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Truck Topics

Regulated Days of Yesterday

By Sandy Long
Posted Apr 4th 2014 2:25AM

AirlineDeregulationAct.gifWith the many changes in the trucking industry, many people are talking about ”˜the good ”˜ol days’ when trucking was regulated and wish for a return to those times. I started my otr driving career in 1982, two years after deregulation so did not experience those times. This wishing of some sent me on a quest to learn about regulation and deregulation and the effects on the industry.

Until around 1934, trucking companies opposed any regulation by the federal government, working under the National Industrial Recovery Act which allowed companies to restrict competition by establishing good conduct rules. When the NIRA was found to be unconstitutional by the Supreme Court, trucking associations changed their stance and the Motor Carrier Act of 1935 was enacted.

Up to 1935 and after, carriers had authority to run certain routes and areas. If a new customer opened up, existing carriers would get preferential treatment by the ICC over carriers wanting to take the new route in getting authorized to carry that freight. Wording of the application for authority to provide service to a customer had to be precise. One example is if you were going to haul paint for a customer, you had to specify what size of containers it would come in in the load. If you were not careful, you might be able to haul gallon-sized cans of paint, but not 55 gallon drums of paint from the same shipper.

Some weird things happened with this regulated system. If a carrier had authority to take freight from point a to point c, they might not have been allowed to go through point b that was another carrier’s authorized stop. Also, authority to haul from point a to b, might not contain authorization to haul freight from point b to point a, making a carrier go back empty to point a. Something like today’s trip leasing went on during those days if you had to cross through another company’s territory. You would have to stop by their terminal, get their signs after having your truck inspected by them. Lots of money changed hands for those leases.

Rates were regulated too. If a carrier wanted to increase the rates, it had to basically ask the ICC for permission by filing for the rate increase in ”˜open to the public’ documents. Other carriers and the railroad could get a rate raise held up by protesting the increase while the ICC investigated the legality of the rate increase.

Pressure was put on Congress to exempt agricultural products from ICC authority and rate settings. After Congress did this, rates to haul agricultural products fell sharply and after more Congressional intervention in 1950 where frozen fruits and vegetables and dressed poultry were included in the exemption, the rates to haul these commodities fell even further though carrier service improved. In 1972, the National Broiler Council testified that the cost difference between the rates to haul cooked chicken, a ”˜manufactured’ commodity, were 50% higher than the rates on the exempt product of dressed fresh chicken.

The regulation of the trucking industry had a violent side too. Because of the routing regulations, there was almost a gang ’turf’ thing going on and it wasn’t uncommon for fights to break out between different company’s drivers, private drivers and between union/non union drivers. Mafia involvement was big in trucking during those years also. This was because of the big money made out of ”˜protecting your routes’.

Big money was passed around too in the buying and selling of routes. The ICC was against mergers, buyouts and selling of routes though and would stall the ok for them as long as they could. From the Cato Institute: Purchasing the rights of an existing carrier became the only practical approach to entering a particular market. By the 1970s, route authorities were selling for hundreds of thousands of dollars. Since the commission disapproved of "trafficking" in rights, it was often hostile to mergers and purchases and attempted to restrict certificates as much as possible.

In 1962, President John Kennedy was the first president to try to get regulation lessened for surface freight transportation. President Lyndon Johnson’s administration got Kennedy’s bill defeated. Things stayed the same until 1971 when once again an attempt was made to lessen regulation by the DOT this time. This attempt too was defeated by the administration who was supported strongly by the Teamster Union who was against any attempt at deregulation.

Finally, in 1975, President Gerald Ford bypassed congress and appointed pro-competition commissioners to the ICC. From the Cato Institute: By the end of 1976, these commissioners were speaking out for a more competitive policy at the ICC, a position rarely articulated in the previous eight decades of transportation regulation. Under Ford the commission took the first actual deregulatory steps by issuing in June 1975 a rule prohibiting rate bureaus from protesting independent rate filings by members.

President Gerald Ford set the stage for President Jimmy Carter to work towards deregulation by placing deregulation advocates into key positions in the ICC, These advocates along with President Carter’s support, spurred the ICC to start easing up on trucking. The successful deregulation of the air industry, was followed by Congress passing the Staggers Act deregulating the railroads and finally the Motor Carrier Act of 1980 deregulating trucking.

It took awhile for full deregulation to occur. First thing addressed was easing getting authority. Whereas before 1980, a carrier asking for authority to run an area had to prove that their services were necessary, after the 1980 Act, the carriers protesting against the new carrier getting authority had to provide proof that the new carrier was "inconsistent with the public convenience and necessity'. In addition, carriers were allowed more leeway in routing, backhauls and setting rates.

Deregulation had many benefits. Small communities were better able to get carrier service, carriers were able to haul backhauls and rates dropped through restructuring of the rate setting system and by providing competition for freight. Carriers became more apt to want to negotiate rates and services with shippers, and shippers saw a lowering of rates to ship by rail. (Shippers loved that!) One thing that looked good to some and bad to others was the weakening of the Teamsters Union hold on trucking.

Carriers also made money with deregulation even with the rates dropping. Being able to route their trucks the shortest routes without having to ”˜lease’ on with the area controlling carriers and being able to book backhaul loads added to the carrier’s bottom line.

In 1976, 7,000 applicants applied for authority, in 1980, authority applicants numbered around 22,000 with another 14,000 applicants in the first six months of 1981. (numbers rounded off) The number of new carriers bloomed! Meanwhile, union LTL carrier numbers were shrinking. Comparisons of licensed carriers in 1980 and 1990 showed a difference of 23,000 more in 1990 than in 1980.

Deregulation was credited with lowering accident rates involving heavy trucks and provided the means for the birth of the intermodal networks between carriers and the railways. Goods moved more swiftly from shipper to receiver with the improved routings so were easily accessible to consumers when the consumer wanted them.

From the Cato Institute: According to one study logistical costs of business and government in 1981 amounted to 14 percent of GNP. Improved transportation services, traceable to the Motor Carrier Act of 1980 and the Staggers Act, cut these costs by 1987 to 10.8 percent or by about $62 billion. Since trucks account for three out of every four dollars spent to ship goods, the partial deregulation of motor carriers played a significant role in this gain. These savings stem from the ability of industry to adopt 'lust-in-time" manufacturing and of truckers to offer on-time delivery services. Without the partial deregulation that resulted from the 1980 act, these changes would have been impossible.

One thing that did not change with deregulation that was tied to the Motor Carrier Act of 1935 was the exemption of truckers from the Fair Labor Standards Act. This exemption does not require that truckers be paid overtime or even minimum wage. This made the 70 hours in 8 days and the 60 hours in 7 days rule possible and allowed companies to pay drivers what the companies wanted to pay rather than minimum wage with overtime.

It appears that the government these days is doing everything in its power to re-regulate the trucking industry, or at least control it to the Nth degree without actually saying so. They are proposing adding exams to test new authority seekers, increasing medical rules and regulations and taking every bit of freedom from the driver. Will it go back to the way it was before deregulation, only time will tell, the government isn’t saying.

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