"Backhaul" allowances advisory opinion affirmed

No. 483. "Backhaul" allowances advisory opinion affirmed. (File No. 683 7026, released December 26, 1973, 83 F. C. 1843) Statement of Clarification. (85 F. 1l74)

Letter of Reply

October 8, 1975
Honorable Albert Rees
Director
Council on Wage and Price Stability
Executive Office of the President
Washington, D.C. 20506
,

ADVISORY OPINIONS WITH REQUESTS THEREr-UK

Dear Director Rees:

This is in reply to your letter of April L 1975 relating to tbe Commission s recent clarification, in a letter to Consumers Union of March 19, 1975, of the legality under Section 2(a) of the RobinsonPatman Act of backhaul allowanees. Your letter suggests that the Commission s clarification will discourage backhaul practices. It was the Commission s intention in the March 19 statement to eliminate confusion over the options available to the delivered price seller. It emphasized that the seller who uses a uniform delivered price can, in addition to the delivered price, offer his customers the option of purchasing f. b. bis sbipping point as long as the optional f. b. price is uniform and available to all customers on a nondiscriminatory basis. The Commission sees no reason why tbis clarification of the available options should discourage back.aul practices.

You further recommend that the Commission should adopt a policy of allowing backbaul allowances equal to the actual cost of transportation to each customer. Sucb a policy, your letter urges, can be based on the premise that the Robinson-Patman Act does not mandate uniformity as to f. b. prices, because that Act permits a seller to offer different prices wbere justified by different costs.

However, tbose differences in cost under the Robinson-Patman Act that justify price differentials are limited "* * * strictly to those actual differences traceable to the particular buyer for and against whom the discrimination is granted, to the different methods of serving them, and to the different quantities in whicb they buy. House Committee Report No. 2287, March 31, 1936. Tbe eost justification provision accordingly, was designed "* * * to leave the test of a permissible differential upon the question: If the more favored customer were sold in the same quantities and by tbe same methods of sale and delivery as the customer not so favored, how much more per unit would it actually cost the seller to do so, bis other business remaining the same?" Senate Committee Report No. 1,,02 February 3 1936. "There can be no doubt the Supreme Court has stated that the 9 2(a) proviso as amended by the Robinson-Patman Act contemplates, both in express wording and legislative history, a showing of actual cost differences resulting from the differing methods or quantities in which the commodities in question are sold or delivered." United States v. Borden Co., 870 U. 460 467 (1962).

It follows, therefore, as the Commission understands these require-

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ments, that the Robinson-Patman Act's Section 2(a) cost proviso cannot be interpreted so as to cost justify price differentials between backhaul customers purchasing f. b. at the seller s shipping point, if those price differentials represent only the absence of delivery cost differentials that would have been incurred had the commodities in question in fact been transported to different delivery destinations and, in that contingency, would have oecasioned differing cost obligations upon the seller.

To state the matter in another way, if different backhaul customers purchase identical goods in identical quantities and according to exactly the same method of sale and delivery (i.e. by pick-up in their own trucks at the seller s shipping point) then, as the Commission see it, no cost differences to the seller, as contemplated under the cost justification provision of Section 2(a) of the Robinson-Patman Act obtain. In particular, in such transactions, because no transportation of goods by the seller to affect delivery occurs, no delivery cost differentials arise such as would justify differenees with respect to the b. priee. Accordingly, f. b. priee differenees, in these circumstances would not be cost justified under Section 2(a) of the Robinson-Patman Act in tbe Commission s view.

As the Commission heretofore has indicated, questions would not arise under tbe laws it administers if sellers using valid uniform zone delivered pricing systems offer to all customers, in lieu of a uniform delivered price, the option of purchasing f. b. the seller s shipping point, if that optional f. b. price is uniform and available to all customers on a nondiscriminatory basis.

The Commission does not understand that economies would not consistently be realized, througb backhauling, by customers with empty trucks returning via their suppliers' factory and/or warehouse shipping points, if tbose suppliers make uniformly available a nondiscriminatory shipping-point price option. You suggest, in this regard, that geographically distant customers would not be able to afford to make use of such an option if the f. b. price is no lower than the seller s uniform zonedelivered price minus his average transportation cost for that zone. However, it appears to us that the only signifcant costs to the customers of backhauling in tbis situation are the additional wages, if any, required to be paid to the driver of the backbauling truck for the added time required to accomplish the pickup and the additional fuel cost incurred in traveling full rather than empty. Insofar as these costs were less than the difference between the supplier s delivered price and his f. b. price, the customer would be realizing a saving. This would