Deregulation of Trucking Industry
Last year marked the 40th anniversary of deregulating two surface freight services: the Motor Carrier Act and the Staggers Rail Act. President Jimmy Carter signed both laws in 1980, which in turn offered significant benefits to consumers.
With the Motor Carrier Act in 1980, federal entry controls in interstate trucking were removed, making it possible for carriers to reduce rates. The signing statement by President Carter estimated benefits for shippers, consumers, and the trucking industry.
The Staggers Act signed by President Carter enabled the Interstate Commerce Commission (ICC) to deregulate rates for other traffic, which allowed shippers and railroads to negotiate unregulated contract rates.
Unlike before, open routing (the practice of forcing a railroad to carry freight between any two points) was not an option anymore since railroads had the authority to discontinue offering service on routes that were unprofitable.
History of Trucking Regulation
There are still several regulations governing today’s trucking industry, but most of them focus on safety and security and not on who can carry shipments and where.
However, between the years 1935 to 1995, things were completely different, with state and federal authorities imposing restrictive and inefficient rules concerning territory and pricing that limited trucking from out-competing the railroads.
The Motor Carrier Act of 1980 played a major role in unraveling the regulations and deregulated interstate trucking (shipments crossing state lines). In 1995, the government took further actions to deregulate the industry.
Increased pressure from shippers began mounting, which caused the states to amend their laws in the 80s and 90s, leading to deregulation of intrastate trucking (freight within state borders).
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Life Before Deregulation
Let’s take a look at how the earlier regulations impacted the existing carriers.
The Motor Carrier Act of 1935 gave very little leeway to trucking companies as the Interstate Commerce Commission (ICC) essentially held power in determining which companies would become interstate motor carriers, what shipments they moved, where they hauled, and the service rates.
Soon after, all the remaining states followed suit with similar regulations and agencies for intrastate commerce.
This restricted how carriers run their business as they had to essentially seek permission/authority to haul freight to their existing territories.
The regulation required carriers to document their prior service in the lane they were transporting. And applying for this wasn’t easy as ICC remained extremely restrictive in what they considered proof of service.
Now, let’s take a look at how earlier regulations affected new carriers.
New carriers struggled with the earlier regulations. First, the ICC required them to get a ‘certificate of public convenience and necessity’ to prove there was a need for a new carrier in the market.
Secondly, it became extremely difficult for the new carriers to gain any territory since even if an existing carrier didn’t operate in a particular territory, they would still be considered first to gain access to that lane, which made it that much harder for a new carrier to grow and succeed.
Benefits of Deregulation
The dissolution of intrastate and interstate regulations in the 1980s and 90s paved the way for more carriers in the industry, which meant new competition. This, in turn, forced LTL and truckload companies to prioritize customer needs.
As a result, shippers made major savings and carriers providing great service were able to make a name for themselves in the industry.
The demise of earlier regulations also resulted in faster and reliable service, making it possible for manufacturers to reduce inventory warehousing and operate efficiently.
This allowed companies to grow, improve, and succeed. The elimination of applying for authority to operate in certain territories also made it possible for companies to extensively expand their business.
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Final Thoughts
The Motor Carrier Act of 1980 has helped in liberalizing the rules of ICC regulation, such as how truckers enter new lanes and set their rates, which yielded more benefits and new competition. Ever since the new law, a lot of new firms entered the market, primarily non-union low-cost carriers.
Along with carriers, consumers also reaped the benefits of a more efficient, low-cost service. Unlike before, when the ICC regulations bogged down carriers, now few things restrict trucking companies from running their business.
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