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REFUNDING OF FREIGHT CHARGES

MONDAY, NOVEMBER 20, 1967

U.S. SENATE,

COMMITTEE ON COMMERCE,
SUBCOMMITTEE ON MERCHANT MARINE AND FISHERIES,

Washington, D.C. The subcommittee met at 10:08 a.m., in room 5110, New Senate Office Building, Hon. E. L. Bartlett (chairman of the subcommittee) presiding.

Senator BARTLETT. The committee will be in order.

Today we will hear testimony on S. 1905, a bill to amend provisions of the Shipping Act, 1916, to authorize the Federal Maritime Commission to permit a carrier to refund a portion of the freight charges.

(S. 1905 and letter from the Comptroller General follow :)

(S. 1905, 90th Cong., first sess.) A BILL To amend provisions of the Shipping Act, 1916, to authorize the Federal Maritime Commission

to permit a carrier to refund a portion of the freight charges Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section 18(b) of the Shipping Act, 1916 (46 U.S.C. 817(b)), is amended by changing the period at the end of subsection (3) thereof to a colon and adding the following proviso: Provided, þowever, That the Federal Maritime Commission may in its discretion and for good cause shown permit a carrier to refund a portion of freight charges collected from a shipper or waive the collection of a portion of its charges from a shipper; where it appears that such refund or waiver will not result in discrimination among shippers: Provided further, however, That the carrier has, prior to applying for authority to make refund, filed a new tariff with the Federal Maritime Commission which sets forth the rate on which such refund or waiver would be based: And provided further, however, That the rate resulting from such refund or waiver when approved shall be the effective and applicable rate for all other shipments of the same description of the carrier for the period commencing thirty days prior to the date of the shipment or shipments involved, until thirty days subsequent to the date of application for refund or waiver or until ninety days subsequent to the shipment or shipments involved, whichever is later, and, where appropriate, additional refunds or waivers shall likewise be made."

COMPTROLLER GENERAL OF THE UNITED STATES,

Washington, D.C., July 13, 1967. B-97278. Hon. WARREN G. MAGNUSON, Chairman, Committee on Commerce, U.S. Senate.

DEAR MR. CHAIRMAN: Reference is made to your letter of June 12, 1967, requesting our comments on S. 1905, which would amend section 18(b) (3) of the Shipping Act, 1916, 46 U.S.C. 817(b)(3), by giving the Federal Maritime Commission discretionary authority for good cause shown to permit a carrier to refund a portion of freight charges.

Professional staff member assigned to this hearing: Stanley H. Barer.

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The need for such legislation apparently arises since the Federal Maritime Commission as to common carriers by water in foreign commerce has no authority to fix and enforce reasonable rates and such carriers by section 18(b)(3) of the Shipping Act are directed to charge no different compensation than the rates and charges in its tariffs filed with the Commission, no provision being made for relief of the shipper in case of mistaken rate filing. Such situations are typified in the case of Aarmo Bristle Processing & Brush Co. v. Zim Israel Navigation Co., Special Docket No. 401, the holding on which is summarized in "Traffic World” for June 10, 1967, where the Commission is reported to have denied an application by the carrier to waive collection of $1,224.08 in freight charges computed at a general cargo rate that was several times higher than a commodity rate which was inadvertently omitted by the carrier in publishing its tariff, although both shipper and carrier admitted the inadvertent error and were willing to adjust the charges.

The enactment of S. 1905 would not directly affect the functions and operations of our Office. However, the proposed legislation appears to have adequate provisions to preclude unjust discrimination and to be in the public interest and in the Government's interest as a shipper and, therefore, we have no objection to favorable consideration of S. 1905 by your Committee. Sincerely yours,

FRANK H. WEITZEL,
Assistant Comptroller General

of the United States.

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OPENING STATEMENT BY THE CHAIRMAN

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Senator BARTLETT. This bill was introduced by Chairman Magnuson at the request of the Federal Maritime Commission and its companion measure in the House has already been the subject of hearings.

The bill would empower the Commission to authorize carriers to make voluntary refunds to shippers and waive the collection of a portion of their freight charges for good cause such as bona fide mistakes.

This amendment is urged because the Shipping Act, 1916, unlike the Interstate Commerce Act, contains no statutory authority which empowers the Commission to direct the enforcement of a reasonable rate. Section 18(b) appears to prohibit the Commission from authorizing relief where, through a 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 after advising a shipper that he intends to file a reduced rate and thereafter fails to file the reduced rate with the Federal Maritime Commission, must charge the shipper under the aforementioned circumstances the higher rates.

The first witness this morning is Admiral Harllee, Chairman of the Federal Maritime Commission. We would be very glad to hear from you, Admiral.

STATEMENT OF REAR ADM. JOHN HARLLEE, U.S. NAVY (RE

TIRED), CHAIRMAN, FEDERAL MARITIME COMMISSION, WASHINGTON, D.C., ACCOMPANIED BY COMMISSIONER JAMES V. DAY; SAMUEL B. NEMIROW, ASSISTANT TO CHAIRMAN; AND EDWARD JOHNSON, LEGISLATIVE COUNSEL, FEDERAL MARITIME COMMISSION

Admiral HARLLEE. Good morning, Mr. Chairman. I have with me today Commissioner James V. Day of Maine; my special assistant, Mr. Samuel Nemirow; and our legislative counsel, Mr. Edward Johnson.

It is a pleasure to be here today and offer our comments on S. 1905. The bill would amend section 18(b) of the Shipping Act, 1916, to uthorize the Federal Maritime Commission to permit a carrier sither to refund, or to waive the collection of, a portion of the freight harges. It is designed to permit the Commission to correct inequities presently existing in instances where there has been an error of a lerical nature in the filing of a tariff or where through inadvertence here has been a failure to file a tariff reflecting the intended rate, leaving the carrier no alternative but to charge a rate different from the one intended to be charged.

Prior to 1965, the Federal Maritime Commission entertained “special locket” applications both in the foreign and the domestic trades under rule 6(b) of the Commission's rules of practice and procedure, which provides that carriers or shippers "may file applications for the voluntary payment of reparation or for permission to waive collection of indercharges.” Between 1962 and 1965 the Commission allowed carriers to make voluntary refunds or waive the collection of freight charges in 30 cases, all but one of which arose in foreign commerce. Relief was granted in those cases where the Commission found that through bona fide error or inadvertence a carrier failed to file, or incorrectly filed a rate which it intended in good faith to make applicable to the shipments in question, and that no discrimination would result to other shippers. The theory was that an innocent shipper should not be made to bear the consequences of a carrier's neglect or omission. | The Commission, however, on January 13, 1965, in a consolidated decision-special dócket No. 377, Ludwig Mueller Co. Inc. v. Peralta Shipping Corp., and special docket No. 378, Application of Lykes Bros. Steamship Co. Inc.-reviewed its special docket procedure in cases involving the foreign commerce of the United States. In a three-totwo decision, the Commission held that section 18(b) (3) of the Shipping Act, 1916, did not permit it to authorize deviations from filed tariffs in the foreign trade, notwithstanding rule 6(b) of the Commission's rules of practice and procedure.

The Commission decided that only in those cases where it is empowered to fix a reasonable rate is the refund procedure applicable, namely those cases relating to the Commission's domestic offshore trades which are within the purview of section 18(a) of the Shipping Act, 1916, and the Intercoastal Shipping Act, 1933. The absence of such a authority in the Shipping Act, 1916, with regard to carriers in the foreign trades prevents the Commission from granting equitable relief in deserving situations.

The Interstate Commerce Act, which applies to domestic rail carriers, motor carriers, and water carriers, specifically gives to the Interstate Commerce Commission, as to each form of transportation, authority to fix and enforce reasonable rates -49 U.S.C. 15(1), 49 U.S.C. 316(e), and 49 U.S.C. 907(b). Therefore, the Interstate Commerce Commission can prescribe and enforce a rate different from the tariff rate when the agency makes a finding that the published rate is "unreasonable."

Although section 18(b) (5) of the Shipping Act, 1916, gives to the Commission authority to disapprove any rate "filed by a common carrier by water in the foreign commerce of the United States, which it finds to be “so unreasonably high” as to be detrimental to the commerce of the United States, nowhere in the Shipping Act is the Commission given the power to fix a "reasonable rate in the foreign trade.

Since the Federal Maritime Commission has no direct authority to fix "reasonable rates” in the foreign commerce of the United States, it believes it necessary to obtain the statutory authority contained in the proposed legislation if refunds and waivers are to be permitted.

My reference to the ratemaking authorities of the Interstate Commerce Commission and of the Federal Maritime Commission in cases relating to the domestic offshore trades is merely to point out that the absence of such statutory authority with respect to its responsibilities in the foreign commerce of the United States leaves the Commission without authority to permit refunds or waivers of undercharges even where it is evident that such applications for refunds or waivers should be granted. I think it clear that there is no language in S. 1905 which would support the argument that the Commission by this reference to existing ratemaking authority in domestic trades is seeking to expand its authority over ratemaking activities in the foreign commerce of the United States. This was one of the matters of major concern to the industry in the House hearings and I wanted to clarify this beyond any possible doubt. That is to say there was an apprehension on the part of industry that we were seeking more power than we had, and therefore I have added this unequivocal statement. The Commission is in fact not seeking authority to set rates in foreign trades. Also there were changes made in the legislation as reported out by the House, H.R. 9473, which clarify, by listing clerical error or administrative inadvertence as reasons for correcting the rate which should

fo make it absolutely clear that we at this time are not seeking more ratemaking authority in the foreign trade.

Senator BARTLETT. And those amendments are satisfactory to you?

Admiral HARLLEE. Yes, completely satisfactory. And Mr. Mahoney of course will testify for the industry, but I believe he will say likewise.

Since its decision in special dockets 377 and 378, the Federal Maritime Commission has not been able to afford relief in instances in which equity might call for the granting of refunds or the waiver of undercharges. Since January 1965, the Commission has denied, on jurisdictional grounds, 116 applications alleging mistaken rate filings in the foreign trade.

For example, a conference agreed to a $38.50 per ton rate on scrap magnesium castings computed on a weight basis. Under the terms of the conference agreement each carrier filed its own tariff. One carrier neglected to show in its tariff on file that the freight was to be assessed on a weight basis rather than weight or measurement basis- -a clerical error in failing to include the letter W after the figures $38.50 to indicate that the commodity rate applied on a weight basis. In accordance with the tariff rules, except where W was shown, the rates were required to be applied on a weight or measurement basis2,240 pounds or 40 cubic feet-whichever produced the greater revenue. As a result of this omission a shipper who booked 24,649 pounds-1,526 cubic feet-of magnesium castings, was assessed and paid freight in the amount of $1,584 on the measurement basis of 40 cubic ft. per ton, whereas the freight would have been only $423 if computed on a weight basis. The carrier sought permission to refund the $1,161 difference. In this situation, under section 18(b)(3)

du of the Shipping Act, 1916, the carrier could only charge the published

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rate and the Commission could not permit an adjustment to the intended rate since it did not have the statutory authority to do so. 1 In other words, a simple omission of the letter Won pieces of paper which have thousands of letters and figures. 1 In another case, a carrier indicated to a shipper its intention to reduce the rate on orange concentrate from $4 per 100 pounds to $2.75 per 100 pounds. The carrier then sent a letter to the Federal Maritime Commission to revise its tariff to conform with its agreement but, through clerical error, the correction was not enclosed. Before the carrier became aware of its oversight, 61,000 pounds of orange concentrate had already been booked at the $2.75 rate. The carrier filed an application requesting permission to waive collection of undercharges in the amount of $766.80. The Commission, under existing statutory authority and consistent with its decision in special dockets Nos. 377 and 378, was compelled to deny the request.

Senator BARTLETT. Admiral, if this bill becomes law, would it have a retroactive feature which would permit such cases to be taken care of in the future?

Admiral HARLLEE. Not as written, as reported out by the House, Mr. Chairman, it would not have. Of course it would be possible to make it retroactive, but in our contacts with the industry, who can speak for themselves this morning on that, we haven't had that request. | Senator BARTLETT. What would you think of an amendment which would make it retroactive back to 1965?

Admiral HARLLEE. I think offhand that such an amendment would be undesirable, Mr. Chairman. The reason I think so is that although this seems a ridiculous situation not to be able to handle clerical errors or inadvertent failure to file tariffs, the total sum of money involved from 1965 to date is not nearly as much as you might think. The total amount of money involved is only $47,000. That is over a period of 3 years. Now during that period the integrity of the tariff system has been upheld and there has been no danger or likelihood of discrimination or rebates. One problem that you would run into in making it retroactive is making a determination on whether some other shippers might have been discriminated against if they had wanted to ship at the same tariff rate for which these adjustments were requested. I would say I am not at the moment unalterably opposed to retroactivity, and it may be the industry will request it, but it would pose a real problem as to whether somebody had been discriminated against during that period of time.

Senator BARTLETT. I can understand that, but I am Appropriations Committee where we deal with tens of millions of dollars. Nevertheless, if I were a shipper and thought I was going to pay $1,161 more, I would feel pretty much aggrieved.

Admiral HARLLEE. As I say, it would be quite a problem to really determine in each case whether somebody had been discriminated against or wanted to ship or who actually did ship. There would have to be a searching of the records to determine whether somebody did ship at the same time that the subjects of these requests shipped to see whether they should get a lower rate also. And I think it would be a major administrative problem that I am not sure whether the industry would want to tackle as well as ourselves. In other words, if someone has requested a lower rate on the basis of one of these

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