device has been commonly used by conferences to 
keep existing customers from shifting to carriage by 
a nonconference line. Since the only way a shipper 
can collect his rebate is to agree to another period 
of exclusive patronage, the shipper faces a strong 
economic incentive to remain loyal to the conference 
and potential conference competitors face a major 
barrier in trying to attract customers away from the 
conference. As indicated, this practice was made 
illegal by the Shipping Act in all U.S. trades and 
this prohibition, like the other practices which 
are forbidden, extends to foreign-flag common car- 
riers in U.S. foreign trade as well as to U.S. carriers. 
The second practice forbidden by Section 14 was 
the use of so-called “‘fighting ships.” Essentially, this 
device involves the selection of one or more vessels 
from among those owned by a particular company, 
or by members of a conference, to be operated at 
extremely low rates in head-to-head competition 
with a competitor on a particular route in order to 
drive the competitor from the trade. Losses on a 
conference-sponsored fighting ship operation are 
shared by all conference members, and, hence, the 
full economic resources of the conference can be 
brought to bear in the course of the competition. 
Since 1916, this practice, too, has been illegal in 
all U.S. trades. 
The third practice outlawed by the Shipping Act 
was the practice of discriminating against shippers 
as punishment for nonpatronage. Essentially, Section 
14 made it illegal for any common carrier in US. 
ocean commerce to retaliate against a shipper by 
refusing to carry his cargo when space is available 
or to otherwise discriminate against a shipper as a 
consequence of the shipper’s patronage of another 
carrier. 
Finally, Section 14 included a more general pro- 
hibition against any unjust or unfair discrimination 
among shippers. This provision, and others similar 
to it elsewhere in the Act, basically requires that all 
common carriers by water in U.S. commerce offer 
their services on equal commercial terms to all 
equally situated shippers. 
In 1958, a judicial interpretation of this last pro- 
vision held that the language contained in Section 14 
with respect to discrimination also prohibited the 
common practice of offering dual rates.** Under this 
arrangement, a lower rate schedule is offered to 
shippers who sign contracts agreeing to exclusively 
patronize conference carriers while a higher schedule 
is offered to shippers who do not agree to exclusive 
patronage. 
Although the 1958 judicial interpretation outlawed 
the dual rate practice, this policy was quickly re- 
versed when in August 1958 the Congress amended 
the Shipping Act to specifically authorize dual rate 
34 Federal Maritime Board vs. Isbrandtsen Company, 356 
U.S.C. 481 (1958). 
systems if approved in advance by the Federal Gov- 
ernment. In 1961, specific terms and conditions re- 
quired for dual rate contract approval were added 
to the Shipping Act. Basically, the 1961 amendment 
authorizes approval of dual rates so long as they are 
not detrimental to U.S. commerce, contrary to the 
public interest, or “. . . unjustly discriminatory or 
unfair as between shippers, exporters, importers, or 
ports, or between exporters from the United States 
and their foreign competitors...” *° 
The 1961 dual rate provision also set the maxi- 
mum rate discount for exclusive patronage at 15 
percent. Although a statutory maximum, this 15 per- 
cent differential in dual rate contracts has become 
the norm. In processing dual rate contract applica- 
tions since 1961, FMC has denied approval to dual 
rate systems which extend shipper patronage re- 
quirements beyond a single trade and to systems 
providing for more than two rate levels.*° 
While the Shipping Act required prior Federal 
approval of all conference agreements and related 
competition-limiting arrangements and while it did 
require conferences to file rate schedules and ex- 
pressly prohibited certain competitive practices, as 
originally drawn the 1916 Act did not require inde- 
pendent common carriers to file rate schedules with 
the Federal Government. It was not until 1961, 
when Section 18b was added to the Act, that such 
filings were made mandatory for independent car- 
riers as well as conferences. 
While the addition of Section 18b (and at the 
same time, the addition of Section 14b, which re- 
quired dual rate contract filings), substantially ex- 
panded Federal regulatory authority with respect to 
foreign trade ocean carriers, this authority remains 
limited compared to the Federal ratemaking author- 
ity exercised over domestic carriers. The Federal 
Maritime Commission today may disapprove a for- 
eign trade rate “. . . which, after hearing, it finds 
to be so unreasonably high or low as to be detri- 
mental to the commerce of the United States.” *7 
However, under such circumstances, the FMC may 
not suspend the rate pending a determination of its 
reasonableness. Under this section, FMC may dis- 
approve a challenged rate only after the required 
hearing has been held. In cases where a rate is chal- 
lenged on the basis of discrimination under Section 
17, the Commission authority is broader and a new 
rate may be prescribed (after hearing) to correct 
such an inequity. 
35 Shipping Act, 1916 (as amended), Section 14b, 39 Stat. 
728, Chapter 451, September 7, 1916. Another result of the 1961 
amendments was to mandate that conference tariffs be made 
available to shippers at.a subscription fee. Previously the non- 
availability of some conference tariffs was hindering the shipping 
public. 
36 U.S. Department of Justice, Antitrust Division. The Regu- 
lated Ocean Shipping Industry. Washington, D.C., Government 
Printing Office, January 1977, p. 148. 
37 Shipping Act of 1916, Section 18b(5). 
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