National Ass'n of Recycling Industries, Inc. v. Federal Maritime Commission

• Citation: 658 F.2d 816
• Decision Date: 24 December 1980
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 816

658 F.2d 816

212 U.S.App.D.C. 68

NATIONAL ASSOCIATION OF RECYCLING INDUSTRIES, INC., et al Petitioners v FEDERAL MARITIME COMMISSION and United States of America, Respondents Sea-Land Service, Inc., Pacific Westbound Conference, Intervenors.

No. 79-1267

United States Court of Appeals, District of Columbia Circuit.

Argued 18 Dec. 1979.

Decided 24 Dec. 1980.

Petition for Review of an Order of the Federal Maritime commission.

Edward L. Merrigan, Chevy Chase, Md., for petitioners.

Robert J. Wiggers, Atty., Dept. of Justice, Washington, D. C., with whom John H. Shenefield, Asst. Atty. Gen., and Robert B. Nicholson, Atty., Dept. of Justice, Washington, D. C., were on the brief, for respondent, United States.

John C. Cunningham, Atty., Federal Maritime Commission, Washington, D. C., with whom Brian E. Kehoe, Gen. Counsel, and Edward G. Gruis, Deputy Gen. Counsel, Washington, D. C., were on the brief, for respondent, Federal Maritime Commission.

Thomas E. Kimball, San Francisco, Cal., with whom Robert B. Yoshitomi and Richard C. Jones, San Francisco, Cal., were on the brief, for intervenor, Pacific Westbound Conference.

Edward M. Shea and Edward A. McDermott, Jr., Washington, D. C., were on the brief, for intervenor, Sea-Land Service, Inc.

Gordon M. Shaw, Atty., Federal Maritime Commission, Washington, D. C., entered an appearance, for respondent, Federal Maritime Commission.

Edward D. Ransom, San Francisco, Cal., entered an appearance for intervenor, Pacific Westbound Conference.

Before WILKEY and MIKVA, Circuit Judges and FLANNERY ^*, District Judge for the District of Columbia.

Opinion for the Court filed by Circuit Judge WILKEY.

Dissenting opinion filed by Circuit Judge MIKVA.

WILKEY, Circuit Judge:

This is a case involving several cognate commodities, each of which is a raw material used by Far East manufacturers of paper products. The three raw materials recyclable wastepaper, processed woodpulp, and virgin woodchips travel westbound across the Pacific at widely divergent shipping rates. Petitioners are shippers who claim that their product, wastepaper, faces prevailing freight rates which are unreasonably high and discriminatory in violation of the Shipping Act of 1916 (the Act). ¹ The assertedly unfavorable rates charged for shipments are fixed by a monopolistic ratemaking association of carriers, the Pacific Westbound Conference (PWC), holding a limited antitrust immunity under the Act. ² The rates for woodpulp and woodchips, on the other hand, are "open"; they are set by carriers who act independently, who must meet the competition of all steamship operators, including those outside the PWC. We are called upon to review a final agency decision and order upholding the rates fixed by the PWC.

A Federal Maritime Commission (FMC or Commission) administrative law judge (ALJ) found that the administrative record showed unreasonably high shipping rates that discriminated against wastepaper to the detriment of United States commerce in that commodity in violation of statutory provisions. ³

The Commission has not provided a reasoned decision based on substantial evidence explaining how it could overrule its ALJ though it accepted the same basic economic predicates as found by the ALJ. The Commission engaged in wholly insufficient analysis of the harm posed to United States commerce by the high shipping rates for wastepaper the principal flaw being the Commission's illogical disregard for the pernicious commercial effects which attend unreasonably steep freight costs. Hence, the FMC's orders declining to disapprove the challenged rates must be set aside. The Commission's laxity challenges the very character of the Act which, on the one hand, grants considerable license to carriers, and on the other, obligates the Commission to ensure that that license does not work to the disadvantage of the national commerce. The basically facile agency reversal of the ALJ, as evidenced by these formidable and unfounded rate differentials cannot stand. ⁴

I. BACKGROUND

On 20 July 1972 the FMC initiated this inquiry to examine alleged violations of the Act. ⁵ The Commission's ALJ was directed to investigate violations of sections 15, 16 First, 17, and 18(b)(5) ⁶ possibly resulting from an unjustified differential separating monopoly wastepaper rates from competitive woodpulp rates. Petitioners had complained to the Commission and continue to claim before this court that the PWC had abused its limited ratemaking authority by fixing an unreasonably overpriced rate structure for wastepaper thereby damaging export potential for that commodity in the Far East. ⁷ Petitioners contended that materially lower shipping rates for a similar commodity, woodpulp, demonstrated the unreasonableness of much higher rates for wastepaper hurting their sales of the latter raw material. On 15 August 1977 the ALJ agreed, declaring that wastepaper rates should henceforth be "open," but he was reversed by the Commission, which found on 9 March 1979 that the challenged ratemaking in no way violated the Act. In addition to the principal issues under the Shipping Act outlined above, this appeal raises a subsidiary question of compliance with the National Environmental Policy Act of 1969 (NEPA). ⁸

Since the Commission and ALJ proceedings are incongruous, some basic facts warrant special emphasis, because this appeal poses subtle questions of unsatisfactory agency showings of substantial evidence and reasoning in the decisionmaking process. To resolve whether the Commission upheld its statutory responsibility to disapprove unreasonable and economically deleterious rates set by a conference of carriers, we need to consider three things: (1) Is wastepaper a commodity similar to others which have more favorable shipping costs?; (2) Do the PWC fixed wastepaper rates conform to standard ratemaking factors of cost, value of service, or other transportation conditions?; and (3) Is commerce in wastepaper impeded by materially less advantageous rates? A brief view of these considerations will allow us not only to see whether the PWC abused the limited ratemaking authority it has under the Act, but more critically, whether the FMC has ignored its statutory mandate to define those limits in the public interest and oversee the license granted to shipping conferences.

A. Similarity and Differences of Wastepaper to Woodpulp and Woodchips

Simply and practically speaking, there is really one characterization which separates the various positions asserted in this case: it is that the Commission has been obstinately oblivious to the existence of competition among the various raw materials used in paper production. That competition, or "interchangeability," the argument would run, is preserved if and only if the transportation costs of those materials are reconciled with their correlative production characteristics. The considerations elaborated below will show that the FMC has viewed with a strange astigmatism the competition which wastepaper can mount against woodpulp and woodchips in the context of acceptable shipping rates in a generally expanding market. ⁹

The FMC, it must be noted, does not rule on rates applicable to woodpulp and woodchips. Woodpulp shipments are subject to "open" rates because of the existence of substantial competition. And whereas woodpulp and wastepaper travel in containers, woodchips are carried in the holds of "tramp" ships stopping when and where they please. Tramps are not common carriers, hence do not fall under the Commission's jurisdiction. But these rates and the freight movements they generate, developing as they do in the same basic competitive context, are relevant to the reasonableness and true commercial effect of wastepaper rates. The FMC does not recognize this. This is a major flaw we find in the Commission's regulatory horizons a handicap not shared by the ALJ, as brought out below in Parts II. A. and B.

1. Competition. Before we turn to the effect of price differentials in our analysis of wastepaper as a competitor, it is necessary to check whether, in any event, wastepaper can be used like woodpulp or woodchips in the production process of paper goods: in other words, is there positive cross-elasticity of demand? ¹⁰ We need to know this, for otherwise it is not possible to say whether the rate differentials that exist are unreasonable, or unjustly discriminatory, or unfair. ¹¹ The ALJ found "that wastepaper and woodpulp are similar commodities." ¹² He wrote: "The two commodities are both fiber resources in the papermaking industry. They are technologically and economically interchangeable in the Far East market place and both are carried in the same trade." ¹³ The Commission could not disagree. It said: "While it is no doubt true that both commodities compete in certain end uses i. e., that both can be used as a raw material for the manufacture of paper or paperboard specific grades of wastepaper can only be used to produce specific grades of pulp of a like kind and quality." ¹⁴ This court, speaking of a parallel agency, the Interstate Commerce Commission, has used the following language:

The lawfulness of the rate structures was not to be governed by the fact that recyclable products had been unable to attain actual competitive status with virgin products under existing rates. Instead, we believe that to warrant dispositive findings of no competition the Commission was required to find that the various products were neither actually nor potentially competitive for transportation purposes. ¹⁵

One can only conclude, then, that wastepaper shippers sell in a market where the use of their product is commensurable with and therefore necessarily comparable to the only obvious substitutable alternatives around: woodpulp or woodchips. ¹⁶ Given this incontrovertible relationship among the commodities, we must proceed to examine whether they travel at different rates, and whether the differences are...