Too Much: The ICC and the Trusters

...In a freer trucking marketplace, you would have a much greater range of price and service options...

...There is no inherent reason why railroads cannot compete successfully with trucks, since they have appreciably lower costs on medium and long hauls-those over 200 miles...

...In any case, the ICC would profit little by vigorously promoting competition...

...FCC licenses don’t get much attention in the press, although most large publishing operations own and profit from them...

...The burden of proof is on the applicant, and it is often an impossible one...

...The crippling blow to the railroads was the construction of the interstate highway system, which permitted truckers to compete seriously with the railroads in long-distance freight carriage...

...This can be a tremendous money-saver...

...In 1977 the average return on equity for carriers under ICC control was better than 16 per cent, with many f m s reporting returns of 30 to 40 per cent...

...From its beginning, the ICC has failed to promote healthy competition, falling instead into a pattern of protecting the strong, hindering the weak, keeping out those who aren’t already in, and letting the public be damned...

...With this you also began to see a resettlement of industry away from rail sites and out into the suburbs and rural areas, which were serviceable by trucks,” Ritch says...

...To guard further against firms competing for the same traffic, the ICC imposes restrictions on which highways each company may use...

...He might be allowed to operate from Texas to Oklahoma...

...Unregulated Trucks A look at the differences between regulated and unregulated trucks dramatizes the wasteful consequences of regulation...

...The best the commission can do is to use its authority in a few instances to prevent especially blatant abuses by the rate bureaus...

...After years of trying to compete with their hands tied, the railroads deserve a fair fight...

...In the 1930s, the railroads wanted a floor on rates, to prevent trucks from undercutting them...

...They didn’t appreciate what was happening to them until long after the war...

...ICC deregulation was also a pet cause of President Ford, who found allies of assorted philosophical persuasions, from the Consumer Federation of America to Common Cause to Ralph Nader to laissez-faire Republicans...

...The only restriction is that it can’t carry anyone else’s goods...

...The commission’s beginning, despite its fervent support from antibusiness progressive circles, was really a victory for the railroads...

...Like a bus, a common carrier is cheaper, but it follows only one specific route, and you may have to transfer several times to reach a faraway destination...

...Trucking interests say deregulation would lead to chaos, but the evidence of unregulated trucking argues the opposite...

...Competition is often bloody, leaving the corpses of inefficient firms strewn in its path, so the ICC runs the other way at first mention of it...

...Certified truckers traditionally have .had a high return on investment, because of the protected environment in which they operate...

...Some trucks are allowed to carry exposed fiim but not unexposed, and companies authorized to carry lead pipe are prohibited from handling plastic pipe...

...This it usually places in the self-interested hands of regional rate bureaus made up of representatives of companies in each mode of surface transportation...

...Chief among them was the Transportation Act of 1920, which supplemented the agency’s power by giving it absolute control over all rates and entry measures intended to ensure a sufficient profit to rail companies...

...Rates would fall, surely, but some companies would find themselves outmatched by more efficient rivals, forcing them to go out of business, dismiss workers, close offices-all those things that usually provoke editorial outcries and congressional investigations...

...If the granting of FCC and ICC operating certificates is deemed a public matter, why should their exchange be an extremely lucrative private one...

...Ann Friedlaender of the Brookings Institution notes that one paper manufacturer “was able to cut freight costs by 45 per cent by using leased equipment...

...If established carriers can show they have the capacity to handle the traffic, the application is normally rejected, regardless of whether or not the applicant might provide a cheaper or more efficient service...

...The first kind is trucks carrying agricultural products...

...In order to introduce some simple elements of free market capitalism into truck and rail transportation, those powers should be abolished...

...Any change in that direction would be to the benefit of American consumers and shippers, and most likely would help revive the railroads as well...

...Mike Parkhurst, editor of Overdrive, a magazine aimed at independent truckers, calls this practice “sharecropping,” and the analogy is far from unreasonable...

...The way to control this unwanted competition was clear: bring trucks under the ICC’s protective umbrella too...

...Then it will probably take him another year or two to get the authority, and he’ll probably get it, because he’s black and there are only a few black movers with ICC authority...

...The Picture Is Illusory The ICC places numerous nonprice restrictions on each operating certificate too, specifying what commodities can be carried, which points served, and so on...

...Hay, for instance, which takes up a lot of space, was made cheap to ship, while gold, which is compact, was made expensive...

...Moreover, the specific authority is often even more specific than it seems to be...

...Present pricing thus both hobbles the railroads and deprives the shipper of the choice between superior service and lower rates...

...The Washington Post recently sold its radio station in Washington for the staggering sum of $6 million...

...Nader has suggested that the ICC be simply abolished, as has Senator William Proxmire...

...The commission was given broad authority to enforce “reasonable and just” rates, and stocked by President Cleveland with an undistinguished group of men who had strong ties to the railroad industry...

...Under current law, there are three kinds of commercial trucks exempt from federal regulation...

...The ICC also has rules prohibiting some carriers from carrying anything at all on return trips...

...A neat and tidy cartel, from the point of view of the regulators, is clearly preferable to the messy, unpredictable “chaos of the marketplace...

...A company granted the authority to carry “machinery” will find that designation doesn’t include carburetors, generators, distributors, and electrical motors...

...A comparison of the United States with countries in Western Europe suggests that relatively unregulated truckers provide better service at lower prices than regulated ones...

...Eliminating value-of-service pricing to allow them to undercut truck rates on a lot of freight traffic would do more for the rail industry than a dozen Penn Central bailouts...

...In Great Britain, following complete deregulation in 1971, rates fell by five per cent-even though the government had controlled only entry, not rates, points served, or routes...

...How does the trucking industry get away with it...

...The railroads have declined steadily since the 1930s, both in health and competitive ability...

...Since then, of course, the railroads 34 have become the victims of their own short-sightedness and indirect government assistance of the trucking industry, and the ICC is now the instrument of truckers, not rail barons...

...Subsequent court rulings, however, badly undermined the ICC’s authority, forcing Congress to shore it up again by passing new laws against rebates, discrimipatory pricing, and rate-cutting...

...The 1920s brought the rise of a new, unregulated competitor, the trucking industry...

...The final variety of unregulated truckers is what’s called “contract carriers...

...The only possible justification for this kind of route regulation is the one the Civil Aeronautics Board uses-that it’s the only way to assure the continuation of what would otherwise be unproductive service for small cities...

...So while contract carriers have freedom of movement, common camers have freedom of clientele...

...When during the 1950s the courts ruled that frozen fruits and vegetables, frozen poultry, and fresh dressed poultry were exempt goods, their rates fell sharply-for frozen fruits and vegetables, 19 per cent in two years...

...If any company cuts its price below the standard, the local rate bureau or another company can-and usually does-challenge its right to do so...

...In the early years of trucking regulation, the rail companies underestimated the competitive threat of trucks, says Jim Ritch, a lobbyist for deregulation...

...A firm with the right to transport “fruit and vegetable juices,” for instance, cannot carry frozen juices...

...Besides preventing monopolistic pricing and rate wars, value-of-service pricing was designed to promote development of the West by holding down rates on the low-value bulk goods that farms and mines produce...

...What would happen in a competitive environment...

...Trucking licenses work similarly to another government outrage, the Federal Communications Commission’s operating licenses to radio and television stations...

...Most are only short extensions of authority for existing carriers...

...The longer the trip, the greater the cost advantage of rail...

...These rules promote further waste by guaranteeing that trucks will run empty or only partly loaded much of the time, since a truck carrying one category of goods to a given city may not be able to find anything to carry on the way back...

...The Carter Administration has endorsed deregulation of the nation’s rail and trucking industry...

...Railroads have not, by the way, pressed for deregulation, apparently preferring the known-however unprofitableto the unknown...

...ironically, railroads also suffer...

...There is simply no way the ICC could ever come up with a fair, reasonable rate on each of the thousands upon thousands of commodities shipped between hundreds of different points on hundreds of different routes...

...If Safeway, for instance, wants to buy its own trucks it can ship its products anywhere it wants...

...West Germany, which has the most pervasive regulation, also has the highest rates: in 1973, they were SO-percent higher than anywhere else in Europe...

...Both the railroads and the public saw this as a way of stabilizing the industry...

...State construction of highways, to handle the millions of cars Americans bought during the post-war boom, made trucking easier, quicker, and more efficient...

...It’s like the difference between taking a bus and taking a cab...

...Another company in Duluth, Minnesota is required to run its carriers to Chicago through Clinton, Iowa, a route 120 miles out of the way...

...The classic case is the time a frustrated company filed a rate to carry yak fat, an imaginary product, from Omaha to Chicago...

...In return for the higher price, shippers who use contract carriers can send their goods anywhere they want, rather than having to figure out which common carrier has the rights to which route...

...While common carriers can carry the goods of one and all on their prescribed routes, contract carrien have to apply to the ICC for special permission each time they take on a new client, and this process can take two years...

...In a competitive marketplace you can shop at an expensive store, a discount store, or one somewhere in between...

...Defenders of the status quo, such as the American Trucking Association, scoff at the notion that certificates are hard to get, noting that upwards of 80 per cent of applications are approved by the ICC But Stan Sender, a lobbyist for Sears Roebuck, says that figure means little: “Only about 30 carriers a year are given general commodity, unrestricted rights...

...Allan Mendelsohn, a lawyer for the Colorado Meat Dealers Association, says many meat-hauling trucklines “have gotten rid of their employees and have likewise gotten rid of their tractors and refrigerated trailers,” preferring simply to rent their operating rights to independent truckers...

...Another company saved between 25 and 45 per cent on freight...

...When Congress removed the exemption, rates went right back up...

...The railroads were also hurt by the industrialization of the South, which had few railroads to begin with and had to rely on trucks for most shipping...

...By the time the rail companies realized they were being destroyed by the very regulations they had promoted for their own protection, it was too late to do anything, for with the loss of rails’ dominant position came the loss of their influence in Congress and with the ICC...

...The American Trucking Association says operating rights quadrupled in price between 1962 and 1972 and admits that they are a trucker’s “single most important asset”-more important, one gathers, than trucks...

...These bureaus set rates on all services, and while each firm is supposedly free to deviate from the established rate, few have much choice but to go along, since undercutting the fixed rate is expensive, time-consuming, and usually futile...

...A whorehouse in Boston doesn’t make that...

...In Self-In terested Hands Equally important is the ICC’s authority over rates...

...And that 80 per cent figure doesn’t tell you that it takes the ICC 14 months to handle an average case.’’ Jack Pearce, a lawyer whose clients include several black truckers, mentions one client in Dallas who is applying for a certificate to provide household moving service in 40 states: “He’s spent a year trying to get the money together just to apply, and it will probably take another three to six months before he has enough...

...One study suggested that half of all trucking capacity is unused...

...These licenses are enormously valuable-having one is commonly compared to having a license to print money...

...As long as it restricts competition to ensure the prosperity of the bulk of the firms in its jurisdiction, the ICC can count on being ignored most of the time...

...Most critics of the ICC believe a freer transportation market would force prices down...

...More Important Than Trucks The difficulty of obtaining new certificates is suggested by their value on the market (the certificates, once obtained, can be sold to other firms without further ICC approval...

...These rules often force trucks to take long, roundabout routes that waste time and money...

...In order to be admitted as a “common carrier”-essentially a commercial trucker-an applicant must obtain a certificate of “public convenience and necessity,” generally granted only when the newcomer can demonstrate that existing, fiims can not provide the service specified...

...other times he’ll sacrifice that for a lower price...

...When one company, Associated Transport Inc., went bankrupt, it sold its operating rights for more than $20 million...

...For all intents and purposes, the industry became a governmentprotected cartel...

...A shipper may have little choice in which firm to hire to ship a particular commodity, since companies do not receive rights to carry all goods, but only a few specific ones...

...The rate-setting bureaus, though perhaps the most flagrantly objectionable feature of the truck and rail regulation, are indispensable as long as the federal government chooses to fix prices...

...During the same period, the total volume of freight carried by trucks rose six times as fast as that carried by rail...

...In other words, the customer would get what he wants, and what he can afford...

...The reason is that the rate bureaus base their rates on the time-worn principle of “valueofservice” pricing, which means that expensive goods travel at higher rates than cheap goods, regardless of the actual cost of transporting them...

...One Dallas firm has 36 to send its trucks to California by way of Kansas, which adds an extra 12 hours to the trip...

...A Whorehouse In Boston This sort of cost inflation doesn’t reduce profits by much, though...

...With only a few changes and additions-most notably the Reed-Bulwinkle Act of 1948, which exempted carriers under ICC regulation from federal antitrust laws-the 1935 act is still the basis of the federal government’s regulation of surf ace transportation...

...The operating restrictions work to prevent direct competition among different companies...

...After pressing for ICC regulation of trucking to protect themselves from competition, the railroads have found that the sword cuts the other way too, giving trucking companies a tool for suppressing their rivals in the rail industry...

...The independent trucker does the work, but the firm with the operatingrights gets a sizable cut of the take-generally 25 per cent, but sometimes as much as 50...

...These are companies who have only a few long-term clients and usually charge more than common carriers...

...German rates, in fact, run a full 25-percent higher than those in Britain, even though Britain has one of the continent’s worst highway systems and West Germany one of the best...

...The source of the problems that regulation causes is the original Interstate Commerce Act, which is designed to create and maintain a cartelized industry...

...Absolute Control Perhaps the ICC’s most important power today is its absolute control over entry into the trucking business (no one wants to enter the rail industry anymore...

...In a free market, most medium- and long-distance traffic would go by train...

...Too Much: The ICC and the Truckers by Stephen Chapman In all the agencies of government in Washington, there is probably no worse example of federal regulation than Interstate Commerce Commission Over the course of its 90 year existence, the commission has compiled an almost spotless record of guarding and promoting the interest of the dominant companies and unions in its jurisdiction Created in 1887 to regulate the nation's rail traffic, it later was given authority ever waterways, pipelines, and highways as well, making it one of the most powerful agencies in the federal government...

...The American Trucking Association points to the 1 5,000 different firms engaged in trucking as evidence of competition, but that picture is illusory...

...There are two crucial reasons for its domination of the ICC, one related to necessity, the other to the commission’s self-interest...

...The American Trucking Association argues that in a free market the Springfields and the Fresnos would lose their trucking service, but in fact these towns are already perfectly well served by unregulated carriers, who wouldn’t be affected by deregulation...

...Plainly the commission, with its relatively small budget and staff, could not even begin to try, so it has no choice but to turn the decisions over to the firms who ship the goods...

...If he were my brother or cousin he’d have to pay $20,000 to $50,000 for the legal work involved in getting through the ICC and it would take two to four years, and he probably still wouldn’t get it...

...Between 1939 and 1967, their share of regulated intercity freight dropped by a third...

...Trucks can offer better service than railroads, but only at a higher real cost on most hauls...

...Beset by intense lobbying by the ICC and the railroads, dismayed by record financial losses in the rail industry, Congress in 1935 widened the commission’s scope to include commercial motor carriers, hitherto left to the states...

...The establishment of a regulatory agency had strong support among railroad executives, who were frazzled by frenetic competition and disillusioned by the failure of price-fixing and cartelization agreements...

...The lowest rates are in Belgium and Sweden, both of which permit an essentially free market in trucking...

...Right now it doesn’t...

...for frozen and dressed poultry, 33 per cent...

...The real culprit, however, is not the commission itself, which, given the American experience with regulatory agencies, could hardly be expected to do otherwise...

...One lobbyist tells the story of the late Paul Cherington, then an Assistant Secretary at the Transportation Department, meeting with a group of certified carriers, who complained that deregulation would diminish the value of their operating rights...

...As long as the ICC is authorized to limit entry, fix rates, prescribe routes and commodities, and generally restrict competition among supposed rivals, it will do so...

...Shippers have a choice between sending their cargo by truck, which can provide door-to-door service, or by train, which can deliver goods only to a particular city or town...

...Stan Sender adds that the reductions would not necessarily be across the board: “Sometimes a shipper wants fast service...

...Delivery times fell, and the door-to-door service trucks offered persuaded many shippers to switch from rail to trucks...

...The second kind of unregulated trucks are those owned or leased by companies that want to ship their own goods...

...Shippers and consumers are not the ICC’s only victims...

...A Short-Sighted Solution ~ But government protection of the railroads soon proved a short-sighted solution...

...Though no one had ever heard of yak fat, much less carried it, no fewer than 13 carriers protested the rate...

...Unsympathetic, Cherington retorted, “You people are making a 40 per cent return on equity...

...And all that money-well7 that’s not even talking about putting the trucks on the road...

...It has held rates above their normal levels, inflated the cost of doing business, contrived, to shut out the newcomers, encouraged inefficiency, and made thorough mess of surface transportation in the U.S No agency ever called out louder for abolition that ICC...

...The problem today is that rail and truck prices are based on the same rules, which keep their rates roughly equal -that is, the rates are based on the kind of product carried, rather than the cost of carrying it...