Capitol Comments

Tariff Increase Considered

By Peter Mayberry | June 8, 2011

Earlier this year INDA, amounts of paperwork and record Association of the Nonwoven Fabrics Industry, Cary, NC, was contacted by the National Classification Committee (NCC) of the National Motor Freight Traffic Association with regard to an NCC review of disposable diapers, diaper liners and bedding pads. According to NCC staff, data had been submit- ted by one or more contract trucking firms, suggesting that the current classification place on these products under the National Motor Freight Classification system was out of date.

In fact, according to NCC staff, its membership had submitted data suggesting that the classification assigned to disposable diapers, dia- per liners and bedding pads shipped in less-than-truckload (LTL) a- mounts by contract trucking firms was much lower than it should be— Class 175 instead of the current Class 100 designation—and the shipping characteristics of these products were so diverse that appli- cation of a "full scale" system should be considered. Since there is a direct relationship between NCC classifica- tions and allowable tariffs (i.e., the higher the classification, the higher the allowable tariff), a change from Class 100 to Class 175 would result in a 75% increase in allowable tar- iffs. Moreover, adoption of a full scale system would require that the densi- ty of each future shipment be calcu- lated and used to determine allow- able tariffs. This is a time-consum- ing process that generates large keeping requirements. It is generally shunned by those who rely on con- tract trucking firms to transport their products.

INDA responded to this inquiry by polling its member companies to determine if their shipping data cor- responded to that submitted by the NCC. INDA received an outstanding response to the survey and was able to inform the NCC that its informa- tion appears to be inaccurate. Data from the nonwovens industry indi- cated there is no need for applying a full scale density to disposable dia- pers, diaper liners and bedding pads and, if any change in the cur- rent classification is warranted, it should be relatively minor.

INDA forwarded these findings to NCC staff in late June, and has had several follow-up conversa- tions with committee staff to date. As this article went to press, an NCC Classification Panel was scheduled to review the issue in early August and, while it is pre- mature to predict the outcome of this review, INDA does not expect the panel to adopt a significant change in the current classification for these products. The only poten- tial change that INDA anticipates is an adjustment to Class 110.

While this does represent a 10% increase in allowable tariffs, INDA would consider it a victory be- cause those who ship LTL amounts of disposable diapers, diaper liners and bedding pads would escape the onerous admin- istrative burden associated with a full scale density approach. In addition, shippers would face maximum allowable tariffs that are significantly lower than those originally considered by the NCC. But we will not know how the mat- ter will be resolved until the NCC Classification Panel makes its determination on August 6.

At Issue
The NCC is a unique organization within our economic system in that it enjoys a limited exemption from U.S. antitrust laws. Basically, under Federal law, the NCC is permitted to develop and publish a set of classifi- cations for virtually any product transported by a contract trucking firm. While these classifications are based on specified shipping charac- teristics of the goods being transport- ed—stowability, ease of handling, lia- bility and density—the primary basis for determining a product's class is usually its density. As a general rule, the higher the density the lower the classification rating.

Once established, NCC classifi- cations are used by contract trucking firms as the basis for their negotiations with those who seek to ship LTL amounts of prod- uct. It is important to keep in mind, however, that NCC classifi- cations typically have no bearing on those who operate their own trucking fleets or ship truckload quantities of goods, nor are they absolutely determinative of final tariffs. Large manufacturers and others who do a significant amount of business with contract trucking firms, for instance, are often able to negotiate tariffs that are much lower than those allowed under NCC classifications.

In late March, INDA received a let- ter from NCC staff noting that a pos- sible change in the classification for disposable diapers, diaper liners and bedding pads was under considera- tion. When contacted about the exact details, we learned that these goods were listed as a common category under NCC Item Number 57260 and shared a Class 100 rating, which is used for products that have a densi- ty rate of nine pounds per cubic foot (pcf). This rating was established in 1955 and "clarified" in 1999.

We also learned that one or more NCC members had reported density rates for diapers and adult incontinence products in the range of 2.09-6.98 pcf, while the range for bedding pads was 4.50-5.84 pcf. Based on these data, INDA was told that the NCC was consid- ering a recommendation that either a full scale density model be placed on these products or that a common Class 175 be applied to any goods that fell under the clas- sification. This higher rating, according to NCC staff, would bet- ter reflect the lower density rates reported by the committee's mem- bership. As is typical with the NCC, however, we were also told that its data was confidential and, therefore, we could be given no indication of whether they accu- rately reflected the shipping char- acteristics of these goods. NCC staff, for example, would not pro- vide INDA with information such as the number of shipments that its data reflected, the products involved in these shipments, the number of contract trucking firms who had provided data to the NCC or the name of any company that shipped products on which NCC data were derived.

INDA has had a number of deal- ings with the NCC during past years, and has scored some victories with the committee. Based on these expe- riences, INDA was able to craft a sur- vey that would get to the key points that the NCC uses to establish its classifications. Most notably, the organization was able to question its members on the density of dispos- able diapers, diaper liners and bed- ding pads that they ship. INDA was also in a position to get a strong sample of the entire industry that could be used to develop a statisti- cally accurate, industry-wide por- trait of the shipping characteristics of these products.

In all, INDA's survey produced 46 responses representing approximate- ly 34% of the entire market for goods classified under NCC Item Number 57260. According to these data, the overwhelming majority of disposable diapers, diaper liners and bedding pads have a density of 7.5-10.2 pcf with an average of just under 8 pcf (much higher than the 5.23 pcf aver- age density reported to the NCC by its membership). INDA members reported that nearly 41% of goods shipped under this NCC category were in the range of 7.0-7.9 pcf and another 41% were in the range of 8.0-10.2 pcf. This is an extremely narrow range which indicates that a common classification is warranted. Since the average density is slightly below 9 pcf—the rate needed to achieve Class 100 status—INDA realized that it would not be unrea- sonable for the NCC to apply a Class 110 rating to the category.

Indeed, this is the course of action that INDA anticipates the NCC Classification will take when it meets. Should the panel make a dif- ferent determination, INDA is pre- pared to file an appeal and present its data to the full NCC later this year. It is not often that statistics representing more than a third of all shipments in a specific NCC catego- ry can be collected and, when they are, INDA believes it is important for the classification committee to base its decisions on those statistics.

Anyone interested in the outcome of the NCC's August 6 meeting should feel free to call INDA's offices in Washington, D.C., or visit the NCC website at www.nmfta.org.

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