# The Trucking War

**URL:** <https://www.libertarianism.org/essays/the-trucking-war>

**By** Doug Bandow

**Published:** February 1, 1980

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“A fierce regulatory battle is now underway in Washington—over the Interstate Commerce Commission's control of the $56-billion trucking industry.”

A fierce regulatory battle is now underway in Washington—over the Interstate Commerce Commission’s control of the $56-billion trucking industry. The Carter Administration, following its successful deregulation of the airline industry, has joined with Senate Judiciary Committee chairman Edward Kennedy in the far more difficult task of restricting the power of the ICC over the nation’s transportation system.

The deregulation legislation is being supported by a disparate coalition which includes Ralph Nader, the American Conservative Union, the National Association of Manufacturers, and former Civil Aero-nautics Board chairman Alfred Kahn. However, it faces an uncertain future, with the trucking industry, according to U.S. Regulatory Council chairman Douglas M. Costle, having “put together a major lobbying effort on Capitol Hill to kill deregulation.”

In fact, the trucking industry and the Teamsters Union, frightened by the spectre of competition—which would eliminate the industry’s monopoly profits and the union’s excessive wage agreements—have forged an alliance of expediency. Together, the 16,600 regulated truck lines (with at least one in every congressional district) and the 300,000 Teamsters Union members are presenting a far more united and effective opposition to deregulation than did the airlines industry.

The proposed legislation would reduce the ICC’s control of truck freight rates by ending joint rate-setting by regional truck groups and allowing truck lines greater freedom in raising or cutting fares. It would also require the ICC to give more weight to the value of competition when weighing applications for new entrants, and would remove many restrictions on the routes taken, stops made, and commodities hauled by truckers. Finally, the legislation provides for the possible elimination of all ICC regulation of trucking after 1982.

A parallel deregulation movement has occurred within the ICC itself, which, under chairman A. Daniel O’Neal, who was a consumer-minded Senate Commerce Committee staffer before being appointed to the ICC in 1973 (and made chairman in 1977), has begun to voluntarily relinquish some of its regulatory authority.

For example, the ICC has abolished the rule preventing companies that haul their own goods from carrying freight for others on return trips. It has also scrapped an ICC prohibition on truck lines contracting to haul the goods of more than eight shippers; it has loosened entry standards, requiring a new truck line to prove only that it “will serve a useful purpose”; and it has held that as of January 1, 1979, only those carriers who actually transported traffic involved in an application were automatically entitled to participate in the proceedings.

Even more dramatic has been the ICC’s shift away from the prosecution of illegal “gypsy” truckers, who operated without government sanction. The gypsy truckers, who provide lower prices, faster service, or both, were estimated to be conducting between $500-million and $1-billion worth of business in 1963; the figure is undoubtedly higher today.

Under Peter H. Shannon, Jr., director of the ICC’s Bureau of Investigation and Enforcement, the ICC has also begun concentrating on policing regulations that directly affect consumers, such as moving abuses. In 1976 roughly half of the agency enforcement cases involved illegal operators. That figure has now dropped to 24 percent, and Shannon hopes to reduce it still further.

American Trucking Association (ATA) president Bennett C. Whitlock, Jr., has termed these shifts in emphasis “outrageous,” and has complained that “there are literally thousands of unregulated truck operators looking for any opportunity to secure regulated cargo of any nature and description.” But unsympathetic observers retort that violations occur precisely because the regulated industry is unable to meet shippers’ demands. One Transportation Department official comments that “when so many people violate a law, you have to look not at the violator but at the law.”

In fact, the ICC’s self-deregulatory moves have prompted 50 trucking companies, Teamsters Union president Frank

Fitzsimmons, and a truckers’ lobby, Assure Competitive Transportation (ACT), to call for O’Neal’s resignation. They take their cartel seriously.

However, the ICC maneuvers, though welcome, fall far short of establishing a free transportation market. The Carter/Kennedy legislation would not dismantle the entire ICC regulatory apparatus either, but it would go the necessary next step toward competition.

Of course, the federal government is not the sole transportation regulator; most states regulate intrastate trucking. In California, the $2.2-billion trucking industry lives, according to the _San Francisco Chronicle_, “in an economically protected cocoon of state-established charges and operating rules.” The industry was placed under the control of the Public Utilities Commission (PUC) in 1938. Now, after 41 years, the California PUC is embarking upon a gradual deregulation program of its own. But the main action is at the federal level.

Federal trucking regulation grew out of the depression of the 1930s. The first step toward legalized cartelization was the submission of fixed-rate schedules and safety regulations under the National Industrial Recovery Act (NIRA). After the NIRA was held to be unconstitutional in 1935, the railroads and large motor carriers pressured Congress into passing the 1935 Motor Carrier Act; the admitted goal was to protect railroads from competition by truckers, and to protect large truckers from the “irresponsibly low” rates of smaller motor carriers. The regulatory scheme was completed in 1948, when Congress exempted truckers from the antitrust laws, and institutionalized industry price-fixing.

The Motor Carrier Act provides the basis for the ICC’s regulation of the trucking industry—in particular, its control of entry into the industry, and the rates charged and the services provided by carriers. Approximately 44 percent of truckers are now regulated; the rest—local carriage, corporate fleets, carriers of raw agricultural products, and some others—are not directly under ICC authority.

However, the latter are indirectly regulated, since, for example, they are normally unable to carry anyone else’s products on their backhauls. Such indirect regulation is itself expensive. The restriction on backhauls alone adds as much as 30 percent to the total mileage that exempt carriers must incur.

To enter the regulated trucking market, which encompasses the major proportion of freight traffic, a company must obtain a certificate of public convenience and necessity. The applicant must prove that he is fit, willing, and able to provide the service, and that the public convenience and necessity requires his service.

Furthermore, though the ICC has recently eased its restrictions in this area, the applicant has traditionally had to demonstrate that no existing carrier can provide the service. It is not enough that customers are dissatisfied with existing shippers, or want another competitor in the business. According to the ICC, an applicant must make “a showing with specificity that the services of existing carriers have been tested, and that such carriers have been found to be unable or unwilling to meet the shipping public’s reasonable transportation needs ….”

Finally, the ICC seeks to determine whether the new service would “endanger” existing carriers—that is, cost them money. Though there are no cases in which the ICC has admitted that it denied an application solely because the earnings of existing carriers might be impaired, it has always found a threat to earnings to be an important factor.

use a shorter alternative route, because a faster service was not contemplated, so no inroads would be made in any competitor’s business. In another case, a carrier requested permission to rearrange its route to lessen circuity by over 20 percent; the ICC denied the application since the alternative route would “constitute a new service which would work a detriment to existing carriers.” In 1970, the ICC even refused trucker requests—supported by the Departments of Transportation and Defense—to allow direct routing of shipments of hazardous materials, since “existing competitive relationships might be undermined.”

Thus it is extremely difficult to enter the trucking market; even the ATA admits that the only sure way to do so is to purchase operating authority from an existing carrier. Though the ICC approves an average of 80 percent of the applications for new and extended services—an average which has recently risen to 96 percent—many of these applications are to serve only one shipper, where no opposition is recorded because no traffic is diverted from any existing carriers.

Moreover, John Semmens, an economist with the Arizona Department of Transportation, has pointed out that many of the other applications are extremely narrowly drawn: he cites one request for authorization to haul blow-ers, and blower parts, accessories, and supplies, between Roselle, Illinois, and locations in 22 other states. As Jack Pearce, an attorney who represents small trucking companies, notes: “If you go for a limited thrust, you’ll probably get it. But if you want common-carrier authority in 28 states, you’ll get 280 protestants. It gets expensive.”

Of course, the firms which lobbied for the 1935 Act have not had to make a similar showing; they were all “grand-fathered in.” Any firm which could demonstrate that it had carried a certain commodity over a certain route was licensed to continue that service. About 27,000 applicants were ultimately so certified. But mergers and failures have since reduced the number by roughly half, resulting in a concentrated market, where the biggest four trucking companies in each of 350 different markets during 1976 had an average of 64 percent of the business on short and medium-distance routes, and 62 percent on long-distance routes. And the transferable certificates of necessity have become extremely valuable because of the entry restrictions. Semmens estimates the aggregate value of the monopoly operating rights to be between $3- and $4-billion.

The second level of ICC regulation pertains to the rates that may be charged by carriers. Truckers are required to adhere to certain minimum and maximum rates, most of which are fixed by regional industry rate bureaus. Though a shipper is theoretically free to set a rate independent of that fixed by the bureau, such a rate would have to be filed with the ICC, which could, and normally would, suspend and/or disallow it. In fact, when one carrier requested a lower rate for a _nonexistent_ product, the rate was promptly challenged by fellow carriers and set aside by the ICC.

The crazy-quilt of regulation on what may be hauled, and to where, has led the ICC down tortuous judicial paths. For example, an unregulated trucker can haul railroad ties if they are cut from logs sawed crosswise, but needs the permission of the ICC to haul them if the logs are sawed lengthwise. Such a trucker can haul parrot food, but not hamster or gerbil food; riding horses for personal pleasure, but not race horses; and whole wheat, but not wheat germ.

Former Justice Department antitrust attorney Joe Sims has cited the ICC’s recent decision that wine is a grocery item, while beer is not (meaning truckers with authority to carry groceries may carry wine, but not beer). Sims explains that: “The Commission pointed out that those trucking firms that already hauled beer might be injured if other trucking firms that currently haul foodstuffs were also allowed to haul beer. Since one side might be hurt by declaring beer to be a food, and since the other side would not suffer by not declaring beer to be a food, beer is therefore found not to be a food.”

This regulation has had a predictable effect on prices and services. The entry limitations combined with industry rate-setting have allowed established carriers to exact monopoly profits. Thomas G. Moore, an economist at the Hoover Institution, has estimated that trucking rates are artificially inflated between 7 and 20 percent.

Another study by Moore found substantially higher trucking rates in those European countries that regulated their industries than in those which did not. Similarly, economist James Sloss studied Canadian regulation—which is less rigid than our own—and estimated that regulation raised rates by almost 7 percent.

Even more impressive that these theoretical studies is the near-perfect controlled experiment that took place in the 1950s, after the U.S. Supreme Court ruled that fresh and frozen poultry were exempt from the Interstate Commerce Act. Prices declined between 12 and 59 percent in particular markets, with an unweighted average fall of 33 percent for fresh poultry and 36 percent for frozen; the weighted average drop was 19 percent. Similarly, the National Broiler Council surveyed its members and compared the average unregulated rate for fresh poultry with the regulated rate for cooked poultry. It found the unregulated rate to be 33 percent lower.

The effect on service has been equally deleterious. Moore’s study of Europe found that strict regulation leads to poorer service and to a decline in efficiency. Another study by Moore found that regulated U.S. carriers prefer not to handle small shipments and shipments to smaller and more isolated communities.

Conversely, studies by the Department of Agriculture have found that exempt carriers offer many services that regulated carriers do not. In fact, when Congress held hearings in 1972 on a bill to eliminate the agricultural products exemption, not one shipper complained about the unregulated service. By contrast, the numerous poor service complaints against regulated carriers became so embarrassing that the ICC held hearings in 1970 on that problem.

The total social waste is horrendous. The Council on Wage and Price Stability has concluded that “the current system of regulation creates enormous inefficiencies and inequities....” Barry Bosworth, director of the Council, estimates that ICC regulation adds $5-billion a year to consumer prices. UCLA economist George W. Hilton figures the cost to be $6.5-billion.

In 1972, Moore estimated the total cost of regulation to be upwards of $10-billion, including excess freight charges, inefficiencies resulting from excess capacity and the prohibition on backhauls, and the loss to rail carriers of potential business. Semmens has more recently estimated the total cost to be up to $15-billion.

The individual human cost of these pernicious and onerous restrictions is also significant. One recent example involves St. Louis trucker Timothy Person, who runs the family Allstates Transworld Van Lines. Person is seeking to become the first black to obtain a license to operate nationally.

Unfortunately, Person has run into a formidable obstacle—the ICC. Only 19 of the 150 major carriers are licensed for national operations, and it would cost up to 15 percent of their annual revenue (which could be more than $15-million) to purchase one. Therefore, Person is seeking to obtain an operating certificate by satisfying the requirements that the service is needed, and can’t be provided by existing carriers.

Person, whose company’s revenues reach $200,000 in a good year, is being opposed by companies such as United Van Lines and Allied Van Lines, whose revenues exceed $100- and $200-million a year. Person has been turned down before, and may be forced to spend up to $150,000 in the current hearing process.

The established carriers are opposing the application on the grounds that Person doesn’t have the equipment and organization necessary for the job. But Person, who has dreamed of providing national service since he took over his firm in 1953, knows hundreds of local movers around the country and has kept in contact with them since he began working toward a national license. Moreover, if Person is incapable of providing the service, he obviously won’t; the established firms’ only reason to exclude him is if he _can_ provide it.

The opposing carriers have also argued that the creation of another national carrier would “adversely” affect the market. To this, Person has acidly replied that “our forefathers didn’t write that we would have free enterprise only so long as a handful of people are guaranteed profits.”

However, despite the support of the Mayor of Birmingham, the Departments of Transportation and Justice, the General Services Administration, and the moving division of the Department of Defense, an administrative law judge has ruled that Person may have only an 18-state license. The ruling may be appealed to the full Commission, but a favorable outcome there is by no means certain.

The judge’s opinion reflects the ICC’s long-standing bias against competition: “No new entrant into the field should be granted nationwide operating rights without extremely convincing evidence just as a matter of simple fairness, in recognition of the time-consuming and expensive negotiations required by existing carriers to build up through the years their attractive nationwide authorities and operations.”

Person’s case illustrates the effect of ICC regulation on personal freedom, as well as the impact on minorities, of barriers to competition which stifle economic opportunities so necessary for minority advancement.

But perhaps “the most galling feature of the whole regulatory scheme,” according to Semmens, is “that so little may be gained at such great expense.” Semmens estimates that truckers gain only about $300-million—scarcely two percent of his estimated total societal loss of $15-billion. A direct subsidy of $300-million would be far less expensive forcent earned by businesses generally. Further, the truckers claim that regulation protects service to small communities. Never do they explain why the evidence is to the contrary, or why other consumers should be forced to subsidize small town customers. Finally, the ICC’s Bureau of Economics claims that the ICC actually saves the economy $9.2-billion a year. Its figures, as we have seen, are not credible. The Bureau’s distorted method of accounting has led the Council of Wage and Price Stability to note that “too often the Bureau calculates the benefits from a given Commission action but neglects to deduct the costs that same action imposes on other groups.” One example cited was the assertion that keeping unprofitable railroad lines open saves shippers $300-million a year—the cost of maintaining those lines, which is borne by railroad stockholders and taxpayers, is ignored.

The industry has of late gone on the offensive; one of the regulatory scheme’s most fervent apologists, the ATA Foundation, justifies ICC regulation by predicting an Apocalypse if it is ended:

The Motor Carrier Act of 1935 was designed to protect the public interest by maintaining an orderly and reliable transportation system, by minimizing duplication of services and by reducing financial instability. It is an excellent law that does just that. “Deregulation” would mean that fleet owners would not be compelled to distribute goods to small out-of-the-way towns; truck service would be spotty; vicious competition would erupt for the limited profitable routings and shipping costs elsewhere would skyrocket. Investment “capital” for trucking operations, new replacement equipment and service expansion would flee from the resulting melee.

It would be difficult indeed to find a paragraph anywhere more replete with specious half-truths and unsupported irrelevancies. Claims of ruinous competition and predatory pricing are the standard myths cited by every business which fears the rigors of the free market. If these concepts have any validity, it is only where there is a natural monopoly— which the trucking industry is not. In fact, no chaos occurred when Australia deregulated its trucking industry in the 1950s and when Great Britain did so in the 1960s.

Moreover, as the evidence demonstrates, regulated carriers abroad and here in the U.S. charge higher prices and provide inferior services compared to their unregulated brethren. None of the ATA’s rationalizations have any basis in fact.

The need for deregulation at all levels is clear; for 44 years, the ICC has stifled competition, abrogated individual rights, institutionalized inefficiency, and ossified the American transportation system. But the new federal legislation faces an uphill struggle. Deregulation advocates have already lost an early round in the Senate; the legislation has been assigned to the Senate Commerce Committee, under chairman Howard Cannon, which is a less hospitable forum that the Senate Judiciary Committee under Kennedy. But the regulatory struggle is far from over; it is bound to become even more intense, and it is likely to last for year or more.

The struggle to end this pernicious regulatory system is perhaps the most important deregulatory battle to be fought this decade. It is one that we cannot afford to lose.

Doug Bandow is a recent graduate of Stanford Law School, and a free-lance writer whose articles have appeared in a number of daily newspapers.

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taxpayers and consumers than ICC regulation.

However, the trucking industry would have a difficult time defending an explicit transfer of wealth from taxpayers and consumers to the industry. It needs an obfuscatory and indirect mechanism such as the ICC provides.

The trucking companies, of course, deny any adverse effects of ICC regulation. For example, against all the evidence, ATA president Whitlock maintains that “there’s no question the end result \[of deregulation\] will be higher rates since there would be no control over them.” Whitlock does not mention that fact that the industry’s “control over” rates has caused industry profits to be artificially high; over the past eight years, the eight largest trucking firms on average earned more than 20 percent a year on shareholders’ equity, which is substantially greater than the 13 to 14 per-