McGILL LAW JOURNAL
[Vol. 18
International Freight Rate Regulation
M. A. Prabhu *
IN TR ODU CTION
…………………………………………………………………………………………
Page
61
OCEAN TRANSPORTATION
…………………………………………………………………………..
a. General Principles of Ratemaking in Ocean Shipping ………………………..
b. Rate Determination in Free Market and Administered Markets ………
c. Determination of Rates on Particular Commodities
……………..
d. Features of the Conference System
…………………………………………………………..
e. Loyalty Contracts
……………………………………………………………………………………….
f. Public Concern about Conference Operations
………………………………………
g. Negotiations between Shippers and Conferences
……………….
AIR TR AN SPO R T
……………………………………………………………………………………………
a. The Chicago System …………………………………..
b. The IATA Ratemaking Machinery
…………………………………………………………..
c. Determination of Particular Freight Rates ……………………………………………..
d. Charter R ates
……………………………………………………………………………………………….
FREIGHT MOVEMENT BETWEEN CANADA AND UNITED STATES ….
a. Regulation of Internationl Railway Rates ……………………………………………….
b. Trucking, Pipeline and Inland Water Rates
…………………………………………..
CO N CLU SIO N
…………………………………………………………………………………………………..
* Assistant Professor, Faculty of Law, University of Saskatchewan.
63
65
69
71
73
75
77
83
87
88
92
97
98
101
102
104
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
61
I Introduction
By far the largest of Canada’s trade partners is her great southern
neighbour, the United States, although an increasing share of her
total trade is taken by overseas countries in Europe, Asia and South
America.2 Hence, it is necessary to discuss the legal, economic and
other regulatory aspects of both surface and ocean transport. From
a trade point of view, overland transport is most important, but
from a legal and economic standpoint, ocean transport overshadows
the former, particularly when one considers the interests of the other
trading partners, some of whom are developing nations and are de-
pendent upon Canada and other developed countries for their econo-
mic survival.3 In view of this, and the specialized nature of ocean
transport, shipping freight rate regulation is first discussed, followed
by brief interludes on international air and surface transport.
Ideally, ocean transport should be studied as part of a total
distribution system whose principal components include the produ-
cer of goods, inland transport and warehouses, ports acting as trans-
1 Over 70% of Canada’s trade is with United States. Her imports from U.S.
in 1969 amounted to $10.3 billion out of a total bill of $14.2 billion and her
exports to the U.S. grossed $10.56 billion out of a total earning of $14.87 billion:
Imports by Countries, Dominion Bureau of Statistics, 7506-507, Vol. 26, No. 4
(July, 1970), Table 1, at p. 8; and, Exports by Mode of Transport, Dominion
Bureau of Statistics, 7506-560 (October, 1970), Table 2, at p. 19.
2 Canada’s trade with overseas countries can be seen from the following
figures, ibid.:
Imports
(In million
Can. $)
1969
1,936.62
W estern Europe: ………………………………………..
U.K ………………….
790.97
Common Market 789.16
…………………
………………..
Easter E urope …………………………………………….
M iddle E ast ……………………………………………….
O ther Africa ………………………………………………..
O ther Asia ……………………………………………………
O ceania …………………………………………………………
South Am erica …………………………………………….
Central America & Antilles ………………………
81.51
117.40
124.86
768.68
146.03
466.32
247.47
Exports
(In million
Can. $)
1969
2,233.38
…………..
…………..
37.13
65.32
115.67
982.09
203.63
291A9
292.37
………….
1,096A8
836.96
…………..
…………..
…………..
…………
…………..
…………..
…………..
3 In 1968 the developing countries with market economies exported a total
of $44.10 billion worth (or 74%) and their imports from developed countries
amounted to $33.69 billion out of a total of $45.8 billion (or 74%). Source:
U.N. Year Book of International Trade Statistics (1968), (New York, 1970), U.N.
Publication Sales No. E-70, XVII 11, Tables A and B, at pp. 13 to 31.
McGILL LAW JOURNAL
[Vol. 18
fer points to vessels, and the ultimate receiver and consumer of
goods, and in the provision of which a variety of specialized services
such as banks, insurance companies, freight forwarders, agents and
middlemen, participate. It will be seen from this catalogue that
there is always a differential between what the producer receives
and what the buyer pays, even if one disregards processing which
changes the nature of the product, and the ocean freight costs
may constitute a relatively minor part of the total differential.
Concentration on the ocean freight costs only gives a limited picture.4
Furthermore, because shipping is integrated with other forms of
transportation and terminal operation, bottlenecks and inefficiencies
in those sectors gravely affect vessel costs and lead to higher freight
rates or surcharges.
International Transport Structure
International transport is at present provided by a number of
different means:
(i) Land transport between contiguous territories, by road or rail;
(ii) Rail and road transport between non-contiguous territories
using “roll-on roll-off” ships, including train ferries, for the
sea part of the journey;
(iii) Sea transport of bulk commodities, including the carriage of
liquid cargoes, or cargoes such as grain which can be handled
in the same way as liquids, in tankers, the transport of bulk
cargoes in general purpose tramps, and also the transport of
bulk cargoes in specially designed bulk carriers;
(iv) Transport of dry cargoes (principally fruit, dairy produce and
meat) in specially designed refrigerator ships;
(v) Transport of liquid cargoes in deep tanks of ships carrying
dry cargoes;
(vi) Transport of dry cargoes in liner ships operating on a “com-
mon carrier” basis;
4-A recent study by the Organization for Economic Co-operation and De-
velopment (OECD) of 235 shipments in North Atlantic trades concluded, “of
total transport costs paid for the entire sample of shipments, ocean freight
accounts for 62 per cent…” See: Ocean Freight Rates as Part of Total Trans-
port Costs, Maritime Transport Committee, OECD, MT (68)7 (May, 1968), para.
38. This excludes all non-transport charges; if all other cost items had been
included the share of ocean transport costs in the differential would have
been very much smaller, thus highlighting the importance of taking an overall
point to view.” See: UNCTAD Document, ref. TD/B/c. 4/46, para. 15.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
(vii) Through transport of general cargo to inland destinations
under single Bills of Lading using either traditional transport
means or containers;
(viii) Air transport, at present largely restricted to high value manu-
factured commodities, precious stones and metals, and perish-
able commodities such as fruit and flowers;
(ix) Pipeline transport, between contiguous countries and also
between non-contiguous countries, generally for short dis-
tances, and mainly in conveying oil and gas and their products.
II Ocean Transportation
In this section we are primarily concerned with the various forms
of sea transport. By way of background it is useful to understand
the peculiarities of the shipping industry, its relative importance in
international trade and the various interests affected by its operation
and regulation. Shipping industry, like many banking and insurance
houses, by reason of its very function in the trade picture, is a wholly
international industry, with a single and indivisible global market,
and often without any strong ties through labor and plant with a
home country. The industry operates in an international market,
without the protection of an international economic and legal
framework such as exists, for instance, in the closely analogous air
transport industry. Furthermore, in most maritime nations, the
shipping industry is a minor industry,5 which attracts the govern-
ment’s attention rather for reasons of national security and trade
promotion than because of any desire to promote a prosperous
industry.6 While all governments are interested in the development
of internal transport, railways and roads, air and water terminals,
concern seems to stop short of transoceanic transport. In many
countries 7 statements on transport policy dwell at length on inland
transport, while ocean shipping which carries export and import
goods is treated as an unrelated item even though it may be crucial
to its economy. This neglect of the operational aspects of the inter-
national waterway has led to a vacuum in total planning of the
G Among the leading martime nations, only Norway and Greece, possibly also
Britain and Japan, regard their merchant fleet as a major industry.
6Dag Tresselt, West African. Shipping Range, UNCTAD Document, ref.
TD/B/c. 4/32 (1967), at p. 6.
7 S.C. 1966-67, c. 69, s. 1. The powers given to the Canadian Transport
Commission pursuant to s. 4 of the Act ignore ocean shipping and other modes
of international transport.
McGILL LAW JOURNAL
[Vol. 18
transport system., To a large extent this lack of concern stems from
the fact that world shipping is concentrated in the hands of a few
leading maritime nations 9 and any interference with economic
operation could spark off major showdown in trade and treaty
relations. However, in recent years the forum for debate has shifted
to an international body which is vitally concerned with the economic
aspects of transport and trade and their inter-relationships.”
Each form of sea transport has its own market. 2 The most im-
portant of these markets are:
(i) The liner market;
(ii) The voyage and short-term market;
(iii) The long-term charter market;
(iv) The long-term contract market;
(v) Integrated ownership operating outside the transport market.
8sFor instance, any rational improvement in port facilities, is possible only
if it is known what technical design of ships will use them, the trade flow,
the pattern of trade routes, freight rates, etc.
9 The leading maritime countries are the United Kingdom, Norway, Greece,
Japan, Liberia, and the United States. See: O’Laughlin, The Economics of Sea
Transport, (1967), Tables 4 and 5, at pp. 60-61.
10 Even the United States, the most sophisticated country, faces serious
difficulties -in getting the most elementary information on costs and freight
rates from powerful shipping companies located in overseas countries. See
infra, pp. 79-80. See also, Bennathan and Walters, Economics of Ocean
Freight Rates, (1969), at p. 94. Even the country of registration finds it very
difficult to impose restrictive regulation or high taxation on the operation
of vessels, as their owners can easily transfer them to another country’s
register; the so-called phenomenon of “flags of convenience” has come about
because of rigid national controls. See: Sturmey, British Shipping and World
Competition, (1962), chapter 5.
11That body is the UNCTAD. “The accomplishments of the Conference in
the field of shipping represent a real advance over the early stages of
UNCTAD’s consideration of the subject… In spite of the extreme reluctance
of the maritime developed countries to deal with the topic of freight rates
and conference practices, a unanimous resolution of the Conference recom-
mends that governments, especially those of maritime nations, invite the
liner conferences to consider lowering of freight rates in accordance with
the reduction of shipping costs in ports, admittance of shipping lines of
developing countries to full conference membership … etc.” See: G. F. Erb,
(1968), 2 3. of World Trade Law 355 et seq.
12UNCTAD Document TD/B/c.4/38, Chapters I to IV.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
65
The liner market is operated in the main by a system of confer-
ences 13 under which the individual lines operating in each trade
agree to avoid competition as regards freight rates and in return
for the provision of regular services establish loyalty arrangements
with shippers. The liners carry the bulk of the world’s trade in
manufactured commodities and are also important in the carriage
of jute, tea, cotton, rubber and other primary products. Most meat
and fruit carriers also operate on liner terms where they are not
part of integrated organizations.
The voyage charter market and the short-term charter market
were pioneered by the international oil companies in oil trades and
have spread to many bulk dry cargo trades, especially iron ore.
A time charter may be for a period as short as one year but may be
for as long as the life of the ship concerned. Such long-term charters
are usually arranged before the ship is built, and the size and design
of the ship are then determined by the needs of the charterer. Even
liner companies make use of this market. 14
The long-term contract is a comparatively new form and although
its use appears to be increasing rapidly, as yet it covers only a minor
part of world trades. Under such a contract, a shipper arranges with
a shipowner that his transport needs will be met over a period of
years by that shipowner, but the contract does not specify the way
in which the needs are to be met. This formula opens the possibility
for the supplier of transport facilities actually to own no vessels
himself but to obtain these by time charter from shipowners, and
hence to act as a middleman between the shipowner and the shipper.
Integrated transport facilities began in the oil trades largely
because the oil companies found difficulty in obtaining an adequate
supply of tonnage on charter terms from shipowners. Apart from
the oil companies, integrated organizations carrying on trade in
meat, fruit, iron ore, paper and pulp, phosphates and sugar, also
supply all or part of their transport requirements from owned
tonnage.
a. General Principles of Ratemaking in Ocean Shipping
There is as yet no international legal- body charged with the
task of regulating rates in ocean shipping such as that which exists in
air transportation where the International Air Transport Association,
by means of its three regional traffic conferences, controls the rates
13 See infra, pp. 73-77, for a full discussion.
14 The oil companies also supplement their fleet by chartering tankers on
a short term or a long term basis.
McGILL LAW JOURNAL
(Vol. 18
of participating air carriers.’r Nor has any individual government,
however powerful otherwise, succeeded in effectively restraining the
operations of foreign vessels in their international trade.10 In view of
the tremendous importance of the study of freight rates and their
impact on international trade and balance of payments, member
countries of the United Nations established a Conference on Trade
and Development, with a Committee on Shipping,17 to engage in
a research program involving various fact-finding studies in the
field of shipping. The objective of the freight rate would be to
promote understanding and cooperation by giving all parties in-
terested in shipping a better insight into the economics of the
industry, by assessing the effects of the present organization and
costs of shipping services on international trade and payments,
and by identifying and analysing the factors which enter into the
determination of shipping routes and freight rates. It is hoped that
the discovery of these fundamental facts and the study of their
inter-relationship will serve both to dispel much current misunder-
standing and to prepare the ground for possible improvements, in an
atmosphere of greater mutual trust between suppliers and users
of shipping services. Of particular importance would be the Commo-
dity and Route studies. Commodity study would involve the analysis
of facts influencing rates charged for similar commodities on dif-
ferent routes by different conferences and to different shippers, with
comparisons of international and inter-conference, liner and tramp
rates, etc. This would enable the best possible estimate to be made
of the effect of the level and structure of freight rates on the trades
in each of those commodities. Route study is designed to gain insight
into the rate-making process itself. Among the different factors that
enter into the determination of the level and structure of freight
15 See: D. Marx, Jr., International Shipping Cartels, (1953), at pp. 282 et seq.,
where he discuss the reasons why the airline transport system of regulation
has not found favour with maritime nations.
16 The Oct. 1961 amendments to the U.S. Shipping Act, 1916 (known as Pub.
Law 87-346, Sept. 7, 1916, ch. 451, 45, formerly 44, as added July 15, 1918,
ch. 152, 4, 40 Stat. 903, and renumbered Sept. 19, 1961, Pub. L. 87-254, 2,
75 Stat. 522) were designed to make regulation of cargo liners (both domestic
and foreign) more effective, but the record of enforcement against foreign
vessels has been frustrating to the Federal Maritime Commission. See infra,
pp. 79-80.
‘7This
Committee on Shipping was established by Resolution ll(I) of
April 29, 1965, of the Trade and Development Board of the United Nations,
pursuant to the U.N. General Assembly resolution 1995 (XIX) of December 30,
1964. See: Report of the Committee on Shipping (1st Session), UNCTAD Docu-
ment ref. TD/B/36 Rev. 1, TD/B/c.4/6 Rev. 1 (1966) for the text of the resolu-
tion and the Terms of Reference of the Committee.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
67
rates, particular account would be taken of market conditions (espe-
cially elasticities of demand), turn-round of ships in ports, allowance
[or stowage and load factors, cost calculations, number of ports of
call and frequency of sailings.18
The foregoing not only demonstrates the importance of the
subject matter but also seeks to find an answer to two fundamental
questions –
does the present freight rate structure have the effect
of promoting discrimination against particular countries in the
interest of the trade of ship-owning nations or is it the result of
peculiar economic forces that the industry itself is subject to?
While in this paper it is not intended to dwell on the first question,
nor, in a primarily law – oriented paper as this is, to grapple with the
economic problems and the complexity of factors accounting for
specific freight rates to determine what is the “fair” rate, yet an
attempt is made to touch upon the second question with a view
to understanding the legal aspects of rate determination and the
nature of agreements that are in use in one important sector of the
shipping industry, namely, the cartelized liner industry.
As a very general proposition it is true to say that transport
rates are determined by the forces of demand and supply, and
while this is truer of tramp rates which operate under conditions
approximating perfect competition, as floor trading on the Baltic
Exchange in London, it is also applicable to a limited extent to
liner rates since tramps compete with liners and tramps are also
chartered by liners. The most important determinant in the demand
for shipping tonnage is the level of international trade, its volume
and direction; and the size and structure of the world’s fleet are
determined by the growth and structure of this trade.19 Because
of the close relationship between demand and supply, it is neces-
sary to dwell at length on these factors. Where freight costs are
a substantial part of the total value of a commodity, any increase
in freight would contract world trade and decline would have the
18 Other studies to be undertaken by UNCTAD are: a) Country studies –
surveying comprehensively
the shipping situation and shipping problems
of a few selected developing countries. b) Aggregative studies – based upon
country, commodity and route studies, with the primary aim of examining
the global economic effects of the existing level and structure of freight
rates and of possible future changes in rates that may result from changes
in shipping technology, in the organization of the industry or in market
conditions. c) Study of other conference practices and adequacy of shipping
services. d) Study of Port operations and connected facilities. See: UN
Document TD/B/116. TD/B/c. 4/30.
1 9 O’Laughlin, op. cit., n. 9, at p. 4.
McGILL LAW JOURNAL
[Vol. 18
reverse effect, other conditions of international trade remaining
unchanged. In any substantial changes in freight rates, of course,
the shipping industry has to contend with competition from other
modes of transport, such as air freight and long distance pipelining.
Thus on light high value goods, there is an obvious limit to freight
rates and on bulky low priced goods this limit will be dictated by
the possibility of substitution of other products or by indigenous
manufacture. One of the principal factors thus considered by
transport modes, including ships, is therefore, the elasticity of
demand for the commodity from which is derived the demand for
shipping. On the other side of the price equation, supply is deter-
mined by both cost factors and the mobility of vessels to respond
quickly to fluctuations in demand. While in the short run vessels
can easily be laid up when demand contracts, new tonnage cannot
so easily be pumped in to cope with increased demand nor is there
any particular desire to do so unless the increase is expected to
be a relatively permanent feature. Within broad limits, however,
shipping economics may depend upon this ability to contract or
expand supply consistent with the fluctuation in world trade. Of
much greater importance, however, is the cost factor that determines
the decisions of individual shipowners, whether to put out a ship
or to lay her up or even scrap her, and here we enter into some
of the most intricate decisions faced by the shipowner. In the first
place it should be pointed out that many of the costs experienced
by shipowners are external to them and are not subject to their
control; and increases in those costs may in fact be the primary
reason for contraction of demand for shipping tonnage by their
depressing effect on the trade involved. Such costs include port
dues, delays, congestions and other inefficiencies increasing ship’s
turn-round time, whether caused in the port itself or in the hinter-
land which supplies the cargo that is placed on board the vessels,
and may constitute a significant proportion of the total transport
cost. Secondly, a large proportion of a vessel’s cost is fixed and
has to be incurred whether or not the vessel is in operation.21 These
include management and fixed selling costs, depreciation, mainte-
nance and surveys, and insurance. In the short run, a shipowner
would be prepared to put a vessel out to sea if the freight rate
20For example, tariffs, anti-dumping policies, production capacity, etc.
21 O’Laughlin, op. cit., n. 9, at pp. 92-95 gives an approximation of various
types of cost faced by shipowners. See: UN ECAFE’s Report of the Working
Group of Experts on Shipping and Ocean Freight Rates and Related Papers,
UN Document Ref. E/CN.11/715 (1965), Sales No. 66, II, F. 7, at pp. 74-75 and
pp. 81-85.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
offered is sufficient to meet the voyage costs (i.e., costs directly
referable to the voyage undertaken, including the prospect of re-
turning to the home port in ballast), and make some contribution,
however small, to the fixed costs. This marginal rate is more
attractive to tramp shipowners than to liner, who may be committed
whether by contracts or by fear of losing trade patronage, to adhere
to an advertised schedule whether or not there is any cargo for
picking up, and whether or not the voyage costs themselves could be
covered .22 In the long run these decisions whether to continue in
business or withdraw the tonnage permanently would be made and
an equilibrium would be achieved by high cost operators going out
of business and the most efficient units surviving.
Within this broad framework there are several variations and the
determination of freight rates on individual commodities on indivi-
dual routes follows a specific pattern.
b. Rate Determination in Free Market and Administered 23 Markets
In ocean transport, the primary market determination of rates,
based on free competition and absence of any economic restraints,
occurs only in tramp operations. Here the rates are fixed for a
particular voyage or for a period of time 2 4 by a process of bar-
gaining between the agent for a charterer and the broker for a
shipowner, on the charter exchange, of which the best known is
221n practice, liners are not thus restricted because of their past experience
and inter-company arrangements.
23 An administered market is one in which the rate is not determined by
the free play of market forces.
24The charter party is the basic document in the carriage of bulk cargoes.
The charterer pays a fixed freight rate per ton of cargo loaded or a lump
sum for the entire cargo capacity. Freight rate of course varies with
commodity carried. Under a voyage charter party, the charterer only pays
the hire, and the vessel is under the control of the ship-owner; under a
time charter party, the charterer pays all the incidentals, e.g. port dues, use
of port services, fuel, etc., and the vessel may or may not be demised to
him (in the latter case it is called a charter party by demise or a bareboat
charter, and the charterer is responsible for navigation and hire of the
captain, chief engineer and the crew). Charters vary greatly in accordance
with the subject matter of the trade –
e.g. some of the voyage charters
are AUSTRAL grain charter, CENTROCON grain charter, GENCON general
charter; and some well-known time charters are BALTIME and TRANSITIME.
See: E.F. Stevens, Shipping Practice, (1962), at pp. 43-44.
McGILL LAW JOURNAL
[Vol. 18
the Baltic Exchange in London.’ 5 The chartering agent seeks to find
for his client the cheapest suitable seaworthy ship covering his
needs and the shipowner’s broker seeks the highest possible freight,
the bargain following the general law of supply and demand, though
to some degree influenced by the expertise of the parties involved.
While in the main tramp rates are determined in a manner
quite different from rates established for individual commodities
captive to the liner industry, there is some relationship between
the two; especially when there is a regular movement of such com-
modities, the tramps in fact do compete with liners for some of
the general cargo traffic, particularly when they are underutilized
on some trips made under charterparties or when in order to pick
up cargo from a port they have to sail in ballast from the port
where they happen to be at the time of entering into the charterparty.
This willingness to accept rates at any level that would bring some
revenue in excess of the handling charges, and thus compete with
liners for the same cargo, puts severe strain on the power of liner
carriers to retain the traffic otherwise their preserve, and justifies
their countermeasures of employing various tying arrangements
with their shippers. Similarly, liners with unused capacity for general
cargo are likely to compete with tramps for the latter’s cargo on
the routes they (the liners) serve; in fact a liner may find it ad-
vantageous to use up the extra space by soliciting “tramp” cargo
for whatever rate in excess of out-of-pocket expenses involved.2
The result of this scramble for each other’s cargo in times of
falling demand for shipping tonnage is to depress the freight rate,
and send the tramps to the scrap yard since they cannot survive
the onslaught of the combined strength of conference liners, while
in times when trade is booming and space is scarce, the tramps
may be able to temper the market power of the liners up to a
certain point. Nevertheless, the threat of potential competition from
the tramps serves as an important check on the monopolistic
power of the liner industry.
25Some of the other leading world markets interconnected by instantaneous
communications are New York, Hong Kong, SOVFRACHT
(USSR) and
CZECHOFRACHT (Czechoslovakia). In their home port, shipowners normally
act through their own employees, and some charterers act through their
own trading organizations (especially the international grain houses).
26 Contrary to assumptions, there is no substantial body of traffic which
is exclusive preserve of either liners or tramps; grain, ores, coal, sugar,
cotton, lumber, fertilizers, etc., though generally carried by tramps, are
often sought by liners if their destination is en route.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
While tramp shipping concentrates for the most part on com-
modities that move in large volumes, are bulky rather than heavy,
whose value is sufficiently low as to make it worthwhile to transport
at low rates, and require no exceptional facilities for preserving
or handling, liners specialize in general cargo moving in small
volumes and requiring special handling, preservation and regularity
of delivery. Much of this traffic, which in value and importance
outweighs tramp cargo, is captive to the liners most of whom are
organized into conferences with a view to restricting competition
among themselves. Most of the difficulties and misunderstandings
arise in the area of the level and structure of freight rates, the
main thrust of the argument being that rates are discriminatory
and inequitable, and adversely affect the trade and balance of
payments of non-shipowning nations 2 7
A discussion of freight rates evolved by liners who are cartelized
into conferences is indeed a discussion of the determination of rates
on particular commodities that belong to the general cargo category.
c. Determination of Rates on Particular Commodities
Costs incurred in moving a particular commodity, based on the
accumulated historic experience of the carrier, set the floor to rates
below which in the long, run no carrier could successfully operate.
Many different types of costs enter into the determination of
particular rates, and as mentioned previously, quite a significant
proportion of these costs are incurred in ports, in the form of port
charges and dues, pilotage, loading and discharging expenses (both
wages for longshoremen and rental for equipment) ,28 expenses
occasioned by delay in port due to congestion or inefficiency, when
fuel costs, wages to crew, victuals, etc. continue, even though no
27See: Hearings on Discriminatory Ocean Freight Rates and the Balance
of Payments before the Joint Economic Committee (the Douglas Committee),
88th Cong., 2nd Sess. (March 25 and 26, 1964), Part 4, at pp. 354-359 and pp.
631-639. Hellawell, Less Developed Countries and Developed Countries’ Law,
7 Colum. J. Transnat’l L., at p. 203, discusses some of the other aspects of
shipping affecting the interests of less developed countries, such as limitation
of liability, and suggests that these aspects have a close bearing on the freight
rates charged by the shipowner; it is a general economic fact that these
factors inevitably affect costs and the profit margins, and have to be taken
into account in setting freight rates.
2 8 Normally cargo is handled by the ship’s own tackle, but heavy machinery
may require floating cranes from the port which have to be paid for.
McGILL LAW JOURNAL
[Vol. 18
business is done. The ship’s voyage costs 29 must somehow be ap-
portioned among the numerous types of cargo in her holds. Some
commodities require careful stowage, as they may contaminate
others, 30 or may themselves be easily contaminated; 31 others require
ventilation, refrigeration or other special treatment; 32 the stowage
factor (i.e., the relationship of cargo’s weight to bulk) is another
important consideration (broken stowage may account for as
much as ten percent waste of space).3 Susceptibility to damage
or pilferage is another important item of cost as it will increase
the shipowner’s risks of carriage. Distance is also a very important
factor but the carrier has to take into account the prospect of
securing a return cargo or returning in ballast. Since expenses have
to be computed on a round-trip basis, where there is a marked
imbalance between outbound and inbound trade, it will be reflected
in the general level of rates prevaling over particular routes.3 4
While costs are a limiting factor so far as the shipowner is
concerned, and these must be computed on a long term basis so
that each voyage bears its proper proportion of the fully distributed
costs,35 the shipper is concerned with the comparative freight rates
quoted by other modes of transport after due allowance for the
difference in service and other savings, and also the competitive
position of his commodity at a particular level of freight rate; in
other words, he is principally concerned with the value of the
carrier’s service in transporting his commodity to world markets.
If the shipowner were to know this shipper’s ‘value’, he could
exploit his position to the marginal level so as to bring him the
largest total revenue. In practice of course this is rarely possible
and the rate will fluctuate between the marginal cost of movement
and the value of service to the shipper, which fixes the minimum
and maximum limits respectively for the different commodities
29 Such as fuel costs, crew wages, port costs, towage and pilotage, etc.
30 For example, acids, creosote woods.
31 For example, chocolates, flour, etc.
32 Such as grain, fruits, meat, etc.
33 If because of broken stowage, the ship cannot be loaded “full and down”
to her Plimsoll mark (the legal depth), the carrier will not be able to secure
the greatest operational efficiency.
34 ECAFE Report, op. cit., n. 21, at p. 5, lists 27 factors affecting ratemaking.
35 The long term factors must take account of the volume of cargo on the
route in question and the regularity of its flow.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
regularly carried by the shipowner.36 In the short-run, rates can, in
response to demand factors, lie outside these long-run limits.37
Liner companies, most of whom are linked by conferences,
specialize in the carriage of general cargo in less than full ship-
loads. This cargo is characterized by a heterogeneous group of
commodities produced or manufactured by thousands of shippers,
many of whom are “captive” to liner transport. These commodities
closely compete with one another and with the universe of products
and services for the trade dollar of the world community.
Most of the liner companies operating on an established trade
route are organized into more than 350 conferences with a view
to preventing competition among themselves. There are as many
conferences as there are trades but a route in one direction may
or may not be free of this grouping and in any case may not involve
the same carriers as those participating in the other direction.
This organized power of the shipping lines to restrict rate com-
petition gives them an enormous control over shippers so as to
cover not only the cost of production of the least efficient unit
but, in theory, approximate to the maximum level set by market
forces, in this situation by the value placed by the shippers for
the services of liner companies.3
9 The typical conference would,
no doubt, engage in a thorough market research of the freight
business and carefully consider the icpact of alternatives available
to the shipper at a given level of rates. Such alternatives include
carriage by non-conference liners, by air transport, or substitution
of a chartered vessel. It is only the potential threat from these
alternative modes to enter the freight market and seize the traffic
that would normally temper the virtual monopoly position of liner
conferences.
d. Features of the Conference System
Liner companies from a very early stage in their history39 have
organized themselves into a number of interlocking cartels, with
a shipping line usually participating in a number of conferences.
Each conference is composed of individual lines operating in the
TD/B/c.4/17/Rev. 1 (1966), at pp. 5-11.
36ECAFE Report, op. cit., n. 21, at p. 6.
37 See: Shipping and the World Economy, UNCTAD Document Ref. TD/14,
3 sShippers who are assured of regularity of service by the liner companies
would be quite willing to pay a premium over rates that otherwise would
prevail.
39The first conference was organized by British liner companies in 1875
in the U.K.-Calcutta trades. See: Sturmey, op. cit., n. 10, at pp. 322-327 for a
history of conferences and their mode of operation.
McGILL LAW JOURNAL
[Vol. 18
same trade, and often has a permanent secretariat; there is not
more than one conference in each trade. It is, however, usual for
outward and inward voyages on the same route to be covered by
two different conferences, often with identical membership. The
individual lines, members of a conference, enter into a conference
agreement.
40
Conferences prescribe in detail the rates to be charged, the
nature and character of services to be provided, including scheduling
of sailings,4′ and sharing of berths in ports, while shipper adherence
is ensured by a system of “dual rates” whereby shippers who sign
a ‘fidelity agreement’ are given the benefit of lower rates (amount-
ing to 5 to 15% off the regular rates), or by a scheme of “patronage
refunds” under which a drawback is allowed to shippers who agree
to ship their cargo by conference vessels only and who have re-
mained faithful to their agreement. In giving up this freedom of
choice of transport, the shipper is assured of regular, dependable
and adequate service, according to a predetermined schedule, and
rate stability (both of which are essential in international trade
for entering into advance commercial transactions with importers)
and a lower rate or deferred rebate, which latter provides a great
attraction, especially when considering the fact that in a c.i.f. 42
quotation for the commodity which is being transported by the
vessel, the shipper rarely computes the deferred rebates in his
costing and the buyer pays the full freight.43 On the other hand,
whoever pays the freight, the freight rate will have considerable
impact on his trade itself since a buyer who is able to import
comparable goods from other sources and by other unrestricted
means, may find freight the deciding factor and take his business
elsewhere 4 And if an entire rate structure thus capitalizes on the
40 There are also other looser forms of cooperation between liner companies,
e.g. freight agreements which usually do no more than fix the rates charged
by the parties.
41Conference agreements vary widely in content. They regulate the freight
rates charged by individual member lines; most also contain specific pro-
visions concerning the number of sailings allocated to each member, and
the number and type of ships allowed to each member in the trade. In some
cases provision is made for a cargo allotment scheme or a pool arrangement.
This resembles bilateral agreements in airline operations. See infra, pp. 73-77,
and Consultation in Shipping, UN Document TD/B/c.4/20/Rev. 1, at p. 16.
4 2 Cost, insurance and freight included.
43 It is thus more attractive for shippers to prefer the deferred rebate system.
44To a large extent inter-Conference agreements prevent shipper shopping
around. See: Marx, op. cit., n. 15, at p. 151 et seq.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
captive situation of a whole body of shippers, it would inevitably
have the effect of contracting their total trade with its consequences
on the country’s economic and balance of payment position.4 5
The raison d’6tre for the existence of the system of conferences
is the provision of an efficient, regular scheduled service which
could successfully operate only if ruinous competition is eliminated
by controlling freight rates and preventing over-capacity of tonnage
on shipping routes. This the conferences do by means of the re-
strictive provisions of the master agreement itself, so that com-
petition is limited to the quality of services offered, such as speed
of ships, care in cargo handling, shore facilities, prompt settlement
of claims, etc., and also by -keeping out those seeking admission
until they literally force the conference lines to admit them into
their fold.46 Furthermore, conferences seek to entrench themselves
in the market by shrouding their operations in a mist of secrecy
so that not only the shippers but even their national governments
cannot easily discover information about the nature and character
of their tariffs, 47 and by discouraging shipper combination so that
they do not bring to bear their collective strength in negotiations
with the conferences.
e. Loyalty Contracts
It is essential to study the various tying arrangements and
their effect, in order to appreciate the impact of the conference
on the rate structure as these have been among the most criticized
of conference practices and have been the subject of several de-
tailed investigations. The principal methods in use are the deferred
rebate, the cash rebate, the preferential contract, and the exclusive
patronage contract.
The deferred rebate system originated in the Indian trade. It
was first introduced in 1877 by the U.K.-Calcutta conference in the
4 See: Douglas Committee (Part 2), op. cit., n. 27, at pp. 354-357.
46 Existence of a conference on a particular route works as a barrier to
entry for non-Conference lines. Often the only way to gain admission into a
Conference is for an independent line to operate successfully (by weaning
away Conference shippers) and pierce the Conference veil. Independent
lines without strong financial backing would easily be driven out by
countermeasures of Conference lines.
47 The tariff is regarded as confidential and a shipper can only determine
the rate he will have to pay on any particular consignment by applying to
a Conference line or to the agent of such a line. Non-publication of the rate
schedule is justified by the Conference lines on the ground that publication
would make it too easy for outsiders to undercut the Conference rates.
McGILL LAW JOURNAL
[Vol. 18
Liverpool-Calcutta trade and was applied to cotton piece-goods. 48
Under this system a shipper who has not employed a non-conference
ship for twelve months receives a refund at the end of the period
of part, usually ten percent, of his freight payments in the first
six months of that period. The price of using a non-conference ship
is the loss of any rebate earned to date in the current half year,
plus any rebate due from the previous half year.40 In most cases
the deferred rebate constitutes a substantial tie, perhaps more
substantial than is desirable, and discourages new entrants
to
the freight market since they have to compensate the shippers for
the loss of rebate. It is for this reason, and also because of the
unilateral nature of the contract without a reciprocal obligation
on the part of the shipowner to maintain services or keep the
freight rate stable, that the deferred rebate system has been widely
attacked in several countries at different times,” in most cases
the strongest objections coming from countries without large ocean
shipping fleets.
The second type of tie is the contract, or dual rate, system
which is an alternative to the deferred rebate, and especially suited
where the latter is outlawed.5 1 This contract, known as the Mer-
chant’s Rate Agreement, was an answer to the prohibition on de-
ferred rebates imposed by the U.S. Shipping Act, 1916,r2 and under
it the shipper agrees to send all his shipments by the conference
line for the contract period. Breach of the contract entails the
immediate cancellation of present and future contract benefits,
perhaps for a specified time, and sometimes also a penalty related
to the past shipments by the shipper or the payment to the con-
ference lines of the freight lost on the shipment sent in a non-
conference vessel.5 3 The difference between the contract and the
4S Sarangan, Liner Shipping in India’s Overseas Trade, UNCTAD Publication
TD/B/c.4/31 (1967), at p. 43.
49 Sturmey, op. cit., n. 10, at p. 338.
50 See infra, 11(f).
51 As under the U.S. Shipping Act, 1916, op. cit., n. 16.
52 The duel rate system was accepted in the U.S. until 1958 when the U.S.
Supreme Court in Federal Maritime Board v. Isbrandtsen Company, 356 U.S.
481 cast doubts on its legality. The U.S. Congress legalized it by passing
Public Law 87-346, 75 Stat. 762, 46 U.S.C. s. 813a (known as the “Bonner Bill”)
in 1961.
5 3 Sturmey, op. cit., n. 10, at p. 339. This is very similar to the system of
“Agreed Charges” in force in railway rate structure in Canada. Prabhu, Freight
Rate Regulation in Canada, (1971), 17 McGill L. J. 292.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
77
non-contract rates is about 10 to 20 percent and is a big inducement
to enter into the “loyalty” contract.
A third type is the “immediate cash rebate” whereby the shipper
is given the benefit of the deferred rebate at the time of shipment.
To obtain this rebate, however, he has to sign a general cargo
contract which is almost identical to the deferred rebate contract;
the shipper gets the benefit of a somewhat lower rebate and his
money is not locked up.
f. Public Concern about Conference Operations
Liner freight rates and related conference practices have been
the subject of controversy for almost a century because of the
inherent vice of unregulated power, and still remains a major bone
of contention between the suppliers and users of shipping services
today. Because of their monopoly, bolstered by the combined
strength of their members, they are in a position to discriminate ‘4
in favour of some shipers and ruthlessly eliminate others, and in the
process, establish an entire rate structure to the detriment of the
external trade of individual countries.55 The system may tolerate high
and anomalous rates leading to the same result. The conference ar-
rangement may in some trades reduce the incentive for efficiency,
modernization and innovation.5 6 Furthermore, in such an organ-
ization, rates are determined in secrecy and information regarding
cargoes, sailings, load factors and market shares of the various
firms is not released, nor is there any willingness to publish full
5 4 Discrimination can be said to exist when a rate on a commodity is
higher than the rate on the same or on a similar commodity moving from
other countries to the same destination, other conditions governing rating
being more or less the same.
55 If a rate on a commodity in an outward tariff is higher than the rate
on the same or on a similar commodity in the inward tariff, exports are
discouraged and imports encouraged, with consequent effect on balance of
payments. A very elaborate case was made out before the Douglas Committee
(n. 27) that the foreign dominated conference vessels discriminated against
U.S. trade and commerce by this two-fold discrimination, and also by charging
relatively lower on trades not touching U.S. but competing with it (i.e. third
country discrimination). See: Note, Rate Regulation in Ocean Shipping, 78
Harv. L. Rev. 635, at p. 647 et seq.
GGReport of the Restrictive Trade Practices Commission on Shipping
Conference Arrangements and Practices, (1965), at pp. 20-21, which, in referring
to the feat of the Lauritzen Line inaugurating a winter service in the St.
Lawrence by the HELGADAN, says that the record of Conferences in tech-
nological development is mixed, and that progress is clearly not restricted
to Conference or even liner shipping.
McGILL LAW JOURNAL
[Vol. 18
particulars of the rate structure. This then is the breeding ground
for mistrust and the system is criticized as unfair by users of
shipping services.
Although the first conference dates back to 1875 and the practice
soon spread rapidly, it was not until after the turn of the century
that various trading groups in both the United Kingdom and the
United States became concerned about their pricing policies. In
recent years, even in Canada 57 and Australia, the conference system
has been the subject of government inquiry to ascertain whether
the existence of liner conferences is detrimental to the national
economy and to the public interest as a whole. Several investigations
were also carried out in the United States during the 1950’s (the
Bonner and Celler Committees on the functioning of the Shipping
Act, 1916) and the 1960’s (Douglas Committee, 1963-64, on the
effect of conference rates on the U.S. balance of payments, resulting
in considerable international controversy). 58
The U.K. Royal Commission on Shipping Rings issued a Report
in 1909,11 after a four-year investigation, finding the shipping con-
ference to be justified and that abuses of the deferred rebate system
should be tolerated in the interest of achieving a strong conference
system; it recommended the establishment of counter-combinations
on the part of merchants and shippers.”
the United States,
Congressional investigation began in 1912 and ended in 1914 with
the publication of the Alexander Committee Report.”‘ Both the
Royal Commission and the Alexander Committee considered that
In
5 In 1925 the Government of Canada proposed putting its own vessels on
the high seas in order to break the alleged monopoly of the North Atlantic
and the U.K. Shipping ring; it was abortive. See: Currie, Canadian Transporta-
tion Economics, (1967), at p. 606. Preston Report (1925), Canada Parl. Sess.
Paper 45, at pp. 87-88. No legislation was enacted. The Restrictive Trade
Practices Commission in 1965 also recommended no legislation to curb the
Conferences. See: Shipping Conferences Exemptions Act, S.C. 1969-70, c. 72.
58Retaliation by U.K. and several other countries took the form of specific
legislation forbidding national shipping lines from “cooperating” with the
U.S. authorities.
59 Cmd. 4668-4670, 4685-86 (5 volumes). The minority issued its own report
pointing out the serious defect of the Conference system. See: Marx, op. cit.,
n. 15, at pp. 60-64.
60 The Imperial Shipping Committee on the Deferred Rebate System (1923),
on which Canada was represented supported this view. See: Cmd. 1802.
61 H.R. Committee on Merchant Marine and Fisheries, Investigation of Ship-
ping Combinations (Alexander Committee), H.R. Comm., 62nd and 63rd Con-
gress (1913-14).
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
79
conferences, on balance, were necessary and stressed that improved
service resulted from, inter alia, the greater regularity of sailings
and services, from the improved ships that were made possible
by the greater security which conferences gave to capital investment,
from the greater stability of rates, which was a condition essential
to the sound development of trade and from the uniformity of
rates to all shippers alike. However, the Alexander Committee
called for the public regulation of shipping conferences by correcting
the abuses of the system, such as the deferred rebates, use of
“fighting” ships for killing external competition and the entry into
or use of secret anti-competitive agreements. These two reports
are significant because their recommendations have led to the first
steps in developing the countervailing instrumentalities for meeting
the power of shipping conferences.
The United States passed the Shipping Act in 1916 accepting
most of the recommendations of the Alexander Committee. The
Act prohibited deferred rebates, use of “fighting” ships, retaliation
or discrimination against any shipper, and unfair or unjustly dis-
criminating contracts with any shipper; it also provided for a
penalty not exceeding $25,000 for each offence. Section 15 of the
Act provided for filing with and approval of all conference and
pooling agreements or arrangements by the Federal Maritime Board
which must be satisfied that they are not discriminatory or unfair
as between carriers, shippers, exporters and importers, or parts of
the United States, and not detrimental to the commerce of the
country as a whole. If the agreements are approved, they are
exempt from anti-trust laws. Violation of the filing and approval
provisions would result in a fine of $1,000 for each day of the
offence. The Act also required conferences to admit new lines as
members whenever the applicant was a bona fide common carrier
in the trade route involved. All conferences were required to file
their tariffs with the Board to aid in its supervision of section
15 agreements.
Several investigations in the United States have been carried
out since then. The Bonner Committee and the Celler Committee
in the 1950’s reported that some undesirable conference practices
were still taking place despite legislation to prevent them. Never-
theless, both reports concluded that the advantages of steamship
conferences outweighed their disadvantages, and that in the absence
to
of a better arrangement, conferences should be permitted
function, provided they are subjected to more effective govern-
mental supervision. In 1961, therefore, a fully independent Federal
Maritime Commission was created. The Shipping Act, 1916 was
McGILL LAW JOURNAL
[Vol. 18
amended 62 by legalizing dual rate contracts but limiting the spread
between rates to a maximum of 15%, and provision was made for
the disapproval of any conference rate that the F.M.C. might find
to be so unreasonably high or low as to be detrimental to the
commerce of the United States, and for shipper termination of the
contract on 90 days’ notice. It was also provided that the penalty
for the breach of a contract should not exceed the freight charge
less the cost of handling the particular consignment involved, and
certain cargoes were to be excluded from the contract.
In 1963, the U.S. Congress Joint Economic Committee under the
chairmanship of Senator Douglas made extensive investigations
into the Conference freight rate structure and its effect on balance
of payments. Its Report, issued in 1964, urged that the F.M.C. should
continue its current investigations of freight rate disparities with
increased vigor and that serious consideration be given to holding
a conference on international shipping, out of which multilateral
agreements could be developed for the control of discriminatory
ocean freight rates and anti-competitive shipping practices.
Canadian efforts in the past to control ocean freight rates in
the North Atlantic were unsuccessful, as the U.K. government did
not cooperate in any effective form of joint control, nor could the
Canadian government control rates unless it owned or subsidized
a fleet of fast, well-equipped steamers. 3 In 1924, as a result of
investigations into the North Atlantic-U.K. Eastbound Conference,
the Preston Report was issued pointing out that American ports were
being favoured over Canadian ports by this international combine
and that marine insurance and rates on flour were discriminatory
against Canadian interests;
it also concluded that some of the
freight rates set by the conference prevented the export of certain
Canadian goods.04 In 1964, Canadian shippers got up in arms over
rates charged by the Canadian-U.K. Eastbound Conference. After
lengthy hearings the Restrictive Trade Practices Commission found
that fifteen firms, engaged in carrying freight both ways between
62 Public Law 87-346, op. cit., n. 51. See: Gross, Studies in Maritime Economics,
(1968), at pp. 30-45.
63 An attempt to control shipping rates on grain in the Great Lakes trade
in 1923 failed when American carriers withdrew from the trade because
the rates were being controlled by the Board of Grain Commissioners. The
consequent disruption of the movement of grain forced the government
against attempting direct control of ocean freight rates in the North Atlantic.
64 Report of the Restrictive Trade Practices Commission on Shipping Con-
ference Arrangements and Practices, op. cit., n. 56, at p. 16.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
Canada and Britain, operated in a combination to fix rates and
inhibit competition from tramps. It thought that shippers and ocean
carriers should be able to bargain fairly and with full knowledge
of tariffs, but excessive rate competition and instability in shipping
schedules would be detrimental to the Anglo-Canadian trade. It
considered that the record of the conference lines in this respect
was good and that they should be allowed to continue such ar-
rangements subject to appropriate safeguards in the public interest.
Furthermore, regulation of rates in ocean transport would not be
feasible or conducive to the welfare of the Canadian public. The
bargaining strength of Canadian shippers and consignees should,
however, be further developed, especially in the interest of smaller
shippers, and competition should be fostered in the Canadian-U.K.
and other trades to the extent consistent with the preservation of
the advantages of the conference system. To this end it was desirable
to strengthen the position of non-conference lines. In view of the
heavy investment required for provision of up-to-date liner services,
all liner operators should be entitled to arrange with shippers for
a guaranteed share of certain traffic or revenue. The entry and
growth of non-conference operators to trade with Canadian ports
should not be precluded by a system of exclusive patronage contracts
which penalize a shipper who wishes to give some of his traffic
to carriers who are not members of the conference. Avenues for
solicitation of at least some share of any shipper of consignee’s
traffic should be open to non-conference operators as well as con-
ference members. The Commission’s principal recommendations
therefore were:
1) That all conferences should make their tariff available to any
member of the public at reasonable cost;
2) That every patronage contract between a shipper or consignee
and any shipping conference or conference member should
incorporate certain principles which are indispensable for the
protection of the public, namely:
a) a maximum limit of 85 % on the compulsory volume of freight
to be shipped under an agreement, exclusive of bulk cargo;
b) an option to terminate a contract by either party on ninety
days’ notice;
c) increase in a rate to take effect only after ninety days and
a shipper or consignee to have sixty days within which to
signify his acceptance of such increase –
during this sixty-
day period, the shipper/consignee to have the right to ne-
gotiate for adjustment of the rate;
McGILL LAW JOURNAL
[Vol. 18
d) the spread between non-contract and contract rates may
vary from commodity to commodity but in each case not
to exceed fifteen percent;
e) in the event that a carrier or conference is unable t6 name
space within a prescribed number of days at any Canadian
port served by the conference, the shipper to be free to
seek other service and the goods so shipped not to be sub-
ject to the contract;
f) a shipper/consignee not to be required to divert goods from
a port where the conference carrier does not provide serv-
ice, to one designated by the conference, if such diversion
is contrary to natural routings or entails unreasonable ex-
penses on the part of the shipper or consignee;
g) the contract may provide for reasonable pre-estimated liqui-
dated damages for breach of the undertaking to ship a stated
volume of freight.”,
It would have been observed from the foregoing, that virtually
all the official investigation carried out in a variety of countries
has come to the same conclusion that, although conferences might
have some undesirable practices (the most frequent complaint was
the non-publication of tariffs), they were on the whole good and
ought to remain. The 1964 UN Conference on Trade and Development,
which included developing countries as well as the shipowning
nations, arrived at a “Common Measure of Understanding on Ship-
ping Questions” in which, inter alia, “it was agreed that the liner
conference system is necessary in order to secure stable rates and
regular services”. 6
It would thus appear, as Goss notes,0 7 that liner shipowners,
after all,
… do not resemble those monopolistic entrepreneurs beloved of economic
textbooks, who maximize short-run profits. If they did, and given the
general elasticity of demand for their services, then their freight rates
would be several times higher than they are. Instead, they maximize
their profits only in the long run.
The limited type of unilateral regulation of shipping confer-
ences imposed by the United States since 1916 has been moderately
65 Ibid., at p. 100.
66Annex A-IV. 22 to the Final Act of the United Nations Conference on
Trade and Development, 1964. See: Report of the Committee on Shipping,
op. cit., n. 17.
07 Goss, op. cit., n. 62, at p. 18.
No. I]
INTERNATIONAL FREIGHT RATE REGULATION
83
successful in curbing some of the conference abuses, particularly
in view of the obstacles which an individual nation faces in at-
tempting to regulate an international industry. However, the Fed-
eral Maritime Commission has exercised little actual authority over
rates and no authority over the entry of new shipping lines and
the abandonment of existing lines in the U.S. foreign trade. If full
scale regulation were exercised unilaterally, it may result in the
abrogation of existing treaties of friendship, commerce and naviga-
tion, as well as retaliatory action by other countries. 8 As a matter
of fact, the 1961 Shipping Act amendment emphasizes self-policing
by the conferences of their own agreements which implies that
“no matter how revitalized, the Commission could not adequately
police the conferences by itself and as a practical matter consider-
able enforcement responsibility had to be vested in a non-govern-
mental body”.”‘
A bilateral approach to the regulation of shipping could not
be effective because shipping is a multi-partite international industry.
In contrast with the regulation of air carriage (which usually
requires the carrier to have specific treaty rights in order
to
participate in the carriage of passengers and cargo to and from
foreign countries), ships of any flag can enter most of the foreign
ports of the world with passengers and cargo, and therefore a
bilateral solution is not likely to be successful. Perhaps, as pointed
out by the Douglas Committee, only a multilateral agreement would
prove effective if it could be achieved without jeopardizing the
traditional concept of freedom of navigation. Effective multilateral
regulation, suitably protecting the interests of existing shipping
interests, would probably bring about the dissolution of the con-
ference system as it is presently known. 70
g. Negotiations between Shippers and Conferences
The main grievances which shippers justifiably have stem from
the lack of conference representation locally where their problems
as to discrimination and high freight levels, terms of contract and
their interpretation, and business practices, could be ironed out.
08 ECAFE Report, op. cit., n. 21, at p. 15. It seems unlikely that courts
will enforce penalties for non-compliance with F.M.C.’s order against Con-
ference lines that are forbidden by their governments to produce documents
located outside the U.S. See: 78 Harv. L. Rev. 635, at p. 643.
69 Self Policing of Ocean Shipping Conferences, 20 Stan. L. Rev. 724.
7o ECAFE Report, op. cit., n. 21, at p. 15.
McGILL LAW JOURNAL
[Vol. 18
Most of the investigations, from the U.K. Royal Commission of
1906-09 and the U.S. Alexander Committee of 1912-14 down to
the Canadian Restrictive Trade Practices Commission of 1964-65,
emphasized the desirability of shippers organizing themselves with
a view to bargaining with the powerful conferences on equal terms
in matters of rate determination and policies and business practices.
In its Recommendation A.IV.22, the UNCTAD has proposed
that well-organized consultation machinery be set up with adequate
procedures for hearing and remedying complaints by the formation
of shippers’ councils or other suitable bodies on a national or
regional basis.71 The basic idea behind this is to extend contacts
between individual shippers and a shipping company or a con-
ference to a collective level comprising exporters, importers and
producers, so that common problems may be discussed and ne-
gotiations conducted on a much stronger platform.72
The Australian Overseas Transport Association (AOTA), which
was formed in 1929, is based on the principle of “closed” con-
ferences, and in order to safeguard national interests, a govern-
ment officer attends at consultations between shippers and ship-
owners, though he does not intervene in matters which are to be
properly settled by the parties themselves. The council of AOTA
comprises an equal number of representatives of exporters and ship-
owners and is authorized to negotiate freight rates and terms of
contract on the export trade in wool, foodstuffs, and general cargo
from Australia to the U.K. and the European continent. 73 Agreement
on these matters is first reached in negotiations between the Federal
Exporters’ Overseas Transport Association (FEOTC) and the Ship-
owners’ Oversea Transport Committee (SOTC) and, when approved
by AOTA, becomes binding by law upon the participants in the
consultation.
In Western Europe, the procedure is similar, but the end result
is different. Matters which are brought up for top-level consideration
are first considered by the shippers and shipowners separately;
they are then placed before joint shipper/shipowner meetings and
decided upon there. The decision which is reached is a recommend-
71 Op. cit., n. 65.
72 ECAFE Report, op. cit., n. 21, at pp. 9-11, sets out the recommended
structure of such bodies. See: UNCTAD Document TD/13 (October, 1967),
pp. 9-11, which states the conditions for the efficient working of such bodies.
73 The Australian Trade Practices Act provides for steps to be taken to
disallow the closed conference system if it should be found that the system
operated to the detriment of the public interest.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
85
ation to the individual members of the shippers’ councils and to
the individual shipowners. There is no mechanism to enforce the
decisions but so far as is known all recommendations reached in
this way have been followed. Major decisions are reached at a
regional level. All western European Shippers’ Councils participate
and the shipowners represent all Western European-based
liner
conferences 74
The British Shipper’s Council, which was formed in 1955, has
comprehensive membership of both large and small shippers with
the primary object of presenting a united front “in all matters of
policy on the relationship between shippers and shipping and air
interests, and between shippers, port authorities and the government
so far as they affect the general interests of exporters and import-
ers .. .”. In 1964 the British Shippers’ Council established a Court
composed of prominent men in business and industry, to give
authoritative support to the Council. The functions of the Court
are essentially advisory, but because of its standing its advice is
likely to carry considerable weight.7 5
In India the procedure of consultation has so far been tried
mainly in respect of general rate increases. Consultations are held
initially between the conference concerned and shippers’ councils.
If these consultations fail, the conference has to enter into con-
sultation with the Government through the Freight Investigation
Bureau. If at this stage also no agreement can be reached, then the
conference is free to take its own decision. Experience has shown,
however, that negotiation with the Government enables the con-
ference to see the problem in a broad perspective, and the opportu-
nity is taken to narrow down the areas of differences. 6
It will be seen from the foregoing that, of all the avenues utilized
to limit the monopoly power of conferences, the most recent and
74Consultation in Shipping, op. cit., n. 41, at p. 21. There are twelve national
shippers’ councils including the British Shippers’ Council whose structure is
given above.
75Ibid., at pp. 36-37.
76A “discussion formula” was evolved in 1961 through the intervention of
the government whereby
the India-U.K./Continent Conference undertook
not to increase freight rates without giving sufficient notice to shippers
and also to consult the shippers before bringing it into force. In the event
the parties fail to reach agreement, the conferences are committed to holding
discussion with the government before taking a final decision. The formula
also provides that normally no general rate increase should be made within
two years of the previous increase. See: Sarangan, op. cit., n. 48, at pp. 125-126.
McGILL LAW JOURNAL
[Vol. 18
the one most likely to achieve fruitful results, is the collective
organization by shippers themselves with aid of governments where-
ver necessary to strengthen them, to negotiate on all matters touch-
ing upon their interests in shipping, and this trend toward shipper
organization is likely to spread to all countries, large and small.”
Because of the international aspects of shipping, the governmental
participation, though important, is mainly on an advisory basis and
the latest U.S. investigations have recognized that in the long run
the shippers and shipowners must settle their differences in an
amicable manner without legal imposition by government of its
authority.8 In such a setting, shipping conferences are not likely
to disregard the overriding interests of the country they service. The
various research studies on freight rates and other matters being
undertaken by UNCTAD should strengthen this negotiating process.
If the shippers’ council device is not successful, a multilateral
rate regulating agreement, such as that in use in international air
transport, may be the only long-term means of achieving an inter-
national freight rate structure which can reconcile international
trade and development requirements with the needs of ship oper-
ators in performing essential ocean transportation servicesY9
77The Canadian Shippers’ Council which was incorporated in Nov. 1966
is modelled generally on Western European Shippers’ Councils. It is com-
posed of trade and industry associations representing
the interests of
shippers, large and small. The Council will not get involved in individual
rate negotiations or disputes. One of its primary tasks is to develop closer
cooperation and consultations between shippers and carriers in international
trade. Prior to 1966, the Canadian Manufacturers’ Association and
the
Canadian Export Association represented these interests. See: Consultation
in Shipping, op. cit., n. 41, at pp. 146-147.
78 “In the U.S. there is no Shippers’ Council, but the National Industrial
Traffic League which has a membership of about 1,600 industrial firms and
trade associations has
in the daily problems of
American shippers in international commerce; Chambers of Commerce and
similar institutions also carefully follow transportation matters, including
the carriage of goods in American ocean commerce. These organizations
do not negotiate individual freight rates with conferences since legislation
is fairly extensive.” Ibid., at p. 215.
involved itself closely
79At a Seminar on Shipping Economics held in Geneva from 1 to 12
August, 1966, several international economists “argued strongly that the
IATA rate-making process and results were in important respects worse
than the Conference system. It was also stated that in the IATA negotiations
on routes and freights, it is often not so much the national interests of their
countries as the interests of the individual air line that is pressed by
government officials.” Shipping and the World Economy, op. cit., n. 37, at p. 11.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
87
III Air Transport
The law of the high seas declaring that they are highways open
to all nations of the world, and subject to the sovereignty of none, 0
was extended to air space above high seas and implicity recognized
both by the Paris Convention of 1919 81 and by the Chicago Con-
vention of 1944.82 Together, these two conventions have laid down
the foundations of international transport law.
Air transport is fast taking its place today beside ocean shipping
as one of the great economic factors in the development of inter-
national commerce.8 But the right of a State to control the use
of these two economic forces has, in certain respects, developed
very differently. In the absence of specific treaties, a State may
withhold permission for entry from the aircrafts of another State
but the existing treaties of friendship, trade and commerce would
preclude a State refusing entry to the merchant vessels of other
States.84
80Geneva Convention on the High Seas, (April 25, 1958), Art. 2. See:
Brownije, Principles of International Law, (1968), at p. 210.
81 Art. 1 of the Paris Convention, 1919 (superseded by the Chicago Convention,
1944) provided that:
The contracting states recognize the full and absolute sovereignty and
jurisdiction of every state in the air space above its territory and territorial
waters.
but no mention was made of the status of the airspace over the high seas;
nor does Art. 1 of the Chicago Convention (which is in almost identical
terms) make any direct statement as to the legal status of the space above
the high seas. Cooper, Exploration in Aerospace Law, (1968), at p. 197, points
out that the principle of free air navigation over the high seas “… was fully
accepted in public international law prior to the outbreak of World War II,
subject to one open question; namely, the status of the airspace over the
Arctic Archipelago, esp. p. 40 et seq. (unpublished thesis submitted to the
University of Saskatchewan, College of Law, 1970).
82 Shawcross & Beaumont, Air Law, (1966), at pp. 192-194, as to the limits of
State claims over airspace –
identical principles apply with regard to rights
in airspace above the territorial sea as over the rest of the State’s territory.
“The concept of sovereign rights in the airspace above the territory of
each State is as old as air transport and was enshrined in international
law when the Paris Convention was signed in 1919. Art. 1 of the Chicago
Convention likewise recognizes that ‘every State has complete and exclusive
sovereignty over air space above its territory’.”
83 Cooper, op. cit., n. 81, at p. 363 et seq. for an historical development of
world transport.
84 Marx, op. cit., n. 15, at pp. 282-283.
McGILL LAW JOURNAL
[Vol. 18
It has been suggested that the type of organization prevailing in
air transport is no different from that in ocean shipping which is
characterized by conferences having more or less complete control
of the economic decisions of member lines. While to a great extent
this is true,85 as will be seen later, there is one substantial difference
between these two types of organizations –
in air transport, every
single agreement of the IATA 8 Traffic Conferences is subject to
governmental approval before it can become effective; therefore,
“whatever criticisms may be made of the rate agreements arrived
at by IATA it cannot reasonably be said that they represent the
decisions of a private cartel.”87 Furthermore, although air transport
is increasingly competing with ocean shipping for general cargo,
its predominant importance lies in passenger traffic where the type
of regulation feasible is far different from that in freight transport.
a. The Chicago System
Before entering into a discussion of rate regulation in air trans-
port, it is useful as a background to discuss the system that was
brought into existence by agreement among certain States. Re-
presentatives of fifty-two nations assembled at Chicago in November,
1944, with a view to setting up a permanent organization to develop
the principles and techniques of international air navigation and to
encourage the establishment and stimulate the development of inter-
national air carriage. They set up the International Civil Aviation
Organization 8 8 for this purpose, with an Assembly in which all
signatories were represented, a permanent Council consisting of
27 elected members holding office for three years and a number
of subsidiary bodies such as the Air Transport Committee, the Legal
Committee and the Air Navigation Commission. 9 The signatories to
85 IATA members are responsible for some 90% of international air
traffic; while ocean Conference members control about 50% of general
cargo movement by vessels.
8GInternational Air Transport Association –
see infra, pp. 92-94 as to its
structure and functions.
87Wheatcroft, Air Transport Policy, (1963), at p. 77.
88The Final Act was signed by 52 States on December 7, 1944; there were
112 adherents to the Convention by March, 1967. See: 22 ICAO Bulletin (1967),
at p. 6.
89 Shawcross & Beaumont, op. cit., n. 82, at pp. 37-66 for a composition of
the Assembly and the Council and the various subsidiary bodies under them
and their functions.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
the convention mutually agreed to exchange, subject to the observan-
ce of the terms of the Convention, the privileges of flying across each
other’s territory without landing, or of landing for non-traffic
purposes, to aircraft not engaged in scheduled services, without the
necessity of obtaining prior permission, and subject to the right
of the State flown over to require landing. Each State may never-
theless reserve the right “for reasons of safety of flight” to require
aircraft desiring to proceed over regions which are inaccessible or
without adequate air navigation facilities to follow prescribed routes,
or to obtain special permission for such flights.90
The right of non-scheduled flight does however extend to the
commercial transport of passengers, mail and cargo (such as those
engaged in by charter services) and by Article 5 of the Convention,
aircraft engaged in such operations “also subject to the provisions
of Article 7”, which reserves cabotage traffic 91 to the contracting
State, “have the privilege of taking on or discharging passengers,
cargo, or mail subject to the right of any State where such embarka-
tion or discharge takes place to impose such regulations, conditions
or limitations as it may consider desirable”.92
c/841 (1952)
0 Art. 5 of the Convention. See: ICAO Document 7278 –
for
an analysis of these rights. See also: Shawcross & Beaumont, op. cit., n. 82,
at pp. 196-199. The important provisions of the Convention referred to are
Art. 4 (misuse of civil aviation), Art. 8 (pilotless aircraft), Art. 10, (landing
at customs airports), Art. 11 and 12 (air regulations and rules of the air),
Art. 13 (entry and clearance regulations), Art. 18 (dual registration), Art.
20 (display of marks), and Chapter V and VI in general. If an aircraft
lands for non-traffic purposes, the contracting State must afford reasonable
commercial facilities. The contracting State may designate the routes and
airports to be used within its territory and may impose just and reasonable
charges which must not be higher than those paid by its national aircraft
on similar international services, for the use of airports and other facilities.
The term “stops for non-traffic purposes”, as defined in Art. 96 means “a
landing for any purpose other than taking on or discharging passengers,
cargo or mail” (e.g. for refuelling, emergency, etc.) without distinguishing
between gratuitous carriage and carriage for reward. See: Cheng, Law of
International Air Transport, (1962), at pp. 193-199.
91 Cabotage in air traffic means transport between any two points within
the same political territory, and is thus different from the coastal trade
meaning of cabotage in sea carriage.
92 Art. 5, para. 2. The further rights reserved to the State, though un-
qualified, are to be confined within reasonable limits, so as not to curtail
the substantial rights granted under the Art., in such a way as to render
their operation impossible or non-effective. See: ICAO Document 7278 –
c/841
(1952).
McGILL LAW JOURNAL
[Vol. 18
Scheduled air services 93 on the other hand require special
authorization and the modes of granting it are provided by the
Convention itself. The first method is the restricted TWO FREE-
DOMS exchange, whereby signatories of the International Air
Services Transit Agreement (called the TRANSIT agreement) 9
grant to each other the freedom of flying across without landing
and the freedom of landing for non-traffic purposes.P5 The second
method is the much fuller grant of privileges under the International
AirTransport Agreement (the TRANSPORT or FIVE FREEDOMS
agreement) which grants three additional rights, namely the right
to put down passengers, cargo and mail taken in the country of origin
of aircraft, the right to take on passengers, cargo and mail destined
for any other contracting State, and to put down passengers, mail
and cargo originating in such States.06 Since multilateral exchange
of rights under the TRANSIT and TRANSPORT agreements, though
desirable, was found to be infeasible because of the opposition of
the United Kingdom and Commonwealth countries,97 the Convention
93The Convention does not define a “scheduled international air service”
but the ICAO Council has suggested the following definition in its Document
7278 –
c/841 (1952):
“A scheduled international air service is a series of flights that possesses
all the following characteristics:
(a) it passes through the air-space over the territory of more than one State;
(b) it is performed by aircraft for the transport of passengers, mail or
cargo for remuneration, in such a manner that each flight is open to
use by members of the public;
(c) it is operated, so as to serve traffic between the same two or morc
points, either
(i) according to a published time-table or
(ii) with flights so regular or frequent that they constitute a recog-
nisable systematic series.”
94 Thirty-two of the 52 signatories of the Convention signed this Agreement
at Chicago.
95 Op. cit., n. 90.
96 Only 20 of the 52 states signed this Agreement in Chicago. These five
freedoms do not exhaust the possible privileges in free air transport. Cheng,
op. cit., n. 90, at pp. 13-17, refers to three others freedoms –
viz. the sixth,
seventh, and eighth freedoms, which have made their appearance since the
Chicago Conference.
97There was fundamental difference of opinion between the United Kingdom
(supported by other members of the Commonwealth) and the United States
over the grant of the fifth freedom rights at Chicago. U.K. proposed an elabo-
rate regulatory system under which an international agency by means of a
precise mathematical formula would control the allocation of capacity on
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
provided for a third method of granting traffic rights to other
States and this was by way of bilateral agreements, hopefully in
the standard form included in the Final Act of the Conference.98
These bilateral treaties would, under the standard form (known
as Chicago type), describe the routes and the rights granted,
whether of transit only, of non-traffic stops or of commercial
entry as the case may be, including the designation of ports of call,
and the carrier by which the rights granted were to be exercised.
Since the Chicago Conference many “Chicago type” bilateral agree-
ments have been made, but the most popular one has been the
“Bermuda” type agreement which paved the way for making use
of the IATA rate-making machinery established in 1945 as a com-
promise to the free, unregulated operation contemplated by the
TRANSPORT or FIVE FREEDOMS agreements at Chicago.
By the “Bermuda type” bilateral agreements, first popularised
by the historic agreement between the United Kingdom and the
United States in February, 1946, the contracting States either agreed
beforehand on the capacity to be offered by the agreed services
between their territories, or provided for a “free and equal op-
portunity” with an ex post facto review of operations. 99 In the
latter case, which is now the order of the day, it is usual to provide
for prior authorization to be obtained for changing an aircraft to
one of different (obviously larger) capacity.’00 A majority of these
bilateral agreements also extend the principles 101 and procedure
international services. See: Cheng, op. cit., n. 90, at pp. 422-23. The U.S., which
had a very efficient, well-equipped modem fleet of aircrafts, with unpre-
cedented experience in transocean operations as a result of the war, insisted
upon complete, unregulated freedom of operation, but was not able to prevail
upon more than a handful of leading States in aviation (such as Netherlands
and Sweden) to back her up, with the result that only twenty-one other States
signed the Transport Agreement, which was later terminated by the U.S. in
favour of the Bermuda type bilateral agreements. “The basic conflict in its
essence reflected the economic realties of the airlines of these two countries,”
Wheatcroft, op. cit., n. 87, at p. 69.
98 A bilateral treaty is also the only way of granting rights of either sched-
tiled flights, as between States which are not parties to the Convention itself.
More than 700 bilateral agreements are now in force, ICAO’s “Memorandum
on ICAO” (July, 1966).
9 Cheng, op. cit., n. 90, at pp. 424-434. Capacity means the payload of
aircraft multiplied by the frequency operated by such aircraft over a given
period and route or section of a route.
100 Ibid., at pp. 434-441.
101 General provision is made for the establishment of tariffs at “reasonable
levels, due regard being paid to all relevant factors. Factors enumerated for
McGILL LAW JOURNAL[
[Vol. 18
of tariff regulation to all the agreed services; where procedure of
regulation is agreed upon in addition to the principles, it is normal
to refer expressly to the IATA Traffic Conferences for determination
of rates, 2 and in some cases (especially where agreements with
the United States are involved) to further approval by the aero-
nautical authorities of the contracting States.10 3
b. The IATA Rate-Making Machinery
It will have been noted from the foregoing that the International
4 as a result of the Bermuda
Air Transport Association (IATA),
formula agreed to by the United Kingdom and the United States
in February, 1946, was officially designated to consider rates and
fares, and has come to be recognized as the agreed machinery in
numerous bilateral treaties. This organization came into existence
in December, 1945, at a meeting of 41 airline representatives
in
Havana, on account of the failure of the Chicago Convention to
resolve the conflict between the protectionist policies of the U.K.
and the liberal policies of the U.S. on the economic regulation of
international air commerce, the United Kingdom’s position regard-
ing price and capacity control being basically the same as its
rationale of Shipping Conferences where this system has been found
to be necessary for an efficient, scheduled service. The primary
object of the IATA is to control rates and fares on international
flights provided by its members and its other non-price functions,
such as the clearing house, while extremely important in facilitating
the operations of the members, are only secondary.
To ensure that American participation would not run afoul of
domestic legislation, the IATA Articles of Association included two
important provisions –
the first providing for unanimity among
the voting members of the organization, the second requiring the
approval of the aeronautical authority of each country represented
by the airline in IATA.’0 5
purposes of illustration and emphasis are generally the following: (a) eco-
nomic operation; (b) reasonable profit; (c) characteristics of service, for in-
stance, standards of speed and accomodation; and (d) tariffs charged by any
other operators on the route”. Ibid., at p. 445.
102 Cheng, op. cit., n. 90, at pp. 445-447.
103 Ibid., at p. 448.
104 Its predecessor, the International Air Traffic Association was established
as early as 1919 by six European nations (including U.K.) but it was not
concerned with price-fixing. See: C. Sackery, Jr. Overcapacity in the U.S.
Internationl Air Transport Industry, (1966), 32 3. Air L. & Corn. at p. 36.
105 ‘Double veto’ is thus not confined to the U.N. Security Council.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
The rate-making function of the IATA is carried out through
its three Traffic Conferences,'” each with its own geographical
area, which hold periodic joint and composite meetings. 0 7 The
draft Resolutions of the Conference are put before the member
airlines, each of whom has one vote, and efforts are made by means
of compromises, if necessary, to reach a unanimous vote. These
resolutions are then submitted to the governments represented
by the airlines, who in the normal case endorse the same, having
already briefed their airline on the line of action to be taken.
If unanimity is not achieved either at the conference or at the
governmental level, the IATA will ordinarily call supplementary
conferences in order to work out a compromise; but if compromise
is not possible in the rare case, an “open-rate” situation would
prevail 10 although it has never degenerated into rate-wars –
“ap-
parently there is a tacit agreement among the members of IATA
simply to maintain the rates agreed to in the previous Traffic Con-
ference.” 109
The IATA Rate Agreements are policed by an Enforcement
Section under the direction of the Director General, and penalties for
infraction range from a mild warning to a fine up to $25,000 per
offence, and in extreme cases, suspension from the Organization.
In most cases, infractions involve a failure to comply with agree-
ments concerning the type of service to be provided on flights,
rather than failure to charge the correct rate.” 0
It has been argued that the IATA operates in the same way
as a cartel where the rates most likely to be agreed upon are
“sufficiently high to protect the least efficient operators,” “‘ or,
‘ 0GConference No. I covers the Western Hemisphere, Conference No. 2
covers Europe, Africa and the Middle East (including Iran), and Conference
No. 3 covers Asia, Australia, New Zealand and Islands of the Pacific. An air-
line may belong to more than one Conference, depending upon its route and
interest.
107 The Conferences usually meet every two years in the same place and
at the same time. In recent years these meetings have been held in October
to set fares and rates for the following year beginning April 1.
108 Wheatcroft, op. cit., n. 87, at pp. 77-78, where the open rate system of
1963 upon the CAB refusing to approve of a tariff resolution made by IATA
at the Chandler Conference, prevailed for a short period and was quickly
settled; see also Lissitzyn, Bilateral Agreements on Air Transport, (1964), 30
I. Air L. & Com. 249, at pp. 262-263.
109 Sackery, op. cit., n. 104, at p. 39 et seq.
110 Ibid., at p. 40.
111 75 Harv. L. Rev. 575, at p. 579 –
“limitations on entry into the in-
dustry will also ensure that new competitors will not emerge in response to
high rates”.
McGILL LAW JOURNAL
[Vol. 18
in other words, governments are not really concerned with the
welfare of its travelling or shipping public, but with the financial
well-being of its airlines. This is evidenced by the high rate of
earnings of the airlines. 112 Wheatcroft 113 argues that the airlines
as a combine do not act as monopolists for three reasons: first,
although rates are controlled, the amount of capacity operated by
each of its members is not; 114 second, the need for unanimity in
all rate agreements prevents the highest possible rate coming into
force –
“there can be very little doubt that if IATA agreement$
during the past decade had been reached by a majority vote,
international fare levels would, in general, have been higher than
they have in fact been”; 115 thirdly, the influence of governments
on the deliberations of the Traffic Conferences and the continuous
oversight of rate agreements discourage
the unreasonable use
of the veto power.1 ” These three features, according to Wheatcroft,
combine, when the system works at its best, to produce a good
balance of countervailing powers. He concedes, however, that lower
fares or rates could have resulted in the absence of the IATA
machinery and this is substantiated by the successful operation of
non-IATA members i.e., the independently scheduled airlines and
charters) at well below the IATA fixed rates. Nevertheless, he
concludes that the Traffic Conferences seem reasonably well to
protect the public interest in international air transport. It would
seem that in the international operation of air transport which
necessarily involves the interests of at least two nations, given the
present attitudes and disposition of States towards unrestricted
competition, there is not likely to be any immediately acceptable
medium to replace the present arrangements governing rates or
the other important economic variables such as routes and capacity,
“without the exercise of high level diplomatic pressures to ‘persuade’
other nations to go along.” 117 In this diversity of national interests,
at pp. 81-84.
112Wheatcroft, op. cit., n. 87, at p. 80.
“13Ibid.,
114 It should be noted here of course that bilateral agreements besides
specifying that the rates to be charged are those fixed by IATA also provide
for sharing capacity on a predetermined or ex post facto basis.
115 Wheatcroft, op. cit., n. 87, at p. 82. It should be pointed out however
that unless the rate level yields some profit to the least efficient operator,
it is likely to be vetoed by the government concerned; for no government
is willing to sacrifice its interests for the profit of others. See: Shipping and
World Economy, op. cit., n. 37, at p. 11.
116 See: 75 Harv. L. Rev. 575, at p. 582, on the influence the CAB has on IATA
ratemaking.
117 Keyes, The Making of International Air Fare and the Prospects of Their
Control, (1964), 30 J. Air L. & Com. 173, at p. 174.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
95
the establishment of tariff levels becomes a matter of delicate
balance between the natural desire to lower fares and rates, expand
markets, increase turnovers and thus produce greater economic
growth on the one hand and the need to protect the economic
viability and financial soundness of the national airlines on the
other; this balance of interest between the airlines and their govern-
ments, and between one government airline group and another,
means in reality that decisions can only be formed by a consensus.
Apart from certain obviously discriminatory practices which national
legislation can curb (and which in any case are not in consonance
with the true spirit and intent of IATA) unilateral regulation by
States 118 is not likely to succeed in an interlocking system of bilateral
treaties in which the interests of several treaty countries are so
intricately bound up that any tinkering with the rates on particular
routes, serving particular parts of the world, may have an immediate
impact on rates on the same or other routes; the same difficulties
become apparent even where bilateral treaties provide for pro-
cedures to determine rates should the IATA rate not be acceptable.” 9
11875 Harv. L. Rev. 575, at pp. 583-587, where the author discusses the
limited areas of success which CAB in the U.S. has had, such as the conditions
it has attached on foreign air carrier permits, especially those not expressly
authorized by Statute, e.g. waiver of sovereign immunity, filing of economic
date, etc. Also at p. 580 the author states: “The CAB has also successfully
thwarted IATA’s attempts to compel compliance with its rate structure by
non-IATA members, whose operations are apparently viewed by the CAB as
a counter-balance to IATA’s monopolistic tendencies.
Cf. U.S. regulation of ocean shipping conferences under the Shipping Acts,
supra, pp. 79-80.
119 For an illustration of this difficulty see: 75 Harv. L. Rev. 575, at p. 588,
reproduced below:
Consider the route from New York to London: the agreement between the
United States and Great Britain contemplates that any dispute over this rate
will be settled by these two nations alone. But airlines of other countries,
Alitalia, Lufthansa, and Air India to name but a few, fly between New York
and London as part of their routes between their home country and the
United States. Not only has such a country no right to participate in the rate
determination under the agreement between the United States and Great
Britain, but neither is there any provision for adjusting the New York-London
rate in the country’s bilateral agreements with the United States or with
Great Britain. Yet these countries will find their carriers forced to comply
with the rate agreed upon by the United States and Great Britain. In addition,
the rate between New York and London will affect rates on competitive routes
to other points, such as those from New York to Paris or to Rome. Tourists,
with a choice of gateways through which to enter Europe and of countries
to visit, are bound to consider a comparative difference in rates. The impact
of a single route can be appreciated by considering that over a dozen nations
have carriers flying on the North Atlantic route. Since binational arbitration
McGILL LAW JOURNAL
[Vol. 18
Many alternatives have been suggested by various writers ranging
from the liberalization of the IATA machinery itself to completely
doing away with that organization and letting the rates to be de-
termined by economic factors alone. Some of the suggestions, such
as a complete and objective review of the tariff structure by an
outside and non-partisan body 20 are designed to enhance the
competitive position of IATA member airlines with other operators
such as charters which are an increasingly significant force in the
travel market. 121 Other suggestions aim at solving the recurrent
problem of overcapacity in the airline industry 122 but their authors
are diffident about changing the basic attitudes and sentiments of
nations who cling on to the highly restrictive economic frame-
work.123 So long as these ideological or economic differences or
fears remain, it is unlikely that the present system would be
displaced in favour of either a multilateral arrangement under
which an inter-governmental agency would have economic regu-
latory powers or a complete laissez-faire situation where the strong
and powerful airlines would drive away the weak and inefficient
ones.1
24
of rates does not contemplate participation by the numerous other nations
with valid interests, the political repercussions of setting a rate in this fashion
render it unlikely that the CAB would often attempt to effectuate its policies
through the procedures of the Bermuda Agreements.
120 Cohen, Confessions of a Former IATA Man, (1968), 34
. Air L. & Com.
610, at p. 617. He also suggests an internal reform of the IATA by allowing
members sufficient scope for innovation in rates or service, and by the
de-emphasizing rigid uniformity and extreme legalism, etc. (pp. 614-617).
121 Many inter-State airlines are participating in various cooperative arrange-
ments with a view to rationalizing their operations, such as the Commonwealth
partnership, SAS and Air Union and other forms of pooling. For detailed
discussion of these arrangements see: Cheng, op. cit., n. 90, at pp. 252 et seq.
Any limited scale operation covering few airlines on the same routes
undoubtedly accentuates competition among the IATA members themselves,
and perhaps a capacity control and utilization program should be entrusted
to the IATA itself. Billyou, Air Law, (1963), at p. 472, suggests that the U.S.
should relax its antitrust policy, which effectively restrains domestic car-
riers from rationalizing their services, in international operations to meet
the threat of competition from the European and Commonwealth pools. Such
pooling arrangements are of course entirely outside IATA’s competence as
IATA is not concerned with questions of routes or capacity, but the ICAO
has expressly sanctioned them in its constitution.
122 Sackery, op. cit., n. 104, at p. 88.
123Ibid., at pp. 89-90 and pp. 92-93.
124 Wheatcroft, op. cit., n. 87, at p. 85, suggests that “a general agreement
between governments on the circumstances in which they might permit fares
and rates to find their own level in an open rate situation might prove to
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
97
c. Determination of Particular Freight Rates
Once the specified fares and basic rate levels are agreed upon
at the Traffic Conferences, it is really a technical matter to translate
these decisions into specific rates on some 150,000 pairs of points
in the vast international network. The Organization has to ensure
that these rates would not, either by themselves or in combination
with others, be inconsistent with conference decisions.
In the sphere of freight rates, 25 the IATA has laid down two
basic types, the flat rate and the differential rate. The flat rate
represents a fixed standard rate per mile or kilometer for a given
quantity of goods, regardless of distance or the nature of the
commodity; 1213 the differential rate represents a varying price per
mile or kilometer, depending on distance, the commodity shipped
and the airport of origin and destination. The latter rate is flexible
and takes into account not only the demand and supply factors
but also the potentiality of traffic volume and fluctuations in local
currencies.
The basic standard rates are charged for general merchandise
for which no special rates, such as specific commodity rates or
class rates, are in effect. Specific commodity rates are lower than
the standard rates and are designed to develop new traffic on a
restricted type of merchandise which are carefully selected on
specific sectors; they are introduced after a detailed evaluation of
the interests of shippers and consignees and except in rare cases
they cannot be combined with standard rates to extend their ef-
fectiveness to points beyond those specified.
The machinery for establishing specific commodity rates within
the IATA structure follows a pattern different from the normal
method of fixing rates and fares, and it was devised in order that
airlines may compete favourably with the predominant mode of
international affreightment, namely ocean shipping. For the purpose
of dealing with applications for the approval of these rates, the
be a great importance for future success in the international regulation of
tariffs”. A multilateral agreement on commercial rights was tried once more
at Geneva in 1947 at a conference organized by the I.C.A.O. but failed and
there is no more reason for hopes of achieving one today as there was in
1947. See also: Koffler, IATA –
Its Legal Structure – A Critical View, (1966),
32 J. Air L. & Com. 222, at p. 234, where he deals with the impracticability
of direct inter-governmental negotiations on air fares.
125 Groenwege and Heitmeyer, Air Freight – Key to Greater Profits, (1964).
12 6 A minimum charge is levied on very small parcels.
McGILL LAW JOURNAL
[Vol. 18
IATA at its 1947 Conference established Specific Commodity Rate
Machinery within the Traffic Conferences to meet fairly frequently
to permit the speedy introduction of special rates to attract new
kinds of air cargo. Two basic procedures were instituted: (1) The
shipper makes a written application on a special form, giving
complete particulars of the commodity, including weight, value,
anticipated traffic volume and proposed rate, and the national
airline concerned must sponsor it and place it before the Board for
approval at its next meeting. If the members of the Board are
unanimous, they are authorized to approve of the proposed rate
after ensuring that it is compatible with the rate structure. (2) The
more expeditious way is to get the sponsoring airline to submit
proposals containing the same information as (1) by cable or air
mail direct to the airlines operating services between the countries
concerned and to the Board Secretary; the other airlines then have
seven days to raise any objection to the initiating carrier and to
the Board Secretary and thereby prevent the rate from becoming
effective; if the objections are not received, the rate may be pro-
visionally used on the eigth day following the date of the proposal,
pending final confirmation by the Board. 1T
Class freight rates are applied to a specifically designated class
of goods for a specified area or route and are in terms of a per-
centage increase over or reduction off the general cargo rate –
the commodities involved being newspapers and periodicals, live-
stock, gold and securities and similar items which call for a different
approach to rating.
d. Charter Rates
The International Air Transport Association has also evolved
certain rules relating to air chartering, 12 the primary rules being
l27 Groenwege and Heitmeyer, op. cit., n. 125, at pp. 103-104.
128 Sundberg, Air Charter: A Study in Legal Development, (1961), at p. 647
mentions two basic types of charter agreement, which are similar to ocean
shipping charters. In the “voyage” charter, a charterer hires a fully equipped
aircraft, together with the services of captain and crew. In a “bare hull”
charter, the aircraft is leased or demised to the charterer and the services
of the captain and crew may or may not be superadded. There are of course
several hybrid categories of charter arrangement, such as “time” charters
so called because the charter price is computed on a time basis, according
to the number of flying hours utilized with a guaranteed minimum, etc. (These
have very little in common with their maritime counterpart); “period” charters
where the chartered hires the aircraft and its crew for a number of well
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
those laid down in its “Resolution 045 Charter”. 129 This resolution
lays down two important principles –
(a) charters should be
planeload contracts, and (b) resale of space by the charterer,
whether by a sub-charter Or by sale of individual tickets at less
than TATA fares and rates, is prohibited.
While the principal competition to IATA airlines in the travel
business comes from charter operations of non-IATA members
especially in the lucrative trans-Atlantic tourist market, both have
to struggle hard to gain an edge over ocean shipping in the freight
market. This is primarily due to the limitation of capacity of air-
crafts whose maximum payload at present is 85/90,000 lbs. (or 45
metric tons) 130 compared to the carrying capacity of 60/80,000 tons
of super carriers (and 2/300,000 tons capacity of super tankers)
and comparatively very high capital cost. Costs of transportation
being what they are, air freight is primarily attractive in cases
where the time element is very important, or where the unit value
of the product is high. Airlines are no doubt trying their best to
attract the value of their service. They are aware of the tremendous
savings in total transport cost that can be achieved by reducing
inventories, capital costs, and interest charges during transit, in-
surance, packing and warehousing costs, losses due to damage or
pilferage, door-to-door service and even business risks which are
eliminated by the insignificant time lag between production and
marketing. But, at the present stage of technical development, it is
unlikely that air freight can significantly affect ocean liner operations
in most commodity categories.”‘
defined voyages, these voyages being performed at definite intervals, and
“wet lease” charter, where one air carrier hires an aircraft from another
carrier under a “period” or “time” charter.
129 This resolution was agreed to in Bermuda in November, 1948, and has
since been revised. Ibid., at p. 102.
130 The projected C-5A aircraft will have’ a payload of only 250,000 lbs. (or
125 Metric tons).
131 Groenwege and Heitmeyer, op. cit., n. 125, at pp. 82-91 (Tables 1-10)
have shown by an analysis of the comparative costs by air and surface trans-
port on a number of high value commodities that air freight in many cases
is cheaper if the total transportation cost is considered. This analysis is valid
for high value articles not moving in bulk or substantial quantities. There is
keen competition on the traffic for these articles, and in order to retain
their customers, ocean liners have very often to set rates at an attractively
low level. This phenomenon is identical to rail-motor competition in internal
carriage. See: Prabhu, op. cit., n. 53.
McGILL LAW JOURNAL
[Vol. 18
IV Freight Movement Between Canada and United States
It was indicated in the introduction that Canada’s international
trade predominantly takes place with the United States.3 2 In the
carriage of this trade, all modes of transport participate. As a
general rule, in order to engage in this movement a carrier must
obtain operating authority from the regulatory bodies of both
countries for a through operation. A Certificate granted by one
country to move goods to the International Border cannot be
combined with a similar certificate granted by the other country
to move goods from the transfer point to destinations within that
country. 33 Although the regulatory bodies of one country can issue
operating authority to engage in its foreign trade and commerce,
there must be a reciprocal grant by the appropriate authorities of
the other country. Similarly, in the regulation of rates on this
international carriage, the power is joint so that each body controls
the rate over such portion of the through rate (if one is established
by the carrier, or by carriers where more than one is involved)
as lies within their respective jurisdictions.
It is apparent from this division of authority that many com-
plications and possible injustice 1 4 in the rate structure (as well
132 Supra, p. 61.
133 I.C.C. in Re Grand Trunk Railway Co. 2 I.C. Rep., at p. 501 and its recent
decision in Red Star Express Lines of Auburn Inc. et al. v. Maislin Brothers
Transport Ltd., No. MC c-5882, (May 27, 1969); F. Carr. Cas. (1968-70) No.
36,320.
See also: Railway Act, R.S.C. 1952, c. 234, s. 345, which prohibits agreements
or devices preventing a carriage from being a continuous one, almost identical
provision exists in the Interstate Commerce Act of the U.S., s. 17. It would
thus appear that a Canadian shipper cannot so arrange his shipments as to
get a U.S. carrier licensed to operate within the United States to receive
them at the International border and thus take advantage of lower rates, if
any, under U.S. railway tariff.
134 McGibbon, Railway Rates & the Canadian Railway Commission, (1917),
at pp. 230-231. McGibbon states that in practice the Board of Railway Com-
missioners has been able to influence these rates to some extent for if
its power ceases at the boundary it at least could indirectly touch foreign
conditions by its control over the Canadian part of the joint rate. It is thus
able to remedy to that degree any injustice in the charge. However, on the
whole the Board’s power is slight and a larger degree of control of some sort is
desirable from the standpoint of both the American and Canadian shipper…
At p. 232 he suggests the establishment of a special tribunal to deal with
these cases.
See also the dissenting judgment of Anglin, J. in Grand Trunk Railway Co. v.
B.A. Oil Co., 43 S.C.R. 311, at p. 329.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
101
as other operating characteristics) would arise in the absence of
either a joint commission or cooperation between the two regulatory
jurisdictions whether by means of an express agreement or by
tacit approval of the action taken; the reciprocal interests of the
two countries demand such understanding, so that the delicate
balance hitherto existing between shippers, industries and even
carriers of the two countries is not unduly disturbed. 35 Surprisingly,
however, the existing practice works admirably well,’136 despite a
few complaints that international rates are in some cases prohibitive
and jeopardize the export trade of Canada. The Royal Commission
on Transportation under the chairmanship of W. A. Turgeon in
1951 concluded that the creation of a Joint International Board which
had been considered in the past by American and Canadian author-
ities and been discarded by them, does not appear to be either
practicable or desirable. 37
a. Regulation of International Railway Rates
Because of the indentations in the Canada-U.S. border, there
are basically two types of movement, one being truly international
and the other a corridor type of operation –
in the latter case,
traffic moves between two points in the same country through the
other. In the case of the truly international type of traffic, as
indicated previously, the legal jurisdiction over rates is divided, the
regulatory authority of each country controls rates on its own
sector and neither country has complete control over the entire rate.
Sections 343 and 346(1) 13s of the Railway Act require a joint rate
to be filed and published in printed tariffs by carriers, whether
Canadian or foreign (i.e., U.S.) with the Canadian Transport Com-
135It has been the practice of the Canadian authorities for a long time to
grant automatic increases or reductions in rates in the Canadian portion of
the international rates whenever the Interstate Commerce Commission decided
to do on the U.S. portion of the rates, even though the Canadian railways
did not deserve an increase or reduction. The Royal Commission on Trans-
portation, (1951), at p. 103, suggest that if this practice were not followed the
American shippers would be discriminated against within their own country
by the lower international rates for shipments to or from Canada, the relation-
ship between the various trade gateways would be distributed and the flow
of trade across the border thrown into a state of confusion.
136 e.g. in the International Newsprint Rates case (42 C.R.C. 15), the carriers
willingly submitted to the jurisdiction of the Board of Railway Commissioners.
137 Turgeon Report, op. cit., n. 135, at p. 103.
138 R.S.C. 1952, c. 234.
McGILL LAW JOURNAL
[Vol. 18
mission.139 In the case of corridor operations, where the movement
is between two points in Canada, the freight tariff must be filed
with the Canadian Transport Commission and as the Interstate
Commerce Commission is not really concerned with it, it does not
require such filing; but where the movement is between two points
in the U.S., the freight tariff must be filed with both regulatory
agencies.140
b. Trucking, Pipeline and Inland Water Rates
The Canadian government has stayed away from regulating rates
in both interprovincial and international trucking, the main instru-
mentalities here being the provinces some of which control most
of the economic aspects of that carriage.’ 4′ Here again the basis
of jurisdiction so far as the Canadian sector of trucking is concerned
is clarified by the Motor Vehicle Transport Act 142 and Part III of the
National Transportation Act 143 and the American Sector by Part II
of the Interstate Commerce Act. The same problems as discussed
above under international rail transport are also encountered here,
but the Canadian legislation unlike the Railway Act 144 does not speci-
fically empower the regulating bodies to require through routes or
139The Interstate Commerce Commission has also the same requirement.
In neither country are the railways compelled by law to agree to joint inter-
national rates; the agreement is voluntary but when made, the tariffs pubish-
ing such rates must be filed. Only then the joint rates become subject to the
Railway Act of Canada and the Interstate Commerce Act of the United States.
See Davis, J. in Grand Trunk Rly. Co. v. B.A. Oil Co., 43 S.C.R. 311, at pp. 317-318.
Normally where the amount of international traffic is sufficient to justify
the institution of joint international rates, e.g. between points in Eastern
Canada and points in the eastern U.S., an agreement is arrived at by the
participating carriers.
140Railway Act, R.S.C. 1952, c. 234, ss. 343 and 344. Although technically
Canada has jurisdiction over this rate on that portion of carrier’s operation
within its territory, since it does not affect Canadian shippers, the Canadian
authorities accept the I.C.C. rate determination.
141 Saskatchewan, Quebec and Alberta. Though Alberta does not regulate
trucking within its own provincial boundaries, she controls intraprovincial
and even international trucking. See: Prabhu, op. cit., n. 53.
142 S.C. 1953-54, c. 59, which confers powers on provincial Boards to regulate
extraprovincial trucking.
143 S.C. 1966-67, c. 69, s. 33 requires filing of the tariffs and protects ‘captive’
shippers. See: Prabhu, op. cit., n. 53 on the scope of s. 33 and the Motor
Vehicle Transport Act.
144R.S.C. 1952, c. 234, s. 318.
No. 1]
INTERNATIONAL FREIGHT RATE REGULATION
103
joint rates to be established by truckers among themselves or with
another mode, such as the railways or water carriers. The Interstate
Commerce Act, on the other hand, provides for this but unlike its
power to compel railroads, its power here is merely permissive. 45
The same observations are valid as regards pipeline transmission
of commodities where the jurisdiction in Canada is divided between
the Canadian Transport Commission and the National Energy Board,
both of whom have power to regulate all aspects of the pipeline
carriage. 146 Perhaps the only case dealing with international joint
rates before the Board of Transport Commissioners was Inter-
national Refineries Inc. v. Interprovincial Pipeline Co. 147 under the
old Pipeline Act.148 Shepard (Chief Commissioner) in his judgment
in that case stated that:
The Board is not unmindful of the possible overlapping of jurisdiction
between Canadian and U.S. authorities in any case involving construction
of joint international rates.
The Board’s jurisdiction in the matter of international joint rates
on movements of oil by pipeline is limited, firstly, to such rates as are
participated in by oil pipelines coming under our jurisdiction; secondly,
to consideration and determination whether such rates are just, reason-
able, not unjustly discriminatory or contrary to any provision of the
Pipelines Act, or to any order or regulation of the Board; and thirdly,
if such rates are found to be contrary to such provision, regulation
or order, to disallow the rates or to require the carriers under our
jurisdiction to cease and desist from participation therein. 49
In the case of inland water transportation, i.e., shipping on the
Great Lakes, under treaty provisions vessels of the United States
and of Great Britain and Canada enjoy “equal, free, and open use
of all navigable boundary waters for purposes of navigation.” 15 0
The St. Lawrence Seaway is a joint Canada-U.S. project and their
respective national Seaway Corporations regulate shipping on this
waterway. 151 United States ships may carry goods from a Canadian
14
. 216(e) of the Interstate Commerce Act. See: Hudson and Constantine,
Motor Transportation, (1958), at pp. 572-573.
146 National Transportation Act, S.C. 1966-67, c. 69 (Part II), and the National
Energy Board Act, S.C. 1959, c. 46.
147 75 CRTC 68.
148Replaced by the National Energy Board Act, S.C. 1959, c. 46.
14975 C.R.T.C. 68, at pp. 73-74.
150 See: Corps of Engineers, U.S. Army, Transportation on the Great Lakes,
(1937), at p. 13; see also, the International Bbundary Water Treaty Act, S.C.
1911, c. 28 and Prabhu, op. cit., n. 53.
151 St. Lawrence Seaway Authority Act, R.S.C. 1952, c. 242.
McGILL LAW JOURNAL
[Vol. 18
to a U.S. port and even between two Canadian ports provided they
call en route at U.S. port and the United States has identical re-
strictions on Canadian ships. There is no rate regulation on this
international movement, as the Transport Act 15 2 only governs
package freight traffic by ships plying between Canadian ports
licensed to operate by Canada.
V Conclusion
The history of regulation of world transport has so for shown
an inflexible trend towards maintaining and strengthening estab-
lished institutions without any noticeable sign of modification. This
has been largely due to the curious blend of national interests and
private operators’ interests and it would appear at first sight that
the interests of users of the transport service have not received
recognition to any significant extent. With the rapid technological
progress in both ocean and air transport, especially in the latter,
transportation economics and law in the future are likely to undergo
considerable change. Though it is difficult to foretell the nature
and direction of such change it may well be that intermodal com-
petition will occur on a much larger scale and necessitate a much
more closely knit economic organization where efficiency and
lower freight rates would be the dominant criteria of operation.
Planning of superports and jumbo air terminals to accommodate
giant carriers must not only keep pace with this rapid development
but also blend and co-ordinate with the planning of the internal
transportation system as a whole.
132 R.S.C. 1952, c. 271.
