Pricing Up For Grabs

Mr. Calderwood is a partner with the law firm of Zuckert, Scoutt
& Rasenberger LLP in Washington, DC, where he concentrates in
transportation matters. Mr. Calderwood can be reached at [email protected]. This column is designed to provide information
of general interest. It cannot substitute for in-depth legal
analysis of particular problems. Readers are urged to seek counsel
concerning individual situations.

Shipper: “What gives Mr. Trucker? I just found out you have been charging me more than my competitor across the street for hauling the same stuff.”
Trucker: “So what, you should have asked for a lower rate.”

As far back as the Nineteenth Century, transportation law has prohibited rate discrimination by carriers for service to similarly situated shippers wanting the same types of commodities transported between the same points. Such discrimination was the major reason Congress passed the Interstate Commerce Act in 1886. Many shippers are discovering that for most transportation services today there is no statute forbidding rate discrimination.

When Congress passed the Interstate Commerce Commission Termination Act it not only abolished the Interstate Commerce Commission (ICC), but it also repealed the provisions of law banning rate discrimination by motor carriers, domestic and offshore water carriers, and rail carriers to the extent that rail carriage is under a contract arrangement (the situation with most rail movements today).

This fact was recently brought home to a freight forwarder who had for years pursued a rate discrimination case at the Surface Transportation Board (STB) and in the courts. The forwarder, as a shipper purchasing transportation services, claimed that certain water carriers had discriminated against it through higher rates. The STB held that there no longer was a law against such discrimination, and an appellate federal court upheld the STB’s decision.

The old prohibition on rate discrimination was part of the tariff system that was under the ICC’s jurisdiction. Motor carriers, rail carriers, and domestic water carriers were all subject to the ICC’s jurisdiction and had to file detailed tariffs with the ICC setting forth precise rates on a commodity- by-commodity basis and a point-to-point basis. If the carrier violated its tariff and gave particular shippers a lower rate than others then the carrier could be sued by the shippers paying the full tariff rate, fined by the ICC, and those concocting the scheme could even be sent to jail.

A similar tariff regime also existed for air cargo movements. It was administered by the now abolished Civil Aeronautics Board (CAB). Rate discrimination was also banned for air cargo shipments under CAB jurisdiction.

One way carriers could give a rate advantage to favored shippers was through rebates. A carrier would charge a shipper the full tariff rate and collect the payment. Then, later it would rebate a portion of the payment to the favored shipper through one scheme or another (e.g. pay false cargo damage claims). This of course resulted in rate discrimination. It was unlawful and heavily policed by regulatory officials.

Today tariffs no longer exist for domestic transportation except for the movement of household goods and offshore domestic commerce, and the statutory anti-rate discrimination provision only applies to certain rail traffic.

So, wait, don’t the antitrust laws forbid price discrimination? The Robinson-Patman Act, does not apply to the sale of services, only to the sale of “commodities,” so it is inapplicable to transportation services. Even though the Robinson-Patman Act applies to the sale of commodities, its impact is limited due to a number of exceptions.

Transportation rate issues have arisen in Robinson-Patman Act matters when someone selling commodities has charged for “phantom freight.” The Robinson-Patman Act permits unequal pricing in the sale of commodities if there is a true transportation cost difference in serving the particular customers. Some Robionson-Patman Act disputes have involved a seller of goods claiming a cost for transportation that never occurred (phantom freight) in order to justify a higher commodity price to one customer over another. For instance, a shipper may charge a product customer for “cost of transportation” at an amount higher than the shipper actually paid for transporting the goods. This phantom freight cost is then actually an increase in the price of the goods rather than a true transportation cost.

Okay, you might say, with no law against price discrimination applicable to most forms of transportation, is there anything a shipper can do to make sure it does not pay more than its competitor? One method is to have a “most-favored nations” clause in a contract with carriers. Such a clause binds the carrier not to charge the shipper any more than the carrier charges any other shipper of the same goods. Of course, this only binds that particular carrier, and product competitors may get better deals from other carriers.

The days of legal restraints on transportation rate discrimination are gone except for certain limited types of movements, and shippers need to monitor their transportation arrangements carefully to be sure they have the best rates.

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