Announcer:
In the 1930s competition in
the trucking industry was murderous. Companies were so small and pricing so irregular that
nobody could get dependable service. So Congress decided to have the industry regulated by the
Interstate Commerce Commission (ICC). The ICC then had final say of who could carry what, where
and for how much. Today trucking companies are still protected from competition on certain
routes and in secret meetings the industry can set its own rates exempt from anti-trust action.
In return regulated carriers must service small communities and other traditionally unprofitable
routes. Today trucks carry over three quarters of the freight in the United States - the most
intricate transportation system in the world. But critics charge that the industry's rates are
far higher than they need to be and that deregulation now would introduce healthy competition to
what has become a fat insulated industry.
Dukakis:
Good evening ladies and
gentlemen and welcome once again to THE ADVOCATES. I'm Michael Dukakis and tonight we take a
long hard searching look at federal regulation of the trucking industry. It may come as a
surprise to some of you but approximately 10 cents of every dollar you spend on the goods you
buy goes for transportation. And these days most of that transportation is trucking. There are
about 116,000 trucking companies, or carriers in the United States. The Interstate Commerce
Commission in Washington regulates only about 16,000 of these as to their routes and rates. But
those 16,000 are a critical part of the industry because they include most of the very large
companies and they carry fully 40 percent of the interstate freight in this country, including
most of the finished consumer goods that we buy. The other carriers that are exempt from
regulation are either companies who own their own trucks, like Sears-Roebuck, or companies
moving unregulated cargoes, typically unprocessed agricultural commodities like corn and wheat.
Now as I think we all recognize there is clearly a will in Washington these days to take a hard
look at the regulation of various industries and commodities, from airlines to natural gas. And
the ICC's regulation of the trucking industry is no exception. There are already plans like
Senator Kennedy's about which you'll hear more this evening, to end the anti-trust exemption
which allows some groups of truckers to agree on common rates. Deregulation would allow
competition on routes where it is now restricted. But it would also end the obligation that
carriers now have to serve less profitable routes. Should Congress deregulate trucking? Advocate
Barney Frank is a Massachusetts State Representative from Boston.
Frank:
Thank you Mr. Dukakis. You
probably don't think of truckers as timid people. But that's because you haven't seen how some
of them react when you say "competition." Competition is the rule in the American economy, but
some truckers think it would be too hard for them to handle. So they're trying to get the
federal government to keep in force a set of special privileges that keep them from having to
compete. With me tonight are three experts who are going to explain why that's bad for the
American economy. Senator Edward Kennedy, chair of the Senate Judiciary Committee and expert on
the economics of regulation, Mr. Leamon McCoy, who is the president of the True Transport
Trucking Company and Dr. James Miller, resident scholar at the American Enterprise Institute.
Unlike most businessmen, regulated truckers can get together in private and agree to fix their
prices. Unlike many businessmen, regulated truckers can ask a federal agency, the Interstate
Commerce Commission, to help them enforce those private agreements. And unlike almost everybody,
regulated truckers can get that same agency to keep most of their competitors from even getting
into the business at all. We think that's very inflationary. We can show and will tonight that
that adds billions of dollars to what we consumers pay for the products we have to buy that
travel by truck. And that's all products. So we think the time has come for Congress to end
these special privileges and let the truckers compete just like everyone else in the American
economy.
Dukakis:
Thank you Mr. Frank. Lisle
Baker is a Professor of Law at Suffolk University Law School. Mr. Baker.
Baker:
Thank you. The American
trucking industry is the best in the world. It works so well we take it for granted. But
deregulation risks wrecking this vital public service. With me tonight is Dan Sweeney, who
represents the National Small Shipper Conference, the people with whom the truckers must deal.
Mr. Sweeney will tell you how rate regulation protects you--the consumer--against price
inflation, rate favoritism, and rate discrimination. Also here is Arthur Imperatore who runs one
of the most efficient and professional common carriers in the country. Mr. Imperatore will tell
you how competitive the trucking industry really is as well as how important it is that we keep
truckers obligated to serve all of us, especially those of us who live off the beaten path.
Today trucking is reliable, safe, and cheap. Today competition is balanced with restraint and
not special privilege, but special obligation. Regulation protects you against excessive rates,
discriminatory pricing, and unsafe operations. Trucking can continue to deliver the goods if we
don't deregulate. Thank you.
Dukakis:
Thank you gentlemen, we'll
have our debate underway in just a moment, but I think in view if the somewhat technical nature
of this subject that you might be helped by some important definitions. You're going to be
hearing the word "shippers " this evening - shippers are not trucking companies. Shippers are
the buyers of trucking services, the companies and individuals who want goods moved. You're
going to be hearing the "truckers" or "carriers" and they're the industry that we're talking
about tonight. And obviously sometimes the driver is also the owner of the truck. You're going
to be hearing the "common carrier," a trucking company that serves designated areas at the
approved rates but must serve all customers within that area. And finally you're going to be
hearing a lot about consumers, and that means you and me. Now let's get on with our debate. Mr.
Frank, the floor is yours.
Frank:
Senator Kennedy will be my
first witness. Senator, we appreciate your joining us from Washington.
Kennedy:
Well I'm delighted to.
Frank:
I'd like to ask you to start
with Senator, why is a great big United States Senator like you picking on the trucking
industry?
Kennedy:
We're not picking on the
trucking industry, the trucking industry is picking on the American consumer. And it's about
time the Congress dealt with this particular issue.
Frank:
Well what specific things do
you mean when you say "we have to deal with the issue." What would you change about the trucking
industry?
Kennedy:
Well the first thing we have
to understand is the very special privileges that the trucking industry has. They are able to
fix prices. They're able effectively to get a group of truckers in a room, a closed room without
consumers, without any reporters, decide what the rates are going to be, and effectively there's
a stamp approval on those rates by the ICC and those are the rates that consumers are going to
ultimately have to pay. That's price fixing. If that were true in any other industry, if it were
true in Cambridge, Massachusetts for those who open up Laundromats or those that open up grocery
stores, or those who open up drug stores, they would effectively be put in prison. And so
they're granted that privilege. And that is the privilege that ought to be struck.
Frank:
Well Senator, doesn't that
make it a very lucrative industry? Why don't all these other people come in a get a piece of
that action?
Kennedy:
Because they can't get into
the, they can't get into the field. The ins are protected, the outs are virtually prohibited
because there are restrictions on entry. So those that are in the industry have the lucrative
and are able, position, and are able to fix prices and those who are out it's impossible for
those to enter. And those two elements there give them the privileges that Congress should
review.
Frank:
Who pays for this system,
Senator?
Kennedy:
Well, the consumer pays for
it. It pays for it in higher prices of corn flakes, it pays for it in higher prices in tuna
fish, in television sets, and furniture, in every kind of manufactured good that is in part of
the system. And it's wrong and unjustified.
Frank:
Well it may be good for the
consumer, but wouldn't it be bad for the industry? Don't you, aren't you concerned about the
effects deregulation would have on the trucking industry?
Kennedy:
Well, it's not even really
good for many of those who were mentioned in Mr. Dukakis' opening comment. There are 115,000
truckers, there's only 15,000 of them that are a part of this segmented of the regulated
industry. The other 100,000 would like to be a part of the system but virtually they are
prohibited. And even among the 15,000, it's only a very small group that make the major profits
in this industry.
Frank:
Well even for them though
Senator, there are always people who say, "Well it works, we're still alive, why tinker, why
take that chance?" How do you know that deregulation – this very, very drastic change is going
to work, and not produce terribly chaotic results?
Kennedy:
Well, we know from practical
experience. For example, in the agricultural sector, which is about 40 percent of the trucking
industry, they don't have these privileges. They don't have the privileges of the anti-trust
exemption, they don't have the privileges on the issues of entry and yet agricultural products
move across the country. And they move at competitive rates and they go into every small town
and community of this nation and the system works. I say that we have seen the system work in
terms of agricultural goods we ought to apply the same principles in this other area as
well.
Frank:
Senator let's sum it up with
an issue that's probably very important to almost everybody watching, inflation. From the
standpoint of controlling inflation, what's the impact of this trucking regulation system,
instead of special privileges on inflation in the American economy?
Kennedy:
Barry Bosworth of the Wage
and Price Council appearing before the Senate Judiciary Committee says that the consumers are
paying $5 billion unnecessarily in inflation. It's one of the few areas the Congress can take
direct action and mean savings to the American consumer.
Dukakis:
Thank you Senator. Let's now
turn to Mr. Baker to have some searching questions for you. Mr. Baker.
Baker:
Thank you Mr. Dukakis.
Senator, I want to ask you a few questions if I may about some of the issues you've raised - for
instance the inflationary issue. It's my understanding that the this, small select group of
truckers of which you speak proposed a general rate increase to the Interstate Commerce
Commission last year. And the Interstate Commerce Commission granted a rate increase of only six
to seven percent. But the Consumer Price Index went up over nine percent. What kind of inflation is
that?
Kennedy:
Well, let's look at the
industry itself. What we talk about is less-than-truckload, and truckload. Those are the two
aspects of the industry which is actually regulated. On the truckload, we have very active
competition with railroads for example. And where you have the competition, there increase has
actually been less than the increase in the Consumer Price Index, or the Wholesale Price Index.
And that has been because of competition. I think the case is very clear on that. But the other
segment of the industry is the less-than-truckload and that is where there is no competition
from the railroad, and from other carriers. And where you have less-than-truckload which in
terms of the total amount that is actually carried amounts to about half in terms of revenues,
there you see a dramatic increase over the Consumer Price Index. This helps make my point. Where
you have competition you have below the Wholesale Price Index. In the area where you don't have
competition, in the regulated in the less-than-truckload, you have a dramatic increase over the
Consumer Price Index.
Baker:
Senator, it's my
understanding that that 6 to 7 percent increase was for precisely the industry that you're
speaking of, the less-than-truckload shipper. The people who take lots of small packages, put
them together in one truck, take them to the terminal, break them down, put them on the road,
take them to another terminal, break them down and distribute them to all the small communities
around the country. Now what I would like to ask is the obligation that that common carrier has.
For example, if a common carrier a less-than-truckload shipper has an obligation to serve an
area, does that not mean that he has an obligation to make sure that anyone who calls up and is
willing to pay the stated rate can get the service that he can provide?
Kennedy:
Well, this is true in the, in
the letter of the law. But take the Department of Transportation studies, take the cities and
towns which should be served and aren't served. For example the common carrier obligation in the
state of Wyoming is 45 percent deficient. Now you give me the example of the last time that the
ICC has taken a license away from a common carrier that has not served one of those small
communities. This is only legitimate when it has actually been enforced, and you can't give me
the example. We asked Dan O'Neal before the judiciary committee for such an example and they're
virtually nonexistent.
Dukakis:
Senator, Mr. O'Neal I take it
is the Chairman of the Interstate Commerce Commission. Is he not?
Dukakis:
Okay, Mr. Baker.
Baker:
Thank you. Senator, isn't it
true though that the Interstate Commerce Commission does supervise what these carriers do? If
for example they don't make their obligated service call they build up a bad track record. A lot
of carriers would like to get more certificate availability, they would like to serve a wider
area. And they come before the Interstate Commerce Commission and say, "We'd like to extend our
service," and the ICC says, "Look, we've got complaints. Several of you haven't been picking up
loads where you should have been." Doesn't the ICC supervise the situation in that way?
Kennedy:
Well it's it's a general
supervision, but I'll ask you when was the last time that they took a route away? It's just
virtually nonexistent. I'm talking about studies now that have been done by the Department of
Transportation and by the Senate Commerce Committee and it, although in theory, in theory you're
correct, they just haven't removed it. And I think that it the, that is really the issue.
Baker:
Alright Senator, one quick
last question. I saw in the paper today that the town of Presque Isle, Maine is about to lose
their air carrier service by Delta Airlines because the airline has been deregulated and they no
longer feel it's profitable to take care of that. If it's difficult in some very limited cases
and we would not agree that they're widespread, for the common carriers to serve those small
communities now, who is going to serve them when those small carriers, those common carriers no
longer have the obligation to serve those communities?
Kennedy:
Well, first of all, with
regards to the airline bill, it is written in the law that small communities are entitled to
equivalent service for a period of 10 years. And that is a very specific obligation that the
CAB has to follow, has to follow in. Now specifically with regards to service to smaller
communities that's that's essential. I think the competitive system will provide that. It is
doing so with agricultural goods in a whole series of instances. Small towns and communities in
the rural South, in agricultural Midwest, in the communities of our own state of Massachusetts
are being served with agricultural goods and that is because it's a network and because it's
profitable. And it'll be profitable for truckers to serve those same communities. It may not be
the same trucker, but it will still the service that must be provided.
Dukakis:
Gentlemen, I'm afraid I'm
going to have to break in at this point, Senator Kennedy, thank you very much for joining from
Washington. We appreciate it. Now let's turn back to Mr. Frank for another witness. Mr.
Frank.
Frank:
Thank you Mr. Dukakis, I call
Leamon McCoy.
Dukakis:
Welcome to THE ADVOCATES, Mr.
McCoy, nice to have you with us.
Frank:
Mr. McCoy, you're president
of the True Transport Company in Newark, New Jersey. Would you tell us a little bit about the
company?
McCoy:
Yes, True Transport is an ICC
regulated carrier operating in 9 eastern states and our specialty is transporting steamship
containers in export and import.
Frank:
And how long have you
personally been in the trucking business?
McCoy:
I've worked in the trucking
business for twenty years for another company and I started my own company in 1968.
Frank:
Well, based on that
experience, Mr. McCoy, tell us what kind of costs does this regulatory system impose on the
trucking industry?
McCoy:
Well for one thing, it's
costing me a lot of fuel, and a lot of labor. We operate steamship containers, and by the nature
of our operation, we have to transport them empty cause they're going all over the world and
they originate in New York. Take Rochester for example. If Kodak is shipping film, we have to
transport an empty container to Rochester, Kodak loads it, we take it back to New York and put
it on a ship. This is a waste, because we have to take every single container up to Kodak
empty.
Frank:
In other words, although you
could get business, I assume the ICC as part of its network of protection forces you to go
empty. Now I notice here on the chart you prepared for us that you can ship tuna fish out to
Cleveland but you have to come away empty from Cleveland. What's it cost you to send a truck
empty from Cleveland back into Newark?
McCoy:
Well Cleveland is
approximately 900 miles and half of that would be around 450 and it would cost me approximately
120 gallons of fuel for the empty mileage and the drivers pay for pulling an empty truck.
Frank:
Alright Mr. McCoy, some
people say "Gee, we're sorry McCoy the ICC's asking you to lay out for all this fuel and pay
these drivers to drive empty trucks - but you need that. You need that because if we didn't have
a good government regulatory agency, you middle guys would just be eaten up by the big guys." We
need the regulatory beneficence of the federal government to protect a small new entrepreneur
like you.
McCoy:
I don't agree with that
statement and if deregulation were to occur, I think it would let thousands of people into the
transportation mainstream which is sorely needed. The freight today is so massive that the
common carriers just can't transport it all.
Dukakis:
Gentlemen, excuse me for a
second, could I ask a question? Have you asked the ICC for permission to fill those empty
containers, or those empty trucks, or is it impossible or what's the problem, Mr. McCoy?
McCoy:
We have filed applications
and when we file applications the existing common carriers the fellows, the big guys, come in
with their lawyers and protest us. And they submit evidence to the ICC that the service is not
needed.
McCoy:
So the ICC decides that we
shouldn't get it.
Frank:
In other words, unlike any
other businessman, if you try and offer a competitive service at perhaps a lower rate, somebody
who's now got that service can go to the government and say, "Hey keep McCoy out of here because
I got a good thing going."
McCoy:
Look, not only keep me out,
they were successful in keeping me out for a lot of years. Now my company is still restricted to
water movement. Now if I wanted to operate as a general freight carrier and I filed an
application I would assume some 100 protesting truckers would appear at the hearing.
Frank:
So you think as an
entrepreneur yourself in the trucking industry, you're not afraid of competition. You think that
you could service people better if it wasn't for the ICC standing in your way?
McCoy:
I, I believe that we do a
sufficient job, that our shippers would stay with us even if it was opened up. The shippers are
not going to drop me just because some guy walks in and wants to cut the rate. We give a very
reliable, dependable service. And I feel very qualified that we can continue this service.
Frank:
Thank you Mr. McCoy.
Dukakis:
Alright Mr. McCoy, let's wait
for Mr. Baker as he circles around his desk, and comes in for a little cross examination.
Baker:
Try to get into position
here.
Baker:
Mr. McCoy let's talk about
backhauls for a minute. You talked about the mainstream of the trucking business-
Dukakis:
Gentlemen, let's, let's
understand what we mean by "backhauls." What do we mean by that?
Baker:
Alright, I'm sorry. This is
as I understand it where you send a truck out full and it comes back empty.
Baker:
Alright. Now there are places
in this country, aren't there that are natural magnets for freight? For example, the city of
Detroit. Detroit makes automobiles, so you have trucks coming in from here and trucks coming in
from there and they're full of, maybe this one's full of bumpers and this one's full of washers
and that one's full of seats and they all come together and bang! What comes out of Detroit?
Cars. And what do they come out on? They come out on car carriers and they come out on rail.
What happens to all those trucks that carried things into Detroit?
McCoy:
Well the general carriers,
general freight carriers, are carrying general cargo into Detroit if they have a license they
can get cargo out.
McCoy:
But if they're in my
situation they're restricted to run back empty.
Baker:
But they're going to run back
empty anyway, aren't they because those those cars come in in pieces and they leave in a single
unit. They're going to be places where just naturally-- for example, Washington, D.C., there are
others around the country. But what I'm trying to get clear with you is that there will
be--
McCoy:
I'm sure Detroit makes
something besides cars, sir.
Baker:
Well, I'll agree with you
that they make records, and they do a good job at it. Now the question is here, what happens to
that kind of carrier? That carrier comes in, he's bringing goods into an area, Florida is
another example, Washington, D.C., there are others around the country. But what I'm trying to
get clear with you is that there will be empty trucks coming back from places whether we have
truck deregulation or not. Wouldn't you agree with that?
McCoy:
No I wouldn't agree with
that, and I'll, I'll explain this. Senator Kennedy mentioned 116,000 or 150,000 truckers. You're
only talking about one or two percent. You're making an issue about one or two percent carriers that are
in the automobile carrying business. There are another 140,000 truckers out there who would like
to haul freight in the manner that I am talking about. Now the two percent doesn't necessarily set
the guidelines.
Baker:
Well it doesn't set the
guidelines, but if there's no freight to haul what are they going to put in?
McCoy:
I said there's freight to
haul.
Baker:
There's freight to haul
everyplace in this country you can haul something in you can haul out the equal amount of
things?
McCoy:
Well I've been in this
business for 30 years and you tell me one place that there's some freight to haul and I bet I'll
show you there's 500 applications before the ICC tomorrow morning to haul it.
Baker:
No but what I'm talking about
is the place that there's no freight to haul.
McCoy:
I don't know of any place
where there's no freight to haul.
Dukakis:
One, one brief last
question.
Baker:
Okay, you talked about
competition. I understood that there was a proposal to lower the general rate for sea carriage,
the kind of container carriage that you operate in in your conference by some carrier. And that
one of the individuals in your staff went in to oppose that lower rate. Is that an accurate
statement of fact?
McCoy:
I do not have any personal
knowledge of it. I wouldn't know of a carrier--what conference were you speaking of?
Baker:
The Middle-Atlantic
Conference.
McCoy:
Well we have very limited
participation in Mid-Atlantic Conference, factually we've gotten out of the New England Motor
Rate Bureau, and we're three quarters out of the Mid-Atlantic Conference. I imagine by next
year we'll be completely out. But I have no personal knowledge of our protesting a lower
rate.
Dukakis:
Gentlemen, I'm sorry but I
have to interrupt at this time, Mr. McCoy thank you very much for being with us. Now we're going
to turn to Mr. Baker for his first witness, Mr. Baker.
Baker:
Thank you. I'd like to call
Dan Sweeney to the stand.
Dukakis:
Welcome to THE ADVOCATES, Mr.
Sweeney, nice to have you with us.
Baker:
Mr. Sweeney is here to tell
us a little bit about how rate regulation protects the consumer. Would you tell us a little bit
about your background, Mr. Sweeney?
Sweeney:
Well, basically I represent
the shipper interests, which are consumer interests before the Interstate Commerce Commission,
basically to try to keep inflation under control and keep the rates from rising too fast.
Baker:
And in your judgment has the
rate regulation system we now have for interstate trucking worked?
Sweeney:
Well, under the chairmanship
of Chairman O'Neal who was mentioned before, the commission has been doing a very fine and very
effective job. Last year I think you mentioned, prices of unregulated commodities went up nine
percent and the prices of regulated trucking, general freight, went up only six percent. Beyond
that the past ten years the prices of, the Wholesale Price Index went up 94 percent and the
price of general freight regulated by the ICC went up only 66 percent. They're doing a
tremendous job to restrain inflation down there. I wish the rest of the economy could produce
these kinds of results.
Baker:
What about the, this energy
loss, or energy expenditure Mr. McCoy talked about. Does regulation cost us energy?
Sweeney:
Well I don't think so. I'm a
little surprised he didn't make that point because he has two-way authority and if he's coming
back empty it's because he can't find any freight under the authority he has.
Dukakis:
I'm sorry Mr. Sweeney, I
don't know what two-way authority is.
Sweeney:
Well he can go from one city
to another and come back with a load. He can get a load in each direction. But the basic point
really beyond him is that the regulated carriers have empty movements, empty mileage only 16
percent. The unregulated carriers are producing 24 percent empty miles. So that if we take away
the regulation system we run a risk of bringing everybody up to the 24 percent level and
creating a lot of empty miles. There's only so much freight out there. If one guy wants the
other guy's freight he's going to take it away and somebody else has an empty backhaul.
Baker:
Do you think that most of the
shippers favor an unregulated industry where truckers compete on an unrestrained basis?
Sweeney:
I think the shippers are
better off today with what they have and with the anti-trust law. Today they have protection
against unreasonable rates, unreasonable increased high rates which the ICC has been effective
on. They also have protection against discrimination between one shipper and another. You and I
are doing business across the street from each other and we're both shipping 500 pounds of the
same product we're both going to get the same price today. In unregulated situations, each
shipper could make his own deal for the identical movement, and larger shippers would be in a
position to get more favorable rates. The smaller guy would get higher rates.
Baker:
Now we're operating, we're
talking about a system that's been built up over 45 years. What risks do you see to the rest of
the economy, not talking about the trucking industry per se, but the rest of the economy in
terms of concentration or dislocation, if we went to deregulation?
Sweeney:
Well the two things that the
deregulation would favor, it would favor the very large company. You'd see a more of a
concentration of business into fewer large companies, and secondly it would work against the
small town, the outlying area which is getting service today because the ICC is requiring it.
And they're getting very good service. And you would run the risk of poor service to small
towns, pushing businesses into the large cities.
Baker:
And what about the airlines?
Are they a good model for deregulation, you've heard so much about that?
Sweeney:
Well perhaps the air freight
is, but not the passengers. The airlines are running about 45 percent empty seats before this
new deregulation program. And this incidentally was a direct result of the CAB. Ten years ago
the airlines tried incentive fares, the CAB got in the way and destroyed their opportunity
and told them they couldn't do it. The ICC on rate reductions is very open minded, they like to
see them. So you had a bad regulatory situation there. With respect to the deregulation of air
freight, during the past year while the regulated truck rates went up only six percent, the air
rates have gone up since deregulation 20 percent in one year. So if Senator Kennedy wants to
talk about the $5 billion which is an example of frozen chickens, many years ago where the rates
went down 20 percent, here's a very recent example of a broad spectrum of deregulated freight
going up 20 percent in one year.
Dukakis:
Gentlemen, I have to
interrupt at this point, Mr. Sweeney, Mr. Frank's going to have some questions for you. Mr.
Frank.
Frank:
Mr. Sweeney, you said that
under the current chairman, the ICC is doing a good job. What kind of job has it done over the
years in your judgment of enforcing its rate obligations?
Sweeney:
Well I will say they have
not done as good a job previous to that. They have reviewed the rate increases and things like
that but they have not been as effective as they have been in the last two years.
Frank:
How long has, I'm sorry, how
long has Mr. O'Neal been chairman?
Sweeney:
I said about two
years.
Frank:
How long has there been an
ICC?
Sweeney:
I believe it's 1886.
Frank:
Those aren't terrific odds
for the consumer are they, two out of ninety five.
Sweeney:
Well as it turns out, on the
way up here yesterday I was reading the Senate Commerce Committee report in 1886 which gave rise
to the Interstate Commerce Commission. The purpose of the formation at that time, was not
inflation I don't think it was a problem in 1886. The reason they formed the agency was because
of gross discrimination between shippers, by the carriers, back in 1886.
Frank:
In the railroad
industry?
Sweeney:
In the railroad industry.
And that's the kind of thing we were most concerned about.
Frank:
But, but the historical
record of the ICC you can point to two good years out of the 45 years that it's been regulating
trucks. I would say that Mr. McCoy's right.
Dukakis:
Let's let him answer Mr.
Frank.
Sweeney:
I'd say they're the two best
years. I wouldn't say that they're all bad years from the consumer standpoint.
Frank:
Well how many rate, how many
rate requests does the ICC pass on in a year?
Sweeney:
Well, the carriers in 1978
filed 300,000 rate changes. Of the whole 300,000 rate changes the ICC reviewed approximately
1,500 that were protested by various interests and suspended about 500 of them.
Frank:
So 298,500 rates the
carriers filed them and they went into effect. The ICC didn't even look at them. That's how they
protect the consumer?
Sweeney:
No, I wouldn't say that. I
didn't say "rates," I said, "rate changes." The ones that they suspended last year were the
general increases that we talked about before which each involved millions of rates.
Frank:
But what about the changes?
I mean there are 298,000 other changes that go without even being checked by the ICC. Are they
all in the downward direction? No rate increases sneaking in?
Sweeney:
They don't have an
opportunity to review all 300,000 but most of them were reductions.
Frank:
But we are the ones, they're
the ones that we have to rely on. They happen to be reductions this year. Are they usually
reductions? I mean we got a downward sloping set of rates here, in this business or do they tend
to creep up with the ICC not checking on it?
Sweeney:
Well the general pattern is
one or two general across the board increases a year and in between times you have a lot of
individual reductions, individual commodities, individual points.
Frank:
But no individual increases
or–
Sweeney:
Nothing that would really
amount to anything.
Frank:
Now in terms of Mr. McCoy's
rights, by the way, Mr. McCoy only has one way rights from Cleveland. You said he had two way
rights. He does not voluntarily come back empty from Cleveland. A lot of people coming out of
Cleveland empty these days but not Mr. McCoy voluntarily. The, on the question of his rights
from Rochester, yes he has very restricted rights. He can ship certain kinds of containers if
people are going there. Why shouldn't Mr. McCoy have the right to ship anything competitively
that someone in Rochester wants to send back to Newark?
Sweeney:
Well he doesn't ship, he's a
carrier, and in order for him to carry something, somebody has to ship something. And there is
not this kind of equality between any two given points in the country. As a matter of fact,
carriers going down to Key West Florida have nothing to bring back unless they want to bring
back sand and salt water.
Frank:
Well that's true, I mean
you're right there is a problem with Key West. But why because there's a problem in Key West
should the federal government manufacture one in Rochester? Why do they have to drag Rochester
down? He has, goes to Rochester, and people are willing to pay him to carry something back and
the ICC says, "Oh no, McCoy that's bad, that's competition."
Sweeney:
I'll make it easy for you by
giving you a couple of facts. The ICC received about 10,000 applications last year for new
authority like he's talking about. They are granting applications at the rate of 96 percent. If
he can find something to haul and he can find a shipper who will say he wants him to haul it,
either for his convenience or his necessity, or because he can give him a lower rate, this man
can get a new piece of authority from the ICC.
Frank:
That's a great business Mr.
Sweeney. You're a lawyer, in other words, before I should be allowed to pass the bar, I have to
find some clients that are willing to hire me so I don't compete with you? Why can't he just get
the right to go in there and compete? Why does he have to wait until he finds something nobody
else is carrying?
Dukakis:
One last comment Mr.
Sweeney, and then we're going to have to wrap it up.
Sweeney:
Well that's part of the
system. You have on the one hand the limited entry and on the other hand the ICC keeping the
rates down and restraining inflation. And as long as they do a decent job on that side which is
the one we're watching very closely, this limitation of entry is not hurting that
seriously.
Frank:
So that the truckers are
happy-
Dukakis:
Gentlemen, I'm sorry, I'm
sorry Mr. Frank I have to break in. Mr. Sweeney, thank you-
Sweeney:
You'll have to ask
him.
Dukakis:
Thank you very much for
being with us. Thank you very much. For those of you who may have joined us late, our question
tonight if, "Should Congress Deregulate Trucking?" Advocate Barney Frank has presented two
witnesses, Senator Edward Kennedy and Mr. Leamon McCoy who have argued that competition, that
opening up the industry and permitting truckers, carriers to compete would bring down prices and
save the consumer money and help with inflation. Advocate Lisle Baker has presented one witness
so far, Daniel Sweeney who has argued that the present system makes sense that the Interstate
Commerce Commission is being aggressive in protecting the consumer interest, and also
guaranteeing service to people and to shippers around the country. And we're now going to move
on to Mr. Baker who has a second witness. Mr. Baker it's time for your next witness.
Baker:
Thank you. I'd like to call
Arthur Imperatore to the stand.
Dukakis:
Welcome to THE ADVOCATES,
Mr. Imperatore.
Baker:
Mr. Imperatore is going to
tell us how competitive the trucking industry really is and how important it is to balance this
limit on entry with the obligation to provide service. Can you tell the audience just briefly
about your background?
Imperatore:
Well my brothers and I
started a truck line in 1947 having purchased one GI truck and last year in 1978 we operated
approximately 1,000 pieces of equipment and we grossed about $58 million.
Baker:
Now what's your service
area. And what's your competition in that area?
Imperatore:
We operate approximately 250
miles in all directions from New York between and through that entire territory. That comprises
about 6,000 towns in that part of the country.
Baker:
And what can you
carry?
Imperatore:
General commodities, we are
I guess more or less small shipment specialists although we handle shipments of all sizes.
Baker:
And how many different
carriers compete with you for that market?
Imperatore:
I would guess in our
territory in all parts of it's at least 200.
Baker:
Mr. Imperatore, can we just,
can you describe for us a little bit about the pricing system here? Suppose that I'm a small
shipper and I want to send a good from one small town to another small town 150 miles away. But
it's over back roads and is not very easy to get to. And let's also suppose that I'm a small
shipper and I want to send that same good to a big city. Will I pay the same price?
Imperatore:
Yes you will, provided it's
the same freight going the same distance same size shipments.
Baker:
Now what happens if I'm a
big shipper? Suppose I'm somebody that's got a lot of economic horsepower. Can I come to you and
say, "I would like your trucking company to carry that good for me at a lower rate." Can I do
that?
Imperatore:
No, you'd be bound to the
same rate levels generally. There are some means by which rates may be reduced as has been
described by Mr. Sweeney. But the principle that governs is nondiscriminatory rate making.
Baker:
Now in you service area, do
you have an obligation to provide service to anybody that calls up?
Imperatore:
Yes we do. We service, I
guess of the 6,000 towns we service almost all of them everyday. If there's freight there is any
one of the towns we do our utmost to get there and that's a regular routine of our company, and
our kind of carriage.
Baker:
What's going to happen to
the small towns and the small shippers if we go to deregulation?
Imperatore:
Well you must understand,
and this is hard for the American public really to understand. It's a system as has been spoken
of. The country comprises of approximately 125,000 cities and towns of which over 100,000 have
less than 5,000 population. So our company and the 16,000 other companies formed the capability
in, in the motor carrier field of transport that that freight of all kinds to and from every
point in the United States.
Baker:
What happens to them if
you're deregulated? Would you continue to serve the area?
Imperatore:
Well in my opinion we, it
goes to the whole the whole process of transportation - how it's created, ultimately how it's
priced, it's based on productivity and efficiency and that's my background. And ultimately, it's
an efficient industry. And that efficiency is reflected in the rate levels that are actually
lower. Over 20 percent in the past 10 years than the escalation of the CPI - the Consumer Price
Index. That's brought about by aggregation of workloads. That's how we produce efficient
transportation.
Dukakis:
What does that mean, Mr.
Imperatore?
Imperatore:
By being able to concentrate
as does the Post Office, as does the mailman, as does, as do the UPS people throughout the
entire country where you will, we will cover as as total a territory, but getting the
efficiencies that are derived from from the maintaining of the least amount of manpower at the,
and the least number of trucks on the road creating the optimum in terms of work output.
Ultimately we sell work.
Dukakis:
Okay, let me break at this
point. Mr. Baker you'll have a chance to get back to Mr. Imperatore. Mr. Frank some questions
for Mr. Imperatore.
Frank:
Thank you. Mr. Imperatore,
you say that you prosper because you're productive and efficient. I understand that to be true.
Why then do you need the protection of this regulated system? Why wouldn't your productivity and
efficiency attract shippers the way most businessmen attract, because you're productive and
efficient?
Imperatore:
It does as a matter of fact.
However, there is a finite workload and it may not be well understood but it is a fact that
lower rates and the rate levels generally in the motor freight industry will not attract anymore
freight - unlike the airline industry.
Frank:
Well leaving that aside for
a minute, why is deregulation a threat to you? You're productive and efficient, won't the people
who ship with you continue to ship with you? We're not suggesting that the government stop
people from dealing with you, it's just that they don't make them.
Imperatore:
Mr. Frank, when you fragment
the workload you reduce the capability of optimizing the output per man, per truck, in the
street. That's where the costs are created.
Frank:
Why would deregulation
fragment your workload? Why would people who are now coming to you because you're productive and
efficient say, "Oh, deregulation is here, that's the end of Imperatore." Why wouldn't they still
come to you?
Imperatore:
Well I assume they would and
I hope they would.
Frank:
So then you wouldn't be
fragmented. What's the problem?
Imperatore:
Wait a minute now, let's
back step a bit. Theoretically, the deregulators would introduce limitless competition and again
theoretically have many more people, many more trucks chasing the same workload.
Frank:
Well why would your shippers
leave you for those other trucks? I mean I don't understand - yes competition exists in a lot of
industries, but people who give productive and efficient service in most industries, prosper.
What about deregulation would force those people not to deal with you anymore?
Imperatore:
Mr. Frank, we handle 4
million shipments a day in the United States, with a million people. You must keep that in mind,
presumably, and that's the marketplace response that our industry meets. That entire aggregation
of costs and production in transportation is what translates to unit costs, ultimately to the
rate levels. That's what you would disturb with un-bridled competition.
Dukakis:
Gentlemen, let me interrupt
for a second, because I'm not sure I understand. Alright what you're trying to tell us Mr.
Imperatore, is what you're trying to tell us is that unless you have a limited number of people
carrying this finite amount of freight that you won't fill up trucks enough?
Dukakis:
Is that what it is?
Imperatore:
-fill up trucks, develop
work patterns that are as efficient as they may possibly be.
Frank:
I don't see why that's
different than most other segments of the economy. But let me, let's talk about the small towns.
You say you service some small towns presumably you don't want to service them but you do it
because there's a deal. In return for the ICC keeping out your competition you will service some
of these small towns. I that what you are saying that you don't want to service some of these
small towns?
Imperatore:
Yes, for the obligation we do
enjoy limited entry.
Frank:
Well alright do do you, in
other words, these people in these small towns, this relatively small number of people, they get
a bargain, right?
Imperatore:
In effect they do.
Frank:
They get cheaper
service?
Imperatore:
They do get a bargain
because there is a factor of cross subsidization. In the bigger freight lanes there are levels
that support a lot of off line service that don't–
Frank:
Would you explain? In other
words,
Imperatore:
-frankly, does not pay it's
way.
Frank:
What you're saying is that
the majority of the people, those who live in the larger communities are by this system forced
without volunteering to subsidize the people in the smaller communities? By cross, when you say
cross subsidization, doesn't that mean that you, you have to service some of these people to the
ICC lets you charge more for Boston, Chicago, Cleveland, Detroit, to make up for it?
Imperatore:
I don't know that that is a
precisely as you state. The–
Imperatore:
We're dealing with averages,
I'm sorry I didn't hear what you said.
Frank:
Approximately as I
state?
Imperatore:
I would say that we're
dealing with averages in a very complex industry and the fact is-
Dukakis:
Mr. Frank, I'm sorry, let's
let Mr. Imperatore answer and then we're going to have to go back to Mr. Baker.
Imperatore:
To support an industry that
creates the transport- the mode of common carriage, it takes a certain investment, it takes a
certain capability, that's in place. And that's-
Frank:
But that's not the question.
I understand it's in place. But what you're saying is that you, as a private citizen thanks
to this system, you are making the decision in effect that you'll charge rates here with the
ICC's approval, higher in the large metropolitan areas where most of us live, so that you can
subsidize people in the smaller communities?
Frank:
Is the private system a way
to make those subsidy decisions?
Dukakis:
One last response Mr.
Imperatore.
Imperatore:
I would say that we deal
with averages and there is a mix of freight in all of the areas of the country. And we deal with
the whole rate structure, is based on income for so much service rendered and the question is,
that the industry must have an incentive for rendering that kind of service.
Dukakis:
Alright, let's go to Mr.
Baker now, Mr. Baker some questions for Mr. Imperatore.
Baker:
Mr. Imperatore, a couple of
quick ones. If you can serve right now because of the common carrier obligation and the limits
on entry that make that common carrier obligation a viable obligation. If you can serve a small
town at the same price that you serve a big city and we deregulate, and those small towns are no
longer going to be profitable to serve - what is going to happen to the industries and the
businesses and the people who live in those small towns?
Imperatore:
I think that they'd have a
lot of trouble getting service and I don't think there would be any predictability to their rate
levels.
Baker:
And what is going to happen
if we have five or six or seven or eight more carriers per line coming in and competing for the same limited
amount of freight? Isn't it going to mean that we're going to have instead of trucks 80 percent
full as now the case, trucks 50 percent full and a lot of wasted space and wasted energy?
Dukakis:
Alright, Mr. Imperatore
thank you very much for being with us on THE ADVOCATES. Mr. Frank your last witness. Welcome to
THE ADVOCATES, Mr. Miller, nice to have you with us.
Frank:
Mr. Miller as an economist
who has done quite a lot of work on the economics of regulation. I wonder if you'd like to
comment on the statistics we've heard here about how the rate increases in this regulated
industry are below the rate of inflation?
Miller:
Mr. Frank, we have to be
very careful about throwing these statistics around. First of all, as Senator Kennedy pointed
out the LTL freight has gone up at a rate much greater-
Frank:
That's the
less-than-truckload?
Miller:
The less-than-truckload
freight has gone up at a rate much higher than the cost of living, even though the truck load
freight has not gone up as much as the cost of living. But the thing that we must keep in mind
it seems to me is that that opportunities we have for reducing prices where ever they are
artificially inflated we should take that opportunity. Surely the rate of price increases in
some industries like trucking have not gone up as much as the general price level. But that's
like saying, "How's your spouse?" and the answer is, "compared to what?" We must think of the
standard. We must think of opportunities we have and we must exploit those opportunities to
reduce prices where we can.
Frank:
Mr. Miller, isn't this just
you know one of your academic theories? I mean, what we've heard is that--
Miller:
Are you on my side?
Frank:
You guys, you guys talked us
into air freight deregulation, and we just heard that that was a disaster. Are you just leading
us down that garden path again?
Miller:
No I, I think the experience
with airline deregulation proves that the people that have suggested that airline, that
deregulation would lead to more efficient outcomes are right. Let me let me talk about the air
freight case for a moment. What is not pointed out is just before deregulation, the Civil
Aeronautics Board itself admitted that a 38 percent rate increase was warranted in air freight.
The fact that we've only had 20 percent suggests that deregulation gained us a 20 percent rate
reduction, it seems to me. Secondly, and very importantly the rate growth in air freight has
been twice as high since deregulation as it was before deregulation. And had it not been for the
fact that when we deregulated, we deregulated prices first, and then entry second, the rate of
price increase would have been even less.
Dukakis:
Mr. Miller, I'm sorry Mr.
Frank. Mr. Miller, Mr. Frank will have a chance to ask you a few more questions. Mr. Baker now
has got an opportunity to ask you some.
Baker:
Thank you. Mr. Miller, let's
talk a little bit about some of these concepts that we've discussed before. What's going to be
the remedy if you deregulate? If a big company gets to a carrier and says, "Look, I think you
ought to give me a better rate. I think you ought to give me a rate so big that I can
effectively drive my little competition out of business." What's going to be the remedy for that
small man who sees that big company getting a favored rate without the ICC to look over the
shoulder of the trucking company?
Miller:
That's very curious. The
idea that a large shipper would so intimidate small carriers as to force them out of business
suggests to me that they don't have a good judgment. A shipper will only be able to tender
freight as long as the carrier is there.
Baker:
No, you misunderstood my
question. Now the small carrier force his business competition out of business. Giant company
makes "widgets," Small company makes "widgets." Giant company gets special "widget rate." Small
company can't compete. No more "widgets." Giant company says, "Ah ha, I've got the whole
business to myself because I've been able to negotiate a favored rate." Now what is that small
company going to do? Walk over to the Justice Department and say, "By the way if you guys can
spare six years and $5 million I'd like to bring an anti-trust suit."
Miller:
Why on earth do you presume
that the large firm would be able to negotiate a much more favorable long term rate than a small
term, firm unless there's a substantial difference in cost?
Baker:
A substantial difference in
cost is not the issue. The substantial difference is horsepower. You know if General Motors and
I don't want to cast any dispersions on General Motors. Some of you may have gotten driven here
by General Motors. But if General Motors says, "I want to get a favored rate and I am a
multi-billion dollar corporation and if you want to see any of my business you'd better play it
my way."
Miller:
And that's right and in that
case–
Miller:
I would go somewhere
else.
Miller:
Absolutely. I would go over
to Ford Motor Company, I would go over to Chrysler Motor Company. I wouldn't take freight from
General Motors and General Motors goes down the tubes.
Baker:
Oh? I'm sure that's going to
be a welcome surprise to Mr. Cole, or Mr. Ford anyway. What's going to be the remedy for the
whole problem of discriminatory pricing? Suppose that you have a small town who's out in the out
in the hinterland and right now they can get their groceries at the same rate as the big city so
long as they're equidistant from the same point of origin, because the rates are regulated to be
the same. What's going to happen to that small town and the people who have moved out there.
This is part of the new frontier as we understand, you know the exodus from the crowded cities.
What's going to happen to them?
Miller:
They're going to get their
freight and they may get it by trucks that are not common carriers. Let me tell you a
case.
Baker:
Well how much is it going to
cost?
Miller:
I have, my wife and I own a
cabin in a very, a very out of the way place in the Blue Ridge Mountains. Within a very small
radius of our cabin there are three or four or five little bitty grocery stores. And I went in
and asked them, "How do you get your, how do you get your groceries?" They get them from
wholesalers. Why? Because the common carriers don't serve that area.
Baker:
What's going to happen if
you turn over to the Justice Department, the whole responsibility for enforcing unfair pricing
practices?
Miller:
Well the Justice Department
would not have any responsibility for enforcing so-called unfair pricing responsibilities. The
Robinson-Patman Act, as you probably know does not apply to services.
Baker:
Well I thought we were
talking about the whole question of some remedy. Right now the ICC, if somebody tries to put in
a rate that's unfair or a rate that's too high, someone can complain. And the ICC can suspend
that rate--
Miller:
Mr. Baker, Mr. Baker,
preference or discrimination depends very much on the eye of the beholder. It's like the price
of a used car. It's always too low to the person who is selling it and it's too high to the
person who is buying it. A rate relationship where one person who gets favored always means that
someone else is disfavored. Now what do you mean by discrimination? Do you mean that rates are
charged that are not equal, or equivalent to the relevant measures of cost? If that's the case
then I, I can't defend that practice. I think competition would bring about rate relationships
that are equal to the relevant measures of cost.
Dukakis:
Gentlemen, I have to
interrupt.
Baker:
I've got to ask you one
follow-up question.
Dukakis:
No, I'm sorry I can't let you
do that Mr. Baker. Mr. Frank's got a question or two.
Frank:
I'll be glad to ask Mr.
Baker's follow-up question. We've heard a lot about the ICC--it's going to protect us from
excessive rates and discrimination. As someone who knows a lot about regulatory agencies and
regulation, can the ICC do what were being told it's going to do?
Miller:
Look, Mr. Sweeney just
testified a while ago that the ICC has 300,000 rates it looks at, rate changes every year. It is
inconceivable that the ICC can scrutinize that many changes. It is impossible. What they have is
a big stamp and they stamp just like that.
Frank:
Well let me, what about
about on, on new authority though. We're told that 96 percent of those who ask for new authority
can just get right in there.
Miller:
But that's the kind of
authority that says that I would like to carry things in half-gallon jugs, as well as in gallon
jugs. For carriers that are already in the market. People who want to get into the market from
outside have trouble getting in. Mr. McCoy was telling me today that it took him four years to get
in. It's very tough for a minority entrepreneur to get in the trucking industry. He told me that
there are only 60 minority owner, 60 truck companies that are owned by minorities, out of 16,000
regulated carriers today. Now it's very difficult to get in and to get broad operating
authority.
Dukakis:
Gentlemen, I'm sorry.
Miller:
That's the kind that's in
the two percent that's disapproved.
Dukakis:
Sorry I have to interrupt,
thank you Mr. Miller. It's now time for our closing arguments. Mr. Frank will begin. You have
one minute.
Frank:
We've just been told that
the Interstate Commerce Commission--2,000 people in Washington--can look at 300,000 rate requests
a year, can consider the question of requests from well over 100,000 people who are now in the
trucking business, and you don't know how many tens of thousands who might like to be, and by
dint of superior wisdom they can run this whole trucking for us. There's nothing about trucking
that makes it a natural monopoly such as electricity or telephones, it's not different than a
whole lot of other industries, in theory. In practice it's different because truckers have
persuaded the Congress over the years that the ICC should be given the power to protect them.
That someone who is productive and efficient as Mr. Imperatore while he might in any other
business be able to win it on his productivity and his efficiency alone because he's a trucker
gets an edge he doesn't need from the Interstate Commerce Commission. And it's no surprise that
the most ardent defenders of the ICC are the beneficiaries. It's not the consumers who are here
telling us that we need the ICC to protect us from chaos, it's the beneficiaries of that rubber
stamp that Mr. Miller talked about. The ICC keeps out competition it allows price fixing for
those who are there and it, the consumer pays billions of dollars extra as a result.
Baker:
Thank you. Deregulation has
now become high political fashion. But trucking is too important to be left to the marketplace.
You've heard that the beneficiaries of this system tonight. The shippers have told you that they
favor a continuation of the existing system, and the shippers are really your representatives
here. Our transportation system is a public utility just like water, telephone, gas, and
electricity. Regulation is necessary to make sure that you - the consumer can get trucking
service when you need it and that you - the consumer will have that service at fair and
reasonable rates. Deregulation would leave thousands of small communities and small businesses
with no assurance of trucking service. And it would allow giant companies to dictate favored
rates with which the small businessman can't compete. Trucking is the economic lifeline of the
nation. Don't cut it with deregulation. Thank you.
Dukakis:
Thank you gentlemen and now
it's time for you in our audience to tell us how you feel about this issue. Should Congress
deregulate trucking? Send us your yes or no vote with your comments on a postcard to, THE
ADVOCATES, Box 1979, Boston 02134. On February 11th THE ADVOCATES debated the question, "Should
our foreign policy include cover operations by the CIA?" Our audience responded this way: 59
percent said Yes, 41 percent said No. One viewer voting in favor of covert operations said, "We
must have CIA covert operations as long as other countries do." One voting against the idea
said, "The whole concept of covert operations is antithetical to democracy." One week later on
February 18th, THE ADVOCATES debated the question, "Should journalists have the right to protect
their sources?" Our audience responded this way: 67 percent Yes, 33 percent No. We hope you will
join us next week. And now our thanks to Mr. Frank, Mr. Baker, to our very distinguished
witnesses, and the Kennedy School of Government here at Harvard University for being such good
and hospitable hosts. We hope you will join us again next week.