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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
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 belleve that certain of the ratemaking phenomena we have observed
in the past two years
such as little use of the Zone of Rate Freedom
and few new released value rates being set by independent action
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.
Virtually everyone agrees that there has been significant new entry,
as well as expansion by extsting 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.
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
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
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
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
16-6040 - 83 - 17
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
similar pre-Act survey done by the Department. We
will be able to submit this information for the record within the next
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.
As I mentioned previously, household goods carriers -- subject to 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
provided by the Motor Carrier Act have experienced no deterioration in their operating ratios and have been able to improve their returns
on equity even during a downturn in the economy. Surely no one would
want to argue that 1981 was a banner year for corporate relocations
or the buying of new homes.
It is interesting to note that Bekins Van
Lines, the carrier that has been the leading innovator among the large household goods carriers, was able to achieve the largest percentage increases in operating revenues and revenue tons hauled in 1981 of any
of the major van lines. In addition, these results were accomplished without any deterioration in Bekins' operating ratio.
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
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,