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regulation has been the cause of these bankruptcies, the available evidence suggests to us that it is primarily the recession-not the Motor Carrier Act-that is at fault.
We have examined data on business failures for both local and intercity trucking from 1971 through the first half of 1981. Additional evidence was provided by our analysis of a group of 30 recent motor carrier business failures: Both analyses suggest to us that the recession-not the Motor Carrier Act-is the primary cause of the observed increase in carrier failures.
Whatever the immediate and specific causes of these bankruptcies, we should not be loath to recognize that regulatory reform has brought about a more competitive trucking environment, one in which inefficiency may well be greeted by failure. There will be some ailing firms that will not make the transition to a more competitive environment successfully-firms that might have limped along for a few more years under preact regulation. 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.
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. As a result, full adjustment to the ratemaking reforms of the Motor Carrier Act may not be completed until after 1984, when collective setting of singleline rates will no longer be permitted.
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 insure that freight rates do not get too high. In addition 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
a by pricing below its cost, other carriers will be able to take their place. Consequently, the carrier pursuing such a strategy would not be able to charge monopoly prices for its services and would have sustained losses to no avail.
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.
In addition, studies of the effects of Florida's intrastate deregulation have found no evidence of significant changes in service to small Florida communities. It is worth noting that during the past 2 years, several States in addition to Florida have joined the trend toward deregulation. If chaos had been the result of the Motor Carrier Act-as some critics of reform once argued—we do not believe we would be seeing these procompetitive reforms at the State level today.
While some motor carriers seem to be hoping that reform will go away, other carriers have been taking advantage of the new free doms provided by the act. In fact, to speak of the trucking industry, as a monolithic entity, is outdated in today's changing regulatory environment. My written statement gives a number of examples of how some carriers are using the provisions of the act to move forward.
Finally, during the debate over motor carrier regulatory reform, concern was expressed that public safety problems could arise from enactment of trucking reform legislation. We have not seen any evidence to demonstrate that this concern was valid.
In summary, Mr. Chairman, I am pleased to report that-as I also testified last year—the world's greatest transportation system is continuing to get the job done. Freight still moves from shippers to receivers throughout the Nation, and we have seen no evidence that service to small communities has deteriorated. We are pleased to observe that carriers are taking advantage of the new freedoms offered by the act to institute new types of price/service options and to streamline and modernize their operations.
There will always be winners and losers in any competitive market environment–in the long run, all shippers and the Nation will benefit from the more efficient, more competitive trucking industry that is beginning to emerge as a result of the reforms provided by the Motor Carrier Act of 1980.
Thank you, Mr. Chairman. Mr. Rastatter and I will be pleased to take the committee's questions.
Mr. ANDERSON. Thank you for your statement.
In your statement you state that the recession and not the Motor Carrier Act, is the cause of bankruptcies in the trucking industry. In that type of economic environment, do you believe that regulatory policies could or should be administered in a manner so as to minimize, if that is possible, the effects of the recession on various industries, including the trucking industry?
In other words, you state that the recession, and not the Motor Carrier Act, is the cause of bankruptcies in the trucking industry. To carry that on, do you believe that regulatory policies could or should be administered so as to minimize the effects of the recession? Is that a possible solution?
Mr. SWINBURN. Clearly, Mr. Chairman
Mr. ANDERSON. For example, in the area of predatory pricing. There is a question of what constitutes predatory pricing. Is it just pricing that goes out to put somebody out of business, or is it a cut rate that is used as a loss leader? Perhaps there are temporary actions that should be taking place in the interim; perhaps not. Do you have an opinion?
Mr. SWINBURN. I would have to say, Mr. Chairman, having read the Commission's decision on not intervening in the discount pricing area, that I agree with that decision. The basic element in that decision as I read it was to not interfere with the workings of the free marketplace, supplemented by a belief that true predatory pricing, that is pricing designed to drive people out of business so as to be able to exercise monopoly profits, is subject to other legal
barriers, both within the Commission's control and within the control of the antitrust laws. So in that regard I believe that the Commission took a proper action in choosing not to intervene in the forces of the marketplace.
Mr. ANDERSON. How would you define predatory pricing practices as the term applies to the trucking industry? In most businesses you have loss leaders and things like that that go out and bring customers in, but it is more difficult to apply that to a nationwide or a local trucking firm, so what is predatory and what is not predatory when they cut prices?
Mr. SWINBURN. In my mind, Mr. Chairman, there is not that great a difference between the trucking industry and other industries when viewing predatory pricing. It is a carrier offering his services at prices below the costs of those services, and I would look at variable out-of-pocket costs, for the purpose of driving somebody out of the market, with the notion that he will be able to charge monopoly prices and recover those losses subsequently.
Mr. ANDERSON. Do you agree or disagree that carriers should be able to engage in below-cost pricing? Has the Department examined the current pricing practices in the industry, in order to determine if this practice exists and if so, how widespread is it? In other words, are there firms today who are predatory-pricing firms as you describe it, are there firms that are operating at low cost, and is it widespread?
Mr. SWINBURN. We do not have the data available to us, Mr. Chairman, and I am not sure we could get it unless we had access to information that is contained within the rate bureaus, as to the actual rates at which goods are traveling and as to the costs to the carriers of the carriage of those goods. I note in my prepared state ment that we are unable for those reasons to provide you with rate indexes as we have in the past. The reason is that so many commodities are traveling on rates set by independent actions versus collectively set tariffs that you are not able to find out what rates they are actually traveling at. Therefore, I cannot answer the question as to whether or not traffic is moving at below costs. That question could be answered in a specific complaint proceeding that might be brought before the ICC or before the Justice Department in an antitrust context.
I believe that predatory pricing in a strict legal sense would require a finding not only that a carrier is carrying goods below cost, but also that it is for the purpose of driving people out of business as opposed to just capturing some traffic by pricing as a loss-leader as a druggist might do. I do not find anything wrong with a carrier offering a service below cost to try and capture a share of the market if there is no specific intent to put somebody out of business.
Mr. ANDERSON. Mr. Shuster?
Mr. SHUSTER. Thank you, Mr. Chairman. We appreciate your testimony, gentlemen.
Last year our committee heard strong criticism that ICC had gone too far in implementing the act's entry provisions, in fact had gone beyond the intent of the act. It was alleged that the ICC was granting authority far in excess of what applicants were requesting. Do you agree with that assessment, and do you feel that that is the case today as well?
Mr. SWINBURN. No; I do not agree with that assessment, Mr. Shuster. As I testified in response to your question last year, we believe that the ICC has been correctly interpreting the overall policy as well as the specific provisions of the act, and we have filed in a series of cases which I think generally stress that agree ment with their interpretations.
Mr. SHUSTER. Thank you.
Mr. ANDERSON. Mr. Swinburn, in your statement, you comment about business failures in the trucking industry compared to other segments of the economy. Do you have any specific data on how the trucking industry compares to other specific segments of the economy?
Mr. SWINBURN. What we have, Mr. Chairman, that we can pro vide for the record and which I refer to I believe in my prepared testimony is data on business failures for two different segments of the trucking industry, that is both local and intercity trucking, the latter one having been substantially deregulated, the former essentially not. We find the trends to be very, similar for both cases. I have those numbers and that data available to provide to you, sir.
Mr. ANDERSON. Congressman Eckart from Cleveland has expressed great concern over the future of the driver's logbook. Could you outline the current status of the driver's logbook and trace the developments that have brought us to our current point?
Mr. SWINBURN. Yes, sir; the driver's logbook rulemaking began in February with a notice of proposed rulemaking seeking comments on a proposal to reduce the paperwork burdens for motor carriers and drivers operating in interstate commerce by eliminating the required forms of the driver's logs and proposing less burdensome alternative methods of recording the hours that the driver spends on duty.
The comment period closed in April. I understand that a tremendous number of comments were received. The Federal Highway Administration has been recording, analyzing, and thinking through those comments. I am told they will hopefully by the end of this month or sometime in July have final recommendations up for Secretarial and then OMB review, and we are hoping to have a final rule out of the Department by the end of August.
Mr. ANDERSON. Do you have any further questions?
Our final witness is the distinguished chairman of the Interstate Commerce Commission, Mr. Reese Taylor. The full text of your pre pared statement will appear in the record at this point.
[Statement referred to follows:
STATEMENT OF REESE H. TAYLOR, JR., CHAIRMAN
INTERSTATE COMMERCE COMMISSION
June 23, 1982
Mr. Chairman and Members of the Subcommittee:
Thank you for the opportunity to appear here today to present the views of the Comm18810n with regard to the implementation and
effects of the Motor Carrier Act of 1980.
In addition to the
statement, we have included the following attachments:
11sting of the proceedings initiated to implement the Motor Carrier Act and their current status; (2) a list and summary of significant proceedings which are under judicial review; (3) a package of studies and reports, issued since last year's hearing,
either in response to Congressional mandates under the Act or as
part of the Commission's ongoing effort to monitor the effects of the Act; (4) earnings and traffic volume data for the 100 largest
motor carriers of property for the fourth quarter and the year
1981; and (5) Information concerning 1982 general rate increases.1/
The Motor Carrier Act of 1980 has resulted in a more com
petitive environment in the trucking industry.
By mandating eased
1/ Designated Appendix I, II, and III, IV and V respectively.