FTC Staff Comment to the Hon. Joseph DeAngelis Concerning Trucking Regulation

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rtOEkAL 'tAADE COMMISSION
8DSTOS UGIONAL OffiCE
CQMM!SSIDN AUTHORIZED
April 	26, 	1988
The 	Honorable 	J082ph 	DeAngelis
Spe~ker of 	the 	House
~oom 	323, 	State 	House
Providence, 	Rhode 	Island 	02903
Ret 	T~~kiog RegulatioD 	and 	HQuse 	Bill 	9069
Dear 	Mr. 	Speakerz
The 	staff 	of 	the 	Federal 	Trade 	Commission 	is 	plea~ed to
respond 	to 	Hr. 	William 	J. 	Hawkins' 	request 	fO l comments 	on 	the
issue 	of 	regu)~tion in 	the 	trucking 	industry. 	We 	are 	~lso
pleased 	to 	provide, 	at 	Mr. 	Hawkins' 	request, 	our 	views 	on 	House
Bill 	9069, 	which, 	under 	certain 	circumstances, 	would 	exempt 	motor
carriers 	providing 	services 	to 	cooperative 	groups 	from 	regulation
by 	the 	Rhode 	Island 	Public 	Utilities 	Commission.
~e 	believe 	that 	while 	House 	Bill 	9069 	is 	a 	step 	in 	the
direction 	of 	deregulating 	motor 	carrier 	rates 	in 	Rhode 	Island,
deregulation 	should 	be 	extended 	to 	all 	of 	the 	state's 	trucking
industry. 	The 	issue 	of 	deregulation 	of 	intrastate 	trucking 	iB 	of
strong 	interest 	to 	the 	Commission 	because 	of 	the 	benefits
deregulation 	brings 	to 	competition 	and 	thus 	to 	coneumere. 	In
response 	to 	Mr. 	Hawkins' 	request 	for 	our 	views 	on 	the 	broader
issue 	of 	trucking 	regulation, 	this 	letter 	discusses 	the 	benefits
that 	have 	been 	identified 	through 	empirical 	studies 	of 	trucking
deregulation 	in 	several 	states 	and 	at 	the 	federal 	level. 	We 	~lso
address 	the 	principal 	arguments 	that 	have 	been 	advanced 	in 	fevor
of 	trucking 	regulation. 	Finally, 	we 	comment 	on 	House 	Bill 	9069,
which 	~e believe 	does 	not 	go 	far 	enough 	in 	extending 	to 	Rhode
Island 	consumers 	the 	benefits 	of 	deregul~~ion.
1 	These 	comments 	represent 	the 	vie~8 of 	the 	Boston
Regional 	Office 	and 	the 	Bureaus 	of 	Competition, 	Consumer
Protection, 	and 	Economics 	of 	the 	Federal 	Trade 	Commission, 	and 	do
not 	necessarily 	represent 	the 	views 	of 	the 	Commission 	itself 	or
any 	individual 	Commissioner. 	The 	Commission 	has, 	however, 	voted
to 	authorize 	the 	staff 	to 	submit 	these 	comments 	to 	you.

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INTEREST AND EXPERIENCE 	OF THE FEDERAL TRADE 	COMMISSION
The 	Federal 	Trade 	Commission's 	mandate 	is 	to 	preserve
competition 	and 	protect 	consumers 	from 	deceptive 	and 	unfair 	busi-
ness 	practices. 2 	During 	recent 	years, 	the 	Commission's 	staff 	has
studied 	the 	deregulation 	of 	motor 	carriers. 	Because 	deregulation
has 	generated 	substantial 	consumer 	benefits, 	the 	staff 	has 	advo-
cated 	increased 	reliance 	on 	market 	forces 	at 	both 	the 	federal 3
and 	state 	levels. 4 	Our 	research 	activities 	in 	this 	area, 	and 	our
general 	familiarity 	with 	competition 	policy 	issues, 	have 	provided
us 	with 	substantial 	experience 	in 	analyzing 	the 	potential
competitive 	consequences 	of 	trucking 	deregulation.
BENEFITS 	OF 	DEREGULATION
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
trucking 	industry 	by 	restricting 	competition 	during 	the
~ 	15 	U.S.C. 	§§ 	41, 	~ ~.
3 	~ 	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. 	MC-
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 	Commission, 	Regulatory 	Reform 	and 	the 	Trucking 	Industry:
An 	Evaluation 	of 	the 	Motor 	Carrier 	Act 	of 	1980, 	Submitted 	to
Motor 	Carrier 	Ratemaking 	Study Commission 	(March 	1982).
See 	Letters 	from 	Janet 	M. 	Grady 	to 	Hon. 	Rebecca 	A.
Morgan 	(December 	31, 	1987) 	and 	from 	David 	T. 	Scheffman 	to 	the
Public 	Utilities 	Commission 	of 	the 	State 	of 	California 	(February
16, 	1988) (Federal 	Trade 	Commission 	staff 	comments 	on 	trucking
deregulation 	in 	California); 	Comments 	of 	the 	Federal 	Trade
Commission 	Staff 	to 	the 	Legislative 	Audit 	Council 	of 	the 	State 	of
South 	Carolina 	on 	Possible 	Restrictive 	or 	Anticom-pGtitive
Practices 	in 	South 	Carolina's 	Public 	Service 	Commission 	Statutes
(September 	29, 	1987); 	Statement 	of 	the 	Staff 	of 	the 	Federal 	Trade
Commission 	on 	Economic 	Deregulation 	of 	Trucking 	to 	House 	and
Senate 	Transportation 	Committees, 	Washing~on State 	Legislature
(March 	7, 	1985).
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depression 	of 	the 	1930's.5 	Whether 	or 	not 	either 	rationale 	ever
justified 	regulation, 	neither 	has 	any 	validity 	in 	1988. 	The
actual 	results 	from 	the 	motor 	carrier 	deregulation 	that 	has
occurred 	to 	date 	attest 	to 	the 	economic 	benefits 	of 	deregulation.
Studies 	of 	deregulation 	in 	several 	states 	and 	of 	partial 	federal
deregulation 	of 	interstate 	trucking 	show 	that 	shipping 	rates 	were
reduced 	and 	that 	shippers 	were 	satisfied 	with 	post-deregulation
service.
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
deregulation. 	Most 	shippers 	thought 	that 	service 	levels 	had
remained 	constant 	and 	that 	rate 	fluctuations 	had 	posed 	no
difficulties. 	Only 	a 	few 	shippers 	converted 	to 	using 	their 	own
trucks 	instead 	of 	common 	carriers; 	many 	more 	such 	conversions
might 	have 	been 	expected 	if 	"destructive 	competition" 	had
resulted 	in 	a 	large 	reduction 	in 	the 	number 	of 	truckers. 6
Likewise, 	a 	subsequent 	Department 	of 	Transportation 	stud y 7 	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 	imrrovements. 	Finally, 	an
economic 	study 	found 	that 	the 	deregulatiun 	of 	Florida 	truckin~
led 	to 	a 	15 	percent 	average 	reduction 	in 	motor 	carrier 	rates.
Nelson, 	The 	ChanGinG 	Economic 	Case 	for 	Surface
Transport 	Regulation, 	in 	Perspectives 	on 	Federal 	Transportation
Policy 	(James 	C. 	Miller 	III 	ed. 	1975).
Freeman, 	A Survey 	of 	Motor 	Carrier 	DereGulation 	in
Florida: 	One 	Year's 	Experience, 	ICC 	Practitioners 	Journal, 	51
(Nov.-Dec., 	1982). 	The 	term 	"destructive 	competition", 	which 	is
discussed 	further 	below, 	refers 	tc 	forms 	of 	competitive 	behavior
that 	ultimately 	harm, 	rather 	than 	help, 	consumers.
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, 	Moto; 	Carrier 	Deregulation:
The 	Florida 	Expe=iment, 	68 	Rev. 	Econ. 	& Stat. 	159 	(1986).
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The 	experience 	of 	other 	states 	is 	consistent 	with 	that 	of
Florida. 	For 	example, 	a 	study 	of 	trucking 	in 	New 	Jersey
concluded 	that 	deregulation 	has 	worked 	well 	in 	that 	state. 9
Shippers 	were 	satisfied 	with 	the 	available 	service, 	rates 	were
about 	ten 	percent 	lower 	than 	they 	would 	have 	been 	under
regulation, 	and 	intrastate 	carriers 	prospered. 10 	Similarly, 	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.ll
In 	Maryland, 	intrastate 	household 	goods 	movers 	have 	never
been 	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. 12
Oregon 	deregulated 	the 	shipping 	of 	certain 	building
materials 	in 	1980. 	The 	results 	of 	this 	action 	were 	examined 	in
two 	separate 	surveys 	by 	the 	Legislative 	Research 	Office 	of 	the
Oregon Legislature. 13 	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 	p~ior 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.
w. 	Bruce 	Allen, 	S. 	Lonergon 	& D. 	Plane, 	Examination 	of
the 	Unregulated 	Trucking 	Experience 	in 	New 	Jersey, 	U.S. 	Dept. 	of
Transpor~ation (July 	1979).
W. 	Bruce 	Allen, 	Statement 	Before 	the 	National
Commission 	for 	the 	Review 	of 	Anti-Trust 	Laws 	and 	Procedures
(January 	22, 	1979).
Wisconsin 	Office 	of 	the 	Commissioner 	of 	Transportation,
Deregulation 	of 	Wisconsin 	Motor 	Carriers 	(July 	1983).
Breen, 	ReGulation 	and 	Househcld 	Moving 	Costs,
Reg~lation, 53 	(Sept.-Oct., 	1978).
U~published surveys 	conducted 	by 	the 	Oregon 	State
Legislature's 	Legislative 	Research 	Office 	(1984).
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California 	experimented with 	partial 	economic 	deregulation
of 	trucking 	from 	1980 	to 	1986. 	During 	this 	time, 	entry 	was
unrestricted, 	and 	rates, 	though 	regulated, 	were 	relatively
flexible. 14 	The 	result 	was 	lower 	rates 	with 	no 	loss 	in
service. IS 	In 	1986, 	the 	California 	Public 	Utilities 	Commission
returned 	to 	full 	economic 	regulation 	and 	ordered 	all 	carriers 	to
boost 	their 	rates 	by 	10 	percent 	and 	each 	carrier 	to 	establish 	its
own 	tariffs 	based 	on 	cost 	justifications. 	Legislation 	has 	since
been 	introduced 	to 	permanently 	deregulate 	a 	major 	portion 	of
California's 	motor 	carrier 	industry.
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 	70 	percent 	of 	truckload 	shippers 	reported
decreased 	real 	rates 	after 	deregulation. 16 	Likewise, 	93 	percent
of 	truckload 	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 	percentage 	reported 	that
service 	had 	declined. 17
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. 	In 	addition, 	the 	requirement 	for 	certificates 	of
convenience 	and 	necessity was 	dropped. 	Motor 	freight 	carriers
wishing 	to 	offer 	their 	services 	were 	required 	only 	to 	show
"fitness": 	proof 	of 	financial 	responsibility, 	insurance, 	and
residency 	in 	California.
15 	M. 	Simmerson, 	Analysis 	of 	The 	Impact 	Qf 	RereaulatiQn
Qf 	the 	General 	Freight 	Truckina 	Industry, 	Investigation 	No. 	84-
05-048, 	CalifQrnia 	Public 	Utilities 	CQmmissiQn, 	20-21 	(August 	10,
1984) 	(based 	upQn 	survey 	by 	CPUC 	Qf 	239 	general 	freight 	carriers
and 	survey 	by 	CalifQrnia 	State 	University, 	Hayward, 	Institute 	Qf
Research 	& Business 	Development 	Qf 	569 	shippers).
Frey, 	KrQlick 	& Tontz, 	The 	Impact 	Qf 	MQtQr 	Carrier
DeregulatiQn: 	CalifQrnia 	Intrastate 	Agricultural 	PrQducts, 	22
LQgistics 	& Transp. 	Rev. 	259, 	266 	(1986). 	"Real 	rates" 	are 	thQse
that 	have 	been 	adjusted 	fQr 	inflatiQn 	tQ 	allQw 	fQr 	accurate
cQmparison 	of 	rates 	over 	time.
17 	Frey, 	KrQlick 	& TQntz, 	supra 	nQte 	16, 	at 	268.
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California's 	deregulation experiment 	also 	resulted 	in 	lower
rates 	for 	general 	freight 	shippers 	and 	petroleum 	tank-truck
shipments. 	General 	freight 	ra~es fell 	by 	about 	16 	percent 	during
deregulation, 	while 	service 	quality 	increased. 18 	Cost 	savings 	in
general 	freight 	shipping 	were 	about 	$953 	million 	over 	a 	four-
year 	period 	during 	deregulation. 	When 	the 	California 	Public
Utilities 	Commission 	ordered 	a 	return 	to 	regulation 	in 	1986, 	the
10 	percent 	rate 	increase 	ordered 	by 	the 	Commission 	added 	about
$180 	million 	to 	annual 	freight 	shipment 	costs. 	Petroleum 	tank-
truck 	rates 	fell 	by 	as 	much 	as 	33 	percent 	during 	deregulation,
saving 	shippers 	about 	$387 	million 	between 	1981 	and 	1986. 19
Trucking 	firms 	in California 	also 	presumably 	benefited 	from
deregulation 	through 	savings 	in 	fees 	they 	did 	not 	have 	to 	pay 	to
regulatory 	agencies. 20 	These 	savings 	would 	be 	in 	addition 	to
those 	arising 	from 	reduced 	regulatory-related 	administrative
costs 	incurred 	by motor 	carriers. 	Also, 	to 	the 	extent 	regulatory
fees 	collected 	from 	carriers 	did 	not 	cover 	all 	the 	state's 	costs
for 	administering 	regulation, 	deregulation 	also 	would 	result 	in
cost 	savings 	to 	the 	state.
Frey, 	Krolick, 	Nidiffer 	& Tontz, 	Effects 	of
Reregulation 	of 	the 	California 	Intrastate 	Trucking 	Industry,
Transportation 	Journal 	(Spring 	1985).
19 	Strategic 	Planning 	Division, 	California 	Public
Utilities 	Commission, 	California 	Trucking 	Industry: 	A Review 	of
Regulatory 	Policies 	and 	Objectives 	(February 	1988).
The 	California 	Legislative 	Analyst 	estimated 	that
complete 	deregulation 	of 	the 	state's 	trucking 	industry 	would 	save
motor 	carriers 	approximately 	$17.5 	million 	annually 	in 	regulatory
fees. 	Report 	of 	the 	Legislative 	Analyst 	to 	the 	Joint 	Legislative
Budget 	Committee, 	State 	Reaulation 	of 	the 	Truckina 	Industry, 	The
1987-88 	Budget: 	Perspectives 	and 	Issues, 	229.
The 	State 	of 	Kansas 	estimated 	that 	deregulation 	would 	save
$19 	million 	per 	year 	in 	direct 	costs 	alone 	(~., 	those
associated 	with 	compliance, 	program 	administration, 	and 	operating
inefficiencies). 	State 	of 	Kansas, 	Legislative 	Division 	of 	Post
Audit, 	Sunset 	Audit 	Report-Kansas 	Corporation 	Commission 	Motor
Carrier 	Regulatory 	Program 	(September 	25, 	1981), 	cited in
Gardner, 	Entry 	and 	Rate 	Regulation 	of 	Intrastate 	Motor 	Carriers
in 	Missouri: 	A Strategy 	for 	Re:orm, 	47 	Missouri 	Law 	Review 	693-
743 	(1982).
A recent 	study 	shows 	that 	consumers 	would 	save 	over 	$300
million 	per 	year 	were 	trucking 	~o be 	deregulated 	in 	Indiana.
Indiana 	Legislative 	Services 	Agency, 	Office 	of 	Fiscal 	Review,
Motor 	Carrier 	Regulation 	in 	Indiana, 	Sunset 	Audit, 	Motor 	Carrier
Divis'~n of 	the 	Indiana 	Utilitv 	Reaulatory 	Commission, 	July 	1987.
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Consumer 	benefits 	of 	the 	type 	associated 	with 	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 	increased 	substantially, 	impl~ing
that 	entry 	into 	~he trucking 	business 	has 	been 	greatly 	eased. 	1
There 	also 	has 	been 	an 	increase 	at 	the 	national 	level 	in 	the
number 	of 	independent 	rate 	changes, 	with 	the 	vast 	number 	of
observed 	changes 	being 	rate 	decreases. 22 	Between 	1977 	and 	1982,
during 	which 	time 	partial 	federal 	deregulation 	was 	implemented,
interstate 	truckload 	rates 	fell 	about 	25 	percent 	and 	less-than-
truckload 	rates 	fell 	about 	12 	percent. 	These 	declines 	occurred
during 	a 	period 	of 	rising 	fuel 	costs. 23 	A recent 	federal 	study
likewise 	found 	that 	regulated 	rates 	are 	higher 	than 	competitive
rates 	for 	general 	freight 	trucking. 24
The 	evidence 	is 	clear 	and 	convincing: 	deregulation 	lowers
trucking 	rates 	without 	impairing 	desired 	service. 	Significant
consumer 	benefits, 	in 	the 	form 	of 	lower 	shipping 	prices, 	can 	be
expected 	from 	the 	deregulation 	of 	motor 	carrier 	rates.
ARGUMENTS 	ADVANCED 	IN SUPPORT OF CONTINUED REGULATION
Four 	principal 	arguments 	are 	usually 	advanced 	in 	favor 	of
trucking 	regulation: 	preventing predatory 	pricing, 	forestalling
destructive 	competition, 	maintaining 	safety, 	and 	assuring
adequate 	service 	to 	small 	communities. 	As 	discussed 	below,
empirical 	studies 	demonstrate 	that 	none 	of 	these 	rationales
Office 	of 	Policy 	and 	Analysis, 	Interstate 	Commerce
Commission, 	The 	Effect 	of 	Regulatory 	Reform 	on 	the 	Trucking
Industry: 	Structure, 	Conduct, 	and 	Performance 	(June 	1981). 	~
~ 	Statement 	of 	Reese 	H. 	Taylor, 	Jr., 	Chairman 	of 	Interstate
Commerce 	Commission, 	Before 	the 	Surface 	Transportation
Subcommittee 	of 	the 	House 	Committee 	on 	Public 	Works 	and
Transportation 	on 	Implementation 	of 	the 	Motor 	Carrier 	Act 	of 	1980
(Nov. 	7, 	1985).
Statement 	of 	Reese 	H. 	Taylor, 	Jr. 	Chairman 	of
Interstate 	Commerce 	Commission, 	Before 	the 	Senate 	Committee 	on
Commerce, 	Science, 	and 	Transportation 	(Sept. 	21, 	1983). 	~ 	also
Staff 	Report, 	Interstate 	Commerce 	Commission, 	Hiahliahts 	of
Activitv 	in 	the 	Property 	~lotor Carrier 	Industry 	(March 	1986).
23 	Moore, 	Rail 	and 	Truck 	Reform 	-- 	The 	Record 	So 	Far,
Regulation, 	39 	(Nov./Dec., 	1983).
24 	Motor 	Carrier 	Ratemaking 	Study 	Commission,
Ratemaking 	in 	the 	Trucking 	Industry 	(June 	I, 	1983).
7
Collective

25
supports 	the 	contention 	that 	economic 	regulation 	of 	motor
carriers 	is 	either 	necessary 	or 	desirable. 25
Predatory 	Pricing
The 	first 	argument 	advanced 	in 	support 	of 	regulation 	is 	the
prevention 	of 	predatory 	pricing. 	The 	principal 	thrust 	of 	this
argument 	is 	that 	larger, 	better 	financed 	companies 	will 	succeed
in 	driving 	out 	competitors 	by 	selling 	trucking 	services 	below
cost. 	The 	surviving 	firms 	will 	then 	raise 	their 	prices 	to
supracompetitive 	levels, 	eventually 	recouping 	their 	losses 	and
increasing 	their 	profits.
One 	condition 	necessary 	for 	successful 	predatory 	pricing 	is
high 	entry 	barriers. 	High 	entry 	barriers 	prevent 	a 	return 	of
former 	competitors, 	or 	the 	entry 	of 	new 	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.26 	Trucks 	are 	highly 	mobile 	and 	are
quickly 	transferred 	to 	new 	markets. 	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
predator 	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
thct 	predation 	is 	unlikely 	to 	occur 	as 	a 	consequence 	of 	trucking
deregulation. 27 	Indeed, 	predatory 	pricing 	is 	highly 	unusual 	in
any 	sector 	of 	the 	economy. 	The 	Supreme 	Court 	recognized 	this
The 	arguments 	in 	favor 	of 	trucking 	regulation 	have 	been
discussed 	and 	dismissed 	in 	a 	number 	of 	studies. 	See 	generally
Weinstein 	& Gross, 	Transportation 	and 	Economic 	Development: 	The
Ccse 	for 	Reform 	of 	Trucking 	Regulation 	in 	Texas, 	Center 	for
Enterprising, 	Southern 	Methodist 	University 	(February 	1987);
Breen, 	supra 	note 	3.
26 	J. 	C. 	Miller 	III, 	Economic 	Regulation 	of 	TruckiQg, 	in
Report 	of 	the 	Economic 	Advisory 	Panel 	to 	the 	National 	Commission
for 	the 	Review 	of 	Anti-Trust 	Lcws 	and 	Procedures 	(Nov. 	9, 	1978).
27 	United 	States 	General 	Accounting 	Office, 	Truckina
Regulation: 	Price 	Competition 	and 	}:arket 	Structure 	in 	the
Trucking 	Industry, 	8-10 	(February 	1987). 	The 	positions 	of 	the
ICC, 	MCRSC, 	and 	DOJ 	are 	discussed 	in 	the 	GAO 	report.
8

30
principle 	in 	Matsushita 	v. 	Zenith,28 	stating 	that 	"predatory
pricing 	schemes 	are 	rarely 	tried, 	and 	even 	more 	rarely
successful.,,29 	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.
Destructiye 	CompetitiQll
Proponents 	of 	trucking 	regulation 	also 	argue 	that
deregulation 	will 	lead 	to 	"destructive 	competition." 	Destructive
competition may 	occur 	in 	industries 	characterized 	by 	declining
demand l 	sunk 	costs/ 30 	and 	a 	high 	ratio 	of 	fixed 	to 	tctal 	costs.
These 	conditions 	are 	likely 	to 	create 	excess 	capacity 	and 	create
considerable 	pressure 	to 	cut 	prices. 	If 	price 	competition 	breaks
out l 	however, 	prices 	may 	persist 	below 	the 	total 	cost 	of
providing 	services 	because 	the 	sunk 	nature 	of 	the 	costs 	makes
exit 	difficult. 	Firms 	facing 	chronic 	losses 	maYI 	as 	a 	result l
try 	to 	reduce 	costs 	by 	skimping 	on 	service, 	to 	the 	detriment 	of
customers.
The 	conditions 	conducive 	to 	destructive 	competition 	do 	not
exist 	in 	the 	trucking 	industry. 	Fixed 	costs 	comprise 	only 	a
small 	percentage 	of 	total 	costs l 	which 	include 	such 	variable
costs 	as 	labor 	and 	fuel 	expenses. 	Trucks 	also 	are 	highly 	mobile
assets 	that 	may 	readily 	and 	easily 	be 	transferred 	from 	less
profitable 	to 	more 	profitable 	markets 	in 	response 	to 	fluctuations
in 	demand l 	or 	sold 	or 	leased 	to 	other 	operators. 	It 	is 	unlikelYI
therefore, 	that 	destructive 	competition 	of 	this 	sort 	will
occur. 31
28 	Matsushita 	Electric 	Industrial 	Co. 	v. 	Zenith 	Radio
Corp. 1 	475 	U.S. 	574 	(1986).
29 	IQ. 	at 	1357-58 1 	citing R. 	Bork l 	The 	Antitrust 	Paradox 1
149-156 	(1978); 	Areeda 	& Turner, 	Predatory 	Pricing 	and 	Related
Practices 	Under 	Section 	2 	of 	the 	Sherman 	Act, 	88 	Harv. 	L. 	Rev.
697 1 	699 	(1975); 	Easterbrook, 	Predatory 	Strategies 	and
Counterstrategies, 	48 	U. 	Chi. 	L. 	Rev. 	263, 	268 	(1981); 	Koller l
The 	Myth 	of 	Predatory 	Pricing--An 	Empirical 	Study, 	4 	Antitrust 	L.
& Econ. 	Rev. 	105 	(1971); 	McGee, 	Predatorv 	Price 	Cuttino: 	The
Standard 	Qil 	(N.J.) 	Case, 	1 	J. 	L. 	& Econ. 	137 	(1958); 	McGee,
Predatory 	Pricing 	Revisited, 	23 	J. 	L. 	& Econ. 	289, 	292-294 	(1980).
A "sunk 	cost" 	is 	a 	cost 	that 	has 	already 	been 	incurred
and 	cannot 	be 	avoided 	by 	taking 	any 	further 	action.
31 	~ 	A. 	Kahn 	III, 	2 	Economics 	of 	Regulation 	178 	(1971)
in 	which 	the 	author 	states, 	"[D)oes 	trucking 	have 	the 	economic
attributes 	of 	an 	industry 	subjec~ to 	destructive 	competition? 	It
would 	be 	difficult 	to 	find 	one 	less 	qualified."
9

Safety
Another 	argument 	advanced 	against 	deregulation 	is 	that 	it
will 	have 	an 	adverse 	effect 	on 	safety 	in 	the 	trucking 	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 	Utilities
Commission 	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.,,32 	The 	first 	phase 	of 	that 	study, 	published 	last 	year,
found 	that 	the 	number 	of 	California's 	annual 	truck-at-fault
accidents 	per 	100 	million 	miles 	traveled 	actually 	decreased
nearly 	30 	percent 	between 	1976 	and 	1986,33 	a 	period 	during 	which
California 	experimented 	with 	deregulation.
State 	legislatures 	have 	a 	legitimate 	interest 	in 	promoting
safety 	on 	their 	highways. 	However, 	rather 	than 	attempting 	to
affect 	safety 	indirectly 	through 	economic 	regulation, 	it 	seems
preferable 	to 	address 	safety 	issues 	directly 	by, 	for 	example,
requiring 	safety 	inspections 	at 	fixed 	intervals.
Service 	to 	Small 	Communities
A final 	argument 	made 	by 	opponents 	of 	deregulation 	is 	that
it 	will 	result 	in 	a 	reduction 	of 	service 	to 	small 	communities.
Studies 	of 	the 	effect 	of 	deregulation, 	however, 	do 	not 	find 	a
systemGtic 	deterioration 	in 	service 	to 	small 	communities. 	A
series 	of 	surveys 	carried 	out 	by 	the 	U.S. 	Department 	of
Transportation 	from 	1980 	to 	1985 	consistently 	found 	that 	the 	vast
majority 	of 	shippers 	in 	rural 	areas 	reported 	either 	no 	change 	or
an 	improvement 	in 	the 	quality 	of 	their 	service 	since 	the 	Motor
32 	California 	Public 	Utilities 	Commission 	& California
Highway 	Patrol, 	AB 	2678 	Final 	Report 	on 	Truck 	Safety, 	Joint
Legisla~ive Report, 	3 	(November 	1987).
33 	California 	Public 	Utilities 	Commission 	& California
High~ay Patrol, 	AB 	2678 	Report 	on 	Truck 	Safety, 	Joint 	Legislative
Report 	(June 	1987). 	Similarly, 	injuries 	and 	fatalities 	from
heavy 	truck 	accidents 	decreased 	nationwide 	following 	the 	passage
of 	the 	Motor 	Carrier 	Act 	in 	1980. 	Weinstein 	& Gross, 	supra 	note
24, 	at 	50. 	See 	also 	Corsi, 	~anara & Roberts, 	Linkages 	3etween
Motor 	Cayrier 	Accidents 	and 	Safety 	Regulation, 	20 	Logis~ics &
Transp. 	Rev. 	149, 	156-157 	(1984); 	Beilock, 	Are 	Truckers 	Forced
to 	Speed?, 	21 	Logistics 	& Transp. 	Rev. 	277 	(1983).
10

35
Carrier 	Act 	of 	1980 	p?rtially 	deregulated 	interstate 	trucking. 34
These 	findings 	are 	consistent 	with 	those 	of 	a 	1982 	Interstate
Commerce 	Commission 	study, 	which 	found 	that 	shippers 	in 	small
communities 	now 	enjoy 	lower 	prices, 	less 	damage 	to 	shipments, 	and
often 	more 	service 	options 	than 	before 	deregulation. 	The 	study
concluded:
These 	results 	can 	lead 	to 	only 	one 	conclusion. 	The
Motor 	Carrier 	Act 	of 	1980 	has 	not 	harmed 	shippers 	in
small 	and 	isolated 	communities. 	In 	fact, 	evidence
suggests 	that 	small 	communities 	have 	actually 	benefited
from 	this 	legislation. 35
This 	conclusion 	is 	confirmed 	by 	studies 	of 	deregulation 	at
the 	state 	level. 	Economists 	Beilock and 	Freeman 	performed 	a
number 	of 	surveys 	of 	shippers 	in 	Florida, 	which 	deregulated
intrastate 	trucking 	in 	1980, 	and 	Arizona, 	which 	deregulated 	it 	in
1982. 	They 	found 	that 	abandonments 	of 	service 	were 	rare 	while
offers 	of 	new 	service 	were 	cornmon. 	One 	year 	after 	deregulation
in 	Florida, 	59 	percent 	of 	small 	shippers 	preferred 	deregulation
to 	regulation, 	while 	29 	percent 	had 	no 	preference. 36 	Of 	shippers
in 	small 	communities, 	65 	percent 	preferred 	deregulation 	with 	30
percent 	expressing 	no 	preference. 37 	These 	findings 	were
confirmed 	in 	other 	surveys. 	Beilock 	and 	Freeman 	conclude, 	"If
anything, 	small 	rural 	shippers 	appear 	to 	be 	more 	bullish 	about
deregulation 	than 	their 	larger, 	urban 	counterparts.,,38
34 	U.S. 	Department 	of 	Transportation, 	Third 	Follow-Up
Study 	of 	Shipper-Receiver 	Mode 	Choice 	in 	Selected 	Rural
Communities. 	1982-3. 	1986; 	U.S. 	Department 	of 	Transportation,
Fourth 	Follow-Up 	of 	Shipper-Receiver Mode 	Choice 	in 	Selected
Rural 	Communities. 	1984-5. 	1986.
Interstate 	Commerce 	Commission, 	Small 	Community
Service 	Study 	(1982).
36
Florida,
37
Beilock 	& Freeman, 	Motor 	Carrier 	Deregulation 	in
14 	Growth 	and 	Change 	31-41 	(1983).
.I.d .
38 	Beilock 	& Freeman, 	Dereaulated 	Motor 	Carrier 	Service
to 	Small 	Communities, 	Transportation 	Journal, 	Summer, 	1984. 	~
~, 	Beilock 	& Freeman, 	The 	Impact 	of 	Motor 	Carrier
Dereaulation 	on 	Frpight 	Rates 	in 	Arizona 	and 	Florida, 	Final
Report, 	U.S. 	Department 	of 	Transportation, 	April 	30, 	1985;
Bolton, 	Conn 	& Smith, 	"Florida Motor 	Carrier 	Deregulation: 	The
Immediate 	Effect 	of 	Sudden 	Deregulation 	from 	the 	Perspective 	of
(continued ... )
11

39
In 	summary, 	there 	is 	no 	reason 	to 	believe 	that 	deregulation
of 	trucking 	leads 	to 	any 	general 	deterioration 	of 	service 	to
small 	communities. 	To 	the 	contrary, 	evidence 	indicates 	that
deregulation 	would 	bring 	shippers 	in 	small 	communities 	lower
prices, 	better 	service 	and 	a 	wider 	choice 	of 	options.
HOUSE 	BILL 	9069
Title 	39, 	Chapter 	12, 	Section 	12 	of 	the 	Rhode 	Island 	General
Laws, 	as 	amended, 	states 	in 	part:
No 	common 	carrier 	of 	property 	by motor 	vehicle 	shall
charge 	or 	demand 	or 	collect 	or 	receive 	a 	greater 	or
less 	compensation 	for 	transportation 	or 	any 	service 	in
connection 	therewith 	between 	points 	enumerated 	in 	such
tariff 	than 	the 	rates 	and 	charges 	specified 	in 	the
filed 	tariffs 	in 	effect 	at 	the 	time.
On 	January 	29, 	1988, 	the 	Rhode 	Island 	Division 	of 	Public
Utilities 	and 	Carriers 	(PUC) 	ruled 	that 	Section 	12 	prohibits
common 	carriers 	from 	contracting 	with 	the 	American 	Automobile
Association 	(AAA) 	to 	tow 	AAA 	members 	at 	rates 	less 	than 	those
filed 	in 	the 	carriers' 	tariffs. 39 	Apparently, 	AAA 	traditionally
had 	contracted 	with 	about 	100 	towers, 	at 	rates 	significantly
lower 	than 	the 	towers' 	tariff 	rates, 	to 	provide 	towing 	for 	AAA
member~. 	Our 	understanding 	of 	the 	PUC 	ruling 	is 	that 	it 	would
require 	towers 	to 	charge 	their 	tariff 	rate 	each 	time 	an 	AAA
member 	is 	towed, 	except 	when 	a 	vehicle 	is 	towed 	back 	to 	the
tower's 	garage 	with 	the 	intent 	of 	making 	repairs 	there.
Presumably, 	this 	ruling 	may 	also 	affect 	the 	ability 	of 	towers 	to
contract 	at 	less 	than 	tariff 	rates 	with 	other 	large 	users 	of
towing 	services, 	such 	as 	other 	automobile 	clubs 	and 	businesses
with 	large 	fleets 	of 	automobiles 	or 	trucks.
38( 	.... 	d)	... con L-lnUe
Shippers/Receivers 	in 	Small 	Communities," 	in 	Conference 	on
Recr~iatorv Reform 	in 	Surface 	Transportation, 	Preprint 	Papers,
U.S. 	Department 	of 	Transportation, 	March 	1983.
InqL:iry 	into 	the 	Relationship 	Between AAA 	Tows 	and
Common 	Carrier 	Tows 	for 	the 	General 	Public 	(Order 	No. 	12522,
January 	29, 	1988\.
12

40
House 	Bill 	9069 	would 	amend 	Section 	39-12-13 	of 	the 	General
Laws 	to 	exempt 	from 	PUC 	regulation 	motor 	vehicles 	leased 	to 	or
contracted 	to 	a 	cooperative 	group 	and 	used 	exclusively 	for 	the
transportation 	of 	the 	property 	cf 	the 	cooperative 	group 	or 	its
members. 	Section 	39-12-13 	currently exempts 	only 	motor 	vehicles
owned 	and 	operated by 	a 	cooperative 	group 	and 	used 	exclusively 	to
transport 	property 	of 	the 	group 	or 	its 	members. 	The 	intent 	of
the 	bill, 	as 	we 	understand 	it, 	is 	to 	allow 	cooperative 	groups,
such 	as 	AAA, 	and 	carriers, 	such 	as 	tow 	truck 	operators, 	to
negotiate 	contracts 	containing 	fees 	different 	from 	those 	that 	are
in 	the 	tariffs 	the 	carriers 	file 	with 	the 	PUC. 40 	Thus, 	under
House 	Bill 	9069, 	AAA 	would 	be 	allowed 	to 	negotiate 	rates 	with 	its
contract 	towers 	in 	the 	same 	manner 	as 	it 	did 	prior 	to 	the 	January
29, 	1988, 	PUC 	ruling.
The 	bill, 	which 	in 	effect 	deregulates 	the 	rates 	carriers
charge 	cooperative 	groups, 	will 	allow 	market 	forces 	to 	determine
those 	rates. 	Based 	on 	past 	experience, 	we 	expect 	that 	members 	of
cooperative 	groups, 	such 	as 	the 	285,000 	Rhode 	Island 	members 	of
AAA, 	should 	benefit 	from 	the 	bill 	by 	being 	able 	to 	negotiate
rates 	that 	are 	less 	than 	the 	carriers' 	tariff 	rates. 	We 	believe,
however, 	that 	the 	benefits 	of 	deregulation 	should 	be 	extended
beyond 	cooperative 	groups 	to 	all 	Rhode 	Island 	consumers. 	General
trucking 	deregulation 	would 	result 	in 	more 	competitive 	market
conditions 	that 	would 	reward 	those 	carriers 	who 	operated 	most
efficiently, 	thus 	leading 	to 	lower 	rates 	for 	users 	of 	their
services. 	The 	only 	persons 	who 	would 	be 	adversely 	affected 	by
complete 	deregulation 	would 	be 	less 	efficient 	carrieys 	who 	could
not 	compete 	effectively 	on 	the 	basis 	of 	rates. 	To 	shield 	such
competitors 	from 	competition 	by 	requiring 	carriers 	to 	offer
higher 	than 	competitive 	rates, 	however, 	would 	cause 	substantial
consumer 	harm.
The 	language 	of 	the 	bill 	appears 	to 	be 	subject 	to 	an
interpretation 	that 	is 	narrower 	than 	what 	we 	understand 	to 	be 	its
intent. 	If 	the 	bill 	is 	enacted 	as 	written, 	only 	vehicles,
contracted 	to 	and 	leased 	to 	cooperative 	groups 	and 	used
exclusively 	foy 	the 	transportation 	of 	the 	property 	of 	the 	group
or 	its 	members 	would 	be 	exempt 	from 	regulation. 	Thus, 	for
example, 	under 	a 	litercl 	reading 	of 	the 	bill, 	towers 	who 	use
their 	trucks 	for 	any 	purposes 	other 	than 	towing 	AAA 	members 	(i.e.
towing 	other 	vehicles) 	could 	not 	contract 	with 	~~ 	at 	rates 	other
than 	those 	contained 	in 	their 	tayiffs.
13

The 	beneflte 	of 	truckinQ 	deregulation 	are 	yell 	documen~ed,
while 	6r~nta '9Ainet 	it 	lack 	Buhatantlation. 	House 	Bill 	9069
18 	a 	fir.t 	Btep 	towArd 	deregulation 	of 	the 	~otor cArrier 	induetry
in 	Rhode 	Island, 	however, 	ve 	believe 	that 	the 	1&9i~lature ahould
consider 	extending 	the 	benefit! 	of 	deregulAtion 	to 	all 	conaumerB
in 	the 	stl1te.
Very 	truly 	your8,
Phoebe 	D. 	Morse
Regional 	Director
14