Letter to the editor: The unexpected effects of the CCSB’s reclassification of pallets

Peter Moore’s January, 2013, column in Logistics Management was intended to provide clarification of his previous (November 2012) column entitled What’s the CCSB Doing Now? As the former General Counsel to the National Motor Freight Traffic Association (for 32 years) and Executive Director (for the last six of those years), I was requested to participate in the “pallet classification debate” that has been published in Logistics Management.

In an accompanying article, Joel Ringer, on behalf of the Commodity Classification Standards Board (CCSB), attempts to rebut Moore’s clarification, including my comments. I appreciate this opportunity to defend the views I expressed and to explain how seemingly routine amendments to an item in the National Motor Freight Classification (NMFC) embracing shipping pallets could potentially affect the charges on much of the 85 percent of the LTL traffic that is unitized by these pallets

Here’s a brief synopsis: Over the last three quarters of a century, the NMFC has undergone a variety of modifications designed to continue its viability in an evolving regulatory/economic environment.  Five years ago, while scrambling to respond to the Surface Transportation Board’s (STB’s) termination of economic regulation of the Classification system, the member carriers removed their exclusion of unregulated commodities from the NMFC. 

As a collateral effect, the carriers’ comprehensive action inadvertently admitted used pallets, along with a variety of commodities that had been excluded from the Classification for decades. The incorporation of “used pallets” into item 150390 changed the application of the NMFC rules (i.e. NMFC item 640) governing palletized “mixed shipments.” And, as a consequence, the charges on many, perhaps most, palletized LTL shipments became subject to the classes applicable on pallets—such as those that were recently assigned by the CCSB.

The CCSB’s recent approval of Subject 10 of its Docket 2012-3 amends NMFC item 150390 “pallets platforms or racks, shipping…steel or wood,” by assigning the CCSB’s familiar scale of classes based on density. The present controversy over the far-reaching effect of these amendments demonstrates the complexities of the Classification System and the unexpected results that can arise from such an apparently isolated change.

The Motor Carrier Act of 1980 provided numerous exemptions from the ICC’s regulation [49 U.S.C. 13506(a)(11)]. Included among the exempted commodities were “used pallets…and other used shipping devices.” These commodities were also restricted from NMFC (item 150390) in view of their unregulated status. To enforce the restriction, a Notice of General Application was published prominently on page 1 of the NMFC, warning that the Classification was applicable only on regulated commodities.  Inasmuch as the restriction and the General Notice applied for the entire Classification, item 150390 did not need a specific restriction to preclude “used pallets.”

Fast forward to January 1, 2008, when the Surface Transportation Board’s (STB) landmark decision, in Ex Parte No. 656, terminated its economic regulation of (and antitrust immunity for) the collectively determined class/rates system. In order to maintain the Classification’s viability, the carrier members of the NMFC implemented fundamental and comprehensive modifications of the system. These modifications included creation of the employee staffed Commodity Classification Standards Board (CCSB) and termination of its longstanding exclusion of unregulated commodities, as indicated by the removal of the Classification’s Notice of General Application.

The NMFC’s admission of unregulated commodities, did not distinguish between the commodities that were newly deregulated, by Ex Parte No. 656, and the products, such as “used pallets,” that had been subject to long-standing federal exemptions from regulation. Also, neither in Item 150390 nor elsewhere in the NMFC is there a distinction between “empty” pallets and “loaded” pallets (pallets that serve to unitize shipments). 

In contrast, the CCSB’s recent amendment of item 150390 expressly brought forward the item’s pre-existing limitation on material construction to pallets constructed of wood or steel. As of the STB’s January 1, 2008, effective date for the end of economic regulation, used pallets that had been subject to the long-standing federal exemption from regulation were, perhaps unexpectedly, brought into item 150390. An unanticipated result was the present controversy that arose in connection with the CCSB’s recent reclassification of “pallets, platforms or racks…” 

NMFC Item (Rule) 640 is a somewhat convoluted provision that governs the determination of freight charges for shipments of multiple articles that are unitized by “pallets, platforms, racks or skids,”  (i.e. “mixed shipments”). For such palletized units of freight, charges (based on weight and class) are normally determined separately for each commodity comprising the unit—including the unitizing pallet itself [Rule 640, Sec.3.(b)].

The charge for this commodity was—and still is—determined based on the class of the lowest classed product that represents at least 5 percent of the weight of the palletized unit of freight. Since the unitizing pallet was incorporated into item 150390, however, it’s class became eligible for consideration in determining the charge for that newly classified commodity and, consequently, for the charge on the palletized unit of freight. 

The new density based classes of item 150390 also impact the somewhat similar determination of charges on the deficit weight of the entire shipment. Note 6 of Item 640 specifies “when the billed weight is higher than the actual weight, the resulting deficit weight will be charged for at the rate applicable to the lowest classed article contained in the mixed packages comprising the shipment. The lowest class could easily be the class of the pallet itself.

In view of their potential impacts on the charges for the unitizing pallet and on the shipment’s deficit weight, the new density based classes of item 150390 have the potential of substantially influencing the freight charges on palletized, mixed shipments that represent a large portion of LTL commerce.

While Ringer’s rebuttal raises a number of collateral and irrelevant matters, the core of this controversy boils down to two issues, namely: (1) whether, as he alleges, item 150390 is limited to “empty” pallets and (2) whether under item 640 the determination of the charge on the pallet, unitizing a mixed shipment, can give consideration to the class applicable to the pallet itself—as well as the classes of the other commodities comprising the palletized unit of freight. For the most part, the support for his arguments is simply “it’s true because I said it.” 

Ringer contends that the CCSB’s reclassification of item 150390 cannot have a widespread effect because of an alleged “invisible” restriction that limits the application of this item to “empty pallets.” He insists on the existence of this limitation—even though it cannot be found in either the terms of the item or anywhere else in the NMFC.

Further, he offers no reason why the plain language of the item should be ignored. Logically, if an express limitation is not needed to restrict item 150390 to empty pallets, then there would be no reason for the specific language restricting the item to commodities constructed of “steel or wood” and certainly there would not be a need for such seemingly picayune restrictions that are found throughout the NMFC.

Even given the admission (five years ago) of unregulated commodities into the NMFC, Ringer contends, (contrary to any reasonable interpretation of item 640), that while the weight of the unitizing pallet is considered in determining the charge for that pallet the class of the unitizing pallet (per item 150390) cannot be considered. 

Rather, he argues that, for the unitizing pallet, the class must be selected only from among the classes applicable to other commodities comprising the palletized unit. This argument would only make sense while the unitizing pallet was still restricted from the NMFC as an unregulated commodity. Once the CCSB admitted all of the exempt commodities to the Classification, the unitizing pallet was incorporated into item 150390 and the class provided by that item was eligible for use in determining the charge on the pallet.

As previously indicated, pursuant to NMFC Rule 640 the pallet’s class may be considered in determining both the charge on the unitizing pallet itself Sec. 3.(b) and the charge on the deficit weight of the unitized mixed shipment (Note 6).

The point made by Moore’s column is valid in that the CCSB’s recent action of approving Subject 10 of its Docket 2012 would substantially impact freight charges and information required per NMFC items 150390 and 640 that govern the determination of charges for countless mixed shipments of palletized freight.