paragraph 14 in the case now at issue

the tariff provides that neither the Port nor the City would be liable for

any damages regardless of who caused or was responsible for the damages

2

Bisso Y lnland Waterways Corp 349 U S 85 1955

28 F M C
WILMINGTON STEVEDORES INC V THE PORT OF 37

WILMINGTON DELAWARE

While the Port of Wilmington assumes or contends that the tariff in

referring to cranes or equipment leased on a time hourly basis means

that the stevedore renting the crane has full control over the crane and

its operator the tariff in paragraph 14 does not so clearly state that the

user has full control Therefore tariff paragraph 14 is unjust unreasonable

and unlawful in violation of section 17 of the Act insofar as it would

relieve the Port or City for its own negligence

Of course another well established principle is that where a tariff is

vague or uncertain it must be construed against the maker of the tariff

in the present case against the PW

The second part of tariff item paragraph 14 provides that all parties

who lease equipment cranes and operators or other labor shall indemnify

the City from any and all liability for loss etc while so leased and

from any act or omission of the operator or other employee furnished

by City

Again the provision next above would relieve the Port and City from

its own negligence and is therefore unlawful in violation of section 17

of the Act

The so called exculpatory tariff provision paragraph 17 states that neither

the Port nor the City shall be liable for loss or damage to merchandise

in or upon moving over in through or under any structure or property

owned controlled or operated by the Port resulting from any cause whatso

ever Again for the reasons above this provision is unlawful insofar as

it would relieve the Port or City from its own negligence

Turning away from the tariff items and turning to the matter of who

actually controlled and directed the crane operators as an issue there is

the question of whether the actual practices at the Port of Wilmington

constituted a

l

borrowed servant situation II

As seen above once it has been concluded that the tariff provisions

in issue are on their face unreasonable it is unnecessary to go behind

the terms of the tariff to determine their lawfulness Nevertheless since

the parties have litigated the facts and law as to the borrowed servant

issue and as to other issues some discussion relative to these other issues

is deemed appropriate

As the complainant points out there is no quid pro quo to Wilmington

Stevedores and to any other users of the Port s cranes and operators

for such users assumption of the risk of loss or damage which may

result from the negligence of the Port or its employees in the operation

of the Port s cranes For instance there was no showing that the Port

was not required to have certain liability insurance because the liability

was clearly that of the Ports users

Concerning one borrowed servant matter the crane operators in issue

here not container crane operators were paid hired and fired by the

Port They were trained by the Port assigned to their particular jobs by

the Port and disciplined by the Port On the other hand these crane

28 F M C
38 FEDERAL MARITIME COMMISSION

operators depended upon and generally obeyed the signals given by employ

ees of the stevedore in unloading or loading a

ship

It is concluded that in anyone particular situation the Port s crane

operator may be acting for a time under the compleie direction and control

of a stevedore at the Port of Wilmington But the appropriate test in

establishing who has control over the crane operators is not who actually

exercised such control at the time but who had the ultimate authority

to exercise control over the crane operators Again we have to turn to

the tariff s provisions They do not state that the crane operators would

be under the exclusive control and direction of the stevedore Therefore

it follows that on any particular occasion the Port Supervisor or other

Port official would have the power to halt the actions of a crane operator

employed by the Port or otherwise to direct such crane operator s actions

And it does not matter whether or not the Port s officials exercised such

prerogatives as long as they retained them If the Port could not control

its crane operators on any and all occasions and if such crane operators

were deemed to be under the exclusive control of a stevedore then the

Port s tariff should have so provided but it did not

ULTIMATE CONCLUSIONS AND FINDINGS

It is ultimately concluded and found that the Port of Wilmington s tariff

provisions here in issue paragraph 14 and paragraph 17 are unjust and

unreasonable regulations per se relative to the receiving handling and

delivering of property in violation of section 17 of the Shipping Act

1916 as amended insofar as such tariff provisions are meant to relieve

the Port of Wilmington for its own negligence

No finding is here made or is intended to be made as to what party

or parties were negligent in connection with the accident which occurred

on or about September 27 1982 involving the motor vessel NORNED

THOR

S CHARLES E MORGAN

Administrative Law Judge

28 FM C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 9

BROES TRUCKING CO INC

v

HOLT CARGO SYSTEMS INC

NOTICE

August 9 1985

Notice is given that no appeal has been taken to the July 2 1985

dismissal of the complaint in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the dismissal has become administra

tively final

S BRUCE A DOMBROWSKI

Acting Secretary

28 F M C 39
FEDERAL MARITIME COMMISSION

DOCKET NO 85 9

BROES TRUCKING COMPANY INC

v

HOLT CARGO SYSTEMS INC

DISMISSAL OF COMPLAINT

Finalized August 9 1985

By motion received June 10 1985 the complainant and the respondent

move for an order dismissing the complaint and discontinuing further pro

ceedings herein based upon an attached stipulation and settlement agreement

dated June 3 1985

The stipulation and settlement agreement of the two parties herein pro

vides that the respondent make no further assessment of demurrage charges

against the complainant with respect to any marine terminal facilities oper

ated by respondent provided however that if the respondent publishes indi

vidually or jointly a lawful tariff provision specifically allowing the assess

ment of demurrage charges against motor carriers then such demurrage

charges may be assessed If such a tariff provision is filed with the Federal

Maritime Commission the respondent agrees to give 30 days prior written

notice of said filing to the complainant Respondent waives and rescinds

all prior assessments of demurrage charges against the complainant and

agrees not to attempt to collect such charges from complainant by excluding

complainant from respondent s terminal facilities or otherwise

The complainant agrees not to prosecute further its complaint and agrees

to its dismissal

In accordance with the general policy to approve settlements which are

fair and equitable and not contrary to the public interest the settlement

entered into by the parties is appeared and the subject complaint is dis

missed The proceeding is discontinued

S CHARLES E MORGAN

Adminisrrative Law Judge

40 28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 8

IN THE MATTER OF THE INDEPENDENT ACTION PROVISIONS

OF THE ATLANTIC AND GULF WEST COAST OF SOUTH

AMERICA CONFERENCE AGREEMENT

ORDER GRANTING PETITION FOR DECLARATORY ORDER

August 12 1985

This proceeding was initiated following the filing of a Petition for Declar

atory Order petition by the Atlantic and Gulf West Coast of South America

Conference Conference or Petitioner The Petitioner seeks a determination

by the Commission that the Conference agreement lawfully precludes a

member from taking independent action with respect to freight brokerage

or freight forwarder compensation Notice of the filing of the Petition

was published in the Federal Register 50 Fed Reg 11246 March 20

1985 Replies in support of the Petition were filed by the U S European

Carrier Associations USECA 2 and by the 8900 Lines and the U S

Atlantic GulfAustralia New Zealand Conference 8900 Lines et al Re

plies in opposition to the Petition were filed by the National Customs

Brokers and Forwarders Association of America Inc NCBFAA the San

Francisco Customs Brokers Freight Forwarders Association SFCBFFA

and J E Lowden Company Lowden

POSITIONS OF THE PARTIES

A The Petition and Replies in Support

The Petition states that the Conference relying on the advice of counsel

has concluded that a member does not have a

right of independent action

under the Conference agreement with respect to freight forwarder compensa

tion Nevertheless two Conference members have taken independent action

regarding freight forwarder compensation and the Conference has published

I

Lykes Bros Steamship Co Inc a member of the Conference did not join inthe Petition

2USECA is made up of North Europe U S Gulf Freight Association NEGFA Gulf European Freight As

sociation GEFA North Europe U S Atlantic Conference NEAC U S Atlantic North Europe Conference

ANEC and Pan Atlantic Carrier Trade Agreement PACl Lykes Bros Steamship Co Inc a member

of NEGFA GEFA and PACT did not participate in the USECA reply

3

The Petition seeks a declaratory order that the Conference agreement lawfully precludes independent ac

tion on both forwarder compensation and freight brokerage The Petition notes thai Often theterms broker

age and freight forwarder compensation are used interchangeably to describe the money paid by a carrier

for securing cargo for a vessel The Petition advances basically the same arguments with respect to both

freight brokerage and forwarder compensation The distinction between these types of payments is discussed

below at pp 1315

28 F M C 41
42 FEDERAL MARITIME COMMISSION

these actions in the Conference tariff The Conference seeks a declaratory

order to tenninate this controversy among its members and to remove

uncertainty with respect to future courses of conduct

The Petition argues that neither freight forwarder compensation nor freight

brokerage is a rate or service item within the meaning of the Shipping

Act of 1984 46 U S C app 1701 1720 the Act or the 1984 Act

The Petition points out that the Commission has distinguished freight broker

age and forwarder compensation from rate making by requiring separate

and distinct conference authority to collectively establish freight brokerage

and forwarder compensation The Petition maintains that although forwarder

compensation or freight brokerage may be an element in the rate making

process neither is in itself a rate Moreover the Petition contends that

neither forwarder compensation nor freight brokerage is a service item

within the meaning of the Act because such payments are made by a

carrier to an independent contractor i e the forwarder or broker The Peti

tion maintains that the term service item is intended to apply only

to a service provided by a carrier to a shipper or consignee The Petition

argues further that the specific reference to rate or service item in

section 5b 8 qualifies the right of independent action and reflects a

Congressional intent to exclude other items which may be required in

tariffs The mere fact that the level of forwarder compensation must be

filed in a tariff allegedly does not make such payments subject to the

mandatory independent action requirement if they are not otherwise a rate

or service item within the meaning of section 5b 8 The Petition notes

that the legislative history indicates that the purpose of section 5b 8

was to strike a balance between the interests of conferences and shippers

not between conferences and freight forwarders Finally the Petition argues

that because the Act provides for forwarder compensation only in the

export commerce of the United States an anomalous situation would

be created if conferences were mandated to provide for independent action

in the U S export trades but would be free to operate otherwise in the

U S import trade

The 8900 Lines et al support the position of the Petitioner They

llgue that the term rate or service item is intended to refer to the

rates or services offered by carriers to shippers It is sUIted that the use

of the term rate throughout the 1984 Act refers to costs charged by

a common carrier to a

shipper Similarly references to service in the

1984 Act are allegedly intended to mean service offered by a common

carrier to a shipper thereby exclUding forwarder compensation The 8900

Lines et aI contend that the independent action provision was initiated

4Sectlon 5b 8 of the Act 46 U S C app fi 1704 bX8states in relevant part that each conference

agreement must

provide that any member of the conference may take independent action on any rate orservice

item required to be filed in a tariff under section 8 a of this Act upon not more than 10 calendar

days notice to the conference

28 rM C
INDEPENDENT ACTION PROVISIONS OF THE ATLANTIC AND 43

GULF WEST COAST OF SOUTH AMERICA CONF

and sponsored by shippers in the legislative process and was intended

to benefit shippers not forwarders and brokers 5

Finally the 8900 Lines

et at argue that granting the Petition would further the policy of the

1984 Act of minimizing government intervention by allowing each con

ference to decide whether its members should have a

right of independent

action on forwarder compensation

USECA adopts the arguments advanced in the Petition and adds further

elaborations and contentions of its own Relying on references to the term

rate throughout the 1984 Act USECA argues that forwarder compensa

tion is not a rate within the meaning of section 5b 8 USECA states

that the Act and its legislative history carefully distinguish a rate from

forwarder compensation USECA argues further that the term service

item in section 5 b 8 refers to the transportation service performed by

a common carrier for a shipper and that the service provided by an ocean

freight forwarder to a common carrier is not included within the term

In addition to arguing that forwarder compensation is not a rate or

service item USECA contends that brokerage as distinguished from ocean

freight forwarder compensation is not required to be filed in a tariff

under section 8 a of the Act6 Furthermore all matters relating to the

level of freight forwarder compensation and the terms and conditions of

the payment thereof in connection with U S foreign import commerce

are allegedly excluded from section 5 b 8

B Replies In Opposition

NCBFAA contends that the Petition fails to meet the procedural require

ments for consideration of a declaratory order because I the Petition

fails to set forth a complete factual presentation 2 the Petitioner is not

seeking to remove uncertainty as to its own conduct which will allow

it to act without peril and 3 the Petition alleges violations of the Shipping

Act

NCBFAA takes the position that the mandatory right of independent

action applies to freight forwarder compensation NCBFAA argues that

The 8900 Lines et al in their Reply use the phrase forwarder compensation to refer to both

freight forwarder compensation and freight brokerage The 8900 Lines et al slale that it is clear

that the two tetms were considered ineIchangable by the Congress when it passed the Act In particular

section IOc 5 of the Act which literally refers to compensation to an ocean freight forwarder was de

scribed in the Conference Report as concerning the brokerage paid to ocean freight forwarders HR Rep

No 600 98th Cong 2d Sess 40 1984

6USECA notes that the Commission s

regulations carefully dislinguish between freight brokerage and

freight forwarder compensation USECA points out that neither the level of freight brokerage nor the terms

and conditions applicable to the payment of freight brokerage are required to be filed in a tariffunder section

8 a of the Act For this reason USECA concludes that frejght brokerage is completely outside the reach

of the independenl action provision of section 5 b 8 of the Act

7NCBFAA s

reply does not address the question of whether independent action applies to freight brokerage

as well Lowden similarly argues only that independent action applies to freight forwarder compensation

SFCBFFA on the other hand views independent action as applicable to both freight brokerage and freight

forwarder compensation

28 F M C
44 FEDERAL MARITIME COMMISSION

section 5b 8 cannot be construed to exclude forwarder compensation

as a rate or service item because to do so would remove the ability

of a member line to compete with other conference members or with

independent lines by taking independent action on compensation to for

warders s NCBFAA argues that to interpret the term service item to

mean a service provided by a carrier to a

shipper or consignee would

in effect amount to an amendment of the 1984 Act by an administrative

interpretation Further NCBFAA argues that granting the Petition would

expand conference antitrust immunity a matter which NCBFAA states

should be left to Congress Finally NCBFAAargues that the Petition

should be denied because the Conference and some of its member lines

have unlawfUlly effectuated an unfiled agreement

Lowden argues that section 5 b 8 providing for independent action

on any rate or service item required to be filed in a tariff and section

8 a 1 C

9

requiring common carrier tariffs to state the level of ocean

freight forwarder compensation taken together permit a member line to

take independent action on freight forwarder compensation

DISCUSSION

A Petition s Compliance with Procedural Requirements

A threshold procedural question raised is whether the Petition meets

the technical requirements of Rille 68 peclaratory Orders and Fee of

the Commission s Rules of Practice and Procedure 46 C F R 502 68

Rule 68 a 2 states that a petition for declaratory order shall include

a complete statement of the facts and grounds prompting the petition

NCBPAA argues that the Petition here fails to satisfy this requirement

because it does not name the two Conference members taking independent

action does not state why they have taken independent action and does

not specify the extent of the independent action 10

The facts presented in the Petition are sufficient to meet the requirement

of Rule 68 a 2 A petition for declaratory order must contain a sufficiently

complete statement of facts as are necessary to the resolution of the par

ticular controversy The absence of facts which are not relevant to the

resolution of the controversy does not render a petition defective Here

In opposing the Petition the San Francisco Customs Brokers Freight Forwarders Association states

In allowing indepondent action on this matter competition wjJJ be offereD and U S Exporters will

more easily be able to trade In thebttematlonal Market Pace sit I

Seelloo 8 a

I C 4jUS C pp 1707 iC require that tariff haIl

state the level of ocean freight forwarder compensation if any by a carrier orconference

IONCBFAA cites as support for its position a Commission order denyina an NCBFAA petition for declara

lOry order See Natfonal Customs Brokers and Forworthrs Assoclatlo petltion For Declaratory Order And

Other Relief Order Denying Petition 21 gR R 208 November 6 1981 Order Denying Petition The

NCBFAA petition however had sought a detennination that certa lnunnamed conferen es had unlaWfully

prohibited the payment of brokerage on bunker and currency surcharges and had otherwise violated the Ship

ping Act 1916 The NCBFAA petition had allo sought a cease and desist order ancI had requested the Com

mission to institute civil penalty proceedings Accordingly the Commission held that the requirements of Rule

68 had not been met The NCBFAA petition Is clearly distinguishable from the Petition now before theCom

mission

28 F M C
INDEPENDENT ACTION PROVISIONS OF THE ATLANTIC AND 45

GULF WEST COAST OF SOUTH AMERICA CONF

the identity of the Conference members taking independent action their

reasons for and the extent of such actions are not relevant to the issue

presented in the Petition That issue is primarily a question of law which

depends upon the construction of section 5b 8 of the Act for its resolution

The facts which NCBFAA states are missing are simply not necessary

to a determination of that issue

Rule 68b states that declaratory order procedures shall be invoked

solely for the purpose of obtaining declaratory rulings which will allow

persons to Act without peril upon their own view NCBFAA argues

that the Petition does not meet this requirement because it is the two

member lines taking independent action and not the Conference that are

allegedly acting at their peril According to NCBFAA the Petitioner i e

the Conference does not allege that it is acting at its own peril and

therefore is not a proper petitioner

NCBFAA s position is without merit The Petition states that it seeks

a declaratory order to terminate a controversy among its members

and to remove uncertainty with respect to future courses of conduct

It is clear from the facts of the Petition that a

controversy does exist

among the members If the Conference s

interpretation of the 1984 Act

is incorrect then it would be acting contrary to the Act by prohibiting

members from taking independent action on forwarder compensation On

the other hand if the position of the two member lines is incorrect then

those members taking independent action would be acting contrary to the

Act and in violation of their agreement Clarification of this controversy

will allow both the Conference and its members to act without peril The

Petition therefore meets the requirement of Rule 68b on this point

Finally with regard to the question of alleged statutory violations Rule

68 b states further that

Controversies involving an allegation of violation by another

person of statutes administered by the Commission for which

coercive rulings such as payment of reparation or cease and desist

orders are sought are not proper subjects of petitions under this

section II

NCBFAA argues that the Petition runs afoul of this requirement by alleging

a violation of the 1984 Act The asserted violation is the fact that two

members of the Conference have taken independent action on forwarder

compensation

NCBFAA s argument misconstrues this requirement of Rule 68 b Rule

68 b declares that controversies which allege a violation of Commission

administered statutes and which seek a coercive ruling are not a proper

subject of a petition for declaratory order Most if not all petitions for

declaratory order by their very nature concern potential violations of law

In fact as noted above a potential legal peril must be demonstrated before

the Commission will under its Rules even entertain a petition for declara

28 F M C
46 FEDERAL MARITIME COMMISSION

tory order Only those petitions which in addition seek coercive rulings

are improper

The Petition in this proceeding sets forth the controversy between the

Conference and the two member taking independent action Inasmuch as

both sides in thisc controversy cannot simultaneously be correct one of

these positions may be determined to be incoll8istent c with the Act But

such a circumstance is inherent in a request for a declaratory ruling Other

wise the Conference would not be acting with

c peril The critical point

is that this Petition does not seek a coercive ruling such as the payment

of reparation or a cease and desist order The Petition therefore complies

with this requirement of Rule 68b

Accordingly the Commission concludes that the Petition is not proce

durally deficient as a1eged by NCBFAA and otherwise meets the require

ments of Rule 68 governing declaratory orders The Petition therefore

may appropriately be considered on its merits

B Independent Action and Forwarder Compensation

The Petition asks that the Commission issue declaratory rulin8 that

The basic agreement of the Atlantic and Gulf West Coast of

South America Conference FMC Agr No 202 002744 as amend

ed precludes a member from taking independent action with re

spect to either freight brokerage or freight forwarder compensa

tIOn

At the time of the filing of the Petition the independent action provision

in the Conference agreement was that which had been adopted by the

Conference pursuant to the Commission s amended interim agreements

rule ll The language of the Conference s original independent action provi

sion essentially restated the language of section 5b 8 of the Act Subse

quent to the filing of the Petition the Conference filed an amendment

to the Conference agreement which among other things substituted a new

independent action article for that which had been previously adopted 2

IiOn June 12 1984 the Commission issued an amendment to the interim agreements rule implementina

die 1984 Act which anums other thin1QWred conference to adopt a mandatOry provision providl118 for

independent action See Rules Governing Areoments By Ocean CommonClUTiers dOther Persons Subject

To The Sltlpplng Act of 9S4 46 C FR f5n SOI e I 49 Fed Res 24697 lune 1 19M ThI mood

tOry provision provided in relevant pare that

0

Independent Action 1 Any party to this IIpeement may take independent action on any rate

orservice item required to be filed in a tariff pursuant 10 aectl n 8a of the Shippina Act of 1984

46 US C app 1707 a

upon 10 or such lesser period as tho coftferonce may eJcclJ calendar days

notice to the conference

IlTJte IllMndment to the Conference I mment was filed PURU4nt to the Commission s

fmal rule gov

erning agreemenla Issued on November 15 1984 The final rule provided thai confelencos could develop their

own independent action provisions in accordance wllh Commission tlgulations See Rules Governing Agree

mellls By Ocean Common Carriers And OtherPeraons Subject To The ShiPWng Act of 1984 46 CP R

ff572103 Q 572 502 4

49 Fed Res 45320 November 15 19S4 PeUUoner amendment to i gree

ment was rued on February 11 1985 and became effective on March 28 1985 The lexl of Pelitloner s cur

rently effective independent action article as relevant to this Petition states

28 F M C
INDEPENDENT ACTION PROVISIONS OF THE ATLANTIC AND 47

GULF WEST COAST OF SOUTH AMERICA CONF

Although the Petition seeks a

ruling only with regard to the independenI

action article in its amended agreement the fundamental issue raised by

the Petition concerns the proper construction of section 5b 8 of the

Act The issue raised therefore is one of general concern to all conference

agreements

In addressing the Petition on its merits it is necessary at the outset

to distinguish between freight forwarder compensation and freight brokerage

The Shipping Act of 1984 defines an ocean freight forwarder as a

person in the United States that

A dispatches shipments from the United States via common

carriers and books or otherwise arranges space for those shipments

on behalf of shippers and

B processes the documentation or performs related activities inci

dent to those shipments

46 D S C app 17029 Although the Act does not define freight

forwarder compensation the Commission s

regulations indicate that such

compensation means payment by a common carrier to a freight forwarder

who has

I Engaged booked secured reserved or contracted directly

with the carrier or its agent for space aboard a vessel or confirmed

the availability of that space and

2 Prepared and processed the ocean bill of lading dock receipt

or other similar document with respect to shipment

46 C F R 51O 2 f 51O 23 c

A freight broker on the other hand is distinct from an ocean freight

forwarder The 1984 Act does not define a freight broker However the

Commission s

regulations define an ocean freight broker as

an entity which is engaged by a carrier to secure cargo for

such carrier andor to sell or offer for sale ocean transportation

services and which holds itself out to the public as one who

negotiates between shipper or consignee and carrier for the pur

chase sale conditions and terms of transportation

46 CF R 51O 2 m The regulations further define the term brokerage

as payment by common carrier to an ocean freight broker for the perform

ance of services specified in section 51O 2 m The Act together with

the Commission s regulations make clear that ocean freight forwarder

ARTICLE 13 INDEPENDENT ACTION

a Each Member shall have the right to lake independent action with respect to any rate or service

item authorized by Ihis Conference and required to be published in any tariff of the Conference

under 8 of the Shipping Act of 1984 Any such Member may take independent action effective

not earlier than len 10 calendar days following notification in writing or by telex to the Con

ference Chairman specifying in detail that Member s action

28 F M C
48 FEDERAL MARITIME COMMISSION

compensation and freight brokerage are different kinds of payments

for different services

Both the 1984 Act and the Commission s regulations require that tariffs

state the level of ocean freight forwarder compensation if any paid by

a carrier or conference 46 V S C app l707 a I C 46 C F R

580 d 9 However neither the Act nor the regulations contain any

requirement that freight brokerage be included in a tariff Because freight

brokerage is not required to be filed in a tariff 13 the independent action

provision of section 5 b 8 does not apply l4 Inasmuch as freight brokerage

is simply not addressed under the 1984 Act there is nothing which would

preclude a conference from allowing or prohibiting independent action with

regard to the payment of freight brokerage

The paramount issue raised by the Petition is whether freight forwarder

compensation is a rate or service item within the meaning of section

5b 8 of the Act We interpret the term rate or service items as

a single concept which embraces two integrally related activities namely

the rates established or the transportation services provided by a common

carrier to a shipper Freight forwarder compensation on the other hand

is the payment of a fee by a carrier to an independent contractor for

forwarding services rendered by that independent contractor to the carrier

Freight forwarder compensation therefore is not a rate or service item

within the meaning of the Act This conclusion is supported by an analysis

of the language of the Act and its legislative history

The 1984 Act does not define the term rate The Act however

does define the term through rate as the single amount charged

by a common carrier in connection with through transportation 46 V S C

app 1702 25 This definition of through rate supports the view that

a rate is the charge levied by an ocean common carrier for the transportation

service which it provides to a shipper

Other references to the term rate in the 1984 Act further support

the conclusion that a rate is a charge to a shipper by a carrier for the

carrier s services For example section 8 d 46 VS C app 1707 d

13 Section 8 a

1 46 U S C app 1707 aXlstates that

Except with regard to bulk cargo forest product recycled mClalscrap waste paper and paper

waste each common carrier and conference shall file with the Commission and keep open to public

inspection tariffs showing aU its rlltes charges classIfications rules and practices between all

points or pons on its own route and on any through tranSportation route that has been established

However common carriers shalJ not be required to state separately or otherwise reveal in tariff fil

ings the Inland divisions of a through rate

14 It wQula appear that the reference in the Conference Report cited by the 8900 Lines et ai to broker

age paid to ocean freight forwarders is merely a casual use of the word and is not intendtd as a tenn

of art See footnote 5

I

Payment of forwarder compensation is analogous to the payment of fee by a carrier to a consolidator

for its services to the carrier In Cancellation Consolldatton Allowance Rule 20 F M C 858 865 866

1978 the Comml sion distinguished between such payments to consolidators and the rates charged to a

shipper as follows More accurately tbest allowances represem alee whose payment the carriers have joint

ly detennined to be acceptable in return for a service performed by the consolidator There is a critical dif

ference between such a payment of compensation to theconsolidatOr for service provided and a rate orcharge

assessed shipperfconsignee for the carriage of cargo

28 F M C
INDEPENDENT ACTION PROVISIONS OF THE ATLANTIC AND 49

GULF WEST COAST OF SOUTH AMERICA CONF

speaks of increases or decreases in rates as changes in the cost to the

shipper Similarly the reference to time volume rates in section 8 b 46

V S C app @ 1707 b refers to rates charged by a carrier to a shipper

These and numerous other references to the term rate throughout the

1984 Act taken in context suggest that a rate is the price for which

a common carrier sells its transportation service to shipper 6 Forwarder

compensation on the other hand is the amount which a common carrier

pays to a forwarder for the forwarder s services The two activities are

clearly distinguishable

In addition section 8 a the tariff filing provision itself distinguishes

between a rate and freight forwarder compensation Section 8 a I

requires that each common carrier and conference shall file tariffs

showing all its rates charges classifications rules and practices

A separate provision of section 8 a namely section 8 a I C requires

further that tariffs shall state the level of ocean freight forwarder

compensation if any by a carrier or conference Ifforwarder com

pensation were a rate within the meaning of the Act it would already

be covered by section 8 a 1 and there would have been no need for

section 8 a 1 C requiring that tariffs state the level of forwarder com

pensation

Nowhere in the 1984 Act or its legislative history is there any indication

that forwarder compensation is a rate within the meaning of the Act

generally or section 5b 8 in particular On the other hand the definition

of through rate other references to the term rate and the separate

provisions for filing rates and stating levels of forwarder compensation

all indicate that forwarder compensation is not a rate within the meaning

of section 5 b 8

This interpretation of the 1984 Act and its legislative history is further

supported by the historical developmem of the requirement that levels of

forwarder compensation be stated in a tariff Prior to the 1984 Act there

was no statutory requirement that levels of forwarder compensation be

stated in a tariff However in 1966 pursuant to its authority under section

44 c of the Shipping Act 1916 to prescribe rules governing freight for

warders the Commission issued regulations which for the first time re

quired that levels of forwarder compensation be stated in a tariff See

Docket No 6631 Part 510 Licensing of Independent Ocean Freight For

warders 131 Fed Reg 13650 October 22 1966 the 1966 Amendment

In issuing the 1966 Amendment the Commission acknowledged that the

level of forwarder compensation may affect a carrier s rates The Commis

sion did not however regard forwarder compensation as itself a rate because

it expressly stated that forwarder compensation would not be subject to

the 3D day notice period for any new or initial rate d at 31 Fed Reg

16See e

g

the following references to the tenn rate or rates certain rate section 3 21 rate

schedule section 3 21 yolume rate section 3 25 and 26 etc

28 F M C
50 FEDERAL MARITIME COMMISSION

1365013651 Forwarder compensation was viewed as a distinct fonn of

payment and as such not a rate subject to statutory notice requirements

The 1984 Act simply codifies the previous rule requirement that levels

of forwarder compensation be published in a tariff The mere fact that

the level of forwarder compensation must be published in a tariff does

not make it a rate within the meaning of section 5 b 8 of the Act

Finally it should be noted that past Commission deoisions distinguish

between the general authority of a conference to fix rates and the specific

authority to collectively establish the level of forwarder compensation The

Commission has held that the authority to fix the level of forwarder com

pensation or freight brokerage is not interstitial to a conference s basic

ratemaking authority and that a separate express statement of authority

to do so is required 7 This distinction in kinds of agreement authority

recognizes that forwarder compensation as well as freight brokerage is

not a rate within the meaning of the Act

The same reasoning as applies to the consideration of whether forwarder

compensation is a rate item leads to the conolusion that forwarder com

pensation is not a servioe item within the meaning of section 5b 8

Although the Act does not defme the term service item it doesdefme

the term Hservice contractU as

a contract between a

shipper and an ocean carrier or conference

in which the shipper makes a commitment to provide a certain

minimum quantity of cargo over a fixed time period and the

ocean common carrier commits to a certain rate or rate schedule

as wen as a defined service level suchas assured space transit

time port rotation or similar service features the contract may

also specify provisions in the event of nonperformance on the

part of either party

46 U S C app 1702 21 The service features referred to in this defini

tion represent service commitments by a carrier to a shipper These include

items such as assured space transit time and port rotation An of these

items are elements of the transportation service which a carrier provides

to a

shipper The definition of service contract therefore supports the

proposItion that the reference to service in section Sb 8 is intended

to mean the transponation service provided by a carrier to a

shipper IS

Adqitional support for the view that service Item referred to in section

5b 8 is intended to be to service provided by a carrier to a shipper

may be found in the origin and purpose of the independent action proviSion

17 See U S Pac tlc CoastlAustrdla New Zealand South Sea IsIQnds Tr MJ1Proved qreem4ntJ 13

F M C 139 143 0969 mVOItlsation PraclicOI Etc N Allantlc R Trade 10 FM C 98 109 1966

Practices and A eemlnls o Common Carrie 7 P M C 51 1962

18This view is also consistent with the use of the term service in prior Commiuion decisions For ex

ample Commission Clues involving independent action on intennodal rate have determIned thu a through

rate incorporatina an inland movement by truck is ad1ltJncI servke from a throuJh rate which incor

porates an inland movement by rail

2S FM C
INDEPENDENT ACTION PROVISIONS OF THE A1LANTlC AND 51

GULF WEST COAST OF SOUTH AMERICA CONF

of the 1984 ACt 19 The mandatory independent action provision was one

of the features of the Act that originated in the shipper community More

over the legislative history indicates that independent action was intended

to balance the interests of carriers and shippers 2o The statutory requirement

for independent action was intended to function as a pro competitive meas

ure which would counterbalance the enhanced economic power of con

ferences in their dealings with shippers 21 From this it appears that the

mandatory right of independent action was intended to apply only to carrier

service offerings to shippers 22 Moreover there is nothing in the legislative

history of the 1984 Act which would support the proposition that ocean

freight forwarders were intended beneficiaries of the mandatory independent

action provision

The fact that section 8 a lC requires that the level of forwarder com

pensation be stated in a tariff does not make forwarder compensation

a service item to which the mandatory right of independent action ap

plies as argued by the opponents of the Petition The apparent assumption

in that argument is that everything required to be filed in a tariff is

also required to be subject to independent action As noted by Petitioner

however such a principle could lead to absurd results which were never

intended by Congress More significantly this argument does not directly

address the question of whether forwarder compensation is a service item

within the meaning of section 5b 8

The various other arguments advanced in opposition to the Petition do

not present any barrier to granting the requested ruling Excluding forwarder

compensation from the ambit of section 5 b 8 does not as argued by

NCBFAA amount to an amendment of the statute Rather it is a reasonable

interpretation of the meaning of section 5 b 8 in light of the overall

purposes and objectives of the 1984 Act and its legislative history

Nor is such an interpretation contrary to Congressional intent to promote

competition by enabling conference members to compete with non con

ference members with regard to forwarder compensation as argued by

NCBFAA Other than a general statement from the legislative history that

the Act is intended to retain competitiveness NCBFAA offers nothing

from the legislative history which would support the notion that Congress

19 Review of the origin and purpose of the independent action provision also supports the proposition that

forwarder compensation is nol rate item under seclion 5 b 8

oSee S Rep No 983 98th Cong Ist Sess 14 l983 A compromise agreement was reached by

aU U S flag carriers and major shipper representatives 10 seek clarifying modifications to several sections

of S 1593 principally regarding independent action loyalty contracts and service contracts

21 See HR 98600 98th Cong 2nd Sess 34 1984 Forwarders on the other hand were protected from

the collective exercise of economic power by section lO c 5 of the Act 46 V S C app l109 c S which

plohibits a conference orgroup of common carriers from denying forwarder compensation orlimiting it to

less than areasonable amount

22See the remarks of Rep Fish 130 Congo Rec H l293 daily ed March 6 1984

Independent action is the right of a conference carrier to charge adifferent rate or institute a

differenl service practice than that of the rest of the conference This universal right of independent

action is a major step forward protecting the options of individual carriers and shippers alike

28 F M C
52 FEDERAL MARITIME COMMISSION

intended that conference members should compete on forwarder compensa

tion In addition the legislative history reflects a clear Congressional intent

to strengthen conferences by allowing conferences a greater degree of com

mercial freedom

Nor can the general principle that antitrust exemptions are to be narrowly

construed be applied here as suggested by NCBFM to defeat the Petition

Finally there is no evidence to support NCBFAA s allegation that the

Conference and some of its member lines have unlawfully effectuated an

unfiled agreement to attempt to block two member line from acting inde

pendently on forwarder compensation

CONCLUSION

We conclude therefore that neither brokerage nor freight forwarder com

pensation the terms and conditions for the payment thereof or the services

provided in connection therewith is a rate or service item within the

meaning of section 5b 8 The Act therefore doe not provide for manda

tory right of independent action with regard to forwarder compensation

or freight brokerage 23 Accordingly the independent action provision in

Petitioner s amended agreement is lawful under the Act

THEREFORE IT IS ORDERED That the Petition for Declaratory Order

of the Atlantic and OulflWest Coast of South America Conference Agree

ment is granted as indicated in this Order

By the Commission

S BRUCE A DOMBROWKI

Acting Secretary

13Whether independent action would be allowed on forwarder compensation would be a matter to be de

cided by UlCl individual conference A conference could preclude independent action on forwarder compen a

don orit could voluntarily permit independent acUon on forwarder compensation subjt Ct of course to an

appropriate flUng of agreement authority under section 5 46 US C app fi 174

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 821

CALIFORNIA CARTAGE COMPANY INC

v

PACIFIC MARTTIME ASSOCIATION

DOCKET NO 8210

CONTAINERFREIGHT TERMINALS COMPANY ET AL

v

PACIFIC MARITIME ASSOCIATION

ORDER OF DISMISSALt

August I5 1985

Complainants California Cartage Co Inc et a12Cal Cartage have

filed a Motion Addressed to the Comrission for the Entry of Final Order

Motion to which Respondent Pacific Maritime Association PMA and

Intervenor International Longshoremen s

Wazehousemen sUnion ILNU

have filed a Reply The Moion seeks dismissal of the proceeding to allow

Cal Cartage to appeal the Commission sprior determination that the Ship

ping Act of 1984 1984 Ac 46 USC app 170120 applies to

this case and precludes all but a limited reparation remedy to Complainants

BACKGROUND

The complaints in these proceedings alleged that an assessment agreement

to fund ILWU members fringe benefits Agreement No LM81Agreement

or LM81filed with the Commission by PMA on September 29 1981

violates the substantive standards of the Maritime Labor Agreements Act

MLAA 94 Stat 1021 formerly codified in section 15 fifth paragraph

of the Shipping Act 1916 1916 Act 46USCapp 814 Administrative

Law Iudge Joseph N Ingolia Presiding Officer issued an Initial Decision

on October 26 1982 which held that LM8l was not an assessment

tTo provide the ponies with a single document intended to operate both as a rcviewabk final order and

ukimate disposition hereinthe Commission will incorporate the reasoning of iu May 23 1985 Order Deny

ing Mdion to Dismiss aM Remanding Procmding and also set forth the authority relied upon or dismissal

of the proceeding 27FMC871

aCal Cartage is the Complainant in Docke No 821Complainams in locket No 8210 are

Containerfreight Terminals Company and Hawaiian Pacific Freight Forwarding

28FMC

53
4 FEDERAL MARITIME COMMISSION

agreement as defined in he MLAA and dismissed the proceeding for

lack of jurisdiction California Cartage Co et al v Pacific Maritime

Assoc 21 SR 1333 1982 Exceptions to the Initial Decision were

filed by all parties to the proceeding

On exceptions the Commission reversed the Presiding Officer sfinding

of lack of jurisdiction holding that LM81in conjunction with a prior

agreement met the jurisdictional requirments of the MLAA However the

Commission further found that Complainants lacked standing to file a com

plaint under the MLAA because they paid no ssessments under the Agree

ment and generally were not within the protected zone of interests

The Commission accordingly dismissed the complaints California Cartage

Co et al vPacific MaritimeAssoc 25 FMC96 1983

On Petition for Review the US Court of Appeals for the 9th Circuit

reversed the Commission sdecision and remanded the case for further

proceedings California Cartage Co v US721F2d 1199 9th Cir 1983

cert denied 105SCt 110 1984 The Court held that Complainants

had standing io file a complaint under the any person standard of

section 22 of the 1916 Act dand that this standing had not been abrogated

by the MLAA The Court also found that Complainants could challenge

LM81 under the detriment to commerce standard contained in the

MLAA

Shortly after the Court sdecision was issued the 1984 Act was enacted

That Act included several amendments to the MLAA provisions As relevant

here the 1984 Act deleted the detriment to commerce standard applicable

to assessment agreements and made the MLAA remedies and regulatory

standards exclusive in MLAA complaint proceedings These developments

prompted PMA and ILWU to seek dismissal of the remanded proceeding

The Commission denied he PMA ILWU Motion to Dismiss on the basis

that although the 1984 Act prospectively extinguished Complainants stand

ing and cause of action under the MLAA it would not be applied retro

actively so as odeprive them of an available remedy for unlawful injuries

sustained prior to the effective date of the 1984 Act The proceeding

a Complainants are oEC dock container rcight stations which do trot utilize ILWU labor for mntainu hao

dung As such they are not subject o azsessmenis under the Agreement Similarly they are not shippers

carriers or pons the entities specifically mentioned N setoon 15 fifth paragraph of the 1916 Act After

reviewing the 1916 Att and its legislative history the Commission determined that Congress did not intend

chat negotiated labor agrcemem subject eo the M1AAbe challengabl by persons N the position of com

plainants solely because of its mmpe rtiveeffects

a

Section 22 46 USCapp 821 provides in pertinent pan

Any person may fde with the Federal Maritime Commission a sworn complaint setting forth

any violation of this Act

s See section 3dof the 1984 Act 46 4 Capp 1704 dat footnote 6 infra N opposition m a

subsegoerd PMA nwUPetition for aWril of Certiorari the Solicitor General tested the changes N the law

and argued to the Supreme Court thatbecause Congress haz effectively overruled the coon of appeals

prospettively the questions presented here are unlikely to arise N the future Memorandlun f0 the

United States in Opposition at 4lnrermtionaf Longshoremen sand Warchouremeni Ureion et al v United

Slates ofAmerica No 81960 US1983 October Term The Petition for aWrit of Certiorari waz denied

1055 SCt 110

2S FMC
CALIFORNIA CARTAGE COMPANY INC V PACIFIC MARITIME SS

ASSOCIATION

was remanded to the Presiding Officer under an expedited briefing and

decision schedule to determine whether a detriment to commerce has been

shown on the record and whether Cal Cartage is entitled o reparations

Order Denying Motion to Dismiss and Remanding Proceeding issued May

23 1985 May Order

DISCUSSION

In its present Motion requesting issuance of a final order Cal Cartage

points out that the Commission sMay Order essentially granted PMA

ILWU sMotion to Dismiss in all respects except for potential reparations

from the date of filing of Agreement No LM81to June 18 1984 Cal

Cartage notes that the Commission recognized only this limited remedy

under he 1916 Act with respect to injuries suffered by Cal Cartage as

a result of any detriment to commerce caused by LM81all other remedies

have purportedly been denied Cal Cartage advises however that it has

aready waived its right to reparations in this case and continues to do

so It therefore now seeks to obtain a final dismissal of the proceeding

by the Commission with the expressed intention of appealing the Commis

sion May Order addressing the effects of the 1984 Act on this case

PMA ILWU in their Reply basically agree that Cal Caztage has already

waived its rights to reparations in this proceeding and that the proceeding

should be terminated However PMA ILWU contend that no remedies aze

Left available to Cal Cartage

The Commission remains of the opinion that the 1984 Act and its legisla

tive history mandate a finding in this proceeding that Complainants have

neither standing nor a cause of action to pursue in these proceedings

under the 1984 Act The devment to commerce standard is not included

in section 5d of the 1984 Actb and the any person standing provision

of section 11aof that Act is not applicable o assessment agreement

cases Accordingly both the basis of standing and the substantive cause

aSation 5dof the 1984 Act 46USCapp 1704 dprovides

dASSESSMENT AGREEh1ENTS Assessment agreements shall be filed with the Commis

sion and become effective on filing The Commission shall thereafter upon complain filed within

Z years of the date of the agrcemenq disapprove caxel or modify any such agmemenq or charge

or assessment pursuant thercw thaz it fords abet notice and hearing to be unjustly disttiminatory

orunfair as between cariers shippers or ports The Commission shall issue its fora decision N

any such proceeding within 1 year of the date of filing of the complaint To Ne extent that an

assessment m charge B found Nthe proceeding to be unjustly discriminatory orunfa as between

carriers shippers w

ports the Commission shall remedy the unjust discriminazion orunfairness for

the period of time between the filing of the complaint and the fora decision by means oassessment

adjustments These adjustments shall bimplemented by pmspectiv credits or debits to future u

sessments or charges except in the eau of a complaint who has ceased activities subjrn to the

assessment or charge m which case rcpazation may be awaNed Ecce ror Ihk su6rection and

section 7aof rhu Act this Act the ShiPPing Ac4 1916 and the fntercoand Shiyping Att 1933

do wtatYro acsersmenr ogreementt emphasis added

rSaion 11aof the 1984 Att 46 USCapp 1710 aprovides

Any person may file with the Commission a

sworn complaint alleging s violation of this Act

abet than section 6gand may seek reparation for any injury caused to the wmplainam by that

violation

28FMC
56 FEDERAL MARITIME COMMISSION

of action found available to Complainants by the Court of Appeals have

been removed by the 1984 Act The timing of this change and the legislative

history of the 1984 Ac a indicate an intention o overrule the Court s

decision at least as it operates prospectively

The savings provisions of section 20eAof the 1984 Ac9have

previously been interpreted by the Commission as applying only to court

actions and not applying to pending administrative cases 10 To support

that interpretation the Commission cited HR Rep No 53 Part 1 98th

Cong 1st Sess 39 1983 That portion of the legislative history contains

the following discussion of the savings provisions

Subsection e contains two savings provisions One provides

that service contracts entered into before the date of enactment

may remain in full force and effect and aze given until 15 months

after enactment to comply with the requirements in this bill This

should permit sufficient time to meet all transitional requirements

The other savings provision is intended to preserve the rights

of parties to lawsuit that are filed before the date of enactment

Since section 7aof the bill makes the antitrust laws inappli

cable to any agreement modification or cancellation that was

approved by the Federal Maritime Commission under present law

there were some who thought this would adversely affect pending

lawsuits The intent of this savings provision is to permit such

suits to continue to conclusion as if the legislation were never

enacted emphasis added

This discussion addressed section 19eof HR 1878 the House version

of the 1984 Act In the Conference Report on S 47 the Senate accepted

the House version of the savings provisions enacted as section 20eof

the 1984 Act HR Rep No 600 supra at 44

There is additional support of the Commission sinterpretation of section

20econtained in its May 15 1984 Notice An earlier version of the

1984 Act S 1460 contained the following provision which was not carried

forwazd in any version of S 47 That provision stated

SeeHRRep No Ge 98th Cong 2d Sess 30 1984

Section 20eA46 USCapp 1719 e2AProvides

27Tu Act and he amendments made by it shall nd affect any suit Afiled before the date

of enxtmentothisAct

On May I5 1984 he Commission issued a Ndice m heFdera Register adv ing thaz proceedings

pending az the tune the 1984 Ad went into effect would be decided under the 1984 Act and not under the

1916 Att Application of Shipping Acf of 984 to Forma Procadings Pausing Before Federal Maritime

Commission 49 Fed Reg 21798 1984 May 15 Ndice 7Te May l5 Notice further stated that exception

to this policy would be conider dunder the general rule established m Bradley v Richmond Schaal Board

416 US 696 1984 Brad rystands for he proposition that azes arc to hdetermined according o the

law as it exists at hc time a fwl derision is usued unless manifest injusti to a

pony would result

In announcing the above policy the May 15 Notice stated

Section 20e

which applies osuits with respect to claims arising out of conduct engaged

in prior to the Act has no application to cases pending before the Commission HRRep

No 53 98th Cong 1st Sess 39 1983

28FMC
CALIFORNIA CARTAGE COMPANY INC V PACIFIC MARITIME S7

ASSOCIATION

Repeal of the laws set forth in subsection a of this section

shall not affect any rights and duties that matured penalties that

were incurred or proceedings that were commenced before the

date of enactment of thisAct

The use of the term suit in the 1984 Act as opposed to the term

proceeding in S 1460 supports the Commission sinterpretation of section

20eThis is further butVessed by the fact that the 1984 Act refers to

complaints and investigations brought under section I1 as proceedings

and not suits See Section 11 d and e of the 1984 Act 46 USC

app 1710 d and e

Finally the term suit as it is commonly understood in legal usage

encompasses

not al proceedings but only court actions Black sLaw

Dictionary defines suit as follows

Ageneric term of comprehensive signification referring to any

proceeding by one person or persons against another or others

in a court ofjustice in which the plaintiff pursues in such court

the remedy which the law affords him for the redress of an

injury or the enforcement of a right whether at law or in equity

emphasis added

Black sLaw Dictionary 1286 5th ed 1979 The case cited by Black s

in support of the definition Kohl vUS 91 US367 375 1875 cites

an eaziier opinion by Chief Justice Marshall Weston v Charleston 2 Pet

448 1829 wherein it was stated

If

a right is litigated in a court of justice the proceeding

by which the decision of the court is sought is a suit emphasis

added

Weston vCharleston 2 Pet at 464

Therefore the legislative history of he 1984 Act the use of the term

in the statute and its commonly understood plain meaning indicate that

the scope of the suits preserved by section 20eis limited to court

actions

Finally it should be noted that acceptance of Cal Cartage sinterpretation

of section 20e could lead to absurd results Unlike the 1916 Act the

1984 Act contains no detriment to commerce standard for assessment

agreements and the any person standing provision of section 11 was

made inapplicable to MLAA complaint cases As a result under the 1984

Act no assessment agreement can be challenged as detrimental to commerce

and no other MLAA complaint can be brought under the any person

standing provision Therefore if Cal Cartage sinterpretation is accepted

LM81would be the only assessment agreement subject to the old standard

and Cal Cartage the only party that could assert it This would in effect

result in a perpetuation of the 1916 Act assessment agreement standards

against PMA ILWU to the exclusive benefit of Ca Cartage We do not

28FMC
SS FEDERAL MARITIME COMMISSION

believe that Congress intended such a result Complainants standing and

statutory cause of action therefore appeazs to be extinguished under the

1984 Ac

The Bradley rule 1 does recognize an exception to the application of

the 1984 Act to pending administrative cases where dismissal of a

pro

ceeding would result in manifest injustice to Complainants One accepted

method of making this determination is to ascertain whether any right

or claim has matured or become vested under the 1916 Act that would

be retroactively taken away by application of the 1984 Act lz

Section IS of the 1916 Act contains two basic remedies available in

MLAA complaint cases disapproval or modification of the agreement and

assessment adjustments Neither of these remedies could now be afforded

Complainants here First if LM81 were now found to be detrimental

to commerce the Commission could not retroactively disapprove or modify

the Agreemen 13Additionally he Commission could no prospectively dis

approve or modify LM81because to do so would be to enter an order

of future effect that is inconsistent with current law at the time the order

is issued 14Therefore even if Complainants rights to have LM81dis

approved or modified had theoreflcally matured on the basis of the

record before the Commission under the 1916 Act supervening legal consid

erations preclude that remedy now

Second section 15 assessment adjustments were only available to remedy

unjust discrimination in assessment agreements not those found detrimental

to commerce lsTherefore because the Court of Appeals has already found

that Complainants could not advance such a cause ofaction t6no assessment

adjustment remedy vested or matured with respect to their complaint

However the Court sanalysis of the 1916 Act would appeaz to require

that the Commission also examine section 22 of the 1916 Act to determine

whether any potential right or remedy had accrued to Complainants that

was not inconsistent with section 15 of that Act 17 Section 15 contains

specific remedies for assessment agreements found to be unlawfully dis

criminatory which are inconsistent with and therefore displace the repara

Seetootrate 10 ruya

a

See Indiarwpo uPower CigN Co v

CC 687 F2d 1097th Cir 1982

a

Se Narionaf Atin of Regcling Musrrier Inc vAmerican Mail Linr Ltd 720 F2d618 620 9th

Cv 1983

Zijjrion vUB318 US 73 1943 see also SeaLard Srrvice nc vIC738 F2d 1311 1314

15 DCCir 1984 Centrd FreigN Lines8lnc vUS669 F2d 1063 1069 5th Cir 1982

Section 15 fifth paragraph of the 1916 Act provides in pertinent pan

7o the extent that any assessment orcharge u found in such a complaint proceeding to be un

justly discriminatory orunfav ubNween carriers shippers or ports the Commission slur remedy

the unjust duoiminarion orunJdrnerr for the period of time between the filing of the complaint

and the final decision by meaty of arressment adjusrmenrr emphasis added

California Cartage Co vUSsupra 721 F2d m 1205

In this ttmanded proceeding it is appropriatc that the rights and remedies available to Complainants

under the 1916 Act be determined according to the statutory conswcrion methodology utilized by the Court

of Appeals See Rios Pineda vUS Deyr of Justicer INS720 F2d 529 Hih Cir 1983 Ciry of

Cleveland Ohio v

FPC561 F2d 344 DCCv 1977

28FMC
CALIFORNIA CARTAGE COMPANY INC V PACffIC MARITIME 59

ASSOCIATION

ions of section 22 However the same cannot be said of reparations

for an unlawful detriment to commerce Section 15 does not prescribe

an express remedy for an assessment agreement found detrimental to com

merce Accordingly reparations may be held to be a viable remedy for

such unlawful agreements under the statutory scheme of the 1916 Act

in this narrow context

Finally he May Order held hat Complainants right to a decision

on the merits of their case and on their original request for reparations

had sufficiently matured or vested so as to preclude its dispossession

by application of the 1984 Act lg Although no decision on the merits

was issued before the 1984 Act was passed the record was complete

and but for a finding of no standing by the Commission such a decision

would have issued Depriving Complainants of a decision on the merits

and their potential reparations as a result of a threshold decision on their

standing to sue that has been overturned on appeal would appear to have

constituted manifest injustice An award of reparations for conduct that

occurred prior to the effective date of the 1984 Act would not affect

furore conduct nor carry forward provisions of the 1916 Act that are incon

sistent with the 1984 Ac

An argument which Cal Cartage advances in its Motion but which

was not specifically discussed in the May Order is that it may claim

reparations payable to Complainants customers which have paid assess

ments pursuant to LM81The Commission did not address this argument

in the May 23 Order because it was originally raised as part of Cal

Cartage s discrimination claim which the Court of Appeals rejected Cali

fornia Cartage Co v USsupra 721 F2d at 1205 To the extent this

argument would now have any validity it would appear to have to find

support in the Court sstatement that there is nothing in the statute which

restricts Cal Cartage sstanding to enforce the detriment to commerce

standard of the Maritime Labor Agreements Act MLAA Id19

It would appear therefore that Cal Cartage may now be arguing that

because it has standing to enforce the MLAA detriment to commerce

standazd it can obtain injunctive type relief against PMA to refund assess

ments to Cal Cartage customers as reparations 20 Complainants attempt

ie The Commission was aware of the potential waiver of reparations However it did no impwe a con

tinuing waver of reparations 7he intervening appeal and legislation combined wish the Commission simer

ests in affording Cal Cartage the fullest reach of remedies provided by law militated against a fmding of

a

continuing waiver

wOn this point the Court cited to Fentron Industries vNatiow SMpmen Pension Fund 674 F2d1300

1304 9th Cir 1982 which involved an employer charge that the actions of employee pension furM wstees

with respect to employee pension claims violated federal law Ihe court found thaz theempoyer had standing

to sue because it alleged injury m fact to ib employeremployee relations and that such relations were within

the statute i zone of interests even Uough employers were nd specifically provided a

right to sue under

thaz statute

ouCal Cartage also suggested tothe Court of Appeals that Congress intended to preserve Commission juris

digion to review assessment agreements as such undo sections 16 and 17 of the 1916 Act46 USCaDD

815 and 616 because of the provision m section 45 of the Act 46 USCapp 84l c added by the

Continued

28FMC
6O FEDERAL MARITTME COMMISSION

to expand their case is now rejectable as a matter of the law of the

case here because the Court of Appeals decision barred any discrimina

tion claim and limited Cal Cartage sstanding o its detriment o com

merce theory 21 Moreover under the circumstances any claim by Ca

Cartage for refunds to its customers constitutes the assertion of third

party rights condemned in Fisher v Tucson School District b25 F2d

834 837 9th Cir 1980 Fentron supra at 1304 The waiver of a

remedy for its own direct injuries would appear to divest Cal Cartage

of standing oclaim a remedy for injuries to third parties Id

Additionally because the MLAA does not provide for detriment to

commerce repazations Cal Cartage must necessarily be asserting this claim

as a remedy afforded by section 22 of the 1916 Act that was not repealed

or modified by section 15 of the 1916 Act in MLAA complaint cases

See California Cartage supra 721 F2d at 120522 If this be so then

it would appeaz that agency case law on standing to claim reparations

for third parties would also apply to such claim Although the question

has no previously arisen in MLAA cases the Commission has consistently

construed section 22 as not permitting parties who have not actually paid

contested charges to claim them as repazations in the absence of a valid

assignment of the claim from the paying party See eg

Sanrio Inc v

Maersk Line 19SR907 1979 and cases cited therein

It should also be noted that the award of repazations in any particular

case is a matter that lies within the discretionazy powers of the Commission

Consolo vFMC383 US607 1966 The record of this case is quite

clear Not a single party who actually paid the assessments required by

LM81has filed a complaint or voiced any support for the Cal Cartage

complaint in any manner Cal Cartage has advanced no equitable argument

in support of its claim on behalf of its customers other than its own

competitive interests The Commission has afforded it the opportunity to

obtain reparations for its own injuries which it has rejected Its claim

on behalf of its customers would therefore appear to lack both legal and

equitable merit

hII AAwNch states that the provision of thaz Att shall trot apply to maritime labor agreements except

to the extent Nat such provisions provide for the funding of collectively bargained fringe benefit obligations

on other than a Oviform man hour basishatargument is untenable The general language of cation

45 waz obviously conditioned by Ne spaific language of the fifth paragraph of section I5 which contained

the Commission soNy jurisdiction over assessment agreements The fifth paragraph omitted Ne authority

contained N the second paragraph of section IS and applicabb m the other section IS agreements to dis

approve assessment agreements if Ney arc contrary to any dher section of Ne 1916 ActThis treatment must

be contrasted wiN the Commission s

jurisdiction to review Ne implementation of agreements through rates

charges regulation or practices required to be set forth in a tariff which arc not exempt from

any

of the provision of this Act ti any event the legislative history of Ne 1984 Act crazes thazutiler

ezining aw and Ithe 1984 AcQ Ne remedies and regularory ruudardt applicable to assessment agreements

arc intended so x exclnive emphasis added HRRep No fAO 98th Cong 2d Sess 30 1984

atSee California Cmtage Co vUStupra 721 F2daz 1205 1206

as Cal Cartage control claim teunds to its customers as an assessment credit because Nat remedy u

also restricted to diuriminazion claims under the haAASee section 5dof Ne 1984 Act 46UBCapp

1704 dpreproduced atfootnote 6 rupra

28FMC
CALIFORNIA CARTAGE COMPANY INC V PACIFIC MARITIME 6L

ASSOCIATION

Accordingly because the only remedy held open to Cal Cartage by

the May Order was its right to repazations its unequivocal rejection of

this repazations remedy requires a dismissal of the proceeding

THEREFORE IT IS ORDERED That the Motion Addressed to the

Commission for the Entry of a Final Order filed by Complainants California

Cartage Company Inc et al is granted and

IT IS FURTHER ORDERED That the complaints filed in this proceeding

are dismissed and this proceeding is discontinued

By the Commission

BRUCE A DOMBROWSKI

Acting Secretary

28FMC
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1168

APPLICATION OF UNITED STATES LINES SA INC FOR THE

BENEFIT OF MILES LABORATORIES INC

ORDER

August 30 1985

The Commission determined to review the Initial Decision served on

March 20 1985 by Administrative Law Judge Seymour Glanzer Presiding

Officer In partially denying the application of United States Lines S A

Inc USL to make adjustments to certain freight charges pursuant to

section 8 e of the Shipping Act of 1984 46 U S C app 1707 e and

Rule 92 a of the Commission s Rules of Practice and Procedure 46 CFR

502 92 the Presiding Officer followed Application of Lykes Bros Steam

ship Co for the Benefit of Texas Turbo Jet Inc 24 F MC 408 1981

Texas Turbo Jet At the time the Initial Decision was issued the Commis

sion had voted in Special Dockets Nos 1220 and 1225 Application of

Hapag Lloyd AG for the Benefit of General Motors Corporation General

Motors to no longer impose on such applications involving intermodal

cargo movements the requirement first enunciated in Texas Turbo Jet that

the ocean carrier must prove that it actually provided the inland service

originally intended in strict accordance with the terms and conditions of

its tariffs However the General Motors vote was taken in closed session

and thus the Presiding Officer had no knowledge of it The Order effec

tuating the Commission s decision subsequently was served May 10 1985 1

BACKGROUND

USL seeks the Commission s permission to refund 22 520 of freight

charges it collected from Miles Laboratories Inc the consignee in connec

tion with one shipment of armato seed and to waive collection of 189 000

of freight charges in connection with another shipment of the same com

modity which is used for coloring cheddar cheese and butter

USL is a member of the South and East AfricaUSA Conference At

all times pertinent to this proceeding the Conference published a port

to port rate for armato seed from Mombasa Kenya to New York

On or about November 21 1983 USL and Miles Laboratories reached

an agreement on a special single factor intermodal rate for two shipments

of armato seed from Mombasa through New York to Madison Wisconsin

127 F M C 848 Commissioner Moakley dissented 27 F M C 855

62 28 F M C
APPLICATION OF UNITED STATES LINES SA INC FOR THE 63

BENEFIT OF MILES LABORATORIES INC

Miles Laboratories was responsible for payment of all freight charges USL

planned to carry the cargo via an independent intermodal tariff from ports

in South and East Africa to United States inland destination points that

it had taken over from Moore McCormack Lines This tariff included

a New York to Madison routing using rail movement from New York

to Chicago and then truck movement to Madison However due to the

confusion and personnel turnover caused by USL s acquisition of Moore

McCormack s service the agreed upon through rate was not published in

USL s intermodal tariff In addition USL s agent in Mombasa failed to

follow his instructions to apply an intermodal routing and rating to the

shipments on the bills of lading

The first shipment sailed from Mombasa on December 18 1983 Because

of the clerical errors described above it was rated as a port to port move

ment under the Conference tariff After transshipment at Durban South

Africa it arrived in New York on February 9 1984 USL personnel in

New York noted that the bills of lading indicated a port to port movement

and turned over responsibility for inland transportation to an agent of Miles

Laboratories The Agent engaged a motor carrier to transport the cargo

which totalled forty containers to Madison Miles Laboratories paid the

motor carrier 43 740 for this service

The second shipment started out much like the first but ended much

differently It sailed from Mombasa on January 24 1984 and after trans

shipment at Durban arrived in New York on or about March 3 It too

was rated and carried as a port to port movement under the Conference

tariff However by the time the shipment arrived in New York local

USL officials had become aware of the agreement negotiated with Miles

Laboratories in November 1983 and acted accordingly Instead of allowing

USL s responsibility to terminate at the port they arranged for the cargo

to be transported to Madison via Chicago by inland carriers named as

participants in USL s intermodal tariff USL then issued a corrected invoice

to Miles Laboratories for the previously negotiated freight charges which

Miles paid

With respect to the first shipment USL seeks to refund 22 520 to

Miles Laboratories According to USL s application this sum represents

the difference between the payment actually made by Miles to USL for

ocean freight and the ocean portion of the intermodal rate that Miles

originally had agreed to pay

2

In calculating this amount USL estimated

the inland portion of the agreed rate at 863 per container

2Although it is nol totally clear why USL requested authority 10 structure its refund in this manner the

carrier had been wamed by the Presiding Officer of the Texas Turbo Jet problem Thus USL may have

been trying to save ils application with regard to the first shipment by asking only for pennission 10 make

a refund on the all watermovement

28 F M C
64 FEDERAL MARITIME COMMISSION

I Payments made by Miles Laboratories

a

to USL for ocean freight

b for inland freight

Total transportation costs

2 a Transportation charges at agreed intermodal rate of

2 550 00 per container

b Less allocation for inland portion at rate of 863 00 per

container

c Intermodal ocean portion charges derived by subtracting

2 b from 2 a

3 a Ocean charges paid

b Less ocean portion of intermodal charges

90 000 00

43 740 00

133 740 00

102 000 00

34 520 00

67 480 00

90 000 00

67 480 00

Refund Request 22 520 00

With respect to the second shipment USL seeks to waive collection

of the difference between the agreed upon intermodal charges of 51 000

that Miles Laboratories has paid and the most nearly applicable intermodal

rate in effect at the time of shipment which was a much higher N O S

rate

DISCUSSION

The Presiding Officer found that USLs application met the statutory

requirements for approval under section 8 e of the Shipping Act of 1984

i e he found that the failure to publish the agreed upon rate was due

to inadvertent error by USL that USL filed a corrective tariff effective

February 1 1984 setting forth the intended rate that the application was

timely filed and that there was no indication that granting the appljcation

would result in discrimination among shippers ports or carriers Accord

ingly he granted the application insofar as the second shipment was con

cerned stating that USL provided the service in accordance with the

Intermodal Tariff 3

3USL waa able 10 meet part of its bar ain withMiles Laboratoriea by alumina relponaibllity for movlna

the nO shipment from New York to Madison only because tbec er happened IQ bave on file and

in effect al me dme of sblpment a enera11ntennodal tariff coverin the delired inland deitli lation and actu

ally moved the shipment via the inland carriers litmed in that tariff nIi fortunate circwnlte ne ptnnit

the carrier and lUpper to escape Texas Turbo Jet as wufint noted brApplication of Trons Frelgnt Lines

Inc for the Btneftl ofB NP Distributing Co Inc 22 S R R 475 1983 However as the Commission

discussed in GenitalMotors 21 F M C 852 the same potential forUl fairness and 8lbilrary regulation exists

in these circumstances as in Texas Turbo Jet For example USL had a eneral intennodal tariff in place

because it had taken over Moore McCormack s service IfUSL instOd had ent red the trade on Its own

It mi h1well have had no tlll iffat all coverinJ aNew York Madleon ittIand routina If1hat were the case

USL and Miles Labor8lorica would have found themselves In a

prcclle epllca of the TexQ9 TurboJet fact

pattern

j

28 FM C
APPLICATION OF UNITED STATES LINES SA INC FOR THE 65

BENEFIT OF MILES LABORATORIES INC

However with regard to the first shipment the Presiding Officer held

that he was required by Texas Turbo Jet to deny the application because

it was clear that USL could not meet the additional nonstatutory requirement

placed on it by that decision i e that it must have actually provided

the intended inland service in accordance with the terms of its tariff As

discussed above Miles Laboratories arranged and paid for the inland move

ment of the first shipment

As previously stated in General Motors which was served subsequent

to the Initial Decision the Commission announced that Texas Turbo Jet

would no longer be followed Accordingly the Presiding Officer s denial

of USL s application with regard to the first shipment which was based

solely on Texas Turbo Jet will be reversed

In General Motors we noted that one of the flaws of Texas Turbo

Jet is that it often caused relief to the innocent shipper to turn entirely

on luck and happenstance 27 F MC 852 That is precisely the situation

here The only important difference between the first shipment and the

second shipment is that by the time the second shipment arrived in New

York USL had realized the mistake it had made on the first shipment

If that had not occurred presumably the second shipment would have

been turned over to Miles Laboratories in New York as the first one

was and Texas Turbo Jet would have required that Miles be denied relief

on both shipments That result would have cost Miles Laboratories over

45 000 in additional unwarranted freight costs

Such arbitrary distinctions between shipments are not required by any

sensible regulatory policy and are inconsistent with the Commission s obli

gation to administer the special docket procedure liberally in order to

achieve the procedure s remedial purpose of relieving shippers from the

burdens of carrier mistake or negligence However the sum of 22 520

that USL requests permission to refund to Miles Laboratories would still

leave Miles in the position of suffering significant financial damage under

the November 1983 agreement it should have paid 102 000 to transport

the first shipment while the requested refund would result in total costs

It should also be noted that even on the second shipment USL did not provide the precise service it had

agreed 10 The bills of lading issued on the second shipment call for a port la port movement terminating

at New York Ex 3 to USL s application There is no indication thai corrected bills of lading were issued

Strictly speaking therefore the service contracted fOf by USL as evidenced by the bills of lading was not

an intermodal movement more important from the Texas Turbo Jet perspective the eventual service USL

actually provided on the second shipment was not in strict accordance with the terms and conditions of its

intermodal tariff

4Conceivably Miles Laboratories might be able to recover its financial losses if this special docket applica

tion were denied under Texas Turbo Jet by bringing a court action for breach of contract However such

a

procedure with its attendant costs and delay may not be asatisfactory substitute for the relatively simple

and economical special docket procedure In any event the Commission believes that the policy first an

nounced in General Motors and followed here does not represent an unlawful expansion of our authority

under section 8e of the Shipping Act of 1984 Shippers should be turned away from this agency sproce

dures and advised to seek relieffrom the courts only if it is clear that the carrier s application fails to meet

one of the specific jurisdictional requirements set forth in the statute and if no alternative administrative rem

edy is available see Application of Pacific Westbound Conference for the Benefit of Shintech 21 S R R 1361

1366 AU application withdrawn 21 S R R 1441 1982 Neither situation is found to exist here

28 F M C
i

1

66 FEDERAL MARITIME COMMISSION

I

to it of approximately 111 000 133 740 less c 22 520 It is more con

sistent with the rationale and policy announced in General Motors to give

USL permission to refund to Miles Laboratories the full difference of

31 740 between the costs it actually incurred and the costs it should

have incurred S

The failure of USL to file exceptions to the Initial Decision s denial

of its application on the first shipment renders unlikely any possibility

that the carrier s application is a

subterfuge for an illegal arrangement

between itself and Miles Laboratories This clilnclusion is particularly

strengthened by the fact that USLs

representative previously had stated

in a prehearing conference that he would not file exceptions in the event

of such a deniaJ6

Finally an appropriate tariff notice of the granting

in full of USLs application will prevent any discrimination among shippers

THEREFORE IT IS ORDERED That the Initial Decision is hereby

reversed to the extent that it denied the application by United States Lines

SA Inc to refund portions of freight charges in connection with a

shipment of annato seed from Mombasa Kenya on December 18 1983

IT IS FURTHER ORDERED That Unitel States Lines SA Inc is

hereby given permission to refund 31 740 in freight charges to Miles

Laboratories Inc in connection with the above des ribed shipment c

IT IS FURTHER ORDERED That the Initilll Decision is otherwise

adopted

By the Commission

S BRUCE A DoMBROWSKI

Acting Secretary

Commissioner Thomas F Moakley dissents JlIld will issue a separate

opinion

j See n2 supra Because the Preaiding Officer believed himself bound by Texas Turbo Jet be did not

reach thequestion of theproper calculation of a refund on the f1l l shipment

6

Prehearing ConferenceTr 5657

I

28 P M C
APPLICATION OF UNITED STATES LINES SA INC FOR THE 67

BENEFIT OF MILES LABORATORIES INC

DISSENTING OPINION

Commissioner Moakley dissenting

The erosion of tariff law which the majority began in Special Docket

Nos 1220 and 1225 I

is greatly aggravated by its decision in this pro

ceeding Now it is not only irrelevant whether a carrier has performed

the service for which it seeks to apply an intended rate but it is also

unnecessary and perhaps even unlawful for that carrier to collect the in

tended tariff rate The majority s liberal notion of fairness to a particular

shipper in a

particular case has now caused it to distort beyond recognition

those provisions of the 1984 Act which are designed to prevent unfairness

and discrimination on a much broader scale

The facts relating to the shipment in question are straightforward The

shipper Bharat Industries booked a shipment of annatto seed with United

States Lines S A CUSLSA from Mombasa Kenya to New York N Y

The shipment moved on a port to port bill of lading and was rated under

the tariff of the South and East AfricaUSA Conference of which USLSA

was a member The consignee Miles laboratories accepted the shipment

from USLSA in New York and paid the charges pursuant to the bill

of lading Miles Laboratories then arranged and paid for inland transpor

tation from New York to Madison Wisconsin

Complexities arise only when these simple facts are ignored in an effort

to give Miles Laboratories the benefit of an intermodal rate it had earlier

negotiated with USLSA for carriage of annatto seed from Mombasa to

Madison The errors that need to be overcome in order to afford this

relief are not merely tariff or clerical errors that are correctable under

section 8 e of the Act The major error here is that USLSA did not

carry the cargo from Mombasa to Madison It carried the cargo from

Mombasa to New York There is a rate on file which USLSA has agreed

to charge for carriage from Mombasa to New York It charged Miles

Laboratories that rate and is obligated to charge every other shipper of

the same commodity the same rate for service from Mombasa to New

York

This obligation to charge the tariff rate for the service performed is

independent of the existence of other tariffs for different services 2

In

other words it is irrelevant to the disposition of this case whether USLSA

had a reduced rate on file in its tariff for carriage of annatto seed from

Mombasa to Madison or from Afghanistan to Alaska Even if the intended

I Application of Hapag Uoyd AG for the Benefit of General Motors Corporation 27 F MC 848 dis

senting opinion at 27 F M C 855

2

This proposition is self evident when the rate or charge is one which must be ftled in a tariff In fact

I know of no instance in which the proposition has been challenged Even in the area of terminal practices

which do not have to be filed in tariffs The Commission and the courts have consistently held that the

charges rendered must be reasonably related to the services performed Volkswagenwerk Aktiengesel schaft

v FMC 390 U S 261 1968 Baton Rouge Marine Contractors Inc v Cargill Inc 21 FMC 968 1979

The Port Authority of New York and New Jersey v NYSA el al and Puerto Rico Maritime Shipping Author

ity et ai v NYSA 27 F MC 614 1985

28 F M C
68 FEDERAL MARmME COMMISSION

rate had been filed 3 it could not have been applied to a shipment which

was tendered and carried to another destination for which a different rate

applies Ironically therefore had the carrier not erred in failing to file

the intermodal rate there would be no basis on which to argue that section

8 e could afford the relief sought Following this logic the majority s

decision seems to favor the proposition that a carrier can apply a rate

for a service that was not performed but only when that rate is not

oo

But the principle to be derived from the relief granted here is not quite

that clear The carrier is not obligated or even permitted to collect the

intended and later filed tariff rate for service to Madison Instead USLSA

is directed to collect an amount which credits the shipper for its out

of pocket costs for inland transportation from New York to Madison

This may be an equitable result for the parties involved in this particular

shipment but it removes all certainty as to the proper rate to be charged

and invites discrimination among other shippers carriers and ports contrary

to the statute we are seeking to administer Moreover it is inconsistent

with the relief granted in General Motors supra which the majority pur

ports to be following 4

The tariff under which this shipment was carried is a conference tariff

There were five members of the South and East AfricaUSA Conference

during the period that this shipment moved The record in this proceeding

indicates that there was active competition for the carriage of annatto seed 6

In view of these facts it is likely that there were other shipments of

this commodity moving on other conference carriers during this period

of time The majority s decision makes it virtually impossible to ensure

that other shippers pay the same rate for the same service Are other

shippers of annatto seed from Mombasa to New York entitled to a rate

which is predicated upon service to Madison Wisconsin less the cost

of inland transportation incurred by Miles Laboratories

Most importantly the majority s

largesse is a serious assault on statutory

tariff filing requirements Under the precedent establiShed here neither other

shippers nor other carriers have the knowledge necessary to compete fairly

with the parties who are the beneficiaries of this private arrangement

It is particularly dangerous to undermine the importance of having tariffs

on file at a time when the Commission is embarking on a major and

potentially expensive effort to automate tariff filing

3

As the AU points out 1 0 p3 it is not clear whether the agreement between Miles Laboratories and

USLSA was made subject to booking If so no cargo Wft ever booked for Madison and the carrier was

under no obligation whatsoever to me the Jntended rate

A

In General Motors the Commission permitted the carrier to collect the intended intermodal rate despite

uncertainly as 10 whether the shipper had arranged and paid for the inland carriage

OfticiaJ FMC agreement files One member Hellenic Lines resigned on Janullty 28 1984 reducing thls

number to four

6USLSA offered the lower Intermodal rate to Milea Laboratories in order to match a reduced rate filed

by Lykes Bros Steamship Co Inc See Exhibit 1 to supplement to application filed June 4 1984

28 F M C
APPLICATION OF UNITED STATES LINES S A INC FOR THE 69

BENEFIT OF MILES LABORATORIES INC

For these and the reasons set forth in my dissent to the majority s

decision in General Motors supra I would adopt the AU s disposition

of the instant application

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1168

APPLICATION OF UNITED STATES LINES SA INC FORMERLY

MOORE MCCORMACK LINES INCORPORATED FOR THE

BENEFIT OF MILES LABORATORIES INC

Application for pennission 1 to refund a portion of freight charges for one shipment denied

and 2 to waive collection of a

portion of freight charges for a second shipment granted

Arthur K Forester forapplicant United States Lines S A

INITIAL DECISION OF SEYMOUR GLANZER ADMINISTRATIVE

LAW JUDGE

Partially Adopted August 3D 1985

By application filed April 18 1984 and refiled May 31 1984 United

States Lines S A Inc formerly Moore McCormack Lines Incorporated

hereafter USL seeks permission to refund 22 520 of freight charges

it collected from Miles Laboratories Inc the consignee in connection

with one shipment of annato seed and to waive collection of 189 000

of freight charges in connection with another shipment of the same com

modity 2

As explained infra the request to refund is denied and the request

to waive collection is granted

FACTS

General

USL is a member of the South and East AfricaUSA Conference hereafter

Conference 3 which publishes port to port rates from certain African

ports including Mombasa Kenya to United States Atlantic and Gulf ports

including New York in its North Bound Freight Tariff No 5 F MC

No 7 hereafter Conference Tariff At all times pertinent to this pro

ceeding the Conference Tariff contained a special all inclusive rate of

150 00 for Seed Annato in bags from Mombasa to New York

USL provides an intermodal service from ports in South and East Africa

to United States inland destination points and publishes rates for this service

1 This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

1

In addition to the refiling an on the record conference to clarify some aspects of the application was

held on March 5 1985

3

The Conference joined inthe application

4Conference Tariff 7th rev p 212 effective November 3 1983 Item No 1780 The special rate expired

February 29 1984

70 28 F M C
APPLICATION OF UNllED STAlES LINES S A INC FOR THE 71

BENEFIT OF MILES LABORATORIES INC

in its independent intermodal tariff United States Lines S A Inc Import

OceanMotor Microbridge Freight Tariff 701 ICC USLU 701 FMC No

79 This tariff became effective February I 1984 as a successor to Moore

McCormack Lines Incorporated Import OceanMotor Microbridge Freight

Tariff 701 ICC MMLU 701 FMC No 79 Hereafter the term Intermodal

Tariff will be used in reference to either or both of those tariffs

About November 21 1983 USL and the consignee reached an agreement

calling for USL to publish an all inclusive rate of 2 550 per 20 containers 5

for two anticipated shipments of annato seed 6 from Mombasa to Madison

Wisconsin in the Intermodal Tariff It is not clear whether the agreement

was made subject to booking It is apparent however that there was

general confusion In USL s Chicago Illinois office where the agreement

was negotiated resulting from USL s acquisition of Moore McCormack

Lines and a concomitant turnover in personnel at that location It is suffi

cient to note that due to that condition the Chicago office failed to instruct

the Cranford New Jersey pricing office to publish the agreed rate When

the shipment was booked by Bharat Industries Ltd the Kenyan shipper

USL s Mombasa agent who was inexperienced in intermodal shipments

not only failed to notify the Chicago office of the booking but more

important he did not follow his instructions to apply an intermodal routing

and rating to the shipments on the bills of lading The net effect of the

various errors was that when the two shipments sailed from Mombasa

the agreed rate was not in the Intermodal Tariff and the shipments Were

routed and rated as port to port movements under the Conference Tariff

on the bills of lading issued at Mombasa When the failure to publish

the agreed rate was discovered a corrective Tariff provision reflecting

the agreed rate and routing information was filed effective June 6 19847

although a tariff provision reflecting the agreed rate was made effective

February I 1984

The applicant states that there were no other shipments of the same

or sintilar commodity during the relevant time period

It is now appropriate to proceed from the general to the particular

IShipment No 1

The first of the two shipments was placed aboard the American Robin

V 8 a feeder vessel which sailed from Mombasa on December 18 1983

for Durban South Africa At Durban the shipment was transferred to the

SThe agreement comprehended the substitution of 40 containers at the 20 container rate if the latter were

not available

6USL advises that annalo seed is used forcoloring cheddar cheese and butler

71Il1ennodal Tariff 15th rev p37 A Item No 1150 An earlier correction which appeared on original

page 37 A effective February I 1984 inadvertently contained a non substantive incorrect routing designation

number In addition effective May 21 1984 USL published an equipment substitution rule authorizing it

10 substitute 40 containers for 20 containers should there be a

shortage of the latter at the origin container

yard d 1st rev p

27 Rule 24

28 F M C
72 FEDERAL MARITIME COMMISSION

1

1

American Ace V 158 for carriage to New York The shipment on three

bills of lading weighed 600 000 kilos and was loaded into twenty six

20 and fourteen 40 containers The shipment was rated as a

port to

port movement under the Conference Tariff which at the time of shipment

was 150 00 all inclusive per 1000 kilos s At this rate port to port charges

amounted to 90 900 00

When the vessel arrived at New York USL personnel took their clue

from the ocean bills of lading signifying a port to port move and turned

over responsibility for the inland portion to an agent of Miles Laboratories

The agent engaged a motor carrier Atlantic Coast Express to transport

the forty containers to Madison Miles Laboratories paid the motor carrier

43 740 00 for this service

Had the inland portion been conducted as an intennodal movement with

participating carriers listed in the Intermodal Tariff the arrangements would

have consisted of drayage from Howland Hook USL s New York Tenninal

to the Con Rail ramp in Elizabeth New Jersey at an estimated cost

to USL of 85 00 per container rail carriage from Elizabeth to Chicago

at an estimated cost to USL of 450 00 per container 9

and motor carriage

from Chicago to Madison via Wisconsin Cartage WICC at a cost to

USL of 328 00 per container pursuant to WICC s tariff The sum of

these allocated costs is 863 00 per container

USL arrives at the figure of 22 500 00 as the amount to be refunded

on the following mix of I charges at the agreed rate 2 charges actually

Incurred and paid by Miles Laboratories and 3 the allocation of charges

had an intennodal shipment taken place 10

IPayments e by Miles Laboratories to

a USL for ocean freight 90 000 00

b AUantic Coast Express for inland freight 43 740 00

Total transportation costs 133 740 00

2 a Transportation charges at agreed intermodal rate of 2 550 00 per con

lainer 102 000 00

b

Less allocation for inland portion at rate of 863 00 per container 34 520 00

c Intennodal ocean portion charges derived by subtracting 2 b from 2 a

3 a Ocean charge paid

b Less ocean portion of intermodal charges

Refund Reque t

67 480 00

90 000 00

67 180 00

22 520 00

8

See n 4 supra

IlWhen Shipment No 2 took place the coat was reduced to 400 00 per container The estimated costs

are those worked out by USL s in house specialists and are apPt01Unate except for WlCC

IOExhibit No I submitted al the conference

28 F M C
APPLICATION OF UNITED STATES LINES S A INC FOR THE 73

BENEFIT OF MILES LABORATORIES INC

II Shipment NO 2

The second shipment started out much like the first but it ended much

differently as will be seen

The shipment was loaded aboard the American Robin V 9 which sailed

from Mombasa for Durban on January 24 1984 At Durban there was

a transfer to the American Resolute V 20 which transported the shipment

to New York The shipment weighed 300 000 kilos and was loaded into

twenty 20 containers It too was rated as a port to port movement under

the Conference Tariff at the 150 00 all inclusive per 1000 kilos rate

then in effect

However by the time the American Resolute arrived in New York USL

officials had become aware of the problem and reacted accordingly Instead

of allowing the ocean carrier s

responsibility to terminate at the port USL

implemented the agreement with Miles Laboratories by successfully com

pleting arrangements for the intermodal movement with Con Rail and WICC

in accordance with provisions of the Intermodal Tariff Having provided

the service in accordance with the Intermodal Tariff USL issued a corrected

bill at the agreed intermodal rate Miles Laboratories paid the 51 000 00

in accordance with the corrected invoice The most nearly applicable inter

modal charges at the rate in effect at time of shipment were 240 000 00 11

USL seeks to waive collection of the difference between the applicable

charges and the amount collected

DISCUSSION AND CONCLUSIONS

IShipment No 2

The application meets the criteria for approval under section 8 e of

the Shipping Act 1984 46 U S C app 1707 e

12 and the Commission s

rules implementing that statute 46 CFR 502 92 a

The failure to publish the agreed rate was due to inadvertent errors

on the part of USL Because there were no shipments of the same or

similar commodity during the relevant time period approval of this applica

tion is not likely to result In discrimination among shippers There is

no indication that there would be any discrimination against carriers or

ports In any event the order which follows protects against discrimination

among shippers A corrective tariff setting forth the rate upon which the

waiver is based was timely filed before the application By filing the

application USL has agreed to take those steps which the Commission

may require as a condition for granting relief The application was filed

within 180 days of the shipment

IIIntermodal Tariff 5th rev P 37 Item No 1100 Cargo N D S

12In all material respects relevant 10 this application section 8 e of the Shipping Act 1984 46 U S c

app 1707 e is the same as section 18 b 3 of the 1916 Act Thus the conclusion which follows would

be the same under either Act

28 F M C
74 FEDERAL MARITIME COMMISSION

I

II Shipment No I

With respect to the first shipment the application does not meet the

criteria for approval of special docket applications 13 simply because USL

did not provide the intermodal service contemplated by its agreement with

Miles Laboratories The service USL did provide a port to port service

was governed by the provisions of the Conference Tariff The charges

paid to USL under the latter tariff were correct and must stand This

conclusion accords with the principle that performance must match promise

intent established In Special Docket No 771 Application ofLykes Steam

ship Co

Inc for the Benefit of Texas Turbo Jet Inc 24 F M C 408

1981 and consistently adhered to thereafter See e g SpeciaL Docket

Ho 1084 Application of Trans Freight Lines Inc for the Benefit ofBNP

Distributing Co

Inc Mau Cooperage New York 22 SRR 475 ID

1983 administratively final December 16 1983 1

CONCLUSION AND ORDER

The application for permission to refund portions of freight charges col

lected by United States Lines SA Inc in connection with a shipment

of Annato Seed it transported from Mombasa Kenya to New York New

York on December 18 1983 is denied The application to waive collection

of portions of freight charges due United States Lines SA Inc is granted

It is ordered

IUnited States Lines SA Inc shall wajve collection of freight charges

due it from Miles Laboratories Inc in the amount of 189 000 00 in

connection with a shipment of Annato Seed it transported from Mombasa

Kenya to Madison Wisconsin on January 24 1984

2 United States Lines SA Inc shall publiSh the following notice

at pages 37 and 37 A of its Import OceanMotor Microbridge Freight

Tariff 701 ICC USLU 701 FMC No 79

Notice is hereby given as required by the decision in Special

Docket No 168 that effective December 18 1983 and con

tinuing through June 5 1984 for purposes of refund or waiver

the rate for Item No 150 ANNATO SEED All Inclusive origin

group 4 Destination Madison WI PC 20 Route No 451 is

2 550 00 Such rate is subject to all other applicable rules regula

tions terms and conditions of the said rate and this tariff

3 United States Lines S A Inc shall determine whether an adjustment

in brokerage or compensation due brokers or freIght forwarders is required

in the light of this decision and shall take such measures as are necessary

to effectuate such adjustment

I

j

13 See n

12 supra

14In the I1ght of Ws conclusion it will not be necessary to order that Rule 24 see nsupra be given

retroactive effect

28 F M C
APPLICATION OF UNITED STATES LINES SA INC FOR THE 75

BENEFIT OF MILES LABORATORIES INC

4 The waiver shall be effectuated within thirty days of service of notice

by the Commission authorizing the same and United States Lines S A

Inc shall within five days thereafter a notify the Commission of the

date and manner of effectuation of the waiver and b file with the Commis

sion affidavits of compliance with paragraphs I 2 3 and 4 a of this

order

S SEYMOUR GLANZER

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 16

FAILURE OF LICENSED OCEAN FREIGHT FORWARDERS TO

COMPLY WITH THE ANTI REBATE CERTIFICATION FILING

REQUIREMENT OF SECTION 15 b OF THE SHIPPING ACT OF

1984 AND 46 C F R 510 25

NOTICE

November 28 1985

Notice is given that the time within which the Commission could deter

mine to review the October 10 1985 discontinuance of this proceeding

has expired No such determination has been made and accordingly the

discontinuance has become administratively final

S BRUCE A DOMBROWSKI

Acting Secretary

76 28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 16

FAILURE OF LICENSED OCEAN FREIGHT FORWARDERS TO

COMPLY WITH ANTI REBATE CERTIFICATION FILING

REQUIREMENT OF SECTION 15 b OF THE SHIPPING ACT OF

1984 AND 46 CF R 510 25

PROCEEDING DISCONTINUED

Finalized November 28 1985

As a result of my two previous rulings August 27 and September

19 1985 and the efforts of the Commission s Office of Freight Forwarders

and Hearing Counsel 71 of the original 74 respondent freight forwarders

have complied with the requirement that they file anti rebating certificates

have notified the above Office that they have ceased operating and wished

to have their licenses cancelled or have otherwise had their licenses re

voked Three respondent forwarders remained in the proceeding Bekins

Moving Storage Northwest Forwarders of Seattle Washington John W

Newton Jr of Beaumont Texas and National Cargo Services Inc of

Miami Florida Hearing Counsel was directed to contact these three and

report on their status

According to Hearing Counsel s status report submitted on October 4

1985 BekinslNorthwest has now sent in the correct form and has complied

with law and John W Newton Jr is no longer forwarding and has

surrendered his license These forwarders are therefore dismissed

The situation with respect to National Cargo Services Inc is a little

more complicated It appeared originally that National Cargo did not receive

service of the Commission s Order of Investigation and Hearing See Ruling

of August 27 1985 at 9 This may be because their address shown

in the Appendix to the Commission s Order was incorrect However the

Office of Freight Forwarders has been in telephonic contact with National

and has sent a letter dated August 27 1985 in which National was advised

of the need to file the proper certificate a copy of which was enclosed

Receipt of this letter which was sent to a new address was acknowledged

by an employee of National Ms Maria Guerra Furthermore the Office

of Freight Forwarders has maintained telephonic contact with Ms Guerra

who has advised that National is no longer in business and will request

cancellation of the license The Office of Freight Forwarders has also

been advised by National s surety company that National s surety bond

has been cancelled Failure to maintain a valid surety bond is grounds

for automatic revocation of a license See 46 CPR 510 14 d 51O 16 a

28 FM C 77
78 FEDERAL MARITIME COMMISSION

In view of the above situation it is unnecessary to continue this pro

ceeding to determine whether National will file an anti rebating certificate

and if not whether its license should be revoked The cancellation of

National s surety bond as mentioned will lead to automatic revocation

of its license under the Comntission s regulation an action which can

be taken by the Commission s Office ofFreight Forwarders

Accordingly this proceeding is discontinued

8 NORMAN D KLINE

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 8438

ARIEL MARITIME GROUP ET AL

ORDER REMANDING PROCEEDING

December 6 985

This proceeding is before the Commission on Exceptions to the Initial

Decision JD served on June 12 1985 by Administrative Law Judge

Joseph N Ingolia Presiding Officer The JD concluded that Interlink

Systems Incorporated dba Interlink Lines Interlink a non vessel operating

common carrier NVOCC had committed extensive violations of section

16 Initial Paragraph and of section 18 b 3 of the Shipping Act 1916

46 U S c app 815 817 The JD further concluded that Consolidated

Commodities of America Inc Consolidated Merritt Enterprises dba

Cheerio International Cheerio both shippers and Liberty Shipping Inter

national Liberty another NVOCC also had violated section 16 Initial

Paragraph The Presiding Officer assessed substantial civil penalties for

those violations

The four respondents adversely affected by the JD filed Exceptions

to which the Commission s Bureau ofHearing Counsel replied

For the reasons set forth below the Commission has determined to

remand this proceeding to the Presiding Officer for further development

of the record and the issuance of a supplemental initial decision We

believe that the record has been developed adequately regarding the par

ticular shipping transactions that gave rise to this investigation However

the difficulty is that even if it is assumed that malpractices occurred resulting

in violations of law the record in its present state does not permit the

Commission to conclude who properly should be held liable for any such

violations The remand ordered herein is intended to allow for obtainment

of additional evidence regarding the nature ownership lines of authority

and interrelationships of the respondents The Commission also wishes the

parties to brief certain legal issues that have been raised by the evidence

developed thus far

BACKGROUND

A The proceeding

This proceeding was commenced by an Order of Investigation and Hear

ing served on December 14 1984 The Order stated that Ariel Maritime

Group Inc Ariel an agent for a number of vessel operating carriers

and NVOCC s apparently had engaged in a series of malpractices designed

28 F M C 79
I 80 FEDERAL MARITIME COMMISSION

to obtain transportation at less than the rates required by law The period

of apparent violations was from September 1981 through October 1983

According to the Order Ariel had engaged in these malpractices in conjunc

tion with Interlink one of the NVOCC s apparently represented by Arie

The service provided by an NVOCC typically involves consolidation

of several small shipments into a container load shipment The NVOCC

issues its bill of lading to the actual shipper exporter it thus acts as a

carrier to shippers The NVOCC then books the cargo with a vessel oper

ating carrier which issues its own bill of lading on the basis of information

provided by the NVOCC the NVOCC thus has the position of a shipper

in relation to the vessel operator By consolidating the cargo the NVOCC

is usually able to obtain a containerload rate from the ocean carrier and

thus creates its profit margin

The Order stated that one activity involving Ariel and Interlink concerned

full containerload shipments of cellulose film and cigarette paper which

may have been misdescribed to the vessel operating carrier as cellulose

acetate and industrial wrapping paper respectively and thereby received

an illegally reduced rate also the weight or cube of these shipments

may have been underdeclared on occasion to the same effect

Another apparent malpractice described in the Order involved representa

tions to the vessel operating carriers that certain containerload shipments

were to be transshipped in Europe These representations qualified the ship

ments to move at lump sum rates pursuant to transshipment agreements

However there were indications that the containers were never intended

to be and were not transshipped In addition Interlink appeared to have

assessed freight rates that were not filed in its tariffs

Based on these allegations the Order put at issue possible violations

of sections 16 Initial Paragraph and 18b 3 of the Shipping Act 1916

Section 16 Initial Paragraph 46 U S C app 815 provides

That it shall be unlawful for any shipper consignor consignee

forwarder broker or other person or any officer agent or em

ployee thereof knowingly and wilfully directly or indirectly by

means of false billing false classification false weighing false

report of weight or by any other unjust or unfair device or

means to obtain or attempt to obtain transportation by water for

property at less than the rates or charges which would otherwise

be applicable

Section 18b 3 46 U S C app 817 provides

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 Or for any service in connection therewith than the

t

IOiven those dates the investigation was conducted under the Shipping Act 1916 rather than the Shipping

Act of 1984 which became law on June 18 1984

28 P M C
ARIEL MARITIME GROUP ET AL 81

rates and charges which are specified in its tariffs on file with

the Commission and duly published and in effect at the time

The fact that an NVOCC acts as a carrier to actual shippers and as

a shipper in relation to the vessel operator brings it within both section

16 which regulates shippers forwarders and other non carriers and section

18 which regulates carriers The Order named as respondents Ariel

Interlink Consolidated Cheerio Liberty a

company named Joshua Dean

Co and two other carriers Oasis Express Line and Javelin Lines In

addition certain individuals who appeared to be either the owners or oper

ating officers of some of the corporate respondents were also named as

respondents these were Martyn Merritt Tilak Sharma and Raymond

Boudart The Order included as issues whether if violations were found

civil penalties should be assessed and cease and desist orders issued against

the corporate or individual respondents

Hearings were held in Washington D C on April 17 19 1985 Testimony

was given by Emanuel Mingione a Commission investigator Martyn Mer

ritt one of the individual respondents and Thomas Matthews an employee

of ArieBesides the transcript of those hearings the bulk of the record

consists of an investigative report and supporting documentation prepared

by the Commission s Atlantic District office in New York

B The Respondents

1 Ariel Maritime Group Inc

Ariel is an Illinois corporation headquartered in New York City It was

incorporated on July 2 1980 2 As of August I 1980 its shareholders

were as follows

J A Mott

Tilak Sharma

Raymond Boudart

Roy Brookes

ASA Development

Co

200 shares

120 shares

120 shares

200 shares

1 360 shares

The directors and officers were as follows

J A Mott President

Tilak Sharma Secretary

Roy Brookes Treasurer

Arun Dutta Vice President

Avinash Rohli Vice President

Raymond Boudart Vice President 3

2

Ex TA at 20

3Ex 2C

28 F M C
82 FEDERAL MARITIME COMMISSION

Two years later as of August I 1982 there had been no change in

the directors The following officers were elected

J A Mott President

Raymond Boudart Vice President

Roy Brookes Treasurer

Tilak Sharma Secretary

Mary Anne Merritt Assistant Secretary

Mary Anne Merritt is the wife of Martyn Merritt one of the individual

respondents

By August I 1983 Martyn Merritt had taken over the Ariel stock

formerly held by Roy Brookes the shares now being distributed as follows

Martyn Merritt 200 shares

J A Mott 200 shares

Tilak Sharma 120 shares

Raymond Boudart 120 shares

ASA Development 1 360 shares S

Co

Martyn Merritt had also become a director of Ariel along with Sharma

Boudart and Mott The officers were now as follows

Martyn Merritt President

Tilak Sharma Vice President

Raymond Boudart Treasurer

Mary Anne Merritt Secretary 6

Emanuel Mingione the Commission investigator testified that 60 percent

of Ariel is owned by Charles Klaus CO 7 This statement was based

on a December 1983 Dun Bradstreet report and was not corroborated

by any other source

s Dun Bradstreet reports were shown to be less

than completely reliable 9

ASA Development Co the apparent majority owner of Ariel is owned

by various individuals based in the United Kingdom and other 10cations lO

Martyn Merritt testified that he has no ownership interest in ASA llThe

record does not show whether Tilak Sharma or Raymond Boudart the

other individual respondents own any part of ASA

Ariel is an agent for a number of vessel operating and non vessel oper

ating carriers In September 1980 Ariel entered into an agreement with

Charles Klaus Co under which Ariel was to act as agent for several

4Ex I 8

5

Ex I A

6Ex 1

7Ex TA at 21

8Ex C 2 18 April Tr at 73 75

9

d at 76 77

1019 Apr Tr at 23

d at 24 18 Apr Tr a1131

IlEx 30

28 P M C
ARIEL MARITIME GROUP ET AL 83

carriers that were divisions of Klaus including respondents Javelin Line

and Oasis Express Line l2 Ariel also has acted as agent for carriers other

than those related to Klaus such as Tee Lines Ltd Deep Sea Shipping

Ltd Bernuth Lines and Matina Lines While the record is not completely

clear it appears that Martyn Merritt exercises operating control over day

to day affairs at Ariel although he is ultimately responsible to Aries

owners at ASA Development Co Ariel has approximately 48 employees

in its New York office S

2 Interlink Systems Inc

Like Ariel Interlink is an Illinois corporation It was incorporated on

February 6 1980 6 Interlink corporate minutes indicate that since the incep

tion of the company Martyn Merritt Mary Anne Merritt Raymond Boudart

and Tilak Sharma have been the only directors and that Tilak Sharma

has been President of the corporation and Martyn Merritt has been Vice

President J1 However the ownership of the corporation is more fragmented

Martyn Merritt owns ten percent of the corporate stock and Sharma and

Boudart each own six percent 8 The remaining stock is owned by eight

or nine individuals located in the U S and Europe Martyn Merritt testified

that none of those individuals own any interest in Aerial 9

The main business of Interlink is to act as an NVOCC for cargo moving

from the United States to Europe Interlink represents itself in New York

but utilizes various agents throughout the U S 20 There is conflicting evi

dence in the record as to whether there is an agency relationship between

Ariel and Interlink Emanuel Mingione the Commission investigator testi

fied that Tilak Sharma told him that Arid did represent Interlink 2

In

addition an Ariel advertising brochure can be read as indicating such

a

relationship 22 However Martyn Merritt testified that Arid did not rep

resent Interlink and attributed Sharma s statement to the latter s allegedly

poor understanding of English 23 Sharma himself did not testify and no

direct documentary evidence of an agreement between Interlink and Arid

was introduced In some cases both Ariel and Interlink have the same

agent for a particular area under separate and distinct contracts 2

There is a close operational relationship between Interlink and Ariel

Interlink shares space at Aries offices in New York for which it pays

12Ex 30

13 Ex 5 6 8 88 18 Apr Tr al 134

1419 Apr Te at 88 89

IS d at 92

16Ex 27 28

17Ex 29

1818 Apr Te at 147 48

19 d at 148 15455

20Ex 24

21 Ex TA at 3 17 Apr Tr at 110

22Ex I

I

2318 Apr Te at 145 46 15657

24Id at 152 54

28 F M C
I

84 FEDERAL MARITIME COMMISSION

I

i

Arie 25 Interlink has only two employees of its own who do essentially

clerical work 26 However these two employees draw their salary from

Ariel which then bills Interlink 27 Martyn Merrilt testified that he is not

compensated by Interlink nor apparently is Tilak Sharma or the other

officers 2s Sharma oversees the routine day to day operations of Interlink

but Martyn Merritt apparently makes the major deeisions he decided to

share office space with Ariel and also signed an agency agreement on

behalf of Interlink 29

On the other hand Interlink maintains its own bank accounts files its

own tax returns and issues its own invoices correspondence and state

ments 30

3 Consolidated Commodities ofAmerica Inc

Consolidated was originally incorporated in New York on April 6 1977

under the name Container Lloyd New York Inc An amendment filed

by Tilak Sharma identified as President of the corporation changed the

name to Consolidated on November 5 1980 Acertificate filed November

3 1982 also by Sharma identified him as registered agent for Consoli

dated 31

There is no information in the record regarding the ownership or present

officers of Consolidated except Martyn Merritt s statement that he owns

no part of Consolidated is not an officer and receives no salary from

it32 It has the same office address and telephone number as Arie33 Merritt

also testified that Consolidated was shown as the agent for shipper on

some bills of lading prepared by Interlink in order to act as a screen

between the vessel operator and Interlink s true shipper customers so that

the vessel operator could not solicit Inter link s clients Merritt characterized

Consolidated as otherwise being a non entity 34

4 MerrittEnterprises Inc db aCheerio Internatiolj ll

As its name ihdicates Cheerio is the trade name of Merritt Enterprises

Inc MEI MEI was incorporated in Illinois in 1976 and relocated to

New York in 1981 Mary Anne Merritt is President and Martyn Merritt

is Vice President and the two own the company

3S Cheerio operates from

Ariel s offices Itadvertises itself as a

shipping consultant and travel agency

It appears that Cheerio was used for the same purpose as Consolidated

j

I

Uld at 14950

2619 Apr Tr at 9293

27Id at 92

l8Id

21lId at 90 18 Apr Tr at 153

3oEx 1822 18 Apr Tr at 147 150

31Ex fA 8122 23 17 Apr Tr at 32 33

32 19 Apr Tr at 97

33 Ex TA at 23

34 19 Apr Tr at 114

35 Ex TA at 23 19 Apr Tr at 97 98

28 F M C
ARIEL MARITIME GROUP ET AL 85

i e as a dummy agent for shipper with no real involvement in the

shipments under investigation 36

5 Liberty Shipping International

The record is extremely sparse with regard to Liberty It is an NVOCC 37

Martyn Merritt testified that his vife Mary Anne owned some shares

in the company but was not more specific He also stated that neither

he nor his wife operated the company

38 There is no indication whether

THak Sharma or Raymond Boudart are involved in Liberty FMC tariff

records indicate that Thomas Matthews an Ariel employee is the U S

filing agent for Liberty

6 Javelin Line Oasis Express Line

As already stated Javelin and Oasis are two of the carriers represented

by Ariel In fact their tariffs on file with the Commission show that

their U S mailing address is the same as Ariel s and that Mary Anne

Merritt is their agent As relevant to this proceeding Oasis and Javelin

provided NVOCC service from the U S to Europe and also were vessel

operators from Europe to the Eastern Mediterranean and North Africa 39

As part of the latter service they handled cargo originating in the Us

and transshipped at ports in Europe

Javelin and Oasis are divisions of Charles Klaus Co Klaus is a Hong

Kong based enterprise that operates carrier services throughout the world 4O

As of December 31 1980 all but one of Klaus s 4 000 shares were owned

by respondent Joshua Dean Co Ltd 4l The remaining share was held

by a Mary Anne Pawlowski who is apparently Mary Anne Merritt Martyn

Merritt testified that his wife received that share as a gift and has never

realized a dividend or other remuneration from Klaus 2 Merritt also testified

that he owns no stock in Klaus Dean Oasis or Javelin 43

8 Joshua Dean Co

As noted as of December 31 1980 Dean was apparently the owner

of Klaus which in turn operated Oasis and Javelin Dean has aregistered

address on Grand Cayman Island B W No other information on Dean

could be obtained due to local business secrecy statutes

9 Martyn Merritt Remained Boudart Tilak Sharma

3618 Apr Te al 14

31Ex TA al 19 Attachment E

3

19 Apr Te al 98 99

39Ex 9 10 18 Apr Te at 135 37 167 68 FMC tariff records show that Oasis and Javelin now provide

vessel operator service in U S foreign trades

40 18 Apr Te at 136 14445 see Ex 17

41 Ex TA at 24 Ex EE

4219 Apr Tr aI 12 13

4l d at 12 97 99

44Ex TA at2425

28 F M C
86 FEDERAL MARITIME COMMISSION

Most of the infonnation of record with regafl to the three individual

respondents has already been set forth above On the present record it

appears that Martyn Merrin is the dominant figure of the three and that

Sharma and particularly Boudart are minor functionaries by comparison

With regard to Merritt it must also be noted that he had no apparent

association with Arlel until August 1982 when he became a special consult

ant to the company At some subsequent point Merritt purchased 200

shares of Ariel stock and he was elected President of the Arlel Board

of Directors on August I 1983 These dates become important when they

are aligned with the beginning of the relationship between Arlel and Klaus

in September 1980 and with the period of alleged violations in this case

which is September 1981 October 1983 They show that according to the

present record Merritt was not associated with Arlel at the time of the

execution of the Klaus agency agreement and he did not come into clear

control at Ariel until nearly the end of the period of allege violations

C The Initial Decision

The Presiding Officer summarized the evidence against the respondents

in his findings of fact He found that there were three basic malpractice

schemes involved In each scheme an Interlink bill of lading would be

issued to the actual shipper That bill of lading would contain the correct

description weight and measurement of the shipment as shown on the

export declaration and shipper s packing list 46

In the first scheme the cargo then would be booked with the underlying

vessel operating carrier but Interlink would not be shown as shipper In

stead another entity would be listed on the second bill of lading as agent

for shipper Consolidated was the name used although one shipment

was found using Joshua Dean 47 The actual commodity description weight

and measurement of the shipment would be misdeclared in various combina

tions to the vessel operating carrier This would result in transportation

being obtained for less than the lawfully applicable charges Emanuel

Mingione the Commission investigator documented 63 shipments where

such misdeclarations occurred in connection with shipments of dehumidi

fiers loudspeakers stage equipment and predominately cellulose film and

cigarette paper during the period from October 20 1981 through August

7 1982 48

In the second scheme the cargo was booked with the vessel operating

carrier under Interlink s name The commodity description weight and

or measurement again were misdeclared with resulting untariffed freight

savings Mingione documented 32 shipments where such misdeclarations

I

I

Ex lB 18 Apr Tr at 130

46Ex TA at 14 see 18 Apr Tr a1 35

47Ex TAt Attachment A The CommissIon investigator testified that Ariel was also lIsed in this manner

but subsequently said he had been mistaken 18 Apr Tr at 5859

48Ex TA at 1415 Attachment A

2S F M C
ARIEL MARITIME GROUP ET AL

occurred in connection with shipments of predominately cellulose film

and cigarette paper during the period from May 8 1982 through October

18 1983 49

In the third scheme cargo actually destined for Europe instead was

declared to the vessel operating carriers as being destined for transshipment

to countries outside of Europe This misrepresentation permitted the cargo

to get by unfair means special lump sum rates for transshipped cargo

offered under connecting carrier agreements that Oasis and Javelin had

with Dart Line and Trans Freight Line two vessel operating carriers pro

viding service between the United States and Europe For each shipment

an Interlink bill of lading had been issued to the actual exporter showing

that the cargo was actually destined for Europe and was not to be trans

shipped The Commission investigator documented 24 shipments involving

false transshipments during the period from September 14 1981 through

October 28 1983 Oasis or Javelin was listed as agent for shipper

on the vessel operating carrier bill of lading 50

The Commission s

investigator examined Interlink s tariff on file with

the FMC to determine whether Interlink s shipper customers had been

charged rates properly covered by that tariff This examination showed

that rates not set forth in Interlink s tariff had been charged on 62 separate

shipments of loudspeakers t shirts dessert preparations wearing apparel

dehumidifiers and predominately cellulose film and cigarette paper during

the period from September 14 1981 to June 11 1982 51 The non tariffed

rates actually charged were consistently applied on a

regular basis over

an extended period For example cellulose film was assessed an untariffed

rate of 130 75 per long ton on 31 shipments during the period January

10 to June II 1982 while cigarette paper was assessed an untariffied

rate of 85 75 per 40 cubic feet on 14 shipments during the period from

January 22 to June 11 1982

The Presiding Officer also noted that the Commission s investigator had

found seven shipments where Javelin Oasis and Liberty NVOCe bills

of lading were issued for cargo that was misdeclared to the vessel operator

as noted Javelin and Oasis acted as NVOCCs in U S foreign commerce

as well as vessel operators in foreign to foreign trades In these shipments

the names of firms other than the NVOCC s again were listed on the

vessel operator bills of lading as agent for shipper The names Consoli

dated Cheerio Dean and Interlink were used These misdec1arations were

made in connection with shipments of mining machinery automatic teller

machines poultry equipment and cellulose film at sporadic intervals during

the period from October 25 1981 through April 24 1983 52

49Ex TA at 15 Auachment B

sOEx TA at 11 12 16 Attachment D

SIEx TA at 17 19 Attachment C

52 ExTA al 19 Attachment E

28 F M C

87
88 FEDERAL MARITIME COMMISSION

On the basis of this evidence the Presiding Officer concluded that

Interlink Consolidated Cheerio and Liberty had violated section 16 Initial

Paragraph of the Shipping Act 1916 He found that those four companies

led by Interlink were responsible over a long period of time for a delib

erate and repetitious course of action in which the vessel operator was

paid one rate and the shipper charged a higher rate for the same shipment

as a result of a misdeclaration 10 at 20 He held that this was a

deliberate scheme to obtain transportation at less than the tariff rates

on Interlink s part id hence finding the element of willfulness

required by the statute He based his similar holding with regard to Consoli

dated Cheerio and Liberty on his belief that those three finns were

controlled and operated by the same people who used Interlink id

The Presiding Officer also held that Interlink violated section 18b 3

of the Shippinq Act 1916 by failing to charge rates in accordance with

its tariff He noted that section 18 b 3 does not require a finding of

willfulness

For these violations of the statute the Presiding Officer assessed penalties

of 200 000 against Interlink 150 000 for the violations of section 16

and 50 000 for the violations of section 18 50 000 against Consolidated

and 5 000 against both Cheerio and Liberty However he declined to

issue cease and desist orders against any of those four respondents on

the ground that in light of the facts established in the proceeding such

orders would be limited in scope and difficult to enforce He stated that

the penalties he assessed were severe and would accomplish more than

cease and desist orders

Finally the Presiding Officer concluded that the record did not support

fmdings of violations against any of the other respondents I e Arie

Oasis Javelin Dean and the individuals Merrill Sharma and Boudart With

respect to the individuals he noted that the Commission s Order of Inves

tigation and Hearing included as an issue whether cease and desist orders

should be issued against them However he stated that such orders were

not warranted because the record in this case fails to establish which

of them or for that matter if all of them took part in the violative

conduct 10 at 29 30

D Positions of the Parties

1 Respondents

In their Exceptions Interlink Consolidated Cheerio Dean and Liberty S3

attack the 10 for both its style and substance They argue that the Presiding

Officer failed to articulate basic factual findings necessary to support his

3The Exceptions note p2 n 1 that the 1 0 found no violations by Ariel Charles Klaus Co the

parent company of Oasis and Javelin and the individual respondents and stale that the inslant pleading

is med only on behalf of the remaining respondents It No mention is made of Joshua Dean but presum

ably thesame statement would apply

28 FM C
ARIEL MARITIME GROUP ET AL 89

ultimate conclusions and that the 1D violated the provisions of the Admin

istrative Procedure Act 5 U S c 51 et seq and the Commission s

regula

tions by failing to refer properly to the record in support of the findings

it did make They take particular exception to the Presiding Officer s ref

erence to the entire record in certain of his findings as potentially

violative ofprocedural due process

The primary substantive argument advanced by the respondents is that

the different commodity descriptions used in most of the instances of

misclassification i e cellulose acetate cellulose film and cigarette paper

industrial wrapping paper did not denote any true difference in commodity

usage and in any event that Interlink did not know that the wrong descrip

tion was being employed for vessel operator rating purposes They contend

that the Presiding Officer erroneously ignored testimony they had adduced

that celIulose acetate is available in the form of film and that the wrapping

paper being shipped would require further processing before it could become

cigarette paper Respondents argue that the vessel operating carriers had

filed both sets of terms for each commodity within the same tariff thus

creating an ambiguity They further contend that Interlink persouuel had

checked with the vessel operators and made reasonable attempts to ascertain

the most appropriate rating for the commodities involved They Slate that

the Presiding Officer erred by dismissing this testimony out of hand on

the ground that it was self serving and uncorroborated

With respect to the instances of misdeclaration of weight they contend

that in some cases there was no misdeclaration and in the others if

there were incorrect weights given to the vessel operator the weight dif

ferential made no difference in the freight charges because of minimum

weight rules In sum the respondents submit that the record does not

support the conclusion that they knowingly and willfulIy obtained transpor

tation at less than the rates required by law

The respondents also argue that in finding violations by Consolidated

Cheerio and Liberty the Presiding Officer failed to make findings of fact

in support of that conclusion and instead wrongly relied on a presumption

of common ownership among those companies They stress that the record

contains no evidence of actions by Cheerio Consolidated and Liberty and

state that in fact these entities were just names used on Interlink ship

ments and these companies performed no functions in relation to the in

volved shipments Exceptions at 15 They contend that the Presiding

Officer was inconsistent to find that Interlink misdescribed the shipments

at issue and at the same time to hold that the passive entities of Consoli

dated Cheerio and Liberty also violated section 16

The respondents further state that the penalties assessed by the Presiding

Officer are excessive and if upheld will put Interlink out of business

Finally they contend that the Presiding Officer erred in finding that Interlink

is controlled by Martyn Merritt Sharma and Boudart and that Merritt

has a substantial ownership interest andor a primary operating responsi

28 F M C
90 FEDERAL MARITIME COMMISSION

biIity in Cheerio Liberty Shipping and Consolidated Jp at 12 They

suggest that since in their view these fmdings had no effect on the

I Ds ultimate conclusions they simply be deleted by the Commission

Exceptions at 2I

2 Hearing Counsel

Hearing Counsel deny that there is any ambiguity in the vessel operators

tariff commodity descriptions They contend that the record shows that

cellulose film is but one form of cellulose acetate and that cellulose acetate

is also available as lacquers powder pellet or granules rods tubes

or other extended forms and sheets all of which are susceptible to separate

tariff commodity classification Reply at 2

54 With respect to cigarette

paper Hearing Counsel state that if someone decides to use cigarette

paper for another purpose this does not create a tariff ambiguity which

authorizes the shipper to misdeclare the shipment id at 3 They argue

that there is clear evidence of a deliberate scheme on the part of Interlink

and Liberty because their own bllls of lading correctly described the cargo

based on shipper packing lists but they then declared to the vessel operators

a completely different set of descriptions Similarly with respect to the

misdeclarations of weight the shipper would inform Interlink of the correct

weight or cube for the cargo being shipped as shown by the packing

lists and export declarations

Hearing Counsel emphasize that this case does not involve a normal

NVOCC rate spread created by the service of consolidating several

small shipments into a full containerload They state th t

the shipments

involved here were full containerloads of a single commodity when they

were tendered to Interlink and that Interlink then created an illegal rate

spread by making false declarations to the ocean carrier

Hearing Counsel note that the respondents made no attempt in their

Exceptions to address the Presiding Officer s

finding that they violated

section 16 by falsely representing that 24 shipments were to be transshipped

They defend the I Dsfindings with respect to Consolidated Cheerio and

Liberty by arguing that Consolidated and Cheerio were acting as agents

of Interlink and as such clearly fall within the proscriptive reach of section

16 55 and that Liberty acted as NVOCC on two misdeclared shipments

Finally Hearing Counsel describe as appropriate the penalties assessed by

the Presiding Officer

Hearing Counsel make no comment on the J Ds conclusions that the

record did not support findings against the other respondents and that

cease and desist orders were not required

54 23 at C 765 18Apr Tr at 48

5

The prohibitions of section 16 apply to Inter alia any 81Upper or other person orany agent

thereof

2S FM C
ARIEL MARITIME GROUP ET AL 91

DISCUSSION

After reviewing the record the 10 the respondents Exceptions and

Hearing Counsel s Reply to Exceptions the Commission has determined

that we cannot reach at this juncture a final conclusion as to whether

violations of law were committed by any of the respondents 56 Ultimately

any findings of violations in this case must be based primarily on the

shipping documents introduced into the record by Hearing Counsel through

the testimony of Mr Mingione The Commission is satisfied that the posi

tions of the parties as to the legal significance of those documents have

been adequately set forth in the record and analyzed by the Presiding

Officer Although we do not reach the merits of those positions at this

time we see no need for the taking of further testimony or briefing regard

ing the substance of the documents The arguments in the respondents

Exceptions and Hearing Counsel s Reply will be preserved for resolution

at the appropriate time

However the Commission is not satisfied that the record adequately

describes the corporate structures of some of the respondents the relation

ship if any among them and the roles played by certain individuals

There simply are too many important questions that have been left unan

swered Some of these questions were identified by the Presiding Officer

at the close of his Initial Decision He cited them as the reason why

he found no violations by Klaus Oasis Javelin Dean and the individual

respondents Although the Commission renders no judgment now regarding

that particular conclusion by the Presiding Officer we have determined

that in light of the matters requiring further investigation the best exercise

of our discretion would be to reopen the record with regard to all respond

ents At the close of the remand proceedings the Presiding Officer will

be in a position to reexamine his conclusions including the possible imposi

tion of penalties or cease and desist orders with regard to each respondent

if the evidence requires

The inadequacies and contradictions of the present record are illustrated

best by Interlink Ifit is assumed for purposes of analysis that the sbipping

documents do show a pattern of malpractices the Presiding Officer s find

ings against that company appear justified at first glance Interlink acted

as NVOCC on most of the suspect shipments and it appeared to be the

link in the shipping chain at which the correct description weight measure

ment or in the case of the false transshipments lestination of each ship

56 Evidence was introduced into the record regarding previous administrative and court actions involving

some of the respondents Throughout the hearings the respondents objected vigorously 10 the introduction

into the record of thai evidence on the grounds that it was irrelevant and concerned persons not parties 10

this proceeding and that they had nOl had a fair opportunity to defend against it In his Initial Decision the

Presiding Officer stated at the outset that in the absence of any supporting evidence of a prior course of

conduct involving similar practices he would not consider any of the evidence to which the respondents ob

jected The Commission agrees with this approach and we have and will accord no weight whatsoever to

that evidence To do otherwise could result in fmdings based on information that is not probative moreover

respondenls righls to procedural due process could be violated

28 F M C
92 FEDERAL MARITIME COMMISSION

ment were altered Hawever the recard alsa shaws that Interlink has only

twa emplayees wha da clerical wark and have na aperatianal autanomy

There is na clear indicatian as ta wha is respansible far making policy

decisians far the campany

57 Interlink seems ta have na physical assets

aside fram its bank accaunts tax farms and carrespondence stack Thus

the difficulty becames clear Assuming that the documents shaw that mis

representatians were made ta the vessel operating carriers sameane made

a decisian ta make thase misrepresentatians but na emplayee of Interlink

has the autharity ta make such a decisian On this recard therefore a

finding against Interlink makes little sense particularly in light of sectian

16 s requirements of willfulness or cansciaus wrangdaing Intent cannat

be ascribed to a carparate entity that apparently lacks the ability ta make

any important decisian Sectian 18 does nat require a finding of willfulness

but the dacumentary evidence here arguably shaws a pattern of extended

and cansistent misrating that in turn implies guidance beyand the autharity

of twa tariff clerks Further investigatian is necessary to determine exactly

wha was responsible far running Interlink during the period of record

a matter that obviously invalves Interlink s relatianship with Ariel

The Presiding Officer s basis for finding that Cansalidated Cheeria and

Liberty a1sa vialated sectian 16 raises a similar cancern that if there

were vialatians the respansibility lies samewhere else He stated that Can

salidated Cheeria and Liberty vialated sectian 16 because they were can

trailed and operated by the same peaple wha used Interlink ID at

20 As nated the identity of the individuals using Interlink has nat

been established But if such individuals were respansible far misrepresenta

tians or ather actians giving rise ta vialatians of law they shauld be

held accauntable rather than or at least in additian to carparate entities

such as Cansalidated and Cheeria especially in light of Martyn Merritt s

testimany that Cansalidated and Cheeria were nanentities used ta screen

the vessel operators away fram Interlink s shipper clients 5s If that is so

it appears that sameane had autharity aver the aperatians of all three

campanies

It shauld be nated at this juncture that the recard daes nat suppart

the Presiding Officer s statement that Liberty was cantralled and operated

by the same peaple who used Interlink The only evidence regarding

Liberty s ownership is that Mary Anne MerrittLMartyn s wife awns Same

unspecified shares Any findings against Liberty an this recard wauld have

to be based very narrawly an twa shipments that may have been

misdeclared 59 Similar limited evidence exists regarding Oasis and Javelin

against which the Presiding Officer made na findings 6O This evidence

At one point during the evidentiary hearings thePresiding Officerremarked accurately of Interlink

It s a strange company nobody knows who the boss is 19 Apr Tr at 160

58This testimony was used by respondents in their Exceptions as the reason why the Presiding Officer

erred in rmdlng that Consolidated Cheerio and Liberty violated section 16

9Ex 81 83 TAt Attachment E

wEx TA Attachment E Ex DO ee Z AA DB

28 F M C
ARIEL MARITIME GROUP ET AL 93

also raises questions about the relationship between Oasis Javelin and

Liberty on the one hand and Cheerio Consolidated and Interlink on

the other because the names of the latter three companies were again

listed as agents for shipper on the vessel operator bills of lading There

may have been a symbiotic relationship between the two groups of compa

nies in which they would take turn using each other s names to facilitate

deception of the vessel operating carriers

Perhaps even more important there is an open question as to the role

of Javelin and Oasis in the shipments that allegedly were falsely trans

shipped To reiterate the Presiding Officer found that on these shipments

an Interlink NVOCC bill of lading was issued to the actual shipper exporter

showing that the cargo was destined for Europe e g Belgium The cargo

was then misrepresented to Dart Line and Trans Freight Line two vessel

operating carriers providing service between the United States and Europe

as being destined for transshipment to countries outside Europe eg Turkey

This misrepresentation permitted the cargo to get special lump sum rates

for transshipped cargo offered under connecting carrier agreements that

Dart and Trans Freight Line had with Oasis and Javelin in the latter s

capacity as vessel operators in Mediterranean foreign to foreign trades Once

again the agent for shipper practice was employed but this time with

Oasis and Javelin rather than Consolidated or Cheerio appearing on the

Dart and Trans Freight Line bills of lading 61 The record does not show

why this was done who directed that it be done and whether Oasis and

Javelin knew about it

A Factual Issues Requiring FurtherInvestigation

In order to give maximum guidance to the parties and the Presiding

Officer the Commission sets forth below specific questions that have been

raised by the general issues discussed above and should be investigated

This list is meant to be illustrative rather than exhaustive of course because

the answers to those questions may open up new areas of exploration

Although they have been categorized according to particular respondents

certain questions may apply with equal force to two or more respondents

tArie

J A Mott was president of Ariel from August 1980 to August 1983

which encompasses most of the period of apparent violations After August

1983 he retained his ownership interest of 200 shares What does Mott

know about the relationship of Arlel and Interlink during the period of

record the chain of command at Interlink and the shipping transactions

under investigation

61 As noted previously the respondents did not except 10 the Presiding Officer s

findings with regard to

the false transshipments

28 F M C
94 FEDERAL MARITIME COMMISSION

j

Mott may also have information with regard to the ownership directors

officers and lines of business of ASA Development Co during the period

of record To whom did Mott report at ASA In this connection we

note that a

representative of ASA attended the annual meetings of the

Arlel shareholders 62 That individual should be identified and if possible

called to testify as to the nature and ownership ofASA and its relationship

with ArieSpecifically what representation did ABA have on the Ariel

board of directors Why did the Arlel board shrink from six directors

to four between August 1982 and August 1983 At some point during

that same period Martyn Merritt purchased 200 shares of Arlel formerly

held by Roy Brookes and became a member of the board When precisely

did that happen Is there any connection between Merritt s becoming a

member of the board and the departure of Arun Dutta and Avinash Kohli

What does Brookes know about ASA and the day to day relationship be

tween Arlel and Interlink

Before he acquired Brookes s shares Martyn Merritt was hired as a

consultant by Arlel in August 1982 At the same time his wife Mary

Anne was elected assistant secretary of ArleThis may indicate that the

Merritts had a

relationship with Ariel before August 1982 What does

Mary Anne Merritt know about that and what were her duties at Arlel

FinalIy further information is necessary regarding the basis of the Decem

ber 1983 Dun Bradstreet report that 60 percent of Arlel was owned

by Charles Klaus Co

2 interlink

Who are the other owners of Interlink besides Martyn Merritt Sharma

and Boudart What do they know about the issues in this case In view

of the ostensibly minor shares held by Merritt Sharma and Boudart why

has there been no change in the directors and officers since 1980 Do

any ofthe owners of Interlink including Sharma and Boudart have interest

in Ariel or in ASA

Is there an agency relationship between Arlel and Interlink What is

Sharma s knowledge on that question and on the day to day operations

of Interlink IfInterlink realizes a net after tax profit for a calendar year

how is that profit distributed to Interlink s owners this has particular rel

evance to the unlawful freight savings allegedly realized by Interlink during

the period of record What were Interlink s revenue results for 1981

1982 and 1983 Who is responsible for maintaining Interlink s finances

and preparing its tax returns

What were the duties of the two Interlink employees during the period

of record Who supervised them Who directed that the names of Consoli

dated Cheerio Dean Oasis and Javelin be supplied to the vessel operating

carriers as agents for shippers Who directed them to declare to the

i

61EI lA lC 2A

2S F M C
ARIEL MARITIME GROUP ET AL 95

vessel operators that the shipments under investigation would be trans

shipped Who was responsible for the untariffed rates assessed against

certain shipments What knowledge did they have of the alleged

misdeclarations of weight measurement or commodity on the shipments

under investigation

3 Consolidated

Who were the owners of Consolidated during the period of record

Who were its officers Who were its directors Did it have any assets

of its own Did it have any salaried employees Was the use of Consoli

dated as agent for shipper in the Interlink shipments made known to

Consolidated s officers and directors Did Consolidated receive any benefit

from that practice

4 Cheerio

Did Martyn and Mary Anne Merritt Cheerio s owners and officers know

that Cheerio was being used as agent for shipper in the Interlink ship

ments Did Cheerio receive any benefit from that practice

5 Liberty

Who were the owners of Liberty besides Mary Ann Merritt during

the period of record Who were its directors Who were its officers

On the two 1983 Liberty NVOCC shipments where cargo may have been

misdeclared who directed that Interlink be listed as agent for shipper

on the vessel operator bills of lading Is there any significance in the

fact that Thomas Matthews an Ariel employee is the U S filing agent

for Liberty

6 Oasis and Javelin

Is there any more recent information available on the ownership of

Charles Klaus Co the parent of Oasis and Javelin Who were respon

sible for the day to day operations of Oasis and Javelin during the period

of record On the 1983 NVOCC shipments where cargo may have been

misdeclared who directed that the names of Consolidated Cheerio and

Joshua Dean ostensibly the ultimate owner of Oasis and Javelin be used

as agent for shipper on the vessel operator bills of lading Is there

any significance in the fact that Mary Anne Merritt is the US agent

for Oasis Md Javelin Was the fact that Oasis and Javelin were used

as agent for shipper in connection with the false transshipments known

to them Did they receive any benefit

28 F M C

B Issues of Law

In addition to further development of the factual record with regard

to the issues discussed in this order the Commission also wishes the

parties to brief and the Presiding Officer to issue a supplemental initial
96 FEDERAL MARITIME COMMISSION

decision on certain issues of law These include whether the Commission

has the authority to issue cease and desist orderS forbidding violations

of the Shipping Act of 1984 based on violations of the Shipping Act

1916 63 whether a cease and desist order can be issued against an individual

even if no findings of violations of law are made against him and depending

on the information developed whether separate incorporations can and

should be pierced in the imposition of sanctions

THEREFORE IT IS ORDERED That this proceeding is hereby re

manded to the Presiding Officer for further development of the record

and issuance of a

supplemental initial decision as described above

IT IS FURTHER ORDERED That pursuant to Rule 61 of the Commis

sion s Rules of Practice and Procedure 46 C F R 502 61 the supple

mental initial decision of the Presiding Officer shall be issued by December

16 1986 and the final decision of the Commission shall be iS8ued by

April 16 1987

By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

63This Issue was rajs by respondents e

g

17 Apr Tr 16 but not reached by IhePresiding Officer

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 44

STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH

CAROLINA STATE PORTS AUTHORITY

ORDER ADOPTING INITIAL DECISION

December 27 1985

This proceeding was initiated by the filing of a complaint by Stevens

Shipping and Terminal Company Stevens alleging that certain items in

the terminal tariff of the South Carolina State Ports Authority Ports Author

ity violated sections 15 through 18 of the Shipping Act 916 1916

Act 46 U S C app 814817 Specifically the complaint alleges that

Items 5 20 25 135 and 136 of the Ports Authority s tariff are unlawful

because they require Stevens to indemnify the Ports Authority for the

latter s own negligence and are being applied in an unjustly discriminatory

marmer against Stevens The Commission s Bureau of Hearing Counsel

intervened in the proceeding An Initial Decision I

D has been issued

by Administrative Law Judge Norman D Kline Presiding Officer finding

that tariff Items 20 25 and 135 violated section 17 of the 1916 Act

Exceptions to the LD were filed by Stevens and the Ports Authority

Hearing Counsel and Stevens filed Replies to the Exceptions of the Ports

Authority The Ports Authority filed a Reply to the Exceptions of Stevens

BACKGROUND

The controversy between Stevens and the Ports Authority arose out of

an accident that occurred at the Charleston terminal on January 20 1982

Stevens was loading locomotives aboard a vessel bound for Saudi Arabia

utilizing a ganty crane and operator rented from the Ports Authority when

the crane collapsed causing the loss of a locomotive The consignee and

its insurer filed suit in the U S District Court for the District of South

Carolina Charleston Division against the ocean carrier Stevens and the

Ports Authority The Ports Authority cross claimed and filed a

separate

action against Stevens The Ports Authority alleged that Stevens was the

negligent party and that the terminal tariff held the Ports Authority harmless

and required indemnification by Stevens Stevens requested a stay of the

proceedings to allow the Commission to determine the lawfulness of the

I The Presiding Officer found tbat section 17 of the 1916 Act was essentially reenacted as section lO d

1 of the Shipping Act of 1984 1984 Act 46 U S c

app 1709 Therefore any violation of section

17 of the 1916 Act was deemed 10 also violate section lO d lof the 1984 Act See 28 F M C 103 105

at fnA

28 F M C 97
98 FEDERAL MARITIME COMMISSION

tariffs indemnification provisions The Court granted the request Stevens

subsequently filed the complaint which initiated this proceeding

At prehearing conferences convened by the Presiding Officer the scope

of the proceeding was narrowed and the issues specified Stevens relied

upon sections 16 First and 17 of the 1916 Act 46 D S C app 815

First and 816 as the basis of its complaint The parties agreed that the

lawfulness of Items 5 20 2S and 136 could be determined as a mailer

of law without an evidentiary hearing 2 The questions of actual control

of the crane operator under Item 135 and the discrintinatory application

of that Item were deemed to be factual issues requiring an evidentiary

hearing

The Presiding Officer issued a preliminary ruling that I Items 20

and 25 violated section 17 of the 1916 Act 2 Item 136 was lawful

on its face and 3 Item 5 was not unlawful but could not be construed

as imposing tariff items that were otherwise unlawful The maller then

went to hearing

INITIAL DECISION

The Initial Decision issued subsequent to the evidentiary hearing found

essentially as follows with respect to the lawfulness of the tariff items

at issue

Item No 5 is not unlawful because it is mer ly declarative of existing

law However tariff provisions of this kind cannot be utilized to enforce

tariff provisions which are otherwise unlawful by imputing such an agree

ment to facilities users Therefore although Item 5 is not unlawful it

adds nothing substantive to the tariff and does not prevent users seeking

relief from the application of other unlawful provisions

Items 20 and 25 are unlawful on their face They allempt to exculpate

the terminal operator from liability for its own negligence without affording

users a concontilant benefit and attempt to impose liability on users without

regard to fault Such provisions are unreasonable under section 17 of the

1916 Act as it has been consistently construed by the Commission The

Ports Authority s argument that it does not apply the provisions in such

a manner in actual practice does not alter the fact that the provisions

as published are unreasonable

Item 136 is not unlawful on its face The provisions are construed as

a warranty or assurance that the Ports Authority provides adequate cranes

and competent operators Such provisions are reasonable on their face

Whether the Ports Authority breached this obligation is a maller for the

2

Item 5 imposed arule that use of the faclllties constituted an agreement to be bound by all terms of

the tariff 28 F M C at 107 Item 20 required users to hold harmless and indemnify the Ports Authority for

all losses d at 109 Item 2S slated that vessel owners and their agents were responsible for all damages

resulting from the use of pon facilities Id Ilem 136 stated that the Ports Authority provided adequate cranes

and qualified operators and required their use in preferenceto private cranes 28 F M C at 116

3

Tariff Item No 135 purported to disclaim lIability on the part of tbe Ports Authority for Josses resulting

from crane operations and placed the crane operator under the control ofthe renler ld

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 99

CAROLINA STATE PORTS AUTHORITY

Court to determine The further requirement that users must utilize Ports

Authority cranes in preference to private facilities the socalled first

call system was not disputed Its only relevance is with regard to Stevens

assertion that it did not select or control the crane and its operator However

that factual issue does not affect the lawfulness of Item 136

Item 135 is unlawful based on the evidentiary record It does not comport

with the actual practice of the Ports Authority The Item provides that

crane operators are so called borrowed servants of the crane renter

that is under the exclusive control of the renter and that the Ports Authority

has no liability for damages resulting from the use of the crane The

record indicates however that the Ports Authority does not relinquish the

right to control its crane operators and in fact retains extensive control

over crane operations and the operator Therefore they are not borrowed

servants and remain employees of the Ports Authority during crane oper

ations It is an unreasonable practice under section 17 of the 1916 Act

to impute the negligence of the Ports Authority s employees to users of

facilities Because Item 135 embodies this practice it is an unreasonable

tariff provision in violation of section 17

Stevens also alleged in its complaint that the Ports Authority practices

under Item 135 were unjustly discriminatory in violation of section 16

First of the 1916 Act because the Ports Authority entered into separate

agreements with ocean carriers and their agents which were contrary to

Item 135 The Presiding Officer found it unnecessary to pass upon this

discrimination claim because he had already found the provision to be

unlawful Furthermore he noted that the subject agreements contained con

comitant benefits to the ocean carriers and had been approved by the

Commission under section 15 of the 1916 Act The Presiding Officer also

declined to direct specific amendments to Item 135 because the Commission

has in such cases allowed a reasonable amount of time for the filing

of amendments to terminal tariffs

Finally the Presiding Officer noted that the Ports Authority had amended

Items 20 and 25 during the course of the proceeding Hearing Counsel

argued that the amendments were insufficient because they could be con

strued as exculpating the Ports Authority when it was partially at fault

for losses Stevens also objected to the amendments and sought a ruling

that the amendments could not be applied retroactively to the suits pending

in the District Court The Presiding Officer found that it was unnecessary

to pass upon the lawfulness of the amended tariff provisions because only

the original tariff provisions are actually at issue in this proceeding and

in the District Court proceedings

He also found it unnecessary to issue a cease and desist order concerning

the assertion of the unlawful tariff items in the District Court proceedings

on the basis that the Court should be free to determine negligence issues

in those proceedings under local law

28 F M C
100 FEDERAL MARITIME COMMISSION

POSITIONS OF THE PARTIES

Ports Authority

The Ports Authority does not object to the finding of the Presiding

Officer with respect to Items 20 and 25 of its tariff The Ports Authority

argues however that these amended Items are not ambiguous nor excul

patory The Ports Authority also argues that it was proper for the Presiding

Officer to allow the Ports Authority some time to fashion a workable

revision of Item 135 and to refuse to restrict the Ports Authority s arguments

in the District Court proceedings

However the Ports Authority does object to the findings concerning

Item 135 specifically the rmding that the Ports Authority could not require

that the crane operators become the borrowed servants of the crane

renters The Ports Authority argues that this finding is unjustified and

impractical and requests oral argument

Stevens

Stevens disagrees with the Ports Authority s characterization of the LD

and argues that in finding Item 135 unlawful the LD did not prohibit

transfer of control over crane operators However Stevens excepts to the

Presiding Officer s failure to order the Ports Authority to amend Item

135

Stevens also takes issue with the failure of the Presiding Officer to

review the lawfulness of the amended tariff Items 20 and 25 published

by the Ports Authority during the course of the proceeding It contends

that these amended provisions are also unlawful because they can be con

strued as exculpating the Ports Authority in all cases except those where

the Ports Authority is found to be solely negligent and responsible

for losses

Finally Stevens disagrees with the Presiding Officer s determination that

it was unnecessary to order the Ports Authority to cease and desist from

asserting the exculpatory provisions in the suits pending in District Court

Hearing Counsel

Hearing Counsel supports the findings of the Presiding Officer and urges

their adoption by the Commission It argues that the LD fully comports

with applicable precedent and is properly based on the weight of evidence

in the record

DISCUSSION

The findings of the LD with respect to the original tariff items challenged

by Stevens are correct under applicable precedent and are fully supported

by the evidence of record in this proceeding Accordingly and for reasons

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 101

CAROLINA STATE PORTS AUTHORITY

more fully stated below the Commission adopts the essential findings of

the Initial Decision as the final decision in this proceeding

Tariff Item No 5 merely provides that users of terminal facilities are

bound to the provisions of the terminal tariff This is declarative of existing

law and adds no validity to other tariff provisions which may otherwise

be unlawful4

Item No 136 is a statement or warranty that the Ports Authority provides

adequate cranes and competent operators There is no apparent basis to

find this provision unlawful In fact it appears to accrue to the benefit

of users of the cranes to the extent it provides a contractual cause of

action if the crane or its operator are deficient

Items No 20 and 25 are unlawful because they purport to exculpate

the Ports Authority from its own negligence and impose liability on crane

users without regard to fault In several cases the Commission has found

such provisions unlawful5

Item No 135 was properly found to operate in an unreasonable manner

because it purports to transfer control over crane operations to stevedores

when in fact the Ports Authority retains significant control over crane

operations 6Contrary to the Ports Authority Exceptions the JD did not

prohibit a transfer of control over crane operators to stevedores it was

the variance between the tariff provision and actual practice that was found

to be unreasonable Under the facts of this case Item No 135 unlawfully

attempts to exculpate the Ports Authority for the potential negligence of

its employees i e crane operators when operating within the scope of

the terms of their employment The Presiding Officer was correct however

in not ordering specific amendments to Item No 135 because the Ports

Authority is entitled to choose between two basic methods of operation

It could either change its practices in providing crane operators and SUT

render total control over them to stevedores during lift operations or accept

potential liability for their actions when operating cranes pursuant to Ports

Authority directives

The Presiding Officer was correct that it was not strictly necessary to

pass upon the applicability and lawfulness of amended Items No 20 and

25 However in the interest of judicial economy and because the decision

in this case will be used to assist the District Court in the consolidated

cases pending before it it appears appropriate to do so here

The Commission therefore advises that under its regulations the amended

items may not operate retroactively to affect those pending suits 7The

28 F M C

4West Gulf Maritime Association v Port of HoustonAuthority 22 EM C 420 1980 affirmed sub nom

West Gulf Maritime Association v Federal Maritime Commission 652 F 2d 197 D C Cir 1981

See e

g

United States Lines Inc v Maryland Port Administration 20 S R R 646 1980 West Gulf

Maritime Association v The City afGalveston 22 EM C 101 1979

6 ee 28 F M C at 142 145

7Changes in lennmal tariffs must be filed on or before not after their effective dale 46 C F R 515 4

In any event Ihe amendmenls 10 tariff I1ems 20 and 25 went into efft

on November 1 1984 and would

appear to have no effect on the incident of January 20 1982
102 FEDERAL MARITIME COMMISSION

Commission also notes that amended Items No 20 and 25 appear ambiguous

and potentially unlawful at least to the extent that they limit the Ports

Authority liability to only those instances where it is solely at faults Case

law is clear that ambiguous tariff provisions which may be read to exculpate

the terminal operator in instances where it is partially at fault are also

unlawful9

However it is not appropriate for the Commission to order the Ports

Authority to cease and desist from asserting its tariff provisions as a defense

in the pending District Court actions These provisions may have relevance

to the negligence issues before the District Court apart from their unlawful

ness under the Shipping Act of 1984 See Wilmington Stevedorts v Port

of Wilmington 22 S RR at 1657 It is not only of questionable legality

under the Commission s enabling statute but would also appear to be

a usurpation of the District Court s authority to determine the issues before

it in the pending civil suits

TIlEREFORE IT IS ORDERED T11at the Initial Oecisiol issued in

this proceeding is adopted and made a part hereof and

IT IS FURTIlER ORDERED That the Exceptions to the Initial Decision

filed by Complainant Stevens Shipping and Terminal Company and Re

spondent South Carolina State Ports Authority are denied to the extent

that they are inconsistent with this Order anI

IT IS FURTHER ORDERED That the request of the South Carolina

State Ports Authority for oral argument is denied and

IT IS FURTIlER ORDERED That this proceeding is discontinued

I By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

B Tho crlticallangu p

of dre amendment appears Itt pago 85 and 8601 the InJtJaJ DccisJon

9Central National Corp v Port ofHouston 26 F M C 296 1984

28 P M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 44

STEVENS SHIPPING AND TERMINAL COMPANY

v

SOUTH CAROLINA STATE PORTS AUTHORITY

Complainant a stevedore operating at the Port of Charleston alleges that five provisions

in respondent Ports Authority s tennina tariff are unreasonable in violation of section

17 of the Shipping Act 1916 and that respondent has applied one provision in a

discriminatory and prejudicial fashion in violation of section 16 First of the 1916 Act

Respondent is applying the provisions inconnection with two lawsuits in which respondent

is seeking to hold complainant responsible for damages to acrane and locomotive resulting

from an accident which occurred while the crane and its operator were rented by complain

ant from the respondent It is held

1 Two of the tariff provisions regarding users consent to the tariff and respondent s

reotal system are not unlawful on their face

2 Two provisions Items 20 and 25 which as originally worded could impose liability

on and require indemnification from users even ifrespondent Ports Authority were neg

ligent are unlawful on their face

3 One provision Item 135 which purports to transfer control over Ports Authority crane

operators to renting stevedores and disclaims Ports Authority liability is unlawful because

in fact and in law the right to control the crane operator does not pass from the

Ports Authority to the renting stevedore under the borrowed servant doctrine

4 Complainant s allegations that respondent violated section 16 First are not supportable

5 Respondent is ordered to cease and desist from carrying on the unreasonable exculpatory

type practices embodied in the above tariff provisions which practices and provisions

are unreasonable in violation of section 17 of the 1916 Act and section lO d l of

the Shipping Act of 1984

Francis J Gorman JoAnne Zawitoski and W Jefferson Leath Jr for complainant Stevens

Shipping Terminal Company

William H Vaughan Jr Patrick J O Connor Thomas C Zielinski and John L Choate

forrespondent South Carolina State Ports Authority

Aaron Reese and James S Onelo for Hearing Counsel

INITIAL DECISION 1 OF NORMAN D KLINE ADMINISTRATIVE

LAW JUDGE

Adopted December 27 1985

The complaint which initiated this proceeding was filed and served

on February 27 1983 by complainant Stevens Shipping Terminal Com

1l1is decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

28 F M C 103
104 FEDERAL MARITIME COMMISSION

pany Stevens Stevens a stevedoring company engaged in stevedoring

and terminal operations in the Port of Charleston South Carolina is chal

lenging the lawfulness of several provisions contained in the tariff published

by respondent South Carolina State Ports Authority SCSPA or Ports Au

thority an agency of the State of South Carolina which owns and operates

terminal facilities in the Port of Charleston

The filing of the complaint was an outgrowth of an accident which

triggered two earlier lawsuits Apparently a railroad operated in Saudi

Arabia purchased six locomotives and booked thek shipment with an ocean

carrier known as United Arab Shipping Company sometime in October

of 1981 This carrier or its agent arranged to have the locomotives move

through Charleston and to have Stevens load the locomotives onto the

vessel sailing from that port In order to perform this service Stevens

rented a gantry crane known as Unit No 1575 from the Ports Authority

who also furnished a crane operator or operators Prior to loading the

shipment however on January 20 1982 the crane collapsed when handling

the sixth and last locomotive

As a result of the above accident on January 20 1983 the Arabian

purchaser and consignee and its insurer brought suit in the U S District

Court in Charleston against the ocean carrier Stevens and the Ports Author

ity seeking 1 million for damages to the locomotive 2 The Ports Authority

denied liability and raised a number of defenses inCluding Item 135 of

its terminal tariff which item disclaimed liability on the part of the Ports

Authority and purported to place the crane operlltor under the control of

the renter In addition the Ports Authority cros8 claimedagainst Stevens

alleging that Stevens had taken control of the crane which had collapsed

as a result of Stevens operations and use of the Port Authority s facilities

The Ports Authority also asserted the terms and conditions of its tariff

generally and specifically referred to Item 20 of that tariff which item

required users to indemnify and save harmless the authority from and

against all losses claims demands and suits for damages

In addition to this first suit and cross complaint on February 3 1983

the Ports Authority brought suit against Stevens in the same court alleging

that Stevens had taken control of the crane the operator and the operations

and through its negligence had caused damage to the cralle and to the

Port Authority s facilities 3 The Ports Authority again asserted the terms

and conditions of its tariff generally and referred specifiCally to Item

20

Because of the role played by the Ports Authority s tariff in both of

the above lawsuits Stevens asked the court to stay the two proceedings

1

4

I

1

l Saudi Government Railways OrsQlJlzatioJl and Red Sea Insurcmce Company v United Arab Shipping Co

SAG Stevens Shipping and Terminal Company an South Carolina State Ports Authority Civil Action

No 831768 United Stales District Court forthe District of South Carolina Charleston DividoR

3South CQrQUna State Ports Authority v Stewns Shipping Terml1JQ1 Company Civil Action No 83

29 S

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 105

CAROLINA STATE PORTS AUTHORITY

to allow this Commission to consider the lawfulness of relevant portions

of that tariff The court responded by issuing orders on December 9 1983

The court concluded

that the Federal Maritime Commission has some experience

and expertise in the field and this Court welcomes the Commis

sion s advice on the validity of the disputed tariff provisions

Upon receipt of such advice this Court will then decide the

legal questions presented under the particular facts of this case

including any challenge to the validity of the Tariff then asserted

Following issuance of the court s orders Stevens filed its complaint

in which it challenged various provisions of the Port Authority s tariff

under the Shipping Act 1916 which could be relied upon by the Ports

Authority to impose liability on Stevens and which allegedly were being

used by the Ports Authority to discriminate against Stevens Stevens alleged

that tariff Item 20 the indemnity provision and Item 135 disclaimer

of liability and passage of control to renters and unspecified other tariff

items violated sections 15 through 18 of the 1916 Act 46 U S c sees

814817 on their face and insofar as they were being applied so as to

require Stevens to indemnify the Ports Authority for the latter s own neg

ligence and as they were being applied in an unjustly discriminatory fashion

against Stevens As relief Stevens asked for an order that the tariff provi

sions in question were null and void and unenforceable on their face

as applied to the facts in this case and for an order that the Ports Authority

cease and desist in any way from acting in accordance with these tariff

provisions or from seeking to enforce such provisions against Stevens and

for such other orders as the Commission might deem necessary and proper

During the course of prehearing discovery Stevens specified the tariff

items it was challenging These were Items 5 15 20 25 35 36 and

145 At a prehearing conference held on December 28 1983 Stevens

narrowed the list of items it was challenging to five namely Items 5

20 25 35 and 136 Items 20 and 135 have already been identified

Item 5 referred to a rule that the user of the Ports Authority s facilities

agreed to be bound by the tariff Item 25 referred to a rule that vessel

owners and agents would be responsible for all damage resulting from

their use of the Ports Authority s facilities Item 36 referred to the Ports

Authority s holding out to provide adequate cranes and qualified operators

4

During the course of the proceeding Stevens narrowed its contentions and alleged that the tariff provi

siam it was challenging were violative of sections 16 First and 17 of the Shipping Act 1916 That Act has

in large measure been supplanted by the Shipping Act of 1984 P L 98237 98 Stat 67 46 V S C app

sees 1701 1720 effective June 18 1984 The relevant portion of section 17 of the 1916 Act concerning

just and reasonable regulations and practices by marine tenninal operators was reenacled in essentially the

same language as section lO d 1 46 V S C app sec 1709 The relevant portion of section 16 First of

the 1916 Act concerning undue or unreasonable preference or advantage etc was re enacted as sections

100b l1and 1O b 12 of the 1984 Act 46 U S C app sec 1709 and was made applicable to marine ter

minal operators by section Od 3 of the 1984 Act Therefore my findings and conclusions are the same

under either the 1916 or1984 Acts

28 F M C
106 FEDERAL MARITIME COMMISSION

and to the Ports Authority s practice of requiring users of its facilities

to rent a Ports Authority crane if suitable and available in preference

to a private crane

A second prehearing conference was held on May 23 1984 The purpose

of that conference was to determine what kind of evidentiary record and

hearing would be required to resolve the issues and to narrow the issues

It was determined that many of the issues could be resolved as matters

of law i e without the need for evidentiary support In other words

they could be resolved by rulings in the nature of summary judgment

because they did not involve factual disputes Accordingly the lawfulness

of tariff Items 5 20 25 and 136 were determined in this manner Tariff

Item 135 purported to lransier control of the crane operator to the renting

party in this case Stevens and relieved the Ports Authority of liability

for personal injury or property damage resulting from operation of the

crane except that resulting from structural failure This Item is known

as the borrowed servant provision To determine the lawfulness of Item

135 under the Shipping Act 1916 it was found to be necessary to develop

an evidentiary record which would show whether the right to control the

crane operator passed to Stevens or remained with the Ports Authority

The question of who possessed the right to control formed the essential

factual dispute between the parties and became the central issue to be

resolved on the basis of the evidentiary record developed at the hearing

held in Charleston on January 21 22 and 23 1985

I

1

The Lawfulness of Tariff Items 5 20 25 and 136

As discussed above I found that the question of lawfulness of four

of the contested items in the Ports Authority s tariff could be determined

without the need for an extended evidentiary record This is because the

legality of the four items depended primarily upon principles of law and

did not require resolution of factual disputes or evidence other than the

text of the tariff provisions themselves Under such circumstances rulings

in the nature of summary judgments are appropriate and save unnecessary

time and expense See discussion in Mass Port Authority v United States

Lines Inc 14 SRR 903 AU 1974 Accordingly I issue lrulings as

to four of the tariff provisions in the nature of summary judgments See

Preliminary Evaluations of Contested Tariff Items June 5 1984 22 SRR

1030 Clarification of Rulings of Law September 10 1984 Unreported

When issuing my rulings on June 5 1984 I anowed the parties time

to comment on them so that any corrections could be made prior to the

hearing Two comments were filed one by the Ports Authority and one

by Stevens The Ports Authority asked me to clarify my ruling that the

lawfulness of the one tariff Item that could not be decided without an

evidentiary hearing Item 135 the borrowed servant provision depended

upon the right to control the crane operator not the actual exercise of

such control Stevens asked me to specify that the two tariff items 20

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 107

CAAOUNA ATEPO SAUTHORITY

and 25 which Ifound to be unlawful on their face violated section

I7 of the 1916 Act I clarified both of my rulings in response to these

comments in the second ruling cited above I

further advised the parties

that these rulings would be confirmed in my Initial Decision as to the

tariff Items whose lawfulness had been determined in the rulings Further

more because the rulings in effect constituted a partial Initial Decision

as to some of the issues and because the hearing had not yet commenced

on the remaining issue Irelieved the parties of the need to file exceptions

under Rule 227 46 CFR 502 227 In that way the parties rights to file

exceptions were not waived and they were permitted to file their exceptions

to this Initial Decision as to aU issues See rulings of June 5 1984

cited above at 3

For the convenience of the Commission and the parties I set forth

a discussion of my rulings disposing of the issues relating to four of

the five contested tariff items in substantiaUy the same form below In

brief I found that Item 5 user ofPort facilities accepts all tariff regulations

charges etc although not lawful was only a reminder of the normal

obligations regarding tariffs and could not impose obligations which were

otherwise unlawful Ifound Item 20 users agree to indemnify Ports Author

ity and Item 25 vessels owners and agents are liable for damages

to be unlawful and in violation of section 17 of the 1916 Act because

the items did not clearly rule out the use of such provisions by the Ports

Authority to impose liability upon users of Ports Authority facilities even

when the Ports Authority had been negligent I concluded that these two

items needed to be amended to make clear that the Ports Authority could

not exculpate itself from the consequences of its own negligence As

discussed below these two Items were later amended by the Ports Author

ity I

found Item I36 A ports Authority holds itself out to provide

adequate cranes and qualified operators and requires users to rent Ports

Authority cranes if suitable and available not to be unlawful on its face

The text of these rulings now follows in substantially the same form as

they were originally issued and becomes part of this decision

Item 5 of respondent s tariff states in pertinent part as foUows

The use of Authority facilities constitutes an acceptance by the

user of all charges rules and regulations published in this tariff

and the user agrees to pay aU charges and be governed by all

rules and regulations published in the tariff

Complainant contends that it is unreasonable under section 17 of the

Shipping Act 1916 to bind users of Port Authority facilities to aU provi

sions of the terminal tariff notwithstanding the possible unlawfulness of

other provisions for example a tariff provision which would relieve the

Ports Authority from liability for its own negligence Respondent Ports

Authority contends that this item is vital to the validity of the tariff and

to the Commission s

jurisdiction for if users are not bound by the tariff

28 F M C
108 FEDERAL MARITIME COMMISSION

then it is useless and futile to supervise the tariff Hearing Counsel stated

that this particular tariff provision is not unlawful but that it adds nothing

to the state of existing law and cannot bind users of terminal facilities

to unlawful provisions elsewhere in the tariff so as to preclude relief

from such provisions

Hearing Counsel have stated the law correctly in this matter Thus

it is true that tariffs have the force and effect of law and that users

of terminal facilities are normally bound to tariff rates and regulations

It is ancient law that carriers tariffs have such force and effect and

the fact that here we are dealing with terminal tariffs required to be filed

by Commission regulation General Order 15 46 CFR 515 would appear

to mean that terminal tariffs are also accorded the force and effect of

law See e g Penna R R Co v International Coal Co 213 U S 184

197 1913 Farr Co v Seatrain 20 F M C 411 414 417 n 8 1978

and the cases cited therein 13 C J S Carriers sec 302 pp 700702

carriers tariffs have the force and effect of law State of Israel v Metro

politan Dade County Florida 431 F 2d 925 928 5th Cir 1970 terminal

tariff filed under Commission s

regulation has the force of law

Notwithstanding the general rule that tariffs have the force and effect

of law and that users of tariff services are bound to pay the rates and

observe tariff regulations it has also long been the law that users of

tariff services are not bound by provisions of tariffs that although legaUy

filed are otherwise unlawful but may seek appropriate relief from unlawful

tariff provisions which have been filed EJ Du Pont de Nemours and

Co v Sea Land Service Inc 22 F M C 525 534536 1980 Valley

Evaporating Co v Grace Line Inc 14 FM C 16 1920 1970 a

rate may be legal in the sense that it is the regularly published rate and

yet be unlawful if it violates other provisions of the act Louisville

Nashville R R Co v Maxwell 237 U S 94 97 1915 shippers and

carriers must abide by legally filed rate unless it is found by the Commission

to be unreasonable Arizona Grocery v Atchison Ry 284 U S 370 384

1932 shipper must pay tariff rate but can recover reparation if rate

is unreasonable Chicago M St P P R Co v Alouette Peat Products

253 F 2d 449 455 n 5 9th Cir 1957 although tariff must be adhered

to an inherently unlawful rate published therein may be corrected Cin

cinnati N O TP Ry Co v Chesapeake O Ry Co 441 F 2d

483 488 4th Cir 1971 13 C J S Carriers sec 302 pp 699 702

The principle that a user of a tariff service may be relieved of tariff

rules found to be unlawful under other provisions of law has been applied

by the Commission in the context of marine terminal tariffs and more

particularly to socalled user provisions in which the tariff would purport

to bind the user to all rules and regulations in a tariff or constitute the

user s consent to such rules and regulations The Commission consistently

holds such use equals consent provisions in terminal tariffs to have

no independent validity and to add nothing to the tariff See West Gulf

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 109

CAROLINA STATE PORTS AUTHORITY

Maritime Association v Port of Houston Authority 22 FM C 420 421

1980 affinned West GulfMaritime Association v Federal Maritime Com

mission 652 F 2d 197 D C Cir 1981 The use equals consent provi

sions merely infonn users of their responsibility and impose no disadvantage

or unreasonable practice upon them The Commission has previously found

that consent language adds no independent validity to provisions imposing

liability West Gulf Maritime Association v Port of Houston Authority

21 F M C 244 247 1978 same Perry s Crane Service v Port of Hous

ton Authority 19 F M C 548 1977 5

Accordingly I

find that Item 5 although not unlawful adds nothing

to the tariff merely reminding users of the nonnal obligation to abide

by a tariff but not imposing on them obligations to be bound by tariff

provisions that may be found to be unlawful or preclude them from seeking

appropriate relief from any such unlawful provisions

Items 20 and 25 of respondent s tariff state as follows

All users of Authority facilities agree to indemnify and save harm

less the Authority from and against all losses claims demands

and suits for damages including death and personal injury and

including court costs and attorney fees incident to or resulting

from their operations on the property of the Authority and the

use of its facilities Item 20

All vessels their owners and agents shall be held responsible

for all damage resulting from their use of Authority facilities

and the Authority shall reserve the right to repair or contract

for repair such damage Item 25

Complainant contends that these provisions violate sections 16 and 17

of the 1916 Act because they attempt to hold users of Port Authority

facilities such as Stevens liable for damages even if the Ports Authority

were at fault and caused the problem Furthennore complainant contends

that respondent is placing Stevens at an undue disadvantage in violation

of section 16 of the Act by attempting to impose liability on Stevens

pursuant to Item 20 whereas respondent Ports Authority has entered into

agreements with other users of respondent s facilities without attempting

to invoke Item 20 against those other users Complainant asks for a ruling

that as a matter of law Item 20 and apparently Item 25 are violative

of Shipping Act standards because they do not make clear that the Ports

Authority will not attempt to impose liability on users of the facilities

in instances when the Ports Authority has been the negligent party

S

In Perrys Crane the Commission granted reliefto aprivate crane operator from respondent s tariff provi

sions which were found to be unreasonable under section 17 of the Act notwithstanding respondent s

argu

ment among many others that complainant was bound by the tariff and had even signed an agreement to

abide by the terms of the tariff See 16 SRR 1459 1468 1479 10 adopted in pertinent part by the Com

mission See also SlatesLines Inc v Maryland PorI Administration 23 F M C 448 460 461 ID adopted

by the Commission 23 F M C 441 l980 use of facilities for many years does not amount to consent

nor set up estoppel against complainants who aJlege unreasonableness of tariffprovision

28 F M C
I

110 FEDERAL MARITIME COMMISSION

r

Respondent contends that it never attempts to use these tariff items

to impose liability on users of its facilities when it is not the user but

the Authority which has been negligent and has caused the damage In

other words respondent contends that it has always been its policy and

practice to impose responsibility on users of its facilities for damage caused

by the users negligence and thaI the Ports Authority never uses its tariff

to exculpate itself from its own negligence Furthermore respondent con

tends that any separate agreements it may have with other users of its

facilities such as carriers have been filed with and approved by the Commis

sion pursuant to section IS of the Act

Hearing Counsel state that the Commission has consistently held that

marine terminal tariffs regulations or practices that woul lexculpate the

terminal from liability for its own negligence without confening some

offsetting benefit or would impose liability without regard to fault are

unreasonable under section 17 of the Act Therefore if in fact respondent

is doing such things it would have to cease and desist Even if on

the other hand respondent were not carrying out such practices the tariff

provisions in question which can be construed to permit such unreasonable

practices must be clarified by appropriate amendments

Again Hearing Counsel have correctly relied upon the state of law

under the Shipping Act The Commission has not disturbed traditional law

of indemnity or local law permitting indemni contracts under applicable

standards wherever the elements justifying a particular Indemnity provision

can be shown absent peculiar Shipping Act considerations However in

every instance in which a marine terminal operator has pUblished tariff

provisions virtually identical to those under attack here as in Item 20

or Item 25 ofrespondent s tariff the Commission finds them to be unreason

able because they do not clearly rule out the use of such tariff provisions

by the terminal operator to impose liability upon users of tenriinal facilities

even when the terminal operator has been negligent Furthermore the Com

mission holds such tariff language to be unlawful and requires corrective

language with litlle or no evidentiary record since the language of the

tariff provisions has been found to be objectionable and misleading withollt

regard to actual praCtices In other words even if a terminal operator

shows that in fact it does not in practice impose liability upon users

when the terminal operator is itself at fault the Commission nevertheless

holds that the tariff proVision is unreasonable and must be revised

The most recent decision of the Commission in this regard is Central

National Corporation Nantucket Navigation lncand T Smith Son

Texas Inc v Port of Houston Authority 26 F M C 296 1984 ID

26 F M C 301 As is usual in cases of this type in Central National

Corporation the Port Authority which had been sued for damages to

cargo was attempting to assert indemnity prOVisions in its tiuiff against

the other defendants in the court case the vessel operator and stevedore

The Court stayed the case before it to permit the Commission to decide

I

28 P M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 111

CAROLINA STATE PORTS AUTHORITY

whether the Port Authority s tariff provisions were valid under the Shipping

Act The Commission issued its decision on the basis of an extremely

brief record which had been stipulated under the Comntission s shortened

procedure 46 CFR 502 181 et seq and consisted of only six numbered

paragraphs which merely recited the identity of the parties the fact that

a lawsuit had commenced in a court which had stayed the case to perntit

the Commission to determine the validity of certain tariff provisions recited

the tariff provisions and stated that a certain portion of damage claims

had been resolved by payment of money to claimants when the Port Author

ity appeared to be responsible 26 F M C 301 6

The two provisions

in question were as follows 26 EM C at 297

a The Port Authority shall not be responsible for injury to

or loss of any freight being loaded or unloaded at the public

wharves nor for injury to or loss of freight on its wharves

or in its sheds by fire leakage or discharge of water from fire

protection sprinkler system

d Users of its facilities agree to indemnify and save harmless

the Port Authority from and against all losses claims demands

and suits for damages including court costs and attorneys

fees incident to or resulting from their operation on the property

of the Port Authority

The Commission affirmed the presiding judge and found both these tariff

provisions to be unlawful stating that t he language of the challenged

tariff provisions is broad and can be read to apply to exculpate the Port

even in situations in which damage may result from its own negligence

26 F M C at 297 Therefore the provisions were unlawful t o the extent

that these provisions may be read to exculpate the Port from liability

for its own negligence 26 F M C at 297

Item d in the Houston tariff quoted above is virtually identical to

Item 20 of respondent s terntinal tariff in this case In both users

of the facilities agree to indemnify and save harmless the port authority

from and against all losses claims demands and suits for damages

incident to or resulting from their operation s on the property of the

Port Authority Items 20 and d are of course indenmity provisions

which are probably rather commonly employed not only in tariffs but

in commercial affairs However without a showing that some special consid

eration was given to the user of the facility these indenmity provisions

I

In affU1Jling the presiding judge who had found the tariff provisions in question to be pmeasonable with

out regard to evidence showing actual practices under the provisions the Commission found that the tariff

language was objeclionabJe without regard 10 evidence of actual practices The Commission slated that the

Port s practices in implementation of the provisions cannot validate tariff provisions wbkh are otherwise

unlawful and the fact tbat the Port s practices might not have comported with the tariff language might

well be taken as an indication of their i

e the tariffprovisions unreasonableness 26 F M C at 299 Inci

demally although tle Commission s decision does not state that the Port Authority was required to amend

the objectionable tatiff provisions Hearing Counsel advised that the Commission has taken further administra

tive action fO have the Port Authority file appropriate amended tariff provisions See letter from the Commis

sion s Secretary to Mr G E Strange General Manager HousfOn Port Bureau Inc dated May 4 1984

28 F M C
112 FEDERAL MARITIME COMMISSION

have been found to be unreasonable and unlawful to the extent that they

may be used to exculpate the indemnitee i e the port authority from

liability for the indemnitee s own negligence Furthermore the very language

employed has been found to be objectionable and to require clarification

Thus in finding the language of paragraph d to be unreasonable the

Commission and presiding judge had cited West Gulf Maritime Association

v The City of Galveston 22 F M C 101 1979 In the cited case the

Commission found another indemnity provision in the port s tariff to be

unlawful and ordered it stricken from the port s tariff The indemnity provi

sion had also stated that the user of the facilities shall indemnify

and save harmless the port from and against any and all claims

actions damages liability and expense in connection with loss of

life bodily injury and damage to property occurring in connection

with the use of or arising from the use of any of the facilities

or arising from or incidental to such User s operations on the facili

ties 22 F M C at 103

In other cases in which it appeared from a mere reading of the terminal

tariff that the terminal could seek to exculpate itself from liability for

its own negligence the Commission has found the tariff provision in ques

tion to be unreasonable and has ordered it stricken or amended to show

that the tariff provision does not apply when the terminal operator has

been the negligent party Thus in I Charles Lucidi v The Stockton Port

District 22 EM C 19 1979 the Commission fmalized a decision in

which the port s tariff disclaiming the port s responsibility for any damage

to freight on its facilities was found unlawful to the extent it would relieve

the port from liability for damage caused in whole or in part by fault

of the Port and without a quid pro quo of any kind 22 EM C at 29

The Port was ordered to cease and desist from implementing the tariff

provisions or alternatively was permitted an opportunity to amend the

objectionable tariff provision as to clearly set forth that non liability does

not apply in the event that injury results from negligence by the Port

22 F M C at 29

Finally in United States Lines Inc v Maryland Port Administration

23 F M C 441 1980 adopting 23 F M C 448 the Commission found

three terminal tariff provisions unreasonable to the extent they would relieve

the terminal of liability for the terminals own negligence and ordered

the respondent Port Administration to file amended tariff provisions The

first such tariff provision announced that the terminal operator accepted

no responsibility for damages when it furnished equipment and operators

to perform work for others The second provision placed responsibility

for any damage to property on all persons to whom berths and equipment

had been assigned by the Port The third provision stated that the terminal

assumed no liability for claims etc resulting from use of cranes except

if the crane were defective and the party renting the crane had not caused

2S F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 113

CAROLINA STATE PORTS AUTHORITY

the damage 23 EM C at 442 7The second of the three condemned tariff

provisions was similar to Item 25 in the Port Authority s tariff in the

present case That provision in the Maryland terminal tariff held all persons

who had been assigned berths responsible and liable to the terminal oper

ator for any damage occurring to such property during their tenancy occu

pancy andlor use without regard to whom shall cause the damage Item

25 as quoted above would hold all vessels their owners and agents

responsible for all damage resulting from their use of Authority facili

ties The only significant differences appear to be that the Maryland

tariff extended responsibility to all persons not just vessels their own

ers and agents and that the Maryland tariff specified that those persons

would be liable regardless of who caused the damage Although it could

be argued that the present Ports Authority tariff provision in Item 25

does not specify that the vessels etc will be responsible regardless of

who caused the damage the decisions of the Commission cited indicate

that a specific disclaimer of intention to impose liability on users when

the terminal has been the negligent party is held to be necessary to eliminate

any confusion or possibility that a tenninal may seek to exculpate itself

from the consequences of its own negligence 8

The second paragraph of section 17 of the 1916 Act 46 D S C sec

816 states

Every other person subject to this act shall establish observe

and enforce just and reasonable regulations and practices relating

to or connected with the receiving handling storing or delivering

of property Whenever the Commission finds that any such regula

tion or practice is unjust or unreasonable it may determine pre

scribe and order enforced a just and reasonable regulation or

practice

I conclude therefore that the language of Items 20 and 25 quoted earlier

is invalid as being contrary to section 17 of the 1916 Act because it

does not make clear that the Ports Authority will not attempt to impose

liability on users of its facilities when the Ports Authority has been the

negligent party See Central National Corporation et at v Port ofHouston

7

The lext of the three provisions is as follows

The Terminal Operator accepts no responsibility for damages oraccidents occurring when its equip

ment andJor operator or employees are furnished to perform work for others All persons 10 whom

berths wharves transit sheds mechanical equipment or other facilities have been assigned shall be

nsponsible and liable to the terminal operator fOf any damage occurring to such property during

their tenancy occupancy andor use without regard to whom shall cause the damage

The tenninal assumes no liability for claims losses orexpenses by reason of property damage

pemmal injury ordeath which may result from the use of the crane except lhat caused by structural

or mechanical failure and not occasioned by an act or omission on the part of the party renting

the crane

3Thus although the Ports Authority contends that no amending language is necessary because the Author

ity does not use its tariff to exculpate itself from liability for its own negligence the Commission has found

that it is the language of the tariff provision which is critical and not uneltpressed intentions See United

Slales Lines Inc v Maryland Port Administration cited above 23 F M C at 46970

28 F M C
114 FEDERAL MARITIME COMMISSION

Authority cited above 26 F M C at 297 West Gulf Maritime Association

v The City of Galveston cited above 22 F M C at 104 I Charles Lucidi

v The Stockton Port District cited above 22 F M C at 29 United States

Lines Inc v Maryland Port Administration cited above 23 F M C at

442

As mentioned earlier after issuance of the above rulings the Ports Au

thority amended Items 20 and 25 effective November I 1984 Doc Nos

4 99 Hearing Counsel9 still take issue with these Items even as amended

I will discuss the problem at a later time in this decision

The final tariff provisionlc which Stevens is challenging under the 1916

Act is a portion of Item 136 A which states that The Authority as

owner and operator of its facilities also holds itself out to provide adequate

cranes and qualified operators for any stevedoring operations on its facili

ties and also restricts use of private cranes by requiring users to use

a Ports Authority crane if suitable and available in preference to a private

crane the so called priority or first call system Stevens does not

contend that it seeks to litigate the reasonableness of the first call system

as was done in Perry s Crane Service v Port of Houston Authority of

Harris County Texas 19 F M C 548 1977 in which after some modifica

tions the first call system was found to be lawful Stevens contends

that this provision which would restrict access to private cranes in order

to compel use of Ports Authority cranes and operators is unreasonable

in conjunction with the alleged practice of the Ports Authority to relieve

the Ports Authority from liability for its own negligence Stevens also

states that this provision establishes the obligation of the Ports Authority

to furnish adequate cranes and qualified operators Respondent states that

this item is a reasonable means to protect the Port Authority s investment

No one is disputing the first call system and it appears that Stevens

is not asking that this tariff provision be found to be unlawful standing

alone under the Shipping Act 1916 No one challenges the statement

that the Ports Authority holds itself out to provide adequate cranes and

qualified crane operators and apparently Stevens wishes to show the Court

that the Ports Authority furnished a defective crane and an unqualified

operator questions of fact which are not before the Commission The

provision would appear to have relevance insofar as it relates to Stevens

contentions that the Ports Authority retained control over the crane operation

and the operator and that Stevens did not select the crane or the operator

and had nothing to do with maintaining the crane or training the operator

IIThe Commission s Bureau of HearinJ COllJ18el had petitioned for leave to intervene stating their concern

over the lawfulness of the contested tariffprovlsJolUl as they affected aU UINI of the Ports Authority s facili

ties Hearing COUllICIS petition was granted on November 16 1983 See Interventkm of Hearing Counsel

Granted that dlUe

lOIn the origlnal rulings scrved June 5 1984 I discussed tariff Item 13 the borrowcd acrvant provision

before Item 136A and concluded that lhe Jawfulneslof thai Item depended upon rcaolutlon of a factual

question namoly whfther Stevens bad acquired the ri ht to control the crane operator See rulings cited at

15 19 22 SRR at 10361037

2S F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 115

CAROLINA STATE PORTS AUTHORITY

If as Stevens contends Stevens had no contra over the crane operator

or the crane did not select nor train the operator etc it would appear

to be irrelevant whether access to private cranes was restricted by Item

136 A since respondent Ports Authority would be attempting to impose

liability on Stevens when control over the operation remained in the Ports

Authority If on the other hand it is found that Stevens did in fact

control the crane operator and operation and therefore that the Ports Author

ity could impose responsibility for damages on Stevens then it would

appear that the various tariff provisions transferring liability to Stevens

would pass muster under the Sbipping Act 1916 under the borrowed

servant doctrine In any event there is nothing unlawful about Item

136 A on its face under the Shipping Act 1916

The Issues to be Decided on the Basis of the Evidentiary Record Developed

at the Hearing

The only tariff Item which could not be evaluated under the Shipping

Act 1916 as a matter of law is Item 135 the so called borrowed

servant provision The pertinent paragraph of Item 135 states as follows

The rental charges for equipment requiring an operator include

the operator and such equipment will not be rented without an

operator The operator will be under the control of the party

renting the equipment and the Authority assumes no liability for

personal injury or property damage resulting from the operation

of the equipment except that resulting from structural failure

By this provision the Ports Authority states that a crane operator employed

by the Authority comes under the control of renters like Stevens and

therefore the Authority is not responsible for accidents occurring while

the crane operator is under such control Such a provision is known as

the borrowed servant provision because of the doctrine of law which

holds that an employee called by the law the servant of a general

employer may be borrowed by a special employer for a particular pur

pose in such a way that the general employer no longer is responsible

for the negligence of the borrowed employee because the general em

ployer has surrendered the right to control that employee during the perform

ance of the particular job

The issue to be determined on the basis of evidence adduced at the

hearing therefore was whether the Ports Authority had failed to relinquish

the right to control its crane operators to Stevens and if so whether

its Item 135 which would transfer liability for damage resulting from

28 F M C

11 The factual record in the proceeding before the Commission was devoted mainly to evidence of control

over the crane operator and operation as between Stevens and the Ports Authority and will go into the ques

tion of who maintains the crane and trains and selects the operators only insofar as these matters relate to

the ultimate question of control Whether the Ports Authority furnished a defective crane or an unqualified

operator and thereby breached its obligations under its tariff are questions forthe Court to resolve
116 FEDERAL MARITIME COMMISSION

operation of the crane except for damage caused by structural failure

of the crane to Stevens the crane renter is an unjust and unreasonable

regulation in violation of section 17 of the 1916 Act 46 U S c sec

816

A secondary issue raised by Stevens concerns its allegations that respond

ent Ports Authority had entered into a number of agreements with ocean

carriers in which the Ports Authority did not impose a provision like

Item 135 and did not disclaim liability Stevens contends that this alleged

practice gives preferential treatment to some stevedores and causes disadvan

tage to Stevens in violation of section 16 First of the 1916 Act 46

U S C sec 815

I

Contentions ofthe Parties

Stevens contends that the evidentiary record shows that Stevens never

acquired the right to control the crane operator furnished by the Ports

Authority at the time of the accident which triggered two lawsuits Stevens

points to a number of factors which the courts consider when detertnining

whether the borrowed servant doctrine applies Stevens contends that

the evidence shows that the extent of Stevens participation in the lift

of the locomotive consisted essentially of the giving of signals by a

longshore flagman to the Ports Authority s crane operator merely as assist

ance to the crane operator who was free to disregard the signals and

to stop a lift if the operator felt it was unsafe Stevens contends that

it had no personnel on the scene who had any training in directing crane

operators to make heavy lifts but that the Ports Authority did or should

have had such personnel on the scene Moreover argues Stevens the Ports

Authority furnished both the crane and the crane operator trained the

operator and was responsible for maintenance of the crane had sole author

ity to hire and fire crane operators and to discipline them paid the operators

carried workmen s compensation on them and had the power to substitute

operators on any given shift Furthertnore the duration of the services

provided to Stevens by the Ports Authority was limited i

e

only about

half a day and although the services advanced the work of Stevens it

also furthered the Authority s own business Stevens also cites Ports Author

ity documents furnished to its crane operators as part of their training

which emphasize the need for the crane operator to use his own judgment

and to exercise care because of his responsibility to the Authority and

to his fellow workers and another item in the Ports Authority s tariff

Item 35 which states that the Authority reserves the right to control

all services perfortned in connection with cargo moving over or through

its facilities such services including providing heavy lift cranes according

to Item 55 c of the Ports Authority s tariff Stevens concludes by arguing

that the Ports Authority is trying to eat its cake and have it too because

it wants to maintain control over the operation of its cranes by having

only its trained operators handle them but at the same time the Authority

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 117

CAROLINA STATE PORTS AUTHORITY

does not want to assume any liability that nay be caused by the negligence

of the operators

The Ports Authority disputes virtually everything Stevens argues The

Authority contends that the control and right to control the crane operator

passed to Stevens that the operators were told to follow the instructions

of Stevens that no Authority supervisors were on the scene that Stevens

not the Authority arranged planned supervised and directed the operation

and that the Authority in no way interfered with the operation The Author

ity argues that the borrowed servant provision is good for a number

of reasons It avoids a

split or division of control over an important and

dangerous operation It gives control to the party whose work is being

performed and who is paid for the work and it saves the parties costs

and expenses LeStevens does not need to hire and train operators and

the Authority s insurance costs are reduced if liability is transferred to

Stevens The Authority argues furthermore that Item 35 of its tariff reserv

ing the right to control services does not apply to the facts of this case

because the service provided here was the rental of a crane and operator

rather than a performance of a lifting service SCSPA Opening Brief

at 13 The Ports Authority argues furthermore that Stevens has admitted

that the work performed was that of Stevens not the Authority and that

Stevens is merely trying to free itself from responsibility for damages

caused by the operation which was a Stevens operation although Stevens

wants to use Ports Authority facilities and cranes SCSPA Reply Brief

at 1

Hearing Counsel agree with Stevens that the Port Authority s crane oper

ator did not become the borrowed servant of Stevens Hearing Counsel

contend that the facts do not show that the tests used by the Commission

to determine whether a crane operator has become the borrowed servant

have been satisfied Thus Hearing Counsel argue that stevedores at Charles

ton do not assume operational control over the Ports Authority s crane

operators who retain independence exercise their own judgment and retain

final responsibility as to whether a load shall be lifted Second stevedores

cannot choose crane operators who are selected for a job by the Ports

Authority Third private crane rental agreements between stevedores and

private crane companies which purport to transfer control over crane opera

tors to stevedores are negotiable and therefore not similar to the Ports

Authority s tariff rentals Finally the crane operator is primarily employed

in furthering the business of the Ports Authority which is in the business

of furnishing cranes with operators and seeks to make a profit like any

private corporation Hearing Counsel therefore conclude that tariff Item

135 is a provision that would exculpate the Ports Authority from liability

for its own negligence without conferring on stevedores any offsetting

benefits a situation similar to an adhesion agreement which the Commis

28 F M C
118 FEDERAL MARITIME COMMISSION

sion has previously found unlawful 12 As mentioned earlier moreover Hear

ing Counsel and Stevens Reply Brief at 49 contend that the Ports

Authority s amendments to tariff Itemsr20 and 25 users agree to indemnify

the Ports Authority and vessels ownet 8

and agents are liable for damages

are not satisfactory because the amendments woul4 according to Hearing

Counsel exonerate the Ports AuthOrit from liability when the Authority

was partly resp msible for injuries or 4amages Hearing Counsel Opening

Brief at 20

Summary o the Facts

As noted the hearing in this proceeding was devoted primarily to the

question of the right to control the crane operator as between stevedores

such as Stevens renting cranes and loperatorsfrom the Authority under

the latter s tariff and the Authority II was not the purpose of the hearing

or of this proceeding to usurp the ifunction of the District Court with

regard to the issues of negligence cau ality damages or the like in connec

tion with the two pending lawsuits In wbich Stevens and the Authority

are involved as a result of the accidept of January 20 1982 The findings

of fact which are summarized hereinlue therefore not intended to resolve

the questions before the Court but mlrely to determine what is the status

of the Authority s tariff Item 135 imder the Shipping Act 1916 The

focus of this effort is therefore on the question of control as between

Stevens and the Authority and not oj1 whether a

Stevens or an Authority

employee was negligent when involvea in the lifting of the sixth locomotive

and the subsequent crash of the crane To the extent that any findings

herein may seem to imply that any particular party or its employee was

negligent or otherwise involve the i sues before the Court such finding

is not intended to affect the Court s ndiilgs ifowever in order to provide

a backdrop to the critical events slJlTounding the right to control issue

I provide some general background facts so that the operational events

can be understood in context and may be helpful in reaching an enlightened

decision As the courts have recognize

Cases are not decided nor the l w appropriately understood apart

from an informed and particulafized inSl tiilto the factual cir

cumstances of the controversy ul1der litigation West Gulf Maritime

Association v Port of Houston Authority cited above 22 F M C

at 454

The factfinding task is complicate by the fact that the parties are pro

posing in all 372 separate findings ffact wbich are virtually all disputed

I1An adhesion aJl Cement ls a contraCt in whi h a weaker pany is in eff t forced to acquIesce to

unfavorable conditions because such party is unable 9 obtain the desired servlces elsewhere and the supplier

of the services is therefore in a much stronger bar8 ln1nl position See Black sLaw Dictionary Fifth Ed

1979 at 38 Hew Counsel contMd dull such a provision was held invalid by the Commission in1 Charlu

Lucldl v The Stockton Pori D13trlCI 22 F M C 19 l

79 Hearing Counsel Opening Brief at 19

281 1 M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 119

CAROLINA STATE PORTS AUTHORITY

to one degree or another To eliminate unnecessary disputes over more

remote background type facts which are not critical in determining tariff

issues under the Shipping Act I have summarized such facts in broader

outlines When the really critical facts are discussed however concerning

control over the crane operator under the borrowed servant doctrine

the facts must necessarily be more specific The following summary of

the facts therefore includes both general background facts and more specific

facts when necessary In addition other specific facts are found and dis

cussed in the legal discussion later in this decision when appropriate

The Parties and Their Functions Generally

IStevens Shipping and Terminal Company Stevens is a stevedoring

company incorporated in the State of Georgia with its principal place

of business in Savannah and an office in Charleston Stevens provides

stevedoring services at the Port of Charleston South Carolina among which

are the loading and unloading of seagoing vessels docked at Charleston s

piers

2 The South Carolina State Ports Authority is an agency of the State

of South Carolina created by that State s Legislature in 1942 The SCSPA

owns operates and maintains the port facilities at the Port of Charleston

including Union Pier Terminal At the Port of Charleston the SCSPA

provides a place where ships can dock either to pick up or discharge

cargo as well as warehouse space for cargo moved through the Port

By state law the SCSPA has general supervision over wharves warehouses

and terminal facilities

3 The SCSPA constructed maintains and operates four marine terminals

in Charleston Harbor each of which has large track mounted cranes for

use in loading and unloading vessels At the Union Pier Terminal which

handles steel products and heavy lift cargoes the SCSPA has two land

based cranes the Unit 1575 American Crane originally with a 25 ton

capacity and a Colby Gantry Crane both of which are rented out to

stevedores from time to time The American Crane runs up and down

a track It is a

revolving crane that permits the crane operator in the

cab to move the boom to a particular position from which he believes

he can lift the cargo In the cab are a weight indicator and a boom

angle indicator The weight indicator was not however in working order

on January 20 1982 The SCSPA purchased modified when necessary

and maintains its cranes In 1977 the American Crane s

lifting capacity

at the fifty or fifty five foot radius was decreased from 125 to 106 tons

4 Certification papers for each crane include information as to the capac

ity of the crane and are kept in the office of the SCSPA The information

is not currently circulated to stevedores but the Authority states that it

is available to them Charts showing the capacity of the cranes at various

boom settings are in the crane office and in the cab of every crane

28 F M C
120 FEDERAL MARITIME COMMISSION

Since January 20 1982 such charts are also displayed outside of each

crane

5 Stevedore personnel are not normally permitted to go into cabs of

the cranes Some cranes in fact have signs limiting access to the cabs

It is possible however that on occasion certain stevedoring superintendents

have entered the cabs However it is generally the practice that they

are not permitted into the cabs See Stevens Reply Brief at 3 and Opening

Brief at 7 proposed finding 13 and record references cited in these briefs

6 SCSPA operates all of the state terminals in Charleston None of

the private terminals is well equipped for heavy lifts Substantially all

of the heavy lifts for marine cargo loading and unloading are performed

on SCSPA terminals Private cranes are not permitted to be used at SCSPA s

terminals in connection with heavy lifts

How Heavy Lift Shipments are Handled

7 SCSPA holds itself out as being able to handle heavy lifts advertises

its 4Oton monster crane and employs crane foremen who have some

expertise in heavy lifts The SCSPA holds itself out as providing adequate

cranes and qualified operators for stevedoring operations on its facilities

In December 1981 five locomotives were shipped through Charleston by

General Motors at the Union Pier Terminal without mishap and Stevens

performed the stevedoring work loading the locomotives on a

ship owned

by the United Arab Shipping Corporation The same practices were followed

in connection with the shipment of these five locomotives which weighed

55 short tons as were followed in connection with the January 20 1982

movement of six approximately 80 ton locomotives except that the latter

locomotives were not loaded on board the vessel at that time Under the

SCSPA tariff Item 14O c the SCSPA furnished a cargo control super

visor to protect its interests and billed Stevens for this supervisor whom

the SCSPA describes as a

cargo checker only

8 The movement of the six locomotives at the Union Pier Terminal

on January 20 1982 ultimately led to the current litigation The shipper

of the locomotives through its responsible employees selected Charleston

as the Port through which the six locomotives would move and notified

OM s freight forwarder of its selection Prior to this decision the SCSPA s

District Sales Manager in Chicago a Mr Jim Grady had called on OM

presenting OM with printed materials about Charleston and adviSing OM

of the SCSPA s cranes and capabilities OM has used the Port of Charleston

for the shipment of locomotives since 1974 finding the Port to offer

certain advantages in rates and free storage charges

9 The Berthing Division of SCSPA assigns a berth and therefore the

terminal to a ship before the ship arrives at a dock In addition Jerry

Franks SCSPA s Manager of Heavy Lift Operations usually talks with

the parties involved in the shipment and with stevedores He generally

would inform stevedores as to the radius at which a particular crane could

2S F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 121

CAROLINA STATE PORTS AUTHORITY

handle a given load In this shipment Mr Franks had discussions with

Mr Mayfield of Stevens relating to the forthcoming lifts of locomotives

Tr 316 Mr Franks advised Mr Mayfield of the capacity of the crane

to be used and where the locomotives would have to be pushed on the

track well before lifting by the crane Tr 317 A stevedore may request

a particular crane if suitable but the final authority on crane selection

rests with Mr Franks Tr 353

10 Information regarding the weight of the locomotives came to Stevens

on the Booking Notice sent to it by the carrier s agent and Stevens

parent company Kerr Steamship Co This information is compared to weight

information which SCSPA received independently and recorded on its dock

receipts Tr 91 92 Neither the SCSPA nor Stevens therefore weighed

the cargo and Stevens took the weight information on the dock receipt

and recorded it on its load list Tr 92 93

II It is not the practice at Charleston to permit Stevens to bring private

cranes to the Authority s terminals to make heavy lifts although private

cranes can be and are used at Charleston 13

12 The SCSPA furnishes crane operators and stevedores do not nec

essarily know which operators will be furnished in advance of the job

13 SCSPA teaches the crane operators to prepare the crane for operation

to check visually the structural condition of the crane s operating mechanism

and power units to take preliminary action in starting power units to

check cranes for loose or broken parts and clean the crane The operators

are also taught to refer to the load rating chart to determine safe working

loads at various radii and to check the boom angle indicator before making

a lift There is generally good visibility from the cab of the crane which

has windows

14 Generally in making lifts the stevedore supplies everything below

the hook of the crane such as the gear and rigging and the SCSPA

supplies everything above the hook of the crane The stevedore is respon

sible for making sure that all rigging below the hook is in working order

and is of the correct capacity for handling the particular weight to be

lifted The crane operator is responsible for everything above the hook

Tr 461

IS When a heavy lift is made the stevedore assembles all the rigging

including spreader bars and wires attaches the rigging to the cargo and

puts the rigging onto the hook of the crane Then normally the crane

13 The Authority follows the first call or priority system at Charleston whereby if a crane is suitable the

renting stevedore must renl it from the Authority rather than from a

private crane owner Such asystem

has been found to be lawful with certain modifications at Houston See Perry s Crane Service v Port of

Houston cited above 19 F M C 548 The system is not being challenged here To the extent that stevedores

freedom to rent cranes is somewhat restricted under the practice however the practice does have some bear

ing on the AUlhorily s tariff items which purported to transfer liability to stevedores even if the Authority

had been negligent It tends to show that stevedores may have been in a weaker bargaining position when

called upon to assume liabilities Such factors are considered by courts in public utility type cases to protect

weaker parties See West Gulf Maritime Association v Port of Houston cited above 22 EM C at 453

Charles Lucidi v The Stockton Port District cited above 22 EM C at 25 and cases cited therein

28 F M C
1

I

i

o

i

122 FEDERAL MARITIME COMMISSION

operator will put sufficient tension on the wires of the ngglng so that

the stevedore can check to make sure that all of the rigging is properly

in place and secured When the stevedore determines that the rigging is

satisfactory he has the flagman his longshoreman employee signal the

crane operator that the lift is ready to proceed At that point the crane

operator normally raises the load just off the deck of a ship or terminal

pier and pauses in the lift During that pause the stevedore assumes that

the crane operator is checking the radius indicator and weight indicator

in the cab of the crane There is considerable testimony that the lift and

pause routine is a part of the system and testimony that Mr Messervy

the first crane operator on the job on January 20 1982 followed the

practice to check his instruments during the pause to make sure he was

within radius The Authority s own training documents suggest that crane

operators should not comply with a flagman s signal until the operator

judges that the lift is safe See record references cited in Stevens Reply

Brief at 1617 If the lift is not safe the crane operator will normally

advise the stevedore and set the cargo back on the dock or pier Normally

when it is possible that a load might be out of radius the crane operator

will set his boom at a safe working margin and the stevedore will position

the load underneath the hook of that boom The stevedore assumes the

operator is relying on his instruments in the cab of the crane Normally

also the crane operator brings the boom to a position where he wishes

to lift and the stevedores bring the cargo beneath the hook of the boom

In most instances the crane operator will honk a horn to tell the stevedore

when the cargo is properly positioned for the lift The crane operator

can communicate with the stevedores on the ground either by blowing

his horn or by using the telephone in the cab of the crane which is

hooked up to another telephone on the dock The crane operator can also

communicate with the stevedores by hand signals or by exchanging looks

16 The flagman a longshoreman hired by the stevedore is a part of

the Ihman longshoremen gang structure The purpose of the flagman s

signals is to assist the crane operator particularly when the crane is being

operated on the crane operator s blind side A crane operator can disregard

the flagman s signals when the lift is fully visible to the crane operator

himself or if the crane operator deems the lift to be unsafe Sometime

the crane operator has picked up cargo without any signal from the flagman

The flagman will signal the crane operator which direction to move the

crane and the crane operator will determine whether to swing or travel

with the crane When the crane is travel1ing the whole structure is moving

When it is swinging just the boom is moving

The Shipment of January 20 1982

17 On the morning of January 20 1982 a meeting was held between

Stevens employees and Tom Messervy the first crane operator to work

on the job in question At this meeting Stevens advised Mr Messervy

28 F MC
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 123

CAROLINA STATE PORTS AUTHORITY

of the weight of the locomotives and gave him information as to where

the locomotives would be placed on the dock after lifting Mr Messervy

and Mr Johnson the second crane operator were brought to the job site

by Mr Wiggins the SCSPA s crane foreman Stevens was not notified

in advance as to who the crane operators would be and did not know

in advance that Mr Johnson would later relieve Mr Messervy Stevens

also did not know that the load indicator in the cab of the crane was

not working on January 20 1982

18 On January 20 1982 a

representative from General Motors Mr

George Stovicek was at the pier to oversee the dismantling of the loco

motives and their eventual loading on the MVArafat Mr Stovicek was

working with almost everyone on the dock showing longshoremen how

to connect wires to lift the locomotives and how to disassemble the wheels

from the locomotive carbodies

19 When the locomotives came down to Union Pier Terminal on railroad

spurs they were moved to the track well where Stevens separated the

locomotive car body from its wheel assemblies with the help of the crane

operator by simply lifting the car body off the wheel assembly prior to

the movement of the car bodies and wheel assemblies to positions on

the piers before loading on the vessel Stevens moved the locomotives

into position for lifting by using a forklift truck The locomotive bodies

were to be placed on wooden pyramids prior to loading on ship Before

lifting the first locomotive Mr Leroy Grant a longshoreman foreman em

ployed by Stevens had conversations with the crane operator Mr Messervy

who yelled down to Mr Grant to tell him where to position the locomotive

under the lead of the crane Ex 14 at 3637 The practice was for

Mr Grant to put the first locomotive in the position the crane operator

wanted Ex 14 at 38 Stevens also put down a stick or marker to mark

the position so that the other locomotives could be moved to that location

Tr 135 217 236 When the first lift was made the crane operator

Mr Messervy paused while Mr Holcombe a Stevens employee checked

the rigging After determining that the rigging was satisfactory Mr

Holcombe told the flagman to signal the crane operator to lift the load

Tr 215 The second locomotive was lifted from the same location as

the first Mr Holcombe knew that the first locomotive had been in the

radius of the crane because Mr Messervy the crane operator had told

him so Tr 217 218

20 The third locomotive was not lifted from the same position as the

first two According to the deposition of Mr Grant Mr Grant moved

the third locomotive five or six feet back up the track at the crane operator s

request because the crane operator felt that the locomotive was too close

to be lifted Ex 14 at 9 10 A stick was also apparently placed at

the new location Ex 14 at 10 According to Mr Holcombe the first

five locomotives were lifted from positions where a stick was placed

Tr 236 The sixth locomotive however was not lifted from the spot

28 F M C
124 FEDERAL MARITIME COMMISSION

where a stick was placed Tr 135 236 Other testimony establishes that

the locomotives were positioned at or pushed up to the crane operator s

lead regardless of the location of the stick Tr 262 284285 292

21 Mr Esau Johnson relieved Mr Messervy after the fourth locomotive

and some wheel assemblies had been lifted at approximately 10 00 am

Mr Johnson got his information as to the weight of the locomotives from

Mr Messervy Mr Johnson testified that he could not see the stick on

the ground but that he had good visibility from the cab of the crane

and could see everything that was going on on the ground Tr 186

187 Mr Messervy also remarked on the good visibility Ex 6 at 13

The fifth locomotive was lifted without mishap However Stevens has

trouble moving the sixth locomotive Mr Holcombe testified that he got

stuck with the lift truck and everybody was standing around waiting

for me Tr 244 Mr Holcombe nevertheless moved the sixth locomotive

to the crane s hook and thought that the operator gave him a signal that

it could be lifted from that position Tr 225 244245 Or if not Mr

Holcombe believed that if anything were wrong the crane operator Mr

Johnson would have told him Tr 245 In any event Stevens hooked

up the locomotive and followed the usual procedure of taking up the

strain as was done with the first five locomotives Tr 225 226 When

the crane operator then commenced to lift the locomotive presumably

after the flagman s signal and started to swing the legs of the crane

broke and the crane toppled over Tr 226 4 Stevens determined after

the accident that the sixth locomotive had been picked up outside a safe

radius Tr 240 After the accident the Artifat was instructed to go back

to its ancherage and none of the locomotives was loaded on that vessel

Stevens bi led the buyer of the locomotives Saudi Government Railways

for the services it had performed in dismantling and moving the locomotives

in preparation for the loading that did not take place

The Hiring Training Assigning etc ofSCSPA s Crane Operators

22 SCSPA hires and fires crane operators assigns them trains dis

ciplines pays them and provides for workmen s compensation retirement

and other standl Jd benefits Stevedores are not offered a choice of crane

operators although if they ask for a particular operator and if that operator

is available he may be assigned However Stevens has on occasion tried

to order a particular crane operator by name without success SCSPA assigns

crane operators simply by looking at the overtime sheet SCSPA through

its crane superintendents can substitute one crane operator for another

23 The SCSPA has crane operators normally work in two hour shifts

SCSP A determines when the shifts wi lbegin and end When the SCSPA

14The flagman Enoch Smiley testified in hla deposition that he did not give any instructions orsignals

10 the crane operator to swing the crane or to travel with the crane after the last locomotive had been lifted

nor did he see anyone else give such instructions to thecrane operator Ex 13 at 19

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 125

CAROLINA STATE PORTS AUTHORITY

changes crane operators Stevens does not necessarily know that a

change

is being made The crane operators themselves decide when they will

switch off When one crane operator is relieved by the second the first

is expected by SCSPA to remain near the crane and check the crane

out Tr 4567

24 Stevedores in Charleston do not play any role in the disciplining

of crane operators and do not have access to the SCSPA s records pertaining

to the disciplining of crane operators following complaints by stevedores

If a complaint were made to the SCSPA about a crane operator the

SCSPA would be responsible for disciplining that operator The SCSPA

does not furnish work history of crane operators to stevedores Stevens

has no authority to discipline crane operators If a crane operator reported

to work in an intoxicated condition Stevens would have to complain to

the SCSPA and it would be up to the SCSPA s superintendent to decide

whether to let the crane operator stay or tell him to go home

25 The SCSPA trains and determines the qualifications of crane opera

tors It has established a two year on the job training program to train

unskilled crane operators into skilled operators SCSPA s crane foreman

Mr Wiggins tries to have meetings of the crane operators at least once

a week to discuss such things as radius safety SCSPA furnishes its crane

operators with various written memoranda and guidelines One such docu

ments states that each operator shall be held directly responsible for

the safe operation of his equipment Whenever there is any doubt as to

safety the operator shall have the authority to stop and refuse to handle

loads until safety has been assured Doc 28 Another documents Doc

38 states

A Container Gantry and mobile cranes are complex and powerful

machines that require your complete control every moment

B You as the man responsible for these operations under your direct

control are the crucial key to safe machine performance and

everyone from your fellow worker to the Authority Director is

depending on you

Another document Doc 46 wams crane operators to disregard a flagman s

signals under certain situations involving unsafe conditions Another docu

ment Doc 35 tells crane operators that they must be familiar with crane

capacities and be able to judge weights and radii in accordance with posted

capacities It also instructs that an operator complies with signal after

judging that lift is safely rigged and nature of lift will not damage or

tip cranes works with minimum of standard signals using own judgment

to determine the best procedures for conveying lift to desired location

Another document Doc 44 advises crane operators when there are times

of doubt contact your foreman referring to the SCSPA foreman which

is SCSPA s policy Another document Doc 45 instructs the operators

to check the load indicators to be sure they are working in the course

of making your daily check SCSPA also recommends that its operators

28 F M C
126 FEDERAL MARITIME COMMISSION

verify the weight of the loads personal1y before making a particular lift

especially when they are handling avery high weight item Mr Johnson

for instance was told by his foreman Mr Wiggins that whenever he

picks up a load that he s not sure of he should refuse to continue with

the lift even if signaled to do so by the flagman Tr 179 and he has

been told by the SCSPA not to lift any loads out of radius Tr 189

AdditioM SCSPA Responsibilities

26 SCSPA has control over the inspection and maintenance of cranes

and undertakes to maintain and service the cranes and to keep them in

good working condition SCSPA fol1ows the guidelines rules and regulations

laid down by the Federal OSHA SCSPA inspects the cranes on a daily

as wel1 as a monthly basis and has established procedures whereby crane

operators are expected to report a malfunction of the crane so that repairs

can be made Stevedores have no right to inspect and maintain SCSPA s

cranes

27 Stevens personnel are not normal1y permitted into the cabs of cranes

See finding No 5 above Stevens personnel either have not been trained

to operate the cranes at Union Pier Terminal or have never been up in

the cab of any SCSPA crane The load indicator and radius boom angle

indicator are in the cabs of the cranes After the January 20 1982 accident

load capacity charts were placed on the outside of the cranes However

prior to the accident stevedores on the ground could not tel1 whether

a particular lift was within the capacity of the crane Tr 83 Ex II

at 65 6 SCSPA did not routinely furnish information concerning the

lifting capacities of the cranes Tr 115 116 350 SCSPA maintains that

it would have provided that information to stevedores upon request How

ever the evidence indicates that it is the duty of the crane operator to

make lifts within the radius of the crane that the boom angle indicator

is in the cab of the crane where stevedores do not go and the stevedore

assumes that the crane operator is relying upon the boom angle indicator

Tr 245

28 The tariff issued by SCSPA is not negotiated between Stevens and

SCSPA and Stevens was not consulted as to whether tariff Item 135 would

be acceptable to Stevens SCSPA must charge its tariff rates unless there

is a separate section 15 type agreement Tariff lsers however may be

notified of changes in tariff provisions before they go into effect Stevens

was not offered a lower hourly charge than would otherwise be applicable

for the use of the SCSPA s cranes in return for accepting the borrowed

servant provision of Item 135 in the tariff Tr 108 109 This does

not mean that tariff rates have not been lower in the past

28 FM C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 127

CAROLINA STATE PORTS AUTHORITY

SCSPA s Insurance Private Rental Agreements and Agreements With

Carriers

29 SCSPA carries seven insurance policies covering various of its activi

ties It is estimated by insurance underwriters that without Item 135

SCSPA s insurance premiums would increase by 234416 Ex 19 at 49

51 Incidentally the insured value of the American crane is 1 081 000

Ex 15 at 31

30 It is not the practice to allow private cranes onto SCSPA s terminals

to perform heavy lift services See finding No II above However there

are private crane rental agencies in the Port of Charleston from which

stevedores can rent cranes if the SCSPA s cranes are not available On

occasion the SCSPA has also rented cranes from such private firms Usually

the written lease agreements provide for the crane operator to fall under

the control of the renting stevedore or Ports Authority although one such

private company sagreement does not so provide Notwithstanding the writ

ten agreement between one such company named Limehouse and Stevens

on some occasions Stevens made claims against Limehouse for loss or

damage caused by the negligence of the Limehouse crane operator and

Limehouse paid the claims Stevens also claims that it has understandings

with one or more of the private crane companies that any accidents resulting

from the negligence of the operator are not Steven s

responsibility Tr

130131

31 SCSPA has entered into eight agreements with seven ocean carriers

between 1975 and 1983 in which in return for guaranteed tonnages through

Charleston SCSPA assumes or shares liability or promises to indemnify

the carrier or its agents in case of claims Docs 73 80 Tr 302 307

These agreements were all approved by the Commissiou under section

15 of the Shipping Act 1916 None of the agreements purports to place

SCSPA crane operators under the control of the carriers or their agents

In most there are mutual indemnification provisions in which each party

agrees to indemnify the other except when the other party is at fault

In two agreements Docs 74 77 the parties agree to share liability in

proportion to their respective faults In another involving Moller Steamship

Co Inc which has since expired Doc 79 terminated by Doc 78 at

13 SCSPA agreed to indemnify Moller and its agents from loss and

damage claims arising out of the negligence of an SCSPA crane operator

but not if the losses were caused by the stevedore or his employees

Doc 79 para V In another Doc 73 the carrier agrees to indemnify

the SCSPA unless SCSPA is negligent In each agreement the carrier agrees

to pay tariff rates for crane rentals and for certain other services

28 F M C

Applicable Principles of Law

As I stated in my rulings of June 5 1984 a borrowed servant provi

sion in a marine terminal tariff is not per se unlawful Rulings cited
128 FEDERAL MARITIME COMMISSION

I

above at 17 22 SRR at 1036 Unlike tariff provisions such as Items

20 and 25 which on their face permitted the Ports Authority to impose

liability on renters such as Stevens even if the Ports Authority had been

negligent a borrowed servant provision like Item 135 merely transfers

responsibility to a stevedore or user of the terminal facility who may

in fact have assumed control over the crane operator If such right to

control has passed from the Ports Authority to the stevedore the Commis

sian has found such a tariff provision to be lawful under the 1916 Act

See West Gulf Maritime Association v Port of Houston Authority 22

F M C 420 4524 1980 reconsideration denied 22 F M C 560 af

fmned without opinion West Gulf Martime Association v F M C 652

F 2d 197 DC Clr 1981 However the West Gulf decision rests on

detailed factual fmdings showing that at Texas ports crane operators em

ployed by the ports had come under the control of the stevedores and

that the tariff provisions in question were not illusory and were not

imposed for the purpose of escaping liability for one s own negligence

22 F M C at 453 15

If on the other hand the right to contralthe crane operator never

passed from the Ports Authority to Stevens such operator never became

a borrowed servant and the law maintains that liability fat negligence

of the operator remains with the operator s general employer i e the

Ports Authority See e g Raymond Watson v Lam Bert s Point Docks

Inc 1985 A M C 1102 4th Cir 1984 Sea Land Industries Inc v Gen

eral Ship Repair 530 F Supp 550 D Md 1982 Standard 011 Co

v Anderson 212 U S 215 1909 Roderick v Bugge 584 F Supp 625

D Mass 1984 53 American Jurisprudence 2d Master and Servant sec

415

When as in this case the parties dispute who had the right to control

the crane operator as between the Ports Authority and Stevens the matter

is obviously a question of fact and when the evidence is conflicting the

issue must be resolved by the trier of fact See Sea Land Industries Inc

v General Ship Repair cited above 530 F Supp at 563 Vance Trucking

Company v Canal Insurance Company 249 F Supp 33 35 D S C

1966 affirmed 395 F 2d 391 4th Cir cert denied 393 U S 845

1968 53 Am Jur 2d cited above at 426 As mentioned above it is

Ulhe were other 4Jrdnctlve feanues about the West Gulf case well Thus unlib the prcaeot case

the stevedores who were mcirtben of the West Gulf MaritiJne Alilociatlon complainants in the cue had

qreed that when a crane is rented the using Ilevedore hu lupuylaion and control ohhe crane and its

operat ud dbectl the operation of both ause the crane operator cannot see fn the hold of a ship and

must rely upon dbectlons given by a Btevedortl employee when opcr the crane 22 fi M C at 442 foot

note with record flfmncea omitted At leut two court caaea followla Teu law had found that crane oper

atoR at Texas pons had become borrowed lCrVantS of Slevedotel 22 P M C at 4523 Furthermore

the Commission found facts sXwina that control over the crane opeatora did pass to thestevedores at Tex81

ports that stevedores were flee to ulect operators and thaI rhm wu no tllJde nceIhatthe ports retained

any operational control over the operators 22 P M C at 434 see alBo pp 4412 The Commission also

found that the ports had not been OVtlrrcachina and had not therefore driven hard baraa1ns so as to invoke

protections asainst port exculpatory clauses on behalf of stevedores 22 FM C at 4534

28 FM C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 129

CAROLINA STATE PORTS AUTHORITY

generally true that c ases are not decided nor the law appropriately

understood apart from an informed and particularized insight into the factual

circumstances of the controversy under litigation West Gulf Maritime

Association cited above 22 F M C at 454 It is particularly true in cases

under the borrowed servant doctrine which almost always involve dif

ficult factual questions regarding control over the employee under this

doctrine which has been described as an extraordinarily troublesome

area of the law Roadwork v Bugge cited above 584 F Supp at 628

Therefore although the courts generally recite more or less the same bor

rowed servant principles different courts reach different results because

of the different facts considered For example as I noted in my rulings

of September 10 1984 at 34 in three borrowed servant cases each

of the three courts recited the same principle that the right to control

the employee determined whose servant he was However the three courts

reached different results 6

A typical statement of the borrowed servant doctrine is contained

in Watson v Lambert s Point Docks Inc 1985 A M C 1102 4th Cir

1984 per curiam table citation 732 F 2d 132 In Watson a case

which involved a crane operator employed by a marine terminal who was

engaged in unloading cargo from a ship and was receiving signals from

the stevedore the court stated the doctrine as follows 1985 A MC at

11041105

The borrowed servant doctrine which is clearly established

in admiralty and maritime law see Standard Oil v Anderson

212 U S 215 1909 provides that in some circumstances vicari

ous liability is shifted from one employer to another em

ployer The Supreme Court has outlined the doctrine as follows

When one person puts his servant at the disposal and under

the control of another for the performance of a particular service

for the latter the servant in respect of his acts in that service

is to be dealt with as the servant of the latter and not of

the former

28 F M C

The critical factor to be assessed in determining the borrowed

servant status of a particular employee is the element of con

trol the court must decide which employer has the power

to control and direct the servant in the performance of his

work Citations omitted The critical inquiry is whether

16ThUS in Vance Trucking Company v Conal Insurance Company cited above 249 F Supp 33 thecourt

found that the truck driver employee was subject to control of both the borrowing and lending employer

In Sea Land Industries Inc v General Ship Repair cited above 530 F Supp 550 the court found that

lhe electrician employee had not been borrowed by the tenninal owner of cranes which the electrician

had been repairing In Maynard v Kerwva Chemical Co 626 F 2d 359 4th Cir 1980 on the other hand

the court found that a laborer had become the borrowed employee of achemical company while working

on that company s premises because he had come under the complete control and direction of the chemical

company
130 FEDERAL MARITIME COMMISSION

the employee acted like a contractor or whether he

was assimilated into the temporary employer s telUl1 The mere

fact that an employer gives directional signals or operational

information to a particular employee however does not Imply

that the requisite control exists thereby transforming the em

ployee into a borrowed servant In Anderson the Supreme

Court emphasized that an employee does not become a borrowed

servant merely by receiving suggestions as to operational details

the distinction is between orders and Informational signals

that merely Imply necessary cooperation Anderson 212 U S

at 22627

There are variations in the way in which the doctrine is stated For

eXlUl1ple other courts emphasize that the right to exercise cqntrol and

supervision over the employee is critical l

and not whether such control

was in fact exercised 18 However the above quotation Is fairly accurate

In stating the doctrine in general terms

The borrowed servant doctrine Is summarized rather well In 53 Am

Jur 2d Master and Servant sec 415 In pertinent part that authority

states

l

n determining whether in respect of a particular act a servant

In the general employment of one person who has been loaned

for the time being to another Is the servant of the original em

ployer or of the person to whom he has been loaned the test

is whether In the particular service which he Is engaged to per

form the servant continues liable to the direction and control

of his general employer or becomes subject to that of the person

to whom he Is lent whether the latter IS In control as proprietor

so that he can at any time stop or continue the work and detennine

the way in which It Is to be done with reference not only to

the result reached but to the method of reaching it Footnote

omitted The criterion Is not whether the borrowing employer In fact exercises control but whether he has the right to exercise

It Footnote omitted The mere fact that the general em

ployer continued to pay the wages of the wrongdoer will not

make him liable for the wrongful act where it alpears that the

person to whom he was lent controlled him entirely In regard

to the work to be done Footnote omitted l

n other words

In order for the general employer to be relieved from liability

for the negligent or wrongful acts of his employee It must appear

from the evidence that the relation of master and servant which

existed between them has been suspended and that a new like

relation between such employee and the person for whom the

special service Is performed has been created and Is in existence

at the time of the act Footnote omitted

17 MaytUlrd v Kenova Chemical Co cited above 626 F 2d at 362

18 Vance Trucking Company v Canal Insurance Company cited above 249 Supp at 38

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 131

CAROLINA STATE PORTS AUTHORITY

To escape liability the original master must have resigned full

control of the servant for the time being it is not sufficient

that the servant was partially under the control of another If

he does not surrender full control over the servant he remains

liable for the servant s negligence during the time such servant

acts for the person to whom he is loaned Footnote omitted

It has been held that the right of the general employer to discharge

the servant or substitute another for him indicates a continuation

of the general employment and that such a continuation is also

indicated where the employee is using his general employer s

machine or appliance Footnote omitted

There is a presumption that a general employer is the sole em

ployer and the burden of proof as to a shift in liability to a

special employer rests upon the general employer when he con

tends that there has been such a shift Footnote ontitted Where

one is in the business of renting out trucks automobiles cranes

or any other machine and furnishes a driver or operator as part

of the hiring there is a factual presumption that the operator

remains in the employ of his original master since he is engaged

in the very occupation for which he was originally employed

Footnote omitted

In applying the above principles the courts look to the record to see

if certain facts are present As Stevens points out in its opening brief

at 54 among these facts are the following I who supplied the crane

used by the operator 2 who trained the crane operatnrs 3 who could

hire and fire the crane operators 4 who could discipline the crane opera

tors 5 who paid the crane operators 6 who carried workmen s com

pensation insurance on the crane operators 7 how long did the new

employment of the operator last 8 who had the power to substitute

crane operators on any given shift 9 for whose benefit was the work

being done and as discussed earlier 10 who had the power to control

the crane operator Such factors were considered in Watson v Lamberts

Point Docks Inc cited above 1985 A M C at 1105 Roderick v Bugge

cited above 584 F Supp 625 Standard Oil Co v Anderson 212 U S

215 1939 and are set forth in the Restatement Second of Agency

sec 227 American Law Institute West Publishing Co 1958

The Restatement of Agency sec 227 cited above has been quoted

and considered by a number of the cased cited See e g Watson v

Lambert s Point Docks Inc cited above 1985 A M C at 1105 Roderick

v Bugge cited above 584 F Supp at 628 630 Maynard v Kenova

Chemical Company cited above 626 F 2d at 361 The Restatement sets

forth a number of factors which are valuable in determining whether a

particular employee has become a borrowed servant of a second or

special employer The Restatement sec 227 states

28 F M C
132 FEDERAL MARITIME COMMISSION

A servant directed or permitted by his master to perform services

for another may become the servant of such other in performing

the services He may become the other s servant as to some

acts and not as to others

Comment a to section 227 summarizes the central question in borrowed

servant cases by stating that t he question is whether it is understood

between him and his employers that he is to remain in the allegiance

of the first as to a specific act or is to be employed in the business

of and subject to the direction of the temporary employer as to the details

of such act This is a question of fact in each case To help decide

this question of fact the Restatement provides a number of critical consider

ations Thus in comment b to section 227 the Restatement provides that

in the absence of evidence to the contrary there is an inference that

the actor remains in his i e the original employer s general employment

so long as by the service rendered another he is performing the business

entrusted to him by the general employer There is no inference that because

the general employer has permitted a division of control he has surrendered

it

In comment c to section 227 entitled Factors to be considered the

Restatement sets forth additional factors as follows

Thus a continuation of the general employment is indicated by

the fact that the general employer can properly substitute another

servant at any time that the time of the new employment is

short and that the lent servant has the skill of a

specialist

A continuation of the general employment is also indicated in

the operation of a machine where the general employer rents

the machine and a servant to operate it particularly if the instru

mentality is of considerable value Normally the general employer

expects the employee to protect his interests in the use of the

instrumentality and these may be opposed to the interest of the

temporary employer Ifthe servant is expected only to give results

called for by the temporary employer and to use the instrumentality

as the servant would ex ect his general employer would desire

the original service contmues Upon this question the fact that

the general employer is in the business of renting machines and

men is relevant since in such case there is more likely to be

an intent to retain control over the instrumentality A person who is not in such business and who gratuitously or not as

a matter not within his general business enterprise permits his

servant and instrumentality to assist another is more apt to intend

to surrender control

Borrowed servant issues have arisen more specifically in the marine

terminal context in situations in which crane operators employed by port

authorities or terminal operators and lent to stevedores who were loading

or unloading cargo have become involved in accidents injuring third persons

The courts have considered many of the principles and factors discussed

28 FM C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 133

CAROLINA STATE PORTS AUTHORITY

above in reaching their decisions The majority of the decisions it should

be noted hold that the crane operators did not become borrowed servants

of the stevedores and that their original employers consequently remained

liable for damages or injuries resulting from the negligence of the crane

operators

The oldest and leading case appears to be Standard Oil Co v Anderson

212 U S 215 1909 In that case a winchman in the general employ

of a shipowner had been lent to a stevedore for the purpose of loading

a ship with oil The winchman operated a winch owned by the shipowner

and followed signals given by employees of the stevedore who would

signal the winchman when to hoist and lower the cargo The winchman

was hired and paid by the shipowner In lowering cargo into the ship

the winchman negligently struck and injured an employee of the stevedore

The Court held that the winchman had not become the borrowed servant

of the stevedore and that the winchman s general employer the shipowner

was liable for his negligence

The Anderson case continues to be quoted and followed in borrowed

servant cases involving marine terminal and stevedoring activities There

fore a more careful examination of the facts and reasoning of the Court

is warranted which examination indicates a number of similarities with

the present case

The Court found that the winchman was hired and paid by the shipowner

defendant who alone had the right to discharge him and that the stevedore

paid the shipowner a certain rate for the hoisting 212 U S at 219 The

Court found furthermore that the stevedore s control over the winchman

extended only over certain areas Thus the winchman s hours of labor

conformed to the hours worked by the longshore labor Because the winch

and winchman were at a place where it was impossible to determine the

proper time for hoisting and lowering cases of oil the winchman nec

essarily depended upon signals from others These signals were given by

an employee of the stevedore called a gangman who stood upon the

deck of the ship and gave signals to hoist or lower by the blowing of

awhistle which could be heard for a long distance d

The Court further described the loading operation as between the steve

dores and the winchman as follows 212 U S at 218

The plaintiff was employed as a longshoreman by a master

stevedore who under contract with the defendant shipowner

was engaged in loading the ship with oil The plaintiff was

working in the hold where without fault on his part he was

struck and injured by a draft or load of cases containing oil

which was unexpectedly lowered

The motive power was furnished by a steam winch and drum

and the hoisting and lowering were accomplished by means of

a tackle guy rope and hoisting rope The tackle and ropes were

furnished and rigged by the defendant shipowner and the winch

and drum were owned by the defendant and placed on its dock

28 F M C
134 FEDERAL MARITIME COMMISSION

j

some fifty feet distant from the hatch All the work of loading

was done by employees of the stevedore except the operation

of the winch which was done by a winchman in the general

employ of the defendant

The Court described briefly the borrowed servant doctrine as follows

212 U S at 221

It sometimes happens that one wishes a certain work to be done

for his benefit and neither has persons in his employ who can

do it nor is willing to take such persons into his general service

He may then enter into an agreement with another Ifthat other

furnishes him with men to do the work and places them under

his exclusive control in the performance of it those men become

pro hac vjce the servants of him to whom they are furnished

But on the other hand One may prefer to entllr into an agreement

with another that that other for a consideration shall himself

perform the work through servants of his own selection retaining

the direction and control of them

To determine whether the first or general employer remained liable for

the negligence of the servant rather than the second or temporary employer

the Court stated that w e must inquire whose is the work being performed

a question which is usually answered by ascertaining who has the power

to control and direct the servants in the performance of their work Here

we must carefully distinguish between authoritative direction and control

and mere suggestion as to details or the necessary cooperation where

the work furnished is part of a larger undertakirlg 212 U S at 221

222 Emphasis added

Having discussed the borrowed servant dootrine the Court proceeded

to find that the winchman had remained in the general employ of the

shipowner although working with the stevedore s employees In the cargo

loading operation The Court acknowledged that the winchman was paid

by the shipowner and could be discharged bY the shipowner but held

that these facts are not the ultimate facts but only those more or less

useful in determining whose is the work and whose is the power of con

trol 212 U S at 225 The Court found that the relation of the general

employer the shipowner to the employee winchman had not been suspended

in favor of a new master servant relation between the stevedore and

winchman The Court noted that the defendant shipowner had preferred

to do the hoisting work itself and had received an agreed compensation

for it that the power the winch and the winchman were its own and

that the defendant had furnished the work they did not merely instrumental

ities which performed that work 212 U S at 225

The Court was not impressed with the argument that the winchman

obeyed signals of the stevedore s gangman when timing the raising and

lowering of the cases of oil a fact which tile shipowner had argued

28 P M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 135

CAROLINA STATE PORTS AUTHORITY

made the winchman the servant of the stevedore The Court stated 212

U S at 226

But when one large general work is undertakeu by different per

sons doing distinct parts of the same undertaking there must

be cooperation and coordination or there wiIl be chaos The giving

of the signals under the circumstances of this case was not the

giving of orders but of information and the obedience to those

signals showed cooperation rather than subordination and is not

enough to show that there has been a change of masters

In reaching the above decision the Court quoted the foIlowing language

from a Massachusetts case involving the rental of a tearn of horses with

wagon and driver 212 U S at 226

But the mere fact that a servant is sent to do work pointed

out to him by a person who has made a bargain with his master

does not make him that person s servant more than that is nec

essary to take him out of the relation established by the only

contract which he has made and to make him a voluntary subject

of a new sovereign as the master sometimes was caIled in the

old books

The Court quoted additional language from the earlier Massachusetts

decision which described how the lent driver had not become the servant

of the borrowing employer who had merely pointed out to him the

work which his general employer had undertaken to do The Court quoted

the foIlowing language about the lent driver 212 U S at 227

But the person who receives such orders Le the lent driver

is not subject to the general orders of the party who gives them

He does his own business in his own way and the orders which

he receives simply point out to him the work which he or his

master has undertaken to do

Since the decision in the Anderson case there have been a number

of cases involving borrowed servant issues and crane operators Usually

the courts have found that the operator did not become the borrowed

servant of the stevedore or other person renting cranes As the court stated

in one of these cases Roderick v Bugge cited above 584 F Supp at

62930

I t is noteworthy that the vast majority of courts evaluating the

status of crane operators in analogous circumstances either have

ruled that no borrowed servant relationship existed case citations

omitted or have reversed directed verdicts that were premised

on a finding that such a

relationship necessarily existed

In Roderick v Bugge the stevedore has leased a crane and its operator

from an equipment rental company for the purpose of unloading bundles

of steel from the hold of a vessel A crew of longshoremen were discharging

28 F M C
136 FEDERAL MARITIME COMMISSION

the vessel under the direction of a stevedore A signal man employed

by the stevedore gave signals to the crane operator when to raise and

lower the boom of the crane and other employees of the stevedore directed

the crane operator as to where to place the cargo on the pier 584 F

Supp at 627 The accident occurred when the signal man following instruc

tions from the ship s officer gave the crane operator a signal to lift a

load which was improperly overloaded so that a steel beam in the load

fell off injuring plaintiff an employee of the stevedore The plaintiff sued

the shipowner who in turn claimed indemnity and contribution from the

equipment rental company That company defended by claiming that the

crane operator had become the borrowed servant of the stevedore

The Court weighed the various factors described above and held that

the crane operator had remained the employee of the equipment rental

company and had not become the borrowed servant of the stevedore

The court noted that the crane was of considerable value and complexity

raising the inference that the equipment rental company expected its operator

to protect its interests whenever they conflicted with the stevedore s The

court also noted that operation of the crane required the skill of a specialist

and that the renting of cranes constituted the sole business of the equipment

rental company 584 F Supp at 628 The court noted other facts that

seemed to indicate that the crane operator had fallen under the control

of the stevedore Thus the rental fee included an hourly operator charge

so that the stevedore indirectly paid the crane operator s wages On the

job site the stevedore directly controlled what work Shannon the crane

operatorI was to perform and when and for the most part how to perform

it The stevedore dictated Shannon s hours of work specified which hatch

to work on determined the order and size of the loads to be removed

and by the use of hand signals largely guided the actual operation of

the crane 584 F Supp at 6289 Furthermore the lease agreement

between the stevedore and the crane rental company contained a provision

which specifically placed the rented equipment and persons operating it

under lessee s exclusive jurisdiction supervision and control should

be 11584 F Supp at 629 Nevertheless the court relying upon Anderson

and similar decisions found that the crane operator had remained the servant

of the equipment rental company The court noted that the giving of signals

did not constitute control over the operator and that the provisions of

the lease did not determine whether control had passed from the equipment

rental company the general employer to the stevedore 584 F Supp at

629 The court found that in fact the crane operator had testified that

he regnlarly obeyed the hand signals but that he remained free to

operate the crane in accordance with his own judgment when necessary

d As for the provisions of the lease purporting to transfer exclusive

control over the crane operator to the stevedore the court stated that als

with any factual matter the actual circumstances of the arrangement are

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 137

CAROLINA STATE PORTS AUTHORITY

controlling rather than the parties advance characterization of those cir

cumstances

I

d

Other cases involving the renting of cranes and operators to stevedores

have similarly held that the crane operators remained the employees of

the crane owner and did not become borrowed servants of the stevedore

although the stevedore s employees had given signals or directions to the

crane operators See e g Lopez v Oldendorf 545 F 2d 836 2d Cir

1976 cert denied 431 U S 938 1977 Ware Cia de Navegacion Andes

SA 180 F Supp 939 B D Va 1960 see also Parker v Williams

Madjanik Inc 239 S B 2d 487 S C 1977 construction company

leased Crane and operator from equipment leasing company and through

its employees gave hand signals to crane operators

The most recent decision in the Fourth Circuit which covers South

Carolina is Watson v Lambert s Point Docks Inc cited above 1985

AM C 1102 In Watson a terminal operator in Norfolk Virginia rented

cranes along with operators to stevedores The terminal hired and fired

crane operators trained them and decided which operators would work

which shifts A stevedore rented a crane along with an operator from

the terminal in order to unload a cargo of cocoa beans under a contract

between the stevedore and the shipowner Payment for the rental was gov

erned by the terminals tariff which provided that users of the terminal

facilities had consented to the terms and conditions of the tariff Among

these terms and conditions were those specifying that the terminal assumed

no liability for damage or injury claims except those caused by structural

failure and not by an act of the renting party and a provision that the

crane operators shall be under the sole supervision of the party renting

the equipment 1985 A M C at 1103

In the unloading operation the decision as to how to rig the beans

some of which were in loose bags and others in slings to facilitate unload

ing was made by the stevedore s employees Sometimes the view of the

crane operator was obstructed and he therefore relied upon signals of

gangwaymen employed by the stevedore During the operation on the

ship the crane operator negligently failed to clear some containers on

the ship with the result that pallets fell and injured plaintiff an employee

of the stevedore The terminal claimed that the Crane operator had become

the borrowed servant of the stevedore and among other things cited

the terminal tariff provision purporting to vest sole supervision over

the crane operator in the stevedore

The court held that the crane operator had remained in the general

employ of the terminal operator and had not become the borrowed serv

ant of the stevedore The court cited the Anderson decision discussed

above and the Restatement of Agency sec 227 comment b which states

that absent evidence to the contrary there is an inference that an employee

remains in the general employment of a lending employer The court

noted that the terminal operator hired fired trained the operators carried

28 F M C
138 FEDERAL MARITIME COMMISSION

workmen s compensation on them and had the power to substitute operators

on any given shift 1985 A M C at 1105 Nor did the court believe that

the tariff provision purporting to transfer sole supervision over the crane

operator to the stevedore was dispositive inasmuch as the fac showed

that the terminal operator not the stevedore remained the employer of

the operator 1985 AM C at 1106 Moreover the court declined to frod

the tariff provision determinative among other reasons because the tariff

provision arguably merely indicates that the lessee may supervise

various operational details relating to the operator s use of the equip

1985 AM C at 1106 n 3

19

As I indicated earlier although it appears that courts usually find that

crane operators remain the employees of the terminal or crane owner

there are some cases going the other way on their facts Thus in West

Gulf Maritime Association v Port of Houston Authority cited above 22

F M C 420 the Commission fOllnd that the practice at Texas ports was

to transfer control over crane operators to renting stevedoreS but it is

important to note that there was a

specific factual finding that the stevedores

themselves had agreed that such was the practice 22 FM C at 442 Further

more the Texas Supreme Court had found that under Texas law the practice

at Galveston was that crane operators had become borrowed servants

of stevedores Rorie v The City of Galveston 471 S W 2d 789 8 SRR

20 713 Tex 1971 cited in 22 F M C at 4523 20

Another case in which the court held that a crane operator had become

the borrowed servant of the stevedore was Flnagrain Compagnie

Commerciale Agricole v Miller Compressing Co 349 F Supp 288 E D

Wise 1972 decided under Wisconsin law In Finagrain the court found

lilThe Pons Authority argues that tho W tson c ase wa JL not intended to have pnlCcdential value was a

summary per curIam decJslon which was not prepared wIth the USual care research and analysis which

the Fourth Circuit Court puts into cases intended to be precedent and mtrely how Hhat the ccuri wnJ

find ways to allow an individualluffering personal injury to recover fC ardlei of what the tariffprovided

Ports Authority Reply Brief at 32 The court a opinion was not published in the Federal Reporter and the

citationused above il to the Amerlcen Maritbite caSes There is no support for the contention that an unpub

lished opinion of 1he court is not prepared wI1h care or is to1a1ly without nt1a1 valqe The Fourth

Circuit s own Iocw rules BpeCJfy hat the Cowt doN nOf publish an opinion unless it establlshos a rule of

law involves a

legal issue of continuJna PllbUc interest etc Furthonnol O althollgh citation of unpubllshed

opinions is disfavored counsel may DCVertheleU clte 1hem If counsel belieV9 the decision to have preceden

1ial value and there is no suitable pubUshod opirUon S Fourth CJrcldt Ru 18a J8d 28 US CA

Internal Operating ures 36 3 36 5 As to helpins an injured person rec9yer for tnjury there is no ap

parent reason why the court could not have applied the borrowedservant doctrine if the facts justified

it so that thcil Jured plaintiff could have recovered from the stevedore rather 1han fromthe tenninaJ operator

20The Texas court conceded that determining whether hoist oper atQrB became horrQwed servants was

often a dlffwuJt question 8 SRR at 20 715 However the court found that the stevedore and port had

expressly agreed that the stevedore would control the hobt operator relying upon the port s tariff provision

as evidence of such agree1l1ent 8 SRR at 20 715 20 716 However the court also found that thero was no

evidence any port employee had exercqed any control ovtr the hoist operation orthat the port bad ever

interfered with the stevedore s

rlaht to control the equipment and the operator 8 SRR at 20 718 The COllrl

concluded that the evidence In thie case will not support the conclusion that despite the provisions of the

tariff McPeters the hoist operator remained und r the City s CQntrolln his operatlon of the hoist onW

occasion in question We thus have an aareement expressly vesting the rlam of control1n Strachan the

stovedore and there l no evldence that the CJty retained any right of cOntrol In these circumstances the

tariffI conclusive and McPeters was the loaned employee of Strachan as a matter of law Id

28 FM C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 139

CAROLINA STATE PORTS AUTHORITY

that the crane operator employed generally by an equipment rental company

had become the employee of a contractor stevedore who was loading a

ship The accident occurred when the crane operator who had limited

visibility of the ship swung a load too low and hit a winch located

next to the ship s hold The court found that the crane operator reported

to the job site and received all his instructions down to the most precise

detail from the stevedore s employees 349 F Supp at 291 The court

described how the stevedore s signal man set the boom and the mark

thereby patterning the swing signaled emergency stops when necessary

and suggested modifications The court concluded that the stevedore had

control over each individual swing not just the general operation and

that the crane operator had become assimilated into the stevedore s crew

for the duration of the operation submitting entirely to the stevedore s

direction 349 F Supp at 292 The court applied a test used in a Wis

consin case namely whether the orders of the stevedore had the force

of command rather than mere requests so that the crane operator had

become assimilated into the stevedore s crew Id

21

Application of the Principles ofLaw to the Facts in this Case

An examination of critical facts under the principles of law discussed

above demonstrates that the Ports Authority does not relinquish the right

of control over its cane operators and that consequently such operators

do not become borrowed servants of renting stevedores

It is undisputed that the Ports Authority furnishes the crane and operator

and is solely responsible for inspection and maintenance of the crane

Indeed the Ports Authority s very tariff Item 136 is a holding out that

the Authority as owner and operator of its facilities also holds itself

out to provide adequate cranes and qualified operators for any stevedoring

operations on its facilities Doc No 3 Item 136 Stevens Opening

Brief at 67 and record references cited therein It is also undisputed that

the Authority has exclusive responsibility for training the crane operators

through classroom instruction and on the job training Furthermore the Au

thority gives unskilled operators a two year training program and furnishes

to its operators various written manuals memoranda and guidelines which

emphasize the crane operator s duties to use care and exercise his own

judgment in lifting operations which appear to be unsafe in any particular

aspect Among the documents furnished crane operators by the Authority

is one entitled 30 Rules for Safe Crane Operation Among other things

this document states that Container Gantry and mobile cranes are complex

and powerful machines that require your complete control every moment

21The District Court s decision in Watson v Lambert s Point Docks Inc which the Fourth Circuit Court

of Appeals had afflI1l1ed discussed the Finagra n decision but refused to follow it The Court noted that

there was a

significant difference in the amount of control exercised by the second employer in thai case

Watsonv Lamberrs Point Docks Inc Civil Action No 2 262N U S D Ct E Dist Va Norfolk Div

slip opinion at 6

28 F M C
140 FEDERAL MARITIME COMMISSION

You as the man responsible for those operations under your direct

control are the crucial key to safe machine performance and everyone

from your fellow worker to the Authority Director is depending on you

Doc 38 Tr 370

It is also undisputed that the Ports Authority could hire and fire crane

operators disciplined them paid them carried workmen s compensation

on them and had the power to substitute crane operators on any give

shift Stevens had no such powers Indeed if a crane operator reported

drunk Stevens had to complain to the Authority s crane superintendent

or foreman who would decide whether to replace the crane operator The

record also discloses that Stevens had no authority to choose any particular

operator such selection being exclusively in the power of the Authority

Indeed when a second crane operator Mr Esau Johnson replaced the

first operator Mr Messervy on January 20 1982 the date of the accident

Stevens did not even know that Mr Johnson was in the cab nor did

Stevens even know that Mr Messervy would be working the first shift

until Mr Messervy appeared on the dock in the morning Tr 263 264

Stevens Opening Brief at 7071 and further record references cited therein

Crane operators and cranes were rented to Stevens for a short period

of time ie about half a day Steven s Opening Brief at 70 and record

references cited therein In furnishing cranes and operators to Stevens

the Ports Authority was acting as a business renting cranes along with

operators to stevedores under its tariff However it could be reasonably

argued that the crane and its operator were advancing the work of Stevens

by participating in the preparation of loading the locomotive aboard ship

as Stevens acknowledges Stevens Opening Brief at 71 It could also

be argued that the crane operator was furthering the business of the seller

of the locomotives General Motors which had contracted to deliver the

locomotive alongside the ship Id

The above facts indicate that crane operators remained in the general

employ of the Ports Authority and did not become borrowed servants

of the stevedore Watson v Lamberts Point Docks Inc cited above

1985 AM C at 1105 Roderick v Bugge cited above 584 F Supp at

628 Restatement of Agency sec 227 comment c cited above Standard

Oil Co v Anderson cited above 212 U S at 219 The only fact which

arguably might indicate that the crane operators had become borrowed

servants of Stevens is the last one namely that in a sense the crane

operators were advancing the work of Stevens as well as that of the

Ports Authority However that fact alone does not convert crane operators

into borrowed servants of the stevedore See Roderick v Bugge cited

above 584 F Supp at 628 Ware v Cia de Navigacion Andes cited

above 180 F Supp at 943 Indeed even if control over the operator

were divided between Stevens and the Authority as to the particular work

being performed such fact does not necessarily make the crane operator

28 FMC
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 141

CAROLINA STATE PORTS AUTHORITY

into a borrowed servant See Restatement of Agency sec 227 comment

b cited above Dellums v Powell 566 F 2d 216 222 D C Cir 1977

In addition to the above facts which courts consider when determining

if an employee has become a borrowed servant of another employer

there are other facts which as I discussed above are considered See

Restatement of Agency sec 227 comment c cited above There is an

inference that an employee remains in the general employment of the

first employer absent evidence to the contrary when the employee is per

forming work entrusted to him by bis first employer The fact that an

employee may be a trained specialist and may be working with valuable

equipment indicates that the first or general employer does not intend

to relinquish the right to control the operator or the crane As the Restate

ment ofAgency sec 227 comment c cited above further states

Normally the general employer expects the employee to protect

his interests in the use of the instrumentality and these may

be opposed to the interest of the temporary employer If the

servant is expected only to give results called for by the temporary

employer and to use the instrumentality as the servant would

expect his general employer would desire the original service

continues Upon this question the fact that the general employer

is in the business of renting machines and men is relevant since

in such case there is more likely to be an intent to retain control

over the instrumentality

The facts of record indicate that crane operators remain servants of

the Ports Authority under the above tests Thus as noted before the Ports

Authority is in the business of renting cranes with operators It trains

the operators who are handling valuable cranes and are expected to exercise

care and independent judgment when necessary to ensure safe lifts Indeed

the crane operators are as we have seen furnished with printed rules

by the Ports Authority telling them that the cranes are complex and

powerful machines that require your complete control every moment and

further teIling the operators that they are the crucial key to safe machine

performance and everyone from your fellow worker to the Authority Direc

tor is depending on you Crane operators are instructed not to follow

stevedores or their flagmen if there is a question of safety and to refuse

to continue lifting an unsafe load In case of dispute between the crane

operator and a stevedore employee as to whether the crane can handle

a particular lift the crane operator will refuse to continue and will call

his own Le aPorts Authority foreman Crane operators are trained special

ists who have been given training by the Ports Authority and they are

expected to protect the interests of the Authority by refusing to continue

an unsafe lift

All of the above facts strongly indicate that crane operators at Charleston

do not become borrowed servants of renting stevedores However as

most courts recognize the determining factor is the right to control the

28 F M C
142 FEDERAL MARITIME COMMISSION

j

i

operator the work and the manner in which it is performed Such is

also the law in South Carolina Parker v Williams Ma4Janik Inc

239 S E 2d 487 489 S C 1977 The test generally used is whether

the employee passes under the latter s i e another employer s

right of

control with regard not only to the work to be done but also to the

manner of performing it see also Vance Trucking Company v Canal

Insurance Company cited above 249 F Supp at 38

To determine whether Stevens had the right to control either of the

two crane operators who worked on January 20 1982 or whether it was

the practice at Charleston for stevedores to be given the right to control

crane operators employed by the Ports Authority under the Authority s

tariff it is necessary to consider some details about the lifting operation

The record shows that on January 20 1982 a meeting was held in the

morning between Stevens employees and Mr Messervy the first crane

operator on the job Mr Messervy was given illformation as to the weight

of the locomotives and as to where they would be placed on the dock

after lifting The weight of the locomotives was lso stenciled on a wooden

placard on the front of each locomotive Stevens had no advance knowledge

as to who the crane operators would be nor that Mr Johnson was to

replace Mr Messervy during the course of the lifts Mr Bernard Funderburk

one of three Stevens supervisors testified that he did not even know that

Mr Johnson was in the cab of the crane until after the accident had

occurred Another Stevens employee Mr Laddie Holcombe however saw

Mr Johnson in the cab of the crane when Mr Holcombe WaS moving

the last locomotive into position for lifting Not one of Stevens employees

knew that the load indicator device in the cab of the crane was not working

On January 20 1982 a

representative from the seller of the locomotives

General Motors a Mr George Stovicek was at the pier to oversee the

dismantling of the locomotives and their eventual loading on board the

MIV Arcifat The locomotives came down to the Union Pier Terminal in

Charleston on railroad spurs were moved to the track well where Stevens

separated the locomotive body from its front and back wheel assemblies

with the help of the crane operator by lifting the car body off the wheel

assembly After this was done the car body was set down on a wooden

pyramid provided by General Motors that Stevens had placed in position

on the dock The locomotives were moved into position on the dock by

Stevens employees by using a forklift truck Stevens rigged them for lifting

by using two twelve foot spreader bars

Prior to the lift of the first locomotive the longshoremen foreman Mr

Leroy Grant hired by Stevens had conversations with the crane operator

in which the crane operator yelled down to Mr Grant to tell him where

he wanted the locomotives positioned under his lead Ex 14 at 3637

It was common for crane operators to yell down to a longshoreman if

the load was not in a

proper position to lift or to advise the longshoreman

that the load was too heavy for the crane to boom out any further Ex

28 FM C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 143

CAROLINA STATE PORTS AUTHORITY

14 at 37 38 On the date of the accident Mr Grant as was the practice

put the first locomotive in the position the crane operator wanted it Ex

14 at 38 One of Stevens longshoremen then placed a wooden stick

to mark the spot where the first locomotive was lifted The crane operator

then positioned the boom of the crane over the locomotive and the steve

dore s employee hooked the locomotive up to the crane s hook When

the first lift was made the crane operator paused while Mr Holcombe

checked the rigging After determining that the rigging was satisfactory

Mr Holcombe told the stevedore s

flagman to signal the crane operator

to lift the load Tr 215 The second locomotive was also lifted from

the same location as the first Stevens Mr Holcombe knew that the first

locomotive was within the radius of the crane because the first crane

operator Mr Messervy had told him so Tr 217 218

While preparations were being made to pick up the third locomotive

the crane operator Mr Messervy instructed Mr Grant to move the loco

motive five or six feet back up the track because the crane operator felt

it was too close Mr Grant moved it with a fork lift truck A stick

was placed at the spot as a marker Mr Messervy lifted the third and

fourth locomotives and was relieved by Mr Johnson at approximately 10 00

a m Mr Johnson had watched Mr Messervy lift the fourth locomotive

and some wheel assemblies The fifth locomotive was lifted without incident

Mr Holcombe moved the sixth locomotive up to where the crane s hook

was positioned and believes that the crane operator gave him a signal

indicating that he could stop pushing the locomotive any further or at

least tacitly approved of the position of the locomotive At the time of

the sixth lift the locomotive was not positioned where the marking stick

was Under normal procedure followed in this instance the crane operator

lifts the load slightly the stevedore checks the rigging and assumes the

crane operator is checking his instruments in the cab and then through

the flagman signals the crane operator to resume the lift It is therefore

Stevens personnel who have the lift stopped and signal the operator to

resume Tr 195 Mr Holcombe the stevedore s employee testified that

he had had trouble moving the sixth locomotive from the track well to

the crane s hook and was slowing down the operation and everybody

was standing around waiting for me The boom was in the crane was

in position with the hook hanging over the rail bed I pushed the locomotive

up to where the hook was hanging I looked up that s when I realized

Esau was the operator So Im not positive but he may have given me

a signal like that s alright there So the locomotive was right under

where he had his hook hanging He was standing right there watching

me hook up the locomotive If he had known anything would have been

wrong I

feel sure he would have told me Tr 244245

After the above procedure was followed the crane operator resumed

the lift just high enough to clear the track well and started to swing

Tr 226 There was a loud noise like a pistol shot the wheel

28 FM C
144 FEDERAL MARITIME COMMISSION

assembly came apart the crane s

legs broke and the entire crane fell

over with the locomotive Tr 226 189 After the accident Stevens deter

mined that the sixth locomotive was picked up outside a safe radius

I find that the above facts do not show that the Ports Authority s

right

to control the crane operator passed to Stevens The facts reveal rather

that there were cooperation and coordination between the stevedore s per

sonnel and the crane operator Perhaps this conclusion is best summarized

by one of the eye witoesses to the accident Mr Holcombe a Stevens

employee who was involved in moving the sixth locomotive to the crane s

hook Mr Holcombe commented on the procedure of lifting the load slightly

to check the rigging and his communication with the crane operator by

a nod of the head meaning that everything s alright on my end

Tr 239 So evidentially sic everything s alright on his end if he

goes ahead and makes the lift Tr 239240 Furthermore as between

the stevedore Mr Holcombe and the crane operator We just look at

one another We know what we re doing Tr 24O 22

The above situation seems to resemble the description of the loading

operation in Standard Oil Co v Anderson cited above 212 U S 215

It will be recalled that in that case a winchman in the general employ

of a shipowner had been lent to a stevedore to load a ship with oil

and had followed signals given by employees of the stevedore as to when

to hoist and lower the cargo In lowering cargo into the ship the winchman

had strUck and injured an employee of the stevedore The Court held

that the winchman had not become the borrowed servant of the stevedore

The Court noted that the winchman had been hired and paid by the ship

owner who alone had the right to discharge him However the critical

area of the decision was that of control over the winchman The Court

found certain areas in which the stevedore necessarily had to exercise

some control over the winchman in terms of hours of labor and guidance

when the winchman s vision was blocked The critical distinction made

by the Court however was between authoritative direction and control

in contrast to mere suggestions as to details or to necessary cooperation

where the work fumished was part of a

larger undertaking 212 U S at

221 222 As I noted earlier the Court merely held that the winchman

22The Ports Authority argues that Slevena had control over the unfortunate sixth lift and that the accident

was caused by Stevens signaling the lift from a

position out of safe radius of the crane and beyond the

safe marker placed by the stevedore SCSPA s Reply Brief at 21 33 SCSPA contends that Stevens was

negligent in falling to exercise proper supervision and control at the time the crane collapsed and that the

crane operator was merely following Stevens instrUctions SCSPA s Reply Brief at 4 27 However SCSPA

also seems to acknowledge that its crane operator should have acted on his own judgment stating that

t here is ample evidence that had the openuor done as SCSPA taught hJm be ident would not have

occurred SCSPA s

Reply Brief at 4 It is not the purpose of thiS decision to determine whether Stevens

orthe SCSPA s crane operator orboth were negligent who was responsible for the accident whether liability

should be shared orsimilar questions which appear to be matters for the court to determine I am satisfied

that the facts in this record display cooperation and coordination betweenStevens employees and crane oper

ators and noz subordination of the crane operator to the stevedore and that accordingly the crane operator

did not become the borrowed servant of the stevedore

28 FM C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 145

CAROLINA STATE PORTS AUTHORITY

and the stevedore were cooperating and coordinating their efforts a situation

which did not mean that the winchman had become subordinate to the

stevedore so as to become the latter s borrowed servant The words

used by the Court bear repeating as follows

But when one large general work is undertaken by different per

sons doing distinct parts of the same undertaking there must

be cooperation and coordination or there wilI be chaos The giving

of the signals under the circumstance of this case was not the

giving of orders but of information and the obedience of those

signals showed cooperation rather than subordination and is not

enough to show that there has been a change of masters 212

U S at 226

As noted earlier this reasoning was followed in the Fourth Circuit as

recently as 1984 See Watson V Lambert s Point Docks Inc cited above

1985 A M C at 1105 In Anderson the Supreme Court emphasized that

an employee does not become a borrowed servant merely by receiving

suggestions as to operational details the distinction is between orders

and informational signals that merely imply necessary cooperation

It is also worth noting that the Court did not find the winchman to

be the borrowed servant of the stevedore even when the winchman

was directly involved in loading the cargo into the ship under the guidance

of the stevedore s signal man and had to rely upon that man when the

winchman s view was obstructed Thus it could be said that the winchman

was doing the stevedore s work and was under the stevedore s operational

control In the present case the accident occurred while one of the loco

motives was being moved on the dock before loading on ship They

were incidentally never loaded on the MlV Arafat Furthermore there

is evidence that the crane operators did not always follow the stevedore s

flagman had discretion to refuse to follow the flagman s signals in case

of an unsafe load could decide whether to swing or travel with the crane

could sometimes pick up cargo without any signal from a flagman and

had good visibility from the cab of the crane on the date of the accident

As noted earlier furthermore the Ports Authority furnishes its crane opera

tors with instruction manuals and guidelines emphasizing that the cranes

require the operators complete control every moment and that everyone

from your fellow worker to the Authority is depending on you Doc

38 Also the Authority furnishes its operators with additional written in

structions stating that the crane operator must be familiar with the capac

ities of the type of crane operated must be able to judge weights and

radii in accordance with posted capacities and complies with signal

after judging that lift is safely rigged and nature of lift wilI not damage

or tip cranes works with minimum of standard signals using own judgment

to determine the best procedures for conveying lift to desired location

Finally the Authority advises its crane operators in another written memo

28 F M C
146 FEDERAL MARITIME COMMISSION

i

randum when there are times of doubt contact your foreman meaning

a Ports Authority foreman

The Ports Authority however argues that its crane operators became

borrowed servants of Stevens The Authority argues that Stevens planned

the positioning operation had its supervisory personnel on the dock and

was skilled and experienced in such operations The Authority argues fur

thermore that its crane operators were machine operators and not super

visors Ports Authority s Reply Brief at 9 lUId that they had instrUctions

to follow the instrUctions of the stevedore who supervised the operation

and was paid for it In short the Authority argues that the crane operator

was integrated into the stevedore s operation and played whatever role

the stevedore asked him to play Ports Authority s Reply Brief at 16

The Authority characterizes Stevens and Hearing Counsel s contentions

as the super crane operator argument AuthDrity s Reply Brief at 8

The Authority also argues that ifits tariffItem I S is found to be unreason

able it would have to change its practice and its insurance costs would

increase significantly Furthermore private rental agreements at Charleston

have borrowed servant provisions and when the Authority itself rents

cranes from private owners it does so under borrowed servant provisions

according to the Authority There is some suppOrt in the record for these

contentions but I find that they are outweighed by other evidence

First of all the argument which reduces the crane operator to a mere

machine operator is inconsistent with evidellce showing that the Ports

Authority trains its operators and expects them not to be mere robots

mindlessly following instrUctions of stevedores but to exercise complete

control at every moment Furthermore the Authority te1lsits operators

in printed manuals how everyone is depending on you

23 It is inconceiv

able that the Authority would allow untrained operators to manipulate expen

sive cranes on Authority premises and not instruct them to exercise some

independent judgment regardless ofsignals from stevedore el lployees which

might jeopardize a crane and indeed the evidel1ce shows that Cl lll1e opera

tors do have some independent responsibility to check their instrUments

i

23See especially Doc No 35 a Ports Authority Memorandum iIU to its crane operator by Mr D

Claude Baker formerly Director of Operations anct Managef of thePort Heavy Lift Dlvlilon among other

duties Note the detailed desripdon ofdte crane operator qualiftcarJons MowledJe ancl skill judg

ment and initiative mental alertnets and duties For examplo tho crane operatOrs are told that

A crane operator is placed in charge of a

piece of equipment that cost many thoUI of dollars

and which has the potentlal of causlns many more thousands of dollars in damage to Clft O acill

ties and equipment Upon the skJll of this man depends the Ufo and safety of all men working in

tht vlcJnJty It is imperative therefore that the operator learn not only the tedu1ic alki1ls tlult will

enable him to operate the equipment but he must also acquire an attitude of responaibmty for see

Ing that the job Is done safely

After detailed d08Qripdon of the operator required skU1the Memorandum states as to he operator s

judgment andlnitlative such things as thefollowing

complies with signal after jucfglng that lift is safely rigged and nature of lift wlllnot damage

or tip crane works with minimUm of standard signala using own judgment to dotermiu the be3t

procedures for conveying lift to desired location

Set also be testimony of Mr Jerry Franks the Ports Authority s Manager of Heavy Lift Operations at

Tr 36g37S confirming the continuing validity of the abOve Memorandum

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 147

CAROLINA STATE PORTS AUTHORITY

and to refuse to lift loads when they deem the load unsafe 24 This does

not mean that the crane operator is not working with the stevedore s team

As the Supreme Court noted in Anderson cited above 212 U S at 226

there must be cooperation and coordination or there will be chaos

However as the Court and other courts have noted cooperation is not

subordination

The rejection of tariff Item 135 in its present form would in effect

no longer allow the Authority to disclaim liability for personal injury or

property damage resulting from operation of the crane on the invalid ground

that the crane operator had become the borrowed servant of the steve

dore It would require the Authority to be responsible for the negligence

of its crane operators The Authority argues that such a result would be

undesirable would split control between stevedores and the Authority over

stevedoring work would increase the Authority s insurance costs would

require t1e Authority to provide supervisors for stevedoring work or go

into the stevedoring business itself or could require stevedores to employ

operators themselves full time at increased costs to the stevedores ports

Authority s Reply Brief at 21 22 None of these arguments is particularly

persuasive

First the short answer to the above arguments is that if as the courts

have usually held the Ports Authority does not in fact transfer the right

of control over its crane operators under the facts of this case the law

does not permit the Authority to disclaim liability for the actions of its

crane operators

Second Item 135 already imposes liability on the Authority in case

the Authority furnishes a defective crane i e the Authority assumes liability

for accidents resulting from structural failure of its cranes In the future

bowever under an amended Item 135 the Authority would also bave

to be liable for the negligence of its crane operators Such an obligation

is not so unusual The record shows a number of agreements entered

into between the Authority and ocean carriers and their agents in which

the Authority assumes liability or agrees to indemnify the carriers or their

agents whether the accident is caused by structural failure or negligence

of a Ports Authority s crane operator The Authority apparently knows

bow to operate a crane rental business assume liability for the negligence

of its crane operators and receive compensation satisfactory to itself as

shown by the various agreements

Third the fact that there might be split control between the stevedore

and the Authority over a stevedoring operation involving the use of an

28 F M C

24The PotU Authority downplays this right of the crane operator to refuse to lift an unsafe load and argues

that such right dDe not destroy the stevedore s effective control of the crane operator ports Authority

Reply Brief at 14 The Ports Authority acknowledges that its instruction gives the operator the right to

veto the command to lift in special unsafe circumstances Id But lhis very right to veto is evidence that

the Ports Audlority did not surrender the right to control its crane operator to the stevedore See DeIlums

v Powell cited above 566 F 2d at 222 employees veto authority over each other inconsistent with he

borrowed servant doctrine
148 FEDERAL MARITIME COMMISSION

1

Authority s crane is no great change in practice As the record shows

there is in effect some split control right now between the stevedore

and the crane operator who retains some independent discretion As Ihave

discussed the crane operator is no mere robot mindlessly following instruc

tionsof the stevedore but a skilled specialist operating expensive equipment

who is expected to exercise independent judgment when the need arises

Finally if the Authority now becomes liable for its crane operator s

negligence and must pay increased insurance premiums by approximately

234000 as the Authority estimates this would become a cost of doing

business as a renter of cranes with operators whom the Authority has

trained to exercise skill and care and to protect the cranes from unsafe

operations in the interests of the Authority As with any other cost of

doing business the Authority may well deem it advisable to pass the

cost along to the renting stevedores as part of the tariff charges forrenlals

and thereby spread the increased costs among all renters of cranes and

operators If for some reason the Authority Wishes to absorb the cost

increase it would appear as Stevens notes Reply Brief at 489 that

the Authority could absorb such a

relatively small amount when one con

siders that the Authority seeks to make profits and during the first half

of fiscal 1984 recorded a profit of 22 million Tr 485 Doc 62 2S

The AuthOrity also argues that amendment of Item 135 might also require

the Authority to increase its supervisory personnel over crane operations

However as Stevens notes besides Mr Johnson the Ports Authority had

two personnel at the job site on January 20 1982 Mr Wiggins the

Crane Foreman and Mr Messervy the first crane operator The Authority s

own document Doc 37 at 2 shows that ils crane foreman has supervisory

duties and there is evidence that the first crilneoperator could be expected

to remain for a while to check out the crane and advise the relieving

operator if he saw anything wrong This does not mean that Mr Wiggins

remained at the site or that Mr Messervy had supervisory responsibilities

However they could be available if necessary it would seem

The Authority expresses concern that if it gives up the crane rental

business Stevens would have to employ operatOrs and pay their expenses

for five days a week although they may work only one day a week

Tr 129 292 Ports Authority s Opening Brief at 1011 21 However

Stevens Assistant Vice President Eugene Mayfield testified that Stevens

would rather provide our own operators so we have some kind of control

over our destiny Tr 129 and if it is held that Stevens is Iiabie for

I

2

Accordina to a news article in the Journal of Commerce for May 23 1985 tho Parts Authority has

announced anew flve yoar COIltract with BVCliJMR Marine Corp The Evergreen bu lit expected to sen

crate an estimate 27 million in annual grosa revenuel accordlng to thoarticle citlo tho Authority fmance

officer Mr Lawrence The anlclo also atated that the Authority s operatJn revenues are projected 10 reach

35 21 million in fiscal 1986 an Increue of 231 milllon OperatlDJ earnings Were expected to drop to

2 08 mlUlon accordfuB thethe preJJmJnary fileal 1986 buclget 1 do not vouch forthe accuracy of the nows

article of COutSc but only officially notice what the Pons Authority announce as ita preUminary expoct

lions See 4iCPR 502 226

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 149

CAROLINA STATE PORTS AUTHORITY

damages arising out of the current accident he indicated that Stevens would

want to become more active in operating cranes themselves even if it

meant paying operators salaries and social security when they were not

working the cranes Id see also Stevens Reply Brief at 47

Finally there is some evidence concerning the rental of cranes and opera

tors from private crane owners in Charleston Both the PortS Authority

and Stevens have had occasion to rent such cranes and operators Most

of the testimony and written evidence indicates that the lessees borrow

the operators and assume liability although there is testimony by Stevens

Assistant Vice President Mr Mayfield that a private crane owner named

Limehouse has paid claims caused by negligence of Limehouse s crane

operator contrary to the written provisions of the Limehouse lease agree

ment Tr 130131 160161 Doc 71 Apparently another private crane

owner named Associated Industrial Construction Company does not require

stevedores to sign provisions like tariff Item 135 transferring control over

crane operators to the stevedores However the preponderance of the evi

dence on this question is that private crane owners insert borrowed

servant provisions into their agreements with the PortS Authority and

others renting cranes from them thereby transferring control to the lessee

Tr 325 342 344

This case does not concern the question of the lawfulness of private

crane rental agreements Therefore it is not necessary to determine whether

the prevailing practice is for stevedores or the Ports Authority to become

the temporary employers of the private crane operators and for them to

assume liability for the negligence of the operators There is nothing unlaw

ful about a borrowed servant or an indemnification provision if in fact

private parties freely agree to such provisions for valid consideration and

a renter freely agrees to become the temporary employer and indemnifier

of the crane owner Whether in fact these parties follow the written provi

sions of their agreements in all cases is not clear It should be noted

however that the private crane owners are renting mobile cranes which

leave their premises This is a factor which tends to indicate that the

lending employer would want to transfer the right to control the crane

operator to the renter and not wish to be held responsible for something

which the renter did in some other location In any event the issue in

this case is whether in fact the right to control a Ports Authority crane

operator passes to the stevedore when the stevedore rents cranes under

the PortS Authority tariff not under a privately negotiated contract As

noted earlier even the PortS Authority sometimes retains liability when

renting to certain carriers or their agents under agreements approved by

the Commission under section 15 of the Shipping Act 1916 46 VS c

sec 814 In other words stevedores or the Ports Authority may negotiate

special contracts in which they determine as between themselves and other

parties who will control the crane operators and who will be responsible

for third party liability Such agreements mayor may not in fact resemble

28 F M C
150 FEDERAL MARITIME COMMISSION

what happens when the stevedore rents a crane and operator from the

Ports Authority under the latter s tariff which is not a negotiated agreement

See Rorie v The City of Galveston cited above 8 SRR at 20 716

20 717 West Gulf Maritime Association v Port of Houston Authority

cited above 22 F M C at 452 cf Aleutian Homes Inc v Coastwise

Line et al 5 F M B 602 609 1959 tariff made and issued by carrier

C S C International v Lykes Bros 20 F M C 551 555 1978

I conclude therefore that the Ports Authority s llUiff Item 135 which

purports to place crane operators under the control of renting stevedores

and accordingly disclaims liability for any negligence of crane operators

does not correspond to actual practices at the port of Charleston because

in fact and in law the right to control crane operators does not pass

to renting stevedores Accordingly tariff Item 135 is an unjust and unreason

able regulation and embodies a unjust and unreasQ lable practice in violation

of section 17 of the 1916 Act 46 D S C sec 816 as recodified in section

10 d 1 of the 1984 Act 46 D S C app sec 1709

Stevens Contentions that SCSPA has Violated Section 16 ofthe 1916

Act

A secondary aJlegation Stevens makes is that the Ports Authority has

given undue or unreasonable preferences and advantages to some stevedores

and has subjected Stevens to undue or unreasonable prejudice and disadvan

tage in violation of section 16 First of the 1916 Act 46 D S C sec

815 now sections 10b 1l and 10b 12 of the 1984 Act 46 D S C

app sec 1709 The essence of this allegation is that the Ports Authority

entered into agreements with ocean carriers and their agents which gave

the carriers preferential crane and berth services and did not transfer control

of crane operators or disclaim liability as did Item 135 On the contrary

under the agreements the Ports Authority agreed to indemnify the carriers

from aJl losses sustained as a result of the acts or omissions of the Ports

Authority or its employees and in one agreement even specified that the

Authority would indemnify the carrier or its agents servants and employees

in connection with the negligence of Ports Authority crane operators Ste

vens argues that the Ports Authority is treating similarly situated stevedores

differently since stevedores employed by one of the carriers which has

executed an agreement with the Authority would be indemnified in case

of an accident caused by an Authority crane operator while Stevens on

the contrary would be held liable by the Authority under the same facts

Stevens Opening Brief at 7274

The SCSPA answers the above contentions by arguing that the agreements

in question were all approved by the Commission under section 15 of

the 1916 Act and are therefore reasonable and nondiscriminatory Further

more there is nothing wrong with agreements which offer carriers an

incentive to use the port of Charleston and the fact that under the agreements

the Authority agrees to indemnify the carriers shows that the normal practice

28 FM C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 151

CAROLINA STATE PORTS AUTHORITY

at Charleston is for the renting stevedore to assume liability for the neg

ligence of crane operators SCSPA Reply Brief at 28 29

Since Ihave already found that tariff Item 135 is unjust and unreasonable

and in violation of section 17 of the 1916 Act and section lO d 1

of the 1984 Act it is not necessary to determine whether SCSPA has

also violated section 16 First of the 1916 Act or the corresponding provi

sions of sections 10b 1l and lO b 12 of the 1984 Act Under either

section 16 or 17 SCSPA will be ordered to cease and desist from following

unreasonable practices and tariff provisions However a few observations

may be helpful because the subject agreements are to a limited extent

involved in the section 17 issue insofar as they relate to the question

of what is the normal practice at the port of Charleston

I have described the agreements which Stevens cites previously See

paragraph 31 Summary of Facts As discussed in return for the carriers

guaranteeing tonnages through the port of Charleston the Ports Authority

assumes or shares liability with certain carriers or their agents or agrees

to indemnify the carriers or their agents However the agreements usually

contain some provision to the effect that the Ports Authority will not

indemnify the carrier if the carrier or its agent is at fault or will only

share liability in proportion to the respective faults of the parties Stevens

correctly notes that none of the agreements contains a provision like tariff

Item 135 which would place SCSPA crane operators under the control

of renting stevedores or carriers or disclaim liability for personal injury

or property damage resulting from operations of the cranes except that

resulting from structural failure

Undoubtedly the carriers and their agents including stevedores if they

are agents of the carriers are given more favorable treatment by the

Authority in cases of accidents arising out of crane operations than are

stevedores like Stevens who use the Authority s tariff services However

as the Authority points out the carriers have given something in consider

ation of these extra benefits namely guaranteed tonnages Therefore it

could be argued that stevedores enjoying greater benefits in terms of the

Authority s promise to indemnify may not be similarly situated with Stevens

because the favored stevedores principals the carriers have paid for the

extra benefits Although such stevedores might enjoy a preference or advan

tage the question is whether such preference or advantage is undue

or unreasonable As the Commission has held all preferences and advan

tages are not unlawful It is only those that are undue or unreasonable

which are prohibited by the 1916 Act See Perry s Crane Service v pon

of Houston cited above 19 F M C at 551 552 It is significant that Stevens

does not ask that the Ports Authority s agreements with the carriers be

disapproved nor argue that they violate the law Stevens Opening Brief

at 73 Furthermore as the Authority points out it is not unlawful or

unreasonable for a terminal operator to give special privileges or advantages

to carriers under specially negotiated agreements which were approved under

28 F M C
152 FEDERAL MARITIME COMMISSION

section 15 of the 1916 Act Indeed one of the reasons why such agreements

were subject to section 15 of the 1916 Act is that they departed from

the normal tariff provisions or otherwise fixed rates or fares gave special

rates accommodations or other special privileges or advantages regulated

volume of freight etc See e g Agreement No 8905 Port of Seattle

and Alaska SS Co 1 F M C 192 796 1964 Tenninal Lease Agreement

at Long Beach California 11 F M C 12 17 18 1967 Therefore it

is not enough under section 16 to show that the Ports Authority applies

tariff Item 135 to stevedores who have no special agreements approved

under section 15 and does not apply Item 135 to carriers or their agents

who have entered into such agreements which were approved by the Com

mission However since tariff Item 135 is otherwise unreasonable under

section 17 of the 1916 Act it is not necessary to explore further whether

there is some other theory by which the evidence could show a violation

of section 16

The Amendments to Tariff Items 20 and 25

As discussed above I ruled prior to the hearing that as a matter of

law the SCSPAs tariff Items 20 users of Ports Authority s facilities agree

to indemnify the Authority and 25 vessels owners and agents liable

for damages violated section 17 because they did not clearly rule out

the use of such provisions by the Ports Authority to impose liability upon

users of Ports Authority facilities even when the Ports Authority had been

negligent As I mentioned previously I preserved the parties rights to

file exceptions to those rulings which rulings I

incorporated into this Initial

Decision Furthermore I

permitted the parties to file comments to these

initial rulings Two parties did so Stevens and SCSPA but only Stevens

commented on my rulings as to Items 20 and 25 requesting clarification

to the effect that those items violated section 17 of the 1916 Act

On September 20 1984 SCSPA sent a draft of amenthnents to Items

20 and 25 to the parties which amendments were to go into effect on

November 1 1984 some 42 days later Doc 99 NO party commented

On the first day of the hearing January 21 1985 in Charleston Iremarked

on the recurd that I believed that the problems with Items 20 and 25

had been corrected by the amenthnents as far as I can teUnow Tr

22 Again no one commented However in their opening brief filed on

March i5 1985 Hearing Counsel contend that the amenthnents are still

unreasonable because they do not free users of Ports Authority facilities

from liability when the Authority is partly responsible Hearing Counsel

Opening Brief at 19 20 Stevens agrees with Hearing Counsel and further

more asks for a clear ruling that amended Items ZOand 25 cannot be

applied retroactively in the suits pending in court SCSPA however argues

that Hearing Counsel suggest no alternative language and that they overlook

the fact that the arnenthnents to the two items specify that users of its

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 153

CAROLINA STATE PORTS AUTHORITY

facilities are relieved of liability for the portion of losses and claims

caused solely by the Ports Authority

Originally Item 20 read as follows

All users of Authority facilities agree to indemnify and save harm

less the Authority from and against all losses claims demands

and suits for damages includins death and personal injury

incident to or resulting from their operations on the property

of the Authority and the use of its facilities

The Authority has added the following amending language

A This item is not to be construed as requiring any user to

indemnify the Authority for that portion of such losses et cetera

caused solely by the negligence of the Authority

Originally Item 25 read as follows

All vessels their owners and agents shall be held responsible

for all damage resulting from their use of Authority facilities

The Authority has added the following amending language

A This Item is not to be construed as requiring any vessel

its owner and agent to indemnify the Authority for that portion

of such losses et cetera caused solely by the negligence of the

Authority

I do not find it necessary to issue orders against SCSPA other than

those reasonably related to findings that the tariff provisions were found

to be unlawful as a matter of law or were unreasonable because they

did not correspond to the situation at Charleston regarding the renting

of cranes and operators See Wilmington Stevedores v The Port of Wil

mington 28 F M C 24 1985

This case is before the Commission because at the request of Stevens

the District Court stayed two lawsuits and asked for the Commission s

advice as to the lawfulness of certain tariff provisions The Court stated

that it welcomes the Commission s advice on the validity of the disputed

tariff provisions and u pon receipt of such advice this Court will

then decide the legal questions presented under the particular facts of this

case including any challenge to the validity of the Tariff then asserted

Court orders of December 9 1983 To assist the Court the Commission

can find that the exculpatory and indemnification provisions of the tariff

which either would exculpate the SCSPA from liability for its own neg

ligence or transfer liability to renting stevedores or other users of the

Ports Authority s facilities or disclaim liability for the negligence of the

Ports Authority s crane operators are under the facts shown on this record

unreasonable in violation of section 17 of the 1916 Act and section 10 d I

of the 1984 Act Accordingly the SCSPA should be and is ordered to

28 F M C
154 FEDERAL MARITIME COMMISSION

J cease and desist from implementing such provisions and the practices which

they embody In that way the Court is left free to detennine the questions

as to who was negligent between Stevens and the SeSPA under applicable

local law It is therefore unnecessary to determine whether sespA s good

faith attempt to amend Items 20 and 25 is sufficient to show that sespA

will not engage in the practice ofimposing liability or demanding illdemnity

for claims resulting from the SeSPA s own negligence or that of its employ

ees

26 Nor is it necessary to determine whether the revised Items 20 and

25 can be used by SeSPA against Stevens in the two court cases since

SeSPA is ordered not to carry on the unreasonable practice of imposing

liability or indemnification provisions on Stevens for any conduct which

is the responsibility of the Ports Authority More speoificaliy the Ports

Authority cannot hold Stevens responsible for the conduct of Ports

Authority s crane operators merely because they are rented to Stevens along

with cranes

ULTIMATE CONCLUSIONS

Complainant a stevedore operating at the Port of Charleston alleges

that five tariff provisions in respondent Ports Authority s marine terminal

tariff are unreasonable in violation of section 17 of the Shipping Act

1916 and that one of them is being used against Stevens in a discriminatory

and prejudicial fashion in violation of section 16 First of the 1916 Act

The critical tariff provisions are being asserted by the Ports Authority

against Stevens seeking indemnification or damages in connection with

two lawsuits pending before the U S District Court in Charleston which

arose out of an aocident in which a Ports Autho ty crane and a locomotive

which the crane was lifting were damaged while the crane and its operator

were being rented by Stevens under the Ports Autllority s tariff

Of the five contested tariff provisions the lawfulness of four was deter

ntined as a matter of law Thus Item 5 user consents to tariff provisions

was not found to be lUlIawfill but to be a harmless reminder of tariff

users obligations generally without binding legal effect otherwise Item

20 users agree to indemnify Ports Authority and Item 25 vessels owners

and agents are liable for dlunages were unreasonable in violation of section

17 of the 1916 Act and section 100d I of the Shipping Act of 1984

AI to tho amendaloiy illnpaJe to 1 20 1IIlI2l lt houlll be intetpJeted to meanthollho Ports Au

lhorlty would not Impose 1I1bl1il on Sm or poet lIoeIionfor c1 ftom Sm 0 otho

maten for claiQu to the ex rhIt tho Port Authority was JtlpOnlblo but wouJd only expect Stevens to

be m pOllIlble to tho mnt thol St or Ill ployees wllmIpOtlIlbIe That sppemntly I whet the

SCSPA mOllll by lho word ponlon of IouTho Ianauq doe not hove to 11IOII lhot lho SCSPA II

Illemplbls to Cape IIl bIlIty whom Ills only partly Ible llHearIDi C I foat The C luJon

hu already condenmed luch an lntefpretatlon See C iJIm NatlotItJl CorpOrlllloll eI al if Port ofHouston

Authority cJte4 abov 26 F MC at 303 Alto Item 135 which II unamended the Commhiion can allow

tho SCSPA e IL lmeto file approprlllO amontlllory 1 to conform wlthllldlIfon II WII

done foUowin thtdec llion in C n ml NallolUJI CorporQtton doJ v Pon o ouaton Authortiy cited above

26 F M C 2P6 See the Ieltot daled May 4 19S4 from thO CommIJoJon Seomlaly 10 Mr StrouS G neraI

Monapr of IIouoton In thlo mSaM

28 F M C
STEVENS SHIPPING AND TERMINAL COMPANY V SOUTH 155

CAROLINA STATE PORTS AUTHORITY

because under their language prior to their amendment the Ports Authority

could use them to impose liability upon users of Ports Authority facilities

or could demand indemnification even if the Ports Authority had been

negligent Under applicab e principles of law such exculpatory type provi

sions in marine terminal tariffs are unreasonable on their face when as

in this case the terminal which occupies a position of power in bargaining

gives no special benefits or consideration to tariff users in return for impos

ing such liability and indemnification provisions on them Items 20 and

25 have since been amended by the Ports Authority in an effort to eliminate

their unlawfu exculpatory effects Item 136 A ports Authority holds itself

out to provide adequate cranes and qualified operators and requires users

to rent its cranes if suitable and available is not unlawful on its face

The evidentiary hearing centered on the question of the lawfulness of

Item 135 the tariff provision which purports to transfer control of Ports

Authority crane operators to renting stevedores and which furthermore dis

claims Ports Authority liability for personal injury or property damage

except that resulting from structural failure of the crane This tariff provision

would be lawful under the Shipping Act if in fact and under relevant

principles of law relating to the so called borrowed servant doctrine

the renting stevedore such as Stevens acquired the right to control the

crane operator The evidence shows however that the Ports Authority

hires trains disciplines and pays its crane operators has the fmal authority

on sending them to particular jobs and substituting them and although

they work closely with the stevedore s employees in moving cargo over

the piers for the stevedores they are expected to exercise independent

judgment when the need arises and are not required to follow the signals

or instructions of the stevedore s employees when to do so would be

unsafe or would be contrary to the interests of the Ports Authority in

protecting its cranes and facilities As numerous court decisions make clear

such facts indicate only cooperation and coordination not subordination

of the crane operator to the stevedore and accordingly the crane operator

remains the employee of the Ports Authority which is responsible for his

negligence The fact that the Ports Authority might have to increase super

visory personnel or pay increased insurance premiums unless it allows

stevedores to utilize their own operators cannot in law allow the Ports

Authority to transfer liability to renting stevedores while the Ports Authority

retains the ultimate right to control the crane operators

Complainant s allegations that the Ports Authority has also violated sec

tion 16 First of the 1916 Act which is now section lO d 1 of the

984 Act by preferring other carriers and their stevedores in respect to

iability and indemnification agreements are of questionable validity Those

agreements were separately negotiated and approved by the Commission

under section 5 of the 9 6 Act However since Item 35 which is

the provision involved is unlawful for other reasons it is not necessary

to explore the allegations further

28 F M C
I

I

156 FEDERAL MARITIME COMMISSION

SCSPA is ordered to cease and desist from carrying on the unreasonable

practices embodied in the unmended Items 20 and 25 and in Item 135

namely transferring responsibility and liability for loss and damage claims

to renting stevedores in instances in which the Ports Authority or its employ

ees are negligent or otherwise responsible for the loss or damage involved

The Ports Authority is also ordered to cease and desist from purporting

to transfer the right to control its crane operator and from disclaiming

responsibility for the actions of its crane operators under the current practice

at Charleston with respect to the Ports Authority s tariff rental service

Such practices and Item 135 which embodies them are unreasonable in

violation of section 17 of the 1916 Act and section 1O d l of the 1984

Act

The above fmdings and conclusions are c1esigned to be responsive to

the request of the U S District Court in Charleston which requested lhe

advice of lhe Commission as to the lawfulness of the contested tariff

provisions under shipping law They are not intended to affect the issues

of negligence and other issues before the Court in the two pending lawsuits

It is not therefore necessary to issue additional orders regarding further

amendments to Items 20 and 25 or amendments to Item 135 However

the Commission may allow the Ports Authority a reasonable time following

its decision to propose and file suitable corrective language to Item 135

or to Items 20 and 25 if there is still confusion

NORMAN D KLINE

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 3

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL

RATE INCREASE OF 2 5 PERCENT BETWEEN UNITED STATES

PACIFIC COAST PORTS AND HAWAII PORTS

ORDER DISCONTINUING PROCEEDING

December 27 1985

This proceeding was instituted by Order of Investigation and Hearing

served January 24 1985 to determine whether a 2 5 percent overall rate

increase filed by Matson Navigation Company Ito take effect January I

1985 is just and reasonable On June 28 1985 the Commission served

a Notice in this proceeding that a final decision could not be issued within

the statutory 180 day period as required by section 3 of the Intercoastal

Shipping Act 1933 ISA 46 U S c app 845 and that accordingly

the rates under investigation herein were for purposes of that section

deemed to be just and reasonable 2

Upon further consideration of this matter the Commission has determined

that the said detennination of justness and reasonableness by operation

of the limitation period of section 3 of the ISA precludes further consider

ation in this proceeding of the specific issues noted in the Order of Inves

tigation and Hearing The Commission has also determined that no regu

latory purpose will be served by the consideration of other issues concerning

the justness and reasonableness of the rates herein under investigation under

any other statutory authority in this proceeding Accordingly the Commis

sion will discontinue this proceeding

This determination however is without prejudice to the right of any

person to file a complaint pursuant to section 22 of the Shipping Act

1916 46 U S c app 821

TIIEREFORE IT IS ORDERED That this proceeding is discontinued

By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

1 Supplement No 1 to Matson Navigation Company s Tariff No FMC F No 9 10 11 and 12 applicable

to all commodities ellcept molassas inbulk moving in the Pacific Coast Hawaii trade

2The Notice of June 28 1985 disclosed thai the Commission could not issue a fmal decision due to

a

vacancy on the Commission and a series of divided votes by the remaining Commissioners Section

102 d of the Reorganization Plan No 7 of 1961 75 Sial 840 requires the affrnnative votes of three Com

missioners to dispose of any matter before the Commission

28 F M C 157
FEDERAL MARITIME COMMISSION

DOCKET NO 85 1

C reR INmRNATIDNAL CO RATION

v

WAmRMAN SmAMSHIP CORPORATION

ORDER PARTIALLY ADOPTING INffiAL DECISION

December 3D 1985

This proceeding was initiated by complaint filed by Carrier International

Corporation Complainant against Waterman Steamship Corporation Water

man or Respondent for alleged overcharges of 13 565 27 on a shipment

of air conditioning equipment from Savannah Georgia to Port Sudan Sudan

Complainant alleged that Respondent had overcharged it the amount of

reparations requested by collecting a port congestion surcharge which it

had not reflected in its tariff in violation of section 18 b 3 of the Shipping

Act 1916 1916 Act 46 VS C app 817 b 3 Administrative Law

Judge Charles E Morgan issued an Initial Decision finding that Respondent

had violated section 18b 3 by charging a rate in excess of the tariff

rate on file with the Commission but awarding reparations in the amount

of 6 750 only Respondent filed Exceptions to the Initial Decision s award

of reparations to which Complainant has replied

BACKGROUND

Complainant s agent in Savannah Mr Phil Harris of John S James

Co contacted Respondent s agent in that city Mr RonaldO Walker

of Street Brothers Inc in the fall of 1983 to request a rate quotation

for a shipment of nine pieces of air conditioning machinery to Port Sudan

Walker contacted Mr Jack Mandleur Assistant Vice President of Water

man s Traffic Department in New York who instructed him to quote a

rate of 140 per ton WM plus 30 percent port congestion surcharge

inclusive of all other charges Mandleur said he would file this rate in

the tariff when the cargo was booked

Walker conveyed this rate telephonically in due course to Harris who

booked the cargo through Waiker on a Waterman vessel sailing around

December 3 1983 Harris also prepared a bill of lading reflecting the

quoted rate Walker informed Mandleur in New York that the cargo had

been booked

Mandleur sent a request to Waterman s Tariff Department requesting

that the rate as quoted to Complainant be filed The rate that ultimately

158 28 F M C
CARRIER INTERNATIONAL CORPORATION V WATERMAN 159

STEAMSHIP CORPORATION

appeared in Waterman s Freight Tariff No 18 D FMC No 161 on 38th

revised page 106 effective December I 1983 was however Air Condi

tioning Machinery SavannahPort Sudan through December 31 1983 140

W M AIl Inclusive Thus as published the rate failed to reflect the 30

percent port congestion surcharge quoted by Walker to Complainant s

agent

requested from the Tariff Department by Mandleur reflected by Complain

ants agent on the bill of lading and invoiced to and paid by Complainant

The error was discovered in the course of an audit of Complainant s freight

bills five months after the shipment moved The reparations now sought

by Complainant are the amount of port congestion surcharge coIlected

by Respondent

The facts outlined above as found in the Initial Decision are undisputed

Nor is it disputed that the rate on file in Respondents tariff on the date

of shipment did not include the port congestion surcharge and its coIlection

therefore constituted a violation of section 18b 3 lThe parties disagree

however as to the inferences to be drawn from the facts regarding the

question of whether the rate Complainant expected to pay and Respondent

expected to coIlect was a negotiated rate the coIlection of which did

not result in any injury to Complainant for which it may claim reparation

INITIAL DECISION

While the Presiding Officer found that Respondent had violated section

18b 3 of the 1916 Act by coIlecting the unfiled port congestion surcharge

and noted that mere violation of the Act does not necessitate an award

of reparations where there was no injury to Complainant he was unable

to find that the evidence before him clearly showed the rate to have

been negotiated After considerable discussion of the facts regarding

the booking of the cargo the Presiding Officer found that Respondent

had shown that it at least understood that it had negotiated an agreed

rate He concluded however that Complainant s evidence to the contrary

rendered it unclear that the rate charged was a negotiated and agreed

rate between the parties

Citing United States of America v Columbia Steamship Company Inc

17 F M C 8 1973 relied upon by Respondent the Presiding Officer

noted that the Commission had found an award of reparations unwarranted

where the carrier and the shipper had negotiated a rate which had been

charged and paid but which through an administrative error in amending

the tariff was higher than the rate actuaIly filed The Commission held

that under these circumstances an award of reparations would amount to

awindfaIl which the shipper neither anticipated nor bargained for

1 Section 18 b 3 provides inpertinent part that no carrier shaIl charge ordemand or collect or receive

a

greater or less ordifferent compensation fOf the transportation of property than the rates and charges

which are specified in ils tariffs on file with the Commission and duly published and in effect at the lime

This section of the 1916 Act repealed and superseded by similar provisions of the Shipping Act of

1984 46 V S C app 1701 et seq 46 V S C app 1709 b I remains applicable to causes of action

arising like the instant case before passage of the 1984 Act

28 F M C
160 FEDERAL MARITIME COMMISSION

The Presiding Officer determined that the shipment in this case was

in fact overcharged in the amount of 13 565 27 but nevertheless concluded

that payment of this full amount would result at least in part in an

unanticipated windfall to the complainant and therefore limited repara

tion to 6 750 without interest

POSmON OF THE PARTIES

In its Exceptions to the Initial Decision Respondent argues that the

Presiding Officer erred in his assessment of the evidence concerning the

activity of negotiation Respondent contends that the evidence of the com

munications between agents for Complainant and Respondent including

Complainant s actions in booking the cargo at the rate quoted and paying

the freight as invoiced shows Complainant s acquiescence in the rate which

is therefore a negotiated rate within the meaning of Columbia Steamship

supra Respondent argues that the siguificance of the term negotiate

is not identified in the Columbia Steamship decision but that the equitable

principle underlying that decision that reparation in 1I1ese circumstances

would constitute unjust enrichment is equally applicable here

Respondent further contends that the negotiation of the rate is shown

notwithstanding the somewhat equivocal statements made by Complainant s

affiant Harris by the circumstances surrounding the booking of the cargo

Respondent points out that Harris statement that the cargo was booked

on November 16 1983 is consonant with Respondent s booking memo

randum which reflects the rate quoted as 140 WIM plus 30 Port

Congestion Surcharge all inclusive and the statement of Respondent s

affiant Walker The amendment of the tariff to reflect a

special rate rather

than the higher N O S rate which would otherwise apply strongly suggests

it is arguea that the special rate was agreed upon by Harris and Walker

around November 17 1983

Respondent also submits that Complainant has not shown that it was

injured by Respondent and is therefore not entitled to recover reparations

under section 22 of the 1916 Act citing Trane Co v South African

Marine Corp 19 FMC 375 1 0 1976 and Cargo Export Corporation

v Intermodal Container Service

LId

25 F M C 400 1 0 1982

Complainant argues in Reply to the Exceptions that cases in which

reparations are not awarded for aproven violation of section 18 b 3

are rare exceptions and that Respondent has not shown that this case

is such an exception complainant contends that there was no agreement

on the freight rate reached here similar to that in the Columbia Steamship

case where both parties agreed to a rate which both expected to be subse

quently filed in the tariff Complainant notes that a clerical error there

resulted in the filing of a rate lower than the negotiated rate while here

Complainant s agent merely asked for and agreed to pay the tariff rate

His understanding that the rate quoted was already in the tariff is Complain

ant argues proof that the rate was not negotiated or bargained for

28F M C
CARRIER INTERNATIONAL CORPORATION V WATERMAN 161

STEAMSHIP CORPORATION

as in Columbia Steamship Similarly booking of cargo and payment alleg

edly do not constitute evidence of a negotiated rate Thus Complainant

submits that it should not be held to payment of a rate in violation of

the published tariff rate based upon Waterman s misquotation of the

tariff rate Complainant therefore concludes that it is entitled to reparation

of the full amount of the overcharges

Finally Complainant argues that in any event the port congestion sur

charge billed and collected by Respondent was unconscionable as well

as in violation of the tariff because the vessel arrived at Port Sudan

and was able to unload its cargo within 16 hours of arrival

DISCUSSION

The Presiding Officer s findings of fact and discussion of the applicable

legal precedents are without error and are adopted to the extent that they

are not inconsistent with our discussion infra His finding that Respondent

collected a rate in excess of the rate on file in violation of section 18b 3

of the 1916 Act is supported by the record We also agree with his

conclusion that the Commission may within its discretion under section

22 2 decline to award reparations when no injury has resulted from violation

of the Act or when reparations would constitute a windfall to Complainant

which was not anticipated and bargained for However his determination

to award half the amount overcharged does not appear well founded and

is therefore reversed

The Presiding Officer erred by overstating the significance of the give

and take of price negotiations in Columbia Steamship supra to the det

riment of the equities weighed by the Commission in that case The shipper

in Columbia Steamship requested that the carrier quote a rate for trucks

from the U S to Pusan Korea noting that it could not pay more than

the existing conference rate The Respondent a non conference carrier

replied that it would offer and file if agreed to a stated rate per vehicle

which would be lower than the conference rate The conversation was

confirmed in writing In filing the rate however a clerical error was

made transposing the rates for Group I and Group 2

ports which resulted

in the filing of a rate lower than that agreed to for the shipment in

question

In overturning the presiding officer s award of reparations in that case

the Commission found that application of the negotiated rate was a fore

gone conclusion by both parties as shown by subsequent issuance of

2

Section 22 of the 1916 Act 46 V S C app 821 provides inrelevant part

t hat any pencn may file with the board asworn complaint setting forth any violation of this

Act by a common carrier by water or other person subject to this Act and asking reparation fOf

the injury if any caused thereby The board if the complaint is filed within two years after

the cause of action accrued may direct the payment of full reparation to the Complainant for

the injury caused by such violation Emphasis added

TIle use of the term may indicates that grant of reparations is within the Commission s discretion

Consolo v Federal Maritime Commission 383 U S 607 621 1966

28 F M C
162 FEDERAL MARITIME COMMISSION

respondent s bill of lading No I and the payment by complainant of

the negotiated rate without demurrer and by a five month delay in seeking

repayment after an audit revealed the error 17 F M C at 9

We fmd that similar factors apply here In this case Complainant s

affiant Phil Harris states that he was not authorized to and did not

negotiate a rate with Waterman He states that he merely asked Water

man s agent Ronald O Walker to quote him the rate which he assumed

was the rate already on file He thus further assumed that the rate later

quoted to him following Walker s conversation with Jack Mandleur was

already in the tariff Nevertheless it is undisputed that Harris on behalf

ofComplainant agreed to book the cargo at the rate quoted him

Clearly as in the Columbia Steamship case the Complainant expected

to pay and Respondent expected to collect the rate as quoted Clearly

also the rate as quoted was expected by Complainant and intended by

Respondent to be the rate on file on the date of shipment The factual

difference in the cases arises from the understanding by the shipper in

Columbia Steamship that the rate quoted had yet to be filed in the tariff

while the Shipper in this case was without knowledge as to when the

rate quoted had been or would be filed This difference does not however

affect the equities of the situation which appear to be the same in both

cases In this case as in Columbia Steamship the error made in filing

the tariff results in an unanticipated and unwarranted windfall to Complain

ant if reparations are awarded

It further appears here that the rate quoted by Waterman was a nego

tiated rate at least in the sense that Waterman made an offer to file

a rate lower than the rate applicable in the existing tariff 3 and when

the Complainant acquiesced in that rate made a good faith effort to file

the lower rate as quoted The evidence here points to the creation of

a new rate with all the earmarks of a negotiated rate a

specific com

modity rate where none had previously appeared effective for only 30

days and applying only between two named ports Similar evidence was

relied upon in Columbia Steamship supra

o

where it was noted that the

negotiated rate had no counterpart in any tariff of respondent on file

with the Commission 17 F M C at 19

Complainant does not allege that any other shipper was able to take

advantage of the lower rate published in the tariff It also appears that

the freight rate was not an essential element in Complainant s choice of

route and carrier Harris says that Waterman was chosen because other

carriers no longer called at Savannah Complainant had previously used

Respondent s statements that in the absence of the sJlelaI rate filed as aresult of theat transactions

a higher N O S rate would have been applicable to this shipment arc made for tho fllSt time on Bxceptions

They do not however raise new 1S8 ICI Theae statement are moreover not disputed or objected to in Com

plainants Reply to ExcepUons In addition it may be inferred from the undisputed evidonce of record of

the filing of the iariff amendment 10 be effective in leu than 30 days that no such specific rate existed pre

vIously and that in the absence of thenew rate a higher rate would apply

28 F M C
CARRIER INTERNATIONAL CORPORATION V WATERMAN 163

STEAMSHIP CORPORATION

Walerman s service to the area and Waterman had a sailing dale which

was within the period required by the letter of credit

It thus appears that the Presiding Officer in this case relied too heavily

upon Complainant s stated ignorance of the existing tariff in finding that

the rate was not clearly a negotiated rate As the Presiding Officer

correctly noted the Commission s power to award reparations is discre

tionary The purpose of reparations is to compensate Complainants for

injury resulting from a violation of the Act not to punish such violations

Civil penalties are provided where warranted for that purpose Complain

ant s

ignorance of the existing tariff without any showing of actual injury

does not persuade us to require that Respondent refund more than 13 000

of freight monies based on a rate it quoted charged and intended to

file in good faith

In its Reply to Exceptions Complainant alleges for the first time in

this proceeding that the vessel was able to unload its cargo within 16

hours of its arrival in Port Sudan and argues from this fact that Respondent s

collection of a port congestion surcharge was therefore unconscionable

We find that these statements of fact and argument were improperly made

after the close of the record and they have therefore not been considered

on their merits

One final matter related to the above remains for disposition Several

pieces of correspondence were received after the filing of Exceptions and

the Reply thereto Counsel for Respondent by letter requested that the

last portion of Complainant s Reply to Exceptions dealing with the issue

discussed in the last paragraph be stricken because it allegedly raises

for the first time an issue of fact and arguments which had not been

presented to the Presiding Officer without notice to Respondent or oppor

tunity to reply Counsel for Complainant also wrote the Commission chal

lenging his opponent s letter citing the Commission s Rules of Practice

and Procedure at 46 CFR 502 227 as authority for the arguments mode

on Reply to Exceptions and asking that the letter from Respondents counsel

be stricken from the record 5

We find these letters to be communications filed without authority The

Commission s Rules of Practice and Procedure at 46 CFR 502 227 pro

vide for the filing of exceptions to an initial decision and for a

reply

to any exceptions filed No reply to a reply is permitted The Secretary

is instructed to return the letters to the senders

28 F M C

4

See 46 CFR 502 229 and 502 230

We note that Complainant s reliance on 46 C F R 502 227 fOf authority 10 raise new issues in ils Reply

to Exceptions is misplaced That rule provides at 502 227 a 5 in part thai upon review of an initial deci

sion the Commission except as it may limit the issues upon notice orby rule will have all the powers

which it would have in making the initial decision This statement of the Commission s

powers does not

authorize a

party to expand the issues in the proceeding at this stage orseek to supplement the record in

contravention of 46 CFR 502 229 and 502 230
164 FEDERAL MARITIME COMMISSION

THEREFORE IT IS ORDERED That Respondent s Exceptions are grant

ed

IT IS FURTHER ORDERED That the decision of the Presiding Officer

in this proceeding awarding reparations of 6 750 to Complainant is re

versed

IT IS FURTHER ORDERED That the Initial Decision of the Presiding

Officer in this proceeding is otherwise adopted to the extent that it is

not inconsistent with the discussion of the issues herein

IT IS FURTHER ORDERED That the Secretary return to Counsel for

Respondent anlComplainant unauthorized correspon lence dated September

17 1985 anlSeptember 30 1985 respectively and

IT IS FURTHER ORDERED That this proceeding is discontinued

By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

28 FMC
FEDERAL MARITIME COMMISSION

DOCKET NO 85 1

CARRIER INTERNATIONAL CORPORATION

v

WATERMAN STEAMSHIP CORPORATION

Complainant s shipment found to have been overcharged An award of reparation found

under the circumstances to be a matter of discretion of the Commission And reparation

awarded inpart without interest

Paul S Aufrichtig and Bruce Stern for complainant

George H Hearn forrespondent

INITIAL DECISION 1 OF CHARLES E MORGAN ADMINISTRATIVE

LAW JUDGE

Partially Adopted December 30 1985

By complaint received January 11 and served January 16 1985 the

complainant Carrier International Corporation alleges that the respondent

Waterman Steamship Corporation collected overcharges on a shipment made

by the complainant in violation of section l8 b 3 of the Shipping Act

1916 the Act

The shipment in issue was made on December 7 1983 It consisted

of 12 919 3 cubic feet of air conditioning equipment made from Savannah

Georgia to Port Sudan Sudan The basic freight rate was 140 W M

per ton of 2 248 pounds or of 40 cubic feet whichever produces the

greater revenue Based on 322 9825 tons M the freight charges were

45 217 55 In addition the respondent collected a 30 percent congestion

surcharge of 13 565 27

The issue in this proceeding is the lawfulness of the surcharge The

complainant seeks an order directing the respondent to pay complainant

the sum of 13 565 27 plus interest and costs

Waterman Steamship Corporation s Freight Tariff No 18 D F M C No

161 provided rates from U S Atlantic and Gulf Ports to Red Sea and

other points and ports As shown in the 38th revised page 106 effective

December I 1983 through December 31 1983 there was a rate on air

conditioning machinery from Savannah to Port Sudan of 140 per ton

W M All Inclusive This was the applicable rate on the shipment herein

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

28 F M C 165
166 FEDERAL MARITIME COMMISSION

Five months after the shipment herein was made the complainant s

freight

bills were audited From this audit it was ascertained by the auditor that

the complainant was charged the congestion surcharge on the shipment

in addition to the all inclusive freight charges

The respondent contends that the complaint was filed only as a result

of the audit and that in fact the complainant was charged the rate which

complainant bargained for and further that the complainant has paid the

actual charges which complainant fully expected to pay for the transportation

of its cargo

The respondent further contends that due to an administrative error the

respondent filed a rate that was not the rate that the parties negotiated

and agreed to consequently Complainant has not been actually injured

thereby

It is noted that this proceeding differs from many so called special docket

proceedings under section 18b 3 of the Act In the present case the

administrative error said to have been made by the respondent resulted

not in higher charges against the shipper as in the typical special docket

proceeding but in lower charges

The respondent argues that reparation in this proceeding is not justified

by the facts The respondent relies mainly on the principal that a violation

of section 18 b 3 by charging and accepting payment of a rate other

than the tariff rate on file by itself does not necessarily mean that reparation

will be awarded The respondent cites United States ofAmerica v Columbia

Steamship Company Inc 17 F M C 8 1973 wherein the Commission

found that an award of reparation was not warranted because it would

amount to a windfall which the complainant neither anticipated nor bar

gained for The facts in the Columbia Steamship case above were that

the complainant and respondent therein had agreed upon a negotiated

rate at which complainant would ship the vehicles in question Emphasis

supplied The negotiated rate was clearly intended by respondent and ex

pected by complainant to be the rate filed with the Commission The

bill of lading listed the negotiated rate and the freight charges as negotiated

were paid by the complainant It was only pursuant to a freight bill audit

six months after payment that the tariff error was discovered The Commis

sion concluded in the Columbia Steamship case that the Commission s

power to award reparation is discretionary and permissive and the mere

fact that a violation of the Act has been found does not in itself compel

a grant of reparation

The matter now in issue raises the question whether in the present

proceeding there was a negotiated rate agreed upon between the present

complainant and respondent The answer is not clear cut

The record contains five affidavits two on behalf of respondent and

three for the complainant The facts leading up to the shipment in issue

herein are as follows In the fall of 1983 Mr Ronald Walker was manager

of the office of Street Brothers Inc in Savamuth Street Brothers Inc

28 F M C
28 F M C

CARRIER INlERNATIONAL CORPORATION V WAlERMAN 167

SlEAMSHIP CORPORATION

was the agent in Savannah of Waterman Mr Walker in early November

1983 telephoned Mr Jack Mandleur an Assistant Vice President in the

Traffic Department of Waterman in New York City Mr Walker said

that he had been requested by Mr Phil Harris of John S James Co

the complainant s agent in Savannah to quote a rate on nine pieces of

air conditioning machinery to Port Sudan

Mr Mandleur told Mr Walker to quote 140 per ton W M plus 30

percent port congestion surcharge inclusive of all other charges and sur

charges Mr Mandleur also said that he would file such rate when the

cargo was booked

Later In November 1983 Mr Walker told Mr Mandleur that the cargo

was booked on a Waterman vessel Mr Mandleur then had his associate

send a request for a tariff amendment to the tariff department of Waterman

Both Mr Mandleur s note to his associate and his associate s note to

the tariff department cited the rate of 140 all inclusive plus 30 percent

port congestion surcharge As seen in error the rate intended by respondent

was not published in the tariff

Mr Walker generally confirms the facts stated by Mr Mandleur Also

Mr Walker states that Mr Harris agreed to the rate quoted and booked

the cargo in issue on Waterman s next vessel sailing from Savannah to

Port Sudan Mr Walker invoiced the complainant for the full amount

of the quoted or agreed rate of 140 plus 30 percent congestion surcharge

and complainant paid such full amount

In addition Mr Walker states that Mr Harris has confirmed the facts

as I have related them here in regard to the rate which we agreed upon

but he says that he won t attest to them because he is still employed

by Carrier s agent

For the complainant in his affidavit Mr Harris differs as to whether

the rate of 140 per ton plus 30 percent congestion surcharge was a

negotiated rate or was believed by him to be a rate already in the tariff

On November 16 1983 complainant requested Mr Harris to obtain

a booking to Port Sudan Mr Harris made the booking with Waterman

through Waterman s Savannah agents Street Brothers Waterman was used

because other steamship line services had stopped calling Savannah because

complainant had used Waterman on prior occasions into the Sudan area

and because Waterman had a vessel around December 3 1983 which

waswithin the validity of complainant s Letter of Credit

After complainant s cargo arrived at the Port of Savannah Mr Harris

called Street Brothers and asked for the ocean freight rate to Port Sudan

Street Brothers had to call Waterman in New York for the rate Street

Brothers then quoted to Mr Harris the rate of 140 per ton W M plus

30 percent port congestion surcharge

Mr Harris did not question the rate because had no authority to do

so He followed standard procedure by accepting the steamship Line s quote
168 FEDERAL MARITIME COMMISSION

as accurate since they were reading from their own tariff and our company

does not have a

copy of their tariff

Mr Harris freighted the Bill of Lading with the rate quoted by Stree

Brothers

Mr Harris insists that he did not at anytime attempt to negotiate the

rate but merely accepted it as an accurate reading of the tariff It wa

a large and valuable shipment and ocean freight was not the issue rathe

the main concem of the complainant was vessel availability since if the

cargo were shipped after the letter of credit had expired it would have

resulted in the loss of substantial revenue to the complainant

In the affidavit of Bruce L Stein for the complainant Mr Stein also

stresses that Mr Harris merely agreed to pay the published tariff rate

From the above facts it is not absolutely clear that the rate of 140

plus 30 percent congestion surcharge was a negotiated and agreed rate

between the parties Mr Harris affidavit is to the effect that he had

no authority to negotiate a rate that he did not negotiate a rate bu

that he merely asked to be informed as to the published tariff rate

On the other hand the respondents dealt only with Mr Harris as agen

for the complainant and the respondent believes that a rate was quoted

to Mr Harris that it was accepted by him and thus that there was an

agreed and negotiated rate

As a

general rule the rate or rates published in tariffs must be charged

To do otherwise in the present proceeding there must be substantial evi

dence such as in the Columbia Steamship case above that there wa

an agreed rate and that to award reparation would have resulted in a

windfall neither anticipated nor bargained for

In the present proceeding it is concluded and found that to award repara

tion of the full amount of 13 565 27 would result at least in part in

an unanticipated windfall to the complainants it is further concluded and

found that the record is not fully clear as to whether the rate of 140

per ton plus 30 percent congestion surcharge was a negotiated rate Re

spondent s evidence shows its understanding that there was a negotiated

agreed rate Complainant s evidence is otherwise

The Commission s authority to award reparation is discretionary The

amount of reparation to be awarded likewise is discretionary Under the

circumstances it is concluded and found that an award of reparation in

the amount of 6 750 is proper and interest is not awarded

In summation it is concluded and found that the published tariff rate

was not charged on the shipment herein and accordingly the shipmen

was overcharged in the amount of 13 565 27 Further in the circumstances

herein payment of this full amount would result at least in part in an

unanticipated windfall to the complainants Further the Commission s author

ity to award reparation is discretionary and it is determined that reparation

28 F M C
CARRIER INTERNATIONAL CORPORATION V WATERMAN 169

STEAMSHIP CORPORATION

in the amount of 6 750 without interest is proper in this proceeding

and such amount is awarded to the complainant

8 CHARLES E MORGAN

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1343

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE

BENEFIT OF MINNESOTA MINING AND MANUFACTURING CO

ORDER

S BRUCE A DOMBROWSKI

Acting Secretary

January 9 1986

Upon review on its own motion the Commission has determined to

adopt the Initial Decision of Administrative Law Judge Joseph N Ingolia

issued in this proceeding

TIffiREFORE IT IS ORDERED That the Initial Decision of Administra

tive Law Judge Joseph N Ingolia served September 9 1985 is adopted

by the Commission and

IT IS FURTIffiR ORDERED That OOCL Seapac Services Inc shall

within 30 days from the date of service of this Order waive charges

and publish and file with the Commission a tariff notice as required by

the Initial Decision and within five days thereafter furnish the Commission

Secretary with evidence of waiver and a

copy of the prescribed tariff

notice and

IT IS FINALLY ORDERED That this proceeding is discontinued

By the Commission

170 28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1343

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE

BENEFIT OF MINNESOTA MINING AND MANUFACTURING CO

Application to waive freight charges of 5 998 40 granted

INITIAL DECISION 1 OF JOSEPH N INGOLlA ADMINISTRATIVE

LAW JUDGE

Adopted January 9 1986

This application 2is for permission to waive 5 998 40 of freight charges

arising out of one shipment of Office and Laboratory Supplies from Seattle

Washington to Bangkok Thailand

The tariff involved in this proceediug is Orieut Overseas Coutaiuer Line

Inc OOCL Local and Overland Freight Tariff No 631 FMC No 147

from named Pacific Coast Ports to named Ports iu the Far East Prior

to January 2 1985 the tariff contaiued a Cargo NOS rate to Bangkok

of 235 00 W M for Not Dangerous or Hazardous Cargo and a Cargo

NOS rate of 372 00 W M for dangerous or hazardous cargo

3 On August

27 1984 the Pricing Manager for Seapac Services Inc Seapac which

represents OOCL quoted 1985 rates for office and laboratory supplies mov

iug from Seattle to Bangkok of 910 00 per 20 foot container plus TRC

of 90 00 and 1 840 00 per 40 foot container plus TRC of 110 00

The rates were to be offered shippers on booking 4

On January 2 1985 a booking was made by the shipper Minnesota

Mining and Manufacturing Co 3M However the bookiug was uot cor

related with the earlier quoted 1985 rates and the correct tariff was mistak

enly not on file when the shipmeut took place The applicant uow seeks

permission to waive freight charges of 5 998 40 which is the difference

between what was paid for this shipment 1 000 00 5 and the amount

which was due under the tariff ou file on the date of shipment 6 998 40 6

The applicant filed a corrected tariff containing the 1985 rate on January

18 1985 7

28 F M C 171

1 This decision will become thedecision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 502 227

2The apptkatiQn was filed on July 12 1985 and mailed on July 3 1985 within the 180 day statutory

period set forth in section See Shipping Act 1984

3Application 5th Rev Page 93 effective September 28 1984

4Application Affidavit ofJoseph E Harris

S Application Daily Freight Collection Report dated 2685 Deposit Slip of Seapac dated 2685

6

Application Bill of Lading No WXBKOllT

1

Application 4th Rev Page 172
j

i

172 FEDERAL MARITIME COMMISSION

J

i

Section 8 e of the Shipping Act 1984 permits the Commission to

waive collection of freight charges where it appears there was an error

in a tariff of a clerical nature or an error due to inadvertence in failing

to file a new tariff Here it is clear that human failure caused the new

rates to remain unfiled even though OOCL Seapac intended that they go

into effect The error is the kind Congress sought to obviate in enacting

section 8 e

The application filed by OOCL conforms to the requirements of Rule

92 a Special Docket Applications Rules of Practice and Procedure 46

CPR 502 92 a and therefore after consideration of the application the

exhibits attached to it and the entire record it is held that

1 There was an error of a clerical or administrative nature which resulted

in the failure to have timely filed a tariff containing a rate on Office

and Laboratory Supplies of 910 00 per 20 foot container plus TRC of

90 00 from Seattle Washington to Bangkok Thailand which rate would

have been in effect had the error not been made

2 The waiver will not result in discrimination among shippers and

there is no evidence that any carriers or ports would suffer discrimination

should the application be granted

3 Prior to applying for the waiver the applicant filed a new tariff

which set forth the rate upon which the waiver should be based

4 The application was filed within 180 days from the date of the

shipment involved

Wherefore in view of the above ilis

Ordered that permission is granted OOCL to waive a portion of freight

charges in the amount of 5 998040 in favor of the shipper Minnesota

Mining and Manufacturing Co and it is

Further Ordered that OOCL promptly publish in the pertinent tariff

the following notice

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

Commission in Special Docket No 1343 that effective January

2 1985 and continuing through January 17 1985 inclusive the

rate on Office and Laboratory Supplies is 910 00 per 20 foot

container plus ntC of 90 00 from named Pacific Coast Ports

to Bangkok Thailand for purpose of waiver or refund of freight

charges subject to all other applicable rules regulations terms

and conditions of said rate and thiS tariff

i

i

S JOSEPH N INOOLIA

Administrative Law Judge

8

The application states

No other shipments of subject commodIty were made during the aforementioned time period via

OOCL Seapac Services Inc

28 FM C
FEDERAL MARITIME COMMISSION

DOCKET NO 8410

THE COCA COLA EXPORT CORPORATION

v

PERUVIAN AMAZON LINE

ORDER ADOPTING INITIAL DECISION

January 4 986

This proceeding was initiated by a complaint filed by Coca Cola Export

Corporation Coke or Complainant against Peruvian Amazon Line PAL

or Respondent for alleged overcharges of 9 824 52 on the shipment of

14 336 cases of canned sodas from Miami Florida to Iquitos Peru in

violation of section 18 b 3 of the Shipping Act 1916 1916 Act 46

U S C app @817 b 3 The case was tried by Chief Administrative Law

Judge John E Cograve Presiding Officer under the shortened procedure

of Subpart R of the Commission s Rules of Practice and Procedure 46

C FR 502 181 In his Initial Decision on Remand the Presiding Officer

found that the shipment in question had been properly rated and accord

ingly denied reparations Complainant has filed Exceptions to the Initial

Decision to which Respondent has replied

BACKGROUND

Pnrsuant to a contract of sale for 14 336 cases of Coca Cola and Sprite

and a letter of credit which precluded partial shipment Coke booked

space for the entire shipment with PAL and requested that eight containers

be furnished The containers were loaded by Coke at its Miami bottling

plant with cartons of Coke on pallets and some loose cases PAL was

not informed either at the time of booking or shipment that the greater

portion of the cargo was palletized The bill of lading was prepared by

Coke and did not indicate that the cargo was on pallets

PAL s tariff provided a rate of 120 W M for Canned Goods and

Beverages Palletized and a rate of 160 W M for Canned Goods and

Beverages in Boxes PAL rated the shipment at the higher rate for

cargo in boxes Coke s complaint alleged that the lower rate for

I The cases of canned sodas are automatically palletized as they come off the plant s production lines

28 F M C 173
174 FEDERAL MARITIME COMMISSION

palletized cargo should have applied lIIld sought reparations in the amount

of the difference between the two rates 2

In the first Initial Decision denying reparations the Presiding Officer

characterized the problem as ambiguity created by the actions of the

shipper who flfst palletized at least part of the cargo lIIld then placed

those pallets inside a container box The Presiding Officer thus equated

the term boxes used in PAL s tariff with containers On consideration

of the Exceptions the Comntission found that the Presiding Officer had

erred in this respect and remanded the case for further hearing

The Commission s Order served January 24 1985 specified two points

on which further evidence was desirable past dealings between Coke and

PAL which ntight have led Coke to expect container service when no

mention of such service was made in the tariff and the manner in which

Coke s overseas shipments are usually made The Commission cited

Cummins v United States Line 21 F M C 944 1979 in which evidence

of post dealings between a shipper and carrier was found useful in resolving

a question of tariff ambiguity

On remand the Presiding Officer asked the parties to submit the relevant

documents on all shipments made by Coke with PAL for the calendar

years 1983 and 1984 and to file memoranda of law with particular reference

to Cummins Complainant subntitted a two page Supplemental Memorandum

in which it stated that the shipment in issue was the first and only shipment

made by Coke under the PAL tariff at issue and that any later shipments

would be irrelevant because PAL s tariff was subsequently amended to

reflect specific charges for container service Coke also argued that Cummins

is inapposite

Respondent subntitted an affidavit from its agent and supporting bills

of lading illustrative of its past practice with respect to palletized cargoes

including canned sodas showing that they moved at the lower rate on

pallets without containers Like Coke PAL s affidavit stated that there

was no previous history of shipments by Coke onPAL

INITIAL DECISION ON REMAND

In his Initial Decision on Remand the Presiding Officer once again

determined that it is the Complainant s method of packing the shipment

that causes the problem here He found that the shipment in issue was

not a palletized shipment in the generaUy accepted sen e Citing Matson

Navigation Company Rates On Pallets 7 F M C 771 1964 he noted

that rates for palletized cargo are generaUy based upon the loading and

storage characteristics of loaded pallets Thus he concluded that Complain

ant had changed the nature of the shipment by placing the loaded pallets

Coke originally sought to have the lower rate applied to the entire shipmen bUl1ater conceded that the

higher rate should apply to the portion of the shipment that moved as loose cartOIll within the containers

28 FM C
THE COCA COLA EXPORT CORPORATION V PERUVIAN 175

AMAZON LINE

into containers and had given up the right to the lower rate for paIletized

cargo

POSITION OF THE PARTIES

On Exceptions Complainant argues that Cummins is inapposite to this

case because this was the only transaction between the parties under these

tariff provisions Coke argues for a strict interpretation of the tariff

governed by the rule that what is actually shipped determines the rate

to he applied which in this case were palletized cartons of coke The

Presiding Officer is taken to task by Coke for what it characterizes as

taking judicial notice of the fact of whether pallets are or are not

normally containerized Coke further disputes the Presiding Officer s find

ings in this respect by noting its attorney s own recollection of viewing

pallets being unloaded from containers and enumerates the possible benefits

of the practice Coke concedes however that these notations are of no

evidentiary value in this present case

In its Reply to the Exceptions Respondent alleges that Coke may have

violated the 1916 Act by its failure to disclose the true nature of the

way the cargo was packaged which enabled it to obtain something

of value that other shippers who disclosed the nature of the packing would

not have received PAL further argues that the interpretation of the tariff

sought by Coke would yield impractical and absurd results and is therefore

to be avoided in favor of its own interpretation

DISCUSSION

The lni tial Decision on Remand reaches a common sense resolution

of the dispute which is supported both in fact and law Accordingly

the Initial Decision is adopted by the Commission

Coke s main argument in its Exceptions is new not classic that the

Presiding Officer improperly took judicial notice of facts regarding nor

mal carrier treatment of palletized cargo The argument is however mis

directed This was not a disputed issue of material fact

Coke has not argued nor sought to prove in its initial case on remand

or on exceptions that it is normal industry practice or normal practice

for PAL to ship palletized cargo in containers 3 To the contrary PAL

repeatedly stated that it did not provide containers for palletized shipments

and these statements were not disputed by Coke Nor does Coke argue

that normal industry practice is other than as characterized by the Presiding

Officer Coke s

judicial notice argument is really a complaint that the

Presiding Officer did not limit himself strictly to the literal words of the

tariff in interpreting it but looked beyond it for evidence of past practice

by the parties and the industry This however is precisely what we in

3

At most the anomalous footnote referencing counsel s observation of one inslance of cargo packed in

this manner being unloaded is offered as an argument that such packaging js not unique

28 F M C
176 FEDERAL MARITIME COMMISSION

structed the Presiding Officer to do on remand Moreover although Coke

objects to the Presiding Officer s conclusion regarding the generally ac

cepted sense of what constitutes a palletized shipment it offered no evi

dence of what its own past practice had been despite the additional oppor

tunity and specific request that it do so

On the question of whether PAL s rate for canned beverages

palletized should apply the Presiding Officer looked to Matson Navigation

Co in which the Commission noted the principal advantages of handling

ocean cargo in pallets which exist when cargo is stowed in conven

tional holds There would appear however to be minimal advantage to

the ocean carrier in using pallets to carry cargo in containers Matson

Navigation Co supra 7 F M C at 772 The Presiding Officer s conclusion

is consistent with this precedent 4

TIlEREFORE IT IS ORDERED That Complainant s Exceptions are

denied and

IT IS FURTIiER ORDERED That the Initial Decision on Remand served

July 16 1985 in this proceeding is adopted and

FINALLY IT IS FURTIlER ORDERED That this proceeding is discon

tinued

By the Commission s

BRUCE A DOMBROWSKI

Acting Secretary

4Respondenl sargument in ils Reply to Exceptions that Coke s failure to reveal the shipment s pacuging

may have violated the 1916 Act appears to have been essentially an afterthought It is unsupported by evi

dcnc of record and no Commission action Js requested

Commissioner Thomu F Moak1ey s disacnting opinion b attached

28 F M C
THE COCA COLA EXPORT CORPORATION V PERUVIAN 177

AMAZON LINE

Commissioner Moakley dissenting

I would not adopt the Initial Decision on Remand in this proceeding

because its conclusion requires a distortion of the tariff we are asked

to interpret

The shipment in question consisted of Coca Cola and Sprite some on

pallets and some loose in boxes The tariff in question contained only

two possible rates at the time of shipment one for Carmed Goods and

Beverages Palletized and another for Carmed Goods and Beverages

in Boxes The shipper seeks to apply the palletized rate to the palletized

cargo and the boxed rate to the loose boxes

The Initial Decision on Remand adopted by the Commission majority

concludes that application of the palletized cargo rate to the palletized

cargo would lead to absurd consequences Instead the rate for cargo in

boxes is applied to the palletized cargo because that cargo along with

the loose boxes was placed in containers

No matter how fair this conclusion may seem to those who believe

as the Administrative Law Judge did that Pallets are not normally contain

erized ID pp 5 6 there was nothing in this carrier s tariff which

would permit an additional or different charge for palletized cargo when

that cargo moved in containers If that is unfair to the carrier it is an

unfairness of its own making since the carrier is the author of the tariff

More importantly fairness is not a factor that may be used to override

the clear and unambiguous terms of a tariff As this Commission and

the courts have stated on numerous occasions Neither mistake inadvert

ence contrary intention of the parties hardship nor principles of equity

permit a deviation from the rates filed tariff Louisville Nashville

Ry v Maxwell 237 U S 94 1915 United States of America v Pan

American Mail Line Inc 69 Civ 2381 1973 AMC 404 SDNY 1972

Kraft Foods v Moore McCormack Lines Inc 17 EM C 320 323 note

4 1974 rev d on other grounds 538 F 2d 445 1974 Sun Company

Inc v Lykes Bros Co Inc 20 F M C 67 70 1977

To depart from this principle creates a new element of uncertainty in

the future application of tariff rates I would require the carrier to charge

the palletized cargo rate for palletized cargo

28 F MC
FEDERAL MARITIME COMMISSION

DOCKET NO 8410

THE COCA COLA EXPORT CORPORATION

v

PERUVIAN AMAZON LINE

On remand cargo found properly rated Reparation denied

Frank J Hathaway and Donald J Brunner for complainants

Herbert B Ruskin Ruskin Oyory for respondents

INITIAL DECISION 1 ON REMAND OF JOHN E COORAVE

ADMINISTRATIVE LAW JUDOE

ADOPTED January 14 1986

In January of 1983 Industrial Traffic Consultants Inc lTC a self

styled Overcharge Claim Agent located in Miami Florida filed a claim

with respondent Peruvian Amazon Line This claim alleged an overcharge

by that carrier of 9 824 52 on a shipment of 14 336 cases of Coca

Cola and Sprite

Sometime prior to November of 1982 complainant Coca Cola Expor

Corporation received an order for 14 336 cases of canned Coca Cola and

Sprite from a customer in Peru The order was secured by a letter o

credit which among other things forbade partial shipments In Novembe

of 1982 the complainant booked the shipment with respondent and asked

respondent to supply eight containers for loading the shipment All the

paperwork for the shipment was handled by complainant s main office

in Atlanta Oeorgia but the actual shipment was made up in complainant s

bottling plant in Miami At the Miami plant the cases of COCa Cola and

Sprite are or can be automatically palletized as they come off the produc

tion line Each of the eight containers was loaded with twelve pallets

holding 120 cases each and 352 loose cases which were stacked around

the pallets The containers were sealed and taken to Dodge Island for

loading

At the time of the booking no mention was made to respondent tha

the shipment or any part of it was to be palletized The eight containers

were loaded aboard respondent s ship Yacu Caspi at Dodge Island Florida

under a bill of lading which described the cargo as Boxes of Coca

J This decision will become the decision of the CommissIon in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and ProcedUR 46 CPR 502 227

178 28 FM C
THE COCA COLA EXPORT CORPORATION V PERUVIAN 179

AMAZON LINE

Cola and Sprite in Cans The bill of lading contained no reference to

the fact that some of the boxes had been palletized Since the containers

had been sealed the respondent s knowledge of their contents was based

on the description in the bill of lading Respondent would not have furnished

containers for the pal etized portion of the shipment had it known of

the palletization

Relying on the bill of lading respondent rated the shipment under the

commodity item Canned Goods and Beverages in Boxes W M 160 00

for total charge of 38 087 6 including surcharges etc Complainant paid

the freight and it was apparently in the course of some sort of freight

bill audit that TC discovered the discrepancy and filed the claim for

overcharge The claim sought the difference between the rate of 20 00

W M the rate applicable to Canned Goods and Beverages Palletized

and the 60 00 W M rate assessed by respondent

In a letter written on January 26 983 Harrington and Company Inc

acknowledged the claim and said it was being investigated On June 2

1983 lTC apparently having heard nothing from Harrington announced

by mailgram that if there was no word by June 10 1983 it would take

appropriate legal steps with the Federal Maritime Commission There

followed some correspondence between lTC the Commission staff and

the respondent the upshot of which was an offer by respondent to settle

the claim at 50 percent This offer was refused The respondent ultimately

denied the claim and this complaint was filed

In my original decision I concluded that respondent had properly rated

the shipment and denied complainant s claim for reparation My conclusion

was grounded on the unwarranted and erroneous assumption that the terms

box and container were synonymous However as the Commission

correctly points out and as my own re examination of the record be atedly

reveals the two terms whatever their synonymity in street slang rep

resent two distinct and separate things in this record My error prompted

this remand

The question remaining of course is which of the two rates should

apply Quite literally both rates apply The shipment actually consisted

of eight containers each loaded with 12 pallets with 20 cases to each

pallet and 352 cases loaded loose or stacked around the pallets in the

container Under a litera application of the tariff the palletized rate would

apply to the cases of Coca Cola and Sprite which had been palletized

and the in boxes rate would apply to those cases stacked around the

pallets However it is respondent s position that the entire shipment should

be rated at the 60 00 in boxes rate I

agree Both sides argue the

case as if it presented a straightforward problem in tariff interpretation

to which the axioms of tariff law afford a solution

The law of tariffs is satiated with such axioms They cover the proper

rules for interpreting tariffs what to do when ambiguity rears its untidy

head the consequences of mistake or downright misrepresentation and even

28 F M C
180 FEDERAL MARITIME COMMISSION

the measure of damages They are concise and to the point They resist

amendment and interpretation with admirable tenacity Unfortunately

they also tend to take on a life of their own eventually crowding out

the very reasons for their existence

The literal application of the tariff here would as already noted result

in applying the 120 00 rate to the cases of Coca Cola and Sprite which

were palletized and the 16000 rate to those cases which were stacked

loose in the containers After all what was actually shipped determines

the applicable rate rather than what is declared on the bill of lading

Union Carbide Inter America v Norton Line 14 F M C 262 In this in

stance pallets of canned beverages and canned beverages in boxes were

actually shipped Moreover there is no ambiguity in the tariff so there

is no need for extrinsic evidence Sacramento Yolo Port District v Fred

F Noonan Co Inc 9 F M C 551 Thus the Jact that the whole shipment

was containerized is extrinsic and irrelevant But the cmplainant did in

fact palletize part of the shipment and then stuff the whole shipment into

containers seal those containers and tender them to the carrier under a

bill of lading that described the contents as boxes of Coca Cola and

Sprite in cans

t

I

It is the complainant s method of packing the shipment that causes

the problem here The shipment as put together by complainant is neither

fish nor fowl It is not a palletized shipment in the generally accepted

sense A pallet is a wooden platform or bed upon which such comparatively

small cargo units as cans or cartons are placed and held together for

transportation as a unit Matson Navigation CoRates on Pallets 7 F M C

771 1964 The pallet is a unit of itself Once cargo is palletized

it is ready to place aboard the ship A rate for palletized cargo is based

upon the loading and storage characteristics of loaded pallets The 120 00

W M rate was for Canned Goods or Beverages Palletized not for canned

goods or beverages containerized Respondent s 160 00 rate for

Canned Goods or Beverages in Boxes is based on the need that the

non palletized cases be placed in containers for the purpose of transpor

tationI other words had the complainant delivered the 14 336 cases

of Coke and Sprite to Dodge Island loose respondent would have placed

them into containers and the 16000 rate would have covered the added

costs

Here the complainant asked respondent for eight containers into which

to load the shipment The respondent assumed that the canned beverages

were in boxes The bill of lading said boxes and the complainant did

not inform respondent that any of the cases of canned Coca Cola or Sprite

had been palletized Respondent is primarily a breakbulk carrier with a

breakbulk tariff It supplies containers if requested to do so When it

does respondent must itself lease the containers from others Respondent

quite properly assumes that the containers are needed because of the kind

of cargo being shipped Pallets are not normally containerized The added

28 F MC
THE COCA COLA EXPORT CORPORATION V PERUVIAN 181

AMAZON LINE

cost of the containers in this instance was defrayed by the higher box

rate of 16000

Complainant benefited from the use of the containers by the added protec

tion they furnished against excessive handling damage from exposure

to the elements and loss from pilferage Respondent on the other hand

was faced with the increased space required for containers the greater

difficulty in loading them as opposed to pallets and an out of pocket

expenditure 4 5040 for leasing the containers

Yet another axiom of tariff construction is that interpretations of a tariff

should not lead to absurd consequences Trans Ocean Van Service v U S

426 F 2d 329 Certainly an interpretation that would allow a shipper

to stuff a container with palletized cargo and thereby escape paying the

box rate is absurd

While it may be axiomatic that an unambiguous tariff eliminates the

need for extrinsic evidence the actual methodology of the cases reveals

the almost constant resort to extrinsic evidence in deciding the proper

interpretation to be given a tariff CS C Inc v Lykes Bros S S Co

Inc 20 F M C 552 1978 Here that evidence demonstrates that complain

ant did not tender a palletized shipment as such a shipment is generally

known in the industry Instead complainant tendered a containerized

shipment which resulted in the respondent bearing unnecessary out of pocket

costs which the assessment of the 160 00 box rate was intended to defray

I view respondent s tariff as requiring the assessment of the 12000

rate on shipments of Canned Goods Beverages when those shipments

are palletized ie tendered to the carrier not in containers but on pallets

By placing the pallets in containers the complainant changed the nature

of the shipment and gave up his right to the palletized rate In view

of this the assessment of the 160 00 rate for Canned Goods and Beverages

in Boxes was correct Complainant s claim for reparation is denied

8 JOHN E COGRAVE

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1349

APPLICATION OF AUSTRALIA NEW ZEALAND CONTAINER LINE

FOR THE BENEFIT OF MEADOWSFREIGHT NEW ZEALAND LTD

ORDER OF PARTIAL ADOPTION

January 16 1986

This proceeding is before the Commission upon its determination to

review the Initial Decision of Administrative Law Judge Seymour Glanzer

Presiding Officer issued in this proceeding

BACKGROUND

On January 2 1985 Australia New Zealand Container Line ANZCL

and Meadowsfreight New Zealand Ltd Meadowsfreight agreed to a re

duced rate for the transportation of a container of personal effects including

a passenger vehicle from California to New Zealand The rate was published

on February 7 1985 but due to error it was filed in the Australian

instead of the New Zealand column in the tariff The shipment sailed

on February 17 1985 a corrective tariff was subsequently published on

March 22 1985 with an expiration date of April 21 1985 On July 19

1985 ANZCL filed an application for perrnission to waive collection of

freight changes due it from Meadowsfreight

The Presiding Officer in his Initial Decision granted the application and

in the tariff notice required to be published by ANZCL made the con

forming tariff effective retroactively to January 20 1985 The issue on

review is whether the Presiding Officer s selection of January 20 1985

as the operative date in the tariff notice is correct

DISCUSSION

Section 8 e of the Shipping Act of 1984 46 U S c app 1707 e

requires as a condition for permitting a carrier to refund or waive collection

of a portion of the freight charges that the carrier agree to publish in

its tariff an appropriate notice of the rate upon which the refund or

waiver would be based This allows additional refunds or waivers to be

made with respect to other shipments in the manner prescribed by the

Commission and thereby prevents discrimination among shippers ports

or carriers At issue here is the determination of the critical period of

time during which the conforming tariff is made applicable at a date prior

to its publication in the carrier s tariff

182 28 F M C
APPLICATION OF AUSTRALIA NEW ZEALAND CONTAINER 183

LINE FOR THE BENEFIT OF MEADOWSFREIGHT

In Application of Yamashita Shinnihon Line for the Benefit of Nissho

Iwai American Corporation Special Docket No 678 19 S R R 1407

1980 the presiding administrative law judge made the effective date of

the amended tariff relate back to the date of delivery of the cargo to

the carrier Upon review the Commission disagreed and held that

For determining the effects of the grant of an application to

refund on similarly situated shippers the critical time period com

mences on the day the tariff omitting the intended rate becomes

effective or on the dav the intended lower rate would have become

effective absent the mistake and terminates on the day before

the effective date ofthe conforming tariff Emphasis added

Idem at 1408

In the case under consideration the conforming tariff filed after the

shipment moved is made to relate back to January 20 1985 The Initial

Decision does not state a ground or otherwise explain the reason for this

action In the absence of any clear basis for departing from established

precedent and without unduly restricting administrative law judges discre

tion in fashioning the proper remedy the adherence to a uniform standard

for the issuance of tariff notices is desirable On the premise that a

bona fide mistake has been recognized the 1980 Yamashita decision offers

a reasonable basis for determining the effective date of the conforming

tariff i e

the date the tariff omitting the intended rate becomes effective

or the date the intended lower rate would have become effective absent

the mistake

In this instance the record shows that following an exchange of telephone

conversations on January 2 1985 a rate for the particular shipment was

first published on February 7 1985 but with the wrong destination Fol

lowing the rationale of Yamashita supra the conforming tariff filed March

22 1985 should have been made effective February 7 1985 the date

the intended rate would have become effective but for ANZCL s clerical

error rather than January 20 1985 the date appearing in the Initial Deci

sion s tariff notice

28 F M C

THEREFORE IT IS ORDERED That the tariff upon which the waiver

is based is effective February 7 1985 through March 21 1985 and that

the tariff notice required to be filed by ANZCL shall be amended to

reflect these dates

I While an agency is not forever bound by its previous decisions it is required 10 articulate the reasons

for achange in policy See Baton Rouge Marine Contractors Inc v FMC 655 F2d 1210 D C eir 1981

Baltimore Annapolis R Co v Washington Metropolitan Transit Area Comm n 642 F 2d 1365 D C Cir

1980 Oreylwund Corp v Ice 551 F2d 414 D C eir 1977
184 FEDERAL MARITIME COMMISSION

IT IS FURTHER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission and

IT IS FINALLY ORDERED That this proceeding is discontinued

By the Commission

S BRUCE A DOMBROWSKI

Acting Secretary

I

i

2S P M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1349

APPLICATION OF AUSTRALIA NEW ZEALAND CONTAINER LINE

FOR THE BENEFIT OF MEADOWSFREIGHT

Application to waive collection of portions of freight charges granted

Edward T McArdle for applicant Australia New Zealand Container Line

INITIAL DECISION I OF SEYMOUR GLANZER ADMINISTRATIVE

LAW JUDGE

28 F M C 185

Partially Adopted January 16 1986

By application filed July 19 1985 Australia New Zealand Container

Line ANZCL 2 asks permission to waive collection of 3 543 08 of freight

charges due it from Meadowsfreight New Zealand Ltd in connection with

a mixed shipment of household goods and an automobile in a 40 container

carried by ANZCL from Long Beach California to Lyttleton New Zealand

on the Dunedin which sailed on February 17 1985 The shipment weighed

4082 kilos and measured 40 833 cubic meters

ANZCL negotiated a rate for the upcoming shipment of 5 500 00 per

40 foot container plus terminal charge and issued instructions to publish

that rate However due to an inadvertent error the agreed rate was pub

lished in the Australian destination column rather than the New Zealand

destination column of ANZCL s tariff

Thus the applicable rate on February 17 1985 was 5 280 00 per 40

container plus 215 per cubic meter subject to a discount of 15 00

W plus handling charge At this rate charges amounted to 9 523 08

Effective March 22 1985 a new tariff containing the intended rate was

published The shipper paid charges at the agreed rate There were no

other shipments of the same or similar commodity during the relevant

time period and there is no indication of discrimination or the likelihood

thereof

The application meets the criteria for approval under section 8 e of

the Shipping Act 1984 46 U S C app 1707 e and the Commission s

rules 46 CFR 502 92 a

The application is granted ANZCL shall waive collection of 3 543 08

in connection with the above described shipment and shall publish the

I This decision will become the decision of the Commission In the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 502 227

2Shipping Corporation of New Zealand Limited does business as ANZCL
186 FEDERAL MARITIME COMMISSION

following notice at pages 104 178 A and 191 of Shipping Corporation

of New Zealand Limited Ocean Freight TariffNo I FMC No I

Notice is given as required by the decision in Special Docket

No 1349 that effective January 20 1985 and continuing through

March 21 1985 inclusive for purposes of refund or waiver

the rate for Item No 1763 Mixed Shipments of Household Goods

and Personal Effects and a Passenger Automobile In 40 ft CY

CY container to Group 2 New Zealand Local is 5500 00

Such rate is subject to all other applicable JIIles regulations terms

and conditions of the said rate and this tariff

ANZCL shall mal e any necessary adjustment in brokerage or compensa

tion to brokers or freight forwarders

Within 30 days of service of notice of authorization from the Commission

ANZCL shall furnish the Secretary with evidence of waiver together with

a

copy of the prescribed tariff notice

S SEYMOUR GLANZIlR

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 15

AMERICAN PLANT FOOD CORFORATION

v

I

PORT OF HARLINOEN AUTHORITY

NOTICE

January 24 1986

Notice is given that no appeal has been taken to the December 19

1985 dismissal of the complaint in this proceeding and the time within

which the Commission could determine to review has expired No such

determination has been made and accordingly the dismissal has become

administratively final

S BRUCE A DOMBROWSKI

Acting Secretary

28 F M C 187
FEDERAL MARITIME COMMISSION

DOCKET NO 85 15

AMERICAN PLANT FOOD CORPORATION

v

PORT OF HARLINGEN AUTHORITY

MOTION TO DISMISS COMPLAINT GRANTED

Finalized January 24 1986

By Stipulated Motion to Dismiss dated December 16 1985 the Complain

ant in this proceeding with the approval and consent of the Respondent

asked that the proceeding be dismissed

In support of its motion the Complainant states

In its complaint APF stated that it had entered into an agree

ment with the Port in 1978 by which it leased certain acreage

adjacent to a dock and purchased a warehouse located on the

leased premises In addition the lease obligated APF to pay a

minimum amount of wharfage fees each year even if the specified

minimum volumes were not actually shipped in or out of the

Port Since the assessed wharfage fees depended upon the Port s

tariffs on file with the Commission the controversy arose when

the Port increased its tariffs on certain commodities in 1983

The 1983 amendment in the Port s tariff was the basis of

APF s contentions that the new Port tariffs were discriminatory

unjust and umeasonable that APF was entitled to reparations

and that the Port should be enjoined from assessing charges to

APF in the future based upon those tariff provisions Thereafter

when APF filed its amended complaint it also sought reparations

on the theory that the Port had been overcharging APF for the

previous two years by its use of an allegedly incorrect tariff

provision

APF and the Port have now reached a full and complete settle

ment of these issues The Port has agreed to repurchase the ware

house terminate APF s lease obligation and relinquish any claim

to the increased amount of tariff charges that would have been

due under the 1983 tariff amendments had the Port prevailed

in this controversy APF has agreed to dismiss all of the pending

litigation both at the Commission and in the Texas state courts

and to relinquish its claims to any reparations attorneys fees

and costs Since APF will no longer have any presence at the

Port of Harlingen after the settlement the issue of the lawfulness

188 28 F M C
AMERICAN PLANT FOOD CORPORATION V PORT OF 189

HARLINGEN AUTHORITY

of the Port s tariffs and practices has become moot and there

is no longer any controversy for the Commission to resolve

In view of the above it is

Ordered that this proceeding is hereby discontinued and the complaint

is hereby dismissed andor considered withdrawn

S JOSEPH N INGOLIA

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 23

THE WEST INDIAN COMPANY LIMITED

v

THE VIROIN ISLANDS PORT AUTHORITY

NOTICE

February 4 1986

Notice is given that no appeal has been taken to the December 31

1985 dismissal of the complaint in this proceeding and the time within

which the Commission could determine to review has expired No such

determination has been made and accordingly the dismissal has become

administratively final

S JOHN ROBERT EWERS

Secretary

I

190 28 FM C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 23

THE WEST INDIAN COMPANY LIMITED

v

THE VIRGIN ISLANDS PORT AUTHORITY

DISMISSAL OF COMPLAINT

Finalized February 4 1986

On December 17 1985 the complainant in this proceeding filed a No

tice of Withdrawal of the Complaint wherein it seeks to withdraw its

complaint with prejudice but without costs or attorneys fees to either

party The respondent has joined in the Motion In addition the parties

have filed a settlement agreement with the Federal Maritime Commission

In view of the above it is hereby

Ordered that the complaint is dismissed andor considered withdrawn

with prejudice and without costs or attorneys fees to either party

S JOSEPH N INGOLIA

Administrative Law Judge

1 The with prejudice apparently is meant to apply if the settlement agreement is allowed to be imple

mented by the CommissiOll We assume hat jfthe agreement cannot be implemented and the issues again

arise the complainant will be free to bring another complaint

28 F M C 191
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1345

APPLICATION OF GULF EUROPEAN FREIGHT ASSOCIATION AND

SEA LAND CORPORATION ON BEHALF OF SEA LAND SERVICE

INC FOR THE BENEFIT OF ARTHUR J FRITZ CO AS AGENT

FOR SDS BIOTECH CORPORATION

ORDER PARTIALLY ADOPTING INITIAL DECISION

February 6 1986

The Commission detennined to review the Initial Decision I D issued

in this proceeding by Administrative Law Judge Norman D Kline Presiding

Officer The Presiding Officer denied the application filed by Sea Land

Corporation and the GulfEuropean Freight Association GEFA on behalf

of Sea Land Service Inc for pennission to waive collection of freight

charges from SDS Biotech Corporation Biotech because he found that

there was no clerical or administrative error directly related to tariff filing

However he suggested that the Commission could grant relief to Biotech

by treating the application as a petition for declaratory order

BACKGROUND

Sea Land sought the Commission s permission pursuant to section 8 e

of the Shipping Act of 1984 1984 Act 46 V S C app 1707 and

Rule 92 a of the Commission s Rules of Practice and Procedure 46 C F R

502 92 a to waive 1 03421 in freight charges otherwise owed to it

by Biotech The charges apply to a

shipment of pesticides from Houston

Texas to Rotterdam the Netherlands on December 28 1984

Sea Land is a member of GEFA and participates in the Agreement s

tariff setting freight rates for shipments from Houston and other VS Gulf

ports to European ports in the BordeauxRamburg range In November

1984 the OEFA members decided to reduce their rate on pesticides from

100 per kilo ton to 90 effective January I 1985 The new rate was

duly filed in OEFA s tariff

On December 14 1984 Biotech called Sea Land and booked five con

tainer loads of pesticide for Rotterdam Originally the cargo was booked

onto a vessel scheduled to sail on December 28 but when Biotech learned

of the rate reduction scheduled for January I it changed its instructions

and rebooked the cargo onto a vessel scheduled to sail on January 3

1985 Nevertheless Sea Land s Operations Department placed the cargo

on the earlier sailing which meant that the cargo incurred the higher

rate of 100 per kilo ton A Sea Land employee stated in an affidavit

192 28 F M C
APPLICATION OF GULF EUROPEAN FREIGHT ASSO AND SEA 193

LAND CORP FOR THE BENEFIT OF ARTHUR J FRITZ CO

that the mistake occurred because the Operations Department failed to

note the booking instructions designating the later vessel

Biotech paid freight charges calculated under the reduced rate of 90

per kilo ton plus applicable wharfage and container handling charges Sea

Land applied for permission to waive collection of the difference of

1 034 21 between the amount paid by Biotech and the amount due under

the higher rate of 100 per kilo ton

In his Initial Decision the Presiding Officer noted that section 8 e

of the 1984 Act was enacted to relieve innocent shippers of financial

hardship resulting from carrier error and should be interpreted broadly

to effectuate that purpose However he denied Sea Land s application be

cause he found that Sea Land did not commit a tariff filing error of the

type specified by that section Rather he found that Sea Land joined by

GEFA is asking in effect that a rate reduction which was announced

for and went into effect on January I 1985 be advanced in time to

cover an earlier shipment in order to correct an operational error rather

than a tariff filing error He distinguished three previous decisions granting

applications involving a mistaken change in booking or sailing date on

the ground that in each case the carrier intended to change its tariff

rates prior to shipment and the mistake of the operations department pre

vented the carrier from carrying out its intention The Presiding Officer

found that here Sea Land did not promise to change its tariff before ship

ment on the contrary it advised Biotech that the tariff had already been

changed as of January 1 1985 and that the shipper could take advantage

of the change if it booked its cargo for the January 3 sailing rather than

the December 28 sailing Thus the Presiding Officer explained granting

this application would not implement a carrier s promise made to the shipper

during negotiations to change its tariff prior to shipment but instead would

implement a new intention formulated after the shipment to backdate a

tariff change from January to December

The Presiding Officer then proceeded however to consider whether

Biotech should gain relief by another means He posited that the mistake

by Sea Land s Operations Department constituted a breach of Sea Land s

contract with Biotech and required it to incur increased costs He therefore

suggested that the Commission treat Sea Land s application as a petition

for declaratory order that the rates properly applicable to Biotech s shipment

were the lower January rates The Presiding Officer believes that such

an action would be consistent with the holdings of numerous courts and

authorities that administrative agencies enjoy substantial flexibility in devis

ing procedures and remedies He concluded by denying Sea Land s applica

28 F M C

I None of those cases are reported They are Application of the Pacific Westbound Conference and Sea

Land Service Inc for the Benefit of UniversalFreight Fonvarders Ltd as Account for Cerro Sales Corpora

tion Spec No 1218 F M C administratively final Nov 13 1984 Applicotiolt qf Sea Land Senice Inc for

the Benefit of Vernante Penllitalia S PA Spec No 1045 F M C administratively final Aug 8 1983 Appli

cation of Trans Freight Lines Inc for theBenefit of Georges Vatinel Co as Account for Lubrizol France

Spec No 967 F M C administratively fmal Nov 4 1982
194 FEDERAL MARITIME COMMISSION

tion but also advising that Sea Land is not required to seek recovery

of the 1 034 21 otherwise owed to it by Biotech

DISCUSSION

The Presiding Officer s conclusion that Sea Land s application to waive

collection of certain freight charges from Biotech should be denied is

correct While the Commission is obliged to administer the special docket

procedure liberally in order to achieve its purpose Nepera Chemical Inc

v FMC 662 F 2d 18 DC Cir 1981 we must also act within the

specified statutory limits One of those limits is that the carrier must have

committed an error in a tariff of a clerical or administrative nature or

an error due to inadvertellce in failing to file a new tariff 46

U S C app 1707 e The booking error committed in this case by Sea

Land s Operations Department was not related to Sea Land s tariff The

tariff in effect at the time of shipment on December 28 1984 correctly

reflected Sea Land s intentions The Commission has held on several occa

sions that non tariff mistakes by a carrier do not qualify for waiver refund

relief 2 Because Sea Land s application here fails to meet one of the jurisdic

tional requirements of section 8 e the Commission is compelled to deny

the application

With regard to the Presiding Officer s suggestion that relief to Biotech

still can be granted under an alternative declaratory order procedure such

a result would be ultra vires and without support in law The Presiding

Officer did not state what Shipping Act remedy he would have his suggested

declaratory order confer on Biotech As noted he made a basic assumption

that Sea Land s mistake constituted a breach of its contract with Biotech

It seems clear that Biotech relied on Sea Land s

representation that the

cargo would be shipped in January and then suffered some detriment when

the cargo instead was shipped in December Those facts indeed may create

a cause of action for Biotech under contract or quasi contract theories

of law and nothing in this order should preclude such a

remedy However

the Commission has no authoriiY to render a

judgment on that matter

and a declaratory order could not announce that Sea Land was liable to

Biotech for breach of contract

The Presiding Officer also appeared to base his suggested remedy on

a

supposition that the shipper might have a valid defense to any possible

Sea Land suit seeking recovery of the freight or a separate claim

against the carrier because of any disadvantage which Sea Land s unilateral

action may have caused contrary to section 1Ob II of the Shipping

2Farr Co v Seatraln Lines 20 F MC 412 Order on Reconsideration 20 F M C 663 1978 and cases

cited therein In Farr the Commission held that where acarrier salOl agent misreads atariff and misquotes

a rate to ashipper who relies on the misquoted rate such an error does not involve amistake in the tariff

and cannot justify special docket relief

28 F M C
APPLICATION OF GULF EUROPEAN FREIGHT ASSO AND SEA 195

LAND CORP FOR THE BENEFIT OF ARTHUR J FRITZ CO

Act of 1984 I D at 193 To begin with such speculation does not

provide the complete statement of uncontested facts that is required to

support declaratory orders Petitions for Declaratory Order 21 FM C 830

831 1979

Further to the extent the Presiding Officer assumed a

possible Biotech

counterclaim for damages in response to a Sea Land court action for freight

charges or a possible violation by Sea Land of section 10b of the 1984

Act as support for declaratory order relief his theory is contrary to the

provisions of Rule 68 of the Commission s Rules of Practice and Procedure

46 C FR S 502 68 which governs petitions for declaratory orders Rule

68b states that such petitions must be limited to mailers involving con

duct or activity regulated by the Commission under statutes administered

by the Commission and that c ontroversies involving an allegation of

violation by another person of statutes administered by the Commission

are not proper subjects of petitions under this section

With respect to the status of Sea Land s actions under the 1984 Act

it should also be noted that the Act s prohibition of unreasonable disadvan

tages or prejudices which was carried forward from section 16 First of

the Shipping Act 1916 1916 Act 46 V S C app S 815 would require

a showing here that another shipper competing with Biotech did not incur

the detriment of the higher December rates 4 The limited record now before

the Commission contains no evidence of a favored shipper on the contrary

Sea Land s application recited that there were no other shipments during

the relevant time period as the Presiding Officer himself noted ID at

2 3 n 2

The precedent relied upon by the Presiding Officer does not support

his suggested result in this proceeding in fact it shows why that result

is beyond the Commission s statutory powers In Application of Pacific

Westbound Conference on Behalf of OOCL Seapac Service for the Benefit

of Shintech 21 S RR 1361 1982 Shintech the carrier had deleted

certain rates from its tariff which had the effect of increasing certain

shippers freight costs on unlawfully short notice However special docket

relief was not available because the carrier had failed to meet the statutory

requirement of filing a corrective tariff prior to filing its special docket

application After noting that fact the administrative law judge invited

the carrier to file a petition for declaratory order which would settle the

issue of which rates were lawfully applicable to the shipments involved

After withdrawing its special docket application 21 S R R 1441 1982

the carrier filed the suggested petition which was granted for the most

part by the Commission Petition of Pacific Westbound Conference and

OOCL Seapac Service for Declaratory Order 25 EM C 723 1983

3

In his laner statement the Presiding Officer apparently meant to cite section 10 b12 which prohibits

unreasonable prejudices or disadvantages rather than section 100bXll which prohibits unreasonable pref

erences oradvantages 46 US C app 61709

4Eg Assessmenf of IncheonArbitrary 21 F M C 522 52425 1978

28 F M C
196 FEDERAL MARJTJME COMMISSION

However both the administrative law judge s order in the Shintech special

docket proceeding and the Commission s order on the subsequent petition

for declaratory order turned on the fact that the carrier had violated albeit

inadvertently section 18b 2 of the 1916 Act by increasing its rates on

less than the statutory notice of 30 days In describing how relief to

the shipper might be granted via a petition for declaratory order the admin

istrative law judge stated

The question to be resolved under the declaratory order procedure

would simply be whether shippers who had paid freight under

OOCL Seapac s previous per container rates were required to

pay additional freight under the higher per ton rates which went

into effect on February I 1982 on short notice contrary to the

requirements of Section 18 b 2 of the Act 21 S R R at 1366

In his conclusion the judge further stated

B ecause the record appears to show a possible short notice rate

increase in violation of Section 18b 2 of the Act denial of

the application does not necessarily deprive shippers of relief

Id at 1368

In granting the carrier s petition for declaratory order the Commission

concluded that

Section 18b 2 proscribes short notice rate changes

to the extent that they result in increased rates Thus OOCL s

rate cancellations should be considered ineffective as to those

shipments during the 30 day period for which there resulted a

rate increase 25 F M C 725

The Presiding Officer stated in the instant proceeding that the petition

for declaratory order was used in Shintech to terminate a state of uncer

tainty as to what rates should have applied to the shipments involved

ID at 16 More precisely the petition there was useful and necessary

to decide which rates were required by law Because the Comntission

was able to deterntine that the lower rates were legally applicable the

shipper obtained relief The same procedure has been used in disputes

over which rates should apply to a particular commodity description In

the Matter of Rates Applicable to Ocean Shipments via American President

Lines 25 F M C 687 1982 However in the case here there is no

dispute or uncertainty over which of Sea Land s rates were legally applicable

to Biotech s shipment of pesticide The Presiding Officer acknowledged

that both the shipper and carrier understood perfectly well that if the

shipment moved in December it would pay the 100 rate ID

at 10 There is no basis for argument that application of the 100 rate

would violate statutory notice provisions or misratethe cargo or create

some other type of simple technical issue of law susceptible to resolution

through the declaratory order procedure As noted above if there is a

28 F M C
APPLICATION OF GULF EUROPEAN FREIGHT ASSO AND SEA 197

LAND CORP FOR THE BENEFIT OF ARTHUR J FRITZ CO

Shipping Act issue raised by the facts of record it is not one that can

be resolved in a declaratory order

In sum the only possible basis for the procedure suggested by the

Presiding Officer is his concern that the shipper appears to have been

injured unfairly The Presiding Officer correctly stated that the Commission

may be flexible in devising procedures and remedies appropriate to a par

ticular case However the sine qua non of any Commission action is

authority under the law The Commission s waiver refund authority under

section 8 e of the 1984 Act does not apply here and we have no power

to act purely as a court of equity That the shipper may have suffered

detriment is unfortunate but as the Commission has held before does

not create a

remedy where none otherwise exists s We therefore conclude

that the Commission s special docket and declaratory order procedures do

not apply to the facts of this case

TIffiREFORE IT IS ORDERED That the Initial Decision is adopted

to the extent it denies Sea Land s application for permission to waive

collection of 1 034 21 in freight charges from Biotech pursuant to section

8 e of the Shipping Act of 1984 and

IT IS FURTHER ORDERED That the Initial Decision is reversed to

the extent it suggested that Sea Land is legally excused from seeking recov

ery of the 1 034 21 in freight charges not paid by Biotech

FlNALLY IT IS ORDERED That this proceeding is discontinued

By the Commission

S JOHN ROBERT EWERS

Secretary

5

In our Order onReconsideration in Farr Co v Seatrain Lines supra n 2 theCommission slated

Although the shipper was indllCed by the promise of alower rate to resume shipping from its Los

Angeles facilities and because of the carrier s misrepresentation has to pay higher charges Ulan

anticipated the fact remains that unless there is an error of the type contemplated insection 18 b 3

which makes the tariff inapplicable the rate in effect at the time of shipment is the only rate the

carrier can charge and the shipper must pay 20 EM C at 665 citation omilled

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1345

APPLICATION OF GULF EUROPEAN FREIGHT ASSOCIATION AND

SEA LAND CORPORATION ON BEHALF OF SEA LAND SERVICE

INC FOR THE BENEFIT OF ARTHUR J FRITZ CO AS AGENT

FOR SDS BIOTECH CORPORATION

A Shipper being advised that Sea Land s rate on pestiCides was reduced to 90 per ton

effective January I 1985 elected to have the cargo hooked and carned in January

so as to enjoy the reduced rate Despite the agreement between Sea Land and the shipper

to cany the cargo in January Sea Land s Operations Department inadvertently arranged

to have the cargo loaded on a vessel sailing in December of 1984 at a time when

the rate was 100 per ton Sea Land believing that this mistake is a tariff error seeks

permission to waive additional freight due under the 100 rate an amount equal to

1 034 21 It is held

I The special docket law and procedure do Dot apply because the error was Dot a tariff

filing error there being no promise by the carrier or agreemont between carrier and

shipper prior to the shipment to apply a reduced 90 rate to a December shipment

and to file that rate for a December shipment The element of intent prior to shipment

is critical in such cases

2 The error in this case was an error separate from tariff filing and related to Sea

Land s Inadvertent departure from its conttact with the shipper Granting the appllcation

under special docket procedure would therefore give effect to a promise by the carrier

which had not been made prior to shipment and which had not been sought by the

shipper before the shlpmen namely to charge the 90 rate to a December shipmeDt

and to change the tariff accordingly

3 Although special docket rellef Is Dot appropriate the Commission can grant relief to

the shipper by treating the application as a request for relief in the form of a declaratory

order

John J Brennan for applicant Sea Land

ClijfordJ Smith for applicant Gulf European Freight AssociatioD

INITIAL DECISION I OF NORMAN D KLINE ADMINISTRATIVE

LAW JUDGE

Partially Adopted February 6 1986

By application filed June 24 1985 Sea Land Corporation on behalf

of Sea Land Service Inc and the Gulf European Freight Association seek

pennission for Sea Land to waive 1 034 21 in freight charges in connection

with a shipment of pesticides which Sea Land carried from Houston Texas

on a

ship sailing out of Houston on December 28 1984 The reque8ted

I ThIs decision will become the decision of the CommIssion in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR S02 227

198 28 FM C
28 F M C

APPLICATION OF GULF EUROPEAN FREIGHT ASSO AND SEA 199

LAND CORP FOR THE BENEFIT OF ARTHUR J FRITZ CO

waiver would benefit the shipper SDS Biotecb Corporation of Painesville

Ohio

The evidence submitted with the application shows that it was filed

timely and that the new tariff setting forth the rate on which the waiver

would be based was also on file prior to the time of filing the application

as required by section 8 e of the Shipping Act of 1984 46 U S C app

sec 1707 e the governing statute and by the corresponding regulation

of the Commission Rule 92 a 46 CFR 502 92 a There is also no evidence

that shippers carriers or ports would suffer discrimination if the application

is granted 2 However Icannot find on this record that Sea Land committed

a tariff filing error of the type contemplated by the governing law I find

rather that Sea Land and the Association are asking that an intended rate

reduction which was announced for January I 1985 and went into effect

at that time be advanced in time to cover an earlier shipment not because

of a tariff filing error but because someone in Sea Land s Operations Depart

ment mistakenly arranged to have the cargo loaded on a ship sailing in

December rather than on one sailing in January of 1985 as the shipper

and Sea Land had intended Therefore Iconclude that the application cannot

be granted However because the facts also show that the shipper would

suffer harm through no fault of its own and because of what in effect

was a Sea Land breach of contract I find that there is an alternative

remedy for affording the shipper relief without extending the special docket

law beyond its intended purpose

THE FACTS

Sea Land is a member of the Gulf European Freight Association and

participates in Freight Tariff No 6 FMC 17 for shipments applying from

Houston Texas and other Gulfports to Continental Europe in the Bordeaux

Hamburg range At a November 1984 meeting of the Association the

members decided to reduce their rate on pesticides and weed killer chemicals

from 100 per ton of 1 000 kilos to 90 per ton of 1 000 kilos The

new rate was to become effective on January I 1985 It was so filed

On December 14 1984 Ms M Mitchell on behalf of the shipper

SDS Biotech called Sea Land and booked five container loads of the

subject pesticides for Rotterdam Originally Ms Mitchell booked the ship

ment for the vessel VENTURE sailing out of Houston in December but

her preference was for the shipment to move on a voyage of the vessel

PRODUCER sailing in early January if the European consignee did not

object to later delivery The shipper preferred the later sailing because

of the knowledge that the rate was scheduled to drop to 90 per ton

2The application was filed on June 24 1985 which is only 178 days after dale of shipment December

28 1984 The new corrective tariffhad been filed to be effective January I 1985 as aresult of the Associa

tion s and members decision 10 file a reduced rate which decision had been laken at a November 1984

meeting unrelated to the present application Applicants show no other shipments during the relevant lime

period and there is no evidence that any carrier or port would suffer discrimination if the application were

to be granted
200 FEDERAL MARITIME COMMISSION

as of January I 1985 Apparently the consignee did not object to later

delivery because Ms Mitchell called Sea Land on December 17 and

rebooked the cargo for the sailing of the PRODUCER on January 3 1985

However on December 27 1984 Sea Land s New Orleans Operations De

partment advanced the booking of the cargo to the earlier sailing of the

VENTURE for December 28 1984 As Sea Land s Atlantic Sales Represent

ative Mr Harry J Shimko states in his swom affidavit the Operations

Department changed the booking without the knowledge and consent of

sales or pricing and contrary to the instructions of the shipper Affidavit

of Harry J Shimko last paragraph The Operations Department took this

action because of its failure to note the booking instructions designating

the later vessel

Because the cargo moved on the earlier vessel which sailed from Houston

on December 28 1984 it became subject to the rate of 100 per ton

which was the effective rate at the time The shipper paid freight under

the later reduced rate of 90 per ton plus applicable wharfage and container

handling charge Under the applicable rate additional freight of 1 034 21

would be due3 It is this amount which Sea Land seeks permission to

waive

DISCUSSION AND CONCLUSIONS

There is no question but that the law under which this application was

filed is remedial and that it should be interpreted broadly to effectuate

its purposes See e g Application of Distribution Services Ltd for the

Benefit of Target Stores 26 FM C 125 129 JD FM C Order 26

F M C 123 Dec 14 1983 Nepera Chemical Inc v Federal Maritime

Commission 662 F 2d 18 22 D C Cir 1981 Application of Lykes Bros

to Benefit Texas Turbo Jet Inc 24 F M C 408 411 1981 D F Young

Inc v Cie Nationale Algerienne de Navigation 21 F M C 730 731 1979

P L 90298 82 Stat 111 April 29 1968 which amended section 18b 3

of the Shipping Act 1916 and which has been essentially recodified as

section 8 e of the Shipping Act of 1984 46 U S C app sec 1707 e

was enacted to relieve innocent shippers of financial hardship and inequities

resulting from tariff filing errors of carriers Farr Co v Seatrain 20 F M C

411 414 1978 order on reconsideration 20 F M C 663 1978 As t1ie

legislative history to P L 90298 shows however not every error committed

by a carrier would be corrected by the remedial legislation Only certain

types of clerical or administrative errors or errors caused by inadvertent

failure to file a rate in a tariff would be remediable Farr Co v Seatrain

cited above 20 F M C at 414416 As the history shows the classic

type of error due to inadvertent failure to file involves a carrier s negotiating

Base freight for the shipment whilh weighed 103421 kilo tons under the tariff rate of 100 per kilo

Ion equals 10 342 10 Under the lower rate of 90 per kilo lon which Soa Land seeks to apply base freiJhl

equals 9307 89 Additional freight due under the higher rate is therefore 1 034 21 10 342 10 less

9 307 89

28 F M C
28 F M C

APPLICATION OF GULF EUROPEAN FREIGHT ASSO AND SEA 201

LAND CORP FOR THE BENEFIT OF ARTHUR J FRITZ CO

a rate with a shipper but forgetting to file the rate in the tariff prior

to shipment Another type involves the carrier s publication of a rate with

typographical errors causing a rate of 37 to be published as 73 as

an example Farr Co v Seatrain at 415 An error of a type which

does not relate to a mistake in the tariff does not qualify for relief For

example if a zealous carrier solicitor misreads a tariff and misquotes

a rate to the shipper who relies upon the misquoted rate the carrier cannot

later substitute the misquoted lower rate for the actual higher rate published

in the tariff at the time of shipment That is because the error which

occurred did not involve a mistake in the tariff The tariff in such a

case was perfectly correct The error was that of the carrier s agent who

read it improperly and the carrier had never agreed prior to the shipment

to change its tariff In such cases the Commission has denied special

docket applications See Farr Co v Seatrain at 416 and cases cited

therein

The common theme running through special docket applications is the

intent of the carrier to apply a lower rate to a shipment and to have

the tariff reflect that intent The critical element however is the timing

of such an intent The carrier must have developed the intent before the

shipment moved not after If a carrier decides after a shipment moves

that the shipper should have given a lower rate and tries to charge such

a rate there is little to distinguish such a practice from rebating which

is strictly prohibited by law The Commission when seeking authority

to grant special docket relief was fully aware of the danger to tariff law

that could result if this critical element of pre shipment intent was dis

regarded See Farr Co v Seatrain cited above at 416 n 6 and discussion

at 4167 The Commission has been careful not to give effect to agree

ments by carriers to reduce rates arising after shipments See e g Munoz

y Cabrera v Sea Land Service Inc 20 F M C 152 153 1977 It

is clear that the new tariff is expected to reflect a prior intended rate

not a rate agreed upon after the shipment Application of Moore McCor

mack Lines Inc for the Benefit of Celanese Corp 21 SRR 1106 1109

ID FMC Notice of Finality September 7 1982 A bona fide mistake

is established when it is shown that the tariff publisher formed the intent

prior to the date of shipment to file a rate different than the one shown

in the Tariff but did not do so because of inadvertent error Application

of Sea Land Service Inc for the Benefit ofAlimenta USA Inc 22 FM C

347 1979 Carrier cannot negotiate and intend a new rate to apply to

a shipment after the shipment has commenced Application of Seawinds

Limited for the Benefit of Red Spot Paint and Varnish Co Inc 22 SRR

517 520 ID F M C Notice of Finality January 10 1984 Carrier cannot

negotiate new rate after the shipment So careful is the Commission to

ensure that a carrier not apply a new rate negotiated after a shipment

has occurred that it has even denied relief to intermodal shipments when

it has been shown that the new rate was negotiated while the containers
202 FEDERAL MARITIME COMMISSION

j

were moving overland to a port in other words the new rate was negotiated

while the shipment was in progress See Application of Sea Land Service

Inc for the Benefit of Alimenta USA Inc 22 FM C 347 Suppl ID

F M C Notice ofFinality February 21 1980

It is clear from the preceding discussion that the Commission is authorized

to grant special docket relief only when bona fide tariff filing errors have

been shown to have occurred and that the granting of such relief gives

effect to the intention of the carrier formed before shipment to apply

a particular lower rate and if the tariff did not reflect that intention

to change the tariff prior to Shipment Furthermore when the tariff filing

error is of theinadvertent failure to fie a lIegotiated rate type granting such

an application gives effect to the agreement and understandjng of bth

the shipper and carrier that the carrier will change its tariff before the

shipment commences Clearly the remedial statute contemplated an under

standing that the carrier promised the shipper not only to apply a 10wCr

rate but to file that rate in the tariff prior to the shipment in this type

of error Thus in Mnoz y

Carero v Sea Land Service Inc cited above

20 F M C at 152153 the Commission described its limited authority as

follows

The legislative history of the amendment to section 18b of the

Shipping Act Public Law 90298 which gave the Commission

authority to permit a carrier subject to its jurisdiction to make

a voluntary refund or to waive the colJection Qf a portion of

the freight charges clearly indicates that such waiver or refund

was to be allowed where as a result of a bona fide mistake

the carrier failed to file an intended rate Thus the House

Revort accompanying the Bill which ultimately added the refund

waiver authority to section 18b states

Section 18b appears to prohibit the Commission from author

izing relief where through bona fide mistake on the part of

the carrier the shipper is charged more than he understood

the rate to be For example a carrier qfter advising a shipper

that he intends to file a reduced rate and thereqfter fails to

file the reduced rate with the Federal Maritime Commission

must charge the shipper under the aforementioned circumstances

the higher rates Emphasis added Footnotes omitted 4

It can be seen therefore that the remedial statute was not designed

to correct the effects of a carrier s unilateral alteration of a booking contract

which actually constitutes a breach of contract between the shipper and

carrier Thus in the instant case to permit Sea Land to apply the 90

4The importance of a promise of a camcr not merely to charge a

lower rate but to file such rale prior

to shipment In the lnadvertent failuretofile type mor is shown elSewhere in tholeglsladvehiSlory to Pub

L 90298 Thus Chairman Harllee advised the Congress that the new law would beconfmed 10 typo

graphical error or a failure on tho part of a c ler to subQ i1 a

tariff which they sic intended to submit

and promised the shipper they sIc would submit Hearings before the Subcommittee on Merchant

marine and Fisheries 90th Congr St Sess AUJUst 15 16 196 at 88

28 FM C
28 F M C

APPLICATION OF GULF EUROPEAN FREIGHT ASSO AND SEA 203

LAND CORP FOR THE BENEFIT OF ARTHUR J FRITZ CO

rate to a December shipment at a time when the rate was 100 and

when both parties had contemplated that the shipment would be carried

in January would effectuate a new agreement which was never entered

into by the parties Instead of the actual agreement between Sea Land

and the shipper that if the shipper booked and Sea Land carried the shipment

in January the shipper would enjoy the rate of 90 the new agreement

would be that if the shipper booked the shipment for January but Sea

Land mistakenly loaded it on a ship sailing in December Sea Land would

file a new rate in its tariff advancing the January rate reduction to Decem

ber Obviously Sea Land never made such an agreement in advance of

the shipment because it did not anticipate that its Operations Department

would load the shipment on an earlier vessel As in the case of a mere

misreading of a tariff or a misquotation from the tariff such as in Farr

Co v Seatrain cited above 20 EM C 411 the error is not in the tariff

or in the tariff filing On the contrary the evidence is that as far as

Sea Land s tariff is concerned Sea Land and the Association did exactly

what they had intended to do namely file a rate reduction for the subject

pesticides effective January I 1985 Furthermore the evidence is that

both the shipper and carrier understood perfectly well that if the shipment

moved in December it would be charged the 100 rate but that if it

moved in January it would be charged the 90 rate As the record shows

the shipper took several days to obtain the consent of its consignee to

a later delivery in order to enjoy the lower rate If it had been Sea

Land s intent to charge the 90 rate in December or to file such a rate

in December and the shipper understood that to be the case why would

the shipper have gone to the trouble of obtaining permission to ship the

commodity at a later date in January Moreover as Sea Land s agent

Mr Shimko candidly acknowledges when Sea Land s New Orleans Oper

ations Department rebooked the shipment for a December sailing it did

so without the knowledge and consent of sales or pricing and contrary

to the instructions of the shipper Thus granting the application would

carry out a non agreement not an agreement something the special docket

law was not designed to do The solution to the problem of giving relief

to the innocent shipper lies in the nature of the carrier s action a breach

of contract not in tariff error and as discussed below relief ought to

be granted under a proper legal theory not by converting the special

docket law and procedure into panacea for any type of error a carrier

might make

Previous Decisions Involving a Change in Booking orSailing Dates

In support of its application Sea Land cites three decisions involving

a change in vessel sailing or an advancement of cargo loading In these

cases applications for permission to refund or waive freight charges were

granted Sea land characterizes the cases as applications which involved

the non effectiveness of tariff provisions due to the sailing of the vessel
204 FEDERAL MARITIME COMMISSION

or advancement of the cargo prior to the effective date of the intended

tariff provisions Application at 2 Such a characterization alone suggests

that special docket relief was not the proper remedy because changes in

sailing dates or cargo loading dates are not tariff filing errors However

regardless of characterization the cases bear scrutiny to determine whether

their facts were indeed the same as or so similar to those of the instant

case as to constitute binding precedent I find significant distinguishing

features to them however

The three cases are SD 7218 Application of the Pacific Westbound

Conference and Sea Land Service Inc for the benefit of Universal Freight

Forwarders Ltd as Agent for Cerro Sales Corporation JD October 5

1984 F M C Notice ofFinality November 13 1984 SD 1045 Application

of Sea Land Service Inc for the Benefit of Vernante Pennitalia SPA

JD June 24 1983 F M C Notice of Finality August 8 1983 SD 967

Application of Trans Freight Lines Inc for the Benefit of Georges Vatinel

Co as Agent for Lubrizol France JD September 29 1982 F M C

Notice ofFinality November 4 1982

In SD 1045 the carrier negotiated a rate on November 12 1982 for

a shipment of bricks and promised to file the negotiated rate to be effective

on November 15 1982 when it was expected the ship on which the

bricks were to be loaded would sail However the ship departed unexpect

edly early because of an operational decision of the carrier before the

rate could be filed In SD 1218 the carrier negotiated a rate on copper

cathodes under the open rate section of the conference tariff and agreed

to file the rate on February 2 1984 the date on which the carrier expected

the vessel carrying the cargo to sail However its operations department

advanced the sailing date to February I 1984 before the negotiated rate

could be filed In SD 967 the carrier agreed to file a new rate on additives

for lubricating and fuel oil to be effective April 3D 1982 in order to

meet the sailing of a vessel on May 4 1982 However the carrier s oper

ations department arranged to load the cargo on another vessel sailing

on April 27 1982 before the negotiated rate had been filed

In aIJ of these cases the carriers promised shippers that they would

file lower rates in order to meet particular sailing dates It appears however

that the important element of the carriers promises was to give the shippers

the lower rates and to change the carriers tariffs prior to the shipments

to reflect that intention Granting those applications therefore carried out

the carriers pre shipment intentions to change their tariffs so that the

shippers could enjoy the lower rates The anticipated dates of sailing which

were inadvertently altered by the carriers operations departments were im

portant as target dates by which the carriers intended to change their

tariffs Had the carriers realized the possibility that their operations depart

ments might have advanced the bookings they undoubtedly would have

planned to file the rates earlier to meet those sailing dates In other words

the critical element of the carriers promises to the shippers was to change

2S FM C
28 F M C

APPLICATION OF GULF EUROPEAN FREIGHT ASSO AND SEA 205

LAND CORP FOR THE BENEFIT OF ARTHUR J FRITZ CO

the tariff rates prior to shipment and the mistake of the operations depart

ments prevented the carriers from carrying out these intentions

In the instant case the nature of the carrier s promise is different Here

Sea Land did not promise to change its tariff before shipment On the

contrary it apparently advised the shipper that the tariff had already been

changed as of January I 1985 and that the shipper could take advantage

of the change if the shipper booked the cargo for January rather than

December It is only after the shipment has occurred that Sea Land now

wants to change its tariff Thus granting the application would not imple

ment a carrier s promise to change its tariff made to the shipper prior

to shipment during negotiations but would implement an intention formu

lated after the shipment to backdate a tariff change from January to Decem

ber not because of any tariff filing error but to correct the effects of

an unfortunate decision of its Operations Department to change the vessel

on which the cargo had been booked It is commendable of Sea Land

to try to offset the harm which such decision caused the innocent shipper

However the type of error involved is simply not a tariff filing error

and it would not be appropriate to distort the special docket law beyond

the scope of its intended purposes merely because the ultimate objective

to relieve an innocent shipper is a good one Nothing in the three cases

cited by Sea Land in which in each instance the carrier had promised

to file a negotiated rate prior to the shipment in contrast to the present

case persuades me that special docket relief is the appropriate remedy

under the facts of this case

s The answer to the present problem therefore

is to seek relief for the shipper under the proper legal theory one which

pertains to a carrier s breach of contract which occurred here and not

to one which pertains to a carrier s tariff filing error which did not occur

Permitting the Waiver Under Alternative Theories

Sea Land has presented the Commission with a set of undisputed facts

which show that an innocent shipper in reliance on Sea land s advice

that the shipper would enjoy a lower rate of 90 per ton on pesticides

1l1ere are other features of the three decisions which undermine their precedential value in my opinion

First none of them was reviewed by the Commission and consequently there is no definitive Commission

determination of the question whether an operational decision of the type involved in them really constitutes

atarifffiling error Second in one of them SD 1218 the presiding judge recognized that the type of error

involved was somewhat unusual J D at 2 Nevertheless he found a colU1ection between the action of

the operations department and the failure of the carrier to file the negotiated rate timely namely had the

operations people notified the tariff filing people of the change insailing dates the carrier would undoubtedly

have advanced the filing date to cover the shipment This illustrates that the carrier had intended to change

its tariff prior to shipment and had promised the shipper that it would change its tariff rate In the instant

case the carrier had not represented to the shipper that it intended to change its tariff to cover a December

shipment lhird ineach of the cases cited the carrier either individually or under an open rate situation

had the authority to change its tariff rates In the instant case the members of the Association had already

voted in November to change their rate effective January not December and presumably Sea Land as a

member has also so voted The shipper was also aware of the fact that the rate would not change until

January Thus Sea Land and the Association are seeking to go back on their pre shipment intentions inorder

to offset the effects of aSea Land operational decision
206 FEDERAL MARITIME COMMISSION

if the shipper booked the cargo for carriage in January booked it for

January The shipper took the trouble of obtaining the consent of its con

signee to delay the shipment until Januaryta obtain the benefit of the

lower rate which by previous decision of Sea Land and the Association

would go into effect in January However admittedly acting contrary to

the agreement between Sea Land and the shipper by which Sea Land would

carry the cargo on its vessel sailing in January Sea Land changed the

booking and loaded the shipment on a vessel sailing in December There

is no evidence that Sea Land intended to harm the shipper Nevertheless

this decision taken independently by Sea Land s Operations Department

constituted a breach of Sea Land s contract with the shtpper Both the

law and the equities it would seem cry out for relief Unfortunately

as discussed above the special docket law applies to errors in tariffs and

tariff filing and not to independent breaches of contract

The fact that a carrier which is seeking to rectify the adverse effects

of its own unfortunate actions cannot obtain relief under a

specialized

procedure does not mean that no relief is available In a previous special

docket case in which the special docket procedure could not be used because

of a fatal jurisdictional defect the facts oftha case nevertheless showed

that relief was available under a different procedure and legal theory Which

procedure and theory were ultimately employed This was done in amanner

consistent with the holdings of numerous courts and authorities to the

effect that administrative agencies are supppsed to be more flexible than

courts of law in devising remedies See discussion in Special Docket No

958 Application ofPacific Westbound Coriferenceon Behalf of OOCL

SEAPAC Service for the Benefit o Shintech 21 SRR 1361 1366 AU

November 10 1982 application withdrawn 21 SRR 1441 December IS

1982 See also United States Lines Inc v Federal Maritime Commission

584 F 2d 519 543 D C Cir 1978 The agency enjoys substantial

flexibility in structuring its procedures in view of the issues which it

must resolve American Airlines Inc v Civil Aeronautics Board 359

F 2d 624 633 D C Cir 1966 cert den 385 U S 843 It is part

of the genius of the administrative process that its flexibility permits adop

tion of approaches subject to expeditious adjustment in the light of experi

ence

The facts in SD 958 showed that tbe shippers deserved some rellef

because the carrier had deleted certain rates thereby increasing shippers

costs on unlawfully short notice However special docket relief could not

be granted because of the carrier s failure to file a new corrective tariff

prior to filing the application as required by the special docket law The

solution was to invite the carrier to file a petition for a declaratory order

under Rule 68 46 CPR 502 68 to terminate a state of uncertainty as

to what rates should have been applied to the shipments involved SD

958 Cited above 21 SRR at 1366 This remedy not only terminated the

state of uncertainty but obviated the need for lawsuits in which the carrier

28 F M C
APPLICATION OF GULF EUROPEAN FREIGHT ASSO AND SEA 207

LAND CORP FOR THE BENEFIT OF ARTHUR 1 FRITZ CO

would have to sue to recover undercharges and shippers would counterclaim

because of short notice rate increases Id Instead the entire problem was

resolved by the Comntission in a separate Rule 68 proceeding See Petition

ofPacific Westbound Conference and OOCL SEAPAC Service for Declara

tory Order 25 F M C 723 1983

As the discussion in SD 958 shows the present case appears to be

one in which relief in the nature of a declaratory order would be suitable

As in SD 958 an innocent shipper has suffered increased costs because

of a carrier s mistaken action special docket relief is not applicable and

the process of resolving the situation would probably require a carrier s

suit to recover undercharges and the shipper s counterclaim in order to

resolve a state of uncertainty as to the proper freight Furthermore as

in SD 958 the critical facts can be explicitly stated without the possibility

that subsequent events will alter them a factor which the Comntission

believes to facilitate declaratory orders See Rules of Practice and Proce

dure Petitions for Declaratory Order 21 F M C 830 831 1974 Other

factors such as the need to relieve the parties of having to act at peril

and in a state of legal uncertainty which are traditional reasons to utilize

declaratory order procedures exist in the present case See discussion in

SD 958 cited above 21 SRR at 1366 67

As noted above adntinistrative agencies learn to fashion procedures tai

lored to resolve peculiar problems expeditiously through experience Experi

ence has shown that a failed special docket may lead to a successful

declaratory order proceeding See SD 958 cited above and Petition for

Declaratory Order ofPacific Westbound Conference etc cited above How

ever in the earlier situation the Conference and carrier withdrew their

application and filed a separate petition under Rule 68 46 CPR 502 68

No reason appears why the Comntission could not dispose of the uncertain

situation in the present proceeding at one time simply by treating the

proceeding as one in the nature of a request for a declaratory order The

relief requested by applicants namely to waive additional freight and to

retain only freight under the 90 rate as if Sea Land had never breached

its contract with the shipper is the same The facts are undisputed and

the parties are on notice There would appear to be no need for a separate

proceeding unless for some technical reason Sea Land desires to file a

separate petition Pleadings under the modern view are merely designed

to give general notice and amendments to them are liberally permitted

especially by administrative agencies Interconex Inc v F MC 572 F 2d

27 30 2d Cir 1978 Pacific Coast European Conference Limitation on

Membership 5 EM B 39 42 n 8 1956 The most important char

acteristic of pleadings in the administrative process is their unimportance

Cf Conley v Gibson 355 U S 41 478 1957 pleadings need only

give fair notice The Commission like other administrative agencies does

not hold to rigid views in applying its rules of procedure and tries to

apply its rules flexibly so as to do justice See e g City of Portland

28 F M C
I

208 FEDERAL MARITIME COMMISSION

v Pacific Westbound Conference 5 F M B 118 129 1956 Commission

looks to the substance of pleadings not forms and is not bound by rules

of pleadings and practice which govern courts of law Oakland Motor

Car Co v Great Lakes Transit Corp I VS S B B 308 311 1934

same An agency always has discretion to relax its procedural rules adopt

ed for the orderly transaction of business when justice requires in any

given case absent substantial prejudice to parties American Farm Lines

v Black Ball Frt Service 397 V S 532 538 39 1970 4 Mezines Stein

Gruff Administrative Law at 2216 17 n 52 Cf Utd Buckingham Frt

Lines v U S 288 F Supp 883 886 D Neb 1968 rules of procedure

should never be used to defeat or even modify justice

Accordingly on the facts as presented by applicants which show nl

tariff filing error but do show that Sea Land actw contrary tO its agreement

with the shipper albeit inadvertently and now wishes to offset the harm

which such action caused I conclude that Sea Land ought not to recover

the undercharge and ought to give the shipper the relief desired I would

do so not by involving the special docket law which applies only to tariff

errors which did not occur here but by recognizing that under applicable

law the shipper might have a valid defense to any possible Sea Land

suit seeking recovery of the freight Alternatively the shipper may even

have a separate claim against the carrier because of any disadvMtage which

Sea Land s unilateral action may have caused the shipper contrary to section

1Ob 11 of the Shipping Act of 1984 All of these possible lawsuits

would be rendered totally unnecessary however if the Commission were

to issue an appropriate order settling the matter by treating the present

application as a request for a declaratory order

Accordingly the application for special docket relief is denied but Sea

Land is not required to seek recovery of the 1 034 21 in additional freight

which additional freight is due only because of Sea Land s unfQrtUnate

action which was admittedly contrary to its agreement with the shipper

1

I

S NORMAN D KLINE

Administrative Law Judge

I

tiFor adiscussion of possible dofet18Cll which a

shipper might have against a suit to recover undercharscs

see Old Ben Coal Company v Sea LtJnd Service Tnc 21 F M C 50S 517 n 13 1978 As tho discussion

cited indicates sometimes a carrier may not recover full freight under its tariffif the camer has itself violated

a duty See also discussion at 21 F M C at 517

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1361

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE

BENEFIT OF ASIAN FOOD INDUSTRIES HK LID

ORDER OF ADOPTION

February 6 1986

The proceeding came before the Commission on Exceptions filed by

OOCL Seapac Services Inc OOeL to the Initial Decision of Adntinistra

tive Law Judge Norman D Kline presiding Officer in which he denied

OOCL s application subntitted pursuant to section 8 e of the Shipping

Act of 1984 46 D S C app I707 e for perntission to refund or waive

collection from the consignee Asian Food Industries H K Ltd Asian

Food of freight charges assessed on four shipments of dry groceries

from Oakland Califomia to Hong Kong

BACKGROUND

In March of 1985 OOCL quoted a groceries rate of 900 per 40

foot container to Asian Food in Hong Kong However OOCL intended

but inadvertently failed to exempt the commodity from a general rate

increase which became effective March 20 1985 This rate increase raised

the quoted rate from 900 to 1100 One of the shipments moved on

April 5 1985 and the other three on April 10 1985 Asian Food paid

freight at the IIOO rate on three of the shipments and the 900 rate

on the fourth shipment

Subsequently on August 20 1985 OOCL applied for permission to

refund 600 of the charges collected and to waive 200 of the amount

assessed on the fourth shipment However OOCL omitted prior to filing

its application to publish in its tariff the rate upon which the refunds

and waiver would be based The Presiding Officer advised OOCL by letter

and by telephone of the need to file a new tariff and refile its application

by September 3D 1985 before the expiration of the 180 day statute of

Iintitation of section 8 e of the Act OOCL subsequently did publish

28 F M C 209

J Section 8 e reads inpart

The Commission may permit acommon carrier to refund a portion of freight charges

collected from a

shipper or to waive the collection of aportion of the charges from a

shipper ir

2 the common carrier has prior 10 fiJing an application fOf authority to make a refund filed

a new tariff with the Commission that sets forth the rate on which the refund or waiver would

be based

Continued
j

210 FEDERAL MARITIME COMMISSION

1

the intended rate with an effective date of September 16 1985 but the

letter advising the Commission of the filing and referring to the application

although dated September 20 1985 and postmarked October 9 1985 was

not received by the Commission until October 15 1985 2 The Presiding

Officer in his Initial Decision found that both these dates are beyond

the 180 day statutory limit on all the four shipments and on that basis

concluded that the application had been refiled too late He accordingly

denied OOCL s application for lack ofjurisdiction

DISCUSSION

In its Exceptions OOCL expresses surprise at the late receipt of the

letter at the Commission and suggests that tbe letter may have been lost

in the U S mail Although it acknowledlles that refiling the application

on October 9 1985 might have been out of date OOCL requestS that

the Commission

overlook the fact that the amended application Was received

only a few days late for the later shipments and allow the filing

of the new tatiff page dated September 16 1985 to cure the

defect in the original application

OOCL refers to instances where the Commission allowed defective applica

tions to relate back to the date of the original filing even when the

corrected application was filed outside the 180 dayperiod and urges the

Commission to reverse the Initial Decision

However the instances when a

technically defective application later

corrected was allowed to relate back to the date of the original filing4

involved technical defects related either to a failure to properly explain

the error in the tari ffS or to the rejection by the staff of a defective

tariff later refiled 6

or to the lack of signature and notarization 7In all

these cases however a new tariff had been filed prior to the filing of

the original application

4 the appUcatlon for refund or waiver is flied with the Commilllon within 180 days from the

date of shipment

Rul 9 1 X3 1II 46 C F a802 92 3111 ofthe Commbsion s Rul ofPrac1ico and om cleft

dale ofsfiipment 88 meaning thedate ofsalJin of the vCl8lcl Jrom the Port at wblch cargo was lOaded

2Pursuant to Rule 502 924 3 1 of the Comm lon l Rules of PractIce and Procedure 46 C F R

lO292 X3 Ithe ppllcatlon b filed when mailed

3

As mentIoned the first shipment moved on AprilS 198 the olher three shipments sailed on April 10

19S8

4Tho cues wete decided ubder sect1on 18b 3 of the SlUppln Act 1916 whole provlaions are reflected

insection se of Ihe ShlppinJ Act of 19S4

J

Application oj Distribution Services Ltd for the Benefit of Target Stores Spec No 1059 FM C Dec

14 19S3 adopflng 26 F M Cl2l 1983

6

Application 01 Southern Pac ffc International Inc for the Benl lt 01 hMral Motors Overseas Corp

Spec No S79 F M C adminlslre1iv ly final June 11 1982 21 S R R S33

Messrs Da Prato Florence v Med GulfCo lfer Jnce 13 F MC 135 1969

28PMC
S JOHN ROBERT EWERS

Secretary

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE 211

BENEFIT OF ASIAN FOOD INDUSTRIES HK LTD

Therefore the only issue in this proceeding is whether the application

was filed within the time limit prescribed in section 8 e 4 of the Acts

The mailing envelope of the September 20 letter is postmarked October

9 1985 In the absence of any proof to the contrary the U S Postal

Service stamp establishes the date of mailing and consequently the date

of filing of the application which in this instance is October 9 1985

That date is more than 180 days from April 10 1985 9

Section 8 e of the Act allows no discretion with regard to the time

within which an application for refund or waiver must be filed lO After

the expiration of the 180 day limit the Commission lacks authority to

grant the remedy provided in section 8 e of the Act In this instance

in view of the late mailing of the September 20 1985 letter the Presiding

Officer properly denied the application for lack of jurisdiction OOCL S

Exceptions must consequently be denied

TIIEREFORE IT IS ORDERED That the Exceptions of OOCL to the

Initial Decision of Administrative Law Judge Norman D Kline served

on October 31 1985 are denied and

IT IS FURTIIER ORDERED That the Initial Decision issued in this

proceeding is adopted by the Commission and

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission

8TIle Presiding Officerfound that OOCL s

application would otherwise qualify forrelief

9

Because of GOCL s failure to fLle a new tariff before applying for refunds and waiver the first filing

of the application on August 20 1985 was a

nullity aaeL argues that the Commission should consider

the date of filing of thenew tariff September 16 1985 as the date of refilmg of the application The statute

however requires lhe filing of anew tariff prior to the filing of the application that is the filing of two

separate instruments which may not by their nature be merged into one See seclion 8e 2 of the 1984 Act

10Application of us Atlantic and Gulf Jamaica and Hispaniola S S Fr Ass nand Sea Land Service Inc

for the Benefit of United Brands Spec No 1102 FM C pelition for reconsideration denied Oct 12 1984

22 S R R 1266 Application of Sea Land Service Inc for the Benefit of Pack and Jones Inc Spec Nos

1206 1238 F M C June 26 1985 23 S R R 257 partially adoring 22 S R R 1597 Jan 18 1985 and

22 S RR 1657 Feb 13 1985

28 F M C
I

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1361

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE

BENEFIT OF ASIAN FOOD INDUSTRIES HK LTD

Application for permission to refund and waive portions of freight charges denied

Applicant quoted a rate of 900 per 4Q foot container OD grocery items but inadvertently

allowed that rate to increase to 1 100 in its tariff thereby subjectinafour shipments

to 800 In additional freight In the aggregate

Applicant failed to ftIe the new tariff seulng forth the quoted rate prior to ftIlng its application

Such failure is a jurisdictional defect Such defect could have been cured If applicant

had filed the new tariff and followed it with a filing of an amended application within

the 180 day period prescribed by law but although filing the new tariff applicant failed

to file an amended application on time

Jerome A Clark and Joseph E Harris for applicant

i

INITIAL DECISION 1 OF NORMAND KLINE ADMINISTRATIVE

LAW JUDGE

Adopted February 6 1986

This application was originally filed by OOCLSeapac Services on August

20 1985 See certificate of date of mailing application p

2 Applicant

carrier stated that in March 1985 it had quoted a rate for shipments of

groceries to Hong Kong to the consigriee in Hong Kong insofar as relevant

here of 900 per 4O foot container inclusive of terminal receiving charges

However OOCL erroneously allowed its rate on the commodity to increase

to 1 100 per 4O foot container including terminal receiving charges effec

tive March 20 1985 pursuant to a general rate increase because it had

not noticed that it had quoted the rate at 900 The result of this error

was that four shipments of grocery items which sailed from Oakland

California on April 3 and 10 1985 became subject to the unintended

higher rate of 1 100 which the consignee paid on three of the four ship

ments OOCL therefore sought permission to refund 600 for three ship

ments 200 per each overpaid and waive collection of 200 on the fourth

shipment on which the consignee had paid freight under the quoted but

unfiled 900 rate

I This decision wUJ become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 eFR 502 227

212 28 FM C
28 F M C

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE 213

BENEFIT OF ASIAN FOOD INDUSTRIES HK LTD

The New TariffFiling Requirement

The application having been filed on August 20 1985 was filed only

139 days after the date of the earliest shipment April 3 1985 It did

not appear that any discrimination among shippers carriers or ports would

result if the application were to be granted there being no other affected

shipments The application therefore appeared to qualify for relief under

section 8 e of the Shipping Act of 1984 46 U S C app sec 1707 e

and the Commission s

regulation 46 CFR 502 92 a However the applica

tion was defective in one critical respect It did not show that the new

corrective tariff had been filed prior to the filing of the application The

law cited section 8 e 2 requires such a filing stating as a condition

for the granting of the application that it may be granted if

the common carrier or conference has prior to filing an application

for authority to make a refund filed a new tariff with the Commis

sion that sets forth the rate on which the refund or waiver would

be based

The above requirement is considered to be jurisdictional and the Commis

sion has invariably denied applications which fail to show that the new

tariff has been timely filed See e gLouis Furth Inc v Sea Land 20

EM C 186 1977 A E Staley Mfg Co v Mamenic Line 20 F MC

385 1978 same 20 F M C 642 reconsideration denied Henry I Daly

Inc v Pacific Westbound Conference 20 EM C 390 1978 Application

of Pacific Westbound Conference on Behalf of OOCL Seapac Service for

Shintech 21 SRR 1361 1363 1364 1982 Application of us Atlantic

North Europe Conference for SCM International Ltd 23 SRR 412 414

JD EM C notice of finality September 13 1985

The Commission has of course also held on numerous occasions that

the law authorizing relief in these cases is remedial and is to be given

a liberal interpretation in order to carry out its beneficial purposes Applica

tion of United States Lines SA for the Benefit of Miles Laboratories

Inc 23 SRR 428 431 1985 Application of Lykes Bros to Benefit Texas

Turbo Jet Inc 24 F M C 408 411 1981 D F Young Inc v Cie

Nationale Algerienne de Navigation 21 EM C 730 731 1979 see also

Nepera Chemical Inc v Federal Maritime Commission 662 E2d 18

22 Dc Cir 1981 In keeping with the spirit of this law the Commission

has relaxed technical requirements whenever possible and when no jurisdic

tional condition is involved For example although the law in question

provides that the carrier applicant must file a new tariff that sets

forth the rate on which the refund or waiver would be based section

8 e 2 the Commission has permitted carrier applicants to file new tariffs

that varied substantially from earlier quoted but unfiled rates and that

did not set forth the same rate on which refunds or waivers were based

Also so long as the new tariff was effective at some time before the

filing of the application the Commission has not required that the new
214 FEDERAL MARITIME COMMISSION

tariff still be in effect at the time of the filing of the application 2 Further

more if an application is filed timely originally but contains some technical

defect and is sent back by the Commission s Secretary for correction

the Commission has granted such applications even if the application after

correction is refiled more than 180 days after date of shipment S

Notwithstanding the above examples of applications COjltalning technical

defects which have been allowed to be cured the Commission has never

gone so far as to grant an application when no new tariff in any form

has been filed at all prior to the application as the cases cited previously

illustrate On the contrary the Commission hIlS specifically stated as to

the requirement that a new tariff be filed prior to the filing of the appli

tion

This requirement cannot be waived and as much as the Commis

sion might wish to grant relief in situations such as we have

here where the consequences of subsequent errors by the carrier

fall upon the shipper the Commission whose jurisdiction is strictly

limited by statute has no power to grant the relief requested

A E Staley Mfq Co v Mamenic Line cited above 20 F M C

at 643

When an application is filed by a carrier which does not show that

the new tariff has been filed it is still possible sometimes to save the

application from denial Thus if the application is filed within the 180

day period after date of shipment required by law sectlon 8 e 4 of

the Shipping Act of 1984 the carrier applicant can file the new tariff

and follow that filing with an amended or new application provided that

the amended or new application is filed within the 18Ddayperiod In

other words the jurisdictional deficiency can be corrected if the applicant

acts in that fashion and in past cases applicants have corrected such defi

ciencies by such a procedure See e g Application ofthe East Asiatic

Co Ltd fo the Benefit of Black Veatch lmernational 20 SRR 168

16101611 1D F M C notice of finality October 16 1981

2See Application ofPacific W tbound Gorifertnce for Shlnech cited above 21 BRR a11364 n 3 new

tariffrate imrcued over quoted rate due to Iencral rate increase orminor tcchnical adjustment by clPTler

SO No 1081 Application of Seawlnds Umlted for fI m Intlr t l Ital 1 0

January 18 1984 F M C

notice of finality FebNary 28 1984 q oied rate of 900 coriitrucUvely filed m new tariff as 820

SD No 1288 Applict Jtlon of U S Atlantic Portslltaly Cdnfer nce for Gyan nka SA ID January 30 1985

F M C notice of finality March 8 1985 now tariff flied waa 13 rate compared to Intenclcld nue o

IIS O because of Interveqlng aeneral ra e incfease i

but cf AppUcatloll of HQJOsLloyd AG for Windfor

Industries 22 SRR 1579 J D F MC noti of flnallty February 6 1985 application denied new tatlff

was 235 compared 10 Intended rate of 220 Application of U S Atlantic North Europe Con ellce for

SCM ciled above J3 8M at414 415 new tariff of 143 comPlPd to intended rate of 1 musl actually

80 effect at some tine bcfore application is flied

3

See Applic tlon of Distribution Services Ltd for theBenefit ofTarset Stores 26 F M C 125 1 0 F MC

notice of flnaIity December 4 1983 Application oj Southern Pac ftc lnternatlonal Inc for the Beneflt of

O neral Motors Overseas Corp 21 SRR 833 1 0 F M C notice of flnality June II 1982

28 P M C
28 F M C

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE 215

BENEFIT OF ASIAN FOOD INDUSTRIES HK LTD

Applicant s Failure to File anAmended Application Timely

The present case is an example of one in which the above corrective

procedure was applicable OOCL s original application as noted above

was not preceded by the filing of the new tariff but the application was

filed on August 20 1985 only 139 days after the date of the earliest

shipment April 3 1985 Therefore OOCL had 41 more days i e until

September 30 1985 to file the new tariff and to file an amended applica

tion which by law must follow the filing of the new tariff Immediately

upon assignment of the case to me I wrote applicant s Pricing Analyst

Mr Clark who had filed the application advising him of the situation

and the need to file the new tariff and amended application by September

30 See letter to Mr Clark dated August 30 1985 To give him more

time and to prepare him for the letter which followed I called Mr Clark

by telephone on the preceding day See letter cited at page one I advised

him of the statutory requirements as to the filing of the new tariff and

the 180 day period and of certain technical problems regarding OOCL s

joining the tariff of a conference in the subject trade as they might affect

the tariff filing problem

When the September 30 deadline passed and Iheard nothing from appli

cant I called applicant s Pricing Manager Mr Harris Mr Clark not being

in the office that day some time in early October I was informed that

a letter constituting an amended application had been prepared and was

dated September 20 1985 and that a new tariff had been filed by the

conference before that date However there was no record that such a

letter had either been placed in the mail or received by the Commission

I

therefore asked Mr Harris to send a copy of the letter and a copy

of the tariff page to the Commission s Secretary Mr Harris sent the

letter and page on October 9 1985 See letter cited and envelope showing

a postage date of October 9 1985

Upon receipt of the September 20 letter I

telephoned Mr Clark and

advised him that it was necessary to furnish evidence that the letter had

been placed in the mail by September 30 because of the statutory require

ment that applications be filed within 180 days after shipment Mr Clark

could not explain why a September 20 letter would not have been placed

in the mail before September 30 and indicated that he would try to deter

mine if there was any record of its having been mailed before that date

Ifollowed the telephonic conversation with a confirming letter on October

22 1985 In the letter Iexpressed sympathy with applicant s predicament

in apparently failing to file the amended application on time and commended

Mr Clark for his honest admission that he could not furnish proof that

the September 20 letter had been mailed on time However I gave Mr

4The new tariff restoring the 900 rate for OOCL was filed by the Transpacific Westbound Rate Agree

ment 1WRA whose tariff QaeL joined on May 1 1985 See 1WRA Tariff FMC No 2 Revised Page

2983 effective September 16 1985
216 FEDERAL MARITIME COMMISSION

Clark additional time until November I to try to locate evidence of

timely mailing of the September 20 letter I advised him that if he could

not furnish such evidence I would be bound by Commission precedent

and law and would have to deny the application However I indicated

that applicant had the right to file exceptions and ask the Commission

to grant the application and suggested some matters that he might wish

to bring to the Commission s attention in an attempt to lvercome the

late filing of the September 20 letter amending the original application

See letter to Mr Clarl dated October 22 1985

On October 29 Mr Clark telephoned and advised me that he could

not furnish evidence showing that the September 20 letter had been placed

in the mail before September 30 and that he would therefore exercise

his right to file exceptions to the Initial Decision The matter is therefore

ripe for issuance of this Initial Decision

Discussion and Conclusions

Iregret that I can find no way in which to grant the application The

failure to file a new tariff prior to the application is a fatal jurisdictional

defect as the many cases cited above consistently hold As mentioned

above the defect can be cured if the applicant files the new tariff and

follows that by filing an amended application within the 180 day period

However it is not enough to file the new tariff only The amended applica

tion has also to be filed before the 180 day period expires The Commission

has held that this 180 day requirementis also jurisdictional and that 180

days is a precise term that is not amenable toa variety of interpretations

Footnote citation omitted Application of U S Atlantic Gulf Jamaica

Freight Association for Chiquita 22 SRR 1266 1267 1984 See also

Special Docket No 976 Application of Lykes Bros Steamship Co Inc

for the Benefit of Condor Lines 10 Dec 27 1982 F M C notice of

finality January 28 1983 in which the application was denied because

it was filed 181 days after the date of shipment Although the Commission

has avoided technicalities and used liberal interpretations in order to grant

applications whenever possible as discussed earlier it has never held that

the 180 day requirement can be avoided I am therefore prevented from

finding that this application qualifies for approval S

One may argue that the Commluion ought to overlook the fact that tho amended application was filed

only a few days laic for the Iater shipments and dtat the Commiuion ought to allow the fi1ina of the new

tariff in September 16 to cure the defect in the orlainal application After all in cases in which there are

techniCal defecta such as an incomplete explanation or absence cfslinatures in theorlgfnal application and

the application after correction is later filed outside the ISO day period tho Commission relates the later

filing back to the origlnal flling thus flndinJ h to be timely Application oj Southern Pactjic Intenwtlortal

Inc for lheBeileftt of General Motors Overseas Corp 21 SRR 833 1 0 F M C notice of finality JUlie

11 1982 Application of Distribution Services Ltd for the Benefit ojTarget Stores 26 F M C l2S 1 0

F M C Order 26 F M C 123 1983 The problem however is that the law specJfically requires that the

application be flied qfter the new tariff not before Therefore relating back the latefiled amended applIcation

to the date of the original application in this case would give effect to an application tlled before the new

tariff contrary to the statute Furthennore the problem was not within the applIcation fonn itself but with

28 FM C
8 NORMAN D KLINE

Administrative Law Judge

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE 217

BENEFIT OF ASIAN FOOD INDUSTRIES HK LTD

Accordingly the application is denied aaeL may not refund 600 in

connection with the three shipments on which OOCL charged the applicable

tariff rate of 1 I00 and must take steps to recover an undercharge of

200 on the one shipment on which OOCL charged the quoted rate of

900 OOCL shall report to the Commission on the action it has taken

within the time period prescribed by the Commission if the Commission

adopts or otherwise permits this Initial Decision to become effective

a

requirement apart from the application i

e the filing of the new tariff The only way in which the applica

tion could be granted in this case is if the filing of the new tariff effective September 16 1985 which

fell within the 180 day period were to be found to be a constructive filing of an amended application

were held to relate back to the date of the new tariff There is no precendenl for such theories however

in any previous Commission decision as far as I

am aware

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1356

APPLICATION OF PHILIPPINES MICRONESIA ORIENT

NAVIGATION CO FOR THE BENEFIT OF HIMMEL INDUSTRIES

Deliberate decision not to file new tariff before shipment sailed is not the type of administrative

or clerical error contemplated by section 8 e of the Shipping Act of 1984

The Initial Decision of the Presiding Officer is reversed and the application to waive collection

of 15 665 58 in freight charges is denied

De Wayne A Lien for Philippines Micronesia Orient Navigation Co

REPORT AND ORDER

February 12 1986

BY THE COMMISSION EDWARD V HiCKEY JR Chairman James J

Carey Vice Chairman Thomas F Moak1ey Francis J Ivancie and

Edward J Philbin Commissioners

This proceeding is before the Commission upon its determination to

review the Initial Deci8ion iS8ued by Administrative Law Judge Charles

E Morgan Presiding Officer That decision granted permission to Phil

ippines Micronesia Orient Navigation Co PM O pursuant to section

8 e I of the Shipping Act of 1984 46 U S C app 1707 e I to

waive collection from Himmel Industries Inc Himmel of a portion of

the freight charges applicable to three 8hipments of glycerine from Manila

Philippines to United States West Coast ports

BACKGROUND

On November IS 1984 PM O agreed subject to booking to file a

reduced rate of 1 450 per 20 foot container applicable to industrial chemi

cals moving from Manila to U S Pacific Coast ports On December 5

1984 Himmel booked three 20 foot containers of glycerine on the

MV CONCORD V 34 which according to PM O sailed from Manila

on December 14 1984 PM O delayed filing the new rate until December

28 1984 the date on which it received the confirmed or on board

bills of lading in San Francisco The application for waiver was filed

June 12 1985

The Presiding Officer held that the application was filed within 180

days from the date of shipment and that the failure to timely file the

218 28 FM C
APPLICATION OF PHILIPPINES MICRONESIA ORIENT 219

NAVIGATION co FOR TIlE BENEFIT OF HIMMEL INDUSTRIES

rate agreed upon was due to clerical inadvertence I He accordingly granted

the application

DISCUSSION

The exchange of telexes between PM O and its Manila agent shows

that PM O agreed to the 1450 rate that the rate was subject to booking

and that on December 5 1984 the shipper booked three containers of

glycerine on PM O s MV CONCORD V 34

Section 8 e 1 of the Act authorizes refunds and waivers if

I there is an error in a tariff of a clerical or administrative

nature or an error due to inadvertence in failing to file a new

tariff 46 U S c app 1707 eI

PM O adntittedly did not file the rate until its documentation depart

ment confirmed Bills of Lading shipments PM O Application at

2 In other words filing was postponed until receipt in San Francisco

of on board bills of lading sent from Manila 2

The delay in filing there

fore appears to have resulted from a deliberate decision of PM O to

receive confirmation that Himmels shipments had been placed aboard the

MV CONCORD V 34 rather than from clerical inadvertence as sug

gested in the application Under these circumstances no intent to amend

the tariff before the vessel sailed could be attributed to PM O and con

sequently no error can be found in the tariff in effect at the time of

shipment which would support the grant of awaiver3

THEREFORE IT IS ORDERED That the Initial Decision issued in

this proceeding is reversed

28 F M C

1 Section See reads inpart

The Commission may pewit a common carrier 10 refund a

portion of freight charges

collected from a

shipper or to waive the collection of a portion of the charges from a

shipper if

2 the common carrier has prior to filing an application fOf authority to make arefund filed

a new tariff with the Commission that sets forth the rate on which the refund or waiver would

be based

4 the application for refund or waiver is filed with the Commission within 180 days from the

date of shipment

Rule 92 a 3 iii of the Commission s Rules of Practice and Procedure 46 C F R 502 92 a 3 iii derme

date of shipments as meaning thedate of sailing of the vessel from the port at which cargo was loaded

2Two bills of lading issued in Manila marked Loaded on board December 13 1984 are attached to

the application

3

As noled above therelevant bills of lading of record are marked Loaded on board December 13 1984

Lloyd s Voyage Record also shows a

sailing dale of December 13 1984 Because the application for waiver

was no1 fIled until June 12 1985 some doubt is raised as 10 whether the application was filed within 180

days from the dale of shipment However the finding that section 8e of the Act does not apply to the

facts renders any further inquiry unnecessary
220 FEDERAL MARITIME COMMISSION

IT IS FURTIiER ORDERED That the Philippines Micronesia Orient

Navigation Co application for waiver of freight charges from Himmel

Industries Inc in the amount of 15 665 58 is denied and

IT IS FINALLY ORDERED That this proceeding is discontinued

S JOHN ROBERT EWERS

Secretary

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 46

SOUTHEASTERN MARITIME COMPANY

v

GEORGIA PORTS AUTHORITY

28 F M C 221

ORDER ADOPTING INITIAL DECISION

March 14 1986

This proceeding was initiated by the filing of a

complaint by Southeastern

Maritime Company SEMCO alIeging that the Georgia Ports Authority

GPA terminal tariff violates section 17 of the Shipping Act 1916 1916

Act 46 U S C app 816 to the extent it I attempts to exculpate

GPA from responsibility for the negligence of its employees and 2 requires

that GPA be made an additional named insured on liability policies covering

stevedoring operations involving heavy lift equipment rented from GPA

when no such requirement is reflected in the terminal tariff The Commis

sion s Bureau of Hearing Counsel intervened in the proceeding

An Initial Decision JD has been issued by Administrative Law Judge

Seymour Glanzer Presiding Officer finding that GPA has violated section

17 as alIeged by SEMCO Exceptions to the ID have been filed by

GPA SEMCO and Hearing Counsel have filed Replies to Exceptions

BACKGROUND

The controversy between SEMCO and GPA arose out of an incident

that occurred on April 19 1981 at the GPA

operated teoninal facility

Containerport in Savannah Georgia A longshoreman employed by

SEMCO a stevedoring firm WlS injured while loading a vessel allegedly

due to the negligent operation of a container crane by a GPA

employee

The longshoreman filed suit in the state court against GPA and others

GPA filed a third party complaint against SEMCO for indemnification

on the basis of the GPA tariff provision containing hold harmless and

indemnification clauses The action was subsequently stayed by the court

to allow the Federal Maritime Commission FMC or Commission to deter

mine the validity of the GPA tariff provision The longshoreman s claim

was settled during the pendency of this proceeding but the GPA third

party claim is still pending in state court
222 FEDERAL MARITIME COMMISSION

INITIAL DECISION

The Initial Decision issued subsequent to a hearing on the merits of

the complaint found essentially as follows with respect to the lawfulness

of the tariff item and practices at issue

Section IV of GPA s Equipment Rental Tariff No I H 1 violates section

17 of the 1916 Act 2 because it purports to exculpate GPA for its own

negligence and to hold stevedores responsible for damages due to crane

operations regardless of fault Similarly the practice of GPA in requiring

stevedores using its facilities to obtain liability insurance and include GPA

as a named insured is an unreasonable practice under section 17 because

it is a

requirement not set forth in the GPA tariff and constitutes an

extension of the exculpatory clauses of the tariff

GPA s argument that the tariff provisions at issue are lawful because

they are the result of arms length bargaining is rejected There is not

sufficient equality of bargaining power between GPA and stevedores at

the GPA facilities to render the minimal concessions 3

granted by GPA

in past negotiations over the tariff provision a quid pro quo for the onerous

burden that provision imposes on stevedores This is just the kind of result

frowned upon in Supreme Court and Commission cases where a public

utility or equivalent uses its superior bargaining power to impose harsh

terms and conditions on stevedores who are in need of a port s services

JD at 33

IOPA Equipment Rental Tariff No i H 2nd rev p 6 Section IV Leasee Responsib1lity provides

When cranes houts conveyors lift trucka tractors and other equipment including riBaing supplied by

Lessor which arc used in the moving or lifting of cargoes hereinafter called Leased Equipment are

rented orleased to others it is expressly understOOd that such Leased Equipment wiU be operated under tbe

direction and control of the Lessee and the Lessee sball be reaponsible for the operation thereof and assume

all risks for injuries ordamages which may arise from orgrow out of the use oroperation of said LeaSed

Equipment

Lessee by acceptance of such Leased Equipment agrees to fully protect indemnify reimburse and save

hannless the Georgia Ports Authority and ita employees against any and all loss ordamage caused to or

caused by said Leaied Equipment including any personal injury or death or property damage caused thereby

even lhough used occasioned or contributed 10 by the negligence sole or concurrent of the Georgia Ports

Authority or its el1lployocs and should said Leased Equipment be damaged or destroyed while so leased

except when caused by natural perils such as windstorm flood fire or earthquake or by structural failure

not resulting from operatIon of said equipment beyond itl rated capacity Lessee shall pay for all necessary

repaln to orreplacement of said equipment but shall not be responsible for damages resulting from loss of

use

It is incumbent upon the Lessee to make athorough inspection and to satisfy himself as to the physical

condition and capacily of lhe leased Equipment as well as the competency of the operator including any

operator supplied by Lessor with said equipment there being no representations or warranl1es withreference

10 such maners

2Thc Presiding Officer noted thai section lO dXI of the Shipping Act of 1984 46 US C app

fi 1709 dXl is essentially arecodification of section 17 of the 1916 Act 1 0 at 2 02

3

As found by the Presiding Officer those concessions involve I a provision that lhe stevedore would

not be liable for any downlbrie Iou of uae damagea 2 deletion of language which might be construed

to make the stevedQre liable for LHWCA benefltl for lhe crane operator 3 relieving the stevedore from

liability for crane damage caused by force majeure events 4 relieving the stevedore from liability fordam

age to lhe crane caused by structural failure ID at 17 The Presiding Oft lcer also found that none of

these concessions would have been necessary absent the basIc transferof liability for negligence and the com

panion hold harmless and indemnification clauses ld

28 F M C
SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 223

AUTHORITY

Crane operators are not borrowed servants of the stevedores because

the stevedores in practice have little control over the operators in spite

of the tariff provision language which imputes control of the crane to

lessees The stevedore has to accept the operator offered by OPA and

OPA retains total operational control over the cranes during the entire

rental period because OPA alone decides who may operate the crane

and the conditions which may give rise to operator removal and discipline

10 at 38

Finally the imposition by OPA of a

requirement of insurance coverage

by stevedores is a precondition of crane rentals and is required to be

included in OPA s tariff Moreover the requirement is an extension of

the exculpatory clauses in the tariff and is also an umeasonable practice

10 at 40

OPA must cease and desist from the Shipping Act violations within

30 days of the date of a final decision in this proceeding 10 at 41

POSITIONS OF THE PARTIES

OPA in its Exceptions argues that a borrowed servant relationship be

tween the crane operator and SEMCO was created by virtue of the tariff

and the underlying agreement with the stevedores utilizing OPA facilities

This agreement is said to have been arrived at after arms length bargaining

with the stevedores who obtained sufficient concessions to justify the impo

sition of the hold harmless and indemnification provisions It is alleged

that this quid pro quo in connection with the actual practices of stevedore

control of crane operations lawfully creates a borrowed servant relationship

OPA therefore submits that the tariff is not exculpatory

SEMCO supports the findings of the 10 and urges their adoption

SEMCO maintains that stevedores do not in fact have effective control

over crane operators at OPA facilities and that this variance between actual

practice and the tariff is per se umeasonable under section 17 State law

which allows purely contractual imposition of borrowed servant liability

allegedly does not determine Shipping Act questions SEMCO submits that

the Presiding Officer correctly found that the negotiation sessions between

OPA and stevedores did not result in sufficient consideration to stevedores

to justify the imposition of the exculpatory tariff provision The stevedores

allegedly had no bargaining power and no choice but to accept this condition

of OPA there was no real quid pro quo

Hearing Counsel also supports the findings of the 10 and urges their

adoption It is argued that the facts surrounding crane rental practices at

Containerport do not support OPA s assertion that a borrowed servant rela

tionship was created The tariff provisions that attempt to exculpate OPA

28 F M C

4

A series of meetings was held in 1977 between GPA officials and regular port facility users including

SEMCO to renegotiate the tenns of the crane lessee responsibility clauses in OPA s tariff See ID al

1319 No Connal contract document resulted from those meetings
224 FEDERAL MARITIME COMMISSION

from liability for its own negligence on this basis are therefore allegedly

unreasonable and unlawful

DISCUSSION

OPAs Exceptions to the Initial Decision are essentiaIly rearguments of

contentions already presented to the Presiding Officer and properly disposed

of by him The Initial Decision is supportable both in fact and in law

Itwill therefore be adopted by the Commission

The JD accurately reflects Commission precedent and correctly concludes

that OPA s exculpatory clauses violate section 17 of the 1916 Act Although

Commission case law generally holds that such exculpatory clauses i e

those which purport to relieve a terminal operator for liability for its own

negligence are per se against public policy and therefore unreasonable

the Presiding Officer here carefully evaluated all of the facts of record

in reaching his determination It is apparent here that crane operators at

OPA facilities are under no circumstances under the effective control

of stevedores 6

Accordingly a tariff provision which states that they are

and transfers liability on this basis is violative of section 177

The weight of authority in this area of law also indicates that private

negotiations between a port authority and stevedores cannot validate a tariff

provision that transfers liability for crane operations on the basis of a

borrowed servant fiction that does not reflect the actual practices at

the terminal sIf agreements by stevedores to assume liability for crane

operations are reflected in a tariff they must be bona fide and supported

by sufficient consideration A contract of adhesion cannot be cited to sustain

the reasonableness of an exculpatory borrowed servant tariff provision 9

Ample evidence supports the Presiding Officer s

findings that the negotia

tions between OPA and SEMCO did not result in sufficient consideration

flowing to the stevedores to support the challenged tariff provision 10

Finally the Presiding Officer was also correct in finding that the

untariffed insurance requirement imposed by OPA also violates section

17 Indeed OPA did not even take exception to this finding

Wl l 1 Gulf Maritime Association v The City of Galveston 22 F M C 101 103 41979 reeon denied

22 F M C 401 1980 While the Commission s decision in Charles Lucidl db a Lucid Packing Co v

Stockton Port District 22 F M C 19 1979 recognizes the possibility that under certain circumstances con

cessions by a

port authority may justify exculpatory provisions in a port tariff the facts of this case do not

support its applicatIon here

6

See JD at 1925

7

Stevens Shipping and Terminal Company v South Carolina State Ports Authority 23 S R R 684 688

19S5

8In Wl l t Gulf Marldme Association v Pon of Houston Authority 22 F M C 420 422 n 11 1980 the

Commission permitted such a transfer of liability on lhe bases thai subitantial benefils flowed 10 users of

port cranes and that crane users had effective control over crane operations

9

See Bisso v Inland Watenvays Corp 349 U S 85 1955 compare West Gulf Maritime Association

v Port of Houston Authority 22 F M C at 103

lOSee ID at 1319

11 West Gulf Maritime Association v The City o Galveston supra 22 F M C al 105

28 F M C
By the Commission

S JOHN ROBERT EWERS

Secretary

SOUTIIEASTERN MARITIME COMPANY V GEORGIA PORTS 225

AUTHORITY

THEREFORE IT IS ORDERED That the Exceptions to the Initial Deci

sion filed by Respondent Georgia Ports Authority are denied and

FURTHER IT IS ORDERED That the Initial Decision issued in this

proceeding is adopted and made a part hereof and

FINALLY IT IS ORDERED That this proceeding is discontinued

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 46

SOUTHEASTERN MARITIME COMPANY

v

GEORGIA PORTS AUTHORITY

The Port s practices under tariff provisions which purport to make Port employed crane

operators the borrowed servants of stevedores and which seek to exculpate the port

from liability for the negligence of those employees are unjust and unreasonable and

in violation of section 17 of the Shipping Act 1916

Failure of the Port to include the named insured requirement in its tariff is a violation

of section 17 of the Shipping Act 1916 Also the practice of requiring the stevedore

to name the Port as an additional insured in liability policies is on the facts presented

a violation of section 17

John P Meade Lawrence G Rosenthal and Edwin D Robb Jr for Southeastern

Maritime Company complainant George H Chummily for

George H Chamlee forGeorgia Ports Authority respondent

John Robert Ewers and Stuart James as Hearing Counsel

INITIAL DECISION I

OF SEYMOUR GLANZER ADMINISTRATIVE

LAW JUDGE

On September 23 1983 Southeastern Maritime Company SEMCO the

complainant filed a complaint pursuant 10 section 22 of the Shipping Act

1916 46 U S C 821 2

alleging violations of section 17 of the Shipping

ACI 1916 46 U S C 816 3

by Georgia Ports Authority GPA the respond

ent The complainant requested that specified tariff matter published by

GPA and particular practices engaged in by the respondent be found unlaw

ful and that GPA be ordered to cease and desist from seeking to enforce

those tariff provisions and from those practices Reparation was not re

quested GPA denied that either the tariff provisions or practices are unlaw

ful

THE PARTIES

SEMCO is a Georgia corporation and a subsidiary of Peeples Industries

Inc Among other things SECO is a stevedore conducting operations in

Savannah Georgia Charleston South Carolina and Jacksonville and Miami

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of PractIce and Procedure 46 CFR 502 227

1The pertinent provisions of section 22 of the 1916 Act have been retained virtually intact by provisions

of sections II a and b of the Shipping Act 1984 46 U S C app 1710 a and b

3The pertinent provisions of section 17 of the 1916 Act appear in nearly identical fonn and substance

inthe provisIons of section 100d l

of the Shipping Act 1984 46 US C app 1709 d l

226 28 FM C
28 F M C

SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 227

AUTHORITY

Florida Peeples also controls East Coast Terminal Company East Coast

a terminal operator with dock and warehouse facilities in Savannah

GPA is a public corporation and instrumentality of the state of Georgia

whose powers and authority are derived from the statute known as the

Georgia Ports Authority Act 4By that law it is empowered to develop

and improve the harbors or seaports of Georgia for the handling of foreign

interstate and intrastate commerce and to foster and stimulate the shipment

of freight through Georgia s ports 5 In the exercise of those powers GPA

is authorized to acquire and hold real and personal property and to do

all those things necessary to carry out those powers6 GPA is empowered

to fix fees and charges for the use of its services and facilities 7 GPA

operates deep water terminal facilities at Savannah and Brunswick Georgia

At the Savannah facility GPA operates a container terminal called Con

tainer port which is equipped with six container cranes The executive

director of GPA acts as its general manager with the power usually attendant

upon that position The executive director is appointed by the members

of GPA who in turn are appointed by the Governor B

Hearing Counsel is an intervener in the proceeding

There were II days of hearing The record consists of about 1700 pages

of transcript and 61 exhibits Opening and answering briefs were submitted

by all parties

THE IMMEDIATE BACKGROUND

On April 19 1981 Johnny Lee Hines a longshoreman employed by

SEMCO was injured while the MV ZIM TOKYO was being loaded by

SEMCO at GPA s Containerport On August II 1981 Hines filed a com

plaint against GPA and others in the Superior Court of Chatham County

Georgia 9alleging that he was struck by a container causing him to fall

from a stack of containers to the dock below He alleged that his injuries

were caused by the negligence of the container crane operator an employee

of GPA Invoking the Lessee Responsibility provisions of Section IV of

its tariff GPA filed a third party complaint against SEMCO for indemnifica

tion On June 14 1983 the Superior Court action was stayed so that

the Federal Maritime Commission could rule on the validity of the GPA s

hold harmless clause contained in its Terminal Tariff Prior to issuing

the stay on July I 1983 the Superior Court in an interim ruling deter

mined that the container crane operator is not a borrowed servant and

he is the employee of GPA 10

Official Code of Georgia Annotated O C G A Vol 40 Ch 2 sec 52 2 1 et seq

Id sec 52 2 9 16 and 18

6

d sec 52 2 9 2 3 and 10

7 d sec 52 31

SId sec 5 2 5

9Civil Action Nos 17092 0Johnny Lee Hines v The Atlantic Towing Company etof

IOEx 60
228 FEDERAL MARITIME COMMISSION

Hines cause of action including his wife s separate claim for loss

of consortium against GPA and Zim Lines owner and operator of the

ZIM TOKYO was settled while this proceeding was being heard Under

that settlement GPA paid Hines 320 000 directly and paid Midland Insur

ance Company SEMCO s Longshoreman s and Harbor Workers Corpora

tion Act LHWCA insurance carrier 89 33497 in satisfaction of Midland s

subrogated lien for LHWCA benefits theretofore paid to Hines Zim Lines

paid Hines an additional 80 000 The settlement leaves standing GPAs

third party complaint against SEMCO In memoranda requested by me and

addressed to the specific issues whether the settlement has any effect upon

the issues in this proceeding and whether the settlement is violative of

GPAs tariff all parties agree that the settlement does not affect this pro

ceeding and ti1at it does not contravene GPA s tariff The cases cited

in the memoranda support those conclusions Accordingly the fact of that

settlement will not be addressed further herein

THE BROADER BACKGROUND

Since its inception in 1945 GPA has leased cranes with operators and

since 1963 GPA has had a tariff provisionalll under which stevedores

were made responsible for supervision and control and for liability for

the negligent acts of personnel furnished by GPA to operate equipment

supplied by GPA 12

Effective May 31 1973 GPA s rental tariff contained a provision which

provided in part that the charge therefor includes the crane operator s

who shall be under the sole supervision of the party renting the crane

and further that the Terminal assumes no responsibility for claims losses

costs or expenses by reason of property damage personal injury or death

which may result from use of its cranes except that caused by struCtural

failure 13

On September 20 1976 in an unpublished opinion in Bacon v The

Georgia Ports Authority CV 475 297 the United States District Court

for the Southern District of Georgia declared that the cited provision was

insufficient to constitute an indemnity agreement under Georgia Law and

indicated it would be inclined to dismiss a third party complaint filed

by GPA against a stevedore in a case involving an allegation of negligence

on the part of a crane operator 14 The court reasoned 15

The tariff clause involved here is exculpatory rather than

indemnificatory Parties to indemnity agreements must say what

they mean courts will not say it for them The tariff does not

11 Tr 1 10

12 Among other things container cranes gantry cranes and translainers vehicles which position containers

are furnished by OPA with an operator The complaint and evidence focus only on the cranes

13GPA s Tenninal Tariff Sec X IF Item 1480A

The district court judge withheld decision on the motion until an evidentiary hearing was concluaed

15Bacon v The Georgia PortsAuthorlly sUp opinion p

7

2S F M C
28 F M C

SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 229

AUTHORITY

contain a word about holding harmless or indemnifying the Ter

minal To agree to hold one free from any claim or liability

is only a waiver of the right to sue the other party for negligence

in the performance of the contract See Rome Builders Supply

Inc v Rome Kraft Company 104 Ga App 488 489

Exculpatory language in an equipment rental agreement which

only says that lessor assumes no responsibility for claims etc

resulting from its operation should not be expanded by interpreta

tion into a hold harmless agreement where indemnity is sought

from lessee for loss arising from the claim against lessor by

a third person injured through its negligence

To overcome the Bacon opiniou GPA revised its tariff by publishing

a new Lessee Responsibility clause effective December 15 1976 16 An

indemnification and hold harmless provision entitled Section IV Lessee

Responsibility was incorporated at p

6 of GPAs Equipment Rental Tariff

No I H as follows

When cranes hoists conveyors lift trucks tractors and other

equipment used in the moving or lifting of cargoes hereinafter

called leased Equipment are rented or leased to others it

is expressly understood that such Leased Equipment will be oper

ated under the direction and control of the Lessee and the Lessee

shall be responsible for the operation thereof and assume all risks

for injuries or damages which may arise from or grow out of

the use or operation of said Leased Equipment

Lessee by acceptance of such Leased Equipment agrees to

fully protect indemnify reimburse and save harmless the Georgia

Ports Authority and its employees against any and all loss or

damage caused to or caused by said Leased Equipment including

any personal injury or death caused thereby even though caused

occasioned or contributed to by the negligence sole or concurrent

of the Georgia Ports Authority or its employees and should said

Leased Equipment be damaged or destroyed while so leased Les

see shall pay for all necessary repairs or replacement and if

damaged shall pay rental for such damaged Leased Equipment

until same is returned to the Georgia Ports Authority in the same

condition as received

It is hereby understood and agreed that in the event lessee

rents Leased Equipment which is operated by an employee of

the Georgia Ports Authority such operator shall be under the

16The tariff provision ruled upon in Bacon had been revised even before the court ruled in that case Effec

tive October 1 1975 the equipment leasing provision read

2 Lessee assumes all responsibility for damages to equipment leased

3 The operator oroperators shall be under the sole supervision of the party renting the equipment

The facility assumes no liability for personal injury death orproperty damage except that resulting

from structural failure of equipment nor shall the facility be liable for consequential damages suf

fered by lessee or stevedore as aresult of mechanical failure of any of the equipment leased herein

and lessee or stevedore by leasing said equipmem does hereby waive and relinquish any claim

for consequential damages against the facility as aresult of mechanical failure

Ex 8 GPA Equipment Rental Tariff Fourth Rev P 5 sec II Rules and Regulations
230 FEDERAL MARITIME COMMISSION

direction of the Lessee and the operator shall be considered as

the agent or servant of the Lessee and Lessee shall be responsible

for the acts of such operator during the time of rental or lease

It is incumbent upon the Lessee to make a thorough inspection

and to satisfy himself as to the physical condition and capacity

of the unit as well as the competency of the operator there

being no representations or warranties with reference to slch mat

ters

Section IV was issued by OPA and it became effective without any

prior consultation with the stevedoring contractors who operated in Savan

nah

Members of the Savannah Maritime Association SMA a trade organiza

tion of steamship agents and stevedores doing business in Savannah ques

tioned the validity of the 1976 tariff revision and after ensuing discussions

between the stevedores and OPA17 the tariff evolved into its present form

effective November I 1977 The Lessee Responsibility section currently

provides IS

When cranes hoists conveyors lift trucks tractors and other

equipment includin rigging supplied by Lessor which are used

in the moving or bfting of cargoes hereinafter called Leased

Equipment are rented or leased to others it is expressly under

stood that such Leased Equipment will be operated under the

direction and control of lI1e Lessee and the Lessee shall be respon

sible for the operation thereof and assume all risks for injuries

or damages which may arise from or grow out of the use or

operation of said Leased Equipment

Lessee by acceptance of such Leased Equipment agrees to

fully protect indemnify reimburse and save harmless the Georgia

Ports Authority and its employees against any and all loss or

damage caused to or caused by said Leased Equipment including

any personal injury or death or property damage caused thereby

even though caused occasioned or contributed to by the neg

ligence sole or concurrent of the Oeo1ia Ports Authority or

its employees and should said Leased Equipment be damaged

or destroyed while so leased except when caused by natural

perils such as windstorm flood fire or earthquake or by structural

failure not resulting from operation of said equipment beyond

its rated capacity Lessee shall pay for all necessary repairs to

or replacement of said equipment but shall not be responsible

for damages resulting from loss of use

It is incumbent upon the Lessee to make a

thorough inspection

and to satisfy himself as to the physical condition and capacity

of the Leased Equipment as well as the competency of the oper

17 There is disagreement whether the discussIons involved the members of SMA in their individual capac

ities orqua SMA OPA prefers the view that it was deaUna with tho organization SBMCO insists that each

stevedore spoke for itself These events wIll be treated in greater detail Infra

I8GPA Equipment Rental Tariff No I

H 2nd rev p6 Section IV Lessee Responsibility

28 FM C
28 F M C

SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 231

AUTHORITY

ator including any operator supplied by Lessor with said equip

ment there being no representations or warranties with reference

to such matters

THE STATUTE

As pertinent section 17 of the Shipping Act 1916 provides

Every other person subject to this act shall establish

observe and euforce just and reasonable regulations and practices

relating to or connected with the receiving handling storing or

delivering of property Whenever the Commission finds that any

such regulation or practice is unjust or unreasonable it may deter

mine prescribe and order enforced a just and reasonable regula

tion or practice

A person including a government instrumentality which oper

ates terminal facilities is an other person subject to this act

West Gulf Maritime Association v Port of Houston Authority

21 FMC 244 259 1978 aff d without opinion sub nom West

Gulf Maritime Ass n v F MC 610 F 2d IDOl D C Cir 1979

cert den d 449 U S 822 1980 WGMA I GPA in its answer

to the complaint admits that it is a terminal operator and that

it is subject to the provisions of the Shipping Act 1916 46

U S C 801 et seq and the jurisdiction of the Commission

POSITIONS OF THE PARTIES

SEMCO contends that GPA established observes and euforces unjust

and unreasonable regulations and practices relating to or connected with

the receiving handling storing and delivery of property in violation of

section 17 of the Shipping Act 1916 by means of the Lessee Responsibility

clauses of GPA s Tariff because those clauses exculpate GPA from responsi

bility for the negligence of GPA s employees and by means of a

require

ment dehors the Tariff that GPA be made an additional named assured

on liability policies covering stevedoring operations involving heavy lift

equipment cranes rented from GPA

GPA contends that its Tariff is not exculpatory because as implemented

the Lessee Responsibility Clauses hold harmless provisions apply only

to GPA crane operators while working as loaned servants under the direction

and control of the stevedore GPA also urges that the Lessee Responsibility

clauses are not unjust in that they are the product of arms length bargaining

and agreement with SMA and SEMCO With respect to the additional

named assured requirement SEMCO alleged it was necessitated by the

refusals by SEMCO and another stevedore to defend GPA under the

Lessee Responsibility clauses in suits brought by longshoremen Further

GPA asserts that the requirement was never made a condition precedent

for renting a crane

Hearing Counsel contends that GPAs practices do not create a borrowed

servant situation that the Lessee Responsibility clauses are exculpatory
232 FEDERAL MARITIME COMMISSION

and that GPA s actual practices are unjust and unreasonable in violation

of section 17

FACTS 19

1 GENERAL

1 GPA is a public terminal operator At Savannah Georgia GPA owns

and operates the only dock facilities on the Georgia coast which are

equipped with container handling cranes and modem container storage facili

ties These container facilities are caHed Containerport The nearest com

parable facilities to Containerport are located at Charleston South Carolina

and Jacksonville Florida

2 Except for a

requirement that GPA be named as an additional assured

on lessee s

liability policies the terms and conditions under which GPA

rents cranes to stevedores are established in tariffs published by GPA

There are no separate written rental agreements or leases As noted the

Lessee Responsibility Section of GPA Equipment Rental Tariff No 1

H sets forth certain terms and conditions applicable to the rental of gantry

cranes and other cargo handling equipment but not container cranes The

slack is picked up by GPA s Terminal Tariff I F FMC T8 and its Con

tainer Rules and Charges Item 1480 of the Container Rules Charge

For Rental of Container Handling Cranes sets the rates for container

and gantry cranes and other specialized container handling equipment but

also incorporates by reference the cited Lessee Responsibility Section of

the Equipment Rental Tariff In addition Item 1480 explicitly provides

The charges shown above include Operator swho shaH be under

the sole supervision of the party renting the equipment 20

3 The December 15 1976 revision of the Lessee Responsibility Section

was a quick response to the Bacon decision OPA characterizes this revision

as an attempt to eliminate exculpatory language and to replace it with

a hold harmless and indemnity clause This revision also included a more

explicit borrowed servant clause than the tariff provision construed by the

court in the Bacon case

4 The 1976 revision also made the lessee responsible for structural

failure for the first time and also for the first time made lessees responsible

for downtime and loss of use It also imposed upon the lessee an obligation

19 N h The use of this heading is not intended to be restrictive Some fmdings of fact appear under other

headings and may nOI be mentioned here while others for editorial reasons or for purposes of clarity or

convenience may be repeated here Also for convenience the fmdings of fact will generally confonn to

the s uence of proposed fmdlngs submitted by QPA

20The words after Operators are deemed redundant inasmuch as the Lessee Responsibility Section is

incorporated inthe Container Rules Indeed by proposing a fmcling that Section IV governs the equipment

lessees responsibility to GPA for casualties involving theleased cranes which occur during the leasing tenn

OPA concedes the surplusage

2S rM C
28 F M C

SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 233

AUTHORITY

to hold GPA harmless for the negligence sole or concurrent of GPA s

employees

II QUID PRO QUO

5 The question of the validity of the 1976 revISIon was submitted

to SMA s attorneys whose research revealed that the hold harmless features

of the Tariff might be invalid The attorneys reasoned that the situation

involving the publication of the hold harmless clause was analogous to

one found by the United States Court of Appeals for the 9th Circuit

to be an example of imposition of a condition of duress by one who

has superior bargaining power The advisability of instituting an action

for a declaratory judgment seeking removal of the hold harmless clause

as opposed to awaiting a suit for damages to test the validity was considered

but no course of action seems to have been decided upon at that time

late May 1977 21

6 Thereafter about July I 1977 there was a meeting between GPA

officials and attorneys on the one hand and on the other attorneys whose

clients included SMA and a stevedore member of SMA Strachan Shipping

Company Whether or not the attorneys formally represented SMA at that

meeting is not clear but it is clear that this meeting led to a subsequent

one on July 8 1977

7 The July 8 1977 meeting was attended by the same GPA officials

and attorneys who attended the July 1st meeting 22 Also present were

two SEMCO executives executives of other SMA members and the two

attorneys described in No 6 above

8 The witnesses who attended the July 8th meeting and who testified

differ in their recollection of the details No minutes were kept during

the meeting but there exist two documents contemporaneous to that event

One is a set of handwritten notes kept by a GPA attorney The other

is a letter dated July 11 1977 from a Strachan executive to a superior

confirming earlier oral advice about the discussions during the meeting

Basing its position on these documents GPA seeks a finding that the

meeting was an SMA and GPA meeting It is clear that GPA so regarded

the meeting at that time It is equally clear that all the people on the

other side of the table were influential members of SMA and that one

of those people was the incumbent president Nevertheless SEMCO urges

that there has been no showing that SMA was represented at that meeting

by a formal group or committee holding delegated authority to bind the

membership

9 Placing its reliance on the two documents referred to in No 8 supra

GPA posits that

21Ex 17

22The GPA officials included the executive director and two senior staff members
I

j

234 FEDERAL MARITIME COMMISSION

I

a OPA s goal23 in the negotiations was obtaining SMA s approval

or acceptance of the tariff clauses which sought to transfer responsibility

for the crane operator s negligence to the equipment lessee and that

SMA was prepared to accept those claQses provided they achieved certain

concessions from OPA on other features of the tariff

b SMA s primary goal hi the negotiations was avoiding lessee responsi

bility for having to pay charges for a crane while It was inoperable following

an accident during the rental term A second goal was to avoid the potential

for liability to the OPA crane operator for benefits under the LHWCA

which might result from a determination that the crane operator would

be considered the agent or servant of the stevedore during the lease term

A third goal was to avoid responsibility to OPA for physical damage

to the crane by having OPA insure against such damage however caused

c To satisfy their concems and allow SMA to achieve their goals

OPA agreed to amend the Lessee Responsibility Section to state that the

lessee shall not be responsible for damages resulting from loss of use

first goal OPA satisfied SMA s second goal by deleting the following

portion of the 1976 Lessee Responsibility Section

It is hereby understood and agreed that in the event lessee rents

Leased Equipment which is operated by an employee of the

OPAl such operator shall be under the direction of the Lessee

and the operator shall be considered as the agent or servant of

the Lessee and Lessee shall be responsible for the acts of such

operator during the time of rental or lease

SMA s third goal was obtained by a

compromise whereby OPA agreed

to amend the tariff to relieve stevedores from the responsibility for damage

to the crane caused by force majeure Also asa result of the meeting

OPA amended the tariff to provide that the lessee would not be responsible

for damage to the crane or its rigging resulting from structural failure

not due to overloading

10 After the July 8th meeting OPA redrafted the Lessee Responsibility

Section On Septeinber 2 1977 the revised Section was presented to SMA

at a meeting The minutes of the meeting show that after the Strachan

representative explained the revision to the members a motion to accept

the revision with changes was passed SEMCO representatives were

present Thereafter the current version of Section IV went into effect

without further discussion or objection by SMA or any of its members

11 OPA

proposes that the various meetings held duriIig the summer

of 1977 be treated as negotiations between OPA and SMA and its members

and that the final version of Section IV be treated as a bargain made

by the participants Indeed OPA urges that material in the Strachan s

representative s file shows that the acceptance of third party liability result

l30PA also relics on a letter written by an SMA attorney to SMA s president rcportlnS on the July 1st

meeting to support Ita position on lhJa point

28 P M C
SOUTIIEASTERN MARITIME COMPANY V GEORGIA PORTS 235

AUTHORITY

ing from crane operator negligence was used as a bargaining chip by

the SMA negotiators to achieve their own goals and thaI the revised

Section IV was an acceptable compromise from SMA s staUdpoint

12 It is not necessary to decide whether the meetings during the summer

of 1977 were meetings of GPA and SMA qua SMA although the evidence

shows that GPA had every reason to believe that it was talking to the

leading members of SMA individually and to SMA as the representative

of the stevedoring community of Savannah if not de jure certainly de

facto The critical fact is not whether there was a formal SMA delegation

attending the discussions The overriding issue is whether there was bar

gaining back and forth among equals or whether one party to the negotia

tions GPA had the power to drive a hard bargain and exercised that

power

13 GPA s underlying purpose in seeking to transfer liability for operator

negligence and to be held harmless and indemnified by the stevedores

was its determination to avoid the expense and uncertainty of continued

litigation over fixing legal liability for accidents occurring while the crane

was under lease 23 It was made clear to all those persons who figuratively

sat across the table from GPA that these features of the Lessee Responsi

bility Section of the Tariff were non negotiable 2

They knew in advance

of the discussions that GPA had the only game in town 25 and that

GPA would not yield on the transfer of liability and hold harmless issue

14 The fact that GPA would countenance no departure from those two

features of Section IV transfer of liability for the negligence of the GPA

employed crane operator and the stevedores agreement to hold harmless

and indemnify GPA for all loss or damage caused by the crane operator s

negligencegives perspective to the concessions made by GPA

during

the negotiations As found 26 those concessions involve I a provision

that the stevedore would not be liable for any down time loss of use

damages 2 deletion of language which might be construed to make the

stevedore liable for LHWCA benefits for the crane operator 3 relieving

the stevedore from liability for crane damage caused by force majeure

events 4 relieving the stevedore from liability for damage to the crane

caused by structural failure It is evident however that none of those

concessions would have been necessary

27 absent the basic transfer of liabil

ity for negligence and the companion hold harmless and indemnification

clauses Simply put the concessions merely ameliorated some of the poten

tial additional burdens placed upon the stevedore by virtue of the transfer

of liability for crane operator negligence There is no credible evidence

23See e

g Tr IJ JOO

24 See e

g Ex 54K p

3

VEx 17

26No 9 e

supra

27It would be idle to speculate whether under Georgia law a lessee could be made liable for damage

caused by force majeure orstructural defects Nb prior 10 the Bacon opinion GPA s Tariff did not tran

fer liability for structural failure

28 F M C
236 FEDERAL MARITIME COMMISSION

I

that the stevedores traded away the transfer of negligence and bold barmless

and indemnification features of Section IV for the concessions made Tile

evidence does sbow that they took away wbatever scraps

28 they could

It was the best we are able to get our bargaining position considered

the Stracban representative said to the President of SMA in bis letter

of October 7 1977 29

It is also manifest that SEMCO and other stevedores including the

firm that employed the then president ofSMA went away from the meeting

dissatisfied a1id detetmined to legally cballenge the transfer of liability

for negligence and bold barmless clauses wben tliis need arose Silently

reserving their legal rigbts in these circumstances does not despite OPA s

suggestion that it does constitute an unconscionable act an ambusb or

business ethics of the lowest order on the part ofSEMCO

I find therefore tliat the concessions do not represent a consideration

given by OPA and accepted by the SMA qua SMA or by its members

individually for the clauses of Section IV wbich transfer liability for oper

ator negligence and require crane users to bold barmless and indemnify

OPA for damages caused by the crane operators negligence

j

III BORROWED SERVANT

15 A proposed finding submitted by OPA No 8 concerning an East

coast Tariff provision is rejected as immaterial and irrelevant o

16 The equipment rental practices of other east coast ports extending

from Hampton Roads Virginia to Miami Florida vary SOlle lease with

operators others do not The nearest of those ports are Cbarleston and

Jacksonville At Charleston operators are fumisbed with tlie cranes and

Item 135 of Tetminal Tariff I A effective October I 1978 31 as pertinent

states that the operator will be under the control of the party renting

the equipment and tlie Authority assumes no liability for personal injury

or property damage resulting from operation of the equipmenqxcept that

resulting from structural failure At Jacksonville cranes arefurnisbed without

operators

18 Some of the concessions clearly were throwaways on the part of OPA whJch had no real Interest in

their retention in the TAriff E g structural damase making the stoveciore liable for accl4ents due to strijc

tural defects was not provided for in the Bacqn Tariff Moreover the Port of Charleston OPA s major com

pelltor leasing cranes with operators did not at any pertinent time malre the stevedore llible for accidents

due to structural defeots OPA is extremely sensitive to tariffprovisions of its competitors and reacts accord

ingly

29 Ell 54P

30 After the 1917 version of Section IV was published by OPA East Coast followed suit by copying those

provisions into its Tariff with some variations which may have made the leasing provisions more stringent

than OPA s However East Coast never did rent cranes East Coast deleted the said tariff provisionuhortly

before the hearing began The fact that an affiliate of thecomplainant used substantially identical tariff provi

sions to tIlose of OPA does not mw the OPA provisions valid Neither docs the deletion of those tariff

provisi mwOPA s tariffprovisions invalid

31 Seventh Amended p 27 8

28 FM C
SOUTHEASTERN MARlTlME COMPANY V GEORGIA PORTS 237

AUTHORITY

17 The crane operators at Container Port are full time GPA employees

wbo are trained bired and fired by OPA They are assigned to particular

jobs by OPA supervisors Once on the job to the extent that they receive

or need any direction or orders to perfonn their tasks of loading or unload

ing they take those orders from the stevedore Thus e g

the stevedore

will give the operator the so called game plan wbicb infonns the operator

of the sequence of loading and unloading so that the operator can properly

position the crane at the appropriate bold or dock location

OPA currently employs 14 container operators who are available to oper

ate the 6 container cranes When an operator receives his assignment from

OPA he proceeds to the crane to prepare it for operation 32 Sometimes

during the preparation or even during operations the operator is accom

panied by an oiler 33 If the crane is not already in position the operator

will move it along the berth to the point where he can start with the

game plan The operator receives no directions or orders from the steve

dore in moving the crane along the berth or in bringing the crane to

rest However OPA construes the lease period to begin after preparation

of the crane is completed and it is this beginning which triggers Section

IV It is undisputed that the lease period ends when the stevedore releases

the operator at the conclusion of the stevedoring operation During the

lease period OPA gives no orders or directions to the operator except

in an emergency to avoid an accident 34 The stevedore gives orders to

the operator by radio hand signal or flag signal The stevedore does not

tell the operator how to operate the equipment because the stevedore does

not know how to do that The stevedore does tell the operator generally

what it wants done and particularly what has to be done to accomplish

the result 35

The operator of a container crane sits in a cab nearly directly above

the spreader bar a device which attaches to the container and holds it

in place during the loading or unloading operations A container crane

operator therefore requires less direction from the stevedore than a gantry

crane operator whose perspective particularly into the hold of a vessel

is not as good

As indicated the crane operator may be directed as to what to do

but he cannot be told how to do it In that respect he acts independently

and outside the control of the stevedore He may even ignore or violate

the orders of the stevedore and thereby negligently cause an accident

but as OPA construes Section IV this would not absolve the stevedore

from liability

32There may be variations but the illustration inthe text is typical

33An oiler is an assistant and sometimes an apprentice operator While not altogether clear il seems the

training of an operator takesplace entirely during that person s

employment as an oiler

34There is no evidence of such emergency or that such orders were given

3S An example of the particular would be telling the operator that the container needs to be moved so

many feet to the right left forward etc

28 F M C
238 FEDERAL MARITIME COMMISSION

This curious paradox is illustrated by the testimony of O A s Director

of Operations which appears in the transcript of April II 1984 He was

asked the following questions on direct examination by OPAs counsel

and supplied the following answers at Tr 2628

Q Now Iwant to pursue that a little further though Suppose

Im a stevedoring contractor and I come to you and I

say

You ve got a container crane operator named Joe Smith I

just

don t like the guy and I don t want him working on my job

And what would your reaction be to that situation

A In that case the supervision assistant superintendent if he

came to me arid relayed through pier supervision Pat Ward or

his superintendent you know We ve got a problem here with

the stevedore and the crane operator fussing with each other

They don t like each other you know and really it doesn t

have anything to do with the competency of the operator it

doesn t have anything to do with the confidence of the stevedore

They just don t like each other and he tailes that operator you

know period He doesn t have a choice He ll eventually have

to get along with him That s our position 36

Q Im a stevedoring contractor and I come to you and I

say You ve got a container crane operator named Joe Smith

and he has not been following the orders that we give him

You know he wants to do everything his own way and he

has n overruling some of our people on the job and we

object to him What would be your reaction to that

A We would immediately put him off the job We had a

case an actual case of that happening A stevedore came to

the supervision and said The man s not paying attention He

actually created a safety hazard because he was not following

directions and he actually hurt somebody We pulled the man

off and We didn t put him back on that ship for some time

We went through a

very in depth retraining program but that

was a clear case where the stevedore was absolutely right The

man wasn t qualified he shouldn t have been there and they

pulled him off the job

Q Okay Do you know how the man got on the job in the

first place if he were not qualified

A We we trained him and we thought he was qualified

and I think the technical qualifications were probably as good

as any operator but the mental attitude listening to the stevedore

left something to be desired and that was the problem with this

operator He did not listen to the stevedore like he should have

36Two OPA witnesses tcsliftcd thai sometime crane operatofl are not assigned to particular jobs if a

stevedore objects The Circumatancel under which thoec events may have occurred lUll not as plain and ex

plicit as those in the cited testimony and must yield to the Director of Opera1ions authoritative answer

28 FM C
SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 239

AUTHORITY

Technically he wasIhere was nothing wrong with him from

a technical standpoint or functioning on the crane He just

wouldn t listen to the stevedore

On cross examination Hearing Counsel asked a single question of the

Director of Operations The answer to that one question reveals Ihe inequity

of GPA s practices under the Lessee Responsibility provisions of the tariff

The following appears at Tr 30

Q In the situation that you testified to where the crane operator

didn t Iisteo to the directions of the stevedore he wouldn t pay

attention to Ihe flagman s directions if an accident had occurred

because he refused to follow those directions in your opinion

whose responsibility would that have been

AThe stevedore

This matter of competency is a material element of GPA s practices

There is a fundamental contradiction between the plain words of Section

IV and the construction sometimes given those words 3 which goes beyond

the Director of Operations mere semantic distinction between mental

attitude and technical qualifications 38 The Tariff provides that the

stevedore must satisfy himself as to the competency of the operator

including any operator supplied by lessor with said equipment there being

no representations or warranties with reference to such matters Not only

do the responses of the Director of Operations subsume a warranty of

competency thus making the practice contrary to the Tariff GPAs Assistant

Executive Director testified explicitly that GPA represents and warrants

that the operator is properly trained and that to the extent the Tariff

represents there is no warranty of competency the Tariff does not conform

to the facts

By warranting competency and by giving the stevedore no choice in

the selection of an operator the stevedore is effectively placed in a Catch

22 situation Although the tariff requires the stevedore to satisfy himself

concerning operator competency GPA allows the stevedore no such option

RaIher if he is not happy with an operator he has the burden of disproving

competency to GPA s satisfaction As seen this is no easy task In Ihe

anecdote provided by the Director of Operations that GPA official measur

ably avoided characterizing the crane operator who adamantly refused

to follow the putative master s instructions and who not only was creatiog

safety hazards but had actually hun somebody as incompetent His

only problem in the eyes of Ihat official and Iherefore GPA was Ihat

37EgThe tariff would seem to relieve GPA of liability for negligence of all of its employees other than

operators furnished with equipment The testimony establishes that the fIXed construction of the Tariff by

GPA would not make the stevedore liable for the negligence of any GPA employee other than an operator

who accompanies the equipment

38 In the context of his responses it is obvious that technical qualification is a euphemism for com

petency

28 EM C
240 FEDERAL MARITIME COMMISSION

the operator s mental attitude left something to be desired But according

to GPA none of this absolves the stevedore from liability for the injuries

caused by this operator because he was qualified

Accordingly I find that the evidence falls far short of showing that

the performance of GPA matches the promise of the tariff It is clear

that the direction and control which the stevedore mayor does exercise

over the crane operator is superficial and minimal He cannot reject an

unsuitable operator39 and must rely on GPA to discipline an insubordinate

one GPA has simply not relinquished any control over the crane operator

and awareness of this fact pervades and dominates the ongoing triangular

relationship of GPA stevedore and operator Although the stevedore may

relay functional directions to the operator the stevedore does not thereby

become the operator s master for GPA has chosen to retain that role and

not transfer it by deed as it has in print

IV NONSPECIFIC MATIERS GENERALLY BEARING ON QUID PRO

QUO AND BORROWED AGENT

17 There was a great deal of testimony concerning the impact ofSection

IV on insurance coverage premiums rates and liability Those who testified

on both sides of the issue had varying degrees of expertise They also

testified factually 40 Predictably GPA s witnesses minimized the additional

premium expense encountered by SEMCO because of Section IV and one

offered the view that the Impact of insuring against crane operator neg

ligence would be greater on GPA than on the stevedore because crane

operations are higher risk than other portions of a terminal operator s activi

ties and that such operations are lower risk than a stevedore s break bulk

operations or operations using ship s

gear instead of shore based cranes

SEMCO s witnesses urged that it or any other stevedore would experience

substantial increases in insurance costs if its insurance carrier had to pay

for a loss occasioned by crane operator negligence and that stevedores

stood in jeopardy of being uninsurable if there were an exceptional single

loss or repeated losses due to such causation The facts that these witnesses

testified to have greater significance than the hypotheses assumptions and

conclusions reached It is a fact that SECO s comprehensive general liability

insurance premiums are increasing because of Section lv It is also a

fact that if GPA did not include Section IV in its Tariff and did not

thereby transfer liability for the negligence of crane operators GPA could

obtain insurance coverage and could pass that cost on to users of the

cranes by way of appropriate tariff charges

39There is other evidence that stevedores praamatlcally inhibited from asking for adifferent operatOr

than the one assigned to thejob by OPA

l

Al1hough SEMCO is the real party in interest in lhis proceeding its legal fees are underwritten by its

liability and LHWCA Insurance canier

28 F M C
28 F M C

SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 241

AUTHORITY

18 There have been only six monetarily significant crane related personal

injury claims made by third parties over the last ten years and only two

of those six involved container cranes One of those two was the Bacon

case 151 000 settlement approximately The other was the Hines case

410 000 settlement approximately Another non container crane was

settled for 55 000 Three others non container cranes are still pending

in court There have been some claims made by OPA against crane users

Most were made under forerunners of current Section IV One claim for

about 15 000 is pending

19 OPA proposes a finding of fact concerning SEMCO s contention

that because OPA owns and controls the only container cranes in the

Savannah port it is in a position to dictate onerous terms and conditions

upon its captive customers 41 The finding proposed by OPA is that no

evidence has been introduced to show that OPA has carried on its business

in this manner and that there is evidence to refute SEMCO s contention

Earlier particularly at Nos II through 14 inclusive and No 16 I found

to the country 42 Apparently OPA places its support for its views that

there was evidence to refute SEMCO s contention on testimony that OPA

is highly sensitive to its competitive position in relation to other east

coast ports and that OPA is aware that SEMCO and other Savannah steve

dores also act as stevedores at competing ports and are in a position

therefore to draw business away from OPA if dissatisfied with OPA s

terminal services It is true that OPA is sensitive to competition from

other ports but there is no credible evidence to support a finding that

SEMCO or other stevedores who serve Savannah have the ability to choose

the port of call for any vessel

20 There is insufficient evidence of the leasing practices of private

lessors of cranes in the Savannah area upon which to make a finding

whether or not their cranes are usually leased with operators and if so

leased whether those operators are placed under the control of the user

under the terms of the private lessors lease agreements

V NAMED ASSURED REQUIREMENT

By way of introduction it is noted that there is nothing in OPA s

tariff which requires lessees to name OPA as an additional insured on

lessee s insurance policies

41II should be noted that the fact that GPA is in a

position 10 impose harsh tenns and conditions upon

its captive customers does nOI depend solely on the fact that only GPA can offer container cranes GPA

is apublic utility for purposes of regulation by this Commission and as such may be presumed or at least

inferred to be in aposition to drive hard bargains West Gulf Maritime Association v Port of Houston Au

thority 22 F M C 420 433 198 affd without opinion sub nom West Gulf Maritime Ass n v F M C

652 Fld 197 D C Cir 1981 cert den d 454 US 893 1981 WGMA II and cases cited therein

421nfra at No 21 it will be seen that OPA again brought its unequal strength to bear upon the stevedores

generally and SEMCO in particular in connection with its requirement that it be named an additional in

sured on crane users liability insurance policies
242 FEDERAL MARITIME COMMISSION

21 After SEMCO refused to defend OPA in the Hines case as requested

by OPA under Section IV case and after Strachan acted similarly in another

case on November 18 1981 OPA sent letters to Savannah stevedores

requesting that GPA be named as an additional insured on the following

policies purchased by stevedores

1 Comprehensive General Liability with minimum limits of

200 500 M Bodily Injury and 200 M Property Damage

2 Stevedores Legal Liability with a minimum limit of 500

M Property Damage3rd party

3 Umbrella Liability where the primary limits do not attain

the minimum limits required 43

The request was made in order to provide OPA with additional security

for the financial obligations which OPA deemed the stevedores to have

incurred under OPA s Crane Rental Tariff44

All Savannah stevedores except two met GPA s demand One of the

two was SEMCO 4S SEMCO and OPA discussed the matter over a period

of time without a satisfactory resolution to GPA So on June 14 1982

GPA reinforced its request GPAadvised SEMCO by letter that it

was going to discontinue certain services in connection with equipment

rentals until such time as SEMCO complied The letter read

As discussed effective June 16 1982 the Georgia Ports Authority

will discontinue providing other than required services or oper

ations in connection with the rental of any of our heavy lift

equipment until such time as you comply with our request to

be added as a named insured to both your Comprehensive General

and Stevedores Legal Liability policies regarding such rental

The discontinuation of such exqa services will include but not

be limited to the following

Transporting longshoremen andor equipment from the ground

to the vessel and return by means of a spreader bar or any

similar device attached to our cranes 46

Among the reasons SEMCO had not previously complied with GPA s

request was the reluctance of SEMCO s comprehensive general liability

insurance carrier to provide that kind of coverage That reluctance was

engendered by the fact that by naming OPA as an additional insured

SEMCO and its carrier would waive any right of subrogation against GPA

for GPA s negligence

43 EX8 29 and 29A

ld

Until informed at the hearin OPA believed all the others did as they were notified to do SEACO

was the other of the two and as of the hearing SBACO slill had not obtained a

polley naming OPA as

an additional insured

46Ex 37

28 FM C
28 F M C

SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 243

AUTHORITY

The promise to discontinue the extra service was viewed as a serious

threat by SEMCO as OPA was aware it would be 47 Because of the

fear engendered by that threat SEMCO implored its comprehensive general

liability carrier to name OPA as an additional insured which that carrier

ultimately albeit reluctantly did However when renewal of the policy

came up the carrier again refused to name OPA as an additional insured

This led to another letter on June 3 1983 in which OPA once more

threatened to cut off performing the extra service it characterizes

special or hazardous 48 It is fair to say that this notification induced

a state of near panic on the part of SEMCO and its insurance broker

because a containership was due to be unloaded in the next few days

SEMCO s broker once again was able to obtain a certificate showing

OPA as an additional named insured which was hand delivered to OPA

in time to work the ship Since then OPA rescinded the requirement

that it be a named insured with respect to the legal liability policy because

substantively it was not to OPA s legal advantage to continue to be so

named on a third party property damage liability policy

The practice of transferring longshoremen and their equipment from the

ground to the ship and return is one of long standing going back almost

to the inception of Container Port in 1971 When the container cranes

were first installed no one considered using the spreader bars for that

purpose But as information trickled in from other container ports of that

kind of use the stevedores asked OPA to install a

cage on top of the

spreader bar to allow the longshoremen to ride safely OPA initially asked

for indemnification from the stevedores out of concern that someone might

fall but that concern disappeared long ago There is no evidence that

any longshoreman injury or any third party property damage was ever

occasioned by longshoremen riding the spreader bar 49

Thus it is clear that riding the spreader bar was neither special haz

ardous gratuitous nor an extra service Rather it was something that

stevedores OPA and crane operators by custom and usage had come

to regard as an authorized use of the crane under the terms of the tariff

DISCUSSION AND CONCLUSIONS

As indicated by subheadings in the previous section three primary issues

are presented Simply put they are

47A GPA employee testified that if longshoremen could not be transferred by spreader bar it would slow

some stevedoring operations by as much as to 25 to 50 percent OPA s Director of Operations discounts

the belief that the extra service is atime saver of any significance but he was well aware that stevedores

believe that a containership cannot be worked economically without using spreader bars to transfer longshore

men

48Ex 40 Ifthe language of the letter is taken literally it raises the question whether it constitutes an

admission by OPA that the crane and the operator remain under the control of GPA while under lease

491bere was an incident in which a longshoreman was injured when a spreader bar dropped on him but

there was nothing to show aconnection between that injury and riding a spreader bar
244 FEDERAL MARITIME COMMISSION

IWhether there was a quid pro quo for the exculpatory indemnification

clauses of OPAs tariff

2 Whether OPA s crane operators became the borrowed servants of

the stevedores

3 Whether it was reasonable for OPA to require stevedores to name

OPA as an additional insured on liability policies

As a useful guide to the discussion which follows it should be noted

that the reasonableness of the tariff provisions and practices at issue turn

on the particular facts presented and peculiar to the terminal industry

Cases are not decided nor the law appropriately understood apart from

an informed and particular insight into the factual circumstances of the

controversy under litigation WGMA II supra 22 F M C at 454

I

QUID PRO QUO

It is well settled that exculpatory clauses in terminal tariffs Ie those

provisions which seek to require a tariff user such as a stevedore to

indemnify or hold a port harmless for loss or damage occasioned by the

negligence in whole or in part of the port are unjust and unreasonable

and in violation of section 17 of the Shipping Act 1916 as a matter

of law West Gulf Maritime Association v The City of Galveston 22

F M C 101 103 104 1979 recon den d 22 F M C 401 1980

It has been suggested however that an exculpatory tariff provision might

relieve a terminal operator from liability for its own negligence without

violating section 17 if something of value is given by the port in return

Specifically in ICharles Lucidi dba Lucidi Packing Co v Stockton Port

District 22 F M C 19 29 1979 it was said that To the extent that

the provisions of the tariff would relieve the Port from damage for liability

to property caused in whole or in part by fault of the Port and without

a quid pro quo of any kind such provisions are unjust and unreasonable

in violation of section 17 of the Act

It is by no means certain that the suggestion in Lucidi supra is embodied

in the law But assuming without deciding that the giving of something

of value by OPA to users may make an otherwise unjust provision just

and reasonable the discussion is not thereby exhausted It becomes nec

essary to explain why exculpatory clauses in terminal tariffs are deemed

unlawful in order to place quid pro quo in proper context

The underpinning of the principle that exculpatory clauses in terminal

tariffs are unlawful is the well established rule of law that a port is

a public utility for purposes of Shipping Act regulation and recoguition

that public utilities are in a position to drive hard bargains and impose

harsh terms on their customers See n 41 supra See also Bisso v

Inland Waterways Corp 349 U S 85 1955

28 F M C
II

SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 245

AUTHORITY

As found Facts Findings Nos 5 through 14 inclusive GPA took a

hard and fast position at the outset of its negotiations with SMA and

its members that the exculpatory provisions were non negotiable and cast

in concrete Under those circumstances the slight concessions made by

GPA appear to be just the kind of result frowned upon by the Supreme

Court in Bisso supra and by the Commission in Lucidi supra and in

West Gulf Maritime Association v The City of Galveston supra where

a public utility or equivalent uses its superior bargaining power to impose

harsh terms and conditions on stevedores who are in need of a port s

services

Accordingly Ifind that there was no quid pro quo for the exculpatory

clause in GPA s tariff However this determination does not resolve the

more basic issue of the validity of GPA s practices This finding only

means that GPA cannot absolve itself from liability for loss or damage

due to its own negligence under the offending tariff provision It does

not decide whether on the evidence presented the negligence of the Port s

crane operator reasonably may be attributed to the stevedore Le whether

the crane operator is the borrowed servant of the stevedore I now Wm

to that issue

BORROWED SERVANT

The question whether a borrowed servant relationship has been established

in particular circumstances is not always easy to answer Before proceeding

with the exercise of providing that answer it is appropriate to explain

what is meant by a borrowed servant in this context Briefly the practice

of transferring liability for employee negligence from the employer of that

employee to another who is the user of equipment operated by that em

ployee is known in the law as the borrowed servant doctrine WGMA

II supra 22 EM C at 452

A borrowed servant relationship may be created by contract see e g

Bowman v Fuller 84 GA App 421 1959 or by a tariff provision

Rorie v City of Galveston 471 S W 2d 789 Tex 1971 cert den d

405 U S 988 1972 WGMA II supra

50

However it is not the tariff provision standing alone which is determina

tive of the borrowed servant issue and its legality under the Shipping

Act The examination is broader because it looks into the practices of

the port But this broader examination does not enlarge the issue itself

which remains narrow As was said in WGMA II supra 22 EM C at

SOIl was nOled earlier that in the Hines case the Superior Court issued an interlocutory ruling that the

container crane operator was not the stevedore s borrowed servant but the employee of GPA here urges that

the ruling was made without consideration of the effect of the tariff on the 1977 negotiations In view of

the discussion which follows in the text it is unnecessary 10 address the issue of the effect of that ruling

on thisCommission

28 F M C
246 FEDERAL MARITIME COMMISSION

i

452 t he narrow issue presented is whether it is an unjust and

unreasonable practice for ports footnote omitted to rent cranes together

with crane operators in the employ of and paid by the port to stevedores

under tariff terms and conditions which require the stevedores to control

and supervise the operators and to assume responsibility and liaility for

the negligent acts of the operators while the operations uare under the

stevedores supervision

r started this section with the observation that it is not easy to answer

the question whether a borrowed servant relationship has been established

One reason for this remark is that different fora have rendered what appear

to be diametrically opposite conclusions in seemingly identical or similar

fact situations The common element in all of those cases is an equipment

operator who receives signals or directions from the putative employer

Thus for one example in Standard all Company v Anderson 212

U S 215 1909 a winch operator who was hired and paid by a dock

owner who sought to make the winchman the borrowed servant of the

stevedore The winchman depended upon the stevedore to give signals

and directions for the proper operation of the equipment The Supreme

Court held that this was not enough to transfer control of the employee

from one master to another It reasoned 212 U S at 225 227

The winchman was undoubtedly in the general employ of the

defendant who selected him paid his wages and had the right

to discharge him for incompetency misconduct or any other rea

son In order to relieve the defendant from the results of the

legal relation of master and servant it must appear that that rela

tion for the time had been suspended and a new like relation

between the winchman and the stevedore had been created The

evidence in ibis case does not warrant the conclusion that this

changed relation had come into existence for reasons satisfactory

to it defendant preferred to do the work of hoisting itself

and received an agreed compensation for it The power tile winch

the drum and the winchman were its own It did not furnish

them but furnished the work they did to the stevedore That

work was done by the defetldant for a price as its own work

by and through its own instrumentalities and servant under its

own control

Much stress is laid upon the fact that the winchman obeyed

the signals of the gangman who represented the master stevedore

in timing the raising and lowering of the cases of oil But when

one large generll1 work is undertaken by different persons doing

distinct parts of the same undertaking there must be cooperation

and coordination or there will be chaos The giving of the signals

under the circumstances of this case was not the giving of orders

but of information and the obedience to those signals showed

cooperation rather than subordination and is not enough to show

that there has been a change of masters Of course in

such cases the party who employs the contractor indicates the

j

I

i

I

28 F M C
28 F M C

SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 247

AUTHORITY

work to be done and in that sense controls the servant as he

would control the contractor if he were present But the person

who receives such orders is not subject to the general orders

of the party who gives them He does his own business in his

own way and the orders which he receives simply point out

to him the work which he or his master has undertaken to do

There is not that degree of intimacy and generality in the subjec

tion of one to the other which is necessary in order to identify

the two and to make the employer liable under the fiction that

the act of the employed is his act

For another example most recently the Court of Appeals for the Fourth

Circuit reached the same conclusion in substantially similar circumstances

to those which pertained in Standard Oil Company v Anderson In Raymond

Watson v Lambert s Point Docks Inc 1985 AMC 1102 4 Cir 1984

the court did not find a sufficient basis for the transfer of vicarious liability

from a terminal operator to a stevedore where the transfer was attempted

to be accomplished under tariff provisions similar to those encountered

here Placing its reliance on Standard Oil Company v Anderson the court

iterated 1985 AMC at 11 05

The mere fact that an employer gives directional signals and

operational information to a particular employee however does

not imply that the requisite control exists thereby transferring

the employee into a borrowed servant

Nevertheless for another example this Commission did find that a bor

rowed servant relationship was created in similar circumstances in WGMA

II supra In WGMA II however there was much more than a tariff provi

sion and the giving of signals and directions by the stevedore not the

least of which was the stevedore s admissions that they had supervision

and control over the crane operator WGMA II supra 22 EM C at

442 This was crucial to the decision 22 F MC at 452

Moreover the arrangement under the tariff is not illusory and

is not imposed for the purpose of escaping liability for one s

own negligence The crane operators do in fact come under

the supervision and control of the stevedore and they operate

the cranes only under the directions of a supervisory stevedore

employee

In this connection the WGMA II initial decision stressed the following

indicia of domirtion and control by the stevedore 22 F M C at 454

51 It should be noled that among other factors considered in WGMA 1were the absence of monopolistic

conditions in the crane rental industry 22 F M C at 422 the fmancial benefits obtained by stevedores e

g

lower insurance costs 22 F M C at 453 The evidence adduced here does not show the absence of monopo

listic conditions or with any degree of persuasiveness that any financial benefits accrued to the stevedore

These are however only some of the criteria which are considered and as the discussion indicates not the

controlling criteria inthis case
248 FEDERAL MARITIME COMMISSION

Here the ports hold themselves out to provide cranes to steve

dores and to have a pool of crane operators available to operate

those cranes under the direction control and supervision of the

stevedores Stevedores need not accept the operator offered by

the port but are free to choose from any qualified operator

in the pool It is not part of the ports undertaking to operate

cranes for stevedores or to retain any operational control over

the cranes during the rental period Emphasis supplied

It is readily apparent that in direct contrast to the conditions which

prevailed in Texas here the stevedore must accept the operator offered

by the port and that the port retains total operational control over the

cranes and their operators during the entire rental period because GPA

alone decides who may operate the crane and the conditions which may

give rise to operator removal and discipline Facts Findings Nos 15 and

16 particularly the latter See also n 48 supra

I find that GPA s practices do not conform to the provisions of its

tariff and that there has been no effective nor valid transfer of supervision

and control over crane operators from the port to the stevedore The cralie

operators are not the borrowed servants of the stevedores

III

NAMED ASSURED REQUIREMENT

Under authority of section 17 of the Act Part 533 of the Commission s

regulations 46 CPR 533 1 et seq sets forth rules and regulations for

the filing of tariffs by persons engaged in carrying on the business of

furnishing terminal facilities Section 533 3 46 CPR 533 3requires terminal

operators such as GPA to file and keep open to public inspection a

schedule or tariff showing all its rates charges rules and regulations relating

to or connected with the receiving handling storing or delivery of property

at its terminal facilities

Whether it was GPA s position from the outset and continuing through

the close of the hearing that the named insured requirement Ie that

SEMCO and other stevedores name GPAas an additional insured on liability

policies dd not have to be published in theOPA tariff is not entirely

certain It is certain however that in its opening brief OPA concedes

that the named insured requirement must be included in the Port s tariff

At p30 of that brief GPA makes the concession albeit somewhat

elliptically this way If it is OPA s intention to require users of its

equipment to include OPA as an additional insured then this requirement

must be included in GPA s equipment tariff 46 CPR 533 3

The matter of the named insured requirement cannot be dropped there

because despite this concession which is tantamount to an admission of

violation of section 17 OPA continues to urge that the requirement is

28 F M C
SOUTHEASTERN MARITIME COMPANY V GEORGIA PORTS 249

AUTHORITY

neither exculpatory nor unjust and umeasonable so long as it is not made

a condition for leasing equipment

This is the entire argument made by OPA opening brief at pp 21

30 Towage contracts requiring that the barge owner name the tower

as an additional assured with a waiver of right of subrogation against

the tower have been upheld against the attack that such a provision is

merely an indirect exculpatory clause and void as against public policy

Dillingham Tug Barge Corporation v Collier Carbon Chemical Cor

poration 707 F 2d 1086 9th Cir 1983 Fluor Western Inc v

G M Offshore Towing Co 447 F 2d 35 5th Cir 1971

Those cases do not provide any snpport to OPA s position in this pro

ceeding They do not hold as OPA seems to suggest they do that excul

patmy clauses dictated by one having superior bargaining power are not

void as against public policy The Fifth Circuit decision upon which the

Ninth Circuit relied explicitly points out that the monopolistic conditions

in the towing industry which prevailed at the time the Bisso doctrine 52

was enunciated no longer exist The Fifth Circuit however emphasized

that IfBisso does apply then the clauses would be unenforceable

Fluor Western Inc v G M Offshore Towing Co supra 447 F2d

at 39 As found OPA is a public utility as a monopoly it has the

power to drive hard bargains independent of its status as a public utility

and it has exercised that power to exculpate itself from its own negligence

The insistence that SEMCO and others name the port as an additional

insured was designed to be and is merely an extended implementation

of the exculpatory clauses of the tariff See e

g pp IOII supra

OPA is wrong in saying that the named insured requirement is not

a condition for leasing equipment Manifestly it was intended to alter

the rights of users of the cranes If a user who provided the coverage

as required by OPA could transport longshoremen on the spreader bar

and a user who did not provide that coverage could not lift longshoremen

then the conditions of equipment leasing were changed by this requirement

Accordingly I find that OPA s practice of requiring that it be named

an additional insured on stevedore liability policies is a violation of section

17 ofthe Shipping Act 1916 53

28 F M C

2The Supreme Court s decision in Bisso v Inland Waterways Corp supra held that exculpatory pIOyj

sians in towing contracts were unenforceable Its decision was based on two public policy factors The

Court wished to discourage negligence by making wrongdoers pay for damage they cause and the Court

also wished to protect those in need of services from being overreached by others who have the power to

drive hard bargains Footnote omitted Dillinghnm Tug v Collier Carbon Chemical Corp supra 707 F 2d

at 1089

SlThis conclusion should not be construed to mean that under no conceivable circumstances would atariff

provision or other device appropriate to the circumstances calling for a

port to be named as an additional

insured be deemed unlawful
250 FEDERAL MARITIME COMMISSION

ORDER

It is ordered that within 30 days after this decision becomes administra

tively final or is approved or adopted by the Commission that the respond

ent Georgia Ports Authority cease and desist and thereafter refrain from

the acts and practices found to be in violation of section 17 of the Shipping

Act 1916 and therefore in violation of section lO d lof the Shipping

Act 1984see n 3

supra

S SEYMOUR GLANZER

Administrative Law Judge

28 F M C
28 F M C 251

FEDERAL MARITIME COMMISSION

DOCKET NO 8433

SECTION 19 INQUIRY UNITED STATES ARGENTINA AND UNITED

STATES BRAZIL TRADES

March 25 1986

This proceeding was instituted by Order of Investigation Order served

October 2 1984 pursuant to section 19 1 b of the Merchant Marine

Act of 1920 46 U S c app 876 1 b

for the purpose of I

determining whether in fact conditions

unfavorable to shipping exist in the foreign ocean borne trade

between the United States and Argentina andlor between the

United States and Brazil and 2 if such conditions are found

to exist fashioning an appropriate remedy

The Commission s Order cited informal complaints it had received of prob

lems encountered in these trades by United States flag and third flag

carriers as well as shippers and expressed concern that past proceedings

involving approval of commercial pooling agreements may have been too

limited in their focus

The proceeding was assigned to an Administrative Law Judge with au

thority to determine the type of hearing most appropriate to the Commis

sion s purposes Eleven parties participated in the proceeding two United

States flag carriers five Brazilian or Argentine flag carriers one third

flag carrier one trade organization of shippers the Executive Agencies

of the United States one conference of carriers and the Commission s

Bureau of Hearing Counsel These parries submitted voluminous statements

of fact and rebuttal statements opening briefs and memoranda of law

The filing of final briefs was however suspended by order of the Presiding

Administrative Law Judge in response to a request by the Executive Agen

cies filed on April 15 1985

At the same time the Executive Agencies filed a Motion To Suspend

The Proceeding Motion in its entirety The Agencies argued that further

proceedings by the Commission might be detrimental to their pursuit of

U S foreign maritime policy in discussions concerning current bilateral

agreements 2 with Brazil and Argentina

I The Executive Agencies are the Departments of Transportation Justice Slate and Commerce and the

United States Trade Representative

2The U SlBrazil Memorandum of Consultation originally entered into on March 7 1970 and renewed

in October 1983 was then due to expire on December 31 1985 The U SlArgenline Memorandum of Un

derstanding dated March 31 1978 is of unlimited duration The Departments of State and Transportation

Continued
252 FEDERAL MARITIME COMMISSION

Upon consideration of the Executive Agencies Motion and the Replies

thereto the Commission decided not to discontinue the proceeding at that

time but rather to attempt to alter its form making it less adversarial

and more fact finding in nature in order to better meet its original objec

tives 3 The Commission therefore issued a Notice of Intent to Restructure

Proceeding Notice on June 19 1985 The Notice invited the parties to

the proceeding and others to comment on the proposed restructuring 4In

an attempt to broaden the range of participants in the proceeding the

Notice along with a letter from the Commission s Acting Secretary solic

iting comments was served on more than 130 shippers participating in

these trades and carriers participating in the geographically proximate trades

The Notice was also published in the Federal Register 50 Fed Reg

64047 June 24 1985 and served on all parties to the proceeding

All but one of the existing parties to the proceeding filed comments

in response to the Commission s Notice Only the Executive Agencies

among the parties did not comment And despite the Commission s efforts

to elicit public comment on this matter responses to the Notice were

filed by only two other persons

s One of those responses from Chilean

Line a carrier in a geographically proximate trade advises that it does

not desire or believe it would be useful to comment or participate in

the proceeding

The only response from the shippers served with the Notice came from

the Caterpillar Tractor Company which advises that transportation costs

in these trades for earthmoving equipment had increased since 1981 while

the company had been able to reduce its costs again with respect to

such equipment In all other trades Caterpillar also states that its costs

to the East Coast of South America are considerably higher than its costs

to the West Coast of South America the Far East and Europe Caterpillar

attributes the disparity to the non competitive ocean carrier environment

created by the cargo reservation law on southbound cargoes These policies

also allegedly affect Caterpillar s northbound rates and sources for materials

The responses from the existing parties generally comment unfavorably

on the substance of the Commission proposal and some disparage the

Commission s motivation and impartiality Only one of the existing parties

comments favorably on the proposal

Companhia de Navegacao Maritima Netumar a Brazilian flag carrier

terms the proposed restructuring wasteful stating that the record is com

have expressed their desire to renegotiate these bilateral agreements with the Governments of Brazil and

Argentina

3

The Notice also discussed and rejected the contention of the Executive Agencies that the Commission

is obliged to discontinue or postpone action under section 19 b based upon the direction of the Executive

Agencies See Notice of httent 10 Restructure Proceeding pages 7 10

4The Executive Agencies Motion to Suspend lhe Proceeding was held in abeyance pending the receipt

of comments and further Commission action

S Unrelated to the Notice or this proceeding one letter from a shipper expressing dissatisfaction with canier

service and pricing in this trAde addressed to the writer s Congressman was forwarded to the Commission

forresponse

28 F M C
28 F M C

SECTION 19 INQUIRY UNITED STATES ARGENTINA AND 253

UNITED STATES BRAZIL TRADES

plete and taking issue with the Commission s offuand statement of

the purpose of the proceeding which it views as prejudicially predetermined

to find fault with Argentine and Brazilian government actions

United States Lines S A USL characterizes the proposed restructuring

as misguided noting that the Commission appears to be frustrated

that the proceeding has not shown the existence of unfavorable conditions

and is mistakenly blaming the process USL views the Commission as

having suggested that it has sole power to conduct US foreign policy

in maritime relations as well as gratuitously advising the public that the

President s

foreign policy views would be given consideration The language

of the Notice USL states raises problems of prejudgment suggesting that

the Commission seeks to compile a record to support its conclusions USL

suggests that the proceeding be terminated

The Argentine carriers Empresa Lineas Maritimas Argentina S A

ELMA and A Bottacchi SA de Navegacion CF 1 Bottacchi take

issue with the Notice largely on grounds of legal theory They object

to the Commission s strained interpretation of its section 19 1 b regula

tions which in their view amounts to Commission deference to White

House communications only an interpretation which they characterize as

without support in fact law or the record

ELMA and Bottacchi view the 978 U S Argentine Memorandum of

Understanding as a binding obligation which implicitly delegates to the

Maritime Administration and through it to the Department ofTransportation

the President s power to suspend or terminate section 19 b proceedings

which they see as being accorded by the Commission s rules These carriers

also argue that the President has authority under section 19 2 and 3

46 U S C app 876 2 and 3 to suspend or terminate Commission

proceedings or actions under section 19 6 ELMA and Bottacchi further

suggest that the Executive Agreements which exist in these trades are

legally equivalent to treaties and may therefore supersede a federal statute

i e section 19 In any event these carriers see no need for more participants

or facts in this proceeding arguing that additions to the record would

only be redundant and would provide new irritants They urge that

the proceeding either be suspended or reactivated as is

Companhia de Navegacao Lloyd Brasileiro Lloyd Brasileiro states that

the record is complete and that the removal of sanctions as an issue

would not affect the adversarial nature of the proceeding The Brazi ian

carrier argues that U S shippers seek to blame ocean carriers for their

inability tp market their goods in Brazil rather than the U S deficits

the value of the dollar inflation and other economic forces The Commis

sion s desire for participation by additional shippers and carriers is said

6The Commission discussed and rejected this argument in the Notice of Intent To Restructure the Pro

ceeding noting that the Presidential authority referred to in section 19 2 and 3 addresses rules affecting

shipping issued by other agencies not those promulgated by the Commission under section 19 b See No

tice of Intent to Restructure Proceeding pages 89
J

1

254 FEDERAL MARITIME COMMISSION

I

to be unsupported by any evidence that others want to be heard The

issues in the proceeding allegedly are not ones of legislative facts but

are of specific not general applicability Lloyd Brasileiro urges termination

of the proceeding however because the Big Picture is too complicated

to be defined in this proceeding

Hearing Counsel suggests that the proceeding be terminated as an adju

dicatory proceeding but be continued as a non adjudicatory fact finding

investigation under the Commission Rules of Practice and Procedure at

46 C F R S 502 281 291 after completion of the Executive Agencies

negotiations for new Executive Agreements in the trades

The Chemical Manufacturer s Association CME supports the Commis

sion s statement of its authority in the Notice and states its readiness

to supply additional factual information for the record CMA has no objec

tion to the receipt of additional submissions from others including present

parties

AS Ivarans Rederi a third flag carrier states that it is unaware of

what more it can do in this proceeding but is willing to cooperate with

the Commission to the fullest extent reasonable

DISCUSSION

The response to the Commission s Notice of Intent to Restructure the

Proceeding at best was disappointing None of the comments constitute

actively positive responses to the Commission s proposed restructuring of

the proceeding 7

It is particularly noteworthy that the Executive Agencies the Administra

tion s policymakers in the area of international trade and COmmerce failed

to respond to the Notice We also take notice of the fact that the Executive

Branch has recently negotiated a one year extension of the U SBrazil

Memorandum of Consultation with the Government of Brazil That Memo

randum will now remain in effect until December 31 1986

Upon consideration of the response and comments to t11e Notice of

Intent to Restructure Proceeding in light of the regulatory o

jectives which

prompted the initiation of this proceeding as well as recent changes in

circumstances the Commission has decided to discontinue this proceeding

The recent extension of the U SBrazil bilateral agreement thellxecutive

Agencies apparent dissatisfaction with the existing proceeding as evidenced

by their Motion to Suspend the Proceeding the unsupportive nature of

the responses to the Commission s Notice including the lack of response

from the Executive Agencies and the apparent lack of concern generated

among shippers by the Commission s Notice all support termination Finally

1

We are moreover concerned with the tone of IOme ofthecommenu The intemperate Janluage of some

commoners and the dllparasing speculallon focused on the Commlulon motivation rather than the IUb

stance of ita propoaal to restructure this proeeedlna do not comport with the Ilandardl of profeulonal conduct

which the CommissIon has a

right to expect of counsel who appear before it

2S FM C
By the Commission

S JOHN ROBERT EWERS

Secretary

SECTION 19 INQUlRY UNITED STATES ARGENTINA AND 255

UNITED STATES BRAZIL TRADES

given the circumstances continuation of the proceeding would not appear

consistent with the efficient and effective use of Commission resources

Termination of the proceeding is of course without prejudice to reinstitu

tion either by complaint or on the Commission s own motion should

future circumstances warrant For this reason a suspension of the pro

ceeding as requested by the Executive Agencies would serve no purpose

not better accommodated by discontinuance Discontinuance should serve

however to remove the Executive Agencies concern that this proceeding

would impede renegotiations of the existing bilateral arrangements with

the Governments ofBrazil and Argentina

THEREFORE IT IS ORDERED That the Executive Agencies Motion

For Suspension of the Proceeding is denied and

IT IS FURTHER ORDERED That this proceeding is discontinued

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 40

MEDAFRICA LINE S P A

v

AMERICAN WEST AFRICAN FREIGHT CONFERENCE AND ITS

MEMBER LINES

NOTICE

March 26 1986

Notice is given that no appeal has been taken to the February 18

1986 dismissal of the complaint in this proceeding and the time within

which the Commission could determine to review has expired No such

determination has been made and accordingly the dismissal has become

administratively final

S JOHN ROBERT EWERS

Secretary

i

i

i

256 28 F M C
28 F M C 257

FEDERAL MARITIME COMMISSION

DOCKET NO 83 40

MEDAFRICA LINE S P A

v

AMERICAN WEST AFRICAN FREIGHT CONFERENCE AND ITS

MEMBER LINES

COMPLAINT DISMISSED WITH PREJUDICE

Finalized March 26 1986

By motion filed February 10 1986 Complainant Medafrica Line S p

a

requests that the complaint it filed against the Respondent American West

African Freight Conference and fourteen named members of that Con

ference 1be dismissed with prejudice against reinstitution of the proceeding

Hearing Counsel is an Intervenor in the proceeding

The complaint was filed September 7 1983 As amended for the second

time the complaint alleged violation of sections 15 and 32 c of the Ship

ping Act 1916 46 U S C app 814 and 831 c and section 528 3b

of the Commission s Regulations governing self policing requirements for

section 15 agreements 46 CFR 528 3b

During the course of the proceeding the Complainant was declared a

bankrupt by an Italian Court in Genoa on October 24 1984 This resulted

in the issuance of an order suspending the procedural schedule of the

case because among other things the authority of counsel for the Complain

ant to act for the Complainant was not clear See e g

Order of November

14 1984

Ultimately counsel for the Complainant received specific written instruc

tions from the Trustee in Bankruptcy to reenter an appearance in the

proceeding and to withdraw the complaint with prejudice A copy of

those instructions is attached to the motion Counsel advises that the pre

conditions enumerated by the Trustee in the written instructions have been

satisfied and that he is therefore authorized to reenter his appearance

and file the instant motion

Hearing Counsel does not oppose the motion The Respondents consent

to the granting of the motion

1 Societe Ivoirenne De Transport Marine was not named aRespondent in the complaint It was added as

a

Respondent pursuant to the fU st amended complaint The amended complaint deleted AFEA Line Limited

which was named aRespondent in the complaint
258

The motion is granted The complaint is dismissed with prejudice against

its reinstitution

S SEYMOUR GLANZER

Administrative Law Judge

28 F M C
28 F M C 259

FEDERAL MARITIME COMMISSION

DOCKET NO 85 13

MARCELLA SHIPPING COMPANY LTD

NOTICE

March 26 1986

Notice is given that no exceptions have been filed to the February

18 1986 initial decision in this proceeding and the time within which

the Commission could determine to review that decision has expired No

such determination has been made and accordingly that decision has become

administratively final

S JOHN ROBERT EWERS

Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 85 13

MARCELLA SHIPPING COMPANY LTD

Respondent Marcella a vessel operating common carrier by water in the Florida Bahamas

trade found to have violated section 18b 3 of the Shipping Act 1916 by misrating

187 items on five voyages occurrlng between September and October 1980 and by

misrating two shipments on one voyage in November 1983 Marcella also found to

have violated section tab

l of the Act by operating seven voyages between July

and October 1983 after its tariff had been cancelled by the Commission

Marcella s defenses namely that it did not violate law intentionally that it relied upon

its agents that it did not understand tariff law that it was a struggling company serving

a poor third world nation are either unsuworted by evidence or are relevant only

with respect to the issue of penaltie to be assessed

The record does not contain much evidence relating to aggravating and mitigating factors

on the question of penalties However it does show that Marcella acted with apparent

indifference to and disregard of tariff law for a period of time and similarly toward

the Commission s investigator although on the last two voyages of record in November

1983 Marcella appears to have correctly rated all shipments Moreover Marcella presented

no witnesses and no evidence of mitigating factors at the hearing

To deter future violations and to encourage compliance with law without jeopardizing the

continued existence of an apparently small carrier Marcella is assessed 150 000 in

penalties However if Marcella pays 20 000 over a four month period it may petition

the Commission for remission of the balance in whole or in part provided that it furnishes

reliable financial evidence showing inability to make further payments and other evidence

of diligence Marcella is also ordered to cease and desist from violating the relevant

tariffprovisions of the Shipping Act of 1984

Robert V Shea for respondent Marcella Shipping Company Ltd

Aaron W Reese and Joseph B Slunt for Hearing Counsel

INmAL DECISION 1 OF NORMAN D KLINE ADMINISTRATIVE

LAW JUDGE

Finalized March 26 1986

The Commission began this proceeding by serving an Order of Investiga

tion and Hearing on May 3 1985 which charged respondent Marcella

Shipping Company Ltd Marcella with 8everal violations of law More

specifically the Commission stated that it had information indicating that

at certain times during 1980 and 1983 Marcella an ocean common carrier

operating between ports in Florida and ports in the Caribbean had charged

rates other than those specified in its tariffs in violation of section 18b 3

of the Shipping Act 1916 formerly 46 D S C sec 817 b 3 and that

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rulea of Practice and Procedure 46 CFR 502 227

260 28 F M C
MARCELLA SHIPPING COMPANY LTD 261

on certain voyages in 1983 Marcella had operated without having a tariff

on file with the Commission in violation of section 18 b lof the Shipping

Act 1916 formerly 46 D S C sec 817 b l

2 The Commission also stated

that Marcella s owner and principal officer had been informed of the above

information and about similar information regarding earlier voyages that

this person acknowledged some rate deviations which he attributed to

Marcella s agent that Marcella had apparently gone out of business for

a while and had had its tariff canceled by the Commission but that it

had apparently resumed business and filed a tariff after having been warned

about operating without a tariff on file and certain other matters Mter

being warned that Marcella had possibly violated law Marcella through

an attorney in July 1984 made a general denial of the charges The

Commission s

responsible personnel thereafter sent a claim letter to Marcella

in September 1984 seeking the compromise civil penalties as authorized

by section 32 e of the 1916 Act 46 D S C app 831 e and the Commis

sion s

regulation 46 CFR Part 505 Marcella failed to respond to the

claim letter and the Commission thereafter instituted this formal proceeding

The record developed in this proceeding consists of the written testimony

of the Commission s District Investigator Mr Donald H Butler Ex I

a series of workpapers and manifests showing how respondent Marcella

rated shipments on 15 voyages occurring in 1980 and 1983 Exs 2j

a letter from Marcella s attorney containing a general denial of violations

of law Ex 7 and a

copy of a notice of intent to cancel one of Marcella s

tariffs E 8 The final exhibits consist of the Investigator s notes relating

to tariff charges used in the investigator s workpapers and analyses and

a copy of Marcella s tariff FNC No 2 These last two documents were

offered into evidence by Hearing Counsel by motion after the oral hearing

They are admitted as Exhibits 9 and 10 respectively

In addition to the documentary evidence described above testimony of

the District Investigator Mr Butler was taken at an oral hearing held

in Washington D C on July 25 1985 No other witnesses appeared at

the hearing Captain Eddins Taylor Marcella s principal officer did not

attend the hearing but Marcella s counsel did attend

Following the hearing briefs were filed by Hearing Counsel and respond

ent Marcella on September 20 November 5 and November 22 1985

2At the time of the alleged violations the operative laws were section 18 b I

and t8 b 3 of the Ship

ping Act 1916 which at the lime were codified as 46 U S csees 817 b 1 and 817 b 3 Effective June

18 1984 these Jaws were repealed and superseded by sections 8 a

1 and 100b l

of the Shipping Act of

1984 46 V S C app sees 1707 a 1 and 1709 b l See section 20 P L 98237 90 Stat 67 The penalty

provisions in effect at the time of the violations 5 000 per day were found in section 18 b 6 of the Ship

ping Act 1916 46 V S C sec 817 b 6 These provisions were repealed and re enacted as section 13 a

of the 1984 Act 46 U S C app sec 1712 a The Commission s authority to assess penalties is contained

in section 32 e of the Shipping Act 1916 at the time codified as 46 U S C sec 831 e This authority

is now set forth in section 13 c of the 1984 Act 46 U S C app sec 1712 c

28 F M C
262 FEDERAL MARITIME COMMISSION

On January 17 1986 when Chief Administrative Law Judge Cograve

became unavailable the proceeding was reassigned to the present presiding

judge

FINDINGS OF FACT

The facts proposed by Hearing Counsel in his opening brief showing

violations of sections 18 b I and 18b 3 of the 1916 Act at certain

times in 1980 and 1983 are essentially undisputed Respondent s defenses

to the charges set forth in the Commission s Order are in the nature

of legal and equitable arguments in mitigation of the offenses Accordingly

the findings of fact set forth below are in accord with those proposed

by Hearing Counsel Later in this decision I will fmd additional facts

which bear upon the question of the appropriate penalty to be assessed

The specific facts are as follows

I Marcella is an oceangoing common carrier operating in the foreign

commerce of the United States between Miami Florida and the Bahamas 3

It has a mailing address in Nassau the Bahamas but also receives its

mail at a Miami address Its principal officer is Captain Eddins Taylor

It is believed that the Taylor family owns the line

2 Marcella first filed a tariff FMC No I with the Commission effective

March 24 1974 It has since filed three more tariffs FMC Nos 2 3

and 4 effective March 6 1979 April 3 1981 and October 11 1983

3 Captain Taylor resides in the Bahamas but comes to Miami periodi

cally Marcella has retained at least three different agents located in Miami

while it has been operating a service The first agent was Habrew Maritime

International Inc up to March 1981 The second agent was Bernuth Marine

Shipping Company which succeeded Habrew The third and current agent

is Bahamas International Shipping which was Marcella s agent at least

by August 1983

4 The Commission s District Investigator Mr Donald H Butler devel

oped facts concerning Marcella s operations He obtained voyage files from

Marcella s agent Habrew concerning voyages of one of the two ships

which Marcella was operating the MlV MARCELLA II covering the period

January 2 1979 through October 29 1980 Copies of manifests and bills

of lading were obtained for MN MARCELLA II voyages 207 211 241

245 and 260264 These fifteen voyages were taken as a

representative

sample of the 65 voyages involved during that time period and fell at

the beginning middle and end of the period Only the last five voyages

Nos 260264 occurred within the five year period of limitation prescribed

by section 32 e of the 1916 Act regarding the assessment of penalties

These voyages occurred between September 18 1980 and October 29

3

Although Marcella s tariffs indicate that Marcella served ports in the Caribbean the evidence adduced

shows that the carrIer served ports in the Bahamas from Miami and there is no evidence in this record of

actual voyages to ports other than those in the Bahamas

28 F M C
MARCELLA SHIPPING COMPANY LTD 263

1980 at a time when Marcella s tariff FMC No 2 was on file with

the Commission

5 Analysis of the fifteen MARCELLA II voyage files shows that for

217 shipments carried on the first five voyages selected Nos 207 211

all 217 shipments were misrated On 207 shipments Marcella charged an

aggregate sum of 7 334 71 more than the rates and charges specified

in its tariff On the remaining 10 shipments Marcella charged an aggregate

sum of 470 30 less than the applicable rates and charges in the tariff

6 On the remaining 10 voyages Nos 241 245 260264 a total of

410 shipments were carried Out of that total 408 shipments were misrated

Marcella charged an aggregate sum of 10 096 94 more than the rates

and charges specified in its tariff on 201 shipments and undercharged

an aggregate sum of 4 327 15 on 207 shipments

7 For five voyages which are within the five year period of limitation

regarding assessment of penalties Nos 260264 there were 189 items

shipped Marcella misrated all but two items In the aggregate Marcella

overcharged by 2 500 34 and undercharged by 2 648 23 on these five

voyages

8 Marcella s tariff was canceled by the Commission effective July 5

1983 as an inactive tariff A new tariff FMC No 4 was filed effective

October 11 1983 as noted earlier A review of Marcella s operation during

the period from July 5 193 to October 11 1983 was undertaken to

detennine if Marcella had operated as a common carrier after its tariff

had been canceled It was found that Marcella operated seven voyages

on two ships the MV MARCELLA II and the MV MIRANDA after

its tariff had been canceled and before its new tariff went into effect

These seven voyages were as follows

No Sailed Vessel Voyage

1 7 29 83 MV MARCELLA II 297

2 8 17 83 MV MIRANDA 15

3 8 14183 MV MARCELLA II 298

4 9 01 83 M V MARCELLA II 299

5 9 18 83 MV MARCELLA 1II 300

6 9 23 83 M V MIRANDA 16

7 10 04183 M V MARCELLA II 301

9 On these seven voyages the bills of lading and manifests showed

that a total of 181 shipments were carried during a period of 68 days

between the sailing of the first and the seventh voyage Marcella had

no tariff on file for a total of 97 days before its tariff No 4 went into

effect

4The data for the five voyages within the five year period of limitation were derived by adding individual

figures from the investigator s worksheets for those voyages as shown in Exhibit 4 Because there were sev

eral items per bill of lading the number of items does not correspond to the number of bills of lading

28 F M C
264 FEDERAL MARITIME COMMISSION

I

10 An analysis was performed on four voyages occurring after Marcella s

tariff FMC No 4 went into effect on October 11 1983 s On he first

voyage MV MIRANDA voyage no 17 sailing on October 22 1983

Marcella carried only bulk feed on the entire ship Because rates on bulk

cargo need not be filed in carrier s tariffs under applicable law it was

not considered necessary to determine if Marcella had violated section

18b 1 of the 1916 Act as to that voyage

6 However on the three subse

quent voyages it was found that Marcella had misrated two shipments

on one voyage MV MIRANDA voyage 18 out of a total of 64 shipments

on all three voyages No misratings were found on the last two voyages

analyzed On voyage 18 sailing November 9 1983 the two shipments

consisted of cases of beer which were undercharged an aggregate total

of 3 508 04 The reason for the undercharge primarily was that Marcella

rated the beer at 3 60 per hundredweight rather than 7 20 per hundred

weight as the tariff provided About 10 months after this sailing effective

September 13 1984 Marcella filed the 3 60 rate

IIDuring 1984 the Commission s

investigator attempted to get in touch

with Captain Taylor over many months without success until finally Captain

Taylor was contacted at the offices of his attorney Mr Shea However

Captain Taylor did not furnish any additional information as had been

requested and as he had represented he would do His attorney issued

a letter dated July 24 1984 containing a general denial of any violations

of law Ex 7 Thereafter a claim letter dated September 24 1984 was

sent to Marcella seeking to comprontise civil penalties under the Commis

sion s authority set forth in section 32 e of the 1916 Act and the Commis

sion s pertinent regulation 46 CPR Part 505 1983 Marcella did not

respond to the claim letter

DISCUSSION AND CONCLUSIONS

The record in this case clearly establishes violations of 18b 1 and

18b 3 by the respondent Section 18 b I provides in relevant part 46

U S C se 817 b l

Every fommon carrier by water in foreign commerce and every

conference of such carriers shall file with the Comntission and

keep open to public inspection tariffs showing all the rates and

charges of such carrier or conference of carriers for transportation

to and from United States ports and foreign ports

j

The four voyages were as follows

Vessel Sailed Voyage

MIV MIRANDA 10122S3 17

M V MIRANDA 1l09 S3 18

MIY MARCELLA D 1l1283 302iM

V MARCELLA D1l 2683303 6Sectlon

18bl of the 1916 Act provided that the tariff filing requirements shall notbe applicable tocargo

loaded and clUTied without mark or count 46 U S C sec 817 bl 28

F M C
MARCELLA SHIPPING COMPANY LTD 265

Section 18 b 3 provides in relevant part 46 U S c sec 817 b 3

No common carrier by water in foreign commerce shall charge

or demand or collect or receive a greater or less or different

compensation for the transportation of property or for any service

in connection therewith 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

As the evidence which is undisputed clearly shows on the voyages

specified for investigation by the Commission s Order Order at 4 Appendix

A on five voyages occurring between September 18 and October 29

1980 Marcella misrated 187 items overcharging an aggregate sum of

2 500 34 and undercharging an aggregate sum of 2 648 23 Such misrating

continued a pattern that had begun on earlier voyages going back to January

2 1979 All of these misratings occurred at a time when Marcella s agent

in Miami was Habrew Maritime International Inc and occurred in violation

of Marcella s tariffs on file with the Commission first FMC No I and

then effective March 6 1979 FMC No 2

Several years later in 1983 after Marcella s tariff had been refiled

as FMC No 4 by its current agent Bahamas International Shipping

effective October 11 1983 Marcella misrated two shipments of beer on

a

voyage which sailed on November 9 1983 undercharging the shipments

an aggregate of 3 508 04

Between the times of these violations of section 18b 3 during the

period July 5 1983 to October 11 1983 when Marcella had no tariff

on file with the Commission because the Commission had canceled its

tariff FMC No 3 on July 5 1983 Marcella nevertheless operated seven

voyages over a 68 day period between July 29 1983 and October 4

1983 Marcella carried 181 shipments on these voyages

Marcella s Defenses

That these violations occurred in fact is not disputed as Ihave mentioned

However Marcella raises several defenses which essentially are equitable

in nature and if relevant bear upon the question of penalties rather than

upon findings of violations Thus Marcella argues on brief that the manager

of Marcella s agent at the time of the 1980 violations Habrew Maritime

International acknowledged that a number of rates were charged that were

not filed in Marcella s tariff However the manager stated that the

misratings were not intentional and reflected Captain Taylor s lack of knowl

edge about tariff filing law Marcella Reply brief at 2 Marcella proceeds

to argue that although ignorance of the law is not an excuse g

eneral

principles of equity compel us to sympathize with Mr Taylor s lack of

knowledge of the tariff laws Id Furthermore argues Marcella Captain

Taylor is not a U S citizen he lives in the Bahamas and it would be

harsh to expect him to know complicated U S maritime laws Id

28 F M C
266 FEDERAL MARITIME COMMISSION

Marcella also argues that it is unclear from the record as to whether

Marcella s agent advised Captain Taylor about the seriousness of the tariff

laws It is argued not only that the violations were not intentional but

that Marcella did what it did for economic survival in a trade that

served the Bahamas which is a small struggling third world nation

Id at 3 Marcella asks Can one fault a company for attempting to

stay afloat in an economic sea of uncertainty Id Furthermore it is

argued that levying a stiffpenalty against Marcella would send a struggling

company on its way to economic death Id at 4 As to the violations

of section 18b 1 when Marcella operated without a tariff on file Marcella

argues that Marcella had changed shipping agents was not aware that

its tariff had been canceled and that Marcella should not be punished

because the company believed in good faith that it was operating within

the law Id at 5 Finally Marcella argues that there were problems

in Marcella s

receiving mail at its Bahamas address Id

The Lack of Need to Show Intent

Whatever the validity of these arguments and for the most part they

are not supported by evidence in the record 7 it is clear that their only

relevance can be to the question of penalties Neither section 18 b I

nor 18b 3

requires the element of intent before a finding of violation

can be made In other words they are absolute liability statutes in con

trast to such laws as the former section 16 initial paragraph of the 1916

Act 46 U S C sec 815 new section 10 a 1 of the 1984 Act 46 U S C

app sec 1709 a I which laws prohibit activity which is knowing and

willful Statutes which do not qualify the activity by relating it to intent

prohibit the activity regardless of intent or motivation

The nature of section 18b 3 as an absolute liability statute is shown

in a number of critical cases In an early one Louisville Nashville

Railroad Company v Maxwell 237 U S 94 97 1915 the Supreme Court

made clear that the corresponding tariff law in the Interstate Commerce

Act demanded strict adherence and did not permit deviation for any reason

The Court stated

Under the Interstate Commerce Act the rate of the carrier duly

filed is the only lawful charge Deviation from it is not permitted

upon any pretext Shippers and travelers are charged with notice

of it and they as well as the carrier must abide by it unless

Captain Taylor Marcella s principal officer residing in the Bahamas did not attend thehearing in Wuh

ington DC His counsel Mr Shea did attend but not having a witness was mainly forced to make argu

ments and comments about the testimony of Mr Butler the Commiuion s

investigator Counsel represented

that Captain Taylor was in the Bahamas at the time of the hearing on business but did not assert that Captain

Taylor was unable to obtain transportation to the hearing See hearing transcript at 3035 Counsel asked

that the hearing be continued Hearing Counsel opposed the request because of the inconvenience to Mr

Butler who had comefrom New Orleans and would have had to return to Washington Judge Cograve denied

the teq ea Tr 3435

28 FM C
MARCELLA SHIPPING COMPANY LTD 267

it is found by the Commission to be unreasonable Ignorance

or misquotation of rates is not an excuse for paying or charging

either less or more than the rate filed This rule is undeniably

strict and it obviously may work hardship in some cases but

it embodies the policy which has been adopted by Congress in

the regulation of interstate commerce in order to prevent unjust

discrimination

The Commission has consistently followed the above principles enunciated

by the Supreme Court when applying the shipping acts See Ocean Freight

Consultants Inc v the Bank Line Limited 9 F M C 211 214215 1966

which specifically cited the Maxwell case and more recent cases and found

them applicable to section 18b 3 See also Sun Co v Lykes Bros

20 EM C 68 70 n 8 1977 Neither mistake inadvertence contrary

intention of the parties hardship nor principles of equity pennit deviation

from the rates rules and regulations in the carrier s filed tariff See

Sanrio Company Ltd v Maersk Line 23 EM C 154 195 196 10 adopt

ed by the Commission 23 F M C 150 1980 for a discussion of the

many decisions of the Commission and courts following the Maxwell prin

ciples and establishing that tariffs have the force and effect of law which

override private contracts In Sanrio furthermore it was stated with respect

to the carrier s duty to rate cargo it transports accurately 23 F M C at

152

Once the carrier breaches this duty section 18b 3 and analogous provi

sions of the Interstate Commerce Act require the imposition of liability

without fault Case citation omitted No other approach is consistent with

the overriding statutory purpose of eliminating unjust discrimination between

shippers Case citations omitted

Therefore it is irrelevant for purposes of finding violations of section

18b 3 or section 18b 1 which similarly requires carriers to file tariffs

without regard to their intent or motivation whether the carrier did or

did not intentionally violate the law or whether the carrier was ignorant

of the law s

As Marcella concedes Marcella Reply Brief at 2 it has

long been stated that ignorance of the law is no excuse That is a true

statement of the law and the Corrunission has recognized that honest mis

takes or infrequent violations of section 18b 3 are not defenses to findings

of violations but are rather pleas in mitigation See Rates Hong Kong

United States Trade 11 F M C 168 178 1967 Accordingly Ifind that

Marcella has violated both laws at the times indicated above and will

consider Marcella s arguments as to intentions lack of knowledge etc

SEven if a

fmding of intentional violation of section 18 b 1 or18 b 3 is necessary respondent s

pattern

of conduct showing indifference to and disregard of the requirements of law is tantamount to knowing and

willful behavior under administrative law I will discuss this matter later in connection with the question

of penalties

28 F M C
268 FEDERAL MARITIME COMMISSION

j when detennining whether and in what amount penalties should be as

sessed 9

Marcella s Responsibility For Its Agents Activities

A related argument to the above regarding Marcella s or Captain Taylor s

purported lack of knowledge or intent to violate law are the ones suggesting

that the violations were somehow more the responsibility of the Miami

agents than they were of Marcella and Captain Taylor who resided in

the Bahamas These arguments can be given short shrift Counsel for Mar

cella conceded at the hearing that Marcella would be responsible for viola

tions of law even if the agents actually committed the violations Tr

31 At best the argument could only have some minimal relevance to

the question of penalties Neither the Commission nor the courts recognize

a doctrine that a principal or a corporation can avoid liability under law

for the wrongdoing of its agent acting within the scope of the agent s

employment and authority For example in Hellenic Lines Ltd Violation

of Sections 16 First and 17 7 F M C 673 1964 the Commission found

that a carrier had unreasonably prejudiced and unjustly discriminated against

shippers in violation of sections 16 and 17 of the 1916 Act because the

carrier s agent in Djibouti French Somaliland had charged varying rates

on the same coffee items to different shippers The carrier had argued

that it was not responsible and that its agent in Djibouti had engaged

in unauthorized criminal conduct although the agent was authorized to

quote rates that would meet the stiff competition The Commission held

that the law in question did not require a showing of unlawful intent

7 F M C at 6756 The Commission totally rejected the carrier s defense

that it was the agent who was responsible stating 7 EM C at 676

To adopt respondent s position would do much to frustrate the

objectives of the Shipping Act Respondent necessarily perfonns

its far flung transportation business by utilizing agents to solicit

and book cargo and attend to various other requirements of the

9Marcella also cites two Commission cases in support of its argument that intent should be an element

in a section 18 violation These cases are Philippine Merchant Steamship Co Inc v Cargill Inc 9 F M C

55 1965 and Investigation of Certain Practices of Stockton Elevators 8 F M C 181 1964 Neither case

involved section 18 b 1

or 18b 3 PhJlIpplne Merchants involved sections 15 16 and 17 and the Com

missIon noted that certain provIsions of section 16 of the 1916 Act which specified unjust device or

means required a

fmding that respondent had done somethina with knowledge that it was unlawful 9

F M C at 165 Stockton Elevators involved sections 16 and 17 of the 1916 Act and qualifying statutory lan

guage regarding unjust or unreasonable practices and to some extent the purpose of the activity under

investigation was considered as to thequesUon of violation See 8 F M C at 199201 However the decision

specifically noted that the practices there involved were in no way related to tariff rates or charges and

cannot be considered as involving rebating in any fashion 8 F M C at 201 Another case cited by Marcella

is National Van Lines Inc v U S 3S5 F 2d 326 7th Cir 1966 That case however Involved interpretation

of an ambiguous tariffand held that the tariff should be construed in a reasonable way so as to accord with

the understanding of the affected parties and to avoid unnecessary devastating punishment of the carriers

which had created the tariff ambiguity by omitting a critical rule in flIed tariffs The present case invoives

misrating and operating without a tariff and is not one involving a carrier strying to interpret an ambiguous

filed tariffin a reasonable way

28 F M C
MARCELLA SHIPPING COMPANY LTD 269

business Under respondent s theory however it could immunize

itself from the common carrier responsibilities placed upon it by

the Act simply by disassociating itself from any of its agents

activities which are brought into question This could take the

form as here of a plea of ignorance of the agent s conduct

and a claim that the carrier lacked any intent itself to violate

the law The Act does not permit of any such evasion United

States V American Urtion Transport Inc 327 U S 437 457

1946 It is regulatory legislation which evinces a strong policy

of protecting the public and there is ample authority for the

view that a principal is liable for his agent s violation of such

a statute including a violation which is a misdemeanor Footnote

citation omitted

The Commission proceeded to find that the agent had acted within the

scope of his authority and on respondent s behalf and that respondent

therefore must clearly answer for the agent s action in this regard Id

In addition however the Commission found that the respondent carrier

was not free of fault This was because it failed to exercise greater super

vision over the agent The fact that the agent was distantly located in

Africa and there were problems in commurticating with him was not found

to be an excuse Rather it was found to require respondent to exercise

greater precaution as to its agent s conduct Id Similarly the fact that

the carrier and its agent were engaged in an unstable rate situation and

were trying to meet keen competition was not found to excuse the violations

The Commission has consistently followed the Hellenic doctrine and

has imposed liability on principals for the acts of their agents regardless

of the principals actual awareness of the agent s

illegal act Thus in

Unapproved Section 15 Agreements Spanish Portuguese Trades 8 F M C

596 1965 respondent carriers were found to have violated section 15

of the 1916 Act by failing to file agreements They had argued that the

agreements were entered into by foreign agents acting without authority

and uninformed as to the requirements of American law 8 EM C at

609 The Commission found no merit to the argument stating 8 F MC

at 609

Respondents delegation to agents of such considerable authority

carries with it an obligation to thoroughly apprise their agents

of the applicable law for it is no less damaging to the public

interest when the law is violated by design or inadvertently

by an agent acting on behalf of a principal or by the principal

itself Sound enforcement of the Shipping Act of necessity de

mands that those subject to its terms be held to a strict standard

of accountability for the acts of agents representing them W e

cannot allow a carrier to immunize itself from the common

carrier responsibilities placed upon it by the Act by disassociating

itself from any of its agent s activities which are brought into

28 F M C
270 FEDERAL MARITIME COMMISSION

question Such responsibilities extend to liability of the principal

for violations of law by his agent

See also Malpractice razillUnited States Trade 15 F M C 55 59

1961 Shipping Act cannot be circumvented through the medium of

an agent Pickup and Delivery Puerto Rico 16 F M C 344 350 1973

Respondents cannot insulate themselves from the responsibility for the

proper performance of the service by attempting to relieve themselves of

accountability for their agents acts

The Commission s decisions in the above cases are consistent with mod

em authority which holds corporations and principals liable for the misdeeds

of their agents acting within the scope of tile agents authority even to

the extent of imposing punitive damages on the corporation or principal

See e g American Society oj Mechanical Engineers Inc v Hydrolevel

Corporation 456 Us 556 567 568 574576 1982 nonprofit association

held liable under antitrust laws for violations of law committed by its

agents acting with apparent authority even to the extent of being liable

for punitive damages General Motors Acceptance Corporation v Froelich

273 F 2d 92 D C Cir 1959 corporation liable for punitive damages

for the wrongful acts of its agents acting within scope of authority and

corporation ratified or authorized the agents conduct Dark v United

States 641 F 2d805 9th Cir 1981 principal liable for acts of agents

acting within scope of their apparent authority even if principal not involved

in the agents acts 3 Am Iur 2d Agency sec 267 25 C rs Damages

sec 125 4 at 1156 principal liable for punitive damages for acts of agents

if principal failed to exercise due and reasonable care in retaining or employ

ing agents Prosser Law of Torts 4th ed 1971 at 12 5th ed 1984

at 130

The Question ofPenalties

In addition to the issues of violations the Commission s Order specified

that it was to be determined w hether in the event Marcella is found

to have violated Section 18b 1 andor l8b 3 of the Shipping Act

1916 civil penalties should be assessed and if so the amount of

such penalties Order at 4 The record shows clearly that Marcella did

violate these laws at certain times in 1980 and 1983 as discussed above

Therefore it is necessary to determine the penalty issue

Hearing Counsel argues that the maximum penalty for the violations

is 370 000 30 000 for misratings on six voyages and 340 000 for oper

10 Many cases bold furthermore that prlpclpals are liable for lCtI of their emp oyees ac tlng within

the scope of theu aulhority even if the principal had no awareness of tho qenl s act or even if the agent s

acts were fraudulent See e g United States v moots Centrol Railroad 303 US 239 1938 Curtis Collins

Holbroolc Co v United States 262 U S 215 222 223 1923 Gleason Siabaard Air Une RallwQY

Co

27S US 349 1929

28 FM C
MARCELLA SHIPPING COMPANY LTD 271

ating without a tariff for a period of 68 days ll Hearing Counsel argues

further that a severe penalty should be imposed in order to reflect the

grave nature of the violation because t he respondent obviously has

never taken into consideration the serious nature of this violation

II

HC Opening Brief at 8 In his reply brief Hearing Counsel further

argues in favor of a severe penalty by pointing out a serions disregard

of tariff filing requirements by Marcella and the further fact in reply

to Marcella s arguments regarding its alleged weak mancial condition

that Marcella did not even attempt to put evidence into the record as

to its financial condition H C Reply Brief at 8

As discussed earlier Marcella contends that it did not intentionally violate

law had relied upon agents had difficulty receiving mail in the Bahamas

was attempting to survive in a difficult economic climate in a trade serving

a small struggling third world nation and that punishment would destroy

Marcella

The current law regarding factors to be considered by the Commission

when fixing penalties is section 13 c of the Shipping Act of 1984 46

U S c app sec 1712 c That statute provides

In determining the amount of the penalty the Commission shall

take into account the nature circumstances extent and gravity

of the violation committed and with respect to the violator the

degree of culpability history of prior offenses ability to pay

and such other matters as justice may require

The Commission s current regulation implementing the above law is 46

CFR 505 3 b 1985 This regulation follows the statutory language but

adds a factor for deterrence and future compliance with the Commission s

rules and regulations and the applicable statutes

The previous regulation in effect under the 1916 Act and at the time

of the violations was 46 CFR 505 1 1983 originally promulgated in

1979 See Collection Compromise and Termination ofEnforcement Claims

22 F M C 238 1979 That regulation did not limit the factors to be

considered but did include factors set forth in another regulation 4 CFR

Pat 101 105 The regulation stated

For the purpose of this pat the criteria for compromise settle

ment or assessment may include but need not be limited to

those which are set forth in 4 CFR Pat 10 1 105

IIThese calculations of maximum penalties may be conservative as Hearing Counsel suggests HeOpen

ing Brief at 67 Section 18b 6 of the 1916 Act the operative statute provided for a maximum penalty

of 5000 for each day such violation continues It If each misrated shipment is counted as a

separate viola

tion of section 18 b 3 and there were 189 misrated shipments as the record shows then the maximum

penalty would be 945 000 Ifthe total period when Marcella had no effective tariff on file withthe Commis

sion were 97 days rather than the 68 days when they actually operated voyages the maximum penalty would

increase to 485 000 forthe section 18b l

violation TOIal maximum penalties for all violations would in

crease to 1 430 000

28 F M C
272 FEDERAL MARITIME COMMISSION

The regulation referred to by the Commission s previous regulation imple

ments the Federal Claims Collection Act of 1966 The criteria set forth

in that regulation 46 CFR 103 are such things as inability to pay litigative

possibilities cost of collecting claims deterrence and aid to enforcement

and to compel compliance That regulation furthermore recognizes a distinc

tion between accidental or technical violations which may be dealt

with less severely in contrast to willful and substantial violations

46 CFR 103 5

I

find little difference between the previous criteria and those currently

in effect The previous regulation was equally open ended regarding criteria

Furthermore the previous reference to consideration of willful and substan

tial violations contrasted to those which are merely accidental or technical

sets up a criterion which is similar to the current one regarding the gravity

of the violation and the degree of culpability Furthermore in applying

the previous regulation and criteria the Commission has exercised flexibility

and has recognized such factors as ability to pay enforcement policy

degree of culpability history of prior offenses and presence of accidental

or technical violations See e g Midland Pacific Shipping Co Inc

Independent Ocean Freight Forwarder License 25 FM C 715 718 1983

the Commissions statement 25 F M C at 719 that tlhe prescription

of fair penalty amounts is not an exact science There is a

relatively

broad range within which a reasonable penalty might lie See also Certified

Corp and Seaway Distribution Corp Possible Violations of Section 16

Initial Paragraph 24 FM C 542 544 1982 In determining the amount

of the penalty ultimately assessed the Commission takes into account the

particular circumstances of each case including any mitigating factor as

well as the policy underlying the assessment of penalties generally

cf Butz v Glover Livestock Commission Co 411 U S 182 187 188

statute gave Secretary of Agriculture broad discretion to devise sanctions

that in his judgment would deter violations and achieve the objectives

of the statute I therefore will consider whatever factors are shown to

exist in this case and conclude that such factors are essentially the same

under either the previous or the current regulation so that my conclusions

as to the amount of penalty would be the same under either regulation 12

The record clearly shows violations of section 18 b 3 of the 1916

Act on six voyages five sailing in 1980 and one in 1983 It also clearly

shows violations of section 18b 1 of that Act on seven voyages in

121110 Commlsaion haa slated that current law may be applied to proceedin s brought under the 1916 Act

unless manifest injustice would result or if there is a statutory directive or legislative history to the contrary

See Application ofShipplns Act of 1984 to Formal Procttdings P ndJng Bejare Federal Maritime Commls

alon on June 18 1984 22 SRR 976 l9S4 1he currenttegu1atlon and Iawlelardin crlterJa for determining

the amount of penalties are not essentially different from the previous ones and If applIed should not preju

dice Marcella The maximum amount of penalty 5 000 per day of violation hu not changed either ifthe

violation was not knowingly and willfully committed in which caae it rises to 2 000 Section 13 a Ship

ping Act of 1984 46 U S C app sec 1712 a Iwlll not apply the new 25 000 maximum penalty provision

however as thlsmay be unfair to Marcella Application of Shipping Act of 1984 cited above 22 SRR at

977

28 F M C
MARCELLA SHIPPING COMPANY LTD 273

1983 over a 68 day period The maximum penalty for these violations

conservatively calculated as noted above is 370 000 Additional violations

of section 18 b 3 occnrred earlier in 1980 on 10 voyages but those viola

tions occurred outside the five year period prior to May 3 1985 when

the Commission served its Order of Investigation and Hearing and con

sequently are not considered when determining the amount of penalty

See Certified Corp and Seaway Disrribution Corp cited above 24 EM C

at 544 13 However the earlier voyages do show a pattern of conduct

which continued into the relevant time period

There is not much evidence in the record as to mitigating factors How

ever the testimony of the Commission s District Investigator Mr Butler

Ex I is enlightening It reveals a pattern of Marcella s indifference

and disregard of the requirements of law and of the Commission s informal

investigatory efforts to ascertain wrongdoing and to terminate it Such indif

ference and disregard has often been held to constitute knowing and

willful conduct in administrative statutes containing those words See

e g Equality Plastics Inc et aI 17 EM C 217 226 1973

Miscassljication of Tissue Paper as Newsprint Paper 4 F MB 483 486

1954 United States v Ill Central Ry 303 U S 239 242 243 1938

E Allen Brown lndependent Ocean Freight Forwarder 22 F MC 585

595 n 4 1980 Ariel Maritime Group 23 SRR 238 247 JD remanded

for unrelated reasons 23 SRR 610 1985 A typical statement is that

of the Supreme Court in Ill Central Ry cited above 303 U S at 243

that in administrative statutes a carrier may be acting willfully when

the carrier either intentionally disregards the statute or is plainly indifferent

to its requirements Another statement as to the phrase knowingly and

willfully is that of the Commission in Miscassljication of Tissue Paper

as Newsprint Paper cited above 4 F M B at 486 where the Commission

stated

The phrase knowingly and willfully means purposely or obsti

nately or is designed to describe a carrier who intentionally dis

regards the statute or is plainly indifferent to its requirements

We agree that a persistent failure to inform or even to attempt

to inform himself by means of normal business resources might

mean that a shipper or forwarder was acting knowingly and will

fully in violation of the Act

The testimony of the Commission s District Investigator Mr Butler

shows clearly and convincingly a pattern of indifference and disregard

13 In the cited case it was argued on exceptions 10 the Initial Decision that the presiding judge had erro

neously considered numerous violations occurring outside the five year period when detennining the amount

of penalty The Commission did not specifically rule that those earlier violations were irrelevant for all pur

poses However the Commission reduced the amount of the penalty from the maximum of 20 000 deter

mined by the Initial Decision for four violations to 10 000 in consideration of the fact that the respondent

had made some restitution theamount of underpayments was small and respondent had gone out of business

24 F MC at 544

28 F M C
274 FEDERAL MARITIME COMMISSION

of the requirements of law and a persistent failure to recognize that a

carrier must adhere to filed rates in its tariff and must keep itself informed

of legal requirements Indeed not only does Marcella not dispute the facts

that Marcella conducted its business in the way it did but it cites its

conduct as a defense Thus Marcella contends that Captain Taylor relied

upon his Miami agents lived in the Bahamas was not aware of the require

ments of tariff laws had trouble receiving mail etc Marcella s Reply

Brief at 2 45 Instead of excusing the violations however it seems

to me that these facts should have motivated Captain Taylor to inform

himself about relevant laws select qualified agents and exercise some

supervision over them If Captain Taylor wished to operate a common

carrier service in the foreign commerce of the United States from his

home in the Bahamas and gain the benefits of participation in that com

merce it seems that he should have bothered to learn about this country s

laws and try to make sure that his company and its agents were complying

with those laws

Respondent s Pattern of Indifference

As mentioned above the testimony of Mr Butler shows continued indif

ference to law and to the Commission s informal investigation Some of

the highlights of the testimony are the following facts

Mr Butler s first contact with Marcella s first agent of record Habrew

showed pen and ink changes on Marcella s tariff FMC No I suggesting

that these notations were the rates charged rather than the printed rates

Habrew moreover had been acting as agent for at least five oceangoing

common carriers and had been preparing manifests and bills of lading

Habrew s traffic manager admitted that as of early 1980 and before Mar

cella had charged a number of rates which were not filed He also stated

that Captain Taylor visited Miami periodically and had instructed clerks

that certain rates on particular voyages would be increased

Habrew s traffic manager Mr Jovane indicated that he would inform

Captain Taylor of the informal investigation by Mr Butler and ask him

to contact Mr Butler However Captain Taylor did not contact Mr Butler

even after Mr Butler called Habrew several times Mr Butler learned

that Marcella had terminated Habrew s employment as agent and had se

lected a new agent Bernuth in early 1981 In September 1981 Mr Butler

visited Bernuth s offices and found Captain Taylor there Captain Taylor

admitted that he was aware that some of the rates charged had not been

filed by Habrew as he had instructed Habrew to do Captain Taylor led

Mr Butler to believe that Captain Taylor would later confirm his statements

by letter but no letter was received Mr Butler learned in November 1981

that Bernuth was no longer Marcella s agent Mr Butler also learned that

Marcella had apparently ceased doing business during 1982 and possibly

earlier and into 1983 On July 5 1983 the Commission canceled Marcella s

tariff FMC No 3 as an inactive tariff However it later appeared that

28 F M C
MARCELLA SHIPPING COMPANY LID 275

Marcella was operating even without a tariff on file and that Captain

Taylor had appointed a new agent Bahamas International some time before

August 1983 Captain Taylor was contacted through the Traffic Manager

of Bahamas Mr Carlos Dovo Captain Taylor stated that he had never

been informed of the tariff cancellation and that he was using the canceled

tariff in the operation of two vessels He was advised of the requirements

of section 18 b l

of the 1916 Act He was again contacted in October

1983 and advised against further sailings until he filed a tariff Captain

Taylor expressed willingness to cooperate with the informal investigation

and a new tariff FMC No 4 was filed effective October 11 1983

By letter dated October 5 1983 Captain Taylor was again informed

of the requirements of sections 18b l and 18b 3 of the 1916 Act

and was asked to furnish copies of manifests and bills of lading for ship

ments occurring before and after July 5 1983 the date of the cancellation

of tariff FMC No 3 The letter was sent at Captain Taylor s request

via certified mail to Bahamas International Shipping the agent in Miami

The letter was returned by the Postal Service as unclaimed

Mr Dovo the Bahamas Traffic Manager was again contacted in Novem

ber 1983 He said that Bahamas had been having trouble receiving mail

at their Miami street address and suggested that the latter be sent to

Captain Taylor s Post Office Box in Miami A second letter was mailed

on November 11 1983 requesting the same information The return receipt

was signed by Mr Dovo No response to the letter was received On

January 20 1984 Mr Butler called Captain Taylor who stated that he

thought that Bahamas International had sent the requested material but

that he would have the material sent as soon as possible would meet

with his attorney and would send a letter to Mr Butler as soon as possible

On February 13 1984 bills of lading and manifests were received for

11 Marcella voyages between July 15 and November 26 1983 No materials

relating to three voyages before July 5 which had been requested were

received

On May 11 1984 Captain Taylor was again contacted and asked about

the requested information prior to July 5 1983 Captain Taylor stated

that Mr Dovo was supposed to have taken care of the matter and had

been let go Captain Taylor asked for another copy of the letter of

request via express mail A week later on May 18 1984 Captain Taylor

was again contacted He advised that he had not received the letter of

request and asked that another copy be sent to his attorney Mr Shea

On May 31 1984 Mr Shea called Mr Butler advising Mr Butler

that Captain Taylor and Marcella would cooperate in the investigation and

would send the requested material after meeting with Captain Taylor The

material was not received and Mr Butler again contacted Mr Shea on

June 6 1984 who advised that the documents requested would be sent

later On June 14 1984 Mr Shea contacted Mr Butler and said that

Captain Taylor would send a letter No letter was received and on July

28 F M C
276 FEDERAL MARlTIME COMMISSION

9 1984 Mr Shea was again contacted Mr Shea stated that he had spoken

with Captain Taylor who wanted to confer with his Bahamian attorney

and Mr Shea would send a letter

On July 24 1984 Captain Taylor was contacted at Mr Shea s office

He stated that he thought Mr Shea had already provided the requested

materials and that he Captain Taylor would call back later that day

No call was received by Mr Butler but on July 3D 1984 Mr Butler

received a letter from Mr Shea postmarked July 24 1984 in which Mar

cella through Mr Shea made a general denial of any violations of law

See Ex 7

A claim letter dated September 24 1984 was sent to Marcella seeking

to compromise civil penalties for violations of sections 18 b 1 and 18b 3

of the 1916 Act No response was received

No matter how one views the above facts they do not flatter Captain

Taylor or Marcella At best they show a casual attitude toward tariff law

and toward Commission investigators At worst they suggest intentional

disregard and possibly even misrepresentation toward the Commission s

investigator Perhaps these naked facts read in the cold do not present

the fairest picture of Captain Taylor s conduct and that Captain Taylor

could have explained what he was doing in person so that a more accurate

picture could emerge However although Marcella was given notice of

hearing to be held on July 25 1985 which notice was served on July

2 1985 and although his counsel was informed that there would be

a hearing at some time at least as early as June 17 1985 14 Captain

Taylor did not bother to corne to the hearing instead remaining on one

of the islands in the Bahamas purportedly on business Tr 33 35

The Commission has considered cooperation by respondents and attempts

by respondents to clean up wrongdoing after warnings to be mitigating

factors in previous cases The above facts related by the Commission s

District Investigator at best show only slow and belated cooperation and

efforts to clean up tariff violations over a long period of time together

with a casual attitude toward applicable law and toward an informal inves

tigation replete with unexplained failures to respond and runarounds If

it is proper when determining amount of penalty to consider how to

deter future violations by Marcella enforcement policy the degree of culpa

bility whether the violations were innocent or willful in the administrative

law sense etc which criteria applied under the previous regulation and

apply under current law then it is certainly proper to consider such behavior

by Marcella and Captain Taylor and to fashion such a penalty so as

to encourage persons who have exhibited continued disregard Jar law and

a casual attitude over a period of time to exercise greater care and stimulate

them to pay attention to the laws of the country whose commerce they

are serving

14See letter dated June 17 1985 from Mr Shea addressed to Judge Cograve

28 FM C
MARCELLA SHIPPING COMPANY LTD 277

Factors in Mitigation

Having considered the above aggravating factors I must also consider

any factors in mitigation Because Captain Taylor did not appear at the

hearing and Marcella did not present any evidence as to its financial condi

tion and ability to pay it is difficult to weigh this particular factor What

I am left with is argument by counsel that Marcella serves a struggling

third world nation and that harsh penalties would destroy the carrier I

can officially notice that the Bahamas are a small group of islands and

are not a major nation That does not tell me how healthy Marcella is

in terms of its finances The record shows that Marcella operated two

motor vessels and seemed to confine itself to Miami and ports in the

Bahamas The manifests of the voyages shown in the record indicate a

wide variety of goods which Marcella has carried to the Bahamas including

a relatively large number of automobiles and occasionally foodstuffs The

size of the overcharges and undercharges on the five voyages which fell

within the five year period of limitation is not large being only two or

three thousand dollars per voyage although if all shipments of record

are considered the aggregates rise to 10 000 more or less Relatively

small dollar amounts of misratings have been considered by the Commission

as a mitigating factor See Certified Corp and Seaway Distribution Corp

cited above 24 F MC at 544

Mter Marcella refiled its tariff effective October 11 1983 the record

shows it to have operated three voyages as to which tariff rates were

required to be filed On the first voyage Marcella misrated two shipments

On the last two voyages of record in November 1983 Marcella rated

all shipments correctly This indicates that Marcella may at last be exercising

greater care Subsequent elimination of wrongdoing can be considered as

a factor in mitigation

The above discussion constitutes virtually all there is in the record regard

ing mitigating and aggravating factors the rest being argument without

supporting evidence The maller of fashioning a suitable sanction and pen

alty is a fine art especially when the record is so bare of detailed factual

evidence as to the factors to be considered especially ability to pay and

other factors in mitigation Evidence as to these factors could have been

presented by Marcella at the hearing which Captain Taylor did not attend

Nevertheless great care must be exercised by administrative agencies in

fashioning an appropriate sanction which is just and feasible and will not

unduly harm or jeopardize the existence of a wrongdoer who has shown

signs of reforming See discussion of these principles and cases cited in

E Allen Brown lndependent Ocean Freight Forwarder cited above 22

F M C at 596600 Certified Corp and Seaway Distribution Corp cited

above 24 EM C at 544 Midland Pacific Shipping Co Inc cited above

25 EM C at 718 719

In addition to the principles stated above namely that finding a just

and reasonable penalty is a serious maller requiring great care and weighing

28 F M C
278 FEDERAL MARITIME COMMISSION

of factors there is the principle that administrative agencies are expected

to be flexible and to devise procedures which are suited to particular

situations See American Airlines Inc v Civil Aeronautics Board 359

F 2d 624 633 D C Cir 1966 cen den 385 U S 843 It is part

of the genius of the administrative process that its flexibility permits adop

tion of approaches subject to expeditious adjustment in the light of experi

ence see also the discussion and cases cited in Application of PWC

for rhe Benefir of Shinrech 21 SRR 1361 1366 I D application withdrawn

proceeding terminated 21 SRR 1441 FM C notice of finality January

24 1983

The Specific Penalty

I apply the principles discussed above to the present case as follows

In order not to jeopardize the continued existence of a service which

operates two motor vessels to a small group of islands but to send a

message of deterrence and rectify what has been a most casual attitude

toward law a stiff penalty should be assessed I find that an amount

of 150000 would send such a message However because there could

be a problem regarding ability to pay and changed circumstances since

the time of the hearing and there is no evidence since 1983 of violations

I fmd that Marcella should pay 20 000 of this amount within a four

month period ie 5 000 per month At the time of the fourth installment

at the end of the fourth month if Marcella petitions the Commission

asking that the balance of the penalty 130000 be remitted ie forgiven

in whole or in part and supports the petition with reliable evidence that

it cannot continue to pay and in addition submits evidence of steps it

has taken to ensure that violations will not recur the Commission may

remit the balance in whole or in part The four monthly payments of

5 000 each should be within the capacity of an active carrier and the

continual payments should serve to remind Marcella of the reasons why

a penalty was assessed and the need to be careful On the other hand

should Marcella be able to present reliable financial evidence e g

verified

financial statements showing that it cannot continue to make payments

based upon evidence of changed circumstances which evidence had not

been available at the time of the hearing and show other indications of

diligence it may be that the Commission will conclude that the balance

of the penalty should be remitted i e forgiven in whole or in whatever

UCumnt law seedon 13 c of the 1984 Act 46 V S C app sec 1712 c

specIfies that tbe CommissJon

may compromise modify or remit with or without conditions any civil penalty Previous law section

32 e of the 1916 Act 46 U S C sec 831 0 didnot specify the authority to modify or remit a civil

penalty but such authority was probably inherent in the power to auess because the power to decide inher

ently includes the power to recol1lder AlbfTtson v F e C 182 F 2d 397 399 D C Cir 1959 46 CPR

502261 Even ifprevious law did not so specify the Commission s slatement as 10 lhe application of the

1984 Act to cues brou8hl under the 1916 Act cited above 22 SRR 916 allows application of current law

unless manifest injustice would result Here application of current law to allow a possible abatement of

full penalties would not be unjust to MarceUa

28 FMC
MARCELLA SHIPPING COMPANY LTD 279

portion the Commission deems appropriate Such a procedure would enable

the Commission to consider the factor of ability to pay as to which

the present record is not developed Therefore the message of deterrence

and need for care will be sent to Marcella and the public while the possi

bility of undue hardship or termination of the service will be lessened

On the state of the record presently before me I believe such a procedure

would be reasonable and feasible and would allow for any change in

circumstances It is so ordered

The Question as to aCease and Desist Order

The remaining issue framed by the Commission s Order of Investigation

and Hearing concerns the question whether in the event Marcella is

found to have violated section 18b 1 andor 18 b 3 of the Shipping

Act 1916 Marcella should be ordered to cease and desist from

violating the provisions of the Shipping Act of 1984 46 U S C app

sec 1701 et seq Order at 4

Because of the casual attitude that prevailed for so long in Marcella s

operations regarding the need to follow a filed tariff and to make sure

that its tariff was in effect an order directing Marcella to cease and desist

from continuing such practices is appropriate Although Marcella appears

to have rated all its shipments correctly as to the last two voyages of

record the previous pattern and persistent attitude of indifference to the

tariff justifies an order to help ensure that the practices will not recur

See Precious Metals Association Inc v Commodity Future Trading Com

mission 620 F 2d 900 912 1st Cir 1980 cease and desist order justified

if likelihood that offenses will continue absent the order and when record

discloses persistent offenses

Although the record certainly supports the issuance of a cease and desist

order applicable to the type of violations which Marcella has been found

to have committed there is no record support for an unlimited order which

would apply to all the provisions of the 1984 Act For example there

is no evidence whatsoever that Marcella has ever planned or is planning

to enter into agreements with other carriers without filing such agreements

sections 5 a and 10 a 2 of the 1984 Act or has ever or is likely to

retaliate against any shipper employ a fighting ship refuse to negotiate

with a shipper s association etc sections 1O b 5 1Ob 7 1O b 13 of

the 1984 Act An administrative agency is supposed to exercise care in

fashioning a sanction which fits the nature of the offense and not to

impose unduly harsh or extreme sanctions See Gilbertville Trucking Co

v United States 371 U S liS 130 1962 agency has heavy responsibility

to tailor the remedy to the particular facts of each case so as to effectuate

the remedial objects with as little injury as possible I find no need

or basis to issue an open ended order applicable to numerous provisions

of the 1984 Act which have nothing to do with the violations shown

on this record If Marcella or anyone else violates all those other provisions

28 F M C
280 FEDERAL MARITIME COMMISSION

of the 1984 Act the Act contains sufficient remedies and penalties which

the Commission may consider when appropriate However a cease and

desist order relating solely to the relevant tariff filing and tariff compliance

provisions of the 1984 Act would be warranted

Accordingly Marcella is ordered to cease and desist from violating sec

tions 8 a I 46 VS C app sec 1707 a I and section IOb 1 46 VS C

app sec 1709 b 1 relating to the requirement of tariff filing and tariff

compliance respectively

S NORMAN D KLINE

Administrative Law Judge

I

28 F M C
28 F M C 281

FEDERAL MARITIME COMMISSION

DOCKET NO 8428

PETCHEM INC

v

CANAVERAL PORT AUTHORITY ET AL

Port authority s denial of application by a

tug operator for a non exclusive franchise to

provide tug service constituted furnishing of terminal facilities subject to the Commission s

jurisdiction

Port authority s actions not proven to be an unreasonable practice or unfairly prejudicial

to complainant

Michael V Mal1son C Jonathan Benner and Charles L Coleman III fOf complainant

Petchem Inc

Leon Slrom re for respondent Canaveral Port Authority

Robert T Basseches and Timothy K Shuba for respondents Port Canaveral Tailing

Inc and Hvide Shipping Inc

Aaron W Reese and Alan Jacobson for Bureau of Hearing Counsel intervenor

REPORT AND ORDER

March 28 1986

BY THE COMMISSION EDWARD V HICKEY JR Chairman James J

Carey Vice Chairman Francis J Ivancie and Edward J Philbin Com

missioners Thomas F Moakley Commissioner concurring

This proceeding is before the Commission on Exceptions filed jointly

by the Canaveral Port Authority Port Canaveral Towing Inc a tug oper

ator and Port Canaveral Towing s corporaIe parent Hvide Shipping Inc

Respondents to the Initial Decision LD of Administrative Law Judge

Joseph N Ingolia presiding Officer served on October 3 1985 The

LD found that the Canaveral Port AuthoriIy had violated secIions 16 First

and 17 of Ihe Shipping Act 1916 1916 Act 46 US c 815 and

816 1982 ed and continued to violate sections 1O b II 12 and lO d I

of Ihe Shipping Act of 1984 1984 Act 46 D S C app 1709 by granting

to Port Canaveral Towing and Hvide an exclusive franchise 10 provide

tug and towing service for commercial cargo vessels at Port Canaveral

Florida and by denying complainant Petchem Inc another tug operator

permission to provide competing service The LD directed that the Port

AuIhority consider applications to perform commercial tug service on

CommissionerMoakley s

concurring opinion is attached
282 FEDERAL MARITIME COMMISSION

an equal basis under equal prerequisites and criteria so as not to unduly

prefer or prejudice any provider of such service r D at 40

Petchem and the Commission s Bureau of Hearing Counsel filed Replies

to Exceptions The Commission heard oral argument on February 5 1986

BACKGROUND

On August 6 1984 Petchem filed a complaint al1eging that the Port

Authority s denial of its application for a non exclusive franchise to provide

commercial tug and towing services at Port Canaveral was an unreasonable

practice in violation of section 17 of the 1916 Act and also constituted

an unjust prejudice against Petchem and an unjust preference in favor

of Port Canaveral Towing and Hvide Shipping which already held a fran

chise to provide commercial tug service in violation of section 16 First

of the 1916 Act

Although the complaint did not allege any violation of the Shipping

Act of 1984 the Presiding Officer stated that later pleadings and filings

by the parties broadened the scope of the complaint to include the com

panion sections of the 1984 Act i e sections IOb 1l 12 and 1O d I

2

Respondents indicated no objection to inclusion of these 1984 Act provisions

in the proceeding 3

Petchem s complaint originally included a claim for reparations but that

subsequently was withdrawn Hearing Counsel was granted leave to inter

I Section 16 of the 1916 Act provided in relevant part that

It shall be unlawful for any common cmler by water orother penon subject to this chapter

either alone orin conjunction with any other person directly or indirectly

Fint To make or live any undue orunreasonable prcfwcnce or aOvlUltage to any particular per

son locality Or descriptIon of traffic in any respect whatsoever or to subject any particular person

locality or deacription of traffic to any undue or unreasonable prejudice or disadvantage bt any

respect whatlOOver

46 U S C ISIS 9S2 ed

Section 17 prQvidcd in relevant part

Every such carrier and every other person subject to this chapter shall eitaplish observe and

enforce just and reasonable regulatIons and practices relatins to or connected with the receiving

hancllln atorins ordeUverlna of property Whenever the Commission flnda that any luch regula

tion or practice is unjust or unreasonable it may determine prescribe and order enforced a

Just

and reasonable regulation or practice

46 U S C IS 619S2 ed

ID at 3 n 2 Section 1Ob of the 1984 Act provides in relevant part

b COMMON CARRIERS No common carrier either l1one orin conjunction with any other

penon dJrcctly or Indirectly may

II except for service contracts make or gIve any undue orunreasonable preference or advan

tage to any particular person locality ordescription of traffic in any respect whatsoever

12 subject any particular perIIon locality or description of traffic to an unreasonable refusal

to deal or any undue or unreasonable prejudice disadvantage in any respect whatsoever

46 US C pp 11709

These provisiom are made applicable to marine terminal operators by acetlon 1O d 3 d

Section 100dX provldaa

No common carrier ocean freight forwarder ormarine tennJnaI operator may fail to establish

observe and enforco just and reasonable regulations and practices relating to orcOnnected wllh re

ceiving handling storing ordelivering property

d

3

See Exceptions at 6 n 3

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 283

vene in the proceeding in view of certain jurisdictional issues at bar

An extensive evidentiary record was developed including four days of

public hearings in May 1985

A The Parties

The Canaveral Port Authority was established in 1953 by the State of

Florida to construct and operate a deep water port at Cape Canaveral

The Port Authority has tax and eminent domain powers and is governed

by five elected commissioners with day to day operations under the super

vision of a port director

Port Canaveral itself is located on the Atlantic Coast of Florida close

to the Kennedy Space Center at Cape Canaveral Measured by either land

area or cargo volume the Port is very small It consists of three adjacent

basins and a dredged channel approximately 200 feet wide that connects

the Port to the Intercoastal Waterway The entire east basin of the Port

and a majority of the land surrounding the middle basin is owned by

the United States This area was taken from the Port by eminent domain

and is used to test the Trident submarine for other military purposes

and for the operation by the National Aeronautics and Space Administration

of the Space Center Historically the military has been the largest user

of the Port by awide margin 4

The Port Authority owns the remainder of the Port which has been

developed for commercial activities The Port s commercial facilities are

located primarily along the main channel They consist of four terminals

for passenger cruise ships two berths for oil tankers and barges and eleven

berths for commercial cargo ships 5

The Port contains no anchorages ship

repair ship construction or drydock facilities Commercial cargo movements

at the Port are largely imports of petroleum products and cement with

some newsprint scrap fresh fruit and lumber The Port is also home

to a large scallop fishing fleet

From 1958 to 1983 all towing in the Port both military and commercial

was performed by Hvide Shipping Inc Hvide through its wholly owned

subsidiary Port Canaveral Towing Inc formerly called Port Everglades

Towing for ease of identification hereafter references to Hvide include

Port Canaveral Towing and Port Everglades Towing

Hvide performed tug and towing service for military vessels under a

contract with the United States 6 The military contract authorized Hvide

to provide tug service for commercial vessels so long as there was no

interference with service to military vessels However at the beginning

of each contract year Hvide was required to negotiate with military rep

resentatives and arrive at joint projections of the added costs and revenues

4

Ex 1 8 and IV4to Ex R 8

5

May 6Tr 122

6For much of this time no one but Hvide could be found 10 bid on the military work with the result

that the contract was awarded to Hvide on the basis of a sole source procurement May I Tr 412
284 FEDERAL MARITIME COMMISSION

to Hvide of performing commercial tug service The contract price of

the military service then would be reduced by 00 percent of the estimated

commercial revenue less the estimated commercial costs which apparently

included an undefined profit factor 7 IfHvide realized more commercial

revenue than it and the military had estimated it could keep that extra

money

s

Generally the actual results were quite close to the original esti

mates In Hvide s best year 1983 it realized an extra profit of 40 000

while its worst year resulted in a shortfall of 15 000 9

Hvide performed commercial services at Port Canaveral under a series

of exclusive franchise agreements between itself and the Port Authority

The Port Authority s charter from the State of Florida authorizes it to

award franchises for the performance of commercial services at the Port w

The most recent agreement between Hvide and the Port Authority was

executed on January 8 1975 for a term of 10 years with automatic yearly

renewals thereafter The franchise may be terminated by either party on

60 days notice and on 30 days notice in the event of a default The

agreement states in part

The party of the first part the Port Authority having determined

that this Franchise is in the best interest of Port Canaveral Florida

within the responsibility of the party of the first part it is specifi

cally understood and agreed that the party of the first part will

not grant to another tug towing service a Franchise to carry on

the aforementioned towing and fire fighting service at Port Canav

eral Florida without first having public hearings showing a con

venience and necessity therefore as determined solely by party

of the first partl1

In 1983 Hvide became ineligible to bid on the military contract because

its total corporate revenues exceeded the Small Business Administration

set asides ceiling upon which the contract was required to be bid

Competing against several other bidders Petchem was awarded the military

contract in November 1983 Petchem is a Connecticut corporation From

the time of its incorporation in 1978 until 1983 Petchem did a

very

modest business of marine consulting 12 prior to the award of the military

contract Petchem had no experience in the tug business and it now performs

no other work of any kind except the military service at Port Canaveral 13

Despite losing the military contract Hvide remained at the Port to perform

commercial tug and towing service because it believes that eventually there

will be enough commercial business to allow it to make a profit In Decem

May 6 Tr 202 203 220225

May 7 Tr 145

9Id at 14547

IOEx P R I Art IV 6 7

IIEx C 2S

12In 1982 Petchem earned 12 140 and in 1983 it earned 14 701 May 1 Tr 80

13 May 1 Tr 8081

28 P M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 285

ber 1983 after Petchem had won the military contract but before it began

providing service under that contract Petchem applied to the Port Authority

for a non exclusive franchise to engage also in commercial service at Port

Canavera1 14 In accordance with the franchise provision quoted above a

Port Authority committee evaluated Petchem srequest and issued a rec

ommendation

Petchem has not shown that there is a clear case of convenience

and necessity for the Canaveral Port Authority to issue an addi

tional tug franchise therefore none sh0u d be issued

Since it would be beneficial to both the commercial and military

interests in Port Canaveral to have up to four 4 tugs available

when the tugs are not otherwise in use the Canaveral Port Author

ity should encourage Port Canaveral Towing to make standing

arrangements to sub contract with Petchem for tug service needed

in excess of Port Canaveral Towing s normal capability We also

recommend that the military encourage Petchem to make similar

arrangements to sub contract beyond Petchem s normal capability

with Port Canaveral Towing lS

In February 1984 the Port Authority endorsed the committee s rec

ommendation and denied Petchem s application The division of tug business

between Petchem and Hvide became as it remains today In providing

all military service Petchem uses two relatively new twin screw tugs of

approximately 2100 horsepower each Under the military contract these

two tugs must be available on 30 minutes notice 24 hours a day 7

days a week 6 In 984 its first year of operations under the military

contract Petchem realized a net profit of 23 000 on operating revenues

of 894 000 Petchem has a good record of performance on the military

tug work

Hvide for its part provides all commercial service at the Port It uses

two tugs that it formerly employed for both military and commercial work

Thus there is now a total of four tugs providing day to day service at

the Port Hvide s tugs are older than Petchem s but have been extensively

refitted They use single crew propulsion Hvide also occasionally uses a

third tug at the Port but this tug is designed only for pushing against

the side of a vessel in conjunction with the other tugs and is therefore

14Unlike Hvide s prior contract Petchem s contract with the military did not include an authorization to

perfonn commercial service at the Port Such authorization had been included in the original solicitation but

was deleted in the pre bidding process at Petchem srequest Petchem apparently was concerned that retaining

such aprovision would motivate Hvide to try to use one of its corporate subsidiaries to evade the set

asides limits May I Tr 117 121

lSEx C 26 at 11 12

16 Petchem has athird smaller lug but that is obligated to provide special barge service outside the scope

of the ordinary military work and would not be available for commercial work at all May 1 Tr 601

7677

11 C lO through C 13 May 1 Tr 425
286 FEDERAL MARITIME COMMISSION

limited in its uses IS In its presentation to the Port Authority in opposition

to Petchem s application for a franchise Hvide projected that it would

lose 250 000 in 1984 in providing all commercial service at the Port 19

It actually lost 473 000 20 However Hvide has not raised its commercial

rates since it lost the military contract and offers some of the lowest

rates on the East Coast 21 Nevertheless Petchem is prepared to charge

even lower rates in order to gain a competitive advantage against Hvide 22

B The Initial Decision

The Presiding Officer was required to address certain threshold questions

of jurisdiction raised by Respondents before he reached the merits of

Petchem s complaint23 He held that because the Port serves carriers offering

cruise transportation to passengers it serves common carriers and therefore

was an other person subject to the 1916 Act and is a marine terminal

operators subject to the 1984 Act He stated that in light of this holding

it was unnecessary for him to determine whether the Port is subject to

the Commission s

jurisdiction because it holds itself out to serve common

carriers of cargo however he contended that there is considerable authority

for jurisdiction on this basis as well In response to Respondents further

argument that even if the Port is personally subject to the Commission s

jurisdiction the conduct at issue here involves tug and towing services

beyond the reach of the Shipping Acts the Presiding Officer relied on

AP St Phil D Inc v Atlantic Land and Improvement Co 13 F M C

166 1969 as authority for the proposition that where a terminal operator

through an exclusive franchise agreement has made carrier access to its

facilities dependent upon employment of a particular tug service the fur

nishing of tug boat service is transformed into a terminal function subject

to Commission jurisdiction He rejected Respondents arguments that more

recent Commission decisions indicate that St Philip should be repudiated

or at least distinguished from this case

On the merits of the complaint the Presiding Officer found that the

Port Authority violated sections 16 and 17 of the 1916 Act and sections

10 b 11 12 and lO d I of the 1984 Act in selecting Hvide to provide

commercial service exclusively and denying Petchem an opportunity to

compete with Hvide 24 He held that Petchem had met its initial evidentiary

burden by proving the existence of the Port Authority s exclusive franchise

arrangement with Hvide He then cited the St Philip decision supra for

18May 1 Tr 111 112 163 65 May 6 Tr 210211 A cruise line official teatiflcd that this specialized

tug was quite satisfactory forhis company s needs May 6 Tr 273

19Ex C35 May 6Tr 95

20May 6 Tr 103

1

lld at 205

22 C 19 C20 May I Tr 634

23Respondents had raised similar bsues in aJoint Motion for DIsmIssal by Summary Disposition filed

December 6 1984 ThePresiding Officer denied theMotion without prejudice on January 30 1985

24Although Hvide and Port Canaveral Towing were respondents bt the proceeding they could not be found

10 violate the Shipping Acts bec ause they are not oceancommon carriers or tenninal operators

28 F M C
PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 287

the proposition that exclusive franchise arrangements are prima facie unjust

and unreasonable and should be struck down unless justified by their pro

ponents The Presiding Officer summarized Respondents case in support

of Hvide s franchise and stated that even if one were to assume the validity

of that case the Port Authority s actions were still unreasonable and unjust

because Hvide was favored over all other tug operators not just Petchem

The Presiding Officer cited evidence indicating that contrary to its pro

fessed desire to have four tugs serving the Port the Port Authority would

have pennitled Hvide to continue to provide all commercial work with

its two and occasionally three tugs even if it still had the military work

As to possible conflicts between military and commercial tug work he

noted that historically there had been no serious difficulties and until

Petchem came onto the scene neither the Port nor the military saw fit

to complain JD at 38 He concluded that Petchem must be allowed

to perfonn commercial tug service at Port Canaveral on a non exclusive

basis until such time as the Port properly establishes the need for an

exclusive franchise agreement and holds competitive bidding

DISCUSSION

A Jurisdiction

Respondents continue to contend that the Commission lacks jurisdiction

over Petchem s complaint because in the first place the Port is not a

marine tenninal operator under the 1984 Act or an other person

under the 1916 Act The 1916 Act defined other person subject to the

Act in relevant part as any person carrying on the business of

furnishing wharfage dock warehouse or other tennina facilities in connec

tion with a common carrier by water 46 U S c 801 1982 ed The

1984 Act defines marine tenninal operator as a person engaged in

the United States in the business of furnishing wharfage dock warehouse

or other terminal facilities in connection with a common carrier 46 U S C

app 1702 15

The tenns of those definitions make it necessary to refer also to the

Acts definitions of common carrier The 1916 Act defined common carrier

by water in foreign commerce in relevant part as one engaged in

the transportation by water of passengers or property between the United

States and a foreign country 46 U S C 801 1982 ed

The 1984 Act defines common carriers as

a person holding itself out to the general public to provide trans

portation by water of passengers or cargo between the United

States and a foreign country for compensation that

A assumes responsibility for the transportation from the

port or point of receipt the port or point of destination and

28 F M C
288 FEDERAL MARITIME COMMISSION

I

B utilizes for all or part of that transportation a vessel

operating on the high seas or the Oreat Lakes between a port

in the United States and a port in a foreign country

46 U S C app 1702 6

Under either statute our jurisdiction over Petchem s complaint ultimately

must rest on findings that the Port Authority s control over tug services

through its franchise system represented furnishing of terminal facilities

and that such furnishing was in connection with common carrier service

at the Port Respondents argue that there is no common carrier service

at the Port and even if there is the towing service in controversy here

is not a marine terminal activity over which the Commission may exercise

jurisdiction We will discuss first the state of the record with respect to

common carrier service at Port Canaveral and the applicable case law

I Cargo Common Carriage

Clearly the common carrier requirements of the statutes would be met

if common carriers of cargo were cal1ing at the Port However all parties

agree that no such carriers are calling at Port Canaveral at present The

petroleum products and other non liner cargoes moving through the Port

are shipped on tankers and barges Petchem contends that cargo common

carriers had served the Port in the past and that such past service coupled

with the Port s holding out in the hopes of attracting similar service

in the future creates Commission jurisdiction However the only evidence

of record on past cargo common carriage at the Port shows mer ly that

there has been none since 1980 there is no evidence as to precisely

when there was cargo carriage 2Petchem argJles that Port Canaveral was

adjudicated to be a marine terminal operator subject to the 1916 Act in

the Commission s 1974 decision in Agreement No T 2598 However our

decision in that case in4icates that no party including the Port Authority

itself raised the issue of the Port s

regulatory status and that the Commis

sion consequently assumed that the Port was subject to our jurisdiction

17 F M C at 287 293 It cannot be fairly Sllid that the Port s status

is res judicata as a result of Agreement No T 2598 Also our decision

contains no findings of fact or other references to cargo common carrier

service at the POr at that time 26

Consequently the Commission cannot find that Shipping Act jurisdiction

attaches to Port Canaveral by operation of present or past cargo common

1

The deputy pon dJrec tor testified that no liner cargo oatriera have called at the Port since he took his

job in 1980 Miy 6 Tr 4 13 In ils intcrroaatorles to the Port Authority Petchemaaked it toltate the number

of common carriers without diatinJUiahing between cargo and p Stmger CIll1 ien that had called at the Port

in 1982 and 1983 the Port s answer was unknown Ex C I C 2

26Even if there had been such references it is problematical at beet whether 1974 cargo common carrier

service could support a

fmding of jqrisdiction in 1986 in the abse of evidelWo of service in the inter

vening years

2S P M C
28 EM C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 289

carriage The Port clearly hopes to attract such service in the future 27

and as Petchem emphasizes the Port maintains a terminal tariff at the

Commission that includes charges for servicing liner cargo carriers 28 In

his Initial Decision the Presiding Officer indicated that he believed that

such holding out to common carriers on the Port s part could on its

own create Commission jurisdiction Petchem supports the Presiding Offi

cer s statement29 although as noted Petchem attempts to strengthen its

holding out arguments with references to alleged past cargo operations

and the Commission s decision in Agreement No T 2598 Respondents

contend that the act of filing of a tariff does not create regulated status

and that jurisdiction cannot rest on mere willingness to serve cargo common

carriers if any should decide to call

Although holding out is only tangential to our disposition of the

jurisdiction issue the Presiding Officer s statement and the parties argu

ments make some discussion desirable The leading case on the importance

of holding out to Commission jurisdiction over a port is Prudential

Lines Inc v Continental Grain Company 25 F MC 203 1982 The

administrative law judge AU found that the operation by Continental

Grain Company of a grain elevator at Norfolk Virginia constituted oper

ation of a marine terminal facility subject to the 1916 Act In so finding

the AU analyzed the authorities on Commission jurisdiction over terminal

operators He stated that the teaching of the more recent cases is that

holding out is more important as a test of jurisdiction than such factors

as the number of times that a common carrier s vessels called at the

terminal whether a vessel owned by a common carrier actually was oper

ating in common carriage when it called at the terminal or the effect

of the terminal s activities on common carriage 25 F M C at 245 Thus

in reaching his ultimate conclusion the AU relied heavily on the fact

that Continental Grain had held out to the public by filing a terminal

tariff with the Commission that covered common carriers vessels Id at

247 249 He also noted that other grain companies wishing to remove

their elevators from Commission regulation had done so by simply announc

ing in their tariffs that they did not serve common carriers d at 249

Petchem commends the ALl s analysis and conclusion in Continental

Grain as applicable to Port Canaveral s maintenance of its tariff and admit

ted solicitation of cargo carriers However Respondents correctly point

out that the AU also expressly noted that Continental Grain s elevator

had in fact served common carriers in the recent past Id at 247 249

More important the holding out aspect of Continental Grain was not

addressed by the Commission in our subsequent decision on exceptions

27 May 6Tr 13 The Port has made capital improvements in support of such efforts including the construc

tion of a

ramp for roll onlroll off cargo d at 61 62

28 See n 22 supra and accompanying text

29Petchem Reply 10 Exceptions at 20 n 7 22
290 FEDERAL MARITIME COMMISSION

Rather in affirming as to jurisdiction the Commission relied on the fact

of actual service to conunon carriers 25 F M C at 204 206

Thus Continental Grain does not establish that holding out by itself

creates Conunission jurisdiction over a terminal facility If jurisdiction were

to be found here over Port Canaveral on the basis of its tariff pllblication

and solicitation of common carriers an explicit extension of existing prece

dent would be required Because we find below that the passenger operations

at the Port are common carriage for Shipping Act purposes it is unnecessary

to establish any new standard of law with respect to holding out in

this case 30

2 Passenger Operations

The record establishes that there are basically two types of passenger

service at Port Canaveral Passenger vessels originating in Europe including

the QUEEN ELIZABETH II call at the Port and disembark passengers

for a visit to Disney World a short bus ride away When the passengers

return the vessels then sail on to other ports The Port also is home

for vessels offering voyages to the Bahamas 31

Respondents argue that these operations do not bring Port Canaveral

within the Commission s

jurisdiction because all of these vessels are en

gaged in round trip not one way service They contend that because the

passengers origin and destination are the same port whether Port Canaveral

or a foreign port there is no true transportation in that the passengers

object is the pleasure of the cruise itself rather than migration from one

point to another They further construe the Shipping Acts as requiring

that there must be transportation from a defmed origin port and a different

final destination port one of which must be in the United States and

the other in a foreign country

In rejecting those arguments the Presiding Officer stated that the defini

tions in both Shipping Acts of common carriers as vessel operators pro

viding inter alia transportation of passengers between the United States

and a foreign country is clear and covers both types of passenger service

at Port Canaveral He also referred to a dictionary definition of transpor

tation that simply describes conveyance from one place to another He

stated

When ships go from the Port to the Bahamas or some other

foreign country they provide transportation between the United

States and a

foreign country and it matters not that there is

30Respondents perceive a difference between the 1984 Act s definition of a

regulated camer which ex

pressly includes holding out and the Act s definition of arc ulated pol1 which refers to the furnishing of

tenninal facllltles 46 s c

app 17026 1 Respondents would require actual contemporaneous fur

nishing in order forCommission jurisdiction to attach Petchem counters that Respondents reasoning would

cause Commia ion jurisdiction to wink on and off dependina on the presence of Qarao carriers Oral Argu

ment Tr at 47

31Ex C 3 through C6May 6 Tr 2S26 134 35 A cruise line offering cruisca to nowhere formerly

operated at the Port May 6Tr 26

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 291

going to be additional transportation from the foreign country

back to the Port Indeed in our view the return voyage is further

transportation within the meaning of the Shipping Act

JD at 22

Hearing Counsel advance the same analysis in their Reply to Exceptions

Respondents counter that temporary stops at layover ports do not convert

a unitary round trip voyage into a

sequence of one way services They

cite by analogy Shipping Act cases on cargo tariff filing that hold that

a through movement on a single bill of lading should be viewed as one

complete voyage

There have been very few proceedings involving passenger transportation

under either the 1916 Act or the 1984 Act The Commission is essentially

without guiding precedent as to whether the passenger vessel operations

at Port Canaveral constitute common carriage 32 Under such circumstances

the Presiding Officer cannot be faulted for relying on his own reading

of the statutes and a standard definition of transportation Agencies

and courts commonly resort to the same technique if no other help is

available See generally Unired Parcel Service Inc v United States Postal

Service 455 F Supp 857 E D Pa 1978 In the absence of clear statutory

guidance popular or received import of words fumishes the general rule

for the interpretation of public laws Mercantile Bank Trust Company

v United States 441 F 2d 364 366 8th Cir 1971 Thus the Commission

reasonably may rely on its own common sense construal of the Shipping

Acts

In defming common carriers subject to the Commission s

jurisdiction

both the 1916 Act and the 1984 Act plainly include carriers of passengers

With regard to the normative provisions involved in this proceeding sections

16 First of the 1916 Act and lO b 11 12 of the 1984 Act which

prohibit unreasonable preferences to or prejudices against any person

clearly protect passengers 46 U S C 815 1982 ed 46 U S C app

1709 Section 17 second paragraph of the 1916 Act and section lO d I

of the 1984 Act require just and reasonable practices regarding receiving

handling storing or deliverilg property 46 U S C 816 1982 ed

46 U S c app 1709 Although the applicability of these sections to pas

sengers is less direct than that of sections 16 and 1Ob they can be

read to protect the property of passengers as well as shippers 33

Respondents would have the Commission limit these provisions of the

Shipping Acts to passengers purchasing one way passage between the United

32The authorities offered by Respondents provide no assistance Neither Customs Service rD 85 109

50 Fed Reg 26 981 July 1 1985 nor Compo Gen OP B 138816 38 Compo Gen 621 1959 address

whether a cruise between a U S port and a foreign port with areturn to the origin port is transportation

orcommon carriage fOf Shipping Act purposes Both essentially were concerned with distinguishing for pur

poses of other statutes between foreign and domestic commerce not between common carriage and 000

common carriage

33See 46 C F R 515 6b Compare Hepner v P 0 Steam Navigation Company 27 F M C 563

1984
292 FEDERAL MARITIME COMMISSION

States and a foreign country excluding from our regulation and protection

passengers purchasing round trip passage However Respondents do not

point to any indication in the legislative histories of either the 1916 Act

or the 1984 Act that Congress meant to draw or even considered any

differences between one way and round trip passenger service

The Shipping Acts definitions of common carrier apply without dif

ficulty to the cruise lines operating in and out of Port Canaveral With

parricular reference to the 1984 Act s definition 46 U S C app 1702 6

these lines I hold themselves out to the general public 2 to provide

transportation by water 3 to passengers 4 between the United States

and a foreign country 5 for compensation 6 using a vessel operating

on the high seas 7 between a port in the United States i e Port Canav

eral and a port in a foreign country e g

the Bahamas or Europe The

statutes do not specify that to be a common carrier a passenger operator

must offer only one way voyages or voyages in a particular direction

or that the passengers must disembark or remain in port or that the pas

sengers motive must be something other than pleasure To conclude that

round trip vacation cruises are not ocean common carriage would contradict

the language of the statute

As for the meaning of transportation a role of statutory construction

holds that if it is alleged that a term has both a common meaning and

a more specialized commercial or trade meaning the common meaning

will prevail until the commercial or trade meaning is proved or a different

legislative intent is established 34 On this record the Presiding Officer s

conclusion that transportation as it is used in the Shipping Acts has

the common meaning of conveyance of cargo or persons was entirely

appropriate

Ifthe Commission accepted Respondents arguments the practical result

would be that we would no longer have any meaningful regulatory jurisdic

tion over passenger carriers True one way passenger service which Re

spondents term bona fide passenger transportation and concede is within

our jurisdiction 35

may not exist at all today It certainly existed when

the 1916 Act was written the waves of immigrants to the United States

in the late nineteenth and early twentieth centuries traveled primarily on

passenger ships In the wake of the development of jet airplanes however

passenger transportation is now almost exclusively round trip pleasure

cruises even if only one leg of the cruise is on a vessel as in the

QUEEN ELIZABETH II British Air packages 36 In enacting the 1984

Act Congress carried over into the new statute the 1916 Act s references

to passengers This requires the Commission to oversee the operations of

all passenger vessel carriers who met the statutory definition The course

34Sutherland Stat Const 647 31 4th ed

3

Exceptions at 83

36As Petchem states human beings with such deplorable exceptions as slaves convicts and kamikazes

generally view transport of their persons as a round trip undertaking Reply to Exceptions at 23

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 293

advocated by Respondents would amount to an abandonment of those re

sponsibilities We conclude that we have in personam jurisdiction over

Port Canaveral by virtue of the passenger carriers calling there

3 Tug Service as Terminal Facilities

Respondents alternate jurisdiction argument is that even ifPort Canaveral

is a regulated entity due to service to passenger common carriers the

Commission still lacks subject maller jurisdiction over Petchem s complaint

because the Ports decision regarding tug service did not involve the fur

nishing of terminal facilities

The Commission does not have jurisdiction to regulate tug services under

ordinary circumstances Respondents correctly state that the legislative his

tory of the 1916 Act shows that Congress expressly intended to remove

tug operators from the Act s coverage

37 The 1984 Act did not change

that However in A P St Philip Inc v Atlantic Land and Improvement

Co supra the Commission established legal principles under which tug

services in some circumstances can become Shipping Act terminal facilities

The resolution of this last issue turns on whether the St Philip principles

should control here

St Philip involved a dispute over tugboat service at a particular terminal

facility in the Port of Tampa Florida The St Philip company was a

tugboat operator Atlantic Land operated a phosphate elevator on the Port

Tampa Canal that served ocean common carriers and was therefore a Ship

ping Act marine terminal like the grain elevator in the Continental Grain

case supra Atlantic Land entered into a contract with another tug operator

Tampa Towing that gave Tampa Towing an exclusive right to provide

tug service for vessels calling at the phosphate elevator Despite this con

tract St Philip began to provide tug service as well Tampa Towing brought

a local court action that resulted in a permanent injunction against St

Philip from contracting with any vessel coming to or going from Atlantic

Land s elevator St Philip then filed a complaint with the Commission

alleging violations by Atlantic Land and its corporate parent of the 1916

Act

The administrative law judge had concluded in his initial decision that

even though Atlantic Land and its parent were terminal operators subject

to the Commission s

jurisdiction the tug service in dispute was not so

subject because it concerned the operation of the vessels as distin

guished from services related to the terminal 13 EM C at 171 The

AU also found that there could not be a violation of section 17 of the

1916 Act because tug service did not concern the receiving handling

transporting storing or delivery of property The Commission reversed

stating

37See United States v American Union Transport Inc 327 U S 437 451 52 1946
294 FEDERAL MARITIME COMMISSION

i

NormalIy it is true that the selection of the tugboat operator

is within the exclusive province of the carrier and that terminals

themselves do not become involved in the actual docking and

undocking of vessels or in the arrangements therefor We would

therefore ordinarily agree that tugboat service does not constitute

a terminal function within the scope of section 17 Where as

here however the terminal operator has usurped the normal func

tion of the carrier and made the very access to the terminal

facilities dependent upon a commitment to Tampa Towing for

tug service under the terms of an exclusive right contract the

fumishing of tugboat service has in effect been transformed into

a terminal function intimately related to the receiving handling

transporting storing or delivering of property

Id at 171 72

As precedent for its conclusion in St Philip the Contmission cited Truck

and Lighter Loading and Unloading Practices at New York Harbor 9

F M C 50S 1966 There terminal operators that maintained and operated

lighters a function usually not performed by a terminal were directed

to adopt just and reasonable lighter detention rules because

The assumption by the terminal operator of the carrier s traditional

obligation of loading and unloading of necessity carries with it

the responsibility for ensuring that just and reasonable rules govern

the performance of the obligation

9EMC at 514

Despite the strong factual similarity between St Philip and this case

Respondents contend that St Philip is no longer a viable precedent on

the issue of when the Commission may assert ancillary jurisdiction over

normalIy non Shipping Act activities such as tug service They argue that

certain Commission decisions subsequent to St Philip have recognized that

the Commission must consider whether such activities have a discernible

effect on the competitive or commercial relationships to which the Shipping

Acts are directed and that the Port s refusal of a franchise to Petchem

had no such effect They also state that these later cases have established

a dichotomy between a port s actions relating to navigation and those

relating to terminalcargo services They place particular emphasis on Beth

lehem Steel Corp v Indiana Port Commission 21 F M C 629 1979

where the Commission held that it did not have jurisdiction over a port

fee designed to recoup costs for constructing the harbor itself

Respondents analysis is incorrect The essential facts of Bethlehem Steel

should be distinguished from those of St PhiliP and this case The effect

of a harbor construction fee on a ship s access to terminal facilities is

far more remote and tangential than that of tug service Moreover two

decisions more recent than Bethlehem Steel indicate that the theory articu

lated in St Philip has continuing vitality In Louis Dreyfus Corp v

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 295

Plaquemines Port Harbor and Terminal District 25 EM C 59 1982

the Commission stated

The statutory scheme contemplates regulation of any entity if

it exercises sufficient control over tenninal facilities to have a

discernible effect on the commercial relationship between shippers

and carriers involved in that link in transportation

d at 1079

The administrative law judge in Plaquemines had characterized St Philip

as establishing a control theory of Commission jurisdiction over terminal

activities d at 1077 n 5 The Commission adopted this phrase and

stated that conditioning access to a port s private facilities upon the pay

ment of a charge for governmental services reflects significant threshold

control over terminal facilities d at 1080 On the basis of this control

theory the Commission concluded that it had both personal jurisdiction

over the respondent Port District which was a political subdivision of

the State of Louisiana and subject matter jurisdiction over the Port Districts

practice of assessing fees for certain vessel services based on cargo trans

actions The Commission specifically held that it had subject matter jurisdic

tion under section 17 of the 1916 Act now section lO d I of the 1984

Act because the Port s practices had an underlying purpose relating to

terminal operations and a more than incidental relationship to the handling

of cargo On this point the Commission distinguished Bethlehem Steel38

The second case is Jacksonville Maritime Association v City of Jackson

ville 27 F M C 149 1984 There the Commission found that we had

no jurisdiction to review a user fee charged to vessels anchored in

storage The rationale of the case is con8istent with St Philip and

Plaquemines The Commission reasoned that the fee did not apply to com

mon carriers by water and more important found that there was no

evidence showing that Respondent used the ordinance as a means of control

ling access to terminal facilities 27 F MC at 151 and that this factor

distinguished the case from Plaquemines d

The cases decided under the 1916 Act do not support Respondents

arguments that Port Canaveral s refusal to grant a tug franchise cannot

have any discernible effect on the commerce regulated by the Commission

In St Philip the Commission focused on the potential effect of the exclu

sive tug contract on common carriers wishing to hire tug services and

on the general shipping public that stood to benefit from competition

13 F M C at 172 73 In Plaquemines the Commission stated that the

port s pervasive involvement in the business of common carriers marine

3825 EM C at 67 n 13 and accompanying text Based on the language and holding of Plaquemines

it appears that the navigationterminal distinction frrsl slated in Bethlehem Steel would be more accumtely

referred to as harbor maintenanceterminal See Indiana Port Commission v FMC 521 F 2d 281 285

DC Cir 1975 The AU in St Philip had used a vessel operation terminal dichotomy 13 F M C at

171 but was reversed
296 FEDERAL MARITIME COMMISSION

terminals and the commerce of the United States conferred jurisdiction

on the Commission 25 F M C at 67 It should also be noted that Respond

ents concentrate their arguments on possible discriminatory or anticompeti

tive effects but that section 17 of the 1916 Act and section lO d I

of the 1984 Act require just and reasonable practices arguably a broader

standard 39

There is no indication that Congress intended to alter the principles

of those 1916 Act decisions by enacting the 1984 Act The primary concern

of Congress was to make more efficient and expeditious the Commission s

handling of antitrust exempt agreements among carriers Congress did not

express any desire to change the historical requirement that marine terminal

operators be fair and reasonable in their behavior The best evidence of

this is the nearly verbatim transfer of the language of sections 16 First

and 17 from the 1916 Act into section 10 of the 1984 Act The Port

Authority s exclusive franchise system for lUg operations extends the Port s

furnishing of terminal facilities from the pier onto the waters of the harbor

The Port s practice has an underlying purpose relating to terminal operations

and a more than incidental relationship to the receiving and handling of

property and cargo For those reasons the Commission has jurisdiction

over the subject ofPetchem s complaint

B The Lawfulness of the Port s Actions Under the Shipping Acts

At the outset there is a dispute among the parties regarding the legal

standard by which the Commission should determine the lawfulness of

the Port Authority s denial of Petchem s franchise application Petchem

and Hearing Counsel contend that St Philip and an earlier decision Cali

fornia Stevedore Ballast Co v Stockton Port District 7 F M C 75

1962 should control our examination of the evidence of record In those

cases we found unlawful exclusive arrangements between a terminal on

the one hand and a lUg company St Philip and a stevedore Stockton

on the other In neither proceeding did the parties defending the arrangement

make much of an effort to justify it on economic grounds preferring

instead to concentrate on challenging the Commission s

jurisdiction St

Philip 13 F M C at 173 Stockton 7 EM C at 81 84 Having found

jurisdiction the Commission stated in both cases that such arrangements

are prima facie unreasonable and must be justified by their proponents

In the absence of convincing substantive justification we concluded in

each case that the arrangement wasunreasonable and unlawful

39A

necessary implication of Respondents arguments on this point is that Pe1chem lacks 8tan ing to brin

a complaint before the Commission because as a

tug operator it Is not a meMber of ac1asa proteCted by

the Shipping Acts In fact Respondents expressly made such lUgumentll before the Preaidlng Officer Set

J D at 289 and PefChem s

Reply to Exceptions at 36 n 25 Reapondents position is contradicted by the

broad temu of sec tlon 22 of the 1916 Act 46 U S C fi821 1982 ed and seetloD l1 a of the 1984 Act

46 U S C app 51710 which permit any person to file a complaint aUeaing violations of the statute

Any person means any person Sout Carolina Ports Authority v

Geor Ia P01ts Authority

P M C 22 s a a 1111 1117 1984

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 297

At the same time however the Commission explicitly recognized that

in the proper circumstances such arrangements may be justified as necessary

to advance economic efficiency or produce other benefits In Stockton

the Commission stated

W e do not hold here that all monopolistic stevedoring agreements

are necessarily and inevitably unjust and unreasonable practices

which must be prohibited at any cost

7 F M C at 84 footnote omitted

That is consistent with the language of the Shipping Acts which do

not forbid all preferential or prejudicial treatment only that which is undue

or unreasonable St Philip I3 F MC at 74

These general principles are applicable to the instant proceeding The

exclusive arrangement between the Port Authority and Hvide is prima facie

unreasonable because it is contrary to the general policies of the United

States favoring competition which fact obligates Respondents to justify

the arrangement St Philip 13 EM C at 72 73 However unlike Stockton

and St Philip Respondents here have attempted to meet their burden by

adducirg

extensive economic and business testimony in support of the

arrangement Consequently the position of Petchem and Hearing Counsel

is correct only to a limited degree While the rationale of St Philip and

Stockton remain relevant to the merits of this case the result of those

cases does not control the Comntission s decision If we held otherwise

the effect would be to establish a rule that franchise agreements or other

exclusive port arrangements are per se violative of the Shipping Acts

assuming only that they are within the Commission sjurisdiction as dis

cussed below this in fact appears to be the essence ofPetchem s position

A

contrasting example of a successful justification of an exclusive port

franchise can be found in Agreement No T 2598 17 F MC 286 1974

This decision is heavily relied upon by Respondents for reasons that will

be obvious

InAgreement No T 2598 the Commission investigated whether an exclu

sive franchise agreement between the same Canaveral Port Authority and

Eller and Company Eller to perform terminal operations at Port Canaveral

including stevedoring was inter alia in violation of sections 6 and

7 of the 9 6 Act Another terminal company had sought the Port

Authority s permission to perform terminal operations at the Port on a

non exclusive basis The Port Authority refused to grant permission for

reasons strikingly similar to those advanced here in support of its actions

with regard to Petchem 17 F M C at 289 90 The Port Authority s agree

ment with Eller stated as does its agreement with Hvide that it would

not grant another terminal operation franchise unless it found that there

was a convenience and necessity for such franchise ld at 290

In determining whether the Port Authority s agreement with Eller met

the standards of the 916 Act the Commission reviewed
298 FEDERAL MARJTlMB COMMISSION

the validity and reasonableness of the decisions made by the

Port Authority on which it based its adoption of an exclusive

terminal operator concept and upon the effects of that adoption

Id at 295

This established a two part standard ofreview whether the Port Authority s

decision was reasonable at the time it was made and even if so whether

it was still reasonable in light of its subsequent effects

The complainants had contended that consistent cargo growth and fore

casted future growth at the Port mandated the use of multiple terminal

operators The Port Authority and Eller maintained that it was unreasonable

to reach that conclusion when Eller was handling all of the cargo with

less than 70 percent of its capacity The Commission stated

We conclude that respondents position is the more realistic

in light of the facts shown on record Our conclusion here does

not however ignore the future growth potential of the Port or

the likelihood that at some future time the conclusion reached

herein may no longer be valid We are of the opinion however

that any public interest involved at the Port III the future is

amply protected by two separate procedures Having determined

Agreement No T 2598 to be subject to section 15 of the Act

we have assumed continuing jurlsdlction over that Agreement and

its implementation Any future abUse which we do not foresee

could be corrected readily by our continuing supervision

Further since the Agreement provides for termination without

cause of Eller s favored position we must assume that the Port

Authority a public body charged with public trust will honor

that trust were future traffic to indicate a need for use of additional

terminal operators The Agreement permits and t1e Port

Authority s duty demands that the Port Authority act in the

best iJterest of the Port and the public We cannot conclude

that should future increased traffic volume so require the Port

AuthOrity would arbitrarily renege on its duties and responsibil ities by disallowing additional terminal operators to work the Port

Id at 296

The complainants had urged that increased competition necessarily would

improve quality ofservice to Port Canaveral s customers The Port Authority

acceded to the general principle that competition is beneficial but urged

that such principles must be applied to an llGtual set of circumstances

The Port Authority claimed

that on the basis of current traffic volume the introduction of

competing terminal operators would result in a winner lake all

battle for traffic which would not sup rttwo concurrent operators

This is urged to be so because multiple terminal operators would

cause economic loss to one and of those competing the one

least able to sustain losses would be forced out the quality

I 2S FM C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 299

of service to customers would suffer from neglect and rates would

be increased to cushion impending losses Avoidance of this sort

of risk is urged as a legitimate concern of the Port Authority

in whom rests the duty and responsibility to maintain stable service

capability at the Port

Id at 297

The Commission stated

We find Respondents argument persuasive Weare of the opin

ion that under such circumstances as currently prevail at Port

Canaveral the duly authorized Port Authority is the proper body

to weigh and evaluate business risks related to that Port s effi

ciency in the first instance It is not our function to gainsay

the day to day economic decisions of this Port nor would it be

appropriate for us to do so Given our continuing surveillance

of the Agreement under which Port Canaveral and its operator

must conduct their terminal operations we see no danger in leav

ing the fiscal and business determinations in the first instance

with the duly authorized Port Authority Clearly it is not the

function of this agency to substitute its judgment for that of

the Port It is however our duty to direct appropriate changes

upon finding that the Port s action or inaction based on its own

judgment is contrary to the statutes we administer

Id

The Commission found that the Port Authority s judgment was reasonable

when it was made and that there was insufficient evidence to conclude

that that judgment subsequently was having unreasonable consequences

We therefore found no violation of section 16 or 17 of the 1916 Act

The applicability of Agreement No T 2598 to the proceeding now before

the Commission is clear The Presiding Officer erred in failing to even

mention the case in his Initial Decision though it had been cited extensively

by Respondents in their brief before him Petchem contends that the decision

is not relevant because it involved the Port s control of its own facilities

and did not present a situation wherein the terminal operator reached

out to the normal affairs of vessel operation 40 But the Commission

already has held that it is precisely this extension by the Port of its

terminal operations onto the waters of the harbor through its tug franchise

system that gives us Shipping Act jurisdiction over Petchem s complaint

Having done so the Commission must now apply the standards and policies

derived from other proceedings involving traditional terminal operations

to this case St Philip the case so heavily relied upon by Petchem does

not advocate a harsher standard for non traditional terminal activities on

the contrary it applies the same Shipping Act standards to both classes

40Petchem Reply oExceptions at 48 See also Oral Argument Tr 3334
300 FEDERAL MARITIME COMMISSION

of operation by citing Stockton Port District supra which like Agreement

No T 2598 involved stevedoring

In sum the appropriate standard for judging exclusive terminal arrange

ments under the Shipping Acts is a synthesis of the St Philip and Agreement

No T 2598 decisions Such arrangements are generally undesirable and

in the absence of justification by their proponents may be unlawful under

the Shipping Acts However in certain circumstances such arrangements

may be necessary to provide adequate and consistent service to a port s

carriers or shippers to ensure attractive prices for such services and gen

erally to advance the port s economic weIl being The burden of adducing

evidence of such circumstances falls upon the port and the other parties

to the exclusive arrangement both because they are the arrangement s pro

ponents and because evidence of that nature usually lies within their control

Nevertheless the ultimate burden of proof in any Shipping Act challenge

to an exclusive terminal arrangement or franchise rests with the party

wishing to overturn the franchise That elementary fact of administrative

law and Commission procedure 5 U S C 556 d and 46 C F R 502 155

is particularly apposite here where the challenge has arisen in a complaint

proceeding brought by a person wishing to compete with the beneficiary

of Port Canaveral s franchise Petchem that person must prove by reliable

probative and substantial evidence 5 U S C 556 d that it is unreasonable

for the Port Authority to refuse a franchise to Petchem based both on

evidence regarding Petchem and also on a successful rebuttal of the justifica

tion for the franchise offered by Respondents

In deciding this case the Commission will scrutinize the circumstances

obtaining in December 1983 when the Port Authority denied Petchem s

application for a franchise and also the situation at the Port during the

period ofrecord subsequent to that denial This two part standard of review

similar to that applied in Agreement No T 2598 first requires us to examine

the facts then before the Port Authority to determine whether the denial

of a franchise to Petchem was so flawed from the outset that it should

be struck down regardless of any post hoc developments We then must

also determine whether even if the Port Authority acted reasonably at

the time it denied Petchem s application subsequent developments have

overtaken that denial and rendered it unreasonable

When Petchem applied to the Port Authority for a franchise in December

1983 the Port Authority was already in a situation entirely new to it

For the first time in the Port s

thirty years of operation the military

tug contract had been split away from commercial work by operation of

the Small Business Administration set aside requirements Hvide had

agreed to remain at the Port despite the loss of the military work but

it was projecting that it would incur substantial losses for the immediate

future by being limited to commercial work The Port Authority also knew

that since 1980 both non liner cargo business and passenger cruise business

had been expanding at the Port thus increasing the need for reliable com

28 F M C
PETCHEM lNC V CANAVERAL PORT AUTHORITY ET AL 301

mercial tug service The Authority s problem was to induce a tug operator

to provide such service even though it would not be able to offer the

incentive of military work such work having already been awarded to

Petchem At least for the short term a solution had been found as a

resuit of Hvide s promise to stay on at the Port and the continuation

of Hvide s franchise agreement

Petchem s application for clearance to compete with Hvide for commercial

business raised further complications The application was initiated before

Petchem had begun any work under the military contract Petchem was

a

very small company and had never been in the tug business before

Petchem thus had no track record that the Port Authority which under

its charter from the State of Florida is required to grant franchises only

in the best interests of the Portould rely upon No carriers serving

the Port or other local maritime interests such as stevedores appeared

at the franchise hearing in support of petchem s application 41 The Port

Authority was aware that if Petchem did compete with Hvide it inevitably

would increase Hvide s losses in contrast with Petchem s lack of industry

support a representative of Premier Cruise Lines a major tug employer

appeared at the franchise hearing to oppose Petchem s application because

it was concerned that Petchem if awarded a franchise would force out

Hvide 42 During the Port Authority s review of its application Petchem

made it clear that it would provide commercial service only with the

tugs assigned to the military contract and that the availability of those

tugs would be secondary to military requirements 43 which as stated above

mandate that Petchem s tugs be ready on 30 minutes notice at all times

Thus even if Petchem eventually proved itself to be a

competent tug

operator there was reason to question whether it would be equipped suffi

ciently to provide the reliable commercial service that the Port Authority

is responsible for maintaining at the Port 44

Reduced to its essentials the Port Authority s January 1984 denial of

Petchem s application for a franchise represented a conclusion that the

creation by the set aside program of a monopoly for Petchem over

military work necessitated the creation of a

balancing monopoly for Hvide

over commercial work By denying Petchem s application the Port Authority

gave Petchem some time to establish itself45 and also gave itself some

time to gain a better understanding of how the new division of military

tug work from commercial work would affect Petchem Hvide Port Canav

eral and the carriers and shippers using the Port

41 See generally Ex C 26

421d at 14

431d al46

44 During the evidentiary hearings before the Presiding Officer Petchem s president for the fIrst time made

a highJy tentative suggestion thai Petcbem might bring a new tug 10 Port Canaveral to provide commercial

service May 1 Tr 73 Whatever the credibility of this testimony it certainly was not before the Port Author

ity when it considered Petchem s application

4SMay 6 Tr 54

28 EMC
1

302 FEDERAL MARITIME COMMISSION

On the basis ot these facts the Commission cannot conclude that the

Port Authority s denial of Petchem s application was so unreasonable or

unfair at the time it was made as to violate the Shipping Acts The Presiding

Officer contends that when the Port Authority received Petchem s applica

tion it immediately should have opened up the commercial franchise to

competitive bidding and that by failing to do so the Authority unreasonably

preferred Hvide over all other tug operators Petchem goes further and

attacks the very existence of the Port Authority s franchise system although

it never says so directly Petchem appears to believe that the award of

any exclusive commercial franchise to Hvide or anyone else would be

unlawful per se and cannot be justified on any ground as indicated above

Petchem s total reliance on St Philip is consistent with this theory 46

Petchem s expert witness advocated the same theoretical free market model

in her testimony 47

The Presiding Officer s insistence on franchise bidding loses sight of

several facts First no company besides Hvide and Petchem has ever ap

proached the Port Authority regarding commercial service 4S Second this

is a

complaint proceeding in which Petchem is contending that it not

some general class of tug companiessuffered unfair prejudice Third at

the time of its application Petchem s creQentials as a tug operator were

unproven The Port Authority had no reason to think that a competitive

bidding process wollld produce anyone other thll Petchem and Hvide and

in comparing Petchem with Hvide it had substantial reasons to question

Petchem s competence and readiness to perform commercial services in

addition to its military obligations

Petchem s position that the Port Authority shO lld let the commercial

market determine how many tug companies can survive in that market

does not give recognition to the Port Authority s responsibility to promote

reliable and continuous service at the Port lld for that reason does not

represent a persuasive alternative to the Authority s franchise system 49

For example if Petchem did in fact drive Hvide out of the Port but

was unable to provide all needed commercial service by itself there could

I

During tho evJdentiary hoarings PQtchem AljlOd that tho Port Authority had no power to apply ita c oq

venicnceand necel5lity standard to Petchcm application and not thAt the Port Authority erroneously applied

the stlllKlard May 1 Tr 22 In its Reply to Exceptions Pe1chem termed the tonvenienco and necessity

standard as a discredited regulatory 1001 that unfairly was applied only to Petchem

47Ex C 31

48 May 6Tr 3 37 The Presldin Officer states that theother tug companies who applied for the milItary

franchise were potential competitors forcommercial work but were discouraged by the franchiseagreemeitt

between Hvlde and the Port Authority 1 0 at 3334 n 14 and accompanying text Assumina that such spec

ulation Is a valid Srounds for decisIon It is equally reasonable to speculate that tho e

companies belns small

businesses ellslble to bid on the military contract would be in no position to wlthsland even for the short

term losses of the magnitude Incurred by Hvide in providina commercial service and for that reason never

approached the Port Authority

49Petchem states

Pet ehem doe not pretend to know whether the incteas1nS IUS market In the Port will support

one two five or a dozen tug companies in the coming years Neltherdoei the FMC orthe Pon

AuthorIty As far as the legal Issues of this case are concerned It abnply does not matter

Reply to Exceptions at 40

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 303

be a

significant lapse of time before another tug company appeared to

replace Hvide in view of the absence of any third companies so far

In such circumstances the Port and its customers could suffer considerable

detriment As in Agreement No T 2598 economic theorizing is useful

only if it can be applied reasonably to the facts of the case Petchem

and its expert recognize that economic theory also holds that there are

situations in which companies choose not to enter a market because they

perceive it as small and umemunerative In such situations it may be

necessary to permit a monopoly in order to induce investment in essential

services 50 The Port Authority acted reasonably in concluding that such

a situation was before it and the Authority s use of its convenience

and necessity standard was a reasonable implementation of the responsibil

ities placed on it by the State of Florida 51 As in Agreement No T

2598 the Commission s conclusion in this regard is partially based on

appropriate deference to the Port Authority an entity familiar with business

circumstances at Port Canaveral and entitled to a presumption that it is

concerned with public and not private interest52

To complete the analysis the Commission further finds that the evidence

concerning developments at Port Canaveral during the period of record

subsequent to the Port Authority s original denial of Petchem s application

does not justify a conclusion that the Authority must now reverse itself

and permit Petchem to compete with Hvide Since obtaining the military

contract Petchem has compiled a good record of performance as a tug

operator However in 984 Petchem was required to call upon Hvide

to assist it in docking military vessels as many as eight times 53 In contrast

in 1981 1983 Hvide required more than two tugs to perform both military

and commercial work only four times 54 As the Port Authority predicted

the need for commercial tugs has been increasing at the Port In 1983

so Petchem Reply to Ellceplions at 51 It is somewhat incongruous for Petchem to place such emphasis

on the benefits of competition when it holds a

proleCled market itself We recognize thai Petchem competed

for the military franchise but that competition itself was restricted The small business set aside program

represents at bottom a political judgment not an economic one The government has concluded that it is

good social policy to encourage small businesses even though economic efficiency ffiilY be sacrificed in the

short cun Accordingly large companies such as Hvide which have been efficient and successful in the mar

ket and therefore have grown to their present size are excluded from a certain amount of federal business

The Commission implies no criticism of the set aside program We simply state that Petchem does not

hold the moral high ground because it wishes to compete with Hvide Given that the set aside program

is the direct cause of the present application of the Port Authority s franchise system for commercial lUg

service the franchise cannot be termed a

per se unlawful deviation from economic orthodoxy Further we

cannot agree with the statement of Petchern sexpert that Petchem sadvantage in holding the military contract

was merely comparable to having fmanciaI deep pockets May 2 Tr 159 60 Petchem obtained its advan

tage by government decree in part because it was small and had not yet achieved market success whereas

deep pockets are the result of market success

51 A previous application of the standard by the Port Authority was before the Commission in Agreement

No T 2598

s2Deference to decisions of local government authorities on matters such as port franchising also was ex

tended by the Commission in Agreement No T 2880 et af 19 F M C 687 700 1977 and in Agreement

Nos T 33JO and T 3311 23 FM C 591 595 596 1981

S3May 1 Tr 667 114 May 7Tr llo lll

s4Ex R 15
304 FEDERAL MARITIME COMMISSION

there were 188 tug assisted calls by commercial vessels in 1984 there

were 362 Through May 1985 the pace was exceeding 1984 55 Nevertheless

Hvide has not been required to subcontract any commercial work to

Petchem although it has asked Petchem to stand by on occasion 56

These facts indicate that the Port Authority s January 1984 conclusion

that Petchem required some time to leam the tug business and the Port s

peculiar requirements continued to apply throughout the period of record

Also the 473 000 in losses incurred by Hvide in 1984 despite the increase

in commercial tug business supports the conclusion that there is not yet

enough such business to allow one operator to break even let alone two 57

Conversely the lack of enough business to fully occupy Hvide removes

any significant possibility that commercial carriers calling at the Port are

being harmed by Hvide s franchise As noted no such carrier has expressed

support for Petchem

It also seems clear that as Respondents contend if Petchemdid begin

to solicit commercial business in competition with Hvide it would derive

a significant advantage from the fact that its fixed costs and some variable

costs are covered by its military contract Petchem would be in a position

to set rates for commercial service at very low levels requiring only that

relatively minor variable costs for commercial movements and a negotiated

rebate to the military be covered Petchem could thus undercut Hvide s

rates which have to cover all costs The proposed rates set forth in

Petchem s tariff and the testimony of Petchem s president indicate that

Petchem is indeed prepared to engage in a rate cutting campaign against

Hvide 58 On these facts the Port Authority carmot regard as mere bluff

Hvide s statements that it will consider withdrawing from Port Canaveral

if it must share commercial business with Petchem 59 If that happened

the record indicates that Petchem would have its hands full with its military

work and would not be able to provide adequate commercial service

In sum the Commission does not believe that Petchem has met its

burden of proving that the Port Authority was or is unreasonable to refusing

to allow it to compete with Hvide In reaching this conclusion however

we do not adopt all of Respondents arguments We do not accept their

contention that Petchem carmot lawfully use its tugs for commercial pur

poses during the life of its military contract and a jQrtiori carmot suffer

detriment under the Shipping Acts Although it is true that Petchem s

military contract did not contain an authorization for commercial work

1 0 at 16

5l iMay 1 Tr 612

Hvlde chief executive testified that he is al ease with losses of this magnitude and that he expected

losses 10 continue foranother three orfour years May 6 Tr 207 During the proceedings the parties disputed

whether Hvidc s losses were the result in part of accounting practlcesor inefficient operations See ID at

3536 Even if this is troe no one contends and it is impoSsible to find that Hvide should have realized

a profit on its commercial work

8

See n 22 supra and accompanying text

9May 6 Tr 207 208 227

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 305

when it was first executed which gave the Port Authority another reason

to deny Petchem s franchise application when it was first filed the military

subsequently made it clear that it will permit Petchem to perform commer

cial work if it obtains a franchise 60 The Commission is not the appropriate

body to determine that that position is wrong as amatter of federal procure

ment law Further we do not necessarily agree with Respondents defense

of a protected market for Hvide on the ground that the Port now needs

a total of four tugs Petchem s two main tugs and Hvide s two tugs

due to increased potential for conflict between military and commercial

vessels particularly the cruise liners The key is not the absolute number

of tugs available in the Port but rather the particular identity and cir

cumstances of the companies running those tugs The evidence shows that

Petchem has all and occasionally more than it can handle with the military

work that there is therefore a need for the Port Authority to foster a

separate tug operator for the commercial work and that the most effective

way of doing that is to grant Hvide exclusive rights for such work

The preponderance of the evidence of record together with the reasonable

deference the Commission owes to the Port Authority as a body expert

in matters peculiar to Port Canaveral leads us to conclude that we should

not disturb the present division of tug markets at the Port It is always

possible that changes at Port Canaveral particularly continued growth may

alter the basis of this decision Unlike Agreement No T 2598 the Commis

sion does not have continuing supervisory jurisdiction over the situation

at the Port through a filed agreement6 However other safeguards remain

The franchise agreement between the Port Authority and Hvide provides

for termination without cause on 60 days notice 62 The Commission must

assume that the Port Authority a public body charged with a public trust

will discharge its duty and terminate the agreement in favor of non exclusive

franchises if it becomes clear that traffic levels at Port Canaveral have

reached the level where more than one commercial tug operator is needed

If the Port Authority fails to meet its obligations the Commission can

entertain another complaint pursuant to section l1 a of the Shipping Act

of 1984 or initiate an investigation of its own under section 11 c 46

U S C app 1710

We should also state that even if the Port Authority continues to believe

that an exclusive franchise for commercial work is necessary it should

consider carefully whether periodic competitive bidding for that franchise

would be beneficial As Petchem continues to gain experience as a tug

operator it may arrive at a point where it more realistically could provide

both commercial and military service with its tugs perhaps at cheaper

6OE gEx C lSC 17 On February 13 1986 Petchem filed a Motion to Reopen the Record forPur

pose of Receiving Additional Evidence on this point Receipt of the proferred evidence is not necessary

forthe Commission s decision The Motion therefore will be denied

6117 EM C at 296 See Petchem s Reply to Exceptions at 48

62We assume that the agreement remains in effect at this writing with the same renewal date of

January 8
306 FEDERAL MARITIME COMMISSION

rates than those charged by Hvide Even if it was necessary for Petchem

to purchase additional lUgs in order to provide all needed service it would

be motivated to take more concrete steps toward such expansion if by

doing so it might displace Hvide as the holder of the Ports franchise

Finally if in fact there are any other lUg operators interested in providing

commercial service at Port Canaveral an announcement of competitive

bidding might bring them to the fore However these comments are advisory

and should not be read to detract from the Commission s conclusion that

Petchem has not proven that the Port Authority s preservation of an exclu

sive commercial market for Hvide during the period of record was violative

of the Shipping Acts

THEREFORE IT IS ORDERED That Petchem s Motion to Reopen

Record for Purpose of Receiving Additional Evidence filed February 13

1986 is hereby denied

IT IS FURTHER ORDERED That the Presiding Officer s Initial Decision

is hereby affirmed to the extent it found Commission jurisdiction over

Petchem s complaint

IT IS FURTHER ORDERED That the Initial Decision is otherwise

hereby reversed

IT IS FURTHER ORDERED That this proceeding is hereby discontinued

S JOHN ROBERT EWBRS

Secretary

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 307

Commissioner Moakley concurring

I

join in the majority in concluding that the complaint in this proceeding

should be dismissed I also concur in the majority s view of the merits

of this complaint However I would not base the decision on the merits

but rather on my belief that we have no jurisdiction over the subject

matter at issue the franchising of tug services

It does not follow from the fact that the respondent Canaveral Port

Authority I

is a marine terminal operator that all of its activities are there

fore subject to regulation under the Shipping Act of 1984 1984 Act 2

A marine terminal operator is defined as

a person engaged in the United States in the business of

furnishing wharfage dock warehouse or other terminal facilities

in connection with a common carrier 46 U S C app 1702 15

As the majority indicates Congress specifically excluded persons carrying

on the business of towing from the coverage of the Shipping Act 1916 3

The 1984 Act did not change that coverage and used the same terminology

with respect to terminal operators

The control theory enunciated by the majority broadens the scope

of our jurisdiction far beyond the words of the statute The breadth of

this theory is evident from the language of the Plaquemines 4decision

quoted by the majority p

28

The statutory scheme contemplates regulation of any entity if it

exercises sufficient control over terminal facilities to have a dis

cernible effect on the commercial relationship between shippers

and carriers involved in that link in transportation emphasis sup

plied

I dissented from this jurisdictional expansion in Plaquemines where the

majority claimed authority to regulate a local government s charges for

police and fire protection As evidenced by that decision it is very difficult

for lbe public to predict which port activities are and are not subject

to FMC jurisdiction under the control theory

The distinction between navigational and terminal services that the Com

mission articulated in the Bethlehem SteelS decision seems a logical interpre

tation of our authority over port functions and a proper narrowing of

l1bere is no basis whatsoever forexercising jurisdiction overthe other two respondents in this proceeding

Port Canaveral Towing Inc and Hvide Shipping Inc Neither is nor is even alleged to be a common carrier

oramarine tenninal operator as those lenns are dermed in section 3 of the shipping Act of 1984 46 US C

app 1702 Majority Order p 12 note 24 Inexplicably neither seems to have raised this issue

2Bethlehem Steel Corp v Indiana Port Commission 21 F M C 629 632 1979

3

See United States v American Union Transport Inc 327 U S 437 451 53 1946

41ou s Dreyfus Corp v Plaquemines Port Harbor and Terminal District 25 F M C 59 65 21 S R R

1072 1079 1982

sNote 2 supra
I 308 FEDERAL MARITIME COMMISSION

the broad language of the St Philip 6

case Tug services faU neatly on

the navigational side of such a dividing line and outside the scope of

tenninal services I would dismiss this complaint for lack of jurisdiction

over the respondent Port s activities with respect to the franchising of

tug services

i

6A P St Philip Inc v Atlanllc LaI dand lmprovemsnt Co 13 F MC 166 1969

28 F M C
28 F M C 309

FEDERAL MARITIME COMMISSION

DOCKET NO 8428

PETCHEM INC

v

CANAVERAL PORT AUTHORITY ET AL

I Where a Port maintains and operates a passenger ship facility used by common carriers

by water and imposes dockage and wharfage charges on ships calling at the port it

is a terminal operator within the meaning of the pertinent sections of the Shipping

Act of 1916 and the Shipping Act of 1984 and is therefore subject to the jurisdiction

of the Federal Maritime Commission and further where cruise ships operate on a round

trip schedule between a United States port and a

foreign port the transportation provided

comes within the ambit of the word transportation as used in section 1 of the Shipping

Act of 1916 and section 3 6 of the Shipping Act of 1984 and is transportation between

the United States and a foreign country irregardless of the purpose of the transportation

or the intent of the carrier in providing it or passengers intaking it

2 Where an operator of a tug service files a complaint and alleges violations of sections

16 and 17 of the Shipping Act of 1916 and sections 1O b 12 and lO d 1 of the

Shipping Act of 1984 such complainant is a person within the meaning of section

22 of the 1916 Act and section II of the 1984 Act and has standing to file the

complaint and be a

party to the proceeding

3 Where a Port enters into an exclusive franchise agreement for tug and towing services

with a

particular provider without initially allowing any other provider an opportunity

to be a party to such agreement and where the Port conditions the future services

of any other provider on its sustaining the burden of establishing afinding of conven

ience and necessity to the Port such action by the Port restricts the commercial access

of common carriers by water to one tug service and has ttansformed the furnishing

of tug and towing services into a terminal function related to the receiving handling

transporting storing ordelivering of property and or passengers and as such the function

is subject to the jurisdiction of the Federal Maritime Commission

4 Where a Port enters into an exclusive franchise agreement for tug and towing services

with a particular provider without initially allowing any other provider an opportunity

to be a party to such agreement and where the Port conditions the future services

of any other provider on its sustaining the burden of establishing a

fmding of conven

ience and necessity to the Port such actions are prima facie unjust and umeasonable

both as to common carriers the Port serves and the general public

5 Where the evidence indicates a Port has itself selected a particular provider to perform

tug and towing services and has entered into an exclusive franchise agreement for the

provider to render such services without even initially considering other providers and

where other providers are only allowed to provide services on a

holding of convenience

and necessity by the Port and where the evidence indicates the Port did not have

sufficient justification for its acts the burden of overcoming the prima facie unjust

and unreasonable conduct has not been met and the Port s actions violate sections 16

and 17 of the Shipping Act of 1916 and sections 1Ob 12 and lO d I of the Shipping

Act of 1984

Michael V Mattson for complainant Petchem Inc
310 FEDERAL MARITIME COMMISSION

Leon Stromire for respondent Canaveral Port Authority

Robert T Basseches and Timothy K Shuba for respondents P rt Canaveral Towing

Inc and Hvide Shipping Inc

Aaron W Reese and Alan Jacobson for Hearing Counsel intervenor

INITIAL DECISION 1 OF JOSEPH N INOOLIA ADMINISTRATIVE

LAW JUDGE

Partially Adopted March 28 1986

Background Information

This case began as the result of a

complaint filed by Petchem Inc

Petchem or complainant on August 6 1984 The complaint names

as respondents I the Canaveral Port Authority CPA or the Port

Authority 2 Port Canaveral Towing Inc PCT and 3 Hvide

Shipping Inc Hvide

The complaint charges that Petchem applied for and was denied a non

exclusive franchise to perform commercial tug and towing services at Port

Canaveral the Port and that such denial resulted in violations of sec

tions 16 and 17 respectively of the Shipping Act 1916 2 Further the

complaint originally included a claim for reparations which was subsequently

withdrawn 3 Hearing Counsel petitioned to intervene in the proceeding citing

the need that the Commission s interests are fully represented in all matters

where the Commission s

jurisdiction is challenged Hearing Counsel s Peti

tion to Intervene was granted 4

Proceedings on the complaint were initially delayed due to withdrawal

of one of the co counsel for the Port Authority and the substitution of

counsel for Hvide in late November of 1984 On December 6 1984 the

respondents filed a Joint Motion for Dismissal by Summary Disposition

raising issues of jurisdiction and standing as well as issues going to the

merits of the complaint The Motion was denied without prejudice s After

extended discovery a hearing was conducted between May I and May

7 1985 In latter portions of this brief the transcript of those hearings

will be referred to as follows May I hearing as Tr I May 2 hearing

as Tr II May 6 hearing as Tr III and May 7 hearing as Tr IV Appro

priate page numbers will be set down after each of the above references

1 This decision will become the decision of the Commission bt the absence of review thereof by the

Connisslon Rule 227 Rules of Practice and Procedure 46 CPR 02 227

2While the complaint did not initially allege any vIolatIon of the Shipping Act of 1984 later pleadinas

and filings by the parties clearly broadened the scope of the complaint to include violation of the companion

sections of the 1984 Act

3

Complainant s Notice of Dismissal of Count V of the Complaint dated February 26 1985

4Petltion of Hearing Counsel for Leave to Intervene dated September 27 1984 The Petition was unop

posed and was granted by Orderof November IS 1984

See Order dated January 30 1985

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 311

Further the exhibiIS which will later be referred to are designated as

follows

Complainant C I etc

Respondent PCT orHvideR I etc

Respondent CPA PR I etc

Finally after the record was closed in this proceeding respondents filed

a Joint Request for Leave to Respond to Complainant s list of Extra

Record Material and the complainant filed a Petition to Reopen to allow

a report prepared by respondents expert witness into the record Both

Motions are hereby granted

Findings of Fact

1 The complainant Petchem is a Connecticut corporation whose business

it is to provide towing services Tr 1 34 35

2 The respondent CPA was established in 1953 by special act of

the Florida legislature to construct and operate a deep water port at Cape

Canaveral for public benefit It is a body public and corporate with taxing

and eminent domain power governed by five elected commissioners with

day to day operations under the supervision of a professional management

tearn headed by the Port Director Ex PR I Tr III 7 8

3 The respondent PCT is a Florida corporation engaged in the business

of providing tug and towing services lIS prior name was Port Everglades

Towing Inc PCT is a wholly owned subsidiary of Hvide Corporation

Ex C 23 No 1 7

4 The respondent Hvide was formed by Hans Hvide in the late 1950 s

and is wholly owned by the Hvide family Hvide has diverse and extensive

interesIS in the maritime industry There are at least eight companies who

like PCT are subsidiaries of Hvide Ex R 12 Tr III 246 247

5 PCT as Port Everglades Towing Inc began tug and towing services

at the Port in 1958 At or about that time it entered into a franchise

agreement with the Port whereby it had the exclusive right to perform

commercial tug and towing services in the port It has performed such

services up to the present time The latest franchise agreement was entered

into in 1975 Itprovides in pertinent part

1 Party of the first part hereby agrees to and does hereby

grant to the party of the second part for a period of ten 10

years from the execution of this Agreement as hereinafter pro

vided a franchise to provide vessel towing service at Port Canav

eral Brevard County Florida subject to the conditions and provi

sions of this Franchise Agreement and party of the second part

shall operate and maintain in such towing service at Port Canav

era Florida two 2 or more modem harbor tugboats equipped

with fire fighting apparatus
312 FEDERAL MARITIME COMMISSION

2 It is recognized that party of the first part has made and

determined that the public convenience and necessity requires the

services of party of the second part who has made and provided

such services in the past and currently seeks to provide such

services in the future Party of the second part in consideration

for the granting of this Franchise shall at all times abide by

all rules and regulations of party of the first part and shall provide

operate and maintain adequate efficient and satisfactory tug assist

ance and fire fighting service to meet all of the requirements

in the operation of Port Canaveral Florida as determined by

party of the first part

3 Party of the first part hereby grants said Franchise to party

of the second part for a period of ten 10 years from the execution

of this Agreement as hereinafter provided and said Franchise

shall continue from year to year thereafter until terminated by

either party as herein provided The party of the first part having

determined that this Franchise is in the best interest of Port Canav

eral Florida within the responsibility of the party of the first

part it is specifically understood and agreed that the party of

the first part will not grant to another tug towing service a Fran

chise to carry on the aforementioned towing and fire fighting serv

ice at Port Canaveral Florida without first having public hearing

showing a convenience and necessity therefore as determined sole

Iy by party of the first part

5 This Franchise may be terminated by either party giving

to the other party at least sixty 60 days advance written notice

of intent to terminate and further a default of the conditions

and terms hereof remaining uncorrected after written notice for

thirty 30 days likewise terminates this Agreement at the election

of the non defaulting party

Ex C 25 Tr III 191 193 199201

6 Within six months after PCT commenced commercial tug services

at the Port the United States Navy decided to establish a base at the

Port to be used to test nuclear submarines as the home port for missile

tracking ships and for other associated military purposes PCT was given

an interim contract to perform docking and undocking services for all

military vessels calling at the base Thereafter the military Air Force

contract for tug services at the Port was competitively bid and PCT was

always the successful bidder In 1962 the contract was expanded to include

missile retrieval operations on behalf of NASA PCT was continually award

ed the military Air Force contract until 1983 In 1983 PCT became

ineligible to bid on the contract since it was bid as a small business

set aside with a revenue cap of ten million dollars S 10 000 000 and

Hvide revenues had grown so that they exceeded the set aside revenue

criteria Ex R 20 Tr III 204 253 255

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 313

7 The pertinent portions of the military contract with peT were as

follows

Furnish two tugboats equipped with one or more pumps with

a capacity of 1 000 gallonsminute and nozzle pressure of 125

psi for mobile marine fire fighting to serve all Government owned

chartered and sponsored British submarine vessels entering or

leaving Port Canaveral Tugs shall be a minimum of 1500 hp

Harbor Tug Service

Respcnsible for assisting all U S Government owned spcnsored

or chartered vessels entering or leaving Port Canaveral in docking

and undocking

Respcnsible for assisting in missile recovery operations when such

assistance does not interfere with docking or undocking operations

The area of performance is Port Canaveral and adjacent waters

to a depth of 100 feet and frequency is continuous with services

of two tugboats available 24 hours a day 7 days a week except

for two separate two week periods during which one tugboat may

be removed from service for annual overhaul Private commercial

operations of the Marine Contractor furnished tugboats are author

ized but shall not conflict or interfere with the basic ETR require

ments of this Statement of Work and shall be approved by the

Navy Port Operations Office to assure that there will be no conflict

between the specified ETR requirements and the tug service pro

vided to others Foreign flag vessels under charter to MSC are

considered commercial vessels Government owned vessels uti

lizing Port Canaveral range from attack submarines to ships of

approximately 17 000 gross displacement tons All tugs that will

handle the docking and undocking of submarines at Port Canaveral

shall be equipped with sufficient fendering to prevent damage

to the hulls of submarines

Provide a third tugboat of 2 000 horsepcwer with sufficient

fendering to prevent damage to Ohio class submarines Services

or charters provided under this paragraph shall be approved by

the Contracting Officer and will be deemed added requirements

in accordance with Section B The Schedule The area of perform

ance is Port Canaveral and the frequency of performance is two

45 day periods in FY 81 four 45 day periods in FY 82 and

two 45 day periods in FY 83

Ex R 20

8 In 1983 Petchem was awarded the military contract from about 8

to 12 bidders to perform tug and towing services at the Port The pertinent

portions of that contract are as follows
314 FEDERAL MARITIME COMMISSION

PERFORMANCE WORK STATEMENT

Scope This Performance Work Statement PWS sets forth the

requirements for marine utility and tug services at the Eastern

Test Range ETR The contractor shall furnish two tugboats with

a minimum of 1 500 horsepower continuous and 2 000 horse

power intermittent Personnel will be responsible for operating

and repairing a Government furnished tug barge and LeU per

forming underwater search and salvage operations missile recov

ery dock diving service diving up to 100 ft depth harbor

tug service cable maintenance support transporting fuel and var

ious other tasks

Hours of Operation Contractor services shall be available as

shown below

a Contractor Furnished Tugboats 24 hours a day seven days

a week

b Government Furnished Tugboat LCU and Barge g Hours

a day five days a week on call 24 hours a day seven days

a week Response Time Crew must be on board and ready

to sail four hours after Government Notification

c Contractor Furnished Divers g hours a day five days a

week on call 24 hours a day seven days a week Response

Time Divers must be prepared to dive four hours after Govern

ment Notification

Furnish two harbor tugboats Furnish two harbor tugboats includ

ing fuels and lubricants each equipped with one or more pumps

each with a capacity of 1 000 gallonsminute and nozzle pressure

of 125 psi including an injected foam capability for mobile

marine fire fighting to serve all Government ownedlcharteredand

sponsored British submarine vessels entering or leaving Port Ca

naveral Tugs shall be miniI 1um of 1500 HP continuous and

2000 HP intermittent Tugs must be capable of accepting the

fendering as specified in NAVSEA Dwg No 5364513 A Bollard

pull may be required to prove horsepower with the Government

furnishing the Bollard and Dynamometer and the conllactor fur

nishing all other equipment

Tug Service Provide tug service towing andor special towing

and marine services to the Government utilizing Government Fur

nished vessels Marine Contractor Furnished tugboats chartered

tugboats chartered or special purpose vessels Tugs shall be capa

ble of responding undocking within 30 minutes of notification

by Government personnel if required A list of government per

sonnel authorized to request services will be provided to the con

tractor

28 FM C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 315

Provide a third tugboat equipped as per para 3 1 on an as

required basis for special operations The area of performance

is Port Canaveral and adjacent waters A work request Ref Gen

eral Provision 1512 will be initiated by the Administrative Con

tracting Officer for these added requirements CLIN s 0003 0005

and 0007 applies

Ex C 9 Tr 1 37 42

9 The reason the military contract between the Air Force and Petchem

did not contain an express provision authorizing commercial work was

that Petchem had requested that it be deleted in the pre bidding process

and the Air Force had complied with that request Petchem s

request was

motivated by a desire to insure that neither Hvide nor a

company controlled

by Hvide was allowed to bid on the military contract Exs C 14 C

15 C 16 C 17 Tr 1 117 121

10 Under PCT s military contract with the Air Force it performed com

mercial work at the Port It had an agreement with the Air Force that

they together would estimate the added cost of performing commercial

tug service for the forthcoming year as well as the revenue resulting from

such service and that the contract price of the military services would

be reduced by one hundred percent 100 of the estimated commercial

revenue less the estimated commercial costs plus a profit factor added

to that estimated increase in cost Tr III 202 203 221 225 IV 142

145

II Under Petchem s military contract with the Air Force the parties

contemplated that if Petchem did commercial work at the Port they would

enter into an arrangement similar to that described in paragraph 10 above

which would reduce the cost of the Air Force contract price by a certain

percentage of the commercial revenues less the commercial costs However

since Petchem has failed to secure the Port s approval to do commercial

work and legal action has ensued the Air Force has taken a neutral

position regarding the commercial work until the dispute is settled Exs

C 14 thru C 17 C 22

12 In its first year of operation under the military contract Petchem

reported a net profit of 230 777 06 on operating revenues of 1 893 505 84

Exs R4 Tr 142 45

13 To perform the military contract Petchem has three twin screw tugs

all of which were built since 1978 Two tugs have approximately 2100

horsepower each and the third tug has substantially less power Tr 1

35 38

14 Two of Petchem s

tugs are required to be available seven 7 days

a week twenty four 24 hours a day on thirty 30 minute notice to satisfy

the military contract Ex C 9 Tr 1 38

15 Petchem would require permission from the Air Force to use the

three tugs in the commercial sector However Petchem is under no restraint
316 FEDERAL MARITIME COMMISSION

1

as to the employment of any additional tugs were it to add any tugs

to its fleet Exs C 9 C22 Tr 1 13

16 PCT during the time it did the Air Force work and at present

has two tugs stationed at the Port They are single screw vessels Tr

1 1613 Tr IV IOI 102 161 163

17 Both Petchem and PCT have a good record of performance at the

Port Exs C IO thru C13 Tr 142 45 Exs B 15 R 19 Tr III

40 180 261 Tr IV 53 56

18 On February 9 1983 the Port Authority held a

regular semimonthly

meeting The minutes of that meeting state that

Director Rowland read aloud a letter from the Eastern Space

and Missile Center regarding the contract the Air Force has with

Port Everglades Towing Inc which expires on September 30

1983 and commented that during recent meetings with the Air

Force representatives it had been suggested it would be in both

our interests to terminate the excluSive tug boat fraIlchlse with

Port Everglades Towing in the event another firm is awarded

the Air Force contract Since our franchise requires sixty 60

days notice that we should consider modifyin the franchise to

provide that it would terminate automatically If another firm is

awarded the Air Force contract for primary tug service in Port

Canaveral with the termination effective with the expiration of

the Air Force contract That we should notify Port Everglades

Towin that we will consider this at our April meeting so that

they Will have ample time for input to the considerations

Commissioner McLouth offered a motion and moved its adoption

that Port Everglades Towing be notified of our proposed modifica

tion of their franchise agreement and that it will be considered

at our April meeting Motion seconded by Commissioner Newbern

and unanimously carried

Ex C 34

On April 17 1983 the Port Director wrote a letter to the Government

contracting officer as follows

Ms Kathy Guy

PMPA

Headquarters Eastern Space Missile Center

Patrick Air Force Base Florida 32925

Dear Ms Guy

We have reviewed our Franchise Agreement with Port Everglades Towing

in light of the fact that you are currently recompeting the Air Force Tug

Contract

Port Everglades Towing has served the commercial interests of the Port

continuously since 1960 in avery efficient and economical manner and

we see no need to modify our Franchise Agreement at this time Should

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 317

another towing company request a franchise we will hold a public hearing

to determine the convenience and necessity of granting such a franchise

We do regret that the Air Force is competing this contract through

a procedure which precludes Port Everglades Towing whom we understand

has performed very well over many years at reasonable rates from bidding

on the new contract and hope that the Air Force will reconsider use

of this procedure

Sincerely CANAVERAL PORT AUTHORITY

S CHARLES M ROWLAND

Port Director

Ex C 29 Tr III 80

20 On December IS 1983 the Port Authority met Mr Anthony Savas

Petchem s President appeared before the Port Authority and requested a

non exclusive franchise for towing and berthing services The Port Authority

then appointed a committee to gather information and to report to it at

a public hearing of convenience and necessity Ex C 18 Tr I 55

21 On February 16 1984 the Port Authority met and considered

Petchem s

request It was denied The pertinent minutes of the meeting

are as follows

Chairman Buchanan opened the meeting to the scheduled public

hearing of convenience and necessity concerning Petchem Inc s

request for a non exclusive franchise for towing and ship berthing

services

Petchem Inc represented by Whitney Bowles addressed the

Board regarding their request for a non exclusive franchise for

towing and ship berthing services

Mr Hans Hvide representing Port Canaveral Towing addressed

the Board in opposition to Petchem Incs

request for a non

exclusive franchise for towing and ship berthing services at Port

Canaveral

Port Director Rowland commented that at the last meeting a com

mittee consisting of Commissioner Nisbet Deputy Director

Karpinski Director of Operations McMann Attorney Stromire and

himself had been appointed to evaluate Petchem s

request for

a franchise to furnish commercial tugboat services for berthing

ships at Port Canaveral The Committee had met with representa

tives of Petchem Port Everglades Towing and other interested

parties during the past month They had considered the following

issues of convenience and necessity before forming recommenda

tions

Is there presently sufficient commercial business to support more

than one tug franchise in Port Canaveral
318 FEDERAL MARITIME COMMISSION

What would be the short and long range effects of granting

or not granting a second commercial tug franchise on prices

of tug services

How desirable is it to have up to four 4 tugs available for

commercial andlor military ships who use Port Canaveral and

how can we best insure that four 4 tugs remain in Pot

Canaveral

After weighing these factors it is the recommendation of this

committee that

Petchem has not shown that there is a clear case of convenience

and necessity for the Canaveral Port Authority to issue an addi

tional tug franchise therefore none should be issued

Since it would be beneficial to both the commercial and military

interests in Port Canaveral to have up to four 4 tugs available

when the tugs are not otherwise in use the Canaveral Port

Authority should encourage Port Canaveral Towing to make

standing arrangements to sub contract with Petchem for tug serv

ice needed in excess of Port Canaveral Towing s normal capa

bility We also recommend that the military encourage Petchem

to make similar arrangements to sub contract beyond Petchem s

normal capability with Port Canaveral Towing

Both Petchem and Port Canaveral Towing were given an oppor

tunity of rebuttal as well as other interested parties following

the committee s recommendation

Commissioner Mclouth offered a motion and moved its adoption

that the Board accept the Committee recommendation and deny

Petchem s

request for a non exclusive franchise for towing and

ship berthing services Motion seconded by Commissioner Nisbet

and unanimously carried

Ex C 18 Tr ill 52 54

22 At the time Petchem s application to do commercial work was being

considered by the Port Authority PCT presented the Authority with financial

information indicating that it would operate the commercial towing business

at a loss PCT provided the Assistant Director of the Port Authority who

was on the committee considering Petchem s application with a document

showing estimated net losses of 245 687 00 on operating revenue of

475 00000 The document contained depreciation expense of 35 572 00

and interest of 40 415 00 both of which were properly allocable to Hvide

since Hvide owned the tugs which it leased or chartered to PCT and

borrowed the money giving rise to the interest expense Ex C 35 Tr

III 9497

23 The Port Authority was presented with a three year projection of

earnings by PCT The Authority had some questions regarding the allocation

of overhead by Hvide to PCT and whether or not they should have

i

I

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 319

gone against Hvide PCT representatives responded by noting that how

you allocate overhead from parent companies to subsidiaries is again an

accounting game

Tr III I11 113

24 The Port consists of a dredged channel with entry to the Atlantic

Ocean and three adjacent basins The northeast quadrant including the

entire East basin and a majority of the land surrounding the middle basin

is owned by the United States It was taken from the Port by eminent

domain and is nsed by the Urtited States Navy to test the Trident submarine

for other military purposes and for purposes related to the operation by

NASA of the Cape Canaveral Space Center The remainder of the Port

area including all water and the surrounding land area is owned and

developed by the Port This includes the third or West Turning Basin

which is in the process of construction and will not be operational until

1988 at the earliest Ex P R 2 Ex R 8 pp 1 1 2 Tr III I4 30

25 The Port s commercial facilities which are located primarily along

the main channel consist of four terminals for cruise ships one of these

is currently under construction two berths for oil tankers and for oil

barges and several cargo piers on the north and south sides of the channel

At the current level of activity the existing cargo facilities at the Port

are being utilized at close to their maximum capacity In addition to the

military and commercial facilities the Port is home to a large scallop

fishing fleet Ex R 8 pp 1 1 2 Tr III I6l8 21 31

26 The Port contains no anchorages nor are there any ship repair

ship construction or drydock facilities There is a single entrance to the

ocean so that only one ship can enter or exit the Port at a time Ex

P R 2 Ex R 8

pp IV 11 Tr III I4I8

27 The Port owns all the land and a number of terminal facilities

all of which are leased to private interests who operate the terminals

The Port does not itself operate any of the terminal facilities and itself

performs no warehousing stevedoring or inventory control It does perform

the maintenance function at the passenger facilities and one of the cargo

facilities The Port s revenues are derived from lease payments and dockage

and line handling charges to the vessels calling at the Port and wharf

age and storage charges and it directly or indirectly carries on the business

of furnishing wharfage dock warehouse and other terrrtinal facilities Tr

III 22 24 64 65 129 130 Exs C I No I C 2 No I PR l

Tr 1 17 Tr III 22 24 64 65 129 133

28 Until 1980 the Port s level of business was stagnant Since that

time there has been an increase in cargo business and a significant increase

in the passenger cruise business Exs C 31 C 32 C 33 R 8 Chapter

I

29 The commercial tug business has also been increasing at the Port

In 1983 there were 188 tug assisted vessel calls at the Port in 1984

there were 362 The 1985 pace is exceeding 1984 In 1983 PCT had
320 FEDERAL MARITIME COMMISSION

gross revenues from commercial tug services of approximately 369 00000

in 1984 such revenues increased to 607 000 00 Ex R 8 1 8 III I

30 The Port Authority furnishes wharfage dock warehouse and other

terminal facilities in connection with common carriers by water Exs C

1 4 C 2 No 4 C 3 thru C 8 Tr III l3 25 26 61 62 135 287

288

31 There are only two to four government operated ports operating in

the commercial sector in the continental United States which place any

control whatsoever on the tug and towing services provided for the port

All of these ports are located in Florida Tr 1 146156 Tr II 88

Tr IV 196 197

32 Except for these two to four ports the usual practice is for an

owner master to have the right to select his own services Factors the

owner master would normally consider would be safety economics time

and a balancing of the competition Tr 1 158 159

33 Ports in the United States of a comparable size to or smaller than

the Port have more than one tug company available to serve the port

Ex C 21 Tr 1 150156 Tr II68087

34 The Port s own management considers its operations to be competitive

with other Florida ports and ports along the east coast all of whom have

competition in the area of providing tug services Ex C 21 Tr III

22

35 The Port has held itself out to provide various terminal services

to common carriers by water whether those carriers are engaged in the

movement of cargo which carriage the Port is seeking to develop or

are engaged in the transportation of passengers which transportation has

been moving through the Port in increasing numbers and which will continue

to increase Tr III 11 13 22 32 123 134 135 270 280 287

36 The Port has made commercial access by common carriers by water

to Port Canaveral terminal facilities dependent upon the exclusive use of

PCT for tug and towing services Entire Record

Ultimate Findings of Fact

37 The Port holds itself out and provides terminal services to common

carriers who provide tratlsportation by water of passengers between the

United States and a foreign country for compensation and who assume

responsibility for that transportation from the port or point of receipt to

the port or point of destination and in so doing the Port s activities in

providing such services fall within the ambit of certain provisions of the

Shipping Act of 1916 and the Shipping Act of 1984 and come under

the jurisdiction of the Federal Maritime Commission

38 The complainant is a person within the meaning of section 22

of the Shipping Act of 1916 and section 11 of the Shipping Act of 1984

and has standing to file the complaint and be a party In this proceeding

28 F M C
PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 321

39 The actions of the Port in restricting commercial access of common

carriers by water to one tug service by use of an exclusive franchise

agreement has transformed the furnishing of tug and towing services into

a tenninal function related to the receiving handling transporting storing

or deliveriug of property andlor passengers which function is subject to

the jurisdiction of the Federal Maritime Commission

40 The exclusive franchise agreement used by the Port in providing

tug and towing services is prima facie unjust and unreasonable both as

to the common carriers the Port serves and the general public

41 The burden of sustaining the exclusive franchise agreement used

by the Port for providing tug and towing services has not been met and

the use of the agreement violates sections 16 and 17 of the Shipping

Act of 916 and sections 1Ob 12 and lO d II of the Shipping Act of

1984

28 F M C

Discussion and Conclusions

Jurisdiction

The respondents have raised the threshold question of jurisdiction in

this proceeding They argue that the Commission does not have jurisdiction

because the Port serves no common carriers by water and therefore

is neither an other person under the 1916 Act nor a marine tenninal

operator under the 1984 Act and because 2 even if the Port did serve

common carriers by water the conduct at issue in this proceeding relates

to tug and towing services which are beyond the scope of the Shipping

Acts

In support of its first premise that the Port does not serve common

carriers by water the respondents properly note that there is no scheduled

cargo vessel service at the Port They then conclude that jurisdiction in

the case cannot rest on cargo operations

As to passenger operations the respondents argue that The central

fact concerning passenger operations at Port Canaveral is that passenger

ships calling the Port ani not engaged in one way passenger service

Emphasis supplied They then advance the premise that Shipping Act

jurisdiction over the Port turns on whether passenger ships engaged in

round trip cruises are perfonning common carrier transportation within the

purview of the Act They conclude that they are not The basis of the

conclusion is that round trip cruises such as those performed at Port

Canaveral do not constitute transportation as the term is used in either

Shipping Act definition of common carrier because i a pleasure cruise

to from the same port is not really transportation at all and ii even

if deemed transportation it is not between the necessary category of

points
322 FEDERAL MARITIME COMMISSION

After carefully reading the arguments contained in the respondents brief

regarding jurisdiction pages 75 through 89 we must reject them The

Shipping Act of 1984 at section 3 6 defines a common carrier as

A person holding itself out to the general public to provide trans

portation by water of passengers or cargo between the United

States and a foreign country for compensation that assumes respon

sibility for the transportation from the port or point of receipt

to the port or point of destination and utilizes for all or part

of that transportation a vessel operating on the high seas or

the Great Lakes between a port in the United States and a port

in a foreign country

The 1916 Act at section 1 states

The term common carrier by water in interstate commerce

means a common carrier engaged in the transportation by water

of passengers or property on the high seas or the Great Lakes

on regular routes from port to port between one State Territory

District or possession of the United States and any other State

Territory District or possession of the United States or between

places in the same Territory District or possession

We believe the language of the statutes is plain and clear and does not

beg or need any interpretation There is no need to draw strained conclusions

from other statutory areas to determine what it means It states that if

you are a person wlo provides transportation by water to the general

public and the provislqns of the rest of the statute apply to you then

you are a common carrier It could hardly be set forth in any plainer

terms It does not differentiate between round trip and non round trip trans

portation It just says transportation which according to The Random

House College Dictionary Random House 1980 means to carry move

or convey from one place to another So here the reasoning and arguments

contained in that portion of the respondents brief pages 81 83 85 89

which seeks to interpret the meaning of the word transportation is hereby

rejected Reference to customs cases where the statute would prohibit foreign

flag vessels from serving in the U S coastwise tra may be of interest

by way of comparison but they have no place in the determination of

this case Questions involving the purpose or intent of the transportation

may well be applicable under the customs laws but they are irrelevant

insofar as the Shipping Acts are concerned Indeed it is difficult to imagine

how much chaos would ensue if the Commission had to inquire into the

purpose and intent of the transportation provided or purchased every time

the provisions of the Shipping Act were called into question

Similarly with respect to the respondents argument that there is no

transportation between defined points page 83 et seq of the respond

ents brief we must disagree with it and reject it Respondents argue

that the statute language between the United States and a foreign country

2S F M C
PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 323

and who assumes responsibility for the transportation from the port or

point of receipt to the port or point of destination does not apply to

the cruises using the Port because those cruises are round trip cruises

which have the same port as their origin and destination Though inventive

the argument is flawed because the statute 6

clearly covers transportation

between a port in the United States and a foreign country or the reverse

Whether or not the transportation occurs during the course of a round

trip cruise is irrelevant When ships go from the Port to the Bahamas

or some other foreign country they provide transportation between the

United States and a foreign country and it matters not that there is

going to be additional transportation from the foreign country back to

the Port Indeed in our view the return voyage is further transportation

within the meaning of the Shipping Act So here we hold that the carriers

conducting cruises to or from the Port to or from foreign countries or

to or from the Port to or from other ports in the United States are common

carriers by water under the Shipping Acts and that the Port s activities

regarding those common carriers comes under the jurisdiction of the Federal

Maritime Commission

It should be noted that because of the above holding we need not

consider whether or not the Port was subject to the Commission s

jurisdic

tion because it held itself out to service common carriers of cargo by

water However there is considerable authority for the conclusion that

the Commission does have jurisdiction on this basis 7

Finally respecting jurisdiction it should be noted that the respondents

cite Fall River Line Pier Inc v International Trading Corp 399 F 2d

413 416 1st Cir 1968 at page 99 of their brief for the proposition

that the common carriage must be of sufficient consequence in relation

to contract carriage operations to justify the imposition of Commission

regulation First the holding in the Fall River case was rejected by

the Commission Secondly the respondents at pages 98 and 99 of their

brief aver that under the Shipping Act of 1984 the jurisdictional rules

have changed and Commission jurisdiction over a marine terminal requires

that the common carrier operations be of sufficient magnitude in relation

to contract operations to be deemed a substantial part of the port s busi

ness Citing Docket Nos 8426 and 8432 We think the import of

the Commission s language in the above dockets is misconstrued by the

28 F M C

6The discussion and conclusions would be equally applicable 10 section I of the Shipping Act of 1916

although a foreign country is not involved

7See Prudential Lines Inc v Continental Grain 21 SRR 133 ec seq 1982 which contairu an excelJ nt

discussion of the subject and where an analogy is drawn between the holding out of common carriers citing

Tariff Filing Practices of Containership Inc 9 FM C 56 62 1965 and American Export Isbrandtsen

lines Inc v F M C 444 F 2d 824 831 D C Cir 1970 Compare also withNew Orleans Steamship Asso

ciation v Bunge Corp 8 F M C 687 694 1965 Agreement No T 2719 16 FMC 318 321 1973 where

lile Commission acknowledged it no longer had jurisdiction where party barred common carriers from calling

at its facility

8See Prudential Lines Inc supra at 132 152 et seq for discussion of the issue and where the Commis

sion rejected the sufficient consequence test the respondenlS advocate
324 FEDERAL MARITIME COMMISSION

j

respondents However assuming arguendo they are correct the record is

clear that the cruise business at the Port which we have held as a fact

is common carriage is a substantial part of the commercial business of

the Port

Another facet of the respondents argument going to the Commission s

jurisdiction is the assertion that even if the Port were a

regulated terminal

due to service to common carriers the Commission would still lack

jurisdiction over the complaint because towing services are not subject

to the Shipping Act pp 9097 of respondents brief The respondents

then argue that even assuming arguendo that St Philip 9 was correctly

decided 16 years ago a matter as to which we have substantial doubt

given the above noted explicit congressional decision to delete towing serv

ice from Shipping Act coverage that case can in no way be considered

to govern the present case The respondents then allege that by virtue

of Commission decisions and congressional direction in the intervening

sixteen years Sr Philip can no longer be deemed a viable precedent on

the issue of when the commission may assert ancillary jurisdiction over

non Act services such as towing

We would readily agree with the respondents general premise that the

Federal Maritime Commission does not have the authority or jurisdiction

to regulate towing services per se Certainly the Shipping Acts clearly

indicate the absence of such jurisdiction However it is equally clear that

where provisions of the Shipping Acts may have been violated the Commis

sion will take jurisdiction respecting those violations even if towing services

are involved Of course St Philip supra is a case directly in point

There tug services were involved and as here there was an exclusive

agreement for those services In affirming its jurisdiction the Commission

stated

I

Where as here however the terminal operator has usurped

the normal function of the carrier and made the very access

to the terminal facilities dependent upon a commitment to Tampa

Towing for tug services under the terms of an exclusive right

contract the furnishing of tug boat service has in effect been

transformed into a terminal function intimately related to the re

ceiving handling transporting storing or delivery of property

The Commission s decision in St Philip is an extension of a line of

cases holding that even though the Commission does not have jurisdiction

of stevedoring services when a terminal operator grants amonopoly respect

ing stevedoring services the Commission does have jurisdiction to consider

Shipping Act violations that may ensue California Stevedore and Ballast

Company et al v Stockton Port District er al 7 F M C 75 1962

Greater Baton Rouge Port Commission and Cargill Inc v Federal Mari

otime Commission 287 F 2d 86 5th Cir 1961 Agreement Nos T 331O

iiiA P St Philip Inc v Atlantic Landand Improvement Co 13 F M C 166 11 SRR 309 1969

2S F M C
PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 325

and T 3311 25 F M C 591 1980 Compare California Stevedore and

Ballast Co v Stockton Elevators Inc 8 EM C 97 1964 where the

Commission held a public terminal may not assess one stevedore a charge

for rental of terminal provided equipment and not assess the charge against

another stevedore

In our view not only has the Commission not overruled St Philip

but it has consistently followed it over the years We believe it is the

law today and because it is we must hold that the Commission has jurisdic

tion over the Port s activities in this case In so holding we would note

that the respondents basic argument seems to be that unless there is

a discernible effect on commerciaVcompetitive relationships with the pur

view of the Shipping Act the Commission may not entertain a complaint

concerning a terminal operator s dealings with persons whose activities

are not subject to the Act We are at a loss to See where any of the

cases cited by the respondent either implicitly or explicitly refute overrule

or rebut the St Philip case or suggest that it is no longer the law As

to dealing with persons whose activities are not subject to the Act

the respondents argument assumes that the Port s activities are not subject

to the Act because tug services are involved We think the assumption

is in error in the light of the holding in St Philip

Finally regarding the receiving and handling of property the respondents

at page 96 of their brief state that there can be no jurisdiction in this

case based on the provisions of Section 17 of the 1916 Act or Section

10 d I of the 1984 Act They cite Bethlehem Steel Corp v Indiana

Port Commission 21 F MC 629 632 18 SRR 1485 1490 1979 for

the proposition that in it the Commission has made it clear that receiving

handling storing or delivering of property as used in the acts establishes

a dichotomy between a port s actions relating to navigation and those

relating to tenninaVcargo service Only the latter are covered They then

conclude that since tug and towing services are concerned with navigation

not handling cargo they clearly fall on the navigation side of the statutory

dichotomy and sections 17 and 10 d 1 have no application to them The

Bethlehem Steel case was decided on its facts It is consistent with the

St Philip case and in no way affects precedent set down in St Philip

As to the dichotomy the respondents would have us apply we would

submit that its application can only benefit the respondents if as the re

spondent suggests the action at issue does not infringe on relationships

to which the act is directed Here service to common carriers is involved

in that the Port is compelling those carriers to use a particular tug service

selected by the Port not only that the service has been selected without

any opportunity for any other tug service to initially be a party to the

exclusive agreement which was used Further competing tug services are

denied any opportunity to compete unless they carry the burden of satisfying

some vague test of convenience and necessity Lastly the general public

is affected by the Port s actions To hold that no competitive relationships

28 F M C
326 FEDERAL MARITIME COMMISSION

within the purview of the Shipping Act are affected as the respondents

would have us do is in error and we reject such a view So here in

summary we hold that the fact that tug and towing services are involved

does not deprive the Commission of jurisdiction over the respondents in

this proceeding We cannot equate the Port s actions as a terminal facility

respecting tug service with the Port s decision to buy navigation buoys

from A rather than B to employ X rather than Y or to put Coke

rather than Pepsi in its vending machines as the respondents would have

us do Rather we think tug services are so related to the Port s terminal

function that the Commission s

language in St Philip is germane here

Il said

Terminals are engaged in the business of regularly supplying

the public with a service which is of public consequence and

need and which carries with it the duty to serve the public and

treat all persons alike

Standing

At page 100 of their brief the respondents argue that Petchem lacks

standing to invoke the Commission sjurisdiction because it has in no

way been injured by the actions of which it complains lO Il avers that

the record establishes that under its military contract Petchem could not

perform commercial operations at Port Canaveral even if it were granted

a franchise and that the Air Force contract cannot lawfully be modified

to provide otherwise

We cannot agree with the respondents Petchem is engaged in the business

of providing tug and towing services Even if the Air Force contract were

construed in the most unfavorable terms in regard to Petchem it does

not indicate that Petchem cannot perform commercial services at the Port

There is no clause in the contract so providing What the contract does

do is earmark certain equipment for use in carrying out the terms of

the contract on a priority basis There is nothing to prevent Petchem from

buying or leasing additional equipment to do commercial work for the

Port or from forming a

subsidiary to perform such work

As to whether or not the Air Force contract can lawfully be modified

or needs to be so modified to allow Petchem to do commercial work

the record does not support the respondents contentions First of all the

contractual relations between the Air Force and Petchem are such that

given the terms of their contract they could mutually agree to allow

Petchem to do commercial work and deduct the revenue from the Air

Force s cost of its contract just as it did previously with the respondent

PCT Indeed the Air Force would be foolish not to do so as long as

the commercial work did not interfere with its priorities Secondly if the

IOThe respondents raised this issue and discussed it at length in their joint Motion for Dismissal by Sum

mary Disposition filed on December 6 1984

28 FM C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 327

Air Force and Petchem made such an agreement there would be no need

to legally modify the agreement since there is no prohibition on per

forming commercial work within it

Finally with respect to standing section 22 of the Shipping Act 1916

reads

SEe 22 a That any person may file with the board a sworn

complaint setting forth any violation of this Act by a common

carrier by water in interstate commerce or other person subject

to this Act and asking reparation for the injury if any caused

thereby The board shall furnish a

copy of the complaint to such

carrier or other person who shall within a reasonable time speci

fied by the board satisfy the complaint or answer it in writing

If the complaint is not satisfied the board shall except as otherwise

provided in this Act investigate it in such manner and by such

means and make such order as it deems proper The board

if the complaint is filed within two years after the cause of

action accrued may direct the payment on or before a day named

of full reparation to the complainant for the injury caused by

such violation

b The board upon its own motion may in like manner and

with the same powers investigate any violation of this Act

Section II of the Shipping Act 1984 states

SEC II COMPLAINTS INVESTIGATIONS REPORTS AND

REPARATIONS

a FILING OF COMPLAINTS Any person may file with

the Commission a sworn complaint alleging a violation of this

Act other than section 6

g

and may seek reparation for any

injury caused to the complainant by that violation

The language of the above sections allows any person to file a sworn

complaint alleging a violation of the Act Actual harm to the complainant

is not a prerequisite to a finding of violation under section 16 First

Shipping Act 1916 and section II Shipping Act 1984 In such cases

a finding of violation could result in the issuance of a cease and desist

order 12

Here then we believe the record and the pertinent law establish that

the complainant has standing to raise the issues now before ns and we

so hold

11 Further section 23 slates

SEC 23 Orders of the Commission relating to any violation of this Act or to any violation of

any rule orregulation issued pursuant to Ihis Act shall be made only after full hearing and upon

a

sworn complaint or in proceedings instituted of its own motion

11 Cargillv Waterman Steamship Corp 19 SRR 1017 1979
328 FEDERAL MARITIME COMMISSION

I

Violation of Section 16 First and Section 17 Shipping Act 191613

Section 16 of the Shipping Act 1916 provides that

ItshaU be unlawful for any common carrier by water or other person

subject to this Chapter either alone or in conjunction with any other

person directly or indirectly

First To make or give any undue or unreasonable preference

or advantage to any particular person or subject any particular

person to any undue or unreasonable prejudice or disadvan

tage in any respect whatsoever

Section 17 of the Shipping Act 1916 provides

Every such carrier and every other person subject to this Chapter

shaU establish observe and enforce Just and reasonable regulations

and practices related to and connected with the receiving handling

storing and delivery of property

The basic facts in this proceeding are for the most part uncontroverted

are set forth in the proposed findings and will not again be enumerated

here From them we must ascertain whether or not the Port violated sections

16 and 17 and the companion sections of the Shipping Acts We have

read the cases cited by the respondents in their brief pp 101 103 and

while they may stand for the statutory requirement the respondents

espouse it is clear that each case must be decided on its own facts Decisions

relating to whether or not actions are just and reasonable are hardly

objective guidelines susceptible of being correlated into some all encom

passing rule of law that will apply equally in aU instances For example

the respondents first critical element as to violation of section 16

First is there must be a definite showing that the difference

complained of actuaUy operates to the real disadvantage of the com

plainant What is meant by a definite showing or actually operates

or the real disadvantage The question of course begs explanation

and amplification and as far as we are concerned the only statutory

requirement we need follow is the application of the facts in this case

to the statute itself

Here we must determine whether or not the Port violated the Shipping

Acts Given the record in this proceeding we are compelled to hold that

it did At the outset we agree with respondents that initially the burden

of proof is on the complainant to show that the respondents were guilty

of the violations set forth in the complaint That burden was readily met

in the record when it was established that the Port not only had granted

an exclusive franchise to do the commercial tug work but it had unilaterally

13The companion sections to sections 16 lU1d 17 of the SWpping Act 1916 are sections 10b 11 12 and

10dI respectively of the Shipping Act of 1984

28 F M C
PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 329

designated the particular company who would be a party to the agreement

to the exclusion of all other parties As was stated in St Philip supra

such practice

Runs counter to the anti monopoly tradition of the United States

upsets the long established method by which carriers pick their

own stevedoring companies deprives Complainants and other ste

vedoring companies of an opportunity to contract for stevedoring

work on ships using elevator facilities and opens the door to

evils which are likely to accompany monopoly such as poor

service and excessive costs

Such a practice is prima facie unjust not only to stevedoring

companies seeking work but to carriers they might serve and

the general public which is entitled to have the benefit of competi

tion among stevedoring companies serving ships carrying goods

in which the public is interested as shipper or consumer for

this same reason it is prima facie unreasonable

The principle announced in the Stockton Port Case supra applies

with equal force to the situation where a vessel owner s

right

to select a tug boat operator is denied by exclusive contract

The arrangement before us now also eliminates competition and

is prima facie unjust and unreasonable not only to tug boat

companies seeking to render service to vessels docking and

undocking at the phosphate elevators but also to the carriers

that they might serve Thus unless justified the arrangement must

be struck down and it is incumbent upon Respondents to furnish

the justification Moreover as we stated in the Stockton Port

case however The burden of sustaining such practices as just

and reasonable is a heavy one

Once the prima facie unreasonableness of the Port s actions is established

it is clear that the burden shifts to the respondents St Philip supra

Stockton Port supra Agreements 8225 and 8225 1 5 EM B 648 1959

As we have noted earlier we reject the respondents argument that St

Philip supra either has been overruled or weakened by subsequent case

law

Whether or not the burden imposed on the respondents is a heavy

one as Hearing Counsel and the complainant argue or is an ordinary

one we believe that it has not been met by the respondents The evidence

in this case establishes that the Port s actions regarding commercial tug

work at the Port was unduly preferential in favor of PCT and was preju

diced not only against Petchem but against any other tug operator who

may have wished to render such services at the Port Further the Port s

actions were neither just or reasonable insofar as the receiving handling

storing and delivery of property is concerned

The record indicates that the Port denied Petchem s application because

I there was not sufficient business to support more than one tug franchise

28 F M C
330 FEDERAL MARITIME COMMISSION

2 the short and long range effects of grant of a second franchise on

the prices of tug services and 3 the desirability of having four tugs

available two of which would be on first call to the Port Even were

one to recognize the factual validity of each of the above reasons we

still would not consider the actions of the Port reasonable or just because

what the Port did was to unduly and unreasonably prefer peT over

all other tug services not just over Petchel l Even assuming arguendo

that only one commercial tug service was viable within the Port and that

a franchise agreement was necessary why did the Port not allow any

tug service to become the franchise Why did it select and foster PCT

Would not any other single franchise have satisfied the Port s objections

to having more than one tug service or its concerns about the price of

tug services And could not the Port have ensured the availability of

four tugs in the port long before Petchem entered the pictureby simply

providing in the commercial franchise agreement that the franchise would

not be allowed to do the military work or would have to give first priority

to the commercial work with at least one tug The answer to these questions

is that the Port preferred peT We do not doubt that the preference may

have been the result of the long standing business relationship between

Hvide PCT and the Port but that relationship is hardly enough reason

to warrant the Port from excluding Petchem as well as all other tug services

at the Port No doubt respondents will assert that only Petchern and PCT

were interested in providing commercial tug services and that therefore

no one else suffered any discrimination or injury However given the

exclusive franchise agreement the Port had with PCT it is not difficult

to see why other tug services might not apply for the commercial business l4

In addition to the above considerations there are other facts of record

that cast doubt on reasonableness of the Port s actions in granting an

exclusive franchise agreement to PCT and in denying Petchem s application

to do commercial tug work The record shows that in 1983 the Port

Director was advised by the military that PCT was not going to get the

military work since it could not satisfy the small business set aside and

that the Port ought to be considering another tug service This would

suggest that there was more military work in the Port than commercial

work and that in line with the Port s own arguments the commercial

work could hardly support one tug service Rather than consider another

tug service the Port Director wrote a letter to the military suggesting

they ought to reconsider and allow PCT to bid on the military work

Not only that the Port pointedly stated that any tug service receiving

the military contract would still have to get approval of the Port to do

the commercial work a position contrary to the military s suggestion that

the port ought to consider someone other than PCT since PCT was not

14 It should be noted that at least eight companies bid on the mllitary contract In 1983 which Indicales

that there would be interest in the commercial tug work if the Port had not already unilaterally selected PCT

28 FM C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 331

eligible to bid on the military work This action of course is completely

inconsistent with the Port s desire to have four tugs available two on

ftrst call to the Port for commercial work There is little question but

that if the military had granted the military tug work to PCT it would

still be doing the commercial work as well

Further the record raises serious questions in certain other areas regarding

the Port s undue preference for PCT and the reasonableness of that pref

erence The evidence establishes that PCT is a subsidiary of Hvide that

they use Hvide tugs on a lease basis that Hvide performs all the administra

tive functions and charges PCT a percentage of its overhead that Hvide

has borrowed substantial sums using the tugs leased to PCT as collateral

and that when the Port was considering Petchem s application PCT supplied

them with a ftnancial statement wherein it erroneously listed depreciation

and interest expense as being allocable to PCT None of these facts standing

alone warrants any holding that the Port s actions were unreasonable when

it gave or continued PCT s exclusive franchise for tug services even in

the face of Petchem s application However the record contains more

It establishes that while PCT s financial statements may be prepared in

accordance with accepted accounting principles those records are either

too inadequate or obscure to allow one to assess the viability of PCTs

ftnancial operation at the Port For example when we look at Petchem s

operating statement we see that Petchem made a net proftt of 230 777 06

in the ftrst year of operation under the military contract When we try

to compare that with the Hvide PCT operating statements we are met

with consolidated statements that even after careful analysis raise more

questions than they answer At best they indicate PCT is operating less

efftciently than Petchem For example in 1982 PCT showed losses of

2 326 00 on total revenues of 2 196 588 In 1983 it showed income

of 159 151 on total revenues of 2 318 015 For 1984 on commercial

tug services based on projections from 1983 it projected a loss of

245 687 00 on revenues of 475 000 00 Ex C 34 IS Even the Port

had problems with PCT s financial statement and questioned the allocation

of overhead from Hvide to PCT Tr III III et seq The Assistant Port

Director testified that they asked Hvide about the following

We had some sort of feelings that the overhead may have been

artiftcially high to maybe open up to show a larger loss than

they are actually going to suffer if any loss at all

and Hvide responded

perhaps they Hvide did but it can be justified you know

the questions of how you allocate overhead from parent companies

is an accounting game

15 See Exhibit R S at Exhibit ill I where PCT shows aloss of 473 263 on revenues of 688 143
332 FEDERAL MARITIME COMMISSION

As to the Port s consideration of the above the record indicates the Port

accepted what Hvide gave them Its witness in answering whether or

not Hvide s PCT statements indicate the stability that can be relied upon

over the years to handle the Port s

towing business stated

looking at the data does not give me any indication of

stability or not knowing that or at least having some idea of

the corporate structnre of the United States as well as have a

lot of very expensive accountants to manipulate if you wi lthe

bottom line for income tax purposes This may be just a paper

drill so again whether this shows stability I can only rely on

past history

All of the above discussion is presented to demonstrate the

unreasonableness the unjustness and prejudice that grew out of the Port s

methods in first granting an exclusive franchise to a particular company

and then predicating any other company s right to compete on a holding

of undefined convenience and necessity While the Port may not consider

it necessary to review the accuracy and reasonableness of the financial

statements and projections of PCT on the one hand it cannot reasonably

it seems to us deny another provider the right to compete because it

might precipitate a rate war and long range instability

Another aspect of the record that militates against the respondents in

this case is the evidence as to how tug services are provided at other

ports The complainant s witnesses testified about the competition in tug

services at various ports and the respondents witness rebutted the accuracy

of that testimony noting that in practice many ports have only one viable

tug service While the record is somewhat unclear as to who is right

and as to what tug service operates at what port it is clear that only

one or two ports use a franchise agreement like the Port does here More

importantly it is clear that even where a port is only serviced by one

tug provider there is no prohibition on other providers operating at the

port In essence free economic considerations govern who the one provider

wi lbe not some exclusive franchise agreement between the port involved

and a particular provider

Another point that needs to be noted is the considerable evidence in

the record regarding the quality of the tug service and the efficiency

of the tugs used We believe and have found that both PCT and Petchem

have rendered satisfactory tug service at the Port and that neither the

military nor the Port had any reason to deny PCT or Petchem the right

to provide tug service because of inadequacy of the service provided

Finally we would observe that the respondents efforts to justify not

only the granting of an exclusive franchisebut an exclusive franchise

to PCT is marred by the same defect that permeates the Port s actions

from the outset The entire process was and is viewed as a contest between

PCT and Petchem when in fact the real issues in this case are whether

or not an exclusive franchise agreement is warranted under the law and

28 F M C
28 F M C

PETCHEM INC V CANAVERAL PORT AUTHORITY ET AL 333

if so whether or not the Port or any Governmental body can select one

particular tug service as franchisee without allowing other competing tug

companies to even compete for the franchise The record here is devoid

of any reason why the Port should be allowed to select and retain PCT

over any other competitor Arguments that the Port is small and unique

are to no avail because there are many small ports having only one tug

service which do not use exclusive franchise agreements As to the combina

tion of military and commercial tug work historically there has been no

serious difficulty with competing movements or priorities and until Petchem

carne onto the scene neither the Port nor the military saw fit to complain

We find it strange that suddenly as PCT lost the military contract the

Port thinks four tugs would be better and would deny the military contractor

the right to do commercial work and yet even up to the present time

has not seen fit to arrive at the obvious solution of providing that the

commercial tug provider cannot do the military work 6

In summary we believe the facts in this case establish that the Port

violated sections 16 and 17 respectively of the Shipping Act of 1916

and sections lO b 1l 12 and lO d l respectively of the Shipping Act

of 1984 in unilaterally selecting PCT to provide commercial tug services

at the Port under an exclusive franchise agreement where no other tug

service was allowed to compete to become the franchisee either initially

when the agreement was first executed or later when the agreement was

reviewed from time to time Further the Port s denial of a non exclusive

agreement to perform tug services at the Port to Petchem where Petchem

was under the burden of satisfying a

vague test of convenience and neces

sity was a further violation of the aforementioned sections of the Shipping

Acts

In view of the above we hold that based on the record of this proceeding

and the particular facts of record that the use of the exclusive franchise

agreement involved violates the Shipping Act insofar as it grants an exclu

sive right to PCT to perform commercial tug services at the Port to the

exclusion of all other competitors and insofar as it requires other tug

services to sustain the burden of satisfying an undefined test of conven

ience and necessity in the face of a tug service already designated as

franchisee In essence we direct that the Port must consider applications

to perform commercial tug services at the Port on an equal basis under

equal prerequisites and criteria so as not to unduly prefer or prejudice

16 It is interesting to note that after the record in this proceeding was closed the respondents expert wit

ness who testified that the Port should not be obliged to rely for tug services fOf commercial activity on

the tug operator under contract to the military al the Port due among other reasons to potential conflicts

in service prepared a

report dated August 7 1985 which recommended that the Air Force give the military

work to PCT on atariff basis and in light of the proposed tug fleet configuration which includes thIee

high powered tugs The record was opened to receive the Report and recommendation which while

they mayor may not contravene the witness sprior testimony do raise the question of the four lug re

quirement in denying Petchem s application Indeed it raises a

question as to how the Port would react to

the recommendation orto a similar request on the part of Petchem
i

334 FEDERAL MARITIME COMMISSION

any provider of such service This holding of course does not mean

that peT is precluded from continuing to Plrform sllch services Insofar

as Petchem is concerned this decision requires and it is Ordered that

Petchem be allowed to Plrform tug services at the Port on a non exclusive

basis until such time as the Port properly establishes the need for an

exclusive franchise agreement affords competing tug companies the same

opportunity to become tile franchisee conducts any hearings which may

be necessary and adopts the agreement

8 JOSEPH N INOOLlA

Administrative Law Judge

j

I

1

28 P M C
FEDERAL MARITIME COMMISSION

DOCKET NO 8436

SEATfLE CRESCENT CONTAINER SERVICE INC

v

THE PORT OF SEATfLE

NOTICE

April 25 1986

Notice is given that no appeal has been taken to the March 19 1986

dismissal of the complaint in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the dismissal has become administra

tively final

S JOHN ROBERT EWERS

Secretary

28 F M C 335
FEDERAL MARITIME COMMISSION

DOCKET NO 8436

SEATILE CRESCENT CONTAINER SERVICE INC

v

THE PORT OF SEATILE

COMPLAINT DISMISSED

Finalized April 25 1986

By complaint filed October 9 1984 as amended Seattle Crescent Con

tainer Service Inc Complainant alleged that The Port of Seattle Respond

ent was engaged in certain practices seeking to exculpate the Respondent

from its own negligence in violation of section 17 of the Shipping Act

1916 46 U S C app 816 and section 10 d I of the Shipping Act

1984 46 U S C app 1709 d I The Complainant asked that the practices

be declared unjust and unreasonable and that a cease and desist order

be issued Costs and attorneys fees were requested

The matter proceeded to hearing in Seattle Washington but was recessed

on October 10 1985 to allow the parties to seek a fresh approach to

a settlement

By letter dated March 6 1986 Complainant advises that the Complainant

and Respondent have reached a settlement with respect to practices for

the future and that it has withdrawn its complaint A copy of the written

agreement to govern future conduct is attached to the Notice of Withdrawal

Neither the Respondent nor Hearing Counsel an Intervenor in the pro

ceeding opposes the withdrawal

Accordingly the complaint is dismissed without prejudice

S SEYMOUR GLANZIlR

Administrative Law Judge

I

Inasmuch as the agreement was filed March 13 1986 with the Commission s Bureau of Agreements and

Trade Monitoring under the provisions of section 5 of lhe Shipping Act 1984 46 US C app 1704 it will
INDEPENDENT

ACTION

SUMMARY

FEDERAL MARITIME COMMISSION

46 CFR PART 572

DOCKET NO 85 7

ACTION NOTICE AND MEETING PROVISIONS IN

CONFERENCE AGREEMENTS

April 25 1986

Final Rule

This revises the Commission s regulations goveming the

filing of agreements submitted to the Commission pursu

ant to the Shipping Act of 1984 The Final Rule requires

conference agreements to I establish a maximum no

tice period of not more than 10 days for member lines

taking independent action 2 provide for a single notice

to the conference of a member line s

independent action

and 3 state that a member line taking independent

action is not required to attend a meeting or to comply

with other procedures for the purpose of explaining

justifying or compromising a

proposed independent ac

tion The Final Rule also makes technical changes based

on the comments received

EFFECTIVE

DATE May 30 1986

SUPPLEMENTARY INFORMATION

IPROCEEDING

This proceeding was initiated by a Notice of Proposed Rulemaking pro

posed Rule published in the Federal Register 50 FR 10810 March 18

1985 to revise Part 572 Agreements by Ocean Common Carriers and

Other Persons Subject to the Shipping Act of 1984 46 CPR Part 572

as it relates to conference independent action IA authority The Proposed

Rule would require conference agreements to establish a maximum notice

period of not more than 10 days for member lines taking independent

action to provide for a single notice of independent action to the conference

and to state that a proponent of independent action is not required to

attend a meeting or to comply with other procedures for the purpose

of explaining justifying or compromising a proposed independent action

A total of 14 comments were received in response to the Commission s

Notice of Proposed Rulemaking The Proposed Rule was supported in com

ments filed by I the Department of Justice DOJ 2 the Chemical

28 F M C 337
338 FEDERAL MARITIME COMMISSION

Manufacturers Association CMA 3 PPG Industries Inc pPG and

4 Brown Forman DistiJIers Corporation Brown Forman

Comments seeking clarification modification or withdrawal of the Pro

posed Rule were filed by I the Transpacific Westbound Rate Agreement

TWRA 2 the Philippines North America Conference pNAC 3 the

Inter American Freight Conference IAPC 4 the U S Flag Far East Dis

cussion Agreement Agreement No 1050 5 the North Europe U S Pa

cific Freight Conference the Pacific Australia New Zealand Conference and

the Pacific Coast European Conference NEUSPAC et a 6 the 8900

Lines and the U S Atlantic Gulf PortsItaly France Spain Freight

Conference 8900 Lines et a 7 the Atlantic and Gulf West Coast of

South America Conference the United States Atlantic and Gulf Colombia

Conference the United States Atlantic and GulfEcuador Conference the

United States Atlantic and GulfVenezuela Freight Association the United

Stales Atlantic and Gulf Southeastern Caribbean Conference and the United

States Atlantic and GulflHispaniola Steamship Freight Association Latin

American Conferences 8 the Trans Pacific Freight Conference of Japan

Korea the JapanKorea Atlantic Gulf Freight Conference the Trans Pa

cific Freight Conference Hong Kong the New York Freight Bureau and

the Japan Puerto Rico Virgin Islands Freight Conference Trans Pacific

Conferences 9 the United States European Carrier Associations USECA

consisting of the North Europe U S Gulf Freight Association the Gulf

European Freight Association the North Europe U S Atlantic Conference

the U S Atlantic North Europe Conference the Pan Atlantic Carrier Trade

Agreement and the Trans Atlantic American Flag Liner Operators Agree

ment and 10 Sea Land Service Inc Sea Land

II COMMENTS AND DISCUSSION

A The Right ofIndependent Action

Section 5 b 8 46 U S C app 1704 b 8 of the Shipping Act of 1984

the Act or the 1984 Act 46 U S C app 1701 1720 states that each

conference agreement must

provide that any member of the conference may take independent

action on any rate or service item required to be filed in a

tariff under section 8 a of this Act upon not more than 10 cal

endar days notice to the conference and that the conference will

include the new rate or service item in its tariff for use by

that member effective no later than 10 calendar days after receipt

of the notice and by any other member that notifies the conference

that it elects to adopt the independent rate or service item on

or after its effective date in lieu of the existing conference tariff

provision for that rate or service item

Before addressing the specific issues raised with regard to particular

provisions of the Proposed Rule it is necessary to address a number of

general issues raised by the comments regarding the interpretation of section

28 FM C
28 F M C

INDEPENDENT ACTION NOTICE AND MEETING PROVISIONS 339

IN CONFERENCE AGREEMENTS

5b 8 of the Act One such issue concerns the proper role of independent

action within the statutory scheme of the 1984 Act A number of the

conferences argue that collective ratemaking is the normal method for

pricing ocean transportation services It is asserted that in a well functioning

conference differences over pricing will usually be resolved internally

Independent action is said to be a safety valve a last resort an

exception to the norm that will rarely be used These comments generally

conclude that the Proposed Rule would distort the statutory scheme by

elevating independent action above collective action

This position however ascribes too peripheral a role to the independent

action provision of the Act Independent action is not merely asafety

valve to be used on rare occasions whenever pricing decisions cannot

be resolved internally and a member is allowed to act independently rather

than be forced to leave the conference It is a central provision designed

to balance those provisions of the Act which facilitate collective action

The independent action provision was a key feature of the compromise

that led to the passage of the t984 Act Moreover the independent action

provision was one of the shipper sponsored provisions The 1984 Act rep

resents a legislative effort to balance the interests of carriers and shippers

In order to fulfill that Congressional purpose it is necessary to ensure

that the right of independent action is fully preserved and that no restric

tions other than those permitted by the statute are placed on its exercise

Rather than distorting the statutory scheme the Proposed Rule would

appear to be in harmony with the purpose of the 1984 Act The independent

action provision of the 1984 Act is the counterbalance to the enhanced

economic power of conferences Congress could not have spoken more

clearly on this issue than it did in the Conference Report

A critical factor enabling the Conferees to agree on a more nar

rowly drawn general standard is the inclusion in this bill of numer

ous other provisions which address the nation s interest in competi

tion in the ocean common carrier industry Even more impor

tantly the bill includes other specific and major procompetitive

reforms that will affect the operation of ocean carriers and con

ferencesnotably a strong requirement of independent action with

a limited notice period

H R Rep No 98jOO 98th Cong 2d Sess 33 34 1984

As the Conference Report makes clear Congress intended independent

action to be a procompetitive balance to the more narrowly drawn general

standard Moreover it is clear that Congress was aware that it would

affect the operation of ocean carriers and conferences including

pricing Furthermore there is nothing in the legislative history which indi

cates that independent action is merely a safety valve rarely to be used

or only as a last resort Although Congress continued to allow for collective

ratemaking by conferences it provided for a strong effective right of

IA in the clearest of terms Preserving an unburdened right of IA is in
340 FEDERAL MARITIME COMMISSION

j

1

keeping with the Congressional purpose Restricting burdening or making

it more difficult to exercise independent action defeats the purpose of

the Act and the legislative compromise that led to the Act s passage

A number of conferences suggest further that the Proposed Rule is con

trary to the Congressional purpose of continuing the conference system

in order to address structural and competitive problems such as rate insta

bility and overcapacity While it is true that Congress did continue the

conference system for such a purpose this does not mean that independent

action should be circumscribed or limited Congress gave not only con

ferences but other types of carrier agreements the opportunity to deal with

problems of overcapacity by providing for a relaxed general standard expe

dited processing and clear antitrust immunity Restricting lA however

is not a solution to the problem of overcapacity which is the fundamental

cause of rate instability

One conference comment argues that the Act s silence with regard to

any other restrictions on independent action does not mean that aU other

conditions are per se unlawful Another comment argues that section 5b 8

does not prohibit other provisions in agreements which might result in

reducing the frequency of independent action This same comment criticizes

the Proposed Rule as an administrative rulemaking which impermissibly

adds to the statutory requirements of section 5 b 8

These comments misconstrue the nature of the right of independent action

Independent action means that a member Unemay act independently and

not coUectively with regard to any rate or service item required to be

filed in a tariff In order to take such action the member Une may only

be required to provide notice of up to JOdays to the conference To

argue that the Act s aUeged silence permits other substantive requirements

or conditions which would effectively add to the Umited notice requirement

either as a precondition to or as a consequence of independent action

is contrary to the express language of the Act Any condition procedure

or other mandatory requirement that in effect adds to the 10 day maximum

notice requirement or places a mandatory burden on IA is on its face

per se violative of section 5 b 8

The Proposed Rule does not add to the statutory requirements of section

5b 8 Its intent is merely to codify by rulemaking Commission policy

concerning some of the conference imposed conditions on the exercise of

independent action which appear on their face to violate section 5b 8

These conference imposed requirements specified in the Proposed Rule have

been encountered in a number of agreement fiUngs and have prompted

negotiation with the parties to obtain their removal or modification Contin

ued case by case adjudication of such provisions as suggested by one com

ment is inappropriate unnecessary and an inefficient use of Commission

resources The Proposed Rule provides clear guideUnes for conferences

and avoids filings which otherwise would be rejected or require modifica

tion

28 F M C
28 F M C

INDEPENDENT ACTION NOTICE AND MEETING PROVISIONS 341

IN CONFERENCE AGREEMENTS

Finally it should be noted that the Department of Justice believes that

the Proposed Rule does not go far enough and that additional regulations

are needed DOJ urges the Commission to broaden the scope of this pro

ceeding to include consideration of regulations requiring all conference

agreements to expressly prohibit I

any form of collusion in connection

with any carrier s right of independent action 2 the erection of any

artificial procedural barriers to any carrier s exercise of its right of inde

pendent action and 3 all forms of conference or collective retaliation

against carriers who exercise their right of independent action DOJ ac

knowledges that consideration of its proposals would require continuation

of this proceeding Whatever the merits of these proposals they are beyond

the scope of this rulemaking DOJs proposals will however be given

consideration in a future rulemaking proceeding on this subject

B Specific Provisions ofthe Proposed Rule

1 Section 5720 04 it Right ofIndependent Action

Section 572 502 a 4 i of the Proposed Rule incorporates the requirement

of section 5 b 8 of the Act that each conference agreement must provide

for the right of independent action The language of this paragraph is

substantially the same as that of the existing rule which appears at 46

CPR 572502 a 4

One comment contends that the language of this paragraph which states

and shall otherwise be in conformance with section 5 b 8 of the Act

is superfluous and should be deleted because the regulation already incor

porates all of the requirement8 of 8ection 5b 8 of the Act

Section 572 502 a 4 i paraphrases but does not restate verbatim the

language of section 5 b 8 of the Act The language cited by the comment

therefore assures that the rule is not interpreted as a delimitation of the

statutory right of independent action Moreover it does not add any require

ment which does not already exist in the Act itself Therefore this language

shall be retained in the Final Rule

The same comment proposes further that language be added to this

paragraph which would provide expressly for notice to a section of a

conference in lieu of notice to the conference itself where ratemaking

is conducted on a sectional basis If ratemaking authority resides exclusively

within the particular sections of a conference and the business of agreeing

on rates and publishing tariffs is done on a sectional basis it would not

appear to be inconsistent with the Act to allow for notice to the section

since it rather than the overall conference is the ratemaking body To

that extent the comment has merit and shall be accommodated by adding

a paragraph to the Final Rule which allows for notice to a

ratemaking

section in lieu of notice to the overall conference As discussed more

fully below only a single notice to the section may be required
342 FEDERAL MARITIME COMMISSION

2 Section 5720 a 4 iiNotice Period

Section 572 502 a ii of the Proposed Rule establishes a maximum notice

period of 10 days which may either be required or permitted by the con

ference agreement The Proposed Rule prohibits IA provisions which provide

for a minimum notice period and leave open the possibility of voluntary

notice in excess of 10 days The effect of the Proposed Rule is thus

to preclude an IA proponent from voluntarily providing more than 10

days notice to the conference

The Department of Justice fully supports this requirement of the Proposed

Rule DOJ contends that this rule regarding the notice period warrants

adoption because it gives full effect to the literal meaning of section 5 b 8

of the Act and because it would prevent conference members from becoming

participants in implicit understandings in which carriers would voluntarily

give more advance notice of independent action than was intended under

section 5b 8

CMA also supports this provision CMA contends that the language

and intent of the Act are to prohibit a conference from requiring a con

ference member to give more than 10 calendar days notice Moreover

according to CMA the restriction on voluntary notice would still allow

an IA proponent to informally discuss a proposed independent action prior

to giving formal notice or to withdraw a proposed independent action

prior to effectiveness and resubmit it at any time

The conference carrier comments unanimously oppose the Proposed Rule s

prohibition of voluntary notice of independent action in excess of 10 days

The comments advance various arguments to support the position that an

IA proponent should be permitted to voluntarily provide notice of more

than 10 days

First some comments argue that the plain meaning of the language

of the Act places a limit only upon the conference agreement and not

on the action of an individual member The only purpose of section 5b 8

of the Act allegedly is to prohibit a conference from imposing a greater

notice period upon a member line Some comments argue further that

the language of the Act which states that the inclusion of the IA item

in the tariff for use by the member shall be effective no later than

10 calendar days after receipt of the notice does not impose any restriction

on the member line This language it is argued merely requires the con

ference to file the notice within I0 days of receipt Some comments argue

that filing and effectiveness of the tariff must be distinguished from the

effective date of the IA rate as specified in the tariff The language of

the Act is said merely to require filing of the tariff within Io days This

filing requirement allegedly cannot be converted into a limitation on a

member s

right to give voluntary notice of more than 10 days Thus

it is contended that an IA proponent can specify an effective date of

more than 10 days and that this does not conflict with the requirement

that the conference file the tariff within 10 days Finally some comments

2S FM C
28 F M C

INDEPENDENT ACTION NOTICE AND MEETING PROVISIONS 343

IN CONFERENCE AGREEMENTS

argue that the Proposed Rule would conflict with the minimum 3D day

notice requirement of section 8 d if the independent action rate is a new

or increased rate The comments conclude that the Commission may not

prevent or compel a conference to prevent a member line from independ

ently and unilaterally giving more than 10 days notice cancelling IA

whether effective or pending or extending the effective date of a pending

IA

Second some conference comments contend that the legislative history

makes clear that Congress intended only to place a limit on the maximum

number of days notice which a conference could require a member line

to give They argue that the legislative history speaks only in terms of

the maximum notice that may be required and does not prohibit additional

voluntary notice It is also argued that if Congress had intended to impose

such a

requirement it would have established minimum and maximum

time periods

Third conference comments argue that the policy of the Act favors

allowing carriers the freedom to structure their own affairs In keeping

with this policy member lines should be allowed to provide longer notice

Fourth conference comments argue that the prohibition on voluntary

notice of more than 10 days is unworkable and unneeded Several con

ferences point out that the Proposed Rule could be circumvented in various

ways A member considering independent action could I announce an

intended IA in advance of formal notice and discuss withdraw or com

promise it 2 docket a rate proposal and give formal notice of IA only

after the proposal is rejected by the conference or 3 give notice of

IA and then withdraw it prior to effectiveness and re notice the IA Another

comment argues that a conference could completely disregard a notice

given II days prior to the effective date under the Proposed Rule

Fifth some conference comments argue that there are positive benefits

to be obtained from a rule which would allow voluntary notice of more

than 10 days It is argued that such voluntary notice would enhance commu

nication among members which would in tum support collective ratemaking

and thereby promote rate stability It is also stated that such voluntary

notice would enable conference members to meet outside competitors rates

well in advance and allow time to take a possible second IA to meet

outside competition

Section 8 d 46 V S C app 1707 d provides

No new or initial rate or change in an existing rate that results in an increased cost to the shipper

may become effective earlier than 30 days after filing with the Commission The Commission for

good cause may allow such anew or initial rale or change to become effective in Jess than 30

days A change in an existing rate that results in a decreased cost 10 the shipper may become effec

tive upon publication and filing withthe Commission

The comments in effect argue that if the Proposed Rule requires effectiveness of an IA rate within 10

days of filing there would be apotential conflict wilh the 30 day notice requirement of section 8 d in the

case of new orincreased rates
344 FEDERAL MARITIME COMMISSION

Sixth three conference comments contend that contract law permits a

party that is required to give a specific notice to voluntarily give more

notice than that required by the contract

Seventh one comment argues that the legal construction generally given

to statutory provisions and agency rules requiring a notice period of a

certain number of days supports voluntary additional notice This comment

argues that none of these statutes or rules prohibits the person bearing

the notice burden from giving additional notice

Eighth two comments argue that the Proposed Rule is inconsistent with

the Commission s previous interpretation of notice requirements made in

the Final Rule issued in Docket No 8426 Rules Governing Agreements

By Ocean Common Carriers And Other Persons Subject To The Shipping

Act of 1984 49 FR 45320 November 15 1984 27 F M C 430 There

the comments contend the Commission recognized the right to give more

than 10 days notice by deleting an absolute 10 day limit from its interim

rule

A 10 day maximum notice requirement is consistent with section 5b 8

of the Act and shall be retained in the Final Rule Section 5 b 8 of

the Act establishes the mechanism by which independent decisions regarding

tariffed price or service items may be made within the structure of the

conference system Section 5 b 8 sets forth statutory requirements regard

ing notice waiting period conference filing obligations and effectiveness

of lA items These requirements affect both the collective action of the

conference and the individual action of a conference member taking lA

The language of section 5 b 8 is clear Each conference agreement

must 8 provide that any member of the conference may take independent

action upon not more than 10 calendar days notice to the con

ference This language requires each conference agreement to contain

such a provision which establishes a maximum waiting period following

notice of not more than 10 calendar days The conference is then required

to include the new rate or service item in its tariff for use by

that member effective no later than 10 calendar days after receipt of the

notice emphasis added This language not only obligates the conference

to file the lA item in the conference tariff after receiving notice but

further specifies when the lA item shall become effective This limit applies

both to the conference and the individual member taking lA Neither the

conference nor the lA ptoponent may set an effective date beyond 10

calendar days The language of section 5 b 8 when read in its entirety

establishes a clear certain and predictable mechanism governing inde

pendent action which includes a 10 calendar day limit on lA notice Once

formal notice of independent action has been given the Act establishes

a definite scheme for filing of the lA item in the conference tariff and

effectiveness of the lA item

The legislative history to the extent that it addresses the question of

notice waiting period and effective date is not inconsistent with and in

28 FM C
28 F M C

INDEPENDENT ACTION NOTICE AND MEETING PROVISIONS 345

IN CONFERENCE AGREEMENTS

some instances supports the interpretation of section 5b 8 taken in the

Final Rule The Conference Report for example stated that

The conferees agree that the notice period to be given to the

conference before a member may take independent action cannot

be more than ten calendar days The House recedes from a provi

sion that would have limited the notice period to 2 working

days for independent action the Senate recedes from a provision

that would have limited independent action to certain trades and

only when aloyalty contract is in effect

H R Rep No 98600 98th Cong 2d Sess 29 1984 Similarly the

House Committee on the Judiciary stated that the bill requires all

conferences to permit independent action upon a maximum of ten days

notice to the conference H R Rep No 98 53 Part 2 98th Cong 1st

Sess 30 1983

Moreover as the legislative history acknowledges the proper length of

the waiting period was amatter of dispute

The proper length of the waiting period has been a matter of

some dispute The chemical manufacturers advocate no waiting

period or a maximum of 48 hours Sea Land Industries argues

that conferences need at least ten days other carrier representatives

believe a still longer period is necessary to allow conference

members to meet before the rate takes effect As approved by

the Committee the conference may shorten but cannot lengthen

the ten day notice period While some carriers preferred a longer

period the Committee believes some concessions are warranted

in the interest of a flexibility sic pricing mechanism that could

significantly aid this nation s export performance

H R Rep 98 53 Part 2 98th Cong 1st Sess 27 1983 The lO day

waiting period thus represents a compromise between shipper interests which

had advocated no waiting period or 48 hour notice and some carrier interests

which had advocated a longer waiting period Moreover a lO day ceiling

was imposed so that there would be more pricing flexibility for the benefit

of U S shippers and exporters A shorter waiting period before a rate

or service item becomes effective also contributes to the stated intention

to give U S shippers greater flexibility in meeting price competition

from foreign shippers and to enable them to respond more quickly to

market opportunities H R Rep No 98 53 Part I 98th Cong 1st Sess

31 1983

Although not directly addressing the question of voluntary notice the

extensive discussion in the legislative history of the appropriate period

of notice would appear to have little value if a member line could volun

tarily give more than 10 days notice Similarly the compromise between

carrier and shipper interests would appear to be disturbed if carrier members

could voluntarily provide more notice As noted above the Conference

Report states that the Act provides for a strong requirement of
346 FEDERAL MARITIME COMMISSION

independent action with a limited notice period emphasis added H R

Rep No 98600 98th Cong 2d Sess 33 34 1984 The Final Rule

implements the intended purpose of section 5 b 8 by assuring that shippers

will have the benefit of IA rates that become effective within 10 days

after notice The Final Rule also reduces the potential danger that by

allowing voluntary notice in excess of 10 days conference members might

become participants in implicit understandings in which carriers would al

ways voluntarily give more thllIl 10 days advance notice of independent

action

The various objections raised by the conference comments do not warrant

a change in this provision of the Proposed Rule The alleged loopholes

in the Proposed Rule which would allow effectively for longer periods

of notice do not in any way undermine the purpose or value of a maximum

to day requirement The Proposed Rule was not intended to preclude ad

vance discussions of possible independent actions or other rate actions

or considerations that might be undertaken prior to formal notice In fact

the availability of these procedures indicates that conference flexibility in

considering IA proposals is not unduly impaired Moreover the Proposed

Rule does not prevent an individual carrier that has given notice of IA

from withdrawing the IA prior to its effectiveness In this regard the

alleged positive benefits of allowing voluntary notice of more than 10

days i e better communications conference stability etc still would be

largely available under various pre formal notice procedures The Rule does

ensure however that once formal notice is given and unless withdrawn

by the IA proponent the filing of the tariff and effectiveness of the IA

rate will occur in a predictable and certain manner

Nor does the alleged inconsistency of the Proposed Rule with section

8 d of the Act constitute a barrier to the issuance of aFinal Rule precluding

voluntary notice in excess of 10 days The Final Rule has been harmonized

with section 8 d by expressly recognizing that new or increased rates

are subject to the requirements of section 580 1O a 2 46 C F R

580 10 a 2 of the Commission s tariff rules Presumably such instances

would be rare because the vast majority of independent actions are rate

decreases In this regard it should be noted that at one point H R 1878

expressly provided that independent action would apply only to an action

that results in a decreased cost to a

shipper The accom

panying Committee Report noted that Independent action must be limited

to decreases in rates H R Rep No 98 53 Part 2 98th Cong 1st

Sess 30 1983 Although this language did not remain in the legislation

which became law it would appear to be consistent with the Act to allow

IA on any tariffed rate or service item including rate increases but to

make lA s which increase rates subject to tariff filing requirements The

approach also seems appropriate inasmuch as both section 5b 8 and sec

tion 8 d are provisions of the Act which are intended to benefit shippers

The Final Rule reconciles the requirements of both provisions

28 FM C
28 F M C

INDEPENDENT ACTION NOTICE AND MEETING PROVISIONS 347

IN CONFERENCE AGREEMENTS

Neither the principles of contract law nor the construction given to notice

periods in other statutes or agency rules are controlling in this instance

Section 5 b 8 sets statutory limits on the waiting period before tariff

filing and on rate effectiveness which apply both to the conference and

the individual member

Finally the Proposed Rule is not inconsistent with the Commission s

previous interpretation of notice requirements made in Docket No 84

26 Rules Governing Agreements by Ocean Common Carriers and Other

Persons Subject To The Shipping Act of 1984 49 FR 45320 November

15 1984 27 F M C 430 as alleged in some comments In that proceeding

the Commission ultimately deleted the model independent action provision

which had been in effect in the interim rule issued under the 1984 Act

See 46 C PR 572 801 e The Commission retained unchanged

572 502 a 4 which specified the content of the independent action article

of conference agreements In addressing the comments to 572 502 a 4

the Commission stated

Section 5720 a 4 requires that conference agreements specify

its sic independent action procedures Comment 34 proposes

that this section be revised to permit I independent action proce

dures which allow for the exercise of such action on less than

10 calendar days notice and 2 a conference member to inde

pendently elect to provide more than 10 calendar days notice

of its intention to exercise independent action

Section 572 502 a

4 tracks the language of section 5 b 8 of

the Act which in relevant part provides that conference agreement

independent action provisions may not impose a notice period

of more than 10 calendar days for the exercise

of independent action The revisions suggested by Comment 34

are unnecessary because their intended purpose is presently being

served by section 572 502 a 4 Therefore no change to this sec

tion has been made

49 FR 45335

One comment relies upon this discussion as support for the contention

that the Commission has previously interpreted section 5b 8 of the Act

to allow for voluntary notice of more than 10 days This reliance is mis

placed Certainly nothing in the present rule itself 572 502 a 4 in any

way interprets section 5 b 8 as allowing for voluntary notice of more

than 10 days Moreover the accompanying discussion referred to above

was intended merely to indicate that further changes in 572 502 a 4

were unnecessary inasmuch as conferences would be permitted to draft

their own independent action provisions in accordance with section 5 b 8

of the Act The discussion did not expressly authorize voluntary notice

of more than 10 days To the extent that that discussion may have left

any ambiguity on this issue it is clarified by the Final Rule issued in

this proceeding
348 FEDERAL MARITIME COMMISSION

As indicated in the Notice of Proposed Rulemaking section

572 502 a 4 ii is intended to address provisions in conference agree

ments which are stated in terms of a minimum period of notice to the

conference An example of such a provision would be one which states

that a conference member may take independent action upon not less

than 10 calendar days notice to the conference Such a provision requires

a minimum period of notice but leaves open the possibility that a member

line taking independent action may voluntarily provide notice which exceeds

the required minimum including notice in excess of 1 0 days Such con

ference provisions which only establish a minimum notice period are prohib

ited by the Final Rule The Final Rule permits a conference to provide

for a fixed period of notice not in excess of 10 calendar days or a

range of notice provided that the maximum permissible notice does not

exceed 10 calendar days

3 Section 572 502 a 4 iii Single Notice

Section 5720 a 4 iii of the Proposed Rule states that an IA proponent

may only be required to give a single notice to a conference official

or designated representative The proposed Rule would codify by rule

the Commission s established policy with regard to multiple notice provi

sions Although not expressly stated this section does not preclude an

IA proponent from voluntarily giving notice to the other parties to the

agreement

DOl contends that this section of the Proposed Rule warrants adoption

because it prohibits a procedural obstacle to independent action that is

inconsistent with the statutory language which requires notice to the con

ference CMA supports this section and states that the statute allows

only for single notice

Relying on the statutory definition of the term conference 46 VS C

app 1702 7 four conference comments argue that the individual members

of the conference are the conference and that a

requirement of notice

to each member therefore is permissible

Two comments contend that the Act does not prohibit a conference

from requiring direct notice to each conference member provided that

the conference does not refuse to publish an independent action in a tariff

or otherwise withhold the right of independent action if the member fails

to notify other members as well as the conference secretariat Another

comment adds that a multiple notice requirement is permissible provided

that the notice to all members does not extend the notice period

Other comments contend that I multiple notice imposes little if any

burden on the IA proponent 2 there is no evidence that multiple notice

would deter IA 3 many rate agreements operate without a secretariat

and depend on the initiating party to communicate with all other participants

and 4 notice to all other members serves a

legitimate commercial purpose

by assuring that other members have a reasonable period of time to decide

28 F M C
28 F M C

INDEPENDENT ACTION NOTICE AND MEETING PROVISIONS 349

IN CONFERENCE AGREEMENTS

whether to exercise follow up IA Finally two comments submitted by

carrier interests take the position that the Act does prohibit a conference

from requiring a member to give more than one notice but does not

preclude a member from voluntarily doing so

Section 5 b 8 of the Act requires an IA proponent to provide notice

to the conference The Act s definition of conference 46 V S C

app 1702 7 states

conference means an association of ocean common carriers

permitted pursuant to an approved or effective agreement to en

gage in concerted activity and to utilize a common tariff but

the term does not include a joint service consortium pooling

sailing or transshipment arrangement

This definition does not support the argument advanced in several comments

that the conference is merely the sum of its members and therefore notice

to each member may be required Rather the definition makes clear that

the conference is itself a distinct entity namely an association of ocean

common carriers It is the single entity ie association to whom

notice must be given Section 5 b 8 provides that the conference will

include the new rate or service item in its tariff Normally this is accom

plished by the conference office or secretariat The filing of the IA tariff

item is not the responsibility of the other member lines If there is no

central conference office then one member could be designated to file

the tariff

Other comments contend that a conference may require multiple notice

as long as this requirement does not prevent or delay the publication

of the IA item in the conference tariff Such an interpretation in addition

to again ignoring that the Act speaks in terms of notice to the conference

also as a practical matter lays a heavy collateral burden on the taking

of IA since failure to provide multiple notice still would constitute a breach

of the agreement in the view of these comments Finally it should be

noted that the Proposed Rule does not preclude voluntary notice to other

conference members Thus the alleged benefits of multiple notice still

might be available through voluntary notice to the other members

Section 572 502 a 4 iii also requires each conference agreement to indi

cate which conference official or single designated representative is to

receive the IA notice One comment suggests that this requirement be

modified to allow the conference to designate an office rather than a

particular person Another comment recommends that if this requirement

is retained it be modified to take into account conferences which conduct

ratemaking by sections and to allow notice to the section

These suggested changes may be accommodated without imposing any

additional burden on the IA proponent and may facilitate the giving of

IA notice It is therefore appropriate to amend this section to allow a

conference to designate a conference official single designated representa

tive or conference office as the recipient of the IA notice As discussed
i

1

350 FEDERAL MARITIME COMMISSION

I

above a new paragraph allowing for notice to the ratemaking section in

lieu of notice to the overall conference would address the concerns of

such conferences where ratemaking is by section

Finally it should be noted that section 572 404 of the Commission s

rules 46 CPR 572 404 allows for a waiver of aily of the requirements

of section 572 502 upon a showing of good cause A waiver of the single

notice requirement might be available for example to a conference with

no formal admhlistrative structure for receiving notice or to a conference

made up ofonlY a few lines

4 Section 572 502 a 4 ivMandatory Meetings Etc

Section 572 502 a 4 iv of the Proposed Rule prohibits a conference

from requiring attendance at conference meeting submission of information

other than that necessary to accomplisb tariff filing or compliance with

any other procedures for the purpose of explaining justifying or compro

mising the proposed independent action This section would codify current

Commission policy in this area

DOJ supports this section of the Proposed Rule and argues that such

meeting informational or procedural requirements should be prohibited

because they encourage intimidatiOn harassment and coercion of carriers

who attempt to take IA CMA argues that such mandatory requirements

should be prohibited because the Act provides for independent action not

action thatmust be discussed and considered collectively

Two conference comments argue that the Act does not prohibit a

require

ment of mandatory meetings TWRA for example states It is permissible

to require meetings and even to treat failure to comply as a

breach so long as the IA is published as noticed within 10 days 1WRA

and PNAC argue that the conference also may require additional information

or data so long as failure to comply cannot be used as a basis for refusing

to publish a tariff Another comment argulls that the conference may require

a statement of the reasons motivating or underlying the independent action

FinallY one comment argues that conferences should be permitted to require

a post IA exercise explanation of theIA

Several other conferences express no objection to this paragraph provided

that it is clarified that voluntary meetings voluntary submission of additional

information or data and voluntary procedures to explain or justify inde

pendent action are not precluded

The argument that mandatory requirements beyond notice to the con

ference may be imposed upon an IA proponent provided that the conference

fulfills its filing obligation is without merit Simply because a

requirement

is not made a pre condition to filing IA does not alter the fact that it

places an obligation on the IA proponent once the proponent takes IA

Mandatory requirements which are absolute preconditions to the taking

of IA are of course more offensive But whenever the taking of IA

means that the proponent must meet some other requirement sometimes

even at risk of violating the conference agreement if not done that provision

i

28 F M C
28 F M C

INDEPENDENT ACTION NOTICE AND MEETING PROVISIONS 351

IN CONFERENCE AGREEMENTS

has gone beyond the permissible limits of section 5b 8 of the Act inas

much as it may burden the use of independent action

The Act merely requires an IA proponent to give notice Once notice

is given the conference must carry out the ministerial task of tariff filing

An IA proponent has no other obligations under the Act Any mandatory

requirement beyond notice is impermissible As some of the comments

candidly acknowledge failure to meet these conference imposed mandatory

requirements would be a breach of the agreement Such a breach would

presumably subject the IA proponent to penalties under the terms of the

agreement a circumstance which would clearly burden the taking of inde

pendent action Therefore any mandatory requirements whether meetings

information or procedures appear to be prohibited under the Act This

prohibition is clarified by the Proposed Rule Even post IA mandatory

explanations although arguably less burdensome are impermissible

The Proposed Rule does not preclude voluntary attendance at meetings

submission of information or observance of procedures Such provisions

do not in themselves burden the taking of independent action There

does not appear to be any reason at this time to prohibit IA proponents

who wish to voluntarily accommodate the conference or its members from

doing so

5 Section 5720 a 4

v

Following fA

Section 5720 a 4 v of the Proposed Rule incorporates the require

ment under the Act that the conference file the IA item in the conference

tariff for use by the member It also provides for following IA by other

members who wish to adopt an IA item as their own

Several comments seek clarifications of this provision One suggests that

the language of this provision be modified to account for conferences

in which ratemaking is done by sections A similar change has been consid

ered in connection with earlier paragraphs of the Proposed Rule and shall

be accommodated here through the paragraph which allows for notice to

the section in such conferences

Several comments suggest that the Final Rule expressly state that an

IA proposal may be ameriiled postponed or cancelled during the notice

period and prior to its effectiveness The Proposed Rule did not preclude

such action by an IA proponent Nor does the Final Rule

Finally one comment states that the Final Rule should protect follow

up independent action by providing that a following IA continues to remain

in effect after the original IA is withdrawn prior to its effective date

unless the conference is instructed otherwise Whatever the merit of this

comment such a provision was not put forth in the Proposed Rule and

would appear to be beyond the scope of this rule making proceeding

In addition this issue is currently being addressed in Commission Docket

No 863 Modifications to the Trans Pacific Freight Conference of Japan

Agreement et al
352 FEDERAL MARITIME COMMISSION

i

6 Section 572 502 a 4 vi Compliance

Section 572 502 a 4 vi of the Proposed Rule provides for immediate

compliance with a Final Rule by all new conferences and allows 90 days

after effectiveness for compliance by other conferences

One conference states that it needs 180 days to accomplish the changes

which might be required by the Proposed Rule and requests that the rule

allow that period of time for compliance

It would appear that 90 days is not an unreasonable period of time

in which to achieve compliance with the final Rule Indeed only one

conference expressed any difficulty with this provision Therefore a change

in this section is not deemed necessary

7 Section 5720 a 4 vii Rejection

Section 572 502 a 4 vii provides that any agreement which does not

comply with the requirements of this section shall be rejected pursuant

to section 572 601

One comment argues that this provision is inconsistent with paragraph

vi and should be deleted A number of other comments argue that this

paragraph exceeds the Commission srejection authority These comments

argue that the Commission can only reject an agreement because it fails

to meet the express requirements of section 5 b of the Act

Section 5b states that each conference agreement must inter alia pro

vide a member line the right of independent action on not more than

10 days notice The Proposed Rule would jlfohibit only those provisions

which on their face fail to comply with one of the requirements a con

ference agreement filed pursuant to section 5 must meet if it is to be

made effective under section 6 and granted antitrust immunity under section

7 of the Act Accordingly this appears to be a proper use of the Commis

sion s

rejection authority and shall be retained in the Final Rule

8 Section 572 502 a 4 viii Ratemakinq Section

Section 572 502 a 4 viii provides that ifratemaking is done by sections

within a conference any notice required by the Final Rule may be to

the section involved This is a new paragraph which accommodates a con

cern expressed in a conference comment as discussed above

III CONCLUSION

This Final Rule is intended to give full effect to section 5b 8 of

the Act in accordance with the Act s guiding policies The changes made

in the Proposed Rule accommodate as fully as is consistent with the require

ments of the Act certain concerns expressed in the comments The key

substantive provisions of the Proposed Rule however have been retained

in the Final Rule

The Federal Maritime Commission has detennined that this rule is not

a major rule as defined in Executive Order 12291 46 FR 12193 Feb

I

I

28 F M C
28 F M C

INDEPENDENT ACTION NOTICE AND MEETING PROVISIONS 353

IN CONFERENCE AGREEMENTS

ruary 27 1981 because it will not result in I

an annual effect on

the economy of 100 million or more 2 a major increase in costs or

prices for consumers individual industries Federal State or local govern

ment agencies or geographic regions or 3 significant adverse effect on

competition employment investment productivity innovations or on the

ability of United States based enterprises to compete with foreign based

enterprises in domestic or export markets

The Chairman of the Commission certifies pursuant to section 605 b

of the Regulatory Flexibility Act 5 U S c 601 et seq that this Rule

will not have a significant economic impact on a substantial number of

small entities including small businesses small organizational units and

small governmental jurisdictions

The collection of information requirements contained in this Final Rule

have been approved by the Office of Management and Budget under provi

sions of the Paperwork Reduction Act of 1980 P L 95 511 and have

been assigned OMB Control Number 3072045

List of Subjects in 46 CFR Part 572 Administrative practice and proce

dure Antitrust Contracts Maritime carriers Rates and fares Reporting

and record keeping requirements

Therefore pursuant to 5 U S c 553 and auctions 5 6 and 17 of the

Shipping Act of 1984 46 U S C app 1704 1705 1716 Part 572 of

Title 46 Code of Federal Regulations is amended as follows

1 The authority citation for Part 572 continues to read as follows

Authority 5 U S c 553 46 U S C app 1701 1707 1709 1710 1712

17141717

2 Paragraph a 4 of 5720 is revised to read 5720 Organization

of conference and interconference agreements

a

4 Article 13lndependent action

i Each conference agreement shall specify the independent action proce

dures of the conference which shall provide that any conference member

may take independent action on any rate or service item required to be

filed in a tariff under section 8 a of the Act upon not more than 10

calendar days notice to the conference and shall otherwise be in conform

ance with section 5 b 8 of the Act

il Each conference agreement that provides for a period of notice for

independent action shall establish a fixed or maximum period of notice

to the conference A conference agreement shall not require or permit

a conference member to give more than 10 calendar days notice to the

conference except that in the case of a new or increased rate the notice

period shall conform to the requirements of 580 IO a 2

ili Each conference agreement shall indicate the conference official

single designated representative or conference office to which notice of

independent action is to be provided A conference agreement shall not
354 FEDERAL MARITIME COMMISSION

require notice of independent action to be given by the proposing member

to the other parties to the agreement

iv A conference agreement shall not require a member who proposes

independent action to attend a conference meeting to submit any further

information other than that necessary to accomplish the filing of the inde

pendent tariff item or to comply with any other procedure for the purpose

of explaining justifying or compromising the proposed independent action

v A conference agreement shall specify that any new rate or service

item proposed by a member under independent action shall be included

by the conference in its tariff for use by that member effective no later

than 10 calendar days after receipt of the notice and by any other member

that notifies the conference that it elects to adopt the independent rate

or service item on or after its effective date

vi All new conference agreements filed on or after the effective date

of this section shall comply with the requirements of this section All

other conference agreements shall be modified to comply with the require

ments of this section no later than 90 days from the effective date of

this section

vii Any new conference agreement or any modification to an existing

conference agreement which does not comply with the requirements of

this section shall be rejected pursuant to 572 601 of this part

viii If ratemaking is by sections within a conference then any notice

to the conference required by 572 502 a 4 may be made to the particular

ratemaking section

By the Commission

8 JOHN ROBERT EWERS

Secretary

28 F M C
28 F M C 355

FEDERAL MARITIME COMMISSION

DOCKET NO 85 11

ARMADA GREAT LAKES EAST AFRICA SERVICE LTD GREAT

LAKES TRANSCARIBBEAN LINE

NOTICE

April 25 1986

Notice is given that no exceptions were filed to the March 21 1986

initial decision in this proceeding and the time within which the Commission

could detennine to review that decision has expired No such determination

has been made and accordingly that decision has become administratively

final

S JOHN ROBERT EWERS

Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 85 11

ARMADA GREAT LAKES EAST AFRICA SERVICE LTD GREAT

LAKES TRANSCARIBBEAN LINE

Settlement of aproceeding to detennine whether Respondents violated section 15 of the

Shipping Act 1916 and section 10 of the Shipping Act 1984 by implementing an

agreement prior to its lawful effective date and if so to detennine whether penalties

should be assessed approved Each Respondent ordered to pay 840 000 pursuant to

terms of settlement agreement as amended

Hopewell H Darneille Ill for Respondents Armada Great LakeslEast Africa Service

Ltd and Great Lakes Transcaribbean Line

Aaron W Reese Director Bureau of Hearing Counsel and William D Weiswasser

as Hearing Counsel

INITIAL DECISION 1 OF SEYMOUR GLANZER ADMINISTRATIVE

LAW JUDGE

Finalized April 25 1986

This proceeding was instituted by Order of Investigation and Hearing

Order served April 16 1985 pursuant to section 22 of the Shipping

Act 1916 46 D S C app 821 and section 11 of the Shipping Act

1984 46 D S C app 1710 to determine whether the named Respondents

Armada Great LakesEast Africa Service Ltd Armada East Africa

and Great Lakes Transcaribbean Line GLTL violated section IS of

the Shipping Act 1916 46 D S C app 814 and section 10 of the Shipping

Act 1984 46 D S C app 1709 by implementing Agreement No 207

010640 prior to its effective lawful date and whether in the event

those Respondents are found to have violated those sections either or

both should be assessed a penalty and if so the appropriate level of

such penalty The order named Hearing Counsel as a party

The matter is before me by way of the Respondents Motion for Approval

of Proposed Civil Penalty Settlement Agreements The title is a misnomer

because it is not Hearing Counsel s policy or practice to enter into settlement

agreements as the culmination of agreeably concluded settlement discussions

Instead Hearing Counsel makes known its position by advising in reply

to what is more aptly described as a motion for approval of an offer

of settlement that they do not oppose the offer Here Hearing Counsel

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

356 28 F M C
28 F M C

ARMADA GREAT LAKES EAST AFRICA SERVICE LTD GREAT 357

LAKES TRANSCARIBBEAN LINE

does not oppose these offers They also urge that the offers satisfy the

statutory and regulatory criteria for settlement

It will be useful briefly to note the several apposite substantive and

procedural statutes and regulations in order to place the proposed settlement

within the framework of the regulatory scheme

THE REGULATORY SCHEME AND THE RELEVANT STATUTES

A Substantive Provisions

The first issue to be determined in this proceeding is whether the Re

spondents violated the Shipping Acts of 1916 and 1984 by implementing

Agreement No 207 D10640 prior to its lawful effective date The term

lawful effective date needs amplification in order to pinpoint the dif

ferences in the requirements of the two cited Acts

Under the provisions of section 15 of the 1916 Act parties to a joint

service agreement are required to submit such agreement for approval by

the Commission Section 15 expressly provides that before approval

it shall be unlawful to carry out in whole or in part directly or indirectly

any such agreement Thus under the 1916 Act the lawful effective

date of the subject agreement would be the time fixed by the Commission

in its approval Naturally if not submitted an agreement cannot be ap

proved

Section 1O a 2 of the 1984 Act 46 U S c

app 1709 a 2 prohibits

any person from operating under an agreement required to be filed under

section 5 of this Act that does not become effective under section 6

Section 5 46 U S c app 1704 requires that any agreement described

in section 4 a of the 1984 Act 46 U S C app 1703 a be filed with

the Commission A joint service agreement lies within the purview of

section 4 a Pursuant to section 6 of the 1984 Act 46 U S C app 1705

agreements filed with the Commission unless rejected become effective

within a statutorily fixed time set forth in section 6 c 46 U S C app

1705 c but not less than 14 days after notice of the filing of the agreement

is published in the Federal Register as provided in section 6 e 46 U S C

app 1705 e However the clock which is used to calculate the effective

date of an agreement does not begin to tick if that agreement is not

filed Thus an agreement which is filed may have a lawful effective date

not less than 14 days after its publication in the Federal Register section

6 e r on the 45th day after filing or on the 30th day after noticed

in the Federal Register whichever is later section 6 c Of course an

agreement required to be filed but which is not filed cannot have a

lawful effective date
358 FEDERAL MARITIME COMMISSION

B Penalty Provisions

The penalty for implementing an agreement subject to approval under

section 15 of the 1916 Act is not more than 1 000 for each day such

violation continues Section 15 last paragraph

Among other things section 13 of the Shipping Act 1984 46 VS C

app 1712 sets forth the penalties for violation of the 1984 Act Vnder

section 13 a 46 V S C app 1712 a the amount of penalty for a violation

of section 10 a 2 may not exceed 5 000 per violation unless the

violation is willfully and knowingly committed in which case the amount

of civil penalty may not exceed 25 000 for each violation Section 13 a

also provides that Each day of a continuing violation constitutes a separate

offense

C Procedural Provisions

The second issue to be determined is whether any penalty should be

assessed and the appropriate level of a penalty This requirement implicitly

invokes I the provisions of section 32 of the Shipping Act 1916 46

VS C 831 2 provisions of section 13 of the 1984 Act other than

those mentioned in IB supra and 3 provisions of the Commission

Regulations implementing these statutory provisions The simple point made

is that all of these provisions explicitly empower the Commission to settle

civil penalties within the context of a formal assessment proceeding as

follows

I As pertinent section 32 of the 1916 Act provides

e Notwithstanding any other provision of law the Commission

shall have authority to assess or compromise all civil penalties

provided in this Act Provided however That in order to assess

such penalties a formal proceeding under section 22 of this Act

shall be commenced within five years from the date when the

violation occurred

2 As pertinent section l3 c of the Shipping Act 1984 46 VS C

17I2 c provides

ASSESSMENT PROCEDURES the Commission may

after notice and an opportunity for hearing assess each civil pen

alty provided for in this Act In determining the amount of the

penalty the Commission shall take into account the nature cir

cumstances extent and gravity of the violation committed and

with respect to the violator the degree of culpability history

of prior offenses ability to pay and such other matters as justice

may require The Commission may compromise modify or remit

with or without conditions any civil penalty

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ARMADA GREAT LAKES EAST AFRICA SERVICE LID GREAT 359

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3 As pertinent the Commission s Regulations governing compromise

assessment settlement and collection of penalties 46 CPR Part 505 at

505 3 provide

a Procedure for assessment of penalty The Commission may

assess a civil penalty only after notice and opportunity for a

hearing under section 22 of the Shipping Act 1916 or sections

II and 13 of the Shipping Act of 1984 The proceeding including

settlement negotiations shall be governed by the Commission s

Rules of Practice and Procedure in Part 502 of this Chapter 2

All settlements must be approved by the Presiding Officer The

full text of any settlement must be included in the final order

of the Commission

b Criteria for determining amount of penalty In determining

the amount of any penalties assessed the Commission shall take

into account the nature circumstances extent and gravity of the

violation committed and the policies for deterrence and future

compliance with the Commission s rules and regulations and the

applicable statutes The Commission shall also consider the re

spondent s degree of culpability history of prior offenses ability

to pay and such other matters as justice requires

lliE REVISED OFFERS OF SETTLEMENT

The original offers of settlement were submitted on December 18 1985

Following an informal conference the Respondents filed revised offers

on March 10 1986 Copies of the original and revised offers are attached

as Appendix A and Appendix B respectively

Under the revised proposals each Respondent individually proffers to

pay the amount of 40 000 in full settlement of all penalty claims for

any violations alleged in the Order Although the Respondents do not

deny having implemented Agreement No 207 01640 before it became

effective on October 20 1984 or that such prior implementation constituted

violations of the Shipping Acts their proposals specifically provide that

the settlements are not to be construed as admissions of any violations

alleged in the Order In the event the alleged violations terminated on

October 20 1984 and Respondents represent that they will comply with

regulations in the future

As revised the offers propose that the payment be made in accordance

with the following program

A Each Respondent shall establish an interest bearing escrow account

in favor of the Commission and deposit the initial installment of monies

due under the settlement in such account prior to submitting the revised

2Sections 502 91 and 502 94 of the Commission s Rules of Practice and Procedure 46 CFR 502 91 and

502 94 authorize the submission and consideration of offers of settlement

28 F M C
360 FEDERAL MARITIME COMMISSION

I

offer Accordingly each Respondent deposited 10 000 into a segregated

interest bearing money market escrow account in its counsel s name for

the benefit of the CommissionRespondent at NS T Bank N A Wash

ington D C onFebruary 11 1986

B Within 15 days after final approval of the settlement all monies

in said escrow accounts including any additional deposits of installments

as provided in C below and all accrued interest shall be paid to the

Commission If the settlement is disapproved al1 such monies shall be

returned to the Respondents

C The remaining 30 000 shall be payable in accordance with the

terms of a promissory note attached to and made a part of the settlement

in the following installments

1 Five Thousand 5 000 Dollars plus interest shall be paid

on or before June 3 1986

2 Ten Thousand 10 000 Dollars plus interest shall be paid

on or before September 16 1986 and

3 Fifteen Thousand 15 000 Dollars plus interest shall be paid

on or before December 30 1986

In the event the Commission has not taken final action with respect to

approval of the settlement by the date any installment is due such install

ment including interest shall be paid into the escrow account

III

FINDINGS

I

i

For the purpose of settlement the administrative record before me consists

of the Motion the proposed settlements and their attached promissory notes

as revised Respondents Memorandum of Points and Authorities in Suppon

of Proposed Settlements Memorandum and Hearing Counsels Reply to

Respondents Motion for Approval of Proposed Civil Penalty Settlemellt

Agreements Reply For the same purpose the evidentiary record consists

of all parties Joint Factual StipUlation and Stipulated EXhibits and the

Affidavits of Detrich Moehle von Hoffmannswaldau and Jens Erik Valentin

For editorial reasons or because of perceived ilTelevancy or immateriality

some of the joint stipulations of fact have not been adopted

By way of introduction to my fmdings 1 believe it will be helpful

to expand on what was noted earlier about the Order and the Respondents

position with respect to the allegations of violations as well as some of

the procedures which led up to the Motion

Although one of the purposes of this proceeding is to determine whether

violations were committed the Order makes it clear that the issue of

violation is not really in dispute and that the major issue to be decided

is the amount of penalty

28 FM C
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The Order put it this way

At no point has either Respondent denied implementing the

agreement or that such implementation constitutes a violation Be

cause a satisfactory compromise of the subject claims could not

be reached the Commission has decided to institute this pro

ceeding to determine and assess the appropriate penalty for the

violation referred to above

At a prehearing conference on May 29 1985 Respondents reiterated

that they did not deny implementing an agreement required to be filed

under the Shipping Acts without appropriate sanction Again they did not

contest that such implementation violated section 15 of the 1916 Act and

section 10 of the 1984 Act They denied that any violation was intentional

Thereafter the parties undertook extensive voluntary discovery efforts

as to the nature and scope of Respondents activities and various mitigating

circumstances After the completion of such discovery the parties entered

into settlement discussions Respondents have fully cooperated with Hearing

Counsel throughout the course of this case in developing an evidentiary

record nd have voluntarily made available all materials relating to the

subjer of this proceeding including complete vessel manifests representa

tive bills of lading and detailed financial statements

I find

1 GLTL formerly known as GK Great Lakes Transcaribbean Line

GmbH is a corporation organized and established under the laws of the

Federal Republic of Germany Since 1965 GLTL has operated a common

carrier service only between U SCanadian Great Lakes ports and ports

in the Caribbean Sea and on the West Coast of South America pursuant

to tariffs filed with the Commission

2 Armada East Africa is a corporation created under the laws of the

Republic of Liberia on March 26 1981 for the sole purpose of entering

into a joint venture with Respondent GLTL to provide common carrier

service between U S and Canadian ports on the Great Lakes and ports

in South and East Africa Armada East Africa neither owns nor operates

vessels in any trade and is a one half owner only of the ArmadalGLTL

line joint service

3 On April 24 1981 Armada East Africa and GLTL entered into

an agreement establishing a joint venture under the name of ArmadalGLTL

East Africa Service ArmadalGLTL line to operate a common carrier

service between ports on the U S and Canadian Great Lakes and ports

in South and East Africa Armada East Africa and GLTL agreed to share

equally in the expenditures earnings responsibilities and liabilities of the

joint venture

4 By Addendum No I executed February 5 1982 Armada East Africa

and GLTL agreed inter alia to extend the joint venture agreement through

March 31 1983
362 FEDERAL MARITIME COMMISSION

5 Armada East Africa and GLTL further agreed in Addendum No

2 executed December 16 1982 to expand the scope of the agreement

to include service from U Atlantic and Gulf ports and to extend the

term of the agreement as amended to March 31 1984

6 Neither the joint venture agreement nor either of the addenda thereto

was filed with the Commission fOf approval under section IS of the Ship

ping Act 1916 prior to January 11 1983

7 Notwithstanding the foregoing Armada and GLTL commenced to

implement the agreement as of late April 1981 and ArmadalGLTL jne

commenced service with its first saijng on May 21 1981 from the port

of Green Bay with stops at Milwaukee Chicago and Montreal en route

to ports in South and East Africa

8 ArmadalGLTL line is a vessel operating common carrier which owns

no vesseis of its own Since its inception in 1981 it has operated as

a common carrier pursuant to tariffs on file with the Commission between

ports in the U S and Canadian Great Lakes and ports in East and South

Africa under the trade name of ArmadalGLTL East Africa Service In

December 1982 the service was expanded to inciude U S Atlantic and

Gulf Coast ports and an appropriate tariff was filed with the Commission

Service from U S Gulf ports was suspended in June 1984 due to lack

of profitability The service continued to operate on a

regular basis from

the Great Lakes and U S Atlantic ports

9 Since there is no westbound cargo available to the service from

ports in East and South Africa the service has operated eastbound only

from the United States and is performed by vessels that are voyage or

trip chartered on the free market and returned off hire to the owner

or chartered at the completion of the eastbound voyage

10 All cargo of the service has been carried under bllls of lading

issued in the trade name of ArmadalGLTL East Africa Service pursuant

to the tariffs on file with the Commission No cargo has been carried

by the service under a blll of lading issued by any other carrier or agent

of any such carrier

IIIn December 1982 the Commission s staff received information alleg

ing that Armada East Africa and GLTL were operating a joint service

in violation of section IS of the ShippingAct 1916

12 After an informal investigation of these allegations the Commission s

staff contacted ArmadalGLTL and advised them to file the agreement

13 The very next day January 11 1983 Respondents filed for approval

of the agreement under section 15 A protest ensued

14 On September 9 1983 the Commission served an Order ofInvestiga

tion directing initiation of an expedited proceeding FMC Docket No 83

39 to determine whether the agreement which became known as Agreement

No 10464 was subject to the Commission s jurisdiction and the filing

requirements of section IS

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15 Pursuant to the Commission s Order an expedited evidentiary pro

ceeding was conducted On November 23 1983 Administrative Law Judge

Norman D Kline issued his Initial Decision Judge Kline concluded inter

alia that Armada East Africa was a common carrier under the Shipping

Act 1916 and that Agreement No 10464 was between two common car

riers and subject to the Commission s

jurisdiction

t6 By letter dated December 19 1983 Respondents advised that they

did not intend to file exceptions to Judge Kline s Initial Decision and

requested the Commission to authorize appropriate staff members to meet

with Respcndents and protestants to discuss any objections to the form

of the agreement and the steps necessary to place the agreement in approv

able form

17 By letter dated February 3 1984 the Commission s Bureau of Agree

ments and Trade Monitoring responded to Respcndents request to confer

with the Commission staff and protestants concerning the form ofAgreement

No 10464 as originally filed This letter which was in the nature of

an informal staff advisory opinion and was not binding on the Commission

discussed the general principles governing the approvability of joint service

agreements and identified specific shortcomings in the terms of Agreement

No 10464 The staff advised Respondents to consider submitting an appro

priate agreement together with sufficient factual justification The staff

further advised Respondents that inasmuch as the Commission has deter

mined the Agreement to be subject to its jurisdiction under Section 15

in Docket No 83 39 any operations thereunder are illegal and

at their own peri The staff requested that Respondents advise of

their intentions no later than April 2 1984 The staff s letter concluded

as follows

In view of the foregoing the Proponents should consider submit

ting an agreement fashioned as they see fit together with suffi

cient factual justification for Commission approval pursuant to

section 15 Shipping Act 1916 in accordance with the rules set

forth in 46 CFR 522 as amended The Proponents are also advised

that inasmuch as the Commission has determined the Agreement

to be subject to its jurisdiction under section 15 in Docket No

83 39 ArmadaGLTL East Africa Service Agreement No 10464

any operations thereunder are unlawful and at their own peri

The foregoing is an informal staff advisory opinion which is

not binding on the Commission or its ultimate disposition of

this matter

It is requested that the Proponents advise of their intentions

no later than April 2 1984

18 By letter dated February 15 1984 Respondents advised the Comntis

sion that t he parties to the Agreement will comply promptly with the

Commission s Section 15 policies and regulations
364 FEDERAL MARITIME COMMISSION

19 Annada East Africa and GLTL thereafter entered into a new restated

agreement which was specifically designed to satisfy the concems raised

by the staff This revised agreement was filed for the Commission s approval

under section 15 by letter dated April 2 1984

20 By letter dated April 6 1984 the Bureau of Agreements and Trade

Monitoring notified Respondents that their revised agreement had been re

ceived and was being processed as arefiling of Agreement No 10464

with the same agreement number Notice of this filing was published in

the Federal Register onApril 19 1984 49 Fed Reg 15621

21 One set of comments on the refiled agreement was submitted on

behalf of the member lines of the United States South and East Africa

Conference which had protested the original agreement Respondents did

not reply to these comments

22 By letter dated June 18 1984 the Commission s Secretary s office

notified Respondents that the Commission had detennined on June 13

1984 that Agreement No 10464 as refiled was not approvable under

the Shipping Act 1916 due to substantial protests insufficient justification

and remaining technical problems Pursuant to the Commission s policy

concerning agreements filed under the Shipping Act 1916 which could

not be processed to completion prior to the June 18 1984 effective date

of the Shipping Act of 1984 Agreement No 10464 was returned to the

parties without prejudice to refiling under the Shipping Act of 1984

23 On June 20 1984 Respondents telephoned the Bureau of Agreements

and Trade Monitoring and discussed the remaining technical problems

Respondents thereafter prepared a new proposed Joint Service Agreement

in light of the staff s comments and the new Shipping Act of 1984 This

draft was forwarded to the FMC staff for informal review by letter dated

July 18 1984

24 The staff s subsequent comments were incorporated into anew re

stated agreement which was executed by GLTL on Auaust 30 1984 and

by Armada East Africa on September 4 1984 This new agreement was

filed with the Commission pursuant to the Shipping Act of 1984 along

with the required completed Infonnation Fonn by letter dated September

5 1984

25 By letter dated September 11 1984 the staff advised that the new

agreement had been received and assigned Agreement No 207 D1640

Notice of the filing of this Agreement was published in the Federal Register

on September 14 1984 49 Fed Reg 36163 No comments or protests

were received by the Commission in response to this notice

26 By letter dated September 27 1984 the staff requested additionai

information and clarification regarding certain aspects of the agreement

and service The staff requested a prompt response in view of the extremely

limited time frame established under the Shipping Act of 1984 and con

cluded by advising the parties that to operate under this agreement prior

to it becoming effective is unlawful and to do so is at their own peril

28 P M C
28 F M C

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27 Respondents responded to the staffs

request for additional information

and clarification by letter dated October 9 1984

28 By letter dated October 18 1984 the Secretary s office notified

Respondents that the Commission had reviewed Agreement No 207 D1640

and had determined to take no action to prevent or delay the Agreement

from going into effect on the 45th day after filing October 20 1984

29 Agreement No 207 D1640 became effective on October 20 1984

30 By letters dated September 26 1984 the Bureau of Hearing Counsel

notified respondents of a civil penalty claim against each of them for

apparent ongoing violation of section 15 of the Shipping Act 1916 46

U S C @814 and of section 10 of the Shipping Act of 1984 46 U S c

@ 1709 by implementing an agreement which has not been approved or

has not gone into effect under applicable law These letters stated that

Respondents appeared to have been implementing a joint service agreement

since April 1981 and that such implementation had continued subsequent

to the decision in Docket No 83 39 becoming final notwithstanding the

Commission staff s February 3 1984 warning that implementation of

the parties agreement was unlawful and at their peril

31 Respondents timely responded to these notices but were unable to

negotiate a settlement of the civil penalty claims As seen the Commission

therefore initiated the present proceeding

32 As discussed in No 7 supra Respondents commenced implementa

tion of their joint service agreement in April 1981 Thereafter Respondents

continued to implement their agreement as it was amended from time

to time continuously to October 19 1984

33 At no time have Respondents attempted to conceal their operations

in any way To the contrary Respondents openly and widely advertised

their joint service and filed the appropriate tariffs pertaining thereto with

the Commission

34 The ArmadalGLTL line made a total of 44 voyages in U S foreign

commerce from the inception of service in 1981 through October 19 1984

35 At the time the joint venture agreement was entered into and the

ArmadalGLTL line commenced service in the spring of 1981 there was

no direct all water liner service between the Great Lakes and South and

East Africa

36 The ArmadalGLTL line made the following number of sailings from

the Great Lakes to ports in South and East Africa during the period from

the commencement of service in April 1981 through October 19 1984

in 1981 four sailings in 1982 four sailings in 1983 five sailings and

in 1984 nine sailings There was one other sailing in 1984 before the

St Lawrence Seaway was opened It originated at Halifax N S and called

at the Port of New York

37 In the latter part of 1982 Norton Lilly Co Inc approached

ArmadalGLTL Norton Lilly previously had acted as agent for Cape Line

which in the past had operated a service from U S Atlantic and Gulf
366 FEDERAL MARITIME COMMISSION

ports to South and East Africa prior to going into bankruptcy Norton

Lilly suggested that there was a need for additional direct all water service

to South and East Africa from U S Atlantic and Gulf coast ports and

proposed that ArmadalGLTL line expand its operation to include such

service

38 Armada East Africa and GLTL subsequently agreed to amend their

joint service agreement to include service from U S Atlantic and Gulf

coast ports to South and East Africa This was accomplished by means

of Addendum No 2 to the joint service agreement executed December

16 1982 ArmadalGLTL line filed an appropriate tariff with the Commis

sion and began to advertise service from U S Atlantic and Gulf ports

ArmadalGLTL line commenced the new service on February 28 1983

39 This service was operated with one sailing approximately every three

weeks ArmadalGLTL line made a total of 13 voyages in this service

in 1983 and an additional eight voyages in 1984 prior to suspending

service from U S Gulf ports in June 1984

40 Unlike the Great Lakes trade the U S Atlantic and Gulf South and

East Africa trade was highly competitive with a number of competing

carriers Although able to attract cargoes ArmadalGLTL line was unable

to achieve consistent profitability ArmadalGLTL line therefore suspended

operations from U S Gulf ports in June 1984 and restructured its service

to offer a combined service from the Great Lakes Baltimore and New

York

41 This restructured operation allowed Armad liGL TL line to increase

the frequency of its Great Lakes sailings ArmadalGLTL line made six

sailings under the restructured service during the period from June through

October 19 1984

42 Financial statements show that in 1984 and including revenues on

cargoes carried from non U S ports the ArmadalGLTL line made a net

profit of 197 548 ArmadalGLTL line had a positive net worth as of

the end of 1984 ArmadalGLTL line sustained losses during the first six

months of 1985 however and had a negative net worth as of June 3D

1985

43 The financial statement further shows that Armada East Africa had

a positive net worth as of December 31 1984 Allowing for allocation

of Armada East Africa s 50 percent snare of the joint service losses thjs

net worth figure was reduced although still positive as of June 3D 1985

44 GLTL had a negative net worth as of the end of its fiscal year

on March 31 1985 and sustained operating losses for the six months

through September 3D 1985 not including GLTL s 50 percent share of

any profitslosses from the ArmadalOLTL line

45 As the only carrier providing direct a11 water liner service between

the Oreat Lakes and South and East Africa during the period from 1981

to the present ArmadalGLTL line has provided a needed service to the

28 F M C
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ARMADA GREAT LAKES EAST AFRICA SERVICE LTD GREAT 367

LAKES TRANSCARIBBEAN LINE

shipping public Support for its service is evidenced by letters to the Com

mission from members of the Great Lakes shipping community

46 Armada GLTIline s cargoes have consisted of government relief

cargoes primarily P L 480 Title II cargoes private charitable organization

relief cargoes and a wide variety of commercial cargoes as evidenced

by vessel manifests and bills of lading

47 During the period from January I to October 19 1984 government

relief cargoes constituted 810 percent of Armada GLTI line s total tonnage

and 78 5 percent of total revenue from U S Great Lakes ports The cargoes

carried from U S Atlantic and U S Gulf coast ports were entirely commer

cial

48 In a letter to the St Lawrence Seaway Development Corporation

dated December 20 1984 the U S Department of Agriculture USDA

noted problems incurred in Great Lakes P L 480 Title II cargo Iiftings

in 1984 and specifically cited Armada Lines and GLTI as s teamship

lines participating in a timely manner

49 In 1985 to date the Great Lakes and St Lawrence Seaway have

suffered their worst year in more than 20 years Cargoes out of the Great

Lakes through the St Lawrence Seaway were down about 25 percent from

1984 level prior to the recent closure of the Weiland Canal

50 This situation has been exacerbated by recent closings of the St

Lawrence Seaway and resulting cargo diversions including the closure

of the Seaway for 24 days from October 14th until November 7 1985

as the result of the collapse of a wall in the Weiland Canal As a result

of the Weiland Canal accident the St Lawrence Seaway Development

Corp recently reported that shipments through the Seaway are about

38 percent down from last year

51 USDA has recently diverted nearly 50 000 tons of P L 480 Title

II cargoes away from the Great Lakes to other coastal ranges in order

to utilize U S flag service available there to achieve U S flag cargo pref

erence compliance Moreover USDA is proposing to change the Agency

for International Development s current cargo preference policy against

coastal range diversions

52 A lawsuit challenging USDA s actions has been filed

53 There have been no complaints to the Commission other than those

set forth herein regarding the joint operation or conduct of the Armada

GLTI line service

54 There have been no shipper complaints or prior FMC enforcement

proceedings as to individual operations of GLTI or Armada East Africa

IV

DISCUSSION

Hearing Counsel do not oppose the offers of settlement and acknowledge

that the offers satisfy the statutory and regulatory criteria for settlements
368 FEDERAL MARITIME COMMISSION

Ibelieve that Respondents proposals are reasonable and meet well settled

criteria for approval of offers of settlement in adjudicative penalty assess

ment proceedings and that approval is warranted Generally it appears

that the amounts proffered fit well within a zone of reasonableness and

that the settlement is neither a coercive attempt to exact exorbitant punish

ment nor a profligate cession of public rights Atlas Roofing Co Inc

v Occupational Safety and Health Review Commission 442 U S 430

450 1977 to the alleged wrongdoer Far Eastern Shipping Company

Possible Violation of Section 16 Second Paragraph 18 b3 and 18 c

Shipping Act 1916 FESCO 24 EM C 991 1013 1982 Initial Decision

administratively final May 7 1982 Moreover it appears that the amounts

of the penalties are substantial and are likely to have a deterrent effect

upon the Respondent and others under regulation

A The Criteria for Settlement

As seen section 13 c of the 1984 Act and section 505 3 of the Commis

sion s

regulations which implements both section 13 of the 1984 Act

and section 32 of the 1916 Act explicitly set forth criteria for assessment

of penalties and while they do not directly address the criteria for settlement

of penalties I believe the latter are subsumed by the former This is

manifest from the history of the settlement process at the Commission

Section 32 e of the 1916 Act was enacted in 1977 3 The rules and

regulations implementing section 32 e were promulgated and published

by the Commission in a predecessor version of 46 CPR 505 in 1979

Under those rules the criteria for compromise settlement or assessment

might include but need not be limited to those which are set forth in

4 CPR Parts 10 I I05 The criteria in 4 CPR Parts 10 I I05 were govern

ment wide standards established by the Comptroller General of the United

States and the Attorney General of the United States under authority of

section 3 of the Claims Collection Act of 1966 31 U S C 952 Those

standards particularly the standards enumerated in 4 CPR 103 were a

part of the Commission s program for settlement and collection of civil

penalties even before the authority to assess penalties was given the Com

mission pursuant to section 32 e More to the point it was held that

those standards provided criteria for both settlements and assessments

They continue to provide valuable assistance to the Commission as an

aid in determining the amount of penalty in assessment proceedings and

in determining whether to approve proposed settlements in assessment pro

ceedings Eastern Forwarding International 1nc lndependent Ocean

Freight Forwarder Application Possible Violations Section 44 Shipping

Act 1916 23 F M C 206 213 1980 Initial Decision administratively

final September 8 1980 Behring International 1nc lndependent Ocean

3

P L 9 2S section 10 June 19 1979

28 F M C
28 F M C

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Freight Fonvarder License No 910 23 F M C 973 1981 Initial Decision

adopted June 30 t981 The following summary of those standards was

set out in FESCO supra 24 EM C at 1014

settlement may be based upon a determination that the

agency s enforcement policy in terms of deterrence and securing

compliance both present and future will be adequately served

by acceptance of the sum to be agreed upon that the amount

accepted in compromise may reflect an appropriate discount

for the administrative and litigative costs of collection having

regard for the time it will take to effect collection the value

of settling claims on the basis of pragmatic litigative probabilities

Le the ability to prove a case for the full amount claimed either

because of legal issues involved or a bona fide dispute as to

facts and that penalties may be settled for one or fot more

than one of the reasons authorized in this part Footnotes omit

ted

I deem it unnecessary to go through a clause by clause comparison

of the section 13 c and section 505 3 assessment criteria with those settle

ment criteria cited in FESCO supra to show that for present purposes

those criteria are substantially the same It is enough to note that an

analysis under all those standards whether there be an assessment or settle

ment of penalties is required in the interest of justice and consideration

of such other matters as justice may require is exactly what section

13 c and section 505 3 are about 4

B Applying the Criteria to the Settlement

Hearing Counsel do not dispute that the enforcement policy of the Com

mission will be adequately served by acceptance of the sums agreed upon

thus signifying their acknowledgement that the offers are reasonable in

the light of the magnitude of the offenses and the matters in mitigation

It is important to recognize that the violations charged in the Order

are not casual or technical infractions but offenses which have the potential

to do serious damage to the regulatory scheme It is safe to say that

the two Respondents are now well aware that the implementation of agree

ments required to be filed under the Shipping Acts of 1916 and 1984

prior to the time they may be put into effect lawfully is a violation

that goes to the very heart of regulation s

They appreciate too that

it is no excuse for failure to file to contend that the violation was

merely a technical one or that respondents motives were good

and that it is not necessary under s ection IS to impart an evil motive

4

In a

recent initial decision Administrative Law Judge Norman D Kline enunciated conclusions similar

10 those expressed in the text above concerning assessment criteria under the old and new Shipping Acts

Docket No 85 13 Marcella Shipping Company Ltd slip opinion at pp 21 22 10 served February 18

1986

S Memorandum p

10
370 FEDERAL MARITIME COMMISSION

Prudential Lines v Farrell Lines 26 F M C 496 511 11 6 1984 Initial

Decision administratively final June 7 1984 See also discussion and

cases cited on mens rea in Jorge Reynoso Import and Export Co Possible

Violations of Section 44 0 Shipping Act 1916 27 F M C 596 607

608 Initial Decision administratively final February 21 1985

Nevertheless Respondents hasten to add that the prior implementation

of their agreement was not done out of any wrongful intent or disregard

for regulation They submit that the evidentiary record warrants the conclu

sion that during some of the period when the implementation took place

they had formed the belief albeit erroneously that the operation could

continue so long as they were actively cooperating with the staff in working

towards approval of the agreement Hearing Counsel does not dispute the

accuracy of this summation Ifmd there is sufficient uncontradicted evidence

to conclude that the Respondents did not deliberately undertake to violate

the Shipping Acts 6

The Respondents never concealed their activities from the public or the

staff They published tariffs for the joint service and maintained those

tariffs on file with the Commission Prior to Judge Kline s Initial Decision

in Docket No 83 39 on November 23 1983 Respondents may have mis

understood the regulatory requirements for filing of agreements But once

those requirements were brought to their attention Respondents did make

the necessary filing for approval and thereafter cooperated with the staff

while retaining the mistaken understanding that the implementation of the

agreement could continue as long as they engaged in such cooperative

endeavors

There is no evidence of noncompliance with any of the laws or regula

tions over which the Commission has jurisdiction on the part of either

Respondent other than the implementation of the joint service agreement

prior to October 20 1984 Moreover in addition to cooperating with the

staff prior to the institution of this proceeding afterwards Respondents

cooperated with Hearing Counsel in voluntarily providing documentation

and records needed by Hearing Counsel for the preparation of this case

Undoubtedly the latter cooperation while monetarily expensive to Respond

ents did result in lowering the overall costs of litigation and particularly

the costs of Hearing Counsel In this respect it should be noted that

by offering to settle for specified amounts Respondents have elected not

to avail themselves of their rights to a plenary trial on the substantive

merits and matters in mitigation

Among those documents furnished to Hearing Counsel were financial

statements showing the jndividual Respondent s profits and losses and net

worth as of June 30 lj85 and September 30 1985 Those financial state

6The conclusion reached in this paragraph of tho text should not be equated with a detennination that

the violations were not willfully and knowingly commlued Hearing Counsel has not contended thai these

were knowing and willful violations and I deem it unnecessary inthose circumstances to address theconduct

of the Respondents under the precise statutory standard of knowledge and willfulness

28 F M C
S SEYMOUR GLANZER

Administrative Law Judge

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LAKES TRANSCARIBBEAN LINE

ments which show declining revenues and reduced net worth tend to

confirm the reasonableness of the amounts offered in settlement and provide

justification for the method of payment over a stated period of time during

calendar year 1985 7

The more realistic revised schedule and its built in

safeguards of good faith deposits and escrowed payments enhance the

probability that the penalty claims not only will be collected but that

they will be collected at the least expense to the government

V

CONCLUSION

It is evident that the settlement is equitable to both the Respondents

and the Commission It allocates the perceived need for punishment with

the public s need for vindication of its rights in a reasonable manner

The statutory and regulatory standards for settlement of penalty claims

have been met I believe that the terms and conditions of the settlement

reflect a proper balancing of the interests of the government and Respond

ents given the risks and uncertainties of trial and collection of potential

penalties at the conclusion of a fully litigated proceeding

VI

ORDER

It is ordered that the settlement agreements be approved It is further

ordered that the terms and conditions of the settlements are incorporated

in this paragraph as if more fully set forth herein It is further ordered

that Exhibit SX 37 be filed by the Secretary of the Commission in a

Confidential Section of Docket No 85 11 and that said Exhibit be withheld

from the general public

1Relevant financial statements were submitted as supplements to the Stipulated Exhibits They will be

marked Exhibit SX 37 Because the infonnation contained therein is current and sensitive Exhibit SX 37

will be treated confidentially

28 F M C
372 FEDERAL MARITIME COMMISSION

APPENDIX A

1 part I

BEFORE THE FEDERAL MARITIME COMMISSION

In the Matter of

ARMADA GREAT LAKES EAST AFRICA

SERVICE LTD AND GREAT

LAKESTRANSCARlBBEAN LINEORDER OF

INVESTIGATION AND HEARING

I

DOCKET NO 85 11

PROPOSED SETTLEMENT OF CIVIL PENALTY

Respondent Armada Great LakeslEast Africa Service Ltd Armada

East Africa by its undersigned duly authorized corporate officer respect

fully submits this proposed Settlement Agreement to the presiding Adminis

trative Law Judge for approval pursuant to Section 505 3 of the Commis

sion s General Order 30 46 C F R 505 3 and for incorporation into

the Pinal Order in this proceeding if so approved

WHEREAS by Order of Investigation and Hearing served April 12

1985 Order the Commission instituted the present proceeding to deter

mine whether Armada East Africa had violated Section 15 of the Shipping

Act 1916 46 VS C App 814 and Section 10 of the Shipping Act

of 1984 46 VS C App 1709 and whereas the Order includes the issue

of whether a civil penalty should be assessed for any such violations

and if so the amount of such penalty and

WHEREAS the Order alleges that Armada East Africa may have violated

Section 15 of the Shipping Act 1916 and Section 10 of the Shipping

Act of 1984 by implementing jOint service Agreement No 207 01640

prior to its becoming effective on October 20 1984 and

WHEREAS the parties in order to avoid the delays and expense which

would be occasioned by further litigation of the issues specified in the

Order are desirous of settling expeditiously the issue of the appropriate

amount to be paid by Armada East Africa in accordance with the terms

and conditions of this Agreement and

WHEREAS Section 32 a of the Shipping Act 1916 46 V S C App

83 I e and Section 13 c of the Shipping Act of 1984 46 VS C App

1712 c authorize the Commission to assess or compromise civil penalty

claims under the Shipping Act 1916 and the Shipping Act of 1984 respec

tively and

WHEREAS Agreement No 207 01640 became effective on October

20 1984 and Armada East Africa has terminated the actions which formed

the basis of the violation set forth in the Commission s Order and has

indicated its willingness and intention to avoid similar actions by Armada

East Africa or its officers employees and agents in the future

28 F M C
28 F M C

ARMADA GREAT LAKES EAST AFRICA SERVICE LTD GREAT 373

LAKES TRANSCARIBBEAN LINE

NOW TIIEREFORE in consideration of the premises set forth herein

and in compromise of all civil penalty claims arising from the conduct

set forth in the Order and factual record submitted in this proceeding

the parties hereto agree as follows

I Armada East Africa agrees to pay a monetary amount of 40 000

of which 10 000 shall be payable within thirty 30 days following approval

by the Commission of this proposed Settlement and 30 000 shall be

payable according to terms of the Promissory Note attached hereto as

Appendix I in the following installments

Ten Thousand 10 000 Dollars plus interest shall be paid on

or before six 6 months following the due date of the initial

10 000 payment

Ten Thousand 10 000 Dollars plus interest shall be paid on

or before twelve 12 months following the due date of the initial

10 000 payment and

Ten Thousand 10 000 Dollars plus interest shall be paid on

or before eighteen 18 months following the due date of the

initial I0 000 payment

2 Upon approval of this Agreement by the Commission this Agreement

shall forever bar the commencement or institution of any assessment pro

ceeding civil action or other claim for recovery of civil penalties from

Armada East Africa arising from or in any way related to the subject

matter of this proceeding or the facts set forth and described in the Commis

sion s Order and in the record in this proceeding

3 This Agreement is entered into voluntarily by both parties and no

promises or representations have been made by either party other than

the agreements and consideration herein expressed

4 It is expressly understood and agreed that this Agreement is not

to be construed as an admission by Armada East Africa to the violations

alleged in the Order
374 FEDERAL MARITIME COMMISSION

IN WITNESS WHEREOF the parties have executed this Agreement

through their duly authorized representatives

ARMADA GREAT LAKES EAST

AFRICA SERVICE LTD

Of Counsel By

S Jen Erik Valentin

S Hopewell H Darneille III Corporate Secretary

Bowman Conner Touhey

Petrillo

A Professional Corporation

2828 Pennsylvania Avenue

Washington D C 20007

202 965 7600

14227 Fern Drive

Houston Texas 77079

713 8701133

FEDERAL MARITIME COMMISSION

By

28 F MC
DOCKET NO 85 11

ARMADA GREAT LAKES EAST AFRICA SERVICE LTD GREAT 375

LAKES TRANSCARIBBEAN LINE

APPENDIX A

part 2

BEFORE TIlE FEDERAL MARITIME COMMISSION

In Ihe Matter of

ARMADA GREAT LAKES EAST AFRICA

SERVICE LTD AND GREAT LAKES

TRANSCARIBBEAN LINE ORDER

OF INVESTIGATION AND HEARING

PROPOSED SETTLEMENT OF CIVIL PENALTY

Respondent Great Lakes Transcaribbean Line GmbH GLTL by its

attorney respectfully submits Ihis proposed Settlement Agreement to Ihe

presiding Administtative Law Judge for approval pursuant to Section 505 3

ofIhe Commission s General Order 30 46 C F R @505 3 and for incorpora

tion into Ihe Final Order in Ihis proceeding if so approved

WHEREAS by Order of Investigation and Hearing served April 12

1985 Order Ihe Commission instituted Ihe present proceeding to deter

mine wheIher GLTL had violated Section 15 of Ihe Shipping Act 1916

46 US c App 814 and Section 10 of Ihe Shipping Act of 1984 46

U S C App 1709 and whereas Ihe Order includes Ihe issue of wheIher

a civil penalty should be assessed for any such violations and if so

Ihe amount of such penalty and

WHEREAS Ihe Order alleges Ihat GLTL may have violated Section

15 of Ihe Shipping Act 1916 and Section 10 of Ihe Shipping Act of

1984 by implementing joint service Agreement No 207 01640 prior to

its beconting effective on October 20 1984 and

WHEREAS Ihe parties in order to avoid Ihe delays and expense which

would be occasioned by furIher litigation of Ihe issues specified in Ihe

Order are desirous of settling expeditiously Ihe issue of Ihe appropriate

amount to be paid by GLTL in accordance wiIh Ihe terms and conditions

of Ihis Agreement and

WHEREAS Section 32 a of the Shipping Act 1916 46 U S c App

831 e and Section 13 c of Ihe Shipping Act of 1984 46 U S c App

1712 c auIhorize Ihe Commission to assess or compromise civil penalty

claims under Ihe Shipping Act 1916 and Ihe Shipping Act of 1984 respec

tively and

WHEREAS Agreement No 207 01640 became effective on October

20 1984 and GLTL has terminated Ihe actions which formed Ihe basis

of Ihe violation set forIh in Ihe Commission s Order and has indicated

its willingness and intention to avoid similar actions by GLTL or its officers

employees and agents in Ihe future

28 F M C
376 FEDERAL MARITIME COMMISSION

j NOW THEREFORE in consideration of the premises set forth herein

and in compromise of aH civil penalty claims arising from the conduct

set forth in the Order and factual record submitted in this proceeding

the parties hereto agree as foHows

1 GLTL agrees to pay a monetary amount of 40 000 of which 10 000

shall be payable within thirty 30 days following approval by the Commis

sion of this proposed Settlement and 30 000 shaH be payable according

to terms of the Promissory Note attached hereto as Appendix I in the

foHowing installments

Ten Thousand 10 000 DoHars plus interest shall be paid on

or before six 6 months foHowing the due date of the initial

10 000 payment

Ten Thousand 10 000 Dollars plus interest shall be paid on

or before twelve 12 months foHowing the due date of the initial

10 000 payment and

Ten Thousand 10 000 Dollars plus interest shaH be paid on

or before eighteen 18 months following the due date of the

initial 10 000 payment

2 Upon approval of this Agreement by the Commission this Agreement

shall forever bar the commencement or institution of any assessment pro

ceeding civil action or other claim for recovery of civil penalties from

GLTL arising from or in any way related to the subject matter of this

proceeding or the facts set forth and described in the Commission s Order

and in the record in this proceeding

3 This Agreement is entered into voluntarily by both parties and no

promises or representations have been made by either party other than

the agreements and consideration herein expressed

4 It is expressly understood and agreed that this Agreement is not

to be construed as an admission by GLTL to the violations alleged in

the Order

28 F MC
28 F M C

ARMADA GREAT LAKES EAST AFRICA SERVICE LTD GREAT 377

LAKES TRANSCARIBBEAN LINE

5 The undersigned counsel for GLTL represents that he is properly

authorized and empowered to execute this Agreement on behalf of GLTL

and to fully bind GLTL to all the terms herein

GREAT LAKES TRANSCARIBBEAN LINE GmbH

By

S Hopewell H Darneille III

Bowman Conner Touhey Petrillo

A Professional Corporation

2828 Pennsylvania Avenue N W

Wasbington D C 20007

202 965 7600

Attorney for Respondent Great

Lakes Transcaribbean Line GmbH

FEDERAL MARITIME COMMISSION

By
378 FEDERAL MARITIME COMMISSION

APPENDIX B

BEFORE THE FEDERAL MARITIME COMMISSION

ARMADA GREAT LAKES EAST AFRICA

SERVICE

LTD AND GREAT LAKES

TRANSCARIBBEAN LINE

DOCKET NO 85 11

JOINT SUBMISSION PURSUANT TO JUDGE S DIRECTION

AMENDING THE SETTLEMENT OFFERS OF DECEMBER 18 1985

AND HEARING COUNSEL S REPLY THERETO

Respondents Armada Great LakeslEast Africa Service Ltd Armada

East Africa and Great Lakes Transcaribbean Line GmbH GLTL

by their attorneys and the Bureau of Hearing Counsel amend respectively

Respondents Proposed Settlements filed December 18 1985 and the Bu

reau s Reply thereto of the same date This submission is filed jointly

in accordance with the presiding Administrative Law Judge s orders to

counsel during an infonnal conference held on January 29 1986

In accordance with the Administrative Law Judge s directions Respond

ents hereby amend their above described settlement offers as follows leav

ing them otherwise as originally filed

1 Each Respondent has deposited an initial good faith sum of S 10 000

into segregated interest bearing money market escrow accounts in the name

respectively of Bowman Conner Touhey Petrillo A Professional Cor

poration FBO The Federal Maritime CommissionArmada Great Lakes

East Africa Service Ltd and Bowman Connor Touhey Petrillo a

Professional Corporation FBO The Federal Maritime Commission Great

Lakes Transcaribbean Line GMBH at NS T Bank N A Washington

D C as of February 11 1986 Upon the approval and acceptance of these

Proposed Settlements by the Federal Maritime Commission and within

fifteen 15 days after service of a Final Order in this proceeding incor

porating approval of the Proposed Settlements the sum in such segregated

accounts including all accrued interest shall be paid to the Federal Maritime

Commission In the event the Settlement offers are not accepted and ap

proved by the Federal Maritime Commission sucb sums with all accrued

interest shall be returned to the respective Respondents

2 The remaining 30000 per Respondent shall be payable in accordance

with the tenns of the Promissory Notes attached hereto as Appendices

Iand II in the following installments

a Five Thousand 5 000 Dollars plus interest shall be paid

on or before June 3 1986 by each Respondent

28 F M C
28 F M C

ARMADA GREAT LAKES EAST AFRICA SERVICE LTD GREAT 379

LAKES TRANSCARIBBEAN LINE

b Ten Thousand 10 000 Dollars plus interest shall be paid

on or before September 16 1986 by each Respondent and

c Fifteen Thousand 15 000 Dollars plus iuterest shall be paid

on or before December 3D 1986 by each Respoudeut

3 In the eveut the Commission has uot taken final actiou to approve

these Settlement offers by the date any installment is due such installment

including interest shall be paid into the segregated escrow accounts de

scribed in Paragraph 1 above and shall be handled in accordance with

the terms thereof

4 The appended Promissory Notes provide that interest on subsequent

installments will run from the service date of the Administrative Law

Judge s Initial Decision approving the Proposed Settlements and will be

at a rate equal to the average weekly six month U S Treasury Bill rates

during the applicable period

The installment payments have been structured with consideration to the

seasonality of Great Lakes Shipping and are scheduled to fall on Tuesdays

so as to eaSe the transmittal of funds
380 FEDERAL MARITIME COMMISSION

I Hearing Counsel do not oppose approval of Respondents Settlement

offers as originally filed and herein amended

RESPEClFULLY SUBMlTI ED

S HOPEWELL H DARNEILLE III

BOWMAN CONNER TOUHEY PETRILLO

A PROFESSIONAL CORPORATION

2828 PENNSYLVANIA AVENUE N W

WASHINOTON D C 20007

202 965 7600

Attorneysfor Respondents

ARMADA GREAT LAKES EAST AFRICA

SERVICE LTD AND GREAT LAKES

TRANSCARIBBEAN LINE GMBH

S AARON W REESE

Director Bureau of Hearing Counsel

WILLIAM D WEISWASSER

Hearing Counsel

BUREAU OFHEARINO COUNSEL

FEDERAL MARITIME COMMISSION

1100 L STREET N W

WASHINOTON D C 20573

202 523 5783

28 FM C
28 F M C 381

FEDERAL MARlTIME COMMISSION

46 CFR PART 552

DOCKET NO 868

FINANCIAL REPORTS OF TUG AND BARGE OPERATORS IN THE

DOMESTIC OFFSHORE TRADES

May 1 1986

ACTION

SUMMARY

Final rule

The Federal Maritime Commission amends its rules gov

erning financial reports required of vessel operating com

mon carriers in the domestic offshore waterborne com

merce of the United States Tug and barge operators

have been completing the reporting form Form FMC

377 based on the accounts prescribed by the Interstate

Commerce Commission ICC for Carriers by Inland and

Coastal Waterways Since the ICC no longer requires

reports from such carriers it is necessary to define the

terms used in the report form

EFFECTIVE

DATE June 9 1986

SUPPLEMENTARY INFORMATION

The Federal Maritime Commission is required to evaluate the reasonable

ness of rates filed by vessel operating common carriers in the domestic

offshore trades To provide for the orderly acquisition of data essential

to this evaluation the Commission promulgated what is now 46 CFR Part

552 Tug and barge operators report the required financial and operating

data on Form FMC 377 Sta ments of Financial and Operating Data

It had been the policy of the Commission to base these statements on

the accounts prescribed by the Interstate Commerce Commission ICC

for Carriers by Inland and Coastal Waterways The ICC no longer requires

reports from such carriers Consequently Form FMC 377 will now contain

a glossary

A

proposed rule was published in the Federal Register on February

26 1986 51 FR 6760 with comments due on March 28 1986 No com

ments were received Therefore the Commission intends to adopt the rule

as final

The Commission has determined that this proposed rule is not a major

rule as defined in Executive Order 12291 February 27 1981 because

it will not result in

I An annual effect on the economy of 100 million or more
382 FEDERAL MARITIME COMMISSION

2 A major increase in costs or prices for consumers individual indus

tries Federal State or local government agencies or geographic regions

or

3 Significant adverse effect on competition employment investment

productivity innovations or on the ability of United States based enterprises

to compete in domestic or export markets

The Chairman of the Federal Maritime Commission certifies pursuant

to section 605 b of the Regulatory Flexibility Act 5 U S C 605 b that

this rule will not have a significant economic impact on a substantial

number of small entities inclu ling small businesses small organizational

units or small governmental organizations The primary economic impact

of this rule would be on ocean common carriers which generally are not

small entities A secondary impact may fall on shippers some of whom

may be small entities but that impact is not considered to be significant

The collection of information requirements contained in original Part

552 were approved by the Office of Management and Budget OMB

under the provisions of the Paperwork Reduction Act of 1980 Pub L

96511 and have been assigned control number 3072 Q008 The amend

ments in this rulemaking are technical in 11llture and will not result in

any substantive modification of the financial reporting requirements con

tained in the Commission s

request for extension of clearance

List of Subjects in 46 CPR Part 552 Cargo vessels Freight Maritime

carriers Rates and fares Report and recordkeeping requirements Uniform

system of accounts

Therefore for the reasons set forth above Part 552 of Title 46 Code

of Federal Regulations is amended as follows

1 The Authority Citation to Part 552 continues to read

Authority 5 U S C 553 46 U S C app 817 a 820 841a 843 844

845 845a and 847

2 Paragraph 0 of 552 5 is revised to read as follows

552 5 Definitions

0 Voyage Expense means

I For carriers required to file Form FMC 378 the total of Vessel

Operating Vessel Port Call and Cargo Handling Expenses less Other Ship

ping Operations Revenue

2 For carriers required to file Form FMC 377 the total of Transpor

tation Terminal and Traffic Expenses

3 Section 552 6 is amended by removing paragraph b 7 revlSlng

paragraphs a 2 b 6 b 8 b 9 iil b lO c 2 c 3 c 9

revising heading of paragraph b 4 and renumbering paragraphs b 8

b 9 b 1O as follows

28 F M C
28 F M C

FINANCIAL REPORTS OF TUG AND BARGE OPERATORS IN 383

THE DOMESTIC OFFSHORE TRADES

552 6 Forms

a General

I

2 Statements containing the required exhibits and schedules are de

scribed in paragraphs b c d e and f of this section and are

available upon request from the Commission The required General Informa

tion schedules and exhibits are contained in Forms FMC 377 and FMC

378 For carriers required to file Form FMC 378 the statemems are based

on the Uniform Financial Reporting Requirements prescribed by the Mari

time Administration U S Department of Transportation For carriers re

quired to file Form FMC 377 the statements are based on definitions

contained therein The schedules contained in these statements are distin

guished from those contained in the Form FMC 378 statements by the

suffix A e g Schedule A IV A

b Rate Base Exhibits A and A A

1 3

4 Investment in Other Property and Equipment Accumulated Deprecia

tion OtherProperty and Equipment Schedules A IVand A lV A

5

6 Workinq Capital Schedule A V A

Working capital for tug and barge operators shall be determined as

the average monthly expense Average monthly expense shall be equal

to one twelfth of the expense of the carrier during the relevant 12 month

period computed by adding Voyage Expense Administrative and General

Expense Interest Expense and Inactive Vessel Expense each as allocated

to the Trade and dividing the total by 12

7 Removed paragraphs b 8 b IO are renumbered b 7 b 9

respectively and amended as follows

7 Property and Equipment of Related Companies

Property and equipment of related companies used by the filing carrier

in the Trade shall be reported in accordance with paragraphs b I b 2

and b 4 of this section The cost of such assets shall be that which

is recorded on the books of the related company Where such assets are

included in the rate base the profits or losses from intercompany trans

actions related to such assets are to be eliminated in accordance with

paragraph c 11 of this section

8 Capitalization of Interest During Construction Schedules A VI and

A VI A

i

ii

iii A detailed description of the interest calculations shall be submitted

for each capital asset included in the rate base of the carrier in the first

year of its inclusion Such description shall be set forth on Schedule A

VI or A VI A Capitalization of Interest During Construction Capital

ized interest shall be included in the rate base when the asset is included
384 FEDERAL MARITIME COMMISSION

in the rate base in accordance with paragraph b of this section and

in the same allocable amounts as the asset A schedule shall be provided

each time a rate base statement is submitted setting forth the year in

which an interest calculation statement was submitted for each asset which

included capitalized construction interest in the rate base

iv The effects of the interest during construction provisions shall be

applicable to all work completed after December 31 1977

9 Capitalization of Leases Schedules A VII and A VI A

Leased assets which are capitalized on the carrier s books and which

meet the AICPA guidelines for capitalization may also be included in

rate base Schedule A VII or A VII A Capitalization of Leases shall

be submitted setting forth pertinent information relating to the lease and

the details of the capitalization schedule AlIocations to the Trade shall

follow the requirements of paragraphs b 1 and b 4 of this section

c Income Account Exhibits BandB A

1

2 Voyage Expense Schedule B I This schedule shall be submitted

by vessel operators for any period in which any cargo was carried in

the Service Allocations to the Trade shall be on the following basis

i ii

Iii Other Shipping Operations Revenue shall be deducted from Gross

Voyage Expense Other Shipping Operations Revenue should be assigned

directly to the extent possible or otherwise allocated on the basis of

cargo cube loaded and discharged at each port Any direct assignments

shall be fully set forth and explained

3 Voyage Expense Schedule B IA This schedule shall be submitted

by lUg and barge operators

i For all voyages in the Service transportation expense shall be allocated

to the Trade in the cargo cube mile or cargo cube relationship as appro

priate Should any elements of transportation expense be directly allocable

to specific cargo such direct allocations snall be made and explained

ii Terminal and traffic expenses shall be assigned directly to the extent

possible by ports at which incurred to the Trade and Other Cargo or

otherwise allocated on the basis of cargo cube loaded and discharged at

each port

iii Where multiple barge units are towed by a single lUg voyage

expense shall be allocated on the basis of the cargo cube relationship

4H8

9 Other Revenue or Expense Schedules B VI Iand B VIA

28 FM C
S JOHN ROBERT EWERS

Secretary

FINANCIAL REPORTS OF TUG AND BARGE OPERATORS IN 385

THE DOMESTIC OFFSHORE TRADES

i Any other elements of revenne or expense wholly or partially applica

ble to the Trade shall be fully explained by a schedule showing details

of allocation

ii Operating differential subsidy refunds under section 605 a of the

Merchant Marine Act 1936 shall not be allocated to the Trade

By the Commission

28 F M C
FEDERAL MARITIME COMMISSION

j

I

I

DOCKET NO 85 2

APPLICATION OF THE LOYALTY CONTRACT PROVISIONS OF

THE SHIPPING ACT OF 984 TO A PROPOSED TARIFF RULE ON

REFUNDS

ORDER DENYING PETITION

1

May 16 1986

The Trans Pacific Freight Conference of JapanKorea and the Japan

Korea Atlantic Gulf Freight Conference Petitioners or Conferences have

jointly filed aPetition for Declaratory Order requesting that the Commission

declare that a proposed rule for tariff refunds is not a loyalty contract

within the meaning of section 314 1 and section 1O b 92 of the Shipping

Act of 984 the Act or 984 Act In essence the proposed rule would

state that the Conferences would provide a prompt refund of no greater

than 0 percent to any shipper which shipped all or a fixed percentage

of its cargo with the Conferences during a period not to exceed four

consecutive months Shippers would not be required to ship any cargo

on conference vessels for subsequent periods in order to qualify for a

refund However if a

shipper intended to use the rule it would be required

to give the Conferences advance notice and obtain a

registration number

Notice of filing of the Petition was published in the Federal Register

50 Fed Reg 6347 April 25 1985 and comments in response were

submitted by I the 8900 Lines and the U S Atlantic Gulf Ports

Italy France Spain Freight Conference Mediterranean Conferences 2

KKL Kangaroo Line Pty Ltd Karlander and 3 the Department of

Justice DOJ

1

THE PETITION

The Conferences contend that section 3 14 of the 1984 Act addresses

only arrangements by which carriers and shippers are mutually bound by

enforceable contractual obligations with the shipper obtaining a lower rate

by agreeing to commit its cargo to a carrier or conference They contend

however that their tariff rule imposes no enforceable contractual obligations

I Seedon 3 14 46 U S C llJp g 170214 df

loyalty onroc

a contract with an ocean common carrier or conference other tlum a service contract orcontract

based upon timevolume rates by which a shipper obtains lower ratc by committing all ora fixed

portion of its cargo to that carrier orconference

Section lO b 9 46 V S C aw U709 bX9 pvldea

No common carrier eIther alone or in conjunction with any other person directly orIndirectly may

use a loyalty contract except in confonnlty with the antitrust laws

386 28 F M C
28 F M C

LOYALTY CONTRACT PROVISIONS OF THE SHIPPING ACT OF 387

1984 PROPOSED TARIFF RULE ON REFUNDS

on a shipper because a shipper could elect at any time to use non con

ference carriers without incurring a penalty Petitioners further believe that

their interpretation of section 314 is supported by Congress treatment

of loyalty arrangements under the Shipping Act 1916 46 V S C app

801 842 1916 Act They maintain that the language used in section

14b of the 1916 Act evidenced a Congressional intent to regulate only

those loyalty arrangements by which shippers were bound by means of

an enforceable contract They further note that the 1984 Act refers only

to loyalty contracts and contend that it does not therefore encompass

non contractual non binding tariff rules The Conferences also argue that

the legislative history of the 1984 Act reveals a Congressional intent merely

to deal with dual rate contracts which had been in existence since 1961

and not prohibit tariff provisions such as theirs which allegedly do not

compel shipper loyalty

Petitioners suggest that the non contractual nature of their tariff rule

makes it very similar to time volume rates which are permitted by section

8b of the 1984 Act They contend that both are contained in tariffs

provide incentives to utilize carriers require notification prior to use and

do not penalize failure to comply with the conditions of the tariff They

also contend that their rule is similar to their Volume Incentive Program

which the Commission has indicated may be implemented on a tariff basis

See 46 CPR 580 12 a Lastly the Conferences note that their proposed

rule is similar to a fidelity commission system which a Commission

administrative law judge previously found not to be a contract5

REPLIES TO THE PETITION

The Mediterranean Conferences support the Petition and therefore urge

that the Commission declare that the proposed rule for refunds is not

a loyalty contract They do request however that the Commission clarify

that the amount of the refund to be paid to participating shippers and

the duration of the program are matters which are within the discretion

of any conference choosing to offer such a program

Karlander opposes the Petition It argues first that the Petition does

not comply with the Commission s Rules of Practice and Procedure Specifi

cally Karlander maintains that the Petition fails to include a complete

statement of the facts and grounds prompting the petition as required

by Rule 68 46 CPR 502 68 Karlander contends that the Conferences

3

Section 14b of the Shipping Act 1916 46 V S C 813a repealed 1984 permitted under certain speci

fied conditions the use of contracts granting lower rates 10 any shipper who agrees to give all or any fiXed

portion of his patfonage to acarrier or conference

4Section 8 b 46 U S c app 1707 b states

Time Volume RatesRates shown in tariff filed under subsection a may vary with the volume

of cargo offered overa specified period of time

sJapan Atlamic Gulf Freight Conference Fidelity Commission System Docket No 908 I S R R 451

1961 The Conferences note however that this decision never became final because the tariff amendment

was withdrawn by thesubject conference and thecase dismissed at its request
388 FEDERAL MARITIME COMMISSION

Petition merely indicates general guidelines for a proposed tariff rule and

does not provide specific tariff language

Karlander also notes that issuance of a declaratory order is a matter

of agency discretion and that many agencies have declined requests to

issue declaratory orders Karlander further contends that even if the Commis

sion determines that the proposed tariff rule is not a

loyalty contract

uncertainty would continue as to the lawfulness of the rule under other

provisions of the 1984 Act For example Karlander questions whether

the proposed refund system would involve a deferred rebate as prohibited

by section IOb 8 of the Act 46 U S C app 1709 b 8

Karlander argues that Petitioners request for a declaratory order is noth

ing more than an attempt to obtain Commission sanction for an anticompeti

tive tying device not otherwise authorized by the 1984 Act Karlander

maintains therefore that even if the requested declaratory order were issued

it would not remove the legal uncertainty surrounding the proposal

Karlander further submits that the 1984 Act contemplates only two volume

arrangements by which a shipper can be tied to a carrier service contracts

and time volume rates It concludes that the proposed tariff rule is neither

DOJ contends that the term loyalty contract as used in the 1984

Act encompasses any contractual arrangement which has the effect of

tying a shipper to a particular carrier or conference whether it be a unilat

eral or a bilateral contract It notes that the traditional loyalty contract

offered under the 1916 Act was a bilateral contract i e at the time it

was entered into prior to any shipments thereunder enforceable contractual

obligations were imposed on the shipper as well as on the carrier DOJ

argues however that the proposed tariff rule represents a unilateral contract

in which a conference promises to provide a refund to a shipper in exchange

for performance of certain specified conditions by the shipper in this

case shipping all or a fixed portion of its cargo on conference vessels

for a specified time period DOl contends that performance by the shipper

is both acceptance of the conference s offer as stated in its tariff offering

and the giving of consideration for the conference s promises to pay the

refund DOJ concludes by stating that the effect of the proposed tariff

rule is the same as the effect of traditional loyalty contractsto tie a

shipper s patronage exclusively to a particular conference Although the

form of the proposed loyalty arrangement is unique DOJ contends that

it is nonetheless encompassed by the definition of loyalty contract in section

3 14 of the Act

DISCUSSION

As an initial matter we address Karlander s suggestion that the Petition

may not comply fully with the Commission s

requirements concerrting peti

tions for declaratory orders as set forth in Rule 68 of the Commission s

Rules of Practice and Procedure Specifically Karlander claims that the

Petition does not inClude a

complete statement of the facts and grounds

28 FM C
28 F M C

LOYALTY CONTRACT PROVISIONS OF THE SHIPPING ACT OF 389

1984 PROPOSED TARIFF RULE ON REFUNDS

prompting the petition Karlander s concern arises from the fact that the

parameters of the proposed tariff rule are set out by the inclusion of

general descriptive guidelines rather than stating an actual tariff rule

Karlander s concerns do not have merit Petitioners are seeking an ad

vance ruling from the Commission prior to initiating any activity It is

not unusual that at this point they have only a general description of

their intentions and not a specific tariff rule This description adequately

informs the Commission of the nature of the proposed rule and provides

sufficient detail upon which to consider the merits of the Petition

Turning to the issue of whether the rule is or is not a

loyalty contract

we agree with Petitioners that the tariff refund scheme which they are

proposing is not the type of loyalty arrangement contemplated by section

14b of the 1916 Act However the basic question remains whether the

proposed rule is a loyalty contract under the 1984 Act As defined by

section 314 of the 1984 Act a loyalty contract is a contract with

an ocean common carrier or conference by which a shipper obtains

lower rates by committing all or a fixed portion of its cargo to that

carrier or conference 46 US C app 1702 14 It appear clear that

under the proposed tariff rule a shipper obtains a lower rate after refund

by committing all or a fixed portion of its cargo to the Conferences

The only remaining issue therefore is whether a contract arises between

a shipper and a carrier under the proposed arrangement It would appear

that one does and as a result we cannot state defirtitively that the proposed

arrangement is not a loyalty contract under the 1984 Act

A contract has been defined as a n agreement between two or

more persons which creates an obligation to do or not to do a particular

thing Black s Law Dictionary 291 292 5th ed 1979 The essential

elements of a contract are generally considered to be I Competent parties

2 proper subject matters 3 legal consideration 4 mutuality of agree

ment and 5 mutuality of obligation 17 CJ S Contracts 1 2

As a matter of classification the law recognizes two kinds of contracts

bilateral contracts and unilateral contracts A bilateral contract is one in

which there are reciprocal promises mutual obligations are present and

the promise which one party makes is sufficient consideration for the prom

ise which the other makes 17 C J S Contracts 8 The typical dual

rate contract formerly recognized under the 1916 Act is a classic example

of a bilateral contract in which mutually enforceable contractual obligations

were imposed on both the carrier or conference and the shipper at the

time the agreement was executed

A unilateral contract on the other hand arises from a promise by one

party or an offer by that party to do a certain thing in the event the

other party performs a certain act the performance by the other party

constitutes an acceptance of the offer and the contract then becomes exe

cuted and enforceable 17 cJ S Contracts 8
J

I

390 FEDERAL MARITIME COMMISSION

j

The Conferences proposed tariff rule would appear to g

ive rise to a

unilateral contract The Conferences promise to provide a refund in exchange

for performance of specified conditions by the shipper i e shipping aU

or a fixed portion of its cargo on conference vessels for a

specified period

of time Performance by the shipper of the conditions would appear to

constitute acceptance of the Conferences offer and the giving of legal

consideration for the Conferences promise to pay the refund If the shipper

meets the conditions the offering conference is contractually bound to

issue it a refund If the shipper does not fuUy perform over the period

specified no contract arises and no rebate is earned

The Conferences contention that there must be mutuality of obligation

between the carrier and the Shipper at the time the shipper begins to

ship in order to create a contractual relationship suggests an incorrect

assessment of the law Because a unilateral contract is not founded on

mutual promises but is one where there is a promise on one side and

executed consideration performance on the other the doctrine of mutuality

of obligation is inapplicable to such contracts 17 C J S Contracts 100 l

What is essential is that the contract contain valid consideration Here

the shipper s performance of the offering conference s conditions would

appear to constitute valid consideration for the conference s promise to

pay the refund

The mere fact that a shipper who does not meet the conditions of

the conference s offering does not incur a penalty except that of paying

the normal tariff rate does not compel a different result AlthOugh dual

rate contracts typically contained a penalty provision that provision was

not what brought them within the ambit of section l4b There was no

requirement that dual rate contracts under section l4b of the 1916 Act

contain a

penalty provision and there Is of course no such requirement

in section 3 14 of the 1984 Act It is not therefore a critical element

in determining whether the instant arrangement faUs within the definition

of loyalty contract uiIder the 1984 Act6

Moreover the legislative history of the 1984 Act suggests that the defini

tion of loyalty contract was intended to be read expansively encom

passing arrangements having little anticompetitive effect as well as those

that would clearly violate the antitrust laws The provisions in the 1984

Act relating to loyalty contracts came about as the result of a compromise

between the House Merchant Marine and Fisheries Committee and the

House Judiciary Committee This compromise was a radical departure from

the regulatory scheme established by section l4b of the 1916 Act which

had been carried forward in H R 1878 as reported out by the House

6 The Jack of a penalty prov16 lon thereJatJvtly short period of time dUring whWh the shJpper mustobJJgate

a fixed portion of Its cargo to the conference and the size of the refund are all factors whJch may be relevant

in determining whether use of the loyalty contract would conform to the anlitrusl laws as required by section

10b 9 of the 1984 Act However they do not uslst in determining whether an arranaement is a loyalty

contract inthe rust instance

28 F M C
28 F M C

LOYALTY CONTRAcr PROVISIONS OF THE SHIPPING Acr OF 391

1984 PROPOSED TARIFF RULE ON REFUNDS

Merchant Marine and Fisheries Committee Section 14b of the 1916 Act

specified mandatory provisions to be included in dual rate contracts Con

tracts which were in compliance with the requirements of section 14b

enjoyed antitrust immunity As reported out by the House Merchant Marine

and Fisheries Committee H R 1878 would have continued the requirements

of section 14b but expanded antitrust immunity to cover all loyalty con

tracts The compromise did away with the specific requirements pertaining

to loyalty contracts that existed under the 1916 Act and simply required

that the use of loyalty contracts conform to the antitrust laws Given this

approach it seems likely that Congress expected that carriers and con

ferences might develop non traditional loyalty contracts which might or

might not offend the antitrust laws

The Conferences point out that the subject arrangement is similar to

the Fidelity Commission System FCS which was the subject of Japan

Atlantic and Gulf Freight Conference Fidelity Commission System I S RR

451 1961 JAGFCS They rely on this decision in an attempt to dem

onstrate that the subject arrangement is not a loyalty contract The FCS

was a proposal designed to fill the void created when the Supreme Court

struck down the conference s dual rate system in Federal Maritime Board

v Isbrandtsen 356 U S 481 1958 Isbrandtsen An investigation and

hearing was instituted by the Commission to determine whether the proposed

FCS would violate the 1916 Act Although the 1961 amendments to the

1916 Act rendered the case moot by legalizing dual rate contracts before

the Commission could issue a final decision an initial decision had already

issued in the case by an administrative law judge He concluded that

because the FCS did not depend upon the actions of the shipper in any

successive period it did not result in a deferred rebate Nor was its anti

competitive effect found to be as great as the dual rates struck down

in Isbrandtsen It must be remembered however that the issue in that

case was whether the FCS was lawful under section 14 Third of the

Shipping Act 1916 7 There was no issue as to whether the FCS was

a dual rate contract because prior to 1961 there was no reference to

dual rate contracts in the 1916 Act Thus the initial decision findings in

JAGFCS are of little value in determining whether the subject arrangement

is a loyalty contract

The Conferences have also suggested that their proposed tariff rule is

very similar to time volume rates which are permitted by section 8 b

of the 1984 Acts Both are contained in tariffs and both provide a refund

or lower rate to a shipper who meets its requirements However the Con

7

Section 14 Third Connerly 46 U S C 813 stated that no common carrier by water shall

Retaliate against any shipper by refusing orthreatening to refuse space accommodations whensuch

are available or resort to other discriminating or unfair methods because such shipper has patron

ized any other carrier or has filed a

complaint charging unfair treatment or for any other reason

8Seclion 8 b 46 U S c app 1707b states

Time Volume Rates Rates shown in tariffs filed under subsection a may vary with the volume

of cargo offered overa

specified period of time
392 FEDERAL MARITIME COMMISSION

ferences argument appears to overlook critical distinction between the defi

nitions of loyalty contract and time volume rates appearing in the

Shipping Act of 1984

By definition a loyalty contract contemplates a

shipper tendering all

or a fixed portion of its cargo to a carrier On the other hand a time

volume rate depends on the volume of cargo tendered over a

specified

period of time The proposed refund like a loyalty contract is dependent

upon a shipper tendering all or a specified portion of its total traffic

to the conference its application does not depend on the volume of cargo

tendered For example under the Conferences proposed rule two shippers

could tender exactly the same number of containers to the offering con

ference and only one would be eligible for a refund Ifthe cargo tendered

amounted to all or the fixed percentage of the shipper s total traffic specified

in the tariff a refund would be in order The same volume if it did

not amount to all or a specified fixed percentage of the shipper s total

traffic would not qualify for refund Because the application of the proposed

refund is conditioned on the relationship of the amount of cargo tendered

to the shipper s total traffic and not just the amount of cargo tendered

it is not a time volume rate as section 8b of the 1984 Act would appear

to contemplate that term 9

See also In the Matter of the Carriage of

Military Cargo 10 EM C 69 77 78 1966

For reasons stated above the Commission is unable to declare that Peti

tioners proposed tariff rule is not a loyalty contract as that term is

defined by section 3 14 of the Shipping Act of 1984

THEREFORE IT IS ORDERED That the Petition for Declaratory Order

submitted by the Trans Pacific Freight Conference of JapanKorea and the

JapanKorea Atlantic Gulf Freight Conference is denied

By the Commission

S JOHN ROBERT EWERS

Secretary

9

Even accepting Petitioners suggestion that time volume rates give rise 10 a

type of loyalty arrangement

this does not necessarily advance their position Contract s blUled on lime volume rates have been ex

pressly excluded from the dermition of loyalty contract in section 314 wbCTCas the arrangement proposed

by Petitioners has not

2S F M C
28 F M C 393

FEDERAL MARITIME COMMISSION

DOCKET NO 862

ATLANTIC CARGO SERVICES AB

v

GULF EUROPEAN FREIGHT ASSOCIATION

NOTICE

June 3 1986

Notice is given that no appeal has been taken to the April 21 1986

dismissal of the complaint in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the dismissal has become administra

tively final

S JOHN ROBERT EWERS

Secretary
I

FEDERAL MARITIME COMMISSION

DOCKET NO 862

ATLANTIC CARGO SERVICES AB

v

GULF EUROPEAN FREIGHT ASSOCIATION

I

i

COMPLAINT DISMISSED

Finalized June 3 1986

Complainant has moved for an order dismissing its complaint without

prejudice Complainant states that it has resolved its dispute with respondent

to its satisfaction and does not wish to prosecute its complaint at this

time Respondent does not object to the motion

In view of the above situation the motion is granted As requested

costs are to be borne by the party incurring them

It is ordered that the complaint be dismissed without prejudice

S NORMAN D KLINE

Administrative Law Judge

j

394 28 F M C
28 F M C 395

FEDERAL MARITIME COMMISSION

DOCKET NO 85 14

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND SEA

TRADE SHIPPING

NOTICE

June 5 1986

Notice is given that no exceptions were filed to the April 24 1986

initial decision in this proceeding and the time within which the Commission

could determine to review that decision has expired No such determination

has been made and accordingly that decision has become administratively

final

S JOHN ROBERT EWERS

Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 85 14

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND SEA

TRADE SHIPPING

Respondent Jorge Villena found to have operated as a non vessel operating common carrier

between November 1983 and December 1985 sometimes in his personal capacity and

other times in connection with respondent corporations Carl Cargo International Inc

and Sea Trade Shipping At various times during this period respondents failed to

charge rates specified in their tariffs operated without a tariff and underpaid vessel

operating carriers by means of cargo misdescriptions These practices violated sections

18b 3 and 18b

1 and 16 Initial Paragraph of the Shipping Act 1916 and corresponding

provisions of the Shipping Act of 1984 sections 1Ob1

8 a 1 and lO a I

respec

tively

Respondents pattern of conduct by which they ignored their tariffs and misdescribed cargo

tendered to vessel operating carriers was deliberate and without regard to the requirements

of law and continued even after Mr Villena had been warned about the impropriety

of such practices Respondents defenses namely that they had to meet competition

had intended to file their negotiated rates but had problems with their tariff publisher

are weak and unsubstantiated and in any event relevant only to the question of penalties

To deter future violations of law and to encourage respondents to reform and comply with

law without jeopardizing what may be relatively small businesses respondents are assessed

aggregate penalties of 100 000 with provision for possible remission of a portion of

this amount if respondents pay at least 30 000 over a six months period and show

evidence of reform and inability to continue to pay Respondents are also ordered to

cease and desist from continuing previous unlawful practices

Jorge Villeoo for respondents

Aaron W Reese and Alan J Jacobson for Hearing Counsel

INITIAL DECISION t OF NORMAN D KLINE ADMINISTRATIVE

LAW JUDGE

Finalized June 5 1986

The Commission began this proceeding on May 5 1985 to determine

originally whether respondents Carl Cargo Intemational Inc Carl Cargo

a non vessel operating common carrier NVO and Mr Jorge Villena

apparently Carl Cargo s only officer and employee had been operating

without having a tarlff on file with the Commission and without charging

rates which may have been filed in such a tariff If so such conduct

would violate sections 18 b I and 18b 3 of the Shipping Act 1916

and corresponding provisions of the Shipping Act of 1984 sections 8 a I

I This decision will become the decision of the Commission in lhe absence of review lhereof by lhe Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 502 227

396 28 F M C
28 F M C

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 397

SEA TRADE SHIPPING

and IO b 1 During the course of prehearing discovery the Commission s

Hearing Counsel uncovered evidence showing that respondents may have

been consolidating cargo and tendering it to vessel operating carriers under

incorrect descriptions in order to obtain transportation at lower rates that

would apply under those carriers tariffs If so such conduct would violate

section 16 Initial Paragraph of the 1916 Act and the corresponding provi

sion of the 1984 Act section lO a I Still later Hearing Counsel obtained

evidence which appeared to show that respondent Jorge Villena may have

been operating a company known as Sea Trade Shipping without regard

to a tariff which that company had filed with the Commission effective

September 5 1985 If so Sea Trade and Mr Villena would have violated

section 1b I of the 1984 Act and if Mr Villena and Sea Trade had

been misdescribing cargo to underlying vessel operating carriers such con

duct would have violated section lO a 1 of the 1984 Act

In order to reach the full range of all possible activities of the type

mentioned above which may have been conducted by Cari Cargo Mr

Villena and Sea Trade Shipping at various times between 1983 and 1985

the Commission amended its original Order of Investigation first on August

7 1985 and later on January 22 1986 As amended the Order now

requires an investigation into the questions whether Cari Cargo Mr Villena

and Sea Trade Shipping operated without a tariff charged rates other than

the rates on file with the Commission if tariffs had been filed and tendered

cargo to underlying vessel operating carriers under incorrect descriptions

in order to obtain transportation at lower rates than would properly apply

under those carriers tariffs

The evidentiary record was developed gradually over a period of time

primarily by means of prehearing inspection and discovery of respondents

records and a deposition of respondent Villena Because respondents either

did not wish or were unable to obtain legal counsel every effort was

made during the record developing phase of the proceeding to keep Mr

Villena advised of the Commission s procedures and of respondents rights

to respond to the evidence proffered by Hearing Counsel in whatever way

necessary to protect respondents interests In order to keep respondents

continually advised of their rights and of the significance of the procedures

being followed by Hearing Counsel three telephonic prehearing conferences

were held on September II November 4 1985 and January 28 1986

In addition to these conferences I instructed Hearing Counsel to furnish

respondents with written evidence which Hearing Counsel had obtained

and would be tendering together with statements explaining the significance

of the evidence Whenever appropriate respondents were given the oppor

tunity of furnishing rebuttal evidence or comments and were advised that

they could request an oral hearing if they deemed such a hearing necessary
398 FEDERAL MARITIME COMMISSION

to protect their interests However at no time did respondents furnish

any rebuttal evidence or written comments or make any requests for an

oral hearing Accordingly Hearlng Counsel tendered their entire case which

consisted of evidence in written form which evidence was admitted without

objection of respondents the record was closed and a schedule for briefing

was established Hearing Counsel submitted their opening brief on March

21 1986 Respondents submitted no answering brief

FINDINGS OF FACT

The evidentiary record consists of the written direct testimony of the

Commission s Miami District Investigator Mr Albert Posnick with related

worksheets the deposition of Mr Jorge Villena Cari Cargo s President

and Sea Trade s general manager with related documents a Carl Cargo

tariff bills of lading dock receipts export declarations manifests an

affidavit of Roland E Ramlow a Commission Transportation Industry Ana

lyst a Sea Trade tariff and 34 Sea Trade bills of lading together with

related shipping documents See Evidentiary Record Closed February 28

1986 at 2

Although the types of violations committed by the three respondents

ie violating their tariffs operating without a tariff or underpaying under

lying vessel operating carriers are simple and easy to grasp by their nature

the surrounding facts are rather complicated and difficult to follow There

are several reasons First Mr Villena operated under three different cor

porate names at various times between March 1983 and December 1985

the period of time within which shipments were studied Second the Ship

ping Act of 1984 supplanted the Shipping Act 1916 effective June 18

1984 so that although the types of violations were the same the relevant

provisions of law were renumbered Third for a period of time between

November 10 1983 and April 17 1984 Mr Villena operated without

a corporation having been formed although he had filed a tariff and issued

bills of lading in a corporate name Carl Cargo International Inc During

this period of time the facts showed that he either operated in his own

name without a tariff or alternatively he operated a tarlff in the name

of an unformed corporation and violated that tariff

2

See my rulings and instructions May 13 August 22 September 12 November S 1985 January 24 Janu

ary 30 1986 February 28 1986 letter dated December 9 1985 AI the CommissIon has noted a fairhearing

is one in wlUch the partiClshould have opportunity to meet inthe appropriate fashlon all facts that influence

the disposition oflhe case lmpo9lt1on ojSurcharge by theFor Easl Co 1ference 9 F M C 129 140 1965

see also Agreement No 9955 1 18 F M C 426 464S 1975 no violation ofduo process if respondents

had opportunity to learn of allegations prior to hearing and to meet evidence presented against them L G

Balfour v P T C 442 F 2d 1 19 7th Cir 1971 party must have reasonable opportunity to know claims

against it and meet them as the case unfolda i Modlftcallon oj Agreement S70Q 4 10 F M C 261 1967

opportunity must be afforded to all parties to submit evidence and arsument to constitute full hearings

2 Davis Administrative Law 2d Ed 1979 sec 139 at 9 600 party may submit written evIdence without

trial type hearings Cellular Mobile Systems of Pennsylvania v F C C 782 F 2d 182 197 199 D C Cir

1985 full bearinS can consist of wriUen evidence without cross examination

28 F M C
28 FM C

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 399

SEA TRADE SHIPPING

The following findings of fact are intended to describe the violations

of law while providing the factual background in the most understandable

fashion possible considering the complications discussed What the reader

should bear in mind however notwithstanding the various complications

is that essentially Mr Jorge Villena operated sometimes personally but

most of the time under a corporation in a consistent fashion Specifically

either personally or under a corporation he operated an NVO business

without a tariff violated that tariff even when it was filed and underpaid

vessel operating carriers to whom he tendered cargo by filling out bills

of lading with false descriptions of the cargo

1 Mr Jorge Villena was born in Peru He moved to this country and

began working around 979 or 980 Some time thereafter he became

a co owner of an NVO known as Cari Cargo Consolidators Inc This

corporation formed on September 13 1982 was dissolved on November

10 1983 It had filed a tariff with the Commission effective October

23 1982

2 Mr Villena continued in the NVO business operating out of Miami

Florida after the dissolution of Cari Cargo Consolidators nc in November

1983 For a time he operated without having formed a new corporation

However on April 17 1984 a corporation known as Carl Cargo nter

national Inc Cari Cargo came into existence under Florida law Mr

Villena was the president of this company This company was in active

business as an NVO during the major part of 1984 but appears to be

inactive presently According to its tariff and bills of lading issued it

operated from Miami to ports all over the world

3 In December 1984 a corporation known as Sea Trade Shipping was

formed Mr Villena is one employee of this corporation The other is

a stenographic receptionist Sea Trade Shipping according to its tariff and

bills of lading issued operates as an NVO to ports and points in Latin

America and the Caribbean

4 From November 11 1983 through Apri 16 1984 Le after dissolution

of Carl Cargo Consolidators nc and before formation of Carl Cargo Inter

national Inc Mr Villena handled 86 shipments and issued bills of lading

for them During this period of time a tarlff was on file with the Commis

sion in the name of Carl Cargo International Inc although that corporation

had not yet come into existence This tariff was the same one that had

been filed in the name of Carl Cargo Consolidators Inc Effective March

16 1983 the name on the title page of that tariff had been changed

from Cari Cargo Consolidators Inc to Carl Cargo International Inc

5 Ana ysis of the 86 bills of lading shows that Mr Villena rated and

charged the shipments at rates and charges which differed significantly
400 FEDERAL MARITIME COMMISSION

from the rates and charges specified in the Cari Cargo tariff on file at

the time 3

6 The Commission s District Investigator Mr Albert posnick spoke

with Mr Villena on April 4 1984 Mr Villena admitted to Mr Posnick

that he had not been using the Cari Cargo tariff to assess charges on

Cari Cargo bills of lading He explained that when asked by a shipper

for a rate he first checked the rates of ocean carriers and tried to determine

what his competitors charged He then set his own rates for the shipment

This admission was corroborated by relevant shipping documents Although

Mr Villena said that he would revise and use the Cari Cargo tariff he

told Mr Posnick on July 10 1984 that he had not changed his method

of operation

7 On June 25 1985 Mr Villena was deposed He explained his method

of operation as an NVO and again admitted that he had disregarded tariffs

in determining his rates to shippers Furthermore while operating as Cari

Cargo Mr Villena paid freight forwarder compensation at three percent

although the tariff had specified five percent The matter of this discrepancy

was brought to Mr Villena s attention in March of 1984 by Mr Posnick

but Mr Villena did not thereafter change the tariff rate nor the amount

of compensation he paid In fact through the series of meetings with

Mr Posnick beginning in March 1984 Mr Villena continually acknowl

edged that he had not been changing his tariff to reflect the rates he

had been charging when advised that he had not been following his tariff

8 During the period from November 11 1983 through April 16 1984

when Mr Villena was operating without a corporation having been formed

he filled out bills of lading issued by underlying vessel operating common

carriers inserting false descriptions of the goods tendered to those carriers

He did this on six bills of lading during this period Mr Villena brought

sets of shipping documents to his deposition which show how he

misdescribed goods on underlying carriers bills of lading In a typical

instance Mr Villena filled out a vessel operating carrier s bill of lading

by inserting the words groceries and foodstuffs in the space provided

for cargo descriptions The vessel operating carrier thereupon rated the goods

using that description according to the carrier s tariff In truth however

the goods tendered to that carrier were used personal effects and household

goods and Mr Villena s own bill of lading issued to his shipper customer

3

An analysis perfonned for the period March 1983 through February 1984 by Commission District Investi

gator Albert Posnick shows that on 90 bills of lading there were substantial differences between the rates

and charges shown on the bills of lading and the Carl Cargo tariff From March 16 1983 to November 10

1983 the previous corporation Carl Carso Consolidators Inc was still in existence although the name on

ils tariff had been changed to Cari Cargo International Inc a corporatJon not yet legally fanned From No

vember 10 1983 through February 1984 therefore Mr VilIena was not operating under an exlstina corpora

tion

4There were actually seven bills of lading misdescribed by Mr VilJena in the record in 1983 and 1984

However the first of them Ex 2 sub ex 5 1 is dated September 22 1983 at atime when Cari Cargo

Consolidators Inc was still in existence The remaining six all fell within the November 11 1983 through

April 16 1984 time period

28 FM C
28 F M C

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 401

SEA TRADE SHIPPING

in the name of Cari Cargo shows the correct description When asked

why he described the cargo to the underlying carrier incorrectly Mr Villena

replied that he was taking advantage of the rate He admitted that

he misdescribed the foods in order to obtain a lower rate from the vessel

operating carrier Mr Villena followed this pattern at least 12 times seven

while he was operating without having formed the corporation five times

after the corporation Cari Cargo International Inc had been formed On

eight of these instances of misdescription the aggregate amount of freight

by which Mr Villena and Cari Cargo underpaid the vessel operating carriers

was 60 910 86 according to an analysis performed by Mr Roland E

Ramlow of the Commission s Bureau of Tariffs

9 As to the above 12 misdescribed bills of lading Mr Villena customarily

issued several of his own bills of lading in the name of Cari Cargo before

and after Cari Cargo was incorporated for his shipper customers per each

misdescribed bill of lading of the underlying carrier Mr Villena acknowl

edged that these Cari Cargo bills of lading were consistently not rated

in accordance with the Cari Cargo tariff

10 After Cari Cargo International Inc became incorporated on April

17 1984 Cari Cargo through Mr Villena issued 22 bills of lading the

last one of record issued in August 1984 The shippers involved were

not charged rates specified in the Cari Cargo tariff As mentioned Cari

Cargo through Mr Villena also misdescribed cargo on five underlying

carriers bills of lading during this time period

I J As noted earlier Sea Trade Shipping was incorporated in December

1984 and Mr Villena is one of only two employees of the corporation

Sea Trade filed its tariff with the Commission effective September 5

1985 However from February through August 1985 Sea Trade handled

20 shipments and issued bills of lading for each Eleven of these bills

of lading had been issued prior to June 25 1985 However at his deposition

taken on June 25 1985 Mr Villena swore that as of that date he had

issued only one Sea Trade bill of lading

12 Sea Trade issued 14 bills of lading for shipments handled after

September 5 1985 the effective date of its filed tariff The first was

dated September 9 1985 the last December 20 1985 A comparison

between the rates and charges on these 14 bills of lading and the rates

specified in the Sea Trade tariff shows that Sea Trade through Mr Villena

charged other than the rates and charges shown in the tariff on each

of the shipments For example the first bill of lading dated September

9 1985 shows cargo of plastic toilet seats moving to Brazil rated

at 260 00 W M There is no such rate in the tariff for this commodity

as described moving to Brazil Nor indeed is there a rate of S260 00

W M for any item in the entire tariff Furthermore the bill of lading

shows a bunker surcharge of 2750 and a 10 00 bill of lading charge

but the tariff states that no bunker surcharge applies and specifies a bill

of lading charge of only 750
402 FEDERAL MARITIME COMMISSION

13 The above pattern continued through all the 14 bills of lading issued

by Sea Trade For example the next bill of lading in the series dated

September 13 1985 shows cargo of personal effects moving from Miami

to Chile The cargo is rated at 297 00 W M and shows a bill of lading

charge of 10 00 However the tariff shows a rate of 255 00 W M for

personal effects moving from Miami to Chile and as noted a bill of

lading charge of only 7 50

14 The pattern of ignoring tariff rates has characterized Mr ViIlena s

career whether operating as himself Cari Cargo International or Sea Trade

Shipping from November 11 1983 through December 1985 Indeed the

same pattern can be found as far back as March 1983 when a previous

corporation Cari Cargo Consolidatol s had been in existence

DISCUSSION AND CONCLUSIONS

The issues presented in this investigation as to possible violations of

law are whether the three named respondents Cari Cargo International

Inc Carl Cargo Mr Jorge ViIlena and Sea Trade Shipping committed

three types of violations More specifically did these three respondents

operate as a common carrier without filing their tariffs with the Commission

a violation of section 18b 1 of the 1916 Act and section8 a I of

the 1984 Act did they charge rates other than those specified in tariffs

that they may have filed with the Commission a violation of section

18 b 3 of the 1916 Act and section 10b 1 of the 1984 Act and

finally did they knowingly and willfully obtain or attempt to obtain ocean

transportation for property at less than the rates or charges that would

be applicable by means of false billing false classification or any other

unjust or unfair device or means a violation of section 16 Initial Paragraph

of the 1916 Act and section 10 a 1 of the 1984 Act The provisions

of the 1984 Act are virtually identical to those of the 1916 Act with

regard to these types of violations The three relevant provisions of the

1984 Act which became effective on June 18 1984 S are as follows

Section 8 a I 46 U SC app sec 1707 a I provides in relevant

part

E ach common carrier shall file with the Commission

and keep open to public inspection tariffs showing all its rates

charges classifications rules and practices between all points or

ports on its own route and on any through transportation route

that has been established

Section 10b 1 46 U S C app sec 1709 b I provides in relevant

part

The Shipping Act of 1984 was enacted as P L 98237 98 Stat 67 and became effective on June 18

1984 See AppllcQtion of Shipping Act of 1984 to Formal Proceedings Pending Before FeckrQi Marltlme

Commission on June 18 1984 22 SRR 976 1984 Marcella Shtpplng Co Ltd 28 F M C 259 261 n 2

ID F MC notice of finality March 26 1986 section 21 P L 98237 46 US C app Ice 1701

28 FM C
28 F M C

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 403

SEA TRADE SHIPPING

No common carrier may I charge demand collect or

receive greater less or different compensation for the transpor

tation of property or for any service in connection therewith than

the rates and charges that are shown in its tariffs

Section lO a I 46 D S C app sec 1709 a I provides in relevant

part

No person may I knowingly and willfully directly or indirectly

by means of false billing false classification false weighing false

report of weight false measurement or by any other unjust or

unfair device or means obtain or attempt to obtain ocean transpor

tation for property at less than the rates or charges that would

otherwise be applicable

Hearing Counsel summarize their contentions as follows Opening Brief

at 2 3

Hearing Counsel s evidence undisputed by Mr Villena consists

of incontrovertible documentary evidence showing that Mr Villena

consistently operated as a non vessel operating common carrier

NVO without a tariff on file at the Commission that when

he did file a tariff both as Cari Cargo and Sea Trade he ignored

it and as a shipper to underlying carriers he deliberately

misdescribed cargo to receive lower freight rates Further as to

his activities prior to June 25 1985 Mr Villena corroborates

the documentary evidence by admitting and acknowledging the

activities Hearing Counsel contend violate the Shipping Acts

Not only does the undisputed evidence show that respondent Villena

at times acting in the name of Cari Cargo and Sea Trade Shipping did

commit the above violations of law contend Hearing Counsel but Mr

Villena acted with complete disregard for the requirements of the Shipping

Acts and later after the requirements were brought to his attention delib

erately and repeatedly acted in violation of the Shipping Acts Opening

Brief at 2 Moreover as to his activities as Sea Trade Shipping notwith

standing Mr Villena s sworn statement on June 25 1985 that he

had only issued one Sea Trade bill of lading as of that date he had

actually issued several Opening Brief at 3

I agree with Hearing Counsel Although at times it is not always clear

whether Mr Villena was acting in his own capacity rather than in the

capacity of one of the two corporations of which he was an employee

or officer what is clear and convincing is that from a period dating at

least from March 1983 through December 1985 Mr Villena was actively

engaged in the business of an NVO and either filed no tariff or if he

did ignored the tariff Furthermore Mr Villena customarily misdescribed

commodities on underlying vessel operating common carriers bills of lading

for the purpose of obtaining transportation at less than the lawful charges

provided in those carriers tariffs The record clearly reveals a consistent
j

404 FEDERAL MARITIME COMMISSION

pattern of operations by which Mr Villena would quote rates to his shipper

customers attempting to keep those rates at a level which would be competi

tive with other NVOs and then reduce his own freight costs as a

shipper

vis a vis the vessel operating cll1Tiers by misdescribing the commodities

tendered to those carriers in effect cheating those carriers Furthermore

even after Mr Villena had been visited by a Commission investigator

and had been warned about the impropriety of such conduct he continued

operating in the same fashion Furthermore when testifying under oath

at his deposition held on June 25 1985 Mr Villena s statements as to

the number of bills of lading he had issued in the name of Sea Trade

Shipping were incorrect mentioning only One instead of the eleven that

he had in fact issued before that date

Summary of Violations

From November 11 1983 through April 16 1984 when there was

no NVO corporation in existence with which Mr VilIena was affiliated

Mr Villena handled 86 shipments and issued bills of lading for them

in the name of Cari Cargo International Inc At that time he had on

file with the Commission a tariff in the name of Cari Cargo International

Inc although that corporation had not yet been legally formed Mr

ViIlena assessed his shipper customers rates and charges other than those

specified in the tariff then on file These were violations of section 18b 3

ofthe 1916 Act then in affect 6

During this same period of time Mr ViIlena filled out bills of lading

of underlying vessel operating carriers on six occasions by inserting false

descriptions of the cargo he was tendering to these underlying cll1Tiers

This was done for the adntitted purpose of obtaining lower rates than

the rates that would have been applicable under the correct descriptions

These were violations of section 16 Initial Paragraph of the Shipping Act

1916 then in effect

61t could be argued alternatively as Hearing Counsel1lQte Op 8r at 1 that Mr VilIena violaled sec

tion 18 b 1 by operating without a tlUiff on these 86 occasions from Novcl1lber II 1983 through April

16 1984 becauselhe tariff on flIe Will In the name of Carl Cargo International Inc and not Jorge

VjlJena I fmd rafhtr tha Mr YllJena vjoJated section 18b 3 by 9harSing rates olher lhanthose specified

in thai tariff This seems to confonn better to the facts First a tariff was on file although not in the name

of Jorge ViIlena Second the bills of lacUna issued were issueCl iti the name of Carlara o International

me althouab thai corporation had not yet been born Therefore lnJ eaJlty Mr VJllena who was Jncuzrina

personal liability in these operatiom was in effect daitiS business iti the name of Cari Carao Third Mr

VilIena knew thai there was a tariff on flIe which he knew he was supposed to amend to conform to the

rates he negotiated Fourth all his attorney advised him prior toAprll 17 1984 whenCari Cargo was incor

porated Mr VlIIena was iticunina personal responsibility allhouah Ping the name of the corporation Ex

1 Attachment B As Flodda and BenmJ Jaw haJd persom promo or operating for unformed corporatio ls incur personal liability See Baker v Bate9 Slreet Shirt Co 6 F 2d 854 857 ht Cir 1925 Ratner v Cen

tra NatlonalBank 414 So 2d 210 Fla ApI D3 1982 18 Andlir 2d Corporations sees 6 120 131

251 1985 18A Am Jur 2d Corporations sec 263 1985 Annotation 41 A LR2d 477 I concJude there

fore that Mr Vlllena was operating personally as an NVO usloa the Cari Cargo name at that time It is

what a

person actually does not what he calls himself that determines his status See P099ible Violatlom

ofgeclion J8 tl of the Shipping Act 9 6 19 F M C 43 52 1975

28 F M C
Respondent Type When Occurred

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 405

SEA TRADE SHIPPING

From April 17 1984 when Cari Cargo International Inc was formed

under Florida law through August 1984 Cari Cargo through Mr ViIlena

handled 22 shipments and issued bills of lading for each of them The

rates and charges shown on the bills of lading and charged the shippers

were not those specified in Cari Cargo s tariff in effect at the time Such

practices violated section 18b 3 of the 1916 Act prior to June 18 1984

and section lO b 1 of the 1984 Act on and after that date

During this same time period Cari Cargo through Mr ViIlena filled

out five bills of lading of underlying vessel operating carriers inserting

false descriptions of cargo for the purpose of obtaining transportation of

the goods at rates lower than those that would be appiicable under correct

cargo descriptions These practices constituted violations of section 16 Initial

Paragraph of the 1916 Act prior to June 18 1984 and of section lO a 1

of the 1984 Act after that date

From February 28 through August 30 1985 Sea Trade Shipping through

Mr ViIlena handled 20 shipments for which it issued bills of lading

although Sea Trade had not filed an effective tariff with the Commission

until September 5 1985 These practices were in violation of section 8 a I

of the 1984 Act

From September 9 1985 through December 20 1985 Sea Trade Ship

ping through Mr ViIlena handled 14 Shipments for which it issued bills

of lading The rates and charges shown on these bills of lading which

were assessed the shippers were not the same as the rates and charges

specified in the Sea Trade tariff These practices were in violation of

section lO b 1 of the Act7

For easy reference the following table shows the above violations

Table of Violations

Jorge Villena using the name

Carl Cargo International

Inc

Violated tariff vs sec

18 b 3 1916 Act

Nov II 1983April 16

1984 86 times

7The record also discloses other violations of law and questionable practices Between March and Novem

ber 10 1983 42 bills of lading were misrated At that time Cari Cargo Consolidators Inc was still in exist

ence but the tariff on file and possibly the bills of lading showed the name Cari Cargo International Inc

It may be that this earlier corporation not named as a

respondent was operating without a tariff or that

Mr ViIlena was operating personally in the name of the as yet unformed corporation Carl Cargo Inter

national Inc The record also shows some discrepancies between Sea Trade Shipping bills of lading and un

derlying vessel operating carriers bills of lading indicating possible misdescriptions of measurements or

weights of cargo by Sea Trade through Mr VilIena between September 5 1985 and December 1985 but

the record is not fully developed on this point Finally the record shows that Mr Villena had been paying

freight forwarder compensation at five percent rather than the three percent specified in the Cari Cargo tariff

at least between March 1983 and February 1984 Such practices would violate the Commission s regulation

then in effect 46 CFR 51O 33 b 1983 However the Commission did not specify this matter as an issue

to be determined in this proceeding

28 F M C
406

I

Respondent

Same

Cari Cargo International Inc

Same

Sea Trade Shipping

Same

FEDERAL MARITIME COMMISSION

Table of Violations Continued

Type

Underpaid vessei operating

oarriers by mlsdoriptions

vs sec 16 initial Para

1916 Act

Violated tariff vs section

18b 3 1916 Act and

section lOb1 1984 Act

Underpaid v 1 operatini

carriers by misdescriptions

vs sec 16 Initial Para

1916 Act and sec 100 1

1984 Act

Operaled without tariff vs

sec 8 0 1 1984 Act

Violated tariff vs sec

10 b 1 1984 Aot

When Occurred

Nov 11 1983 Apri1 16

1984 6 times

April 17 1984Aug 1984

22 times

April 17 1984Aug 1984 5

times

Feb 28 1985 Aug 30 1995

184 days 20 shipments

Sept 9 1985Ooe 20 1985

14 tim

The Nature and Seriousness of the Violations

As discussed above respondents Villena Cari Cargo and Sea Trade Ship

ping have at various times between November 1983 andbecember 1985

violated various laws by operating without a tariff by charging rates other

than those specified in their tariffs and by knowingly and willfully

misdescribing cargo tendered by them to underlying vessel operating car

riers The pattern of conduct described above appears to be the method

by which Mr ViIlena sometimes personally and sometimes as employee

or officer of Cari Cargo and Sea Trade Shipping chose to do business

The Commission s Order of Investigation and Hearing as amended re

quires not only a determination of the question of violations of law but

also whether respondents should be ordered to cease and desist from the

above practices and whether penalties should be assessed To determine

those questions it is helpful to consider preliminarily the nature of the

offenses committed and their seriousness Furthermore perhaps respondents

who appear not to have considered that the laws they violated were suffi

ciently important to deter their unlawful conduct can benefit from the

following discus8ion if it will help them realize the purpose and importance

of these laws

Perhaps nothing is more important to effective pro ction of the shipping

public and industry than the requirement that carriers file their tariffs and

adhere to them strictly Such were the requirements of sections 18 b I

and 18b 3 of the 1916 Act as well as the requirements which Congress

carried over into sections 8 a I and 10b 1 of the 1984 Act The enforce

ment of these laws goes to the very heart of the Commission s

responsibil

ities and the Commission and courts have long recognized the extreme

importance of these laws In Ghiselli Bros v Micronesia Interocean Line

28 F M C
CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 407

SEA TRADE SHIPPING

Inc 13 FM C 179 1968 for example the Commission stated at 181

182

28 F M C

The purpose of requiring the submission of tariff schedules under

section 18b of the Shipping Act 1916 and regulations promul

gated pursuant thereto is to secure uniformity and equality of

treatment in rates and services to all shippers Requiring the public

establishment of tariff schedules prevents unjust discrimination and

undue preferences As the court explained in a case interpreting

a similar tariff lawCarriers being engaged in a public employ

ment must serve all members of the public on equal terms This

was the doctrine of the common law It has been explicitly stated

and strengthened by the successive acts to regulate commerce

The requirement of the act that all rates should be published

is perhaps the chief feature of the scheme provided for the effective

outlawing of all discriminations If this portion of the act is not

strictly enforced the entire basis of effective regulation will be

lost Secret rates will inevitably become discriminating rates Em

phasis added

See also Puget Sound Tug Barge Co v Alaska Freight Lines 7

F M C 550 559 1963 Intercoastal Investigation I U S S B B 400 421

1935 Filing of Freight Rates in U S Foreign Commerce 6 EM B 396

399 400 1961

So important is the requirement that common carriers must file their

tariffs and strictly adhere to them that the courts have long held that

tariffs have the force and effect of law and that departure from them

is not permitted even if hardship results in some cases or the carrier

intended no harm Again the reason for such a rule is that prevention

of discrimination is the paramount consideration See discussion and cases

cited in Farr Co v Seatrain 20 EM C 411 414 417 n 8 1978

see also Mueller v Peralta Shipping Corp 8 F M C 361 364365 1965

Matson Navigation Co v Capitol Co 15 SRR 403 4089 N D Ca

1978 Therefore sections 18 b I and 18 b 3 and corresponding provi

sions of the 1984 Act are violated even if the carrier acted without fault

See discussion in Marcella Shipping Company Ltd 28 EM C 259 266

268 1984 Arguments as to good intentions lack of knowledge etc

however may be considered when determining the question of penalties

Marcella 28 EM C at 267 268 8

8Of course the severity of tariff fiIing law has been lessened somewhat by the enactment of the special

docket law which authorizes the Commission to relieve carriers and shippers of the adverse effects of errors

in tariffs See United States v Columbia 55 Company 17 EM C 8 1920 1973 Farr Co v Seatrain

cited above 20 F M C al 4145 Instead of negotiating rates with their shipper customers and deliberately

failing to file them in their tariffs as these respondents did they could like law abiding carriers have at

least made a good faith attempt to file the negotiated rates in their tariffs and if some error occurred they

could have applied for relief under the special docket law However the record shows that these respond

ents never filed the negotiated rates nor made a

really serious effon to do so notwithstanding Mr Villena s

Continued
i

I

408 FEDERAL MARITIME COMMISSION

i

The importance of section 16 Initial Paragraph of the 1916 Act and

the corresponding provision of the 1984 Act section lO a I must also

be emphasized Those laws prohibit shippers or other persons from fur

nishing false information to carriers or otherwise deceiving them know

ingly and willfully for the purpose of obtaining or attempting to obtain

ocean transportation for property at less than the rates legally applicable

These provisions of law were considered to be very important when

they first were enacted as an amendment to the 1916 Act in 1936 The

legislative history shows that the amendment was unanimously supported

by every witness appearing before the congressional committee and was

intended to protect both carriers and honest shippers from the deceptive

practices of dishonest shippers See United States v peninsular and Occi

dental Steamship Co 208 FSupp 957 958 959 S D N Y 1962

Hohenberg Brothers Company v F M C 316 F 2d 381 384385 D C

Cir 1963 H R Rep 2598 74thCong 2d Sess at 2 5 The present

case presents an example of the type of shipper which the amendment

to section 16 was intended to thwart i e the shipper who misdescribes

cargo and fills out false bills of lading not only cheating the vessel

operating carrier but also honest shippers who may be competing with

these respondents but who pay the legal rates for the goods they ship

The Question of Penalties

The Commission s Order of Investigation and Hearing as amended on

January 22 1986 requires a determination as to whether if the three

respondents violated the aforesaid provisions of law civil penalties should

be llsessed and if so against whom and in what amount Order cited

at 4

The current law regarding factors to be considered when fixing penalties

is section 13 c of the Shipping Act of 1984 46 U S C app sec 1712 c

That statute provides

In determining the amount of the penalty the Commission shall

take into account the nature circumstances extent and gravity

of the violation committed and with respect to the violator the

degree of culpability history of prior offenses ability to pay

and such other matters as justice may require

The Commission s current regulation implementing the above law is 46

CPR 505 3 b 1985 This regulation follows the statutory language quoted

above but adds a factor for deterrence and future compliance with the

Commission s rules and regulations and the applicable statutes

The previous regulation in effect under the 1916 Act and at the time

of some of the violations of this case was 46 CPR 505 1 1983 originally

j

letter of March 10 1984 purporting to show a good faith effort 10 comply with law Ex I Attachment

C

28 F M C
28 F M C

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 409

SEA TRADE SHIPPING

promulgated in 1979 Under that regulation the Commission was entitled

to consider such factors as inability to pay litigative possibilities cost

of collecting claims deterrence and aid to enforcement and to compel

compliance The Commission could also consider whether the violation

was accidental or technical which may be dealt with less severely

in contrast to willful and substantial violations See discussion in Mar

cella cited above 28 EM C at 271 272 There is essentially no difference

between the previous criteria for determining penalties and those presently

in effect Id However in fixing the exact amount of penalties the Commis

sion which is vested with considerable discretion in such matters is required

to exercise great care to ensure that the penalty is tailored to the particular

facts of the case considers any factors in mitigation as well as in aggrava

tion and does not impose unduly harsh or extreme sanctions while at

the same time deters violations and achieves the objectives of the law

Marcella 271 272 278 280 Obviously tlhe prescription of fair penalty

amounts is not an exact science and tlhere is arelatively broad range

within which a reasonable penalty might lie Midland Pacific Shipping

Co Inc lndependent Ocean Freight Forwarder License 25 EMC 715

719 1983

Hearing Counsel on brief have considered the evidence and have pro

vided specific recommendations as to the amount of penalties to be assessed

Opening Brief at 18 24 After summarizing the particular violations com

mitted by each respondent Hearing Counsel estimate that the maximum

amounts of penalties that could be assessed under a literal reading of

applicable provisions of law are either 965 000 or 605 000 for respondent

Jorge Villena 230 000 for respondent Cari Cargo International Inc and

990 000 for respondent Sea Trade Shipping Opening Brief at 19 20 9

Hearing Counsel contend that respondent Villena acting sometimes as

Cari Cargo and other times as Sea Trade Shipping rated shipments with

complete disregard for the lawful rate in the tariff Opening Brief

at 15 Furthermore they argue Mr Villena spelled out quite clearly

that he misdescribed cargo to underlying carriers with the express purpose

of obtaining a less than proper freight rate Opening Brief at 17 More

over state Hearing Counsel the record shows a pattern of deliberate

and wanton conduct in violation of the Shipping Acts and this conduct

continued even after the initiation of this proceeding Opening Brief

at 22 Mr Villena though given every opportunity offered no evidence

9Hearing Counsel thus estimate total maximum penalties fOf the three respondents to be either 2300 000

or 1 825 000 depending upon whether Mr Villena s operations prior 10 formation of Cari Cargo Inter

national Inc were violations of section 18 b 1 operating without a tariff or section 18 b 3 of the 1916

Act violating his tariff These estimates aCe not precise They include a seventh violation of section 16 of

the 1916 Act which occurred before November II 1983 and aminor arithmetic error as to Carl Cargo 22

violations times 5000 equals 110 000 not 105 000 However they may even be substantially understated

in connection with penalties under the 1984 Act Hearing Counsel calculate penalties under that Act at the

regular rate of 5 000 However if willfully and knowingly committed violations of the 1984 Act carry

maximum penalties of 25 000 for each violation Section 13 a 46 U S capp

sec 1712 a
410 FEDERAL MARITIME COMMISSION

either in defense of his actions or in mitigation The record developed

by Hearing Counsel shows a pattern by Mr Villena of complete disregard

for the requirements of law Opening Brief at 21 Not only did Mr

Villena know that he was disregarding the tariffs but he even continued

to handle Sea Trade shipments after his deposition in June 1985 when

there was no effective Sea Trade tariff on file with the Commission and

later after an effective tariff was filed he ignored the tariff Opening

Brief at 21

As Hearing Counsel point out violations of the tariff filing and tariff

adherence laws sections 18 b I and 18b 3 of the 1916 Act sections

8 a I and IOb I of the 1984 Act maybe committed without regard

to intent In other words a carrier can violate those laws merely by oper

ating without a tariff and by not adhering to its tariff regardless of its

knowledge or reasons because these laws are absolute liability statutes

Opening Brief at 11 citing Marcella cited above 28 F M C 266268

Evidence of intent to violate by the carrier may however be relevant

on the question of penalties Marcella cited above at 267 268 272

As to the question of violations of law prohibiting shippers from

misdescribing and thereby cheating carriers evidence of knowledge and

willfullness is relevant not only to the question of penalties but to the

very violations themselves That is because both section 16 Initial Paragraph

of the 1916 Act and the corresponding provision of the 1984 Act section

lO a I state that no person may knowingly and willfully use false

billing false classification etc The Commission has held that knowingly

and willfully as used in these statutes can mean deliberately and purpose

fully or intentionally or can mean conduct which shows a continuing pattern

of indifference to the requirements of law See discussion and cases cited

in Marcella cited above at 273 274 see also Opening Brief at 1617

The Commission summarized the standard test in Misclassification of Tissue

Paper as Newsprint Paper 4F M B 483 486 1954 as follows

The phrase knowingly and willfully means purposely or obsti

nately or is designed to describe a carrier who intentionally dis

regards the statute or is plainly indifferent to its requirements

We agree that a persistent failure to inform or even to attempt

to inform himself by means of normal business resources might

mean that a shipper or forwarder was acting knowingly and will

fully in violation of the Act

In Equality Plastics Inc and Leading Forwarders Inc 17 F M C 217

226 1973 the Commission stated that conduct which is plainly indif

ferent to requirements of law is equivalent to wanton disregard from

which an inference can be drawn that the conduct was in fact purposeful

and likened this interpretation to the standard of gross negligence However

it is clear on this record that respondents conduct was more than plainly

indifferent It was rather deliberate and purposeful Mr Villena admitting

that he misdescribed goods which he tendered to underlying vessel operating

28 P M C
28 F M C

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 411

SEA TRADE SHIPPING

carriers with the specific intention of taking advantage of lower rates

There is no doubt whatsoever that his conduct was knowing and

willful 10

Having summarized the evidence of record showing knowing and willful

violations of law and estimating the amounts of maximum penalties that

could be assessed under law Hearing Counsel compare this case with

analogous cases before recommending specific penalties Hearing Counsel

refer to three cases Marcella Shipping Company Ltd cited above Certified

Corp and Seaway Distribution Corp 24 F M C 542 1982 and Ariel

Maritime Group 23 SRR 237 JD remanded 23 SRR 610 1985 In

Marcella the respondent a vessel operating carrier had operated without

a tariff and had violated its tariff on a number of occasions over several

months Respondent was penalized in the amount of 150 000 but provision

was made for a total or partial remission of an amount over 20 000

upon a showing of remedial action and inability to pay by the carrier

In Certified Corp respondent an NVO shipper which had misrated goods

tendered to vessel operating carriers in relatively small amounts on four

occasions was penalized 10 000 one half the statutory maximum In Ariel

Maritime Group the presiding judge assessed four companies a total of

260 000 for numerous violations of section 16 Irtitial Paragraph and section

18 b 3 of the 1916 Act The bulk of the penalty was assessed against

one company

in the amount of 150 000 for violating section 16 and

50 000 for violating section 18

In the three cited cases care was taken to ensure that the amount of

the penalties would deter recurrence of violations of law but aggravating

and mitigating factors were considered In Marcella the problem of the

carrier s ability to pay was given much attention when fashioning the

penalties because of concern that too severe a penalty might destroy the

business of a relatively small carrier in a third world trade

As Hearing Counsel have noted the above cited cases are too few

to establish an easy reference for determining an appropriate penalty level

H C Op Br at 22 Moreover agencies are not required to assess urtiform

penalties in every analogous case although too drastic a departure from

a pattern may constitute arbitrary and unfair action See Butz v Glover

Livestock Commission Co 411 U S 182 186188 1973 departure from

uniformity in sanctions by an agency is not in itself ground for reversal

see also cases and discussion in 4 Davis Administrative Law Treatise

2d Ed 1983 sec 20 11 at 4043 unevenness in assessing penalties

is permissible but not excessive variance

IOThe modem doctrine interpreting the phrase knowingly and willfully in administrative statutes siems

from the Supreme Court s decision in U S v Illinois Central Railroad Co 303 U S 239 242 243 1938

The Court there interpreted the phrase to mean intentional disregard orplain indifference 10 statutory require

ments This standard was repealed virtually verbatim by theCommission inMisc1assijication of Tissue Paper

cited above 4 F M B al 486 The Court held thai the conduct had to be with knowledge and voluntary and

not something done accidentally For a similar holding under the Interstate Commerce Act see U S v

Joralemon Brothers Inc 174 FSupp 262 263 ED N Y 1959
412 FEDERAL MARITIME COMMISSION

Having completed their contentions and analysis of analogous cases Hear

ing Counsel conclude by recommending that respondent Jorge Villena be

assessed 50 000 respondent Cati Cargo 25 000 and respondent Sea

Trade Shipping 25 000 Hearing Counsel note furthermore that although

respondents did not offer any evidence that they could not pay such sums

Hearing Counsel would support the procedure set forth in Marcella if

ability to pay became an issue namely requiring initial payments and

possibly remitting the balance in whole or in part on a proper showing

of inability to pay and of diligence

Ifind that Hearing Counsel s recommendations are appropriate in their

amounts and as to allocations among the three respondents The bulk of

the violations appear to have been committed by Mr Villena personally

in terms of numbers of shipments shown on the record and even when

his conduct could properly be attributed to that of the two corporations

he appears to be the sole initiator of the violative practices His only

defenses appear to be that he thought he had to compete in a difficult

environment that he had filed a tariff and had intended to make some

effort to file his negotiated rates in the tatiff but had problems with the

tariff publisher See Ex I Attachment C These of course are rather

weak defenses and the evidentiary support is thin although respondents

were given every opportunity to furnish evidence on their behalf and were

even offered the assistance of a Commission investigator to help them

furnish evidence regarding their financial situation See rulings of Novem

ber 5 1985 at 23 Moreover the record shows that even after Mr

Villena was warned about the seriousness of his conduct he continued

to operate in the same way and he was not truthful in his testimony

as to the extent of his operations with Sea Trade

As was the case with Marcella cited above when a

respondent carrier

does not mount an effective defense claims financial difficulties and ap

pears not to be a sizeable operation it is difficult to determine a fair

and suitable penalty In this case as with Marcella it is necessary to

send a clear message to respondents because of their persistence in operating

in an unlawful manner even after warnings However it is also necessary

to be careful not to destroy a business by imposing a totally unrealistic

financial burden on it Fortunately a procedure has been established in

Marcella which enables the Commission pursuant to its specific statutory

authority to send the message of deterrence while guarding against inad

vertent destruction of a small financially limited business if it appears

in fact that the Commission is dealing with such a business

In the instant case penalties aggregating 100000 allocated as described

above among the three respondents are far less than the statutory maxima

are considerably under those assessed in Arie Maritime Group 260 000

and somewhat under the amount assessed in M4rcella 150 000 However

Marcella was a vessel operating carrier whereas respondents are NVOs

whose assets are usually more limited The amount of 100 000 should

28 F M C
28 F M C

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 413

SEA TRADE SHIPPING

send the appropriate message of deterrence to the three respondents and

emphasize the seriousness of the violations However to guard against

inadvertent destruction of what may not be major businesses payments

can be made in installments of 5 000 each month for 20 months allocated

in the same proportion among the three respondents i e 2 500 from

respondent VilIena 1 250 from each of the two corporate respondents

After six months payments i e when 30 000 in penalties have been

paid respondents may as could Marcella petition the Commission for

remission of the balance in whole or in part on a showing based upon

reliable financial evidence that they cannot continue to pay and that they

have taken steps to ensure that viOlations will not recur See Marcella

cited above 28 FM C 278 279 11

The Question as to a Cease and Desist Order

The remaining issue framed by the Commission s Order of Investigation

and Hearing as amended is whether a cease and desist order should

issue against these respondents if they have been found to have violated

the laws specified

Hearing Counsel argue that a cease and desist order is appropriate when

there is a likelihood that offenses will continue absent the order and when

the record discloses persistent offenses They also argue that the order

should be tailored to the type of offenses that might be involved H C

Opening Brief at 24 They further contend that the record reveals both

a persistent course of viOlative conduct as well as a likelihood that offenses

will continue absent an order They cite Mr VilIena s failure to conform

his operations with law after warnings from Commission investigators and

continued unlawful operations even during the pendency of this proceeding

H C Opening Brief at 25

Hearing Counsels contentions and concerns are amply supported in the

record Under applicable principles of law a cease and desist order is

eminently appropriate when as in this case respondents display a pattern

of disregard for law so that the danger is obvious that they may resume

unlawful activities unless orders are issued specifying that they cease and

desist from certain conduct See Marcella cited above

In this case there is an obvious need to issue such an order to impose

realistic penalties and to make sure that Mr VilIena understands how

he is supposed to conduct the business of an NVO with respect to tariff

filing and adherence to both his own companies tariffs and those of under

lying vessel operating carriers As discussed above there is no reason why

an NVO cannot do business and seek to charge competitive rates while

IIIn Marcella the carrier was allowed to pay 20 000 overthe first four months before asking for remis

sion of the balance in whole orin part However in this case there are three respondents nOI one and the

respondents did more Ihan operate without a tariff and violate their tariffs They also cheated vessel operating

carriers
414 FEDERAL MARITIME COMMISSION

1

complying with tariff flllng law As seen from the numerous special docket

applications and as discussed above numerous carriers negotiate rates with

their shipper customers constantly with the Intention of filing those rates

in their tariffs and if they make a tariff flUng error relief is available

As the Commission has stated in U S v Columbia S S Company cited

above 17 F M C at 19

The Act does not prohibit agreements between shippers and car

riers provided that prior to shipment a rate is filed in accordance

with the agreement which rate is available to all shippers

Accordingly respondents Cari Cargo Villena and Sea Trade Shipping

are ordered to cease and desist from violating sections 8 a I and lO b 1

of the 1984 Act 46 U S C app secs 1707 a 1 1709 b 1 relating

to the requirement of tariff filing and tariff compliance respectively and

respondents are further ordered to cease and desist from violating section

10 a I of the 1984 Act 46 U S C app sec 1709 a I relating to the

prohibition against misdescribing goods or otherwise obtaining or attempting

to obtain transportation of property at less than the applicable legal rates

In this case the record shows that Mr Villena and his two companies

did not bother to comply with law although feeble efforts in that direction

were made from time to time by occasionally filing tariffs However even

when tariffs were filed and even after he had been warned against con

tinuing his practices he carried on business as usual by ignoring the tariffs

and cheating underlying vessel operating carriers Furthermore although he

willingly testified about his activities at a deposition proceeding and fur

nished documents Mr Villena did nothing further in this proceeding neither

responding to procedural rulings nor flllng anything in respolldents own

defense His conduct perfectly exemplifies the Commission s description

of a carrier who knowingly and wiIlfuIly violates law i e who acts

purposely and obstinately or who intentionaIly disregards the statute

or is plainly indifferent to its requirements Misclassification of Tissue

Paper as Newsprint Paper cited above 4 F M B at 486

The above penalties and the cease and desist order arecarefuIly designed

to ensure that Mr ViUena finaIly understands the seriousness of his conduct

and understands that he must change his method of operation and they

provide an incentive for him to reform Thus as noted above if he pays

penalties amounting to at least 30 000 over six months and shows that

he has reformed and cannot afford further penalties he may petition the

Commission for appropriate relief If he does not do these things and

persists in his unlawful activities the fuIl weight of the 100 000 penalty

wiIl fall and if he violates the cease and desist order he is subject to

further orders of a U S District Court judge in enforcement proceedings

It is hoped that the present measures and this decision will serve as a

sufficient incentive for reform and that Mr ViIlena and the two corporate

1

I

j

28 F M C
8 NORMAN D KLINE

Administrative Law Judge

CARl CARGO INTERNATIONAL INC JORGE VILLENA AND 415

SEA TRADE SHIPPING

respondents will if they wish to continue in business at last begin to

conduct their businesses in a lawful manner

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1379

APPLICATION OF NIPPON YUSEN KAISHA FOR THE BENEFIT OF

GREAT LAKES CHEMICAL CORPORATION

ORDER OF PARTIAL ADOPTION

i

I

June 9 1986

The Commission determined to review the Initial Decision of Administra

tive Law Judge Joseph N Ingolia Presiding Officer issued in this pro

ceeding

On May 13 1985 Nippon Yusen Kaisha NYK a member of the

Transpacific Westbound Rate Agreement TWRA or Conference notified

the Conference of its intent to take independent action to establish reduced

rates of 1 060 per 20 foot container and 1 240 per 40 foot container

on Flame Retardants The rates were published in TWRA s tariff on

May 21 1985

On June 7 1985 LSY Line LSY also a Conference member exercised

independent action and further reduced those rates to 990 per 20 foot

container and 1 125 per 4O foot container The rates were published in

TWRA s tariff on June 17 1985 Subsequently at NYK s

request on June

18 1985 TWRA added NYK to the list of carriers which offered the

lower LSY rates However due to clerical error TWRA failed to cancel

NYK s original independent action so that NYK s 1 060 and 1 240 rates

were still in effect when the shipments at issue moved The error was

later corrected in the tariff published by TWRA on September 17 1985

While the Initial Decision properly grants the application for refund

it erroneously establishes the effective date of the required corrective tariff

as June 7 1985 the date LSY and not NYK declared independent action

In Application of Yamashita Shinnihon Line for the Benefit of Nissho Iwai

American Corporation Yamashita Spec No 678 F M C February 25

1980 19 S R R 1407 recently followed in Application of Australia New

Zeaiand Container Line for the Benefit of Meadowsfreiqht New Zealand

LtdSpec No 1349 28 F M C 183 the Commission established the effec

tive date of the conforming tariff as either I the date the tariff omitting

the intended rate becomes effective or 2 the date the intended rate would

have become effective absent the mistake Accordingly the effective date

of the NYK conforming tariff should be June 18 1985 the date the

mistake upon which the application is based occurred The notice required

by the Initial Decision to be published by TWRA shall be amended accord

ingly

416 28 FM C
S JOHN ROBERT EWERS

Secretary

APPLICATION OF NIPPON YUSEN KAISHA FOR THE BENEFIT 417

OF GREAT LAKES CHEMICAL CORPORATION

THEREFORE IT IS ORDERED That the Transpacific Westbound Rate

Agreement promptly publish in the pertinent tariff the following notice

in lieu of the one ordered by the Presiding Officer

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

Commission in Special Docket No 1379 that effective June 18

1985 and continuing through September 16 1985 inclusive the

rate on Flame Retardants additives or agents carried by Nippon

Yusen Kaisha from Gulf Ports and Points to Japan is 990 00

per 20 foot container and 1 125 00 per 4O foot container for

purposes of waiver or refund of freight charges subject to all

other applicable rates regulations terms and conditions of said

rate and this tariff

IT IS FURTHER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission and

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission

28 F M C
FEDERAL MARmME COMMISSION

SPECIAL DOCKET NO 1379

APPLICATION OF NIPPON YUSEN KAISHA FOR THE BENEFIT OF

GREAT LAKES CHEMICAL CORPORATION

Application to waive freight charges of 3 225 00 granted

INITIAL DECISION OF JOSEPH N INOOLIA ADMINISTRATIVE

LAW JUDGE

Partally Adopted June 9 1986

This application 2 is for permission to waive 3 225 00 of freight charges

arising out of eleven shipments of Flame retardants additives or agents

from New Orleans Louisiana to Japan Five shipments were to Tokyo

five to Kobe ad one to Nagoya

The tariff involved in this proceeding is Transpacific Westbound Rate

Agreement TWRA Westbound Local and Intermodal Tariff FMC No

2 from U S Ports and Points In Rule I A to Northeast Asia Base Ports

in Japan Korea Taiwan Hong Kong and P R C In Rule I B On May

13 1985 NYK chose to take independen action under the tariff by estab

lishing a reduced rate on Flame Retardants Item 380192 for New Orleans

cargo only going to Japan of 1 060 00 per 20 foot container and 1 240 00

per 40 foot container 3 On June 7 1985 YS Line a fellow conference

member declared independent action for a further reduction of the rate

to 990 00 per 20 foot container and 1 125 00 per 40 foot container

but made the rate applicable from all U S Gulf Ports As a result NYK

was asked to meet this rate by the shipper and agreed to do so It issued

a filing instruction to that effect which was relayed to TWRA and on

June 18 1985 NYK was added to the list of carriers offering the lower

rate However due to clerical inadvertence the original NYK action estab

lishing the 1 060 00 and 1 240 00 rates was not withdrawn so that they

were in effect on the dates of shipment As a result the applicant now

seeks to waive the freight charges representing the difference between the

rate on file and the negotiated rates They are as follows

I

Jbjs decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 502 227

2The appllcadon was fded by Nippon Yusen Kaisha NYK on October 23 1985 weJl within the 180

day statutory period set forth in section 8 c Shipping Act 1984 It was joined inby 1WRA

3

Application Exhibits C D Exhibit C which is the tariffpage shows an effective dale of May 21 1985

although the application on page 4 states that it Is May 23 1985 Whichever date is correct the resulting

decision would be 1he same

Application exhibIt E

418 28F M C
APPLICATION OF NIPPON YUSEN KAISHA FOR THE BENEFIT 419

OF GREAT LAKES CHEMICAL CORPORATION

Shipment BL Ref Amount Paid Amount Due

No erence

1 331 03300 2 250 00 2 480 00

2 331 03301 1 980 00 2 300 00

3 3313321 2 970 00 3 450 00

4 3313322 990 00 1 150 00

5 3313323 990 00 1 150 00

6 3313351 2970 00 3450 00

7 3313407 2 970 00 3450 00

8 331 03419 990 00 1 150 00

9 331 03427 1 125 00 1 240 00

10 331 03429 990 00 1 150 00

II 331 03464 2 970 00 3450 00

21 195 00 24 420 00

Amount to be waived 3 225 00

The applicant ultimately withdrew the initial independent action of May

13 1985 and substituted the negotiated rate agreed to on June 7 1985

effective September 17 1985 5

Section 8 e of the Shipping Act 1984 permits the Commission to

waive collection of freight charges where it appears there was an error

in a tariff of a clerical nature or an error due to inadvertence in failing

to file a new tariff Here the applicants failed to withdraw an independent

action which prevented a new negotiated rate from going into effect The

mistake is the kind of clerical inadvertence Congress sought to obviate

in enacting section 8 e

The application filed by NYK conforms to the requirements of Rule

92 a Special Docket Applications Rules of Practice and Procedure 46

CFR 502 92 a and therefore after consideration of the application the

exhibits attached to it and the entire record it is held that

1 There was an error of a clerical or admirtistrative nature which resuIted

in the failure to have timely filed a tariff containing a rate of 99000

per 20 foot container and 1 125 00 per 40 foot container for Flame Retard

ant moving from New Orleans Louisiana to Japan which rate would

have been in effect had the error not been made

2 The waiver will not result in discrimination among shippers 6and

there is no evidence that any carrier or parties would suffer discrimination

should the application be granted

3 Prior to applying for the waiver the applicant filed a new tariff

which sets forth the rate upon which the waiver should be based

4 The application was filed within 180 days from the date of the

shipments

Wherefore in view of the above it is

S Application Exhibit C 14th Rev Pg 802 Exhibit F

6The applicant states there were no other shipments of the same commodity during the period involved

re

28 F M C
1

420 FEDERAL MARITIME COMMISSION

Ordered that permission is granted NYK to waive a portion of the

freight charges in the amount of 3 225 00 fof the benefit of the shipper

Great Lakes Chemical Corp which waiver will have no effect on the

land portion of the intennodal movement and it is

Further Ordered that NYK and TWRA promptly publish in the pertinent

tariff the following notice

Notice is give as required by the decision of the Federal Maritime

Commission in Special Docket 1379 that effective June 7 1985

and continuing through September 16 1985 inclusive the rate

on Flame Retardants additives or agents from Gulf Ports and

Points to Japan is 990 00 per 20 foot container and 1 125 00

per 40 foot container for purposes of waiver or refund of freight

charges subject to all other applicable rates regulations tenns

and conditions of said rate and this tariff

S JOSEPH N INOOLIA

Administrative Law Judge

J

I

28 F M C
28 FM C 421

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1381

APPLICATION OF LYKES BROS STEAMSHIP CO INC FOR THE

BENEFIT OF EMBASSY OF TUNISIA OFFICE OF DEFENSE

ATTACHE

ORDER OF PARTIAL ADOPTION

June 9 986

The Commission determined on its own motion to review the Initial

Decision of Administrative Law Judge Joseph N Ingolia Presiding Officer

served in this proceeding on March 17 1986

BACKGROUND

Lykes Bros Steamship Co Inc Lykes a member of the Gulf Mediterra

nean Ports Conference GMPC or Conference applied pursuant to section

8 e of the Shipping Act of 1984 the Act 46 V S c app 1707 e

for permission to waive collection from the Embassy of Tunisia of a

portion of the freight charges applicable on two shipments of Class C

Explosives carried from New Orleans Louisiana to Bizerte Tunisia

On April 9 1985 Lykes offered the Embassy of Tunisia a rate of 385

per 40 cubic feet or 2240 pounds for Class C Explosives scheduled to

be shipped on May 9 1985 On May 3 1985 Lykes asked GMPC to

obtain from its members approval of the negotiated rate but due to inadvert

ence the Conference staff failed to act timely on Lykes request As a

result the rate was approved on May 10 1985 and filed on May 14

1985 The shipments sailed on May 9 1985 The application for a waiver

was filed with the Commission on November 5 1985

I Section 8 e authorizes the Commission to pennit refund orwaiver reliefif

1 there is an error in a tariffof a clerical or administrative nature or an error due to inadvertence

in failing to file anew tariff and the refund will not result in discrimination among shippers ports

orcarriers

2 the common carrier orconference has prior 10 filing an application filed anew tariffwith

the Commission that sets forth the rate on which the refund orwaiver would be based

3 the common carrier or conference agrees that if permission is granted by the Commission an

appropriate notice will be published in the tariff that give s notice of the rate on which the

refund or waiver would be based and additional refunds orwaivers as appropriate shall be made

with respect to other shipments in the manner prescribed by the Commission in its order approving

the application and

4 the application for refund or waiver is filed with the Commission within 180 days from the

dale of shipment

The Commission by regulation has defined date of shipment 10 mean

thedate of sailing of the vessel from the port at which cargo was loaded

46 CF R 502 92 a 3 iii
422 FEDERAL MARITIME COMMISSION

DISCUSSION

The Presiding Officer properly found that the application met al1 the

requirements of section 8 e of the 1984 Act and correctly granted Lykes

permission to waive col1ection of a portion of the freight charges assessed

at the tariff in effect at the time of shipment The only matter at issue

is the tariff notice required by section 8 a 3 of the Act to be published

in the carrier s tariff

Section 8 e 2 requires the filing of a new tariff conforming tariff

showing the rate on which refund or waiver adjustments are to be made

The notice required by section 8 a 3 in addition to setting forth the

rate upon which the refund or waiver to the shipper for whose benefit

the application was filed also provides the basis for additional refunds

or waivers to other shippers of the same commodity not covered by the

application Because the conforming tariff rate is to apply to shipments

which sailed earlier the effective date of the conforming tariff reflected

in section 8 e 3 must accordingly be established at a date prior to the

date of filing with the Commission

In Application of Yamashita Shinnihon Line for the Benefit of Nissho

Iwai American Corporation Yamashita Spec No 678 F M C February

25 1980 19 S RR 1407 recently fol1owed in Application of Australia

New Zealand Container Line for the Benefit of Meadowsfreiqht New Zealand

Ltd Spec No 1349 28 EM C 183 the Commission established the effec

tive date of the conforming tariff as either I

the date the tariff omitting

the intended rate becomes effective or 2 the date the intended rate

absent the mistake would have become effective When published in the

carrier s tariff the rate becomes the basis for the refunds and waivers

contemplated in section 8 e 3 on shipments which sailed during the period

set forth in the notice required by that section

In a separate Order served this date in Application of Sea Land Corpora

tion on Behalfof Sea Land Service Inc as Agent for Pana York Shipping

CorporationlFrito Lay Pana York Spec No 1412 F M C initial decision

served March 5 1986 28 F M C 427 1986 the Commission has held

that the 180 day statute of limitation in section 8 e 4 applies to the

refund and waiver adjustments contemplated in section 8 e 3 as wel1

as to the grant of refunds or waivers on the basis of the application

The Commission s decision qualifies the Yamashita standard accordingly

Therefore the effective date of the conforming tariff required by section

8 e 2 and reflected in the tariff notice mandated by section 8 e 3 is

the date the error upon which the application is based was made but

in no event can exceed 180 days prior to the date the application is

filed

The tariff notice required by the Presiding Officer in this proceeding

makes the effective date of the conforming tariff April 9 1985 the date

Lykes offered the rate to the Embassy of Tunisia However April 9 is

210 days before November 5 1985 the date of filing of the application

2S F M C
S JOHN ROBERT EWERS

Secretary

APPLICATION OF LYKES BROS STEAMSHIP CO INC FOR 423

TIlE BENEFIT OF EMBASSY OF TUNISIA

Consequently based on our ruling in Pana Yark the earliest date the rate

sought to be applied may become effective in this instance is May 9

1985 the date the shipments at issue sailed from New Orleans The tariff

notice must be amended accordingly The tariff notice must also be amended

to limit it to carryings by Lykes so as not to bind the entire Conference

membership

THEREFORE IT IS ORDERED That in lieu of the tariff notice man

dated by the Initial Decision issued in this proceeding the Gulf Mediterra

nean Ports Conference promptly publish in its tariff the following notice

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

Commission in Special Docket No 1381 that effective May 9

1985 and continuing through May 13 1985 inclusive the rate

on Class C Explosives carried by Lykes Bros Steamship Co

Inc from U S Gulf of Mexico ports of loading from and including

Brownsville Texas to but not including Key West Florida to

the Tunisian Armed Forces Project in Bizerte Tunisia is 385 00

W M for purposes of waiver or refund of freight charges subject

to all other applicable rules regulations terms and conditions

of said rate and this tariff

IT IS FURTHER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1381

APPLICATION OF LYKES BROS STEAMSHIP CO INC FOR THE

BENEFIT OF EMBASSY OF TUNISIA OFFICE OF DEFENSE

ATTACHE

Application to waive freight charges of 594 95 granted

INITIAL DECISION 1 OF JOSEPH N INGOLIA ADMINISTRATIVE

LAW JUDGE

Partially Adopted June 9 1986

This application 2 is for permission to waive 59495 of freight charges

arising out of two shipments of Class C Explosives from New Orleans

Louisiana to Bizerte Tunisia aboard a vessel owned by Lykes Bros

Steamship Co Inc Lykes

The tariff involved in this proceeding is the Gulf Mediterranean Ports

Conference GMPC Gulf Mediterranean Tariff No 3 FMC 18 from

U S Gulf of Mexico ports of loading from and including BrownsviIle

Texas to but not including Key West Florida to all Ports except Israeli

ports served from Huelva East to Gibraltar and on the Mediterranean

Sea from Gibraltar to Port Said including Adriatic Black Sea and Gulf

of Toronto ports and from North African ports in Morocco including

Atlantic West Coast Moroccan ports to Port Said all inclusive Prior

to April 9 1985 and for sometime thereafter the rate on Class C Explosives

was 458 00 W M 3 On April 9 1985 Lykes offered the Embassy of

Tunisia through the freight forwarder representing it a rate of 385 00

per 40 cubic feet or 2 240 pounds for an upcoming shipment from New

Orleans to Bizerte which was to sail on May 9 1985 On May 3 1985

Lykes asked the Conference to conduct a poll of members to secure approval

of the negotiated rate The Conference staff failed to timely process the

request due to inadvertent error so that the rate was not approved until

May 10 1985 and was not made effective until May 14 1985

The shipments involved here began on May 9 1985 The applicant

now seeks pennission to waive the difference between the freight charges

resulting from the rate then on file 458 00 W M and the negotiated

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

1The application which was filed by Lykes and joined in by the OMPC was filed on November 5 1985

within the 180 day statutory period set forth insection See Shipping Act 1984

3

ApplIcation Exhibit C l

4

Application ExhJblt D

424 28 F M C
28 F M C

APPLICATION OF LYKES BROS STEAMSHIP CO INC FOR 425

THE BENEFIT OF EMBASSY OF TUNISIA

rate of 385 00 such difference being 576 70 for the first shipment S

and 18 25 for the second shipment6 The lower freight rates have already

been paid

Section 8 e of the Shipping Act 1984 permits the Commission to

waive collection of freight charges where it appears there was an error

in a tariff of a clerical nature or an error due to inadvertence in failing

to file a new tariff Here the record indicates that the Conference staff

through inadvertence simply failed to process Lykes request for a new

tariff in timely fashion It is the kind of error Congress sought to obviate

in enacting section 8 e

The application filed by Lykes conforms to the requirements of Rule

92 a Special Docket Applications Rules of Practice and Procedure 46

CPR 502 92 a and therefore after consideration of the application the

exhibits attached to it and the entire record it is held that

1 There was an error of a clerical or administrative nature which resulted

in the failure to have timely filed a tariff containing a rate of 385 00

W M on Class C Explosives moving from New Orleans Louisiana to

Bizerte Tunisia which rate would have been in effect had the error not

been made

2 The waiver will not result in discrimination among shippers 7

and

there is no evidence that any carrier or ports would suffer discrimination

should the application be granted

3 Prior to applying for the waiver the applicant filed a new tariff

which sets forth the rate upon which the waiver should be based

4 The application was filed within 180 days from the date of the

shipment

Wherefore in view of the above it is

Ordered that permission is granted Lykes to waive a portion of freight

charges in the total amount of 594 95 for the benefit of the Embassy

of Tunisia and it is

Further Ordered that GMPC promptly publish in the pertinent tariff

the following notice

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

Commission in Special Docket No 1381 that effective April

9 1985 and continuing through May 13 1985 inclusive the

rate on Class C Explosives from U S Gulf of Mexico ports of

loading from and including Brownsville Texas to but not includ

ing Key West Florida to the Tunisian Armed Forces Project

in Bizerte Tunisia is 385 00 W M for purposes of waiver or

S Application Exhibit A I

6

Application Exhibit A 3

7

The applicant states that there were no other shipments of the same commodity during the period involved

here
426 FEDERAL MARITIME COMMISSION

refund of freight charges subject to all other applicable rules

regulations terms and conditions of said rate and this tariff

8 JOHN N INGOLIA

Administrative Law Judge

28 F M C
28 F M C 427

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1412

APPLICATION OF SEA LAND CORPORATION ON BEHALF OF

SEA LAND SERVICE INC FOR THE BENEFIT OF FORWARDING

SERVICES INC AS AGENT FOR PANA YORK SHIPPING

CORPORATION FRITO LAY

ORDER OF PARTIAL ADOPTION

June 9 1986

The Commission determined to review the Initial Decision of Administra

tive Law Judge Norman D Kline presiding Officer issued in this pro

ceeding

BACKGROUND

Following negotIatIOns with the shipper Sea Land Service Inc on July

18 1985 published in its tariff a rate for potato chips applicable to Panama

City Panama The rate included all additional charges

On July 25 1985 Sea Land directed that effective August 24 1985

the tariff be amended to delete the exemption from the additional charges

Due to error the revised tariff was published with an effective date of

July 26 1985 2 As a result the two shipments of potato chips which

sailed on August 17 1985 from Elizabeth New Jersey to Panama City

became subject to higher charges than intended

Subsequently by tariff published on August 22 1985 Sea Land reinstated

the exemption from the additional tariff charges and on February 13 1985

applied pursuant to section 8 e of the Act 46 U S C app 1707 e

for permission to waive collection of charges payable under the July 26

1985 tariff 3

I Sea Land Service Inc Tariff No 466 FMC No 323 3rd rev page 82 A effective July 18 1985

2

Idem rev page 82 A effective July 26 1985 The increase became effective on less than 30 day notice

as required by section Sed of the Shipping Act of 1984 the Act 46 U S capp 1707 d

3

Section See authorizes the Commission to pennil refund orwaiver reliefif

I

there is an error in atariff of aclerical or administrative nature oran errordue to inadvertence

in failing to file a new tariff and the refund will not result in discrimination among shippers ports

orcarriers

2 the common carrier or conference has prior to filing an application filed anew tariff with

the Commission that sets forth the rateon which the refund orwaiver would be based

3 the common carrier or conference agrees that if pennission is granted by the Commission an

appropriate notice will be published in the tariff that give s notice of the rate on which the

refund or waiver would be based and additional refunds or waivers as appropriate shall be made

with respect to other shipments in the manner prescribed by the Commission in its order approving

the application and

Continued
428 FEDERAL MARITIME COMMISSION

DISCUSSION

The Presiding Officer properly found that the application for waiver

had been timely filed that the tariff published on July 26 1985 contained

an error of the type contemplated in section 8 e of the Act and that

the grant of the application would not result in discrimination among ship

pers ports or carriers The only matter at issue here is the tariff notice

required by section 8 a 3 of the Act to be published in the carrier s

tariff

Section 8 e 2 requires the filing of a new tariff conforming tariff

showing the rate on which the refund or waiver will be based The notice

required by section 8 a 3 in addition to setting forth the rate upon which

the refund or waiver to the shipper for whose benefit the application was

filed application shipper will be based also provides the basis for addi

tional refunds or waivers to other shippers of the same commodity not

covered by the application In order to enable the carrier to make such

additional refunds or waivers the effective date of the new or con

forming tariff required by section 8 e 2 of the Act is made to relate

back to a date prior to the date of filing with the Comntission

In Application of Yamashita Shinnihon Line for the Beniifit of Nissho

Iwai American Corporation Yamashita Spec No 678 FM C February

25 1980 19 S RR 1407 recently followed in Application of Australia

New Zealand Container Line for the Benefit ofMeadowsfreiqht New Zealand

Lrd Spec No 1349 F M C Januaty 16 1986 28 F M C 183 the

Commission established the effective date of the conforming tariff required

by section 8 e 2 and reflected in the tariff notice prescribed by section

8 e 3 as either Ithe date the tariff omitting the intended rate becomes

effective or 2 the date the intended rate absent the mistake would have

become effective When published in the carrier s tariff the rate becomes

the basis for the refunds and waivers contemplated in section 8 e 3 on

shipments which sailed during the time period set forth in the notice

In this instance applying Yamashita the effective date of the conforming

tariff would be July 26 1985 the date the mistake in filing occurred

However because July 26 is 202 days from the date the application was

filed this raises the question not directly addressed in Yamashita of wheth

er the 180 day statute of lintitation embodied in section 8 e 4 of the

Act applies to refund and waiver adjustments on shipments of other shippers authorized by section 8 e 3 of the Act

Certain discussion in the Commission s decision in Application of U S

Atlantic GulfJamaica Freiqht Association and Sea Land Service Inc

4 the application for refund or waiver is filed with the Commision within 180 days from the

date ofshipmen t

The Commission by regulation baa defined date of shipment to mean

the date of sailing of the vessel from the port at which cargo was loaded

46 CP R S02 92 a 3 iii

419 S R R at 1408

28 F M C
28 F M C

APPLICATION OF SEA LAND FOR THE BENEFIT OF PANA 429

YORK SHIPPING CORPORATION FRITO LAY

for the Benefit of United Brands Chiquita United Brands Spec No 1102

EM C order denying petition for reconsideration October 12 1984 27

EM C 135 although not necessary to the decision there is relevant here

In holding that it lacked jurisdiction to grant relief to the application shipper

on certain shipments occurring earlier than 180 days from the date of

filing of the application the Commission in United Brands rejected the

argument that shippers other than the application shipper might benefit from

an extension of the deadline The Commission explained that relief to

other shippers

is actually dependent upon a favorable resolution of the

legal issue i e that the Commission has the power to grant

such an extension However the Commission has concluded that

we have no such power

Although noting that the Commission s decision in United Brands seems

to hold that relief cannot be granted to any shipment occurring before

the 180 day period and that a confonning tariff notice cannot be backdated

to the dates enunciated in Yamashita if such rates fall earlier than

the 180 day period the Presiding Officer nevertheless concludes that the

detrimental effect the short notice rate increase might have had on other

shippers of the same commodity warrants the extension of the effective

date of the confonning tariff beyond the l80 day limit to the day the

mistake in filing occurred 6 We disagree

In light of the right given the shipper to file its own application a

right subject to the 180 day limitation it appears that the anti discrimination

provision in section 8 e I was only intended to ensure that other shippers

of the same commodity whose shipments moved within 180 days from

the date the application was filed would receive the same treatment as

the application shipper To interpret the statute otherwise could result in

either extending to some shippers a relief which would have to be dertied

to the application shipper or would allow the application shipper to get

indirectly a refundwaiver it could not obtain directly

5

27 F M C 136

6

This conclusion is somewhat surprising in view of the Presiding Officer s decisions in Application of

Gulf European Freight Association as Successor to Gulf United Kingdom Conference and Sea Land Cor

poration on behalf of Sea Land Service Inc for the Benefit of Griffin Brand of McAllen Inc Spec No

1378 F M C initial decision served November 29 1985 23 S RR 624 and Application of Sea Land Cor

poration on Behalf of Sea Ltmd Service Inc for the Benefit of Carelli Primo Ltd Spec No 1383 F M C

initial decision served December 13 1985 23 S R R 626 adopted by separate orders issued this date There

the Presiding Officer acknowledged the jurisdictional limitation imposed by section 8 e 4 to the grant of

additional refunds orwaivers provided insection 8e 3 of the Act

1 While the legislative history of the 1984 Act gives no particular guidance on this issue the legislative

history of section 18 b 3 of the Shipping Act 1916 46 U S C app 817 b 3 the predecessor to section

S e indicates that Congress intended to confme relief and ensure nondiscriminatory treatment to shippers

who shipped within the 180 day period of limitation As explained by then Chairman Harllee and an industry

spokesman the 180 day period was intended to make mandatory refunds applicable to all shippers for

similar shipments made from the dale of shipment until the date of application and would also elimi

nate orminimize stale claims See Hearing Before Senate Subcommittee on Merchant Marine and Fisheries

90th Cong St Sess on S 1905 November 20 1967 at 7 15
j

I

430 FBDERAL MARITIME COMMISSION

I

Consideration also must be given to the rule that wh n a statute which

creates a

right unknown at common law contains a limitation of time

the expiration of that time extinguishes both the right and the remedy s

Applied to section 8 e of the Act this means that after the expiration

of the l80 day period the Commission no longer has the authority to

allow refunds or waivers whether they be granted on the application or

based on the tsriff notice issuedthereunder 9

We therefore conclude that the 180 day limitation of section 8 e 4

of the Act applies to any refund and waiver be it granted on the application

or under section 8 e 3

O Consequently application of the Yamashita stand

ard to the determination of the effective date of the conforming tariff

must be limited accordingly

The tariff notice required hy the Presiding Officer in this proceeding

makes the effective date of the conforming tsriff July 26 1985 However

July 26 1985 is 202 days before February 13 1986 the date of filing

of the application Consequently the earliest date the rate sought to be

applied may become effective in this instance is August 17 1985 which

is 180 days prior to the application filing date and the date the shipment

at Issue sailed from Elizabeth New Jersey The tsriff notice must be

amended accordingly

THEREFORE IT IS ORDERED That In lieu of the tsriff notice man

dated by the InItial Decision Issued In this proceeding the GulfMediterra

nean Ports Conference promptly publish In Its tariff the following notice

Notice is hereby given as required by the decision o the Federal

Maritime Commission In Special Docket No 1411 that effective

August 17 1985 and continuing through August 21 1985 the

rate on Potato Chips Per 40 container is 2 05000 Inclusive

of all additional charges and applies to Panarna City RP This

Notice Is effective for purposes of refuM or waiver of freight

charges on any shipments of the commodity described which may

have been shipped during the specified period of time

I

I

1

us v STud van 329 F 2d 673 6756 31d CIr 1976 Ku mlch v Bruno m F 2d 349 m 7th

Cir 1977 M S Chambliss v Coca Cola Bottling Corp 274 F Supp 401 B D Te 1967 U v So Pac

Co

210 F Supp 7fIJ N D Pa 1962 Tho Commission denied claims for reparation brou bt under seellon

22 of the ShJppina Act 1916 46 US C app fi821 on the same sro11nd u s Borax 4 Chem Corp v

Pac Cowl Europlon Co1l11 P M C 451 471 1968 Aleutian Homes Inc v CQQ31Wlse Line 5 F M B

602 612 1939

9

Section 8e 3 specifically addreiscs refundt or waivers 10 bcmade to unidentified shippers of other

shipments Were an application flied for their benefit It would be subject to the ISO day limit

10 Unlike the specific 180 day provision In sectlon 8 e 4 the non discrimination provision In section

8 e 1 is expressed in generic terms A principle of statUtory conslNCtlon Is that a specific provIsion of law

takes precedence over a general provisIon See 2A Sutherland Statutory Construction 146 05 4th Ed 1984

28 F M C
By the Commission

S JOHN ROBERT EWERS

Secretary

APPLICATION OF SEA LAND FOR THE BENEFIT OF PANA 431

YORK SHIPPING CORPORATION FRITO LAY

IT IS FURTHER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission and

FINALLY IT IS ORDERED That this proceeding is discontinued

28 F M C
I

FEDERAL MARITIME COMMISSION

I

SPECIAL DOCKET NO 1412

APPLICATION OF SEA LAND CORPORATION ON BEHALF OF

SEA LAND SERVICE INC FOR THE BENEFIT OF FORWARDING

SERVICES INC AS AGENT FOR PANA YORK SHIPPING

CORPORATlON FRITO LAY

1

Application for permission to waive the sum of 1 746 69 granted

Applicant had intended to maintain a rate on potato chips inclusive of additional tariff charges

until August 24 1985 but its tariff publishing department mistakenly changed the rate

on same day notice July 26 increasing the rate by adding the additional tariff charges

The short notice rate increase subjected a shipment to increased costs

The conforming remedial tariff notice is allowed to be backdated to an effective date when

the error first appeared in the tariff although such date is more than 180 days before

the application was filed This type of notice was permitted in a previous Commission

decision which because it offset the effects of a short notice rate increase was not

overruled by the Commission in a later decision interpreting the ISOday period of

limitation

John J Brennan forapplicant Sea Land Corporation

l

INITIAL DECISION 1 OF NORMAN D KLINE ADMINISTRATIVE

LAW JUDGE

Partially Adopted June 9 1986

By application filed February 13 1986 Sea Land Corporation on behalf

of Sea Land Service Inc seeks permission to waive 1 746 69 in freight

in connection with a shipment of potato chips which Sea Land carried

from Elizabeth New Jersey to Panama City Panama on a ship sailing

from Elizabeth on August 17 1985 The requested waiver would ultimately

benefit the shipper Frito Lay through its agent Pana York Shipping Cor

poration

Sea Land s supporting evidence is thorough and complete It shows that

Sea Land had intended to maintain a rate of 2 050 per 4O foot container

inclusive of all additional tariff charges for shipments of potato chips

to Panama through August 23 1986 This rate had been filed effective

July 18 1985 after negotiations had been held with a shipper However

on July 25 Sea Land s Americas Pricing Department instructed Sea Land s

TariffPublications Department in New Jersey to change the rate by deleting

the provision that the rate included additional charges which provision

I This decision will become the decialon of the Commiasion in the absence of review thereof by the Com

mission Rule 227 Rules of Practive and Procedure 46 CPR 502 227

432 28 FM C
28 F M C

APPLICATION OF SEA LAND FOR THE BENEFIT OF PANA 433

YORK SHIPPING CORPORATION FRITO LAY

was contained in Note 3 in the tariff The change was supposed to become

effective on August 24 1985 i e on 30 days notice However the Tariff

Publications Department mistakenly advanced the effective date from August

24 to July 26 1985 This mistake not only caused a short notice rate

increase but subjected the shipment of potato chips sailing on August

17 to unintended increases in costs totaling 1 746 69 Because the Shipper

paid freight under the unincreased rate Sea Land now seeks permission

to waive this additional amount

The evidence shows that an error occurred in Sea Land s tariff on July

26 1985 when Sea Land s tariff personnel mistakenly advanced a rate

change which was supposed to become effective August 24 Such error

is remediable under section 8 e of the Shipping Act of 1984 46 D S C

app sec 1707 e and the Commission s regulation 46 CFR 502 92 a

The evidence also shows as required by that law that the application

and the new corrective tariff were filed timely and there is no evidence

that discrimination among shippers carriers or ports would result if the

application is granted

The Conforming TariffNotice

When special docket applications are granted it is customary to order

applicants to file an appropriate notice in the tariff showing the rate

on which the requested refunds or waivers are based See section 8 e 3

of the 1984 Act 46 D S C app sec 1707 e 3 That provision of law

indicates that this tariff notice will inform the public and help ensure

that other affected shipments will be treated the same way as may be

appropriate However the law at present appears to be unsettled with regard

to the fixing of the effective date of the conforming rate in the tariff

notice

In Application of Yamashita Shinnihon for Nissho Iwai 19 SRR 1407

1980 the Commission held that the critical time period which is to

be used when determining the effects of the grant of an application on

similarly situated shippers commences on the day the tariff omitting the

intended rate becomes effective or on the day the intended lower rate

would have become effective absent the mistake and terminates on the

day before the effective date of the conforming tariff 19 SRR at 1408

The day the tariff omitting the intended rate became effective in Yamashita

Shinnihon was January I 1979 The date of sailing of the shipment involved

2

There were five additional tariffcharges that Sea land had intended to include in the base rate but be

cause of the error would be assessed against the shipment These are bunker surcharge Panama handling

delivery charge container charge and documentation charge Except for the documentation charge 12 00

they would all be assessed against 56 875 measurement Ions the dimension of the shipment The five charges

total 1 746 69 See Exhibit No 5 page I

3

The application was filed on February 13 1986 which is 180 days after date of shipment sailing which

was August 17 1985 The new corrective tariff was filed to be effective on August 22 1985 The application

states that no other shipments were involved and that applicant has no information orevidence as to whether

a grant of the application would result in discrimination among ports or carriers
434 FEDERAL MARITIME COMMISSION

in that case was April 17 1979 which was 173 days before the filing

of the application October 5 1979 See JD 22 F M C 675 1980

The Commission held that it was wrong to backdate the relief only to

the date on the bill of lading April 12 1979 and instructed the carrier

applicant to determine whether there were any other shipments of the

subject commodity going back to January I 1979 to ensure that such

refund will not result in discrimination 19 SRR at 1408

The decision in Yamashita Shinnihon suggests that it would be proper

to backdate a conforming tariff notice to the date the error first appeared

in a tariff even if that date occurred as long as 277 days before the

application was filed January I falls 277 days before October 5 However

in SD 1102 Application of us Atlantic Gulf Jamaica Freight Associa

tion and Sea Land for Chiquita 26 F M C 605 1984 the Commission

denied an application which had sought relief for shipments of the same

beneficiary shipper which shipments had occurred more than 180 days

before the filing of the application The Commission held that the 180

day requirement was jurisdictional and limited relief to five shipments

out of a total of 38 because the remaining 33 shipments fell outside

the l80 day period See 26 F M C at 606 607 The Commission distin

guished previous decisions which had apparently permitted relief to such

early shipments which had been shipped by shippers other than the bene

ficiary for whom the applications were originally filed Such relation

back was done in those cases according to the Commission for the

purpose of preventing discrimination among shippers See 26 EM C

at 606

Although it may not have been clear from the first Commission decision

in SD 1102 as to whether the Commission could grant relief to early

shipments of other shippers as opposed to early time barred shipments

of the same shipper beneficiary in its decision on reconsideration 27

F M C at 135 the Commission appeared to have slammed the door on

all shipments occurring earlier than the 180 day period regardless of who

shipped them Thus on reconsideration the Commission addressed the pos

sibility that relief could be granted for other shippers having time barred

shipments by stating as to such other shippers that the Commission

has concluded that we have no such power 27 EM C at 136 Further

more as to the previous decisions suggesting such power the Commission

stated that t o the extent those decisions conflict in part with the result

in this case they are overruled Id

It appears therefore that although the decision in Yamashita Shinnihon

would authorize relief and a

corresponding conforming tariff notice

backdated to the date an error first appeared in a tariff or the date the

intended rate would have appeared in the tariff but for the error the

later decision in SD 1102 seemS to hold that relief cannot be granted

to any shipment occurring before the 180 day period and that a conforming

28 F M C
28 F M C

APPLICATION OF SEA LAND FOR THE BENEFIT OF PANA 435

YORK SHIPPING CORPORATION FRITO LAY

tariff notice cannot be backdated to the dates enunciated in Yamashita

Shinnihon if such dates fall earlier than the 180 day period

The present case raises the problem of how to deal with the apparent

discrepancy between Yamashita Shinnihon and SD 1102 In the present

case the application was filed on February 13 1986 The date of shipment

sailing was August 17 1985 which is 180 days before the filing date

Therefore the shipment qualifies for relief However if I were to apply

the Yamashita Shinnihon decision I would backdate the effective date of

the tariff notice to July 26 1985 the day the tariff omitting the intended

rate became effective But this date is 202 days before the filing of the

application and if the tariff notice contains such an effective date theoreti

cally it could apply to shipments occurting before the 180 day time period

However other facts in this case permit a solution to the above problem

One of the decisions in which the Comntission had allowed the intended

rate to relate back more than 180 days prior to the filing of the application

was pwc for the Benefit of Minnesota Mining Manufacturing Co 21

SRR 793 1982 However as the Commission explained in SD 1102

26 EM C at 606 in Minnesota Mining the carrier applicant had not

only committed a tariff filing error but had increased the rate without

giving the 3D days notice required by law The tariff notice was therefore

allowed to extend back to offset the effects of the short notice rate increase

although technically the application was granted only for shipments falling

within the 180 day period Id

The present case presents exactly the same situation as in Minnesota

Mining As Sea Land concedes on July 26 1985 its Tariff Publishing

Department increased the rate on potato chips on same day notice 5 There

fore if the conforming tariff notice is related back to July 26 1985

in accordance with the Yamashita Shinnihon decision it will also offset

the effects of the short notice rate increase as was done in Minnesota

Mining Therefore even if technically relief could not be granted for

time barred shipments occurring between July 26 and August 17 1985

under the special docket law relief could be granted and the tariff notice

could be related back to July 26 in accordance with Minnesota Mining

which because it is based on a short notice rate increase as well as a

tariff filing error is not inconsistent with the decision in SD 1102

For the foregoing reasons the tariff notice which Sea Land will be or

dered to file will relate back to July 26 1985

4Section 8 d of the Shipping Act of 1984 46 U S C app sec 1707 d provides that No change

in an existing rate that results in an increased cost to the shipper may become effective earlier than 30 days

after filing with the Commission The Commission has held under corresponding provisions of the 1916

Act that if such a rate change has been filed the new rate will not be effective for the fIrst 30 days See

Petition of pwcand OOCL Seapac Service for Declaratory Order 25 F M C 723 724725 1983 Ei Du

Pont v Sea lAnd Service Inc 22 F M C 525 535 o 9 1980

5

See Affidavit of Lorraine Majewski Supervisor of Tariff Typisls fourth paragraph
436 FEDERAL MARITIME COMMISSION

Instructions to Applicant

The application is granted provided that Sea Land complies with the

following instructions

1 Sea Land shall publish the following notice in an appropriate place

in its tariff

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

Maritime Commission in Special Docket No 1412 that effective

July 26 1985 and continuing through August 21 1985 the rate

on Potato Chips Per 40 container is 2 050 00 inclusive of

all additional charges and applies to Panama City R P This

Notice is effective for purposes of refund or waiver of freight

charges on any shipments of the commodity described which may

have been shipped during the specified period of time

2 Sea Land shall waive the sum of 1 746 69 for the ultimate benefit

of the shipper Frito Lay shall file the above tariff notice shall adjust

freight forwarder compensation if necessary and shall notify the Commis

sion of the action taken within the time period prescribed by the Commis

sion in its notice terminating this proceeding

S NORMAN D KLINE
28 FM C 437

FEDERAL MARITIME COMMISSION

DOCKET NO 864

FOUR WINDS INTERNATIONAL INC APPLICATION FOR A

LICENSE AS AN OCEAN FREIGHT FORWARDER

NOTICE

June 16 1986

Notice is given that the time within which the Commission could deter

mine to review the May 9 1986 dismissal in this proceeding has expired

No such determination has been made and accordingly the dismissal has

become administratively final

S JOHN ROBERT EWERS

Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 864

FOUR WINDS INTERNATIONAL INC APPLICATION FOR A

LICENSE AS AN OCEAN FREIGHT FORWARDER

MOTION TO DISMISS GRANTED

Finalized June 16 1986

This case arose as a result of an application for a license to act as

an ocean freight forwarder by Four Winds international Inc FWI and

the Commission s Order of Investigation and Hearing served on January

31 1986 The Order states that

The Commission is unable on the existing record to conclude

that FWI has the requisite character to perform forwarding services

p

3

and that

a formal investigation and hearing is instituted to determine

whether Four Winds International Inc possesses the necessary

character to be licensed as an ocean freight forwarder

By Motion dated April 22 1986 FWI indicates it has withdrawn its

application for an ocean freight forwarder license and asks that this pro

ceeding be dismissed Hearing Counsel supports the Motion

Wherefore it is

Ordered that since the question presented by the Commission s Order

of investigation and Hearing served January 31 1986 is now moot this

proceeding is hereby dismissed

8 JOSEPH N INGOLIA

Administrative Law Judge

438 28 FM C
28 F M C 439

FEDERAL MARITIME COMMISSION

DOCKET NO 8610

VOLGA FORWARDERS SERVICE INC AFPLICATION FOR AN

OCEAN FREIGHf FORWARDER LICENSE

NOTICE

June 16 1986

Notice is given that the time within which the Commission could deter

mine to review the May 6 1986 discontinuance of the investigation in

this proceeding has expired No such determination has been made and

accordingly the discontinuance has become administratively final

S JOHN ROBERT EWERS

Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 8 IO

VOLGA FORWARDERS SERVICE INC AFPLICATION FOR AN

OCEAN PREIGHT FORWARDER LICENSE

APPLICATION DISMISSED

Finalized June 16 1986

By letter dated April 29 1986 counsel for Volga Forwarders Service

Inc the applicant for an ocean freight forwarder license gave formal

notice that the application was withdrawn

Accordingly the application is ordered dismissed without prejudice

S SEYMOUR GLANZER

Administrative Law Judge

I

I

440 28 F M C
28 F M C 441

FEDERAL MARITIME COMMISSION

INFORMAL DOCKET NOS 1526 1 THROUGH 1531 1

A A INTERNATIONAL

v

KAWASAKI KISEN KAISHA LTD

ORDER REMANDING PROCEEDING

June 17 1986

These informal complaints filed on October 24 1984 under sections

lO b 1 3 of the Shipping Act of 1984 1984 Act 46 U S C app

@@1709 b 1 3 allege overcharges on shipments which moved while the

Shipping Act 1916 1916 Act 46 U S c app @@801 842 was still appli

cable to transportation in the foreign commerce of the United States

A A International A A claims 55 000 plus attorneys fees

from Kawasaki Kisen Kaisha Ltd K Line for alleged freight overcharges

arising from 30 shipments 2

transported by K Line from Japan and Hong

Kong to several United States West and East Coast ports K Line bills

of lading indicate that these shipments occurred between May 9 and Decem

ber I 1983 On March 7 1986 Donald F Norris Settlement Officer

issued an Initial Decision ID in which he concluded that the two year

limitation in section 22 of the 1916 Act 46 U S C @821 1983 amended

by 46 U S C app @821 1984 rather than the three year limitation in

section ll g

of the 1984 Act 46 U S c app @171O gwas applicable

to the claims The Commission determined to review the Settlement Offi

cers decision

DISCUSSION

Upon review we have decided to reverse the Settlement Officer s conclu

sion that the two year statute of limitations found in the 1916 Act bars

recovery on any claim based on a cause of action which occurred more

than two years prior to October 24 1984 the date upon which the claims

were filed We therefore will remand the proceeding for a decision on

the merits In taking this action we acknowledge that the issue of whether

the three year statute of limitations contained in the 1984 Act can be

applied to conduct which occurred while the 1916 Act was still in effect

is a complex one The Settlement Officer s conclusion that a statute of

I The Shipping Act of 1984 was enacted on March 20 1984 and became effective June 18 1984

2The shipments were Armaton electronic toys compUler keyboards power supply devices toner for

copiers and campUler parts
442 FEDERAL MARITIME COMMISSION

I

limitations which bars the right as well as the remedy can not be applied

retrospectively finds support in a number of cases On the other hand

there exists another line of cases which have under similar circumstances

applied an increased statute of limitations retrospectively upon a finding

that it would not deny the parties due process or otherwise result in manifest

injustice Although the Commission contrary to the Settlement Officer

believes that the latter precedent represents the better view we commend

the Settlement Officer on his thoughtful analysis of this difficult issue

Before directly addressing the issue presented here it is useful to focus

on the nature and purpose of statutes of limitation The Supreme Court s

observations in Chase Securities Corp v Donaldson 325 U S 304 314

1945 are particularly instructive

Statutes of limitation find their justification in necessity and con

venience rather than in logic They represent expedients rather

than principles They are practical and pragmatic devices to spare

the courts from litigation of stale claims and the citizen from

being put to his defense after memories have faded witnesses

have died or disappeared and evidence has been lost Order of

Railroad Telegraphers v Railway Express Agency 321 U S 342

349 The are by definition arbitrary and their operation does

not diSCriminate between the just and the unjust claim or the

voidable and unavoidable delay They have come into the law

not through the judicial process but through legislation Footnote

omitted They represent a public policy about the privilege to

litigate Their shelter has never been regarded as what now is

called a fundanlental right or what used to be called a nat

ural tight of the individual He may of course have the protec

tion of the policy while it exists but the history of pleas of

limitation shows them to be good only by legislative grace and

to be subject to a

relatively large degree of legislative control

In the absence of a statutory directive or legislative history to the con

trary 3

a newly enacted statute may be applied retrospectively to conduct

occurring prior to enactment unless it would deny due process to the

parties 4 or would result in manifest injustice Whether retrospective

application of a statute would result in manifest injustices depends on

three factors I the nature and identity of the parties 2 the nature

of the plrlies rights and 3 the impact of the change in the law on

those rights Bradley v Richmond School Board 416 U S 696 1974

In detennining whether retrospective application of a lengthened statute

of limitations would deny due process or would result in manifest injus

j

i

3

The leglBlalive history of the 1984 Act contains no expression of congressional intent to apply the two

year limitadon in the 1916 Act inCcrelan commCl le after the effective date of the 1984 Act

4 The Fourteenth Amendment does not make an act of state legislation void merely because it has some

retrospective operation What il does forbid is taking of Ufe liberty or propeny without due process of law

Some roles of law probably could not be changed retroactively without hardship and oppreuioR and this

whether wise or unwise in their origin Chase Securities Corp v Donaldson 32 U S 304 31 1945

28 F M C
28 F M C

A A INTERNATIONAL V KAWASAKI KISEN KAISHA LTD 443

tice courts have drawn a distinction between statutes of limitation that

simply bar aremedy and those that bar the right as well as the remedy

For example in Campbell v Holt 115 U S 620 1885 the Supreme

Court found that the repeal of a statute of limitations applying to personal

debts arising from a contract did not deny due process to a debtor even

though it revived a remedy previously barred by the former statute of

limitations The Court reasoned that although the running of the former

statute of limitations created a valid defense to a suit under a contract

it did nothing to destroy or change the nature and character of the debtor s

contractual obligations In other words the running of the statute of limita

tions did not give the debtor the right to avoid his obligation to pay

under the contract Thus the removal of the statute of limitations defense

which the Court characterized as a purely arbitrary creation of the law

did not result in a denial of due process

In William Danzer Co v Gulf R 268 U S 633 1925 the Court

addressed the issue of whether an amendment to the Interstate Commerce

Act increasing the statute of limitations from two to three years could

revive a cause of action for overcharges which had been extinguished

by the running of the two year period at the time of the amendment

Unlike the situation in Holt o n the expiration of the two year period

it was as if liability had never existed Danzer 268 U S at 636 The

Court stated that the three year period could not be applied retrospectively

because it would deprive the carrier of its property without due process

of law

Shortly after Danzer the Interstate Commerce Commission applied the

new longer statute of limitations to claims which were not barred by

the previous statute of limitations J G Curtis Leather Company v Pennsyl

vania Railroad Company 123 LC e I 3 1927 Sturges Company v

Alabama Vicksburg Railway Co 107 Lee 136 140 1926 In Curtis

and Sturges the former statute of limitations had not extinguished the

cause of action at the time the period of limitation was lengthened Thus

the defendant carrier had no vested right to immunity and retrospective

application of the longer statute of limitations did not deny the carrier

due process

The Settlement Officer s decision under review here relies in large meas

ure on the distinction between substantive and procedural statutes

of limitation Because the statutes of limitation in both section 22 of the

1916 Act and section lI g

of the 1984 Act have been viewed by the

Commission as limiting the right as well as the remedy the Settlement

Officer reasoned that these sections must be viewed as substantive rather

than procedural Following a line of cases holding that a statutory modi

fication pertaining to matters of substance can not be given retrospective

effect he concluded that the three year statute of limitations contained

in the 1984 Act could not be applied to the subject claims
444 FEDERAL MARITIME COMMISSION

However the distinction between substantive or procedural statutes

of limitation is only helpful to the extent it resolves the ultimate question

whether the parties have vested rights which would be prejudiced by the

retrospective application of a

lengthened statute of limitations To look

only to the form of the statute of limitations without examining the rights

of the parties and how those rights would be prejudiced by retrospective

application of the lengthened statute of limitations elevates form over sub

stance

We believe that a better analysis of the issue may be found in cases

such as Friel v Cessna Aircraft Company 751 F 2d 1037 9th Cir 1985

That case was brought under the Death on the High Seas Act 46 V S C

761 after the decedent was killed in an airplane accident which occurred

on July 23 1980 At the time of the incident the Death on the High

Seas Act contained a two year statute of limitations 46 VS C 763

The two year statute of limitations was subsequently repealed on October

6 1980 and replaced with a three year statute of limitations The decedents

personal representative brought the action on October 18 1982 more than

two years after the accident The defendant argued that the action was

barred by the two year statute of limitations in effect at the time of the

crash The court disagreed stating

I t is clear that the considerations militating against retro

spective application of a statute are not present in this case The

legislative change in no way alters the effect given to conduct

before the change No conduct on the part of either party would

have differed if the statute had been in effect at the time of

the fatal incident

The two year time bar was not yet complete and the action was

viable when the limitation period was lengthened to three years

Moreover defendants had acquired no vested right to immunity

from suit for their alleged wrong under 763 when the limitation

period was lengthened

Despite the substantive form of the limitations in both section 22

of the 1916 and section l1 gof the 1984 Act retrospective application

of the three year limitation will have no effect on the rights of the parties

Prior to the enactment of the 1984 Act a claim for overcharges such

as the one here was governed by section 18 b 3 of the 1916 Act Although

the 1984 Act repealed section 18b 3 the language of section 18b 3

was brought forward with no substantive change in sections 10 b IH3

of the 1984 Act Overcharges were unlawful under the 1916 Act and

remain unlawful under the 1984 Act

When the 1984 Act became effective and the limitation period was

lengthened Respondent K Line had acquired no vested right to immunity

for its alleged wrong under section 18b 3 The 1984 Act did not create

28 F M C
By the Commission

S JOHN ROBERT EWERS

Secretary

A A INTERNATIONAL V KAWASAKI KISEN KAISHA LTD 445

a cause of action that previously did not exist it simply continued a

cause of action which existed under the 1916 Act Thus the application

of the 1984 Act to the subject shipments cannot be said to deuy the

parties due process or otherwise result in manifest injustice Accordingly

we believe that the three year period of limitation contained in section

11 gof the 1984 Act should govern the subject claims

THEREFORE IT IS ORDERED That the Initial Decision issued in

this proceeding is reversed to the extent it concludes that the two year

period of limitation contained in section 22 of the Shipping Act 1916

bars any of the subject claims and

IT IS FURTHER ORDERED That this proceeding is remanded to the

Settlement Officer for a decision on the merits

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 24

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL

RATE INCREASE OF 2 5 PERCENT BETWEEN UNITED STATES

PACIFIC COAST PORTS AND HAWAII PORTS

ORDER PARTIALLY ADOPTING INITIAL DECISION

I

June 26 J 986

This proceeding is before the Federal Maritime Commission Commission

or FMC on Exceptions to the Initial Decision 1D served April 30

1986 Upon review the Commission finds and concludes that 1 Matson

Navigation Company Incs Matson proposed rate increase is unjust and

unreasonable and ordered cancelled and 2 Matson s current rates are

unjust and unreasonable to the extent they produce a rate ofreturn in excess

of 1150 percent A 15 percent overall reduction in rates is ordered

PROCEEDING

The Commission initiated this proceeding by Order of Investigation and

Suspension served December 30 1985 December Order to determine

whether a 2 5 percent overall rate increase filed by Matson effective January

I 1986 is just and reasonable within the meaning of section 3 of the

Intercoastal Shipping Act 1933 ISA 46 U S C app 845 and whether

Matson s currently effective rates are just and reasonable within the meaning

of section 18 a of the Shipping Act 1916 1916 Act 46 U S C app

817

The December Order suspended the proposed rate increase until June

30 1986 the 180 day limit on proceedings under the ISA and specified

that the following issues be determined in this proceeding

1 Has Matson properly projected its revenues expenses and rate

base for 1986

2 Has Matson properly allocated its revenues expenses and rate

base between its Commission and non Commission regulated serv

ices for 1986

3 Are the business and financial risks faced by Matson greater

or less than those faced by an average U S corporation If so

should Matson s rate of return be adjusted and

I

Supplement No 1 to Tariff FMC F No 14 Supplement No 1 and 1st Revised Pase 138 to Tariff FMC

F No IS Supplement No 1 and 2nd Revised Page 56 to Tariff FMCF No 16 and Supplement No 1

to TariffFMC F No 17

446 28 FM C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 447

RATE INCREASE OF 2 5

4 Are the current trends in rates of return and interest rates such

that Matson s rate of return should be adjusted

The proceeding was assigned for public hearing before an Administrative

Law Judge Matson was named Respondent The State of Hawaii Depart

ment of Commerce and Consumer Affairs Hawaii which had protested

Matson s proposed rate increase and the Commission s Bureau of Hearing

Counsel Hearing Counsel were also made parties to the proceeding The

Saibot Corporation db a Tobias Christmas Trees Tobias intervened in

the proceeding Hearings were held March 1014 1986 at the Commission s

offices in Washington D C The record of this proceeding consists of

extensive written and oral testimony legal briefs and proposed findings

submitted by all parties

Presiding Administrative Law Judge Joseph N Ingolia Presiding Officer

issued an JD which held that the proposed rate increase was unjust and

unreasonable but that Matson s current rates were just and reasonable Ex

ceptions to the JD were filed by Hearing Counsel Hawaii and Tobias

Replies to Exceptions were filed by Matson

THE INITIAL DECISION

After analyzing the record evidence submitted by the parties the Presiding

Officer found and concluded as follows 2

Matson s cargo and overall revenue forecasts for 1986 are reasonable

Matson s forecasts have been historically accurate and the other parties

have not shown any reasonable basis to find them unreliable in this case

However Matson has over estimated both its expenses and rate base for

1986 by 1 forecasting an average fuel cost of 22 per barrel when

the correct average per barrel forecast for 1986 should be 15 per barrel

and 2 including in its rate base the Matsonia which was removed from

service in 1981 was not approved for reconstruction until 1985 and will

not reenter the Hawaii service in 1986

Matson computed its working capital in accordance with Commission

regulations when it excluded inter island barge voyages from the required

calculations Also it properly calculated the amortization allowance on the

leased vessel Lurline Matson has an effective ongoing cost reduction pro

gram and is run in a prudent and relatively efficient manner

Matson has properly allocated revenues expenses and rate base between

FMC regulated and non FMC regulated services It followed the cargo cube

basis of allocation required by Commission regulations While this has

resulted in a shift of high rated cargo to non regulated service which

in turn has resulted in a higher proportion of expense allocated to FMC

regulated cargo the other parties to the proceeding have not shown this

2

The Presiding Officer also advised that the methodology issues specified by the Commission had to be

decided on a sparse evidentiary record due to the time restraints imposed by the December Order He sug

gested that the Commission may wish to remand the proceedings on these methodology issues as they apply

to lhe reasonableness of Matson s

present rates
448 FEDERAL MARITIME COMMISSION

1

result to be so aberrational as to warrant a departure from the cargo

cube allocation method

Matson is less and not more risky than the average U S corporation

Matson s variability of earnings statistical test of risk and an erosion

of its market share due to increased competition indicate higher than average

risk However Matson still dominates the Hawaii trade is the rate leader

among its competitors and has steadily increased its total trade revenues

Its recent earnings performance indicates that at least in the near future

it is probably less and certainly no more risky than the average U S

corporation However because the evidence dOeS not establish to what

degree Matson is less risky no downward adjustment to its rate of retum

is warranted

Both prevailing rates of return and interest rates have shown a downward

current trend Rates of return peaked in 1980 and have trended downward

since that time Interest rates are at their lOWest level in eight years

However there is insufficient evidence of record to quantify a downward

adjustment and therefore none will be required

The appropriate benchmark rate of retum for 1986 is 1156 percent This

is calculated by an examination of the mean rates of return on average

total capital by Value Line Investment Survey for the l5 year period ending

in 1984 This is one of the benchmark analyses proffered by Matson in

accordance with the applicable Commission regulations Part 552 Title

46 Code of Federal Regulations 00 11 Hearing Counsel agrees with

this methodology but would find an 11 5 percent benchmark using Bureau

of Census Quarterly Financial Reports for the 5 year period ending in

1984 after an appropriate adjustment for embedded debt Hawaii urges

a departure from 0 0 II but has failed to make a sufficient showing

that 00 II produces aberrational results to warrant such a departure

After making appropriate adjustments for the elimination of the Matsonia

from its rate base and employing an average fuel cost of 15 per barrel

Matson s projected rate of retum for 1986 is 129 percent without a rate

increase This is calculated by dividing the sum of projected total net

income without a rate increase plus interest expense 28 074 000 by the

rate base 230 276 000

The difference between the unadjusted benchmark of 11 56 percent and

Matson s adjusted projected rate of retum without the rate increase of 12 19

percent is within the zone of reasonableness Accordingly in light of

the above fmdings Matson s proposed rate increase would be unjust and

unreasonable but Matson s current rates are not unjust or unreasonable

POSITIONS OF THE PARTIES

Hawaii

Hawaii agrees with the findings of the Presiding Officer in all major

aspects and does not take specific exception to the ID Hawaii is in

28 FM C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 449

RATE INCREASE OF 25

accord with the determination that Matson s proposed rate increase is unjust

and unreasonable

Hawaii further believes however that Matson s current rates are also

unjust and unreasonable Accordingly Hawaii supports the recommendation

of the JD that the Commission remand the case to the Presiding Officer

However it argues that given the present record the remand should take

the form of a show cause proceeding placing the burden on Matson to

prove its present rates just and reasonable Specifically Hawaii would have

Matson show I why inter island barge movements should not be included

in the computation of working capital 2 why the capitalization of leased

vessels that are refurbished by Matson should not be amortized beyond

the lease term to the actual useful life of the asset 3 why the Commission

should not depart from the requirements of G O II in allocating revenues

expenses and rate base between FMC regulated and Interstate Commerce

Commission ICC regulated service and 4 why downward adjustments

to the benchmark rate of return should not be made in light of the Presiding

Officer s findings of Matson s less than average risk and a declining cost

of money

Tobias

Tobias also agrees that the JD was correct in finding Matson s proposed

rate increase unjust and unreasonable However it excepts to the failure

of the Presiding Officer to make a downward adjustment to the benchmark

rate of return on the basis of downward trends in average rate of return

and the cost of money as well as Matson s relative risk Alternatively

Tobias argues that the proceeding should be reopened on this issue

Additionally Tobias excepts to the findings that there is insufficient

evidence of abuse of G O II methodologies by Matson to warrant departure

from the established criteria in that regulation Specifically Tobias argues

that Matson abused G O 11 requirements by I

improperly allocating

revenues expenses and rate base between FMC regulated and non FMC

regulated cargo 2 including the Matsonia in the rate base and 3 filing

data allegedly inconsistent with the historical 1985 data filed in Docket

No 85 3 Matson Navigation Company Inc Proposed Overall Rate In

crease of 25 Percent Between United States Pacific Coast Ports and Hawaii

Ports 23 S RR 155 171 JD 1985 These alleged abuses are argued

to be a manipulation of evidence that produces unfair and unreasonable

results

Finally Tobias excepts to the finding that there exists a zone of reason

ableness within which Matson s current rate of return falls Tobias argues

that there is no basis in the record to construct a zone of reasonableness

beyond 1156 percent and accordingly submits that it was error to find

Matson s present rates just and reasonable
450 FEDERAL MARITIME COMMISSION

Hearing Counsel

Hearing Counsel agrees with the Presiding Officer that Matson is not

entitled to any upward adjustment to the benchmark rate of return based

upon the record of this case Hearing Counsel also supports the Presiding

Officer s calculation of Matson s projected 1986 rate of return without a

rate increase at 12 19 percent Because Matson s rate of return exceeds

both Hearing Counsel s proposed 115 percent benchmark and the Presiding

Officer s finding of an 1156 percent benchmark Hearing Counsel concurs

in the I Ds conclusion that no rate increase is justified

However Hearing Counsel contends that the Presiding Officer erred in

adopting Matson s proposed 1156 percent benchmark rate of return for 1986

because it is allegedly based upon a methodology previously considered

and rejected by the Commission Hearing Counsel submit that the proper

benchmark is 1150 percent calculated in accordance with Commission

precedent on point Hearing Counsel also takes exception to the Presiding

Officer s conclusion that the difference between the 1156 percent unadjusted

benchmark and Matson s projected 1986 rate of return of 129 percent

is within a zone of reasonableness Accordingly Hearing Counsel chal

lenges the I Ds finding that Matson s current rates are just and reasonable

Hearing Counsel urges the Commission to adopt the 1150 percent bench

mark rate of return and to order Matson to roll back its current rates to

achieve that level ofprofit

Matson

Matson argues that because Hawaii did not file formal exceptions to

the findings of the ID it has waived any right to request modifications

to the Presiding Officer s conclusions Matson further contends that in

any event a remand to establish new G O methodologies cannot be

ordered in this case because I

the Commission must conclude this pro

ceeding within the 180 day limit set by the ISA and 2 the underlying

determinations concerning the proposed rate increase are dispositive of and

therefore res judicata as to the reasonableness of Matson s current rates

The only options allegedly available to Hawaii at this point are to initiate

a separate complaint proceeding or to petition for a

rulemaking Matson

states that under either alternative the burden of proof on the methodology

issues would be on Hawaii not Matson

Matson further argues that no valid reason has been shown to require

any downward adjustment to the benchmark rate of return established in

the ID The record allegedly supports the findings that Matson followed

G O II and that the results of its methodologies are not unfair or unreason

able

Matson argues that the Presiding Officer was correct in fi dlh an 1156

percent benchmark and that the difference between this fig rc and Hearing

Counsel s 150 percent figure is de minimis Matson s use of a 15 year

period rather than Hearing Counsel s 5 year period to calculate an average

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 451

RATE INCREASE OF 25

rate of return of comparable U S corporations is allegedly a more reliable

methOdology Matson believes that a 5year average is overly susceptible

to unrepresentative variation due to aberrational years within that short

period

Matson supports the Presiding Officer s

finding concerning a zone of

reasonableness between 1150 percent and 12 19 percent Matsou maintains

that the 1 50 percent figure cannot be used as the ceiling on the

zone because Matson was entitled to upward benchmark adjustments

on th6 basis of comparative risk Matsou also argues that there is insufficient

evid nce to support a downward adjustment based upon declining average

rates of return

DISCUSSION

The Proposed Rate Increase

The Commission agrees with the Presiding Officer s

fiuding that Matson s

proposed rate increase has been proven to be unjust and unreasonable

Indeed Matson did not file exceptions to the findings of the 10 and

all other parties unanimously support the 10 The Conunission therefore

adopts this portion of the to

Matson s Current Rates

The Presiding Officer s calculation of Matsou s 12 19 percent projected

rate of return for 1986 follows G O 11 methodology Notwithstanding

Tobias Exceptions to the contrary the evidence of record does not warrant

a departure from the criteria established in that regulation Accordingly

the Commission adopts the finding that 12 19 percent is the most accurate

projection of Matson s rate of retum for 1986

The Presiding Officer s calculation of an 1156 percent benchmark rate

of return presents a more difficult issue The gist of the Exceptions to

the Presiding Officer s methodology is that the allowable benchmark for

Matson should be reduced below 1156 percent and that Matson s rates

should be reduced by the Commission The theories presented by Hawaii

Tobias and Hearing Counsel in their Exceptions are all conceptually cred

itable However only Hearing Counsel has produced substantial evidence

of record that the Commission deems sufficiently precise and persuasive

to warrant finding a benchmark below the 1156 percent rate of retum found

by the Presiding Officer

Hearing Counsel urges that Matson s rate of retum be limited to 1150

percent for 1986 In calculating a benchmark the principal difference be

tween Hearing Counsels methodology and that apparently used by the

Presiding Officer in arriving at 116 percent is the historical period used

to determine the average rate of retum for comparable U S businesses

The Presiding Officer apparently adopted Matson s approach which consid

ered a IS year period ending in 1984 utilizing data reported in Value
I

452 FEDERAL MARITIME COMMISSION

Line Investment Survey 3 Hearing Counsel urged the use of a five year

historical average ending in 1984 based upon the Bureau of Census Quar

terly Financial Reports 4

Hearing Counsels method is supported by the standards established by

the Commission in Sea Land Service Inc et al Proposed General Rate

Increase in the Puerto Rico and Virgin Islands Trades 24 FMC 164

FMC 1981 affd sub nom Puerto Rico Maritime Shipping Authority

v F M

C

678 F 2d 327 21 S R R 859 DC Cir 1982 cert denied

459 U S 906 1982 Sea Land As noted by the Presiding Officer when

rejecting the methodology suggested by Hawaii Sea Land is the primary

authority for resolving methodology disputes in ISA rate cases We fmd

no sufficient basis in the record to depart from the methodology established

in Sea Land for arriving at a benchmark rate of return Not only has this

methodology received judicial approval but it also has proven objective

and reliable in application s

Hearing Counsels suggested 1150 percent

benchmark will therefore be adopted

The Commission adopts the Presiding Officer s

findings that no upward

adjustment in the benchmark rate of return is justified to accoUllt for 1

the relative business and financial risks faced by Matson and 2 current

trends in rates of return and the cost of money Both findings are amply

supported by the record Indeed neither finding was challenged by Matson

in exceptions

Having concluded that the appropriate benchmark rate of return is 1150

percent the Commission must disagree with the Presiding Officer s

finding

that Matson s 129 percent projected rate of return is within a zone of

reasonableness between 1150 percent and 12 19 percent This conclusion

is not explained in sufficient detail to allow detennination as to how it

was calculated and whether it is based upon substantial evidence of

record 6 On its face the Presiding Officers conclusion that Matson s

12 19 percent rate of return is within a zone of reasonableness appears

to be inconsistent with his underlying findings that 1 no upward adjust

ment to the benchmark rate of return is warranted in this case and 2

if better quantified on the record downward adjustments would be war

ranted

The Presiding Officer s reliance on a zone of reasonableness also

suggests a misuse of the concept The zone of reasonableness as that

tenn has been defmed by the Supreme Court designates a decisional area

of discretion between minimum non confiscatory rates and the maximum

1 0 2S F M C 9 at 49S

41 0 at 496

Debate over the appropri data base tiqle period for determinina benchmark fate ot return invariably

consumes an inordlnato portion of time inCoinmislion rate cases Accordingly the Commission intends that

absent a showing of overriding considerations to the contrary Sea Land be followed on methodology issues

in order to lave time and roaourcea inSA rate Qaaes See Alnnark Corp v F A 758 F 2d 685 691

692 DC Clt J9SS

6

See ID at 497

28 F M C
28 EM C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 453

RATE INCREASE OF 2 5

reasonable level of rates supportable by the record FP c v National

Gas Pipeline Co 315 U S 575 585 1942 In order to establish a zone

of reasonableness it is necessary to define the upper limit of the zone

the maximum level of rates It was the Commission s intention in promul

gating G O II that the benchmark rate of return adjusted according to

the requirements of 46 CF R S552 6 d 2 ii represents this upper limit

Because the purpose of this proceeding was to determine the maximum

reasonable limit of Matson s rate increase andor existing rates there is

no need to establish a zone of reasonableness The Commission s ulti

mate responsibility in this case is to establish Matson s maximum allowable

rate of return We find that maximum to be 1150 percent in 1986 On

this basis we conclude that Matson must implement an overall rate reduc

tion of 15 percent

7

It has been suggested that the Commission remand the proceeding to

the Presiding Officer to take further evidence on certain methodology issues

noted in the JD and specified by the Exceptions Hawaii and Tobias

argue that they should be given another opportunity to quantify downward

adjustments to the benchmark rate of return based upon I

the relative

risk faced by Matson and 2 the current trends in rates of return and

the cost of money While the Commission appreciates the difficulty in

resolving these issues in the 180 days allowed by the ISA the Commission

finds the present state of the record adequate to make a final decision

Accordingly it will not order a remand of the proceeding Further refine

ment of the record is always possible in a rate case However there

is no suggestion that the parties have been deprived of their due process

rights Accordingly the general public benefit in promptly disposing of

this rate case outweighs the apparently marginal benefit to the record a

remand would produce

Similarly the proceeding will not be remanded to explore modifications

to G O II In the context of a particular proceeding the record must

show clearly unreasonable or aberrational results in applying established

methodology to warrant a departure from the regulation S

In this case

Matson generally followed the minimum requirements of G O II In those

areas where novel issues were raised there was not a sufficient showing

of aberrational results or more appropriate alternatives to warrant the appli

7To achieve a return on rafe base of 1150 percent Matson s net income after tax would have to be re

duced to 17 358 000 Based upon an imputed effective tax rate of 47 62 percent this computes 10 nel income

before taxes of 33 139 000 This in turn requires a reduction of total revenue to 198 939 000 a 1505 per

cent revenue reduction See Ex PHC 2 revised at 5 The Commission recognizes that there does not exist

a precise direct mathematical correlation between a percemage adjustment in Matson s

freight rates and a

percemage adjustmem in its revenues A slight differential exists due to Matson s rate struclUre and other

income sources in the trade See Ex R 3 Test Year at II Testimony at 7 However the differemial

is smaller than one tenth of one percent

S

l D al 473475
454 FEDERAL MARITIME COMMISSION

cation of different methodologies 9

The Commission s experience with rate

cases has shown that further proceedings on these issues in this case would

be quite laborious and time consuming and would not result in definitive

and generally applicable solutions to these technical methodology problems

A fairer and more appropriate method of reevaluating existing interpreta

tions of G O II is by a separate rulemaking proceeding This approach

is also more compatible with the Congressional intent underlying the 1978

amendments to the ISA lO G O 11 must serve as a set of guidelines

for determining rate of return reasonableness that all interested parties may

rely on in a rate proceeding While periodic review of the regulation

is required under the statute 12 it is more appropriate to do so in the

context of an industry wide rulemaking proceeding wherein all affected

interests may participate not just those parties involved in a particular

case 13 The Commission is giving consideration to the initiation of a rule

making proceeding on the issues noted by the Presiding Officer and on

other selected G O II provisions

Moreover any benefit to ratepayers resulting from potential further down

ward adjustments in the benchmark rate of return or modifications to G O

11 methodology will largely be offset by the necessary delay in effecting

any additional rate roll back resulting from the hearing and review process

on remand

The Commission therefore adopts the JD modified to the extent required

by the Exceptions of Hearing Counsel and orders Matson to roll back

its rates 15 percent to produce a projected rate of return of 1150 percent

for 1986 This comports with the overall weight of evidence of record

Commission precedent and the Congressional sentiment that rate proceedings

be decided with dispatch

THEREFORE IT IS ORDERED That the Exceptions to the Initial Deci

sion filed by the Commission s Bureau of Hearing Counsel are granted

and

IT IS FURTHER ORDERED That the Initial Decision is adopted to

the extent it is consistent with this Order and is modified to the extent

required by this Order and

IT IS FURTHER ORDERED That the Exceptions of the State of Hawaii

and the Saibot Corporation are denied to the extent they are inconsistent

with this Order and

IT IS FURTHER ORDERED That within ten 10 days of the date

of service of this Order Matson Navigation Company Inc file immediately

effective supplements to its Tariffs FMC F Nos 14 IS 16 and 17

I

See IO at 477 478 computation of working capital 484486 allocations between FMC regulated and

ICe regulated service

IOpub L No 95 475 92 Stal 1496 1978

II S Rep No 1240 95th Cong 2d Sess 13 1978

12 See 46 U S C app 845 a

I See supra nOle 11

28 F M C
S JOHN ROBERT EWERS

Secretary

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 455

RATE INCREASE OF 25

1 cancelling the proposed 2 5 percent overall rate increase filed

November 15 1985 and any other proposed overall rate increase

filed during the course of this proceeding and

2 implementing a 15 percent overall reduction in rates and

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission 14

14Commissioner Thomas F Moakley s concurring and dissenting opinion is attached

28 F M C
456 FEDERAL MARITIME COMMISSION

Commissioner Moakley concurring and dissenting

I concur in the majority s conclusion that Matson s proposed 2 5 percent

rate increase is unjust and unreasonable fIowever I believe it is equally

unreasonable for the Commission to order the carrier to reduce its current

rates because the projected rate of return is viewed as less than seven

tenths of one percent too high

Ratemaking is not an exact science I When the mosaic ofreasonableness

includes revenue and expense projections average return on capital for

other industries over time comparable risks and current trends a difference

of seven tenths of one percent in rate of return is an inappropriately fine

line to draw

The overriding principle in adjudicating the reasonableness of domestic

offshore rates is that we reach a fair and reasonable result2

It is not

the methodology employed but the result reached which is controlling

Here the majority would apply a methodology which is generally reasonable

to reach a result which is not

Matson is unquestionably an efficient carrier In this very case the major

ity adopts the following finding of the Administrative Law Judge

Matson has an effective ongoing cost reduction program and is

run in a prudent and relatively efficient manner

Majority order p

447

Because of this Matson s profitability has been increasing while its rates

have remained remarkably stable increasing by only 2 5 percent since

1982 A review of tariffs on file with the Commission will demonstrate

that Matson s rates on most leading commodities are substantially lower

than those available to shippers in the Atlantic CoasVPuerto Rico trade4

where the distance is roughly one half of that to Hawaii

To measure the reasonableness of rates the Commission has chosen

to focus primarily on the rate of return that those rates produce for a

particular carrier This traditional ratemaking standard has the advantage

of being objective and fairly easy to apply but could easily result in

a finding that identical rates are reasonable for one carrIer but unreasonable

for a more efficient competitor The obviously undesirable side effects

of rate of return methOdology are recognized and accommodated by the

Commission s rules which read in pertinent part

b The methodology employed in each case will depend on the

nature of the relevant carrier s operations and financial structure

i

i

I Sea Land Service Inc ncreases in Rates In the U S Pacific CoastPuerto Rico Trade 15 F MC 4 9

10 1971

246 C F R 855J

3

Federal Power Commission v Hope Natural Gas Co 320 U S 591 602 1944

4Matson Navigation Co Tariff FMC P No 15 Items 3000 2066 2000 50 55 60 1052 2076 115

1196 and 1030 Puerto Rico Maritime Shipping Authority Tariff FMC F No 9 Item 3960 Sca LarnJ Service

Inc Tariff FMC F No 6 Item 1000

28 FM C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 457

RATE INCREASE OF 2 5

In evaluating the reasonableness of a VOOC S overall level of

rates the Commission will use return on rate base as its primary

standard However the Commission may also employ other finan

cial methodologies in order to achieve a

fair and reasonable

result

c In evaluating the reasonableness of a carrier s rates the Com

mission may consider in addition to the rate of return of the

filing carrier the effect which approval or disapproval of the

rates will have on other carriers in the Trade

d The Commission reserves to itself the right to employ other

bases for allocation and calculation and to consider other oper

ational factors in any instance where it is deemed necessary to

achieve a fair and reasonable result emphasis supplied 5

As applied in this case the rate of return methodology suffers from

at least two additional shortcomings First the benchmark rate of return

is constructed from a period of five years ending in 1984 Since then

the world has experienced a dramatic drop in the cost of oil which is

the primary reason for the significant increase in Matson s projected profit

ability for 1986 The earnings of the comparable companies ie the bench

mark rate of return do not reflect this energy cost reduction and the

consequent increase in profitability In other words if we could construct

a benchmark rate of return for 1986 it would almost certainly be higher

than 115 percent reflecting the effect of oil cost reductions on the com

parable companies If we fail to account for this significant change on

both sides of the comparison we are not adhering to one critical element

of the comparable earnings test as articulated in Bluefleld Waterworks and

Improvement Co v Public Service Commission of West Virginia 262 U S

679 692 1923 Under that standard earnings should be permitted that

are

equal to that generally being made at the same time and in

the same general part of the country on investments in other

business undertakings which are attended by corresponding risks

and uncertainties emphasis supplied

Second as argued by Matson the comparable earnings test has evolved

into a formula for determining the average return for a wide spectrum

of companies over a period of several years Included in this average

are extraordinarily good years and unusually bad ones efficient companies

and incompetent ones This average is then used as a maximum allowable

rate of return for the regulated carrier

Obviously if the carrier is never allowed to earn higher than the average

return of other companies the carrier s average return over time will nec

essarily be lower than that of the comparable companies because of inevi

table fluctuations in profitability over tine The record supports this syllo

s

46 CFR s552 1
458 FEDERAL MARITIME COMMISSION

gism by indicating that Matson s average rate of return for the period

1975 1984 was 9 48 percent while the average ofthe comparable industries

was approximately 11 5

percent 6

In earlier Matson rate proceedings the Commission implicitly recognized

this flaw in the comparable earnings test by adjusting the benchmark rate

of return upward to account for the increased risk of the regulated carrier

Without explanation the majority has abandoned this approach and instead

adopted the Administrative Law Judge s

finding that

Matson s risk is probably less and certainly no worse than equal

to that of the average U S corporation ID at 490

This conclusion ignores a

very basic difference between a

regulated

carrier and the average U S corporation The latter is able to make

up for bad years with extraordinarily profitable ones The former is not

I would adjust the benchmark rate of return upward by one percent

to account for the increased risk inherent in a

regulated carrier and find

Matson s current rates just and reasonable s

6 Wbit R 7 schedule 8

This findin rests in larse part upon the testimony of Commission staff economists who also supported

a one percent risk premium for Matson in earlier proceedings e

g Docket No 8S3 Their change in posi

don in this proCeeding seem inexplicably to be linked to Matson s

large market hare which everyone agrees

has been steadily shrinking forthe past decade It is also noteworthy that the concept of market contestabllity much discussed in international Uner shiIiping baa not been injected into this type of domestic laic pro ceeding where it would seem to have significant applicab1Jily

8

In view of this position it would be unnecessary to remand the proceeding to develop evidence on the

appropriate adjustment to the benchmark rate of return to accommodate the dramatic drop in energy costs

in 1985 1986

28 FM C
28 F M C 459

FEDERAL MARITIME COMMISSION

DOCKET NO 85 24

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL

RATE INCREASE OF 2 5 PERCENT BETWEEN UNITED STATES

PACIFIC COAST PORTS AND HAWAII PORTS 1

It is held

1 Where the Federal Maritime Commission issues a

regulation containing methodology guide

lines in compliance with a

Congressional mandate to do so and where the regulation

within its tenns provides the Commission may also employ other financial methodologies

in order to achieve a fair and reasonable result and that the Commission reserves to

itself the right to employ other bases for allocation and calculation and to consider

other factors in any instance where it is deemed necessary to achieve a fair and reasonable

result the Commission on a showing of unfairness or unreasonableness may depart

from specific methodologies set forth in the regulation and may adopt any methodology

that produces a fair and reasonable result without giving prior notice to carriers Here

the record does not establish that the carrier s use of methodologies set forth in the

regulation is unfair or unreasonable and those methodologies must be followed

2 Matson generally properly projected its revenues expenses and rate base for 1986 How

ever where a vessel the Matsonia was not used in the Trade since 1981 and would

not be used in the test year 1986 ratepayers should not be required to pay for its

use and it should be excluded from the rate base Further Matson s

projected fuel

costs of 22 per barrel is overstated Based on the evidence of record the average

price of fuel for Matson in 1986 is 15 per barrel Consideration of some of the

evidence which was the result of recent sudden and dramatic changes in the oil market

was both necessary and warranted since it was bound to affect the estimate made by

Matson

3 Where a carner expends monies to modify a vessel it originally leased for 25 years

and amortizes the cost of the modification over the remaining life of the lease 16

years in accordance with accepted accounting principles and where the protestant does

not establish that the vessel s useful life has been extended and that it will be available

to be used in the Trade for a period longer than the remaining life of the lease

it isheld the carrier s treatment of amortization is proper

4 Where a carrier allocates exptnses between its Commission and non Commission regulated

services using the cargo cube method which method was adopted in the Commission s

regulation after in depth consideration of other methods and where the evidence in

the record fails to prove that the use of the cargo cube method was unfair or unreasonable

the use of such method is not improper

5 Where the evidence shows an increase in competition in the Trade but where such

increase is minimal and does not affect the carrier s dominant position in the Trade

where it retains over a 70 percent share of the Trade and is the leading ratemaker

the carrier s business is not more risky than the majority of the Value Line test

companies and no upward adjustment to the benchmark rate of return for current trends

in relative risk is warranted Further in this case where the regulation allows an adjust

ment for current trends in relative risk the use of a 15 year historical average

I Matson reduced irs proposed rate increase to 1 percent after the proceeding began
460 FEDERAL MARITIME COMMISSION

to detennine the variability of past earnings as a measure of current trends in relative

risk is questionable

6 Based on the record in this proceeding where no party offers evidence in support of

a specific adjustment no adjustment to the benchmark rate of return is warranted for

current trends in rates of return

7 Where the Commission regulation provides for an adjustment to the benchmark rate of

return for current trends in the cost of money interest rates and where the evidence

of record clearly establishes a dramatic decline in interest rates the carrier s use in

this case of a 15 year period to establish an average interest fate from which it produces

an upward adjustment has the effect of unduly distorting the current trend and no

upward adjustment is warranted Further since no party recommended or presented evi

dence supporting a specific downward adjustment none can be made

8 Based on the evidence of record the allowable rate of return is between 115 and 12 5

percent Consequently it is held that the I percent increase sought by Matson is excessive

and that the present rates are Dotunfair or unreasonable

David F Anderson Meredith N Endsley and George D Rives for Matson Navigation

Company respondent

William W Milks for the State of Hawaii protestant

Tobias E Seaman for The Saibot Corporation dba Tobias Christmas Trees intervenor

Aaron W Reese and Alan J Jacobson as Hearing Counsel

INITIAL DECISION 2 OF JOSEPH N INGOLIA ADMINISTRATIVE

LAW JUDGE

Partially Adopted June 26 1986

This proceeding began as a result of the issuance of the Commission s

Order of Investigation and Suspension served on December 30 1985 Gen

erally the Commission ordered

That pursuant to the authority of sections 18 a and 22 of the

Shipping Act 1916 46 VS C app 817 and 821 and sections

3 and 4 of the Intercoastal Shipping Act 1933 46 V S C app

845 and 845a an investigation is institUted to detennine wheth

er the rate increase of 2 5 percent is just and reasonable 3

and further

That pursuant to sections 18 a and 22 of the Shipping Act

1916 46 VS C app 817 and 821 an investigation is instituted

to detennine whether the rates stated in the above named Matson

tariffs are just and reasonable without the proposed 25 rate

increase

1

This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 502 227

30n November IS 1985 MatSOn Navigation Company Inc Matson filed amendments to its Tariffs

FMC F Nos 14 15 16 and 17 proposing an overall Increase of 25 percent on all rates and charges moving

in its Pacific CoastIHawaii trade except on household goods orpersonal effects effective January I 1986

28 F M C
28 F M C

MATSON NAVIGATION COMFANY INC PROPOSED OVERALL 461

RATE INCREASE OF 2 5

The Commission Order notes that the State of Hawaii through its Depart

ment of Commerce and Consumer Affairs had filed a protest urging the

rejection or suspension and investigation of Matson s increase It names

the State of Hawaii as a party to the proceeding as well as Matson and

the Bureau of Hearing Counsel The Saibot Corporation Tobias is also

a party

In addition to the general issues set forth above the Commission s Order

requires

That in determining the fair rate of return for Matson the fol

lowing issues shall be addressed 5

1 Has Matson properly projected its revenues expenses and

rate base for 1986

2 Has Matson properly allocated its revenues expenses and

rate base between its Commission and non Commission regulated

services for 1986

3 Are the business and financial risks faced by Matson greater

or less than those faced by an average U S corporation If so

should Matson s rate of return be adjusted and

4 Are the current trends in rates of return and interest rates

such that Matson s rate ofreturn should be adjusted

The Commission Order also requires that this Initial Decision be submitted

by April 3D 1986 and indicates that the final decision of the Commission

shall be issued by June 27 1986 6 In addition the Commission pursuant

to the authority of section 3 of the Intercoastal Shipping Act 1933 46

U S C app 845 suspended the proposed 2 5 percent rate increase to

June 3D 1986 7

Prior to the hearing in this proceeding the parties engaged in a series

of settlement negotiations none of which were successful Also prior to

the hearing Matson indicated that it was cancelling 1 5 percent of its

proposed 2 5 percent rate increase based on the decline in the price

4After the issuance of the Commission s Order The Saibot Corporation db a Tobias Christmas Trees filed

aPetition to Intervene in this proceeding The Petition Motion was granted by Order served on January

24 1986

5Public Law 95475 which amends the Intercoastal Shipping Act of 1933 requires the Commission to

set forth the specific issues involved Section 3 a of the 1933 Act states

The Commission shall not order a hearing pursuant to Ihis subsection unless the Commission

publishes in the FEDERAL REGISTER the reasons in detail why it considers such a hearing to be

necessary and the specific issues to be resolved by such hearing

See Sen Report No 95 1240 95th Cong 2d Sess September 26 1978 at 1 2 13

6Section 3 b of the Intercoastal Shipping Act of 1933 generally requires that where a rate increase is

requested and the Commission orders ahearing concerning the lawfu ness of such rate afinal decision will

be issued within 180 days of the time the rate first goes into effect or if suspended when the rate would

otherwise have gone into effect

Commissioner Moakley concurred with the majority of the Commission that Matson s current rates should

be investigated under section 8 a of the Shipping Act 1916 46 U S C app 817 However he dissented

with that portion of the Order which suspended Matson s 2 5 percent increase
462 FEDERAL MARITIME COMMISSION

of bunker fuel sAt the hearing the written direct testimony of various

witnesses which had previously been submitted was placed into evidence

as was written rebuttal Various witnesses also testified on cross examination

and additional documentary evidence was entered into the record

Findings of Fact

It should be noted at the outset that despite repeated attempts to secure

a

comprehensive joint stipulation of facts from the parties time strictures

apparently prevented the presentation of such a

stipulation Instead the

record contains only a sketchy and relatively useless statement of certain

facts which are agreed and fails to address the bulk of documentary evidence

placed into the record much less the factual oral testimony given Indeed

even in the briefs referenced findings of fact are not adequately set forth

As a result the facts enumerated below have been found without the aid

a well prepared stipulation may have given In some rare instances the

general nature of the fact found is based on overall consideration of the

entire record rather than on one particular document or statement and

in those instances complete specific record references may not be given

It should be noted that reference to documentary exhibits in this proceeding

are as follows

Party Exhibit No

Matson R let seq

State of Hawaii PH l et seq

Tobia PT i et seq

Hearing Coun el PHC I et eq

1 The Respondent Matson Navigation Company Inc Matson is a

wholly owned subsidiary of Alexander Baldwin Inc a Honolulu based

diversified company whose principal activities other than ocean transpor

tation are agriculture property development trucking and storage Matson

is the sole owner of Matson Terminals Inc Matson Freight Agencies

Inc parent of Matson Agencies Inc and Matson Services Company

Inc Ex R 2 p2

2 Matson has served in the United States Mainland Hawaii trade since

1882 It presently provides ocean transportation between the Pacific Coast

and Hawaii and between those ports and ports in the Westem Pacific

TrustTerritory and Johnston Island Ex R 2

p

3

3 Containers represent the largest cargo group handled by Matson There

are also non container cargoes such as autos molasses and conventional

cargo which does not fit into containers Ex R 2 p

6 Ex N

4 Container cargo moves westbound primarily from Oakland and Los

Angeles with considerably less from the Pacific Northwest Molasses origi

8Matson filed Special Permission Application No 278 with thlll Commission wherein it seeks 10 cancel

15

percent of the 25 percent overall ratc increase It was subsequently withdrawn

28 FM C
28 F M C

MATSON NAVIGATION COMFANY INC PROPOSED OVERALL 463

RATE INCREASE OF 2 5

nates in all of the islands and moves to all four West Coast ports as

bulk liquid cargo There is a directional imbalance in the Hawaiian Trade

The westbound containers and auto traffic are substantially greater than

the eastbound traffic and the westbound trade cargoes are generally higher

rated cargo Approximately one third of the westbound containers are re

turned loaded with eastbound cargo one half of which consists of fresh

or canned pineapple Auto movement is greater westbound than eastbound

Molasses moves exclusively in an eastbound direction Oversize conven

tional cargo moves predominantly in a westbound direction Ex R 2 pp

6 7 Exs PH 5 through PH 7 Entire Record

5 Matson s projected income expense and rate base figures are calculated

using the period January I 1986 through December 31 1986 as the

Test Year for determining the reasonableness of Matson s proposed rate

increase and existing rates Ex R 3

p

4

6 Matson s cargo forecast for 1986 is reasonable and is the basis for

Matson s revenue projections for 1986 Ex R I

7 Matson s share of total revenues of General Order II reporting carriers

in the U S MainlandHawaii trade has declined from 93 percent in 1975

to 71 percent in 1984 Ex R I p

6

8 Matson faces some competition from both regulated and unregulated

carriers in the U S Mainland Hawaii trade and indirect competition from

liner and contract carrier services bringing cargo from foreign origins to

Hawaii Ex R I

p

17

9 Matson competes with barge service for bulk and other cargoes This

cargo constituted under 25 percent of Matson s westbound cargo movement

Ex R 4

p

4

10 During 1986 Matson will utilize five specialized vessels and the

inter island barges for the carriage of cargoes in its U S Pacific Coast

Hawaii Trade The five specialized vessels will operate with an 84 percent

utilization of container slots and a 98 percent utilization of garage stall

and 0 hatch space for autos Ex R 2 Ex 2

IIIn computing its working capital as part of the rate base Matson

used the voyages and voyage days as it is required to do by G O I I

It considered only its long haul vessels and not inter island barges in the

computation Ex R 3 Test Year p

3

12 The Matsonia has not been used in the Pacific CoastHawaii fleet

since 1981 It was not withdrawn from the service for renovation or conver

sion It entered the shipyard for reconstruction in 1986 but will not return

to service in that year Ex R 2 p

9 Ex R 5 p17

13 Matson leased the vessel Lurline in 1973 under a 25 year lease

renewable for 5 years with an option to purchase at fair market value

on termination of the lease In 1982 it modified the vessel and amortized

the modification costs as well as the initial cost over the remaining life

of the lease in accordance with Financial Accounting Standards Board

No 13 FASB practice Ex R 5 p

15
464 FEDERAL MARITIME COMMISSION

j

14 Matson s ongoing cost reduction program in recent years has included

a new consolidated terminal at Sea Island in Honolulu Harbor a vessel

full conservation program vessel construction and reconstruction programs

vessel modifications to increase ClllTYing capacity replacement of aging

aluminum with stainless steel containers and an improved container lashing

system Matson is operated in a prudent and relatively efficient manner

Ex R 2 pp 9 10

15 When Matson filed its 2 5 percent rate increase it was not required

to file anything other than a certification that the Statements of Financial

Data and Operating Data required by Part 552 21 were not necessary

under General Order IIIt filed the certification initially After the Order

of Investigation and Suspension was issued in the discovery phase of

this proceeding Matson did file some financial statements required by

G O II in proposed general rate increases In doing SO Matson followed

the G O 11 methodologies and the year 1985 has been restated to show

storedoor cargo as being under an ICC tariffthroughout the year although

such cargo was not removed from FMC tariffs until November of 1985

Ex R 3 pp 15 16 Entire Record

16 Matson s original prediction for the average per barrel fuel forecast

was 22 per barrel It later reduced its rate increase from 25 to percent

and lowered its forecast to 18 per barrel The correct average per barrel

forecast for 1986 is 15 per barre Ex PHC5 Exs R 5 R O

17 Return on rate base is the primary standard the Commission uses

in evaluating the reasonableness of a vessel operating common carrier s

level of rates Return on rate base is computed by dividing Trade net

income plus interest expense by Trade rate base 46 CFR 552 I b and

552 6 d 2 i

respectively

18 Adjusting for the elimination of the value of the Matsonia from

rate base and also adjusting for average fuel cost of 15 per barrel the

rate of return on rate base for the FMC regulated Hawaii trade will be

2 19 percent without a I percent increase Ex PHC 2 revised pp 4

5

19 Matson s 1986 rate base for its Pacific CoastHawaii Trade is

230 276 000 and Matson s 1986 total net income without a I percent

increase is 28 074 000 Ex PHC 2 revised

20 General Order 11 requires that the reasonableness of a carrier s

return on rate base will be based on a comparative analysis of the carrier s

projected return on rate base with the return on total capital earned by

comparable U S corporations 46 CPR 552 6 d 2 ii

21 Matson allocated its expenses between FMC Trade and non Trade

movements on the bases of cargo cube as required by G O 11 The record

establishes that the shifts of high rated westbound cargo from FMC to

ICC tariffs does have the effect of placing more of the expense burden

on FMC ratepayers than before Ex R 3 TestYear p

14

j

I

2S F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 465

RATE INCREASE OF 2 5

22 The IS year period ending in 1984 is an appropriate period for

establishing the historic benchmark rate of return on total capital before

adjustment for current trends in the cost of money for risk and in rates

of return The benchmark rate of return is 1156 percent Ex R 7 pp

8 13 Sch I

23 General Order II provides that where appropriate the benchmark

rate of return may be adjusted for current trends in rates of return the

cost of money and relative risk 46 CFR 552 6 d 2 ii

24 Rates of return peaked in 1980 and have trended downward since

that time Ex PHC 6 p18 Entire Record

25 The levels of long term and short term interest rates have come

down recently as has the level of inflation Corporate triple A bonds have

declined from a rate of 14 percent in 1981 to 9 29 percent on March

I 1986 Present interest rates are at their lowest level in eight years

It is more reasonable to expect lower rather than higher interest rates

in 1986 Ex PHC 6 pp 18 19 Tr 239 240 558 590 794 795

26 Matson s risk is below the average risk of the average U S corpora

tion since Matson s share of the Trade is over 70 percent since it is

the leader in the Trade in setting rates and since its competition has

had a minimal effect on Matson s relative position in the Trade and in

the Hawaiian Service generally Ex PHC 6 pp 11 16

Ultimate Facts

27 General Order II establishes guidelines for the methodology to be

used in determining what constitutes a fair and reasonable rate of return

or profit The regulation specifically gives the Commission the authority

and discretion to depatt from the methodology where it would lead to

an unfair or unreasonable result and the Commission may do so on a

case by case basis without prior notice to the carrier However where

as here the record fails to establish that the methodology used was unfair

or unreasonable General Order II methodologies must be followed

28 Matson s cargo forecasts are reasonable and may be used to estimate

revenues in the Test Year 1986

29 The Matsonia should not be included in Matson s rate base since

it was removed from service in 1981 Matson s Board of Directors did

not approve reconstruction until February of 1985 and it will not reenter

service in 1986 the Test Year

30 The evidence of record does not establish that Matson s treatment

of the Lurline lease is improper and therefore Matson may amortize the

remaining chatter hire payments as modified over the remaining term of

the original lease

31 The correct average cost of fuel per barrel for the Test Year 1986

is 15 per barrel

32 The evidence of record does not establish that Matson s use of

cargo cube measurements to allocate expenses between FMC Trade and
466 FEDERAL MARITIME COMMISSION

the non Trade movements is unfair or unreasonable and therefore Matson

allocation is proper under General Order 11

33 Matson is less and not more risky than the average U S corporation

and no upward adjustment to the benchmark rate of return is warranted

Since the evidence fails to establish to what degree Matson is less risky

no downward adjustment is warranted

34 No adjustment to the benchmark rate of return for current trends

in rates of return is warranted

35 Interest rates are declining and the evidence does not support any

upward adjustment to the benchmark rate of return for cost of money

Since the countervailing evidence does not establish the specific amount

of the decline in the cost of money no downward adjustment for current

trends is warranted

36 The benchmark rate of return is 1156 percent and on the basis

of this record it should not be adjusted up or down for current trends

However the difference between the benchmark rate and the rate Matson

would realize after adjustment for the Matsonla and average fuel costs

is in our best judgment within the zone of reasonableness and Matson s

present rates are not unfair or unreasonable

37 Matson s

request for a 1 percent rate increase would in our best

judgment be unfair and unreasonable and is therefore rejected

J

Discussion Findings and Conclusions

As has previously been noted the Comnission generally has ordered

that a determination be made as to whether or not Matson s tariffs are

reasonable with or without the proposed 1 percent formerly 2 5 percent

rate increase It has set forth four specific issues that will be considered

and discussed below However before moving to those specific issues

it is important to enumerate the basic principles which govern determinations

made in rate cases The two leading cases were both decided by the

Supreme Court of the United States They are Bluefield Waterworks and

Improvement Company v Public Service Cornission of West Virginia 262

U S 679 1923 and Federal Power Comnlsslon v Hope Natural Gas

Co 320 U S 91 1944 In Bluefield at page 692 the Court stated

A public utility is entitled to such rates as will permit it to

earn a return on the value of the property which it employs

for the convenience of the public equal to that generally being

made at the same time and in the same general part of the

country on investments in other business undertakings which are

attended by corresponding risks and uncertainties but it has no

constitutional rights to profits such as are realized or anticipated

in highly profitable enterprises or speculative ventures The return

should be reasonably sufficient to assure confidence in the finan

cial soundness of the entity and should be adequate under efficient

and economical management to maintain and support its credit

28 FM C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 467

RATE INCREASE OF 2 5

and enable it to raise the money necessary for the proper discharge

of its public duties A rate of return may be reasonable at one

time and become too high or too low by changes affecting oppor

tunity for investment the money market and business conditions

generally

Later in Hope the Court at page 603 refined and enlarged the above

test as follows

The ratemaking process under the Act Le the fixing of just

and reasonable rates involves a balancing of the investor and

consumer interests T he investor interest has a legitimate

concern with the financial integrity of the company whose rates

are being regulated From the investor or company point of view

it is important that there be enough revenue not only for operating

expenses but also for the capital costs of the business These

include service on the debt and dividends on the stock

By that standard the return to the equity owner should be commen

surate with returns on investments in other enterprises having

corresponding risks That return moreover should be sufficient

to assure confidence in the financial integrity of the enterprise

so as to maintain its credit and to attract capital

A reading of the above language and of some legal commentators clearly

indicates that the BluefieId and Hope cases actually set forth two tests

for determining a fair rate of return 9 The commentators seem to disagree

as to whether or not the Icost of capital test or the comparable earnings

I

test should be the primary legal standard 1O Given the above one must

answer the obvious question i e did the Commission choose one test

over the other and if so which test

In Docket No 78 46 Financial Reports of Common Carriers by Water

in the Domestic Offshore Trades 19 SRR 1283 the Commission revised

General Order 11 effective March 28 1980 11 46 CFR 552 et seq

The order provides

552 1 Purpose

a The purpose of this part is to establish methodologies that

the Federal Maritime Commission will utilize in evaluating the

reasonableness of rates in the domestic off shore trades filed by

vessel operating common carriers VOCC s subject to the provi

sions of the Intercoastal Shipping Act 1933

9See Phillips The Ecorwmics of Regulation Richard D Irwin Inc 1965 p

268 Locklin Economics

o Transportation Richard D Irwin Inc 1972 7th Ed p 394

IOSee James C Bonbrighl The Principles of Public Utility Rates Columbia University Press 1981 p

257 and Phillips supra who advocate cosl of capital lest and Leventhal Vitality of the Comparable

Earnings Standard for Regulation of Utilities in a Growth Economy 74 Yale Law Journal 989 994995

1965 and Locklin supra who advocate the comparable earnings test

IIThe background of the revision and its relationship to the enactment of PL 95 475 will be discussed

in a latter portion of this decision
468 FEDERAL MARITIME COMMISSION

I

b The methodology employed in each case will depend on

the nature of the relevant carrier s operations and financial struc

ture in evaluating the reasonableness of a VOCC s overall level

of rates the Commission will use return on rate base as its

primary standard However the Commission may also employ

other financial methodologies in order to achieve a fair and reason

able result Emphasis supplied

In considering the general principles applicable in rate cases it is well

to remember that many of the determinations made are based on predictions

and on subjective factors that militate against any great degree of precision

and the Supreme Court has long recognized a zone of reasonableness

Peruvian Air Base Rate Cases 390 U S 747 1968 In United Railways

Elec Co v West 280 U S 234 251 1930 The Supreme Court

stated

What will constitute a fair return in a given case is not capable

of exact mathematical demonstration

and further

It is a matter of more or less approximation about which conclu

sions may differ

Perhaps as a result of the Court s recognition that ratemaking is something

less than an exact science courts general1y tend to give administrative

bodies wide latitude and discretion in exercising their judgment In Market

Street Ry Co v Railroad Commission of California 324 U S 548 1945

the Supreme Court at page 559 justified the Railroad Commission s failure

to fol1ow expert testimony stating at page 559

It is contended that the Commission should draw conclusions

from these facts only upon hearing testimony of experts as to

the conclusions they would draw from the facts of record Experts

judgments however would not bind the Commission Their testi

mony would be in the nature of argument or opinion and the

weight to be given it would depend upon the Commission s esti

mate of the reasonableness of their conclusions and the force

of their reasoning

In Bluefield supra the Supreme Court at page 692 stated

What annual rate will constitute just compensation depends upon

many circumstances and must be determined by the exercise of

a fair and enlightened judgment having regard to al1 relevant

facts

In idaho Power Co v Thompson 19 F 2d 547 552 D Ida 1927 the

Court stated

where a factor in the problem involves prophesy sic or

rests upon mere opinion evidence the Commission was not nor

28 FM C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 469

RATE INCREASE OF 2 5

are we bound to accept absolutely and without qualification one

or the other of two conflicting views or the opinion of a single

expert where but one testifies

In Association of American Publishers Inc v U S Postal Service 485

F2d 768 773 D C Cir 1973 the District of Columbia Circuit Court

ofAppeals stated

The appraisal of cost figures is itself a task for experts since

these costs involve many estimates and assumptions and unlike

a problem in calculus cannot be proved right or wrong They

are indeed only guides to judgment Their weight and significance

require expert appraisal

Finally the last and we think the most important general principle to

be applied in a rate case was succinctly set forth by the Commission

itself in Trailer Marine Transport Corporation Proposed General Increase

in Rates 22 F M C 175 198 n 8 1979 There the Commission stated

Regardless of the specific issues stated in an order of investiga

tion the ultimate issue in any proceeding involving a increase

in rates remains whether the increase is just and reasonable

Emphasis supplied 12

Given the above principles it now remains for us to apply them in

considering the specific issues raised by the Commission in its Order of

Investigation and Suspension Cutting across those issues is the recurring

and overriding question of whether or not the guidelines set forth in G O

II must be adhered to and to what extent That question will now be

considered

Issue No I What is the purpose and effect ofGeneral Order II 46

CFR Part 552 et seq

Throughout the trial of this proceeding and in their briefs Matson and

the State of Hawaii with Tobias have engaged in a continuing argument

as to the purpose and effect of G O II Generally Matson avers that

G O II must be strictly adhered to if rate cases are to be decided expedi

tiously as the Congress infended It avers that Fairness to the Carrier

Requires Adherence to the General Order 11 Guidelines and that the

Commission must give the carrier notice if it is going to change G O

11 citing Boston Edison Co v FP C 557 F 2d 845 D C Cir 1977

cerl denied 343 U S 956 1977 and FE R C v Triton Oil and Gas

Corp 750 F 2d 113 116 D C Cir 1984 The State on the other hand

with Tobias agreeing argues that while it does not contest the fact that

12While this case unlike thepresent case involved a general rate increase the statement applies equally

to the proposed rate increase involved in Ihis proceeding We think the holding reflects the principles enun

dated in Hope supra at page 602 that Under the statutory standard of just and reasonable it is the

result reached nor Ihe mefhod employed which is controlling
470 FEDERAL MARITIME COMMISSION

Congress intended to shorten the period of rate investigations to 180 days

and that the Commission was mandated by the Congress to prescribe

guidelines for the determination of what constitutes a just and reasonable

rate of return or profit it disagrees with Matson on its interpretation

of strict adherence to the prescribed rules regardless of the circumstances

and conditions under which such rules are being applied The State then

argues the applicability or inapplicability of 0 0 11 as to specific issues

which will later be discussed

In order to make any determination regarding the application of 0 0

11 it is necessary to know how it came into being what it says and

what the Commission itself has said in case law decided after the general

order was promulgated Its origins are rooted in the amendment of the

Intercoastal Shipping Act of 1933 by Public Law 95 475 In amending

the 1933 Act Congress noted the P L 95 475 had two primary purposes

It stated S R No 95 1240 95 Cong 2nd Sess p

3331 1978

The first purpose is to alter the power of the Federal Maritime

Commission FMC to suspend general rate increases or decreases

in the domestic offshore trades This is intended to avoid unneces

sary interruptions in rate increases or decreases which may be

lawful to provide for refunds if rate increases go into effect

and are later found illegal and to extend the susnsion power

in those cases where it is needed to protect legitimate interests

of the shipping public

The second purpose is to expedite the decisionmaking process

of the FMC in its regulation of the domestic offshore trades

This will assure that the shipping public receives the benefit of

prompt application of matters before the Commission and that

the participants will be spared the time and expense of partici

pating in unnecessarily long and complex proceedings

In the House Report H R Rep No 95 474 95th Cong 1st Sess 10

1977 it was explained that the law requires the Commission to promul

gate methodology guidelines for determining an appropriate rate of

return and that these guidelines should be given substantive effect

and be followed rigidly in each rate proceeding

The Intercoastal Shipping Act as amended in accordance with the Con

gressional purpose page 2 of the Senate Report requires

the Commission to periodically promulgate guidelines for

the determination of reasonable rates of return or profit for com

mon carriers subject to the 1933 Act

and requires

28 FM C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 471

RATE INCREASE OF 2 5

the Commission to explain in detail its reasons for instituting

a hearing on rate changes in the domestic offshore trades and

publish such explanation in the Federal Register 13

After the enactment of P L 95475 the Commission did undertake to

publish what is now General Order II Before doing so it held a prolonged

rulemaking proceeding in Docket No 78 46 to establish methodologies

that the Commission intends to follow in evaluating rates in the domestic

offshore trades filed by vessel operating common carriers and to provide

for orderly acquisition of data Financial Reports of Common Carriers

by Water in the Domestic Offshore Trades 19 SRR 1283 1980 A reading

of the report attests to the broad scope of the rulemaking as well as

to the detailed determinations made by the Commission Some of the issues

raised in this proceeding were raised in the rulemaking albeit not on

the same facts or in the same manner

14 As a result of the proceeding

the Commission promulgated the present G O II

The pertinent provisions of G O II are as follows

552 1 Purpose

a The purpose of this part is to establish methodologies that

the Federal Maritime Commission will utilize in evalutating the

reasonableness of rates in the domestic offshore trades filed by

vessel operating common carriers VOCCs subject to the provi

sions of the Intercoastal Shipping Act 1933 46 D S C app 843

844 845 845 a and 847 and to provide for the orderly acquisi

tion of data essential to this evaulation Compliance is mandatory

and failure to file the reports required under this part may result

in denial of rate increases or rejection of tariff pages implementing

rate changes or penalties of up to 100 for each day of such

default 46 D S C app 820 a

b The methodology employed in each case will depend on

the nature of the relevant carrier s operations and financial struc

ture In evaluating the reasonableness of a VOCCs overall level

of rates the Commission will use return on rate base as its

primary standard However the Commission may also employ

other financial methodologies in order to achieve a fair and reason

able result

c In evaluating the reasonableness of a carrier s rates the

Commission may consider in addition to the rate of return of

the filing carrier the effect which approval or disapproval of

the rates will have on other carriers in the Trade

d The Commission reserves to itself the right to employ other

bases for allocation and calculation and to consider other oper

ational factors in any instance where it is deemed necessary to

achieve a fair and reasonable result

13 See section 3 of the Intercoastal Shipping Act for the complete text which sets forth specific require

ments for dealing with rate increases including hearings suspensions and time limitations

14These issues will be discussed in a Jailer portion of lhis decision
472 FEDERAL MARITIME COMMISSION

J

552 6 Forms

I

i

d Rate of return Exhibits C and CA 1 General AIl

carriets are tequired to calculate rate of return on rate base How

ever the Commission or individual carriers at the Comllission s

discretion may also employ fixed charges coverage andor oper

ating ratios

2 Return on rate base i The return on rate base will be

computed by dividing Trade net income plus interest expense

by Trade rate ba

Ii The reasonableness of a carrier s return on rate base will

be based on a

comparative analysis of the carrier s projected

return on rate base with the rate of return on total capital earned

by comparable U S corporations This technique the comparable

earnings test is based on analysis of the earnings of U S corpora

tions over an extended period of time From these time series

data the average rate of return earned by U S corporations is

computed and where appropriate adjusted for current trends in

rates of return the cost of money and relative risk

In addition to the above G O II requires the filing of specific forms

and data when there is a general rate increase Part 552 2 I g sets

forth how property and revenue is to be allocated part 52 2j

defines

the meaning of voyage service trade and Hcargo cube Part

552 5 provides what should be included in the rate base including vessels

depreciation working capital and capitalized interest and leases Part

552 6

a deals with administrative and general expenses part 552 6 c 4

and with interest expense part 552 6 c 5 inactive vessel expense Part

552 6 c 6 provisions for income tax Part 552 6 c IO and many other

matters They all generaIly relate to the items required on the forms that

must be filed when a general rate increase is sought or items contained

in the carrier s annual report

Since the promulgation of G O 11 16 the Commission has decided several

rate cases Probably the most important of them is Docket No 81 10

Sea Land Service Inc

Trailer Marine Transport Corporation Gulf Carib

bean Marine Lines Inc and Puerto Rico Maritime Shipping Authority

Proposed General Rate Increases in the Puerto Rico and Virgin Islands

Trades 24 F MC 164 1981 affd 678 F 2d 327 D C Cir 1982 herein

after called Sea Land In Sea Land the Commission held that

Under General Order 11 the fixed charges coverage ratio may

be used as an alternative standard for measuring the reasonableness

I

I

I This case does not involve a

general rate increase and all that is needed to avoid many of the filin

requirements is acertification from the voce that the increase is not a general rate increase and that the

financial and operating data required by Part 52 t

is not required

16 It should be noted that the Commission made some relatively minor changes to 0 0 11 in Docket No

8146

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 473

RATE INCREASE OF 2 5

of proposed rates only when the rate of return on rate base

method produces an unreasonable result Emphasis supplied

Further in affirming the Commission the United States Court of Appeals

for the District of Columbia held that

In reviewing rate making decisions of administrative agencies

courts must take proper cognizance of both difficulty of task

and expertise of agency performing it

and that

In reviewing general rate increase order of Federal Maritime

Commission Court of Appeals must determine whether Commis

sion properly carried out its mandate from Congress to review

carrier filed rates for justness and reasonability

and that

an Order by Congress to administrative agency to consider

matter expeditiously is not a mandate to be arbitrary capricious

irrational or sloppy but strict time frames within which to work

may require agency to make its decision on record more slender

than desired and may render acceptable terse explanation of rea

soning

and that

When evidence of record does not fairly establish either propo

sition or its contrary administrative agency is within its sound

discretion in adhering to what is knowable and avoiding what

is necessarily in domain of speculation

and finally that

the Court of Appeals will accept agency s interpretation of

its own regulation so long as it does not do violence to language

ofregulation itself

Given the above it remains for us to clarify the application of G O

lIto this proceeding We can readily agree with Matson that G O 11

guidelines were mandated by Congress and that adherence to them is re

quired especially in the filing of the various forms and documents that

are required in general rate increases However that is quite different

from the view that the guidelines themselves are mandatory in the sense

that they can never be changed or must be followed blindly Certainly

it would be a clear denial of due process to exclude evidence as inadmis

sible as Matson requested at trial because the evidence did not follow

the specific format or methodology set forth in G O 11 It is clear from

a

reading of the general order itself that the Commission may also

employ other methodologies in order to achieve a fair and reasonable

result emphasis supplied and that The Commission reserves to itself
474 FEDERAL MARITIME COMMISSION

the right to employ other bases for allocation and calculation and to consider

other operational factors in any instance where it is deemed necessary

to achieve a fair and reasonable result This clear language comports

with Congress desire that the Commission shall from time to time

review such regulations and make such amendments thereto as may be

appropriate

So here we reject Matson s view that the guidelines are mandatory

if that view means to imply that once a methodology or report or adjust

ment is set forth in G O II it must be followed Such a view would

mean that the Commission could not react promptly to factual changes

that they had neither considered nor contemplated when G O II was pro

mulgated The regulation itself says otherwise and the real test is whether

or not adherence to G O 11 produces a fair and reasonable result As

to Matson s argument that it must be given notice of changes in the

general order under the holding in the Bosron supra case we also disagree

The facts in the Boston case and the application of the regulation as

well as the content of the regulation itself differ markedly from G O

11 which within its terms allows for the use of other standards That

is not to say that from a pragmatic point of view we disagree totally

with Matson on this point Where a material change is contemplated in

G O 11 for example in a

reporting requirement that is not the result

of a claim of unfairness or unreasonableness on the part of a protestant

then it would seem that some kind of prior notice is essential even if

only to allow the carrier to comply Such notice however is hardly a

precondition to the use of alternative methodologies as Matson suggests

where fairness and reasonableness dictate otherwise

Turning to the State and Tobias and the assertion that G O 11 should

not be considered a precise and unflexible prescription which cannot

be modified to produce a more reasonable and realistic result we would

agree with that premise We would also agree that the language in Sea

Land supra at 24 F M C 170 which states that Adherence to G O

II therefore is essential Departures from this requirement cannot generally

be permitted in rate proceedings emphasis supplied must be read in

the light of the facts and circumstances of that case Further the Commis

sion s use of the word generally which Matson seems to ignore suggests

that where the result was unfair or unreasonable it would exercise its

discretion and allow the use of other methodologies Finally as we have

noted we would certainly agree with Hawaii that due process requires

consideration of evidence going to the validity and propriety of G O II

methodologies in particular circumstances

Once having said all of the above however the question that really

arises is just how compelling must the evidence be before G O II meth

odologies and procedures are deemed unfair and unreasonable and need

to be changed In our view in a rate case that evidence must be specific

and clear and must not only identify what one claims to be unfair and

2S F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 475

RATE INCREASE OF 2 5

unreasonable but must suggest what is fair and reasonable so that the

Commission may arrive at a fair and reasonable rate of return Here

as will be seen as the specific issues are discussed the State raises some

G O II issues that cause concern that cause one to question However

framing an issue or proving the existence of a question is not enough

No specific viable alternatives are offered which are themselves shown

to be fair and reasonable We suspect the imposition of time limits may

have prevented a fuller presentation of facts or competing methodologies

and that as Hearing Counsel points out the issues may deserve more

attention than is possible given the time constraints of this proceeding

Whatever the reason we have generally found against the State and Tobias

where questions of G O II methodology are concerned not because we

are always satisfied with Matson s use of the methodology but because

the record does not clearly establish unfairness or unreasonableness and

does not offer other methodologies which are fair and reasonable and

which can be incorporated into a determination of a fair and reasonable

rate of return

Perhaps in recognition of the above the State requests that the Commis

sion initiate another G O II rulemaking proceeding That request of course

is one the Commission may grant in its discretion However since the

Commission exhaustively considered the regulation in Docket No 78 46

and since it has been held that the present G O II allows for the use

of other methodologies and since this proceeding was conducted under

severe time constraints which disadvantaged all the parties the Commission

may wish to consider the alternative of remanding the proceeding insofar

as it relates to the reasonableness of the present rates where no time

limitation need to be set so that the parties may be given a realistic

opportunity to fully develop the facts and issues l7 Such an approach would

avoid a prolonged and unnecessary repetition of all of the matters reviewed

in Docket No 78 46 and would allow for specific treatment of particular

issues such as the effect on FMC ratepayers when Matson shifts cargo

movements to ICC tariffs and uses cargo cubes to allocate the computation

of voyage days where barge traffic to the Neighbor Islands is involved

and the validity of some of the adjustments made by the State s expert

Issue NO 2 Has Matson properly projected its revenues expenses and

rate base for 1986

Projected Revenues

In determining whether or not Matson properly projected its revenues

expenses and rate base for 1986 it is necessary to consider several smaller

17The reasonableness of the present rates is an issue raised pursuant to the authority of sections 18 a

and 22 respectively of the Shipping Act of 1916 46 U S capp 817 and 821 where the 180 day time

limitation does not apply No party has raised any issue regarding the applicalion of GO 11 methodologies

where these sections of the 1916 Act are involved
476 FEDERAL MARITIME COMMISSION

collateral issues raised by the parties The first involves Matson s projected

revenues In estimating its revenues for 1986 Matson made certain cargo

forecasts It presented its Manager Cargo Forecasting and Sales Analysis

who testified Ex R I pp 1 3 Tr 22 25 that the forecast is made

on the basis of customer contacts the evaluation of the competitive situation

and an analysis of economic trends as well as a review of historical results

and trends He projected total revenues of 286494 000 in 1986 based

on Matson s proposed rates of which 206 896 000 was allocated to the

Trade FMC tariffed movements Hearing Counsel and Tobias did not

seriously contest Matson s revenue projections or offer substitute data The

State of Hawaii however argues that Matson s projected additional reve

nues 6 987 000 should be disallowed and additional revenues based on

a slightly more optimistic view of 1986 operations should be included

5 186 000 because of an estimated 24 percent growth in cargo in 1986

over 1985 Exs PH 2 PH 3 It seeks to justify its estimate of the

24 percent increase by noting 1 the lackluster performance of the

national economy in 1985 2 the particular problems associated with the

airline strike in 1985 3 the falling value of the dollar and 4 rapidly

declining oil prices See Exs PH 16 thru PH 21 for a more detailed

discussion and explanation of the State s arguments as well as pp

8 11 of its Reply Brief

Based on the evidence contained in this record it is held that Matson s

cargo forecasts for 1986 are reasonable and should be used to estimate

revenues for 1986 The forecasting methpd used by Matson has been re

viewed and approved by the Commission since 1975 18 The forecasts them

selves have been reasonably accurate Actual results in the last three years

have ranged from 2 percent to 2 3 percent to plan for TFEU s with

an average variance of 7 percent and from I percent to 11 percent

to plan for revenues with an average variance of 2 percent Ex R

4 p14 While the factors cited by the State may well occasion an

increase in cargo growth and revenue it is just as likely that countervailing

events may prevent that growth Rather than engage in pure conjecture

as to what might or is likely to occur we prefer to adopt Matson s cargo

and revenue projections based on their past history of reliability

Rate Base

A second collateral issue raised by the parties is the validity of Matson s

projected rate base for 1986 Matson presented a Statement of Financial

and Operating Data for the test year 1986 Ex R 3 Exhibit A Under

46 CPR 552 2 f a carrier is required to file such a form when requesting

18 See Docket No 7955 Matson Navigation Co Proposed Bunker Surchtlrge in the Hawaii Trade 22

F M C 281 297 1979 affd by the Commission at 22 F M C 276 1979 for a discussion of Matson s

forecasting method

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 477

RATE INCREASE OF 2 5

a 3 percent or more general rate increase l9 In its statement of rate base

Matson included working capital of 7 759 000 which represented a com

putation of average voyage expenses allocated to the Trade FMC tariffed

movements Matson s calculation of working capital considers only the

voyage days and voyages of the long haul vessels Ex R 5 p 25 The

State has recomputed the amount of working capital to be 5 123 000

a reduction of 2 636000 from Matson s

figure It does so on the basis

that Matson s calculations fail to include voyage terminations attributable

to the inter island barge service which was begun in 1985 and which

provides distribution service to westbound cargo to Hawaii ports other

than Honolulu as well as transporting molasses on their in bound return

trip from the outer islands The State also notes that since December

of 1985 the inter island barges have been transporting various foreign

and domestic origin cargo from Honolulu to the other Hawaii ports The

State complains that while Matson fails to include the barges voyage

terminations in the calculation of working capital it has included inter

island barge related expenses in appropriate expense categories Tobias

agrees with the State while Hearing Counsel agrees with Matson s method

of calculation

Matson defends its calculation of working capital and the exclusion of

the barge traffic in the computation of voyage days and the number of

voyages stating They are not true voyages and they do not meet the

criteria of a voyage per General Order 11 Section 552 a which specifies

that voyage means a completed round trip from port of origin and return

to port of origin It argues that the barges perform an extension

of the voyages of the container ships that operate between the U S Pacific

Coast and Hawaii It also alleges that by excluding the barges it avoids

possible manipulation of the amount of working capital by selection of

barge accounting periods considerably longer or shorter than the average

voyage in the service 20 In its reply brief pp 2427 Matson describes

how the Neighbor Island Service was performed either by a Matson

self propelled ship or through the use of outside Young Brothers barges

prior to 1985 Now Matson tugs and barges perform such services Matson

admits that it added the expenses of the barge operations into the expenses

of its long haul ships although it did not add any additional voyages

It states that Since Matson is principally a self propelled operator we

have followed the working capital provisions in G O II applicable to

such operators

General Order II sets forth different methods for the calculation of

working capital for vessel operators as opposed to tug and barge operators

46 CFR 552 6 b 5 and 6 In the case of vessel operators working

19 Since the increase requested here was originally for 25 percent and was then reduced to 1 percent

Matson was not required 10 file the fonn and in fact did not do so at the time it requested the 2 5 percent

increase

20See Ex R 5 p

25
478 FEDERAL MARJTJME COMMISSION

I

i

capital is determined as average voyage expense In the case of tug and

barge operators working capital is determined as average monthly expense

Matson states that In its determination of workins capital Matson elected

not to add barge voyages which could alter the result obtained in computing

the working capital for its long haul sel vice It asserts that In the

absence of guidance from the Commission Matson felt that the fairest

position would be not to unduly disrupt the result achieved in the calculation

for the long haul ships by including the additional barge voyages

It is clear that Matson s computation ofworking capital does not properly

take into account the operation of its barge service to the Nei bor Islands

It is also clear that the State s suggested remedy is equally improper

Given the record made here we cannot determine or calculate what the

proper methodology or adjustment should be and therefore must allow

MaISon s methodology to stand

Another element of the rate base issue is Matson s inclusion of the

Matsonia in the rate base The Matsonia was operated in the Hawaii service

from 1973 until July of 1981 Since then it remained out of service until

July of 1981 In February of 1985 Matson decided to reconstruct the

vessel It has been in t1ie shipyard since January of 1986 and Matson

does not expect it to reenter service until the second quarter of 1987

General Order II 46 CFR 552 6b li A provides that

For those cargo vessels employed exclusively in the service

for the entire period inclusive of normal periodic layups the

adjusted cost shall be inCluded in the total to be allocated to

the Trade If a vessel is permanently withdrawn from the service

during the period and laid Up pending disposition and that vessel

has been employed exclusively in the service for the preceding

12 months sixty days of the lay up period may be assigned

to the service If a vessel is withdrawn from the service for

renovation or conversion and if the carrier certifies that the vessel

has been employed exclusively in the service for the 12 month

period immediately prior to withdrawal and will be employed

exclusively in the service for a period of at least 12 months

after the renovation or conversion is completed the adjusted cost

shall be included in the total to be allocated to the Trade

Matson included the Matsonia in the rate base in the amount of

13 973 000 Ex R 3 Schedules A I and A II It states the Matsonia

was placed in reserve status because of cargo declines and that through

out the period of its reserve status Matsonia performed a vital function

for Matson by being available for reactivation in case another vessel failed

or a surge in cargo created a

shortage of capacity It avers that keeping

Mat onia in the rate base is consistent with the over all purpose of

General Order II to encourage a carrier to provide efficient services by

I

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 479

RATE INCREASE OF 25

reducing operating costs through placing temporarily in reserve vessels not

needed to meet current operations 21

Hearing Counsel the State and Tobias all argue that the Matsonia should

be excluded from the rate base They note that the Matsonia was not

withdrawn from the service for renovation or conversion and that a decision

was not made on reconstruction until 1985 Further they argue that it

is clear that the Matsonia will perform no service whatsoever in the Trade

in 1986 and that current ratepayers should not bear the cost of the asset

Put another way they assert that it would not be fair to current ratepayers

to allow Matson a return on an asset idle since 198122

Whether one does or does not apply the used and useful test advocated

by Hearing Counsel and rejected by Matson we believe the record in

this case clearly warrants the elimination of the Matsonia from Matson s

rate base It has been found as fact that the Matsonia was not withdrawn

from the service for renovation or conversion and that it will not be

used in the service during the test year 1986 That being so there is

no reason why current ratepayers should pay Matson for use of the vesseL23

As to Matson s assertion that Hearing Counsel and the State have gone

outside the provisions of General Order II which does not include such

a standard the used and useful standard we think that as to this

issue as well as others that have been and will be later discussed regarding

General Order II Matson treats the regulation as some kind of absolute

inexorable all encompassing set of rules when in fact they are guidelines

albeit stringent ones whose purpose is to aid in the setting of a fair

and reasonable rate of return The fact that the regulation does not specifi

cally address the issue in no way of itself detracts from the validity

of the arguments made by the parties The issue here with or without

consideration of any specific provision of General order II is whether

or not ratepayers should pay for the Matsonia when in fact the Matsonia

had not been in service since 1981 and would not be used in 1986

We think not and it is so held

Expenses

A third collateral issue to the broader issue contained in the Commission s

Order of Investigation and Suspension is whether or not Matson properly

projected its expenses for 1986 Two items of expense i e I amounts

included for escalation in its test year expenses and 2 transfers to its

affiliates of overhead and other expenses merit only brief discussion As

to the amounts collected for escalation in 1986 Matson s Manager of

21 See pp 22 24 of Matson s Opening Brief and pp 15 20 of its Reply Brief for a full discussion of

its views

22See pp 21 25 of Hearing Counsel s Original Brief pp 5 6 of Tobias Reply Brief and Ex PH 33

fOf the position of each of the parties

2J We think this result is in complete accord with G O 11 especially in view of the Commission s state

ments cOnlained in Docket No 81 46 24 F M C 373 378 1981
480 FEDERAL MARITIME COMMISSION

I

I

Financial Analysis presented oral and written testimony Ex R 3 pp 7

9 Ex R 5 pp 21 22 Tr 411 explaining those expenses claimed in

the Income Statement Ex B to Ex R 3 He explained the projections

of wage increases under union contract offshore bargaining agreement cost

of living clauses projected increases in wharfage expenses and bargained

for increases under ILWU labor agreements The State did present some

evidence alleging that the expenses were not substantiated Ex PH 31

Tobias agrees with the State and Hearing Counsel did not contest the

expense projections In its briefs the State offers little or no specific argu

ments related to Matson s projections Given the evidence of record we

cannot but conclude that the offshore wage increase projected by Matson

is required pursuant to clauses in the labor agreements which adjust wages

based on charges in the Consumer Price Index for Urban Wage Earners

and Clerical Workers Further the escalation in vesselvoyage expenses

represents increases in port charges subsistence and stores of approximately

2 5 percent which we think is reasonable Finally the increase in ILWU

charges is based on commitments already included in current labor agree

ments for wage and benefit increases which have reasonably been estimated

by the Pacific Maritime Association to arnount to 5 5 percent and 5 2

percent for mainland and Hawaii labor All of the labor agreement esca

lations represent estimates based on commitments for wage increases not

on forecasts of liabilities not yet committed Tr 495 It is held that

amounts included by Matson for escalation of expenses in 1986 are reason

able and allowable

As to Matson s transfer of its administrative and overhead expenses

to its affiliates it has allocated approximately 2 5 million to reflect services

which Matson allegedly provided to these companies Hearing Counsel

does not contest Matson s allocation The State and Tobias while objecting

to it present little in the way of evidence or argument to warrant changing

what Matson has done Matson at pages 33 and 34 of its original brief

presents argument supporting its position We believe those arguments to

be valid and hold that Matson s allocation of administrative and overhead

expenses to its affiliates is proper

Another facet of the expense issue is whether or not Matson s amortiza

tion of Lurline charter hire payments over the term of the original charter

is appropriate The State and Hawaii say it is not while Hearing Counsel

does not dispute Matson s treatment of the charter hire payments According

to the financial reports submitted by Matson it originally entered into a

long term lease agreement for the vessel Lurline mIming for 25 years

The original capitalized base cost of 26 776 462 00 was amortized at an

annual rate of 1 071 058 00 until 1982 when Matson completed modifica

tions costing 41 559 27000 The owner lessor paid for most of the modi

fication costs and the original lease term was not extended for the modified

vessel In 1982 16 years remained on the original term of the lease

Matson has continued the same rate of amortization as to the original

I

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 481

RATE INCREASE OF 2 5

cost and has amortized the modification costs each year in the amount

of 2 650 720 00 over the remaining life of the lease Matson has an

option to renew the lease for a total period of five years as well as

an option to purchase the vessel at fair market value at the termination

of the lease

The State with Tobias would reduce the yearly amortization charge by

extending the useful economic life of the vessel to not less than 25 years

It argues that while it concedes that Matson has capitalized Lurline s lease

in accordance with Financial Accounting Standards Board Statement No

13 FASB when a lease is capitalized under the criteria prescribed by

the FASB it is no longer a lease but is a purchase and its useful life

must be determined as if it was a purchase rather than a lease It states

that it has chosen 25 years as the useful life as of the modification date

and that if Matson disagrees then it behooves Matson to provide evidence

for the record showing less than 25 years is more realistic It urges

that at issue is simply the fairness and reasonableness of annual charges

to the ratepayers and not the rules or practices which may be employed

in the reporting of costs for tax and financial information purposes

24

It notes that if Matson is allowed to treat the useful life of the modification

as 16 years rather than 25 it will be unfair to ratepayers and points

to the modification of the Matsonia at a cost exceeding that of the Lurline

and that only 10 or II years will remain on the Matsonia lease when

it resumes service Finally it states that Hawaii s solution is offered

only as an interim solution and that A longer term solution needs

to be devised by the Commission

Matson on the other hand argues that the State has not submitted

any evidence to show that the remaining economic lives of the improve

ments are 25 years and that it has followed accepted accounting procedure

It alleges that the accounting rule requiring the capitalization of only

known lease payments and their amortization over only the known lease

terms makes sense and should be followed by the Commission It cites

the fact that the State s failure to capitalize the additional charter hire

and purchase payments that Matson would have to make to retain Lurline

for the additional nine year period indicates the State s proposal is incom

plete and unfair

This issue is a troublesome one in that the decision regarding it results

as much from the time strictures placed on the parties and the incomplete

ness of the evidentiary record as it does from the merits of the issue

itself It is clear to us that ratepayers should not be paying rates based

on depreciation or amortization expenses which do not properly reflect

the full term of the useful life of the asset s use in the Trade That

24See pp 15 17 of the Stale s Original Brief and pp 15 18 of its Reply Brief for a more complete state

ment of its position including a discussion of how Matson s treatment under GO 11 notwithstanding the

lease arrangement recovers a full return and tax allowance as though the investment was funded on equity

so that the return allowance exceeds the imputed imeresl cost embodied in the lease
482 FEDERAL MARITIME COMMISSION

principle ought to be followed whether or not some tenet of acceptable

accounting practice is involved 2 However where as here a

capitalized

lease is involved and the lease does not clearly establish how long the

lessee is entitled to use the asset as modified then questions do arise

as to the proper period over which costs should be amortized Here the

State has not established that the useful life of the Lurline as modified

would be 25 years much less that Matson wi leither continue leasing

it for that period or would purchase it Further Matson is correct regarding

the State s omission of the capitalization of the additional charter hire

and purchase payments

Given the present record we must hold in Matson s favor on this issue

In so doing it should be noted that the State s concerns are well founded

and that the impending modification of the Matsonia where only 10 or

II years remain on the lease points up the need to closely monitor similar

leases and their effect on ratepayers Where it can be shown that extensive

modifications are being made by Matson knowing that its use of the asset

wi lextend beyond the stated terms of the capitalized lease then the amorti

zation should be spread over the term of its anticipated useful life26

The most obvious item of projected expense for 1986 which begs exam

ination is Matson s projection of fuel costs for 1986 The Commission s

Order of Investigation and Suspension refers to it in stating that The

most critical issues conceming Matson s current rates are whether declining

fuel costs increased Matson s rate of return beyond the return projected

for 1985 and whether a decline in the current trend in interest rates lowered

the maximum reasonable rate of return After the proceeding began Matson

itself reduced the 2 5 rate increase originally sought Because of the

decline in the price it pays for bunker fuel Originally Matson projected

its 1986 fuel expenses on the cost of bunker fuel on September 15 1985

which was 22 per barrel It argues that at the time of preparation of

the plan projection and at the time of filing of the increase in on

November 15 1985 the projected fuel prices appeared reasonable estimates

of likely fuel prices in 1986 Ex R 5 pp 9 14 It notes that since

mid January 1986 fuel prices sustained a dramatic decline resulting from

the failure of OPEC oil ministers to reach an agreement on production

It states that it re estimated its fuel costs for 1986 to be 18 per barrel

taking into account projections received from its fuel oil suppliers of

estimated costs for the remainder of 1986 as well as Matson s method

of accounting for fuel expenses and its higher costs for the first four

months of the year

27

25 What is acceptable accounting practice for tax purposes may not be proper for rate making purposes

261t is difficult to Imagine a bona fide lease which limits the lessee s use of an asset 10 a period that

does not allow the lessee to recover the cost of modifications it makes When lhe recovery is realized from

special accounting ortax treatment at the expense of ratepayers the facts at least ought to be known and

considered in arrivins at a fair and reasonable rate

27See pp 17 22 of Malson s Opening Brief for a complete discussion of lts position

2S F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 483

RATE INCREASE OF 25

All of the other parties to this proceeding i e Hearing Counsel the

State of Hawaii and Tobias urge that a realistic estimate of the price

Matson will pay in 1986 for fuel is 15 per barrel Hearing Counsel s

expert testified Exs PHC 5 that he believed the average price per barrel

will drop to 13 52 and reached the 15 figure recognizing that forecasting

is not an exact science

A thorough examination of the testimony given in support of one position

or another regarding fuel prices leads one inescapably to the conclusion

that cost projections in this area are highly uncertain Where there is a

collapse in oil prices as Matson s own witness testifies Exs R 5 R

IO forecasts based on historical trends have even less validity than they

did formerly Stated in its most elemental terms here there is no disagree

ment among the parties that fuel prices have fallen far below 22 per

barrel since Matson s original estimate however valid it may have been

initially The questions remaining are how much it will fall before stabilizing

and when The obvious answer to when is when OPEC is able to

reach a solution As to how much we already know it is well below

even the I5 per barrel

Based on the evidence of record we hold that the average price of

fuel in 1986 for Matson will be 15 per barrel and that Matson s fuel

expense figure of 20491 772 00 should be adjusted to reflect such a

holding As to Matson s arguments that the estimate does not take into

account its actual costs in January and February of 1986 we believe that

as a projection the 15 figure does take those actual costs into account

Further we agree with Hearing Counsel that the use of Matson s fuel

accounting system will require a downward adjustment in the fourth quarter

average cost per barrel of fuel This is caused by the fact that Matson s

accounting reflects a several week lag between purchase and use of fuel

coupled with an expected upturn in fuel prices towards year s end an

upturn that will not be fully reflected in the Test Year using Matson s

fuel accounting system

We believe the Commission has considered the same type of situation

in Sea Land supra 24 F M C 164 1981 It held that because of dramatic

changes in world oil markets updated fuel cost projections should be in

cluded in the carrier s expense projections 24 F M C pp 180186 It

did so notwithstanding its determination that parties not be permitted to

supplement their cases after the close of the record and after an Initial

Decision is issued The Circuit Court of Appeals for the District of Colum

bia in affirming the Commission s decision stated 28

28 During Ihis proceeding Malson made continuing objection 10 evidence presented which related 10 current

events that occurred after some cut off dale it felt appropriate In our view when current events are so

sudden and far reaching that projections made are unreliable orseriously open

to question it not only is

not error not to limit evidence relating to the current events but it would be error to rule such evidence

inadmissible
484 FEDERAL MARITIME COMMISSION

the agency is not required to blindfold itself ignoring dra

matic changes in circumstances which surface during the rate

making proceeding and are bound to effect affect the estimate

Puerto Rico Maritime Shipping Authority v Federal Maritime

Commission 678 F 2d 327 341 D C Cir

1982

So here it is held that the average full cost of fuel in 1986 will be

15 per barrel

Issue NO 3 Has Matson properly allocated its revenues expenses and

rate base between its Commission and non Commission regulated services

for 19861

The primary question involved in this issue is whether or not Matson s

allocation of expenses between the FMC Trade and the non Trade move

ments on a cargo cube basis is proper General Order II 46 CPR

552 6 c 2 i provides

For all voyages in the Service vessel expense shall be allocated

to the Trade in the cargo cube mile or cargo cube relationship

as appropriate Should any of the elements of vessel expense

be directly allocable to specific cargo such direct allocations shall

be made and explained

All parties agree that Matson has allocated costs in accordance with G O

11 Hearing Counsel raises no question regarding the methodology The

State and Tobias however argue that it is flawed The State in Exs

PH I

through PH II and in its briefs make the argument that

Matson exercised its options late in 1985 to withdraw its

FMC Tariff No 14 and to replace it with its ICC Tariff No

16 While the tariff filings had absolutely no operational con

sequences Matson s tariff shuffle has two direct adverse im

pacts I delaying the disclosure of Matson s extraordinary high

earnings under FMC regulation for 1985 and 2 creating a basis

for a rate increase in 1986

The adverse consequences on the interests of the public due to

Matson s tariff shuffle are simple because Part 552 requires

expense allocations on a

cargo cube or cargo cube mile

basis Matson s ICC cargo which is exclusively westbound bears

an inadequate assignment of the considerable costs of returning

the Matson vessels and containers eastbound to their ICC points

of origin Therefore this Commission must depart as its

rules permit it to dofrom the inequitable strictures of Part 552

As Matson migrates more of its cargoes out from FMC regulation

FMC regulated westbound and eastbound cargoes will be forced

to bear an increasingly disproportionately large share of interest

expense vessel expense and container handling expense

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 485

RATE INCREASE OF 2 5

In its arguments the State alleges that Matson s recent shift of a

significant

volume of high rated Storedoor cargo from FMC tariffs to ICC tariffs

significantly disrupts the historical directional balance of FMC regulated

Hawaii trade It states that Storedoor cargo moves only in the westbound

direction and that since the average revenue unit of the Storedoor cargo

is much greater than the cargo that remains under FMC tariffs the rate

structure is contorted and the FMC revenue requirementunit increase The

State asserts that by simply filing tariff sheets at the ICC Matson removed

nearly 25 million in income from the FMC regulated service Ex PH

6 It stresses that the average yield per cargo cube for all westbound

shipments is 100 that the ICC Storedoor all container cargo yields 15

per cargo cube and the remaining FMC trade cargo has a yield of 94

per cargo cube It notes that total eastbound cargo has an average yield

of 5 I

per cargo cube or about one half of westbound cargo reflecting

a different commodity mix and a long standing rate structure and points

out that although there is no substantial difference between the yield of

other cargo and FMC trade cargo in the eastbound direction the other

cargo volume represents less than 6 percent of total eastbound cargo

as compared to 26 percent of the westbound movements The State con

cludes that for both directions combined the spread between the other

cargo and trade is 35 percent a yield of 108 versus 80 per cargo

cube and that The Matson revenue cost allocations produce a profit ie

Income Before Taxes on a unit basis for other cargo which is nearly

three times the profit per cargo cube for FMC trade 40 5 versus 135

Ex PHjHAW 104 p5 In order to correct the above imbalance

the State has suggested Various Formulae Being Considered by Hawaii

to More Accurately Separate Allocate or Distribute Costs Between Various

Regulatory Jurisdictions i e FMC and ICC and Among Non Regulated

Activities Ex PH 9 HAW 105 p

2 29

Matson defends its treatment of cost allocations by arguing that it has

followed General Order II and that in essence the State would allocate

costs on a revenue basis which is contrary to G O 11 It states that

It is a fundamental principle of cost accounting that costs be assigned

or allocated to the factors that generate them Voyage expenses are a

function of the carriage of cargo Revenues do not generate costs and

there is no reason for costs to track revenues The State s cost

allocation system would improperly protect eastbound rates from Hawaii

to the mainland by making them to appear to be fully compensatory when

they are not Matson alleges further that The real basis of the State s

position is that it opposes deregulation under the Interstate Commerce Act

and is trying by cost manipulation to turn the clock back to the pre

deregulation era It proceeds to point out how water carriers in Alaska

and Puerto Rico trades have converted the great bulk of their operations

29See pp

2022 of the State s Opening Brief and pp 12 15 of its Reply Brief for additional discussion
486 FEDERAL MARITIME COMMISSION

i

I

to ICCunregulated tariffs Finally Matson argues that the General Order

II cargo cube method of allocating voyage expense is not UIlfair in this

instance and that It merely accomplishes what it was designed to do

in calling attention to the fact that Matson s eastbound cargoes are not

bearing their full share ofthe cost burden

This particular issue is one of the most troublesome in the entire pro

ceeding Factually there is no question that Matson followed the method

ology set forth in GO 11 There is also no question that there always

has been an imbalance between the eastbound and westbound cargoes

Not only that a reading of Docket 7846 supra at 190 SRR 1296 1297

indicates clearly that the Comntission considered retaining th use of the

revenue ton mile relationship in allocating expenses between Trade and

non Trade cargo and rejected it Instead the Comntission chose the cargo

cube basis noting that the cost of providing service in a containership

operation depends on the cost of providing space In selecting the cargo

cube method the Commission specifically rejected a suggestion to permit

carriers to select their own method of allocation as con rary to the duty

of the Commission to establish methodology guidelines under Public Law

95475

On the other side of the issue are the facts set forth by the State

They not only show an imbalance between the movement of the eastbound

and westbound cargo but they show that the imbalance is being magnified

by the shifting of high rated westbound cargo from the Trade FMC tariffed

movements to non Trade lCC tariffed movements Of course one cannot

question Matson sright to shift the cargoes if it so desires but it is

clear that if the shift of cargo impacts on the ratepayers under the FMC

tariffs unreasonably or unfairly then the Comntission may employ other

fairer baaes for allocation so as to achieve a fair and reasonable result

After thoroughly reviewing the record in this case we are constrained

to hold that the use of cargo cube allocation by Matson was not unfair

or unreasonable In so holding we hasten to note that the holding is

baaed on the inadequacy of the record which was burdened by severe

time constraints and which fails to offer any alternative which is clearly

more fair and reasonable rather than on any fmding that General Order

II by its terms compels such a result As has been noted earlier G O

11 is a methOdology guideline not a law Strict adherence to each of

its provisions is neither necessary nor proper where such adherence would

achieve an unfair and unreasonable result The record made here does

not allow us to so conclude

Issue No 4Are business and financial risks faced by Matson greater

or less than those faced by an average U S corporation Ifso should

Matson s rate ofreturn he adjusted

In measuring the business and financial risks of Matson its expert Mt

Benderly used the Variability in Past Earnings test Matson asserts that

28 F M C
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MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 487

RATE INCREASE OF 2 5

Variability in past earnings is the oldest and most widely accepted measure

of the general riskiness of a business Past variability indicates the degree

to which a

company s earnings are susceptible to inflation recession com

petition and other factors These factors affect the investor s assessment

of risk and the expected earnings level at which he is willing to invest

in the enterprise Ex R 7 pp 21 22 For his analysis of Matson s

relative risk its expert compared the variability in Matson s rate of return

on rate base and net income margin with the variability in return on

average total capital and net income margin of all U S corporations as

reported in The Value Line Investment Survey Ex R 7 pp 24 25 30

He calculated for each company its coefficient of variation and its standard

deviation of rates of return about a linear trend divided by the absolute

value of the mean for the 15 year period 1968 1982 and the IO year

period 1973 1982 and for both return on average total capital and net

income margin Ex R 7 Appendix D sets forth the matrices and mathe

matical formulas used to carry out the statistical analysis of risk measures

described orally by Matson s expert3 He found that on the basis of the

I5 year period Matson ranked in the sixth or seventh decile among the

U S corporations the first decile being the lowest risk and the tenth decile

being the highest For the 10 year period Matson s expert concluded that

Matson s relative risk was somewhat below the average for the Value

Line companies In selecting the 15 or IO year period the expert testified

the 15 year period should be given more weight and provides a better

indication of relative risk than does the IO year period because it encom

passes more economic cycles and because it is more comparable to

Matson s present situation where according to the expert competition is

expected to increase He concluded that the appropriate adjustruent to the

benchmark rate of return for relative risk was between 70 and 100 percent

age points and adopted the 100 percent figure Ex R 7pp 38 40

41

The increased competition Matson s expert refers to is Matson s assertion

that 1 there is increased barge competition in the trade which has caused

its Pacific Northwest cargo carriage to decline 26 percent from 1975 to

1987 Ex R I pp 1012 2 two new barge lines entered the California

Honolulu service and the Seattle Honolulu service in 1984 and 1985 Ex

R I pp 12 13 3 increasingly strong competition is being provided

by United States Lines in carrying dry container and military cargo from

California to Honolulu Ex R I

p

9 4 substantial cargo has been

lost to proprietary carriage Ex R I pp 13 14 5 the share of total

cargo moving to and from Hawaii that is carried by common carriers

30 Allhough he had Matson data to 1984 data fOf comparison companies only was available through 1982

31 Matson slates that the validity of the statistical analysis is unchallenged on the record This indeed

is true but an examination of the six pages of Appendix 0 causes one to honestly question whether the

absence of a challenge was due to alack of understanding of the statistical model and the weighting process

rather than on a disagreement with the conclusions the model purports 10 support
488 FEDERAL MARITIME COMMISSION

and tramps in foreign trades is increasing Ex R I pp 4 5 Ex R

4 p2 and 6 Matson s share of the westbound container and

containerizable cargo in the Hawaii trade is substantially less than it was

10 years ago declining from 93 percent to 79 percent and 7 Matson

faces the risk of regulation not faced by other Value Line companies

which prevents it from realizing highly profitable returns but does not

protect it from unreasonably low returns

The State of Hawaii Hearing Counsel and Tobias oppose any upward

adjustment for risk to Matson s rate of return The State argues that

Matson s Trade operations are conducted in a protected environment in

which Matson is the dominant carrier 32 It attacks Matson s expert saying

his analysis does not represent the considerations which would be those

of an informed investor determining an appropriate cost of capital for

the Matson Trade entity in an investment market setting and points to

his testimony that an empirical foundation for the relationship is unknow

able The State asserts that apart from Mr Benderly s reliance on

a fifteen year volatility analysis which is flawed b y

the inclusion of

a major strike in 1971 there is no disagreement among the parties that

the recent experience provides no basis for an incremental relative risk

adjustment It concludes that no risk adjustment should be made to

Matson s rate of return because of difficulties in quantifying the reduction

even though it believes It would be more appropriate to reduce the allow

able rate of returnpp 3436 of the State s Opening Brief

Hearing Counsel s position was expressed in the expert testimony of

Dr Ellsworth In analyzing Mr Benderly s Variability of Earnings test

Dr Ellsworth used the analysis put forth in Docket No 85 3 because

he did not believe Benderly s use of different time periods vis a vis the

Value Line companies 1982 and Matson 1984 was appropriate In addi

tion he concluded that the use of the IO year period beginning in 1973

was more appropriate than use of the IS year period beginning in 1968

Ex PHC 6p

11

As to Matson s objective relative risks Dr Ellsworth relied in part

on the testimony of Sandra Kusumoto s analysis of Matson s competitive

situation Ex PHC 3 Ms Kusumoto is an economist with the Commis

sian s Office of Planning and International Mfairs Her testimony discusses

Matson s current competitive situation She concludes that Matson is the

dominant carrier in both the U S ContinentHawaii and Pacific CoastlHawaii

trades She states that from 1978 to 1984 total trade revenues increased

every year even though Matson s market share declined She further states

that because Matson controls a large share of the market it acts as

a dominant firm price leader Matson is the first to submit its price

increase then followed by similar price increases by the smaller competi

32See Ex PH 12 Ex HAW I07 for a full statement of the Stale s position on Matson s market share

and on the nature of Matson l ompetltion

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 489

RATE INCREASE OF 2 5

tors She concluded that while I

recognize that Matson does face direct

and indirect competition and has been losing market share other evidence

indicated that Matson s risk of operating in the West CoastlHawaii trades

is minimal In addition to the above testimony Dr Ellsworth also himself

subjectively measured Matson s relative risk Ex PHC 6pp 14 15 by

evaluating Matson s market share the nature of its competition and the

entrance and exit of Seatrain Lines into and out of the Trade before he

concluded that Matson appears to be a less risky investment than the

average corporation His final recomnendation was a neutral one which

would adopt neither a positive nor negative risk factor

Tobias in its Opening and Reply Briefs agrees with Hearing Counsel s

analysis that Matson is less risky than the average U S corporation How

ever he argues that a discount should be applied to the rate of return

for the lesser risk However he does not indicate the amount of the discount

General Order II at section 552 6 d 2 ii provides that

The reasonableness of a carrier s return of rate base will be

based on a comparative analysis of the carrier s projected return

on rate base with the rate of return on total capital earned by

comparable U S corporations This technique the comparable

earnings test is based on an analysis of the earnings of U S

corporations over an extended period of time From these time

series data the average rate of return earned by U S corporations

is computed and where appropriate adjusted for current trends

in rates of return the cost of money and relative risks

The above regulation is we think both reasonable and clear In adopting

the comparison of the projected return on rate base the Commission specifi

cally points out that the technique requires one to analyze earnings over

an extended period of time to arrive at an average rate of return However

with respect to adjustments to the average rate of return for relative risks

the Commission specifically refers to current trends It does not necessarily

require some projection based on an analysis over a

long period of time

Rather we believe that the regulation requires a

recognition of current

circumstances or facts relating to risk and the acceptance of relevant evi

dence that would support a projection of relative risk during the test 1986

period In this case it is the consideration of the actual competition Matson

is facing now and is likely to face in the remainder of 1986 and of

the projections made by Matson s and Hearing Counsel s experts As to

the actual competition Matson is facing we believe the record establishes

that there has been and will be an increase in the degree of competition

However we believe and have found as fact that the increase is ntinimal

and will not materially affect Matson s dontinant position in the Trade

Matson retains over 70 percent of the Trade and is the leading raremaker

Given those facts we have great difficulty in concluding as Matson would

have us conclude that they are in a worse competitive position or are

more risky than the majority of Value Line companies and indeed one
490 FEDERAL MARITIME COMMISSION

would be more justified in finding that the opposite is true As to the

use of the variability in past earnings test it has been used in previous

rate cases It mayor may not be the oldest and most widely accepted

measure of the general riskiness of a business as Matson suggests but

in terms of measuring and projecting current trends for 1986 in this

case we think that standing alone it is a somewhat remote and tortuous

test based more on a complicated statistical exercise than on a pragmatic

and significant evaluation of comparable factors affecting current trends

in Matson s risks Nevertheless both Matson and Hearing Counsel use

the variability of earnings test to arrive at their adjustment for risk and

the other parties offer no real alternatives Matson s expert predicts lesser

risk on the basis of the IO year period and more risk on the basis of

the l5 year period He would adopt the l5 year period while Hearing

Counsel would use the IO year period

The preponderance of the evidence presented here supports the result

reached by Hearing Counsel which would use the lO year period and would

make no adjustment for risk in the benchmark rate of return It is clear

that Matson s risk is probably less and certainly no worse than equal

to that of the average U S corporation In balancing both subjective and

objective considerations it is held that based on Matson s

relatively stable

earnings its large market share and the absence of any new significant

container operator in the trade Matson is no more risky than the average

corporation used in arriving at the benchmark rate of return Therefore

no adjustment for risk need be made in 1986 to the benchmark rate of

return

Issue No 5 Are current tnlnds in rate ofreturn and interest rates such

that Matson s rate of return should be adjusted

A Adjustment for current trends in rates of return

Insofar as one can determine from the record and from the briefs filed

by the parties Matson has not recommended any adjustment to the bench

mark rate of return for current trends in rates of return and did not treat

the issue in its initial brief The State and Tobias both believe the benchmark

rate of return ought to be adjusted downward for current trends in rates

of retum 33 Hearing Counsel makes no adjustment but its expert testified

that the trend is downward 34 In its brief the State comments on the

analyses of Matson s and Hearing Counsel s experts noting that it believes

Hearing Counsel s model which uses Department of Commerce statistics

rather than the Value Line Industrial composite produces the lowest rate

of earnings averages in the most recent five year period because the use

33 See pp 3G34 of Matson s Opening Brlcfand pp 8 9of Tobias Reply Brief

34See Ex PHC 6p18 and Chart 1 at p 2

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 491

RATE INCREASE OF 2 5

of the quarterly data affords a more sensitive reflection of current

trends It states that p

32 of its Opening Brief

There is also substantial agreement among the three series that

the average rate of earnings have been trending steadily and sharp

ly downward since the late 1970 s and early 1980 s at a rate

of approximately 6 percent per year in line with the cresting

and ebbing of the rate of inflation of the nation s economy Justif

able provision for a continuing decline in the benchmark rate

of return advanced by three years to a moving average centered

at 1986 would reduce the benchmark rate of return projected

from the Benderly series to 908 percent in order to reflect an

adjustment for current trends in rate ofreturn

Matson of course disagrees with the State In pp 31 36 of its Reply

Brief it urges rejection of the State s view because

First the reason the State s calculation shows a decline in the

earned return on total capital is that in its most recent three

year moving averages it gives the return of the recession influ

enced year of 1982 one third of the weight in the

average As shown in the first column of Appendix E of

the State Opening Brief the actual return on total capital for

manufacturing companies has trended upward since 1982 The

return on total capital increased 9 between 1982 and 1983

and increased 14 between 1983 and 1984

Second an examination of the return on total capital data implied

by the State s new proposed benchmark shows the unreasonable

nature of the projection underlying its recommendation

The anarnolous results of the State s exercise are obvious Aver

age return on total capital for the industrials is predicted to decline

from 12 11 in 1984 to 7 82 in 1985 a one year decline

of 35 The projected returns then trend upward to 8 84 in

1986 and 10 37 in 1978 before dropping precipitously to 6 20

in 1988 a decline of 40 Nothing in the IS year history of

return on total capital for industrials supports a prediction of

any such pattern or level of return for the companies involved

See App E Col 2 State Opening Brief This new sug

gested benchmark 9 08 is 23 percentage points below the

114 benchmark adopted by its own witness Tr 738 39

Third the earned returns on total capital for manufacturing compa

nies have been above the 9 08 level in every year since 1971

Ex R 7 Sch I The State s newly suggested 9 08 benchmark

is 187 percentage points below the 10 95 embedded cost of

debt of industrial companies Ex R 9 p 8 Clearly under no

stretch of the imagination can a return substantially lower than

that earned by manufacturing companies in any of the last 15
492 FEDERAL MARITIME COMMISSION

years and below their embedded cost of debt serve as a reasonable

benchmark for today 35

After considering all of the above as well as other evidence and argument

of record it is held there need be no adjustment to the benchmark rate

of return for current trends in rates of return While like Hearing Counsel

we believe rates of return are trending downward slightly it is difficult

to measure the extent of the trend and certainly it cannot be done on

the basis of the record made in this proceeding where both the State

and Tobias fail to offer a viable specific adjustment Consequently it is

held no adjustment need be made

B Adjustmentfor Current Trends in Interest Rates

In its opening brief Matson at pp 41 42 refers to the testimony and

schedules introduced by its expert Ex R 7 pp 13 19 Sch 2 6 It

states

The next step in reaching a fair rate of return for 1986 is

to adjust the average retums on total capital of the comparison

upward if 1 the current cost of money as indicated by mterest

rates is higher than the average cost in the period ovex which

the returns were averaged or 2 money costs are expected to

trend higher in the future Ex R 7 p

13

For the purpose of the first adjustment the average interest

rate in 1985 IS compared with tlle average interest rate in the

to year and IS year periods To make that comparison Mr

Benderly examined yields on corporate utility and U S Treasury

bonds over the period 19701984 He found the interest rates

to be from 5070 percentage points higher than the average for

the 10 year period 1975 1984 and about 175 percentage points

higher than the average for the IS year period 19701984 Ex

R 7

p

IS Sch 5 and 6 Therefore he adjusted the to year

benchmark of 12 26 to 12 76 and the IS year 1156 bench

mark to 1331 Ex R 7 p 16 In recognition of the fact

that the increase in retums on total capital may not parallel the

increase in interest rates on a one for one basis he used 12 75

as the adjusted benchmark this being at the bottom of the adjusted

range of 12 76 to 13 31 Ex R 7 p

16

With respect to the second adjustment for trend of money

costs in the future Mr Benderly noted the prediction of 25

prominent economists as reported in the Wall Street Journal

January 2 1986 that rates on long term Treasury bonds would

increase from 9 27 at the end of 1985 to 976 by the end

of 1986 Ex R 7

p

17 As repOrted January 3 1986 Treasury

bond futures contracts for delivery in December 1986 and Decem

ber 1987 respectively have implied yields of 10 08 and 1041

sMatson response to the State does not clearly differentiate bcltween adjustments 10 the benchmark for

current trends in rates of retum and the establishment of the benchmark rate of return and its arguments

may be applied to bath facets of therate of return

28 F M C
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MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 493

RATE INCREASE OF 2 5

Thus both predictions and market action point to an upward trend

in interest rates from their level at the end of 1985

While Mr Benderly stated that some weight should be given

to these indications of future interest rates he limited his adjust

ment for future trends to a minimum of zero and a maximum

of 0 25 by adopting an adjusted benchmark range of 12 75

13 00 Ex R 7 pp 17 19

Hearing Counsel the State and Tobias all disagree with MalSon s upward

adjustment to the benchmark rate of return for current trends in the cost

of money Hearing Counsel recommends no adjustment and so far as

we can determine from the record the State does not recommend any

specific adjustment 36 Hearing Counsel s position was presented through

its experts Dr Ellsworth and Mr Blair Ex PHC 4 pp 8 19 Ex PHC

6 pp 1624 Mr Blair a staff economist with the Commission s Office

of Policy Planning agreed with Mr Benderly that investors have no

factual information about the future and must make their decisions under

conditions of uncertainty He disagrees with Matson s reliance on the

Wall Street Journal poll He states that

Taking the average of 25 points of view is not in any way

a true consensus since it involves neither general agreement nor

a clear majority opinion It is a mechanical summation of points

of view that unfortunately weighs the views of each member

of the group equally whether or not all the views expressed

are equally reasonable and without regard for any member s pre

viously demonstrated expertise

He avers that

Taking the average of a poll is not the way professional inves

tors get the best available information on likely future interest

rates Either I

limiting consideration to the sub group of fore

casters who have the better forecasting records or 2 limiting

consideration to those factors based on variable estimates which

are most reasonable provides superior sources of information on

likely future interest rates

He then proceeds to support the above premise by analyzing what was

done in this case and discusses other aspects of Mr Benderly s analysis

He recommends that the appropriate range per adjustment would be to

either make no adjustment for interest rates or to lower the benchmark

slightly perhaps a D 25 adjustment He finally because of the uncer

tainty in forecasting recommends no adjustment factor for future interest

36The State speaks of five adjustments exclusive of current trends in thecost of money Opening Brief

p

48 and directly objects to Mr Benderly equaling the current cost of money with current interest

rales however we can find no specific recommendation for a discount fOf current trends in interest rates

10 thebenchmark rateof retum
494 FEDERAL MARITIME COMMISSION

rates Dr Ellsworth agrees and as is noted in Hearing Counsels Opening

Brief at pp 15 16

Dr Ellsworth concluded that the benchmark rate of return need

not be adjusted either upward or downward because of trends

in rates of return and interest rates PFF 20 Ex PHC 6

p

24 This conclusion is based in part on the fact that rates

of return peaked in 1980 and have trended downward since that

time PFF 17 and the level of long and short term interest

rates has also come down as has the level of inflation which

has come down significantly in the past several years PFF 18

Though it is more reasonable to expect lower than higher inter

est rates in 1986 pFF 19 economic forecasting is a hazardous

business Ex PHC 6

p

24 and it is appropriate to be conserv

ative and refrain from making a negative adjustment for future

trends Ex PHC 4 p19

Finally Tobias in his Reply Brief at pp 9 13 advocates a downward

adjustment to the benchmark rates of relUm for current trends in the cost

of money He does not quantify the amount of the adjustment by making

a specific recommendation He notes that Mr Benderly agrees that interest

rates are going down Tr pp 558 590 as did Mr Hrabeta Tr pp 239

240 He properly points to recent newspaper articles pointing to the

startling decline in interest rates which has taken them to their lowest

level in eight years and refers to the testimony of Dr Ellsworth and

Mr Blair Tobias concludes that if the Commission is to assign a dis

count to the benchmark rate of return for current trends in interest rates

only once in a lifetime this is that time

Tobias quite succinctly has reached the heart of the issue It seems

almost inconceivable that given the facts of record relating to the present

level of interest rates the methodology of G O 11 respecting the allowance

for current trends and the term of the test period 1986 any justification

could be found to adjust the benchmark rate of return upward for current

trends in interest rates We believe that in this case the crucial facts

relating to current trends in interest rate are first the present rates them

selves and second the dramatic facts and circumstances precipitating the

decline since the benchmark rate of return was determined While it is

also necessary to project what future interest rates will be throughout the

remainder of the test period it is here at least invalid to go back over

a long period of years to reach averages that in effect are used to present

not a current trend but rather a long range 10 or 15 year average that

actually negates the current trend adjustment As to the projections made

by the 25 Wall Street Journal economists and the arguments pro and

con respecting their validity we think that on the record presented in

this case the projections have about the same weight as an educated

guess The expert testimony in this proceeding leads one to the conclusion

that the fall in interest rates and their level throughout 1986 involves

28 F M C
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MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 495

RATE INCREASE OF 2 5

as much a political prognostication Gramn Rudman Hollings etc as it

does an historical analysis and in our view exercise of the Commission s

expertise and judgment is preferable to choosing to follow a pool of 25

economists without knowing the precise factors leading to their conclusions

and the various other factors ie professional bias and affiliation that

may have influenced them

So here it is held that there should be no upward adjustment to the

benchmark rate of return for current trends in interest rates Unfortunately

the record before us does not contain sufficient probative evidence to allow

us to discount the rate of return by any specific or reasonable percentage

Once again we believe the state of the record might be more useful

if the parties were not disadvantaged by the time constraints they were

required to follow

Issue NO 5 Rate of Return

The origin of all of the issues set forth in the Commission s Order

of Investigation and Suspension is the determination and use of the bench

mark rate of return As has already been noted in G O II the Commission

requires generally that

In evaluating the reasonableness of a VOCe s overall level

of rates the Commission will use return on rate base as its

primary standard 46 CFR 522 2 b

and that this involves

a comparative analysis of the carrier s projected return on

rate base with the rate of return on total capital earned by com

parable U S corporations 46 CFR 52 6 d 2 ii

Matson s expert first examined the mean rates of return earned on average

total capital by Value Line Investment Survey manufacturing companies

which were 11 68 12 26 and 1156 respectively for the 5

year 10

year and 15 year periods ending in 1984 Ex R 7 p 9 Sch I

He

found that the 5 year period was atypical and rejected it and used the

IO year and 15 year average returns on total capital 37 There is no question

that in arriving at his averages Matson s expert complied with the provisions

of G O II which he is required to do His methodology has been used

by Matson and accepted by the Commission in a continuing series of

rate cases After adjustments for the relative riskiness of Matson and U S

corporations generally recent trends of rates of return and interest rates

37The return on tOlal capital formula is

Net Income After Taxes Interest Charges On Long Term Debt

Return on Total Capital

Stockholders Long Term Debt Equity
496 FEDERAL MARITIME COMMISSION

and after reducing the average price of fuel to 18 00 per barrel Matson

contends that its fair rate of return is in the range of 13 75 14

Hearing Counsel accepts and agrees with the G O II methodology used

by Matson in arriving at a benchmark rate of return However instead

of using the Value Line Investment Survey of manufacturing companies

its expert used the Bureau of Census Quarterly Financial Reports QFR

After making what he considered to be appropriate adjustments to arrive

at Interest Charges on Long Term Debt Embedded Debt and using a

5 year 19801984 average he was able to calculate the rate of average

return on total capital for manufacturing firms of 115 percent Ex PHC

6 p

8 As we have already indicated Hearing Counsel made no adjustment

to the benchmark rate of return for current trends in rates of return interest

rates or relative risks

As to the State it relies on the testimony of its expert Mr Simat

Its basic objection on Matson s determination of benchmark rate of return

is an attack on the methodology required by G O II It recognizes that

the Commission has opted to depart from the more traditional cost of

capital approach and instead has adopted the comparable earnings

approach It attacks the use of that approach in regard to Matson because

I Matson s Trade entity has several unique attributes which are not

present in the world of industrial companies 2 the G O 11

methodology is unclear as to the treatment of historical data in the deter

mination of a fair and reasonable rate of return for prospective ratemaking

purposes It concludes that it would be unwise to consider the G O

II methodology as anything more than a general guideline rather than

a precise and unflexible prescription which cannot be modified to produce

a more reasonable and realistic result

As to Matson s fair and reasonable rate of return on rate base the

State asserts that the figure should be 8 35 3S It begins with a benchmark

rate of return of 114 and proceeds to discount that figure as follows

Adjusunents For Amount

Higher percentage debt 375

Working capital allowance 025

Income tax allowance 2

Interest expense allowance 2

Market book value ratio 2 25

Total adjustments 3 05

The State s arguments supporting the above discounts are set forth in its

Opening Brief pp 22 46 and in the testimony and exhibits presented

by its expert Exs PH 35 through PH 56 The arguments and supporting

data are too lengthy to repeat in the body of this decision However

they are discussed briefly below

38 In the Conclusion to its Opening Brief the State asks forarate of 9

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 497

RATE INCREASE OF 25

Insofar as the State s position regarding the G O 11 return on rate

base methodology is concerned the issues raised by the State were consid

ered in Docket No 78 46 The Commission specifically rejected the rate

of return on equity methodology and adopted use of rate of return on

rate base In doing so it noted that Hawaii supported the use of return

on rate base but wanted to use other alternative methods where warranted

as it does in this case The Commission also specifically rejected the

State s

requests In reaching the return on rate base method it is clear

that the Commission exhaustively considered various alternatives it might

use While one may agree or disagree with its decision it must defer

to the propriety of that decision For the State to prevail here it must

show the return on rate base method is unfair and unreasonable when

used by Matson in this proceeding On the basis of the record before

us we carroOl so hold

As to the State s adjustments to the benchmark rate of return we would

agree with Matson that the 375 downward adjustment for Matson s debt

ratio contravenes G O II and the holding in the Sea Land case which

frowns on considerations of capital structure in determining rate of return

on rate base and that the State expert s analysis is flawed Matson s

Opening Brief pp 66 67 With respect to the marketbook value ratio

adjustment of 25 it is based on a cost of capital approach which

has generally been rejected by the Commission in G O II Further we

believe the regression analysis used which does not employ individual

company data is too imprecise and inconclusive Regarding the other adjust

ments to rate base for working capital allowance 025 income tax allow

ance 2 and interest expense allowance 2 they all contravene the import

of G O 11 and in the case of the income tax allowance would be opposite

to decisions made by the Commission in Docket No 7846 There is

little question that as to the income tax allowance Matson benefits from

the treatment allowed and no question that Congress and the Commission

thought the benefit appropriate

As we have already noted in order for us to set aside the methodology

of G O 11 it is necessary that the record contain proof that its application

is unfair and unreasonable Here we again can see the problems raised

but without a specific showing of unfairness or unreasonableness we cannot

set aside G O 11 methodologies

In light of the above we hold that Matson s fair and reasonable rate

of return on rate base is between 115 and 12 19 percent and that given

the prudent and relatively efficient manner in which Matson is operated

Finding of Fact 14 the present rates are not unfair or unreasonable

The proposed increase of 1 percent however is in our judgment unfair

and unreasonable
498 FEDERAL MARITIME COMMISSION

Miscellaneous

Throughout this proceeding miscellaneous issues have been raised and

then abandoned Some however remain in the briefs of the parties While

the record does not justify or require any detailed analysis the following

comments are appropriate At page II of its Opening Brief and elsewhere

the State introduced the argument that the LC C Jurisdiction Over

Matson s Tariff 2016 is Questionable and recommends that the Commis

sion order an investigation to determine whether or not the Federal Mari

time Commission retains jurisdiction over Tariff No 2016 Apparently

it is arguing that the pickup service zone arbitraries in Rule 750 disqualify

Tariff 2016 as a joint tariff subject to ICC jurisdiction because the

individual commodity rates are for water carriage and the zone arbitraries

apply uniformly to storedoor pickup service by motor carrier within the

zones We believe the rates in Matson Tariff No 2016 are joint rates

even though the tariff uses the format of commodity rates plus arbitraries

for storedoor pickup in the several zones Matson s joint motor water rates

were filed with the ICC pursuant to the Revised Interstate Commerce

Act 49 U S C 10203 a 4 A which reads

A motor common carrier of property may establish through routes

and joint rates and classifications applicable to them with other

carriers of the same type with rail and express carriers and

with common carriers including those referred to in Subparagraph

0 of this paragraph 9

The ICC accepted Tariff No 2016 without question and absent any citation

of statutory or case law to the contrary there is no basis for the FMC

to question ICC s

jurisdiction

On pages 74 to 76 of its Opening Brief and pages 41 and 42 of its

Reply Brief Matson argues that The Commission should administer The

Comparable Earnings Standard With a Reasonable Amount of Flexibility

which Requires an Analysis of Carrier Earnings Over Time It points

out that the earnings of individual unregulated companies fluctuate between

good years and bad years and that the important point being that they

have the opportunity to offset the bad years with the good years to achieve

a reasonable average level of earnings over time It argues that A

rigid single test year public utility type of regulation is unfair to domestic

offshore carriers because it deprives them of the opportunity to average

out the good and bad years

In our view the present General Order 11 is quite generous insofar

as setting rates of return is concerned Not only does it allow the carrier

to realize an average rate of return in comparison with other U S companies

adjusted for current trends but as this proceeding demonstrates it allows

3lSubparagraph D refers to water carriers subject to the Shippin Act 1916 orthe Intercoastal Shipping

Act 1933 and providing transportation of property between Alaska orHawaii and the other 48 states

28 F M C
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 499

RATE INCREASE OF 25

for a highly favorable income tax allowance working capital allowance

and al1ocation factors Further there is nothing in the record to suggest

that Matson is disadvantaged either in earnings or in the establishment

of rates Indeed in this proceeding a backward look shows that with fuel

cost at 18 a barrel when applied to the test year 1985 and if continued

into 1986 everything else being equal Matson would realize and retain

an increase of 135 percent on its rate of return Ex PHC 7 As to

al10wing a carrier to even out good years against bad we believe that

approach would violate the Commission s holding in Sea Land supra where

it stated

Al10wing a carrier to achieve an unreasonably high rate of return

to compensate it for its past shortfal1s in earnings is impermissible

rate regulation This rule of law is not unfair to the carrier in

light of the fact that confiscatory rates cannot be established on

the basis of the carrier s past actual profits

General1y it is our view that if Matson wishes to object to GO 11

by comparing itself to public utilities or private U S corporations the com

parison ought to be a ful1 one and ought not to select isolated facts

or circumstances that tend to distort the overal1 picture For example on

the one hand it complains it is not a public utility with an exclusive

franchise and on the other it cites the fact that it is regulated as a

detrimental factor ignoring the regulatory rules under which all public

utilities must operate It argues for a rate of return on capital equal to

that of U S manufacturing companies Value Line and an ability to set

off bad years against the good years completely ignoring the adjustment

for current trends which it is al10wed and the favorable treatment of various

items previously referred to which most U S manufacturing firms do not

enjoy In short if Matson wishes to seek changes in G O II by comparing

itself with other entities it is of course free to do so However in

our view the comparison ought to be a

complete one weighing all advan

tages and disadvantages not a kind of an administrative grab bag that

seeks piecemeal changes to the regulation

Final1y we would again refer to the overal1 question of G O II We

have already discussed the issues raised by the State and Tobias and they

will not be reconsidered or repeated here However certain observations

are appropriate regarding G O II First of al1 in our view given its

history and its scope the regulation represents a commendable and viable

approach in dealing with rate matters especial1y where general rate increases

are concerned It sensibly foresees the probable need for future changes

within its terms and to this end the following comments are made

This case does not involve a general rate increase Under G O II the

carrier is not required to file the reports required by Part 552 2 f and

it did not do so here when it initial1y filed its proposed 25 percent rate

increase This meant that neither the Commission nor any possible protestant

had any idea as to the basis for the increase Even after the Commission
500 FEDERAL MARITIME COMMISSION

issued its Order of Investigation and Suspension the carrier did not file

any supporting data It was some time before any documents were filed

in discovery and by that time the 180 day statutory period already was

working to the detriment of the parties and especially the protestants

EventuaUy the carrier did place data in the record much of it the same

data that would have been required if a general rate increase has been

proposed

It is clear that both Congress and the Commission want rate cases to

be handled expeditiously and that they do not want every proposed rate

increase to generate a fuU blown rale proceeding The fact that the regulation

does not require detailed supporting data when the proposed increase is

not a

general rate increase supports this premise We would respectfuUy

suggest that in cases not involving a general rate increase the carrier be

required to submit supporting data to aU parties within 5 days of the

service of the initiation of a proceeding Further that data should clearly

set forth those specific adjustments to the carriers most recently filed

prior fmancial data which give rise to the proposed increase In this manner

not only would time strictures be less burdensome but it would aUow

the Commission to specifically require prior financial data as a starting

point which in turn might obviate the need to begin each rate case anew

as though rate increases had never before been considered For example

if oil prices increased dr1 ffiaticaUy causing a need to increase the rate

of return then a carrier seeking less than a general rate increase should

not initiaUy present a mass of statistical projections which may be basicaUy

unchanged It ought to be able to refer to the last rate matter and the

data involved and update it to reflect the reason for the proposed increase

ie the rise in fuel costs

The last pOint to be made involves issues related to the reasonableness

of a current rate of return litigated under section 18 a oftlte Shipping

Act 1916 Cases arising under that section do not involve the time limita

tions contained in cases arising under the Intercoastal Shipping Act 1933

Where as here the issues are many and far reaching and the burden is

on the protestant the time limitations are inappropriate and their application

may even raise questions of due process Further they inhibit a thorough

development of facts and issues which the Commission may wish to con

sider In such cases we would suggest that the proceeding be kept separate

from proposed rate increase cases under the Intercoastal Shipping Act

1933 where the bUrden is clearly on the carrier

Finally in this proceeding an attempt has been made to cover fuUy

all of the iSSues raised However the volume of the evidence coupled

with the abbreviated time period involved does not aUow for as complete

a written decision as one would iike AU testimony facts and issues pre

sented however small and transient have been considered in this pro

ceeding Where the decision does not refer to them it is because it was

28 FM C
MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 501

RATE INCREASE OF 2 5

felt such reference was not important to the ultimate decision and because

of the time strictures involved

5 JOSEPH N INGOLlA

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1415

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE

BENEFIT OF KENO HUA PAPER PRODUCTS CO INC MANILA

PHILIPPINES

ORDER OF PARTIAL ADOPTION

July 3 1986

The Commission determined on its own motion to review the Initial

Decision ID of Administrative Law Judge Seymour Glanzer served April

2 1986 in this proceeding

I

BACKGROUND

On October 30 1985 OOCL Seapac Services Inc OOCL Seapac a

member of the Transpacific Westbound Rate Agreement TWRA offered

the shipper a rate subject to booking of 1300 1210 00 plus 90 00

terminal receiving charges per 20 foot container for an upcoming shipment

of book binding machinery from New York New York to Manila Phil

ippines Booking occurred on November 25 1985 Due to inadvertence

the rate was not filed before the shipment sailed from New York on

December 11 1985 Subsequently on January 17 1986 TWRA filed the

1300 rate in its tariff with an effective date of January 20 1986 and

on February 18 1986 OOCLSeapac applied pursuant to section 8 e of

the Shipping Act of 1984 the Act 46 U S C app 1707 e for permission

to waive collection from the consignee Keng Hua Paper Products Co

Inc of a portion of the freight charges payable at the rate in effect at

the date of shipment

The Presiding Officer found that the applications met all the requirements

of section 8 e of the Act and granted the waiver 2 Under review is the

lOOCI Seapac s applieation of January 14 1986 referred to in the Initial Decision was deficient in that

It was filed before TWRA published the 1300 rate inits latl f on January 17 1986

2

Secdon 8 e authorizes the Commission to pennlt refund or waiver relief if

I

there is an error ina tariff of a clerical or administrative nature or an elTOl due 10 inadvertence

in failing 10 file a new tariff and the refund will not result indiscriminalion among shippers ports

or carriers

2 the common carrier or conference has prior to tiling an appllcatjon tiled a new ladtt

with the Commission that seis forth the rate on which Ihe refund or waiver would be based

3 the common carrier Or conference agrees lhai if permission is granled by tbe Commission an

appropriate nolice will be published in the tariff that givers nolice of the rlUe on which the

refund or waiver would be based and additional refunds or waivers as appropriate shall be made

with respect to other shipments in lhe manner prescribed by the Commission in its order approving

the application and

502 28 FM C
APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE 503

BENEFIT OF KENO HUA PAPER PRODUCTS CO INC

tariff notice required by the Initial Decision to be published in the carrier s

tariff

DISCUSSION

Section 8 e 2 of the Act requires that prior to applying for refund

or waiver the carrier publish a new tariff conforming tariff showing

the rate on which the refund or waiver would be based Because it is

intended to apply to shipments which sailed earlier the effective date

of the conforming tariff must be established at a date prior to the date

of filing with the Commission

In this instance the Presiding Officer established the effective date of

the conforming tariff as October 30 1985 the date OOCL Seapac quoted

the rate to the shipper In the Presiding Officer s opinion

there being no evidence that the rate was not intended to become

effective immediately if the shipment was booked on that date

10 at 28 EM C 505

Filing of the rate was contingent however on booking That the booking

could conceivably have taken place as soon as OOCL Seapac offered the

rate to the shipper is irrelevant in light of the fact that booking in fact

occurred on November 25 1985 when the carrier s obligation to have

the rate filed arose

In Application of Yamashita Shinnihon Line for the Benefit of Nissho

lwai American Corporation Yamashita 19 S RR 1407 1980 and Appli

cation of Australia New Zealand Container Line for the Benefit of

Meadowsfreiqht New Zealand Ltd 28 EM C 183 1986 Meadowsfreight

New Zealand the Commission established the effective date of the con

forming tariff as either I the date the tariff omitting the intended rate

becomes effective or 2 the date the intended rate absent the mistake

would have become effective These decisions were recently followed in

Application of Lykes Bros Steamship Co Inc for the Benefit of the Em

bassy of Tunisia Special Docket No 1381 Order of Partial Adoption

served June 9 1986 28 F M C 421 where the Commission determined

that the effective date of the conforming tariff is the date the error on

which the application is based was made

OOCL Seapac s

request for a waiver is based on the failure to file

the intended rate when booking occurred on November 25 1985 Thus

according to the decisions in Yamashita Meadowsfreiqht New Zealand

and Embassy of Tunisia supra the effective date of the conforming tariff

filed on January 17 1986 should have been made to relate back to Novem

28 F M C

4 the application for refund or waiver is filed with the Commission within 180 days from the

dale of shipment

The Commission by regulation has defined date of shipment to mean

the date of sailing of the vessel from the port at which cargo was loaded

46 C F R 502 92 a 3 iii 1985
504 FEDERAL MARITIME COMMISSION

ber 25 1985 when absent the error and according to the understanding

between the parties the rate would have been filed in TWRA s tariff

Furthennore because it reflects OOCL Seapac s independent action applica

tion of the rate shall be limited to shipments carried by OOCL during

the time specified in the tariff notice

TIIEREFORE IT IS ORDERED That in lieu of the tariff notice man

dated by the Initial Decision issued in this proceeding the Transpacific

Westbound Rate Agreement promptly publish in its tariff the following

notice

Notice is given as required by the decision of the Federal Mari

time Commission in Special Docket No 1415 that effective No

vember 25 1985 and continuing through January 19 inclusive

the rate for Used Book Binding Machinery AGFrom Atlantic

Ports PC 20 is 1210 00 Such rate is subject to al1 applicable

rules regulations tenns and conditions of said rate and this tariff

This Notice is effective for purposes of refund or waiver of freight

charge on any shipment carned by Orient Overseas Container

Line during the specified period of time

IT IS FURTIIER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission

S JOHN ROBERT EWERS

Secretary

28 FM C
28 F M C 505

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1415

APPLICATION OF OOCL SEAPAC SERVICES INC FOR THE

BENEFIT OF KENG HUA PAPER PRODUCTS CO INC MANILA

PHILIPPINES

Application to waive collection of portions of freight charges granted

Donna M Forminio for applicant OOCL Seapac Services Inc

GerardH Wo lweber for applicant Transpacific Westbound Rate Agreement

INITIAL DECISION I OF SEYMOUR GLANZER ADMINISTRATIVE

LAW JUDGE

Partially adopted July 3 1986

By application filed January 14 1986 OOCL Seapac Service Inc asks

permission to waive collection of 51194 of fteight charges due it from

Keng Hua Paper Products Co Inc Manila Philippines in connection

with a shipment of used book binding machinery carried by it from New

York N Y to Manila Philippines aboard the Oriental Diplomat which

sailed from New York on December 11 1985 The shipment weighed

777 kilograms and measured 7 023 cubic meters Transpacific Westbound

Rate Agreement joins in the application

On October 30 1985 OOCL Seapac quoted a rate of 1300 ocean

freight 1210 per 20 container plus an existing terminal receiving charge

of 90 per 20 container for the upcoming shipment subject to booking

The booking took place on November 25 1985 but due to inadvertent

clerical error the intended ocean freight rate was not published in the

TWRA tariff as an independent rate as it should have been Thus at

the time of shipment the applicable ocean freight rate was 253 W M

and the applicable terminal receiving charge was 5 M At those rates

charges amounted to 1 81194 The shipper was billed at the applicable

rates but was told to pay at the booked rates When the error was discov

ered a corrected tariff reflecting the intended ocean rate was filed effective

January 20 1986 There were no other shipments of the same or similar

commodity to the same destination during the relevant time period and

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227
506 FEDERAL MARITIME COMMISSION

there is no indication of discrimination or the likelihood thereof Neverthe

less the order which follows provides safeguards against discrimination 2

The application meets the criteria for approval under section 8 e of

the Shipping Act 1984 46 VS C app 1707 e and the Commission s

rules 46 CFR 502 92 a

The application is granted OOCL Seapac shall waive collection of

51194 in connection with the above described shipment and TWRA shall

publish the following notice at pages 1421 and l426AI of its Tariff

FMC No 3

Notice is given as required by the decision in Special Docket

No 1415 that effective October 30 1985 and continuing through

January 19 1986 inclusive for purposes of refund or waiver

the rate for Item No 84170 Book Binding Machinery AG

From Atlantic Ports PC 20 PIDL is 1210 00 2 2 means

Applies on Used Machinery Only Such rate is subject to all

applicable rules regulations terms and conditions of said rate

and this tariff

OOCL Seapac shall make any necessary adjustment in brokerage of com

pensation to brokers or freight forwarders

Within 30 days of service of notice of authorization from the Commission

OOCL Seapac and TWRA shall furnish the Secretary with evidence of

waiver and collection together with copies of the prescribed tariff notices

S SEYMOUR GLANZER

Administrative Law Judge

1

In addition to other safeguards the notice to be published in lite lWRA tarjff proteC lJ against digcrimina

tion among shippers by making the rate effective as of the date the rate was quoted to the shipper there

beIn no eyjdence that the rate was not intended to become effective immediately if the shipment was

booked on that date

28 FM C
FEDERAL MARITIME COMMISSION

28 F M C 507

SPECIAL DOCKET NO 1421

APPLICATION OF AMERICAN PRESIDENT LINES LTD FOR THE

BENEFIT OF EVA GABOR INT L

ORDER OF PARTIAL ADOPTION

July 3 1986

The Commission determined to review the Initial Decision of Administra

tive Law Judge Joseph N Ingolia Presiding Officer served on April 3

1986 in this proceeding

American President Lines Ltd APL applied pursuant to section 8 e

of the Shipping Act of 1984 the Act 46 U S c

app 1707 e for

permission to refund to the consignee Eva Gabor International a portion

of the freight charges collected on eighteen shipments of wigs APL carried

from Korea to Kansas City Kansas and Missouri

The Presiding Officer found that the application met all the requirements

of section 8 e of the Act and properly granted APL permission to refund

838 74 of the charges collected However the tariff notice required by

the Initial Decision to be published in the carrier s tariff makes the rate

APL seeks to apply effective as of Augnst 29 1985 whereas the earliest

date the rate can be made applicable is August 30 1985 when APL s

independent tariff went into effect

THEREFORE IT IS ORDERED That in lieu of the tariff notice man

dated by the Initial Decision issued in this proceeding American President

Lines Ltd promptly publish in its tariff the following notice

Notice is given as required by the Federal Maritime Commission

in Special Docket No 1421 that effective August 30 1985 and

through November 7 1985 inclusive the special rate on Wigs

from Korea to Kansas City Kansas and Missouri is 133

W M for purposes of waiver or refund of freight charges subject

to all other applicable rules regulations terms and conditions

of said rate and this tariff

IT IS FURTHER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission

FINALLY IT IS ORDERED That this proceeding is discontinued

wBy the

Commission SJOHN ROBERT

SSecetay
FEDERAL MARITIME COMMISSION

I

SPECIAL DOCKET NO 1421

APPLICATION OF AMERICAN PRESIDENT LINES LID FOR THE

BENEFIT OF EVA GABOR INT L

Application In refund freight charges of 838 74 granted

INITIAL DECISION 1 OF JOSEPH N INOOLIA ADMINISTRATIVE

LAW JUDGE

Partially Adopted July 3 1986

This application2 is for pennission to refund 838 74 of freight charges

arising out of 18 shipments of Wigs beginning on September 2 1985

moving from Busan Korea to Kansas City Missouri

The tariff involved in this proceeding is American President Lines Ltd

APL Korea Freight Tariff No IC C APLS305 FMC No 137 which

covers movements from Ports in Korea to Pcirts and Points in the United

States the Ports are Ports and Points are listed in Rule I of the tarif

On July 23 1985 Eva Gabor international Gabor applied to the Con

ference for a rate action on wigs from Korea moving to Kansas City

Missouri By letter dated August 29 1985 the Conference confinned the

establishment of a special rate of 133 W M on wigs to Kansas City

Kansas and Missouri under Item No 6595 01S 4 The Conference published

the above rate in its tariff effective August 29 1985 s However effective

August 30 1985 APL published its own tariff APLS 305 F M C No

137 where the rate on wigs to Kansas City Kansas and Missouri under

Item 6595 was listed as 141 W M and the special 133 W M rate was

inadvertently omitted 6 The error was corrected in APL s tariff effective

November 8 1985 when the rate was re established at the 133 W M

level Prior to the correction being made Gabor tendered eighteen 18

shipments which were rated billed and paid at the 141 W M rate leve

The applicant now seeks a refund of the difference between the payments

1 This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 502 227

2Thc application was filed on February 21 1986 well within lhe statutory perl04 set forth in section 8 0

Shipping Act 1984 APL initially filed the application which was later joined inby TPFCJ K

3

The Trans Pacific Freight Conference of Japan Korea TPFCJlK Eastbound Interior Point Intennodal Tar

iffNo I ICe TPC 33 FMC No 8 is also factually pertinent but is norinvolved in the error which was

made

4

Application Exhibit A

Application Exhibit B

6

Application Exhibit C

7

Application Exhibit D

I Application Appendix 2

508 28 F M C
S JOSEPH N INGOLIA

Administrative Law Judge

APPLICATION OF AMERICAN PRESIDENT LINES LTD FOR 509

THE BENEFIT OF EVA GABOR INT L

made of 16 984 14 and the payments due under the 133 W M rate

of 16 145 40 or 838 74

Section 8 e of the Shipping Act 1984 permits the Commission to

waive or refund collection of freight charges where it appears there was

an error in a tariff of a clerical nature or an error due to inadvertence

in failing to file a new tariff Here APL simply forgot to include the

negotiated special rate in its tariff It is the kind of mistake Congress

sought to obviate in enacting section 8 e

The application of APL conforms to the requirements of Rule 92 a

Special Docket Application Rules of Practice and Procedure 46 CFR

502 92 a and therefore after consideration of the application the exhibits

attached to it and the entire record it is held that

I There was an error of a clerical or administrative nature which resulted

in the failure to have timely filed an APL tariff containing a rate of

133 W M on Wigs from Ports in Korea see Rule I

to Kansas City

Kansas and Missouri which rate would have been in effect had the error

not been made

2 The refund will not result in discrimination among shippers 9 and

there is no evidence that any carrier or ports would suffer discrimination

should the application be granted

3 Prior to applying for the refund the applicant filed a new tariff which

sets forth the rate upon which the refund should be based

4 The application was filed within 180 days from the date of the

shipment

Wherefore in view of the above it is

Ordered that permission is granted APL to refund a portion of freight

charges in the amount of 838 74 to the shipper Eva Gabor Intwhich

refund will have no effect on the land portion of the intermodal movement

and it is

Further Ordered that APL promptly publish in the pertinent tariff the

following notice

Notice is given as required by the Federal Maritime Commission

in Special Docket No 1421 that effective August 29 1985 and

through November 7 1985 inclusive the special rate on Wigs

from Korea to Kansas City Kansas and Missouri is 133

W M for purposes of waiver or refund of freight charges subject

to all other applicable rules regulations terms and conditions

of said rate and this tariff

9

The applicant states that there were no other shipments of the same commodity during the time period

involved here

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1354

APPLICATION OF U S ATLANTIC NORTH EUROPE CONFERENCE

FOR THE BENEFIT OF THE FORD MOTOR COMPANY

Application to refund 4400 in Arbitral charges granted Applicant found to have conformed

to the requirements of SectiOD 8 e by filing a new correcting tariff prior to filing

Its application

Harvey M Flitter A E Phair and Anthony M Ryan for U S Atlantic North Europe

Conference

REPORT AND ORDER

July 9 1986

BY THE COMMISSION EDWARD V HICKEY JR Chairman JAMES V

CAREY Vice Chairman FRANCIS J IVANCIE THOMAS F MOAKLEY

AND EDWARD J PHILBIN Commissioners

This proceeding is before the Commission on Exceptions filed by the

U S Atlantic North Europe Conference ANEC or Conference to the Initial

Decision of Administrative Law Judge Joseph N Ingolia Presiding Officer

The Presiding Officer denied ANEC s application submitted pursuant to

section 8 e of the Shipping Act of 1984 the Act 46 U S C app 1707 e

for permIssion to refund 4 400 In freight charges to the Ford Motor

Company assessed on five shipments of Straight or Mixed Containers

ofEmpty Steel Racks andor Transmissions Mixed Containers transported

from Louisville Kentucky to Blanquefort France 1 The shipments totaling

eleven 20 foot containers moved on vessels owned by Sea Land Service

Inc an ANEC member and were rated pursuant to ANEC s Port to Port

and Intermodal Tariff No FMC I 2nd revised page 1566 ANEC filed

its application on July 24 1985

I Date of

shipment

I26S5

24S5

2I2SIS5

2I2SIS5

2I2SIS5

Blll oflading

frelsht bill number

9S4816303

9S4816807

9S4931709

984931699

984931712

Total

charges

2496 00

2 496 00

2496 00

1 248 00

4992 00

13 728 00

510 28 F M C
APPLICATION OF U S ATLANTIC NORTH EUROPE 511

CONFERENCE FOR THE BENEFIT OF FORD MOTOR

BACKGROUND

28 F M C

On December 27 1984 Sea Land advised ANEC that it was taking

independent action on Mixed Containers moving in 20 foot containers from

Louisville Kentucky to Blanquefort France Sea Land informed ANEC

that effective January 7 1985 through June 30 1985 its rate on that

commodity would be 848 00 and would include the Bordeaux Arbitrary

of 400 00 per container After June 30 1985 Sea Land s rate would

increase to 903 00 per container but would still include the Bordeaux

Arbitrary On January 8 1985 ANEC filed the above rates on Sea Land s

behalf but inadvertently failed to note that the Bordeaux Arbitrary was

included in the rates Accordingly the Arbitrary was separately assessed

against the five shipments in question

On July 22 1985 two days before it filed the application in this pro

ceeding ANEC at Sea Land s urging filed a new tariff page in an attempt

to conform to Sea Land s

independent action instructions This filing 3rd

revised page 566 provided for a rate of 903 00 per container including

the Arbitrary through June 30 1986 The July 22nd filing did not however

reflect the 848 00 freight rate including the Arbitrary that Sea Land in

tended to be applied to the five shipments in issue The Presiding Officer

denied ANEC s application on the ground that at no time prior to the

filing of the application did the Conference file a corrected tariff showing

the 848 00 per container rate including the Bordeaux Arbitrary He found

that the July 22nd filing was deficient because it did not precisely set

forth the 848 00 per 20 foot container rate that Sea Land intends to apply

to the shipments at issue

EXCEPTIONS

ANEC argues that although its original application may have been un

clear if the application and the July 22nd tariff filing are liberally viewed

and from a practical standpoint the Commission could conclude that

a correct tariff was filed prior to the application In this regard ANEC

submits that it could not have filed the 848 00 rate prior to filing the

application because Sea Land intended that rate to expire on June 30

1985 well before ANEC discovered that it had failed to correct the January

tariff filing ANEC argues that the Commission should reverse the Presiding

Officer s Initial Decision and grant the application because ANEC did

correct that part of the original filing which was incorrect i e the Arbitrary

prior to filing its application

DISCUSSION

Section 8 e 2 of the Shipping Act of 1984 46 U S c app 1707 e 2

provides as is here relevant that the Commission may only permit a
512 FEDERAL MARITIME COMMISSION

carrier to refund a portion of freight charges collected from a

shipper

if

the common carrier or conference has prior to filing an applica

tion for authority to make a refund filed a new tariff with the

Commission that sets forth the rate on which the refund or waiver

would be based 2

ANEC argues that its July 22nd tariff filing which included the Bordeaux

Arbitrary as part of Sea Land s then effective freight rate of 903 00

per 20 foot container satisfied this requirement The Commission agrees

that ANEC s July 22nd filing satisfies the tariff filing requirement of section

8 e 2 and will therefore reverse the Initial Decision and grant Sea Land

pennission to refund 4400 to the Ford Motor Company

As is pointed out on Exception the error that occurred was the Con

ference s failure to file a tariff page indicating that the Arbitrary was

included in the 848 00 freight rate that Sea Land had established for

Mixed Containers for the period of January 7 1985 through June 30

1985 The 848 00 rate was properly filed and assessed against the ship

ments here in issue The Arbitrary was also assessed because the Con

ference s January 8th filing failed to note that the separately stated Arbitrary

did not apply 3

On July 22 1985 before it filed the application ANEC did file Ii

tariff page indicating that the Arbitrary charge does not apply to movements

of Mixed Containers from Louisville Kentucky to Blanquefort France

This filing satisfies the Act s

requirement that the applicant shall file a

new tariff prior to filing its application that sets forth the rate basis which

supports the refund The July 22nd filing corrects that part of the original

tariff filing that was in error and makes clear that the Arbitrary charge

does not apply to shipments of Mixed Containers Had this filing which

limits the Arbitrary s application been effective at the time of the shipments

here in issue the shipper would not have been assessed 4400 00 in

Arbitrary charges the amount ANEC now seeks authority to refund

ANEC s application for authority to make a refund is not given the

circumstances of this case barred by the fact that the July 22nd filing

sets forth an underlying freight rate different from that which was in

effect at the time of shipment In Application of Pacific Westbound Con

2ANEC s

compliance with the other requirements of se ion 8e is not in issue The record demonstrates

that the applwtion was timely flied Le within 180 days of shipment that there was clerical oversight and

that a refund wIll not result in discrimination among shippers

3

AI least two errors were committed in implemenllna Sea Land s independent action with regard to

Mixed Containers The Arbitrary was not included in the rate as Sea Land requested and the rate did

not become effective on January 7 1985 as also requested by Sea Land in Its lelex of December 27 1984

10 ANEC In addition al hough Sea Land notified ANEC on May 3 1985 of lhe tariff filing error ANEC

did not file a conecllon until July 22 1985 Thls series of erroll fCgardlng Sea Land s

Independent action

nquest is a malter of concern to he Commission

4The 903 00 rMe 1ncJuded In the July 22nd filing Wa onJnaJly published In ANEC s

January 8th filing

10 beorne effective on July I 1985

28 F M C
APPLICATION OF U S ATLANTIC NORTH EUROPE 513

CONFERENCE FOR THE BENEFIT OF FORD MOTOR

ference on Behalf of Korea Marine Transport Co Ltd for the Benefit

ofMitsui and Co U SA Line Inc 25 F MC 350 982 and Application

of Japan Line USA for the Benefit of Nomura America Corp 22

FM C 825 1980 the applicant carriers were granted authority to waive

or refund portions of the applicable charges although their corrective tariffs

reflected higher rates due to intervening general rate increases than the

rates the carriers had negotiated with the shippers In each of these cases

the Commission reasoned that the higher rate resulting from the rate increase

included the rate that had not been filed due to error and therefore the

carrier should not be barred from making the refund See also Application

of Sea Land Service Inc for the Benefit of Seviroli Inc 22 S R R 789

1984

Sea Land s

intervening rate increase for Mixed Containers which became

effective before ANEC filed the tariff correction on July 22nd made it

impractical if not impossible for ANEC to then file the expired 848 00

rate Accordingly the Commission finds that the July 22nd filing which

reflects Sea Land s rate increase for Mixed Containers does not act to

bar special docket relief under section 8 e of the Shipping Act of 1984

Accordingly the Commission is granting ANEC s Exceptions and is

reversing the Presiding Officer s Initial decision and granting authority to

refund 4 400 Arbitrary charges that were collected on the shipments here

at issue

28 F M C

THEREFORE IT IS ORDERED That ANECs Exceptions are granted

IT IS FURTHER ORDERED That the Initial Decision in this decision

is reversed

IT IS FURTHER ORDERED That Sea Land is granted permission to

refund 400 to the Ford Motor Company and

FINALLY IT IS ORDERED That ANEC shall promptly publish in

the applicable tariff on behalf of Sea Land Service the following notice 6

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

Maritime Commission in Special Docket No 1354 that effective

January 25 1985 through July 21 1985 the underlying 20 foot

per container freight rate on any shipments of Straight or Mixed

Containers of Empty Steel Racks andlor Transmissions trans

ported from Louisville Kentucky to Blanquefort France includes

the Bordeaux Arbitrary This Notice is effective for the purpose

of refund or waiver of the Bordeaux Arbitrary charged on any

S The special docket legislation was intended 10 prevent shippers from bearing the burden of carrier neg

ligence and has been broadly construed 10 accomplish this congressional objective Nepera Chemical Inc

v FederalMaritime Commission 662 F 2d 18 D C Cir 1981

6In Special Docket 1381 Application of Lykes Bros Steamship Co Inc for the Benefit of the Embassy

of Tunisia Office of Defense Attache 28 F M C 421 1986 the Commission detennined that the effective

date reflected in the tariff notice mandated by section 8 e 3 of the Act may not exceed 180 days prior

to the date the application was filed Accordingly the tariff notice set forth herein provides for an effective

date of January 25 1985
I

I

I

j

I

i

1

514 FEDERAL MARITIME COMMISSION

shipments of the commodity described which may have been

shipped during the specified period of time

S JOSEPH C POLKING

Secretary

28 P M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 2

RINKER MATERIALS CORPORATION

v

28 F M C 515

PORT EVERGLADES AUTHORITY AND SEA LAND SERVICE INC

NOTICE

July 11 1986

Notice is given that no appeal has been taken to the June 4 1986

dismissal of the complaint in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the dismissal has become administra

tively final

S TONY P KOMINOTII

Assistant Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 85 21

RINKER MATERIALS CORPORATION

PORT EVERGLADES AUTHORITY AND SEA LAND SERVICE INC

COMPLAINT DISMISSED

Finalized July 11 1986

Complainant has filed a Notice of Withdrawal of Complaint with sup

porting material explaining that complainant has reached an amicable reso

lution of its controversy with respondents and no longer wishes to continue

this proceeding

This case essentially concerned the alleged problems which complainant

an importer and manufacturer of cement had been experiencing in having

its vessels served by the respondent marine terminal operator and with

complainant s desire to work out a plan by which complainant s vessels

would be accommodated without undue delay At the prehearing conference

held on April I 1986 it appeared that a reasonable settlement could be

achieved and that ellpensive litigation could and should thereby be avoided

The settlement which has been reached accords with the policy of the

law and this Commission which strongly encourages settlements and does

not appear to require any further Commission attention

Accordingly the complaint is dismissed

S NORMAN D KLINE

Administrative Law Judge

1 The agreement to work in hannony with complainant to accommodate its ships is one between an im

porter and amarine terminal operator and does not appear to require fiUng under seellon 4 or5 of the Ship

ping Act of 1984 46 U S C app sec 1703 1704 Furthermore the issues settled do not concern issues in

valving improper mtlng under filed tariffs in which event the seulement would require additional support

and justification See Organic Chemicals v Atlanttraflk Express Service 18 SRR IS36a 1979

516 28 FM C
FEDERAL MARITIME COMMISSION

DOCKET NO 82 15

KERR STEAMSHIP COMPANY INC

v

TIIE BOARD OF COMMISSIONERS OF THE PORT OF NEW

ORLEANS AND RYAN WALSH STEVEDORING CO INC

ORDER ADOPTING INITIAL DECISION

July 23 1986

On April 3D 1986 Chief Administrative Law Judge Charles E Morgan

Presiding Officer served an Initial Decision 1D in this proceeding which

1 dismissed the complaint against the Board of Commissioners of the

Port of New Orleans Dock Board in light of the fact that the complaint

of Kerr Steamship Company Inc Kerr against it had been voluntarily

withdrawn with prejudice and 2 dismissed Kerr s complaint against Ryan

Walsh Stevedoring Co Inc because there had been no showing that it

violated the shipping statutes Subsequently an Exception was filed by

the Association of Ship Brokers and Agents U S A Inc ASBA an

intervener in this proceeding ASBA excepts solely to the statement in

the ID that nlo explanation is required as to any reason for this

withdrawal of complaint ASBA submits that it would be in the public

interest to ascertain the reasons for the withdrawal of the complaint and

suggests that if it was the result of a settlement the Commission may

wish to review it and place any settlement agreement on the record No

replies to this Exception were submitted

However ASBA later filed a Motion to Include Settlement Document

in Record of this Proceeding and Thereupon Suggestion of Mootness

as to Intervener s Exception Motion The Motion noted that ASBA

had received a settlement document titled Receipt and Release Assignment

and Subrogation from counsel for the Dock Board and requested that

the document be included in the record of this proceeding The Commis

sion s Bureau of Hearing Counsel filed a Reply to ASBA s Motion which

requested that the Commission make the settlement agreement a part of

the record and then discontinue the proceeding

The Commission has determined to adopt the Initial Decision The Com

mission concurs with the Presiding Officer that under the circumstances

no explanation was required as to why Kerr voluntarily withdrew its com

plaint against the Dock Board However in light of the Dock Board s

subsequent release of a settlement agreement to ASBA with no apparent

28 F M C 517
518 FEDERAL MARITIME COMMISSION

1

restrictions on its dissemination the Commission also agrees that no harm

will ensue by making this settlement agreement a part of the record

THEREFORE IT IS ORDERED That the Motion of the Association

of Ship Brokers and Agents U S A Inc to include the Receipt and

Release Assignment and Subrogation in the record of this proceeding

is granted and

IT IS FUR IHER ORDERED That the Initial Decision in this proceeding

served April 30 1986 is adopted by the Commission

By the Commission

S JOSBPH C POLK NO

Secretary

j

2S P M C
28 F M C 519

FEDERAL MARITIME COMMISSION

DOCKET NO 82 15

KERR STEAMSHIP COMPANY INC

v

THE BOARD OF COMMISSIONERS OF THE PORT OF NEW

ORLEANS AND RYAN WALSH STEVEDORING CO INC

I Complaint against Board of Commissioners of the Port of New Orleans withdrawn with

prejudice Complaint dismissed

2 Complaint against Ryan Walsh Stevedoring Co Inc dismissed because of no showing

that this respondent violated the Shipping Acts

3 In view of dismissal of complaint against Ryan Walsh on the merits it is unnecessary

to decide whether Ryan Walsh is a

person subject to jurisdiction under the Shipping

Acts in the circumstances of this proceeding

Eliot J Halperin Robert B Acomb Jr and Donald L King for the complainant

Kerr Steamship Company Inc

Edward J Sheppard and Edward F LeBreton III for respondent The Board of Commis

sioners of the Port of New Orleans

Thomas D Wicox forrespondent Ryan Walsh Stevedoring Co Inc

Robert Eike for intervener the West Gulf Maritime Association

J Alton Boyer for intervener Association of Ship Brokers and Agents US A Inc

Aaron W Reese Director forthe Bureau of Hearing Counsel

INITIAL DECISION I OF CHARLES E MORGAN ADMINISTRATIVE

LAW JUDGE

Adopted July 23 1986

On January 7 1986 the complainant Kerr Steamship Company Inc

Kerr served notice of its Withdrawal of Complaint in Part insofar

as it was directed against one respondent The Board of Commissioners

of the Port of New Orleans the Board This withdrawal was with prejudice

to all issues raised in the complaint against the Board No explanation

was offered nor is required as to any reason for this withdrawal of com

plaint

The other respondent herein is Ryan Walsh Stevedoring Company Inc

Ryan Walsh The complaint insofar as it is against Ryan Walsh was not

withdrawn and it remains to be decided herein

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 502 227
520 FEDERAL MARITIME COMMISSION

1

The complaint against both respondents alleged violations of sections

16 and 17 of the Shipping Act 1916 the Act The above provisions

of the 1916 Act respectively are included in sections IO d 3 and of

10 d 1 of the Shipping Act of 1984

In brief this complaint is about certain demurrage charges on a shipload

of steel imported through the Port of New Orleans This cargo was left

on the docks of or on the premises of the Port of New Orleans beyond

the free time a1owed for pick up of such cargo The cargo s owners or

their agent paid 30 000 of the demurrage charges but the remaining

184 729 18 of the demurrage charges were not paid

The Board sought to collect the remaining demurrage charges from Kerr

which had obtained the berth assignment and was the husbanding agent

for the vessel which brought the cargo to New Orleans

The history of this proceeding is that the complaint was filed with

the Commission a first prehearing conference was held and later a motion

was served by the complainant for leave to withdraw the complaint in

its entirety and for its dismissal without prejudice inasmuch as a suit

had been filed by the Board against Kerr Ryan Walsh and the owner

consignees of the cargo in the United States District Court for the Eastern

District of Louisiana New Orleans Division

The said motion to withdraw was granted by the Presiding Officer subject

to the condition that any party might file a motion to reopen the proceeding

depending upon the outcome of the suit in the District Court for the

reason among others that there was no certainty that the District Court

would settle a1 of the Shipping Act issues in the complaint

The District Court rendered judgment in favor of the Board and against

Kerr Kerr next appealed to the United States Court of Appeals for the

Fifth Circuit which granted Kerr s motion to stay further proceedings

pending administrative agency determination Accordingly the pro

ceeding in No 82 15 herein was reopened by the Presiding Officer on

March 27 1984

The demurrage in issue herein arose from a complicated series of financial

transactions Intercontinental Metals Corporation IMC or Intercontinental

Metals Trading Corporation IMTC North Carolina comparties bought

steel from Metalimportexport a Rumanian government corporation

Metalimportexport chartered the Vidraru and other vessels from NAVROM

another Rumanian government corporation to transport cargoes of steel

plate to the United States on a free out basis

Cardinal Shipping Corporation as agent for IMC and IMTC arranged

for Ryan Walsh to do the stevedoring in New Orleans BaSed on expecta

tions of 100000 tons of steel to be imported through New Orleans Ryan

Walsh requested a first call on berth at the Governor Nicholls Street Wharf

in New Orleans which request was granted by the Board on April I

1981

28 F M C
KERR STEAMSHIP COMPANY INC V THE PORT OF NEW 521

ORLEANS AND RYAN WALSH STEVEDORING CO INC

In 1982 both IMC and IMTC filed petitions in bankruptcy staying all

claims against them

The import cargo herein was imported under so called free out terms

meaning that the cargo owners and not the vessel owner were responsible

for unloading the cargo from the ship Ryan Walsh was the stevedore

for the cargo owners and thus took the responsibility for unloading the

cargo from the ship

Kerr was not the agent for the cargo owners but applied to the Board

on behalf of the vessel owner for a berth assignment for the vessel At

the request of Ryan Walsh Kerr designated the Governor Nicholls Street

Wharf as the place for berthing the ship

Ryan Walsh applied to the Board for a First Call on Berth Privilege

at the Governor Nicholls Street Wharf to provide its stevedoring services

for the cargo owners herein and for others On April I 1981 the

Board issued to Ryan Walsh a Grant of First Call on Berth Privilege

which Ryan Walsh accepted on April IS 1981 The Board s tariff and

all subsequent changes etc thereof were made a part of the said grant

The vessel herein the Vidraru completed its discharge on April 30

1981 and the free time allowance for maintaining the cargo on the docks

expired May IS 1981 Removal of the cargo from the docks began on

June 3 1981 and was completed in August 1981

The Board sent demurrage invoices to Kerr which Kerr forwarded to

Ryan Walsh Kerr notified Ryan Walsh that since free time had expired

and demurrage charges had not been paid that no cargo should be released

from the docks until all demurrage charges were paid Ryan Walsh for

warded these messages to the cargo owners or their agent Cardinal Shipping

Corp In turn Cardinal instructed Ryan Walsh to continue releasing the

cargo As a result all of the Vidraru s

cargo herein was removed from

the docks without all demurrage charges having been paid

Cardinal having received Kerr s notice to Ryan Walsh not to release

the cargo until all demurrage had been paid responded directly to Kerr

by telex on July 29 1981

SIR WE HAVE RECEIVED A COPY OF YOUR TELEX

WHICH WAS SENT TO RYAN WALSH PLEASE NOTE WE

HAVE BEEN AND STILL ARE NEGOTIATING WHARFAGE

DEMURRAGE ON THE ABOVE VESSEL WITH THE DOCK

BOARD DIRECTLY THUSLY WE ASSUME RESPONSI

BILITY FOR SAID CHARGES AND WITH COPY OF THE

TELEX TO RYAN WALSH ARE INSTRUCTING THEM TO

RELEASE CARGO IN THE USUAL MANNER YOU TOO RE

ALIZE AS CHARGES ACCRUE DAILY AND WE ARE DOING

OUR UTMOST TO MOVE THE CARGO OUT OF THE PORT

AREA AS SOON AS POSSIBLE HOPE THE ABOVE SUF

FICES TO YOUR REQUIREMENTS WE REMAIN

28 F M C
522 FEDERAL MARITIME COMMISSION

Ryan Walsh followed the instructions of Cardinal Shipping Corp and

released all of the cargo although demurrage charges had not all been

paid

In its complaint Kerr had alleged that the Board s tariff provisions and

the Board s actions in seeking to collect demurrage on such free out

cargo from Kerr were unlawful for the reason in part that Kerr was

not the agent for the owner consignee of the cargo whose duty it was

to pick up the cargo before the expiration of free time

Kerr s complaint against Ryan Walsh is that Ryan Walsh as an alleged

terminal operator for the cargo and as stevedore for the unloading of

the cargo was the terminal agent for the cargo owner Kerr alleges further

that Ryan Walsh did not fulfill its alleged responsibility to payor collect

the inbound demurrage charges before releasing the cargo to the owner

consignee

Kerr alleged that Ryan Walsh had custody and control over the cargo

when the demurrage accrued and that in proceeding allegedly in concert

with the Board in its efforts to collect the demurrage charges from Kerr

that Ryan Walsh was in violation of the Act

Specifically Kerr alleges that in failing to enforce the Board s tariff

rules applicable to Ryan Walsh s terminal operations and instead engaging

in terminal practices to avoid collection and payment of the demurrage

charges Ryan Walsh a granted itself an undue and unreasonable preference

and advantage and subjected Kerr to an unreasonable prejudice and dis

advantage and b established and enforced unjust and unreasonable prac

tices relating to the receiving handling storing and delivering of property

in violation of sections 16 and 17 of the Act

At the prehearing conference held for the reopened proceeding a petition

to intervene by The Association of Ship Brokers and Agents U S A

Inc ASBA and a

petition to intervene by the West Gulf Maritime Asso

ciation were granted Both interveners represented that they did not wish

to introduce factual matters but would limit their participation to the filing

of briefs The Bureau of Hearing Counsel already had been permitted

to intervene at the time of the first prehearing conference

The legal positions of ASBA and of West Gulf Maritime Association

relate mainly to the complaint against the Board rather than the complaint

against Ryan Walsh ASBA cites many reasons why the Board s tariff

provisions may be unlawful

At the prehearing conference held on the reopened proceeding also it

was ruled that the facts of the case might be submitted in writing by

all parties if they were unable to stipulate the facts inasmuch as the

parties already had tried the matter orally in large part before the District

Court

Ryan Walsh on brief stated that the facts in this proceeding had been

stated accurately by the Presiding Officer in his ruling order served De

cember 5 1984 that the facts stated in the opening brief of Hearing

28 F M C
KERR STEAMSHIP COMPANY INC V THE PORT OF NEW 523

ORLEANS AND RYAN WALSH STEVEDORING CO INC

Counsel were sufficient to decide the real issue and that the operative

facts never had been in dispute Kerr said the dispute related tq legal

conclusions drawn from the facts

The Board owns and provides marine terminal facilities for the use

of shipping interests The Board is a landlord port and does not itself

conduct terminal operations The Board assigns berths and assesses charges

for the use of its facilities

Ryan Walsh s First Call on Berth Privilege granted by the Board was

inclusive of all equipment and appurtenances as shown on page 2 of

Attachment 2 to the statements of facts submitted on behalf of Kerr The

Governor Nicholls Street Wharf as shown on said page 2 included various

wharf and shed areas It is located on the Mississippi River FMC Agree

ment No T 3967 between the Board and Ryan Walsh originally approved

by the Commission June 21 1981 relates to operations of Ryan Walsh

at another location which is on the Mississippi River Gulf Outlet which

is part of the Intracoastal Waterway system

Some discussion of the complaint against the Board is deemed helpful

in putting into perspective the complaint remaining against Ryan Walsh

As pointed out by Hearing Counsel as a general rule in order to hold

a steamship agent vessel agent responsible for port charges of any nature

those port charges must be related to the vessel s use of the port In

other words a principal vessel must be responsible for certain port charges

such as demurrage on outbound cargo or wharfage for the principals

agent vessel s agent also to be held responsible for the same port charges

On inbound cargo occupying terminal space after the expiration of the

free time allowed for the pick up of that inbound cargo the vessel ocean

carrier no longer has any transportation obligation relative to such cargo

Since the vessel Vidraru no longer had any transportation responsibility

on the cargo in the present case after the expiration of free time for

pick up of the cargo the vessel had no obligation to pay demurrage on

this inbound cargo Since the vessel had no obligation to pay demurrage

likewise its agent could have had no responsibility to pay such demurrage

merely because of its agency relationship

If the Board s tariff provisions holding vessel agents responsible item

145 D for demurrage charges due and payable before the cargo is removed

from the public wharves were deemed lawful this is another question

but it need not be resolved here

The responsibility for demurrage on inbound cargo is explained in West

Gulf Maritime Association v Port of Houston Authority 22 FMC 420

1980 at page 439

The difference in responsibility between inbound and outbound

cargo is based upon the respective legal responsibilities for re

moval of the cargo from the terminal On inbound cargo the

responsibility for removal after the expiration of free time is on

the cargo interests

28 F M C
524 FEDERAL MARITIME COMMISSION

The record herein does not disclose any proceeding in which it has

been determined that demurrage on inbound cargo may be charged properly

against vessel interests

Although it does not have to be decided herein a terminal practice

or a tariff provision holding vessel interests responsible for demurrage

on inbound cargo would appear to be unreasonable and unlawful

GENERAL DISCUSSION AND CONCLUSIONS

In the present case on the inbound cargo the responsibility for the

demurrage after the expiration of free time was primarily on the cargo

owners consignees IMC and IMTC and secondarily on their agent Car

dinal Shipping Corp

There remains the question whether the stevedore Ryan Walsh was re

sponsible somehow for this demurrage Ryan Walsh had a contract to steve

dore the cargo that is to unload it from the ship hut Cardinal Shipping

gave orders to Ryan Walsh as to the disposition of the cargo and Ryan

Walsh acceded to Cardinal s instructions to release the cargo whether or

not the demurrage bill had been paid in full

Ryan Walsh had no contract or duty toward Kerr The Board did not

direct Ryan Walsh to hold the cargo under the Board s tariff provisions

until the demurrage was paid in full Rather the Board chose to negotiate

with Cardinal and to attempt to collect the demurrage from Kerr

There is not a shred of specific evidence that the Board and Ryan

Walsh acted in concert with the intent to foist the payment of the demurrage

charges on Kerr Ryan Walsh acted independently as it saw its duty to

Cardinal

The Board exercised what it believed was its option to collect the demur

rage from Kerr The Board chose not to exercise its option to impound

the cargo

Whether or not the cargo was released improperly to the cargo owners

or their agent before the payment of demurrage is a matter apparently

covered in part by the terms of the tariff of the Board

The Board s tariff item 145 0covered demurrage on inbound cargo

and provided in part

At the option of the Superintendent of Docks the cargo may

be sent to warehouse storage for account of whom it may concern

This tariff item also provided in part

The owner charterer and agent of the vessel discharging the cargo

are responsible for the payment to the Board of the demurrage

charges which are due and payable before the cargo incurring

same is removed from the public wharves

The Board by the above tariff provisions clearly showed its general

intent to collect demurrage charges before the cargo was removed from

the Board s premises But as seen the Board did not exercise its option

28 F M C
KERR STEAMSHIP COMPANY INC V THE PORT OF NEW 525

ORLEANS AND RYAN WALSH STEVEDORING CO INC

to hold the cargo in warehouse storage Rather the Board was negotiating

with Cardinal Shipping Corp which stated on July 29 1981 that we

have been and still are negotiating wharfage demurrage on the above vessel

with the Dock Board directly

Ryan Walsh was not a vessel agent and under the Board s tariff con

cluded that it was not responsible for the payment or the collection and

remittance to the Board of demurrage charges assessed by the Board s

tariff

The Board owned the terminal facility and collected for its own account

wharfage dockage and demurrage Ryan Walsh occupied the terminal facil

ity furnished the labor and experience to discharge the vessel and to

deliver or release the cargo to its owners Ryan Walsh had custody of

the cargo while it remained in the terminal facility Ryan Walsh physically

occupied the terminal facility and by virtue of that fact and the facts

that Ryan Walsh took custody and control of the cargo Ryan Walsh appar

ently acted as a terminal operator The Vidraru was not a common carrier

by water but Ryan Walsh s First Call on Berth Privilege specified that

it would unload the cargo of the Vidraru and others If these others

included or were to include common carriers by water then it could be

determined that Ryan Walsh was providing terminal services in connection

with common carriers by water

Nevertheless in view of the findings and conclusions herein as to the

merits whether or not Ryan Walsh was in violation of the Shipping Acts

it is unnecessary to decide whether in the circumstances of this proceeding

that Ryan Walsh was an other person or terminal operator subject to

our jurisdiction

It is ultimately concluded and found

I The complaint against the Board of Commissioners of the Port of

New Orleans has been withdrawn with prejudice Said complaint is dis

missed

2 The complaint against Ryan Walsh is without merit because there

has been no showing that Ryan Walsh acted in concert with the Board

of Commissioners of the Port of New Orleans in connection with the

charging collecting or failure to collect demurrage etc and there has

been no showing that Ryan Walsh violated the Shipping Acts The said

complaint is dismissed

3 In view of the dismissal of the complaint against Ryan Walsh on

the merits it is unnecessary to decide whether Ryan Walsh is a person

or terminal operator subject to jurisdiction under the Shipping Acts in

the circumstances of this proceeding

S CHARLES E MORGAN

Administrative Law Judge

28 F M C
FEDERAL MARmMB COMMISSION

SPECIAL DOCKET NO 1353

APPLICATION OF COMPANIA CHILEANA DE NAVEGACION

INTBROCEANICA S A FOR THE BENEFIT OF GENERAL BOARD

CHURCH OF NAZARENE KASH INC AND CALCO HAWAIIAN

MGT INC

1 ORDER OF REMAND

August 14 1986

This proceeding is before the Commission on Exceptions filed by

Compania Chileana de Navegacion Interoceanica S A CCNT to the Initial

Decision JD of Chief Administrative Law Judge Charles E Morgan

Presiding Officer The Presiding Officer denied CCNT s application sub

mitted pursuant to section 8 e of the Shipping Act of 1984 46 D S C

app 1707 e for pennission to waive portions of the applicable freight

charges on two shipments that moved from Los Angeles California to

certain Chilean ports He also denied relief with regard to a third shipmellt

on the basis that the shipment was overcharged and no waiver is appro

priate for it CCNT excepts to the 1 0 with regard to the first two

shipments

BACKGROUND

On June 7 1985 CCNT sent certain corres iondence from its home office

in Valparaiso Chile to its Los Angeles traffic manager advising him of

cargoes and quoted rates pertaining to three potential shi ipers This

correspondence was misrouted and was not received by the traffic manager

until June 12 1985 three days before CCNT s vessel on which the cargo

was loaded the Asia Sun sailed

CCNT s Los Angeles traffic manager had established a procedure to

avoid the mischance of publis ring rates without transporting the intended

cargo That procedure required the traffic manager to receive documenta

tion that the cargo was at the pier ready to be loaded betbre he would

authorize CCNls tariff publisher to file the rates quoted to him from

the home office in Valparaiso Chile On the shipments here in issue

the traffic manager allegedly did not receive documentation that the cargo

was ready to be loaded until June 17 1985 two days after the Asia

526 28 rM C
28 F M C

APPLICATION OF CaMPANIA CHILEANA FOR THE BENEFIT OF 527

GENERAL BOARD CHURCH OF NAZARENE ET AL

Sun sailed As a result one of the quoted tariff rates was not published

until June 20 the other was published on June 21 1985 2

The Presiding Officer denied CCNIS application on the ground that

there was no error of a clerical or administrative nature In so doing

he relied upon the Commission s recent decision in Application of Phil

ippines Micronesia Orient Naviqation Co for the Benefit of Himmel

Industries Inc 28 EM C 219 1986 In Himmel the Commission deter

mined that there was no clerical or administrative error warranting the

requested relief because the carrier s deliberate decision to withhold pub

lishing the quoted rate until on board bills of lading were issued indicated

that the carrier did not intend to publish the quoted rate until after the

vessel had sailed The Presiding Officer in the present proceeding deter

mined that CCNI s procedure is similar enough to that considered in Himmel

to warrant denying its application

CCNI in its Exceptions argues that its procedures and the facts of

this proceeding are distinguishable from Himmel First it points out that

its tariff publication procedure only requires documentation that the cargo

is ready for loading while in Himmel the carrier required on board

bills of lading Second CCNI argues that the record supports a finding

that there was clerical and admirtistrative error In this regard CCNI notes

that the AU acknowledged that the relevant documents were misrouted

and that CCNI s procedure would not always result in the vessel sailing

before the quoted rate is published Finally CCNI points out that the

traffic manager is located at the point of loading and could authorize

the quoted rates to be published while in Himmel the documents had

to be sent over 3 000 miles before the rates could be published CCNI

therefore urges the Commission to reverse the Initial Decision and to

allow it to waive a portion of the applicable freight charges

DISCUSSION

Section 8 e of the Shipping Act of 1984 provides in relevant part

that the Commission may authorize a refund or waiver if

Tlhere is an error in a tariff of a clerical or administrative

nature or an error due to inadvertence in failing to file a new

tariff 46 U S c

app gI707 e I

I CeNIs application indicates that while the traffic manager became aware that the cargo was at the pier

late on June 14 1985 he was not able to verify the cargo status with the necessary documentation until

after the vessel had sailed

200 the first shipment a20fool container containing apick up truck CeNt negotiated a rate of 3 100 00

and seeks to waive collection of 2 045 08 in freight charges On the second shipment an empty refrigerated

container on a chassis CCNI negotiated a rate of 3500 and now seeks to waive 34 673 67 in freight

charges

The quoted rate for the third uncontested shipment was published on June 20 1985 On this shipment

a 20 foot container containing waterbeds CCNI negotiated and collected aflat rate of 4 100 00 The Pre

siding Officer concluded that CCNI had at the time of shipment a rate which would have resulted infreight

charges of 3743 50 He concluded therefore that the shipper had been overcharged in the amount of

356 50 CCNI did not except to thePresiding Officer s

findings with regard to this shipment
528 FEDERAL MARITIME COMMISSION

In Himmel the Commission held that there was no evidence of clerical

error because the procedure there provided that the quoted rate would

not be published until on board bills of lading were received at the

home office in San Francisco which was over 3 000 miles from the port

of origin CCNI argues that its tariff publishing procedure is distinguishable

from that considered in Himmel and that the evidence of record as well

as the Presiding Officer s

findings demonstrates the required clerical or

administrative error

A basis may exist to distinguish CCNI s procedures As is pointed out

in CCNI s Exceptions the procedure here at issue requires that the traffic

manager receive certain documents indicating that the cargo is at the pier

and ready for loading as opposed to being loaded on the ship as in

Himmel before he could authorize the quoted rates to be published in

CCNI s tariff Moreover the traffic manager is as CCNt paints out phys

ically located at the port of origin and could have immediately given

such authorization if he had received the proper notl icatlon unlike in

Himmel where the tariff publishing authority was 3 000 mUes distant

In Himmel the Commission denied the application because it was un

likely if not impossible under the procedure there in issue that the quoted

rate could have been published before the ship sailed The cl lgo not only

had to be loaded aboard the ship but the on board bill of lading

had to be transmitted over 3 000 miles to the carrier s home office to

obtain authority to publish the quoted rate In the present proceeding the

Presiding Officer stated that CCNI s procedures would not always result

in the vessel sailing before the quoted rates were published Although

not conclusive this may establish a basis to distinguish CCNI s procedures

and support its claim of clerical error

There are however certain evideltlarygaps concerning CCNI s tariff

publishing procedures with respect to the shipments at issue that preclude

a determination on the present record that those procedures are in fact

distinguishable from those in Himmel The evidence of record does not

for instance fully describe nor include the correspondence sent from

Valparaiso Chile to the traffic manager in Los Angles nor does it include

or describe the documentation which the traffic manager eventually received

to inform him that the cargo was at the pier ready for loading In addition

the record evidence does not fully describe the circumstances under which

the traffic manager became aware on the evening before the ship sailed

that the clllgo may have been on the pier See footnote I

supra The

record also does not indicate when the cargo was actuaUy delivered to

the pier for loading nor does it indicate when the quoted rates would

have been published if the required documents had not been misrouted

Further development of the record to cure these deficiencies should shed

further light on CCNI s claim of clerical or administrative error and whether

in the final analysis the relief requested should be granted Given the

28 F M C
APPLICATION OF COMPANIA CHILEANA FOR THE BENEFIT OF 529

GENERAL BOARD CHURCH OF NAZARENE ET AL

remedial purposes of the special docket legislation a remand is warranted

to consider these matters 3

THEREFORE IT IS ORDERED That the Presiding Officer s Initial

Decision is vacated to the extent it denies CCNI s application for authority

to waive the collection of 3 045 08 and 34 673 67 in freight charges

for the shipments described herein

IT IS FURTHER ORDERED That CCNI s application is remanded to

the Presiding Officer for further proceedings consistent with this opinion

IT IS FURTHER ORDERED That the Presiding Officer shall issue

a Supplemental Decision

By the Commission

S JOSEPH C POLKING

Secretary

3

The special docket legislation was intended 10 prevent shippers from bearing the burden of camer neg

ligence and has been broadly construed to accomplish this congressional objective See Nepera Chemical

Inc v federal Marilime Commission 662 F ld 18 DC Cir 1931

28 F M C
FEDERAL MARITIME COMMISSION

46 CPR PARTS 510 580 582

DOCKET NO 8619

ANTI REBATING CERTIFICATION BY THOSE ENGAGED IN THE

FOREIGN COMMERCE OF THE UNITED STATES

August 26 1986

Final rule

The Federal Maritime Commission amends its rules gov

eming the filing of anti rebating certificates in the foreign

commerce of the United States The purpose of the rule

is to establish unifonn application of anti rebating rules

with respect to ocean common carriers non vessel oper

ating common carriers and freight forwarders and pro

vide that companies which function in more than one

capacity need file only one anti rebating certificate The

rule also specifies the time period covered by the anti

rebate certification and provides a unifonn due date for

submission of the certificate

EFFECTIVE DATE October 28 1986

SUPPLEMENTARY INFORMATION

By Notice published in the Federal Register on May 15 1986 51

PR 17754 the Commission proposed to amend certain of its rules con

cerning the filing of anti rebating certificates The proposed amendment

established a common due date of December 31 by which all certificates

must be filed The purpose of this revision was to eliminate any confusion

resulting from the different filing dates facing certain regulated parties

and to clarify the period of validity of a certificate The proposed amend

ments also required each common carrier to file a certificate with its

initial tariff and each ocean freight forwarder to file its initial certificate

with its license application and specified the time period for which each

certificate is valid

Additionally provisions were proposed to permit an individual finn to

submit only one certificate when it functions in more than one capacity

i e both as a non vessel operating common carrier and an ocean freight

forwarder The Commission also proposed to remove the tariff notification

requirement contained in 46 CPR 582 3 That provision was deemed duplica

tive of that contained in 46 CPR 580 C where it properly resides

Comments on the proposed rule were received from three parties Associ

ated Container Transportation Australia Ltd ACT the National Customs

Brokers and Forwarders Association of America Inc NCBFAA and Inter

ACTION

SUMMARY

530 28 F M C
28 F M C

ANTI REBATING CERTIFICATION BY THOSE ENGAGED IN THE 531

FOREIGN COMMERCE OF THE UNITED STATES

state International Inc Interstate All three generally supported the pro

posed rule

ACT offered two suggestions The first would include a provision with

respect to joint services providing that the joint service rather than the

individual parties be held responsible for the certification This suggestion

has merit The purpose of the anti rebating certification is to aid in the

enforcement of the prohibitions against rebating found in section 10 of

the 1984 Act Section lO e 46 D S C app 1709 e states

For purposes of this section section 10j a joint venture or consor

tium of two or more common carriers but operated as a single

entity shaH be treated as a single common carrier emphasis

added

Because a joint service operated as a single entity would be treated as

a single common carrier for purposes of any violation of section 10 involv

ing rebates it seems appropriate to treat such joint services as single

carriers for purposes of the certification Accordingly we have incorporated

this suggestion in the final rule section 582 I a

ACT also recommended that paragraphs a through d of proposed

46 CFR 582 2 be eliminated ACT stated that the requirements contained

therein were duplicative of material contained in Appendix A to Part 582

while using dissimilar language We believe that the provisions in question

are substantive and should remain in the body of the rule However the

final rule has been modified to make it more consistent with Appendix

A to Part 582

NCBFAA pointed out that the proposed rule failed to take into account

the situation wherein an application for an ocean freight forwarder license

is granted in a year subsequent to the year

in which the application was

filed NCBFAA suggested that the certification filed with the application

be valid for the remainder of the calendar year in which the license is

granted This recommendation has merit and has been adopted in the final

rule section 582 3

c

NCBFAA also noted that the proposed rule fails to distinguish between

applicants and licensed ocean freight forwarders and offered certain

changes to the proposed rule to take into account this distinction The

thrust of this comment is that applicants file the initial certificate while

licensed ocean freight forwarders must comply with the annual certification

requirement NCBFAA is correct and the final rule has been revised accord

ingly

Interstate which functions as both an ocean freight forwarder and a

non vessel operating common carrier endorsed the provision that a single

certificate would satisfy the annual filing requirement for companies or

firms which function in more than one capacity

The final rule also reflects certain non substantive technical changes
532 FEDERAL MARITIME COMMISSION

The Commission has determined that this rule is not a major rule

as defined in Executive Order 12291 February 27 1981 because it will

not result in

I An annual effect on the economy of 100 million or more

2 A major increase in costs or prices for consumers individual indus

tries Federal State or local government agencies or geographic regions

or

3 Significant adverse effect on competition employment investment

productivity innovations or on the ability of the United States based enter

prises to compete with foreign based enterprises in domestic or export

markets

The Chairman of the Federal Maritime Commission certifies that although

this rule may affect a substantial number of small entities particularly

small businesses the economic impact is not considered to be significant

The collection of information requirements contained in this rule have

been submitted to the Office of Management and Budget O M B for

review under section 3504 h of the Paperwork Reduction Act 44 U S C

3504 11 A copy of the request for O M B review and supporting docu

mentation may be obtained from the Commission s Secretary Comments

on the information collection aspects of this rule should be submitted to

the Office of Information and Regulatory Affairs of O M B Attention

Desk Officer for the Federal Maritime Commission Collection of informa

tion requirements contained in original Parts 510 580 and 582 were all

proved by the Office of Management and Budget under the provisions

of the Paperwork Reduction Act of 1980 Pub L 96 511 and assigned

control numbers 3072009 3072018 and 3072028

List of Subjects

46 CFR Part 510

Exports Freight forwarders Maritime carriers Rates and fares Reporting

and recordkeeping requirements Surety bonds

46 CFR Part 580

Anti trust Cargo Cargo vessels Contracts Exports Harbors Imports

Maritime carriers Rates and fares Reporting and recordkeeping require

ments Water carriers Water transportation

46 CFR Part 582

Cargo Cargo vessels Exports Foreign relations Freight forwarders Im

ports Maritime carriers Rates and fares Reporting and recordkeeping re

quirements Water carriers Water transportation

Therefore for the reasons set forth above Parts 510 580 and 582

of Title 46 Code of Federal Regulations are amended as follows

PART 51 AMENDED

1 The Authority Citation to Part 510 is revised to read

28 F M C
ANTI REBATING CERTIFICATION BY THOSE ENGAGED IN THE 533

FOREIGN COMMERCE OF THE UNITED STATES

AUTHORITY 5 U S c 553 46 U S c

app 1702 1707 1709 1710

l712 1714 1716 and l718

2 Section 510 25 is revised 10 read as follows

510 25 AnIi rebate certifications

a Every licensed ocean freight forwarder shall file an anti rebating

certificate on or before each December 31

b Every applicant for an ocean freight forwarder license shall file

an anti rebating certificate with its license application Such certificate shall

be valid through December 31 of the year in which the license is granted

c The anti rebating certificate shall comply with the requirements of

Part 582 of this title and except for a certificate filed with a license

application shall apply to the calendar year following the December 31

filing date

28 F M C

PART 58GAMENDED

IThe Authority Citation to Part 580 is revised to read

AUTHORITY 5 U S c 553 46 U S c

app 1702 1705 1707 1709 1712

17141716 and 1718

2 Section 5805 c 2 is revised to read as follows

580 5 Tariff contents

c The body of the tariff shall contain the following

I

2 i The full legal name of each participating common carrier appro

priately identified as a Non Vessel Operating Common Carrier or Vessel

Operating Common Carrier and the address of its principal office Where

a joint service participates the FMC number of the agreement authorizing

the joint service shall also be shown

ii An anti rebate tariff provision to be effective upon filing which

shall read substantially as follows see Exhibit No 2 to this part

Name of company has a policy against the payment of any

rebate by the company or by any officer employee or agent

thereof which payment would he unlawful under the United States

Shipping Act of 1984 Such policy has been certified to the Fed

eral Maritime Commission in accordance with the Shipping Act

of 1984 and the regulations of the Commission set forth in 46

CFR 582

A When the common carrier s tariff is a conference tariff the common

carrier shall ensure that the conference publishes the common carrier s

anti rebate tariff provision in the conference tariff

B In addition to the anti rebate tariff provision an anti rebating certifi

cate shall be filed by every common carrier with its initial tariff and

on each succeeding December 31 The anti rebating certificate shall comply
534 FEDERAL MARITIME COMMISSION

with the requirements of Part 582 of this title and except for a certificate

filed with an initial tariff shall be valid for the calendar year following

the December 31 filing date

PART 582AMENDED

IThe Authority Citation to Part 582 is revised to read

AUTHORITY 5 U S C 553 46 U S C APP 1701 1702 1707 1709 1712

AND 17141716

2 Section 582 1 is revised to read as follows

582 1 Scope

a The requirements set forth in this part are binding upon every common

carrier by water and ocean freight forwarder in the foreign commerce

of the United States and at the discretion of the Commission will apply

to any shipper shippers association marine terminal operator or broker

In the case of a joint service operated as a smgle entity the joint service

rather than the participants is responsible for the provisions of this part

b Information obtained under this part will be used to maintain contin

uous surveillance over common carrier and ocean freight forwarder activities

and to deter rebating practices Failure to file the required certificate may

result in a civil penalty of not more than 5 000 for each day such violation

continues

3 Section 582 2 is revised to read as follows

582 2 Form of certification

The Chief Executive Officer i e the most senior officer within the

firm designated by the board of directors owners stockholders or control

ling body as responsible for the direction and management of the firm

of each common carrier and ocean freight forwarder and when so ordered

by the Commission the Chief Executive Officer of any shipper shippers

association marine terminal operator or broker shall file with the Secretary

Federal Maritime Comntission a written certification under oath as pre

scribed in the format in Appendix A to this part attesting

a That it is the stated policy of the firm that the payment solicitation

or receipt by the firm of any rebate which is unlawful under the Shipping

Act of 1984 is prohibited

b That this policy was recently promulgated to each owner officer

employee and agent of the firm and

c That the firm will fully cooperate with the Commission in any inves

tigation of illegal rebating

A description of the details of the measures instituted within the firm

or otherwise to prohibit its involvement in the payment or receipt of illegal

rebates shall be attached to the certification

4 Section 582 3 is removed

5 Section 582 4 is renumbered 582 3 and revised to read as follows

582 3 Reporting requirements

28 F M C
ANTI REBATING CERTIFICATION BY THOSE ENGAGED IN THE 535

FOREIGN COMMERCE OF THE UNITED STATES

a Every common carrier required by this part to file a written certifi

cation in the fonn prescribed by 582 2 shall file such certification with

its initial tariff and thereafter on or before December 31 of each year

b Every licensed ocean freight forwarder required by section 5J 0 25

of this title to file a written certification in the fonn prescribed by section

582 2 of this part shall file such certification on or before December

3 J of each year Every applicant for an ocean freight forwarder license

shall file such certification with its license application

c The certification required by this section shall be vaiid for the remain

der of the calendar year following the initial filing of a tariff or granting

of an ocean freight forwarder license and thereafter shall be valid for

the calendar year following the December 31 filing date specified in 46

CFR 5JO 25 580 c 2 ii and 582 3 a and b

d Every person other than a common carrier or ocean freight forwarder

which is ordered by the Commission pursuant to S 582 2 to file a written

certification shall file such certification in the manner prescribed by the

Commission

e In those instances in which a single firm operates in more than

one capacity such as both a non vessel operating common carrier and an

ocean freight forwarder a

single certificate may be submitted to satisfy

the annual reporting requirements of this section

6 Appendix A to Part 582 is revised to read as follows

APPENDIX ACERTIFICA TION OF POLICIES AND EFFORTS TO

COMBAT REBATING IN THE FOREIGN COMMERCE OF THE

UNITED STATES

46 CFR PART 582

I Name of affiant

I am the Chief Executive Officer

Exact names of firm

as The Firmfl and that

state under oath that

state exact title of

hereinafter referred to

1 It is and shall continue to be the policy of The Finn to prohibit

its participation in the payment solicitation or receipt of any

rebate directly or indirectly which is unlawful under the provi

sions of the Shipping Act of 1984

2 Each owner officer employee and agent of The Finn was notified

or reminded of this policy on Date

3 The Finn affinns that it will cooperate fully with the Federal

Maritime Commission in any investigation of suspected rebating

in United States foreign trades

4 Attached hereto is a description of the details of measures insti

tuted within the Finn or otherwise to prohibit its involvement

28 EM C
536 FEDERAL MARITIME COMMISSION

in the payment or the receipt of illegal rebates

commerce of the United States

The period covered by this Certification is from

Date

in the foreign

Date to

The Firm is a check each block applicable

Broker

Freight Forwarder License No

Marine Terminal Operator

Non Vessel Operating Common Carrier

Shipper

Shippers Association

Vessel Operating Common Carrier

S

Signature of affiant

Subscribed to and sworn before me this

19

day of

S

Notary Public

By the Commission

S JOSEPH C POLKING

Secretary

28 P M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1395

APPLICATION OF TRANSPACIFIC WESTBOUND RATE AGREEMENT

AND SEA LAND CORPORATION ON BEHALF OF SEA LAND

SERVICE INC FOR THE BENEFIT OF DARRELL J SEKIN CO

INC AS AGENT FOR BRUCE INTERNATIONAL CORPORATION

28 F M C 537

ORDER OF REMAND

August 29 1986

By Notice issued Ju y

9 986 the Commission determined to review

the Initial Decision of Administrative Law Judge Joseph N Ingolia Pre

siding Officer served June 25 1986 in which he granted Sea Land Service

Inc permission to refund and waive a portion of certain freight charges

Upon review the Commission is remanding the matter to the Presiding

Officer for further proceedings

BACKGROUND

Sea Land Service Inc a member of the Transpacific Westbound Rate

Agreement TWRA or Conference had agreed with Bruce International

Corporation BIC to a rate of 2 090 per 4O foot container for the transpor

tation of hardwood flooring from Nashville Tennessee to Yokoharna Japan

On May 8 1985 Sea Land requested a majority telephone vote on the

proposed rate A few days later Sea Land was erroneously advised that

the rate had been adopted on May 13 1985 Upon notification that the

rate had been approved BIC on May 5 985 delivered one shipment

of hardwood flooring to Sea Land at Nashville for overland transportation

to Long Beach California where it was placed aboard a vessel for the

movement to Yokoharna I The 2 090 rate agreed to between Sea Land

and BIC was pursuant to section 8 of the TWRA published in the Con

ference s tariff on May 21 1985 2

Subsequently Sea Land Corporation on behalf of Sea Land Service Inc

applied under section 8 e of the Shipping Act of 1984 46 U S c 1707 e

and section 92 a of the Commission s Rules of Practice and Procedure

I The shipment sailed from Long Beach on May 27 1985

2Section 8 of the 1WRA FMC Agreement No 202J10 689 as amended reads in part

If the Agreement does not adopt the proposed change it shall unless withdrawn become effective

ten JO calendar days from the Manager s receipt of the original notice inIhis instance Sea Land s

notice of May 8 1985J
538 FEDERAL MARITIME COMMISSION

46 C F R 502 92 a

3 for permission to waive collection of 32 130 31

and to refund 10 of the freight charges applicable at the time of shipment4

TWRA joined in the application The Presiding Officer found that the

application met the requirements of section 8 e and granted the relief

requested

DISCUSSION

Section 8 e provides that a carrier or conference subject to the Act

may be allowed to refund or waive collection of a portion of freight

charges if there is an error in a tariff of a clerical or administrative

nature or an error due to inadvertence in failing to file a new tariff

46 U S C app 1707 e 1

Sea Land does not allege error in TWRA s tariff in effect on May

IS 1985 In view of TWRA s refusal to adopt the rate proposed by

Sea Land the rate in effect on May IS 1985 when BIC tendered its

shipment was the rate TWRA intended be applied to BIC s cargo

s Accord

ingly no inadvertent failure on the part of TWRA to file the 2 090

per container rate before May IS 1985 may be found on this record

Nor does Sea Land argue that the alleged erroneous advice in any manner

affected its ability to obtain the filing of the intended rate under TWRA s

independent action provisions The thrust of Sea Land s claim is that upon

being informed that the Conference had adopted the proposed rate it advised

the shipper that the rate was in effect and that cargo movement could

commence Affidavit of Raymond T Savoie Accompanying Application

As a

consequence BIC tendered its shipment in reliance on Sea Land s

advice This as Sea Land explains caused higher charges than those in

tended and agreed upon to be assessed 6

The record is silent on who gave the erroneous advice and when Also

unknown is the timing of Sea Land s negotiation of the 2 090 rate with

the shipper a fact necessary to the determination of whether Sea Land

was in a position to implement the rate before the shipment moved

Thus the record as it now stands is inadequate to properly establish

the basis for Sea Land s claim for relief and the facts necessary to support

the grant of the application for special docket relief 7 Consequently the

matter must be remanded to the Presiding Officer for the purpose of obtain

ing from Sea Land additional information on the alleged tariff filing error

3Thc application was flied on November 8 1985 inadvertently shown as November 8 1986 In the Notice

of Iune 2 1986

4Under TWRA Tariff FMC No 2 orlg p21 in effect on March IS 198 5 BIC s shipment was subject

to a Cargo N OS rate of 500 W M plus a 5 RT container yard receIving charge The 10 refund results

from an adjustment incontainer yard receIving charges collected by Sea Land

5

TWRA concurrence in the application is not taken to slanity a chartae of posltlcin but rather indicates

ita consent to publish atariff notice ifrequired

IS Application at p 4

71110 Presiding Officer did by letter dated December 31 198 ask Sea Land to fumishan affidavit from

the person who conveyed the incorrect Infonnatlon The l tter remains unanswered

28 P M C
S JOSEPH C POLKING

Secretary

APPLICATION OF TWRA AND SEA LAND FOR THE BENEFIT OF 539

BRUCE INTERNATIONAL CORP

THEREFORE IT IS ORDERED That the Initial Decision served July

I 1986 in this proceeding is vacated

IT IS FURTHER ORDERED That the application of Sea Land Corpora

tion on Behalf of Sea Land Service Inc is remanded to the Presiding

Officer for further proceedings consistent with this Order

FINALLY IT IS ORDERED That the Presiding Officer shall issue

a Supplemental Decision

By the Commission

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 8621

AMTROL INC

v

USATLANTIC NORTH EUROPE CONFERENCE ET AL

NOTICE

September 4 1986

Notice is given that no appeal has been taken to the August 1 1986

dismissal of the complain in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the dismissal has become administra

tively final

JOSEPH C POCKING

Secretary

S 28FMC
FEDERAL MARITIME COMMISSION

DOCKET NO 8621

AMTROL INC

v

US ATLANTIC NORTH EUROPE CONFERENCE ET AL

COMPLAINT DISMISSED

Finalized September 4 1986

Complainant and respondents have filed a

joint motion asking that the

complaint be dismissed without prejudice The parties explain that they

have reached an amicable resolution of their controversy and therefore

do not wish to litigate the issues raised in the complaint

In its complaint served Tune 25 1986 complainant a manufacturer of

steel expansion tanks empty steel cylinders and related products alleged

that respondent Conference and its member lines had unreasonably preferred

and given advantage o competitors of the complainant and had subjected

complainant to umeasonable prejudice and discriminatory rates in violation

of section 10bof the Shipping Act of 1984 Essentially complainant

alleged that the Conference published certain rates on empty steel cylinders

which included ancillary charges from Columbus Ohio to ports in the

United Kingdom and Continental Europe Complainant alleged that these

rates preferred competitors of complainant located in Columbus and that

respondent had refused to amend its rates applicable to complainant sship

ments by including the incidental charges and otherwise equalizing the

rates although agents of certain respondent carriers had agreed that the

Conference srate structure was preferential to complainant scompetitors

Complainant alleged that it had lost sales and had suffered other injury

and asked for reparations plus interest and costs and for an order that

would remove the alleged preference and prejudice

The policy of the law and the Commission of course favors settlements

and presumes that they aze fair and reasonable See Old Ben Coal Company

v Sea Land Service Inc 21 FMC 505 512 1978 Kuehne Nagel

Inc independent Ocean Freight Forwarder License No 1162 24 FN1C

31981 Furthermore in this case no answer to the complaint has

been filed In such circumstances under the federal rules applicable in

courts which the Commission follows in the absence of a Commission

rule a complainant has the right to withdraw its complaint without the

permission of the court See FRCP41aI28 USCACompanhia

Siderurgica National v Lloyd Brasileiro 25 FMC655 1983 and Cases

28FMC Q
842 FEDERAL MARCI IMECOMMISSION

cited therein 9 Wright and Miller Federal Practice and Procedure Section

2363 see also Gardiner vAX Robins 747 F 2d 1180 1189 8th Cir

1984 Rule 41 of the Federal Rules of Civil Procedure allows a lawsuit

to be dismissed a

any time by the consent of all parties without judicial

approval in the normal case See also Roberts Steamship Agency nc

v The Board of Commissioners of the Part of New Orleans and Atlantic

and Gulf Stevedores nc 21 FMC 492 1978 We recognize that

in a complain proceeding we cannot require the parties to litigate against

their wishes

The pazties have not famished information as to the nature of the settle

ment or its details However this case does not involve allegations that

respondents charged rates other than those specified in their tariff in viola

tion of section 10bof the Shipping Act of 1984 formerly section

18b3of the Shipping Act 1916 in which case pazticulaz justification

would have been required See Organic Chemicals v Arlanttrafik Express

Service 18 SRR 1536a 1979 Nor does this settlement between a shipper

and respondent carriers appeaz to require filing under section 4 or 5 of

the Shipping Act of 1984 Old Ben cited above at 5123 Under such

circumstances there is nothing to prevent my granting the motion Cf

Kerr Steamship Company Inc v The Board of Commissioners of the

Port of New Orleans Docket No 8215 Order Adopting Initial Decision

July 23 1986 28 FMC516 no explanation required as to why complain

ant voluntazily withdrew its complaint placing settlement agreement in

the record permitted but notrequired

Accordingly the motion is granted The complaint is dismissed without

prejudice

S NORMAN D ILINE

Administrative Law Judge

28FMC
28 F M C

543

FEDERAL MARITIME COMMISSION

DOCKET NO 8431

ARCTIC GULF MARINE INC PENINSULA SHIPPERS

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

NOTICE

September 12 1986

Notice is given that no exceptions were filed to the August 5 1986

initial decision in part in this proceeding and the time within which

the Commission could determine to review that decision has expired No

such determination has been made and accordingly that decision has become

administratively final

Pursuant to the decision Arctic Gulf Marine Inc will pay the sum

of 40 000 together with all accumulated interest since March 25 1986

to the Federal Maritime Commission by September 19 1986

S JOSEPH C POLKING

Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 8431

ARCTIC GULF MARINE INC PENINSULA SHIPPERS

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

Arctic Gulf Marine Inc a Respondent ordered to pay a civil penalty in the amount of

40 000 pursuant to terms of its offer to settle an assessment proceeding seeking to

determine whether said Respondent violated section 2 of the Intercoastal Shipping Act

1933 and section 15 of the Shipping Act 1916

Timothy S O Neill for Respondent Arctic Gulf Marine Inc

Aaron W Reese Director Bureau of Hearing Counsel and CharM Jaye Swedarsky

as Hearing Counsel

INITIAL DECISION lIN PART OF SEYMOUR GLANZER

ADMINISTRATIVE LAW JUDGE

Finalized September 12 1986

This proceeding was instituted by Order of Investigation and Hearing

Order served September 10 1984 pursuant to section 22 of the Ship

ping Act 1916 46 U S C app 821 to determine as pertinent whether

one of the named Respondents Arctic Gulf Marine Inc AGM violated

section 2 of the Intercoastal Shipping Act 1933 46 U S C app 844

a by charging a different compensation for the transportation of property

than the rates filed with the Federal Maritime Commission and in effect

b by absorbing drayage charges without a tariff provision authorizing

absorptions and whether AGM Peninsula Shipping Association Inc

PSA andor Southbound Shippers Inc SSI the latter two also

named as Respondents entered into and carried out unfiled and unapproved

preferential and cooperative working arrangements and agreements granting

special rates and accommodations in violation of section IS of the Shipping

Act 1916 46 U S C app 814 and if AGM is found to have violated

either of those provisions whether civil penalties should be assessed and

if so the amount of such penalties 2 Hearing Counsel became a party

to the proceeding pursuant to Rule 42 of the Commission s Rules of Practice

and Procedure 46 CPR 502 42

1 This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

2

The Order also contains provisions seeking to detennine whether PSA and or SSI violated section 2 of

the Intercoastal Shipping Act 1933 by operating as a common carrier by water in the Seattle Washington

Alaska trade without atariff containing a schedule of rates and charges on file with the Commission wheth

er PSA andorSSI violated section IS of the Shipping Act 1916 and whether civil penalties should be as

sessed against either of them and if so theamount of such penalties

544 28 FM C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 545

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

Procedural Background

28 F M C

After the conclusion of extensive discovery procedures an evidentiary

hearing was held It began on June 10 1985 at Seattle Washington

and was provisionally closed 3 on August 16 1985 at that location In

all the hearing was conducted over a period of 18 days in Seattle and

Anchorage Alaska

Hearing Counsel filed an opening brief on December 3 1985 This

filing initiated a request by AGM that it be permitted to file a petition

for settlement instead of a response to Hearing Counsels brief The request

was granted On January 31 1986 AGM s Offer of Compromise and

Settlement was received by the Office of the Secretary and filed together

with another document entitled Proposed Compromise Agreement These

filings triggered additional discussions between Hearing Counsel and AGM

which culminated in the filing of a new Offer of Settlement by AGM

on March 28 1986 as a substitute for the one filed in January On

April II 1986 there was filed a supplemental document entitled Proposed

Settlement of Civil Penalty Simultaneously Hearing Counsel filed their

reply to AGM s offer

This initial decision will deal only with the proposed settlement which

Hearing Counsel endorse A Separate initial decision with respect to PSA

and SSI4 will be issued

The Offer of Settlement

Without admitting that any violations of the cited statutes were committed

by AGM AGM offers to pay the sum of 40 000 which already has

been deposited in an interest bearing escrow account within fifteen days

of approval of the settlement by the Commission

Substantive Provisions

Section 2 of the Intercoastal Shipping Act 1933 provides in pertinent

pall

That every common carrier by water in intercoastal commerce

shall file with the Federal Maritime Commission and keep open

to public inspection schedules showing all the rates fares and

charges for or in connection with transportation nor shall

any common carrier by water in intercoastal commerce charge

or demand or collect or receive a greater or less or different

compensation for the transportation of passengers or property or

for any service in connection therewith than the rates fares and

3

The hearing was fonnally closed by an order issued September 19 1985

4

Hearing Counsel s status report filed January 24 1985 states that 58I was involuntarily dissolved as

a corporation by the State of Alaska on November 16 1984 SSI neither appeared in the proceeding nor

defended against any allegations of violations
546 FEDERAL MARITIME COMMISSION

or charges which are specified in its schedules filed with the

Commission and duly posted and in effect at the time

At the time of the activities wlic lare the subject of this proceeding

section 15 of the Shipping Act 1916 provided as pertinent

Every common carrier by water shaH file immediately with

the Commission a true copy or if oral a true and complete

memorandum of every agreement with another such carrier

giving or receiving special rates accommodations or other special

privileges or advantages or in any manner I

roviding for

an exclusive preferential or cooperative workmg arrange

ment

Any agreement and any modification or canceHation of any agree

ment not approved or disapproved by the Commission shall be

unlawful and agreements modifications and canceHations shaH

be lawful only when and as long as approved by the Commis

sion

Penalty Provisions

Section 2 of the Intercoastal Shipping Act 1933 provides as pertinent

whoever violates any provision of this section shall be subject to a civil

penalty of not more than 1 000 for each day such violation continues

Section 15 of the Shipping Act 1916 provides as pertinent whoever

violates any provision of this section shall be subject to a civil penalty

of not more than 1 000 for each day such violation continues

With respect to the section 2 violations Hearing Counsel agree that

fourteen aHeged instances of misrating and one aHeged instance of absorp

tion constitute discrete violations of one day s duration each Thus the

maximum total penalty for these aHeged violations of section 2 is 15 000

Insofar as the duration of the section 15 violations are concerned there

is some uncertainty but AOM concedes that the maximum penalty which

may be assessed upon findings of violations is 240 000

The Record

The record presented for consideration of the offer of settlement is com

prised of the foHowing

I The evidentiary record consisting of the transcript of testimony and

exhibits received in evidence

2 Opening Brief ofHearing Counsel

3 AOM s Marc l28th Offer of Settlement

4 AOM s April 11th Proposed Settlement of Civil Penalty

5 Reply of Hearing Counsel to Offer of Settlement

6 A letter dated May 22 1986 from AOMs counsel to the Secretary

of the Commission with attachments which attest that AOM was adminis

tratively dissolved by the State ofWashington on April 17 1986

28 FM C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 547

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

FACTS 5

28 F M C

1 AGM was organized as a corporation in the State of Washington

on or about January 20 1982 Its charter authorized it to engage in the

business of operating barges and other vessels for the transportation of

freight Itwas dissolved April 17 1986

2 PSA is an Alaskan corporation It was incorporated November 22

1971 as a non profit association authorized to consolidate transport and

deliver proprietary goods of its members

3 As seen SSI is a dissolved Alaskan corporation

4 AGM operated a barge service in the Seattle Alaskan trade as a

common carrier by water pursuant to its tariff FMC F No I which was

filed February 18 1982 and became effective March I 1982 AGM termi

nated its common carrier service when it canceled its tariff on December

3 1982

5 At the hearing AGM stipulated it misrated fourteen freight bills for

common carrier cargo transported by it during the period between April

23 1982 and October 29 1982 Ten of those shipments involved non

PSA cargo and resulted in undercharges of 22 079 51 The other four

involved PSA cargo and resulted in undercharges of 185 652 50

6 Prior to the hearing Hearing Counsel alleged five instances of absorp

tion of drayage charges without tariff authority on the part of AGM Hearing

Counsel have withdrawn allegations of violation concerning four of those

five With respect to the remaining shipment AGM s invoice No 8456

shows that it did absorb charges in the amount of 11 529 00 for drayage

services performed on July 6 and 7 1982

7 Hearing Counsel introduced a multiplicity of evidence to establish

that PSA and SSI were non vessel operating common carriers in the Seattle

Alaska trade Each of them held out to the general public to provide

a

regular service port to port via barge In addition to oral representations

PSA advertised its service in newspapers and other publications while SSI

did the same in newspapers Each did perform the service that was adver

tised In the case of PSA the common carrier service was provided to

PSA members and non members for profit Among other things there

is in evidence a letter dated November 3 1982 from counsel for SSI

to the Interstate Commerce Commission stating that SSI was operating

as a non vessel operating common carrier under regulation by the Federal

Maritime Commission in port to port service with no motor carrier service

involved

S For the purposes of the offer of settlement and this decision it may be assumed that PSA and 55 were

non vessel operating common carriers subject to the Shipping Act 1916 and the Intercoastal Shipping Act

1933 albeit neither had an effective tariff on file with the Commission at the time the events which are

the subject of this proceeding occurred However this assumption and any other fmdings contained herein

with respect to PSA or 581 are without prejudice to what may be decided as to either of them by way of

a

separate decision
548 FEDERAL MARITIME COMMISSION

8 Hearing Counsel introduced a massive amount of evidence to show

an intricate linkage of interest personnel and finances involving AGM

PSA and SSI For example PSA advanced funds and provided employees

office space and other services to AGM to enable AOM to initiate and

carry on its barge service until operating revenues were produced

9 On February 25 1982 AGM and PSA entered into a

space charter

agreement for a four month term beginning March IS 1982 Under the

terms of the agreement AGM agreed to provide whatever space PSA

required for the carriage of goods to or from Valdez and other Alaska

ports at a particular per container rate For its part PSA agreed to pay

for a minimum of 200 units on AGM s first barge voyage regardless

of actual use It was commonly known at the time the agreement was

made that there would be a serious dearth of available vessel space in

the trade during the life of the agreement The right to use whatever

space it required gave a special preferential advantage to PSA over other

non vessel operating common carriers and other shippers that AGM held

itself out to serve under its tariff

10 On June IS 1982 AGM and PSA entered into a

voyage charter

agreement for the remainder of the calendar year The agreement involved

southbound cargo from anchorage or Valdez to Seattle Among other things

it provided that AOM would operate the vessels but not as a common

carrier PSA would charter all cargo space on the vessels and would assume

all liability and responsibility for the cargo including loading and unloading

AGM s compensation was not a flat fee but was based on the amount

of cargo aU ofwhich was generated by SSI

IIHearing Counsel introduced ample evidence to show that the oper

ational relationships between AGM PSA and SSI during the period from

March 18 1982 to December 3 1982 constituted a cooperative working

arrangement resulting in preferential and advantageous treatment for PSA

and SSNo copy of any agreement nor any copy of any memorandum

reflecting the arrangements described above was ever filed with the Commis

sion Of course none of the arrangements received Commission approval

It must be noted however that on May 13 1982 approximately two

months before termination of the space charter a Commission employee

was given a

copy of that agreement by AOM voluntarily

12 The testimony of AGM s president indicates he sought to distance

AOM from PSA as early as 1982 But it was a difficult task complicatecl

by the fact that a consultant who was a guiding force in PSA was

also a stockholder director of AGM

13 On the first clay of hearing AGM offerecl to settle the proceeding

The offer was not acceptable to Hearing Counsel ancl was deemed unsup

6The agreement was part of an arrangement which included oral understandings as well as one other writ

ten instrument

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 549

ASSOCIATION INC SOUTIIBOUND SHIPPERS INC

ported and premature Nevertheless AGM was advised it was noI precluded

from renewing its efforts to settle when appropriate

14 In making the instant offer AGM has given up its right of argument

in response to Hearing Counsel s opening brief but AGM does proffer

generally what its defenses would have been

With respect to the substantive aspects of the misrated shipment AGM

would have contended the misratings were the result of rating clerks errors

and were not knowing or willful With respect to penalties for the misrated

shipments AGM would assert by way of mitigation that it cooperated

with the Commission s

investigators before the formal proceeding was insti

tuted by giving them full access to AGM documents on various occasions

in 1982 that when requested AGM furnished additional documents later

in 1982 and in 1983 that after the Order was issued AGM continued

to cooperate with Hearing Counsel by allowing access to documents and

otherwise and that AGM sent corrected invoices for the shipments after

the original invoices were reviewed by AGM s tariff service

Insofar as the drayage absorption instance is concerned AGM would

contend that the payment was made pursuant to a verbal amendment to

its space charter agreement with PSA which was believed by AGM to

be a private contract of carriage not subject to Commission jurisdiction

or approval

With regard to the section 15 allegations AGM points out that there

are various areas of factual disputes between Hearing Counsel and AGM

but AGM stresses that the major thrust of its argument in brief would

have been a denial that any agreement or arrangement it had with PSA

was subject to section 15 as a matter of law Its contentions would have

consisted of the following I that neither the space nor the

voyage charter

arrangements was preferential to PSA or to SSI 2 that AGM believed

PSA was a valid shippers association performing services for members

only and not as a common carrier 3 that AGM had no actual knowledge

SSI was a non vessel owning common carrier and AGM carried SSI cargo

under the representation SSI was a member of PSA 4 that AGM did

not file either charter agreement as it believed they were private contracts

of carriage 5 that there is no evidence any employee or consultant of

Penn Van Inc Transportation Accounting and Traffic Services Inc PSA

SSI Consulting Traffic Services R R Northern OD or OD of Alaska

Inc 8 who allegedly performed work for AGM had actual knowledge that

either PSA or SSI were common carriers and that such knowledge could

not be imputed to AGM as a matter of law 6 that PSA s consultant

was not an employee or officer ofAGM 7 that AGM was not incorporated

solely for the purpose of serving PSA or SSI 8 that the increased volume

of cargo carried by AGM for PSA in 1982 was due to amendments to

7

AGM s efforts to collect met withno success

8There is extensive evidence linking these companies toPSA and its consultant

28 F M C
550 FEDERAL MARITIME COMMISSION

AGM s tariff to include Freight All Kind rates and 9 that no evi

dentiary presumptions could be made against AGM for the failure of certain

witnesses to appear or testify at the hearings 9

i

I

I

Discussion

AGM submits that its offer is reasonable taking into consideration the

factual and legal disputes and therefore the uncertainty of the outcome

the factors in mitigation and AGM s current financial condition AGM

stresses the latter position in that the amount offered is the most that

could be collected from AGM were a penalty to have been imposed by

way of assessment rather than settlement

Hearing Counsel endorse AGM s offer of settlement We believe

that AGM s offer satisfies both the regulatory and statutory criteria for

settlement 10 The statutory and regulatory criteria for settlement of pen

alties are the same as those for assessment of penalties Armada Great

Lakes East Africa Service Ltd Great Lakes Transcaribbean Line 28

F M C 355 368 369 1986

The statutory criteria are set forth in section 13 c of the Shipping

Act 1984 46 U S C 1712 c

11 As pertinent it provides

Assessment Procedures the Commission may after no

tice and an opportunity for hearing assess each civil penalty

provided for in this Act In determining the amount of the penalty

the Commission shall take into account the nature circumstances

extent and gravity of the violation committed and with respect

to the violator the degree of culpability history of prior offenses

ability to pay and such other matters as justice may require

The Commission may compromise modify or remit with or with

out conditions any civil penalty

The regulatory criteria is set forth in 46 CPR SOS 3b It provides

Criteria for determining amount of penalty In determining the

amount of any penalties assessed the Commission shall take into

account the nature circumstances extent and gravity of the viola

tion committed and the pOlicies for deterrence and future compli

ance with the Commission s rules and regulations and the applica

ble statutes The Commission s4a11 also consider the respondent s

ISome witnoUe5 inc1udinS the consUltant could not be served with lubpenas 10 testify at the htarinS

although they were deposed punuant tq IU na Other 8ubpenaed wbnesses claimed tho protection of the

Fifth Amendment to the Constitution

IOReply of Hearing Counsel to Offer of Settlement p

I

IlThe Shipping Act 1916 under whIch this proceedina was instituted did not contain criteria for settle

ment or assessment However standards were promulgated by tile Commission in ru1 implemenlina that

statute Generally those rules Incorporated govemmem wide criteria established by the Comptroller General

of the United States and the Attomey General of the United States appearing in 4 CPR Parts 101 10S It

has been said that the earlier criteria and those currently in force under section 13 c of the 1984 Act and

its implementing regullUlons 46 CPR SOS 3 I1 are ubstantJally the same See dJscuuion In Annado Greol

Lokesl m African Service Ltd Great Lakes Transcaribbean Line supra 28 FM C at 368369

28 P M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 551

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

degree of culpability history of prior offenses ability to pay

and such other matters as justice requires

It is appropriate to note that a settlement may be justified by anyone

or more of the applicable criteria Far Eastern Shipping Company Possible

Violation of Section 16 Second Paragraph 18 b3 and 18 c Shipping

Act 1916 24 EM C 991 1014 1982

Hearing Counsel agree with AGM that the latter s ability to pay and

the Government s ability to collect is the dominant factor dictating settle

ment for the amount proffered There is no dispute between them based

both on evidence in the record and post record submissions of AGM s

financial statements to Hearing Counsel that 40 000 is the most that

AGM could pay and that the Government could coIlect There is no question

about the accuracy of the statement in the proposed settlement that AGM

ceased operations as a common carrier in December 1982 went out of

business in November 1984 as a private contract carrier and is now awaiting

final dissolution pending this agreement It is a measure of AGM s good

faith that it created the interest bearing escrow account in the Government s

favor before it was dissolved by the State of Washington thus insuring

that the penalty will not only be coIlected but that it will be coIlected

at the least expense to the Government See Armada Great Lakes East

Africa Service Ltd Great Lakes Transcaribbean Line supra 28 EM C

370271

A sound argument is made by Hearing Counsel that there has been

at least a prima facie showing that AGM engaged in a pattern of conduct

culminating in violations of the Shipping Act 19 I6 and the Intercoastal

Shipping Act 193312 and that such conduct if left unpunished could

undermine the regulatory scheme established by the Congress for the ship

ping industry It is clear however that given AGM s financial condition

and its voluntary cooperation with the Commission from its first contact

with investigators through the hearing process that the amount of 40 000

vindicates the Government s position and should serve to foster deterrence

by others in the future

28 F M C

Conclusion

I

find that the statutory and regulatory standards for settlement of a

civil penalty have been satisfied Under the circumstances presented particu

larly the diminished finances of AGM the settlement strikes a proper

balance of the Government s interests and those of AGM

12Hearing Counsel concedes there is a good faith dispute between Hearing Counsel and AGM as to the

Jawand facts of Ihis case Reply p5 n 2 with the exception of the misrating issue As seen AGM admits

the fact of misrating withoutadmitting aviolation
552 FEDERAL MARITIME COMMISSION

Order

It is ordered that the offer of settlement be approved It is further ordered

that AGM pay the sum of 40 000 together with all interest accumulated

in an escrow account on deposit since March 25 19 6 within fifteen

I5 days of fmal approval of the offer by the Commission It is further

ordered that the terms and conditions of the Proposed Settlement of Civil

Penalty acopy of which is attached as an appendix hereto are incorporated

in this paragraph as if more fully set forth herein 13 It is further ordered

that if the offer is approved by the ColllJ1lission AGM shall not be

bound by the principles ef res judicata or collateral estoppel in connection

with any findings affecting AGM which may be made in any subsequent

decision in this proceeding

S SEYMOUR GLANZER

Administrative Law Judge

I

13 N D the last whereas paragraph on po 2 of the PropOSed Settlement indicates that AOM is awaiting

final dissolution as a

cOlpOJ lIdon Subletuent thereto as found AOM WlIS dissolved Consequently that para

graph may be deemed amended

28 FM C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 553

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

APPENDIX

DOCKET NO 8431

BEFORE THE FEDERAL MARITIME COMMISSION

Arctic Gulf Marine Inc

Peninsula Shippers Association Inc

Southbound Shippers Inc

PROPOSED SETTLEMENT OF CIVIL PENALTY

Respondent Arctic Gulf Marine Inc AGM by its attorney respectfully

submits this proposed Settlement Agreement to the Presiding Administrative

Law Judge for approval pursuant to Section 505 3 of the Commission s

General Order 30 46 CF R 505 3 and for incorporation into the Final

Order in this proceeding if so approved

WHEREAS by Order of Investigation and Hearing served September

10 1984 Order the Commission instituted this proceeding to determine

among other things whether AGM had violated section 2 of the Intercoastal

Shipping Act 1933 46 U S C @844 and section IS of the Shipping

Act 1916 46 U S C @814 and further the Order includes the issue

of whether a civil penalty should be assessed for any such violations

and if so the amount of such penalty and

WHEREAS the Order alleges that AGM may have violated section

2 of the Intercoastal Shipping Act 1933 by charging a different compensa

tion for the transportation of property than the rates in its tariff on file

and in effect with the Commission during the period April 23 1982

October 29 1982 and by absorbing drayage charges without a provision

in its tariff during the period July 7 1982 October 14 1982 and

WHEREAS the Order alleges that AGM may have violated section

15 of the Shipping Act 1916 by carrying out an unfiled and unapproved

preferential and cooperative working arrangement and agreement with Penin

sula Shippers Association Inc and Southbound Shippers Inc during the

period March 15 1982 November 10 1982 and

WHEREAS the parties in order to avoid the delays and expense which

would be occasioned by further litigation of the issues specified in the

Order are desirous of expeditiously settling this matter in accordance with

the terms and conditions of this Agreement and

WHEREAS Section 2 of the Intercoastal Shipping Act 1933 46 U S c

@847 section 32 e of the Shipping Act 1916 46 U S C 831 e section

32 e of the Shipping Act 1916 as amended 46 U S A App 831 e

and Section 13 c of the Shipping Act of 1984 46 U S c App 1712 c

authorize the Commission to assess or compromise civil penalty claims

arising from the alleged violations set forth above and

WHEREAS AGM ceased operations as a common carrier in December

982 went out of business in November 1984 as a private contract carrier

28 F M C
554 FEDERAL MARITIME COMMISSION

and is now awaiting final dissolution as a

corporation pending this agree

ment

NOW THEREFORE in consideration of the premises set forth herein

and in compromise of all civil penalty claims arising from the conduct

set forth in the Order and factual record submitted in this proceeding

the parties hereto agree as follows

1 AGM agrees to pay a monetary amount of 40 000 to the Federal

Maritime Commission according to the terms and conditions set forth below

AGM has deposited the good faith sum of 40 000 into a segregated

interest bearing escrow account in the name of Bauer Moynihan Johnson

and the Federal Maritime Commission at First Interstate Bank of Wash

ington N A as of March 25 1986 Upon the approval and acceptance

of this Proposed Settlement by the Federal Maritime Commission and

within fifteen 15 days after service of a Final Order in this proceeding

incorporating approval of the Proposed Settlement the sum in such seg

regated account including all accrued interest shall be paid to the Federal

Maritime Commission In the event this settlement offer is not accepted

and approved by the Federal Maritime Commission such sums with all

accrued interest shall be returned to AGM

2 Upon approval of this Agreement by the Commission this Agreement

shall forever bar the commencement or institution of any assessment pro

ceeding civil action or other claim for recovery of civil penalties from

AGM arising from or in any way related to the alleged violations set

forth and described in the Commission s Order and in the record in this

proceeding

3 This Agreement is entered into voluntarily by both parties and no

promises or representations have been made by either party other than

the agreements and consideration herein expressed

4 It is expressly understood and agreed that this Agreement is not

to be construed as an admission by AGM to the violations alleged in

the Order

28 P M C
ARCTIC GULF MARINE INC

ARCTIC GULF MARINE INC PENINSULA SHIPPERS 555

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

5 The undersigned counsel for AGM represents that he is properly

authorized and empowered to execute this Agreement on behalf of AGM

and to fully bind AGM to all the terms herein

By

TIMOTHY S O NEILL BAUER MOYNIHAN JOHNSON 247 FOURTH

BLANCHARD

BLDG

2121 FOURTH AVENUE SEATTLE WASHINGTON

98121 206 443 3400

ATTORNEY FOR ARCTIC GULF MARINE INC

FEDERAL MARITIME COMMISSION

By

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 2

NEW ORLEANS STEAMSHIP ASSOCIATION

v

PLAQUEMINES PORT HARBOR AND TERMINAL DISTRICT

ORDER ADOPTING INITIAL DECISION

September 16 1986

This proceeding was instituted by the filing of a complaint pursuant

to section 22 of the Shipping Act 1916 46 U S C app 821 1916

Act by the New Orleans Steamship Association NOSA against the

Plaquemines Port Harbor Terminal District Port 2 The complaint alleges

that the Port has published a tariff assessing fees for the use of terminal

facilities which are unjust and unreasonable and unduly prejudicial in viola

tion of sections 16 First and 17 of the 1916 Act 46 U S c app 815

and 816 3 Administrative Law Judge Joseph N Ingolia Presiding Officer

has issued an Initial Decision JD finding that the tariff is discriminatory

in some respects but is otherwise lawful Exceptions and Replies to Excep

tions have been filed by both parties to the proceeding The Commission

heard oral argument

BACKGROUND

The relevant attributes of the Port have been the subject ofprior Commis

sion proceedings and have been reviewed and discussed in a prior case

Louis Dreyfus Corp v Plaquemines Port Harbor and Terminal District

25 F M C 59 1982 Dreyfus as well as in the ID in this case The

Commission has reviewed the record and finds substantial evidence sup

porting the material factual findings of the Presiding Officer Accordingly

they are adopted by the Commission The following is a brief summary

of those fmdings

The Port consists of the first 100 miles of the Mississippi River from

its mouth in the Gulf of Mexico and is coextensive with the Parish of

Plaquemines in the State of Louisiana The Port does not own or operate

l NOSA is a

non profit aQodalion of vessel owners aBents and stevedores

2The Port is a local waterway authority coextensive with the Parish of Plaquemines Louisiana situated

at themouth of the Mississippi River

3

SpeclficeJIy the eo pJain alleges that l

the charges are an unconstitutional toll orduty on tonnage

on a

public waterway 2 the charges are assessed in l discriminatory manner previously found unlawful

by the Commission in a complaint proceeding 3 the settlement of the prior ease on appeal was unfair and

discriminatory to non parties 4 vessel agents cannot be made liable for any Port assessments and 5 a

harbor fee cannot be imposed on vessel owners not responsible forthe loading or unloading of cargo

Ii 28 F M C
28 FM C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 557

PORT HARBOR AND TERMINAL DISTRICT

any facilities serving common carriers by water Several private facilities

are located within the Port serving among others common carriers by

water There is a large amount of commercial waterway traffic in and

through the Port for which the Port maintains significant necessary and

essential direct and indirect port harbor and marine services to port and

harbor users and other persons located in proximity to and affected by

such activities 4In 1977 the Port filed with the Commission

a tariff which imposed fees I on vessels docking or anchoring within

the Port the so called Harbor Fee and 2 on cargo loaded or unloaded

at private facilities within the Port the so called Supplemental Harbor Fee

The tariff also contained a number of exceptions and certain liability and

surety provisions

In 1979 after some preliminary litigation in the United States District

Court for the Eastern District of Louisiana 5 over the constitutionality of

the tariff Louis Dreyfus Corporation and other parties subject to the fees

filed a complaint against the Port with the Commission This complaint

led to the above referenced Dreyfus decision finding the tariff in violation

of sections 16 and 17 of the Shipping Act 1916 The Port filed an appeal

with the U S Court of Appeals for the District of Columbia Circuit but

the case was settled before a decision was issued Under the terms of

the settlement the Port refunded 80 of the fees assessed the complainants

The Port then withdrew its appeal of the Commission s decision6

and

held public hearings concerning the redrafting of the contested tariff provi

sions

A new tariff was published effective May 21 1982 superseding the

1977 tariff The new tariff reduced the fee against cargo and eliminated

or modified some of the exemptions found unlawful by the Commission

The liability surety provisions which had been upheld by the Commission

were also modified

The fees collected pursuant to the tariff are utilized to maintain two

patroVrescuelfire vessels manned by firefighting and medical personnel

along with certain shoreside support facilities and personnel and a ferry

equipped with some firefighting equipment A helicopter seaplane and an

other airplane are also utilized by the Port Two additional river ferries

are diverted to firefighting duties in extreme emergencies There is a full

time Port staff Additionally a significant portion of the Parish government

operating expenses is attributed to Port matters In 1983 total Port expenses

were 1 242 168 consisting of 1 002 385 in direct expenses and 239 783

allocated from other Parish departments In 1984 total Port expenses were

Preamble to Plaquemines Parish Port Harbor and Tenninal District Tariff quoted in ID 28 F M C

573 at 577 589

sLouis Dreyfus Corporation v Plaquemines Port Harbor and Terminal Di trktet al Cil No 7860

E D La stayed Jan 31 1980

6The case was dismissed in response to a Consent Motion pursuant to Rule 42 b of the Federal Rules

of Appellate Procedure Plaquemines POri Harbor and Terminal District v F M C et 01 No 82 1941 D C

Cir May 17 1983 per curiam
558 FEDERAL MARITIME COMMISSION

1 394 369 consisting of 1 158 293 in direct expenses and 236 076 allo

cated from other Parish departments

The exemptions from the fees levied by the Port are 1 all privately

owned commercial wharves and docks 2 commercial fishing vessels and

crew boats 3 supply boats for oil rigs 4 all inbound inland barges

5 the first 500 tons of cargo handled by a vessel and 6 persons obtaining

long term permits at reduced rates The Port also has an unwritten agreement

with a major facility in the Parish Electro Coal Transfer Corporation ex

empting incoming ocean barges from the fees

DISCUSSION

The Exceptions to the Initial Decision and Replies to Exceptions address

the major issues raised in the proceeding below namely 1 whether the

Commission has jurisdiction over the Port 2 whether the Port has the

Constitutional authority to levy fees 3 whether the settlement of the

Dreyfus case on appeal resulted in unlawful discrimination 4 whether

vessel agents and other parties not in privity with the Port may be made

liable for Port tariff fees and 5 whether the Port s fees are unreasonable

and discriminatory For reasons stated below the Commission finds that

it has jurisdiction in this case and except for certain exemptions the

Port s tariff is lawful under the Shipping Act of 1984 46 U S c app

1701 1720 1984 Act 7

Jurisdiction

The threshold issue which must be addressed is whether the 1984 Act

confers on the Commission jurisdiction over the Port and its tariff practices

This issue of the Commission s

jurisdiction over the activities in question

under the 1916 Act was fully litigated and decided in the affirmative

by the Commission in Dreyfus As in Dreyfus the Port argues that the

Commission has no jurisdiction over its tariff because it does not own

or operate physical terminal facilities and there is no evidence that

it serves common carriers The Port further contends that the Dreyfus deci

sion is a nullity because the doctrines of res judicata and collateral

estoppel do not apply to findings conceming the jurisdiction of administra

tive agencies

NOSA argues that the Port is precluded from raising the issue ofjurisdic

tion now due to the Port s failure to successfully appeal Dreyfus NOSA

also maintains that the Port is estopped from contesting jurisdiction because

it conceded the issue in its answer to the NOSA complaint

The Presld1ng Officer held mal findings under the 1916 Act as it applied prior to the enll tment of the

1984 Act also apply to the 1984 Act where It contains similar and relevant sections 1 0 at 618 n

3 The Commission adopts this analysis and aadiacusacd in more detail bolow holds that in the context

of this caso references to vlolatiom of he fanner 1916 Act wiJlbe construed as vioJadons of the appropriate

corresponding sections of the 1984 Act See l11fro notes 8 10 lllld 11

28 F M C
Continued

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 559

PORT HARBOR AND TERMINAL DISTRICT

The Presiding Officer did not directly address whether Dreyfus is res

judicata on the issue of jurisdiction because that issue was not raised

below His finding of jurisdiction was predicated on his view that Dreyfus

is precedent on point

The Commission is in fundamental agreement with the Presiding Officer s

conclusions However because of the jurisdictional arguments raised on

Exceptions the Commission finds it necessary to supplement the ID on

this issue

In Dreyfus the Port was found to be an other person subject to

the 1916 Act furnishing terminal facilities and therefore was found

to be subject to the antidiscrimination standard of section 16 and the

reasonableness standard of section 17 Although the language used in

the 1984 Act differs in some respects from that of the 1916 Act it estab

lishes the same basic jurisdictional parameters with respect to marine termi

nals and the anti discrimination and reasonableness standards applicable

to them While section 1 of the 1916 act included a marine terminal

operator in the definition of an other person subject to this Act the

1984 Act separately defines it in section 3 15 as inter alia a person

furnishing other terminal facilities in connection with a common

carrier 9 This is the same language the Commission relied upon in Dreyfus

in finding jurisdiction over the Port 1O Similarly section lO d l of the

1984 Act is with reference to marine terminal operators a recodiIication

of section 17 of the 1916 Act 1l Likewise section lO b l1 and section

lO b 12 of the 1984 Act made applicable to marine tenninal operators

by section lO d 3 essentially recodify the standards of section 16 First

of the 1916 Act l2

8

Dreyfus 25 EM C at 65 67

IISection I of the 1916 Act formerly 46 U S c 801 defined other person subject to the Act as meart

ing

any person not included in the term common carrier by water carrying on the business of

forwarding or furnishing wharlage dock warehouse or other terminal facilities in connection with

acommon carrier by water

Section 315 of the 1984 Act 46 U S c app 17025 defines marine terminal operator as

a

person engaged in the United States in the business of furnishing wharf age dock ware

house orother terminal facilities in connection with a common carrier

lOSee Dreyfus 25 EM C at 65

IISection 100d l

of the 1984 Act 46 U S c app 1709 d 1 provides

1 No common carrier ocean freight forwarder ormarine tennina operator may fail to establish

observe and enforce just and reasonable regulations and practices relating to or connected with reo

ceiving handling storing ordelivering property

Section 17 of the 1916 Act fonnerly 46 U S C 816 required in pertinent part

Every such carrier and every other person subject to this l1ct shall establish observe and enforce

just and reasonable regulations and practices relating to or connected with the receiving handling

storing ordelivering of property Whenever the board fmds that any such regulation or practice

is unjust orunreasonable it may determine prescribe and order enforced ajust and reasonable regu

lation orpractice

12Seclion lO d 3 of the 1984 Act 46 U S c app 1709 d 3 provides

3 The prohibitions in subsection b 11 12 and l4 of this section apply to marine terminal

operators

Sections lO b 11 and 12 of the 1984 Act 46 U S c app 1709 b 11 and 12 provide

28 F M C
560 FEDERAL MARITIME COMMISSION

Because there is no substantial difference between the 1916 Act and

the 1984 Act in the operative language relevant to the Commission s

juris

diction over the Port and the standards to be applied to determine the

lawfulness of its practices the findings in Dreyfus must be given application

in this case 3 The precise legal question presented is whether the decision

In Dreyfus operates as resjudicata collateral estoppel 4

or merely stare

decisis 15on the issue ofjurisdiction

This distinction is important because the contention by NOSA that Drey

fus is res judicata carries with it the argument that the jurisdictional findings

in Dreyfus are binding in all forums where the issue is raised 6 Under

this theory the Port could not challenge the findings of the Commission

in Dreyfus at any stage of this proceeding 7 in the absence of a showing

of a material change in circumstances an assertion the Port has not made S

b COMMON CARRIBRS No common carrier either alone or in conjunction with any other

person directly orindirectly may

11 except for service contracts make or give any undue or unreasonable preference or advan

tage to any particular pel 8on locality or description of traffic inany respect whatsOever

12 subject any particular person locality or description of traffic to an unreasonable refusal 10

deal orany undue or1U1J CaSOJlable prejudice ordisadvantage in any respect whatsoever

Section 16 First of the 1916 Act formerly 46 U S C 815 First stales in pertinent part

That it shall be unlawful for any common carrier by water orother person subject to this Act

either alone orin conjunction with any other person oirectJy or indirectly

Fint To make or give any undue orunreasonable preference oradvantage to any particular per

son locality ordescription of traffic In any respect whatsoever or to subject any particular person

locality or description of traffic to any undue or unreasonable prejudice ordisadvanfage in any

reapect whatsoever

13 See United Shoe Workers of America AF ClO v Bedell 506 F 2d 174 183 D C Cir 1974

14 Under res judicata a fmal judgment on the merits bars further claims by parties ortheir privies on

the same cause of action Montana v United States 440 U S at 153 Park aile Hosiery Co v Shore 439

US 322 326 n 5 979 The Restatement of Judgments speaks of res judicata as claim preclusion and

of collateral estoppel as issue preclusion Restatement Second ofJudgments 627 1982

Offensive use of collateral estoppel occurs when a plaintiff seeks to foreclose a defenclant from

relitlgating an issue the defendant has previously litigated unsuccessfully in another action against

the same or a different party Defensive use of collateral estoppel occurs when a defenclant seeks

to prevent a

plaintiff from relitigating an issue the plaintiff has previously litigated unsuccessfully

inanother action against the same oradifferent party Parklane Hosiery supra at 326 n4

Uniled Stales v Mendoza 464 V S 154 158 159 n 3 4 1984 see also Davis Administrative Law

Treatise Res Judicata 6621 5 21 7 2d Ed 1983

IS Stare decisis has been defined as the d octrine that when a court has once laid down a principle of

law as applicable to a certain state of facts it wJJl adhere to mat prjncjple and apply it to aU future cases

where facts are substantially the same regardless of whether the parties and property are the same Black s

Law Dictionary 1261 5th ed 1979 This cloctrine has been applied to administrative agencies Greater Bos

ton Television Corp v F C C 444 F2d 841 852 D C Cir cert denied 403 U S 923 1971 and gen

erally falls under the arbitrary and capricious review standard of the Administrative Procedure Act 5

US C 7062XA

16CFederated Department Stores Inc v Moltle 452 U S 394 1981

17 Callanan Road Improvement Co v United States 345 US 507 512 1953

IBCt Montana v Uniled States 440 U S J47 157 162 1979 National Classification Commiltee v

United States 765 F 2d 164 110 D C Cir 1985 see generally Restatement Second of Judgments 628

1982 The Port has assertecl on Exceptions that there Is no evlclence in this case that common carriers call

at faclllties under its control an essential element of Commission jurisdiction However because this clmm

is in the nature of an affumative defense to the application of Dr fus the burden of proof is on the Port

not NOSA Jhjs Js especially true In light of the Port s admission of jurisdiction in its answer and the fact

that it never raised this issue during thecourse of the proceeding

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 561

PORT HARBOR AND TERMINAL DISTRICT

After considering applicable law in light of the record we conclude

that a limited application of the doctrine of collateral estoppel is appropriate

here Specifically NaSA may assert offensive collateral estoppel against

the Port at least as to the relitigation of the underlying jurisdictional facts

found in Dreyfus The Port has not presented any valid legal basis to

deny the Dreyfus decision this limited collateral estoppel effect However

although Dreyfus does not preclude relitigation of the purely legal aspects

of the issue of jurisdiction in this proceeding for reasons stated below

the statutory interpretation upon which the Commission based jurisdiction

in Dreyfus is stare decisi and has continuing validity under the 1984

Act

As a fureshold matter NaSA s argument that raising the jurisdiction

issue at this time is barred by the Port s admission of jurisdiction in

its answer to fue complaint must be rejected Jurisdictional issues may

be raised at any phase of the adjudicative process because the question

goes to fue basic aufuority of the tribunal to entertain the case 19 Moreover

rules of pleading and practice are not as strictly applied to administrative

proceedings as fuey are to court proceedings 2o Therefore the Commission

concludes fuat the Port s admission of jurisdiction in its answer to NaSAs

complaint does not estop it from now raising this issue

Another argument that can be readily rejected is the assertion by the

Port that res judicata and its corollary doctrine collateral estoppel do

not apply to administrative proceedings The Supreme Court has ruled that

if fue fundamental procedures applicable to the adjudicative process are

followed fue doctrines apply to administrative determinations 21 There is

no question that proper adjudicative procedures were followed in Dreyfus

and that the Port in fact fully litigated the question and was afforded

a full opportunity to appeal fue decision 22 All the other elements of issue

preclusion or more precisely offensive collateral estoppel 23

are also

present in this proceeding

However to fue extent the issue involves a purely legal determination

collateral estoppel may not be applied so as to preclude fue Commission

from reviewing the statutory basis of its jurisdiction over the Port We

could find no clear authority holding that fue doctrine of collateral estoppel

can be applied to an administrative finding of jurisdiction The closest

cases on this point state that an agency s determination of facts underlying

19Cj Eisler v Stritz er 535 F2d 148 151 1st Cir 1916 and cases dIed therein

20See Citizens Slafe Bank of Marshfield Mo t Federal Deposit Insurance Corp 751 F ld 209 213 3th

eir 1984 Aloha Airlines Inc v CAB 598 F2d 250 262 Dc Cir t979

21Uniled States v Utah Construction Mining Co 384 U S 394 422 1966 see also Restatement Sec

ond of ludgmems 983 1982

22 Set Dreyfus 25 F M C at 63 65 see also supra note 5

23 There is authority for the proposition that offensive collateral estoppel cannot be asserted by a

plaintiff

that could have joined in the prior proceeding See Parkane Hosiery Co v Shore 439 U S 322 329 330

1979 However NOSA is challenging the Port s 1982 tariff not its 1977 tariff Moreover NOSA s interests

are not the same as those of the Dreyfus complainants It is unlikely they coula have joined in the 1979

case See also Restatement Second of Judgments 29 3 Reporter s Note comment e1982
562 FEDERAL MARITIME COMMISSION

its conclusion that jurisdiction was lacking must be given effect in subse

quent litigation 24

The qualified language of the court decisions on this issue appear to

limit the application of the doctrines of res judicata and collateral estoppel

to factual determinations underlying administrative findings concerning juris

diction These doctrines do not apply to the unreviewed administrative

determination of the ultimate legal issue of jurisdiction thus preserving

the court s role as the ultimate interpreter of an agency s

jurisdiction under

a statute One of the fundamental objectives of res judicata and collateral

estoppel is preserved however because substantial repose is afforded

to resolutions of factual disputes between parties once litigated and decided

It appears then that collateral estoppel may only apply to the factual

findings underlying the prior jurisdictional determination involving the party

against whom the prior decision is being asserted Applied here this means

that issue preclusion extends only to the facts the Commission found

to be sufficient to establish jurisdiction over the Port in Dreyfus To escape

these preclusive effects the burden was on the Port to prove a significant

change in circumstances which removes the factual basis of the Commis

sion s previously found jurisdiction No such change in circumstances was

shown

Furthermore the Commission finds no legitimate reason to gainsay its

jurisdiction as a matter of statutory interpretation The same respondent

is challenging the Commission s authority to decide the same alleged viola

tions of law under the same jurisdictional facts under substantially identical

statutory provisions Therefore the Commission reaffirms the jurisdictional

finding in Dreyfus

To reiterate those findings the Port is a marine terminal operator

subject to the 1984 Act because its exclusive ability to provide essential

health safety and security services to vessel and cargo interests in commer

cial cargo handling transactions its assessment of selective cargo transfer

fees and its control of access to private terminal facilities results in funda

mental control over the rates and practices of terminal facilities Further

the Port s practice of assessing on the basis of cargo transactions a fee

for providing to vessels and cargo essential health safety and security

services constitutes the fumishing of other terminal facilities within the

meaning of the 1984 Act

The Port s Constitutional Authority To Levy Fees

NOSA argues that the tariff charges assessed by the Port are in violation

of Article I Section 10 Clause 3 of the United States Constitution because

they are a prohibited duty on tonnage 2 Under this theory because

l4See Pacific Seqfarers Inc v Pacific Far East Line Inc 404 F 2d 804 809 DC Cir 1968 em

denied 393 US 1093 1969 McCulloch lmerstate Gas Corp v F pe 536 F U 910 913 lOth Cir 1976

2

Article I Section 10 Clause 3 of the U S Constitution provides No state shaU without rha Consent

of Congress lay any DUly of Tonnllge

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 563

PORT HARBOR AND TERMINAL DISTRICT

the Port tariff is unconstitutional it is also otherwise unlawful and

is therefore a violation of section 17 of the 1916 Act

The Port maintains that allegations concerning the constitutionality of

its tariff are beyond the decisional authority of the Commission The Port

further argues that in any event its charges are constitutional because

they are levied as compensation for actual services rendered by the Port

Although the Presiding Officer indicated that it was not strictly necessary

to determine whether the Port s fees are constitutional he nevertheless

found that the tariff fees in question are not a toll charge in contravention

of the United States Constitution Rather he found that those fees represent

the establishment of regulations and practices related to or connected with

the receiving handling or delivering of property namely they are fees

to provide for the policing of the waterway so as to ensure the safety

and facility of movement of vessels and cargo using it JD at 618

The Commission has no express statutory authority to determine the

constitutionality of port tariffs promulgated pursuant to local enactments

Moreover an administrative proceeding is considered to be a forum ill

suited to the resolution of constitutional claims 26 Administrative agencies

are entitled to refuse to pass on constitutional claims unless the law or

facts applicable to a particular controversy compel such an action 27

In certain circumstances the Commission may take into consideration

constitutional limitations on its authority in deciding cases Questions of

due process and other constitutional standards often enter into Commis

sion determinations 2 However it does not appear that these considerations

apply in this case

More importantly as explained in the JD 29 determining the issues of

Commission jurisdiction and the lawfulness of the Port tariff under the

Shipping Act does not require reaching the constitutional issue Jurisdiction

over the Port is based upon a finding that the Port is charging for providing

other terminal facilities The Commission s enabling legislation allows

it to evaluate such charges only under the Shipping Act s reasonableness

and antidiscrimination standards We find no legal directive in the statute

or its legislative history to include within the scope of these standards

constitutional considerations which are more appropriately the province of

the courts Because this case can be fully decided under the Shipping

Act without reference to constitutional issues the Commission declines

to address the constitutionality of the Port s tariff charges

26Downen v Warner 481 F2d 42 643 9th Cir 1973

27 See Motor and Equipment Manufacturers Assoc v E PA 627 F 2d 1095 1114 1115 D C Cir 1979

Indeed the courts clearly encourage such a policy of abstention by administrative agencies ld

28See e

g

Kuehne Nagel Inc Independent Ocean Freight Forwarder License No 1162 Motion to

Compel Discovery Denied 20 S R R 489 1980

291 D at 6168
564 FEDERAL MARTlME COMMISSION

The Dreyfus Settlement

NOSA argues that the settlement between tile Port and the complainants

in Dreyfus was improper and unlawful because it was discriminatory Be

cause that settlement made no provision for other persons who paid charges

under the provisions found to be unlawful by the Commission in Dreyfus

NOSA urges that the Port be ordered to make similar refunds to such

other persons

The Port submits that NOSA s arguments are unfounded in law and

fact The Port maintains that such settlements are favored at law and

that NOSAhas shown no injury to it resulting from the settlement

The Presiding Officer found that public policy favors settlements of

litigation and that the settlement of the Dreyfus case by the Port does

not unjustly discriminate against others who are not parties or privy to

the former proceeding and who are not identified in this proceeding as

having suffered an injury much less the amount of such injury

The Presiding Officer was correct that it is the policy of the Commission

to favor settlements of disputes rather than force litigation Settlements

are given a presumption of validity and are construed as a final termination

of a controversy However the cases cited by the Presiding Officer that

declare these policies involve settlements of Comntission proceedings o

There is no Commission policy concerning the settlement of appeals from

administrative decisions in cases where violations of the Shipping Act are

found

There is some merit to NOSA s argument that private settlements in

the factual context ofDreyfus could be a

subterfuge for unlawful discrintina

tion Unjust discrimination is a consideration when the Commission evalu

ates a proffered settlement agreement in a proceeding where the parties

want to compromise contested tariff charges 1 However the Comntission

is not always privy to the settlement agreements in complaint cases when

they are appealed and usuaIly has no direct oversight authority over such

settlements 2

In any event given the remedy NOSA has requested we need not decide

whether the Dreyfus settlement violated the antidiscrimination provisions

of the Shipping Act NOSA specificaIly advises that it is not requesting

reparations for the Dreyfus settlement Rather it wants the Commission

to require the Port to give notice to all affected parties that similar refunds

are available The issue then is whether the Commission has the statutory

authority to require the Port to refund money to persons not parties to

Dreyfus that paid the assessments found unlawful in that case

3010 at 616 Levatlno Sons v Prudential Grace Lines 18 F M C 83 1974 involved the settlement

of a

complaint caSe before the Commission Behrinq International lncndepende 1t Ocean Frelqht For

warder License No 9 0 23 F M C 973 198l involved the settlement of a civU penalty claim

31 See Old Ben Cool Company v Sea Land Service lnc 21 F MC 505 513 1978

32There is no allegation here that the settlement agreement in Dreyfus fell within the Commission s

juris

diction under fonner section IS of the 1916 Act fonnerly 46 U S C 814

28 F MC
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 565

PORT HARBOR AND TERMINAL DISTRICT

The Commission is without authority to order a general refund of illegally

collected charges in a complaint case 33 This is also not a proceeding

under section 8 e of the 1984 Act 46 U S C app S 1707 e where general

notices of the availability of refunds can be directed 34 Moreover even

if the Dreyfus appeal had gone to conclusion and the complainants there

had obtained a full refund of the illegal charges the question would remain

as to whether the Commission has authority to order refunds to persons

not party to that proceeding

Because the Commission does not have the authority to order general

refunds in complaint cases the Presiding Officer was correct in finding

that such relief could not be ordered in this proceeding However the

Commission notes that as a general matter injured parties are free to

file their own complaints and use favorable Commission decisions to their

advantage

Vessel Agent Liability

NOSA argues that vessel agents do not use port services and therefore

cannot be made liable for charges under the tariff It also contends that

state agency law to the effect that an agent cannot be held liable for

the debts of a disclosed principal protects them from such liability The

Port disagrees It argues that this vessel agent liability issue was decided

in its favor in Dreyfus and therefore NOSA is collaterally estopped from

relitigating the issue in this case Moreover it submits that the rationale

of West Gulf Maritime Ass n v Port of Houston Authority 21 F M C

244 1978 ajfd memo sub nom West Gulf Maritime Ass n V F M C

610 F2d 1001 D C Cir 1979 cert denied 449 U S 822 1980 WGMA

I applies here and should be followed The Presiding Officer concurred

in the Port s position concerning the applicability of WGMA I

The Port s

imposition of liability on vessel agents for tariff charges

was addressed in Dreyfus The Commission there determined that vessel

agents could be held liable under the rationale of WGMA I because they

were deemed to be users of port services However NOSA was not

a party in Dreyfus nor did it have privity of interests with the complainants

in that case Therefore NOSA is not precluded from litigating the vessel

agent liability issue 36

The Commission has established a basic rule on liability provisions in

terminal tariffs Any person that is a user of a terminal facility may

33 See section 11 of the 1984 Act 46 U S c app 1710 Compare section 3 c 2 of the Intercoastal Ship

ping Act 1933 46 V S C app 845 c 2

34Compare section S e 3 of the 1984 Act 46 V S C app 1707 e 3

35Dreyfus 25 EM C at 70

36 d see Restatement Second of Judgments 29 see also supra note 12 NOSA also correctly points

out that the issue of vessel agent liability under the provisions of the tariff was not a major issue in Dreyfus

Indeed the question of vessel agent primary liability for the Supplemental Harbor Fee was not even addressed

inDreyfus because that issue arises under anew provision inthe Port s 1982 tariff
566 FEDERAL MARITIME COMMISSION

be held liable for the tariff charges related to that use 37 The rationale

is that a terminal operator has the right to impose reasonable conditions

on the use of its facilities to ensure the collection of tariff charges 3s

The term user includes those that indirectly i e as agents of direct

users utilize terminal facilities

In WGMA Ithe terminal operator had experienced significant difficulties

and resulting financial losses in collecting fees from vessel owners and

operators that maintained no permanent presence in the port The vessel

agents that profited from the use of the facilities by their principals would

not pay nor aid in the collection of delinquent accounts citing state agency

law as holding them immune from liability for the charges The terminal

operator responded by inserting agent liability and surety provisions in

its tariff

The Commission upheld the provisions because in the absence of evi

dence of overreaching or abuse they were deemed to be a reasonable

method of collecting fees lawfully due the terminal operators Furthermore

in the absence of evidenCe of a monopoly on terminal facilities or other

forms of duress the agents by their course of conduct were held to have

separately contracted with the terminal operator to be responsible for the

fees owed by their principals Also the Commission found that vessel

agents could protect themselves from losses by appropriate contractual ar

rangements with their principals Holding vessel agents liable as sureties

for port tariff charges incurred by their principals was therefore deemed

to be a minimal imposition or burden on vessel agents in light of the

financial benefit they received by conducting business at the terminal facH

ity 39

Applying WGMA I the critical question is whether by doing business

within the port agents either directly or indirectly voluntarily use port

facilities and derive a benefit substantial enough 10 justify the potential

liability for the charges owed by their principals WOMA Is reasonableness

standard is distinct from that enunciated in Volkswagenwerk Aktiengesel

schaft v Federal Maritime Commission 390 U S 261 1968

Volkswagenwerk 40 Liability and surety provisions are not an apportion

37WGMA 21 F M C at 248

381d at 249

3il d at 249250 see also Htlrrtng n Co Inc v Georgia Ports Authority 23 S R R 753 1986 rul

ings on motions for 8ummfU yjudsment Cifftrmed Harrington Co Inc v Georgia PONS Authority 23

S R R 1276 P M C 19S6

4ONOSA s Exceptions arc ambiguous as to whether they are challenging the Presiding Officer s

fmdlng

that VolkswQsenwerk is not the appropriate test of reasonableness on this issue See NOSA s

Exceptions at

21 22 In any event It appears that the Presldbtg Officer was correct The Volkswagenwerk test is applled

bt determinine the reasonabkness of tennlnaJ char es based upon a comparatjve costbenefit anaJysia of con

current usen of a facility The proper inquiry under 117 of the 1916 Act Is in a word whether the charge

levied is reasonably related to the service rendered 390 US at 282 This is nOI the analysis of the Issue

proffered by NOSA They assert that Chey receive no benefit from the Port services 41 iSlIle h4veno prJvity

with the Port and therefore cannot be made liable for any of the charges This argument does not apply

the Volkswagenwerk test of rcasonablencu of a charge but rather is an application of the rationale of the

Commission in WGMA separately cited and argued by NOSA

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 567

PORT HARBOR AND TERMINAL DISTRICT

ment of charges and neither the costs of the provisions nor the benefits

of indirect use of terminal facilities can be measured and compared against

those costs incurred and benefits received by direct users of such facilities 41

The essential elements of WGMA Iexist in this case There is no indica

tion in the record that vessel agents are under any duress to do business

in the Port Indeed one of the largest port and terminal facility complexes

in the nation New Orleans is immediately upstream from the Port It

is reasonable to assume therefore that vessel agents obtain sufficient eco

nomic benefits to justify locating their businesses in the Port Vessel cargo

and private terminal interests including agents benefit economically from

the safety and health services provided by the Port Moreover as in WGMA

I

the agents have voluntarily engaged in a course of conduct by which

they have agreed to the conditions imposed on their use of the Port and

its terminal services Vessel agents may protect themselves from losses

through appropriate arrangements with their principals

The only distinction between the situation here and that existing in WGMA

I is the nature of the terminal facilities for which the charges are being

imposed The Port s services are not the direct cargo handling services

involved in WGMA I They are essential supports services provided

all commerce in the Port In this sense all users of Port services are

indirect Therefore the privity between the Port and vessel agents

for services rendered the vessel and cargo interests may be somewhat

more attenuated than in WGMA I

However the absence of direct privity between the Port and vessel agents

would be significant only if it indicated a lack of use of Port terminal

facilities and services by the agents As stated above the Commission

finds that agents do use terminal support services as much as any

other economic interest involved in the commercial cargo handling activities

in the Port Because the Port services have been found to be other

terminal facilities relating to or connected with receiving handling

storing or delivering property for which a charge may be assessed under

the Shipping Act the Port tariff liability and surety provisions are held

to be lawful and reasonable under the rationale of WGMA I notwithstanding

the absence of direct privity between vessel agents and the Port 2

The Port s Fee Structure

The substantive issues in this case concern the lawfulness of the Port s

Harbor Fee and Supplemental Harbor Fee under the Shipping Act NOSA

argues that the Port s services are primarily for the benefit of local residents

41 See Harrington Co Inc v Georgia PortS Authority 23 S RR at 767 771 Harrington Co Inc

v Georgia PortsAuthority 23 S RR at 1283

421l1e issue raised by NOSA s exception concerning liability for the Supplemental Harbor Fee when ves

selsoperate under FIO charter contracts is similar to the vessel agent liability issue FIO cargo deliv

eries are made by vessels under charter where all costs of loading and unloading are for the account of a

party other than the vessel owner See NaSA s Exceptions at 26 Just as vessel agents receive an indirect

benefit from the Port services rendered vessels vessel ownersderive an indirect benefit from the Port services

rendered cargo interests in FIO cargo deliveries
568 FEDERAL MARITIME COMMISSION

I

are not of a commercial marine nature and therefore cannot be charged

against oceangoing vessels NOSA also contends that the Port has failed

to justify the various exceptions which allegedly favor local interests there

by invalidating the tariff under the antidiscrimination standards ofthe Ship

ping Act The Port on the other hand argues that its fees are reasonably

related to the costs it incurs in providing essential services to non local

commercial marine interests and that valid reasons exist for the exemptions

it allows from the tariff fees

The Presiding Officer concluded that while there exists a reasonable

relationship between total Port costs and total assessment revenues the

Harbor Fee and Supplemental Harbor Fee43 violate I section 17 of

the 1916 Act to the extent such fees do not bear a reasonable relationship

to the comparative benefit obtained by the assessed parties in light of

the benefits obtained by exempted parties from the services provided by

the Port and 2 violate section 16 First of the 1916 Act to the extent

the various exceptions contained in the tariff relating to private terminals

supply boats crew boats fishing vessels inland barges as well as the

five hundred ton and the permitdiscount rate features are unjustified and

therefore unjustly discriminatory

The threshold challenge to the Presiding Officer sfinding that the Port s

fee structure is unlawfully discriminatory rests on the contention that the

burden of proof was wrongly placed on the Port The Port is correct

in asserting that the ultimate burden of proof in a complaint proceeding

is on the complainant 44 However this does not necessarily relieve the

respondent from an evidentiary burden under all circumstances that is

although the burden of proof ultimately lies with the complainant the

burden of going forward with evidence can shift to arespondent This

is common in many administrative proceedings and was the case in Drey

fus 45

The Presiding Officer cited Dreyfus in shifting the burden of going

forward to the Port in this case He found that NOSA had made a showing

that the services for which the Port had assessed fees also accrued to

the benefit of other classes of Port users that were exempted from

the fees Because these exemptions did not on their face relate to the

nature of the cargo involved or other valid transportation factors a prima

facie case of discrimination was established and the burden of going forward

shifted to the Port to explain or justify the differentiation in the treatment

of Port users Evidence in support of the exemptions was proffered

by the Port NOSA then submitted rebuttal evidence The Presiding Officer

weighed all the evidence of record to determine whether NOSA had shown

43The Presiding Officer also held that the Supplemental Harbor Fee is nol an improper charge against

vessels

e 46 C F R 502 155

45Dreyfus 25 rM C al 68

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 569

PORT HARBOR AND TERMINAL DISTRICT

a violation of the Shipping Act by a preponderance of the evidence 46

In so doing the Presiding Officer did not unlawfully place the burden

ofproof on the Port

NaSA s allegation that the allocation of Parish expenses to the Ports

operations is unjustly discriminatory because it includes non marine expenses

is unfounded Unlike Dreyfus the Parish Council in this case carefully

reviewed Parish and Port operations and expenses to isolate those costs

incurred in providing services to Port users

47 The marine related ex

penses it computed are reasonably related to the actual cost of services

resulting from activities and operations within the Port sjurisdiction The

resulting revenue needs are more reasonable than in Dreyfus because they

are limited to actual Port costs This is reflected in the new tariff by

a significant reduction in the basic tonnage charge on cargo and the elimi

nation of the more egregious exemptions stated in the 1977 tariff The

Presiding Officer was correct in finding that the overall method of deter

mining the costs that can be attributed to overall Port services was proper

and reasonable

The Presiding Officer was also correct in finding that certain exemptions

were unlawful under the Dreyfus rationale He held that the entities bene

fiting from the challenged exemptions derive substantial benefits from the

Port services cited as the basis for the tariff charges but do not pay

the otherwise applicable fees He further held that evidence of record shows

that there are no alternative revenues derived by the Port from these entities

which would offset the fees forgiven by the tariff exemptions Finally

he found that the exemptions are not required administratively

The Port now reargues contentions advanced below in support of the

exemptions The Portsjustifications for the marine terminal exemption

are that such terminals pay ad valorem taxes act as sureties for the vessel

fees and have their own fire protection equipment This is largely the

same argument proffered and rejected in Dreyfus and correctly found insuffi

cient by the Presiding Officer here There does not appear to be any

difference between the situation here and that existing in the Dreyfus case

that would justify a different conclusion 48 We therefore concur in the

Presiding Officer s disposition of the marine terminal exemption

The Commission also concurs in the Presiding Officer s

findings con

cerning the first 500 tons exemption While this exemption was not

specifically found unlawful in Dreyfus the Presiding Officer s holding that

it is prima facie discrimination favoring local interests over non local inter

ests appears to be correct The Port s argument that this is a de minimis

exemption that many ports recognize is not meritorious The Port s exemp

tion amounts to a 20 00 loss of revenue per shipment The evidence

that the Port proffered shows that most ports impose a 20 00 minimum

46Cj Investigation of Ocean Rate Structures 12 F M C 34 57 59 l968

471 D 28 EM C at 60913

4SSee JD 28 F M C at 6202 DreyfUs 25 F M C at 70
I

I

570 FEDERAL MARITIME COMMISSION

1

charge and that it is economically feasible to bill for these amounts

Therefore the Presiding Officer s

finding that the Port has failed to justify

the exemption is upheld

The Port has also failed to justify the small craft exemption However

the Port tariff s definition of small craft has been altered from that consid

ered in Dreyfus In the Dreyfus tariff any vessel under 100 feet was exempt

from the Harbor Fee In the revised tariff only vessels that are not com

mercial cargo vessels are exempt This has been construed by the Port

to mean that commercial fishing vessels and crew boats are exempt but

that the supply boats must pay the Harbor Fee The Presiding Officer

is correct that the Port has not satisfactorily justified this exemption and

has failed to rebut NOSA s prima facie showing of discrimination The

assessment of some charge appears necessary

However it also appears that the allocable portion of Port service costs

to small charter fishing vessels and crew boats is small Therefore a

de minimis rule applying to certain of these vessels may be warranted

While it does not appear to be reasonable to exempt large commercial

fishing vessels unloading tons of fish at the Port each day small charter

fishing vessels and crew boats whose mother ship pays the fees stated

in the tariff may reasonably fall within a de minimis class If the tariff

could be clarified to differentiate between the mosquito fleet that might

be exempted under a de minimis rule and substantial commercial interests

that must bear some fee burden a small craft exemption might be justified 49

Nevertheless given the present language of the tariff exemption and the

construction of this language by the Port the Presiding Officer s conclusion

that it violates the Dreyfus standards is upheld

The exemption from the Supplemental Harbor Fee for inbound inland

barges was also correctly found to be improper by the Presiding Officer

Transshipped cargo that is unloaded from inbound inland barges and loaded

onto vessels or barges departing the Port is subject to the Supplemental

Harbor Fee However if the cargo is local cargo i e cargo that is unloaded

from inland barges and stays in the Parish it is totally exempted from

the fee The Port s justification is that it is inappropriate to require a

towboat owner to apportion the fees on local inbound cargo and financially

impractical to alter the assessment system to cover these movements How

ever the Port failed to support these allegationscwlth any financial analysis

and their expert admitted that no attempt was made to do so

o We therefore

concur in the Presiding Officer s disallowance of the exemption

The specialized treattnent that the Electro Coal Company facility has

been accorded by the Port is also unjustified By private agreement this

facility pays the Supplemental Harbor Fee on movements of coal outbound

from the Port but pays no fee on movements of phosphate inbound to

j

49 At a minimum the Port must clarifylhe lanauage of the tariff to indicate that supply boats are subject

to the fees See Dreyfur 25 F M C at 68

o

J O 28 F M C at 62730

28 FM C
S JOSEPH C POLKING

Secretary

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 571

PORT HARBOR AND TERMINAL DISTRICT

the Port The Port justifies this arrangement on the basis that the phosphate

is transshipped to outbound barges and fees are assessed on that movement

fulfilling the intent of the tariff 51 Because the basic method of assessment

of cargo is on inbound movements specialized treatment by agreement

not reflected in the tariff is unjustified and unlawful 52

The final tariff provision found to be unjustly discriminatory relates

to the permit system Vessels purchasing long term permits obtain a substan

tia discount on the usual Harbor Fee This tariff provision is applicable

only to vessels under 250 feet and the discounts range from 50 for

a 3D day permit to 78 for a one year permit NOSA believes that this

is unjustified favoritism towards local interests The Presiding Officer agreed

and found that the Port s wholesalelretail arguments are generalizations

that are not supported by any costbenefit analysis 53

It would appear that the permit system discounts were arbitrarily set

at levels that on their face appear to unfairly favor local interests n

any event the Port has failed to rebut NOSAs evidence of prima facie

discrimination with any substantial evidence showing the reasonableness

of the discount levels The Presiding Officer therefore correctly found the

permit system to be unlawful

THEREFORE T S ORDERED That the nitial Decision issued in

this proceeding is adopted consistent with this Order and

IT IS FURTHER ORDERED That the Exceptions to the Initial Decision

filed by the New Orleans Steamship Association and Plaqemines Port

Harbor and Terminal District are granted to the extent indicated in this

Order and denied in all other respects and

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission 54

1 The tariff states that outbound barges that can show that the cargo has already been assessed are exempt

from paying any additional fees JD 28 EM C at 602

nSee Dreyfus 25 EM C at 68

53 JD 28 F M C at 6301

54 CommissionerThomas F Moakley s

dissenting opinion is attached

28 F M C
572 FEDERAL MARITIME COMMISSION

Commissioner Moakley dissenting

For the second time in as many cases I

disagree with the majority s

assertion of both personal and subject matter jurisdiction over Plaquemines

Port Harbor and Terminal District s charges for police health and fire

protection

Plaquemines did not meet the definition of other person subject to

the Shipping Act 1916 46 U S C app 801 and it fails to meet the

definition of Marine Terminal Operator contained in section 315 of the

Shipping Act of 1984 46 UsC app 1702 15 As the majority acknowl

edges Plaquemines does not own or operate any facilities serving common

carriers by water 2 This should end the inquiry

Moreover a

finding of personal jurisdiction does not mean that every

activity ofthat regulated entity is subject to regulation Therefore assuming

arguendo that the Port could meet the definition of Marine Terminal Oper

ator the Commission has no greater claim to regulate its police health

and fire protection services than we would have to regulate an amusement

park operated by the Port 3

I also disagree with the majority s analysis of the impact of the 1984

Act on their theory of jurisdiction over Plaquemines While I concur that

the applicable definitions are substantially the same under the 1916 and

1984 Acts neither definition on its face supports jurisdiction over an entity

that provides no facilities The majority recognized this dilemma in the

Dreyfus 4 decision and addressed it by focusing on the broad regulatory

scheme of the 1916 Act

In construing the scope of the Commission s

jurisdiction under

section I the Supreme Court has focused upon the integrity of

the legislative scheme of the Shipping Act and has required a

broad construction of its terms to effect its purposes The statutory

scheme contemplates regulation of any entity if it exercises suffi

cient control over terminal facilities to have a discernible effect

I

1

I See Louis Dreyfus Corp el al v Plaquemines Port Harbor and Terminal District 2S F M C 59 1982

dissenting opinion of Vice Chainnan Moaldy

2After reiterating the statutory definition of marine terminal operator the Commission s

regulations 46

CFR 51S 6b derme theterm port terminal facilities as

ont ormore slnu lures comprhing a tennJnaJ unit and include but are not limited 10 wharves

warehouses covered anWor open stor ge spmes cold storage plants grain elevators andorbulk

cargo loading andor unloading 9truclure9 landfng9 and receiving 9totlons used for the trans

mission care and convenience of cargo andlor passengers n the interchange of same between land

and watercarriers or between two water carriers emphasis supplied

As broad as this dermition is Plaquemines furnishes none of these jocllltfes in connection with a common

carrier by water and is therefore not a marine tennlnal operator The services that it performs are irrelevant

to this determination of personal jurisdiction

3

The CommiS1lion s

regulations ar also helpful in determining what type oftenninal services theCommis

sion believes it has authority to regulate Definitions of terminal services set fonh in 46 CFR fi 5 15 6 d in

elude Dockage Wharfage Free Time Wharf Demurrage TenninaJ Storllge Handling

Loading and Unloading Usage Checking and Heavy LJft rbi rule waJ reppbJJs hed subsequent

to the Dreyfus decision note 1 9UprQ with no indication whatsoever that police health and fire protectIon

were to be considered tenninal services

4Note 1 supra

2S FM C
NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 573

PORT HARBOR AND TERMINAL DISTRICT

on the commercial relationship between shippers and carriers in

volved in that link in transportation 25 F MC 65 footnote omit

ted emphasis supplied

The legislative scheme of the 1984 Act is virtually opposite to that

of the 1916 Act in this respect The broad regulatory thrust of the earlier

statute has been replaced with clear guidance from the 98th Congress

to minimize government intervention and regulatory costs These very words

are used in the statute s declaration of policy 5 and in several places in

the relevant legislative history 6

Perhaps the most specific reflection of

Congressional intent to effect a major change in the legislative scheme

is found in the following language from the report of the House Merchant

Marine and Fisheries Committee on HR 1878 the House version of

the bill which became the Shipping Act of 1984

Specifically H R 1878 accomplishes Seven major purposes

Seventh the entire method of regulation is changed to minimize

government involvement in shipping operations H R Rep No

53 98th Cong 1st Sess 3 4 1983

To omit any mention of the statutory scheme of the 1984 Act in this

decision after relying so heavily upon the statutory scheme of the 1916

Act in the Dreyfus decision is a curious approach for an impartial adjudica

tive body

I would dismiss this complaint for lack of personal jurisdiction over

the respondent and for lack of subject matter over the services in question

28 F M C

546 US C app 1701

6E g S Rep No 3 98th Cong 1st Sess 1 1983 HR Rep No 600 98th Cong 2d Sess 27 1984
FEDERAL MARITIME COMMISSION

DOCKET NO 83 2

NEW ORLEANS STEAMSHIP ASSOCIATION

V

PLAQUEMINES PORT HARBOR TERMINAL DISTRICT

1 Where the Plaquemines Port Harbor and Terminal District is duly constituted by the

laws of the State of louisiana and where the Port has the exclusive ability to provide

essential health safety and security services to vessel and cargo interests in commercial

cargo handJing transactions its assessmenJ of selective cargo transfer fees and its control

of access to private tennina1 facilities result in the fundamental control over the rates

and practices of terminal facilities Under such circumstances the Port is an other

person andor terminal operator subject to the Shipping Acts of 1916 and J984 The

Port s involvement in the business of common carriers marine terminals and commerce

of the United States confers on the Commission jurisdiction over the POlt under the

pertinent provisions of the Shipping Acts and subjects the Port s fees to scNtiny under

those provisions

2 Where the Port assesses a Harbor Fee and a Supplemental Harbor Fee for providing

to vessels and cargo essential health safety and security services such acts constitute

thefumlshing of other tenninal facilities within the meaning of the Shipping Acts

of 1916 and 1984 The tehn other tenninal facilities contemplates not only physical

assets such as docks wharves and warehouses but aJso encompasses services rendered

in connection with the marine lerminal in link in transportation modes

3 Where the Port estabUshed a Harbor Pee and a Supplemental Harbor Pee 10 defray rhe

expense of providing various selVices insuring the safety and facUity of the movement

of vessels and cargo using it the fees do not represent a toll charge which contravene

provisions of the Constitution of the United States Rather the fees represent the establish

ment of regulations and practices related to or connected with the receiving handling

or delivery of property which comes under the jurisdiction of ate FederaJ Maritime

Commission

4 Where in a previous proceeding the Port entered into a seulement agreement with the

litigating parties the settlement agreement does not discriminate againsl other persons

who were not parties in the prior proceeding and who are not identified in the instant

proceeding Further where there has been no showing of any injury much less the

amount of injury any adjudication in the proceeding regarding reparations from alleged

unjust or undue discrimination is impossible

5 Where the Port s tariff contains various exceptions and exemptions relating to beneficiaries

of the Port s services such as private tenninals supply boats crew boats fishing vessels

and inland barges as well as a five hundred exemption and penult discount rate features

which prima facie show that the charges do not bear a reasonable relationship to the

comparative benefit obtained from Port elVices where the respondent s primary witness

testifies no attempt was made to correlate the charges made to users under the tariff

to the benefits received by such users and where the record fails to contain sufficient

evidence to demonstrate that either other revenue considerations of the exempted classes

are reasonably related to the fees forgiven or that such exemptions are required administra

tively then the fees assessed in the tariff do not bear a reasonable relationship to

the comparativ benefit obtained by either the assessed or exempted parties from the

services provided by the Port

574 28 P M C
NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 575

PORT HARBOR TERMINAL DISTRICT

6 Where the Port s tariff contains a provision holding agents primarily liable for tariff

fees where there is no showing of hardship or injustice and where the agent is a

user of the Port the provision is Dot unreasonable A terminal operator can hold liable

for tariff fees all direct and indirect users of its services

7 Where the Port s tariff imposes a fee against the vessel and where the complainant

argues carrier shipper conlracts place the responsibility for payment of the fee on the

shipper or consignee but does not furnish any further additional evidence as to why

the carrier shipper contract standing alone should prevent the imposition of the fee on

the vessel the Supplemental Harbor Fee assessed against the vessel is not improper

2S F M C

Edward S Bagley for complainant New Orleans Steamship Association

Louis B Porterie Robert E Fontenelle Jr and Edward J Sheppard for respondent

Plaquemines Port Harbor Tenninal District

INITIAL DECISION OF JOSEPH N INGOLIA ADMINISTRATIVE

LAW JUDGE

Partially Adopted September 16 1986

Findings of Fact

The parties in this proceeding each requested findings of fact in their

briefs The facts set forth below either are specifically uncontested facts

taken from their proposed findings or are facts taken directly from the

record References to the complainant s Proposed Findings will be made

as C PF followed by a number designation C PF I for example

References to the respondent s Proposed Findings will be preceded by

an R such as R PF I for example Also it should be noted that

references to the transcripts in this proceeding will be made by giving

the date of the transcript followed by the page numbers of the transcript

Tr 215 84 pp 605 for example

IComplainant New Orleans Steamship Association is a non profit asso

ciation of owners stevedores and agents of vessels which are common

carriers by water in the foreign commerce of the United States calling

at New Orleans including some vessels that call at the Plaquemines Port

Harbor and Terminal District C PF 138 R PF I

2 Plaquemines Parish which is comparable to county government in

other states was governed by a council of five at large members until

March of 1983 and since then by nine council members each of whom

is elected from a single member district The council as a whole acts

as a legislative body while each individual council member also is the

head of one or more executive departments of the Parish R PF 2

3 The Port district is a political subdivision of the State of Louisiana

geographically coextensive with Plaquemines Parish The governing body

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227
576 FEDERAL MARITIME COMMISSION

for the Port is the same nine member council that governs the Parish

R PF 3

4 Plaquemines Parish has a population of approximately 26 000 people

and some 10 000 itinerant oil field workers temporarily reside in the Parish

The latter number includes those living on offshore oil platforms R

PF4

5 The geography of the Parish is unique It is totally dominated by

the Mississippi River Ninety four percent of Parish land lies outside the

flood protection levees and is susceptible to tides from time to time Vir

tually all of the Parish is below sea level so that habitation is possible

only because of massive levees that exclude the waters of the Gulf of

Mexico Most points on dry land protected by the levees are no more

than one or one half miles from the river There are only two highways

running north and south one on each side of the river R PF 5 7

6 Plaquemines is peninsular into the Gulf of Mexico It is the most

southern parish in Louisiana and is divided in half by the river Most

of the Parish s

industry and development is on the west bank of the

river The largest populated area is located at BeUe Chasse on the northern

portion of the west bank R PF 6

7 There are no bridges across the river in the Parish The closest

bridge is 14 7 miles north of the Parish boundary The only public facilities

within the Parish for cross river traffic are two Parish owned ferries One

is at Belle Chasse the other at Pointe a la Hache A third ferry is located

at BeUe Chasse for peak morning and evening traffic R PF 8

8 The Mississippi River has two navigable channels down river from

Head of the Passes to the Gulf of Mexico Southwest Pass and South

Pass Distances on the river are measured from the Head of the Passes

AU mileage upriver from that point is designated as River Mile AHP

and all distances below that point are designated BHP 1e Parish extends

upriver from Head of the Passes to Mile 816 AHP and downriver 20 2

miles BHP on the Southwest Pass and 135 miles BHP on South Pass

R PF 9

9 Upriver from Head of Passes there are only two places where vessels

can pass through flood protection levees the Ostricia lock on the east

bank at approximately Mile 25 AHP and the Empire lock on the west

bank at approximately Mile 29 5 AHP with navigation depths of 10 feet

R PF 10

10 The only other pass with any navigational significance is Tiger Pass

at the south end of the west bank highway with a 12 foot draft limitation

that excludes oceangoing vessels but not oil field supply and other smaU

vessels Overland truck service COlU1ects with offshore oil activities at Tiger

Pass There is no oceangoing vessel activity at Tiger Pass R PF 11

IIThe Port of New Orleans is adjacent to and upriver from Plaquemines

extending 334 miles from Mile 816 AHP to Mile 115 AHP The South

Louisiana Port extends 53 0 miles upriver from New Orleans from Mile

28 FM C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 577

PORT HARBOR TERMINAL DISTRICT

IIS AHP to Mile 168 AHP At that point the Port of Baton Rouge begins

and extends upriver to Mile 225 AHP On the river north of Baton Rouge

are numerous other ports such as Vicksburg Memphis and St Louis R

PF 12

12 From the northern limits of the Port of Plaquemines through the

most commonly used Southwest Pass to the Gulf of Mexico the Port

extends a total distance of 102 miles Every oceangoing vessel serving

any port on the Mississippi River goes through the Plaquemines Port district

twice once going upriver and once going down river R PF 13

13 There are approximately 9 200 vessel arrivals and departures through

the Port annually for an average of one oceangoing cargo vessel approxi

mately every hour R PF 14

14 The total tonnage of the ports within the lower Mississippi River

Grarnercy New Orleans Baton Rouge Destrehan and St Rose is 160

million tons An additional 22 million tons is handled in the Port District

for a total of 182 million tons passing through the Port District R

PF IS

IS The Plaquemines Parish Council as governing authority of the Port

District initially adopted Plaquemines Port Harbor and Terminal District

Tariff No I effective September I 1977 The tariff provided in pertinent

part that

All vessels engaged in foreign coastwise or intercoastal and

intra coastal trade and certain cargoes shall be assessed fees as

provided in the Plaquemines Port Harbor and Terminal District

Tariff to assist in defraying necessary and essential direct and

indirect port harbor and marine services to port and harbor users

and other persons located in proximity to and affected by such

activities due to the unique geographic and environmental charac

teristics of the Plaquemines Parish Port Harbor and Terminal

District Such fees and charges are to be used for the expenses

of the administration and maintenance of the port and harbor

including

administering regulating and monitoring of the shipping traf

fic and handling of cargo in the harbor supervising shipping

of the Port with the view of preventing collisions and fires

policing the river and riverfront and all navigable waterways

as well as the banks batture and contiguous and adjacent areas

affected by port harbor terminal water and marine activities

and emergency service to vessels in distress including extin

guishing fires in vessels and equipment and in cargo of those

vessels and providing all such services for cargo handled in

and upon the areas of the Port s contiguous waterways and

located in wharves and facilities upon the banks battures con

tiguous and adjacent areas in Port administered facilities
578 FEDERAL MARITIME COMMISSION

without additional charge except for the cost of supplies mate

rials and equipment expended by t1e Plaquemines port Harbor

and Terminal District in the performance ofsuch services

See Preamble to Plaquemines Parish Zoning Ordinance 142

hereinafter set out Reference is also made to requirements of

laws and regulations that require ever expanding Port Harbor

and marine services regulations and inspections by such districts

at local governmental levels such as

Rivers and Harbors Act Ocean Dumping Act

National Environmental Policy Safe Drinking Water Act

Act

Clean Water Act

Clean Air Act

Toxic Substances Control Act

Coastal Zone Management

Acts Federal and State

Solid Waste Disposal Act

SECTION I DEFINITIONS

Subject

Inland Watercraft

Ship

Tugs and Towboats

Vessel

User

Noise Control Act

Occupational Safety and Hazards Act

Federal Pesticide Acts

Energy Regulations

Definition

Wherever used in this Tariff the term Inland

Watercraft shall include all vessels private

and public operated exclusively on the

United States inland waterways employed in

any maritime serVice task venture voyage

or mission commercial or noncommercial of

a private or public nature

Any self propeHed seagoing vessel

Vessels which do not carry freight or passengers

but are used to tow or push other vessels

Any ships tugs tows towboats packets

barges lighters or other watercrafts self pro

peHed or non self propeHed any types of

floating equipment including work barges

offshore oil platforms oil rigs derricks etc

User shaH be deemed to include and apply to

any vessel or person using any District prop

erty facility or equipment or to whom or for

whom any service work or labor is furnished

performed done or made available by the

District

28 F M C
The Plaquemines Parish Commission Council is

the governing authority of the Plaquemines

Port Harbor and Terminal District The terri

torial limits of the District are coextensive

with the Parish of Plaquemines Louisiana as

presently constituted Louisiana Revised Stat

utes 34 351 1365 as ratified by Article 6

Section 43 of the Louisiana Constitution of

1974 which is the legal authority for this

District is contained in Appendix I and is

specifically made a part of this tariff

The rates rules and regulations contained in this

tariff shall apply equally to all users of the

waterways and facilities and shall apply on

all traffic on the waterways and facilities on

the effective dates shown on this tariff or any

amendments thereto

Amendments shall be issued to cover changes

in this tariff but this tariff is subject to

change without notice

The Plaquemines Port Harbor and Terminal

District shall be the sole judge as to the inter

pretation of this tariff

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 579

PORT HARBOR TERMINAL DISTRICT

Wharfage A charge against cargo based on the number of

tons received or discharged by vessels as

manifested and passing or conveyed over

onto or under wharves or between vessels to

or from barge lighter or water when berthed

at a public wharf or when moored adjacent to

such wharf

Supplemental Harbor Fee That fee charged against cargo handled in mid

stream or at anchorage or at a privately

owned wharf for other than the wharf owner

SECTION IIGENERAL INFORMATION RULES REGULATIONS

Governing Authority and

Jurisdiction

Application and Interpre

tation of Tariff and

Amendments

28 F M C
580 FEDERAL MARITIME COMMISSION

Consent to Tenns ofTar

iff

General Anchorages

The use of the waterways and facilities under

the jurisdiction of the Plaquemines Port Har

bor and Tenninal District shall constitute a

consent to the tenns and conditions of this

tariff and evidences an agreement on the part

of all vessels their owners and agents and

other users of such waterways and facilities

to pay all charges specified in this tariff and

be governed by all rules and regulations here

in contained It is incumbent upon the Master

of any vessel operating within the limits of

Plaquemines Port Harbor and Tenninal Dis

trict or others whose operations are affected

by these rules and regulations to familiarize

themselves with these rules and regulations

Noncompliance through ignorance with

these rules and regulations will not affect the

liability of the Master or others or the appli

cation of the penalties

The General Anchorages for the Plaquemines

Port Harbor and Tenninal District are the

following

1 Fairway Anchorages

A South Pass Mississippi River Anchorage

B Southwest Pass Mississippi River Anchor

age

2 Pilottown Anchorage 15Q7 RDB

3 Boothville Anchorage 12 2 18 5 RDB

4 Ostrica Anchorage 23 5 244RDB

5 Port Sulphur Anchorage 37 5 39 7 LDB

6 Deer Range Anchorage 53 5 54 LDB

7 Alliance Anchorage 63 6Q5 8 ROB

8 Cedar Grove Anchorage 70 712 ROB

9 August Anchorage 71472 0 ROB

10 Belle Chasse General Anchorage 73 675 2

ROB

II12 Mile PointAnchorage 79 080 8 RDB

The rules and regulations concerning the Gen

eral Anchorages are prescribed by the U S

Anny Corps Engineers and their enforce

ment is a

responsibility of the U S Coast

Guard

Vessels anchored in the river except as below

noted shall be anchored in the above listed

General Anchorages

28 F M C
Masters requiring anchor berths for the purpose

of laying up their vessels shall apply to the

Director for permission to lay up at the pro

posed berth or anchorage such permission

has no connection with property rights No

vessel towboat barge or raft may tie up or

lay up alongside any property without first

obtaining permission of the riparian owner or

his lessee

a It shall be unlawful for any person firm

or corporation to utilize or make use of the

Plaque mines Port Harbor and Terminal Dis

trict or any of its facilities without paying to

the District the proper toll charge or fee

therefore as fixed and specified in this tariff

or by designation otherwise and every per

son firm or corporation violating any provi

sion of this order respecting the payment of

any toll charge or fee shall be deemed guilty

of a misdemeanor and upon conviction there

of shall be punishable by a fine of not more

than Five Hundred 500 00 Dollars or by

imprisonment in the Parish Jail for a period

of not more than thirty days or by both such

fine and imprisonment The Court in its dis

cretion may consider each day on which the

violation occurs as a separate offense

b It shall be unlawful for any person firm

or corporation to fail refuse or neglect to

comply with any of the provisions of the

rules and regulations prescribed by this tariff

or supplement thereto or by designation oth

erwise and any person firm or corporation

violating any of the provisions of these rules

and regulations shall be guilty of a mis

demeanor and upon conviction thereof shall

be punishable by a fine of not more than Five

Hundred 500 00 Dollars or by imprison

ment in the Parish Jail for a period of not

more than thirty days or by both such fine

and imprisonment The Court in its discretion

may consider each day on which the violation

occurs as a separate offense

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 581

PORT HARBOR TERMINAL DISTRICT

Laying Up of Vessels

Penalties for Violation

28 F M C
582 FEDERAL MARITIME COMMISSION

i

SECTION III

Charges which may be incurred by vessels

Item 135 Harbor Fee Each vessel which docks moors or anchors

within the District including Lash and Sea

bee barges and movable oil rigs and plat

forrns shalI be assessed a Harbor Fee as pro

vided herein to assist in defraying the ex

pense of the administration and maintenance

of the Plaquemines Port Harbor and Ter

minal District including the supervision of

the shipping of the District with the view of

preventing collisions and fires policing the

river and river front rendering aid to vessels

in distress and to aid In extinguishing fires in

vessels and equipment and in their cargoes

aboard such vessels or upon wharves and

other facilities in the District

Fee Per Vessel

Vessels over 100 and under 250 feet in length

100 00

Vessels 250 feet and over in length150 00

This Harbor Fee is due for the first five days or

any part thereof that the vessel remains with

in the District and for each day or any part

thereof over five days that the vessel remains

within the District the Harbor Fee due shalI

be one fifth of the above stated Fee Per Ves

sel

The payment of the Harbor Fee shalI be the pri

mary obligation of the owner agent or user

of the vessel but the owner of the facility

handling or storing the cargo and the cargo

owner whose cargo is loaded unto a vessel

outbound from the Port District from any

wharf dock facility mooring facility or an

chorage within the Port District shall be liable

in solido as surety for the payment of the

Harbor fee due by the owner agent or user of

I

I

j

28 F M C
NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 583

PORT HARBOR TERMINAL DISTRICT

the vessel unto which such cargo has been

loaded subject however to the right of full

subrogation and full recovery by those who

have paid on behalf of the owner agent or

user of the vessel against the owner agent or

user of the vessel who is primarily liable for

all amounts paid by those responsible in

solido but not primarily obligated See Item

145 Supplemental Harbor Fee and Item 165

Payment ofBills hereof

A Vessels passing through the port which

do not berth any wharf anchor within the

District or in any way moor themselves with

in the District limits Vessels stopped within

the District for the sole purpose of changing

pilots or because of inclement weather re

maining less than twelve hours within the

limits of the District

B Government vessels not engaged in car

rying cargo troops or supplies

C Private non commercial pleasure craft

D Special permits vessels over 100 ft in

length as set forth in Item 137

Annual special permits will be issued by

Plaquemines Parish Port Authority to every

vessel over 100 ft in length that is appraised

for Ad Valorem taxes in the Parish of

Plaquemines upon payment of the Parish

taxes resulting from such Parish assessments

Special Permits will be issued by

Plaquemines Parish Port Authority upon the

payment of the following fees

I

Vessels over 100 ft to 200 ft in length

a For 30 days 100 00

b For 90 days 250 00

c For 180 days 450 oo

d For 365 days 750 oo

II

For non self propelled Barges lighters or other

watercraft over 100 feet in length and not

more than 200 feet In length

a For 30 days 50 00

b For 90 days 125 00

Item 136 Vessels

Exempt

ed From

Harbor

Fee

Item 137 Special

Annual

Tem

porary

Port Per

mitVes

sels

28 F M C
584 FEDERAL MARITIME COMMISSION

Item 140 Lay Up

Fee

Item 145 Supple

mental

Harbor

Fee

c For 180 days225 00

d For 365 days 375 00

III

For non self propelled barges lighters or other

watercraft over 200 feet in length and not

more than 300 feet in length

a For 30 days 2oo 00

b For 90 days500 00

c For 180 days 900 00

d For 365 days I 500 00

Such permits will exempt such vessels from

payment of Harbor and Lay Up Fees as set

out in Items 135 136 and 140 hereof

Any vessel whether seaworthy or not which

docks moors or anchors within the District

for a continuous period of more than five

days for repairs construction moth ball

ing drydocking or storage except one which

is removed from the water by drydocking

shall after the first five days pay the fol

lowing fees

Fees Per Vessel

Vessels to 200 ft in length None

Vessels 200 ft and over in length 150 00 per

day

All cargo when first handled within the District

in midstream or at anchorage shall be as

sessed in addition to Items 135 137 and

140 10 per net ton or fraction thereof over

500 tons of the weight of cargo handled pro

vided that no cargo shall be assessed a Sup

plemental Harbor Fee more than one time

28 F MC
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 585

PORT HARBOR TERMINAL DISTRICT

The payment of Supplemental Harbor Fee shall

be the primary obligation of the owner of the

cargo but the owners the agents or other

users of the vessels and the owners of the fa

cilities handling or storing such cargo shall be

bound and responsible in solido as surety for

the payment of such charges subject how

ever to the right of full subrogation and full

recovery by those who have paid on behalf of

the owner of the cargo against the owner of

the cargo who is primarily liable for all

amounts paid by those responsible in solido

but not primarily obligated

The cargo of the owner of a privately owned

wharf shall be handled by the owner of the

wharf without the payment of this fee to the

District

The Harbor Fee of Item 135 on any vessels in

volved in the handling of cargo subject to this

Supplemental Harbor Fee shall be credited

against this Supplemental Harbor Fee

The cargo is assessed the Supplemental Harbor

Fee when it is first handled within the Dis

trict but because of the exemption granted

for cargo owned by the handling wharf

owner the reporting of cargoes should be

made when the cargo leaves the wharf or fa

cility and the assessment calculation shall

then be made since the joint ownership of the

cargo and the wharf carmot be finally deter

mined until the cargo leaves the wharf or fa

cility The Harbor Fee credit is given for the

outbound vessels onto which the cargo is

loaded from the wharf and the reporting to

the Port District as to cargoes vessels and

ownership thereof is to be made at the instant

before the cargo leaves the wharf or facility
586 FEDERAL MARITIME COMMISSION

Item 155 Wharfage

Rates at

Public

Wharfs

Item 160 Basis for

Assess

ment of

Wharf

age

Charge

I

A Supplemental Harbor Fee shall be assessed

for cargo not owned by the owner of the

wharf or facility irrespective of the manner in

which the cargo leaves the wharf or facility

other than by vessel for example by pipeline

rail truck etc and therefore no Harbor Fee

is assessed with such outbound cargo there is

no Harbor Fee to be credited against the Sup

plemental Harbor Fee

All cargo handled by a privately owned wharf

shall be deemed midstream unloading and

shall be subject to the Supplemental Harbor

Fee imposed above which includes midstream

unloading

See Item 135 Harbor Fee and Item 165 Pay

ment of Bills as to the responsibilities among

the parties

The rate of wharfage on all commodities shall

be 50 per net ton or fraction thereof un

loaded by and with the equipment furnished

by the owner of cargo The minimum wharf

age for any shipment shall be 5 00

All cargo or freight shall be subject to the

wharfage charge as follows

1 When cargo or freight is placed onto pub

lic wharves docks landings mooring facili

ties or other structures for handling to or

from vessels or

2 When cargo is placed on the public

wharves for outbound movement and is not

subsequently loaded aboard a vessel but is

removed from the wharves

3 When such cargo or freight is transferred

over or under such wharves docks landings

mooring facilities or other structures to or

from vessels or

4 When such cargo or freight is delivered to

or received from vessels by other watercraft

or when transferred over the side of vessels

directly to or from the water

28 FM C
NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 587

PORT HARBOR TERMINAL DISTRICT

a When said vessels are occupying berths at

wharves docks landings mooring facilities

or other structures

b When said vessels are moored outside of

other watercraft occupying berths at wharves

docks landings mooring facilities or other

structures

All bills are due upon presentation by the Dis

trict and failure to pay when presented shall

place the name of the vessel its owners and

agents or other user of the facilities upon a

Delinquent List conditions of which are here

inafter defined

The payment of Supplemental Harbor Fee shall

be the primary obligation of the owner of the

cargo but the owners the agents or other

users of the vessels and the owners of the fa

cilities handling or storing such cargo shall be

bound and responsible in solido as surety for

the payment of such charges subject how

ever to the right of full subrogation and full

recovery by those who have paid on behalf of

the owner of the cargo against the owner of

the cargo who is primarily liable for all

amounts paid by those responsible in solido

but not primarily obligated All other charges

applicable to this Tariff shall be assessed to

owners of the vessels their agents cargo

owners or owners of facilities in solido

The responsibility for the Harbor Fee is as set

out in Item 135 and the crediting of the Har

bor Fee is as set out in Item 145

Parties entering and using the Port District so

as to become liable for any Port District Fees

whatsoever as provided in this Tariff do by

such entry and usage thereby contract to pay

and are responsible for all Port District Fees

whatsoever as provided for in this Tariff

Item 165 Payment of

Bills

28 F M C
588

Item 165a Interest

FEDERAL MARITIME COMMISSION

The Plaquemines Port Harbor and Terminal

District reServes the right to estimate and col

lect in advance all charges which may accrue

against cargo owners common carriers ves

sels their owners andor agents or against

cargo loaded or discharged by such vessels or

other users of the facilities of the

Plaquemines Port Harbor and Terminal Dis

trict whose credit has not been properly es

tablished with the District or who are habit

ually on the Delinquent List Use of the fa

cilities may be denied until such advance

payment or deposits are made

The District reserves the right to apply any pay

ment received against the oldest bills ren

dered against common carriers vessels their

owners andor agents or users of the facilities

All cargo owners common carriers vessels

their owners andor agents andor owners as

sessors or lessors of wharves or other users

of the Port or facilities of the Plaquemines

Port Harbor and Terminal District placed on

the Delinquent List for reasons hereto stated

shall be denied further use of the port or fa

cilities by the District until all such reports

have been filed and all charges thereon to

gether with any other charges due shall have

been paid

When any Tariff debtor fails to pay any charges

or portion thereof due under the provisions of

this Tariff within 30 days of the invoice date

there shall be added to the amount of charges

due interest at the rate of one and one half

per centum IY2 per month from the due

date until paid Such interest shall be an obli

gation to be collected and accounted for in

the same manner as if it were part of the

charges due and can be enforced in a separate

action or in the same action for collection of

the charges and shall not be waived or remit

ted

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 589

PORT HARBOR TERMINAL DISTRICT

Item 165b Attorney s

Fees

If any charges penalties or interest due under

this Tariff are referred to an attorney at law

for collection an additional charge for attor

ney s fees in the amount of ten per centum

10 of the charges penalties and interest

due shall be paid by the Tariffdebtor

R PF 18 Ex R 58

16 As a result of a complaint brought by the Louis Dreyfus Corp

the Commission in affirming an Administrative Law Judge s Initial Decision

found that the tariff described in paragraph 15 above violated sections

16 and 17 of the Shipping Act 1916 R PF 18 Louis Dreyfus Corp

v Plaquemines Port Harbor and Terminal District 25 EM C 59 1982

affirming Initial Decision at 25 EM C 73

17 After the issuance of the aforementioned Initial Decision Docket

No 7945 the Plaquemines Parish Commission Council held five open

public hearings at which the question of appropriate port tariff charges

was specifically addressed Effective May 21 1982 the Commission filed

a new tariff which amended and superseded the 1977 tariff R PF 19

43 Ex R 14

18 The new tariff provides in pertinent part that

PREAMBLE TO PLAQUEMINES PARISH PORT HARBOR AND

TERMINAL DISTRICT TARIFF

All vessels engaged in foreign coastwise or intercoastal and

intra coastal trade and certain cargoes shall be assessed fees as

provided in the Plaquemines Port Harbor and Terminal District

Tariff to assist in defraying necessary and essential direct and

indirect port harbor and marine services to port and harbor users

and other persons located in proximity to and affected by such

activities due to the unique geographic and environmental charac

teristics of the Plaquemines Parish Port Harbor and Terminal

District Such fees and charges are to be used for the expenses

of the administration and maintenance of the port and harbor

including

administering regulating and monitoring of the shipping traf

fic and handling of cargo in the harbor supervising shipping

of the Port with the view of preventing collisions and fires

policing the river and riverfront and all navigable waterways

as well as the banks batture and contiguous and adjacent areas

affected by port harbor terminal water and marine activities

and emergency service to vessels in distress including extin

guishing fires in vessels and equipment and in cargo of those

vessels and providing all such services for cargo handled in

and upon the areas of the Port s contiguous waterways and

located in wharves and facilities upon the banks battures con

tiguous and adjacent areas in Port administered facilities
without additional charges except for the cost of supplies mate

rials and equipment expended by the Plaquemines Port Harbor

and Terminal District in the performance of such services

See Preamble to Plaquemines Parish Zoning Ordinance 142

hereinafter set out Reference is also made to requirements of

laws and regulations that require ever expending Port Harbor

and marine services regulations and inspections by such districts

at local governmental levels such as

Rivers and Harbors Act Ocean Dumping Act

National Environmental Policy Safe Drinking Water Act

Act

Clean Water Act

Clean Air Act

Toxic Substances Control Act

Coastal Zone Management

Acts Federal and State

Solid Waste Disposal Act

SECTION I DEFINITIONS

590

I

I

I

i

i

Subject

Inland Watercraft

Ship

Tugs and Towboats

Vessel

User

Private Wharves

FEDERAL MARITIME COMMISSION

Noise Control Act

Occupational Safety and Hazards Act

Federal Pesticide Acts

Energy Regulations

Definition

Wherever used in this Tariff the term Inland

Watercraft shall include all vessels private

and public operated exclusively on the

United States inland waterways employed in

any maritime service task venture voyage

or mission commercial or non commercial

of a private or public nature

Any self propelled seagoing vessel

Vessels which do not clll1Y freight or passengers

but are used to lOW or push other vessels

Any ships tugs tows towboats packets

barges lighters or other watercrafts self pro

pelled or non self propelled any types of

floating equipment including work barges

offshore oil platforms oil rigs decricks etc

User shall be deemed to include and apply to

any vessel or person using any District prop

erty facility or equipment or to whom or for

whom any service work or labor is furnished

performed done or made available by the

District

Those wharves that are not public wharves

28 FM C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 591

PORT HARBOR TERMINAL DISTRICT

Harbor Fee All commercial cargo vessels which dock

moor or anchor within the District shall be

assessed a Harbor Fee per each arrival within

the geographical limits of the District to as

sist in defraying the expenses of the adminis

tration and maintenance of the port and har

bor including the supervision of the shipping

of the port with the view of preventing colli

sions and fires policing the river and river

front providing services of all kinds as re

quired for an orderly and safe port operation

including response to vessels in distress with

the means available and to aid in extin

guishing fires on vessels and equipment and

in the cargo aboard such vessels or upon the

public wharves public banks and battures of

the waterways of the District and in the har

bor and upon the private wharves docks and

immediately adjacent facilities connected

thereto without any additional charge except

for the cost of supplies material and equip

ment expended by the District in the perform

ance of such services

Supplemental Harbor Fee A fee charged to supplement revenue necessary

for the purposes herein set forth under Har

bor Fee based on the weight of non liquid

cargo and on barrels of liquid cargo handled

or transferred in midstream or when anchored

at or moored to any dock wharf or mooring

facility or at a public wharf if in the future

the District has any public wharves which it

does not now have

Conventional Barge The term conventional barge as referred to in

Item l35 Harbor Fee shall include inland

river barges and shall also include LASH

and SEABEE barges when not aboard the

barge carrying vessel mother vessel How

ever when LASH and SEABEE barges are

loaded andor unloaded from the barge car

rying vessel mother vessel within the Port

District the mother vessel shall be assessed

fees as set forth in Item l35 Harbor Fee

The term conventional barge does not include

ocean or seagoing barges
592 FEDERAL MARITIME COMMISSION

Item 5

SECTION IIGENERAL INFORMATION RULES REGULATIONS

Item 15

Item 35

Governing

Author

ityand

Jurisdic

tion

Consent to

Terms of

Tariff

Reporting

Arrivals

and De

partures

Revised

The Plaquemines Parish Commission Council is

the governing authority of the Plaquemines

Port Harbor and Terminal District The terri

torial limits of the District are coextensive

with the Parish of Plaquemines Louisiana as

presently constituted Louisiana Revised Stat

utes 34 1351 1365 as ratified by Article 6

Section 43 of the Louisiana Constitution of

1974 which is the legal authority for this

District is contained in Appendix I and is

specifically made a part of this tariff

The use of the waterways and facilities under

the jurisdiction of the Plaquemines Port Har

bor and Terminal District shall constitute a

consent to the terms and conditions of this

tariff and evidences an agreement on the part

of all vessels their owners and agents and

other users of such waterways and facilities

to pay all charges specified in this tariff and

be governed by all rules and regulations here

in contained It is incumbent upon the Master

of any vessel operating within the limits of

Plaquemines Port Harbor and Terminal Dis

trict or others whose operations are affected

by these rules and regulations to familiarize

themselves with these rules and regulations

Non compliance through ignorance with

these rules and regulations will not affect the

liability of the Master or others or the appli

cation of the penalties

The arrival and departure of all vessels engaged

in Foreign coastwise and intercoastal trade

which anchor within the Port District shall be

immediately reported by telephone 504682

0081 a 24 hour telephone service by the

agent of the vessel A written report shall be

rendered within five 5 days after departure

from the Port Distract on reporting forms to

be obtained from the District

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 593

PORT HARBOR TERMINAL DISTRICT

The arrival and departure ofall vessels engaged

in Foreign coastwise and intercoastal trade

which dock at a private facility within the

Port District shall be immediately reported by

telephone 502 j82 0081 a 24 hour tele

phone service by the private facility A writ

ten report shall be rendered within five 5

days after departure from the Port District on

reporting forms to be obtained from the Dis

trict

The arrival and departure of all other vessels

shall be reported by the private facility at

which the vessel docks by written report ren

dered within five 5 days after departure of

the vessel from the District on reporting

forms to be obtained from the District

All reportings shall be subject to the verification

and inspection of the Director s agents andor

employees If the arrival and departure are

not reported by the party responsible therefor

the District shall have the right to obtain the

information needed from the vessel owner

vessel agent vessel master cargo owner or

other user of the vessel

It shall not be required to report the arrival and

departure of any vessels that obtain temporary

or annual permitslicenses pursuant to Item

135 Harbor Fee

Item 36 Reporting The private facility from which cargo is either

of Load loaded andor unloaded aboard a vessel shall

ing and render within five 5 days after the depar

or Un ture of a vessel a written report on reporting

loading forms to be obtained from the District of the

of Ves type and amount of cargo loaded andor un

sels loaded on or from the vessel

Item 50 General The General Anchorages for the Plaquemines

Anchor Port Harbor and Terminal District are the

ages following

I Fairway Anchorages

A South Pass Mississippi River Anchorage

B Southwest Pass Mississippi River Anchor

age

2 Pilottown Anchorage 1 5j7 RDB

3 Boothville Anchorage 12 2 18 5 RDB

4 Ostricia Anchorage 23 5 244 ROB
1 594 I

Item 70

Item 130 II

FEDERAL MARITIME COMMISSION

Laying Up

ofVes

sels

Penalties

for Vio

lation

5 Port Sulphur Anchorage 37

5 397 LDB

6 DeercRange Anchorage 535 54

5 LDB

7 AIliance Anchorage 63 5 8 RDB 8 Cedar Grove Anchorage 70 6712 RDB 9 Augusta Anchorage 71472 0 RDB

10 Belle Chasse General Anchorage 73

6752

RDB

II12 Mile Point Anchorage 79080

8 RDB

The rules and regulations concerning the Gen

eral Anchorages are prescribed by the

U

S

Army Corps Engineers and their enforce

ment isa

responsibility of the

US Coast

Guard

Vessels anchored in the river except as below

noted shall be anchored in the above listed

Genetal Anchorages

Masters requiring anchor berths for the purpose

of laying up their vessels shall apply to the

Director for permission to lay up at the pro

posed berth or anchorage such permission

has no connection with property rights No

vessel tow boat barge or raft may tie up or

lay up alongside any property without first

obtitining permission of the riparian owner or

his lessee A It shall be unlawful for any person firm or

corporation to utilize or make use of the Dis

trict or any of its facilities without paying to

the District the proper toll charge or fee

therefor as fixed and specified in this Tariff

or without having established

a mutually

agreeable procedure for such payment to the

District and every person firm or corpora

tion violating any provision of this order re

specting the payment of any toll charge or

fee shall be deemed to have violated the pro

visions of this Tariff and the Ordinances of

this District and the laws of the State of Lou

isiana and ofthe United States

B It shall be unlawful for any person firm or

corporation to fail refuse or neglect to com

ply with any of the provisions of the rules

and regulations prescribed by this Tariff or

supplement thereto or by designation other

wise

28FMC
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 595

PORT HARBOR TERMINAL DISTRICT

C The Plaquemines Port Harbor and Terminal

District shall have all the remedies for collec

tion of any Tariff charges or may seek to en

force any provision of the Tariff in any man

ner as provided by law In connection here

with note the provision of Item 165 pro

viding for payment of bills

SECTION III

Changes imposed by this section shall apply to the following areas

1 The Mississippi River and its passes within Plaquemines Parish

2 That portion of the Algiers Cut Off Canal Intercostal Alternate

Waterway situated within Plaquemines Parish being that portion

lying between the Orleans Plaquemines Parish line at Donner

Canal westward along such Intracoastal Waterway to its intersec

tion with the Barataria at the Jefferson Plaquemines Parish line

3 Empire Doullut Canal from the Mississippi River to the Gulf of

Mexico

4 Jump Basin Tiger Pass Grand Pass and Baptiste Collette from the

Mississippi River to the Gulf of Mexico

Charges which may be incurred by vessels

Item 135 Harbor Fee All commercial cargo vessels which dock

moor or anchor within the District shall be

assessed a Harbor Fee per each arrival within

the geographical limits of the District to assist

in defraying the expenses of the administra

tion and maintenance of the port and harbor

including the supervision of the shipping of

the port with the view of preventing colli

sions and fires policing the river and river

front providing services of all kinds as re

quired for an orderly and safe port operation

including response to vessels in distress with

the means available and to aid in extin

guishing fires on vessels and equipment and

in the cargo aboard such vessels or upon the

public wharves public banks and battures of

the waterways of the District and in the har

bor and upon the private wharves docks and

immediately adjacent facilities connected

thereto without any additional charge except

for the cost of supplies material and equip

ment expended by the District in the perform

ance of such services
596 FEDERAL MARITIME COMMISSION

Fee Per Commercial Cargo Vessel for Port

Entry and Usage

Vessels under 100 in length 5 00 per day

Vessels 100 and under 250 in length lO 00

per day

Vessels 250 and under 500 in length 30 00

per day

Vessels 500 and over in length75 00 per

day

Non powered conventional barges are exempt

from this Harbor Fee Item and this Fee shaH

be calculated on tugboats towboats or push

boats on the length of the powered vessel

only

In lieu of daily charges vessels may obtain

temporary or annual permits licenses upon

payment of the foHowing fees

Vessels under 100 in length

a For 30 days 75 00

b For 90 days200 00

c For 180 days300 00

d For 365 days400 00

Vessels 100 and under 250 in length

a For 30 daysl50 00

b For 90 days400 00

c For 180 days600 00

d For 365 days800 00

A vessel shall have thirty 30 days after its first

entry into the District in which to obtain a

temporary or annual permitlicense If the

vessel does not obtain such a permitlicense

it shall be assessed the daily fee

Notice of this Item 13 Harbor Fee shaH be

given to each vessel arriving in the District

by the facility andor wharf owner Notice

shall be given either by giving the vessel a

written copy of this Item 135 Harbor Fee or

by posting notice that each vessel must con

tact the District s office upon arrival

The address and telephone number of the Dis

trict area

Woodlawn Building Route I Box 53A

Braithwaite Louisiana 70040 504 682

0081

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 597

PORT HARBOR TERMINAL DISTRICT

Supplemental Harbor Fee

All commercial cargo vessels handling or trans

ferring cargo in midstream or when anchored

at or moored to any dock wharf or mooring

facility shall be assessed in addition to the

above regular Harbor Fee a Supplemental

harbor Fee on non liquid cargoes of Four

004 Cents per ton of 2000 pounds or frac

tion thereof Over Five Hundred 500 tons

based on the weight of the cargo so handled

or transferred and a Supplemental harbor Fee

on liquid cargoes of One Half Cent V2t per

barrel for each barrel Over 4000 barrels of the

cargo so handled or transferred

Non powered conventional barges are exempt

from this Supplemental Harbor Fee Item as

are tugboats towboats or push boats which

are assessed the Harbor Fee only as herein

above stated See Supplemental Harbor Fee

below

Supplemental Harbor Fee for Tows Leaving the

Port District

All commercial cargo carrying barges in tows

handling or transferring cargo in midstream

or when anchored at or moored to any dock

wharf or mooring facility shall be assessed a

Supplemental Harbor Fee on non liquid

cargo in all barges of such tow of Four

0 04 Cents per ton of 2000 pounds or frac

tion thereof over Five Hundred 500 tons

based on the weight of the cargo so handled

or transferred and there shall be a Supple

mental Harbor Fee on liquid cargo in all

barges of such tow of One Half Cent ht

per barrel thereof over 4000 barrels Both

such Supplemental Harbor Fees are assessed

against the towboat owner operator and

owner of the cargo that leaves a wharf or

other facility within the Port District for a

destination outside the Port District
598

Item 136

Item 137

FEDERAL MARITIME COMMISSION

Vessels

Exempt

ed From

Harbor

Fee

Special

Annual

or Tem

porary

Port Per

mitVes

sels

If such boat owner operator or person in

charge of the towboat is able to show to the

Port Manager with supporting paid tariff evi

dence that all such cargo has previously been

the subject of a tariff charge when it entered

the Port District aboard any vessel which paid

a Supplemental Harbor Fee on such cargo

there shall not be a dual charge for such

cargo and such towboat owner operator and

owner of the cargo shall be exempt from the

payment of this Supplemental Harbor Fee

This Tariff charge shall be based on the towboat

or ship manifest or other shipping paper ac

companying the tows leaving the Port Dis

trict and the towboat owner operator and

owner of the cargo as shown on the manifest

or other shipping paper shall be jointly liable

for the payment of such Supplemental Harbor

Fee to the Port District

See Item l65 Payment of Bills as to joint li

ability for Harbor Fees and Supplemental

Harbor Fees

A Vessels passing through the port which do

not berth at any wharf anchor within the Dis

trict or in any way moor themselves within

the District limits vessels stopped within the

District for the sole purpose of changing

plots or because of inclement weather re

maining less than twelve hours within the

limits of the District

B Government vessels not engaged in carrying

cargo troops or supplies

C Private non commercial pleasure craft

D Annual permitslicenses as set forth in Item

135

This Item is repealed in its entirety However

any vessel having a valid permit in effect be

fore the date of repeal of this Item shall not

be assessed any Harbor Fees until the permit

has expired

28 F M C
Any vessel whether seaworthy or not which

docks moors or anchors within the district

for a continuous period of more than five

days for repairs construction moth ball

ing dry docking or storage except one

which is removed from the water by dry

docking shall after the first five days pay the

following fees

Fee Per Vessel

Vessels to 200 ft in length None

Vessels 200 ft and over in length 150 00 per

day

The Plaquemines Port Harbor and Terminal

District does not nor does any entity on its

behalf at the present time have public

wharves which it owns controls or operates

with any fee as provided under this Tariff

The Plaquemines Parish Commission Council

the governing authority of the Plaquemines

Port Harbor and Terminal District and the

Parish of Plaquemines owns marinas which

are limited to use for vessels operating in

land waterways and which are not physically

susceptible to accommodate any vessels en

gaged in foreign coastwise or intercoastal

trade Such marinas are not subject to this

Tariff and are the subject of separate fees

and charges as promulgated by ordinances of

the Plaquemines Parish Commission Council

All bills are due upon presentation by the Dis

trict and failure to pay when presented shall

place the name of the vessel its owners and

agents or other user of the facilities upon a

Delinquent List the conditions of which are

hereinafter defined

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 599

PORT HARBOR TERMINAL DISTRICT

Item 140 Lay Up

Fee

Item 155 Wharfage

Rates at

Public

Wharves

Item 165 Payment of

Bills

28 F M C
600 FEDERAL MARITIME COMMISSION

The payment of the Harbor Fee and the Supple

mental Harbor Fee shall be the primary obli

gation of the owner agent or user ofthe ves

sel but the owner of the facility handling or

storing the cargo and the cargo owner whose

cargo is loaded andlor unloaded from any

wharf dock facility mooring facility or an

chorage within the District shall be liable in

solido as surety for the payment of the Har

bor Fee and the Supplemental Harbor Fee

subject however to the right of full subroga

tion and full recovery by those who have paid

on behalf of the owner agent or user of the

vessel who is primarily liable for all amounts

paid by those responsible in solido but not

primarily obligated All other charges applica

ble to this Tariff shall be assessed to owners

of the vessels their agents cargo owners or

owners of facilities in solido

Parties entering and using the District so as to

become liable for any District fees whatso

ever as provided in this Tariff do by such

entry and usage thereby contract to pay and

are responsible for all District fees whatso

ever as provided for in this Tariff

The District reserves the right to estimate and

collect in advance all charges which may ac

crue against cargo owners common carrier

vessels their owners andlor agents or against

cargo loaded or discharged by such vessels or

other users of the facilities of the District

whose credit has not been properly estab

lished with the District or who are habitually

on the Delinquent List Use of the facilities

may be denied until such advance payment or

deposits are made

The District reserves the right to apply any pay

ment received against the oldest bills ren

dered against common carriers vessels their

owners andlor agents or users of the facilities

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 601

PORT HARBOR TERMINAL DISTRICT

All cargo owners common carriers vessels

their owners andor agents and or owners

lessors or lessees of wharves or other users

of the port or facilities of the District placed

on the Delinquent List for reasons hereto stat

ed shall be denied further use of the port or

facilities by the District until all such reports

have been filed and all charges thereon to

gether with any other charges due shall have

been paid

The District shall pay Five 5 Percent of all

fees remitted directly to the District by an

agent for a vessel or a dock wharf or moor

ing facility owner as compensation for such

collection by said vessel agent or dock

wharf or mooring facility owner

Upon the execution of a written agreement by

an agent for a vessel or a dock wharf or

mooring facility owner relative to their col

lecting for the District tariffs owed by their

principal or for vessels at their dock wharf

or mooring facility they may be relieved of

their joint liability with the vessel owner

When any Tariff debtor fails to pay any charges

or portion thereof due under the provisions of

this Tariffwithin 30 days of the invoice date

there shall be added to the amount of charges

due interest at the rate of one and one half

per centum I Y2 per month from the due

date until paid Such interest shall be an obli

gation to be collected and accounted for in

the same manner as if it were part of the

charges due and can be enforced in a separate

action or in the same action for collection of

the charges and shall not be waived or remit

ted

If any charges penalties or interest due under

this Tariff are referred to an attorney at law

for collection an additional charge for attor

ney s fees in the amount of Twenty 20

Percent of the charges penalties and interest

due shall be paid by the Tariff debtor

19 The Port tariff assesses a two factor fee against vessels One a

Harbor Fee and the other a Supplemental Harbor Fee R PF 22

32 Ex R 14

Item 165A Interest

Item 165B Attorney s

Fees
602 FEDERAL MARITIME COMMISSION

20 Both the Harbor Fee and the Supplemental Harbor Fee apply to

commercial cargo vessels which by definition in the tariff does not

include pleasure craft fishing boats oyster boats or passenger vessels

R PF 23 32 Ex B14

21 Ninety seven percent of the total number of ocean going vessels

calling in the Port District remain for an average of three days From

June I 1983 through February 14 1984 only 25 of 889 vessels entering

the Port stayed in the Port District 14 days or more R PF 27 28

22 Item 36 of the Tariff exempts certain categories of vessels from

payment of the Harbor Fee Included in the exemption are holders of

annual permitslicenses as set forth in Item 135 R PF 31 Ex R 14

23 The Supplemental Harbor Fee as more fully set forth in the Tariff

places a fee of 4 cents per ton of 2000 pounds or fraction thereof over

500 tons based on the weight of the cargo handled or transferred The

Supplemental Harbor Fee for liquid cargoes is Ih cent per barrel for each

barrel over 4000 barrels of cargo handled or transferred R PF 35 Ex

R 14 Item 135

24 The amount of coal grain phosphate crude oil and refined petroleum

products transferred to or from the vessel is the basis for the Supplemental

Harbor Fee R PF 35 Ex R 14

25 Prior to the adoption of the present tariff the costs incurred by

the Parish on account of the Port District Office the marine radio operators

and the Port District rescuelpatroVfire vessels were directly allocated to

the Port A percentage of each department s costs was also allocated to

the Port as follows

Department

DocketNo 83 2

percent

Councilmen

Aviation

Fire Protection

Ferries

Safety Engineer

Ambulance

Itinerant Labor

Coroner

Health

Waterworks

Garbage

Sewerage

Purchasing

Internal Auditor

Data Processing

AccountingPayroll

5

5

20

5

o

o

o

o

o

o

o

o

o

o

5

o

28 FM C
Sheriff o

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 603

PORT HARBOR TERMINAL DISTRICT

Docket No 83 2

percent

Department

R PF 47 48 Ex R 55

26 The Port District operates two patrol rescue fire vessels Authority

I and II each 50 feet long and made of aluminum capable of a top

speed of 26 knots The boats were placed in service in 1983 Each is

capable of pumping 2 000 GPM of water and approximately 30 minutes

of foam application In addition each is equipped with a boarding platform

for retrieving people from water and with facilities for medical emergencies

The vessels are manned 24 hours a day with a total crew of six deckhands

six captains and one maintenance relief man One vessel covers the Mis

sissippi River from the District s northern boundary at Mile 82 AHP to

the Pointe a Ia Hache area The second vessel covers the area from South

west Pass north to Pointe a Ia Hache R PF 50 Ex R 3

27 Several of the crew members of the vessels are trained in marine

fire fighting and some are attending Emergency Medical Technician EMT

training R PF 51 Ex R 3

28 Both vessels maintain marine VHF radio surveillance and also have

direct radio contact throughout the Port District with the Port District Office

the Parish Sheriff s Office and the several Parish fire departments via

the Parish s private channel frequency The vessels are on call 24 hours

daily from the dispatch station located in the Port Districts Office R

PF 52

29 The vessels are also available to transport emergency medical per

sonnel fire fighting teams from the various fire departments of the Parish

and personnel from the Sheriff s Office and any other Parish State or

Federal agency They also patrol the District for vessel pollution violations

and aid in the water quality sampling program R PF 53

30 An example of the operation of the Port District patrolrescue fire

vessels occurred on December 18 1983 Then a tug rammed a butane

laden barge containing 4 000 barrels of liquid petroleum gas at the Gulf

AUiance Refinery dock in the Port District causing an explosion and fire

Two men were injured in the incident The Authority I was dispatched

directly to the scene It extinguished the fire aboard the tug conducted

a search and rescue operation for any injured persons contained the fire

aboard the butane barge ascertained the source of the leaking butane and

eliminated the leak In addition to Authority I the Belle Chasse Volunteer

Fire Department responded with Mobile Marine Unit 2 and other shore

based fire trucks and extinguished extensive shoreside fires that were caused

by the flash from the explosion of the barge tug collision The MIV Lou

isiana with nine firemen aboard was also dispatched to the scene R

PF 54 Ex R 3 pp 68 Tr 215 84 pp 605

28 F M C
604 FEDERAL MARITIME COMMISSION

3J Examples of otier incidents of the use of the patrol rescue fire vessels

include medical evacuations on October 24 November 29 December 7

and 15 of 1983 of sick or injured seamen aboard ocean vessels the

removal of a mental patient on December 8 1983 and the transport of

prisoners taken from vessels The patrolrescue fire vessels also have assisted

vessels aground and have secured a runaway barge R PF 55 Ex R

3 pp 612

32 The Parish s fire fighting efforts in addition to acquisition manning

and operation of the patrolrescue fire vessels include

a execution of a fire fighting agreement with the United States

Coast Guard

b formulation of a marine fire plan

c formulation of commilllents from private facilities to provide as

sistance during emergencies

d acquisition of a bigger snorkel fire truck than would be needed

for land fires with additional snorkel length to reach the decks

of large vessels

e refitting of the ferry M V LOUISIANA as an auxiliary fire fighting

vessel

f purchase of two land based mobile marine pumping units

g purchase and stockpiling of foam to be used in fighting chemical

and other fires

R PF 56 Ex R 35 pp 1415

33 The ferry MIV Louisiana is outfitted with fire fighting capability

at a cost of 272 683 00 It is equipped with a 2000 GPM pump that

draws river water for ejection through fire nozzles Two fire nozzles are

for water streams at the front and two combination nozzles are at the

rear for foam In addition there are eight to ten other n07zles that can

be connected to various size pieces of fire equipment for using hoses

so the pumping capacity of the vessel itself can be channeled through

hoses that are made of lightweight modem materials and can be carried

up into all parts of any vessel Additionally the decks of the MIV Louisiana

are capable of taking aboard any piece of Palish fire equipment including

a snorkel truck able to position its nozzles as high as approximately 50

feet above the deck of the vessel The MIV Louisiana also has two 1 000

gallon capacity foam tanks attached to the pumping station R PF 62

Ex R 15 pp 5 6

34 The Port District has also purChased and it maintains two mobile

maline 2 000 GPM pumps which can be towed on the highways running

parallel to the river Each pump has extra hose capacity can be lifted

by crane and placed on vehicles or vessels can be hooked into the system

of the ferry and be used along with fire trucks and can be drawn from

any water source to provide a waterborne firefighting capability Mobile

Marine Unit 1 is customarily assigned to and located on the east bank

i

i

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 605

PORT HARBOR TERMINAL DISTRICT

of the Mississippi River at the Woodlawn fire station Mobile Marine

Unit 2 is customarily stationed at Belle Chasse on the west bank of

the river R PF 63 Ex R 15 pp 67

35 An example of the coordinated use of landbased fire department

equipment with the Ports marine firefighting equipment under the Parish s

marine fire plan was tested in the case of the tugbarge fire at the Gulf

Alliance Refinery R PF 64 Ex R 3 pp 68 Ex R 8

36 Another example of the coordinated use of landbased Parish Fire

Department facilities and marine facilities under the marine fire plan oc

curred in 1982 prior to the acquisition of the patrolrescuelfire boats in

connection with a fire in the engine room of the MIV Dubrovnik at the

Electro Coal Transfer Facility The vessel was tied to a private dock when

the fire took place She was cut loose from the dock due to the combined

efforts of landbased Mobile Marine Unit 1 the MIV Louisiana and a

private vessel borrowed by the Port The firemen of the Woodlawn and

Belle Chasse fire departments boarded the MIV Dubrovnik and along with

the ship s crew were able to extinguish the fire before the arrival of

the MIV Louisiana R PF 65 Ex 3 pp 8 9

37 A further example of the type of problems handled by the Port

involved the world s largest drilling rig the Rowan Gorilla T The rig

was undergoing repairs in the Belle Chasse area in November 1983 Three

ships were anchored close to the drilling rig and due to high winds and

lack of current the ships swung around endangering themselves and the

Rowan Gorilla T The situation had the potential for a catastrophic accident

involving in excess of 300 people aboard the vessels involved After consid

erable pressure from the Port District office all Crescent Pilots were notified

by their president to maintain a safe distance from the Rowan Gorilla

T R PF 71 Ex R 3 pp 9 10

38 The Port District staff consists of a Port Manager a Chief Marine

Inspector three marine inspectors four full time and one part time marine

radio operator and five clerks The marine communication system is manned

24 hours a day and it enables the Port to communicate with the patrol

rescue fire boats and the marine inspector as well as with the Parish

ferries seven volunteer fire departments ambulances and all Parish radio

equipped vehicles The Port maintains a program of safety inspection It

spends most of the inspection time inspecting smaller vessels and little

if any time inspecting docks and wharves In 1983 107 smaller non

commercial vessels were inspected R PF 68 69 70 Ex R 35 pp 2

4 Ex R 3 pp 4c5

39 The Plaquemines Parish Commission Council is responsible for Port

planning and development and overall supervision of the Port District

In 1983 the President of the Council spent at least 25 percent of his

Parish time on Port mallers In 1984 the President as well as two or

three other council members spent 2025 percent of their Parish time on

Port mallers Taking the Commission as a whole not less than five percent
606 FEDERAL MARITIME COMMISSION

i

1

of the aggregate time of all nine Commissioners will be dedicated to

Port matters R PF 73 Ex R 55 p

11 Ex R 27 pp 1 2 Ex R

28 p2 Ex R 57

40 The Parish s ferries are an integral part of its transportation and

fire fighting system In addition to the fire fighting capability of the

MIV Louisiana two other vessels can be used to transport landbased fire

equipment for use against fires on the water and to transfer such equipment

from one bank of the river to another The Port has al10cated five percent

of the budget of the Ferry Department to the Port District expenditure

R PF 74 Ex R 55 p

17

41 Plaquemines Parish owns one Bel1 helicopter and two fixed wing

aircraft one of which is a seaplane In the event of marine casualty

the helicopter would locate the scene of the incident and coordinate marine

rescue and fire fighting efforts For example in January of 1983 a collision

occurred in the river near Venice Louisiana involving two vessels where

four people were killed The helicopter was used to direct search and

rescue operations for survivors R PF 75 Ex R 33 pp 45

42 The Parish aircraft are also employed in aerial surveillance of vessels

on the 102 miles of River within the Port District to locate any problems

that may arise such as fires collisions runaway barges congestion anc

any illegal activities The helicopter is also used to observe and determine

sources of pol1ution along the river Since July 1983 the Aviation Depart

ment s expenditures al10cated to the Port District have been 5 percent

R PF 76 77

43 The Port District uses the Parish s Water Processing Department

for invoicing tariff fees and compiling data including a list of Port District

users The Port is invoiced by the Data Processing Department for computer

time and data processing personnel time at the rate of an allocation of

5 percent R PF 78 Ex R 20

44 The costs of Port District services for the calendar year 1983 as

computed by the Port total 1 242 168 00 They are as fol1ows

TABLE I PLAQUEMINES PORT HARBOR AND TERMINAL

DISTRICT

1983 Preliminary Expenditures

Port District staff salaries 5 ful1 time employees and

Port Manager H R Benvenutti Salaries of 4 marine

inspectors Attorney s fees Office overhead Mainte

nance and expenses of 5 automobiles Dues of port

associations and conferences 554698 minus

30 000 for deck barge cost listed in Item 400 See

page 2 ofExhibit 524 698 00

Operating costs of two 50 foot patroVrescue vessels

I

28 P M C
NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 607

PORT HARBOR TERMINAL DISTRICT

Salaries of 6 captains 6 deckhands Maintenance

fuel costs Materials and supplies insurance pre

mium for both vessels See Page 2 of Exhibit

Amortization for cost of two 50 foot vessels and radar

equipment Total cost of 633 040 71 divided by 10

year life expectance

Amortization of cost of Deck Barge B II and improve

ments thereto which is dock for AUTHORITY Ives

sel

Cost of Barge 30 000

Cost of Improvements 14 870

Total cost of 44 870 divided by 10 year life expect

ancy

Marine Radio Operators 4 full time and I

part time

See Page 2 of Exhibit

Life Health Insurance for Port Employees

Retirement for Port Employees

PORT DISTRICT

OTHER PARISH DEPARTMENTS

300 643 00

63 304 00

487 00

60 775 00

31 40100

17 07700

1 002 385 00

1 242 168 00

TABLE II PLAQUEMINES PORT HARBOR AND TERMINAL

DISTRICT

1983 Preliminary Expenditures

Fire Protection

598 167 00 1983 preliminary expenditures

143 116 00 cost of new equipment

455 05100

x 20

Amortization of new fire equipment

Total cost of 143 116 00 divided by 20 year life ex

pectancy

x 20

Ferries

1482 555 00 1983 preliminary expenditures

x 5

Aviation

164 379 00 1983 preliminary expenditures

x5

Data Processing

1983 preliminary expenditures

Councilmen

57544 00 1983 preliminary expenditures

28 F M C

91 010 00

1431 00

74 128 00

8 219 00

36 22100
TOTAL OTHER DEPARTMENTS

R PF 79 80 81 Ex R 35 pp 910 Ex R 55 p

pp 1 2 Ex R 28 p

2

45 The costs of Port District services for the calendar year 1984 as

computed by the Port total 1 394 369 00 They are arrived at as follows

TABLE III PLAQUEMINES PORT HARBOR AND TERMINAL

DISTRICT

1984 Budget

Port District staff salaries 5 full time employees and

Port Manager H R Benvenutti Salaries of 4 marine

inspectors Attorney s fees Office overhead Mainte

nance and expenses of 5 automobiles Dues of port

associations and conferences See Page I of Exhibit

Operating costs of two 50 foot patrolrescue vessels

Salaries of 6 captains 6 deckhands Maintenance

fuel costs Materials and Supplies See Page 2

of Exhibit

Insurance premium for both vessels

Amortization for cost of two 50 foot vessels and radar

equipment Total cost of 633 04071 divided by 10

year life expectancy

Amortization of cost of Deck Barge B lI and improve

ments thereto which is dock for AUTHORITY I ves

sel

Cost of Barge

Cost of Improvements

Total cost of 44 870 divided by

ancy

Marine Radio Operators 4 full time and I part time

See Page 3 of Exhibit

Life Health Insurance for Port Employees

Retirement for Port Employees

608 FEDERAL MARITIME COMMISSION

x5

30 000

14 870

10 year life expect

PORT DISTRICT

OTHER PARISH DEPARTMENTS

28 F M C

28 77400

239 783 00

11 Ex R 27

483 960 00

406 650 00

81 253 00

63 304 00

487 00

70 160 00

31 40100

17 07700

1 158 293 00

236 076 00

1 394 369 00
103 539 00

7 512 00

74 375 00

9 37100

17 767 00

23512 00

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 609

PORT HARBOR TERMINAL DISTRICT

TABLE IV PLAQUEMINES PORT HARBOR AND TERMINAL

DISTRICT

1984 Budget

Fire Protection

1 268 960 00 total 1984 budget 751 26400

cost of new equipment 517 696 00 1984 oper

ating funds x 20

Amortization of new fire equipment Total cost of

751 26400 divided by 20 year life expectancy x20

Ferries 1 487 500 00 total 1984 budget x 5

Aviation 187 500 00 total 1984 budget x 5

Data Processing 355 342 00 total 1984 budget x 5

Councilmen 470 24100 total 1984 budget x 5

TOTAL OTHER DEPARTMENTS 236 076 00

R PF 82 Ex R 35 pp 14 15

46 The terminal facilities along the river are privately owned Under

the tariffs involved here the wharves docks and other waterside facilities

are not assessed any charges by the Port District for the various services

fire protection rescue etc rendered by it Ex R 14

47 The private wharves and docks receive substantial benefits from

the services provided by the Port Tr 216 84 pp 103 133 Tr 217

84 pp 9 10 15 Tr 221 84 pp 150 156 157 177

48 The companies owning the terminals pay Parish ad valorem taxes

and some provide their own land based fire protection There is no proof

in the record that either the revenues derived from the ad valorem taxes

or the benefit to the Parish from the land based fire protection are com

parable to the fees that would otherwise be assessed the private wharves

and docks under the tariff Entire Record

49 Commercial fishing vessels and crew boats do not pay any fees

under the tariff although they both are benefited by the services rendered

by the Port Ex R 14 Tr 215 84 pp 107 108 124 139

50 Supply boats are benefited by the Port s services but the record

is devoid of any evidence comparing the benefits received to any fees

paid by such boats Entire Record

51 The record does not contain sufficient evidence to justify the 500

ton exemption contained in the Supplemental Harbor Fee There is no

factual comparison of relevant factors relating to the benefits derived from

or the cost of Port services nor is there any evidence as to the resultant

economies in Port overhead expense Entire Record

52 Inland barges are not assessed any charge under the Supplemental

Harbor Fee when they enter the Port They are charged a fee on leaving

the Port only if the cargo they are carrying has not previously been subject

28 F M C
610 FEDERAL MARITIME COMMISSION

to the tariff charge when it entered the Port Ex R 14 Tr 217 84

pp 60 61 Tr 22184 pp 8083

53 Despite the terms of the tariff which would charge a fee to oceangoing

barges entering the Port oceangoing barges carrying phosphate to the

Electro Coal Transfer Corporation private wharf were not charged a fee

under an oral agreement between the Port and the company Ex R

14 Tr 2 2184 pp 106119 126134 163 166

54 The record does not contain any evidence indicating that there was

any weighing of the benefit and comparable cost in relation to inland

barges as opposed to such benefit and cost to other users so as to justify

the exemption of such barges Further there is no real evidence of adminis

trative difficulty warranting the exemption Entire Record

55 The permitdiscount feature of the tariff does favor local interests

over non local commercial cargo vessels The evidence of record does

not establish that the fees paid by the smaller vessels reasonably represents

the benefit they receive from Port services when compared with other

users Ex R 14 Tr 217 84 pp 43 et seq

56 After the decision in the Dreyfus case the Port settled the case

by offering the parties to the suit a reduction remission or rebate of

80 percent of the Harbor Fees and Supplemental Harbor Fees R PF 18

57 The Port tariff does assess a fee against Port users for providing

to vessels and cargo essential health safety and security services Ex

R 14

58 The Port does have primary responsibility for furnishing fire and

rescue protection in the Port While the Coast Guard has some general

responsibility its resources are limited and it looks to this Port as well

as other local ports to be primarily responsible Exs R 38 48 49

Ultimate Findings of Fact

59 The Plaquemines Port Harbor and Terminal District is a subdivision

of the State of Louisiana and is an other person subject to the Shipping

Acts of 1916 and 1984 The combination of the Port s exclusive ability

to provide essential health safety and security services to vessel and cargo

interests in commercial cargo handling transactions its assessment of selec

tive cargo transfer fees and its control of access to private terminal facilities

results in fundamental control over the rates and practices of terminal

facilities Such pervasive involvement in the business of common carriers

marine terminals and commerce of the United States confers on the Commis

sion jurisdiction over the Port under the pertinent provisions of the Shipping

Acts of 1916 and 1984 and subjects the Port s fees to scrutiny under

those provisions

60 The Port s practice of assessing on the basis of cargo transactions

a fee for providing to vessels and cargo essential health safety and security

services constituted the furnishing of other terminal facilities within the

meaning of the Shipping Acts of 1916 and 1984 The term other terminal

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 611

PORT HARBOR TERMINAL DISTRICT

facilities contemplates not only physical assets such as docks wharves

and warehouses but also encompasses services rendered in connection

with the marine terminal link in transportation modes

61 The settlement of the Dreyfus case by the Port does not unjustly

discriminate against others who are not parties or privy to the former

proceeding and who are not identifiable in this proceeding as having suffered

any injury much less the amount of such injury Further public policy

favors the settlement of litigation

62 The tariff fees in question are not a toll charge in contravention

of the United States Constitution Rather those fees represent the establish

ment of regulations and practices related to or connected with the receiving

handling or delivering of property namely they are fees to provide for

the policing of the waterway so as to insure the safety and facility of

movement of vessels and cargo using it

63 The Harbor Fee and Supplemental Harbor Fee do not bear a reason

able relationship to the comparative benefit obtained by the assessed parties

from the services provided by the Port and further the various exceptions

contained in the tariff relating to private terminals supply boats crew

boats fishing vessels inland barges as well as the five hundred ton and

the permitdiscount rate features are unduly preferential and unjustly dis

criminatory The record fails to contain sufficient evidence to either dem

onstrate that other revenue considerations of the exempted classes are rea

sonably related to the fees forgiven or that such exemptions are required

admirtistratively

64 The surety provisions of the tariff relating to agents are not unreason

able A terminal operator can hold liable for tariff fees all direct and

indirect users of its services All parties made sureties for the Port s fees

are either direct or indirect users of the Ports services Furthermore there

is no evidence that the Port has abused these liability provisions or that

a hardship or injustice has resulted from their application

65 The Supplemental Harbor Fee in this proceeding is not an improper

charge against vessels because the evidence does not establish why the

carrier shipper contract should prevent the imposition of the fee on the

vessel either under the facts or the law

Discussion and Conclusions

This case involves several issues and a voluminous record contammg

extensive oral testimony and documentary evidence The issues as we under

stand them and as set forth in the briefs of the parties are discussed

below Those issues which are preliminary in nature will be disposed of

first Those dealing with the merits will then be dealt with in turn

Issue No I The Louis Dreyfus Settlement

On July 30 1982 the Commission in Louis Dreyfus Corp v Plaque

mines Port Harbor and Terminal District 25 EM C 59 1982 affd
612 FEDERAL MARITIME COMMISSION

I

21 SRR 219 held that the tariff then on file Exhibit R 58 was improper

in that the Harbor Fees and Supplemental Harbor Fees were unlawful

and were in violation of section 16 First and section 17 of the Shipping

Act 1916 The Port has offered a reduction remission or rebate of 80

percent of the Harbor Fees and Supplemental Harbor Fees to parties who

were port users and were parties to the litigation The complainant argues

that

The practice en aged in by the District in refunding only to

parties in litigation the charges found by the Commission to

be unlawful in the Louis Dreyfus case was patently discriminatory

and requires that the Parish make such refunds as to alJparties

disadvantaged by its unlawful charges Complainant s Initial Brief

pp 28 48

The complainant cites no facts indicating who the other parties might

be nor does it cite any law in support of its assertion Apparently it

is invoking section 22 a Shipping Act 1916 as a basis for reparations

to the other parties

We believe the complainant s argument on this issue is without merit

Where as in the Dreyfus case there was an open public settlement of

a legitimate claim there is 110 basis for a

finding that such a settlement

unjustly discriminates against other parties not privy to the proceeding

Levatino Sons v Prudential Grace Lines 18 F M C 89 112 114 1973

adopted in relevant part at 18 FMC 83 1974 This is especially true

in light of the public policy favoring the settlement of litigation See Behring

nternational ndependenr Ocean Freight Forwarder License No 9 0 23

F M C 973 981 986 1981 and the cases cited therein Further under

section 22 a

reparations can only be awarded where actual injury can

be shown to be caused by violation of the Shipping Act and where the

amount of injury suffered can be proven Here the record is devoid of

any such evidence so that even if one wanted to refund a portion of

the tariff charges to other persons not parties to the Dreyfus action this

record would not allow him to do so In short even if there was discrimina

tion as to other parties that discrimination is not properly at issue

in this case nor is there any basis for relief in this proceeding

Issue No 2 Whether or Not the Charges Contained in the Tariff Are

Unlawful Under the Constitution ofthe United States

At pages 35 through 40 of its Initial Brief and pages I through 13

of its Reply Brief the complainant argues that the charges imposed by

the Port s tariff are prohibited by the Constitution of the United States

which at 37 D S C 10 states all the navigable rivers and waters in

the former Territories of Orleans and Louisiana shall be and forever remain

public highways and which at Art I 10 Clause 3 forbids any state

to lay any duty of tonnage without the consent of Congress The argu

ment goes to the Commission s

jurisdiction It is surprising because it

28 FM C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 613

PORT HARBOR TERMINAL DISTRICT

is tantamount to arguing that the charges in the tariff cannot be collected

by the Port as an other person establishing just and reasonable regula

tions and practices related to or connected with the receiving handling

storing or delivering of property under section 17 of the Shipping Act

1916 Coupled with the complainant s argument that the Port is a non

entity generally and provides no services it would mean that the Commission

would have no jurisdiction over the Port and that it could not entertain

the complaint or grant the relief sought by the complainant In essence

were we to hold in favor of the complainant on this issue we should

dismiss the complaint and discontinue the proceeding

However tempting and easy a solution the above alternative may be

we must disagree with the complainant on this issue The old and long

standing Supreme Court cases the complainant cites do indeed forbid the

imposition of a duty or tax which is measured by tonnage and the capacity

of the vessel and which is in essence a contribution claimed for the privilege

of arriving and departing from a port of the United States 2 However

some of these same cases recognize as does the complainant that where

actual services are rendered charges for those services are not forbidden

even where specific benefit cannot be shown As was stated in Clyde

Mallory Lines v Alabama 296 U S 261 1935 a case cited by the

complainant

the policing of a harbor so as to insure the safety and

facility of movement of vessels using it differs from wharfage

or other services which benefit only the particular vessels using

them It is not any the less a service beneficial to the appellant

because its vessels have not been given any special assistance

and further

charges levied by state authority to defray the cost of

regulation of facilities afforded in aid of interstate or foreign

commerce have consistently been held to be permissible Idem

p

267

See also Huse v Glover supra and Indiana Port Commission v Bethlehem

Steel Corp 534 FSupp 858 USDC N D Ind 1981

The real jurisdictional issue in this proceeding of course is whether

or not the Port is an other person who provides a service to the ocean

commerce going through the Port The complainant asserts in its briefs

that the Port renders nothing but its presence is a non existent entity

providing no facility does not provide the anchorages has not in

any manner constructed or improved the Mississippi River and is only

a paper entity We cannot agree with those assertions The record in

2Huse v Glover 119 U S 543 1886 Transportation Co v Parkerburg 107 U S 691 1883 Southern

Steamship Co v The Masters and Wardens of the Port of New Orleans 73 U S 6 Wall 31 1867 PeetIe

v Morgan 86 U S 19 Wall 581 1874 Cannon v New Orleans 87 U S 20 Wall 577 1874 Moran

v New Orleans 112 U S 69 1884
1 614 FEDERAL MARITIME COMMISSION

I

the proceeding establishes that the Port Authority was duly established

by the State of Louisiana that while it does not own the terminal and

shoreside facilities it controls and regulates them and most importantly

that it does provide fire and safety protection for the Port by having

available substantial amounts of fire fighting equipment personnel commu

nication helicopter and other services lbat are used to service the Port

and the vessels and facilities that use the Port Further contrary to the

complainant s allegations the facts indicate that the Coast Guard looks

to the Port to provide the day to day fire protection and is far less able

to provide timely fire protection than is the Port itself AU of the pertinent

evidence including the testimony of the Coast Guard Commandant estab

lishes those facts Given them we must agree with the holding in Dreyfus

supra where the Commission said

Local governmental authorities are not categorically exempt

ed from the requirements of the Sh pping Act nr is there llY court or Commission precedent requmng ownershIp of a faCIlIty

in order to confer jurisdiction under Section I of the Act Thus

the Plaquemines Port Harbor and Terminal District a subdivision

of the State of Louisiana is an other person subject to the

1916 Act The combination of the Port s exclusive ability to pro

vide essential health safety and security services to vessel and

cargo interests in commercial cargo handling transactions its as

sessment of selective cargo transfer fees and its control of access

to private terminal facilities results in fundamental control over

the rates and practices of terminal facilities SuchjlOrvasive in

volvement in the business of cOmmon carriers manne terminals

and the commerce of the United States confers on the Commission

jurisdiction over the Port under Section 1 and subjects the Port s

fees to scrutiny under the substantive provisions of the 1916 Act

So here we hold that the charges made under the tariff related to a

service rendered by the Port and were not in the nature of toll charges

As such they did not violate any provision of the Constitution of the

United States or any other statute

lssue No 3 Whether or Not the Harbor Fee and Supplemental Harbor

Fee Bear a Reasonable Relationship to the Comparative Ben t Ob

tained by the Assessed Parties From the Services Provided by the

Port

Ifthe charges collected under the tariff do not bear a reasonable relation

ship to the comparative benefit obtained by the assessed parties from the

services provided by the Port then the tariff violates the Shipping Act

of 19163and must be set aside While a determination of this issue involves

3While the Shippln gAct of 1916 is referred to throughout this deciaion the holding also applies to the

Shipping Act of 1984 where il contains similar and relevant sections

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 615

PORT HARBOR TERMINAL DISTRICT

a matching of the overall costs to the overall benefit the fact that the

overall costs justify the overall benefit is not dispositive of the issue

Rather as was stated in Volkswagenwerk Aktiengesellschaft v Federal Mari

time Commission 390 U S 261 1968 at page 282

The question under 17 is not whether the petitioner has received

some substantial benefit but whether the correlation of

that benefit to the charges imposed is reasonable and further

The proper inquiry under 17 is in a word whether the charge

levied is reasonably related to the service rendered

Here the complainant argues that the alleged services are not a benefit

for which charges may be imposed and that oceangoing vessels should

not be required to pay for the fire and police protection and other services

afforded by the Port It argues further that the district charges are

unreasonable unduly preferential prejudicial and discriminatory As to

the latter argument it cites BalOn Rouge Marine Contractors Inc v Federal

Maritime Commission 655 F2d 1210 C A D C 1981 and the language

if the challenger pays more than other parties pay for

fewer benefits than other parties receive then the charge is unrea

sonable under 17 the FMC failed to conduct any com

parative analysis of the relative benefits insuring to the several

users of the facility This comparison was at the heart

of the Commission s earlier approach and is essential to a deter

ntination that the charge levied is reasonably related to the serv

ices rendered Separate slip op at 4 J S 182 quoting from

Volkswagenwerk supra at 282 88 S Ct at 940 41 We agree

that at this juncture the Commission s order cannot stand given

the absence of any exposition of the relative benefits of the

automated gallery to stevedores and other segments of the dis

tribution channe1 Id at 2 J A 180

In our view we think it clear from this record that the Port does

furnish some services that benefit commercial cargo vessels and we reject

the complainant s view that the services are not a benefit for which charges

may be imposed We also believe that the facts and evidence in this

proceeding support the finding that the overall costs allocated to the various

services are reasonable or at least are not unduly or unreasonably discrintina

tory However they should be allocated evenly and fairly to the recipients

of those services Stated differently the charges must be so allocated as

to not unduly or unreasonably discriminate against one or more recipients

so as to violate the pertinent provisions in the Shipping Acts

Here the complainant avers that the charges 4

are unduly discrintinatory

because

4We have difficulty in some cases in ascertaining just what discrimination the complainant would have

us fmd specifically as to the Harbor Fee vis a vis the Supplemental Harbor Fee
616 FEDERAL MARITIME COMMISSION

i

I there is no contribution to the District by the wharves

docks or other waterfront facilities in the District

2 supply boats are benefited but do not pay appropriate

charges

3 commercial fishing vessels are benefited but do not pay

any charges

4 launches used by vessels to carry crewmen back and forth

between ship and shore are benefited and do not pay any charges

5 the five hundred ton exemption is not reasonable

6 inland barges transporting cargo into the District are not

assessed a Supplemental Harbor Fee

7 The PermitVessel Length features of the tariff are unjustly

discriminatory

There is no factual dispute in this record as to what the tariff provides

regarding the interests enumerated above Certainly the tariff does not

exact the same fee from them as it does from commercia cargo vesse s

n this sense it discriminates What we must decide is whether or not

that discrimination is so unreasonable as to violate the Shipping Acts

n

reaching our findings we should note that while the tariff involved

here is patterned after the tariff involved in the Dreyfus case the amounts

involved are quite different and some provisions which were found to

be improper in Dreyfus have either been changed or deleted entirely For

example under the new tariff all commercia cargo vessels including those

under 00 feet pay the Harbor Fee and there is no longer a free Harbor

Fee Permit for vessels that pay ad valorem taxes Further the tariff here

unlike its predecessor does not credit payment of either the Harbor Fee

or the Supplemental Harbor Fee against the other fee The new tariff

does not provide for fmes and criminal penalties for failure to pay tariff

charges nor does it provide that the Port District is the sole interpreter

of the tariff provisions Final y

the amounts of both the Harbor Fee and

the Supplemental Harbor Fee have been changed the latter being reduced

from 10 to 4 cents per ton of 2000 pounds or fraction thereof of 500

tons based on the weight of the cargo so handled or transferred

All of the above coupled with numerous other facts in the record S

convince us that the Port District and the commissioners who were respon

sible for its operation and management at least attempted to address the

objectionable parts of the tariff before the Colttll1ission in Dreyfus However

we must determine the viability of their actions not on the basis of their

good faith or good intentions but rather on the basis of the provisions

contained in the tariff now in effect

Por example the cost and bud et estimates of various Parish Departments allocated 10 the Port were drill

tically reduced See Findings of Fact Number R48

28 FM C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 617

PORT HARBOR TERMINAL DISTRICT

As to the exclusion of the wharves and docks from the payment of

fees under the tariff both the Harbor Fee and Supplemental Harbor Fee

have as their purpose the collection of fees

to assist in defraying the expenses of the administration and main

tenance of the port and harbor including the supervision of the

shipping of the port with the view to preventing collisions and

fires and to aid in extinguishing fires on vessels

and in the harbor and upon private wharves docks and imme

diately adjacent facilities connected thereto Emphasis sup

plied

The language of the tariff as well as both the testamentary and documentary

evidence clearly establishes that the private wharves and docks do and

were meant to derive some benefit from the services provided by the

Port 6 Yet the tariff does not provide for the payment of any fees by

the owners of the wharves or docks The respondent seeks to justify the

omission by asserting that The Landbased Marine Terminals are Not

Substantial Beneficiaries of Port Services and Thus Should Not be Assessed

a Portion of the Supplemental Harbor Fee In support of iis assertion

the respondent notes that all of the privately owned terminal facilities

within the Port pay ad valorem taxes to the Parish and that they are

therefore subsidizing the Port s

firefighting costs and that if they were

required to share in the payment of Harbor andor Supplemental Harbor

Fees they would be saddled with a dual burden ie the burden of paying

indirectly through their ad valorem taxes to the Parish a portion of the

Port District s safety costs plus the burden of paying directly some share

of the Harbor Fees andor Supplemental Harbor Fees to the Port District

The respondent also submits that The terminals make an additional con

tribution to the Port District in that under the Tariff they are liable as

sureties for the payment of the Harbor Fees and Supplemental Harbor

Fees by vessels In addition they are committed under the Marine Fire

Plan to provide support and facilities for the loading of land based equip

ment upon privately owned vessels assisting in marine firefighting Finally

the respondent alleges that The record demonstrates that the termi

nals are not materially dependent upon the Port s

firefighting services for

their protection and do not require marine rescue services It describes

the concrete and steel construction of the terminals and how the marine

portions of the terminals facilities are substantially fireproof It says

that to the extent that any risk of fire at all may attach to the water

side terminal facilities that risk is generated by the presence of a vessel

loading or discharging cargo

6The testimony of various witnesses some of them offered by the respondent refers to the private facilities

as being pan of the Port benefiting from its services Further the evidence regarding various catastrophes

and emergencies clearly involve activities taking place on or near wharf facilities
618 FEDERAL MARITIME COMMISSION

j

j

We believe that the record in this proceeding clelllIyestab1ishes that

the terminal and wharf facilities are an integral gart of the Port District

and that the services provided by the Port do benefit those facilities We

have already cited that portion of the tariff that specifically refers to the

need to collect monies to service private wharfs and docks In addition

the respondent s own witnesses testified that these facilities were part of

the Port Qr marine area and that they b nefited from the services provided

by the Port Respondent s expert testified that wharfs were related to

marine problems Tr 21684 p

103 and a Port Commissioner stated

that I would say they were marine when asked if the private docks

were part of the marine or inland port of the parish Tr 216 84 p

131 and that the services rendered by the Port are of benefit to everyone

and not only the ships that use the harbor but the facilities along

the river the privately owned facilities wharves Tr 216 84 p

133

another of respondent s expert witnesses testified that If there were a

fire in a waterfront in a waterfront facility I believe that it would be

fought from the water the marine fire fighting equipment and con

sequently the shoreside terminal would benefit Tr 217 84 pp 9 10

and further lhat By the term shippingcommllJlity I mean primarily

to be vessels that transit the waterway But I would have to include the

shoreside terminals as well Tr 217184 p

1 5 the Port Director when

asked to define the port area stated as to the facilities along the river

Definitely those are part of the port anu certainlY they are part

of our regulatory requirements for application of certain safety standarUs

What I am saying is laws lId regulations not only deal

with the vessels but also the facilities that are located on its edge Tr

22184 p

ISO and that in fire lIu safety inspections at least equal

effort is spent on inspection of facilities along the river l8

is spent in

both the vessel categories Tr 22184 pp 156 157 and further in

answer to the question How about the facilities along the waterfront

Are they part of your responsibility The wharves and the docks the

answer was I would say yes sir Tr 22184 p 177 lIother Port

Commissioner in answer to the question Do you consider the private

wharfs and dockages along the river are part of the Plaquemines Port

stated Yes sir to the extent that jhey provide services to river transpor

tation or transportation forms that use the river Tr 22484 p 158

In addition to the above the record is replete with evidence that the

services provided by the Port significantly benefit the private terminals

The various documents and testimony concerning certain emergencies and

catastrophes at the Port 7 indicate that disasters are just as likely to occur

because of activities taking place on the wharves and docks as they are

in other parts of the port Indeed considering the type of material being

j

1

7

These involve I

Ihe Gulf Alliance Refinery Dock 2 Ih 11llemadonal Marlne Terminal Dock and 3

the EleClro Coal Dock

2S F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 619

PORT HARBOR TERMINAL DISTRICT

handled at the docks i e liquid petroleum sulfuric acid and chemicals

grain butane gas etc the threat of explosion and fire is obvious

So here we must reject the respondent s argument that the landbased

marine terminals are not substantial beneficiaries of Port services We

believe they do benefit from Port services and that the failure to even

consider the payment to be made by terminals under the tariff is unjustly

discriminatory Tr 217 85 p

35 We also reject the view that the terminals

do not require marine rescue services because they provide their own

fire protection and because the marine portions of the terminals facilities

are substantially fireproof In our view the fact is they are susceptible

to catastrophic fires andlor explosions which might do extensive damage

to life and property and the services provided by the Port which are

available to the terminals are just as valuable to the terminals as to commer

cial cargo vessels 9

As to the argument relating to the payment of ad valorem taxes by

the private terminals and their liability under the tariff as sureties and

their commitment under the Parish s Marine Fire Plan we do not agree

with Respondent that these considerations should allow the terminals to

pay nothing under the tariff in issue The ad valorem taxes are what

any business or citizen would pay and are quite small to begin with

They have nothing to do with the marine services involved here As to

the surety clause in the tariff there is no evidence in the record that

the terminals paid anything as surety and even if they had that fact alone

would not excuse their obligation to pay for the Port services which bene

fited them Finally as to their willingness to provide emergency fire serv

ices it is the duty of every Parish citizen and ought not be looked upon

as a reason for exempting the terminals from paying their fair share under

the tariff

Surprisingly the argument advanced here by the respondent is substan

tially the same position taken in the earlier Dreyfus case and unlike the

other objectionable provisions cited in Dreyfus the Port did nothing in

the new tariff regarding terminal facilities In Dreyfus the Commission

decided that

A measurement of the reasonableness of the exemptions would

be whether the other revenue considerations of the exempted class

es are reasonably related to the fees forgiven None of the exemp

tions appears to meet this standard there is no showing

that the cargo protection costs saved through the expenditures

of private wharf owners equals or exceeds the foregone revenue

resulting from their exemption Finally there is no proof that

SIt is interesting to note that on November 13 1985 an Exxon oil tank barge was simply blowing out

gas fumes at the Gretna Machine Iron Works a private dock in the Port of New Orleans It exploded

killing one person injuring others and doing substantial damage 10 the dock While this accident did not

occur in the Plaquemines Port certainly it could have and is the kind of occurrence the Port s flre fighting

and rescue service is meant to prevent or care for

9

See Tr 2115 85 pp 64 98 170 Tr 2121185 p33
620 FEDERAL MARITIME COMMISSION

I

the revenue derived from ad valorem taxes paid by the port users

exempted from harbor fees are generally comparable to the fees

that would otherwise be assessed these users Indeed the low

ad valorem taxes and the admission by the Port that ad valorem

revenues represent a small portion of Port revenues undermine

the validityof the harbor fees exemption and support the complain

ants allegation that the fees are a device whereby non local inter

ests subsidize the governmental services rendered Parish residents

So too here we hold that the Port similarly violated the Shipping Acts

in its assessment of a harbor fee and supplemental harbor fee

As to the complainant s argument that the tariff violates the Shipping

Acts in that supply boats fishing vessels ani

crew launches benefit from

the Port services in question but do not pay any or adequate fees we

believe that these boats do derive some benefit from the services provided

by the Port albeit not as much as commercial cargo vessels or the private

wharves and docks Certainly they can catch fire or explode or have

a need for medical evacuation anyone of which could trigger the use

of the Port s fire fighting or emergency equipment The respondent alleges

that they ought not to come under the tariff either because they do not

use the main portion of the river do not pose any real danger or because

it would cost more to collect fees from them than the amount of the

fees themselves

In Dreyfus supra on similar facts the Commission decided that

Because there is no differentiation as to the nature of the cargo

or other transportation factors involved in the assessment of fees

a competitive or triangUlar relationship need not be proven

to establish a violation of Section 16 First The Port has treated

different classes of persons and descriptions of traffic unequally

in the imposition of its fees Because the exemptions from the

tariff fees create a situation where a minority of port users pay

substantial fees to defray general port expenses while the majority

of users pay little or nothing Complainants have made a prima

facie showing of undue preference and prejudice This shifts the

burden to the port to justify the exemptions which burden the

port has failed to meet 25 F M C 59 68

Further on the Commission stated

Complainants have also made a prima facie showing under Section

17 that charges do not bear a reasonable relationship to the com

parative benefit obtained from the port services by the assessed

parties The charged parties have not received benefits from the

Port s services proportionate to the costs allocated to them More

over other users of the services obtain equal or greater benefits

and have not been shown to have paid their allocable share of

Port costs The charges are not based upon the actual use of

the Port services by the charged parties Even if the generalized

benefit concept advanced by the Port were acceptable it appears

28 F M C
28 F M C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 621

PORT HARBOR TERMINAL DISTRICT

that the exempted users obtain the same generalized benefit as

the charged parties Yet as mentioned above there is no evidence

that these exempted classes have made other contributions to the

operating costs of the Port that approved the level of fees that

would have been paid under the Port tariff if an exemption were

not granted Moreover the tariff is applicable only to users of

the navigable waterways of the Port although a large portion

of marine related Parish expenses allocated to the Port arises

from Parish services provided outside the navigable waterways

While there need not be a precise correlation between marine

related costs allocated to the Port by the Parish and the classes

of Port users assessed fees they must be reasonably related Here

there is a broad basis for determining marine related costs

and a narrow class of Port users assessed those costs 25 F M C

59 689

We believe the above citations from Dreyfus are equally applicable in

this case and that if fishing vessels supply boats and crew launches are

to be exempted under the tariff the respondent has the burden to and

must actually justify the exemptions however reasonable one might other

wise assume them to be Unfortunately on the record made here we

cannot hold that the burden has been met The testimony of the respondent s

primary expert witness indicates that while she considered and made a

determination as to the reasonableness of the overall costs and the overall

fees under the tariff she did not even consider the reasonableness of

the allocation of the fees vis a vis one user against another Tr 217

84 p31 et seq She mistakenly believed that supply boats and crew

boats paid a fee when in fact they do not When asked if they benefited

from Port services and should pay a fee she stated she was told that

the administrative burden of assessing the vessels was greater than the

worth of the assessment

In considering this issue respondent would have us differentiate between

the fishing boats oil rig service boats and commercial cargo carrying

vessels because The nature of the operation of these types of vessels

and the Port services afforded them is different from that afforded to

commercial cargo ships on the River and because These considerations

those relating to the carrying of heavy industrial equipment versus the

carrying of bananas as discussed in the Volkswagen werk case supra

are precisely applicable to the distinction made in the tariff between com

mercial and cargo vessels on the one hand and fishing and oil rig service

boats on the other These categories of vessels and their respective demands

for Port services are as different as heavy equipment and bananas paren

thesis supplied The respondent then states that It is noteworthy that

NOSA while condemning the exemption of fishing boats and smaller oil

rig service boats has neither shown that it is harmed by these exemptions

nor has it suggested any more desirable alternative imperfect rule than
622 FEDERAL MARITIME COMMISSION

the one the Tariff contains The exemptions have in summary not been

shown by substantial proof to be unjustly discriminatory

We believe the respondent s argument cannot be adopted Certainly we

would readily agree that the commercial cargo vessels which pay fees

under the tariff differ in appearance size and use from fishing vessels

crew boats and supply boats However that consideration is not determina

tive of the issue In its tariff the Port in essence imposes a fee to supply

Port services with the view of preventing collisions and fires policing

the river and riverfront providing services of all kinds as required for

an orderly and safe port operation As to the fishing boats crew

boats and supply boats there is no question but that the tariff anticipates

and provides services to them if needed especially in the area of fire

prevention and rescue The respondent s own witnesses describe how a

substantial part of the Port s marine inspectors activities involve inspection

of the offshore supply vessels and crew boats Tr 215 84 pp 107 108

134 139 and how the Port helicopter is used to observe small vessels

Tr 22184 pp 35 36 39 43 44 45 10

Given the above we believe the real question as to the smaller vessels

is what portion of the costs is allocable to the benefits they derive from

Port services That they differ in size appearance and use from commercial

cargo vessels is not of itself a controlling factor but rather how much

more or less do they benefit In light of all of the above as well as

the absence of any definitive evidence in the record that there was any

weighing of benefits and fees regarding the fishing boats crew boats and

supply boats as against the commercial cargo vessels we must hold that

the respondent has failed to sustain its burden of showing that the above

named vessels reasonably should not be required to pay some reasonable

fee under the tariff In so doing we note that the respondent s attempt

to place the burden on the complainant to come up with a more desirable

alternate imperfect rule is invalid As we have noted under Dreyfus

the burden for justifying exemption is on the respondent and it is not

necessary for the complainant to show harm or suggest alternatives for

it to prevail

As to the complainant s argument that the five hundred ton exemption

used in the computation of the Supplemental Harbor Fee is unreasonable

once again we must deal with the fact that it is an exemption and that

the burden is on the respondent to justify it It argues that the exemption

of vessels carrying less than 500 tons is supported by both the resulting

economies in Port overhead expense and by the lesser risk of catastrophe

presented by such vessels It also submits that the 500 ton exemption

applies impartially to all vessels and all commodities

IOThe helicopter pilol testified that any service he perfonned regarding fishing boats was charged to the

Commission Council and not the Port Authority

28 FM C
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NEW ORLEANS STEAMSHIP ASSOCIATION y PLAQUEMINES 623

PORT HARBOR TERMINAL DISTRICT

Once again as with the supply boats and crew boats it may well

be that the action taken by the Port is reasonable but the record does

not contain enough evidence to allow us to hold that the respondent has

sustained its burden For example it is true that the exemption applies

impartially to all vessels and all commodities but only as to those users

who pay a fee under the tariff It does not apply to users carrying less

than 500 tons and as to them it is an exemption and is not impartial

Insofar as the argument of lesser risk of catastrophe it stands on the

same footing as it did with respect to fishing boats crew boats and supply

boats Vessels carrying less than 500 tons may well be a lesser risk than

vessels carrying more but certainly they benefit from the services provided

by the Port and ought to pay for these services unless the facts of record

justify an exemption In this proceeding that is not the case and the only

remaining argument is the resulting economies in Port overhead II which

have not been clearly established or identified in the record

The complainant argues that the tariff violates the Shipping Act in that

it unjustly discriminates by exempting inland barges transporting cargo into

the District from being assessed under the Supplemental Harbor Fee The

fact is that under the tariff inland barges coming into the Port do not

pay a Supplemental Harbor Fee Such barges going out of the Port are

liable for the Fee only if such cargo has not previously been the

subject of a tariff charge when it entered the Port aboard any vessel

which paid a Supplemental Harbor Fee on such cargo in which event

there shall not be a dual charge for such cargo and such towboat owner

operator and owner of the cargo shall be exempt from this payment of

this Supplemental Harbor Fee Parenthesis supplied Once again because

an exemption is involved under the holding in Dreyfus supra the burden

for justifying it is on the respondent It argues that This treatment of

barge traffic is not discriminatory but instead is reasonable and justified

by valid transportation considerations It describes how barge traffic com

ing into the Port consists mostly of coal and grain brought in from upriver

and how it would not be feasible to have the tug bringing in the barges

to calculate the amount of cargo in the Plaquemines destined barges con

tained in the tow and to locate and to pass on to the owner of each

barge its pro rata share of Supplemental Harbor Fee It compares the

incoming cargo to outgoing barge tows of phosphate and crude oil or

petroleum products where it concludes that The towboat operator can

without undue burden pass the Supplemental Harbor Fee on to the owner

or charterer of the individual barges or to the cargo owners The respond

ent also argues that charging all inbound and outbound vessels 02 per

ton rather than the outbound vessels 04 per ton would greatly increase

the Port s overhead costs because it would have to collect twice as

many payments as it now does because a charge of only 02 per

ton against outbound seagoing ships would result in their paying less than

a fair share of the Port s costs taking into consideration the fact that
624 FEDERAL MARITIME COMMISSION

the large vessels are the greater beneficiaries of the Port s safety efforts

and because if the Supplemental Harbor Fee were changed to assess

02 per ton for inbound and outbound vessels half of the substantial

Supplemental Harbor Fee revenues derived from vessels and harges carrying

crude oil and refined products outbound from Plaquemines would

be lost to the Port

While the respondent s arguments may have some validity we cannot

sustain them on the basis of the record made here As we have noted

the respondent s own expert witness testified she did not make any deter

mination regarding the reasonableness of the allocation of the tariff fees

as between various users and that she was told tonnage figures were not

available for purposes of allocating the Supplemental Harbor Fee insofar

as barges were concerned Tr 217 84 pp 43 44 Not only that when

questioned about inland barges the colloquy was as follows Tr 217

84 pp 60 61

THE WITNESS

And the supplemental harbor fee was developed to be assessed

against vessels on the basis of cargo loaded or discharged with

the intent of ships that have a lot of cargo activity A lot of

tons loaded and discharged would bear a cost against that activity

as opposed to a ship that had minimal cargo loading and discharge

BY MR BAGLEY

Q But on the other hand if it is a barge being discharged

by inbound cargo you would have no assessment against the

activity is that correct

A Ifits a barge being loaded

Q Being unloaded

A being discharged with inboun lcargo it is not charged

a supplemental harbor fee

Q SO that activity using activity as the word is not as

sessed is that correct

A It s not assessed a supplemental harbor fee yes

Q Can you how would you justify the reasonableness if your

going to assess activity or one activity being so assessed and

another identical activity not being assessed

A I understand the rationale for why the Port District con

structed its tariff as it did It is hard for me to understand the

justification

Q And you can offer nothing other than the fact that they

did it as they did is that correct

A That is correct

and further Tr 217 84 pp 72 74

Q All right

28 F M C
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NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 625

PORT HARBOR TERMINAL DISTRICT

Let s take the volume of tonnage in Louisiana in grain and

coal This is all shipped in by barge and not by ship is that

correct

A I would think so yes

Q And the shipment in bears no part of it The shipment

out bears all of the supplemental harbor fee

A The shipment in bears no harbor fee

Q The harbor fee is borne seven percent by by inland tugs

and tows and ninety three percent by ocean vessels

A The harbor fee is borne seven percent by tugs and tows

according to my estimate and probably something less that than

ninety three because we do have some supply boats in there

Q All right

Now do you think there is something do you think some

thing closer to perfect than that can be achieved

A I don t know the answer to that question I meant Id

have to look into it in detail I would have to see what the

records are and see how they actually go about the collection

process

Idon t know the answer to that question

Q Well would you not have first to start assessing tugs and

tows Would you not have to first start assessing supplemental

harbor fees against inbound barges

A Im sorry State that again

Q In order to establish an approach to a balance would you

not have to begin assessing supplemental harbor fees against tugs

and tows

A I assume you mean against

Q Inbound

A Yes Ithink your correct

Q And this would be a more perfect assessment would it

not

A Considering that the fee is an assessment against the vessels

on the basis of assessment on the basis of cargo going in I

would agree that a more perfect situation would be to assess

the inbound tugs and tows

In addition to the above testimony the Port Director another of the

respondent s witnesses testified that he knew of no reason why the Port

could not assess the tug that transports inland barges and their cargo in

just the same way that you assess the ship that brings the cargo in

Tr 22184 pp 8083 Further he testified that not only did inland

barges not pay a Supplemental Harbor Fee when coming into the Port

but that sometime in 1983 the Port and the Electro Coal Transfer Corpora

tion an owner of one of the private wharves entered into an agreement

whereby incoming oceangoing barges loaded with phosphate coming to

Electro Coal paid no Supplemental Harbor Fee but that outgoing inland
626 FEDERAL MARITIME COMMISSION

barges loaded with coal going from Electro Coal paid such a fee The

agreement seems to violate the clear language of the tariff All of the

testimony involving the agreement is unduly vague and beclouded but

one thing is certain its effect is to favor one user over another in contraven

tion of the terms of the tariff Tr 221184 pp 106119 126134 especially

page 131 163 166

We think consideration of all of the above as well as other portions

of the record leads to the conclusion that the exemption for inland barges

from the Supplemental Harbor Fee is not justified in this record Indeed

it is clear that intentional or not the exemption has the effect of favoring

local interests over non local commercial vessels In addition we do not

believe either the facts of record or the reasons advanced by the respondent

warrant the exemption in favor of inland barges The evidence not only

fails to justify the exemption but the testimony regarding Electro Coal

seems to indicate clearly that the Port allowed ElectroCoal to enlarge

the exemption to oceangoing incoming vessels carrying phosphate in con

travention of the tariff to the benefit of Electro Coal and the detriment

of other users

So here we think there is no valid reason to exempt incoming inland

barges from the Supplemental Harbor Fee and their failure to pay a fee

under the tariff while deriving benefit from Port services violates the Ship

ping Acts because it unjustly and unduly discriminates against other users

Finally the complainant argues that the permit vessel length features

of the tariff are unjustly discriminatory In support of its argument the

complainant notes that the permit feature of the tariff is locally biased

because it applies only to commercial vessels under 250 feet in length

but not those over 250 feet which later category is comprised of oceangoing

vessels The permits are issued as follows

Length of

Permit

Discount

percent

30 Days 50

90 Days 56

180 Days 66 3

365 Days 78

From the above the complainant argues that while some reduction would

be justified it is submitted that the discount of 78 accorded to a vessel

obtaining an annual permit license is plainly excessive and further

that this is precisely what is represented by the relationship of a 365

day license at a cost of 80 days occupancy without a license The com

plainant concludes that Surely if the benefit for a

year s occupancy is

liThe testimony of the Manager Administration of Electro Coal regarding the agreement is also pertj

nent and enlightening Tr 4124184 pp 6889

28 F M C
28 FM C

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 627

PORT HARBOR TERMINAL DISTRICT

equivalent to only 80 days of the daily fee the daily fee is not commensu

rate with the benefits accorded

The respondent argues that absent the permit virgule option the imposi

tion of the daily fee upon a vessel under 250 feet in length that is resident

within the Parish would result in unreasonably burdensome charges upon

such vessels For example a Plaquemines based commercial cargo vessel

between 100 to 250 feet in length would have to pay as much as 3 650

annually at the daily rate of 10 00 With an annual permit it pays

800 After citing overhead billing savings to the Port resulting

from the on time permit fee the complainant concludes that It is reason

able that such vessels be permitted a reduction of the daily fee in the

nature of a wholesale discount In contrast vessels that enter the Port

on only an occasional basis should logically be subject to the fee on

a retail basis

At the outset it should be noted that the issue regarding permWdiscount

rates favoring local users is like the other issues raised involving the

apportiomnent of the costs based on whether or not the fees charged

satisfy the requirements of the holding in Volkswagenwerk that is does

the fee paid fairly and reasonably represent the benefit derived by the

user The issue is not properly whether there ought to be a wholesale

or retail rate because the Port seeks to favor local interests but rather

whether the Port ought to establish such a dichotomy between the rates

because the service to local interests warrants it vis a vis the service to

oceangoing vessels Here again the record contains little evidence which

would justify the wholesale rate set forth in the tariff for local interests

and the retail rate set forth for oceangoing vessels Certainly one might

reasonably assume that the smaller local vessels require lesser services

than do the larger oceangoing vessels but even where the assumption

is made one cann t with the documentary or oral evidence of record

arrive at the discounts set forth in the tariff As far as we can determine

they are amounts chosen at random without any definitive reasonable as

sessment as to benefits derived from Port services for the smaller local

vessels as opposed to the larger oceangoing vessels In short the discounts

are arrived at arbitrarily As such they are discriminatory and violate the

pertinent provisions of the Shipping Acts

Issue No 4Whether or Not the Port May Look to the Vessel Agents

for Payment of Charges Imposed Under the Tariff

The tariff involved here at item 165 provides in essence that the Harbor

Fee and Supplemental Harbor Fee are the primary obligation of the owner

agent or user of the vessel emphasis supplied It states that Parties

entering and using the District do so by such entry and usage thereby

contract to pay and are responsible for all District fees whatsoever as

provided for in this tariff The tariff here Ex R 14 contains identical
628 FEDERAL MARITIME COMMISSION

of Section 17 of the Act because its tariff provisions hold liable for the

debts of shippers and consignees of cargoes all parties who may have

had contact with the debtors including vessel owners terminal operators

and other users of the vessel or facility In reversing the holding of

the Initial Decision the Commission stated

The Presiding Officer s holding that the surety provisions of the

tariff are unreasonable will not be adopted A terminal operator

can hold liable for tariff fees all direct and indirect users of

its services 22

Given the Commission s holding in Dreyfus supra which considered the

very same tariff language we must follow the precedent established in

that holding So here the tariff provision in issue does nol violate section

17 of the Shipping Act 1916 or the companion provision of the 1984

Act

Issue No 5 Whether or Not the Supplemental Harbor Fee is an Improper

Charge Against Vessels

This issue like the agency issue discussed above would have us hold

that the Supplemental Harbor Fee is improper because it imposes the fee

on the vessel which has no contractual relationship with the Port The

complainant also seems to be arguing that the fee should not be collected

from vessels because the shipper carrier contract applicable to vessels calling

at the Port typically specifies that cargo will be handled on FIO terms

i e that the cargo interests rather than the vessel will be responsible for

cargo handling costs The complainant also makes much of the allegation

that the Port cannot collect the Supplemental Harbor Fee from the vessel

interest because of improper notice

The complainant has presented no statutory or case law which would

sustain its burden of showing that the assertion of the Supplemental Harbor

Fee against the vessel interest rather than the shipper interest is in any

way standing alone violative of the Shipping Acts While it mayor may

not be unusual and while the tariff may be objectionable on other grounds

we see no basis to sustain the complainant on this narrow issue

Finally it should be noted that throughout the testimony and in some

portions of the pleadings and brief there are other arguments made which

have not been discussed in this decision either because they have been

presented in vague terms or have little or no bearing on the final outcome

of the case In summary this decision holds that

I The Commission has jurisdiction in this proceeding

2 The Port does provide certain services such as fire and safety protec

tion for which it may charge users a harbor Fee and a Supplemental

Harbor Fee

22 West Gulf Maritime Asso v Port of Houston Authority 21 F M C 244 248 18 SRR 783 1978 affd

nem sub nom We Gulf Maritime Ass nv FMC 610 F 2d toOl DC Cir 1979 Table cert denied

449 U S 822 1980

28 F M C
S JOSEPH N INGOLIA

Administrative Law Judge

NEW ORLEANS STEAMSHIP ASSOCIATION V PLAQUEMINES 629

PORT HARBOR TERMINAL DISTRICT

presented in vague terms or have little or no bearing on the final outcome

of the case In summary this decision holds that

I The Commission has jurisdiction in this proceeding

2 The Port does provide certain services such as fire and safety protec

tion for which it may charge users a harbor Fee and a Supplemental

Harbor Fee

3 The overall cost of those services is reasonable so that the total

amount collected from users is justified

4 The allocation of fees amongst users is unduly discriminatory in

that various exemptions and exceptions are made which are prima facie

violative of the Shipping Act and which prima facie violation the evidence

ofrecord fails to overcome

It is important to emphasize that the above holding recognizes the unique

ness of the Plaquemines Port The parties have agreed that it is unique

and the evidence itemizes the various differences between Plaqemines and

other ports Because it is unique some of the comparisons made between

Plaquemines and other ports is in our opinion of little value For the

same reason we believe this Port and its Port Authority need to be espe

cially careful in allocating costs amongst the various users of the Port

For example in the testimony given in the case one of the Port Commis

sioners states that the Port may well assess higher costs for marine

related services rendered by the Port We would be remiss if we did

not caution that such a generalized approach is the cause of the problem

in the first instance There needs to be a clear and precise definition

of marine related services as they relate to the users under the tariff

and a correlation of the benefit of the services to the cost to the users

The correlation cannot unduly or unjustly discriminate amongst the users

whether or not they are local or non local

In view of the above it is held that the assessments made by the

tariff involved herein are unlawful under the Shipping Acts as set forth

above and that once the decision in this proceeding becomes final the

Port will immediately cease and desist assessing the unlawful fees

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 83 11

PRUDENTIAL LINES INC

v

WATERMAN STEAMSHIP CORPORATION

NOTICE

September 24 1986

Notice is given that no appeal has been taken to the August 22 1986

dismissal of the complaint in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the dismissal has become administra

tively final

S JOSEPH C POLKING

Secretary

630 28 FM C
28 F M C 631

FEDERAL MARITIME COMMISSION

NO 83 11

PRUDENTIAL LINES INC

v

WATERMAN STEAMSHIP CORPORATION

COMPLAINT DISMISSED

Finalized September 24 1986

Despite being afforded two opportunities to show that it wished to litigate

its complaint complainant Prudential Lines Inc has failed to take either

opportunity although it had been advised that failure to show any interest

in continuing its complaint case could lead to dismissal of the complaint

Consequently as I

explain below I must presume that Prudential has lost

interest in the case and must dismiss its c plaint with prejudice for

want of prosecution

This case began with the filing of a complaint which was originally

served on February 24 1983 and as amended was served again on May

31 1983 In the complaint as amended Prudential alleged that respondent

Waterman Steamship Corporation had violated section 18 b lof the Ship

ping Act 1916 by loading cargo at North Atlantic ports in violation

of an intermodal tariff which allegedly required Waterman to load cargo

at South Atlantic ports and by issuing all water bills of lading for such

cargo instead of intermodal bills of lading Prudential asked for damages

and other relief The case proceeded to an evidentiary hearing which con

cluded on December 2 1983 and a post hearing briefing schedule was

established at the end of the hearing However because Waterman had

filed a petition for reorganization under the Bankruptcy Code the proceeding

had to be stayed pending conclusion of the bankruptcy proceedings as

required by law See II U S C sec 362 a I

In the latter part of June of this year the press reported that the bank

ruptcy proceedings were about to terminate with the approval of a reorga

nization plan which approval would become final on June 3D 1986 See

Journal of Commerce issues of June 20 and 24 1986 Order Confirming

Second Amended Joint Plan of Reorganization In re Waterman Steamship

Corp Case No 83B 11732 U S Bankruptcy Court for the S D N Y

June 20 1986 After seeing these public announcements of the termination

of the bankruptcy proceedings I wrote the parties to inquire as to whether

they wished to resume litigation See letter dated June 25 1986 I instructed

the parties to inform me by July 25 as to whether they desired to pursue
632 FEDERAL MARITIME COMMISSION

this case and further advised them that if I heard nothing Iwould presume

that Prudential had no desire to prosecute its complaint in which event

I would take steps to terminate the proceeding See letter cited at 2

Having received no response from either party I next issued an Order

to Show Cause on July 29 1986 Although Prudential had failed to reply

to my earlier letter and although I had specifically warned Prudential that

such failure could lead to termination of this proceeding I

gave Prudential

another opportunity to explain its apparent lack of interest in prosecuting

its complaint I took this step because the policy of the law is to hear

cases on their merits and not to dispose of controversies summarily on

account of technicalities I cited numerous authorities for this principle

See Order to Show Cause at page 3 However there is a limit to this

policy and if a complainant fails to prosecute its complaint continually

ignores rulings or is otherwise guilty ofunexcused dilatoriness in lengthy

cases dismissal of the complaint with prejudice is an accepted sanction

See Link v Wabash Railroad

Co

320 U S 626 62931 1962 Consoli

dated Express Inc v Sea Land Service Inc et

al

19 F M C 722 724

1977 Ace Machinery Co v Hapag Lloyd A G 16 SRR 1531 1976

Dismissal for Failure to Prosecute 20 ALR Fed 488 1974 9 Wright

and Miller Federal Practice and Procedure sec 2370 Federal Rule 41b

28 U S C A

Despite the above efforts to elicit a response from Pru4ential so that

this case could proceed to conclusion in the normal way Prudential has

remained totally silent Perhaps its silence can be explained by the fact

that its counsel and Director of Traffic who had been conducting the

litigation are no longer with the company or that the company is itself

in the midst of bankruptcy proceedings Whatever the reason Prudential

has failed to prosecute its complaint and has shown no interest in keeping

the case alive Moreover I have no authority to order Prudential to litigate

against its wishes See Roberts Steamship Agency Inc v The Board of

Commissioners of the Port of New Orleans and Atlantic and Gulf Steve

dores Inc 21 F M C 492 1978

In view of the above situation there is no basis for me to retain this

complaint on the docket and dismissal with prejudice is warranted Accord

ingly the complaint is dismissed with prejudice

S NORMAN D KLINE

Administrative Law Judge

28 F M C
20 F M C

633

FEDERAL MARITIME COMMISSION

DOCKET NO 85 2

AGREEMENT NO 203 0163

ORDER OF DISCONTINUANCE

September 26 1986

This proceeding was instituted on January 18 1985 to determine whether

Agreement No 203 10633 Agreement between Flota Mercante

Grancolombiana S A and Andino Chemical Shipping Company pro

ponents was an agreement between ocean common carriers subject to

section 4 of the Shipping Act of 1984 1984 Act 46 U S C app S 1703

The Initial Decision concluded that Agreement No 203 10633 was not

an agreement among ocean common carriers and thus was not subject

to sections 4 5 6 and 7 of the 1984 Act 46 U S c

app SS 1703

6 Proponehts challenged this conclusion in Exceptions to the Initial Deci

sion to wHich protestants to the Agreement replied

By Peti on filed September 5 1986 all of the parties to this proceeding

have now joined to request that the proceeding be terminated The reason

for the request is that P L 99 307 signed into law on May 19 1986

removed chemical parcel tanker s from the definition of common car

rier in section 3 of the 1984 Act 46 U S C app S 1702 Additionally

by letter of September 16 1986 Proponents have advised that they wish

to withdraw Agreement No 203 10633 concurrently with the granting

of the joint Petition

Because P L 99 307 has left Proponents with no basis upon which

to argue that the Agreement is subject to the 1984 Act there no longer

appears to be any reason for the Commission to review the Initial Decision

THEREFORE IT IS ORDERED That the Joint Petition Of All Patties

To Terminate Proceeding is granted

IT IS FURTI IER ORDERED That this proceeding is discontinued

By the Commission

S JOSEPH C POLKING

Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 863

MODIFICATIONS IOTHE TRANS PACIFIC FREIGHT CONFERENCE

OF JAPAN AGREEMENT THE JAPAN ATIANTIC AND GULF

FREIGHT CONFERENCE AGREEMENT AND THE JAPAN PUERTO

RICO AND VIRGIN ISLANDS FREIGHT CONFERENCE AGREEMENT

A provision in the Conferences agreements which prohibits the exercise of independent

action on tariffed rate or service items during the pendency of service contract negotiations

affecting those items is found to be contriUto section 5b

8 of the Shipping Act

of 1984 and ordered to be deleted from the aareements

A provision in the Conferences agreements which withdraws any adopting independent action

whenever the originating independent action is withdrawn prior to its effectiveness is

found 10 be contrary to section Sb 8 of the Shipping Act of 1984 and ordered to

be deleted from the agreements or modified to ensure that an adoptin g independent

action stands on its own unless the adopting member line voluntarily advises otherwise

Charles F Warren George A Quadrino and Benjamin K Trogdon for the Trans

Pacific Freight Conference of Japan the Japan Atlantic and Gulf Freight Conference and

the Japan Puerto Rico and Virgin Islands Freight Conference

Stanley O Sher and Marc J Fink for the Asia North America Eastbound Rate Agreement

Robert A Peavy for the US Flag Far East Discussion Agreement

Douglass H Ginsburg Charles F Rule James R Weiss Craig W Conrath and Alan

L Silverstein for the U S Departmeht of Justice

Aaron W Reese and William D Weiswasser for the Bureau of Hearing Counsel

REPORT AND ORDER

September 30 1986

BY THE COMMISSION EDWARD V HICKEY JR Chairman JAMES

J CAREY Vice Chairman THOMAS F MOAKLEY and EDWARD J

PHILBIN Commissioners FRANCIS J IVANCIE Commissioner concur

ring in part and dissenting in part

PROCEEDING

The Commission instituted this proceeding by Order served January 22

1986 directing the Trans Pacific Freight Conference of Japan the Japan

Atlantic and Gulf Freight Conference and the Japan Puerto Rico and Virgin

Islands Freight Conference Conferences or Respondents to show cause

why certain provisions in their respective agreements dealing with a member

Commissioner Ivancie s opinion concurring inpart and dissenting in part is attached

634 28 FM C
2S F M C

MODIFICATIONS TO THE TRANS PACIFIC FREIGHT 635

CONFERENCE OF JAPAN AGREEMENT ET AL

line s

right of independent action IA should not be found to be contrary

to section 5 b 8 of the Shipping Act of 1984 the Act or the 1984

Act 46 U S c app 1704b 8 At issue are provisions in the respective

agreements of the Conferences which I prohibit the exercise of inde

pendent action on tariffed rate or service items during the pendency of

service contract negotiations affecting those items and 2 automatically

withdraw any adopting independent action whenever the originating inde

pendent action is withdrawn prior to its effectiveness

The Commission s Order to Show Cause named the Commission s Bureau

of Hearing Counsel Hearing Counsel as a party in this proceeding and

further directed any person having an interest and desire to intervene to

file an appropriate petition pursuant to Rule 72 of the Commission s Rules

of Practice and Procedure 46 C ER 502 72

Petitions for leave to intervene were timely filed by the Asia North

America Eastbound Rate Agreement ANERA the U S Flag Far East Dis

cussion Agreement Agreement 10050 and the United States Department

of Justice DOJ On April I 1986 these petitions for leave to intervene

were granted See Order Granting Petitions for Leave to Intervene and

Amending Order to Show Cause

On March 27 1986 the Conferences filed a memorandum of law Con

ferences Memorandum and a statement of R D Grey the Conferences

Chairman Grey Statement in support of the agreement provisions in ques

tion ANERA filed a one page document indicating that it had nothing

further to add in support of the Conferences position

On April 28 1986 Hearing Counsel filed a

reply memorandum Hearing

Counsel Memorandum together with an affidavit of Roland E Ramlow

Jr Ramlow Affidavit The Department of Justice filed a reply memo

randum DOJ Memorandum Both Hearing Counsel and DOJ argue that

the agreement provisions in question are unlawful

On May 13 1986 the Conferences filed a response to the memoranda

of Hearing Counsel and DOJ Conferences Response together with a

supplemental supporting statement of R D Grey Grey Supplemental State

ment Agreement 10050 filed a response to the DOJ Memorandum Agree

ment 10050 Response 2

IOn April 28 1986 the United States Department of Transportation submitted a document styled Com

ments Amicus Curiae of the United States Department of Transportation The Commission declined to ac

cept this document inasmuch as the submission failed to comply with the procedural schedule established

in the Order to Show Cause and was submitted without obtaining the leave of the Commission See Order

Granting Motion to Reject Comments Amicus Curiae of the United Slates Department of Transportation

served June 3 1986

2

The Agreement 10050 Response urges the Commission to avoid the allegedly unnecessarily sweeping pro

nouncements advocated by OOJ and contends that the Interstate Commerce Commission ICC precedents

cited by 001 are not relevant to ocean shipping regulation
636 FEDERAL MARITIME COMMISSION

BACKGROUND

At the time that this proceeding was instituted Article 13 a of the

Conferences agreements restricted the right of independent action during

the pendency of service contract negotiations for an indefinite period of

time Subsequent to the initiation of this proceeding on March 31 1986

the Conferences filed amendments which modified Article 13 a of their

agreements by limiting the restriction on independent action to a maximum

30 day negotiation period By Order served April 17 1986 the Commission

made these amendments part of the record in this proceeding These amend

ments have since become effective

Article 13 a as amended and currently effective and as relevant to this

proceeding provides as follows

Independent action may not be taken by any member in the

case of any matter including a rate charge or service item

associated with negotiating or providing any service contract in

cluding time volume contract or other similar form of contractual

arrangement covering the carriage of cargo in the trades as defined

in this Agreement provided that any member shall not be pre

vented from exercising independent action with immediate effect

in connection with any negotiation which has continued for more

than 30 consecutive calendar days The term negotiation refers

to the process of deliberations between the Conference and a

Shipper or shippers association for the purpose of entering into

a service contract pursuant to the authority contained in section

8 c of the said Act Any such negotiation shall be deemed to

have commenced from the day either the Conference shipper

or hippers association initiates a written reqlest to the other

to enter into a service contract and to have errninated on the

day the service contract is filed with the Commission The date

of commencement and the date of termination shalll be promptly

advised to the members by the Conference Chairman

Article l3b of the Conferences agreements provides that an adopting

independent action is automatically withdrawn if the initiating independent

action is withdrawn during the notice period Article I3b as relevant

to this proceeding provides as follows

If at any time during the notice period the member should elect

to withdraw or modify its independent action it shall advise the

Chairman in writing and the Chairman shall not include the rate

or service item in the Conference tariff or tariffs for that member

and shall not so include it for any other member

28 F M C
28 F M C

MODIFICATIONS TO THE TRANS PACIFIC FREIGHT 637

CONFERENCE OF JAPAN AGREEMENT ET AL

DISCUSSION

I Prohibition on the exercise of independent action during service contract

negotiations

The Conferences construe Article 13 a to deny the exercise of

independent action only upon a rate or service item which is the subject

of an on going contract negotiation up to a maximum period of 30 calendar

days Conferences Memorandum at p

I The Conferences explain that

if it appears that a contract will not materialize and the contract negotiations

are terminated in less than 30 days then the restriction on independent

action would correspondingly be terminated

The Conferences state that they do not seek to prohibit their members

from taking independent action on tariffed items for commodities which

are also subject to an executed service contract Nor do the Conferences

argue that they may prohibit independent action on a tariff rate on a

commodity shipped under a service contract for any shipper other than

the shipper that is a party to the service contract Rather they contend

that Article 13 a allows the Conferences to prohibit independent action

with respect to a shipper who has signed as a party to a service contract

or when the conference is negotiating such a contract Conference s Re

sponse at p

13 3

The Conferences acknowledge that section 5b 8 of the Act requires

all conference agreements to provide for a member s right of independent

action on any rate or service item required to be filed in a tariff They

note however that section 8 c of the Act 46 U S C app 1707 c

authorizes conferences to enter into service contracts with shippers and

that section 4a 7 of the Act 46 U S C app 1703 a

7 allows con

ferences to regulate the use of service contracts by conference members

The Conferences assert that section 5 b 8 is inconsistent with sections

8 c and 4a 7 Conferences Memorandum at p

10 These allegedly

inconsistent provisions it is argued must be harmonized in order to give

maximum effect to each within the overall scheme of the 1984 Act The

Conferences therefore conclude that the Commission should interpret the

3The Conferences state that the purpose of this provision is to preserve their ability to negotiate viable

service contracts In enacting such provisions the Conferences sought to avoid a situation where a

member could take advantage of its special knowledge and on the basis thereof during the negotiation tender

more favorable rates terms or conditions to the shipper with whom the negotiation is taking place for the

purpose of undermining the negotiations and capturing the cargo for itself by taking independent action on

the commodity or commodities which are the subject of the negotiation Grey Slatement at

p

12 Two

such instances are cited both involving the Trans Pacific Freight Conference of Japan TPFCJ In March

of 1985 during TPFCJ negotiation on a one year service contract for the carriage of engine assemblies

transaxles and transmissions a conference member is said to have laken independent action and published

time volume rates on these commodilies The Conferences believe that IPFCJ lost this contract because of

the independent action taken Grey Statement at pp 1415 In October of 1985 negotiation by TPFCJ on

an all water intennodal contract with a shipper of tires and tubes allegedly was disrupted by the independenl

action taken by amember during the negotiation period The result was that the conference contract covered

only 50 000 revenue tons inslead of the proposed 130 000 revenue tons Grey Statement at pp 1516
638 FEDERAL MARITIME COMMISSION

Act in such a way as to allow a restriction on independent action such

as that conlllined in Article 13 a during service contract negotiations

Hearing Counsel construes Article 13 a as prohibiting independent

action on existing conference tariff rates if a service contract is being

negotiated for the commodities covered by those rates Hearing Counsel

Memorandum at pI Similarly the Department of Justice construes Article

13 a as prohibiting a conference member from taking independent

action on any rate or service item in a tariff that is associated with the

conference s negotiating or providing a service contract DOJ Memo

randum at p3

Hearing Counsel argues that the two cited examples of alleged inter

ference in TPFCJ service contract negotiations merely show that independent

action was used by a member line to vigorously compete and that a

shipper was able thereby to obtain more favorable terms Hearing Counsel

contends that these two examples do not show that the Conferences have

suffered insurmountable harm Hearing Counsel points out that during

calendar year 1985 TPFCJ entered 186 service contracts and JAGFC entered

88 service contracts Ramlow Affidavit Hearing Counsel concludes that

the Conferences problem would seem to be substantially overstated

Both Hearing Counsel and DOJ disagree with the Conferences assertion

that the Act s

independent action and service contract provisions are plain

ly inconsistent Hearing Counsel states that these provisions may be in

tension but that this is part of the Act s overall approach DOJ states

that there is no inherent conflict between these two features of the Act

DOJ points out that these provisions deal ith two distinct concepts service

contracts and tariff rates DOJ argues that these two means of providing

service are fully consistent with one another According to fIeqring Counsel

and DOJ there is no need to resolve any alleged inconsistency

DOJ also takes issue with what it describes as the unwarranted premise

of the Conferences argument namely that the Act permits a conference

to prohibit its members from taking independent action on a tariff rate

for commodities subject to an executed service contract DOJ argues that

this premise is wrong and that it cannot be extended to service contract

negotiations

Article l3 a of the Conferences agreements restricts for a period of

up to 30 days a member sright of independent action on a tariffed rate

or service item if such an item is the subject of service contract negotiation

by the Conferences The Conferences all but concede that such a restriction

on a member s

right of independent action is not permitted by the language

of section 5 b 8 However they argue against a literal reading of section

5b 8 They assert that there is a plain inconsistency between the inde

pendent action and service contract provisions of the Act In order to

fully preserve the Conferences ability to enter into service contracts they

argue that section 5b 8 should be interpreted to allow restrictions on

IA during a 30 day negotiation period Otherwise they contend that the

28 F M C
28 F M C

MODIFICATIONS TO THE TRANS PACIFIC FREIGHT 639

CONFERENCE OF JAPAN AGREEMENT ET AL

statutory scheme will be upset The issue therefore is whether the inde

pendent action and service contract provisions of the Act are plainly incon

sistent If no such inconsistency exists then the restriction on the right

of independent action in Article 13 a would appear on its face to be

contrary to section 5b 8 of the Act

The Shipping Act of 1984 continues a system of common carriage of

cargo pursuant to publicly filed tariffs Under this system of tariffed carriage

a common carrier or conference of carriers offers its transportation services

to the shipping public at large With the exception of certain specifically

named commodities section 8 a of the Act requires that all rates charges

conditions and other terms of such service be published in a tariff and

filed with the Comntission An independent common carrier of course

maintains its own individual tariff Conferences of ocean common carriers

on the other hand file a conference tariff which sets forth the rates charges

and other terms of service which have been collectively agreed upon

The new feature under the 1984 Act in the system of tariffed service

is the mandatory right of independent action Section 5 b 8 provides that

a member of a conference retains a right to take independent action with

respect to those collectively agreed to rate or service items that are required

by section 8 a to be filed in a tariff Conference agreements must contain

a provision which provides for such a

right A conference member may

be required to give the conference notice of its independent action and

to observe a waiting period of up to IO days before the independent

action becomes effective No other conference imposed restrictions on the

exercise of the right of independent action on tariffed rate or service items

are authorized by section 5b 8

At the same time the 1984 Act establishes for the first time a system

of quasi contract carriage of cargo Section 8 c authorizes service contracts

between an ocean common carrier or a conference and a shipper or shippers

association While the essential terms of a service contract must be made

available to the general public in tariff format a service contract is essen

tially a contract between carrier and shipper which involves mutual commit

ments by both parties and which is enforced as any other commercial

contract by an action in an appropriate court 4

An independent ocean common carrier s section 8 c authority to enter

into service contracts is not restricted When an ocean common carrier

becomes a member of a conference however that section 8 c authority

becomes subject to conference control Section 4 a 7 authorizes a con

ference to regulate the use of service contracts by the conference and

by its members Conferences may agree to prohibit entirely the use of

service contracts to offer service contracts only by the conference or to

allow individual conference members to offer their own service contracts

Service contracts are of course subject to certain statutory requirements as well as other conditions that

theCommission may impose consistent with the statute
I

640 FEDERAL MARITIME COMMISSION

I

i

Tariffed service and service contracts are distinct ways of providing

ocean transportation services under the 1984 Act Each has its own separate

status under the Act One does not take precedence over the other There

is nothing in the language of the Act which in any way supports the

argument that there is an inconsistency between tariffed service by a con

ference subject to a mandatory right of independent action and service

pursuant toa service contract which the conference may regulate

The Conferences argue that maximum effect should be given to all

provisions of the Act The Conference s

interpretation of the Act however

would subordinate the right of independent action on tariffed items to

the authority of a conference to regulate service contracts There is simply

no basis in the language of the statute for such a limitation of the right

of independent action

Because the language of the statute is clear resort to legislative history

is not necessary Nevertheless an examination of the legislative history

supports the interpretation of the Act given above The legislative history

indicates that the authority to enter into service contracts under section

8 c and to regulate service contracts under section 4 a 7 cannot be inter

preted to allow restrictions on the right of independent action on tariffed

items guaranteed by section 5b 8 The Conference Report states that

The independent action section 5 b 8 of the bill requires that

each conference provide for independent action on rates or service

items required to be filed in a tariff under section 8 a of the

bill

H R Rep No 600 98th Cong 2d Sess 29 1984 The Conference Report

reiterates what is expressly stated in the statute i e that if aI item is

required by section 8 a to be filed in a tariff then a conference agreement

must provide for independent action

The Conference Report explains further that the reason why a mandatory

right of independent action on service contracts is not required is because

service contracts are not required by section 8 a to be filed in a tariff

Section 8 a does not require that service contracts be filed in

a tariff Consequently section 5 b 8 does not require conferences

to permit their members a

right of independent action oil service

contracts

Conference Report at p

29 The Conference Report thus distinguishes be

tween tariffed service and service contracts with respect to the right of

independent action Because service contracts are not required to be filed

under section 8 a a conference need not provide for a

right of independent

action on service contracts

The Conference Report explains that although an ocean common carrier

is authorized by section 8 c to use service contracts that section 8 c

authority may be circumscribed if the ocean common carrier is a member

of a conference

I

1

I

28 FM C
28 F M C

MODIFICATIONS TO TIIE TRANS PACIFIC FREIGHT 641

CONFERENCE OF JAPAN AGREEMENT ET AL

The conferees agree that section 8 c of the bill which authorizes

the use of service contracts cannot be read as undermining the

authority of a conference to limit or prohibit a conference mem

ber s exercise of a

right of independent action on service contracts

Conference Report at p29 Thus it is the section 8 c authority to enter

into service contracts that cannot be used independently by a conference

member to undermine the authority of the conference to limit or prohibit

a conference member s use of service contracts This passage from the

Conference Report clarifies the interrelationship between the section 8 c

power to enter into service contracts and the section 4 a 7 authority of

conferences to regulate service contracts A conference may regulate a

member line s use of service contracts 5 However a conference may not

place restrictions not found in the Act on the exercise of independent

action on tariffed items

The Conferences therefore misread this passage from the legislative his

tory when they rely on it as support for their position that the right

of independent action on tariffed items may be restricted The Conference

Report for example states that

conference agreements must permit independent action on

time volume rates in section 8b since time volume rates must

be filed under section 8 a

Conference Report at p29 This statement is most significant because

it points out that time volume rates which bear some similarities to service

contracts are nevertheless subject to independent action because those rates

must be filed under section 8 a

The legislative history thus illuminates and supports the distinction be

tween a mandatory right of independent action on tariffed rate or service

items and the power to enter into service contracts subject to conference

regulation and control There is nothing in the legislative history that would

support the view that independent action rights on tariffed items may be

suspended for a period of time during which a conference is negotiating

a service contract To follow the interpretation of the Act advanced by

the Conferences would be to subordinate independent action rights on

The following passage from the Conference Report explains the authority which aconference has under

section 4

a 7 to regulate the use of service contracts

The net result is that a member of a conference does nOI have astatutory right 10 enter into a

service contract in violation of the conference agreement Under section 4a 7 the conference

agreement may prohibit ils members from entering into service contracts or it may allow them 10

enter into a service contract subject to such conditions as the conference may establish Thus while

aconference agreement is not required 10 provide each member aright of independent action on

service contracts neither is it prohibited from doing so

Under the bill aconference may enter into a service contract Ifit does so the individual members

do not under the bill have a

right of independent action to deviate from that service contract unless

theconference agreement so provides

Conference Report at pp 2930
642 FEDERAL MARITIME COMMISSION

tariffed items to conference authority to enter into and regulate service

contracts and would read into the Act a restriction on the right of inde

pendent action that is not supported by the language of the Act or its

legislative history

As construed by the Conferences Article 13 a of their agreements pro

hibits a me ber line from exercising independent action with respect to

a shipper who has signed as a party to a service contract or when the

conference is negotiating such a contract Such a prohibition unlawfully

restricts the right of a member line to take independent action on tariffed

rate or service items at any time for any shipper The limitation of the

prohibition on IA to a 30 day negotiation period does not cure the unlawful

ness of this provision Accordingly the Conferences will be required to

delete this provision from their agreements

II Withdrawal of adopting independent action

Article 13h permits a member line to adopt an initiating member s

independent action as its own with the same or a later effective date

Article l3h allows the initiating member within the IO day notice period

to withdraw its independent action in whole or in part with the effect

of causing the automatic withdrawal of any adopting independent actions

which may have been taken in response to the original filing The Con

ferences explain that the purpose of this provision is to enable the origi

nating member to retain full control over its own independent action as

well as the other members responses to that action

The Conferences argue that the sole purpose of the adopting IA provision

in section 5 b 8 of the Act is to allow other members of a conference

to remain competitive with the member initiating independent action Alleg

edly the withdrawal of adopting lA s has not created any problems for

adopting carriers and the Conferences have not received any complaints

from shippers regarding misreliance on an adopted IA rate or service ilem

The Conferences argue that cancellation of this prohibition would have

an inhibiting effect on the taking of IA because once IA was taken the

originator would be locked in if another member adopted that rate Grey

Statement at pp 19 23

The Conferences submit that the plain meaning of section 5h 8

is that the existence and effectiveness of an adopting independent action

is wholly dependent on the existence and effectiveness of the initiating

independent action An adopting action it is argued has no separate exist

ence of its own and therefore ceases to exist when the originating IA

is withdrawn

The Conferences contend that the language of section 5h 8 supports

this position The Conferences state that there is no dispute be

tween the parties to this proceedings over the meaning of the term adopt

28 F M C
28 F M C

MODIFICATIONS TO THE TRANS PACIFIC FREIGHT 643

CONFERENCE OF JAPAN AGREEMENT ET AL

in section 5 b 8 Conferences Response at pp 7 8

6

They argue how

ever that merely defining the term adopt does not establish the independ

ence of adopting IA from that of the originating lA as contended by

Hearing Counsel and DOJ

While denying any conclusive significance of the definition of the term

adopt the Conferences rely heavily on the language in section 5b 8

which states that an adopting IA may become effective on or after 0 0 0

the effective date of the originating independent action They construe

section 5b 8 to mean that if the originating IA is withdrawn prior to

its effectiveness then there is no effective date for the adopting IA

The Conferences state

Section 5b 8 does not condition effectiveness of matching fil

ings upon the date on which the original filing could have become

effective Nor does it measure effectiveness from the date the

original notice of independent action is filed Instead the effective

ness of any matching action is tied directly to the effective

date of the originating carrier s

independent action Conferences

Memorandum at pp 1415 Emphasis in original

The Conferences conclude that when an originating action is withdrawn

there is no effective date and therefore no date on which an adopting

action may become effective

The Conferences assert further that the legislative history 0 0 0 reveals

no intention by Congress to set out any separate rights for following carriers

other than the right to meet the independent rate or service item of the

originating carrier on or after the effective date of the original action

Conferences Memorandum at p

16 Moreover the Conferences note that

the right of adopting IA as provided for in the 1984 Act is more restricted

than in earlier bills introduced in the legislative process They conclude

that this evidences a Congressional intent to restrict adopting independent

action

The Conferences point out that various versions of H R 1878 adopted

by the Merchant Marine and Fisheries Committee by the Judiciary Com

mittee and jointly by both Committees provided that once independent

action was taken by one member a conference was required to publish

the new rate or service item for use by any member Noting further

that instead of this provision which called for a single publication in the

conference tariff for use by all members Congress adopted a provision

which requires other members to submit filings that adopt the originating

carrier s

filing the Conferences argue that if any conclusion can be drawn

from this legislative history 0 0 0

it is that placing increased burdens

61he Conferences accept either the Random House Dictionary defmition i e to make one s own by se

lection or assent orthesecond meaning of adopt listed in Webster s TItird New International Dictionaryhof

the English Language Unabridged GC Meriam Co Springfield 1964 at p24 ieto take up

or accept esp as apractice ortenet often evolved by another Conferences Response at p

8
644 FEDERAL MARITIME COMMISSION

on matching carriers and making specific reference to the effective date

of the original action confirms Congress intention not to permit matching

actions to take effect in the absence of the effectiveness of the original

filing Conferences Response at p

10

Both Hearing Counsel and DOl argue that an adopting independent action

once taken has an identity apart from the initiating independent action

and should not be automatically revoked when the original independent

action is withdrawn

Hearing Counsel and DOl argue that the use of the term adopt in

section 5b 8 supports their position that adopting IA is a separate and

independent action in its own right Hearing Counsel states that The

language chosen by Congress compels the conclusion that a matching inde

pendent action is not dependent on the original action but rather is a

separate thing with independent existence Hearing Counsel Memorandum

at p5

7 DOJ states that When a member chooses to adopt an inde

pendent action it becomes the adopter s own independent action The Act

itself recognizes this by using the word adopt in section 5b 8 a word

the dictionary meaning of which in this context is to make one s own

by selection or assentDOl Memorandum at p

12 8

Hearing Counsel contends that the reference to the effective date

does not support the Conferences conclusion that adopting action is depend

ent upon the effectiveness of the original IA filing Hearing Counsel explains

the reference as follows The date of the original independent action

simply determines when the following action comes into effect and there

is nothing in the statute to indicate that the latter s effectiveness is intended

to depend on the former s not having been withdrawn Hearing Counsel

Memorandum at p

5 Finally Hearing Counsel argues that earlier versions

of H R 1878 do not support the conclusion that adopting action is dependent

on the originating IA

Hearing counsel argues that the present text of Article 13 b is unlawful

but could be made lawful if it were modified to allow the adopting member

line the option to continue or rescind its adopting action DOl also maintains

that the adopting member line should be able to choose whether to retain

or withdraw its adopting independent action

Article 13b of the Conferences agreements provides that when the

initiator of independent action withdraws that action prior to its effective

date then the lA s of any other member lines that have adopted the

original independent action are also automatically withdrawn The issue

in this proceeding is whether the adopting independent action provided

for in section 5 b 8 of the Act is fully equivalent to originating inde

7Hearing Counsel cites the first definition of adopt listed in Webster s Third New International Dic

tionary of the English Language 10 lake by free choice into a close relationship previously not existing

esp by fonnallegal act

I

8The definition cited by DOl is taken from the Random House Dictionary of the English Language Un

abridged Edition 1971

28 F M C
28 F M C

MODIFICATIONS TO THE TRANS PACIFIC FREIGHT 645

CONFERENCE OF JAPAN AGREEMENT ET AL

pendent action or is subject to the control of the originating IA during

the period prior to the effectiveness of the originating independent action

Section 5 b 8 provides in relevant part that

Each conference agreement must

8 provide that any member of the conference may take inde

pendent action on any rate or service item required to be filed

in a tariff and that the conference will include the new

rate or service item in its tariff for use by that member

and by any other member that notifies the conference that it

elects to adopt the independent rate or service item on or after

its effective date

Section 5 b 8 describes two circumstances in which a conference mem

ber may exercise its statutory right of independent action A member line

may initiate its own independent action by notice to the conference The

conference may require a waiting period of up to 10 calendar days before

the independent action becomes effective at which time the conference

is required to publish the item in its tariff for use by the member

Section 5 b 8 also provides that a member line may adopt the inde

pendent action of another A member line exercising adopting IA must

also notify the conference of its action The adopting IA becomes effective

on or after the effective date of the originating independent action

The language of section 5 b 8 supports the view that adopting inde

pendent action is not contingent upon originating independent action The

term adopt signifies an action whereby a following member line takes

the action of the initiating member line and makes it its own without

any connotation of its having been another s

9 The use of the term adopt

therefore suggests that following IA has the same independent status as

the originating IA and is not contingent on the continuing effectiveness

of the originating IA

The parties have conflicting interpretations of the significance of the

phrase on or after its effective date in section 5b 8 The Conferences

argue that this language means that a following IA can become effective

only if the originating IA actually becomes effective Hearing Counsel

argues that the reference to effective date merely establishes the date

on which following IA is to become effective

liThe parties appear nOI to dispute the meaning of thetenn adopt although they offer various definitions

of the tenn such as 0 take up or accept as a practice or to make one s own by selection orassent

or 10 take by free choice The 12 volume Oxford English Dictionary lists seven definitions of the

tenn adopt The relevant definitions are definition 4 To take up a practice method word or idea

from some one else and use it as one s own to embrace espouse and defmition 5 To take a course

etc as one s own without the idea of its having been another s to choose fOf one s own practice Oxford

English Dictionary Oxford University Press London 1933 Vol 1 at p

124

Black s Law Dictionary offers four definitions of the term adopt The relevant one would appear to

be the fIrst one listed i e

to accept appropriate choose or select to make that one s own property or

act which was not so originally Black s Law Dictionary Revised Fourth Edition West Publishing Co

St Paul 1968 at p 70
646 FEDERAL MARITIME COMMISSION

The reference to effective date does not appear to be intended to

be a restriction on the right of adopting independent action Rather it

would appear to be merely the means of preserving the competitive parity

of originating and following independent actions

The legislative history relevant to adopting IA is sparse and subject

to conflicting interpretations Various versions of H R 1878 provided that

an independent action would be published in the conference tariff for

use by any member The fact that Congress ultimately required other

member lines to indicate their adoption of the originating lA however

does not necessarily support the position that a following IA may become

effective only if the originating IA does

Finally there is the question regarding the fundamental purpose of adopt

ing IA While in many instances adopting IA may be taken for the purpose

of maintaining competitive parity with the originating lA there is nothing

in the language of the Act or its legislative history which would indicate

that maintaining competitive parity is the exclusive purpose of adopting

IA A member line adopting the IA rate originated by another may have

many reasons for doing so One of them ntight be that a potential shipper

has expressed an interest in the rate Whether or not a potential shipper

may be relying on an anticipated rate however is not determinative The

key point is that there is no indication of any legislative intent to lintit

the right of adopting IA only to those situations where the following

member line wishes to remain on the same competitive footing as the

originating member line

The decision to take adopting independent action is a unilateral action

by a member line There is nothing in the language of the Act or its

legislative history which would indicate that such a unilateral decision

was intended to be subject to the control of the originating member line

prior to an item s effectiveness The decision to retain or withdraw an

adopting IA should also be considered the unilateral independent decision

of the adopting member line It would appear that the right of adopting

independent action is a completely independent action that if taken prior

to the withdrawal of the originating lA continues to exist regardless of

the action of the initiating member Such a decision may not be burdened

by any procedure which deems or presumes an adopting action to be

withdrawn and places an obligation on the adopting member line to reaffirm

its action

The exercise of adopting independent action should therefore be treated

as having the same status and effect as the exercise of originating inde

pendent action unless there is some basis for not doing so The Conferences

have the burden to come forward and show that such a basis exists No

basis for limiting the exercise of adopting independent action has been

established in this proceeding Inasmuch as the cited language in Article

l3 b of the Conferences agreements has not been demonstrated to be

in conformity to the requirements of section 5 b 8 of the Act this provi

2S F M C
28 F M C

MODIFICATIONS TO THE TRANS PACIFIC FREIGHT 647

CONFERENCE OF JAPAN AGREEMENT ET AL

sian must be deleted or alternatively modified to ensure that an adopting

action stands on its own unless the adopting line voluntarily and unilateral1y

advises otherwise

The alternative to modify Article 13b would make this provision con

sistent with section 5 b 8 inasmuch as it would preserve the adopting

member line s option in such cases The Conferences state that their agree

ments already provide for the withdrawal of initiating or adopting actions

and contend that such a modification is tantamount to a

rejection of

the chal1enged portion of Article 13b Conferences Response at p

II

The preservation of such an option however is essential to maintaining

the independence of adopting action Moreover the adopting member is

the person who is ful1y aware of the circumstances and purpose for taking

independent action Ifthe sole purpose of the adopting member is to pre

serve competitive parity with the originating member line then the adopting

member may elect not to maintain its action On the other hand if the

adopting member line has a reason to maintain its action it may elect

to keep its adopting IA and thereby avoid the inefficiency of being required

to refile its action as an originating independent action

CONCLUSION

The Conferences have not demonstrated the lawfulness of the provision

in Article 13 a of their respective agreements which prohibits a member

line from taking independent action during service contract negotiations

The Conferences therefore will be required to delete this provision from

their agreements

The Conferences also have not adequately demonstrated the lawfulness

of the adopting IA provision in Article l3 b of their agreements The

Conferences therefore will be required to delete the language in question

from their agreements or to modify their agreements so as to ensure that

the adopting action of a member line is maintained unless the adopting

member voluntarily advises otherwise

Final1y we note that the Order to Show Cause indicated that a final

decision in this proceeding would be issued by September 24 1986 This

date has been slightly extended because the complexity of the issues in

this proceeding has required additional time for analysis and resolution

THEREFORE IT IS ORDERED Pursuant to section lI c of the Ship

ping Act of 1984 That the Trans Pacific Freight Conference of Japan

the Japan Atlantic and Gulf Freight Conference and the Japan Puerto Rico

and Virgin Islands Freight Conference on or before the 60th day after

the date of this Report and Order shal1 each file an amendment with

the Secretary which deletes the provision in Article 13 a of their respective

agreements prohibiting the exercise of independent action during service

contract negotiations

IT IS FURTHER ORDERED That the Trans Pacific Freight Conference

of Japan the Japan Atlantic and Gulf Freight Conference and the Japan
j

I 648 FEDERAL MARITIME COMMISSION

j

I

Puerto Rico and Virgin Islands Freight Conference on or before the 60th

day after the date of this Report and Order shall each file an amendment

with the Secretary which deletes the provision in Article 13b of their

respective agreements withdrawing an adopting indepelldent action whenever

the originating independent action is withdrawn prior to effectiveness or

shall file an amendment which modifies Article I3 b in accordance with

this Report and Order

IT IS PURTIlER ORDERED That if the amendments required by this

order are not filed as required on or before the 60th day after the dale

of this Report and Order then any agreement which does not fUlly comply

shall be disapproved pursuant to section 11 c by further order of the

Commission and

IT IS FURTHER ORDERED That this proceeding is discontinued

i

S JOSEPH C POLKlNO

Secretary

I

28 F M C
28 F M C

MODIFICATIONS TO THE 1RANS PACIFIC FREIGHT 649

CONFERENCE OF JAPAN AGREEMENT ET AL

Commissioner Ivancie concurring in part and dissenting in part

I

fully concur in that portion of the Commission s Report and Order

dealing with Article 13 a of the conference agreements which would re

strict independent action on the subjects of ongoing service contract negotia

tions

However I am compelled to dissent from the second part of the decision

involving Article 13b

which automatically withdraws adopting independent

actions upon withdrawal of the originating independent action I do not

find Article 13b to violate section 5b 8 of the Shipping Act of 1984

and would not order its deletion from the conference agreements or its

modification

The majority s basic premise is that an adopting or following independent

action stands on its own and by law cannot be presumed to be contingent

upon an originating independent action The language of the Shipping Act

or its legislative history does not in my opinion dictate this conclusion

The very term adopt connotes that the action s

relationship to the origi

nating independent action is the critical aspect of the action

The fundamental purpose of an adopting IA as I see it is to maintain

parity with the originating IA The majority argues that there may be

many reasons behind a matching lA such as that a potential shipper

has expressed an interest in the rate Report and Order at 24 If this

were the reason for a line s lA however it could and probably would

file it as an originating lA without needing to match or adopt another

line s coincidentally identical rate action The majority s decision in declar

ing that matching lA s have an unattached life seems to encourage a

type of rate action which I do not believe was intended by the Shipping

Act a stand on its own non contingent IA which is not subject to the

notice period which section 5 b 8 authorized the conferences to require

for such lA s The sole purpose of allowing adopting lA s to become

effective on less than the conference s

required notice period is to allow

members to match other members proposed rates in a timely fashion

not to provide an exception to the notice requirement so that a member

line may satisfy a potential shipper

By choosing the adopting route a member line is in my opinion

notifying the conference that it wants to match the originating member s

rate because of the originating member s rate Here the conferences which

the members voluntarily join have a rule stating that an adopting IA

will be interpreted to be contingent on the effectiveness of the originating

lA and that it will be automatically withdrawn upon the pre effective

withdrawal of the originating IA As all members are aware of this rule

when they take their rate action they have a choice of designating their

IAs as original non contingent actions using the required conference notice

period or as contingent matching lA s in which the effective date of

the original may be matched irrespective of the conference s notice rule
650 FEDERAL MARITIME COMMISSION

Such a system does no harm in my view to either the language or intent

of the Shipping Act

I find some minor consolation in the fact that the majority s decision

states that the conference rule may be modified to give the adopting member

line an option the adopting IA will be presumed non contingent and

therefore not automatically withdrawable by the conference unless the

line designates up front or indicates after the fact that its IA is contingent

upon the effectiveness of the first IA I could more easily support the

presumption that an adopting IA is contingent unless the member designates

otherwise The Commission Order unnecessarily imposes a burden on the

individual member to affirmatively state what can already be reasonably

inferred from its choice of the adopting procedure

The language of section 5b 8 of the Act is less than explicit on

the issue of the status of matching lAs and the Act slegislative history

is as noted in the majority s decision sparse and subject to conflicting

interpretations Report and Order at 23 I regret that rather than to

allow the conferences to interpret and implement the statute in a reasonable

way which appears to be working satisfactorily for them and their member

lines the Commission has opted for what I believe is an unnecessary

overly regulatory stance unsupported by the statute and not responsive

to any particular problems The record contains no evidence of shipper

complaints and the proceeding attracted no industry comment which sug

gested there was disagreement with the conference rules Within the con

ferences there is no evidence that the will of member lines was being

thwarted by the rule The record in fact reflects the opposite There

are no apparent instances where upon the conference s automatic withdrawal

of adopting lAs an adopting member line reestablished its rate by filing

another independent action Statement of R D Grey at 21 This clearly

indicates I submit that the conference rule is neither overreaching nor

inaccurate in its presumption that matching lA s are for the purpose of

meeting preceding lA s and that the domino type withdrawal of the

former upon the withdrawal of the latter is the parties actual intention

The majority appears to be guided by a desire not to allow conferences

to emasculate the mandatory independent action provisions of the Shipping

Act It is ironic that it is the majority s decision here that may well

have an inhibiting effect A member line may think twice about originating

an IA now that its subsequent withdrawal is perhaps more likely under

the Commission s decision to leave in place other matching rate actions

and with the benefit ofreduced notice in the bargain I

I therefore respectfully dissent from that portion of the Commission s

Report and Order which orders deletion or modification of the conferences

Article 13b

28 F MC
28 F M C 651

FEDERAL MARITIME COMMISSION

DOCKET NO 85 18

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE

AGREEMENT POSSIBLE VIOLATIONS OF THE SHIPPING ACT OF

1984

ORDER ADOPTING INmAL DECISION

October 9 1986

The Commission instituted this proceeding by Order of Investigation

served on July 15 1985 The Order called into question certain rate activities

of the Transpacific Westbound Rate Agreement TWRA or Agreement

lines in early 1985 The Commission set down for investigation issues

raised under sections lO a 2 3 of the Shipping Act of 1984 1984

Act 46 U S C app 1709 a 2 3 regarding the relationship between

the TWRA lines collective establishment and maintenance of minimum

tariff and service contract rates and the individual lines right of inde

pendent action

On August 29 1986 Administrative Law Judge Seymour Glanzer issued

an Initial Decision 10 The 10 approves a settlement negotiated by

the Bureau of Hearing Counsel and the carrier respondents whereby the

respondents will pay civil penalties totaling 300 000 and also will take

certain actions that are intended to compromise the issues involved in

this investigation Specifically the respondents undertake to modify certain

terms of the Agreement dealing with the relationship of independent action

to minimum rates to maintain a prescribed course of conduct that safeguards

the members right to take independent action from multi commodity min

imum rates to refrain for a stated period of time from establishing a

minimum rate program the purpose of which is revenue improvement or

maintenance if those rates are subject to a

right of independent action

and to report to the Director Bureau of Agreements and Trade Monitoring

any actions taken during that stated period that establish or modify minimum

rates No party filed exceptions to the 10

The Commission has determined to adopt the LD and approve the settle

ment negotiated by the parties The terms of the settlement appear reason

able under the circumstances of this case The parties have stipulated that

the respondents activities cited in the Order of Investigation are not con

tinuing and in fact were terminated prior to the commencement of settlement

Subsequent to issuing his 10 Judge Glanzer became Director of the Bureau of Hearing Counsel He

lias recused himselffrom any further participation in lhis proceeding
652 FEDERAL MARITIME COMMISSION

discussions It is therefore unnecessary to determine whether a cease and

desist order should be issued against the respondents Respondents have

proposed to modify Article 5 of the TWRA to provide that any minimum

rates adopted under the Agreement in the future shall remain subject to

further adjustment or revocation under the Agreement s

ratemaking proc

esses including its independent action provisions This assures the integrity

of independent action under the TWRA and renders unnecessary any further

investigation of whether the Agreement should be disapproved or modified

because of possible violations by the member carriers of the independent

action requirements of section 5 of the 1984 Act 46 U S C app 1704

As part of their offer of settlement respondents also have committed

not to establish any minimum rate programs designed to improve their

revenues with certain qualifications and exceptions While this commitment

strengthens the beneficial effects of the Agreement modification discussed

above the Commission notes that the commitment will expire on November

7 1987 The basic legal issue in this investigation was whether an agreement

among carriers to establish across the board minimum rates intended to

improve revenues is inherently inconsistent with the free exercise of inde

pendent action and is therefore unlawful While the Commission s approval

of the settlement between the parties makes unnecessary a decision on

this issue a new attempt by the respondents to improve their revenues

through broad minimums could revive the issue The Commission therefore

cautions the parties to the TWRA that any full1re minimum rate programs

similar to those agreed to at Vancouver B C In January 1985 will receiVe

close scrutiny

THEREFORE IT IS ORDERED That the Initial Decision is adopted

and

IT IS FURTHER ORDERED That this proceeding is discontinued

By the Commission

S JOSEPH C POLKING

Secretary

28 FM C
28 F M C 653

FEDERAL MARITIME COMMISSION

NO 85 18

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE

AGREEMENT POSSIBLE VIOLATIONS OF THE SHIPPING ACT OF

1984

Transpacific Westbound Rate Agreement a Respondent ordered to pay a civil penalty in

the amount of 300 000 15 789 47 per Respondent member of that Agreement and

undertake other action pursuant to terms of an offer to settle an assessment proceeding

seeking to determine whether said Respondents violated sections 1O a 2 or lO a3

of the Shipping Act of 1984

H Donald Harris R Frederic Fisher John H Riddle Lawrence M Minch and Harold

E Mesirow for Respondents Transpacific Westbound Rate Agreement American President

Lines Ltd The East Asiatic Company Evergreen Marine Corp Hanjin Container Lines

Ltd Hapag Lloyd Trans Pacific Service Japan Line Ltd Kawasaki Kisen Kaisha Ltd

Korea Marine Transport Co Inc Lykes Bros Steamship Co Inc Mitsui O S K Lines

Ltd A P Moller Maersk Line Neptune Orient Lines Ltd Nippon Yusen Kaisha Ltd

Orient Overseas Container Line Inc Showa Line Inc United States Lines Inc Yamashita

Shinnihon Steamship Co Ltd and Zim Israel Navigation Co Ltd

Robert T Basseches and David B Cook for Respondent American President Lines

Ltd

Stanley O Sher and Marc J Fink for Respondent A P Moller Maersk Line

Neal M Mayer for Respondent Showa Line Ltd

Stuart R Breidbart and Terry Spilsbury for Respondent Sea Land SelVice Inc

Daniel W Lenehan for Respondent United States Lines Inc

Jim J Marquez Rosalind A KlUlpp Diane R Liff Mary Bennett Reed Michael B

Jennison Robert J Patton Jr and James P Moore for the United States Deparbnent of

Transportation as amicus curiae

Aaron W Reese Paul J KaUer and William D Weiswasser as Hearing Counsel

INITIAL DECISION 1 OF SEYMOUR GLANZER ADMINISTRATIVE

LAW JUDGE

Adopted October 9 1986

This proceeding was instituted by Otder of Investigation and Hearing

Order served July 15 1985 pursuant to section ll c of the Shipping

Act of 1984 46 D S C app 1710 to determine whether the Transpacific

Westbound Agreement TWRA and its member lines had engaged in certain

1 This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227
654 FEDERAL MARITIME COMMISSION

activities in violation of sections 10 a 2 or 10 a 3 of the Shipping Act

of 1984 46 U S C app 1709 a 2 and 3 TWRA and its member

lines were named Respondents Appendix I attached is a list identifying

each of the Respondents The Bureau of Hearing Counsel was named

a party to the proceeding In particular the Order sought to determine

whether the Respondents

I have violated sections lO a 2 or lO a 3 of the Shipping

Act of 1984 46 U S C app 1709 a 2 or 3 by agreeing

not to exercise independent action at levels below their minimum

tariff rates which agreement was subject to the filing requirements

of section 5 of the Shipping Act of 1984 46 U S C app 1704

or inconsistent with the mdependent action provisions of the Trans

pacific Westbound Rate Agreement as required by section 5 b 8

of the Act 46 U S C app 1704 b 8

2 have violated section lO a 3 of the Shipping Act of 1984

by establishing and maintaining a program of minimum tariff

rates in a manner inconsistent with the independent action provi

sions of the Transpacific Westbound Rate Agreement required

by section 5 b 8 of the Act

3 have violated sections lO a 2 or 10 a 3 of the Shipping

Act of 1984 by agreeing on minimum rates applicable to service

contracts between individual carriers or combinations of carriers

and shippers which agreement was subject to the filing require

ments of section 5 of the Shipping Act of 1984 or inconsistent

with the service contract and independent action provisions of

the Transpacific Westbound Rate Agreement

4 have violated sections lO a 2 or lO a 3 of the Shipping

Act of 1984 by agreeing not to exercise independent action at

levels below their minimum service contract rates which agree

ment was subject to the filing requirements of section 5 of the

Shipping Act of 1984 or inconsistent with the service contract

and independent action provisions of the Transpacific Westbound

Rate Agreement

5 have violated section lO a 3 of the Shipping Act of 1984

by maintaining a system of ntinimum service contract rates in

a manner inconsistent with the service contract and independent

action provisions of the Transpacific Westbound Rate Agreement

6 have violated sections 10 a 2 or lO a 3 of the Shipping

Act of 1984 by agreeing not to negotiate or execute new or

renewed service contracts for a period of time which agreement

was subject to the filing requirements of section 5 of the Shipping

Act of 1984 or inconsistent with the service contract and inde

pendent action provisions of the Transpacific Westbound Rate

Agreement

The Order went on to provide that if any findings of violations are

made it should also be determined whether the Respondents

28 FM C
28 F M C

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 655

AGREEMENT POSSIBLE VIOLATIONS

I

should be assessed civil penalties and if so the amount

of such penalties andor

2 should have their Transpacific Westbound Rate Agreement

disapproved cancelled or modified by the Commission andor

3 should be ordered to cease and desist from such activity

The United States Department of Transportation was designaied as an

amicus curiae See Summary of Proceedings served April 10 1986

The Regulatory Scheme and the Relevant Statutes

1 THE SUBSTANTIVE PROVISIONS

Section 10 of the Shipping Act of 1984 is entitled PROHIBITED

ACTS As pertinent it provides

a IN GENERAlrNo person may

2 operate under an agreement required to be filed under section

5 of this Act that has not become effective under section 6

or that has been rejected disapproved or canceled or

3 operate under an agreement required to be filed under section

5 of this Act except in accordance with the terms of the agreement

or any modifications made by the Commission to the agreement

Section 5 a of the Shipping Act of 1984 46 US C app 1704 c

requires that any agreement described in section 4a of the Shipping Act

of 1984 46 U S c app 1703 a be filed with the Commission In addi

tion section 5b of that Act 46 U S C 1704 b prescribes certain manda

tory provisions of conference agreements

Section 4 of the Shipping Act of 1984 is entitled AGREEMENTS

WITHIN SCOPE OF ACT Section 4 a applies to agreements by or

among ocean common carriers to

1 discuss fix or regulate transportation rates including

through rates cargo space accommodations and other conditions

of service

2 pool or apportion traffic revenues earnings or losses

3 allot ports or restrict or otherwise regulate the number and

character of sailings between ports

4 limit or regulate the volume or character of cargo or pas

senger traffic to be carried

5 engage in exclusive preferential or cooperative working

arrangements among themselves or with one or more marine ter

minal operators or non vessel common carriers

6 control regulate or prevent competition in international

ocean transportation and
656 FEDERAL MARITIME COMMISSION

7 regulate or prohibit their use of service contracts

As pertinent section 5b of the 984 Act provides

b CONFERENCE AGREEMENTS Each conference agree

ment must

I

i

8 provide that any member of the conference may take inde

pendent action on any rate or service item required to be filed

in a tariff under section 8 a of this Act upon not more than

10 calendar days notice to the conference and that the conference

will include the new rate or service item in its tariff for use

by that member effective no later than 10 calendar days after

receipt of the notice and by any other member that notifies the

conference that it elects to adopt the independent rate or service

item on or after its effective date in lieu of the existing conference

tariff provision for that rate or service item

Pursuant to section 6 of the 984 Act 46 V S C app 705 agreements

filed with the Commission unless rejected become effective within

a statutorily fixed time set forth in section 6 c 46 VS C app 705 c

but not less than 4 days after notice of the filing of the agreement

is published in the Federal Register as provided in section 6 e 46 VS C

app 705 e However the clock which is used to calculate the effective

date of an agreement does not begin to tick if that agreement is not

filed Thus an agreement which is filed may have a lawful effective date

not less than 14 days after its publication in the Federal Register section

6 e or on the 45th day after filing or on the 30th day after noticed

in the Federal Register whichever is later section 6 c Of course an

agreement required to be filed but Which is notfied cannot have a

lawful effective date See Armada Great Lakes East Africa Service Ltd

Great Lakes Transcaribbean Line 28 F M C 355 357 1986 Armada

II THE PENALTY PROVISIONS AN PROCE URES

Section 13 of the Shipping Act of 1984 46 VS C app 17 2 is

entitled PENALTIES Applicab e penalty provisions for violations of sec

tions lO a 2 and lO a 3 of the 1984 Act are set forth in section 13 a

of that Act as follows

a ASSESSMENT OF PENALTY Whoever violates a provi

sion of this Act a

regulation issued thereunder or a Commission

order is liab e to the United Slates for a civil penalty The amount

of the civil penalty unless otherwise provided in this Act may

not exceed 5 000 for each violation unless the violation was

willfully and knowingly committed in which case the amount

of the civil penalty may not exceed 25 000 for each violation

Each day of a continuing violation constitutes a separate offense

28 FM C
28 F M C

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 657

AGREEMENT POSSIBLE VIOLATIONS

Section 13 c of the 1984 Act is entitled ASSESSMENT PROCEDURES

Among other things it sets forth the criteria for determining the amount

of a penalty to be imposed in an assessment proceeding It provides as

pertinent

c ASSESSMENT PROCEDURES the Commission may

after notice and an opportunity for hearing assess each civil pen

alty provided for in this Act In determining the amount of the

penalty the Commission shaH take into account the nature cir

cumstances extent and gravity of the violation committed and

with respect to the violator the degree of culpability history

of prior offenses ability to pay and such other matters as justice

may require The Commission may compromise modify or remit

with or without conditions any civil penalty

The Commission s

regulations which implement section 13 of the Ship

ping Act of 1984 appear at 46 CPR Part 505 As pertinent 46 CFR

505 3 provides

a Procedure for assessment ofpenalty The Commission may

assess a civil penalty only after notice and opportunity for a

hearing under section 22 of the Shipping Act 1916 or sections

II and 13 of the Shipping Act of 1984 The proceeding including

settlement negotiations shaH be governed by the Commission s

Rules of Practice and Procedure in Part 502 of this Chapter 2

AH settlements must be approved by the Presiding Officer The

fuH text of any settlement must be included in the final order

of the Commission

b Criteria for determining amount of penalty In determining

the amount of any penalties assessed the Commission shaH take

into account the nature circumstances extent and gravity of the

violation committed and the policies for deterrence and future

compliance with the Commission s rules and regulations and the

applicable statutes The Commission shaH also consider the re

spondent s degree of culpability history of prior offenses ability

to pay and such other matters as justice requires

The statutory and regulatory criteria for settlement of penalties are the

same as those for assessment of penalties Armada supra 28 F M C at

368

The Offer of Settlement

The matter is before me on Respondents Further Amended Offer of

Settlement a

copy of which is attached as Appendix II The relevant

background to the offer is set forth in the Stipulation Respecting Proposed

2Sections 502 91 and 502 94 of the Commission s Rules of Practice and Procedure 46 CFR 502 91 and

502 94 authorize thesubmission and consideration of offers of settlement
658 FEDERAL MARITIME COMMISSION

Settlement entered into by the Respondents and Hearing Counsel The offer

which Hearing Counsel support in its entirety came about after extensive

discovery and discussions One of those discussions was conducted during

a publicly noticed informal conference attended by the United States Depart

ment of Transportation as an amicus curiae The Department of Transpor

tation advises that it has no interest in addressing the Further Amended

Offer of Settlement and it takes no pOSition with regard to the proposed

settlement

The offer is made without any admission of violation of law by any

Respondent It calls for the payment of 300 000 15 789 47 per carrier

Respondent all of which is on deposit in a trust account in a bank in

California together with accumulated interest from August 13 1986 August

14 1986 or August IS 1986 depending upon the date when the monies

were deposited upon final approval of the settlement Also upon final

approval Respondents undertake to modify certain terms of the TWRA

agreement dealing with the relationship of independent action to minimum

rates to maintain a prescribed course of conduct not to surrender any

member s

right to take independent action to depart from multicommodity

minimum rates to refrain from establishing aminimum rate program whose

purpose is revenue improvement or maintenance for a stated period of

time if those rates are subject to a

right of independent action and to

report to the Director Bureau of Agreements and Trade Monitoring any

actions taken during that stated period which establish or modify minimum

rates Further details of the offer appear in the Discussion infra

The Record

The record presented for consideration of the offer of settlement is com

prised of the following

I The Order of Investigation and Hearing Order

2 Further Amended Offer ofSettlement

3 Response of Hearing Counsel to Respondent s Further Amended

Offer of Settlei 1ent Response

4 Stipulation Respecting Proposed Settlement

5 Stipulation for Amendment to Order of Confidentiality

6 Letter from R Frederic Fisher to me dated August 13 1986

7 Letter from Hearing Counsel to me dated August 18 1986

8 Letter from the United States Department of Transportation to

me dated August IS 1986

9 Telex Supplement to No 6 above dated August IS 1986

10 Letter from Hearing Counsel to me dated August 20 1986

28 F M C
28 F M C

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 659

AGREEMENT POSSIBLE VIOLATIONS

Facts

The following is a verbatim restatement of the Stipulation Respecting

Proposed Settlement submitted by Respondents and Hearing Counsel

1 All statements in this Stipulation are made exclusively for use by

the Administrative Law Judge and the Commission for consideration of

the proposed settlement of this proceeding and are made without prejudice

to and shall not be used by any party or person in this or any other

proceeding or forum in the event the settlement agreed to by the parties

should for any reason not receive final approval by the Commission by

way of Commission order or administrative finality of an initial decision

2 The parties agree that this proceeding be finally resolved by settlement

of all issues and claims in the proceeding as provided in Respondents

Further Offer of Settlement

3 The Transpacific Westbound Rate Agreement TWRA is a conference

agreement as defined in the Commission sregulations TWRA sjurisdiction

covers the trade from United States and Canadian ports and points to

ports and points in Asia The TWRA Agreement was filed with the Commis

sion under the Shipping Act of 1984 on November I 1984 and became

effective on January 4 1985 At that time TWRA consisted of 21 ocean

common carriers operating in the westbound trade from the United States

to the Far East At present TWRA consists of 14 ocean common carriers

in this trade Respondents in this proceeding are TWRA its 14 current

members and 5 former members all of whom attended an initial meeting

of senior TWRA member executives on January 3031 1985 sNl The Com

mission s Bureau of Hearing Counsel was designated a party by the Order

of Investigation The United States Department of Transportation has been

permitted to participate as amicus curiae to comment concerning policy

issues in the case and concerning its settlement

4 TWRA s basic Agreement provides authority in Article 5 a for its

members to

consider all aspects of transportation and service in the trade

and to discuss agree upon establish abolish or change all rates

charges classifications practices terms conditions and rules and

regulations applicable to transportation of cargo moving within

the trade covered by this Agreement and applicable to services

provided in connection therewith

SNl SN indicates that these notes appear inthe Stipulation Respecting Proposed Settlement Seawinds

Ltd resigned from the lWRA prior to TWRA first meeting of senior executives on January 3031 1985

Barber Blue Sea Line resigned from 1WRA prior 10 such meeting Neither is a respondent in lhis proceeding

Subsequent to lhe January 3031 1985 meeting EAC Lines TPS Service Zim Israel Navigation Co Ever

green Marine Corp Hapag Lloyd AG and Lykes Bros Steamship Co withdrew from TWRA The following

present members of TWRA are named as respondents in Ihis proceeding American President Lines Hanjin

Container Lines Japan Line Mitsui aSK Lines Kawasaki Kisen Kaisha Showa Line Korea Marine Trans

port now operated by Hyundai Merchant Marine AP Moller Maersk Line Orient Overseas Container Line

Neptune Orient Lines Sea Land Service united States Lines and Yamashita Shinnihon Steamship Co In ad

dition Evergreen Line HapagLloyd Zim Israel and Lykes remain respondents in theproceeding
660 FEDERAL MARITIME COMMISSION

This authority is also stated in more specific terms as including but

not limited to as here relevant minimum rates service contracts

and to relationships between these subjects and other subjects listed sN2

Such authority may be implemented by resolutions and decisions of TWRA

which are binding on the parties Article 17 TWRA Agreement All

such authority is subject in all cases to the right of independent action

set forth in Article 13 of the TWRA Agreement Article 5 d of the

TWRA Agreement provides that any party may enter into a service con

tract s but must file the essential terms of such contracts with the Agree

ment Manager

5 The TWRA replaced several predecessor conferences operating in por

tions of the present TWRA trade The largest of these conferences was

the Pacific Westbound Conference which had collapsed in 1984 and been

dissolved The collapse was preceded by rapidly declining rates in the

TWRA trade At the time of TWRA s formation the TWRA members

were operating under a large variety of individual carrier tariffs with diverse

rates filed with the Commission

6 Rate levels in the transpacific westbound trade had as of January

1985 fallen to unusually low levels which the TWRA carriers regarded

as unremunerative and which the carriers had advised the Commission

were well below levels prevailing in 1979 sN3 A meeting of senior execu

tives of the newly formed TWRA was held in Vancouver B C on January

3031 1985 At that meeting the parties agreed by unanimous vote accord

SN2Seclion 5 a reads Subject in all cases 10 the right of independent action set forth in Article 13 of

Ihis Agreement the Parties are authorized 10 consii lcr all aspects of transpOrtation and service in the trade

and to discuss agree upon establish abolish orcltange all rates charges classifications practices leons

conditions and rules and regulations applicable 10 transportjUion of cargo moving within the trade covered

by this Agreement and applicable 10 services provided in connection therewith Such authority includes but

is not limitcdto the following subjects and relatlonshlpsbelween oramong them POINO port rates includ

ing all waler routes 10 and from ports andor places or points on inland waterways tributary 10 all said porlS

and ranges overland rates minilandbridge rates interior point intermodal rates port area inlermodal rates

proportional rates through rates the inland portion of through rales joint rates minimum rates surcharges

arbitraries volume rates timevolume rates projecl rates freight all kind rates volume incenlive programs

loyalty arrangements conforming to the antitrust laws of the United Slales fidelity commission syslems serv

ice contracls consolidalion consolidation allowances freight forwarder compensation brokerage the condi

tions determining such compensation orbrokerage and the paymenl Ihereof receiving handling storing and

delivery of cargo destination of base ports and points pick up and delivery charges free time practices de

tention demurrage container freighl stations port and inland container yards lUld container depots terminals

and other poinls of cargo receipt vanning devanning equipmenl poSitioning furnishing equipment to or leas

ing equipment from shippersconsignees inland carriersothers collection agenls al designation maintaining

and distributing information and data and statistics and all other rules regulations and matters ancillary to

Iransportatlon of this Sreement including rules regarding Ihe time and currency in which payments here

under shall be made credil conditions financial security arrangements suspension and restoration of credit

privileges handling of delinquent accounts and interest thereon The parties may in any manner discuss any

rate orrule on which independenl action has been taken malters on which rates are open with or withoul

minimum requirements and individual glQP orAgreement service contracts

SN3The Order of Investigation states in listing the objectives of the TWRA furnished to the Commission

at the time the Agreement was filed that one objective was to stabilize rates in the weslbound trades which

Ihe parties 1WRA characteri d as having deteriorated to below cost levels as a result of excess capacity

Order of Investigation p 4

28 F M C
MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 661

AGREEMENT POSSIBLE VIOLATIONS

ing to the minutes of that meeting filed with the Commission to adopt

inter alia the following measures

a Voted to adopt and publish by April 15 1985 a common agreement

tariff to replace disparate individual tariffs and rates

b Voted that all tariffs rot all member lines be amended to establish

a minimum charge rule This rule will provide minimums which will be

observed on all cargo effective March 6 1985 sN4

c Voted that effective January 31 1985 there shall be a minimum

charge established for any new service contract or renewal of existing

contracts entered into by any party any combination of parties or the

Agreement Such minimums to remain in effect until changed or amended

consistent with the Agreement s Revenue Recovery Program

d Voted to adopt a general rate increase effective March 6 1985

7 Shipper reaction to the TWRA rate actions was negative and the

Commission received complaints and inquiries commencing almost imme

diately after the January 3031 meeting See Order of Investigation p

8 These complaints were most extensive in the case of shippers of the

lowest rated commodities Bringing rates on the lowest rated commodities

up to the minima necessarily meant that these commodities experienced

the largest percentage increases See Order of Investigation p

8 The

complaints in some cases alleged a tacit understanding reached at the Van

couver meeting that TWRA members would not grant requests for inde

pendent action or other rate action below the minimums agreed Order

of Investigation pp 8 9

8 In response to the complaints the Commission asked TWRA by

telex of February 21 1985 to postpone the increases pending further discus

sions with the Commission staff Several of such meetings were held Order

of Investigation p9 and TWRA postponed the rate increases until March

20 1985 TWRA met again in Honolulu Hawaii on March 68 and

thereafter informed the Commission that the full rate increases adopted

by the Vancouver meeting as minimum rates would be deferred to June

20 1985 sN5 As so reduced the minimum rates became effective on March

20 1985

On March 12 1985 the Commission issued an Order under section

15 of the 1984 Shipping Act to TWRA and its members to which TWRA

responded

9 On March 27 1985 after the reduced minima had been in effect

for six days TWRA further reduced the minimum rates in question and

28 F M C

SN4The minimum rales adopted ranged from 750 for awest coast 20 dry cargo container to North Asia

10 5 000 for refrigerated 40 containers moving from the east coast 10 South Asia See Order of Investiga

tion p 7 These minima varied according to container size and type and with origin and destination They

did not vary according to the commodity shipped except insofar as particular commodities move in particular

types of orsize of containers

SN The minimum on a40 dry cargo container from west coast points to North Asia for example was

reduced from 1000 10 800 per container Order of Investigation p

9
662 FEDERAL MARITIME COMMISSION

i

postponed the balance of the increase SN6 Order of Investigation p 11

Although future increases in the TWRA minimum rates were scheduled

they did not take effect Also on March 27 1985 TWRA amended its

rate action as to individual member service contracts to treat the rates

adopted as non binding guidelines and to reduce the suggested service

contract rates to the tariff minimum level TWRA minutes also reflect

that TWRA passed a resolution on March 27 1985 for the purpose of

refuting allegations that it had surrendered the right of independent action

and resolved that each member had an unqualified right to take inde

pendent action from all rates including minima

10 At a meeting in Hong Kong on June 67 1985 TWRA exempted

eight major moving low rated commodities which had beep the subject

of complaints from shippers from the minimum rates Order ofInvestiga

tion pp 11 12

1 On July IS 1985 the Commission issued the present Order of

Investigation

12 Apart from the foregoing paragraphs Hearing Counsel and Respond

ents are in conflicf on all issues and as to most of the central facts

in this case of first impression under the 1984 Shipping Act

13 The main point in dispute is whether in adopting minimum rates

applicable to all commodities TWRA reached a tacit agreement as set

forth below which was contrary to the basic TWRA agreement andlor

to provisions ofthe Shipping Act 1984 Specifically

a Whether TWRA at the January 3031 Vancouver meeting entered

into a separate agreement contrary to its basic approved agreement to

surrender the right of each TWRA member to take independent rate action

as guaranteed to each carrier in the basic TWRA Agreement

b Whether TWRA s adoption of across the board minimum rates in

its tariffs is unlawful on the ground that such rates are inherently incon

sistent with free exercise of the right of independent action required by

section 50f the 1984 Shipping Act to be set forth in all conference

agreements

c Whether TWRA was authorized under its basic agreement to adopt

minimum rates on individual carrier service contracts and

d Whether TWRA agreed at the Vancouver meeting that its members

would not enter into individual service contracts

14 If this matter were to proceed to hearing Hearing Counsel assert

that they would introduce documents which would prove the allegations

made in the Commission s Order of Investigation that this evidence would

show that the TWRA members carried out certain unfiled agreements which

violated section lO a 2 of the shipping Act of 1984 andlor were contrary

to the terms of the TWRA Agreement in violation of section 10 a 3

I

1

SN61be minimum on a 40 dry cargo container moving from west coastpons to North Asia was reduced

to 700 effective March 27 1985 and sched lIec1 to increase to 800 July 1 and to 1000 on September

I 1985 Order of investigation p 11

28 F M C
MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 663

AGREEMENT POSSIBLE VIOLATIONS

of the Act that they would produce witnesses whose testimony would

demonstrate that TWRA members and their representatives acted in a man

ner consistent with their carrying out these agreements and that specifically

their evidence would demonstrate the following

a On January 30 and 31 1985 TWRA members met in Vancouver

British Columbia and agreed to a Revenue Stabilization program which

established a program of minimum tariff rates against which independent

action or rate initiative would not be taken unless unanimously approved

by the Agreement members Hearing Counsel contend that this minimum

rate program was inherently inconsistent with the independent action provi

sions of the TWRA Agreement and section 5 b 8 of the Shipping Act

of 1984 which requires those Agreement provisions and that by operating

under the unfiled agreement not to take independent action against the

minimums the TWRA members violated section lO a 2 andlor section

lO a 3 of the Act

b At the Vancouver meeting the TWRA carriers established a program

of minimum rates for service contracts and agreed not to enter into service

contracts for rates below those minimums or to exercise independent action

against those minimum rate levels The TWRA members also agreed not

to enter into new or renewed service contracts for a period of 90 days

and for a period of time in fact did refuse to negotiate such contracts

Hearing Counsel believe these actions were inconsistent with the service

contract and independent action provisions of the TWRA agreement and

violated sections 10 a 2 andlor lO a 3 of the Shipping Act of 1984

c Finally Hearing Counsel would assert that facts alleged by TWRA

in defense of its position would be contradicted by evidence available

to Hearing Counsel and that whatever commercial reasons TWRA might

assert to explain its actions are not relevant to the issues set forth in

the Order of Investigation

15 TWRA denies that there was any agreement explicit or tacit among

TWRA members to inhibit the right of independent action TWRA asserts

that at hearing TWRA would show

a That whether taken separately or together each of the factors relied

upon by Hearing Counsel in alleging an unlawful agreement constitutes

lawful normal conduct under a conference agreement that a conference s

central function is to agree upon establish and maintain common rates

and that TWRA s actions were authorized by the TWRA agreement and

not prohibited by any decision regulation or statutory provision

b That to the extent that any of TWRAs members expressed resolve

to adhere to or actually adhered to rates newly adopted by unanimous

vote without independent action therefrom such activity does not constitute

evidence of conduct prohibited by the Act that deferral and reduction

of the minima adopted from March 6 1985 through June 1985 made

independent actions below the minima unnecessary for members that in

the absence of a common tariff and a common rate base the use of

28 F M C
664 FEDERAL MARITIME COMMISSION

uniform mInIma was the only way to create a common conference rate

level in the short term for most commodities that without minimums the

general rate increase would fail because it would exaggerate existing rate

differentials between the members that another reason for the minima was

to adopt a consensus as to what rate was minimally necessary to assure

that any given shipment covered out of pocket costs in transporting cargo

plus some contribution to total costs

c That minimum rates are used by other carriers and conferences and

that they are wisely used in inland and ocean transportation ard have

been required and enforced by the ICC and this Commission in a number

of domestic rate regulation cases particularly to avoid below cost rates

that nothing in the 1984 Act or in Commission regulations or decisions

suggests that minimum rates are unlawful that the Shipping Act requires

only that a conference agreement guarantee to a carrier member its right

of independent action and that even if broadly based minimum rates were

to reduce the incentive for a carrier to exercise that right the statute

does not forbid such rates for that reason that if there is to be new

policy enunciated on these issues that is not stated in the statute in regula

tions or existing decisions it would be inequitable to apply it to TWRA

in an enforcement case simultaneously with announcing such a new rule

d That Article 5 a of TWRA s agreement authorized both agreement

on service contracts and on HreJationships between or among service

contracts and rates including minimum rates

e That there was no agreement by TWRA members that the members

would not enter into individual service contracts SN7

16 All parties have proceeded with preparation of the case for hearing

including substantial discovery proceedings

17 Hearings were scheduled to commence in December 1985 and extend

into January 1986 but were deferred pending attempts by the parties to

resolve the issues between them The parties negotiated extensively in Octo

ber and November 1985 and submitted a settlement agreement This agree

ment was withdrawn in January 1986 and further negotiated to incorporate

provisions now set forth in paragraph 5 of the proposed Ordering para

graphs in TWRAs Further Offer of Settlement respecting adoption by

TWRA of broadly based minimum rates pending the possibility of the

Commission issuing a guideline for the industry as to lawfulness of such

rates

18 The estimated time required to hear the case would be at least

4 to 6 weeks with most hearings required for the convenience of witnesses

to be held on the West Coast Both Hearing Counsel and respondents

SN71WRA ays that service contracts arc not a rate or service item required to be subject to independent

action TWRA also says that in response 10 complaints it both drastically reduced the service contract minima

and made them nonbinding and further thaf to eliminate he dispute with the CommiQion 411 to the scope

of lWRA s

authority over individual member service contracts it amended its basic agreement to state af

firmatively that the conference could limit prohibit or set mandatory standards on service contracts of its

members The Commission pennilted this amendment to become effective

28 F M C
28 F M C

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 665

AGREEMENT POSSIBLE VIOLAnONS

a number of whom are separately represented are facing full time and

intense involvement in the case at very substantial cost to the Commission

and to respondents alike in order to bring this case to hearing and conclu

sion Commission personnel as well as many witnesses located throughout

the world are expected to testify as witnesses

19 Hearing Counsel make no claim that the conduct alleged to be

unlawful is continuing and in the view of all the parties the large expenses

and disruption of the parties other responsibilities is not warranted in

view of the settlement reached

20 In the absence of the settlement due to the large burdens that

this case places upon Hearing Counsel an additional delay in the scheduled

proceedings would be requested by Hearing Counsel to allow further dis

covery and full preparation As a consequence of the foregoing and other

related factors costs for both sides are mounting rapidly will continue

to grow and will be experienced through at least the balance of 1986

and well into 1987

21 Hearing Counsel do not claim that Respondents were carrying out

an unlawful agreement respecting independent action or service contracts

at the time they commenced settlement negotiations in the fall of 1985

or that they are doing so at present Accordingly the parties agree that

there would be no regulatory purpose served by the issuance of an order

to cease and desist In view of modifications of the TWRA agreement

already made under the Settlement agreed to and in view of the provision

in the settlement offered by Respondents the Parties further agree that

there is no need to consider other modifications to or cancellation of

the TWRA agreement

22 The settlement which Respondents propose is an integrated settlement

reflecting basic elements which were intensively bargained without these

elements one or the other of the parties would not have been able to

resolve their differences

Discussion

Realistically Respondents offer of settlement is the culmination of exten

sive negotiations between Respondents and the Commission s Hearing Coun

sel It reflects their agreement designed to reach a disposition of issues

raised by the Order without going through costly trial and appellate litiga

tion The settlement seems to me to be a comprehensive retrospective

and prospective resolution of those issues and encompasses much more

than the payment of civil penalties although the proffered payment is

substantial The proposal appears to be reasonable and to satisfy settled

criteria for approval Ifind that the monetary portion of the offer fits

within a zone of reasonableness and that the overall settlement is neither

a coercive attempt to exact exorbitant punishment nor a cession of public

rights Atlas Roofing Co Inc v Occupational Safety and Health Review

Commission 442 U S 430 450 1977 to the alleged wrongdoer Far
1 666 FEDERAL MARITIME COMMISSION

Eastern Shipping Company Possible Violation of Section 16 Second Para

graph 18 b3 and 18 c Shipping Act 1916 24 F M C 992 1013 1982

The first of Respondents non civil penalty undertakings requires it to

modify Article 5 of their agreement and to file that modification within

ten days after final approval of their offer The modification clarifies the

interplay of independent action and minimum rates adopted under that

agreement and provides that any minimum rates which are subject to a

right of independent action shall remain subject to further lidjustment or

even revocation pursuant to normal ratemakinli processes under the agree

ment This modification is reinforced by the second of Respondents com

mitments whereby they agree for the furure not to eriter any agreement

to surrender any member s

right to take independent action departing from

any multicommodity minimum tates that are subjept to a

right of inde

pendent action Hearing Courisel states that these prClvisions of the first

numbered paragraph of Respondents offer assure that Respondents will

not use minima to limit independent action and that the commitmerit

in the second numbered paragraph memorializes the abSOlute predominance

of the right of independent action 3 Iagree that numbered paragraphs

I and 2 of the offer contain clear and reasonable statementS assuring

preeminence of independentaction under the TWRA agreement

The third numbered paragraph of the settlement recognizes that the service

contract issue raised by the Order became moot by virtlie of the filing

of an amendment to the TWRA agreement which the Commission allowed

to become effective 4 and which eliminates any question a1out the scope

of the Commission s authority over member s service contracts The amend

ment accomplishes this result by inclusion of JI provision permitting TWRA

to limit prohibit or set standar4s on service contracts

The fourth numbered paragraph contains the offer to pay a civil penalty

without admission of violation

Under provisions of the fifth numbered paragraph for a stated period

of time the Respondents commit not to establish any minimum rate pro

gram the purpose of which is revenue improvement or maintenance The

term minimum rate prOgram is defined to mean a program which

applies minimum rates to cOnlmodities that are subject to TWRA com

modity class or FAK rates set forth in TWRA tariffs By notation the

proposal confirms the understariding of the parties that Neither FAK 5

nor class rates shall be construed as constiruting minimum rates subject

to this provision Particular minimum rates or charges are exempted

1

J

3Rc ponIO p 3

4

Heari lg Counsel n01es that when this amenclmen t became effective the Commission directed the staff

to prepare a proposed rule which would assure unJfonn appllcatlonof Commtsslon polley regardinl the de

gree 10 which conftrence reement provisions will be required to specify the natul eof any limitationJm

posed upon momben use of ser vlct contracts Retponac p 4

FAK ratu apply either to multiple orto aU cammoditlcl and tencl to be qaed by non vessel operating

common carrlerS ltupper assoclatJona and other stuppers of a range of commodities moving together

I

28 F M C
28 F M C

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 667

AGREEMENT POSSIBLE VIOLATIONS

from the minimum rate program restraints These exceptions 6are a min

imum rates on commodities for which rates are not required by statute

or by the 1WRA Agreement to be subject to a

right of independent action 7

b ntinimum charges or cargo quantity ntinima imposed to induce a direct

vessel call at a port not ordinarily served by a 1WRA member c min

imum charges required for issuance of a single bill of lading 8 d per

container minimum charges or minimum container capacity utilization rules

where the shipper obtains exclusive use of the container for a

cargo move

ment 9 or e establishment of minimum rates for a commodity or commod

ities whose rates have been declared open

1O But this exemption from

the prohibition shall not be construed to bar an individual member of

1WRA from exercising its right of independent action against a floor

beneath an open rated commodity See paragraph I and 2 of the offer

The restraint will expire on November 7 1987 or sooner if before then

in a proceeding of general applicability the Commission determines that

a minimum rate program applicable to commodities that are also subject

to separate commodity class or FAK rates established for the purpose

of revenue maintenance or improvement is lawful Provision is also made

for the elimination of any exemption which may in the future be found

improper

The sixth numbered paragraph calls for the filing of reports by 1WRA

with the appropriate Commission office to enable the Commission to mon

itor 1WRA s use of minimum rates and charges

The seventh numbered paragraph is procedural and provides for the return

to the producing party of any material obtained pursuant to discovery

in this proceeding

6

The Commission recognizes that the use of minimum rates is along standing commercia praclice usu

ally designed to improve container utilization and deployment Order p

24 The Order did not specifically

identify norplace in issue any of the minima excepted from the restraint presumably because the majority

save a dealing with a

statutory exemption and edealing with open rates are associated withthat practice

and because it did not appear that there was any linkage between these minima and possible thwarting of

independent action However inasmuch as the Commission has not determined the validity of the usage and

practice under the Shipping Act of 1984 the inclusion of these exceptions in the order which follows should

not be construed as a determination on the merits On the other hand no useful purpose would be served

by excising the exceptiom because the restraint itself is of limited duration and because as will be seen

infra the order also provides that the exceptions must yield to applicable laws and regulations The exception

concerning open rates is examined separately infra

7Cumntly under the IWRA agreement rates for what would otherwise be statutorily exempt commodities

pursuant to section 8 a

1

of the Shipping Act 1984 46 U S c app 1707 a

1

are subject to a

right of

independent action

8 Minimum bill of lading charges are designed to recover carrier costs in the event shippers request multiple

bills of lading covering small portions of ashipment

9 Minimum charges for exclusive use of a container are adopted to compemate a carrier for wasted con

tainer space Typically it is imposed upon small shipments laking a weight basis rate if the shipper imists

on exclusive use of the container

IOOpen rates occur whenaconference decides not to publish a conference rate and allows each member

to state its own rates Commonly a floor level or minimum is set in lieu of aconference rate The practice

of establishing a floor for open rates is acknowledged in the Commission s tariff rules See 46 CFR

580 6m 2 ii
668 FEDERAL MARITIME COMMISSION

The eighth and last numbered paragraph simply provides that the pro

ceeding has come to rest upon approval of the settlement and that no

further claims may be asserted against the Respondents for alleged violations

arising out of the facts alleged in the Order

The Stipulation contains a sufficient showing to establish that Hearing

Counsel would be able to present a prima facie case of violations But

it is equally clear from the Stipulation s numbered paragraphs 13 through

16 inclusive that there is a wide rift between Hearing Counsel and the

Respondents on factual and legal issues which if the case were to go

to trial would require weeks if not months of evidentiary hearing The

costs of litigation would not be limited to this event alone It is also

estimated that Hearing Counsel will require additional and lengthy discovery

One must include other preparations for trial by counsel for both sides

in calculating costs Further there must be added the costs of appellate

procedures which in this case of novel impression under the Shipping

Act of 1984 seem inevitable whichever side might prevail at the trial

level Given those probabilities manifestly the potential litigation costs

to the Respondents would exceed the offered payment by a considerable

margin It is also evident that Hearing Counsel would be required to

expend a great deal of time resources and money to pursue this matter

to a contested and successfu I conclusion

Balancing those considerations against the alleged unlawful conduct

which if proved would constitute serious and not merely technical viola

tions see e g Armada supra 28 F M C at 369370 the penalty amount

of 300 000 does not appear inequitable The fact that the principal is

already on deposit with a bank in an interest bearing trust account with

accrued interest payable to the Government together with the principal

upon approval justifies the conclusion that the penalty not only will be

collected but that it will be collected at the least expense to the Govern

Iljent Moreover the substantial sum involved given the nature cir

cilmstllJ1ces extent and gravity of the alleged violations permits the conclu

si n that the settlement is likely to have a long term deterrent effect

on the Respondents and othe s subject to regulation

With respect to the nature and circumstances of the alleged violations

Hearing Counsel confirm that the Respondents did not attempt to conceal

the activities that resulted in this proceeding and that Respondents dealt

responsibly and cooperatively with Commission staff personnel even before

the proceeding was instituted by postponing the effective date of their

rate actions and by modifying levels of minima in order to reduce the

impact upon the shipping public Hearing Counsel advise too that after

the proceeding was commenced Respondents continued to maintain a re

sponsible and cooperative relationship during the adjudicatory process As

IIGiven too the extensive preparation and bargaining mentioned in the record it seems air to speculate

that Respondents counsel fees to date may already exceed the monetary settlement

28 F M C
28 F M C

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 669

AGREEMENT POSSIBLE VIOLATIONS

to the extent of the alleged violations Hearing Counsel assert that none

of the alleged unlawful activities is ongoing and that any such conduct

was terminated prior to the time that settlement negotiations began in

the fall of 1985

The interests of justice do not require any further modification of the

TWRA agreement or the entry of a cease and desist order It is clear

that the service contract modification which already has been permitted

to become effective and the proposed modification to paragraph 5 together

with the other commitments incorporated in the offer and the order which

follows provide sufficient mandatory safeguards for the future

Conclusion

I find that the statutory and regulatory criteria for settlement of a civil

penalty have been satisfied 12

Order

Itis ordered that the settlement be approved

Itis further ordered

1 That Respondents shall modify existing language in Article 5 of their

Agreement with respect to the relationship of independent action to any

minimum rates adopted by an amendment to Article 5 a to be adopted

by the parties and filed with the Commission no later than 10 days after

the date that this Order becomes final Such language shall be as follows

Any minimum rates other than minimum rates applicable to com

modities that are not required by statute or this Agreement to

be subject to a

right of independent action that are agreed upon

or otherwise adopted by the Parties under this Agreement shall

in all cases be subject to further adjustment or revocation under

the normal ratemaking processes of the Agreement as set forth

in this Article and in Article 8 and to the right of independent

action set forth in Article 13

2 That neither the Agreement nor its members will enter into any agree

ment to surrender any member s

right to take independent action to depart

from any multicommodity minimums adopted by the Agreement if rates

on the commodity to which such minimums are applicable are required

by statute or the Agreement to be subject to a

right of independent action

3 That issues as to the authority and the future conduct of Respondents

respecting individual carrier service contracts have been mooted by their

amendment to the TWRA Agreement filed by Respondents on October

12 The discussion addressed the dominant criteria and touched on subordinate criteria developed in the

record It is appropriate to note however that asettlement may be justified by anyone or more of the appli

cable criteria Far Eastern Shipping Company Possible Violations of Section 16 Second Paragraph 18 b3

and fR e Shipping Act 1916 supra 24 F M C at 1014
670 FEDERAL MARITIME COMMISSION

i

IS 1985 providing specific authority concerning individual TWRA mem

bers service contracts which amendments became effective under section

6 of the Shipping Act of 1984

4 That this Order shall become effective as to the Agreement and

each Carrier Respondent upon satisfaction of their offer to pay to the

Federal Maritime Commission without admission of violation of law or

liability the sum of 300 000 15 789 47 per Carrier Respondent

5 That TWRA and its members will refrain from establishing any

minimum rate program applicable to essentially all types of cargo handled

subject to the TWRA Agreement the purpose of which program is revenue

improvement or maintenance The term essentially all types of cargo

does not necessarily mean 100 of the commodities named in the TWRA

tariff s The term minimum rate program means a program which applies

minimum rates to commodities that are subject to TWRA commodity class

or FAK rates set forth in TWRA tariffs 13 This prohibition is not applicable

however to a minimum rates on commodities for which rates are not

required by statute or by the TWRA Agreement to be subject to a

right

of independent action b minimum charges or cargo quantity minima

imposed to induce a direct vessel call at a port not ordinarily served

by a TWRAmember c minimum charges required for issuance of a

single bill of lading d per container minimum chargeS or minimum con

tainer capacity utilization rules where the shipper obtains exclusive use

of the container for a

cargo movement or e establishment of minimum

rates for a commodity or commodities whose rates have been declared

open The prohibition contained in this paragraph respecting adoption

of a minimum rate program shall cease to apply on November 7 1987

or any earlier date on which the Federal Maritime Commission has deter

mined the lawfulness of such minimum rates None of the alphabetized

categories of rates above should be construed as overriding or limiting

any other requirements of any current or future applicable laws or regula

tions

6 That during the period that paragraph 5 is in effect TWRA will

report to the Director Bureau of Agreements and Trade Monitoring any

and all TWRA actions taken during such period establishing or modifying

any minimum rates and will provide applicable tariff references provided

however that no tariff matter described in paragraph 5 b and established

by independent action need be reported Reports under this paragraph shall

be filed no later than 14 calendar days after the date ofthe TWRA action

establishing such rates

7 That the Order of Confidentiality dated September 27 1986 be further

amended by adding a new paragraph thereto as follows

As of the date this proceeding is terminated by an administra

tively final order all written material and all copies thereof

J

i

13Nelther FAK nor class rates shall be construed as constituting the minimum rates subject to this Order

28 P M C
S SEYMOUR GLANZER

Administrative Law Judge

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 671

AGREEMENT POSSIBLE VIOLATIONS

produced pursuant to discovery in this proceeding or pursuant

to or in connection with the Commission s Section IS Order

served March 12 1985 that have not been offered into evidence

in the proceeding shall be immediately returned to counsel for

the parties which produced them by every person which has re

ceived copies thereof

8 That upcn final approval of this Order any assessment proceeding

civil action or other claims for recovery of civil penalties or for other

relief in any way related to claims or alleged violations of the Shipping

Act of 1984 by any Respondent arising out of any matter referred to

in the Commission s July IS 1985 Order of Investigation in this proceeding

shall be forever barred No finding in this proceeding may be used by

any person against any Respondent in any way in any other proceeding

in this or any other forum

28 F M C
672 FEDERAL MARITIME COMMISSION

APPENDIX I

Transpacific Westbound Rate Agreement P O Box 800 Iselin New Jersey

08830

American President Lines Ltd 595 Market Street Ste 2175 San Francisco

California 94104

The East Asiatic Company Ltd AlS Holbergsgade 2 DK I099 Copenhagen

K Denmark

Evergreen Marine Corp Taiwan Ltd 63 Sung Chiang Road Taipei

Taiwan

Hanjin Container Lines Ltd C P O Box 6289 Seoul Korea

Hapag Lloyd AG Postfach 10 26 26 Ballindamm 25 2000 Hamburg I

Federal Republic ofGermany West

Japan Line Ltd Tokusai Building I I Marunouchi 3 Chome Chiyoda

ku Tokyo 100 Japan

Mitsui O S K Lines Ltd I I Toranomon 2 Chome Minato ku Tokyo

105 Japan

Kawasaki Kisen Kaisha LtdHibiya Central Building 2 9 Nishi Shinbashi

I Chome Minato ku Tokyo 105 Japan

Nippon Yusen Kaisha 3 2 Marunouchi 2 Chome Chiyoda ku Tokyo

C P O Box 1250 Tokyo 10091 Japan

Showa Line Ltd Hibiya Kobusai Building 2 3 Uchisaiwaicho 2 Chome

Chiyoda ku Tokyo 100 Japan

Korea Marine Transport Co Ltd 23rd Floor KAL Building 118 2

ka Namdaemoon Ro Chung Ku Seoul Korea

Lykes Bros Steamship Co Inc Lykes Center 300 poydras Street New

Orleans Louisiana 70130

AP Moller Maersk Line 50 Esplanaden DK I098 Copenhagen K Den

mark

Orient Overseas Container Line c o Seapac Services Inc 433 Hegenberger

Road Suite 200 Oakland California 94621

Neptune Orient Lines Ltd 456 Alexandra Road NOL Building Singapore

0511 Republic of Singapore

Sea Land Service Inc 10 Parsonage Road P O Box 800 Iselin New

Jersey 0830

United States Lines Inc 27 Commerce Drive Cranford New Jersey 07016

28 F M C
28 F M C

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 673

AGREEMENT POSSIBLE VIOLATIONS

Yamashita Shinnihon Steamship Co Ltd 1 Hitotsubashi I Chome

Chiyoda Ku Tokyo 100 Japan

Zim Israel Navigation Company Ltd Zim Container Service One World

Trade Center Suite 2969 New York New York 10048
674 FEDERAL MARITIME COMMISSION

APPENDIX II

FEDERAL MARITIME COMMISSION

DOCKET NO 85 18

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE

AGREEMENT POSSIBLE VIOLATIONS OF THE SHIPPING ACT OF

1984

FURTHER AMENDED OFFER OF SETILEMENT

WHEREAS by its Order of July IS 1985 the Federal Maritime Commis

sion commenced an investigation as to whether certain actions of Respond

ents may have constituted violations of the Shipping Act of 1984 and

WHEREAS Respondents believe and assert that their actions were fully

and publicly disclosed and authorized by Article 5 and other provisions

of their conference agreement that their actions were in all respects within

the scope thereof and otherwise lawful and believe that their position would

be vindicated in this proceeding and

WHEREAS Respondents have nonetheless found that their legal expenses

in the proceeding are escalating rapidly and that the proceeding is diverting

substantial time and attention of Respondents senior management and

WHEREAS in order to terminate their escalating legal expenses and

diversion of management time and in settlement of issues raised by the

first and second ordering paragraphs of the July IS 1985 Order Respond

ents are willing to consent I to file an amendment to their conference

Agreement responsive to the concerns set forth in the July IS 1985 Order

2 to make certain undertakings as set forth herein concerning future

operations under the conference Agreement 3 not to adopt a

program

of minimum rates as defined below and applicable essentially to all com

modities for a period ending no Icter than November 7 1987 and 4

by a monetary payment all on the specific condition that such amendment

undertakings and monetary settlement be without any admission of violation

of law or liability of any kind or admission that any allegation or statement

in the Order of Investigation is true and

WHEREAS this offer of settlement is conditioned upon a final Order

disposing of the proceedings as provided below that states that any claims

by the Commission for or based on violation of law or liability for penalties

under the Shipping Act of 1984 as to any matter set forth in or arising

out of the events described in the Order of July IS 1985 are resolved

without admission of liability or violation of law by any Respondent and

WHEREAS the Commission s Bureau of Hearing Counsel has advised

Respondents that it will not oppose this offer of settlement and considers

it reasonable

28 F M C
28 F M C

MEMBER LINES OF THE TRANSPACIFIC WESTBOUND RATE 675

AGREEMENT POSSIBLE VIOLATIONS

NOW THEREFORE Respondents do make this offer of settlement

IThat Respondents shall modify existing language in Article 5 of their

Agreement with respect to the relationship of independent action to any

minimum rates adopted by an amendment to Article 5 a to be adopted

by the parties and filed with the Commission no later than 10 days after

the date that this Order becomes final Such language shall be as follows

Any minimum rates other than minimum rates applicable to com

modities that are not required by statute or this Agreement to

be subject to a

right of independent action that are agreed upon

or otherwise adopted by the Parties under this Agreement shall

in all cases be subject to further adjustment or revocation under

the normal rate making processes of the Agreement as set forth

in this Article and in Article 8 and to the right of independent

action set forth in Article 13

2 That neither the Agreement nor its members will enter into any agree

ment to surrender any member s

right to take independent action to depart

from any multicommodity minimums adopted by the Agreement if rates

on the commodity to which such minimums are applicable are required

by statute or the Agreement to be subject to a

right of independent action

3 That issues as to the authority and the future conduct of Respondents

respecting individual carrier service contracts have been mooted by their

amendment to the TWRA Agreement filed by Respondents on October

15 1985 providing specific authority concerning individual TWRA mem

bers service contracts which amendments became effective under Section

6 of the Shipping Act of 1984

4 That this Order shall become effective as to the Agreement and

each Carrier Respondent upon satisfaction of their offer to pay to the

Federal Maritime Commission without admission of violation of law or

liability the sum of 300 000 15 789 47 per Carrier Respondent

5 That TWRA and its members will refrain from establishing any

minimum rate program applicable to essentially all types of cargo handled

subject to the TWRA Agreement the purpose of which program is revenue

improvement or maintenance The term essentially all types of cargo

does not necessarily mean 100 of the commodities named in the TWRA

tariff s The term minimum rate program means a program which applies

minimum rates to commodities that are subject to TWRA commodity class

or FAK rates set forth in TWRA tariffs This prohibition is not applicable

however to a minimum rates on commodities for which rates are not

required by statute or by the TWRA Agreement to be subject to a

right

of independent action b minimum charges or cargo quantity minima

imposed to induce a direct vessel call at a port not ordinarily served

by a TWRA member c minimum charges required for issuance of a

single bill of lading d per container minimum charges or minimum con

1 Neither FAK nor class rates shall be construed as constituting minimum rates subject 10 thisOrder
676 FEDERAL MARITIME COMMISSION

tainer capacity utilization rules where the shipper obtains exclusive use

of the container for a

cargo movement or e establishment of minimum

rates for a commodity or commodities whose rates have been declared

open The prohibition contained in this paragraph respecting adoption

of a minimum rate program shall cease to apply on November 7 987

or any earlier date on which the Federa Maritime Commission has deter

mined the lawfulness of such minimum rates None of the alphabetized

categories of rates above should be construed as overriding or limiting

any other requirements of any current or future applicable laws or regula

tions

6 That during the period that paragraph 5 is in effect TWRA will

report to the Director Bureau of Agreements and Trade Monitoring any

and all TWRA actions taken during such period establishing or modifying

any minimum rates and will provide applicable tariff references provided

however that no tariff matter described in paragraph 5b and established

by independent action need be reported Reports under this paragraph shall

be filed no later than 14 calendar days after the date of the TWRA action

establishing such rates

7 That the Order of Confidentiality dated September 27 986 be further

amended by adding a new paragraph thereto as follows

As of the date this proceeding is terminated by an administra

tively final order all written material and all copies thereof

produced pursuant to discovery in this proceeding or pursuant

to or in connection with the Commission s Section 5 Order

served March 2 985 that have not been offered into evidence

in the proceeding shal be immediately returned to counsel for

the party which produced them by every person which has received

copies thereof

8 That upon final approval of this Order any assessment proceeding

civil action or other claims for recovery of civil penalties or for other

relief in any way related to claims or alleged violations of the Shipping

Act of 984 by any aespondent arising out of any matter referred to

in the Commission s July 5 985 Order of Investigation in this proceeding

shall be forever barred No finding in this proceeding may be used by

any person against any respondent in any way in any other proceeding

in this or any other forum

Dated II August 1986

Identification and signatures of attorneys for the parties not included

28 FM C
28 F M C 677

FEDERAL MARITIME COMMISSION

DOCKET NO 8611

NEUTRAL CONTAINER RULE U S ATLANTIC NORTH EUROPE

CONFERENCE

ORDER DISCONTINUING PROCEEDING

November 7 1986

By Order of Investigation and Hearing served April 4 1986 April Order

the Commission initiated this proceeding to investigate the use of the neutral

container system by the U S Atlantic North Europe Conference ANEC

Although the April Order addressed ANEC s prior use of the neutral con

tainer system its primary focus was on the legality and effects of a tariff

rule which ANEC had recently adopted ANEC was named respondent

and several container leasing companies shippers and the Department of

Justice were named protestants 2

In response to a motion filed by ANEC the Commission by Amended

Order of Investigation and Hearing served June 6 1986 Amended Order

subsequently modified the April Order to include two additional issues

Tbe first concerned whether any shipper may have violated the Shipping

Act of 1984 1984 Act 46 US C app SS 1701 1720 by taking advantage

of the neutral container system and the second raised the issue of whether

a container leasing company could be found in violation of the 1984

Act under such circumstances

Several container leasing companies which were named protestants by

the April Order Protestants have now filed a Notice of Intention to

Withdraw as Protestants and Motion to Terminate Investigation Notice

and Motion 3 Replies to the Notice and Motion were filed by ANEC

the Minnesota Mining and Manufacturing Company 3M the Pacific Coast

European Conference and the Pacific Australia New Zealand Conference

the Trans Pacific Freight Conference of Japan and the Japan Atlantic and

Gulf Freight Conference and the Commission s Bureau of Hearing Counsel

Tariff Rule 21J Rule slates that after January 1 1986

the carrier will not accept responsibility for the payment of any charge including but not limited

10 remallleasing drop off tennination ormaintenance and repair charges for orin connection with

the use of any dry trailer container not owned or leased prior to its delivery to ashipper for load

ing by the carrier orany affiliate thereof during its transit by water or by land

2

These protestants had previously participated in support of apetition fOf ashow cause order against the

Rule which was denied by the Commission See Order Denying Petition for Order to Show Cause served

February 18 1986

3

The Notice and Motion was filed on behalf of Inlerpool Ltd I1EL Containers International Corporation

Nautilus Leasing Services Inc Sea Containers America Inc Trans Ocean Leasing Corporation and Trans

americaICS Inc
678 FEDERAL MARITIME COMMISSION

1

By memorandum dated September 5 1986 Chief Administrative Law Judge

Charles E Morgan transmitted the Notice and Motion to the Commission

with his recommendation that the proceeding be terminated

POSITIONS OF THE PARTIES

Protestants contend that they cannot continue to participate in this pro

ceeding because of heavy expenses and other attendant burdens They expect

that in response to their withdrawal as parties the Commission will termi

nate the proceeding and return all parties to the status quo ante at which

point they could pursue other unspecified forms of relief Protestants con

tinue to maintain that ANEC s Tariff Rule 2l J which was the impetus

for this proceeding is unlawful However they also contend that the costs

of proving the Rule unlawful are not justified given current economic

conditions

ANEC has no objection to Protestants dismissal from the proceeding

and supports a concurrent termination of the proceeding ANEC notes that

it is unlikely that Protestants CQuld be prevented from withdrawing from

the proceeding because they were not originally designated as respond

ents ANEC further notes tha i

the Protestants have been the only parties

opposing Rule 21J in the instant proceeding 4 ANEC also contends that

the expenses and burdens of this proceeding have been helYY on it as

well and will continue to be so if it must continue to defend its Rule

ANEC notes that certain issues raised by the April Order relate to the

lawfulness of Rule 21J but maintains that the Commission has already

found the Rule to be prima facie lawful As for the other issues ANEC

argues that they relate to pre Rule 21J conduct and that implellWntation

of Rule 21J has righted any wrong which mlY have existed In light

of the non participation of the leasing companies and th fact that

the

remaining issues are allegedly of little more than academic interest ANEC

believes the Commission should exercise its discretion and terminate the

proceeding

3M does not oppose granting the Notice and Motion It notes however

that doing so will leave unresolved the issue of the lawfulness of Rule

21J 3M also contends that the present procedural format is ill suited

to the needs of many of those adversely affected by the Rule and suggests

that it may be incumbent on the Commission to devise an alternative

procedure to assess the Rule At the verY least 3M suggests that the

Commission should officially encourage the carrier conferences and

their individllal members to entertain proposals for modification of joint

container rules and independent container practices

1

i

4ANEC points oul that of the eighl shippers also named as protestants inthe Order of InvesUaaUon thqe

have been dlsmiued as parties at thelr requesf and all but one of thote remaining have ignored the pro

ceeding In addition the Department of Justice which was also named a prolcatlUlt indicated Ihat it would

not participate in the hearing stage of the proceeding

28 FM C
28 F MC

NEUTRAL CONTAINER RULE U S ATLANTIC NORTH 679

EUROPE CONFERENCE

The Trans Pacific Freight Conference of Japan and the Japan Atlantic

and Gulf Freight Conference support the Notice and Motion They also

note 3M s suggestion that the proceeding might be carried on against the

conferences but oppose any such one sided continuation The Pacific Coast

European Conference and the Pacific Australia New Zealand Conference

simply note that they have no objection to termination of the proceeding

In light of what it terms Protestants effective withdrawal from this

proceeding Hearing Counsel likewise does not oppose termination of the

proceeding Hearing Counsel also contends that without Protestants partici

pation any further investigation would be inefficient and more costly for

the remaining parties particularly ANEC In addition Hearing Counsel

does not believe that termination will affect the rights of any other parties

and contends that 3M is still free to file a complaint if it so desires

Hearing Counsel does note however that serious allegations of violations

of the 1984 Act have been raised during the course of the proceeding

It suggests that the Comntission may want to pursue them through another

unstated procedural avenue

DISCUSSION

Interpool Ltd a container leasing company initially sought a show

cause order against ANEC s

implementation of Rule 21J a rule which

would prohibit conference members from using neutral containers except

to the extent they were leased by a carrier prior to their delivery to

a shipper Although Interpool was not successful in that endeavor the

allegations raised during consideration of its petition did prompt the Com

mission to institute the instant proceeding pursuant to section lI c of

the Shipping Act of 1984 46 D S C app @171O c

The April Order attempted to address these allegations in the context

of the ANEC trade and set forth eight issues for consideration ANEC

was the only party named as a

respondent and container leasing compa

nies and others who had previously filed comments were named protes

tants Although a subsequent order modified the April Order to include

two additional issues the status of the parties remained unchanged At

that stage the Commission did not believe that an adequate basis existed

to make the particular container leasing companies respondents in this inves

tigation In fact one of the additional issues raised by the Amended Order

was whether a container leasing company could theoretically violate the

1984 Act under the circumstances presented In any event the Commission

will honor the Protestants request and permit them to withdraw as parties

from this proceeding

Given the fact that we will no longer have the Protestants active partici

pation in this proceeding we must now decide whether it remains in

our best interest to continue this proceeding In this regard we find it

significant that all parties involved favor a termination of the proceeding

They contend that it would be inequitable to make ANEC defend its use
680 FEDERAL MARITIME COMMISSION

j

I

of the neutral container system and implementa ion of Rule 21J while

at the same time allowing certain practices of the cOntainer leasing compa

nies to escape full scrutiny Some also point out the difficulties inheren

in litigating the iSSUepresented if the leasing companies are not parties

The Commission shares these concerns Although it might be possible

to continue the investigation without the active participation of the container

leasing companies it would be considerably more difficult to do so More

over the resources which would be expended both by the Commission

and the remaining parties would appear to militate against a continuation

of the proceeding Accordingly the Commission has determined to dis

continue this proceeding While doing so however we note that we will

informally investigate the matters complained of which formed the basis

for this proceeding to ascertain whether regulatory issues of sufficient mag

nitude are present to warrant future action by the CommjBsion

One final matter needs to be addressed 3M has suggested that the

Commission should officially encolrage ANEC to modify its rule con

cerning the use of neutral containers This the Commission cannot do

especially in view of the fact that there has been no determination of

the lawfulness vel non of ANEC s Rule 21J and its neutral container

practices The Commission does note however that conference agreements

must establish a procedure for promptly and fairly considering shippers

requests 46 U S C app l704 b 7 and that 3M is certainly free to avail

itself of such a procedure

TIiEREFORE IT IS ORDERED That this proceeding is discontinued

By the Commission

S JOSEPH C POLKING

Secretary

J

j

28 F M C
28 F M C 681

FEDERAL MARITIME COMMISSION

DOCKET NO 82 49

REEFER EXPRESS LINES PTY LTD

v

U1TERWYK COLD STORAGE CORPORATION ELLER AND

COMPANY INC AND TAMPA PORT AUlliORITY

ORDER PARTIALLY ADOPTING INITIAL DECISION ON REMAND

November 14 1986

This proceeding was initiated by the complaint of Reefer Express Lines

Pty Ltd REL or Complainant alleging that the charge for warehouse

checking assessed against REL s vessels under the tariffs of the Tampa

Port Authority port Authority Uiterwyk Cold Storage Corporation

Uiterwyk and Eller and Company Eller Icollectively referred to herein

after as Respondents was an unjust and unreasonable practice in violation

of section 17 of the Shipping Act 1916 1916 Act 46 U S C app 816

BACKGROUND

REL is a common carrier by water in the U S foreign commerce which

serves the export trade from the Port of Tampa Port with refrigerated

vessels Uiterwyk was the operator of a cold storage terminal facility at

the Port Eller through its wholly owned subsidiary Harborside Refrigerated

Services Inc Harborside was the successor to Uiterwyk s operation at

the Port The Port Authority is a public body established by statute to

prescribe rules regulations and rates for the Port ofTampa

The disputed charge is for warehouse checking defined in the Port

Authority s TariffFMC No 8 Item 285 as

The employment of warehouse clerks and checkers as differen

tiated from shipside clerks and checkers in delivery of inbound

cargo upon commencement of discharge of cargo and the end

of the Free Time allowance or in receipt of outbound cargo

from the beginning of the Free Time allowance until completion

of the loading aboard vessel of the cargo Warehouse Checking

is assessed against the carrying vessel based on total inbound

and outbound cargo manifest weight 2

I Uilerwyk however did not participate in this proceeding

2Afier the complaint was filed and at REL s urging the Port Authority s tariff was amended effective

October I 1982 to shift responsibility for the warehouse checking charge from the vessel in all cases to

Continued
682 FEDERAL MARITIME COMMISSION

Complainant charged that warehouse checking is in violation of section

17 of the 1916 Act because it is a charge for a service not actually

performed and the charge is not reflected in the Uiterwyk and Harborside

tariffs but is based on cross referencing in those tariffs to the Port

Authority s tariff REL alsoallege that the PortcAuthority s tariff represents

an agreement among terminal operators which is not approved by the

Commission in violation of section 15 of the 1916 Act3

Hearings were held in 1983 before Chief Administrative Law Judge

Charles E Morgan Presiding Officer who issued an Initial Decision on

March 7 1984 27 F M C 14 1984 ID finding that the physical activity

of warehouse checking had been performed and was of some benefit to

REL as well as the shipper the charge for warehouse checJdng was not

shown to be unjust and unreasonable Uiterwyk s and Eller s practice of

incorporating by reference in their tariffs the warehouse checking charge

of the Port Authority was not unjust or unreasonable and the Port

Authority s tariff was not an unapproved agreement among terminal opera

tors

The 1984 ID also determined that warehouse checking is an actual

service performed by terminal personnel which consists of tallying cargo

on receipt by the terminal from an overland carrier and upon discharge

from the cold storage facility to the vessel and inclu les preparation of

docl receipts and loading lists as well as acting as the interface of product

cargo information between the terminal and the vessel s stevedore so that

the cargo can be delivered to the vessel for loading in an efficient and

reasonable manner 27 F M C at 17 18 4

That 1984 ID was adopted in part by the Commission and the case

was remanded to the Presiding Officer for further hearings on several

I

the party responsible for srevedorina charges and to pennlt the party responslbleJor payment to requeal

thai warehouse checking not be pcrfonned However in the latter instance the amended tariffprovides that

the tennlnal operators will not be responsible for any overases andor shortages I

Port of Tampa TarIff

FMC No 8 Item 285 Since October 1982 RBL hu requested that warehouse checkin not be performed

3Setlon 15 IJ6 US C 814 984 as applicable hereIn provided in pan that every agreement fIXing

or regulating transportation rates or fares giving or reco1vina special rltes accommodations orother spe ial

privileges or advantages controlling regulating preventing or destroying competition poollng or appOr

tioning earnings losses or trafflc allotting pons or restricting or Qtherwise regulating the number and char

acter of sailings between pons limiting orregulatlnlin any way the volume or character of freight or pas

senger traffic to be carried orin any manner providing fot an excluiive preferential or cooperative working

arrangement among other persons lubjcct to the Act Including tholo who provide warehouse or

terminal services in COMection with a common carrier by water must be filed witb the Commission for

its approval Any aareement not filed and approved by the Cornm lion would be unIaful

Warehouse checking was described by Eller s witness FranCis g Cunningham General Manager of

Harborside on cross examination as

tallying upon receipt from trucks orrailcars of Calgo by mark or lot number by count at times

by weight and condition before placement into the warehouse to tallying the checking of condi

tion marks lot numbers upon presentation of that cargo to astevedore for loading on board aves

sel Transcript 69

REL s Director of Tenninal Operations admitted in both his written direct teltimony and at the hearing

that he had seen warehouse employ s other than forkUft operators checkln and tallying export cargo both

upon arrival at the refrigerated terminal facility Direct Testimony 2 Transcript 13 and discharge from the

warehouse to the vessel Transcript 16

28 F M C
28 F M C

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STORAGE CORPORATION ET AL

issues which had been raised on Exceptions and Replies to Exceptions

to the Initial Decision 27 F M C 5 1084 The Commission sustained

the Presiding Officer s

findings that the physical activity of warehouse

checking had been performed and was of benefit to the vessel However

it noted that having found the function to benefit the shipper as well

the 1984 ID made no attempt to allocate the charges between the cargo

interests and vessel interests based upon benefits conferred

REL s argument that its tariff provided tackle to tackle rates under

which it would not be liable for services rendered to cargo before it

was brought within reach of the ship s tackle was also considered although

the Commission noted that the record was not clear as to RELs practices

and rates actually in effect for shipments through Tampa The Commission

therefore remanded the proceeding to the Presiding Officer to determine

whether

I any of the charges for warehouse checking in the Port Authority s

tariff may lawfully be charged for the account of the vessel in light of

REL s tariff provision for tackle to tackle rates and the Commission s prior

decisions

2 if such charges may be assessed against the vessel the charges

should be allocated among the vessel and the shipper consignee in proportion

to the benefits conferred on each by the service and whether any proportion

of the costs should be borne by the terminal operator and

3 the amended Port Authority tariff definition of warehouse checking

unlawfully exculpates the terminal operators from possible liability for their

own negligence

Another evidentiary hearing was held on remand at which four witnesses

were heard through written direct testimony and live cross examination

The parties generally adbered to their original positions REL insisting

that it received no benefit from warehouse checking and performed its

own checking function and the Respondents maintaining that warehouse

checking was performed on behalf of the vessel No party supported alloca

tion of the charges between cargo interests and vessel interests

In his Initial Decision on Remand served March 4 1986 28 F MC

693 1986 ID the Presiding Officer again found the tariff provisions

relating to warehouse checking and assessment of the charges therefor

to be lawful except as to the 1982 amendment to the tariff under which

the terminal operators will not be responsible for any overages andlor

shortages when it is requested that warehouse checking not be performed

He concluded that the tariff provision as revised in 1982 unlawfully excul

pated terminal operators from liability arising from their own negligence

The 1986 ID found that the warehouse checking function is actually

performed twice once upon receipt of the cargo for intake into the refrig

erated storage facility and once for marshalling the cargo for loading on

board the vessel Warehouse checking was again found to benefit the vessel

by permitting the segregation and orderly loading of cargo in a timely
684 FEDERAL MARITIME COMMISSION

I

manner necessary for refrigerated or frozen cargo in Tampa s climate and

for vessel efficiency

Alluding to evidence offered by the Port Authority it was noted that

charges for similar functions performed at other ports are assessed solely

against vessel interests and some terminal tariffs explicitly provide that

any allocation of the charges between vessel imd cargo must be made

by the parties to the contract of affreightment The latter practice the

Presiding Officer found is consistent with the terminal practices found

lawful by the Commission in Terminal Rate Structure Pacific Northwest

Ports 5 F M B 53 1956 reconsidered at 5 F MB 326 1957

The 1986 LD found the warehouse checking function to be appropriately

assessed against the vessel because the carrier controls the flow of transpor

tation through the terminal at Tampa choosing the terminal and instructing

the shipper as to where and when to deliver his cargo The Presiding

Officer noted that the REL tariff reflects a variety of tariff terms in addition

to tackle to tackle rates Free In lI1d Out Liner TermsFull

Liner Terms and Liner In and Free Out Although Respondents contend

that for most of the rates offered these terms connote services beyond

ship s tackle which Complainant disputes the Presiding Officer held that

to be a matter of the contract of affreightment between the carrier and

the shipper rather than the relationship betWeen the carrier and the terminal

operator He took note that the terminal operator is not a party to and

is not made aware of the contract of affreightment between shipper and

carrier

The 1986 LD further determined that a common carrier s responsibilities

regardless of its tariff terms and contracts ofaffreightment include providing

a safe and convenient place for the receiving of cargo from the shipper

and the giving of a

receipt for the cargo These functions the Presiding

Officer explained are performed by the terminal as the agent of the vessel

and are of necessity performed prior to the time the cargo is delivered

to ship s tackle 6 The Presiding Officer concluded that the provision of

a convenient and safe place to receive export refrigerated cargo required

delivery to arefrigerated warehouse and included the function of warehouse

checking

Exceptions to the 1986 LD were filed by Complainant to which Respond

ents replied The Commission heard oral argument

DISCUSSION

On Exceptions REL argues that terminal charges are appropriately to

be assessed against the party which controls the cargo which in this

case is said to be the shipper and that the determination or when legal

control of the cargo passes from the shipper to the carrier is to be

S See Iriltlal Decision on Remand 28 F M C at 703 discussing the tariffs of the Port of Seattle Port of

Palm Beach Georsia Ports Authority Port of Portland Oreiont and Soulh Carolina State Ports Authority

6See TermllUd Rate Increases PUBet Sound Ports 3 U S M C 2J 2341948

28 FM C
28 F M C

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STORAGE CORPORATION ET AL

determined from the facts in which a dominant detenninant is the

contract of affreightment Complainant s Exceptions and Brief at 5 In

this connection it is alleged that the shipper elects the port and pier

at which REL vessels call all physical services to cargo including move

ment from delivery at the warehouse into cold storage are billed to and

collected from the cargo owner the dock receipt provided by the ternlinal

is in the terminal s name and the terminal moves cargo to shipside only

upon written release from the owner All of this is said to indicate the

shipper s continuing control over the cargo until it reaches shipside or

ship s tackle REL further contends that actions by the terminal as

well as the assessment of wharfage charges against cargo are consistent

with its own tackle to tackle rates which limit its assumption of responsi

bility for the cargo to receipt at the end of ship s tackle subject to its

own count

REL s insistence that the shipper retains control of the cargo until it

is delivered by the tenninal operator to a point of rest on the pier within

reach of ship s tackle is neither borne out by the record nor otherwise

dispositive of the issue of which party should bear the cost of warehouse

checking Although the shipper is asked to release the cargo it is

the carrier which detennines when the cargo will be loaded and in what

order it will be moved from the tenninal Moreover it does not appear

from the record that the shipper chooses the tenninal from which its

cargo will be picked up as REL asserts Although a shipper may choose

to make its shipment from one port rather than another once it has done

so it delivers its cargo to the terminal designated by the carrier REL s

own witness admitted on cross examination that only in exceptional cir

cumstances would an REL vessel call to pick up cargo from more than

one terminal facility within a port Hearing Transcript March 5 1985

at 190

REL s main argument that the choice of patty to be charged is unlawful

in this case turns upon the type of service it allegedly offers Thus REL

argues that its tariff sets forth tackle to tackle rates which limit the

inception of its obligations to the point at which cargo is placed beneath

ship s tackle The cases statutes and other authorities cited by REL for

this proposition S however appear to be irrelevant to the question of the

7

The Harborside facility operated by Eller s subsidiary is apparently the only refrigerated terminal in

Tampa

B g Scrutton on CluJrter Parties and Bills of Lading Knauth Ocean Bills of Lading REL also argues

that its own obligations to the cargo

are limited to those defined by the Carriage of Goods By Sea Act

46 US c 1301 the Harter Act 46 V S C 190 and its contracts of affreightment Cases cited by REL

indicate that a carrier may limit its statutory liability fOf damage 10 cargo under those Acts by charter or

affreightment contract terms which defme its service as beginning orending at end of tackle The cases cited

by Respondents however indicate that the carrier s

statutory liability for damage to cargo continues to apply

through delivery 10 a safe and convenient location Respondents argue by analogy that the carrier s

liability

attaches at the point at which safe and convenient delivery of cargo to the carrier canbe made See eg

FJ Walker Ltd v The M V LEMONCORE 561 F 2d 1138 5th Cir 1977 Philip Morris v American

Continued
686 FEDERAL MARITIME COMMISSION

lawfulness of the tenninal operator s choice of party to be assessed for

the function in question The carrier s

liability for damage to cargo under

the Harter and Carriage of Goods by Sea COGSA Acts is not definitive

of its common carrier service obligations under the Shipping Act or the

lawfulness of terminal operators charges and tariffs The common carrier s

obligation to provide a safe and convenient place for the receipt and delivery

of cargo under the Shipping Act cases is nevertheless consistent with

the Harter Act COGSA and cases thereunder cited by theparties 9

The issue of whether RELs tackle tOl

ckle rates affected its liability

for the warehouse checking charges was raised on Exceptions to the Initial

Decision as a result of REL s reliance on Rule 2A of its tariff The

Commission s Order of Remand specifically directed the Presiding Officer

and the parties to consider the effect of this provision on the facts of

this case under prior Commission decisions lO

REL insists that its terms of service are tackle to tackle and other

terms contained elsewhere in its tariff Liner Terms Full Liner Terms

and Free In and Out mean the same with respect to its responsibility

to the cargo Eller takes issue with this assertion that tackle to tackle

terms and liner terms as used in RELs tariff are the same The

Port Authority points out that REL s assertedly tackle to tackle rates

are so except as otherwise provided the actual rates as puJjlished how

ever carry terms which are questionably tackle to tackle 0 0 0 Reply

of Respondent Tampa Port Authority to Complainant s Exception and Brief

13

RELs tariff Rule 2A specifies that the rates are tackle to tackle

e xcept as otherwise provided 11 As Respondents point out only the

11 cargo NOS rates in REL s tariff do not otherwise provide all of

the remaining specific commodity rates provide other terms Liner Full

Liner etc Moreover these are the rates which apply in practice to most

cargo which moves under the tariff See Transcript of Hearing March

5 1985 186188 Thus if the phrase Except as otherwise provided

has any meaning it appears that RELs tackle to tackle rates and its

arguments based thereon are largely illusory

The Port Authority argues that Complainant s claim that its responsibility

for services to the cargo begins at the end of its tackle is based upon

an incorrect definition of the point of rest and that the Presiding Officer

correctly concluded that the appropriate point of rest to which a shipper

Shipping Co 748 F 2d 563 11th Cir 1985 and Tapco Nigeria LId v MV WES1WIND 702 F 2d 1152

5th Ca 1983

I Neither these authorities nor the Presiding Officer s decision prevents the carrIer from passing through

this expense to the shipper either in the ItNcture of ils freiah rates orby charging separately therefor

10 Although the Commission s Order of Remand sunestcd thai the parties address lhe issue of the tenns

of service common carriage orcontract tackle totackle orotherwiseapplicable 10 the shipments on which

the disputed chargca were incurred it does not appear from the record herein that this was done See Order

of Remand 14

II Except as otherwise provlaed rates named herein ill ill are applicable from ena of ships tackle at

loading port ana include only the on shore cost or on lighter cost of hooking sling load to ships gear

28 F M C
28 F M C

REEFER EXPRESS LINES PTY LTD V UlTERWYK COLD 687

STORAGE CORPORATION ET AL

must deliver its cargo in the case of refrigerated cargo is the entry to

the refrigerated terminal at which the vessel will call This point of rest

the Port Authority urges is necessarily a function of the carrier s obligation

under the Shipping Act and Commission case law to provide a safe and

convenient place to receive cargo Eller submits that a carrier s duties

for the receipt of cargo are analogous to its duties for the delivery of

cargo as determined by the Carriage of Goods by Sea and Harter Acts

supra and cited cases arising thereunder

The Presiding Officer concluded that a common carrier s

responsibilities

under the 1916 Act regardless of its tariff terms and contracts of affreight

ment include providing a safe and convenient place for the receiving of

cargo from the shipper and the giving of a receipt for the cargo These

functions are performed by the terminal as the agent of the vessel and

are of necessity performed prior to the time the cargo is delivered to

ship s tackle quoting Terminal Rate Increase Puget Sound Ports 3

U S M C 21 234 1948 12 We agree with his conclusion that the nature

of the transportation service offered refrigerated service and the cargo

for which such service is offered perishable commodities require as a

practical matter that the carrier provide for receipt of cargo at facilities

at which its condition can be maintained during transfer from one party

to another

Because we find the Presiding Officer s reasoning valid with respect

to the carrier s obligations to provide a place for delivery of refrigerated

cargo the issue of the effect of REL s tackle to tackle rates is irrelevant

Whether REL s tariff terms under specific rates shift the burden from

one party to the other for the expense of the terminal s services does

not affect the relationship between the terminal and the carrier the terminal

may charge the vessel for warehouse checking and the carrier may itself

collect it from the shipper

The function of warehouse checking appears to be one of several

checking functions performed by the terminal operator at the various inter

face points in the transportation process between shipper or inland carrier

and physical possession of cargo by the ocean carrier The Commission

regulation which defines checking indicates that it may be a charge

for the account of the cargo or the vessel or other person requesting

the service 13 REL upon whom the burden of proof rests in this case

has failed to establish that it is unlawful for Eller to assess the charge

for warehouse checking at its Tampa facility against the vessel

12 The carrier must furnish aconvenient and safe place at which to receive cargo from a shipper

If this can be done at end of ship s tackle the contracts of carriage may be limited to such service

On the other 2nd if such receipt is impractical or impossible the carrier must assume as part of

its carrier obligation the cast of moving the cargo from where it can be receivedfrom the shipper

The carrier cannot divest itself of this obligation by offering aservice which is not prepared toper

form Emphasis supplied inthe LD on Remand 28 EM C at 708

1346 C F R 515 6d 9
688 FEDERAL MARITIME COMMISSION

1

One final point needs be addressed In remanding the case to the Presiding

Officer the Commission ordered him to consider whether the Port Authority

tariff definition of warehouse checking as amended in 1982 unlawfully

exculpates the terminal operators from possible liability for their own neg

ligence The Port Authority has since advised on brief that it has no

objection to amending the tariff to indicate that the terminal operators

non liability for shClrtages or overages would not apply where such shortages

or overages resulted from the sole negligence of the terminal operator

In his 1986 ID the Presiding Officer concluded that the tariff provision

as revised in 1982 did unlawfully exculpate terminal operators from liability

arising from their own negligence and that the revision proposed by the

Port Authority would also be troublesome He concluded however that

substitution of the word substantial for sole in describing the lintits

of the terminal operators putative liability would be acceptable While

we agree with his reasoning and his finding that the limitation of the

terminal operators liability to damages arising from its sole negligence

is inappropriate we do not find the alternative formulation any more accept

able The Presiding Officer s resolution of this issue is therefore not

adopted The Port Authority s proposed formulation without limitation or

description of the degree of negligence for which it would ordinarily be

liable would we believe be most appropriate

With the exception noted above we find the findings and conclusions

reached by the Presiding Officer in his Initial Decision on Remand to

be proper and well founded

THEREFORE IT IS ORDERED That with the exception of the second

paragraph of page 27 28 F M C at 709 fifth full paragraph the Initial

Decision on Remand in Docket No 82 49 is adopted and

IT IS FURTHER ORDERED That Complainant s Exceptions are denied

and

IT IS FURTHER ORDERED That Docket No 8249 is discontinued

I

By the Commission

S JOSEPH C POLKING

Secretary

14 We also do not agree with the Presiding Officer s conclusion that the issue would necessarily be appro

priately decided in some other forum This portion of the Initial Declsion on Remand wlll therefore also

nol be adopted

15 The Port Authority s tariffprovlaion as amended would thu read

When warehouse checking is requested not to be performed terminal operators will not be respon

sible for any overages andor shortages except where such shortagel andorOVelagea resulted from

the negligence of the terminaloperator

28 FM C
28 F M C 689

FEDERAL MARITIME COMMISSION

DOCKET NO 82 49

REEFER EXPRESS LINES PTY LTD

v

UITERWYK COLD STORAGE CORPORATION ELLER COMPANY

INC AND TAMPA PORT AUTHORITY

On remand found that

1 The Tampa Port Authority s tariff providing for the assessment by the Port s terminals

of charges for warehouse checking for the account of the vessel is lawful

2 The above charges should Dot be allocated by the Port s terminals among the vessel

and shipper consignee in proportion to any benefits alleged to be conferred inasmuch

as such charges are the responsibility of the vessel in providing its transportation services

including the necessity to provide for a safe and convenient place to receive cargo

and issue a

receipt therefor and the costs for the service of warehouse checking should

not be borne inany proportion by the Port s terminals

3 The Port Authority s tariff defmition of warehouse checking unlawfully exculpates the

Port s terminals and should be amended

Joseph A Klausner and Josiah K Adams for complainant Reefer Express Lines Pty

Ltd

David F Pope forrespondent Eller Company Inc

HaroldE Welch for respondent Tampa Port Authority

INITIAL DECISION 1 ON REMAND OF CHARLES E MORGAN

ADMINISTRATIVE LAW JUDGE

PARTIALLY ADOPTED NOVEMBER 14 1986

BACKGROUND

This complaint in brief is about warehouse checking charges sought

to be collected from the complainant on refrigerated cargoes such as frozen

poultry exported through a cold storage terminal at the Port of Tampa

Florida

The complaint is somewhat broader in scope insofar as it attacks the

warehouse checking charges of the Tampa Port Authority which apply

on imports as well as on exports on non refrigerated as well as on refrig

erated cargoes and at all terminals at the Port of Tampa These terminals

have their own tariffs but generally the terms of the Port s tariff apply

1 This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227
i

690 FEDERAL MARITIME COMMISSION

I

Since February I 1966 the tariff issued by the Tampa Port Authority

one of the three respondents herein has included items which define and

which also list the rates to be charged for warehouse checking

At the Port of Tampa only one terminal specializes in providing cold

storage facilities freezer and cooler rootns for cargoes The evidence ad

duced relates largely to this one cold storage facility to one ocean carrier

the complainant Reefer Express Lines or REL and to this carrier s exports

of refrigerated cargoes

The complainant is concerned about the warehollse checking W C

charges sought to be assessed by the one cold storage terminal But also

it is noted that the W C charges have been assessed against REL at

another terminal Garrison Terminal used by REL at the Port of Tampa

REL has not paid this assessment by Garrison nor has REL paid the

assessment by the cold storage terminal of the W C charges

The other two respondents herein were and are the operators of the

cold storage facility at Tampa Respondent Eller Company Inc pur

chased this facility from respondent Uiterwyk in May 198 L Eller operates

the facility under the name of HarborsideRefrigerated Services Incor

porated REL regularly called and on occasion still calls at the Uiterwyk

Eller cold storage facility to load its export refrigerated cargoes REL

moved cargo in and out of Tampa both under charter and under tariff

terms At times REL acted as a common carrier and at other times not

In any case REL issued bills of lading REL s practice was not to provide

the Uiterwyk ElIer cold storage terminal with copies of REL s contracts

of carriage or with copies of its bills of lading

This is a remanded proceeding The Commission s Order of Remand

disposed of a number of allegations originally made in the complaint

Concerning the remaining remanded issues the Commission specifically

asks that determinations be made ano whether

I any of the charges for warehouse checking in the Port Authority s

tariff may lawfully be charged for the account of the vessel in the light

of REL s tariff provision for Jackle to tackle rates and the Commission s

prior decisions

2 if such charges may be assessed against the vessel whether the

charges should be allocated among the vessel and the shipper consignee

in proportion to the benefits conferred on each by the service and whether

any proportion of the costs should be borne by the terminal operator

and

3 whether the amended Port Authority tariff definition of warehouse

checking unlawfully exculpates the terminal operators from possible liability

for their own negligence

Both the original evidence herein and the evidence obtained at the further

hearing on remand have been considered carefully to arrive at the following

expanded statement

1

I

2S F M C
REL disputes the assessment of warehouse checking WC charges

billed against it and among other things asks that the Commission direct

the respondents to cease and desist from charging collecting demanding

or seeking to collect the W C charges from complainant for past or future

sailings From on or about October I 1982 no W C charges have been

assessed against complainant Since that date REL made three calls at

the Harborside facility in 1984 prior to October I 1984 The nOn assess

ment of W e charges against the complainant is the result of a change

in the tariff provision defining the warehouse checking service effective

October I 1982 It was then newly provided that the party responsible

for payment might specifically request in writing that warehouse checking

not be performed The complainant then so requested that is that warehouse

checking be not performed on its shipments Also in the past the complain

ant never specifically requested that warehouse checking be performed

The complainant s past shipments of frozen or refrigerated cargo con

sisted of items such as frozen poultry exported through the Uiterwyk

Eller cold storage tenninal The complainant has not listed the disputed

shipments but in its complaint refers to the W e charge of 0 91 per

net ton for all cargo other than citrus and citrus products and Iron

Steel which bear lower charges and bananas cattle and horses which

are excepted from the W C charge These 0 91 charges were in effect

from October I 1981 through September 30 1982

Exhibit No 3 by its attachments A and B which are copies of two

invoices of Uiterwyk to REL shows certain billings to the complainant

of the W C charges dated May 1981 and June 1981 based on the

rate of 082 per net ton The first billing above on one ship totalled

4 987 76 which computes to 6 082 net tons total and the second billing

above on another ship totalled 4 104 59 and computes to 5 005 net tons

Seven separate cargo items were listed for the first ship with descriptions

such as Balfour GK Chix Hamdyiego and Interfoods There are four

such listings for the second ship

The actual charges for warehouse checking as provided in the tariff

of the Port of Tampa in recent years on or about the times of the disputed

shipments herein were

On January I 1979

All cargo other than specified below

Citrus and Citrus Products

Iron Steel

EXCEPTION Not applicable on bananas cattle

horses or to cargo loaded or discharged from

vessels of 999 Gross Registered Tons or less

On October 15 1979

All cargo as above

064 per net ton

061 per net ton

053 per net ton

REEFER EXPRESS LINES PTY LTD V U1lERWYK COLD 691

STORAGE CORPORATION ET AL

RECORD FACTS POSmONS OF THE PARTIES AND

PRELIMINARY CONCLUSIONS

0 71 per net ton

28 F M C
Citrus and Citrus Products

Iron Steel

EXCEPTION same as 01 79

On October 13 1980

All cargo as above

Citrus aIId Citrus Products

Iron Steel

EXCEPTION same as 01 79

On October I 1981

All cargo as above

Citrus and Citrus Products

Iron Steel

EXCEPTION Not applicable on bananas cattle

or horses

On October I 1982

All cargo as above

Citrus and Citrus Products

Iron Steel

EXCEPTIONS Not applicable on bananas live

stock or containerized cargo neither stuffed nor

unstuffed in the Port

On remand the parties generally adhere to their original theories of

this case That is the complainant insists that it the vessel receives no

benefit and is not responsible for warehouse checking And the respondents

insist that the terminals performed the warehouse checking service on behalf

of the vessel and that the vessel is responsible for the charge

No party supports allocation of W C charges as between vessel and

shipper consignee

Certain other charges in the Uiterwyk or Harborside tariff are billed

to the shipper and not to the vessel One such charge is item 70 Thru

Put defined as the charge for accumulating cargo and providing refrig

erated protection prior to loading on vessel export cargo only and will

be bi led for the account of the Shipper Does not apply to fresh citrus

Other such charges bi led to the shipper include item 35 Inspection

U S D A item IS Delivery Charge for preparation of documents

for shipping products and item 60 Storage bi led to the firm owning

the cargo at the time it is placed into storage Certain other items billed

to the shipper were referred to but generally relate specifically to import

cargoes rather than to export cargoes The complainant s position is that

warehouse checking is in the category of services which also should be

bi led to the shipper but in any event not to the vessel

At the original hearing a witness for the cold storage terminal herein

candidly testified on crossexamination by complainant s counsel that every

function of the warehouse checking service was done for three purposes

one for the warehouse s own benefit because of its own liability as

692 FEDERAL MARITIME COMMISSION

j

i

I

I

28 FM C

067 per net ton

0 59 per net ton

082 per net ton

077 per net ton

0 68 per net ton

091 per net ton

0 86 per net ton

0 76 per net ton

101 per net ton

0 95 per net lOll

0 84 per net ton
28 F M C

REEFER EXPRESS LINES PTY LTD V UITERWYK COLD 693

STORAGE CORPORATION ET AL

bailee for the goods two for the benefit of the shipper to assure that

the shipper continues to ship through this warehouse and three for the

benefit of the shipping line so that the ocean carrier receives the proper

cargo in order

The same witness above also pointed out that on the refrigerated and

freezer cargo handled through this tenninal there is only one way to

get cargo from a truck or railcar to the ocean vessel and that way

is through this tenninal facility The truck does not pull up and load

directly into the vessel that is there is no direct discharge

This tenninal facility has received at times certain cargoes with the

notation of vessel TBN to be named When this happens the ocean

carrier knows that it will have to pick up cargo for example on the

30th of a month and the tenninal may start receiving cargo on the 1st

2nd or 3rd of a month The tenninal knows the name of the ocean

carrier and the ocean carrier will name its vessel in due course Cargo

may stay in this facility as long as 30 to 45 days on the outside for

export cargo An average for export cargo might be 25 to 35 days

Export freezer cargo at times may be sold three times over in the ware

house The tenninal may receive cargo up to 5 000 tons for shipment

on a vessel In the warehouse there may be for example beef livers

going to 7 different consignees and maybe going on 7 different ships

or maybe all on one Reefer Express Lines vessel

Quite often while a vessel is working that is being loaded with

export cargo besides the original cargo intended for the vessel additional

or other cargo is received in the terminal to be loaded on the vessel

Also the terminal may have in its possession cargo which was not destined

originally for the vessel but which is released subsequently to go on

board the vessel The terminal in perfonning its warehouse checking service

in such instances in checking out cargoes from the tenninal is perfonning

a service needed by the vessel

It is important that the vessel be loaded in an orderly manner so that

the vessel can both be loaded and ultimately discharged in an orderly

manner

Warehouse checking services for export cargoes were perfonned at the

Uiterwyk Eller cold storage tenninal as a nonnal function of this terminal

at least twice on all cargoes That is once during receipt and assembly

of cargoes for each vessel and again at the time of delivery of these

cargoes from the cold storage tenninal to each vessel The latter checking

was of necessity precisely made so that cargoes could be loaded efficiently

and properly aboard ship for export

At the first hearing the then Vice President and General Manager both

of Uiterwyk and of Harborside considered it difficult if not impossible

for a

refrigerated warehouse to allocate the costs of the service of warehouse

checking unless the warehouse were a party to the contract of affreightment

bill of lading or charter agreement which established where delivery to
694 FED MARITIME COMMISSION

j

i

or from the ocean carrier would be complete and which also established

the party responsible for moving the cargo to and from the place of delivery

to the vessel

On crossexamination the successor Vice President and General Manager

of Harborside so employed since October 8 1984 who also was employed

at Uiterwyk from February 1974 to June 1981 testified that warehouse

checking on export cargo was performed in part at the time the cargo

came into the warehouse on the land side of the warehouse and in part

at the time the cargo left the warehouse on the water side of it to be

loaded on the ship What actually was done in the performance of warehouse

checking depended in large part on the specifics of various shipments

On first reception of the export cargo on the land side there was a count

of the merchandise a check on the condition of the merchandise and

depending on the circumstances also on occasion an identification of the

port of discharge for the cargo separation of the cargo by shippers and

separation by commodities All these were done in order to determine

how to put the cargoes in the warehouse The warehouse then signed

a dock receipt These functions of warehouse checking in the land side

took place within the warehouse facility but not in the freezer or cooler

areas of the warehouse

Later on warehouse checking also would be performed at least in

substantial part immediately prior to the sailing date of a vessel from

the Port of Tampa In the case of such checking during delivery from

cold storage to the vessel or to its stevedore this checking was performed

by non deep sea I S A checkers employed by Uiterwyk This warehouse

checking included the preparation of a

loading list for the vessel

To deliver the products to the ocean carrier requires the warehouse

checking of lots the tallying and the delivery of cargo in the right order

by the right lot to the stevedore which loads the export cargo on the

ocean carrier

As stated in the original initial decision warehouse checking is defined

as follows

Warehouse checking is a service performed by terminal per

sonnel of Uiterwyk or Eller using tally clerks and checkers

to

I Tally by count lot supplier andor mark the product

cargo into the cold storage terminal facility and record where

in the cold storage terminal facility the various lots marks or

shipper S productcargo is stored

2 Tally and withdraw from the cold storage terminal facility

by count lot mark andior shipper the product cargo to the ves

sel s side or the overland cartier s equipment to insure correct

count and delivery by lot mark or shipper of the overall product

cargo furnished to the vessel or overland carrier and

3 Act as the interface of product cargo information both as

to count and lotmarkshipper information between the cold storage

I

28 FMC
The employment of warehouse clerks and

checkers as differentiated from shipside

clerks and checkers as defined in Item 205

for delivery of inbound cargo upon com

mencement of discharge of cargo and the end

of the Free Time allowance or for receipt of

outbound cargo from the beginning of the

Free Time allowance until completion of the

loading aboard vessel of the cargo Ware

house Checking is assessed against party re

sponsible for stevedoring charges based on

inbound or outbound cargo manifest weight

REEFER EXPRESS LINES PTY LTD V UlTERWYK COLD 695

STORAGE CORPORATION ET AL

terminal facility and the contract stevedore for the vessel so that

the vessel can be loaded and the productcargo delivered to the

vessel s side for loading in an efficient and reasonable manner

In the cold storage terminals now Harborside s dock office is a master

board which shows where products are stored that is for example in

what area of the freezer or in what cooler Notations are made on this

board after the products are placed in the freezer or in a cooler

When the ocean vessel arrives at the dock or prior to such arrival

a shipper or a number of shippers will provide the warehouse by telex

a release which provides for the releasing of certain cargo to the ocean

vessel or to the vessel s agent the stevedore A customer may have 1 000

tons of a product in the warehouse and might release only 500 tons

to go on the particular ocean vessel at the time Five hundred tons would

be released by designated lot number

In other words while some warehouse checking occurs at the time the

cargo enters the freezer or cooler facilities other warehouse checking of

necessity must occur at the time or just prior to when the cargo leaves

the freezer or cooler facilities for loading aboard ship A witness for

the complainant admitted that this was so at the first hearing Warehouse

personnel checked to the extent at least as far as this lot goes to the

ship this one doesn t

Freezer or cooler cargo when exported because of the temperature heat

at Tampa must not be exposed to the elements for more than a half

hour or an hour In other words to make loading efficient advance checking

appears necessary to avoid undue delays between cold storage and loading

on ships

As noted above a pertinent date in this proceeding is October I 1982

At this time the applicable tariff description of warehouse checking was

changed to read as follows

285 WARE

C HOUSE

CHECK

ING

28 F M C
696 FEDERAL MARITIME COMMISSION

j

I

Warehouse Checking will be performed on all

inbound and outbound cargo and charges as

sessed as provided above except in cases of

direct discharge or direct load cargo and con

tainer cargo not stuffed nor unstuffed in port

as described in Item 330 and when party re

sponsible for payment specifically requests in

writing that Warehouse Checking not be per

formed When Warehouse Checking is re

quested not to be performed terminal opera

tors will not be responsible for any overages

andlor shortages EFFECTIVE OCTOBER I

1982

In part above it is provided that the assessment be against party respon

sible for stevedoring charges Also above it is provided in part that

warehouse checking be performed on all cargoes except in cases of direct

discharge or direct load cargo and container cargo not stuffed or unstuffed

in port and except when party responsible for payment specifically re

quests in writing that Warehouse Checking not be performed

Prior to October I 1982 the Port of Tampa tariff provided

285 WARE The employment of warehouse clerks and

HOUSE checkers as differentiated from shipside

CHECK clerks and checkers in delivery of inbound

ING cargo upon commencement of discharge of

cargo and the end of the Free Time allow

ance or in receipt of outbound cargo from

the beginning of the Free Time allowance

until completion of the loading aboard vessel

of the cargo Warehouse Checking is as

sessed against the carrying vessel based on

total inbound and outbound cargo manifest

weight Intended to clarify application of

provision without change of past practice

EFFECTIVE FEBRUARY I 1974

As seen above the assessment in earlier years was against the carrying

vessel

It mayor may not be significant that Uiterwyk provided only a service

as a terminal handling refrigerated and freezer cargoes through its freezer

and cooler facilities and that Uiterwyk did not provide stevedore services

In contrast Uiterwyk s successor terminal namely Harborside owned by

Eller is not only a terminal but also is a stevedore

In other words Harborside may have more options for recovery of its

expenses for its so called warehouse checking service

28 rM C
28 F M C

REEFER EXPRESS LINES PTY LTD V UITERWYK COLD 697

STORAGE CORPORATION ET AL

The history of warehouse checking at the Port of Tampa is of interest

The rates for warehouse checking at the Port of Tampa are prescribed

by the Tampa Port Authority as per Chapter 23338 of the Laws of the

State of Florida Special Acts of 1945 Also required are public notice

and public hearing by the Port Authority before fixing and establishing

its tariff rules regulations and rates

Warehouse checking at Tampa was considered originally in 1965 The

charge was proposed by the terminal operators of the Port of Tampa to

recoup asserted labor charges for performing this warehouse checking serv

ice The warehouse checking was changed and increased from time to

time The charge originally was established on February I 1966

At this time warehouse checking became a new item in the tariff and

it was a charge against the vessel The rate originally was 35 cents a

ton of 2 000 pounds for all cargo not otherwise specified also excepted

from the warehouse checking charge were bananas cattle horses and certain

containerized cargo

At a public hearing held by the Tampa Port Authority on October 25

1965 it was stated that warehouse checking historically had been an

item absorbed by the terminal operators with no rate for same being

published in the tariff at that time Further it was the desire of the terminal

operators to incorporate a charge for warehouse checking in the tariff

and to make it a charge against the vessel

At another public hearing on December 22 1965 before the Tampa

Port Authority Mr John Imparato a spokesman for one terminal operator

at Tampa objected to the manner of increasing the revenues of the terminal

operators For example he opposed the warehouse checking charge as

such preferring to recoup his expenses through his stevedore rates

In that manner he stated that he could adjust his stevedore rates as

he saw fit depending upon the nature of the cargoes handled His objection

also related to the wharfage and dockage charges as well as to the ware

house checking charges This terminal operator believed that he had high

stevedore rates in relation to his competitors stevedore rates He stated

that stevedoring was his terminal s main business and that without steve

doring we don t need terminals

Also he saw no need to increase rates that are published over the

area we serve and scare people away when they see these figures He

acknowledged that any increase in stevedore charges at his terminal would

be paid by his steamship principals

It was also pointed out at the above 1965 hearing that storage handling

and loading and unloading of trucks and railcars were charged against

the cargo It was pointed out that it was a constant problem as to where

various charges should be placed that is whether against the ship or

against the cargo It was not then elaborated whether this was considered

a problem of legality or not but it is concluded that at least it was

considered to be a problem of sales promotion
698 FEDERAL MARITIME COMMISSION

I

At the same public hearing before the Tampa Port Authority on December

22 1965 Mr W A Freeman ofOarrison Terminal Port of Tampa testified

that a number of this terminal s Steamship line principals were paying

warehouse checking charges in every other port which they called in the

U S ulf range of from 50 cents to a dollar and that these steamship

line principals were laughing at Tampa because they were not paying

in Tampa for warehouse checking At that time Tampa was proposing

a charge of 35 cents a net ton In this witness view the ocean carrier

had a

responsibility to the cargo during the free time period because the

ocean carrier remained responsible for the care and safekeeping of the

cargo including warehouse checking Mr Freeman took the view that he

could not adjust his stevedoring rates to cover warehouse checking expenses

At a public hearing before the Tampa Port Authority on July 21 1982

it was testified in part that the original warehouse checking charge started

out when ocean vessels handled a multitude of cargo at the same time

and further that the warehouse checking services had to be performed

and could not be relied upon as being requested At the same hearing

the then counsel for REL stated that warehouse checking charges shOUld

be limited to instances where the service both is performed and is requested

but with emphasis on the service being requested in the view of REL

Respondent the Port of Tampa at the hearing on remand introduced

copies of the terminal tariffs of certain other ports

The Port ofPortland Oregon s tariff contains the following

SERVICE AND FACILITIES CHARGE

Service and facilities charges are assessed against ocean vessels

their owners or operators which load or discharge cargo at the

marine terminal facilities for the use of terminal working areas

in the receipt and delivery of cargo to and from vessel and

for services in connection with the receipt delivery checking

care custody and control of cargo required in the transfer of

cargo See Notes Ithrough 6 and Item 104O A 2 Emphasis

supplied

Item 1040 A 2 a provides

Where the contract of affreightment establishes the responsibility

between the parties thereto for the payment of the service and

facilities charge named in a tariff the full amount of such charges

shall be billed to and paid by the vessels its owners or operators

The term Contract of Affreightment as used herein shall mean

tariff charter party ocean rate or any other arrangements under

which the vessel transports cargo Allocation or adjustment of

these charges between vessel and cargo shall be made solely

by the parties to the contract of affreightment and not by the

Port Emphasis supplied

28 F M C
28 F M C

REEFER EXPRESS LINES PTY LTD V UlTERWYK COLD 699

STORAGE CORPORATION ET AL

The Port of Seattle s terminal tariff contains a Service and Facilities

Charge substantially the same as Portland s In particular the full amount

of such charge shall be billed and paid by the vessel its owners

or operators to the terminal Also allocation or adjustment of this charge

between vessel and cargo shall be made solely by the parties to the contract

of affreightment The latter is defined in the same marmer as in the Portland

tariff

The Port of Palm Beach s tariff refers to a service of furnishing checker

foremen when vessels are loading cargo to supervise the release of the

cargo being loaded Charges for this service will be rendered against

the vessel their owners or agents

The Georgia Ports AuthoriTy Terminal Tariff similarly provides that the

terminal will furnish checker foremen to supervise the release of cargo

being loaded on vessels and it states Charges for the service will be

rendered against vessels the owners and agents

The South Carolina State Ports AuthoriTy s tariff defines Checking

as the service of counting and checking cargo against appropriate documents

for the account of the vessel

So far as this record shows neither the Port of Tampa tariff nor any

other United States Port terminal tariff contain any provisions which divide

the cost and assessment of terminal services between the vessel cargo

or stevedore depending upon the ocean carrier s terms of affreightment

The witness for the Port of Tampa testified and there was no contrary

testimony that a division of a terminal s charge for terminal services as

between the vessel cargo or stevedore would not only be unworkable

but unmanageable It is concluded that this testimony should be given

great weight

It is not believed by the Presiding Officer that the W C checking charge

in this proceeding is the type of charge or assessment that lends itself

or ought to lend itself to apportionment To do so apportion the many

charges or expenses of terminals would lead to a morass in the administra

tion and handling of such charges and expenses

As seen above at certain ports such as the Port of Portland certain

charges are assessed against the vessel and this assessment is made regard

less of the terms of affreightment such as tackle to tackle or whatever

In Terminal Rate Structure Pacific Northwest Ports 5 EM B 326 327

with reference to handling and service charges incurred between point of

rest and ship s hook it was stated that in every case the terminal operator

may bill and collect from the vessel and in instances where the charges

are incurred for the benefit of the cargo the carrier shall bill and collect

such charges from the shipper or consignee

It is the ocean vessel rather than the shippers which control the flow

of transportation through the terminal at the Port of Tampa The vessel

decides which terminal it will use and when a shipper wants to use

that vessel the vessel ocean carrier instructs the shipper to deliver his
700 FEDERAL MARITIME COMMISSION

cargo to the terminal selected by the vessel usually to meet a specific

sailing date The cargo goes to the ship rather than the ship going to

the shipper s cargo

The complainant emphasizes that many of its rates are tackle to tackle

rates In such instances the shipper contracts with the vessel ocean carrier

to bring the export cargo to the ship s tackle and the vessel unloads

the cargo at its tackle in the foreign port Thus as between shipper and

vessel there are contractual obligations The complainant reaches the conclu

sion that the warehouse checking service physically takes place in its entirety

early in the export process prior to the time when the shipper assertedly

yields possession of the cargo at ship s tackle to the vessel and that

ergo the warehouse checking is in the category of services for cargo

But it does not necessarily follow that the terms of the vessel s tariff

determine who is responsible for warehouse checking

The complainant s tariff rates included eleven tackle to tackle rates Other

terms in its tariff are Free In and Out one rate Liner In and Free

Out three rates Liner Terms two rates and Full Liner Terms 17 rates

The respondents admit that when the terms free in or free out are used

the stevedoring is assessed otherwise than to the vessel Respondents con

tend that full liner terms and liner terms connote services beyond the

tackle of the vessel but complainant disputes this and avers that liner

terms and full liner terms notwithstanding that on all of its shipments

the established meaning of liner terms is that the ship shall pay all expenses

from tackle to tackle In any event the vessel s tariff terms relate only

to its contracts of affreightment with the shipper rather than to the relation

ship between the vessel and the cold storage terminal

The complainant admits that the duty to bring cargo alongside vessel

and the responsibility or risk up to that point are conceptually different

and depend upon tariff agreement and general law

The shipper makes no contractual arrangements with the terntinal operator

under ordinary circumstances but rather the shipper makes his contractual

arrangements with the land and ocean carriers that is with the inland

carrier for movement of the cargo to or from the terminal facility and

with the ocean carrier for movement of the cargo between the ports of

call

Also the respondent terminal operators are not made aware of the terms

of the contractual arrangements as between the vessel and shipper The

respondents are not given copies of papers such as bills of lading or

charter arrangements

It is important to recognize that it is the vessel s

responsibility regardless

of its terms of affreightment with the shipper to provide a convenient

place for receiving the cargo from the shipper and to provide for the

giving of areceipt for the cargo

When the cold storage terminal gives such a

receipt dock receipt to

the shipper or to the rail line or trucker or forwarder acting on behalf

28 F M C
28 F M C

REEFER EXPRESS LINES PTY LTD V UlTERWYK COLD 701

STORAGE CORFORATION ET AL

of the shipper the cold storage terminal then acts as agent for the vessel

It fo1ows from this line of reasoning that the cold storage terminal become

the agent of the vessel of necessity prior to the time that the cargo

is delivered to ship s tackle

An ocean carrier such as Reefer Express cannot avoid its obligation

to provide a convenient place for receiving cargo from the shipper and

cannot avoid its obligation to give a receipt for the shipper s cargo by

reliance either upon its terms of affreightment with the shipper or upon

its bill of lading

The respondents reasonably reach the conclusion that warehouse checking

is rendered by the respondent terminal operators on behalf of the vessel

which in turn is responsible for the warehouse checking as part of the

vessel s obligations to provide a convenient place to receive the cargo

to give a

receipt therefor and to see that the cargo is moved from place

ofreceipt to ship s tackle

While the shipper may be responsible for cargo stored in the cold storage

terminal for extra long periods not covered by free time and for some

other services which may be provided by the terminal a shipper certainly

is not responsible for the vessels obligation to provide a convenient place

to receive the cargo and the vessels obligation to give the shipper a

receipt for his cargo

This is so regardless of any terms of affreightment as between the

shipper and vessel because of the vessels common carrier responsibilities

and because of tile impracticality of requiring a shipper to provide a conven

ient place for the receipt of the cargo by the vessel In fact the vessel

chooses the terminal at which it will call In other words the vessel

selects the place to receive the cargo

It fo1ows that an ocean carrier s responsibility to accept delivery of

goods on a pier includes the movement of refrigerated cargo to and from

a refrigerated terminal when necessary to protect the cargo from damage

from the elements while such cargo is being assembled during free time

The complainants insist that because certain charges of the cold storage

terminal are assessed to the shipper that so also should the W e charges

be assessed The respondents reply that certain other cold storage terminal

charges besides warehouse checking we 1 might be imputed as the responsi

bility of the ocean carrier Such other charges are not in issue herein

inasmuch as the cold storage terminal has not opted to assess such charges

against the vessel

Genera 1y while a1 of the statements or conclusions above are true

as to the relationship of the ocean carrier with the marine terminal it

is true the above statements and conclusions are not contro 1ig necessarily

as to the relationship or relationships between the shipper and ocean carrier

The ocean carrier s terms of affreightment with the shipper and the ocean

carrier s bill of lading govern between these persons The tariffs of the

Ports of Portland and Seattle explicitly so provide that is that certain
702 FEDERAL MARITIME COMMISSION

I

charges for the use of the terminals working areas are assessed against

ocean vessels and that adjustments or allocations of these charges between

the vessel and cargo shall be made sOlely by the parties shipper and

vessel to the contracts of affreightment But how the vessel adjusts its

charges tariff rates charter agreements etcwith the shipper is neither

the concern nor the responsibility of the terminal operator

GENERAL DISCUSSION AND ULTIMATE FINDINGS AND

CONCLUSIONS

The complainant insists that all of its shipments of export freezer cargoes

were and are under contracts of affreightment providing tackle to tackle

rates or the equivalent Assuming this to be so the shippers then would

be responsible for placing their cargoes under ship s tackle and the ocean

carrier would be responsible for the stevedores charge of loading the ship

The new tariff item for warehouse checking effective October I

1982 makes the person responsible for stevedoring charges the one assessed

the w e charges Also the old tariff item made the vessel responsible

for W C charges Therefore in cases of tackle to tackle terms but not

for example free in and free out arrangements the vessel was

and remains the one to be assessed w e charges because the vessel

remains responsible for stevedoring charges loading charges for export

cargoes

To the extent that the vessel may fail to request in writing that warehouse

checking be not performed the complainant retains an interest in this pro

ceeding as to its future shipments But for some time at least from

on and after October I 1982 the complainant has requested that warehouse

checking services be not performed on all of its shipments

Therefore as far as the complainant s shipments are concerned the

present controversy relates largely if not only to its past shipments those

prior to October I 1982

J The first question on remand herein is in light of REL s tariff provision

for tackle to tackle rates whether the Port Authority s tariff lawfully pro

vides charges for warehouse checking against the vessel

History is one pertinent factor Prior to 1966 the terminals at Tampa

absorbed this w e charge or expense At about that time and onward

w e charges were assessed against the vessel Other ports in the Gulf

of Mexico range already had done so that is assessed the vessel Presently

other ports assess the vessel The Ports of Portland and Seattle assess

terminal service and facilities charges against the vessel

The experience of the witness who was Vice President and General

Manager both of Uiterwyk and of its successor Harborside at this cold

storage terminal shows that the function of warehouse checking separates

and identifies the total cargo received at the cold storage terminal and

delivered to the vessel into individual counts of cargo and weight by

marklotsupplier all of which is information required by the ocean carrier

28 F M C
REEFER EXPRESS LINES PTY LTD V U1TERWYK COLD 703

STORAGE CORPORATION ET AL

and by the loading stevedore for proper and efficient loading and carriage

by the vessel Experience shows that warehouse checking is a service

required and beneficial to vessels receiving cargo at the Port of Tampa

at the dock facility adjacent to the cold storage terminal The record shows

that warehouse checking as distinguished from simple tallying and checking

does not benefit the refrigerated warehouse facility That is simple tallying

and checking is required so that the warehouse can keep track of cargoes

as hailee or custodian But checking further for proper and efficient loading of the vessel is warehouse checking which benefits the vessel

An ocean carrier has an obligation to afford to the shipper the free

time necessary to assemble his cargo at a terminal for delivery to the

ship The ocean carrier may fulfill the obligation itself or more than

likely it will fulfill this obligation through an agent terminal operator

acting on behalf of the ocean carrier In other words the terminal operator

as agent of the vessel provides the free time to assemble cargo

The ocean carrier also has the obligation to afford the shipper a conven

ient place for delivery of the shipper s cargo This obligation cannot be

avoided by the ocean carrier under the guise of the terms of affreightment

or the terms ofits bill of lading

In Terminal Rate IncreasesPuget Sound Ports 3 U S M C 21 the

Commission stated in part at pages 23 and 24 regarding an ocean carrier s

obligations to the shipper in performing the carrier s transportation

The carrier must fumish a convenient and safe place at which

to receive cargo from a shipper If this can be done at

end of ship s tackle the contracts of carriage may be limited

to such service On the other hand if such receipt is imprac

tical or impossible the carrier must assume as part of its carrier

obligation the cost of moving the cargo from where it can

be received from the shipper The carrier cannot divest

itself of this obligation by offering a service which it is not

prepared to peiform Emphasis supplied

In the present proceeding tackle to tackle rates are offered by the ocean

carrier but this service cannot be performed by REL the ocean carrier

on export refrigerated cargoes unless such cargoes are first received at

a convenient and safe place to receive such cargoes namely at a

refrigerated

warehouse where such cargoes can be accumulated during free time prior

to loading aboard ship

Thus it is concluded and found that the Tampa Port Authority s tariff

may charge for warehouse checking for the account of the vessel not

withstanding REL s tariff provision for tackle to tackle rates Such a charge

is lawful under the Shipping Act

2 The second question on remand is if warehouse checking charges

may be assessed against the vessel whether these w e

charges should

be allocated by the Port s terminals between vessel and shipper consignee

in proportion to benefits conferred on each and whether any proportion

28 F M C
704 FEDERAL MARITIME COMMISSION

of such costs should be borne by the terminal operator This is in effect

a question with two parts

As to part one there was no evidence adduced by any party as to

the merits of any proportional allocation of such charges As seen the

complainant insisted it received no benefit whatsoever from warehouse

checking The evidence is to the contrary and the law as seen above

is that the ocean carrier is responsible for providing the warehouse checking

service as part of its transportation obligation to the shipper

It is concluded and found that no allocation should be made or is

required to be made by the Port s tenninals of warehouse checking charges

as between the vessel and the shipper The tenninals are not made aware

of the contracts of affreightment between the vessels and shippers Of

course the shipper benefits ultimately from the complete transportation

service provided by the ocean carrier but the shipper pays for this complete

transportation service through the tariff rates of REL or through the charter

arrangements with REL

It would be unconscionable and unreasonable to expect the tenninal

to recover its costs for warehouse checking by apportioning such charges

between the vessel and the shipper particularly since the terminal is not

made aware of the ocean carrier s

transportation arrangements with the

shipper and more particularly because the terminal is acting as agent of

the ocean carrier in providing for that carrier a convenient and safe place

for the carrier to receive cargo from the shipper

As to part two of question two above it is concluded and found

that no portion of the warehouse checking charges should be borne by

the tenninal operator While all persons such as the shipper consignee

the Ocean carrier and the tenninal at Tampa benefit from each other s

business in that each does not exist without the other the key word

here is responsibility and it is the ocean carrier s

responsibility or duty

in perfonning its transportation to move the cargo from where it can

be received from the shipper to the ship The efficient and orderly movement

from the cold storage facility certainly includes warehouse checking out

of the facility when this service is done to effectuate efficient and orderly

loading upon the vessel

3 The third question on remand relates to the so called exculpatory

clause in the Port s amended tariff The latest definition above of ware

house checking contains the exculpatory clause

When warehouse checking is requested not to be perfonned rer

minal operators will not be responsible for any overages and

or shortages Emphasis supplied

The respondent Tampa Port Authority on brief states that it has no

objection to amending its tariff to provide that the non liability for shortages

or overages would not apply in cases where such shortages andor over

28 F MC
28 F M C

REEFER EXPRESS LINES PTY LTD V UITERWYK COLD 705

STORAGE CORPORATION ET AL

ages resulted from sole negligence of the terminal operator Emphasis

supplied

The complainant in its brief on remand leaves it to the Commission

to prescribe a proper formulation of the above exculpatory clause

II is concluded and found that the word sole above should be deleted

and in its place substituted the words the substantial This conclusion

is based on the principle that a tariff provision excusing a marine terminal

from its own negligence can be contrary to the Shipping Act Of course

a determination of substantial negligence in a particular case would no

doubt be a matter of law to be determined in some other forum than

the Commission

4 OTHER MATTERS NOT SPECIFICALLY REMANDED

Besides the specific issues on remand the complainant has contended

that the cold storage terminal Uiterwyk Harborside is itself a common

carrier

The complainant argues that Uiterwyk was executing duties as a con

necting carrier sometimes at least on cargo moving on through bills of

lading between land and sea carrier that the terminal performed a common

carrier duty in giving a dock receipt to the shipper and that the terminal

was protecting itself against claims for loss or goods The complainant

cites Galveston Wharf Co v Ry Co 285 U S 127 134135 1932

An examination of this cited decision reveals that Galveston Wharf Co

was a connecting common carrier with its own railroad trackage and it

physically transported goods received from a steamship company to its

connections with the railroad companies Also it had on file with the

Interstate Commerce Commission tariffs naming rates for the interstate

movement of goods Furthermore this wharf company admitted that it

was a common carrier II was only through actual transportation of goods

that the wharf company was determined to be a common carrier The

distinguishing feature of the present case is that Uiterwyk Eller does not

transport goods II is not a common carrier but rather an other person

subject to the Shipping Act

Alternatively the complainant states that if Uiterwyk Eller is not a com

mon carrier it was acting as agent for the shipper and not as agent

for the ocean carrier REL Complainant argues that the compilation of

a loading list for the vessel is not warehouse checking and as proof

points out that the terminal continued to furnish a loading list to REL

even after receiving notice from REL that warehouse checking was not

desired Assertedly delivery of the cargo to the ship in the order required

for efficient loading is not warehouse checking in complainant s view

Rather it is said to be handling or through put and if chargeable

as a separate item would be payable by the party having the duty to

bring the cargo alongside the ship But who is that party in the present

situation As stated heretofore if the cargo cannot be safely and conven

iently received from the shipper at ship s tackle but must be received
706 FEDERAL MARITIME COMMISSION

in the cold storage terminal then it is the ocean carrier s duty to move

the cargo from there to ship s tackle

In summary it is necessary herein to weigh the duty of the shipper

to get his cargo to ship s tackle against the conflicting duty of the ocean

carrier to provide a safe and convenient place to receive the cargo from

the shipper as part of its transportation service

Considering the record as a whole and all arguments it is concluded

and found that the ocean carrier s duty to provide a safe and convenient

place is paramount to the shipper s duty under its contract of affreight

ment with REL tackle to tackle terms The vessel selects the terminljl

place to receive the cargo and not the shipper The terminal becomes

the vessel s agent at least insofar as such agency concerns the service

of warehouse checking performed so as to provide efficient and orderly

loading of the vessel Contrariwise warehouse checking of this nature cannot

be the responsibility of the shipper

In Investigation of Free Time Practices Port of San Diego 9 F M C

525 at page 539 the Commission stated It is the carrier s obligation

not only to afford the necessary free time but also to provide terminal

facilities adequate to render such free time meaningful and realistic

This obligation may be fulfilled either by the carrier itself or through

an agent At page 539 it was further stated that where the ocean carriers

provided no wharfs nor piers for the receipt and delivery of cargo and

the Port of San Diego provided these facilities and free time under such

circumstances the port became the agent of the ocean carrier for the per

formance of these transportation obligations of the ocean carrier

Any contentions of the parties not specifically mentione4 herein have

been considered and are deemed tO have been denied as not meritorious

or are considered as not necessary to the resolution of the issues herein

The respondent shall amend its so called tariff exculpatory clause as

provided herein The complaint is dismissed

S CHARLES E MORGAN

Administrative Law Judge

28 F M C
28 F M C 707

FEDERAL MARITIME COMMISSION

DOCKET NO 8618

CONTAINER DISTRIBUTION INC

v

NEPTUNE ORIENT LINES LTD

NOTICE

November 14 986

Notice is given that no appeal has been taken to the October 9 1986

dismissal of the complaint in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the disntissal has become administra

tively final

S JOSEPH C POLKlNG

Secretary
FEDERAL MARITIME COMMISSION

DOCKET NO 8618

CONTAINER DISTRIBUTION INC

v

NEPTUNE ORIENT LINES LTD

ORDER OF DISMISSAL WITH PREJUDICE

Finalized November 14 1986

On August 28 1986 the complainant Container Distribution Inc CDI

served in this proceeding a document titled Dismissal of Complaint

The document in toto reads as follows

Plaintiff CONTAINER DISTRIBUTION INC hereby dis

misses without prejudice its Complaint dated April 8 1986 in

the above entitled action

Inasmuch as the complainant may not itself dismiss its own complaint

the said document has been treated as a motion by complainant for dismissal

of its complaint

The respondent Neptune Orient Lines Ltd Neptune served on Sep

tember 12 1986 respondent s reply to complainant s motion for dismissal

Therein the respondent urges dismissal of the complaint with prejudice

Although time has been allowed for any response which the complainant

may have deemed proper nothing has been offered by the complainant

as to why its complaint should not be dismissed with prejudice

Accordingly it is concluded that the complaint should be dismissed with

prejudice based upon the reasoning offered by the respondent and summa

rized below

Respondent states that the circumstances of this proceeding are such

that it is apparent that CDs purpose has been to harass or to induce

Neptune to enter a service contract with CD in order to avoid litigation

in this proceeding that CDI was not similarly situated to another shipper

with whom Neptune had a service contract and that CDI had no intent

to litigate in this proceeding

A prehearing conference was scheduled by the then Presiding Officer

for June 19 1986 CDI s attorney requested more time to prepare and

stated that July 22 or 23 1986 should be the new date for the prehearing

conference Accordingly the conference was rescheduled for July 23 But

CDs attorney again requested a postponement based on a conflict with

litigation in California The then Presiding Officer declined to further post

708 28 F M C
S CHARLES E MORGAN

Administrative Law Judge

CONTAINER DIS1RIBUTION INC V NEPTUNE ORIENT LINES 709

LTD

pone the prehearing conference unless CDs attorney submitted affidavit

evidence of the conflict CD was not represented at the prehearing con

ference and no justification for failure to appear has been submitted Never

theless the then Presiding Officer allowed CDI a further opportunity to

pursue its case A procedural schedule was established including an August

27 1986 date for discovery responses which had been the date agreed

between CDs attorney and counsel for respondent

Neptune prepared filed and served its responses to CDs discovery

requests timely but CDI filed no reply to Neptune s discovery requests

The result was that Neptune went to considerable effort and expense in

defending this case including attorney s fees

Many other circumstances also are recited by Neptune leading it to

conclude that complainant s actions comprised an abuse of process and

that complainant has forfeited any right it may have had to reinstitute

its complaint

In all the above circumstances the dismissal of the complaint herein

must be with prejudice and it is so ordered that the complaint is dismissed

with prejudice

28 F M C
I

FEDERAL MARffiME COMMISSION

DOCKET NO 85 24

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL

RATE INCREASE OF 2 5 PERCENT BETWEEN UNITED STATES

PACIFIC COAST PORTS AND HAWAII PORTS

ORDER DENYING PETmON FOR RECONSIDERATION

I

November 18 1986

On June 26 1986 the Commission issued an Order Partially Adopting

Initial Decision June Order in the above captioned proceeding The June

Order concluded that a proposed 2 5 overall rate increase filed by Matson

Navigation Company Inc Matson in the Hawaiian Trade was unjust

and unreasonable and directed pursuant to section 4 of the Intercoastal

Shipping Act 1933 1933 Act 46 D S C app 845a that the rate increase

be canceled The June Order also found that Matson s existing rates were

unjust and unreasonable to the extent they resulted in a rate of return

in excess of 115 and ordered a 15 overall reduction in rates pursuant

to section 18 a of the Shipping Act 1916 1916 Act 46 D S C app

817

Saibot Corporation db a Tobias Christmas Trees Tobias has now filed

a Petition for Reconsideration of Tobias Christmas Trees and Tobias

E Seaman Petition of the June Order pursuant to Rule 261 of the

Commission s Rules of Practice and Procedure 46 C F R 502 261 The

Commission s Bureau of Hearing Counsel Hearing Counsel and Matson

have filed Replies to the Petition

DISCUSSION

Tobias argues that Matson should not be permitted to earn a 1986 rate

of return in excess of 8 30 and that a 7 50 overall rate reduction

plus reparations of 9 00 of 1986 test year revenues collected to date

should be ordered Reduced to its essential elements Tobias argument

for reconsideration relies upon the following assertions 1 Matson will

realize a rate of return 30 greater than that stated in the June Order

due to the continuing decline in fuel costs and 2 the benchmark rate

of return should be reduced an additional 3 20 100 to reflect a con

tinuing decline in interest rates and 2 20 to reflect Matson s below average

risk

Matson contends that the Petition should be rejected because 1 Tobias

has not complied with the requirements of Rule 261 46 C F R 502 261

and section 3 of the 1933 Act 46 D S C app 845 and 2 applicable

710 1R M
28 F M C

MATSON NAVIGATION COMPANY INC PROPOSED OVERALL 711

RATE INCREASE OF 25 PERCENT

principles of res judicata preclude reopening and reconsideration of this

proceeding

Hearing Counsel likewise argues that Tobias has not substantively com

plied with the requirements of Rule 261 because the Petition is in large

part a reargument of the issues already considered and decided by the

Commission in the June Order Further Hearing Counsel contends that

reparations may not be ordered in a rate proceeding under section 4 of

the Intercoastal Shipping Act 1933 or a Commission instituted investigation

under section 18 of the 1916 Act but only in complaint proceedings brought

under section 22 of the Shipping Act 1916 46 U S C app 821

The Commission declines to reconsider the June Order Although Tobias

may have technically complied with the requirements of Rule 261 a I

by alleging changes in fuel costs and interest rates I Tobias has not shown

a sufficient change in circumstances to warrant reopening the proceeding 2

The Commission has held that in order to justify supplementing the

record of a rate proceeding under the 1933 Act changes in circumstances

so significant and certain as to render the original projections substantially

unreliable must be shown Sea Land Service Inc General Rate Increases

24 EM C 164 180 1981 This standard was promulgated in deference

to the legislative determination underlying the 1978 amendments to the

1933 Act that a timely and final disposition of Commission rate cases

is in the public interest See generally S Rep No 1240 95th Cong

2d Sess 1978 The public policy consideration underlying those amend

ments would also appear to apply to rate investigations ordered under

section 18 of the 1916 Act especially when these two types of rate inves

tigations are joined in one proceeding as they were here

Unduly protracted rate proceedings are costly to both carrier and shipper

interests and impose substantial burdens on the administrative process More

over unwarranted delay in disposing of such cases seriously erodes their

intended benefit to the general commerce of the United States Therefore

strong public policy considerations militate in favor of finality in the deci

sion making process in rate investigations and against reopening on the

basis of new data obtained after the close of the record Cj Alaska Steam

ship Co v F MC 356 F 2d 59 9th Cir 1966

I To the exteJTobias Pelition seeks reconsideration to reargue issues already raised and decided i

e

Malson srelative risk il is summarily denied See Sea Land Service IncProposed Rate Increases 24

F M C 434 435 1981 46 CF R 502 261 a 3 Similarly Tobias alleged errors in the June Order i

e

the factors involved in the detennination of abenchmark rate of return likewise constitute a

reargument of

issues considered and decided by the Commission Tobias has not alleged any bona fide substantive error

in material fact that warrants reconsideration See 46 C F R 502 261 a 2

2Reconsideration of a Commission decision under Rule 261 a

l

46 CF R 502 261 a

lnecessarily re

quires reopening the record to admit new evidence While this procedure is not to be confused with requests

to reopen under Rule 230 46 C F R 502 230 the public policy considerations against reopening the record

of arate proceeding apply withequal force to both procedures

3These J978 amendments to the 1933 Act Pub L No 95 475 prescribed statutory time limits for Com

mission investigations under that Act See 46 V S C app 845
712 FEDERAL MARITIME COMMISSION

As stated in the June Order the Commission was fully aware that more

detailed analysis could be achieved by further proceedings in this case

and that such evidence could result in a more favorable outcome for affected

shipper interests However the Commission weighed this potential marginal

benefit against the prejudice to shipper interests that might be caused by

delaying a final decision The Commission determined that it was preferable

to issue a decision that would be of immediate and substantial benefit

to ratepayers rather than delay and possibly negate any rate reductions

for the 1986 test year subject to the investigation Thus the Commission

determined that a 6 month 15 rate rollback was preferred over continued

proce lings resulting in an unknown albeit possibly larger rate rollback

for a very short period of time near the end of the test year

In this area of decision making the Commission must utilize the full

measure of its expertise and experience in fashioning an appropriate remedy

that best serves the public policies underlying the Intercoastal Shipping

Act 1933 Rate regulation is an inexact science and given the volatility

of the various economic factors that must be examined difficult pragmatic

determinations must often be made in rate proceedings See P R M SA

v F M C 678 F2d 327 D C Clr 1982 The Commission sees no reason

to disturb the findings made and conclusions reached in its June Order

THEREFORE IT IS ORDERED That the Petition for Reconsideration

of Tobias Chrisunas Trees and Tobias E Seaman is denied

By the Commission

S JOSEPH C POLKING

Secretary

i

4

In light of this disposition of the Petltion the Commission need not address lhe propriety of the specific

remedies Tobias seeks ie a mte rollback and reparations We note however thai Hearin Counsel is correct

thai repl l8tions arenot available inthis type of rate proceeding and may only be awardtclln complaint cases

filed under section 22 of the 1916 Act

28 F MC
28 F M C 713

FEDERAL MARITIME COMMISSION

DOCKET NO 8623

ACTIVE INTERNATIONAL SHIPPERS ASSOCIATION

v

KOREA SHIPPING CORPORATION

DOCKET NO 8625

FREIGHT SAVERS SHIPPING COMPANY LIMITED

v

KOREA SHIPPING CORPORATION

NOTICE

December 10 1986

Notice is given that no appeal has been taken to the November 6

1986 dismissal of the complaints in these proceedings and the time within

which the Commission could determine to review has expired No such

detennination has been made and accordingly the dismissal has become

administratively final

S JOSEPH C POLKING

Secretary
FEDERAL MARmME COMMISSION

DOCKET NO 8623

ACTIVE INTERNATIONAL SHIPPERS ASSOCIATION

v

KOREA SHIPPING CORPORATION

DOCKET NO 8625

FREIGHT SAVERS SHIPPING COMPANY LIMITED

v

KOREA SHIPPING CORPORATION

COMPLAINTS DISMISSED

j

Finalized December 10 1986

Complainants in these consolidated cases have filed a Notice of With

drawal of Complaints Complainants explain that they are witl1drawingtheir

complaints on the basis of settlements reached with respondent and wiJI

be filing the essential terms of service contracts embodying these settlements

with the Commission in accordance with the Commission sregulations

Respondent consents to the filing of the withdrawal notice

These two cases involved allegations by complainants a shipper and

a shippers association in which complainants alleged that respondent Korea

Shipping Corporation had refused to make the essential terms of a service

contract available had refused to provide cargo space and had otherwise

refused to deal with or had subjected complainants to undue prejudice

and disadvantage in violation of sections 8 c 1Ob 6 10b I2 and

10 b 13 of the Shipping Act of 1984 Complainants had asked for repara

tions cease and desist orders and other relief

The parties have reached settlement which action is strongly favored

by Commission policy See Amrrol Inc v U S AtlanticNorth Europe

Conference et al 28 F M C 540 1986 Furthermore the settlement

being between shippers and a carrier does not require processing under

section 4 or 5 of the 1984 Act formerly section 15 of the Shipping

Act 1916 or require further evidence as do settlements under section

lO b I of the 1984 Act formerly section 18b 3 of the 1916 Act

In a settlement of this kind all that is required is the filing of the essential

terms of the service contract which has now been extended to the complain

ants which filing is being accomplished See 46 CPR 580 7b

I

I

714 28 P M C
S NORMAN D KLINE

Administrative Law Judge

ACTIVE INTERNATIONAL SHIPPERS ASSOCIATION V KOREA 715

SHIPPING CORPORATION

Under the federal rules applicable in U S District Courts which rules

the Commission follows absent a specific Commission rule a complainant

may withdraw its complaint without the permission of the court provided

that an answer has not yet been filed See Rule 41 a l 28 U S C A

and discussion in Amtrol Inc v U S Atlantic North Europe Conference

et aI cited above 28 EM C at 540541 No answer has been filed

in these cases Therefore complainants have the right to withdraw their

complaints and there is no reason for me not to dismiss the complaints

See Amtrol Inc v U S Atlantic North Europe Conference et al cited

above

Accordingly the complaints are dismissed

I Because the parties were actively engaged in settlement discussions respondent requested permission to

defer filing answers in the hope that settlement would make such filings uMecessary Permission was granted

both by written and oral rulings to permit the settlement discussions to reach successful conclusion

28 F M C
FEDERAL MARITIME COMMISSION

ACTION

SUMMARY

46 CPR PART 515

DOCKET NO 8615

FILING OF TARIFFS BY MARINE TERMINAL OPERATORS

EXCULPATORY PROVISIONS

December 18 1986

Final rule

The Federal Maritime Commission amends its rules gov

erning the filing of temtinal tariffs by marine terminal

operators to prohibit tariff provisions that exculpate or

otherwise relieve marine terminal operators from liability

for their own negligence or that impose upon others

the obligation to indemnify or hold harmless terminal

operators from liability for their own negligence

EFFECTIVE

DATE February 23 1987

SUPPLEMENTARY INFORMATION

By the publication of a Notice of Proposed Rulemaking in the FEDERAL

REGISTER on April 25 1986 51 FR 15655 56 the Commission gave

notice of its intent to prohibit exculpatory provisions in tariffs filed by

marine temtinal operators Specifically the proposed rule would add a

new section to the Commission sregulations governing the filing of tariffs

by marine terminal operators contained in Part 515 CFR As proposed

the new section 515 7 Exculpatory Tariff Provisions would provide

as follows

No temtinal tariff shall contain provisions that exculpate or other

wise relieve marine temtinal operators from liability for their own

negligence or that impose upon others the obligation to indemnify

or hold harmless the temtinals from liability for their own neg

ligence

The Commission also requested comments on a possible exception to

the general prohibition The exception would allow terminal operators and

users to negotiate an arrangement whereby the user may voluntarily assume

liability for certain operations in exchange for operational and rate conces

sions from the operator The proposed form of the exception was stated

as follows

Terminal tariffs may contain hold harmless and indemnification

provisions for specific risks and hazards in terminal operations

that port facility users have agreed to assume from the terminal

operator but only if such provisions plainly indicate that such

716 28 FM C
28 F M C

FILING OF TARIFFS BY MARINE TERMINAL OPERATORS 717

EXCULPATORY PROVISIONS

assumption by the users is in consideration for the ieTjlIinal opera

tor s specific concomitant concessions in rates or relinquishment

of control 10 the user over the operalions for which the user

is assuming liability or providing indemnification

Comments in response to the Notice were filed by sixteen parties rep

resenting both ierminal operators 1

and users

2

reflecting a range of opinion

on the proposed rule and possible exception

Two commeniers Hampton Roads Shipping Association and Hampton

Roads Maritime Association support the proposal Crowley Maritime Cor

poration and Lake Charles Harbor and Terminal District endorse the excep

tion to the proposed rule thereby presumably also supporting the underlying

rule

Several commenters express support for the rule but oppose the exception

as published The Board of Trustees of the Galveston Wharves Galveston

Texas requests that the exception include terminal agreements containing

liability insurance requirements New Orleans Steamship Association West

Gulf Maritime Association and the Association of Ship Brokers Agents

USA Inc oppose exceptions of any kind The Master Contracting Steve

dore Association of the Pacific Coast Inc also opposes any exceptions

and would extend the rule to apply to terminal agreements and leases

and specify the various forms of exculpatory provisions prohibited by the

rule In its initial comments Matson Navigation Company Inc lMatson

Terminals Inc Matson opposes the exception as it applies to terminal

tariffs and argues that any understanding permitted by the exception should

be required to be filed as an agreement Subsequently Matson filed supple

mental comments stating it had given this matter further consideration

and now supports the position of the Masier Contracting Stevedore Associa

tion of the Pacific Coast Inc

Several commenters express dissatisfaction with the rule and exception

as proposed and suggest revisions or clarifications The Port of Houston

Authority of Harris County Texas argues that ports need protection from

nuisance suits and that the Commission should I consider a comparative

negligence rule 2 allow terminal operators to require users to obtain

liability insurance and 3 not require a formal agreement for the exception

to apply The Port of Seattle agrees and further points out that the exception

overrides any need for the rule The Board of Port Commissioners City

1 The following terminal operators filed comments New Orleans Steamship Association Board of Trustees

of the Galveston Wharves Galveston Texas Board of Port Commissioners City of Oakland California Port

of Houston Authority of Harris County Texas Lake Charles Harbor and Terminal District Massachusetts

Port Authority Port of Seattle South Carolina Slate Ports Authority and Global Terminal and Container

Service Inc

2

The following terminal user filed comments Hampton Roads Shipping Association Hampton Roads Mar

itime Association West Gulf Maritime Association Crowley Maritime Corporation Master Contracting Ste

vedore Association of the Pacific Coast Inc Association of Ship Brokers and Agents U S A Inc and

Matson Navigation Company Inc for itself and on behalf of its terminal operating subsidiary Matson Ter

minals Inc
718 FEDERAL MARITIME COMMISSION

of Oakland and the South Carolina State Ports Authority urge the Commis

sion to clarify the proposed rule to specify that terminal users may not

use the regulation to exculpate themselves from liability for which they

are responsible

Global Terminal and Container Services Inc Global opposes the rule

as it applies to its particular terminal services Its terminal facility is said

to be a wheeled container holding yard which aUegedly renders it

a bailee of containers Global believes that under the proposed rule

it could be held liable for damages without a showing of negligence on

its part Exculpatory clauses which would limit a bailee sliability to cases

of actual negligence are alleged to be reasonable and lawful Global submits

that the published exception is insufficient to remedy the situation

Massachusetts Port Authority MPA opposes any regulation in this area

It argues that the free market should dictate port tariff practices Alter

natively MPA takes the position that if the rule is adopted then the excep

tion should also be adopted

Upon review of the comments the C01l1I lission has determined to promul

gate a final rule in this proceeding prohibiting exculpatory clauses in ter

minal tariffs with no exceptions permitted The discussion in the Notice

of Proposed Rulemaking which is incorporated here by reference made

clear that the prohibition against any form of exculpatory provisions in

terminal tariffs is one that has been firmly established by the Commission

in its decisions Nothing presented in the comments filed in this proceeding

prompts the Commission to alter its position on such provisions Accord

ingly that position will be codified in aCommission regUlation

Specific liability shifting agreements between terminal operators and users

will only be permitted if at aU in marine terminal agreements filed with

the Commission under section 15 of the 1916 Act or section 5 of the

1984 Act By separate Notice issued this date in response to a Petition

for Rulemaking by the Master Contracting Stevedore Association of the

Pacific Coast Inc the Commission is instituting a proceeding on the ques

tion of the lawfulness of exculpatory clauses in terminal leases and agree

ments and whether a rule should be promulgated addressing such provisions

Docket No 8632 Exculpatory Provisions in Marine Terminal Agreements

and Leases

As was noted in the Notice of Proposed Rulemaking in this proceeding

in all but one of the several Commission cases which addressed Iiability

shifting tariff provisions those provisions were held to be unlawful under

section 17 of the Shipping Act 1916 1916 Act 46 U S C app 816

and section IO d of the Shipping Act of 1984 1984 Act 46 U S C

app 1709 d

3 The provisions were found to have been unfairly imposed

3

The only decision in which the Commission found that a liability shifting tariff provi lon was justified

on the basis of the arrangement between the terminaloperator AAd the user is West Gulf Maritime Association

v Port of Houston Authority 22 F M C 420 453 1980 However it iB important 10 notc that in that cue

it was specifically found that the liability shifting provision was not imposed for the purpose of escaping

28 F M C
28 F M C

FILING OF TARIFFS BY MARINE TERMINAL OPERATORS 719

EXCULPATORY PROVISIONS

by the terminal operator through the exercise of greatly superior bargaining

power resulting from public utility type market conditions for terminal facili

ties We therefore see little validity to the suggestion advanced in some

comments that free market forces exist and should govern the promulga

tion of liability provisions in terminal tariffs

Similarly the argument that the proposed rule would somehow allow

terminal users to exculpate themselves from liability for their own neg

ligence is unfounded There is no indication in the language of the rule

or in the case law giving rise to the rule that would lend any support

to this argument

We also find unpersuasive the contention that the rule somehow infringes

on the comparative negligence doctrine in maritime and admiralty law

Under that doctrine negligence is measured in terms of percentage and

any damages allowed are diminished in proportion to the amount of neg

ligence attributable to the person for whose injury recovery is sought

Black s Law Dictionary 255 5th ed 1979 Exculpatory tariff provisions

are in fact an attempt to override the traditional application of the compara

tive negligence doctrine in damage suits resulting from terminal accidents

Some comments argue however that there is nothing unreasonable and

hence unlawful about a terminal operator and user agreeing upon a liability

shifting arrangement after an arms length negotiation over the terms and

conditions for the use of such facilities In support of this argument some

commenters allege that actual industry conditions at particular terminal fa

cilities are compatible with the so called quid pro quo exception noted

in the Notice of Proposed Rulemaking

No exception to the general rule prohibiting exculpatory clauses in ter

minal tariffs is being adopted or will be permitted The reason favoring

a quid pro quo exception is that if there generally exists a

rough equality

of bargaining power between terminal users and operators in the negotiation

of the terms and conditions of the use of terminal facilities reflected

in terminal tariffs then users will obtain some significant consideration

for their assumption of the port authorities potential liability Theoretically

the exception would impose no additional burdens or significant restrictions

on the commercial flexibility of the parties it would only affect terminal

tariffs in situations where there is an imbalance of bargaining power The

problem is that if there is in fact a general absence of equality of bar

gaining power between users and operators the exception might only

serve to foster litigation over whether negotiations over the provisions are

bona fide and whether consideration flowing to the user is adequate

In short if general equality of bargaining power existed between operators

and users the exception would be superfluous and unnecessary Alter

natively where there is a general inequality of bargaining power as we

liability for one s own negligence d Accordingly this case is not viewed as involving atruly exculpatory

tariffprovision
720 FEDERAL MARITIME COMMISSION

find to be the case in the promulgation of exculpatory liability shifting

provisions in terminal tariffs the exception would be ineffective In either

event there appears to be no basis for providing an exception to the

general rule prohibiting exculpatory provisions at least insofar as terminal

tariffs are concerned 4

As noted above any exception to a general rule prohibiting exculpatory

clauses in tariffs would most appropriately be permitted if at all through

an agreement between the parties filed pursuant to the 1916 or 1984 Acts

The appropriate vehicle to consider the general propriety of such exceptions

in terminal lease agreements is the separate rulemaking proceeding which

the Commission is concurrently instituting

Finally it should be noted that the effective date of this final rule

is 60 days after its publication in the FEDERAL REGISTER rather than

the customary 30 days This extended period should allow those subject

to the final rule s requirements ample time to conform their tariffs to

those requirements

The Commission has determined that this rule is not a major rule

as defined in Executive Order 12291 dated February 17 1981 because

it will not result in

1 An annual effect on the economy of 100 million or more

2 A major increase in costs or prices for consumers individual indus

tries Federal State or local government agencies or geographical region

or

3 Significant adverse effects on competition employment investment

productivity innovations or on the ability of United States based enterprises

to compete in domestic or export markets

The Chairman of the Federal Maritime Commission certifies pursuant

to section 605 b of the Regulatory Flexibility Act 5 U S C 605 b that

this rule will not have a significant economic impact on a substantial

number of small entities including small businesses small organizational

units or small government organizations

The Paperwork Reduction Act 44 U S C 3501 3502 does not apply

to this Notice of Final Rulemaking because the amendments to Part 515

of Title 46 Code of Federal Regulations do not impose any additional

reporting or recordkeeping requirements or collection of information from

members of the public which require the approval of the Office of Manage

ment and Budget

Therefore for the reasons set forth above Part 515 of Title 46 Code

of Federal Regulations is amended as follows

1 The authority citation to Part 515 is revised to read as follows

AUTHORITY 5 U S C 553 46 U S C app 816 820 841a 1709

1714 and 1716

Exception to the rule although suggested as a possibility In dicta in I Chnrles Lucldl v Stock on Port

District 22 F M C 20 29 1 0 1979 has never been formally accepted by the Commission

28 FM C
By the Commission

5 JOSEPH C POLKING

Secretary

FILING OF TARIFFS BY MARINE TERMINAL OPERATORS 721

EXCULPATORY PROVISIONS

2 A new section 515 7 entitled Exculpatory Tariff Provisions is

added to read as follows

S 515 7 Exculpatory TariffProvisions

No terminal tariff shall contain provisions that exculpate or otherwise

relieve marine terminal operators from liability for their own negligence

or that impose upon others the obligation to indemnify or hold harmless

the terminals from liability for their own negligence

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 865

COMPAGNIE GENERALB MARITIME AND INTERCONTINBNTAL

TRANSPORT ICT B V

v

S B L MADURO FLORIDA INC

NOTICE

January 12 1987

Notice is given that no appeal has been taken to the December 4

1986 dismissal of the complaint in this proceeding and the time within

which the Commission could determine to review has expired No such

determination has been made and accordingly the dismissal has become

administratively final

S JOSEPH C POLKING

Secretary

722 28 P M C
28 F M C 723

FEDERAL MARITIME COMMISSION

DOCKET NO 865

COMPAGNIE GENERALE MARITIME AND INTERCONTINENTAL

TRANSPORT ICT B V

v

S E L MADURO FLORIDA INC

COMPLAINT DISMISSED

Finalized January 12 1987

All the parties to this proceeding have filed a Joint Motion to Dismiss

in which they are asking that the complaint be dismissed with prejudice l

The reason for the motion is that the parties have entered into a settlement

agreement by which they have settled not only this proceeding but a larger

more involved case before a U S District Court in Florida and believe

their settlement to be a rational valid and fair resolution of the dispute

obviating the need for further extensive and expensive litigation of

genuine disputes of fact and law Motion at 4 quoting from Celanese

Corporation v The Prudential Steamship Company Settlement Approved

Complaint Dismissed 23 EM C 1 7 1980

The present complaint case is part of an overall controversy involving

not only the parties to this case but also a steamship agent named Kerr

Steamship Company In the complaint filed with the Commission on January

3D 1986 complainants two common carriers operating in the foreign com

merce of the United States alleged that respondent a marine terminal

operator carrying on business at Florida ports had violated four provisions

of the Shipping Act of 1984 and three provisions of the Shipping Act

1916 by collecting money for freight handling services performed during

1983 and 1984 at Miami and Port Everglades Florida which money alleg

edly should have been collected from other interests and by engaging

in other allegedly unreasonable prejudicial or discriminatory practices Com

plainants asked for reparations and other relief

Respondent Maduro denied any wrongdoing In addition however on

April 7 1986 Maduro filed its own complaint in US District Court

for the Southern District of Florida in which Maduro sued the two carriers

complainants in this case plus Kerr Steamship Company under a variety

of counts arising under admiralty contract and tort law Maduro asked

for payment for various stevedoring and terminal services allegedly per

11be motion was received by me on December 2 1986
724 FEDERAL MARITIME COMMISSION

formed for the two carriers and their vessels In this lawsuit the two

carriers filed counterclaims against Maduro relating to the same transactions

as those involved in the complaint case before the Commission

The two cases have already consumed considerable time and expense

The parties have conducted discovery and have filed a variety of pleadings

on preliminary matters of law both in this proceeding and in the court

case Throughout the proceedings the parties have discussed settlement and

have finally reached agreement As relevant to the Commission proceeding

complainants agree to release Maduro in return for a monetary payment

of 70 000 However the settlement and accompanying release resolve all

of the matters in dispute among all parties both before the Commission

and the Court

The action which the parties have taken to obviate the need for further

litigation is fully consistent with the policy of law and the Commission

which strongly favors settlements instead of costly litigation and presumes

that settlements are fair and reasonable See e g Old Ben Coal Company

v Sea Land Service Inc 21 EM C 505 512 1978 Kuehne Nagel

Inc lndependent Ocean Freight Forwarder License No 1162 24 F M C

316 325 328 10 1981 Celanese Corporation v The Prudential Steam

ship Company cited above Perry s Crane Service v Port of Houston

Authority 22 EM C 30 33 35 1979 Merck Sharp Dohme v Atlantic

Lines 17 F M C 244 247 1973 As discussed this case is part of more

extensive litigation among the parties arising under various theories as

well 95 under seven different provisions of the 1916 and 1984 Shipping

Acts Moreover the gravamen of the complaint before the Commission

is that respondents have engaged in unreasonable practices not that respond

ent has charged incorrect rates under its tariff Accordingly the settlement

does not appear to contravene any statutory scheme Perry s Crane Service

v Port of Houston Authority cited above 22 F M C at 34 Nor does

the settlement appear to establish any ongoing cooperative activities Which

could require filing or approval under section 5 a of the 1984 Act or

section 15 of the 1916 Act Rather it is a typical settlement of outstanding

claims containing mutual releases which do not require further processing

under those laws See Pan Ocean Bulk Carriers Ltdlnvestigation of

Rates etc 22 F M C 633 635 n 1 1980 Farrell Lines Inc v Associated

Container Transportation Australia Ltd et al 22 F M C 109 112 1979

Amtrol Inc v U S Atlantic North Europe COiferenee et al 28 EM C

540 541 1986

I conclude that the settlement which the parties have reached in an

effort to terminate litigation is reasonable violates no law or policy and

fully comports with the Commission s policy which strongly encourages

28 F M C
S NORMAN D KLINE

Administrative Law Judge

COMPAGNIE GENERALE MARITIME AND INTERCONTINENTAL 725

TRANSPORT ICT B V V S BL MADURO FLORIDA INC

settlements Accordingly the motion is granted and the complaint is dis

missed with prejudice

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 861

CANCELLATION OF TARIFFS OR ASSESSMENT OF PENALTIES

AGAINST NON VESSEL OPERATING COMMON CARRIERS IN THE

FOREIGN COMMERCE OF THE UNITED STATES

NOTICE

January 21 1987

Notice is given that the time has expired within which the Commission

could determine to review the Presiding Officer s Order Declaring Certain

Tariffs to be Inactive and Cancelling Same Dismissing Respondents and

Discontinuing the Proceeding No such determination has been made and

accordingly the discontinuance has become administratively final

S TONY P KOMINOTH

Assistant Secretary

726 28 F M C
28 F M C 727

FEDERAL MARITIME COMMISSION

DOCKET NO 861

CANCELLATION OF TARIFFS OR ASSESSMENT OF PENALTIES

AGAINST NON VESSEL OPERATING COMMON CARRIERS IN THE

FOREIGN COMMERCE OF THE UNITED STATES

ORDER DECLARING CERTAIN TARIFFS TO BE INACTIVE AND

CANCELING SAME DISMISSING RESPONDENTS AND

DISCONTINUING THE PROCEEDING

Finalized January 2 987

The Commission served on January 2 1986 its Order to Show Cause

in this proceeding directed to a total of 201 respondent non vessel operating

common carriers NVOCC s in the foreign commerce of the United States

as named in the two appendices to the order 113 in Appendix A and

88 in Appendix B

The said order pointed out that section 8 of the Shipping Act of 1984

the Act requires these NVOCC s to file tariffs showing their rates charges

etc for the transportation of cargo and that section 15 b of the Act

requires these NVOCC s to certify that they have and enforce a policy

prohibiting the practice of illegal rebating in ocean shipping Also these

NVOCC s are required to publish in their tariff the address of their principal

office 46 CER 580 c 2 i

It was ordered that pursuant to sections 8 11 13 and 15 of the Act

it should be determined whether the 201 named respondents should be

assessed civil penalties for any violations of the Act and Commission

regulations and if so the amount of such penalty among other things

ordered

Of the 201 respondents herein 91 respondents have been disntissed by

orders of the former presiding officer issued on March 3 March 7 May

I and July 14 1986 There then remained 110 respondents

By motion served September 19 1986 by Hearing Counsel it was

noted that ten respondents had subntitted evidence that they had filed appro

priate anti rebating certificates and it was moved that these ten respondents

be dismissed without cancellation of their tariffs or imposition of penalties

Said motion hereby is granted These ten respondents now dismissed are

American International Consolidators Inc

EKG Kieserling America Corp

Aquatran Inc formerly Maritima Aquatran Inc

Buccaneer Line
728 FEDERAL MARITIME COMMISSION

Compagnie O Affretement et de Transport U S A Inc

European Ocean Freight Inc

Mariner Container Line Ltd

Smitty s ExportImport Inc

Trans Ocean Consolidators Ltd

United Cargo Corporation

Now there remain for consideration 100 respondents Hearing Counsel

by their recent motion served October 28 1986 move for the cancellation

of certain tariffs and the dismissal of the remaining respondents on the

principal grounds that two of the respondents Delf Shipping Pty Limited

and First International Shipping Co have requested that their tariffs be

cancelled that twelve respondents listed in attachment I hereto have shown

that they are out of business that sixteen respondents listed in Attachment

II hereto could not be located by the U S Postal Service that fifty

seven other respondents were served but did not respond to the Order

to Show Cause and that the remaining 13 respondents now have filed

appropriate anti rebate certifications thereby complying with statutory and

Commission requirements These thirteen are Altamirano Shipping Inc

Backgammon Container Line C C Group Line Euramer Consolidators

Corp Excel International Freight Ocean Air Container Service Sam Jung

Shipping USA Inc Sesko International Inc Sesko Marine Trailers Inc

TOY Freight Systems Ltd Transcar of North America Uniport Express

Corp and West Indies Freight Inc

Accordingly these last thirteen respondents hereby are dismissed their

tariffs remain in effect and they are deemed in compliance with the anti

rebate certification requirements of the statute

By motion served November 5 1986 Hearing Counsel state that Latillean

Freight Consolidators erroneously was listed in their motion served October

28 1986 as not having filed an appropriate anti rebate certification or

as not responding to various Commission orders Accordingly Hearing Coun

sel now urge that Latillean be included among those NVOCC s listed

in the preceding paragraph Latillean hereby is dismissed as a respondent

its tariff remains in effect and it is deemed in compliance with the anti

rebate requirements of tile statutes

The other 86 respondents in summary include two Oelf Shipping pty

Limited and First International Shipping Co twelve listed in Attachment

I sixteen listed in Attachment II and fifty six listed in Attachment III

These 86 have shown affirmatively or by inaction that they are not con

ducting business as NVOCC sImposition of penalties on these inactive

entities would serve no regulatory purpose and would be inappropriate

There have been no responses to the said October 28 1986 motion

of Hearing Counsel and their additional motion of the same date for

discontinuance of the proceeding Also there has been no response to the

motion ofHearing Counsel served November 5 1986

28 F M C
S CHARLES E MORGAN

Administrative Law Judge

CANCELLATION OF TARIFFS OR ASSESSMENT OF PENALTIES 729

AGAINST NON VESSEL OPERATING COMMON CARRIERS

It is concluded and found that the 86 I

remaining respondents presently

are not acting as non vessel operating common carriers

Good cause appearing and to clear the tariff records of the Commission

of out of business NVOCC s among other reasons the motions of Hearing

Counsel served October 28 1986 as amended by the motion of Hearing

Counsel served November 5 1986 hereby are granted

The tariffs of the 86 respondents above listed hereby are declared to

be inactive and ordered cancelled These 86 respondents hereby are dis

missed

Inasmuch as all 20I originally named respondents have been or are

now dismissed and inasmuch as neither oral testimony nor further pleadings

appear necessary this proceeding hereby is discontinued

I Delf Shipping Pty Limited First International Shipping Co 12 listed in Attachment I 16 listed in

Attachment TI and 56 listed in Attachment III

28 F M C
730 FEDERAL MARITIME COMMISSION

ATIACHMENT I

I

D L Latin America Inc

Marina Pacifica Container Line

MPCL Inc

Overseas Carriers Inc

Pan World Shipping Inc

Panatlantic American Freight Inc

Ship Corporation of Hawaii Ltd

Space Lines Inc

Stavers Corporation

Tiger Container Express Ltd

Valley Express Inc

West Coast Shipping Lines

ATIACHMENT II

i

I

1

Carrier Systems Inc

CFCIi Inc

CML Container Line Inc

Com Tran Inc

C T C Shipping SA

Eura Con

LCL Cargo Ltd

Maritime Company of the Pacific

Oceanaire International Inc

Sea Link Corporation

Southern InI Shipping Inc

Southern Unitrans Inc

Tank Traffic America Inc

Trans Yiking International Inc

W T C Holding Co Inc

Winchester Lines Inc

28 FM C
28 F M C

CANCELLATION OF TARIFFS OR ASSESSMENT OF PENALTIES 731

AGAINST NON VESSEL OPERATING COMMON CARRIERS

ATTACHMENT III

Aeropac

Albury s Bethel s Frt Service

Astrans USA Inc

Australia Far East Shipping Inc

B Line Shipping Company

BIC Tran International

Cargo Procurement Agency Inc

Cargo Yen Inc

Caribbean Freightways Inc

Cari Cargo International Inc

Denizana Shipping Unlimited Inc

DSL International

Fuji Express

Harbour International

Indo Atlantic Freight U S A Inc

International Express Co Ltd

Int l Cargo Handlers Inc

In1 Freight Consultants Inc

In1 Household Export Inc

J I F America Inc

Joint Transport USA Inc

LC LIncorporated

Marine Consolidators Inc

Michael Davis Shipping Inc

Mobel International Inc

Multi Sea Maritime Inc

Ned Con Service Inc

Ocean Freight Transport Corp

Oceanaire Int l Services Inc

P MLine
732 FEDERAL MARITIME COMMISSION

P T Gesuri Lloyd

Pelican Cargo Services Inc

Polamer Parcel Service Company

Presto Shipping Inc

Progressive Pier Delivery

Refrigerated Container Serv Inc

Republic Shipping Line

Royal Star Shipping Corp

Sarnad Shipping Services Inc

San Yang Yuan

Seair Transport Services Inc

Seven Seas Containerline Ltd

Shipping Time Gateways Overseas Ltd

Snyder Moving Shipping Co Ltd

Special Shipping Inc

Square Deal Shippers

Taiwan Overseas Forwarding Company Ltd

Todd International Inc

Tradeways International Inc

Transcontainer Atlantic Pacific Canada Corp

Transinternational System

Transmodal Express

Transocean Shipping Inc

Transship Inc

Vekr s Incorporated

Virginia Int l Air Freight Inc

28 F M C
28 F M C 733

FEDERAL MARITIME COMISSION

ACTION

SUMMARY

46 CFR PART 530

DOCKET NO 8620

TRUCK DETENTION AT THE PORT OF NEW YORK

INCREASE IN PENALTY CHARGES

January 21 1987

Final Rule

The Federal Maritime Commission amends its truck de

tention rules at the Port of New York to increase penalty

charges for truck delays at marine terminals from 4 00

per IS minutes to 8 00 per IS minutes

EFFECTIVE

DATE February 2S 1987

SUPPLEMENTAL INFORMATION

By Notice of Proposed Rulemaking published in the Federal Register

on May 21 1986 SI PR 18622 the Commission proposed to amend

its truck detention rules which apply to pickup and delivery of cargo

by motor carriers at matine terminal facilities within the Port of New

York port 46 CPR S30 Specifically the proposed rule would increase

the penalty charges for pickup and delivery delays in sections S30 7 f

and gfrom 4 00 per IS minutes to 8 oo per IS ntinutes 1 The Commis

sion s Notice also requested comment on whether there exists a continuing

regulatory need for retention of the rule

Comments on the proposed rule and its retention were submitted by

the Bi State Harbor Carriers Conference the U S Atlantic GulflAustralia

New Zealand Conference the Port Authority of New York and New Jersey

the New York Foreign Freight Forwarders and Brokers Association Inc

NYTC and the U S Department ofTransportation DOT

All commenters with the exception of DOT supported continuation of

the rule These supporting commenters generally contended that the rule

has played a beneficial role in reducing ambiguities as to proper documenta

tion and other procedures and in eliminating disputes regarding the responsi

bility for and levels of detention charges the rule has effectively encouraged

the responsible parties to do their best to eliminate practices and procedures

which resulted in the congestion conditions and detention claims that led

1The proposed rule was issued in response to a petition filed by the New York Tenninal Conference

NYTC 50 FR 53012 which requested the Commission 10 amend ils rules to increase the subject penalty

charges to 800 per 15 minutes
734 FEDERAL MARITIME COMISSION

I

to the original issuance of the rule 2

and improved conditions at the Port

are the result of the rule and should not serve as justification for its

elimination

Those who commented on the proposed increase in penalty charges sup

ported the change stating that the current 4 00 charge is no longer appro

priate given the substantial increase in operating costs since the rule was

promulgated

DOT while taking no position on the amount of penalty charges asserted

that the proposed rule appeared unwarranted in that the petition that prompt

ed the rulemaking gave no indication of the frequency with which the

current rule is invoked DOT explained that there has been a shift to

containerized cargo and cargo handling facilities at the Port and that the

rule is unnecessary for containerized cargo imd is only rarely invoked

for less than truckload cargo DOT contended that its Reports to Congress

on the Status of the Public Ports of the United States for 1982 1983

and 1984 do not disclose any port congestion problems for general cargo

moving through the Port and it stated that if the comments on this proposed

rule from affected parties confirm that the rule has in fact outlived its

usefulness the rule should be suspended or eliminated According to DOT

suspension and ultimate elimination of the rule under those circumstances

would appear consistent with the declared purpose of the Shipping Act

of 1984 46 U S C app 1701 1720 to minimize government intervention

and regulatory costs associated with the common carriage of goods by

water in the foreign commerce of the United States

Although DOT argued against retentiOn of the rule based primarily on

its information as to the lack of port congestion problems in recent years

its position was contingent upon receipt of similar comments from the

industry favoring elimination of the rule The general support for retaining

the rule voiced by industry commenterS and discussed below would there

fore appear to temper DOT s suggested elimination

The industry representatives who commented on this matter support the

continuation of the rule and did not dispute either the merit of an increase

in penalty charges or the actual amount proposed The illdustry perceives

a need for continued Commission involvement in this area as a steadying

influence to avoid the congestion problems of the past and to eliminate

disputes and ambiguities Certain comments suggested that the rule has

been the catalyst for the reduction of the Port s congestion problems and

has ensured an appropriate level of cooperation and coordination among

the relevant parties

Continuation of the rule with the increased penalty charges appears to

serve a valid regulatory purpose At the same time such continuation

would not be an unnecessary intrusion by the Commission in the commercial

1

i

2The original rule was the subject of Docket No 724I Truck Defemio at the Port of New YJrk A

final rule in that proceeding was publi bed in the Federal Register of November 10 1975 40 FR 52385

and after several postponements the rule became fully effective on July 5 1976

28 F M C
S JOSEPH C POLKING

Secretary

TRUCK DETENTION AT THE PORT OF NEW YORK INCREASE 735

IN PENALTY CHARGES

arena and would not unduly increase the operating costs of the industry

Instead it wold continue to allow a marketplace consensus to dictate the

industry practice and appropriate level of penalty charges The Commission s

role would be to publish the applicable rules in a format which the industry

is accustomed to and with which it is apparently satisfied The rules appear

to create no compliance burden on the affected parties and have minimal

impact on agency costs or use of resources Accordingly the Commission

is adopting the proposed increase as a final rule

The Commission has determined that this rule is not a major rule

as defined in Executive Order 12291 dated February 17 1981 because

it will not result in

I

An annual effect on the economy of 100 million or more

2 A major increase in costs or prices for consumers individual indus

tries Federal State or local government agencies or geographical region

or

3 Significant adverse effects on competition employment investment

productivity innovations or on the ability of United States based enterprises

to compete in domestic or export markets

The Chairman of the Federal Maritime Commission certifies pursuant

to section 605 b of the Regulatory Flexibility Act 5 U S C 605 b that

this rule will not have a significant economic impact on a substantial

number of small entities including small businesses small organizational

units or small government organizations

The Paperwork Reduction Act 44 U S C 3501 3502 does not apply

to this Notice of Final Rulemaking because the amendments to Part 530

of Title 46 Code of Federal Regulations do not impose any additional

reporting recordkeeping or collection of information requirements on mem

bers of the public which require the approval of the Office of Management

and Budget

List of Subjects in 46 CFR Part 530 Freight Harbors Maritime carriers

Motor carriers Penalties Reporting and recordkeeping requirements

PART 530 AMENDED

Therefore for the reasons set forth above Part 530 of Title 46 Code

of Federal Regulations is amended as follows

1 The authority Citation to Part 530 is revised to read as follows

AUTHORITY 5 U S c 553 46 U S C app 816 841a 1709 and 1716

2 In paragraphs f I f 2 and g

of 530 7 the 4 00 per 15

minutes penalty charge is increased to 8 00 per 15 minutes

By the Commission

28 F M C
FEDERAL MARITIME COMMISSION

ACTION

SUMMARY

46 CPR PART 568

DOCKET NO 8626

SELF POLICING REQUIREMENTS FOR AGREEMENTS UNDER TIlE

SHIPPING ACT 1916

January 21 1987

Final Rule

This action removes Part 568 from Title 46 Code of

Federal Regulations Part 568 presently imposes detailed

self policing procedures and requirements on conference

and other rate agreements in the domestic offshore trades

The absence of malpractices or other abuses by the con

ference system in these trades has eliminated the need

for these regulations

EFFECTIVE

DATE January 26 1987

SUPELEMENTARY INFORMATION

The Commission published a notice of proposed rulemaking for the re

moval of Part 568 in the Federal Register of October 8 1986 51 FR

36034 Part 568 sets forth detailed self policing requirements for agreements

subject to the Shipping Act 1916 1916 Act 46 U S C app 801 842

including the requirement that such agreements establish independent polic

ing authorities These regulations were initially adopted to ensure that agree

ments in the foreign commerce of the United States complied with the

requirement of section 15 of the 1916 Act 46 U S C app 814 that

they be adequately policed However with the enactment of the Shipping

Act of 1984 46 U S C app 1701 1720 agreements in the foreign com

merce of the United States are no longer subject to the requirement and

the 1916 Act has been made applicable solely 10 the domestic offshore

trades As a result those few agreements which exist in the domestic

offshore trades must comply with Part 568 even though doing so may

be prohibitively expensive and serve no clear regulatory purpose

Comments in response to the rulemaking notice were filed by I

the

Department ofTransportation DOT 2 the Pacific CoastAmerican Samoa

Rate Agreement PCASRA 3 the Ouam Rate Agreement ORA 4

Sea Land Service Inc Sea Land and 5 the Puerlo Rico Maritime Ship

ping Authority PRMSA DOT PCASRA and ORA support removal of

Part 568 on the ground that it no longer serves a valid regulatory purpose

Sea Land and PRMSA also favor removal but urge clarification of Commis

sion policy with regard to policing requirements after removal Specifically

Sea Land requests that the Commission acknowledge the right of agree

736 28 FM C
28 F M C

SELF POLICING REQUIREMENTS FOR AGREEMENTS UNDER 737

THE SHIPPING ACT 1916

ment members to agree upon adequate self policing procedures and include

such provisions in agreements filed for approval pursuant to section 15

of the 1916 Act With regard to future policy for evaluating the adequacy

of policing PRMSA would like the Commission to give the parties to

covered agreements some assistance in judging what is acceptable for the

purpose of neutral body policing arrangements even if it is only a reiteration

of the principal elements of Part 568 or a statement that the standards

of former Part 568 will be the starting point of the Commission s examina

tion

The removal of Part 568 does not in any way affect the statutory duty

of any agreement to establish adequate self policing procedures Since such

procedures must be agreed upon they must also be submitted to the Com

mission for approval

PRMSA s

request seems to suggest that the Commission reestablish the

neutral body requirements of Part 568 by stating that this will be the

standard by which the adequacy of policing will be evaluated However

such a position would be contrary to the basic purpose for removing Part

568 in the first place ie to relieve agreements in the domestic offshore

trades from the burden of maintaining elaborate policing systems As indi

cated above every agreement subject to the section 15 policing requirement

must demonstrate its compliance with that requirement by describing its

self policing procedures in its agreement However whatever system is

adopted will initially be left to the discretion of the parties The Commission

will not impose specific self policing requirements on any agreement except

possibly when after a full investigation the existing scheme is found

to constitute inadequate policing of the agreement s obligations

The Commission has determined that the removal of Part 568 is not

a major rule as defined in Executive Order 12291 because it will not

result in 1 an annual effect on the economy of 100 million or more

2 a major increase in costs or prices for consumers individual industries

Federal State or local government agencies or geographic regions or

3 a significant adverse effect on competition employment investment

productivity innovations or on the ability of United States based enterprises

to compete with foreign based enterprises in domestic or export markets

Pursuant to the Regulatory Flexibility Act 5 U S C 601 et seq it

is certified that the removal of Part 568 from Title 46 will not have

a significant economic impact on a substantial number of small entities

including small businesses small organizational units and small govern

mental jurisdictions

List of Subjects in 46 CFR Part 568 Antitrust Contracts Maritime

carriers Reporting and recordkeeping requirements Rates

Therefore pursuant to 5 U S c 553 and sections 14 15 16 17 18 a

21 35 and 43 of the Shipping Act 1916 46 U S C app 812 814 815
738 FEDERAL MARITIME COMMISSION

816 817 a 820 833 a and 841 a Part 568 of Title 46 Code of Federal

Regulations is removed

By the Commission

8 JOSEPH C POLKINO

Secretary

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1447

APPLICATION OF TRANSPACIFIC WESTBOUND RATE AGREEMENT

AND SEA LAND CORPORATION ON BEHALF OF SEA LAND

SERVICE INC FOR THE BENEFIT OF LUSK SHIPPING CO INC

AS AGENT FOR KAISER ALUMINUM INTERNATIONAL INC

ORDER OF PARTIAL ADOPTION

28 F M C 739

January 21 1987

The Commission determined to review the Initial Decision of Administra

tive Law Judge Joseph N Ingolia Presiding Officer served December

5 1986 in this proceeding

The Transpacific Westbound Rate Agreement and Sea Land Corporation

on behalf of Sea Land Service Inc applied pursuant to section 8 e of

the Shipping Act of 1984 the Act 46 US c app 1707 e for permission

to waive freight charges for Lusk Shipping Co Inc as agent for Kaiser

Aluminum International Inc on a shipment of aluminum wire and cable

from Baltimore Maryland to Bangkok Thailand

The Presiding Officer found that the application met all the requirements

of section 8 e of the Act and properly granted permission to waive the

freight charges However the Presiding Officer subsequently advised the

Commission that the tariff notice required by the Initial Decision to be

published in the appropriate tariff inadvertently made the corrected applica

ble rate effective as of November 3 1985 215 days from June 6 1986

the filing date of the application In Application of Lykes Bros Steamship

Co Inc for the Benefit of Embassy of Tunisia 28 F M C 421 422

1986 the Commission held that no relief can be granted on shipments

falling outside the 180 day period

THEREFORE IT IS ORDERED That in lieu of the tariff notice man

dated by the Initial Decision issued in this proceeding the Transpacific

Westbound Rate Agreement promptly publish in its tariff the following

notice

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

Commission in Special Docket No 1447 that effective December

8 1985 and continuing through May 25 1986 inclusive the

rate on Aluminum Wire is 204000 per 40 foot container plus

Terminal Receiving Charges of 110 00 from U S Ports and Points

See Rule I A to Thailand for purposes of waiver or refund

of freight charges subject to all other applicable rules regulations

terms and conditions of said rate and this tariff
740 FEDERAL MARITIME COMMISSION

IT IS FURTHER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission

S JOSEPH C POLKING

Secr tary

28 F M C
28 F M C 741

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1447

APPLICATION OF TRANSPACIFIC WESTBOUND RATE AGREEMENT

AND SEA LAND CORPORATION ON BEHALF OF SEA LAND

SERVICE INC FOR THE BENEFIT OF LUSK SHIPPING CO INC

AS AGENT FOR KAISER ALUMINUM INTERNATIONAL INC

Application to waive freight charges of 2 489 57 granted

INITIAL DECISION I OF JOSEPH N INGOLIA ADMINISTRATIVE

LAW JUDGE

Partially Adopted January 21 1987

This application2 is for permission to waive 2489 57 of freight charges

arising out of one shipment of aluminum wire and cable from Baltimore

Maryland to Bangkok Thailand

The tariff initially involved in this proceeding is Transpacific Westbound

Rate Agreement TWRA Westbound Local and Intermodal Freight Tariff

FMC No 3 from U S Ports and Points to Southeast Asia Base Ports

in Singapore Malaysia Indonesia Thailand and the Philippines 3 Sea

Land is a member of the agreement On October 22 1985 Sea Land

Service Incs Sea Land Assistant Pricing Manager was instructed to have

the TWRA publish a rate of 2 040 per 40 foot container plus a 110

Terminal Receiving Charge for the shipment of Aluminum Rods and Coils

Item No 76330 and Aluminum Wire Item No 76400 Instead

he inadvertently only began a rate initiative for the aluminum rods and

coils The initiative was objected to and the rate was ultimately made

effective by independent action effective on November 4 1985

When the error in not amending the tariff for aluminum wire was discov

ered the original tariff TWRA Tariff FMC No 3 was being revised

and was replaced by TWRA FMC No 7 The old item number 76

0400 was changed to item number 764000 A second rate initiative for

aluminum wire was submitted to the Conference on May 16 1986 was

objected to and was filed by independent action effective May 26 1986 5

On December 10 1985 one intermodal shipment of aluminum wire sailed

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

2The application which was filed by Sea Land and the Conference was filed on June 6 1986 within the

180 day statutory period set forth in section 8 e Shipping Act 1984

3

Application exhibit No 1

4

Application Exhibit No 2

5

Application Exhibit No 3 page I The actual rate filed was 2290 per 40 foot container which included

a

previous general rate increase of 250 that had been made effective April 15 1986
742 FEDERAL MARITIME COMMISSION

I

I

i

from Takoma Washington after originating in Baltimore Maryland for

Bangkok Thailand The rate then in effect was 233 00 W and the total

freight charges were 4 639 57 The applicants now seek permission to

waive the difference between that amount lind the amount due under the

corrected tariff of 2 150 00 which amount the shipper has paid The

difference is 2489 57

Section 8 e of the Shipping Act 1984 permits the Commission to

waive or refund collection of freight charges where it appears there was

an error in a tariff of a clerical nature or an error due to inadvertence

in failing to file a new tariff Here the record is clear that Sea Land s

employee simply failed to effect the tariff change which Sea Land intended

The mistake in failing to me a timely tariff is the kind of inadvertence

Congress sought to obviate in enacting section 8 e

The application filed by Sea Land and the Conference conforms to the

requirements of Rule 92 a Spltcial Docket Applications Rules of Practice

and Procedure 46 CPR 502 92 a

and therefore after consideration of

the application the exhibits attached to it and the entire record it is

held that

1 There was an error of a clerical or administrative nature which resulted

in the failure to have timely filed a tariff containing a rate of 2 040 00

per 40 foot container from Baltimore Maryland to Bangkok Thailand

which rate would have been in effect had the error not been made

2 The waiver will not result in discrimination among shippers 6

and

there is no evidence that any carriers or ports would suffer discrimination

should the application be granted

3 Prior to applying for the waiver the applicants filed a new tariff

which sets forth the rate upon which the waiver should be hased

4 The application was filed within 180 days from the date of shipment

Wherefore in view of the above it is

Ordered that permission is granted Sea Land to waive a portion of

freight charges in the amount of 2 489 57 for the benefit of Lusk Shipping

Co as agent for Kaiser Aluminum International Inc and it is

Further Ordered that TWRA promptly publish in the appropriate tariff

the following notice

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

Commission in Special Docket No 1447 that effective November

3 1985 and continuing through May 25 1986 inclusive the

rate on Aluminum Wire is 2 040 00 per 40 foot container plus

Terminal Receiving Charges of 110 00 from U S Ports and Points

See Rule I A to Thailand for purposes of waiver or refund

1

6The applicants slate there were no other shipments of the same commodity during lho period involved

here

28 FM C
APPLICATION OF TRANSPACIFIC WESTBOUND RATE 743

AGREEMENT AND SEA LAND CORPORATION ON BEHALF OF

n Et f I

tjl itions

INTERNATIONAL INC

8 JOSEPH N INGOLIA

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

46 CPR PART 502

DOCKET NO 8622

MISCELLANEOUS AMENDMENTS TO RULES OF PRACTICE AND

PROCEDURE

February 5 1987

Final Rule

The Federal Maritime Commission amends its Rules of

Practice and Procedure to allow for appeals from Com

mission staff actions establish a procedure for the filing

of a brief of an amicus curiae in adjudicatory proceedings

and authorize U S Government agencies to file amicus

pleadings without first asking leave of the Commission

bring special docket procedures into conformity with the

Shipping Act of 1984 and recent Commission decisions

and require persons requesting oral argument to set forth

the specific issues they propose to address at oral argu

ment

ACTION

SUMMARY

EFFECTIVE

DATE March 12 1987

SUPPLEMENTARY INFORMATION

BACKGROUND

This proceeding was initiated by a Notice of Proposed Rulemaking Pro

posed Rule published in the Federal Register on August 14 1986 51

PR 2912429126 The Proposed Rule would amend the Commission s

Rules of Practice and Procedure Rules 46 CPR Part 502 to provide

for appeals from Commission staff actions to establish a procedure for

the filing of a brief of an amicus curiae in adjudicatory proceedings to

bring special docket procedures into conformity with the Shipping Act

of 1984 Act or 1984 Act 46 U S C app 1701 1720 and recent Commis

sion decisions and to set forth the grounds upon which a request for

oral argument should be based

Comments in response to the Notice of Proposed Rulemaking were sub

mitted by the Department of Transportation DOT or Executive Agencies 1

by the Transpacific Westbound Rate Agreement TWRA by Sea Land

Service Inc Sea Land and by Messrs C Jonathan Benner Joseph A

I This comment was submitted by the Department of Transportation on ita own behalf and on belWf of

the Departments of State and Commerce and the United States Trade Representative

744 28 FM C
28 F M C

MISCELLANEOUS AMENDMENTS TO RULES OF PRACTICE AND 745

PROCEDURE

Klausner NDI M Mayer and Russell T Weil attorneys who practice

before the Commission 2

The Commission has considered the comments received and made certain

modifications to the Proposed Rule These changes and the related comments

are discussed in the following section by section analysis of the Final Rule

DISCUSSION

ISection 502 69 Petitions General andfee Rule 69

The Proposed Rule would add the phrase including appeals from Com

mission staff action after the words affirmative action by the Commis

sion in order to make clear that the petition procedure provided in Rule

69 is available in an appeal from a staff action TWRA urges that either

Rule 69 or the Supplementary Information should indicate that when ref

erence is made to the Commission it means the Commission acting as

the sitting Commissioners and not simply a member or members of the

staff

A reasonable reading of the reference to relief or other affirmative

action by the Commission in Rule 69 indicates that matters submitted

under Rule 69 are ultimately to be decided by the Commission acting

as a collegial body 3Therefore no specific language to that effect is nec

essary in Rule 69 itself

II Section 502 76Briefof an amicus curiae Rule 76

As proposed Rule 76 would I allow a United States government

entity or a State Territory or Commonwealth to file a brief as an amicus

curiae without leave of the Commission 2 clarify the distinction between

participation as an intervener and as an amicus curiae and 3 provide

that amicus participation in oral argument will be granted only for extraor

dinary reasons

The Executive Agencies support the Proposed Rule without modification

Both TWRA and Sea Land object to the provision which would allow

government entities to file an amicus brief without leave of the Commission

In addition TWRA states that Rule 76 should be modified to I limit

an amicus brief to comments on law or policy questions already at issue

in the proceeding 2 grant presiding officers the discretion to determine

whether or not to accept amicus briefs and to determine the timing and

terms of filing such briefs 3 require that government briefs be filed

at the same time as the first brief filed by the party it supports and

4 liberalize the oral argument standard for an amicus

2

A comment by the Trans Pacific Freight Conference of Japan and the Japan Atlantic Gulf Freight Con

ference was not accepted because it was not timely filed and hence is not part of the record in this pro

ceeding

3Moreover a defmition of the reference to Commission in this instance could create uncertainty as to

themeaning of that tenn where it appears elsewhere inthe Rules
746 FEDERAL MARITIME COMMISSION

1

A Treatment of GovernmentEntities

Rule 76 a as proposed would pennit the filing of an amicus brief

only with leave of the Commission or the presiding officer except that

leave would not be required of a United States government entity or

aState Territory or Commonwealth

The Executive Agencies support the exception for government agencies

They argue that it is consistent with federal court rules and the practice

of other federal agencies The Executive Agencies contend that this excep

tion will not prejudice any party because an amicus agency would be

required to submit its brief at the same time as parties taking the same

position They point out that responding parties will therefore have the

same amount of time to respond to an agency amicus brief In their view

the exception will not expand or prolong a proceeding The Executive

Agencies believe the benefit of such a rule is that it will facilitate commu

nication between the Commission and those agencies directly concerned

with U S maritime policy

TWRA and Sea Land argue that no special exception should be made

for government entities Sea Land argues that such an exception for U S

government entities is unnecessary preferential and likely to unduly broaden

the scope of a proceeding and increase expenses for parties to the proceeding

as well as the Commission TWRA contends that it is inappropriate to

allow federal state and local agencies to file briefs as a matter of right

and without advance notice to other parties TWRA argues that Rule 29

of the Federal Rules of Appellate Procedure which pennits such filings

at an appellate level is not analogous to trial level proceedings before

an administrative law judge TWRA also argues that if preferential treatment

is to be given to U S government entities it should also be given to

foreign government entities in the interest of comity TWRA points out

that government entities are sometimes either regulated persons e g

state

and local port districts or shippers and consignees TWRA believes it

is discriminatory and inappropriate to permit a government class of regulated

persons or government Shippers to have preferred status as compared to

private sector counterparts Finally TWRA contends that no need or jus

tification for granting such preferred status has been demonstrated

The issue raised here is whether the need for and benefit derived from

the proposed special treatment of government entities outweighs any poten

tial adverse effects this provision might have such as increased expense

or delay non observance of principles of international comity or preferential

treatment of government entities that may also be regulated persons ship

pers or consignees

The need for a provision such as this arose during several recent pro

ceedings in which the Department of Transportation sought to participate

and submit its views In Docket No 8518 the Commission upheld the

presiding officer s detennination that DOT had failed to satisfy the require

ments for intervention but allowed DOT upon application to participate

28 F M C
28 F M C

MISCELLANEOUS AMENDMENTS TO RULES OF PRACTICE AND 747

PROCEDURE

as an amicus curiae Member Lines of the Transpacific Westbound Rate

Agreement Possible Violations of the Shipping Act of 1984 23 S R R 574

578 1985 In Docket No 863 the Commission rejected an untimely

comment amicus curiae submitted by DOT in a show cause proceeding

See Order Granting Motion To Reject Comments Amicus Curiae of the

United States Department of Transportation Modifications to the Trans

Pacific Freight Conference of Japan Agreement et aI 23 S R R 1161

1986 These specific instances however were not expressly referred to

in the Supplementary Information to the Proposed Rule This may explain

why TWRA asks whether any agency has been denied amicus status or

has sought preferential treatment and questions whether a need for this

provision has been shown

The benefit to be derived from the amicus rule is that it establishes

a vehicle for receiving the views of other government agencies that may

have an interest in maritime matters DOT has not perhaps expressly asked

for such preferred status prior to issuance of the Proposed Rule but it

has in its prior filings relied on Rule 29 of the Federal Rules of Appellate

Procedure and rules of other agencies and has urged the Commission to

treat sister agencies in the same way

While the alleged potential adverse effects of the preferred status accorded

U S Government entities are not all necessarily without merit they do

not appear to be substantial enough to stand as a barrier to retaining

this feature in the Final Rule Moreover as noted in the Proposed Rule

a number of other government agencies do in fact so provide in their

rules of practice Therefore the Final Rule shall allow U S Government

entities to file an amicus brief without leave of the Commission

There is however merit to the contention that nonfederal government

entities should not be permitted to file an amicus brief without leave

of the Commission Many states for example operate port authorities and

these authorities are entities regulated by the Commission There is thus

a reasonable concern that allowing state authorities to file without leave

could result in a burdensome avalanche of filings There would therefore

appear to be a need in the case of state government entities to exercise

control over their participation in Commission proceedings Therefore the

Final Rule is modified to delete the phrase or by a State Territory

or Commonwealth State government entities would of course still be

able to participate as an amicus by filing for and obtaining leave

B Limit AmicusBriefto Law or Policy Questions

As proposed Rule 76 did not expressly limit an amicus brief to comment

on law or poiicy questions already at issue in the proceeding TWRA

urges that the rule do so TWRA states that an amicus should be confined

4There appears to be little if any danger however that pennitting U S Government entities 10 file an

amicus brief without leave would unduly broaden the scope of proceedings or place excessive burdens on

the parties
748 FEDERAL MARITIME COMMISSION

to the issues addressed by the parties or r ised by an order TWRA is

particularly concerned that at the trial level an amicus might assume

the role of an unofficial litigant arguing facts and making proposed findings

TWRA states that at the trial level it is important that the line between

an amicus and an intervenor be clearly drawn

The clarifying limitation urged by TWRA shall be adopted In most

cases an amicus would address legal issues put forward by the parties

or the Commission This is the classic role of an amicus namely to assist

the court with legal issues or to call a

legal matter to the court s attention

which might otherwise escape the court s notice Moreover the clarification

requested by TWRA can be accommodated without greatly diminishing

the benefit of amicus participation Therefore section 502 76 a shall be

modified in the Final Rule by addill the following sentence A brief

of an amicus curiae shall be limited to questions of law or policy

C Broader Discretion for rhe Administrative Law Judge

As proposed Rule 76 a would allow the presiding officer to grant a

motion for leave to file an amicus brief or to request that such a brief

be filed Proposed Rule 76 c would allow the presiding officer to grant

leave for a later filing of an amicus brief if cause is shown

TWRA urges that the presiding officer also be given discretion over

whether or not to accept amicus briefs from any person Including a govern

ment entity and over the time and terms of filing such briefs This is

necessary according to TWRA to protect litigating parties from surprise

during the course of a proceeding

The Final Rule requires that all persons except U S Government entities

obtain leave of the presiding officer or the Commission to file an amicus

brief Thus this discretion except as to Us Government entities is already

vested in the presiding officer The Final Rule does not expressly give

the presiding officer discretion over the timing and terms of filing such

briefs However such discretion is inherent in the presiding officer s author

ity to control and direct the course of a proceeding No modification of

the language of Rule 76 appears necessary

D Filing With the Initial Brief

As proposed Rule 76 c would require that an amicus file its brief

within the time allowed the party whose position as to affirmance

or reversal the amicus brief will support

TWRA urges that at the ALJ level if any party is to have

leave to file an amicus brief as of right it must file its brief at the

same time as the due date of the first brief of the party with whose

position the amicus is aligned emphasis in original TWRA seeks to

avoid a situation where an amicus files its brief on the date the last

party files its reply brief

28 F M C
28 F M C

MISCELLANEOUS AMENDMENTS TO RULES OF PRACTICE AND 749

PROCEDURE

It was intended in the Proposed Rule that an amicus file its brief at

the same time as the initial brief of the party it supports Certainly an

amicus should not be permitted to enter at the reply phase and thereby

preclude any opportunity for the opposing side to address the amicus brief

An amicus must file its brief on or before the due date of the initial

brief of the party it supports In view of the presiding officer s authority

to control proceedings it does not appear necessary to expressly state

this in the Final Rule

E Standnrdfor Oral Argument by Amicus Curiae

As proposed Rule 76 d would provide that A motion of an amicus

curiae to participate in oral argument will be granted only for extraordinary

reasons

TWRA argues that this standard is too restrictive TWRA states It

should be sufficient to require that an amicus show that the position it

wished to urge on oral argument a would not be adequately represented

by actual parties b was one bearing on important issues of law and

policy and c would be heard only in the Commission s discretion upon

application

As proposed to be amended in this proceeding Rule 241 would set

forth a standard for evaluating requests for oral argument by parties to

a proceeding Proposed amended Rule 241 attracted substantial comment

which is discussed below In light of the changes recommended and made

in Rule 241 it would appear preferable to evaluate a request by an amicus

curiae to participate in oral argument under the same standard as that

of parties to the proceeding Therefore Rule 76 d shall be modified to

provide that such requests by an amicus curiae shall be governed by the

requirements of Rule 241

III Section 502 92 aSpecial docket applications and fee Rule 92 a

This section sets forth the special docket procedure for claiming refund

or waiver relief The proposed revisions are generally aimed at bringing

Rule 92 a into conformity with section 8 e of the 1984 Act 46 D S C

app 1707 e

Sea Land maintains that the amendment to Rule 92 is unclear as to

whether a shipper must file a corrected tariff when applying for a refund

or waiver It argues that the statute contains no exception to the requirement

that a corrected tariff be filed with the Commission prior to the filing

of the application In Sea Land s opinion were the shipper allowed to

file an application without the concurrence of the carrier a simple procedure

for review of mutually acknowledged mistakes might be converted into

an adversarial process more appropriately handled under section II of the

1984 Act Sea Land suggests that Rule 92 be amended to require the

shipper to attach to its application an affidavit from the carrier in support

of the application together with a

copy of the corrected tariff
750 FEDERAL MARITIME COMMISSION

I

Section 8 e which gives the shipper the right to file an application

for refund or waiver does not subject the exercise of that right to the

consent of the carrier or conference Nor does the statute which explicitly

directs only the carrier or conference to file a new tariff appear to con

template the submission of a tariff by a shipper S Consequentiy Sea Land s

suggested amendment finds no support in the statute Moreover such an

amendment would frustrate the shipper s

right to file its own application 6

IV Section 502241 Oral Argument Rule 241

As proposed to be amended Rule 241 b would provide that oral argu

ment generally will not be granted unless I the requesti 1g party dem

onstrates with specificity that the matter to be addressed presents a signifi

cant regulatory issue 2 the legal arguments have not been adequately

addressed on briefs and 3 the decisional process would be significantly

aided by oral presentation

Messrs Benner lausner Mayer and Weil and TWRA by its attorney

Mr R Frederic Fisher uniformly express the view that the proposed

changes would unduly restrict the Commission s discretion to hear oral

argument7 The commenters all of whom are attorneys who practice before

the Commission urge rejection of the Proposed Rule and argue that oral

argument provides the only opportunity for the parties to address the Com

mission directly They point out that courts generally insist on hearing

oral argument rather than deciding cases on briefs and all commenters

find objectionable the burden placed on a party requesting oral argument

to be compelled to acknowledge the inadequacy of its briefs

The proposed oral argument rule has generated strong opposition from

members of the maritime bar Some of the arguments advanced against

the proposed changes in Rule 241 have merit and were anticipated when

the rule was proposed The fact remains however that the present oral

argument procedure serves well neither the Commission nor the parties

whom the bar represents

Clearly and contrary to the conclusions drawn by some commenters

proposed amended Rule 241 b was not intended to remove the Commis

Section 8 e

provides in part

e RBFUNDS The Commission may upon application of acarrier orshipper permit a common

carrier or conference to refund a portion of freight charges collected from a

shipper or10 waive

the collection of a portion of the charges from a shipper if

2 the common carrier orconference has prior 10 nUng an appliclllion fOf authority to make a

refund filed a new tariff withthe CommisSIon thai sets forth therate on which the refund orwaiver

would be based Emphasis added

6The Commission may one day be called upon to address the effect of acarrier s or conferencc s re usal

10 concur bt a

shipper s

special docke1 appllcallon andlor to lie the confonning tariff rate and other tariff

mailerrequired by section See of the 1984 Act However that issue is besllcft to resolution in an appropriatc

None of the comments addresses the proposed changes in Rule 241 a 46 CFR 502 241 a which merely

incolpOi ate the Commission s practice for scheduling oral argument either on its own initiative or at the

requcst of aparty

28 FM C
MISCELLANEOUS AMENDMENTS TO RULES OF PRACTICE AND 751

PROCEDURE

sian s unfettered discretion to grant oral argument nor to reflect any funda

mental bias against oral argument on the part of the Commission On

the other hand it would appear that something more than tacking on

we request oral argument to the end of exceptions or replies to exceptions

which is a common existing practice is necessary

Under these circumstances while it does not seem advisable to list in

Rule 241 b 2 as suggested by some commenters the types of reasons

which are likely to result in a

grant or denial of oral argument it would

appear reasonable to at least require the parties to set forth in their request

the issues they believe need to be addressed on oral argument Such a

declaration would serve to focus the oral argument presentations and thereby

assist the deliberative process

Finally it should be emphasized that a request for oral argument which

conforms to the technical requirements of Rule 241 does not automatically

entitle the requesting party to an affirmative disposition of that request

A grant or denial of a request for oral argument remains a matter of

Commission discretion

28 F M C

CONCLUSION

The Final Rule as modified where appropriate to accommodate the com

ments submitted amends the Commission s Rules of Practice and Procedure

by updating and clarifying certain existing sections of the Rules and by

adding a new section governing amicus participation These changes make

significant improvements to the Commission s Rules which should promote

greater efficiency in Commission proceedings

The Commission has determined that this rule is not a major rule

as defined in Executive Order 12291 46 FR 12193 February 27 1981

The Chairman of the Federal Maritime Commission certifies pursuant

to section 605 b of the Regulatory Flexibility Act 5 U S c 601 ef seq

that this rule will not have a significant economic impact on a substantial

number of small business entities

List of Subjects in 46 CFR Part 502

Administrative Practice and Procedure

Therefore for the reasons set forth in the preamble and pursuant to

section 5 U S c 553 section 43 of the Shipping Act 1916 46 U S C

app 841a and sections 8 e and 17 of the Shipping Act of 1984 46

U S C app 1707 e and 1716 a Part 502 of Title 46 Code of Federal

Regulations is amended as follows

IThe Authority Citation for Part 502 continues to read as follows

AUTHORITY 5 U S c 552 553 559 18 U S c 207 46 U S C app

817 820 821 826 841a 1114 b 1705 1707 1711 and 1713 1716 and

E O 11222 of May 8 1965 30 FR 6469

2 Section 502 69 paragraph a is revised to read as follows

502 69 Petitions general and fee
752 FEDERAL MARITIME COMMISSION

a Except when submitted in connection with a formal proceeding all

claims for relief or other affirmative action by the Commission including

appeals from Commission staff action except as otherwise provided in

this part shall be by written petition which shall state clearly and concisely

the petitioner s grounds of interest in the subject matter the facts relied

upon and the relief sought shall cite by appropriate reference the statutory

provisions or other authority relied upon for relief shall be served upon

all parties named therein and shall conform otherwise to the requirements

of Subpart H of this part Replies thereto shall conform to the requirements

of 502 74

1

3 Section 502 72 paragraph c 3 is amended by removing the word

f

amicus t

4 Part 502 Subpart E is revised by adding new 502 76 to read as

follows

502 76 Brief of an amicus curiae

a A brief of an amicus curiae may be filed only by leave of the

Commission or the presiding officer granted on motion with notice to

the parties or at the request of the Commission or the presiding officer

except that leave shall not be required when the brief is presented by

the United States or an agency or officer of the United States The brief

may be conditionally filed with the motion for leave A brief of an amicus

curiae shall be limited to questions of law or policy

b A motion for leave to file an amicus brief shall identify the interest

of the applicant and shall state the reasons why such a brief is desirable

c Except as otherwise permitted by the Commission or the presiding

officer an amicus curiae shall file its brief within the time allowed the

party whose position as to affirmance or reversal the amicus brief will

support The Commission or the presiding officer shall grant leave for

a later filing only for cause shown in which event the period within

which an opposing party may answer shall be specified

d A motion of an amicus curiae to participate in oral argument will

be granted only in accordance with the requirements of 502 241 Rule

76

5 Section 502 92 paragraphs a I and a 2 are revised to read as

follows

502 92 Special docket applications and fee

a 1 A common carrier by water in foreign commerce which publishes

its own tariff or if the common cartier does not publish its own tariff

the carrier and the conference to which it belongs or a shipper may

file an application for permission to refund or waive collection of a portion

of freight charges where it appears that there is i an error in the tariff

of a clerical or administrative nature or ii an error due to inadvertence

2S F M C
28 F M C

MISCELLANEOUS AMENDMENTS TO RULES OF PRACTICE AND 753

PROCEDURE

in failing to file a new tariff Such refund or waiver must not result

in discrimination among shippers ports or carriers

2 When the application is filed by a carrier or conference the Commis

sion must have received prior to the filing of the application a new tariff

which sets forth the rate on which refund or waiver would be based

6 Exhibit No I to Subpart F 502 92 paragraphs I 3 and 4 are

revised to read as follows

EXHIBIT NO I TO SUBPART F 502 92 APPLICATION FOR

REFUND OF OR WAIVER FOR FREIGHT CHARGES DUE TO

TARIFF ERROR

1

d Date s of shipment s i e sailing s furnish supporting evidence

3 Furnish any information or evidence as to whether grant of the applica

tion will result in discrimination among shippers ports or carriers

4 State whether there are shipments of other shippers of the same

commodity which i moved via the carrier s or conference involved in

this application during the period of time beginning on the date the tariff

omitting the intended rate became effective or on the date the intended

rate absent the mistake would have become effective and ending on the

day before the effective date of the conforming tariff and ii moved

on the same voyage s of the vessel s carrying the shipment s described

in No I above

7 Section 502 241 paragraphs a and b are revised to read as follows

502 241 Oral argument

a The Commission may hear oral argument either on its own motion

or upon the written request of a party If oral argument before the Commis

sion is desired on exceptions to an initial or recommended decision or

on a motion petition or application a request therefor shall be made

in writing Any party may make such a request irrespective of its filing

exceptions under 502 227 If a brief on exceptions is filed the request

for oral argument shall be incorporated in such brief Requests for oral

argument on any motion petition or application shall be made in the

motion petition or application or in the reply thereto If the Commission

determines to hear oral argument a notice will be issued setting forth

the order of presentation and the amount of time allotted to each party

b I Requests for oral argument will be granted or denied in the discre

tion of the Commission
754 FEDERAL MARITIME COMMISSION

2 Parties requesting oral argument shaH set forth the specific issues

they propose to address at oral argument

By the Commission

5 JOSEPH C POLKINO

Secretary

2S F M C
28 F M C 755

FEDERAL MARITIME COMMISSION

ACTION

SUMMARY

46 CFR PART 502

DOCKET NO 8627

ATTORNEY S FEES IN REPARATION PROCEEDINGS

February 26 1987

Final rule

The Federal Maritime Commission amends its Rules of

Practice and Procedure to provide a standard and proce

dure for awarding attorney s fees in reparation pro

ceedings The rule establishes a method of computing

reasonable attorney s fees and specific procedures of

processing fee requests

EFFECTIVE

DATE April 2 1987

SUPPLEMENTARY INFORMATION

By Notice of Proposed Rulemaking published in the Federal Register

on October 27 1986 51 FR 37917 the Commission gave notice of its

intent to establish a method of computing attorney s fees awards in repara

tion proceedings and specific procedures for processing fee requests Specifi

cally the proposed rule deletes the previous provision in the Commission s

Rules of Practice and Procedure goveming attoruey s fees award Rule

253 b 46 CFR 502 253 b and adds a new Rule 254 46 CFR 502 254

The new provision specifies that the so called lodestar method of com

puting attorney s fees shall be utilized in cases under section 11 of the

Shipping Act of 1984 1984 Act 46 D S C app 1710 wherein the com

plainant is awarded reparations The rule also requires that petitions for

fees be documented according to the reasonableness of the hours claimed

and the customary hourly rate for such services Finally the rule establishes

time limits for filing attorney s fees petitions and replies and specifies

where they should be filed

Comments in response to the Notice were filed by Crowley Maritime

Corporation CMC Asia North America Eastbound Rate Agreement

ANERA Transpacific Westbound Rate Agreement TWRA and the Mari

time Administrative Bar Association MABA CMC supports the rule as

proposed and urges its adoption AENERA opposes the rule on the grounds

that it is unnecessary and in excess of the Commission s statutory authority

to the extent it purports to authorize awards of attorney s fees for court

proceedings

TWRA agrees with most provisions of the proposed rule but suggests

further amendments to those provisions that specify the scope of the rule

and the filing of petitions for fee awards The suggested changes to the
756 FEDERAL MARITIME COMMISSION

proVISIons concerning the scope of the rule would require that fees be

awarded only for those portions of a proceeding directly related to a repara

tions award and would limit fee awards to no more than 50 percent of

the reparations awarded The suggested changes to the provision concerning

the filing of a fee petition would provide for such filing after the time

for appeal to a Court had run or any appeal or subsequent Commission

proceeding was terminated

MABA suggests similar changes to the proposed rule to limit fee awards

to only those services directly related to obtaining reparations and in propor

tion to the amount of reparations awarded Further MABA urges that

the lodestar hourly rate factor be stated as the rate customarily charged

by the attorney actually prosecuting the complaint or alternatively the

average fee of a maritime attorney MABA suggests that the time period

allowed for filing a petition be tolled until after all appeals are fmished

Finally MABA argues that fees for non attorneys and pro se litigants

be limited to those services that an attorney would otherwise provide and

exclude the complainant s time expended as a client in pursuit of a

reparations award

The Commission agrees with the argument that awards of attorney s

fees should only be permitted for those services directly related to obtaining

reparations However given the remedial purpose of the attorney s fees

award statutory provision no further restrictions or limits on awards appear

justified

We reject the notion that the hours claimed should be apportioned be

tween the reparations award and other relief obtained If 100 percent of

an attorney s hours are directly related to a reparations award but a cease

and desist order is also issued there is no justification to reduce the

fees because the attorney was able to obtain such additional relief Similarly

a

cap on fees based upon a percentage of reparations awarded appears

to be arbitrary and unsupported by the statute Or its legislative history

If an attorney s fee claim is unreasonably disproportionate to the resulting

reparations obtained then the respondent may argue as provided in para

graph d of the rule that a mechanical lodestar calculation would yield

an unreasonable attorney s fee award

Conversely an award of attorney s fees for the successful prosecution

of court proceedings directly related to a

reparations action is supported

by general law and the legislative history of the Shipping Act of 1984

Generally the calculation of reasonable attorney s fees may include hours

expended on a separate proceeding if that other proceeding is so closely

related to the primary case as to be considered part of the primary litigation

See Webb v Board of Education of Dyer County 85 L Ed 2d 233

242 1985 The filing of a complaint under section 11 a is a

statutory

prerequisite to the filing of an injunctive action under section 1I h 2

of the 1984 Act and if granted the injunction may not exceed the com

plaint litigation by mOre than 10 days Such linkage between the two

28 F M C
28 F M C

ATTORNEY S FEES IN REPARATION PROCEEDINGS 757

statutory actions indicates that the injunctive action is intended to be an

adjunct to the complaint proceeding to prevent further and irreparable injury

to a complainant pending a final Commission decision on the merits of

a complaint Because these two proceedings are essentially part of the

same litigation it is appropriate that section lI g attorney s fees at

a minimum include hours expended in a successful injunctive action under

section 1I h 2

This interpretation of section lI gis not inconsistent with the attorney s

fees provision of section 11 h 2 The latter states only that successful

defendants in injunctive actions may be awarded fees by the court It

does not address the rights of successful plaintiffs However the legislative

history of the 1984 Act indicates that the attorney s fees awarded under

section 11 g should include hours expended on a successful injunctive

action under section 11 h 2

The Conference Report to the 1984 Act states

In determining the amount of attorney s fees in a

reparation

proceeding a complainant s expenses for representation before

the Commission as well as in any federal court proceeding such

as under subsection h should be considered But a successful

complaint sic is not entitled to attorney s fees for any portion

of the proceeding for which it did not prevail or for procedural

motions that are unsuccessful

A successful private complainant will recover attorney s fees for

the injunctive proceeding if ultimately successful on the merits

subsection g H R Rep No 600 98th Cong 2d Sess 41

1984 emphasis added

In the absence of incompatibility or inconsistency with an express provision

the statute should be construed to effect its Congressional intent See

First National Bank of Logan Utah v Walker Bank Trust Co 385

U S 252 261 1966 While the legislative history does not specify what

other court actions in addition to injunctive suits fall under the attorney s

fees provision of section II g

the useful and necessary Webb standard

appears to be most appropriate

The proposed rule does not need to be amended to account for any

difference between average attorney s fees and maritime attorney s

fees The lodestar formula based upon customary fees in the attor

ney s community is a flexible concept and may result in an hourly

rate established on the basis of services rendered of a specialized nature

whether or not the particular attorney litigating a particular case is consid

ered a specialist in the maritime law field Similarly reasonableness

of hours will be construed to include only legal services and not other

work normally required by the client in cases involving non attorneys

and pro se litigants fee claims
758 FEDERAL MARITIME COMMISSION

Finally the point is well taken that fees should not be awarded until

any review process that may reverse areparations award is completed

Accordingly for purposes of the attorney s fee rule areparations award

will not be final and the time period for filing attorney s fees petitions

will not begin to run until such review period has expired The proposed

rule has been amended accordingly

List of subjects in 46 CPR Part 502 Administrative practice and proce

dure

Therefore for the reasons set forth above and pursuant to 5 U S C

553 and sections 11 and 17 of the Shipping Act of 1984 46 U S C

app 1710 1716 Part 502 of Title 46 Code of Federal Regulations is

amended as follows

1 The Table of Contents for Part 502 is amended as follows

PART 502 RULES OF PRACTICE AND PROCEDURE

Subpart OReparation

502 253 Interest in reparation proceedings

502 254 Attorney s fees in reparation precedence

2 The Authority Citation for Part 502 continues to read as follows

AUTHORITY 5 U S C 552 553 559 18 U S C 207 sees 18 20

22 27 and 43 of the Shipping Act 1916 46 U S C app 817 820

821 826 841a sees 6 8 9 10 11 12 14 IS 16 and 17 of the

Shipping Act of 1984 46 U S C app 1705 1707 1711 1713 716 sec

204 b of the Merchant Marine Act 1936 46 U S C app I 114 b and

E O 11222 of May 8 1965 30 PR 6469

3 Section 502 253 Interest and attorney s

lees in reparation proceedings

is amended by deleting and attorney s fees from the title by deleting

the paragraph designation from paragraph a and adding Rule 253

at the end thereof and by deleting paragraph b

4 A new section 502 254 is added reading as follows

502 254 Attorney s fees in reparation proceedings

a Scope Except for proceedings under Subpart S of this part the

Commission shall upon petition award the complainant reasonable attor

ney s fees directly related to obtaining a

reparations award in any complaint

proceeding under section 1 of the Shipping Act of 1984 For purposes

of this section attorney s fees includes the fair market value of the

services of any person permitted to appear and practice before the Commis

sion in accordance with Subpart B of this part and may include compensa

tion for services rendered the complainant in a related proceeding in federal

28 F M C
28 F M C

ATTORNEY S FEES IN REPARATION PROCEEDINGS 759

court that is useful and necessary to the determination of a

reparations

award in the complaint proceeding

b Content of Petitions Petitions for attorney s fees under this section

shall specify the number of hours claimed by each person representing

the complainant at each identifiable stage of the proceeding and shall

be supported by evidence of the reasonableness of hours claimed and the

customary fees charged by attorneys and associated legal representatives

in the community where the petitioner practices Requests for additional

compensation must be supported by evidence that the customary fees for

the hours reasonably expended on the case would result in an unreasonable

fee award

C Filing of Petition

I Petitions for attorney s fees shall be filed within 30 days of a final

reparation award

i With the presiding officer where the presiding officer s decision award

ing reparations became administratively final pursuant to section

502 227 a 3 of this part or

ii With the Commission if exceptions were filed to or the Commission

reviewed the presiding officer s

reparation award decision pursuant to sec

tion 502 227 of this part

2 For purposes of this section a

reparation award shall be considered

final after a decision disposing of the merits of a complaint is issued

and the time for the filing of court appeals has run or after a court

appeal has terminated

d Replies to Petitions Within 20 days of filing of the petition a

reply to the petition may be filed by the respondent addressing the reason

ableness of any aspect of the petitioner s claim A respondent may also

suggest adjustments to the claim under the criteria stated in paragraph

b of this section

e Ruling on Petitions Upon consideration of a petition and any reply

thereto the Commission or the presiding officer shall issue an order stating

the total amount of attorney s fees awarded The order shall specify the

hours and rate of compensation found awardable and shall explain the

basis for any additional adjustments An award order shall be served within

60 days of the date of the filing of the reply to the petition or expiration

of the reply period except that in cases involving a substantial dispute

of facts critical to the award determination the Commission or presiding

officer may hold a hearing on such issues and extend the time for issuing

a fee award order by an additional 30 days The Commission or the

presiding officer may adopt a stipulated settlement of attorney s fees

f Appeals In cases where the presiding officer issues an award order

an appeal of that order may be made to the Commission under the same

criteria and procedures as set forth in paragraphs b c and d of this

section The Commission may award additional attorney s fees to a com
760 FEDERAL MARITIME COMMISSION

plainant that substantially prevails in such an appeal proceeding Rule

254

5 Section 502 318 is amended by designating the present text as para

graph a and by adding a new paragraph b to read as follows

502 318 Decision

a

b If the complainant is awarded reparations pursuant to section II

of the Shipping Act of 1984 attorney s fees shall also be awarded in

accordance with section 502 254 of this part Rule 318

By the Commission

S JOSEPH C POLKING

Secretary

28 FM C
28 F M C 761

FEDERAL MARITIME COMMISSION

DOCKET NO 8430

NOTICE OF INQUIRY CONCERNING INTERPRETATION OF

SECTION 18 a 4 OF THE SHIPPING ACT OF 1984

February 27 987

Notice of Inquiry Discontinuance of Proceeding

This inquiry was initiated for the limited purpose of

soliciting information from interested persons Responses

have been received and are being considered by the

Commission in carrying out its section 18 a 4 mandate

No regulatory purpose is served by continuing the pro

ceeding

SUPPLEMENTARY INFORMATION

This proceeding was instituted by Notice of Inquiry published in the

Federal Register of September 6 1984 49 FR 35242 The limited purpose

of the inquiry was to solicit views and iniormation regarding the proper

interpretation to be given the provision of section 18 a 4 of the Shipping

Act of 1984 46 U S C app 1717 which requires the Commission to

report to Congress inter alia the cost of major regulatory proceedings

No rule or order was contemplated to be issued in this proceeding The

notice elicited five brief responses from interested parties which are being

considered by the Commission in finalizing its approach to fulfilling its

section 18 a 4 mandate

In view of the foregoing no regulatory purpose is served by continuing

this proceeding and it is hereby ordered to be discontinued

ACTION

SUMMARY

By the Commission

S JOSPEH C POLKtNG

Secretary
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1395

APPLICATION OF TRANSPACIFIC WESTBOUND RATE AGREEMENT

AND SEA LAND CORPORATION ON BEHALF OF SEA LAND

SERVICE INC FOR THE BENEFIT OF DARRELL J SEKIN CO

INC AS AGENT FOR BRUCE INTERNATIONAL CORPORATION

Reliance on erroneous information is not the type of error for which section 8 e of the

Shipping Act of 1984 provides a remedy

Application for relief under section 8 e to waive collection of a portion of freight charges

is denied

REPORT AND ORDER

February 27 1987

BY THE COMMISSION Edward V Hickey Chairman James J Carey

Vice Chairman Francis J Ivancie Thomas F Moakley and Edward

J Philbin Commissioners

The Commission determined to review the Supplemental Initial Decision

of Administrative Law Judge Joseph N Ingolia Presiding Officer issued

in this proceeding The Presiding Officer granted the application of the

Transpacific Westbound Rate Agreement TWRA or Conference and Sea

Land Corporation on behalf of Sea Land Service Inc Sea Land filed

pursuant to section 8 e of the Shipping Act of 1984 1984 Act 46

U S C app 1707 e The application requested permission 10 waive col1ec

tion from Darrel1 J Sekin Co Inc Seldn as agent for the shipper

Bruce International Corporation a portion of the freight charges payable

on the transportation of a shipment of hardwood flooring from Nashville

Tennessee to Yokoharna Japan

BACKGROUND

In May 1985 Sea Land a TWRA member negotiated with Sekin the

shipper s agent located in Dal1as Texas a rate of 2090 plus a 100

Container Yard Delivery Charge per 40 foot container for the transportation

of hardwood flooring from Nashville 10 Yokoharna

The circumstances and chronological sequence of events surrounding the

negotiations and subsequent publication of the agreed to rate is as fol1ows

On May 3 1985 RT Savoie Sea Land s Assistant Pricing Manager

in Chicago Illinois advised Sea Land s office in Dallas by telephone of

his agreement to have the 2090 negotiated rate filed

I Affidavit of Linda Christensen Sea Land s Market Support Coordinator in Dallas Texas dated October

3 986

762 28 FM C
28 F M C

TWRA AND SEA LAND SERVICE FOR THE BENEFIT OF BRUCE 763

INTERNATIONAL CORP

On May 6 1985 Sea Land s Dallas office advised R T Savoie by telex

that it had a booking for a shipment of hardwood flooring ready to be

delivered by the middle of the week beginning May 12 1985 2

On May 7 1985 R T Savoie directed Al Cherry Sea Land s Assistant

Pricing Manager in Oakland California to request a TWRA membership

telephone vote on the proposed rate

On May 8 1985 Al Cherry submitted the rate request to Stacey M

Adams TWRA s Manager of Pricing Activities in San Francisco

On May 14 1985 Ms Adams advised Mr Savoie that the rate initiative

had passed effective that sarne day Mr Savoie relayed the information

to the Dallas office which informed the shipper accordingly S

On May 15 1985 the shipper delivered one shipment of hardwood

flooring to Sea Land s container yard at Nashville

On May 16 1985 Sea Land learned from Ms Adams that the May

14th verbal communication was incorrect in that one of the voting members

had opposed the 2090 rate and the rate initiative had failed

On May 21 1985 TWRA filed the 2090 rate under the Independent

Action provisions of the Conference agreement

On May 28 1985 the shipper paid freight at the negotiated rate

On November 8 985 Sea Land applied for permission to waive collec

tion of additional freight charges in the amount of 32 130 31 payable

under TWRA s tariff in effect on May 15 1985

In an Initial Decision LD served June 25 1986 the Presiding Officer

granted the application based upon the finding that inadvertent erroneous

information caused the parties to fail to file a new tariff 6

On review upon its own motion the Commission vacated the LD and

remanded the proceeding to the Presiding Officer In its Order of Remand

the Commission found that the record was inadequate to support the grant

of a waiver and suggested that in view of TWRAs refusal to adopt

the proposed rate there appeared to be no error in the TWRA tariff in

effect on May 15 1985 7

In a Supplemental Initial Decision S LD served October 31 1986

the Presiding Officer after review of the additional evidence granted the

application

DISCUSSION

Section 8 e of the 1984 Act provides in part

2Sea Land s letter dated September 26 1986 addressed to the Presiding Officer with attached copy of

the May 6 1985 telex

3

Affidavit of R T Savoie dated November 7 1985 and affidavit of Sea Lancl s A S Cherry dated Feb

ruary 26 1986

4

Affidavit of Stacey M Adams dated February 26 1986

s

Affidavit of R T Savoie supra note 3 at 2 and Linda Christensen supra note I at 2

6Applicalion of Transpacific Westbound Rate Agreement for the Benefit of Darrell J Sekin Co Inc

Special Docket No 1395 slip op at 5 Initial Decision served June 25 1986

1

Application of Transpacific Westbound Rate Agreement 28 F M C 536 1986

8Application of Transpacific Westbound Rate Agreement 23 S R R 1502 5 1 0 1986
764 FEDERAL MARITIME COMMISSION

e REFUNDS The Commission may upon application of a

carrier or shipper permit a common carrier or conference to refund

a portion of freight charges collected from a shipper or to waive

the collection of a portion of the charges from a shipper if

1 there is an error in a tariff of a clerical or administrative

nature or an error due to inadvertence in failing to file a new

tariff and the refund will not result in discrimination among ship

pers ports or carriers

The Presiding Officer held on the basis of the evidence in the record

that the error which was involved here was an error due to mistake

and inadvertence in failing to file a new tariff and falls within the ambit

of section 8 e of the Shipping Act 1984

This conclusion is based on the following findings of fact

There is no question here that Sea Land and the carrier sic

agreed to a rate of 2 090 00 plus 100 CY and that they in

tended that rate to be on file when the shipment in question

began There is also no question that a Conference employee

due to the volume of paperwork mistakenly told Sea Land on

May 14 1985 that the negotiated rate had been adopted by

the Conference and that the rate would be filed that day and

that the employee did not discover the error until May 16 1985

one day after the shipment actually moved Further there is no

question that the shipment began on May 15 1985 because of

the misinformation We hold that had the misinformation not been

given the shipment would not have begun until the independent

action had been completed and the intended negotiated rate filed

in the tariff

13 S R R at 1504

The underlying theory is that to the extent the tariff did not reflect

the rate both the carrier and the shipper intended be charged there was

an error in the tariff in effect on May 15 1985 when the shipment moved

The Presiding Officer distinguished on the facts and found inapposite

cases in which relief was denied under arguably similar circumslances 9

and the Presiding Officer relied on the several decisions that in his opinion

illustrated the Commission s established liberal construction of the statute

He noted that in D F Younq Inc v Cie Nationale Algerienne de

Navigation 18 S R R 1645 1979 relief was granted even though the

carrier had inadvertently failed to ask the conference to file a negotiated

rate However here by contrast TWRA was asked and declined to file

the 2090 rate

9

The Presiding Officer limited his discussion of such precedent to Application of Sea LAnd Service Inc

for the Benefit 01 Allmenta U S A Inc 19 S R R 1111 1979 Muno y

Cabrero v Sea Land Service

Inc 20 F M C 152 1977 and Farr Co v Stafraln 20 F M C 441 1978

28 F M C
28 F M C

TWRA AND SEA LAND SERVICE FOR THE BENEFIT OF BRUCE 765

INTERNATIONAL CORP

In the Presiding Officer s opinion Application of Lykes Bros Steamship

Co Inc for the Benefit of Wilhelm Schleef GMBH Co KG 27 EM C

844 1985 is a case where the application was granted notwithstanding

a lack of affirmative evidence of a pre shipment intent to apply a certain

rate On review we find that the issue in that case was the proper description

of the cargo which in light of some ambiguity in the record the Commis

sion resolved in favor of the shipper

The Presiding Officer points out that in Application of Afrarn Lines

Ltd for the Benefit of Commodity Credit Corp 23 S R R 434 1985

a waiver was granted even though the shipment had been re routed to

another port after the shipment began But in that particular case flood

damage to a rail line at the initial point of discharge caused the diversion

to a different port than the port originally intended The application was

granted on a finding that the carrier s policy was to maintain comparable

low rates on relief cargo for delivery within a range of ports on the

West Coast ofAfrica

Finally the Presiding Officer finds support for a liberal interpretation

of the statute in Nepera Chemical Inc v FM C 662 F 2d 18 Dc

Cir 1981 where the court found that an insignificant discrepancy between

the negotiated rate and the rate shown in the tariff filed with the application

was an insufficient ground to deny relief This case does not address

the failure to fulfill the basic requirements of section 8 e

It should be noted that Sea Land as a TWRA member could have

had the 2090 rate filed either with TWRA s concurrence or by independent

action Having submitted the rate request on May 8 1985 Sea Land did

what was in its power to obtain the filing of the proposed rate by May

15 1985 TWRA s refusal to approve the 2090 rate makes the rate on

file on May 15 1985 the rate TWRA intended be applied to the shipment

Under these circumstances no inadvertent failure to file the intended rate

may be attributed to TWRA by whose tariff Sea Land was bound by

virtue of its membership in the Conference or for that matter to Sea

Land Sea Land could not reasonably expect that under the independent

action provisions the rate would be published earlier than May 18 1985

that is ten days after submitting the rate request on May 8 but three

days after it took delivery of the shipment lO

Under these circumstances where the carrier is unable to file or obtain

the filing of a proposed rate by a certain time the mere intent to have

that rate on file does not of itself create an error in the tariff In this

instance having submitted the rate initiative on May 8 1985 and in light

of TWRA s refusal Sea Land was never in a position to obtain by inde

pendent action the filing of the 2090 rate before it took possession of

the shipment Consequently the holding in the SID that there was an

IOThe mte was eventually published on May 21 1985 although it should have been filed 10 days after

the initial rate request on May 8 1985 See Order of Remand 28 F M C al 536 note2
766 FEDERAL MARITIME COMMISSION

error due to mistake and inadvertence in failing to file a new tariff rate 11

does not find support in the record

The Presiding Officer also found that were it not for the erroneous

information the shipper would have waited for the rate to become effective

before delivering the shipment to the carrier However the fact that the

shipper acted in reliance on the erroneous information did not affect the

validity of the rate on file In this instance TWRA s verbal notification

that the 2090 rate was approved effective May 14 1985 amounted to

a misquotation of the applicable rate Misquotations or incorrect information

concerning rates and charges have been held to be irrelevant to the shipper s

obligation to pay the rate on file Ignorance or misquotation of rates

is not an excuse for paying or charging either less or more than the

rate filed Louisville N R R Co v Maxwell 237 U S 94 97 1915 12

Consequently on the record as it stands on remand the wrong alleged

is not of the type for which section 8 e provides aremedy and the

application must be denied

THEREFORE IT IS ORDERED That the Supplemental Initial Decision

served in this proceeding onAugnst 29 1986 is reversed

IT IS FURTHER ORDERED That the application of the Transpacific

Westbound Rate Agreement and Sea Land Corporation on behalf of Sea

Land Service Inc filed in this proceeding is denied

IT IS FURTHER ORDERED That Sea Land Service Inc collect within

30 days from the service of this order from Bruce International Corporation

unpaid freight charges in the amount of 32 130 31 and adjust freight

forwarder compensation charges accordingly and

FINALLY IT IS ORDERED That thIs proceeding is discontinued

By the Commission

S JOSEPH C POLKING

Secretary

II23 S R R at 1504

l2To the same effect is Louisville Nashville R Co v Mead Johnson Co 737 F 2d 683 7th Cir

1984 and cases cited therein cert denied 105 S Ct 386 1984 See also Mueller v Peralta Shipping

Corp 8 F M C 361 365 1965 Farr Co v Seotroln Lines 20 F M C 411 1978 reconsideration denied

20 F M C 663 l97S

28 FM C
28 F M C 767

FEDERAL MARITIME COMMISSION

46 CFR PART 503

DOCKET NO 87 5

IMPLEMENTATION OF FREEDOM OF INFORMATION REFORM ACT

April 21 1987

Final Rule

The Federal Maritime Commission amends its Public

Information regulations to incorporate the recent changes

to the Freedom of Information Act regarding requests

for agency enforcement records and regarding establish

ment and waiver of fees to be charged for search review

and duplication of records in response to FOIA requests

The rules follow the guidelines established by the Office

of Management and Budget on establishment of fees

and Department of Justice on fee waivers

DATE May 26 1987

SUPPLEMENTARY INFORMATION

On October 27 1986 President Ronald Reagan signed into law the

Anti Drug Abuse Act of 1986 an omnibus piece of legislation which in

cludes as sections 1801 D4 of the law the Freedom of Information Reform

Act of 1986 Reform Act This legislation expands the law enforcement

protections of the Freedom of Information Act FOIA and also modifies

its fee and fee waiver provisions The new law enforcement provisions

were effective immediately The fee provisions will become effective on

April 25 1987 This 180 day delay was designed to permit the Office

of Management and Budget OMB and affected agencies time to issue

new guidelines and regulations governing them OMB published proposed

guidelines on January 16 1987 52 FR 1992

The Commission on March 19 1987 52 FR 8628 published a notice

of proposed rulemaking designed to implement the above mentioned changes

mandated by the Reform Act The proposed rules closely followed the

OMB guidelines The Federal Register published a correction to this notice

on March 26 1987 52 FR 9756 No comments were submitted in response

to the notice of proposed rulemaking Subsequent to the proposed rule

publication OMB issued its final guidelines for implementation of the

Reform Act 52 FR 10012 March 27 1987 The Department of Justice

Office of Information and Privacy DOJ issued new fee waiver policy

guidance on April 2 1987 also designed to assist agencies in establishing

rules implementing the Reform Act

ACTION

SUMMARY
768 FEDERAL MARITIME COMMISSION

j

I

I

The final rules adopted herein closely follow the proposed rules The

only changes are the result of incorporation of the final OMB guidelines

on fees and the OOJ guidelines on fee waivers The final rules contain

appropriate amendments to the Commission s current Public Information

rules appearing in 46 CPR Part 503 The folJowing is a section by section

discussion of the rules

Section 503 35 Exceptions to availability of records

Paragraph a 7 of this section currently describes the circumstances

under which investigatory records may be withheld by the Commission

when responding to an FOIA request Paragraph a 7 is being revised

to recite verbatim the revised standard promulgated by the Reform Act

The general thrust of the revised standard is to clarify and broaden the

scope of the exemptions on law enforcement records or information

A new paragraph c is also being added to this section implementing

subsection c 1 of the Reform Act to provide the agency the option

of excluding from the requirements of the FOIA law enforcement records

involving a possible violation of criminal law when there is reason to

believe that the subject of the investigation is not aware of its pendency

and disclosure of the existence of records could reasonably be expected

to interfere with enforcement proceedings The upshot of this provision

is that the agency can under the appropriate circumstances withhold ac

knowledgment even of the existence of an investigation

2 Section 503 41 Policy and service available

This section is amended to incorporate a reference to the Reform Act

and to conform the description of services available to the tenninology

used in the Reform Act and defined elsewhere in this rule Clarification

is also included regarding the non applicability of fees to requests for

certain materials

3 Section 503 43 Fees for services

Paragraphs a through c of this section are revised to incorporate

the new fee requirements of the Reform Act The rules closely follow

the final guidelines ofOMB

Paragraph a sets forthe definitions of terms used in the Reform

Act and these rules They folJow almost verbatim the OMB guidelines

Paragraph b sets forth general guidelines regarding colJection of fees

for search duplication and review It acknowledges that to the extent

fees are assessable they reflect full direct costs as required by the Reform

Act This paragraph also describes the types of fees to be assessed according

to the identity of the requester and sets forth restrictions and limitations

for assessment of fees as required by the Reform Act Paragraph b 2 vi

contains summary guidelines for waiver or reduction of fees and are pat

terned after the oor guidelines The application of these guidelines will

also be governed by the more detailed guidance provided by OOJ

Paragraph c sets forth the actual schedule of fees and charges for

search review and duplication As indicated above these charges reflect

28 FM C
28 F M C

IMPLEMENTATION OF FREEDOM OF INFORMATION REFORM 769

ACT

full direct costs as required by the Reform Act and as defined by OMB

guidelines The fees for certification are merely restated from the current

schedule and are not affected by the Reform Act

The fOllowing information sets forth the basis upon which the charges

for search duplication and review of records are established Direct labor

costs were separated into two groups a clericaladministrative and b

professionalexecutive An average rate per hour was developed for each

group plus 16 percent of that rate to cover benefits The computations

for search and duplication services exclude salaries of Commissioners and

members of the Senior Executive Service Review of records to determine

whether they are exempt from disclosure under section 503 35 is performed

by the Secretary of the Commission in hiser capacity as the Commission s

FOIA Officer Accordingly the full direct costs associated with that position

are recovered

The Commission has determined that this rule is not a major rule

as defined in Executive Order 12291 46 FR 12193 February 27 1981

The Chairman of the Federal Maritime Commission certifies pursuant

to section 605 b of the Regulatory Flexibility Act 5 D S C 601 et seq

that this rule will not have a significant economic impact on a substantial

number of small business entities

List of subjects in 46 CFR Part 503 Freedom of Information

Therefore for the reasons set forth above Part 503 of Title 46 CFR

is amended as follows

1 The authority citation for Part 503 continues to read as follows

AUTHORITY 5 D S C 552 552a 552b 553 E O 12356 47 FR

14874 15557 3 CFR 1982 Comp p

167

2 Section 503 35 is amended by revising paragraph a 7 and by adding

a new paragraph c to read as follows

503 35 Exceptions to availability of records

a

7 Records or information compiled for law enforcement purposes but

only to the extent that the production of such law enforcement records

or information i could reasonably be expected to interfere with enforce

ment proceedings ii would deprive a person of a

right to a fair trial

or an impartial adjudication iii could reasonably be expected to constitute

an unwarranted invasion of personal privacy iv could reasonably be ex

pected to disclose the identity of a confidential source including a State

local or foreign agency or authority or any private institution which fur

nished information on a confidential basis and in the case of a record

or information compiled by a criminal law enforcement authority in the

course of a criminal investigation or by an agency conducting a lawful

national security inteIligence investigation information furnished by a con

fidential source v would disclose techniques and procedures for law en

forcement investigations or prosecutions or would disclose guidelines for

law enforcement investigations or prosecutions if such disclosure could
770 FEDERAL MARITIME COMMISSION

reasonably

reasonably

individual

be expected to risk circumvention of the law or vi could

be expected to endanger the life or physical safety of any

c Whenever a request is made which involves access to records de

scribed in paragraph a 7 i of this section and the investigation or pro

ceeding involves a possible violation of criminal law and there is reason

to believe that the subject of the investigation or proceeding is not aware

of its pendency and disclosure of the existence of the records could reason

ably be expected to interfere with enforcement proceedings the Commission

may during only such time as that circumstance continues treat the records

as not subject to the requirements of 5 U S C 552 and this subpart

3 Section 503 41 is amended by revising the introductory text and para

graph a to read as follows

503 41 Policy and services available

Pursuant to policies established by the Congress the Government s costs

for special services furnished to individuals or firms who request such

services are to be recovered by the payment of fees Act of August 31

1951 5 U S C 140 and Freedom of Information Reform Act of 1986

October 27 1986 5 U S C 552

a Upon request the following services are available upon the payment

of the fees hereinafter prescribed except that no fees shall be assessed

for search duplication or review in connection with requests for single

copies of materials described in 503 11 and 503 21

I

Recordsdocuments search

2 Duplication ofrecordsdocuments

3 Review of recordsdocuments

4 Certification of copies ofrecordsdocuments

4 Section 503 43 is amended by revising paragraphs a through c

to read as follows

503 43 Fees for services

a Definitions The following definitions apply to the terms when used

in this subpart

1 Search means all time spent looking for material that is responsive

to a request including page by page or line by line identification of material

within documents Search for material will be done in the most efficient

and least expensive manner so as to minimize costs for both the agency

and the requester Search is distinguished moreover from review of

material in order to determine whether the material is exempt from disclo

sure Searches may be done manually or by computer using existing pro

gramming

28 F M C
28 F M C

IMPLEMENTATION OF FREEDOM OF INFORMATION REFORM 771

ACT

2 Duplication means the process of making a

copy of a document

necessary to respond to a Freedom of Information Act or other request

Such copies can take the form of paper or machine readable documentation

e g magnetic tape or disk among others

3 Review means the process of examining documents located in

response to a commercial use request to determine whether any portion

of any document located is permitted to be withheld It also includes

processing any documents for disclosure e g doing all that is necessary

to excise them and otherwise prepare them for release Review does not

include time spent resolving general legal or policy issues regarding the

application of exemptions

4 Commercial use request means a request from or on behalf of

one who seeks information for a use or purpose that furthers the commercial

trade or profit interests of the requester or the person on whose behalf

the request is made In determining whether a requester properly belongs

in this category the agency must determine the use to which a requester

will put the documents requested Where the agency has reasonable cause

to doubt the use to which a requester will put the records sought or

where that use is not clear from the request itself the agency will seek

additional clarification before assigning the request to a specific category

5 Educational institution means a preschool a public or private

elementary or secondary school an institution of graduate higher education

an institution of undergraduate higher education an institution of profes

sional education and an institution of vocational education which operates

a program or programs of scholarly research

6 Non commercial scientific institution means an institution that is

not operated on a commercial basis as that term is referenced in para

graph a 4 and which is operated solely for the purpose of conducting

scientific research the results of which are not intended to promote any

particular product or industry

7 Representative of the news media means any person actively gath

ering news for an entity that is organized and operated to publish or

broadcast news to the public The term news means information that

is about current events or that would be of current interest to the public

Examples of news media entities include television or radio stations broad

casting to the public at large and publishers of periodicals but only in

those instances when they can qualify as disseminators of news who

make their products available for purchase or subscription by the general

public These examples are not intended to be all inclusive As traditional

methods of news delivery evolve e g

electronic dissemination of news

papers through telecommunications services such alternative media would

be included in this category Freelance journalists may be regarded

as working for a news organization if they can demonstrate a solid basis

for expecting publication through that organization even though not actually

employed by it A publication contract would be the clearest proof but
772 FEDERAL MARITIME COMMISSION

the agency may also look to the past publication record of a requester

in making this determination

8 Direct costs means those expenditures which the agency actually

incurs in searching for and duplicating and in the case of commercial

requester reviewing documents to respond to a Freedom of Information

Act request Direct costs include for example the salary of the employee

performing work the basic rate of pay for the employee plus 16 percent

of that rate to cover benefits and the cost of operating duplicating machin

ery Not included in direct costs are overhead expenses such as costs

of space and heating or lighting the facility in which the records are

stored

b General

1 The basic fees set forth in paragraph c of this section provide

for documents to be mailed with postage prepaid If cClpy is to be trans

mitted by registered certified air or special delivery mail postage therefor

will be added to the basic fee Also if special handling or packaging

is required costs thereof will be added to the basic fee

2 The fees for search duplication and review set forth in paragraph

c of this section reflect the full allowable direct costs expected to be

incurred by the agency for the service Cost of search and review may

be assessed even if it is determined that disclosure of the records is to

be withheld Cost of search may be assessed even if the agency fails

to locate the records Requesters must reasonably describe the records

sought The following restrictions limitations and guidelines apply to the

assessment of such fees

i For commercial use requesters charges recovering fun direct costs

for search review and duplication ofrecords will be assessed

ii For educational and non commercial scientific institution requesters

no charge will be assessed for search or review of records Charges recov

ering fun direct costs for duplication of records will be assessed excluding

charges for the first 100 pages To be eligible for inclusion in this category

requesters must show that the request is being made under the auspices

of a qualifying institution and that the records are not sought for a commer

cial use but are sought in furtherance of scholarly if the request is from

an educational institution or scientific if the request is from a non commer

cial scientific institution research

iii For representative of the news media requesters no charge will

be assessed for search or review of records Charges recovering fun direct

costs for duplication of records will be assessed excluding charges for

the first 100 pages

iv For an other requesters no charge will be assessed for review

of records Charges recovering fun direct costs for search and duplication

of records will be assessed excluding charges for the first 100 pages of

duplication and the first two hours of search time Requests from individuals

for records about themselves filed in a Commission system of records

28 F MC
28 F M C

IMPLEMENTATION OF FREEDOM OF INFORMATION REFORM 773

ACT

will be treated under the fee provisions of the Privacy Act of 1984 which

permit fees only for duplication

v No fee may be charged for search review or duplication if the

costs of routine collection and processing of the fee are likely to exceed

the amount of the fee

vi Documents shall be furnished without any charge or at a reduced

charge if disclosure of the information is in the public interest because

it is likely to contribute significantly to public understanding of the oper

ations or activities of the government and is not primarily in the commercial

interest of the requester In determining whether a waiver or reduction

of charges is appropriate the following factors will be taken into consider

ation

A The subject of the request Whether the subject of the requested

records concerns the operations or activities of the government

B The informative value of the information to be disclosed Whether

the disclosure is likely to contribute to an understanding of government

operations or activities

C The contribution to an understanding of the subject by the general

public likely to result from disclosure Whether disclosure of the requested

information will contribute to public understanding

D The significance of the contribution to public understanding Whether

the disclosure is likely to contribute significantly to public understanding

of government operations or activities

E The existence and magnitude of a commercial interest Whether

the requester has a commercial interest that would be furthered by the

requested disclosure and if so

F The primary interest in disclosure Whether the magnitude of the

identified commercial interest of the requester is sufficiently large in com

parison with the public interest in disclosure that disclosure is primarily

in the commercial interest of the requester

vii Whenever it is anticipated that fees chargeable under this section

will exceed 25 00 and the requester has not indicated in advance a willing

ness to pay fees as high as anticipated the requester will be notified

of the amount of the anticipated fee In such cases the requester will

be given an opportunity to confer with Commission personnel with the

object of reformulating the request to meet the needs of the requester

at a lower cost

viii Interest may be charged record requesters who fail to pay fees

assessed Assessment of interest may begin on the amount billed starting

on the 31st day following the day on which the billing was sent Interest

will be at the rate prescribed in section 3717 of Title 31 United States

Code and will accrue from the date of the billing Receipt of payment

by the agency will stay the accrual of interest

ix Whenever it reasonably appears that a requester of records or a

group of requesters is attempting to break a request down into a series
774 FEDERAL MARITIME COMMISSION

of requests for the purpose of evading the assessment of fees such requests

will be aggregated and fees assessed accordingly Multiple requests on

unrelated subjects will not be aggregated

x The agency may require a requester to make advance payment only

when

A a requester has previously failed to pay a fee charged in a

timely

fasbion i e within 30 days of the date of the billing in which case

the requester will be required to pay the fuIl amount owed plus any applica

ble interest as provided above and to make an advance payment of the

fuIl amount of the estimated fee before the agency begins to process a

new request or a

pending request from that requester or

B the agency estimates or determines that aIlowable charges that a

requester may be required to pay are likely to exceed 250 in which

case the agency will notify the requester of the likely cost and obtain

satisfactory assurance of full payment where the requester has a history

of prompt payment of ForA fees or will require an advance payment

of an amount up to the full estimated charges in the case of requesters

with no history of payment

xi Unless applicable fees are paid the agency may use the authorities

of the Debt CoIlection Act Pub L 97 365 including disclosure to con

sumer reporting agencies and use of collection agencies where appropriate

to encourage payment

xii Whenever action is taken under paragraphs b 2 viii and b 2 ix

of this section the administrative time limits prescribed in subsection a 6

of 5 U S C 552 ie 10 working days from receipt of initial requests

and 20 working days from receipt of appeals from initial denial plus

permissible extensions of these time limits will begin only after the Com

mission has received fee payments described above

c Charges for search review duplication and certification

I Records search will be performed by Commission personnel at the

following rates

i Search will be performed by clericaUadministrative personnel at a

rate of 1100 per hour and by professionaVexecutive personnel at a rate

of 23 00 per hour

il Minimum charge for record search is 1100

2 Charges for review of records to determine whether they are exempt

from disclosure under 503 35 shaIl be assessed to recover full direct

costs at the rate of 38 00 per hour Charges for review will be assessed

only for initial review to determine the applicability of a specific exemption

to a particular record No charge will be assessed for review at the adminis

trative appeal level

3 Charges for duplication of records and documents will be assessed

as follows limited to size 812 x 14 or smaller

i

If performed by requesting party at the rate of five cents per page

one side

j

1

28 FM C
S JOSEPH C POLKING

Secretary

IMPLEMENTATION OF FREEDOM OF INFORMATION REFORM 775

ACT

ii By Commission personnel at the rate of five cents per page one

side plus 1100 per hour

iii Minimum charge for copying is 3 50

4 The certification and validation with Federal Maritime Commission

seal of documents filed with or issued by the Commission will be available

at 5 00 for each certification

By the Commission

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1472

APPLICATION OF SEA LAND CORPORATION ON BEHALF OF

SEA LAND SERVICE INC FOR THE BENEFIT OF B D P

INTERNATIONAL INC AS AGENT FOR JAMES RIVER PAPER

COMPANY

ORDER OF PARTIAL ADOPTION

April 27 1987

The Commission detennined to review the Initial Decision 10 of

Chief Administrative Law Judge Charles E Morgan Presiding Officer

issued in the above docketed proceeding The Presiding Officer properly

granted permission pursuant to section 8 e of the Shipping Act of 1984

46 VS C app 1707 e the Act to Sea Land Service Inc Sea

Land to refund a portion of the freight charges collected from B D P

International Inc as agent for James River Paper Company James

River on a

shipment of Cotton Linter from New Orleans Louisiana

to Bombay India

The only matter under review is the Presiding Officer s determination

of the critical period during which the rate on which the waiver is

based is made effective at a date earlier than the date of filing with

the Commission The critical period in the 10 runs from March 6

1986 the date of the bill of lading However in Application of Yamashita

Shinnihon Line for the Benefit of Nissho 1wai American Corp 19 S R R

1407 1980 as qualified by Application of Lykes Bros Steamship Co

Inc for the Benefit of Embassy of Tunisia 28 F M C 421 1986 the

Commission held that the proper standard for establishing the effective

date of the corrected tariff is the date the mistake in filing occurred

that is either the date the tariff omitting the intended rate becomes effective

or the date the intended rate absent the mistake would have become

effective but in no event earlier than 180 days before the filing of the

application

Sea Land and James River had agreed on January 31 1986 to a rate

of 3450 per 4O foot hi cube container for filter paper Due to an error

the rate filed on February 6 1986 applied to standard 4O foot containers

only The mistake was corrected by a tariff filed March 18 1986 Following

the rulings in Yamashita and Embassy of Tunisia the earliest date the

I See section 8 e 3 of the Act 46 V S C app 1707 e 3

776 28 F M C
APPLICATION OF SEA LAND FOR THE BENEFIT OF JAMES 777

RIVER PAPER COMPANY

March 18 tariff may be made effective is February 27 1986 that is

180 days from the date of the filing of the application

TIIEREFORE IT IS ORDERED That Sea Land Service Inc promptly

publish in its tariff the following notice

Notice is given as required by the decision of the Federal Mari

time Commission in Special Docket No 1472 that effective Feb

ruary 27 1986 and continuing through March 17 1986 inclusive

the rate on Cotton Linter Pulp including Filter Paper 100 pel

Cotton Linters from New Orleans La to Bombay India per

40 fl Std and Hi Cube container is 3450 00 not subject to

Terminal Handling Charge U S A Ports Rule 45 and Container

Service Charge India Rule 41 This Notice is effective for

purposes of refund or waiver of freight charges on any shipment

of the commodity described which may have been shipped during

the specified period of time

IT IS FURTHER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission and

FINALLY IT IS ORDERED That this proceeding is discontinued

S JOSEPH C POLKINGnSecretary

By

the Commission 28

F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1472

APPLICATION OF SEA LAND CORPORATION ON BEHALF OF

SEA LAND SERVICE INC FOR THE BENEFIT OF B D P

INTERNATIONAL INC AS AGENT FOR JAMES RIVER PAPER

COMPANY

Application for pennissioD to waive 2 326 64 of the applicable freight charges granted

INITIAL DECISION 1 OF CHARLES E MORGAN ADMINISTRATIVE

LAW JUDGE

Partially Adopted April 27 1987

By application timely mailed on August 26 1986 the applicant Sea

Land Service Inc for the benefit ofB D P International Inc seeks permis

sion pursuant to Rule 92 a of the Commission s Rules of Practice and

Procedure 46 CFR 502 92 a and section 8 e of the 1984 Shipping Act

the Act to waive 2 326 64 of the applicable freight charges on a ship

ment in one Hi Cube 4O foot container of Colton Linter Pu p Including

Filter Paper OO pct Colton Linters weighing 36 979 pounds from New

Orleans Louisiana to Bombay India sailing date March 2 986 and

bill of lading date March 6 1986

The applicable rate on filter paper base from U S Atlantic and Gulf

Coast ports to Bombay found in Sea Land Service Inc Tariff No 308

FMC No 190 was 292 W minimum 9 tons per 4O foot container

Thus basic applicable freight charges were 5 548 These charges were

subject to certain additional charges of 7 50 W per ton on 9 tons

for terminal handling U S of 5 W per KT on 7 277 kilo tons for

a container service charge in India and of 130 per ton on 8 99 tons

for awharfage charge at New Orleans These miscellaneous charges respec

tively amounted to 42 50 8614 and 24 69 making total applicable

charges of 5 801 33 The above 24 69 wharfage charges is not in issue

herein

The sought charges are based on the 4O foot Hi Cube container charge

of 3450 plus the above wharfage charge and with the basic rate of

3450 not subject to the U S terminal handling charge and not subject

to the India container service charge Thus total sought charges are

3 474 69 The difference between this figure and the total applicable

charges of 5 80133 is 2 326 64 the amount sought to be waived by

this application

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 502 227

778 28 F M C
S CHARLES E MORGAN

Administrative Law Judge

APPLICATION OF SEA LAND FOR THE BENEFIT OF JAMES 779

RIVER PAPER CO

As a result of negotiations between Sea Land s Middle East Division

Pricing Manager and the shipper an agreement was made on January

31 1986 to publish the sought 3450 Hi Cube container rate

An inadvertent error was made during preparation of the tariff which

resulted in non application of the agreed rate to Hi Cube 40 foot containers

the tariff item listed only standard 4O foot containers at the 3 450 rate

The error was discovered and the tariff was corrected effective March

18 1986 as per 1st revised page 29 A 2 of Sea Land s Tariff No 308

FMC No 190

The critical period herein is from March 6 1986 bill of lading date

through March 17 1986 the day before the effective date of the corrected

tariff

Applicant states that there were no other shipments of the same or

sintilar commodity moved via applicant during the period in issue

Applicant also states that Sea Land will make any necessary adjustments

in the freight forwarder compensation upon a favorable decision by the

Commission

The statutory requirements have been met It is concluded and found

that there was an error of administrative or clerical nature made by Sea

Land in failing to publish the agreed reduced rate so as to apply on

Hi Cube 4O foot containers with the result that higher charges applied

based on a per ton W rate and other charges that the agreed rate was

made effective after the shipment herein moved and prior to this applica

tion that the application was mailed timely and that the authorization

of a waiver will not result in discrimination among shippers ports or

carriers

The applicant Sea Land Service Inc is authorized to waive 2 326 64

of the applicable freight charges on the shipment herein An appropriate

notice of this matter and of the details of the waiver shall be published

in the pertinent tariff of the applicant

28 F M C
I

FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1475

APPLICATION OF UNITED STATES LINES INC FOR THE

BENEFIT OF CONFIBRES A B

ORDER OF PARTIAL ADOPTION

I

April 27 i987

The Commission determined to review the Initial Decision ID of

Chief Administrative Law Judge Charles E Morgan Presiding Officer

issued in the above docketed proceeding The Presiding Officer found that

the application met alJ the requirements of section 8 e of the Shipping

Act of 1984 46 U S c app 1707 e the Act and properly granted

United States Lines Inc USL permission to waive colJection from

Confibres AB of a portion of the freigbt charges assessed on a shipment

of waste paper from Chicago Illinois to Barcelona Spain

The only matter under review is the presiding Officer s determination

of the critical period during which the rate on which the waiver is

based is made effective at a date earlier than the date of filing with

the Commission 1 The critical period in the ID runs from April 17

1986 the date of the bill of lading However in Applicarion of Yamashita

Shinnihon Line for the Benefit of Nissho iwai American Corp 19 S R R

1407 1980 as qualified by Applicarion of Lykes Bros Steamship Co

inc for the Benefit of Embassy of Tunisia 28 F M C 421 1986 the

Commission held that the proper standard for establishing the effective

date of the corrected tariff is the date the mistake in filing occurred

that is either the date the tariff omitting the intended rate becomes effective

or the date the intended rate absent the mistake would have become

effective but in no event earlier than 180 days before the filing of the

application

In this instance the mistake in filing occurred on April 9 1986 and

the corrected tariff was filed on May 6 1986 Accordingly the effective

date of the tariff on which the waiver here is based runs from April

9 1986 through May 5 1986

THEREFORE IT IS ORDERED That United States Lines Inc promptly

publish in its tariff the folJowing notice

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

Commission in Special Docket No 1475 that effective April 9

I See section 8 eX3 of the Act 46 U S C app 1707 e 3

780 28 F M C
By the Commission

S JOSEPH C POLKING

Secretary

APPLICATION OF UNITED STATES LINES INC FOR THE 781

BENEFIT OF CONFIBRES A B

1986 and continuing through May 5 1986 inclusive he rate

on Waste Paper is 1000 per 4O ft container including me

from Chicago IL to Barcelona Spain This Notice is effective

for purposes of waiver or refund of freight charges on any ship

ment of the commodity described which may have been shipped

during the specified period of time

IT IS FURTHER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission and

FINALLY IT IS ORDERED That this proceeding is discontinued

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1475

APPLICATION OF UNITED STATES LINES INC FOR THE

BENEFIT OF CONFIBRES A B

Application for pennission to waive 606 48 of the applicable freight charges granted

INITIAL DECISION 1 OF CHARLES E MORGAN ADMINISTRATIVE

LAW JUDGE

Partially Adopted April 27 1987

By application timely mailed on September 10 1986 the applicant United

States Lines Inc for the benefit of Confibres AB seeks permission

pursuant to Rule 92 a of the Commission s Rules ofPractice and Procedure

46 CFR 502 92 a and section 8 e of the 1984 Shipping Act the Act

to waive 608 50 of the applicable freight charges on a shipment of waste

paper in two 4O foot containers weighing 97 036 pounds from Chicago

Illinois to Barcelona Spain sailing date and bill of lading date April

17 1986

The applicable rate on the waste paper was 1 000 lump sum per 40

foot container from Chicago rail terminal to Barcelona plus a terminal

handling charge of 14K per ton of 2 240 pounds The lump sum rate

for the two containers of 2 000 is not in issue but the terntinal handling

charge is in issue Based on a total of 97 036 pounds 49 822 pounds

in one container plus 47 214 in the other container the applicable terminal

handling charge is 606 48 In error applicant s computation of 608 50

wasbased on 97 360 pounds

The sought total charges are based on the 1 000 lump sum container

rate inclusive of the terminal handling charge Thus the waiver sought

by this application is of 606 48

On April 9 1986 United States Lines agreed to file the sought lump

sum rate including terminal handling and container service charges per

4O foot container from Chicago rail terminal to Barcelona of 1 000 The

rate of 1 000 was filed the same day The cargo was loaded on the

vessel and sailed April 17 1986 Inadvertently the 1 000 rate as published

on April 9 1986 did not include the terminal handling charges and container

service charges The error was caused by United States Lines pricing

supervisor s failure to verify the agreed rate against the published tariff

page

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

782 28 F M C
APPLICATION OF UNITED STATES LINES INC FOR THE 783

BENEFIT OF CONFIBRES A B

The error was corrected effective May 6 986 as shown on 7th revised

page 117 of United States Lines Inc ntennodal Freight Tariff 729 F MC

No 192 The critical period herein is from April 17 1986 the bill of

lading date through May 5 986 the date prior to the effective date

of the corrective tariff

Applicant states that there were no other shipments of the same or

similar commodity made by it during the period in issue The statutory

requirements have been met It is concluded and found that there was

an error of administrative or clerical nature made by applicant in failing

to publish timely the agreed lump sum container rate inclusive of tenninal

handling charges with the result that the latter charges were not included

in the lump sum rate as published that the intended agreed lump sum

rate inclusive of the terminal handling charges was made effective after

the shipment herein moved and prior to the application that the application

was mailed timely and that the authorization of a waiver will not result

in discrimination among shippers ports or carriers

The applicant United States Lines Inc is authorized to waive 606 48

of the applicable freight charges on the shipment herein An appropriate

notice of this matter and of the details of the waiver shall be published

in the pertinent tariff of the applicant covering the period in issue Should

there be no appropriate tariff of applicant at this date other appropriate

action should be taken by applicant to notify the public

S CHARLES E MORGAN

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

I

SPECIAL DOCKET NO 1478

APPLICATION OF SEA LAND CORPORATION ON BEHALF OF

SEA LAND SERVICE INC FOR THE BENEFIT OF LAND JOY

INTERNATIONAL FORWARDERS INC

ORDER OF PARTIAL ADOPTION

April 27 1987

The Commission determined to review the Initial Decision ID of

Chief Administrative Law Judge Charles E Morgan Presiding Officers

in the above docketed proceeding The Presiding Officer granted pursuant

to section 8 e of the Shipping Act of 1984 46 V S C app 1707 e

the Acts the application of Sea Land Corporation filed on behalf of

Sea Land Service Inc Sea Land for the Benefit of Land Joy Inter

national Forwarders Inc Land Joy The Presiding Officer found that

the application met all the requirements of section 8 e and properly granted

Sea Land permission to waive collection from Land Joy of a portion of

the freight charges assessed on a shipment of rags from San Juan Puerto

Rico to Santo Tomas Guatemala C A

The only matter under review is the Presiding Officer s determination

of the critical period during which the rate on which the waiver is

based is made effective at a date earlier than the date of filing with

the Commission The critical period in the ID runs from the date

of the bill of lading April 17 1986 However in Application of Yamashita

Shinnihon Line for the Benefit of Nissho Iwai American Corp 19 S R R

1407 1980 as qualified by Application of Lykes Bros Steamship Co

Inc for the Benefit of Embassy of Tunisia 28 F M C 421 1986 the

Commission held that the proper standard for establishing the effective

date of the corrected tariff is the date the mistake in filing occurred

that is either the date the tariff omitting the intended rate becomes effective

or the date the intended rate absent the mistake would have become

effective but in no event earlier than 180 days before the filing of the

application

In this instance the shipment of rags sailed from San Juan on April

9 1986 while the application was filed on October 6 1986 that is

180 days later Consequently the rate on which the waiver is based should

be effective from April 9 1986 through April 17 1986 the date preceding

the filing of the corrected tariff

I See section 8 e 3 of the Act 46 U S C app fi 1707 e 3

784 28 FM C
By the Commission

S JOSEPH C POLKING

Secretary

APPLICATION OF SEA LAND FOR THE BENEFIT OF LAND JOY 785

INTERNATIONAL FORWARDERS INC

1HEREFORE IT IS ORDERED That Sea Land Service Inc promptly

publish in its tariff the following notice

Notice is given as required by the decision of the Federal Mari

time Commission in Special Docket No 1478 that effective April

9 1986 inclusive and continuing through April 17 1986 the

rate on Rags N O S from San Juan Puerto Rico to Santo Tomas

Guatemala is 107 per kilo ton minimum 14 tons This Notice

is effective for purposes of refund and waiver of freight charges

on any shipment of the commodity described which may have

been shipped during the specified period of time

IT IS FUR1HER ORDERED That the Initial Decision issued in this

proceeding is otherwise adopted by the Commission and

FINALLY IT IS ORDERED That this proceeding is discontinued

28 F M C
1

i

FEDERAL MARITIME COMMISSION

1

SPECIAL DOCKET NO 1478

APPLICATION OF SEA LAND CORPORATION ON BEl IALF OF

SEA LAND SERVICE INC FOR THE BENEFIT OF LAND JOY

INTERNATIONAL FORWARDERS INC

Application for permission to waive 8 910 59 of the applicable freight charge granted

I

INITIAL DECISION 1 OF CfIARLES E MORGAN ADMINISTRATIVE

LAW JUDGE

Partially Adopted April 27 1987

By application timely mailed on October 6 1986 tbe applicant Sea

Land Service Inc for tbe benefit of Land Joy Intemational Forwarders

Inc seeks pennission pursuant to Rule 92 a of tbe Commission s Rules

of Practice and Procedure 46 CPR 502 92 a and section 8 e of tbe

1984 Shipping Act tbe Act to waive 8 910 59 of tbe applicable freight

charges on a shipment of rags N Os in one 4O foot container measuring

52 39 cubic meters weighing 14 22 kilo tons from San Juan Puerto Rico

to Santo Tomas Guatemala Central America sailing date April 9 1986

and bill of lading date April 17 1986

The applicable rate on cargo N O S was 189 M per ton of one

cubic meter and tbe applicable ocean freight on 52 39 tons was 9 90171

Otber charges also were applicable There was a container lift charge in

Guatemala of 165 W per ton of 1 000 kilograms on 14 22 kilo tons

of 23 46 This charge is not in issue herein There was a maritime develop

ment surcharge in Guatemala of 6 percent on tbe ocean rate or 594 10

There was a documentation charge of 15 per bill of lading which is

not in issue herein There was also a wharfage arrlmo charge in Puerto

Rico of 085 M on 52 39 tons of 4453

The sought ocean freight rate is 107 W per kilo ton on 14 22 tons

making ocean charges of 1 52154 The maritime development surcharge

of 6 percent as sought is 9129 The sought wharfage charge of 19

per kilo ton on 14 22 tons is 16 92

The difference between total applicable charges of 10 578 80 and total

sought charges of 1 668 21 is 8 91059 tbe amount sought to be waived

by tbis application

The total amount of freight charges actually collected was 1 643 13

Thus witb approval of tbis application remaining to be collected will

be 25 08

1

j

I This decision will become the detlslon of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of PractIce and Procedure 46 CFR 502 227

786 28 FoM C
S CHARLES E MORGAN

Administrative Law Judge

APPLICATION OF SEA LAND FOR THE BENEFIT OF LAND JOY 787

INTERNATIONAL FORWARDERS INC

Sea Land Service Inc publishes its own tariff Freight Tariff No 302

FMC No 183 from San Juan to ports in Central America

As a result of negotiations with the shipper Sea Land agreed to publish

a rate of 107 per kilo ton minimum 14 tons for Rags N O S from

San Juan to Santo Tomas But Sea Land s Sales Manager failed to confirm

this rate s acceptance by the shipper to Sea Land s Pricing Manager for

its timely publication The Sales Manager s error was discovered after the

cargo had moved Effective April 18 1986 the tariff was corrected to

show the agreed 107 rate on 8th revised page 89 A of Tariff No 302

Thus the critical period herein is from April 17 1986 bill of lading

date through April 17 1986 the date prior to the effective date of the

corrective tariff

Applicant states that there were no other shipments of the same or

similar commodity made by it during the period in issue

The statutory requirements have been met It is concluded and found

that there was an error of administrative or clerical nature made by Sea

Land Service Inc in failing to publish in its tariff timely the intended

agreed rate with the result that a higher cargo N O S rate applied that

the intended agreed rate was made effective after the shipment herein

moved and prior to this application that the application was mailed timely

and that the authorization of a waiver will not result in discrimination

among shippers ports or carriers

The applicant Sea Land Service Inc is authorized to waive 8 910 59

of the applicable freight charges on the shipment herein An appropriate

notice of this matter and of the details of the waiver shall be published

in the pertinent tariff of Sea Land

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 8614

UNION CARBIDE CORPORATION

I

v

WATERMAN STEAMSHIP CORPORATION

NOTICE

May 5 19 7

Notice is given that no appeal has been taken to the March 26 1987

dismissal of the complaint in this proceeding and the time within which

the Commission could determine to review has expired No such determina

tion has been made and accordingly the dismissal has become administra

tively final

S JOSEPfI C POLKINO

Secretary

i

788 28 F M C
28 F M C 789

FEDERAL MARITIME COMMISSION

DOCKET NO 8614

UNION CARBIDE CORPORATION

v

WATERMAN STEAMSHIP CORPORATION

Applicable rates on dry cell battery parts found to be those in item 445 of the tariff under

the sub heading And Parts NO S found under the heading Batteries Viz Com

plaint dismissed

Paul S Aufrichtig and Leonard D Kirsch for the complainant Union Carbide Corporation

George H Hearn forthe respondent Waterman Steamship Corporation

INITIAL DECISION I OF CHARLES E MORGAN ADMINISTRATIVE

LAW JUDGE

Finalized May 5 1987

By complaint filed April 8 and served April 16 1986 the complainant

Union Carbide Corporation Battery Division alleges that the rates charged

by the respondent Waterman Steamship Corporation on five shipments

of dry cell battery parts from the ports of Newport News VA one

shipment and from New York New York four shipments to Port Sudan

Sudan bill of lading dates respectively December 7 1983 two shipments

February 21 1984 March 23 1984 and April 9 1984 were unlawful

in violation of the 1984 Shipping Act the Act

The complainant seeks reparation in the amount of 20 923 06 for the

alleged unlawful charges

The above five shipments occurred during the period when Waterman

Steamship Corporation operated under the automatic stay provisions of the

Bankruptcy Act Waterman emerged from Chapter XI on June 17 1986

The main issue herein is a matter of tariff interpretation that is what

rate or rates applied on these shipments of dry cell battery parts

Union Carbide manufactures dry cell batteries at its plant in Khartoum

Sudan A wide variety of products goes into the fabrication of dry cell

batteries and Union Carbide is the sole American producer of dry cell

batteries in Khartoum From at least as early as May I 1981 and since

then Waterman s tariff No 18 D EM C No 161 has provided rates

on batteries with the same description as follows in its item 445

11his decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227
790 FEDERAL MARITIME COMMISSION

Rate

basis

Batteries Viz

Storage without Acid W M

And Cells Elec

trical Dry NOT

Storage Type W

And Parts N O S W M

The parties dispute is between the second and third listed descriptions

above under the Batteries Viz heading The respective tariff rates for

the second and third listings above effective on December 7 1983 were

288 25 W and 268 25 W M per ton of 2 240 pounds or 40 cubic

feet whichever produces the greater revenue The rates for the second

and third listings above effective for the 1984 shipments respectively

were 302 75 W and 28175 W M

The above second listing with its rates on the W weight basis produces

the lower of the two possible charges for the complainant s shipments

herein and this is the rate basis sought by the complaint The respondent

supports the third listing above with its W M rates as the applicable basis

of rates

The complainant relies on Waterman s Rules and Regulations found in

Section Iof its tariff which in part provide

43 PARTS OF ARTICLES

Whenever rates are provided for on articles named in this Tariff

the same rate will be applicable on named parts of such articles

when so described on ocean Bills of Lading except where specific

rates are provided herein for such parts Emphasis supplied

The complainant contends by using Rule 43 above that it is entitled

to the same rate basis for dry cell battery parts as applied on dry cell

batteries that is on And Cells Electrical Dry NOT Storage Type

The respondent disputes the application of Rule 43 in the circumstances

herein contending that the rate on And Parts N OS above specifically

includes three types of battery parts namely any parts of storage batteries

without acid any parts of And Cells Electrical Dry NOT Storage Type

and any parts of any other batteries

Tariffs must be interpreted reasonably and the intention of the maker

does not necessarily govern in the case of ambiguous tariffs The pertinent

tariffherein is not ambiguous

In the present situation we have three categories listed under the heading

of Batteries The second and third categories are preceded by the word

And t

Reasonably under the circumstances of the trade herein to Sudan it

is likely that a limited number of battery types moved from the United

28 F M C
S CHARLES E MORGAN

Administrative Law Judge

UNION CARBIDE CORPORATION V WATERMAN STEAMSHIP 791

CORPORATION

States to Sudan and that the volume of such movement justified only

a limited listing of rates on specific types of batteries

Specific rates were published in Waterman s tariff herein on two types

of batteries and there was a third specific rate on battery parts N O S

Rule 43 cannot apply where specific rates are provided herein in the

tariff for such parts If as is not the situation here the And Parts

N O S description were not a part of item 445 then the conclusion

herein might favor the complainant But to repeat since there was a

specific rate on battery parts in item 445 there could be no recourse

to the application of Rule 43 of the tariff

It is concluded and found that the applicable rates on complainant s

shipments herein were those on the W M basis in item 445 of the tariff

under the sub heading And Parts N O S found under the heading Bat

teries Viz

The complaint is dismissed

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 8431

ARCTIC OULP MARINE INC PENINSULA SHIPPERS

ASSOCIATION INC SOlITHBOUND SHIPPERS INC

ORDER PARTIALLY ADOPTING INItIAL DECISION

May 6 1987

The Federal Maritime Coinmission Commission or FMC instituted

this proceeding by an Order of Investigation and Hearing issued September

10 1984 to detennine whether respondents Arctic Gulf Marine Inc

AGM Peninsula Shippers Association Inc PSA and Southbound

Shippers Inc SSI have violated the Intercoastal Shipping Act 1933

ISA and the Shipping Act 1916 1916 Act Specifically the Com

mission directed that the proceeding address I whether AGM violated

section 2 of the ISA 46 U S C app 844 by charging rates and absorbing

drayage charges not reflected in its tariff filed with the Commission 2

whether PSA and SSI violated section 2 of the ISA by operating as common

carriers by water in domestic offshore commerce without a tariff on file

with the Commissiop 3 whether AOM PSA and SSI violated section

15 of the 1916 Act 46 U S c app 814 by entering into and carrying

out unWed and unapproved preferential cooperative working agreements

and 4 whether civil penalties should be assessed

The proceeding was initially assigned to Administrative Law Judge Sey

mour Glanzer who presided over the evidentiary hearings Neither PSA

nor SSI called any witnesses or presented any direct case Subsequently

AGM offered to settle the case and pay a civil penalty An Initial Decision

In Part was issued on August 5 1986 approving the proposed settlement

and levying a S4O OOO civil penalty against AGM The Initial Decision

In Part became administratively final pursuant to Rule 227 a 3 of the

Commission s Rules of Practice and Procedure 46 CP R 502 227 a 3

Subsequently the proceeding was reassigned to Administrative Law Judge

Norman D Kline Presiding Officer who has issued an Initial Decision

ID finding that PSA and SSI had violated section 2 of the ISA

and section 15 of the 1916 Act and assessing civil penalties of 300 000

against PSA and 50 000 against SSI The Commission s Bureau of Hearing

Counsel Hearing Counsel has filed Exceptions to the ID urging the

assessment of maximum penalties

792 2S FM C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 793

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

BACKGROUND

The critical facts as found in the JD can be very briefly summarized

as follows

AGM PSA and SSI operated under an arrangement from 1982 to 1985

whereby AGM operated a barge service between Seattle Washington and

ports in Alaska and granted special preferential space accommodations to

PSA and SSI who in turn solicited cargo as non vessel operating common

carriers NVOCC s

AGM entered into charter arrangements with PSA on a flat container

rate basis with a guaranteed minimum volume PSA although incorporated

as a non profit shippers association actively solicited cargo from the

general public accepted responsibility for the cargo and charged rates for

the transportation that provided a profit SSI also booked cargo with AGM

on the account of PSA that was publicly solicited and for which SSI

accepted responsibility and rated on a profit making basis

PSA offered three defenses in the proceeding I that it was a shippers

association and need not file a tariff 2 that it was exempted from regula

tion as an Interstate Commerce Commission freight forwarder and 3

that it did not engage in port to port operations The Presiding Officer

rejected these defenses He found that PSA s status as a shippers association

was a sham that its alleged status as a shippers association did not

exempt it from FMC regulation as an NVOCC and that its operations

were a port to port service with local pick up and delivery subject to FMC

jurisdiction

Finally the Presiding Officer noted that the maximum penalties would

be approximately 13 million for PSA and 210000 for SSJ Under the

criteria for assessing the amount of civil penalties set forth in the Commis

sion s Rules at 46 C PR 505 3b the Presiding Officer determined that

the violations were serious intentional and long standing He further found

a lack of cooperation and a pattern of impeding the Commission s

investiga

tion as well as a general lack of mitigating circumstances Although it

was noted that the respondents were no longer in business the Presiding

Officer concluded that the deterrent effect of substantial penalties and alter

native avenues of collection were sufficient considerations to preclude

mootness of the civil penalty issue As a result he recommended penalties

of 300 000 against PSA and 50 000 against SSI payable in equal monthly

installments over two years

Hearing Counsel filed Exceptions to the amount of the civil penalties

assessed by the Presiding Officer It is argued that the amounts of the

penalties are insufficient to adequately promote the regulatory objectives

of the Commission and will not provide sufficient deterrence in relation

to the potential gain from the unlawful conduct found in the JD Based

upon the findings of the Presiding Officer of serious willful and long

standing violations and a general absence of mitigating factors Hearing

28 F M C
C1

794 FEDERAL MARITIME COMMISSION

Counsel urges the Commission to impose the statutory maximum penalties

against PSA and 551

1

DISCUSSION

No pany has contested the Presiding Officer s

findings of fact or excepted

to the fingings of violations of the 1916 Act and the ISA The Commission

finds those portions of lIle ID to be proper and well founded Accordingly

they are adopted Therefore the only issue now before the CommJssion

is whether the amount of the civil penalties assessed by the Presiding

Officer is appropriate under the circumstances

Hearing Counsel s objection is essentially with the Presiding Officer s

determination of what constitutes a severe penalty under the facts of

this case Hearing Counsel urged below and the Presiding Officer agreed

in the ID that severe penalties are warranted regardless of the fact

that PSA and SSI are 10 longer viable entities Although Hearing Counsel

did not specifically urge the Presiding Officer to impose maximum civil

penalties it is now argued that in essence severe penalties means

maximum penalties under the facts presented here Hearing Counsel

is of the opinion that anything less than maximum penalties would not

have a sufficient deterrent effect

Because this issue was not expressly raised below the Presiding Officer

did not address the question of why the maximum potential penalties should

not be assessed However the only counteniail rig factor that would arguably

warrant less than maximum penalties is that the responden may no longer

be viable entities In this context it is not inappropriate to consider the

respondents ability to pay as well as the costs and risks of collection

of the amount of penalties assessed See Diver The Assessment and Mitiga

tion of Civil Money Penalties by Federal Administrative Agencies 79

Colum LRev 1435 1469 72 1979 However in light of the facts of

this case the Commission will not permit the possible abandonment and

subsequent dissolution of the respondent corporate entities to be considered

a mitigating circumstance or otherwise be used as a shield for the egregious

violations of law documented in the recordof this proceeding See United

States v Atlantica SpA 478 F 5uPP 833 836 S D NY 1979 Accord

ingly the Commission agrees with Hearing Counsel that maximum civil

penalties must be assessed in this case Based upon the Presiding Officer s

findings P5A will be assessed 1 308 000 and 551 will be assessed

210 000 See ID at 63

While there may exist a low probability of successfully collecting max

imum penalties alternative collection avenuesmJght be available See ID

at 69 n 25 Because the Commission views this case as evincing a mode

of business conduct that poses a serious threat to the efficacy of the

programs and procedures that have been implemented to enforce the law

by means of civil penalties maximum effort will be expended to collect

the penalties assessed here Moreover future cases of this type will be

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28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 795

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

carefully scrutinized for appropriate factual and legal bases to impose indi

vidual liability for civil penalties on corporate officials engaged in illegal

conduct The Commission will not pennit the abandonment of corporate

structures to be used as a tactic to erode the deterrent effects of civil

penalties

TIfEREFORE IT IS ORDERED That except as modified in this Order

the Initial Decision issued in this proceeding is adopted by the Commission

and made a part hereof and

IT IS FURTIfER ORDERED That the Exceptions to the Initial Decision

filed by the Commission s Bureau of Hearing Counsel are granted and

IT IS FURTHER ORDERED That civil penalties in the amount of

1 308 000 are assessed against Peninsula Shippers Association Inc and

IT IS FURTHER ORDERED That civil penalties in the amount of

210 000 are assessed against Southbound Shippers Inc and

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission

S JOSEPH C POLKING

Secretary

Commissioner Moakley would adopt the Initial Decision inits entirety

28 F M C
FEDERAL MARITIME COMMISSION

i

DOCKET NO 8431

ARCTIC GULF MARINE INC PENINSULA SHIPPERS

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

i

Respondents Peolnsul Shippers Msocladon Inc PSA lIDd Southbound Shippen Inc SS

found to have operated as non vessel operating common carriers by water NVOCCs

between Seatde Washlnlton lIDd Alaaka from 982 to 1985 forPSA lIDd durinl 1982

for SSI Both fCspondentl also found to have entered into and carried out cooperative

workinl IIllIDlements with another canler living them special prlvjleg lIDd advllDtales

during 1982 Neither PSA nor SS IlIed their tariffs or the alreemenlS with the other

carrier thereby vlolaUng setdon 2 of the Inrcoaafal Shipping Act 1933 lIDd section

15 of the Shipping Ac 1916 respectively

PSA SS and the third responden a carrier which has selUed with the Commission were

incorporated and operated by a small group of men who coordinated the operations

of PSA and SS lIDd other companies Both PSA and SS actively ad ertiied lIDd solicited

c ao from the public and made use of the third camer s vessels to perform the service

under the terms of the agreements with that carrier PSA s defenses namely that it

was a shippers association that it offered more than port toPOl1 services which lay

outside the F M Cs jurisdiction and that the F M C ought not to follow its previous

decision holding such associations to be subject to Commission jurisdiction have no

merit either in fact or in law

Although wamed about the posalble violations of law in 1982 the penons beltind PSA

and SSI continued to operate without cooperating with the Commission s investigators

or seeking advice or exemption from the Commission under proper legal procedures

Despite a record of significant culpability and ooo cooperatioo respondents put 00 no

direct case and presented little or nothing in mitigation Under such circumstances it

is imperative that penalties be assessed which will deter others from emulating these

respondents even if the two companies have dissolved Penalties amounting to 300 000

assessed against PSA and 50 000 against SS wlll send the appropriate message and

serve as an effective deterrent

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Joseph T Mijich John P World and John M Stern Jr for respondent Peninsula

Shippers Association Inc

Aaron W Reese and Charna Jaye Swedarsky for Hearing Counsel

INITIAL DECISION 1 OF NORMAN D KLINE ADMINISTRATIVE

LAW JUDGE

Partially Adopted May 6 1987

This proceeding began with the issuance of the Commission s Order

of Investigation and Hearing on September 10 1984 The purpose of the

proceeding was to determine whether respondent Arctic Gulf Marine Inc

I This decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CPR 02 227

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ARCTIC GULF MARINE INC PENINSULA SHIPPERS 797

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

AGM a barge operating common carrier by water which had operated

in the Seattle WashingtonAlaska trade under an FM C tariff until Decem

ber 3 1982 had violated its tariff in certain ways and had carried out

unfiled arrangements and agreements with two other entities Peninsula

Shippers Association Inc PSA and Southbound Shippers Inc SSI

If so such conduct would violate section 2 of the Intercoastal Shipping

Act 1933 46 D S C app sec 844 and section 15 of the Shipping Act

1916 46 D S C app sec 814

In addition to the above matters involving AGM the proceeding was

to determine whether the other respondents PSA and SSI had been oper

ating as common carriers by water in the Seattle WashingtonAlaska trade

without filing tariffs in violation of section 2 of the 1933 Act and whether

PSA and SSI had entered into and carried out unfiled arrangements and

agreements the former with AGM and the latter with PSA and AGM

in violation of section 15 of the 1916 Act The Commission further ex

plained that it had information indicating that the three narned respondents

had been operating in the manner described during 1982

Finally the Commission wished to determine whether if the three re

spondents had violated sections 2 and 15 cited above penalties should

be assessed and if so in what amount

After extensive prehearing discovery was conducted under schedules es

tablished by Judge Seymour Glanzer to whom the case was assigned

the case proceeded to evidentiary hearings which consumed 18 days between

June 10 and August 16 in Seattle Washington and Anchorage Alaska

Hearing Counsel and AGM presented witnesses and documentary evidence

at the hearing Neither PSA nor SSI called any witnesses nor presented

any direct case Indeed SSI never appeared throughout the entire pro

ceeding and Hearing Counsel reported on January 24 1985 that SSI had

been involuntarily dissolved as a corporation by the State of Washington

on November 16 1984

After the filing of Hearing Counsel s opening brief on December 3

1985 respondent AGM requested permission to file a petition for settlement

instead of an answering brief Permission was granted by Judge Glanzer

and on January 31 1986 AGM filed its Offer of Compromise and

Settlement together with another document entitled Proposed Com

promise Agreement Following further discussions between Hearing Coun

sel and AGM AGM filed a new Offer of Settlement on March 28

1986 to replace the earlier one filed in January On April II 1986

AGM filed a supplemental document entitled Proposed Settlement of Civil

Penalty Simultaneously Hearing Counsel filed their reply to AGM s offer

recommending its approval In an Initial Decision served August 5 1986

confined to the question of approvability of AGM s proposed settlement

Judge Glanzer approved the settlement On September 12 1986 the Com

mission made that decision administratively final and pursuant to the deci

sion and settlement ordered AGM to pay the sum of 40 000 together

28 F M C
798 FEDERAL MARITIME COMMISSION

with accumulated interest since March 25 1986 to the Commission by

September 19 1986 28 F M C 542

Effective September 4 1986 Judge Glanzer was named to the position

of Director Bureau of Hearing Counsel thereby becoming unavailable for

the issuing of an Initial Decision dealing with the remaining issues in

the case concerning respondents PSA andc SSI In addition Judge Glanzer

now Director of the Bureau notified all the parties to this proceeding

that he was recusing himself from participating in the case See letter

to Judge Kline dated September 10 1986 When Judge Glanzer became

unavailable the case was reassigned to the undersigned judge on September

4 1986 The parties were notified of the change of judges on the same

day See Notice of Reassignment September 4 1986 On September

8 1986 I notified the parties that unless there was a legal impediment

preventing me from deciding the remaining issues I would as provided

by the Administrative Procedure Act 5 U S c sec 554 d issue such

a decision I instructed the parties to advise me if they had any reason

to believe that I could not by law issue such a decision on the record

developed before Judge Glanzer and to advise me of the current status

of respondent PSA The parties were to advise me by September 26

1986

In response to my instructions and queries both Hearing Counsel and

respondent PSA advised me that on February 14 1986 PSA was involun

tarily dissolved as a corporation pursuant to Alaskan law Hearing Counsel

responded furthermore that they had no objection to my issuing a decision

See Hearing Counsel s letters of September 23 and 26 1986 and letter

dated September 22 1986 from PSA s counsel John P World with attach

ment 2

The Commission s Order of Investigation and Hearing had established

due dates for the Initial Decision and for the Commission s decision as

January 10 and May 10 1986 respectively However the offer of settlement

submitted by AOM and other factors necessitated additional time for

issuance of these decisions At the request of Judge Glanzer on December

18 1985 the Commission extended the time for issuance of the decisions

until July 3 and Decembet 3 respectively Time for consideration of the

offer of settlement and for issuance of appropriate decisions on the offer

as well as the remaining issues required still further time At the request

of Judge Glanzer by order served July 16 1986 the Commission further

extended the dates to October 3 1986 and March 3 1987 Upon my

21f a

party falls to request a new hearing when a case is reusigned to a new judge who has not presided

at the hearing and the party attempts 10 requesl such a hearing after the decision is hilled the party has

been held to have waived its rights to such a hearing See Millar v F C C 707 F 2d 1530 1538 D C

Cir 1983 As the court noted furthermore it is nol crucial that the deciding judge observe witnesses when

the facts are largely shown by reOrds and documents and demeanor is not the critical factor in resolving

factual disputes 707 F 2d al 15381539 This record contains documemary evidence written testimony and

records among other things and I do not fmd that demeanor of the witnesses is an essential factor in resolv

ing such factual disputes as appear in the case

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ARCTIC GULF MARINE INC PENINSULA SHIPPERS 799

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

request the Commission extended these dates once more to November

14 1986 and April 14 1987

28 F M C

The Initial Decision and Settlement Concerning AGM

In the settlement which Judge Glanzer approved and which the Commis

sion finalized respondent AGM without admitting that it had committed

any violations of law paid S4O 000 as a penalty As shown in the Initial

Decision AGM had stipulated that certain misratings had occurred and

the record showed that AGM had entered into a

space charter agreement

and a later voyage charter agreement with PSA in 1982 Furthermore there

was evidence of a cooperative working arrangement between AGM PSA

and SSI from March 18 1982 to December 3 1982 but no evidence

of a filing of any such arrangement with the Commission although a

copy of the space charter arrangement was given to a Commission employee

voluntarily by AGM two months before the charter was to expire However

by settling AGM chose not to have a decision on the merits of its defenses

However because AGM has settled care must be taken to ensure that

the decision on the merits concerning possible violations of law by PSA

and SSI is not used against AGM for any purpose Therefore even though

the record shows an intricate linkage of interest personnel and finances

involving AGM PSA and SSI Initial Decision at 547 and even though

one of the issues involving PSA and SSI concerns the question whether

PSA SSI and AGM were parties to unfiled agreements it has been made

clear that the findings as to PSA and SSI in this Initial Decision will

not be binding on AGM under the principles of res judicata or collateral

estoppel The last ordering sentence in Judge Glanzer s Initial Decision

approving AGM s settlement offer is explicit on this point See Initial

Decision at 551

Accordingly although findings made in this decision unavoidably involve

AGM because of the nature of the issues the purpose of such findings

is not to undermine AGM s settlement or to decide any issues on the

merits against AGM which in return for settlement has waived its right

to litigate its defenses fully Consequently the findings and orders to be

issued in this decision will bind and affect only PSA and SSHowever

in order to understand the nature of the operations of PSA and SSI which

overlap with those of AGM some findings concerning AGM must be

made Some of these findings have already been made in Judge Glanzer s

Initial Decision and serve as useful background

FINDINGS OF FACT

Arctic Gulf Marine Inc AGM

1 Arctic Gulf Marine Inc AGM which as discussed has settled

with the Commission was organized as a corporation in the State of Wash
800 FEDERAL MARITIME COMMISSION

ington on or about January 20 1982 Its charter authorized it to engage

in the business of operating barges and other vessels for the transportation

of freight AOM was dissolved on April 17 1986 Prior to its dissolution

AOM had operated a barge service in the Seattle Alaskatrade as a common

carrier by water under a tariff FMC F No I which AOM had filed

with the Commission effective March 18 1982 and which AOM had

canceled on December 3 1982 Thereafter AGMoperated as a contract

carrier in 1983 and 1984 and ceased operations in November 1984 AOM s

address according to Its Articles of Incorporation was 737 South Stacy

St Seattle Washington and its Incorporator was Edward J O Brien of

the same address Mr O Brien was also Its President and registered agent

AOM s Secretary Treasurer was Evelyn Varon and its Directors were

Francis Jake X Moesh Lewis M Dischner Kenneth Rogstad and Carl

Mathisen These four were also owners of AOM together with a Mr

William Jake Pierce Ms Varon resigned as Secretary Treasurer of AOM

in August 1983 and Mr Rogstad assumed that position Ms Varon had

not been informed that she had been named as Secretary Treasurer of

AOM until one or two years after AOM s

incorporation and had been

named only as a matler of convenience to be close to the checkbooks

and accounting people

2 Mr Moesh a consultant to PSA as well as one owner of AOM

had promised Mr O Brien the job as President of AOM Mr O Brien

however had no substantive operational tasks for AOM received no salary

from AOM and signed contracts at the direction of Mr Pierce Mr O Brien

had his own consulting business when he became president of AOM and

did work for a

company known as Ocean Dock Industries which was

the unloading agent for PSA in Anchorage Alaska and was partially owned

by Mr Moesh Mr O Brien resigned as an officer of AOM on November

2 1984

1

Peninsula Shippers Association PSA

3 Peninsula Shippers Association PSA was incorporated in Alaska

on November 22 1971 as a non profit corporation authorize j

to consolidate

transport and deliver privately owned goods of its members According

to its articles of incorporation PSA was a nonstock no dividend corporation

and no profits were to be declared or paid to jts members each of whom

had one vote The Board of Directors was authorized to elect an executive

committee which could exercise aU the Board s authority in the management

of the corporation except for dIstribution of proceeds selection of officers

and filling of vacancies

4 There was no requirement under PSA s articles of incorporation for

regular meetings of the membership or meetings of the Board of Directors

the latter meetings being discretionary Nor were there provisions for the

time and manner of the election of officers From 1979 1985 the officers

of PSA were James Simpson President Fred D Donadel Vice President

28 F MC
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 801

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

and Marion Davis Secretary Treasurer In 1979 and 1980 according to

PSA s corporate reports filed with the State of Alaska the directors were

Bud Center James Avey and Volney Grace

Persons and Companies Affiliated with PSA

5 Marion Davis was Secretary Treasurer of PSA and was responsible

for collection of accounts receivable Mr Davis was put in charge of

PSA s Alaska operations in approximately 1980 and continued in that posi

tion until 1985 As head of PSA s Alaska operations it was Mr Davis s

responsibility to see that freight was delivered on a timely basis to take

calls from and visit members and to keep the PSA Board of Directors

informed of the Alaska operations Mr Davis who had received an annual

salary from PSA as general manager severed his association with PSA

because it ceased doing business around the first part of 1985

6 Francis X Moesh the part owner and director of AGM was a consult

ant to PSA As a consultant it was part of Mr Moesh s responsibility

to arrange for cargo to move via PSA and to solicit customers to move

cargo with PSA Mr Moesh was also responsible for entertaining calling

on members and negotiating or dealing with water carriers Mr Moesh

used among other offices the office at AGM s South Stacy Street Seattle

address and the Commission s District Investigator Michael F Carley

in August 1982 contacted Mr Moesh at that address for a telephonic

interview Mr Moesh informed Mr Carley that PSA had no paid employees

only agents that PSA s agent in Seattle was a company known as Penn

Van Inc and that PSA s agent in Alaska was a company known as

Ocean Dock Industries which was Mr Moesh s company

7 PSA also used the services of a

company known as Consulting Traffic

Services Inc owned by Fred D Donadel Vice President of PSA This

company and Mr Donadel called on PSA members solicited members

provided information sent out applications and explained PSA s services

PSA paid Mr Donadel for his services through Consulting Traffic Services

Inc This company was located at AGM s South Stacy Street address in

Seattle and later moved to another address in Kent Washington at which

address a

company known as Anchorage Fairbanks Freight Service AFFS

was located for which company AGM s Mr O Brien had worked

8 PSA has had employees working for it in Alaska since 1971 or

1972 From 1982 1985 PSA had approximately 8 10 paid employees in

Anchorage PSA s accounting was done by Mr Arnie Haugen who was

President and sole shareholder of Transportation Accounting Traffic Serv

ices Inc TATS TATS s services for PSA included bookkeeping payroll

and tax service TATS was originally located at AGM s South Stacy Street

address but later moved to the Kent Washington address shared by AFFS

and PSA PSA was billed for PSA s rental of office space by TATS

In Anchorage PSA rented premises from a company known as F M

Investments and shared space with Ocean Dock Industries its agent in

28 F M C
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802 FEDERAL MARITIME COMMISSION

I

Alaska F M Investments was owned by Francis X Moesh the part

owner and director of AGM and oonsultantto PSA and by Marion Davis

general manager and SecretarY Treasurer of PSA PSA s Seattle agent Penn

Van Inc was formed as a partnership in 1971 between Francis X Moesh

and John Whalen the latter one of PSA s original 1971 corporate officers

and directors In 1973 Penn Van became a corporation under Washington

law As of October 1982 Penn Van s corporate officerlf were Richard

WilIecke President Marion Davis Vice President and Fred D Donadel

SecretarY Treasurer Its four stockholders were Messrs Moesh Donadel

Davis and WilIecke Penn Van had the lease at AOM s South Stacy

Street address in Seattle Penn Van allowed Mr Haugen PSA s accountant

to offer accounting and financial serVices at South Stacy Streel beginning

in January 1982 through Penn Van s offices without billing Mr Haugen

Mr Haugen s employees in 1982 were initially Penn Van s employees

paid by Penn Van These employees also pllrformed work for PSA In

1982 Mr Haugen s services were performed for among other companies

PSA Penn Van AOM and Ocean Dock Industries which was PSA s

agent in Alaska and Mr Moesh s company

9 All accounting functions for PSA were turned over to Mr Haugen s

service bureau in 1982 and Mr Haugen remained a salaried employee

of PSA Mr Haugen penonally prepared PSi s tax returns between 1974

and 1982 Between 1982 and 1985 one of Mr Haugen s staff prepared

the returns under his direction PSA also had employees in Anchorage

Alaska who performed accounting and financial functions lhere for PSA

Mr Haugen received a salary from PSAfr9m December 1974June 30

1984 while was operating TATS and a motor carrier which he owned

Anchoraje Fairbanks Freight Service Inc AFFS formed in April 1982

to operate between points in Washington and points in Alaska TATS

Penn Van and later AFFS worked with PSA and coordinated their efforts

from the same office locations Mr Haugen bought the trucking rights

for AFFS from a carrier known as United Cartage owned by Messrs

Moesh Willecke Davis and Donadel During the period 1982 1985 AFFS

performed motor carrier services exclusively for PSA After July I 1984

AFFS took over the accounting functions of TATS which became inactive

and Mr Haugen operated his service bureaus under AFFS

10 Penn Van Inc operated aslhe loading allent for PSA receiving

freight at its loading terminal to which PSA shippers and consignees would

route their freight Penn Van would receive and load the freight into vans

going to Alaska by PSA Ocean Dock Industries was the unloading agent

for PSA in Anchorage Mr Davis and Mr Moesh were officers and share

holders ofOcean Dock Industries

IIMr Moesh was authorized on July 9 1982 to sign checks for

PSA in an account with the Seattle First National Bank So were Messrs

Donadel Davis Haugen and Nancee Stanley former Traffic Manager of

PSA from 1982 1985 now Traffic Manager of AFFS and also a former

2S F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 803

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

employee of TATS Mr Haugen s company Ms Stanley was also author

ized to sign checks for AGM PSA Penn Van and AFFS and thought

that of all the companies that she worked for Penn Van TATS PSA

and AFFS were the same employer and company From 1982 Ms Stanley

worked for the same people Mr Moesh Mr Donadel Mr Willecke

and Mr Haugen and performed the same duties even though the company

she worked for changed From 1982 to the present Ms Stanley considered

Mr Moosh and Mr Willecke to be her bosses As traffic manager of

PSA and AFFS Ms Stanley thought of Mr Francis X Moosh as the

overall boss of all the companies she has worked for with the exception

of TATS and AFFS However Mr Moesh gave orders to the staff people

performing work for PSA as well as AFFS and Mr Moosh gave orders

to employees in the motor carrier and service bureau operations of AFFS

Mr Haugen did not control Mr Moosh s dealing with AFFS As of August

12 1985 all management decisions regarding AFFS and its operations

were made by Mr Haugen Mr Moesh and a Mr Ambrosia

28 F M C

PSA s Agreements With AGM and SSI

12 As noted previously PSA was incorporated under Alaska law on

November 22 1971 as a non profit association authorized to carry consoli

date transport and deliver the goods of its members In 1982 PSA entered

into two agreements with AGM On February 25 1982 PSA entered into

a

space chartering agreement with AGM acompany which had only been

formed the previous month The space charter agreement began on March

15 1982 for a four month term The agreement was part of an arrangement

which included oral understandings as well as another written instrument

Under the terms of the agreement AGM agreed to provide whatever space

PSA required for the carriage of goods to or from Valdez and other Alaska

ports at a particular per container rate S2 000 per 4O foot equivalent of

cargo carried For its part PSA agreed to pay for a minimum of 200

units on AGM s first barge voyage regardless of actual use It was com

monly known at the time the agreement was made that there would be

a serious dearth of available vessel space in the trade during the life

of the agreement Therefore PSA s

right under the agreement to use what

ever space it required gave it an advantage over other non vessel operating

common carriers or other shippers that AGM held itself out to serve under

AGM s tariff

13 Under the terms of the space charter agreement AGM agreed to

provide a dock to dock service to PSA for the carriage of goods to or

from Valdez Alaska or such other ports as the parties would agree upon

PSA was responsible for securing insurance to protect against loss or dam

age to the cargo and PSA assumed all risk for loss damage delay mis

delivery failure to deliver and all handling charges on its behalf and

on behalf of the owner shipper and consignee of the cargo
I

804 FEDERAL MARITIME COMMISSION

i

14 The space charter agreement was entered into between Mr Pierce

AGM s general manager who discussed the agreement with Mr Moesh

on behalf of PSA The agreement was signed by Mr Donadel PSA s

Vice President Mr Pierce had thought that PSA was a shipper s co op

which carried cargo for its members AGM had been formed partially

at least because of the need for new barge service for 1982 to carry

construction materials to the North Slope Alaska for a

company known

as H W Blackstock Co Furthermore through the winter of 1981 and

into the early spring of 1982 there was an ablndance of cargo moving

between the lower 48 states and Alaska the two major trunk lines were

full and there was a backlog of lp to six weeks to move freight from

Seattle to Anchorage Furthermore the biggest sealift in history was to

take place in the summer of 1983 between Seattle 1IdPrudhoe Bay Alaska

for the oil ind lstry and every barge from the carriers serving the trade

would be ltilized

IS On Jlne IS 1982 AGM and PSA entered into a

voyage chartet

agreement for the remainder of the calendar year The agreement involved

sOlthbo lnd cargo from Anchorage or Valdez to Seattle Among other things

it provided that AGM would operate the vessels but not as a common

carrier and AGM s tariffs wOlld not be applicable PSA wOlId charter

all cargo space on the vessels and wOlld aSS lme all liability and responsi

bility for the cargo incl lding loading and unloading AGM s compensation

for the sOlthbo lnd service was lased on the amount of cargo that PSA

cOlld solicit or induce to be shipped on the barges and was based on

charges per platform container or vehicle not containerized The agreement

was signed by Mr O Brien AGM s Presiclent lIld by Mr Davis PSA s

general manager in Alaska USing the nlUlle of Mr Simpson PSA s Presi

dent One reason for the agreement appears to be that Mr Davis and

Mr Ray Fendenheim had c1lshed automobiles to move in the southbound

trade from Anchorage to Seattle AGM lIld PSA therefore entered into

the voyage charter agreement to move this cargo However freight trans

ported on AGM on its southbo lnd voyages for PSA acrualIy belonged

to SSFurthermore in 1982 AGM advanced freight and drayage charges

to SSI to move cargo southbound on AGM barges to the Fuget Sound

area at the reqlest of PSA s

seneral manager in Alaska Mr Davis As

of June 1985 SSI had not pitld AGM back for all of the freight charges

advanced by AGM in 1982

The Close Working Relationships Among PSA SSI and AGM

16 Other events dlring 1982 show the close interrelationships among

AGM PSA and SSI in addition to the formal space and voyage charter

agreements and AGM s advancement of freight charges on behalf of SS

For example PSA provided AGM withfunds initially in 1982 to start

service beca lse the first voyage that AGM wasgoinS to make under

the space charter agreement was to carry PSA cargo and AGM did not

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ARCTIC GULF MARINE INC PENINSULA SHIPPERS 805

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

have money available for start up expenses The record shows also that

PSA s Secretary Treasurer and general manager in Alaska Mr Davis ad

vanced expense funds on PSA s account for AGM in Anchorage that

PSA paid for airline tickets for AGM s Mr Pierce and Mr O Brien prior

to the formation of AGM and advanced money for start up costs in January

1982 to Mr Pierce that PSA made payments to a bank on a loan to

AGM deposited funds for AGM s start up costs in AGM s account in

February 1982 paid Mr Pierce AGM s general manager for expenses

in connection with trips advanced payment for AGM s payroll and equip

ment loaned AGM money to pay rent on AGM s

freight terminal for

March 1982 and allowed AGM to use office space at 737 South Stacy

Street Seattle rent free Sometimes Mr Pierce of AGM accompanied Mr

Donadel of PSA on joint solicitations AGM would also call PSA before

a sailing to determine how much cargo PSA was planning to book on

a particular AGM sailing That information determined how much space

was available on the AGM vessel for other shippers

17 Mr Pierce AGM s general manager believed it not unreasonable

to conclude that AGM had been started mainly to transport PSA cargo

In the discussions to begin AGM s service Mr Moesh part owner and

director of AGM and consultant to PSA indicated that he was concerned

about moving PSA cargo and wanted AGM to move PSA cargo and

in the initial discussions it had been decided that AGM should be a

contract carrier to cover specific movements of cargo in the spring of

1982 to Valdez Alaska for PSA Mr Moesh on behalf of PSA was

involved in the discussions as to the freight charges to be billed PSA

for cargo moved in 1982 under the space charter agreement with AGM

Mr Davis PSA s general manager in Alaska was also involved in the

decision to enter into both the space charter and voyage charter agreements

with AGM

18 AGM s tariff FMC F No I was filed effective March 18 1982

The first voyage by AGM departed Seattle on or about March 19 1982

with 100 percent of the cargo carried for PSA under the space charter

agreement A second voyage departed on or about March 19 1982 with

80 percent of the cargo carried for PSA under contract with the remaining

20 percent carried as common carriage PSA paid AGM freight rates as

per the space charter agreement until July 1982 Thereafter PSA paid under

the AGM northbound tariff AGM offered one sailing a month with two

barges during 1982 Eighty to 90 percent of the cargo transported by

AGM in 1982 was PSA cargo Toward the end of 1982 9095 percent

ofAGM s cargo was PSA cargo

28 F M C

Details as to PSA s Operations

19 During 1982 AGM had eight barge sailings of common carrier cargo

at monthly intervals between March and October and one contract carriage

barge on which common carrier cargo was carried Through July 12 1982
806 FEDERAL MARITIME COMMISSION

PSA paid AGM under the space charter agreement After that date PSA

paid AGM under the AGM FAK rates which had been filed in the AGM

tariff with an effective date of July 14 1982 After that date virtually

the only shipper on these barge voyages was PSA only one non PSA

shipment being carried on the last barge voyage in October During 1982

PSA also offered a weekly regular service using the carriers Sea Land

and Tote as well as the above monthly barge service of AGM In 1983

and 1984 PSA used the following underlying carriers Central Alaska Ma

rine Lines CAML Tote Seaway Express and Sea Land CAML and

Seaway Express had tariffs on file with the F M C CAML had filed its

initial tariff with the F M C effective July 25 1983 The tariff covered

Seattle Washington to from the Alaska ports of Anchorage Valdez Kenai

and Cordova PSA paid CAML and Seaway Express the rates published

in their F M C tariffs and when using CAML quoted its own rates

and prepared the freight bills A CAML barge docked in Anchorage the

week of March 7 1984 carrying 300 plus trailerloads of PSA cargo On

March 20 1984 PSA shipments moved south from Anchorage on CAML

barges Actually PSA advertised northbound and southbound service to

and from Alaska as a carrier in newspapers and other publications from

1982 1985 and had advertised service as a carrier of general freight to

Alaska since 1966

20 The Commission s District Investigator Mr Carley having been

rebuffed in efforts to obtain detailed information about PSA s operations

from PSA officials obtained such information from AGM documents and

from direct contacts with PSA s shippers and consignees whose shipments

moved on AGM barges in 1982 An intensive analysis was performed

on AGM s barge Voyage No 211 which sailed in July 1982 Mr Carley

contacted 20 shippers of various commodities In 19 of the 20 shipments

the Alaskan consignees had paid the freight and selected the carriers None

of the shippers was a member of PSA Most of the consignees of these

shipments were either not members of PSA or didn t know if they were

members Four indicated that they were probably members and two recalled

paying a small membership fee However none of the consignees contacted

reported that they had ever received copies ofPSA s by laws or any infor

mation on members rights responsibilities liabilities benefits etc Even

the probable members only contact with PSA was receipt of freight bills

Most of the shippers or consignees were either dimly aware or completely

unaware of AGM s role in transporting their cargoes Those shippers and

consignees that were aware of AGM believed that AGM was a subsidiary

or affiliate of PSA or a partner in a joint operation with PSA Sometimes

PSA s advertisements stated that membership in PSA was required although

there were no stated restrictions on membership However none of PSA s

1985 ads contained any reference to a membership requirement or referred

to a 10 membership fee which PSA purported to require

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 807

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

21 For the nine AGM barge voyages on which PSA cargo was carried

northbound between March and October 1982 Mr Carley analyzed PSA s

revenue situation His analysis showed that PSA marked up AGM s charges

to PSA between 30 85 percent and 247 34 percent on seven AGM barge

sailings consisting of Anchorage destined cargo On two barge sailings

a considerable amount of freight was destined to Fairbanks Alaska and

involved substantial inland costs For all nine barge voyages PSA derived

74 million in revenue and paid AGM 3 million in freight charges

The above calculations do not include inland transportation costs paid by

shippers who delivered cargo to AGM s dock directly at their own expense

22 PSA attempted to offer rates on which they could make a profit

and still give the person paying the freight a

good deal There were no

set rules by which PSA fixed rates However PSA would consider what

competitors charged in addition to the underlying water carrier s

freight

rate in order to establish a PSA rate A number of people connected

with PSA appear to have been involved with quoting and fixing rates

including Messrs Davis Donadel Moesh and Ms Stanley With various

people quoting rates it was not common for PSA to charge the same

rate to different shippers although they might be shipping the same volume

of the same commodity and different rates could be charged different

shippers of the same commodities even on the same voyage Ms Stanley

PSA s traffic manager did not keep track to see whether this was happening

Nor did she verify that a shipper asking for a rate quotation was a member

ofPSA before quoting a rate

23 From 1982 1985 PSA solicited cargo in its own name by letter

telephone and personal sales calls newspapers and other publications and

maintained a sales staff and consultants to solicit cargo on their behalf

Among the persons involved in these solicitation activities were Mr Moesh

the part owner and director of AGM and consultant to PSA Mr Davis

the Alaska general manager Mr Donadel Vice President of PSA through

his consulting firm and Mr O Brien President of AGM PSA employees

in Anchorage were responsible for advertising PSA s services under the

supervision of Mr Davis PSA representatives actively solicited customers

from a PSA booth at the 17th Annual Gas Oil Mining and Construction

Industry Show in Anchorage on September 12 1984 and according to

PSA s 1983 tax return PSA had advertised at trade shows and had spent

over 25 000 in advertising expenses for that year

24 PSA arranged transportation with underlying water carriers and was

considered the shipper by those carriers A shipper who wished to book

cargo in Seattle with PSA would make the booking with Penn Van Inc

PSA s agent in Seattle Also in 1982 shippers and consignees could place

bookings with Ms Stanley or contact Mr Davis or Mr Ray Fendenheim

a director of Southbound Shippers Inc SSI in Anchorage A shipper

of LTIless than trailerload cargo who desired to move cargo via PSA

to Anchorage could also make arrangements with a PSA salesperson in

28 FM C
I

808 FEDERAL MARITIME COMMISSION

1

Anchorage The shipper would be given a rate and would send the cargo

to Penn Van s terminal in Seattle via a motor carrier selected and paid

by the shipper the cargo carried under the motor carrier s bill of lading

Penn Van would consolidate the LTL cargo with other cargo and the

consolidated cargo would become a PSA shipment on the underlYing water

carrier PSA would issue its own freight bill instead of a bill of lading

the bill prepared by TATS The freight bill showed the billing party

consignee shipper description of the cargo weight of and rate for the

cargo and the freight charged PSA would also prepare the underlying

water carrier s bill of lading for PSA shipments Loading and unloading

operations were performed by PSA agents who were furnished equipment

by PSA The PSA loading agent in Seattle was Penn Van Inc and the

unloading agents in Alaska were Ocean Dock Industries in Anchorage

and Alcan Freight Service in Fairbanks Fairbanks destined cargo was reo

ceived at Anchorage and moved directly ro Fairbanks for Alcan to unload

and deliver In 1982 PSA also had paid costs for labor to receive and

deliver freight in Valdez Alaska

25 Full load PSA shipments moved initially by truck under truck bills

of lading Full load PSA shipments delivered directly to AOM were not

consolidated by Penn Van PSA issued its own freight bill for these ship

ments to the shipper based on its quoted rates AOM issued dock receipts

and bills of lading and billed PSA which AOM considered to be the

shipper In 1982 99 percent of AOM freight consisted of full loads that

were not consolidated by Penn Van PSA competed directly with AOM

for the same customers and sometimes AOM obtained the customer PSA

also competed with other underlying water carriers for full shipper load

cargo For full load cargo both PSA and the underlying shipper would

select the water carrier PSA selected the water carrier for LTL freight

26 PSA aSSumed the risk for loss or damage to cargo on its own

behalf and on behalf of the owner shipper or consignee of the cargo

transported and was required to procure insurance to cover such risk under

the space charter

agreement

between PSA and AOM PSA acquired addi

tional cargo insurance above what any water carrier had for the purpose

of insuring the cargo that moved under its name Claims for loss and

damage Were handled by PSA s Anchorage office PSA has paid claims

amounting to 119 702 in 1982 and 197 590 in 1983 Some shippers

or consignees have filed suit against PSA on account of unsettled claims

27 PSA negotiated rates with underlying water carriers Mr Moesh

AOM s part owner and director and consultant to PSA negotiated these

rates and also agreements with CAML and Seaway Express for PSA and

agreements between AFFS and CAML and Seaway Express PSA also

had agreements with Sea Land and Tote These various agreements with

the underlying carriers provided PSA with lower rates for volume move

ments

j

2S P M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 809

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

28 Mr Simo Belcheff special agent for the Interstate Commerce Com

mission contacted shippers and motor carriers and reviewed records of

the latter The information which he obtained indicated that PSA was still

carrying shipments at least as of February 1985 and that PSA was carrying

for shippers who were not members of PSA Mr Davis PSA s general

manager in Alaska testified that PSA ceased doing business around the

first part of 1985 According to information received by Hearing Counsel

from the Corporations Section of the Department of Commerce State of

Alaska PSA was involuntarily dissolved on February 14 1986 See letter

dated September 23 1986 addressed to me by Chama J Swedarsky with

attachment and letter dated September 22 1986 from John P World

with attachment 3

28 F M C

Southbound Shippers Inc SSI

29 Southbound Shippers Inc SSI was incorporated in Alaska on

July 27 1982 to engage in any phase of the business of transportation

According to the Articles of Incorporation Marion G Davis PSA s Sec

retary Treasurer and Alaska general manager was the initial registered agent

for SSr The directors of the corporation were Raymond Fendenheim Jim

Canfield and Marion G Davis The corporation address was in Anchorage

at the same location as PSA as of October 1982 according to the telephone

directory Mr Davis testified that he believed himself to be an officer

as well as registered agent of SSr On one occasion in September 1982

District Investigator Carley contacted Mr Canfield SSls Sales Manager

at the PSA phone number

30 By letter dated November 3 1982 John M Stem Jr counsel for

SSI informed the ICC that SSI was operating as a non vessel operating

common carrier pursuant to regulation by the Federal Maritime Commis

sion that Southbound Shippers Inc does not provide any motor transpor

tation and that tlhe rates of Southbound Shippers Inc are port to

port rates However as of December 15 1982 there was no record

of an FMC tariff VOCC or NVOCC ever having been filed in the name

of SSI or PSA in the Alaskan or any other U S domestic offshore

trade

31 SSI transported cargo via AGM through PSA under the terms of

the 1982 voyage charter agreement between AGM and PSA Several SSI

shipments were analyzed to determine how SSI operated On one shipment

dated October 4 1982 SSI transported two tractors from a location in

Anchorage to AGM s dock in Seattle A freight invoice was issued in

the name of SSI and contained a reference to PSA work order 02232

3

In an offer of settlement presented by PSA on May 30 1985 PSA represented that it had tenninated

all activity and that its Board of Directors had resolved to dissolve the corporation on March 7 1985 In

its post hearing brief PSA assens that it ceased doing business in January 1985 and is presently insolvent

SeePSA brief dated February 21 1986 at 16
810 FEDERAL MARITIME COMMISSION

That work order showed freight charges billing party and a description

of the tractors Also included was a statement to AGM covering hostling

drayage performed in Alaska on the shipper s southbound shipment A

shipment of scaffolding material dated October 4 1982 similarly referred

to a PSA work order on the SSI invoice Freight charges on the invoice

corresponded to rates quoted in SSI advertisements The shipments moved

from Anchorage to Portland Oregon Another shipment of scaffolding mate

rial dated November 10 1982 shows a reference to a work order written

on a PSA work order form on the SSI freight invoice and shows also

the same rates as the preceding shipment Documents show that AGM

advanced inland transportation charges to an inland carrier from AGM s

Seattle dock to Portland Oregon for which charges SSI later paid AGM

32 AGM possessed voyage manifests for PSA and SSI cargo on AGM s

southbound voyages between July 6 and November 9 1982 The effective

date of the PSAAGM voyage charter agreement was June IS 1982 On

July 27 1982 SSI was incorporated and began to advertise The first

SSI manifest was dated August 7 1982 followed by SSI manifests dated

October 4 November 8 and November 9 1982 covering cargo moving

on AGM s Voyages 2 3 4 and 5

respectively These manifests showed

that SSI carried 372 loads for 166 shippers When PSA shipments are

added to the AGM southbound voyages an aggregate of 622 loads were

carried on AGM s barges for PSASSI shipments SSI shipments carried

under SSI manifests on AGM s four voyages between August 7 and Novem

ber 1982 comprised a variety of commodities including household goods

privately owned vehicles machinery crushed auto bodies trUcks boats

tires scrap metal scaffolding materials rags rendering fat scrap wire

snowmachines motor homes and tractors SSI shipments were covered

by PSA work orders containing particulars on shippers consignees and

cargo An AGM invoice dated December 7 1982 shows that AGM billed

PSA for 622 PSASSI loads carried by AGM in 1982 AGM also submitted

freight bills to SSI as shipper for cargo transported southbound from Alaska

to Seattle on AGM barges in 1982

33 SSI was advertising in the newspapers in late July 1982 An ad

appeared in the Anchorage Daily News in July 1982 advertising barge

service from Anchorage Alaska to Seattle Washington by 20 or 40

foot vans at quoted rates of 400 and 650 respectively The ad stated

Vans to Seattle You fill them in Anchorage We take them by barge

to Seattle An almost identical ad appeared in the August 3 1982

edition of the Anchorage Times On September 10 1982 an SSI ad appeared

in the Anchorage Daily News soliciting bookings to transport vans to Seattle

from Anchorage by barge Among other things the ad stated Book now I

Call telephone numbers We spot You load We pick upWithin 8

mile radius of downtown Anchorage Southbound Shippers Inc Another

SSI ad appeared in the Anchorage Daily News on October IS 1982 The

ad was similar to SSI s earlier ads and was entitled VANS TO SE

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 811

ASSOCIATION INC SOUTIlBOUND SHIPPERS INC

ATTLE The ad included the statement Call us for quotation on anything

that won t fit in van It also proclaimed in bold face letters LAST

BARGE THIS YEAR DEPARTING ANCHORAGE FIRST WEEK IN

NOVEMBER The same rate quotations appeared as those in the earlier

ads

34 According to Mr Davis SSs

registered agent in Alaska and a

director of SSI SSI was no longer in business as of May 15 1985

According to the State of Alaska SSI was involuntarily dissolved on No

vember 16 1984 for failure to file its biennial report and to pay its

corporate tax See Hearing Counsel s Status Report filed January 24 1985

referring to a letter dated December 5 1984 from the Department of

Commerce and Economic Development State of Alaska There is no evi

dence in this record that SSI was active after 1982

28 F M C

DISCUSSION AND CONCLUSIONS

The issues remaining for determination in this proceeding concern the

questions whether respondents PSA and SSI operated as common carriers

by water without filing tariffs as required by section 2 of the 1933 Act

and whether those respondents entered into and carried out agreements

without filing them for approval with the Commission as required by section

15 of the 1916 Act If so the proceeding is to determine whether penalties

should be assessed and if so in what amounts

Hearing Counsel contend that the evidence of record shows overwhelm

ingly that PSA and SSI operated as non vessel operating common carriers

NVOCCs without filing their tariffs Hearing Counsel point out the numer

ous facts in the record showing this to be true Thus they contend among

other things that PSA offered barge service to the general public that

PSA carried for members and non members of PSA alike that it offered

regular service between 1982 and 1984 that it arranged transportation with

underlying water carriers in its own name assumed the risk for loss and

damage to cargo issued freight bills to shippers advertised itself as a

carrier of general freight and offered a port to port service using underlying

FMC tariffed water carriers

As for SSI Hearing Counsel contend that although the record is not

as full as it is for PSA the evidence nevertheless shows that SSI operated

as an NVOCC without a tariff between July and November 1982 in the

southbound Alaska Washington trade that it was incorporated in the State

of Alaska specifically to engage in transportation that it advertised rates

and regular service in its own name prepared and sent freight bills to

shippers in its own name and received freight bills from the underlying

carrier AGM in its own name as shipper of the cargo and that its

counsel in response to inquiries from the LC C advised that agency that

SSI was operating as an NVOCC pursuant to FMC regulation and that

SSs rates were for port to port service
812 FEDERAL MARITIME COMMISSION

I

SSI as noted made no appearance and filed nothing throughout the

proceeding PSA however did appear and although not producing a direct

case makes several argun1entsin its post hearing brief Thus PSA argues

that throughout its history beginning in 1971 PSA has operated as a

nonprofit cooperative shippers association which is exempted from regula

tion as a freight forwarder i e carrier under the Interstate Commerce

Act 49 U S C sec 10562 3 that it was organized so that its members

could obtain speedy transportation of their goods to Alaska at competitive

freight rates and that it did not engage in port to port operations at any

time nor quote port to port rates all of its rates including delivery in

Anchorage or to cities outside of Anchorage PSA argues furthermore that

it was desperate to move freight for its members in the spring and summer

of 1982 because of severe vessel space shortages and an upsurge of traffic

that Hearing Counsel have not proved that PSA s service was port to

port and therefore subject to FMC jurisdiction and that even if the F M C

has jurisdiction it should not exercise jurisdiction over shippers associations

and should overrule a previous decision involving shippers associations

in the Alaskan trade if that decision is applicable because among other

reasons PSA had only 436 members shipping to the railbelt area of Alas

ka

Hearing Counsel reply to PSA s jurisdictional arguments characterizing

them as a clumsy attempt to avoid jurisdiction of both the FMC and

the ICC Reply Brief of H C at 3 Hearing Counsel argue that PSA s

use of an underlying water carrier whose service is covered by a tariff

filed with the F M C brings PSA s service under EM C jurisdiction The

mere fact that PSA may have provided pickup and delivery service via

motor carriers and include such service within its rates does not bring

PSA s service under IC C jurisdiction argue Hearing Counsel This is

because the PSA service was not one involving through routes and joint

rates Rather the record shows that PSA assumed sole responsibility for

its cargo movements and charged single rates and if there was movement

prior to or after a port toport leg of the service such movement was

performed by independent motor carriers under their own bills of lading

with no evidence that the motor carrier had entered into a

joint rate arrange

ment with PSA Nor is there evidence that any PSA shipments were carried

under an IC C carrier s tariff If there were any such shipments further

more that does not detract from the fact that the record shows many

shipments falling within F M C jurisdiction Reply Brief of H C at 11

The record shows that PSA was not a bona fide exempt shippers associa

tion under IC C law argue Hearing Counsel But even if PSA was a

freight forwarder ie carrier under IC C law but exempt under that

law as a shippers association that fact would not deprive the EM C

of jurisdiction over PSA s activities as an NVOCC As to PSA s

arguments

The dccision 10 which PSA refers is Investigation of TariffFllina Practices 7F M C 305 1962

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 813

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

that Hearing Counsel did not show a single PSA shipment for a non

member which was port to port Hearing Counsel respond by asserting that

PSA s argument represents an unsupportable desperate attempt by PSA

to refute an overwhelming record Reply Brief of H C at 14

Hearing Counsel again refer to record evidence that shows that PSA often

carried cargo for non members and that it used the underlying services

of FMC tariffed water carriers

28 F M C

Applicable Legal Principles

Section 2 of the Intercoastal Shipping Act 1933 46 U S capp sec

844 provides in pertinent part that

every common carrier by water in intercoastal commerce

shall file with the Federal Maritime Commission and keep open

to public inspection schedules showing all rates fares and charges

for or in connection with transportation between intercoastal points

on its own route and if a through route has been established

all the rates fares and charges for or in connection with transpor

tation between intercoastal points on its own route and points

on the route of any other carrier by water 5

The standard of proof in administrative proceedings is that of a preponder

ance of the evidence not clear and convincing or beyond a reasonable

doubt the latter being the standard in a criminal trial Port Authority

of New York v New York Shipping Association 27 F M C 614 647 n 21

1985 Steadman v SEc 450 U S 91 1981 rehearing denied 451

U S 933 1981 McCormack on Evidence 3d ed 1984 section 339

at 956957 The preponderance of the evidence standard is a qualitative

one that means that the evidence makes the existence of a fact more

probable than not Porr Authority of New York v New York Shipping

Association cited above The standard also means that a party having

the burden of proof does not have to produce a smoking gun An

agency having expertise over the subject matter is entitled to draw inferences

from facts either because of its expertise or because any reasonable person

would draw such inferences Id See also Saipan Shipping Co Inc v

Island Navigation Co Ltd and Oceania Lines Inc 24 F M C 934 979

981 1982

The evidence in this record showing that both PSA and SSI were oper

ating as common carriers by water without having filed tariffs does not

merely preponderate it is clear and convincing The leading Commission

decision on common carriage is Tariff Filing Practices of Containerships

Inc 9 F M C 56 1965 In Containerships Inc the Commission stated

that the term common carrier as used in the shipping acts means a

SSection 2 of the 1933 Act previously 46 V S C sec 844 was nol affected by passage of the Shipping

Actof 1984 and is now found in 46 U S capp sec 844
814 FEDllRAL MARITIME COMMISSION

common carrier at common law 9 F M C at 62 Several definitions

of the common carrier at common law were noted by the Commission

but the common theme running through these definitions is mat a common

carrier is a person who holds out to accept goods for carriage far

hire from whomever offered to the extent of his ability to carry d

That definition essentially has been adopted in the Shipping Act of 1984 6

In determining the status of a carrier the Commission has stated that

it is not what the carrier calls itself but rather the nature of its service

which is determinative 9 F M C at 64 see also Possible Violations of

Section 8 a of the Shipping Act 9 6 and Section 2 of the CSA 19

F M C 43 52 1975 United States v California 297 U S 175 181

1936 A close look at the carrier s activities is therefore necessary In

making such analysis furthermore one does not determine status by focus

ing on only one characteristic As the Commission stated 9 F M C at

65

The determination of a carrier s status cannot be made with ref

erence to any particular aspect of its carriage The regulatory

significance of a carrier s operation may be determined by consid

ering a variety of factorsthe variety and type of cargo carried

number of shippers type of solicitation utilized regularity of serv

ice and port coverage responsibility of the carrier towards the

cargo issuance of bills of lading or other standardized contracts

of carriage and method of establishing and charging of rates

The Commission proceeded to emphasize that tlhe absence of one

or more of these factors does not render t1e carrier noncommon and

common carriers may partake of some or all of these enumerated characteris

tics in varying combinations d Furthermore t1e gresence of some of

the factors did not necessarily render a carrier common d

It is important to consider all the factors present in each case and

to determine their combined effect Thus in some cases the Commission

has found persons to be common carriers because they exhibited a nllmber

of common carriers characteristics although not advertising soliciting or

publishing sailing schedules 7 or disclaiming liability for loss or damage

to cargo

8 or negotiating contracts with each shipper 9 or by claiming to

act as shippers agents in booking cargo for subsequent carriage on another

carrier s line route 10 or without maintaining regular calls at ports or regular

sailings II or without holding out to carry all types of commodities for

I

1

Section 3 6 of the 1984 Act provides in pertinent panas follows 46 US C app scc 1702

common carrier means a penon holdina itself 011 to the gcnoralpubJic to provide transportation

by water of passengers or cargo between the United Stales and a foreign country for compensa

tion

1

ContQlner hip Inc 9 F M C at 63

Containerships Inc 9 F M C at 64 Possible Violations a Section l8a 19 P M C at 5354

9Conralnershlps fnc 9 F M C at 64

IOPosslble Vialaliolll ofSection 18 a 19 F M C at 5253

IIContainerships lnc 9 F M C at 63

28 FM C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 815

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

all shippers 12 or claiming to be shippers associations carrying only for

their members 13 or claiming to be a

nonprofit business 4

The fact that a carrier may not itself own or operate vessels has no

significance as far as common carrier status is concerned All that this

factor means is that the carrier may be an NVOCC rather than a VOCC

vessel operating common carrier See Common Carriers by Water Sttus

of Express Companies Truck Lines and Other Non Vessel Operators 6

F M B 245 252 257 1961 Possible Violations of Section 18 a

of the

Shipping Act 1916 cited above 19 F MC at 51 and cases cited therein

As Hearing Counsel cogently point out in their brief PSA satisfies the

numerous factors set forth in the Commission s decisions as indicating

common carrier status Thus as noted above PSA offered regular service

between Seattle and Alaska regularly advertised itself as a carrier of general

freight issued freight bills to its shippers who were both members and

non members of PSA assumed responsibility for loss and damage to cargo

fixed its rates so as to earn a profit and arranged for transportation with

underlying vessel operating carriers appearing as shipper on those carriers

bills of lading The record therefore shows clearly and convincingly that

PSA was operating as a common carrier The fact that it may have first

incorporated itself as a nonprofit shippers association is of no significance

in view of the way the record shows it to have operated Indeed the

record in this case is even more conclusive than that developed in Investiga

tion of Tariff Filing Practices 7 EMC 305 1962 In that case the

Commission found two shippers associations Alaska Ourport Transportation

Association AOTA and Ketchikan Merchants Charter Association

KMCA to have operated as common carriers without filing their tariffs

in violation of section 2 of the 1933 Act The two associations made

arguments which are similar to those made by PSA in this case Thus

they argued that they were nonprofit shippers associations set up to carry

for their members and that they were exempt from the tariff filing require

ments of the 1933 Act because of the fact that they were exempt from

regulation under another statute having to do with vessel inspection by

the Coast Guard under a special statute 46 U S C A sec 404 as amended

The Commission found the associations to be common carriers nonetheless

It held specifically that exemption from inspection under a different statute

had no effect on the tariff filing requirements of the 1933 Act 7 F M C

at 327 that the associations were common carriers if they provided their

carriage to a substantially unrestricted membership 7 FM C at 327

28 F M C

121d

131nvestigation of Tariff Filing Practices 7 EM C 305 326330 1962

14 bid 7 F M C at 328
816 FEDERAL MARITIME COMMISSION

I

and 329330 IS and that it is not necessary to make or even seell

a profit in order to be carrying for hire 7 F M C at 328

Although not as fully detailed as in the case of PSA as Hearing Counsel

show the record also demonstrates that SSIheld out or operated asa

common carrier without a tariff between July 21 1982 and November

9 1982 satisfying a number of the factors set forth in the Commission s

decisions for this determination Thus SSI was inCOrporated in Alaska

on July 21 1982 specifically to engage in any phase of the business

of transportation In pursuit of this objective from July through October

1982 SSI in its own name advertised rates and regular barge service

from Anchorage to Seattle in Anchorage newspapers SSI transported cargo

on at least four different AOM voyages in its own name prepared and

sent freight invoices to shippers and received freight bills from AOM

as the shipper of the cargo transported southbound on the AOM vessels

When asked about its status by the IC C SSI s counsel advised that

agency that SSI was operating as an NVOCC subject to EM C regulation

that SSI did not provide any motor transportation and that its rates were

port to portrates SSI shipments carried under SSI manifests on four AOM

voyages between August and November 1982 consisted of a variety of

commodities carried for 166 shippers Although there is not the sarna evi

dence concerning SSI s assumption of liability for loss anli damage to

cargo as there was for PSA the absence of this factor is not determinative

The Commission has several times held that the operations of a carrier

such as an NVOCC may result in imposition of liability as a matter

of law and this may happen even if the carrier attempts to disclaim it

on its shipping documents See Carriers by Watel Sta Us of Express Com

panies etc cited above 6 F M B at 256 an NVOCC may have liability

imposed bylaw according to the Commission s definition of such carrier

Possible Violations of Section 18 a of the Shipping Act 1916 cited above

19 F M C at 53 55 and the numerous cases discussed therein

1

ISAt found carUcr thc record lhowl that PSA carrled for nonmembers as well as members and usually

made DO rcfcnlllet lo a memhel1hip requlr m nt in ill ads whi9h requiromenl in lU1f evcgt waI only a

10 fee In the PSA shipmcntl ilDalyzed by C omm188 IPll investJaaiar Carley carried on 9M 1

voyage N

211 in July 1982 ilonc of theshlpperi wert PSA membon and most of IMconsipees were either not mom

bers or didn t know If they weremembcri Furthermore none of the cons1anees who pakt thefrelaht on

these shlpments

tmd everreceived oopleaof PSA s by lawsor any information to membera rights RIpen

siblllties benefils etc It is ironic tbat PSA in its posl hearmg brief asks tho Commlulon not to fQlrow

its decision in Investigation of TariffFlIlng Practices ciled above 7 F M C 30 because PSA allegedly

bas only 436 members compared 10 the 300 members of KMCA shipping 10 the llmlled population of Ketch

ikan There is no record evidence to support such a figure Mr Haugen PSA s accountant lestified thai he

did nol have a membership lisl and kept track of memben Ihroujh Xher means Mr Moesh told Mr Carley

lhat PSA s membership list was confidential Mr Carley was unable to find a

membership list in the docu

ments subpenaed by Hearing Counsel and was never able to obtain such a list durll1J tho three year period

he wolked on the case

1

28 P M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 817

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

PSA s Defenses

As noted PSA has raised three defenses one that it was a shippers

association exempt from Lee regulation two that it did not offer port

to port service and therefore was not under EM e jurisdiction and three

even if its operations fell under F M C jurisdiction the Commission ought

not to regulate such activities and ought not to follow its precedent estab

lished in Investigation of Tariff Filing Practices cited above 7 EM C

305 Ifind no merit to any of the defenses

First the F M Cs

jurisdiction over PSA or any of its operations depends

upon the nature of PSA s service and whether that service fell within

the requirements of section 2 of the 1933 Act not whether PSA might

have somehow been excluded from regulation as a freight forwarder i e

carrier under LeC law Furthermore if PSA s service fell within the

scope of the 1933 Act and PSA had not obtained an exemption from

the F M C pursuant to section 35 of the Shipping Act 1916 46 D S C

app sec 833a which section applies also to the 1933 Act PSA would

have been in violation of the 1933 Act In other words if PSA wished

this Commission not to follow its precedent which held that two so called

shippers associations in Alaska were subject to EM C regulation it should

have petitioned this Commission to consider exemption in a proper section

35 proceeding Or alternatively PSA could have asked the Commission

for a declaratory order under Rule 68 46 CPR 502 68

If PSA s service consisted of the type of port to port service which

the F M C and courts have held to fall under the 1933 Act then PSA s

operations were in violation of section 2 of the 933 Act If on the

other hand PSA s service consisted of a true through route and joint rate

operation or a bona fide IeC freight forwarder service PSA s operations

in whole or in part could have fallen outside the scope of the 1933

Act I find no evidence in this record however that PSA s operations

did in fact fall outside the scope of the 1933 Act although there may

be an uncertain area in some aspects of its service regarding particular

shipments to Fairbanks Alaska or southbound to Portland Oregon as

regards SSI

28 F M C

PSA s Claim That It Was aShippers Association

PSA s argument that it was a shippers association exempt from regulation

pursuant to 49 US e sec 10562 3 is relevant only to the extent that

any of PSA s operations would otherwise have fallen under the Interstate

Commerce Act as an LC eregulated freight forwarder ie carrier The

tee was in fact conducting an investigation of PSA See PSA v lce

789 F 2d 1401 9th Cir 1986 If PSA had not operated as an exempt

shippers association and if any of its operations met all of the requirements

set forth in the Interstate Commerce Act as an LC C regulated freight

forwarder or as I discuss later if any of its operations were conducted
818 FEDERAL MARITIME COMMISSION

under a through route joint rate arrangement then those operations would

have been subject to the jurisdiction of the IC C The F M Cs

jurisdiction

over IC C regulated freight forwarder operations would have been pre

cluded because section 33 of the 1916 Act 46 U S C app sec 832

forbids the F M C to have jurisdiction over any matter within the power

or jurisdiction of the Interstate Commerce Commission See IML Sea

Transport Corp v United States 343 ESupp 32 36 N D Cal 1972

Trailer Marine Transport Corp v F M C 602 F 2d 379 393 ns 61

62 D C Cir 1979 16 Similarly as I discuss below if any of PSA s

operations had been conducted under a true through route joint rate arrange

ment they would have been subject to the exclusive jurisdiction of the

IC C because of the socalled Rivers Act PL 87 595 76 Stat 397

which amended the Interstate Commerce Act in 1962 The record in this

case however shows that PSA never came near meeting the requirements

of a bona fide exempt shippers association and that there was no through

route joint rate arrangement or agreement between PSA and another carrier

Furthermore the record does not show that any particular PSA shipments

were carried by PSA as a freight forwarder subject to IC C jurisdiction

First as to PSA s claim that it had been a shippers association exempted

from IC C regulation the evidence and law is to the contrary As the

case law shows a bona fide shippers association must in fact be controlled

by its shipper members must be non profit the members must bear the

essential risks and burdens of conducting the operations and the association

must not carry for nonmembers In other words the association must be

conducting its operations so that its members may obtain cheaper transpor

tation for their goods The association cannot turn itself into a common

carrier providing service for hire to the public See the discussion in Sun

shine State Shippers and Receivers Association et al

350 Iec 391

396410 1975 see also Freight Consolidators Cooperative Inc v U S

230 F Supp 692 69 99 S D N Y 1964 NationalMotor Freight Traffic

Association Inc v International Shippers Association

Incet al 94

M C C 440 4437 1964 Atlanta Shippers Association Inc lnvestiga

tion ofOperations 322 IC C 273 275 289 1964

The record in this case shows convincingly that PSA never qualified

under the standards established by these case authorities Thus PSA carried

for nonmembers membership was easily obtained by anyone its members

never attended meetings or obtained literature about PSA explaining their

rights obligations etc it was controlled not by its members but by certain

individuals who were not members it made money at the expense of

the shippers by greatly marking up basic costs of the underlying services

provided by water carriers it assumed responsibility for cargo loss and

16This does not mean Ihat the F M C and the IC C cannot each lCau atc lhe particular aclivitiCl which

rail within each agency s respective statutory jurisdiction See Commonwealth ofPennsylvania v IC C S61

F 2d 278 292 D C elr 1977 Alabllma Great Sou hem R Co v FM C 379 F 2d 100 102 DC Cir

1967

28 F M C
28 F M C

ARCTIC GULF MARINE INC PENINSULA SHIPPERS 819

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

damage etc These operations bore a striking resemblance to those of

the alleged shippers association found by the IC C and court to be a

freight forwarder Le carrier subject to IC c regulation in Freight

Consolidators Cooperative Inc v U S cited above 230 ESupp at 697

698

As I discuss below there is no evidence whatsoever that PSA had

entered into a true through route joint rate arrangement so as to remove

any services provided thereunder from EM C jurisdiction pursuant to the

so called Rivers Act Nor is there any evidence in this record showing

that PSA ever became a freight forwarder subject to IC C regulation

as to any particular shipments To become an IC C regulated freight for

warder it is necessary for a person to meet five standards set forth in

49 U S C sec 10102 8 formerly 49 U S c sec lOO2 a 5 These are

according to the IC C Iholding out to the general public as a common

carrier 2 assembly and consolidation of shipments 3 break bulk and

distribution services 4

responsibility for transportation from point of receipt

to destination and 5 utilization of services of underlying rail motor

or water carriers subject to IC c jurisdiction See Sunshine State Shippers

and Receivers Association et aI cited above 350 lC C at 400 I find

no evidence in this record that all of these elements had been satisfied

by PSA For example none of its full trailerload shipments could qualify

because it is necessary under the definition for the forwarder to consolidate

and deconsolidate Furthermore when PSA utilized F M C tariffed carriers

such as AGM CAML or Seaway Express there is no evidence that an

IC C regulated motor carrier was directly employed by PSA Also PSAs

pickup or delivery around the Anchorage area was not shown to have

been performed by a motor carrier subject to lC c regulation As I discuss

below such pickup and delivery service has long been considered to be

incidental to EM C regulated water service When PSA carried shipments

from Seattle to Fairbanks or Valdez or S8I carried southbound to Portland

Oregon via Seattle it is possible that PSA or SSI utilized directly an

lcC regulated motor carrier but I cannot determine that fact from this

record Unless ail of the factors are shown on the record and PSA was

shown to have utilized directly not indirectly a motor carrier not exempt

from IC C regulation the common carrier operations would have been

those of an EM C NVOCC and not an IcC regulated freight forwarder

See IML Sea Transit Ltd v United States 343 FSupp 32 N D CaI

1972 However PSA chose not to put on any direct case or to show

which of its operations may have been those of an lcC regulated freight

forwarder evidently not wishing to be found subject to the jurisdiction

of either the F M C or IC c

17

17 Had PSA wished to claim an exemption from F M C jurisdiction because any of ils operations had been

conducted as an lCC regulated freight forwarder it would have been incumbent upon PSA to come forward

with the evidence showing which operations and shipments fully qualified as IC C regulated freight for

Continued
820 FEDBRAL MARITIME COMMISSION

The Status of aPort to Port Service Which Includes Pickup and Delivery

As to the 1933 Act PSA s main defense is that it did not provide

a port to port service PSA contends that all rates which it quoted included

delivery in Anchorage or included drayage to cities outside of Anchorage

whetherLTL or TL shipments PSA cites testimony of its general manager

in Alaska Mr Davis that Ocean Docks Industries performed unloading

and delivery functions in Anchorage and that Alcan Freight Service per

formed identical services in Fairbanks PSA contends furthermore that

Hearing Counsel forgot to prove that PSA performed porHo port transpor

tation Brief of PSA at 9 PSA cites testimony of Commission investi

gator Carley regarding PSA s service from Seattle to Fairbanks and delivery

in Anchorage and vicinity Having cited such testimony PSA relies upon

two court decisions limiting the FM Cs

jurisdiction namely Totem Ocean

Trailer Express v F M C 662 F 2d 563 9th Cir 1981 and Alaska Steam

ship Co v F M C 399 F 2d 623 9th Cir 1968

It is ironic that PSA would rely upon Totem and Alaska Steamship

Co as authority for its contention that the F M C has no jurisdiction

over its allegedly non port to port service That is because in Totem the

carrier had asked this Commission for a declaratory order that would have

required all Alaskan carriers which had established through routes with

motor carriers to file tariffs showing rates for the port to port portion of

the through route and in Alaska Steamship Co the carrier which had

established through routes and joint rates with a motor carrier had in

fact filed its tariff with the IC C In this case of course PSA filed

no tariff with either agency and argues that it is exempt from both F M C

and IC C jurisdiction

As Imentioned earlier if PSA s service had been one involving a true

through route and joint rate established with an I C C regulated carrier

or if PSA s service had been that of an IC C forwarder PSA would

not have fallen within the scope of the 1933 Act The Alaska Steamship

Co case is one of several in which it was held that the F M C s

jurisdiction

over carriers operating in the Alaskan or other domestic offshore trades

was limited to so called porHo port service and did not embrace through

route joint rate arrangements The latter were held to fall within the exclu

sive province of the IC C As pertains to Alaska that is because Congress

amended former sections 216 c and 305 b of the Interstate Commerce

Act 49 Us C secs 316 c and 905 b recodified as 49 U S C sec

warders and not merely rely upon its thin araumcnt that it w a shippers as ociation It was not Hearing

Counsels

job to prove negatives orexemptions See e

g Freight Consolidators Cooperative Inc v US

cited above 230 F Supp at 0 98699 McKelvey v United States 260 U S 353 357 J922 Federal Trade

Commission v Morton Salt 334 U S 37 445 1949 The fact that PSA obviously chose nol to show

which if any of its lihipmems may have qualified as IC creguJated frei g

ht forwarding because it did not

wish 10 be regulated by the IC C or 10 be found inviolatIon of the Interstate Commerce ACI does not excuse

its failure to come forward with evidence Itrather shows a Jack of cooperation with two asencles and sup

ports Hearing Counsel sargumen bat PSA s vIolative conduct was a pUlpOseful and flagrant attempt 10

avoid regulation Reply Brief of H C at 18

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 821

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

10703 a 4 by passing the so called Rivers Act P L 87 595 76 Stat

397 in 1962 These amendments among other things provided that LC C

regulated motor carriers and F M C regulated water carriers including

NVOCCs who had established through routes and joint rates in the Alaskan

and Hawaiian trades would be subject to the exclusive jurisdiction of the

LCC for the services encompassed within their through route joint rate

arrangements The reason for the passage of the Rivers Act according

to its legislative history was that motor carriers attempting to establish

through routes and joint rates with water carriers between Alaska and

the contiguous 48 states could not get their tariffs filed with either the

LC C or the F M C See Sea Land Service Inc v Federal Maritime Com

mission 404 E2d 824 826 827 n 14 D C Cir 1968 H R Report

No 1769 87th Cong 2d Sess 1962 S Rep No 1799 87th Cong

2d Sess 1962 Totem Ocean Trailer Express Inc 20 SRR 509 510

n 4 1980 affirmed Totem Ocean Trailer Express V F MC cited above

662 F 2d 563

The fact that true through route joint rate arrangements between LC C

regulated motor carriers and water carriers fall within the exclusive jurisdic

tion of the LC C was established not only by the decision in Alaska

Steamship Co cited above but also by the court in Sea Land Service

Inc V F Mc cited above 404 F 2d 824 In the latter case it was made

clear that the EM C lost jurisdiction over such arrangements only if

they were true through route joint rate arrangements However to constitute

such an arrangement as the court held 404 E2d at 827

What is required is that both motor and water carriers hold them

selves out to the publie as participants in a joint transportation

endeavor and file appropriate tariff schedules reflecting these joint

rates and through services

The court further distinguished the true through route joint rate arrange

ment from the single carrier service In the former arrangement the water

carrier is a participant with a motor carrier in a joint undertaking and

there is a contract of carriage between both carriers and the shipper

or consiguee and both carriers are jointly and severally liable 404

F 2d at 828 In the single carrier operation in which the water carrier

offers port to port service with an incidental pickup and delivery by motor

carrier included in the water carrier s rates as the court stated the regula

tion remains within the authority of the FMC 404 F 2d at 827

See also IML Sea Transit Ltd V United States 323 ESupp 562 566

N D Cal 1971 A true joint rate for through routes consists of a

joint undertaking between two carriers who share the responsibility for

delivering consigned goods and who divide the fee paid by the shipper

IML Sea Transit Ltd v United States 343 ESupp 32 41 the crucial

factor in both of these recent decisions ie Alaska Steamship Co and

Sea Land Service Inc is whether the carriers hold themselves out to

28 F M C
822 FEDERAL MARITIME COMMISSION

1

the public as joint participants in a through route Furthermore as Hearing

Counsel point out Reply Brief at 67 in a true through route joint

rate situation one carrier publishes a single charge as the rate that applies

to a

through movement from point of origin on the line of the carrier

to point of destination on the line ofthe others the other carriers COncur

in that charge each retains a division of the joint through rate agreed

upon by the carriers and the carrier where the cargo originates issues

its bill of lading which covers the entire through movement See Common

wealth of Perinsylvania v IC C 561F2d 278 281 282 D C Cir 1977

McLean Trucking Co v U S 346 F Supp 349 351 MD N C 1972

affirmed 409 U S 1121 1973

As Heliring Counsel show in detail Reply Brief at 912 the evidence

in this record in no way supports the idea that PSA conducted a through

route joint rate operation Instead PSA offered a service and assumed

responsibility for the entire movement on its own advertised and quoted

rates in its own name employed underlying FMC tariffed water carriers

although not always paid those carriers either under a

space charter agree

ment or under their tariffs and when employing a motor carrier for delivery

in Alaska did so without entering intO a joint rate agreement with the

motor carrier All of these facts show ao arrangements with IC C regulated

motor carriers such as would place the service under die exclusive jurisdic

tion of the IC C under the Rivers Act MoreOver even PSA unwittingly

corroborates this analysis when it points out on brief that PSA s rates

included delivery in Alaska by motor carriers Brief of PSA at 8

IS

The record does indeed support this statement However PSA obviously

made this admission in the belief that the inclusion of delivery service

beyond dockside removed the EM C from jurisdiction 19 As I proceed

to show PSA was badly mistaken

j

II docs ilot Planer jf PA charged for ltB wlIferpJIl lnckltntal pkkpp and delivery mvJco lPld er one

slnglefactouile orchlllled SClparlllely for tho plckup and delivery beyond dockSide In Alaska The s

senU aI

point is that PSA I service included lhe addhional delivery service PSA assumed responsibility for the carao

when dellverlna it orcpicking up in Alaikanflhatllhipperll are iUPpoeed to be able to tell what ja the

exac1 price of PSA total service offered to tJlell1so1vOI and thejr competitors by looking at a filed tariff

See CerloJn TwJff PracJJces ofSea IQJId Service Inc 7 F M C 504 1963 see also J G Boiwell Company

et al v Amerlcan Hawalian Steamship Company el aI 2 U S M C 95 1939 separate charges forincidental

services beyond ship tackle allowed

I ThlS elsewhett in its brief PSA argue PSA Brref8r 12

In theCIlIe at hand we are going even further and not talking about joint through rates but through

rates established by an exempt shippers association These thiough rates Involve Mleast incidental

terminal pickupandlor delivery services and in many easel more Jnland transpottation tfwl just ter

minal services PSA scontention is IhatJhe FMC has Jurisdiction over any shipments handled

by PSA whJch lnvolved any ptoviJion of tenninal motor pickup andor delivel services

PSA also chaStises Hearfng Colinsel claiming that she forgol to prove that PSA pertonned port to port

transponation PSA Brief at 9 However u the record shows and as PSA itielf points qut PSA s

freight

bills and testlmonuu evidence show Chat PS services included pJ kup and kUvcry in AJMka The miltakf

was not Hearlns Counsel s but PSA s which believed that such ervices did cQnstItute p6rt topon serv

ices because of the incidental pickup and deliveryi apparently ignoring all of the Commission CasC8 diliCussed

below 0

holding

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 823

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

In fact what the record does show is that PSA was conducting a port

to port service with an ancillary delivery service in Anchorage among

other services and that PSA employed motor carriers for delivery to con

signees in Alaska and paid their charges But such a service has long

been considered to be an EM C regulated operation The courts in IML

Sea Transit Ltd Alaska Steamship Co and Sea Land Service Inc all

recognized this fact See IML Sea Transit Ltd cited above 343 FSupp

at 40 Alaska Steamship Co cited above 399 F 2d at 627 Sea Land Service

Inc cited above 404 F 2d at 827 In discussing the fact that the F M e

had jurisdiction over a water carrier Matson operating in the Hawaiian

trade with an ancillary pickup and delivery service in port areas the court

in Alaska Steamship Co distinguished this type of operation from that

of a true through route joint rate operation The court stated as to Matson

399 F 2d at 627

The ICC does not dispute the FMC s decision in Matson An

arrangement between carriers whereby one employs the other as

agent for terminal delivery service paying that carrier the ICC

tariff rate simply does not entail a joint rate It does not entail

obligations to the shipper such as are found in through routes

It does not present the regulatory problems presented by through

route and joint rate arrangements

The Matson decision to which the court refers is actually one of several

in which the F M e has exercised jurisdiction over water carriers who

provided pickup and delivery services in sizeable port areas In that decision

Matson Navigation CO Container Freight Tariffs 7 EM e 480 1963

the Commission held that Matson a vessel operating common carrier could

file its tariff under the 1933 Act such tariff publishing single factor rates

for service between California ports and Hawaii which service included

pickup and delivery within sizeable areas around San Francisco Stockton

and Los Angeles California For this pickup and delivery service Matson

employed a motor carrier cerrificated by the LC e and paid whatever

charges that motor carrier assessed The Commission rejected arguments

that Matson was precluded from offering a service beyond docksides and

from including such service within its rates that Matson s use of commercial

zones and other criteria to establish the port area within which it offered

the pickup and delivery service was unreasonable and that the Commis

sion s acceptance of Matson s tariff would encroach upon the Lee because

of Matson s employment of LC C regulated motor carriers In rejecting

all of these arguments the Commission held that common carriers by

water as that term is defined in the Shipping Act 1916 and consequently

in the 1933 Act were not restricted solely to the performance of trans

portation by water on the high seas 7 F M C at 490

Rather such carriers were permitted to perform terminal or incidental

services which would include Matson s pickup and delivery service and

the terminal area within which the water carrier could perform such

28 F M C
824 FEDERAL MARITIME COMMISSION

service was not limited to the particular terminal structures at the point

where a vessel berths 7 F M C at 490491 The Commission commented

on the Matson service as follows 7 F M C at 491

Matson has undertaken to provide a more efficient and less costly

service to its shippers A part of this containerized operation is

a pickup and delivery service which is physically performed by

common carriers by motor vehicle who act as agents for Matson

Throughout the entire operation Matson is the principal charged

with the direction of and liability for the services performed

The service is offered by Matson in its capacity as a common

carrier by water and it is in this capacity that Matson is subject

to the regulatory jurisdiction of this Commission

The Commission proceeded to state that the pickup and delivery services

were services commonly considered as incidental to line haul transportation

by water but that the Commission s decision should not be taken as

extending our findings and conclusions as applying to other combinations

of services such as two line hauls and that the decision did not mean

that the motor carriers were removed from JC C jurisdiction or that the

F M C was attempting to exercise concurrent jurisdiction over the motor

carriers which was precluded by section 33 of the 1916 Act ld

The Commission s findings with regard to Matson s definitions of port

areas within which under its tariff pickup and delivery service was

provided are significant in view of PSA s argument that all of its rates

and services included delivery in Anchorage or Fairbanks The F M C

decided that a water carrier s designation of these port areas as terminal

areas could be based upon practical considerations on a case by case basis

as regards their geographical extent The water carrier could consider such

factors as t he coincidence of the terminal area with a homogeneous

industrial or business community surrounding the port or p

resent and

potential traffic patterns commercial zones and the concentration of a car

rier s shippers 7 EM C at 493 In the Matson case as the

Commission noted Matson had considered among other things the fact

that the port areas it had selected around the cities contained large numbers

of its shipper customers who shipped more than 5 tons per month The

maximum distance within the port areas under Matson s tariff was found

to be 40 miles 7 F M C at 493494

As I mentioned the Matson decision is one of several in which the

F M C has found that water carriers providing pickup and delivery services

in conjunction with port to port transportation by water should file their

tariffs with this Commission See e g Certain Tariff Practices of Sea

land Service 7 F M C 304 1963 water carrier s service included pickup

and delivery 15 miles within Puerto Rico plus an unspecified distance

inland North Carolina Line Rates To and From Charleston SC 2

U S S B 83 1939 pickup and delivery service within corporate city limits

of Charleston S C and Baltimore Md Increased Rate Kuskokwim River

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 825

ASSOCIATION INC SOUTIIBOUND SHIPPERS INC

Alaska 4 F M B 124 1952 water carrier also performed drayage to

places of business J G Boswell Company et al v American Hawaiian

Steamship Company et al 2 U S M C 95 1939 water carrier providing

incidental terminal services beyond ship s tackle entitled to charge separately

for such services All of these cases amply support the Commission s

statements in Matson regarding the propriety of a water carrier s providing

inland delivery services quoted as follows 7 EM C at 490

We think it clear that the Shipping Act does not preclude a

common carrier by water performing services other than lranspor

tation by water on the high seas but contemplates and

authorizes the performance by such carriers of so called incidental

services

To conclude therefore Ifind that PSAs operations using EM C tariffed

water carriers from Seattle to Anchorage were port to port services with

incidental delivery by motor carrier in Anchorage and as such were within

the scope of section 2 of the 1933 Act PSA s argument that because

it made delivery in Anchorage its service somehow was no longer pOrt

to port and therefore not subject to F M C jurisdiction is as discussed

invalid and rests either on the mistaken belief that an incidental delivery

service converts a port to port service to a through route joint rate arrange

ment or the equally mistaken belief that a water carrier s service cannot

be extended beyond dockside without the carrier s losing its status as one

subject to EM C jurisdiction 2o

28 F M C

The Commission s Precedent and Policies as to Shippers Associations

PSA s next argument is that the F MC ought not to follow its precedent

in Investigation of Tariff Filing Practices 7 F M C 305 1962 in which

201 cannot determine with certainty the correct classification of the PSA service to Fairbanks as opposed

to the service to Anchorage Allhough there is no record evidence thai PSA had athrough route joint rate

agreement with Alcan Freight Service Inc the molor carrier operating between Anchorage and Fairbanks

it is possible that Fairbanks being more than 300 miles from Anchorage cannot be considered a terminal

or port area even under the Commission s flexible standards enunciated in the Matson case IfAlcan was

not exempted from IC C regulation any L1L shipments of PSA moving to Fairbanks could possibly have

been those of a

freight forwarder subject to IC ejurisdiction IfA1can were exempted from leeregula

tion the shipments could possibly have been those of an F M eregulated NVQCC as was the carrier in

IML Sea Transit Ltd cited above 343 F Supp 32 which carrier had utilized motor carriers in Hawaii

who had been exempted from regulation by the lCC This problem does not however exist with regard

to PSA s Anchorage service As large as Anchorage is the borough of Anchorage being some 1 732 square

miles in area according to the 1986 Rand McNally Commercial Atlas and Marketing Guide at page 243

it is still a

borough or municipality and could quality as a

port or terminal area under the Matson standards

which allowed an inland service of 40 miles According to IC c regulations furthermore the borough or

municipality of Anchorage appears to qualify as a tenninal area or commercial zone and motor carriers

operating within may qualify under some circumstances for exemptions See 49 CFR 1049 104800

104801 There is no evidence in this record that Ocean Dock Industries the Anchorage motor carrier used

by PSA was certified by the IC C or subject to IC C regulation SSI s southbound service to Portland

Oregon presents similar problems as service to Fairbanks However because PSA took responsibility from

the Seattle dock the shippers arranging for motor carriage to Seaule under separate motor carriers bills of

lading there is no problem as regards the Seattle end of the PSA service
826 FEDERAL MARITIME COMMISSION

the Commission found that two shippers associations operating in the

Alaskan trade were common carriers by water and had to file their tariff

notwithstanding their claims that they served only their members and were

exempt from regulation under another federal statute PSA argues that one

of those associations consisted of 300 members virtually every business

in the area PSA without record evidence which PSA previously would

not furnish as I noted earlier now argues that there were only 436

members of PSA a small number compared to the population of the rail

belt area of Alaska Also PSA argues that the F M C has indicated that

shippers associations will not be subject to ongoing regulation under the

Shipping Act of 1984 These arguments are also without merit

Even if I were to accept PSA s belated non record figure of 436 as

showing the true number of members the record shows that PSA carried

for non members as well as members and that membership was very easy

to obtain Furthermore because PSA may not have been able to obtain

the business of every shipper in the railbelt area does not mean that it

was not holding out to the general public seeking to obtain as much

business as it possibly could Moreover as I have noted earlier it is

not necessary to hold out to every member of the public to carry everything

in order to become a common carrier There is no more reason to excuse

PSA s failure to file a tariff than there was to excuse the two Alaskan

associations in the case cited In fact if anything in this case there is

less reason because the persons behind PSA were not naive unsophisticated

novices in the transportation business they had been warned in the first

half of 1982 by FM C investigators they had carried on activities indicating

a deliberate intention to avoid lawful tariff filing requirements and of

course they had the benefit of the Commission s decision which had been

issued in 1962 right on point21 Furthermore if they really believed that

they were exempt or should have been exempt from regulation PSA could

have petitioned the Commission for an exemption pursuant to section 35

of the 1916 Act 46 U S C app sec 833a or for the Commission s

advice as to their status by seeking a declaratory order as provided by

Rule 68 46 CPR 502 68 Neither PSA nor SSI nor any of the persons

running those companies took either action On the contrary they resisted

the Commission s

investigation both before and after the proceeding was

docketed

PSA s argument that the Commission s policies toward shippers associa

tions under the 1984 Act regarding limited ongoing regulation should some

how justify PSA s violation of the 1933 and 1916 Acts is way off base

Whatever the 1984 Act does for shippers associations and whatever rights

21Contrut these facts with those which edsted inthe 1962 case In that casc lnvestigatloll of TarlffFiling

Practices cited above the Commission noted that the law had been unclear as 10 respondents statuses and

indicated that one or more respondents might even have been given advice by the Commission s staff that

they did not have to flle tariffs Therefore the Commission felt that it would be harsh 10 seek penalties

See case cited 7 F M C at 330

28 FM C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 827

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

or privileges that Act confers on such associations have nothing whatsoever

to do with an association which acted as a common carrier and violated

the 1933 and 1916 acts Neither the 1933 Act nor the 1916 Act of course

even mentions shippers associations Therefore it is senseless to argue

that such associations should be given exemptions in those acts because

of something that happened in a different act for different purposes As

the Commission noted in Investigation of Tariff Filing Practices cited

above 7 EM e at 327 329 exemptions conferred in one statute for a

specific purpose have no bearing on the requirements of a different statute

where no exemptions are mentioned

Moreover the recognition of shippers associations in the 1984 Act

even if that Act were somehow applicable to this case has nothing to

do with tariff filing or agreement filing requirements of the earlier acts

As the legislative history to the 1984 Act indicates shippers associations

were defined in that Act in order to identify them and to allow them

to negotiate rates with carriers Moreover as the legislative history also

clearly states Conference Report No 98600 to accompany S 47 98th

Congo 2d Sess at 27 28

A

shippers association would continue to be subject to laws

other than the Shipping Act of 1984

Finally as if the above were not enough to refute PSA s argument

as this record so abundantly shows PSA didn t even come close to meeting

the definition of a bona fide shippers association as defined in the Interstate

Commerce Act 49 D S e sec 10562 3 which definition is virtually iden

tical to that set forth in section 3 24 of the 1984 Act 46 D S C app

sec 1702 24 See also NEe Petition for Rule Re Shipper 23 SRR

1381 1385 1986

28 F M C

Conclusions as to the Section 2 Issue

Although the facts concerning SSs operations in 1982 are not as detailed

as those of PSA this record shows that SSI also held itself out and

performed services as a common carrier by water and more specifically

as an NVOCC between July and November 1982 SSI in its own name

advertised rates and regular barge service from Anchorage to Seattle in

Anchorage newspapers transported cargo on at least four barge voyages

of an EM C tariffed carrier AGM prepared and sent freight invoices

to its shipper customers and received freight bills from AGM as the shipper

of the cargo with respect to that underlying vessel operating common carrier

Indeed SSI when queried by the Lee replied through its counsel that

SSI was operating as an NVOCC pursuant to EM e regulation Further
828 FEDERAL MARITIME COMMISSION

more SSI informed the IC C that SSI rates were port to port rates and

that SSI did not provide any motor transportation 22

The record therefore supports the finding that both respondents PSA

and SSI operated as NVQCCs without filing their tariffs as required by

section 2 of the 1933 Act As Hearing Counsel correctly contend Brief

of Hearing Counsel at 102 103 the tariff filing requirements of that and

similar acts are unambiguous and absolute and slould not be taken lightly

in view of their very essential purposes which are to prevent discrimination

among shippers and to enable shippers to as ertain their exact costs of

transportation as well as those of their competitors These principles have

been enunciated many times inmany cases See e g Intercoastal Inyestiga

tion 1935 I U S S B B 400 421 Section 2

imposes apositive

duty on respondents one of the principal aims of the law is uniformity

in treatment the law enables the shipper to ascertain his exact ratel

and charges and his competitors the failure tofiJe the tariff Is as serious

a violation of law as Its failure to observe strictly such rates charges

and rules after they have been properly published and filed Intercoastal

Rates of Nelson SS Co1 U SsB B 326 327 1934Tariff Filing

Practices of Containerships Inccited above 9 F M C at 6970 Matson

NaYigation CO Container Freight Tariffs cited above 7 F M C at 487

488 Certain Tariff Practices of Sea land Service

Inc

7 F M C 504

509 1963 Sea Land Service Inc Y TMT Trailer Ferry Inc

10 F M C

395 398 399 1967 precise rates and charges must be filed to achieve

the purpose sought that of closing the door on possible unlawful rebates

or concession to favored shippers

All of the salutary purposes of tariff filing law of course are defeated

when carriers such as PSA and SSI fail to file The record in this case

serves as a reminder of the pernicious effects of such failure It shows

that PSA quoted rates on a case by case basis without regard to unifOrmity

among similarly situated shippers with the result that different shippers

of the same commodity were in fact probably charged different rates

even on the same voyage Obviously as Hearing Counsel point out Brief

of Hearing Counsel at 103 jt wasPSA s intention to obtain the cargo

and make a profit without concern for competing carriers Not only is

such conduct unfair among shippers but it is unfair to such carriers which

complied with law and filed their tariffs

The Section 15 Issu

To determine whether persons have entered into agreements without filing

them with the Commission In violation of section 15 of the 1916 Act

i

i1

JhjJ advice from 581s counsel is curious inview of the facithat SSladvertiiled Upotllng and pickup

service within 8 mile radius of downtown Anchoraac

and sometime without designating any particular

radius How did the vans gel from the shipPer s place of business to dockside in Anchorage if not by motor

carriage and if rhal is II port fo port service as the l ifet indicates hen J 8 author agrees with my precedins

discUlIsion that port t port service may include an incidental pickup and delivery service in a

port area

i

cl

28 FM C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 829

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

there are three necessary elements In Hong Kong Tonnage Ceiling Agree

ment 10 EM C 134 140 1966 the Commission listed them as follows

I

an agreement 2 common carriers by water or other persons subject

to the 1916 Act 3 anticompetitive or cooperative activity of the types

specified in section 15 Furthermore it has been established that to qualify

as an agreement subject to section 15 the agreement must be one between

two or more carriers subject to Commission jurisdiction which agreement

constitutes an ongoing relationship over which the Commission has a con

tinuing duty of surveillance See F M C v Seatrain Lines Inc 411 U S

726 729 1973 Agreement No 9955 1 18 EM C 426 451 458 1975

Section 15 of the 1916 Act 46 U S c app sec 814 provides in pertinent

part

Every common carrier by water shall file immediately with

the Commission a true copy or if oral a true and complete

memorandum of every agreement with another such carrier

giving or receiving special rates accommodations or other special

privileges or advantages or in any manner providing for

an exclusive preferential or cooperative working arrange

ment

Any agreement and any modification or cancellation of any agree

ment not approved or disapproved by the Commission shall be

unlawful and agreements modifications and cancellations shall

be lawful only when and as long as approved by the Commission

before approval it shall be unlawful to carry out in whole

or in part directly or indirectly any such agreement

This record contains ample evidence of agreements between PSA SSI

and AGM in which PSA and SSI enjoyed special privileges and advantages

and in which they engaged in cooperative working arrangements without

filing such agreements

The evidence on this issue is well summarized by Hearing Counsel

See Brief of Hearing Counsel at 106111 As they state PSA SSI

and AGM the parties to these agreements were all common carriers by

water subject to the 1916 Act AGM was in fact incorporated in 1982

in order to fill a need for vessel space in the face of an upsurge of

traffic A space charter agreement was entered into in 1982 between AGM

and PSA to run from March 15 to July 1982 specifically to guarantee

space to PSA for forthcoming movements of PSA cargo and in fact

80 to 90 percent of AGM s space ultimately went to PSA Under the

terms of the space charter agreement AGM agreed to provide PSA with

space that PSA required at a guaranteed rate and PSA agreed to pay

for a minimum of cargo units on the first AGM voyage regardless of

whether it furnished that volume of cargo PSA therefore obtained a particu

larly valuable advantage in securing space in view of the expected shortage

of vessel space at that time Beyond this special privilege and advantage

the space charter agreement embodied a cooperative working arrangement

28 F M C
830 FEDERAL MARITIME COMMISSION

I

between AGM and PSA which among other things enhanced both carriers

competitive abilities Thus for example in return for the space privileges

PSA also assisted AGM in various ways for example by advancing certain

of AGM s expenses giving loans providing office space etc Officers

and shareholders of AGM shared common interests with PSA as either

consultants or employees For example Mr Moesh a director and part

owner of AGM acted as consultant to PSA helping to set rates and

negotiating rates with underlying water carriers on PSA s behalf Edward

O Brien named President of AOM after being promised the job by Mr

Moesh performed public relations for PSA and certain tasks for Ocean

Dock Industries PSA s un oading agent in Anchorage Consultants em

ployed by PSA to solicit cargo in PSA s name were also employed by

AGM to conduct sales and solicitation Mr Donadel PSA s Vice President

solicited customers for PSA and AGM and he and Mr Pierce AGM s

general manager engaged in joint solicitation of customers Mr Pierce

even provided sales leads to PSAthrough Mr Donadel and discussed

using PSA as an alternative to using AGM even though PSA and AGM

were competing for the same cargo

In addition to the above working arrangements AGM and PSA entered

into a

voyage charter agreement on June 15 1982 to run to the end

of the 1982 calendar year Underthe terms of this agreement PSA agreed

to charter space on AGM barges returning from Anchorage to Seattle

AGM was responsible for providing fuBy equipped vessels and operating

them while PSA agreed to assume all liaDility and responsibility for the

cargo This agreement was entered into between Mr Pierce AGM s general

manager and Marion Davis Secretary Treasurer and general manager of

PSA It was designed to give Mr Davis and Ray Fendenheim a

consultant

to AGM and PSA and a director of SS the ability to ship crushed

automobiles from Anchorage to Seattle under the name of SS

SSI which was incorporated on July 27 1982 to engage in any phase

of the business of transportation transported its cargo on AGM barges

through coordinated efforts with PSA whose work orders covering the

SS cargo were used In addition AGM billed both SSI and PSA as

the shipper for the freight charges and AGM advanced freight and drayage

charges to SSMr Davis PSA s general manager in Alaska had moreover

requested AGM to advance freight charges to SSI on southbound voyages

The written space charter and voyage charter agreements the coordinated

efforts and interrelationship among employees and officers of the three

companies and the evidence showing actual voyages and cargo carried

by AGM in the name of PSA and SSI are more than sufficient to support

the finding that PSA S81 and AGM had entered into and carried out

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 831

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

cooperative working arrangements and had enjoyed special privileges and

advantages in conducting their common carrier solicitations and services 2

The Penalty Issues

The final issues set forth in the Commission s Order of Investigation

and Hearing concern the questions whether penalties should be assessed

against PSA and SSI and if so in what amounts

Hearing Counsel urge significant penalties against these two respondents

They argue that PSA and SSI knowingly violated the law and in the

case of PSA the violations were by obvious design Brief of Hearing

Counsel at III They argue furthermore that the Commission should

consider PSA s and SSs deliberate actions which impeded the Commis

sion s

investigation and the administrative proceeding They contend that

the PSA and SSI violations were a well thought out deliberate scheme

Brief at 112 and that the nature extent and gravity of the violations

in this case are all severe Id They urge a severe penalty under

the factors set forth in the Commission s

regulations 46 CPR 505 They

cite the fact that the maximum penalty for violation of both section 2

of the 1933 Act and section IS of the 1916 Act is 1 000 per day for

each day such violation continues For PSA which operated without a

tariff from March IS 1982 to around January I 1985 1019 days this

would be over 1 million in penalties for the section 2 violation for

section IS the amount would be 289 000 for the period March IS

1982 to December 31 1982 Ie 289 days The maximum penalty for

PSA would therefore be almost 13 million For SSI the maximum penalty

for the section 2 violation would be 105 000 July 27 1982 to November

9 1982 Ie 105 days and for the section IS violation 105 000 July

27 1982 to November 9 1982 Thus the maximum penalty for SSI

would be 210 000 Total maximum penalties for both PSA and SSI would

amount to approximately 15 million

As discussed in Judge Glanzer s decision cited above at ll 12 the

Commission considers a number of factors when determining the amount

of penalties to assess which factors are set forth in 46 CPR 505 3 b

The factors to consider are the nature circumstances extent and gravity

of the violation committed and the policies of deterrence and future compli

ance with the Commission s rules and regulations and the applicable statutes

The Commission shall also consider the respondent s degree of culpability

history of prior offenses ability to pay and such other matters as justice

requires Moreover under the previous regulations of the Commission

regarding assessment of penalties the Commission recognized the specific

28 F M C

23ft bears repeating however thai respondent AGM which has settled with the Commission and is now

dissolved according 10 the tenns of the settlement which the Commission has fUlalized has waived the de

fenses it would have argued and in return is not 10 be bound by the above findings as matters of res judicata

or collateral estoppel Initial Decision of Judge Glanzer cited above at 14
832 FEDERAL MARITIME COMMISSION

I

consideration that willful and substantial violations could be dealt with

more severely than violations which were accidental Or technical in

nature These criteria have in effect been carried forward into the current

regulation See Marcella Shipping Ca LId 28 F M C 259 272 1986

Cari Cargo International Inc Jorge Villena and Sea Trade Shipping

28 F M C 394 407 1986 Judge Glanzer s Initial Decision cited above

at 12 n 11 and case cited therein

In considering the nature circumstances extent and gravity of the viola

tion committed and the policies of deterrence and future compliance with

law in this case it appears that the violations were particularly egregious

As was noted in Cari Cargo International Inc cited above 28 F M C

at 405 406 the requirement that carriers file their tariffs lUld adhere to

them strictly is extremely important to effective protection of the shipping

public and industry Indeed as was observed in that case The enforce

ment of these laws goes to the very heart of the Commission s

responsibil

ities and the Commission and courts have long recognized the extreme

importance of these laws ie tariff filing and adherence laws Id In

fact the Commission has emphasized the critical need to enforce tariff

filing laws and has stated in one case Ghiselli Bros v Micronesia

InteroceanLine Inc 13 F M C 179 182 1968

The requirement of the act iliat all rates should be published

is perhaps the chief feature of the scheme provided for the effec

tive outlawing of all discriminations If this portion of the act

is not strictly enforced the entire basis of effective regulation

will be lost Secret rates will inevitably become discriminating

rates

Not only were the violations committed by PSA and SSI extremely

serious but they were not merely inadvertent The Commission has long

held that one who intentionally disregards law or is plainly indifferent

to law or persistently fails to inform or even attempt to inform himself

of the requirements of law has acted knowingly and willfully See

Misclassification of Tissue Paper as Newsprint Paper 4 F M B 483 486

1954 see also the discussion and cases cited in Marcella Shipping Co

Ltd cited above 28 F M C 273

The record in this case shows more than a pattern of indifference It

shows that a group of people operating PSA and SSI who were not

unsophisticated novices choSe to ignore the tariff filing requirements of

law in the case of PSA for almost threeyears at least as far as this

record shows Furthermore in the case of SSI its counsel advised the

IC C that it was operating as a carrier subject to F M C regulation In

the case ofPSA furthemiore its Vice President Mr Donadel was informed

by Mr Carlos Niemeyer F M C District Investigator that even if PSA

were a

shippers association it might have to file a tariff with the Commis

sion as shown by previous Commission decisions Mr Donadel was SO

infol llled in May of 1982 Ex 6 at 45

j

I

j

28 P M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 833

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

Both during the pre docketed investigation of PSA s and SSs activities

and during the docketed proceeding these respondents exhibited scant co

operation and on the contrary impeded the investigations EM C investi

gator Carley was given no access to PSA s documents from the time

he began his investigation until after May of 1985 after the formal pro

ceeding had been docketed and then only pursuant to a subpena duces

tecum PSA s failure to respond to Mr Carley s

telephone calls and office

visits made it necessary for Mr Carley to send certified letters in late

November 1982 to PSA s Vice President Mr Donadel and PSA s general

manager in Alaska Mr Davis requesting information and documents PSA

was again advised that it might have been operating as a common carrier

by water subject to F M C jurisdiction Mr Carley s letters and inquiries

were referred to Mr Stern PSA s counsel in Anchorage and Mr Carley

was advised to contact Mr Stern However Mr Carley s contacts with

Mr Stern were fruitless First Mr Stern assured Mr Carley that written

responses would be forthcoming Later during the months of May and

June 1983 Mr Stern refused to accept or return any telephone calls although

Mr Carley was told that Mr Stern was in the office working

Even when PSA later answered Hearing Counsel s

interrogatories which

had been served in October 1984 PSA through Mr Davis gave answers

regarding PSA s employees which were later shown to be erroneous At

tempts to serve PSA officials employees or consultants with subpenas

were difficult and on one occasion the process server was told that PSA

persons were purportedly out of town PSA documents were however

eventually furnished to Mr Carley by Mr World PSA s counsel pursuant

to subpena

In the face of evidence showing the gravity of the violations knowing

and willful refusal to comply with law or even to attempt to comply

with law refusal to cooperate with the Commission s investigators and

a history extending over several years of persistent violations there is

little or nothing in the nature of mitigating factors SSI never appeared

or offered any defense PSA s defenses consist of a thin transparent argu

ment that it was a shippers association and that its services included

delivery beyond portside in Alaska neither of which defenses is valid

according to previous Commission decisions Its final defense namely

that the Commission ought not to follow its previous decision holding

shippers associations in the Alaskan trade to be subject to tariff filing

requirements under the 1933 Act is equally empty IfPSA really believed

it had good reasons to be exempt from tariff filing it could have asked

the Commission for a declaratory order under Rule 68 or for an exemption

under section 35 of the 1916 Act The request in any event might not

have qualified in view of the fact that PSA engaged in discriminatory

ad hoc rating practices

Aside from the above defenses presented in its post hearing brief PSA

presented no direct case at the hearing Therefore there is little for me

28 F M C
834 FEDERAL MARITIME COMMISSION

i

1

to consider in mitigation such as ability to pay All that PSA says on

brief is that it ceased business in January 1985 and is presently insolvent

As I comment below this untested assertion does not warrant inaction

by the Commission 24

The primary consideration in view of the above record showing culpa

bility and the gravity of the offenses committed by PSA and SSI is the

factor of deterrence This Comimission has leen an active body for enforce

ment of the shipping laws It would be ludicrous in the face of a record

such as that in this case to excuse PSA and SSI on the ground that

they have ceased business and have been dissolved and simply to term inate

the proceeding Such inaction would make a travesty of law enforcement

and have absolutely no deterrent effect This record warrants imposition

of severe penalties for the lengthy and serious violations committed by

PSA and SSI especially PSA as Hearing Counsel urge Anything short

of such action would send a message to persons engaged in the Alaskan

and other trades that they may violate laws with impunity no matter

how egregrious and willful the violations and no matter what harm they

may have caused to shippers and law abiding carriers competing with

them Furthermore the record shows that PSA earned gross revenues of

7 4 million on 9 AGM voyages in 1982 paying AGM 3 3 million

in freight charges Therefore excusing PSA now because of an untested

assertion of insolvency would send a similar message to entrepreneurs

in Alaska namely go into the common carrier business earn sizeable

revenues totally ignore federal shipping laws and when you are finally

investigated close down the business let the corporation be dissolved

and plead insolvency If such behavior is excused why would not other

persons be encouraged to try to do the same thing in the future or even

the same persons who ran PSA and SSI

In United States oj America v Atlantica Sp

A 478 F Supp 833

S D N Y 1979 a case involving four and one half years of rebating

by a carrier in the foreign trade the court considered such factors as

willfulness of the violation degree of harm to the public the extent to

which the carrier may have profited by the violations and ability to pay

478 F Supp at 836 The court however found the most important factor

to be that of deterrence Id It found that the carrier had profited from

its rebating by earning 15 million in net freight revenues and had acted

willfully Furthermore although the carrier had argued that it cannot pay

any penalty because it is in voluntary liquidation under Italian law the

court found this not to be a serious consideration Id and imposed heavy

penalties 1 345 000 478 F Supp at 837 20

c

j

24 As regards PSA s finances funhennore therecord shows that Hcuing Counsels effons to obtain cenain

financial Information about PSA from PSA were resisted and were Unsuccessful

25 The question of how the Commission may ultimately tecover any penalties frolUdissolved corporations

is one for enforcement officials and should IlOl inhibit the Commission from sending the necessary message

of deterrence by IUlseSing slgnifJCant penalties However it should be noted that tho mere dissolution of a

corporation may not mean that no moneys can eV r be movercd The Model Business Corporation Act

28 F M C
ARCTIC GULF MARINE INC PENINSULA SHIPPERS 835

ASSOCIATION INC SOUTHBOUND SHIPPERS INC

For the sake of effective law enforcement and deterrence and for the

sake of carriers shippers and the public whose interests have been violated

over a

long period of time by a pattern of willful violations of law

a severe penalty is warranted Determination of the precise amount of

penalties is as the Commission has noted not an exact science and

there is a

relatively broad range within which a reasonable penalty might

lie Midland Pacific Shipping Co Inc lndependent Ocean Freight For

warder License 25 F M C 715 719 1983 In two recent cases Cari

Cargo International Inc and Marcella Shipping Company Ltd cited above

respondents were assessed 100000 and 150 000 respectively for tariff

filing violations occurring over varying periods of time Respondents in

this proceeding were more sophisticated however and had even fewer

mitigating factors in their favor Furthermore the degree of culpability

and willfulness are greater in this case In Saipan Shipping Co Inc v

Island Navigation Co et aI cited above 24 F M C 934 a case involving

violations of section 15 and failure to file tariffs reparation was awarded

amounting to over 250000 plus further amounts to be determined even

though the violations had ceased many months earlier That case somewhat

like the instant one involved the establishment of companies by one man

or a small group of men as part of a deliberate plan

After careful consideration of this record and the various factors relevant

to the determination of the proper amount of penalties with special consider

ation of the need to deter other persons from trying to profit by conduct

which constitutes willful disregard of law and consideration of the lack

of meaningful mitigating factors 1 find that a penalty of 300 000 assessed

against respondent PSA and 50 000 assessed against respondent S81 which

was far less involved in the violations will send the appropriate message

of deterrence Such penalties may be paid in equal monthly installments

over a period not to exceed two years commencing within 30 days after

the Commission finalizes this order or in such manner as the Commission

may otherwise order if it reviews or modifies this decision As was done

in the Carl Cargo and Marcello cases furthermore if respondents make

good faith payments over a minimum period of time here six months

they may upon a proper and persuasive showing of changed events petition

which the State of Alaska has substantially adopted provides for suits and claims against corporations for

two years after the corporation has dissolved See VII Martindale Hubbell Law Directory 1986 ed Alaska

lawDigest at 5 section 105 of Imt Act see also 19 Am JUT 2d Corporations sees 2882 28962900 rev

ed 1986 Criminal prosecutions have been continued against dissolved corporations and fmes have been

levied against them notwithstanding their dissolution when state law allowed suits to continue against dis

solved corporations SeeMelrose Distillers Inc v US 359 U S 271 1959 United Stales v P F Collier

Son Corp 208 F 2d 936 7th Cir 1953 18B Am Jur 2d Corporations sec 2140 rev ed 1985 AIUlota

tion 40 A LR 2d 1396 Sometimes even aside from the doctrine of piercing the corporate veil share

holders who continue in business may become personally liable for the wrongdoing of the dissolved corpora

tion See 19 Am Jur 2d Corporations sec 2897 at 675 n 10 In Saipan Shipping Co Inc v Island Naviga

tion Co et al cited above 21 SRR at 647 651 reparation was awarded for violations of sectiol1 15 and

18 b lof the 1916 Act even though one ormore of he respondents had ceased operations

28 F M C

FEDERAL MARITIME COMMISSION

46 CFR PARTS SO S87

DOCKET NO 8S6

NOTICE OF INQUIRY CONCERNING INTERPRETATION OF

SECTION 8 a AND SECTION 8 C OF THE SHIPPING ACT OF

1984

May 6 1987

Discontinuance of Proceeding

The Federal Maritime Commission discontinues its in

quiry concerning the interpretation of sections 8 a and

8 c of the Shipping Act of 1984 with regard to excepted

commodities The Commission determines that the issues

raised are generally not subject to administrative resolu

tion based on the record established in this proceeding

The Commission will include this record in the section

18 report to be submitted to Congress in 1989

DATES May 12 1987

SUPPLEMENTARY INFORMATION

IBACKGROUND

ACTION

SUMMARY

28 F M C 837

The Commission initiated this proceeding by a Notice of Inquiry pub

lished in the Federal Register SO FR 10807 10810 March 18 1985

which solicited public comment on the interpretation to be given to section

8 a 46 U S C app 1707 a and section 8 c 46 Us C app 1707 c

of the Shipping Act of 1984 Act or 1984 Act with regard to excepted

commodities The purpose of this inquiry was to obtain the most complete

information available regarding the proper interpretation of sections 8 a

and 8 c of the 1984 Act and to establish a record which would enable

the Commission to determine whether the questions raised could be ad

dressed administratively or whether they require legislative clarification

Interested persons were invited to comment on the proper treatment of

excepted commodities and to respond to the following specific questions

A Is it lawful for an ocean common carrier or a conference of such

carriers voluntarily to file a tariff with the Federal Maritime Commission

covering a commodity which is excepted from mandatory tariff filing under

section 8 a of the Shipping Act of 1984

B Is it lawful for a conference whether or not it has express enabling

authority in its agreement to agree on a rate covering a commodity which

I Those commodities which are excepted from mandatory filing of tariffs orservice contracts are bulk

cargo forest products recycled metal scrap waste paper and paper waste 46 U S capp 1707 a

I
838 FEDERAL MARITIME COMMISSION

is excepted from mandatory tariff filing under section 8 a of the Shipping

Act of 1984

C May the Federal Maritime Commission require that a conference

which has agreed to a rate and filed a tariff covering an excepted com

modity allow for aright of independent action as provided for under

section 5 b 8 of the Shipping Act of 1984

D Is it lawful for an ocean common carrier or a conference to voluntarily

file a service contract which covers an excepted commodity

A total of 20 comments were filed in response to this Notice of In

Comments were received from the following persons I United States

Department of Justice DOJ 2 Chelllical Manufacturers Association

CMA 3 American Paper Institute Inc API 4 National Association

of Recycling Industries Inc NARI 5 Western Shippers Group WSG

6 Great Southern Paper 7 Central National Gottesman Inc 8 Tampa

Port Authority Tampa 9 Terminal Operators Conference of Hampton

Roads TOCHR 10 The Pacific and Arctic Railway and Navigation

Company and Skagway Terminal Company PARN STC II Journal o

Commerce 12 Sea Land Service Inc Sea Land 13 U S Flag Far

East Discussion Agreement Agreement No 10050 14 Inter American

Freight Conference IAPC 15 Transpacific Westbound Rate Agreement

TWRA 16 8900 Lines U S Atlantic Gulf PortsItaly France

Spain Freight Conference and Us Atlantic Ports Eastern Mediterranean

North African Freight Conference Mediterranean Conferences 17

Trans Pacific Freight Conference of JapanKorea and JapanKorea Atlantic

and Gulf Freight Conference JapanKorea Conferences 18 Atlantic and

Gulf West Coast of South America Conference United States Atlantic and

Gulf Colombia Conference United States Atlantic and GulfEcuador Con

ference United States Atlantic and GulfVenezuela Freight Association

United States Atlantic and GulfSoutheastern Caribbean Conference and

United States Atlantic and Gulf Hispaniola Steamship Freight Association

Latin American Conferences 19 North Europe U S Pacific Freight Con

ference Pacific AustraliaNew Zealand Conference and Pacific Coast Euro

pean Conference Pacific Conferences and 20 United States European

Carrier Associations USECJ 3 A summary of the comments is attached

as an Appendix to this Notice of Discontinuailce 4

2

The California Association of Port Authorities submitted a Jetter dated April IS 1985 that declined

comment inasmuch as the subject malter of the inquiry did not include tennlnal tariffs Subaequenlly the

Association inadvertently submitted a lelter dated May IS 1985 that did make a substantive comment on

the issues inIhis proceeding On May 20 1985 the Commission received a telex from the Associf tion tatina

that the May 15 1985 letter had been mistakenly filed and requesl gthat it be withdrawn Accordingly

lhe May IS 1985 letter of the California Association of Port Authorities is not part ohhe record in this

proceeding

3USECA consista of the following conferences North Europe U S Qulf Freight Association Gulf Euro

pean Freight Association North Europe U S Atlantic Conference US Atlantlc North Europe Conference

and Pan Atlantic Carrier Trade Agreement

4

TheAppendix is not included inthe Federal Register publication of this notice

28 F M C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 839

AND SECTION 8 c OF THE SHIPPING ACT OF 1984

II DISCUSSION

A Voluntary TariffFiling

The first question raised in the Notice of Inquiry is whether a common

carrier or conference may voluntarily file a tariff on an excepted commodity

Section 8 a of the 1984 Act requires common carriers and conferences

to file tariffs with the Commission showing their rates and charges Certain

commodities however are expressly excepted from this mandatory tariff

filing requirement As relevant to this Inquiry section 8 a 1 provides

that

Except with regard to bulk cargo forest products recycled metal

scrap waste paper and paper waste each common carrier and

conference shall file with the Commission and keep open to

public inspection tariffs showing all its rates charges classifica

tions rules and practices between all points or ports on its own

route and on any through transportation route that has been estab

lished

Section 8 a basically continues the tariff filing requirement of section

18 of the Shipping Act 1916 46 U S C app 817 The class of excepted

commodities first created by Congress in 1961 has been further expanded

by the 1984 Act to include recycled metal scrap waste paper and paper

waste Section 8 a like its predecessor section 18 does not expressly

address the question of whether a common carrier or conference may volun

tarily file a tariff on an excepted commodity

The conferences comments generally contend that there is no need to

go beyond the plain language of the statute for an answer to this question

They argue that the statute merely excepts certain commodities from manda

tory tariff filing and that nothing in the language of section 8 a or any

other section of the 1984 Act prohibits voluntary filing In the absence

of an express prohibition they argue that voluntary filing is lawful and

should be permitted The conferences point out that nowhere in the legisla

tive history is voluntary filing prohibited Moreover they note that voluntary

filing is a long standing practice of which Congress was aware and which

it had several opportunities to change They argue that in the face of

Congressional knowledge and inaction it can be presumed that Congress

has endorsed this practice

The shipper groups and the Department of Justice recognize that the

Act does not prohibit voluntary filing They do not agree however that

the analysis should be terminated at that point Rather they proceed to

the legislative history of the 1984 Act as well as amendments to the

1916 Act to determine the underlying purpose for excepting certain com

modities from filing and how that purpose is affected by allowing filing

They find in the legislative history of the 1984 Act especially in the

legislative history of the debate over whether to retain a tariff filing system

a Congressional intent not to expand that system In the legislative history

28 F M C
840 FEDERAL MARITIME COMMISSION

i

of the amendments to section 18 of the 1916 Act they see a purpose

to preserve an unregulated market for excepted commodities

In 1961 Congress passed an amendment to the 1916 Act Pub L No

87 346 75 Stat 764 1961 1961 Amendment which for the first time

provided for the mandatory filing of tariffs with the Federal Maritime

Commission This same legislation however excepted from mandatory tarif

filing cargo loaded and carried in bulk without mark or count 5

The

Notice of Inquiry noted the benefits to shippers of bulk cargo in terms

of greater pricing flexibility afforded by the 1961 Amendment In addition

the conference comments draw attention to the fact that carriers and con

ferences were also intended beneficiaries of the 1961 Amendment

In 1963 Congress further amended the 1916 Act Pub L No 88

103 Stat 129 1963 Amendment to exclude lumber from the mandatory

tariff filing requirement Again both carriers and shippers interests were

apparently served by this expansion of the list of excepted commodities

Carriers in the Northwest found themselves in intense competition with

Canadian carriers and desired an exception from tariff filing for lumber

in order to meet the competitive conditions in this market Lumber exporters

also supported the exception in order to meet the strong competition of

Canadian lumber interests

In 1965 Congress passed yet another amendment to the 1916 Act Pub

L No 89303 79 Stat 1124 1965 1965 Amendment which cut back

on the lumber exception It distinguished between softwood and hardwood

lumber and restored mandatory tariff filing for hardwood lumber This

legislation was intended primarily to benefit the hardwood lumber industry

which sought the more stable ocean transportation rates that could be

achieved by tariff filing

As is well known the entire tariff filing regulatory regime was intensely

debated during the legislative process that led to the passage of the 1984

Act A number of legislative proposals would have eliminated tariff filing

and enforcement by the Commission Although Congress continued tariff

filing it specifically directed the Commission to report on the continuing

need for the statutory requirement that tariffs be filed with and enforced

by the Commission Congress also expanded the list of excepted commod

ities by adding recycled materials The purpose of this change was to

enable recycled materials to compete with virgin commodities

The comment filed by USECA identifies an earlier instance in which bulk cargo was excepted from a

tariff filing requirement In 1935 the Shipping Boan undertook an invesligftlion pursuant to section 19

b of the Merchant Marine Act 1920 46 US C app 876 1 b into certain rale cutting practices in the

export trades of the United States This investigation ultimately led 10 a rule which required commort carriers

in the export trade to file tariffs with the Board The rule however expressly excepted cargo loaded and

carried in hulk without mark or count The purpose of the bulk cargo exception was 10 exclude trlUllPopera

tors from the rule because the evidence of record In this investigation does not show that competitive

methods employed by such carriers in our expOrt trades have produced conditions unfavorable to shipping

Section J9 nvesllgar on 1935 J ilS S B B 470 499 l935

28 F M C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 841

AND SECTION 8 c OF THE SHIPPING ACT OF 1984

Having reviewed the legislative history of the 1916 Act and 1984 Act

with regard to excepted commodities it is difficult to give a definitive

answer to the first question posed in the Notice of Inquiry namely whether

voluntary filing of a tariff covering an excepted commodity is lawful

A

simple answer may be that there is nothing in the language of the

Act or the relevant legislative history which expressly prohibits it Neverthe

less there remains an apparent contradiction in allowing voluntary filing

The fundamental purpose of excepting certain commodities beginning with

the 1961 Amendment was to remove those commodities from the require

ments of the tariff system That purpose would appear to be undermined

if not defeated by voluntary filing

Voluntary filing appears to run counter to the apparent purpose of allow

ing excepted commodities to be priced in a free market There is no

indication however that Congress directly considered the impact of vol

untary filing on the underlying policy of excepting certain commodities

Therefore any further action on this question appears problematic There

simply does not appear to be an adequate basis for resolving this question

administratively This is particularly so in light of the fact that voluntary

tariff filing has been permitted since 1961 There would need to be a

clearer basis for reversing this policy at this time

Such a basis does not appear in the record established in this Notice

of Inquiry Although shippers opposed voluntary filing on legal grounds

none suggested the presence of any existing problems brought about by

allowing voluntary filing Carrier interests on the other hand did point

out areas in which business operations or carrier shipper relationships would

be disrupted by a change in policy The Commission therefore will continue

its current policy and maintain the status quo by continuing to accept

tariffs on excepted commodities that are voluntarily filed and subjecting

such filings to the same tariff regulations as apply to non excepted commod

ities

B Collective Ratemaking

The second question raised in the Notice of Inquiry is whether collective

ratemaking on excepted commodities is lawful Section 4 a 1 of the 1984

Act 46 US c app 1703 a I establishes jurisdiction over agreements

by or among ocean common carriers to discuss fix or regulate transpor

tation rates including through rates cargo space accommodations and other

conditions of service Section 4b 1 of the 1984 Act 46 VS C app

1703 b 1 applies to marine terminal operator agreements to discuss

fix or regulate rates or other conditions of service These provisions

essentially continue in the 1984 Act similar provisions from the 1916

Act See 46 VS c app 814

Conferences contend that the language of section 4 a confers general

ratemaking authority upon conferences and does not in any way limit

that authority with regard to particular commodities They argue that this

grant of authority is so clear that there is no need to resort to legislative

28 F M C
842 FEDERAL MARITIME COMMISSION

history The conferences argue further that the legislative history does no

reveal any intent to exclude excepted commodities from their ratemaking

authority In fact they contend one of the purposes of the 1961 and 1963

Amendments was to enable conferences and carriers to compete with tramps

for bulk and other excepted cargoes They contend that Congress was

aware of conference ratemaking on excepted commodities and may be

presumed to have endorsed it

The Department of Justice and shipper groups argue that section 4 must

be read in light of the purpose to be achieved by excepting certain commod

ities from tariff filing They contend that the legislative history of the

excepted commodity amendments to the 1916 Act reveals an intent to

preserve an unregulated market for rates on excepted commodities That

purpose is underntined they contend if collective ratemaking on excepted

commodities is perntitted Moreover they point out that with mandatory

independent action regular tariffed commodities are subject to more flexible

pricing than excepted commodities From their perspective this is an ironic

and incongruous result

Prior to the 1961 Amendment it appears that conferences fixed rates

on all commodities including those which later were excepted by subsequent

amendments It also appears that during the consideration of the 1961

1963 and 1965 Amendments Congress was aware that conferences exer

cised ratemaking authority over excepted commodities Moreover in the

1984 Act Congress did not remove such commodities from the Commis

sion s

jurisdiction

With regard to the question of collective ratemaking further review and

analysis of the legislative history clarifies a number of factors which support

conference authority I both the 1916 Act and the 1984 Act in unambig

uous and unqualified language provide for a

grant of general ratemaking

authority to conferences 2 the legislative history of the tariff filing amend

ments dealing with excepted commodities does not reveal any express intent

to restrict conference ratemaking authority over those commodities 3

the Commission in the past has not challenged conference ratemaking au

thority over excepted commodities and 4 Congress was aware that con

ferences exercised collective ratemaking on excepted commodities prior to

1961 and expressed no intention to prohibit that practice The record in

this proceeding supports rather than calls into question the authority of

a conference to fix rates covering a

commodity that is excepted from

mandatory tariff filing under section 8 a Therefore no change in current

Commission policy which recognizes that authority is warranted

C Independent Action

The third question raised in the Notice of Inquiry is whether a conference

which has elected to agree upon a rate and file a tariff for an excepted

commodity may be required to allow its members a

right of independent

action on such a rate as provided for under section 5b 8 of the 1984

Act 46 U S C app 1704 b 8

28 F M C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 843

AND SECTION 8 C OF THE SHIPPING ACT OF 1984

The conference comments argue that section 5 b 8 of the 1984 Act

mandates independent action only with respect to those commodities which

are required to be filed in a tariff by section 8 a of the Act The conferences

contend that the language of section 5b 8 is clear and that there is

no need to examine egislative history One conference argues that this

construction of section 5 b 8 does not lead to an illogical result but

rather merely allows conferences to set rates on vita base cargo ie

excepted commodities but to provide for independent action on 8 a tariff

items

Shipper comments generally dispute the premise assumed by this question

inasmuch as they argue that collective ratemaking is not permissible Assum

ing arguendo that collective ratemaking is lawful shippers contend that

independent action should be permitted Otherwise according to the shipper

comments excepted commodities would enjoy less rate flexibility than com

modities subject to mandatory tariff filing These comments argue that

the Commission could mandate a right of independent action on any tariff

voluntarily filed for an excepted commodity One comment states that the

Commission could promulgate such a rule pursuant to its general rulemaking

authority under section 17 a of the Act 46 U S C app 7 6 a

Section 5 b 8 mandates that each conference agreement provide a right

of independent action to its members with respect to any rate or service

item required to be filed in a tariff under section 8 a Emphasis added

Section 5b 8 does not require independent action on rates on excepted

commodities because such rates by definition are not subject to the section

8 a tariff filing requirement The introduction of a broad mandatory right

of independent action into the scheme of the 984 Act appears to have

resulted in an anomaly with regard to the treatment of excepted commod

ities A conference may fix rates and file tariffs covering these commodities

but does not appear to be required by the Act to allow members to take

independent action Thus commodities subject to mandatory tariff filing

may enjoy greater pricing flexibility than excepted commodities voluntarily

filed in a tariff

The Commission might attempt to address this dichotomy under its gen

eral rulemaking authority However given the unambiguous language of

section 5b 8 the lack of legislative history indicating Congressional intent

the absence of a factual record upon which to base administrative action

and the unknown implications of any modification of the existing regulatory

regime it would appear at this time that the matter is best left to resolution

by Congress Therefore the Commission will continue the current policy

which allows a conference to determine whether or not to allow its member

lines to take independent action on excepted commodities

D Service Contracts

The fourth question raised in the Notice of Inquiry is whether an ocean

common carrier or a conference may voluntarily file a service contract

which covers an excepted commodity

28 FM C
844 FEDERAL MARITIME COMMISSION

j

1

The conferences generally take the position that the Commission sllould

continue to allow the voluntary filing of service contracts covering excepted

commodities A number of conferences point out that nothing in the 1984

Act prohibits such voluntary filing One conference states that filing pro

motes competition by providing better information on market conditions

to shippers Other comments allege that certain adverse consequences would

occur if voluntary filing were prohibited

The Department of Justice and shipper groups oppose voluntary filing

One shipper group alleges that voluntary filing reduces rate flexibility on

excepted commodities Another 1Ugues that voluntary filing is contrary to

the policy of the 1984 Act

Voluntary filing of service contracts covering excepted commodities does

not appear to trigger the same concerns as arise in connection with th

voluntary filing of tariffs Service contracts are negotiated in an open marke

between carrier and shipper The stability established by the contract is

mutually agreed to by both parties Service contracts exist for an extende

period of time There is therefore less concern for speedy and flexible

adjustments in terms Moreover the legislative history of the excepted

commodity amendments to the 1916 Act does not have direct relevance

to service contracts Nevertheless the question of service contracts on ex

cepted commodities has been raised in Docket No 8 Serviee Contracts

and appears to be more appropriately handled in that proceeding See No

tice ofProposed Rulemaking 51 FR 5734 Febroary 18 1986

III CONCLUSION

The Notice of Inquiry focused on certain issues which arise in conformin

the concept and treatment of an excepted commodity with the tariff filinS

concerted ratemaking independent action and service contract provision

of the 1984 Act A fundamental tension occurs in the statutory schem

when an excepted commodity wllich apparently is intended to be governed

only by free market forces is subjected to the additional regulatory restraint

associated with tariff filing or the collective control of concerted ratemaking

This inherent tension existed under the 1916 Act It continued under th

1984 Act and was complicated further by the Act sinclusion of a mandator

right of independent action on rate or service items required to be filed

in a tariff

The purpose of the Notice of Inquiry was to reconcile if possible

apparently conflicting provisions of the 1984 Act and to better defin

the parameters of the regulatory scheme envisioned by Congress In par

ticular the Notice raised certain issues to determine if there were area

where the apparent conflict could be resolved through rulemaking Th

key to this effort is determining Congressional intent

The language of the 1984 Act as well as that of the predecessor 191

Act and relevant legislative history does not always clearly reveal tha

intent Moreover one limitation of the legislative history is that it is now

j

I

28 M C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 845

AND SECTION 8 C OF THE SHIPPING ACT OF 1984

2S years old and addresses a different statutory scheme It would appear

therefore that the broad pelicy issues raised in the Notice of Inquiry

require legislative attention because there does not appear to be a clear

enough basis for an administrative resolution through rulemaking In this

posture the best course appears to be to maintain the status quo

In summary the Commission will continue to accept tariffs on excepted

commodities filed on a voluntary basis The longstanding authority of con

ferences to collectively set rates on excepted commodities will continue

to be recognized A right of independent action on excepted commodity

rate or service items will remain a matter of conference discretion And

the issue of filing service contracts covering excepted commodities will

be resolved in Docket No 866 Service Contracts

Although no change is being made in current policy the Commission

believes that the issues raised in the Notice of Inquiry are significant

and are of continuing concern and should be included in the reports required

by section 18 of the 1984 Act 46 D S C app 1717 which among other

things requires that the Commission report to the Congress on mandatory

tariff filing The issues raised in the Notice of Inquiry relate to tariff

filing and the implications and consequences thereof The Commission there

fore will make the record established in this proceeding a part of its

section 18 report

TIIEREFORE IT IS ORDERED That the record in this proceeding

consisting of the Notice of Inquiry the comments received and this Notice

of Discontinuance and Appendix summarizing the comments shall be in

cluded in the report prepared by the Commission pursuant to section 18

of the Shipping Act of 1984 and

IT IS FURTIIER ORDERED That this proceeding is hereby discontinued

By the Commission

S JOSEPH C POLKING

Secretary

28 F M C
846 FEDERAL MARITIME COMMISSION

APPENDIX SUMMARY OF COMMENTS

1 Voluntary Tariff Filing

A Comments Opposing Voluntary Tariff Filing

The comments filed in opposition to voluntary filing of tariffs on excepte

commodities recognize that the 1984 Act is silent on the question of whethe

voluntary filing is lawful These comments therefore rely on the legislativ

history of the amendments to the 1916 Act dealing with excepted commod

ities

DOJ argues that the legislative history of the excepted commodity amend

ments to the 1916 Act indicates that Congress intended to remove excepte

commodities from the restrictions and limitations imposed by the tari

filing system and that voluntary tariff filing by a single common carrie

or a conference is contrary to the Congressional purpose

API contends that the legislative history of the 1961 1963 and 196

Amendments to the 1916 Act demonstrates that Congress intended tha

excepted commodities be unregulated with regard to carrier or conferenc

rate practices According to API the purpose of excepting certain commod

ities was to preserve their competitive standing API contends that marke

forces should be permitted to determine applicable rates

CMA contends that voluntary tariff filing is inconsistent with the legisla

tive history of the 1916 Act Amendments CMA notes that the objective

of tariff filing are to apprise shippers and the Commission of lawful rate

and to enable the Commission to enforce the 1984 Act s prohibition agains

unjust discrimination among similarly situated shippers According to CMA

the harmful byproducts of tariff filing include its stabilizing effect on rale

and the increased regulation required to enforce the tariff filing system

CMA finds nothing in the history of the 1961 1963 and 1965 Amendment

to the 1916 Act that would suggest that Congress intended to permit vo

untary filing of tariffs covering excepted commodities IIi particular CM

notes that the 1965 Amendment reinstated tariff filing for hardwood lumbe

but continued the exception for softwood lumber in order to retain rat

flexibility If voluntary filing is permitted CMA asserts that the Congres

sional purpose is defeated

WSG points out that historically excepted commodities have move

in a free market where rates can change dramatically in response to marke

conditions WSG states that the Commission should preserve this compet

tive market and declare that voluntary filing of tariffs is unlawful

A number of comments suggest that the extensive debate over retentio

of the tariff filing system and enforcement by the Commission in th

legislative history leading to the passage of the 1984 Act supports th

position that voluntary filing should not be permitted API notes that som

legislative proposals would have eliminated tariff filing and enforcemen

in order to encourage greater competition in rates and services API contend

that these proposals were put aside in favor of other means of offsettin

28 FM C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 847

AND SECTION 8 c OF THE SHIPPING ACT OF 1984

carrier and conference market power API notes however that certain com

modities were excepted from tariff filing API contends that the rates for

these commodities were intended to be subject to market forces API con

cludes that the legislative history of the debate over tariff filing is whol1y

inconsistent with any interpretation which would permit voluntary filing

of tariffs where not required and the subsequent enforcement of such

tariffs by the Commission

DOl also refers to the debate over tariff filing and states that even

though Congress decided to retain the tariff filing system under the 1984

Act it recognized that tariff filing is inconsistent with consumer interests

and that any expansion of the tariff regime is contrary to the Congressional

compromise in the 1984 Act which retained the tariff system but reduced

its anticompetitive impact with other specific new reforms DOl contends

that the purpose ofexcepting certain commodities is to remove them entirely

from the price stabilizing effect of a tariff and thereby provide shippers

of those commodities with the flexibility to negotiate rates DOl asserts

that voluntary tariff filing inhibits that flexibility because once a tariff

is filed no other rate can be charged and because any rate increase is

subject to a 30 day notice requirement According to DOl voluntary filing

frustrates the purpose of the Act because it removes the commodity from

an unregulated market

NARI contends that excepted commodities are not subject to the jurisdic

tion of the Federal Maritime Commission and have been deregulated by

law under the 1984 Act NARI contends that Congress was responding

to National Association of Recycling Industries Inc v Federal Maritime

Commission 658 F2d 816 Dc Cir 1980 when it added recycled metal

and paper to the list of excepted commodities and that its intent was

to remove them from the Commission s

jurisdiction NARI states that when

tariff filing was continued it was understood that there would be no filing

of tariffs on excepted commodities

Finally a number of comments argue that policy considerations support

a prohibition on voluntary filing

CMA notes that the 1984 Act added recycled commodities in order

to put recycled commodities on the same footing as virgin bulk commod

ities Pennitting voluntary filing of tariffs on recycled commodities allegedly

would al10w a carrier to disrupt this competitive parity

NARI expresses concern over the potential for discrimination that may

arise from al10wing ocean common carriers and conferences to voluntarily

file tariffs on excepted commodities NARI fears that this would enable

carriers and conferences selectively to discriminate against recycled com

modities by voluntarily filing tariffs and service contracts applicable to

them while other tariffs and service contracts covering competing virgin

commodities are fixed in secret and seldom if ever filed NARI argues

that this flies in the face of Congress determination to promote the competi

tiveness of recycled commodities NARI finds further evidence of this Con

28 F M C
848 FEDERAL MARITIME COMMISSION

gressional policy in the field of railroad legislation and court decisions

interpreting that legislation

CMA also contends that voluntary filing is contrary to the minima

government intervention purpose of the 1984 Act For example in the

case of bulk carriers CMA argues that the Commission would be required

to expend resources to determine whether a bulk carrier was a common

carrier The Commission would then be required to enforce the Act s tarif

provisions and thereby allegedly incur further unnecessary administrative

burdens

CMA argues that voluntary filing does not achieve benefits and tha

no legitimate regulatory purpose would be served by allowing it CMA

states that voluntary filing would not enable the Commission to enforce

the prohibited acts that are intended to protect against discrimination among

similarly situated shippers because voluntary filing would not provide ship

pers with an adequate price list

CMA also notes that the 1984 Act directs the Commission not to regulate

excepted commodities in the area of terminal tariffs CMA concludes tha

the legislative history thus demonstrates that voluntary filing produces result

at odds with Congressional objectives Finally CMA argues that voluntary

filing is harmful to U S trade particularly in the export of bulk commod

ities

B Comments Supporting Voluntary TariffFiling

Several conferences argue that there is nothing in the legislative history

of the amendments to the 1916 Act regarding excepted commodities tha

would indicate that Congress intended to preclude the voluntary filing o

tariffs on those commodities TWRA for example states that the purpose

of the 1961 Amendment was to lessen the administrative burden on carriers

and permit them to compete with tramp vessels JAPC states that the

purpose of the 1961 Amendment was to assist conferences as well as

shippers and enable liner carriers to compete with tramps for bottom

cargo JAPC finds support for this assertion in the following testimony

of Chairman Stakem before the Merchant Marine and Fisheries Committee

MR DREWRY Now on page 7 of the statement you would

exclude from the filing requirements cargoes loaded in bulk with

out mark or count

Take the case of a big shipper who deals in all kinds of

things one of these big American enterprises that produces hard

manufactured goods and also deals maybe in chemicals in bulk

or other bulk commodities

Would he be thus protected as far as any shipments he was

to make of bulk cargoes Would his shipper contract with the

conference allow him to be free to ship any way he wanted

to in this type of commodity

28 F M C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 849

AND SECTION 8 C OF THE SHIFPING ACT OF 1984

MR STAKEM Ithink that he would be protected Mr Drewry

As you know the bulk cargo is usually an open rate item for

most of the conferences and the liner ships are in competition

with the tramps to put this cargo in as filler cargo

n seems to us that it is the type of commodity that we would

not necessarily require an advance filing of rates on

I

think it would be a little bit impossible in the light of the

fact that the tramps are free to do as they please and it would

put the liners in a very bad position in connection with the

bottom cargo that they constantly seek

To Provide for the Operation of Steamship Conferences Hearings on HR

4299 Before the Special Subcommittee on Steamship Conferences of the

House Committee on Merchant Marine and Fisheries 87th Cong 1st Sess

35 36 1961

Similarly IAPC argues that the 1963 Amendment merely added lumber

to the commodities excepted from the mandatory tariff filing requirement

of the 1961 Amendment Again IAPC notes that the purpose of the 1963

Amendment was to benefit conferences as well as shippers by making

lumber ratemaking more flexible and therefore more competitive IAPC

argues that the 1963 Amendment was merely an enabling statute which

permitted an additional exception from mandatory tariff filing IAPC states

that there is no evidence in the legislative history of any intention to

prohibit the voluntary inclusion of lumber in any tariff on file with the

Commission Finally IAPC argues that the 1965 Amendment merely rees

tablished mandatory tariff filing for hardwood lumber2

The conclusion drawn by IAPC and TWRA in their discussion of the

1961 1963 and 1965 Amendments is that these amendments merely address

the question of mandatory tariff filing and that there is no evidence of

any Congressional intent to preclude voluntary filing

USECA also argues that the amendments to the 1916 Act do not reflect

any intention to prohibit voluntary tariff filing USECA suggests that the

origin of the 1961 exception for bulk cargo is the Shipping Board Bureau s

decision Section 19 Investigation 1935 I U S S BB 490 1935 USECA

states that the Board promulgated tariff filing rules that nevertheless did

not apply to cargo loaded and carried in bulk without mark or count

This exclusion allegedly was later codified in the 1961 Amendment to

the 1916 Act USECA states that the purpose of the bulk cargo exception

28 F M C

1 IAFC quotes from a letter dated April 11 1963 in which the Commission commented that the bill which

became P L 88103 was unnecessary because conferences already had sufficient flexibility with regard to

rate decreases HR Rep No 630 88th Cong 1st Sess 1963 reprinted in 1963 U S Code Congo Adm

News 826 829830

2

IAFC ciles aCommission letter dated September 15 1965 commenting on the bill which became P L

89303 IAFC suggests that this letter confirms by implication conference ratemaking authority over ex

cepted commodities S Rep No 873 89th Cong 1st Sess 1965 reprinted in 1965 U S Code Congo

Adm News 3834 38353836
850 FEDERAL MARITIME COMMISSION

j

was to provide ocean common carriers with the opportunity to more readil

compete with non regulated ocean tramp carriers

A number of comments argue that there is no need to go beyond th

language of the 1984 Act to resolve the question of the permissibilit

of voluntary filing The Mediterranean Conferences for example state tha

there is nothing in section 8 a of the Act or any other section of th

1984 Act that precludes voluntary filing They conclude that in the absenc

of any prohibition voluiltary filing is pentiitted Moreover the Mediterra

nean Conferences state that because the language of the Act is clear ther

is no need to resort to legislative history and reliance on it is imprope

USECA argues that the plain language of section 8 a merely state

it is unlawful not to file tariffs Iequired to be filed by section 8 a USECA

states that it cannot be interpreted to mean that it is unlawful to fil

tariffs covering excepted commodities USECA contends that there is n

ambiguity in the language of section 8 a and so there is no need t

go to e trinsicsources such as legislative history USECA also provide

an extensive section by section arialysis of the 1984 Act in which it contend

that the plain language of the Act taken as a whole demonstrates th

lawfulness of voluntary filing USECA also makes a detailed analysis o

the legislative history of each of the excepted commodity amendment

to the 1916 Act and concludes that nothing in that history precludes vo

untary filing Finally USECA discusses other relevant legislative histor

of the Act and policy considerations whieh it believes support voluntar

filing

Agreement No 10050 states that section 8 a merely excepts certai

commodities from mandatory tariff filing requirements Tampa states tha

if Congress had intended to deregulate excepted commodities it woul

have provided for deregulation in all sections of the 1984 Act rather tha

merely the tariff filing section Tampa also states that the Act does no

prohibit voluntary filing TOCHR states that the Act does not preclud

voluntary filing and that therefore it is lawful

A number of carriers note that the Commission s own rules 46 CFR

580 1 a allow for the voluntary filing of tariffs covering excepted commod

ities and that the Commission has permitted such filings since 1961 Th

Latin American Conferences state that Congress had three opportunitie

since 1961 to prohibit voluntary filing and did not do so They and othe

conferences argue that Congress was aware the Commission s

long standin

practice of accepting voluntary filings and therefore may be presumed

to have confirmed ratified and sanctioned the Commission s constructio

of the statute

Finally a number of comments argue that policy considerations favo

voluntary filing TWRA and others point out that one of the benefit

of permitting voluntary filing is that shippers will then be afforded th

protection against discrimination and the 30 day rtotice of any rate increase

Sea Land believes that filing subjects the tariff to the mandatory adherence

i

28 FM C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 851

AND SECTION 8 C OF THE SHIPPING ACT OF 1984

requirements of sections 10 b 1 4 46 D S C app I709 b 1 4

and that it would also not be excepted from sections 1Ob 6 A 10

11 or 12 46 D S C app 1709 b 6 A 10 11 12 Agreement

No 10050 also believes that filing subjects the tariff to sections 10 Thus

some argue that voluntary filing should be permitted because it triggers

the protections of the tariff filing system

Centra National Gottesman Inc a forest products merchant states

that the 1984 Act does not prohibit filing of rates on excepted commodities

It favors such filing because it in effect makes a price list available

to shippers and enables a shipper to know if it has obtained the best

available rate

PARN STC states that the Commission should allow carriers conferences

and marine terminal operators voluntarily to include rates charges and

regulations on excepted commodities in tariffs but require those provisions

to be included in a separate appendix to the tariff reserved exclusively

for excepted commodities This would allow for dissemination of price

information without inhibiting pricing flexibility

The Journal of Commerce also argues that voluntary filing should con

tinue to be permitted because it is a useful vehicle for disseminating infor

mation on rates and service

A number of comments allege that if voluntary filing were not permitted

adverse effects would result The Pacific Conferences PARN STC and

the Journal of Commerce all note ambiguities in the definitions for some

excepted commodities The Pacific Conferences state that a cautious carrier

or conference should file a tariff rate so that there is no question of

possible violation of section 8 of the Act PARN STC foresees even direr

consequences including possible antitrust exposure IAFC states that a prohi

bition on voluntary filing would have a deleterious effect on carrier shipper

relationships It gives as an example project rates which include commodities

which are excepted as well as required to be filed At present a single

project rate covers all such commodities This allegedly would be interfered

with if voluntary filing were prohibited Finally Sea Land argues that time

volume rates on excepted commodities would be unlawful if voluntary

filing were prohibited

28 F M C

3

A number of conferences however do nol believe that voluntary filing makes other lariff provisions ap

plicable The Mediterranean Conferences argue that the 1984 Act tariff requirements pursuant to section 8 a

do not apply to excepted commodities Thus the 30 day notice requirement of section 8 d is not applicable

and so filing does not interfere with maximum rale flexibility The Japan Korea Conferences argue that even

though rates on excepted commodities are voluntarily filed this does not subject them 10 the filing and notice

requirements of the Act

The Journal of Commerce also questions whether volumary filing necessarily subjects the filing pany and

the tariffs to all the Acs regulatory provisions
852 FEDERAL MARITIME COMMISSION

1

II Collective Ratemaking

A Comments Opposing Collective Ratemaking

The commenters opposing voluntary tariff filing on excepted commodities

also oppose collective ratemaking on excepted commodities DOJ CMA

API NARI and WSG all oppose allowing conferences to collectively estab

lish rates on excepted commodities These comments do not dispute the

fact that there is nothing in the 1984 Act which expressly excludes excepted

commodities from the grant of general ratemaking authority Rather they

argue from the legislative history of the 1984 Act and previous amendments

to the 1916 Act that collective ratemaking on excepted commodities was

never intended by Congress

DOJ for example asserts that the legislative history indicates that Con

gress intended to deregulate excepted commodities DOJ also notes that

in the case of terminal services there is a specific Congressional directive

in the legislative history of the 1984 Act to the Commission not to impose

any terminal tariff filing requirements for excepted commodities DOJ states

that allowing private parties to voluntarily set such rates would be incon

sistent with the intent of Congress

CMA contends that Congress did not intend to immunize from the anti

trust laws the collective activity of ocean common carriers at least with

respect to bulk commodities including bulk chemicals CMA cites the

following passage from the legislative history of H R 1878

A small change was made in the definition of ocean common

carrier by deleting the words bulk cargo vessels However

the elimination of the term is not intended to extend coverage

of this Act to bulk shipments but merely removes an ambiguity

That is antitrust immunity granted in H R 1878 does not extend

to agreements relating to rates and service practices for the trans

portation of bulk commodities

Joint Report of the House Merchant Marine and Fisheries Committee and

Judiciary Committee on H R 878 129 Congo Rec H 8124 Octobe

6 1983 Through this and other references to legislative history CMA

concludes that the Shipping Act of 1984 was not intended to immunize

the collective activity of common carriers of bulk commodities

API contends that allowing collective ratemaking on excepted commod

ities is particularly anomolous in light of the independent action provision

of the 1984 Act It allegedly would lead to a result which was the opposite

of that intended by Congress e g

less competition and less price flexibility

for excepted commodities than for tariffed commodities These unintended

effects include the following I less competition for excepted commodities

than for tariffed commodities 2 less price flexibility for excepted commod

ities than for tariffed commodities 3 less ability of shippers to mee

the collective market power of the conference 4 less rate flexibility

28 F M C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 853

AND SECTION 8 C OF THE SHIPPING ACT OF 1984

because they must be acted on by a conference and 5 less rate flexibility

because of tariff filing requirements

NARI asserts that collective ratemaking should not be permitted because

excepted commodities were in effect deregulated by the 1984 Act

WSG urges the Commission to declare that collective ratemaking on

excepted commodities is unlawful WSG also states that antitrust immunity

should not be extended to excepted commodities

B Comments Supporting Collective Ratemaking

JAFC maintains that under the 1916 Act there was no question as to

the authority of conferences to COllectively establish rates Section IS of

the Act authorized agreements among common carriers by water fixing

or regulating transportation rates or fares 46 U S C app 814 Prior to

the Bonner Amendment in 1961 which established mandatory tariff filing

there was no distinction between bulk and other commodities Therefore

there could be no question of the effect of tariff filing requirements on

the scope of conference ratemaking The authority to fix rates prior to

1961 applied to all kinds of liner rates including rates on bulk cargo

and other excepted commodities

JAFC contends further that at the time that Congress considered the

1961 Amendment it was aware that conferences fixed rates on bulk cargo

Congress did nothing to change this According to JAFC the 1961 Amend

ment merely permitted conferences to exclude bulk cargo from their tariffs

There was no intent to remove bulk cargo from conference ratemaking

authority

JAFC contends that subsequent amendments in 1963 and 1965 did nothing

to take away conference ratemaking authority rAFC notes that both amend

ments were desired by conferences as well as shippers and that conferences

would not have supported the bill if it was intended to restrict ratemaking

authority

The conferences generally point out that the language of section 4 a 1

of the 1984 Act clearly authorizes ocean common carriers to discuss

fix or regulate transportation rates The JapanKorea Conferences argue

that this language is clear on its face and that there are no restrictions

as to the commodities on which conferences may fix rates USECA states

that section 4a I clearly states that the Act applies to carrier agreements

to discuss fix or regulate transportation rates and that there is no

qualification of this ratemaking authority Sea Land points out that section

4 a I is a general grant of ratemaking authority and that there are no

words of limitation in that grant Agreement No 10050 states that the

28 F M C

4

IAFC quotes passages from the Commission s letter of April 11 1963 commenting on the legislation

that stated that the legislation was nOI necessary because conferences already had enough flexibility with re

gard to rate decreases Ape also quotes from a September 15 1965 letler of the Commission commenting

on the 1965 Amendment which lAFe believes confrrms by implication that conferences have ratemaking au

thority overexcepted commodities
854 FEDERAL MARITIME COMMISSION

I

Act does not exclude any commodity from the grant of ratemaking authority

IAFC states that section 4 a 1 is not limited to rates required to be

filed in a tariff and that the I984 Act does not distinguish different kinds

of commodities as far as ratemaking is concerned TWRA and the Pacific

Conferences state that section 4 a 1 authorizes collective ratemaking with

respect to excepted commodities

The Mediterranean Conferences state that the language of section 4a

I is completely clear and therefore controlling and must be adhered to

The JapanKorea Conferences state that the language of section 4 a 1

is clear and that there is therefore no need to inquire into legislative

history other than to determine whether Congress intended to link sections

4 5 and 6 with section 8 a

Tampa states that sections 4 5 and 6 of the 1984 Act neither relieve

nor prohibit common carriers or marine terminal operators from filing agree

ments that include fixing of rates on commodities which are either excepted

from or required to be filed with the Commission Tampa concludes tha

it is lawful for carriers or terminals to fix rates under filed agreements

PARNISTC states that sections 4 5 6 and 7 constitute a clear gran

of ratemaking authority and antitrUst immunity to agreements of carrier

and marine terminal operators without regard to the commodities transported

or handled

TOCHR states that the Act does not exclude excepted commodities from

the grant of general ratemaking authority

IAFC asserts that the 1984 Act merely expanded the list of excepted

commodities The 1984 Act allegedly dId not disturb a conference s author

ity to set rates on excepted commodities

As with voluntary tariff filing on excepted commodities the carrier

and conferences assert that Congress was aware for many years that con

ferences agreed upon rates on excepted commodities TWRA states tha

under the 1916 Act conferences set rates on all commodities IAFCstate

that Congress knew that conferences fixed rates on bulk commodities an

did not prohibit this practice when it passed the 1961 Amendment The

Latin American Conferences point out that Congress had three separate

opportunities to change this practice and did not The Mediterranean Con

ferences conclude that Congress thereby codified this practice Sea Land

describes collective ratemaking on excepted commodities as a long stand

ing practice The Pacific Conferences state that collective ratemaking i

a barnacle encrusted practice s

Finally the conferences advance two policy arguments as to why collec

tive ratemaking should be permitted 6 TWRA notes that a prohibition on

I

tAPe notes that subsequent 10 the pllllsaae of the 1984 Act Congress corrected certain provisions tha

were inconsiltent wllh its inlenl uldid not address collective ratemaklng See Pub L Nt 98585

61AFC also SUllcsts a number of adverse dfects that would resUlt If collective ratemaking authority 

denied JAFe enumerates a number of uncenainlies in c olUlcclion with commodities ex p

d by the FM

pursuant 10 46 CPR 580 I

c

special pennlssions under 46 CPR 5SQ 15 and under section 8 e of the Ac

28 P M C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 855

AND SECTION 8 C OF THE SHIPPING ACT OF 1984

collective ratemaking would undermine the conference system and destroy

the potential stability which it represents The Pacific Conferences state

this argument in terms of the base cargo that excepted commodities rep

resent The Pacific Conferences state that taking away ratemaking authority

over this base cargo would undermine the conference system

III Independent Action

A Comments Supporting Independent Action

Several commenters dispute the assumed premise of this question namely

that collective ratemaking is permissible Assuming arguendo that such

ratemaking would be found to be permissible then these commenters con

tend that independent action must also be permitted

Although CMA disputes the premise of this question it nevertheless

states that it would be inconceivable for the Commission to permit collective

ratemaking and voluntary tariff filing on excepted commodities without

requiring a conference to permit independent action on such tariffs CMA

argues that it would be a perverse result if excepted commodities which

were intended to be non tariffed and therefore subject to greater rate flexi

bility would not be guaranteed aright of independent action CMA argues

that the Commission could mandate a

right of independent action on any

tariff voluntarily filed for an excepted commodity But it concludes that

this situation should be avoided by prohibiting voluntary filing of such

tariffs

API states that it would be a travesty and mockery of the Act to allow

conferences to prohibit independent action on the very commodities whose

rates Congress intended to be particularly responsive to competitive forces

API states that the right of independent action should be guaranteed by

the Commission and implemented without disclosure to the conferences

and without filing of tariffs Such a

requirement would mitigate the worst

effects of conference initiated tariffs and rules governing excepted commod

ities The following effects however would allegedly still remain 1 the

inherent inflexibility of rates embodied in tariffs 2 the restrictions on

any independent action which some carriers have placed in their agreements

and 3 the unofficial institutional pressures of conferences against the

exercise of independent action API therefore maintains it would be pref

erable to prohibit conferences from agreeing upon excepted commodity

rates or filing such tariffs

Central National Gottesman Inc has no objection to voluntary tariff fil

ing as long as carriers retain the right of independent action

28 F M C

7 NARI states that the question is based on afalse premise WSG says there is no need fOf independent

action ifcollective rates are not established CMA and API also dispute the premise of the question bur offer

comments on the need for independent action should collective ratemaking be permitted DOJ did not com

ment on the question of independent action presumably because it does not accept the premise that con

ferences may set rates on excepted commodities
856 FEDERAL MARITIME COMMISSION

On the question of independent action U S flag carriers and one termina

operator broke ranks with the position of the conferences Sea Land states

that the Commission can under its section 17 a

rulemaldng authority

mandate a

right of independent action on excepted commodities Moreover

Sea Land states that the Commission would be warranted in requiring tha

voluntary filing by a conference be accompanied by a voluntary undertaking

to allow member lines to take independent action with respect to such

items Jn addition Agreement No 10050 the U S Flag Discussion Agree

ment also takes the position that the Commission should make independen

action mandatory on excepted commodities TOCHR also believes that inde

pendent action should be allowed on excepted commodity rates

B Comments Opposing Independent Action

TWRA states that section 5b 8 of the Act only mandates independent

action on items required to be filed in a tariff TWRA states that the

Commission has no power to expand the right of independent action beyond

that provided in section 5 b 8

USECA states that Congress did not mandate independent action with

regard to excepted commodities but left the matter to conferences to deter

mine for themselves USECA believes the Commission may not mandate

independent action by regulation because such a

regulation would not be

consistentwith the intent of the Act

The Mediterranean Conferences state that the clear language of section

5b 8 is controlling Independent action is required only for items subjec

to mandatory tariff filing The Mediterranean Conferences state that inde

pendent action on excepted commodities is permissive and that conferences

cannot be required to provide it

The Latin American Conferences also believe that the plain language

of section 5 b 8 is controlling

The Japan Korea Conferences stale that the Commission has no authority

to require independent action on excepted commodities They state that

the language of section 5b 8 is clear and so there is no need to examine

legislative history

The Pacific Conferences state that the Commission cannot go beyond

section 5b 8 and has no authority to force an across the board modifica

tion of conference agreements

JAPC states that the plain meaning of the statute is that there shal

be independent action only on section 8 a tariff items JAPC argues tha

this does not lead to an illogical result It merely allows conferences to

set rates on vital base cargo but to allow independent action on 8 a

tariff items

Finally Tampa states that section 5b 8 refers only to items that were

required to be filed in a tariff Tampa concludes that independent action

is not mandatory on excepted commodities

28 P M C
INQUIRY CONCERNING INTERPRETATION OF SECTION 8 a 857

AND SECTION 8 c OF THE SHIPPING ACT OF 1984

V Service Contracts

A Comments Opposing Voluntary Filing of Service Contracts

DOl contends that voluntary filing of service contracts on excepted com

modities is unlawful DOl notes that section 8 c of the Act distinguishes

excepted commodity service contracts from other types DOl interprets this

distinction to mean that such contracts are to be unregulated and not subject

to the collective market power of conferences DOl also contends that

the absence of a mandatory right of independent action with regard to

service contracts indicates that service contracts are not to be subjected

to any tariff filing regime

CMA argues that voluntary filing of the essential terms of service con

tracts covering excepted commodities should not be allowed as it would

reduce the rate flexibility on excepted commodities In addition CMA

states that the Commission could not adequately regulate such filings to

ensure fair treatment of similarly situated shippers because a common carrier

or conference could selectively choose to file some contracts and not others

Great Southern Paper supports the position that service contracts covering

excepted commodities should not be required to be filed According 10

Great Southern Paper a filing requirement would circumvent the

rate filing exemption that our industry so actively and successfully pursued

in the Shipping Act of 1984

API states that the same legislative and policy considerations which

render unlawful the filing of tariffs on such commodities also render unlaw

ful the filing of service contracts

NARI s position is that the filing of service contracts covering excepted

commodities should not be permitted

WSG also states that the Commission should not permit the voluntary

filing of service contracts covering excepted commodities

2S F M C

B Comments Supporting Voluntary Filing of Service Contracts

The lapanKorea Conferences note that the Commission s own regulations

46 CFR 580 7b I

and 2 currently allow the filing of the terms

of service contracts on excepted commodities The lapanKorea Conferences

state that there is no difference between voluntary filing of tariffs covering

excepted commodities and voluntary filing of service contracts

USECA states that neither the plain language of the Act nor its legislative

history or purpose reveals any legislative intent to render it unlawful for

carriers or conferences to file service contracts either including both ex

cepted and non excepted commodities or excepted commodities only

The Mediterranean Conferences and Agreement No 10050 note that sec

tion 8 c merely exempts service contracts covering excepted commodities

from mandatory filing and assert that voluntarY filing is pennissible The

Pacific Conferences IAPC and TOCHR all contend that the same reasoning

which supports voluntary filing of tariffs applies to voluntary filing of
858 FEDERAL MARITIME COMMISSION

service contracts The Latin American Conferences state that voluntary filing

is lawful

TWRA states that it is easier to make the case for voluntary filing

of service contracts because service contracts cover an extended period

of time Thus there is less concern for speed and flexibility than there

is with tariffs TWRA also notes that filing promotes competition by giving

better notice of market conditions to interested parties

The Journal of Commerce supports retention of existing Commission

rules allowing voluntary filing of essential terms of service contracts Centra

National Gottesman Inc urges the Commission to permit the voluntary

filing of essential terms of service contracts because it provides usefu

information to shippers

Sea Land believes that voluntary filing should be permitted but that this

should trigger the same regulatory requirements as apply to service contracts

subject to mandatory filing Agreement No 10050 believes that optiona

filings should be permitted

TOCHR believes that voluntary filing should be permitted Tampa states

that voluntary filing is not unlawful Ifit were then any contract covering

a mixture of excepted and non excepted commodities would have to be

prepared as separate contracts JAPC points out a number of adverse effects

that would result if voluntary filing were prohibited

I

1

28 F M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1459

APPLICATION OF AMERICAN PRESIDENT LINES LTD FOR THE

BENEFIT OF FICKS REED CO

ORDER OF PARTIAL ADOPTION

May 6 1987

The Commission determined to review the Initial Decision ID issued

in this proceeding in which the Administrative Law Judge Presiding

Officer granted permission pursuant to section 8 e of the Shipping Act

of 1984 46 U S c app S 1707 e the Act to American President

Lines Ltd APL to refund 585 00 of the freight charges collected

from Ficks Reed Co on a shipment of rattan furniture that moved from

Jakarta Indonesia to Cincinnati Ohio

BACKGROUND

The Asia North America Eastbound Rate Agreement ANERA of

which API is a member approved on October 3 1985 a rate of 4090

per 4O foot container including a 290 CY destination delivery charge

for the transportation of rattan furniture from Jakarta to Cincinnati The

rate was to be filed in APL s

independent tariff as ANERA did not

at the time publish tariffs on behalf of its members A telex message

from APL s Hong Kong office to its Pricing Government Cargo Service

in Oakland California directing the filing of the 4090 rate was misplaced

As a result the rate was not on file with the Commission when the

shipment sailed from Jakarta on January 14 1986 API apparently did

not discover the error until June 1986 It applied for a waiver on July

II 1986

The Presiding Officer held that the failure to file the intended rate

was the kind of mistake contemplated by section 8 e of the Act arid

granted the application As to the tariff notice required by section 8 e 3

the Presiding Officer accepted a tariff filed by ANERA on June 26 1986

28 F M C 859

I Section See authorizes refund orwaiver relief if

1 there is an error in a tariff of aclerical oradministrative nature or an error due to inadvertence

in failing to file a new tariff and the refund will not result in discrimination among shippers ports

orcarriers

2 the common carrier or conference has prior to flling an application filed a new tariffwith

the Commission that sets forth the rate on which the refund orwaiver would be based

3 the common carrier orconference agrees that if pennission is granted by the Commission an

appropriate notice will be published in the tariff that give s notice of the rate on which the

refund orwaiver would be based

46 U S c

app 1707 e
860 FEDERAL MARITIME COMMISSION

in which a NOTE at the bottom of the page indicates that certai

rates including the 4090 rate were effective for APL during th

period October 8 1985 through January 25 1986

DISCUSSION

The Presiding Officer correctly determined that the error which led t

APL s failure to timely file the intended rate was of a type for whic

section 8 e of the Act affords relief Therefore review here is limite

to the tariff filed in this proceeding by ANERA on June 26 1986 Jun

26 filing on which the waiver is based and the Presiding Officer 

failure to order the publication of the tariff notice referred to in sectio

8 e 3

Section 8 e 2 requires the carrier to file a new tariff before applyin

for a refund or waiver while section 8 e 3 refers to a notice whic

is to be published in the carrier s tariff by order of the Commission

after the application is granted The Presiding Officer held the June 2

filing to be the new tariff referred to in section 8 e 2 and also viewe

the NOTE in that same tariff as eliminating the need for the publicatio

of a section 8 e 3 notice thus finding one filing to satisfy the requirement

of both sections 8 e 2 and 8 e 3

2

The first issue therefore is whether the Presiding Officer is corre

and the June 26 filing may also be considered to be the new tariff

referred to in section 8 e 2 The use in the statute of two different term

tends to indicate different types of filings with different functions Whi

section 8 e 2 sets forth the rate the carrier seeks permission to appl

section 8 e 3 reflects the rate approved by the Commission A sectio

8 e 3 notice is published at the discretion of the Commission The filin

of a section 8 e 2 tariff however is mandatory unless the carrier prio

to applying for relief files the tariff referred to in section 8 e 2 th

Commission has nO authority to consider the merits of the application 

In this instance the 4090 rate is shown to have been in effect at a

earlier date and to have expired before the June 26 tariff was filed wit

the Commission 4

The retroactive nature of the June 26 filing raises yet another issu

Neither the statute nor the rules governing the filing of rates in foreig

commerce authorize such a filing s Section 8 d of the Act provides th

a rate may become effective at the earliest upon filing with the Commissio

46 D S C app 1707 d except by action of the Commission taken purs

11 0 at34

3Louls Furth Inc v Sea Land Service Inc 20 F M C 186 1977 Oppenheimer lmercontinel1tal Co

v South African Marine Corp 15 F M C 49 52 1971 These cases were decided under former sect

18 b 3 oCtile Shipping Act 1916 Connedy 46 U S C 817 b 3

the 1916 Act the predecessor to sect

See of the 1984 Act

4

The rate was in fact canceled before it was rued

S See Publishing and Filing of Tariffs by Common Carriers in the Foreign Commerce of the United Stat

46 C F R Part 380 section 580 b and c

1 1985

28 F M C
APPLICATION OF AMERICAN PRESIDENT LINES LTD FOR 861

THE BENEFIT OF FICKS REED CO

ant to section 8 e 3 Furthermore section 8 t 46 U S C app 91707 t

provides that the Commission may reject a tariff that is not filed in

conformity with this section and its regulations 6 Consequently the June

26 filing could have been rejected for failure to comply both with the

statute and the Commission s rules

However the Commission has in the past on at least two occasions

granted relief on tariffs filed by a carrier or a conference effective earlier

than the date of filingIn Application of Japan Line U S A Ltd for

Japan Line Ltd for Benefit of Nomura America Corp 28 EM C 825

1980 Japan Line the Commission adopted the Initial Decision grant

ing relief on the basis of a tariff filed by the Pacific Westbound Conference

that contained two rates for the same commodity a higher rate which

appeared in the body of the tariff and a lower rate set forth in a notice

with an earlier effective date In Special Docket No 901 Application

of Delta Steamship Lines Inc for the Benefit of Commodity Credit Corp

Initial Decision served June 17 1982 Delta Lines the Presiding

Officer accepted as valid the new tariff filed by the carrier in which

the rate sought to be applied was shown as being effective earlier than

the date of filing with the Commission The decision became administra

tively final by notice served August 5 1982

In view of the carrier s apparent reliance on the Japan Line and Delta

Lines decisions and because of the failure to timely reject the June 26

tariff the Commission will adopt the Presiding Officer s grant of the waiver

However a tariff of the type filed in this proceeding will not in the

future be deemed to satisfy the new tariff requirement in section 8 e 2

The decisions in Japan Line and Delta Lines supra are to that extent

overruled

The Commission finds inappropriate however the Presiding Officer s

reliance on the NOTE in the June 26 filing as a substitute for the

Commission ordered notice referred to in section 8 e 3 of the Act As

mentioned the NOTE shows the 4090 as having been in effect from

October 8 1985 through January 25 1986 Under the guidelines established

in Application of Lykes Bros Steamship Co Inc for the Benefit of Embassy

of Tunisia 28 EM C 421 1986 the effective date of the corrected tariff

referred to in section 8 e 2 on which the refund or waiver is to be

based runs from the date the mistake in filing occurred through the day

preceding the filing of the corrected tariff but in no event earlier than

180 days from the date of the filing of the application which in this

6

See also 46 eFR 580 lO b 1985

7

These decisions were also rendered under section l8Cb of the 1916 Act

8

It should be noted thai in neither Japan Line nor Delta Lines did the Commission address the propriety

of the tariffs under fonner sections 18 b 2 and 18 b 4 of the 1916 Act the predecessors to sections SCd

and fof theAcl

28 F M C
I

j

862 FEDERAL MARITIME COMMISSION

I

instance would be January 11 1986 9

Although the application does n

explain the January 25 termination date the Commission takes offici

notice of a tariff filed by APL effective January 26 1986 with a differe

rate for the same service which would have cancelled the 4090 ra

had it been timely filed o

Consequently ANERA will be required to fi

in its tariff a notice as set forth below showing the rate on which th

waiver is based

THEREFORE IT IS ORDERED That the Asia North America Eastboun

Rate Agreement promptly publish in its tariff the following notice

Notice is given as required by the decision of the Federal Mari

time Commission in Special Docket No 1459 that effective Janu

ary 11 1986 and continuing through January 25 1986 inclusive

the rate on Rattan Furniture from Jakarta Singapore to Cincinnati

OR per 4010 container is 4090 00 not subject to CY Destination

Delivery Charge This Notice is effective for purposes of refund

or waiver of freight charges on any shipment of the commodity

described which may have been carried by APL during the speci fied period of time

IT IS FURTHER ORDERED That the Initial Decision issued in th

proceeding is otherwise adopted by the Commission and

FINALLY IT IS ORDERED That this proceeding is discontinued

1

By the Commission

S JOSEPH POLKINO

Secretary

9

Citing the decision in Application of Sea Land Corporation on be1wlj of Sea Lmd Service Inc for til

Benefit oj FOfWmdJng Servbs Inc as Agent lor PQ1IQ York Shipptns CorporattonlFrllQ Lay 28 F M C 42

1986 the Presidin Officer made the rale applicable 180 days from the date the application was flIed

that is January 11 1986 rather than October S 1985 AS appears inthe NOTE

lOAmerican President Lines Ud Eastbound lntemwdaJ Tariff No 7138 1ec APLS 1J5 B FMC No

124 IS Rev page 155 effective January 26 1986

28 P M C
FEDERAL MARITIME COMMISSION

SPECIAL DOCKET NO 1459

APPLICATION OF AMERICAN PRESIDENT LINES LTD FOR THE

BENEFIT OF FICKS REED CO

Application to refund freight charges of 585 00 granted

INITIAL DECISION2 OF JOSEPH N INGOLIA ADMINISTRATIVE

LAW JUDGE

Partially Adopted May 6 1987

This application3 is for permission to refund 585 00 of freight charges

arising out of one shipment of Rattan Furniture from TG Priok Jakarta

to Cincinnati Ohio

The original tariff involved in this proceeding is American President

Lines Ltd API Eastbound Intermodal Freight Tariff No 715 B ICC

APLS 715 B FMC No 124 from Foreign Ports as noted in Rule 1

A to Destination Carriers Terminals in the United States Prior to October

3 1985 the rate in the tariff for Rattan Furniture to Cincinnati was

4 385 00 plus a CY Destination Delivery Charge of 290 00 4 On October

3 1985 members of the Asia North American Eastbound Rate Agreement

ANERA met in Hong Kong API proposed a set of rates for Rattan

Furniture of 4090 per 40 foot container inclusive of the Destination

Delivery Charge The conference member lines agreed to adopt the proposed

ratewhich rate should then have been filed in APL s independent tariff

since ANERA did not then have any tariffs filed on behalf of member

lines A telex message directing the tariff filing was sent from APL s

Hong Kong office to the Pricing Government Services Cargo Services

office in Oakland California However the telex was misplaced and the

tariff was not timely filed

The shipment involved here began on January 14 1986 At that time

the 4 385 00 rate plus CY destination charges was on file and the shipper

paid the freight bill of 4 675 00 6 The applicant did not discover the

error until June of 1986 By that time APL sindependent tariff had been

superseded by ANERA Common Rate TariffNo FMC 17 and the corrected

I The original title of the case indicated the beneficiary was the Westinghouse Elevator Co This was due

to a

computer errorand thecorrect beneficiary shipper is set forth above

21bis decision will become the decision of the Commission in the absence of review thereof by the Com

mission Rule 227 Rules of Practice and Procedure 46 CFR 502 227

3The application was mailed on July 11 1986 within the 180 day statutory period set forth in section

See Shipping Act 1984

4

Application Exhibit 2

Application Exhibit 4 enclosed withthe letter dated November 4 1986 from Douglas A Grand

6

Application Exhibit I

28 F M C 863
864 FEDERAL MARITIME COMMISSION

I rate was then filed 7 The applicant now seeks permission to refund the

difference in the freight charges between the old and the negotiated rate

such difference being 585 00

Section 8 e of the Shipping Act 1984 permits the Commission to

waive or refund collection of freight charges where it appears there wa

an error in a tariff of a clerical nature or an error due to inadvertence

in failing to file a new tariff Here there is no question but that fo

the misplacing of a telex communication the rate APL intended to file

would have been controlling in regard to the shipment involved here The

mistake involved is precisely the kind of error Congress sought to rectify

in enacting section 8 e

The application conforms to the requirements of Rule 92 a Specia

Docket Application Rules of Practice and Procedure 46 CFR 502 92 a

and therefore after consideration of the application the exhibits attache

to it and the entire record it is held that

I There was an error of a clerical or administrative nature which resulte

in the failure to have timely filed a tariff containing a rate of 4 090

per 40 foot container inclusive of Destination Delivery Charge on Ratta

Furniture moving from T G Priok Jakarta to Cincinnati Ohio which

rate would have been in effect had the error not been made

2 The refund will not result in discrimination among shippers an

there is no evidence that any carrier or ports would suffer discriminatio

should the application be granted

3 Prior to applying for the refund the applicant filed a new tariff which

sets forth the tate upon which the refund should be based 9

4 The application was filed within 180 days from the date of shipmen

Wherefore in consideration of the above and the entire record it is

Ordered that permission is granted APL to refund a portion of freigh

charges in the amount of 585 00 to the Ficks Reed Company subjec

10 any necessary adjustments to freight forwarder fees or the like

Also it is noted that the pertinent ANERA tariff already contains 

notice that the 4 090 00 rate including CY destination charges was in

effect from October 8 1985 through January 25 1986 so that no furthe

notice is required at this time However insofar as shipments occurring

before January 11 1986 are concerned the Commission would deny per

mission to allow any waiver or refund of freight charges 10

1

I

S JOSEPH N INOOLIA

Aministrative Law Judge

7

Application Exhibit 3

H The applicints stale that there were no other shipments of the samecommodity during the pertinent tim

period involved here

11 As has been noted at the lime thecoltCCtion was made ANBRA tarifr had superseded the APL Tarif

and therefore thecorrection was made inthe applicable tariffthen elltant

IOSee Application of Sea Land Corporation on Behalf of Sea Land Service Inc as Agent for POlIo Yor

Shipping CorporatlonlFrlto Lay Pana York Special Docket No 1412 28 F M C 427

28 P M C
APPLICATION OF AMERICAN PRESIDENT LINES LTD FOR 865

THE BENEFIT OF FICKS REED CO

28 F M C
ACTION

SVMMARY

FEDERAL MARITIME COMMISSION

46 CFR PARTS 516 559 AND 572

DOCKET NO 85 10

MARINE TERMINAL AGREEMENTS

May 14 1987

Final Rule

This exempts marine tenninal agreements other tha

marine tenninal conference interconference joint venture

and discussion agreements from the waiting period re

quirement of the Shipping Act of 1984 and from th

approval requirement of the Shipping Act 1916 The

Final Rule establishes a unifonn exemption procedure

conditioned upon the filing of the agreement and Federa

Register publication The exemptions become effective

upon the filing of the agreement with the Federal Mar

time Commission The Final Rule shall be published

as amendments to Part 559 and Subpart C of Part 57

of the Code of Federal Regulations respectively

EFFECTIVE

DATE The amendments to Part 559 shall become effective July

20 1987 or upon the receipt of OMB clearance fo

the colIection of infonnation requirements whichever i

later OMB approval will be published when received

The amendments to Part 572 shalI become effective July

20 1987

SUPPLEMENTARY INFORMATION

By Notice of Proposed Rulemaking published in the Federal Registe

on April 5 1985 50 FR 13617 pursuant to sections 16 and 17 of the

Shipping Act of 1984 1984 Act 46 VS C app 1715 and 1716 an

sections 35 and 43 of the Shipping Act 1916 1916 Act 46 V S C

app 833a and 841a the Commission invited comments on the exemption

of certain classes of marine tenninal agreements from the filing ando

waiting period requirements of section 5 of the 1984 Act 46 V S C app

1705 and from the filing andor approval requirements of section 15 o

the 1916 Act 46 V S C app 814 The Proposed Rule implemented then

Commissioner Robert Setrakian s recommendations in Report of Inquiry

Officer Part I served September 26 1984 49 FR 38987 in Federa

Maritime Commission Docket No 83 38 Notice of Inquiry and Inten

to Review Regulation ofPorts and Marine Terminal Operators

I A correction to the Supplementary Infonnation of the Proposed Rule was published in the Federal Reg

ister on May 10 1985 50 FR 19727

866 28 F M C
MARINE TERMINAL AGREEMENTS 867

The Proposed Rule would have incorporated the exemptions for marine

terminal agreements in a new Part 516 of Title 46 of the Code of Federal

Regulations In the interest of maintaining the integrity of the current organi

zational scheme the exemptions will now be included in existing Parts

559 and 572 of the Code of Federal Regulations which currently set

forth agreements that are exempt from requirements of the 1916 Act and

the 1984 Act respectively

Fifteen port marine terminal operator trade association and ocean com

mon carrier interests filed comments in response to the Commission s No

tice These are I the Maryland Port Administration MPA 2 the Port

of Sacramento Sacramento 3 the Terminal Operators Conference of

Hampton Roads TOCHR 4 the Virginia Port Authority and Virginia

International Terminals collectively VPA 5 the Port of Houston Author

ity of Harris County Texas port of Houston 6 American President

Lines Ltd APL 7 the Port of Oakland Oakland 8 Matson Terminals

Inc Matson 9 the Houston Port Bureau Inc Houston Port Bureau

10 the Tampa Port Authority Tampa II the American Association

of Port Authorities AAPA 12 the Port of Seattle Seattle 13 Sea

Land Service Inc Sea Land 14 the United States Atlantic Gulf

PortsItaly France Spain Freight Conference Conference and 15 the

Jacksonville Port Authority Jacksonville

All of the commenters support at least a partial exemption for marine

terminal agreements other than marine terminal conference and intercon

ference agreements from the waiting periodapproval requirements of the

1984 and 1916 Acts A majority recommend that all exempt agreements

be filed with the Commission for Federal Register publication Some of

the commenters favor a pre effectiveness review procedure while others

support the proposal that the exemption become effective immediately upon

an agreement s filing A number of commenters also addressed the Commis

sion s policy concerning agreements that relate back to events or activities

that occurred before the agreement became effective or was approved pursu

ant to the appropriate Shipping Act 2

DISCUSSION 3

After careful consideration of the comments we are establishing a uni

form waiting periodapproval exemption procedure for all classes of marine

20n December 17 1985 the Commission published a Notice of Proposed Rulemaking in the Federal Reg

ister 50 FR 51418 in Docket No 85 22 Agreements by Ocean Common Carriers and Other Persons Sub

ject tothe Shipping Act of 1984 Docket No 85 22 proposed to add anew paragraph h to Part 572 setting

fanh the Commission s

policy with regard to agreement provisions that relate back to events that occurred

before the agreement s effectiveness or approval By separate Notice served this dale the Commission has

detennined to withdraw the proposed role and to continue to address retroactive agreement provisions on

an ad we basis

3This discussion addresses those sections of proposed Part 516 that are being retained in the Final Rule

Certain sections such as proposed section 516 3 Policy and Scope are not being retained and will not

be addressed herein It indicates however where the retained provisions of Part 516 will appear in Parts

559 andor572

28 F M C
868 FEDERAL MARITIME COMMISSION

I

terminal agreements other than marine terminal conference interconference

joint venture and discussion agreements This procedure requires agreements

to be filed and published in the Federal Register with the exemption

becoming effective upon the agreement sfiling The Final Rule should

serve to reduce regulatory delays to a minimum while preserving the benefits

derived from prompt public notice of the existence and content of marine

terminal agreements For the reasons more fully explained below we have

determined that the Final Rule will not substantially impair effective regula

tion by the Commission be unjustly discrilllinatory or detrimental to com

merce within the meaning of section 16 of the 1984 Act and section

35 of the 1916 Act nor result in a substantial reduction in competition

within the meaning of section 16 of the 1984 Act

We have considered all of the comments received in this proceeding

and the Supplementary Information discusses some of the more significant

issues raised by the comments Any comments not expressly discussed

have either been incorporated as a technical change without discussion

have been found to be mooted by the changes incorporated in the Final

Rule or have been found to be irrelevant or without merit

A Proposed sections 516 4a and e

Agreement and Marine

Terlllinal Agreement now section 559 7 a and section

572 307 a

Proposed section 5l6 5 a defined the term agreement for the purposes

of the rule This definition was narrowly drawn to exclude agreement

provisions relating back to activity or events that occurred prior to an

agreement s execution Proposed section 516 4d defined the term marine

terminal agreement The Final Rule combines these definitions under the

term marine terminal agreement However because the Final Rule ex

empts the agreement only upon filing the term marine terminal agree

ment is defined to only include agreements thatapply to future prospec

tive activities that occur after filing In response to comments filed in

this proceeding and consistent with the Commission s action taken this

date in Docket No 85 22 supra the Final Rule deletes specific references

to unacceptable types of agreement provisions It is extremely difficult

if not impossible to prescribe a rule which addresses the legitimate concerns

of the commenters while at the same time providing clear definitive guide

lines covering all potential variant situations Accordingly determinations

as to retroactivity will continue to be made on an ad hoc basis

Four commenters urge clarification as to the manner in which the exemp

tion should apply to agreement provisions relating to activity or events

occurring prior to an agreement s execution VPA notes that neither the

1916 and 1984 Acts nor the cases interpreting them provide adequate

guidance in this area and states that a number of valid factors in the

business environment could result in entirely reasonable circumstances where

parties to marine terminal agreementswholly lacking unlawful intent

28 FMC
MARINE TERMINAL AGREEMENTS 869

might lock in triggering events or dates ultimately predating the agreement s

actual effectiveness APL believes that the Proposed Rule may blur the

distinction between agreement provisions which are on the one hand pro

spective in effect but which quite properly relate back in terms of an

accounting or an adjustment period or some other measure of future per

formance and on the other hand provisions which on their face provide

for performance which predates the filing of an agreement Accordingly

APL recommends revising the proposed definition to exclude agreement

provisions that on their face become effective as of a date or as of

an event or as of any activity occurring prior to the agreement s execution

rather than categorically excluding all agreement provisions relating back

to pre execution activity or events

Oakland is encouraged to see a clear statement on the retroactivity issue

in the Proposed Rule stating that it has found some uncertainty concerning

the acceptability of pre execution provisions under the Commission s prece

dents AAPA urges the Commission to advise whether preapproval events

may properly be included in marine terminal agreements

The complexity of the retroactivity issue is amply attested to by the

comments which have been received in this proceeding and in Docket

No 85 22 supra The Commission limited the exemption provided by

the rule proposed in this proceeding to those agreements which relate

to prospective events or activities on the grounds that is unlawful to imple

ment an agreement that has not been approved become effective or exempt

ed from applicable 1916 or 1984 Act requirements See 46 U S C app

816 833a 1704 1706 a 1709 a and 1715 The Commission may not

therefore exempt or otherwise act to grant antitrust immunity to an agree

ment or the activity that occurred thereunder prior to the agreement being

made lawful under the applicable Shipping Act Mediterranean Pools Inves

tigation 9 F M C 264 1966 See also Carnation v Pacific Westbound

Conference 383 U S 213 1966 Pacific Coast European Conference v

FMC 439 F2d 514 DC Cir 1970 River Plate and Brazil Conference

v Pressed Steel Car Co 327 F2d 60 2d Cir 1955 The Final Rule

continues the limitation to the exemption conferred and defines the term

marine terminal agreement in sections 559 7 a and 572307 a to limit

the exemption provided to those arrangements which apply solely to pro

spective activities or events

Finally the Final Rule also clarifies that the definition of marine ter

minal agreement and therefore any exemption accorded herein to that

class of agreement does not apply to joint venture arrangements among

marine terminal operations Given their significant and possible competitive

impact these arrangements will continue to be subject to the filing and

approvalwaiting period requirements of the 1916 and 1984 Acts

B Proposed sections 516 5 a and b Marine Terminal Agree

mentsExemptions now sections 559 7 f and 572307 e

28 F M C
870 FEDERAL MARITIME COMMISSION

Proposed sections 516 5 a and b contained the operative provlSlons

exempting certain classes of marine terminal agreements from the filing

andor waiting period requirements of the 19 4 Act or from the filing

andor approval requirements of the 19i6 Act depending on which Act

applies to the agreement in question Two types of exemptions were pro

posed which were differentiated on the basis of the likely anticompetitive

impacts of the classes of agreement involved The Supplementary Informa

tion to the Proposed Rule also invited comment on an alternative to each

type of exemption

The first alternative was set forth in section 516 5 a and proposed an

exemption from both Acts filing requirements hereinafter referred to as

the Paragraph a Exemption for four classes of agreements I

land

lord tenant marine terminal facility leases 2 agreements relating to marine

terminal facilities or services used in connection with the handling of propri

etary cargo 3 agreements relating to the financing or construction of

marine terminal facilities and 4 agreements relating to off dock container

freight station facilities or services the four classes hereinafter referred

to as Paragraph a Agreements

We also invited comments on a procedure that would exempt Paragraph

a Agreements from only the waiting period approval requirements on

condition that they be filed for informational purposes and Federal Register

publication hereinafter referred to as the Paragraph a Exemption Alter

native The exemption provided by the Paragraph a Exemption Alter

native would become effective upon filing as the Commission did not

intend to substantially review these agreements before they were imple

mented The Commission proposed this Alternative because of its concern

that agreements should generally be made available to the maritime commu

nity as a matter of public information

The second type of exemption as proposed in section 516 5 b provided

an exemption from the 198416 Acts waiting periodapproval require

ments hereinafter referred to as the Paragraph b Exemption for classes

of marine terminal agreements other than Paragraph a Agreements with

the exception of marine terminal conference marine terminal interconference

and marine terminal discussion agreements on condition that they be filed

for Federal Register publication These other marine terminal agree

ments are hereinafter referred to as Paragraph b Agreements Again

no substantive pre implementation review of these agreements would be

undertaken

We also invited comments on an alternative exemption for Paragraph

b Agreements which would provide a substantive pre effectiveness review

procedure to ensure overall conformity with the exemption s standards and

the Commission s rules hereinafter referred to as the Paragraph b Ex

j

4Tcrminal services arrangements bertbing agreements and other such arrangements are examples of Para

graph b Agreements

28 FM C
MARINE TERMINAL AGREEMENTS 871

emption Alternative Under this Alternative the exemption would take

effect on the earlier of I

twenty one days after the filing of the agreement

or 2 the date of the letter from the Commission advising that the agreement

has been accepted for exemption An agreement not accepted for exemption

under the Paragraph b Exemption Alternative would instead be processed

for effectiveness or approval under the normal procedures prescribed in

46 CFR Part 572 or 560 as appropriate for the category of agreement

involved

Fourteen commenters specifically addressed proposed section 5l6 5 a

one favors the Paragraph a Exemption in its proposed form four rec

ommend that certain other agreements be designated Paragraph a Agree

ments and nine urge adoption of the Paragraph a Exemption Alternative

TOCHR favors adoption of the Paragraph a Exemption in its proposed

form

Of the four commenters recommending that other types of agreements

be designated Paragraph a Agreements MPA and APL suggest inclusion

of marine terminal leases where the lessor retains some control over the

facility through its public tariff Matson urges the Commission to classify

marine terminal services agreements between marine terminal operators and

their common carrier customers as Paragraph a Agreements Matson argues

that there is competition among terminal operators performing terminal

services and there is therefore no regulatory need to file such agreements

However if this suggestion is not adopted Matson urges enforcement of

the requirement that complete marine terminal services agreements be filed

including the rates and charges agreed to by the parties involved

The Conference recommends that all marine terminal agreements except

marine terminal conference agreements be classified as Paragraph a Agree

ments The Conference argues that the majority of such agreements have

no anticompetitive effects due to the availability of such facilities and

services as well as the innocuous purely operational nature of the arrange

ments involved The Conference also urges elimination of section

516 5 a 3 which requires furnishing exempted agreements to any interested

party stating that this procedure is without precedent in Commission prac

tice and is susceptible to abuse through fishing expeditions by carriers

and terminals solely interested in keeping abreast of competitors terminal

rates and conditions

Whatever the merits of the various recommendations to expand the types

of agreements classified as Paragraph a Agreements they are beyond

the scope of this rulemaking and will not be addressed further With regard

to Matson s comments concerning the need to file complete marine terminal

agreements we believe that the Final Rule makes clear that agreements

28 F M C
872 FEDERAL MARITIME COMMISSION

are not entitled to the exemption if they do not completely set forth the

rates and charges agreed to by the parties

A majority of commenters support the Paragraph a Exemption Alter

native in one form or another on the grounds that it would allow all

interested parties timely and accurate notice of the existence and content

of agreements that may affect them protect the Commission and other

interested parties from the loss of relevant information that would otherwise

be in the agreement parties private files 6

and enable negotiations and

decisions in the industry to be based on actual knowledge of the relevant

facts

Many commenters urge the Commission to avoid artificial distinctions

between classes of agreements and to treat all classes the same The division

of marine terminal agreements into different categories for exemption pur

poses some of which would no longer be filed and others continuing

to be filed but exempt from subsequent waiting periodapproval require

ments allegedly would create uncertainty concerning which agreements

should be filed may be discriminatory as between the types of agreements

and carriers involved particularly as to off dock CFS agreements and

would render effective regulation of agreements entitled to the Paragraph

a Exemption impossible since there would be no effective uniform and

timely procedure to ascertain the nature of an agreement to ensure that

it properly falls within the exemption Several of these commenters note

that the Paragraph a Exemption Alternative would create no additional

burden for marine terminal operators in comparison to the system currently

in place and is similar to current procedures while affording a significant

savings in time

The reasons advanced in support of the Paragraph a Exemption Alter

native are meritorious and this Alternative modified as discussed below

is adopted in the Final Rule The common thread running through virtually

all of the comments supporting this Alternative is that marine terminal

agreements falling within the scope of the 1984 or 1916 Acts should

generally be made available to the maritime community as a matter of

public information The concern here is that all interests that are not parties

S The Commission has recently received numerous inquiries and requests concerning its requirement thai

marine terminal operators charges for terminal services be set forth in an agreement on file with the Com

mission or separately reflected in aflied tariff As aresult of these inquiries and the apparent confusion

regarding the Commission s requirements theCommission gave notice that it would waive assessing penalties

for the pre filing implementation of such terminal services agreements until a fonnal study of the issue had

been completed Notice o Woiver of Penalties 51 FR 23154 June 25 1986 Because there still appeared

to be some continuing confusion regarding its requirement the Commission on October 15 1986 extended

indefinitely the waiver of penalties provided by the June Notice The Commission by separate Order served

this date is instituting Fact Finding Investigation No 17 to study this matter The Commission is also issuing

this date a Second Supplemental Notice of Waiver of Penalties to extend the June Notice

6Sea Land argues that the Paragraph a Exemption would be counterproductive to the Commission s obli

gations under section i8of the 1984 Act 46 U S C app 1717 which requires the Commission to collect

and analyze infonnation concerning the Act s

impact on the international ocean shipping industry and to

submit a

report thereon specifically addressing among other things the need for antitrust immunity for ports

and marine tenninals

28 F M C
MARINE TERMINAL AGREEMENTS 873

to an agreement but nonetheless may be affected by the agreement

have timely and accurate knowledge of the agreement s existence and con

tent

The objections to dividing marine terminal facility and services agree

ments into classes for exemption purposes are also well supported Marine

terminal facility and services agreements are often mixed in their charac

teristics As a result the proposed Paragraph a Exemption would not

apply to agreements which while primarily landlord tenant leases or other

arrangements described in section 516 a of the Proposed Rule also in

clude other activities which would not fit within the Paragraph a Agree

ment category Moreover the several recommendations for aggregating all

marine terminal facility and services agreements into a single class for

uniform treatment for exemption purposes are well supported in logic The

adoption of this approach should result in a significantly clarified and

more easily administered Final Rule

Eleven commenters specifically address proposed section 516 b four

support the Paragraph b Exemption as proposed another would classify

intra port discussion agreements as Paragraph a Agreements two suggest

that some or all of the agreements included as Paragraph b Agreements

be instead classified as Paragraph a Agreements and four support the

Paragraph b Exemption Alternative

Sacramento Tampa Seattle and Sea Land favor the Paragraph b Exemp

tion without substantive change They state that this procedure would allow

all interested parties sufficient and timely notice of agreements that may

affect them provide adequate safeguards to make the Paragraph b Exemp

tion Alternative unnecessary and avoid significant and unnecessary delay

to the parties Tampa believes that this exemption would provide a basis

for ensuring that Congress continues the antitrust exemption presently af

forded marine terminal agreements by the 1916 and 1984 Shipping Acts

Seattle suggests clarifying the effective date of the Paragraph b Exemption

to deem an agreement to be filed when deposited in the United States

mail or delivered to a courier for delivery Seattle also urges the Commis

sion to reduce the number of copies required to be filed to the absolute

minimum necessary perhaps a true original and two copies in view of

the cost and time consumed in providing the oversized exhibits often in

cluded in a terminal lease

The Final Rule does not adopt Seattle s suggested technical modifications

The filing date for exemption purposes is consistent with our procedures

for agreements in general and the requirement that an original and fifteen

copies be filed is based on our need to have sufficient number of copies

available to facilitate agency processing the Federal Register notice and

assure prompt public access to copies of filed agreements We will however

continue the current practice of accepting agreement copies that have had

oversized exhibits reduced to standard paper size provided that they are

complete legible and reproducible

28 F M C
I

I

I

874 FEDERAL MARITIME COMMISSION

1

MPA suggests that intra port discussion agreements be classified as Para

graph b Agreements stating that such agreements warrant special treat

ment A discussion agreement involving local port interests is said to present

a much different set of regulatory options than do two port or range

wide discussion agreements

Two other commenters recommend that certain or all of the Paragraph

b Agreements be instead classified as Paragraph a Agreements and there

fore entitled to the less stringent Paragraph a Exemption Matson believes

that marine terminal services oagreements should be classified as Paragraph

a Agreements for the reasons summarized in the i1iscussion of section

516 a and the Conference urges that all agreements proposed as Para

graph b Agreements be instead afforded the Paragraph a Exemption

for the reasons summarized in the discussion of section 516 5 a As noted

earlier we cannot consider the merits of recommendations to expand the

scope of this proceeding beyond that originally set forth in the Proposed

Rule

TOCHR VPA Oakland and Houston Port Bureau favor adoption of

the Paragraph b Exemption Alternative in one form or another They

note that it is consistent with the shortened review procedure now reql1ested

by many parties under the 1984 Act lld argue that it is preferable to

the Paragraph b Exemption since the latler exemption may permit agree

ments that do not conform to the Commission s requirements to become

effective without even a

cursory review These commenters argue that Para

graph b Exemption is inconsistent with the Commission s obligations

and would be inequitable to other parties who might well be damaged

if they did not have the opportunity to review and challenge an agreement

before it became effective

The Final Rule adopts the Paragraph b Exemption for all classes of

marine terminal agreements other than marine terminal conference intercon

ference joint venture and discussion agreements witlt the exemption becom

ing effective upon the filing of an agreement with the Commission Thus

the Final Rule implements a unifOrm procedure consisting of the Paragraph

a Exemption Alternative and the Paragraph b Exemption for all classes

of marine terminal agreements excepting marine terniinal conference inter

conference joilventure and discussion agreements

On balance we agree with the many views favoring a uniform exemption

procedure There is merit to the objections to the classification system

upon which the Proposed Rule waspredicated Another factor we considered

in adopting this final Rule is the disproportionate amount of the Commis

sion s own resources that would have been required to administer an exemp

tion alternative that would subject all agreements filed thereunder to a

substantive pre effectiveness review prQce4ure within twenty one days fol

lowing filing as suggested under proposed section 5l6 5b the Paragraph

b Exemption Alternative or within fourteen days following Federal Reg

ister publication as suggested by some of the commenters favoring this

j

j

j

28 F MC
MARINE TERMINAL AGREEMENTS 875

alternative The Commission will however monitor those agreements that

are filed for exemption pursuant to the Final Rule to ensure that the

agreements otherwise conform to the Commission s statutory and regulatory

requirements In this connection it should be noted that the Final Rule

makes it clear that only agreements that apply to prospective aqivities

i e events or payments that occur after filing are entitled to the exemption

The exemption also does not apply to agreements which fail to completely

set forth the rates and charges agreed to by the parties Parties who imple

ment agreements that do not qualify for the exemption or which otherwise

are in violation of the Commission s requirements will be subject to substan

tial penalties of the applicable statute

The Federal Maritime Commission has determined that this Final Rule

is not a major rule as defined in Executive Order 12291 dated February

17 1981 because it will not result in

I

An annual effect on the economy of 100 million or more

2 A major increase in costs or prices for consumers individual indus

tries Federal State or local government agencies or geographic regions

or

3 Significant adverse effect on competition employment investment

productivity innovations or on the ability of United States based enterprises

to compete with foreign based enterprises in domestic or export markets

The Chairman of the Federal Maritime Commission certifies pursuant

to section 605 b of the Regulatory Flexibility Act 5 U S c 601 et seq

that this rule will not have a significant economic impact on a substantial

number of small entities including small businesses small organizational

units or small governmental jurisdictions The primary economic impact

of this rule would be on marine terminal operators and common carriers

which generally are not small entities A

secondary impact may fall on

shippers some of whom may be small entities but that impact is not

considered to be significant

The Federal Maritime Commission has determined that this action does

not constitute a major Federal action significantly affecting the quality

of the human environment Therefore no environmental assessment or envi

ronmental impact statement was prepared

The collection of information requirements contained in this regulation

have been previously approved under 46 CPR 516 OMB Control Number

3072049 Since that Part is being discontinued the requirements that

are being codified in Part 559 are being resubmitted to OMB for review

under section 3504 h of the Paperwork Reduction Act of 1980 44 U S C

3504 No clearance is necessary for the requirements being codified in

Part 572 as these requirements do not add to the burden already present

therein A copy of the request for OMB review and supporting documenta

tion may be obtained from John Robert Ewers Director Bureau ofAdminis

tration Federal Maritime Commission 1100 L Street N W Room 12211

Washington D C 20573 telephone number 202 523 5866 Comments

28 F M C
876 FEDERAL MARITlME COMMISSION

1

I

may be submitted to the Agency and the Office of Information and Regu

latory Affairs Office of Management and Budget Washington D C 20503

Attention Desk Officer for the Federal Maritime Commission

List of Subjects in 46 CPR Parts 559 and 572 Antitrust Contracts

Maritime carriers Administrative practice and procedure Rates and fares

Reporting and record keeping requirements

Therefore pursuant to 5 US C 553 and sections 5 16 and 17 o

the Shipping Act of 1984 46 U S C 1704 1715 1716 and sections 15

35 and 43 of the Shipping Act 1916 in order to exempt certain marine

terminal agreements from the waiting period requirement of the 1984 Act

and from the approval requirement of the 1916 Act Title 46 of the Cod

of Federal Regulations is amended as foHows

1 The authority citation to Part 559 continues to read

AUTHORITY 5 U S C 553 sections 15 35 and 43 of the Shipping

Act 1916 46 U S C app 814 833a and 841a

2 Section 559 7 to Part 559 in Subchapter C in Title 46 of the Cod

of Federal Regulations is redesignated 559 8

3 A new 559 7 to Part 559 in Subpart C in Title 46 of the Cod

of Federal Regulations is added to read as foHows

559 7 Marine Terminal Agreements Exemption

a Marine terminal agreement means an agreement understanding ar

rangement or association written or oral including any modification can

cellation or appendix that applies to future prospective activities betwee

or among the parties and which relates solely to marine terminal facilities

andor services among marine terminal operators and among one or more

marine terminal operators and one or more common carriers in interstat

commerce that completely sets forth the applicable rates charges terms

and conditions agreed to by the parties for the facilities andor services

provided for under the agreement The term does not include a joint venture

arrangement among marine terminal operators to establish a separate distinc

entity that fixes its own rates and publishes its own tariff

b Marine terminal conference agreement means an agreement betwee

or among two or more marine terminal operators andor common carrier

in interstate commerce for the conduct or facilitation of marine termina

operations in connection with waterborne common carriage in the domestic

commerce of the United States and which

1 i Provides for the fixing of and adherence to uniform marine termina

rates charges practices and conditions of service relating to the receipt

handling andor delivery of passengers or cargo for all members and

or

ii Provides for the conduct of the collective administrative affairs o

the group and

2 May include the filing of a common marine terminal tariff in the

name of the group and in which all the members participate or in the

j

1

1

28 F MC
MARINE TERMINAL AGREEMENTS 877

event of multiple tariffs each member participates in at least one such

tariff

c Marine terminal discussion agreement means an agreement between

or among two or more marine terminal operators andor marine terminal

conferences andlor common carriers in interstate commerce solely for the

discussion of subjects including marine terminal rates charges practices

and conditions of service relating to the receipt handling andlor delivery

of passengers or cargo

d Marine terminal interconferenee agreement means an agreement be

tween or among two or more marine terminal conference andor marine

terminal discussion agreements

e Marine terminalfacilities means one or more structures and services

connected therewith comprising a terminal unit including but not limited

to docks berths piers aprons wharves warehouses covered andlor open

storage spaces cold storage plants grain elevators andlor bulk cargo loading

andlor unloading structures landing and receiving stations which are used

for the transmission care and convenience of cargo andlor passengers or

the interchange of same between land and common carriers by water in

interstate commerce or between two common carriers by water in interstate

commerce This term is not limited to waterfront port facilities and includes

so called off dock container freight stations at inland locations and any

other facility from which inbound waterborne cargo may be tendered to

consignees or at which outbound cargo may be received from shippers

for vessel or container loading

I All marine terminal agreements as defined in 559 7 a with the

exception of marine terminal conference marine terminal interconference

and marine tenninal discussion agreements as defined in 559 7 b c

and d are exempt from the approval requirements of section 15 of the

Shipping Act 1916 on the condition that they be filed with the Commission

Such filing shall consist of

1 A true copy and 15 additional copies of the filed agreement

2 A letter of transmittal which shall

i Clearly state that the agreement is being filed for exemption pursuant

to this paragraph

ii Identify all of the documents being transntitted including in the

instance of a modification to an approved or exempted agreement the

full name of the approved or exempted agreement the Commission assigned

agreement number of the approved or exempted agreement and the revision

page andlor appendix number of the modification being filed

iii Provide a concise summary of the filed agreement or modification

separate and apart from any narrative intended to provide support for the

acceptability of the agreement or modification

iv Clearly provide the typewritten or otherwise imprinted name position

business address and telephone number of the filing party and

28 F M C
878 FEDERAL MARITIME COMMISSION

v Be signed in the original by the filing party or on the filing party 

behalf by an authorized employee or agent of the filing party

3 To facilitate the timely and accurate publication of the Federal Reg

ister Notice the letter of transmittal shall also provide a current list o

the agreement s participants where such information is not provided else

where in the transmitted documents

I Agreements filed for and entitled to exemption under this paragraph

will be exempted from the approval requirements of the Shipping Act

1916 effective on the date they are filed with the Commission

4 The authority citation to Part 572 continues to read

AUTHORITY 5 UsC 553 46 U S C app 1701 1707 1709 1710

1712 and 17141717

5 Section 572 307 to Part 572 in Subpart C of Subchapter D of Titl

46 of the Code of Federal Regulations is redesignated 572 308

6 A new 572 307 to Part 572 in Subpart C of Subchapter D Marine

Terminal Agreements Exemption is added to read as follows

572 307 Marine Terminal Agreements Exemption

a Marine terminal agreement means an agreement understanding o

association written or oral including any modification cancellation or ap

pendix that applies to future prospective activities between or among

the parties and which relates solely to marine terminal facilities ando

services among marine terminal operators and among one or more marine

terminal operators and one or more ocean common carriers that completely

sets forth the applicable rates charges terms and conditions agreed to

by the parties for the facilities andor services provided for under th

agreement The term does not include a joint venture arrangement among

marine terminal operators to establish a

separate distinct entity that fixe

its own rates and publishes its own tariff

b Marine terminal conference agreement means an agreement betwee

or among two or more marine terminal operators andor ocean common

carriers for the conduct or facilitation of marine terminal operations in

connection with waterborne common carriage in the foreign commerce o

the United States and which

I i Provides for the fixing of and adherence to uniform marine termina

rates charges practices and conditions of service relating to the receipt

handling andor delivery of passengers or cargo for all members and

or

Ii Provides for the conduct of the collective administrative affairs o

the group and

2 May include the filing of a common marine terminal tariff in the

name of the group and in which all the members participate or in the

event of multiple tariffs each member participates in at least one such

tariff

c Marine terminal discussion agreement means an agreement between

or among two or more marine terminal operators andor marine termina

28 F M C
MARINE TERMINAL AGREEMENTS 879

conferences andor ocean common carriers solely for the discussion of

subjects including marine terminal rates charges practices and conditions

of service relating to the receipt handling andor delivery of passengers

or cargo

d Marine terminal interconference agreement means an agreement be

tween or among two or more marine terminal conference andor marine

terminal discussion agreements

e All marine terminal agreements as defined in Y 572307 a with

the exception of marine terminal conference marine terminal interconference

and marine terminal discussion agreements as defined in Y 572307 b

c and d are exempt from the waiting period requirements of section

6 of the Shipping Act of 1984 and Part 572 of this Chapter on the

condition that they be filed in the form and manner presently required

by Part 572 of this Chapter

I Agreements filed for and entitled to exemption under this paragraph

will be exempted from the waiting period requirements effective on the

date of their filing with the Commission

By the Commission

S JOSEPH C POLKING

Secretary

28 F M C
I

I

FEDERAL MARITIME COMMISSION

46 CPR PART 572

DOCKET NO 85 22

AGREEMENTS BY OCEAN COMMON CARRIERS AND OTHER

PERSONS SUBJECT TO THE SHIPPING ACT OF 1984

ACTION

SUMMARY

May 14 1987

Discontinuance ofProceeding

The Federal Maritime Commission is discontinuing its

proposed rulemaking proceeding concerning provisions

in agreements subject to the Shipping Act of 1984 tha

affect or relate back to activities or events which oc

curred prior to the agreements becoming effective The

Commission will continue to address these matters on

an ad hoc basis

DATES May 19 1987

SUPPLEMENTARY INFORMATION

The Commission initiated this proposed rulemaking proceeding by Notice

published in the Federal Register 50 PR 51418 51420 December 17

1985 The proposed rule would have amended the Commission s agreemen

rules by adding a new subparagraph to 46 CPR 572103 to read as follows

h An agreement filed under the Act shall apply only to prospec

tive future activities of the parties and may not in any way

directly or indirectly affect or rely upon activities events or pay

ments which occurred prior to the effective date of the agreement

In proposing this rule the Commission advised that it had been receiving

an increasing number of agreements which contained provisions affecting

activities or events which occurred prior to the effective dates of the agree

ments The Commission noted that these provisions were particularly perva

sive in the area of marine terminal agreements where ocean common

carriers often agree to use port facilities in the future but in so doing

attempt to credit prior use to future formulas or rerate prior use at 

new and lower rate once the agreement becomes effective The Commission

explained that agreements with retroactive application raised legal concerns

under various provisions of the Shipping Act of 1984 1984 Act 4

U S C app 1701 1720

Comments in response to the Notice were received from ocean common

carriers ocean carrier conferences port authorities terminal operators law

firms and the Depattment of Justice Some commenters supported the

rule as proposed or in a modified form Several commenters expressed

I

1

I

880 28 P M C
AGREEMENTS BY OCEAN COMMON CARRIERS AND OTHER 881

PERSONS SUBJECT TO THE SHIPPING ACT OF 1984

the view that there is no particular need for a rule on retroactivity

because the parameters of acceptable conduct under the 1984 Act are already

clear as a matter of law In addition many of the commenters raised

concerns about portions of the proposed rule which appeared to be

overbroad in that they would condemn agreement provisions which have

heretofore been considered legitimate In this regard some commenters

requested that any final rule identify with particularity unacceptable retro

active provisions

Upon careful consideration of all of the comments submitted and in

light of the regulatory objectives underlying this proceeding the Commission

has decided to withdraw the proposed rule We do not believe that a

formal regulation defining the limits of an agreement s application to past

events is either feasible or necessary at least at this time Section lO a 2

of the 1984 Act 46 U S c app 1709 a 2 prohibits anyone from

operat ing under an agreement required to be filed under section 5

that has not become effective under section 6 of that Act Simi

larly section 7 of the Act 46 U S c

app 1706 conveys no antitrust

immunity on activity which has occurred prior to an agreement becoming

effective As a result and because it would be extremely difficult if not

impossible to prescribe a rule which would address the legitimate concerns

of the commenters while at the same time providing clear definitive guide

lines covering all potential variant situations the Commission has decided

to discontinue this rulemaking proceeding and continue to address the issue

of possible retroactive agreement provisions on an ad hoc basis

THEREFORE IT IS ORDERED That the rule proposed in this pro

ceeding is withdrawn and the proceeding discontinued

By the Commission

S JOSEPH C POLKING

Secretary

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 85 5

FAILURE OF NON VESSEL OPERATING COMMON CARRffiRS IN

THE FOREIGN COMMERCE OF THE UNITED STATES TO COMPLY

WITH THE ANTI REBATE CERTIFICATION FILING REQUIREMENT

OF SECTION IS b OF THE SHIPPING ACT OF 1984

DISCONTINUANCE OF PROCEEDING

June 1 1987

The Commission instituted this proceeding on March 7 1985 by Orde

to Show Cause March Order directed to 367 named non vessel oper

ating common carriers NVOCCs or Respondents as to why they

should not be found in violation of section 15 b of the Shipping Ac

of 1984 46 U S C app 1714 for failure to file the anti rebate certificat

required by that section for calendar year 1984

On December 9 1985 the Commission issued a further order whic

dismissed the majority of Respondents in the proceeding and at the sam

time referenced the institution of Docket No 861 Cancellation of Tariff

or Assessment of Penalties Against Non Vessel Operating Common Carrier

in the Foreign Commerce of the United States Docket No 861 wa

initiated in part as a vehicle for canceling the tariffs of non respondin

NVaCCs to the March Order

This proceeding has remained open primarily to aUow for foUow u

action to be taken on certain matters ie the issuance of warning letter

to certain Respondents by the Commission s Bureau of Hearing Counse

the refiling of correct anti rebate certificates by a number of Respondents

and for a last attempt to serve the March Order on certain other Respondent

for which more current addresses had been discovered As a result o

these actions there now remain six non responding NVOCCs which requir

some final disposition by the Commission

This proceeding did not provide for the assessment of penalties or tari

canceUation Docket No 861 which as indicated was initiated in pa

as a vehicle for canceling these tariffs was discontinued on January 21

1987

The Commission s Bureau of Domestic Regulation is currently consid

ering options for action against other non vessel operating common carrier

which have failed to file anti rebate certifications for 1987 The six Re

spondents remaining in this proceeding faU within this category since the

also have failed to file a current certification For this reason this matte

882 28 F M C
FAILURE OF NVOCC TO COMPLY WITH ANTI REBATE 883

CERTIFICATION FILING REQUIREMENT

as it pertains to these Respondents will be referred to the Bureau of

Domestic Regulation for appropriate action

TIffiREFORE IT IS ORDERED that the Respondents identified in the

attached Appendix are dismissed from this proceeding and this matter is

referred to the Bureau of Domestic Regulation for appropriate action and

IT IS FURTHER ORDERED that this proceeding is discontinued

By the Commission

S JOSEPH C POLKING

Secretary

Attachment

28 F M C
APPENDIX

Mundial Enterprises LIdco Peter Morales Pres 540 Militia Hill Road

Southampton Pennsylvania 18966

Pan Caribbean Freightliners Inc 2780 SW Douglas Road Suite 200A

Miami Florida 33133

Seven Star Container Line Port of Sacramento World Trade Center Suite

101 West Sacramento California 95691

Stalker Enterprises Inc

10320 Little Patuxent Pkwy Equitable Bank Center

Columbia Maryland 21044

Trans World Export Boxing Corp 808 Garfield Avenue Jersey City New

Jersey 07305

Worldwide Consolidators Inc 9032 South Vermont Avenue Torrence

California 90502

884
FEDERAL MARITIME COMMISSION

DOCKET NO 861

CANCELLATION OF TARIFFS OR ASSESSMENT OF PENALTIES

AGAINST NON VESSEL OPERATING COMMON CARRIERS IN THE

FOREIGN COMMERCE OF THE UNITED STATES

ORDER OF LIMITED REOPENING

June 5 1987

On January 2 1986 the Commission initiated this proceeding by Order

to Show Cause 1986 Order directed to 201 non vessel operating com

mon carriers Respondents or NVOCCs in the foreign commerce

of the United States The 1986 Order was issued to determine whether

the Respondents should be assessed civil penalties for any violations of

the Shipping Act of 1984 the Act 46 U S c app @ 1701 1720 and

Commission regulations principally the failure to file a current anti rebate

certification Subsequently on January 21 1987 the Commission issued

a notice advising that the Administrative Law Judge s Order Declaring

Certain Tariffs to be Inactive and Canceling Same Dismissing Respondents

and Discontinuing the Proceeding 1987 Order had become administra

tively final

Included among the tariffs canceled by the 1987 Order was that of

Fuji Express Fuji s tariff was declared to be inactive and ordered canceled

because Commission records did not indicate any response to the various

orders issued in this proceeding

The Commission s Bureau of Hearing Counsel has now filed a petition

to reopen this proceeding for the limited purpose of amending the 1987

Order by deleting Fuji Express from the list of canceled NVOCC tariffs

A current review of Commission records indicates that Fuji had responded

to the 1986 Order by filing its anti rebate certification Fuji did not follow

the procedural requirements set forth by the Administrative Law Judge

thereby causing its filing not to be included in the record of the proceeding

The fact remains that Fuji was in compliance with Commission regulations

and therefore its tariff should not have been ordered canceled

Hearing Counsel s petition falls outside of the time limits for a petition

for reconsideration as set forth in Rule 26I 46 CPR 502 26I of the

Commission s Rules of Practice and Procedure However Rule 10 46

CPR 502 10 allows for a waiver of the Commission s Rules in any

particular case to prevent undue hardship manifest injustice The

instant situation would appear to be appropriate for relief under Rule 10

and Hearing Counsels petition will be granted

28 F M C 885
886 FEDERAL MARITIME COMMISSION

THEREFORE IT IS ORDERED That the petition to reopen this pro

ceeding is granted for the limited purpose of amending the 1987 Order

by deleting Fuji Express from the list of those NVOCCs whose tariffs

were canceled

IT IS FURTHER ORDERED That the proceeding is discontinued

S TONY P KOMINOTH

Assistant Secretary

28 FM C
FEDERAL MARITIME COMMISSION

DOCKET NO 8617

MOBIL OIL CORPORATION V BARBER BLUE SEA LINES

ORDER OF REMAND

June 17 i987

The Commission determined to review the decision of Administrative

Law Judge Joseph N Ingolia Presiding Officer titled Complainant s

Motion to Withdraw Complaint Granted With Prejudice dated March

12 1987 approving an agreement in settlement of a complaint filed by

Mobil Oil Corporation Mobil or Complainant against Barber Blue

Sea Line BBS an ocean common carrier subject to regulation under

the Shipping Act of 1984 the Act 46 U S c app @ 1701 et seq

and granting Mobil s Motion to Withdraw the Complaint Motion

BACKGROUND

The complaint alleged freight overcharges by BBS in violation of section

lO b I of the Act on a shipment transported from New York New York

to Singapore In its answer to the complaint BBS denied any violation

of the Act Subsequently Mobil filed the proposed settlement agreement

and the Motion

DISCUSSION

The Presiding Officer approved the settlement agreement and granted

the Motion on the grounds the settlement of administrative proceedings

is favored by the Congress the Courts and administrative agencies them

selves Presiding Officer s decision at 2 No other explanation is

given for the Presiding Officer s action

The Commission as a matter of policy encourages the settlement of

disputes However in claims alleging freight overcharges the Commission

requires that the settlement be scrutinized in order to ensure that the agree

ment between the parties does not result in an unlawful refund or rebate

A settlement of an overcharge claim can only be approved on a finding

that the settlement reflects a reasonable interpretation of the carrier s tariff

unless circumstances make such a finding infeasible Clark international

Marketing S A a Division of Clark Equipment Company v Venezuelan

I Section 10b l

46 U S c

app 1709 b l provides

b

Common Carriers No common carrier either alone or in conjunction with any other person

directly or indirectly may

1 charge demand collect orreceive greater less ordifferent compensation for the transportation

of property or for any service in connection therewith than the rates and charges that are shown

in its tariffs orservice contracts

28 F M C 887
888 FEDERAL MARITIME COMMISSION

Line 22 S R R 464 465 1983 Order of Remand Therefore partie

which propose to settle a claim alleging freight overcharges in violatio

of the carrier s tariff must

I submit to the Commission a signed settlement agreement

2 file with the settlement agreement an affidavit setting forth the rea

sons for the settlement and attesting that the settlement is a bona fid

attempt by the parties to terminate their controversy and not a devic

to obtain transportation at other than the applicable rates and charges o

otherwise circumvent the requirements of the Shipping Act

3 show that the complaint on its face presents a genuine dispute an

the facts critical to the resolution of the dispute are not reasonably ascertain

able Organic Chemicals Glidden Durkee Corp v Atlanttraflk Expres

Service 18 S RR 1536a 1539 40 1979

While Complainant here filed the settlement agreement with its Motio

to Withdraw the Complaint it failed to meet the requirements referre

to above The Presiding Officer granted the Motion without any commen

or finding on the propriety of the settlement under BaS s tariff and sectio

lO b I of the Act In the absence of such a determination approva

of the settlement is at best premature

The proceeding will consequently be reman d to the Presiding Office

for an analysis of the selllement agreement under the standards set fort

above

THEREFORE IT IS ORDERED That the Presiding Officer s decision

titled Complainant s Motion to Withdraw Complaint Granted With Preju

dice It is vacated and

IT IS FURTHER ORDERED That this proceeding is remanded to th

Presiding Officer for further action consistent with this Order

By the Commission

S JOSEPH C POLKING

Secretary

i

I

I

2Thisstanc ard was established in a case arising under section 18b 3 of the Shipping Act 1916 fo

merly 46 V S C 811 b 3 Section 18b 3 was substantially the lamo as section 10b 1 of the Shippin

Act of 1984

28 F M C
FEDERAL MARITIME COMMISSION

DOCKET NO 8624

MC INTERNATIONAL

v

HANJIN CONTAINER LINES LTD

ORDER OF ADOFTION

June 17 1987

Upon review on its own motion the Commission has determined to

adopt the decision of Administrative Law Judge Joseph N Ingolia titled

Complainant s Motion to Withdraw the Complaint Granted With Preju

dice served April 2 1987 in which he approved an agreement in settle

ment of a complaint filed by MC international against Hanjin Container

Lines Ltd

THEREFORE IT IS ORDERED That the decision of the Administrative

Law Judge titled Complainant s Motion to Withdraw the Complaint Grant

ed With Prejudice is adopted

FINALLY IT IS ORDERED That this proceeding is discontinued

By the Commission

S JOSEPH C POLKING

Secretary

28 F M C 889
FEDERAL MARITIME COMMISSION

DOCKET NO 8624

MC INTERNATIONAL

v

HANJIN CONTAINER LINES LTD

COMPLAINANT S MOTION TO WITHDRAW COMPLAINT

GRANTED WITH PREJUDICE

Adopted June 17 1987

This proceeding was begun by a complaint filed by MC Internation

against Hanjin Container Lines Ltd on September IS 1986 The complai

alleges that the respondent violated sections lO b 3 6 C 11 12

of the Shipping Act of 1984 by discriminating against the complaina

in cancelling eight reefer bookings it had previously made and confirme

The complainant sought reparations of 7 58100 with interest as well 

certain other relief from the Commission

On March 16 1987 the parties filed a settlement agreement whic

in pertinent part states

After negotiations the parties have agreed that Hanjin will

pay to M C 3 75000 in return for which MC International

will withdraw its complaint

Hanjin is aware of no other shipper which can make the same

claim as M C so settlement would not improperly favor M

C or discriminate against any other shipper

The complainant has filed a motion to withdraw its complaint in accordanc

with the above

Wherefore in view of the above and the entire record as well as th

fact that the settlement of administrative proceedings is favored by th

Congress the Courts and the administrative agencies themselves it i

I Quality Food Corpora Ion v Tropical Shipping Co Ltd 23 F M C 602 1981 see also the authoriti

summarized in Ellenvllle Handle Work fInc Far Eastern Shipping Co 23 F M C 707 1981 and O

Ben Cool Co v Sea lAnd Service fne 21 F M C 505 1978

890 28 F M C
M INTERNATIONAL V HANJIN CONTAINER LINES LTD 891

Ordered that the complainant s unopposed motion to withdraw the com

plaint is granted subject to the payment of 3 750 00 by the respondent

to the complainant and the proceeding is hereby dismissed with prejudice

S JOSEPH N INGOLIA

Administrative Law Judge

28 F M C
FEDERAL MARITIME COMMISSION

46 CFR PARTS 580 AND 581

DOCKET NO 866

SERVICE CONTRACTS

June 23 1987

Final Rule

The Federal Maritime Commission is adopting a Fin

Rule that substantially revises its existing service contra

regulations and places them in a newly created pa

Those changes that are primarily technical in nature a

intended to better assist the Commission in meeting i

statutory responsibilities over service contracts In add

tion other changes have been adopted to ensure th

service contracts comply with all statutory requirement

DATE July 27 1987

SUPPLEMENTARY INFORMATION

The Commission initiated this proceeding by Notice of Proposed Rule

making published in the Federal Register on February 18 1986 51 F

57345744 The proposed rule reflected the Commission s experience 

dealing with the large number of service contracts that had been file

with it since the Shipping Act of 1984 Act or 1984 Act 46 D S C

app 1701 1720 was enacted It was intended to ensure that service con

tracts more fully comply with all statutory requirements and the inten

of Congress to update and streamline the service contract filing process

and to make non substantive technical revisions As a result the propose

rule altered the existing service contract rules in several ways

Thirty three commenters submitted their views on the proposed rule A

tachment A lists these commenters and the acronyms by which they w

be referred throughout this discussion The specific comments of each com

menter are discussed below in the context of each section of the propose

rule

ACTION

SUMMARY

ANALYSIS OF COMMENTS

The following addresses in numerical order each section of the propose

rule that received comment For each section the proposed language i

set forth and a brief description of its purpose and effect is included

This is followed by a discussion and analysis of the comments of th

parties and an explanation where appropriate of the course of action take

in the final rule

892 28 FM C
SERVICE CONTRACTS 893

A Proposed section 5811 e

e Contract party means any party signing a service contract as

an ocean common carrier conference shipper or shippers association

This provision revises the present definition of contract party 46

CFR 5807 a l by including a conference as an entity which can

sign a service contract It also deletes language in the present rule which

includes any other named entity associated with such a party entitled

to receive or authorized to offer services under the contract as a contract

party

The SouthCentral American Conferences contend that the rule should

be revised to again include a reference to named entities associated with

in the definition of contract party The North European Conferences

likewise support restoration of the deleted language They note that the

proposed rule otherwise treats such entities as contract parties citing as

examples proposed sections 581 3a 3 v B and 5814 a I v vi

The proposed definition of contract party will be adopted without

charge It is consistent with the basic concept that the only entity which

can be a party to a contract is one which signs the contract Other affiliated

entities may take advantage of the provisions of a service contract as

a third party beneficiary if named as an affiliate pursuant to proposed

section 5814 a I vi but they are not obligated under the contract itself

unless they too have signed it

B Proposed section 581 1 I

I Essential Terms Publication means the single publication which

is maintained by each carrier or conference for service contract s and

which contains statements of essential terms for every such contract

This new definition together with the proposed definition of statement

of essential terms in section 581 1r is intended to clarify the different

uses of the words essential termsi e I the essential terms which

must be included in a service contract pursuant to section 8 c of the

1984 Act 46 V S C app 1707 c 2 the statement of essential terms

which must be filed with the Commission and 3 the essential terms

publication which must contain the various statements of essential terms

of a carrier or conference

Hercules questions whether the contents of a service contract should

become public by way of an essential terms publication It contends

that service contracts are commercial transactions which should be of no

concern other than to those who are parties to the contract Hercules further

contends that even though the name of a shipper is not an essential term

it could be ascertained by other information available in a statement of

essential terms contrary to the interests of the shipper DuPont suggests

that the word only be inserted between the words which contains

in the proposed definition It believes that this will ensure further confiden

28 F M C
894 FEDERAL MARITIME COMMISSION

tiality of service contracts by prohibiting carriers or conferences from volu

tarily including anything else in an essential terms publication

The proposed definition of essential terms publication will be adopte

without change The comments by Hercules indicate a basic misconceptio

about the confidential nature of service contracts Although service contrac

must be filed confidentially with the Commission the 1984 Act require

that a concise statement of their essential terms must also be made availab

to the general public and those essential terms must be available to a

shippers similarly situated DuPont s suggestion also appears to be unnece

sary It is clear from the definition that the essential terms publication

is to contain only statements of essential terms

C Proposed section 581h

h Geographic area means the general location from which an

or to which cargo subject to a service contract wilJ move in intermod

service

This definition of geographic area is essentially the same as the presen

definition 46 CPR 580 7 a 2 The North European Conferences sugges

that the term through service be substituted for the term intermod

service in the proposed definition They contend that this would mor

accurately reflect the terminology employed in sections 3 25 and 3 26

of the 1984 Act

The Commission agrees that the Conferences suggested language is mor

consistent with the statute and it will therefore be included in the fina

rule

D Proposed section 581 1 m

m Port range includes those ports of loading or unloading of service

contract cargo that are regularly served by the contracting carrier or con

ference as specified in its tariff of general applicability even if the contrac

itself contemplates use ofbut a single port within that range

This provision is substantially the same as the present definition o

port range46 CPR 580 7 a 3 It does however omit language i

the present rule which limits coverage to ports in the countries o

loading or unloading

The North European Conferences object to the deletion of the word

in the countries and the substitution of includes for the wor

means in the proposed definition of port range They argue tha

the current definition should be retained except for the unexplained

pluralization of country The Mediterranean Conferences ANERA an

Sea Land believe that the proposed definition is too broad and sugges

that it be limited to the ports actually specified by the contracting carrie

or conference in a service contract They further contend that whateve

is done vis a vis foreign port ranges should also apply to the definition

of U S port range The Japanese Conferences likewise believe that the

28 F M C
SERVICE CONTRACTS 895

proposed definition is too broad and support retention of the existing defini

tion

APL contends that there is no clear Congressional indication of what

was intended by the tenn port range It contends therefore that the

Commission s definition should confonn to trade practices and include only

ports in the same general location as the ports covered in the initial

service contract

As suggested by the North European Conferences the Commission will

retain the existing definition of pert range modified to include the

words of limitation in the country We agree that this is more consistent

with the intent of Congress as expressed by the Senate Committee on

Commerce Science and Transportation when it stated

The tenn port range is intended to encompass those ports

in the country of loading or unloading of the contract cargo

that are regularly served by the contracting carrier or conference

as specified in the tariff applicable to the service in which the

contract is to be employed even if the contract itself contemplates

use of but a single port within that range

S Rep No 3 98th Cong 1st Sess 31 1983 emphasis added The

Commission will also make two minor alterations to the present definition

which were suggested by the North European Conferences Given the lan

guage of the statute and its legislative history the Commission cannot

however limit the geographic scope of port range further as was sug

gested by other commenters

E Proposed section 581 1n

n Service contract means a contract between one or more shippers

or shippers

I

associations and one or more ocean common carriers or con

ferences in which the shipper makes a commitment to provide a certain

minimum quantity of its cargo or freight revenue over a fixed time period

and the ocean common carrier or conference commits to a certain rate

or rate schedule as well as a defined service level such as assured space

transit time port rotation or similar service features The contract may

also specify provisions in the event of nonperfonnance on the part of

either party

The proposed definition alters the existing definition of service con

tract 46 CPR 580 7 a 4 by pennitting one or more shippers shippers

associations ocean common carriers or conferences to enter into service

contracts This revision was explained as being a clarification of existing

law

The North European Conferences do not believe that the proposed defini

tion is consistent with the definition set forth in section 3 21 of the

1984 Act They find no suppert in the Act or its legislative history for

the proposition that two or more unrelated or unaffiliated shippers or ship

pers associations may join together on a single service contract The South

28 F M C
I

I

896 FEDERAL MARITIME COMMISSION

I

Central American Conferences likewise recommend that the Commission

retain the existing definition of service contract on the assumption that

it was not the Commission s intent to permit unrelated shippers or groups

of shippers associations to enter into service contracts

USL contends that the net effect of the proposed definition would be

the establishment of de facto shippers associations on the one hand or

associations of carriers on the other with the membership varying from

contract to contract It submits that suCh II result is beyond the Commission s

statutory jurisdiction Lastly Sea Land avers that the proposed definition

is not a clarification but ralhera misreadinll of the 1984 Act It argues

that more than one carrier can enter a service contract only by joining

or creating a conference and that more than one shipper may enter a

service contract only by joining or forming a legitimate shippers associa

tion

The proposed definition of service contract will not be adopted The

Commission will instead retain the existing defmition which is essentially

the definition of service contract which is contained in the 1984 Act

Under this definition shippers cab continue to affiliate to take advantage

of service contracts if that affiliation meets the definition of a shippers

association

i

j

F Proposed section 581 lp

p Shipper means an owner or person for whose account the ocean

transportation of cargo is provided or the person to whom delivery is

to be made

This definition is the same as that in the Commission s existing rules

46 CPR 580 7 a 5 Moreover it is averblitim restatetuent of the definition

of shipper contained in section 3 23 of the 1984 Act 46 U S C app

1702 23

ANlRA Sea Land and the Australia New Zealand Conference suggest

that the Commission more precisely define the term shipper to preclude

certain mi jdlemen from taking advantage of the Act without subjecting

themselves to regulation under it They suggest that the Commissiol adop

the definition of shipper which was proposed by the North EllrOpea

Conferences in a petition filed with the CommissiOl on February 3 1986

57 PR 5402 1986 This proposal would requir any person who transports

cargo for its own account but resells the transportation services to under

lying shippers at higher rates to have a tariff on file in order to ente

into a service contract

While opposing the North European Conferences proffered definition

of shipper AlSA suggests that the Commission s proposed definition

be modified to include owners or other persons on whose account the

ocean transportation is provided It contends that this would correspond

to the definition of shipper at 46 CPR 572 104 aa and would clarify

I

28 F M C
SERVICE CONTRACTS 897

that shippers associations are shippers for the purposes of the service

contract regulations

The proposed definition of shipper will be adopted without change

The Commission addressed the North European Conferences proposed revi

sion in the context of its order denying the Conferences petition to amend

the definition of shipper See In the Matter ofPetition of the U S Atlantic

North Europe Conference and North Europe U S Atlantic Conference for

a Rule Regarding the Term Shipper 23 S R R 1381 1986 Moreover

as a result of that petition the Commission initiated a fact finding investiga

tion into the use of shippers associations and service contracts by various

middlemen Fact Finding Investigation No 15 Order served September

17 1986 Any revision of the existing definition of shipper should

appropriately await the conclusion of this investigation

AlSA s suggestion that the definition be modified to include owners

or other persons is likewise rejected The definition of service contract

in the 1984 Act clearly distinguishes between shippers and shippers associa

tions Given the fact that the 1984 Act and the Commission s rules define

a service contract as one by a shipper or shippers association there is

no need to attempt to include shippers associations within the ambit of

shipper It appears that Congress has created shippers associations as

distinct entities and has specifically delineated their rights and obligations

throughout the Act Again any possible modification of the definition of

shipper to include directly or indirectly shippers associations should

await completion of Fact Finding Investigation No 15

G Proposed section 581 1 t

t Tariff of general applicability means the effective tariff on file

at the Commission under Part 580 of this chapter that would apply to

the transportation in the absence of a service contract

This new definition was proposed because the term tariff of general

applicability was used in several other places in the proposed rule

Sea Land recommends that this definition be deleted It contends that

there is no direct relation between rates set forth in tariffs and rates set

forth in service contracts and believes that any definition which implies

such a connection may be confusing

The Commission agrees with Sea Land that there is not always a direct

relationship between a rate contained in a service contract and a rate

in a tariff A service contract stands on its own if properly drafted by

its parties However there are certain administrative requirements in the

final rule that necessitate a definition of tariff of general applicability

Moreover the term is used in the context of voluntarily filed contracts

on exempt commodities Accordingly this definition will be retained
898 FEDERAL MARITIME COMMISSION

H Additional comments on proposed section 581 1 definitions

APL ANERA and ffiP suggest various definitions for similarly situated

shipper which each believes should be incorporated into the final rule

APL alleges that the lack of a definition of similarly situated shipper

is inhibiting service contracting because a carrier entering into a service

contract for a commodity does not know whether it must grant the same

rate to a

shipper in a completely different industrY shipping a similar

commodity

Even jf the Commission were to agree that a definition of similarly

situated shipper is desirable it cannot do so in the context of this rule

making proceeding Any action along these lines is outside the scope of

this proceeding and would have to be proposed as a new rule In any

event the Commission does not find that a definition of similarly situated

shipper is necessary or appropriate at least at this time

It is extremely doubtful that the lack of a definition of similarly situated

shipper is in any way inhibiting the use of service contracts While

it is true that the number of me too contracts is a

very small percentage

of the service contracts filed with the Commission this may merely reflect

the fact that any shipper which can come close to meeting the terms

oCa service contract is probably in a position to negotiate its own More

over concepts like similarly situated are perhaps best left to resolution

on an ad hoc basis especially given the infmite variety of terms in a

service contract

Warner Lambert and NYCCI raise identical objections to any proviSion

in the proposed rule which could be interpreted as restricting non vessel

operating common carriers NVOs from offering serVice contracts to

shippers in their capacity as carriers They contend that the language of

the 1984 Act does not support such an interpretation

Presumably these commenters are referring to ecdefinition of service

contract in proposed section 581 1n which indicates that a service con

tract can only be offered by an ocean common carrier or conference

Contrary to the assertions of Warner LambertlNYCCI there is nothing in

the statute which authorizes NVOs to offer service contracts as carriers

In fact as section 8 c of the Act makes clear a service contract can

only be offered by a ocean common carrier and an NVO cannot qualify

as an ocean common carrier since it does not operate vessels

IProposed section 5812 a

a Geographical Scope Service contracts shall apply only to transpor

talion of cargo moving from to or through a United States port in the

foreign commerce of the United States

This amendment to the existing rule is designed to limit service contracts

to those involving transportation of cargo which moves through a U S

port in the foreign commerce of the United States

28 P M C
SERVICE CONTRACTS 899

The Mediterranean Conferences HPB the North European Conferences

NITL and USL support the provision

CMA Hercules DuPont Stauffer Ford NYCC and PPG believe that

the scope of service contracts should be broad enough to include foreign

to foreign traffic because shippers and carriers often negotiate a

single

contract package covering both the foreign commerce of the Us and

foreign to foreign commerce Their main concern is with the movement

of Canadian cargo

Sea Land suggests amending the proposed rule to permit service contracts

to include foreign to foreign cargo that moves through a U S port even

if it does not enter the foreign commerce of the United States

In arguing that the scope of service contracts should be broad enough

to include foreign to foreign cargo the commenting parties appear to be

treating the issue as purely one of policy which is within the Commission s

discretion to decide The Commission however cannot expand by its own

regulations the power given to it by Congress Austasia Intermodal Lines

Ltd v Federal Maritime Commission 580 F 2d 642 646 D C Cir 1978

Accordingly the threshold question is whether the scope of the jurisdiction

over service contracts conferred on the Commission by section 8 c of

the 1984 Act 46 U S c app 1707 c extends to foreign to foreign cargo

Only service contracts offered by an ocean common carrier or con

ference are subject to section 8 c of the 1984 Act The term common

carrier which subsumes the term ocean common carrier is defined

in section 3 6 of the 1984 Act 46 U S c app 1702 6 as meaning

a carrier holding itself out to the general public to provide transportation

between the United States and a foreign country that

utilizes for all or part of that transportation a vessel oper

ating on the high seas or the Great Lakes between a

port in

the United States and a port in a

foreign country emphasis

added

The Report of the Senate Committee on Commerce Science and Transpor

tation on S 504 contains the following explanation of the definition of

common carriers

This definition applies only to the extent the passengers or cargo

transported are loaded or discharged at a U S port Thus a liner

carrier that accepts uS origin intermodal cargo or for that mat

ter Canadian origin cargo at Halifax and calls at Boston for

further loading en route to Rotterdam would be a common car

rier for purposes of the bill only with respect to the Boston

Rotterdam leg of its voyage

S Rep No 3 98th Cong 1st Sess 19 1983 Likewise the House

Report makes it clear that the definition does not encompass cargo that

is transported by land from the United States to a contiguous foreign

country and from there by water to an overseas foreign country H R

28 F M C
900 FEDERAL MARITIME COMMISSION

I

j

i Rep No 53 98th

Cong

1st Sess 29 1983 It appears therefore that

inclusion of foreign to foreign cargo over which the Commission has no

jurisdiction in service contracts subject to filing under section 8 c of

the 1984 Act would be contrary to the intent of Congress to limit the

scope of the 1984 Act to cargo moving in the ocean commerce of the

United States which is loaded or discharged at a U S port

Even if the Commission were to conclude that there was no legal impedi

ment to the inclusion of foreign to foreign cargo in service contracts en

forcement problems would remain The Commission would have no legal

means of obtaining information relating to foreign to foreign movements

This could seriously hamper the Commission s ability to enforce the provi

sions of section 8 c Accordingly the Commission is adopting proposed

section 58I2 a as a final rule Jnso doing the Commission notes that

carriers and shippers are not prevented from making separate service con

tracts for the carriage of foreign to foreign cargo Section 8 c of the 1984

Act does not purport to regulate or prohibit service contracts which a

carrier may enter into while not acting in the capacity of an ocean common

carrier in the United States foreign commerce

J Proposed section 58I2 b

b Parties NVOs and Forwarders

1 A non vessel operating common carrier may sign a service contract

only in its capacity as a shipper to the offering ocean common carrier

or conference

2 i A licensed ocean freight forwarder may sign a service contract

only in its capacity either as the actual shipper or as forwarding agent

for and on behalf of a named shipper contract party

Ii Whenever a licensed ocean freight forwarder

A Signs a service contract as the actual shipper all bills of lading

covering shipments under the contract shall indicate as shipper on the

shipper line of the bill of lading the name of the licensed ocean freight

forwarder and in no event may the forwarder collect ocean freight com

pensation on such shipments or

B Acts as forwarding agent in signing a service contract written author

ization for such signature as agent shall be subntitted to the carrier or

conference contract party shall accompany the service contract filing under

581 3a I and shall be kept confidential under 58I9

The proposed rule clarifies that NVOs and ocean freight forwarders

which cannot offer service contracts as carriers may enter into them as

shippers but only under certain conditions

NCBFAA supports the rule but suggests that it be modified to cover

the situation in which the exporter activity is performed by an affiliate

of a freight forwarder

TWRA contends that the proposed rule would perntit freight forwarders

to sign service contracts and offer them to shippers without filing a tariff

Ji

28 F M C
SERVICE CONTRACTS 901

as an NvO It suggests that the proposed rule be amended to make it

clear that an ocean freight forwarder may only sign a service contract

as I an agent on behalf of a named shipper 2 a shipper having

a beneficial interest in the cargo or 3 an NVO ANERA Australia

New Zealand Conference APL the South Central American Conferences

and VSL filed similar comments

Hercules believes that NvOs and freight forwarders may execute service

contracts and hold themselves out to the public to provide transportation

Its only concern seems to be that NVOs and freight forwarders have suffi

cient financial resources in case of default on the service contract

NlTIopposes the rule apparently in the belief that it would require

shippers to utilize the services of a

freight forwarder when entering into

a service contract

NEPFC PCEC Sea Land and the North European Conferences believe

that the rule is unnecessary and should be deleted Sea Land points out

that only ocean common carriers conferences shippers and shippers asso

ciations can be parties to a service contract Each of these entities has

already been defined If an NvO or forwarder is to be a party to a

service contract it must fall within the definition of shipper

NYCCI and Warner Lambert have no objection to the rule but believe

that the issue of whether a

freight forwarder acting as a shipper should

receive compensation is a matter best left to the contracting parties

It appears that the proposed rule pertaining to NVOs and ocean freight

forwarders is subject to misinterpretation Moreover it does not appear

necessary As Sea Land has pointed out in its comments only ocean com

mon carriers conferences shippers and shippers associations Can be parties

to a service contract If an NVO or forwarder is to become a party to

a service contract it must be a shipper as defined in section 3 23

of the 1984 Act 46 V S C app 1702 23

Accordingly the Commission is deleting section 5812 b from its final

rule It should be noted however that even in the absence of section

5812 b section 19 d 4 of the 1984 Act 46 D S C app 1718 d 4

prohibits freight forwarders from receiving compensation from a carrier

for any shipment in which the forwarder has a direct or indirect beneficial

interest

K Proposed section 581 3a 2

2 Statement of essential terms At the same time as the filing of

the service contract under paragraph a 1 of this section the statement

ofessential terms of the contract shall be submitted

i In form and content as provided in 5814b and 5815

ii In tariff format

iii On page s to be included in the Essential Terms Publication as

described in paragraph b of this section and

28 F M C
902 FEDERAL MARITIME COMMISSION

iv A With an accompanying transmittal letter in an envelope which

contains only matter relating to essential terms and

B The envelope and the inside address on the transmittal letter are

to be addressed to the Director Bureau of Tariffs Federal Maritime

Commission Washington D C 20573

This is substantially the current rule 46 CFR 5807 i with the clarifica

tion that the statement of essential terms pages are to be filed in the

Essential Terms Publication

The North European Conferences note that under current rules the state

ment of essential terms filing requirements may be met by filing the entire

text of the service contract absent the name of the shipper They assume

that this option is still available

The North European Conferences are correct that the requirement to

file the statement of essential terms can still be met by filing the entire

text of the service contract minus the shipper s name As the Commission

previously stated tlo the extent that a service contract meets all the

essential terms format requirements and is appropriately stated in terms

of geographic areas or port ranges it could be submitted minus the ship

per s name in lieu of a statement of essential terms Docket No 84

21 Publishinq and Filing Tariffs by Common Carriers in the Foreign

Commerce of the United Stateservice Contracts and TimelVolume Con

tracts 27 F M C 323 at 333 1984 This alternative filing procedure re

mains available under the final rules

L Proposed section 581 3a 3

3 Notices of change to contract contract party or rate availability

of changed terms to similarly situated shippers and settlement of account

There shall be filed with the Commission pursuant to the procedures of

paragraph a 1 of this section a detailed notice within 30 days of the

occurrence of

i The making available of newly operable essential terms to similarly

situated shippers under 5816 b 5

H Termination by mutual agreement breach or default not covered

by the service contract under 5817 b

Hi The adjustment of accounts by rerating liquidated damages or

otherwise under 581 5818

iv Final settlement of any account adjusted as described in paragraph

a 3 Hi of this section attested to by the involved shipper or shippers

association and

v Any change to

A The name of a basic contract party under 5814 a 1 v and

B The list of affiliates under 5814 a 1 vi of any contract party

entitled to receive or authorized to offer service under the contract

This section which is new was proposed to assist the Commission

in monitoring and auditing contracts The Commission was concerned that

28 F MC
SERVICE CONTRACTS 903

many substantive changes in existing service contracts may not have been

made available as essential terms to similarly situated shippers nor been

brought to the attention of the Commission in a timely manner Accordingly

the proposed rule required that the Commission be given notice within

30 days of certain specified events

The Japanese Conferences object to proposed section 5813 a 3 i argu

ing that notification to the Commission of newly operable essential terms

would be burdensome

Sea Land suggests that the proposed rule be revised by deleting subpara

graphs ithrough iv It argues that as a

practical matter substantive

changes to the essential terms cannot be made available at mid course

to similarly situated shippers in any equal or comparable way and hence

such changes should be prohibited as should termination by mutual agree

ment It suggests that adjustments made by liquidated damages and final

settlement can be handled in section 5817 b in a non confidential manner

The North European Conferences support the notice requirement of the

proposed section but contend that notice of newly operable essential terms

to similarly situated shippers under subparagraph i and termination by

mutual agreement not covered by express contract provision under subpara

graph ii should not be confidentially filed with the Commission but

rather made publicly available They contend that this would provide the

public the opportunity to ascertain the essential terms of service contracts

and allow public monitoring of potential abusive practices In addition

these Conferences request the deletion of the requirement that notices of

final settlements of accounts under subparagraph iv be attested to by

the involved shippers or shippers association because carriers do not

have the authority to obtain such documentation

TWRA NEPFC PCEC and USL also endorse the notice requirements

However some of these commenters urge that the section be modified

to require that all occurrences for which notice must be given to the

Commission also be published in the Essential Terms Publication to allow

other shippers and carriers the opportunity to assist in the enforcement

of the rules and to protect their own interests

USL contends that any change in the rate structure of a service contract

should be prohibited because a rate change on the basis of events occurring

subsequent to the contracts execution is contrary to the purposes of the

proposed rule s provision that each filed service contract must be made

available for 30 days to all similarly situated shippers USL also supports

notice to the Commission of any final settlement made under a contract

but suggests that such notice include a statement of the actual amount

of cargo carried in order to discourage unauthorized settlements

DuPont questions the basis for the rule maintaining that the Commission

should not seek to assess the correctness of the adjustment of accounts

It argues such matters are for appropriate courts under the standard applica

tion of contract law Ford opposes the notification requirements maintaining

28 F M C
904 FEDERAL MARITIME COMMISSION

I that they would discourage the use of service contracts by adding substan

tially to the cost and burden for both the carrier and shipper Hercules

again asserts that a service contract is a commercial agreement between

consenting parties and should not become a matter of public information

IBP objects to the mechanism for making the new essential terms avail

able to similarly situated shippers indicating that the proposed section

does not state how the new essential terms are to be made available

i e who are similarly situated shippers

RCA sees no need for the proposed section maintaining that parties

to a contract should be free to negotiate mutually acceptable terms and

conditions It suggests that shippers would be adequately protected through

the use of most favored shipper clauses and through the use of warranties

andor covenants by the carrier with respect to its non discriminatory treat

ment of similarly situated Shippers

NITL opposes the proposed rule maintaining that it significantly increases

paperwork and is unnecessary regulation It points out that compliance

with the terms of service contracts is presently achieved through the use

ofrandom audits and suggests this isstiU adequate

DOT sees no need for the Commission to require carriers to provide

notice of a newly operable essential term to a shipper that entered into

a service contract as a similarly situated shipper DOT argues that the

invocation of any express or implied force majeure or commercial contin

gency clause depends on circumstances which may be unique to a particular

shipper and of no concern to a

similarly situated shipper

The commenters main concerns are thatthe notice requirement of newly

operable essential terms in section 5813 a 3 i I would create addi

tional paperwork and other unnecessary burdens and 2 should not be

confidentiaUy filed with the Commission bqt rather made public through

a filing in the Essential Terms Publication For the reasons stated below

the Commission rejects both of these arguments

AU the instant rule requires is that when certain changes ocur during

the course of a contract the Commission be given notice thereof This

can be accomplished by providing the Commission a

copy of whatever

document is transmitted between the parties This should not prove to

be particularly burdensome or unreasonable Moreover this information will

enable the Commission to be better aware of the status of service cOntracts

and to ensure that they meet aU statutory and regulatory requirements

As indicated in the Supplementary Information to the proposed rule

the Commission considered the non confidential filing of SUCh notices but

rejected this approach because there apPeared to be substantial practical

difficulties For instance there could be problems protecting the confiden

tiality of the shipper s name Moreover the types of events which require

notice to the Commission do not appear to warrant notice to the general

public The only event that does require natice to someone other than

the Commission is the availablity of newly operable essential terms pursuant

j

28F M C
SERVICE CONTRACJS 905

to section 5816 b 5 and this is accomplished directly between the carrier

and any similarly situated shipper

However lest there be any confusion or uncertainty as to the nature

of the changes contemplated by paragraph a 3 i the essential terms

that are subject to that paragraph are referred to in the final rule as contin

gent rather than newly operable This designation appears to be more

appropriate

Lastly the North European Conferences concern that ocean common

carriers and conferences may lack authority to obtain a

shipper s attesta

tion of a final settlement of any account described in paragraph a 3 iv

of this section has merit Accordingly this requirement has been deleted

from the final rule

M Proposed section 581 3c

c Who must file I As further provided in paragraph c 2 of this

section the duty under this part to file service contracts statements of

essential terms and notices and to maintain an Essential Terms Publication

shall be upon

i A service contract signatory carrier which is not a member of a

conference for the services covered by the contract or

ii The conference which

A Is signatory to the service contract or

B Has one or more member carriers signatory to a service contract

for a service otherwise covered by the conference agreement

2 When a conference files a service contract for and on behalf of

one or more of its member lines and the contract covers service from

to or between ports andor points not included within the scope of the

conference the complete text of the statement of essential terms shall

be simultaneously filed in the Essential Terms Publications of both the

conference s and carrier s involved which shall comply with all other

Essential Terms Publication filing and maintenance requirements nnder para

graph b of this section and 5814 b

The proposed rule identifies those who have the duty of filing and

maintaining service contract materials The purpose of this section is to

clarify the service contract filing obligations as between conferences and

their member lines

TWRA contends that a mandatory requirement that conferences file serv

ice contracts and statements of essential terms for individual members

service contracts is inappropriate It claims that timeliness may be affected

by additional conference action and such filings should be left to the

choice of the carrier or conference

IBP objects to the requirement that conferences file service contracts

statements of essential terms and notices when the signatory is a member

line of the conference It argues that the confidentiality of contracts will

inevitably be lost and in addition conferences will informally regulate

28 F M C
906 FEDERAL MARITIME COMMISSION

the contents of such service contracts It suggests an additional rule prohib

iting conferences from interfering with independently negotiated service

contracts that were concluded in the manner permitted by the conference

agreement

The requirement that the Essential Tenns Publication of a conference

also contain the statements of essential tenns issued by one or more of

the members of a conference is necessary to ensure that the shipping

public is aware of any statement of essential tenns offered by a conference

or any of its members in a particular trade The fonn and manner require

ments applicable to Essential Tenns Publications are except as provided

in these regulations the same as those applicable to tariffs Under current

rules it is a common carrier s obligation to file its own tariffs when

the common carrier is not a party to an agreement and when it is a

party to an agreement to participate in a single tariff filed by the conference

Under the tariff filing fonnat of conference tariffs the conference rate

on a commodity and a member line s rate on the same commodity are

contained in the same rate item of the conference tariff thus allowing

interested parties immediate access to all current available rates on a par

ticular commodity The same benefit would flow to shippers by allowing

them to be aware of all service contract rates in the trade by perusal

of the conference s Essential Tenns Publication In addition the proposed

filing procedure will allow the Commission to monitor conference members

activities more effectively

We see no need for IBP s recommended rule prohibiting conferences

from interfering with service contracts independently negotiated by member

lines There is no indication or suggestion that such interference presently

occurs Nor is there any basis to assume that the mere f1ling by conferences

somehow results in the infonnal regulation of the contents of members

service contracts Where member line service cOntracts are negotiated inde

pendently from the conference such negotiations are concluded prior to

the member line transmitting the final contents of the contract to the con

ference for filing with the Commission The conference in this instance

is merely acting as a filing agent for the member line and nothing more

In such instances the conference would have an obligation to maintain

appropriate confidentiality of the subject matter

N Proposed section 581 3d

d Exempt commodities I Except as provided in paragraphs d 2

and d 3 of this section this section does not apply to contracts relating

10 bulk cargo forest products recycled metal scrap waste paper or paper

waste

2 An exempt commodity listed in paragraph d l

of this section may

be included in a service contract filed with the Commission but only

if there is a tariff of general applicability for the transportation which

contains a specific commodity rate for the exempted commodity

28 F M C
SERVICE CONTRACTS 907

3 Upon filing under this paragraph the service contract and essential

terms shall be subject to the same requirements as those contracts involving

non exempt commodities

This provision amends the present sections relating to exempt commod

ities 46 CFR 580 7b 1 and b 2 by requiring that before a service

contract on an exempt commodity can be filed there must be a rate

on that same commodity in a tariff of general applicability The Supple

mentary Information which accompanied the proposed rule states that this

requirement was included to cover situations in which a contract was re

jected or otherwise had to be rerated Under these circumstances there

would then be a rate in a governing tariff to use as the basis for determining

the proper charges

APL suggests that subsection d should be revised to permit service

contracts on exempt commodities to be filed but without the requirement

that there be a tariff of general applicability covering the exempt commodity

APL further suggests that the Commission could accomplish its intended

result by requiring service contracts for exempt commodities to contain

bona fide deadfreight or liquidated damages provisions APL contends that

it is unnecessary to subject exempt commodities to the full panoply of

tariff regulation just because a service contract is entered covering such

traffic

ANERA and TWRA likewise oppose the requirement that a tariff of

general applicability be filed covering any exempt commodity included

in a service contract They support a rule that would simply require any

necessary rerating provisions to be included in a service contract covering

an exempt commodity NITL also opposes the requirement as unneces

sary

Sea Land does not believe that rerating is an appropriate remedy for

breach or non performance of a service contract because such a contract

stands on its own with actual or liquidated damages for enforcement

It further contends that it makes no sense to rerate a service contract

on exempt commodities which is rejected because Congress intended that

these commodities not be governed by tariffs

CMA agrees that if the Commission continues to allow the filing of

tariffs on exempt commodities it should not accept a service contract

on such a commodity unless there is a generally applicable tariff rate

on file for the exempt commodity CMA contends however that the Com

mission should not allow the voluntary filing of rates in tariffs which

cover exempt commodities CMA notes that the issue of whether to permit

exempt commodities to be included in tariffs is presently before the Com

mission in Docket No 856 Notice of Inquiry Concerning Interpretation

of Section B a and Section c of the Shipping Act of 1984 and contends

that a decision in that proceeding may render the instant issue moot DuPont

likewise notes the pendency of Docket No 856 and contends that until

28 F M C
908 FEDERAL MARITIME COMMISSION

it is resolved there is no legal precedent for proposed sections 5813 d 2

and 3

NARI suggests that all of proposed section 581 3d should be withdrawn

In its place NARI suggests a rule that any tariff or service contract applica

ble to exempt commodities which is tendered to the Commission for filing

will be rejected pursuant to section 8 1 of the 1984 Act

There is of course no requirement that service contracts covering bulk

cargo forest c products recycled metal scrap waste paper or paper waste

be filed with the Commission in the first instance Indeed they are statu

torily exempt from filing by section 8 c of the 1984 Act Most commenters

agree however that once service contracts on exempt commodities are

voluntarily filed with the Commission they should be subject to all of

the regulations governing service contracts in general The only provision

in the proposed rule which has raised concern is the requirement that

there must also be a rate in a tariff of general applicability which covers

the exempt commodity

The Commission will not preclude the voluntary filing of service contracts

on exempt commodities as was suggested by some commenters This ap

proach is consistent with the Commission s treatment of the voluntary filing

of tariff rates on exempt commodities See Notice of Inquiry Concerning

Interpretation of Section 8 a and Section 8 c of the Shipping Act of

1984 Docket No 856 28 F M C 841 1987 That Notice also indicated

that the issue of whether to allow the voluntary filing of service contracts

on exempt commodities would be decided in this proceeding

Permitting the filing of service contracts on exempt commodities should

benefit the shipping public Shippers who would otherwise be unaware

of the existence of a service contract on an exempt commodity may now

take advantage of such a contract as a similarly situated shipper Even

if a shipper has no intention of taking advantage of a service contract

on an exempt commodity on a me too basis the information contained

in the statement of essential terms may be commercially useful to it The

Commission will also be in a better position to monitor activity in certain

trades if it is made aware of movements on exempt commodities by way

of the filing of service contracts Moreover the voluntary filing of such

contracts is not specifically precluded by the 1984 Act

The choice of whether or not to voluntarily file a service contract on

an exempt commodity is one which involves both parties to the contract

In this regard the Commission notes that service contracts often include

a mixture of exempt and non exempt commodities so that a shipper can

obtain a better contract rate Presumably the ability to offer service contracts

on mixed commodities also benefits carriers

Because service contracts on exempt commodities will be permitted to

be filed the Commission continues to believe that some provision must

be made in the event the contract is terminated or rejected If there is

a tariff rate covering the same exempt commodity it will apply in such

28 F MC
SERVICE CONJRACTS 909

circumstances However carriers or conferences are not required to maintain

a tariff rate on any exempt commodity which they wish to include in

a voluntarily filed service contract The contract itself can contain a rate

or charge which will be applied in the event the contract is rejected or

terminated This will allow parties the optimum degree of flexibility con

sistent with their election to file a service contract on an exempt commodity

while at the same time ensuring that there is some basis upon which

to rerate the contract in the event it is rejected or terminated The proposed

rule has been modified to reflect this decision

O Proposed section 5814 a

a Service contract Every service contract shall clearly legibly and

accurately set forth in the following order

1 On the first page preceding any other provisions

i A unique service contract number beating the prefix SC

ii The FMC number FMC No 1 of the carrier s or

conference s Essential Terms Publication

iii A reference to the statement of essential terms number ET No

as provided in paragraph b I iii of this section

iv The FMC number s FMC No 1 of the tariff s of

general applicability

v The names of the contract parties Any further references in the

contract to such parties shall be consistent with the first reference e g

exact name carrier shipper or association etc and

vi Every affiliate of each contract party named under subparagraph

a I v of this section entitled to receive or authorized to offer services

under the contract except that in the case of a contract signed by a

conference or shippers association individual members need not be named

In the event the list of affiliates is too lengthy to be included on the

first page reference shall be made to the exact location of such information

and

2 Following the first page of the service contract

i The complete terms of the contract including all essential terms

required under 5815 and

ii A A description of the shipment records which will be maintained

to support the contract and

B The name address and telephone number of the individual who

will make shipment records available to the Commission for inspection

under 581 10

This proposed section is intended to facilitate processing of service con

tracts and establish format requirements that will allow the Commission

to readily identify responsible parties from whom documentation relevant

to the contract can be obtained

NEPFC and PCEC support the proposed section but note that it puts

additional paperwork burdens on carriers and conferences

28 F M C
910 FEDERAL MARITIME COMMISSION

i

The Japanese Conferences express concern over language in section

5814 a that requires service contract provisions to be set forth clearly

legibly and accurately They contend that such a standard requires a

subjective determination that could result in unwarranted encroachment

upon and rejection of an otherwise valid contract The Japanese Con

ferences also suggest that section 5814 a 2 ii B be amended to provide

that the named individual be the person who will respond to requests

because determining whether the records would be made available normally

would be beyond the authority of an employee of a carrier or conference

The SouthCentral American Conferences suggest that section 5814 a I vi

be modified to read a contract signed by or on behalf of a conference

or by Or on behalf of a shippers association

NITL opposes sections 5814 a l

i

ii iv and vi stating that

negotiations between the parties and implementation of the contract would

be significantly hampered and delayed by excessive attention to detail

regulatory technicalities and increased paperwork that would necessarily

be involved

The North European Conferences suggest that section 5814 a 2 be re

vised by adding the language Commencing on or at the beginning of

the provision They contend that this will allow the parties to include

additional material other than that required on the first page and will

result in a decrease in the number of pages of service contracts The

North European Conferences also object to the language of section

5814 a 2 ii B which requires service contracts to name an individual

who will make shipment records available to the Commission They

suggest that the rule be modified to provide that the contract parties shall

advise the Commission of the person to contact for a record inspection

They further note that the Commission bas legal remedies under the 1984

Act if its request for documents was not honored

APL ANERA and TWRA suggest that section 5814 a 2 ii B be

amended to permit designation of an office where document requests can

be lodged DuPont urges deletion of the section arguing that Congress

did not give the Commissio lresponsibility for contract enforcement

The suggested modification of section 5814 a l

vi i e adding the

language or on behalf of might clarify that agents could execute con

tracts for the parties but appears unnecessary since basic contract law

allows such action The Commission will however delete the words

signed by and substitute in their place the words entered into by

This should clarify the intent of the proposed rule and satisfy some com

menters concerns

Additionally sections 5814 a 1 vi and 5815 a 3 vi have been

amended to clarify that if the terms of a service contract are limited

to less than the full membership of a conference Or shippers association

a conference or shippers association must list the members to whom the

contract applies in the service contract

I

I 28 FM C
SERVICE CONTRACTS 911

The North European Conferences suggested revision of section 581 4

a 2 adding the language Commencing on or also has merit and

will be adopted This language clarifies that service contracts may include

contract provisions on the first page following the required material as

specified in section 581 4 a I

The suggestion that section 5814 a 2 ii b be amended to eliminate

the requirement to designate a named individual to make shipment records

available is being incorporated into the final rule The final rule will allow

the title of the person who will respond to a request for shipment records

rather than the person s name to be contained in the service contract

This change will eliminate the need for contract modifications when a

company changes its personnel during the course of a contract and should

not inhibit the Commission s surveillance efforts

P Proposed section 5 814 b 1

b Essential terms

Statement of essential terms Every statement of essential terms shall

i Be printed in black on yellow paper

ii Be subject to the form and manner requirements applicable to gov

erning tariffs as set forth in Part 580 of this chapter

iii Be identified by an essential terms number bearing the prefix ET

No which shall be located on the top of each page of the statement

of the essential terms and

iv Contain on the first page in a manner similar to that set forth

in 580 a 8 and 580 5 a IO of this chapter the period of availability

of essential terms to similarly situated shippers under 581 6b i e both

the beginning date which shall be the date the contract is filed at the

Commission and the expiration date which shall be no less than 30

days after the beginning date

This section revises the existing rule by requiring the period of availability

of terms to shippers under proposed section 581 6b to have a definite

beginning and expiration date DuPont recommends that this section be

modified to provide that the time period for making essential terms available

to similarly situated shippers be precisely 30 days

The Commission is adopting the rule as proposed For reasons stated

more fully below in our discussion of section 5816 carriers must make

the essential terms of service contracts available for at least 30 days

but can offer them for a longer period if they so desire There has been

no compelling reason offered for limiting the period of availability to

exactly 30 days

Q Proposed section 581 4 b 2

2 Essential Terms Publication The Essential Terms Publication shall

i Have all its pages printed in black on yellow paper

28 F M C
912 FEDERAL MARITIME COMMISSION

H Be subject to the form and manner requirements applicable to gov

erning tariffs as set forth in Part 580 of this chapter

Hi A Contain a currently maintained Index of Statements of Essentia

Terms structured as follows

ETNo

Effec

tive

Date

Expira

tion

Date

Page

No s

Section

No s

Date of Can

cellation of

Page s

The Index shall include for every statement of essential terms the ET

number as provided in paragraph b l iii of this section the effective

duration as provided in 5815 a 3 i the page and section number s

where used and a column for cancellation dates which shall be used

as an alternative to cancelling each individual page of the Essential Terms

Publication and

B The statement of essential terms may not be cancelled until after

the duration of the contract including any renewal or extension has expired

iv Include an alphabetical index of the commodities covered by the

service contracts in which each commodity shall make reference to the

relevant ET number or numbers

v Contain on its title page or in a rule reference to each carrier 

or conference s tariff of general applicability and

vi Be referenced in each of the carrier s or conference s tariffs o

general applicability where required to be filed under the Act and this

chapter

In addition to format refinements this proposed section adds a require

ment that the Essential Terms Publication contain an index of the statements

of essential terms

The Japanese Conferences suggest that section 5814b 2 iH B be

amended to permit cancellation of a statement of essential terms following

the termination of a contract as well as after it has expired

DuPont recommends that section 5814b 2 Hi B be revised to provide

that the statement of essential terms must be removed from the essentia

terms publication upon expiration of the period of availability to similarly

situated shippers It contends that maintaining the statement in an essentia

terms publication serves no purpose after the expiration of the period o

availability to similarly situated shippers

Hercules believes that only a full contract and subsequent amendments

should be filed with the Commission

The Japanese Conferences suggestion that the rule be amended to permit

the cancellation of the statement of essential terms pages when such can

cellation is effected by a termination of a service contract has meri

and has been incorporated in the final rule The proposed rule was intended

to make known the status of each statement of essential terms including

a date on which the essential terms are cancelled and to provide carriers

28 F M C
SERVICE CONTRACTS 913

and conferences with an alternative to cancelling each individual page of

the statement of essential terms The reason for the cancellation of any

particular statement of essential terms i e whether the statement of essen

tial terms is placed in a cancelled status because it terminated expired

under the original terms of the service contract or was extended or re

newedis irrelevant for purposes of the rule

The Commission does not agree with DuPont s position that maintaining the statement of essential terms serves no purpose after the expiration

of the period of availability to similarly situated shippers Removing the

statement of essential terms from the Commission s files after the period

of availability would deprive the public of knowledge of the terms of

the service contract while it is still in effect This information allows

the shipping public to be aware of all of a carrier s or conference s rates

tariff rate or service contract rate that are in effect in a trade

The Commission has made one technical modification to the proposed

rule It has been clarified to indicate that multiple contracts may be rep

resented by a single statement of essential terms

R Proposed section 5815 a

a Essential terms

I May not be uncertain vague or ambiguous

2 May not contain any provision permitting modification by the parties

other than in full compliance with this part and

3 Shall include the following

i The duration of the contract stated as a specific fixed time period

with a beginning date and ending date

ii The origin and destination port ranges in the case of port to port

movements and the origin and destination geographic areas in the case

of through intermodal movements except that in service contracts the

origin and destination of cargo moving under the contract need not be

stated in the form of port ranges or geographic areas but shall reflect

the actual locations agreed to by the contract parties

iii The contract rate rates or rate schedule s

including any additional

or other charges Le general rate increases surcharges terminal handling

charges etc that apply and any and all conditions and terms of service

or operation or concessions which in any way affect such rates or charges

iv The commodity or commodities involved

v The minimum quantity of cargo or freight revenue necessary to

obtain the rate or rate schedule s

except that the minimum quantity of

cargo committed by the shipper may not be expressed as a fixed percentage

of the shipper s cargo

vi The service commitments of the carrier or conference

vii Liquidated damages for nonperformance if any and

viii Where a contract clause provides that there can be a deviation

from an original essential term of a service contract based upon any

28 FM C
I

1

914 FEDERAL MARITlME COMMISSION

stated event occurring subsequent to the execution of the contract a clea

and specific description of the event the existence or occurrence of whic

shall be readily verifiable and objectively measurable This requiremen

applies to inter alia the following types of situations

A Retroactive rate adjustments based upon experienced costs

B Reductions in the quantity of cargo or amount of revenues require

under the contract

C Failure to meet a volume requirement during the contract duration

in which case the contract shall set forth a rate charge or rate basi

which will be applied

D Options for renewal or extension of the contract duration with o

without any change in the contract rate or rate schedule

E Discontinuance of the contract

FAssignment of the contract and

0 Any other deviation from any original essential terms of the contrac

This provision changes the existing service contract regulations concemin

the content of essential terms 46 CPR 580 7 g by I strengthenin

the requirement for concise essential terms to clearly prohibit uncertainty

vagueness or ambiguity 2 imposing a prohibition against contract modi

fications except when permitted by contingency clauses published wit

the original filed contract 3 requiring the contract s term to be state

as a specific date to date time period 4 allowing contracts to reflec

the specific origin and destination locations to be served as opposed t

port ranges and geographic areas that must be published in the statemen

of essential terms 5 prohibiting cargo commitments to be stated a

a fixed percentage of a shipper s cargo 6 treating cargo rereting provision

for failure to meet volume commitments as a form of contingency claus

instead of a form of liquidated damages and 7 requiring contingenc

clauses to be tied to an objective and verifiable event

Virtually every commenter expressed opinions on the various aspect

of this proposed section Accordingly no attempt has been made to cata

logue each commenter s views in detail The essential arguments of th

parties on the issues presented by the proposal are summarized below

in the discussion of each subsection

Section 5815 a 1 uncertainty vagueness or ambiguity

Several comments challenged the authority of the Commission to contro

the clarity of service contract language These comments are general

from shippers or shippers organizations and essentially state that the lan

guage of a service contract is a private commercial agreement not subjec

to oversight by the Commission

Other comments in support of the requirement were filed mostly b

carriers but also including at least one shipper They generally agree wit

the Commission that because third parties have rights involved clarit

I

28 P MC
SERVICE CONTRACTS 915

in the contractual terms is essential and that therefore uncertain vague

or ambiguous language should not be permitted

The final rule will require service contract essential terms to be clear

and definite Parties opposed to this requirement are confusing the concept

of flexibility which service contracts should afford the contract parties

with uncertainty vagueness or ambiguity which impedes the statutory

rights of third parties and the Commission s enforcement responsibilities

Arguments that continue to insist at this late date that service contracts

are purely private commercial arrangements are irrelevant The fact that

these contracts must be filed and their essential terms published in tariff

format and made available to similarly situated shippers necessarily charges

them with an element of the public interest See Publishing and Filing

Tariffs in Foreign Commerce 27 EM C 323 1984 Additionally although

service contracts are exempt from many of the prohibited acts applicable

to tariff rates and practices they are not exempt from all of l11em See

46 D S C app l709 b The Commission s

regulatory authority over service

contracts can only be exercised if the essential terms of filed contracts

are sufficiently precise to inform interested third parties of the exact nature

of the obligations undertaken by the contract parties Accordingly section

5815 a I will be adopted as proposed

Section 5815 a 2 modifications

Apart from those who generally support restricting the ability of contract

parties to modify a contract during its term few commenters addressed

section 5815 a 2 Some argued however that this section was too restric

tive and suggested that it be amended to allow for modifications necessary

because of mi takes of fact or changes in commercial conditions

The Commission again rejects the suggestion that it lacks authority to

restrict the rights of contract parties to modify a service contract during

its term on the basis that they are purely private commercial arrangements

See 27 F M C at 330 The relevant questions are whether the essential

terms of service contracts can be modified at all after publication and

if so how can the statutory interests of third parties be protected against

potential abuses of modification rights The solution the Commission has

accepted is to require the parties to provide for potential modifications

through contingency clauses published with the essential terms publication

See 27 F M C at 335 Because utilizing these provisions does not require

any change in the contract itself they are not true modifications but

rather contingency clauses permitting contingency clauses but not con

tract modifications strikes a balance between the commercial flexibility

service contracts are supposed to provide and the meaningful commercial

disclosure of the terms of the contract that publication of the essential

terms is intended to achieve

28 FM C
916 FEDERAL MARITIME COMMISSION

i

Section 581 a 3 content of essential terms

The focus of the comments on the content of essential terms was on

those concerning fixed percentage contracts and cargo commitments sec

tion 58I5 a 3 v service commitments section 58I5 a 3 vi liq

uidated damages section 581 a 3 vii and contingency clauses section

58I5 a 3 viii The comments on these essential terms generally fal

into two categories I those that favor more Commission control and

less flexibility in contract provisions mostly carriers and 2 those that

favor less Commission control and more flexibility in contract provisions

mostly shippers Although a few comments addressed other essential terms

none raises significant legal issues or sufficient policy considerations to

warrant a change in the proposed rule or discussion here

The comments that suggest permitting fixed percentage service con

tracts rely for the most part upon a technical legal argument concerning

the definition of loyalty contract at section 3 14 of the 1984 Act

46 U S C app 1702 14 They contend that because the definition specifi

cally excludes service contracts such contracts stated in all or a fixed

portion of a shipper s cargo are not loyalty contracts and may be filed

under section 8 c of the 1984 Act

The meaning of loyalty contract as defined in the 1984 Act cannot

be solely ascertained by a

reading of the statute Further guidance can

be obtained by reference to the overalI statutory scheme and the legislative

history of the 1984 Act As the Commission explained in a prior rulemaking

on this subject to permit fixed percentage service contracts

would in effect convert a service contract to a loyalty

contract as that term is defined by the Act 46 U S C app

1702 14 It would be inconsistent with Congress treatment of

loyalty contracts elsewhere in the Act 46 U S C app 1709

b 9

27 F M C at 327 Nothing in the comments submitted in this proceeding

warrants a departure from the Commission s previous determinations of

this issue Accordingly the prohibition against all or a fixed percentage

service contracts will be retained

The majority of comments on the content of essential terms concerned

the issue of contingency clauses Again comments were generally di

vided between those favoring strict regulation or even a ban on contingency

clauses and those opposed to any Commission regulation on the matter

The former stressed the need for meaningful contract commitments and

the protection of third party rights while the latter stressed contract freedom

and commercial flexibility Some comments supported the proposed rule

as a reasonable balance between these competing policies

The proposed rule was generalIy designed to alIow less fleiibility in

those areas susceptible to contract malpractices while retaining the max

imum amount of contract freedom in alI other areas The Commission

28 F M C
SERVICE CONTRACTS 917

has attempted to strike a balance between the need for regulations to

prevent service contract abuses and the commercial flexibility service con

tracts are intended to afford shippers and carriers However the Commission

rejects the extreme arguments in some comments that it has no authority

to promulgate any substantive regulations concerning service contracts Sec

tion 17 a of the 1984 Act 46 U S C app 1716 a grants broad rulemaking

authority to the Commission with no exception in the area of service

contracts The Commission is cognizant of the Congressional policy of

mirtimum government intervention expressed in section 21 of the Act

and has been guided by the policy in drafting these rules It does not

however read section 2 1 46 U S C app 1701 as a limitation on

its section 17 a

authority to promulgate rules We believe that the regula

tions promulgated in this proceeding are fully consistent with the overall

statutory and legislative intent relevant to service contracts and are a reason

able response to industry conditions For reasons stated above and in

a prior rulemaking proceeding on service contracts see 27 F M C at 320

the Commission will adopt the proposed rule

S Proposed section 5815 b

b Notice Detailed notice shall be given to the Commission under

581 3a 3 within 30 days of

I Any account adjustment resulting from either liability for liquidated

damages under paragraph a 3 vii of this section or the occurrence of

an event described in paragraph a 3 viii of this section and

2 Final settlement of any account adjusted under paragraph b l of

this section

This provision requires notice to the Commission within 30 days of

account adjustments due to contract breaches or deviations

TWRA favors this provision and additionally suggests that notice be

given in essential terms tariff publication for reasons stated in its comments

on section 581 3a

infra DOT urges that the Commission not impose

surveillance reporting requirements Ford also opposes the imposition of

these notification requirements maintaining that they would discourage the

use of service contracts by adding substantially to the cost and burden

for both the carrier and shipper

The proposed notice requirement is necessary to enable the Commission

to perform its contract surveillance role and ensure that the terms of con

tracts are met The notice requirements should not be burdensome since

such information is exchanged in the normal course of business by the

contract parties Compliance with the notice requirement can be met merely

by providing the Commission with acopy of whatever documents are

exchanged between the parties under such circumstances

In the Supplemental Information to the proposed rule the Commission

noted that it had considered the nonconfidential filing of the notices as

was suggested by TWRA but rejected this approach since there appeared

28 F M C
918 FEDERAL MARITIME COMMISSION

1

to be substantial practical difficulties such as protecting the name of ship

pers One exception to the confidential filings of notices would be a change

in the duration of a contract as a result of any renewal extension or

termination implemented pursuant to the terms of a service contract Such

notices would be made public through amendments to the Index of

Statements of Essential Terms

T Proposed section 5815 c

c Issuance of proposed final accounting Any proposed final account

adjustment resulting from liability for liquidated damages or the OCCUrrence

of an event under paragraph b l of this section shall be issued to the

appropriate contract party within 30 days of the termination or discontinu

ance of the service contract

This section is intended to prevent abuses in the collection or non

collection of the final amount due under service contracts

NEPFC and PCEC suggest that the final accounting rule be expanded

to require that carriers file a certification with the Commission at the

conclusion of a particular service contract attesting that the contract has

been fulfilled in accordance with its terms

The North European Conferences contend that the 3D day proposed final

account period is impractical and unrealistic They request that the time

period be enlarged to no less than 90 days DOT urges that the Commission

not impose any surveillance reporting requirements in this area TWRA s

comments are the same as for section 58L5 b AISA s comments are

the same as for section 5815 a 1

The suggestion that the Commission require a certification that every

contract has been fulfilled in accordance with its terms would place an

unnecessary burden on carriers andconf rences and the Commission s staff

The proposed rule was intended to apply to Only those service contracts

where there has been a change to the baSic compensation required by

the terms of the service contract Therefore whellno account adjustment

is Ilecessary no regulatory purpose would be served by requiring the filing

of a final accounting certifyillg completion of those cOlltracts

The 9O day proposed final account period suggested by the North Elro

pean Conferences appears too long considerillg that the widely accepted

commercial practice for the settlement ofaccounts is 30 days as evidenced

by the carriers and conferences credit privilegespl blished in their tariffs

of general applicability However considering the volume of paperwork

inherent in service contract activities and the time that may be involved

in collecting the data necessary in preparing a proposed final accounting

the Commission in the final rule is extending the period prescribed for

issuance of such final accounting to 60 days

i

1

I

28 F M C
SERVICE CONTRACTS 919

U Proposed section 5816

a Availability of statement A statement of the essential terms of each

service contract as set forth in tariff format shaIl be made available to

the general public pursuant to the requirements of this section and 5813

5814 b and 5815

b Availability of terms

I The essential terms of each service contract shaIl be made available

to all other shippers or shippers associations similarly situated under the

same terms and conditions for a

specified period of no less than thirty

30 days from the date of filing of the service contract as may be adjusted

under 5818 d

2 Whenever a shipper or shippers association desires to enter into

a service contract with the same essential terms a request shaIl be submitted

to the carrier or conference in writing

3 The carrier or conference shall reply to the request by mailing

or other suitable form of delivery within 14 days of the receipt of the

request either a contract offer with the same essential terms which can

be accepted and signed by the recipient upon receipt or a valid reason

in writing why the applicant is not entitled to such a contract

4 The service contract resulting from a request under this section may

not go into effect until an executed copy signed by all necessary parties

is filed with the Commission under this section

5 In the case of any expressly described event which results in a

change to an original essential term by the operation of a contract clause

in the service contract under 5815 a 3 viii the newly operable essential

term s shall be immediately made available in writing to other shippers

and shippers associations subject to the same original essential terms

with copies to the Commission under 581 3a 3 ii

This section amends the present procedures for a similarly situated shipper

to obtain a service contracts essential terms 46 CPR 580 7

g

I ii in

several ways I the request by a similarly situated shipper seeking the

same contract terms must be in writing 2 a carrier or conference must

respond to such a request within 14 days with either a similar contract

offer or an explanation why the carrier or conference does not believe

that the shipper is entitled to the contract and 3 a contract executed

by a similarly situated shipper cannot itself go into effect until it is filed

with the Commission In addition when a service contract provides for

a deviation from an essential term and such an event occurs the proposed

section would require that notice be provided to any other shipper which

is subject to the same terms so that it can have the opportunity to avail

itself of the altered terms

APL has no objection to the proposed section but suggests that the

term similarly situated shipper be defined The North European U S

Pacific Freight Conference and PCEC also generally concur with the pro

posed procedures They suggest however that a

copy of a carrier srejec

28 F M C
j

920 FEDERAL MARITIME COMMISSION

tion letter also be sent to the Commission ANERA and the Mediterranean

Conferences do not take issue with the proposed regulation except to

recommend that a deadline by which a similarly situated shipper must

return an executed copy of a proffered contract be established They suggest

three working days

The Japanese Conferences request that proposed section 5816 b 3 be

amended by deleting the words a valid reason and substituting therefor

an explanation Otherwise they believe that they could be found in

violation of the rule if at a later time a reason given in good faith is

found to be invalid The Japanese Conferences also believe that the words

signed by all necessary parties in section 5816 b 4 should be deleted

because the requirement that such a contract must be executed is suffi

cient Those Conferences oppose the present wording of subparagraph b 5

which would require all changes in essential terms which resultfrom oper

ation of a contract clause e

g

a force majeure clause to be immediately

made available to all shippers subject to the same essential terms They

believe that this could provide an unfair windfall to a shipper which is

not itself subject to the conditions which caused the change in the essential

terms They would amend the subparagraph to indicate that the changed

terms need only be made available to shippers which are similarly af

fected by the change Lastly the Japanese Conferences contend that para

graph b 5 should be clarified to require that notice need only be given

to similarly situated shippers which have in fact entered into a like contract

The North European Conferences believe that the phrase signed by

all necessary parties in subparagraph 4 should be revised to read signed

by or for all necessary parties They contend that this would clarify

that service contracts may be executed on behalf of the contract parties

by duly authorized representatives The North European Conferences also

correctly note that the reference to 58J 3a 3 ii in subparagraph 5

should actually be 5813 a 3 i

In accord with its comments on proposed section 5815 a 3 viii Sea

Land suggests that proposed section 581 6b 5 be deleted on the ground

that commercial contingency clauses should not be permitted in service

contracts Moreover even if the proposed section were retained Sea Land

questions whether a change in terms permits a total reopening of the

contract or only allows shippers who already have a me too contract

to avail themselves of the changed terms

TWRA generally agrees with the proposed section but believes that

14 days may be too short a period of time to respond to a shipper

if a good faith determination is to be made as to whether a shipper is

similarly situated TWRA also urges that the rule be amended to define

similarly situated shipper

While expressing no objection to the baSic 30 day availablllty period

set forth in proposed section 580 6 b 1 USL suggests that the period

should commence on the date the essential terms are published in the

i

I

I

I

I

I

28 F M C
SERVICE CONTRACTS 921

carrier s or conference s tariff USL further urges that the proposed rule

be clarified to provide that the 3D day availability period only applies

to the initial essential terms filing It contends that when a similarly

situated shipper takes advantage of a previously filed service contract the

filing of the essential terms far the subsequent contract should not extend

the availability period for an additional 3D days In this regard USL advo

cates the elimination of the filing of such subsequent essential terms Lastly

USL takes the position that the Commission should not attempt to define

similarly situated shipper and instead proposes that for a

shipper to

take advantage of an existing contract it must be ready wilIing and

able to execute the same contract as did the original shipper

AISA suggests that with respect to proposed section 5816 b 5 if the

Commission is merely seeking to ensure that similarly situated shippers

have changed terms made available to them the provision should be revised

to provide that a shipper and carrier may mutuaIly agree not to invoke

the provision after receiving the requisite notice DuPont contends that

the 3D day period of availability in section 581 6b 1 is reasonable but

it should not be permitted to extend any longer

IBP questions whether all essential terms of a

requested service contract

must be identical to those in the original contract IBP also takes issue

with the mechanism created by proposed section 5816 b 5 for making

new essential terms available to similarly situated shippers Because of

perceived ambiguities in this subparagraph IBP fears that carriers will

become unwilIing to negotiate service contracts to the detriment of the

shipping public

The NYCCI and Warner Lambert contend that the notice requirement

of proposed section 581 6 b 5 imposes an unreasonable burden on carriers

and also unreasonably discloses the business affairs of the shipper They

argue that if a shipper encounters a condition which triggers a deviation

from the original essential terms either all other shippers encounter the

same condition in which case they can also deviate or opt not to or

they do not encounter the same condition and are not similarly situated

The issue of whether to adopt a definition of similarly situated shipper

has been addressed elsewhere and wiII not therefore be further discussed

here

Some of the comments offer suggestions of a technical nature which

would appear to clarify or otherwise improve the proposed rule The sugges

tion of the Japanese Conferences that the words a valid reason be

deleted from subparagraph b 3 and the words an explanation be sub

stituted has merit and is adopted In addition we agree that it is not

necessary to state that an executed service contract be signed by all

necessary parties as is presently required by subparagraph b 4 since

an executed copy would perforce be signed by all parties Also as pointed

out the reference in subparagraph b 5 to @581 3 a 3 ii should read

@581 3 a 3 i

28 F M C
922 FEDERAL MARITIME COMMISSION

I

The Commission is not convinced however that the rule should contain

a specific deadline for a

requesting shipper to return a proffered contract

to a carrier as was suggested by ANERA Carriers or conferences making

offers to similarly situated shippers pursuant to subparagraph b 3 are

certainly free to impose their own deadlines Presumably any similarly

situated shipper requesting a me too contract might want to begin using

the contract as soon as possible and would therefore return its executed

copy quickly In any event subparagraph b 3 has been amended to

indicate that a carrier or conference may require a contract offer to be

accepted by a date certain

We also find merit to the proposal that subparagraph b 5 be amended

to clarify that similarly situated shippers which have entered into me

too contracts are entitled to altered essential terms as a result of contin

gencies stated in the initial contract only if they are similarly affected

by the described event This would prevent some shippers from otherwise

experiencing a windfall even though they did not likewise experience the

event which occasioned the change in terms

We are not adopting the remainder of the comments or suggestions

They appear to be either unwarranted by the circumstances or reveal a

misconception about the purpose and effect of the proposed rule Moreover

many of these comments would require additional rulemakingbefore they

could be implemented since they were not within the scope of the proposed

rule

In this regard there is no reason at this time to require that a

copy

of a

rejection letter prescribed in subparagraph b 3 be filed with the

Commission Any shipper aggrieved lay a carrier s decision not to offer

a me too contract can easily bring the matter to the Commission s

attention We also see no need to amend subparagraph b 5 to clarify

that the notice of newly operable essential terms must only be given to

shippers that have in fact entered into the same contract The present

wording is unambiguous The notice must be made to other shippers

and shippers associations subject to the same original essential terms

Emphasis added Nor do we agree that it is unclear whether a change

in essential terms subject to subparagraph b 5 requires a

reopening of

the contract Again these changes are only made available to other shippers

which have entered into a contract having the same essential terms

Only one commenter has suggested that 14 days is too short a period

of time to respond to a request for a similar contract This time limit

was originally proposed so that carriers or conferences could not unneces

sarily delay acting on such a request Nothing presented convinces us

that the period prescribed is unreasonable We are therefore retaining the

l4day limit

Likewise we see no need to change the beginning of the 3D day avail

ability period to the date the essential terms are published as was suggested

The publication of the statement of essential terms should generally coincide

28 F M C
SERVICE CONTRACTS 923

with the filing of the service contract In any event the dale of the filing

of a service contract is a date which is readily ascertainable by the Commis

sion and will be retained On the same subject it was the proposed rule s

intention that the availability period only apply to the initial service contract

filed and that any me too contract which was also filed did not extend

the availability period for an additional 30 days This also appears to

be the interpretation which has been adopted by carriers and conferences

in practice Nevertheless to avoid any potential confusion in this area

subparagraph b l

will be amended to more clearly indicate that the

availability period only applies to the essential terms of an initial service

contract

DuPont has suggested that the 3D day minimum availability period should

not be allowed to extend beyond 30 days It has not however provided

any compelling reason for imposing such a limitation Carriers or con

ferences should be free to determine their own availability periods so

long as they are at least 30 days

There is nothing in subparagraph b 5 which requires a similarly situated

and affected shipper to also adopt newly operable essential terms after

receiving notice thereof The decision as to whether to do so is solely

the shipper s and it is not therefore necessary to provide that a shipper

and carrier may mutually agree not to invoke the provision

V Proposed section 581 7 a

a Modification The essential terms originally set forth in a service

contract may not be modified during the duration of the contract

This section is essentially the same as the existing prohibition against

contract modifications 46 CPR 580 7 d I Comments on proposed section

5817 a were generally divided between those opposed to any Commission

regulation restricting the contract parties rights to modify a contract and

those in favor of a general ban on contract modifications For a discussion

of this basic issue see the discussion of proposed section 5815 a infra

The Commission will continue the prohibition against contract modifica

tions while at the same time permitting parties to the service contract

to provide for known and ascertainable commercial contingencies

Specific comments requesting that some grace period be allowed for

contract modification were also filed However we do not view these

proposals as feasible at this time and believe that the provisions in proposed

section 5815 a allowing for contingency clauses will satisfy these concerns

Requiring contract parties to carefully and skillfully draft their agreements

before putting them into effect does not appear to impose an unreasonable

burden on those parties

W Proposed section 581 7b

b Termination or breach not covered by contract In the event of

a contract termination which is not provided for in the contract itself

28 F M C
924 FEDERAL MARITIME COMMISSION

1

and which results from mutual agreement of the parties or from breach

or default because the minimum quantity required by the contract has

not been met

1 Further or continued implementation of the service contract is prohib

ited

2 The cargo previously carried under the contract shall be rerated

according to the otherwise applicable tariff provisions of the carrier or

conference in effect at the time of each shipment and

3 Detailed notice shall be given to the Commission under 581 3a 3

within 30 days of

i The occurrence of the contract termination breach of default under

this paragraph

ii Any rerating or other account adjustment resulting from the contract

termination breach or default under this paragraph and

Hi Final settlement of the account adjusted under subparagraph 3 ii

of this paragraph

4 Any proposed rerating or other final account adjUStment resulting

from termination breach or default under this paragraph shall be issued

by the carrier or conference to the shipper or shippers association within

30 days of the termination of the service contract

The proposed rule does not change the existing provision allowing termi

nation of service contracts by mutual agreement of the parties Similarly

the proposed rule continues to allow the parties to provide for termination

and breach remedies in their contract The amendments proposed in this

proceeding are intended to address those terminations and breaches that

are not provided for in the contract In these cases the proposed rule

provides 1 cessation of contract implementation 2 rerating of cargo

according to the otherwise applicable tariff and 3 notification to the

Commission and the shipper of termination or breach actions proposed

or performed by the carrier In essence when a service contract is repudiated

and the parties are no longer acting pursuant to the contract the Commission

will require adherence to the otherwise applicable tariff

The comments filed on proposed section 581 7b are generally divided

into three groups 1 those that support the Commission s suggested method

of regulating terminations and breaches of contracts when the contract

does not cover such a

contingency 2 those that argue that actual or

liquidated damages be imposed and 3 those that argue that the Commis

sion has no authority to prescribe remedies and procedures caused by

a termination or breach of a contract

The proposed rule was intended to address two situations I when

carrier and shipper mutually agree to terminate a service contract and

2 when a shipper fails to meet its minimum volume commitment The

purpose of this provision is not to enforce contracts or prescribe particular

remedies for contract breaches as between the parties themselves That

function is the role of the courts under section 8 c of the 1984 Act

1

c1

I

J 28 F M C
SERVICE CONTRACTS 925

Rerating applies only to cargo actually shipped and has no direct relationship

to deadfreight or other measures of damages for contract breaches The

purpose of this provision is to prevent collusive action between the parties

to a service contract to terminate or breach their commitments without

seeking appropriate remedies The rule is intended to prevent carriers and

shippers from using service contracts as a device to unlawfully evade

tariff rates Service contracts with no meaningful cargo or service commit

ments could at a minimum violate section lO a I of the Act 46 V S c

app 1709 a I

The report of the House Merchant Marine and Fisheries Committee ex

pressed a clear Congressional intent that service contracts not become a

device to undermine common carriage under public tariffs when it stated

The Committee is seriously concerned that service contracts not

be employed so as to discriminate against all who rely upon

the common carriage tradition of the liner system The purpose

of this legislation is to regulate fairly a system of common car

riage

T he Committee expects the FMC to be cognizant of the

effects of sic common carriage that abuse of service contracting

may occasion

HR Rep No 53 Part I 98th Cong St Sess 17 1983

Proposed section 581 7b does in effect impose a

type of regulatory

consequence for contract breach or termination consistent with Congress

intent that service contracts not be abused However if the parties include

in their contracts in the first instance provisions concerning mutual termi

nation and shipper failure to meet the minimum commitment there is

no need to invoke this provision Another option to rerating particularly

if the shortfall is slight is for the shipper to pay for what has not moved

at the contract rate This would in effect constitute compliance with the

shipper s cargo commitment

Finally to conform section 5817 b 4 to section 5815 c the period

within which to issue a proposed rerating or other final account adjustment

has been extended to 60 days

X Proposed section 5818

a Initial filing and notice ofintent to reject

I Within 30 days after the initial filing of the contract and statement

of essential terms the Commission may notify the filing party of the

Commission s intent to reject a service contract andor statement of essential

terms that does not conform to the form content and filing requirements

of the Act or this part The Commission will provide an explanation of

the reasons for such intent to reject

2 The parties will have 20 days after the date appearing on the notice

of intent to reject to resubmit the contract andor statement of essential

28 F M C
926 FEDERAL MARITIME COMMISSION

tenns modified to satisfy the Commission s concern as set forth in para

graph a 1

of this section

b Rejection The Commission may reject the contract andor statement

of essential tenns if the objectionable contract or statement

I Is not resubmitted within 20 days of the notice of intent to reject

or

2 Is resubmitted within 20 days of the notice of intent to reject as

provided in paragraph a 2 of this section but still does not confonn

to the fonn content or filing requirements of the Act or this part as

set forth in paragraph a 1 of this section

c Implementation prohibition and rerating

I

Perfonnance under a service contract may begin without prior Com

mission authorization on the day both the service contract and statement

of essential tenns are on file with the Commission except as provided

in paragraph c 2 of this section

2 When the filing parties receive notice that the service contract or

statement of essential tenns has been rejected under paragraph b of this

section

i Further or continued implementation of the service contract is prohib

ited

ii All services perfonned under the contract shall be rerated in accord

ance with the otherwise applicable tariff provisions for such services with

notice to the shipper or shippers association within 30 days of the date

ofrejection and

iii Detailed notice shall be given to the Commission under 5813 a 3

within 30 days of

A The rerating or other account adjustment resulting from rejection

under this paragraph and

B Final settlement of the account adjusted under paragraph c 2 iii

A of this section

d Period of availability The minimum 30 day period of availability

of essential terms required by 581 6b shall be suspended on the date

of the notice of intent to reject a service contract andor statement of

essential tenns under paragraph a 1 of this section and a new 30 day

period shall commence upon the resubmission thereof under paragraph a 2

of this section

This proposed section amends the procedures for return and rejection

of contracts or statements of essential tenns These procedures provide

the Commission 30 days to reject a service contract with a written expla

nation of the reasons for rejection The filing party will then have 30

days to correct the contract Failure to correct a contract will result in

rejection thereby prohibiting continued service under the contract

APL ANERA TWRA Ford and NITL oppose the proposal to increase

the time within which notification of intent to reject a service contract

28 F M C
SERVICE CONTRACTS 927

must be given by the Commission They favor the current 15 day period

for notice to reject and the 15 day period for resubmission

The Mediterranean Conferences and the Japanese Conferences suggest

that the filing parties should have 30 days to respond to a notice of

intent to reject the same period the Commission has for considering a

rejection In addition the Japanese Conferences oppose the retroactive re

rating required by proposed section 5818 c due to a service contract

rejection maintaining that the contract rates are the only lawful rates on

file at the time of shipment The North European Conferences suggest

the 3D day period in sectiou 5818 c 2 ii is impractical and unrealistic

They request that the time period be enlarged to no less than 90 days

Sea Land suggests the rule be revised to delay implementation of service

contracts 14 days after filing to permit an initial Commission review

in order to protect the parties against having to rerate cargo due to a

rejection

DuPont suggests that shall be substituted for may in section

5818 a l

to make the notification a more definite requirement Lastly

DOT urges that the Comntission not adopt the proposed section 5818 c

rerating obligation and surveillance reporting requirements for partial per

formance of a service contract prior to its rejection by the Comntission

Experience has proven that the current IS day period is sometimes inad

equate for the contract parties to resolve problems and for the Commission

to process the contracts On the other hand it appears based on the

comments that the proposed 3D day period may be too long a time to

expose the parties to possible rejection and to commercial problems which

could arise as a result of rejection Therefore as a compromise the final

rule will provide for a 20 day period for both the notice of intent to

reject and the period for resubmission

Sea Land s suggestion of requiring service contracts and statements of

essential terms to be filed in advance of the effective date has previously

been considered by the Commission in its interim rule to implement the

1984 Act The Commission rejected such a course of action in favor of

the present procedure because advanced filing appears to be more detri

mental to the interests of the contracting parties Further there is no statu

tory authority to require an advance notice of filing of service contracts

However contract parties are always free to file service contracts in advance

of their effective dates to accommodate the possibility ofrejection

In response to comments opposing retroactive rerating in the event of

rejection the Comntission reaffirms its position expressed in the Supple

mental Information If a

shipper was permitted to obtain the rate contained

in a contract that was rejected because it did not comply with all

statutory or regulatory requirements it would be obtaining an unlawful

benefit The rules expressly put the parties on notice that a service contract

may possibly be rejected during the shorl review period If they desire

to avoid the possibility of rerating for cargo carried prior to rejection

28 F M C
1 928 FEDERAL MARITIME COMMISSION

i

they could elect the course suggested by Sea Land and simply file their

contracts well in advance of any cargo moving under them

ADDITIONAL ISSUES

The Supplementary Information to the proposed rule also advised that

the Commission was concerned abQut fQur additiQnal areas and accQrdingly

sQlicited comment as tQ whether further rulemaking prQceedings shQuld

be pursued in any Qr all Qf them Specifically the CQmmissiQn questiQned

whether I the definitiQn Qf PQrt range shQuld be adjusted to address

problems relating tQ the sCQpe Qf fQreign PQrt ranges 2 it shQuld adQpt

specified minimums for shipper cargQ commitments carrier service cQmmit

ments Qr liquidated damages 3 it shQuld require a single fQrm with

detachable sectiQns fQr filing all relevant service CQntract infQrmatiQn and

4 mQst favQred shipper clauses were a prQblem and if SQ whether

they should be limited in SQme manner

A discussiQn Qf the CQmments and analysis Qf each Qf these issues

fQllows

Y FQreign Port Ranges

The Notice of PrQposed Rulemaking invited CQmments Qn the applicatiQn

Qf the current port range requirement to fQreign PQrt ranges which are

Qften dispersed over a wide geQgraphic area and queried whether this

was inhibiting the use Qf service CQntracts CQmmenters were asked to

identify any prQblem areas and prQpose sQlutiQns

In response CMA DUPQnt Stauffer and UniQn Carbide advise that they

had experienced nQ difficulties as a result Qf the applicatiQn Qf the PQrt

range rule to fQreign PQrt ranges

On the Qther hand APL ANERA the Mediterranean Conferences the

Japanese Conferences PCEC the NQrth EurQpe U S Pacific Freight CQn

ference and TWRA believe that there is a need tQ limit the geQgraphic

scope Qf fQreign PQrt ranges in service CQntracts This is alSQ the view

Qf the NQrth EurQpean Conferences which further urge that the descriptiQn

Qf Qrigin and destinatiQn nQn U S port ranges included in essential terms

filings shQuld Qnly identify ports 1 in a

cQuntry where cargQ is tQ

be lQaded or discharged under the terms of the underlying service contract

and 2 which are regularly served by a

contracting carrier or contracting

members providing service The North EurQpean Conferences would define

the term regularly served to include only those ports in the range that

are served in a manner that would enable the carrier to meet its obligations

under the service contract

The legislative history of the 1984 Act supports the view that ocean

common carriers and cQnferences may restrict the foreign port range in

a service contract to ports in a single country which are regularly served

by the carrier or conference The Report of the Senate Committee on

Commerce Science and Transportation states in pertinent part

1

c

j

1

28 FM C
SERVICE CONTRACTS 929

The term port range is intended to encompass those ports

in the country of loading or unloading of the contract cargo

that are regularly served by the contracting carrier or conference

as specified in the tariff applicable to the service in which the

contract is to be employed even if the contract itself contemplates

use of but a single port within that range

S Rep No 3 98th Cong 1st Sess 31 1983 emphasis added Accord

ingly and in response to comments on the definition of port range

the final rule defines port range to only encompass ports in the country

of loading or unloading

Whether a port in the range is regularly served as that term is

used in the rule appears to be a question of fact that would be particularly

difficult to address in a rule of general application Moreover no compelling

need has been demonstrated to justify such action In any event even

if a need and basis had been shown to define the term regularly served

this could not be done in this rulemaking since it is beyond the scope

of the proceeding Accordingly the Commission will not modify the rule

here to add a definition of the term regularly served

Z Minimum Volume Commitments Carrier Service Commitments and Liq

uidated Damages

In addressing this topic in the Supplementary Information to the proposed

rule the Commission identified three areas of concern I low volume

commitments 2 de minimis carrier service commitments and 3 miniscule

liquidated damages for breach of a service contract The Commission sug

gested that requiring specified minimums to apply to these situations might

possibly solve these problems and therefore invited comment on the need

for additional regulations in these areas

Most but not all commenters oppose any additional regulation which

might impose service contract minimums in the areas suggested by the

Commission They contend that there is no demonstrated need for regulation

and that carriers and shippers will not enter into a service contract in

the first place unless they each receive a benefit therefrom Some e g

PCEC AISA CMA PPG and DOJ contend that the Commission has

no legal authority to impose minimum levels for cargo and service commit

ments or for liquidated damages One commenter Stauffer believes that

minimums are not consistent with the spirit of the 1984 Act which it

contends favors a more commercial and less bureaucratic interface be

tween the service contract parties Several commenters raise concerns about

the effects of minimums on small or medium shippers contending that

they may result in fewer service contract opportunities for such shippers

The inherent problems in determining a specific minimum level have also

been raised especially in light of the large number of variables which

would have to be considered in the process The Japanese Conferences

28 F M C
930 FEDERAL MARITIME COMMISSION

NEPFC and PCEC suggest that the Commission could adequately address

any problems which may ellist on an ad hoc basis

TWRA argues that a filled volume or revenue minimum would inhibit

the flexibility to deal with small shippers It contends that the solution

is to put in place a

regulatory mechanism which creates a commercial

incentive for both parties to arrive at meaningful commitment levels TWRA

therefore suggests that the Commission should require all service contracts

to state a maximum as well as minimum number of cargo units and

to further require that the maximum cannot exceed the minimum by more

than a reasonable proportion e

g

331

The North European Conferences and the Australia New Zealand Con

ference share the Commission s concerns about low volume commitments

on the part of shippers and therefore support adoption of a rule providing

for a minimum volume commitment The Australia New Zealand Conference

notes that while drafting such a rule may be a complex matter there

is nonetheless a need for it

IBP also supports the establishment of a minimum volume of cargo

for a service contract It suggests that the minimum volume could be

based on a specified percentage e g

1 of the shipping market for

a given commodity or some other reasonable absolute number e

g

200

TEUsyear in a containerized trade IBP also contends that it probably

would be more advantageous for shippers with less than I of a market

to use a shippers association rather than attempt to negotiate small volume

service contracts

Only the SouthCentral American Conferences specifically address service

contract minimums as they apply to carrier service commitments They

argue that the Commission should not proceed further in this area unless

it has specific evidence that carriers or conferences are failing to provide

adequate service and space to fulfill their contractual obligations

Two commenters oppose any further rulemaking in this area The South

Central American Conferences do not believe that minimum cargo commit

ments are realistic or fair to small shippers in smaller trades The other

DuPont contends that to the extent that low volume commitments exist

they are attributable to the Commission s positions on percentage require

ments contracts and loyalty contracts

The North European Conferences share the Commission s concerns about

de minimis liquidated damages for shipper breach of its volume commitment

Along with USL ANERA and the Mediterranean Conferences the North

European Conferences support the consideration of further rulemaking in

this area They contend however that in the interim the Commission could

reject service contracts containing de minimis liquidated damages on an

ad hoc basis pursuant to existing rules

TWRA maintains that the 1984 Act permits liquidated damages as an

alternative to actual damages for breach of a service contract It further

contends that the Act does not permit a no damages option or liquidated

28 F M C
SERVICE CONTRACTS 931

damages that do not closely approximate actual damages TWRA thus urges

the Commission to require carriers to collect deadfreight in the event of

a

cargo or revenue shortfall or require the use of actual damages deadfreight

less the carrier s avoided incremental costs or some other reasonable liq

uidated approximation of actual damages The SouthCentral American Con

ferences offer yet another alternative measure of liquidated damages 15

percent of the freight charges for any shortfall from the minimum volume

DuPont believes that the matter of whether or not to specify liquidated

damages in the event of breach is one that should be left to the contracting

parties It submits that if the Commission eventually sets specific limits

on liquidated damages carriers and shippers will simply elect not to specify

any at all

As the above discussion indicates there was no clear consensus among

the commenters in any of the three areas the Commission asked to be

addressed However the Commission presently has pending before it a

petition for rulemaking submitted the International Council of Containership

Operators that includes the issue of de minimis liquidated damages That

issue is more appropriately addressed in the context of that petition

As for the remaining issues i e shipper cargo and carrier service commit

ments it would be difficult if not impossible as a practical matter to

specify absolute specific minimums What is a reasonable number in one

trade may not be in another Moreover small or medium sized shippers

could be adversely affected by arbitrary minimums While some sort of

formula may alleviate this problem the task then becomes one of choosing

the right formula For this reason and because the Commission s experience

with service contracts over the last three years has not demonstrated a

compelling need for the Commission to prescribe rules governing shipper

cargo and carrier service commitments no such rulemakings are con

templated at this time

The Commission cautions however that there must be meaningful com

mitments on the part of both parties in order for there to be a valid

service contract In this regard the service commitment of a carrier or

conference must be more than a mere recitation of their basic common

carrier obligations Similarly the shipper s cargo commitment must be com

mercially reasonable in light of all relevant factors

AA More Convenient Combined Form

The proposed rulemaking indicated that the Commission was considering

a new format for filing service contracts that would eliminate multiple

submissions This could consist of one filing with detachable sections

as follows

1 A machine readable ADP form data confidential where necessary

2 The essential terms and

3 Shipper data and signature confidential

28 F M C
932 FEDERAL MARITIME COMMISSION

i

I

All commenters except DuPont support this proposal for a service con

tract filing procedure that would eliminate multiple submissions to the

fullest extent possible DuPont however fears that an abbreviated filing

procedure would not ensure the confidentiality of information in the service

contract

Under the suggested provision one portion of the form would contain

the essential terms of the contract excluding the name and signature of

the shipper s and any other information considered as a non essential term

of the contract if the filers desire to conceal such information from the

public This procedure would avoid time now spent by the staff in ensuring

that the separately filed statements of essential terms contained in the

Essential Terms Publication represent a true summary of the service con

tract s essential terms a process which is now very time consuming

Althouah implementation of the procedure will require special equipment

and appropriate rulemakings to prescribe form and format the Commission

intends to pursue this matter

BB Most Favored Shipper Clauses

In the Notice ofProposed Rulemaking the Commission noted the growing

use of the so called most favored shipper clauses a type of contingency

clause which allows the shipper to obtain a lower rate if one is offered

to another shipper in a given trade The Commission asked for comments

on whether this practice should be prohibited or limited

The comments filed concerning Commission regulation of most favored

shipper clauses are divided between 1 the carriers and conferences who

oppose such provisions and advocate a prohibition against their use and

2 the shippers and shipper interest groups Which state that Such provisions

are legitimate commercial arrangements that the Commission should not

inhibit Carriers argue that these clauses cause serious depression of freight

revenues and rate instability contrary to one of the intended purposes

of service contracts It is also argued that such clauses substantially negate

a shipper s commitment to the carrier Shippers on the other hand argue

that rate flexibility in a contract ensures that the shipper will honor its

volume commitments to a carrier and that the clauses also deter carriers

from excessive rate cutting in their tariffs thereby contributing to rate

stability

Whatever the merits of these contentions relating to most favored shipper

clauses they were not intended to nor will they be decided here Since

the issuance of the Notice of Proposed Rulemaking in this proceeding

the Commission has received and presently has before it the above men

tioned petition of the International Council of Containership Operators

which raises the same issues The Commission will therefore consider

them in the context of that proceeding

4

1

2S F M C
SERVICE CONTRACTS 933

CONCLUSION

The Commission has carefully considered all comments submitted to

the proposed rule and as discussed above has made a number of changes

to accommodate valid suggestions therein while still giving effect to the

1984 Act provisions governing service contracts and the Act s

legislative

history Other nonsubstantive technical or style changes have also been

made but not expressly discussed Any comment not specifically mentioned

has nonetheless been considered and found to be without merit unwarranted

or unnecessary

The Federal Maritime Commission has determined that this rule is not

a major rule as defined in Executive Order 12291 46 FR 12193 Feb

ruary 27 1981 because it will not result in I

an annual effect on

the economy of 100 million or more 2 a major increase in costs or

prices for consumers individual industries Federal State or local govern

ment agencies or geographic regions or 3 significant adverse effect on

competition employment investment productivity innovations or on the

ability of United States based enterprises to compete with foreign based

enterprises in domestic or export markets

The Chairman of the Commission certifies pursuant to section 605 b

of the Regulatory Flexibility Act 5 U S C 601 et seq that this Rule

will not have a significant economic impact on a substantial number of

small entities including small businesses small organizational units and

small governmental jurisdictions

List of subjects in 46 CFR Parts 580 and 581 Administrative practice

and procedure Antitrust Automatic data processing Cargo vessels Con

fidential business information Contracts Exports Freight Freight for

warders Imports Maritime carriers Penalties Rates and fares Reporting

and record keeping requirements

Therefore pursuant to 5 U S C 553 and sections 3 8 and 17 of the

Shipping Act of 1984 Title 46 Code of Federal Regulations is amended

as follows

1 The Authority Citation to Part 580 continues to read

Authority 5 U S C 553 46 U S c app 1702 1705 1707 1709 1712

17141716 and 1718

2 Section 580 7 is removed

3 A new Part 581 is added to read as follows

FEDERAL MARITIME COMMISSION

46 CFR PART 581

SERVICE CONTRACTS

Sec

581 1

28 F M C
Definitions

Scope

Filing and maintenance of service contract materials

Form and manner

Content of essential terms contingency clauses

Availability of essential terms

Modification termination or breach not covered by the contract

Contract rejection and notice implementation

Confidentiality

Recordkeeping and audit

OMB control numbers assigned pursuant to the Paperwork Re

duction Act

AUTHORITY 46 U S C 553 46 U S C app 1702 1706 1707 1709

1712 17141716 and 1718

SOURCE 49 FR 18849 May 3 1984 49 FR 20817 May 17 1984

49 FR 23183 June 5 1984 49 FR 24696 and 24701 June 14 1984

49 FR 45364 Nov 15 1984 49 FR 48927 Dec 17 1984

58J lDefinitions

In this part

a Ac means the Shipping Act of 1984 46 U S c app 1701

1720

b Common carriers or carrier means a person holding itself

out to the general public to provide transportation by water of cargo between

the United States and a foreign country for compensation that

1 Assumes responsibility for the transportation from port or point of

receipt to the port or paint of destination and

2 Utilizes for all or part of that transportation a vessel operating

on the high seas or the Great Lakes between a port in the United States

and a port in a foreign country except that the term does not include

a common carrier engaged in ocean transportation by ferry boat ocean

tramp or chemical parcel tanker As used in this paragraph chemical

parcel tanker means a vessel whose cargo carrying capability consists of

individual cargo tanks for bulk chemicals that are a permanent part of

the vessel that have segregation capability with piping systems to permit

simultaneous carriage of several bulk chemical cargoes with minimum risk

of cross contamination and that has a valid certificate of fitness under

the International Maritime Organization Code for the Construction and

Equipment of Ships Carrying Dangerous Chemicals in Bulk

c Commission means the Federal Maritime Commission

d Conference means an association of ocean common carriers per

mitted pursuant to an approved or effective agreement to engage in con

certed activity and to utilize a common tariff The term shall also include

any association of ocean common carriers which is permitted pursuant

to an effective agreement to fix rates and to enter into service contracts

934

5812

5813

5814

5815

5816

5817

5818

5819

58110

58191

i

I

I

FEDERAL MARITIME COMMISSION

28 F MC
SERVICE CONTRACTS 935

but the term does not include a joint service consortium pooling sailing

or transshipment agreement

e Contract Party means are party signing a service contract as

an ocean common carrier conference shipper or shippers association

I EssentialTerms Publication means the single publication which

is maintained by each carrier or conference for service contract s and

which contains statements of essential terms for every such contract

g

File or Filing of service contract materials means actual receipt

at the Commission s Washington D C offices

h Geographic area means the general location from which and

or to which cargo subject to a service contract will move in through

service

i Non vessel operating common carrier means a common carrier

that does not operate the vessels by which the ocean transportation is

provided and is a shipper in its relationship with an ocean common carrier

j

Ocean common carrier means a vessel operating common carrier

k Ocean freight forwarder means a person in the United States

that

1 Dispatches shipments tram the United States via common carriers

and books or otherwise arranges pace for those shipments on behalf of

shippers and

2 Processes the documentation or performs related activities incident

to those shipments

1 Person includes individuals corporations partnerships and associa

tions existing under or authorized by the laws of the United States or

of a foreign country

m Port range means those ports in the country of loading or unload

ing of service contract cargo that are regularly served by the contracting

carrier or conference as specified in its tariff of general applicability

even if the contract itself contemplates use of but a single port within

that range

n Service contract means a contract between a shipper or shippers

association and an ocean common carrier or conference in which the shipper

makes a commitment to provide a certain minimum quantity of its cargo

or freight revenue over a fixed time period and the ocean common carrier

or conference commits to a certain rate or rate schedule as well as a

defined service level such as assured space transit time port rotation

or similar service features The contract may also specify provisions in

the event of nonperformance on the part of either party

0 Shipment means all of the cargo carried under the terms of a

single bill of lading

p Shipper means an owner or person for whose account the ocean

transportation of cargo is provided or the person to whom delivery is

to be made

28 F M C
936 FEDERAL MARITIME COMMISSION

i

q Shipper s association means a group of shippers that consolidates

or distributes freight on a nonprofit basis for the members of the group

in order to secure carload truckload or other volume rates or service

contracts

r Statement of essential terms means the concise summary of all

essential terms of a service contract required to be filed with the Commis

sion and made available to the general public in tariff format by the

carrier or conference in its Essential Terms Publication

s Submit or Hsubmission means file or tifHing under this

section

t Tariff of general applicability mellils the effective tariff on file

at the Commission under Part 580 of this chapter that would apply to

the transportation in the absence of a service contract

5812 Scope

Service contracts shall apply only to transportation of cargo moving

from to or through a United States port in the foreign commerce of

the United States

5813 Filing and maintenance of service contract materials

a Filing There shall be filed with the Director Bureau of Domestic

Regulation the following

1 Service contract On or before the effective date of every service

contract a true and complete copy of the contract shall be submitted

in form and content as provided by 5814 a

and 5815 in single copy

contained in a double envelope which contains no other material as follows

i The outer envelope shall be addressed to the Director Bureau of

Domestic Regulation Federal Maritime Commission Washington D C

20573

ii The inner envelope shall be sealed contain only the executed contract

and shall state This Envelope Contains a Confidential Service Contract

iii The top of each page of a filed service contract shall be stamped

Confidential

2 Statement of essential terms At the same time as the filing of

the service contract under paragraph a I of this section the statement

of essential terms ofthe contract shall be submitted

i In form and content as provided in 581 4b and 5815

ii In tariff format

iii On page s to be included in the Essential Terms Publication as

described in paragraph b of this section and

iv A With an accompanying transmittal letter in an envelope which

contains only matter relating to essential terms and

B The envelope and the inside address on the transmittal letter are

to be addressed to the Director Bureau of Domestic Regulation Federal

Maritime Commission Washington D C 20573

c

i

1

I

l

28 FM C
SERVICE CONTRACTS 937

3 Notices of change to contract contract party or rate availability

of changed tenus to similarly situated shippers and settlement

of account

There shall be filed with the Commission pursuant to the procedures

of paragraph a I of this section a detailed notice within 30 days of

the occurrence of

i The making available of contingent essential tenus to similarly situated

shippers under 581 6b 5

ii Tenuination by mutual agreement breach or default not covered

by the service contract under 581 7b

iii The adjustment of accounts by rerating liquidated damages or

otherwise under 5815 5818

iv Final settlement of any account adjusted as described in paragraph

a 3 iii of this section and

vi Any change to

A The name of a basic contract party under 5814 a 1 v or

B The list of affiliates under 5814 a I vi of any contract party

entitled to receive or authorized to offer services under the contract

b Essential Terms Publication maintenance Each carrier or conference

shall maintain a single current Essential Tenus Publication in the fonu

prescribed under 581 4 b 2

c Who must file

I As further provided in paragraph c 2 of this section the duty

under this part to file service contracts statements of essential tenus and

notices and to maintain an Essential Tenus Publication shall be upon

i A service contract signatory carrier which is not a member of a

conference for the service covered by the contract or

ii The conference which

A Is signatory to the service contract or

B Has one or more member carriers signatory to a service contract

for a service otherwise covered by the conference agreement

2 When a conference files a service contract for and on behalf of

one or more of its member lines and the contract covers service from

to or between ports andlor points not included within the scope of the

conference the complete text of the statement of essential tenus shall

be simultaneously filed in the Essential Tenus Publications of both the

conference s and carrier s involved which shall comply with all other

Essential Tenus Publication filing and maintenance requirements under para

graph b of this section and 581 4b

d Exempt commodities

I Except as provided in paragraphs d 2 and d 3 of this section

this section does not apply to contracts relating to bulk cargo forest prod

ucts recycled metal scrap waste paper or paper waste

2 An exempt commodity listed in paragraph d I of this section may

be included in a service contract filed with the Commission only if i

28 F M C
938 FEDERAL MARITIME COMMISSION

there is a tariff of general applicability for the transportation which contains

a specific commodity rate for the exempted commodity or H the contract

itself sets forth a rate or charge which will be applied if the contract

is rejected or otherwise terminated

3 Upon filing under this paragraph the service contract and essential

terms shall be subject to the same requirements as those for contracts

involving non exempt commodities

581 4 Form and manner

a Service contract Every service contract cshall clearly legibly and

accurately set forth in the following order

1 On the first page preceding any other provisions

i A unique service contract number bearing the prefix SC

H The FMC number FMC No of the carrier s or

conference s Essential Terms Publication

Hi A reference to the statement of essential terms number ET No

as provided in paragraph b 1 Hi of this section

iv The FMC number s FMC No I of the tariff s of

general applicability

v The names of the contract parties Any further references in the

contract to such parties shall be consistent with the first reference e g

exact name carrier shipper or association etc and

vi Every affiliate of each contract party named under paragraph a 1 v

of this section entitled to receive or authorized to offer services under

the contract except that in the case of a contract entered into by a con

ference or shippers association individual members need not be named

unless the contract includes or excludes specific members In the event

the list of affiliates is too lengthy to be included on the first page reference

shall be made to the exact location of such information and

2 Commencing on or following the first page of the service contract

i

The complete terms of the contract including all essential terms

required under 5815 and

H A A description of the shipment records which will be maintained

to support the contract and

B The address telephone number and title of the person who will

respond to a request by making shipment records available to the Commis

sion for inspection under 581 10

b Essential terms

I Statement of essential terms Every statement of essential terms shall

i Be printed in black on yellow paper

H Be subject to the form and manner requirements applicable to gov

erning tariffs as set forth in Part 580 of this chapter

Hi Be identified by an essential terms number bearing the prefix ET

No which shall be located on the top of each page of the statement

of the essential terms and

28 F M C
SERVICE CONTRACTS 939

Iv Contain on the first page in a manner similar to that set forth

in 58D 5 a 8 and 58D a IO of this chapter the period of availability

of essential terms to similarly situated shippers under 5816 b i e both

the beginning date which shall be the date the contract is filed at the

Commission and the expiration date which shall be no less than 30

days after the beginning date

2 Essential Terms Publication The Essential Terms Publication shall

I Have all its pages printed in black on yellow paper

ii Be subject to the form and manner requirements applicable to gov

erning tariffs as set forth in Part 580 of this chapter

iii A Contain a currently maintained Index of Statements of Essential

Terms structured as follows

ETNo

Effec

tive

Date

Expira

tion

Date

Page

No s

Section

No s

Date of Can

cellation of

Pagers

The Index shall include for every statement of essential terms the ET

number as provided in paragraph b I iii of this section the effective

duration as provided in 5815 a 3 i the page and section number s

where used and a column for cancellation dates which shall be used

as an alternative to cancelling each individual page of the Essential Terms

Publication and

B The statement of essential terms may not be cancelled until after

the contract s including any renewal or extension has expired In the

event a contract is terminated the effective date of the termination shall

be used as the date of cancellation

iv Include an alphabetical index of the commodities covered by the

service contracts in which each commodity shall make reference to the

relevant ET number or numbers

v Contain on its title page or in a rule reference to each carrier s

or conference s tariff of general applicability and

vi Be referenced in each of the carrier s or conference s tariffs of

general applicability where required to be filed under the Act and this

chapter

5815 Content of essential terms contingency clauses

a Essential terms

I May not be uncertain vague or ambiguous

2 May not contain any provision permitting modification by the parties

other than in full compliance with this part and

3 Shall include the following

i The duration of the contract stated as a specific fixed time period

with a beginning date and ending date

ii The origin and destination port ranges in the case of port t port

movements and the origin and destination geographic areas in the case

FMr
940 FEDERAL MARITIME COMMISSION

of through intermodal movements except that in service contracts the

origin and destination of cargo moving under the contract need not be

stated in the form of port ranges or geographic areas blt shall reflect

the actual locations agreed to by the contract parties

W The contract rate rates or rate schedule s including any additional

or other charges i e general rate increases surcharges terminal handling

charges etc that apply and any and all conditions and terms of service

or operation or concessions which in any way affect such rates or charges

iv The commodity or commodities involved

v The minimum quantity of cargo freight revenue necessary to Obtain

the rate or rate sched lIe s except that the minimum quantity of cargo

committed by the shipper may not be expressed as a fixed percentage

of the shipper s

cargo

vi The service commitments of the carrier conference or specific mem

bers of a conference such as assured space transit time port rotation

or similar service features

vii Liquidated damages for nonperformance if any and

viii Where a contract clause provides that there can be a deviation

from an original essential term of a service contract based upon any

stated event occurring subseq lent to the execution of the contract a clear

and specific description of the event the existence or occurrence of which

shall be readily verifiable and objectively measlrable This requirement

applies to inter alia the following types of situations

A Retroactive rate adjustments based upon experienced costs

B Reductions in the quantity of cargo or amount of revenues required

under the contract

C Failure to meet a volume requirement during the contract duration

in which case the contract shall set forth a rate charge or rate basis

which will be applied

D Options for renewal or extension of the contract duration with or

without any change in the contract rate or rate schedule

E Discontinuance of the contract

FAssignment of the contract and

0 Any other deviation from any original essential terms of the contract

b Notice Detailed notice shall be given to the Commission under

5813 a 3 within 30 days of

1 Any account adjustment resulting from either liability for liquidated

damages under paragraph a 3 vii of this section or the occurrence of

an event described in paragraph a 3 vili of this section and

2 Final settlement of any account adj lsted under paragraph b l of

this section

c Issuance of proposed final accounting Any proposed final account

adjustment resulting from liability for liquidated damages or the occurrence

of an event under paragraph b l of this section shall be issued to the

I

j

25 F M C
SERVICE CONlRACTS 941

appropriate contract party within 60 days of the termination or discontinu

ance of the service contract

@5816 Availability of essential terms

a Availability of statement A statement of the essential terms of each

service contract as set forth in tariff format shall be made available to

the general public pursuant to the requirements of this section and @@5813

5814 b and 5815

b Availability of terms

I The essential terms of an initial service contract shall be made

available to all other shippers or shippers associations similarly situated

under the same terms and conditions for a specified period of no less

than thirty 30 days from the date of filing of the service contract as

may be adjusted under @581 8 d

2 Whenever a

shipper or shippers association desires to enter into

a service contract with the same essential terms a request shall be submitted

to the carrier or conference in writing

3 The carrier or conference shall reply to the request by mailing

or other suitable form of delivery within 14 days of the receipt of the

request either a contract offer with the same essential terms which can

be accepted and signed by the recipient upon receipt or an explanation

in writing why the applicant is not entitled to such a contract The carrier

or conference may require the contract offer to be accepted within a speci

fied period of time

4 The service contract resulting from a request under this section may

not go into effect until an executed copy is filed with the Commission

under this section No additional statement of essential terms need be filed

5 In the case of any expressly described event which results in a

change to an original essential term by the operation of a contract clause

in the service contract under @5815 a 3 viii the new essential term s

shall be immediately made available in writing to other shippers and ship

pers associations which have entered into a contract with the same original

essential terms and which are similarly affected by the event Copies

shall also be subntitted to the Commission under @5813 a 3 i

@5817 Modification termination or breach not covered by the contract

For purposes of this part

a Modification The essential terms originally set forth in a service

contract may not be modified during the duration of the contract

b Mutual termination or shipper failure to meet cargo minimum In

the event of a contract termination which is not provided for in the contract

itself and which results from mutual agreement of the parties or because

the shipper or shippers association has failed to tender the ntinimum quan

tity required by the contract

I Further or continued implementation of the service contract is prohib

ited

28 F M C
942 FEDERAL MARITIME COMMISSION

2 The cargo previously carried under the contract shall be rerated

according to the otherwise applicable tariff provisions of the carrier or

conference in effect at the time of each shipment and

3 Detailed notice shall be given to the Commission under 5813 a 3

within 30 days of

i The occurrence of the contract termination breach or default under

this paragraph

ii Any rerating or other account adjustment resulting from the contract

termination breach or default under this paragraph and

iii Final settlement of the account adjusted under paragraph b 3 ii

of this section

4 Any proposed rerating or other final account adjustment resulting

from termination breach or default under this paragraph shall be issued

by the carrier or conference to the shipper or shippers association within

60 days of the termination breach or default of the service contract

5818 Contract rejection and notice implementation

a Initial filing and notice of intent to reject

I Within 20 days after the initial filing of the contract and statement

of essential terms the Commission may notify the filing party of the

Commission s intent to reject a service contract andor statement of essential

terms that does not conform to the form content and filing requirements

of the Act or this part The Commission will provide an explanation of

the reasons for such intent to reject

2 The parties will have 20 days after the date appearing on the notice

of intent to reject to resubmit the contract andor statement of essential

terms modified to satisfy the Commission s concerns as set forth in para

graph a l ofthis section

b Rejection The Commission may reject the contract andor statement

ofessential terms if the objectionable contract or statement

I Is not resubmitted within 20 days of the notice of intent to reject

or

2 Is resubmitted within 20 days of the notice of intent to reject as

provided in paragraph a 2 of this section but still does not conform

to the form content or filing requirements of the Act or this part as

set forth in paragraph a I of this section

c

Implementation prohibition and rerating

I Performance under a service contract may begin without prior Com

mission authorization on the day both the service contract and statement

of essential terms are on file with the Commission except as provided

in paragraph c 2 of this section

2 When the filing parties receive notice that the service contract or

statement of essential terms has been rejected under paragraph b of this

section

i Further or continued implementation of the service contract is prohib

ited

28 F M C
SERVICE CONTRACTS 943

ii All services performed under the contract shall be rerated in accord

ance with the otherwise applicable tariff provisions for such services with

notice to the shipper or shippers association within 30 days of the date

ofrejection and

iii Detailed notice shall be given to the Commission under 581 3a 3

within 30 days of

A The rerating or other account adjustment resulting from rejection

under this paragraph and

B Final settlement of the account adjusted under paragraph c 2 iii A

of this section

d Period of availability The minimum 30 day period of availability

of essential terms required by 5816 b shall be suspended on the date

of the notice of intent to reject a service contract and or statement of

essential terms under paragraph a l of this section and a new 30 day

period shall commence upon the resubmission thereof under paragraph a 2

of this section

5819 Confidentiality

a Service contracts All service contracts filed with the Commission

shall to the full extent permitted by law be held in confidence

b Amendments to non essential terms Amendments to non essential

terms of a service contract shall be accorded similar confidential treatment

581 10 Recordkeeping and audit

Every common carrier or conference shall

a Maintain service contract shipment records currently and for a period

of five years from the termination of each contract and

b Tender service contract shipment records to the Commission for

inspection upon request

58191 OMB control numbers assigned pursuant to the Paperwork Reduc

tion Act

The information collection requirements contained in these regulations

46 CFR 581 have been approved by the Office of Management and

Budget OMB in accordance with 44 D S C Chapter 35 and have been

assigned OMB Control Number 3072044

By the Commission

5 JOSEPH C POLKING

Secretary

oJ CommissionerThomas F Moakley s dissent in part is attached

28 F M C
944 FEDBRALMARlTIME COMMISSION

1

Commissioner Moakley dissenting in part

I dissent from the requirement set forth in section S81 7b

of the final

rule that cargo previously carried under the contract must be rerated accord

ing to the otherwise applicable tariff upon mutual termination or when

the shipper fails to tender the minimum quantity required by the contract

I cannot find a legal basis for the link that the rule would make between

these distinct types of pricing and service If there has beeJl a breach

of the service contract section 8 c of the Shipping Act of 1984 states

specifically that the exclusive remedy is in a court of law If instead

we are assuming that any unfulfilled contract constitutes a violation of

section IO a I of the Act the sanction for such a violation is the civil

penalty prescribed in section 13 of the Act

Moreover the use of a service contract to circumvent tariff rates would

also be likely to constitute a violation of section 1O b 4 of the Act

by the carrier The solution contained in the rule would reward the carrier

for such a violation by requiring him to collect the tariff rate which

in most instances would be higher

I would delete section 581 7b

from the final rule and focus more

effort on enforcing the considerable sanctions set forth in section 13 of

the Act against both the carrier and the shipper where serviCe contracts

are being used merely as a device to circumvent tariffs

1

28 F M C
SERVICE CONTRACTS 945

Attachment A

Docket No 866

Commenters

1 American Association of Exporters and Importers AAOEXIM

2 American Institute for Shippers Associations Inc AISA

3 American President Lines Ltd APL

4 Asia North America Eastbound Rate Agreement ANERA

5 Atlantic and Gulf West Coast of South America Conference et al

SouthCentral America Conferences

6 Chemical Manufacturers Association CMA

7 Department of Justice D01

8 Department of Transportation DOT

9 EIduPont de Nemours Company DuPont

10 Ford Motor Company Ford

II Greece U S Atlantic and Gulf Conference et al Mediterranean Con

ferences

12 Hercules Incorporated Hercules

13 Houston Port Bureau Inc BPB

14 IBP Inc

15 National Association of Recycling Industries Inc NARI

16 National Customs Brokers and Forwarders Association of America

Inc NCBFAA

17 National Industrial Transportation League NITL

18 New York Chamber of Commerce and Industry NYCCI

19 North Europe U S Pacific Freight Conference NEPFC

20 Pacific Coast European Conference pCEC

21 Phillips Petroleum Company Phillips

22 PPG Industries Inc pPG

23 RCA Corporation RCA

24 Sea Land Service Inc Sea Land

25 Stauffer Chemical Company Stauffer

26 Trans Pacific Freight Conference of Japan and Japan Atlantic and Gulf

Freight Conference Japanese Conferences

27 Transpacific Westbound Rate Agreement TWRA

28 Union Carbide Corporation Unilln Carbide

29 United States Lines Inc and United States Lines SA Inc USL

30 U S Atlantic Gulf Australia New Zealand Conference Australia

New Zealand Conference

28 F M C
946 FEDERAL MARITIME COMMISSION

1

31 U S Atlantic North Europe COllference et al North European Con

ferences

32 Warner Lambert Company Warner Lambert

33 Westwood Shipping Lines Westwood

j

i

i

I

1

ISBN 0 16 050513 5

9

28 P M C