Section 15 requires that all agreements between two persons subject to the Shipping Act which provide for the

fixing or regulating transportation rates or fares; giving or receiving special rates, accommodations, or other special privileges or advantages; controlling, regulation, preventing, or destroying competition *** or in any manner providing for an exclusive, preferential, or cooperative working arrangement— must be filed with and approved by the Commission in order to be lawful. The penalty for carrying out such an agreement prior to Commission approval is up to $1,000 per day.

Leases of terminal facilities quite customarily contain, in addition to the usual grants of estates in land, covenants requiring that the lessee operate the terminal facility according to specified standards and in some instances grant future rights to the lessee. For example, the lease in the Baton Rouge case, above, required that the lessee charge

rates

competitive with, and not greater than, rates for similar services and privileges charged at other gulf ports

And gave to the lessee the right of first refusal to lease any similar additional facility which the lessor might construct. The Maritime Board found that these and other covenants brought the lease within the purview of section 15, and the Fifth Circuit affirmed.

In due course the Maritime Board informed the Department of Justice of its findings in the Baton Rouge case and the Department of Justice of its findings in the Baton Rouge case and the Department brought suit against the lessee for civil penalties due under section 15. As other unapproved leases have been determined to be subject to section 15, the Maritime Board and now the Maritime Commission have informed the Attorney General in order that his Department might take such action as it thought warranted. Several additional suits for civil penalties have been filed.

Thus, lessees and lessors of terminal facilities have found themselves in the position of having entered into long-term leases some years ago which they believed not to be subject to section 15 of the Shipping Act, 1916, but which under the holding of the Baton Rouge case may be subject to that section. The practical choices open to such persons are to submit their leases to the Commission and seek approval knowing that they may be subject to a suit for penalties with enormous maximum limits, or not to file their agreements with the hope that they would not be discovered or that they could successfully distinguish between their lease and the Baton Rouge lease.

It is the Commission's position that, while a sound regulatory purpose is served in requiring that terminal leases which in any fashion limit or control competition be first submitted to the agency for approval, the needs of justice are not served by exacting penalties for past behavior under what amounts to a new or different construction of the law.

S. 2317 provides that the penalty provisions of section 15 shall not apply to leases, licenses, or assignments or other agreements of similar character entered into before the date of enactment of the bill or, if continued in effect beyond that date, they are submitted to the Commission for approval within 90 days after its enactment, unless disapproved, modified, or canceled by the Commission and contained in effect without regard to the Commission's action thereon.

27-498-64——9

The Commission believes that the language of this bill is preferable to the language of H.R. 8926 and various other bills which are pending before your Committee on the same subject. In view of the variety of legal instruments which are used in granting rights to operate terminal facilities, S. 2317, as passed by the Senate, includes not only leases, licenses, assignments, but also other agreements of a similar character. Additionally, S. 2317 provides that only those agreements continued in effect need be submitted to the Federal Maritime Commission. There would appear to be no reason for submitting agreements which have terminated to the Commission. S. 2317 also would provide that, if agreements are continued in effect without regard to the Commission's action thereon, they would thereafter be subject to the penalty provisions of section 15 of the Shipping Act, 1916.

The Commission feels that any legislation dealing with this subject should provide that if, after the Commisison has taken an action, the parties continue to operate without regard to such determination they should be subject to the penalty provisions of section 15.

The Commission recommends enactment of S. 2317.

The Bureau of the Budget has advised that, from the standpoint of the administration's program, there would be no objection to the submission of this letter to your committee.

I will now comment, as you have requested, on H.R. 9153.

The CHAIRMAN. You need not do that. Just state in the record just what has gone on in the past, and what is the necessity for this legislation. Give us some examples.

Rear Admiral HARLLEE. All right, sir.

I should say for the record that accompanying me are General Counsel, Mr. James Pimper and Mr. Edward Schmeltzer.

There is a wide spectrum of landlord lease arrangements in terminals.

The CHAIRMAN. You mean these are public terminals, or private terminals?

Rear Admiral HARLLEE. Both public and private.

The CHAIRMAN. Do you mean they give preference to one shipper over the other?

Rear Admiral HARLLEE. There may be situations in which preference is given to one carrier over the other, or one terminal operator over the other.

There are two different types of categories of agreement we have to look at here. One are those agreements which include rate-setting features. It has been well-known since enactment of the Shipping Act that agreements between two or more terminals, or between two or more ports which go to the setting of rates, that are unquestionably and undeniably section 15 agreements.

The CHAIRMAN. What do you mean by that?

Rear Admiral HARLLEE. Well, if you had, let's say, three different terminals in a port and they got together and decided to set rates, terminal rates

The CHAIRMAN. All would have the same rate.

Rear Admiral HARLLEE. They would all have the same rate and no doubt that would be a section 15 agreement. There never has been any doubt about that.

The CHAIRMAN. What is the objection to that?

Rear Admiral HARLLEE. There is no objection, but it is a section 15 agreement which would have to be passed on by the Commission as being in the public interest.

The CHAIRMAN. You mean this will then provide for uniform rates in the port and a port can't collaborate with another port and have the same identical rate?

Rear Admiral HARLLEE. No, sir. A port can collaborate with another port right now and they always could, but they would have to get permission from the Federal Maritime Commission to do it.

The CHAIRMAN. Now what has been going on in the past to make this necessary?

Rear Admiral HARLLEE. The type of agreements that I have just been discussing are not what this bill goes toward because those have always been within section 15. They have been submitted to the Commission and the Commission has passed on them. What this legislation goes to is a different category of agreement which is a landlordtenant agreement-a lease from a landlord that only affects one terminal. A city can own a terminal and it can lease a terminal to a terminal operator, and in this area there has been a lot of confusion as to whether or not this came within section 15.

The CHAIRMAN. What brings about the confusion?

Rear Admiral HARLLEE. Because in some cases it does come under section 15, we now believe under the Baton Rouge case of 1961, but in other cases, the landlord-tenant arrangements do not come under section 15. There is a wide variety of such agreements.

The CHAIRMAN. A city owns a terminal and it leases it to Mr. X to operate?

Rear Admiral HARLLEE. Yes.

The CHAIRMAN. Mr. X has to make his rates and submit them to you for approval?

Rear Admiral HARLLEE. No, sir, he doesn't.

The CHAIRMAN. He doesn't come under section 15?

Rear Admiral HARLLEE. Well, the mere fact the city leases a terminal to him does not make it come under section 15.

The CHAIRMAN. How does he operate?

Rear Admiral HARLLEE. That has been the area of confusion, doubt, and uncertainty we have been trying to clear up now.

The CHAIRMAN. How has he been operating?

Rear Admiral HARLLEE. He has been operating generally without the approval of the Federal Maritime Commission.

The CHAIRMAN. And another competitor has to get your permission! Rear Admiral HARLLEE. If there is a combination of two or more persons, yes, sir.

The CHAIRMAN. Where this landlord lease exists, he doesn't have to have your approval?

Rear Admiral HARLLEE. Under certain circumstances.

The CHAIRMAN. But one over here [indicating] that is operated by company X does have to have your approval?

Rear Admiral HARLLEE. Only under certain circumstances, and that has been the area of doubt and confusion, and that is what this bill goes toward, and that is what we are trying to clear up. There is a big variety of these, and some of them, Mr. Chairman

The CHAIRMAN. I just want to get this clear in my mind. It is hard for me to understand. You want to make all persons have to come under your general supervision by getting a permit to operate, so forth?

Rear Admiral HARLLEE. To this extent-we want them all to submit their agreements to us for us to determine whether they affect the public interest, whether they do come under section 15 or not. We want them all to submit these to us, and then we will make a determination within 30 days as to whether the particular agreement they have submitted does, in fact, come under section 15. The problem is that some of them do come under section 15 and others don't.

The CHAIRMAN. And it is disrupting the operation of a particular port?

Rear Admiral HARLLEE. The uncertainty about whether they are subject to certain penalties and fines does disrupt the operations of the port, yes, sir.

The CHAIRMAN. I mean, is there competition in a particular port between these that do and do not, as to rates and things?

Rear Admiral HARLLEE. There could be, and that is the reason that we think we should pass on all these agreements.

The CHAIRMAN. Do you know of any? This is what I want to find

out.

Rear Admiral HARLLEE. Yes.

The CHAIRMAN. Give us some examples.

Rear Admiral HARLLEE. Well, in San Francisco, there are several terminals. There is a Howard Terminal, there is an Encinal Terminal-those are in Oakland; there are terminals in Alameda, there are terminals at San Francisco Bay, and there is a question about whether a ctiy in leasing a pier to a terminal operator, or a carrier, is giving undue preference to them. There is also a question as to whether if the rates at certain piers are less, a rate war will be started, which will result in noncompensatory rates being charged by certain terminals.

A specific example

The CHAIRMAN. Well, you must know of accusations which make this necessary.

Rear Admiral HARLLEE. A specific example is this, Mr. Chairman. About a year and a half ago, up in Puget Sound, the port of Everett started to charge very low rates. The port of Seattle and other ports in the Northwest Port Authority Association, complained about this. On the basis that a rate war loomed in the offing as a result of this, the Federal Maritime Commission undertook an investigation, and we believe that largely as a result of initiation of the investigation adjustments were made to these rates which stopped the rate war.

The CHAIRMAN. In other words, there was one port competing with others to make it attractive to come to that port, because there were lower rates.

Rear Admiral HARLLEE. Yes, sir.

The CHAIRMAN. Now that port wasn't under your supervision? Rear Admiral HARLLEE. No, sir, not under our supervision, but as far as the agreements

The CHAIRMAN. Wait, I just want to know if that port that offered those lower rates was under your supervision.

Rear Admiral HARLLEE. The rates are not directly under our supervision, no, sir.

The CHAIRMAN. Well, any concessions weren't under your supervision.

Rear Admiral HARLLEE. Well, some concessions were, yes, sir, because some of the concessions come under section 15.

The CHAIRMAN. Did they have to submit their policy of operation to you?

Rear Admiral HARLLEE. We feel that they did.

The CHAIRMAN. Did they?

Rear Admiral HARLLEE. Yes, they finally did.

The CHAIRMAN. Then the complaint came from other ports? Rear Admiral HARLLEE. From other ports and from the Northwest Association.

The CHAIRMAN. When you investigated it, then, did you find the complaints to be substantiated?

Rear Admiral HARLLEE. In general terms, yes, we felt that there was substantiation to them.

The CHAIRMAN. And this legislation would place all piers, docks, under your supervision so as to eliminate a situation of this kind? Rear Admiral HARLLEE. No, Mr. Chairman; that is not really what this bill goes to. This bill really goes to a different matter.

The CHAIRMAN. What does it go to, then? Tell me that? Rear Admiral HARLLEE. It goes to the matter of landlord-tenant arrangements. This is not several piers competing with each other. This is one landlord and one tenant.

Under the law, as interpreted by the Court in 1961 in the Baton Rouge case, the terminal industry is subject in the specific cases that we have to total fines amounting to $122 million. It is not a matter of competition between various ports and various terminals to which we are now addressing ourselves. We are addressing ourselves to the technical matter of a landlord-tenant arrangement, just one landlord-it is not necessarily a city; it can be a private individual-and one tenant, who again can conceivably be a public institution, but more often a private operator. Some of those arrange

ments

The CHAIRMAN. And what is he doing?

Rear Admiral HARLLEE. He is renting a pier.

The CHAIRMAN. What are you addressing yourselves to?

Rear Admiral HARLLEE. We are addressing ourselves to the proposition of eliminating fines for past technical violations of the law. The CHAIRMAN. He has violated the law?

Rear Admiral HARLLEE. Technically.

The CHAIRMAN. Technically, and this legislation is to excuse him? Rear Admiral HARLLEE. To give an amnesty for this what we believe to be innocent violation of the law.

In other words, this

The CHAIRMAN. That is all this deals with?

Rear Admiral HARLLEE. It is all it deals with, but it is extremely important, in this sense, Mr. Chairman: In the future it is important for us to exercise surveillance over these landlord-tenant arrangements, because some of those do affect competition. Even though