Trucking Industry Deregulation Message to the Congress Transmitting Proposed Legislation.
President Jimmy Carter
June 21, 1979
To the Congress of the United States:
I am today transmitting to the Congress legislation to reduce substantially Federal economic regulation over the trucking industry.
The trucking industry today is subject to perhaps more complex, detailed, and burdensome Federal regulation than any other industry in our Nation.
Not only does the Interstate Commerce Commission control who may enter the trucking industry, the ICC must also approve the application of an existing carrier seeking to offer new services or improve its old ones.
But ICC regulation merely begins when a certificate is awarded. The ICC, not the trucking company, decides what cities and towns a carrier may serve. The ICC, not the trucking company, decides in detail what commodities the carrier may haul—and whether any commodities can be carried on the return trip. The ICC, not the trucking company, often decides the actual highway the trucker must use, whether stops may be made to serve points along the way, and whether the trucker may take the most direct route to its destination.
This system of detailed regulation was imposed in 1935 when the trucking industry was in its infancy, and when the Nation was in the midst of its most serious depression. At that time, competition was blamed for the Nation's economic woes. Many believed that extensive government control was needed to protect the newly developing trucking industry.
In the 44 years since regulation was first imposed, conditions have changed dramatically. The trucking industry has matured and prospered, and our economy has become strong. But our system of regulation has remained basically the same.
ICC-regulated carriers are also sheltered from price competition. In 1948, Congress overrode President Truman's veto and enacted a special immunity from the antitrust laws that permits regulated trucking companies to meet together and decide upon rates. This conduct, which would be a felony in nearly every other industry, stifles competition, discourages innovative pricing, and forces the prices of consumer products higher than they otherwise would be.
Our current regulatory system contributes to three of our Nation's most pressing problems—inflation, excessive government regulation and the shortage of energy. Since regulation permits price-fixing and stifles price competition, consumers are unnecessarily paying billions of dollars a year in higher transportation prices. During these inflationary times, government policies that needlessly raise costs cannot be tolerated.
Regulation also subjects one of our Nation's most important industries to a mindless scheme of unnecessary government interference and control. Rather than putting their talents and energies to the task of providing the prices and services customers want, trucking companies are forced to concentrate on proposing measures that government regulators will permit.
Finally, regulation needlessly wastes our Nation's precious fuel by preventing carriers from making the most productive use of their equipment, and by requiring empty backhauls and circuitous routings.
The legislation I am proposing will restore the competitive spirit to the trucking industry, reduce inflation, minimize government regulation and save energy.
The major provisions in the legislation are summarized below.
NEW, COMPETITIVE POLICY STATEMENT
The bill I propose establishes a new policy statement to govern all aspects of ICC regulation of the trucking industry. The policy statement emphasizes reliance on competition rather than government regulation to the maximum extent possible to reduce rates, improve service, attract capital, increase efficiency and offer the opportunity to earn fair profits.
The policy statement also emphasizes the need to reduce existing regulations which contribute to concentration of market power, waste energy, restrict entry and services to smaller and other communities, protect larger carriers at the expense of smaller carriers, and adversely affect the long-term maintenance of fair wages and working conditions.
The policy statement also emphasizes the need for fairer and more expeditious regulatory procedures and the need for more effective safety regulation.
REMOVAL OF CERTIFICATE RESTRICTIONS
ICC certificates today are subject to a variety of restrictions that control every aspect of a motor carrier's operations. For example:
Backhaul Restrictions. Many certificates award only one-way authority, or specify that a carrier may haul commodities to a point, but with "no transportation for compensation upon return unless otherwise authorized." As recently as 1975, only half the operating certificates awarded contained authority to haul goods on a return trip.
Prohibition on Intermediate Stops. Many certificates prohibit carriers from making intermediate stops between authorized points. This prevents carriers from maximizing their loads, increases costs, and keeps many towns, especially smaller ones, from receiving the best possible service.
Route Restrictions. Most certificates authorizing the carriage of general commodities specify the actual highway the truck must use.
In addition to restricting operating flexibility, these restrictions harm service to small towns. A carrier cannot leave the highway to serve a town off the beaten track without violating the law.
Circuitous Routings. In some instances, carriers are required to take an indirect route or travel through a designated "gateway city" to reach their destination. For example:
—Denver, Colorado and Albuquerque, New Mexico, are connected to each other via Interstate 25, a distance of 442 miles. Garrett Freight Lines is permitted to haul freight from Denver to Albuquerque—but only if it goes by way of Salt Lake City, a distance of 730 miles.
—In 1974, during the height of the energy crisis, Consolidated Freightways was denied a request to travel directly between Minneapolis-St. Paul and Dallas. The carrier's route authority required it to travel 37% extra miles on trips between the two points. Despite the company's desire to eliminate excessive mileage and save fuel, the ICC denied the request because the new service would harm carriers already serving the route.
Circuitous routings, like regulations which require trucks to travel empty, waste precious fuel and increase costs and prices.
Commodity Restrictions. ICC certificates specify in detail the commodities a carrier is authorized to haul. These restrictions often follow no logical pattern and serve no apparent purpose. Some certificates, for example, authorize the carrier to haul crated, but not uncrated machinery; or allow paint hauled in 2-gallon cans, but not paint in 5-gallon cans. One recent certificate permits a carrier to haul bananas. The carrier may also haul pineapples, but only if mixed with loads of bananas.
In another case, a regulated trucker whose certificate authorizes him to haul "foodstuffs" recently wanted to haul beer. Permission was denied by the ICC. Although "wine" falls into the category of "foodstuffs," "beer" does not. If this trucker persists in his desire to haul beer. he must go through the burdensome, costly and time-consuming process of obtaining a certificate to haul "malt beverages?'
As a result of backhaul and other regulatory restrictions, enormous amounts of fuel are wasted each year. This waste needlessly raises prices and significantly aggravates the energy shortage.
The legislation I am proposing provides that:
—All backhaul restrictions are removed immediately.
—All prohibitions on making intermediate stops between authorized points are removed immediately.
—All route restrictions, including requirements that a carrier take a circuitous route or pass through a designated gateway city, must be removed no later than December 31, 1981.
—All restrictions limiting the types of commodities a carrier may haul must be removed no later than December 31, 1982.
—All other restrictions must be removed no later than December 31, 1983.
—The ICC is directed to adopt liberal standards and expedited procedures for carrier petitions for removal of individual restrictions prior to the statutory deadlines. Opponents to carriers' petitions have the burden of proof to show why a restriction should not be removed.
—The ICC is directed to develop a program allowing existing carriers to increase each year their operating authority by a limited amount without ICC approval. The ICC program shall emphasize increased opportunities to serve small towns.
ENTRY AND PROCEDURAL REFORM
Before a carrier can haul regulated commodities, and before an existing carrier can expand or rationalize its operations, it must obtain authority from the ICC. Obtaining new authority has been difficult. The applicant has the burden of proving that the new competition is "required" by the public convenience and necessity. Carriers already serving the route have been able to block new entry if they could provide the service themselves, or if the new competition might impair their profitability. Although the ICC has begun to grant a larger percent* age of these applications, the existing statute still requires carriers to meet an excessive burden. The ICC needs new statutory authority to carry forward the liberalization that it has begun.
This regulatory maze is particularly burdensome to small businesses. Large businesses may be able to afford experts to go through complicated regulations and wait the long months or years to obtain decisions, but this is not true for the small entrepreneur.
The legislation I propose liberalizes these restrictive entry standards. The bill substantially reduces regulation over time, and places increasing reliance upon the competitive marketplace. The bill:
-Retains the requirement that the applicant prove it meets financial, safety and insurance requirements (i.e, that it is "fit, willing, and able").
—Reverses the burden of proof and requires opponents of new competition to show that the transportation applied for would be inconsistent with the public convenience and necessity.
—Applies new standards for the "public convenience and necessity" test. The ICC must give substantial weight in favor of the application where it finds that the service would lower operating costs, improve fuel efficiency, meet consumer or user preference for service or lower rates, improve service to small communities; or generally improve the competitive climate. The ICC shall not consider possible diversion of revenues or traffic from other carriers.
-Requires the ICC to make a final decision on entry applications within 90 days.
—Grants the application of any fit, willing and able carrier to enter a point which an authorized carrier does not serve, or which a railroad has abandoned.
EXEMPTIONS FROM ICC REGULATION
From the start, major farm organizations opposed Federal economic regulation of the trucking industry. Farmers believed regulation would raise prices and limit the operating flexibility needed for distribution of agricultural products, many of which are perishable. Congress responded in 1935 by granting an exemption from ICC regulation for unprocessed agricultural commodities.
The agricultural exemption has served our Nation's farmers and consumers well. The exemption is too restrictive, however, and should be expanded. For example: —raisins are exempt, if they are coated with honey, cinnamon, or sugar but not if they are coated with chocolate;
—wood chips for making wood pulp are not exempt, but wood cut into short crosswise lengths for firewood (not sawed lengthwise) are;
—frozen dinners are exempt, unless they are frozen chicken or seafood dinners;
—crab shells are exempt, but oyster shells are not;
—an owner-operator has stated, "I carry all the ingredients to the cannery to make the soup, but I cannot carry the canned soup back."
These narrow restrictions have resulted in significantly more empty backhauls for exempt truckers than for regulated truckers. The transportation costs for food, and hence food prices to consumers, are consequently higher.
The bill I propose expands the agricultural exemption to include livestock: agricultural, horticultural or aquacultural commodities; food and any edible products; and farm implements and supplies, including seed, fertilizer, and chemicals.
These provisions will allow better utilization of trucks and fewer empty backhauls. The result will be better trucking services and, most important, lower rates for farmers and lower food prices for consumers.
The bill also gives the ICC authority to grant exemptions from regulation, and expands the authority of agricultural cooperatives to haul regulated commodities for non-farmers.
CONTRACT CARRIERS AND FREIGHT FORWARDERS CONTRACT CARRIERS
Contract carriers are ICC-regulated carriers who give specialized service to a limited number of shippers. They differ from common carriers in that they do not hold themselves out as serving the general public.
Although regulation of contract cartiers has been less severe, this segment of the industry has been subject to two major restrictions: (1) they have been prohibited from applying for common carrier authority; and (2) they have been prohibited from entering into contracts to serve more than eight shippers. This second restriction has been particularly harmful to small shippers because contract carriers naturally arrange to serve only the eight largest shippers they can find.
Although the ICC has recently decided to reverse these two restrictions, their decision is being challenged in the courts by the trucking industry, and the outcome remains uncertain.
The bill I propose permits contract carriers to hold common carrier authority, and states that the ICC may not limit the number of shippers that a contract carrier may serve.
Freight forwarders are regulated companies who consolidate small shipments, pay a common carrier (railroad, motor carrier or airline) to transport the shipments to the forwarder's terminal in another area, and then deliver the shipments to their ultimate destination.
The bill removes unnecessary restrictions on freight forwarders. Freight forwarders will be permitted to negotiate rates and enter into contracts with rail and motor carriers. The removal of these restrictions will enable freight forwarders to compete more effectively, and will afford shippers of small shipments a greater variety of price and service options.
RATES AND RATE BUREAUS
Collective ratemaking, commonly known as price-fixing, is normally a felony, punishable by fines up to $100,000 and three years imprisonment for individuals, and up to $1 million for corporations.
Since 1948, however, the regulated trucking industry has enjoyed a special exemption from the antitrust laws. This immunity allows trucking companies to meet in secret and decide the prices they will charge for truck transportation. Although rate agreements are theoretically subject to ICC review, the ICC has been inclined to rubber stamp rate agreements rather than subject them to an independent and thorough review. This lack of effective oversight is due in part to the sheer volume of processing, some 5,000 pages of rate tariffs are filed before the ICC each day.
Legalized price-fixing and the lack of rate flexibility have cost consumers billions of dollars in higher prices. There is considerable evidence that rates are significantly higher today than they would be if set by the competitive marketplace.
—The Director of the Council on Wage and Price Stability has stated that consumers pay some $5 billion a year in extra costs because of the current regulatory system.
—Rates for the transportation of exempt agricultural commodities are lower than they would be under regulation. A representative of the American Farm Bureau Federation has estimated that: "... if agriculture had been saddled with a totally regulated motor carrier and barge transportation system for the past 35 years, the cost of transportation, which now accounts for nearly 10% of the nation's food bill, would be a third greater."
—In the mid-1950's, fresh and frozen dressed poultry and frozen fruits and vegetables were declared exempt from ICC regulation. The U.S. Department of Agriculture estimates that as a result of deregulation, trucking rates dropped substantially for those commodities.
—A recent study concludes that unregulated household mover rates within Maryland are 27-87% lower than rates for comparable interstate shipments.
—The trucking industry is highly profitable. Last year the largest eight trucking companies earned an average return on equity of 28.8%. These returns far exceed the average 14% return on equity earned by unregulated manufacturing companies, as well as the return on equity for the top firms in any other major industry.
Because regulation permits such high profits and makes operating certificates so scarce, ICC certificates are bought and sold for enormous sums. When Associated Transport went bankrupt in 1976, the operating rights carried on its balance sheet at $976,000 sold for over $20 million. Eastern Freightway, Inc., recently sold rights for about $3.8 million. Ultimately, of course, the buyer must recover the certificate's price from its customers in the form of higher prices. The bill I propose:
—repeals the special antitrust immunity, making the trucking industry subject to the same antitrust laws that govern most other industries. Although carriers would be prohibited from discussing and voting on rates, rate bureaus may continue to publish rates. Carriers may also continue to interline and set joint line rates so that a shipper can pay one rate even though more than one carrier hauls the shipment to its final destination;
—encourages price competition by preventing the ICC from disapproving rates within a zone. For the first two years, carriers may lower their rates 20%, or raise their rates 5% per year, without ICC interference. At the end of two years, the ICC may not disapprove a rate reduction unless the rate would be predatory, and carriers may raise their rates 7% per year.
The bill requires the ICC to weigh possible anticompetitive effects of the proposed mergers.
The ICC may not approve or authorize any merger or acquisition if there is likely to be a substantial lessening of competition, creation of a monopoly, or a restraint of trade—unless the ICC finds that the anticompetitive effects of the transaction are outweighed by significant transportation needs that could not be satisfied by a reasonably available alternative having materially less anticompetitive effects.
After five years, the ICC's authority over mergers is eliminated, and jurisdiction is transferred to the FTC and the Department of Justice.
Under existing law, non-transportation companies (such as Montgomery Ward and Pet Milk) may transport their own goods free from ICC regulation. Although these "private carriers" are not directly regulated by the ICC, their operations have been severely restricted. As a result, private carriers are plagued with an unusually high rate of empty backhauls. The bill I propose would allow private carriers to apply for authority to carry non-company commodities, to provide transportation for corporate subsidiaries, and to permit private carriers to "trip-lease" with certificated carriers for single trips.
"Truckload" motor carriers of property, who concentrate on hauling specialized commodities in full truckload lots, are already a relatively competitive sector of the trucking industry. The ICC has been more liberal in granting entry, and rates are often negotiated between the shipper and carrier. Truckload carriers compete with railroads and with private carriers. The Commission has recently announced plans to deregulate several types of these "special commodity" carriers of truckload traffic.
The bill builds on this trend toward less regulation of this segment of the industry. After two years, entry and rate controls over truckload transportation are removed.
After two years, any trucking company that meets safety, financial, and insurance requirements may haul truckload lots to any point. Rates are subject only to the antitrust law's prohibition on predatory pricing. "Truckload" transportation is defined as carriage (a) by specialized commodity carriers, as categorized by the Commission; (b) in lots over 10,000 pounds; or (c) in lots under a single bill of lading.
PROPOSAL FOR FURTHER CHANGE
The legislative changes I am proposing in this bill will make the trucking industry substantially more efficient, competitive, and responsive to consumers. It will also greatly reduce government interference with the economic decisions of trucking companies. However, there will remain a greater degree of regulation over trucking than exists for any industry of comparable size and competitive potential. After increased competition in this industry has had a chance to take hold, we should consider whether ICC regulation over the trucking industry should continue.
The bill requires the Secretary of Transportation, in cooperation with the ICC and the Department of Justice, to report to the Congress by January 1, 1983, on the effects of this legislation, and whether ICC regulation over the trucking industry should be continued.
Finally, I will soon send to Congress proposals which assure that consumers receive increased protection in the household moving industry.
IMPROVEMENT OF SERVICE TO SMALL COMMUNITIES
The bill I propose contains the following provisions that will improve trucking service to small communities:
1. The general policy statement that governs ICC decisions specifically directs the ICC to improve small town service. There is no such provision in existing law.
2. In determining whether applications for entry meet the "public convenience and necessity" standard, the ICC is directed to emphasize increased service to small communities. There is no such requirement in existing law.
3. Certificate restrictions are liberalized to improve service to small communities. For example, many certificates today specify the actual highway a trucking company must use. If a truck leaves the designated highway to serve a town off the beaten track, it is violating the law. The proposed legislation liberalizes these certificate restrictions, and makes it easier for trucking companies to obtain authority to serve small towns.
Many existing certificates do not allow trucks to make intermediate stops and serve towns between authorized points. These restrictions are particularly harmful to towns that are so small that trucking companies are unwilling to undergo the costly and often unsuccessful process of obtaining authority to serve them. The proposed legislation would remove these restrictions and permit carriers to stop at intermediate points immediately.
4. The program for phased route expansion without ICC approval will emphasize increased service to small communities. There is no such program under existing law.
5. The agricultural commodity and agricultural co-op exemptions are substantially broadened. This will give carriers serving small towns increased opportunities to fill their trucks with commodities they cannot now carry.
6. Increased pricing flexibility will allow lower backhaul rates to small communities.
7. Any carrier that meets financial, safety, and insurance requirements (a "fit, willing, and able" carrier) may enter a point which an authorized carrier no longer serves, or which a railroad abandons. There is no such provision in existing law.
Reforms in safety enforcement are necessary because present levels of safety are unsatisfactory, and because authority to monitor safety practices and to sanction safety violations should be strengthened. These provisions are distinct from the economic reforms and are not made necessary by them.
The bill I propose places new emphasis on the existing fitness test which guarantees that all new entrants into the industry are safe. It also consolidates the safety authority in the Department of Transportation, and gives the Secretary of Transportation broader and more effective authority to deal with safety violations.
These reform proposals for the trucking industry, together with airline deregulation and my recently proposed rail reforms, fundamentally reshape Federal regulatory policies toward the transportation industries. These new policies recognize that our national interest in a more productive, fuel-efficient and responsive transportation system can be best achieved with less Federal regulation and more reliance on private initiative.
The White House,
June 21, 1979.
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