Deregulating Trucking

Bureaucracies line the north side of Constitution Avenue in Washington, opposite a green where office workers browse away lunchtimes in museums. One popular exhibit—featuring the dinosaurs of yesteryear—lies a short walk from an agency that today creaks and wheezes in the city's new political climate. Officials in this agency fear for the future: they find outside critics suggesting that the bureaucrats there need not cross Constitution Avenue to view anachronisms, because they work for one of the largest.

The Washington Post has chronicled the onset of hard times for these "guardians" of surface transportation, employees of the Interstate Commerce Commission. Opening the paper in the morning has become an unpleasant proposition for many. One day, Senator Edward M. Kennedy mourns that trucks were ever brought under regulation. On another, Federal Trade Commission Chairman Lewis Engman indicts the agency for practices that "make welfare fraud look like petty larceny." On a third, President Ford blasts regulations that force trucks to go empty. On a fourth, Senator William Proxmire demands abolition of the ICC because its rules stifle price competition.

Chances are that the ICC will not die from these jabs. Trucking and rail lobbies are too strong for that. But officials mutter aloud that a "deregulation steamroller" is on the move, and worry that a sullen Congress will hack away at the agency's authority in response to citizens' complaints about ever-emptier pockets. A respected Stanford economist, Thomas Gale Moore, author of studies on the ICC for the Brookings Institution and the American Enterprise Institute, estimates that consumers lose more than $10 billion a year because of ICC regulations that inspire price-fixing, crush free entry into the market, force trucks to haul nothing but air, and even prevent vehicles loaded with cargo from going straight to their destinations. These are only the direct costs: the long run "dynamic" inefficiencies—e.g. placement of factories near highways rather than rails because of artificially high rail rates—come to an equal or larger sum. It is quite possible that this lumbering, slow-witted agency costs the average American family $400 a year.

TRUCKING

Nowhere do the problems of regulation appear with such clarity as in interstate trucking, which has been under ICC control since the 1930's. The attitude of the Commission towards competition in trucking becomes nightmarishly clear in the case of a west coast hauler named Karl Weber.

Weber began fighting the ICC in 1955, and he has yet to win more than a temporary victory. In that year, he sought rights from the Commission to carry limestone and soot ash to New Mexico. After two years, and $5000 in attorney's fees to fend off protests by established carriers who claimed to give good service already, Weber received his ruling: the application was denied.

In the mid-1960's, Weber heard about another company frustrated with existing ICC-certified carriers—a lumber mill located far from interstate highways. The company relied on "gypsy" truckers (who haul without certificates) because legal carriers did not care to travel via backwoods routes. Weber thought he could fill the void, but his application for ICC authority drew protests from 25 lawyers for potential competitors who complained that Weber would threaten their firms. A year later, despite pleas from the lumber company, the Commission rejected his request. His three trucks did not have the capacity to service the 11 state territory he sought, it said.

Weber refused to give in. He filed for temporary authority in 1966 that would allow him to operate for 30 days. For five years he struggled continuously to extend his temporary rights on a temporary basis, finally applying again for permanent authority in 1971 when he felt he had a proven record. This time, 62 trucking companies and 11 railroads protested. Only after he appealed that decision was he given rights lasting more than a few months. The catch: he can haul only one way in most of the shrunken territory he can service, and the authority expires at the end of three years.

"It could drive a man to the nuthouse if he let it," Weber says of his experience. "It's nearly done that to my wife. I thought I had a right to make a living in the field of my choice. I fought in World War II to protect that right."

Weber is not alone. James Blake Chisolm, a black entrepreneur who runs a charter bus line in Georgia—to the extent the ICC lets him—also has spent years waiting for authority. But Chisolm has felt ICC police-state tactics more directly. One day in July 1972, as a bus of his lay in a Florida depot preparing to return to Georgia, a man came on board. He was an ICC official who, in Chisolm's words, "accosted the people on the bus, made some of the persons on the bus get out, and questioned them behind the bus whether they were paying me anything." Satisfied that Chisolm was carrying people for hire without authority from the Commission, the agent forced him to pay a $204 fine in cash on the spot.

RED TAPE

The red tape that snags such prospective entrants to interstate trucking as Chisolm and Weber defies belief. In almost every case, the applicant must show that established carriers lack the capacity—that is, the requisite number of trucks—to handle a flow of traffic. The Commission is for the most part uninterested in evidence that service is overpriced or inefficient. The cost of paperwork of all types too, is staggering. "I don't think one could start a viable company today for less than $10 or $15 thousand, just for a state license, preparing and filing tariffs [rates] with the ICC, joining a rate bureau, applying for a certificate and paying legal fees," says one New York lawyer who practices before the Commission. The lawyer—himself a former ICC employee—adds that the application process frequently lasts over a year and that the stack of paper generated in an average disputed case reaches 12 inches high. After all this, he says, a protested applicant can expect that his request will be denied.

At the ICC, much is made of the fact that it grants in full or in part about 80 percent of the applications for new authority each year. Most applications are not protested. But a look at the requests explains why—those approved are seldom large in scope; a fairly typical certificate might permit a trucker to carry kitchen sinks to three states. In 1973, the Commission rejected 941 of 5500 applications on the grounds that the carriers were unqualified or that the grant would not be in the "public convenience or necessity." It would create, in simple English, too much competition, and drain profits "necessary for investment" in the industry.

Tight control over entry is just one aspect of ICC regulation. The Commission not only keeps many qualified individuals from hauling interstate goods, it discourages those who do have ICC authority from filling up their trucks on return trips. Here, too, the agency's protective stance towards established carriers is to blame.

Elliot Trucklines of Pryor, Oklahoma enjoys permission to haul feed additives to distributors near Memphis, Tennessee. It lacks ICC authority to haul fertilizers manufactured in the Memphis area back to Oklahoma. Incredibly, the substances are almost identical. "The feed supplement is just a higher nitrogen content fertilizer," says Steve Kruger, purchasing manager for a large Tennessee fertilizer company. "The manufacturing process is the same. But as far as the ICC is concerned, one is fertilizer, one is feed supplement. Elliot cannot carry our fertilizer back to Oklahoma."

The problem of "deadheads"—empty miles—afflicts truckers everywhere, although in many cases, the ICC is not at fault. Patterns of commerce sometimes involve imbalanced flows of goods. The Commission complicates matters, however, by limiting the ability of truckers to pick up return cargoes. Even "unregulated" carriers find themselves in this bind of the Commission's making: they can haul only unprocessed agricultural goods, unless they wish to lease themselves to a regulated carrier who will rake off 10 to 25 percent.

Perversely, the Commission also prevents many truckers from travelling straight to their destinations—an aspect of regulation that the Sierra Club estimates wastes tens of millions of gallons of fuel each year. Trucks leaving Consolidated Freightways' huge terminal in Dallas must go through Kansas before entering Southern California, because the company lacks direct route authority. In Chicago, Takin Brothers Freightlines must divert cargo to Iowa before it can be taken to Minnesota, while a Connecticut based company must send its trucks bound for Albany through New York City because it lacks rights to travel a 14 mile strip of highway between Albany and the Massachusetts border.

One of the outspoken critics of this inanity is Anthony Arpaia, a former chairman of the Interstate Commerce Commission. "Would you believe that some certificates have had service restricted to one side of the street?" he asks. "Or that when a factory changes its main entrance gate, a carrier has to come to the Commission and go through the expense and delay of a proceeding to be able to continue to service its customer?"

PRICE-FIXING

But such restrictions cost peanuts compared to those which promote industry-wide price-fixing. Interstate trucking and rail rates are set for the most part by regional networks of firms known as "rate bureaus," exempted from antitrust laws in the 1940's, whose decisions stand unless an angry party undertakes the expense of asking the ICC to intervene. The price fixing is propped up in an indirect but real way by the Commission's power to suspend or cancel rates set independently of the bureaus. Each year, the rate bureaus protest hundreds of such rates on the grounds that they are "noncompensatory" and therefore illegal. Those who seek to break the price-fixing rate level in almost every case lack the resources and legal talent of the bureaus, and suffer more from the costly hearings before the Commission. The rate bureaus, moreover, can afford the manpower to file sophisticated data while small, independent carriers struggle to manipulate the equations by which the ICC judges the soundness of a protested rate. Odds are thus stacked in favor of the rate bureaus. To add insult to injury, the proposer of an independent rate generally belongs to the rate bureau in question, and pays dues to it which in part finance the protest.

The Southern Motors Carriers Rate Conference has shown a particularly heavy hand in suppressing rate competition. Poole Trucklines of Alabama proposed in 1972 to drop his price on paper products to 66 cents per hundred pounds—26 cents lower than the rate set by the rate bureau. The Conference instantly branded it as "unjust and unreasonable," and the ICC responded by cancelling the rate reduction. A study by the ICC's own bureau of enforcement, concluded in 1974, attacks this and many of the 39 other protests filed by the Southern bureau in a single 16 month period. In a departure from the guarded language of most bureaucratic reports, the study called attention—"because of its apparent current relevancy"—to Congressional testimony in the 1950's that rate bureaus are "meddling in the affairs of the management of member lines and bringing pressures on members for not falling in line."

The Rocky Mountain Motor Freight Tariff Bureau has contributed its share of striking examples. A small carrier was hauling candy from a Krafts food plant in Texas to the west coast in 1967, often returning its trucks empty for lack of cargo bound eastward. When Kraft decided to test-market cottage cheese in Texas made at the west coast plant, the trucker agreed to carry the cheese at a low rate. The rate bureau proceeded to snatch away both the cheese and the candy from the small trucker. In a protest to the Interstate Commerce Commission, it alleged that the new rate for cheese was not compensatory. The ICC, agreeing, suspended it. Kraft officials were so upset by the rate bureau's price for hauling cheese that they switched to their own trucks. In order to fill up their trucks after they delivered the cheese, Kraft loaded them with candy formerly carried by the small trucking company.

Since 1970 the ICC has forced transportation companies and their customers to pay out over $3 million for the crime of settling upon rates lower than those filed by the rate bureaus. Calling such practices "destruction of rate integrity," the ICC has assessed three shippers alone—American Beef Packers, Inc., Blue Bird Food Products and Associated Growers of Florida, Inc.—almost $30,000 for trying to cut food transportation costs.

The price fixing system relies on the carrot as much as the stick. The jacked-up prices convince many truckers that they can earn more profits by going along with rate bureau actions than by rocking the boat with lower rates. Partly in consequence, regulated truckers boast an estimated return twice that of most industries—about 15 percent, according to the President's Council of Economic Advisors. The late Paul V. Cherington, a former Department of Transportation official, used to note sourly that "only truckers and whorehouses get that rate of return."

Anger with rate bureaus is rife in Washington. "I hate to use the word, but rate bureaus are cartels, legitimized by government and given antitrust immunity," says Keith Clearwaters of the Justice Department's antitrust division. "They tend to raise rates because rates set by committee are not the most efficient. The mediocre carrier is the benchmark by which rates are set." The Department of Transportation unsuccessfully has tried twice to subpoena data used by a sampling of rate bureaus in setting prices in order to show how they run the cartel. In both cases, the ICC rejected the subpoena on the grounds that the confidentiality of rate bureau deliberations is protected by law. "The ICC doesn't even get the data," a senior DOT official adds, "and you have to have it in order to regulate."

Questioning of the system has even reached into the ICC. Under DOT and Congressional pressure over a year ago, the agency launched an inhouse investigation of rate bureaus to see whether they discourage "independent action" by truckers and railroads. A preliminary report by the agency's bureau of enforcement suggests much room for improvement. If their antitrust immunity is to last, it suggests that "rate bureaus should be prohibited from opposing any independent filing of a member carrier."

In environmentalists' opinions, perhaps the worst effect of the rate bureaus is to divert huge amounts of freight to trucks that would otherwise go by rail. The diversion takes place because railroad bureaus puff up their freight rates even more than do truck rate bureaus. A widely-cited 1969 Journal of Law and Economics article puts the price tag at about a $2 to $3 billion loss each year. Since trains burn only a quarter of the fuel consumed by trucks hauling cargo an equal distance, the potential fuel savings amount to hundreds of millions of gallons annually.

LOBBYING

The organized might of the trucking industry would seem to doom any chance of breathing competition into regulated transportation. "There is no question that deregulation would give us more efficient transportation and redound to the benefit of the consumer," observes former Council of Economic Advisors Chairman Paul McCracken. "But the thing that produces action in government is a fairly focused interest group. What you've got on the other side are things that count in the political process—such as the Teamsters Union and the trucking lobbies." Former ICC Chairman Anthony Arpaia concurs. Trucking and rail companies inflexibly resist change in their protected positions, he warns, and they "constitute a powerful lobby with plenty of money on Capitol Hill."

The inbred relationships between the ICC and the transportation industry add to the difficulty. The 1970 Nader report on the ICC asserts that job-switching between the Commission and the industry has grown with "'deferred bribes' becoming the norm." The study found too that powerful industry groups quietly clear the appointees to high ICC posts before their names go to Congress. "In effect, the clearing process means prior approval by the American Trucking Associations and the Association of American Railroads, sometimes by other carrier associations, and, on occasion, relevant labor interests," it concluded. "The position, despite its critical importance, has become a political payoff, an elephant's graveyard for political hacks."

While Arpaia desires no more than an upgrading of personnel and a loosening of operating rights, Nader is adamant on ending price-fixing by rate bureaus as well. His 1970 report concludes: "All evidence indicates that the deregulated model of transportation results in neither rate wars nor cutthroat competition, but rather in healthy stimulation and competition resulting in better service."

In spite of the obstacles, a deregulation steamroller does seem to be on the move—slowly. Senator Warren G. Magnuson, head of the Appropriations and Commerce committees, appears ready to act in ways anathema to the trucking associations. While he is not prepared to deregulate completely, Magnuson states that a more competitive market may well be desirable and that "there is definitely a need for reexamination" of the certificate system. "The excruciating detail of the present classification system appears to result, in many cases, not only in economic inefficiencies such as unnecessary empty backhauls, but in an inefficient use of the Commission's regulatory energies," he says. "I do believe that the regulated transportation industry could be made considerably more efficient."

Rep. Harley Staggers, head of the House Interstate and Foreign Commerce committee, has shown a willingness to change a few of the industry's sacred cows. "I don't think any trucks should be required to gateway," he says in reference to the circuitous routes many trucks still take. "And I can't see the ICC not allowing backhauls either." In a reflective note unusual for a New Deal liberal, Staggers sums up, "The ICC has made a lot of mistakes—so have we, and so has the country." One dinosaur, in short, is alive but not well in Washington, DC.

Contributing Editor Mark Frazier is a journalism graduate of Harvard. He has worked for syndicated columnist Jack Anderson and free lances for Reader's Digest. He is currently living in Auckland, New Zealand, where he is writing for a local newspaper.

PARTIAL DEREGULATION PROPOSAL

The Ford Administration's legislative proposal for partial deregulation of trucking had not been released at press time, but key elements planned for inclusion have been made public in recent weeks. These include the following provisions:

• Allowing truckers to raise or lower rates within a "zone of reasonableness" (e.g. plus or minus 15 percent) without ICC approval.

• Elimination of the antitrust immunity of truck industry rate bureaus, so as to prevent price-fixing.

• Wiping out the "unbelievable morass" of restrictions on entry into the trucking business, substituting a simple standard of allowing any carrier which is "fit, willing, and able" to enter the business.

In addition, the Administration is preparing a proposal to levy higher user charges on heavy trucks (which do not currently pay their full share of highway costs), and to limit the use of Federal highway trust funds to Interstate highways only.
—Robert Poole, Jr.

Interstate Commerce Commission
"Entry control is the best, and most predictable and effective means yet devised by which regulated carriers may be required to fulfill their common carrier obligations to the public. Our licensing function is thus directed only to the elimination of the unsafe or unfit operator and to the prevention of economically harmful and wasteful competition."
—ICC Report to Congress 1973

"What may sound like an 'irrational and ludicrous' grant of operating authority is simply an accurate description of the traffic involved."
—ICC Chairman George Stafford

"There is no underutilization (of trucks) resulting from lack of operating authority."
—ICC General Counsel Fritz Kahn

"(The commission) is not engaged in a master-price-fixing operation, approving or disapproving every rate filed by carriers."
—ICC ruling, 1974, on application for trucking authority (denied)

"Deregulation would make it tougher for everybody to make a living."
—William Bresnahan Chairman, American Trucking Associations

"Most of the Commission's actions to protect the public against unreasonable rates have become so commonplace that the consumer is unaware of the protection he is receiving."
—ICC Report to Congress 1972

"(The ICC) is an elephant's graveyard for political hacks."
—1970 Nader report on the ICC

"There are more whiskers and cobwebs in the ICC than any place in government. The best information we have is that the Commission has become a captive of the transportation industry itself. Instead of regulating transportation to avoid monopoly and increased prices, the ICC has established monopolies, reduced competition and ordered high and uneconomic rates to cover the costs of inefficient producers."
—Sen. William Proxmire

"It has redefined the public interest to be synonymous with the needs of carriers and occasionally shippers, but has omitted labor and consumers."
—Common Cause staff memorandum

"The agency has an infinite capacity to interpret regulation in ways that are anticompetitive."
—DOT Deputy Secretary John Snow

"I have no way of knowing what the numerous regulatory measures cost the consumer each year. I have seen private estimates indicating that the annual costs in the transportation area alone may exceed $16 billion."
—Federal Trade Commission Chairman Lewis Engman