FTC Staff Comment to the Hon. Hugh D. Shine Concerning Texas H.B. 675 to Partially Deregulate the Tow Truck Industry

100 N. C<ontraJ expresswey
Suite 500
Dallas. TX 75201
(214) 767·5503
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
DALLAS REGIONAL OFFICE
V()~UU4~
COMMISSION AUTHORIZED
Office of the Regional Director
April 	18, 	1989
The 	Honorable Hugh D. 	Shine
Texas 	House 	of 	Representatives
P.O. 	Box 	2910
Austin, 	Texas 	78769
Dear Mr. 	Shine:
The 	staff 	of 	the 	Federal 	Trade 	Commission 	is 	pleased to
respond 	to your 	request 	for 	comments 	on 	the Committee 	Substitute
for 	House 	Bill 	675, 	containing proposed 	revisions 	to Articles
911b, 	6675a-5i, 	and 	6687-9b, 	Vernon's 	Texas 	Civil 	Statutes. 1
Those 	revisions 	would 	partially deregulate 	the 	tow 	truck 	industry
in Texas, 	allowing easier entry and price 	competition within
defined 	geographic 	areas. 	We 	believe 	that 	the 	proposals 	would
benefit consumers 	by 	incre~sing choices, 	improving 	service, 	and
reducing prices. 	Broadening this 	deregulation 	so 	that 	it
applies 	across 	the 	state 	generally could 	further 	enhance 	benefits
to 	consumers.
I. 	Interest 	and 	Experience 	of 	the 	Federal 	Trade Commission
The 	Federal 	Trade Commission 	("FTC") 	is 	an 	independent
regulatory 	agency 	responsible 	for 	fostering 	competition and
safeguarding 	the 	interests 	o~ consumers. 	Section 	5 	of 	the
Federal 	Trade Commission Act 	prohibits 	unfair methods 	of
competition and unfair 	or 	deceptive 	acts 	or practices. 	Through
investigations 	of 	alleged violations 	of 	this 	statute, 	the 	staff
of 	the FTC 	has 	gained experience 	J.n analyzing 	the 	effects 	of
various 	trade 	restraints 	and the 	costs 	and benefits 	of 	these
restraints 	to consumers. 	Upon 	request 	by 	federal, 	state 	and
local 	governmental 	bodies, 	the 	staff 	of 	the 	FTC 	regularly
assesses 	the 	competitive 	impact of 	legislative 	and 	regulatory
proposals 	in order 	to 	identify provisions 	that 	may benefit
consumers 	by promoting competition and 	reducing 	prices, 	and
1 	These comments 	are 	the views 	of 	the 	staff 	of 	the 	Dallas
Regional 	Office 	and 	the 	Bureau of 	Economics 	of 	the 	Federal 	Trade
Commission. 	They are 	not 	necessarily 	the 	views 	of 	the 	Commission
or 	of 	any 	individual 	Commissioner.
2 	15 	U.S.C. 	S 45.
'1/".

provisions 	that 	may 	harm consumers 	by 	impairing competition or
increasing costs 	without 	offering offsetting benefits.
In 	recent 	years, 	the Commission's 	staff 	has 	studied the
deregulation of 	trucking and 	has 	discussed 	the 	benefits 	of
increased reliance 	on market 	forces 	at 	both 	the 	federa1 3 	and
state 4 	levels. 	Our activities 	in 	this 	area 	and 	in matters 	of
competition policy generally 	have 	provided us 	with experience 	in
analyzing 	the 	potential 	competitive consequences 	of 	trucking
deregulation. 	We 	have 	not 	conducted a 	specific 	empirical 	study
of 	tow 	truck 	deregulation 	in Texas. 	We 	are 	familiar, 	however,
with 	the 	literature examining trucking deregulation 	nationally
and 	in other 	states. 	While 	the Texas 	legislation covers 	only 	the
tow 	truck 	industry, 	literature on 	the 	broader consequences 	of
trucking deregulation may 	be 	useful.
II. 	State Regulation of 	Texas 	Tow Truck pperators
Under current 	Texas 	law, 	tow 	trucks 	are 	subject 	to 	the 	same
regulatory scheme 	as 	most 	other motor 	carriers. 	House 	Bill 	675
would 	distinguish 	tow 	trucks 	from 	carriers 	of 	other 	freight 	and
3 	See Comments 	of 	the 	Federal 	Trade 	Commission on 	Pricing
Practices 	of Motor Common Carriers 	of 	Property Since 	the Motor
Carrier Act 	of 	1980, 	Ex Parte 	No. 	MC-166, 	Before 	the 	Interstate
Commerce Commission 	(Jan. 	1983); 	Supplementary Comments 	of 	the
Bureaus 	of 	Competition, 	Consumer Protection and 	Economics 	of 	the
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 Commission, 	RegulatokY
Reform 	and 	the Trucking 	IndustkY: 	An 	Eyaluation of 	the 	Motor
Carrier Act 	of 	1980, 	Submitted to 	Motor Carrier Ratemaking 	Study
Commission 	(March 	1982).
4 	See Comments 	of 	the 	Federal 	Trade 	Commission Staff 	to
West 	Virginia 	Delegate Rodney T. 	Berry on 	legislation 	to
partially deregulate 	the 	tow 	truck 	industry 	(April 	5, 	1989);
Comments 	of 	the 	Federal 	Trade Commission Staff 	to 	California 	Sen.
Rebecca Morgan on 	legislation to 	repeal 	the 	Public 	Utilities
Commission's 	authority 	to 	set contract carrier motor 	freight
rates 	(Dec. 	31, 	1987); 	Comments 	of 	the 	Federal 	Trade 	Commission
Staff 	to 	the 	Legislative Audit 	Council 	of 	the 	State of 	South
Carolina on Possible Restrictive or Anticompetitive Practices 	in
South Carolina's 	Public 	Service Commission Statutes 	(Sept. 	29,
1987); 	Statement of 	the 	Staff 	of 	the 	Federal 	Trade Commission on
Economic 	Deregulation of 	Trucking 	to 	House 	and Senate
Transportation Committees, 	Washington State Legislature 	(March 	7,
1985).
2

would effectively deregulate 	the 	operations 	of 	most 	tow 	truck
businesses 	in Texas.
A. 	Regulation 	under Current Law
Currently, 	tow 	trucks 	for 	inter-city hire 	in Texas 	are
regulated as 	specialized motor carriers 	under 	the 	authority of
the 	Railroad Commission of 	Texas, 	pursuant 	to Article 	911b,
S 	l(i), 	Vernon's 	Texas 	Civil 	Statutes. 	State-regulated towing
generally 	involves 	long distances 	or 	the 	towing of 	heavy-duty
equipment, 	such as 	construction vehicles 	or 	large 	trucks. 	Most
towing 	in urban areas, 	including non-consensual 	towing, 	is
regulated 	by 	local 	ordinance 	rather 	than by 	the 	State of 	Texas. S
The 	provision requires 	that 	tow 	truck 	operators 	obtain a
certificate of 	public 	convenience and necessity before 	commencing
operations 	and 	that 	they adhere 	to 	rates 	set by 	the 	Railroad
Commission. 	A certificate entitles 	the 	holder 	to 	operate 	a 	tow
truck 	business 	only within 	a 	defined 	geographical 	area. 	The
Railroad Commission determines 	rates 	based on average 	carrier
costs 	and an assumed 	fair 	rate 	of 	return. 	The 	rates 	4re 	uniform
throughout 	the 	state.
We understand 	that 	such certificates 	of 	public 	convenience
and 	neces~ity are 	granted only 	after a 	complex 	application
process 	and a 	sometimes 	lengthy 	hearing before the 	Railroad
Commission of 	Texas. 	The law requires 	notification 	to 	existing
operators 	of 	an 	application 	to 	serve 	the 	same 	territory 	and
provides 	incumbent 	towers 	with an opportunity to 	contest 	the 	new
application. 	Tex. 	Rev. 	Civ. 	Stat. 	Ann. 	art. 	911b, 	SS 	11, 	12
(Vernon). 	This 	process 	appears 	to 	make 	it 	difficult 	for 	new
operators 	to enter the 	tow 	truck business. 	In addition, 	it
effectively eliminates most 	garages 	and service 	stations 	from
using 	their wreckers 	in a 	separate business 	of 	towing 	for 	hire.
B. 	Regulation under Committee Substitute House 	Bill 	67S
The proposed 	legislation would ease 	entry requirements 	for
many 	tow truck 	operators 	by eliminating the 	requirement 	of 	a
certificate of 	public 	convenience 	and 	necessity 	for 	vehicles
5 	Article 	911b governs 	the 	towing of 	vehicles 	or heavy
equipment, 	for 	compensation, 	on public 	highways 	between two 	or
more 	Texas 	cities, 	towns, 	or villages. 	The 	statute 	is
inapplicable 	to 	·wreckers· 	used as 	an 	adjunct 	to 	the 	operator's
primary business, 	such as 	the 	operation of 	a 	used car dealership,
repair 	or 	storage 	facility, 	or salvage yard. 	Tex. 	Rev. 	Civ.
Stat. 	Ann. 	art. 	911b, 	S 	1~ 	(Vernon). 	Also exempt 	from 	state
regulation as 	motor carriers 	are 	operators 	of 	vehicles 	used 	in
transporting property 	for 	hire 	entirely within or 	adjacent 	to 	the
limits 	of 	a 	municipality. 	Tex. 	Rev. 	Civ. 	Stat. 	Ann. 	art. 	911b, 	S
l(g) 	(Vernon).
3

operating within 	specified areas. 	Under 	its 	provisions, 	the
Department 	of 	Labor 	and Standards 	would divide 	the 	State of 	Texas
into 	"urban," 	"regional," 	and 	"combined urban and 	regional"
operating 	zones. 	Within 	their 	zones, 	tow 	truck operators 	would
be 	allowed 	to compete.
A tow 	truck operating within 	its 	zone would be 	subject 	to
the 	jurisdiction of 	the 	Department 	of 	Labor 	and 	Standards. 	The
Department's 	jurisdiction would 	not 	include, 	however, 	the
authority 	to 	set 	rates 	nor 	to 	require 	a 	certificate 	of
convenience 	for 	tow 	truck operations. 	Consequently, 	hearings 	may
no 	longer be 	necessary, 	and an applicant 	could enter 	the 	towing
industry 	in any particular 	zone 	without 	having 	to 	overcome 	the
objections 	of 	competitors. 	Effectively, 	the 	bill 	would
accomplish economic 	deregulation of 	most 	tow 	truck 	operators 	in
Texas. 6
For each tow 	truck 	to 	be 	operated within the 	State, 	the
operator would 	be 	required 	to 	designate one 	or more 	operating
zones 	and 	"urban" 	or 	"regional" 	status, 	pay 	an 	appropriate
vehicle 	registration 	fee 	for 	issuance 	of 	an 	"urban" 	or 	"regional"
license 	plate, 	and obtain a 	certificate of 	registration 	from 	the
Department 	of 	Labor and Standards. 	Under 	the 	proposed
legislation, 	as 	is 	now 	the 	case, 	the 	Department would 	promulgate
and 	administer 	rules 	regarding minimum 	safety, 	insurance, 	and
identification requirements. 	A tow 	truck 	could not 	be operated
outside of 	its 	selected operating 	zone 	without 	the 	approval 	of
the 	Railroad Commission. 	However, 	a 	registration 	certificate
could be 	transferred 	at 	will 	to 	another vehicle 	operated by 	the
same 	owner, 	and an 	operator could change 	the 	operating 	zone 	for 	a
particular vehicle 	by applying 	for 	a 	new· registration
certificate.
The Railroad Commission would 	retain 	its 	jurisdiction to
regulate 	as 	motor 	carriers 	the 	operators 	of 	all 	tow 	trucks
authorized 	to 	operate 	for 	hire 	outside of 	registered 	zones 	or
across 	zone 	boundaries. 	Accordingly, 	the Commission would
continue 	to 	set 	uniform 	rates, 	conduct 	public 	hearings 	on new
applications, 	and 	require 	certificates 	of 	public 	convenience 	and
necessity 	for 	tow 	truck operators 	seeking 	authority 	to 	serve
broad 	geographic 	areas. 	Therefore, 	under 	the 	proposed
legislation, 	economic 	regulation would continue 	for 	the 	limited
number of 	tow 	truck 	operators 	performing 	long distance 	intrastate
towing 	for 	hire.
6 	The certificates 	cost a 	nominal 	amount 	when procured 	from
the 	state, 	but may be 	resold. 	If 	certificates 	have 	resold 	for
significant 	sums, 	the 	holders 	of 	those 	certificates 	who 	purchased
them 	in 	the 	secondary market 	would 	lose 	their 	investment. 	The
state may want 	to 	consider some 	form 	of 	compensation to 	existing
certificate 	holders 	for 	losses 	from 	unanticipated changes 	in
regulation.
4

III. 	Arguments 	Adyanced 	in 	Support of 	Continued Regulation
Trucking 	regulation originally was 	intended 	to 	help 	protect
the 	regulated railroads 	from 	competition 	from 	the 	then-
unregulated and expanding trucking 	industry. 	It 	also 	was
designed, 	in 	part, 	to 	support 	the 	trucking 	industry 	by
restricting competition during 	the 	depression of 	the 	1930's. 7
In our experience, 	those who 	support 	continued regulation of
motor common carriers 	usually 	advance 	four 	major arguments:
preventing predatory pricing, 	forestalling 	destructive
competition, 	maintaining 	safety, 	and ensuring service 	to 	small
communities. 	As 	discussed below, 	however, 	a 	number 	of 	empirical
studies 	on 	trucking have 	concluded that 	none of 	these 	rationales
supports 	the 	contention that 	continued regylation of 	common motor
carriers 	is 	either necessary or desirable. 8
A. 	Predatory Pricing
A primary 	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
will 	attempt 	to 	qrive 	out competitors 	by selling 	trucking
services 	below cost. 	The 	surviving 	firms 	will 	then 	raise 	their:'
prices 	above 	the 	competitive 	level, 	eventually recouping 	their 	I
losses 	and 	increasing 	their profits. 	'
The 	conditions 	necessary 	for 	successful 	predatory pricing
may 	not 	exist 	in 	this 	market, 	however. 	One 	such condition 	is
high entry barriers, 	which may 	take 	the 	form 	of 	government
regulation. 	High entry barriers 	prevent a 	return of 	competitors
when 	the predatory 	firm 	raises 	prices 	above 	the 	competitive 	level
to 	recoup 	its 	losses. 	Thus 	to 	the 	extent 	that 	a 	threat 	of
predatory 	pricing exists, 	entry regulation exacerbates 	the
problem, 	and 	increases 	the 	necessity of 	state price 	controls 	to
avoid 	this 	threat. 	Barriers 	to 	entry 	for 	local 	towing will 	no
longer exist 	if 	the 	proposed 	legislation 	is 	enacted.
Surface
Transportation
7 	Nelson, 	The 	Changing Economic 	Case 	for
Transport 	Regulation, 	in Perspectives 	on Federal
Policy 	(James 	C. 	Miller 	III, 	ed. 	1975).
8 	See 	generally Weinstein 	& Gross, 	Transportation 	and
Economic 	Deyelopment: 	The 	Case 	for 	Reform 	of 	Trucking Regulation
in Texas, 	Center 	for 	Enterprising, 	Southern Methodist 	University
(Feb. 	1987); 	D. 	Breen, 	supra 	note 	3; 	D. 	Owen, 	Bureau of
Economics, 	Federal 	Trade Commission, 	Deregulation 	in 	the 	Trucking
Industry 	(May, 	1988).
5

9
The 	revised 	registration 	requirements 	will 	permit 	new 	tow
truck 	operators 	to 	enter urban and 	regional 	markets 	quickly when
existing operators 	raise 	rates 	above 	competitive 	levels. 9 	The
absence 	of 	entry barriers 	makes 	detailed regulation of 	prices
less 	necessary, 	assuming predation was 	more 	than a 	remote 	threat.
Moreover, 	because 	trucks 	are 	highly mobile 	and can be 	transferred
quickly, 	the 	costs 	of 	entering 	(and exiting) 	a 	particular
geographic 	area 	are 	apt 	to 	be 	relatively 	low. 	If 	the 	predator
tries 	to 	raise 	its 	prices 	to 	noncompetitive 	levels, 	other 	firms
should enter or 	re-enter 	the 	market, 	taking business 	away 	from
the 	predator 	and 	forcing 	prices 	back 	to 	competitive 	levels.
Predation 	is 	therefore 	unlikely 	to 	be 	profitable 	and motor
carriers 	are 	not 	likely 	to 	attempt 	it.
In 	1987, 	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 	consequence 	of 	trucking
deregulation. 10 	In ~atsushita Electrical 	Industrial 	Co. 	V.
Zenith 	Radio 	Corp. ,1 	the 	Supreme Court 	stated 	that 	"predatory
pricing 	schemes 	are 	rarely 	tried, 	and even more 	rarely
successful. "12
predatof3 pricing remains 	at 	least. a 	theoretical
possibility. 1 	However, 	this 	possibility does 	not 	seem 	to 	us 	to
justify the 	type 	of 	entry ~estrictions embodied 	in 	the 	current
J. 	C. 	Miller 	III, 	Economic 	Regulation 	of 	TruCking, 	in
Report 	of 	the 	Economic 	Advisory 	Panel 	to 	the 	National 	Commission
for 	the 	Revi~w of 	Antitrust Laws 	and 	Procedures 	(Nov. 	9, 	1978).
10 	United 	States 	General Accounting Office, 	Trucking
Regulation: 	Price 	Competition and Market 	Structure 	in 	the
Trucking 	Industry, 	8-10 	(Feb. 	1987). 	The 	positions 	of 	the 	ICC,
MCRSC, 	and DOJ 	are 	discussed 	in the GAO 	report.
11 	475 	U.S. 	574 	(1986).
12 	Id. 	at 	589-90, 	citing R. 	Bork, 	The Antitrust 	Paradox,
149-56 	(1978); 	Areeda 	& Turner, 	Predatory Pricing 	and 	Related
Practices 	Under Section 2 of 	the 	Sherman Act, 	88 	Harv. 	L. 	Rev.
697, 	699 	(1975); 	Easterbrook, 	Predatory Strategies 	and
Counterstrategies, 	48 	U. 	Chi. 	L. 	Rev. 	263, 	268 	(1981); 	Koller,
the 	Myth of 	Predatory Pricing 	-- 	An 	Empirical 	Study, 	4 Antitrust
L. 	& Econ. 	Rev. 	105 	(1971); 	McGee, 	Predatory 	Price 	Cutting: 	The
Standard Oil 	(N.J.) 	Case, 	1 J. 	L. 	& Econ. 	137 	(1958); 	McGee,
Predatory Pricing Revisited, 	23 	J. 	L. 	& Econ. 	289, 	292-94 	(1980).
13 	J. 	Tirole, 	The 	Theory of 	Industrial 	Organization,
Cambridge: 	MIT Press, 	1988, 	chs. 	8 	& 9.
6

Texas 	regulations. 14 	In any 	event, 	firms 	that 	attempt 	to 	engage
in predatory pricing also 	would be 	subject 	to 	public 	and private
antitrust 	enforcement 	actions.
B. 	Destructive Competition
Proponents 	of 	trucking 	regulation also 	argue 	that
deregulation will 	lead 	to 	"destructive competition." 	Destructive
competition may occur 	in 	industries 	characterized by 	fluctuating
demand, 	high 	sunk costs, 	and 	a 	high 	ratio 	of 	fixed 	to 	total
costs. 	These conditions 	are 	likely 	to 	create 	excess 	capacity and
considerable pressure 	to 	cut 	prices 	when demand 	falls. 	If 	price
competition occurs, 	however, 	prices 	may 	persist below 	the 	total
cost 	of 	providing 	services 	because 	the 	sunk 	nature of 	costs 	makes
capacity adjustment 	difficult. 	It 	is 	also 	said that 	firms 	facing
transitory 	losses 	may, 	as 	a 	result, 	try 	to 	reduce 	costs 	by
skimping on 	service, 	to 	the 	detriment 	of 	customers.
Conditions 	conducive 	for 	destructive competition are 	not
likely to 	exist 	in 	the motor carrier 	industry 	in 	general, 	nor, 	we
believe 	in the 	tow 	truck 	industry 	in particular. 	Fixed costs
constitute only a 	small 	percentage 	of 	total 	costs, 	which 	include
such variable 	costs 	as 	labor 	and 	fuel 	expenses. 	Trucks 	also 	are
highly mobile 	assets 	which may readily 	and easily be 	transferred
from 	less 	profitable 	to 	more 	profitable 	uses 	or 	geographic
markets 	in response 	to 	fluctuations 	in demand, 	suggesting that
costs 	specific 	to 	a 	particular 	location or 	geographic 	region 	are
apt 	to 	be 	relatively 	small. 	Therefore, 	it 	is 	unlikely 	that
destructive 	competition will 	occur. 1S
C. 	Safety
Another argument 	that 	has 	been advanced 	is 	that 	deregulation
will 	have 	an 	adverse 	effect on 	safety 	in 	the 	trucking 	industry,
because 	carriers 	facing 	stiff 	competition will 	neglect
14 	The 	possibility of 	predation might, 	under 	certain
circumstances, 	justify the 	imposition of 	minimum prices.
However, 	to 	justify economically minimum price 	regulation 	in a
specific 	industry, 	more 	than a 	general 	theoretical 	possibility of
predation 	should exist. 	It would be 	desirable 	to:. also 	show 	that
the 	conditions 	conducive 	to predation exist 	in 	the 	industry.
Further, 	since minimum price 	regulations 	can hurt 	consumers 	if
the 	minimum price 	is 	set 	too 	high, 	it would also 	be 	desirable 	to
show that 	the expected benefits 	from 	setting minimum prices 	more
than offset 	the 	expected costs.
15 	See A. 	Kahn 	III, 	2 Economics 	of 	Regulation 	178 	(1971)
in which 	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."
7

maintenance, 	delay 	replacement 	of 	vehicles, 	and overwork
drivers. 	This 	argument 	carries 	little weight 	with respect 	to 	tow
truck 	regulation 	in Texas 	because 	safety regulation 	is 	the
responsibility of 	the 	Department 	of 	Labor 	and 	Standards 	rather
than 	the Railroad Commission. 	The 	Department 	of 	Labor 	and
Standards 	does 	not 	participate 	in economic 	regulation of 	tow
truck operators. 	We 	believe 	in any event 	that 	reduced 	safety 	is
not 	a 	necessary consequence 	of 	economic 	deregulation. 	In 	fact, 	a
recent 	study of 	truck 	safety 	in California, 	conducted 	jointly by
the 	California 	Public 	Utilities 	Commission 	("CPUC") 	and 	the
California Highway 	Patrol, 	was 	"unable 	to 	prove 	the 	hypothesis
that 	CPUC 	economic 	regulation of 	trucking 	is 	significantly and
positively 	linked 	to 	improved 	highway 	safety. "16
D. 	Preserving Service 	to 	Small 	Communities
Some 	proponents 	of 	trucking 	regulation 	have 	argued 	that
deregulation will 	result 	in 	loss 	of 	service 	to 	smaller
communities. 	This 	argument 	has 	a 	certain amount 	of 	appeal 	in
Texas 	because more 	than 	2,500 	cities,and towns 	have 	populations
of 	less 	than 	25,000. 	Studies 	of 	the 	effect 	of 	trucking
deregulation 	at 	the 	federal 	and 	state 	levels 	have 	not, 	however,
revealed any 	significant 	deterioration 	in 	service 	to 	small
communities.
A series 'of 	surveys-conducted between 	1980 	and 	f985 	by 	the
U.S. 	Department of 	Transportation 	found 	that 	a 	large 	majority of
shippers 	in rural 	areas 	reported either 	no 	change 	or 	an
improvement 	in 	the 	quality of 	service 	after 	partial 	dere~lation
of 	interstate 	trucking by 	the Motor Carrier Act 	of 	1980. 	7 	These
findings 	are 	consistent with 	those 	of 	a 	1982 	Interstate Commerce
Commission 	study, 	which 	found 	that 	federal 	deregulation 	had
resulted 	in 	lower 	prices, 	less 	damage, 	and 	~ften more 	service
options 	for 	shippers 	in 	small 	communities. 1 	Similarly, 	in 	a
survey 	following 	deregulation of 	intrastate 	trucking 	in 	Florida,
65 	per cent of 	respondents 	in 	small 	communities 	expressed 	a
16 	California 	Public 	Utilities 	Commission 	& California
Highway 	Patrol, 	AB 	2678 	Final 	Report 	on Truck Safety, 	Joint
Legislative Report, 	3 	(Nov. 	1987).
17 	Pub. 	L. 	No. 	96-296, 	94 	Stat. 	793 	(1980). 	saa U.S.
Dept. 	Transp., 	Third Follow-Up Study of 	Shipper-Receiver Mode
Choice 	in Selected Rural 	Communities, 	1982-3 	(1986); 	u.S. 	Dept.
Transp., 	Fourth 	Follow-Up Study of 	Shipper-Receiver Mode 	Choice
in 	Selected Rural 	Communities, 	1984-5 	(1986).
18 	Interstate Commerce Corom., 	Small 	community Service
Study 	(1982).
8

preference 	for 	deregulation, 	with 	30 	per cent expressing no
preference. 19
IV. 	Benefits 	of 	Deregulation
Enactment 	of 	Committee Substitute House 	Bill 	675 	would 	allow
Texas 	consumers 	to 	enjoy 	the 	benefits 	of 	increased competition
among 	tow 	truck 	operators 	within the 	zones 	established by 	the 	new
legislation. 	Ease of market 	entry and 	freedom 	to 	set 	competitive
rates 	may 	result 	in 	lower rates 	and 	improved 	service.
Evidence of 	the 	benefits 	to consumers 	produced by 	trucking
deregulation can be 	gleaned 	from 	the experiences 	of 	other 	states.
California, 	for 	example, 	experimented with partial 	economic
deregulation of 	general 	freight 	trucking 	from 	1980 	to 	1986.
During 	that 	time 	entry was 	virtually 	free, 	and 	rates, 	though
regulated, 	were 	flexible. 20 	The 	result 	was 	lower 	rates 	with 	no
loss 	in 	service. 21
Experiences 	of 	other 	states 	also 	attest 	to 	the 	economic
benefits 	of 	intrastate 	trucking deregulation. 	A study of
trucking 	in New 	Jersey, 	for 	ex~ple, concluded that 	deregulation
has 	worked well 	in 	that 	state. 	According 	to 	W. 	Bruce Allen,
one 	of 	the 	study's 	authors, 	shippers 	were 	satisfied with 	the
available 	service, 	rates 	were 	about 	ten percent 	lower 	than 	they
would 	have 	~een under 	regulation, 	and 	intrastate carriers 	have
prospered. 2
19 	Beilock & Freeman, 	Motor Carrier Deregulation 	in
Florida, 	14 Growth and Change 	31-41 	(1983).
20 	Carriers 	were 	permitted to 	change 	rates, 	after 	a 	short
waiting period, 	without 	having 	to 	show 	the 	change was 	cost-
justified. 	There was 	no 	waiting period to match a 	competitor's
rate.
21 	M. 	Simmerson, 	"Analysis 	of 	The 	Impact 	of 	Deregulation
of 	the General 	Freight Trucking 	Industry," 	Investigation No. 	84-
05-048, 	California 	Public 	Utilities 	Commission, 	20-21 	(Aug. 	10,
1984) 	(based upon 	survey by CPUC of 	239 	general 	freight 	carriers
and 	survey by California State 	University, 	Hayward, 	Institute 	of
Research 	& Business 	Development 	of 	596 	shippers.)
22
W. 	Bruce Allen, 	Statement 	Before 	the 	National
Commission 	for 	the 	Review of 	Anti-Trust 	Laws 	and 	Procedures
(January 	22, 	1979).
w. 	Bruce Allen, 	S. 	Lonergon 	& D. 	Plane, 	Examination of
.kt.....hl:liiet......ioUun...r..lie~gull.M..l""a....t.k..li<e~d.......T....ru...AoUoc...k~i....n...:gll-E~x~p:liiiie'""r ....i.:lOei.oLnu,co.:l;e;<......i....nu.....,.Nu.eMw.JL...,WJ..liie....r...sL:5ei.,J..y, 	U. S. 	Dept. 	0 f
Transportation 	(July 	1979).
23
9

24
27
I
.I
•
In Florida, 	deregulation occurred 	so 	quickly 	that 	truckers
and 	shippers 	had no 	opportunity to 	prepare 	for 	it. 	Nonetheless,
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 	d~fficulties.
Only 	a 	few 	shippers 	converted to 	private 	carriage; 	4 many more
such 	shipper conversions 	might 	have 	been expected 	if 	predatory
pricing had 	resulted 	in 	a 	large 	reduction 	in 	the 	number 	of
truckers 	or 	if 	Mdest~ctive cqmpetition" 	had caused 	service
quality 	to 	diminish. 	5 	Likewise, 	a 	1982 	Department 	of
Transportation 	stud y 26 	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 	Florida's 	deregulation of
intrastate 	trucking 	~ed to 	a 	15 	percent 	average 	reduction 	in
motor 	carrier rates. 	7
, 	The eXPerience of 	other states 	is 	consistent with 	that 	of
California, 	New 	Jersey and 	Florida. 	For example, 	in Wisconsin,
6'7 	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
Private carriage 	occurs 	where 	the 	shipper owns 	the
motor carrier.
25 	Freeman, 	A 	Survey of 	Motor Carrier 	Deregulation 	in
Florida: 	One 	Year's 	Experience, 	ICC 	Practitioners 	Journal, 	51
(Nov.-Dec. 	1982).
26 	Statement of Matthew V. 	Scocozza, 	Assistant 	Secretary
for 	Policy and 	International 	Affairs, 	U.S. 	Department 	of
Transportation, 	Before 	the 	Subcommittee on Surface
Transportation, 	U.S. 	House 	of 	Representatives 	(June 	20, 	1984).
Blair, 	Kaserman 	& McClave, 	Motor carrier Deregulation:
The 	Florida 	Experiment, 	68 	Rev. 	Econ. 	& Stat. 	159 	(1986).
10

concerned about 	the 	loss 	of 	t~~ asset 	value of 	their certificates
of 	convenience 	and 	necessity.
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 	unregulated
intrastate 	carriers 	for 	comparable moves. 29
Oregon deregulated 	the 	shipping of 	certain building
materials 	in 	1980. 	The 	results 	of 	this 	action were 	examined 	in
two 	separate 	survey~ by 	the 	Legislative Research Office 	of 	the
Oregon Legislature. 	0 	All 	parties 	surveyed agreed that
deregulation 	increased the 	number of 	carriers 	in 	the 	market.
According 	to one 	survey, 	almost 	all 	shippers 	and most 	of 	the
truckers 	with 	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.
Thus, 	it 	appears 	that 	deregulation of 	intrastate 	trucking
has 	frequently 	resulted 	in 	lower 	transportation charges 	with 	no
corresponding 	reduction 	in 	service. 	The 	partial 	deregulation of
the 	tow 	truck 	industry proposed 	in Committee 	Substitute House
Bill 	675 	may also 	provide 	substantial 	benefits 	to 	consumers 	by
increasing the 	number 	of 	competitors, 	improving 	service, 	and
reducing 	towing 	rates 	within 	specific 	geographic 	zones. 	However,
because 	the 	bill 	preserves 	Railroad Commission authority over
statewide 	towing operations 	and 	tows 	which 	require 	the 	crossing
of 	zone 	boundaries, 	the 	deregulation would 	be 	incomplete.
Retention of 	Railroad Commission 	authority 	to 	restrict 	entry and
fix 	rates 	under 	those 	limited circumstances 	may 	have
anticompetitive 	effects. 	The 	Legislature 	therefore may wish 	to
consider deregulation of 	all 	tow 	truck operators 	in Texas.
28 	Wisconsin Office of 	the 	Commissioner of
Transportation, 	Deregulation of Wisconsin Motor Carriers 	(July
1983). 	There may, 	however, 	be other capital 	losses.
29 	Breen, 	Regulation and 	Household Moying Costs,
Regulation, 	53 	(Sept.-Oct., 	1978).
30 	Unpublished 	surveys 	conducted by 	the 	Oregon State
Legislature's 	Legislative Research Office 	(1984).
11

v. 	Conclusion
A significant 	body of 	evidence 	suggests 	that 	deregulation
of 	trucking 	services 	lowers 	rates 	and 	improves 	service. 	We
believe 	that 	the 	proposed 	amendments 	to Articles 	9llb,1 6675a-5i,
and 	6687-9b constitute 	an 	important 	step 	in moving 	to 	a 	more
competitive 	tow 	truck 	industry 	in Texas. 	They may 	result 	in
significant benefits 	for 	consumers 	and competition, 	as
entrepreneurs 	will 	be 	free 	to 	add 	needed urban and 	regional
service without 	waiting 	long periods 	of 	time 	for 	Railroad
Commission 	approval. 	The Legislature may 	also, 	however, 	wish 	to
consider extending the 	benefits 	of 	economic 	deregulation 	to 	all
tow 	truck operations 	in Texas.
We 	appreciate 	this 	opportunity to 	present 	our views. 	We
would 	be 	happy 	to 	supply copies 	of 	the 	studies 	referred 	to 	in
this 	letter.
Sincerely,
fi~g?C/~
Thomas 	B. 	Carter
Director
12