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Rea Express Inc. v. Civil Aeronautics Board

decided after remand and reconsideration: October 6, 1975.


Remanded for Reconsideration December 23, 1974. Petition for review of orders of the Civil Aeronautics Board terminating the authority of REA Express, Inc. as an indirect air carrier to provide "air express" service, but authorizing it to act as an air freight forwarder, and denying its application for independent rate-making authority. The orders are affirmed.

Smith, Hays and Mansfield, Circuit Judges.

Author: Mansfield

MANSFIELD, Circuit Judge:

REA Express, Inc. ("REA") has petitioned for review of several orders of the Civil Aeronautics Board ("Board") affecting REA's operations, the most important of which are orders (1) terminating REA's authority as an indirect air carrier to provide "air express" service under an agreement with some 33 United States airlines*fn1 but authorizing REA to act as an air freight forwarder in lieu of providing "air express" service, and (2) denying REA's application for authority independently to set rates for air express services, free from any veto power by the airlines. The orders had been entered in the Board's Express Service Investigation (Dkt. 22388) which had been instituted in 1970 following REA's filing of a complaint with the Board seeking independent rate-making authority and aid in REA's stalemated negotiations with the air carriers.*fn2 By order dated July 16, 1974, we stayed the Board's orders pending our review.

Upon the argument of this appeal on November 21, 1974, we were informed that on that very date an agreement had been reached between REA and all but six or seven of the air carriers, which would meet most of the Board's objections to the continuation of the air express service as operated jointly by REA and the air carriers. Since friction between REA and the air carriers and their inability to reach a new agreement had been a factor influencing the Board's decision to terminate REA's air express service, we remanded the case to the Board for reconsideration in the light of this new development, retaining jurisdiction over the appeal which had been briefed and argued. By orders dated April 9, 1975, and May 23, 1975, the Board disapproved the latest REA-airlines agreement as not in the public interest and reaffirmed its earlier decision. Thereupon the parties filed additional memoranda directed toward the Board's decision after remand. We affirm the Board's orders under review.

"Air express," the oldest method of shipping air cargo, is a door-to-door priority air cargo service offered only by REA which, pursuant to its agreements with United States air carriers, functions as the single agency responsible for all ground services required to make the shipment, including pick-up, terminal handling, interline transfers, and delivery to the consignee. In addition to single carrier responsibility, it features single documentation, expedited priority air service, a simplified rate structure, and wide geographical coverage throughout the United States, particularly in small cities which do not generate enough business to support a larger scale air cargo service. Under its arrangements with the airlines, REA issues a single uniform express bill of lading and bills the customer at special air express tariffs which cover door-to-door charges at simplified rates based essentially on commodity and distance and which are shared by REA and the air carriers. The airlines dispatch the customer's shipment on the first available flight to its destination. For the purpose of handling this business REA maintains offices at some 69 airports. At the remaining 500 airports or so REA's ground services are provided by airline personnel.

For many years REA's air express service represented the only method of shipping merchandise by air carrier. Following the Board's decision in Railway Express Agreements, 4 C.A.B. 157 (1943), however, the air carriers began offering to the public airport-to-airport "air freight" services to be rendered by the carriers on their own at tariffs posted by the airlines. The shippers and consignees were required, respectively, to deliver and pick up their shipments at the airports involved. In 1948 a third form of air cargo service known as "Air Freight Forwarder" service was authorized by the Board, see Air Freight Forwarder Case, 9 C.A.B. 473 (1948), whereby indirect carriers known as air freight forwarders were authorized to pick up freight from shippers at a given point, assemble and consolidate the shipments for transfer by direct air carrier and, upon arrival of the consolidated shipment at its designation, perform break-bulk and distribution functions.

The introduction of competition by direct carrier air freight service and by forwarders resulted in air express eventually developing primarily into a door-to-door small package service, with the average shipment weighing only 27 pounds and moving approximately 500 miles. Air freight forwarders attracted larger size shipments (80-pound average) while the airlines' own air freight service averaged 300 pounds per shipment. Unlike REA the forwarders for the most part could not provide single carrier responsibility and single documentation except for shipments between pick-up and delivery zones of airports covered by their tariffs.*fn3 As a result most forwarders have tariffs based on the point-to-point tariffs of the direct air carriers with only a few publishing door-to-door tariffs.

Air express service is available at every airport city covered by scheduled air carriers. Although REA maintained at one time 3,000 office or agency locations performing its operations throughout the country, this number has been considerably reduced in recent years. However, the number of cities and towns covered by its services far exceed the facilities offered by forwarders, which generally maintain no facilities at all at the smaller airport cities except for some "destination" agencies which do not originate shipments.

By the late 1960's the amount of forwarder business was increasing enormously (168% during the period 1966-70) in contrast to REA's air express business, which was virtually at a standstill (3% increase during 1966-70). REA, furthermore, was experiencing acute financial adversity, resulting in substantial annual losses from 1966 to 1974, which led to its institution of Chapter XI bankruptcy proceedings in 1975. The cooperation between REA and the air carriers, which was essential to the successful operation of air express service, faltered. As the airlines increased their own competing air cargo freight service, their negotiations with REA stalemated and REA, because of its financial plight, had difficulty making payments due the airlines.

In the Express Service Investigation REA argued that in order to survive it needed (1) independent rate-making authority, (2) dual authority to provide both air express and air freight forwarding service, and (3) permanent status as the exclusive air express carrier. Fundamental to REA's position was the assumption that air express provides a priority service over a larger geographical area and at a lower cost to the public than air carriers or forwarders and that continuance of air express was therefore in the public interest. However, while the airlines conceded in the Express Service Investigation that there was a public need for the existing form of air express service at least with respect to certain types of small shipments (e.g., "life or death" commodities, highly perishable products, animals), the forwarders urged abolition of air express service on the ground that, in view of the increasingly comparable service being provided by them and by the carriers, air express was no longer needed and had the adverse effect of stifling competition and the growth of these other services. The forwarders argued that they could match the service in terms of speed, commodity and geographical coverage. Various shippers, on the other hand, who preferred or were currently dependent on air express service, urged its continuation.

In an initial decision dated May 4, 1972, the Administrative Law Judge ("ALJ") found, among other things, (1) that air express service as represented by the partnership between airlines and REA as a single ground agency had a utility distinguishable from the other air freight services and was in the public interest, (2) that as long as REA engaged in air express service it would be contrary to the public interest to grant it forwarder status, and (3) that the establishment by REA of a special tariff for air express tariff was unnecessary. Based upon limited elapsed time surveys made by the parties, the ALJ found that, while the bulk of shipments handled by all three services (air express, air freight, and forwarder) were delivered within 48 hours of origination, REA handled the highest percentage of those shipments delivered within 24 hours, with the possible exception of Emery. He further found that REA's priority air express offered the shipper an advantage during holiday seasons and peak traffic occasions, assuring shipment by the first available flight regardless of the time of origination. He further concluded that because of REA's wide commodity coverage and simplified single carrier responsibility and single documentation REA was able to handle small shipments at a lower cost than other services and was able to ship small commodities, such as animals and high security shipments, between points not served by the other services.

The ALJ concluded that if air express should be abolished many shippers would be faced with substantially higher costs for small shipments and small airport cities would be left with the airport-to-airport service of direct air carriers since there would be no air forwarder representation at these points. With respect to REA's request for dual air express-forwarder rights the ALJ reasoned that such authority was not in the public interest because it would give REA an unfair advantage over competing services. Thus in effect the ALJ recommended maintenance of the status quo.

Upon appeal the Board affirmed the ALJ's finding that it would not be in the public interest to grant REA dual air express-forwarder rights or independent rate-making power. These powers, the Board concluded, would enable REA to dominate the indirect air carrier industry, would have an adverse impact on the development of the air freight business, would cause customer confusion, would divert REA's energies from the small shipment-small community service, and would lead air carriers to refuse to enter into agreements with REA for carriage of cargo originated by REA. Independent rate-making power would, because of lack of cost data and the conflicting interests of REA and the airlines, lead to insoluble regulatory problems and irreconcilable differences between REA and the airlines. It also appeared likely to the Board that REA could through ...

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