7 value of carriers' operating rights, some ailing firms may be required to go bankrupt instead of being able to merge with healthy firms, as they often did in the past. However, in the long run, shippers do not benefit from being served by inefficient firms, for it is shippers and ultimately consumers who must pay for this inefficiency in higher freight bills. RATEMAKING REFORMS ARE NOT YET COMPLETE Although we have seen a substantial increase in independent ratemaking, many carriers still cling to the collective ratemaking process. It is possible that such carriers are waiting for the removal of antitrust immunity before they will move to develop and implement their own independent pricing strategies. Similarly, while there have been a multitude of independent rate actions taken by the more innovative and competitive carriers, most of these ratemaking actions have been published through the traditional rate bureaus, instead of through use of the Zone of Rate Freedom. However, after antitrust immunity is removed, those carriers presently establishing rates independently will be much better positioned to compete successfully in the freer marketplace of 1984 than will their rivals who wait until the last moment to accept the change to individual ratemaking.We believe that certain of the ratemaking phenomena we have observed - in the past two years such as little use of the Zone of Rate Freedom - are merely transitory in nature. Full adjustment to the ratemaking 8 reforms of the Motor Carrier Act will not be completed until after 1984, when collective setting of single-line rates will no longer be permitted. ENTRY Virtually everyone agrees that there has been significant new entry, as well as expansion by existing carriers, since enactment of the Motor Carrier Act. Freer entry, coupled with greater flexibility in ratemaking, will ensure that freight rates do not get "too high". In addition, there is a further important benefit of entry reform: freer entry also makes predatory pricing impractical. That is, with low entry barriers, pricing below cost makes no sense. Even if a carrier is able to drive its existing rivals out of a given market by pricing below its cost, other carriers will easily be able to take their place. Consequently, the carrier pursuing such a strategy will not be able to charge monopoly prices for its services and will have sustained losses to no avail. RATES Last year we provided this Committee with systematic information about the behavior of motor carrier rates from 1976 through 1980, based upon a series of rate indexes compiled by the Department's Transportation Systems Center. Because of the increase in independent rate actions, it is no longer feasible to ascertain freight charges for specific shipments simply by looking up the rates in collectively set tariffs. In order to obtain accurate freight rate information, it is now also necessary to look at the rates of specific carriers. Since only the rate bureaus themselves 9 have the information necessary to match the traffic movements used to construct the indexes with the names of the carriers actually handling these shipments, we cannot accurately update our rate indexes. For example, our staff examined a random sample of 88 motor carrier truckload shipments and found that estimating actual freight charges for these particular movements by looking up collectively set rates contained in rate bureau tariffs overestimated actual charges by slightly more than 30 per cent. Thus, the very success of motor carrier reform in encouraging independent, competitive ratemaking has made these indexes obsolete less than two years after passage of the Motor Carrier Act. SMALL COMMUNITY SERVICE One of the major concerns prior to passage of the Act was the availability of service to small or rural communities under deregulation. We are pleased to report to this Committee, as we did last year, that we have seen no significant deterioration in small community truck service. Two DOT studies evaluating changes in service to small communities in three different regions of the country have concluded that, although shippers and receivers in isolated areas are not heavily dependent on common carriers of general freight, overall truck service continues to be adequate. Much of this service continues to be provided by private carriage and UPS, just as it was before the Act. Most shippers and receivers report no change in the numbers of carriers serving them and the quality of service they receive, but for those reporting changes, more reported improvements than deteriorations. In addition, studies 10 of the effects of Florida's intrastate deregulation have found no evidence of significant changes in service to small Florida communities. DOT SHIPPER SATISFACTION SURVEY Preliminary results of a 1982 DOT survey of 400 manufacturing firms will be available shortly. This survey compares shipper satisfaction with for-hire motor carrier service since the Motor Carrier Act with the results of a similar pre-Act survey done by the Department. We will be able to submit this information for the record within the next month. SUCCESSFUL USE OF REFORM While some motor carriers seem to be hoping that reform will go away, other carriers have been taking advantage of the new freedoms provided by the Act. In fact, to speak of "the trucking industry", as a monolithic entity is outdated in today's changing regulatory environment. subject to As I mentioned previously, household goods carriers the entry and ratemaking provisions of the Act, as well as their own reform legislation have been among the leaders in providing innovative solutions to the problems faced by their industry and their customers. For the first time in over forty years, consumers can know the exact cost of a household goods move in advance. Moreover, a wide variety of price and service options are now available, ranging from full replacement cost insurance to guaranteed pickup and delivery dates. We believe that it is not entirely coincidental that household movers who have been among the most enthusiastic users of the new freedoms 11 provided by the Motor Carrier Act -- have experienced no deterioration Contract carriers, who supported passage of the Act in 1980, have been quick to make use of its reforms to offer their services to a broader range of shippers than ever before. Now that the so-called "rule of eight" no longer limits contract carriers to serving a small number of shippers, the excellent transportation services provided by these carriers are available to smaller companies as well as to the giants of industry. The Act's reforms have provided opportunities for contract carriers, as well as for their shippers. For example, Polar Transport has grown from a carrier serving nine regional customers in 1978 to a carrier that today has authority to handle freight for 50 customers to any point in the U.S. In addition, some common carriers of general freight have also embraced the competitive opportunities provided by the Motor Carrier Act. For example, Overnite Transport was the first large general freight carrier to offer across-the-board discounts on less-than-truckload freight, |