Federal Maritime Board v. Isbrandtsen Company and Gulf Freight Conference v. United States

Citation78 S.Ct. 851,356 U.S. 481,2 L.Ed.2d 926
Decision Date19 May 1958
Docket NumberJAPAN-ATLANTIC,Nos. 73 and 74,s. 73 and 74
PartiesFEDERAL MARITIME BOARD, Petitioner, v. ISBRANDTSEN COMPANY, Inc., United States of America and Secretary of Agriculture.AND GULF FREIGHT CONFERENCE; Mitsui Steamship Co., Ltd., et al. v. UNITED STATES of America, Federal Maritime Board, Isbrandtsen Company, Inc., and Ezra Taft Benson, Secretary of Agriculture
CourtUnited States Supreme Court

Mr. Warner W. Gardner, Washington, D.C., for the Federal Maritime board.

Mr. Elkan Turk, New York City, for petitioners Japan-Atlantic and Gulf Freight Conference and others.

Mr. John J. O'Connor, Washington, D.C., for respondent Isbrandtsen Company, Inc.

Mr. Philip Elman, Washington, D.C., for respondents United States and Secretary of Agriculture.

Mr. Justice BRENNAN delivered the opinion of the Court.

The Isbrandtsen Co., Inc., filed a petition in the United States Court of Appeals for the District of Columbia Circuit to review, under 5 U.S.C. § 1034, 5 U.S.C.A. § 1034, an order of the Federal Maritime Board1 approving a rate system proposed by the Japan-Atlantic and Gulf Freight Confer- ence (the Conference).2 Under the proposed system a shipper would pay less than regular freight rates for the same service if he signs an exclusive-patronage contract with the Conference. Contract rates would be set at levels 9 1/2 percent below noncontract rates. The Court of Appeals3 set aside the Board's order on the ground that this system of dual rates was illegal per se under § 14 of the Shipping Act, 1916, 39 Stat. 733, as amended, 46 U.S.C. § 812 Third, 46 U.S.C.A. § 812 Third.4 We granted certiorari. 353 U.S. 908, 77 S.Ct. 664, 1 L.Ed.2d 662.

The Conference is a voluntary association of 17 common carriers by water serving the inbound trade from Japan, Korea, and Okinawa to ports on the United States Atlantic and Gulf Coasts. Five of the carriers are American lines, eight are Japanese, and four are of other nationalities. The Conference presently operates under a Board-approved Conference Agreement made in 1934. Prior to World War II, the Conference had no direct liner competition and little tramp competition.

After the war, Isbrandtsen entered the trade as the sole non-Conference line maintaining a regular berth service in the Japan-Atlantic trade. From 1947 to early 1949, isbrandtsen operated from Japan to Atlantic Coast ports via the Suez Canal. Since 1949 Isbrandtsen has operated an approximately fortnightly service from Japan to United States Atlantic Coast ports via the Panama Canal as part of its Eastbound, Round-the-World Service.5

Although Conference membership is open to any common carrier regularly operating in the trade, Isbrandtsen has refused to join. Isbrandtsen's practice, between 1947 and March 12, 1953, was to maintain rates at approximately 10 percent below the corresponding Conference rates. The general understanding of shippers and carriers in the trade was that Isbrandtsen underquoted Conference rates by 10 percent. This practice of undercutting Conference rates during the years 1950, 1951, and 1952, captured for Isbrandtsen 30 percent of the total cargo in the trade although Isbrandtsen provided only 11 percent of the sailings.6

Since outbound tonnage from the United States exceeds the inbound tonnage, the Japan-Atlantic and Gulf trade is presently overtonnaged, and both Isbrandtsen and Conference vessels have had substantial unused cargo space after loading cargoes in Japan. Total sailings in the trade rose from 109 in 1949 to more than 300 in 1953. (Cf. Note 6, supra.) The re-entry of the Japanese lines in the trade after World War II, four in 1951 and four in 1952, greatly contributed to the excess of tonnage. For the years 1951, 1952, and the first 6 months of 1953, the Japanese lines carried approximately 15 percent, 49 percent, and 66 percent, respectively, of the trade's total liner cargo. For the years 1950, 1951, 1952, and the first 6 months of 1953, American flag lines, including Isbrandtsen but excluding two others, carried 53 percent, 46 percent, 34 percent, and 21 percent respectively.

When, in late 1952, Isbrandtsen announced a plan to increase sailings from two to three or four sailings a month, the Conference foresaw a further increase in Isbrandtsen's participation which, because of the nationalistic preference of Japanese shippers, would probably be at the expense of the non-Japanese Conference lines. To meet this outside competition the Conference first attempted, in November of 1952, a 10-percent reduction in rates, but Isbrandtsen answered with a reduction of its rates 10 percent under the Conference rates.

On December 24, 1952, the Conference proposed the dual-rate system and filed its plan with the Board as required by the Board's General Order 76, 46 CFR § 236.3, which permitted proposed rate changes to become effective after 30 days unless postponed by the Board on its own motion or on the protest of interested persons. Protests were filed by Isbrandtsen and the Department of Justice. The Secretary of Agriculture intervened as an interested commercial shipper opposed to the proposal. On January 21, 1953, the Board ordered a hearing on the protests but refused, pending the Board's determination, to suspend operations of the dual-rate system. Isbrandtsen, therefore, filed a petition in the United States Court of Appeals for the District of Columbia Circuit for a stay of the Board's order insofar as it authorized the Conference to institute the dualrate system. The court announced on February 3, 1953, that the Board's order would be stayed and the stay was entered on March 23, 1953. 7 The Conference response to the stay was to open rates to allow each line to fix its own rates. At a meeting on March 12, 1953, the Conference voted to open Conference rates on 10 of the major commodities moving in the trade. The action was primarily directed at Isbrandtsen's competition; the Board found that 'it was hoped that the rate war would lead to Isbrandtsen's joining the Conference or to the institution of the dual rate system or other system.' On succeeding dates in the spring of that year, the Conference opened rates on most of the major items in the trade. In the resulting rate war, the level of rates dropped to about 80 percent and later to about 30 percent to 40 percent of the pre-March 12 rates. In some instances, rates fell below handling costs. Isbrandtsen attempted to keep on a competitive basis in the rate war but, when pegging of minimum rates in May did not improve its position, in July it set its rates at 50 percent of the pre-March 12 Conference rates. Since that date, Isbrandtsen has carried little cargo in the trade. Meanwhile the Board proceeded with the hearing and issued its report on December 14, 1955, followed on December 21, 1955, and January 11, 1956, by orders approving the proposed dual-rate system.8 The question for our decision is whether the Court of Appeals correctly set aside the Board's orders.

It has long been almost universal practice for American and foreign steamship lines engaging in ocean commerce to operate under conference arrangements and agreements. At least by 1913 it was recognized that such agreements might run counter to the policy of the anti-trust laws; several cases were pending against foreign and domestic water carriers for alleged violations of the Sherman Act, 15 U.S.C.A. §§ 1—7, 15 note. The House Committee on Merchant Marine and Fisheries of the 62d Congress, of which committee Representative J. W. Alexander was Chairman, undertook an exhaustive inquiry into the practices of shipping conferences. The work of this Committee is set forth in two volumes of hearings,9 a volume of diplomatic and consular reports, and a fourth volume containing the Committee's report, known as the Alexander Report. 10 Contemporaneously a British inquiry was conducted by the Royal Commission on Shipping Rings. The Royal Commission's report was available to the House Committee and was considered by it in formulating recommended legislation. See Hearings, at 369.

Both inquiries brought to light a number of predatory practices by shipping conferences designed to give the conferences monopolies upon particular trades by forestalling outside competition and driving out all outsiders attempting to compete. The crudest form of predatory practice was the fighting ship. The conference would select a suitable steamer from among its lines to sail on the same days and between the same ports as the non-member vessel, reducing the regular rates low enough to capture the trade from the outsider. The expenses and losses from the lower rates were shared by the members of the conference. The competitor by this means was caused to exhaust its resources and withdraw from competition.

More sophisticated practices depended upon a tie between the conference and the shipper. The most widely used tie, because the most effective, was the system of deferred rebates. Under this system a shipper signed a contract with the conference exclusively to patronize its steamers, and if he did so during the contract term, and for a designated period thereafter, a rebate of a certain percentage of his freight payments was made to him at the end of the latter period. In this way, the shipper was under constant obligation to give his patronage exclusively to the conference lines or suffer the loss of the rebate, which often amounted to a considerable sum.

But the Alexander Committee also found evidence of other predatory practices. Shippers who patronized outside competitors were denied accommodations for future shipments even at full rates of freight, or were discriminated against in the matter of lighterage and other services. Outside competition was also met by dual-rate contracts, by contracts with large shippers at lower rates for volume shipments, and by contracts with American railroads giving conference vessels preference in the handling of cargoes...

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