the ICC cannot ignore the motor carrier industry's financial

condition.

Further

complicating this reckless granting of authorities, we now have rate practices in the industry that are contrary to the provisions contained in the Act. These would be detrimental even in normal times; their effect during the present recessionary period is devastating.

The combination of excess capacity and abusive pricing practices has resulted in a financial situation in the motor carrier industry that can best be described as disastrous.

Available data show that 234 carriers have either left the industry since mid-1980, or are experiencing financial difficulties SO severe that their future is

uncertain.

These carriers represent well over $2 billion in annual revenues and more than 42,000 jobs. A more detailed analysis is provided in Appendix II.

Missing from this tabulation are a substantial number of small, newly formed carriers which went out of business shortly after they were organized. We have data only on carriers who have had an established presence in the business.

We know that there have been almost 70 failures of Class I and II carriers out of a total of 3,707, for a failure rate of 1.9 percent. According to figures released recently by Dun and Bradstreet, business failures are

occurring this year at a rate of 80 out of 10,000 businesses, for a failure rate of 0.8 percent. The motor carrier failure rate is more than double that of other

businesses.

There have always been failures in the trucking industry since the industry was regulated in 1935. Regulation never could, and never did, guarantee success, nor was it designed to protect the inefficient. Failures

are to be expected, but what we are seeing today is far beyond anything we have encountered before.

In addition to failures and bankruptcies, both real and imminent, we have a general financial condition in the industry that continues to worsen.

In the

There are many measures of financial viability. motor carrier industry an overall index of profitability is the operating ratio. Simply put, it is the ratio of total operating expenses to gross revenues. The residual is net income, but with taxes and interest still to be paid. As operating ratios approach or go beyond 95, the carrier is facing financial difficulty.

For the year 1981, the Class I and II motor carriers submitting reports to the Interstate Commerce Commission had an aggregate operating ratio of approximately 97, resulting in net income after taxes of only 1.75 percent of total revenues, a significantly worse position than 1980.

The 1980 results in turn were worse than 1979, and 1979 was worse than 1978. The 1981 earnings are, in fact, the worst the industry has experienced in over 20 years.

As far as the effects of the present recession are concerned, the data in Figure I show that the industry's persistently higher operating ratios are more than a reflection of the severity of the recession. Though the 1974-75 recession was more severe in many respects, and the industry operating ratio rose, the increase was nowhere near the level to which it has risen today.

But even the 1981 results do not reveal the current depressed state of the industry. In the fourth quarter of 1981, the industry overall operating ratio had risen to 101 In loss of $1 for every $100 of gross revenues.

-- a

the first quarter of 1982, 2 out of 3 carriers are reporting operating losses. The first quarter composite operating

ratio stands at 101.1.

The general freight carriers, as a group, are worse off than the industry as a whole. The first quarter aggregate operating ratio for the 252 general commodity study frame carriers is 102.3, or a loss of more than $2 for every $100 of gross revenue. An in-depth analysis of these carriers is provided in Appendix III of this statement.

To put current motor carrier financial results in a different perspective, let me briefly offer some comparative results. The trucking industry had a profit margin in 1981 of 1.7 percent. The All Manufacturers' profit margin was 4.75 percent. While trucking had a fourth quarter loss in 1981, All Manufacturers earned fourth quarter profits of 4.3 percent.

87

The All Manufacturers' profit margin in 1981 declined

by 2 percent. The motor

carrier profit margin dropped

20 percent from 1980 to 1981. Since 1978, the All Manufacturers' margin is down 12 percent.

carriers, it is down 45 percent.

For motor

Another comparison is return on equity. For All Manufacturers in 1981, the return was 13.7 percent.

The

ROE of major motor carriers was only 8.1 percent. These results do not specifically address the industry's fourth quarter loss nor the continued loss in the first quarter of 1982.

The situation facing our industry today is serious and cannot be allowed to continue. An entire system of proven, dependable, efficient transportation is in jeopardy. The recession is but one factor in decreases in motor carrier business, both in tonnage and revenues. A far. more important factor is the manner in which the Interstate Commerce Commission is administering the Act; or to put it more accurately, the manner in which the Commission failing to administer the Act.

is

overcrowded

In 1953, the U. S. Supreme Court in a case involving the Motor Carrier Act of 1935 said that prior to regulation the industry "was unstable economically, dominated by ease of competitive entry and a fluid rate picture with small economic units, which proved unable to satisfy the most minimal standards of safety or financial responsibility." If I were to summarize the conditions in