(This is the first of three parts of my article as published in the April 2018 edition of The Transportation Lawyer. The footnote references were modified to conform to the formatting parameters of this blog.)
The first gate. Way out west, here in Oregon, much of our outbound freight involves the transportation of exempt commodities, so the initial evaluation of the case involves the determination as to whether the transportation at issue is exempt or nonexempt. Fn. 1. The main purpose of this article is to take a look at the world of exempt and nonexempt commodities, primarily agricultural. We want the first gate we pass through to be the correct gate, lest we end up in the wrong corral.
Fn. 1. An analysis of applicable law and jurisdictional issues pertaining to the transportation of exempt commodities is outside the scope of this article, other than to note that the Carmack Amendment, 49 U.S.C. §14706, does not apply to the transportation of exempt commodities, and thus does not provide federal court jurisdiction for the transportation of exempt commodities.
This article focuses on the transportation of exempt and nonexempt agricultural commodities by motor vehicle other than carriage by a farmer or by a cooperative association. As mentioned below, there are several other exemptions which are not addressed in this article.
Look back in time. A look back in time sheds some light on how we got to where we are today. The Motor Carrier Act of 1935 ushered in sweeping regulation of the motor carrier industry. Existing carriers were “grandfathered”, that is, they were allowed to continue operations if the carrier could establish that the carrier, or a predecessor, was providing a service that would become subject to economic regulation in the future. Going forward, new carriers would need to establish “public convenience and necessity” in order to obtain operating authority from the ICC (relevance shown further below). This standard proved to be a significant hurdle to entry into the industry. Fn. 2. At the same time, there was significant push back from the farm industry, which prompted Congress to exempt the transportation of agricultural commodities, “not including manufactured products thereof”. Fn. 3.
Fn. 2. Incidentally, along with passage of this legislation came a concomitant rise in the power of both the American Trucking Association and the Teamsters for the next several decades, although the agricultural exemption impeded the Teamsters from unionizing the agricultural products transportation industry. For a discussion of the political landscape, including labor union considerations and other matters, during the first part of the last century, see Trucking Country – The Road to America's Wal-Mart Economy by Shane Hamilton.
Fn. 3. Not to be overlooked is the issue of at what point a commodity would be determined to no longer be in its natural state, which was prompted in part by litigation as to whether the transportation of washed salad packaged in cellophane bags constituted exempt transportation and thus free of ICC regulation. Thereafter the ICC published a list of commodities that would be considered to be in their natural state. Determination of Exempted Agricultural Commodities, 52 M.C.C. 511 (1951) (generally referred to as Determinations).
In the 1950s the frozen food industry would shake things up both on the farm and on the road. The frozen food industry wanted the transportation of its commodities to be exempt from ICC regulation, and thus less costly as it would be subject to market forces. It achieved that objective through a favorable ruling of the United States Supreme Court, where the question was whether a frozen chicken still maintained the “continuing substantial identity” with an unfrozen chicken, and thus not a manufactured product, to which the court responded in the affirmative. This holding, along with another holding allowing a motor carrier to transport frozen fruits and vegetables (Fn. 4) without ICC operating authority, prompted the ICC to exempt the transportation of frozen food from economic regulation. Fn. 5.
Fn. 4. Frozen Food Express v. United States, 148 F.Supp. 399 (S.D. Tex. 1956, affirmed 355 U.S. 6 (1957).
Fn. 5. East Texas Motor Freight Lines, Inc. v. Frozen Food Express, 351 U.S. 49 (1956).
180 degree reversal/brakes on expansion. Enter the old adage: Be careful what you wish for. Within a couple years the frozen food industry, including even Frozen Food Express (the moving party in the USSC case cited above), reversed course and decided it they desired to be subject to ICC regulation after all, as the investment in refrigeration equipment required substantial outlays of capital. The larger, regulated carriers had better equipment. The argument was that whereas the purpose and intent of the exemption in the 1935 legislation was to allow farmers to transport their crops without government intervention, that mom and pop farm exemption was now providing a free pass to the growing world of agribusiness, thereby primarily benefiting manufacturers and processors. These pesky independent truckers made life more difficult for the regulated carriers by undercutting their prices. Congress acquiesced to these requests to put the brakes on the expansion of exempt transportation through the passage of the 1958 Transportation Act.
1958 Transportation Act. This law changed the landscape in that it incorporated an ICC ruling which contained a list of commodities which had been determined to be considered agricultural commodities and were thus exempt from ICC economic regulation. This law reversed the status for some of those commodities from exempt to nonexempt, such as frozen berries and vegetables. From 1935 to 1958, Congress had not enacted any legislation which narrowed the scope of the agricultural exemption. Congress thus made a course correction with this legislation; this was a first for Congress in regard to agricultural commodities since up to this time these determinations were made by the ICC and through the judicial system. It did not put the ICC and the court out of the exempt/nonexempt transportation business, since neither the exempt list nor the nonexempt list were exhaustive, and thus they would still be called upon to render decisions.
The Act thus gave an ICC ruling, in part, the force of law, confirming the exempt status of commodities as determined by the ICC, except as indicated otherwise in which case those enumerated commodities would be considered nonexempt going forward.