FTC Staff Comment Before the Texas Transportation / Gas Utilities Division Commission Concerning Intrastate Shipping Rates

100 N. Central Expr .....ay
Suote 500
Dallas, TX 75201
(214) 767-5503
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
DALLAS REGIONAL OFFICE
V890092
COMMISSION AUTHORIZED
Office of the Regional Director
October 	2, 	1989
Raymond 	A. 	Bennett, 	Director
Transportation/Gas 	Utilities 	Division
Railroad 	Commission of 	Texas
1701 	North Congress 	Avenue
Austin, 	Texas 	78701
Dear Mr. 	Bennett:
In 	response 	to 	a 	notice 	published 	in 	the 	Texas 	Register,l
the 	staff 	of 	the 	Federal 	Trade 	Commission 	submits 	this 	comment 	on
the 	proposed 	amendment 	of 	Section 	5.582 	of 	Title 	16 	of 	the 	Texas
Administrative 	Code. 2
The 	proposed 	revision would permit 	most 	common ,motor
carriers 	operating within 	the 	State of 	Texas 	to 	adjust 	their
rates 	for 	intrastate 	shipments 	within a 	greater 	range 	than
current 	regulations 	allow. J Although 	the 	amendment 	would 	not
abrogate 	all 	restrictions 	on common, carriage 	rates, 	we 	believe
that 	the 	relaxation of 	price 	constraints 	would 	benefit 	consumers
by 	increasing 	choices, 	improving 	service, 	and 	reducing 	prices 	for
the 	transportation of 	goods.
14 	Tex. 	Reg. 	3746 	(Aug. 	4, 	1989).
2 These 	comments 	are 	the 	views 	of 	the 	staff 	of
Regional 	Office 	and 	Bureau 	of 	Economics 	of 	the 	Federal
Commission. 	They 	are 	not 	necessarily 	the 	views 	of 	the
or 	any 	individual 	Commissioner.
the 	Dallas
Trade
Commission
J Texas 	law 	recognizes 	three 	principal 	types 	of 	motor
carriers 	transporting 	goods 	intrastate 	for-hire. 	Only common
carriers 	would 	be 	affected 	by 	the 	proposed 	amendment 	to 	16 	T.A.C.
§ 	5.582.

I. 	Interest 	and 	Experience 	of 	the 	Staff 	of 	the 	Federal 	Trade
Commission
The 	Federal 	Trade 	Commission 	("FTC") 	is 	an 	independent
regulatory 	agency, 	which enforces 	Section 	5 	of 	the 	Federal 	Trade
Commission Act 4 prohibiting 	unfair 	methods 	of 	competition 	and
unfair 	or 	deceptive 	acts 	or 	practices. 	By enforcing 	this
statute, 	the 	staff 	of 	the 	FTC 	has 	gained 	experience 	in 	analyzing
the 	effects 	of 	various 	trade 	restraints 	and 	the 	costs 	and
benefits 	of 	these 	restraints 	to 	consumers. 	Upon 	request 	by
federal, 	state 	or 	local 	governmental 	bodies, 	the 	staff 	of 	the 	FTC
regularly 	assesses 	the 	competitive 	impact 	of 	legislative 	and
regulatory 	proposals 	to 	identify provisions 	that 	may 	benefit
consumers 	by promoting 	competition and 	reducing 	prices 	and
provisions 	that may 	harm consumers 	by 	impairing competition or
increasing costs 	without 	offering offsetting benefits.
During 	recent 	years, 	the 	Commission's 	staff 	has 	studied the
deregulation of 	trucking 	and 	the 	benefits 	from 	increased 	reliance
on market 	forces 	at 	both 	the 	federal 5 and state 6 levels. 	In
4 15 	U.S.C. 	§ 	45.
6
~ 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); 	Breen, 	Bureau
ot 	Economics, 	Federal 	Trade 	Commis~i6n, Regulatory 	Reform 	and 	the
Trucking 	Industry: 	An 	Evaluation 	of 	the 	Motor Carrier Act 	of
1980, 	Submitted 	to Motor Carrier Ratemaking 	Study Commission
(March 	1982).
~ 	letter 	from 	Thomas 	B. 	Carter, 	Director, 	Dallas
Regional 	Office, 	Federal 	Trade 	Commission, 	to 	Texas 	Rep. 	Hugh 	D.
Shine, 	concerning tow 	truck 	regulation 	(Apr. 	18, 	1989); 	testimony
of 	James 	A. 	Langenfeld, 	Deputy 	Director 	for 	Antitrust, 	Bureau 	of
Economics, 	Federal 	Trade 	Commission, 	Before 	the 	Public 	Utilities
Commission of 	California, 	concerning 	the 	impact 	of 	deregulation
on 	the 	trucking 	industry 	(Oct. 	27, 	1988); 	letter 	from 	John
Mendenhall, 	Acting 	Director, 	Cleveland Regional 	Office, 	Federal
Trade 	Commission, 	to 	Ohio 	Rep. 	Frank Sawyer, 	concerning 	contract
carrier motor 	freight 	rates 	(Feb. 	16, 	1988); 	letter 	from 	Janet
Grady, 	Director, 	San 	Francisco 	Regional 	Office, 	Federal 	Trade
Commission, 	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
2

addition, 	the 	FTC's 	Bureau 	of 	Economics 	recently 	published 	a
report 	on 	trucking 	deregulation.] 	Our 	activities 	in 	this 	area
and 	in matters 	of 	competition policy 	generally 	have 	provided us
with.experience 	in 	analyzing 	the 	potential 	effects 	of 	trucking
deregulation.
II. 	Texas 	State RegulatiQn 	Qf 	CQmmQn MQtQr Carriers
In 	1929, 	the 	Texas 	Legislature 	enacted 	the 	Texas 	MQtQr
Carrier Act, 	investing 	the 	RailrQad 	CQmmissiQn Qf 	Texas 	with
brQad 	authQrity 	tQ 	regulate 	the 	intrastate 	trucking 	industry.8
The 	statute 	defines 	three 	classes 	of 	fQr-hire 	mQtQr 	carriers
transpQrting 	gQQds 	within 	the 	state. 	"CQntract 	carriers" 	may
serve 	up 	tQ 	five 	specific 	shippers, 	pursuant 	to 	CQntracts 	between
the 	carriers 	and each 	shipper. 	"Specialized carriers" 	use
special 	equipment 	in 	transpQrting 	gQQds 	Qr 	carry 	particular
commQdities 	specifically 	named 	in 	the 	Texas 	MQtQr 	Carrier 	Act.
"CQmmQn 	carriers" 	transpQrt 	general 	cQmmQdities 	fQr 	shippers 	at
large. 9 Under 	its 	statutory mandate, 	the 	RailrQad CQmmissiQn 	has
prQmulgated 	a 	wide 	range 	Qf 	regulatiQns 	cQntrQlling entry 	intQ,
and 	prescribing 	intrastate 	rates 	fQr, 	each class 	of 	mQtQr
carriage. 	Entry 	and 	shipping 	rates 	were 	tightly cQntrQlled 	until
1983 	and 	1987, 	respectively, 	when 	the 	legislature 	enacted majQr
refQrms 	affecting cQmpetitiQn 	in CQmmQn mQtQr 	carriage.
A. 	Market 	entry 	requirements
Until 	1983, 	entry 	intQ 	the 	Texas 	trucking 	industry 	as 	a
CQmmQn carrier was 	difficult. 	A prQspective 	entrant 	was 	required
to 	establish 	the 	inadequacy Qf 	existing 	service 	in Qrder 	tQ
obtain a 	required certificate 	of 	public 	convenience 	and
n~cessity. 	The 	Railroad 	Commissio~/cQuld issue 	a 	certificate
Qnly 	after 	a 	hearing, 	at 	which 	incumbent 	firms 	were 	entitled 	tQ
prQtest 	the 	granting 	Qf 	route 	authQrity 	tQ 	a 	new 	entrant.
CQuncil 	of 	the 	State of 	South 	Carolina Qn 	possible 	restrictive 	Qr
anticompetitive 	practices 	in 	SQuth Carolina's 	Public 	Service
CQmmissiQn 	statutes 	(Sept. 	29, 	1987); 	Statement 	Qf 	the 	Staff 	of
the 	Federal 	Trade 	CQmmission 	Qn 	eCQnomic 	deregulation Qf 	trucking
tQ 	House 	and 	Senate 	Transportation CQmmittees, 	Washington 	State
Legislature 	(March 	7, 	1985).
Owen, 	Bureau Qf 	ECQnQmics, 	Federal 	Trade 	CQmmissiQn,
Deregulation 	in 	the 	Trucking 	Industry 	(May 	1988).
8
9
Acts 	1929, 	41st 	Leg., 	p. 	698.
Tex. 	Rev. 	Civ. 	Stat. 	Ann. 	§ 	911b(1)(g)-(i) 	(vernQn).
3

10
11
The 	68th Legislature 	eased 	the 	market 	entry 	requirements 	in
1983. 10 Although 	the 	requirement 	of 	obtaining a 	certificate 	of
public 	convenience 	and 	necessity was 	not 	abolished, 	the "revised
statute 	altered 	the 	burden of 	proof. 	Thus, 	if 	a 	prospective
entrant 	establishes, 	prima 	facie, 	that 	its 	entry 	in 	the 	market
would 	promote 	the 	public 	convenience 	and 	necessity, 	the
protestant 	then 	bears 	the 	burden of 	proof 	to 	show 	the 	adequacy of
existing 	service 	or 	the 	inability of 	the 	applicant 	to 	serve 	the
public's 	need. 	Moreover, 	the 	Railroad Commission 	now must
disregard 	protests 	by carriers 	that 	have 	not 	endeavored 	to 	serve
part 	of 	the 	geographical 	area 	at 	issue 	in 	the 	application.
Further, 	in making 	its 	determination of 	public 	convenience 	and
necessity, 	the 	Commission may 	not 	consider 	the 	services 	or
facilities 	of 	firms 	that 	are 	not 	party 	to 	the 	proceeding.
B. 	Rate 	regulation
From 	the 	enactment 	of 	the 	Texas 	Motor Carrier Act 	until 	its
amendment 	by 	the 	70th 	Legislature 	in 	1987, 	trucking 	rates 	for
common motor 	carriers 	were 	tightly controlled. 	The 	law 	granted
the 	Railroad Commission 	the 	authority 	to 	set minimum 	and maximum
rates. 	Traditionally, 	the 	Railroad Commission 	prescribed 	tariffs
setting 	rates 	for 	the 	transportation of 	specific 	commodities 	and
commodity 	groups. 	The 	prescribed 	rates 	were 	based on 	the 	average
operating costs 	of 	a 	group of 	carriers 	and 	an 	assumed margin of
revenue 	above 	these 	costs. 	The 	Commission 	required 	all 	motor
carriers 	to 	charge 	the 	regulated 	rates, 	unless 	a 	carrier 	could
justify a 	different 	rate 	based 	upon 	its 	individual 	costs. 	Over
the 	years, 	however, 	thousands 	of 	rate 	variances 	developed 	in
Railroad Commission 	tariffs 	because 	of 	rate 	adjustments 	for
particular commodities, 	particular 	route8, 	and 	the 	circumstances
of 	particular 	shippers 	and 	carriers." 	(For example, 	EI 	Paso 	and
the 	Rio 	Grande 	Valley were 	allowed"- lower 	outbound 	"backhaul"
rates 	because 	an 	imbalance 	of 	incoming 	and outgoing 	freight
resulted 	in 	underutilized carrier capacity.)ll 	Because only 	the
Railroad Commission 	had 	the 	authority 	to 	set 	rates, 	carriers 	were
unable 	to 	deviate 	from 	the 	published 	tariffs 	without 	applying 	to
the 	regulatory 	agency.
In 	1987, 	the 	Legislature made 	"the most 	comprehensive
changes 	to 	the 	Motor 	Carrier Act 	since 	its 	original 	enactment 	in
Acts 	1983, 	68th Leg., 	p. 	1183, 	ch. 	263, 	S 	15B 	(eff.
Sept. 	1, 	1983), 	Tex. 	Rev. 	Civ. 	Stat. 	Ann. 	art. 	911b, 	§ 	4(e)
(Vernon) .
Railroad Comm. 	of 	Texas, 	Transportation 	Div., 	Staff
Report 	to 	the 	House 	Business 	and Commerce 	Committee, 	3-4, 	8 	(Apr.
19,1988).
4

1929."12 	Commonly 	referred 	to 	as 	Senate 	Bill 	595, 	the 	new 	law
mandated 	simplification of 'the 	tariff 	system 	for 	motor
carriers. 13 The Railroad 	Commission 	is 	required, 	inter alia, 	to
establish by 	collective 	ratemaking procedures 	base 	rates 	for 	the
shipment 	of 	general 	commodities 	weighing more 	than 	500 	pounds. 14
These 	rates 	are 	to 	be 	determined on 	the 	basis 	of 	"actual
operating costs" 	and 	Ita 	reasonable margin," 	which 	is 	the 	same
basis 	the 	agency 	had used 	previously. 	For 	the 	first 	time,
however, 	common carriers 	are 	allowed 	some 	flexibility 	to
determine 	their own 	rates. 	The 	law permits 	deviation 	from 	the
base 	rate 	up 	to 	5% 	for 	shipments 	weighing 	between 	501 	pounds 	and
10,000 	pounds, 	and 	up 	to 	15% 	for 	shipments 	over 	10,000 	pounds. 15
Carriers 	intending 	to 	deviate 	from 	the 	base 	rate 	must 	file 	a
notice 	of 	the 	proposed 	rate 	with 	the 	Railroad Commission; 	the
proposed 	rate 	is 	made 	public 	and 	becomes 	effective 	five 	days
after 	filing.
Within 	15 	days 	of 	public 	notification, 	an 	interested 	party
may 	petition 	the 	Railroad Commission 	for 	suspension of 	the
proposed 	rate 	on 	the 	ground 	that 	it 	results 	in 	"predatory
pricing," 	defined 	in 	the 	statute 	as 	rates 	that 	are 	below 	the
carrier's 	"actual 	operating 	costs 	or 	unreasonably 	above 	such
costs 	or which 	are 	unduly 	discriminatory." 	If 	the 	Railroad
Commission 	finds 	predation, 	it may 	disallow 	the 	deviation.
C. 	Proposed 	regulatory 	change
In 	addition 	to 	the 	5% 	to 	15% 	rate 	deviations 	permitted
common 	carriers 	under 	Senate 	Bill 	595, 	the 	statute 	grants
additional 	authority 	to 	the 	Railroad Commission 	to 	deregulate
motor 	carrier 	rates 	further. 	Section 	4(a)(9) 	of 	the Texas 	Motor
Carrier Act, 	as 	amended, 	empowers 	the 	Railroad Commission 	to
increase 	(but 	not 	decrease) 	the 	perm1tted degree 	of 	deviation
12
13
1987).
Id. 	at 	1.
Acts 	1987, 	70th Leg., 	ch. 	372, 	§ 	2 	(eff. 	Aug. 	31,
14
15
The 	legislation has 	no 	direct 	effect 	on 	specialized or
contract 	carriers, 	or on 	common carrier shipments 	of 	500 	pounds
or 	less. 	However, 	the 	Railroad 	Commission was 	given
discretionary authority 	to 	extend 	the 	rate 	deviation provisions
to 	other motor 	carriers 	and 	smaller 	shipments. 	Tex. 	Civ. 	Stat.
Ann. 	art. 	9l1b, 	§ 	4(a)(8)-(10) 	(Vernon).
Railroad Commission 	regulations 	implementing 	the
deviation 	provisions 	are 	published 	in Title 	16 	of 	the 	Texas
Administrative 	Code, 	Section 	5.582.
5

from 	established 	rates 	for 	common carriers. 16 Pursuant 	to 	that
authority, 	and 	acting 	upon 	the 	petition of 	a 	shipper, 	the
Railroad 	Commission 	has 	proposed 	amending 	16 	T.A.C. 	S 	5.582. 	The
proposed 	amendment 	would 	permit 	common carriers 	to 	charge 	rates
deviating 	up 	to 	40% 	from 	base 	rates 	on 	shipments 	weighing 	at
least 	501 	pounds. 17
III. 	Arguments 	Adyanced 	in 	Support 	of 	Regulation
Trucking 	regulation, 	including 	legal 	restraints 	on motor
carrier 	rates, 	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.18
In 	our 	experienc&, 	those 	who 	support 	continued 	rate-setting
and 	other 	regulation of 	motor 	carriers 	usually 	advance 	four 	major
arguments. 	They 	argue 	that 	regulation will 	prevent 	predatory
pricing, 	forestall 	destructive 	competition, 	maintain 	safety, 	and
ensure 	service 	to 	small 	communities. 	As 	discussed 	below,
however, 	a 	number 	of 	empirical 	studies 	have 	concluded 	that 	none
of 	these 	rationales 	supports 	the 	contention 	that 	continued
regulation of 	common motor 	carriers 	is 	either 	necessary 	or
des irable . 19
A. 	Predatory pricing
A primary 	argument 	advanced 	in 	support 	of 	rate 	regulation 	is
that 	such 	regulation will 	prevent 	predatory 	pricing. 	The
principal 	thrust 	of 	this 	argument 	is ,that 	larger, 	better 	financed
companies 	will 	attempt 	to 	drive 	out 'competitors 	by 	selling
16 Acts 	1987, 	70th Leg., 	ch. 	372, 	§ 	2 	(eff. 	Aug. 	31,
1987); 	Tex. 	Civ. 	Stat. 	Ann. 	art. 	911b 	S 4(a)(9) 	(Vernon).
17 14 	Tex. 	Reg. 	3746 	(Aug. 	4, 	1989).
18 Nelson, 	"The 	Changing 	Economic 	Case 	for 	Surface
Transport 	Regulation," 	in 	Perspectives 	on 	Federal 	Transportation
Policy 	(James 	C. 	Miller 	III, 	ed. 	1975).
Reform 	of
Southern
Owen,
19 These 	arguments 	have 	been discussed 	and 	dismissed 	in 	a
number 	of 	studies. 	~ 	generally Weinstein 	& Gross,
Transportation 	and 	Economic 	Development: 	The 	Case 	for
Trucking 	Regulation 	in Texas, 	Center 	for 	Enterprising,
Methodist 	University 	(Feb. 	1987); 	Breen, 	supra 	note 	5;
supra 	note 	7.
6

20
21
trucking 	services 	below 	their 	average 	variable 	costs. 20 The
surviving 	firms 	will 	then 	raise 	their 	prices 	above 	the
competitive 	level, 	eventually 	recouping 	their 	losses 	and
increasing 	their profits.
This 	argument 	is 	usually 	applied 	to 	industries 	with 	high
entry 	barriers 	and 	high 	sunk costs. 	The 	trucking 	industry
comprises 	two 	distinct 	segments. 	One 	involves 	shipments 	of
10,000 	pounds 	or more 	(truckload, 	or 	TL, 	shipments), 	and 	the
other 	involves 	shipments 	of 	less 	than 	10,000 	pounds 	(less-than-
truckload, 	or 	LTL 	shipments). 	Truckload 	shipments 	usually 	go
from 	shipper 	to 	consignee without 	intermediate 	handling; 	the
truck 	itself 	is 	the 	only 	equipment 	needed. 	Because 	trucks 	are
highly 	mobile 	and 	can be 	transferred quickly, 	sunk costs 	are
probably minimal 	in 	the 	TL 	segment. 	Although LTL 	shipments 	often
are 	transported 	to 	break-bulk 	facilities 	before 	reaching 	their
destinations, 	the 	sunk 	capital 	costs 	associated with 	warehousing
do 	not 	make 	predation more 	likely. 	The 	sunk costs 	can be 	reduced
significantly 	by 	leasing, 	rather 	than owning, 	terminal
facilities.
If 	a 	predator 	tried 	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. 	Predatory pricing 	is 	therefore 	unlikely 	to
succeed. 	Because 	predation 	is 	unlikely 	to 	be 	profitable, 	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. 21 In Matsushita 	Electrical
Industrial 	Co. 	y. 	Zenith Radio 	Corp. ,22 	the 	Supreme Court 	stated
/
As 	noted above, 	Senate 	Bill 	595 	uses 	"predatory
pricing" 	to 	include 	unreasonably 	high 	or 	discriminatory 	prices,
as 	well.
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.
22 106 	S. 	Ct. 	1348 	(1986).
7

23
24
that 	"predatory pricing 	schemes 	are 	rarely 	tried, 	and 	even more
rarely 	successful."n
For 	these 	reasons, 	predatory 	pricing 	in 	the 	trucking
industry 	appears 	to 	be 	little more 	than 	a 	theoretical
possibility.24 	This 	theoretical 	possibility does 	not 	justify 	the
type 	of 	price 	restraints 	embodied 	in 	the 	current 	Texas
regulations 	any more 	than 	it 	would 	in 	any 	other 	competitively
structured 	industry. 	In 	any 	event, 	firms 	that 	attempt 	to 	engage
in 	predatory 	pricing would also 	be 	subject 	to 	public 	and 	private
antitrust 	enforcement 	actions.
B. 	Destructive competition
Proponents 	of 	trucking 	regulation 	also 	argue 	that
deregulation of 	motor carriage 	rates 	will 	lead 	to 	"destructive
competition." 	Destructive competition may occur 	in 	industries
characterized by 	fluctuating 	demand, 	relatively 	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 	exists, 	prices
may 	persist 	below 	the 	total 	cost 	of 	providing 	services 	because
the 	sunk 	nature 	of 	costs 	makes 	capacity adjustments 	difficult.
Firms 	facing 	such 	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 	trucking 	industry. 	Fixed costs 	comprise
only 	a 	small 	percentage 	of 	total 	costs, 	~hich include 	such
variable 	costs 	as 	labor 	and 	fuel 	exp~nses. 	Trucks 	also 	are
highly mobile 	assets, 	which 	sugges~s that 	they may 	be 	transferred
readily 	and 	easily 	from 	less 	profitable 	to 	more 	profitable
geographic 	markets 	in 	response 	to 	fluctuations 	in 	demand, 	or 	sold
IQ. 	at 	1357-58, 	citing R. 	Bork, 	The Antitrust 	Paradox,
149-56 	(1978); 	Areeda 	& Turner, 	"?redatory 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).
For 	a 	review 	of 	the 	modern 	theoretical 	literature 	on
predatory 	pricing, 	~ 	J. 	Tirole, 	The 	Theory of 	Industrial
Organization, 	Cambridge: 	MIT 	Press, 	1988, 	chs. 	8 	& 9.
8

25
26
27
or 	leased 	to 	other 	operators. 	Therefore, 	it 	seems 	unlikely 	that
destructive 	competition will 	occur. 25
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 	in 	rates 	or 	service
will 	neglect 	maintenance, 	delay 	replacement 	of 	vehicles, 	and
overwork drivers. 	Although opponents 	of 	deregulation 	have 	cited
statistics 	showing 	an 	increase 	in 	the 	average 	age 	of 	trucks 	on
the 	road 	and 	a 	greater 	frequency 	in 	reported 	accidents 	involving
truckers, 	other 	studies 	have 	shown 	that 	safety 	has 	not 	been
compromised 	following 	deregulation. 26 In 	any 	case, 	reduced
safety 	is 	not 	a 	necessary consequence 	of 	price 	and 	entry
deregulation; 	nor 	do 	regulated motor carriage 	rates 	ensure 	that
profits 	will 	be 	spent 	to 	ensure 	safe 	truck 	operations.
A 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.,,27 	In Texas, 	the
Railroad Commission 	shares 	with other 	agencies 	the 	responsibility
to 	ensure 	the 	safe 	operat~on of 	motor 	carriers; 	stringent
enforcement 	of 	safety 	regulations 	need 	not 	depend on 	the
existence 	of 	inflexible 	tariffs.
D. 	Preserving 	service 	to 	small 	communities
Some 	proponents 	of 	trucking 	regulat~on have 	argued 	that
deregulation 	will 	result 	in 	loss 	of 	service 	to 	smaller
communities, 	because 	motor 	carriera~ill find 	it 	unprofitable 	to
serve 	small 	markets 	unless 	they 	are 	guaranteed 	a 	fair 	return 	on
investment. 	This 	argument 	has 	a 	certain 	appeal 	in 	Texas 	because
more 	than 	2,500 	cities 	and 	towns 	have 	populations 	under 	25,000;
and 	the 	size 	of 	the 	state may mean 	that 	some 	of 	these 	communities
are 	geographically 	isolated. 	However, 	studies 	of 	the 	effect 	of
~ 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."
Owen, 	supra 	note 	7, 	at 	18-21; 	Weinstein 	& Gross, 	supra
note 	19, 	at 	50-51.
California 	Public 	Utilities 	Commission 	& California
Highway 	Patrol, 	AB 	2678 	Final 	Report 	on Truck 	Safety, 	Joint
Legislative 	Report, 	3 	(Nov. 	1987).
9

28
29
30
Jl
trucking 	deregulation 	at 	the 	federal 	and 	state 	levels 	have 	not
revealed 	any 	significant 	deterioration 	in 	service 	to 	small
communities.
A series 	of 	surveys 	conducted between 	1980 	and 	1985 	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. 	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 often more 	service
options 	for 	shippers 	in 	small 	communities. 29 Similarly, 	in 	a
survey 	following 	deregulation 	of 	intrastate 	trucking 	in 	Florida,
65 	per 	cent 	of 	respondents 	in 	small 	communities 	expressed 	a
preference 	for 	deregulation, 	with 	30 	per cent 	expressing 	no
preference. 3o
A researcher 	at 	Texas 	A & M University 	has 	concluded 	that
small 	Texas 	communities 	would 	not 	lose 	service 	in 	a 	deregulated
environment, 	because common carriers 	have 	found 	such 	service 	to
be 	profitable. 	Noting 	individual 	entry 	petitions 	for 	common
carrier 	operating 	authority, 	as 	well 	as 	a 	resale market 	for
existing 	authority, 	the 	researcher 	found 	that 	these 	indications
of 	willingness 	to 	serve 	small 	communities 	suggested 	that 	carriers
would 	provide 	the 	service voluntarily, 	"even 	in 	the 	absence 	of
regulation. "31 	.
IV. 	Benefits 	of 	Deregulation
Adoption of 	the 	proposed amendme.nt 	to 	16 	T.A.C. 	S 	5.582
permitting 	intrastate common car~iers in Texas 	to 	deviate 	up 	to
40% 	from 	establi$hed 	base 	rates, 	may 	result 	in 	lower 	shipping
Pub. 	L. 	No. 	96-296, 	94 	Stat. 	793 	(1980). 	~ 	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).
Interstate 	Commerce 	Comm., 	Small 	Community 	Service
Study 	(1982).
Beilock 	& Freeman, 	"Motor 	Carrier 	Deregulation 	in
Florida," 	14 	Growth 	and Change 	31-41 	(1983).
Pustay, 	"Interstate Motor 	Carrier 	Regulation 	in 	Texas,"
The 	Logistics 	and 	Transportation 	Review, 	vol. 	19, 	no. 	2 	(1984),
Quoted in Weinstein 	& Gross, 	supra 	note 	19, 	at 	49.
10

32
rates 	and 	service/rate 	combinations 	that 	are 	preferred 	by
shippers.
There 	is 	little 	doubt 	that 	the 	regulated 	intrastate 	shipping
rates 	that 	have 	been charged by common carriers 	in Texas 	have
been 	costly 	to 	Texas 	consumers 	and damaging 	to 	the 	competitive
position 	of 	businesses 	within 	the 	state. 	Studies 	have 	cited 	a
significant 	disparity 	between 	interstate 	and 	intrastate 	rates.
For 	example, 	Procter & Gamble could 	ship detergent 	from 	Tulsa 	to
Dallas 	for 	$1.46 	per mile; 	shippin~ it 	about 	the 	same 	distance,
from 	Houston, 	cost 	$2.52 	per mile. 	Frito-Lay 	found 	it 	saved
$95 	per 	truckload 	shipping corn chips 	to 	San Antonio 	from
Mississippi, 	rather 	than 	from 	its 	Lubbock 	plant, 	200 	miles
closer. J Some 	shippers 	have 	located 	their 	warehouses 	in
adjoining 	states, 	primarily to 	avoid Railroad Commission
regulation 	and 	to 	secure 	lower 	interstate 	rates. J4 Researchers
surveyed more 	than 	2,700 	Texas 	manufacturers 	and 	distributors,
mostly 	small 	businesses 	heavily dependent upon 	Texas 	suppliers
and 	customers. 	Asked 	to 	rank 	the 	importance 	of 	aspects 	of 	the
Texas 	business 	environment 	to 	their companies' 	performance, 	more
than 	half 	the 	respondents 	declared 	shipping costs 	to 	be 	second
only 	to 	demand 	for 	their 	products .. Nearly 	three 	quarters
reported 	that 	the 	disparity 	between 	interstate 	and 	intrastate
shipping 	rates 	adversely 	affected 	their 	ability 	to 	compete. 35
If 	the 	proposed 	amendment 	is 	made, 	Texas 	intrastate 	shipping
rates 	are 	likely 	to 	decrease. 	After 	Senate 	Bill 	595 	became
effective, 	common carriers 	quickly 	took 	advantage 	of 	the
opportunity 	to 	adjust 	their 	rates 	within 	the 	5% 	and 	15%
deviations 	allowed 	by 	the 	law. 	In 	the 	first 	three 	months 	of
1988, 	for 	example, 	common carriers 	fi1ed~231 applications 	for
rate 	deviations, 	the 	great 	majority 	for 	rate 	decreases.
Moreover, 	motions 	for 	suspension were 	rare. 36
A number of 	other 	states 	have 	already deregulated 	intrastate
rates 	as 	well 	as 	eased entry 	restrictions 	into 	the 	intrastate
trucking 	industry. 	The 	experiences 	of 	these 	states 	attest 	to 	the
benefits 	to 	consumers 	and 	competition produced 	by 	trucking
deregulation. 	California, 	for 	example, 	experimented with 	partial
Owen, 	supra 	note 	7, 	at 	30-31; 	Weinstein 	& Gross, 	supra
note '19, 	at 	21.
33
34
35 Weinstein 	& Gross, 	supra 	note 	19, 	at 	18-19.
36 ~ 	Railroad Commission 	Staff 	Report, 	supra 	note 	11,
exhibit 	2.
11

37
39
40
41
42
economic 	deregulation 	of 	trucking 	from 	1980 	to 	1986. 	During 	that
time 	ent~ was 	virtually 	free, 	and 	rates, 	though 	regulated, 	were
flexible. 7 	The 	result 	was 	lower 	rates 	with 	no 	loss 	in 	service. 38
A study 	of 	trucking 	in New 	Jersey concluded 	that
deregulation 	ha~ worked well 	in 	that 	state. 39 According 	to 	a
study by W. 	Bruce Allen, 	shippers 	were 	satisfied with 	the
available 	service, 	rates 	were 	about 	ten percent 	lower 	than they
would 	have 	been 	under 	regulation, 	and 	intrastate 	carriers 	have
prospered. 40
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 	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 	carriagej41.many more 	such shippers'
conversions 	might 	have 	been expected 	if 	"destructive competition"
had 	resulted 	in" a 	large 	reduction 	in 	the 	number of 	truckers. 42
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.
38 	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.)
Allen, 	Lonergon 	& Plane, 	Examination of 	the 	Unregulated
Trucking 	Experience 	in New 	Jersey, 	U.S. 	Dept. 	of 	Transportation
(July 	1979).
Allen, 	Statement 	Before 	the 	National 	Commission 	for 	the
Review 	of 	Anti-Trust 	Laws 	and 	Procequres 	(January 	22, 	1979).
Private 	carriage 	refers 	to 	those 	situations 	where 	the
motor 	carrier 	is 	owned by 	the 	shipper.
Freeman, 	"A 	Survey 	of 	Motor Carrier Deregulation 	in
Florida: 	One 	Year's 	Experience," 	ICC 	Practitioners 	Journal, 	at
51 	(NOV.-Dec. 	1982).
12

43
44
45
46
47
Likewise, 	a 	1982 	U.S. 	Department 	of 	Transportation 	study43 	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 	led 	to 	a
15 	percent 	average 	reduction 	in motor 	carrier 	rates. 44
The 	experience of 	other 	states 	is 	consistent 	with 	that 	of
California, 	New 	Jersey 	and 	Florida. 	For 	example, 	in 	Wisconsin,
67 	per cent 	of 	shippers 	were 	satisfied with deregulation 	and only
six 	per cent 	were 	dissatisfied. 	Seventy-three 	per cent 	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.u
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 	per 	cent 	to 	67 	per 	cent more 	than 	unregulated
intrastate 	carriers 	for 	comparable 	moves. 46
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. 47 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
t;uckers 	with 	prior 	authority 	to 	c~rry these 	products 	believed
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).
Wisconsin Office 	of 	the 	Commissioner of 	Transportation,
Deregulation of 	Wisconsin Motor 	Carriers 	(July 	1983). 	There 	may,
however, 	be 	other capital 	losses.
Breen, 	"Regulation 	and 	Household Moving Costs,"
Regulation, 	53 	(Sept.-Oct. 	1978).
Unpublished 	surveys 	conducted by 	the 	Oregon 	State
Legislature's 	Legislative 	Research 	Office 	(1984).
13

that 	trucking 	rates 	had decreased. 	None 	of 	the 	groups 	surveyed
believed 	that 	general 	rate 	levels 	had 	increased 	as 	a 	result 	of
deregulation.
It 	thus 	appears 	that 	deregulation of 	intrastate 	trucking 	has
not 	had 	the 	adverse 	impact 	on competition or consumers 	that 	had
been 	predicted by many 	critics 	of 	deregulation. 	In 	fact,
deregulation 	has 	been 	beneficial 	to 	the 	industry 	and consumers
alike. 	If 	the 	Railroad Commission 	approves 	the 	amendment 	to
16 	T.A.C. 	§ 	5.582 	and 	allows 	deviations 	up 	to 	40% 	from 	base
rates, 	the 	rates 	charged by common carriers 	for 	shipments
exceeding 	500 	pounds 	may 	be 	effectively deregulated. 	This
deregulation 	of 	intrastate 	trucking 	rates 	in Texas 	may, 	as 	it 	has
in 	other 	states, 	result 	in 	lower 	transportation charges 	with 	no
undesired 	reduction 	in 	service. 	The 	Railroad Commission 	is
further 	empowered 	to 	grant 	rate-setting 	flexibility 	to
specialized and contract 	carriers 	and 	for 	smaller 	shipments 	by
common carriers. 	The 	Commission may 	wish 	to 	consider whether
similar 	rate-setting 	flexibility 	as 	to 	those 	categories 	of
carriers 	and 	shipments 	might 	also 	be 	beneficial.
v. 	Conclusion
The 	proposed 	amendment 	to 	16 	T.A.C. 	§ 	5.582, 	which would
permit 	common carriers 	to 	deviate 	further 	from 	established 	rates
for 	shipments 	over .500 	pounds, 	may 	result 	in 	significant 	benefits
for 	consumers. 	These 	carriers 	will 	be more 	likely 	to 	provide 	the
price 	and 	service 	options 	desired 	by 	their customers, 	and 	they
will 	be 	able 	to 	adjust 	quickly 	to 	changes 	in 	their 	business
environment.
We 	appreciate 	this 	opportunity, to 	present 	our views.
;Jff!: 	.(3 6~Thomas 	B. 	Carter
Director
14