A shipment of shoes led to an ongoing dispute

Every week, FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.

This article comes from the July 1976 issue of American Shipper and details a dispute over the cost of shipping into Greece.

The New York firm South American Shoe Company was unpleasantly surprised when it received a bill for a shipment returning defective goods to Greece — the bill was more than four times greater than the charge for importing the goods in the first place. South American Shoe was to have paid $58,358 for shipping a total of 2,148 cartons of shoes, while Alpi Ltd., the Greek manufacturer, paid $11,936 for shipping the same cartons to New York. Zim Israel carried both shipments, and the same number of containers were used. The difference came about because the Greece-New York shipment was subject to the Greece-U.S. rate agreement, while the return trip was covered by an entirely different tariff — that of the North Atlantic Mediterranean Conference. Although Zim is a member of both agreements, there has apparently been no effort to bring the rates into a more reasonable relationship.

South American Shoe decided to protest the rate by refusing to pay the $58,358 charge. A case is now pending before the Federal District Court in New York City, and the central issue is whether or not the eastbound rate is discriminatory and unreasonable. The court is now waiting for an FMC ruling on the validity of the tariff, (FMC Docket 76-31) in terms of the provisions of sections 16, 17, and 18 of the Shipping Act. Courts accept FMC rulings as prima facie evidence of Shipping Act violations, and the burden of disproof then rests more heavily on the defendant.

South American Shoe has charged that the rate paid for returning the goods to Greece was discriminatory under sections 16 and 17 of the act because it favors shippers based on geographic location and direction of the shipment, and because the differential is too large to be accounted for by differing costs and competitive situations. The company says that because the two shipments “were of identical cargo, in identical packaging, over identical distances, and between identical ports,” there is no cost basis for the rate differential. The FMC case of Commodity Credit Corporation and AID vs American Export Isbrandtsen Lines ruled that differing points of origin of identical shipments could be a legitimate pricing factor in that competitive conditions were different. In this case, however, the shipments — from U.S. and Canadian ports — were intended for the same destination. The South American Shoe case will be the first to deal with inbound-outbound rate differentials.

An unreasonable rate

FMC has defined an unreasonable rate as one that does not account for costs, for the value of service, and for factors springing from “other transportation conditions.” Because the costs of shipping the shoes in either direction are approximately equal, the real question is whether a shipment originating from New York can justifiably be subject to a high rate because of New York transportation conditions. Pricing departments do not set rates following a formula similar to FMC’s definition of a reasonable rate. Rather, they tend to charge “what the market will bear” — which in no way guarantees “reasonable” rates, nor a general rate parity when costs are equal. Of all the world’s trading community, U.S. shippers supposedly can most easily afford high freight rates.

Zim has yet to file a response with FMC. The key issue of the relation between “other transportation conditions” in New York and the magnitude of the rate differential must be addressed in this brief when completed, for, on the face of it, the differential is discriminatory, unreasonable, and detrimental to U.S. foreign commerce. If such differentials are permitted, this could mean an unwillingness on the part of importers to venture in trade with certain countries, as well as the threat that foreign businessmen will take advantage of a skewed rate structure to palm off poor-quality goods in this country.

Returned goods

The description of the returned shoes as “returned goods of Greek origin” on the bill of lading could be significant on two counts: the first, that there is no commodity classification for returned goods in the tariff, and so the misdescription could be a violation of the Shipping Act, and more importantly, that Zim was aware that these goods were not American exports, of a different value, entering a market with different competitive conditions. This awareness could lead to an FMC ruling that defective “returned goods” are a legitimate separate commodity classification. In this and similar cases, the commission might feel that lines have an obligation to provide minimally differentiated rates — perhaps based on cost factors alone — when shipping returned goods.

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Editor: American Shipper Archives