PAGENO="0001" HEARING EEFORE THE SUBCOMMITTEE ON TRANSPORTATION AND AERONAUTICS O~' THE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE HOUSE OF REPRESENTATIVES. NINETY-FIRST CONGRESS SECOND SESSION ON H.R. 9227, H.R. 10687, and ILR. 12831 BILLS TO A~IEND THE FEDERAL AVIA~11ION AOT OF 1958 TO PROVIDE FOR THE CERTIFICATION OF AIR FREIGHT FORWARDERS JtJNE 22, 17Q Serial No. 91-63 Printed for the i~se of the Committee on Interstate and Foreign Commerce U.S. GOVERNMENT PRINTING OFFICE WASHINGTON 1970 RUTGERS I PAGENO="0002" N. FRIEDEL, Maryland ~JDONALD, Massachusetts laborna - ~an nsylvania York ~D III, Virginia n New York JR., Georgia me exas i.PIERNAN, Rhode Island SON PREYER, North Carolina WILLIAM L. SPRINGER, Illinois SAMUEL L. DEVINE, Ohio ANCHER NELSEN, Minnesota HASTINGS KEITH;Massachusetts GLENN CUNNINGHAM, Nebraska JAMES T. BROYHILL, North Carolina JAMES HARVEY, Michigan ALBERT W. WATSON, South Carolina TIM LEE CARTER, Kentucky G; ROBERT WATKINS, Pennsylvania DONALD G. BROTZMAN, Colorado CLARENCE J. BROWN, Ohio DAN KUYKENDALL, Tennessee JOE SKUBITZ, Kansas FLETCHER THOMPSON, Georgia JAMES F. HASTINOS, New York 1-.JAMES M. MENGER, Jr. WILLIASE J. Dixon Proftssionat Staff ROBERT F. GU~RRIR KURT B0aCHARDT SUBCOMMITTEE ON TRANSPORTATION AND AERONAUTICS SAMUEL N. FRIIDDEL, Maryland, Chairman ~NGELL, Michigan SAMUEL L. DEVINE, Ohio Texas GLENN CUNNINGHAM, Nebraska ALBERT W. WATSON, South Carolina DAN KUYKENDALL, Tennessee (H) COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE HARLEY 0. STAGGERS, West Virginia, Chairman ADAMS, ~.. ID L. OTTIN TON, Ten W. E. WILLIAMsoN, Clerk KENNRTIJ I. PAINTER, Assistant Clerk PAGENO="0003" CONTENTS Text of- L'age H.R. 9227 H.R. 10687 1 H.R. 12831 2 Report of- Bureau of the Budget 3 Civil Aeronatuics Board 3 Transportation Department 4 Statement of- Gillilland, Whitney, Vice Chairman, Civil Aeronautics Board 6 ilaffer, Louis P., executive vice president and counsel, Air Freight Forwarders Association of America 14, 19 McCrohan, James F., president, Air Freight Forwarders Association of America 14,27 Matsunaga, Hon. Spark M., a Representative in Congress from the State of Hawaii 5 Montgomery, M. G., first vice president-West, Air Freight Forwarders Association of America L Shulman, Martin, first vice president-East, Air Freight Forwarders Association of America Additional material submitted for the record by- Air Transport Association, Stuart G. Tipton, president, letter dated .Tune 19, 1970, to Chairman Friedel (III) PAGENO="0004" PAGENO="0005" [H.R. 9227 and March 19, 1969, and as follows :1 esentativ~ fthe~ .viation Act of 1958 is amen rtificate to enga~ a cci AIR FREIGHT FORWARDER MONDAY, JU~ 22, 197Q HOUSE OF REPEESENTATIVES, StTBCOMMITTEE ON TRANSPOETATION AND AERONAUTICS, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, ~~?*~* The subcommittee met at 10 a.m., pursuant to notice, ~ in room 2123, Rayburn House Office Building, Hon. Samuel N. Friedèl (chairman) presiding. Mr. FRIEDEL. The subcommittee will be in order. Today we are opening the hearings on H.R. 9227, H.R. 10687, ~i H.R. 12831, which would amend the Federal Aviation Act to prc for the certification of air freight for~t~arde~'s. ~ The basic question before us is whether or not entry into i forwarding business shall be unrestricted or limited to those qualify for certificates which would be awarded upon qualification t those ~i ho meet the requirements of the legislation pending before us and related regulations or standards which would be promulgated and issued by the Civil Aeronautics Board (The text of H.R~ 9227, H.R. 10687, and H.R. 12831, and d mental reports thereon follow:) Be it enacted 1~ A lULL To amend the Federal Aviation Act of 1958 to provide for the certification ofa PAGENO="0006" ~issued a ceri ficate ~ ~ to the same e~ent aul ~rmination of any 5U( a certificate shall be 1 date of enactmei - ~erm shall not be i: ie expiration of t' as paragra~ isertrng imediate] r after paragraph (3) 1 h: certificate issued under this section to engage in air freight forwarding s ignate the terminal and intermediate points only insofar as the Board shall ~a practicable and otherwise shall designate only the geographical area or areas within or between which service may be rendered." deteri~ ta cerl date of enact `~~shall not b r tem~ to conform t such transp otherwise such for such a ce~' e Board si rig. ri as an~ r~te of em 3ate is ii give considerati t forwarder at a )f this paragraph such opera- ..~h time, for sixty within such sixty ~ authorizing such ithorized in the ~rved; [ILR. 12831, 91st Cong., 1st Sess., introduced by `Mr. Adams (for himself, Mr. Friedel, Mr. Moss, Mr. Qttinger, and Mr. Tiernan) on July 15, 19691 A BILL To amend the FederalAviatioja Act of 19t5 to provide for the certification of air freight forwarders ed by the Senate and House of Representatives of the United States of -. i assembled, That section 101 of the Federal Aviation Act of y redesignating paragraphs (7) through (35) as paragraphs ively, and by inserting immediately after paragraph (6) means an air carrier holding a certificate of public Luthorizing it to engage in dOmestic or international means air transportation rendered pursuant to a and necessity issued to an air freight forwarder i Act of 1958 is amended by adding rtificate to en ~e in air trans- mayi )tetoC - this I eighty days riorization issued I ion as o the poir and ( agraph ary au , or a ity for a the requirem nts of paragraph (4) PAGENO="0007" 3 of the Federal Aviation Act of 1958 is amenc red~ nating para~ (4), (5), and (6) as paragraphs (5), (6), and (7), tively, and by ins immediately after paragraph (3) the following paragraph: "(4) A certificate issued under subsection 4(A) of section 401(d) to ei ~age ii air freight forwarding shall designate the terminal and intermediate ~ insofar as the Board shall deem practicable and otherwise shall des the geographical area or areas within or between which service may be EXECuTIVE OFFICE OF THE PRESIDENT, BUREAU OF THE BUDGET, Washington, D.C., June ~3, 1970, Hon. HARLEY 0. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, f31~5 Rayburn House Office Building, Washingtoi~, D.C. DEAR MR. CHAIRMAN: This is in reply to your request for the ~- Bureau of the Budget on H.R. 9227 and H.R. 12831, similar bills ".~ the Federal Aviation Act of 1958 to provide for the certification of air. forwarders" For thereasons expressed by the Civil Aeronautics Board and the Depart: of Transportation in their reports to you on these bills, the Bureau of the: is unable to recommend the enactment of H.R. 9227 or H.R. 12831. Sincerely, WILFRED H. ROMMEL, Assistant Director for Legislative Reference. CIVIL AERONAUTICS Washington, D.C., Ju Hon. HARLEY 0. STAGGERS, Chairman, Committee on Interstate and Foreign Commerce, House of h Washington, D.C. DEAR MR. CHAIR~ the Board on H.R~ provide for the cer H.R. 9227 would e conve~ ience I necessil ie legislation, the cis, among other iience and n anind forwarders tO uld grant a cert: e to a rn transportation is reqi ~warders, whc granted cert ~, would b 3hange the authorization I [1 not be inconsistent e is a "need" for its s~ rvices, position on pre posed lq port to ~.uireds~ rig the issudnee of freight f.~ ,varder ~ reply to your 1 the I ~tiOns to t PAGENO="0008" prior assess: ~s not suggest ~ Board adheres to the ~ h1~+~-1 ~inthe~ cation is needed or d ~" May 21, 1964 ae standpoir 4 that there is no of the Administra- ry philosophy WHITNEY GILLILLAND, Acting Chairman. DEPARTMENT OF TRANSPORTATION, OFFICE OF THE SECHETARY, Washington, D.C., June ~2, 1970. `~`~""est for the views of this ;, "To amend the Federal air freight forwarders." ~ A~t of 1968 (49 U.S.C. .t forward ~eight forwarding." of that I ~. 1371) to provide cs Board of air fre ,ht forwarders on the l necessity, but they ~.vould allow freight ptions authorization, to tern- would provide that an air only the ge :raphical - ed. Tb" e Budget advises that from the standpoint of the Adminis- is no objection to the submission of this report for the Dmmittee. Our first witness this morning will be the Honorable iatsunaga, our distinguished colleague from the State of JAMES A. WASHINGTON, Jr., General Counsel. TAGqERS, ee on Interstate, and Foreign Commerce, resentatives, Washington, D.C. This i: and eronaul nience perating operation. ificate woul )n recommenc re, the air frei Mr. Matsunaga. Proceed as you see fit, sir. PAGENO="0009" rant full (]~~ ion status I forwar For ~ U forwarders have L under letters of operL ~. ~~ty which are of indei. These important me ers of the economy's transpo are, in effect, denied the permanence of operation ~ ~ ~ ~. certificate. The certificate of convenience and necessity is an instrur the public utility ~oricept, and one of its salient and a4v~ elements is the condition of permanence of oper~ ~ The certificate status for members of the air forw can be made possible only through the legislative i precisely what my bill and the others like it would achieve. I believe that it is entirely proper that full recognition of important members of the transportation industry be made throu, the granting of certification. Operating as common carriers, forwarders perform a vital service to shippers. C'~ a noncontiguous State, I am especially conscious of a~ problems which confront all elements of the trausportatio: and to any means by which tran~portation service can be ass improved. In a recent talk before the `~ Forwarders Institute, Interstate Comn~ Bush made a helpful observation of the function and responsibility. Commissioner Freight forwarding is not s'~ a service bas~"~ because it res And a1thou,~ method is~ simple ma imitators. ~i of full resp service. (em If.'~ carrier the person acknowledge that assumption force of the certificate of cou~ ~ity. :NAGA. Thank you, umiss oner ~ forwarder said: ~Jaat the basic ingred ssumption of full we Mr. though you a Mr. pleasure. Mr. FRIEDEL. Our next witness this u Whitney Gillilland, Vice Chairman of the Civi 47-471-70-2 PAGENO="0010" -, VIC1~ CIIAIRMAN, CIVIL )ARD Mr~ GILLILLAND. Good morning, Mr. Chairman and members of ~ ~ ~ committee. r ~ a prepared statement, Mr. Chairman, which I will read 0 your approval. .__~_1J. You may do so. ~ILLAND. I appreciate this opportunity to present the ws on Et.R. 9227, H.R. 10687 and H.R. 12831. These bills ~ provision for issuance of certificates of public con- .d necessity for airfreight forwarders to engage in air on. We understand their purpose to be to grant grand- ~ ~ate authority to most existing forwarders, and to require or encourage the Board to issue new forwarder certificate authority only upon proof of public convenience and necessity. In other words, the bills propose a system of licensing of airfreight forwarders in a manner similar to the present certification of direct aircarriers. present law the Board could effectuate a certificate - ~~warders, the Board has ne~rer believed that it :ations are governed by a general ulation. 1 ,~.ation is issued under the authority of of the I Aviation Act, which. was express de- ut the Board to license airfreight forwarders without the certificate proceedings. That section provides that the air carriers not directly engaged in the operation .3 provisions of the act to the extent required by the ) 50. exemption regulation requires each air forwarder to obtain an rig authorization as a prerequisite to operation. Such operating iorizations ai e issued without hearing and with a minimum of -~--1 ~ ~ ~ They are effective for an indefinite period of time. 1 although the authorizations may be suspended ~1 required in the public interest, they may not ~ "r notice and hearing. ct, ~ the regulation provides for free entry for all qualified PS, other than those persons whose affiliation with other . .~ are found to disqualify them because of conflicts ~ r words, a public "need" for the services does not ~monstrated. Under a certificate system, future applicants have to demonstrate such "need." Thus, the certification of Lers contemplated under the proposed legislation would radi- I ~ the 1' ~s present system of forwarder regulation. this point to review, rather briefly, the bases that freight forwarding operations should I by way of an exemption rather than by certification. The rwarder industry came into being subsequent to World ~h the transition of our economy to a peacetime basis, was a realization of the need of forwarder services to fill in the between air e and airfreight service that was being initiated. lications were filed with the Board seeking rwarding service. PAGENO="0011" tion. Prior to July 1, 1967, the Board cons your committee that it for the cert: reports t certificat warders that it was interest req could c~ authoi On~ legislation position in forwarder* to reinforce u. auL~ ~. Asar registration should be i~ for a airfreight forwarders from pro as to operations by them as indirect air carriers The Joard rea similar conclusion in 1949 with respect to international airL forwarders. In both instances, the Board concluded that freight forwarding operations should be authorized by way of an exemption regulation rather than by certificate. The bases for this were the difficulties that would be encountered in attemting to ~x a route pattern for forwarders by points or a~ ` ~ ~ ~ . _ cedures, and the need for ~ ~ requirements as airfreight ~ forwa~ lues i ~ still later proceedings, the Board has adhered to the view that e: tion authority is the more appropriate method of authorizing ( ~ ~ tions. Moreover, present operating authorizations are of indefinite duration. Such authorizations are designed to enhance the status of the forwarders and to facilitate their ability to obtain capital for the expansion of their operations. In other words, the form of operating authority which the Board has provided does give freight forwarders a stable form of operating authority for their protection. ` ~ e method of regulation does not, however, protect them from compe as previously indicated, the field is open to virtually all applicants. As noted, the Board's policy with respect to granting aut to airfreight forwarders and international airfreight forvc been one of permitting maximum competition and enter the field in order to provide for the full dev& - - In contrast to EI.R. 9227, H.R. 10687 and H.R. 1 ~, the I not required a showing of "need" with respect to the individ. forwarders, but has imposed minimal requirements consistent w of the p terest. The Board has, nevertheless, r ~its whose rations ~ qu ~l hampere ~rnational Eght I authorized to certificate I fired such action~ Furthe: PAGENO="0012" ~er ~of f~rwarc~ and `, ~ In contrast to 1 1 companies ~ ~ Lt forwarding as of June 30, 1949, orizecl f ~ ~rarders. Thirty~seven of these hold ~ ~ hold international authority, and 125 hold àfl(i intex lational authority. ~d domesi ic and' interni~tional forwarders' revenue from forwarding has increased from $22 million in 1957 to ion in 1968. In terms of traffic, the forwarders consolidated ~ :~ 1968 as compared with 66,000 in 1957. The industry's ~ to airfreight development has also increased dramatically ~ The percentage of airline tonnage generated by airfreight increased from 17.8 percent in 1961 to 26.21 percent in ~ airfreight forwarding revenues have increased 13.5 times, ; invested in the industry have almost tripled, and net ~`: domestic operations have increased more than 150 per- -~, ~ domestic and international shipments handled by airfreight rders have increased more than 300 percent. j believe that the foregoing data indicate that the Board's past ~y, has served the industry well, and should not be precipitously ` ~- 1. Specifically, we are not persuaded, in light of this record, ~t existing forwarders require the protection against competition rded by a certification system. Nevertheless, as I previously noted, act is ~ufficiently flexible to permit the Board to issue certificates he freight forwarders if such action appc~ars to be in the public ,In short, the Board believes that regulation and development ereight forwarder industry will continue best to be served ion through the Board's exemption powers rather than by ~ificate proceedings contemplated in the proposed legislation. ; true that most ex~sting forwarders holding exemption authority leterminate period would be granted grandfather certificates ~7 application under the provisions of the bills. Nevertheless, ~ of certificates to either existing or future forwarders re formal adjudicatory proceedings similar to those in- horizing direct air carrier services. But most important, ~tion system would conflict with the Board's' policy of free ` the field. The Board considers that jts free entry policy is the full development of air cargo. reasons, the Board does not believe that certification in t forwarding industry is needed or is desirable at this ~, Board does not, therefore, endorse enactment of any of JRIEDEL. Thank you, Judge, for your very fine statement. As I understand it, since 1948 or 1949, you just granted licenses to freight forwarders because of particular need. You also ~r statement how the industry has grown and is only in its ~it now. `t it be better if freight forwarders were certificated? Not to Lpetition, but so they would have more security in what idering their big investment, they could probably and provide better equipment and service if this ires, it does show that the industry is growing PAGENO="0013" 17 :ii system, L~ ~ the s&~urity ~f a cert~ ~. on system, it is that some forwarders might be more able to do that ; t might be more financially secure. On the other hand with ~ relaxation of competition, t~. to do it might be somewhat impaired. Competition is ~ ~ * driving force Protection tends to impair it Of course, we have this certification system and a careful lic system of that sort that is used as far as the direct air concerned. That is true. But as to most businesses, e ~ licensing is imposed, entry is not restricted. I think genera when you impose restricted entry on an industry it does tend to i competition and lower the incentive to expand. There are some other things here, too. Among them the di~ whatever the present statutory authorizations may be in this or what they might become under legislation, in defining the scot certificate -if one were to be granted-in a way that would about some limitation on the incentive of the carrier to `c Undoubtedly, such a requirement would create a burden on the carriers, on the persons who wished to' c~ in the way of long, drawn out certification proceedings, ~ corftested, I suppose in many instances Mr. FRIEDEL. You did mention in your statement that there v be a grandfather's clause for the 197 that are authorized t gather from your statement that you would require some am if we can pass this bill. Mr. Gr~ ND~ I am not sure abor~ h thc that I thi: approp statute a I would be ~ that now at all. ~ particular industry. Mr. FRIEDEL~ With 197 companies, show there is c atid protection, too. Mr. Adams? Mr. ADAMS. I notice on page 2 of ~ have free entry and you w just might have a conflict of interest in ol license. Is it true, as I understand it, t at least two of the major railroa for licenses to go into the air freight forwar~ng husii ordert~. just don't think c~ PAGENO="0014" moto ~L1i ~ -S theiame kind o ~y thaTt the people who the u have. Is that GILLILLAND. Yes, in general. But it is lhnited in term. We tend ~rd this as experimental. The license is granted to these carriers ~ ion rather than indefinite as the other carriers have. ~ uirements are more severe in order to let us monitor ehavior is, whether or not they do in fact promote ~uished from surface freight. y, the authority is similar, I~ about the major railroads and the bus lines? Have they been granted authority yet? I understand they have applications pending. Mr. GILLILLAND. -I think we have some applications pending. I don't believe any authority has been granted to them Mr ADAMS The thing that worries me about it, and the reason we have these bills before us, is that as your testimony shows the industry has grown from approximately 1 1 companies to over 197 which means you are nowgetting into the situation we had with direct air carriers which led to certification with some very small operators getting into the field at some point you have to begin to stabilize these before a very serious crisis occurs. It seems to me that this is the usual certification situation where theBoard reaches out and says, "Well, now, after a number of years, let's try to stabilize this industry as we have done with air carriers." Don't you think you have reached that point with this industry? Mr GILLILLAND No , conceivably we might sometime We have right now a good deal of uncertainty concerning the authority of the Board and the Interstate Commerce Commission with regard to pickup and delivery of freight in areas approximate to the great air terminals in this country.' That is the way most airfreight moves, through a limited number of large markets ~ The advantage, of course, of airfreight is just one, and that is ~ ~ So, the importance ~ of the connecting service with trucks at `.~ ! 1 `:~ air terminals is great, very great. I don't know that is particularly critical as far as the immediately adj acent . ~ ` ~ consignees are concerned, that is, people within a ~f these great air terminals. . ~ . ~ communities and smaller cities that may be ~, or ~ ` ~S away from the terminals. b I am going to say at this point may be a little bit dangerous. I ~ ~ some conflict in my own views about it But I don't think that ~ airfreight always lends itself well to connecting services, at the great . . air terminals, with the smaller air carriers. The schedules don't always ~ mesh very well. Sometimes they do, of course. This depends on happenstance, more or less. Onward movement is ordinarly best facilitated by connection by truck. As I say, we have some uncertainties as to our areas of authority in this field and the ICC does likewise. I think after these uncertainties get settled down, if they ever do, that we might have another look at this thing. But right now, I believe it is of maximum importance to maintain the greatest motiva- tion that can be for good truck services to the outlying communities. PAGENO="0015" sseerns to be a nevere pr~ and t. L. V ~are policy of ent] L enhaiice the I forwarders, ~ ~ in a better j . . But on the . ~ ~ ~ might lose their motivation to ~ so considerably; that is, ii u~ already had a good thing in the markets that could be served conveniently and profitably, customers that could be served conveniently and properly that were approximate to the airport, they might be perfectly content to continue to do f could see a good return and not then be as bold and ventui reach out and expand the services to the outlying markets a~ under the policy we now follow ; or as the entrepreneur w want to start in this kind of business in an outlying ~` ~ thought he saw a chance for entry Mr. ADAMS. Don't we have some real problem right now in the major hubs with the protection and expedition of freight through them? I am thinking particularly of Kennedy Airport. This committee has had testimony from a number of different people concerning the industry and the conditions in the connecting link. I don't know whether the ICC doesn't have jurisdiction or you don't have juris- diction, but conditions of movement of freight once it gets `~ of the airplane in the major New York airport has been chaotic to L ~ where an embargo has been put on by some in private indus say they won't ship in there because they have lost too many ~ I understand that happened with furs in New York. These connecting links are what we are trying to look at. Mr. GILLTLLAND. There has been a lot of trouble with furs. I don't know whether that has been completely eliminated or not. There has been a great deal of pilferage around Kennedy in the moven~ents of air freight back and forth to the airport. Mr. ADAMS. Airfreight not only involves speed, but it also the more high cost goods. In the past you have be~ ~L1~ ~ upon airfreight getting them there quickly, and i F ~ ~ ~ ~ ~ ~ , expensive, you could ~ g~ ,~1 protected. Mr. ADAMS. 1 are .197 compa~ country, a ~ _ ~ -- *-*- --- major ~ , be an ~ of people stepping on ~( another in those major terminals. ~ ~ Mr. GILLIIJLAND. There aren't that many in any of tI terminals I have in mind 30 or so operatin~ I out ( and a few of those handling most of the bu~ - trucks are able to move from their own airport directly to the plane in many insta~ way they work. I don't believe that the number of freight forwarders i be significant in that regard. Mr. ADAMS. We have agreed with the I 1 1 one of these new industries starts you bas PAGENO="0016" begin to p~ ~ w~11 cover , you arrive at a situation where if you don't go B ~OU got everything else around it regulated, giants in the other fields of transportation coming ,, which was what my first question was about, or ~ our optimum point on the number of people who e in. by ~ free entry, ~ and from then on you just have people who r can't compete against the established operators, coming in on b-term basis and then getting out with considerable losses to ppers that are involved and so on. to get from you some idea of the board about how to be, and if you think it should be bigger v people c g in, whether you are going to keep out the ~ies and the raifroads and the major truckers from having hority. 4LAND. You understand that the license, the exemption ~ to the air freight forwarders does not limit their area They are areawide throughout the United States. EALAND. This is true. s. That seems to be all right, doesn't it? 1~ILLAND. I think so but that emphasizes the problem of We are not talking about the certification route. We regultttions on: are you financially capable of shipping r is protected, are you financially capable of pro- ~s as they move in and out of the terminals, do you of interest of wanting to carry some other kinds of r words, another business where you are using airfreight sort of thing that, as I understand it, we are trying to not to set up necessarily a point-to-point regulation . ~., ~ . . , : that has been recommended by anyone. ~~n't have to take apart the system you have now. You ~ j be able to keep better track of your 197 companies here. LLILLAND. I think that if we had a policy of limited entry, her or not the board defined the authority by specific markets ~`~"~d tend to get into that sort of situation. Once a carrier I a system that it thought of as a good thing it would se its motivation to expand into other markets and to give :arkets the same kind of service. ~Jd they, if they already have a profitable operation ; as you have reasonably unlimited entry, that is for the ~ new man loOking for a chance to get into the business to ~ money, and who may or may not do it, and successful s, lots of them, are founded on failures of others, the policy ristantly tend to ~ a and more markets in with service. t know that an e that exists i related to the for 1 PAGENO="0017" 13 Mr. ADAMS. How far out of the terminals can or does your jurisdic- tion go with regard to authorizing airfreight forwarder to send trucks and pick up materials and consolidate them and bring them in and place them on airplanes? I can see where you are probably in pretty direct, I won't say conflict, but you have got a dual jurisdiction with both the railroad freight forwarders, the motor carriers and maybe even ports. How do you do that? Mr. GILLILLAND. Transportation by truck that is, under the statute, "incidental" to air transportation is exempt from Interstate Corn- merce regulation. It is in determining what that "incidental" is that the trouble comes about. For a great many years, the Board has used a 25 mile radius as a rule of thumb and has accepted tariffs for air transportation that included pick up and delivery services within that 25 mile radius. It became apparent some years ago that this was not very realistic. The Interstate Commerce Commission has the statutory authority to determine this ; that is, when licensing by them is required. But we tried to work out an accommodation that brought in the realities a little better and that would extend the pick up and delivery zones where there was a showing of normal flow of pick up and delivery services over greater distances. I suppose in a dozen, maybe 20 instances, the Board has authorized tariffs at greater distances, in some instances as far as 75 miles. And the Interstate Commerce Commission in all instances up to the 1)resent has recognized the services as incidental to air transportation. There is some uncertainty about it, though, that is presently coming into focus. The ICC licenses motor carriers to perform motor transportation of freight that is transported by air. It is between carriers of that type and the motor trucks, that are used by the airfreight forwarders and by the direct air carriers for pick up and delivery where the conflict arises. Mr. ADAMs. I was going to say it seems to me it is who gets there first with the bill of lading in these cases. In other words, if a motor carrier drives up to your front door and puts on a bill of lading and guaranatees delivery within 3 days and he takes it down and delivers it and makes an arrai~gement with the airline and on a joint tariff basis carries it by air and it gets to the other end, why then it is motor carrier. If an airfreight forwarder goes down and gets it, it is air freight. This is what bothers me about not having a certifying procedure that is going to keep or establish some kind of position between the two. Otherwise, I don't know what the difference in joint rates betiveen motor carriage and air carriage out of these major terminals is. But it would seem to me if you had major motor carriers coming in here they would run the airfreight forwarders out of business pretty fast. Mr. GILLILLAND. I don't think the question of whether the carriers held certificates from us-that is, the airfreight forwarders-or whether they operate by exemption would affect the thing that we are talking about except in the degree that it might lessen the incentive of the airfreight forwarders to expand and to serve the lesser markets, which I think they should do. 47-471-70-3 PAGENO="0018" 14 The way we tend to look at it is we have a duty now under the statute to promote air transportation. That is written right into our statute. But we don't think that this necessarily means that air transportation is best promoted by doing it at the expense of the other forms of transpOrtation. This is an instance where this is true. As far as airfreight is concerned, it won't move by aircraft from origin to destination. This doesn't occur. It has to move at both ends by some other means, usually by truck.. Some of it might conceivably move by rail or somebody might pick it up and have it in his hand. But there has to be this complementary means as far as aircargo is concerned at both ends. Just what motor transportation incidental to air transportation is, I don't know. But I am quite sure of this : That nobody ships by air- freight except to get speed. That is the reason he does it. So that to my mind, the air transportation would always be the dominant form when it takes place in the chain. Otherwise, it won't occur. If speed is not important the cargo will move by truck or by rail all the way through. It is the dominant form and fundamentally any movement by truck before or after is incidental to air transportation. This is perhaps a personal view, but I believe it is correct and that the important thing is to have the connecting service occur quickly, that is, a truck picks up the air shipment at the time the plane arrives and takes it on to the customer. The airfreight forwarders to this. magnificantly. They do a splendid job just that way and' they do a good job of picking up the freight and delivering it to the aircarrier' for transportation. They are a most important link in the sequence. We don't want anything to occur that is going to interrupt the smoothness of opera- tion that now exists. But we do think that the industry ought to be in a position where there will be maximum expansion and the fluid, if it is a fluid, of motivation will continue to flow out and fill up all the areas where there is a potential. I want to make it clear that we certainly have no hostility to the airfreight forwarders. It is quite the contrary. We think they are a vital unit in this sequence. Mr. FRIEDEL. Thank you very much, Judge Gillilland. I hope we come to some conclusion on this bill. ` We have four witnesses from the Air Freight Forwarders Association of America, Mr. Louis P. Haffer, executive vice president and counsel. Mr. James F. McCrohan, president of the association and president of Novo Air Freight; Mr. M. G. Montgomery, first vice president, west of the association and president of WTC Air Freight; and Mr. Martin Shulman, first vice president, east of the association and president of Shulman Air Freight. You may proceed. STATEMENT OP LOUIS P. HAPPER, EXECUTIVE VICE PRESIDENT AND COUNSEL; ACCOMPANIED BY JAMES P. MoCROHAN, PRESI- DENT; M. G. MONTGOMERY, FIRST VICE PRESIDENT, WEST; AND MARTflI SItULMAN, FIRST VICE PRESIDENT, EAST; AIR FREIGHT FORWARDERS ASSOCIATION `OP AMERICA Mr. HAFFER. Mr. Chairman, Congressman Adams, the members of the airfreight forwarding industry are grateful for this opportunity PAGENO="0019" to appear before you In support of H.R. 12831. The other two bills which are being heard today are somèwh~t similar. There are minor changes, ELR. /12831 being the latest version of the bill. Therefore we are appearing in su~ppo~t of that particular bill Mr. Chairman. I have a written statement here which I am going to summarize. I would like with your consent to have my prepared statemeht included in the record. Mr. FRIEDEL. Your full statement will be included in the record following your oral presentation, Mr. }Iaffer. I appreciate your summarizing it, because some of them are very lengthy. Mr. HAFFER. I have only one or two comments on the Board i ! ~ to express here today. I believe most of the reasons advanced Board will be taken care of itt the testimony of the witnesses. ~ have only one brief comment upon the prepared statement c ~ Board to the effect that the Board believes that its policy of free entry should not be changed "precipitously" Of course, Mr Chairman, you and Mr Adams are aware that we have been under exemption for 23 years. To me that statement is like a man who after 23 years of courting a woman, upon being pressed by her for the security of marriage says, "Don't rush' me." This industry has been in this business operating under the exemp~ tion authority for all of these many years and it believes that the whole theory of our transportation system is that after au experi- ~ ~ mental period which has clearly been long enough in this industry, ; those who survive and those who establish their need by virtue of their continuing existence are then brought into the regulated family of transportation. . . We don't believe either that the motivations of the i~ forwarding industry might be impaired by lack of competition a~ _ result of certification. There are by our count 199, by the Board's count 197, which certainly seems to be enough to take care of effective competition for the forseeable future. So far as the secondary points are concerned practically all industry recognizes th.~t the major development of airfrei~ take place in the foreseeable future at the secondary and . points and it is there that they have for the past number of been investing their money, their time and energy in develoi markets for airfreight. This industry well recognizes far from drawing in its horns ~ keeping themselves in the metropolitan areas where the size ~ pie reaches a final and ultimate size that the future of deve more freight is in getting beyond the major metropolitan cer Of course, to the extent that certification might ~ ~ remote tendency to impair competition which we doubt, thing could be said of the direct air carriers. If the argument was made when they were certified ~ that by certification they might tend to downgrade .t their service, then we would not have certificated airlines t~. The whole theory of our regulation and system of control is to ( y after a substantial period of experimentation. We say that 23 years has been the longest period that any mode of transportation has been ; in an experimental state before being brought into the r system of transportation. PAGENO="0020" 16 The airfreight forwarding industry does have a long history of service, Mr. Chairman. It goes back to World War II and before. This industry encouraged and urged the Board back in the 1940's to hold hearings to determine whether they should be granted oper- ating authority. Prior to that, there were companies and businesses acting somewhat as airfreight forwarders. But they didn't have the . status of carriers and they acted either as agents of the shippers or the airlines themselves and requested status as common carriers so that they could be free of dictation from the underlying direct air carriers, that is, the airlines. They petitioned the Board to grant them authori- zation as airfreight forwarders or indirect air carriers. After protracted evidentiary hearings domestic forwarders were authorized for a 5-year period beginning in 1948 and international forwarders were authorized in 1949 similarly. At the end of those respective 5-year periods, the authorizations of domestic and international forwarders were both renewed for indefinite periods. This is where the industry is now. It should be emphasized that in all of the hearings held before the Board, the Board decision to regulate the industry to authorize the forwarders by exemption authority, and then to renew their authority for an indefinite period was made upon findings based upon substantial evidence. The Vice Chairman of the Board said here today the Board of course regards this industry as a vital cog in the air transportation system. The Board authorizations were first issued and are still issued and are based upon what is called the exemption authority under section 101(3) of the act, although the Board conceded at that time that it could issue certificates under section 401 of the act, that is the section under which the airlines were authorized. The existing regulations under which new forwarders are admitted are almost identical to what they were in 1948 and 1949. Standards for admission are minimal. No hearing is necessary. An application of admission is filed on a form supplied by the Board, and unless the Board finds it to be against the public interest, the Board auto- matically issues authority. The result is just about complete freedom of industry. Practically all applicants are admitted without any difficulty. No previous experience in air, or any transportation is needed. No proof of need or of inadequacy of existing service or of shipper demand is even looked into. The record will show that there have been very few applicants denied authority by the Board and there have been less than a handful of evidentiary hearings held under the Board procedure where protests to the applications raised serious question regarding the involvement of the applicants with and their relationships to other modes of transportation. Thus, for about 23 years the industry has existed under an indefinite, uncertain operating authority subject to change and modification at the whim of regulatory agencies, with no standard of fitness imposed as a guide for entry, with the opportunity for unrestricted entry and yet, with fufl regulatory control over those already in regarding rights, practices, and relationships with airlines. PAGENO="0021" 17 I should parenthetically note that the industry, individual members of the industry, have to file tariffs with the Board. These are subj ect to board suspension and the forwarders' customers must pay the rates set forth in such tariffs. The industry is thus in the position of a public utility which is faced with the competition from any and all sources by free entry, and yet is under rigid regulatory control in all phases of its operation and with the possibility of its authority being restricted by a change in regulatory policy. As I have noted, as of March 30, 1970, our count of airfreight forwarders consisted of 199 companies, the difference between 199 and 197 is minimal. In June of 1967, just 3 years ago, there were only 135. At this rate of growth under the open-door policy of the board, the industry will be more than inundated with competition from every conceivable source. No person we believe could conceivably say that any more entries are necessary to offer new techniques for serving the air public or to test the competitive mettle of those already in the fie'd. Indeed, as the prepared statement of one of our witnesses indicates, the domestic air forwarding industry already has three times as many coml)anies as the surface forwarding industry, participating in less than 40 percent of the revenue that the surface forwarder indust~y enjoys. The witnesses here today in behalf of the industry will discuss briefly the various aspects of their operations as forwarders and the contribution which they make in assisting independent manufacturing and distributing industries in competing on equal terms with larger competitors. They will also discuss with you why legislation of this nature is required without delay. I think some of the reasons have been brought out in the questions to the vice chairman. I also refer to some of these reasons in my prepared statement. I should like to summarize what some of them are. First the industry has served its apprenticeship under full reg- ulation for 23 years and is now beyond having reached maturity. It has more than justified its place in the air transportation system. Second, the stability that will come from the permanent authority will permit the industry, and that includes the smaller members of the industry to more readily obtain for itself at more favorable rates, the financing necessary to engage in expansion in order to serve the needs of the public better in the rapidly expanding airfreight industry that is now with us and that looms in the future. Moreover those companies who are fortunate to have their own resources for expansion cannot reasonably expect to assume the risk of plowing their additional capital into their business with the present uncertain nature of their operating authority. The whole airfreight forwarding industry today has m~mny millions in capital investment in the form of terminals, communications equip- ment, ground handling, and delivery facilities and containers. They employ approximately 27,000 people in various capacities. Their involvement is now substantial enough with their present indefinite tenure. Third, permanent authority will give them more reliable and secure status in the industry among both the shipping public and the direct carriers. PAGENO="0022" 18' Fourth, permanent authority will deter the regulatory agencies from any radical change in rules aM regulations governing the airfreight forwarding industry. Although we deem it highly unlikely that the board will ever terminate the industry out of existence, the concern is not entirely this. By regulatory erosion, whether from pressures or misunderstandings or otherwise, increased restric- tions can be and have been imposed upon the nature of the airfreight forwarder operations which serve to limit the contribution that the industry can make to the shipping public. Permanent authority will, as has been noted here earlier today, ` ` stabilize the operations of existing forwarders and insure they are ` not further unduly hampered. ` The experimental period of the airfreight forwarding industry `which might warrant a radical revision of the nature of the forwarders operating authority has long since passed. The forwarder is now as necessary to large segments of the shipping public as he is to the air carrier. Five, the extablishment of a fitness test will insure that only fully qualified applicants will be given consideration. Unqualified applicants, those who are unqualified on both a financial and experience basis, we note from our own experience cast a stigma on the whole air- freight industry, perform a disservice to the shipping public and are a major problem to the direct air carrier. A need test will insure that the public interest will be met whenever the facts justify the admission of new entrants and will also serve to prevent encroachment on the industry by other modes of trans- portation which has been a serious problem in the past. There whould be no substantial reduction in competition, obviously. In our judgment it can reasonably be anticipated that competition will increase among the economically healthy forwarders who will have permanent' authority. Although the board without specific legislative directive can in theory grant certification under section 40 1 of the act, it cannot grant the same kind of authority to the extent now held by existing forward- ers under their exemption authorization. But the genuis of the forwarder function is that he can move into any particular area or any particular point in order to serve the needs of the shipping public as the traffic potential develops. The courts have said that existing section 401 requires designation of terminal points and their intermediary points, if any, in carrier certificates. Moreover, under existing legislation, even if the board granted point-to-point authority, it could not grandfather the existing forwarders in, but would have to hold hearings on each one of them to determine fitness and need. In any event, as the vice chairman has clearly indicated today, it is clear the board will not act without a congressional mandate in the form of legislation of this nature. Finally, the legislation as proposed will do no more than simply establish substantially the same standards for admission to airfreight forwarding that Congress by amendment in 1957 to the Interstate Commerce Act prescribed for the surface forwarding industry~ In my prepared statement which is submitted for the record,, Mr. Chairman, I have referred to a number of Senators and Congress- PAGENO="0023" 19 men who have in the past supported certification forwarding industry, and I should like to refer those to you I will not at this time read the statemetits. I think they are power! and cogent. (Mr. Haffer's prepared statement follows:) STATEMENT OF Louis P. HAFFER, EXECUTIVE VICE PRESIDENT AND AIR FREIGHT FORWARDERS ASSOCIATION OF AMERICA My name is Louis P. Haffer. I am Executive Vice President and. Counsel of the Air Freight Forwarders Association of America (AFFA), the national trade association of those air freight forwarders who hold operating authority from the United States Civil Aeronautics Board. We are appearing here on behalf of the Association-sponsored Bill, H.R. 12831, which, after 23 years of regulation, would give permanent authority to those air freight forwarders who now hold indefinite temporary exemption authority from the C.A.B., and would establish criteria of fitness and need for prospective new entrants. The Bill differs from HR. 10687 and HR. 9227 only in several details but they are significant. For example, H.R. 12831 would give existing forwarders 180 days instead of only 60 days to file applications with the C.A.J3. after enactment of the legislation. This added time was deemed necessary because of the complexities involved in preparing the applications. There are now 125 air freight forwarders holding both domestic and inter- national authority; 37 holding domestic only; and 37 holding international authority only, or a total of 199 air freight forwarder companies. There are numerous additional applications pending, with most of such applicants slated to be admitted on simple, pro forma representations with no requirement of fitness, financial responsibility, public need or previous experience. In addition, hearings are pending which would serve to admit whole classes of direct surface carriers into the air freight forwarding business such as r ~ ~ ds and household goods movers. As a policy matter, the entrance of lon~ truckers has already been approved by the Board and a number have r~ their operating authority. In 1966 at the behest of the nation's largest t~ the Board instituted an investigation to determine whethei~ such truckers be admitted to air freight forwarding. The matter was resolved i the Supreme Court declined to review a decision of the U S. Court the Second Circuit which affirmed the Board's determ~' rn to a truckers on an R~xperimental, limited basis. While adm ~ the Court required the Board to make sure that its enti an adverse effect on existing air freight forwarders, w both the Board and the Court agreed was absolutely interest. There are presently thirteen other similar a undetermined number of which may well be granted. nation's largest railroads are seeking and will most probably ~ the standards laid down by the Courts in the near future. The nation's 1 bus operator is also seeking to gain entry. At oral argument in the Motor Carrier litigation, the F ~. ~ ~ ~ couns referring to the Board's theretofore free entry policy for ~ * ` candidly admitted that in his view the Board had been in that the number of entrants had not caused any great d~ ~ ~ However, the number of air freight forwarders of record at the time ~ ~ ~ Carrier case was 105, whereas, as I have noted earlier, the number now is to 200 and has doubled in less than fivs years. The Court in the Motor Carrier case characterized the air freight forward industry as being "highly vulnerable to the effect of entry ~" ~ ~ competitors." (391 F. 2d at 299.) Since the year of ~ the strength of the industry, as measured by both I and even more dramatically by the returu on investment, ly. Profits have decreased from over $6 million then to s ~ j over $ for the industry as a whole in 1968. in the meantime, investment reqi ~ ~ have j umped from $38 million to $83 million causing after tax profit as a pe nt of investment to decline from 11.3% to 5.1%. At this point in time, therefore, the number of com~ etitors is on the rise and profitability is on the decline. And this is occurring for those ground and other services which, by and lL. provide, and which involve consolidation and containeri PAGENO="0024" 20 and more expensive aircraft of today can be fully utilized, is increasing dramatically. Thus, independent air freight forwarders who have spent many years of their own energy and capital in plowing the field, subject to price-cutting competition from fly-by-night unqualified entrants who come and go leaving adverse effects upon the independents and a poor reputation with shippers in their wake now find themselves be set also by the potential powerful competition from financial giants engaged in other modes of transportation. The industry believes, and we submit that any fair-minded individual must agree, that certification of the industry is long overdue and that "enough is enough." As long ago as 1963, Congressman Torbert H. Macdonald (D.-Mass.), a member of the House Interstate Commerce Committee said: The very uncertainty of tenure poses problems for your industry, not the least of which is difficulty in obtaining adequate financing for growth and development to meet the ever-increasing demands made upon you by the expanding air freight market. It would thus seem only natural that your industry whould seek that security which comes from certification ; and I would say that you have served your apprenticeship long enough under exemption authority to now warrant your being accorded permanent status and full industry participation through certification like all the other air carriers. Justice will be served when you are accorded this privilege so that you may be assured of the right to maintain your position in the air industry and to share in the rewards of the business you have been so instrumental in developing. The Chairman of the Subcommittee holding these hearings (Brock Adams D.-Wash.) has himself stated: The long prevailing theory of Congressional regulation of various modes of transportation has been, once the public need for service has been estab- lished and the industry offering the service has reached maturity, to certify it so that it can develop the stability necessary for future growth and develop- ment within the publicly regulated system. I am convinced that your indus- try has met these tests. Now the Congress should move on the question of permanent status and certification for your industry. Senator Howard W. Cannon member of the Senate Interstate Commerce Committee, has said: For over twenty years you have invested your capital, your energy and your experience in *a field where free entry has been the prevailing regulatory rule. It seems to me that it is now high time you were given the guarantee of permanence and protection that other established modes of transportation have long ago received from the Congress. Such action would not simply be in your own self-interest; it can only redound to the advan-~ tages of the shipping public, of the airlines and of the entire air transportation industry. Similar views have been expressed over the years by Senator Warren G. Magnuson (D.-Wash.), the late Senator E. R. Bartlett (D.-Alaska), Congressman John D. Dingell (D.-Mich.) also a member of this Committee, and Congressman F. Bradford Morse (R.-Mass.). In 1965, hearings were held (89th Cong., 1st Sess.) on a similar bill before Subcommittee No. 4 on Distribution Problems of the Select Committee on Small Business of the House. Following those hearings, the Subcommittee, which of course did not have power to initiate legislation in this field, recommended certification legislation (House Rept. No. 2342, 89th Cong., 2d Sess.). I should like to review briefly with you the long history of regulatory control by the C.A.B, of all air freight forwarders and to indicate the conditions and authority under which the forwarders have operated for the last 23 years and under which they still operate. Regulatory control by the CAB. of all freight forwarders commenced with the Board decision in the Domestic Air Freight Forwarder Case in September 1948 (Air Freight Forwarder Case, 9 CAB. 472) . Although there had been air cargo "expediters" engaging in performing service functions on behalf of air shippers long before World War II, the close of that conflict saw a fantastic growth in their number in order to meet the needs of the shipping public. These companies acted either as agents of shippers or agents of carriers and received their compensation in various ways. In order to obtain status as common carriers so that they could fulfill their primary obligation to their shipping customers through freedom from underlying direct air carrier dictation and control-an independence which was inconsistent with their then status as air carrier agents-and in order to be PAGENO="0025" I 21 able to consolidate-a function which is also inconsistent with an agency relation- ship-the members of the industry urged the Board to institute a proceeding to bring the industry under regulation. Upon the institution of this proceeding, a number of members of the industry filed applications for certificates of public convenience and necessity as air freight forwarders under section 401 of the then Civil Aeronautics Act (the certification section) . After extensive evidentiary hearings, the Board decided to assume regulation over the industry and to issue authority to them upon a finding that there appeared to be a shipper need for their services and that they could contribute to the overall generation of air cargo for the direct air carriers. One of the compelling needs of air forwarder service was the delays which the Board found had occurred while air cargo was in a ground status and the consequent need for prompt and efficient ground handling of air cargo to correct this situation. The Board said of this that "the experience of the freight forwarders in this phase of transportation should result in improved air cargo service," (p. 496) and should help to rectify a condition in which "air cargo spends a disproportionally large share of its transit time in a surface status." (p. 497.) In deciding to authorize air forwarder operations, the Board stated: The Nation-wide service offered by air freight forwarders will permit a manufacturer in many instances to deliver to one agency all his air freight even though it be destined to widely scattered points. Congestion of his shipping platform will be relieved because of the single pick-up service, and he will receive immediately copies of the forwarder's bills of lading for the complete transportation of all the separate packages or shipments. Contacts with, and separate bill of lading for, the various airlines by which the merchandise is to be carried will be made by the forwarder and he will also make arrangements with surface carriers so that necessary off-airline transportation may be provided. The shipper will be relieved of the incon- venience and responsibility of dealing with a large number of airlines daily, thus eliminating the time and expense incident to checking schedules, making space reservations, arranging routings and procuring information relative to tariffs, connecting surface transportation, and delivery. The forwarder will provide for the shipper the advantage of flexibility because he will be able to select the direct air carrier immediately available for handling the shipment. His selection of a carrier will not be made until at or near flight time and thus he will be able to avoid delays that may occur at the originating airport due to space limitations or interruptions in service of one carrier. On interline cargo he will be in a position to select the speed- iest combination of schedules of available carriers, and through coordinated air and surface transportation can handle expeditiously off-airline shipments and cargo grounded because of flight interruptions . . . he will be able to deliver his bulk lot of cargo to the airline loading platform. His manifest will afford a description of each package as to size, weight, and content; he will lot-label all packages and give full shipping instructions as to handling, transferring, and airport delivery. I-Ic will have prepared a complete waybill which the carrier's representative need but initial. At airport destination the forwarder will relieve the air carrier of the numerous details of sorting and delivering the shipments, and collecting transportation and other charges. (9 C.A.B., pp. 492, 493.) While the Board conceded in that proceeding that certificates of public con- venience and necessity under section 401 of the Act "could be granted" for such service, it decided instead to grant operating authority in the form of a five-year "exemption" pursuant to the then section 1(2) of the Act (now 101(3) of the Federal Aviation Act) with the issuance of a so-called "Letter of Registration" to each successful applicant indicating its "exemption." Under that section of the Act, the Board "may by order relieve air carriers who are not directly engaged in the operation of aircraft in air transportation from the provisions of this Act to the extent and for such periods as may be in the public interest." The Board thus set up a five year "exemption" for a class of domestic indirect air carriers, otherwise known as domestic air freight forwarders. To implement this decision it issued contemporaneously a Regulation, now Part 296 of its Economic Regulations, setting forth the regulations to govern the industry as well as the criteria for admission. These standards for admission are minimal; they have not changed substantially over the years. No hearing is necessary. The prospective entrant files an Applica- tion on a form supplied by the Board, and unless the Board finds the Application 47-471-70-----4 PAGENO="0026" I 22 to be against the public interest-a vague and undefined standard-it automatically ~ issues authority. The net result is that there is in practical effect complete freedom of entry. There have been only a few evidentiary hearings held under this procedure where the nature of the Applicants and their involvement with or relationship to other modes of transportation were raised by opponents of the Applications and hearing proceedings were instituted. The run-of-mu Applicant, representative of most of those applying, is admitted quickly and without dif- ficulty. No minimum financing is required. No previous experience in air or any transportation business is necessary. Of course, no proof of need, of lack of existing adequate service, of shipper request or demand, are elements even considered by the Board. The Board's reasons for originally granting authority by exemption rather than by certificate after hearing, and "grandfather" certificates to existing for- warders, were several. As stated in the decision earlier referred to, the board felt "it [exemption authority] will be more appropriate and in the public interest at the present stage of the air forwarder industry" and "it also seems clear that the next few years will constitute a period of experiment in air forwarding. Es- sentially this experiment can be performed best, we believe, under the aegis of a general relief order in the form of a regulation exempting forwarders from certain provisions of the Act rather than under a system involving the issuance of certificates of public convenience and necessity." (p. 499.) An additional reason given by the Board for regulating the industry by exemp- tion rather than by certificate was that under the certificate section [401] the Board would have to establish terminal and intermediate points, that is, fix a point-to-point route pattern and grant certificates limited only to such points whereas, if such were established "it would be inflexible to a large extent and the need to meet shifting transportation requirements, as the air forwarder experiment develops and air forwarding techniques are perfected, would be frustrated and hampered by the time and expense necessary to obtain amendments to certificates of public convenience and necessity." (p. 499.) We agree with the Board, as we shall note later, that the essence of the air forwarder's service to the shipping public requires that he be unhampered by any so-called point-to-point limitations, so that he may be free to service air freight in the interest of the shipper and the direct air carrier at any location where the need may occur. It is this very restriction in section 401 that is a reason why the Board cannot grant the necessary kind of certification that the public interest and the industry require, and why amendatory legislation is necessary. At the end of the five year temporary authority, the Board instituted another proceeding which it called "a re-examination of the role of the indirect air carriers in the domestic air transportation system" (Air Freight Forwarder Investigation, decided August 30, 1955, 21 C.A.B. 536). After evidentiary hearings the Board found: (a) that there has been a substantial and increasing acceptance of the forwarder's services by the shipping public; (b) that the forwarders have handled many shipments at rates lower than charged by the airlines; (c) that they have provided efficient ground handling services, extensive personal solicitation, and advertising for airfreight; (d) that these results have benefited the shipping public and have stimu- lated the development of air transportation ; and (e) that the forwarding operations which have yielded results have not required Government subsidy and have not produced apparent net injuries to the airlines." (p. 540.) The Board decided therefore to renew the authority of existing domestic f or- warders for "an indefinite term" and to issue Operating Authority to replace the Letter of Registration (without, however, any actual change in the substance of the authorization) With respect to the position taken by some members of the forwarder industry that future forwarder Applicants should be required to establish their "fitness" in a public hearing, the Board said only that the Applicant's fitness would be determined "in the first instance by the Board's staff on the basis of available information and such investigation as may be appropriate," and "in the event the Board is unable to determine that the Applicant is fit, a public hearing may be held if necessary to resolve reasonable doubt as to such fitness." (p. 549) In truth, the Board established at that time no criteria different than it previ- ously had for Board staff to review internally and ex parte the "fitness" of an Applicant; and the record will show that only a handful at most have been denied PAGENO="0027" 1 23 on fitness grounds although informal protests have been filed in the case of many Applicants. As this Sub-Committee knows, the opportunity to contest an Ap- plication without an evidentiary hearing, in which the Applicant is ~ required to prove an affirmative case and to be subject to cross examination, is of minimal value and effect. The Board, it should be noted, refused to establish by regulation a fixed minimum dollar criterion for the financial aspect of fitness or any other other fitness criteria. With respect to the contention by some forwarders that a public need test should be established for new entrants the Board said (p. 549): Respecting a public-need test for forwarders, it is quite clear, as the examiner noted, that the reasons which impelled Congress to prescribe a showing embracing public need for the certification of airlines-the objectives of economic stability as a basis for safety and of airline growth for defense purposes, and the existence of government subsidy-do not apply to f or- warders. He also pointed out that freedom of entry was part of this country's traditional economic policy and that it would here tend to encourage the development of our large airfreight potential by permitting the introduction of new and more efficient forwarding techniques and preventing complacency in the solicitation of air-cargo. We find it in the public interest to maintain competition in airfreight forwarding, and believe that the question whether a particular forwarder's services would fill a public need should be left to the judgment of the shipping public itself. It should be pointed out that in that proceeding, decided upon almost sixteen years ago, the Air Freight Forwarders Association espoused the position that no rigid fitness or public need test should be then imposed because "at the present early state in the development of the airfreight industry, a continuing flow of new blood into forwarding is most likely to promote development of new and efficient forwarding techniques so as to contribute to the advancement of air transpor- tation." (p. 548.) That stage of development has long since passed. The international air forwarding industry has experienced the same history of regulatory control by the Board and is now in the same regulatory status as the domestic industry. The international phase of the industry was first brought under control in 1949, after a similar hearing, by the issuance of Letters of Regis- tration under the exemption authority of the Board for a five year period (Air Freight Forwarder Case (International), 11 C.A.B. 183 (1949)). Regulation, Part 297, similar to Part 296 governing domestic forwarders, was issued contempo- raneously. At the end of the five year term, a new proceeding was held, and new authorizations were issued to existing international forwarders for "an indefinite term" in the form of Operating Authorities to replace the Letters of Registration. Both segments of the industry are thus under substantially identical regulation. Both hold authority for an "indefinite term" under the exemption provision in section 101(3), subject to policy change by the Board at any time. Similarly, into both segments of the industry, there is pouring a constant stream of new entrants that are required to meet only the most elemental test of "fitness," with no "need" test whatsoever, and with no hearing procedure established as a matter of course under which either the qualifications of the Applicant or its impact upon the existing industry would be explored. This then in brief is the regulatory status of the air freight forwarding industry. The Association first sponsored a certification bill in 1960. The bill, H.R. 4181, was first introduced in the House in the 88th Congress, 1st Session. It was rein- troduced in several subsequent sessions. The bill it is now supporting is in the form of an amendment to the appropriate sections of the Federal Aviation Act of 1958. In brief summary this bill would : 1) authorize the Board to issue a certificate to new Applicants to engage in air transportation as domestic or international air freight forwarders upon finding, after hearing, that the Applicant is fit, willing and able properly to perform the service of an air freight forwarder and to con- form to the provisions of the Act and the regulations of the Board ; 2) permit new certificates issued to designate a geographical area or areas within which service may be rendered, rather than requiring the Board, as would be necessary under the existing limitations of the Act, to provide for point-to-point certificates even were it to issue such certificates ; and 3) require the Board to issue certificates to forwarders now holding indefinite operating authority to the same extent as authorized in their existing exemption authorizations. This legislation will in effect establish substantially the same standard for admission to air freight forwarding that Congress by an amendment in 1957 to the Interstate Commerce Act prescribed for surface forwarders. As the Commission PAGENO="0028" I 24 in the Frank P. Dow Co., Inc., Exten.sion-Longview Case, (No. FF-173) (1964) and earlier eases has construed the 1957 amendment to section 410(d) of the Inter- state Commerce Act, new surface forwarder applicants are required to meet essentially the same burden of proof as direct motor carrier applicants for route authority. Since surface forwarders were not brought under regulation until 1942 it is obvious that they have had to wait only 15 years (to 1957) to obtain the kind of protection that air forwarders have not yet obtained in the 23 years they have been under Board Regulation. And long before 1957 surface forwarders had the stability that comes from permanent authority under their permits issued by the I.C.C. Indeed, the public need for certification in a case of air freight forwarders is even greater. Air freight consists primarily of small, shipment traffic, especially compared to overland surface transportation and waterborne carriage. The vehicles used in transportation by air, however-airplanes-are much more expensive relatively than by any other mode. It costs more, for example, to move a ton 1 mile by air than to move it the same distance by other modes. (Hence, air freight rates are generally higher than surface rates.) As a result, it is much more important to achieve the maximum utilization of equipment used to transport air freight (airplanes) than in the case of equipment used to move freight by other modes (truck, trains, etc.) . This means there must be less non-utilized or dead time for handling (loading, unloading and processing of paperwork) by the air mode. Yet, the handling problem is more acute by air because the size of shipment is smaller and the number per vehicle greater. There are virtually no "carload lots" moving by air. Hence, the services of the forwarder are even more important than by the other modes. These facts are in some respects a mixed blessing, however. For along with the increased need for air freight forwarder services and opportunities, there is also a need for very high capital requirements. Expeditious handling requires costly equipment and training. In addition, since air freight is the premium type of freight service, it is necessary to trace shipments more adequatley by air than by other modes. This requires computers, not only for the documentation required, but also for the purpose of tracing shipments. Tracing capabilitiy is required because the standards for air freight generally are next-day delivery. Lost ship- ments by any mode are troublesome. When lost shipments or delay occurs by surface, however, the shipper always has the option of meeting an emergency by getting vitally-needed goods to destination by air. Lost shipments by air could very often be disastrous, however, because the air mode is in effect the mode of last resort-the shipper's last option. The AFFA knows of no overt opposition from any source to legislation which would give this status to the forwarders and would insure adequate protective standards in the admission of new entrants. Although the direct air carrier industry in 1947 opposed the original grant of exemption authority by the Board to the air forwarding industry, when the original five-year authority expired and the Board examined into the question of extending the authority in 1955, not one airline opposed renewal-proof that in the short space of eight years the air freight for- warding industry had confirmed its contribution to the development of air freight for the airlines and to the improvement of service to the shipping public. In fact, in the 1955 Board proceeding two airlines actually urged the Board to issue certifi- cates of public convenience and necessity to forwarders to stabilize the industry. Members of the Association who will appear as witnesses here today in support of this legislation will discuss various aspects of the operations of the forwarders, their role as independent businessmen, and the contribution which they make in aiding independent manufacturing and distributing industries in competing on equal terms with their more substantial and larger competitors. They also will discuss with you the reasons why legislation of this nature is required without further delay. I should like to summarize for you briefly what some of these reasons are: 1. The industry has served its apprenticeship under full regulation for twenty three years and has long ago reached maturity. It has clearly justified its present place in the air transporbation system through its contribution in developing the air freight market for the airlines and in serving the needs of shipper. 2. The stability that will come from permanent authority will permit the in- dustry to more readily obtain for itself at more favorable rates the financing neces- sary to engage in expansion in order to serve the needs of the public better in the rapidly expanding air freight industry. Moreover, those companies having their own resources for expansion cannot reasonably be expected to assume the risk of expansion with the present uncertain nature of their operating authority. The PAGENO="0029" 25 whole air freight 5orwarding industry today in total has niany millions in capitat investment in the form of terminals, communication equipment and ground handling and delivery facilities. They employ approximately 25,000 people in van- ous capacities. Their involvement is now substantial enough with their present indefinite tenure. Thus, in 1965 the air freight forwarding industry generated commercial revenues of. $164 million, or 37% of total air freight services sold to the public, against 63%for the direct air carniers.i In 1968, the volume of forwarding revenues had risen to $298 million-nearly double 1965-and the forwarders' share of the total market climbed to 42% compared with 58% for the direct carriers. Corn- mercial air freight revenues for the industry in 1968 totalled more than $700 million. It is thus apparent that what is involved in this decision today is close to a billion-dollar industry, in which the air freight forwarders are substantial tributors and imminently may well he the major contributors. On the basis of these figures, and given the rate of technological growth in air transportation throughout the years, it has frequently been predicted that in the not too distant future, freight revenues will exceed passenger revenues in air transportation. American Airlines, Inc. v. Civil Aeronautics Board, 359 F. 2d 624, 637 (D.C. Cir.), cert. denied, 385 U.S. 843 (1966) (dissenting Opinion of Judge Burger). Compare 1968 C.A.B. Ann. Rep. 139. The figures indicate that the air freight forwarding industry is an increasingly important element of the national economy. In fact, transportation and communications are both industries which vitally affect the public interest in that they provide the connections between the other segments of the economy and literally grease the wheels which turn the economy. Without these industries, the wheels would come and do come to a stop. Sig- nificantly, both industries generally are characterized by licensing and economic regulation in order to protect the obvious and special public interest in those industries. 3. Permanent authority will establish a more reliable impression of the in- dustry with both the shipping public and the direct air carriers. 4. Certification will stay the hand of the Board in instituting any radical change in rules and regulations governing the air freight forwarding industry. Although it is unlikely that the Board will ever terminate the industry's existence, the concern is not entirely this, By regulatory erosion, whether from pressuies of the direct air carriers, misunderstanding or otherwise, increased restrictions can be imposed, as they have in the past been imposed, upon the nature of the air freight forwarder operations. These restrictions serve to limit the contnibu- tion the industry can make to the shipping public. Certification or permanent authority will stabilize the operations of existing forwarders and will insure that they are not further unduly hampered. The experimental period of the air freight forwarding industry which might have warranted major revision by the Board of the nature of the forwarders' operation authority has long since passed. The forwarder is now as necessary to large segments of the shipping public as he is to the air earner. 5. The establishment of a "fitness" test will insure that only fully qualified applicants will be given consideration. Unqualified entrants, both on a financial and experience basis, cast a stigma on the whole air freight industry, perform a disservice to the shipping public, and are a major problem to the direct air carriers. 6. A "need" test will insure that the public interest will be met whenever the facts justify the admission of new entrants and will also serve to prevent further encroachment on the industry by other modes of transportation, a serious problem in the recent past and present. 7. Although the Board has in recent years given increasing attention to its obligation to affirmatively promote the development of air freight transportation, certification will insure that the Board will recognize the essential and permanent place of theforwarder in this development. It has in the past been at best ambiva- lent about the role of the forwarder. 8. Although without specific legislative directive, the Board can in theory grant certification under existing section 401 of the Act, it cannot grant the same kind of authority to the extent now held by existing forwarders under their exemption authorization; and moreover, it would appear that the Board is not disposed to dispense even such limited certification without a clear Congressional directive. 1 These figures are taken from the following reports required to be filed with the Board, of which official notice may be taken under Rule 24(m) of the Board's Rules of Practice: Forms 244 (filed by air freight forwarders); Handbook of Airline Statistics, Part II, Table 83 (1967 ed) (summarizing the direct air carrier data). The reported figures of the direct air carriers have been adjusted to eliminate revenues not received from the shipping public, i.e., forwarder payments. PAGENO="0030" 26 The courts have said that existing section 401 requires a designation of terminal points and intermediate points, if any, in carrier certificates. (United Airlines, Inc. V. C.A.B., 278 F. (2) 446, 448 (1960.)) Such a limitation would be destructive to the character of the service of the air freight forwarders, to the best interests of the shipping public and to the direct air carriers themselves. Moreover, the Board, under existing legislation could not "grandfather" existing forwarders but would have to hold hearings on each one of them to determine fitness and need. In any event, there is every indication that the Board will not act under existing law without a Congressional mandate in the form of legislation of this nature. 9. The Board objections in the second domestic forwarder case (21 CAB. 53~, 549) to establishing a "need" test for new forwarder Applicants, that is, that "economic stability as a basis for safety and . . . growth for defense purposes" and "the existence of government subsidy" which warrant airline certification do not apply to forwarders, ~ have no validity now, and had little validity even then. "Safety" is hardly the only public interest basis for regulatory control over an industry. The guarantee of "reliability" of service to the public is, of course, an equally important basis. ` The grant of permanent permits to the surface forwarder industry is certainly sufficient answer to this. With respect to development to aid our defense program, the record of history will show the heavy reliance of the Department of Defense, other government agencies and military-support in- dustries on the services of the air forwarders during Korea and today for our participation in Viet Nam. With regard to the no-subsidy argument, it is true, of `ôourse, that no forwarder during the past eighteen years has ever received a single cent of subsidy. And this, contrary to the strange view expressed, is all the more reason that an industry otherwise fully regulated and restricted by the Govern- ment, and risking its own capital without Governi~ient financing or support, should have the security that comes from permanent authority. ~ 10. The forearding industry has developed into a capital-intensive industry -requiring investffients of substantial funds for facilities such as terminals and containers. The industry representatives who follow me will elaborate on this in more detail but I should like to note here simply that containerization, which is the future of air freight, requires substantial volume between points involved. Excessive numbers of forwarders carving up available traffic have served to make ~ containerization economically unsupportable. In conclusion, may I say that all the industry is asking for is equality of treat- ment and opportunity. It is seeking only the same level of protection as was granted long ago to truckers, surface forwarders, airlines and other transportation modes with which it competes. We submit that no one can reasonably say that i~99 is not more than sufficient unto the day. Mr. HAFFER. I should now like to introduce to you the officers of the Air Freight Forwarders Association of America who will testify in support of this legislation and will offer a little bit more detail per- haps on the need for the legislation and on the economic and opera- - tional developments that have occurred in this industry. Material that they will have in their prepared statements which they will not read will, in part, be based upon an economic study called the New Role of Air Freight Forwarding that the association Lommissioned and utilized for a presentation to the Civil Aeronautics Board in March of this year. I should like to submit some copies of this study for the record. Mr. FRIEDEL. We will accept that dQcument for the files. Mr. HAFFER. I should like to introduce the AFFA witnesses ha behalf of the bill. Mr. James F. MeCrohan, president of Novo Air Freight and president of the Air Freight Forwarders Association; Mr. M. G. Montgomery, who is president of WTC Air Freight and first vice president-west of the Air Freight Forwarders Association; and Mr. Martin Shulman, president of Shulman Air Freight, who is first -`vice president-east of the Air Freight Forwarders Association. We would like to start off with Mr. McCrohan. PAGENO="0031" STATEME~tT OP 1A1~fl~S F, McC1~OEA~ Mr. MCCROHAN. Thank you, Mr. Chairman. I would like to j oin with Mr. Haffer in expressing our appreciation for the opportunity to be here and let our views be known on this legislation which is so important to us. I have a prepared statement I offer for the record. Mr. FRIEDEL. Your full statement will be incorporated in the record. Mr. MCCROHAN. I have summarized the contents of this statement. I would like to read this summary at this time. For 23 years the airfreight forwarding inthistry has been growing up. We might say for this period, which is overlong as testing periods go, ~the industry has been in kind of purgatory. The industry in our j udgment sometime ago became mature, competent, and responsible. It has long ago established its status as a required and needed service for the shipping public. But these very attributes-maturity, competency, responsibility, and public necessity for their service have created conditions under which to continue to grow and prosper in the service of the airfrei~ht shipping public, the industry deserves, and must have, the protection and permanence of certification as an indirect air carrier. Our industry must move out of the limbo, out of the second class citizenship which it now suffers, into the permanent family of trans- portation services. I should like to tell this committee, Mr. Chairman, at some risk of perhaps being elementary, what an airfreight forwarder really is and what he does. The airfreight forwarders have been given a vital and unique role in the nation's transportation system, particularly with regard to airfreight. In the past, the air forwarders have been characterized as middle men, or commissioned merchants. But this old image, though it lingers on, is not longer really recognizable in our industry today. The airfreight forwarders role to be understood really requires a reView of the transportation system of this Nation. The railroads were the first real transportation system and they were characterized by being obviously inflexible and to serve off-line ~. points and to handle small shipments which were really a nuisance to them. The surface freight forwarder evolved to fill in the missing ~ ~ gaps in rail transportation, to give rail transportation flexibility Later, when the technology allowed it, when the trucks ~* trucks provided the extreme flexibility, the ultimate in flexibi~.~~~ unlimited opportunities for door-to-door service. Then came the airplane, whose o~verwhelming advantage was speed between ~iirports, but whose serious disadvantage almost like the railroads was an operational confinement to airports and limitations and service due to economic reasons. Theoretically, airfreight is capable of moving at nearly the speed of sound, between airports. Airfreight service to the shipper, however, consists of the service from the shipper's door to the consignee's door, the true origin or the true destination. The shipment must be loaded, moved to the airport on the documented, loaded on an airplane, consolidated into with other shipments. I' I, 27 I' PAGENO="0032" 28 The forwarder has done, we believe, a fine job in this area of pro-- viding airfreight to the airlines in an economically digestible form. We think, in fact, we are pretty sure that the freight provided by the forwarders to the airlines is the most profitable freight for the airlines.. We know this from our studies in containerization. The forwarders' role is to provide all of the elements needed for' expediting movement in airfreight from door to door. The forwarder can provide the flexibility because it is not limited to specific routes. The air forwarder `has become a specialist in the airfreight system, which makes it possible to adopt a standard for airfreight of next day delivery. Our shipping public is taking it for granted that an airfreight ship- ment generally gets to its destination anywhere in the country next day. An important service which the forwarder performs is to provide tracing capabilities or information with regard to a shipment which allows corrective measures to be taken if necessary to insure satis- factory service. Many airfreight shipments are of an urgent nature and the shipper' requires what he calls negative feedback. If something has gone' wrong, with or without the control of the forwarder, the forwarders' shipper expects to be told about this so that he can take appropriate and immediate action. I have already mentioned containerization to facilitate the physical handling of airfreight that benefits both shippers and airlines. There' was discussion earlier about pilferage. In many instances, forwarders are using containers not that they are particularly economic, but because the container itself is one of the best safeguards we have against pilferage. Containerized freight is practically pilfer-proof. The airfreight forwarder because of its comprehensive service and current and increasing investment is the maj or provider of these services. Mr. Chairman, it takes money to provide the containers and the' facilities, the ground-h~rndling facilities, the automatic equipment, to properly and economically containerize freight. For example, the forwarder produces 7 1 percent of revenues earned by the airlines from containerized freight. The forwarder has a special role in the small-shipment field. Other modes of transportation, particularly the truckers, have moved away from small shipments. They are unprofitable. They don't want them. They are actually selective in how they sell and promote their services and the small shipments they do not want. The airfreight business on the other hand is a small-shipment business, but the small shipments per se are uneconomical for the' airlines. I think our study shows that a 50-pound shipment on the ground costs the airlines $11 and some pennies. It costs the forwarding industry $6 and some pennies. One of the reasons for this efficiency is the investment that the for- warders have and the expertise, if you will, in handling shipments on the ground. So, the forwarder plays a very important economic role, both for the airlines and doing on the ground more effectively, more efficiently, offering larger shipments, offer containerized shipments in a. form which is more economic for the airlines to handle. PAGENO="0033" 29 At the same time, they are offering to their shippers an opportunity to move airfreight ofti~n a~ lower cost and in a form that is container- ized relatively safe from pilferage. The growth of air forwarders is a measure of the public's acceptance of forwarder service and the forwarders perform the role which I have described, and has been as indicated by other witnesses here, quite remarkable. Faster, in fact, than any other mode or segment of trans- portation. And the details of the statistics are set forth in my written testimony. This is a very significant point. Despite the fact that our revenues have been increasing so rapidly, in 1969, revenues did not increase as fast as the investment by the forwarders. This brings me to the point that to continue to do the j ob that we are doing, our investment has to continue to increase. The large, medium, and small companies are finding it increasingly difficult to make this investment and despite the statements that have been made that we will lose our zest and zeal for battle doesn't really hold up against the reality which we face, because to effectively perform our ToTe as a forwarder, helping both the shipper and the airline, we have ~to have this investment. Today we are in a pretty sophisticated, highly mechanized business, and it costs money to be in it. The air forwarding industry investment in airfreight facilities now exceeds $100 million. That figure is extracted from the balance sheets shown on the 244 forms. Much of the investment is not reflected in thcse 244's, because much of the equipment is leased. Many of the forwarders' terminals are leased and they are not capitalized for the purpose of the 244 balance sheet. So, in my personal judgment, the forwarders' investment exceeds this figure. It may be double. Over $70 million of this has been raised since 1965. The bulk of the new investment is flowing into new terminals and into the facilities necessary for containerization. In addition, the forwarding industry has sales offices and stations in over 128 cities throughout the United States and the forwarding industry has been a means of putting hundreds of salesmen in the field whose sole function is to promote and solicit airfreight. I might say again, that no forwarder has ever found a way to move an air shipment without turning it over to a direct air carrier, substi- tute service aside. One consequence of the fact that forwarders are not limited to specific groups is that forwarders can afford to solicit small plants and businesses which might otherwise be lost to airfreight. The inducement to the forwarder is the opportunity of handling all the airfreight of such a concern, whereas, on the other hand, the direct carriers, even the larger ones who do not serve all points to which a small shipper has traffic, are going to have to interline with another direct carrier. They don't have the same incentive to solicit that freight, particularly if that shipper is located 70 miles from the airport. The forwarder's lack of confinement to any one direct carrier gives the shipper customer all the operations that are available rather than merely those that might be available in a system of the origin carrier. :1 PAGENO="0034" 39 Because of the forwarder's lack of commitment to specific carriers,, forwarders frequently make end runs or movements where there is a pile up at center, By that I mean when one airport is congested,. Chicago has been recently, the forwarder finds ways. They will use alternative airports and get the freight to the shipper, sometimes by using substitute service, or trucks, for instance. What does all of this have to do with certification? What is the significance of the fact that . investment needs have skyrocketed arid that our industry is becoming more and more capital incentive. While revenues have grown markedly, approximately 24 percent per year, such revenues as I have stated before have not grown as fast as investment. The answer to me, it seems, is apparent. If the required investment is to be found, there would have to be an end to the proliferation of new forwarders and the effect here is that if there is unlimited entry in the industry, many of these new entrarits are not adequately financed. They do not have the wherewithal to approach the business as it should be approached. By that I mean the refinements of containerization, and so forth. But they do come into existence, they do acquire freight, and their effect in total on us is substantial. Individually, no. So, that kind of competition would have to be limited in the for- warder industry. Certification will achieve that objective. Th& necessity for the curtailment of the influx of many new carriers to enjoy the fruits of the developmental effort already made is manifest. New people can come into the business by virtue of the fact that the airfreight forwarder service has long since been sold and accepted by the public, even new poorly equipped entrants can obtain a piece of the market, sometimes only a tiny piece of it, but nevertheless, a piece of the market for a while, and then the realities of the economics of their situation catãh up with them. Otherwise, the capital structure of the existing forwarders and their ability to continue their acquired effort would be undermined. Dilu- tion of the revenue base as the figures demonstrate cannot be offset by growth alone. That has been the theory. If I am not mistaken, that is presently the theory of the Board,. that the industry is growing so fast that it can continue to absorb new members indefinitely. We absolutely disagree for the reasons that I have stated. The Board has never established the economic criteria with regard ~ to the level of competition required. Therefore, we submit, Congress. . must provide the needed regulatory environment for the industry. For over 20 years we have been viewed as kind of living experiment. ~ Now we think the results are in. They point clearly toward certification for the airfreight forwarders as provided for in this legislation. This legislation we support and we urge its enactment. Thank you, Mr. Chairman. (Mr. McCrohan's prepared statement follows:) STATEMENT or JAMES F. MCCROHAN, PRESIDENT, Novo AIR FREIGHT ANX PRESIDENT, AIR FREIGHT FORWARDERS ASSOCIATION OF AMERICA For 23 years the air freight forwarding industry has been growing up. We might indeed say that for this period, which is over-long as testing periods go, the~ industry has been in purgatory. The industry some time ago became mature,, PAGENO="0035" oftra of being eler Ltary, --~-- ~othe~ I ~ ~ to t~ S Comi air L ~. .it forwarder r~~j is a~ ~ In La past, the air forwarders have been characterized as middle men solidators or commission merchants, as if their functio~a was not really oi toward providing special services to the public or as if they were not an ii and essential part of the total air freight industry. The public now a freight industry as a necessary means of distribution. The old ii~ ~. recognizable. This fact is attested to by the performance of the forw ders a~ ~ dramatic increase in the tonnage they carry and in their revenue. ~.. ~ie role ~ forwarder must be examined in the context of the market place, the technology ç1 the airline industry and competitive pressures from other modes. The railroads were our first real transportation system. It was a relatively in- flexible system, although if you had a spur track and your customer had a spur track, it was convenient. To handle the small freight which was a nuisance, the railroad encouraged the surface freight forwarder and the express companies. Then came the trucks, with their extreme flexibility and door-to-door serVice7 Now come the j ets-air freight-whose over-whelming advantage is speed b~tween airports and whose serious disadvantage is absolute confinement to the airport. There are no spur tracks for DC-3 or jumbo jets. Obviously, for the potential of the lift capacity and speed from runway to runway to be realized, the door-to-airport and ,drport-to-door logistical problem of time and space, must be solved. If it is not solved and the solution is not perma- nent much of the ground gained in recent years by air transportation will in- evitably be lost to competing surface modes. I do not have to remind this Com~. mittee how the railroad has been able to fight back against trucks. If because of airport congestion and the time required to route airplanes, air freight service deteriorates to three to four days transcontinentally, then the system will fall back in the caverns of fast trains and efficient trucks and will be lost to air ~ transportation. What are the elements of the solution? The shipper must r~ pick-up . , . for shipments must move fast enough from pick-up make flights that will preserve the basic advantage of the mode- day delivery for the most part. The shipments must be presented t in a digestible form-in containers-which should be pro ssed away port congestion. The paperwork must be accomplished. L . * : the shipment, it must be monitored and negative feedback to t~ prompt-if things go wrong, air freight, mostly by its very ~ ~ ~ movement where the customer requires great dependability for each and shipment. In many instances he demands it as an essential ~ of the That should a shipment be lost, or `~`~ ~ "c stances, that he receive what we call negative. tunity to utilize a contingency plan, if he has one, or he may wish to se shipment or at least he may wish to advise the intended consignee of' I ating circumstances. At destination, delivery must be sure and ~ average life of an air freight shipment is.about 22 hours. Who has been providing all of the elements. It has been the air frei~ The fact of the matter is that the air freight forwarder repr creative force because of his closiug of the "flexibility gap." He ~ the air that would never fly without him and significantly, no f found a way to put freight in the air without using an airlin freight is more profitable for the airline. So ultimately, the s~ the forwarders cannot but benefit the direct carriers. It is true, t ~ efforts to generate air freight business, the forwarder provides a lot ii simple airport-to-airport air freight service. But the forwarder's contribution to welfare of the total air fr not li~nited to marketing and service expertise. The air f~'~' prime mover in the cOntainerization of air freight. The percent of the revenue earned by the airlines from containe~ percent of the weight. As a result the air freight forwarder industry s a major contribution to airline efficiency and the economic viability of the eutire air freight industry !~ 31 Le. it long ago es~ status as a required sei~vice rmanenl ttee, at lit industi ~~~rder ~" PAGENO="0036" I 32 Among the other reasons why the air forwarding industry has been so well accepted is that the forwarder helps fill a very critical gap between the shipper's door and the aircraft that cannot reach the shipper's door. The air forwarder transforms freight that is not easily loaded in an aircraft to a form in which it ~ ~an be easily loaded. The air forwarders have built shipper-oriented routing, tracing and control procedures that serve as a vital link between the shipper and the operation of a multitude of airline schedules that utilize numerous different aircraft types and provide a diversity of service patterns not designed for an individual shipper's need. The use of aircraft for the distribution of freight has great logistical limitations particularly when aircraft are compared to over-the-road trucks that can be brought right up to the customer's door. Somehow the freight has to move from the shipper's dock to the aircraft. In the space of time between the pick-up of the freight and aircraft departure, the freight has to be documented, consolidated, weighed, sorted, billed and delivered to the aircraft in a form that will not delay its departure. This is where the forwarder plays an important role in the eyes of the shipper and the carrier. The forwarder develops a system for gathering freight, sorting it, consolidating it, containerizing it and documenting it so that it moves to the aircraft as expeditiously as possible. At the delivery end the forwarder relieves the airline of processing burdens by taking the shipment in bulk to its own facilities for break/bulk and distribution. Without the availability of this expedited ground handling service the operation of aircraft in competition with surface transportation would be fruitless. The freight would spend more time on the ground getting to and from the aircraft than a truck door-to-door line-haul takes. Time is air freight's only inherent advantage. ~ The air freight forwarding industry has implemented service concepts that preserve air freight's inherent advantage. The industry has adopted overnight delivery in domestic markets as the standard. This standard cannot be met by other modes of transportation regardless of price. A second phase of the air forwarder's marketing efforts has been directed at the small and intermediate sized surface shipper. He is the shipper whom the forwarder has been able to attract to air for some time because of numerous factors including the increasing cost of surface transportation and the fact that surface carriers discriminate against his freight. The surface carriers say they lose money on less than 500 pound shipments. They say that type of freight is too costly to handle in the terminals. Somehow the shipper can't be sympathetic with the reasons why his freight is not attractive. He still needs to get his goods to market. The air forwarding industry has offered such shippers a real alternative to trucking and in the process has opened up the shipper's eyes to many new opportunities for distribution of products on a larger scale and cost savings from closer coordination of production and transportation. Public acceptance of air freight forwarder service has been phenomenal. In 1961 the industry carried a little more than four million shipments. Now it carries over sixteen million. Since 1961, sales of air freight service to the shipping public have risen from slightly over $66 million to over $375 million. Tonnage has in- creased to fivefold in the last eight years to a level that now exceeds one-half million tons. The average annual rate of growth for the industry's traffic has been around 24 percent for the last eight years. Domestic growth has outpaced inter- national traffic growth, but both phases of the industry are growing rapidly. By 1971 the industry will generate about eight hundred thousand tons of traffic, or sixty-five percent more traffic than in 1968. (Appendix A) The growth of sales and traffic volume has not "just happened." The air for- warding industry has invested over $100 million in air freight facilities. Over seventy million of this new investment has been raised since 1965. The bulk of the new investment is flowing into new terminals and containerization. Air for- warders have also put hundreds of salesmen in the field. These salesmen solicit only air freight. Forwarder sales offices and stations have been opened in over 128 cities thoughout the United States. In addition, hundreds of cities receive inbound forwarder services through a broad network of agents. These statistics, of course, speak for themselves. But equally important to these reasons for the fantastic development is the pure and simple fact that the forwarder has fulfilled a public need for the service, and has proved to even the most skeptical that there is a need for an industry that is responsive to the service demands of the shipping public. The magic word is service, service which he has been in a position to offer the shipper and to develop the air freight market to the extent part of its potential. PAGENO="0037" WI route structure carrier ; and 3) shipper. Since the forwarder is an air c he can operate anywhere in the I where in the world under international authorit carriers are necessary, offer one-carrier servic( place hi the United States and to any place in to move a product. He can go anywhere. it is, of course, largest trunk carrier cannot offer and which less-than-trunk carr less. This unlimited ro~tte pattern has certain important consequences. The is able to serve all of the air traffice needs of a particular establishment, no' i how widely scattered the customer's consignment or procurement r becomes in many cases an adjunct of the traffic department, and i businesses and in some large ones becomes in effect the very itself. As a result of this single-force identification and I freight department, the forwarder has r"~' more specialized knowledge about the s'~ avert more and more of the shi t. a he can also wise bel ar's total ord to so t to air frei inducement in ~ more effective or regio 1~nning i ~rrav of h.~. `the forwarde d inc~~. a at all in t. ~s advanta fifty percent ~1'~r the Federal - `r domestic a ~---,byusir , his o~ ie movements nd as further ~re and not nce of the ~coi Li mirrors. He does it `1 1969 re~ inter PAGENO="0038" air forwarding industry tendei~ed twice as much tonnage in the large size igloo containers than the commercial shippers tendered to the airline. Four years ~L~c1 the air freight f&rwarding industry generated only 22 percent of the total tonnage carried by the domestic airlines. Now the figure is over 30 percent. In the top nine air freight markets, the air forwarders generate forty percent of the traffic. In the New York industrial complex, air forwarders generate 51 percent (Appendix C) . Four years ago, very little traffic was containerized. Now the air freight industry containerizes over 100 million pounds of freight annually. The forwarder must be credited with most of this containerization development. In order to sustain the growth and development of the air forwarding business and to meet the requirements of containerization, better service and lower costs, the air forwarding industry has sought to attract vast amounts of new capital. Twenty-nine leading air freight forwarding companies have more than $107 million invested in air freight development at the present time. Seventy million dollars of this capital has been raised during the last four years (Appendix D). Thirty percent of the capital invested by these carriers is equity capital. An analysis of the investment of twenty-nine leading atr freight forwarders shows that all of these companies substantially increased investment between Decer ber 1965 and December 1969. Only five had increases in capital of less ~ ~ --~-- ~0 percent. Twenty had increases of well over 100 percent. Large increases capital were posted by large, medium and small companies alike, but medium- . aies realized the greatest increases (Appendix E). of capital into air forwarding during the last few years, highlights the air freight forwarding industry is becoming more capital-minded-- 1, capital-intensive. This trend is in large part the result of an in- - rement for development of containerization and off-airport facilities airport congestion and hold down forwarder opera ~ ~ ~ costs. As invest- in new facilities has increased, the revenue gen ~ ~ r forwarders per r of investment has undergone a si~ ~iificant ( ~nitude for trend for the period 1965 to 1969 is i ~ istrated is axiomatic that to s ~ ~ its rate * forwarding ~ r must increase its * * ~ ~ ()\~1~ than its ~ )rmance. As investment ilities designed containers increases, a ~ is introduced ~rding operations. ~ ~ the t ~ ~" t is increased, be a ~ ~ .eed f ization of the . - e prof be aci ieved. ~ ~ e operations v~ unde going a shift in ~ . ~ ~ highly e to less variable and r - ~ £ ~ j is evidenced Elds in the air f r industry rate of return, increase in air investment outpaced the increase in air forwarder revenue, even rate of increase in air forwarder revenue has been at historic highs last few years. As these trends continue, profitability as measured by return on investment falls. Novo Air Freight, represents an investment of over $4 rorwarding business. m setting forth below the trend in air forwarder investments as a percentage Testment. AIR FORWARDER PROFITS AS A PEFICENT OF INVESTMENT 1969 VS. 1965 IDollars in thousandsj Domestic and international air forwarding operations Percent change $37,274 144, 308 8, 103 4, 214 11.3 $106,547 186 345,239 144 14,058 7,310 28 leading air forwarders 1 1968 - axes5 ax profit as a percent of investment 1969 1 ~ ~ _ `~ `~lers in 1965 that were still leading forwarders in 1969. ce business except the agency business of Jet Air Freight. t of operating profit. This estimate pertains only to air forwarding operations of each 6.9 -40 C.A.B. forms 244 (see app D). PAGENO="0039" 35 In vjew of these developments there is ~ clear need for increasing the v6lurne of . traffic of each COIRIMU1Y operating iii t11(-~ field. This caii be accomplished ii~ a number of ways, aiiiong which are the following and iione of which are mutually exclusive: (1) protection of existing carrier P~t1ti0il)~Lti01~ ill future growth by 1iniit~iiig new COfllJ)etitiOfl ; (2) encouragement of mergers ; (3) encouragiiig a more rational late structure, 1)artictllarly ill the international field. Certification would aid the air freight forwarding industry by curtailing the oversaturation of the niarket with new carriers seeking to lliI)1)lC ~it the fruits in the orchard that the existing industry has labored so hard to develop. Such curtailineut is an aI)Solute since further dilution of the traffic base (already shared by 200 air forwarders) will! underiiiine the a1)ilitv of the existing forwarders to develop the Ca1)it.al structures needed to exploit the l)Otdlltial of tim freight forwardiiig niarket. Dilution of the reveiiue IMise has not been and caniiot be offset by growTth alone because the development of coutainerizatioli requires a rate of new investment that substantially exceeds the rate of traffic (revenue) growth. There is 110 viable alternative to certification if the quality and continued development of air freight forwarder service i~ to continue. That priueiile has long since been acknowledged l)y regulatory l)rocednres applied to all other modes of traliSl)Ortat.iOn. Indeed, there is no fear that there will be a reduction iii real conipetitioii with certification. Legislation of the kind we ProI)Os( would (uccnluate healthy conipetition by those foi~v~odeis who will be stronger and in a 1)(tt.e1 position tO offei iIfll)1OVed serviecs and rates. . * TIi(~ Lii ~reight forwarding industry today has reached a tinning 1)Oiflt ill its developineiit. It has bridged the transitioii froni a small labor-intensive industry to a large capital aiid labor-iiiteiisive industry. But in order to fulfill these func- tions successfully, the indiistiv needs the (ncouragenient and stability that would follow from C(1tiflCtitiOli. The Civil Aeronautics Board has iicver established econOmiC ciiteiia to be used in processiiig air freight forwarckr aI)l)lications that measure (1) the need for additional air forwarder service an(I (2) the .xt.eiit to which added conipetition may b( introduced wit.lioiit det.riineiital effect on (-xistiIlg carriers and tue industry as a whole. The ciirrciit developments of the industry r(quire the (XalniliatiOll of such ciiteri:.t, )alticllla1ly wheii new applicants can Ix (X1)(Ct(d to add s~ib- stai itial 001111)('titi Oil 111 tue inclnst.rv. For tw(mty-tliree veals t.he air freight. forwarding industry has b(efl Vi(\VeCl as an exp(rilnent.. No specific 1(clllir(Iiients to inect 0 ~)a1tiC~lltL1 deinaiid for service were 1)laCCd 011 the carriers a1)1)1OV(d. `flie 1)Clu(fit.S of this i)raCtiC(~ have beeii O1)ViOLES. The air forwarders tlo.inselves sought out the d(flhand, (St.&)lish(d service 1)atterlls in accordance with the demand, and then 1)rOCe(ded to devclop tli~ market. As a result of this developnient, th( (cononucs of the industry that was once an (xperinlellt haV(. changed dramatically. Patteriis of air coiiuiierec have developed that exist only 1)CCUI1SP of t1i(~ availaliilitv of air forwarding S(FViC(~. The air forwarding industry is now relied on regularly by a large segment of the ship- ping 1)LlbliC in nuich the saifl( was as CeltiflCat(d tO1lt(~ carriers are relied upon The tinie has now come to place this indu~try on a soi.ind and peiiiiaiicnt economic footing. . . ~ I I thank \?~1l for this opportunity to appear before you on this legislation that is so vital to the future health of our industry. APPENDIX A HISTORY AND PROJECTION OF TOTAL DOMESTIC AND INTERNATIONAL AIR FORWARDER REVENUE AND TRAFFIC Domestic and Revenues Shipments international (in Percent Percent (in Percent consolidations thousands) change Tonnage change thousands) change 1961 $66,229 110,047 4,085 1962 83,360 25.9 136,356 23.9 4,774 16.9 21.1 ,, . 1963 102,692 23.2 162,093 18.9 5,779 1964 126,658 23.3 198,162 22.3 8,847 53.1 1965 163,642 29.2 256,767 29.6 10,552 19.3 1966 205,608 25.6 321,435 25.2 11,406 8.1 1967 242,776 18.1 363,418 13.1 12,990 13.9 1968 298, 324 22. 9 493, 951 35. 9 16, 314 25. 6 1969'~. 375,100 25.7 574,270 16.3 16,044 (1.7) Forecast,19712 531,857 814,289 21,158 I 1969 data estimated based on an analysis of the carriers reporting 97 percent of air forwarder revenues. 2 See pp. 2 and 3 for domestic and international forecast methodology. Source: CAB Form 244. . ~ - ... . : ~ ~ ~ ~ ~ . :.. PAGENO="0040" N OF D TI& AIR F )RWARDER REVENUE AND TRAFFIC s Percent Percent Shipments Percent consolidations .) change Tonnage change (thousands) change $49,504 93,828 3,748 58,495 18.2 111,213 18.5 4,331 15.6 69148 18.2 129,724 16.6 5,180 19.6 86,478 25.1 161,184 24.3 8,144 57.2 112,959 30.6 207,356 28.6 9,764 19.9 142,400 26.1 265, 701 28.1 10, 498 7.5 169,027 18.7 308,871 16.2 12,092 15.2 - 214,917 27.1 415,592 34.6 15,347 26.9 - 275, 268 28~ 5 498,730 20.0 15, 077 (1.8) Revenues Tonnage Shipments 24 23.5 19.0 25 24.8 15.6 Forecast 19712 $395,697,000 715,777 20,044,000 )f the carriers reporting 97 percent of air forwarder revenues. en 1965 and 1969 and a 15-percent annual growth rate for 1969-70 to reflect `HISTORY AND PROJECTION, OF INTERNATIONAL AIR FORWARDER REVENUE AND TRAFFIC Revenues Percent Percent Shipments Percent International consolidations (thousands) change Tonnage change (thousands) change , $16, 725 16, 219 337 ` , 24, 866 48. 7' 25, 143 55. 0 443 31.5 .`-` - 33,544 34.9 32,369 28.7 599 35.2 ` ~L 40, 180 19. 8 36, 978 14. 2 * 703 17.4 50,683 26.1 49,411 33.6 788 12.1 ` -` 63,208 24.7 55,734 12.8 908 15.2 , 73,749 16.7 54,547 (2,1) 998 (1.1) 83,407 13.1 78, 359 43.7 967 7.7 99,832 19.7 75,540 (3.6) 921 (4.8) ) 25.0 ,..~ 21.5 13.4 ) 18.6 13.4 4.1 136,160 98,512 1,114 nf the carriers reporting 97 percent of air forwarder revenues. n 1965 and 1969 and a 15-percent annual growth rate for 1969-70 to reflect ~. -. ..~.._ _re assigned an annual growth rate of 10 percent to 1971. AB forms 244. APPENDIX WEIGHT OF CONTAINERS SHIPPED BY FORWARDER AND NON FORWARDER CUSTOMERS OF THE AIRLINES, JANUARY-JUNE 1969 Net weight of containers (in thousands of pounds) tendered to the airlines by- Percent air forwarders Total of total Air forwarders Other shippers 46,654 , 868 860 67 . 7,667 43 Total 22, 749 69, 403 67. 2 1, 923 2, 791 31. 1 132 992 86.7 65 132 50.8 7,523 15,190 50.5 712 755 5.7 Period Container type rce: CAB unitization and containerization reports, dncket 16080, and CAB T-103 report audit summaries. PAGENO="0041" me revenue from cotainers tendered by A $5,855 $1,919 $7,774 B 59 141 200 R-2 138 15 153 c - 8 9 17 D 781 703 1,484 x 5 76 81 Total 6,846 Source: CAB. unitization and containerization reports, Docket 16080 and CAB. 1-103 report audit summaries, APPENDIX TONNAGE GENERATED BY AIR FORWARDERS IN MAJOR `MARKETS Atlanta 27,313 Boston 27,894 Chicago 121,687 Detroit ~ 191 Los Angeles 80,825 New York/Newark 102,947 Philadelphia 27,738 Cincinnati 8,436 St. Louis 12,407 Container type Air Other forwarders shippers Total 2,156 9,602 Major domestic market 1968 domestic aircargo-tons originated Direct air carrier nonforwarder Forwarder tonnage~ tonnage2 o~ 9,120 36,433 15, 172 43,066 43,188 164,875 24,556 77,747 50,474 131,299 102,969 205,916 19,444 47,182 3,681 12,117 6,234 18,641 Total, above cities 462, 438 274, 818 Total, all cities 999,314 415, 592 1,4 1 Figures obtained by subtracting forwarder tonnage from total tonnage originated by the dir 2 Based on data reported on station reports of the top 46 air forwarØerv These reports do raffic originations at all stations Accordingly, forwarder traffic is understated ~ , 3 Total domestic tonnage reported by all carriers except helicopter carriers. Source: CAB form 244 and CAB airport activity statistixs. PAGENO="0042" 9, used because December 1969 date was not available. ring year shown. Note: American Express excluded because it does not separate forwarding assets from the total assets of the company Source: CAB Forms 244. GROSS REVENUE PER DOLLAR OF INVESTMENT, 1969 VERSUS 1965 28 leading air forwarders 1 1965 1969 Percent change lnvestment(thousands) Revenues (thousands)2 Revenue per dollar of investment $37,274 144, 308 $106,547 3.87 345, 3.24 280 240 (18) APPENtIIX D AIR FREIGHT FORWARDERS HAVE BEEN REQUIRED TO RAISE OVER $70,000,000 IN CAPITAL IN THE LAST 4 YEARS TO SUSTAIN THEIR GROWTH-CARGO ECONOMICS, INC. Total assets (thousands) December 1965 December 1969 Percent change, 1969-65 Amount of increase, 1969-65 (thousands) Emery Airborne I WIC Shulman AEIC Wings & Wheels Jet Air Freight UPS DAX Air Dispatch (Novo) Add Imperial ABC Amerford Trans-Air Circle Air-Land Associated BorAir Express Air Freight Mark IV Pensoh Scott Flying Mailman Medallion New England Ai$ex Joyce All State $11, 352 6,876 1,529 1,878 6,023 1,955 610 475 322 721 737 282 955 506 662 236 189 258 495 308 67 297 (3) 58 (3) 102 36 81 175 $24, 803 13,855 10,604 8,336 7, 123 6,720 4,642 695 8,593 5,395 21,026 622 3, 174 731 1, 623 2,701 679 1.026 908 522 441 835 561 352 406 2 272 162 270 256 107, 333 118. 5 101.5 593. 5 343. 9 18.3 243. 7 661. 0 46. 3 2568.6 648. 3 39. 2 120.6 232. 4 44. 5 145. 2 1044. 5 259. 3 297. 7 83.4 69. 5 558. 2 181. 1 506. 9 166. 7 350. 0 233. 3 46. 3 188.6 $13, 451 6,979 9,075 6,458 1, 100 4,765 4,032 220 8, 271 4,674 289 340 2, 219 225 961 2,465 490 768 413 21~ 374 538 561 294 406 107 126 189 81 70, 148 Total, above air forwarders 37, 185 APPENDIX E I `Includes 28 leading air forwarders in 1965 that were still leading forwarders in 1969. 2 Excludes all agency and surface business except the agency business of jet air freight. Source: CAB form 244. PAGENO="0043" 28 leading air forwarders l~rnery 24,803 105,347 9( Airborne 13,855 57,614 5 WIC 10,604 21589 20, Shulman 8,336 20,746 20, AEIC 7 123 15,439 14, Wings and wheels 6720 15485 14, Jetairfreight 4,642 1 21,676 1 20, ups :~, 695 12,507 ~ 11, DAX 8,593 12, 119 1~ Air Dispatch (Novo) 5,395 10,077 U Imperial 622 3,458 ABC 3, 174 3,665 ~ Amerford 731 7,411 Trans-Air 1,623 5,719 Circle 2,701 6,382 Air-Land 679 3,140 Associated 1,026 5,021 Bor'Air 908 23,934 Express Air Freight 522 2,674 Penson 835 2,639 Flying Mailmen 352 1,755 Joyce 270 1,622 1, All-State 256 1,245 1,2 Panalpina 603 721 7 General 675 1,953 2,1 California Airforward 99 634 J. D. Smith._ 496 484 6 All-Air Transpnrt 209 453 Total above Carriers 106, 547 345, 239 331, 181 Emery Airborne 1 WTC Shulman AEIC Wings & Wheels Jet Air Freight UPS DAX Air Dispatch Imperial ABC Amerford Trans-Air Circle Air-Land Associated Bor-Air Express Air Freight Penson Flying Mailmen Joyce All-State~ Panalpina General Cal Air Forwarders J. D. Smith All Air Transport Total, above carriers 1 Includes Pacific as if the 2 companies were already merged. Source: CAB form 244. Includes all of Jet Air Freight's reported revenues and expenses since Jet's report did not provide a corn down betwpen agency expenses and air freight forwarding expenses. ~ As reporte~. Source: CAB Forms 244. OVERALL PROFIT OR LOSS FROM AIR FORWARDING IN 1965 OF LEADING AIR FORWARDERS IN 1965 28 leading air forWarders 1965 air fc-' Investment Revenues $11,352 6,876 1, 529 1,878 6,023 1,955 610 475 322 721 159 955 506 662 236 189 258 495 308 297 58 81 175 147 282 78 572 75 $49,889 24,878 10,022 3,941 9,764 6,653 3,953 7,284 2,246 4,209 863 4,381 1,008 3,780 1, 119 1,072 . 1,227 1,640 1,012 582 539 575 634 525 1,388 317 293 514 37,274 144, 308 136, 205 PAGENO="0044" Air Freight, with its ornia. . air freight ofits. .~a Fe Rail- bation officer ~ `,~ the Service , `~, ~ Coast's leading Tiger Line Inc. as In October, 1954, ~~~Ileft ~t up ~varc ~r. in the name u as a separate cor- y in April, 1967. WTC's tinter. ` original o ~ering price was $12 a share. renues of the company have consistently increased. 0 are $50 million. While some of our current rev- ~uisition in the last two years of a surface freight ~ition of an international air freight forwarder, and more recently the acquisition of the greatest percentage of our rev- - forwarding operation. The point 1955 to their present high level. ~ recent years. At the inception were approximately 35 air L, operating in the United Haffer has indicated, 199 and international, 37 are c and latest c 1 are both Lational only. the effect of excessive competition. In 1968 the warder revenue was approximately $215 million to be nately 150 air forwarders holding domestic authority. were about 54 Class I surface forwarders in 1968 (with 0 or over) with a total revenue of $560 million. Thus, about iy surface forwarders as air freight forwarders participated in ximately over two and one-half times that of the entire air freight istry. The surface forwarders on the other hand have been accorded of certification in the public interest and the air forwarders have f time has, of course, increased greatly particularly .t truckers who are also known as house truckers. one or two large accounts from a pickup and urse of their business carry freight to or from the ~ A point, due to the free entry policy to become air freight forwarders of competition to the existing air freight are not well financed and most of them do develop air frei it as such. They simply act as conduits. With the management the companies which they serve, they very often ~ persbnalized - -- I eventually go out of business because rto compete effectively in the air freight forwarding market. Many i4. ii v. so mc ~omery's prepared s the committee's time, Mr. presentation, but I should like to ed in the record. .Jed in the record at this point. atement follows:) ENT OF M. G. MONTGOMERY, PRESIDENT, WTC AIR FREIGHT AND FIRST ~ESIflENP-WEST, AIR FREIGHT FORWARDERS ASSOCIATION OF AMERICA r G. Montgomery. I am President of V headquarters office in Los Angeles,' is the third largest c in terms of revenue and ~rience i s for )le to the ac ig company, the acqu broker. ocean f has ii~.. y-'~, operatio lers, both v-. Led heavily at the major air freight generating points. - rwarders presently operating, probably in excess of 50 PAGENO="0045" welopment ~isting forwa his will enal order to continue to serve tion industry To 1" one this last point, when an air freight forwarder i - first questions asked by the prospective underwriter ~ authority and how permanent is it? As it stands today, the can be given, and thls must be disclosed in the prosy - , is that is tern orary and that we have no guar ntee f overnrr more th i one day f stock - a the ~ 11 that is the s 8 years. This ~ +,~ uey ~ their s s and so on. ( mers for air transports y havef ci to be unt the has been - In closing, I would y important t n at least ~ofthej erate so-c ~ inst - ~o the success 71 percent of t zed freight in the fi than that generat PAGENO="0046" WTC's investment doubled to $9.4 million. Without public financing and the security for public funds that comes from permanent authority and ion from get-rich-quick competition, we cannot meet the challenge posed ~e of containerization. In sum, the need for certification of the air freight ~s has never been greater as a result of the need for increased investments occas: )ned by this radical operational development in the air freight business. I thank you for this opportunity to appear before you. Mr. HAFFER. The next witness for the association will be Mr. Martin Shulman. STATEMENT OP MARTIN SHULMAN Mr. SHULMAN. Thank you, Mr. Chairman, and Mr. Adanis for giving me and my colleagues the opportunity to appear in support ~ ~ of these bills. . I have a brief written statement which T will not read to you. I would instead like to address my remarks to what I conceive to be the fundamental issues that have developed here with respect to the desirability of certification of the airfreight forwarders at this point in time. I think the Board has recognized that the industry is doing a splendid j ob and my colleagues have testified here as to the role of the forwarders in the air transportation industry. Why then certification now? Why doesn't the existing exemption do the job for us effectively at least for now? The fact is that we are at, a critical juncture in this industry pres- ently. The development of airfreight generally, among the direct air C ~, has slowed perceptively I believe this year it will be perhaps `~ ~ t over last year, which is certainly not doing the job of filling these jets that are in the air today and that are on order. The f is that through containerization, the direct air carriers e ad~ ted the job of developing new airfreight, and new sources . ,. ~ ht to the airfreight forwarders. They have published rates for contathers, the most widely used of which is the so-called igloo, the largest container, which will hold up to 10,000 pounds in weight, the airlines usually assessing a minimum charge for about 3,000 pounds. They ~have in effect said to the shipping public and to the airfreight forwarders which are considered as part of that public ` `if you give us freight in these containers, we will give you a lower rate and the more freight you can pack into these containers, the more dense the freight, the lower our charge to you will be." Who among the shipping public can in the first place generate 3,000 ~ pounds of freight moving from point A to point B and can also develop a so-called mix of freight in that container which will, one, provide the maximum revenue, and two, provide the lowest cost per pound in the movement of this freight? Only the ~airfreight forwarder. Very, very few commercial shippers - - ~TL provide, first, 3,000 pounds in a container, and secondly, a kind ~ mix of commodities, light commodities and dense commodities . ~` will provide the optimum cost. It is only the forwarder that do this. That being the case, the forwarder who is now charged with this respoilsibility must of necessity invest in substantial facilities, con- tamers, materials handling equipment, vehicles adapted to the move- ment of these containers between terminal and airplane, and this is ~1 PAGENO="0047" UI I Ir and ~ several times in hi characteristic of a ~ht that makes it salable is s YOU that this need not be so It ought not to be so ~i ~ fact matter is that the direct operating costs of aircraft have come down and down with the introduction of new and larger jets and will con- tinue to come down. These costs are now down virtually to the level of trucks. What is skyrocketing is the other costs, the costs of ground and general administrative costs to the point where for e~ dollar that the air transportation takes in, two-thirds c~ the ground handling and general and administrative and o ~ third of it for actually flying the airplane and the freight in it. The fact is that as these direct operating costs of aircraft come down, the terminal handling costs~ that the airlines are burdened with con~ tinue to increase. rfhere is only one segment of this industry that e~'i reverse ~ trend and that is the airfreight forwarding industry, * ~ ~ ~ air carriers have implicitly recognized this by virtue of rates, by virtue of their cancelh~tion of all the rates, for so-ce freight, in volume, oVer 3,000 pounds. If in turn, as I have said, we. are to pick up this resp ~ make this investment, we must have the wherewithal to do it: ~ must be able to go into the marketplace and secure these funds these investments. We have got to have not only the f I ~ the i~ ties that these funds will buy which will enable us to ass ` ~ after all, that is our function, to assemble-I freight to fill up airplanes, like the C-5A that is pounds. Where in the name of commonsense can you liferation of airfreight forwarders where you have industry? You must have people who I ~ the c cially in terms of their capital mv ~ ~ £ personnel, to assemble huge aggregat to 200, 300, 400 miles of the 22 major airport hubs of Lis co~~ to then tender it to the airlines in a digestible form so they from point to point. In the present posture, we are as far as these direct airc~ concerned, a shipper. We can't be ~ diffe 1 other 1 1 1 operat r( this table re~ cerned in its got to be t: Jereni the law to e wou How could we develop suL~. the aircarriers unless we are but as what we are. We are carriers. We are common ear~~ - not recognized as such under this exemption ~ation. ~egular Lt COT whic] fact I ers and the e numl PAGENO="0048" P OF MARTIN SEULMAN, PRESIDENT, SHULMAN AIR FREIGHT AND FIRST RESIDENT-EAST, AIR FREIGHT FORWARDERS ASSOCIATION OF AMERICA ne~ is Martin Shulman. I am the President of the Shulman Air Freight, a "~`ized domestic and international air freight forwarder, and First Vice ~t of the Air Freight Forwarders Association of America. is one of the pioneers of the air freight forwarding industry, having ~ in 1949. Our air freight revenues for 1970 are projected ,, they were $23 million and in 1964, just five years before, over $5 mi'lion. 1, substantially , ~ on an annual basis than ::~, ~. ~ udgment, to the existence of a or the k~J of expedited, individualized, .~ `~&-~ -~J~ company and other reputable air freight ~ .. ~l, Of course, has not been automatic. I my company is a part has, in the past five years partic- )f money ~ `-` ~ -"~"-~~`- of talent and energy in selling ` ~ ~ - and on the total cost distribution nisms to keep pace on the ground at the ever-increasing air speeds of the jet planes. 5 of time a :1 money have paid off not only for the shipping public )ut for the airi tes as well. Not only has this industry's percentage of compared to ~ ~t of the air freight sold by the airlines directly in- ~ ~ear but the air freight forwarding industry has served to buttress ~ e direct air carrier `air freight Operations in both good and bad ---V moment, the airline industry is undergoing a serious reduction ~ ` ~. In particular, its air freight growth has almost come to a agnated. In the face of this the forwarder's growth has ac- ~ ` - - e increased sales emphasis and service improve- and containerization. It is safe to say that but `5 in the market, the airlines would be in far ~ . ~`w are. on it by the shipping public, the air been compelled to open more stations, to increase rid to make substantial new investments in termi- uipment, containers a ` munication equipment. rocess of ii ~ ~ ~ ~ ~ on public underwriting -.~ `- - -- ~1 ~ involved in such an under- r an indefinite period, and c price-cutting competition our investment analyst ~rity and, of course, ~ S we neces- rance that - 11 ~ does the not be restricted." ~ caveat may not have any telling investors, although our experience s have a retarding effect by seriously limiting Fering can be sold. In short, investors for the most ii an ~ a~ "speculative" and have insisted upon offering could insure them a very substantial return on investment. With Lisruptions in the capital n - the faces ii ci and ielming obstacles in i'-* *` * t this lp alleviate these sp the many is, which call fc ess to say, iough i ader t lancing ~erns at ~ ion over the long circumstances to - which must o iulman's prepared statement fo~ record. ows:) PAGENO="0049" pro pre~sion and had grave rese continuing e~p I thank this oppo F of appren~~~ ytos eit. . Mr FEIEDEL Mr Haffer, you heard Mr Gilhuland say that the Board did not need any new legislation, it had the right to grant cer- ~. tification What is your opinion on that? Mr. HAFFER. First, there are two answers to that : One is i Mr Gilhlland indicated, the Board is not disposed i~ant ce tion even if it does have authority under the stated that it believes its present method of ~ exemption is correct. I don't think that the vice chaL~nan i out the "pie in the sky" in any foreseeable future for the g certification by the Board Second, as my prepared remarks stress, and ~s I believe I inc briefly in my oral remarks, Board authority under section ~ certification to the airfreight forwarding industry c::~~ specific points. It cannot be granted on an areawide g or without F ~n as t points. 1 1 - 1 use of the con airii. the c~ ~ air c~ any point to s~ to have a poten Board dispose :i its c, , forwarding industry authority of the scope or industry now possesses. ;~ Mr. FRLE~DEL. Mr. Adams? Mr. ADAMS. Part 4 of HR. 12831 on page 4 issued under section 4A of section 401d ~o ~ ing shall designate the terminal and i ~ as the Board shall deem, practical and the geographical area or ~eas within or betM rendered." Do you feel that is necessary as an flexibility in the business? Mr. HAFFEE. Mr. Adams, that applies, of course, new applicants other than those under the pr~vious forwarders would be given authority coextensive with the e exemption authority which is nationwide. Without any ~ iation. Mr. ADAMS. ~ ~er was wide authority. Mr. HAFFER. Mr. ADAMs. 1 idea of how practical tLs wor i~ such PAGENO="0050" and you indicated that for airlines, ~ , ~ is one-third of any revenue dollar the iu. V at do you do? Do you file a tariff ~ ~` ~ pay the establLhed airline and truck tariffs to deliver from one poi I; to another~? Mr. HAFFER. That is correct. ~ ~ ADAMS. In other words, you have to pay the same price for ~ transportation that any other shipper does, but you are able r profit in this two-thirds that they have to allocate really ~_; ~ it on the ground. Is that right? ~ Mr. SHULMAN. Worse than that. We also have to pay them for a portion of that ground support. For example, built into the airline costs are the costs for tariffs, for sales, for markets research, for com- munications, all of the things that w~ also have we have our own tariff department, our own sales department, our own market research, all of the general and administrative costs that the air carrier has, yet, we , ~ , must pay him for his, that is built into his rates as well as in our own rates we charge the shipping public, and bill in those costs. ~ ~ So, we pick up duplicate costs to a significant extent. Mr. APAMS. In other words, you have a different situation than the .. ,,. forwarder who forwards by railroad, where he really has only the difference between the carload and the LCL lot You have a tariff that will probably be higher than the tariff if someone tendered directly ~ .. ~ to the airlines. Is that correct? Mr. SHULMAN. In some instances, not always. Shulman is, as is WTC, termed a volume forwarder. We ship in very substantial volume between certain maj or points and thereby do get the kind of spread that you are talking about. , Mr. ADAMS. Is there a spread in the tariffs by volume and weight on the airlines, too? Mr. SHULMAN. Unfortunately not. We have kept our finger in the dike as far as our airline costs are concerned by engaging in a charter arrangement where Shulman Air Freight and WTC Air Freight have j oined together in a so-called co-load arrangement to charter a full airplane moving from coast to coast and by so doing, we have avoided at least up to now, the necessity for paying the very substantially higher rates which are represented by the single Igloo. We are in effect buying the equivalent of 21 of these Igloos in a charter arrangement. But it is true that where we can't do that because Larters aren't available or for whatever reason, our rates in many rices are smewhat higher at over the 100 pound level than the - --~--~--~. In other words, if you are a shipper in New York City - .ou want to ship to, say, your office or to someone else in San Fran- cisco, the shipper would come to you and you would quote him a rate from his dock to the consignee's dock? Mr. .SHTJLMAN. Exactly. Mr. ADAMS. Or he could try to call up a truck line and ask them to deliver it to the airfreight terminal and he would get, I assume, then a series of bills of lading, one from the trucker in New York City, one from the airline and then one from a truck. I am not talking about your business, but if he wanted to use an alternative way of shipping these things. PAGENO="0051" 47 the~airport ~ie cte~very. But it is ~~-- ~ ~ ~ - ~ even though the services are prc three different entities. The pick up and delivery are ~ providec agents of the airline. Mr~ ADAMS. Is that on a separate tariff basis? Mr. SHULMAN. Yes. The airlines publish a j tariff which is separate from the airport to i~ may avoid the payment of those charges by ei ~eliverin~ to the airline, or consignee picking it up or ~ some ot If he calls the airline for the pick up, t. must i priate pick up and delivery charges as ~ ~i as the air airport charges. Mr. ADAMS. The other alternative is the shipper who has his own truck fleet at both ends. Is that right? Mr. SHULMAN. Yes. Mr. ADAMS. I am trying I t how your ~onal com~any like Sears ~ `~k ever is so ne of I to use your )loy forwarders, ~ although in th ;egate r~ receive a v ~y substantial amount of freight, Sears ~ buy from several thousand manufacturers in the New York area or the Atlanta area, or wherever, and the individual ~ )ments are relatively small. That is where the forwarder comes in I - ~s these shipments up which individually are small and con- ~s them. iWhen he delive verin~ 1 fl___ ~ minals they are putting in around the country, now ba freight comes either from the airlines picking up and delivering . from them, or from you? Mr. SHULMAN. Yes. Mr. ADAMS. There is a very small volume of shippers that ~ take things out to the dock and drop them and try to get somebc pick them up at the other end. Mr. SHULMAN. That is correct. Mr. ADAMS. Are they now sending cross country ~ ports full cargo airplanes as opposed to combined cargo t~ Mr. SHULMAN. They are sending both, Mr ADAMS In other words, the maj or airlines will now set a a full jet that will be nothing but freight? Mr. SHULMAN. That is correct. Mr ADAMS You have had to in some cases charter in order to avoid paying the high charges on the so-called igloo? Mr. SHULMAN. That is correct. Mr. FRI1~DEL. I want to thank you very much. The committee now stands adjourned. (The following letter was received for the record:) PAGENO="0052" ~, `.~)rnmittee on Iflter8t ate - ve8, Washington, D.C. ;uhmit for the record herewitji the views of the ~ respect to HR. 9227, E.R. 10687, and H.R,. ~..a certification of air freight forwarders under the the reasoning of the air freight forwarders in seeking fi appreciate their concern with the current exemption vii Aeronautics Board has taken the position that it o do virtually ~ll the things the air freight forwarders phy stated in testimony before the House - ct is sufficiently flexible to permit rorwarders if such action shotild and also to impose appropriate now authoriz Howe~ n on the g ~ and regu e and nec system the public Presumal i would . absence of changed economic conditions ~ certification ( a is, therefore, o involving the ybe. ~te au .~t interme m of an exe or some o TieW. a on the slation ;ent au t to a ~e financ t forwarders, forwarders a Committee wit B it nent, f y and ~e it preserves the shipper. I direct aii~ óarriers. whatever additional informa. S. G. TIPTON, President. ?~` at 11:50 a.m. the subcommittee adjourned.) PAGENO="0053" PAGENO="0054" PAGENO="0055" PAGENO="0056" DATE DUE :L -~-~-~ .~ GAYLORD PR~NTEO~NU.S A