Mr. COONEY. A stable and sound transportation system in this country so as to provide the transportation services that our economy needs, and that stability can come best through economic regulation, a sensible economic regulation.

The CHAIRMAN. Do you think that when the economy turns and big towns and small towns are doing well, if you had no regulation, the transportation system would fall apart, that there would not be companies that would serve markets that would be profitable?

Mr. COONEY. Markets that would be profitable, yes, companies will serve. If they are not profitable, the rates will go up substantially and there will be more difficulty for the shippers in those small communities because they have to pay more for it.

The CHAIRMAN. Well, they are paying more for it now, you say. Mr. COONEY. Yes, they are.

The CHAIRMAN. And they are not complaining.

Mr. COONEY. We think they are complaining.

The CHAIRMAN. Repeat your statement again. I want to make sure. You do not think that short of a system of regulation and a thriving economy a truck transportation system would exist?

Mr. COONEY. Oh, I think it would exist under any kind of regulation or no regulation. I think the best transportation system is one that we have had up to this point in time. It is a coordinated system. The only way we can have that coordinated system is to have reasonable entry control, reasonable rate regulation, and collective action, and that collective action is only possible through an antitrust immunity that will permit that.

The CHAIRMAN. I want to come back to the small town service again because when you testified-not you, but when the ATA testified on the Motor Carrier Act, they just absolutely assured us that if it passed, the small town service would cease, and that has not happened.

Mr. COONEY. I disagree with part of that statement, because we feel that the trucking industry accepted the Motor Carrier Act of 1980 as a compromise piece of legislation. It was not deregulation. When we talked about small town community service deteriorating and rates increasing, we were talking about a scenario of total deregulation which we have not had yet and it remains to be seen what we will eventually happen.

The CHAIRMAN. Do you agree with Chairman Taylor that the fitness standard should be revised to be safety and insurance only? Mr. COONEY. I believe the fitness standards should be revised and that safety and insurance are important. But another aspect should be public need, reasonably interpreted.

The CHAIRMAN. What do you think about the elimination of antitrust immunity for joint line ratemaking?

Mr. COONEY. I think if you eliminate antitrust immunity you will hurt the system in this country whereby today a small shipper in a small community is able to give his transportation package to a company which will transport it to a small community several States over by maybe two or three or four carriers, and that system is going to go by the board.

That was a good system for the shippers and receivers in this country.

The CHAIRMAN. I have no other questions.

Senator DANFORTH. Gentlemen, thank you very much.

[The following information was subsequently received for the record:]

Hon. JOHN C. DANFORTH,

AMERICAN TRUCKING ASSOCIATIONS, INC.,

LAW DIVISION,

Washington, D.C., December 29, 1982.

Chairman, Surface Transportation Subcommittee, Committee on Commerce, Science, and Transportation, U.S. Senate, Washington, D.C.

DEAR SENATOR Danforth: As promised at the December 14, 1982 hearing before your Subcommittee on Oversight of the Motor Carrier Act of 1980, I am enclosing several critiques of the small communities study presented to you by the Interstate Commerce Commission. The study was mandated by the 1980 law and was to focus on motor carrier service availability, quality and relative rate relationships for small communities. Enclosed herein is our analysis and critique of the service aspects of the ICC study. In addition, enclosed is a review of the rate level aspects of the ICC study which was conducted by Richard Trenery of Consulting Center Associates and S. Natarajan of the Middle Atlantic Conference.

After you have had a chance to examine the ICC study together with the enclosed critiques. I believe you will come to the same conclusion we have-the ICC study is virtually worthless in assessing the situation with respect to small community motor carrier service.

As I stated on December 14 before your Subcommittee in response to an inquiry from Senator Packwood, we have not found that small community service has appreciably deteriorated to date for several reasons. Below is a fuller explanation of those reasons for the record:

(1) While the Motor Carrier Act of 1980 liberalized entry controls, it retained the basic economic regulatory structure for motor carriage. The ICC is deregulating on its own as fast as it can, but it has not yet changed the common carrier obligation so as to set carriers free to serve who and where they wish;

(2) A key to service to small communities is the collective ratemaking process permitted by the Interstate Commerce Act. Very few small communities are so located as to obtain direct service from motor carriers. The service they receive is generally accomplished through a system of through-route, joint-line arrangements among the carriers. We are fearful that system would be destroyed if collective ratemaking were eliminated for the motor carrier industry.

(3) There is so much overcapacity and underutilization in the industry at the present time due to the excessive granting of operating authorities and the economic recession, that motor carriers are scrambling for freight in an attempt to fill up their empty vehicles;

(4) In the meantime, rates are being substantially increased on small shipmentsboth to small and large communities-such that this traffic will be able to be handled profitably in the future with or without the common carrier obligation. The issue becomes whether shippers and/or consignees in small and out of the way places will be able to afford the freight bill and remain competitive with their more fortuitously located counterparts. To the extent cross-subsidization existed prior to enactment of the 1980 law, it will be eliminated—a fact some see as a societal loss in terms of the feasibility of populations to continue to remain and prosper in smaller communities; and

(5) Lastly, basic economic logic suggests small communities will be disadvantaged relative to other locales in service and/or rates with solely free market forces at work. In general, a motor carrier's livelihood is predicated on volume handled and the "volume opportunities," if you will, are far greater in larger communities than small. With the high price of equipment and its relatively short life, motor carriers would be hard pressed to earn adequate returns on investment concentrating service where volume is light and sporatic, absent substantial rate increases.

Very truly yours,

NELSON J. COONEY,
General Counsel.

Senator DANFORTH. Donald Kuster. Mr. Kuster.

STATEMENT OF DONALD KUSTER, PRESIDENT, NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE, ACCOMPANIED BY KEN BOWERS, CHAIRMAN OF THE LEGISLATIVE COMMITTEE; AND JOHN DONLAN, LEAGUE COUNSEL

Mr. KUSTER. Good morning. We have submitted a written statement to be entered in the record. I would briefly summarize it.

First, I would like to introduce Mr. Ken Bowers, on my left, who is chairman of our legislative committee and Mr. John F. Donlan on my right, who is league counsel.

The league believes that the Motor Carrier Act of 1980 is accomplishing the major objective outlined by the 96th Congress, and that it has resulted in the benefits to shippers, carriers, and the public. The increased competitive flexibility created by reform has allowed shippers and carriers to explore price-service options tailored to meet today's economic conditions. Without this flexibility the league believes that the current recession will have had a more severe impact on producers and the jobs they generate in meeting the demands of domestic and foreign commerce.

In supporting the congressionally forged compromise that is contained in the Motor Carrier Act, the league recognizes that this measure is only the first step in the transition toward ending unnecessary Federal regulation of this industry. The league would like to outline how our members believe the Motor Carrier Act should be further improved to insure that the competitive objectives of motor carrier regulatory reform are fully realized.

In the entry area, the league would urge the subcommittee to consider whether there is a need to continue the "public convenience and necessity" standard in the granting of operating rights authority, as well as whether there is a need to make further improvements insuring that all unnecessary entry regulations are eliminated. The league would support the Interstate Commerce Commission's recommendation that a "fit, willing and able" standard be substituted for the current "public convenience and necessity" test.

We also would urge the subcommittee to review the entry reforms contained in the 1980 law to assure that the procompetitive goals of the reform effort are continued.

With respect to pricing, the league believes that the experience of the trucking industry must be viewed in the context of general economic trends. Over the past 2 years, every sector of the Nation's economy, particularly cyclical industries, has suffered from the downturn in business activity. Just like the regulated truckers, league members are struggling with the difficult problems of finding markets for their goods in a less than optimal economy.

While a great deal of attention has been paid to the issue of price discounting, the league believes that this issue must be put in perspective with other developments occurring within the industry. To do so, two basic questions must be explored: In response to what competitive factors are these discounts being offered, and what is the list price from which discounts are being granted?

With respect to the first question, much of the cargo at issue is subject to diversion to rail piggyback service. The increased competition offered by the railroads, now that piggyback service is no

longer subject to Federal regulation, has prompted motor carriers to engage in efforts to preserve this traffic base. According to the Association of American Railroads, while carloadings during the first 47 weeks of 1982 declined 12.8 percent from 1981 levels, piggyback carloadings increased 9.5 percent during this period.

Truckers' pricing decisions on the susceptible traffic are a response to new deregulated competition being offered by the railroads as well as the increased trucking competition resulting from the Motor Carrier Act of 1980.

To help motor carriers in their efforts to retain this traffic, the league would urge that the subcommittee consider reforms for the trucking industry to insure increased flexibility to meet competition.

With respect to our second question, the league would like to note that, between March and July of this year, the trucking industry filed 29 separate requests for general rate increases. The ICC approved all but three of these requests. In monitoring the general rate increase proposals sought this year by the trucking industry, the league would note that the Commission is analyzing them without resolving the controversy surrounding how to determine the revenue adequacy of the industry, and how to determine how to allocate the platform costs associated with the handling of LTL shipments.

The league has actively participated in the two major agency proceedings on these issues. We would urge that the general freight rate increase requests be used only for cost recovery purposes. We believe that the needs of industry and its consumers are better served if profits are pursued through individual pricing initiatives, rather than through across-the-board increases.

Mr. Chairman, we are out of time. We would be glad to answer any questions you may have.

Senator DANFORTH. Thank you very much, Mr. Kuster.

Does the league represent shippers throughout the country? Mr. KUSTER. Yes; we represent approximately 1,800 shippers of all sizes and kinds of industries.

Senator DANFORTH. The question has been raised-Senator Packwood was asking about it-and the question has been raised as to whether or not the Motor Carrier Act has disadvantaged geographical areas in the country, small towns, rural areas, and so forth. Do you have any knowledge of that, or is the nature of your representation that there are people who are doing a lot of shipping and you probably would not notice it?

Mr. KUSTER. Well, I would speak for myself and my own company. We have not seen any negative effect in this regard. In fact, our experience to date has been a positive one. I would like to ask Mr. Bowers to respond.

Mr. BOWERS. Senator, my company has operations in relatively remote areas. We have a spare parts operation in the Mojave Desert of California; we have a small plant in Wellsville, N.Y., 60 miles southeast of Buffalo, as well as numerous other locations. We have had no indication of any diminution in service.

Mr. DONLAN. I might add, Mr. Chairman, we just finished the 75th annual meeting of the National Industrial Transportation League, which provided members with an ideal forum to discuss

these types of problems or developments. As indicated, the members are small, medium, and large, and, furthermore, as an observer, I can tell you they are both sophisticated and articulate as well as independent. I listened carefully. It seemed to me that there was basic satisfaction with the Motor Carrier Act of 1980.

Senator DANFORTH. Is discounting a problem for some shippers? Do shippers view it as anticompetitive among themselves? That is, some shippers-one competitor is getting discounts; the other is not. Is that a matter of concern to you?

Mr. KUSTER. Again, my experience would say no, it has not been a matter of concern. As we said in our statement, one has to remember the list price from which discounts are granted. There have been many rate increases granted to the motor carriers in recent years.

In addition, there is nothing unsavory or unbusinesslike with discounting. Pick up any newspaper in a free-market system, there are discounts offered every day. People have the choice of shopping with or without the discount prices. It is what you pay in the end that you are really evaluating.

I would like to ask Ken Bowers if he would like to comment on that.

Mr. BOWERS. Again, I refer to the forum that John Donlan mentioned at the league's annual meeting in Detroit. We had no indication from the general membership—and it was an extremely large turnout because it was the 75th anniversary of the league-that there was any problem concerning those kinds of practices.

Mr. DONLAN. I might add one other thing, Mr. Chairman. There came across my desk yesterday a request by one of the rate bureaus, which recently obtained ICC authorization for a rather substantial general rate increase, and now are asking for authority to file a much reduced increase.

My own inference is that when the members of the bureau moved into the reality of the marketplace and the competition which characterizes the American economy, they concluded it was not a valid increase. We would be glad to supplement the record with more details, but certainly this is a world of competition and the league fully recognizes that was what was contemplated by the Motor Carrier Act.

Senator DANFORTH. Your industry has not experienced dislocations or has not been negatively affected by undue bankruptcies of truckers that you have been doing business with?

Mr. KUSTER. No; based on my own experience, there seem to be an abundance of carriers coming along to take their place. If there were a problem in this area, it might be more in the LTL carrier area than in the truckload carrier area. However, I have not experienced that in either type of operation.

[The statement follows:]

STATEMENT OF DONALD F. KUSTER, PRESIDENT, NATIONAL INDUSTRIAL
TRANSPORTATION LEAGUE

Chairman Danforth, Members of the Subcommittee: My name is Donald F. Kuster. I am president of The National Industrial Transportation League. Accompanying me today are E. Kenneth Bowers, chairman of the League's Legislative Committee, and John F. Donelan, League counsel.