MOTOR CARRIER ACT OF 1980

TUESDAY, DECEMBER 14, 1982

U.S. SENATE,

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION,
SUBCOMMITTEE ON SURFACE TRANSPORTATION,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10:08 a.m., in room 235, Russell Senate Office Building, Hon. John C. Danforth (chairman of the subcommittee) presiding.

Staff members assigned to this hearing: Cynthia M. Douglass, staff counsel and Will K. Ris, minority staff counsel.

OPENING STATEMENT BY SENATOR DANFORTH

Senator DANFORTH. Over the past year or so a number of people in the trucking industry or related to it in one way or another have expressed concern about the health of the industry and they have spoken of the effect of the recession on trucking. They have also spoken about the effect of deregulation on the trucking industry.

Therefore, the purpose of this hearing is to examine the Motor Carrier Act of 1980 and the effect that that has had on the industry and to determine if there are any steps that should be taken with respect to that act to improve the health of trucking in this country.

The first witness is Charles Swinburn. Mr. Swinburn is the Deputy Assistant Secretary for Policy and International Affairs of the Department of Transportation.

STATEMENT OF CHARLES SWINBURN, DEPUTY ASSISTANT SECRETARY FOR POLICY AND INTERNATIONAL AFFAIRS, DEPARTMENT OF TRANSPORTATION, ACCOMPANIED BY DR. EDWARD H. RASTATTER, CHIEF, REGULATORY POLICY DIVISION

Mr. SWINBURN. Mr. Chairman, Senator Packwood, thank you for inviting us here today to discuss the administration's views on economic regulation of the motor carrier of property industry. With me I have Dr. Ed Rastatter, Chief of our Regulatory Policy Division.

Understanding that your schedules are very busy these days, I am prepared, if you like, to present a briefer version of my statement.

Senator DANFORTH. Yes; and for all the witnesses, I think that the staff has spoken with all of the witnesses about the time that

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you will have, because we just cannot have a fulsome time for everybody. But statements will be included in the record in full. Mr. SWINBURN. Thank you, sir.

The Motor Carrier Act of 1980 has now been in effect for almost 21⁄2 years. Not all of the reforms contained in the act, most notably elimination of antitrust immunity for single-line rates, have been fully implemented. However, it is our view that reform is working well, despite a prolonged downturn in the economy.

Much of the evidence I would point to is well known to you. There is greater competition and there are expanded price and service options and independent pricing actions on the part of carriers. The reforms undertaken to date are helping to insure that shippers can obtain the types of transportation services they want at competitive cost-based prices, as well as promoting greater efficiency in motor carrier operations.

Clearly, the condition of the economy has had a negative impact on the trucking industry, just as it has had on other industries. In fact, it is our opinion, based on the evidence we have seen, that the recession, not regulatory reform, is the primary cause of reduced profits and increased unemployment in trucking.

I might depart from my prepared statement for a moment, Mr. Chairman, to say that those words written in black and white might appear a little cavalier. I should emphasize that Secretary Lewis is quite concerned about the health of the transportation industry and the health of the trucking industry in the midst of this prolonged recession, and the words on this paper should not be taken to mean that he is not.

In the rest of my oral statement I would like to address two issues of major importance to today's hearing-carrier pricing practices and the availability of motor carrier service. With respect to the first issue, let me address directly one of the major concerns that has been raised by opponents of reform and say that although we have heard a number of allegations of predatory pricing by motor carriers, we have seen no persuasive evidence that it exists. It is not by itself predatory for an efficient carrier to undercut its higher cost rival's price, even if that rival thereby suffers economic harm. Reform was intended to bring the benefits of efficiency and competition to society as a whole, not to protect one carrier from another.

Further and as we have often stated-the economic characteristics of the trucking industry are not conducive to predation. Because there are no high regulatory or economic barriers to entry, a carrier cannot expect to establish a monopoly on a route and recoup today's losses with tomorrow's monopoly profits. It is simply too easy for another carrier to enter that market and set competitive prices to preclude those monopoly profits.

Turning to service availability, the fears of the opponents of reform that chaos and severe loss of service to small communities would occur have clearly not been realized. There is ample evidence available. First, witnesses at the recent House Public Works Committee oversight hearing testified that satisfactory motor carrier service, including both small shipments and truckload service, continues to be available to shippers and that the massive cessation of service predicted by some has not occurred.

Second, the recently completed ICC study of small community service concluded that shippers in small and isolated communities have not been harmed by the act. On the contrary, where changes have occurred, improvement in service was reported much more often than service deterioration.

Third, Professor Kidder of Syracuse University is in the middle. of a 3-year study for the Department, investigating changes in small community trucking service in six States. Professor Kidder's studies show that the shippers have noticed little change in shipping conditions. In fact, there are more, rather than fewer, carriers competing for rural business and while freight rates have risen moderately in these areas, shippers believe that the increases are associated with general inflation rather than regulatory reform.

Few respondents have been critical of any of the reform legislation, and some have credited improvements to it.

To wrap it up, Mr. Chairman, I am pleased to report that the evidence we have seen demonstrates that the Motor Carrier Act of 1980 is contributing to the creation of a more competitive, more efficient trucking industry-an industry whose carriers are becoming more sensitive to the needs of shippers for a wider variety of pricing and service options. Moreover, the massive cessation of service predicted by opponents of reform has not occurred.

I might note before concluding, Mr. Chairman, that a lot of research has gone into some of the conclusions we have quoted and a lot of research has been done by various bodies around the country. Rather than cite a lot of statistics, I have directed my staff to package copies of all that research and send them up to the committee in the very near future-perhaps within a week-for your records. That concludes my prepared remarks, Mr. Chairman.

Senator DANFORTH. Yes. I look forward to seeing the statistics because I think that your conclusions are highly optimistic, I would say. If they are correct, they do not agree with many comments that I have heard.

For example, do the statistics include figures on bankruptcies in trucking firms over the last couple of years?

Mr. SWINBURN. Yes, sir. We will provide you with statistics on bankruptcies. I believe we have a complete set up through the end of 1981. One of the analyses we have done which I think others have not done is to compare bankruptcies in intercity trucking with bankruptcies in local trucking, the latter not having been affected by the Motor Carrier Act.

We find on a statistical basis that there is not a significant difference in the trend or growth in bankruptcies in the one versus the other.

Senator DANFORTH. How about unemployment in the industry? Mr. SWINBURN. Unemployment statistics we have on the industry I believe included the third quarter of this year. Dr. Rastatter can cite some for you, if you would like.

We do not find any significant deviations in the employment trend in this industry versus other industries in the economy, nor in comparison to prior recessions in this industry, although I must note that this recession has gone on longer than others the industry has had to live through for a long time, and one would expect a more serious unemployment problem after this prolonged time.

Senator DANFORTH. Your view is the problems with the industry reflect generally economic conditions and that there is really no added burden on the industry caused by deregulation?

Mr. SWINBURN. I think that would be too simplistic for me to say, Mr. Chairman. We think that the majority of the problems faced by the industry are due to the recession-traffic is off in tremendous amounts-but there is also no doubt that the Motor Carrier Act created a more competitive world in the trucking industry and management has to be more efficient to survive today than it did prior to the Motor Carrier Act.

The protections given by regulation have largely been lifted and some of the bankruptcies that are occurring probably are occurring because the management has not had that protection and has not been able to compete successfully.

Senator DANFORTH. One thought could be that the recession is the most significant problem that the industry faces, but at a time of recession, at a time when the position of the industry is precarious is the worst time to carry out deregulation, that it tends to just push it further to the edge at a time when it is tottering. In any event, you do not share that view?

Mr. SWINBURN. I share some of that view, Mr. Chairman. Incrementally I think that the increase in competition accentuates the effect of the recession. It makes it more difficult for managements to survive.

I certainly would have preferred-I think we all would have preferred-not to have gone through this recession and to be able to test the effects of deregulation in a nonrecessionary environment. That is true in trucking and it is true in airlines.

It would be naive of me to not admit that there are some greater difficulties created for managements out there because of the greater degree of competition.

Senator DANFORTH. Do you have any statistics indicating a difference in effect of deregulation on small versus large truckers?

Mr. SWINBURN. We do not, Mr. Chairman. I have spoken to your staff about this and we have initiated a study very recently, and we hope to see the results in perhaps May or June of next year, of what is going on in the small trucking universe. It is a universe for which very few statistics are available, and largely our first step is to attempt to amass descriptive statistics, if you will-who are the truckers, what is their size, the nature of their business, what has been the level of new entrants, exit, bankruptcy, et cetera-but we do not presently have that information available.

Senator DANFORTH. Do you have any suspicions?

Dr. RASTATTER. I would guess that they are not in very good financial condition either, Mr. Chairman.

Senator DANFORTH. But that is no differential between large and small?

Mr. SWINBURN. We just do not have the evidence upon which to base a conclusion as to whether there is a difference.

Let me back off from that. Clearly, if you look just at the strata of carriers within the top 100 for which fairly recent financial information is available, the profits that are being earned by the carriers within that top 100 are being earned by the larger ones in the

group and, in fact, a handful account for the majority of the profits.

One might extrapolate from that and say that in the universe of smaller carriers there are greater financial difficulties, but it is not an extrapolation I would make with great confidence.

Senator DANFORTH. Does the administration support any modification of deregulation, any change in statutes? Do you think we should make any kind of midcourse correction?

Mr. SWINBURN. We have been evaluating that question for several months within the Department and with people on the Vice President's Task Force for Regulatory Relief. We have decided that we would not go backward, if you will, on deregulation. We have not come to definitive conclusions on whether we should go forward and further deregulate the industry.

It may well be the case that the industry is suffering now from being in between-that is, from still being shackled with some minor regulatory requirements while being exposed to greater degrees of competition because of freer entry. It is our hope, before we propose any specifics in the next session, to discuss this with you, with members on the other side of the Congress, with the industry, and try to develop a consensus on what should be done, although I should note that it is the administration's disposition and Secretary Lewis' disposition to seek the freer market solution.

Senator DANFORTH. Does the Department have a good open system of communication with the industry and with those who work in the industry with respect to the effect of deregulation?

Mr. SWINBURN. We have had conversations with some individual truckers on the effects of deregulation. We hope to have more. We have not sat down and had a good long discussion with the ATA on the effects of deregulation. We would hope to do that before presenting any further proposals.

Most of our conversations with the ATA recently have been dominated by another subject-the gas tax.

Senator DANFORTH. Well, you know, here is an industry, speaking of that, which is, I believe, having some serious trouble and the recession is obviously a part of it. At the time that the recession is hitting, deregulation also is hitting, and then, as they are reeling from the recession and deregulation, we are bopping them over the head with gasoline tax and the accompanying excise tax.

Do you think that we are overdoing it, or is there some way we can let them up for air, do you think, other than-I know you are going to say-the lengths and widths and so forth? But do you think that we have been a little bit cavalier maybe in dispatching this industry to a whole new world?

Mr. SWINBURN. I think that the action taken by the Senate Finance Committee in (a) moderating the peak level of charges for larger trucks, and (b)—and more significantly, I think-postponing the imposition of that heavy duty use tax until January 1 of 1984 and then in essence phasing that in in three steps is a recognition of that problem. And that is a significant modification, I think, to what we propose.

There is one characteristic of this industry that has historically been true, and that is when the economy starts moving upward this industry moves upward very rapidly. The assets are, if you