Was evil afoot in 1970s freight forwarding?

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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 from the December 1976 issue of American Shipper details a possible oversight by the U.S. government in an ocean trades investigation.

Forwarders remain aloof as probe continues on rebate and malpractice by carriers in US

While the ocean carrier industry basks in the unfavorable light of a major U.S. government investigation into rate rebating and malpractice, another segment of the foreign trade industry — the freight forwarder — remains free from scandal, at least major scandal. Forwarders are an integral part of ocean carriage. The National Custom Brokers & Forwarders Association of America, headquartered in New York City, does not have definitive figures on active forwarders but estimates there are from 3,000 to 4,000 scattered across the U.S. And the association estimates that they handle paperwork on approximately 40 to 50% of the general cargo shipped annually.

Ocean trades

A forwarder serves essentially as a surrogate for a shipper who does not have the experience in arranging transportation for his shipments or prefers not to do it himself. The forwarder can take care of paperwork associated with the shipment and make sure a container gets to the shipper’s warehouse to be loaded and then gets to the dock by sailing time. For performing these chores, the foreign forwarders licensed by the Federal Maritime Commission (Domestic forwarders do business only within the U.S. and are licensed by the Interstate Commerce Commission) receive a fee from the shipper and a brokerage fee from the carrier. The carrier’s payment is outlined in his tariff and usually varies from 1.25 to 2.5%.

If any cheating is to take place, it is the ocean carrier who is most likely to end up on the short end, according to forwarder officials interviewed, all of whom wished to remain nameless because of the sensitive nature of the subject. The cheating usually occurs when the shipper, forwarder, or both in concert, misdescribe cargo or declare the cargo weighs less than it actually does. The officials say a forwarder may go along with such misdealings when pressed by a traffic manager who says he can get a better deal with company X, or by a traffic official who wants to line his own pocket. Dishonest forwarders may act on their own, one carrier conference official noted, cheating the carrier by misdescribing the cargo of an unsuspecting shipper.

Who cheats?

The extent that these illegal practices go on among American forwarders is pretty much a matter of conjecture. A vice president with a large New York firm said cheating “undoubtedly” does occur. But, he said, he felt cheating is more likely to occur in companies which have had large turnovers in top management. Some firms think they can also “buy customers,” he said. However, he said, companies with many years in the business are not motivated by “penny ante” cheating. One top official who was asked if he thought malpractices were widespread among forwarders replied: “Absolutely not.” A traffic manager can sometimes be “reached,” he said, but he added that cheating is not widespread. Another official concurred, saying that in his 25 years associated with the industry he was not aware of any pervasive illegalities by U.S. firms. He said most abuses occur overseas where such practices are hard to trace. He, and other officials, noted that practices labeled illegal here are common in business overseas, and not illegal.

Among the forwarders interviewed, a humorous inconsistency about who is most likely to cheat emerged: The small forwarding companies with one or two offices felt that abuses were more likely to be carried off by large firms which are handling volume shipments and have overseas offices. On the other hand, several large firms said that the small firms had a better chance to cheat because their books were scrutinized less by FMC investigators. Not so, replied a small New York forwarder who said the federal agency scans his records frequently and closely. Besides, he said, dishonesty is not worth the effort when only shipments of one or two containers are being handled at one time. An investigator with the FMC office in New York said he cannot recall any instances of freight forwarders engaging in illegal practices.

False declarations

He said the greatest opportunity for cheating lies with the shipper who can misdescribe or misdeclare the weight of cargo without the knowledge of the forwarder who is preparing the paperwork and freight bill. If the forwarder were aware of cheating he would probably be the first to advise against it, the investigator said. For the forwarder, there are heavy penalties for such practices. He can be fined, have his license suspended or revoked, depending on the discretion of the Commissioners.

Officials interviewed said that forwarder malpractices — as well as those of carriers — result foremost from intense competition but also from the differing philosophies of how business should be conducted. Rebating, declared illegal in the U.S., is an accepted practice in foreign countries. European shippers have more flexibility in negotiating freight rates, a forwarder says. Inflexibility in the U.S. invites cheating, he suggests. These officials think that efforts by the U.S. government to crack down on illegalities result in American companies bearing the brunt of the punishment. The federal government is hard-pressed, they say, to get records from foreign companies and in some cases foreign companies are forbidden by law from turning over these records.

Need treaty

One conference official said the only way he sees the U.S. resolving the malpractice problem in U.S. ocean trades is for all trading nations to establish uniform laws by means of a treaty. Such a treaty has been successfully established by the airlines, he said. A move in this direction — to take the conferences out of the business of policing themselves — occurred in mid-November when four conferences in the North Atlantic trade petitioned FMC for the option to use an “independent neutral body” as enforcement authority. This new, independent agency might be used as an option to using the executive director of the Associated North Atlantic Freight Conference (ANAFC) as policing agent.

In any case, it was a tacit recognition of the difficulty the conferences have in present self-policing activities. In the absence of permanent reforms, many will follow a solution offered by an official of a large forwarding company which recently lost a large account. The official said he felt there was some dishonesty involved by the company traffic manager in taking the business to another forwarder. He could go over the traffic manager’s head and complain to top company officials, the forwarder explained, but to do that might “close the door” to the account for good. By not saying anything the company may eventually return its business, he said, and he added that “we can afford to wait it out.”

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Editor: American Shipper Archives