Throw Out the Rulebook?
By Henry E. Seaton

July 2007
Reprinted from

Q On May 9, the Surface Transportation Board announced in Ex Parte 656 that it was terminating the antitrust immunity for Section 5(a) agreements effective Sept. 4, after which time collectively made tariffs and classifications no longer would be protected from antitrust challenge. What effect will this have on the motor carrier industry?

A Although status of the immunity granted to rate bureaus has been examined several times since deregulation, the sweeping STB decision came as a surprise to many. The affected parties can seek reconsideration, appeal the STB’s decision to court, seek a stay, and/or seek approval to continue the classification under an opinion letter. I am sure all of these options will be explored.

Prior to deregulation, rate bureaus served an important function in establishing through rates and services for joint line services that, because of route restrictions, were the norm rather than the exception. The loss of antitrust immunity is not entirely a housekeeping issue, though. Although the full effect and scope of STB’s decision has not been analyzed thoroughly, it seems to me there are four issues of possible concern: commodity classifications; standards for documents and packaging; release rates; and price indexing.

Classification is an elaborate scheme that analyzes the transportability of each commodity, considering its density, fragility and value, and assigning each commodity to a class. Less-than-truckload pricing traditionally has been based upon the classification system of commodities, as set forth in the National Motor Freight Classifications in which most LTL carriers participate.

In striking down the collective ratemaking process, STB stated that it is “not our intention to discourage the classification process,” but the Board’s order in Ex Parte 656 made no provision for its continued use under the existing system. The National Motor Freight Traffic Association, which publishes the classification, has characterized STB’s decision as “unprecedented and flawed,” and clearly will be addressing how the classification system can continue after September with or without antitrust immunity.

Also present in NMFTA bureau publications are other benchmarks and standards upon which the LTL community has come to depend. These benchmarks and standards include publication of packaging requirements that establish the industry standard and are indispensable in handling cargo claims. Similarly, the Uniform Domestic Bill of Lading, frequently used by carriers and shippers, is actually an NMFTA document that only participating carriers are supposed to use.

These items, as well as a whole litany of other provisions that have little or nothing to do with possible predatory pricing, have become industry standards through the collective process permitted by the Section 5(a) immunity. The importance and value of these rules to both shippers and carriers cannot be understated. Left to be sorted out is whether some type of foster care, or single-parent custodian, will be necessary for these standards to survive post-bureau immunity.

The last two issues, collectively made release rates and price indexing, are closer questions. In addition to the classification system, bureau tariffs set release rates on certain commodities that, in the absence of election of a higher value, establish the maximum recovery for cargo claims. For example, the release rate on used machinery is a meager 10 cents per pound, and through the collective rate process, this limitation applies for many general commodity carriers. The fact that this limitation was set in bureau tariffs with antitrust immunity is of concern to the shipping community. I am confident that release rates for specific commodities and classes of commodities will continue, even if they ultimately are not published in bureau tariffs. Many bureau members, as well as truckload carriers and expediters, already have similar limitations of liability in their own tariffs that otherwise are not involved in this issue. In view of this decision, it behooves shippers as well as carriers to avoid release rate surprises by clearly addressing the issue in their own individual publications before traffic is moved.

Finally, bureaus traditionally have established useful rate bases that have become the starting point for discount negotiations. Those rates have been subject to an annual review and an across-the-board escalation that affords LTL carriers adjustable leeway from year to year – something akin to a CPI or inflation index. Notwithstanding the antitrust issues in the development and promulgation of these rate matrices, they do establish a benchmark for negotiating rates and for fairly comparing the discounts offered by competing carriers.

In the real world, undiscounted bureau rates are not the amount any group of LTL carriers insists a shipper must pay, as much as they are just a useful standard from whence the negotiating begins. Yet, since collective ratemaking is the very heart of STB’s decision, using a bureau rate as a negotiating standard in the future probably is going to be overtaken by events. Use of bureau rates already has become less significant after deregulation, and proprietary products such as Czarlite – compiled annually by SMC3 and sold like a mileage guide – can be expected to fill any gap caused by STB’s decision in this regard.

I recently reviewed the standard exam for certifying claims professionals that was several years old. I was struck by how many questions were based on general principles of federal transportation law found not in regulations or statutes, but in the classifications and other practices and procedures established under the collective ratemaking schema. I hope STB’s decision does not further erode general principles of federal transportation law and result in confusion where there has been useful consensus.
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