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The End is Near For Collective Ratemaking

June 18, 2007
There was a bit of mystery at the recent NASSTRAC (National Shippers Strategic Transportation Council-www.nasstrac.org) conference in keynote remarks

There was a bit of mystery at the recent NASSTRAC (National Shippers Strategic Transportation Council-www.nasstrac.org) conference in keynote remarks by Charles Nottingham, chairman of the Surface Transportation Board (STB-www.stb.dot.gov). While spending some time in promoting public private partnerships for upgrading the nation's infrastructure, he did note that a major decision about rate bureaus would be issued later that day.

The decision, STB Ex Parte No. 656 (Sub-No.1). eliminates antitrust protection for motor carriers to "collectively establish rates, classifications, mileage guides, rules and rate adjustments for general application based on industry average carrier costs."

National motor carrier rate bureaus have existed with STB antitrust approval over the years. Of the bureaus covered by the ruling, one, the National Classification Committee (NCC) is made up of motor carriers and functions to establish freight commodity classifications. Independently of the NCC, the 10 national rate bureaus use these classifications as a basis for developing class rates.

Although antitrust immunity was removed from the NCC, the ruling does note that the STB does not intend to "discourage the classification process properly administered. We recognize that there are significant benefits associated with having a classification system. To obtain a rate quote, shippers need only identify the commodity being shipped, the weight of the shipment, and where it is going."

A number of groups offered opinions about the continuation of antitrust immunity for rate bureaus. In the forefront were NASSTRAC and the National Industrial Transportation League (NITL-www.nitl.org). NASSTRAC's general counsel, John Cutler, notes that "Motor carrier collective ratemaking is a holdover from the cartel era of trucking industry pricing and is inconsistent with the competitive goals of deregulation."

The STB was in agreement with this line of reasoning. It noted that although the trucking industry was deregulated in 1980 the agency permitted continued antitrust immunity that it saw as becoming "increasingly anomalous with each passing year. The time has come to bring the legal environment in which the motor carrier industry operates into conformity with the economic realities that govern its behavior."

For those most directly to feel the effects of the ruling, the rate bureaus, there is a stepping back to gain their breath and get a better fix on just what this ruling means. The most visible and active of the rate bureaus has been the Southern Motor Carriers Rate Conference, Inc. (SMC3-www.smc3.com) that offers its CzarLite pricing system which is licensed to more than 1,400 shipping companies. In looking at the ruling, Denny Slaton, the bureau's senior vice president, business development, says they will be, "evaluating the STB's decision in detail in order to fully address both the challenges and opportunities it presents us and our customers. We will provide regular updates to our customer segments regarding our business responses to the decision."

Slaton notes that the company has been in business for 70 years and has faced business changes before. "We have regrouped and adjusted to them and that's what we'll do with this one," he continues. "I think our company DNA is much broader than collective ratemaking. Our real responsibility is to delivering pricing content to the market place and adjusting to what markets want and need. So this is another adjustment to that. We've gone through a lot of changes in our history and this will require us tweaking some of our products and processes to deal with it."

A first step by SMC3 is to seek an extension to the deadline for implementation of 120 days imposed by the STB in its ruling. "About this short time frame, " says Slaton, "there are all sorts of parties in the transportation food chain. Not just carriers, but shippers with agreements, 3PLs, technology providers and so forth. The ruling may have some impact on that commerce and all want to make sure that's not disrupted."

The ruling and its effect on SMC3 and the entire industry now moves to a place of prominence on the company's previously scheduled Summer Conference, June 20-22, in Myrtle Beach, SC.

The National Motor Freight Traffic Association's (NMFTA-www.nmfta.org) NCC is an autonomous entity that develops and maintains the National Motor Freight Classification. Bill Pugh, NMFTA executive director and secretary of NCC, is in agreement with the SMC3 that the 120 day implementation deadline is too short a period. "We don't think, frankly, that the effective date is realistic in view of what we will have to do by that date," he observes. "For example, in order to follow the decision's advice and create an alternative structure and process for classification making, we will have to be in consultation with our National Classification Committee and our board of directors and with advice from the Department of Justice (DOJ)."

Pugh is referring to the STB noting that, "DOJ's comments in the present record are reassuring that the classification process can be reformed to comply with the antitrust laws, and that DOJ is willing to assist in this regard. Thus, we believe that the risk of antitrust liability can be minimized through consultation with DOJ and reformation of the classification process as appropriate."

"We have felt for many years that collective ratemaking by carriers is anticompetitive and does not benefit shippers," says Gail Rutkowski, president of NASSTRAC. "That's why NASSTRAC took the lead for shippers in the STB proceedings and encouraged participation by the U.S. Department of Justice."

For now, the NMFTA and NCC have requested that the STB provide a 14-month extension for implementation of the antitrust ruling. The association argues that carriers and shipper customers depend on the NMFC not only for classes and commodity descriptions, but also for rules, packaging specifications, bills of lading and listing of carriers.

"We will thrash out the changes in considerable details in a number of meetings," says Pugh. "We will get an idea as to the direction that our members want to take from that. Only those who are members of NMFC will be able to participate. You have to be a participant in the National Motor Freight Classification in order to use the classification."

Chris Baltz, senior vice president Yield Management and Strategic Development, ABF Freight System, Inc. (www.abfs.com), thinks that classification is a key part of the entire process to be gone through in constructing costs and ratemaking. "Effectively it's a cost reducer for shippers and carriers," he claims. "It gives everyone a central, uniform way to approach the variety of commodities being shipped. It provides a relationship between all commodities and gives an understanding of how ping pong balls might compare relative to staplers. It furnishes a starting point to know what's being dealt with from a density, stowability, handling and value perspective." At that point, with mutual understanding, a price for transportation can be negotiated.

"What we're telling our sales people," explains Baltz, " is that we believe the classification book in some form will continue—for sure in the short term for a year or two. Beyond that we believe some uniform centralized classification book will continue because it is a cost reducer for both parties in the industry."

As far as setting freight charges, neither ABF nor many other carriers depend on rate bureaus for setting their rates.

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