FTC Staff Comment to the Hon. Rebecca Q. Morgan Concerning California S.B. 727 to Repeal the Public Utilities Commissions Authority to Set Contract Motor Freight Rates

ITl )I~R·\L TRAPE CO\l\llSSJO~
COMMISSION 	AUTHORilED
December 	31, 	1987
The 	Honorable 	Rebe~ca Q. 	Morgan
State 	Capitol
Sacramento, 	California 	95814
Dear 	SEnator 	Morgan:
The 	staff 	vf 	the 	Federal 	Trade 	Commission 	is 	pleased 	to
respoTld 	to 	your 	request 	for 	comments 	on 	Senate 	Bill 	727. 1 	This
bill, 	if 	enacted, 	would 	repeal 	the 	Public 	Utilities 	Commission1s
authori~y to 	set 	contract 	carrier 	motor 	freig~t rQtes. 	It 	also
would 	establish 	a 	new 	safety 	inspection 	program 	for 	?:l 	trucks
and 	maintenance 	terminals. 	Under 	Sg 	727, 	hi~~way contract
carriers 	wou~d be 	allowed 	to 	charge 	any 	rate 	they 	desire, 	but
would 	be 	r€'quired 	to 	maintain 	their 	trucks 	in 	safe 	operating
condition.
This 	bill 	is 	a 	significant 	step 	toward 	bringing 	to 	both
co~sumers and 	competitors 	the 	benefits 	of 	price 	competition 	in
California1s 	contract 	~otor freight 	industry. 	By 	directly
addressing 	the 	issue 	of 	highway 	safety, 	SB 	727 	also 	p~omotes the
state1s 	in~erest in 	protecting 	the 	health 	and 	welfare 	of 	its
citizens.
Our 	interest 	in 	this 	legislation 	arises 	from 	the 	Federal
Trade 	Commission1s 	mandate 	to 	preserve 	competition 	and 	~rotect
consumers 	from 	deceptive 	and 	unfair 	business 	practices. 	During
recent 	years, 	the 	Commission1s 	staff 	has 	studied 	the 	deregulation
of 	trucking 	and 	has 	advocated 	increased 	reliance 	on 	market 	forces
1 T hese 	commEnts 	represent 	the 	views 	of 	~he San 	Francisco
Regiunal 	Office 	and 	the 	Bureaus 	of 	Competition, 	Consumer
Protection, 	and 	Econo~ics of 	the 	Federal 	Trade 	Commission, 	and 	do
not 	~ecessar_ly represent 	the 	views 	of 	the 	Commissicn 	itself 	or
any 	individual 	Commissioner. 	The 	Commission 	has, 	ho~sver, voted
to 	authorize 	the 	staff 	to 	submit 	these 	comments 	to 	you.
2 See 	1:) 	U.S.C. 	§§ 	41 	et 	~.

The 	Honorable 	Rebecca 	Q. 	Morgan 	Page 	2
at 	both 	the 	federal 3 	and 	state 	level. 4 	Our 	activities 	in 	this
area 	and 	our 	familiarity 	with 	competition 	policy 	issues 	generally
have 	provided 	us 	with 	substantial 	experience 	in 	analyzing 	the
potential 	competitive 	consequences 	of 	trucking 	deregulation.
I. 	ARGUMENTS 	ADVANCED 	IN 	SUPPORT 	OF 	CONTINUED 	REGULATION
Trucking 	regulation 	was 	originally 	intended 	to 	help 	protect
the 	regulated 	railroads 	from 	the 	then-unregulated 	and 	expanding
trucking 	industry. 	It 	was 	also 	designed, 	in 	part, 	to 	support 	the
trucki~g industry 	by 	restricting 	competition 	during 	the
depression 	of 	the 	1930's.5 	Neither 	rationale 	has 	any 	validity 	in
1987.
Those 	who 	support 	current 	contract 	motor 	carrier 6 	regUlation
in 	California 	have 	advanced 	three 	major 	arguments: 	preventing
predatory 	pricing, 	forestalling 	destructive 	competition, 	and
3 See 	Comments 	of 	the 	Staff 	of 	the 	Federal 	Trade 	Commission
on 	Pricing 	Practices 	of 	Motor 	Common 	Carriers 	of 	Property 	Since
the 	Motor-Carrier 	Act 	of 	1980, 	Ex 	Parte 	No. 	~C-166, 	Before 	the
Interstate 	Commerce 	Commission 	(January 	19, 	1983); 	Supplementary
Comments 	of 	the 	Bureaus 	of 	Competition, 	Consumer 	Protection 	and
Economics, 	Federal 	Trade 	Commission 	on 	the 	Exemption 	of 	Motor
Contract 	Carriers 	from 	Tariff 	Filing 	Requirements, 	Ex 	Parte 	No.
MC-165, 	Before 	the 	Interstate 	Commerce 	Commission 	(1983); 	D.
Breen, 	Bureau 	of 	Economics 	of 	the 	Federal 	Trade 	Co~~ission,
Recrulatory 	Reform 	and 	the 	Truckincr 	Industry: 	An 	EVcluation 	of 	the
Motor 	Carrier 	hct 	of 	1980, 	Submitted 	to 	Motor 	Carrier 	Ratemaking
Study 	Commission 	(March 	1982).
~See Comments 	of 	the 	Federal 	Trade 	Comn,ission 	Staff 	to 	the
Legislative 	Audit 	Council 	of 	the 	State 	of 	South 	Carolina 	on
Possible 	Restrictive 	or Anticcmpetitive 	Practices 	in 	south
Carolina's 	Public 	S~rvice Commission 	Statutes 	(September 	29,
1987); 	Statement 	cf 	the 	Staff 	of 	the 	Federal 	Trade 	Commission 	on
Econo~ic Deregulation 	of Trucking 	to 	House 	anj 	Senate
Transportation 	Committees, 	Washington 	State 	Legislature 	(March 	7,
1985) .
SNelson, 	The 	Chcngincr 	Economic 	Case 	for 	Surface 	Transport
Recrulation, 	in 	Perspectives 	on 	Federal 	Transportation 	Policy
(James 	C. 	Miller 	III 	ed. 	1975).
6 con tract 	motor 	carriers 	~re trucking 	firms 	that 	operate
un~er contract 	to 	specific 	shippers. 	Contracts 	can 	be 	short 	term
(single 	trip 	up 	to 	30 	days) 	or 	long 	te~ 	(30 	days 	to 	12 	months).
Each 	contract 	is 	negotiated, 	after 	which 	the 	rates 	are 	pUblished.

The 	Honorable 	Rebecca 	Q. 	Morgan 	Page 	3
maintaining 	safety. 	As 	discussed 	belo~, 	ho~ever, 	empirical
studies 	demonstrate 	that 	none 	of 	these 	rationales 	supports 	the
contention 	that 	economic 	regulation 	of 	contract 	motor 	carriers 	is
either 	necessary 	or 	desirable. 7
Predatory 	Pricing
The 	first 	argument 	advanced 	in 	support 	of 	continued
regulation 	is 	the 	prevention 	of 	predatory 	pricing. 	The 	principal
thrust 	of 	this 	argument 	is 	that 	larger, 	better 	financed 	companies
~ill 	attempt 	to 	drive 	out 	competitors 	by 	selling 	trucking 	service
belo~ cost. 	The 	surviving 	firms 	will 	then 	raise 	their 	prices 	to
supracompetitive 	levels, 	eventually 	recouping 	their 	los~es and
increasing 	their 	profits.
One 	condition 	necessary 	for 	successful 	predatory 	pricing 	is
high 	entry 	barriers. 	High 	entry 	barriers 	prevent 	a 	return 	of
competitors 	when 	the 	predatory 	firm 	raises 	prices 	above 	the
competitive 	level 	to 	recoup 	its 	losses. 	This 	condition
apparently 	does 	not 	exist 	in 	the 	trucking 	industry 	today.8 	There
presently 	a~e 	no 	significant 	regulatory 	barriers 	to 	entry.
Trucks 	are 	highly 	mobile 	and 	are 	quickly 	transferred 	to 	new
markets. 	A carrier 	would 	be 	unable 	to 	later 	recoup 	the 	losses 	it
sustained 	while 	engaging 	in 	predctory 	pricing. 	Thus, 	when 	the
predator 	tried 	to 	raise 	its 	prices 	to 	supracompetitive 	levels,
other 	firms 	would 	enter 	or 	re-enter 	the 	market, 	taking 	business
away 	from 	the 	pred~tor and 	forcing 	prices 	back 	to 	competitive
levels. 	Because 	predation 	is 	unlikEly 	to 	be 	profitable, 	carriers
are 	not 	likely 	to 	attempt 	it.
Recently, 	the 	General 	Accounting 	Office 	joined 	the
Interstate 	Commerce 	Commission, 	the 	Motor 	Carrier 	Ratemaking
study 	Commission 	and 	the 	Department 	of 	Justice 	in 	concluding 	that
predation 	is 	unlikely 	to 	occur 	as 	a 	consequ~nce 	of 	trucking
7T hese 	arguments 	have 	been 	discussed 	and 	dismissed 	in 	a
number 	of 	studies. 	See 	oenerally 	Weinstein 	& Gross,
Transportation 	and 	E~onomic Develop~ent: The 	Case 	for 	Feform 	of
Truckino 	Reoulation 	in 	Texas, 	Center 	for 	EnterpriEing, 	Southern
Methodist 	University 	(February 	1987); 	D. 	B~een, 	supra 	note 	3.
8J . 	C. 	Miller 	III, 	Economic 	Reaulation 	of 	Trucking, 	in
Report 	of 	the 	Economic 	Advisory 	Panel 	to 	the 	National 	Commission
for 	the 	Review 	of 	Anti-Trust 	Laws 	and 	Procedures 	(Nov. 	9, 	1978).

The 	Honorable 	Rebecca 	Q. 	Morgan 	Page 	4
deregulation. 9 	Indeed, 	predatory 	pricing 	is 	highly 	unusual 	in
any 	sector 	of 	the 	economy. 	The 	su~reme Court 	recognized 	this
principle 	in 	Matsushita 	v. 	Zenith, 	0 	stating 	that 	~predatory
pricing 	schemes 	are 	rarely 	tried, 	and 	even 	more 	rarely
successful."ll 	In 	any 	event, 	firms 	that 	attempt 	to 	engage 	in
predatory 	pricing 	also 	would 	be 	SUbject 	to 	law 	enforcement
actions 	brought 	under 	state 	and 	federal 	antitrust 	statutes.
Destructive 	Competition
Proponents 	of 	trucking 	regulation 	also 	argue 	tha~
deregulation 	""'ill 	lead 	to 	"destructive 	compet.ition." 	Destructive
competition 	may 	occur 	in 	industries 	characteri~ed by 	declining
demand, 	sunk 	costs, 	and 	a 	high 	ratio 	of 	fixed 	to 	total 	costs.
These 	conditions 	are 	likely 	to 	create 	excess 	capacity 	and 	create
considerable 	pressure 	to 	cut 	price. 	If 	price 	competition 	breaks
out, 	however, 	prices 	may 	persist 	below 	the 	total 	cost 	of
providing 	services 	because 	the 	sunk 	nature 	of 	costs 	makes 	exit
difficult. 	Firms 	facing 	chronic 	losses 	may, 	as 	a 	~esult, 	try 	to
reduce 	costs 	by 	skimping 	on 	service, 	to 	the 	detriment 	of
customers.
The 	conditions 	conducive 	for 	destructive 	competition 	do 	not
exist 	in 	the 	California 	trucking 	industry. 	Fixed 	costs 	comprise
only 	a 	small 	percentage 	of 	total 	costs, 	which 	include 	such
variabl~ costs 	as 	labor 	and 	fuel 	ey.pens£~. 	Trucks 	also 	are
highly 	mobile 	assets 	which 	may 	readily 	and 	easily 	be 	transferred
from 	less 	profitable 	to 	mo~e profitable 	markets 	in 	response 	to
fluctuations 	in 	demand, 	or 	sold 	or 	leased 	to 	other 	operators. 	It
is 	unlikely, 	therefore, 	that 	destructive 	competition 	of 	this 	sort
9United 	states 	General 	Accounting 	Office, 	Truc}:;no
Recrulation: 	Price 	COr.''::leti tior, 	and 	Mar}:et 	structure 	in 	the
Truckina 	Industrv, 	8-10 	(February 	1987). 	The 	positions 	of 	the
ICC, 	MCRSC, 	and 	DOJ 	are 	discussed 	in 	the 	GAO 	report.
10 10 6 	S. 	ct . 	13 ~ 8 	( 19 C6) •
11Id. 	at 	1357-58, 	citing 	R. 	Bork, 	The 	hntitrust 	Pa~adoy.,
1~9-156 	(1978); 	Areeda 	& Turner, 	PredatorY 	Pricinc 	and 	?elatec
Practices 	Under 	Section 	2 	of 	the 	Sherman 	Act, 	88 	Harv. 	~. 	Rev.
6S7, 	699 	(1975); 	Easterbrook, 	Preda'torv 	Strate='es 	and
Ccunterstrateaies, 	~8 	U. 	Chi. 	L. 	Rev. 	263, 	268 	(1981); 	Koller,
The 	Myth 	of 	Predatorv 	Pricina--J..n 	Empid eal 	Study, 	4 	Anti tn:st 	L.
& Econ. 	Rev. 	105 	(1971); 	McGee, 	Predatorv 	Price 	Cutt:0=: 	~he
Standard 	oil 	nLJ.) 	Cace, 	1 	J. 	L. 	& 	Eeon. 	137 	(1958); 	McGee,
Predato:\' 	Pricina 	Revisited, 	23 	J. 	L. 	& Eeon. 	289, 	292-2So4 	(1980).

The 	Honorable 	Rebecca 	Q. 	Morgan
""ill 	occur. 12
Safety
Page 	5
A final 	argument 	advanced 	against 	d£regulation 	is 	that 	it
will 	have 	an 	adve~se effect 	on 	safety 	in 	the 	truc}:ing 	industry,
because 	carriers 	facing 	stiff 	competition 	will 	neglect
maintenance, 	delay 	replacement 	of 	vehicles, 	and 	overwork 	drivers.
There 	is 	no 	necessary 	link 	between 	economic 	deregulation 	and
reduced 	safety. 	In 	fact, 	a 	recent 	study 	of 	truck 	safety 	in
California, 	conducted 	jointly 	by 	the 	California 	Public ~tilities
Commission 	and 	the 	California 	Highway 	Patrol 	was 	"unable 	to 	prove
the 	hypothesis 	that 	CPUC 	economic 	regulation 	of 	trucking 	is
significantly 	and 	positively 	linked 	to 	imFroved 	high.... ay
safety.,,13 	Phase 	One 	of 	the 	CPUC/CHP 	study, 	published 	earlier
this 	year, 	found 	that 	the 	number 	0: 	California's 	annual 	truck-at-
fault 	accidents 	per 	100 	million 	miles 	traveled 	ac~ually decreased
nearly 	30 	percent 	between 	1976 	and 	1986,14 	a 	period 	during 	which,
as 	discussed 	below, 	California 	eA~erimented with 	deregulation.
The-legislature 	has 	a 	legitimate 	interest 	in 	promoting
safety 	on 	California's 	highways. 	However, 	rather 	than 	attempting
to 	affect 	safety 	indirectly 	through 	economic 	regulation, 	i~ 	seems
preferable 	to 	address 	safety 	issues 	directly. 	This 	is 	exactly
the 	approach 	taken 	in 	SB 	727, 	which 	mandates 	th;:.t 	all 	truc}:s 	and
maintenance 	terminals 	undergo 	safety 	inspections 	a~ 	fixed
intervals.
12 See 	A. 	Kahn 	III, 	2 	Economics 	o~ Regulation, 	178 	(1971) 	in
Yo'hich 	the 	author 	states, 	": D] oes 	trucking 	have 	the 	economic
attributes 	of 	an 	industry 	SUbject 	to 	destructive 	competition? 	It
would 	be 	difficult 	to 	find 	one 	less 	qualified."
13 Ca lifornia 	Public 	Utilities 	Corr~ission & California
Highway 	Patrol, 	AB 	2678 	Final 	Report 	on 	Truck 	Safety, 	Joint
Legislative 	Report, 	3 	(Nove~er 	1987).
1~California Public 	Utilities 	C0~~ission & California
Highway 	Patrol, 	AB 	2678 	Report 	on 	Truck 	Safe~y, 	Joint 	Legislative
Report 	(June 	1987). 	Si~ilarly, injuries 	and 	fatalities 	from
heavy 	truck 	accijents 	decreased 	nation~ide follo~ing ~he passage
of 	the 	Motor 	Carrier 	Ac~ 	in 	:980. 	Weinstein 	& Gross, 	sup~a note
7, 	at 	50. 	See 	also 	Corsi, 	Fanara, 	& Roberts, 	"L::l'kages 	B<::tween
Motor 	Carrier 	Accidents 	and 	Safe~y Regulation, 'I 	20 	L~~i~t~cs &
TransD. 	Rev. 	1~9, 	156-157 	(June 	:98~); 	Beilock, 	"Are 	Truckers
Forced 	to 	Speed?," 	21 	Lo~is'tics & ':'ransp. 	Re\". 	277 	(September
198:') .

The 	Honorable 	Rebecca 	Q. 	Morgan
II. 	B~NEFITS OF 	DEREGULATION
Page 	6
The 	best 	evidence 	of 	the 	benefits 	to 	consumers 	and
competition 	produced 	by 	trucking 	deregulation 	is 	California's 	own
experience. 	California 	experimented 	with 	partial 	economic
deregulation 	of 	trucking 	from 	1980 	to 	1986. 15 	During 	this 	time,
entry 	was 	unrestricted, 	and 	rates, 	though 	regulated, 	were
relatively 	flexible. 16 	The 	result 	was 	lower 	rates 	with 	no 	loss
in 	service. 17
The 	experience 	of 	California's 	fresh 	fruit 	and 	vegetable
(FF&V) 	shippers 	and 	carriers 	illustrates 	the 	benefits 	enjoyed 	by
California 	consumers 	and 	competitors 	under 	the 	experimental
deregulation. 	FF&V 	shipments 	were 	essentially 	deregulated 	after
July, 	1983, 	when 	minimum 	rate 	tariffs 	were 	cancelled 	and 	not
replaced 	with 	transition 	tariffs. 	A 1986 	survey 	of 	FF&V 	shippers
and 	carriers 	found 	that 	up 	to 	70 	percent 	of 	truck 	load 	shippers
reported 	decreased 	real 	rates 	after 	deregulation. 18 	Li}:ewise, 	up
to 	93 	percent 	of 	truck 	load 	carriers 	reported 	decreased 	real
rates. 	Moreover, 	21 	percent 	of 	the 	FF&V 	shippers 	reported 	that
overall 	service 	had 	improved, 	while 	less 	than 	half 	of 	that
15In 	1986, 	the 	California 	Public 	utilities 	co~.ission
returned 	to 	full 	economic 	regulation 	and 	ordered 	all 	carriers 	to
boost 	their 	rates 	by 	10 	percent 	and 	each 	carrier 	to 	establish 	its
o~~ tariffs 	based 	on 	cost 	justifications.
16 carr iers 	were 	permitted 	to 	change 	rates, 	after 	a 	short
waiting 	period, 	without 	having 	to 	show 	the 	change 	was 	cost-
justified. 	The~e was 	no 	waiting 	period 	to 	match 	a 	competitor's
rate.
Just 	prior 	to 	relaxing 	rate 	regulation, 	the 	CPUC 	dropped 	the
requirement 	for 	certificates 	of 	convenience 	and 	necessity. 	Motor
freight 	carriers 	wishing 	to 	offer 	their 	services 	,.:ere 	required
only 	to 	show 	"fitness": 	proof 	of 	financial 	respons~bility,
insurance, 	and 	residency 	in 	California. 	These 	fi~ness
requirements 	still 	apply.
17 M. 	Simmerson, 	"Analysis 	of 	The 	Impact 	of 	Reregulation 	of
the 	General 	Freight 	Trud:ing 	Industry," 	Investigation 	No. 	8~ -05-
0~8, 	California 	Public 	Utilities 	Commission, 	20-21 	(Augus~ 10,
1984) 	(based 	upon 	survey 	by 	CPUC 	of 	239 	general 	freight 	carriers
and 	survey 	by 	Cali:ornia 	State 	University, 	Hay~ard, 	Institute 	of
Research 	& Business 	Development 	of 	569 	shippers.)
18 Frey , 	Krolick 	& Tontz, 	The 	Irn~act of 	Motor 	Carrier
Dereaulatiror.: 	California 	In-:rastate 	Aoricultural 	Products, 	22
LJgistics 	& Tran$p. 	Rev. 	259, 	266 	(Sept. 	1986).

The 	Honorable 	Rebecca 	Q. 	Morgan
percentage 	reported 	that 	service 	had 	declined. 19
Page 	7
competitors 	would 	also 	benefit 	from 	deregulation 	through
significant 	savings 	in 	regulatory 	fees. 20 	These 	savings 	would 	be
in 	addition 	to 	those 	arising 	from 	reduced 	regulatory-related
administrative 	costs 	currently 	incurred 	by 	contract 	motor
carriers.
The 	experiences 	of 	several 	other 	states 	attest 	to 	the
economic 	benefits 	of 	intrastate 	trucking 	deregulation. 	A study
of 	trucking 	in 	New 	Jersey, 	for 	example, 	concluded 	that
deregulation 	has 	worked 	well 	in 	that 	state. 21 	Shippers 	were
satisfied 	with 	the 	available 	service, 	rates 	were 	about 	ten
percent 	lower 	than 	they 	would 	have 	been 	under 	regulation, 	and
intrastate 	carriers 	prospered. 22
Florida's 	experience 	is 	particularly 	interesting 	because
deregulation 	occurred 	so 	quickly 	that 	truckers 	and 	shippers 	had
no 	opportunity 	to 	prepare 	for 	it. 	Nevertheless, 	according 	to 	one
study, 	a 	year 	after 	deregulation 	88 	percent 	of 	shippers, 	as 	well
as 	a 	surprisingly 	high 	49 	percent 	of 	truckers, 	supported 	it.
Most 	shippers 	thought 	that 	service 	levels 	remained 	constant 	and
that 	rate .. fluctuations 	had 	posed 	no 	difficulties. 	Only 	a 	few
shippers 	converted 	to 	private 	carriage: 	many 	more 	such
conversions 	might 	have 	been 	expected 	if 	"destructive 	competition"
had 	resulted 	in 	a 	large 	reduction 	in 	the 	number 	of 	truckers. 23
19Frey, 	Kro~ick & Tontz, 	sup~~ note 	18, 	at 	268.
20 T he 	California 	Legislative 	~~alyst has 	estimated 	that
complete 	deregulation 	of 	the 	state's 	trucking 	industry 	would 	save
motor 	carriers 	approximately 	$17.5 	million 	annually 	in 	regulatc~
fees. 	Report 	of 	the 	Legislative 	Analyst 	to 	the 	Joint 	Legislative
Budget 	Committee, 	"State 	Regulation 	of 	the 	Trucking 	Industry,"
The 	1987-88 	BUdget: 	Perspectives 	and 	Issues, 	229. 	The
proportional 	savings 	to 	contract 	carriers 	would 	be 	considerable.
21w. 	Bruce 	hllen, 	S. 	Lonergon 	& D. 	Plane, 	Examination 	of 	the
Unreauleted 	Truckino 	E)~erience in 	Ne~ Jersey, 	U.S. 	Dept. 	of
Transportation 	(July 	1979).
22 W. 	Bruce 	Allen, 	Statement 	Before 	the 	Nation~l Commission
for 	the 	Review 	of 	hnti-Trust 	Laws 	and 	Procedures 	(January 	22,
1579) .
23Fre2man, 	A Sunrev 	0: 	Motor 	Carrier 	De~eoulation in
FJorida: 	One 	Year's 	Ey''Perience, 	ICC 	Pract.itioners 	Journal, 	51
(Nov.-Dec., 	1982).

The 	Honorable 	Rebecca 	Q. 	Morgan 	Page 	8
Likewise, 	a 	later 	Department 	of 	Transportation 	stuct y 24 	found 	that
90 	percent 	of 	Florida 	shippers 	believed 	that 	post-deregulation
service 	was 	at 	least 	as 	good 	as 	service 	before 	deregulation, 	and
30 	percent 	reported 	improvements. 	A majority 	of 	these 	shippers
(58 	percent) 	perceived 	that 	deregulation 	had 	held 	down 	rates.
Finally, 	economists 	Blair, 	Kaserman, 	and 	McClave 	found 	that 	the
deregulation of 	intrastate 	truckin~ led 	to 	a 	15 	percent 	average
reduction 	in 	motor 	carrier 	rates. 2
The 	experience 	of 	other 	states 	is 	consistent 	with 	that 	of
New 	Jersey 	and 	Florida. 	For 	example, 	in 	Wisconsin, 	67 	percent 	of
shippers 	were 	satisfied 	with 	deregulation, 	and 	only 	six 	percent
were 	dissatisfied. 	Seventy-three 	percent 	said 	that 	rate
information 	was 	as 	readily 	available 	after 	deregulation 	as
before. 	Carriers 	were 	evenly 	divided 	on 	the 	question 	of
deregulation. 	Those 	with 	increased 	profits 	tended 	to 	favor
deregulation, 	while 	some 	of 	those 	opposing 	deregulation 	were
concerned 	about 	the 	loss 	of 	the 	asset 	value 	of 	their 	certificates
of 	convenience 	and 	necessity.26
In 	Maryland, 	intrastate 	household 	goods 	movers 	were 	not
regulated. 	A study 	conducted 	in 	that 	state 	in 	1973-1974 	revealed
that 	the.then 	regulated 	interstate 	household 	goods 	carriers
charged 	27 	percent 	to 	67 	percent more 	than 	unregulate.d 	intrastate
carriers 	for 	comparable 	moves. 27
Oregon 	deregulated 	the 	shipping 	of 	certain 	building
materials 	in 	1980. 	The 	results 	of 	this 	action 	were 	examined 	in
two 	separate 	sUl~eys by 	the 	Legislative 	Research 	Office 	of 	the
Oregon 	Legislature. 28 	All 	parties 	surveyed 	agreed 	that
2~State~Jent of 	Matthew V. 	Scocozza, 	Assistant 	Secretary 	for
Policy 	and 	International 	Affairs, 	U.S. 	Department 	of
Transportation, 	Before 	the 	Subcommittee 	on 	Surface
Transportation, 	0.S. 	House 	of 	Representatives 	(June 	20, 	1984).
25 Bl a ir, 	Kaserrnan 	& Y,8Clave, 	Motor 	Carrier 	Dereaulation:
The 	Florida 	Experiment, 	68 	Rev. 	Econ. 	& Stat. 	159 	(1986).
26 wisconsin 	Cffice 	of 	the 	comrr-issioner 	of 	Transpo:~ation,
Dere01.1lction 	of 	\-"isconsin 	MotOl" 	Carriers 	(July 	1983). 	California
contract 	carriers 	are 	not 	required 	to 	obtain 	certi:icates 	of
convenience 	and 	necessity 	and 	so 	would 	not 	suffer 	such 	an 	asset
loss. 	There 	may, 	however, 	be 	other 	capital 	losses.
27Breen, 	Reaulation 	and 	Household 	Movina 	Costs, 	Regulation,
53 	(Sept. -Oct., 	1978).
28 Unpu blished 	surveys 	conducted 	by 	the 	Oregon 	State
Legislature's 	Lesislative 	Research 	Office 	(1984).

The 	Honorable 	Rebecca 	Q. 	Morgan 	Page 	9
deregulation 	increased 	the 	number 	of 	carriers 	in 	the 	market.
According 	to 	one 	survey, 	almost 	all 	shippers 	and 	most 	of 	the
truckers 	~ith prior 	authority 	to 	carry 	these 	products 	believed
that 	trucking 	rates 	had 	decreased. 	None 	of 	the 	groups 	surveyed
believed 	that 	general 	rate 	levels 	had 	increased 	as 	a 	result 	of
deregulation.
Consumer 	benefits 	of 	the 	type 	associated 	",'ith 	deregulation
at 	the 	state 	level 	have 	also 	been 	realized 	at 	the 	national 	level.
Under 	partial 	federal 	deregulation, 	the 	number 	of 	grants 	of
operating 	authority 	to 	carriers 	quadrupled, 	implyin~ that 	entry
into 	the 	trucking 	business 	has 	been 	greatly 	eased. 2 	There 	also
has 	been 	a~ 	increase 	at 	the 	national 	level 	in 	the 	number 	of
independent 	rate 	changes, 	with 	the 	vast 	number 	of 	observed
changes 	being 	rate 	decreases. 30 	Between 	1977 	and 	1982, 	during
~hich time 	partial 	:ederal 	deregulation 	was 	implemented,
interstate 	truckload 	rates 	fell 	about 	25 	percent 	and 	less-than-
truckload 	rates 	fell 	about 	12 	percent. 	These 	declines 	occurred
during 	a 	perioj 	of 	risin~ fuel 	costs 	and 	before 	the 	recessions 	of
1979-1980 	and 	1980-1981. 	1 	A recent 	federal 	study 	like~ise found
that 	regulattd 	rates 	are 	higher 	than 	competitive 	rates 	for
general 	freight 	trucking. 32
The ~vidence is 	clear 	and 	convincing: 	deregulation 	lowers
truc}:ing 	rates. 	California's 	own 	e)~erience indicates 	that
significant 	consumer 	benefits, 	in 	the 	form 	of 	lower 	shipping
prices, 	can 	be 	expected 	from 	the 	deregulation 	of 	contract 	motor
freight 	carrier 	rates.
29 0 ffice 	of 	Policy 	a~d Analysis, 	Interstate 	Commerce
Commission, 	The 	Effect 	of 	Regulatory 	Reform 	on 	the 	Truc}:ing
IndustD': 	Structure, 	Conduct, 	and 	Performance 	(June 	1981). 	See
also 	Statement 	of 	Reese 	H. 	Taylor, 	Jr., 	Chairrr,an 	of 	Interstate
Commerce 	Commission, 	Eefore 	the 	Surface 	Transportation
Subcommittee 	of 	the 	House 	co~~ittee on 	Public 	Works 	and
Transportation 	on 	Implementation 	of 	the 	Motor 	Carrier 	Act 	of 	1980
( Nov. 	7, 	19 8 5) .
30Statemen~ 	of 	Reese 	H. 	Taylor, 	Jr. 	Chairruan 	of 	Interstate
Commerce 	Commission, 	Before 	the 	Senate 	Committee 	on 	Commerce,
Science, 	and 	Transportation 	~Sept. 	21, 	1983). 	See 	also 	Staff
Report, 	Interstate 	Corr~erse COrnE.i~sion, Highliahts 	of 	Activitv 	in
the 	Pro~ertv Motor 	Carrier 	Industrv 	(Ma~ch 1986).
31Moore, 	Rail 	and 	Truc}; 	Reform 	-- 	':"he 	Resord 	So 	Far,
Regulation, 	39 	(Nov./Dec., 	~983).
32Motor 	Carrier 	Ratema}:ing 	Stujy 	Commission, 	Collect:ve
Ratemakina 	in 	the 	Truckina 	Industry 	(Ju~e 1, 	1983).

The 	Honorable 	Rebecca 	Q. 	Morgan
IV. 	CONCLUSION
Page 	10
We 	believe 	SB 	727 	is 	an 	important 	first 	step 	in 	moving 	to 	a
moye 	competitive 	motor 	carrier 	industry 	in 	California. 	Although
SB 	727 	does 	not 	totally 	deregulate 	California's 	intrastate
trucking 	industry, 	it 	will 	result 	in 	significant 	benefits 	for
consumers 	and 	competition. 	Contract 	trucking 	firms 	will 	be 	free
to 	compete 	on 	rates 	without 	waiting 	for 	CPUC 	approvals. 	This
freedom 	should 	improve 	efficiency 	and 	result 	in 	contract 	carrier
rates 	returning 	to 	the 	levels 	that 	existed 	during 	partial
deregulation. 	The 	truck 	and 	maintenance 	terminal 	inspection
program mandated 	by 	SB 	727 	will 	help 	to 	ensure 	that 	these 	cost
savings 	are 	net 	gained 	at 	the 	expense 	of 	truck 	safety.
We 	aprreciate 	this 	opporturli ty 	to 	present 	our 	views. 	We
would 	be 	ha~py to 	supply 	copies 	of 	~hose studies 	referred 	to 	in
this 	letter.
Very 	truly 	yours,
1n~~ m.. ~h"lJ)
~n~t 	M. 	Gra~y- - 	r
Regional 	Director