LEGISLATION TO PREEMPT STATE MOTOR
CARRIER REGULATIONS PERTAINING TO
RATES, ROUTES, AND SERVICES
(103-80)
M.P 96/11:103-80
.egislation to Preenpt State Hotor... t^t-^t^i
iRING
BEFORE THE
SUBCOMMITTEE ON
SURFACE TRANSPORTATION
OF THE
COMMITTEE ON
PUBLIC WORKS AND TRANSPORTATION
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
JULY 20, 1994
Printed for the use of the Committee on Public Works and Transportation
nc
3 17 j
LEGISLATION TO PREEMPT STATE MOTOR
CARRIER REGULATIONS PERTAINING TO
RATES, ROUTES, AND SERVICES
(103-80)
HEARING
BEFORE THE
SUBCOMMITTEE ON
SURFACE TRANSPORTATION
OF THE
COMMITTEE ON
PUBLIC WORKS AND TRANSPORTATION
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
JULY 20, 1994
Printed for the use of the Committee on Public Works and Transportation
U.S. GOVERNMENT PRINTING OFFICE
85-090 WASHINGTON : 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington. DC 20402
ISBN 0-16-046432-3
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
NORMAN Y. MINETA, California, Chair
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
DOUGLAS APPLEGATE, Ohio
RON DE LUGO, Virgin Islands
ROBERT A BORSKI, Pennsylvania
TIM VALENTINE, North Carolina
WILLIAM O. LIPINSKI, Illinois
ROBERT E. WISE, Jr., West Virginia
JAMES A. TRAFICANT, Jr., Ohio
PETER A DeFAZIO, Oregon
JAMES A HAYES, Louisiana
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
MIKE PARKER, Mississippi
GREG LAUGHLIN, Texas
PETE GEREN, Texas
GEORGE E. SANGMEISTER, Illinois
GLENN POSHARD, Illinois
DICK SWETT, New Hampshire
BUD CRAMER, Alabama
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of
Columbia
LUCIEN E. BLACKWELL, Pennsylvania
JERROLD NADLER, New York
SAM COPPERSMITH, Arizona
LESLIE L. BYRNE, Virginia
MARIA CANTWELL, Washington
PAT DANNER, Missouri
KAREN SHEPHERD, Utah
ROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
NATHAN DEAL, Georgia
JAMES A. BARCIA, Michigan
DAN HAMBURG, California
BOB FILNER, California
WALTER R. TUCKER III, California
EDDIE BERNICE JOHNSON, Texas
PETER W. BARCA, Wisconsin
BUD SHUSTER, Pennsylvania
WILLIAM F. CLINGER, Jr., Pennsylvania
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
JAMES M. INOFE, Oklahoma
BILL EMERSON, Missouri
JOHN J. DUNCAN, Jr., Tennessee
SUSAN MOLINARI, New York
WILLIAM H. ZELIFF, Jr., New Hampshire
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
JENNDFER DUNN, Washington
Y. TIM HUTCHINSON, Arkansas
BILL BAKER, California
MICHAEL A. "MAC" COLLINS, Georgia
JAY KIM, California
DAVID A LEVY, New York
STEPHEN HORN, California
BOB FRANKS, New Jersey
PETER BLUTE, Massachusetts
HOWARD P. "BUCK" McKEON, California
JOHN L. MICA, Florida
PETER HOEKSTRA, Michigan
JACK QUINN, New York
VERNON J. EHLERS, Michigan
(ID
Ill
Subcommittee on Surface Transportation
NICK J. RAHALL II,
TIM VALENTINE, North Carolina,
Vice Chair
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
GREG LAUGHLIN, Texas
GLENN POSHARD, Illinois
DICK SWETT, New Hampshire
BUD CRAMER, Alabama
PETER A. DeFAZIO, Oregon
JERROLD NADLER, New York
LESLIE L. BYRNE, Virginia
MARIA CANTWELL, Washington
PAT DANNER, Missouri
ROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
DAN HAMBURG, California
WALTER R. TUCKER III, California
EDDIE BERNICE JOHNSON, Texas
DOUGLAS APPLEGATE, Ohio
RON deLUGO, Virgin Islands
WILLIAM O. LIPINSKI, Illinois
JAMES A. TRAFICANT, Jr., Ohio
PETER W. BARCA, Wisconsin
NORMAN Y. MINETA, California
(Ex Officio)
West Virginia, Chair
THOMAS E. PETRI, Wisconsin
WILLIAM F. CLINGER, Jr., Pennsylvania
BILL EMERSON, Missouri
WILLIAM H. ZELIFF, Jr., New Hampshire
JENNIFER DUNN, Washington
Y. TIM HUTCHINSON, Arkansas
BILL BAKER, California
MICHAEL A. "MAC COLLINS, Georgia
JAY KIM, California
DAVID A. LEVY, New York
BOB FRANKS, New Jersey
PETER BLUTE, Massachusetts
HOWARD P. "BUCK" McKEON, California
VERNON J. EHLERS, Michigan
BUD SHUSTER, Pennsylvania
(Ex Officio)
CONTENTS
Page
Summary of Subject Matter VI
TESTIMONY
Bissell, Keith, Commissioner, Tennessee Public Service Commission, on be-
half of the National Association of Regulatory Utility Commissioners 43
Booze, Ken, President, Eastern Oregon Fast Freight, WUsonville, OR, Board
of Directors, Oregon Trucking Association 153
Clark, Daryl E., Vice President of Traffic, Rudolph Express Company, Bour-
bonnais, IL 153
Clowe, C. Tom, Chairman, President and CEO, Central Freight Lines, Inc.,
Waco, TX, on behalf of Roadway Services, Inc 139
Donohue, Thomas J., President and CEO, The American Trucking Associa-
tions, Inc 103
Emerson, Hon. Bill, a Representative in Congress from Missouri 13
Emmett, Edward M., President, National Industrial Transportation League,
Arlington, VA 170
Foley, Martin E., Executive Director, National Motor Freight Traffic Associa-
tion, Alexandria, VA 153
Garrison, F.S., Chairman, President and CEO, American Freightways Cor-
poration, Harrison, AR, on behalf of Americans for Safe and Competitive
Trucking 170
Harkins, James, Executive Director, Regular Common Carrier Conference,
Falls Church, VA 153
Hastert, Hon. Dennis, a Representative in Congress from Illinois 15
Hoemann, Warren E., Vice President, Government Relations, Yellow Corpora-
tion, Overland Park, KS 139
Hopper, Jim, Executive Director, Associated Motor Carriers of Oklahoma,
Inc., Oklahoma City, OK 153
Kruesi, Frank E., Assistant Secretary for Transportation Policy, U.S. Depart-
ment of Transportation, accompanied by Edward H. Rastatter, Office of
the Secretary, U.S. Department of Transportation 20
Lewis, Drew, Chairman, Union Pacific Corporation, on behalf of Overnite
Trucking and Skyway Freight 116
Merritt, James E., Partner, Morrison and Foerster, on behalf of Consolidated
Freightways, Inc., accompanied by Michael Yost, Director of Taxes, Consoli-
dated Freightways, Inc 139
Mulkey, Larry S., President, Ryder Dedicated Logistics, Inc., Miami, FL 139
Perrucci, Mario, Vice President, International Brotherhood of Teamsters, ac-
companied by Marc Fink, Counsel, Legislative Affairs 85
Rogers, James A, Vice President, Government Affairs, United Parcel Service . 116
Seims, Jack, Owner and President, Pro Express, Seattle, WA, on behalf
of Washington Trucking Associations 153
Smith, Frederick W., Chairman and CEO, Federal Express Corporation 116
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Hastert, Hon. Dennis, of Illinois 17
Laughlin, Hon. Greg, of Texas 10
Lipinski, Hon. William O., of Illinois 8
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Bissell, Keith 175
Booze, Ken 191
(V)
VI
Page
Carey, Ronald J 193
Clark, Daryl E 197
Clowe, C. Thomas, Jr 204
Donohue, Thomas J 214
Emmett, Edward M 232
Foley, Martin E 242
Garrison, F.S 253
Harkins, James C 242
Hoemann, Warren E 258
Hopper, Jim 264
Kruesi, Frank E 269
Lewis, Drew 281
Merritt, James E 285
Mulkey, Larry S 291
Rogers, James A 308
Seims, Jack 314
Smith, Frederick W 3188
SUBMISSIONS FOR THE RECORD
Bissell, Keith, Commissioner, Tennessee Public Service Commission, on be-
half of the National Association of Regulatory Utility Commissioners, letter
to Hon. Thomas P. Harwood, Jr., Commissioner, Virginia State Corporation
Commission, from Douglas N. Jones, Director and Professor of Regulatory
Economics, March 18, 1994 79
Kruesi, Frank E., Assistant Secretary for Transportation Policy. U.S. Depart-
ment of Transportation:
Memo, Public Service Commission, Ronald E. Hawkins, Executive Sec-
retary, June 17, 1992, concerning the termination of the Public Service
Commission's authority over common carriers of freight 25
Report, "Impact of State Regulation on the Package Express Industry,
Office of the Secretary of Transportation, U.S. Department of Trans-
portation, September 1990 1
Report, "The Impact of State Economic Regulation of Motor Carriage
on Intrastate and Interstate Commerce, by W. Bruce Allen, Professor
of Public Policy and Management and Transportation, The Wharton
School, University of Pennsylvania, Arayah Preechemetta and Gang
Shao, Graduate Students, Regional Science Department, and Scott
Singer, Graduate Student, Department of Public Policy and Manage-
ment1
Rahall, Hon. Nick J. II, a Representative in Congress from West Virginia,
letters from state regulatory authorities opposing Section 211 of the Airport
Improvement Program bill 47
ADDITIONS TO THE RECORD
Brown, Mark, President, Brown Transfer, letter 329
Brown, Ron, President, PRO Truck Lines, letter 330
Bussey, W.T. (Bill), Jr., Teamsters Local Union No. 162, Portland, OR, state-
ment •••••••. 331
Colleknon, Buck, President, TP Freight Lines, and L.C. Hall's Truck Lines,
statement ••—"•• 333
Day, Lawrence J., Vice President, Messenger Courier Association of the
Americas, statement • 335
Eisenhart, Earl B., Vice President, Policy and Government Affairs, National
Private Truck Council, statement 338
Frito-Lay, Inc., statement 352
Gossett, Byrd B., Chairman, Courier Division, Georgia Motor Trucking Asso-
ciation, letter 355
Harrison, Joseph M., President, American Movers Conference 356
Hitchcock, Cornish F., Attorney, Public Citizen, statement 366
Kaiser, Fred E., President, Kerrville Bus Company, Kerrville, TX, and Vice
Chairman, National Bus Traffic Association, on behalf of the American
Bus Association stiitcrn^nt ...••............*••• •••*•••■•••••••••••••••••••• o / J.
Khourie, Michael N., Attorney, on behalf of Cal Pack Delivery, Inc., statement
and attachments "•••• 375
Knapp, Larry, Executive Director, Michigan Citizens Allied for Responsible
Transportation and Safety (M-Carts), statement 405
VII
Page
Knappen, Theodore, Government Affairs Representative, Greyhound Lines,
Inc., statement 409
Kundtz, Lee R., President and Chief Operating Officer, Alvan Motor Freight,
Inc., statement 415
Langberg, Norman, Director of Logistics, Pulp and Paper Group, Georgia-
Pacific Corporation, Atlanta, GA, on behalf of the National Association
of Manufacturers, statement 424
Lavelle, William J., partner, Vuono, Lavelle & Gray, on behalf of 19 Penn-
sylvania Intrastate Motor Carriers in opposition to S. 1491, statement 436
Lewandowski, Alex, President, Transportation Layers Association, statement . 453
Luckadoo, John V., Vice President of Traffic, Frederickson Motor Express,
statement 479
May, Timothy J., General Counsel, The Parcel Shippers Association, state-
ment 489
Medved, Jon J., President and CEO, Currant, Inc., statement 493
Meredith, Michael A., President, Oregon Trucking Associations, Inc., state-
ment 507
Moss, Robert E., Vice President, Government Affairs Division, American
Automobile Association, letter 509
Oregon Public Utility Commission, statement 511
Payne, J. Michael, President and CEO, Track Renting and Leasing Associa-
tion, statement 518
Sloan, Weldon, R., Director of Commerce, TNT Reddaway Truck Line, Port-
land, OR, statement 522
Spurlock, Michael, partner, Beery & Spurlock Co., L.P.A., on behalf of the
Ohio Transportation Lawyers Association, statement 524
Stanley, David, Vice President, Regulatory Affairs, Ace Transportation, Inc.,
letter 561
Young, Durwood, Executive Vice President, Parker Motor Freight, Inc., Grand
Rapids, MI, statement 566
1 Retained in subcommittee file.
VIII
1* iiemz of iUpresratatiittB
COMMITTEE ON PUBLIC WORKS
AND TRANSPORTATION
SUITE 2165 RAYBURN HOUSE OFFICE BUILDING
WASHINGTON. DC 20515
(202) 225-4472
MEMORANDUM
TO: Members, Surface Transportation Subcommittee
FROM: Surface Staff
DATE: Jury 14, 1994
RE:
Surface Transportation Subcommittee Hearing on Legislation to Preempt
State Motor Carrier Regulations Pertaining to Rates, Routes and Services
The Surface Transportation Subcommittee will hold the referenced hearing on
Wednesday, Jury 20, 1994, at 10:00 a.m. in Room 2167 Rayburn House Office Building.
Witnesses scheduled to testify represent a broad spectrum of interests, including Members
of Congress, federal and state officials, representatives from the trucking and shipping
industries, the Teamsters Union, the bus industry and the messenger/courier industry.
With the passage of the Motor Carrier Act of 1980, Congress ended decades of strict
federal regulation of commercial motor carriers. The Interstate Commerce Commission has
interpreted the statute very Hberalfy, resulting in interstate motor carrier entry into the
market and rates based primarily on the needs of the market
For trips within state boundaries, forty-two states still maintain some level of motor
carrier economic regulation, ranging from liberal to strict. Restrictions on entry, rates,
routes, and types of commodities carried are typical areas that remain under state control.
IX
A broad coalition of shippers and motor carriers argue that the remaining state
regulations lead to vast inefficiencies in the shipment of goods and reduce the
competitiveness of I IS. products in the international marketplace. Numerous examples have
been cited where rates for shipments within a state exceed rates for comparable distances
across state lines. In the small package express business, companies frequently ship goods
across state lines and back into the state of origin to avoid the higher rates for purely in-
state shipments. Private carriers object to regulatory schemes which prohibit them from
obtaining backhauls or hauling for subsidiary companies, which forces them to run many
empty miles.
Legislative proposals before the subcommittee fall into three categories: proposals
that reform state regulation for all interstate carriers (H.R. 2860); measures to reform
regulations for private carriers (H.R. 1077); and measures to remove "intermodal all-cargo
air carriers" (including an indirect cargo air carrier, as defined in Section 296 J of Title 14,
Code of Federal Regulations, as in effect on March 1, 1994) that undertakes to provide the
transportation described in Section 105(a)(4) contained in Section 211 of the Senate passed
amendment to the House passed Airport and Airway Improvement Act of 1993. Section 211
therefore becomes a Conference issue once Conferees are named.
Many regulated motor carriers (particularly less-than-truckload carriers), unions, and
state regulatory officials strongly oppose state regulatory reform. They believe the trucking
industry is already suffering from a severely competitive market, growing concentration, and
possibly below cost pricing, and are concerned that an end to existing state regulation would
only exacerbate current problems. Labor representatives fear that union shops would
experience a further loss in market share.
State regulatory officials believe this is an area of purely state concern that is not
static but constantly under scrutiny, as demonstrated by major state regulatory reform
initiatives that have taken place in recent years.
Attached for your information are Section -by-Section descriptions of H.R. 2860 and
H.R. 1077, together with a copy of Section 211 of H.R. 2739, the Aviation Infrastructure
Investment Act of 1993 and a description of what it appears to mean.
SUMMARY
SECTION 211
, OF THE
' AirtPORT AND AIRWAY IMPROVEMENT ACT OF 1993
Section 21 1 provides for the preemption of intrastate regulation of rates, routes,
and services of any "intermoda! all-cargo air carrier" transporting property, pieces,
parcels, or packages between States or wholly within a single state by aircraft or by
motor vehicle, whether or not such property has had or will have a prior or subsequent
air movement. An indirect all-cargo air carrier is defined in the regulations as any U.S.
citizen who undertakes to engage indirectly in air transportation of property, and uses for
the whole or any part of such transportation the services of an air carrier operating under
certificate, regulation, permit or order issued by D.O.T. Such individuals are usually
"freight forwarders."
It would also deregulate certain motor common carriers and private motor carriers
if they fit into the definition set forth in paragraph (B). It is not certain how many carriers
fit into this definition.
15 SRC. 21L BfTERMODAL ALL-CARGO ALU CARRIERS.
16 (a) Definitions. — Section 101 of the Federal Avia-
17 tion Act of 1958 (49 App. U.8.C. 1301) is amended by re-
18 designating paragraphs (25) through (41) as paragraphs
19 (26) through (42), respectively; and by inserting imme-
20 diately after paragraph (24) the following new paragraph:
21 "(25) 'Intermodal all-cargo air carrier' means—
22 "(A) an air carrier (including an indirect
23 cargo air carrier, as defined in section 296.3 of
24 title 14, Code of Federal Regulations, as in effect
tHH 873t KA4
XI
33
1 on March 1, 2994) that undertakes to provide the
2 transportation described in section 105(a)(4); or
3 "(B) any other carrier—
4 "(i) which has authority to provide
5 transportation;
6 "(ii) which (I) is affiliated with an air
7 carrier described in subparagraph (A)
8 through common controlling ownership, or
9 (II) utilizes as principal or as shipper's
10 agent t or is affiliated through common con-
11 trolling ownership with companies that uti*
12 lite, an air carrier described in subpart
13 graph (A) at least 15,000 times annually;
14 and
15 "(Hi) which undertakes to provide the
16 transportation described in section
17 105(a)(4).".
1 8 (b) Preemption.— Section 1 05(a) of the Federal Avia-
te Hon Act of 1958 (49 App. V.8.C. 1305(a)), as amended by
20 this Act, is farther amended by adding at the end the follow-
21 ing new paragraph:
22 "(4)(A) Except as provided in subparagraph
23 (B)t no State or political subdivision thereof, no
24 interstate agency of two or more States, and no other
25 political agency of two or more States shall enact or
tHBITMIAS
XII
34
1 enforce any law, rule, regulation, standard, or other,'
2 provision having tlve force and effect of law relating
3 to rates, routes, or services of any intermodal all-
4 cargo air carrier, when such carrier is transporting
5 property, pieces, parcels, or packages between States
6 or wholly within any single State by aircraft or by
7 motor vehicle (whether or not such property has had
8 or will l\ave a prior or subsequent air movement).
9 "(B) Subparagraph (AJ—
10 "(i) does not apply to the transportation of
11 household goods as defined in section 10102(11)
12 of title 49, United States Code;
13 "(it) shall not restrict safety regulatory au-
14 thority; and
15 "(Hi) does not apply to the regulation ofve-
16 hide size and weight.
17 For purposes of clause (ii), the authority to regulate
18 rates, routes, or services shall not be construed as safe-
19 ty regulatory authority, and 'the authority permitted
20 under the Hazardous Materials Transportation Act
21 (49 App. U.S.C. 1801 et seq.) to regulate routing shall
22 not be affected.
23 "(C) For purposes of this paragraph, a person
24 who is an intermodal all-cargo air carrier in any one
25 State shall be considered such a carrier in all States.
1 "(D) This paragraph shall not in any way limii
2 the applicability of paragraph (1).".
tHX rot EAS
XIII
H.R. 1077
SECTION-BY-SECTION ANALYSIS
SECTION 1 . SHORT TTTLE ~ "PRIVATE MOTOR CARRIER EQUITY ACT"
SECTION 2. COMPENSATED INTERCORPORATE TRANSPORTATION
Under the Interstate Commerce Act, private motor carriers that transport freight for
compensation within the corporate family are exempt from regulation by the Interstate
Commerce Commission. For the transportation to be exempt, the affected subsidiaries
within the corporate family must be owned 100 percent by the parent company.
The current exemption applies only to interstate transportation, however. If the
transportation begins and ends in a single state, state regulations apply. At present, 31
states prohibit compensated intercorporate transportation on an unregulated basis. This
provision would require states to recognize the exemption for compensated
intercorporate transportation that now exists in the Interstate Commerce Act.
SECTION 3. SINGLE SOURCE LEASING OF MOTOR VEHICLES AND DRIVERS
TO SHIPPERS
The Interstate Commerce Commission has ruled that a shipper that leases motor
vehicles and drivers from a single source (i.e., another motor carrier, a leasing company,
or an owner-operator) is operating as an unregulated motor private carrier. Ex Parte No.
MC-1 22 (Sub-No. 2) Lease of Equipment and Drivers to Private Carriers. 1 32 M.C.C. 756
(1982), affd sub nom.. Ryder Truck Liens. Inc. y. United States 716 F.2d 1369 (11th Cir.
1983), cert, den. 466 U.S. 927 (1984). The Commission's ruling set out six criteria that
must be met by the shipper to establish unregulated private carriage. (The requirement
that the lease be for a minimum term of 30 days was later dropped by the Commission
in Ex Parte No. MC-1 22 (Sub-No. 2), Lease of Equipment and Drivers to Private Carriers -
- Petitions for Modifications (served October 16, 1986).)
If these leased vehicles and drivers are used in transportation between two points
in a single state, however, the transportation is subject to state regulation. At present,
36 states consider transportation pursuant to single source leasing to be for-hire carriage
by the lessor rather than private carriage by the lessee. This provision would require
states to recognize the single source leasing decision for purposes of state regulation.
The provision incorporates into the Interstate Commerce Act the five remaining criteria for
single source leasing as set out in the Commission's decision.
xrv
-2-
SECTION4. TRIP LEASING OF MOTOR VEHICLES AND DRIVERS FROM
PRIVATE CARRIERS
The Interstate Commerce Commission also allows motor private carriers to lease
vehicles and drivers to for-hire carriers. The conditions for such leasing are set out in 49
C.F.R. S 1057.22.
Once again, however, intrastate transportation pursuant to this leasing option is
restricted. Thirty states presently prohibit trip leasing from private carriers to for-hire
carriers. This provision would require states to permit trip leasing under the terms set out
in the ICC regulations.
SECTION 5. MOTOR PRIVATE CARRIERS SEEKING OPERATING AUTHORITY
The Interstate Commerce Commission does not limit the ability of a motor private
carrier to obtain for-hire operating authority as a common or contract carrier because the
private carrier has a non-transportation primary business. Nor does the Commission limit
the services provided by such a for-hire carrier.
Some states, however, through statute or regulation have prohibited or limited an
applicant with a non-transportation primary business from obtaining and operating with
supplemental for-hire authority. This provision prevents a state from prohibiting a private
carrier from obtaining intrastate for-hire operating authority solely on the basis that the
private carrier has a non-transportation primary business.
SECTION 6. DEDICATED CONTRACT CARRIAGE
This provision establishes a new type of motor contract carrier, a "dedicated
contract carrier," which assigns motor vehicles and personnel, including management
personnel, for the exclusive use of a particular shipper, and maintains an office at the
shipper's facility. This provision treats such carriage on an intrastate basis as private
carriage, and prohibits a state from regulating the rates, routes or services of any
dedicated contract carrier.
XV
H.R.2860
SECT10N-BY-SECnON ANALYSIS
(starting at page 36)
Section 18 would extend to the states the reforms of both the Motor Carrier Act
of 1980 and this bill, it would do so by adding provisions to Section 11501 of title 49,
United States Code, requiring any state that wishes to continue to regulate the intrastate
operations of federally licensed motor carriers providing transportation of property other
than household goods, to do so exclusively in accord with federal standards.
Under section 18(a) (1), the only carriers affected by the new provisions are motor
carriers providing transportation of property other than household goods, subject to the
jurisdiction of the Interstate Commerce Commission. Pursuant to Section 18(a) (3), the
obligation of a State to regulate the described carriers exclusively in accord with federal
standards extends to any aspect of State regulation "that is also the subject of regulation
by the Commission, including, but not limited to licensing, tariff filing, contracts, rates,
classifications, rules, and practices." The scope is intentionally broad and is intended to
require States to transfer intrastate operating authority to the extent necessitated by a
purchase or other finance transaction approved or exempted by the Commission
pursuant to Sections 1 1343-1 1344 of title 49, United States Code. This section will also
require States to follow Federal standards (i^e. compliance with the requirements of the
regulating authority, and with safety and insurance requirements) in granting intrastate
authority to federally licensed carriers. Under these standards, State safety requirements
may vary from federal requirements only to the extent allowed by 49 U.S.C. 2506-2507
(procedure used to determine what State safety provisions could be applied by States
wishing to continue regulating commercial vehicle safety five years after enactment of the
Motor Carrier Safety Act of 1984). In addition, states may require levels of insurance
coverage in excess of the federal minimums developed by the Secretary of Transportation
and applied by the Commission under Section 1 0927 of title 49, United States Code.
The remaining portions of section 18(a) describe the procedure whereby States
may be certified for continued regulations of the specified carriers. This procedure is
patterned on that established by the Staggers Act of 1980 for regulation of railroad
transportation, but has been modified in response to difficulties experienced in the rail
program. Unlike the rail program, the certification procedure described here will require
the Commission to inform States at the outset of the standards that will apply. In
addition, it will provide longer time frames in which States may prepare their standards
and procedures in contemplation of seeking certification.
The specifics of the certification program established here are as follows. Within
120 days after the effective date of this Act, the Commission will be required to establish
certification guidelines. The guidelines will provide standards for determining whether the
regulatory standards and procedures to be employed by a State accord with those
applied by the Commission in regulating motor carriers providing transportation of
property other than household goods. Within 1 80 days following the effective date of the
XVI
-2-
guidelines, States that wish to continue to regulate wili be required to submit to the
Commission for approval the standards and procedures they will employ. They will also
be required to certify that those standards and procedures are in accordance with the
guidelines. Section 1 8(b) then grants the Commission 1 80 days in which to grant or deny
certification to the requesting states.
Section 1 8(c) provides that the standards and procedures existing in each state
on the effective date of this Act shall remain in effect until the Commission makes an initial
certification. Section 18(d) provides that certification will be granted for five year periods.
It also provides that States that do not seek or obtain certification will be barred from
States regulation of federally licensed motor carriers providing transportation of property
other than household goods. In uncertified States transportation by these carriers will be
deemed transportation subject to the jurisdiction of the Commission.
Under section 18(e), any federally licensed motor carrier providing transportation
of property other than household goods and any other party to a State administrative
proceeding in which the lawfulness of that transportation is decided may petition the
Commission for review. The Commission will have 60 days in which to act on such
petitions by determining whether the standards and procedures applied by the State were
in accord with the provision of title 49, subtitle IV. If the determination is adverse to the
State, the Commission will be required to "determine and authorize the motor carrier to
take the appropriate action with respect to intrastate motor carrier transportation." Under
section 18(e), the Commission's authority to grant this relief would also include authority
to issue a certificate or permit under sections 10922 or 10923, respectively, of title 49,
United States Code enabling the federally licensed carrier to provide intrastate motor
carrier transportation of property other than household goods.
Finally section 1 8(0 would authorize the Commission to prescribe rates in specified
circumstances. These circumstances would arise when: a carrier files a proposed
change in an intrastate rate or in a classification, rule or practice that effectively changes
the rate, the proposed changes will adjust the rate to the same level as a rate charged
for similar traffic moving in interstate or foreign commerce, and a State authority fails to
act finally on the proposal within 120 days.
LEGISLATION TO PREEMPT STATE MOTOR
CARRIER REGULATIONS PERTAINING TO
RATES, ROUTES AND SERVICES
WEDNESDAY, JULY 20, 1994
House of Representatives,
Subcommittee on Surface Transportation,
Committee on Public Works and Transportation,
Washington, DC.
The subcommittee met, pursuant to call, at 10:07 a.m., in room
2167, Rayburn House Office Building, Hon. Nick Joe Rahall II
(chairman of the subcommittee) presiding.
Mr. Rahall. The subcommittee will come to order, please. The
Subcommittee on Surface Transportation is meeting today to con-
duct a hearing on legislation to preempt State motor carrier regula-
tions pertaining to rates, routes and services.
This hearing was scheduled in response to the Senate amending
H.R. 2860, the Aviation Infrastructure Investment Act of 1993,
with a provision designated as Section 211. The net effect of this
provision would be to preempt the laws of 42 States as they relate
to the regulation of rates, routes and services of certain motor car-
riers engaged in intrastate commerce.
While it is true that Section 211 purports to apply solely to what
it terms "intermodal all-cargo air carriers," as a result of the use
of convoluted, confusing, yet rather creative legislative drafting, in
my opinion, the ultimate effect of this provision would be to exclude
just about any motor carrier from State economic regulation de-
pending on how disingenuous or for that matter deceptive the car-
rier chose to be.
Some may find it passingly strange that a provision of this scope
and magnitude was included in an airport improvement bill with-
out the benefit of a public airing of the issue or committee consider-
ation. I know that I did. However we now find ourselves in the pre-
carious position of having to go to conference with the Senate on
this matter.
In light of the concerns that have been raised over Section 211,
the lack of clarity in its wording, and the pandemonium it is caus-
ing among State regulatory authorities, large segments of the
Less-Than-Truckload industry and others, I scheduled today's hear-
ing so that we can have a more complete understanding of what
is fully at stake here.
I would add that there are two other bills pending before the
subcommittee which seek to preempt State motor carrier laws in
one fashion or another. The first is H.R. 1077, sponsored by Rep-
(l)
resentative Pete Geren, that would preempt State motor laws for
private carriers such as corporate fleets. The second bill is H.R.
2960, introduced by Representative Bill Emerson, which would pro-
vide for both interstate and intrastate deregulation. In this regard,
H.R. 1077 and Section 18 of H.R. 2960 is applicable to the subject
matter of today's hearing.
Primary among the issues I intend to investigate during the
course of this hearing is whether or not the State regulations in
question impede interstate commerce. The Constitution vests with
the Congress the power to regulate interstate commerce among the
several States. The last time I checked this authority was nc- ex-
tended into matters solely concerning intrastate commerce.
The question also has to be asked: Are 42 States completely in
the wrong on this issue? Are their regulations so onerous and out-
dated that they are frustrating the efficient movement of goods and
commodities by the motor carrier industry?
I can certainly understand the competitive concerns that gave
rise to this legislation being advanced by companies like UPS and
others in the wake of the 1991 Ninth Circuit Court of Appeals deci-
sion in Federal Express v. California Public Utilities Commission,
a ruling which found that FedEx was essentially an air carrier and,
as such, immune to State motor carrier regulations.
At the same time, equal consideration must be given to the con-
cerns of the independent smaller and often family-run trucking
companies who fear that the consequences of this legislation would
be their demise. And we must be sensitive to the concerns of the
men and women employed by the motor carrier industry who cer-
tainly suffered during the deregulatory atmosphere of 1980s.
During our deliberations on this proposed legislation, the test
that I will apply is not whether it is in the corporate interest of
a few, but whether it is in the overall public interest of consumers,
shippers, motor carriers, and their employees alike.
When all is said and done, the House conferees on the airport
improvement bill will have only a few options.
We can oppose the inclusion of Section 211 outright or anything
like it, or we can simply accept it. We also have the option of modi-
fying it. I didn't hear any boos or cheers on any of those options.
We also have the option of modifying it so that it affects only the
intermodal small package express industry segment which was the
subject of recent deregulatory actions by California, Texas, and
Kentucky and the Ninth Court decision.
Finally, we do have the option of discarding the pretense of
"intermodal all-cargo air carriers" and substituting the Senate pro-
vision with clear and concise language that would ensure that all
motor carriers are treated the same, regardless of whether they are
affiliated with an air component.
And we may find another option before today is over. I also think
it is important that if we move forward with legislation relating to
rates, routes and services, we make sure that no violence is done
to State regulations relating to motor carrier fitness requirements,
safety insurance and the like, and the segments of the industry
that have traditionally been treated in distinct fashion, such as
household goods carriers.
We have a full day before us. I look forward to the witnesses who
have come far in many cases.
But before we do that, I will recognize the ranking Minority
Member, Mr. Petri.
Mr. Petri. Thank you, Mr. Chairman. The hearing today will
focus on Section 211 of the Federal Aviation Administration Au-
thorization Act as passed by the Senate. This section would pro-
hibit State regulations of rates, routes and services for certain
motor carriers.
One of the issues we must examine today is the question of who
is covered under this provision and who is not covered, and wheth-
er we should draw a line somewhere in the industry so that some
carriers are deregulated and others are not.
Originally Section 211 attempted to carve out a certain segment
of the trucking industry, but we found that in today's marketplace
the lines have blurred among the types of services provided by var-
ious carriers, and it is impossible to target one segment of the
motor carrier industry anymore.
Because the underlying bill is an aviation bill, the language be-
came tortured and twisted as efforts were made to cover an ever
increasing number of trucking companies, but still maintain some
sort of aviation link, however tenuous.
What we are left with is vague language which could leave many
carriers uncertain as to whether or not they are deregulated as a
result of this provision and we can find many carriers modifying
their operations in ways they might not otherwise in order to qual-
ify for the greater efficiencies available if deregulated under Sec-
tion 211.
So if we are going to deregulate, we should be certain to do so
in an equitable and fair manner so that certain carriers serving
similar markets do not have a competitive advantage over others.
Over the past several weeks, I have received stacks of letters
from various State public utility commissions predicting dire con-
sequences if their State is no longer able to regulate trucking rates
and routes. Well, my own State of Wisconsin deregulated back in
1982, and I am pleased to report that life continues and we are
prospering in Wisconsin. Customers, both urban and rural, con-
tinue to be well-served. Trucking rates are competitive. Safety has
not been compromised.
And while some carriers were negatively impacted and found
they couldn't competent, another carrier or a new carrier stepped
in to provide the service.
Overall, we have a thriving and competitive trucking industry in
Wisconsin. Shippers are satisfied. Truckers are operating more effi-
ciently and no one is calling for reregulation.
Today we will hear some horror stories as to the inefficiencies
forced on motor carriers in some of the States that continue to reg-
ulate. We will hear the experiences of shippers who are charged
more for intrastate shipments than for shipping the same shipment
longer distances interstate. That doesn't make sense and in the end
it is the consumer who is paying for these burdensome regulations
and inefficiencies.
I would like to welcome our many witnesses today who will
present a wide variety of perspectives on the interstate trucking
deregulation question. I know the testimony received today will be
helpful as we determine the appropriate course to take concerning
interstate deregulation, and I particularly would like to welcome
our two colleagues, Mr. Emerson and Mr. Hastert who are here
with us. Thank you.
Mr. Rahall. The Chair recognizes the Chairman of our full com-
mittee, the gentleman from California, Mr. Mineta.
The Chair. Thank you very much, Mr. Rahall, and I want to
thank both you and Mr. Petri for holding these hearings, but I also
want to publicly thank you and Mr. Rahall and Mr. Petri for your
leadership and hard work on getting the NHS bill through commit-
tee on to the House Floor and out of the House.
I also want to thank all of those who will be testifying before the
subcommittee. I appreciate it because Members really do need to
hear from all of you about your perspective. This is a very impor-
tant issue, so I want to thank all of you for taking time from your
own busy schedules to be here to testify and educate us about your
views and from your perspectives.
From enactment of the Motor Carrier Act in 1980 until 1992, the
ground rules for economic regulation of cargo transportation was
relatively straightforward. If you move something by both truck
and air, whether interstate or intrastate, it was deregulated. If you
moved it by truck in an interstate market, you had to have your
rates on file with the ICC, but there was no prior regulatory ap-
proval requirement. If you moved it by truck in an intrastate mar-
ket, you were subject to whatever degree of deregulation or regula-
tion existed in that State.
In other words, the rules you had to play by were determined by
what market you were in, not by who you were. An important re-
sult was that within each type of market, everybody played by the
same rules. In the 1991 Ninth Circuit case regarding FedEx, that
approach began to break down. In that case, the courts held that
as an air carrier Federal Express was deregulated in intrastate
markets even when it moved freight solely by truck.
We began to have markets, specifically some of the intrastate
truck markets, where different competitors operated under dif-
ferent rules. This has created some very real problems, particularly
where a regulated carrier must try to compete with a deregulated
carrier for the same business in the same market. And the Senate
has attempted to deal with these problems by adding Section 211
to the airport improvement program legislation.
Section 211 would greatly expand the number of carriers which
would be deregulated in the intrastate markets. But there are two
key concerns which we need to focus on today. First is that al-
though more carriers would be deregulated under the Section 211
approach, we would still have a situation where some carriers in
the intrastate truck markets would be deregulated and others
would not. What would that situation mean for those that were not
deregulated?
And second, it is not always clear on the face of Section 211 who
would be deregulated and who would not. Can we and should we
make it clear what rules would apply to the various carriers? And
so I look forward to hearing from all the witnesses on these issues,
and I am hoping that they can help us make the decisions we will
have to make with regard to this very important issue.
So again, to you, Mr. Chairman and Mr. Petri, thank you very
much for holding these hearings and also to all of our witnesses
who will be appearing before us.
Thank you very much.
Mr. Rahall. Thank you, Mr. Chairman. The Chair recognizes
the distinguished Ranking Minority Member from Pennsylvania
Mr. Shuster.
Mr. Shuster. Thank you very much, Mr. Chairman. I am cer-
tainly pleased that we are holding these hearings today. I have a
concern about the turn that this issue is taking. We started out by
saying we wanted to fix the small package problem and indeed I
think there has been broad bipartisan support to do that.
The Senate went beyond that position, however, and has vir-
tually deregulated most, but not all, of the industry. It seems to me
that if we were to simply adopt the Senate position, the small LTL
carriers in particular would be hurt because they would be the only
ones who would continue to be regulated, and it seems to me we
have got to find a way to fix this.
It is also notable, I believe, that the administration, I under-
stand, has strongly come out in support of the Senate provision and
the ATA, the American Trucking Association, has taken an historic
position for the first time saying that they do not oppose the posi-
tion.
So it appears to me that to mix a metaphor that the train is leav-
ing the station here and I am concerned that we fix the original
problem. I strongly support fixing the original problem with the
small packages but, at the same time, do it in a way that we do
not disadvantage the small LTL carriers. With those comments, I
hope that this hearing can shed some light on how we might ac-
complish that so when we go to conference with the Senate, we will
be able to develop a product that is fair to all parties concerned.
Thank you, Mr. Chairman.
Mr. Rahall. The gentleman from Tennessee, Mr. Clement.
Mr. Clement. Thank you, Mr. Chairman. I want to first com-
mend you for calling this hearing on Section 211 of the Aviation
Infrastructure Investment Act of 1993.
This provision will provide intermodal all-cargo carriers relief
from intrastate rate, route and service regulation. As many of you
on the committee know, I have a long track record on this issue.
I served six years on the Tennessee Public Service Commission
where I learned firsthand how the trucking business operates.
Last Congress I introduced H.R. 3221, the Intermodal Carrier's
Competitive Act, which provided the legislative underpinnings for
Section 211. Both provisions accomplish the same important goal
to allow our small package express industry to compete fair and
square both here and in the global marketplace.
H.R. 3221 was introduced in the last Congress and was subject
to no less than three days of hearings by the same subcommittee
in 1991. Today's hearing represents the fourth hearing on this par-
ticular issue, but the first chaired by our distinguished and able
Chairman, Mr. Rahall.
H.R. 3221 had 185 cosponsors in the last Congress and the De-
partment of Transportation, as all of you know, supported this leg-
islation. With all that support, one wonders why this issue was not
resolved in the last Congress.
Let me give you an example of the problem faced by the small
package express industry. Under current Federal law when a com-
pany flies a package to its destination, say Memphis to Nashville,
Tennessee, its prices and services are regulated only by competi-
tion, the marketplace, not by a State or Federal bureaucracy.
However, should that company decide to use surface transpor-
tation to pick up or deliver a package within a State, say Memphis
to Nashville, the State regulatory agency can claim jurisdiction of
the rates, routes and services of that shipment. The State agency
can continue to tell that company what to charge, what route it
should take, and what type of services it may provide.
Now, apply that to the 41 different States that regulate the small
package express industry and you see the nightmare that it has
created. These intrastate trucking regulations are both outdated
and counterproductive. There is no reason to maintain 41 different
regulatory regimes on companies that are trying to provide a simi-
lar service at a uniform price for all.
Why should a resident of West Virginia pay more to deliver a
package from Charleston to Beckley than a resident from Maryland
that sends that same identical package from Baltimore to Rock-
ville? These regulations cost shippers as much as $6 billion a year
according to one study.
Intrastate regulations not only hurt shippers, it also hurts the
competitiveness of U.S. producers by driving up business costs. In
a time when we want our U.S. manufacturers to be competitive in
the global marketplace, we allow domestically produced goods to be
subject to intrastate regulations.
Just consider this: The number of freight movements that take
place on domestically produced goods is seven times more than the
single U.S. movement that is typical for an imported product. Obvi-
ously our domestically produced goods subject to this type of regu-
lation will cost more than a foreign produced product.
Today we are presented with an excellent opportunity to finally
resolve this issue by creating a fair playing field for all truckers
which in my view promote economic growth and competitiveness
for U.S. companies and jobs for their employees.
As Chairman Rahall says, we have some options available to us.
And just like Mr. Shuster said so well, we don't want to do any-
thing to hurt the LTL business as well. And we need to be open-
minded, and we need to look at all the facts and information, and
then make a prompt decision on this matter.
I think this is the time to make a decision. We have an oppor-
tunity, a window here to make those tough choices and be fair to
the industry as a whole.
Again, I want to thank you, Mr. Chairman, for having these
hearings and moving forward on this important issue.
Mr. Rahall. The gentleman from Pennsylvania, Mr. Clinger.
Mr. Clinger. Thank you very much, Mr. Chairman. I just would
share the sentiments that have been expressed here today. This is
an issue we need to resolve. And I would say that we need to re-
solve it promptly.
I am somewhat dismayed that in essence a surface transpor-
tation issue is the tail wagging the dog of a major aviation issue
which has to do with improvement of our airports throughout this
country, and this is a matter that cannot be allowed to continue
very long.
We are running the risk of holding up vital construction projects
on airports around the country. Section 211 is presently blocking
the way to resolution and completion of work on that matter, so I
share with all of you the wish that we can resolve this and solve
it satisfactorily and move on.
Thank you.
Mr. Rahall. The gentleman from Illinois, Mr. Lipinski.
Mr. Lipinski. Thank you, Mr. Chairman. Mr. Chairman, I have
a statement that I request unanimous consent to include in the
record.
Mr. Rahall. Without objection, so ordered.
Mr. Lipinski. Thank you.
[The prepared statement of Mr. Lipinski follows:]
O^^J^a
Statement of Congressman William O. Llpinksi
July 20, 1994
Subcommittee on Surface Transportation
I want to thank the Chairman for holding this hearing today
on the issues surrounding further deregulation of the nation's
trucking industry.
Although several bills have been introduced to end
regulation by the states of certain transportation activities —
Today I am interested in learning more about Section 211 of the
Senate-passed, aviation reauthorization bill.
I am convinced that this provision will only lead to less
competition and greater unemployment in the industry — not
the other way around.
The witness list today consists of a number of distinguished
individuals — some of whom support further deregulation — and
some who do not.
I am concerned, however, with the large number of small,
family-operated companies that may have a great deal to lose if
Section 211 becomes law.
Those who support Section 211 argue that it's time for
Congress to level the playing field by granting certain companies
relief from state regulation.
I would suggest, however, that Section 211 only levels the
playing field for some — while not inviting others to the game.
Section 211 will allow the large carriers — with their
substantial capital — to operate without state regulatory
interference.
Section 211, by disregarding the smaller carriers — and
their employees — would not create additional competition. It
would end competition between the deregulated and the
regulated carriers.
Mr. Chairman, in my district, along with UPS and FedEx, I
have over 100 companies that may still be subject to the
regulatory authority imposed by the State of Illinois.
Page Two
These small, family-owned and operated companies employ
thousands of people. Section 211 will be responsible for putting
most — if not all — of these firms out of business.
Obviously, I am going to do everything I can to prevent that
from happening.
I look forward to working with Chairman Rahall and
Chairman Mineta as we move to conference.
Perhaps, together we can come up with some way to ensure
that small trucking companies are not forced to close their
doors.
10
Mr. Rahall. The gentleman from New Hampshire, Mr. Zeliff.
Mr. Zeliff. Thank you, Mr. Chairman. I appreciate your holding
today's hearing to review legislation to preempt State motor carrier
regulations pertaining to rates, routes and services.
This issue has arisen in the context of the Federal Aviation Ad-
ministration Authorization Act of 1994, and specifically Section 211
of Senate bill which would deregulate interstate services provided
by intermodal carriers. As you know, Mr. Chairman, I strongly sup-
port the preemption language included in Section 211 of the Senate
bill.
Issues such as price and level of service should not be deter-
mined by market — should be determined by marketplace, not by ar-
tificial government regulations. Unfortunately these regulations in-
evitably reappear in the form of higher costs to the consumer.
The 1991 Department of Transportation study estimated, and it
has been repeated here, that interstate regulation costs the econ-
omy approximately $6 billion per year. By lifting the patchwork of
individual State regulations governing their operations, intermodal
carriers will be able to respond more quickly to their customers'
needs.
This legislation will do much to improve efficiency, competitive-
ness, and lower transportation costs within the industry. I urge my
colleagues on the committee to end this costly regulation and sup-
port Section 211.
Thank you, Mr. Chairman.
Mr. Rahall. Thank you.
The gentleman from Texas, Mr. Laughlin.
Mr. Laughlin. Thank you, Mr. Chairman. We have a lot of wit-
nesses and a lot of people waiting for a long time, so what I would
ask is unanimous consent that my opening statement be included
in the record.
Mr. Rahall. Without objection, so ordered.
[The prepared statement of Mr. Laughlin follows:]
Prepared Statement of Hon. Greg Laughlin, a Representative in Congress
From Texas
Mr. Chairman and members of the committee, I am happy to be here today to
speak in support of legislation to preempt intrastate motor carrier regulations.
I support Section 211 of S. 1491, the Federal Administration Aviation Act. How-
ever, I would like to see this committee carry the issue further by ensuring that
all intermodal carriers enjoy an equal standing in the debate.
Economic regulation of the trucking industry costs the American consumer over
$8 Billion per year.
All air cargo intermodal air carriers are currently subject to a confusing patch-
work of State regulations.
By removing these artificial economic barriers on the trucking industry, we can
help keep consumer cost low and thus ensure the continued success of American
companies in this global economy.
Supporting this section can only help even the playing field for all intermodal car-
riers as it will not affect any safety regulations now imposed on our carriers.
Safety regulations will remain under the jurisdiction of each State in the Union.
Section 211 will only affect rates, routes and services of intermodal, all-cargo car-
riers.
Think you for this opportunity.
Mr. Rahall. The gentleman from Arkansas.
Mr. Hutchinson. Thank you, Mr. Chairman. And I want to com-
mend you and thank you also for calling this hearing I think on
11
a very important subject on deregulation of the intrastate motor
carriers. I want to commend Mr. Petri as well.
I think continued State regulation in the 42 States where that
is going on contribute to waste and inefficiency, higher prices, loss
of jobs, and a lack of competitiveness in the global marketplace. So
Section 211 helps to move us down the road to deregulation. We
want to do so equitably and fairly.
And I think it affords a very, very rare and special opportunity.
I hope we don't let that escape. I commend you for holding the
hearings today. I look forward to hearing our witnesses.
Thank you.
Mr. Rahall. Do other Members have opening statements they
wish to make? The gentlelady from Texas, Ms. Johnson.
Ms. Johnson. Thank you, Mr. Chairman, and to our distin-
guished Chair of the full committee and fellow colleagues. I am
very pleased to have the opportunity to address the committee to
reiterate my support for Section 211 as it relates strictly to the de-
regulation of intermodal air carriers. I strongly believe legislation
which will afford the intermodal all-cargo air carriers, like Federal
Express and UPS an equitable and competitive environment is nec-
essary.
I was appalled to learn that one of my constituents, a national
company with two manufacturing plants in my district, runs more
than 18 million miles empty each year due to the patchwork of re-
stricted regulations of intrastate motor carriers. However, over the
past few weeks, I have received an avalanche of mail and many
calls from my constituents on the issue, and their concerns have
caused me to take another look at what I think are very serious
problems. Should State regulation of intrastate motor carriers be
eliminated entirely?
Constituents in my district view motor carrier reform as a jobs
issue. Passage of S. 1491 in its present form would effectively end
the regulatory authority of the Texas Railroad Commission over
intrastate motor carriers and effectively end the benefits it cur-
rently provides to small and medium-sized trucking companies who
live and operate in Texas.
Section 211 would eliminate any State oversight over the activi-
ties of motor carriers as it relates to freight claims, personal injury
claims, and other consumer protection issues. Arguably this has
been the result of similar Federal initiatives to improve the lives
of our citizens via Federal deregulation.
We in Congress have long recognized that highway safety is an
issue of national concern, and I support the States' rights to con-
tinue to regulate safety, minimal financial requirements, and in-
surance rates.
Increasing the productivity and efficiency of our domestic manu-
facturing and distribution system is what keeps America competi-
tive and creates more jobs. However, small shippers and receivers,
the much touted backbone of the Nation's economic recovery, could
be at a serious disadvantage should S. 1491 be enacted as it cur-
rently exists.
I beg my colleagues to be sensitive to the potential two-tiered
system of winners and losers which could be created by enactment
of Section 211.
12
As a Member of the committee with jurisdiction over motor car-
rier issues, I am pleased to be a participant in today's hearings in
order to help the conferees make decisions relative to the many
complex and difficult issues surrounding this bill.
Thank you, Mr. Chairman.
Mr. Rahall. The gentleman from Texas, Mr. Geren.
Mr. Geren. Thank you, Mr. Chairman. I appreciate very much
the opportunity to participate in this hearing and I thank you and
Chairman Mineta for holding it.
This is certainly not a new issue for this committee. However,
this hearing is unique in that it comes at a time which provides
us an unprecedented opportunity to enact much needed deregula-
tion for this important industry.
With the inclusion of Section 211 in the Senate bill, I believe we
are beyond the point in the debate as to whether or not we are
going to have any deregulation. However, we have a much more
important question before us. Namely, who will be covered by that
deregulation that the market, the courts, and now the Senate are
pushing?
As a supporter of trucking deregulation since coming to Con-
gress, I was pleased to see the Senate take action on this issue.
However, I am concerned with the limitations in the final product
of the Senate bill. While I support the premise behind Section 211,
leaving it as it is currently written would work an injustice on
many small businesses all over our country.
As currently drafted, this provision would leave thousands of
small, private carriers out in the cold. According to the National
Private Truck Council, who we will hear from today, only about 5
percent or roughly 6,000 private carriers would be able to meet the
criteria established in Section 211, leaving 95 percent or almost
150,000 private carriers still subject to burdensome State regula-
tions.
If we accept Section 211 as it is, we will be choosing one carrier
over another, choosing clear winners and making clear losers and
that is wrong. Section 211 as currently written is the death war-
rant for small — for thousands of small carriers.
Who are these carriers that are being left out? In large terms,
these private carriers compromise 80 percent of all commercial ve-
hicles on the road, hauling nearly 60 percent of commercial truck
tonnage. On a more personal note, these carriers are familiar to all
of us and are in all the districts we represent. They are the trucks
used by our local hardware store, bakery or florist. The small busi-
nessmen and businesswomen who employ so many of our constitu-
ents. We all know who they are and we know how important they
are to our communities.
I think it is safe to say that most of these companies do not even
come to mind when we think about trucking deregulation. But they
should because they are forced to live under the same State truck-
ing regulation as large companies we do know so well.
To accept 211 as it is currently written puts these companies at
an impossible to overcome competitive disadvantage. The purpose
of any deregulation is to increase competition. However, passing
any legislation that deregulates one segment of the industry and
not another, will weaken competition, not enhance it.
13
The time has come to deregulate this industry. Many former op-
ponents of deregulation have reversed their position and now favor
it. In my home State of Texas, the Texas Motor Transportation As-
sociation recently announced its support for deregulation. But if we
do it, it must be done for everybody. We should not only support
Section 211, but insist it be broadened to include all motor carriers.
Anything less would be wrong.
Mr. Chairman, I thank you for the opportunity to make this
statement and I look forward to a very interesting and productive
hearing.
Thank you.
Mr. Rahall. Thank you. Do any other Members of the sub-
committee wish to make opening statements? If not, we will pro-
ceed to two of our distinguished colleagues and good friends, the
gentleman from Illinois, Mr. Hastert and the gentleman from Mis-
souri, Mr. Emerson. Mr. Emerson is a Member of not only our full
committee on Public Works but this Subcommittee on Surface
Transportation as well.
Gentleman, we appreciate you being with us. Bill, I understand
we will hear from you first.
TESTIMONY OF HON. BILL EMERSON, A REPRESENTATIVE IN
CONGRESS FROM MISSOURI
Mr. Emerson. Thank you, Mr. Chairman, Mr. Petri, Chairman
Mineta, and Mr. Schuster, colleagues. I appreciate very much the
opportunity to testify before this subcommittee here this morning.
As a Member of this subcommittee, Chairman Rahall, I am
acutely aware of the leadership and guidance that you and Mr.
Petri provide this subcommittee and I deeply appreciate it. I thank
you for holding this hearing on a subject that has gotten a lot of
attention lately, both here in the House and in the Senate.
I want to first state my general support for the work that has
been done in the other body on Section 211 of the Federal Aviation
Authorization Act of 1994. Although I realize that one of the rea-
sons for having this hearing is to look specifically at cleaning up
some of the language to ensure it serves its intended purposes, I
believe that deregulating intermodal all-cargo air carriers is indeed
a step in the right direction, most especially in this competitive
world in which we live.
Federal laws must not be an impediment to achieving greater
productivity, provided appropriate safety standards are main-
tained. I think we really have a golden opportunity here to do even
more to level the playing field with respect to the trucking indus-
try.
The subcommittee, as I know you are aware and the full commit-
tee, have held numerous hearings in the past on the issue of de-
regulating the trucking industry. It is time that we act on correct-
ing the costly inefficiencies and waste in the current system of
intrastate trucking regulation.
We have all heard the horror stories of it being cheaper to ship
something from Dallas to New Orleans in Louisiana than it is from
Dallas to Houston in Texas. Why? Because the State regulations
have a stranglehold on shipping goods inside the State.
14
Mr. Chairman, as you know, I have introduced H.R. 2860, The
Trucking Regulatory Reform Act of 1993. My bill would eliminate
the filed rate doctrine, streamline ICC licensing requirements, and
eliminate the antiquated burdensome State economic regulations
for all motor carriers. H.R. 2860 is supported by over 200 small,
medium, and large companies, trucking firms, shippers, brokers,
consumer groups. At the same time, H.R. 2860 follows closely re-
forms being proposed in S. 2275 by Senators Exon and Packwood.
This bill calls for comprehensive deregulation of the industry. It is
time to eliminate these regulations, many of which originally were
enacted to insulate intrastate trucking interests from interstate
competition. That may have been appropriate at some point in the
historic development of our transportation industry, but it is no
longer appropriate in this modern competitive era.
If we look across the Atlantic, there is an excellent example of
deregulation. The European Community has recognized the bene-
fits of eliminating its internal barriers. It is imperative that the
United States follow suit. Strong evidence and study after study
has shown that the Motor Carrier Act of 1980 has resulted in sub-
stantial savings for the American consumer. There is no doubt that
reduced rates, improved service, and greater inventory flexibility
and efficiency have occurred since 1980. This is all very document-
able. Currently domestic goods require an average of six to ten
truck trips before reaching the consumer, whereas imports require
only one or two.
In my State of Missouri, although it is still a regulated State, it
has substantially liberalized entry into the market but continues to
constrain discounting. The pattern of exemptions for regulation in
Missouri largely follow the economy rather than the welfare of the
consumer. For example, as a major agricultural producing State,
Missouri naturally exempts the transportation of agricultural prod-
ucts.
Mr. Chairman, I would hope that all parties in the transpor-
tation industry will finally recognize the benefits that deregulation
will have on the consumers in this country. Removing Federal eco-
nomic barriers would allow for market expansion, increased com-
petition, and lower prices. The inefficiencies of circuitous routing
and empty backhauls would be eliminated.
It is estimated that it would save millions of dollars in shipping,
merchandise, and inventory costs. At the same time, leaving these
regulations in place cost American businesses and consumers in
the neighborhood of we hear it estimated of $5 to $12 billion a
year.
The arguments, I believe, by opponents really no longer hold
water. Congress, the Department of Transportation, private stud-
ies, all have looked into the red herrings of decreases in safety
standards, decreases in service to rural areas as just a couple of ex-
amples.
There is very little empirical evidence that deregulation will di-
minish service to small communities. On the contrary, there is good
evidence that service has improved in many cases where deregula-
tion has occurred.
15
As competition among trucking firms has increased, shippers
have begun to demand a much higher degree of reliability and this
in turn has stimulated a concern for safety.
Mr. Chairman, in my mind it is not hard to recognize the over-
whelming arguments for deregulation of the trucking industry, and
I think Congress is likewise coming to this realization.
So I urge my colleagues on this subcommittee to carry out the
provisions as outlined in Section 211 of the aviation bill and ex-
pand upon them with a comprehensive deregulation of the motor
carrier industry. I look forward to working with my colleagues in
the resolution of a variety of concerns, but I do believe we have a
very large opportunity here to enhance American productivity, com-
petitiveness, profitability, and most fundamentally jobs.
Thank you very much, Mr. Chairman.
Mr. Rahall. Thank you, Bill.
TESTIMONY OF HON. DENNIS HASTERT, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rahall. We welcome back to our committee former col-
league, well, still a colleague, but a former colleague on the com-
mittee, Representative Hastert.
Mr. Hastert. Thank you, Chairman Rahall, and thank you for
holding this hearing today. I have to salute Chairman Mineta of
the full committee, as our history of working on this issue goes
back, all the way back to 1986 and 1987. And certainly also rank-
ing Member Petri who represents the great State of Wisconsin. I
have to say Wisconsin deregulation has made us take notice in the
neighboring State of Illinois, as the Chairman noted, that there are
I think 43 States that are regulated in some manner.
There are five States in this country who are really very oner-
ously regulated, very heavily regulated, and that kind of drove me
into this issue in the first place. Over the years, through Chairman
Mineta's leadership, we have looked at the bingo stamp issue, eco-
nomic regulations such as bookkeeping and trying to do one-stop
shopping and we have always seemed to be able to solve those is-
sues under this umbrella. I think we have come a long way. I don't
think the country was ready for deregulation in 1986 or even in
1991, but the leadership of this committee in putting together the
intermodal legislation that pulls together rail, highway and air
transportation makes the time right for deregulation now.
A product that we buy on the shelves more than likely has been
subject to all types of transportation at one time or another. You
can't separate the different ways that we move products across this
country. Almost every product we buy goes across State lines, and
most of the products that we manufacture in our States are going
to be, at least a portion of them, going across national boundaries
to compete with products in Europe or Asia or South America.
So the cost we add to those products through regulation is re-
flected in our ability to compete internationally as well as in
consumer prices when they go to buy a product on the shelves. So
that leads me to the issue of what happened in the Senate.
UPS (which was probably the largest trucking company in the
country, maybe the world) has gone, and probably rightly so, de-
clared itself an air carrier which would deregulate its operations in
16
the same way as companies like Federal Express that run trucking
operations as well as air operations. UPS understands the con-
straints of regulation and has moved for legislation.
Section 211 allows trucking companies that move 15,000 packets
or more by air to become air forwarders and they are exempted
from regulation. So who does that leave? That leaves the mom and
pop trucking companies. It leaves small trucking companies and
also those people who serve small business that are still trapped
in regulation.
I have heard from both sides of the situation. There are trucking
companies in Illinois (it is a heavily regulated State) that say "Why
don't you leave the status quo?" because they feel they are pro-
tected in the status quo and under section 211. They are expressing
what is in their best economic interest.
But we have also heard from consumers and other trucking com-
panies that want to be able to compete, and they feel that if they
are left out of the opportunity for deregulation (maybe 14 percent
to 22 percent, we don't know how this legislation is coming down)
they will be the only ones regulated and everybody else is deregu-
lated. You certainly don't have a level playing field and really, in
the long term, this could be the death knell or the demise of those
small companies.
The small business owners who are really the economic engines
and the lifebloods wouldn't be able to compete. And I think that is
in your jurisdiction. You have to decide. Are you going to cover no
one under this? Are you going to repeal the Senate provisions on
air traffic carriers and intermodal carriers? Or, are you going to in-
clude everybody? There are some folks out there that would like to
see you just reject this whole proposal by the Senate, but there are
other folks who say if you are going to include air carriers and air
forwarders, then everybody should be included.
I think that is a very, very serious question. I think it would be
very, very onerous to leave a selected group of the economy or in-
dustry out there trapped by itself under regulation in its various
States and having everybody else deregulated. I think that is prob-
ably the worst of all situations. Even those folks who lean toward
regulation don't want to be stuck in the situation of being the only
ones regulated. I think you have a logic problem before you and
through all the testimony you hear today, you are going to hear
this theme. You will have to have to make some tough decisions.
But as I have worked, and have a history of working, with this
committee over the years, you have come up with the right deci-
sions and the best decisions for this country. I am going to leave
it in your hands. You know what my concerns are and I just hope
that you keep in mind that we can't do partial deregulation. You
either have to reject it or you have to include everybody under that
package.
I really appreciate the opportunity to come before you again. I
feel like kind of a regular visitor over here through the years, but
I feel very much at home here, too.
Thank you very much for your invitation.
Mr. Rahall. Thank you, gentlemen, for your testimony and pa-
tience with us this morning.
[Mr. Hastert's prepared statement follows:]
17
Statement of Representative J. Dennis Hasten
Before the Subcommittee on Surface Transportation
of the House Public Works and Transportation Committee
July 20, 1994
Thank you, Mr. Chairman, for inviting me to testify before your
Subcommittee. This hearing could not come at a more critical time, as the House
of Representatives and the Senate are poised to reconcile differing versions of the
Federal Aviation Act of 1993. I commend you for holding this hearing to ensure
the House thoroughly examines the critical issue of motor carrier regulation.
During the 101st and 102nd Congresses, I introduced legislation to
eliminate all intrastate economic regulation for motor carriers. In today's
regulatory environment, states discriminate against interstate motor carriers in
order to protect intrastate carriers from competition. This practice creates
operating inefficiencies that unnecessarily increase transportation costs with no
commensurate public benefit.
The need for change is clear: Something is seriously wrong with the
system when there is only a $26.00 difference between the cost to ship tissues
from LaGrange, GA and Atlanta, GA (a distance of 83 miles) and from Palatka, FL
to Atlanta, GA (a distance of 354 miles). The cost per mile on the route within
Georgia is $2.06 per mile, whereas the cost per mile across state lines is only
$0.75 per mile.
The laws that cause such obscene inefficiencies end up sticking American
consumers for billions. Obviously, we need fundamental reform to our system.
Reform began with the Motor Carrier Act of 1 980. That act has improved
productivity by encouraging more efficient, market-oriented trucking operations
and services. Prior to the Act, entry of new carriers into established routes was
severely restricted. Passage of the Act provided for more liberal entry into
trucking markets. But more needs to be done.
ECONOMIC REGULATION
Although several states deregulated intrastate trucking after passage of the
Motor Carrier Act of 1 980, 42 states continue to economically regulate motor
carriers. In a few states, regulation is comparatively loose, modeled after post-
1 980 Interstate Commerce Commission (ICC) regulatory policy; but in most
market entry remains restrictive, and there is little competition.
In the past, economic regulation was justified by "market failures." It was
applied by the federal government to various modes of interstate transportation
service for most of this century. The Motor Carrier Act of 1935 sought to
control excessive competition resulting from the low volume of shipping at that
time. To do this, the act erected strict barriers to entry, and rates and routes
were controlled by the ICC. That is, until a decade ago. Today, economic
regulation is practiced only by the states.
The present lack of simple and uniform regulation costs those in the motor
carrier freight transportation business from $3 to $8 billion a year. Since I know
of no public benefit that is achieved through the imposition of these costs, I
85-090 95-2
18
believe we should cut them out of our system!
My goals are straightforward: streamline the regulatory process by
providing for federal preemption of state regulation of interstate motor carriers.
Under my bill, states will no longer be able to limit market entry, rates, contracts
or services of any kind.
With uniform regulations on both the federal and state level, the efficiency
and productivity of this nation's transportation system will be improved. And as
a result, we will help foster a more competitive environment for small business.
The inefficiencies and costs created by state regulation are not born solely
by the citizens of the states that regulate motor carriers. Our nation's businesses
and motor carriers operate regionally and nationally, so higher costs due to
regulation in one state are passed on to consumers every state, creating an
unnecessary burden on interstate commerce.
I do not in any way propose to deregulate motor carrier safety regulations.
All interstate motor carriers must comply with federal and state safety
regulations. Furthermore, I do not advocate the elimination of state safety
enforcement authority or funding. As the members of this body know, federal
assistance to the states for safety assurance is authorized under the Motor Carrier
Safety Assistance Program administered by the Department of Transportation. I
fully endorse this program. Federal agencies must continue to strictly enforce
safety regulations like insurance requirements, driver qualifications, vehicle safety,
random drug testing and commercial driver license requirements.
I might also add that in testimony I have heard on this issue over the years,
ail evidence seems to indicate that there is no correlation between economic
regulation and highway safety. Motor carrier firms have to comply with the exact
same safety regulations in a deregulated state as they do in a regulated state.
CONSUMER IMPACT
Policy changes which achieve efficiency gains in motor carrier transport
would benefit U.S. consumers as well as firms competing in international trade.
These are important goals for carriers, shippers and consumers alike. They affect
the cost of doing business, which in turn affects the cost a consumer pays for a
box of Tide at the grocery store.
Deregulation has already produced undeniable benefits for the consumer.
Why should consumers continue to care about this issue? The answer lies in the
former slogan of the ATA, "If you bought it, a truck brought it." State regulation
of the motor carrier industry increases the cost of bringing goods to market, and
that means higher prices for consumers.
EXPANSION OF SECTION 21 1
I believe Section 211 of the Senate FA A bill, if expanded to include all
players, would achieve the goals of what was formerly called the "Safe and
Competitive Trucking Act." Section 211 of the Senate bill would deregulate
intermodal all-cargo air carriers conducting 1 5,000 air-surface shipments annually.
This is a tremendous step in the right direction. However, numerous participants
in the industry such as private carriers, many truckload and less than truckload
19
carriers with no freight forwarding operations, most owner-operators and other
small carriers are not included in this deregulation opportunity.
These carriers should not be left out. As I mentioned, deregulation costs
the trucking industry $8 billion per year. It is no easier for small companies to
absorb the costs incurred through regulation than for large companies -- in fact it
can be harder. Thus, it is plainly unfair to leave roadblocks in place for a
vulnerable sector of the industry while opening new thoroughfares for others.
Instead, further deregulation should be included. Rep. Bill Emerson has
introduced H.R. 2860, the "Trucking Regulatory Reform Act," which would
eliminate the filed rate doctrine and streamline ICC licensing requirements. The
Senate is also moving toward complete economic deregulation. Recent testimony
at Senate Surface Transportation Subcommittee hearings recommended that the
ICC should no longer regulate the trucking industry. Senators Exon and
Packwood recently introduced legislation that would remove these responsibilities
from the ICC while allowing the rail functions to remain intact. If Jhjs body is to
be serious about eliminating the inefficiencies of the trucking industry I urge you
to take action in a comprehensive manner.
Let me conclude my remarks by saying that a sign of the maturity of this
issue is the number of bills addressing it. To a degree they all would accomplish
the same objective. However, Mr. Chairman, I urge you and your members to
grant the benefits of economic deregulation to the entire trucking industry,
regardless of size.
20
Mr. Rahall. I don't have any specific questions except to thank
you for the input you have provided this subcommittee previous to
my chairmanship and over the years, Dennis, as a former Member,
and, Bill, as a current Member. We appreciate very much your par-
ticipation and help to all of us.
I will recognize the Ranking Minority Member, Mr. Petri.
Mr. Petri. I know you have important business at the Agri-
culture Committee. Bill, I want to commend you for the leadership
you have taken and the legislation you have introduced in helping
us to move forward in this important area. Thank you also to Den-
nis for your participation.
Mr. Rahall. Do any Members of the subcommittee have ques-
tions they wish to ask our colleagues? If not
Mr. Hastert. I have written testimony I would like to submit for
the record.
Mr. Rahall. Sure. I appreciate that.
Mr. Hastert. Thank you.
Mr. Rahall. Thank you, gentlemen.
Mr. Hastert. Thank you.
Mr. Rahall. Before proceeding with the rest of our witness list,
the Chair reminds all witnesses today that all prepared testimony
will be made a part of the record as if you read it. The witnesses
are encouraged to summarize and then proceed in whatever order
they desire.
TESTIMONY OF FRANK E. KRUESI, ASSISTANT SECRETARY
FOR TRANSPORTATION POLICY, U.S. DEPARTMENT OF
TRANSPORTATION, ACCOMPANIED BY EDWARD H.
RASTATTER, OFFICE OF THE SECRETARY, U.S. DEPARTMENT
OF TRANSPORTATION
Mr. Rahall. Our next witness is the Honorable Frank E. Kruesi,
the Assistant Secretary for Transportation Policy, U.S. Department
of Transportation, Washington, DC.
Mr. Kruesi, we welcome you back to the subcommittee once
again; you were here not too long ago on the question of the Inter-
state Commerce Commission. We have your prepared testimony,
and you may proceed as you desire.
Mr. Kruesi. Thank you, Mr. Chairman. If I may, I would like to
express my appreciation for being here and a special note of hello
to Congressman Lipinski from my home city of Chicago, Illinois.
I am pleased to be here to discuss the problems of State economic
regulation of motor carriers and the proposed legislative solution
now before the Committee. Section 211 of S. 1491 would prohibit
States from regulating the trucking operations of transportation
companies that offer intermodal cargo services.
The Administration strongly supports this provision because it
will eliminate conflicting laws that interfere with efficient inter-
modal cargo transportation and let us enjoy at the State level those
economic benefits that have accrued at the interstate level since
the Motor Carrier Act of 1980.
Regulation of the interstate trucking industry by the ICC was
largely removed by the Motor Carrier Act of 1980, a fine piece of
legislation crafted by this Committee. As a result of that 14 year
old Act, we estimate consumer savings of $20 billion per year from
21
lower freight costs, and more than double that figure, which is to
say more than $40 billion per year in consumer savings, when in-
ventory savings are included.
Moreover, no degradation in truck safety has occurred during
that time. Economic deregulation does not ensure truck safety any
more than economic regulation does. On the contrary, it is direct
safety regulation that has that impact. A joint study by California's
Highway Patrol and Public Utilities Commission showed that as
truck inspections increased, accidents fell.
Moreover, since 1979, the fatal accident rate for medium and
heavy duty trucks has fallen by half. The roads are safer than they
have been.
However, most of these interstate reforms are not available to
interstate or other carriers when they are conducting intrastate
trucking operations. Although nine States do not regulate trucking
operations conducted wholly within their respective boundaries, 41
States currently do.
Such regulations usually take the form of entry controls, tariff
filings, and rate regulation, restrictions on operations and grants of
antitrust immunity for carriers to agree on rates. The very diver-
sity of 41 regulatory schemes is an additional problem for national
and regional carriers which try to conduct a standard way of doing
business. The States are known as the Laboratories of Democracy,
but this is a case where the laboratories are not helpful to the eco-
nomic well-being of our country.
Taken together, it is estimated that State regulations cost con-
sumers between $3 billion and $8 billion per year.
Although much of this cost is borne by consumers and shippers
in the regulating States, a significant portion is also paid for by the
rest of us in other States. This is a national problem. We all bear
the national expense because we purchase goods made by regional,
national, and multi-national companies located in States that regu-
late trucking.
Other expenses are not even counted in this cost burden. In
order to escape the unnecessarily high cost of using intrastate
hauls, shippers often make transportation and plant location deci-
sions that save their companies money, but have undesirable con-
sequences for the economy and the Nation.
For example, Procter and Gamble has long supplied its cus-
tomers in Texas from manufacturing plants located as far away as
Tennessee, as I am sure Congressman Clement is aware, rather
than from its Texas plants because the relatively low interstate
trucking costs make it cheaper to do so. The result is more diesel
fuel consumption, more traffic congestion and air pollution, and
more wear and tear on the highways.
Recently, in the nine western States bounded by the Ninth Cir-
cuit, the Court applied the broad preemption provision of the Air-
line Deregulation Act of 1978 to the trucking operations of FedEx,
an air carrier. This exempted FedEx from California's motor carrier
controls. Because of its status as an air carrier, FedEx then held
a tremendous competitive advantage over its competitors who were
still regulated. Although some of its competitors conduct similar op-
erations, they are not organized as air carriers. For example, UPS
has an air carrier operation, but the company itself is not an air
22
carrier. FedEx in contrast was freed from comprehensive paper-
work requirements such as tariff filings and financial reporting,
and could freely exercise its guaranteed on-time delivery feature.
In the past year, California, Texas, and Kentucky have taken ac-
tion to exempt integrated carriers of packages weighing less than
150 pounds from State regulation. In another 40 or so States, pack-
age express carriers are subject to various regulatory schemes, and
many others are not even allowed to compete because they have
been denied intrastate operating authority by public utility com-
missions in those States. The Administration supports the legisla-
tion before the Committee, Section 211 of S. 1491, that would help
alleviate the burden of State regulation on motor carrier oper-
ations.
Depending on how many carriers would qualify for the regulatory
relief, Section 211 could provide substantial cost savings for this
important industry. It would codify in law the Ninth Circuit FedEx
decision, but also would make the regulatory exemption available
to a much broader class of carriers.
Airline operations are already free from State regulations under
Federal preemption provisions in current law. Section 211 would
supplement the Federal preemption provision under current law
and preempt States or compacts of States from the economic, non-
safety activities of intermodal all-cargo air carriers as defined in
the legislation.
Such carriers include certificated air carriers, such as FedEx,
that own and operate aircraft. It also includes what are known as
"indirect" air carriers that do not own or operate aircraft, but sim-
ply purchase space on the aircraft of direct air carriers and sell it
to shippers. Section 211 would exempt from State regulations the
operations of motor carriers that are either affiliated with air car-
riers through common ownership, or that use air carriers a large
number of times.
Any direct or indirect air carrier, also called an "air freight for-
warder" offering motor carrier operations would fall under this ex-
emption; any regulated for-hire motor carrier could qualify by pur-
chasing such an air carrier, conducting operations as such as an air
carrier, or by using such an air carrier at least 15,000 times per
year.
We believe, in the Department and in the Administration, that
any regulated carrier which has the authority to provide transpor-
tation from the ICC or a State agency could qualify if it wished to
do so. Nor is its impact limited to intermodal package carriers since
it applies to "property", which we interpret to mean freight or cargo
of all kinds and sizes, as well as "pieces, parcels or packages."
Thus this legislation would help to even the playing field for
those carriers willing to avail themselves of the opportunity. It
could eventually yield $3 to $8 billion per year in savings to con-
sumers, if the rates are fully deregulated at the intrastate level.
We therefore strongly support this legislation.
The Administration is interested in lowering barriers to entry
and enhancing competition. At the same time, we are concerned
that the regulatory relief provided could disadvantage some smaller
motor carriers, including bus companies that carry packages. We
acknowledge that if this legislation is enacted, there may be a tran-
23
sition period during which smaller, less sophisticated carriers
might find it hard to adjust. Much will depend on the way State
legislatures and PUCs respond to the change and take actions to
ensure the fairness and equity of their regulatory regimes, if 211
is enacted as it is currently written.
We want to find ways to ease that transition and minimize any
disadvantage for small operators. We would be happy to work with
the Committee in that effort, either in discussing today and later
the effect of 211, or working to revise that as appropriate.
Mr. Chairman, that concludes my statement. I would be happy
to answer any questions, but I first would like to correct my bad
manners. With me today is Edward Rastatter from the policy staff
of the Department of Transportation. Dr. Rastatter is an expert
who has conducted and overseen many studies nationally and lo-
cally on the impacts of intrastate regulation for consumers and for
the trucking industry as a whole.
Thank you very much, Mr. Chairman.
Mr. Rahall. Thank you, Mr. Kruesi.
Let me begin by asking you about the number of States that reg-
ulate trucking operations to one degree or another. You stated that
the number is 41, and I recognize fully that this may include some
States that are liberally regulated, some that are strictly regulated,
and some that are in between.
Testimony submitted to this hearing by Federal Express, from
whom we will be hearing later, states that 43 States engage in
motor carrier economic regulation.
Meanwhile, UPS has submitted a statement that places the fig-
ure at 38 States. It is my understanding from the National Associa-
tion of Regulatory Commissioners that there are 42 States which
engage in motor carrier economic regulation. Our colleague here
gave another number earlier. We have heard numbers, I think,
anywhere from 42 to 38. You know, if we can't even get a handle
on just how many States have motor carrier regulation, don't you
think it is a little irresponsible to move so quickly on preemptive
legislation?
Mr. Kruesi. Mr. Chairman, I think you put your finger on one
of the real problems that motor carrier operators have throughout
the country in trying to get a handle on the number that regulate
and also a handle on what those regulations are, because there are
quite esoteric requirements in each State.
The numbers that we have are based on our interpretation of
what constitutes economic regulation. And I would say two things
in response to your question. First, the number is falling as States
understand that regulation of package movements in their States
is harmful to consumers, shippers, and carriers.
Secondly, let me just give you my list of who we have listed as
deregulated. New Jersey, Delaware, Florida, Arizona, Wisconsin,
Maine, Maryland, Vermont, and Alaska. And there may well be
some disagreements about whether some states should be listed as
regulated because their regulation is very liberal. The correct num-
ber is 41 or 42, depending on whether D.C. is counted as a State,
which it is for purpose of the Interstate Commerce Act.
It is complex and there are lots of disagreements. I am going
through a similar thing right now working with the State Depart-
24
merit and the Congress on trying to get an accurate count of the
number of countries that require insecticide sprays for planes that
arrive in the U.S. and it is a very difficult thing to deal with.
This is a similar kind of problem in trying to get an accurate
count. I think we are in the ball park on the number. That number
has increased the last few years and may well continue to increase
as the States themselves begin to understand the positive impacts
of truck deregulation that occurred back in 1980, at the impetus of
this Committee.
Mr. Rahall. Let me just make one more stab at this and then
I will move on to another point. Our list has the States you have
mentioned, except for Maryland, as States without any motor car-
rier regulation. You have listed Maryland as one without regula-
tion, yet we have it listed as one of the most strictly regulated
States based on the information v/e have in the 1992-1993 compila-
tion of State regulations. As a matter of fact, it is as strictly regu-
lated as my home State of West Virginia.
Mr. KRUESI. My understanding is that Maryland deregulated
about two years ago, which would explain, I think, the difference
if your study shows the 1993 information. I would be happy to ver-
ify that, but it is our understanding that Maryland did in fact de-
regulate.
Mr. Rahall. I would appreciate you verifying that; and if any
witnesses today can help us on this question it would be appre-
ciated, because I think it is important that we gain a better under-
standing of exactly which are the States whose laws we are propos-
ing to preempt here. I think that would be basic information that
we need for proceeding on this type of legislation.
[The following was received from Mr. Kruesi:]
25
8TAT6 Of MARYLAND
iiMooim Mvino MDOftHOUSE
"°Settli
»B'-KO MtlNTt jfft-*jg\ KHAUb I J1£WKINP
L SCHtFTEB
Cl- -i M. LiOON
PUBLIC SERVICE COMMISSION ufrors^-rj^jj/
231 E. BALTIMORE S.REET
BALTIMORE. MARYLAND 21202449B
(410) SS3-W00
TTY TO* DEAF; WJWei
June 17, 1992
TO ALL COMMON CARRIERS OF FREIGHT SUBJECT TO THE JURISDICTION OF
THE PUBLIC SERVICE COMMISSION OF MARYLAND!
During the 1992 Session of the General Assembly of Maryland, Chapter 524 (H.B.
247) of The Lews of Maryland was enacted, effective July 1, 1992.
Bffectlve July 1. 1992, this new law terminates toe Public Service Commission's
uithority over common earners of freight.
For example, after July 1, 1992, the Commission will no longer exercise regulatory
or safety authority over couriers, package delivery services, or freight line companies.
Vehicles owned by such common carriers of freight will no longer Be Inspected by the
Maryland Public Service Commission. In addition, it will no longer be necessary to Die
tariffs, annual reports, or insurance certificates with the Commission or to pay annual
assess •$ to the Commission.
Shouldyou have any questions regarding this matter, please contact the
Commission's Transportation Division at (410) 333-6062.
Sincerely,
Ronald B. Hawkins
Executive Secretary
cop
The Commission
Bryan O. Moorhouse, Genera! Counsel
Gregory V. Carrnean, Executive Director
Donalo P. Eveleth, Asst Executive Secretary
Donald W. Myers, Fiscal Administrator
26
Mr. Rahall. All right, let me move off that point.
Let me ask whether it is the position of this administration that
State economic motor carrier regulations impede interstate com-
merce?
Mr. Kruesi. Yes, it is.
Mr. Rahall. It is. Then how do you interpret that the Congress
under the Constitution has the power to preempt State regulations
relating to intrastate commerce, without even doing so under the
guise of interstate commerce?
Mr. Kruesi. Mr. Chairman, Congress under Article I, Section 8
of the Constitution, has exercised that power which has been
upheld by the courts to preempt State regulation of intrastate com-
merce in air, intercity bus and railroad operations. Given the fact
that these issues are very similar to the issues now confronting
this Committee, we believe it has that power over trucking.
This Nation's economy is so interrelated that regulatory impacts
on shipping costs within one State have impacts and are paid for
by consumers and companies throughout the entire country. That
is what really is a striking fact.
There was a study that was done for the Department of Trans-
portation about four years ago, conducted at the Wharton School of
the University of Pennsylvania. It showed the extraordinary extent
to which shipping costs which would seem to be confined to just
one State, in fact spilled over and passed on costs to other citizens
throughout the country. It is really a rather remarkable study. I
would be happy to submit that for the record, too.
Mr. Rahall. Yes, as well as any further information you have to
submit the affirmative response you gave to the question about
State economic regulations impeding interstate commerce. I would
appreciate any backup information.
Mr. Kruesi. Yes, sir.
Mr. Rahall. The Transportation Lawyers Association, in a letter
I have and I quote, states that the amendment, "Does not and
should not be construed as restricting safety regulation authority
by the States. The obvious problem that will be created is that a
State cannot subject the exempt carriers if it is not able to find
these carriers," end quote.
The letter notes that in a study made of DOTs ability to require
exempt interstate carriers to comply with its safety regulations, the
agency's response was that if it cannot find them, it cannot impose
safety regulations on them. How do you suppose the States would
be able to ensure that safety requirements are met if the Congress
preempts these laws relating to rates, routes and services?
Mr. Kruesi. Mr. Chairman, this Committee has worked very well
in developing the Motor Carrier Safety Assistance Program, now
funded at the rate of $65 million a year, which allows the U.S. De-
partment of Transportation to fund inspections and inspectors at
the State level.
Most of these inspections are conducted by State Motor Vehicle
Inspections and police officers, and these are what keep unsafe
trucks off the road and detect them, much more so than regulatory
efforts. It is quite clear to us from the studies that we have seen.
Again, it is not the economic regulation, but rather the law en-
forcement efforts of the States and localities with the direction
27
from the Federal Government, that results in reductions in fatali-
ties and a safer, although still not sufficiently safe, trucking indus-
try. As indicated in my testimony, fatalities in trucking have gone
down, and the fatality rate has gone down about one-half since de-
regulation in 1980.
Mr. Rahall. You are pretty strong in your support of the Senate
language. That is pretty strongly stated in your testimony. Does
that mean that DOT supports the language of the Senate in Sec-
tion 211 word for word, and that you would not support language
that would clarify and provide equity among all motor carriers?
Mr. Kruesi. No, I would hope you would not interpret my state-
ment in that way. Let me try to be very clear what it is that I am
saying. Section 211, as passed by the Congress and before this com-
mittee today, is an extraordinarily
Mr. Rahall. Passed by the Senate.
Mr. Kruesi. Yes, I am sorry, is an extraordinarily important
piece of legislation which goes a long way toward getting tremen-
dous benefits for American businesses and more fundamentally for
American consumers. It does not go all the way and there clearly
are some ambiguities.
I certainly would not suggest that Section 211, as drafted, is a
model of draftsmanship. It is clearly a stapled-together provision.
There is no question about that. My concern and the Administra-
tion's concern as well, is that whatever else we do, we want to be
sure that the direction of 211 is continued. If, as a result of clarify-
ing 211, the consequence is a continued stalling of the AIP reau-
thorization or a loss of section 211, that would be unfortunate.
There is no question that this Department and indeed the Ad-
ministration would be more than happy to work with this Commit-
tee to further clarify section 211. I think the concerns that have
been expressed by many of your Members today, are legitimate,
that there is going to be a transition period. I also indicated in my
testimony that the transition effects can be alleviated if it is the
will of this Committee and Congress to do so.
But in any event, I do believe that 211 will take us very far in
the right direction, and I think it will take us ultimately and inevi-
tably to the full deregulation of intrastate trucking.
The only issue to me then is whether this Committee and Con-
gress wants to take that step more explicitly now; or view 211 in
its current state as a major victory, and then either revisit it later
or work with States for voluntary deregulation.
A good part of what will make this go better or worse for small
carriers around the country is clearly the question of the goodwill
of PUCs throughout this Nation.
The biggest concern, Mr. Chairman, quite frankly, is that there
will be small carriers that may be trapped in a regulated environ-
ment, in a situation where their customers or potential customers
have options that are outside the regulated environment and there-
fore find they are at a very serious competitive disadvantage.
I think that is a very important issue and concern that this Com-
mittee appropriately feels the need to address.
Mr. Rahall. So if we were to provide equity for all motor car-
riers in a final conference report, the administration would still
support that language?
28
Mr. KRUESI. Yes, we would, and I would be happy to work with
you on that.
Mr. Rahall. Let me move to one final question and that is: How
did the administration's support for complete and total motor car-
rier deregulation, both intra-and interstate, come about? You not
only support preemption of State laws, but it is my understanding
that you support eliminating the filed rate doctrine and the ICC
entry requirements as well, through another piece of legislation.
So I am curious, was this something the President supported
during the campaign, or did this position evolve once the adminis-
tration was in place, perhaps there were holdovers from a previous
administration who continued to implement their policies down at
DOT?
Mr. Kruesi. Mr. Chairman, as you know, I have had the distinct
pleasure and honor of representing the Administration's position in
both the House and Senate on both of these pieces of legislation.
I would say two things. First, it clearly is an effort on the part
of President Clinton and Vice President Gore. They view this as
part of the effort to reinvent government, to look at better ways of
doing things and invigorating the country. This Administration
views these kinds of efforts, with tremendous cost savings and im-
proved efficiencies in the production and distribution of goods
around this country, as helpful to the economy.
The Chair may recall the famous line in the campaign, "It's the
economy, stupid," which was a way of reminding those involved in
the campaign to keep focused on the economy and the economic
consequences of the issues. I think there is a very strong sense in
the Administration that these deregulation efforts are very impor-
tant to the economy. They also allow it to both grow and to breathe
more freely.
Mr. Rahall. Thank you.
The gentleman from Wisconsin.
Mr. Petri. Thank you. I would like to thank you for your testi-
mony and indicate that, at least speaking for myself, I am eager
to work with you as closely as possible to make sure as we do make
changes in the direction of the deregulation we do it as effectively
as possible and with as little disruption for people as possible.
Mr. Kruesi. Thank you.
Mr. Petri. We don't want a filed rate doctrine problem if we can
avoid it ever again. You did talk a bit in your testimony and again
in response to one of the Chairman's questions about the impact
of 211 or similar changes on safety. I think you indicated that, if
anything, it would have no impact or improve safety. Since deregu-
lation has occurred, safety rates have nearly doubled in the United
States in the positive direction.
Mr. Kruesi. Yes. Congressman, the issue of safety and the issue
of economic regulation are two separate issues. The improved safe-
ty rate for trucks is not a result of whether trucking is regulated
or deregulated, but rather the safety programs and laws, and, their
enforcement. I was involved in law enforcement for almost nine
years before I came here and I know first hand it was the enact-
ment and strong enforcement of effective safety laws that has had
the impact.
29
Mr. Petri. So I guess you take the position that those who raise
safety in this context are essentially raising a red herring.
Mr. Kruesi. Yes, sir.
Mr. Petri. What about job loss? Do you have any indication as
to whether this will result in more or fewer jobs, you know, a cou-
ple years down the road?
Mr. Kruesi. Congressman, what is striking to me, in reviewing
this issue with people who went through the original deregulation
efforts for trucking some 14 years ago is the extent to which that
concern was expressed then, and it is a perfectly legitimate concern
now.
What has happened as a result of deregulation has been very
good. Overall the total number of people who are employed in
trucking has gone up dramatically since deregulation. About
600,000 additional jobs have been created in the trucking services
industry.
It has also opened up tremendous opportunities for minorities
and women and others who previously were denied access to own-
ing trucking companies. They are able now to get into that busi-
ness and make a go of it. That really is an affirmation of the Amer-
ican dream, and I think that has been a very positive impact.
There have been some trucking firms that have gone out of busi-
ness and gone bankrupt, and there have been people who have lost
their jobs as a result of those bankruptcies, just as happens
throughout the country. But overall, as the economy has strength-
ened, people have been able to find other employment, and indeed
have an opportunity to follow their dream and start their own com-
pany.
Mr. PETRI. So it is your testimony that if anything further de-
regulation would do is to produce more jobs and more safety rather
than fewer jobs.
Mr. Kruesi. Yes, sir, and that is the view of the Administration.
Mr. Petri. Finally one last question. I think I heard, and correct
me if I am wrong, that to the extent that there are changes in 211,
you feel it would make sense to simply not have the paste-it to-
gether that would deregulate all trucking in this area rather than
leaving some in doubt or some behind a regulatory fence and others
who were doing similar things so far as a customer was concerned
on the outside.
Mr. Kruesi. As I said, Congressman, I don't want to get into a
situation where we lose the important gains of 211. On the other
hand, if we are able to improve it and make it clearer, I think that,
although lawyers may be unhappy with that result, it clearly would
be beneficial. Truckers throughout the Nation would otherwise
have to go through the mine fields of the 41 or 42 regulatory
schemes under which they would like to function, yes, sir.
Mr. Petri. So you are saying you would or would not like to
broaden it?
Mr. Kruesi. I would be more than happy to broaden it and work
with this Committee on that effort. But we do not want to run a
serious risk of losing the benefits of 211 as it is drafted now.
If this can go forward with a rapid passage of the AIP reauthor-
ization bill so we can get these airport projects throughout the
30
country moving forward, and at the same time keep 211, we would
be more than happy to do that.
Mr. Petri. I do think we need to try to clarify the 14,000 ship-
ment test. Some lawyers have been writing in to me saying if some-
one gets 15,000 airmail letters in the course of a year, they may
conceivably qualify as a person who is doing business involving
that many shipments.
Mr. Kruesi. Certainly it looks like, reading the Washington Post
today 15,000 is an easy number to reach, given what happened
with the mail delivery. I do think that is correct. As I indicated in
my prepared remarks, there are areas of interpretation that will
need to be dealt with; and in addition, the number 15,000 is an ar-
bitrary number.
As you well know, it started out at 50,000 and worked its way
down. There is also a very strong argument based on our reading
of 211 as it is currently drafted, that gets around the issue of how
many shipments are necessary to qualify for the exemption. Sub-
section A allows for an exemption for a carrier who sets up a
freight forwarding operation. The problem, of course, is that would
have to be tested in the courts and the public utilities commissions
throughout the country, and that is very expensive and time con-
suming, particularly for small shippers. That is clearly by a bur-
den.
Mr. Petri. Thank you.
Mr. Kruesi. Yes, sir.
Mr. Rahall. The Congressman from Tennessee.
Mr. Clement. Secretary Kruesi, a pleasure to have you here.
Mr. Kruesi. Thank you.
Mr. Clement. And two of you from Chicago, Congressman Lipin-
ski over here that I am very, very fond of, my father being an FBI
agent once upon a time in Chicago, so I go back a long ways with
your great city.
It is my understanding you support or the administration sup-
ports Section 211 of S. 1491 for three basic reasons, and that is be-
cause the administration feels strongly it would bring about mar-
ket expansion, increased competition, and lower prices; is that cor-
rect?
Mr. Kruesi. Yes, sir.
Mr. Clement. And from my understanding, too, you said that
you would support total deregulation as well.
Mr. Kruesi. I would be happy to work with this Committee on
that, again, provided we did not end up in a situation where the
best drives out the good, so we end up with nothing.
What is really essential, I just want to reiterate this, is we don't
want to get in a situation where we lose the opportunity to get as
far as 211 takes us, because it takes us a very long way. It takes
us so far that it might make it impossible to remain a regulated
intrastate carrier because there would not be a protected regulated
market, and such carriers would be at a very serious competitive
disadvantage. We should not focus solely on the 15,000 packages,
however.
Mr. Clement. Being a former Chairman of the Tennessee Public
Service Commission and knowing that Commissioner Keith Bissell
31
from Tennessee will be testifying shortly, what do you see the role
of the PUCs and the PSCs in the future if we pass Section 211?
Mr. Kruesi. I think that that would vary, Congressman, from
State to State, and I wouldn't presume to be an expert on what
those impacts would be.
The Illinois Commerce Commission, for example, performs a
great many other very important regulatory functions, including
the regulation of electric utility rates, which would continue. What
would be eliminated would be economic route and rate setting for
motor carriers. To the extent there are States where the only func-
tion of that agency would be the route and rate setting for truck-
ing, then that entity ought not continue to exist. I must say that
there have been similar discussions going on now for some time
here in Congress on the future of the Interstate Commerce Com-
mission, in view of its decreased responsibilities and shrunken size
as a result of deregulation.
So I think those are questions which would be considered in
States where trucking regulation remains. I think, Congressman,
that one good way to look at this would be to contact those States
that have deregulated to see what has happened to those public
utility commissions in those States, and i would be happy, if you
wish, for us to take a look. My guess is that they continue to per-
form other functions that are more important and perform them
well.
[The following was received from Mr. Kruesi:]
We called the public utility commissions (PUCs) in most of the states which have
deregulated the non-safety-related activities of motor carriers. Generally, PUC staff
in those states have been put to work in other areas of commission responsibility,
such as motor carrier safety, electricity, telephone, and gas regulation, or other work
within the state's Department of Transportation. We would argue that these adjust-
ments provide benefits to taxpayers and consumers, and we expect that similar ad-
justments would be made in the remaining states if legislation such as section 211
were enacted.
Mr. Clement. Well, for the record, I would like, Mr. Chairman,
for you to submit that information and I might say about Ten-
nessee and I know this is true in many other States as well, I know
in Tennessee the Public Service Commission does an outstanding
job when it comes to safety programs, and we have been com-
mended on many occasions for having one of the best safety pro-
grams in the entire country with our motor carrier enforcement
people and what they have been able to accomplish and being able
to detect at times about the trafficking of drugs as well as truck
safety on our highway system in Tennessee.
Mr. Kruesi. Jim Hall has told me about that and reaffirms your
assessment of those programs. You really did hit on the key thing,
which is cooperative enforcement, not only with the public utility
commissions, but also with law enforcement officials at State, coun-
ty, and local and Federal levels all working together. That is what
makes these programs work.
Mr. Clement. Thank you.
Mr. Kruesi. Thank you.
Mr. Rahall. The gentleman from Pennsylvania, ranking Minor-
ity Member on the Aviation Subcommittee.
Mr. Clinger. Thank you very much, Mr. Chairman. Secretary
Kruesi, thank you for appearing today and for your testimony. You
32
may have heard my opening statement expressing some frustration
with the fact that this issue seems to be the tail wagging the dog
of our airport improvement program reauthorization.
Mr. Kruesi. Yes, sir but it is a very big tail.
Mr. Clinger. That is right, but you have expressed interest in
going further than 211 presently does. You said you want to work
with us and so forth but had some reservation about what that
might ultimately do to us. My question is because of the context
in which 211 appears in an aviation bill is sort of structured in lan-
guage that is not necessarily appropriate for what is really a motor
carrier provision. Wouldn't it be better perhaps if we were to recast
this as a straight motor carrier provision because that is really
what we are doing here?
Mr. Kruesi. Congressman, I have to admit complete ignorance of
the intricacies of the operations of Congress. I am struck and grati-
fied by this subcommittee Chairman's willingness, indeed eager-
ness, to hold a hearing on this very important subject today which
I think is really extraordinary.
I want to commend you for that. I think it is very important.
What I would hate to see, as I say, is getting as far as we have
gotten here, and then having it derail either 211 or the AIP Bill
itself.
Further, one thing that is striking, the Administration intro-
duced the airport improvement program legislation last January,
and the emphasis was to get a bill in early so there would be early
Congressional action to make sure we were able to keep these pro-
grams going, and here we are nearly in August discussing it. So
I certainly understand and agree with your concern that we don't
want it to continue to delay the bill so that important projects, well
over $1 billion in airport improvement projects throughout this Na-
tion, are kept on hold. That is not a good result.
At the same time, I suggest that it is not a good result to let an
opportunity for important savings for consumers and the economy
slip through our fingers either.
So my suggestion would be, if it is the will of this Committee and
Congress to continue to go forward quickly in deregulation of intra-
state trucking, we would be delighted to work with you in that ef-
fort.
If it really runs the risk of hanging up 211 or the AIP bill, then
it is probably not helpful to tinker with 211 and lose those two
great opportunities.
Mr. Clinger. I think that gives me a better idea of what your
concerns are here. I take it from what you are saying that you
would support going further than we do in 211, that is basically to
total deregulation, and I wondered if you had concerns other than
the fact that it might result in more controversy and therefore
more delay. Do you have any concerns with just the simple fact
that if deregulation were to occur across the board for all carriers,
that there is a down side to that?
Mr. Kruesi. No, but we would want to be sure that 211 was not
in any way impeding the routing of hazardous materials ship-
ments.
33
There are a few other issues which I address briefly in my testi-
mony. But overall, I think that is a fair characterization of where
we are.
Mr. Clinger. If Congress does not preempt State regulation of
intrastate trucking, how long would you anticipate that it might
take if it would ever happen that States in their own wisdom might
decide to do this?
Mr. Kruesi. Given the fact that we are 14 years beyond Congres-
sional action on deregulation of interstate motor carriers and we
now have only nine deregulated states, we are less than one-fifth
of the way there.
At that rate, I certainly would expect to be retired before we got
all the way there. It is really hard to predict. I worked for Richard
Daley as a legislative aide in the Illinois General Assembly for sev-
eral years, and I am not sure that I would even be able to predict
how long it would take in Illinois.
I would not presume to be able to estimate how long it would
take in the other States. It would be a long, lengthy process. Con-
gress had the guts back in 1980 to deregulate trucking interstate,
and it has had tremendous, and I think it is fair to say
uncontested, benefits for this country and its people. Now we have
an opportunity to expand them by Congressional action, and it
would be wonderful to take advantage of that.
Mr. Clinger. Well, I would agree with you. I think getting rid
of any entrenched bureaucracy is always difficult. There is an iner-
tia factor there that is very difficult to overcome.
Mr. KRUESI. It is difficult, but it is worthwhile.
Mr. Clinger. It is worthwhile and I support that. Thank you.
Mr. Rahall. Mr. Lipinski.
Mr. Lipinski. Thank you, Mr. Chairman. I want to personally
welcome Assistant Secretary Kruesi to the Public Works Commit-
tee. Frank and I go back a long way and worked on numerous
projects together. He has always been extremely bright, very hard
working, and very effective in articulating his position, as he has
once again this morning, and I congratulate him upon that.
Mr. Kruesi. Thank you, Congressman.
Mr. Lipinski. I have always made it a policy though that in
Washington, D.C. when two Chicagoans get together, they don't
really discuss anything publicly, only privately.
Consequently, I have no questions for the Secretary or the As-
sistant Secretary this morning, but I do have to say in all candor
that unfortunately on this particular issue for one of the rare occa-
sions that Frank and I have known each other, I have to disagree
with him probably 90, 95, 98 percent. It is a pleasure to see you
here. Everything I said this morning, I mean sincerely and, Mr.
Chairman, I turn it back to you.
Mr. Kruesi. Congressman, let me just add one thing, if I might.
I would be more than happy of course, as always, to discuss this
as we are wont to do and have on a great many occasions over the
years, and I look forward to that conversation and I am obviously
available at your convenience, at any time.
Thank you very much.
Mr. Lipinski. Thank you very much.
34
Mr. Rahall. The Chair looks forward to reading the gentleman
from Illinois' statement which he submitted for the record at the
beginning of the hearing.
The gentleman from Arkansas, Mr. Hutchinson.
Mr. Hutchinson. Thank you, Mr. Chairman. And Mr. Kruesi, I
thank you for your testimony today also. I don't know you as well,
but I think I agree with 98 percent of what you said in your testi-
mony.
In your testimony you referred to the concern that some have ex-
pressed that Section 211 is a narrow provision that would benefit
only a few relatively large companies, UPS and FedEx, and you go
ahead and speak of, if given the broad interpretation, it could even-
tually save $3 to $8 billion. Given that broad interpretation, what
percentage of carriers would be deregulated under 211?
Mr. Kruesi. As we read that provision, and this is one of the
wonderful ambiguities that will probably keep lawyers busy
throughout a great many States for quite awhile, but as we read
it, there are two ways in which one could qualify for this.
One of them deals with the 15,000 package minimum; the other
is to hold yourself out as a freight forwarder, for there is no re-
quirement on the number of packages or movements.
Section 211 as drafted, in fact, could lead to complete intrastate
deregulation of motor carriers. I think that is the correct reading
of it. Although it is not unambiguous, I think part of the charm of
the legislation as it is currently drafted is that it does have that
broad opening.
It also provides that in the event a freight forwarder meets the
exemption in a single State, it ipso facto meets the definition
throughout all the States. That gives an additional opening that is
fairly self-evident, so I don't think it requires a great deal of inge-
nuity to be able to work through it.
The difficulty is that it would take some help to understand
those intricacies, and a willingness to take risks, on the part of ini-
tial carriers, to take advantage of section 211 and hope they are
successful if challenged by their State PVCs. I think there really
is a very strong argument that the 15,000 shipment limitation,
which people have focused on, is probably not the correct thing to
focus on.
Mr. Hutchinson. Well, as charming as the ambiguity would be,
wouldn't it be far better to clarify that and make it very clear that
we intend that to be a broad deregulation?
Mr. Kruesi. Congressman, again, I go back to my earlier answer.
I think that if there is time and the inclination of Congress to do
so, we are more than ready to help in that effort. Section 211, as
it currently is drafted, even under the relatively narrow reading,
goes a long way toward deregulation of intrastate trucking.
That is a major advance, and I would hate to lose that oppor-
tunity. So the real question is ultimately a political judgment of
how far this Committee and Congress is prepared to go, and how
certain you are that, in the effort to make it exactly right, we don't
lose the whole effort.
Mr. Hutchinson. Well, I understand and I know we have hit
this and hit this and hit this and hit this on the administration's
position, and it seems to me if I am understanding correctly that
35
all of the concerns are political concerns that logic and your belief
the impact of what deregulation would have would say that it
ought to be broadened and it ought to be clarified, but that there
is simply political concerns that the gains that 211 as currently
drafted would give us might be lost in the controversy.
Mr. Kruesi. Congressman, I don't know whether I would de-
scribe those concerns as political or substantive, but the bird in the
hand is worth two in the bush.
We have got a lot here in this bill that is very important, both
211 and the entire bill, at least most of the bill which we support.
That would be an awful thing to jeopardize on the basis of trying
to make it better.
Mr. Hutchinson. At the conclusion of your testimony, you ac-
knowledge that there may be a transition period in which smaller
and less sophisticated carriers might find it hard to adjust. That
seems to me to be acknowledgment that broad interpretation might
not always prevail, and it is going to at least be a period of time
in which there may be court tests.
Mr. Kruesi. Yes, sir, there clearly would be court tests and these
are expensive and time consuming.
Mr. Hutchinson. Is there any way to project what kind of job
loss or how many company failures there might be during that
transition period?
Mr. Kruesi. I don't know how to do that. But clearly, when you
move from a regulated environment where shippers have no choice
but to use regulated carriers to one where they do have choices be-
tween regulated or nonregulated carriers and the regulated car-
riers are more costly, there will be a serious burden for the regu-
lated shippers during that transition. It puts them at a competitive
disadvantage and may well cause some of them to go out of busi-
ness in the transition.
Mr. Hutchinson. Thank you. Thank you. That is all Mr. Chair-
man.
Mr. Kruesi. Thank you, Congressman.
Mr. Rahall. The Chair recognizes the Chairman of our full com-
mittee.
The Chair. Thank you, Mr. Chairman. Thank you, Mr. Kruesi.
I apologize for not being here for it, although I have reviewed your
statement. On page 7 of your testimony, you discuss how as part
of deregulating the various modes that we have to one degree or
another preempt the State regulation of what we were deregulat-
ing.
Now, is there in your view any constitutional issue which would
keep us from preempting State regulation of the economics of
trucking companies which move freight within a State?
Mr. Kruesi. Mr. Chairman, in our view, there is no such concern
and there are a couple of reasons for that. One of them is Article
I, Section 8 of the Constitution which empowers Congress to regu-
late commerce among the States. That clearly has been interpreted
by the courts in very similar situations to include strictly intrastate
movements of air carriers, rail, and intercity buses.
The Chair. And if we were — I am sorry. Go ahead.
Mr. Kruesi. That is point one. Point two, the reality is that ship-
ments that appear to be strictly intrastate, in fact have costs that
36
are borne by consumers and businesses throughout the Nation be-
cause of the tremendous interconnectedness of this Nation's econ-
omy.
The Chair. Now, if we were to simply preempt State regulation
of routes, rates and services and do nothing more than that, would
that by itself keep States from regulating safety, from requiring
minimum levels of insurance or from continuing their present regu-
lation of truck sizes and weights, including the idea that different
size and weight requirements can be imposed on different routes
within the State?
Mr. Kruesi. Mr. Chairman, I do not believe it would have that
effect. We believe that safety issues and so forth would continue to
be regulated in the same way and if there is a concern or question
about that, we would be happy to work with you and this Commit-
tee on clarifying that, but that is our understanding.
The Chair. Chairman Rahall, as I understand it, raised the point
earlier that States, if preempted, might not be able to carry out
their responsibilities for safety regulation because the States
wouldn't know which trucking companies were operating.
Wouldn't that continue to be true, however, that States would or
could regulate the safety fitness of carriers, the sufficiency of insur-
ance coverage by carriers and other things, and couldn't States
therefore continue to know exactly which intrastate carriers oper-
ated within their boundaries?
Mr. Kruesi. Yes, sir. They certainly could know that, in the
same way that the Interstate Commerce Commission, which does
not regulate rates because that has been deregulated, knows of reg-
ulated interstate carriers; likewise, the Department of Transpor-
tation, which regulates the safety of some 280,000 carriers, to
which it assigns identification numbers, knows about them and
knows about their insurance and safety records as well.
The Chair. On page 12 of your testimony
Mr. Rahall. Chairman, would you yield on that point?
The Chair. Yes.
Mr. Rahall. Wouldn't the States still have to have some type of
filing requirement for fitness certificates, some type of new permits
for such safety reasons?
Mr. Kruesi. It would certainly be entitled to do so. This is not
an effort to in any way reduce or impede any State's ability to reg-
ulate safety for trucks.
We have made a point of emphasizing the importance of working
closely with States on truck safety in a great many ways. We want
to make sure that insurance requirements are maintained and do
not get impeded by 211.
The Chair, On page 12 of your testimony you discuss the prob-
lems of small tracking companies which would be left out of Sec-
tion 211's preemption. You mentioned that these carriers, and I
quote, "might find it hard to adjust," unquote. On that, Mr. Sec-
retary, you may be guilty of an understatement.
But in any event, if a small carrier is competing for business on
a regulated basis, and its competition is competing for that same
business on a deregulated basis, isn't that small carrier as good as
dead?
37
Mr. Kruesi. Mr. Chairman, let me apologize for being unduly
diplomatic. My answer to your question is yes.
The Chair. However we decide to preempt States, would the ad-
ministration support the idea that we ought to treat all trucking
companies alike rather than deregulating some trucking companies
and not others?
Mr. Kruesi. Yes, sir, and the reason is that we don't want to put
small- and medium-sized trucking firms at a competitive disadvan-
tage. As you point out in your example, that could be a result dur-
ing a transition period until it was clear through interpretation and
litigation, what is the actual breadth and scope of 211.
That would be a very unpleasant and difficult time for those car-
riers that would be trying to determine whether they were operat-
ing on a regulated or an unregulated environment.
The Chair. In any one of the seven or eight States that have
been deregulated, are you aware of any situations where there has
been widespread dissatisfaction, or are they faring as well as those
States that are regulated?
Mr. Kruesi. They are actually, Mr. Chairman, faring as well as
had been expected, which is better than those States that are still
regulated. Arguments regarding the current deregulation con-
troversy also came up in the 1980 discussions, which I am sure you
recall because you were at the center of all those. One is the extent
to which, small communities would not be served after deregulation.
First of all, the reality is that, for the most part, the regulated
carriers will not be the ones that serve the small community. Sec-
ondly, in the deregulated environment, small communities have
continued to be served indeed, sometimes at rates that are lower
than they had been previously. Deregulation clearly has been a
good thing.
It has provided incredible advantages, namely rates are lower,
service is expanded, and employment is enhanced. It has allowed
the economy to make better use of just-in-time shipment. It is real-
ly a tremendous advantage, and shows Congress acting wisely 14
years ago.
The Chair. Well, Mr. Secretary, I want to thank you very much
for your responses and for being a one-armed Assistant Secretary
of Transportation for policy.
Mr. Kruesi. Thank you very much, Mr. Chairman.
Mr. Rahall. The Chair would like to ask for a 10-minute recess
so Members can go over and answer this roll call vote, but I do be-
lieve we still have further questions for you, Mr. Kruesi, if you
would be so kind as to stay here.
Mr. Kruesi. I will stay here as long as you wish, Mr. Chairman.
Mr. Rahall. Thank you.
The subcommittee will come to order, please.
Did the Assistant Secretary go back to revise the policy or
Mr. Rastatter. He is still here, sir.
Mr. Laughlin. Mr. Chairman, maybe this is like a murder case
I was trying one time when I was a prosecutor. I had talked to my
witness in the hallway, a witness on the witness stand, called the
witness next and the bailiff couldn't find him and we found out
that he had been arrested while he was out in the hallway. But
both sides of this dispute got even when the defense lawyer started
38
calling his witnesses. He found out some of his had been arrested
also. So maybe our Secretary has been arrested.
Mr. Rahall. The Secretary was last spotted at the cafeteria.
Mr. Rastatter. Mr. Chairman, Mr. Kruesi expected this would
be a longer intermission than it is and if you would like to move
it along, perhaps you might like to submit the questions for the
record and we can answer them.
Mr. Laughlin. Here he comes.
Mr. Rahall. The Chair will recognize the distinguished gen-
tleman from Georgia, Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman, and Mr. Secretary, I en-
joyed your comments and — but I want to refer back to — you said,
in your opinion, that this legislation on the 211 would actually de-
regulate all of the intrastate trucking. Did I hear that right?
Mr. Kruesi. Yes, sir, Congressman.
If I may begin by apologizing for being late, I guess my tardiness
reinforces the point that a government employee's definition of "on
time" is not the same as either Congress' or the private industry,
so I think it reinforces the need for this governmental rate deregu-
lation. Seriously, thank you for your forebearance.
Yes, that is correct.
Mr. Collins. Are you basing that on a particular portion of the
211 language?
Mr. Kruesi. Yes, sir. I am basing it on the reading of the attor-
neys in the General Counsel's Office of the Department of Trans-
portation.
Concerning intermodal all-cargo air carrier, there are two defini-
tions. Definition A is the one that allows an air forwarder to be in-
cluded within that definition and there are — although we don't
have an accurate count — somewhere in the order of 4,000 to 5,000
domestic air forwarders throughout the Nation. In order to be a
freight forwarder, there is no requirement of a minimum number
of packages to be shipped.
Definition B, which most people have focused on, which includes
the 15,000 usage minimum which originated at 50,000, really does
not apply to the subparagraph above that.
Mr. Collins. What about, go back to B. It says in the other car-
rier, one which has authority to provide transportation. Does that
have anything to do with your opinion?
Mr. Kruesi. No. Because if you are looking at B, then all three
subparts have got to be included. You have got to both have the
authority to provide transportation or you have got to be basically
involved with an air carrier that is shipping at least 15,000 times
annually; and, three, you have to undertake transportation de-
scribed in 105(a)(4). So that Subparagraph B really encompasses
all three elements.
A, in contrast, has no relationship to B, which is to say, there
is no minimum number of packages shipped requirement. That is
the difference.
Mr. Collins. I want to stay with B, though, in one which has
authority to provide transportation. If we completely deregulate,
will the States still have, under their PSCs or PUCs, the authority
to — to grant authority, the right to grant authority?
Mr. Kruesi. Yes.
39
Mr. Collins. Or will they have to further pass legislation or
enact legislation to adopt that?
Mr. Kruesi. No, Congressman. They would still have the author-
ity to do things that would be unrelated to the scope of powers —
unrelated to economic regulation, for example, safety.
Mr. Collins. That is all I have, Mr. Chairman.
Mr. Rahall. The gentleman from Texas, Mr. Laughlin.
Mr. Laughlin. Thank you, Mr. Chairman.
And Mr. Kruesi, I have got to explain, I told this story while you
were out about the witness being arrested and I am glad to see you
were not.
Mr. Kruesi. You are not as glad as I am.
Mr. Laughlin. That is true.
Mr. Kruesi, I want to talk to you about safety for a minute. I
noted two things in your testimony: You said it was a red herring,
and secondly, you said the statistics had improved vastly in the
past few years. In my other life, I also defended trucking compa-
nies in litigation for which they were sued for very large sums of
money for death and injury and maiming people.
Generally, the drivers would say that it was because somebody
else did something wrong and there was a mechanical failure in
the truck, and before we were too far down the line, the plaintiffs
attorneys were looking at our maintenance records.
What is it about this bill that gives you the confidence to say
that with the passage of this bill, these improving statistics with
fatalities and deaths and injuries caused by trucks being involved
in accidents are going to improve?
Mr. Kruesi. Congressman, I am not saying it will improve be-
cause of this bill; it will have no impact on the accident-related fa-
tality rate. The experience has been that in dealing with causalities
there is no impact from economic regulation.
There are two concurrent trends in the time period since deregu-
lation at the interstate level. One is, there has been a reduction of
about 55 percent in the fatality rate for trucking between 1978 and
1992, the period which encompasses deregulation at the interstate
level.
Mr. Laughlin. Do you attribute any of that to safety inspection?
Mr. Kruesi. I attribute a lot of that — I attribute most of that, in-
deed to safety inspections. I attribute a great deal of that to the
efforts of this Committee and others in Congress to develop and
fund a program that the Department of Transportation runs for in-
spections. I think that is the key, yes.
Mr. Laughlin. The safety inspection is what I want you to focus
on in response to my question. How is this legislation going to
change it? And I will tell that you in my State district, I have had
a number of people say to me, knowing this legislation was coming
along, particularly in the trucking industry, people who use the
trucking industry say that they are concerned about the safety as-
pects of the passage of this bill.
And that is why I want you to address what is going to happen
in my State and other States as to their safety requirements. And
at the same time, I have got to tell you that last year before this
very committee, we had a trooper who was in charge of all safety
inspections in my State say that Mexican trucks coming through
40
my State drive 4 million miles in my State. Three million of that
is pass-through going to other States. Where are we going to be on
safety inspections state-by-state if this bill passes?
Mr. Kruesi. Congressman, if I may, let me respond in part by
giving a very brief biographical sketch. Previous to coming here
and working as Chief Policy Offices for Chicago, I was the Execu-
tive Officer of the Cook County State's Attorneys Office, which was,
depending on which year, the largest or second largest prosecutor's
office in the country. We were responsible for working very closely
with law enforcement officials at State and local and county levels.
We worked very closely with the Illinois State Police, the Sec-
retary of State Police, the State the Cook County Sheriffs and City
of Chicago Police Department, and about 128 other jurisdictions in
Cook County. That effort included a great deal of work on truck
safety requirements. That included very strict enforcement of truck
safety requirements, vehicle regulations, inspections, weight re-
quirements. That is where the big impact occurred.
Enhanced truck safety did not occur because of State economic
regulatory functions. State safety law enforcement functions were
critical. That was essential.
There has never been, to my knowledge, and I have looked at
most of the literature on this, a showing of a relationship of any
sort between economic regulation and safety. They are two sepa-
rate things.
It certainly is possible for an agency that is responsible for eco-
nomic regulation to simultaneously have very important safety reg-
ulatory responsibilities. But it is not the economic regulation that
causes safety improvements the reverse. I believe it is clear that
economic regulation does not impact positively or negatively on
safety.
Mr. Laughlin. Are you saying then that the States will still
have the mandate and the authority, jurisdiction, to do the safety
enforcement according to their State law and desires?
Mr. Kruesi. Yes, sir, absolutely, and if anything, I think that is
an area where we can continue our improvements in various pro-
grams, because that is very, very critical. That is the right place
to focus on. This Congress has recognized that. The Department of
Transportation recognizes it and the data, I think, reflect the fact
that as a result of aggressive safety activity at all levels, there has
been an improvement in the safety record for trucking in this coun-
try.
Mr. Laughlin. So, in your opinion, this bill in no way will im-
pact the State's ability to enforce safety operations, safety inspec-
tions of the trucking industry?
Mr. Kruesi. That is correct, Congressman.
Mr. Rahall. Would the gentleman yield?
Mr. Laughlin. Yes.
Mr. Rahall. Is that explicitly clear in the Senate language?
Mr. Kruesi. Let me put it this way; it is explicitly clear as any-
thing in 211 is explicitly clear.
Mr. Rahall. Thank you.
Mr. Kruesi. Which is to say, the focus there is clearly on eco-
nomic regulation. To the extent it would be helpful to make that
even more abundantly clear, that would be appropriate and it may
41
well be appropriate in the context of the appropriations bill which
Congress is considering for next year on the MCSAP program
which funds safety programs at the State level.
Mr. Laughlin. Well, since it is explicitly clear, it seems to me,
Mr. Chairman, our staff ought to be prepared. And I will be happy
to do it, offer an amendment making it even more explicitly clear,
or in the alternative, have language in the bill that is — makes it
more clear than what we are dealing with.
Mr. Kruesi. Congressman, I would say this; anything that
makes it clear that strict safety enforcement is a matter that re-
quires very strong State action and that is encouraged by this Con-
gress and this Administration is something that is a welcome addi-
tion.
Mr. Laughlin. That is all I have.
Thank you, Mr. Chairman, Mr. Kruesi.
Mr. Rahall. Thank you, Mr. Assistant Secretary.
We have no further questions from those Members present, but
I do want to ask if you would be so kind as to allow the record to
remain open, so Members who were here earlier and had questions,
but could not remain can submit those questions to you in writing,
and your responses will be submitted for the record.
Mr. Kruesi. I will be happy to do so. And I will be happy to pro-
vide materials to the Members that I promised in the course of
this.
Mr. Rahall. Thank you.
The subcommittee will stand in short recess while we answer an-
other roll call vote and then we will proceed with our next witness.
[Recess.]
Mr. Rahall. The subcommittee will resume its sitting.
Before recognizing our next witness, the Chair will recognize the
distinguished Chairman of the Aviation Subcommittee, the gen-
tleman from Minnesota, Mr. Oberstar, who has been with us most
of the morning.
Mr. Oberstar. Thank you, Mr. Chairman.
Very briefly, I appreciate you holding these hearings in the ap-
propriate forum to discuss the subject of trucking deregulation in
whole or in part which has been added to an aviation bill that in-
cludes a number of other extraneous matters, including a Senate
resolution on policy of the United States toward Korea, sense of the
Congress on the Equal Employment Opportunity Commission,
Sense of the Senate Resolution on the Whitewater savings and loan
issue, and trucking, and behind that the bill that every airport in
America is waiting to have passed so that they can get on with im-
portant aviation projects.
These hearings have the beginnings at least of illuminating the
big unanswered question I have about the amendments added in
the Senate proceedings and the Senate Floor, and that is, whether
any qualities in the marketplace may be created by the language
pending before us. We ought to discern what those are and take
the opportunities in open and public hearings to resolve them and
deal with them and enact — and go to conference with a proposal
that really makes for open, free and level competition in trucking
and trucking as it relates to aviation.
42
You have assembled, Mr. Chairman, an array of witnesses that
can help us answer those questions and we have to plumb the
depths very closely, Mr. Kruesi had been here. I would say also
that it was the Department of Transportation's insistence on a one-
year authorization bill for aviation and rejection of our proposal
last year for a three-year authorization for the Airport Improve-
ment Program that have brought us to this state today.
If they had agreed a year-and-a-half ago when we first proposed
doing what is right for aviation, we would have gotten a multiyear
authorization, the trucking issue would be dealt with on its own
merits within the motor carrier realm that is within your sub-
committee jurisdiction, and we would be discussing this issue in its
broadest context in trucking as it should be, instead of as an ap-
pendage to an aviation bill.
The second thing is that we should not be doing just piecemeal
deregulation. I was disappointed in the DOT statement. It recog-
nized the merits of Federal preemption of intrastate trucking, then
stopped short of saying that the legislation should preempt the
States on rates and entry. If we don't go that far, then I don't know
what benefit we will have accomplished.
States certainly ought to maintain authority over insurance safe-
ty and interlining and the filed rate doctrine ought to stay a Fed-
eral role, and, unfortunately, Mr. Kruesi didn't address those is-
sues and didn't provide us any beneficial insight on that crucial
subject. And maybe they don't want to.
But it is going to be your subcommittee's responsibility to do that
and to answer those questions and for this committee to resolve
those questions. I think those are the underlying broad policy is-
sues.
Fourteen years ago, I sat on this committee right about over
there on that corner, and I think you were just a few doors down
from me, and Mr. Mineta right next to me, as we voted in an emo-
tionally super-charged hearing room on trucking deregulation.^ I
think all of us had telegrams for and telegrams against from the
same organizations nationally, and State, and I recall very, very
vividly thinking, this is a lousy vote, I shouldn't vote for this, and
I was right for the wrong reason. It didn't go far enough. I thought
it was going too far.
But I think deregulation has immensely benefited aviation and
it has significantly benefited trucking, and if we can take the next
step in this context and take it further and preempt the intrastate
regulation on rates and entry, then we will have done something
good and lasting and beneficial for transportation. We will have
done it in an intermodal context.
I have to absent myself for a little while to attend to another
matter, and I will come back for the balance of the testimony
today.
Thank you for this moment, Mr. Chairman.
Mr. Rahall. Thank you very much, Mr. Chairman, for your com-
ments and insight.
The subcommittee now will proceed with our witness list, and
the next witness is Mr. Keith Bissell, the Commissioner of the Ten-
nessee Public Service Commission.
43
I understand you will be testifying on behalf of the National As-
sociation of Regulatory Utility Commissioners.
Mr. Bissell. Yes, sir.
Mr. Rahall. Fine. We have your prepared statement and it will
be made a part of the record as if actually read.
You may proceed as you desire.
TESTIMONY OF KEITH BISSELL, COMMISSIONER, TENNESSEE
PUBLIC SERVICE COMMISSION, ON BEHALF OF THE NA-
TIONAL ASSOCIATION OF REGULATORY UTILITY COMMIS-
SIONERS (NARUC)
Mr. Bissell. Thank you, Mr. Chairman.
It is certainly a pleasure to be with you today. I am particularly
happy to be here on a subcommittee that Bob — Congressman Bob
Clement from Tennessee serves on. Bob was my predecessor on the
Public Service Commission and kind of my mentor in regulation,
and I am delighted to be here today to testify.
I am probably happier to be here in Washington than any of your
witnesses, because back home in Tennessee, as Bob knows, both
my colleagues on the Public Service Commission are running for
governor against each other, and I get the heck out of town every
chance I get.
Congress has legislation under consideration which could have a
combined effect of eliminating not only the Interstate Commerce
Commission, but the vast majority of Federal and State regulatory
authority and oversight over the trucking industry.
I would like to state for the record that while the NARUC, Na-
tional Association of Regulatory Utility Commissioners, under-
stands the need for a more uniform approach to State regulation,
we must oppose the current direction, both in substance and proce-
dure taken by the Congress to address these issues. Such changes
deserve the benefit of being discussed, debated and drafted in an
open, rational way, rather than in a piecemeal fashion as is now
underway.
Now, some of the things that have been said today give rise to
my concern about the swiftness in which this legislation is being
taken through the congressional process. For example, much has
been said about the difference between rates in interstate com-
merce and rates in intrastate commerce. And, indeed, as the Com-
missioner for the past 15 years in the State of Tennessee, on many
occasions, shippers and legislators and others have called me with
a specific example of an interstate rate that appeared to be higher
over the same distance than an intrastate rate, that inevitably,
when we looked at that rate very closely, we found that indeed the
very complex nature of ascertaining rates left one with the incor-
rect rate, and indeed our rates within Tennessee are very much in
line with interstate rates.
There have been instances where those rates in interstate com-
merce have been lower, but we have found that in many instances,
they have been driven that way by shipper pressure in a deregu-
lated environment, which resulted in a noncompensatory rate, and
the carrier, if he didn't face bankruptcy, would make it up on a
small shipper somewhere where he increased his profit materially.
44
Indeed, it has been pointed out that under a deregulated environ-
ment, that the costs associated with the commerce generally have
been driven down. I think probably we have had a number of bank-
ruptcies associated with transportation deregulation on an inter-
state basis, and there have been efficiencies generally in the trans-
portation business with larger trucks and other things like just-in-
time inventory, but indeed I think the efficiencies that have re-
sulted, the vast majcrity of them are the result of something other
than deregulation.
The Assistant Secretary made reference to fatalities, and indeed
he indicated that fatalities had been reduced by about half. Indeed,
the DOTs numbers indicate that in 1982 and throughout the
1980's, in 1982 specifically, 5,152 deaths. That is in trucks, I be-
lieve, that have a gross 20,000 pounds or more. In 1993, we just
got the figures yesterday, 4,759 deaths. So I think that deaths re-
lated to big truck crashes have remained pretty static over the past
10, 15 years.
Now, what it could be referring to is ton miles — you know,
deaths related to wrecks in ton miles or something like that, I am
not sure, but the numbers that we have seen certainly indicate
that they have remained static, even though we have dramatically
increased our focus on trucking safety in many States.
In 1987 in Tennessee, we had 170-some odd people killed as a
result of big truck crashes. We dramatically increased the intensity
of our truck safety program. We have 140 inspectors out there. We
do safety audits before a carrier operates at various times during
the year as — or years, as we determine that his safety performance
is not up to par. And we do safety audits in conjunction with our
MCSAP program. We have drug dogs, eight drug dogs that walk
around the outside of trucks when we inspect them and we made
some 800 drug-related arrests last year in the State of Tennessee,
and most of those were possession cases, but that is 800 by our
Public Service Commission in the State of Tennessee.
These programs go far beyond the. MCSAP program that we
talked about. MCSAP is excellent. It is something we support
strongly as State regulators, but we must go far beyond that.
States must have the capability of doing that. It must be expressly
stated in the legislation.
When there is a truck, car collision and somebody is killed, over
90 percent of the time it is the person in the car that is killed. We
believe that because of the current proposals that have been devel-
oped piecemeal, have been evolved in the way that they have been,
that the legislation is subject to wide interpretation and will result
in much needless litigation.
We believe there is a better way. The association at this year's
winter meeting established a motor carrier performance review and
modernization program in conjunction with the ICC. The ultimate
goal of this task force was developed with appropriate industry
input, a model uniform Federal State program.
As a matter of fact, just last month in speaking to the National
Conference of State Transportation Specialists, I challenged the
task force to develop a proposal for intrastate trucking deregulation
on a reciprocal basis among States as part of the model State pro-
45
gram. The task force intends to present its recommendations to
Congress and State legislatures within 15 months.
NARUC would like to see the Congress address regulatory re-
form in a more comprehensive way. Our clear preference is to re-
move Section 211. We would also prefer that Congress permit
NARUC's task force to do its work and return to you next year
with recommended legislation. .
Now, if that is not the will of Congress, I think it is extremely
important that you expressly in this legislation give the States au-
thority to regulate fitness of a carrier before they start to operate
in our States. We need to ascertain that this carrier has a safety
program, through a safety audit that we do in Tennessee, before
any carrier operates, a comprehensive safety audit that convinces
us that they have the wherewithal to operate safely within our
State before they begin operations.
We do safety audits on a need basis as we ascertain that the car-
riers are not complying with our safety regulations, and we do it
in conjunction with the MCSAP program. We need to have our
drug enforcement program. This all needs to be set out in the legis-
lation.
Before a carrier operates in a particular State, we must be able
to ascertain that he has the financial wherewithal to operate on a
continuous basis and that he be able to fund an adequate safety
program, and we need to be able to ascertain that that carrier has
insurance that will protect the general public before he begins to
operate.
Now, if you deregulate intrastate commerce, the same thing is
going to happen following that that happened when you deregu-
lated interstate commerce. The trucking industry is going to have
massive bankruptcies. The first thing to go, or one of the first
things to go when you have a carrier that starts operating in the
red is the safety program. So we are going to have to retain our
ability and beef up our ability to address these particular repercus-
sions of intrastate economic deregulation which will permit any-
body who can borrow, lease or purchase a truck to operate as a
trucking company in our respective States.
In closing then, let me reiterate, NARUC agrees that there needs
to be some rethinking about the regulatory structure of the truck-
ing industry at both the State and Federal level. We urge Congress
to abort its current efforts in favor of a more contemplative ap-
proach.
If Congress decides to move ahead on its current course, we urge
you to ensure that each State's ability to enact and enforce laws
and regulations to promote safety, insured and fit motor carriers,
is not hampered but is strengthened.
Thank you, sir.
Mr. RAHALL. Thank you.
Before I ask you some questions, Mr. Commissioner, without ob-
jection I ask that I be allowed to submit for the record a number
of letters I received from State regulatory authorities in opposition
to Section 211 of the AIP bill. These letters are from the States of
Colorado, Montana, New Mexico, Georgia, North Carolina, Idaho,
Illinois, Louisiana, Missouri, Oregon, Utah, and the great State of
West Virginia. I am also submitting the letter I received from the
46
National Conference of State Legislatures also opposed to Section
211 as well as the statement by the Oregon Public Utility Commis-
sion.
[The information follows:]
47
STATE OF COLORADO
Department of Regulatory Agencies
loseph A. Garcia
9U j^flO'MM"- 52
PUBLIC UTILITieS COMMISSION
Robert I Hix, Chairman
Christine £. M. Alvarez. Commissioner
Vincent Maikowski, Commissioner
Bruce N Smith, Director
June 24, 1994
The Honorable Nick Rahall
U.S. Representative
'2269 Rayburn House Office Bldg.
Washington, D.C. 20515-4803
Dear Congressman Rahall:
RE: Airport Improvement Program Bill (S.1491)
The Colorado Public Utilities Commission opposes those
provisions of S.1491 which would preempt state control of
intrastate transportation. Enclosed is a copy of a letter written
by the Colorado Public Utilities Commissioners expressing
opposition to this bill when it was being considered by the Senate.
It is our understanding that the bill, in its present form,
would exempt air freight forwarders (AFF) from state regulation
when performing intrastate transportation. Any motor carrier can
presently claim AFF status since this category of transportation
was deregulated in 1986. There is no license issued by any
governmental agency for air freight forwarders. Therefore, we
believe that this provision would essentially deregulate intrastate
freight transportation in the United States.
We believe this is a drastic step. The manner in which this
legislation was attached to an unrelated bill has not provided the
complete debate necessary to ensure that all the issues have been
aired. The potential adverse impact on smaller trucking companies,
their employees, and the economies of each state demands a full
public hearing on these issues. Only in this way can proper
consideration be given to the various competing interests in a
deliberative and well thought out process. We, therefore, strongly
urge you to vote against any provision in S.1491 which would
accomplish £e. facto intrastate deregulation.
LHS : BNS : dh
Encl.
1580 Logan Street, Office Level 2, Denver, Colorado 80203
Telephone Number (303) 894-2000 Consumer Affairs (303) 894-2070
Permit and Insurance (Outside Denver) 1-800-888-0170 Consumer Affairs (Outside Denver) 1-800-456-0858
V/TDD (303) 894-7880 Fax (303) 8942065 Hearing Into (3031 894-2025
48
imii
National Conference of State, .(.Efr ^l'.Vt ures
' ' : ■ -N i.' f'.ry
% M '9 JM 9- |q
444 NORTH CAPITOL STREET, N W SUITE 515 WASHINGTON, DC 20«t 3- I 3
202-624-5400 FAX. 202-737-1069
ROBERT T. CONNOR
o
JOHN TURCOTTE
IOINTPEE
WILLIAM POUND
July 14, 1994
Honorable Nick J. Rahall, U
Chairman
Surface Transportation
U.S. House of Representatives
Washington, DC 20515-4803
Dear Chairman Rahall:
On behalf of the National Conference of State Legislatures (NCSL), I am writing to
express our concern over legislation to reauthorize the Airport Improvement Program
(H.R. 2739/S. 1491). As you well know, the short-term reauthorization for this
important state grant program has now expired.
At the heart of the delay in reconciling House and Senate versions is Section 21 1 of S.
1491 providing for preemption of state regulation of "intermodal all cargo carriers."
One year ago, NCSL adopted an amendment to its aviation policy opposing federal
preemption of state regulatory authority over the "surface transportation component of
an air carrier's operations." By its very nature, all airfreight must be considered
intermodal. By following the line of reasoning embodied in Section 211, anytime a
surface transportation business integrates its operations with an exempt mode such as
air, states are preempted from regulating the intrastate motor carrier services. A
company's unilateral decision to mix intrastate surface transportation with interstate air
carriage cannot metamorphose ground transportation to an air "rate, route or service."
The incidental inconvenience to such a hybrid company of sorting out its intrastate
ground operations from its interstate air cargo operations does not provide justification
for preempting the legitimate regulatory authority exercised by most states over trucks.
Not only is NCSL strongly opposed to the thrust of Section 2 1 1 , but providing for
indiscriminate deregulation of the motor carrier industry in aviation legislation is highly
irregular. The grievance is compounded by the absence of any legislative history or
Congressional guidance as to the extent to this provision. NCSL urges that this
provision be excluded from any conference agreement and that critical aviation
legislation not be further delayed to accommodate hearings on this provision.
While our national policy clearly envisions more of an intermodal transportation
environment, the modal purity of existing statutes does not adequately respond to the
abrupt creation of an "intermodal all cargo carrier. " The conundrum resulting from the
1M0 BROADWAY SUTT17X DENVM. COLORADO KI202 3OM3O-2200 FAX XMt&MB
49
Ninth Circuit Court decision, in Federal Express Corporation v. California Public
Utilities Commission clearly demands that a comprehensive review of distinct modal
statutes be undertaken. The piecemeal approach embodied in S. 1491 may restore
parity in the express freight industry, but in all likelihood will disrupt the competitive
balance among other carriers subjected to state regulation.
The court decision did indeed create an uneven playing field for transportation
companies not covered by the regulatory exemption. The competitive disadvantage
experienced by these businesses in the aftermath of this decision stands to be
exacerbated, not remedied, by similar national exemptions.
NCSL can appreciate the desire among Members of Congress to correct an competitive
imbalance. However, the correction proposed is based on specious arguments; is
inappropriately placed in aviation legislation; has an unexamined far reaching impact
on the motor carrier industry; usurps regulatory authority exercised by most states; and
creates an environment which supports "statute shopping." A precedent could well be
set for multimodal or hybrid transportation companies to simply claim a more favorable
nomenclature in order to take advantage of specific provisions in law governing certain
modes.
Regulation of mixed mode transportation should be fully explored by appropriate
Congressional committees without further encumbering aviation programs. NCSL's
members and staff will be more than willing to work with you in exploring state and
federal regulation of all modes of transportation, and in seeking an appropriate
framework for overseeing the operations of intermodal carriers.
Sincerely,
Mncereiy, j
Joseph Preston, Jr.
Chairman
NCSL Transportation Committee
State Representative
Pennsylvania House of Representatives
85-090 95-3
50
COMMISSIONERS:
ROBERT B. (BOBBY) BAKER. JR.. CHAIRMAN
MAC BARBER
BOB DUROEN
ROBERT C. (BOBBY) PAFFORD
ROBERT A. (BOBBY) ROWAN
AL HATCHER. DIRECTOR
TRANSPORTATION DIVISION
1007 VIRGINIA AVENUE. SUITE 310
HAPEVILLE. GA 303S4
(404)559-6800
Georgia ftoblic g>ertoice Commit&ion
244 WASHINGTON STREET. SW
ATLANTA, GEORGIA 30334-5701
(404)656-4501 OR 1(800)282-5813
June 29, 1994
Congressman Nick Joe Rahall. Chairman
Surface Transportation Sub-Committee
2269 Rayburn House Office Building
Washington, D.C. 20515-4803
RE: S. 1491 (Senate Airport Bill)
Dear Congressman Rahall:
I have just read your comments on S. 1491 (Senate Airport Bill) in the June 20th edition
of TRAFFIC WORLD. As Director of the Transportation Division of the Georgia Public
Service Commission, I am in full agreement with you that S. 1491 (Senate Airport Bill), as
written, actually preempts the laws of 42 states for just about any trucking company.
In Georgia, all interstate and intrastate truckers are required to at least register with the
Georgia Public Service Commission which enables us to require them to have liability
insurance. This is a protection that is afforded the public. If the truckers were deregulated,
they would not be required to register and the public WOULD NOT BE AFFORDED
THIS PROTECTION.
S. 1491 (Airport Improvement Program Bill) as amended, is BAD LEGISLATION.
It is wonderful to know that the field of commercial transportation is in the hands of
experts such as you and will be given the appropriate careful study by yoursetfgand your
committee. Thank you again.
Yours very truly,
GEORGIA PUBLIC SERVICE COMMISSION
Al Hatcher, Director
Transportation Division
CD
ALH/DH
PLEASE REPLY TO 1007 VIRGINIA AVENUE, SUITE 310, HAPEVILLE, GA 30354
51
. ]r .._„._. __. Cecil D. Andrus, Governor
PUBLIC UTILITIES
COM I ISSIUngU j\)l -6 F*fo.'feox 83720, Boise, Idaho 83720-0074
Marsha H. Smith, President
Dean J. (Joe) Miller, Commissioner
Ralph Nelson. Commissioner
June 28, 1994
The Honorable Nick Rahall
United States House of Representatives
2269 Raybum House Office Bldg.
Washington, DC 20515-4803
RE: S. 1491 - Federal Aviation Authorization Act of 1994
Dear Congressman Rahall:
The Idaho Public Utilities Commission (IPUC) was recently made aware of a provision in the
Federal Aviation Authorization Act of 1994 (Section 21 1, S. 1491). The main objective of
this provision is to exempt intrastate and interstate trucking performed by companies that also
offer air cargo service. This would totally deregulate the purely surface movements of freight
by air cargo carriers even when no transportation by air takes place.
This amendment would alter current practice to the detriment of motor carriers not affiliated
with an air cargo company. The motor carrier operations of air cargo companies (intermodal
carriers) would not be subject to state regulatory oversight even when the movement of goods
is totally within a state and nc air transportation occurs. In other words, they would have a
preferential status unavailable to motor carriers not affiliated with air cargo companies but
performing the identical service. The S. 1491 will have a detrimental effect on Idaho
trucking companies competing with the intermodal carriers.
The IPUC respectfully urges you to vote against any amendment that would preempt the
states' ability to regulate intrastate transportation of property, including rates, routes or
service. We feel strongly that deregulation of intrastate trucking should be a state decision.
Located at 472 West Washington Street, Boise, Idaho 83702
Telephone: (208) 334-0300 Facsimile: (208) 334-3762
52
In conclusion, the IPUC affirms its opposition to legislation that preempts local entities from
governing local issues that affect local services and the local economy. Industry giants such
as UPS and Federal Express may not represent the interests of Idaho shippers and motor
carriers. What works best for their business interests is not necessarily best for Idaho
citizens.
Sincerely,
Mary Frfddle, Administrator
Regulated Carrier Division
53
STATE OF ILLINOIS
ILLINOIS COMMERCE COMMISSION
SStSlr June 22' 1994 9U ^2fr5HB?ffi^l£^
The Honorable Nick Rahall
United States House of Representatives
2269 Rayburn House Office Building
Washington, D.C. 20515-4803
Dear Congressman Rahall:
Very soon your Conference Committee will meet to reconcile
differences in the House and Senate versions of the Airport
Improvement Program bill (S. 1491). I am writing to ask that you
strongly oppose the provision (Section 211) in the Senate version
that preempts state regulatory jurisdiction over trucking firms.
The sweeping nature of this amendment to effectively frustrate
state motor carrier programs, and the fact that it was introduced
in such a way as to deny the states a chance to testify on the '
bill's effects, argue forcefully that Section 211 of the Senate
bill should be deleted in Conference Committee.
The "UPS Bill", as it is commonly referred to, was initially
an attempt to resolve a competitive problem created for United
Parcel Service when a federal court judicially exempted its biggest
competitor, Federal Express, from state jurisdiction. Most
administrators of state motor carrier regulatory programs shared
UPS's astonishment with the court's ruling. They empathized with
UPS's situation and understood the company's wish to legislatively
correct the problem.
Unfortunately, the provision which has emerged in the Senate
bill is radical surgery to a cosmetic problem. Rather than address
the narrow issue which the federal court decision dealt with,
Section 211 of the Senate bill would grant two of the largest
transportation firms in the nation, Federal Express and UPS, carte
blanche access to intrastate markets for any line of the trucking
business they chose to enter, while their smaller competitors
remain regulated. This is patently unfair.
Further, the Senate version is in another sense is a legal
nightmare in that it includes in the definition of an exempt
"intermodal all-cargo air carrier" the concept of an "indirect
cargo air carrier". An air freight forwarder is defined in federal
regulations as an indirect air carrier, but freight forwarders were
deregulated in 1986. Since anyone can assert that he is an air
freight forwarder, presumably this makes Section 211 a total
deregulation bill. Add to this the idea that a motor carrier which
sends 15,000 letters by air per year is also exempt effectively
creates loopholes that anyone can use to escape state jurisdiction.
527 East Capitol Avenue, P.O. Box 19280, Springfield. Illinois 62794-9280
Telephone [21 7] 785-4869 FAX 1217] 782-9244
54
Once some carriers use those loopholes to gain a competitive
advantage, others will have to use the same provisions for
defensive reasons. This will effectively deconstruct 42 programs
which state legislatures have supported for many decades, and it
will be done without state officials even having the opportunity to
present their views on this important subject.
The president of a major Illinois carrier who opposes the UPS
bill told me he would arrange to mail 15,000 envelopes per year by
an air cargo carrier to qualify for the exemption, even though he
knew that would be a preposterous waste of money and resources.
Subsequently he discovered that another provision of the bill would
allow him to secure his competitive advantage by calling himself an
air freight forwarder, even though he does no freight forwarding.
I was also informed that a major transportation firm which prefers
deregulation refuses to support this bill because it forces honest
people to behave dishonestly by misrepresenting their business
operations to avoid state law.
In summary, the Section 211 provision of the Senate version of
the Airport Improvement Program bill is flawed from three different
standpoints :
(1) Substantively, it unwisely deregulates intrastate
trucking when a minor legislative adjustment is at most
all that is needed to correct Federal Express' judicially
mandated advantage over UPS;
(2) Procedurally, it cavalierly guts an important state
responsibility while denying the states any chance to
comment on the bill, much less have any input in drafting
it ; and
(3) Ethically, it encourages — and nearly compels ~
state licensed motor carriers to misrepresent their
operations to qualify for a federally sponsored exemption
to state law.
By any measure this is bad legislation.
Several months ago Chairman Gail McDonald of the Interstate
Commerce Commission asked the National Association of Regulatory
Utility Commissioners (NARUC) to work with the ICC in modernizing
and harmonizing the rules and regulations which govern state
regulatory programs. I was asked to chair the working group which
would develop a proposal for uniform state and national trucking
regulation. This ambitious effort has been effectively paralyzed
by the UPS bill, since the States don't know what — if any —
jurisdiction the Section 211 provision will leave them. This is
another very unfortunate consequence of the UPS bill.
55
For all of the above reasons, I would urge you to vote to
exclude the UPS language from the final airport hill when it is
discussed in Conference Committee. Thank you for your
consideration of this request.
Sincerely,
Thomas B . Mvers <s
Thomas R. Myers
Manager- Transportation Division
56
fCauistatiB public jSer&iee (Sommtssixm
fbAUr. pibteuu Pj.h. Sl(]iffoun^tt«t.Pn20 JJi'lM-Slfr
(mniilmn. £l«trf«J ttfc. I.(«j.ttt. EiuliUu 70S0 1 iBO/MS-gOO*
July 14. 1994
Honorable Nick Rahall
U.S. House of Bepresenidt ivus
2269 Rayburn House Office 31dg.
Washington, DC 2051S-480J
Subject: federal Express/ UPS bill
Dear Congressman Rahall:
We have just learned that the Federal Express/UPS bill has
been passed by the Senate and is now being considered by a
conference committee to reconcile differences in the House and
Senate versions of the Airport Improvement Program bill (S. 1491).
As we understand it. the effect of this legislation would be to
exempt intrastate or interstate freight operations from any
regulation or standard for the carrier's rates, routes or services,
whether they took place through ground/air movements or exclusively
from point to point on the ground as long as the company providing
the transportation had air cargo authority. As air freight
forwarding certificates are apparently not difficult to obtain, the
possession of one of these certificates could be used to circumvent
regulation of trucking that in fact was exclusively ground
transportation.
The effect of passage of this provision would be to place
those carriers who do not have air cargo service or those who hold
purely intrastate service at a considerable disadvantage to those
holding air cargo authorities (such as, for example, Federal
Express and United Parcel). It does not seem desirable to give
these large carriers a further competitive advantage over those who
provide the transportation needs within the state. Regulated
carriers have a duty to provide service to the public at a fair
price. Unregulated carriers have no such duty. They can choose to
serve only the most lucrative market and charge whatever they
please.
As well as providing needed services, the regulated motor
carriers contribute to the financial well being of the State. The
passage of this amendment could result not only in financial
hardship for the intrastate and/or smaller carrier, it could also
57
Honorable Nick Rahall
Page 2
July 14, 1994
deny to the State revenues currently collected as these carriers
would be excluded from the Single State Registration System, which
the last Congress put in place, as well as Intrastate regulation.
We ask that you closely scrutinize the proposed legislation
especially in its present broadly worded form. Passage of this
legislation would have adverse economic impact on smaller trucking
companies and their employees, as well as State treasuries. We,
therefore, urge you to consider our comments and opposition to this
bill.
Sincerely,
Kathleen Babineaux Blanco
Chairman
Louisiana Public Service Commission
KBB/gf
58
State of Missouri
Department of Economic Development
Division of Transportation
P.O. Box 1216
Jefferson City. Missouri 65102
314 751-7100
9k
June 24, 1994
Mm=
Mel CaVnahan, Gove
JosepdtQghskill. Dire
Stephen R. Waters. Dire
Administrative Law Juc
Arthur L. Con
Vicki J. Goldarr
Elizabeth He
The Honorable Nick Rahall
2269 Rayburn House Office Building
Washington, DC 20515-4803
Dear Congressman Rahall:
I would like to express my opposition to Senate Bill 1491 which
believe is in conference at this time.
I have enclosed some background information for my reasoning. 3
would appreciate your consideration and a "NO" vote on this
issue.
Sincere
SRW/ab
Attachment
59
COMMENTS ON
SENATE BILL 1491
AIRPORT IMPROVEMENT PROGRAM
Within this bill, Section 211. Intermodal All-Cargo Air Carriers,
amends the Federal Aviation Act of 1958 to allow an air carrier
(including an indirect cargo air carrier) when transporting
property between states or wholly within any single state by
aircraft or by motor vehicle (whether or not such property has had
or will have a prior or subseguent air movement) to be exempt from
rate, route or service regulation by any state, political
subdivision thereof or an interstate agency.
This section of the bill was initiated on behalf of two competing
express service carriers United Parcel Service (UPS) and Federal
Express (FED Ex). UPS believes that two decisions favor FED Ex
operations over theirs when it won a victory in the California
federal court that ruled it was exempt from the states' s trucking
regulations and the concessions FED Ex received by the state of
Texas where that state mimic the California decision. FED Ex would
like to open new markets to compete with UPS without having to
comply with state regulations. These two companies have also
sought support of large less than truckload (LTL) carriers who know
that without some exception for their operations, they will see a
greater portion of their market shifted to these two competitors.
The legislative body should not consider legislation that would
continue to decrease the number of motor carriers transporting LTL
freight thereby creating an oligopolistic industry. The Motor
Carrier Act of 1980 (MCA) increased the number of motor carriers in
the market and increased competition. This ease of entry has seen
some unwanted side effects. LTL operations unlike truckload (TL)
operations reguires a heavy investment in fixed capital. Break
bulk facilities are needed to move LTL freight to its proper
destination. LTL operations have historically survived because of
cross-subsidation between the services they provided. The TL
portion of their operations was their most profitable segment. The
small weight shipments of their LTL operations was their most
unprofitable segment. The Motor Carrier Act of 1980 shifted TL
freight away from the LTL motor carriers. Along with increase
labor and other costs and the large amounts of discounts, a large
number of LTL motor carriers have filed for bankruptcy or simply
closed its doors.
In 1986, this state adopted some deregulation similar to the
interstate deregulation when it opened entry requirements to TL
markets (with some exceptions) to fit, willing and able. These
regulatory changes along with the interstate deregulation has
effected our intrastate motor carriers. The state of Missouri has
recently seen the shutdown of it third largest intrastate LTL
60
operator and the consolidation of its second largest motor carrier
with an interstate motor carrier operation. The state has seen
several other large intrastate LTL carriers "disappear" in the past
five years.
The safety of the motor carrier industry became a great concern
after the MCA. The nation now spends millions and millions of
dollars to monitor motor carrier safety because many motor carriers
who thought they found their pot of gold at the end of the rainbow
by establishing a trucking company cannot afford to put on new
tires or maintain their braking systems on equipment they use on
our highways .
While the number of LTL operations continue to be lost in the
market, the legislative body now wants to pass legislation to give
concessions to a motor carrier whose total revenues exceeded 12
billion dollars in 1992 and who feels that it is placed at a
disadvantage by state regulatory requirements in its competition
bid against another express company. This single motor carrier
generates almost the same amount of revenue as all (148 - 1992
figures) national LTL operators who have revenues over 1 million
dollars. It is hard to understand how this motor carrier is
disadvantaged and cannot compete accordingly.
This bill would allow for total intrastate deregulation as it
pertains to the transportation of any movement of freight whether
that freight had a subsequent or prior air movement by an air
carrier (including an indirect cargo air carrier). This
legislation as written would not allow the states the ability to
enforce or determine who would qualify under such terms. Since air
freight forwarders, were deregulated in 1986 and are not required to
be registered with the Interstate Commerce Commission (ICC) any
motor carrier could "claim" that it is a freight forwarder and
qualifies for this pre-emption at the state level and the state
would not be able to verify that claim.
States have the right to determine on a state by state basis its
own regulatory needs. Transportation deregulation does not
necessarily establish a market of "perfect competition".
Deregulation favors the large shipper over the small shipper. At
the intrastate level in this state where rates were allowed to be
discounted without any floor limits from 1984 to 1990, a 1991-1992
shipper survey revealed "...that there is statistically significant
relationship between a Shipper's size (as measured by Annual Total
Revenue) and the likelihood that the shipper will or will not
receive discounts on Missouri Intrastate motor freight." The state
regulatory agency was even petitioned by the freight industry in
1990 to freeze the level of discounting because the motor carriers
could not survive with the continued shipper pressure for greater
and greater discounts.
61
This state, like many others, have a large number of small
shippers. It is imperative to this state's economic development to
ensure a good transportation industry. A good transportation
system should not be based on excess capacity, aging equipment and
numerous bankruptcies all which have been seen as consequences of
the Motor Carrier Act of 1980. A viable, healthy transportation
system is an essential to economic growth. A state should have
the right to regulate or deregulate as it finds necessary dependent
on the needs of that state and its public. The terrible flooding
that occurred in this state last year brought to light many unhappy
transportation movements in non-regulated areas. The states should
be the overseer of its citizens needs as those needs change.
This state therfore would like to voice its opposition to this bill
in its current form.
62
PUBLIC SERVICE COMMISSION 1 701 Prospect Avenue • PO Box 202601
\ : %""•'! ;L Helena, Montana 59620-2601
Telephone: (406)444-6199
% JUL I 2 PH 3- 3tt FAX #: (406) 444-7618
Bob Anderson, Chairman
Bob Rowe, Vice Chairman
Dave Fisher
Nancy McCaffree
Danny Oberg
July 8, 1994
Honorable Congressman Nick Rahall
Chair, Surface Transportation Subcommittee
B-376 Rayburn
House of Representatives
Washington, D.C. 20515
Dear Congressman Rahall :
Your subcommittee on Surface Transportation will soon be
considering S. 1491, an Airport Improvement bill. A part of the bill
preempts state regulation of transportation that should, in the best
interest of sound national policy, remain subject to regulation at the
state level. This preemption is bad policy and we urge you to oppose
it as an impediment to valid regulation by the states.
Montana regulates intrastate transportation and has done so with
success for over seventy years. The public interest in this state has
been well served by such regulation. Montana has preserved and
maintained such regulation as sound economic policy which provides
stability in the motor carrier industry and shipping services to rural
areas.
Our understanding is that this matter of preemption originally
arose to allow United Parcel Service to fairly compete with Federal
Express after a federal court case had created an inconsistency in the
way regulation was to be applied to each. The better option is not to
deregulate United Parcel Service and other carriers, but to repeal the
court decision by making the law applicable to Federal Express.
Please include this letter in the hearing record. Thank you for
considering our views.
Sincerely,
(od^d vV\&m
Bob Anderson
Chairman
Montana Public Service Commission
Congressman Pat Williams
NARUC
Consumer Complaints (406) 444-6150
"AN EQUAL EMPLOYMENT OPPORTUNITY/AFFIRMATIVE ACTION EMPLOYER"
63
j&taiB QLonpoxntion (Emnnriggujit
._,_ . -CD1JA TELEPHONE
Otfie. 827-4829
PAX:
827-4734
827-4387
P.O. Drawer 1268
87504-1269
July 6, 1994
Congressman Nick Rahall saw via facsimile
2269 Rayburn House Office Bldg.
Washington, D.c. 20515-4803
Dear Congressman Rahall:
The New Mexico State Corporation Commission, the regulatory
body charged with the authority to regulate intrastate motor
carrier transportation in New Mexico, strongly opposes the part of
S. 1491 that would allow anyone who claims status as an air freight
forwarder to be exempt from intrastate regulation. Allowing
virtually any motor carrier to claim air freight forwarder status
would, in effect, deregulate state regulation of motor carriers.
For years, the federal government and the states have
regulated motor carriers in a partnership that has served this
nation well. The partnership has been one based on the ideal that
both governments have legitimate interests including health , safety
and economic concerns in the regulation of transportation. To
unilaterally pass a law that would prohibit one partner from
exercising their regulatory authority would be patently unfair and
would break the bond of trust that the states and federal
government have formed and nurtured for many years. Please note
our opposition to this provision of s. 1491.
Serna
Chairman
64
State of ^ortl| Caroliifih JUL -6 All fc <,g
Utilities (Commission
commissioners Post Office Bo» 29510 COMMISSIONERS
COMMISSIUNtHi LAURENCE A COBB
JOHN E THOMAS. Ch.lrm.f. Raleigh. N. C 27626-0510 ALLTSON K OUNCAN
WM. W REDMAN. JR RALPH A. HUNT
CHARLES K HUGHES Juoy HUNT
June 27, 1994
The Honorable Nick Rahall
United States House of Representatives
2269 Rayburn House Office Building
Washington, D. C. 20515-4803
Dear Representative Rahall:
The North Carolina Utilities Commission has been advised
that S. 1491, the Airport Improvement Act, has been passed by the
Senate and is now being considered by a conference committee to
reconcile differences in the House and Senate versions. This
legislation contains a provision which seeks to exempt from
regulation intrastate and interstate transportation performed by
companies that also offer air cargo service regardless of whether
the carrier transports goods within a single state by aircraft or
motor vehicle.
The Commission opposes this provision because of its preemp-
tive nature. The Commission believes that each individual state
has the right to oversee its intrastate motor carrier industry in
a manner in which it deems appropriate for the public interest.
It is the individual states who are more familiar with intrastate
operations, traffic patterns, and the overall needs of the motor
carriers as well as the shippers. The Commission's regulation of
intrastate carriage over the years has insured a viable statewide
transportation system including service to small towns and rural
areas.
The Commission further opposes this provision because it
gives an unfair advantage to those carriers who offer air cargo
service by exempting from regulation purely surface movements of
freight when no transportation by air takes place. Motor carri-
ers who do not offer air cargo service but provide the same type
of purely surface transportation of freight will continue to be
regulated. This creates a very unlevel playing field for intra-
state carriers who provide the same basic transportation service.
430 North Salisbury Street Raleigh, North Carolina 27603
Telephone No: (919)733-4249
Facsimile No: ,(919)733:7300
65
Representative Nick Rahall
Page 2
June 27, 1994
We request that you oppose this deregulation provision in
S. 1491 so that North Carolina and other individual states can
continue to insure a competitive trucking industry to meet the
needs of all its citizens and businesses.
Sincerely,
Ralph A. Hunt,
Chairman
66
Oregon
9U JUM 23 «ll* 31
June 24, 1994
UTILITY
COMMISSION'
CONGRESSMAN NICK RAHALL
HOUSE OF REPRESENTATIVES
2269 RAYBURN HOUSE OFFICE BLDG
WASHINGTON DC 20515-4803
RE: Opposition to Proposed Legislation Preempting State Regulation of
Intrastate Motor Carrier Transportation
The Oregon Public Utility Commission wishes to express Its strong
opposition to a floor amendment Included In the Senate version of the
Federal Aviation Authorization Act of 1993. This legislation would
effectively deregulate almost all Intrastate motor carrier services.
The proposed legislation would exempt from state economic regulation
any trucking company affiliated with an Intermodal all-cargo air
carrier through common ownership, or any carrier that utilizes or
Is affiliated through common ownership with companies that utilize
air carriers at least 15,000 times annually. Furthermore, the bill
defines "air carrier" to Include Indirect cargo air carriers such as
air freight forwarders. Anyone can easily qualify as an air freight
forwarder. Under this legislation virtually all Intrastate motor
carriers could become exempt from state regulation.
We are especially concerned about the way Congress has handled this
legislation to date. We think that any proposal of this magnitude
should be debated openly before Congressional committees. This
particular proposal Is being pushed through without opportunity for
interested parties to comment In any way. This Is clearly not an
acceptable way to cause a major shift In public policy.
We oppose any move by Congress to preempt the states' right to regulate
Intrastate motor carriers. We believe that economic regulation of the
trucking Industry benefits the citizens of this state, especially In
rural Oregon, and helps to preserve the Oregon economy and quality of
life. We respectfully request your consideration of our position and
ask that you oppose the Senate amendment to the AjrH^lon B1
%JL
Joan H. Smith
Chairman
1/2296NN
550 Capitol St. NE
Salem. OR 17310-1380
(503) 378-5849
67
MicWl 0. Uivltt
Ci-i-
CwMintt B. WhiU
Frank Johnaoo
State of Utah
DEPARTMENT OF COMMERCE
DIVISION OF PUBLIC UTILITIES
H»b*M Walts Building
ISC Cut 300 South/PO &w 4M07
Sell Lake CKy. Utah »ii*S-0907
Phona: (801) JX-MH
Dear Sir,
We are opposed to S. 1491, particularly its provision to allow all
indirect air cargo carriers to be exempt from State regulation.
This provision would essentially deregulate the states rights to
regulate intrastate motor carriers and we are opposed to 6uch
action.
We would appreciate your efforts to modify this bill.
Thank You,
Lee R. Zenger
Assistant Directo
68
DNCTON
OFFICE OF THE GOVERNOR
P.O. Spx4S0OZ » CW* HfMfapon MSPMJ002 • 006)753-6790
STATEMENT ON AIRPORT IMPROVEMENT BILL
HOUSE PUBLIC WORKS COMMITTEE
GOVERNOR MIKE LOWftY, WASHINGTON STATE
I am concerned with the Inclusion of Section 21 1 5n the Airport Improvement BPL
Section 21 1 would prevent states from regulating the operations of ■ IntermodaT small
package companies*~companlos that have tooth truck and air operations. It Is my
understanding that routes, rates, and services would be regulated under mis provision.
A number of individuals in labor and in the trucking industry have expressed concern
that the wording of the amendment Is so broad that It could exempt companies from
state insurance and safety regulations. ,
Section 211 was added in the Senate as an amendment It did not go through the
hearing process. There has been little, if any opportunity for public discussion on this
issue. There have been no studies done on economic impact, Impact of safety, and
other issues associated with deregulation, W« should not be enacting deregulation
legislation on such a piece-meal basis without understanding the impact on this
important industry.
This is not to say that the State of Washington opposes deregulation of this or other
industries. As Governor, I have launched a major effort to review and reform the
regulatory structure in our state. Any reform must strike a balance between protecting
the public and insuring a competitive economic environment The State of Washington
would like to work wkh the Congress and the Administration on a comprehensive
approach to these regulatory issues. At this point, It may be premature to enact Section
211 without the proper analysis and debate.
69
■suolic Ueroiee Committion
qWett Virginia
201 jBroeL Jhtti. J*. 0. 'Bo* 812 /^*^V ' " ^"' (30i) 3*^-<>300
Ckarle.lon. TV,.! Ifiryinia 2S323 p'^LikM ^ Jill I c #3T£ ( 301.) 3KO-0325
July 11, 1994
The Honorable Nick Rahall
U.S. House of Representatives
2269 Rayburn House Office Building
Washington, DC 20515-4803
Dear Congressman Rahall:
NARUC has advised the states that a hearing on the
Airport Improvement Program bill (S. 1491) has been scheduled for
July 20 before the Surface Transportation Subcommittee of the
House Committee on Public Works and Transportation. 1 am writing
to ask that you strongly oppose the provision (Section 211) in
the Senate version that preempts state regulatory jurisdiction
over trucking firms.
Senate Bill 1491, the "UPS Bill" as it is commonly
referred to, was initially an attempt to resolve a competition
problem created for United Parcel Service when a federal court
judicially exempted UPS' biggest competitor, Federal Express,
from state jurisdiction.
Rather than address this narrow issue which the federal
court decision dealt with, Section 211 of the Senate bill would
grant two of the largest transportation firms in the nation,
Federal Express and UPS, carte blanche access to intrastate
markets for any line of the trucking business while their smaller
competitors remain regulated. This is patently unfair.
This provision includes in the definition of an exempt
"intermodal all-cargo air carrier" the concept of an "indirect
cargo air carrier" . An air freight forwarder is defined in
federal regulations as an indirect air carrier, but freight
forwarders were deregulated in 1986. Since anyone can assert
that he is an air freight forwarder, presumably this makes
Section 211 a total deregulation bill. Adding to this dilemma is
the premise that a motor carrier which sends 15,000 letters by
air per year would also be exempt, effectively creating loopholes
that anyone can use to escape state jurisdiction.
70
The Honorable Nick Rahall
Page 2
July 11, 1994
In summary, the Section 211 provision of the Senate
version of the Airport Improvement Program bill is flawed from
three different standpoints:
(1) Substantively, it unwisely deregulates intrastate
trucking when a minor legislative adjustment is
at most all that is needed to correct Federal
Express' judicially mandated advantage over UPS;
(2) Procedurally, it cavalierly guts a comprehensive
state regulatory scheme while denying the states
any chance to comment effectively on the bill,
much less have any input in drafting it; and
(3) Ethically, it encourages -- and nearly compels --
state licensed motor carriers to mispresent their
operations to qualify for a federally sponsored
exemption to state law.
For all of the above reasons, I urge you to vote to
exclude the UPS language from the final airport bill when it is
discussed in Conference Committee. Thank you for your
consideration of this request.
Sincerely,
Griffilft
Chairman
BG:bp
71
Mr. Rahall. Mr. Commissioner, one of the allegations that com-
panies like Fed Ex and UPS are making is that innovation is often
sacrificed at the altar of State economic regulation of the motor
carrier industry. In effect, the argument is that the States act like
a straight) acket in their approach to regulating rates, routes and
services, and this hinders the ability of trucking companies to meet
the demands of their customers, especially in terms of the types of
services they can offer.
What is your counter to that argument?
Mr. BlSSELL. In my familiarity with the way that States handle
economic regulation, it is almost impossible for me to comprehend
how a State would hesitate to let a carrier like Federal Express op-
erate in intrastate commerce.
You know, I think their problem was that they had a uniform
system that they wanted to put into effect and they were concerned
in some States and had some indication that some States would not
let them have a uniform tariff or uniform practices.
I agree, sir, as I indicated in my testimony, that some reform of
our economic regulation is necessary. I would just simply hope that
it occur in a more studied process where other parties have a
chance to have significant input after extended hearings.
Mr. Rahall. To what extent, in your opinion, are truck inter-
state and intrastate movements intertwined? In other words, do
you see any validity to contentions that State regulations impede
interstate commerce?
Mr. BlSSELL. No, sir. I don't know how you can extend — I have
heard a lot of theories about what affects interstate commerce from
judges and lawyers and regulators, but I don't understand how —
what the connectivity of a movement between two points within the
State of Tennessee has with interstate commerce.
Mr. Rahall. You don't see any connection to the economy or the
cost of goods or the cost to consumers?
Mr. BlSSELL. You know, again, I have had on numerous occasions
in the 15 years that I have been a Commissioner instances brought
to my attention which indicate that rates in intrastate commerce
are higher. In a vast majority of those instances, they have not
been higher.
So the connectivity, there would not be any detriment in any
way, in my mind, to intrastate regulation or intrastate transpor-
tation to interstate carriage. I don't understand fully the
connectivity.
Mr. Rahall. As you know, several States do not regulate the
motor carrier industry in terms of rates, routes and services. To
your knowledge, has the public interest been adversely affected in
those States?
Mr. BlSSELL. In those States that do not regulate?
Mr. Rahall. Do not.
Mr. BlSSELL. You know, I have had different opinions. I have
talked to commissioners and former commissioners in the State of
Florida, for example, which was one of the first States that deregu-
lated, and they indicated that — well, many of them indicated, some
of them said there was no impact, but several of them indicated
that they thought there was indeed an impact on a small shipper
in that particular situation.
72
I do know that after the Bus Deregulation Act of 1982, at which
time many people said that they thought that would have no im-
pact on the number of cities served by buses in this country, after
10 years, there was a 52 percent reduction in a number of commu-
nities served by these bus lines. That is the only detailed study
that I know, and most of those communities that drop — no longer
had service, were cities of less than 10,000.
Mr. Rahall. You noted in your testimony that what really
should be done is to harmonize State and Federal regulation. How-
ever, as you know, there is a growing mood in the Congress to
eliminate the last vestiges of the ICC's jurisdiction over interstate
motor carrier commerce, especially in terms of the filed-rate doc-
trine and obtaining certificates of public convenience and necessity.
In the event that the ICC's jurisdiction over entry and tariff fil-
ing is revoked, and the Commission is then pretty much limited to
matters related to motor carrier fitness and insurance require-
ments, would you still support such a harmonization approach be-
tween State and Federal regulation?
Mr. Bissell. Well, I — that is a tough question. I think that in-
deed the ICC performs some important functions. It could be that
many of those functions could be performed by State regulators. I,
indeed, believe that some significant change in the way we handle
the economic regulation really ought to occur, and I know that has
occurred in interstate commerce. And, indeed, the ICC does not
have the functions it once had, and it is possible that many of those
functions could be performed by States or the DOT.
Mr. Rahall. Let me follow up on a question that you may have
heard Chairman Mineta and me asking Assistant Secretary Kruesi
about the issue of insuring that States can enforce their fitness re-
quirements under the legislation that has passed in the Senate.
Would you not need some type of permit or certificate for this
purpose if you were preempted on routes, rates and services?
Mr. Bissell. Well, we would need to be able to still have a hear-
ing to ascertain whether or not that carrier that wanted to operate
within our States indeed was financially able to have — to provide
a continuous and safe operation, that they had a safety program
and a knowledge and expertise to operate on a safe basis and in-
deed had insurance to protect the public.
So, indeed, we would need to have that language expressly stated
in this legislation, and it could not be tied to MCSAP because
MCSAP doesn't do any of those things that I am talking about.
They are roadside inspections.
What we do in our respective States, in most of our States, is
have programs that transcend that dramatically. It has been nec-
essary to do that because of increased unsafe operations that we
have noticed through the years following interstate deregulation.
Now, you could argue forever about whether or not there is a tie
to that, but indeed we certainly saw in Tennessee where we had
an all-time high of accidents and injuries resulting from big truck
crashes in 1987 and had to respond in a rather dramatic way.
Mr. Rahall. You said you would conduct a hearing to determine
such qualifications.
Mr. Bissell. Yes.
73
Mr. Rahall. But would you have to actually issue a permit or
a certificate?
Mr. BlSSELL. Not necessarily. You could simply say, you met the
threshold or you haven't met the threshold. If a carrier in any way
thought we were being arbitrary, then he could appeal our decision
to the courts. We need to have this broad authority set out in this
legislation.
Mr. Rahall. I understand that.
Thank you.
I will recognize the gentleman from Georgia, Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman.
Mr. Bissell, to take off a little bit from the Chairman here, you
stated when you first began that this 211 will eliminate a vast ma-
jority of your regulatory and authority powers.
Mr. Bissell. Regulatory authority for what?
Mr. Collins. Powers. In your estimation, what authority would
you retain under 211?
Mr. Bissell. Well, I am not sure what we retain at all because
our ability to address safety issues, which is absolutely critical to
the safe operation of any vehicle on the roads within our States,
is not expressly stated.
Now, it clearly would eliminate the State's authority to have a
hearing to ascertain whether or not a carrier should be able to op-
erate within our State based upon a showing of convenience and
necessity. It would clearly eliminate our ability to set just and rea-
sonable rates.
There would be significant competition within our State on rates
and significant rate cutting that would occur. And I think other
than that, we would definitely need to have a fitness criteria that
we would address prior to any carrier's operation, but that is not
set out in the legislation.
Mr. Collins. Is it not true, though, that in the legislation it has
language that will retain safety, shall not restrict safety regulatory
authority?
Mr. Bissell. Well, it is my understanding in talking with the
NARUC's general counsel, and I have only talked with him briefly,
that it is an issue whether or not we would be able to do every-
thing that we currently do within the discretion of the States, to
implement programs that we think adequately protect the citizens
of our respective States. So if you clearly stated that, that it is to-
tally up to the discretion of the States as to what standards of safe-
ty and what safety programs would have to be complied with, then
I think you have given us the safety jurisdiction we need.
Mr. Collins. Setting safety, entry, and tariffs aside — we concede
those rights of authority, those powers of authority at your State
level, just concede those.
Mr. Bissell. Yes.
Mr. Collins. Do you think that your State legislature, based on
the testimony of Mr. Kruesi, where he said that under the Con-
stitution, States have the right to certain regulatory powers; and
what I guess he was saying and he didn't fully agree was that your
State legislature would have to actually enact legislation granting
you authority that was not preempted under those things that you
have conceded.
74
Mr. BlSSELL. Of course, we have that authority now.
Mr. Collins. But you just stated that you felt like the fitness
part of your authority would also be eliminated under this legisla-
tion.
Mr. BlSSELL. Well, if you state in the legislation — I think that is
probably a debatable issue with some people obviously, but I think
if you set out in this legislation that you are not in any way re-
stricting the ability of a State to set fitness requirements, including
insurance, financial ability and safety programs, then that would
certainly negate any kind of question about that in the future.
Mr. Collins. You are saying we need to clear that language up?
Mr. BlSSELL. Absolutely. It has to be crystal clear.
Mr. Collins. Thank you.
One other thing, you mentioned this and it has been discussed
about the difference in rates between intrastate and interstate.
Mr. BlSSELL. Yes, sir.
Mr. Collins. And the fact that intrastate rates appear to be
higher than interstate. Is that not true somewhat from the stand-
point of drive time on a longer haul, versus drive time on a short
haul, versus idle time on the two — difference in the two hauls?
Mr. BlSSELL. I think so.
Mr. Collins. Versus back haul oftentimes through interstate,
which is deregulated, versus the inability to back haul on intra-
state, which is regulated.
Mr. BlSSELL. Well, you can back haul intrastate if you have au-
thority to operate within that area. You know, I am not sure I fully
understand the back haul argument, because anybody that could go
from one point to another within our State between points A and
B can generally, not always, can generally go between B and A.
In other words, if you can do the first part of that haul, then you
can do the second part of the haul, that haul, as a general rule,
and there may be exceptions, but I am not intimately familiar with
those in the State of Tennessee.
Mr. Collins. That is if the commodity is available. But if your
commodity is not available, under the authority that you have, you
would not have access to a back haul unless you did it under some
other authority.
Mr. BlSSELL. That is correct, yes, sir.
Mr. Collins. Thank you, sir.
Mr. BlSSELL. Thank you, sir.
Mr. Rahall. The distinguished chairman of our full committee,
Mr. Mineta.
The Chair. Thank you very much, Mr. Chairman.
I can understand the concerns that State regulatory commis-
sioners would have, but it seems to me that if we are only going
to be dealing in the area of routes, rates and services and you
would still be in the position of having to do the safety, having to
do the — let's say the insurance requirements and this kind of func-
tion, that you would be performing as you do now, where would be
the — or what would be the concern of the regulatory commis-
sioners?
Mr. BlSSELL. Well, I think with our economic regulation, we are
able to utilize that regulatory authority to assure that carriers that
operate within our State have the safety wherewithal to operate in
75
a way that is consistent with the public welfare. We would have
the ability, through the economic regulation, to do all the things re-
lated to insurance and financial ability.
We would be able to say, if you don't meet these standards, we
will cancel your operating authority within the States. I think the
heavy hand of economic regulation has been material in assisting
us in keeping our highways as safe as they are.
Now, I am not saying that that can't be done if you can clearly —
continue to be done if you can clearly set out in this legislation that
we have authority to exercise total discretion on safety, that we
will be able to cancel any carrier's operating authority that does
not meet our safety financial responsibility and insurance stand-
ards.
The Chair. Well, it seems to me, having been here when we de-
regulated the airline industry, and I know those kinds of concerns
were also brought up about safety, but I think today we do have
an airline industry that is considered to be safe. We deregulated
the economic regulation of the airline industry, but we did not de-
regulate safety.
I mean, that was a theme that was — that was our beat, I guess
you might say, and so I am not sure that that would be any dif-
ferent in this instance where safety is still paramount. It is para-
mount for the regulatory bodies, it is paramount for Congress. I
think it is paramount for the trucking industry as well. They are
concerned about safety.
So I think it is something that gets raised, but it is something
I think that we have already seen that — where it really doesn't be-
come an issue. I mean, we heard Secretary Kruesi, I think, testify
here that in his view, we would be in a position to preempt the
States as it relates to economic regulation without limiting the
State's abilities to regulate the safety, fitness, the adequacy of in-
surance and other kinds of issues. And I guess that is the real dis-
tinction I am trying to make in this discussion.
Mr. Bissell. If I may respond, sir, let me say this. When we de-
regulated interstate commerce in 1980, when Congress deregulated
interstate trucking, economic regulation, before that time, trucking
companies had bankruptcy rates that were comparable to other in-
dustries in this country. Within a short period of time, 10 years or
less, those bankruptcy rates went up to a level of something like
87 percent of the average, or exceeded the average by that much.
The Chair. But wasn't that because maybe — I am sorry. Go
ahead.
Mr. Bissell. Well, what I think it was, was that anybody who
could get — who wanted to be a trucker could be a trucker. He could
borrow or lease or buy a truck and operate in a deregulated envi-
ronment, and many times they did not understand the con-
sequences of the long-term cost of trucking. They did not fully cover
their costs.
They drove out the reputable carriers that were complying with
safety regulations and other things by depressing the rates so dra-
matically. And in the State of Tennessee, I could tell you that one
of the first things that falls by the wayside when you have a carrier
that starts operating in the red is that safety program. They fire
the safety director or they lay off people that are focusing within
76
their company on safety, and that is what I fear would happen in
intrastate commerce.
The Chair. But I wonder if that isn't really sort of a manage-
ment syndrome, where they say, wow, I am deregulated, so this is
my niche market. Now I am going to do this. And all of a sudden,
that carrier is having financial difficulties. And so yes, bankruptcy
rates went up, other things happened.
But I have been on a safety basis and I don't have any figures
before me right now, but I have been on a safety basis, the accident
rate, the death rate, whatever you want to do, measure in terms
of 100 million miles of revenue projections, ton mile, whatever, I
bet it didn't really go up at the same rate or even near the same
rate as the bankruptcy rates of those times.
To me, that would just mean that it was really a management
function and policy-making function within those trucking — within
the trucking industry and within the trucking companies, rather
than saying, see, look, safety went by the boards as we deregulated
the trucking business.
It seems to me that what we have seen now in the trucking in-
dustry— where we have deregulated on the Federal basis, what we
have seen on a deregulated basis on the airline industry, that I
would match today's safety report of any of the modes of transpor-
tation with what they were prior to regulation.
I am just making that as a statement without being able to
point, sir, to a figure or a chart, but I would just sort of make that
as an assertion thinking that, I think I am on pretty safe ground
today to be able to make that kind of an assertion.
Mr. BisSELL. I think that is an appropriate conclusion. Because
the figures that I have are that over the past 10, 15 years in truck-
ing, the total number of deaths attributable to big truck crashes
has hovered at around 5,000 people. And there has been, of course,
an increase in the amount of transportation, and there has been
safer highways. Most of this transportation today is over interstate
highways, which is a lot safer.
But what — the reason that we have been able to hold the line is
not because deregulation does not cause carriers to become engaged
in cut-throat rate competition that deteriorates the standard of
safety as a natural happening within the trucking industry, that
requires a very small amount of investment, but it has been that
we initiated — Congress initiated the MCSAP program, or intensi-
fied Federal-State program in 1984, and States like Tennessee
went far beyond MCSAP with a drug enforcement program, includ-
ing drug dogs, 140 inspectors, rather than 35, when I think I came
on board, or 40, when I replaced Bob Clement on the Public Service
Commission in Tennessee.
So we have responded to maintain the safety level as it is and
we have done so successfully. We should be very proud of that.
But we have to understand that once you deregulate within our
States, intrastate commerce, we are going to be hit by that same
inevitable consequence, and we are going to have to have the
wherewithal to deal with that and we are going to have to respond
dramatically, as we did in the State of Tennessee. And I hope most
States are able to do that.
77
And I hope you recognize that you are going to have to clearly
set out our authority and not limit it in any way, our ability.
The Chair. You just made the point, because what you have said
is that the States came back, the Federal Government came back
with a MCSAP, and that had to do with safety law. It had nothing
to do with economic regulation, and that is why I am saying, eco-
nomic regulation is one thing, but what you did, what the Federal
Government did in MCSAP did the safety part of it, and I think
even as — in statements by Mr. Oberstar, level playing field in
terms of economic regulation, but they also want to make sure that
the safety portion is not denigrated.
And as I looked through the statement of the American Trucking
Association, preserve the ability of the States to maintain bene-
ficial regulatory protection, such as uniform liability rules, anti-
trust immunity, financial fitness, on down the line, but in terms of
safety, they want to make sure that safety is paramount.
And I think that is the name of the game; emphasize safety in
terms of safety laws for a carrier, but you don't regulate safety
through economic regulation.
I think Mr. Collins is our colleague here who was in the trucking
business, and I think that was the kind of thing he was trying to
say a little while ago; that you do that by separating economic reg-
ulation on this side as it relates to rates and routes, and over here
you deal with safety in its own vein, and I think that is what we
are going to try and do.
Again, thank you very, very much, Commissioner, for your state-
ment and for your representation of NARUC. And, again, thank
you very, very much.
Thank you, Mr. Chairman.
Mr. Rahall. Thank you, Mr. Chairman.
The gentleman from Tennessee, Mr. Clement.
Mr. Clement. Commissioner Bissell, great to have you here.
Mr. Bissell. Thank you.
Mr. Clement. We have worked on a number of issues together
in a very professional manner. I think you can have a difference
of opinion and not have a difference of principle, too. But I also
know that I made many speeches over the years and some of my
speeches are with the title "Times are Changing" and I think that
is what we are talking about today, times are changing.
And I feel like you do, Commissioner Bissell, when it comes to
safety and fitness and insurance responsibilities, it has got to stay
with the States and that needs to be very clear.
But when it comes to economic deregulation, maybe this is the
time to look in a different direction. You know, you had the oppor-
tunity to hear Secretary Kruesi testify a while ago, Assistant Sec-
retary for Transportation Policy, and he was commenting about the
Motor Carrier Act of 1980 and about the fine piece of legislation
that was crafted by this committee. And as a result of this act, al-
most 40,000 new carriers have entered the industry and made rate
levels much more competitive, and also, all the facts seem to lead
us that it would be a savings for the consumer, as much as $6 bil-
lion on an annual basis if this happens.
Do you have anything to refute this?
78
Mr. Bissell. Yes, I do, and I will submit that as an amendment
to my testimony, Congressman, if I can.
The National Regulatory Research Institute evaluated, in con-
junction with the NARUC, NRRI out of Ohio State, that is our re-
search arm, the most often referred to study, and I can't remember
which one it was right now, but they really shot a lot of holes in
that study. And it is our position, and perhaps reflected in my tes-
timony, I don't recall, my extended testimony that I submitted,
that many of these so-called studies are simply projections on the
part of those people who authored them or propose them as being
factual.
Now, there could be certainly some savings that could accrue in
efficiencies, but indeed I would like to submit an amendment to my
testimony that would address this specifically.
Mr. Clement. If agreeable to the Chairman of the committee, I
would like, Chairman Rahall, for that testimony, those remarks to
be incorporated into the record.
Mr. Rahall. Okay.
[The following was received from Mr. Bissell:]
While there would inevitably be some cost savings associated with the elimination
of economic regulation, studies which identify the cost savings in the neighborhood
of $2.9 to $6 billion annually have usually inflated the figure to get public attention
and support. I have attached for inclusion in the Record, a letter from NARUC's re-
search arm, the National Regulatory Research Institute (NRRI), which discuss the
methodologies used in the 1990 Department of Transportation (DoT) study entitled
"The Impact of State Economic Regulation of Motor Carriage on Intrastate and
Interstate Commerce". Rather than restating the specific findings included in these
letters, I will say that DoT study's methodologies are flawed and these flaws result
in an overstatement of the cost savings associated with economic deregulation. In
general, the study's flaws include; imperfect comparisons, dismissal of oversight
costs, and undue emphasis is given to some statistics and not others.
79
]Tw National Regulatory Research Institute
cohimhiu. (M.io wiii-im:
March 18. 1991 Hie*« »14/l»WMe4
March 1* w« KAX1 il4ttM.7|f6
The Honorable Thomas P. Harvood, Jr.
Virgtiaa State Carparattoa Cnrnrntiaiun
Jefferson BuUdlng
P. O. Bob 1197
Richmond. Virginia 23209
Dear Tommy:
Your letter of February 5, 1991 asked If we could 'take a look at" tbe
nmUwuVdogkc used in the May 1990 DOT Fuel Report an motor wring* la 07
reply of February 19tn 1 Hid we roald make aome critique and eemmantaiy for
you, out snggaated mat you might warn to engage others m wii wbo are closer to
it Bodoted ii our aaamanentHi memotafldnm from BUI Pollard, one of our motor
ttM& BODPOmletiL to BM.
Id addition to Bill Pollard's analysis there ire a number of scattered
obearvnrion* that nae to mind tor me m H— *—h<g. the repeat.
, >
chapter 2 in reviewing the history of motor carrier regulation, fall* into
the trap of comparing imperfect commammi regulation with idealised
perfectly *"»**«""'ig mnrkote. Of «muwv the only ndr eooperftoai are
either imperfect regulation with imperfect markets or perfect mgulation
market solution ace preeuinad to involve few oversight coats, though
this surety hain't beea true in banking, securities, natural gas, and
talammrmiiiloatlcm deregulation,
while necessary to the aiuJyii*, the problem of isolating "different
regulatory ichemae" at the tingle variable on which die outcome U
dependent to a formidable one, SmpUflrarlon may coma at dm price
of muewiy aoaamcy.
the contistem meme is thai "the 42 etates that itm maiuiaui auine torm
of. . . eeonoaic rcgaianofl- are misguided at beat and that at anew 20
of these are injuria* their snipping public and thuee of the other states
whh na redeeaulng tmtaree «« «*■ **tt**r gajpgBjgti Such a
condution Is somewhat onumerlnmWve and m all evtna denies the
•statai at lebonuoriet* theory of dual regulation.
littMitktd by itit Nilliniml Auorwiiim nf Ke^niainn- UHiny Onmmintwieiv * rfcr Ofiki amir Umixtmn m Wl*
80
Tne Honorable Thotnai P. HnwoorJ, Jl
Mirch 18,1991
Page two
the finding that nearly half of As 37 states analyzed (17) did not have
higher interstate met Hum fcttnatate rates would teem to be more
notable than the study suggests. And the esplwrisilrm that Tina nay be
Ml pracdee liberal regulation or nseJhe
tier •**"'" <«mr4iub added)' would ieem to
yypulHtmy J^maf ■" »^P *»fif rfaum (aniphuu addaO)- WOUJd MMo)
acknowledge that both a market SOJodon and a f egulatory one amid
reach die ansae reealt
some adoowiedfeiuero should b» §l»«* to "to oto** aid*" of ih»
trucking industry, and that it the undue effect that monopsony or near-
nMMpsony ibtppen an nave on freight ma and ulunuiusly trucking
company wnrfvtL Gse lathers that in the cue of truck load lots
anyway (not the subject of tins study) much traffic moves under deeply
discounted rates that often might fail the traditional test of not being
unduly dbcrimfaartoiy.
too argument that business will gravitate toward states that have
<j>**BplBf>d trucking is probably generally overrated in the ume way
thai TavoiaWe tax treatment* is supposed to be determinative in
Industrial location derisions. Freight nuea would hove to be a major
portion of total operating costs; they Bright oaa&icmalfy be a factor at
the margin, but in any ovem would seam to only eppry l« dds context if
most of die traffic of the firm I* luu sauna la diaracter.
the "public intatest theory* of regulation is dnunuued. and the (largely
discredited) "capture theory" is assumed to be true and (strangefyj
ineorparated Into 'a composite theory of legulation."
QOBtrrtabiUty theory see— to be behaved io by iba authors, thoogh a
not Insignificant part of the economics pnttWon doesn't
there seems to be the tayttcattoa that antitrust can be railed upon e»a
worJMMe alternative in awrent regnlerton.
if the analysis is correct in estimating a 1611 million burden that the
nofrdereguatod states are annually placing cm the deregulated ones,
two comments are (l)ian average of 120 mutton per state is a rather
small number, and (2) that "burden on bnraetate ecanmareo," miik
phrased io the last floe of the Baecoove Summary, wanki probably out
be eaoogh to allow federal proompUva regulation of thfe intrastate
commerce under the 1923 decision In Nnrth Carolina vt. United smtM
geatiog unjustly aJscriaiinatoiy i&crniaHtiee. White federal uaa of the
Interstate eouimorec daase bra few limits, one of them is, I believe,
that the mere eristence of inequality its uut ueccraaruV proof of an
undue burden which would allow federal supremacy to bo invoked.
And, of course, if the Pollard analysis is doser » the weuaie losses
eaperienced, the case for federal preemption (at least un these
grounds) would be stB kei persaaatvo.
81
The Hoaaroblc Thomas P. Harwood, Jf .
Menli 18, 1991
PflfP three
WehopetUiadihtoimwuationoftbeiiiatfer. At yon know, ibe anal
uadaimer appliea-ueae are merely two sets of comment* by two oconflnrttH here.
Beit reyrrti,
Doutlw N. Janet
Phoetoi aoJ IVofcaeoa
of Rtai>liitff*y w*f<i»»mi—
Tbo Honorable Claude M. Tigon, Maryland
Chair, NARUC Committee on Transportation
William S. Fblcher, Vlr jima
Chair, NARUC Siatt aanoammtaoa on Trosjportetkm
85-090 95-4
82
Mr. Clement. Let's assume the United States Congress takes ac-
tion this year, and let's assume that we do one of two things: Ei-
ther we go along with what the Senate has done on Section 211 of
Senate Bill 1491, or we totally deregulate.
What is the position of NARUC?
And I am pleased that you are the national president this year,
which is a great honor.
What would be the position of NARUC on which option to follow?
Mr. BISSELL. Well, I am not sure that I totally understand what
we are doing in the section that is being addressed in this legisla-
tion that you are considering, Section 211 versus total deregula-
tion, I think what you are talking about, and correct me, Congress-
man, if I am incorrect, that 211 refers to carriers that have some
connection with air transportation?
Mr. Clement. That is correct.
Mr. BISSELL. And that total deregulation would deregulate every
carrier, so that anybody who wanted to operate any kind of truck-
ing company could operate?
Mr. Clement. That is correct.
Mr. Bissell. I guess —
Mr. Clement. With the understanding that certain responsibil-
ities remain with the State, as mentioned earlier.
Mr. Bissell. Right. No, I think, Congressman, that I — here
again, I am going to ask if I might prepare a more detailed re-
sponse as an amendment to my testimony. Because, on the one
hand, I correlate without a doubt the — a connection between eco-
nomic regulation and our ability to control the quality of that car-
rier that ever gets into business in the State of Tennessee and in
the other States across the country.
So I think there is a correlation in my mind between economic
regulation and the ability to compel carriers to operate safely with-
in the States. So as little economic regulation, on the one hand, if
I look at it in that vein, we have, the better.
On the other hand, I certainly don't want to create an unlevel
playing field where some carriers have to submit themselves to reg-
ulation and other carriers do not. I think, for example, in the Sec-
tion 211, one important exception that I have heard that is con-
templated by the Senate is that household-goods carriers would not
be covered by that legislation. Are you talking about, when you say
total deregulation, household-goods carrier?
Mr. Clement. I am talking about the trucking industry.
Mr. Bissell. In general, yes.
On the one hand, that might be a very positive thing to do be-
cause it creates a totally level playing field. But I would have to
confer with my colleagues to answer that —
Mr. Clement. But listening to your testimony and statements, it
appears to me that you are more concerned to make sure that the
States continue to have authority over safety and fitness and insur-
ance responsibility.
Mr. Bissell. I am, sir, absolutely. Without a question. Clearly
stated in any legislation, too, without restrictions.
Mr. Clement. All right.
Thank you.
Mr. Rahall. The gentleman from Illinois, Mr. Costello.
83
Mr. COSTELLO. I have no questions.
Mr. Rahall. The gentleman from Illinois, Mr. Lipinski.
The gentleman from Illinois, Mr. Poshard.
Mr. Poshard. Thank you, Mr. Chairman.
Mr. Bissell, I wanted to ask you some questions about Section
211, and I understand that from your comments to Congressman
Clement that you might want to submit the answers in writing. I
wanted to share with you the views of one of your counterparts,
Mr. Tom Meyers, who is manager of the Transportation Division of
the Illinois Commerce Commission with respect to the 211 section.
He indicates in his letter to me that he feels that this unwisely
deregulates intrastate trucking when a minor legislative adjust-
ment is, at most, all that is needed to correct the Federal Express'
judicially mandated advantage over UPS, which is what the Cali-
fornia decision was all about.
And I wanted to know whether you agreed or disagreed with him
with respect to that statement, whether or not we should confine
ourselves to evening the playing field between those two large car-
riers as opposed to going as far as the Senate did in enacting Sec-
tion 211 which essentially would be, as I understand at least, a
total deregulation for all intents and purposes.
The second comment that he made in his letter was that he
didn't feel that the States had much
Mr. Bissell. I am listening.
Mr. Poshard. Shall I go on?
Mr. Bissell. Yes, sir, I am listening.
Mr. Poshard. Okay. That he did not feel that the States had suf-
ficient input into this process at this point in time, that this was
done here, at the Federal level, and at this point in time, at least
by the Senate, there were not hearings held out in the respective
States for folks like yourself to have input into this decision.
And I want to know whether you feel like you have had sufficient
opportunity to give input into this particular decision that we are
about to hand down to the individual States?
But thirdly, and most importantly in my mind is a concern that
he expresses where he says ethically, "This Section 211 encourages
and nearly compels State-licensed motor carriers to misrepresent
their operations to qualify for a Federally sponsored exemption to
State law." And he goes on to explain this in some detail.
He says the Senate version in another sense, is a legal night-
mare, in that it includes in the definition of an exempt, quote,
"intermodal all-cargo air carrier," end quote, the concept of an indi-
rect cargo air carrier. An air freight forwarder is defined in Federal
regulations as an indirect air carrier, but freight forwarders were
deregulated in 1986.
Since anyone can assert that he is an air freight forwarder, pre-
sumably, this makes Section 211 a total deregulation bill. Add to
this the idea that a motor carrier which sends 15,000 letters by air
per year is also exempt, effectively creates loopholes that anyone
can use to escape State jurisdiction. Once some carriers use these
loopholes to gain a competitive advantage, others will have to use
the same provisions for defensive reasons.
This will effectively deconstruct 42 programs which State legisla-
tures have supported for many decades. The President of a major
84
Illinois carrier who opposes this bill or this section told me that he
would arrange to mail 15,000 envelopes per year by an air cargo
carrier to qualify for the exemption even though he knew that
would be a preposterous waste of money and resources.
Subsequently, he discovered that another provision of the bill
would allow him to secure his competitive advantage by calling
himself an "air freight forwarder" even though he does no freight
forwarding.
Mr. Poshard. So are we, in effect, forcing honest people to be-
have dishonestly by misrepresenting their business operations to
avoid State law if this Section 211 passed?
Mr. Bissell. First of all, on Section 211, what you would have
to do to correct the inequity between United Parcel Service and
Federal Express is simply address that issue singularly and not ad-
dress the broader concept of deregulation as you have in 211. We
don't have a dog in that fight. We are not concerned about UPS
and Federal Express. That is something that the Congress is ad-
dressing.
Whether you should or whether it would be our recommendation
as to whether or not you limit it to that, I think that we probably
would say we would prefer that because on the second point that
you mentioned we don't think that we have had adequate time to
have input and study, preparation of testimony and accumulation
of statistics and facts to present to you.
As I indicated in my previous testimony, we have a task force
right now that is working with the Interstate Commerce Commis-
sion that would bring to the Congress next year a proposal for de-
regulation and probably what that would be in my judgment is —
are more relaxed economic regulations, some sort of reciprocal
thing between States where in Tennessee we would follow the
model suggested deregulation bill that would permit carriers that
operate in States that are deregulated, which permit our carriers
to operate in those States, to do so, but States still prohibit carriers
which still have economic regulation would not — their carriers
would not be able to operate in those States. So I think we would
approach in it that way and not all States would do that.
I have to be candid with you. If you are looking for total eco-
nomic deregulation, you probably aren't going to find that happen-
ing real soon within the States, but I think as a result of this task
force that we would probably come with a proposal that would
bring about a more rapid evolution to deregulation on a reciprocal
basis as I explained.
Finally, do I think that we have had adequate input into this
process? No, I don't. I think that a more studied approach to it
where you would have a bill that addressed economic deregulation
on a uniform basis across the country would be the way that we
would suggest that you go in the future.
Mr. Poshard. Thank you. If you could respond in writing, at
least once you have had a chance to look at that more comprehen-
sively, if you think there is a reason here to believe that honest
people might misrepresent their business just to qualify for this ex-
emption or for this loophole, I would appreciate it.
Thank you.
Mr. Bissell. Certainly.
85
[The following was received from Mr. Bissell:]
As included in my written statement I have been told that an argument has been
offered by the American Trucking Association (ATA) that, under the definition of
"Intermodal all-cargo air carrier," any motor carrier of property would qualify for
the exemption by claiming to be an air freight forwarder.
Notwithstanding that simply claiming to be an air freight forwarder does not
make one an indirect cargo air carrier, the fact that the ATA has raised this issue
would indicate that litigation could be anticipated concerning the interpretation of
this part of the bill. Such litigation would be expected to be a lengthy process with
no assurances that the courts would agree with the states.
Furthermore, in the bill's second definition, an Intermodal all-cargo air carrier is
also open to interpretation and with a liberal interpretation of this definition it
seems that for $4,350 per year, a carrier could send 15,000 letters to unknown indi-
viduals in California and satisfy the literal meaning of the definition of an Inter-
modal all-cargo air carrier.
If the cost of intrastate regulation are as high as some claim, there is certainly
the incentive to take advantage of such poorly defined terms in this legislation to
escape such regulation. NARUC's concern here is that if Congress intends to deregu-
late the industry, it be clear in its intent. Simply allowing deregulation to happen
through the use of loopholes in the law is unwise and can be avoided.
Mr. Rahall. The gentleman from Oregon, Mr. DeFazio.
Mr. DeFazio. No questions.
Mr. Rahall. The gentleman from Arkansas, Mr. Hutchinson.
Mr. Hutchinson. No questions.
Mr. Rahall. Commissioner, I guess that exhausts our questions
for you. Thank you for being with us.
Mr. BlSSELL. Thank you very much.
Mr. Rahall. The subcommittee will now hear from Mario
Perrucci, International Vice President, International Brotherhood
of Teamsters, Washington, DC.
Mr. Perrucci, we welcome you to the subcommittee. We under-
stand you will be submitting Mr. Carey's testimony, is that correct?
TESTIMONY OF MARIO PERRUCCI, VICE PRESIDENT, INTER-
NATIONAL BROTHERHOOD OF TEAMSTERS, ACCOMPANIED
BY MARC FINK, COUNSEL, LEGISLATD7E MATTERS
Mr. Perrucci. Yes, sir, I want to thank you, Mr. Chairman, and
also Chairman Mineta for giving us an opportunity to address the
committee, something that we were not afforded on the Senate side
which certainly concerned us. To my right is our Counsel for Legis-
lative Matters, Mr. Marc Fink who will certainly assist me in any
questions perhaps I cannot give you the answer on.
I have to ask myself before I start — and I would ask you if I
could read my statement into the record that I understand you do
have a copy of. But I have to ask myself what is the rush here?
Why are we moving on something that is involved with the airport
improvement bill? The way it was done in the Senate, it is at best
patchwork.
I have heard the concerns of the Commissioner today. Although
he supported it, there are many, many answers and things that
must be certainly investigated. And if the airport improvement bill
certainly is important, then that should go without 211 as a tail
on the kite to further deregulation.
I hear a lot about this level playing field. I am a little confused
about a level playing field. Who are we leveling the playing field
for? And organized labor, particularly the Teamsters, have a con-
cern about that. Are we leveling the playing field for all trucking
86
companies? Or are we leveling the playing field for those who al-
ready control the field and want the field clear of any competition,
less the giants so they then would slug it out.
United Parcel Service is a global company, as is FedEx. Both of
them, and I know for sure UPS, were in Vietnam and the ink
wasn't even dry on the relations paper before they were there.
I would suspect if the moon was colonized tomorrow, they would
be there on Friday. And they are a successful company and they
are a Teamster company.
However, we have concerns and let's look at Federal Express and
what if, in fact, 211 goes through what will happen?
UPS and other trucking companies are under the National Labor
Relations Act, Federal Express is under the Railway Labor Act. Are
you now creating FedEx, that is an airline, to a trucking company?
Are you now allowing UPS, as they are trying to do in court right
now, to run from our collective bargaining agreement and walk
away from the National Labor Relations Act and now say we, too,
are an airline.
We, too, should be out from underneath the National Labor Rela-
tions Act and, in fact, come under the Railway Labor Act, which
makes it much easier to decertify from our contract. So these are
concerns that we have and we would hope that this committee
would look into those.
Good afternoon, Mr. Chairman and Members of the subcommit-
tee. I am Mario Perrucci, International Vice President of the 1.4
million member Teamster Union and Director of the Teamsters
Parcel and Small Package Division, and I must say that our Gen-
eral President Ron Carey certainly wanted to be here, but very im-
portant union matters mandated that he leave town to take care
of those.
I am pleased to have this opportunity to testify on behalf of the
more than half-a-million Teamsters who work in the transportation
industry and the rest of our members who, like every other Amer-
ican, are affected by the laws and regulations that govern surface
transportation policy.
We represent over 160,000 UPS employees. Another 60,000
Teamster members work for the "big three", less-than-truckload,
LTL carriers: Roadway, Consolidated Freightways and Yellow
Freight. These are the most powerful companies in the industry
and the ones whose management will benefit most from Section
211 along with nonunion companies like FedEx and overnight. We
also represent thousands of workers at smaller trucking companies
whose companies stand to lose the most from passage of 211.
Trucking laws and regulations affect the price we pay for goods
and services, the availability of good paying jobs and the general
health of our economy and the safety of our families on our Na-
tion's highways. It is critical that any change to these laws be thor-
oughly researched and debated to ensure the interests of all Ameri-
cans are served.
The Teamsters strongly oppose Section 211. It is a patchwork
transportation policy which will benefit management at a few pow-
erful companies but will have serious consequences for the Amer-
ican people.
87
We must not make national transportation policy through back
room deals and amendments hidden in little known pieces of legis-
lation. Instead, we need a complete review of the impact of trans-
portation regulations and policies that have been in place the last
15 years.
We need a new set of progressive policies that meet the needs of
everyone affected by surface transportation, workers, carriers, ship-
pers and the American people. The Teamsters are committed to
working with Congress to achieve this goal.
One road we might follow is contained in a recent study by Cor-
nell University researcher Dr. Michael Belzer.
Dr. Belzer's study provides a comprehensive review of the impact
of trucking deregulation in the 1980s and also provides insightful
recommendations that can take our transportation policies into the
21st Century.
We have provided a copy of this study to the committee for your
review and would like the study inserted in the record as part of
my testimony. But allow me to quickly summarize some of his rec-
ommendations.
Dr. Belzer recommends that any new regulatory framework
should minimize the burdens on all trucking companies while im-
proving conditions for the millions of Americans who work in this
industry. This would include actions to protect the wages and em-
ployment security of the work force, modernizing hours of service
rules to maximize safety for truck drivers and the public and
strengthening collective bargaining in the industry.
These steps would help strengthen the entire American transpor-
tation system, instead of consolidating the power and wealth of
management and stockholders of a few large companies the way
Section 211 will.
There will be few winners and many losers in the freight indus-
try if Section 211 passes.
That reminds me of when I served with 101st Airborne Division
during the Vietnam conflict when they told us we sacrifice a few
to save many. Well, I believe in this case you are going to sacrifice
many to benefit a few and I would look very closely at 211 on what
the impact will have on the small trucking company.
The top layer of management and stockholders at the largest
companies will benefit. But compare that tiny group of alleged win-
ners with those who could lose with the passage of Section 211.
There is absolutely no evidence to show that American consum-
ers will benefit from a plan like Section 211. Earlier deregulation
has not produced any direct benefits or lower costs to the public.
Employees at the companies supporting Section 211 could also be
losers. If 211 passes, these companies will be able to further mo-
nopolize the market and use this increased power to put downward
pressure on their workers' wages and working conditions under the
guise of dealing with cut throat competition that they themselves
have established by clearing the playing field of everybody but the
big guy.
Their coordinated pressure against decent wages would affect
hundreds of thousands of workers and their families and threaten
their ability to be productive taxpaying members of the community.
Highway safety could also be a loser under 211. The pressure from
88
these transportation giants could force responsible small and mid-
size companies off the road opening the door to less responsible op-
erators.
The past 15 years of experience has shown that some operators
sacrifice safety to cut costs by poorly maintaining their vehicles,
forcing their drivers to work long hours and demanding that their
drivers carry overweight and dangerous loads. Whenever compa-
nies have won deregulation in the past, as we can see from the
freight and airline industry examples, the workers in those indus-
tries and the public have taken it on the chin.
In freight, real wages have gone down. More than 150,000 jobs
with decent wages and benefits have been lost. Hundreds of compa-
nies closed while low wage/low benefit companies expanded. The
losses in wages to workers and taxes to our communities is esti-
mated in the billions of dollars. That is the legacy of earlier deregu-
lation. That could be the legacy of Section 211.
Ladies and gentlemen, 211 is bad for America. Instead of being
part of a comprehensive transportation policy assessment, it is a
patchwork policy delivered to you by a small number of wealthy
corporate managers and shareholders who are the only ones who
will benefit from it. Section 211 will produce losses across the coun-
try whether it is unsafe highways, small companies forced out of
business by giant monopolies or workers facing downward pressure
on their wages and working conditions.
The Teamsters want to work with you and your colleagues in the
House and the Senate to develop a new transportation policy for
our country. We urge you to reject 211 and instead move forward
with a comprehensive plan for our transportation system for the
1990s and the next century.
Between 1978 and 1990, trucking employees' annual wages de-
clined an average of $6,700 or 27 percent in real terms adjusted for
inflation. Union workers fared better than nonunion workers but
still even the highest paid representative workers saw wages de-
cline in real terms during the last 15 years.
More than 80 percent of gain from economic deregulation was a
transfer of wealth from workers to shippers, especially big retail
companies who mostly pocketed these savings. There is no solid
evidence, to our knowledge, that consumers have benefited from
transportation deregulation in the form of lower prices of delivered
goods. All Congress did was take money out of the pockets of thou-
sands of freight industry workers and put the money into the pock-
et of a few managers and shareholders of retailers.
Deregulation has not resulted in increased competition. While
thousands of small freight and parcel companies have come into ex-
istence since deregulation, they exert minimal pressure on large
companies pricing since small companies cannot serve large ship-
pers. The labor market pressure is quite different.
Low wages, no benefits, no hospitalization, no pensions, under-
mine the standards set in collective bargaining agreements. Con-
trary to the argument of increased competition, large freight com-
panies have become much more concentrated since deregulation.
The big three less-than-truckload companies — Roadway, Yellow,
and Consolidated — and UPS command over 50 percent of class one
freight revenue, an increase of nearly 100 percent since 1978.
89
Teamsters have lost close to 200,000 freight members since 1978,
from 320,000 to 120,000 existing today. These members worked in
scores of freight companies that went bankrupt under the weight
of deregulation.
IBT research has shown that barely 25 percent of these displaced
workers ever find comparable jobs with comparable wages and ben-
efits. At the same time, UPS did expand adding 65,000 jobs from
1984 to the present. Part-time employees accounted for most of this
growth, growing 73 percent over the last 10 years.
So members of the committee, Mr. Chairman, I don't see where
a level playing field — it seems like UPS, and we hope they continue
to be successful, has been done pretty good. I can remember, I was
a package driver to United Parcel Service for 12 years. In 1966, I
think they were in 12 States, 14 States, I am not sure. Under regu-
lation and then partially deregulation, they have done pretty well.
They have done pretty well, as has FedEx who hides under the
Railway Labor Act, who some day we hope we will get our hands
on and it is just another situation of them continuing to try to do
something and it doesn't benefit the American people particularly
the small trucking company and our members.
Thank you.
Mr. RAHALL. Thank you very much, Mr. Perrucci, for your well
thought-out and presented testimony. I don't know whether you
were here during the opening statements or not, but I spoke about
the effects of deregulation on safety, and I pretty well stated that
all along I have been no fan of further deregulation efforts.
Others of my colleagues, Chairman Mineta and many of us on
this subcommittee, have expressed our concerns throughout today's
proceedings about the effects of Section 211 on safety. It has been
a pretty major emphasis.
You know, I can recall airline deregulation — and I have said this
before this subcommittee and the full committee on numerous occa-
sions— when we had the airline deregulation battles before this
very committee, we were told that it would benefit the economy,
that it would not cause loss of service, loss of jobs, et cetera. But
I find very few in my area of rural West Virginia today who would
be fans of airline deregulation, or who can point to many instances
where airline service to rural communities has improved and/or the
price of ticketing has come down. Such has not been the case.
Similarly, when busing was deregulated, I recall having top offi-
cials from both Trailways and Greyhound Bus Lines in my office
just prior to Congress passing busing deregulation. Assurances
were given that service would not be cut out to rural parts of my
area in West Virginia. Shortly after we deregulated, they were the
first to go down before the ICC and file for discontinuance of serv-
ice to my area. And I can see much of the same thing going on
again here when we talk about trucking deregulation.
But I am also a realist and I think we can see the writing on
the wall, so to speak, much as we saw what was going to happen
in those days, which was that the vehicles were already rolling
through the halls of Congress. The fact is that section 211 has
passed the United States Senate and it is before us at this point.
Given that scenario, and regardless of where we are on further de-
regulation efforts, would you and the Teamsters be in favor of this
90
bill if that vehicle was once again rolling so loudly and so full of
steam that we must at least make an attempt to level the playing
field by including the deregulation of all motor carriers in such a
vehicle?
Mr. PERRUCCI. No, we would not. If I understand the statement,
it would be to totally deregulate the industry?
Mr. Rahall. Yes.
Mr. Perrucci. No. I think what has transpired over the last 14
years
Mr. Rahall. In order to treat ail motor carriers equally.
Mr. Perrucci. Well, it depends on treating them all equally. If
we are saying totally deregulate and let everything go as they
want, and I know the safety aspect has been bantered around quite
a bit here, the concerns and rightfully so, but if there is no regula-
tion, economically or whatever, I don't know how the small union-
ized or even nonunionized carriers, a responsible carrier can com-
pete with the big guy coming in.
And on the other hand, if you have the home-run baker company
that comes up and has tires that are flapping in the breeze and lit-
erally you may think I am being facetious and that is true, but I
do not believe, quite frankly, that law enforcement by itself can
regulate safety. I think it has got to be a combined situation of
safety regulation within the State and law enforcement.
Setting up roadblocks every so often, particularly when you are
talking about entrusting, is not always going to get it done. Okay.
I don't know how many small towns that you go in that you are
going to put roadblocks up to check for safety and/or inspection and
there are many phrases you can use.
We know about trucking companies that use what we categorize
as "zippo" plates. They put them on this truck today and take it
off and put it on that truck that is not registered and then they
put it on that one.
So I think the committee certainly takes a responsible — I think
just allowing and saying that the catch-all is law enforcement, as
I heard the commissioner, can certainly regulate safety is very fool-
hardy. I think it takes a combination of both to make sure the com-
panies that we have under contract — and again I am not here UPS
bashing. I will praise them, and their safety record is phenomerol,
but because their safety is — because they adhere to the laws, they
want to make sure that their equipment is in working order and
I would suspect other companies do, too, the Roadways and the
CFs and the Yellows and the small trucking company. But letting
it just be "John Law", I don't think is going to get it done.
Mr. Rahall. The gentleman from Georgia, Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman.
Further expanding on the safety inspections, does the Depart-
ment of Transportation not come out and inspect themselves on the
job site on facilities owned by trucking companies as well as road-
side inspections?
Mr. Perrucci. Does DOT come out? I am not quite sure if DOT
comes out and does spot checking. I would suspect perhaps they do.
But I would also suspect if you don't know that trucking company
is there, you can't inspect something if you don't know it is there.
But I certainly would — your knowledge?
91
Mr. Fink. I believe that DOT does make an effort to do spot in-
spections, but I think DOT would admit to you that it does not
have the manpower to do adequate safety inspections for the thou-
sands and thousands of small and very immediate — the very large
and immediate increase in trucking companies that have come
about in the last 10 or 12 years. They simply are unable to inspect
the 40,000 or 50,000 entrants into the industry.
Mr. Collins. The point was made, though, they do have — they
do come and do inspections.
Mr. Perrucci. Yes, yes they do.
Mr. Collins. What percentage of the drivers of this 160,000
made up of UPS drivers?
Mr. Perrucci. I would suspect, I believe, I am sure they can an-
swer this much better, but I would think out of 160, it is probably
70 — 50,000 to 60,000 package drivers, I would believe.
Mr. Collins. Based on the total number of UPS employees
today, then, you are probably — well, the drivers you are looking
then at better than 200,000 total drivers for UPS. How many or do
you have any idea what the number was prior to deregulation? You
say they have done pretty well since then?
Mr. Perrucci. They have done fantastic. Prior to deregulation.
Mr. Collins. Prior to deregulation?
Mr. Perrucci. I couldn't give you that figure off — I would just
be guessing what their — the amount of employees they had prior
to deregulation.
Mr. Collins. You mentioned, though, they have done pretty well
under deregulation. Does that mean they have actually increased
those numbers?
Mr. Perrucci. Well, Congressman, what I said — I think what I
said was they are still partially regulated and they have done very
well either — any way that you slice it, whether they are working
under how they are regulated now intrastate, and that is why I
don't understand the level playing field situation, but they have
done very well, yes they have. And I think it is not because of de-
regulation, because they have done well even when they were regu-
lated in the 1960s and 1970s, their growth period, if you will, and
I am sure they will testify. They had tremendous expansion in the
late 1960s and a decade of the 1970s and then on into the 1980s,
but what they do is like any good company does, it is the third
word in their name: service.
Mr. Collins. Through your bargaining efforts, though, has the
employee done well, also?
Mr. Perrucci. The employees, yes, we have negotiated, I think,
fair contracts.
Mr. Collins. You negotiate based a lot on profits?
Mr. Perrucci. Of course.
Mr. Collins. Is that a determination in whether or not you seek
certain benefits, certain wages?
Mr. Perrucci. Absolutely.
Mr. Collins. So the fact of whether it was through deregulation
or just good business management during the period of time that
they have been deregulated, you have done well, too, whether we
say it was deregulation or whether it was just good business prac-
tice.
92
Mr. PERRUCCI. It is also part of — you are missing one factor in
there, too, which is cooperation and understanding from the union,
also, of their needs during the last, particularly, two decades.
Mr. Collins. Well, that is good, that is a good point. Let's say
it was due to deregulation, then could we not enhance other compa-
nies, not probably not on the scale of UPS, but maybe on a com-
parable scale based on size or smaller size?
Mr. Perrucci. No, I do not.
Mr. Collins. Would further deregulation help as long as we
maintain clear language dealing with safety and fitness?
Mr. Perrucci. No, I do not. I will give you an example of my
State which I am from, New Jersey, I believe is deregulated. And
UPS, Big Brown, rolled across that thing like a cyclone and many
small companies, Parcel Delivery Service, Retail Delivery Service,
Eastern Delivery Service, they are not there anymore because they
couldn't compete.
Mr. Collins. Were those union companies, also?
Mr. Perrucci. Yes, they were. Yes, sir.
Mr. Collins. That is all I have, Mr. Chairman. Thank you.
Mr. Rahall. The Chair recognizes the distinguished Chairman of
the full committee, Mr. Mineta.
Mr. MlNETA. Thank you very much, Mr. Chairman.
Let me thank Mr. Perrucci and Mr. Fink for being here and testi-
fying before us today.
Mr. Perrucci, on page three of your statement, you say that more
than 150,000 jobs with decent wages and benefits have been lost.
Going to statement by Secretary Kruesi earlier, they are talking
about total employment in the trucking services industry has in-
creased by over 500,000 since 1979, even after taking into account
job losses resulting from recessions and other economic adjust-
ments, which I assume mean job losses that are related to bank-
ruptcies and our economic situation.
I am just wondering, given your statement and Secretary
Kruesi's, is this 150,000 jobs that you are talking about only relat-
ed to Teamster union job losses?
Mr. Perrucci. Yes, sir, it is, but if we can take a closer look at
his figures and you know, I can't dispute them and I can't concur,
you know, I don't know where he got them from, but let's look at
some of the — let's just assume that in his — what did he say?
600,000? 500,000? 500,000 in the trucking industry, well, what
does that include?
Does that include — because we are saying we lost 150,000 good-
paying benefit jobs. Now does that include in the trucking industry
the 60, or probably 40 to 50, 60,000 jobs that UPS created at part-
time wages at eight, nine dollars an hour?
Does that include the trucking companies who now pay nine, $10
an hour, 12 dollars an hour? Probably does. It probably does in-
clude those. We are speaking of real jobs that were within the
trucking industry that have taken it on the chin. And we would
suspect that, in fact, the end result of 211, if it goes as it is — and
there are so many questions about it.
I mean who qualifies for it? 15,000? What does that mean? I
mean there are just so many questions, but to get back on the
point. We would suspect, yes, we are going to lose more jobs and
93
not just union jobs, but good trucking jobs are going to be lost be-
cause these companies are going to go by the wayside and Big
Brown and Big Blue are going to come rolling in. It is that simple.
The Chair. When this thing first started, it was essentially a cir-
cle that involved FedEx and UPS, as I recall. Toward the end of
the 102nd, I was trying to float a compromise, and I think that in-
cluded Roadway Package Service. We couldn't do anything in the
102nd, so we let it go. Obviously, the Senate took that circle and
said, okay, let's broaden it a little more because, as someone would
say, gee, I have a trucking company constituent who is right out-
side this circle, so let's expand it.
Then someone else would come along and say I have got this
trucking company that is just outside that circle. Well, okay, let's
expand it. It seems to me they kept on expanding that ring in the
other body. Now we have got this ring out here to this point where
there is now just a ring that is left out there that may represent
5 or 7 percent of that remaining trucking industry. That 5 or 7 per-
cent— and I am not even sure if that 5 or 7 percent is an accurate
figure, but I am just using that right now.
They are the ones who are going to remain regulated and every-
body else is going to be under a deregulated regimen and I just
wonder whether that is, quote, fair, unquote. Especially if it is, let's
say, Jack driving an 18-wheeler and Jim, his son, maybe driving
a Bobtail and Molly, Jack's wife is sitting at home doing the billing
and they are going to be in a related environment, and Roadway,
Yellow, Carolinas, ABF, Consolidated, everybody else is in a de-
regulated environment.
Now, we know that Section 211 is a convoluted Rube Goldberg
kind of an arrangement just done to fit the aviation improvement
program.
Let me follow up on Chairman Rahall's question. If we were to
say, hey, hold it, let's take a serious look at this and maybe deal
with this as it should be under the Motor Carrier Act, would you
be in opposition to that amendment?
Mr. Perrucci. No, we would not be in opposition if we are talk-
ing about taking a look at it under where it should be, okay. Now,
I am not saying that we are agreeing to deregulation.
The Chair. I understand.
Mr. Perrucci. What I am saying as far as I am concerned, Con-
gressman Mineta, you are right on target, that is where it should
be. That is where it should have been all along. That is where tes-
timony should have been taken from in the Senate or whatever and
I know that is water under the bridge or whatever, but, yes, we
certainly and we would be totally cooperative and certainly submit
our input and see if, in fact, we could address these problems,
whether it is UPS's problem, the trucking companies problem all
over.
We are not just here — and, again, we represent so many people,
not just UPS. We are not looking here to come in favor and say,
wow, if it is good for UPS — and many people think if it is good for
UPS, it is good for the Teamsters. That is not always necessarily
so. It is what is good for our members, and we have a hell of a lot
more than just UPS members. I agree with you that is where it
should be and I agree with the Chairman.
94
The Chair. Thank you very much.
Mr. Perrucci. Thank you.
The Chair. Thank you, Mr. Chairman.
Mr. Rahall. The gentleman from Wisconsin, Mr. Petri.
Mr. Petri. Thank you very much for coming. I apologize for miss-
ing the first part of your oral testimony. I understand you are
pinch hitting for Mr. Carey today. I just want to follow up on the
question that Chairman Mineta was asking to give you a chance
to respond a little more fully. It is my impression that a fairly sig-
nificant percentage of your active membership is employed by UPS,
Roadway, CF and Yellow. Do you have an idea as to roughly what
percentage those are?
Mr. Perrucci. Within the trucking?
Mr. Petri. From those four entities how much would be total
trucking membership?
Mr. Perrucci. That would probably make up 75, 80 percent.
Mr. Petri. And they are all supporting Section 211 and you are
opposing it, and so I just wonder why the difference. Could you ar-
ticulate why it is good for the economic entities, but isn't good for
the employees?
Mr. Perrucci. Well, because the rich get richer and the poor get
poorer. As I said earlier, we also have many small companies not
only that are signatories to the master freight agreement, but what
we call white paper contracts that have independent contracts, and
there are so many of these that cannot compete, and they are con-
tinually driven out of business and further deregulation will con-
tinue to drive them out of business. So we have got those which
are many of the jobs that we are losing.
I mean there is a litany of trucking companies that aren't there
any more, and I would suspect management would say, well, it was
bad management we would say, no, it is a combination, and cer-
tainly deregulation, the associated transports, Eastern, PIE,
Churchill that just went out, St. Johnsberg, it is a litany of truck-
ing companies that are no longer here anymore.
And some people go back to what the commissioner said this
morning, and he all but said it, and it is disturbing to me to hear,
yes, there is going to be an adjustment period and, yes, we are
going to lose some companies. Wnat does that mean to those work-
ers and their families that they are in fact part of those that can't
adjust, as he said, or going to be caught in a transition and they
no longer have a job?
Well, we have lost those. What do we do?
Do we wait for another company to spring up and say we will
do it? Or do you wait for UPS and Consolidated to hire these dis-
placed people, which they probably won't; so, yes, it is a concern
and that is what our concern is. We certainly want to see the big
companies, and they are successful, but not at the expense of the
small trucking company who is out there trying to make a living
for his employees and make a profit for himself, that are being
driven out and are going to end up with the five big ones by the
year 2000, if we don't take a look at this.
Mr. Petri. Thank you.
Mr. Rahall. The gentleman from Tennessee, Mr. Clement.
Mr. Clement. Yes, sir.
95
Mr. Perrucci, I know you want what is best for the Teamsters,
and I look at the Teamsters as like the United States Marines. You
know they are there first and you are strong and you do a good job
representing your people, but I have to believe that there has to
be a difference of opinion in the ranks, particularly on this issue
of UPS versus Federal Express and I say that and I ask you this
question. If Congress did nothing and Federal Express was able to
win State deregulations in their court cases, what would be the
practical effect in terms of UPS's ability to compete and maintain
its work force?
Mr. Perrucci. Well, I think they certainly could address it as
the Ninth Circuit situation did in the California case. It was de-
regulated, yet the Teamsters were successful in getting a weight
limit on it.
I would suspect that they would be able to go in there like they
have done very craftily here and lobby and get what they wish and
they certainly will be able to compete with FedEx, as they are now,
whether it continues to stay regulated or it is not. They will con-
tinue, Congressman, to be able. They are the giant in the industry
and, you know, I commend them for that, but certainly do not try
to paint a picture that they will be the waif on the side of road,
because they certainly will adjust, they certainly will be able to do
what is right and they will be competitive and they continue to
beat FedEx.
Mr. Clement. Haven't we seen a lot of so-called giant companies
fold? I mean just because you are large doesn't mean you are going
to survive in the future in a competitive market moving into the
21st Century where we have to make adjustments in order to com-
pete, not only nationally, but internationally.
Mr. Perrucci. Well, absolutely, but they have adjusted, and I
guess we get into the merits, and I am sure they can't wait to get
on this table to comment on what I have been saying, but they cer-
tainly are very successful because they have the foresight, because
they have gone into new services like second-day delivery and
third-day delivery. Services that their competitors cannot offer at
this time.
And the thing that just amazes me is, and again I go back and
perhaps I have been associated with them for too many years, 28
years, both as an employee and as a union representative, of bang-
ing on our door all the time about FedEx and their competition and
so forth.
Yes, they are both on board on this. That only signals one thing
to me: there are big profits. There is more market to get and it is
to squeeze other companies out of the revenue that is there. And
that is why they are successful because, yes, they are innovative.
They have the foresight. If they didn't, they would be out of busi-
ness because they were a retail delivery service back 30 years ago
or some when I started with them. They saw department stores
were finished, it wasn't the way to go, so they made the smart
managerial decisions and they are still doing that, but they don't
need any help from their friends in Congress. They have been
doing very well on their own.
96
Mr. Clement. Over the years, UPS management, UPS union
worked together extremely well. Haven't you had a special relation-
ship?
Mr. Perrucci. We have, as I said earlier, and it has become, I
guess, what many people feel is what is good for UPS is good for
the Teamsters, yes, we have. We have lobbied in many areas to
help them get legislation, there is no doubt about it. We have
worked hand-in-hand. We had even offered a year ago when I think
it was 3221 was in, I believe this committee, to work with them
on something that didn't go anywhere. So we understand their con-
cerns and we are willing to work with them, but every piece of leg-
islation that they propose that will benefit them will not nec-
essarily benefit the Teamsters, and we have to look at an overall
view of not just UPS Teamsters but all Teamsters, other-company
Mr. Clement. What about the Motor Carrier Act of 1980? What
position did the Teamsters take on that legislation?
Mr. Perrucci. I believe the Teamsters certainly were against de-
regulation, correct.
Mr. Clement. Now, you heard the Assistant Secretary comment,
and he made the comment as a result of that act, almost 40,000
new carriers have entered the industry and made rate levels much
more competitive. Do you agree or disagree with that statement?
Mr. Perrucci. I disagree with that statement. First of all, I don't
know where he got his figures from and I don't know what con-
stitutes a new trucking company.
As I said earlier, is it the home-run baker from Bayonne, New
Jersey, that has got one truck that doesn't meet any of the regula-
tions, is that a new trucking company? If that is what is in his fig-
ures, perhaps they are. I don't know what those figures are. I do
know what our figures say. We have lost good jobs, good jobs for
communities. St. Johnsberg, for example, up in New England, a
whole community behind a company that is there.
Mr. Clement. You and I both know that most new jobs that have
been created the past decade have been small business. They
haven't been big business. They have been small business, small
operators that provide a service. You know, and I wouldn't nec-
essarily characterize them as shoddy business people, but they are
small.
Mr. Perrucci. I didn't say that. I am not talking about the
small — as I said earlier, Congressman, we have small trucking
companies, 6, 8, 10 people under contract and there are companies
that are nonunion, 6, 8, 10 people that do an admirable job.
But there are also those who do not do a good job, who pay
subscale, who have people on the road that don't have valid drivers
license or probably have points that are very close to them being
suspended. There are those folks out there, whether you want to
believe them or not, and we feel that continuing to deregulate is
going to give more access to these types of companies.
Mr. Clement. I think what we are referring to here is to have
economic deregulation, but not to have safety deregulation, and not
to have fitness deregulation, and not to have insurance deregula-
tion, that those responsibilities would remain with the State. What
we are referring to is economic deregulation.
97
Is that your understanding?
Mr. Perrucci. Well, I am not quite sure of what exactly 211
states. As I said, it is a patchwork type of situation. We have
talked about again, and I heard the commissioner said, that the po-
lice can certainly regulate the safety. We feel it is not just safety,
it is everything. Yes, economically, also, to allow that small ship-
per— I mean that small company, allow them to compete. So it is
not just safety, it is not just economic; it is the whole package in
its entirety.
Mr. Clement. Let's assume we make a decision this year, either
Section 211 of Senate bill 1491 or total deregulation. WThich of the
two would you prefer?
Mr. Perrucci. Well, is that a loaded question or what? Could
you repeat that again?
Mr. Clement. That is my southern twang.
Mr. Perrucci. Which one would I prefer, the gun or the knife?
Mr. Clement. Of the two, let's assume we make a decision
whether we deregulate from what the Senate has done under Sec-
tion 211 of the Senate bill or we go even further than that and de-
regulate, totally deregulate.
Do you have any feelings about if we had just those two choices
what would you prefer? Because I know you mentioned a while ago,
and we have talked about maybe some carriers, particularly the
LTL carriers, may be disenfranchised or at a disadvantage.
Mr. Perrucci. Well, we would prefer neither or neither or what-
ever. The fact of the matter is that you know you are not giving —
as I said, you are either giving me the knife or you are giving me
the gun and it is just not — we say it is a bad, bad situation, 211,
and it should go back and take a good look at it, and get rid of it
and start again and forge something that is certainly livable; and
as it is now, it is not and we are certainly against total deregula-
tion.
Mr. Clement. My last question: if we do start again, what do
you propose then or would you just stay in status quo where we
are now?
Mr. Perrucci. No. I think, and we certainly would like to submit
our input into it. You know, perhaps there is some way to look at
it. It might be a minimum weight limit. It might be something that
certainly could be looked at that would — you know that we might —
we would not close — the only doors, as far as we can see, that hurts
us is total deregulation and 211 as it is now.
Mr. Clement. Thank you.
Mr. Fink. Congressman, we provided for the committee — Mr.
Perrucci provided for the committee a study that recently was done
under the Cornell University auspices, which makes some sugges-
tions as to the types of things that ought to be evaluated, and one
of the concerns that we have had continuously about deregulation
is that it has failed to address the employee concerns. It has failed
to address what happens to the employees. There are no labor pro-
tective provisions associated with it, with any of these consider-
ations. If you took a look at that study and allow us to contribute
by addressing the employee concerns, we would be more than
happy to work with you.
98
Mr. Clement. All of us, as you know, want to create jobs. We
certainly do not want to eliminate jobs. And we want to bring
about more opportunities and more business for Americans.
Thank you.
Mr. Rahall. The gentleman from Illinois, Mr. Lipinski.
Mr. Lipinski. Thank you, Mr. Chairman.
Mr. Perrucci, I got the correct pronunciation?
Mr. Perrucci. You got it. Yes, sir.
Mr. Lipinski. It is because of all those Italians I grew up with.
No, not soccer games. The Italians I grew up with didn't play soc-
cer. Joe Dimaggio. No soccer players.
First of all, I want to thank you for your testimony. I appreciate
hearing it. It was very refreshing.
I would also like to have a copy of your testimony, though, be-
cause I don't have a copy of it and it doesn't seem like anyone else
here has a ccpy of it. We do have a copy of Mr. Carey's testimony,
but your testimony has been much more elaborate than his was.
It came up with a lot more facts and figures, and I think it will
be very helpful to us. Those of us who are prone to be supportive
of the Teamsters and supportive of your position are in a very, very
difficult situation here.
It would appear as though the die, to a certain extent, has been
cast. There are people advocating that we go to total deregulation.
There are other people that will be content with accepting the 211.
I realize that the position that you are in is a very, very difficult
position. But I don't know where there is enough support at the
present time to roll back the tide that seems to be sweeping upon
us.
Now, I know that myself and other members of this subcommit-
tee and the full committee are willing to stage a strong fight in be-
half of your position, but I don't know if that position will be suc-
cessful. I think it is incumbent upon you and all the members that
you represent to contact all the members of this committee and
make your case very directly to them.
If I may suggest to you perhaps the best approach to use is one
of buying time, trying to delay what we have before us so you and
those of us who sympathize with your position can have genuine
input into their situation. You know we are in an era of deregula-
tion.
I personally do not think it has been good for the American work-
ing man and woman, but it seems to be continually moving in that
direction, and I always get a kick out of the fact of all the jobs that
allegedly it creates, which you and I and everybody else knows are
jobs that probably pay one-third of what the American working
man and woman were making before the deregulation. But I think
if you do contact, make real effort on this committee, we might be
able to delay this and you can have input into it and we can have
input into this. Obviously, the Public Works and Transportation
Committee and their subcommittee, there are members on here
who are very much sympathetic to your position, otherwise you
wouldn't be having this hearing today.
I think you can count on a lot of support here. The point I want
to clear up though for the record is that many of us have large UPS
centers in our districts. I have one of the largest in the country and
99
they are building the largest in the country in my district. We all
know the association between the Teamsters and UPS. There is
quite a campaign going on, as I am sure you aware, of the Team-
sters Union members at United Parcel Service contacting their rep-
resentatives and trying to influence them into supporting 211.
Could you elaborate just a little or can you shed any light on
what is going on there? And I would also like to know what per-
centage of the membership of the Teamsters is actually employed
by United Parcel Service.
Mr. Perrucci. Thank you very much, and thank you very much
for those comments, Congressman.
We have about 165,000 UPSers who are Teamsters. And to ad-
dress the point of — and I know many members of Congress both in
the House and in the Senate received letters from constituents who
are UPS employees, our members are saying, "right on, 211, rah,
rah, rah." If the truth be known, and this is undisputed, what the
company did was the morning meetings, which is they have their
morning meetings and their afternoon meetings. Before the start-
ing time of each shift, the employees were called together on the
clock told then, here, fill out this form. Type up a letter. They had
an example of how to do it.
Some of them were strictly form letters. On the clock they were
allowed to fill it out, being told that this is going to be good for you,
this is going to mean more revenue for UPS, more volume for UPS,
therefore, it is good for you. Fill it out, send it in. Now this was
all done on the clock, done spontaneously in the morning. There
was no debate on it.
We certainly weren't invited to say, well, see what your union
representative thinks about it. It was a captive audience situation
and that is exactly how it was done. But afterwards when we did
find out how it was done, we then sent communications to our local
unions, we explained to our members and then in many areas the
letters started coming in the other way saying, "Well, wait a
minute. We didn't really understand what this was all about." So
that is how UPS got those letters sent from its employees to the
members of Congress.
Mr. Rahall. Would the gentleman yield on that point?
Mr. LlPlNSKl. I certainly will yield to the chairman.
Mr. Rahall. This is a postscript, no doubt. I have been inun-
dated by the same, but they all addressed me as Senator Rahall.
I am not sure I took kindly to that.
Mr. LlPlNSKl. I think that would be a wonderful idea. If it was
Senator Rahall, then I would move up further in seniority here.
I thank you for clarifying that and I think that is very important
to get it out on the record exactly what that situation was.
Now, my very good friend, Mr. Clement, over here and he is a
dear friend of mine, even though we don't agree on this particular
issue, asked you a question that you were not too enthusiastic
about answering.
So I want to ask you a question that you will be very enthusias-
tic about answering. If you and I had the power, the ability to rem-
edy this situation and in behalf of the American working man and
woman, what would you do?
100
Mr. Perrucci. I would certainly leave it exactly as it is, regu-
lated. I think we need more regulation instead of less regulation.
It creates new jobs. It creates good jobs. And it certainly does,
whether trucking companies agree with it or not, it does stir com-
petition because everybody is on a level playing field, then not just
the big guy on there and the little guy thrown off the field.
Mr. Lipinski. You are more conservative than I when I moved to
roll back the decision in California, Oregon, and Washington. I
thank you for your testimony. That is my position. We will see
what we can do in behalf of your issues.
Thank you for being here. Mr. Chairman, thank you very much.
Mr. Perrucci. Thank you, sir.
Mr. Rahall. The gentleman from Illinois, Mr. Poshard.
Mr. Poshard. Thank you, Mr. Chairman.
Mr. Lipinski got into an area, Mr. Perrucci, that I wanted to in-
quire about. Because I have received many responses from Team-
sters members who work for UPS in my district who are fully in
support of this and I thought there might be some division in the
ranks and so I wanted to inquire about that.
I guess I would express something similar to what the Chairman
had expressed before in his opening statement, and I think all of
us, if we felt that complete deregulation would lead to market
forces determining price and demand and so on of the products
that are transported across this country by the trucking industry,
we would all support that. But when I look at deregulation, wheth-
er it has been in the air industry, or banking or whatever and, rep-
resenting the predominantly rural district in this country, I don't
see that it has led to market forces determining much in terms of
competitive playing field.
If market forces were the determining factor of everything, it
would be great. We wouldn't have a health care crisis in this coun-
try either, but for decades now we have had an industry that
hasn't responded to market forces whatsoever. People charge what-
ever they want, whenever they want, however they want, and that
is why we have a health care crisis today. So just the fact that we
deregulate something or leave it open, so to speak, doesn't mean
that it is going to respond to market forces.
And I am a little bit concerned about this particular 211 and the
way it has been drawn up. I don't have any qualms about leveling
the playing field between UPS and its competitors and that sort of
thing, but I think we have to take a close look at total deregulation
here and especially its effect upon your industry and the rural
areas and the smaller guys in this country. I really am concerned
about that.
Mr. Poshard. Mr. Chairman, I didn't really have any questions
other than the one that seemed to be — where Teamster members
were writing us en masse with respect to this particular issue in
favor of it, and I was just going to ask Mr. Perrucci about that, but
that has been answered.
Thank you.
Mr. Rahall. The gentleman from Michigan, Mr. Ehlers, has been
here a long time.
I am sorry. The gentleman from Arkansas, Mr. Hutchinson, has
been here longer than Mr. Ehlers.
101
Mr. Hutchinson. Thank you.
Thank you, Mr. Chairman.
And thank you for your testimony. I have enjoyed it.
I really take exception, though, to the tenor where we just sound
like deregulation is the end of the world and it is a horrible thing,
and so much of what has been said flies right in the face of what
the Department of Transportation — when the Under Secretary was
here this morning, and what he had to tell us about the safety
records since deregulation on interstate, and the job situation.
And I am just greatly puzzled. I mean, it seems to me that what
you have been telling us is that you can't explain it, but that their
numbers are all wrong, that they tell us in the area of safety that
since interstate deregulation, the fatal accident rate for large
trucks has fallen by one-third.
In light of that, what is the basis for assuming that the impact
of intrastate deregulation would have a negative impact on safety?
Mr. Perrucci. Well, I think — and again, as I said earlier, you
know, I am not taking issue with his numbers. I have no idea
where he got his numbers from, where he ascertained them or
wherever. I just know what our numbers say.
Intrastate — it seems to me, it is even easier to duck the safety
issue in intrastate if it, in fact, is not regulated, if, in fact, it is not
a partnership with law enforcement. You are not leaving the State.
You don't have to use the interstate highway system if, in fact, you
don't want to.
So it would be much easier, we feel, within the States to be able
to duck many safety issues. That vehicle is not subject many times
to weigh stations, perhaps can use the county roads, State roads.
So I think it is apples and oranges when you compare between
interstate and intrastate.
Mr. Hutchinson. So you are saying that deregulation on inter-
state may have resulted in a better safety record but that will not
carry over?
Mr. Perrucci. I am not sure if it has or it hasn't. I would as-
sume, of course, that everyone has been safety conscious, and
again, I think that it has to be a situation of both regulated and
law enforcement, but not just one entity.
Mr. Hutchinson. Well, moving to that job issue, again, DOT,
when they were here, said that we had a — after adjusting for bank-
ruptcy, job losses, an increase of over 500,000 jobs since interstate
deregulation in 1980, and that the number of carriers has in-
creased by 40,000 or 143 percent.
Now, if I heard you correctly earlier, you said that your concern
was that 211 would result in the big companies getting bigger and
driving up the small companies, and yet what I hear the small
companies telling us is not regulate more. What I hear them saying
is, be fair with us, level the playing field, deregulate completely
and we are willing to compete, that we can match the companies,
we can survive and we can thrive in a competitive marketplace if
the rules are fair, just don't put us at a competitive disadvantage.
That is what they are telling me.
They are not saying we want more regulations. So I am kind of —
I guess my question is, where do you — what is the justification for
102
the fear for the small companies if they are not saying we are
afraid? They are saying level the playing field and let us compete.
Mr. PERRUCCI. Well, I know the — many of the small companies
that we represent, in fact, are telling us that they are concerned
about it. And again, if you go back to those 500,000 jobs, I don't
know what kind of jobs have been created.
As I said earlier, UPS has created jobs at $8 an hour, $9 an
hour. Part-time jobs, that would be in the trucking industry, I don't
know what constitutes, under the Commissioner's study, about
what is a company. Is it an owner-operator, one person? I would
assume.
So what kind of jobs have been created out of those 500,000 if,
in fact, those figures are correct? And are they quality jobs and are
they jobs that the American people can live oft of? Do they have
benefits with them? Do they have a living salary with them?
So I think it is a little deeper than just throwing a number of
500,000 out. If we are going to be impressed with numbers, we are
in trouble. I mean, numbers are one thing, but are they quality?
Are they quality jobs? Are they really helping the American people?
Are they helping the family, the American family realize the
dream?
I don't think so. I think if you take a close look at what kind of
jobs were created, you are going to find that they are tainted a lit-
tle bit and they are not quality jobs, Congressman.
Mr. Hutchinson. I would say creation of 40,000 new carriers
and 500,000 new jobs, that is a good thing.
A couple of times I think I have heard you refer to 211 as a
patchwork, and, you know, we have got 42 different — 40, 42 States,
I am not sure. There has been a little controversy on how many
States, but
Mr. PERRUCCI. That is what I mean by patchwork; don't even
know how many States are involved.
Mr. Hutchinson. That is my point. I am not talking about 211
now. I am talking about 42 State approaches to regulation. That
seems to me to be a patchwork.
And what has been suggested here today is that by preempting
and deregulating entirely, we eliminate 42 different patchworks.
Wouldn't that solve the problem of the patchwork?
Mr. PERRUCCI. Absolutely not. It is taking in one fell swoop,
doing away with regulation that is probably benefiting the citizens
of that State, the employees and their families and the well-being
and the safety of that particular State. No, I do not think that is
the right thing to do.
If I did, I wouldn't be here testifying against it. The patchwork
situation is tacking it onto a bill that has to do with airport im-
provement and running it down the road that way. That is what
the patchwork is, and still we don't even understand.
Who qualifies for it? How do you get to 15,000 deliveries? I don't
know.
You can probably do it any way you want. What companies now
come underneath this umbrella of protection, as it were, or deregu-
lation, as it were?
103
Mr. Hutchinson. I heard your concerns about that but it is un-
clear, there is ambiguity. And once again, I would just say that by
broadening that deregulation, you eliminate that problem entirely.
Mr. Perrucci. I guess we disagree on that.
Mr. Hutchinson. Thank you, Mr. Chairman.
Mr. Rahall. The gentleman from Michigan, Mr. Ehlers.
Okay. The gentleman from Minnesota, Mr. Oberstar?
Mr. Oberstar. Thank you, Mr. Chairman.
I don't have any questions. The Teamsters' position is very clear.
The testimony has made it perfectly clear what their position is on
these issues, and I needn't belabor the point. I think we need to
press on with our witnesses.
Mr. Perrucci. Thank you.
Mr. Rahall. Mr. Perrucci, Mr. Fink, thank you very much for
being with us today.
Mr. Perrucci. Thank you for the opportunity to present our
case. We appreciate it.
Thank you.
Mr. Rahall. Our next witness is Thomas J. Donohue, President
and CEO of the American Trucking Association, Washington, D.C.
Tom, we welcome you once again to the subcommittee.
TESTIMONY OF THOMAS J. DONOHUE, PRESIDENT AND CEO,
THE AMERICAN TRUCKING ASSOCIATIONS, INC.
Mr. Donohue. Thank you very much, Mr. Chairman.
Mr. Rahall. You were here about a week or two ago regarding
the ICC. We welcome you back.
Mr. Donohue. Thank you. Very happy to be here. Good after-
noon.
Mr. Chairman, last week in between my appearance here and
now the new appearance, I testified in the Senate on the ICC fund-
ing and on Section 211 of the airport improvement bill and the
trucking reform legislation that was introduced over there just re-
cently, and my comments today will be similar to those made in
the Senate but will reflect on the discussion that took place there
as well.
I think it is important for the committee to understand that ATA
has changed its policy on intrastate regulation. It was not an easy
debate. It was very spirited, but last month, the executive commit-
tee voted to no longer oppose Federal preemption of State regula-
tion on motor carrier rates and entry based on economic factors.
In a large part, this change in policy was due to the actions of
the Senate in adopting Section 211. It also had to do with other
current realities, the Federal Express California court decision, the
deregulation actions in many States, and other Federal legislation
that is going to affect this subject, such as the ICC issue.
Now, we will support the 211 section and encourage the Congress
at the same time to preserve beneficial State rules on uniform li-
ability bill — uniform liability, bills of lading and antitrust immu-
nity for interlining in particular. These and other related factors
are necessary for the orderly conduct of our business.
_ We would further encourage the committee to preserve the bene-
fits of State licensing of trucking operations, including financial fit-
104
ness requirements, uniform operations — operating practices and ex-
isting tax exemptions.
This brings to mind the discussion that has been had all morning
about safety, and I believe the Chairman knows about the signifi-
cant improvement that has been made in highway safety, a 40 per-
cent increase in the miles and a 40 percent decrease in the fatali-
ties.
Further, we would encourage the committee to allow carriers a
tax write off for any reduction in value in State operating authori-
ties as provided by current law or under new legislation, if it is
necessary.
We would encourage this committee to give the broadest inter-
pretation of to who may qualify as being deregulated and to con-
sider further legislation, if necessary, to provide these opportunities
to all intrastate carriers in the near future. And finally, we would
encourage you to continue the State regulation of household goods
transportation.
Now, based on this new policy, ATA asks those Members of the
subcommittee who will be sitting on the conference committee to
revise 211 to protect the beneficial noneconomic aspects of State
regulation; and, number two, to insure that the benefits and rights
being given to some carriers are enjoyed by all carriers. In other
words, let's level the playing field.
Now, Mr. Chairman, with your permission, may I just say a word
about the ICC. We oppose any elimination of the ICC that allows
the rules and regulation to remain in place without a means to im-
plement and administer them. We fully understand the desire by
Members of the Congress to control costs, not only the cost of the
ICC, but I am sure the cost in business as well.
We specifically oppose the congressional action that zero funded
the ICC and left us with all the rules and regulations. However,
if Congress believes there is a way to do this and at the same time
to protect our ability to function under the law, they will have our
support.
It appears that some action is now going to be necessary. The
Senate Appropriations Committee just reduced the ICC's budget by
a third and — at least the subcommittee did, and also they left in
all the revenue for functions that they are going to get rid of, so
the reduction will be even greater.
I think it would probably be useful then for me to make very
brief comments about the regulatory reform act that is being dis-
cussed on the other side of this Federal center.
Let me briefly say that regulatory reform bill contains a series
of studies that no one would oppose. It sets safety criteria in insur-
ance as the way to receive approval at the ICC, and there is no ob-
jection to that.
We have been doing that for 10 years, and it suggests changes
in the tariff filings, and what our concern is, is not what happens
in the filing of a tariff and the ICC where it is put in a cardboard
box. Our concern is that we still have the protections of the filed-
rate doctrine that allow us to interline between one small company
and the next, and that provide the protections of the law for us to
do our business in an orderly way.
105
And finally, let me say on the matter of exemptions which have
been proposed in that legislation, as a person and as a representa-
tive of major industry, the more things we can get rid of, that is
fine, but we ought to make sure that those exemptions are limited
so things that you have worked so hard on, like the negotiated
rates act and fitness and safety licensing and insurance, are not ex-
empted out without the understanding of the House and the Sen-
ate.
Mr. Chairman, let me conclude in not just summing up what I
said but adding a few additional thoughts.
I think if we look at the facts today, we could probably figure out
that the ICC will be significantly scaled back, and as a result, a
number of their functions will be curtailed or eliminated.
Second, I think we can say that even without any action by the
Congress, some number of motor carriers have been deregulated by
the courts and have the ability now to apply that decision within
the individual States.
And the third thing I would suggest is that one-third of the
States are currently deregulated or behave exactly as if they are
deregulated, and other States are thinking about changing their ac-
tivities, and those States are like Texas and California, rather sig-
nificant that would move things in a very aggressive way.
So, Mr. Chairman, these facts suggest to us that change is immi-
nent but that change must be orderly and well-managed. So we ask
you to please carefully review the recommendations submitted by
ATA that would level the playing field and maintain the necessary
noneconomic rules of the road for the orderly conduct of our busi-
ness.
We suggest that you do as much as possible to achieve these ob-
jectives within Section 211 of the Airport Improvement Act.
Mr. Chairman, I came here today from a meeting of the State
Trucking Association executives who are meeting in Massachusetts,
actually had we known we were going to be here, we probably
would have met in West Virginia, but they have made clear the
need for clarifying amendments and suggested that at a minimum,
the effective date of any of this legislation not be before the first
of the year, 1995, so that by the time it gets passed, then there be
a time to get the word to the States and everybody to get them-
selves organized and in a sensible way.
Mr. Chairman, it has been a long morning and a long early after-
noon. This sums up our feelings on this: We want to be helpful. We
want something that works and we want to recognize the reality
we all face. This vehicle is moving and it is essential that we guide
it, not follow it and not chase it.
Thank you very much, sir.
Mr. Rahall. Thank you, Tom.
Let me ask you — maybe you want to enter our sweepstakes con-
test here — how many States, according to ATA, still maintain
intrastate motor carrier economic regulation?
Mr. Donohue. Mr. Chairman, I brought along a — and I will sub-
mit for the record a study that has been done, a ninth annual re-
port of motor carrier regulation by the respective States, and it is
the regulatory — State regulatory study that was done by Daniel
Baker. And you can read it a number of ways. But the annual
106
study reports that 41 States continue to regulate their motor car-
riers. Maryland became the seventh State to just deregulate.
I cannot make a lot of heads or tails of their numbers, but let
me suggest to the committee that there are not just regulated and
deregulated States. There are very aggressive regulators. There are
aggressive deregulators that — you know, some States have never
been regulated and there are lots of people that do it with tongue
in cheek.
I will tell that you a third of the States in this country do not
aggressively regulate their motor carriers on the matter of econom-
ics, but they do, of course, on safety, because that is a very clear
issue and the results there speak for themselves. But I will put this
in the record just to add to the list of statistics so that we might
have a broader sweepstakes.
Mr. Rahall. Well, we appreciate that.
ATA has had a traditional policy, has it not, of being against
Federal preemption of such State regulation?
Mr. Donohue. Yes, sir, we have, and of course we have all
agreed to preempt the States on all very important things, such as
the bingo stamps that save the industry more than a million dol-
lars and the driver's license and other matters that show in those
instances preemption has worked.
But we have had a policy that said we did not want the Federal
Government to preempt the States. And I am here to tell you, you
are going to hear from some of our members today who continue
to feel that way, but if you have the change in the Federal courts,
the changes in the ICC, the major changes Kentucky just deregu-
lating, Maryland just recently deregulating, the discussions in
Texas and California, I mean, after a while, you get the clue.
Mr. Rahall. So it is "go with the flow"
Mr. Donohue. No. It is "go with the flow."
Mr. Rahall. It is what?
Mr. Donohue. "Go with the flow." Our suggestion is, what we
would like you to do is give the — "go with the flow" to give the
States the rights to eliminate regulation based on rates and entry
but to continue to allow the States to assure the orderly conduct
of our business with matters such as interlining and safety and in-
surance and those kinds of matters which we have put in our testi-
mony.
It is not simply of saying yes or no. We are suggesting that there
is an orderly way to do it and I am sure the committee will be able
to reach that objective.
Mr. Rahall. Thank you, Tom.
Gentleman from Wisconsin, Mr. Petri.
Mr. Petri. Thank you very much.
Thank you for your testimony, and I am sorry we have delayed
you a little bit today. I know you have other things to do as well.
But I wonder if you could comment on something that some of the
previous witnesses have disagreed about, and that is the effect of
deregulation or of Section 211 on jobs in your industry. Do you feel
that there will be severe job losses and a reduction in safety, as
some have alleged, if 211 is adopted, or do you think the contrary
will be the case?
107
Mr. Donohue. Let me separate them and take them one at a
time.
In the matter of jobs, I can pretty much assure the committee
there will be no job loss. Let me not address that from a deregula-
tion point of view. Let me simply say that if we maintain a 2.8 eco-
nomic growth rate in this country between now and the end of the
century, we will have so many new jobs, we will drive — if you just
take about an eight-year period of time ending at the year 2000,
we will have in excess of a 30 percent increase in volume, a 31 per-
cent increase in miles driven and about a 14 percent increase in
heavy vehicles. That assumes that we can encourage the railroads
to double their intermodal freight between now and the end of the
century — and I am sure Mr. Lewis just said yes — but the point is,
Mr. Petri, we will have so many new jobs, we could hire today a
whole lot of new truck drivers if we could get qualified drivers
ready to go to work in certain elements of our industry.
So the job loss argument flies in the face of economic growth. It
flies in the face of NAFTA. It flies in the face of the basic under-
standing that most people have that we need more people to work
in our business.
On the matter of safety, I associate myself with those that say
these are really separate issues. What has — separate issues, so
long as we don't do anything to take away the State's ability to
deal with safety and insurance and other matters.
But we have gone to, since deregulation, to the commercial driv-
er's license. We got rid of the commercial zones where people are
able to operate without inspection. We have gone to about a 1.6
million roadside inspections. We have gotten rid of radar detectors
in trucks.
We are very, very, very much involved in the commercial driver's
license and the benefits of that and we are doing drug and alcohol
testing. Now, I am — I will assure you that safety is high on
everybody's mind because it is very good business for us.
It is very essential, good public policy and good relationships
with the community and it is damn good politics, and we are going
to work very, very hard and this legislation will not interrupt the
process of continuing to improve our safety record.
Mr. Petri. Thank you very much.
Mr. Donohue. Thank you, sir.
Mr. Rahall. Distinguished Chairman of the full committee, Mr.
Mineta.
The Chair. Thank you very much, Mr. Rahall, and thank you
very much, Mr. Donohue, for your testimony as well as the prin-
ciples that you have laid out in terms of what really should be
looked at as part of this Section 211 discussion and policy deter-
mination.
Earlier, I had asked Assistant Secretary Kruesi whether a truck-
ing company which was regulated and which had to compete for
business against a deregulated carrier, would end up dead. His an-
swer was yes.
I was wondering what your answer would be?
Mr. Donohue. Well, with all due respect to the Assistant Sec-
retary who I have a lot of respect for, I think that is a — that is a
very quick answer.
108
I would make a couple of points: First of all, on a broad-based
look at the economics, if a lot of trucking companies ended up de-
regulated, the ones that were regulated would clearly have a dis-
advantage.
Would they immediately go out of business? Well, it depends
what their niche is and what kind of service they were providing.
We are suggesting in our discussion that the household-goods
carriers, because they sell services to people that maybe buy it once
or twice or three times in a lifetime, would stay under regulation.
Well, they are not going to go out of business because they are not
competing directly with people. And then some folks that are in
other parts of this business, on the margins, could probably stay.
But when you look at the reality, the long-term economic reality,
it is very hard to have one group of people playing a sport with one
set of rules and another group of people on the same field playing
with another set of rules. It just doesn't make sense.
So what I would say is that the people who — if a good number
of carriers were deregulated in the same market niche, the people
that were trying to compete with them on a regulated basis would
be at a disadvantage for two reasons: One, they would have the
regulations to contend with; and two, they would have a totally dif-
ferent mind-set, and if you don't cross the mind-set bridge, you
can't compete.
You know, when you look at what happened since deregulation
in the early 1980s, and say, look at all those people that went out
of business, a lot of those people went out of business because they
couldn't deal with change, because they wouldn't adjust their com-
panies to new realities. And not only new realities that came from
deregulation, but new realities that came from new technology,
that came from new management systems, that came from new
computer systems.
In this country, if you don't change, you have a very serious
problem. Look at what has happened to IBM and General Motors
who are trying desperately to restructure themselves. They didn't
keep up with technology. They didn't keep up with market change.
They lost sight of what their customers wanted, and the customers
have changed.
When you are regulated, very often your customer is your regu-
lated. When you are deregulated, your customer is the shipper and
the receiver, because the regulator isn't in the business.
So I think, Mr. Chairman, it is not only a matter of unregulated
or not. It is, have I made the mind change? Have I shifted to a new
way of running my business?
Do I recognize that change around me is moving at a very quick
rate and regulated or not? Do I have to adjust my business?
And there is no way for government to protect companies who
don't keep up with change, but we can help them by giving them
a level playing field.
The Chair. What is it that says, yes, we ought to isolate here the
household-goods carrier from
Mr. Donohue. Mr. Chairman, I think there are two reasons. The
first is, everyone else that is in this business, for the most part —
I mean, almost, sells their services to people who buy transpor-
tation services on a regular basis. They sell services to the local
109
manufacturer or to the food processor or to the grain producer who
has some sense of buying those services.
The household-goods people sell them to our families who move,
you know, once every couple of years or twice in a lifetime, and so
some regulation of how those rates are — and entries are arranged
and who those people are, probably makes sense.
The second reason that it makes sense not to include them is
that the way they are structured with all of the local agents work-
ing with a national organization, needing a lot of benefits of the
law to allow that to happen, and also recognizing that there is a
major lobbying force that might get right in the middle of this
thing right now, and I think the reality suggests that it would
make it work a little bit easier if they weren't included.
The Chair. Would there be a rationale for tankers?
Mr. Donohue. I am going to answer that, Mr. Chairman, but we
were about to start the daisy chain and I can think of some other
places there is a rationale. I mean
The Chair. That is what we will start doing, going right down
the line.
Mr. Donohue. What about oil field haulers and virgin forest
products people, and folks like that. I think some of those folks
that may almost be in the captive shipper kind of business like
some of our — I used to say competitors, but our intermodal part-
ners are, there might be some reason to look at that.
I haven't focused on that very much, but I would be glad to do
that with you. But I think in terms of tank truck haulers in gen-
eral, one has to say, first of all, a tank truck division of ATA has
taken a policy in favor of deregulation. But I think one has to rec-
ognize, that is a much, much broader industry than some of the
other more specific industries we are talking about, and many of
them are owned by companies that are in other parts of this busi-
ness. So I don't think they are encouraging, nor would I step for-
ward and suggest that they be exempted.
The Chair. On page 3 of your statement, you say that the ATA
no longer opposes Federal preemption of State regulation of motor
carrier rates and entry based on economic factors, so long as cer-
tain noneconomic factors are retained. Do all or most of the States
maintain the noneconomic factors that you listed in your state-
ment?
Mr. Donohue. Well, we come again back to this 50 States, but
most of the States that presently do regulation take care of those
economic factors. Some of the States that don't — noneconomic fac-
tors, excuse me, sir, and some of the States that are not regulated
have rules and procedures governing the noneconomic factors.
I think what we are saying to them, though, Mr. Chairman, is
not that you must do this. We are saying when we preempt the
State from regulating on rates and on entry, you may continue to
do the other things. So we are saying to the State, if what you had
was an antitrust arrangement so that small companies could inter-
line with themselves and with big companies and have a single
rate, and everything, and you didn't care what the rate was, if you
want to keep doing that, that would be fine.
If you had some arrangement on insurance or safety or on ques-
tions of liability and you want to keep doing that, that would be
110
fine. We are not suggesting to the States or asking you to suggest
to the States that they will. We are saying if you have been doing
this and you would like to continue because it adds to the orderly
conduct of the business within your State, then feel free to do so.
The Chair. Now, there has been mention of the safety record.
Has the safety record in interstate trucking gotten better or worse
since the passage of the Motor Carrier Act of 1980?
Mr. Donohue. Better, better, better.
The Chair. Now, does that support then your point and mine
earlier, that economic regulation and safety regulation are two
completely different things? We deregulated the Commission in
1980, but we improved safety regulation, and the result was a bet-
ter safety record.
Mr. Donohue. Mr. Chairman, my view is, we are doing every-
thing possible to improve safety until we think of something new
tomorrow, and it is not going to be affected one way or the other
by what happens in economic regulation.
We had some testimony from some of the NARUC people and
others who are concerned about that, but I can absolutely assure
you that no governor, no Member of Congress and nobody in the
DOT on the Federal level or the State level are going to let safety
programs, positive programs and inspection programs suffer be-
cause of this legislation.
The Chair. The — you mentioned the filed-rate doctrine. In order
to retain antitrust exemptions, interlining, do we have to retain the
filed-rate doctrine? Can we not do away with the filed-rate doctrine
but still do interlining, still maintain antitrust exemptions, et
cetera, some of these other things that are beneficial, instead of
having these boxes?
Mr. Donohue. Well, Mr. Chairman, I am not too sure we have
to file the rates, you see? You could maintain the provisions of the
doctrine.
The Chair. That is my point. Could we do away with the filed-
rate doctrine and still have these other things that
Mr. Donohue. I have the same problem you do. You have the
lawyers that advise you and I have a lot of lawyers advising me,
and we are all sort of holding our breath.
Actually, I am thinking of changing some lawyers soon because
I haven't been getting very good answers the last couple of days.
But seriously — it is all right, Ken.
The Chair. We may have an opening on the committee soon.
Mr. Donohue. Mr. Chairman, I think we have to figure out a
way to keep the protections, and at the same time, I think we all
know what happens to the paper that is filed, not only at the ICC,
but other places around this country. I think it is an environmental
tragedy, considering all the trees we cut down to do it.
Now, if it were being used for other purposes, then we would un-
derstand that. But at the same time, while we make this argument
and everybody can see visually we are not going to file that stuff
that goes in the paper boxes, we still have to recognize the protec-
tions, that the law has provided for the orderly conduct of the busi-
ness. And I am sure that working together with the people involved
in this thing, we will figure out a way to do that. I don't know what
Ill
you are going to call it, but we have to have the protection of the
law for the orderly conduct of the business.
The Chair. But tariff filings we can get rid of?
Mr. DONOHUE. Common sense suggests that.
Now, Mr. Foley and some of my other friends have another view
on that which I am very much respectful of. But I think the reali-
ties of what is happening at the ICC, where that system is, if we
can find a way to protect the industry's ability to do business le-
gally and thoughtfully, I don't think we need to fill up cardboard
boxes at the ICC or anyplace else.
The Chair. Well, we are facing this situation where we have an
amendment that has been accepted and voted on here in the Con-
gress to eliminate the ICC, but there are a lot of functions that
they still perform that we would like to, of course, have them do.
Last year, we passed the Negotiated Rates Act, as you well know,
and helped us do, and yet if we have elimination of the ICC, then
the question is, what do we do with the NRA, Negotiated Rates
Act, and so — but this issue of filing the rate — the filed-rate doctrine
becomes pretty important in that.
Let me again thank you, Mr. Donohue, for your leadership and
for your being here to testify.
Mr. Donohue. Than^ you, sir.
The Chair. Thank you, Mr. Chairman.
Mr. Rahall. The gentleman from Pennsylvania, distinguished
Ranking Minority Member of the full committee.
Mr. Shuster. Thank you very much, Mr. Chairman.
Mr. Donohue, I have been very much taken with your testimony
and the historic change in the position of ATA with regard to eco-
nomic deregulation. We started this whole process by saying we
wanted to fix the package problem, and with broad, bipartisan sup-
port, do that, and the Senate went beyond that and indeed has
adopted a partial deregulation. I have great concern about that,
particularly as it affects the small- to medium-size, LTL carriers.
But as I understand it, you are saying we should go the whole way
on economic deregulation?
Mr. Donohue. Sir, the whole way on the matter of rates and
entry — there are other factors which our testimony might include
in economic regulation that are important to address in terms of
our business.
Mr. Shuster. Financial worthiness, for example?
Mr. Donohue. Yes, and the question that we are talking about,
antitrust immunity where it is needed under the law and insurance
and those kinds of things, yes, sir.
Mr. Shuster. I also have been taken with the administration's
very strong position in support of going beyond the Senate position.
So it seems to me that this truck is on the road and barreling down
the road pretty quickly so we should try to fix it as carefully as we
can.
If we eliminate the ICC — do you think the Department of Trans-
portation can absorb the functions that are retained or do you
think that the ICC itself need be continued into the future? That
is something, of course, that would have to be defined in a very,
very limited residue of functions.
112
Mr. DONOHUE. Well, there is a fundamental difference between
a regulatory agency with a series of commissioners appointed from
both parties and an administration department of the Cabinet that
is run by one of the President's appointees.
The responsibilities of the ICC in a judicial sense to make rulings
and judgments on matters including mergers and acquisitions and
matters of discourse between carriers and participants in the sys-
tem is a little different than what they generally do over at the
DOT.
I think the given is, there is going to be some reduction in the
functions of the ICC if, in fact, there is going to be some significant
reduction in the money, and there are some things there that could
obviously be taken care of by the DOT and some things that don't
seem to make sense to me to put over there.
That is why I think some of the legislation that is being dis-
cussed in the Senate came about, not because folks were all of a
sudden interested in taking care of tariff filings and other matters,
but because they were looking for a way to conduct the business
within the funds that would be available.
By the way, I mentioned just before you came in, I am not sure
whether you heard me, that not only did they reduce the spending
by a third in the Senate already, but they left in $8 million worth
of revenues for most of the functions that they are going to take
out. And while we are good supporters of the government, I am not
sure we are going to pay a fee for something we are not doing. And
so you are looking at a rather significant cut.
But I would suggest that many of the functions of the ICC would
be better in an independent agency, although I understand the pas-
sion of all this. And we would be happy to work with you and your
colleagues to sort of lay out which ones could be done in which
place, although I see — I see some changes.
Mr. Shuster. I am inclined to agree with you with regard to the
need for an ICC in the future in a limited form, but there is the
argument of the airlines, and that the functions are being handled
by the Department of Transportation, including questions of merg-
ers.
Mr. Donohue. That is true.
Mr. Shuster. And isn't that an argument against the position
that you and I seem to agree upon in terms of keeping the ICC?
Mr. Donohue. Well, as we know, we look at the airlines, you are
talking about a handful of airlines. When we start looking at rail-
roads and trucking companies and others, you have a rather sig-
nificant number. And when you look at the airlines, you find that
they are so large that it really becomes not the DOT — I mean, the
Justice Department, the White House and others are very much in-
volved in that, and I think if we could find a way and make a sen-
sible argument to keep those functions there, I think it makes
sense.
I would — you know, not tongue in cheek, somewhat seriously, but
with a great sense of respect for our business partners in the rail-
roads, I would also say it would be somebody to sort of keep an eye
on what they are doing, because you know in the
Mr. Shuster. They say that about you.
Mr. Donohue. Then I think we are doing something worthwhile.
113
But in the Department of Transportation, part of the charter and
the mission of the Federal Railroad Administration is to advance
and promote the interests of the railroads, and there isn't anybody
over there that does that for trucks, by the way. So I think that
there is some argument made to keep a sensible, sensibly-sized, ef-
ficient organization there outside the political control of any White
House, no matter what the party is, for the benefit of the interstate
transportation business, and we would encourage that action.
Mr. Shuster. Thank you very much.
Thank you, Mr. Chairman.
Mr. Rahall. Gentleman from Tennessee, Mr. Clement.
Mr. Clement. Yes. Thank you, Mr. Chairman.
Mr. Donohue, I know, and I am somewhat surprised, but not a
lot about the change of feelings and maybe being much more force-
ful about deregulation than ever before. Do you think a lot of that
has to do with the fact that we have had a number of hearings pre-
viously on partial and total deregulation and this has given the in-
dustry an opportunity or time to gear up for a new day and a
changing time?
Mr. Donohue. Well, I would say this, Congressman; truckers
have demonstrated over the last 10 years their agility in the mar-
ketplace, and they have had a policy in their association to avoid
further deregulation, particularly preemption of the States, and
there are still very, very strong feelings in our association.
This was not a cake walk, but they looked at this marketplace
and saw what was happening. The States that were deregulating
on their own, the changes that are coming at the ICC, the compo-
nents contained in the 211 legislation, the legislation that is being
crafted in the Senate to follow up on the changes in the ICC, and
they said: Wait a minute. It is one thing to stay here and maybe
oppose or keep a quiet voice. It is another thing to make sure that
this is done in an orderly way that protects the interest of all
trucking companies.
And for that reason, the agility came to the front and they said:
Look, now it is time, as hard as this is, as distasteful this is to
some of our States and some of our members, we need to put this
association in a position to have an effect about what the final out-
come is, and that is why we are here.
Now, the hearings are the place it is happening, but the realities
are what is happening in government on the State and the Federal
level, and to turn away from that and pretend it is not happening
is to stick your head in the sand, and I think there have been occa-
sions when that may have happened in our industry and we don't
want to do that again.
Mr. Clement. Thank you.
Mr. Rahall. The gentleman from Georgia, Mr. Collins.
Mr. Collins. Thank you, Mr. Chairman.
Mr. Donohue, it is always a pleasure to hear your testimony.
Mr. Donohue. Thank you, sir.
Mr. Collins. You are — you blow the horn of the trucking indus-
try.
What I hear you saying is that you have come to the reality that
you can — you can help construct or craft legislation that will give
better utilization of equipment, will increase competition, and yet
85-090 95-5
114
no job, no net job loss, and will result in savings to the consumer
without sacrificing State regulations pertaining to safety and re-
sponsibility, slash fitness. Is that what I hear you say?
Mr. Donohue. I think that is an excellent statement, and I
would like to associate myself with it, yes, sir.
Mr. Collins. Well, I will further say, I am one of those virgin
forest products carriers, having experience in it for quite a few
years, also having an experience with dealing with deregulating a
part of the trucking industry. As a member of the Georgia Forestry
Association serving as Chairman of the Transportation Committee
for that organization, then following up as a State Senator in Geor-
gia, I was very instrumental in bringing the forest products indus-
try under regulations of the Georgia Public Service Commission.
And we did so based on safety, and we did not have any regula-
tions or craft any regulations that pertain to entry, rates or certifi-
cation, which I believe is exactly what you are talking about here.
Mr. Donohue. That is right.
Mr. Collins. And we appreciate your testimony.
Thank you.
Thank you, Mr. Chairman.
Mr. Donohue. Thank you.
Mr. Rahall. The gentleman from Minnesota, Mr. Oberstar is
recognized.
Mr. Oberstar. Thank you, Mr. Chairman.
Sorry, Mr. Donohue. Trying to conduct three things at the same
time.
Mr. Donohue. I am very familiar with that problem, sir.
Mr. Oberstar. I listened very carefully to your testimony, read
your prepared statement and just have a few questions: One, are
you here to support Federal preemption of State economic regula-
tion of rate and entry?
Mr. Donohue. Yes, sir.
Mr. Oberstar. All right.
And you would leave insurance, safety, financial fitness, interlin-
ing and a few other items to the States?
Mr. Donohue. Yes, sir.
Mr. Oberstar. You would leave in place the filed-rate doctrine
that would include interlining authority at the Federal level at the
ICC, what is left of it?
Mr. Donohue. Yes. We did discuss just a moment ago, that it
would be best if — because they are trying to do away with the ac-
tual physical filing of all the paper as a cost-cutting measure be-
cause of the way it is used, if possible to keep the protections for
the industry of classification and antitrust and interlining and so
on, but not necessarily require the actual movement of paper.
Mr. Oberstar. Should those principles be incorporated into the
pending legislation, will there be economic dislocations remaining
in the marketplace? Will there be new ones created by the legisla-
tion?
And I harken back to what I said earlier this afternoon. In 1980,
we went through a very long and painful hearing and markup over
deregulation, and when it was all over, we find that in retrospect,
there are some things that weren't addressed, maybe because at
the time they were too politically difficult to settle or there was not
115
enough consensus within the industry to settle them, but we have
an opportunity now, let us not miss that opportunity. But in saying
that, let us not also create some new economic inequity in the mar-
ketplace.
Mr. Donohue. Mr. Chairman, taking the realities of what is
about to happen, what we see moving ahead, if we can work to-
gether and if this committee can take the leadership to do the
types of things that you have just explained, we will get the best
possible result. We are never going to have a perfect situation
where everyone is happy in an industry with more than 200,000
companies, in a dynamic changing time in this economy, when
shippers, receivers, government and others are continually chang-
ing the demands and rules of engagement.
So nobody is ever going to be totally happy. There is no perfect
arrangement.
But moving ahead, by adding the matters that we discussed in
our testimony to the current legislation, will make things much
more orderly, much more effective and much more palatable.
Mr. Oberstar. This is what I think we — we ought to seize the
moment that has been given to us gratuitously and almost by acci-
dent in the current situation.
Finally, would you be amenable to including in such a package
a freeze on length and weight and current numbers, 53 feet and ex-
cluding the 11 States, grandfathering in the 11 States that
Mr. Donohue. This has been going so well.
Mr. Oberstar. I thought you would be certainly amenable to
that thought.
Mr. Rahall. Time for a recess.
Mr. Donohue. I would suggest the last time I appeared here, the
Secretary of Transportation — no, the Federal Highway Adminis-
trator indicated there was a series of studies on this. As you know,
we have had a discussion looking at some of the changes, even in
your own area of the country. I think that matter ought to receive
serious and thoughtful consideration while this matter is moving at
breakneck speed.
Mr. Oberstar. I did just give it serious, thoughtful consider-
ation.
Mr. Donohue. And I am giving it serious and thoughtful worry.
Thank you, sir.
Mr. Oberstar. Thank you.
Mr. Rahall. Do any other Members have questions?
Tom, thank you for being with us. You are excused.
Mr. Donohue. Thank you very much, sir.
Mr. Rahall. Before we hear from our next panel, the subcommit-
tee is going to have to take a short 10 minute recess to go over and
answer a roll call vote.
But I would ask Mr. Smith and Mr. Rogers to be prepared as
soon as we return in approximately 10 minutes.
[Recess.]
Mr. Rahall. The subcommittee will resume its sitting.
The subcommittee will now hear from a panel consisting of three
individuals. Mr. Frederick W. Smith, Chairman, Federal Express
Corporation, Memphis, Tennessee. James A. Rogers, Vice Presi-
dent, Government Affairs, United Parcel Service, Washington, DC.
116
Because of scheduling conflicts, we are going to take Mr. Drew
Lewis, from the next panel, and include him on this panel. Mr.
Drew Lewis, Chairman, Union Pacific Corporation, Bethlehem,
Pennsylvania, on behalf of Overnite Trucking.
Gentlemen, we welcome you to the subcommittee. We appreciate
your patience in being with us. And we have your prepared testi-
monies, which will be made part of the record as if actually read.
You may proceed in the order and manner you desire.
TESTIMONY OF DREW LEWIS, CHAIRMAN, UNION PACIFIC
CORPORATION, ON BEHALF OF OVERNITE TRUCKING AND
SKYWAY FREIGHT; FREDERICK W. SMITH, CHAIRMAN, AND
CEO, FEDERAL EXPRESS CORPORATION; AND JAMES A. ROG-
ERS, VICE PRESIDENT, GOVERNMENT AFFAIRS, UNITED
PARCEL SERVICE
Mr. Lewis. Congressman, first of all, it is a little embarrassing
for me to preempt two of my largest customers who are on both
sides of me. But I do appreciate your permitting me to do this. I
have to be at a board meeting, an analyst meeting, and an earn-
ings release tomorrow. I have to be back in New York for a dinner
tonight.
You have my testimony. What I would like to do is make that
part of the record and not read it. I think you can read it faster
than I can say it.
Mr. Rahall. All testimony will be made a part of the record.
Mr. Lewis. I guess all I have to say in very simple terms — and
I am going to do this in less than five or 10 minutes — I think this
bill makes a lot of sense. I have been around this issue for, I guess,
12 to 14 years, and probably even before that. And I felt at that
time that deregulation made sense. It has made all of our transpor-
tation companies better. I think it created more problems in avia-
tion than any other industry.
But nonetheless, I think your committee should do this. I think
we should let everybody in, as Tom Donahue said. I think we
should make it an even playing field. Everybody should be in the
same position. I don't think we should have restrictions in terms
of weights, which Fred isn't going to agree with me on and maybe
UPS won't either.
If we are going to deregulate, we should do it, in an even way
and let everyone have the same opportunity to compete.
We are prepared, both at — we have two trucking companies —
Skyway and Overnite. It makes it so much simpler if we don't have
special provisions for any particular kind of company. From a
consumer standpoint this makes a lot of sense.
We gave Congressman Shuster from Pennsylvania, where I am
from, a map. I don't know whether you talked about it this morn-
ing or not. Essentially, we are the fourth largest trucking company
in America yet we can't ship from Richmond, Virginia, where our
main office is, to Alexandria without going into Landover, Mary-
land, and then shipping back.
We opened up a shop in Manassas. Now the State requires us
to go there and not Landover, Md., so we are precluded from using
the interstate shipment option to serve Alexandria. The bottom line
117
is that this is not good for consumers I am looking at it also in
terms of a global economy.
Union Pacific includes a railroad and two trucking companies.
We are very dependent on shipments coming in from the Far East
and from Europe. It just makes no sense to allow intrastate con-
trol.
The questions I got from Congressman Oberstar the other day
when we met is what happens to the little guy?
We don't compete with the little guy. We do 35,000 transactions
a day, probably about a tenth of what UPS does. I don't know how
many you have Fred. But the point is, we really do a lot of trans-
actions. It makes no sense for us to be inconvenienced by having
to transfer the Richmond intrastate shipment to Alexandria by uti-
lizing Landover so the shipment can become an interstate ship-
ment. Complete intrastate deregulation is going to make competi-
tive goods even more competitive. This is long overdue. I supported
deregulation 12 years ago when I was Secretary of Transportation.
I never thought I would be in the trucking business, but I ended
up in the trucking business and now I'm back here supporting
trucking deregulation again. I am pleased to be here to testify.
This committee should support deregulation.
I want to just address two or three other issues.
First of all, in terms of safety, let the states continue to regulate.
I can't speak for my colleagues to the left and right, but whatever
the State wants, we will do. We are for safety. Safety makes money
for a corporation. So I am delighted to comply with that.
I am not concerned about the little guys. I say that in the sense
that large truckers with big overhead can compete with them. Ad-
ditionally, we often serve different types of customers with very dif-
ferent demands. This is a bill that is long overdue. I don't think
it is a partisan bill. I don't think it is an anti-Teamster bill. I don't
think it is a Federal Express, UPS, Union Pacific bill.
It is a bill that makes sense, and we should do it. And we prob-
ably should have done it a long while ago. All of us who are in the
transportation business are doing a heck of a lot better than we did
when we were regulated. And I think I was the first Secretary of
Transportation to try to initiate the Staggers Act. Deregulation has
created some problems in aviation, but that is a different ball
game. I know you are upset, Nick about the fact that this bill is
attached to an aviation bill, but it still makes sense.
With that, I thank you for permitting me to preempt my col-
leagues here, and thank you.
Mr. Rahall. Thank you, Mr. Lewis. I appreciate your testimony.
I understand you are on a time schedule and need to leave quick-
ly, so very quickly: as I understand your testimony, you would have
no problem if we were to amend Section 211 to provide for all
motor carriers?
Mr. Lewis. I think deregulation should be across-the-board. You
may hear different from the people to the left and right. I think
this thing should be across-the-board and everybody should have
the same opportunity and be on the same field.
I agree with Tom Donohue, and I haven't agreed with him for
years.
118
Mr. Rahall. I will recognize the gentleman from Wisconsin, Mr.
Petri.
Mr. Petri. I want to thank you very much for taking the time
to testify. We appreciate your support from the trucking end of the
industry to the railroad. There is a lot of revolution occurring in
the transportation sector, and I guess this is part of it. And hope-
fully we can take the advice of Tom Donohue to heart and provide
some leadership as this change occurs.
Mr. Lewis. Thank you, Tim.
I think you are right. We are going to end up with deregulation.
It is just a matter of when we recognize the facts.
Bud, give me a softball, would you?
Mr. Rahall. The gentleman from Tennessee, Mr. Clement. We
are questioning Mr. Lewis out of order because he is on a time
schedule.
Mr. Clement. No, thank you.
Mr. Rahall. The gentleman from California, Mr. Baker.
Mr. Baker. I worked in California for 12 years with Wayne
Horouichi. He sends his best. The halls reverberate with stories of
you rolling your sleeves up in markups and telling us how bills
would affect the industry. We respect what you say and thank you
for being here.
Mr. Rahall. The gentleman from Georgia?
Mr. Collins. No questions.
Mr. Rahall. Thank you.
Do you have a comment?
Mr. Lewis. I was going to make another smart remark. I won't
do it. Thank you, and I really apologize for doing it this way. But
I got caught between meetings.
Mr. Rahall. At least it will be good news you report to the board
and shareholders tonight.
Mr. Lewis. And if these guys disagree with me, they are wrong.
Right, Fred?
Mr. Smith. Whatever you say, Mr. Secretary.
Mr. Rahall. Mr. Smith, Mr. Rogers. We welcome you to the sub-
committee.
Fred, do you want to go first?
Mr. Smith. All right. Mr. Chairman, first of all, on behalf of the
100,000 men and women who work for Federal Express, we appre-
ciate having the opportunity to appear before this committee to
talk about legislation that is extremely important to our company,
our customers, and our employees. We strongly support this legisla-
tion.
We have prepared written testimony which we have submitted
for the record, and if it is all right with you, I would like to just
talk briefly about two things, and then obviously I will be happy
to answer questions or you can have UPS's position and ask us
both questions, whatever you want is fine with me.
The first thing I would like to do is talk just a moment about
our company, because I think one of the problems that we have re-
peatedly had in dealing with this issue is to talk about modes rath-
er than markets, and to confuse some terminology.
119
So I think it is important that you understand just a few things
about our company, and then I would like to talk about our experi-
ence with regulation.
First of all, as I mentioned to you, Federal Express employs
about 100,000 people, and our best estimate is there is about a
three-to-one ratio of people that are providing goods and services
to our company, and if you take a family ratio of maybe two on top
of that, you quickly come up with the mathematics that there are
someplace around 800,000 people who one way or another are
heavily dependent on Federal Express's operations.
We transport about 2.2 million shipments a day in the U.S. econ-
omy, and 187 countries around the world. We operate 456 aircraft,
which of course makes us one of the largest air carriers in the
world, but we are an intermodal express company. By that I mean
our system is built around core aviation technology and systems,
and in addition to our aircraft we operate a vehicular fleet in ex-
cess of 30,000 vehicles. By common definition we are certainly a
trucker as opposed to an air carrier.
Our operation is to move documents and freight on an express
basis, and by that I mean items that must be moved fast, they
must be moved with a time-certain delivery commitment, and they
must be moved with a high information content. People want us to
keep custodial control of their items, which means we must track
and trace it. We must be able to identify who shipped the item,
what the shipper's reference number was, what their invoice num-
ber was, things of that nature, all of which, of course, don't apply,
for instance, to mail or to traditional parcel post or traditional
freight services.
So this type of express operation has become an exceedingly im-
portant part of the national and international commerce. In fact,
I would submit to you that our express operations and those that
are conducted in a similar manner like our able competitors at
UPS and their next-day air and two-day air and three-day select
modes, are essential transportation services for the sectors which
we serve: computers, electronics, pharmaceuticals, aerospace, intel-
lectual property providers, and so forth.
So this issue over the years has been festering since the late part
of the 1970s, and I would like to point out to you that Federal Ex-
press is unequivocally a child of deregulation.
In 1972, the Civil Aeronautics Board in essence deregulated the
controls they had placed on small aircraft operations, and allowed
us to go into business. In 1977, the Congress, this committee,
Chairman Anderson and others, deregulated all cargo air transpor-
tation. The following year they deregulated the entire air carrier
industry. In 1980, the Congress deregulated interstate motor car-
rier operations.
Over that period of time, Federal Express grew from a very small
entrepreneurial carrier to one today whose annualized revenues
are in excess of $9 billion.
Now, I wish I could say that the reason we now carry $2.2 mil-
lion shipments a day and have all these assets and employees is
because of the wise and prescient management. But the facts of the
matter are, as the famous American philosopher Pogo once said, "If
120
you want to be a great leader, find a big parade and run in front
of it." That is what we have done.
We have been providing services which are essential for the busi-
nesses that I mentioned to you. So people that say that they have
not seen good things out of the deregulation efforts over the last
15 years certainly don't look at our industry. And there are vast
differences between our industry and the banking industry. There
are vast differences between our industry and the passenger-carry-
ing business.
But I can say unequivocally, both from our own experience and
from being a participant in the business of moving goods for many
years now, that the deregulation that was outlined in my previous
remarks has been of universal public good.
Obviously the free play of a capitalistic market meant there are
winners and losers, no question about that. But we have certainly
created many tens of thousands of good, high-paying jobs, with ex-
cellent benefits. We are very proud of the fact that a famous book,
The 100 Best Companies to Work For in America, includes not only
Fed Ex in its top 100 but in the top 10 employers in this country.
So to equate deregulation and particularly this type of deregula-
tion with anything that is anti-job or anti-employee, I think is cer-
tainly not correct as it applies to us. We of course won an impor-
tant court victory in the ninth circuit on the basis of the Federal
Aviation Act of 1978, and the Interstate Motor Carrier Act of 1980,
on the basis that Congress intended to set up integrated inter-
modal express companies like Fed Ex, and we have as a result of
that been able to make our operations more efficient.
Our belief is that the remaining vestiges of regulation at the
State level is not in the public interest. And more importantly, it
is an infringement not on any sort of States' rights, but on the free
flow of interstate and international commerce. Because the facts of
the matter is, there is no intrastate commerce anymore. Maybe
there was when Daniel Boone was living in Tennessee, when he
made something in Knoxville and dragged it over to Memphis and
it was produced wholly by Tennesseans with Tennessee materials.
But all of the goods that are moved on the highways and the air-
ways in the United States today are interstate commerce.
The ICC, of course, has recognized that and has begun to admin-
istratively deregulate this process in certain places, such as in
Texas where they preempted shipments which are moved into the
State and destined to be moved further. They have classified those
as interstate in nature.
So we believe that the bill as it affects integrated air ground ex-
press operations such as ours is certainly something that needs to
be addressed to clarify the disparities that remain because of the
ninth circuit court decision that we got, have achieved. And sec-
ondarily, we support broadening the Federal preemption of State
regulation to any level that this committee and this Congress sees
fit, because it is good public policy, in our opinion.
I will be happy to defer to UPS or answer questions, whatever
you want, Mr. Chairman. Again, we appreciate being invited up
here.
Mr. Rahall. We will hear from Mr. Rogers now. At least for
today, move over one more chair.
121
Mr. Smith. Let me cover up my customer list here.
Mr. Rogers. No need for him to cover it up. It is the same as
ours.
I certainly appreciate the opportunity to come before you and
talk to you about Section 211. I have one small disagreement with
Mr. Perrucci that I want to get on the record very early. Mr.
Perrucci said that UPS does not need help from its friends in Con-
gress. I strongly disagree with that. UPS needs help from its
friends in Congress today and tomorrow.
Earlier, Tom Donohue mentioned we are going to talk about
changes and I think it is very fair for me to come to talk to you
about the changes at UPS since 1980. Mr. Perrucci talked about
the fact he came with UPS in 1966. He thought they served 12
States. I came with them in 1968. I think they served probably
about 20 States at that time.
One of the most important changes in that 1980 act that this
committee passed was a change that stopped the Interstate Com-
merce Commission from restricting certificateed carriers from han-
dling shipments that had a prior or subsequent movement by air.
UPS had at that time, in addition to the regular UPS companies,
an air freight forwarder. And we could not operate that forwarder
over a very large portion of the United States, because of those ICC
restrictions.
When the 1980 act became law, those restrictions went out. The
bill was signed in the Rose Garden, and I still have a picture of
Chairman Mineta and Bud Shuster looking over my shoulder from
the Rose Garden, hanging on my wall. And we started on August
15th with a nationwide air freight forwarder operation, second-day
service.
It was a pretty good success, but then we discovered that we
were having problems really assuring people of second-day deliv-
ery. We were having a lot of problems getting dependable airlift
from the airlines we were dealing with. We found out there were
some 727 quick change planes that were available on the market,
and we bought these planes, and had other airlines fly them for us
so we would have more dependable lift for our system. We painted
them white in case we had to get rid of them a hurry if this didn't
work. And we went forward from there.
By the end of the year we painted them brown and bought a lot
more of them. It has been quite an experience since then.
In 1983, we began to offer next-day service to particular city
pairs. In 1985 we expanded that next-day service to the whole
country. And in 1988, we ended contractor operation of our air-
planes and operated themselves as a UPS airline.
How much has this change meant inside UPS? In 1980, the big-
gest item on our balance sheet was our trucks, $600 million worth.
Today, it is $2.6 billion dollars worth of vehicles.
In 1980, we had no slot on our balance sheet for airplanes.
Today, the biggest item on our balance sheet is $2.9 billion worth
of airplanes. In addition to that, there are $4.2 billion more coming
on firm order between now and 2002.
In 1980, we had 111,000 employees in the United States. Today,
we have 268,000. My statement says 250,000, but the first thing
I saw when I came to the office this morning was a statement in
122
the Journal of Commerce, my PR department got ahead of me,
tried to make a liar of me, and said we have 268. I was going to
be mad at them but I decided I would be just as happy to say I
was very happy we added 23,000 American jobs since October 1st,
1993.
All of those jobs, by the way, have full health care.
After the 1980 bill was passed, there was an equilibrium of sorts
in our industry. The ICC regulated very lightly. The States contin-
ued with their regulation, some heavy, some light. The equilibrium
ended, as Mr. Smith just told us, with the lawsuit they were very
successful in winning in California in 1991.
An airline that operated trucks was deregulated while a trucking
company that operated an airline was still regulated by all the
States. After a lot of work on our part, the public perception was
that UPS and Fed Ex were competitors. They didn't believe that in
the beginning. Certainly we perceived Federal Express as a com-
petitor.
Using our heads, we decided we would work together on this
issue, and working with Congressman Clement in the last Con-
gress and Congressman Upton, we did get H.R. 3221 introduced.
We got over 185 cosponsors, including half the Members of this
committee, but we did run out of time.
Some asked, Why did you try and do this on an aviation bill in
the Senate? With $3 billion in airplanes on hand, and more on the
way, where else should we be?
The ninth circuit decision which we mentioned was an interpre-
tation of the preemption section of the Federal Aviation Act. This
preemption section is the one which Section 211 amends now.
How big a problem is State regulation for a company like UPS?
It is a big problem. If we wish to change our rates, we have to file
with the 38 States that still have regulation over UPS and air-to-
ground intermodal carriers. There are 41 States that still have reg-
ulation of some sort, but California, Texas, and Kentucky have
stopped regulating air ground intermodal carriers.
And I hope I am proved correct. If we want to offer our cus-
tomers a new service, we have to go to 38 PUCs in 38 different
States to get them to approve the service. Every time we file one
of these applications, we are at risk that they might order us to
present more evidence at a hearing, block service until they make
a decision. We end up with a checker board map of States where
some we can offer service, some we can't, and we confuse ourselves
and we very much confuse our shippers.
Let me give you a few recent examples of problems we are hav-
ing with regulation. In 1993, 13 States blocked a January increase
in UPS rates. In six of those States, the only complaint about the
rate increase was from an out-of-State shipper who could only have
been shipping to that State in interstate commerce.
Nevertheless, they held up the application. The delay in securing
those increases cost UPS almost $9 million that we will never re-
cover. This year, Colorado has blocked the UPS rate increase on
the complaint of one shipper who ships about six packages a day.
That is one shipper out of 19,000 shippers.
Colorado has to act on this complaint within 210 days. At an
open meeting last week, one of the commissioners complained that
123
210 days wasn't enough time. The North Carolina Utilities Com-
mission, acting on its own motion, also suspended a rate increase
this year. Those two rate suspensions, Colorado and North Caro-
lina, have cost UPS $1.8 million in lost revenue, and additional
hundreds of thousands of dollars in legal fees and costs of all sort.
We have learned a lot about serving our customers, a great deal
from the man at my right. Our services used to be defined by Fed-
eral regulators. Now they are created in response to customer
needs.
Prior to 1980, it used to be enough that we delivered packages
on time and undamaged. That is all we had to do to be considered
good. Today our customers demand much more from us. We offer
many different levels of service: next-day air, three-day select, hun-
dred weight, and many others. In addition to transportation serv-
ices, we offer information about their shipments.
We spent billions of dollars going from a company that kept track
of tens of millions of shipments on paper to one that is paperless.
We share this information with our customers. They can get infor-
mation on their delivery within minutes of delivery, no matter
where it takes place.
The 1980 act gave us the freedom to make these changes. When
we have removed barriers in the past, the results have been more
services being offered, more people being served and more jobs for
Americans. And I think that will be the case now.
I want to mention that there are still some competitors out there
that are surprised that competition works. They believed they
could raise the weights and prices on minimum shipments and no-
body would notice. Shippers noticed. We noticed. We now service
that market for light-weight shipments with our hundred weight
service.
The same carriers are now saying they should be included as
intermodal cargo air carriers because, if not, they can't compete
with UPS. I will make it clear. We are not saying that anybody else
shouldn't be as deregulated as we are. You can go as far as you
want in deregulating. But we do object to UPS being painted as the
reason why somebody else should be deregulated when it is they
who ignore the market.
The market worked exactly as it should and the service improved
and the price went down.
I want to say a few things about safety, although I hadn't in-
tended to. We want to keep a uniform safety system. Remember,
we are a country of 50 States, and we operate in all 50 States. And
we have to have uniformity in the safety regulations that apply to
it. You can't go and have new barriers set up, because States take
on different safety standards.
I believe that we should give the States all the encouragement
possible to involve themselves in enforcement. But we do need to
have a flat set of rules that we can enforce.
In addition, we do want to remember that for most of us in this
business, all freight, intrastate and interstate, is commingled in the
same vehicles. It is all moving together anyway. If you can inspect
us and stop us because of interstate movements and what we are
doing in the States, you can inspect us for intrastate movements.
124
The shipments are completely commingled. This one is intrastate,
this one is interstate. And the truck is full of both kinds.
I think the ninth circuit decision has created a lot of uncertainty
for us in this business, and Section 211 certainly ends that uncer-
tainty. UPS is willing to serve the public. We are certainly willing
to compete with the rest of the industry.
We believe Section 211 provides real simplification of the regu-
latory structure, and this will benefit both shippers and carriers
and ultimately the customer. We believe that it provides greater
carrier flexibility to respond to market forces.
And most importantly, the elimination of conflicting State and
regulatory standards will give our industry — will allow our indus-
try to give the shipping public the opportunity to benefit from re-
duced costs.
Thank you very much and I will be happy to answer any ques-
tions that you have.
Mr. RAHALL. Thank you, gentlemen, for your testimony.
Let me be rather blunt in my first question and ask both of you,
is the basic issue of concern to you gentlemen the State regulation
of your package express activities, or does your concern transcend
this element of your business?
Let me explain why I ask this. I ask the question within the con-
text of what we will hear from some of the opponents of 211 from
whom we will be hearing before the day is out, that this is a thinly
disguised effort to gain an unfair competitive advantage over the
traditional carriers.
In other words, this legislation would facilitate your entry and
expansion into providing transportation services for shipments that
have been traditionally handled by LTL carriers. For example, in
the pages of one corporate magazine, I saw that one of the major
LTL's named UPS, in fact, UPS was mentioned more times than
that company's name. And it was not mentioned kindly.
Mr. Rogers. I think I saw the same magazine. And among the
ways they mentioned our name was that we had different provi-
sions in our labor contracts with the Teamsters. They acted as if
we got those provisions yesterday.
But the fact is that those provisions are 40 years old. And we
fought for them 40 years ago and we fought to keep them for 40
years and now all of a sudden they make us very efficient and they
are crying about how efficient we are. I can't fix that for them.
They have to fix that on their own.
More importantly, our business — I don't know how you can de-
fine our business anymore. Mr. Smith just did a good job of defin-
ing our business as selling services to people who need things when
they need them and want to know that somebody is going to bring
them at that time. To call us a package business anymore or a
package express business, I can't even say to that, because I
stopped saying "never" in 1979. I knew in 1979 UPS would never
buy a plane. And I had to stop. They made a liar out of me then.
I am not giving them another chance.
Mr. Smith. Well, Mr. Chairman, the terminology you used there,
a thinly disguised attempt to get a competitive advantage, I don't
know how much more overt and open we could be on anything. We
have been up here in the halls of Congress for many years espous-
125
ing Federal preemption. As I mentioned a moment ago, we carry
documents, packages, and freight. What determines if they are ex-
press is whether the shipper needs express service.
There are lots of things in freight that aren't express. There are
lots of documents that are not express. I don't know how we
would — could be accused of wanting an unfair competitive advan-
tage since we have repeatedly said that the best public policy is for
the Federal Government to preempt States' economic regulation of
what is international and interstate commerce.
Now, most of these people that object to this, what they really
want is intrastate regulations which protect them from competi-
tion, not that there is somebody who is going to get an unfair ad-
vantage over them. And to the extent we can get an unfair advan-
tage over a company by using regulation, we have never attempted
to do that, ever. We have never asked the Federal Government to
allow us to do something and not allow everybody else that wants
to do it to do it too.
Now, that is not just because we are good corporate citizens — I
hope we are — but it is because at the end of the day, the market-
place is going to be the final arbitrator of who succeeds and who
doesn't succeed. And if you exist behind a wall of ill-thought-out
regulation, then you will invariably allow for your costs and your
services to deviate from what the market actually wants.
And that, in the last analysis, is what is painful about deregula-
tion. You see it in the airline industry today. You have carriers
whose costs have become higher than what people are willing to
pay for the product. And I don't know that the Federal Government
can protect providers from that.
I was talking to somebody before this meeting. One of the real
impetuses, people forget this, for deregulation in this country came
from these, eyeglasses. Years ago, eyeglasses were a regulated com-
modity. And each State had its own regulations that applied to the
sale of eyeglasses.
And I don't remember on the House side, but I remember very
specifically over on the Senate side, it was Senator Kennedy that
got to looking into this and said, This is ridiculous. This is essen-
tially state interference in what is interstate trade, and all of those
rules came down, and everybody knows what the results were. Now
you can go get eyeglasses in an hour and it doesn't cost you very
much.
My God, without that Federal preemption, eyeglasses would cost
a thousand dollars apiece today. So to the extent somebody wants
to hide behind State regulations to prevent more efficient provid-
ers, if that is what they are talking about, sure, we are going to
go in there and compete for anything our customers want us to
carry, but we certainly don't want to restrict it in any way to pre-
vent people from being able to compete against us.
Mr. Rahall. The Senate provision prevents regulation of rates,
routes and services. Both of you gentlemen have told us your com-
panies can service every address in the United States. Therefore,
State entry regulation is certainly not a problem for you. So that
leaves the State regulation of rates and services on the table.
126
As it pertains to rates, what do you find to be the major problem
or the most objectionable: having to file rates or having to justify
that they are reasonable?
Mr. Smith. Why don't I answer first, because I think our answer
would be shorter than UPS's.
We have taken the position repeatedly that as an air carrier we
are not subject to State economic regulation of our rates. That is
why we went to court against the California PUC and won and had
it affirmed by the ninth circuit and then it went to the Supreme
Court, who did not issue a writ of cert, didn't hear it, they let it
stand. And in certain States, to this day, where we think the ag-
gressive regulation mentality remains, you heard Tom Donahue
talk about there were sort of three groups, R&D regulationists,
people who have sort of got a regulation but they wink at it, they
don't pay any attention, and then there are some real committed
folks that see this as a real important mission.
Now, in those States — a good example of that being Indiana. We
put a hub in Indiana because the State of Indiana deregulated.
Then at the State level — and we went in and invested all kinds of
money. And then they came back in and the State legislature
reregulated.
So what we do in those situations is we don't move traffic on the
ground inside that State jurisdiction. We move it outside of the
State. And you heard Drew Lewis talking about that Overnite
couldn't move something between Richmond and Alexandria and
they moved it through their hub in Maryland. And that is exactly
what we do; we move it outside the State in our system. It costs
us a lot of money to do that. But it is far less money than it would
cost us to try to meet all of these various regulations.
We put it in the testimony, but just to reiterate it, in the State
of California, our money-back guarantee, until it was deregulated,
was illegal. It was an illegal rebate. The State of California re-
quired some enormous number of multiple forms to be filed when
a claim was filed. We pay claims over the telephone with no paper-
work at all, 95 percent of them.
I could go on and on, but our system is an integrated system de-
signed to operate on a national and international level. And to have
it balkanized by regulatory agencies who are dealing with require-
ments that were put in there, when literally commerce was con-
ducted mainly with horses and wagons, is something we could
never do. That is why we took the California PUC to court.
So we have one set of situations. UPS, because of their evolution,
has a very different set of circumstances, which I am sure Mr. Rog-
ers can fill you in on.
Mr. ROGERS. We have a lot of problems with both the require-
ment to file, although our tariffs are relatively simple so we weren't
filing thousands of pages. We have one rate base guide which is
simply nothing but a zip code directory, and we correct that every
couple of years and file a new one with each State, and the tariffs
themselves usually are less than 20 pages.
So I can't say that the actual filing of the tariffs is a lot of prob-
lems. But going through the process of having each State set your
rate increase out there and throw it up for grabs to the public,
127
make you file tons of marketing information on an open record,
really leaves you in this competitive day and age quite concerned.
It is more in the doing after the fact of filing than the filing. One
of the other problems is the ability to change your services. We
can't offer hundred weight in those States which we are character-
izing as heavy regulator, because when we try in those States, they
say, No, no, you have got to come and get an application through
and get your certificate changed so you can do that.
So we just don't offer it in that State. We will be carrying pack-
ages out of that State under our interstate tariffs in the very same
trucks but we won't be carrying packages in that State to another
point in that State under that particular set of rules and services.
I think — I hope that answers your question, Mr. Chairman.
Mr. Rahall. It does. Let me note that some make an argument
that UPS has a monopoly already with no State regulation in
place, and can basically charge what it wants.
For example, the Transportation Lawyers Association writes,
"Contention that these two carriers are seeking a level playing field
is similarly ludicrous, as they have for many years created their
own playing fields and manifestly dominated them. UPS, which en-
joyed a $1 billion increase in business in 1993, is an aggressive
competitor and regulates the playing field and its competition. Fed
Ex has even less justification for the legislation to preempt State
regulation. It is reported the bill, if passed, will ensure Fed Ex an-
other appellate court can never overrule the Ninth U.S. Circuit
1991 ruling. No one directly or indirectly involved in transpor-
tation, nor does Fed Ex, believe any court will overrule that deci-
sion."
May I have your response, gentlemen?
Mr. Rogers. Let me try to do that first. First, I think that the
Transportation Lawyers Association used to have the greenest field
in Washington until 1980, and they are still regretting the fact that
that field dried up.
The second thing is that I have seen the 19 arguments that the
transportation lawyers have put out as reasons not to pass Section
211, and they are identically the same reasons they put out not to
pass deregulation in 1980. They haven't improved much with time.
You know, if we were such a great monopoly, Joe Clapp would
never have gotten away with starting RPS and knocking our block
off and creating a billion-dollar company in our shadow in a couple
of years. This area is so competitive that on a day-to-day basis we
don't know who is going to come and who is going to get us, and
we better be talking to our customers every single day to find out
whether they are happy and whether we are doing what they want
done.
Mr. Smith. Weil, of course, I don't know how the gentleman — I
think I read that. It was a letter to the editor in the Journal of
Commerce or something?
Mr. Rahall. This was a letter directly to us.
Mr. Smith. There was a similar letter in one of the trade publica-
tions. Obviously I take a bit of umbrage for this gentleman or lady
or whoever it was telling us how we think about things, and we
don't think there is any possibility that the ninth circuit court deci-
sion is subject to attack.
128
The facts of the matter are that right as we sit here we are en-
gaged in regulatory disputes with our home State where we are the
largest employer in the State. Mr. Bissell, who came up here ear-
lier and represented the NARUC or one of the State regulators,
when he was on the public service commission along with the dis-
tinguished Member of this committee, Congressman Clement, took
the position that they could regulate Federal Express if something
moved inside the State wholly on the ground. That has never been
resolved.
So whenever there is a small difference in facts, we are subject
to having to litigate that or go into a regulatory forum. I mentioned
the Indiana situation a few moments ago.
They have been extraordinarily aggressive in Indiana, at one
point accusing us of surreptitiously moving things inside the State
by ground, which we don't do. We route it outside the State, as I
just mentioned to you.
So of this one-third aggressive regulators, which to borrow Tom
Donahue's phrase, believe me, they are very alive and well with
budgets and not a whole hell of a lot, it appears to me, much to
do except come and try it assert these principles. So it is a very
big issue for us.
We thought the Congress had resolved it in 1978. We thought we
resolved it when we won the California PUC case. But I think that
it needs to be resolved by the Congress because, again, Mr. Chair-
man, this is not an issue of States' rights; this is interstate and
international commerce. And the fact that it happens to move be-
tween one point in a State and another, is simply a continuation
of a distribution function that took place when that item was
moved inside the State in whole or in part utilizing interstate
goods and interstate transportation and often, today, international
transportation.
So just as the Federal Government and the Federal Trade Com-
mission started looking at restrictions on the sales of eyeglasses,
and just as the Federal Government used, quite appropriately, the
interstate commerce activities that took place inside a State to as-
sert jurisdiction on the civil rights of the citizens of this country,
the Congress needs to step in here and preempt States from inter-
fering in what is interstate and international commerce.
So I disagree very much with the gentleman that made that let-
ter, and I am sure he has got his own point of view, but that is
Federal Express's point of view, and we do not feel the way he stat-
ed it in that letter.
Mr. Rahall. Let me continue, if I might, to reach into our sub-
committee's mail bag. Despite what some may think, we do read
our mail occasionally around here. Besides the large amount of con-
stituent mail received in opposition to Section 211, we also received
a letter from Columbia House in opposition to Section 211. There
is another one from Chadwick's of Boston, the — and I quote — "origi-
nal off-price fashion catalogue."
Here is one from Financial Stationers Association. They state,
"Millions of check packages are shipped by our member companies
to our bank customers by UPS. If the Senate bill becomes law,
businesses and consumers who rely on intrastate carriers would
129
have no opportunity to focus public attention on rate increases,
many of which seem arbitrary."
Here is another one from the Sportsman Guide of St. Paul, Min-
nesota. We could go on and on. The list does continue. In fact, the
only letter I received from an individual shipper who does not com-
pletely trash Section 211 is from Royal Crown Cola of Columbus,
Georgia. Their main reason for writing was to ask that we include
the private fleet bill as well.
So what I am getting at here, gentlemen, is that these shippers,
some of whom are your customers, obviously, certainly do not think
this legislation would benefit them. Why do you suppose we are
getting some reaction like that?
Mr. Rogers. I can give you a very good reason. I am glad Chair-
man Mineta is leaving. He used to glaze over when I had to talk
to him about postal issues 20 years ago, and I used to beat up poor
Paul Schoellhamer there, when he had hair, on postal issues.
What you are seeing is a postal issue being dumped into your lap
in this committee. Those shippers are very unhappy that United
Parcel Service continues to oppose things done at the Postal Rate
Commission by the U.S. Postal Service,
We believe the rates the U.S. Postal Service charges in competi-
tive areas with companies like UPS and Fed Ex are drastically sub-
sidized from the monopoly. And the U.S. Postal Service is getting
plenty of knocks these days. They hit a triple play in the Washing-
ton Post where they got the front-page story in the magazine, the
negative editorial, and Herblock added insult to injury with the
cartoon. Today they are on the front pages again.
The shippers complaining about UPS in this particular instance
are shippers who are upset that UPS is not going along with their,
quote, "settlement," end of quote, with the U.S. Postal Service. We
believe that the U.S. Postal Service has acted against the interests
of the Postal Service, perhaps in favor of these mailers, but we do
not believe it is in the active interest of the people in the country.
And this is a very large problem. We are receiving pressure di-
rectly from these shippers who are complaining that although they
are our big customers, we shouldn't be fooling around with the
rates on different classes of mail, that we should be going along
with this settlement.
We fought the U.S. Postal Service about these issues for 24
years. We are not going to stop fighting them now. We believe
there the U.S. Postal Service, with a $50 billion business, an abso-
lute monopoly over 85 percent of its mail, and an armed police
force to enforce that monopoly, is a very ferocious competitor and
we will fight them.
Mr. Smith. I would echo what Mr. Rogers said. The problem with
regulation in the transportation sector in this country, certainly in
the type we provide is highly competitive, and generally when
someone, a customer speaks for regulation, it is because they think
they can use the regulatory process to shift their costs on to some-
one else's back, and where they enjoy a benefit. Now, when trans-
portation markets are deregulated, then market forces take over.
And if the characteristics of that shipper lend themselves to a
strong buying power or what have you, they can almost invariably
improve their distribution system. And I would say to these folks
130
that I think, knowing their individual situation, they are very mis-
guided in this. The best thing they can do is to have a vibrant de-
regulated transportation sector with a number of carriers that they
can select to provide services, because once you have that, if you
have an RPS and a Fed Ex and a UPS and the Postal Service itself
and an Airborne and so forth, that far better than any kind of a
regulatory system is going to lead to the maximum amount of effi-
ciency and the best features and the lowest rate.
It doesn't mean they are not going to be somebody that is going
to be disadvantaged by that deregulation. Certainly in air pas-
senger deregulation, one of the things that happened is that small-
er communities who were being heavily subsidized by more dense
traffic lanes and travelers went away.
The same thing exactly happened in the telecommunications de-
regulation. A residential customer that had been heavily subsidized
by business telecommunications users, those things tended over a
brief period of time to right themselves.
But after that period of adjustment, I think it is safe to say that
the country has benefitted enormously from the interstate trans-
portation deregulation of 1980, certainly from telecommunications
deregulation. My God, it is producing, you know, huge benefits.
And I would submit it is not the time or the forum to do it. That
has also been the case in air passenger transportation.
So I think that is their problem, is they have a particular posi-
tion, and they don't want to go through the dislocation of losing
that position.
Mr. Rahall. Thank you, gentlemen.
Before I recognize the gentleman from Wisconsin, I guess the
final ultimate irony is a letter we received from Quicksilver Mes-
senger Service, Chicago, Illinois, in opposition to the UPS bill,
mailed by Fed Ex.
Mr. Rogers. Shipped by Fed Ex, not mailed.
Mr. Rahall. I stand corrected. Shipped by Fed Ex.
The gentleman from Wisconsin.
Mr. Petri. Thank you.
I think the Chairman covered most of what I was going to touch
on. But I wanted to give you a chance to respond a little more di-
rectly to one or two questions he raised. There has been an awful
lot of revolution or evolution, or both, in your industry.
Some people made fun of you, Mr. Smith, when you first tried
to sell them on it. They are not making fun anymore. UPS thought
it would never own airplanes and it has changed radically.
There are people who say that if we take this step with 211, that
the result in a few years will be that the two of you will dominate
your segment of shipments to the exclusion of others, and that is
basically anticompetitive.
I don't know where DHL is today, I think there are some other
people lurking around, including possibly the Postal Service itself,
if we end up going in the direction that Britain is trying to go and
that Holland has already gone with its formerly government postal
service.
But could you outline basically how you think things will evolve
in your industry or are likely to evolve over the next few years if
the hand of State regulation is relaxed?
131
Mr. Smith. Yes. Well, first of all, the — again, let me make sure
that I restate one point I made before. We currently serve every ad-
dress in the country. The matter at hand here is a matter of effi-
ciency. It is not a matter of the fact that State regulation remain-
ing or being eliminated is a mortal threat to Federal Express.
There is one constant in the history of transportation, and I have
been in transportation my entire adult life other than the service
in the Marine Corps. My father was in the transportation business,
my grandfather before that, and I have tried to study transpor-
tation in recorded history and I have gotten as far back as the
Phoenicians and I can tell you one thing about it. I don't mean to
be pedantic in this way, that whenever one thinks that they have
a lock on a transportation market and allow their services to be-
come nonresponsive to the market or they allow their costs to be-
come too high, there is always someone that comes in from left
field that changes the rules of the game.
My good friend, John Emery, whom I like very much, certainly
we did that to him. I think that Jim Rogers would also tell you that
they changed the rules of the game on the Postal Service and we
changed the rules of the game on them to some degree and Air-
borne has done something still different and RPS, which didn't
exist, what, five or six years ago, has built a billion-dollar business.
So I think there is no, that I know of, example of that in history.
The market is the best regulator of good, vibrant transportation
services, and when it becomes regulated, then there are all types
of perversions that happen that create a problem. One of the things
that I am sure Drew Lewis could have commented upon, the rail-
roads were supposedly regulated in the 19th Century for the public
interest.
Well, anybody that knows the history of that knows that that is
basically nonsense. They were regulated because all these wild cap-
italists couldn't control themselves and they wanted a nice little
regulated oligarchy that they could make a lot of money in. They
happened to exploit the natural intention of the farmers, the grains
and the railroads, but traditionally, transportation regulation,
other than when a new technology comes along, the way air trans-
port was in the early days, has been used as much as a shield as
it has a sword.
So I think that those concerns are ill-founded based on the his-
torical record in this country and elsewhere, that we would be able
to maintain any sort of monopolistic or oligopoly-type of pricing or
service environment.
I wish that I could say that would work because certainly that
would be our objective to be as big and profitable as we can, but
the facts of the matter are that the — as long as the market is open
for people to enter, there are always going to be entrepreneurs that
are going to come in with a different slant, a different idea and are
going to keep that marketplace honest.
Mr. Rogers. I would like to address, Mr. Petri, you mentioned
Airborne and DHL. They are supportive of this act. They have, I
believe, written to the Senate side, but perhaps they need to be re-
minded that they should also write over here.
I couldn't give you the slightest guess of where United Parcel
Service is going to be in a very short period of time, let alone a long
132
period, vis-a-vis competition and what is happening in the world.
The changes in this business are so fast that it just blurs my mind.
I don't know what we are going to be really successful at doing two
years from now as opposed to what we are doing today.
I don't know whether the world is going to change and our inter-
national business will boom or whether the world will turn to crap
on us and the international business will go in the wrong direction.
Those are risks that we take every day, and I don't know what our
business is going to look like in a couple of years as a result of this
thing.
I know that we will be able to run it better. I know that we will
have happier shippers. I know that we will be faster to respond to
the market and I think that is in the public interest. I think that
is what the world wants out there.
Mr. Rahall. Distinguished Chairman of our full committee, Mr.
Mineta.
The Chair. Thank you very much. Let me ask, first of all, I think
I pointed out earlier where we started with the bill in 19 — in the
103rd Congress with Fed. Ex. and UPS and RPS and then each
time the circle got a little bigger and so now we are at that point
where there is maybe, I don't know what number it is, but let's use
the figure 5 to 10 percent of the trucking business that is now
going to be deregulated — or rather regulated and the rest of it is
going to be deregulated.
So I think people have this idea that we have got these very —
and you are, very large carriers that are now going to be in this
position of being deregulated across the country and this 5 or 10,
12 percent of the trucking industry that is going to be regulated
and they feel they are going to be really at a competitive disadvan-
tage because you have — you are large carriers with large assets,
deep pockets to be able to go after — to be able to lower your rates
and be able to capture the market.
People are very fearful of that scenario and I am wondering how
you would respond to that question.
Mr. Rogers. You have to feel for people in that position because
they are facing the unknown. They don't have any idea what is
going to happen to them after something that they are familiar
with stops being important. But you know, when you talk about
small carriers, there are still lots of small carriers in Florida, Wis-
consin, Arizona, New Jersey, States that are deregulated that are
operating today in that deregulated milieu and doing very well at
it.
Now, nobody has gone to ask them what they think the impact
of this bill is going to be on them because there isn't any. They are
going to be out there doing their thing and they will continue to
do it very well. J think that is as important a question as the ques-
tion about what you do with the people who are facing change who
are regulated.
Anybody in this country facing change knows how difficult it is.
I mean, the administration is trying to do something with health
care and they have scared half the country to death because no-
body knows what the change is going to be like and I think you
face that here. I don't think it is the biggest obstacle to this bill
and I feel very, very concerned for those people that fear change.
133
Mr. Smith. Well, I would simply echo that and as I mentioned
a few moments before, I mean, I think the problem with carriers
who exist under a regulatory shield tend to have the natural tend-
ency to not provide the services exactly the way the customer
wants and they tend to have the propensity to let their cost rise
above the level that the marketplace wants to pay.
So whenever you then subject carriers that are in that historical
position, it is a trauma for them and I can understand their posi-
tion. But at the end of the day, the marketplace will find a way
around a carrier which does not want to — which doesn't do what
the customer really wants or at a rate that the customer is willing
to pay.
The best example of this, you can go right back to your home
State, Mr. Mineta, and as you know, on the border in Nevada up
around Reno and Las Vegas are warehouse, after warehouse, after
warehouse. Well, those didn't get put there because of the cool cli-
mate of Nevada. They got put there because after the 1980 inter-
state deregulation, people could ship interstate into and out of Cali-
fornia for far less money than they could ship intrastate.
In Texarkana, Arkansas, the same thing. A whole slew of ware-
houses that, from a pure business sense locationally would have
been better placed closer to the market in the larger markets inside
Texas. And in Louisiana, the same thing.
So over a period of time, the market is going to find a way to
adjust to get what it wants. It will move the business outside of
the State, it will quit serving the area, the consumers will quit buy-
ing the product when the beer gets too expensive or whatever the
case may be. So there is no question about it.
When you move from a regulated environment to one that is de-
regulated, you move from, as Tom Donohue said, having the regu-
lator as your primary customer for your pleadings and what have
you to one where the customer tells you where to get off. And I am
sure that transition can be painful for some, but it is not good pub-
lic policy to continue to have thousands and thousands of Federal
Express shippers pay more than they should, millions and millions
of dollars per year more than they should in order to protect an ar-
chaic, regulatory regime which is inappropriate because the traffic
is interstate and international in nature.
We are the clipper ships of the computer companies and those
companies are cross-subsidizing operators which exist in these reg-
ulated States that want to use this regulation to — as a competitive
weapon, and it is not in the public interest to continue to do that.
The Chair. We have received testimony for the record and this
involves a case that your firm is involved in in Colorado, evidently,
and there you use the argument, this is the reason we need Section
211. They are using the argument because of your size, because of
the protections they need, because of cross-subsidization. This is
the reason why we don't need Section 211, and
Mr. Rogers. I commented earlier, as you left the room for a mo-
ment, that I didn't want your eyes to glaze over when I started
talking to you about the post office as I did 20 years ago when you
got here.
The shipper in Colorado that you are describing uses United Par-
cel Service approximately six times a day, 5 days a week. That
134
same shipper ships 99.5 percent of its business by the U.S. Postal
Service. They are most thoroughly annoyed with the United Parcel
Service because we continue to go to the Postal Rate Commission
and complain about the fact that the Postal Service monopoly is
still being abused in the postal rate setting.
They figured they would teach us a little bit of — they would give
us back some of our own medicine. The difference, of course, be-
tween UPS and the U.S. Postal Service is that the Postal Service
has an absolute monopoly over 85 percent of its business and an
armed police force to enforce that monopoly.
I have a monopoly that is about as good as his ability to steal
my customers or mine to steal his. We have plenty of competition.
We have people that are out there like RPS that can find gold in
our shadows so quickly that billion-dollar businesses get built while
we watch them. It is not the same situation. I don't believe that
a —
The Chair. The other carrier, though, has the fear that you are
going to take your commercial traffic and subsidize, cross-subsidize
with the residential service that they are in and so it is a little dif-
ferent.
Mr. Rogers. Well, I don't quite understand that. Thirty packages
a week does not make a big residential shipper.
The Chair. Well, let me ask. Both of you have testified that you
are not seeking anything in law that would be an unfair advantage
for you as compared to other companies, and yet Section 211, as
it is now written, would deregulate you and others, but not every-
one. So some in the intrastate trucking business would remain reg-
ulated, while you become deregulated in those same markets.
Now, given your testimony that you don't want to — you don't
want an unfair advantage over anybody, should we conclude that
you have no objection to our rewriting section 211 so long as you
end up with preemption of intrastate trucking?
Mr. Rogers. From my point of view, the answer is, yes, you may
rewrite at will, but the important thing about Section 211 is we
were able to get Section 211 passed in the Senate. And although
I have heard a lot of people today questioning the beauty of that
particular section, in the eyes of those of us who had nothing, it
looks very beautiful and we hope that any rewriting to further
broaden the bill is done with the most judicious hand.
Mr. Smith. Well, Mr. Chairman, we, again, we would like to
state we have no objections whatsoever to anyone having the same
competitive rights that we have. We would be very concerned, how-
ever, if this opportunity were to pass. This is appropriate in our
case because we are at our core a major air carrier. That is the core
system that drives our network, and with our fleet of 446 air-
planes, I think that puts us at something like the number seven
largest air carrier in the world.
In fact, I think it may be on hand or in order the largest assem-
blage of wide-body airplanes in the world of all air carriers, and so
the 211 jurisdiction, if you will, if that is the right term, I am not
sure I am right, is appropriate because this is an interference on
an integrated intermodal express operation, in our case, and cer-
tainly in UPS' case, too, as they have evolved over the last several
years.
135
So we certainly would hate to see this opportunity missed for
that, and we — if there needs to be other deregulation activities in
another forum, then maybe this could be just a one-step on that
journey, but this is something that needs relief. As you know, we
have been arguing for this for a long time and so we hope this op-
portunity won't pass and that this bill is the appropriate vehicle for
our language.
The Chair. Thank you very, very much.
Mr. Rogers. I strongly second Mr. Smith's comments.
Mr. Rahall. The Chair recognizes the gentleman from Califor-
nia, Mr. Baker.
Mr. Baker. Thank you very much, Mr. Chairman, for holding
these hearings especially, and I would like to thank the two gentle-
men before us. You are the shiny examples of how competition can
improve efficiency and lower cost and I appreciate that you used
to have two-day service and overnight service and now it is instant
service and it is because you are nipping at each other's heels.
The Federal Government built the canal system in Washington
just in time to complete it as the railroads came through and put
it out of business, and if we had regulated the railroads from the
viewpoint of the canal masters, we would not have the railroad sys-
tem we have today.
NAFTA has changed the ball game and GATT will change it
even more. To think that our foreign competitors are going to
watch us take a package from Richmond trying to go out to North-
ern Virginia by shipping it to Maryland first and we can sit here
and watch that kind of regulation and not know that nationwide
and internationally we are going to be having our lunches eaten for
us.
NAFTA and GATT are going to make the customer first because
there is going to be international competition for that customer.
Why don't we, instead of looking at the canal masters, why don't
we ask the customers, Mr. Chairman and committee, how much do
you want to spend for regulation, and ask them in their package
the cost of their package, how much would they like to spend to
support the Transportation Lawyers Association as part of the cost
of moving a package from point A to point B and see the resound-
ing effect you would get from Macy's or from some brokerage house
or anyone else who is shipping packages.
Yes, I would love to add $10 or 10 percent on to support the
Transportation Lawyers Association and rate fixing and all the rest
that goes on.
California, Mr. Chairman, is a monument to overregulation and
overtaxation. New Mexico, Arizona, Nevada and Utah are reaping
huge rewards in new employees and new businesses because of our
overregulation. I would like to thank you for taking them on and
I hope this bill passes and I hope it is expanded to all those who
want to participate in deregulation, all of the trucking firms that
want to be involved, and not go through the wonderful process in
California of the PUC and to wait 241 days to adjust your rates
while your competitors eat your lunch. This is a good move and I
think we ought to do it soon. If you would like to comment, con-
sider that to be Drew Lewis's softball.
136
Mr. Rogers. Mr. Baker, I think you speak very well for us. We
appreciate it.
Mr. Rahall. Gentleman from Tennessee wish to comment, Mr.
Clement.
Mr. Clement. Mr. Smith, I know when you were in college when
you were writing a report about a concept about Federal Express
and about — before you ever started the company, but you had an
idea for the future. We need to know for the record what grade did
you get.
Mr. Smith. Well, that has been a source of some debate, Con-
gressman Clement, but it has been officially listed as a C and I
would like to state for the record that I was extremely happy to get
that grade, too.
Mr. Clement. Even though you don't consider Federal Express
aC?
Mr. Smith. No, no, no, not at all.
Mr. Clement. I want you, for the record, to give us some illus-
trations about how you have to operate now and how cumbersome
it is, and, you know, we talk a lot about environmental concerns
and how to save energy and how to move toward being energy
independent, and yet we have this strangle hold whereby you are
having to take some very indirect routes to get where you want to
go. And the time and additional cost and all that we have to be
confronted with now, so give us some illustrations, some cities and
towns that, how you operate now versus how you would operate if
this legislation was passed.
Mr. Smith. Well, a couple of examples that are the situation in
our home State of Tennessee. In Tennessee, we actually route cer-
tain air packages that should more efficiently go by surface be-
tween say Nashville and Memphis. We put them on an airplane.
In the case of Indiana, which is a very aggressive regulatory State,
we drive things either outside of the State into Illinois to one of our
sorting centers there, even though we have an enormous hub in In-
dianapolis and vehicles going in there every day, which would be
more efficiently routed. Those are just two examples. We calculate
that we burn about $50 million worth of aviation fuel for no good
reason other than to avoid these State regulations.
Obviously, there would be some offset in that with diesel fuel or
what have you, but it is a very expensive proposition. I mean, it
is measured by many millions of dollars and many tens of millions
of dollars of fuel, and I think the same thing would be true of over-
night that Mr. Lewis mentioned, some of the routings that they
have.
Mr. Clement. Mr. Rogers, I know both you and Mr. Smith have
gone on to the record that you don't fear competition. You realize
at times you have to adjust to the marketplace and I think you
have made it clear, but once again, for the record, both of you agree
that, sure, the — or Section 211 is objecting, but you would also sup-
port total deregulation where everyone would be on a level playing
field.
Mr. Rogers. Absolutely,
Mr. Clement. Mr. Smith?
Mr. Smith. We would have no problem with that at all.
Mr. Clement. All right, thank you.
137
Mr. Rahall. Gentleman from Georgia, Mr. Collins.
Mr. Collins. Thank you, sir. Gentlemen, I have enjoyed your
comments. You mention the Postal Service and the monopoly and
the inefficiency of the Postal Service because of the rules, regula-
tion laws that created the monopoly. I didn't want to leave without
giving you a little piece of evidence, by the Postal Service of their
inefficiency and some of the rules and regulations and how it cost
some additional money or cost the American taxpayer additional
money.
As you know, each of us, as a Member of Congress, we receive
updates and reports, financial reports from each agency. Just re-
cently, I received a report from the Postal Service on last year's fi-
nancial status. That report was delivered to my office by private
courier.
I wrote to the Postal Service and questioned why they would not
use their own agency or own employees to deliver such a report.
I had a personal call from Mr. Runyon to discuss the situation and
he informed me that he had researched my office and found that
I use Federal Express to ship certain packages or parcels, and he
further stated that the reason I use Federal Express is because it
is cheaper, and the reason that the Postal Service used private cou-
rier is because it is cheaper on them. Having said that, I enjoyed
your testimony.
Mr. RAHALL. Gentleman from Minnesota, Mr. Oberstar.
Mr. Oberstar. Thank you, Mr. Chairman, and I appreciate the
testimony of our two witnesses. We have reviewed this matter
many times outside the committee hearing room, but a couple of
points I would like to explore. There is a small trucking company
just started up three years ago in Minnesota. They are intrastate.
They paid $15,000 to file with the State of Minnesota. They have
paid additional $25,000 in associated fees to operate in Minnesota,
a total of $40,000 in fees.
If this legislation passes in its present form, it will operate to
their disadvantage, but they are for it. They are for it with an ex-
tension that we preempt all State regulation of the economics of
trucking, entry and rates, and leave in place State regulation of
safety, financial fitness, interlining, uniform operating rules. Do
you support that position?
Mr. Rogers. Yes.
Mr. Smith. Yes, sir.
Mr. Oberstar. Will that extension of regulation create any addi-
tional disparities in the marketplace that you know of?
Mr. Rogers. Not that I can perceive as of this moment, but it
is a very complicated world and we never know what comes tomor-
row.
Mr. Oberstar. I mean, my concern is that we do this right at
this point.
Mr. Rogers. I completely share your concern and I
Mr. Oberstar. Fourteen years ago I sat down on the corner here
of this committee room, along with my colleagues, Mr. Mineta and
Mr. Rahall and we were junior Members of the committee at the
time, but we voted on deregulation of trucking. We don't want to
have to come back in another couple of years and do it all over
again. We get one opportunity to do these things, rare opportuni-
138
ties, and maybe this is one fortuitously, almost by accident, given
to us. Let's do it right.
Mr. Rogers. This is the time.
Mr. Oberstar. What about limiting, freezing in place the length
and weight of trucks, since we are giving
Mr. ROGERS. That would be another day. I think we need about
200 years to decide that.
Mr. Rahall. The Chair has to recess for a vote.
Mr. Oberstar. I think we need just one brief amendment. If we
are going to do all these good things for the industry, I think we
ought to do another good thing for the driving public.
Mr. ROGERS. Well, the thing that is most important in truck safe-
ty is eliminating or lessening the numbers of miles that trucks
have to go, and if you can operate larger combination vehicles safe-
ly over longer distances in appropriate States with first class roads,
you operate fewer miles, and that is where the safety benefit comes
from.
Mr. Oberstar. Thank you, Mr. Chairman. I think we will con-
tinue to proceed on this very beneficial opportunity we have.
Mr. Rahall. Thank you, Mr. Oberstar.
Any other questions from subcommittee members?
Mr. Rogers. Mr. Chairman, just one small comment. We are —
the ATA position speaks about endorsing uniform bills of lading, et
cetera. I think the one problem with endorsing uniform bills of lad-
ing, something that some of us have gone to paperless situations
where we don't use any bill of lading. We would hate to find out
that in the process of deregulating, we have imposed upon our-
selves a paper milieu that we got rid of currently.
Mr. Smith. We join in that. I mean, most of our shipments today,
there is no paper other than the label. It is all electronic.
Mr. Rahall. Thank you, gentlemen.
Mr. Smith. Thank you very much.
Mr. Rahall. We appreciate your patience in being with us today.
The subcommittee will stand in short recess for this roll call vote
on the Floor.
[Recess.]
Mr. Rahall. The subcommittee will resume its sitting. The sub-
committee will now hear from a panel consisting of first a fellow
West Virginian, Larry Mulkey, the President of Ryder Dedicated
Logistics, Inc., Miami, Florida; Tom Clowe, Chairman, President,
CEO, Central Freight Lines. Incorporated, Waco, Texas, on behalf
of Roadway Services, Inc.; Mr. Warren E. Hoemann, Vice Presi-
dent, Government Relations, Yellow Corporation, Overland Park,
Kansas; and Mr. James E. Merritt, Morrison and Foerster, Tax
Counsel to the Consolidated Freightways, Incorporated, accom-
panied by Mr. Michael Yost, Director of Taxes, Consolidated
Freightways, Inc.
Welcome. Larry, are you going to kick it off?
139
TESTIMONY OF LARRY S. MULKEY, PRESIDENT, RYDER DEDI-
CATED LOGISTICS, INC., MIAMI, FL; C. TOM CLOWE, CHAHt-
MAN, PRESDDENT AND CEO, CENTRAL FREIGHT LINES, INC.,
WACO, TX, ON BEHALF OF ROADWAY SERVICES, INC.; WAR-
REN E. HOEMANN, VICE-PRESIDENT, GOVERNMENT RELA-
TIONS, YELLOW CORPORATION, OVERLAND PARK, KS; AND
JAMES E. MERRITT, PARTNER, MORRISON AND FOERSTER,
ON BEHALF OF CONSOLIDATED FREIGHTWAYS, INC., AC-
COMPAMED BY MICHAEL YOST, DIRECTOR OF TAXES, CON-
SOLD3ATED FREIGHTWAYS, INC.
Mr. Mulkey. Certainly. I want to thank you, Mr. Chairman, the
Members of the subcommittee, applaud you for having the hearings
and it is an honor to be able to present our views to this commit-
tee.
I have the privilege of serving as President on Ryder Dedicated
Logistics, which is a subsidiary of Ryder System. I am here today
because of the outdated and unnecessary State motor regulation.
We feel that it is impeding the progress of American business in
reducing their transportation cost and improving the efficiency of
their operations.
On behalf of Ryder and thousands of our employees, and our cus-
tomers worldwide, I would ask the subcommittee to eliminate these
remaining regulatory barriers.
If I may briefly give you a little background on Ryder, most peo-
ple are familiar with Ryder, the yellow trucks that you see, which
is our do-it-yourself move segment of our business. It is the small-
est portion of our highway transportation company. We are the
world's largest commercial truck rental and leasing company. Our
Automotive Carrier Division is the Nation's largest highway trans-
porter of new automobiles and light trucks.
Our Ryder Public Transportation Service Division carries more
than 420,000 students back and forth to school every day. We oper-
ate 500 school systems in 19 States. We also manage and operate
over 100 mass transit systems throughout this country.
One of the companies that I do have responsibility for is Ryder
Dedicated Logistics and it is the fastest growing component of
Ryder — the Ryder corporate family. I will refer to Ryder Dedicated
Logistics as RDL as we go forward.
RDL provides dedicated contract carriage, which is a closed loop
system, transportation system, and integrated logistics to our cus-
tomers in roughly over 30 industries. This service goes well beyond
the traditional motor carrier functions. Through our acquisition of
LogiCorp, a logistics management company, RDL in essence be-
comes the freight traffic department for the benefit of our cus-
tomers. We act as a shipper's agent to our customers.
We put together the intermodal transportation network that our
customers need. This includes air freight, air freight forwarding
services, less-than-truckload, truckload transportation, rail and
ocean shipments. I think this clearly demonstrates the changes
that we have going on in the industry. The industry is moving ex-
ceedingly fast, as others have testified, and I would like to point
out that with the movement and the changing of markets, we have
a lot of overlapping services that are being provided by many of
those who have already testified today.
140
Unfortunately, Ryder and other providers of transportation serv-
ices are restricted by many State laws that prohibit, limit or delay
our ability to serve our customers on an intrastate basis. Although
Congress substantially deregulated the industry intrastate trans-
portation about 15 years ago, and the debate goes on whether it is
40 or 41 States or whatever, but we think it is around 41 States
and still have some pretty archaic laws regulating entry, rates,
service for intrastate trucking.
I would like to submit a few examples of the State laws that pre-
vent Ryder and others from providing intrastate service in a timely
manner to its customers.
Many States limit the number of customers that we may serve
at one time. These contract limits arbitrarily restrict our business
growth and discourage a very important economic development. For
example, RDL recently acquired — agreed to provide dedicated logis-
tics and motor carrier services to a major retailer in the automotive
tar business in Nevada.
The plan called for establishing a distribution center in Las
Vegas. Although this new center would bring a number of new jobs
and additional tax revenues to the State, the agreement would re-
quire RDL to provide intrastate motor contract carriage and that
would have put RDL over the limit of three contracts in that State.
Many States require contract carriage to obtain separate author-
ity for each customer they serve. This process is extremely costly.
As an example, in 1993, RDL made 51 intrastate authority applica-
tions to serve 45 customers in 20 States. The total cost of these ap-
plications were $750,000, which $250,000 of that went for filing
fees alone. It has been estimated by outside this industry the cost
of this kind of compliance goes as high as $12 billion impact to the
industry.
In some cases, operating authority is flat out denied. In Texas,
RDL acquired a fleet of vehicles that had been specifically designed
and built to meet specific needs of a shipper of prefabricated build-
ings and there were no other vehicles like this anywhere on the
North American Continent. Because of a carrier already certifi-
cated by the Railroad Commission in Texas, they offered to serve
our customer using ordinary, nonspecialized, inefficient equipment,
and RDL's application for intrastate operating authority was de-
nied even though the customer wanted the efficiencies of this spe-
cialized equipment.
Mr. Chairman, one of the key questions that you asked this
morning is whether State regulation impedes interstate commerce
and I would submit the following example.
If a shipment goes from Illinois to a warehouse in California and
then subsequently shipped to a point in California, there is a ques-
tion as to whether the second leg or part of this continuous inter-
state movement is a separate intrastate movement that is subject
to State regulation.
Shippers, carriers, have been focused on — or been forced to liti-
gate this issue repeatedly with the ICC in Federal Courts and the
State Utility Commission have fought aggressively in these pro-
ceedings to preserve their regulatory jurisdiction. In other words,
you can never be sure where you stand on these issues.
141
I would echo Mr. Smith's testimony. Part of his testimony earlier
on, we are engaged in continuous movement of international North
American freight that benefits our customer and these kinds of reg-
ulations impedes that progress. Because of the laws restricting our
ability to do business in a number of States, Ryder has long sup-
ported the preemption legislation, including H.R. 1077, a bill that
would lift intrastate restrictions on private carriers.
It is estimated deregulation of interstate trucking has saved
shippers and consumers $20 billion a year since 1980. The Wharton
School has estimated that intrastate deregulation could save an-
other $11 billion per year. Section 211 of S. 1491 would correct the
competitive advantage granted in the Ninth Circuit decision by
providing many large and small carriers, including RDL, with regu-
latory status now enjoyed by Federal Express and others. We are
pleased that the administration has issued a policy statement that
is supporting Section 211. It is important to recognize that the pro-
visions would not affect the ability of States to regulate trucking
safety or insurance or to impose truck size, weight and limit re-
strictions.
Some have argued that smaller for-hire private carriers may be
unable to take advantage of this preemption in Section 211 and
therefore would still be subject to State regulation. Ryder supports
broadening Section 211 to cover all those motor carriers, both pri-
vate and for-hire that operate both interstate and intrastate. This
approach would place all carriers on the same regulatory footing
and allow the marketplace to determine how freight is moved and
at what price.
In contrast, Ryder would strongly oppose any effort to limit the
effect of 211 solely to carriers that provide direct air service or to
package express carriers. RDL and its competitors are constantly
tailoring services to meet customer's needs and we should not be
limited by some entirely artificial regulatory classification of what
our market services should look like.
This legislation, in our opinion, is long overdue. We encourage
the subcommittee to act quickly as possible to include a provision
on regulatory preemption for motor carrier industry as part of the
FAA Authorization Act. I want to thank you for the opportunity of
being able to present our view to this subcommittee, Mr. Chair-
man, thank you.
Mr. Rahall. Mr. Clowe.
Mr. Clowe. Mr. Chairman, I appreciate the opportunity to ap-
pear here today to share the views of Central Freight Lines. Its
parent, Roadway Services, Inc. and Roadway Service's other motor
carrier subsidiaries. Central Freight Lines has the most intrastate
operating authority of any motor carrier in Texas, as you know, one
of the Nation's most regulated States. And we have over 50 percent
of the Texas less-than-truckload market.
In the last four years, Central has become a regional interstate
motor carrier and by the end of this year, we will be operating 88
terminals and three hubs in 11 States. We plan to expand into
three additional States next year.
Central also serves Canada and Mexico in partnership with other
Roadway Services carriers.
142
In 1990, we were in Texas only, so that is some of the change
that Tom Donohue spoke of earlier. Roadway Services Inc., Cen-
tral's parent company, is a holding company consisting of a number
of motor carrier subsidiaries, including Roadway Express Inc., one
of the Nation's largest long-haul common carriers of general
freight. Roadway Express serves all of the United States as well as
Canada and Mexico through a network of over 600 terminals.
I am basically a truck operator. I started as a truck driver in this
industry and I am here today with 37 years of trucking experience,
all of which has been in the regulated segment of our industry. I
have owned my own company and have managed operations for
publicly held corporations. I am a leopard who has changed his
spots twice.
In 1987, I became the Director of the Transportation Division of
the Railroad Commission of Texas where I implemented the far-
reaching changes to Texas' system of motor transportation regula-
tion that resulted from the 1987 Texas Motor Carrier Act. And
from 1988 through 1989, I served as the Railroad Commission's
first Executive Director where I had oversight responsibility for all
of its regulatory divisions, as well as for its administrative services.
I therefore have an insider's appreciation of the benefits and det-
riments of regulation.
Mr. Chairman, while I strongly believe in the right and interest
of States to govern the conduct of motor carrier operations within
their borders, I nonetheless support the enactment of Section 211
of the airport bill which would clearly preempt States from regulat-
ing a large portion of the motor, carrier business. I do so at consid-
erable risk to Central's extensive Texas intrastate operating au-
thority and its substantial less-than-truckload market. However,
like many other motor carriers throughout this country, one of our
sister companies, Roadway Package System, competes directly and
vigorously with UPS, which, in turn, is understandably seeking eq-
uity with Federal Express, its major competitor through enactment
of Section 211. Therefore, if the marketplace is to be truly competi-
tive, we must all be playing by the same rules. Section 211 must
be enacted.
We also believe, Mr. Chairman, that Section 211's passage
should be part of a two-step process. The second vital step should
be the enactment of regulatory reform at the Federal level, creating
a streamlined market-based system that can also serve as the regu-
latory model to be used by any State that wishes to continue regu-
lating intrastate motor carrier operations.
Let me explain. The purpose of Section 211 is to provide an ex-
emption from State regulation for a specifically designed set of
motor carriers. However, Section 211 does not address much need-
ed reform at the Federal level. Section 211 would also presumably
still leave some motor carriers subject to State regulation. I say
presumably because no one that I have spoken to can say with any
certainty that every motor carrier will be able to qualify under 211.
That has been the subject of a great amount of discussion here
today.
These shortcomings must be addressed and the sooner, the bet-
ter. We believe the opportunity is at hand. As you know, the House
voted down the appropriation of the ICC while the Senate appears
143
headed towards reducing the ICC's funding substantially. Clearly,
the ICC's functions must be streamlined to respond both to the
substantial reduction in its funding as well as to the many changes
which have occurred in the marketplace.
We therefore propose that the motor carrier regulatory functions
be streamlined to provide the minimum necessary framework to fa-
cilitate an efficient market-based system for interstate motor trans-
port. We further propose that this new streamlined Federal frame-
work become the national standard by requiring that any State
economic regulation of motor carriers which may continue would
have to be compatible with this new Federal standard.
Toward that end, therefore, we offer the following as a frame-
work for a restructured regulatory system for the Nation and for
the States.
First, we propose that the requirement to file tariffs with the
ICC be eliminated in favor of a disclosure requirement. Do not re-
quire common carriers to file tariffs with the ICC. However, com-
mon carriers should be required to make their rates publicly avail-
able. They should be required to maintain tariffs at the carrier's
principal place of business or another designated location known to
the public.
Common carriers should be required to disclose the relevant rate
in writing or electronically to the shipper so that both parties to
the transaction can rely on the same rate.
Require that the rate agreed upon by the carrier and the shipper
be the rate that is actually charged and collected. To this extent,
therefore, while we support the elimination of tariff filings and the
expense and bureaucracy that goes with them, our proposal would
not eliminate the so-called filed rate doctrine requiring carriers to
collect the rate which the shipper is quoted.
Let me emphasize that our purpose here is twofold: To eliminate
once and for all the regulatory obligations which gave rise to the
undercharge problem while preserving the protection which the
consumer deserves. Give carriers authority to set and quickly
change rates based on market conditions. Maintain the ICC's over-
sight and responsibilities to review any rate that is challenged as
unreasonable, discriminatory or otherwise unlawful.
Under a more liberalized rating structure, the need for the Com-
mission's continued involvement is even greater to ensure consist-
ency in both the analysis of rate issues and the determination of
their lawfulness than was the case prior to the MCA's enactment.
Indeed, the recent experiences involving undercharges have dra-
matically shown that absent the conferral of primary jurisdiction in
a single agency charged with the overall well-being of the motor
carrier system, which includes shippers' interests, determinations
of rate lawfulness would end up being made purely ad hoc by indi-
vidual Federal and State courts, without full understanding of and
in many cases concern for the impact which any single decision
could ultimately have on competition or the continued financial sta-
bility of the motor carrier system.
Eliminate the present antitrust immunity for general rate in-
creases, while continuing immunity for carriers to interline ship-
ments and establish joint rates and for the collective establishment
of commodity classifications, uniform mileage standards and stand-
144
ardized bills of lading. Such bills provide a common nomenclature
and a uniform base upon which shippers and carriers can rely,
without conferring the competitive advantage to those participating
in their establishment.
Secondly, provide a free market in transportation. Eliminate the
public convenience and necessity standard for market entry. Base
entry solely on an applicant's fitness to comply with the DOT's
motor carrier safety regulations and applicable ICC requirements
by requiring all new carriers to demonstrate not only their aware-
ness of the DOT and applicable ICC regulations, but also the exist-
ence and details of the applicant's program to comply as conditions
of operating.
Third, make this new market-based, streamlined system the na-
tional standard. Recognize a legitimate State interest in motor car-
rier oversight by permitting those States that wish to regulate
intrastate commerce to continue doing so, but require that their
laws be compatible with the new Federal scheme, including the
new open entry for those who are fit and the new rate freedoms.
Mr. Chairman, in light of the exemption of many, but not all
State motor carrier operations, which would result from the pas-
sage of Section 211 of the Airport Improvement Act, we believe this
recommendation to be a particularly important one, not only to rec-
ognize the State's interests, but also to preserve the level playing
field for all competitors in intrastate markets.
The Staggers Act governing rail regulations, as well as the Haz-
ardous Materials Transportation Act, contained compatibility provi-
sions which might be utilized with some modification to allow for
the implementation of this proposed national standard for an effi-
cient market-based motor carrier system.
Fourth, we finally recommend that Congress preserve those ben-
eficial elements of the ICC regulations which not only facilitate
business, but are fundamental to the conduct of business between
carriers and shippers and provide a reasonable code of conduct.
The following are examples. The rules governing cargo loss and
damage, claims and liability; they are well-settled as to the extent
of a common carrier's liability, the filing and processing of claims,
the shipper's access to the courts, uniform bills of lading which con-
tain the terms and conditions of the transportation agreement for
common carriage, commodity classification and standardized mile-
age guides, the rules governing the extension of credit to shippers
by common carriers, the rules governing driver leasing, the prohibi-
tions against discriminatory and anti-competitive practices such as
the giving or receiving of rebates and concessions.
The ICC should not be abolished and its responsibility should not
be transferred. Our Nation's economic policy and the implementing
decisions need to be decided with consistency and a reasonable de-
gree of predictability based on the merits of substantive issue —
which would be based on the merits of the substantive issue in-
volved with regard not only to the carrier and shipper directly in-
volved, but also with respect to the impact on carriers and shippers
generally.
Our ability as carriers and that of our shippers to plan our fu-
ture growth, particularly with respect to our long-term capital in-
vestments, is directly dependent on our ability to predict with con-
145
fldence and relative accuracy what the rules and outcome of the
game will be.
While a free market may be the best way to foster competition
between individual carriers, there nonetheless needs to be a mini-
mum set of rules to govern the responsible conduct of our business.
A free market should not mean a free-for-all where the large car-
riers and shippers can take advantage of the small. To those who
would point to States in which so-called total deregulation has oc-
curred, and who would say that my fears are unfounded, do not ig-
nore the effect and influence which the ICC standards of conduct
have had on the conduct of business by carriers in those States.
In conclusion, Mr. Chairman, we support Section 211's passage.
We have also offered a series of recommendations here today which
we feel will significantly streamline the ICC, help reduce our coun-
try's deficit, and at the same time help ensure that the motor car-
rier industry remains a strong and valuable contributor to our Na-
tion's economy and future growth. In that regard, we stand ready
and willing to provide congressional staff with the full details of
our proposals.
Thank you very much, Mr. Chairman, for the opportunity to ap-
pear here today.
Mr. Rahall. Mr. Hoemann.
Mr. Hoemann. Mr. Chairman, members of the subcommittee. I
am Warren Hoemann, Vice President for Government Relations, for
Yellow Corporation of Overland Park, Kansas. Yellow Corporation
is a parent company of four motor carriers: Yellow Freight System,
Preston Trucking Company, Saia Motor Freight and Smalley
Transportation, as well as some other subsidiaries. Each of these
four motor carriers is involved in the handling of general commod-
ities in less-than-truckload quantities, an LTL carrier in traditional
terms.
Mr. Hoemann. Each of them handles both intrastate and inter-
state. And in fact, as Jim Rogers of UPS mentioned, if you look at
one of our trucks from any one of our companies, there will be a
commingling of intrastate and interstate freight on those trucks.
Between these four carriers we hold intrastate operating authori-
ties in 21 regulated States.
Despite having this position, and despite having operating au-
thorities on our books that are valued at $7.7 million, Yellow Cor-
poration supports the passage of Section 211.
We support the passage for two reasons, and the first, ad UPS
and Fed Ex themselves indicated when they said they are no
longer just package companies, we are no longer just LTL compa-
nies. The markets of air freight, small parcel and LTL are rapidly
merging.
And I would offer for your consideration, attached to my state-
ment, three ads from the companies themselves. We have Federal
Express, says they will handle the copier as well as the paper that
is being copied. We have UPS; marketing directly to LTL shippers.
And we have Yellow Freight, offering a two-day service and a guar-
anteed, time-definite, expedited service with tracing and tracking
and money back which I would recommend to the customers that
complained earlier.
85-090 95-6
146
But the point is that these are merged markets. The markets are
blurred, and we cannot draw a line between them on a regulation
basis. Section 211 will eliminate that problem. UPS and Federal
Express are under different regulatory regimes right now — Federal
Express by court decision; UPS and Federal Express by legislation
in California and Kentucky, by Attorney General opinion in Texas.
We compete in those markets. We would like to compete on an
equal basis.
I might mention, Mr. Chairman, we believe that competition is
good, and we do not begrudge UPS and Federal Express for pursu-
ing their own interests. It is to the benefit of the shippers and to
our Nation. It also would be to the benefit to have other carriers
on the same deregulated basis.
There is a second real reason and a broader policy reason for
supporting Section 211. That is the marketplace is so dynamic, it
is changing in such a fluid manner, as I have illustrated, that ship-
pers need the selection of carriers. They need to have many dif-
ferent carriers and many different options to choose from. But
intrastate regulations preclude that. Let me give you an example.
Many of our shippers are consolidating their supplier systems.
They are going to supplier systems within a three-to-five-hundred-
mile radius. And they ask us, can you serve us? Can you supply
the freight needs of all of our suppliers?
Some of those movements are interstate, and some are intra-
state. And even where we have operating authority, as we do in 21
different States, we nonetheless have to go to those 21 States and
get rate approval.
And by the time we get rate approval, if we get it, the door has
been closed. The shipper out of business necessity has had to make
other decisions — whether to go with a completely deregulated car-
rier like UPS, like Federal Express, like another mode, or whether
to change its whole delivery system. The window has closed for us.
That is clearly not to our benefit, but we submit, it is also not
to the benefit of the shipper or of the Nation as a whole. The abil-
ity to meet the flexible, dynamic market is important.
Like many others who have testified, Yellow would support
broadening Section 211 to include more people. We do not seek a
competitive advantage by Section 211.
We are currently included because, if you happen to look at our
ad here, you will see one of tne packages on our expedited service
blasting off with a rocket attached to it. That indicates some of it
moves by air. We make significant use of air carriers in our expe-
dited business and in the normal conduct of our business.
And, in fact, the much-discussed 15,000 figure originated with
Yellow, originally at 50,000, to measure the number of transactions
that we would make on an annual basis with air carriers, showing
our significant dependence upon them and showing that we are in-
volved in the same market. So we would favor broadening.
And, similarly, we would favor addressing the noneconomic
standards that were mentioned by Mr. Clowe and by Mr. Donohue.
But, most importantly, we must pass Section 211, and we cannot
jeopardize it while we wait for these other matters to be addressed.
Therefore, Yellow has consistently said it is a two-step process.
147
Let's pass Section 211. Then let's go for broader Federal preemp-
tion and the broader noneconomic regulatory issues. To the extent
they can both be addressed now, we are quite welcome to accept
them. But let's not jeopardize Section 211, which puts us all back
on the same regulatory basis.
I thank you for your attention, and when we are done I will be
glad to submit to questions.
Mr. Rahall. Mr. Merritt, why don't we recess very quickly so we
can go over and vote? The subcommittee will be in short recess.
[Recess.]
The Chair [presiding]. The subcommittee will please come to
order.
At this time, I would like to call on Mr. James E. Merritt of Mor-
rison & Foerster, Tax Counsel to Consolidated Freightways, accom-
panied by Mr. Michael Yost, Director of Taxes, Consolidated
Freightways.
Mr. Merritt, your statement will be made a part of the record.
So if you would go ahead and proceed in your own fashion, sir.
Mr. Merritt. Thank you, Mr. Chairman, Members of the Sub-
committee. Mr. Yost and I are happy to be here to talk about Sec-
tion 211. We have a couple specific points we want to make, but
first let me say something about Consolidated.
Consolidated and its affiliated companies is one of the largest
cargo transportation companies in the United States.
Consolidated's motor carriers employ over 28,000 persons and
Emery Worldwide, an affiliated company, which is an integrated
air cargo carrier, employs over 7,500 persons. The motor carriers
and Emery operate throughout the United States and internation-
ally.
As defined in Section 211, Consolidated's carrier-affiliated com-
panies are intermodal all-cargo carriers. Accordingly, they will be
directly affected by Section 211.
We are here for two reasons specifically: first, to express
Consolidated's support for the position of the American trucking as-
sociations, as set forth in Mr. Donohue's testimony with regard to
Section 211, and preemption of rates and entry by State regulators.
We want to address more specifically our second point which is
a subsidiary issue, and I will try to be very brief with it: that is,
with regard to the value of the State operating rights, what may
happen to the values of those State operating rights; and the desir-
ability of this Committee, including a statement with regard to con-
cern regarding the value of those rights and for a fair and uniform
Federal tax deduction for the value of those rights.
Intrastate rights, like the interstate operating rights which were
deregulated in the Motor Carrier Act of 1980, have a substantial
value. Carriers have acquired them by incurring significant costs to
establish public convenience and necessity in proceedings before
State regulatory authorities. Carriers also acquired them by di-
rectly purchasing them from another carrier. Other carriers, or the
same carriers, have acquired intrastate operating rights indirectly
by acquiring the stock of other carriers. To ensure uniformity and
equal treatment among the different manners in which carriers
have acquired intrastate rights, some remedy by statute is prob-
148
ably going to be required. Otherwise, you will have unequal tax
treatment of the carriers.
Carriers report the values or cost of these intrastate operating
rights in their financial statements. We heard that yellow is carry-
ing about $7.7 million in costs of intrastate operating rights. As we
heard in 1981 and earlier than that, in the 1980 act, lenders use
or look at the financial statements and the value of the intrastate
operating rights in determining the creditworthiness of carriers
and, indeed, look to the resale value of those rights.
We have not completed a study of the total industry cost basis
or value of intrastate operating rights at this time. Our best esti-
mates are that they are somewhere between 100 and 200 million,
probably closer to the latter number than the former, but less than
200. The value of Consolidated Freightways' intrastate rights is
$11 million. .
Now, deregulation by preemption of State regulation, Section
211, is going to greatly benefit the public. It will also adversely af-
fect the value of the intrastate operating rights held by the car-
riers. This loss of value is going to be similar to the loss of value
that occurred with regard to interstate operating rights in the en-
actment of the Motor Carrier Act of 1980.
As a result of that act, the Financial Accounting Standards
Board adopted a position that required the motor carriers to write
off their entire cost basis in interstate rights as an extraordinary
item at that time. That action was taken because the Financial Ac-
counting Standards Board found that resale and collateral values
of the interstate operating rights had been substantially impaired
resulting in an economic loss to the carriers.
The FASB statement also goes on to say the same result should
apply where there is similar deregulation of intrastate operating
rights.
We know this Subcommittee is not a tax-writing committee, but
we do think it is important, and it would be very helpful if the Sub-
committee could include a statement with regard to the appro-
priateness of a fair uniform tax deduction for the cost basis in
intrastate operating rights. We believe a statement of that sort
would be possible to include in the statement of managers accom-
panying the Conference Report on this legislation.
There is precedent for doing this. In the Motor Carrier Act of
1980, the full Committee included a statement to this effect in its
report. I am quoting:
Concern has been expressed that this legislation might result in a severe reduc-
tion in the value of the motor carrier operating rights which in many cases are now
carried as assets on the carriers' books. The committee also intends to monitor the
effect of the act on the value of operating rights. The committee would hope that
the Committee on Ways and Means would also hold oversight hearings on this mat-
ter since that committee would be the appropriate forum to consider any tax relief
legislation that might be appropriate.
We submit that a similar statement by this Committee would be
appropriate with regard to Section 211. Indeed, I would like to
point out that, following the recommendation this Committee made
in its report of 1980, Congress did enact in 1981 tax legislation
that permitted the carriers to deduct their basis in interstate oper-
ating rights over a 60-month period. The record considered by Con-
gress in 1980 and 1981 establishing the need to do this with regard
149
to interstate operating rights is equally applicable to the intrastate
operating rights.
To ensure equity amongst all the carriers, provisions similar to
those enacted in 1981 should be considered. Let me point out that
at this time I think it is possible that carriers will take the position
that under current law they are entitled to a deduction. What was
done in 1981 was to spread that deduction over a sixty-month pe-
riod.
It is also possible that the Internal Revenue Service would chal-
lenge any deduction of intrastate operating rights. Under existing
law, the ability of a carrier to sustain a deduction would depend
on the facts and circumstances in each case.
The result also might vary depending in which State and juris-
diction a particular case arose. That could result in unequal and
unfair results or discrimination amongst the various carriers in
terms of the result and provide a very serious administrative and
litigation burden.
We urge the Committee to include a statement of its concern and
express the need for a fair and uniform rule to eliminate those
kinds of controversies.
Mr. Chairman, thank you very much for allowing to us appear
today and express our views.
Mr. Rahall [presiding]. Thank you very much, gentlemen, for
your patience in being with us at this late hour.
Let me ask you one question, Mr. Merritt. I was listening to your
entire testimony, even though I wasn't physically in the room. Let
me make sure I understand what you are saying. You are basically
saying that you have valuable operating rights; is that correct?
Mr. Merritt. That is correct.
Mr. Rahall. And the preemptive legislation you are supporting
would cause the loss of that value, is that right?
Mr. Merritt. Yes, sir.
Mr. Rahall. And then you want the taxpayers to basically foot
the tab?
Mr. Merritt. That is correct. Yes, sir.
Mr. Rahall. I can understand the folks on the panel making a
case for tax deduction if you were innocent, and Congress did some-
thing to you, and there is certainly precedent for that. But you are
not doing that.
Mr. Merritt. I don't think it is inconsistent, Mr. Chairman. Ob-
viously, we are here because we support it, with conditions. One of
the conditions of the American Trucking Association's approval is
that there be some relief for the tax deduction, of the costs of the
operating rights — as I understand the executive committee's posi-
tion. That is the position we endorse.
The idea is that carriers which have acquired rights in the past
have incurred substantial costs for acquiring those rights. If other
carriers can now enter the field, the value of those rights are se-
verely reduced. For example, Central said they had the most intra-
state Texas authority. WTe could now enter Texas without spending
more money to obtain intrastate authorities and compete with
Central. As a result the value of Central's intrastate authorities
would have been diminished. There was a strong showing to that
effect with regard to interstate deregulation in 1980.
150
Now, if it is a benefit for the carriers, and we all are gambling —
it is a benefit. In my own opinion, as a tax lawyer, I guess I can
say that, is that preemption will be a benefit for the public, rates
will come down. If it is a benefit for the carriers, it will depend on
how successful particular carriers are. They will pay taxes on that
income, but that will be as a result of their operations in a new
era where they are getting no value for their operating rights,
which have become, in effect, worthless.
Under existing law, smart carriers could start developing facts
now to help them get a tax deduction. Other carriers may not be
paying enough attention to the situation. They are running a great-
er risk that they won't get a tax deduction. I think we are talking
about fair treatment for all the carriers involved.
Mr. Rahall. You are supporting the legislation yet you are mak-
ing the case for a tax deduction, and you are asking for that tax
deduction immediately upon passage of the legislation, before it
plays out and we see how the whole market reacts?
Mr. Merritt. The way we foresee it playing out is we are taking
the risk we will get a tax legislation in the future, that we will be
able to get a uniform tax rule, as opposed to this particular piece
of legislation. We believed that since it had been appropriate to the
1980 act to express the concern of the Committee with regard to
the impact of deregulation on values and making sure that a fair,
uniform result was achieved for the carriers, that we would come
and ask you to do the same thing this time. We are not asking you
to hold up this legislation for that purpose.
Mr. Rahall. So if we enact this legislation, you would then go
to Ways and Means and seek your tax legislation —
Mr. Merritt. I think we would have to.
Mr. Rahall. I have no further questions.
The distinguished Chairman of the full committee.
The Chair. Thank you very much, Chairman Rahall.
First, let me ask — I am not really sure who this might go to.
Maybe Mr. Clowe and Mr. Hoemann might be able to deal with
this, given their testimony.
You are sort of talking about a two-step legislative process. I
guess my problem is, what happens to many intrastate customers?
Won't they find themselves as being outsiders if Section 211 is
passed and they are waiting for the next legislative vehicle to come
through where we can then, quote, clean up, unquote, the rest of
the things that we would like to do?
I am wondering whether or not— it seems to me we have enough
time now to go ahead and try to get everything done in one fell
swoop rather than to try and do it on a two-step dance through
this.
Mr. Clowe. Yes, sir. If I may attempt to answer that, we would
like for it all to be done at one time. The proposal of a two-step
process is only if Section 211 is moving ahead so rapidly that these
other items covered in the second step could not be done at this
time.
The Chair. I see. I see.
Mr. Clowe. It would be preferable, in our opinion, that it all
happen at one time.
151
Mr. HOEMANN. Mr. Chairman, Yellow has absolutely no objection
to either broadening the preemptive portion or including the other
uniformity elements at this time, as long as we do not jeopardize
the progress of Section 211. Right now, we have an existing imbal-
ance in our marketplace, and we need to rectify that.
As long as Section 211 is not held up and its progress continues,
we have no objection.
The Chair. In the context of today's testimony, do all of you
favor eliminating all of the States' ability to regulate intrastate
commerce as opposed to allowing only certain carriers to be deregu-
lated?
Mr. Clowe. On the part of Roadway Services and Central
Freight Lines, we propose that the entire deregulation of rates and
entry be the action taken. And we would hope that the other issues
which remain would stay in the States' authority.
The Chair. That would be the insurance requirements, the safe-
ty-
Mr. Clowe. Claims, insurance. And there is no question about
safety. That certainly is I think well covered in the discussion that
has been held here today.
The Chair. What about — I think it was Mr. Donohue who men-
tioned something about the filed rate doctrine. He wants to keep
some of the benefits that are there in the filed rate doctrine but
the whole issue of the necessity of filing rates ought to be elimi-
nated on that.
Mr. Clowe. Yes, sir. It is our proposal that tariffs not be filed
with the ICC or with the Railroad Commission, in the case of the
State of Texas, but that the carrier publish those rates at its place
of business or another designated location, either on hard copy or
electronically.
And, therefore, there would be a known rate, agreed upon be-
tween carrier and shipper, which would fall within the filed rate
doctrine and protect both the carrier and the shipper by having
that agreement that would be the rate collected by the carrier from
the shipper.
The Chair. Mr. Merritt, one of the things, when you talk about
this tax issue, when — the new budget regimen we are under, every-
thing is pay as you go. To the extent that there is a tax provision
that loses revenues for us, we have to make that up somehow, ei-
ther in additional taxes somewhere or by cutting the budget by
that amount.
You said that you thought the total is about $200 million, the
total operating rights existing out there?
Mr. Merritt. We think that is the maximum cost basis in the
intrastate operating rights that would be affected.
The Chair. First of all, how do you think the States would react
to that, what you are requesting? How would the States react?
Mr. Merritt. With regard to a tax deduction, some of the States
typically would not follow a Federal tax deduction for the operating
rights.
The. Chair. The thing is if we allow that tax deduction, you
know, do the States then say, okay, the Federal Government has
allowed Section 211 to be passed and so we will have a section in
our tax code for trucking companies to be able to write that off?
152
Mr. Merritt. I doubt if you will have uniform results with the
States. Some States will pick up the Federal deduction automati-
cally. Other States — and I think California, for example, back in
1981 did not allow a deduction for the ICC operating rights, even
though the Internal Revenue Service and Congress did.
So I think it will vary from State to State.
The Chair. Then the other question I have is, to the extent that
we lose, let's say, on the basis of a $200 million value tax revenues,
any ideas how we might be able to come up with that?
Mr. Merritt. Well, I am hopeful I will have some time to think
of some.
The Chair. If you would do that, respond for the record.
Mr. Merritt. Because I know if we don't we won't get it. It is
that simple.
The Chair. That is right. For us, it is writing a report, as you
say, keeping it in the report language, since we aren't the tax-writ-
ing committee. But to the extent we consider that Ways and Means
ought to do this, they will say, all right, guys, how do we make up
for it?
Mr. Merritt. I will do my best to come up with a good submis-
sion for the record for you.
The Chair. Very good.
Thank you very much.
Mr. Chairman, thank you.
Mr. Rahall. The gentleman from Texas, Mr. Geren.
Mr. Geren. Thank you, Mr. Chairman. I really don't have a
question.
I was talking to my colleague, Mr. Clement. He has been working
on his dereg bill for the last four or five years. I have been working
on my private carrier bill for the last four or five years. The past
two weeks has rendered us irrelevant. But I am pleased the panel
has expressed its unanimity to support Section 211 which includes
what Mr. Clement and I have been trying to accomplish.
But I am pleased to see this kind of broad-based support within
the industry and also coming from the previous panel who would
appear to benefit from 211, unmodified and unexpanded, yet they
support expanding it to go further with total deregulation. I appre-
ciate this panel's input on this issue. I am hopeful at the end of
this process that what you all advocate is what we are able to ac-
complish. Thank you.
Thanks, Mr. Chairman.
Mr. Rahall. The gentleman from Tennessee, Mr. Clement?
Gentlemen, thank you very much.
Mr. Rahall. The subcommittee will now hear from a panel con-
sisting of Mr. Martin E. Foley, Executive Director, National Motor
Freight Traffic Association, Alexandria, Virginia; Mr. James Har-
kins, Executive Director, Regular Common Carrier Conference,
Falls Church Virginia; Mr. Jack Seims, Owner and President, Pro
Express, Seattle, Washington, on behalf of Washington Trucking
Associfltiorm*
Mr. Daryl E. Clark, Vice President of Traffic, Rudolf Express
Company, Bourbonnais, Illinois; and, Ken Booze, President, East-
ern Oregon Fast Freight, on behalf of Oregon Trucking Associa-
133
tions, Inc.; and Mr. Jim Hopper, Executive Director, Associated
Motor Carriers of Oklahoma, Inc., Oklahoma City, Oklahoma.
TESTIMONY OF MARTIN E. FOLEY, EXECUTIVE DIRECTOR, NA-
TIONAL MOTOR FREIGHT TRAFFIC ASSOCIATION; ALEXAN-
DRIA, VA; JAMES HARKINS, EXECUTIVE DHtECTOR, REGU-
LAR COMMON CARRIER CONFERENCE, FALLS CHURCH, VA;
JACK SEIMS, OWNER AND PRESIDENT, PRO EXPRESS, SE-
ATTLE, WA, ON BEHALF OF WASHINGTON TRUCKING ASSO-
CIATIONS; DARYL E. CLARK, VICE PRESIDENT OF TRAFFIC,
RUDOLF EXPRESS COMPANY, BOURBONNAIS, EL; KEN
BOOZE, PRESIDENT, EASTERN OREGON FAST FREIGHT,
WILSONVILLE, OR, BOARD OF DntECTORS, OF OREGON
TRUCKING ASSOCIATIONS; AND JIM HOPPER, EXECUTIVE
DHtECTOR, ASSOCIATED MOTOR CARREERS OF OKLAHOMA,
EVC., OKLAHOMA CITY, OK
Mr. Rahall. Mr. Clark, you may proceed.
Mr. Clark. Thank you, Mr. Chairman. Good evening.
That other side will do anything. They even told you I left to
catch an airplane. Of course, I told them all which side I am on.
I will condense. You have my report. I am sure it will be read.
And I am sure you gentlemen read your mail. My faith has been
reconfirmed because I already sent you the letters for the con-
ference committee, my being against 211. And I thought it would
slide right through without this hearing, which I thank you for, sir.
I heard many old, old things today I have heard for years. The
deregulation wars, like from Fred Smith, Jim Rogers, about that
poor shipment in Virginia that they have to take out of the State
and bring it back. There is probably seven or eight intrastate car-
riers out there just dying to get that shipment if they pick up the
telephone.
There are a few pertinent things I would like to bring before the
committee. My name is Daryl Clark. I reside at 861 Gettysburg
Court, Bourbonnais, Illinois, and I represent Rudolf Express Com-
pany. We are an interstate and intrastate motor carrier. We have
intrastate authority in Illinois and Indiana. I have been with the
company 44 years, and I want to see this thing to the end, this de-
regulation, one way or the other. I am not going to retire.
I have been Vice President of Traffic for some 25 years with Ru-
dolph Express Company. We are a union carrier. Twenty-five per-
cent of our total revenue of $24.6 million — which I think is a small
carrier. Nobody defines a small carrier around here. We are a very
small carrier compared to the giants you have had in this room
today.
Our annual payroll is approximately $9 million. We pay salaries
to our employees which are good salaries, union wages. They pay
off the mortgages. They put the kids through school. And we even
made a slight profit in 1993. We had a 99.4 operating ratio.
We contribute regularly to the union pension plan, some
$743,000. I could not get the figure exactly from the CMA pension
plan, what our pension liability is, but intrastate carriers will go
down the drain if you pass Section 211 tagged on to the back end
of a 747. And I still say you are not going to get a tractor with two
loaded pups off the ground with an airplane bill.
154 ;
Separate them. If you wish to talk intrastate, we will be glad to
sit down and talk intrastate. We also pay 100 percent of hos-
pitalization for our employees, and we contribute to a 401(k) plan
for our nonunion people that work in the office, most of them.
All I want to bring out is a few things I haven't heard today. I
will read one paragraph. Final comment.
Earlier in my statement I indicated that deregulation of the large
carriers enabled them to reject freight they feel is not in their best
interests to the harm of shippers. I can document one case where
UPS refused freight, and it took an order of the Interstate Com-
merce Commission to make UPS accept statement. Maybe this is
the reason UPS is working so hard for this, which would permit
UPS to refuse unwanted freight which under the order of the ICC
they must now accept. I hope somebody asks me about that order.
All I have to do is mention fireworks. We haul fireworks every
day. We are required to, both inter- and intrastate. And when you
get the large carriers in, they are going to select their freight. We
are going to get bigger. We are not poor little people. We are
happy. Our company has been in business since 1945. And, before
that, they operated with a bread truck from 1935 on.
I am in the third generation of my owners. I am very happy with
my company and my life. And we have many happy employees. It
is what put their kids through school, paid their homes off and
they are living on a nice union retirement, which we just nego-
tiated our four-year term contract with the union, and they are
going to retire at $2,500 a month. Now, I don't have that or I would
be retired.
I thank the committee for allowing me to appear. May I be ex-
cused, Mr. Chairman? I have a flight at 7:30.
Mr. Rahall. Yes, you can be excused so you can go back home
and open the door tomorrow.
Mr. Clark. I will have to open a grocery store instead of a truck
line. Don't let me down.
Mr. Rahall. Gene, do you want to proceed?
Mr. Foley. Thank you, Mr. Chairman. I almost said good morn-
ing, Mr. Chairman and Members of the committee. I scratched that
out and wrote good afternoon. And now it is good evening.
Thank you for the opportunity to speak at the hearing. Our joint
statement with the Regular Common Carrier Conference has been
filed with the committee.
I would like to use the little bit of time I have just addressing
some of the troublesome elements of Section 211 from the stand-
point of the interests of the thousands of motor common carriers
of LTL Freight whose State-regulated intrastate operations, like
those in Mr. Clark's company, from whom you have just heard, will
be seriously jeopardized if Section 211 is enacted.
NMFTA does not support the enactment of Section 211 by the
House. Section 211 is a prime example of special interest legisla-
tion.
The proposition that the world's largest transportation company
is somehow at a competitive disadvantage in the intrastate trans-
portation of small packages moving in expedited delivery service is
a myth. That huge carrier holds intrastate operating authority in
every State which regulates entry into the trucking field. Clearly,
155
this carrier can and does operate in intrastate commerce competi-
tively with the air carrier or carriers which also affect the expe-
dited delivery of envelopes, small packages, parcels and so forth by
means of their trucks.
Section 211 will grant a tremendous competitive advantage for
some very large transportation companies by exempting their
intrastate trucking operations, leaving them totally unregulated,
while at the same time thousands of smaller motor common car-
riers remain subject to intrastate regulation in 42 States, and by
your count and by our count, 42 is the number of States which do
regulate trucking for hire in their States.
It is hard to visualize a more unfair and more undemocratic or
undesirable result than that which would be created by enactment
of Section 211.
In the view of our members, Mr. Chairman, Section 211 is an ab-
erration. It was passed in the Senate for the benefit of a select few
huge transportation companies without meaningful debate, without
input or public testimony from the States or other interested per-
sons, and without a trace of evidence showing that the operations
of the States in the course of exercising their constitutional rights
to regulate purely ground transportation conducted solely within
their sovereign borders, was in any way a burden on or even ad-
versely impacted on interstate commerce.
This threshold test for Federal preemption of States' rights is to-
tally absent here. In the view of our members, Section 211 is sim-
ply bad law.
For example, under the Interstate Commerce Act motor common
carriers may not unlawfully discriminate against persons, places or
the kinds of traffic they haul. That is the mandate of the Congress.
Section 211 will prevent a State from enacting or enforcing similar
public interest consumer-oriented goals in intrastate motor trans-
portation. That is patently unfair, unwise and unwarranted in the
view of our members.
The Interstate Commerce Act prohibits a carrier from giving re-
bates and kickbacks. Section 211's preemptive provisions also deny
a State the power to prevent such historically prohibited actions in
intrastate trucking. Our members believe that is neither logical nor
desirable.
Mr. Chairman, hardly anybody in America is more familiar with
the provisions of the Negotiated Rates Act than you are. Signed
into law on December 3, 1993, the NRA resolved serious and long-
disruptive problems concerning negotiated but unfiled rates and
off-bill discounting. It mandated the restoration of tariff integrity.
Section 211 will disenfranchise a State and its right to enact or en-
force similar provisions at the State level. And our members be-
liever this is patently wrong.
Mr. Chairman, NMFTA is not opposed to regulatory reform. We
simply urge the Congress to go about its review and revision of the
existing regulatory provisions in a more sensible and more orderly
fashion such as the Transportation Research Board study approach
which is outlined in the statement which has been filed jointly with
the Regular Common Carrier Conference.
In summary, Mr. Chairman, NMFTA urges the subcommittee,
the full committee and, ultimately, the House to reject Section 211
156
and your anticipated approval of those few substantive provisions
of Senate bill 1491 which deal with airport improvement funds and
dispute resolutions concerning landing fees. NMFTA's members
have no interest in those matters, of course. However, if the House
is of the view that it is absolutely necessary to enact some provi-
sions which will preempt the States in their economic regulation of
the motor transportation of small packages, parcels and envelopes,
then let that legislation be tightly drafted so as only to exempt the
for-hire transportation of those kinds of parcels, packages, pieces
and/or envelopes which are moving in expedited delivery service
and which can be tucked under the motor carrier driver's arm
when making delivery from the truck to the consignee.
Thank you, Mr. Chairman. I would be glad to take any questions
at the appropriate time.
Mr. Harkins. Thank you, Mr. Chairman.
First, I would like to say thanks to you and the committee mem-
bers and the staff for your patience; and, secondly, I would like to
applaud your endurance.
Like Gene, I had my statement, my script, all done very nicely
this morning when I got here, and I have changed it about three
or four times. I am beginning to feel like Richard Burton on his
wedding night, the second time he married Liz Taylor. I know what
to do. The problem is to figure out how to make it interesting!
Now, you know who we represent, and we support yours and the
committee's concerns with the problem that we want to reduce
spending. But we are sort of caught in the middle of this situation,
where over on the Senate side the Senators passed 211, and they
are relying on the Interstate Commerce Commission to pick up the
slack for the elimination of the State regulations.
Here on the House side, you folks have already passed a bill that
zero budgets the ICC, and we are discussing how much of the State
regulation we can keep to sort of keep the stability.
So we are right in the middle of it. And we certainly hope you
can figure out a way to eliminate this uncertainty for us, with good
reason and strong deliberation.
During the debate on this matter, as it continues and, hopefully,
as it ends, we would like the committee to consider a few principal
features, and I think it has been said many times today, we hope
all carriers will be treated in a fair and equal way.
Secondly, carriers will be able to do a much better job if we have
a compatible regulatory program between the Federal and State
governments.
Thirdly, I think Congress really needs an objective analysis of
what we are about to do here and really which reforms are needed
and which reforms are not needed.
Fourth, I think we also would appreciate, and we do need, an or-
derly transition time within which the States' carriers and the car-
rier customers can adjust to whatever new type of program may be
enacted.
And, lastly, I would like to stress that, from my point of view,
there is absolutely no reason to rush through this thing, and there
is every reason instead to be very deliberate and take our time and
do this so that we don't make a mistake by simply doing something
in a hurry.
157
As I recall the basis for this whole proposal when we first got in-
volved in it about a month or so ago was to take care of a competi-
tive disadvantage that UPS was suffering under vis-a-vis Federal
Express. And as has come out here very, very clearly, UPS is the
most profitable transportation company in the world. Last year,
they did over $18 billion, I think it was, in gross revenue, and they
made over $800 million in profit. A very, very successful year for
them.
Fed Ex didn't do badly either. In the last 12 months the report
I just read showed that — over $8 billion in revenue for a year's
time. They did about $200 million in profit. Now, that turns out to
be that UPS has twice the market of Federal Express and four
times the profit of Federal Express. And to tell you the truth, I
don't know any single carrier that wouldn't want to suffer that
kind of a disadvantage. I don't think they exist.
As has been brought out earlier by Gene and others, Section 211
really would not remove any disadvantage. It would create a
humongous advantage for UPS and for some other carriers over the
rest of the trucking industry as it is written now.
And it is fair to say the majority of our members, and I believe
Gene's members as well, will support a reasoned approach by the
Congress that would respect the rights of all the carriers and the
customers and provide a more effective and coordinated Federal
and State government program.
To that end in our testimony, which I know you read very, very
carefully, we propose the matter of a study being done by an unbi-
ased and knowledgeable group, the Transportation Research Board,
and have that study reported to the Congress with specific rec-
ommendations as to what changes ought to be made to the State
regulatory process and Federal to bring the two into compatibility
and give us something that will be very effective in the future and
procompetitive and all the other things which are objective goals.
We are convinced that type of an approach would give us a fair,
uniform, coordinated program for Federal and State governments.
What we don't need, though, and what we don't want is the Section
211 as it is proposed right now. That would create tremendous un-
fairness.
And, while it is not intended, it would also create other problems
for the States in that the way the language is written and the way
the courts have decided several cases already, it would place these
carriers that come under the Section 211 exemption in a special
zone where, for example, they would not be subject to the State tort
laws, and they would not be subject to the State consumer protec-
tion laws.
These are cases that have already been decided, in one case the
Supreme Court and another case the Federal District Court. So
this is not supposition in this case. This is a test of real language
with regard to airlines where the very same language has been
used to exempt them from tons of State regulations which I am
sure this Congress did not intend and which would not be good
public policy.
Included in that— and I might just as a summation add — it
would impact on safety matters. Now, I don't know of anybody that
is in favor of making a change that would harm safety. We are all
158
for improved safety. And the trucking industry has been improving
its safety record, not just since 1980 when deregulation came into
effect, by the way, but it has been improving it for many, many
years before 1981 when we were deregulated. Our objective is to
be a very safe industry, and that is the case whether there is regu-
lation or not regulation.
But the complication of the proposal of 211 is that it would re-
move a very, very powerful weapon from the hands of the State
bodies to require carriers to toe the line with regard to safety. And
that was brought up, I think, about a year and a half ago at this
committee when a gentleman from California testified and made
clear that the only way the California Highway Patrol was able to
assure that carriers on their roads toed the line with regard to
safety was to threaten them with the removal of their operating
certificate. That would effectively put them out of business.
When this threat was put before a carrier he got very safe in a
hurry.
Mr. Harkins. And he made the mention of the fact that if they
did not have that, the only thing they would have would be the op-
portunity to issue citations or tickets to those carriers, which they
would either gleefully pay or simply ignore and continue on going
about their business.
So while you know the economic regulation aspect of it is cer-
tainly not directly involved with safety, but indirectly, there are
lots of aspects about the economic regulation authority of the
States that puts into the hands of the States the effective tools that
enable them to make sure that carriers live up to the safety regula-
tions. If you deregulate us, 211 would propose you take from the
States the authority to issue certificates and you take from them
the powerful tool of being able to make the carriers toe the line.
That is just an example.
I am not the expert on that, but I can tell you there are a lot
of other subtleties in the way the language would be interpreted,
the 211 language would be interpreted, that would remove the
State's authority, their ability to apply many, many laws with re-
gard to the actions of the carriers that would be operating under
that 211 section in a deregulated atmosphere.
I would just like to add one other thing, that a lot of our mem-
bers are not in favor of this particular proposal. Some are in favor
of it and some are in favor of it with modifications, but many are
not in favor of it.
Now, they would like to get that tax credit as well, and I can give
you a list of the carriers that are not in favor of it if that has any
benefit in being able to grant that group, at least, the tax relief.
Thank you, Mr. Chairman.
Mr. Rahall. What is the bottom line price tag?
Mr. Harkins. The bottom line price tag?
Mr. Rahall. Yes, for that deduction.
Mr. Harkins. The estimate would be about, I think, a 40 percent
tax rate of — there are $200 million, so what does that come out to,
about $80 million?
Mr. Rahall. Something like that.
Mr. Harkins. Something like that. If my mathematics are poor,
forgive me.
159
Mr. Rahall. Mr. Seims.
Mr. Seims. Thank you, Mr. Chairman, Members of the commit-
tee.
Mr. Chairman, thank you for pronouncing my name correctly.
You are the first person I think that hasn't said Seems or Sims.
I appreciate that. It is an old Norwegian trick that we have in-
vented.
I am President of the Washington Trucking Association, a trade
association representing 1,500 member firms in Washington State.
I am also the owner and president of Pro Express, which is an
intrastate local cartage carrier and we are one of the small ones
with just 20 employees.
I am here today to testify in opposition to Section 211 of Senate
Bill 1491.
While we recognize that the American Trucking Association on
most issues speaks in behalf of the Nation's trucking industry, I
think it is important for you to know that on the issue of Federal
preemption of State regulation, they do not speak for the Washing-
ton Trucking Associations.
We were very disheartened when ATA at a recent executive com-
mittee meeting changed its long-standing policy in opposition to
intrastate deregulation. Our membership felt abandoned on this
very critical issue.
At an emergency board meeting, board of directors meeting on
Tuesday, June 28th, 1994, there was open hostility and anger at
the thought of a few large interstate carriers advocating deregula-
tion of intrastate traffic for their own gain and to the detriment of
many of our members.
To put things in perspective financially, United Parcel Service, a
proponent of Section 211, as Mr. Harkin has just stated, is a $18
billion a year carrier, whereas the State of Washington's biannual
budget is $16 billion. In addition, according to the Washington Util-
ities and Transportation Commission, all carriers in Washington
intrastate commerce generate a total of $607 million annually.
The fact of the matter is, Section 211 does not level the playing
field as has been claimed, but instead allows a few large interstate
carriers to confiscate the playing field.
Section 211 and ATA's new position which would broaden Fed-
eral preemption even further will simply give large interstate car-
riers a tremendous advantage over their smaller intrastate com-
petitors.
As was seen with interstate deregulation enacted in 1980, preda-
tory pricing will assuredly take place as large carriers maneuver to
increase their market share.
This means that many of the long-time family trucking firms, in-
cluding less than truckload, dump truck, forest products and agri-
cultural carriers will be in jeopardy, as will the well-paying jobs
that these companies have supplied for years.
Highway safety will always be a loser. I know this has been dealt
with at length today, but I am going to give our opinion.
As has been witnessed with interstate deregulation, when rates
are decreased through predatory pricing, there are only two areas
where operating costs can be cut. The first is maintenance. Car-
riers will be forced to run the tires a bit further, extend the period
160
for preventive maintenance and operate trucks past their useful
service life because there is no money to replace them.
The second area that will be cut is compensation for the drivers.
This has been done on an interstate level to the point where it has
created a driver shortage resulting in extremely high driver turn-
over. In both instances, this will mean a deterioration of safety in
heavy trucks.
Washington State has a transportation system that we are ex-
tremely proud of. Shippers and receivers of freight are assured of
having their goods transported at a fair and equitable price, in a
timely and efficient manner.
Small and large shippers are treated equally regardless of loca-
tion or shipment size. I cannot overstate the importance of intra-
state regulation to the members of the Washington trucking asso-
ciations. The future of many of our members is in jeopardy should
this legislation pass. I believe the old adage, "if it ain't broke, don't
fix it," certainly applies here. I would respectfully request that
prior to voting on this issue, a full and complete understanding of
the social and financial impact on States be understood.
Thank you for the opportunity to appear here today and I will
certainly answer any questions at the appropriate time.
Mr. Rahall. Thank you, Mr. Seims.
Before we go to the last two panels, we have a roll call vote on
the Floor, so the subcommittee will be in a brief recess and we will
return.
[Recess.]
Mr. Rahall. The subcommittee will resume its sitting.
And I believe- — let's see, are we to Mr. Booze?
Mr. Booze. Yes.
Mr. Rahall. You may proceed.
Mr. Booze. Mr. Chairman, honorable committee Members, my
name is Ken Booze and I am the President of Eastern Oregon Fast
Freight. I also serve on the board of directors for the Oregon Truck-
ing Associations.
I am here today on behalf of my own company, but also my col-
leagues in Oregon who have asked me to represent our State's
trucking industry, which is made up of 28,000 carriers who provide
good family-wage jobs to nearly 89,000 Oregonians.
If I might, I just wonder if you would recognize the people from
Oregon and Washington that have — came to support my first testi-
mony to Congress. Would you stand up, please.
Mr. Rahall. Welcome.
You have half the audience here.
We welcome all of you to the subcommittee.
Mr. Booze. I would like to say that I am in opposition to the bill,
and my tax bill is $250,000, so if this bill passes, I would like that
credit to go on record. That is what I have got invested in my intra-
state authority.
Mr. Rahall. To follow up Chairman Mineta's question, where
will it come from?
Mr. Booze. I think I would try to answer that before you pass
it, possibly.
Mr. Rahall. Did I hear you say UPS?
161
Mr. Booze. That would be a good idea. That would be a good
idea.
My company employs 97 people and generates revenues of about
$5 million a year. We service the many widespread rural commu-
nities in central and eastern Oregon. These communities have a
tremendous stake in what goes on here today.
The threat to preempt States' rights to regulate intrastate truck-
ing is of grave concern to my company. My colleagues and my cus-
tomers for a number of reasons, not the least of which is, we be-
lieve States must be able to continue to regulate or not regulate the
trucking industry as best suits the citizens' particular needs.
The current deregulation proposal contained with Section 211 of
Senate bill 1491 will prove disastrous for small businesses and con-
sumers. Let me explain some of the key reasons.
Small towns and smaller shippers become the victims of price
discrimination. The result of interstate deregulation off the beaten
path locations and smaller shippers who have little clout with car-
riers now pay premium prices, while larger companies receive
heavy discounts for the same service.
With intrastate deregulation, State regulatory agencies will no
longer be able to ensure that all trucking customers receive fair
treatment. Small businesses which employ almost 90 percent of our
State and our Nation's work force will be competitively disadvan-
taged as a result of being forced to subsidize large corporations'
shipping discounts. And I would like to add a note that I made to
myself this morning.
The 1980 Deregulation Act was softened by the State regulation
over the last 14 years. Without the State regulation, I think we
would have taken a much larger hit nationally on the deregulation
issue.
It is a situation where the big guys are against the little guys,
and I am a little guy, and I have visited my first time on the East
Coast, but I flew here because this has finally hit a chord that
didn't strike right with me.
Currently, viable small trucking companies, just like mine, will
be plunged into bankruptcy, throwing tens of thousands of Ameri-
cans out of work.
Under deregulation, shoestring trucking operations will run
rampant. States won't be able to ensure the companies are finan-
cially stable and safe.
There is no provision in the bill on who issues a permit. Is it the
ICC, which we don't know is going to exist? Is it the State?
If no one issues a permit, how do you track the carrier on safety
issues? That is a small matter, but I think it is something that the
committee needs to look at.
Deregulation of intrastate trucking will destabilize the market-
place. Both the shoestring operations intent on undercutting the
competition and existing companies that are plunged in financial
distress due to that undercutting will have fewer dollars to spend
on safety and maintenance.
Companies in dire financial straits are more inclined to speed
and violate hours of service rules in order to stay afloat financially.
As a result, the motoring public will face increased danger on the
road. In fact, a 1991 GAO study revealed that trucking companies
162
in the weakest financial condition have the highest accident rates
of all trucking operations.
Rural areas will no longer receive adequate shipping and deliv-
ery of critical goods and services. Two- thirds of Oregon's commu-
nities rely solely on trucking companies like mine for delivery of
their essential goods. With intrastate deregulation, our small towns
that are located outside of the more profitable freight corridors will
lose crucial cost-effective delivery of these goods.
The service that would remain to those areas would cost far
more, creating a financial hardship for residents, particularly for
those already hard hit, economically depressed communities. Cur-
rent intrastate regulations ensure that Oregon's rural regions re-
ceive reliable service at a fair price.
To give you some perspective for those of you who haven't been
to Oregon about the territory my company covers, we provide over-
night service to rural communities over 400 miles away from our
terminal. That is equal to providing service from Washington, DC
to Columbus, Ohio, to Raleigh, North Carolina, to Albany, New
York, or Hartford, Connecticut.
The point is, there are scores of communities in Oregon that rely
on the range of service Eastern Oregon Fast Freight provides, and
these are small communities, 3,000 or less population, and they are
far between, 60, 70 miles, from central Oregon, Bend, central Or-
egon to Burns.
In 1982 the bus service was discontinued. Greyhound had the
Burns route. With the deregulation, Trailways went in. The two of
them had it. Neither one of them could make it and they both
pulled out. Right now, I am the only regulated carrier or unregu-
lated carrier that services Burns, Oregon, population of 2,900 peo-
ple, 300 miles from Portland.
If this bill is enacted, do you think I am going to hold myself out
to run 300 miles for 2,900 people for half a dozen to a dozen ship-
ments a day? I will go where the money is. I will go where the big
markets are, to Eugene, Oregon, 100 miles away, with a population
of 200,000 people.
States will lose the ability to protect their citizens who reiy on
the trucking industry for safe, dependable shipping services at a
reasonable cost. Each State has different needs regarding transpor-
tation services and it is only appropriate for State legislators and
other officials to have the right to tailor their interstate regula-
tions— intrastate regulations based on what they deem to be in
their citizens' best interests.
In Oregon, in recent years, State legislators have debated the
issue of economic regulation three times and all three times they
have reaffirmed their commitment to maintaining regulation of
intrastate trucking. Oregon's State officials have determined that
regulation is in the best interest of all Oregonians.
In closing, the Oregon Trucking Association's Board of Directors
and its members urge you to prevent Federal preemption of intra-
state trucking regulations. Otherwise, the toll on our industry, our
economy, our small towns and small businesses and our highways
will be devastating. The price for all of us is simply too high to pay.
Thank you.
Mr. Rahall. Mr. Hopper.
163
Mr. Hopper. Thank you, Mr. Chairman.
I want to commend you on your perseverance today in these ma
athon hearings. I wanted to start by saying, one of the most popi,
lar politicians I know is someone who traditionally gives very briei
remarks, and so I hope that my very brief remarks will be looked
on favorably by this committee, and I know they will be by the peo-
ple who will follow me after I say a few words here.
I do appreciate the opportunity to appear before you. My name
is Jim Hopper and I serve as the Executive Director for the Associ-
ated Motor Carriers of Oklahoma, which is the trade association for
the trucking and allied industries in Oklahoma.
Our association has — I represent in our association approxi-
mately 400 carrier and allied members, and it is on behalf of the
vast majority of those members that I appear before you today to
give testimony concerning the Federal preemption of intrastate
trucking.
One thing I wanted to say, we have heard many, many times
today about the idea of creating a level playing field for all the
trucking industry. My thought about that would be that most of
the carriers in Oklahoma, and I think the vast majority of the
smaller carriers thought the playing field was already level before
Section 211 was proposed.
I think that they feel that it probably is not going to be very level
if this proposal goes through unchanged, if the Senate proposal
goes through unchanged.
The American Trucking Association is very fond of saying that
"if you have it, a truck brought it," and that is very true for every
State in this Nation. In my State of Oklahoma alone, in 1992 a
total of over 87,000 people worked in the trucking industry, which
worked out to about 1 in every 11 people who worked in the truck-
ing industry in Oklahoma.
They generated about $2.7 billion in payroll in 1992, and those
statistics can be cited for every single State in the Nation. And I
say that just to show that the number of people who work in the
trucking industry is enormous throughout this country and I think
that we really need to take the opportunity to consider the impact
that this proposal will have on these families and the people that
are dependent upon the trucking industry for their livelihood. The
vast majority of the trucking companies in the United States are
what would be considered small companies, and I think that those
are the companies that most stand to be harmed by this proposal
if it is not changed.
One thing that is unique, not just to Oklahoma but to other
States in our region of the country, is the regulation that the State
of Oklahoma has concerning not only all aspects of the trucking in-
dustry, but particularly our oil field fluid haulers. These trucking
companies haul a great deal of hazardous materials that are gen-
erated by the operation of oil and gas properties in Oklahoma. Our
regulatory commission regulates these trucking companies to a
very great extent and they also regulate the disposal wells where
these hazardous materials are disposed.
If Federal preemption of the trucking industry goes through and
these oil field fluid haulers are no longer subject to regulation,
there is a good possibility that anybody can go out and buy a truck
164
and hold themselves out as one of these haulers with no regulation
whatsoever on where they dispose of these materials. So there is
a grave concern about the environmental impact in States like
Oklahoma and other States that have these kind of activities in
their State.
At the very least, the majority of our membership would like to
see this legislation strictly limited to the problem that it was origi-
nally proposed to address, and that was the problem for the large
intermodal all-cargo air carriers. But if that is not the case, we
think that there are some specific segments of the trucking indus-
try that should be given some consideration, like the household
movers, the oil field fluid haulers and the dump truck operators
and those kind of operations.
We are very concerned in our association that if Section 211 goes
through unchanged or is even expanded, that predatory pricing will
occur and the service in rural areas and small shippers will suffer.
We don't believe that the Federal Government should preempt
States' rights for strictly intrastate trucking just because some of
the super carriers got together and decided that they wanted a,
quote, "level playing field."
We ask that the committee please consider the hundreds of thou-
sands of people who work in the trucking industry, the vast major-
ity of whom work for small firms, and we would ask that you
please not fail to consider their livelihoods and what might happen
to them if this bill goes through unchanged.
We don't think that those carriers and those people that have not
only had the responsibility but the requirement to provide service
to every nook and cranny of this country, should be abandoned by
something that may happen to them that was really through no
fault of their own. We would urge you, especially the smaller car-
riers in Oklahoma, to consider that.
Again, I want to thank you for giving us the opportunity to pro-
vide this testimony today and for giving me an opportunity to pro-
vide the other side of this story.
You do have my written statement and I would request, as oth-
ers have, that it be made a part of the record.
Thank you, sir.
Mr. Rahall. Thank you, gentlemen, for your testimony.
Before I ask a question, I do want to submit without objection
the statements from the following to be made a part of the record
at this point:
Parker Motor Freight of Grand Rapids, Michigan, William
Lavelle, on behalf of 19 Pennsylvania Motor Carriers; Michael Mer-
edith of the Oregon Trucking Associations; TP Freight Lines of
Tillamook, Oregon; TNT Reddaway of Clackamas, Oregon; Michael
Khourie on behalf of Cal Pak, Union City, California; Transpor-
tation Lawyers Association, and the Ohio Transportation Lawyers
Association.
[Please see additions to the Record.]
Mr. Rahall. Gentlemen, as I said, we do appreciate your testi-
mony. A lot of the things you have mentioned have been mentioned
as concerns by many Members of this subcommittee, on both sides
of the Chair, throughout the course of today's hearing. Certainly,
165
we are concerned about the effects of this legislation on safety.
That has been debated at length today.
We are also concerned about the effects of this legislation on the
LTL, the small, independent mom and pop operation, even the $9
million payroll of Mr. Clark. We are concerned about the effects of
Section 211 on those types of operations.
We also have learned today that there is very little disagreement
that Section 211 as passed by the Senate was drafted in a very
shoddy manner, to use the words of the Assistant Secretary; it
seems to consist of stapled together provisions, and a lot of that
needs clearing up before any final action by the Congress.
That is one purpose of today's hearings. We did not want to rush
headlong and blindly accept the Senate provisions without having
this hearing, hearing from as many parties as we could, and doing
this in a deliberate, responsible fashion on this side of the aisle.
I think we all can agree, including yourselves and the panels
that we heard from earlier today, that Section 211 is not well draft-
ed; we have heard many proponents of the legislation agree with
that as well. I have not heard any of the proponents argue against
reworking the provisions to provide equal treatment for all motor
carriers.
My question to each member of this panel — and I know, Jim,
that you have answered this question already, but I just want to
hear it from all the members of the panel.
In the event that the choice is between either Section 211 as it
is, and I hope it does not come down to that — that is my personal
opinion — or a properly crafted provision that preempts State eco-
nomic regulation for all, and let me emphasize for all motor car-
riers, while clearly preserving the noneconomic State regulatory
functions, what would be your choice?
I know your position is to not have Section 211 at all, throw the
whole thing out, and go ahead and pass a clean AIP bill, but that
is not a likely scenario either. So between those two choices, what
would your decision be?
Mr. Booze. Well, of course, I don't like either one, but of the two
positions, I would say the latter. Don't tie my hands behind my
back and send me back out to Oregon to compete with UPS. You
know, I will do my best to compete with them.
I don't really know whether I will stay in the business if 211
passes. I would seriously doubt it. I have been in the industry 32
years, but I think that I would probably get out of the business.
One point that I want to leave you with, though, hazardous ma-
terials are a real problem in this deregulation issue and what you
are going to find is the small carriers, they run out to these com-
munities, are not going to hold themselves out to handle hazardous
materials any longer. Right now we are — we have to do it because
we hold the State certificate.
Mr. Rahall. Let me respond.
I spoke of the shoddy language of Section 211 and how it needs
cleaning up, but that is one thing that is perfectly clear. Section
211 does exempt hazardous material and household goods trans-
port; both would still be under regulation.
166
Mr. BOOZE. Okay, but what I am saying is you won't have car-
riers like me that will handle them anymore. I mean, we will get
out of the business.
Mr. Rahall. Okay, I understand that, but you are saying that
you will go out of business if Section 211 is passed as it is. Again,
if the other choice is that all motor carriers would be deregulated,
would you still go out of business?
Mr. Booze. It is probably 80, 20, yes.
Mr. Rahall. Do other panelists wish to respond?
Mr. Harkins. Martin, go ahead.
Mr. Foley. I was hoping that this cup might pass.
Mr. Harkins. You want me to take it?
Mr. Foley. NMFTA's policy is to oppose regulation at the Fed-
eral level and intrastate level, whether it is preempted by the Fed-
eral Government or what. That is current policy, which I have ex-
pressed to you.
I have also expressed the members' views that if you have to
pass something, then tighten up the exemption to extend only to
the area which started the problem to begin with, namely, the
transportation over ground of air shipments of a very small size.
I realize that doesn't address the question you asked.
I feel like the witness this morning, you are handing me a knife
or a gun. Our board will be meeting in just a couple of weeks. If
I could put you off for a couple of weeks, I can give you a definite
answer, but I suspect that given the choice that you have given me,
the board would very likely go toward the rational behavior of
working the best possible language into creating something that ev-
erybody can do in a State.
Mr. Rahall. We will let you pass on that one. We won't say what
grade you get, but we will let you pass.
Mr. Foley. I won't submit anything for the record either.
Mr. Harkins. Somehow or other, I feel I just got passed a cup,
but that is fine. The Regular Common Carrier Conference at its
June meeting recently had the subject up and we discussed the
pros and cons of it.
At that particular point in time, the membership elected to stay
with our existing policy, which is in opposition to the nature and
scope of a 211-type provision. However, we have since written out
and we have not gotten all of our responses yet from the carriers.
Given the action taken over on the Senate side, we thought it im-
portant to try and get a second opinion, so to speak, with cir-
cumstances the way they are.
While I don't have all the answers, I feel confident to say to you,
Mr. Chairman, that our carriers would be supportive of a program
where they would be treated fairly vis-a-vis all of their other com-
petitors and a program that would produce a greater freedom of
entry and a greater flexibility of rate-making with a retention of
the essential regulatory structure within the States in a way that
it would be compatible with the existing Federal-type structure.
In other words, it would retain for the benefit of the standard
business dealings of carriers on a day-to-day basis those elements
of the regulatory process that are positive and procompetitive, but
at the same time, it would be a program that would produce an
167
opening up of entry within the States, and essentially total flexibil-
ity amongst carriers with regard to rate-making functions.
Mr. Rahall. You get a higher passing grade.
Mr. Seims. Mr. Chairman, I think those of us in the other Wash-
ington would also certainly look at something in the way of deregu-
lation, but I think it is going to have to be thought out very care-
fully and studied very carefully. I think the way Section 211 has
taken place is a horrible mistake.
I fear, however, that any sort of deregulation of intrastate traffic
in the State of Washington, as Ken has said from Oregon, is going
to have some very adverse impact on carriers.
Washington, like Oregon, has a eastern part of the State that
has a population that is spread out over some distance, and I fear
that having a carrier available that is going to service those com-
munities is just not going to exist because it is not going to be com-
pensatory.
But I think that anything we do at any State level, if it is going
to happen, it better be handled very, very carefully and with some
input from those people that are going to certainly be affected.
Mr. Hopper. Mr. Chairman, real briefly, if those were the only
two choices that we were faced with, I don't think the majority of
our members would say they could live with either one of them. I
think they would think they would be harmed by either one of
those choices, so we would urge the committee to take a look at giv-
ing some other options other than those two.
Mr. Rahall. Would your members say they would be harmed
equally by either choice?
Mr. Hopper. I think many of them would say they would be
harmed equally by either one of those choices.
Mr. Rahall. The gentleman from Arkansas?
Mr. Hutchinson. Mr. Chairman, you asked the very question
that I would have asked. I think I will pass.
Mr. Rahall. Chairman Mineta.
The Chair. I am sorry I wasn't here for the testimony, and I am
trying to look through some of the testimony, but I was just won-
dering, to the extent that since you feel that this is to the det-
riment of the smaller intrastate carriers, I take it, is there any way
to repair that? How can we broaden this to include smaller intra-
state carriers?
You used the phrase "essential regulatory provisions," Mr. Har-
kins. What is it that we could do in order to protect them?
Mr. Harkins. That is a wide open opportunity for me.
The Chair. Other than staying where we are at present law or
rolling back Section 211 to just being Federal Express, UPS, and
I guess RPS.
Mr. Harkins. I appreciate the question, Mr. Chairman. I was
just having a little fun with myself, I guess.
I really think that you have got to essentially toss 211 out be-
cause it carries too much negative luggage with it and rewrite a
whole new set of provisions which would essentially be what I
would, in thumbnail sketch, describe as sort of a codification for
the States of the existing type of Federal regulatory process that
we have and treat all of the carriers in the same way so that you
would have, as I said, freer entry, you would have all the rate flexi-
168
bility the carriers felt they needed, and you would also then be able
to retain the regulatory structure that so many people this morning
spoke about that the industry was hoping to retain, including anti-
trust immunity for interline rate-making, antitrust immunity for
certain rate-making for those carriers that need it; standard matter
such as credit regulations, et cetera, and so on, and so forth.
You could keep all of those regulatory matters in the State struc-
ture, have them compatible with the existing Federal structure,
which I don't think anybody has a problem with, and simply write
the legislation so as to open up entry and make the rate flexibility
of a level that would respond to the market as opposed to a regu-
latory process. And included in that, you could also deal with the
matters that are under consideration now, such as mentioned by a
few of the motor carrier individuals here earlier today dealing with
whether or not you want to file tariffs.
I think we are all very happy that the negotiated rate and under-
charge problem has been solved and we don't ever want to see any-
thing like that to happen again. So I think that the matter of indi-
vidual tariffs not having to be filed but posted, and whatever collec-
tively made tariffs would continue to be made under the antitrust
immunity could be filed (and that would probably be less than 100
tariffs on a Federal level and very few tariffs with regard to each
State), and have that regulatory structure remain in place as a
positive element of a competitive market that needs to know price
information.
So I think that my opinion is that 211 as it is written right now
has too many problems with it, and many problems that I think we
have not even seen yet but would crop up later on so that a re-
write, giving specific language as to what you want to accomplish,
is a much better route.
Mr. FOLEY. Could I just follow up to that response, Mr. Chair-
man?
I indicated that MNFTA is not opposed to regulatory reform, but
it feels that it is essential that there be a more orderly and perhaps
a little more timely, time-consuming for that matter, study and ap-
proach to what ought to be the best regulatory program for a State,
and I think Jim has indicated that.
It is basically underway on the Senate side in the form of Sen-
ator Exon's bill, Senate Bill 2275, which outlines some general
plans, and I think it was Mr. Clowe from Roadway Services who
expanded on some suggestions to amend or to improve that general
proposition, and it is that kind of undertaking that we would be
very happy to participate in, a lot with Jim, and I am sure a lot
of the other witnesses, to come up with the best possible vehicle for
revising to whatever extent the Congress thinks is necessary, the
intrastate regulation of trucking.
The Chair. And that is the study of the— the TRB study that you
are suggesting? Was it your testimony that I saw something
about
Mr. Harkins. That was our joint testimony, Mr. Chairman, yes.
The Chair. In reference to a 18-month cost-benefit study on
the — on Section 211?
Mr. Harkins. Correct.
169
The Chair. Let me ask, are there any provisions in Section 211,
Mr. Booze, Mr. Clark, or Mr. Seims, that you would be able to
qualify under in terms of this, whatever, this 15,000 times provi-
sion, or qualify as a freight forwarder? Is there anything you could
do under Section 211 to fit into one of those provisions?
Mr. Booze. Well, I think there is — I have heard someone say
that for $4,200, you mail 15,000 envelopes and you are deregulated
basically. But I am a regulated carrier and I also handle about half
of my business as interstate business going to those same commu-
nities out there.
I think if you wanted to take the bill in its present form, to get
back to the question you asked, and find a way that it wouldn't
hurt me as a small LTL carrier, and at the same time, do its thing
for UPS and Federal Express, I would make it a small package bill.
That would have virtually no effect on me. I would still be in the
LTL trucking business.
The Chair. That would be, what, 50 pounds?
Mr. Booze. Fifty, whatever a guy can — didn't you say, something
you can carry under your arm? See, they use different types of
equipment than we do. We use straight trucks with lift gates be-
cause we have to deliver a refrigerator or something. I don't think
they are interested in that type of business, but at the same time,
there is nothing to stop them from opening up regular LTL oper-
ations in the State of Oregon.
The Chair. As I recall, when I was trying to float a compromise
in the 103rd Congress, I think I used 150 pounds, and they said
anything over — I think it was Fed Ex that said anything over 100
pounds, they would have to set up a two-tiered trucking system.
Mr. Booze. Right, that is correct. So give them what they want
under 100 pounds and it wouldn't really have that much of an ef-
fect. It wouldn't throw the whole transportation LTL community
upside down right now.
The Chair. Thank you very much.
Thank you, Mr. Chairman.
Mr. Rahall. Gentlemen, thank you very much for your patience
in being with us all day as you have been.
Well, who is left?
Everybody who is left can be on the last panel. We have had sev-
eral that have had to leave and so they are submitting their testi-
mony, which will be made part of the record. I will name the final
witnesses who will be on this last panel; we are combining num-
bers 10 and 11.
Mr. Edward M. Emmett, President, National Industrial Trans-
portation League, from Arlington, Virginia; Mr. F. Sheridan Garri-
son, Chairman, President, CEO, American Freightways Corpora-
tion, Harrison, Arkansas, on behalf of the Americans for Safe and
Competitive Trucking, Washington, DC; Mr. Norm Langberg of
Georgia Pacific had to leave. His statement will be made a part of
the record on behalf of the National Association of Manufacturers.
Mr. Fred Kaiser of Kerrville Bus Company, Kerrville, Texas, on
behalf of the American Bus Association, had to leave. His state-
ment will be made a part of the record.
Also on this panel, Mr. Lawrence J. Day — is he still here? No.
He had to leave. His statement will be made part of the record. He
170
is Vice President, Government and Legal Affairs Committee, Mes-
senger Courier Association of the Americas, McLean, Virginia.
And Mr. Rick Schweitzer had to leave; he is with Zuckert, Scoutt
and Rasenberger, Washington, DC, on behalf of the National Pri-
vate Truck Council, Alexandria, Virginia. He had to leave and so
his statement will be made part of the record also.
To introduce his constituent on this last panel, the Chair recog-
nizes the gentleman from Arkansas, Representative Hutchinson.
Mr. Hutchinson. Thank you, Mr. Chairman, and I am honored
to make this introduction, and I want to welcome Mr. Sheridan
Garrison to our subcommittee. And first of all, compliment you and
commend you for your endurance and your patience today and for
staying for this last panel.
And, Mr. Chairman, you mentioned several of the accomplish-
ments of Mr. Garrison and I will simply add that he represents, I
think, one of our great companies in Arkansas. He is one of the
great success stories, and American Freightways has been a great
corporate citizen in my State. They are involved in, I think, 14 dif-
ferent States and doing a marvelous job.
He today is representing the Americans for Safe and Competitive
Trucking. I might add also, Mr. Chairman, that he hails from Har-
rison, Arkansas, which is the home of long time raking Member
and our colleague and former Representative, John Paul Hammer-
smith.
And so, we are delighted to have you and thank you for being
here.
TESTIMONY OF F. SHERIDAN GARRISON, CHAIRMAN, PRESI-
DENT AND CEO, AMERICAN FREIGHTWAYS CORPORATION,
HARRISON, AR, ON BEHALF OF: AMERICANS FOR SAFE AND
COMPETITIVE TRUCKING; AND EDWARD M. EMMETT, PRESI-
DENT, NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE,
ARLINGTON, VA
Mr. Garrison. Thank you, Congressman Hutchinson.
Mr. Chairman, distinguished Members of the committee, I am
just glad to be here. It may be late, but I am still glad to be here.
I serve as Chairman, President and CEO of American
Freightways Corporation, which is a regional and interregional,
less-than-truckload carrier serving in interstate commerce, all
points, in 14 States located in the Midwestern, Southeastern, and
Southwestern regions of the United States, and serving in intra-
state commerce, all points, in Arkansas, Kansas and Louisiana.
And when I say "all points," I mean just that. If we can get a
tractor and trailer to it, we serve it, no matter how small the com-
munity, no matter how small the customer. American Freightways
is a publicly held company, headquartered in Harrison, Arkansas.
I am also a member of the Steering Committee of the Americans
for Safe and Competitive Trucking, ASCT.
Mr. Garrison. ACST supports all efforts that would lead to total
economic deregulation for motor carriers. We support the action by
the Senate in S. 1491, Section 211, the Federal Aviation Authoriza-
tion Act of 1994, that would be regulate all modal air cargo car-
riers.
171
We believe that 211 is a step in the right direction. But we must
recognize that we now have a unique opportunity to pass legisla-
tion to do away totally with all intrastate economic barriers for all
motor carriers, not just those covered by that legislation.
We believe truckload and less-than-truckload carriers with no air
freight forwarding operations, private carriers, most owner-opera-
tors, and other small carriers are currently shut out by the Senate
bill.
The argument is made by these segments of the trucking indus-
try that — I am sorry, the argument is made that these segments
that I just mentioned of the trucking industry can become air
freight forwarders. The trouble is there are no guarantees this can
happen, and even if it does, it will most surely be at the expense
of tremendous amounts of time and dollars attempting to satisfy
the requirements of different States while those carriers favored
initially by coverage under Section 211 of the Senate business
make off with the freight.
A DOT official here this morning testified that passage of 211
with respect to air forwarders at least would have to be tested in
court and lawyers would be busy for quite a while.
Having commented about the obvious inequities created by the
special legislation 211, I believe it is time to move to a broader per-
spective. The real issue of deregulation of intrastate traffic is not
about whose ox is being gored; it is about extending to all United
States citizens a better standard of living, versus protecting the
status quo for a chosen few. It is about efficiency versus waste. It
is about a more productive United States that can successfully
compete in the international economy. It is about jobs, good jobs at
home rather than abroad.
It is about the right of our citizens to start a business. Without
freedom of entry, that right is denied. The fight against intrastate
deregulation has come from those within the trucking industry who
already possess intrastate operating authority and want protection
from the competition.
They say regulation benefits their citizens, assuring service to
small towns, protecting small shippers and small carriers. The fact
is that under 14 years of interstate deregulation, service to small
towns and small shippers has been enhanced.
As for protection of carriers from competition, I know nothing
about the trucking industry that makes it unique and deserving of
protection from competition.
I can make a better case for a motor carrier to be protected from
itself. Certainly many small carriers are succeeding better than
their larger counterparts.
Protection creates a safety net which results in a cost-plus pric-
ing scheme, in turn resulting in higher costs to the consuming pub-
lic as well as industry. For a better standard of living and a better
chance to compete successfully in a global economy, we have to
wipe out the safety net at home. At home includes the States.
This can only happen through Federal legislation. The States are
just too vulnerable to pressure from the favored few who hold
intrastate operating authority.
It is difficult to comprehend why intrastate traffic deserves dif-
ferent treatment than interstate traffic. We are talking about the
172
same shippers, same products, same communities, same carriers,
same trucks, same drivers, and yes, same citizens.
I have been in this business 35 years. I operated interstate and
intrastate 24 years. I sold that business in 1979 partly because of
economic regulation and the substantial resources consumed, fight-
ing to obtain operating authority with which I could compete.
After interstate deregulation occurred, I started from scratch a
new carrier in 1982, the one I represent here today. I tell from you
my own experience and not from theory that those two operations
are as different as day and night. It is a lot more challenging but
more fun and rewarding to compete for business as we do today.
Sure, I want the chance to compete for more intrastate business.
Competition is as American as our American flag itself. But what
I want is not so important. I am not very experienced in getting
everything I want.
But what is important is what is best for the citizens of this
country. I think I have the background to predict that total eco-
nomic deregulation of intrastate motor carriers will result in a
more efficient national transportation system, to the ultimate bene-
fit of the vast majority of our citizens.
That is reason enough for me to be here tonight. I started out
today. That is reason enough to be here tonight to testify in sup-
port of Section 211 of Senate 1491, and its broadening to include
coverage of all motor carriers, large and small, private, common
and contract, express or not.
I appreciate your attention and I will be glad to answer your
questions.
Mr. Rahall. Thank you.
Mr. Emmett. Good evening, Mr. Chairman. Thank you very
much.
I appear this evening, very briefly, representing the National In-
dustrial Transportation League. We are here to discuss Section
211, but I must tell you I feel like I came into a time warp from
my days in the Texas legislature, when we were debating whether
or not to allow UPS to provide service intrastate in the State of
Texas. Texas was the last to do that. All these arguments came up.
Gee, rural communities will be left out. It turns out rural commu-
nities were the ones that wanted UPS the most because that would
give them some competition. Somehow safety is going to be hurt if
you in any way allow this competition.
Well, we don't regulate restaurants economically in order to
make sure that the food is safe. We do that through safety. So all
of those arguments we have gone over.
I chuckled a little bit today when one witness at one point said,
Big companies will run little guys out and then said small, shoe-
string operations will be able to undercut the big guys. I don't
know which one is right, but I don't really think we were here
today to discuss economic deregulation generally. The question is,
why Section 211 and why now?
And if I could address that just very briefly, the Interstate Com-
merce Commission has defined interstate commerce on several oc-
casions, and that is any movement that starts in one State and
goes to another State, no matter if it changes modes and even goes
173
into a warehouse. The Federal courts have consistently upheld that
ruling.
The State of Texas, my home State, the Railroad Commission
consistently threatened shippers and carriers if they tried to abide
by that Federal ruling. It is very much like the Civil Rights Act
was in the 1960s. It is going to take Federal action to be sure that
interstate commerce is protected.
That ultimately is what Section 211 is all about. Chairman Mi-
neta I think very aptly described it. It started out this small and
then somebody was just outside of the circle and you can keep ex-
panding it.
And I certainly don't begrudge you having to decide where to
stop drawing the circle. I think it would be the preference of the
shippers clearly to go ahead and complete the economic deregula-
tion task across the board and be done with it. Otherwise, we will
be back doing this over and over and over again.
And that concludes my statement. Thank you, Mr. Chairman.
Mr. Rahall. Thank you.
At this point in the record, I would like to submit a statement
by the Partial Shippers Association in opposition to Section 211,
and a statement by Current Incorporated, a direct marketing com-
pany, also in opposition.
In addition, I am submitting a letter to the Chair dated June 30,
1993, from the American Movers Conference, in which they support
continued intrastate regulation of household goods and movers, and
statements by Frito-Lay, the Truck Renting and Leasing Associa-
tion, Inc., Greyhound Lines, Inc., Public Citizen and Teamsters
Local No. 162.
[Please see additions to the record.]
Mr. Rahall. Gentlemen, I have no specific questions for you. I
appreciate your testimony. We have discussed this on a number of
occasions and I understand your position quite clearly. And it will
certainly be a part of our record as we go into deliberation with the
Senate on this.
Mr. Hutchinson.
Mr. Hutchinson. Thank you, Mr. Chairman. I have just a couple
of closing questions. I will be brief.
Mr. Garrison, you addressed, as well as Mr. Emmett, in your tes-
timony the issue about serving smaller communities, and that they
really are not going to be negatively impacted or it is your belief
they will not. Can you expand a little bit on intrastate deregula-
tion?
What kind of assurances are there, in your experience at least,
that they are not going to be hurt in those smaller communities?
Mr. Garrison. I believe actually that deregulation has resulted
in an increased importance of the small shipper, carriers being
competitive and seeking additional tonnage and traffic and what-
ever, and to give the small shippers rates that are competitive with
the large shippers. In our own case, we serve all points in all 14
States.
I can just, if I may for just a moment, we prepared testimony for
the State of Texas in 1992, just to give you an example. We served
towns in the State of Texas with populations of 14, populations not
174
large enough to be listed on the State, populations of 100, 140, 135,
80, 65, and so on.
Let me tell you very candidly and in all honesty, we serve every
point we can get a tractor trailer to. We think that is a benefit to
deregulation. We don't buy the argument at all that service to
small shippers and small towns will diminish under this legisla-
tion.
Mr. Emmett. There have been numerous studies certainly at the
Interstate Commerce Commission of interstate once it was deregu-
lated. There has been no evidence of diminishment of service to
small communities. In fact, it has been enhanced. Specifically in
Florida, there have been studies there, and there is no lessening
of service to small communities.
Mr. Garrison. If I may, Mr. Hutchison, expand on that one more
moment, what we found is in intrastate carriage generally the car-
riers tend to divide up geographically the State. Maybe that is the
way they started, but that has been the impact of it. We opened
all points in Texas in 1987, in interstate commerce only, and we
were the first carrier to serve all points in Texas in LTL service,
less the truckload service, in spite of the fact that we were compet-
ing with carriers that had been in business in Texas for 60-odd
years.
So there is nothing unique about serving small communities.
Mr. Hutchinson. One last question. If 211 were left as is, there
are those who today have argued that a few basic steps in virtually
every trucking company could become an air freight forwarder.
What kind of changes do we need in 211 in order to really
Mr. Garrison. I don't really think we know yet, as the DOT offi-
cial this morning testified. There will be a transition period during
which, to paraphrase, there will be a lot of lawyers kept quite busy.
Mr. Hutchinson. So the simple thing would be to go ahead and
broaden it, deregulate it and clarify now?
Mr. Garrison. Yes. You are leading the witness, but that would
be the simple thing to do.
Mr. Hutchinson. I am leading my constituent.
Thank you, Mr. Chairman. That is all I have.
Mr. Garrison. Mr. Chairman, may I mention the fact that since
preparing these statements I was contacted by the Arkansas Motor
Carriers Association, of which I am a member of its board of direc-
tors, and the association asked me to represent them here today or
tonight, and present their views, which would run parallel to my
views.
Thank you very kindly for the opportunity to be here.
Mr. Rahall. Thank you very much.
That concludes today's hearing. Stay tuned for further action.
The subcommittee stands adjourned.
[Whereupon, at 8:05 p.m., the subcommittee was adjourned.!
PREPARED STATEMENTS SUBMITTED BY WITNESSES
UNITED STATES HOUSE OF REPRESENTATIVES
PUBLIC WORKS AND
TRANSPORTATION COMMITTEE
TESTIMONY OF
THE HONORABLE KEITH BISSELL
COMMISSIONER
TENNESSEE PUBLIC SERVICE COMMISSION
ON BEHALF OF
THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS
1102 INTERSTATE COMMERCE COMMISSION BUILDING
TWELFTH STREET AND CONSTITUTION AVENUE, N.W.
POST OFFICE BOX 684, WASHINGTON, D.C. 20044-0684
TELEPHONE (202) 898-2200
FAX (202) 898-2213
ON
S. 1491
THE AIRPORT AND AIRWAY IMPROVEMENT ACT OF 1994
JULY 20, 1994
(175)
176
I . INTRODUCTION
My name is Keith Bissel. I am a Commissioner with the
Tennessee Public Service Commission and am currently President of
HARUC, the National Association of Regulatory Utility
Commissioners. The NARUC is a quasi-governmental nonprofit
organization founded in 1889. Members include the governmental
bodies engaged in the regulation of carriers and utilities in all
fifty states, the District of Columbia, Puerto Rico, and the Virgin
Islands. The NARUC' s mission is to improve the quality and
effectiveness of state public utility regulation in America. Most
of NARUC 's members administer trucking regulatory programs under
state laws which are patterned after the Interstate Commerce Act.
II. SUMMARY COMMENTS ON SECTION 211
The members of NARUC appreciate the opportunity to appear
before you today to present the views of the state regulatory
community regarding the Section 211 provision of the Airport
Improvement Program bill (S. 1491). The intent of this amendment
is to allow large motor carriers associated with air cargo
companies to escape state regulatory laws. The justification for
such an unfair bill to benefit the largest trucking companies in
the nation at the expense of small carriers is hard to fathom under
the best of circumstances. However, 211 is so broadly written that
it effectively deregulates virtually all intrastate motor carrier
freight transportation. Indeed, the recent attention to defunding
the Interstate Commerce Commission, along with the Section 211
provision, has converted this amendment into a debate on whether to
totally deregulate trucking in America, at both the state and
federal levels.
The NARUC opposes the Section 211 provision in the strongest
possible terms. What started out as an airport improvement bill
was suddenly and almost surreptitiously converted into a vehicle to
abolish state trucking regulation. Coming on the heels of the
House vote on the ICC's budget, we believe Congress is now being
stampeded into making a decision that will have a profoundly
177
negative effect on the transportation system of this country.
Special interests are pressuring Congress to terminate a regulatory
structure that has been in existence since the 1930 's, and to do so
with totally inadequate consideration of the consequences that
decision will have for tens of thousands of companies and hundreds
of thousands of Americans.
Section 211 is not only bad legislation, it is so poorly
drafted as to qualify as remarkably bad legislation. Congress
should delete this provision from the airport bill and subsequently
address the many complex issues it raises with the thoughtful
attention they deserve. There is no reason Congress must deal with
this matter in such a hurried fashion.
Indeed, the chorus of calls for state preemption consists of
an abundance of cliches (e.g., "unfettering the shackles of state
regulation", "patchwork quilt of regulation", etc. ad nauseam) and
a shortage of facts. Congress has rarely been assaulted by so many
tired pejoratives, expressed with such shrillness, intended to mask
the lack of substance of their underlying arguments.
Congress should resist these pressure tactics and, for the
time being, maintain the current regulatory system. Later,
adequate time can be devoted to a thoughtful consideration of the
many complex issues which regulatory reform raises. NARUC agrees
that a review of state and federal regulation is needed and that a
greater harmony can be achieved. However, taking a meat axe to
current regulatory law is a grossly inappropriate response to
whatever problems this legislation is intended to address. And the
manner in which this provision has found its way to a Conference
Committee vote raises the public's level of cynicism about the
fairness and openness of the legislative process.
III. SPECIFIC REASONS 211 IS BAD LEGISLATION
Section 211 is a total deregulation bill which goes even
farther than the interstate "regulatory reform" of the 1980s. The
chaos which resulted from that administrative adventure is
something the states do not want to have imposed on them by
85-090 95-7
178
Congressional mandate.
1. Deregulation will jeopardize thousands of small and medium
sized trucking firms throughout the country. They will be
bankrupted by the frenzy of new competitors cherry picking the
traffic existing carriers rely on for survival. The result will be
the layoff of thousands of people, which is exactly what happened
at the interstate level during the 1980s. The Illinois Commerce
Commission (ILCC) estimates that 51,000 people may lose their jobs
in Illinois alone.
2. The surge in bankruptcies will corrode the margin of
safety for truckers and the motoring public which shares the road
with them. Deregulation will erode safety, notwithstanding
specious assertions that the link between safety and regulation
cannot be proven. It is counterintuitive to think that carriers
can be driven into insolvency while their expenditures for costly
safety investments remain unaffected.
3. With deregulation rural areas and small volume shippers
will experience a degradation of service and higher prices, thus
threatening their ability to profitably participate in the emerging
global economy. Rural service was thought to "improve" for a while
after interstate deregulation because a wave of new market-hungry
interstate operators flooded the intrastate market. But these
carriers merely supplemented the service already provided by state
licensed intrastate carriers. Rural service is generally
unprofitable because traffic volumes are low and there are few
backhaul opportunities to generate compensating revenues. Service
to rural areas deteriorated when other modes of transportation were
deregulated, despite assurances to Congress by deregulation
advocates that it would not happen. The same will inevitably occur
if trucking is deregulated.
4. With deregulation, publicly disclosed rates and services,
nondiscriminatory practices, and consumer protection will be
replaced by secrecy, discriminatory pricing practices, unethical
behavior, and outright consumer abuse. Under deregulation large
179
shippers have the market power to exact superconpetitive rates and
terns which their smaller competitors cannot get. Under a
regulatory program, large shippers already receive volume
discounts, i.e., lower per unit rates for larger tenders of
freight. These lower charges are justified on the basis of cost.
There is no justification for additional secret rebates, and still
lower per unit rates for large shippers merely because of their
market dominance.
5. Federal preemption of long-standing state programs is
totally inappropriate. If some parties believe a particular
state's program is burdensome in some fashion, they are free to
petition the state legislature for amendment to the law. Further,
the deregulation experiment its proponents have deemed such a
success has not persuaded many state legislatures. The thousands
of bankruptcies, layoffs of tens of thousands of people, safety
deterioration, discriminatory, unethical, and often fraudulent
practices, and the national undercharge fiasco, were all the
consequences of federal deregulatory actions. Few of those
problems occurred at the intrastate level because states restrained
the urge to embark on deregulatory adventures.
For Congress to now punish the states for successfully
administering their programs; to abolish state programs and reserve
residual jurisdiction for a troubled federal bureaucracy which
caused many of the problems in the first place; to do so in
panicked haste and with no forethought; and to justify it all based
on evidence which is shoddy at best and patently ridiculous at
worst, throws federalism out the window.
IV. CLAIMS ABOUT REGULATORY COSTS AND DEREGULATORY BENEFITS
Congress should view the wildly exaggerated claims about
the alleged costs of state regulation, and supposed benefits of
deregulation, with disbelief. While the states admire the
creativity and imagination which deregulation proponents have used
to concoct their "estimates", their results are so far beyond
reality's pale as to defy credulity. Many of these estimates
180
exceed by several multiples the total gross revenues of all state
licensed trucking companies! Evidently the hope is that their
numbers will gain credibility through repetition. Congress should
ignore these exercises in hyperbole.
Past congressional hearings on the subject of the effects of
transportation deregulation are instructive. The states argue that
deregulation will result in a great reduction in service to rural
communities. Advocates of deregulation argue just the opposite.
What has happened in the past?
Congress should review the experience of bus deregulation
when it is told truck, deregulation will not result in deterioration
of service to rural areas. Fourteen years after intercity bus
deregulation, studies have shown that service to small communities
has declined, while prices have increased (see Dempsey, Running PP.
Emptv: Trucking Deregulation and Economic Theory (1990M .
Deregulation of other modes of transport has similarly resulted in
reductions in service to small communities, despite predictions to
the contrary made by champions of "regulatory reform." Testimony
by proponents of the Bus Regulatory Reform Act of 1982 (BRRA) , at
the hearings before the Surface Transportation Subcommittee, which
prognosticated improved service to small communities, should be
compared with subsequent reality.
For example, at the 1981 hearings Mr. Cornish Hitchcock,
representing the Transportation Consumer Action Project, blamed
I.C.C. regulation for the facts that in the decade prior to 1981
1,800 communities had lost bus service, and that rural customers
paid higher than average fares. Because there are no economies of
scale in the intercity bus industry, he argued, lots of smaller,
efficient bus companies would spring up to provide service over
routes abandoned by formerly regulated carriers. Also, he said "it
should be noted that the bus industry, unlike the airline industry,
should find it easier to provide service to rural communities.
Airlines can avoid serving a city by flying over the community; a
bus company, by contrast, is likely to travel through many
181
communities, and new service can often be provided simply by
stopping at an intersection and opening the door. The marginal
cost of serving an extra point in this fashion should be quite
low."
These naive or self-serving statements should be compared to
the reality of bus deregulation in the twelve years since the
adoption of the BRRA. What followed, according to the U.S. General
Accounting Office (GAO) , was "a wave of abandonments ... as intercity
carriers, no longer hindered by state regulations, eliminated
unprofitable routes and stops." ( Surface Transportation:
Availability of Intercity Bus Service Continues to Decline (1992).
Although the number of locations served by intercity busses had
been declining for years prior to the BRRA, state regulation made
it difficult for carriers to abandon entire routes. After state
regulation was preempted, however, the rout was on. By 1991,
according to the GAO, an estimated 52% decline in the number of
locations served occurred, predominantly locations with populations
of less than 10,000. As of November, 1991 the GAO estimates 5,690
locations served, down from 11,820 in 1982.
Despite the rosy predictions of the advocates of regulatory
reform, ten years after the BRRA, the GAO was able to conclude not
only n[r]egulatory relief for the intercity bus industry in 1982
did not revitalize the industry nor stem the long-term decline in
regular route bus service," but also that the effects of the
decline were felt most heavily in rural areas and by those with the
least access to transportation alternatives.
Many factors in addition to deregulation have contributed to
the decline of the intercity bus industry in this country.
However, with regard to rural America, deregulation of buses,
railroads, air carriers, and interstate trucking have all taken
their toll. There is every reason to believe that deregulation of
intrastate trucking will only serve to further isolate small
communities, increasing the outmigration of jobs and investment to
larger urban areas. Our federal system should allow states to
fashion policies designed to protect the economic viability of
182
rural areas, and trucking regulation is an important part of any
such policy determinations.
Clearly, Congress should view the optimistic predictions of
life under deregulation with healthy skepticism.
V. SECTION 211 REVIEWED
Section 211 preempts any state, or political subdivision
thereof, from regulating the rates, routes or services of a
particular class of motor carriers. It is the possible breadth of
that particular class of motor carriers which makes the bill, in
effect, the vehicle for virtually total preemption of state
regulation of intrastate motor carriers.
On its face, this bill would preempt only the motor carrier
activities of an "Intermodal all-cargo air carrier," defined in
the bill as one of two types of carriers. In the first definition,
such a carrier is "an air carrier (including an indirect cargo air
carrier, as defined in section 296.3 of title 14, Code of Federal
Regulations..." when transporting property, pieces, parcels, or
packages between States or wholly within any State by aircraft or
by motor vehicle (whether or not such property has had or will have
a prior or subsequent air movement) .
An argument has been offered by the American Trucking
Associations (ATA) that, under this definition, any motor carrier
of property would qualify for the exemption by claiming to be an
air freight forwarder. While the definition of an indirect cargo
air carrier certainly includes the activities of a traditional air
freight forwarder, it would be ridiculous to suggest that any
carrier could assert to being an air freight forwarder.
Notwithstanding the fact that air freight forwarders have not been
licensed since 1986, thereby precluding any "official" recognition
of the title, it is inconceivable that such a definition would be
broader than that of an indirect cargo air carrier.
Section 296.3 of title 14, Code of Federal Regulations defines
an "indirect cargo air carrier" as
"...any U.S. citizen who undertakes to engage indirectly
183
in air transportation of property, and uses for the whole
or any part of such transportation the services of an air
carrier or a foreign air carrier that directly engages in
the operation of aircraft under a certificate,
regulation, order, or permit issued by the Department of
Transportation or the Civil Aeronautics Board, or the
services of its agent, or of another indirect cargo air
carrier" .
Simply claiming to be an air freight forwarder does not make
one an indirect cargo air carrier, which by definition, requires
some action, albeit limited, to actually move something by air. It
is hard to imagine a sand, rock, and gravel hauler moving anything
by air.
Notwithstanding the above, however, the fact that the ATA has
raised this issue would indicate that litigation could be
anticipated concerning the interpretation of this part of the bill.
Such litigation would be expected to be a lengthy process with no
assurances that the courts would agree with the states.
In the bill's second definition, an Intermodal all-cargo air
carrier means any other carrier which "....(I) is affiliated with
an air carrier described in subparagraph (A) through common
controlling ownership, or (II) utilizes as principal or as
shipper's agent, or is affiliated through common controlling
ownership with companies that utilize, an air carrier described in
subparagraph (A) at least 15,000 times annually..."
This definition is also open to interpretation. The phrase
which provides that such a carrier is also any other carrier which
"...utilizes ...an air carrier ...at least 15,000 times annually"
does not specifically require that such use be directly associated
with the movement of property in the course of the carrier's daily
transportation business. Therefore, this might suggest that if,
for example, an intrastate petroleum carrier sends 15,000 letters
by mail in the course of a year, it could qualify as an
"Intermodal all-cargo air carrier" and thereby be exempt from state
184
regulation.
If this were the case, for $4,350 per year, a carrier could
send 15,000 letters to unknown individuals in California and
satisfy the literal meaning of the definition of an Intermodal all-
cargo air carrier. It is absurd to believe that this is Congress'
intent.
Given the unknowns concerning the possible interpretations of
the bill, it is impossible to determine its effect on various
states. If, however, one was to accept the worse-case scenario,
the interpretation of the bill as a total elimination of intrastate
regulation, one could then expect the same disastrous effects on
the intrastate trucking industries and economies of the states as
have actually been documented on the Federal level since the
deregulation of interstate trucking in 1980.
VI. WHY NOT TOTAL DEREGULATION?
The inevitable question arises, even if Section 211 is a total
deregulation bill, what's wrong with that? Interstate deregulation
is said to be an unqualified success, so shouldn't more
deregulation lead to even more benefits?
After interstate deregulation, trucking, an industry which
had been characterized by uncommon stability, suffered financial
ruin. As Table 1 shows, bankruptcies have reached stunning
proportions since the Motor Carrier Act of 1980. Trucking failure
rates, including carriers which simply stopped operating as well as
those which declared bankruptcy, went from being virtually
identical to all industry generally, to a point ten years later
where they were 83% higher than industry generally. NARUC's state
members hardly consider these figures to be indicative of a
successful public policy, and clearly do not want their intrastate
trucking industries "reformed" in a like manner.
185
TABLE 1
All
Ratio
Trucking
Industry
Trucking
Failures
Failure
Rate To
Year
Number
Rate
Rate
All
Ind
1978
162
24.2
24
1.01
1979
186
27.2
28
0.97
1980
382
52.9
42
1.26
1981
610
81.2
61
1.33
1982
960
121.3
88
1.38
1983
1228
147.5
110
1.34
1984
1411
180.7
107
1.69
1985
1541
191.1
115
1.66
1986
1561
183.6
120
1.53
1987
1345
151.5
102
1.49
1988
1242
141.8
98
1.45
1989
1263
117.6
65
1.81
1990
1593
137.9
76
1.83
1991
2323
178.3
107
1.67
1992
2230
142.0
110
1.29
1993
1647
106.0
96
1.10
Source: Dun and Bradstreet
Further, interstate deregulation caused such a heightened
public concern for safety that Congress was compelled to pass the
Motor Carrier Safety Act of 1984, requiring state and federal
inspections of the many thousands of underfinanced interstate
trucking companies scratching out a living under the new federal
policy. The states reject the notion that Congress should impose
these same safety concerns on the states in an intrastate re-
creation of the 1980s.
10
186
/
VII. WHY DO STATES REGULATE TRUCKING IN THE FIRST PLACE?
To put state regulation into perspective, it is necessary to
understand why the states implemented regulatory programs in the
first place, and in fact, why Congress did the same for interstate
transportation.
The trucking industry has historically been viewed as one
which does not require a significant capital investment to initiate
operations. As stated by Professor D. Phillip Locklin, ("Economics
of Transportation" , Richard D. Irwin, Inc., Publisher, 7th Edition,
1982), in the absence of entry controls, "there is a tendency for
overcapacity to develop and persist . . . [that] ruinous type of
competition does develop; discrimination in rates does appear; ...
and the struggle for survival in the face of inadequate revenues
leads to the deterioration of safety standards, evasion of safety
regulations, financial irresponsibility, and generally
unsatisfactory service."
The experience of the 1980 's has confirmed the validity of
each of Professor Locklin's points. Non-compensatory rates which
plague a federally deregulated trucking industry not only lead to
eventual carrier bankruptcies, but have a repeated dire effect on
the safety of carrier operations. All too often, marginal carriers
have deferred maintenance with the consequence that unsafe
equipment is operated over the roads and ultimately involved in
serious accidents.
Prior to Congress' enactment of the Federal Motor Carrier
Act of 1935 considerable instability pervaded the industry. The
Interstate Commerce Act was designed to foster sound economic
conditions in the industry through appropriate controls on entry
(by the application of statutory standards including proof of
public convenience and necessity, financial and safety fitness,
etc.) regulation of carrier rates and charges, and the extension of
credit to shippers. Rate regulation was designed to ensure that
carrier pricing would be both just and reasonable as well as
compensatory. Congress intended that fostering such conditions in
the industry would operate to the benefit of shippers, and
11
187
ultimately this nation's consumers, by the continued availability
of reliable transportation services. State laws reflect the same
values .
However, the federal approach parted company with the states
beginning in 1980 when the Interstate Commerce Commission started
administering regulation under the rubric of the Motor Carrier Act,
and under that scheme, endeavored to deregulate the trucking
industry through administrative means. Its efforts met with
success. That is, the ICC became a mail order house for operating
authorities, allowed rates to be filed without serious oversight,
and continued to merely accept insurance filings. Accordingly,
there is little meaningful interstate trucking regulation left, and
it therefore is understandable why some in Congress believe the ICC
has worn out its welcome.
The states, however, while maintaining their basic regulatory
approach, implemented changes as local conditions warranted. This
has resulted in some variation in how these programs are
administered, but in our view, the states continue to be more
responsive to the public than is the federal government.
VIII. ATTACKS ON STATE REGULATION
Nevertheless, the state programs have been the subject of
continuous unfair criticism from advocates of deregulation.
Interest groups which would profit from deregulation have mounted
a continuous propaganda campaign, using periodicals such as the
Wall Street Journal, Business Week, and others as vehicles for
their messages.
We use the term "propaganda" in the paragraph above because
the content of these articles or editorials are almost universally
half-truths, or worse. When confronted with a challenge to prove
their accusations, these authors are almost never able to do so.
It appears many deregulation advocates have concluded that the
subject of regulation is so complex neither Congress nor the public
will understand it, therefore they can get by with fabrications
instead of facts in their writings.
12
188
The "study" that is most often referred to by deregulation
advocates is the U.S.D.O.T. study entitled "The Impact of State
Economic Regulation of Motor Carriage on Intrastate and Interstate
Commerce". This study purports to show that state regulation costs
the national economy $2.9 billion a year. Further analysis of this
study by several states as well as the National Regulatory Research
Institute (NRRI) has revealed serious flaws in the study's
methodology. Congress will be asked to accept the validity of
these numbers by deregulation proponents, however, careful review
of the U.S.D.O.T. study will reveal that its conclusions are
groundless.
IX. ETHICAL CONSIDERATIONS OF DEREGULATION
Federal deregulation has introduced an era of very
questionable ethical behavior in some parts of the transportation
world and this is yet another reason the states strongly oppose
preemption. Kickbacks, off-bill discounting, bribery and fraudulent
practices are ail-too frequent, as discussed in a very candid
article in the March, 1994 issue of Distribution Magazine. Several
quotes from that article illustrate the point:
"Off-discounting billing has caused so much distrust and
misunderstanding. The fact that the ICC has allowed such blatant
discount kickbacks under the guise of euphemistic terms (poses a
dilemma for) any thinking man with any stirring of ethical
thought." Jim Ordowey, Ordowey Frazar Cartage, Hartland,
Wisconsin.
"The best way to end under-the-counter payments would be to
prosecute those demanding those payments." Bernard Shesta,
Masters Gallery Foods, Plymouth, Wisconsin.
"Roll back tariff rates! With discounts of 45% to 65% and
above, it is obvious that rates have been overpriced for many
years. Small shippers have subsidized large-volume shippers (and
their numerous perks) for many years. Carriers should realize that
13
189
volume and profit do not go hand-in-hand. Let's provide an even
playing field for all shippers!" Diane Fisher, Bondline
Adhesives, Evansville, Indiana.
The Distribution Magazine article, entitled "Shame", citing a
survey of 400 transportation professionals, states that shippers
are frequently using their clout under deregulation to leverage
carriers into non-compensatory rates. The survey also revealed
shipper discomfort with the widespread practice of off-bill
discounting (where discounts are not shown on the freight bill,
thus allowing higher freight costs to be secretly passed on to
customers than were actually paid) . Shippers are also disturbed by
motor carrier kickbacks to traffic managers to secure freight.
Congress must understand that it is only through continued
enforcement of the filed rate doctrine that these abuses can be
controlled. Legislation to eliminate the filed rate doctrine is
totally inappropriate. As Congress learned in the undercharge
disaster, the filed rate doctrine must be enforced. Only the
states have the capability of enforcing it, which is yet another
reason federal preemption should be unthinkable.
X. WHAT SHOULD CONGRESS DO AT THIS POINT?
Besides tabling the Section 211 bill, the Congress should
direct the Interstate Commerce Commission to work cooperatively
with the states to craft a modernized regulatory system for the
balance of this century and into the next. During 1985 and 1986 a
NARUC Task Force conducted a dozen meetings across the country in
an attempt to design a uniform national approach to regulation. To
the states' chagrin, the ICC declined to participate or cooperate
with the states at that time. Now a new Commission, under its able
Chairman Gail McDonald, can play a constructive role in addressing
the real need to harmonize state and federal regulation.
Harmonization and cooperation should be the goal, not a nihilistic
destruction of regulation.
14
190
NARUC believes the following further steps are necessary to
restore some sense to the regulatory debate.
1. Congress should repeal the court mandated advantage
Federal Express has over United Parcel Service by clarifying that
the Airline Deregulation Act was never intended to deregulate
Federal Express' intrastate trucking operations.
2. Congress should table the Section 211 legislation and
address the question of regulatory reform in a more calm
atmosphere .
3. Congress should restore funding for Interstate Commerce
Commission motor carrier regulation or, as an alternative, delegate
this national responsibility to the states.
4. Congress should create a state/ federal/ industry working
group to evaluate what a modernized state-federal regulatory system
should consist of, and insist on recommendations within a year.
5. Congress should retain the Filed Rate Doctrine and promote
Electronic Tariff Filing of rates.
6. Congress should encourage the states to enforce, through
a program of on-site auditing, filed intrastate and interstate
motor carrier rates.
15
191
EASTERN OREGON FAST FREIGHT, INC AN OREGON COMPANY
Ken Booze, President
Eastern Oregon Fast Freight
P.O. Box 809 • Wilsonviite, OR 97070
(503) 682-0462
HOUSE PUBLIC WORKS SUBCOMMITTEE TESTIMONY:
SB 1491 and Deregulation of Intrastate Trucking
My name is Ken Booze and I am President of Eastern Oregon Fast Freight. I
also serve on the Board of Directors for the Oregon Trucking Associations. I am here
today on behalf of my colleagues who have asked me to represent our state's trucking
industry which is made up of 28-thousand carriers who provide good family-wage jobs
to nearly 89-thousand Oregonians.
My company employs 97 people and generates revenues of 5-million-dollars a
year. We serve the many widespread rjral communities and small towns of Central
and Eastern Oregon -- areas that have a tremendous stake in your deliberations here
today.
The current threat by Congress to preempt states' rights to regulate intrastate
trucking is of grave concern to my company, my colleagues and my customers for a
number of reasons, not the least of which is that we believe states must be able to
continue to regulate -- or not regulate -- the trucking industry as best suits their citizens'
particular needs.
The current deregulation proposal contained within Section 1 1 of Senate Bill
1491 will prove disastrous for small businesses and consumers. Let me explain some
of the key reasons why...
• Small towns and smaller shippers will become the victims of price
discrimination.
As a result of interstate deregulation, off-the-beaten path locations and smaller
shippers who have little clout with carriers now pay premium prices while larger
companies receive heavy discounts -- for the same service! With intrastate
deregulation, state regulatory agencies will no longer be able to ensure that all
trucking customers receive fair treatment. Small businesses, which employ almost 90
percent of our state's -- and our nation's -- workforce, will be competitively
disadvantaged as a result of being forced to subsidize large corporations' shipping
discounts.
• Currently-viable small trucking companies just like mine will be
plunged into bankruptcy, throwing tens of thousands of Americans out of
work.
interstate deregulation resulted in widespread trucking company failures. In
fact, motor carrier bankruptcies reached an all-time high of nearly 1,600 in 1990 alone.
The result was thousands of employees losing good, family-wage jobs. Intrastate
deregulation inevitably will result in predatory pricing by the largest carriers which will
drive thousands of small and medium-sized companies out of business, forcing tens of
thousands of Americans out of work. My company is one o' those who'd be forced to
shut its doors - and my 97 employees will lose their jobs.
192
Ken Booze
Eastern Oregon Fast Freight
Testimony - page 2
• Under deregulation, shoestring trucking operations will become
rampant and states won't be able to ensure that companies are
financially stable and safe.
Deregulation of intrastate trucking will destablize the marketplace Both the
shoestring operations intent on undercutting the competition - and the existing
companies that are plunged in financial distress due to that undercutting -- will have
fewer dollars to spend on safety and maintenance. Companies in dire financial straits
also are more inclined to speed and violate hours-of-service rules in order to stay
afloat financially. As a result, the motoring public will face increased danger on the
road. In fact, a 1991 GAO study revealed that trucking companies in the weakest
financial condition have the highest accidents rates of all trucking operations.
• Rural areas will no longer receive adequate shipping and delivery
of critical goods and services.
Two-thirds of Oregon's communities rely solely on trucking companies like mine
for delivery of their essential goods. With intrastate deregulation, our small towns that
are located outside of the more profitable freight corridors will lose crucial, cost-
effective delivery of these goods. The service that would remain to those areas would
cost far more, creating a financial hardship for residents, particularly for those in
already hard-hit, economically depressed communities. Current intrastate regulations
ensure that Oregon's rural regions receive reliable service at a fair price.
• States will lose the ability to protect their citizens who rely on the
trucking industry for safe, dependable shipping services at a reasonable
cost.
Each state has different needs regarding transportation services and it is only
appropriate for state legislators and other officials to have the right to tailor their
intrastate regulations based on what they deem to be in their citizen's best interests. In
Oregon in recent years, state legislators have debated the issue of economic
regulation three times, and all three times, they have reaffirmed their commitment to
maintaining regulation of intrastate trucking. They have determined that regulation is
in the best interest of all Oregonians.
###
In closing, the Oregon Trucking Associations Board of Directors and members
urge you to prevent federal preemption of intrastate trucking regulations. Otherwise,
the toll on our industry, our economy, our small towns and small businesses, and our
highways will be devastating. The price for all of us is simply too high to pay.
Thank you.
193
STATEMENT OF THE
INTERNATIONAL BROTHERHOOD OF TEAMSTERS
BY
RONALD J CAREY
GENERAL PRESIDENT
BEFORE THE
SURFACE TRANSPORTATION SUBCOMMITTEE
OF THE
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
UNITED STATES HOUSE OF REPRESENTATIVES
JULY 20, 1994
ON
THE PREEMPTION OF STATE MOTOR CARRIER LAWS
194
TESTIMONY ON SECTION 211
Good morning, Mr. Chairman and Members of the Subcommittee. I am Ron Carey, General
President of the 14 million member Teamsters Union
I am pleased to have this opportunity to testify on behalf of the more than half a million
Teamsters who work in the transportation industry, and the rest of our members, who like every
other American, are affected by the laws and regulations that govern surface transportation policy.
We represent over 160,000 UPS employees. Another 60,000 Teamster members work for the
"Big Three" Less-Than-Truckload (LTL) carriers - Roadway, Consolidated Freightways (CF) -:nd
Yellow Freight. These are the most powerful companies in the industry and the ones whose
management will benefit most from Section 211, along with nonunion companies like Federal
Express and Overnite. We also represent thousands of workers at smaller trucking companies
whose companies stand to lose the most from passage of Section 211
Trucking laws and regulations affect the price we pay for goods and services, the availability of
good paying jobs and the general health of our economy, and the safety of our families on our
nation's highways. It is critical that any change to these laws be thoroughly researched and
debated to ensure that the interests of all Americans are served.
The Teamsters strongly oppose Section 211. It is a patchwork transportation policy which will
benefit management at a few powerful companies, but will have serious consequences for the
American people.
We must not make national transportation policy through back room deals and amendments
hidden in little known pieces of legislation. Instead, we need a complete review of the impact
of transportation regulations and policies that have been in place the last 15 years.
We need a new set of progressive policies that meet the needs of everyone affected by surface
transportation: workers, carriers, shippers and the American people. The Teamsters are
committed to working with Congress to achieve this goal.
One road we might follow is contained in a recent study by Cornell University researcher Dr.
Michael Belzer.
Dr. Belzer's study provides a comprehensive review of the impact of trucking deregulation in the
1980s, and also provides insightful recommendations that can take our transportation policies into
the 21st century.
I have provided a copy of this study to the committee for your review, but allow me to quickly
summarize some of his recommendations.
Dr Belzer recommends that any new regulatory framework should minimize the burdens on all
195
trucking companies, while improving conditions for the millions of Americans who work in this
industry
This would include actions to protect the wages and employment security of the workforce,
modernizing hours-of-service rules to maximize safety for truck drivers and the public, and
strengthening collective bargaining in the industry.
These steps would help strengthen the entire American transportation system, instead of
consolidating the power and wealth of management and stockholders of a few large companies,
the way Section 211 will.
There will be few winners and many losers in the freight industry if Section 21 1 passes.
The top layer of management and stockholders at the largest companies will benefit. But
compare that tiny group of alleged winners with those who could lose with the passage of Section
211.
There is absolutely no evidence to show that American consumers will benefit from a plan like
Section 211 Earlier deregulation has not produced any direct benefits or lower costs to the
public.
Employees at the companies supporting Section 21 1 could also be losers. If 21 1 passes, these
companies will be able to further monopolize the market, and use this increased power to put
downward pressure on their workers' wages and working conditions under the guise of dealing
with cutthroat competition that they themselves establish
Their coordinated pressure against decent wages would affect hundreds of thousands of workers
and their families, and threaten their ability to be productive, tax-paying members of the
community.
Highway safety could also be a loser under Section 211.
The pressure from these transportation giants could force responsible small and mid-size
companies off the road, opening the door to less responsible operators.
The past 15 years of experience have shown that some operators sacrifice safety to cut costs by
poorly maintaining their vehicles, forcing their drivers to work long hours, and demanding that
their drivers carry overweight and dangerous loads.
Whenever companies have won deregulation in the past -- as we can see from the freight and
airline industry examples - the workers in those industries and the public have taken it on the
chin
196
In freight, real wages have gone down. More than 150,000 jobs with decent wages and benefits
have been lost. Hundreds of companies closed, while low-wage, low-benefit companies
expanded. The losses in wages to workers and taxes to our communities is estimated in the
billions of dollars.
That is the legacy of earlier deregulation That could be the legacy of Section 21 1 also
Ladies and gentlemen, Section 21 1 is bad for America.
Instead of being part of a comprehensive transportation policy assessment, it is a patchwork
policy delivered to you by a small number of wealthy corporate managers and shareholders who
are the only ones who will benefit from it.
Section 211 will produce losses across this country — whether it's unsafe highways, small
companies forced out of business by giant monopolies, or workers facing downward pressure on
their wages and working conditions.
The Teamsters want to work with you and your colleagues in the House and Senate to develop
a new transportation policy for our country. We urge you to reject Section 21 1 and instead to
move forward with a comprehensive plan for our transportation system for the 1990s and the next
century
Thank you.
197
BEFORE THE
HOUSE OF REPRESENTATIVES COMMITTEE ON
PUBLIC WORKS AND TRANSPORTATION
SUBCOMMITTEE ON SURFACE TRANSPORTATION
HEARINGS ON LEGISLATION TO PREEMPT STATE
MOTOR CARRIER REGULATIONS PERTAINING TC
RATES, ROUTES, AND SERVICES
STATEMENT OF
DARYL E. CLARK
VICE-PRESIDENT OF TRAFFIC
RUDOLPH EXPRESS CO.
1650 ARMOUR ROAD
BOURBONNAIS, ILLINOIS 60194
JULY 20, 1994
198
My name is Deryl Clark. I reside at 861 Gettysburg Court.,
Bourbonnais, Illinois 60914. I am here representing Rudolf
Express Co., an intrastate ir.otor carrier of freight with
headquarters in Bourbonnais, Illinois. I speak for other
intrastate less than truck-load carriers as well. I have been
with my company for 44 years and have served as Vice President
and Director of Traffic 25 years. Rudolf Express is a union
carrier with Illinois Intra-State Authority in Illinois and
Indiana. It also has interstate authority. Twenty five percent
of our total revenue is from intrastate traffic. Our annual
payroll is approximately $9,000,000. Our 1993 contributions 10
the union pension plan was S/43,000. We also pay 100% of
hospitilation for our employees and contribute to a 401K pier, f.or:
our non-union office employees.
I appear in opposition to proposed Section 211 (Interlocal
All Cargo Air Carriers) of the Federal Aviation Authorization Act
of 1993.
I first want to thank this committee and its chairman for
the privilege of appearing here today in an effort to show this
committee how grossly unfair Section 211, as proposed, is tc the
smaller intra-state carriers.
Section 211, as presently drafted, exempts lerge carrier-
such as UPS and Federal Express from state regulation as to
rates, routes and services. If Section 211 is enacted, large
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carriers of freight Kill be permitted to charge rates that are
not compensable or regulated, transport freight anyvhere within a
state, eccept only the freight they dean desirable for their
operation, reject freight they deem undesirable for their
operation. The smaller intrastate carriers, however, will be
regulated as to the rates they must charge and they must accept
freight tendered to them by a shipper, whether desirable for
their operation or undesirable. Section 211 will permit UPS,
Fed Ex and other large carriers to accept freight only from large
shippers to which they may give an advantage over small shipper1? ,
because these large carriers are unregulated. So you see,
Section 211 not only affects the smaller intra-state carriers, «-*«? ;
also small shippers.
The effect of the provisions of Section 211 on the vasr.
majority of "Less Than Truckload Carriers", (LTL) which dc ao'c
have a corporate affiliation with an air carrier or which do r.uo
use an air carrier at least 15,000 times annually, is
catastrophic. Most LTL carriers will not meet the criteria set
out in Section 211. Most LTL carriers, if Section 211 is
enacted, will be competing against totally unregulated giant:.
under the most unfair and unbalanced competitive environment.
Thus a double standard in the motor carrier industry will b&
created to the benefit of the larger carriers and the detriment o;
200
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the smaller intra-steta carriers. This amounts to pure
discrimination
An example of such discrimination is as follows:
Large Carrier A, who is unregulated under Section 211,
approaches Shipper 3 and because A is unregulated, it can
cut rates which would not be compensable in order to
get the freight from small Carrier C until competition
from small Carrier C is eliminated. Then large
Carrier A can raise its rates to what the traffic will
permit. When smaller intrastate Carrier C is eliminated
and eventually goes out of business, its employees are
laid off, it no longer buys trucks and products necessity
to conduct its business. The smaller carrier is
destroyed, its employees are out of work and all the
advantages to the economy, the state and the nation of
a small business are gene.
Proposed Section 211 is, at its best, a power play by the
large trucking interests to destroy the smaller interstate truckers
and by all standards of equity and fairness is reprehensible.
Most economists agree that small businesses create more
jobs than big business. Most of the carriers I am pleading for
201
•• A
started out as ona family operations with one or two trucks
many years ago and through hard work and frugality have had th?.ir
dreams of education for their children, a little laid away for
the later years and the ability to pay their taxes realized. I
ask you to not take this away from them for the sake of the
powerful large trucking interests such as UPS and Fed Ex who have
the resources to effectually lobby the Congress.
As late as a a year ago, the Congress looked at deregulation
of the Motor Carrier industry but rejected same and instead
passed the Negotiated Rates Act of 1993 which resolved some of
the problems that shippers and motor carriers were experiencing.
The President signed into law that Act as recently as December 3,
1993 and now, the large trucking interests, just eight months
later, are once again asking for total deregulation. One thing
you can say for the large trucking interest's, their lobbyists
are fast workers.
I was taught during my elementary education, that the
Congress was intended to be a buffer, so to speak, between the
rich and the poor, the advantaged end the disadvantaged, the
powerful and the weak. Thet most power should be reserved to tha
states and not interfered with by the Congress except in a great
emergency.
If this is what the founders of our great nation had in mind,,
then how can the Congress take the side on this issue of tha
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rich, the advantaged, and the powerful to the exclusion of the
disadvantaged, and the veak? How can the Congress, in all
fairness, take away the rights of the states to regulate it on
surface transportation when no great emergency exists. Section
211 eliminates all state regulations, except as to safety, of tha
transportation giants such as UPS and Federal Express.
Our final comment. Earlier in my statement, I indicated tha
deregulation of the large carriers enable them to reject
freight they feel is not in their best interest, to the harm of
shippers. I can document one case where UPS refused freight
and it took an order of the Interstate Commerce Commission to
make UPS accept same. Maybe this is the reason UPS is working so
hard for the enactment of Section 211 which would permit UPS to
refuse unwanted freight which, under the order, they must accept.
Please do not run the smaller intrastate truckers out of
business by the enactment of Section 211. We were there during
WWII to transport the necessary war materials. We are there to
service our states in any emergency. For the sake of an
effective transportation system, for the good of our economy and
in ell equity and fairness defeat proposed Section 211 to tha
Federal Aviation Act of 1993.
203
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This concludes my statement. I will be happy to answ&t1 any
questions the committee may have.
204
I. INTRODUCTION
Good morning Mr. Chairman. I am C. Thomas Clowe, Jr., Chairman, President and
Chief Executive Officer of Central Freight Lines, Inc., part of the Regional Carrier Group of
Roadway Services, Inc. I appreciate the opportunity to appear here today to share the views
of Central Freight Lines, Inc., its parent Roadway Services, Inc. and Roadway Services
other motor carrier subsidiaries.
Central Freight Lines, Inc. (Central) has the most intrastate operating authority of any
motor carrier in Texas, one of the nation's most regulated states, and over 50 percent of the
Texas less-than-truckload market. In the last four years, Central has become a regional
interstate motor carrier. By the end of this year, we will be operating 88 terminals and three
hubs in eleven states. We plan to expand into three additional states next year. Central also
serves Canada and Mexico, in partnership with other Roadway Services carriers.
Roadway Services, Inc., Central's parent company, is a holding company consisting
of a number of motor carrier subsidiaries, including Roadway Express, Inc., one of the
nation's largest long-haul common carriers of general freight. Roadway Express serves all
the United States, as well as Canada and Mexico, through a network of over 600 terminals.
In addition to Roadway Express, Roadway Services operates: Roadway Package
System, Inc., which provides small package transportation services; Roadway Global Air,
Inc., a worldwide air cargo carrier; Roadway Logistics Systems, Inc., which designs,
implements and manages customized logistics systems; Roberts Express Inc., which provides
expedited delivery services for time-sensitive shipments; and, in addition to Central, the
following other regional carriers: Coles Express, Inc., Spartan Express, Inc., and Viking
Freight System, Inc.
205
I come here today with 37 years of trucking industry experience, all of which has
been in the regulated segment of our industry. I have owned my own company, and I have
managed operations for publicly held corporations. In 1987, I became the Director of the
Transportation Division of the Railroad Commission of Texas, where I implemented the far-
reaching changes to Texas' system of motor transportation regulation that resulted from the
1987 Texas Motor Carrier Act. From 1988 to 1990, I served as the Railroad Commission's
first Executive Director, where I had oversight responsibility for all regulatory divisions and
as well as for administrative services. I have also been the chairman of the National Tank
Truck Carriers conferences of the American Trucking Associations and the Texas Motor
Transport Association.
II. REGULATORY CHANGES ARE NEEDED
As evidenced by the inclusion of Section 211 in the Senate version of the Airport
Improvement Program Act (Airport Bill), which would effectively eliminate state regulation
of motor carriage, the House of Representatives' vote to eliminate funding of the Interstate
Commerce Commission (ICC), and the recent introduction of the "Trucking Industry
Regulatory Reform Act of 1994" by Senators Exon and Packwood, it is clear that change is
in the air.
Mr. Chairman, I believe strongly in the states' right and interest in governing the
conduct of motor carrier operations within their borders. Nonetheless, I support Section 211
of the Airport Bill, which would clearly preempt states from regulating a large portion of the
motor carrier business. I do so at considerable risk to Central's extensive Texas intrastate
operating authority and its substantial less-than-truckload market. However, like many other
206
motor carriers throughout this country, one of our sister companies, Roadway Package
System (RPS), competes directly and vigorously with UPS, which, in turn, is understandably
seeking equity with Federal Express, its major competitor, through the enactment of Section
211. Therefore, if the marketplace is to be truly competitive, we must all be playing by the
same rules. Section 211 must be enacted.
However, Mr. Chairman, I also believe that Section 211's passage should be part of a
two-step process, with the second vital step being the enactment of regulatory reform at the
federal level, to create a streamlined, market-based system that can also serve as a model for
the states.
Let me explain. The purpose of Section 211 is to provide an exemption from state
regulation for a defined set of motor carriers. It does not address much needed reform at the
federal level. It would also presumably still leave some motor carriers subject to state
regulation. These shortcomings must be addressed, and the sooner the better.
We believe the opportunity is at hand. As you know, the House voted down the
appropriation for the ICC, while the Senate appears headed toward reducing the ICC's
funding substantially. Clearly, the ICC's functions must be streamlined to respond both to
the substantial reduction in its funding, as well as to the many changes which have occurred
in the marketplace. We therefore propose that the motor carrier regulatory functions be
streamlined to provide the minimum necessary framework to facilitate an efficient, market-
based system for interstate motor transport. We further propose that this new, streamlined
federal framework become the national standard, by requiring that any state economic
regulation of motor carriers which may continue be compatible with this new federal
207
standard.
ni. THE MOTOR CARRIER INDUSTRY SHOULD BE A MARKET-BASED SYSTEM
When I arrived at Central four years ago, it was a venerable 62 year-old company. It
was also a stoic and traditional motor carrier that was old-fashioned in many of the ways it
was conducting its business. Today, however, Central is a vibrant and growing company
intent on pleasing our people and our customers. We know that our only security in the long
run is doing a better job than our many competitors in anticipating and meeting the needs of
our customers.
To succeed as carriers today, we have to be creative and have a flexible profile. We
must be capable of quickly modifying our operations and services, as well as our prices, in
order to respond to the rapidly changing needs of our customers, and the ever-changing face
and complexity of the marketplace.
Mr. Chairman, while Central and our sister companies have long been sincere
advocates of regulation, that is no longer our position. Today, we recognize that many of
the ICC's functions no longer serve a useful purpose and, therefore, should be eliminated or
revised to better reflect the needs of carriers and shippers today; not the needs of carriers
and shippers in 1935, or even in 1980. Indeed, that is why we have proposed entry and rate
freedom in Texas.
IV. RECOMMENDED REGULATORY CHANGES
Toward that end, therefore, I offer the following as the framework for a restructured
regulatory system for the nation and for the states:
1. We propose that the requirement to file tariffs with the ICC be eliminated in favor
4
208
of a disclosure requirement.
o Do not require carriers to file tariffs with the ICC. However, carriers should
be required to make their rates publicly available, by maintaining tariffs at the
carrier's principal place of business or another designated location known to
the public.
o If requested by the shipper, a carrier should also be required to disclose the
relevant rate in writing or electronically to the shipper so that both parties to
the transaction can rely on the same rate.
o Require that the rate which is agreed upon be the rate that is actually charged
and collected. To this extent, therefore, while we support the elimination of
tariff filings, and the expense and bureaucracy that goes with them, our
proposal would not eliminate the so-called "filed rate doctrine," requiring
carriers to collect the rate which the shipper is quoted. Our purpose here is to
eliminate once and for all the regulatory obligations which gave rise to the
undercharge problem, while preserving the protection which the consumer
deserves.
o Give carriers authority to set and quickly change rates based on market
conditions.
o Maintain the ICC's oversight and responsibilities to review any rate that is
challenged as unreasonable, discriminatory, or otherwise unlawful. Under a
more liberalized rating structure, the need for the Commission's continued
involvement is even greater to ensure consistency in both the analysis of rate
209
issues and the determination of their lawfulness than was the case prior to the
MCA's enactment. Indeed, the recent experiences involving undercharges
have dramatically shown that, absent the conferral of primary jurisdiction in a
single agency charged with the overall well-being of the motor carrier system
(which includes shippers' interests), determinations of rate lawfulness would
end up being made purely ad hoc by individual federal and state courts,
without full understanding of, and in many cases concern for, the impact
which any single decision could ultimately have on competition or the
continued financial stability of the motor carrier system.
o Eliminate the present antitrust immunity for general rate increases, while
continuing immunity for carriers to interline shipments and establish joint
rates, and for the collective establishment of commodity classifications,
uniform mileage standards, and standardized bills of lading. Such matters
provide a common nomenclature and a uniform base upon which shippers and
carriers can voluntarily rely, without conferring a competitive advantage to
those participating in their establishment.
2. Provide a free market in transportation.
o Eliminate the "public convenience and necessity" standard for market entry.
o Base entry solely on an applicant's fitness to comply with the DOT's motor
carrier safety regulations and applicable ICC requirements, by requiring all
new carriers to demonstrate not only their awareness of the DOT and
applicable ICC regulations, but also the existence and details of the applicant's
85-090 95-8
210
program to comply, as conditions of operating.
3. Make this new market-based, streamlined system the national standard.
o Recognize a legitimate state interest in motor carrier oversight by permitting
those states that wish to regulate intrastate commerce to continue doing so, but
require that their laws be compatible with the new federal scheme, including
the new open entry for those who are fit, and the new rate freedoms. Mr.
Chairman, in light of the exemption of many but not all state motor carrier
operations which would result from the passage of Section 211 of the Airport
Bill, we believe this recommendation to be a particularly important one; not
only to recognize the states' interest, but also to preserve a level playing field
for all competitors in intrastate markets. The Staggers Act, governing rail
regulations, as well as the Hazardous Materials Transportation Act (as
amended by the Hazardous Materials Transportation Uniform Safety Act)
contain compatibility provisions which might be utilized with some
modification to allow for the implementation of this proposed national standard
for an efficient, market-based motor carrier system.
4. Finally, we recommend that Congress preserve those beneficial elements of the
ICC's regulations which not only facilitate business, but are fundamental to the
conduct of business between carriers and shippers and provide a responsible code
of conduct. The following are examples.
o The rules governing cargo loss and damage claims and liability: they are well-
settled as to the extent of a common carrier's liability, the filing and
211
processing of claims, and the shipper's access to the courts,
o Uniform bills of lading, which contain the terms and conditions of the
transportation agreement for common carriage,
o Commodity classifications and standardized mileage guides.
o The rules governing the extension of credit to shippers by common carriers,
o The rules governing driver leasing.
o The prohibitions against discriminatory and anti-competitive practices, such as
the giving or receiving of rebates and concessions.
V. THE ICC SHOULD NOT BE ABOLISHED AND ITS RESPONSIBILITIES SHOULD
NOT BE TRANSFERRED
Having toiled in the trenches of federal and state economic regulations for the past 37
years, you should forgive me, Mr. Chairman, if I do not believe that there is any such thing
as "DEREGULATION." Quite the contrary. Every business is governed by rules, and
somebody sets them. So it is not simply the case that the rules will go away if the ICC does.
The issue is not regulation. The issue is jurisdiction. Therefore, while the purpose
of this hearing is directed at the preemption of state motor carrier regulations, I wanted to
take a moment to explain our concerns about the attempt being made in the House of
Representatives to shut the ICC down and transfer its functions to DOT or another federal
agency.
Our nation's economic policy and implementing decisions need to be decided with
consistency and a reasonable degree of predictability, based on the merits of the substantive
issue involved with regard not only to the carrier and shipper directly involved but also with
8
212
respect to the impact on carriers and shippers generally. Our ability as carriers, and that of
our shippers, to plan our future growth, particularly with respect to our long-term capital
investments, is directly dependent on our ability to predict with confidence and relative
accuracy what the rules and outcome of the game will be. While a "free market" may be the
best way to foster competition between individual carriers, there nonetheless needs to be a
minimum set of rules to govern the responsible conduct of our businesses. A "free market"
should not mean a "free-for-all," where the large carriers and shippers can take advantage of
the small. To those who would point to states in which so-called "total deregulation" has
occurred and who would say that my fears are unfounded, do not ignore the effect and
influence which the ICC's standards of conduct have had on the conduct of business by
carriers in those states.
Economic issues involve a host of disparate and competing interests: carriers
competing within the same mode; carriers within competing modes; carrier employees and
other workers; large shippers, including the federal government; small shippers; individual
consumers; state governments. Economic issues also involve private disputes between
individual entities. The successful adjudication and fair resolution of these disparate interests
and private disputes requires not only specialized transportation expertise, but demands
impartiality. Should we expect anything less?
If Congress intends for our common carrier system to remain viable and continue
growing, our rules in the future need to be set by a single, impartial agency that knows about
and understands the transportation business and its complexities. Neither carriers nor
shippers can afford to have the legality of rates, the terms of payment and credit, the extent
213
of liability for cargo damage, and so on, depend upon which state we happen to be in at the
particular time, or which agency happens to be making the determination. In order for my
company to be successful in its business, we have to know that whatever we say in Texas
means the same thing in California and Illinois, and vice versa.
Throughout its long existence, the ICC has played a crucial role, not only in its
regulation of individual motor carrier operations, but also in helping to develop and shape
our nation's motor carrier system. While the ICC has had its critics over the years,
including myself, we do not believe that anyone in this room today can honestly deny that
our nation's motor carrier system is the best in the world. Neither can anyone fail to
recognize how vital our motor carrier system is to the stability and growth of our economy.
VI. CONCLUSION
Mr. Chairman, we have offered a series of recommendations here today which we
feel will significantly streamline the ICC, help reduce our country's deficit, and at the same
time, help ensure that the motor carrier industry remains a strong and valuable contributor to
our nation's economy and future growth. In that regard, we stand ready and willing to
provide Congressional staff with the full details of our proposals.
Mr. Chairman, I graciously thank you for the opportunity to appear here today.
214
Before the
UNITED STATES HOUSE OF REPRESENTATIVES
COMMITTEE ON PUBLIC WORKS
SUBCOMMITTEE ON SURFACE TRANSPORTATION
JULY 20. 1994
WASHINGTON, D.C.
Statement of the
AMERICAN TRUCKING ASSOCIATIONS, INC.
Legislation to Preempt State
Motor Carrier Regulations Pertaining to
Rates, Routes and Services
THOMAS J. DONOHUE
President & Chief Executive Officer
215
INTRODUCTION
I am Thomas J. Donohue, President and Chief Executive
Officer of the American Trucking Associations. I welcome the
opportunity to present ATA's views on the several issues being
considered by the Committee at these hearings.
The American Trucking Associations ("ATA") is the national
trade association of the trucking industry. Through its 51
affiliated trucking associations located in every state and the
District of Columbia, eleven affiliated national organizations
and more than 4000 individual motor carrier members, ATA
represents every type and class of motor carrier in the country:
for-hire and private; regulated and exempt; large and small.
On behalf of ATA and its diverse membership, I will address
three issues.
First, the need to amend the federal-preemption language of
Section 211 of S.1491, the Federal Aviation Administration
Authorization Act, which was passed by the Senate last month and
is now in conference as H.R. 2739. The scope of Section 211's
preemption from state regulation should be expanded so as to
create a truly level playing field; one group of carriers should
not be given a competitive advantage over another merely because
of the way the company is structured.
At the same time, the preemption language should be limited
to enable the states to continue to regulate non-rate or economic
entry factors of the intrastate trucking industry.
216
Second, the House of Representatives recently voted to
terminate the funding of the Interstate Commerce Commission. It
is extremely important to both carriers and shippers to maintain
funding for the Interstate Commerce Commission. Regardless of
whether you consider yourself a "regulator" or a "deregulator, "
the concept of eliminating the funding for a federal agency while
maintaining the laws and regulations that the agency is delegated
to enforce is as senseless as turning off the engines of an
airplane while it is still flying, and the results would be just
as disastrous.
Third, in response to the elimination of funding for the
Interstate Commerce Commission, Senators Exon and Packwood,
introduced S.2275 "Trucking Industry Regulatory Reform Act of
1994." S.227 5 provides the foundation for meaningful regulatory
reform. Specifically:
• Further study of the future of ICC regulation and the ICC is
an excellent idea.
• Codifying the ICC's existing emphasis on safety and
insurance rather than economic need as the criteria for
entry control is long overdue.
• Reduction in the cost to carriers and the government of the
tariff filing function is an admirable goal if the important
benefits of the "filed rate doctrine" are maintained.
• While ATA supports the elimination of unnecessary
regulation, the proposed general exemption power for the ICC
is too broad. If this power is granted to the ICC, it must
be restricted so as not to frustrate the goals of Congress
or eliminate the uniform standards and rules that are
essential to an efficient interstate trucking industry.
217
I. PREEMPTION OF STATE REGULATION MUST RESULT IN AN EVEN
PLAYING FIELD FOR ALL CARRIERS.
At its June meeting, the ATA Executive Committee made a
significant change in its policy with respect to the federal
preemption of state economic regulation of intrastate trucking.
In large part, this change in policy was due to the actions of
the Senate in adopting Section 211 of the Federal Aviation
Administration Authorization Act, S.1491. That section would
preempt state economic regulation of the intrastate operations of
many motor carriers. The ATA Executive Committee voted that
while, it preferred that state economic regulation not be
preempted, ATA would no longer oppose Federal preemption of state
regulation of motor carrier rates and entry based on economic
factors, as long as Congress:
1. Preserves the ability of states to maintain beneficial
regulatory protections such as: uniform liability rules;
antitrust immunity for interlining, classification and
mileage guides; financial fitness of motor carriers
(including insurance requirements and self -insurance
authorization) ; and uniform operating practices (such as
uniform bills of lading, credit rules, independent
contractor leasing rules and regulations) . This will ensure
stable, qualified and safe transportation to the general
public .
218
2. Preserves the existing state tax exemptions and similar
benefits that licensed and certificated carriers enjoy by
allowing states to continue to issue certificates or permits
or take other steps that enable the state to identify
carriers that meet non-economic requirements.
3. Assures the right of carriers to tax write-offs of the
reduction in value of state economic operating authorities
caused by the Federal statutory change, either as provided
for under current law or with new legislation, if necessary.
4. Provides a level playing field by giving the broadest
interpretation of eligibility of who qualifies as a
deregulated carrier, and enacts any further federal
legislation necessary to allow all motor carriers (other
than household goods carriers) to enjoy the same benefits
and rights in intrastate commerce.
5. Allows continuation of state regulation of the
intrastate transportation of household goods.
There are two important aspects of this new policy which I
cannot emphasize enough.
o First, is the need for an even playing field. The
legislation should not give any carrier or group of carriers
4
219
an economic advantage over another carrier or group of
carriers. If the law does create a disparity in treatment
of carriers, then ATA urges this Committee to consider the
immediate enactment of further legislation to expand the
benefits of section to all carriers.
o Second, the federal preemption of state regulation of
intrastate trucking should be limited to the areas of rates
and entry based on economic factors. Areas involving safety,
insurance, and the need for many uniform operating practices
should be left to the states.
Based on this new policy, ATA asks those members of this
Committee who will be on the Senate/House Conference Committee to
consider these factors and to make revisions in Section 211 that
will protect these non-economic aspects of state regulation and
ensure that the benefits and rights being given some carriers are
enjoyed by all carriers.
II. ICC FUNDING.
In what appears to be an unprecedented action, the House of
Representatives last month voted to eliminate the funding for the
Interstate Commerce Commission as of October 1, 1994, while
leaving intact all of the legal obligations the Interstate
Commerce Act imposes on transportation carriers, the ICC, and
others. In our research, we have been unable to discover any
5
220
other instance in which the funding for an agency has been
terminated by Congress without its first reviewing and if
necessary revising the substantive law for which the agency was
responsible, or transferring the functions of the agency to
another federal agency. This Committee recognized this point in
1978 when it transferred or eliminated the functions of the CAB
prior to the sunsetting of that agency.
ATA urges Congress not to terminate ICC funding, but to
provide the Commission with sufficient funds to perform its
remaining functions. I have attached to this testimony a list of
examples of what would happen if Congress were to eliminate the
funding of the ICC without either revising the Interstate
Commerce Act or transferring the ICC's authority to another
federal agency. Here are a few of the highlights from that list:
o There would be no consumer complaint mechanism for
household goods consumers . The ICC has adopted
extensive rules and mechanisms for protecting consumers
on household goods shipments . With the elimination of
the ICC, consumers would lose these important
protections.
o There would be an unprecedented insurance crisis in
the trucking industry. Federal law and regulations:
(1) require ICC regulated carriers to have their
insurance on file with the ICC; (2) require insurance
companies to notify the ICC prior to any cancellation
of a carrier's insurance; and (3) provide for motor
carriers to self -insure, if they meet specific
conditions and obtain the ICC's approval. All these
functions rely on the existence of the ICC.
o The U.S. would not be able to implement NAFTA.
Mexican carriers would continue to be excluded from the
United States in violation of the NAFTA provisions.
The Mexican carriers would not be able to operate in
the United States since they would not be able to
obtain ICC operating authority or file their rates or
221
insurance as required by the Interstate Commerce Act --
requirements that would remain in effect even in the
absence of funding to administer them.
o All carrier tariffs would be frozen. All rates.
classifications, tariff rules, mileage guides, etc.
would be frozen as they exist on the day the ICC closes
its doors. The Interstate Commerce Act requires common
carriers to file their tariffs (including the
Classification) with the ICC. Revisions to existing
tariffs must also be filed. If there is no ICC, there
would be no agency to receive the tariffs even if the
carriers attempted to file them.
o There would be no enforcement of lumping
prohibition. In 1980, Congress enacted laws that
prohibit a shipper or receiver of property from using
duress to force a driver to load or unload a vehicle,
or to hire a third party (a lumper) to do so at the
carrier's expense. The responsibility for enforcing
these prohibitions was delegated to the ICC. The
illegal lumper problem continues to be a major
concern for the trucking industry. If the ICC were
eliminated, there would be no enforcement of the
lumping rules.
If, however, Congress believes there is a need to reduce the
budget of the ICC at this time, it should be done without
reducing the agency's ability to perform its essential functions.
o As indicated in a recent GAO report, a significant
saving will be accomplished by going to a "safety
fitness" criterion, instead of a public need criterion
for licensing.
o The ICC's budget could be further reduced through
elimination of positions in offices that deal with the
Commission's internal matters rather than the
regulation of the industry.
o Further savings could be accomplished if this
Committee were able to devise a method of reducing the
tariff filing requirements while retaining the
essential benefits of the "filed rate doctrine."
222
III. "TRUCKING INDUSTRY REGULATORY REFORM ACT OF 1994" PROVIDES
A STARTING POINT FOR REGULATORY REFORM.
S.2275, the "Trucking Industry Regulatory Reform Act of
1994." as proposed by Chairman Exon and Senator Packwood,
provides the foundation for meaningful regulatory reform. ATA
would urge this Committee to consider the enactment of reform
legislation, which would result in millions of dollars in savings
for the government and private industry, in lieu of the
elimination of funding for the agency. Specifically:
o study. ATA supports the idea of further studies
both as to the future of ICC regulation and of the ICC.
What aspects of regulation are essential to an
efficient and profitable trucking industry? Should the
agency continue as it is, be merged with the Federal
Maritime Commission, or have its functions transferred
to some other federal agency, such as DOT?
o Entry. ATA strongly supports the proposed entry
reform provision of Section 7 of S.2275. Safety
fitness and financial responsibility have been the key
factors at the ICC for determining entry for at least
the last decade. Recognition of this emphasis on
safety, rather than public need as the basis for entry,
is a reform that has been needed for many years. But
highway safety is important, no matter what the truck
8
223
is carrying or who is operating it. Congress should
expand the scope of these requirements to apply to all
trucking operations, not just those currently regulated
by the ICC.
o Tariff Filing. The debate on whether or not tariff
filing should be continued --in what form and for whom
--is one of the most controversial issues facing the
trucking industry today. In fact, ATA currently has a
policy which supports the continuation of ICC tariff
filings and other provisions of the "filed rate
doctrine," such as antitrust immunity and public notice
of rates. ATA continues to support these provisions
because they help avoid unnecessary litigation and
provide for an orderly, integrated, nationwide trucking
industry. However, if Congress can find a way to
eliminate ICC and carrier costs associated with tariff
filings while keeping the important benefits of the
"filed rate doctrine," ATA would support such a
provision.
o Exemption power. The one part of S.2275 with which
ATA has the most serious reservation is the broad
exemption provision the legislation proposes to grant
the ICC. ATA supports the concept of allowing the ICC,
or any federal agency, to eliminate needless
224
regulation, but the proposed provision is written too
broadly, without necessary restraints on the
Commission's authority. This broad exemption power
could be used to frustrate the intent of Congress and
to eliminate various aspects of federal regulation
which are essential to the efficient operation of an
integrated, national trucking industry. The ICC
exemption provision should therefore be written to
expressly exclude the exemption of matters such as:
o The provisions of the Negotiated Rates
Act of 199 3, the remedy to the undercharge
crisis, which took so many years to be
enacted.
o The safety and fitness licensing
provisions of S.227 5.
o Existing insurance provisions: Federal
law requires all for-hire motor carriers to
maintain certain levels of public liability
insurance. ICC-licensed carriers must keep
evidence of this insurance on file with the
agency. This requirement ensures that the
public is adequately protected in the event of
an accident. In addition, the ICC has granted
over 40 carriers the right to self-insure in
order to meet these federal requirements.
These carriers save hundreds of thousands of
dollars a year in that way. The status of
these carriers as self-insurers is based in
part on the ICC's ability to police them to
make sure they remain financially sound and
continue to operate safely.
o Uniform rules with respect to bills of
lading; claims rules; cargo liability; credit
rules; statute of limitations on claims and
collections; and contract rules.
o Continued ICC jurisdiction over carrier
mergers and acquisitions; rules governing the
operation of freight brokers; owner-
operator/carrier leasing regulations; and
10
225
enforcement of the prohibitions on lumping
abuses.
o Antitrust immunity for the motor freight
classification, mileage guide, inter-line
rates , and agency agreements .
These are aspects of ICC regulation which everyone in the
trucking industry agrees need to be retained.
An efficient and economical interstate trucking industry
requires that certain uniform practices, rules and other
requirements be maintained on a national level. The trucking
industry will not be able to operate in the efficient and
economical manner that U.S. industry and consumers have become
accustomed to if it is subject to a myriad of inconsistent
state and local laws and regulations. Unlike the retailer or
manufacturer who may operate facilities in several states, the
facilities and personnel of an interstate trucker are not
stationary, but are by their nature mobile and provide service
in many different jurisdictions.
A single shipment may begin in one state and pass through
several other states on the way to its destination. The
shipper and receiver of the goods may be located in different
states. Without uniform federal laws and regulations governing
the provision of such services, the potential conflicts and
confusion between and among state laws is beyond comprehension.
Therefore, it is essential to the interstate trucking industry
and to the users of its services that an agency such as the ICC
exist with the exclusive jurisdiction to set the rules and
11
226
regulations by which these carriers operate in interstate
commerce .
SUMMARY
o ATA encourages the House-Senate Conference Committee to
revise Section 211 of the Airport Improvement Act to
create a level playing field on rates and entry, but allow
the states to continue to regulate other non-economic
aspects of intrastate trucking.
c ATA supports the continued funding of the Interstate
Commerce Commission, to enable the agency to continue
those functions that are essential to the efficient and
orderly operation of the interstate motor carrier
industry.
o If ICC funding is to be reduced, it should be done in
areas that will not jeopardize the functioning of the
agency.
o The "Trucking Industry Regulatory Reform Act of I9S4"
is a solid foundation on which to consider further
regulatory reform. ATA supports the need for further
study of ICC regulation and the ICC itself. The licensing
provisions basing entry on safety factors are long overdue
and should be expanded to cover all carriers. Reduction
12
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227
in the cost of tariff filing for carriers and the
government is an admirable goal, provided that the
important benefits of the filed rate doctrine can be
retained.
o Due to the interstate nature of the industry, uniform
rules and regulations are needed in areas such as carrier
liability, insurance, and claims. Continued ICC
jurisdiction over mergers and acquisitions, and continued
antitrust immunity for the freight classification, mileage
guide, interlining, and agency agreements, are important
to an efficient interstate industry.
Respectfully submitted,
Thomas J. Donohue
13
228
WHAT IF THE ICC IS GONE BUT THE LAW ISN'T?
Zeroing out the ICC's budget without any legislative action
changing the Interstate Commerce Act could have some disastrous
effects. The following are the chaotic highlights:
1. Frozen Tariffs. All rates, classifications, tariff
rules, mileage guides, etc. would be frozen as they exist on the
day the ICC closes its doors. The Interstate Commerce Act
requires common carriers to file their tariffs (including the
Classification) with the ICC. Revisions to existing tariffs must
also be filed. If there is no ICC, there would be no agency to
receive the tariffs even if the carriers, bureaus, etc. attempted
to file them.
Enforcement. Since there would be no ICC, there would be no
one to enforce these rules until a matter reached court. As the
"undercharge" crisis showed, a shipper is liable for the rate
stated in the tariff. Therefore, if the shipper paid an amount
other than that in the tariff on file September 30, 1994, it
could be liable for the difference. Similarly, if a carrier
raised its rates and attempted to collect the increased amount, a
court would only allow a judgement for the tariff amount.
2. No New Entry Into Industry. Since a carrier needs an
ICC license to operate, there would be no new entry into the
229
industry. The states would still have the authority to fine
anyone operating without an ICC authority.
3. No Mergers and Acquisitions. Mergers and acquisitions
of all but the smallest carriers could not happen because they
must be approved by the ICC.
4. Self-Insurance Approvals Would Lapse. No additional
carriers would be able to qualify as self -insurers. Further,
carriers would not be able to meet the conditions of existing
self-insurance approvals (periodic financial and claims
reporting), which would then lapse by their own terms. The
states would no longer accept a carrier's existing self -insurance
approval as evidence of financial responsibility. To exacerbate
the problem, when a carrier's self -insurance approval lapses
(voluntarily or involuntarily) , it would be unable to file
evidence of commercial insurance with the ICC. (See next
paragraph) .
5. Unprecedented Insurance Crisis. ICC-licensed motor
carriers must have current insurance on file with the ICC.
Further, the insurance on file remains in effect until the
insurance company has provided the ICC with 30 days notice that
the coverage is being terminated. The ICC's closing would thus
cause a two-fold crisis for both motor and insurance carriers.
First, motor carriers would not be able to file evidence of new
230
insurance. This would be especially disastrous to a motor
carrier that has a notice of cancellation pending at the ICC.
Second, an insurance carrier would not be able to notify the ICC
of pending termination of coverage. Thus, insurance in effect on
September 30, 1994 would remain in effect indefinitely with
respect to third parties, even if the trucking company had ceased
paying its premiums .
6. NAFTA Crisis. Mexican carriers would not be able to
take advantage of the NAFTA. They would not be able to operate
in the U.S. since they would not be able to obtain ICC operating
authority or file their rates or insurance as required by the
Act.
7. Owner-Operator Issues. It might be necessary for
carriers to redefine their relationships with owner-operators.
The current control the carriers exercise over their owner-
operators without them becoming employees is based largely on
provisions of the ICC's leasing rules. It is unclear what would
happen to these regulations if the agency were effectively
terminated via de- funding.
8. Brokers' Role Enforcement. There would be no one to
enforce the broker -bonding and other requirements.
231
9. No ICC Enforcement of Credit, Claims, and Other
Regulations. Again, it is unclear what would happen to the ICC's
regulations, but even if the regulations remained valid, there
would be no one to enforce or review them.
10. Lack of any Enforcement of Lumping Prohibition.
There would be no enforcement of the lumping rules.
11. No Consumer Complaint Mechanism for Household Goods
Consumers. The ICC's extensive rules and mechanism for
protecting consumers with respect to household goods shipments
would cease to exist.
232
THE
NATIONAL
INDUSTRIAL
TRANSPORTATION
LEAGUE
BEFORE THE
SURFACE TRANSPORTATION SUBCOMMITTEE
HOUSE COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
S. 1491, Federal Aviation Administration Reauthorization Act
Deregulation of Intrastate Commerce
July 20, 1994
TESTIMONY OF
THE NATIONAL INDUSTRIAL TRANSPORTATION LEAGUE
BY
EDWARD M. EMMETT
PRESIDENT
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233
l
Mr. Chairman and Members of the Subcommittee, I thank you for this opportunity. I am Edward
M. Emmett I appear today as president of The National Industrial Transportation League, the
nation's oldest and largest organization representing shippers of all sizes and products and using
all modes of transportation.
The debate over completing the job of economic deregulation of motor carriage on the national
and state level has been raging since enactment of the Motor Carrier Act of 1980. On June 16th
two events occurred that caused the world of transportation to skip a rotation: the U.S. House of
Representatives voted to sunset the Interstate Commerce Commission, and the U.S. Senate voted
for S. 1491, the Federal Aviation Administration Reauthorization Act. These are landmark events
in the history of surface transportation regulation.
The votes in Congress reflect a realization that the motor carrier industry has changed since 1980.
Trucking is no longer a quasi-utility. Instead, it is now a service industry and neither it nor its
customers need or want utility-style regulation. The votes also came from growing frustration
with maintaining the costly status quo in an ever changing world Governments are struggling
to find ways to pay for new programs while maintaining activities that many consider to be
obsolete.
Regardless of their type or size, shippers and carriers are also faced with tremendous changes and
challenges, many arising from ever increasing competition in domestic markets from every comer
of the globe. Businesses must be able to transport their products efficiently to be able to compete
234
2
globally. How businesses meet these changes and challenges will determine whether or not they
survive in the '90s and beyond.
Today, virtually all transportation is interstate or even international. Gone are the days when
towns, states, or even nations were self contained economic units. Today our economy is national
and becoming ever more global. Our laws and regulations need to change to reflect these changes
in the market place. Durable goods are constructed from pieces manufactured all over the country
and the world. How can a washing machine, therefore, ever get to be purely intrastate commerce.
Go into any grocery store in the country and you will find the same soap flakes and potato chips.
These products and commodities travel on roads built with federal taxes. Frito-Lay makes chips
in Dallas and it ships those chips around the country. Why should it should it cost more to
transport those chips from Dallas to Laredo, TX some 422 miles ($631.00) than it does to
Topeka, KA ($484.00) which is farther away.1 These artificial barriers in any one state add to
the cost for all consumers.
The federal government recognized and accepted this fact with all other modes of transportation:
airlines, railroads, barges, and passenger buses. In each of these, the federal government found
that transportation was interstate commerce and that state regulations were inconsistent with the
Commerce Clause of the Constitution. Why is trucking treated differently?
'Bill Mintz, "Big Wigs to Focus on Big Rigs," Houston Chronicle, March 31, 1992, citing
Robbi Dietrich, Director of Government Affairs, Frito-Lay.
235
3
The nation's transportation system is like the veins and arteries of the human body. Just like in
the body, a blockage anywhere in the circulatory system spells trouble. I am here to tell you that
we have several major blockages.
State regulation of trucking costs American business and consumers $5 billion to $12 billion
annually. That regulatory choke hold saps the economic vitality of the entire country and
undermines our competitiveness in world markets.1
Shippers and carriers alike are being stymied in their efforts to reduce inefficiencies created by
the varying regulatory regimes of 41 states. These regimes are premised on the mistaken notion
that they protect shippers. In reality, however, they protect those carriers too inefficient to
compete in a deregulated market; carriers that have grown rich operating under state granted
monopolies; and those employed by organizations and public agencies that owe their continued
livelihood to economic regulation.
Who is not in favor of economic regulation — shippers, both large and small, which makes it
truly ironic that those who favor retention of economic regulation justify their position by stating
that it is necessary to protect shippers.
As evidenced by the support for S. 1491, many carriers have joined the chorus calling for an end
'Cassandra Chrones Moore, "Interstate Trucking: Stronghold of the Regulators," Policy
Review, (Washington: Cato Institute, February 16, 1994), p. 1.
236
4
to economic regulation. The states and regulators, however, have not heard these voices. They
have heard the voices of those seeking to maintain the status quo or even re-regulate trucking.
The U.S. Senate has responded to the call of American business for state preemption. The League
urges the House to do so as well.
Keep in mind when we talk about numbers, that the gains from the 1980 reforms have outstripped
even the rosiest projections. Whether the savings nationally are $10 billion or $60 billion per
year, they are substantial. Most of the gains are attributable to savings in inventory costs and
other innovations made possible by a more efficient transportation system.
Businesses that flourish in the 1990s and into the 21st Century will be those that relentlessly
pursue improvements in how they handle logistics, transportation, and distribution. Government
needs to get out of the way and let these businesses — shippers and carriers — pursue die changes
needed to survive. Please remember a basic fact of transportation history. Modes of
transportation exist only to serve customers, not the other way around. A freight system which
does not meet die shippers' needs is worthless. In the market place, such systems go out of
existence. However, in the case of intrastate trucking, governments have intervened to maintain
something which cannot stand on its own merit, thereby interfering in the progress of business.
In today's deregulated interstate environment, shippers and carriers are meeting these changes and
challenges with a new sense of partnership. Gone are the days of heavy regulation when carriers,
operating with government granted monopolies and guaranteed profits, abused shippers. Gone
-
237
5
too are the days of the early 1980s when shippers beat-up or "got even" with the newly
deregulated carriers. Today, shippers and carriers are working in partnership to move goods from
point A to point B safely, accurately, appropriately, and economically.
Some will argue that all shippers want is the lowest price. While price is important, it is not the
only thing business cares about If price was the most important thing, we would be all be driving
Yugos. Price is not the answer; getting the safest, most efficient service is the answer. State
regulation and the remaining federal regulations continue to place artificial barriers in the way of
additional efficiencies.
Looking back, the history of transportation is a virtual kaleidoscope of methods for carrying
people and products. Horse-drawn carriages, canals, railroads, airplanes, wagon trains, clipper
ships, dirigibles, pipelines, automobiles, steamboats, cattle drives, barges, the pony express, and
trucks have all had moments of glory. Some of the modes have passed into history forever,
replaced by efficiency or stymied by obstacles or limitations. The history of any one particular
mode will reveal records of jobs created and jobs lost; whole towns that flourished for a time
only to wither away.
Change has always been a part of transportation. We cannot hold the clock back on this change.
If that were possible, borax might still be moved by 20 mule team instead of freight trains. The
market needs to be able to adapt and change.
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6
For these reasons, die League has long pursued the elimination of state regulation of interstate
commerce. We are here today in support S. 1491 as passed by the Senate as a minimum effort
to remove the shackles of interference on American business. We urge die members of this
Subcommittee and the House to broaden the deregulatory language to include aO interstate carriers
and ail private fleet operators.
Short of this action, the playing field for carriers will continue to be uneven as a result of actions
taken in two of our largest states: California and Texas which have already deregulated UPS and
FedEx. For shippers, if the House fails to agree with the Senate, American businesses will still
have to jump through state regulatory hoops to transport their products across the nation to
American consumers. And the consumers will pay the price.
Allow me to take a moment to discuss two arguments used by those who oppose this legislation:
safety and service to small communities. Both of these arguments were considered by the
Congress when deregulating the other modes of transportation and dismissed as being incorrect.
The most often stated argument for economic regulation is mat it maintains safety. Or, in other
words, without economic regulation, carriers will "reduce wages, operate older vehicles, cut
maintenance, and force drivers to extend their working hours."3 This is just not true. In
November of 1987, the California PUC and the California Highway Patrol issued a joint
'Colorado Department of Regulatory Agencies, Policy and Research Section, Deregulation
and the Colorado Motor Freight Industry (Denver Colorado Department of Regulatory Agencies,
June 1991), p. 9.
239
7
legislative report on truck safety. The study team concluded: "We have been unable to prove the
hypothesis that CPUC economic regulation of trucking is significantly and positively linked to
improved highway safety... Other, more direct actions (for example those that improve driver
quality, improve road conditions, reduce congestion and remove unsafe equipment from service)
appear to have far more potential for improving highway safety."*
Nationally, since the removal of most federal economic regulations, the number of carriers has
dramatically increased. Correspondingly, the number of miles traveled have increased. Yet the
number of fatal accidents per mile driven have decreased according to the U.S. Department of
Transportation.
Economic deregulation may in fact lead to increased safety. Association of American Railroads
President Ed Harper, recently told the Senate Surface Transportation Subcommittee that economic
investment made possible by deregulation has made the nation's railroads safer.1
Enforcement and inspection of true safety regulations — not prescribing routes, limiting entry,
and specifying rates — will make our highways safer.
'California Public Utilities commission and California Highway Patrol, Joint Legislative
Report: Final Report on Truck Safety, AB 1678 (Sacramento: CPUC, November 1987), pp. 3-4.
The staff noted that the report had not been formally considered by the PUC
'Stephanie Nail, "Deregulation Led to Rise in Safety For Railroads, AAR Chief Says,"
Journal of Commerce, June 16, 1994.
240
8
The defenders of state regulation also claim that deregulation will bring about rising rates and
declining service, particularly for rural communities and small shippers. Arizona is one of the
most rural states in the nation, and a state that until 1982 maintained one of the strictest regulatory
regimes imagined in which competition was specifically prohibited * But, in 1982, Arizona voters
approved deregulation by a two-to-one margin.
A study by the Arizona Department of Transportation in 1984 found that, "service remain[ed]
steady or improved to practically all shipper/receivers, and rate differences do not appear to be
significant nor out of line with cost variations—A majority of shipper/receivers favor continued
deregulation."7 The study goes on to state that, "deregulation has not meant radically higher rates
for rural areas and small communities. On the contrary, ... shipper/receivers in these areas have
benefitted."*
Again, looking at the picture nationally, since enactment of the MCA '80, there have been few if
any complaints about lack of service or unreasonable rate cases filed at die ICC. The reason is
simple, if you remove barriers to entry and allow competition, the trucking industry will provide
service.
"Arizona Department of Transportation, Transportation Planning Division, Legal Foundations
of Arizona's "Regulated Monopoly" Concept as Applied to Intrastate Transportation, (Phoenix:
Arizona Department of Transportation, January 1979), pp. 4-6.
'Roger D. Blair et al., "Motor Carrier Deregulation: The Florida Experiment," Review of
Economics and Statistics, February 1986, p. 129. Emphasis in original.
Ibid., p. x.
241
9
The League strongly endorses complete economic deregulation of the motor carrier industry. The
motor carrier-related regulatory duties of the ICC and the states are beyond unnecessary, they are
now counterproductive. We enthusiastically endorse the intent and scope of S. 2275, die Trucking
Industry Regulatory Reform Act and S. 149 1 , the Federal Aviation Administration Reauthorization
Act.
It is time to finish the job of economic deregulation of die motor carrier industry — end the filed
rate doctrine; end obsolete ICC regulations and restrictions; and extend die benefits of
deregulation to all aspects of the trucking industry.
VUSBUtfTAffM W»l TB
85-090 95-9
242
BEFORE THE
UNITED STATES HOUSE OF REPRESENTATIVES
PUBLIC WORKS AND TRANSPORTATION COMMITTEE
SUBCOMMITTEE ON SURFACE TRANSPORTATION
HEARING ON
TRUCKING REGULATION
JULY 20, 1994
TESTIMONY OF THE
REGULAR COMMON CARRIER CONFERENCE
AND
NATIONAL MOTOR FREIGHT TRAFFIC ASSOCIATION, INC.
Martin E. Foley
James C. Harkins
Executive Director
Executive Director
National Motor Freight
Regular Common Carrier
Traffic Association
Conference
2200 Mill Road
5205 Leesburg Pike, #1110
Alexandria, VA 22314
Falls Church, VA 22041
703-838-1818
703-824-8775
Dated: July 19, 1994
243
Chairman Rahall and members of this subcommittee, we
appreciate this opportunity to file these comments on behalf of
the 7,000 motor carrier members of the Regular Common Carrier
Conference and National Motor Freight Traffic Association. Our
nonprofit trade associations specialize in serving the needs of
these less-than-truckload motor carriers that operate in
intrastate and interstate commerce throughout the United States .
Our carrier members share your concerns with reducing the
federal budget deficit and with ensuring that taxpayer money --
paid in part by the trucking industry --is spent wisely.
We can sense and appreciate your frustration in seeking to
meaningfully reform federal and state laws regulating truck
transportation. This frustration reached record heights last
month when this House eliminated all funding for the ICC -- but
retained the Interstate Commerce Act -- and the Senate voted to
preempt virtually all state regulation of the nation's largest
trucking companies through an unrelated aviation bill, S. 1491,
without any public hearing' or review by its transportation
committee. Consequently, the Senate and House actions are working
at cross -purposes . The Senate is relying on the federal
government to oversee truck transportation within and between the
states, while this House has eliminated funding for the federal
regulatory agency -- the ICC -- empowered to overview our
industry.
This Committee needs to put reason back into the legislative
process. Reforms in trucking regulation should be made on the
244
merits through substantive changes in the law for both interstate
and intrastate trucking. Eliminating trucking regulation through
the budgeting process or by enlarging the preemption associated
with federally certificated air carriers will only result in
unsound public policy.
Therefore, the critical question is this: How does Congress
thoughtfully make comprehensive and uniform reforms for
interstate and intrastate trucking?
We believe there first needs to be agreement on the basic
principles that should govern legislative reform. These
principles include:
• There must be fair and equal treatment of all motor
carriers. Section 211 of the aviation bill, S. 1491,
gives preferential treatment to the larger
transportation companies and, therefore, should not be
adopted. The reforms must include an effective means of
combatting preference and discrimination in motor
carrier pricing.
• Federal and state regulatory programs must be
compatible. The federal and state governments should
act as partners, not adversaries, in administering the
same body of law. Once again, Section 211 of the
aviation bill violates this principle.
245
• The legislation must be appropriate to perform its
intended function. Section 211 would force trucking
deregulation into the incompatible context of the
Federal Aviation Authorization Act.
• The legislation must provide a consistent and unified
approach to governmental oversight of motor carrier
transportation. Section 211 and the House action
defunding the ICC are piecemeal and contradictory
"fixes" aimed at specific isolated objectives.
• An objective analysis on trucking reforms should be
performed, based on the facts with equal consideration
given to the needs of transportation providers and
users. Section 211 never received public scrutiny and
input in the Senate.
• Last, but not least, there must be an orderly
transition as regulatory change is made. Congress must
provide sufficient lead time for carriers, their
customers, and the states to alter their business
arrangements or laws. Section 211 would preempt
tomorrow the laws in 42 states.
with these basic principles as a foundation for a fair and
effective approach, we recommend that:
- 3 -
246
Congress should empower the Transportation Research
Board within the National Academy <~>* Sciences to perform an
objective, independent, cost/b""*** it analysis of Section 211
and federal trucking regulations and to report back to
Congress within eighteen (18) months with recommendations
for legislative changes. Congress should postpone the
effective date of Section 211 for twenty-four (24) months to
allow it to enact legislative changes based on the TRB
study.
Congress has frequently relied on TRB to provide substantive
analyses of and recommendations on the trucking industry. It is
an objective, professional research agency. This provides a sound
approach for Congress to enact a deliberate, reasoned policy
decision on a national policy for federal and state trucking
regulation.
Candidly, we believe that at the end of this hearing, the
Committee will not have a reasonable opportunity to sort out the
facts from the fiction, the rhetoric from the reality, or the
plausible from the practical. You will have received sincere,
heated debate on policy and principles, but your options and
best course of action will remain undefined. Time is working
against careful, legislative reform. The principal proponents of
this legislation, UPS and Federal Express, have conducted a
campaign of numbers without knowledge producing at great expense
what they hope is a controlling body of influence. They don't
247
want a deliberate informed approach because it is dangerous to
their special interest bill.
For these reasons, we strongly urge the Committee and the
House Conferees on S. 1491 to postpone the effective date of
Section 211 until a TRB study is completed. At a minimum, any
change enacted now by Congress should give all parties at least
twelve (12) months lead time before any preemption of state
regulation becomes effective.
The only other practical alternative to Section 211 that
could be or should be adopted by Congress during this session
would be legislation that requires any state law regulating
trucking to conform to the Motor Carrier Act of 1980 and further
require that states certify their regulatory program with the
federal government . A similar approach was taken for the
passenger carrier industry in the Bus Regulatory Reform Act of
1982 . This approach at least ensures equal treatment and fairness
to all trucking companies, as well as the needed uniformity in
state and federal programs. It would also remove any perceived
legitimacy from the claim of UPS that, in comparison with Federal
Express, it is unfairly disadvantaged by existing state
regulation. It does not, however, preemptively decide on the
merits what would be eliminated or be retained. The TRB study
proposed could be used, however, to fill that void.
It does not make sense for Congress to enact a law, such as
Section 211, that says a state cannot license a motor carrier to
ensure safety and insurance fitness, but impose such a
248
requirement at the federal level. This law would take away from
the states a very powerful safety tool -- removal of operating
authority as means to insure compliance with safety requirements.
It is not logical to require that interstate motor carriers'
rates and services be reasonable and nondiscriminatory, and to
establish a regulatory scheme to ensure that those statutorily-
mandated duties are met, but preempt in Section 211 the states
from making those same requirements for the benefit of their
citizens and from enforcing those motor carrier obligations
through state regulation.
It also does not make sense and is inequitable for the ICC
to regulate mergers, tariffs, credit terms, cargo damage rules,
the return to shipper of duplicate and unidentified payments, and
so on, and then, in Section 211, to deny to the states the
ability to so protect their citizens in fulfilling those same
appropriate governmental responsibilities regarding intrastate
commerce .
What makes sense is that Congress establish fair and uniform
governmental responsibilities to be administered in a coordinated
program of state and federal governments. This is the approach
Congress has taken in the federal motor carrier safety laws
through the Motor Carrier Safety Assistance Program (MCSAP) . This
partnership has worked well and could be applied here.
Section 211' s preemption of "any state law" relating to
"rates, routes or services" of the nations' largest trucking
companies creates conflicts with a great variety of non-economic
- 6 -
249
state regulations pertaining to trucking. Absent any demonstrated
burden or effect on interstate commerce, it raises the question
of whether the preemption would violate the 10th Amendment of the
U.S. Constitution, which reserves to the states those powers
which are not delegated to the federal government. This
preemptive language duplicates that in Sec. 1305 (a)(1) of the
Airline Deregulation Act which has cut a wide path through state
and local laws designed to protect the consuming public. For
example, in 1992 the Supreme Court held that state unfair
advertising laws were preempted as to airlines (U.S. Supreme
Court in Morales v. TWA. 112 S. Ct . , 2031 (1992)) and some
federal courts of appeals have held that the preemption extends
to tort actions (Hodges v. Delta Airlines. Inc.. F. 2d 1075 (5th
Cir. 1993) ) .
Section 211 should not be adopted by the House. It is a
special interest law that creates a huge competitive advantage
for UPS and FedX. It is bad public policy. That it was adopted by
the Senate as a floor amendment to an unrelated aviation funding
bill without any public hearing or committee review, illustrates
clearly that it is special interest legislation for UPS and FedX.
It is grossly unfair to thousands of motor carriers .
The publicized justification for Section 211 is to remove a
competitive advantage Federal Express has over UPS created by a
decision of the Ninth Circuit Court holding that the State of
California cannot regulate the trucking operations of Federal
Express. However, the alleged competitive advantage is illusory.
- 7 -
250
That court decision did not create a competitive imbalance.
Federal Express is self described as an all-cargo air carrier
which utilizes a few specially designed trucks in a small but
integral portion of its airline operation.1 Federal Express is
overwhelmingly an intermodal air-surface carrier, specializing in
interstate transportation of small parcels and documents.
By contrast, over 83 percent of UPS' business is exclusively
2 to 3 days ground service, both intrastate and interstate, of
heavier weight packages .
In fact, the Ninth Circuit Court noted in its decision that
of the 2600 trucks Federal Express operates each day in
California, only three trucks involve intrastate transportation.
These trucks are used as an available option2 to transport small
packages between Oakland and Los Angeles in accordance with the
airline schedule.3 These small parcels and documents weigh on
the average five pounds, are packaged in air cargo containers and
occupy the trucks along with other interstate shipments.4 In
contrast, UPS operates several thousand trucks in California. UPS
Federal Express' Opening Brief in No. 89-16444 before
the United States Court of Appeals for the Ninth
Circuit, pp.8, 17
Use of this option depends on factors such as aircraft
availability, mechanical problems with airplanes,
package volume and weather. Id. at 38
Id. at p. 38
Id. at p. 38
- 8 -
251
all but overwhelms its competition.5 This is hardly a
competitive disadvantage or a justification to preempt truck
transportation laws in 42 states.
It should also be noted that California subsequently changed
its laws in 1993 to give UPS almost total freedom from state
regulation on the same premise as the so-called Federal Express
competitive advantage. What that law has done, as would Section
211, is give UPS a tremendous competitive advantage over
thousands of California carriers who are now petitioning
California for equal treatment.
Consequently, the question remains, what overriding federal
interest justifies the immediate preemption of state trucking
laws with the consequent economic devastation of small and medium
sized trucking companies and the ultimate destruction of the
common carrier system that has served these states well since
they were first settled? Congress has historically used its
preemption power only when confronted with a compelling
demonstration of abuse by the states, warranting federal
intrusion.
A close examination of the states ' trucking laws indicate
that they are continually reviewed and modified by the states.
California and Texas -- two of the largest trucking markets --
are good current illustrations. They have enacted significant
In 1992, UPS had total system revenue of $17.1 billion
and profits of $809 million. It is the largest, most
profitable transportation company in the world. It is
ludicrous to suggest it has any regulatory or other
disadvantage .
- 9 -
252
regulatory reforms recencly and more changes are now under
consideration. Plainly, it is unfair to characterize the states
as intransigent. Indeed, this Committee is aware of their current
program aimed at bringing all state regulations into coordination
with federal regulation.
We are sure that further reform is certain, particularly to
promote uniformity. However, we believe the most reasonable
approach would be for TRB to carefully examine this issue and
make objective recommendations to Congress. The meat ax approach,
taken in Section 211, of preempting all state regulation is
unwarranted, unfair and ant i- competitive favoring UPS.
Our Associations will earnestly work with Congress in
rationally developing changes that embrace the principles
discussed above. The RCCC recently suggested to the Senate ways
to reduce the federal expense for the ICC by more than $10
million annually while retaining the agency's regulatory
functions. Reforms can and should be made for the benefit of all.
Respectfully submitted,
Martin E. Foley James C. Harkins
10 -
253
Before the
UNITED STATES HOUSE OF REPRESENTATIVES
PUBLIC WORKS AND TRANSPORTATION COMMITTEE
SUBCOMMITTEE ON SURFACE TRANSPORTATION
JULY 20, 1994
WASHINGTON, D.C.
Statement of the
AMERICANS FOR SAFE AND COMPETITIVE TRUCKING
F.S. GARRISON
Chairman, President and Chief Executive Officer
American Freightways Corporation
254
I am F.S. Garrison, Chairman, President & CEO of American Freightways
Corporation, a regional and interregional less-than-truckload carrier serving in
interstate commerce all points in 14 states located in the Midwestern, Southeastern
and Southwestern regions of the United States, and serving in intrastate commerce
all points in Arkansas, Kansas and Louisiana. American Freightways is a publicly
held company headquartered in Harrison, Arkansas. I am also a member of the
steering committee of Americans for Safe and Competitive Trucking (ASCT).
I greatly appreciate the opportunity to offer the views of ASCT and
American Freightways before this subcommittee on the economic regulation of an
often overlooked but vital component of our national transportation system,
intrastate motor carriage.
Americans for Safe and Competitive Trucking is a broad-based coalition of
more than 200 large and small companies, trucking firms, package express
carriers, shippers, private carriers, brokers, consumer groups and public policy
organizations. ASCT supports reform of the motor carrier industry both at the
federal and state level in order to increase competition, and thereby productivity
and efficiency.
ASCT has been supportive of Rep. Bill Emerson's bill, H.R. 2860, the
"Trucking Regulatory Reform Act of 1993." H.R. 2860 would eliminate the filed
rate doctrine, streamline ICC licensing requirements and, most importantly, would
eliminate burdensome state economic motor carrier regulations for all motor
carriers. This proposal not only creates an even playing field for intrastate
economic deregulation but also provides most of the reforms included in S. 2275,
the "Trucking Regulatory Reform Act of 1994" introduced by Sen. J. James Exon
and Sen. Bob Packwood.
ASCT has also been very supportive of the efforts of Rep. Pete Geren,
Rep. Bob Clement, Rep. Dennis Hasten, Rep. Ron Packard and other
255
Congressional leaders that have recognized the waste resulting from economic
regulation of intrastate motor carriage.
ASCT supports all efforts that would lead to total economic deregulation
for motor carriers. We support the action by the Senate in S. 1491, Section 211,
the "Federal Aviation Authorization Act of 1994", that would deregulate
mtermodai all-cargo air carriers. We believe that Section 211 is a step in the right
direction, but we must recognize that we now have a unique opportunity to pass
legislation to do away totally with all intrastate economic barriers for all motor
carriers, not just those carriers covered by that legislation. We believe truckload
and less-than-truckload carriers with no air freight forwarding operations, private
carriers, most owner-operators and other small .carriers are currently shut out by
the Senate bill.
Tne argument is made that these segments of the trucking industry can
become air freight forwarders. The trouble is there are no guarantees this can
happen, and, even if it does, it will most surely be at the expense of tremendous
amounts of time and dollars attempting to satisfy the requirements of different
states while those carriers favored initially by coverage under Section 211 of the
Senate bill make off with the freight. Hardly a level playing field for the smaller
carriers! Hardly a clear and concise path to an efficient national transportation
system!
Having commented about the obvious inequities created by the special
legislation of Section 211, I believe it is time to move to a broader perspective.
The real issue over deregulation of intrastate traffic is not about whose ox is being
gored. It is about extending to all United States citizens a better standard of living
versus protecting the status quo for a chosen few. It is about efficiency versus
waste. It is about a more productive United States that can successfully compete
in the international economy. It is about jobs - good jobs - at home - rather than
256
abroad. It is about the right of our citizens to start a business. Without freedom of
entry that right is denied.
The fight against intrastate deregulation has come from those within the
trucking industry who already possess intrastate operating authority and want
protection from competition. They say regulation benefits their citizens, assuring
service to small towns, protecting small shippers and small carriers. The fact is
that under 14 years of interstate deregulation service to small towns and small
shippers has been enhanced. As for protection of carriers from competition, I
know nothing about the trucking industry that makes it unique and deserving of
protection from competition. I could make a better case for a motor carrier to be
protected from itself. Certainly many small carriers are succeeding better than
their larger counterparts.
Protection creates a safety net, which results in a cost plus pricing scheme,
in turn resulting in higher costs to the consuming public as well as industry. For a
better standard of living and a better chance to compete successfully in a global
economy we have to wipe out the safety net at home, and home includes the states.
This can only happen through Federal legislation. The states are just too
vulnerable to pressure from the favored few who hold intrastate operating
authority.
A good example is the state of Texas, where intrastate shippers are held
hostage by a few large intrastate carriers. These carriers, fearful of deregulation
and competition, are now saying they will support deregulation for Texas. What
they really support is piecemeal deregulation - next year - that would allow
freedom of pricing, but not freedom of entry. Where only a few are allowed to
operate, freedom of pricing (unaccompanied by freedom of entry) is almost
meaningless. If history is any indication it could be decades before Texas removes
economic regulation.
257
It is difficult to comprehend why intrastate traffic deserves different
treatment than interstate traffic. We are talking about the same shippers, same
products, same commumties, same carriers, same trucks, same drivers, and, yes,
the same citizens.
I have been in this business 35 years. I operated an interstate and intrastate
regulated carrier for 24 years. I sold that business in 1979, partly because of
economic regulation and the substantial resources consumed fighting to obtain
operating authority with which I could compete. After interstate deregulation
occurred I started from scratch a new carrier in 1982, the one I represent here
today. I tell you from my own experience, not from theory, that those two
operations are as different as day and night. It is a lot more challenging but a lot
more fun and rewarding to compete for business as we do today. Sure, I want the
chance to compete for more intrastate business. Competition is as American as
our American flag itself.
But what I want is not so important. I am not very experienced at getting
everything I want. What is important is what is best for the citizens of this
country. I think I have the background and knowledge to predict that total
economic deregulation of intrastate motor carriage will result in a more efficient
national transportation system to the ultimate benefit of the vast majority of our
citizens. That is reason enough to be here today and testify in support of Section
211 of Senate Bill No. 1491 and its broadening to include coverage of all motor
carriers, large and small, private, common, and contract, express or not.
I appreciate your attention and will be glad to answer your questions.
258
Good afternoon. Mr Chairman and members of the Subcommittee. I am Warren E
Hoemann, Vice President of Government Relations for Yellow Corporation, Overland
Park, Kansas. Yellow Corporation is the parent company of four motor carriers: Yellow
Freight System of Overland Park, Kansas; Preston Trucking of Preston, Maryland; Saia
Motor Freight of Houma, Louisiana; and Smalley Transportation of Tampa, Florida.
The Yeliow corporate family also includes Yellow Logistics Services, a third-party
logistics company, and Yellow Technology Services, a provider of information services
to the motor carriers.
Each of the motor carriers in the Yellow family operates in both interstate and intrastate
commerce, handling general commodities in LTL (less-than-truckload) quantities.
Yellow Freight System is a nationwide LTL carrier with over 500 terminals and
operating revenues of $2.4 billion. Preston Trucking operates 70 terminals throughout
the mid-Atlantic, Northeast and upper Midwest, with annual revenues of $397 million.
Saia Motor Freight operates in central and southern states, including Texas, through a
system of 23 terminals, with annual revenues of $120 million. Smailey Transportation
has 13 terminals in the Southeast and annual revenues of $39 million. These four
carriers together hold intrastate operating authorities in 21 states.
Yellow supports Section 211 of S. 1491 . We urge this Subcommittee to recommend
Conference Committee adoption of Section 21 1 . We believe this course of action is
necessary for two reasons: First, passage of Section 21 1 will rectify a current
imbalance in the regulatory status of companies engaged in air freight, small parcel
and LTL transportation. Second, passage of Section 21 1 wili begin the much-needed
process of allowing both shippers and transportation companies to make business
decisions based upon marketplace needs and not regulatory requirements. Allow me
to comment on each of these, in turn.
Attached to my written statement are three advertisements from transportation
companies. First, Federal Express offers to carry the copier and not just the letter.
Second, UPS proclaims its advantages for LTL freight. And third, Yellow Freight
advertises its own time-definite, guaranteed, expedited freight service. Here, in the
companies' own ads, we see how air freight, small parcel and LTL companies today
offer competitive services. From a shipper standpoint and from the standpoint of our
national economy, that competition is good. From Yellow's standpoint as one of those
competitors, we believe competition in the marketplace is how our system should work.
But from a public policy standpoint, there is no reason why directly competitive
transportation companies should operate under different regulatory regimes. Yet,
those different regulatory regimes exist today. That is what Section 21 1 would rectify.
By virtue of the 1991 Ninth Circuit Court decision, Federal Express is not subject to
state regulation of its trucking operations, at least in the nine western states. UPS and
Federal Express have been deregulated by legislation in California, by Attorney
General opinion in Texas and by legislation in Kentucky. In all those states, the
operations of the Yellow family of companies remain regulated, even though, as shown,
259
many of our service offerings are directly competitive Yellow has no quarrel with
Federal Express and UPS advancing their own interests, but the continuation of state
regulation over the rates, routes and services of Yellow companies significantly hinders
our ability to remain competitive in the rapidly merging air freight/small parcel/LTL
market. Yellow supports Section 21 1 , first, then, because our family of companies
qualify under its current terms and would remain on a regulatory par with our direct
competitors.
While Section 21 1 would restore competitive equity, it would also begin a much-needed
process of regulatory reform by allowing business decisions to be made on the basis of
marketplace needs rather than regulatory requirements. Yellow firmly believes that
corporate success is best achieved through satisfaction of the customer rather than
protection of a position. Intrastate regulation of rates, routes and services, however,
gets in the way of satisfying a shipping customer.
Let me give you an example. To meet global competition, many shippers have
restructured their own supplier network so that supplies can be delivered in a just-in-
time manner. Today, shippers will ask us to compete on freight moving from all their
suppliers within, say, a 300-mile radius. Those freight movements can involve both
interstate and intrastate shipments, but our customers want all of those movements to
be treated alike and under the same rate structure. Even putting aside the availability
of intrastate operating authorities (as I have noted, the Yellow companies have such in
21 states), the rate approval mechanisms at the state level create uncertainty and
delay that, in turn, create dissatisfied customers. Failure to obtain intrastate operating
authority or failure to obtain approval of a proposed rate creates something else
entirely -- former customers. A six- to eight-month delay in obtaining intrastate rate
approval means we could completely miss the opportunity to compete for all of a
shipper's business. The loss of customers, and the inability to compete for them in the
first instance, is particularly probable when competing transportation companies are
under different regulatory regimes, as is the case today. Shippers today have
alternatives - UPS, Fed Ex, other modes -that do not face intrastate rate approval
uncertainties and delays.
Section 21 1 , then, achieves two important public policy goals: 1 ) It restores equity of
competition between transportation companies coming from different regulatory
regimes; and 2) It moves business decisions away from mere compliance with
regulatory requirements toward satisfying the customer in the marketplace. Ultimately,
what is of benefit to the shipping community will be of benefit to the nation's economy,
our nation's ability to compete in world markets, and of benefit to the transportation
companies. We must not let regulatory policy get in the way of customer service.
Yellow worked hard to be sure that our companies were absolutely included under
Section 21 1 We had to, for the competitive reasons I mentioned. We do not,
however, seek competitive advantage from Section 21 1 . Yellow has consistently urged
that Section 21 1 be considered the first step of a two-step process, with broader federal
260
preemption of intrastate rates, routes and services being addressed in separate
legislation. Yellow will support such a measure.
Similarly, Yellow looks forward to the day when the non-economic regulatory rules at
both the federal and state level are compatible for common carriers. I speak here of
rules that govern cargo loss and damage, uniform bills of lading, and the like, which do
not grant competitive advantage to any transportation company but work to the general
benefit of shippers, carriers and the public by allowing a smooth flow of commerce.
Again, Yellow pledges to work with Congress to ensure the compatibility of these non-
economic rules in separate legislation.
While Yellow favors broadening the preemption of intrastate regulation of rates, routes
and services and while we favor addressing the ancillary non-economic issues, we
cannot jeopardize Section 21 1 to do so. Section 21 1 addresses the immediate problem
of competitive imbalance due to different regulatory regimes. That problem will
continue to grow unless Section 21 1 is passed now. That is why Yellow believes a two-
step process is necessary.
Finally, Yellow agrees with Consolidated Freightways that a clear statement of concern
from this Subcommittee would be helpful in support of a tax write-off for intrastate
operating authorities. In our instance, Yellow has approximately $7.7 million of
intrastate operating authorities on our books. Similar treatment, of course, should be
accorded all transportation companies affected by Section 21 1 and subsequent
preemptive legislation.
I thank you for the opportunity to comment on Section 21 1. Yellow urges its passage
as currently written.
Warren E. Hoemann
Vice President - Government Relations
July 20, 1994
261
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Because there are no weight restrictions when
you ship with Federal Express, you can put any
most advanced tracking network in the business,
and automatic proof-of-deiivery. And only
Federal Express can give you a full money-back
guarantee if your shipment doesn't arrive by
10:30 a.m. the second business day* or if we can't
shipment, large or small, in Federal Express' hands, give you your shipment's status within a half-hour
Plus, with our Heavyweight Service, vou ■■■■■ni ot ^^ ca""
get everything that comes with the W^^frff 5o when lts ume t0 ship that Copier' USe
Federal Express name : COSMOS* the f&M*1* j the same earner you use to ship the copies
Absolutely Positively.
The Best In The Business.
262
Why the truck on the left is better
equipped to handle your LTL shipments
than the truck on the right.
Since we introduced UPS Hundredweight Service," LTL and air freight shippers
are discovering a simpler way to handle even the most complicated shipments.
With UPS, you get a firm pickup time, scheduled delivery date, and one company
that handles everything door-to-door. Computerized tracking can track your entire ship-
ment and every package in it. We now offer all the customized billing
options shippers and consignees require: Prepaid, Collect, or Third Party
And perhaps best of all, a UPS Hundredweight contract can deliver significant savings.
Which makes it rather obvious: The right truck for your next multiple- 1 jM
package shipment is the one on the left. The package delivery company more companies ocunt on.
CWLmtcoPuM.:
263
Look Wk\t Vol Can Do L\ A Couple Days.
\ellow Z-Dav"' -ervice continues co urow with service to most
major metro* and their surrounding
ireas across the U.S. and Canada. In
tact, in less than a year. Yellow 2-Dav
service has expanded to allow vou to ship
between over 23.000 on«in and destination
:ip codes in the U.S. alone.
How About A Guarantee?
Yellow's Express Lane Service™ offers 100%
guaranteed expedited delivery throughout the
continental U.S., as well as most or Canada.
With Exptess Lane Service, you also save days
off standard service schedules at rates
consistently below air freight. It's another /
part of Yellow's ongoing commitment to '
taster ttansit times. So if you're shipping in todav's faster-paced
marketplace, look tor a earner that can help you keep up. Think
fast. Think Yellow.
264
TESTIMONY OF
JIM HOPPER, EXECUTIVE DIRECTOR
ASSOCIATED MOTOR CARRIERS OF OKLAHOMA, INC
P.O. BOX 14620
OKLAHOMA CITY, OKLAHOMA 73113
(405) 843-9488
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
SUBCOMMITTEE ON SURFACE TRANSPORTATION
JULY 20, 1994
RE: LEGISLATION TO PREEMPT STATE MOTOR CARRIER REGULATIONS
PERTAINING TO RATES, ROUTES AND SERVICES
265
Page 1
Mr. Chairman, my name is Jim Hopper and I serve as the Executive
Director of the Associated Motor Carriers of Oklahoma, Inc., the trade
association for the trucking industry and allied businesses in
Oklahoma. Thank you for having these hearings today. I appreciate
this opportunity to provide testimony on an issue of vital importance
to the vast majority of trucking interests in Oklahoma and elsewhere
around the nation.
Our association consists of approximately 400 carrier and allied
members and it 1s on the behalf of those members that I appear today
to oppose this movement toward federal preemption of states' rights to
regulate Intrastate trucking. The trucking Industry affects virtually
every aspect of our lives. The American Trucking Associations (ATA),
the national trucking organization, 1s fond of saying, "If you've got
It, a truck brought 1t!" This 1s true for every state In the nation.
In my state alone, over 87,161 people, one of every eleven, were
employed In the trucking business In 1992. These employees earned more
than $2.7 billion 1n salaries that same year. Oklahoma 1s home to
over 3,520 family-owned and corporate trucking businesses. Similar
statistics can be recited for every state in the nation, Including
your state of West Virginia, where over 47,641 people worked In the
trucking business 1n 1992. I make this point to emphasize the
magnitude of this industry to our national economy and the need for a
continued regulatory environment that will protect smaller carriers,
those who make up the vast majority of the trucking companies In my
state and every other state.
266
Page 2
Intrastate regulation of the trucking industry has served
Oklahoma consumers and shippers well for many years. It creates a
stable environment and allows many carriers of various sizes to
survive and be profitable. Without the continued right for the state
of Oklahoma to regulate intrastate trucking, this stability and the
atmosphere that has served the shipping and consuming public so well
will be turned upside down and chaos will rule. The federal
government should not be involved in telling the state of Oklahoma, or
any other regulated state, how to handle their strictly intrastate
trucking.
Of course, the state will continue to have jurisdiction over
strictly Intrastate commerce and have the continuing duty and
responsibility to govern intrastate issues concerning highway safety,
environmental protection, existence of insurance for the protection of
the public impacted by the operation of motor carriers and other items
too numerous to mention. In many instances, our economic regulation
of trucking is Integrated with these other extremely important state
duties. For example, our state regulatory commission, in addition to
regulating intrastate trucking, also is charged with the duty to
regulate safe disposal of the numerous deleterious substances
generated by oil and gas operations conducted throughout our state.
We have currently 1n place a comprehensive scheme of regulation which
ensures that the disposal facilities in place in our state adequately
protect fresh water sources from pollution by these deleterious
substances. Inasmuch as the vast preponderance of these disposal
fluids are trucked to disposal facilities, we have in place as part of
our economic regulatory scheme requirements that haulers of
267
Page 3
deleterious substances have access to approved disposal wells prior to
commencement and/or broadening of trucking operations. In order to
adequately track safe disposal of deleterious substances and again as
part of our regulatory scheme, transporters of these substances are
required to provide information respecting the number of barrels
transported and disposal facilities utilized. Again, this is a
comprehensive integrated system which has proven to be extremely
effective 1n preventing the pollution of our state's fresh water
sources and which would be utterly destroyed by preempting our state
from doing its duty to effectively regulate intrastate trucking.
At the very minimum, this pending legislation should be
restricted to the large intermodal all-cargo air carriers as
originally proposed. Unfortunately, the pending Senate amendment has
been so broadened, 1t threatens the very existence of smaller carriers
1n Oklahoma and elsewhere around the nation. Among other things,
predatory pricing will become rampant and rural areas and smaller
shippers will suffer from a loss of service, because those carriers
who have been fit, willing, able, and required to provide service to
those areas will not be in business very long.
If you haven't already heard it today, you will hear it argued
that "any company dependent on economic regulation for survival won't
survive for long". That statement may be true, but why should the
federal government preempt these long-standing "states' rights"
concerning intrastate trucking regulation just because several of the
larger carriers got together and decided they wanted a level playing
field. Make it level for them, but leave the rest of the trucking
industry alone and don't allow the Senate version to passed unchanged.
268
Page 4
Yes, times may be changing. But there ought to be some order to
this change, not utter chaos. Preemption of intrastate regulation
should not happen without serious thought given to the consequences
for thousands of trucking companies, their employees, shippers and
customers. The appropriate committees in Congress should be allowed
to hold hearings and receive testimony from all segments of the
trucking Industry, not just the large carriers, before such
far-reaching decisions are made.
It is important to note that the ATA does not speak for the vast
majority of motor carriers on this issue. Don't abandon the smaller
trucking firms who provide service to every nook and cranny of this
nation and have made the United States motor carrier Industry the
finest In the world. They don't deserve that fate. I urge you to
preserve the right of states to continue to regulate purely Intrastate
trucking. If any changes are necessary, limit them to the large
intermodal all-cargo air carriers as originally proposed. They can
handle it. Be fair to the smaller companies who make up the largest
share of the trucking industry.
Thank you again for taking the time to hold these important
hearings. I appreciate being given this opportunity to present the
other side of this story.
269
STATEMENT OF
FRANK E. KRUESI
ASSISTANT SECRETARY FOR TRANSPORTATION POLICY
U.S. DEPARTMENT OF TRANSPORTATION
BEFORE THE
SUBCOMMITTEE ON SURFACE TRANSPORTATION
OF THE PUBLIC WORKS AND TRANSPORTATION COMMITTEE
U.S. HOUSE OF REPRESENTATIVES
HEARING ON
PREEMPTION OF STATE REGULATION
OF INTERMODAL ALL- CARGO AIR CARRIERS
JULY 20, 1994
Good morning, Mr. Chairman and members of the
Subcommittee. I am pleased to be here to discuss the
problems of State economic regulation of motor carriers, and
the proposed legislative solution now before the Committee.
Section 211 of S. 1491 would prohibit States from regulating
the trucking operations of transportation companies that
offer intermodal cargo services . The Administration strongly
supports this provision because it will eliminate conflicting
laws that interfere with efficient intermodal cargo
transportation and let us enjoy at the State level those
economic benefits that have accrued at the interstate level
since the Motor Carrier Act of 1980.
The Benefits of Trucking Deregulation
Regulation of the interstate trucking industry by the
Interstate Commerce Commission (ICC) was largely removed by
the Motor Carrier Act of 1980, a fine piece of legislation
270
crafted by this Committee. As g result of that Act, almost
40,000 new carriers have entered the industry and made rate
levels much more competitive. The new entrants include
almost 2,000 women- and minority-owned carriers that would
probably have been "frozen out" under the old entry controls.
According to the Bureau of Labor Statistics, total employment
in the trucking services industry has increased by over
500,000 since 1979, even after taking into account job losses
resulting from recessions and other economic adjustments.
Shippers' overall distribution costs have been
significantly reduced as a result of new price and service
options enabled by the Act. The reforms have played a major
role in the way U.S. industry conducts its manufacturing,
shipping, merchandising, and inventory functions, resulting
in substantial reductions in logistics expenditures.
Estimates of savings range from $20 billion per year in
direct freight costs, to more than double that figure when
inventory savings are included.
Moreover, these benefits have occurred without the loss
of service to small, rural shippers and communities that was
predicted by the opponents of reform. Nor have their
predictions of a serious deterioration in truck safety come
to pass. Economic regulation does not ensure truck safety.
Direct safety regulation does. A joint study by the
California Highway Patrol and the California Public Utilities
271
3
Commission showed a direct and .inverse relationship between
truck inspections and truck accidents: as inspections
increased, accidents fell and vice versa. Experience shows
that since enactment of motor carrier deregulation at the
Federal level and several important motor carrier safety laws
also developed in this Committee, the fatal accident rate for
medium and heavy duty trucks has fallen by about half.
The Problem of State Trucking Regulation
Most of these interstate reforms are not available to
interstate or other carriers when they are conducting
intrastate trucking operations. Although nine States do not
regulate trucking operations conducted wholly within their
respective boundaries, 41 States do. Such regulation usually
takes the form of entry controls, tariff filing and rate
regulation, restrictions on operations, and grants of
antitrust immunity for carriers to collectively set their
rates. Not all 41 States regulate each of these aspects nor
do they all regulate them strictly, but the very diversity of
their regulatory schemes is a problem for national and
regional carriers who try to conduct a standard way of doing
business.
Entry controls at the State level can be very strict,
even stricter than they were at the ICC prior to the Motor
Carrier Act of 1980. For example, it took United Parcel
272
Service almost 20 years to acquire authority to conduct
operations within the State of Texas. In many States, such
as Michigan, entry into any meaningful trucking operation is
difficult because incumbent carriers are in the powerful
position to argue before State regulators that new carriers
are not needed and should not be permitted. To avoid these
regulatory roadblocks, most new applicants seek such
narrowly-defined authority — to carry a particular
commodity, such as dentures, for example — that few existing
carriers bother to protest. The resulting new operations are
so restricted in scope that nothing is added to competition.
With few competitors for any given route and type of trucking
business, there is little reason for them to compete on
price, so rates are higher than they would be if entry were
as easy as it is at the interstate level.
About 26 States strictly regulate trucking rates. Such
regulation is usually designed to ensure not that rates are
kept low, but that they are kept high enough to cover all
costs and are not so low as to be "predatory". Other
carriers help to enforce rate regulation by complaining to
State regulators that a carrier's rates are too low, and many
State agencies can order those rates increased. States that
regulate rates also require carriers to file their tariffs,
an expensive task, with much paperwork and long intervals
between filing rates and receiving approval to charge them.
For carriers such as UPS and FedEx, which conduct interstate
273
operations at the national level and have a uniform pricing
scheme, this type of regulation and "regulatory lag" is both
expensive and disruptive to operations. It also increases
costs to consumers who use their services.
Most of the States that regulate rates confer immunity
from the antitrust laws on carriers that band together to
form "rate bureaus" for the purpose of discussing and
agreeing on the rates to charge shippers . It does not take
much imagination to guess the effect this has on rates:
carriers facing little competition would not normally meet
with each other to lower their rates.
Trucking economic regulation at the State level is both
important and expensive. As much as two-thirds of all
trucking shipments in the U.S. are intrastate. A recent
staff study by the Federal Trade Commission estimates that
strict entry restrictions in the "less-than-truckload" or LTL
sector, which is so important to small businesses, raise
rates by about 20 percent. Strict rate regulation in this
sector raises them another 5 percent. And antitrust immunity
adds another 12 percent increase, for a total of 37 percent
in States that regulate entry, rates and collective activity.
For the full truckload sector, which is more important to
larger businesses, intrastate rates are 32 percent higher
than interstate rates.
85-090 95-10
274
6
Taken together, it is estimated that State regulation
costs shippers between $3 billion and $8 billion per year.
These costs are passed on to consumers. Although much of
this cost is borne by consumers and shippers in the
regulating States, a significant portion is also paid by the
rest of us in other states, as we purchase goods made by
regional, national, and multi-national companies located in
States that regulate.
Other expenses are not even counted in this cost burden.
In order to escape the unnecessarily high costs of using
intrastate hauls, shippers often make transportation and
plant location decisions that save their companies money, but
have undesirable consequences for the economy and the Nation.
These costs include unnecessarily long shipping distances.
For example, Procter and Gamble supplies its customers in
Texas from manufacturing plants located as far away as
Tennessee rather than from its Texas plants because
relatively low interstate trucking costs make it cheaper to
do so. The result is more diesel fuel consumption, more
traffic congestion and air pollution, and more wear and tear
on the highways.
Of all the regulatory reform legislation enacted since
1977, affecting airlines, trucking, railroads, and intercity
buses, trucking is the only sector in which the legislation
did not recognize the problem of State economic regulation
275
and include language to preempt it. States may not regulate
the rates, routes or services of air carriers, whether the
carrier owns and/or operates its own aircraft (direct air
carriers) or purchases space on the aircraft of other
carriers (indirect air carriers) . States that regulate
intrastate rail operations must have their regulatory
policies certified by the ICC for consistency with Federal
standards. Intercity bus carriers can appeal harsh or unfair
State regulatory decisions concerning entry, fares, and
service abandonments to the ICC, which can overrule them.
State Regulation of Package Express Carriers
The package express industry is one in which we lead the
world because of its integrated multimodal operations. This
industry has its roots in transportation deregulation, and
would not exist today without the work of this Committee in
removing the chains of interstate regulation. Our integrated
multimodal operators are the envy of the world, with
impressive international, national, and local services.
Today, there is even impressive small package service in
predominantly rural States such as West Virginia, Arkansas
and Montana. In fact, rural States have more service today
than at any other time in our history.
However, under current law,' the playing field for
package express carriers in intrastate commerce is extremely
276
8
uneven. Recently, in the nine western states bound by the
Ninth Circuit, the Court in Federal Express v. California
Pnhlir rn-.iHf.ifts Commission. 936 F.2d. 1075 (9th Cir., 1991),
cert, denied, 112 S.Ct. 2956 (1992), applied the broad State
preemption provision in the Airline Deregulation Act of 1978
to the trucking operations of FedEx, an air carrier. This
exempted FedEx from California's motor carrier controls.
Because of its status as an air carrier, FedEx then held a
tremendous competitive advantage over its competitors who
were still regulated. Although some of its competitors
conduct similar operations, they are not organized as air
carriers. For example, UPS has an air carrier operation, but
the company itself is not an air carrier. FedEx was freed
from expensive paperwork requirements such as tariff filing
and financial reporting, and could freely exercise its
guaranteed on-time delivery feature.
Last year, in response to this inequitable situation,
California enacted legislation extending this exemption
enjoyed by FedEx as a result of its court victory, to its
competitors which are motor carriers affiliated with direct
air carriers. The California legislation denied this
exemption, however, to those using a large proportion of
owner-operators instead of company employees, thereby denying
it to Roadway Package System, even though the Roadway holding
company includes an air carrier operation.
277
9
Also recently, the State cf Texas decided tc follow (and
broaden somewhat) the decision of the Ninth Circuit Court.
It has removed the surface operations of integrated air-motor
package carriers from Texas Railroad Commission regulatory
jurisdiction. However, competitors whose operations are not
integrated will continue to be regulated. Likewise, Kentucky
enacted legislation in May 1994 exempting from its regulation
the carriage of packages weighing less than 150 pounds, by
motor carriers affiliated with either direct or indirect air
carriers .
In another 40 or so States, package express carriers are
subject to various regulatory schemes, and many others are
not even allowed to compete because they have been denied
intrastate operating authority by public utility commissions
in those States.
Legislative Solution of Section 211
The Administration supports the legislation before the
Committee, section 211 of S. 1491, that would help alleviate
the burden of State regulation on motor carrier operations.
Depending on how many carriers would qualify for the
regulatory relief, section 211 could provide substantial
costs savings for this important transportation industry.
Such a legislative solution would codify in law the Ninth
Circuit FedEx decision, with one major difference. It would
278
10
make that regulatory reform available to a much broader class
of carriers.
Airline operations are already free from State
regulation under a strong federal preemption provision in
current law. The controversy arises for airlines offering
trucking services as part of their freight operations.
Section 211 would supplement the federal preemption provision
under current law and preempt States or compacts of States
from regulating the economic, non-safety-related activities
of "intermodal all-cargo air carriers." The latter term is
defined in the legislation. Such carriers include
certificated air carriers, such as FedEx, that own and
operate aircraft . It also includes what are known as
"indirect" air carriers that do not own or operate aircraft,
but simply purchase space on the aircraft of others and sell
it to shippers. Section 211 would exempt from State
regulation the operations of motor carriers that (1) are
either affiliated with air carriers through common ownership,
or (2) use air carriers a substantial number of times.
That means that any air carrier, including an indirect
air carrier (also called "air freight forwarder"), offering
motor carrier operations would fall under the exemption; in
addition, any regulated for-hire motor carrier could qualify
by purchasing such an air carrier,- conducting operations as
such an air carrier, or by using such an air carrier at least
279
n
15,000 times per year. It is unclear what constitutes 15,000
uses, i.e. whether this refers to shipments or packages or
pieces. We urge that this be clarified.
Although section 211 has been characterized by some as a
narrow provision that would benefit only a few relatively
large companies such as UPS and FedEx, it appears that any
regulated carrier ("which has authority to provide
transportation" from the ICC or a State agency) could qualify
if it wished to do so. Nor is its impact limited to
intermodal package carriers, since it applies to "property,"
which we interpret to mean freight or cargo of all kinds and
sizes, as well as "pieces, parcels, or packages." We do note
that there may be a technical drafting problem relating to
State routing controls for safety purposes. We would be
happy to work with the Committee to clarify that issue.
Thus, this legislation would help to even the playing
field for those carriers willing to avail themselves of the
opportunity. If given broad interpretation, it could
eventually yield $3 billion to $8 billion per year in
savings .
We therefore strongly support this legislation because
of the importance of the air cargo sector of our
transportation industry. The Administration is interested in
lowering barriers to entry and enhancing competition. At the
280
12
same time, we are concerned that the regulatory relief
provided could disadvantage some smaller motor carriers,
including bus companies. We acknowledge that, if this
legislation is enacted, there may be a transition period
during which smaller, less sophisticated carriers, might find
it hard to adjust. Much will depend on the way in which
State legislatures and regulatory agencies respond the change
and take actions to assure the fairness and equity of their
regulatory regimes .
We want to find ways to ease that transition and
minimize any disadvantages for small operators. We would be
happy to work with the Committee in that effort .
Mr. Chairman, that concludes my statement. I would be
happy to answer any questions.
281
TESTIMONY OF DREW LEWIS
BEFORE THE SURFACE TRANSPORTATION SUBCOMMITTEE
OF THE COMMITTEE ON PUBLIC WORKS
U.S. HOUSE OF REPRESENTATIVES
JULY 20, 1994
My name is Drew Lewis. I am the Chairman of Union Pacific
Corporation, the parent company of Overnite Transportation, located in
Richmond, Virginia, and Skyway Freight, based in Watsonville,
California. I very much appreciate this opportunity to testify on
Section 211, the "indirect all-cargo air carrier" provision.
When I was Secretary of Transportation from 1980 to 1982, 1
appeared before congress numerous times to ask that trucking
companies be freed of state regulation that assigns routes and rates for
intrastate hauls. it is ironic today, 14 years later, i am back before
Congress seeking that same freedom for our own two companies,
Overnite and Skyway.
Section 211 would free the American economy of those
regulatory burdens. mr. chairman, and we urge enactment of it, or a
reasonable alternative to it, promptly. there are a number of stories i
could share with you about outdated state restrictions, but this one is
my favorite because i know one time or another you have been stuck
in traffic on the woodrow wilson bridge, particularly this time of year
282
with folks heading to the beach on friday after work.
overn1te is by far the largest motor carrier in virginia.
However, the state does not permit overnite to intrastate haul
between Richmond and Alexandria -- the largest market in the state.
Please take a look at the map provided. In order for Overnite to serve
retail stores in Alexandria, we used to drive the shipment originating in
Richmond over the Wilson Bridge to our terminal in Landover,
Maryland. In Landover we would break down the shipments and truck
back freight into northern virginia for delivery. this qualifies as an
interstate haul, perfectly ludicrous .... but legal. that is how we
used to get around virginia's antiquated intrastate authority.
Essentially, the shipment would go miles out of its way to satisfy a
state directive that does not care about the customer, the environment,
OR THE HILL staff that has worked hard all week only to end up stuck
BEHLND AN OVERNITE TRUCK ON WOODROW WILSON BRIDGE GOING TO
Landover, Maryland, in order to go BACK to Alexandria!!!
This is inefficient and unproductive use of bridges, roads, time,
and fuel. Further, we can't even use the Landover terminal to serve
2
283
Alexandria intrastate anymore because we recently built a terminal
in Manassas, Virginia. The law precludes us from bypassing the
terminal in Manassas to go to Landover. This is foolhardy and a
wasteful way to serve our customers. We know because they've been
complaining. They want one company to handle their transportation
needs.
Skyway, the newest member of the Union Pacific family, is a
multi-faceted logistics and transportation company headquartered in
Watsonville, California, the Chairman's backyard. At any given hour,
Skyway may be rushing a critical part for a customer by charter jet,
moving an entire warehouse by stack train, running a distribution
center, assembling and testing computers. or developing a
comprehensive transportation and logistics strategy. in a nutshell, the
company specializes in customized logistical support tailored to the
needs of its customers across the country.
Competitive advantage in any marketplace is the key to
maintaining and expanding market share. and speed is the key
element in gaining that competitive edge, faster product development
3
284
cycles, reduced manufacturing cycle times, speedier order cycle times,
and time-definite dependable deliveries. the companies that
concentrate on speed -- time to market -- will gain the competitive
advantage and ultimately win the race to business success. this is
why the advantage federal express gained with the ninth circuit court
decision has made it strategically imperative for those of us who
compete for customers with federal express to obtain the same
advantages in those nine states.
At Union Pacific we pride ourselves on seamless service for our
customers whether it be by rail, truck, or air. we need these
antiquated state restrictions lifted. i hope the public works committee
will look favorably on the intent of section 211 and enact it or a
reasonable alternative to it in order to level the playing field. our goal
is to solve the problem; we are flexible as to how it is done -- as long
as it is done promptly.
Mr. Chairman, this concludes my statement. It is indeed a
pleasure to be working with my friends on public works again.
285
Introduction.
Good morning, Mr. Chairman and Members of the Subcommittee. I am
James E. Merritt, a partner in the law firm of Morrison & Foerster, and tax counsel for
Consolidated Freightways, Inc. With me is Michael W. Yost, Director of Taxes for
Consolidated. We thank you for this opportunity to appear before you today to express
our views on Section 21 1 of Senate Bill S. 1491 .
Consolidated Freightways, Inc. and its affiliated companies is one of the
largest cargo transportation companies in the United States. Its motor carrier
companies employ over 28,000 persons. Its affiliate, Emery Worldwide, is an
integrated air freight carrier which employs 7,500 persons. Both the motor carrier
companies and Emery operate throughout the United States and internationally.
As defined in Section 211 of S. 1491 Consolidated Freightways, Inc. and
its affiliated companies are "an intermodal all-cargo carrier". Accordingly, they will
be directly affected by enactment of Section 21 1 as part of Senate Bill 1491.
Consolidated supports the position of the American Trucking
Associations, Inc. with regard to preemption of state regulation of rates and routes as
described in detail by other witnesses. Mr. Yost and I wish to address subsidiary issues
regarding: (1) the value of the state operating rights or authorities, (2) the impact of
enactment of Section 211 upon the value of those rights or authorities, and (3) the
desirability that this Subcommittee express its concern with regard to the federal
income tax consequences of any loss in the value of intrastate operating rights.
286
Value of Intrastate Operating Rights.
State operating rights and authorities acquired under the state regulatory
regime which has existed for many decades have substantial value. Many of these
rights were acquired by carriers in regulatory proceedings which involved substantial
expenses to establish "public convenience and necessity". Rights were also purchased
by carriers either directly, as a purchase of all of the assets of another carrier, or
indirectly, by the purchase of the stock of another carrier followed by liquidation of the
acquired carrier or an election to treat the stock acquisition as a purchase of assets.
The costs of intrastate operating rights were established by these transactions and by
appraisals of the assets of an acquired company, including its operating rights and
authorities.
In some cases carriers which acquired the stock of another carrier have not
yet established the costs or value of the intrastate operating rights held by the acquired
company. These situations require special provisions to ensure equitable treatment
which we will describe later.
Carriers report their intrastate operating rights and authorities as assets in
their financial statements. Lenders, and others, rely upon the value or costs of these
intrastate operating rights in evaluating the credit worthiness of carriers. We have no
complete study of the industry's total cost basis in these rights, but our best estimates,
at this time, are that the industry's total cost basis is less than $200 million. The value
287
of intrastate rights held by Consolidated Freightways, Inc. and affiliated companies is
approximately $11 million.
Loss in Value of Operating Rights.
Deregulation by preemption of state restrictions upon intrastate operations
will greatly benefit the public as described by others. It will also adversely affect the
values of the intrastate operating rights held by the affected carriers. This loss in value
of the intrastate operating rights is similar to the result of deregulation of interstate
operating rights awarded by the Interstate Commerce Commission ("ICC") in the
Motor Carrier Act of 1980. Pub. L.96-296, 96th Cong. (July 1, 1980).
As a result of the deregulation of interstate operating rights in 1980 the
Financial Accounting Standards Board ("FASB") required carriers to write-off the costs
of their interstate operating rights as an extraordinary item. FASB Exposure Draft,
"Accounting for Intangible Assets of Motor Carriers," (Oct. 24, 1980) now included in
Statement of Financial Accounting Standards No. 44. ("FAS 44"). The basis for the
FASB action was that the resale and collateral values of the interstate operating rights
had been substantially impaired resulting in an economic loss to the carriers which
should be charged to income. The FASB also concluded that a write-off of the costs of
similarly deregulated intrastate operating rights would be required. FAS 44, App. B,
para. 23.
288
Historical Precedent for Tax Deduction.
We know that this Subcommittee is not a tax writing Committee and we
do not request that a tax provision with regard to the loss of value of the state operating
rights be included in this legislation. It is, however, appropriate for this Subcommittee
to include a statement of its concern in the report on this legislation.
In the Motor Carrier Act of 1980 the House Committee on Public Works
and Transportation included in its report on the bill the following statement:
. . . concern has been expressed that this legislation might
result in a severe reduction in the value of motor carrier
operating rights which, in many cases, are now carried as
assets on the carriers' books. The Committee also intends
to monitor the effect of the Act on the value of operating
rights. The Committee would hope that the Committee on
Ways and Means would also hold oversight hearings on this
matter since that Committee would be the appropriate
forum to consider any tax relief legislation that might be
appropriate.
We submit that a similar statement by this Committee would be appropriate with regard
to Section 211.
Indeed, in 1981 in the Economic Recovery Tax Act of 1981 ("ERTA"),
Pub. L. No. 97-34, 95 Stat. 172, 265.6, legislation was enacted to permit carriers to
deduct their basis in their ICC operating rights as a result of the deregulation of
interstate operating rights in the Motor Carrier Act of 1980. Section 266 of ERTA
permitted carriers to amortize the total amount of their basis in the deregulated
operating rights over a 60 month period. The record considered by Congress in 1980
and 1981 with regard to the loss in value of the ICC operating rights as a result of
289
deregulation in the Motor Carrier Act of 1980 is equally applicable to intrastate
operating rights affected by Section 211.
Uniform and Equitable Relief.
To ensure equity amongst the various carriers affected by enactment of
Section 211 provisions similar to Section 266 of ERTA should be considered. Thus,
earners should be entitled to deduct their actual basis (cost) of all intrastate operating
rights either, immediately, in the year of enactment, or over a period not to exceed
60 months as provided in ERTA.
Carriers who directly acquired intrastate operating rights will have their
cost basis identified with those rights. Other carriers who indirectly acquired intrastate
operating rights by purchase of the stock of companies which held the operating rights
may not have liquidated those companies nor made an election under Section 338 of the
Internal Revenue Code (the present equivalent of Section 334(b)(2) considered in
ERTA) to treat the acquisition of the stock as an asset acquisition. Equitable and fair
treatment should not distinguish between these carriers. To achieve equity a provision
should be included to authorize regulations by the Secretary of the Treasury to allow
carriers to compute their basis in the operating rights as though a hypothetical
liquidation or Section 338 election had been made at the time of the purchase of the
stock. Section 266 of ERTA included such equitable relief for carriers as a result of
deregulation in the Motor Carrier Act of 1980.
290
Under existing law the ability of carriers to obtain an immediate deduction
may depend upon the facts and circumstances of particular cases. It may also depend
upon which court has jurisdiction of the case. Without legislative guidance it is
possible that the Internal Revenue Service would challenge an immediate deduction of
the basis of intrastate operating rights in some or all cases. This could produce the
same burdensome administrative and litigation nightmare which Congress recently
sought to eliminate with regard to the amortization of other intangible assets in
Section 197 of the Internal Revenue Code. For this reason also we believe that it is
important that this Committee express its view that a fab- and uniform rule should apply
to permit the deduction of the loss of value of the intrastate operating rights affected by
Section 211.
Conclusion.
Thank you for permitting us to express these views regarding Section 21 1
and the important legislation before this Committee. We will be happy to respond to
any questions which you may have.
304340(jem2]
291
INTRODOCTIOM
Mr. Chairman, Members of the Subcommittee, my name is Larry
S. Mulkey. I serve as the President of Ryder Dedicated
Logistics, Inc., which is a subsidiary of Ryder System, Inc.
Ryder Dedicated Logistics, or RDL, is at the forefront of a
revolution in the way that manufacturing companies transport
freight and manage inventories. I am here today because outdated
and unnecessary state motor carrier regulations are impeding the
progress of American businesses in reducing their transportation
costs and improving the efficiency of their operations. On
behalf of Ryder and its thousands of employees and customers
worldwide, I ask the Subcommittee to eliminate these remaining
regulatory barriers.
Ryder System comprises a number of companies providing
transportation services. Founded in 1933, Ryder has grown from a
small cargo-hauling business using a single truck to a
multifaceted highway transportation and logistics company with
annual revenues of over $4.2 billion. Ryder employs more than
38,000 people worldwide, including more than 35,000 in the United
States, and has over 172,000 vehicles in its fleet.
Although people are most familiar with Ryder's yellow rental
trucks for do-it-yourself household moves, our consumer rental
business is only a small portion of our highway transportation
services.
292
Our commercial truck leasing and rental business, operating
as Ryder Truck Rental, inc., is the world's largest truck rental
and leasing company. We have over 10,000 customers in the United
States and Canada. Although Ryder supplies vehicles to many
Fortune 500 companies, we provide vehicles to many small
businesses as well. In fact, our customers' average fleet has
only five vehicles.
For our full service leasing customers, Ryder provides the
vehicles, financing, maintenance, administration, insurance and
all related support that businesses need to transport their raw
materials and finished products. This relieves our customers of
the financial and administrative burden of owning and maintaining
vehicles and enables them to concentrate on their core
businesses. In addition, Ryder's commercial truck rental
business provides vehicles to a variety of companies for a day, a
week, or longer.
Through our Automotive Carrier Division and its operating
companies, Ryder is also the nation's largest highway transporter
of new automobiles and light trucks. We transport more than 37
percent of all of the new cars and light trucks sold in the
United States and Canada (about six million units each year) .
Our customers include all of the major domestic automobile
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manufacturers and foreign manufacturers that sell significant
numbers of new vehicles in the U.S.
Additionally, Ryder is a major provider of passenger
transportation in the United States. Ryder Student
Transportation Services is the country's second largest provider
of student transportation services, carrying more than 420,000
children to and from school daily in over 500 school systems in
19 states. Through ATE Management Services, Ryder is the
nation's largest private manager of municipal transportation
systems. We manage or operate 88 public transit systems in 28
states. Locally, ATE Management Services operates the Montgomery
County, Maryland Metro Ride-On transit bus service.
The company I head, Ryder Dedicated Logistics, is the
fastest growing component of Ryder's corporate family. RDL
provides dedicated contract carriage and logistics service to
customers in over 30 industries. This service goes well beyond
traditional motor carriage functions. RDL recently acquired
LogiCorp, a logistics management company. Through its new
LogiCorp division, RDL in essence becomes the freight traffic
department for its customers. We act as the shipper's agent to
put together the intermodal transportation network our customers
need. This includes air freight and air freight forwarding
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service, less-than-truckload and truck load transportation, and
rail and ocean shipments.
RDL brings value to its customers by planning, implementing
and controlling the efficient, cost-effective flow and storage of
raw materials, in-process inventory, finished goods and related
information from the point of origin to the point of consumption.
This service relieves a customer of the burden of running a
transportation system and helps to develop efficiencies along the
entire logistics supply chain. Handling challenges ranging from
hiring and managing drivers and scheduling and transportation of
in-bound materials and components through the delivery of the
finished product to the end user, dedicated logistics can deliver
significant productivity gains and cost savings to customers.
Transferring the logistics service to a dedicated provider
like RDL is a relatively new concept that has dramatically
changed manufacturing and distribution in this country. Ten
years ago, this service virtually did not exist. But rising
distribution costs and increased global competition have created
new logistics challenges in all industries. Businesses are
realizing that outsourcing logistics functions can provide the
edge needed to gain such critical competitive advantages as
improved customer service, lower overall costs, increased
flexibility and enhanced control.
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Today, RDL is the largest provider of dedicated logistics in
a market that is $10 billion a year today and is expected to grow
to $25 billion a year within the next five years. This
phenomenal market growth is expected because using third-party
providers like RDL allows our customer to focus its attention and
resources on its core business. One of the most important
features of our dedicated logistics service is that it allows the
customer to deal with a single provider for all of its
transportation and logistics needs.
THE NEED FOR FURTHER DEREGULATION
Unfortunately, Ryder and other providers of transportation
services are restricted by many state laws that prohibit, limit
or delay our ability to serve customers on an intrastate basis.
Although Congress substantially deregulated motor carrier
operations for interstate transportation almost 15 years ago, 41
states still have arcane laws regulating entry, rates and
services for intrastate trucking. These laws are vestiges of the
days before the construction of the Interstate Highway System,
when companies often limited their distribution network to the
area near their manufacturing facilities. Today, national and
international distribution of products is the norm rather than
the exception, and manufacturers are continually seeking ways to
streamline the distribution process, reduce costs, and improve
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efficiency. State regulation of intrastate trucking operations
is in direct conflict with those objectives.
The following are but a few examples of state laws that
prevent Ryder from providing its intrastate services in a timely
manner to customers:
* Although RDL is the fastest growing Ryder company, many
states limit the number of customers that we may serve
at one time. Mississippi, Nevada and South Carolina
limit contract carriers to doing business with only
three shippers at one time. Louisiana limits us to
five customers at one time. North Carolina has a rule
limiting RDL to seven contracts, which forced us to
petition for an exemption when our business grew beyond
the contract limit. Texas limits us to 15 contracts.
The limit was five until RDL fought the Railroad
Commission over several years to raise the number.
* These contract limits arbitrarily restrict our business
growth. For example, RDL recently agreed to provide
dedicated logistics and motor carrier service to a
major retailer of automobile tires in Nevada, and the
plan called for establishing a distribution center in
Las Vegas. Although this new center would bring a
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number of new jobs and additional tax revenue to the
state, the agreement would require RDL to provide
intrastate motor contract carriage, and that would put
RDL over the limit of three contracts. RDL has proven
that it can compete in the market for dedicated
logistics, but we cannot serve all of the companies
that want to do business with us because of state laws
that defy any modern rational justification.
The Nevada Public Service Commission also may take up
to a year to decide each application for new operating
authority, regardless of whether the application is
contested. The Commission recently began a proceeding
to consider a 180-day cap on review of authority
applications. Even if this cap was adopted, RDL would
havye to wait six months after negotiating a contract
with a customer before it could know that it is legally
able to provide intrastate contract carriage, assuming
that the requested operating authority is granted.
These customer-specific authority applications are
extremely time-consuming, even when the applications
are unopposed by other carriers. Usually, it takes 45-
60 days for a state commission to grant the requested
authority, although the waiting period may vary, as in
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Nevada's case. Pennsylvania usually takes about 90
days, and temporary authority to provide service during
the waiting period is unavailable as a practical
natter. These delays prevent RDL from implementing its
full complement of services when the customer demands
them. The result is less efficient service and higher
distribution costs for our customers.
Unlike motor contract carriage permits issued by the
Interstate Commerce Commission, many states require
contract carriers to obtain separate authority for each
customer that they serve. Thus, every time RDL
negotiates a contract with a new customer that calls
for intrastate transportation in such a state, RDL must
apply for and obtain a new permit. This process is
extremely costly. In 1993, RDL made 51 intrastate
authority applications to serve 45 customers in 20
states. The total cost of making these applications
was over $750,000, of which over $400,000 went for
filing fees and attorneys' fees alone.
In some cases, operating authority is flat-out denied.
In Texas, RDL acquired a fleet of vehicles that had
been specially designed and built to meet the specific
needs of a shipper of prefabricated buildings. There
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were no other vehicles like this in the world. Because
a specialized motor carrier already certificated by the
Railroad Commission of Texas offered to serve our
customer using ordinary, non-specialized, inefficient
equipment, ROL's application for intrastate operating
authority was denied, even though the customer wanted
the efficiencies of our one-of-a-kind specialized
equipment .
In another instance in Texas, Ryder twice attempted to
convert a large private carrier tank truck operation to
a dedicated contract or specialized for-hire operation.
Both authority applications were denied by the Railroad
Commission at the request of numerous bulk carriers
already certificated by the Commission. Our customer
had hauled its product in its own trucks as a private
carrier since 1962. The protesting carriers had never
provided or even solicited to provide this
transportation service to our customer. For over ten
years, Ryder was unable to provide the contract
carriage service, and the customer continued to haul
its product in its own trucks even though its business
plan called for using our more efficient dedicated
contract carriage operation. Although the Texas
legislature is currently considering intrastate
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regulatory reform for motor carriers, specialized
carriers would be unaffected by the proposed changes.
* Moreover, many states have laws that require RDL, as a
dedicated contract carrier, to charge at least the same
rates as motor common carriers in that state. These
pricing restrictions make no economic sense in a
market-driven economy and they frustrate the desires of
shippers to obtain the best service possible, at the
lowest price available.
* In fact, New York and South Carolina have required RDL
to become motor common carriers in order to offer our
services to more than a limited number of customers.
This requires RDL to file tariffs with the state public
utility commission and to comply with other regulations
affecting common carrier operations, even though RDL
offers the specialized service of a dedicated contract
carrier.
* State laws also unnecessarily hamstring the operations
of private motor carriers, which are the primary truck
leasing and rental customers of Ryder Truck Rental.
For instance, approximately 35 states prohibit a
company like Frito-Lay from hauling products intrastate
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for its parent company, Pepsi-Cola, for compensation.
In 1980, Congress determined that allowing compensated
intercorporate hauling for interstate traffic would
reduce empty backhauls, take underutilized trucks off
the road, contribute to energy conservation and ease
traffic congestion. These expectations proved true for
interstate transportation, and are no less valid for
intrastate service.
* Also, approximately 31 states still prohibit a company
from leasing trucks and drivers from a single provider
for intrastate transportation, although this is clearly
the most efficient means of establishing a leased fleet
operation. In these states, a company must lease
trucks from one lessor and drivers from another source,
which raises the cost of the entire operation.
* Lastly, there is an ongoing legal issue regarding what
transportation service is properly classified as
interstate and what traffic is intrastate in nature.
For example, if a shipment goes from Illinois to a
warehouse in California, and then is subsequently
shipped to another point in California, there is a
question as to whether the second leg is part of a
continuous interstate movement or is a separate
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intrastate movement that is subject to state
regulation. . Shippers and carriers have been forced to
litigate this issue repeatedly at the ICC and in
federal courts,1' and state regulatory commissions have
fought aggressively in these proceedings to preserve
their regulatory jurisdiction. Because the result
depends on the facts of each case, it is difficult to
predict with certainty whether particular shipments
will be regulated by the state or the ICC. Again, this
makes service to our customers exceedingly difficult.
The current patchwork system of state regulation is often
arbitrary, non-substantive, economically inefficient and
protectionist. Because of these state laws restricting our
ability to do business in a number of states, Ryder has long
supported federal legislation that would preempt state regulation
v £ge., e.g.. Merchants Fast Motor Lines. Inc. v. Interstate
Commerce Comm'n. 5 F.3d 911 (5th Cir. 1993); Pittsburah-
Johnstown-Altoona Express. Inc. — Petition for Declaratory
Order . No. MC-C-30129 (ICC decision served May 7, 1992), appeal
pending sjjb. nom. National Motor Freight Traffic Ass'n. Inc. V.
Interstate Commerce Comm'n. No. 93-1870 (D.C. Cir. docketed
December 27, 1993). Even when the courts rule in favor of
federal regulatory authority, the rulings might be of limited
usefulness to shippers and carriers. For instance, although the
U.S. Court of Appeals for the Fifth Circuit ruled in the
Merchants Fast Motor Lines case that the shipments were in
interstate commerce, that holding does not bind state agencies
outside the Fifth Circuit. Thus, the application of state
regulation to a shipment may depend arbitrarily on the geographic
location of the transportation rather than any coherent and
uniform regulatory policy.
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of rates, routes or services of the intrastate operations of
motor carriers that operate in interstate commerce.2' We have
been strong proponents of H.R. 1077, the Private Motor Carrier
Equity Act, which would lift many of the outdated and unnecessary
intrastate regulations on private carriers.
Congress determined back in 1980 for interstate traffic that
the marketplace, and not government, should determine which
transportation companies are allowed to enter new markets, offer
innovative services, and provide flexible pricing options. This
change has worked remarkably well for shippers and for the
economy in general. There is no rational economic policy reason
not to expand that regulatory change to intrastate motor carrier
transportation as well.
v Surprisingly, trucking is the only mode in which Congress
has not already preempted state regulation of intrastate
movements by carriers engaged in interstate commerce. Congress
long ago preempted state regulation of the airline (1978), rail
(1980) and intercity bus (1982) industries.
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SECTION 211 OF THE FAA AUTHORIZATION ACT
In 1991, the U.S. Court of Appeals for the Ninth Circuit
issued a decision holding that Federal Express is not subject to
California state regulations for its intrastate air or trucking
operations.2' Because Federal Express is an air carrier and not
a motor carrier, under that decision it is exempt from all state
regulation of its air, motor or air /motor service.4'
This court decision has had national repercussions.
United Parcel Service and other carriers that compete with
Federal Express in providing transportation services have asked
the Senate to adopt a provision that places them on the same
regulatory footing with Federal Express.5' The resulting
provision, Section 211 of S. 1491, the Federal Aviation
Administration Authorization Act of 1994, would correct the
competitive advantage granted in the Ninth Circuit decision by
2' Federal Express Corp. v. California Public Utilities Comm'n.
936 F.2d 1075 (9th Cir. 1991).
*' Section 105(a)(4) of the Federal Aviation Act, 14 U.S.C. S
1305(a)(4), prohibits a state from imposing regulations on the
"rates, routes or services" of a federally-certificated air
carrier.
5' The Ninth Circuit decision was based on the fact that
Federal Express is an air carrier with ancillary trucking
operations, and results in a different regulatory treatment for
motor carriers with ancillary air operations. This is not only
unfair but also illogical and entirely arbitrary from the
standpoint of regulatory policy.
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305
preempting state authority to regulate the air or trucking rates,
routes or services of "intermodal all-cargo air carriers." These
carriers are defined in the section as:
(1) air carriers;
(2) indirect air carriers (air freight forwarders) ; or
(3) other carriers with authority to provide transportation
services that (i) are affiliated through common
ownership with an air carrier or air freight forwarder,
or (ii) use, or are affiliated with companies that use,
air carriers or air freight forwarders at least 15,000
times annually.
This provision would level the playing field by providing
many large and small carriers, including RDL,5' with the
competitive advantage now enjoyed by Federal Express. Customers
would enjoy expanded service options and lower rates, while using
fewer vehicles to haul the same amount of freight, thereby
reducing traffic congestion and fuel consumption.
It is important to recognize that this provision would not
affect the ability of states to regulate trucking safety or
insurance or to impose truck size and weight restrictions. We at
Ryder are very proud of our outstanding safety record, and we go
to great lengths to ensure that our vehicles are operated as
safely as possible and in compliance with all federal and state
* RDL would be covered under Section 211 as a result of our
acquisition of LogiCorp, which as a shipper's agent provides air
freight services for its customers on a regular basis.
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85-090 95-11
306
safety requirements. Thus, we endorse reasonable state
regulations that improve the safety of all trucking operations.
We are pleased to note that the Clinton Administration has
issued a policy statement of support for Section 211, stating
that enactment of this provision "would be an important step in
resolving conflicting laws that interfere with efficient
intermodal cargo movements."
Although Ryder believes that Section 211 is an appropriate
response to the regulatory inconsistency resulting from the Ninth
Circuit decision, smaller for-hire and private carriers may be
unable to take advantage of the preemption in Section 211, and
therefore would still be subject to state regulation. Consistent
with our longstanding policy of supporting economic deregulation
of trucking, Ryder supports broadening Section 211 to cover all
motor carriers, both private and for-hire, that operate both
interstate and intrastate. This approach would place all
carriers on the same regulatory footing, and allow the
marketplace to determine how freight moves and at what price.
In contrast, Ryder would strongly oppose any effort to limit
the effect of Section 211 solely to carriers that provide direct
air service or to "package express" carriers. The markets for
transportation and logistics services are constantly evolving,
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307
and carriers are competing with one another to provide services
transporting boih large and small packages as well as truckload
and less-than-truckload lots for expedited delivery. As
previously mentioned, RDL is in a $10 billion a year dedicated
logistics market that is growing at a frenetic pace. A few years
from now we expect that this market will involve many new players
and new service offerings. Discrete transportation markets no
longer exist — carriers must provide services that are demanded
by customers, not by regulatory agencies. RDL and its
competitors are constantly tailoring services to meet customer
needs, and we cannot be limited by some entirely artificial
regulatory classification of what our market services should look
like. Congress and the states need to permit providers of
transportation and logistics to develop new service options and
new price formats without requiring regulatory approval for each
new transaction.
This legislation is long overdue. We encourage this
Subcommittee to act as expeditiously as possible to include a
provision on regulatory preemption for the motor carrier industry
as part of the FAA Authorization Act.
Thank you for the opportunity to present our views to the
Subcommittee on a matter that is extremely important to our
company, our employees, our customers, and American business.
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Statement
of
United Parcel Service
To the
Subcommittee on Surface Transportation
i
House Public Works and Transportation Committee
July 20, 1994
on
The Federal Aviation Administration Authorization Act of 1994
S. 1491
Presented by:
James A. Rogers
Vice President
309
I appreciate the Committee allowing United Parcel Service
the opportunity to offer comments regarding S. 14 91, the Federal
Aviation Administration Authorization Act of 1994, and more
particularly, Section 211 of that bill.
My last appearance before this committee was on March 31,
1992 at which time, I testified in support of HR 3221, the
Intermodal Competitiveness Act of 1991. The problem which
Section 211 of S. 1491 confronts is the same one that HR 3221
dealt with.
At its most basic, I am here because of the decision of the
9th Circuit Court of Appeals in the case, Federal Express v.
California Public Utilities Commission, 716 F. Supp. 1299 (D.C.
Cal. 1989), 936 F.2d 1075 (9th Cir. 1991), 112 S . Ct . 2956, writ
certiorari denied (1991) . This case came about when Federal
Express objected to the jurisdiction of the Public Utilities
Commission (PUC) over intrastate surface movements made by
Federal Express in California. They sued to block PUC
jurisdiction in the U.S. District Court. The District Court
found for the PUC. On appeal, the 9th Circuit Court found that
the Federal Aviation Act, 49 U.S.C. section 1305 completely
preempted the PUC from any jurisdiction over the activities of
Federal Express.
This allowed Federal Express to perform surface operations
without restriction in competition with regulated carriers that
were heavily restricted as to the services they could offer and
the rates that they could charge. More basically, the decision
said that an airline that operates trucks is unregulated while a
trucking company that operates an airline is regulated.
This left UPS at a serious competitive disadvantage in the 9
states of the 9th Circuit . UPS would have to conform to the
economic regulations of the state commissions while its direct
competitor would not. This allowed Federal Express a great deal
of market flexibility.
Federal Express realized that their new found flexibility
was extremely desirable but was not necessarily permanent. Even
though the U.S. Supreme Court denied certiorari on Federal
Express v. California Public Utilities Commission, they were
still at risk if another circuit court were to come to a negative
decision on the same facts. Federal Express and UPS sought to
come to a reasonable legislative solution. We strongly supported
HR 3221, originally sponsored by Congressmen Clement (D-TN) and
Upton (R-MI) . This committee held hearings exploring the issues
310
raised by HR 3221. Eventually, despite 190 cosponsors, the bill
died at the end of the last Congress.
This year, an amendment was offered in the Senate to the
Federal Aviation Administration Authorization Act which would act
nationally to remove jurisdiction of state regulatory agencies
over the surface movements of air-ground intermodal carriers.
The definition of air-ground intermodal carriers was extended to
include those transportation operations in which a common
controlling interest was held between surface operations and
direct or indirect air carriers operations. This measure was
broadened further to include transportation companies that used
the services of direct or indirect air carriers 15,000 times
annually.
There are many important reasons for UPS's support of the
FAA Authorization bill besides the market place equality it gives
to all air-ground intermodal competitors. I would like to detail
a few of these. UPS serves every address in all 50 states. If
UPS needs to change its rates, it must file these rate changes at
both the Interstate Commerce Commission and with the 3 8 state
commissions that still have economic regulation. All of our rate
filings with the ICC since 1980 have been within the zone of rate
freedom (ZORF) which automatically allows increases that are
within the zone.
The states on the other hand do not have ZORF regulations.
In 1993, 13 states out of the 41 that imposed regulation at that
time suspended the UPS proposed rate increase. Six of these
states acted on the single protest of a shipper who served those
states only in interstate commerce. UPS lost almost $9 million
in revenue which could never be recovered.
Currently, two states are continuing suspension of a rate
increase which was scheduled to go into effect on February 7,
1994. In Colorado, only one shipper, whose weekly bill averaged
less than $150, objected to our increase. Over 19,000 other
shippers in that state did not object.
In North Carolina, the North Carolina Utilities Commission
acting on its own motion suspended our application. The
Commission is still seeking more information after having held
complete hearings on this application. These 1994 rate
suspensions have meant lost revenue to UPS of over $1.8 million.
Ultimately, the costs associated with intrastate economic
regulation are passed on to consumers. A 1991 U.S. Department of
Transportation study estimates that intrastate regulation is
costing the economy approximately $6 billion per year. Beyond a
dollar figure, our customers are affected in terms of the
services we are able to provide them. Because we must also get
state approval in order to change a service offering, we are not
311
able to efficiently provide our customers with the services they
demand. Lengthy and costly delays in approvals frustrate our
customers and make it harder for them to do their jobs.
I would not be here today discussing these issues if this
committee and this Congress had not passed landmark legislation
in 1977, 1978 and 1980. These bills were called regulatory
reform bills and changed the way the air cargo, air passenger and
the trucking industry would function. No longer would Federal
Regulators determine who could serve and how much they could
charge in these industries, the market would function to make
these determinations.
These reforms allowed UPS to greatly increase both the kind
and level of service it offered to our country. One provision of
the Motor Carrier Reform Act prohibited the ICC from any longer
restricting carriers from handling movements that had a prior or
subsequent movement by air. State regulation of the air cargo
industry was prohibited by the 1978 Aviation Act. The Motor
Carrier Regulatory Reform Act continued to allow the states to
regulate rates, routes and services of motor carriers.
i
Prior to passage of the Motor Carrier Act of 1980, UPS was
restricted in large areas of the country from offering services
which had a prior or subsequent movement by air. Following
enactment of the Motor Carrier Act on July 1, 1980, UPS offered a
nationwide second day air service to all points within the 48
states on August 15, 1980. This business was a great success.
Shortly afterwards, in order to secure sufficient, dependable air
lift to handle this service, UPS began to purchase cargo
aircraft. These aircraft were operated on schedules set by UPS
by contractors who had airline certificates. In 1983, we began
providing next day service between particular city pairs and in
1985 offered nationwide next day air service.
In 1988, UPS secured its own airline certificate and ended
contract operations. It operates 155 large cargo aircraft and
charters over 300 more, smaller aircraft every night. In
addition, UPS has firm orders on over $4.2 billion of new cargo
aircraft which will be received by 2002. In 1980, UPS had $600
million worth of motor carrier equipment on its books. At the
end of 1993, it had over $2.6 billion. In 1980, UPS had no
aircraft on its balance sheet. At the end of 1993, UPS had over
$2.9 billion in aircraft, the largest single item on the balance
sheet .
UPS is a much different company today than it was in 1980.
This great change could not have happened without both air cargo
and motor carrier reform. As a result of this change, UPS has
increased the number of its domestic employees from approximately
111,000 in 1980 to over 250,000 in 1994.
312
Our business has changed in other important ways.
Regulators used to delineate our services. We could offer only
those services that they approved. Today, our customers drive
our service offerings. Prior to 1980, it used to be enough that
we delivered the packages undamaged and on time. Today, we have
invested billions of dollars in information technology of all
kinds that allows our customers to know how and when we serve
them, their customers and their other needs. We have gone from
being a company that tracked millions of shipment per day on
paper to a paperless company using computers that can share
information with our customers within minutes of delivery.
Many in the motor carrier industry are arguing before this
committee today that they need to be included among the air
ground intermodal carriers because they will not be able to
compete with UPS if they are not. They point to UPS expansion of
its Hundredweight service which is competitive with LTL
shipments. We have no objection to these carriers having as much
regulatory freedom as we would. I would only like to remind the
committee and those carriers that they could not raise the rates
on minimum shipments indefinitely without the market responding.
Our customers asked us if we could serve thi9' market . After
careful research, we determined that we could handle small
shipments of packages, without changing our existing systems.
UPS Hundredweight is competitive with what in the trucking
industry is called "kick-on" freight. "Kick-on" freight might be
more completely described as shipment of packages too small to be
palletized. In order to attempt to control the high labor cost
involved in moving "kick-on" freight across their terminals, the
industry kept raising its prices on these shipments. Market
forces worked. Carriers such as UPS and Roadway Parcel System
f ocussed on these shipments . You can be assured that such
carriers will continue to participate in these markets as long as
their customers continue to request their presence with their
money .
Our shippers today are unconcerned with the mode of
transportation used. They are concerned that they get the
service offered however it is defined. Whether or not a package
is carried on a train or a plane during some part of its
transport is not as important as meeting the service commitments.
Our customers, whether they are shipping intrastate, interstate
or international are concerned only that the parcel arrives when
promised.
Some concern has been raised by one union about the possible
negative impact on organized labor. We do not agree that there
will be any. Rather, labor along with the shipping public will
benefit. For example since 1980, 1.4 million jobs have been
created in the trucking industry. UPS alone has added
approximately 107,000 Teamster and IAM jobs to its work force
since July 1, 1980. As we mentioned earlier, we firmly believe
313
that growth could not have happened without regulatory reform.
The air-ground transportation industry needs further freedom
in the market place to continue the expansion of service to the
public that has characterized its growth since 1980. The 9th
Circuit Court decision has created uncertainty for our industry
throughout the country. We are willing to serve. We are willing
to compete. Section 211 of S. 1491 provides for real
simplif ication in the regulatory structure which will benefit
both shippers and carriers, and ultimately, the customer. It
provides carriers greater flexibility to respond to market
forces. Most importantly, the elimination of conflicting state
regulatory standards within our industry will give the shipping
public the opportunity to benefit from our reduced cost of doing
business and allow us continued expansion of these important
services .
314
TESTIMONY OF JACK SEIMS, PRESIDENT,
WASHINGTON TRUCKING ASSOCIATIONS
BEFORE THE SUBCOMMITTEE ON SURFACE TRANSPORTATION
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
WEDNESDAY, JULY 20, 1994
MR. CHAIRMAN, MEMBERS OF THE COMMITTEE, MY NAME IS JACK SEIMS.
I AM THE PRESIDENT OF THE WASHINGTON TRUCKING ASSOCIATIONS, A
TRADE ASSOCIATION REPRESENTING 1,500 MEMBER FIRMS IN
WASHINGTON STATE. I AM ALSO THE OWNER AND PRESIDENT OF PRO
EXPRESS, WHICH IS AN INTRASTATE LOCAL CARTAGE CARRIER WITH 20
EMPLOYEES. I AM HERE TODAY TO TESTIFY IN OPPOSITION TO SECTION
211 OF SENATE BILL 1491.
WHILE WE RECOGNIZE THAT THE AMERICAN TRUCKING ASSOCIATIONS, ON
MOST ISSUES, SPEAKS ON BEHALF OF THE NATION'S TRUCKING INDUSTRY,
I THINK IT IS IMPORTANT FOR YOU TO KNOW THAT ON THE ISSUE OF
FEDERAL PREEMPTION OF STATE REGULATION - THEY DO NOT SPEAK FOR
THE WASHINGTON TRUCKING ASSOCIATIONS.
WE WERE VERY DISHEARTENED WHEN ATA, AT A RECENT EXECUTIVE
COMMITTEE MEETING, CHANGED ITS LONG-STANDING POLICY IN
OPPOSITION TO INTRASTATE DEREGULATION. OUR MEMBERSHIP FELT
ABANDONED ON THIS VERY CRITICAL ISSUE. AT AN EMERGENCY BOARD
315
OF DIRECTORS MEETING ON TUESDAY, JUNE 28, 1994, THERE WAS OPEN
HOSTILITY AND ANGER AT THE THOUGHT OF A FEW LARGE INTERSTATE
CARRIERS ADVOCATING DEREGULATION OF INTRASTATE TRAFFIC FOR
THEIR OWN GAIN AND TO THE DETRIMENT OF MANY OF OUR MEMBERS.
TO PUT THINGS IN PERSPECTIVE FINANCIALLY, UNITED PARCEL SERVICE,
A PROPONENT OF SECTION 21 1, IS AN EIGHTEEN BILLION DOLLAR A YEAR
CARRIER, WHEREAS THE STATE OF WASHINGTON'S BIANNUAL BUDGET IS
SIXTEEN BILLION DOLLARS. IN ADDITION, ACCORDING TO THE
WASHINGTON UTILITIES AND TRANSPORTATION COMMISSION, ALL
CARRIERS IN WASHINGTON INTRASTATE COMMERCE GENERATE A TOTAL
OF 607 MILLION DOLLARS ANNUALLY.
THE FACT OF THE MATTER IS, SECTION 21 1 DOES NOT LEVEL THE PLAYING
FIELD AS HAS BEEN CLAIMED, BUT INSTEAD ALLOWS A FEW LARGE
INTERSTATE CARRIERS TO CONFISCATE THE PLAYING FIELD.
SECTION 211 AND ATA'S NEW POSITION WHICH WOULD BROADEN
FEDERAL PREEMPTION EVEN FURTHER, WILL SIMPLY GIVE LARGE
INTERSTATE CARRIERS A TREMENDOUS ADVANTAGE OVER THEIR SMALLER
INTRASTATE COMPETITORS. AS WAS SEEN WITH INTERSTATE
DEREGULATION ENACTED IN 1980, PREDATORY PRICING WILL MOST
316
ASSUREDLY TAKE PLACE AS THE LARGE CARRIERS MANEUVER TO
INCREASE THEIR MARKET SHARE.
THIS MEANS THAT MANY OF THE LONG TIME FAMILY TRUCKING FIRMS
INCLUDING LESS THAN TRUCKLOAD, TRUCKLOAD, DUMP TRUCK, FOREST
PRODUCTS, AND AGRICULTURAL CARRIERS WILL BE IN JEOPARDY, AS WILL
THE WELL PAYING JOBS THAT THESE COMPANIES HAVE SUPPLIED FOR
YEARS.
HIGHWAY SAFETY WILL ALSO BE A LOSER. AS HAS BEEN WITNESSED
WITH INTERSTATE DEREGULATION, WHEN RATES ARE DECREASED
THROUGH PREDATORY PRICING THERE ARE ONLY TWO AREAS WHERE
OPERATING COSTS CAN BE CUT. THE FIRST IS MAINTENANCE - CARRIERS
WILL BE FORCED TO RUN THE TIRES A BIT FURTHER, EXTEND THE PERIOD
FOR PREVENTIVE MAINTENANCE, AND OPERATE TRUCKS PAST THEIR
USEFUL SERVICE LIFE BECAUSE THERE IS NO MONEY TO REPLACE THEM.
THE SECOND AREA THAT WILL BE CUT IS COMPENSATION FOR THE
DRIVERS. THIS HAS BEEN DONE ON AN INTERSTATE LEVEL TO THE POINT
WHERE IT HAS CREATED A DRIVER SHORTAGE RESULTING IN EXTREMELY
HIGH DRIVER TURNOVER. IN BOTH INSTANCES THIS WILL MEAN A
DETERIORATION IN SAFETY OF HEAVY TRUCKS.
317
WASHINGTON STATE HAS A TRANSPORTATION SYSTEM THAT WE ARE
EXTREMELY PROUD OF. SHIPPERS AND RECEIVERS OF FREIGHT ARE
ASSURED OF HAVING THEIR GOODS TRANSPORTED AT A FAIR AND
EQUITABLE PRICE, IN A TIMELY AND EFFICIENT MANNER. SMALL AND
LARGE SHIPPERS ARE TREATED EQUALLY REGARDLESS OF LOCATION OR
SHIPMENT SIZE.
I CANNOT OVERSTATE THE IMPORTANCE OF INTRASTATE REGULATION TO
THE MEMBERS OF THE WASHINGTON TRUCKING ASSOCIATIONS. THE
FUTURE OF MANY OF OUR MEMBERS IS IN JEOPARDY SHOULD THIS
LEGISLATION PASS. I BELIEVE THE OLD ADAGE, "IF IT AIN'T BROKE, DON'T
FIX IT" CERTAINLY APPLIES HERE.
I WOULD RESPECTIVELY REQUEST THAT PRIOR TO VOTING ON THIS ISSUE,
A FULL AND COMPLETE UNDERSTANDING OF THE SOCIAL AND FINANCIAL
IMPACT ON STATES BE UNDERSTOOD.
THANK YOU FOR THE OPPORTUNITY TO APPEAR HERE TODAY. I WOULD
BE PLEASED TO ANSWER ANY QUESTIONS.
318
Testimony of Frederick W. Smith
Chairman and Chief Executive Officer
Federal Express Corporation
Mr. Chairman, and Members of the Subcommittee, I thank you for giving Federal Express
Corporation (FedEx) the opportunity to appear before you today to express our strong support
for legislation that will improve the efficiency of express package delivery in the United States.
We believe that you will find, after an examination of all aspects of this subject, that the
elimination of intrastate economic transportation regulation is an excellent example of a sound
public policy decision whose time has come.
Mr. Chairman, if I may borrow from the words of my company's motto, the enactment of this
legislation will "absolutely, positively" prove to be an immediate benefit both to our national
economy and to those individual customers — businesses large and small, and consumers — who
rely on us to make sure that their important documents and packages are received in a timely
fashion.
As you know, Federal Express invented the modem "overnight" express delivery business 21
years ago, in 1973. Our original advertising campaign utilized the slogan "America - You've
Got A New Airline." Within ten years, FedEx was generating $1 billion in revenues. Today, I
319
am proud to say that FedEx domestically serves every address in the United States on an
overnight basis and as an international company, serves more *han 187 countries around the
world. Our revenues for fiscal year 1994 were $8.4 billion. Because Congress in the 70's and
80's saw fit to eliminate government regulations applicable to all cargo air carriers and to
interstate surface transportation, FedEx has grown to a company that operates 210 large aircraft,
747's, DC-10's, A300's and 727's and 248 small aircraft serving rural America. We have grown
to a company of approximately 100,000 employees operating the world's busiest computer
center with 21 million electronic transmissions per day.
Mr. Chairman, and Members of the Subcommittee, there should oe no question in anyone's mind
that the four keys to our success as the most dynamic entity in our nation's transportation system
are, first:
• our people - our couriers, handlers, sorters, pilots, mechanics and customer service
representatives whose dedication is legend not only within our company but also with our
customers;
• second, our unstinting commitment to innovation;
• third, our dearly held reputation for outstanding customer service; and, last but not
least,
• our overall commitment to become a "total transportation system."
320
Our employees are very good at what they do. But because of intrastate economic regulations
on package delivery, our people historically have been forced to make, every day, business
decisions that we would not otherwise make. For example, we often picked up packages
intended for delivery in the same state, and frequently even in the same city. Rather than taking
such items and delivering them in the most efficient manner, we would transport that package to
the local FedEx facility, then transport it to the airport, then fly it to one of our centers, sort it,
fly it back to the originating airport, take it back to the originating facility, and then drive to its
final destination.
Why did we waste time, energy, equipment and manpower in this manner??
Only because, Mr. Chairman, in many states — forty three (43), to be exact ~ we had no choice.
We operated as described, or else subjected our rates, routes, and conditions of service to the
regulation of those 43 states that then regulated the economics of our operations.
It has been my strong belief for my entire career that in a free-market economy, the customer,
not some regulatory body, should be the driving factor in the design of our services. Mr.
Chairman, since The Airline Deregulation Act of 1980, we have respectfully disagreed that the
states could assume jurisdiction over our rates, routes and services.
We took this position because various regulatory commissions within the 43 states believed that
they should:
* Decide how and when refunds can be made;
• Prohibit our money back guarantee;
321
• Prohibit our discount rate structure;
• Require that claims and overcharges be accomplished with a host of paperwork, thus
prohibiting our fast, efficient telephone claims systems;
• Regulate the type of contract that we must negotiate with our customers;
• Dictate what records are kept and how they are retained;
• Dictate the contents of our consignment and shipping documents; and
• Regulate our rates -- including attempting to mandate that we raise prices (under penalty
of heavy fines, in some cases).
Mr. Chairman, these intrastate regulations if imposed on FedEx would:
• Cause unnecessary delays in the delivery of express packages;
• Depress the growth of jobs;
• Force carriers to spend large amounts of time and money to meet different state rules for
obtaining the right to operate in a given state;
• Impose duplicative tariffs;
• Result in the waste of fuel and energy; and
• Hamper the ability of American companies to compete internationally.
The practical implications of these intrastate economic regulations would be almost funny if they
weren't so serious. As you are fully aware, an intense legal battle to confirm our position has
been on going for years, in Tennessee, California, Indiana, and Texas.
In 1986 FedEx found itself before the California PUC defending its position that the PUC could
not regulate our rates, routes or services. The California PUC claimed jurisdiction over those
322
packages that we moved point to point in California by truck. The Ninth Circuit Court of
Appeals found, after carefully reviewing our air and ground operations, that
"FedEx is exacdy the kind of an expedited all-cargo service that Congress
specified and the kind of integrated transportation system that was federally
desired. Because it is an integrated system it is a hybrid, an air carrier employing
trucks. Those trucks do not destroy its status as an air carrier. They are an
essential part of the all-cargo air service that FedEx innovatively developed to
meet the demands of an increasingly interlinked nation. Congress has freed it
from the constrictive grasp of economic regulation by the states."
Freed from antiquated state regulations by Section 105 of the Aviation Act, FedEx can:
• Offer to its customers a money back guarantee;
• Refund customer charges when our customer is not satisfied with service performed;
• Negotiate rates based on costs savings derived from creative customer shipping
techniques;
• Pay claims with no required paperwork;
• Agree with each customer on the necessary paperwork and documentation;
« Allow customers sufficient credit flexibility;
• Utilize computers placed in customer's premises which allow totally paperless shipping
transactions from pick up through delivery and payment of charges.
323
California, Texas and Kentucky have, within the last year, understanding the impact of their
regulation on the express industry, agreed that previously burdensome state regulations should
not apply to transportation activities of express companies.
We believe that Congress should remove all state-based, economic regulations governing rates
and services for the intrastate delivery of packages. This would help assure fast, reliable service
at more economical rates, with little or no adverse impact on jobs, safety, or the environment.
Interstate Deregulation: An Important Precedent
As you know, Mr. Chairman, in 1980, Congress deregulated interstate transportation to the
great benefit of the economy, while not adversely affecting safety, jobs or the environment.
We believe that were Congress now to remove intrastate economic regulations, the result would
be an increase in transportation efficiency and competition to the benefit of those consumers and
businesses that ship and receive packages - again, while not harming safety, jobs, or the
environment. For example:
• Economic regulatory uniformity among the states would make carriers more productive,
thus lowering costs to customers in business and the consumer markets while also
creating jobs.
• Removal of economic regulations would speed package delivery overall, by allowing
carriers to develop more efficient routes.
324
It would enable American carriers to be more competitive by eliminating what are, in
effect, "internal trade barriers" imposed by the states.
• European motor carrier transportation has been deregulated substantially. Producers of
American goods should benefit from similar cost reductions in their efforts to compete
with goods manufactured in Europe.
Mr. Chairman, I think that the results of Congress' previous action in the interstate
transportation arena speak for themselves.
The Motor Carrier Act of 1980 has proven successful in promoting competition and efficient
transportation services.
Since 1980, according to the Interstate Commerce Commission, the number of carriers has
increased 143%, thereby increasing competition.
Also since 1980, according to the Eno Foundation, the cost of shipping freight has fallen from
5.7% of GNP to 4.9% in 1990, which I believe was the single most important factor in the
sustained economic growth experienced during the 1980's.
Safety
1 wish to reiterate the impact of what has happened, and what one might reasonably expect to
happen, with respect to safety, Mr. Chairman, because some opponents of this legislation have
suggested that the safety of our transportation system would be in jeopardy were Congress to
approve the proposal under consideration today.
325
On the question of safety, let me state just as clearly as I can:
Federal removal of economic regulations would have absolutely no effect on transportation
safety. Only state economic regulations would be curtailed.
Mr. Chairman, Safety in the transportation industry has improved, not worsened, since the
deregulation of interstate transportation in the 1980s.
According to the Department of Transportation, the fatal accident rate for large trucks has fallen
by one-third since Congress deregulated interstate transportation in 1981.
Careful monitoring of safety data by the U.S. Department of Transportation, the California
Public Utilities Commission, and the General Accounting Office reveals that there is no
statistically valid correlation between economic regulation of trucking and reduced highway
safety.
Important federal laws provide strong assurances of transportation safety. For example:
• The Motor Carrier Safety Assistance Program of 1982 provides for frequent inspections.
• The Motor Carrier Safety Act of 1984 established a uniform set of safety controls and
increased enforcement efforts.
326
The Commercial Motor Vehicle Safety Act of 1986 provides severe penalties for drug
abuse while driving and prevents unsafe drivers from jumping from one state to the next
if they lose their license.
In addition each state's enforcement of safety matters will remain unchanged.
Jobs
I also submit, Mr. Chairman, that interstate transportation deregulation has a proven positive
impact on employment. This trend will continue under the proposed removal of intrastate
economic regulations.
Since interstate shipping was deregulated in 1980, the number of carriers has increased by 143%
-- resulting in 1.3 million more jobs, according to the Department of Transportation.
And labor union employment at one company -- our competitor, United Parcel Service -- has
nearly tripled since de-regulation of interstate shipping in 1980 (from 70,958 Teamster union
member employees in 1980 to 166,920 member employees in 1991).
Service
Deregulation at the interstate level has resulted in an overall expansion of service to Americans
everywhere in the nation. Critics of interstate deregulation contended that rural and small
communities would suffer a loss of service. However the Department of Transportation's 1990
study shows that between 1979 and 1985 there was no such impact.
327
Fnvironmental Impact
Mr. Chairman, the elimination of intrastate economic regulations applicable to FedEx allows us
to save in excess of 50,000,000 gallons of aviation fuel annually. The positive impact on the
nation's environment is obvious.
May I also refer the subcommittee to the work performed in this area by The Volpe National
Transportation Systems Center. Their data suggests that intrastate regulations unnecessarily
increase the use of fuel for all transportation companies because shipments in a regulated
environment are transported longer distances, and empty mileage is significantly increased.
Conclusion
Mr. Chairman and Members of the subcommittee. Federal Express supports any legislation that
would allow us to make rational business decisions based on economic principles and the
requirements of our customers. Where it makes economic sense to move the package by
highway - always aware of our commitment to have that package delivered on time and safely
-- we want to do that. Where it makes sense to fly the package, we will fly it.
We believe that, in today's economic environment, a genuine ability to respond with flexibility
to marketplace changes not only makes sense, but is the right thing to do - for business and for
consumers.
Earlier in my testimony, I spoke to you about the steps FedEx has taken to become more
efficient, and to meet the demands of a changing marketplace. Well, Mr. Chairman and
10
328
Members of the subcommittee, Federal Express must indeed be the very model of efficiency in
order to compete successfully while offering our customer the services they require. This
dynamic express industry is the primary logistics arm for the most important industries and
services in the United States - the manufacturers of computers and medicines, including
radioisotopes used daily for diagnosis, the providers of health care, and many others. Our
industry, while some may not have this perception, is not merely a transporter of goods and
documents, but is the life line in a true sense for all of us - when a critical shipment must be
picked up and delivered on an immediate basis.
The United States has throughout its history been the world's leader in transportation and
logistics. It is critical that we remain so. Europe has now chosen to completely free its carriers
from surface regulation, can we afford not to allow similar efficiencies in the U.S. marketplace?
Mr. Chairman, this concludes my testimony.
I urge the Subcommittee to approve this important legislation.
Thank you for your time. I will now be pleased to answer any questions you may have.
**********
11
329
ADDITIONS TO THE RECORD
Q- Brown
I Transfer
Demand Responsive Service
P.O. Box 42387
Portland, OR 97242-0387
(503) 234-2660
1-800-321-2660
Fax (603) 232-9402
Oregon Authority
Local Cartage
ft Statewide
10,000 lbs.
& over
July 20, 1994
House Public Works
Subcommittee on Surface Transportation
B-376 Raybum House Office Bldg.
Washington, D.C. 20515
Dear Chairman Rah all and Honorable Committee Members,
My company, like thousands of others in Oregon and elsewhere, are deeply
concerned about Section 21 1 of the Senate version of the Airport Appropriations Act of
1994.
My company is a small one that provides very specific, high-quality services to our
customers. We employ just seven people, operate five tractors and utilize 13 trailers.
We're typical of many of the companies that are currendy threatened by Section 21 1 of the
Airport Funding Bill.
Brown Transfer provides services into numerous points in Oregon where larger
companies won't go, simply because it's not profitable enough for them. Often times, our
payload is one-way and we return empty. Many of our larger competitors simply refuse to
provide the service that we do.
I am deeply concerned about the future of not only of my company, but of the
outer-lying communities that rely on us. If intrastate trucking operations in Oregon are
deregulated, all of my customers will no longer have any assurance of receiving safe,
dependable delivery services.
The result of forced intrastate deregulation will be thousands of communities
around the country left stranded without any freight service - or, at best, they'll be held
hostage to carriers who'll charge them excessive fees for delivery their essential goods.
Plus, numerous truckers who'll try to offer the lowest price in town will grossly
undercut each other and end up neglecting essential maintenance and repairs for their
vehicles. Innocent motorists will become their victims as these abused, unmaintained
trucks break up all over the highway.
I urge you to consider the consequences of the intrastate deregulation provisions of
Section 211 and ask you to please not perpetrate this devastation on Oregon's rural
residents.
Please reject this proposal for federal deregulation of intrastate trucking and allow
each state to determine for itself the best course of action on this matter.
Sincerely,
Mark Brown
President
Brown Transfer
330
TRUCK USES INC. 1
oo
July 20 1994 8S01 **'E' I4TM PLACE * PORTLAND, Oft 97211
House Public Works & Transportation
Subcommittee on Surface Transportation
B-376 Raybum House Office Building
Washington, D.C. 20515
Dear Chairman Rahall,
As you and your fellow committee members deliberate the intrastate deregulation
provisions of the Aviation Appropriations Act of 1994, please consider the impact that
Section 21 1 will have on the thousands of American trucking companies like mine ~ many
of whom are located within your own state.
PRO Truck Lines is a smaller-sized local carrier with three terminals in Portland and
Southwest Washington. We operate 159 pieces of equipment and provide good, family-
wage jobs for 1 10 employees. We service rural Cascade Mountain towns and ski resorts
located well outside of the Portland metropolitan center.
We also have a local cartage operation in the Seattle area, which includes the hard-to-reach,
remote islands of the Puget Sound. In addition, we offer less-than-truckload and truckload
services throughout Western Oregon and Washington.
My colleagues and I already know all to well the effects of deregulation: We've
experienced it on the interstate level.
If you're a major shipper who moves goods strictly along profitable freight corridors,
deregulation isn't such a terrible threat. But for those small to medium-size companies who
are the foundation of our nation's economy, intrastate deregulation will force many of
them to close their doors because they will no longer be able to afford to get their goods to
market.
Section 21 1 of the Airport Funding Bill isn't a debate about the merits of regulation or
deregulation. Rather, it's a sweetheart deal for a few companies who will benefit and a
death sentence for thousands of small companies like mine.
Our nation's 50 states, with their varying transportation needs, should continue to
determine for themselves how best to regulate - or not regulate - their trucking industries.
For the sake of America's small businesses and small towns, please reject the intrastate
deregulation proposals contained within Section 21 1 of the Aviation Appropriations Act of
1994.
The residents of my state - and your state - will be grateful. The bottomline is: Our
livelihoods depend on it.
mi Brown, President
5RO Truck Lines
331
ALFREDO PANEK /^K V*^*™' te*m4t&U ROGER J. NIEDERMEYER
SECRETARY-TREASURER .'^^j. AUTO TRUCK ORIVERS AHO HELPERS PRESIOENT
TEST J**oal ?l*. 162
TEAMSTER SLOG . IMO N E l«2NO «VE POBTLANO OBEGON 977»-SW7 PHONE 237.0163 FAX Bt-OH
July 14, 1994
I am William Bussey and I work for Teamsters Local Union No. 162 in
Portland, Oregon. I presently represent over 1100 people with 24 employers
at over 33 locations, the biggest unit being 700 people.
Previous to this job I drove for 23 years in the freight and grocery
industries. I have logged over 2 million miles.
I am representing Joint Council of Teamsters No. 37, as well as my own
Local Union, here at this hearing. I find myself in a different position
than normal. We are in full agreement with management.
In my opinion, the passage of SB 1491 would do many things to the
industry, and they are all negative. This deregulation will de-stabilize
the market place. It would pit the larger carriers against smaller,
regional operators. Larger carriers would drive down wages and the smaller
carriers would be driven out of business. Many of these smaller operators
employ our members. I have listed some of them as follows:
Company
Risberg Truck Lines
Tillamook - Portland
Silver Eagle
TNT United
TNT Reddaway
Arrow Transportation
Total 1,495
Approx.
Number
Members
State
120
Oregon
65
Oregon
700
OR/WA/ID
60
Oregon
400
OR/WA
150
OR/WA
332
Testimony — July 14, 1994
House Public Works & Transportation Page 2
Subcommittee on Surface Transportation
Many of the rural, out-of-the-way areas may not get adequate shipping
and delivery of essential goods and services. Most of these areas are
outside profitable freight corridors and they will lose cost-effective
delivery of essential goods. Because of this, it will most certainly create
a financial hardship on those people. Many of these communities are already
hardhit, and they are economically depressed.
Fly-by-night trucking operations will spring up everywhere. This will
cause the under-cutting of competition; and maintenance of the equipment and
safety will be in jeopardy. It is a well known fact that the companies in
the weakest financial condition have the highest accident rates.
Additionally, those border-line companies are more inclined to speed and
violate hours of service rules in order to stay financially afloat.
I believe that passage of this bill, which will pre-empt states' rights
to regulate intrastate trucking operations, will ruin currently viable small
trucking companies, thowing many thousands of Americans out of work.
I urge you to defeat SB 14911
Respectfully submitted,
iluusJf. ' & — r, \l
William T. Rnsepv •
William T. Bussey
Statement on regulation vs. deregulation
TP Freight Lines and L.C Hall's Truck Lines.
July 20, 1994
My name is Buck Colleknon and I am president of TP Freight Lines and L.C.
Hall's Truck Lines. These two family businesses provide stable, family-wage
jobs to about 110 employees. We provide LTL, truckload and distribution
services in Northwest Oregon and Southwest Washington. Our service area
is heavily rural and comprised primarily of small towns.
More than 75 percent of our customers are small businesses in these areas.
Their shipments generally range from two pounds to 1,000 pounds. We
deliver overnight to all of these areas at no additional charge. Without
question, deregulation of trucking will adversely affect these customers
because their volume is not large enough to demand the type of discounts,
rates and service that large shippers receive.
Oregon's current regulated rate structure translates into fair rates for all
customers. A small business in a rural area does not pay appreciably higher
rates than a large customer in an urban area pays for the same service. Yet
there is still flexibility within the current state regulations on commodity
rates for carriers to work with large customers to provide fair, equitable rates
based on volume.
During the past 12 years, base interstate rates have increased more than 100
percent while intrastate rates have grown by less than 40 percent. This is a
direct result of rampant discounting of interstate rates. In fact, in order for the
current interstate and intrastate rates to be equal, interstate rates must be
discounted by approximately 30 percent.
Price discrimination on interstate rates is common. Because of their small
size, many rural customers can not get interstate discounts from large carriers.
These customers pay 50 to 70 percent higher rates than many large shippers.
When they do get discounts, which isn't that often, the most they'll get is
about 45 percent. At the same time, larger shippers routinely demand and
receive 65 to 70 percent discounts off interstate rates. Under this system, the
little guy ends up subsidizing the big guy- For example, a shipment that costs
a large customer $100 might cost a small coastal customer $150 to $170. Yet
these smaller customers have less volume and lower margins with which to
recover their higher costs.
This puts small Oregon businesses at a competitive disadvantage. With
deregulation, this will occur often.
The irony of all this is that even with large discounts, some interstate rates
within our service area are higher than intrastate commodity rates. For
334
TP Freight Lines
Deregulation statement
Page 2 of 2
example, a shipment of tires (on another freight line) discounted at 55 percent
off interstate rates cost a coastal business 10 percent more for ? 2,000 pound
shipment than if we had carried the freight at Oregon commodity rates.
Concurrent with deregulation of rates and authority, the federal government
has drastically increased safety regulations. All carriers must now provide
extensive safety training in hazardous materials and other federal
requirements at the same time as their per unit income is declining because
of discounting. There are increasing state and federal vehicle inspection
requirements which require more money for equipment maintenance. A
lower per unit income means more units must be hauled at a higher cost to
keep the same gross revenue level. Again, intrastate deregulation would
exacerbate this problem. As income falls, training and equipment
maintenance suffers. Dozens of failing companies have proved this.
One need only to look at the deregulated bus routes in Oregon to see a pattern
which, we believe, trucking would follow with intrastate deregulation.
Tillamook County where we are based can not maintain any bus service —
even with government subsidies. Other parts of the state, such as Eastern
Oregon, provide bus service only with government support.
With intrastate deregulation, small shippers in rural areas would become
prey to the whims of large carriers. Service to towns such as Nehalem,
Waldport, Vernonia, Long Beach, WA and other small towns would occur
only when a carrier wanted to travel there. And probably, because of the
small quantities and the distances involved, the rates would be much higher
than for deliveries to metropolitan centers such as Portland.
Many small businesses in small towns, because of their income levels, rely on
regular, daily shipments to survive. They do not have the resources to order
large amounts of goods that would entice a carrier to deliver them. Their
only recourse would be to travel to large population areas such as Portland to
pick up the goods themselves. This would significantly increase their costs.
Because TP Freight Lines works with many national and regional interline
carriers, we can consolidate shipments to smaller towns. This conserves
time, money and natural resources without adding to traffic congestion by
large amounts. We think regulation of the trucking industry in Oregon
works to the customer's advantage.
In closing, the experience in Oregon — like other states with large rural areas
and many small towns — proves that intrastate regulation of the trucking
industry benefits small businesses and our economy.
335
Statement Of
Lawrence J. Day
Vice-President
Messenger Courier Association of the Americas
Before The
Subcommittee On Surface Transportation
House Committee On Public Works and Transportation
July 20, 1994
\
336
Mr. Chairman and Members of the Subcommittee:
I am pleased to represent the Messenger Courier Association of the Americas
(MCAA) which has its national headquarters at 1650 Tysons Boulevard, McLean, VA. The
MCAA is a national trade association representing messenger/couriers and specialized
package delivery firms. There are over 8000 such firms in the United States. I am here
today to represent their interests by testifying in opposition to Section 211 contained in the
Senate version of H.R. 2739.
This bill purports to protect and serve the interests of business and the general
public by removing intrastate entry and rate restrictions on certain "intermodal all-cargo air
carriers", and any other carrier affiliated with such a carrier. We understand that the term
"affiliated" has been defined as any "other carrier which has authority to provide
transportation" and which utilizes an intermodal all-cargo air carrier at least 15,000 times a
year.
To understand why this amendment garnered such support in the Senate we must
consider the specific history of "intermodal all-air carrier deregulation". Federal Express,
and United Parcel Service are intermodal air carriers, but not all of their shipments move
via air. In fact, a significant number never leave the ground; they are transported strictly by
truck. As you certainly know, a number of states, 41 to be exact, regulate to one degree or
another, intrastate transportation. In June of 1992, in what many people believe to be a
rather strange court decision, the 9th U.S. Circuit Court of Appeals decreed that California
could not regulate Federal Express* intrastate trucking operations because the company is
a federally certified air carrier. The U.S. Supreme Court let stand, without comment, the
decision.
Effectively this completely deregulated Federal Express' entry and rate filings in the
nine states governed by the circuit court. Christine Richards, a spokeswoman for Federal
Express, applauded the decision which ended a bitter five year battle with the California
Public Utilities Commission.
337
Not nearly as pleased with the court's decision was John Flick, a United Parcel Service
spokesman. He stated, and I quote, "We are extremely disappointed. It creates a very
unfair competitive situation in the package express market One company has the freedom
to respond while UPS remains highly regulated."
United Parcel Service, as well as many other large carriers, vigorously opposed
Federal Express' position for years. They eloquently, forcefully and even passionately
argued that it was totally unfair to deregulate one carrier and not another. Unfortunately,
the merits of their arguments were lost in the tapestry of obfuscation woven by Federal's
lawyers.
Subscribing to the old adage "If you can't beat 'em, join 'em", UPS, Airborne, and a
number of other formally staunch opponents of Federal's position took a 180 degree turn.
Today it seems that they feel it IS morally acceptable to deregulate a certain few carriers
and not others. If politics makes strange bedfellows, deregulation can make the lion lay
down with the lamb, and it can breath new life into deregulation legislation.
Deregulation bills flourished - any number were thrown into the hopper. On April
2, 1992 we appeared before this very committee in opposition to H.R. 3221. Our position
hasn't changed since that time, we are firmly opposed to any deregulation attempt which
favors a few select carriers. We agree with the International Brotherhood of Teamsters'
position that this legislation "would create near monopolies for a handful of companies at
the expense of small and medium-sized carriers and their employees." Approximately 6400
messenger/courier firms will be adversely effected by the Senate version of this legislation.
Tens of thousands of jobs are in jeopardy. Why? So that a select few mega-corporations
can add another quarter point to their bottom line.
John Flick's (UPS) statement that this form of deregulation ".... creates a very unfair
competitive situation in the package express market" was true in 1992 and it is true today.
Section 211 is discriminatory and predatory and should be stripped from S-1491 in
conference. If deregulation is a future reality, then let it apply to every carrier and not for
the benefit of just a few. The issue of deregulation is far to important, the ramifications far
to great to be hung on the coattails of H.R. 2739 - an aviation funding bill and not a
trucking bill. We urge you to hold public hearings on the entire issue of deregulation.
I would be happy to answer any questions you may have.
85-090 95-12
338
PFMI IMIIMW1*. PrivateCarrier
NATIONAL PRIVATE TRUCK COUNCIL
66 Canol Center Plaza, Suite 600, Alexandria, VA 2231 4 • Phone 703-6831 300 • Fax: 703-683121 7
Statement of
Earl B. Eisenhart
Vice President,
Policy and Government Affairs
National Private Truck Council
Trucking Regulation Reform
before the
Subcommittee on Surface Transportation
of the House Public Works Committee
Washington, D.C.
Jury 20, 1994
STATEMENT OF
THE NATIONAL PRIVATE TRUCK COUNCIL
ON
TRUCKING REGULATION REFORM
INTRODUCTION OF NPTC
The National Private Truck Council (NPTC) is the national organization representing
companies that operate truck fleets in support of their business activities, whether
manufacturing, processing, distribution, warehousing, retail or service. These fleets
are in business to serve their companies' transportation and logistics needs. They
are both shippers and carriers. They are not generally in the business of providing
for-hire transportation. (However, based on information contained in the Department
of Transportation Motor Carrier Information File, approximately 1 7 percent of private
truck fleets hold operating authority for part or all of their fleet operations, which is
generally used to secure freight "backhauls.")
Private, or corporate, trucking is the principal transportation arm of American
business and is in engaged in by businesses of virtually all kinds and sizes.
According to a recent study, private trucking accounts for 56 percent of commercial
truck tonnage, and 80 percent of all commercial trucks are private fleet vehicles.
("America's Private Carriers, Who Are These Guys?" Transportation Technical
Services, 1993)
340
While private carriage is utilized for virtually all types of trucking operations, activity is
concentrated in local and regional areas, especially deliveries of building products,
food, grocery and drug products, and chemical and energy products. Ours are the
truck fleets that bring food, fuel, and consumer products to America's doorsteps.
NPTC represents the entire range of private truck fleet operators. Our members
include large fleets operated by Fortune 500 companies as well as the small fleets of
local businesses. They operate virtually every type of equipment, from tractor-trailer
combinations using tank trailers or 48- or 53- foot long trailers, to straight trucks
used in local delivery operations by bakeries and dairies.
PRIVATE FLEET INTEREST AND INVOLVEMENT IN REGULATORY REFORM
As shippers, private carriers recognize that state economic regulation of trucking
stifles competition among for-hire truckers and artificially drives up freight rates. We
know that it also presents barriers to efficient use of national distribution systems.
In an increasingly competitive marketplace, corporations need to contain
transportation costs as much as possible. This effort is seriously compromised by
state economic regulations of both for-hire and private carriage which artificially drive
up freight rates and prevent fleet managers from making the most efficient use of
their vehicles. This results in unnecessary costs which are reflected in consumer
341
prices. This makes American business less competitive both within the U.S. and
abroad. For this reason, NPTC supports full economic deregulation of trucking.
NPTC also has been an advocate for relief from state economic regulations which
directly limit private carrier operations. We want to stress this point because we are
often asked why it is that non-transportation companies need relief from state
economic regulation of transportation: Don't these regulations only cover for-hire
transportation? The answer is: No, state trucking regulations do not only cover for-
hire transportation. Most states have various provisions restricting non-transportation
companies from using their private truck fleets to their best advantage. For
example, states restrict companies from using their fleets to haul products for other
companies belonging to the same corporate family, restrict private fleets from leasing
vehicles and drivers to other transporters, restrict private fleets from leasing drivers
and vehicles from the same source, and in some instances restrict the ability of
private fleets to obtain operating authority. These restrictions mean that private fleet
managers are forced to run trucks empty because they are prevented from securing
"backhauls," and time and money are lost due to the need to deal with needless
paperwork and bureaucracy. (Additional information is contained in Appendix A.)
State economic regulation of both for-hire and private trucking kills productivity, adds
to the cost of consumer goods and services, and requires more trucks on the roads
than is necessary.
342
NPTC has long been involved in the effort to achieve regulatory reform of trucking.
Since 1980, when Congress reformed trucking regulation at the federal level, the
private fleet community has been active in efforts to bring uniformity to state
regulations as well. NPTC, as well as its predecessor organizations, the Private
Truck Council of America and National Private Trucking Association, has worked to
eliminate the many restrictive, burdensome, and anti-free market state trucking
regulations which cost businesses and consumers billions of dollars a year.
In recent years, NPTC has actively supported several bills to bring about regulatory
reform. Of most specific interest to private carriers is H.R. 1077, the Private Motor
Carrier Equity Act introduced by Congressman Pete Geren. This legislation directly
seeks to remedy the problems of private truck fleets, by eliminating those state
regulations which place the most onerous restrictions on private carriage. Mr. Geren
has been a tireless advocate for the private fleet community and we are most
grateful for his support.
Bills have also been introduced in recent years by Representatives Hasten, Packard
and Emerson. These gentlemen have long been strong advocates of trucking
reform and also deserve special praise for their vigorous efforts on behalf of this
issue.
343
THERE IS A COMPELLING NEED FOR REFORM
Prior to 1978, a manufacturer could transport only its own goods in its fleet of
trucks. This policy decision forced millions of tractor-trailers to make deliveries and
then return to their facilities empty. The reforms which the Interstate Commerce
Commission and Congress put in place, culminating in the Motor Carrier Act of
1980, served to overturn many of the discriminatory federal policies which had
plagued private truck fleets and others for nearly 50 years. These reforms allowed
private fleets operating interstate to reduce costly and inefficient "dead-heading."
(return trips with empty trailers) The current problems exist because of the refusal
of many states to follow the lead of Congress in opening up their own transportation
markets. The failure of these states to conform to the federal system results in a
legal anomaly and has a serious impact on fcr-hire carriers, private truck fleets, their
parent companies, consumers, and the overall economy.
There is a compelling need to finally bring about reform of state regulation of
intrastate trucking operations. State regulation of entry, rates, routes, and services
limits competition, inflates trucking rates, and increases the costs of doing business.
Freight shippers wind up paying artificially high rates in many states, and sometimes
even find it necessary to move manufacturing and distribution facilities across state
lines just to avoid the increased costs of intrastate transportation regulations.
344
In addition, these regulations hinder the efficient flow of inter- as well as intrastate
commerce: In the United States we have a national economy. Products are
marketed, distributed, and sold on a national basis. Manufacturers have national
distribution networks to serve the needs of this economy. Motor carriage, and
especially private motor carriage, provides the principal transportation support for
these national distribution networks. It is contrary to the purposes of a national
economy to compel truck operators to segregate their operations into inter- and
intrastate operations, with the resulting losses in efficiency and increases in cost.
Finally, state economic regulation of private trucking means that more trucks are on
the road than is necessary to meet business demand. This results in more air
pollution, more traffic congestion in urban areas and additional safety problems.
Reform of state trucking regulation not only makes good economic policy, but good
environmental, transportation, and safety policy as well.
NPTC SUPPORTS BROAD RELIEF
NPTC supports broad regulatory relief for shippers and motor carriers alike. Our
first preference is for trucking reform that would eliminate state regulation of entry,
rates, routes, and services (exclusive of safety and insurance requirements) across
the board for private and for-hire carriers. This approach would provide the greatest
benefit to the largest number of NPTC members. Barring such broad relief, NPTC
345
seeks relief from those state restrictions which are specifically directed to private
carriage.
NPTC POSITION ON SECTION 211
For these reasons, NPTC is supportive of the thrust of Section 211 of S. 1491 of the
Federal Aviation Administration Authorization Act of 1994, but believes its provisions
should be expanded to provide relief to all truck operators. Section 21 1 as passed
by the Senate, would grant relief to a significant but limited number of truck
operators, and would thereby create "winners and losers" among companies which
operate truck fleets.
With regard to private carriage, there is little doubt that some private fleets,
particularly those affiliated with larger companies, would qualify for relief under the
provisions of Section 21 1 . We applaud this movement toward regulatory relief.
However, many smaller companies would be left out.
Some proponents of Section 21 1 have said that companies can "easily" come within
the provisions of Section 211 by either: 1) holding themselves out as indirect air
cargo carriers; 2) affiliating with an air carrier or air freight forwarder; 3) utilizing
15,000 air-surface shipments annually; or 4) affiliating with a company utilizing 15,000
air-surface shipments annually. None of these is a serious option for the vast
346
majority of private truck fleets.
First, it needs to be understood that the vast majority of private carriers are not
"transportation companies" as that term is generally understood and interpreted.
They are manufacturers, wholesalers, retailers, grocery stores, hardware stores,
lumber yards, fuel oil distributors, bakeries, florists, etc. They use trucks to transport
only their own products. Based on information contained in the DOT Motor Carrier
Information File, less than 17 percent of private carriers have ICC or state authority
to act as transportation companies.
The relief provisions contained in Section 21 1 are clearly directed to transportation
companies and not private carriers, which are overwhelmingly "non-transportation
companies." Yet, private carriers haul most of the truck freight in the U.S. They
should get relief as well.
INDIRECT AIR CARRIER
In order to "qualify" as an indirect air carrier, a company would need to provide a
service that uses an air carrier and have a stake in the service that puts the
company at "financial risk" for the performance of the transaction. The company
would also need to establish a written security program under 14 CFR PART 109
and have that program approved by the FAA. This is just not a serious option for
347
most construction companies, local beverage distributors, dairies, newspapers,
groceries, drug stores, coal companies, etc. They obviously do not and cannot use
air carriers in their business operations nor do they have any reason or rationale for
doing so. These types of companies make up the bulk of private carriage.
AFFILIATION WITH AN AIR CARRIER
A company which is "affiliated" with an air carrier may qualify for relief under Section
21 1 . However, Section 21 1 also provides that a company first must have "authority
to provide transportation," if it is to be considered to have affiliated status. As stated
above, more than 83 percent of private carriers do not possess such authority.
Even if they did, most would be in no position to affiliate with an air carrier.
15.000 AIR SHIPMENTS
Once again, in order to qualify for relief, a company first must have authority to
provide transportation. Based on information contained in the DOT Carrier
Information File, this automatically rules out approximately 83 percent of 150,000 total
private fleets (124.000 companies). Most of those who do hold authority (about
26,000) would still not meet the threshold of 15,000 air shipments. Our best
estimate is that no more than 25 percent of these 26,000 would meet this threshold.
This means that only about 6,000 private fleets would meet both tests necessary to
qualify for relief, while 144,000 would not. In other words, more than 95 percent
348
would get no relief.
AFFILIATION WITH A COMPANY UTILIZING 15.000 OR MORE AIR SHIPMENTS
In order to qualify for relief by virtue of affiliation with a company utilizing 15,000 air
shipments, a company would first need transportation operating authority and
second, have the appropriate corporate affiliation. For the reasons stated above,
more than 95 percent of private fleets would not meet these tests.
Section 21 1 does the right thing, but it does it for only some, mostly large, truck
operators. If this medicine is good for some, it's good for all. By the same token,
we want to make clear that NPTC would be opposed to any effort to compromise
away from the relief which is provided in Section 21 1 by limiting its application to
even fewer operators. In other words, Section 21 1 should be the baseline for
trucking reform. We need to make it better by including all truck operators, not
make it worse by eliminating any who are now covered.
Legislation should be passed by Congress which provides relief to all private and
for-hire operators.
10
349
SUMMARY AND CONCLUSION
NPTC's first preference is enactment of broad regulatory reform providing relief for
all carriers, for-hire and private, from state economic regulation of trucking. Barring
that, we seek limited relief for private carriage from those state restrictions
which directly target private fleet operations. We are supportive of the thrust of
Section 21 1 of the Senate's Airport Improvement Bill but believe it should be
expanded to provide relief to all truck operators. We oppose any efforts to limit the
scope or applicability of Section 21 1 . Congress should pass legislation broadening
the scope of relief provided in Section 21 1 .
11
350
(Appendix A)
WE'RE ALREADY TWELVE YEARS LATE:
CONGRESS SHOULD ACT NOW TO RELIEVE PRIVATE
TRUCKING OPERATIONS OF UNNECESSARY INTRASTATE REGULATION
Background: Private truck fleet operators are companies that operate trucks to service their
own business activities, whether these are manufacturing, processing, retail, warehousing,
distribution, or service. For example, Frito-Lay, Pet Inc., and Walgreen Company have private
truck fleets which haul their own products and sometimes transport raw materials from their
suppliers. This transportation is generally not subject to economic regulation by the Interstate
Commerce Commission, pursuant to the trucking deregulation law passed in 1 980. The 1 980
deregulation law recognized the need to lift the complex web of antiquated and burdensome
interstate regulations that had been imposed on the trucking industry over the past several
decades. It did not, however, relieve the trucking industry of the burdensome regulation of
intrastate activities.
Despite the fact most private carriers act in an interstate capacity, their intrastate activities
remain subject to numerous, unnecessary regulations. For example, many states restrict private
carriers from hauling goods for parent subsidiary and affiliate companies. In addition, many
states prohibit private carriers from using leased trucks and drivers from the same source.
Legislation: H.R. 1077 legislation introduced by Representative Pete Geren (D-TX)
would lift many of these outdated and unnecessary intrastate
regulations on private carriers. The legislation would not affect intrastate regulation of for-
hire common or contract carriers. In addition, the legislation recognizes the need for continued
state regulation of safety and insurance and does not alter current law in those areas.
Specifically, with regard to intrastate operations, the legislation would allow private carriers to:
• Haul goods for related companies (parents, subsidiaries or affiliates) for
compensation.
Currently, 35 states prohibit a company such as Frito-Lay, a wholly-owned subsidiary of
PepsiCo, Inc., from hauling freight for Pepsi-Cola (or any other subsidiaries of PepsiCo)
for compensation.
• Use trucks and drivers leased from a single source (leasing company or other
carrier).
Most states prohibit a company, such as Pet, Inc., from leasing trucks and drivers from
the same source to haul Pet products. Often it is more cost effective for Pet to lease
vehicles and drivers from a single source, such as Ryder, rather than leasing vehicles
from one lessor and drivers from another.
351
• Lease their own trucks and drivers to other carriers.
Most states prohibit a private carrier from leasing its truck and driver to a common
carrier. For example, a common carrier may have accepted a load from a shipper, if
the common carrier does not have one of its trucks positioned to pick up the load, it is
more efficient for the common carrier to lease an empty tmck from a private carrier and
split the revenue for the trip.
• Set up transportation subsidiaries that could haul for the parent or related
companies and other shippers under the same rules as common and contract
carriers.
Some states prohibit a company from establishing a wholly-owned transportation
subsidiary to: (1) haul goods for the parent company (as compensated intercorporate
hauling); and (2) haul freight for other companies as a tor-hire common or contract
carrier to offset the costs of transporting its own goods. This is because some states
do not allow a non-transportation primary business to obtain common or contract
authority to operate in that state.
• Use vehicles and personnel provided by another carrier, such as Ryder, to serve
exclusively as a company's private fleet (dedicated contract carnage service).
Most states prohibit or restrict companies from providing dedicated contract carriage
service for intrastate shipments. For example, in order to concentrate on its primary
business, a company, such as Frigidaire Company, will turn its private truck fleet
operations over to Ryder. Ryder assigns trucks and drivers for the exclusive use of
Frigidaire and assigns management and safety personnel to work solely for Frigidaire at
Frigidaire 's distribution facilities. As a result, Frigidaire's delivery truck is owned by
Ryder and driven by Ryder employees, even though the truck says "Frigidaire" on its
side.
H.R. 1077 Means Fewer Empty Truck Miles ~ This Will Produce Numerous
Economic and Environmental Benefits:
Lower Cost of Goods to Consumers
More Efficient Trucking Operations
Fewer Trucks on the Road
Less Pollution
Better Fuel Consumption
352
SUBCOMMITTEE ON SURFACE
TRANSPORTATION OF THE HOUSE
COMMITTEE ON WORKS
AND TRANSPORTATION
HEARING ON INTERSTATE DEREGULATION
OF THE TRUCKING INDUSTRY
JULY 20, 1994
f TA TEMENT SUBMITTED
\FOR THE RECORD BY:
FRITO-LAY, INC.
P.O. BOX 660634
DALLAS, TEXAS 75266
353
m
Frito-Lay, Inc.
Frito-Lay, Inc., the nation's leading manufacturer and distributor of quality snack food
products, including Lay's and Ruffles brand potato chips, Doritos brand tortilla chips and
Fritos brand corn chips, has long been a strong advocate of completing the economic
deregulation of the motor carrier industry, which began with the passage of the Motor
Carrier Act of 1980. An operating division of PepsiCo, inc., Frito-Lay employs 29,000
people nationwide. We have 40 manufacturing plants located in 25 states, and sales
offices and distribution centers are located in all 50 states.
Our total fleet of trucks is the third largest private carrier fleet in the country. Last year the
total fleet traveled in excess of 231 million miles and consumed nearly 25 million gallons of
fuel. More than 1,100 over-the-road drivers and 12,000 route sales personnel deliver
products from plants and distribution centers directly to the retail outlets. Our distribution
fleet, which includes 850 tractors and over 2,100 trailers, travels more than 76 million miles
annually. It is this fleet that is directly affected by the present patchwork of intrastate
trucking laws and regulations.
Frito-Lay strongly supports Section 211 of S. 1491, the Federal Aviation Administration Act
of 1993, and all other efforts aimed at completing the economic deregulation of the trucking
industry. Changes brought about by the 1980 Motor Carrier Act contribute approximately
$25 billion annually to the nation's economy in the form of lower prices and more efficient
use of the motor carrier industry's assets. However, a lack of uniformity in state regulation
of interstate carriers continues to hinder the optimization of carriers' assets. At Frito-Lay,
the regulation of intrastate trucking adds as much as $8 million of operating costs annually.
Included in this additional cost are the intrastate rates that average 40% higher than
comparable interstate rates. Adopting or broadening the reforms contained in Section 21 1
of S. 1491 would allow the shipment of raw materials and finished goods to move on an
intrastate basis at more competitive rates. Also, the ability to utilize empty backhaul miles,
which constitute about 25% of Frito-Lay's total over-the-road mileage, would have a
positive effect on fuel conservation and lessen traffic congestion on the highways.
P.O. BOX 660634 • Dallas, Texas 75266-0634 • (214) 334-7000
354
Statement submitted for the record by Frito-Lay, Inc.
Thirty-one states prohibit compensated inter-corp: ~e hauling between wholly-owned
subsidiaries of a parent corporate. Elimination of this intrastate barrier vould allow
corporations to fully maximize their fleet operations, thus reducing operating costs,
eliminating redundant assets, reducing miles traveled and conserving fuel.
The elimination of restrictions on entry and rate regulation of intrastate trucking would
broaden competition and increase productivity. Highway safety would be enhanced by the
reduction of miles that truck fleets currently operate. States still must enforce ihe federal
motor carrier safety regulations as their minimum, and many states have adopted even
more stringent regulations which we support.
in summary, Frito-Lay believes the motor carrier regulatory system has outlived 'ts
economic usefulness It is time to do away with all intrastate economic regulations for all
intrastate motor carriers. By adopting Section 21 1 of S. 1491 , our national truck
transportation system will become more competitive, more efficient and more economical,
and safety will not be compromised. This legislation is vital to a healthy business climate in
today's global economy.
Refer any questions regarding this statement to Mary Staples, 214/334-2125.
355
of off of* Moroff mvcwNO
Courier Division
500 Piedmont Ave., NE
Atlanta, Georgia 30308
404-876-4313
hW»» July 11, 1994
The Honorable Nick Rahall
House Public Works Committee
House Surface Transportation Subcommittee,
Room B-387, RBOH
Washington , D.C. 20515
Dear Congressman Rahall:
Please accept this as my notice of my intent to appear at the House Public Works Committee Hearing
scheduled for 10:00 A.M., July 20, 1994, on Bill S. 1491, I have been informed that this agenda has
been closed, alternatively, I request that this testimony be entered into the record.
As Chairman of the Courier Division of the Georgia Motor Truck Association, I represent the interests
of the intrastate Courier Industry in Georgia.
It is our position that Amendment 21 1 to this bill will wreak serious and irrevocable damage to thousands
of mid-size, and small businesses, causing unemployment for even more thousands of these businesses'
employees, to the ultimate benefit of a few major motor carriers. Further, that the shipping public will
likewise suffer substantial economic hardship due to increased rates and decreased service. In addition,
the public at large will be subjected to unsafe acts and equipment on the roadway, as well as being at the
mercy of financially unfit motor carriers, avoiding their liability responsibilities.
The weak and belated attempt by the American Trucking Association to add language to this bill that
purports to afford protection to small carriers is an attempt to mollify their constituency, in the face of a
groundswell of member opposition to the ATA's position of "no position" on this very important issue.
Finally, we request that this tacked-on Amendment be deleted until a full study of the impact on the
Motor Carrier Industry be undertaken, and consideration be given to all participants regardless of size.
Respectfully;
cc: Ed Crowell
Managing Director, G.M.T.A.
Byrd B. Gossett
Chairman, Courier Division, G.M.T.A.
356
STATEMENT
OF
JOSEPH M. HARRISON, PRESIDENT
AMERICAN MOVERS CONFERENCE
ON
SECTION 211 of S. 1491
THE FEDERAL AVIATION AUTHORIZATION ACT
OF 1994
JULY 20, 1994
WASHINGTON, DC
AMERICAN MOVERS CONFERENCE
357
The American Movers Conference (AMC) is the largest national trade
association representing household goods movers. With approximately 3,000 members
nationwide, AMC represents the entire spectrum of the industry including national van
lines, their affiliated agents and independent regional and national carriers. AMC is an
affiliate of the American Trucking Associations. AMC functions include representation and
promotion of the interests of the moving industry before federal and state legislative and
regulatory bodies.
AMC opposes any attempt to preempt state regulation of household goods
movers by the federal government. State regulation is an integral part of the household
goods moving system. AMC does not believe Congress should step in and eliminate all
regulatory options for the states.
As originally drafted. Section 211 of S. 1491 was so broad that it would
have allowed a class of motor carriers to transport anything without economic regulation,
whether it was small packages and parcels, household goods or any other commodity.
AMC believes that the regulation of household goods movers should not be left to chance.
As Congress recognized in the Household Goods Transportation Act of 1980, the
transporters of household goods have special responsibilities to individual shippers.
358
-2-
The fact that the household moving sector does business with
individual shippers also sets it apart from the rest of the
trucking industry. These shippers usually move only once or
twice in their lives and, consequently, lack a thorough
understanding of the industry and sufficient clout to negotiate
with it. Their situation is made more vulnerable by the fact
that the moves involve all of their personal possessions, which
often are of a fragile nature. H. Rep. No. 96-1372, 96th
Cong., 2nd Sess. 2, reprinted in 11980) U.S. Code, Cong. &
Admin. News, 4271, 4272.
. . . the committee recognizes that many users of household
goods carriers are ordinary consumers unfamiliar with how the
industry works and without the economic leverage of
commercial shippers. These persons tend to be more
vulnerable than other shippers and, hence, in need of
protections that are not necessary for other motor carrier
shippers. Ibid., at 4275.
The combination of state and federal regulations achieve that goal while
allowing movers to compete in a stable economic environment. At AMC's urging the
Senate agreed to amend Section 211 to allow for the continued intrastate regulation of
household goods movers. However, it is a matter of serious concern to the many small,
intrastate movers who are AMC members that state regulatory bodies may opt out of all
state trucking regulation, including moving, after passage of S. 1491. AMC does not
doubt that passage of Section 211 will lead to complete deregulation of most, if not all.
359
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intrastate freight carriers. The minimal regulations that may be maintained will be
meaningless without state rate and entry authority. It would be pure conjecture to assume
that the states will continue regulation of a segment of the trucking industry (e.g. movers)
without the authority to reasonably regulate the balance of the industry.
For an example of what occurs with wholesale deregulation of the moving
industry, one must look no further than the State of Florida. Florida deregulated the
intrastate trucking industry, including household goods transportation in 1980 and the
citizens of that state have suffered the consequences. AMC receives frequent complaints
from Florida consumers who have been overcharged or whose goods have been lost or
damaged by unscrupulous, unregulated movers. Unfortunately, in Florida there is no
mechanism in place to protect these consumers or to answer their justifiable complaints.
That is why the Florida legislature is contemplating enactment of legislation to re-regulate
household goods movers through the adoption of regulation that mirrors current ICC
regulation.
AMC urges this Committee to support the exemption contained in Section
211 as passed by the Senate which allows states to continue to regulate intrastate
movers. This framework of regulation will serve the American public well. States regulate
a variety of consumer issues associated with household goods moving including rates and
charges, estimating procedures, claims for loss or damage, and arbitration procedures.
These procedures are intertwined with rules which allows van lines and agents to operate
within their current structure. As such, state regulation serves both the consumer and the
industry well.
360
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ln addition. Congress and this Committee are faced with restructuring the
legislative jurisdiction vested in the Interstate Commerce Commission. AMC would like to
address these issues 8S they affect the household goods moving industry. AMC supports
continued funding of the ICC and believes interstate regulation of the industry should be
retained by the Commission.
AMC is aware that a proposal to immediately transfer the regulatory
authority of the ICC over household goods motor carrier to the Federal Trade Commission
(FTC) is receiving active consideration. AMC is strongly opposed to the implementation of
such a proposal for a variety of reasons.
A simplistic approach to curtailing or eliminating the functions of the ICC by
transferring household goods regulation to the FTC does not take into account the full
scale of ICC regulation of the moving industry. Household goods carriers do not support
continued regulation by the ICC because it gives them a competitive advantage or because
it places consumers at a disadvantage. Quite to the contrary, regulation by the ICC
provides a uniform regulatory system that protects both individuals and carriers and
ensures fair and impartial application of a body of law and related regulations on a
nationwide basis. Transfer of the ICC's functions to the FTC would seriously disrupt
operating practices that have been developed under this system over 60 years of
experience and regulatory expertise. Some of these functions that appear to be lost in the
debate over FTC regulation of household goods carriers are detailed on the next few pages
of this testimony.
361
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The ICC regulates the reasonableness of household goods carrier rates and
the contents of the tariff provisions that contain the myriad of charges that are applied by
carriers to recover their costs of performing so-called accessorial services (packing,
unpacking, storage at origin or destination, appliance service, stair carry, limitations of
liability, extension of credit and many others). The current system that is evaluated
periodically by the ICC is based on a process instituted by the eminent statistician. Dr. W.
Edward Deming. It provides reliable carrier costs which are the foundation of the rates and
charges submitted to the ICC. And, the rates do not involve just how much it costs to
transport a 10,000 pound shipment from point A to point B. Rather, they cover the full
range of rates and charges that are necessary to move a family's possessions. For
example, if a family moves to a third floor apartment, the cost of labor involved is more
than if they move to a first floor apartment. If the family is moving to New York City,
labor is more expensive than a move to West Virginia. The tariff charges for these
services and the hundreds of other services inherent in a household goods move are
overseen by the ICC. Extremely important in this process is the ICC's approval of rates
assessed for shipment valuations, that is, the charges homeowners pay to obtain
additional protection in the event their possessions are lost or damaged.
The FTC, on the other hand, does not regulate the prices that the various
industries that are subject to its jurisdiction can charge for their services. FTC regulation
of the charges assessed by the household goods industry would therefore, be a matter of
guesswork. Neither the carriers nor the public should be submitted to such vagaries, nor
should they have to endure a period of time while the FTC endeavors to gain experience in
rate regulation which is at least a difficult assignment.
362
-6-
Reguiation by the ICC also provides a clearly defined mechanism of consumer protections
for those that move and may have a problem. Household goods carriers favor these
consumer protection measures because they are applied equally to all regulated carriers
and are enforced by an informed agency.
The FTC, on the other hand, does not deal with the kinds of consumer problems
that are unique to the moving industry. ICC Chairman McDonald recently testified before
Congress that in 1993 the ICC handled 2,830 consumer complaints against movers.
These are not momentous issue complaints. Rather, they are the day to day sorts of
problems that may arise in the course of a move. A few examples demonstrate the range
of situations encountered by the ICC and the questions raised by consumers: When can a
consumer demand that its shipment be re-weighed and who pays for the cost of re-
weighing the shipment? Should the homeowner pay for additional mileage traversed by a
carrier that was caused by the detours resulting from last year's floods? What must the
consumer do if he or she is shipping valuables such as art or antiques? What are the
procedures to be followed if the homeowner wants to ship firearms and ammunition as
part of its possessions? If the homeowner wants to sue for loss or damage, how does it
serve its complaint on the carrier and where does it locate the information it requires?
Should the consumer contact the carrier or warehousemen for loss or damage of a
shipment that has been in storage over 90 days? The ICC routinely handles these kinds of
situations and will continue to do so even with its reduced budget. By contrast, the FTC
does not deal with these unique kinds of problems in its regulation of unfair and deceptive
competitive practices. Traditionally, it has taken a much broader approach to industry
regulation, an approach that neither the moving industry nor the public at large can endure.
363
-7-
In conclusion, AMC opposes preemption of state regulation of the household
goods moving industry. In addition, the transfer if the ICC's functions to the FTC will not
save the federal government money, but it will disrupt meaningful regulation of the moving
industry contrary to the interests of the American consumer.
Respectfully submitted.
364
fb AMERICAN MOVERS CONFERENCE
f ,.
6f June 30. 1 994
The Honorable Nick Joe Rahall, II
United States House of Representatives
2269 RHOB
Washington, D£ 205)
/,
Dear CongVes
The American Movers Conference represents over 3,000 household goods movers
nationwide. This association and its members have a long history of supporting
regulation at both the state and federal level. Particularly, AMC generally opposes
preemption of state regulation. For that reason, at the request of AMC the Senate
exempted the transportation of household goods from Section 211 of S. 1491, the
Federal Aviation Authorization Act of 1993. I wanted to take this opportunity to share
with you the concerns of my industry and the reasons that led to this exemption.
As originally drafted, Section 211 was so broad that it would allow a class of
motor carriers to transport anything without economic regulation, whether it was small
packages and parcels, household goods, or any other commodity. AMC believes that the
regulation of household goods movers should not be left to chance. As Congress
recognized in the Household Goods Transportation Act of 1980, the transporters of
household goods have special responsibilities to individual shippers. The combination of
state and federal regulations achieve that goal while allowing movers to compete in a
stable economic environment.
At AMC's urging the Senate agreed to amend Section 211 to allow for the
continued intrastate regulation of household goods movers. However, it is a matter of
serious concern to the many small, intrastate movers who are AMC members that state
regulatory bodies may opt out of all state trucking regulation, including moving, after
passage of S. 1491. There is no doubt in my mind that passage of Section 21 1 will lead
to complete deregulation of all intrastate freight carriers. The minimal regulations that
may be maintained will be meaningless without state rate and entry authority. It would
be pure conjecture to assume that the states will continue regulation of a segment of the
trucking industry (e.g. movers) without the authority to reasonably regulate the balance
of the industry.
For an example of what occurs with wholesale deregulation of the moving
industry, one must look no further than the State of Florida. Florida deregulated the
intrastate trucking industry, including household goods moving in 1980 and the citizens
of that state have suffered the consequences. AMC receives frequent complaints from
Florida consumers who have been overcharged or whose goods have been lost or
damaged by unscrupulous, unregulated movers. Unfortunately, in Florida there is no
365
-2-
mechanism in place to protect these consumers or to answer their justifiable complaints.
That is why the Florida legislature is contemplating enactment of legislation to re-regulate
household goods movers through the adoption of regulation that mirrors current ICC
regulation.
Before final passage I wanted to make you aware of the concerns of this industry
regarding passage of this provision. I hope you will consider them in your deliberations.
If I can be of any assistance in this or any other matter, please do not hesitate to
contact me.
Sincerely,
AMERICAN MOVERS CONFERENCE
JMH:mp
366
STATEMENT OF CORNISH F. HITCHCOCK
ATTORNEY, PUBLIC CITIZEN
before the
Subcommittee on Surface Transportation
of the
Committee on Public Works and Transportation
U.S. House of Representatives
20 July 1994
On behalf of Public Citizen, a consumer group with 130,000 members nationwide,
I appreciate this opportunity to comment on proposed changes in economic regulation in
the trucking industry. The issues before you today have a direct impact on consumers,
and we hope that Congress will see fit to enact reforms of the sort I will describe in a
minute.
Before discussing those matters in detail, let me address a question which some of
you may be asking, namely: Why should a consumer group care about these issues?
What stake do consumers have in this debate? Let me offer this background.
One of the earliest Nader studies, released in 1970, was entitled The Interstate
Commerce Omission. It examined in depth the operations of the Interstate Commerce
Commission, specifically its regulation of the motor carrier industry, and recommended a
number of reforms to generate more competition. The expectation was that the elimi-
nation of inefficient operating restrictions and price-fixing of truck rates would produce
greater efficiencies and lower costs to consumers.
Thus, Public Citizen actively sought enactment of the Motor Carrier Act of 1980,
which made it easier for trucking companies to enter new routes and offer new compet-
ing services; it also ended the industry's immunity from the antitrust laws, which had
previously been invoked to let truckers sit down with their competitors and hammer out
agreed-upon rates. As expected, those reforms translated into more efficient trucking
367
operations and, ultimately, consumer savings. \
By any objective measure, the Motor Carrier Act has been a success. The
economic studies are virtually unanimous in concluding that billions of dollars have been
saved every year since 1980, and the Committee on Public Works and Transportation can
be justly proud of its leadership and accomplishment in this area.
In the 14 years which have passed since that bill became law, experience has
revealed two serious deficiencies which Congress ought to remedy.
First, the 1980 reforms left intact some residual regulatory requirements which
serve no useful purpose, waste taxpayers' money, and could be abolished tomorrow with
no appreciable loss. Among them are the requirements that truckers file tariffs with the
ICC and also go through a bureaucratic paper-shuffling exercise when they want to add
new service. These paperwork requirements can and should be eliminated.
Second, the 1980 route and rate reforms affected interstate operations, but did
nothing to end the same types of wasteful economic regulation that govern intrastate
operations within most states. That omission continues to cost manufacturers and
retailers -- and ultimately consumers -- billions of dollars each year.
Americans for Safe and Competitive Trucking has documented how intrastate
regulation of routes and rates mean that intrastate shipments can cost far higher than
comparable shipments that move across state lines. There is no principled argument for
continuing such a system, particularly when Congress decided 14 years ago that this type
of waste and inefficiency -- which costs consumers billions of dollars each year -- will not
be tolerated on an interstate basis.
That is where section 211 of S. 1491 comes in. This bill would ratify a process
368
which began three years ago when a federal appeals court in San Francisco ruled that
the California Public Utilities Commission could not regulate Federal Express's efforts to
move packages by truck within California, citing a federal law which barred the states
from regulating shipments that moved incident to a shipment by air.
That ruling in the Federal Express case shone a spotlight on the waste that exists
in this area: Prior to the 1991 court ruling, if a California resident wanted Federal
Express to ship a package, say, 80 miles from Sacramento to San Francisco, the package
had to be routed on a 3600 mile round-trip through Memphis. That system makes no
sense and plainly imposes unwanted expense on consumers, yet that is what Federal
Express had to do because it was so costly and expensive to get licensed to operate
trucking services within California.
Section 211 of S. 1491 would confirm that the 1991 court ruling with respect to
Federal Express makes sense as a matter of sound public policy. Section 211 would also
extend the latitude given Federal Express in California to many other trucking compa-
nies shipping goods wholly within other states as well.
A number of truckers who were not given greater operating freedom under
section 211 have argued that it would be unfair to stop where the Senate drew the line,
and they argue that Congress should go all the way and preempt intrastate route and
rate regulation across the board. They're right. I would add, of course, that the good
should not be the enemy of the best, so if the choice is section 211 or doing nothing,
enacting 211 is plainly the way to go.
I'd like to address two points which are sometimes raised in defense of the status
quo on intrastate regulation issues. First, some will say that, as a policy matter, Congress
369
ought to leave things as they are and leave the states free to chart their own course,
however misguided it may be.
One problem with this approach, apart from the cost it imposes on the public, is
that allowing unfettered state regulation of intrastate truck routes and rates is the excep-
tion, not the norm, under federal laws establishing our national transportation policy.
Apart from the Motor Carrier Act of 1980, every other transportation reform law which
Congress passed in the late 1970s and early 1980s limited the states' ability to pursue
anti-competitive or inefficient regulatory policies on an intrastate level. Thus, in the
airline area, Congress totally preempted the ability of states to dictate routes and rates
on intrastate routes. And in the area of intercity bus travel, Congress created a mecha-
nism whereby state regulatory decisions could be appealed to and overturned by the ICC.
Only in the area of motor carrier regulation has Congress failed to enact a similar
provision, and the question must be asked: Why should the trucking industry enjoy a
special privilege which Congress has not extended to other transportation industries? I
have never heard a principled defense of this special treatment of intrastate trucking
operations.
Second, let me mention something which is not at stake here, namely, safety. Sec-
tion 211 quite properly recognizes that states may regulate truck safety, consistent with
federal law, and also that states cannot use safety as a rationale for cartel route-and-rate
regulation. This approach is sound. There is no empirical evidence to suggest that the
current system of intrastate economic regulation protects public safety, just as no one has
convincingly shown that the economic reforms made by the 1980 act diminished safety.
Indeed, the 1970 ICC study which I cited at the outset identified a number of safety
85-090 95-13
370
problems which were occurring under the strict regime of economic regulation which the
ICC was then enforcing, phenomena which one would not expect to see if it were really
true that regulating an industry like a cartel guarantees public safety.
All available evidence suggests that the best way to protect public safety is to
adopt and enforce strict safety standards. The point illustrated by a 1987 report
prepared by the California Public Utilities Commission and the California Highway
Patrol. That study examined the experience over a ten year period when the California
PUC alternated between lax and strict approaches to economic regulation of the trucking
industry in that state. What the PUC-CHP study found was that regardless of what kind
of economic regime was in effect at a given time, the level of accident rates was closely
correlated to the number of inspections being performed. Differently put, more inspec-
tions mean fewer accidents, and fewer inspections mean more accidents.
In conclusion, and to put this issue in perspective, there are some issues which
come before the Congress which are daunting in their complexity and difficulty. Health
care reform may be one example. On the other hand, there are issues where the
problem is straight-forward and the solution is stunningly simple. This issue is one of the
latter. The bits and pieces of economic regulation which remain at the federal level, as
well as the broader network of restrictions that affect intrastate trucking, do nothing but
produce waste, inefficiency and higher costs for consumers. The solution is easy:
Abolish these limitations, do it now, and let's move on to other issues.
Thank you.
371
STATEMENT OF FRED E. KAISER
on behalf of the
AMERICAN BUS ASSOCIATION
and the
NATIONAL BUS TRAFFIC ASSOCIATION
ON
STATE MOTOR CARRIER LAWS
BEFORE THE
SUBCOMMITTEE ON SURFACE TRANSPORTATION
OF THE
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
U.S. HOUSE OF REPRESENTATIVES
WEDNESDAY, JULY 20, 1994
2167 RAYBURN HOUSE OFFICE BUILDING
WASHINGTON, D.C.
American Bus Association
1100 New York Avenue, N.W.
Washington, D.C. 20005
(202) 842-1645
372
Mr. Chairman and members of the Subcommittee, my name is Fred Kaiser. I
am President of the Kerrville Bus Company in Kerrville, Texas. I appear here today
representing two intercity bus organizations: the American Bus Association (ABA),
where I serve as Vice Chairman, and the National Bus Traffic Association (NBTA),
where I am a member of the Executive Committee.
ABA represents some 700 bus operator members throughout the United States.
Our members provide passenger transportation through regular intercity routes,
charters and tours, and express airport and commuter bus service.
NBTA, located in Washington, D.C., is the rate bureau for the intercity regular
route bus industry. Its purpose is to publish tariffs applicable to the interstate and
intrastate transportation of passengers, baggage, and express.
Mr. Chairman, just over two years ago, I testified before this subcommittee in
support of H.R. 4325, section 3(a), which would have amended 23 USC 161 to provide
that no State shall have in effect or enforce any law or regulation relating to--
intrastate rates, routes, or services of any
interstate motor carrier, interstate private
QK POP r*r>r\
373
motor carrier, or intrastate broker which
provides intrastate transportation of
property, including express packages.
I suggested that it needs to be clear that "transportation of property" includes the
transportation of express by motor carriers of passengers.
I also testified then that H.R. 3221 would place bus operators who transport
express at a competitive disadvantage by preempting State authority only with respect
to the transportation of express by national intermodal carriers. Bus operators would
continue to be subject to the delays, expense, and disclosure requirements inherent in
State regulation of rates had that legislation passed. I suggested that H.R. 3221
should be amended by inserting after the words, "national intermodal carrier," on page
2, line 23, the following: "or any motor carrier of passengers."
Today, I appear before you to testify on S.1491, to amend the airport and airway
improvement act.
Transportation of package express is an important source of revenue for motor
carriers of passengers. It accounts for approximately 10-15 percent of the gross
operating revenues of carriers engaged in regular-route service; on rural routes, this
percentage is considerably higher. Package express service by bus is a vitally
374
important service in numerous small and rural communities throughout the country.
It is essential to maintain a level playing field. Neither Federal nor State regulation
should provide a competitive advantage to any particular type of carrier engaged in the
surface transportation of express.
Intrastate transportation of express shipments by bus accounts for
approximately 25-30 percent of all bus package express shipments. If S. 1491 were
enacted as passed by the Senate, bus operators would be at a distinct competitive
disadvantage. Most operators do not meet the required 15,000 annual usages as
described in new subparagraph 101(25)(B)(ii) of Section 211, Intermodal All-Cargo Air
Carriers, nor are they likely to hold themselves out as indirect cargo air carriers.
Therefore, we recommend adding the phrase, "or (III) is an intercity bus carrier
providing the transportation described in section 105(a)(4)." This would allow intercity
bus carriers of package express to be exempted from state regulation of such package
express carriage to the same extent as motor freight carriers covered by the
amendment. Without the same freedom to compete for that package express business
enjoyed by its motor freight competitors, intercity bus companies will likely lose
package express business and rural bus service will be jeopardized.
Thank you, Mr. Chairman, for the opportunity to speak before you today, and
I will be pleased to answer any questions which you may have.
375
MICHAEL ». KHOURIE
Attorney At Law
One Market Plaza
steuart Street Tower, 20th Floor
San Francisco, CA 94105
Tel: (415) 543-9600
Fax: (415) 543-5043
July 18, 1994
VIA FEDERAL EXPRESS
Congressman Nick J. Rahall, II
Chairman, Surface Transportation Subcommittee
Rayburn House Office Building - Room 8376
Washington, DC 20515
Re: Rider to Senate Bill 1491 (Section 211)
Dear Congressman Rahall:
I represent Cal Pak Delivery, Inc., a LTL carrier of
small parcels in California
I have very recently been informed that the Surface
Transportation Subcommittee is scheduled to hold hearings on the
Section 211 Rider to Senate Bill 1491. I talked to a number of
your staff and asked if I could be a live witness but was advised
that it was too late for me to testify. I earlier wrote a letter
dated July 12, 1994, to all members of the House Aviation
Subcommittee setting forth my points of view in opposition to the
bill. I have sent one to you as a member of that subcommittee.
By this letter I am sending you the same letter in your
capacity as Chairman of the Surface Transportation Subcommittee.
I hereby request that it be made part of the record and that the
views expressed therein be considered.
I am also enclosing Comments made on behalf of my
client to the California Public Utilities Commission which has
decided to investigate the disruptive influence that a bill,
passed by the California Assembly, which is very similar to
Section 211, has on competition in California. I also include a
376
Congressman Nick J. Rahall, II
Page 2
July 18, 1994
letter dated June 17, 1994, written to approximately 100 carriers
and shippers in California.
I hope you will take this material into consideration.
I thank you for your courtesy and assistance.
Very truly yours,
/
LL31RAHA.MNK:vl
Enclosures
377
MICHAEL M. KHOORIE
Attorney At Law
One Market Plasa
Steuart Street Tower, 2 0th Floor
San Francisco, CA 94)105
Tel: (415) 543-9600
Fas: (415) 543-5043
July 12, 1994
Dear Members of the House Aviation Subcommittee:
Re: Rider To Senate Bill 1491, Section 211
Federal Aviation AHmipistration Act
I represent Cal Pak Delivery, Inc. (Cal Pak) , a highway
common carrier in California which conducts a LTL (less than
truckload) small package service. It has no air operation. Its
principal competitor is United Parcel Service Inc.'s ground
service.
I am writing this letter to urge you not to approve the
Section 211 rider (rider) to Senate Bill 1491. The rider, if
passed, would exempt from the regulation of 40 separate states
any transportation company which fits the definition stated
therein for an integrated intermodal all cargo air carrier. As
you are aware the threshold for qualifying under the rider is a
minimum number of times per year a transportation company puts
freight on an airplane. This minimum started at a very high
level which would exclude from the bill's benefits every carrier
in the United States except UPS and Federal Express. But it was
gradually reduced when Senators Ford, Dole, Helms and Sasser
intervened on behalf of other large carriers.1 They were
apparently unaware of or deliberately ignored the adverse
competitive impact the measure will have on smaller totally
ground and intermodal companies within and without of their
states.
1 The favored carriers as reported in the Wall Street
Journal edition, June 20, 1994, are: United Parcel Service, Inc.
Federal Express, Consolidated Freightwaya, Overnite
Transportation Co., Yellow Corp. and Carolina Freight Corp.
378
Members of the House Aviation Subcommittee
July 12, 1994
Page 2
Nowhere in the Senate debate is any mention made of the
most critical point, the one which is causing so much
misunderstanding and apprehension. (Congressional Record -
Senate, June 10, 1994, pp. S6774-6777.) The basic concept here
is to insure that air and air-related ground transportation are
not subject to state regulation as contemplated by the Federal
Aviation Act and restated in Federal Express Corporation v.
California Public Utilities Commission, 936 F.2d 1075 (1991).
For example, the entire business operation of Federal Express
(Fed Ex) is already entirely exempt from state regulation but
only because its entire business is devoted to air and air-
reiated services. This is clearly and emphatically not the case
for other carriers who will come under the coverage of the rider
and who will qualify for total operational exemption merely
because they transport by air 15,000 times a year. But, as we
will demonstrate, such air transport may be but a tiny part of a
large transportation company's entire business. Whatever the
extent of a company's air and air-related movements, they should
be exempt from state regulation. But to exempt an entire
company's operation when only part of it fits this category is
unjustifiable by any standard.
Because these matters are not simple to comprehend and
the consequences of a badly premised enactment will have most
serious ramifications, it is important to have hearings. During
the Senate debate Senator Grassley of Iowa stated:
"I wish the Senate could have hearings on
this matter so that the interests of all
parties affected could be fully aired. As it
stands many individuals whose lives may be
impacted by this legislation are not even
aware of the details as the Senate proceeds
in an unconventional manner to address the
issue of truck regulation.
I fear that the Senate is acting hastily and
carelessly on this issue and I would urge
that we step back from this decision and
consider the matter with the deliberation and
thoughtf ulness it deserves . "
This rider excludes from its immeasurable competitive
benefits thousands of transportation companies in the United
States. As Senator Exon suggested, the only way a small
transportation company may obtain the rider's philanthropy is to
379
Members of the House Aviation Subcommittee
July 12, 1994
Page 3
have a voice in Congress. Certainly Senators Ford, Dole, Helms
and Sasser are not those voices.
We are aware that my client, Cal Pak, does not possess
the political influence to be included because the legislatively
forged definition keeps it and thousands like it under state
regulation. All that can be hoped for is to convince you that
the definitions in this rider are unrelated to economic or
business reality and unnecessarily create an uneven playing
field. They were written for no other reason than to afford six
very large companies, which have access to powerful consorts in
Congress, a legislative, rather than a market-driven, competitive
advantage .
The Wall Street Journal in reporting the Senate's
action on the rider stated that it was attached to an unrelated
airport grant bill and "was passed late last Thursday night [June
16, 1994] on a voice vote." It is our hope that neither the
House Aviation Subcommittee nor the joint committee will further
engage in this secretive process because the issues here are much
more serious and far-reaching than the proponents have led you to
believe. All we ask for is an open window and the light of day
so that before a vote is taken on the rider, its true impact will
have been considered and the fetid odor of backstairs favoritism
is absent.
DESCRIPTION OF UNITED PARCEL SERVICE. INC.
Before detailing the insupportable premises underlying
the rider, I want to give some facts about its principal
instigator and lobbyist, United Parcel Service, Inc. (UPS) . This
company deserves special attention because it dominates the
market in which it principally competes: the ground,
nonexpedited, nonguaranteed small package service market. Not
too much is known about UPS because it is a private company. I am
in a position to give you some considerable insight only because
during the last 30 years I have been involved against UPS in both
federal antitrust litigation and proceedings before the
Interstate Commerce Commission and the California Public
Utilities Commission.
UPS is the largest transportation company in the world.
Its gross sales of $17.8 Billion in 1993 is greater than the
combined total gross sales of Federal Express, Consolidated
Freightways, Overnite Transportation Co, , Yellow Corp. and
Carolina Freight Corp. , the five other known beneficiaries of the
rider. UPS' wealth is huge and would be considered legendary
were it publically known. Because it is a privately held
company, UPS withholds its financial statements. As a result its
380
Members of the House Aviation Subcommittee
July 12, 1994
Page 4
total profitability, after eliminating intercorporate
transactions, is not known. There are some things, however, that
I have discovered. During the past single year (without the
benefit of the rider) UPS' profits increased by more than 60%.
The subsidiary which operates in California and some other states
alone increased its retained earnings from $1.4 to $1.9 Billion
during the four-year period 1989-1992, after paying 4% of its
gross receipts (between $300 and $400 Million) to its parent
corporation, United Parcel Service of America. No one knows, and
UPS is not telling, the total consolidated size of its treasury
which it attained under the present state of the law.
Why has UPS been able to earn and recently dramatically
escalate its already bloated profits and wealth? The answer is
simple. UPS controls, that is, actually collects the shipper
revenue from, over 75% of the ground small parcel delivery
shippers in the United States. (See Wall Street Journal, May 25,
1994, p. 2.) This means that the remaining 25% of the market is
fragmented into thousands of small competitors throughout the
country. UPS probably possesses monopoly power which is defined
in Sherman Act terms as the power to control prices or eliminate
competition. In addition, UPS' management has a solidly proven
record of predatory and unlawful conduct. Its predation is
clearly st forth in a detailed opinion by a federal court. See
Marnell v. United Parcel Service of America. Inc., N.D. Cal.
(1971) 1971 CCH Trade Cases, para. 73,761. Of all the savage
assaults on business ethics described in Associate Justice Tom C.
Clark's opinion, perhaps the most chilling are UPS' deliberate
deceptions made to governmental bodies, a point which should not
be overlooked because it is particularly relevant here.
In 1992, in California, UPS actually created false
evidence deliberately in an attempt to support a rate increase it
knew to be illegal. Despite a CPUC warning given it prior to the
increase, UPS nevertheless arrogantly increased its rates and
unlawfully overcharged its approximately 160,000 shippers in
California in excess of $35 Million. The CPUC and the California
Supreme Court found the rate increase to be illegal, ineffective
and an overcharge. So great is UPS' power over governmental
processes, it still retains every cent of the spoils of the
illegally attained funds and the CPUC, so far, has allowed it to
keep every dollar of overcharge as a reward for its unlawful
conduct. UPS has not given notice to its overcharged shippers as
required by General Order 158 A, nor has the CPUC required it to
do so. Thus far virtually none of the 160,000 shippers have any
knowledge of this illegal jostle. We submit it would be a
serious default in your duty to the American people to add to
this particular company's already uncontrollable power.
381
Members of the House Aviation Subcommittee
July 12, 1994
Page 5
THE COMMITTEE SHOULD REJECT THE RIDER
UNTIL A PUBLIC HEARING IS HELD.
It is the UPS that I have described which is about to
receive another donation, this time from Congress to appease its
seemingly bottomless gluttony. It is utilizing its vast wealth
and influence as a means of accessibility to you in order to get
another competitive advantage, this time a legislative one, over
its disappearing competitors. In justice, Congress should have a
hearing to test the truthfulness of the rider's premises, because
to pass it without knowing the truth is to risk great and
irreversible harm to many business people in the United States.
FACTS THE SUBCOMMITTEE WOULD DISCOVER
AS THE TRUTH IF IT HOLDS A HEARING.
If the Subcommittee were to conduct an investigation
which involved public presentations by ourselves, other carriers
and shippers, it would immediately and indisputably become clear
that a negative vote is the only principled course to follow.
The facts will show the following:
1. A hearing will reveal that it is an unmitigated
falsehood that state regulation prevents UPS from trucking
packages directly on many shorter routes. It is even a more
serious deception for UPS to represent that the problem is of
such magnitude that the only solution is removing from regulation
the entire intrastate operations which UPS conducts in 50 states.
In reality no real problem exists which amounts to anything but a
tiny triviality.
UPS may be correct in its claim that the few intrastate
air/ expedited packages which are line-hauled by ground and
therefore never got into the air are subject to regulation in
some states. But the problem, if it exists, is minuscule. In
1987 in California UPS moved a mere 14,000 intrastate
air/expedited packages entirely by ground transport during one
month. During the same month UPS handled 9,500,000 packages
intrastate entirely by ground. Thus, an amount of packages which
is barely over zero percent of the total ground packages handled
are the source of the "problem." If Congress sees this
triviality as a problem meriting its precious attention, then
perhaps a bill will openly be introduced to remove those packages
from state regulation. Certainly an appropriate definition can
be drafted. However, the concept of exempting UPS' entire
business operation from regulation, as proposed in the rider, is
unimaginable and if implemented will be a monstrous overkill with
serious nationwide ramifications. There, is no conceivable reason
382
Members of the House Aviation Subcommittee
July 12, 1994
Page 6
to bestow upon UPS this utterly unjustifiable political favor.
The answer to the problem: deregulate the 14,000 packages.
2 . A hearing will clearly disclose that UPS '
air/expedited operation is but a small component of UPS' entire
intrastate operation. Yet UPS has represented to the PUC in
California that it constitutes a "major component" thereof. The
word "major" would need to undergo a major overhaul in order for
one to believe this assertion was true.
UPS' services are not defined by the vehicles or
aircraft which carry the packages, but by the rates it charges
for pickup and delivery services it renders. UPS has two levels
of charges which principally reflect the different time
commitments it makes to the shipper. First, for its
air/expedited (one, two or three day) guaranteed service, UPS
charges a premium rate which, on the average, is six times higher
than UPS' other category of rates. Only one out of every 100
packages handled intrastate by UPS are in this rate category.
Second, for its nonexpedited, no guaranteed delivery service,
UPS' rates are, on average, six times lower than for the
expedited service. Ninety-nine out of every 100 packages handled
intrastate by UPS pav this rate. These figures are based on UPS'
California intrastate traffic reported to the CPUC for 1991. 2
If UPS has failed to advise you of these facts, it has
misled you. Thus, although it may be literally true that the two
operations are partially integrated, albeit on a 100:1 ratio, it
is a major misrepresentation to state that air is a "major"
component of its entire system.
3. A hearing would reveal that UPS' air service
extends no benefits at all to the highly profitable ground
services. The ground pickup, sorting and delivery functions were
already in place when UPS entered the air business and the
The overwhelming majority of all of the air/expedited
packages are line-hauled by air, but some may be line-hauled on
trucks since the time of delivery, not the mode of transport, is
the critical factor. Almost all of UPS' nonguaranteed service is
line-hauled by truck but some may go by air. Early delivery is
irrelevant to this low-rated ground service regardless of the
mode of line-haul both because there is no time commitment and
the shipper does not expect it. UPS has chosen to commingle
air/ expedited and standard packages on the ground for local
pickup, sorting at central facilities and for local delivery.
383
Members of the House Aviation Subcommittee
July 12, 1994
Page 7
relatively small air volume has probably hindered rather than
helped the efficiency of the intrastate ground operation.
However, economies of scale and size inherent in the ground
operations have played and continue to play a major part in
subsidizing the cost basis of the air operation. The rates UPS
may charge for air service have a competitive lid. They are
subject to the intense competition of Federal Express, a pure air
carrier. It is UPS1 immense throng of ground-only shippers who
are being soaked by its monopoly pricing in order that UPS may
better price compete with Federal Express. Freeing UPS from
state regulation but keeping its thousands of competitors under
the 40-state yoke will only add to UPS' already overwhelming
power over the ground small parcel market.
4. A hearing will prove beyond doubt that granting
immunity to UPS will cripple the ability of thousands of
competing ground LTL small package carriers to survive. This
rider dangerously tilts the playing field by allowing the one
huge company which dominates the market to go unfettered while
requiring its competitors to be hindered by regulation. If the
rider becomes law, you will be sanctioning an insurmountable and
discriminatory competitive advantage to UPS ever its LTL
competitors in this market.
Your committee should clearly understand that no one
opposes exempting all of the packages in UPS9 air expedited
operation even if they move entirely on the ground within one
state. But do not be sold on the falsehood that under existing
regulatory structures UPS cannot now effectively compete in the
air market unless its entire business operation is exempted from
state regulation.
5. Have the Senators who sponsored this rider
considered the financial impact which such a bill may have on the
regulatory bodies of the states? In California alone, where UPS
was successful in hoodwinking the legislature into exempting its
entire operation from regulation (A.B. 2015) because it was an
integrated intermodal small package carrier, the taxpayers will
now be required to donate over $1 Million a year to replace the
regulatory fees UPS no longer is forced to pay. At the same
time, payment of common carrier fees is required of its competing
regulated carriers. This rider will multiply this money gift to
UPS into more millions of dollars.
6. There can be no more convincing proof of the a
priori wrongness of the rider than what is currently happening
in California. In August 1993, UPS lobbied and had passed A.B.
2015, a bill similar in all important respects to the rider
384
Members of the House Aviation Subcommittee
July 12, 1994
Page 8
before you. UPS convinced the legislature to pass the bill based
on the rationale that it was an integrated, intermodal package
carrier. The legislation was enacted on short notice, as an
emergency measure and as a rider to an unrelated bill, the same
pattern we see here. The legislature ignored the opposition to
A.B. 2015 which argued that the bill, if passed, would amount to
no more than a double political gift. First, it would grant UPS'
all-ground operation an insurmountable competitive advantage by
freeing it from, but leaving its small package LTL competitors
subject to, regulation. Second, it would simply hand UPS a cash
gift each and every year in the amount of about $1 Million in the
form of reduced regulatory fees. Its competitors, of course,
would continue to be required to pay fees for the privilege of
being burdened by regulation.
A.B. 2015 became effective on January 1, 1994, and, not
surprisingly, UPS was the only carrier in California that could
fit into the narrow definition which UPS demanded and got from
the legislature. After only four months of the operative life of
the bill, in April the CPUC has publicly acknowledged that A.B.
2015 "has had the unintended effect of disrupting the competitive
balance between carriers, thereby compromising these goals."
(Emphasis supplied.)3 Thus, after the big UPS horse has
galloped free through the barn door, the CPUC has commenced what
promises to be a long and expensive investigation into the very
question which should have been answered before A.B. 2015 was
passed. As is true in California, it is a certainty here that if
you pass the rider, it will disrupt the competitive balance
between UPS and thousands of LTL carriers in 40 states. The
admonitions of Senators Grassley and Exon should be scrupulously
heeded .
Enacting the rider is a huge step which I should think
you would not wish to take without being sure this letter is
wrong. Thus we urge you to find out for certain whether UPS
needs to exempt its entire intrastate operations nationwide as
the only way for it to handle the few air/expedited packages
which go intrastate by ground. I urge you to hold hearings to
determine the truth. My client and I are ready to submit
documents and testimony to you to support everything stated in
this letter. If you seek UPS comments on some of the points in
3 The goals, as set forth by the CPUC, are public safety,
consumer protection, adequate service, low rates and efficient
operation.
385
Members of the House Aviation Subcommittee
July 12, 1994
Page 9
this letter, we would hope that, in fairness, you would also
allow us to hear and rebut them if we believe them to be
misleading.
Very truly yours,
W/M
Michael N. Khourie
/
L73AVIA.MNK:vl
386
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE
STATE OF CALIFORNIA
Order Instituting Investigation
in the matter of the regulation
of general freight transportation
by truck.
Order Instituting Rulemaking
in the matter of the regulation
of general freight transportation
by truck.
FILED
PUBLIC UTILITIES COMMISSION
MARCH 16, 1994
SAN FRANCISCO OFFICE
1.94-03-036
R. 94-03-037
S .n
COMMENTS BY RESPONDENT CAL PAK DELIVERY, INC.
X -~ :-^
Dated: June 15, 1994.
Michael N. Khourie
One Market Plaza
Steuart St. TVr., 20th Fir.
San Francisco, CA 94105
Tel: (415) 543-9600
Attorney for Petitioner,
CAL PAK DELIVERY, INC.
387
BEFORE THE PUBLIC UTILITIES COMMISSION OF THE
STATE OF CALIFORNIA
Order Instituting Investigation
in the matter of the regulation
of general freight transportation
by truck.
Order Instituting Rulemaking
in the matter of the regulation
of general freight transportation
by truck.
FILED
PUBLIC UTILITIES COMMISSION
MARCH 16, 1994
SAN FRANCISCO OFFICE
1.94-03-036
R. 94-03-037
COMMENTS BY RESPONDENT CAL PAK DELIVERY. INC.
PREFATORY STATEMENT
Pursuant to ordering paragraph 2 of the Order
Instituting Investigation and Rulemaking dated May 16, 1994
(Order) , Respondent Cal Pak Delivery, Inc. (Cal Pak) hereby
presents its comments . l
The Order describes the instant proceeding's purpose.
It is to "examine whether recent legislation creating the
Integrated Intermodal Small Package (IISP) carrier has had the
unintended effect of disrupting the competitive balance between
Although Cal Pak has neither been served, as required
by ordering paragraph 11, nor included in the list of addressees,
these Comments are submitted with the hope that they will receive
at least equal consideration to comments submitted by officially
notified shippers and carriers, including those of UPS.
388
carriers, thereby compromising these goals."2 Order, p. 1.
(Emphasis added.)
A fair reading of the Order suggests that there exists
numerous IISP carriers and that there is only a slight
"competitive [im] balance" between regulated LTL small package
carriers and IISP carriers. Such an impression is seriously out
of sync with reality. The Order makes repeated generalized
references to an IISP carrier classification as if there were no
way to identify any by name. The Order omits to disclose that
there is only one such carrier and that its name is United Parcel
Service, Inc. (UPS) . Because of this unique and critical fact,
the depth and dimensions of any measures required to rectify the
now acknowledged disruption to competition caused by A.B. 2015
will need to be much more drastic and far-reaching than any
suggested in the Order.3
The Commission is mindful that not only is UPS the only
IISP carrier, but it is also the largest trucking company in the
world. A description of UPS' services, its competitive status
and its pricing structure is essential to understand before any
These goals are described as promotion of public
safety, consumer protection, adequate service, low rates and
efficient regulation of general freight transportation. Order,
pp. 1 and 13.
As the Commission may be aware, Cal Pak vigorously
opposed the passage of A.B. 2015 by writing letters to several
senators and assemblypersons as well as in personal testimony
before the Senate Energy and Public Utilities Committee. In both
forums Cal Pak publically warned of what the Order now
characterizes as "unintended effects."
389
measures are adopted. This description is set forth in Footnote
4 herein.4
UPS has a huge market share in the standard service
4 UPS derives virtually all its revenue from services
which pick up packages at the shippers ■ premises and which are
then sorted in a central sort facility and delivered to the
consignees' premises. It renders two general categories of
service. The first UPS calls its Standard Delivery Service.
This service is provided in two formats: (1) the delivery of
single packages at a per package rate (single parcel service) and
(2) the delivery of multiple parcels between one consignor
location and one consignee location on the same day for a
shipment rate (Hundredweight LTL Service) . The single parcel
service is competitive both with the Post Office's regular parcel
post service and, to a lesser degree, with hundreds of regulated
LTL carriers. The Hundredweight Service is competitive only with
LTL carriers. Standard Delivery Service has three
characteristics that distinguish it from UPS' Expedited Delivery
Service which will be described below. There is no guaranteed
delivery time, is almost invariably all-ground (pick up, sort,
line haul, sort, delivery) and is low rated.
The second service UPS calls its Expedited Delivery
Service. It is both a single parcel and Hundredweight Service
and is competitive principally with Federal Express (Fed Ex) and
the Air Service of the Post Office (Air Parcel Post) . This
service is distinguishable from UPS' Standard Delivery Service in
that it guarantees either next day or second day service, the
line haul is mostly by air but often an expedited ground line
haul is utilized, and the rates, on average, are six times
greater than the standard service rates.
UPS derives over 80% of its $17 Billion revenue from
its standard, nonexpedited service which, because of the vast
disparity of price and delivery commitment, is only marginally,
if at all, competitive to its own, Fed Ex's and Air Parcel Post's
expedited services. UPS derives the highest profit margin from
the single parcel standard service, the market in which Parcel
Post is its principal competitor. With those high profits UPS
has supported both its Hundredweight LTL Service, which is in
competition against hundreds of regulated LTL carriers, and its
Expedited Service competition against Fed Ex and Air Parcel Post
by commingling and cash subsidies.
390
industry which is otherwise highly fragmented despite the inept
competition of parcel post. Other entrants are tiny compared to
UPS.5 Yet UPS alone is unregulated.6 The legislature saw fit
5 The Wall Street Journal on May 25, 1994 reported the
following:
a. Of UPS' total system revenue of $17.1 Billion
only 17% or $3 Billion is derived from its air service.
Thus 83% of UPS' receipts are derived from its all
ground, nonexpedited, low-rated standard single parcel
and Hundredweight LTL services. UPS reported to the
Commission that in 1991 only one package out of 100 was
expedited and 99 were handled by its standard service.
b. UPS controls 75% of the ground parcel market
in the United States. This market share figure is at
serious odds with the Transportation Division's
admittedly unsubstantiated estimate that UPS controlled
only one-third of the relevant market. See Advice of
Participation Planned by Transportation Division dated
April 8, 1993, In Re Application of United Parcel
Service, Inc., et al., No. 93-02-018, pp. 4-6.
c. UPS' profit rose from $516 Million in 1989 to
$809 Million in 1992, an increase of 60%.
The Wall Street Journal article referred to above is
attached hereto as Exhibit 1.
UPS obtained the passage of A.B. 2015 by carrying out a
lobbying campaign which was deceptive. It represented that UPS'
entire operation, including its Standard Delivery Service had to
be rendered statutorily immune from regulation or else it would
be incapable of competing with Fed Ex, which is exclusively an
air carrier, on a "level playing field." The most inventive of
its concoctions is UPS' representation to the legislature that
A.B. 2015 would not adversely impact UPS' LTL small package
competitors. The "unintended effects" referred to in the Order
are a clear demonstration that UPS' insistence that its entire
business required deregulation in order for it to compete with
Fed Ex was a false premise. See Conlon Concurrence, Commission
Resolution TL-18602. In successfully inducing the Commission to
grant its application for IISP carrier status, UPS represented
that "Clearly, the operations of UPS by air are a maior component
of this (UPS' entire) system." (Emphasis added.) This is false
and a hearing should be held to determine its veracity. The
391
to spring UPS loose without study, caution or restraint while
ignoring the dire competitive consequences which clearly would
befall highway carriers. These consequences are now tardily
being recognized and addressed by the Commission in the Order.7
UPS is no longer required to make public any of its
prices while its competitors are obligated to make public their
pricing through tariff and contract filings. The filing- of
tariffs and contracts also requires LTL carriers to disclose to
assertion is but a repetitive continuation and part and parcel of
the double hoax UPS foisted upon the legislature. First, that it
was impossible for UPS to compete with Fed Ex unless its standard
services were exempted from regulation along with its air
service. Second, that regulated LTL small parcel competitors
would not be adversely affected.
UPS' air service is not a "major component" of its
integrated operations unless 1/ 100th is redefined as major. No
rational person could believe that because only one package out
of every one hundred packages are air packages, it follows that
all parcels in the system should be deregulated. This is
exactly the situation here. The truth is that the huge volume of
nonexpedited, low-rated packages which gives UPS its capacity for
density in every area of the United States has operated with
extreme profitability for decades under regulation. Contrary to
all of UPS' efforts to mangle the truth, the commingling of air
packages with the standard service has had virtually no effect on
the standard service. But very much to the contrary, the air
service is in large measure subsidized by its integration with
the standard service.
It is of extreme relevance to note that when a change
in status regarding UPS was involved, the Commission did not
institute a formal and lengthy proceeding to determine, first, if
A.B. 2015 would disrupt competition. It lent its support to UPS
seemingly only because UPS wanted it. Now, that the big horse
has galloped free through the bar door, the Commission wants to
study the problem in the instant proceeding entailing lawyers,
tons of paper, formal rules, comments, responses to comments and
hearings. By the time this proceeding is over, it will be too
late for many carriers.
392
UPS all other terms of doing business with their customers, e.g.,
claims, C.O.D. 's, returns, etc., while UPS can keep their own
terms confidential from both competitors and other customers.
Thus in setting its prices and conditions of service, UPS may
tailor its game plan to meet individual competitive situations
with the assurance that competitors do not know what it is
offering. This is an overwhelming anticompetitive weapon,
particularly in UPS' hands.
Furthermore UPS may now discriminate from shipper to
shipper. And because it is no longer a common carrier it has no
obligation even to serve. Thus when UPS' ability to serve every
address in the United States is coupled with shippers '
disinclination to have more than one carrier pick up shipments at
their premises, UPS1 right not to serve shippers at all is indeed
a daunting anticompetitive weapon.
Also because UPS may in its absolute discretion
decrease rates to any level, it may target the customers of
competing carriers one by one and, with its limitless resources,
subsidize losing rates until the competitor falls. Likewise
because UPS has the absolute discretion to increase prices, as it
already has, it will continue to reward itself with monopoly profits.
As the Commission knows, UPS is owned by a parent
corporation, United Parcel Service of America, Inc. (UPSA) , over
which the Commission has never had regulatory jurisdiction. Cal
Pak is informed that each UPSA operating subsidiary, including
UPS, is obligated to pay UPSA 4% of its gross receipts off the
top ("additional business service expense") and 50% of their
profits before taxes. Because UPSA is not regulated the
393
Although UPS has competition in its air segment, it has
very little effective competition to restrain its pricing and
service activities in either the standard single parcel and the
hundredweight LTL service it offers.9 With its market
dominance plus UPS* proven predilection to act predatorily
against competitors,10 the Commission must act to level the
playing field. None of the measures suggested in the order will
adequately do so.
Cal Pak believes that the Commission is not empowered
to deregulate any common or highway carrier. On the contrary,
Commission apparently has no information as to the amount of
these payments and further does not know to which UPS expense
account this distribution is allocated. See Advice of
Participation in A. 93-02-018 dated April 8, 1993, pp. 6-7.
Justice Tom Clark characterized UPSA as the "national money bags
for UPS' operating companies." Marnell v. United Parcel Service
of America. Inc. . N.D.CA 1971 CCH Trade Cases I 73,761, pp.
91,225. As the Commission knows, even under regulation the UPS
subsidiary operating in California increased its retained
earnings from $1.4 billion to almost $1.9 billion during the
years 1989 and 1992. No one knows how much of its profits have
been transferred to UPSA nor how wealthy UPSA has become. It
would be difficult to predict anything but a vast increase in
wealth resulting from the new status.
Recently RPDX has been reported to be UPS' principal
competitor in ground small package LTL (Hundredweight) traffic.
But the disparity in market power is huge. As reported to the
Commission Roadway's nationwide gross receipts are under
$750,000,000, which may not be entirely from its small parcel
operation. UPS' are more than $17 Billion, over 22 times the
size.
See Marnell v. United Parcel Service of America. Inc..
N.D.Calif., 1971 CCH Trade Cases J73,761 (1971) for a description
of a host of astonishing vulture-like practices engaged in by
UPS, including deliberate deception of the Commission.
394
the Commission has the Constitutional and statutory
responsibility to regulate carriers and require that services and
rates shall be just, reasonable and nondiscriminatory. P.O. Code
§§451, 453. California Constitution, Article XII, §4. A
careful reading of the Order indicates that the Commission
proposes to do indirectly what it is not empowered to do
directly. It apparently believes it can solve the stated dilemma
by creating a series of complex exceptions and exemptions to
equalize competition. This course of action will not work and
appears to be Constitutionally infirm.
Cal Pak agrees with the Commission that A.B. 2015 has
created an injustice. Something must be done to correct the
wrong and to undo ongoing and future damage to UPS1 single
package and LTL competitors. We believe the Commission should
follow Commissioner Conlon's advice given in his concurrence to
Resolution TL-18602, December 1993. First, pursue clarification
of the legislative intent behind A.B. 2015. If that intent is
ascertained to have been to grant IISP status only to air related
operations competitive to Fed Ex rather than to all of the
operations of a company, then the Commission may follow two
paths. If, under the rules of statutory construction, the
language of A.B. 2015 admits of interpreting the statute as
pertaining to air operations only, the Commission should announce
its new interpretation, revoke UPS' certificate and issue a new
one limited to air. If statutory construction rules do not allow
8
395
such an interpretation, the Commission should expose the false
premises UPS utilized to obtain A.B. 2015's passage and lobby the
legislature to amend the law to conform to its true intention.
If, upon pursuit of legislative intent, the Commission
should find that the purpose was in fact to exempt from
regulation the total of a company's business if any segment is
engaged in IISP carriage, then the Commission should present to
the legislature the "unintended" competitively disruptive effect
A.B. 2015 has wrought and lobby for a limiting amendment or
complete repeal. If this course is realized, UPS1 IISP carrier
certificate should be revoked or limited accordingly. If the
legislature fails to repeal or limit A.B. 2015 by amendment, then
the Commission should lobby the legislature to pass deregulating
legislation for all UPS' LTL small package competitors.
CAL PAK'S ANSWER TO SPECIFIC QUESTIONS
Oj 1: Even handed regulation not favoring UPS. Work
for a lawful system of regulation that applies equally to all
small parcel and LTL carriers who deliver small parcels. The
Commission should revise its decision to support A.B. 2015 and
either seek to have it repealed or have its application to UPS'
entire operation declared violative of the Constitution as an
infringement of equal protection of the laws.
396
0. 2 and 0. 3: Goals 2, 3 4 and 5 cannot be
satisfactorily achieved by any of the proposed alternatives.
Either UPS standard service must be brought back under regulation
or small parcel carriers must be freed of the requirement of
being highway or common carriers.
0. 4: Yes. See Prefatory Statement.
0. 5; Whatever the basis, the fee burden should be
equalized and the injustice of the fee structure created by A.B.
2015 in granting an annual gift to UPS of over $1 million should
be eliminated.
0. 8: The most pressing need is to make all carriers
who conduct ground only small parcel delivery equal under law
immediately, whether under regulation or not.
Q. 10 and 11: Price discrimination will always be a
problem whether carriers are regulated or not. Because there are
few personal considerations between the customer and large
carriers, in particular, carriage of parcels for customers is
always stamped with a public trust. Some regulation should be
looked into. The bigger problem is UPS' huge power in the
marketplace. UPS' ground service has no viable competitor now.
When its national coverage of all addresses is coupled with both
its newly acquired pricing freedom and its huge treasury, none is
likely to develop or to survive if it evolves. Regional carriers
cannot compete with UPS both because shippers disfavor multiple
carrier pickups for similar traffic and shippers have anxieties
10
397
about being cut off by UPS. The problem is compounded by UPS'
ability and propensity to act predatorily without competitive or
regulatory restraint. The Commission must keep these factors in
mind as it seeks a remedy for the disruption of the competitive
balance, it has now recognized.
Dated: June 15, 1994. Respectfully submitted,
HUjk2>4^
MichaelNV^KhourTe
Attorney for CAL PAK DELIVERY, INC.
11
398
VERIFICATION
I, EDWARD J. KAHNKIX, daolars as follove:
1. I an the President of CM, PAX delivery, inc., a
California corporation, Respondent in the present Batter, and. I
an authorized to sake this Verification tor and on ita behalf.
2. I have road the foregoing comtaKXS BY RBSpondkbt
CAX FAK DELIVERY, IHC. and Scnov the contents thereof. Tim hum
ia true of ay own knowledge, except as to those natters which are
alleged on information and belief, and as to those natters I
believe then to be true.
X declare under penalty of perjury under the lavs of
tha state of California that the foregoing is true and correct.
executed on June /£ . 1994, at Yuba City,
California.
rfsk&^ifa
399
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8Wflo««W T*« »«u. «-. wr ilirmi "
ta S AH^OTA'-Slaef Baf before '-n-eaei-
f S g S Sealiir' and tna:-«ianr' van ana-
1 ~»artff. WftHl Parcel Snrrta of America
tec has stood as i ojodei tf corporate
effkJeoty.
U knows exactly how but workers It
SMdi to defter it* M estate packagers
day . n Mi <mm how fast ts Mfe (stow
feet per second), how caq packages id
pick up aad dettter a day HO*, on MMld .
even new to boM oner keys (tecta up, tinrtf
finger).
BbcMki mdetsfliao always been
«l tte asre rf Big Brown *t tea. Owned
*T ■»« ""i-i. OPS bag- aad ui) tta
IhfeWJttrSflBHJUfUUl^fTWflrajTy M thS-IDr*
ABB. With OBBi RfOBtflr IUS MJtoO,
of cstee fast of its ensf irssL Phteial
ri|iM*T Corp. Its boxy brown dettvery
trades tun because a frxase m toe AserV
eta buasacspe. Aad tto workers, ballad by
csstonsees as iiiiafrll of dtpssafebUify,
hrvr accepted (If ant always aetoraced)
nssjsjnwjanaft Pnsstlsn cohort — Dnnshv
iiw laa year, is- CI* nuflinn ia 1332 - li-
ter leaden, industry executives and ewe
seme OPS managers say OPS caatf be
beaded farnssre cunly issjoiilnwni
A erownsj asjaabai oi ctssmsaics abare
the plight. Paced with taeraascd caeapett-
ttan, they are Jasjaejhljt campafcpai to
I raise pruoucttvsfy'snd provide eddftfcsMl
tervteee, only to ran beadatmg into a
, rtcaldtrant work laea. At Ajuancaa Air-
j ums. BltttathBsdaBttwssjad a strike last
!yesr Is part over the curler's more to
Wertm ti a General Haters Corp. phut
l a SaieieuuK. La., strack » praaai a plan
: to sated up DM assembly bae sad cut staff.
PnjooctiDn speed is. the nswrpapam is*
I dusuy has store than doubted n recent,
i years, procapocsj rfiore safety fxaes and
BaUadBfAet
. TbfhaiiiatDPSaregBtactol
aisre luiimi as < isnujaira enter the
andscdrirs race*'* teadhis WUiBl
Usra.caalnnas at Cratt Beam Maria, ah
ennaoyw* eoixsnuner. flnL "It's a very
OPS acknowledges as much. "Our
others are workiag as hard pbysicaUy as .
we would vaat torn to," sun Kent -Qf
Hclnei, TtBjtnnii asd chief cxBCUBia.
"We try to be earacsf txstto be uacalr aod
ask as paspl* to do ssore."
SOC bears! ether UPS asaesjtiwa say.
Oat nacd fer nsare sstshssttflb/ hi \
Me. un st9i tt k thdnr i
aas >^**nfr ihh a fratrlmftf profit'Shar*
lttgpUUL
CPS, tnosgh. Bka sneb of at rest oC
■ oorpesate Anerice, &as- beec rn*tiag -
I ret ewe sore prodDcttre. in
° esaeaha. It has rnflsd out a ate* ol new
praduetB and serrtcse.* enssputemed
H^^**lTr swaayasj aethdhasssnciaB larce
ililimsiiua. kaeher ihnlls on pacfeaea
wvjeldt and earner aad earner "guano-
fitad antfal'* flnua.
lloretaBhBl
Oufnirmi IWW tt> CtBBjW. But mtnit
UPS a* oftatttal li Cntattr i^uUbm.
especaijy wK& The uiuputy^ nu nty tb-
the i
to ha
and nssw hnawjay jeada. as well as spaed
i mat an oonashcaud deDrcns. aO
without ofwvsoadif&r essptoyasa. "What la
ecttjBf/ inora <llfth uh Is the raita&j of -
earrlDni and rti>"cr they have to Tenants"
bnV* says Mr. Necssc.
OW always has dssasded a lot Iran ;
workers. Years back* a keiisu cKBtrnsui :
daaotted OPS er a "oom betwatn ttc
Martne Corps and a Quaker nsssaaj."
a»«Udoosi Vnttes
Thai ensone boras whn James S.
Casey, a tatted toM prospector, wha
Ranssed toe flna as a Mcycteinnnsnarer
terflea In an. Frees Ma ntanatera. Mr.
oney. esaecxad usuieui and hnrriiBty. .
flseer npw. afr. fiehssa. (be cMet eEaou*
tfrt, •Mkas&ts owneopias mi awaaaahts ;
own nhane.1 Fltan tos paopla on the troni .
Uhes, Mr. Casey desaandad aaaBhjBnhi .
loyalty and intense enort - vbtacs tor
which UPS wooM reward them fossd*
seers, tarn between Ma,0B0 and same a !
yearunaktar them what the eseonany and ■
the totion call the Mgft — '01111 track
today. UPSdelliety Oilreta.
They ere HnVBhsT as rehaL
nanphajno ntwamts. nstaral flnes and a
rtcat walkout— thnhnMhadhoeAdeannke
hi UPS Metory - hate kilted Om aaanssaw.
In the past year atoce. acnanhng to the
asninany. tabor treucajs bave coat UPS
aaarc than tkto muuon. And wnlla It la sou
a llnanrut piniiuiim tisminr MOB nsd-
UPS proudly nsua. cam iL With a batm-
Hon of store than UOO laduairtal ot>
ttar
1 enters ssnst stnp froo lAtlr
Irneht with thatr rignt toot. toM Bselr
eej laiiieuned by suuci ilsora* whn cajole
and prod then wtt& stflpws&toea and OBpv
(ty dtmrin, tatta; cemfon la me mar« |
and 1 1fam" tor Mvesjeenjenc, Promotion j
tram wrthin a racpd; vatualiy every j
.•anaacer befw « a UPS drirer or wrrer |
Mr. Casey, in a treaose called '*Deter-
nztoed Men." tsxtod. "Too can't be 1 elf
jogs untfl yonTa scows coeDpeecoce as a
small one." BnpJoyees who beoanc nam-
aesn get shares in UPS. which TCey can
sea bade to (he coasaay. teugh they
usually doa't dart to as nog si Bsey ban
cuver hopes. The print of toe shares
a act by tae board earn anar-sr.
UPS, UMauiunUe. has besooK tbe
fdree to the U.S. deDrery bast-
WHnH* 128JM truMand «H air-
ffaft OtoennspanyoovcrasirBhlinGce than
thyce^oortltt of the ground-parcel market
la ass Ui sad ta a groensn; force is
asKApteas with about a qsarier of tbe
IsasaaesB (raufbry half as nsseh as Federal
sosstecsl. acaxTitng to Csaajrauoy Gross
lac- an ait'aleicttrgaharch Ann in Mart-
asa, CS. Oyenaaa, UPS a. tall a nsnor
phqrar bat is growing its reveone at about
lMayenr.
Far alliasuceen. UPS nads itself wUS
oagaui hrartSTtifs la the peat, la stoop.
laScr oasts conld be offset in port by puce
Ineoatsee. Today, price fracsas are the
lBshtotry norm, a riitnsspjrnea of heated
QOaVpMzOOO crmn cobcbbb rvuv sues u
Be*-'»ay Packace Serrate, or 8?S. Thai
iiamimt—.intmni meant fhtrrfri raft
uutisiawtoadduiialujliasnlearficaai aad
boost «tBclency. » gate ersuac.
nMOBaMn»toewaeraoaa*i'i»iirtMilile
a win UBBde tae oomnaay . Last fail, for
laataace, UPS eapaaded its guarantee of
I0s3fi * *** dettrery, pessarny far over-
(dgot totters, to mess of (be cosartry. Toe
nmsaaje: Alressren paehscwj bad be-
ensae an iacreassngty impartial pan of the
CBsssss&y's business — av resesoe grew
IS* test 'year toiaore than ObUUon- tod
UPS had to keep pace wtth reaeral Ex-
press, wtneh lonr has oBered next-day
dsfrrery by 10 JO ajn.
BBtssaacuitveiisay the new program
has possd preatems. Btof now hat* ts
ildiiei '■!! aa-pactices tkat,-(he= d=-
bss back to eorer their rsnnal nates. Tote
Ssxtan. s drrrer in Darham. HjC_ says his
detrsary loads bave lumped to about 210
oackages a day from about IBs few yean
ags. with more oeersttad and osavier
ares. Mecn Rajaa of Kansas City. Me..
says be Is detWrtng 31 to fl air packed a
day . osstpated wha free or sot a year asa.
The «kt*ert abo say they an wortanc
baavy overthae. drtetag faatar aad taktag
loss time on safety cheeks.
-The baaey day ased to be Wednea- ,
day." Mr. Retu says. "Now it's all 1
K o Time to Coat
Robert Duncan, a UPS dtteer to Mid
way. C«-. says Che exm work has forced
Mm to be more brusque. One cream*. Mr.
Duncan was ueliiajiug a babby kit to an
eMerty man who bad la feten his COD
osoney . With toe air deadline fast an- I
ppoicmnt. Mr. Duncasi had 10 take tae ,
package back.
EXHIBIT 1
400
luHfldaoftuones.' Mr. Duncan fwalli^I
felt bad. but I didn't want • lunervnar
ctonng neatr najemgjne air deed-
ate.
UI>y«ra«in»it*eleetroDie age also
In a. bid tt bring ns pHn-biuwu'«iin» ,
oar service np to speed wtto Federal Ex- j
mu*c«Mr*.OPSUutpariiMMtnin •
tj uiUoa m recent ynn » updUi id
' uetastoO. the u*5»l''?I!!!nBlJi!
nutate* t™*Ti asjahsn a amen eacn
ntamge fat berated and seamed a vari-
Sdeirtc7 potcn. Sol hueeaaueod
petdy tfce eowpmyi ittBrf » ntsnojnt
~~*~m fry miliniim. Md Boat drhan
jjjft Ttiir f— ' twiriii— m naner-
work sod omeeeK*. Bat aw rear to tot
cynsn as an "electron* umtducal cord"
ant tire company cam w aaedmr ntejr
pnAsirntr. ufs say* east is not the
^aoara etern alnc tt to track ua."
uyj Paul Bars*.' t'«* »> rJeeweue.
^.c Thrnat cremMngiaiycan."
?lew Services
Drivers aha have hod a betom* ex-
pem an tne nawe than a ntw sarrtea and
prodaca the company baa rotted at ai
B naa just "»• Tlwr.hm » *•*"»«»
ideptat aay. dBtdnxwanafratjldntD
dear customs in Bulgaria a flBtog cad a
nwno order to Omaha. Mo- and eantatn-
jm it »u to easterner*. Aa parr of rs
utntUn sarhsflng apart, tJPSJs ala
t«Wdrrfen»seontBnaaao(nd(al
Berets sad otter rtvn aerriea ind p*a
oa uie* fcsda-
"On tough m main lil your eelSrenes
wtwtneyroHB don all taeawtlww-and-
Al one point, toe union mtroduced - and |
pubuctad - a away purporting to sonw
that UPS employees scored in tha 91»t I
percentile of U.S. workers (or job acres, j -
while many offered from anxiety . ptatrfas
or back strata. (UPS termed the report
baad and wnrtenriflc.)
TSe contrast fiaafly waa anted with
jereral changes ta worttag mrntifwa.
including a atuement 0*1 inimifment
"shall not tnflmMtit, harass, coerce or
pretty supervise any eniplayae."
Worker strife even has extended over-
scae. «berc UPS ha baa marc than «
bUBoa in recent years, la Spain, drivers
wand s coats one-reottfa strike over the
compsBfi awtsaj coeatnaa*. and In
France, several mp tiriMJ"1 baaed out
ofatocaisUpp^ccmiBwyaimrttyafierue Cepyngra 1994 Do* Jones <• Company, he. Tr*
wasaonarediiyUPtCuitorcetesbasaJa—^j prepared by tie vol Street Journal to seer
Back to the U.S, the courts and <h» wjjan ccnsfflC of The WaJ Street JesnsL
faBeicaV"twnnaeat aha haw takea ae-
BaawTbeOmniatinral Safety and Health
AdminatrsfiDo counted IB rtsio to UPS
Hat year. In April, UPS paid S3 milBca a
sets* an OSHA — t^m tiad it bad
tirr'-r1— * provided lor Uaa tafety of
voters banana; haiardoa vtatea. (UPS
iiid a acted property bat paid 0» fia» to
»vi«rB^nafatfcrL>!nSe«ae.UP3bad
id pay SB mUlioe to mora can VXD
drtrera butt yaaj- afler a Jtshje mfcsJ that
UPS van fnremg nam tn work taroucb
TM^UBttsBae
EvaaptlotsMwecderedranplctiaT.la
9 report stBt ta UPS aoa Qancren, their
aSeeed thai the nttsa fljr under -dac-
atmtoitobatian.
UPS eamatfyes uertbe maeh of the
tafiar trlcaoo m mosek-flailtis' by an es»-
batOtd Tonstefs leadenbto. Mr. Nefioo
uathaworvwccaaataadoatiaflectw
BamantiiuwatotgsavjtldnadMiBtha
ittrse of dWOculty of tnany )<*». C» uie
waste, be ays, anldoada have remains)
Use mtm end even sUppad mmewhat br-
came of tUne-atta*- aeCnaoelei and a
drop tn rasldssdal vohma. WwluUHtty
,£**? dtenaad last year - domertc
paekaga volume fed W — ••nte asptoy-
maot raaahad atady stauma.
Bat drivers have bad to learn aa amy
at coda and bOUnt jytteca and fouow
umiuuBBiMOad route, ptwa. More and
mete pweksea haw special handling and
Oil lili 1 leujihiiiiiiila. and can
is a remit, UPS has basted op IS
j traiaine- It ti al» htrtog more Ufilled lod
I ooheie edaratadwottea.'Tr»aie<n«re
i uunUnr. ' says Dan Prebte. oanager of
-So «v/ve got a vrrte new
That new bread ala may be lea toler-
ant of the company's work rata and
demands. FnadiaCaas boOed our last
snaaner fa one of cba moat Utter contract
talks in the aanpany's htsmry. Vasjaaati
A~....*mA jimitj oa driver supmrauoa,
S* m m at cos ttme, OPS asys tt takes
the rata* aftousty. bet calb the report
Says Ron Carey, general nrvaaest of
the Tesaumi and a fonaer UPSdrrver:
•It's a very anted ivtetaanatp rlfbt
now, much mora a than ever before."
Urn strata was most TvBete to January
when ITS. « T*art of aa effort » eaptnre
mom of the utjSHrocfcteg nmrtat, ralaed
Uj BBxtsson wvagat to US poond* froB It.
Dttfers and sorters aUke revolted, eee-
eamsd they weend hart their backs and
resentful Oat UPS hadnT rebnd the tsstt
Pah, 7. Bare toaa I2JK0 UPS awtkers
walked off the ton. shstanf down opera-
Pans througnoa the Wortaeaal and Smith
in the oaspaBya first aaBoaaali mite
Tie aw day wattout prevad eoatty.
UPS m*—*— it hat nmre than two '
nrUlkmrrcaaddBlexpEasaaadcaaOaaBr 1
dBoaStoaa. ft la sutng toe usee for dam- j
ages.
isaanwnue, workers are ceased tor
even tougher "J*—*"^* Drivers them-
svJvasay day are mm by the growing
namber of BPS and Federal Express rrocks
psacng by on their routes. "Whenever I
ttQ an RPS guy anmadtec' nts ffucc I know
ttaee are paUaga we're taeing." uys
Chris Plsamoos. a veteran pacsaae ear
driver from Durham. N.C. "Bat you lust
401
June 17, 1994
California Public Utilities Commission Order
Initiating Investigation and Rulemaking
1.94-03-036, R. 94-03-037
Dear Carriers, Shippers and Others:
My name is Edward J. Marnell. I am the principal owner
of a highway common carrier operating mostly in Northern
California under the name of Cal Pak Delivery, Inc. (Cal Pak). A
large segment of my business is engaged in the over-the-road
pickup and delivery of packages either individually or in
shipments.
Most of you have received in the mail an Order
Instituting Investigation and Rulemaking dated March 16, 1994
(Order) in the above referenced proceeding from the California
Public Utilities Commission (CPUC), pursuant to ordering
paragraph 11 and attachment B thereof. You will note in reading
the Order that it makes no mention anywhere of United Parcel
Service < UPS ) . Instead it makes reference throughout only to
Integrated Intermodal Small Package (IISP) carriers. I mention
this because nowhere in the order are you advised that UPS is the
one and only IISP carrier in California. It is serious omission
for the Commission to fail to disclose this most critical fact.
Any respondent not aware of UPS' exclusive status will probably
be unable to contribute anything meaningful to the proceedings
objectives. This is why I write this letter.
Like many of you carriers my principal competitor is
UPS. Also, like many of you I am and always have been willing to
compete for business. However, thanks to a long series of
preferential exemptions and favorable rulings granted to UPS by
the CPUC, UPS has been able to dominate our industry. About four
years ago, the Commission allowed UPS to make serious inroads
into our business. UPS was allowed to engage in shipping
packages in a new Hundredweight LTL service, without being
required to meet the same rules we must comply with including the
cumbersome bill of lading requirement. Cal Pak opposed this
discriminatory treatment in a formal proceeding before the CPUC
but was thrown out on a technical ruling rather than on the
merits of my complaint.
More recently UPS intensely and dishonestly lobbied the
legislature for a law which would free all of its operations from
any economic regulation. A.B. 2015 was enacted by the legislature
-1-
2877 VOLPEY WAY • UNION CITY. CA 94587 • (510) 487-8700
85-090 95-14
402
based on two misrepresentations made by UPS: first, that it could
not compete with Federal Express (Fed Ex), exclusively an air
parcel carrier, unless its entire business (including its
all-ground, nonexpedited, low-rated standard service) were also
freed from regulation; and, second, that all other LTL carriers
would not be adversely impacted even though they remained
regulated. Astonishingly, the California Trucking Association
(CTA), to which many of you belong, supported the bill. This, to
me, did not seem to be in your best interest.
At UPS' request, A.B. 2015 was passed as an emergency
measure, where there was no emergency at all, with the Commission
supporting the concept of completely freeing UPS from economic
regulation. This legislation was special legislation passed for
UPS* sole benefit. Not surprisingly, UPS is the only carrier
qualifying under A.B. 2015. Cal Pak will shortly file a complaint
with the Supreme Court challenging the constitutionality of this
bill on the basis of discrimination. All of you who agree with
me should contact your assemblypersons and senators calling
attention to this midnight fraud. UPS is the only carrier
benefiting from A.B. 2015. To add insult to injury, UPS took the
final ounce out of the pork barrel when it also induced the
legislature to hand it a gift of a million dollars a year in
filing fees reduction.
Belatedly, in the captioned proceeding, the Commission
has now recognized that in granting UPS this specially tailored
political and economic favor, the legislature has "disrupted the
competitive balance," an effect which the Commission now tells us
was "unintended." In this proceeding the Commission has proposed
some measures purporting to level the playing field. I believe
these measures are woefully inadequate to deal with the real
problem.
I truly believe that UPS poses a threat to all LTL
carriers as well as to all shippers. UPS' freedom from
regulation gives it the absolute power to cut a shipper off
completely or to otherwise discipline those that displease or
oppose it in any manner. As shippers know, this may be done in
many subtle and unsubtle ways. Large shippers may be happy now
with UPS' special deals, but remember, as UPS eliminates
alternative LTL competitors, you will have nowhere to go. As
this happens, UPS' power over you only increases.
Not only does UPS have huge economic dominance but,
because of its power over government, it has consistently
received competitively favorable treatment. UPS has frequently
characterized me as a vexatious litigator. But in my mind, UPS
should not have the competitive advantages afforded it by
403
government which has allowed it to develop into a monopoly. It
has been and remains wrong. But UPS has now become an
irresistible force both in the marketplace and in the halls of
government.
In California UPS has never failed to get its demands
met by commissions and legislatures. Recently, in a formal
proceeding I challenged UPS' rate increases which UPS put into
effect despite a Commission warning not to do so. The Commission
found that the increases which were set forth in UPS' tariff were
unlawful, ineffective and constituted an overcharge to all of its
customers. Yet, despite these findings, UPS customers were not
advised of this by UPS, as provided by General Order 148, Rule 9
b, or by the Commission. Furthermore, UPS has not even had its
hands slapped, but rather, as of this date, it remains unpunished
and so far is being rewarded for its unlawful conduct by being
permitted to keep over $35 million of its customers money. It is
clear that UPS has the absolute power to avoid and circumvent
punishment which would be meted out to any other carrier in a
nanosecond. The Commission has never been hesitant to require
carriers to repay illegal overcharges. Yet, in UPS' case, the
Commission does not seem able to act.
The only sanctions I know of that any agency of
government thus far has ever had the courage to levy against UPS
was the Federal Court in San Francisco where I exposed UPS'
predation in several ways and won an antitrust case against it.
Ask your attorney to get a copy of this lengthy but thorough
opinion by U. S. Supreme Court Justice Tom C. Clark. It is cited
as Marnell v. United Parcel Service of America, N.D. CA (1971),
1971 CCH Trade Cases, paragraph 73,761.
There is no question that UPS is an efficient and
competent carrier. That's not my complaint. It is the political
favoritism and homage which is invariably bestowed upon UPS. In
this Investigation and Rulemaking proceeding we have the
opportunity to speak. We should do so and do it forcefully, even
though the chances of being heard are slim. It is clear to me
that the CPUC's approach to the problem created by A.B. 2015 is
not going to work. This proceeding, as structured in the order
calling for comment, may take over a year. Contrast this with
the two months it took UPS, with Commission support, to get A.B.
2015 passed as a rider to another unrelated bill. I believe that
the action I suggest in my comments is much more in the right
direction than is the Commission's. I enclose Cal Pak ' s comments
and urge you to read it. If you agree with some of my comments,
please let the Commission know your views. This may be the last
opportunity for us to be heard.
-3-
404
Please write or call me if you want any information.
Sincerely yours,
Edward J. Mirnell
President
-4-
405
BEFORE THE
UNITED STATES HOUSE OF REPRESENTATIVES
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
SURFACE TRANSPORTATION SUB COMMITTEE
JULY 20, 1994
STATEMENT OF LAWRENCE R. KNAPP
EXECUTIVE DIRECTOR OF M-CARTS
LANSING,, MICHIGAN
My name is Larry Knapp and I am Executive Director of Michigan Citizens Allied
for Responsible Transportation and Safety (M-CARTS). This coalition represents
approximately 200 Michigan trucking companies and other advocates of responsible
trucking regulation.
These trucking companies employ close to 20,000 people, operate
approximately 26,000 pieces of equipment, have an annual payroll of 225 million and
pay Michigan taxes in excess of 50 million dollars every year.
S1491, Federal Aviation Administration Authorization Act of 1993, is currently
under consideration. I understand that an amendment has been made that will
prohibit all states from regulating intrastate commercial trucking.
The Michigan public is not dealing with or subjected to a 1933 law. State
agencies in cooperation with the Michigan legislature have reviewed motor carrier
regulation on an ongoing basis since the 1960's. At that time, the Michigan Public
Service Commission (MPSC) conducted an extensive cost study employing the A.T.
Kearney Co., resulting in a cost based rate schedule. In 1 978, the MPSC commenced
a study on the ongoing impact of intrastate motor carrier regulation. The study
1
406
became the springboard for a major revision of the state's Motor Carrier Act which
became law on December 28, 1 982. These changes came about through the efforts
of a committee comprised of representatives of government, large and small shippers,
every type of motor carrier, shipper and carrier organizations, chambers of commerce
and interested individuals.
Since 1 982, at least three separate bills have been introduced in the Michigan
House and Senate that proposed additional changes ranging from minor, generally
acceptable amendments, to total deregulation. In 1989 and 1990 House Bill 4735
was under consideration. It proposed substantial deregulation. At lease seven public
hearings were held at various locations throughout the state. Failing to generate
sufficient public support, the bill was not reported out of the House Transportation
Committee.
In the 1991-92 legislative session, S325 was debated and once again a bill
failed to generate enough support for passage. Extensive research on this proposal
produced data that was the basis for S581 in the 1993-94 session. The Michigan
legislature, after significant debate, discussions, and hearings, recently fine-tuned
Michigan's Motor Carrier Act for the first time since 1982, through the passage on
December 24, 1993 of significant amendments. That bill eased regulation for a
segment of Michigan's motor carrier industry, while maintaining entry and rate
controls on Michigan's common motor carriers. That bill became Public Act 352 of
1993, when it was signed into law by Governor John Engler on January 13, 1994.
The bill was supported by all the major manufacturers, labor organizations and
407
trucking companies. Only a very few remained in favor of intrastate deregulation.
Thousands of man hours were spent in the drafting of the final version.
The point of this historical review is two fold. First of all, Michigan has not sat
back and retained 1930's style regulation but has been very active and aware of
changing times. Secondly, the Michigan legislature has spoken loud and clear on
what they believe is best for Michigan. After all that has been accomplished, we do
not understand why any further change affecting intrastate commerce is necessary
and why states rights are being preempted by the Federal government in an area of
local concern and jurisdiction.
The Intermodal All-Cargo Air Carrier amendment will exempt all carriers meeting
this definition (and we submit that, in most versions of the bill, it will be very easy for
entities to concoct operations which bring them within the exemption) to defeat all
intrastate application of rules to them (even environmental and labor statutes).
Moreover, the amendment, in one form, would even remove application of the
Interstate Commerce Act and, potentially, even labor and environmental laws and
regulations of the federal government from application to Intermodal All-Cargo Air
Carriers. This is an ill-conceived piece of special interest legislation designed to
remove regulatory controls of many types from a few of this nation's largest motor
carriers. It should not be allowed to occur, under any scenario.
It is also incongruous that such a sweeping piece of legislation actually directed
at trucking operations should be tacked onto a bill concerning airport facilities. The
amendment would have sweeping implications for the nation's truckers, and deserves
408
full hearing and consideration on its own right, in the full light of day. Instead, it is
a "stealth" proposal, tacked on to a disparate. piece of legislation the subject matter
of which has nothing to do with intrastate motor carrier deregulation.
It is true, of course, that the amendment is backed by two of the nation's
largest transportation entities, Federal Express Corp. and Untied Parcel Service, Inc.
We submit that this support does not, in and of itself, constitute a finding that the
amendment is in the public interest, however. All of the legal implications of this
amendment need to be thoroughly studied, including its impact on organized labor,
before its passage should even be considered.
The members of M-CARTS respectfully request your opposition to this
amendment. The future of a good many of the 2,300 authorized Michigan intrastate
carriers and their 20,000 employees and families could be seriously jeopardized.
409
STATEMENT OF GREYHOUND LINES ON PACKAGE EXPRESS INTRASTATE
DEREGULATION
Mr. Chairman and members of the Subcommittee:
I am Theodore Knappen, Greyhound's Government Affairs
Representative, and I appreciate the opportunity to be here today
to discuss with you the intrastate deregulation of motor carriage
of property, which in the case of intercity bus companies, means
package express. This is the second time in recent years that I
have testified before this Subcommittee on this issue and my
message is the same — Greyhound supports the intrastate
deregulation of all motor carriers of package express, including
all intercity bus companies. Greyhound strongly opposes selective
intrastate deregulation because it is not only bad public policy,
it also could have a devastating effect on intercity bus service,
particularly rural bus service.
The intercity bus industry provides the nation's only network of
low cost, intercity public transportation of passengers. In
addition, the industry provides service to roughly 6000
communities, many of which have no other form of public
transportation .
A vital part of this rural bus service is the package express
service that is provided along with the passenger service. More
than half of the packages Greyhound carries have either a rural
origin or destination.
410
For many rural communities, bus package express service is their
only regularly scheduled, daily service. Bus service is literally
the lifeline for these communities as it carries many essential
commodities ranging from blood to farm machinery replacement parts,
to and from these small towns.
Despite its importance, rural bus service and bus service generally
has declined in recent years as it has experienced dramatically
expanded low cost airline competition as well as automobile usage.
Greyhound and other intercity bus companies are struggling to
preserve as much intercity bus service as possible. The industry's
ability to do so is significantly impacted by its ability to retain
its package express business, which on many routes, particularly in
rural areas, provides the incremental revenue that enables bus
service to continue.
It would be a disaster for rural bus service if the bus industry's
package express competitors, particularly UPS, were freed from
intrastate regulation while the bus industry was not. Can you
imagine what UPS or any other competitor could do to bus companies'
package express business if it could change its rates and service
patterns overnight while its bus competitors had to wait 7 months
to respond?
Clearly there would be little, if any, bus package express business
left. That is why bus companies must be fully included in any
411
package express deregulation bill.
Intrastate regulation of bus package express was partially removed
by the Bus Regulatory Reform Act of 1982. The BRRA authorized
intrastate passenger and incidental package express operating
authority on all interstate routes operated pursuant to a
certificate from the Interstate Commerce Commission. The BRRA also
provided a mechanism for the appeal to the ICC of state rate and
exit decisions involving intrastate passenger and incidental
package express service on interstate routes.
Although these preemption provisions were quite helpful in enabling
bus passenger and package carriers to compete more effectively on
an intermodal basis, they still left bus carriers encumbered by a
dual, time consuming, and expensive regulatory process.
On the entry side, the remaining intrastate regulation has produced
some damaging anomalies such as the Texas rule that precludes
Greyhound from providing supplemental package express service in
trucks or vans, thus limiting our ability to provide package
express service in rural areas when it is most needed.
With regard to rates and exit, the ICC has eventually upheld the
bus carrier's position in almost every intrastate rate and exit
case appealed to it, but the dual regulatory process often takes
more than 7 months. During this time, the bus carrier is prevented
from making the change that market conditions dictate.
412
Greyhound favors removal of the remaining intrastate restrictions
for passenger and incidental package express service provided by a
carrier as part of its interstate service. These restrictions serve
no purpose except to prevent intercity bus carriers from maximizing
their intermodal competitive capacity. The intercity bus industry
must have that full capacity to survive. On the passenger side,
Greyhound finds itself in daily price competition with federally
subsidized Amtrak fares, as well as discount air fares. On the
package side, the competition from UPS and other intermodal package
express carriers is increasingly intense.
At the very least, state regulation of package express carried by
bus companies should be removed to the same extent that Congress
removes such regulation of package express carried by any other
companies. This brings me to S. 1491, which amends the Airway and
Airport Improvement Act and which exempts from all state regulation
the motor carriage of property, including packages, by any
"intermodal all-cargo air carrier".
This provision clearly covers UPS, Federal Express, and many large
motor carriers of property. It is much less clear that it covers
package express carried by intercity bus companies. The question is
whether intercity bus companies fall within one of the two
specified categories of "intermodal all-cargo air carrier".
The first category is "an indirect cargo air carrier" which DOT has
defined as one that "undertakes to engage indirectly in air
413
transportation of property" and uses a direct or indirect air
carrier to do so. Assuming that there has to be some substantial
undertaking, it is questionable whether any bus company would fall
within this category now, and it is entirely unclear as to what
level of new activity would be required in order to meet the test.
The second category is any other carrier that utilizes an air
carrier at least 15,000 times annually. If the term "utilizes"
means using air carriers like FedEx for intra-company
communications, then Greyhound would probably qualify based on its
1993 usage. But this is problematic for two reasons. First, it is
not at all clear that "utilizes" would be defined that broadly, and
second, no other bus company would qualify under this test.
Greyhound believes that the package express service of all bus
companies should have the same exemption contemplated for UPS and
the other big package express companies. It would be difficult, if
not impossible, for all bus companies to qualify under the existing
language of S. 1491.
In order to make it clear that all bus companies enjoy the same
exemption as motor freight carriers, Greyhound recommends adding at
the end of the new subparagraph 101(25) (B) (ii) of the Federal
Aviation Act created by S. 1491, the phrase, "or (III) is an
intercity bus carrier providing the transportation described in
section 105(a)(4)".
414
This or comparable language specifying that the package express
service of intercity bus carriers is exempt from intrastate
regulation is essential if intercity bus companies are to be
treated equitably. Without this clarifying language, there is a
substantial threat to the viability of package express service by
intercity bus companies and thus to the remaining rural bus
service .
Thank you for the opportunity to present Greyhound's views on this
important issue. I would be happy to answer any questions that you
might have.
415
BEFORE THE
UNITED STATES HOUSE OF REPRESENTATIVES
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
SURFACE TRANSPORTATION SUB COMMITTEE
JULY 20, 1994
STATEMENT OF LEE R. KUNDTZ
PRESIDENT, ALVAN MOTOR FREIGHT, INC.
KALAMAZOO, MICHIGAN
My name is Lee R. Kundtz. I am President and Chief Operating Officer of Alvan
Motor Freight, Inc. My business address is 3600 Alvan Road, Kalamazoo, Michigan
49001 . I have been President of Alvan since 1 988. I have worked for transportation
companies for the past 32 years, and prior to that I purchased transportation service
while working for a shipper.
Alvan Motor Freight is a midwest regional general commodity common carrier
providing service intrastate in Michigan and Indiana, and interstate between Michigan,
Indiana, Illinois, Wisconsin and Ohio. Alvan employs 365 peopie with an estimated
payroll for 1994 of $24 million including wages and fringe benefits (comprehensive
health care, pension, vacations and holidays). We own and operate 191 tractors and
519 trailers. We project revenues of $38 million in 1994.
I am making this statement in opposition to Section 21 1 of Senate Bill 1491,
the All-Cargo Carriers Exemption to the Airport Improvement Program Bill. Why a far-
reaching trucking deregulation bill that will have a major impact on over 40,000 motor
carriers is part of an aviation funding bill is beyond comprehension. This amendment
will only benefit a handful of very large carriers and very quickly lead to total
intrastate trucking deregulation without a comprehensive review of the impact on the
1
416
public, particularly small communities and shippers, the employees of motor carriers,
as well as the most likely negative impact on safety and energy consumption. In my
opinion, enactment of this legislation in its present form would create a substantial
amount of overcapacity (more trucks hauling less freight) and would be devastating
to Alvan and other small carriers, and result in the loss of good paying jobs including
comprehensive fringe benefits as companies close their doors or are forced into
bankruptcy.
The preponderance of Alvan's intrastate revenue is earned in Michigan, which
has regulated its trucking industry for many years. The Michigan motor Carrier Act
was amended by the state legislature in 1982 in response to interstate regulatory
reform, and again in 1993 after extensive hearings, the Michigan legislature
overwhelmingly approved revisions that eased entry and rate regulation of contract
motor carriers, provided for more flexible pricing options for common carriers, and
established certain safety related requirements for motor carrier authority applications.
In addition it was determined that filed rates including collectively filed rates with
Public Service Commission overview were in the public interest in order to prevent
undue discrimination between large and small shippers and to insure service to small
communities. There is no need for the federal government to preempt Michigan
intrastate regulations now that the State Legislature has reviewed all intrastate issues
and adopted an updated Motor Carrier Act.
Today, there are over 2,300 active carriers handling Michigan intrastate
business. The Michigan intrastate market is very competitive providing shippers with
417
a range of carriers and services from which to choose. In my opinion there is an
overcapacity of trucks relative to the amount of freight shipped. Adding more carriers
will not create more freight but instead will result in chaos. Allowing the nations
largest transportation companies into Michigan intrastate commerce will result in a
temporary price war and hasten the demise of many small Michigan carriers like Alvan
in favor of the large nationwide companies. The savings, if any, to shippers will only
be temporary. With the elimination of many small and medium sized carriers who
handle the bulk of the interline traffic, reasonable rates and service to small
businesses and small communities will suffer. It is interesting to note that despite the
holding of nationwide interstate authorities, many carriers interline freight with some
of the small Michigan carriers rather than perform the total service themselves. One
can conclude that the grant of broad authorities does not insure a full service.
Further adding more trucks would mean more trucks hauling less freight
unnecessarily increasing fuel consumption and jeopardizing safety. Profits would
decline or be eliminated, most likely resulting in a cutback in maintenance
expenditures and impede the ability of carriers to purchase and finance new
equipment which would otherwise provide for improvements in fuel consumption and
pollution control.
Michigan intrastate trucking regulation has fostered the development of a
versatile and responsive trucking industry. Michigan common carrier rates are fair and
equitable and are subject to review by the Michigan Public Service Commission.
Alvan takes its common carrier service obligation seriously by serving all authorized
418
points, both large and small. The Michigan reguiatory system has for years assured
all businesses and persons equal treatment, just and reasonable rates and assurance
that small businesses and small communities receive access to essential transportation
service.
Alvan Motor Freight urges the sub-committee to take the following action
relative to Section 211 of Senate Bill 1491:
1 . Provide time for more extensive hearings on the issue of deregulating
trucking.
2. Commission a study to review and analyze the impact of Section 21 1 on
the public, carrier employees, safety and energy conservation.
The importance of this issue should not be minimized. Millions of workers
providing intrastate transportation and their families deserve to have this issue fully
explored. It is not right that a few major carriers each generating over $1 billion in
annual revenue should dictate the outcome regarding intrastate regulation.
For further information regarding Alvan's operations, please see attached
Appendix A.
419
Appendix A
Page 1
A DESCRIPTION OF THE BUSINESS OF ALVAN MOTOR FREIGHT, INC.
KALAMAZOO, MICHIGAN
Alvan Motor Freight is primarily a general commodity common carrier holding
authority from the Michigan Public Service Commission, the Public Service
Commission of Indiana, and the Interstate Commerce Commission. Alvan also
conducts some operations as a contract carrier.
Alvan services the states of Michigan and Indiana on a regular basis in
interstate and intrastate commerce. Alvan also provides direct service to the states
of Ohio, Wisconsin, Illinois, and parts of Kentucky, Pennsylvania and West Virginia.
Service is also provided through to Canada on an interchange basis in Detroit. Alvan,
on an interstate interline basis, also delivers freight originating at points in other states
in addition to those listed, on shipments tendered to Alvan by other motor carriers.
Similarly, Alvan picks up freight destined to points in other states, which Alvan
tenders to other motor carriers at various exchange points.
Alvan Motor Freight has been in business since 1 941 . Alvan was operated as
a sole proprietorship under the name of Albert Van Zoeren. Mr. Charles A. Van
Zoeren and his wife Joan are the current owners of the company.
The acquisition of authority by Alvan has been a gradual and progressive
development. In general terms, Alvan's operations originally were confined to the
southwestern quadrant of the lower peninsula of Michigan. In 1 978, Alvan purchased
420
Appendix A
Page 2
existing operating authority from Keyline to serve more northerly points and east into
Detroit. In early 1 985, Alvan received an extensive grant of common carrier authority
to expand operations to include all of the lower peninsula except the northwest
quadrant. Authority for the northwest quadrant was granted in 1992. And in 1990,
Alvan expanded its interstate operations into Illinois and Indiana with the purchase of
Daum Overnite Express.
Alvan is serving the shipping public as a common carrier to the full extent of
the authority granted. Alvan takes its common carrier obligation to serve very
seriously, and fulfills that obligation.
Alvan has terminals in the following locations: Chicago, Illinois; Indianapolis,
South Bend and Fort Wayne Indiana; Toledo, Ohio; Alpena, Detroit, Grand Rapids,
Jackson, Messick, Kalamazoo and Saginaw, Michigan. Detroit, Kalamazoo, and Grand
Rapids are open 24 hours a day, from midnight Sunday until Saturday morning. The
other terminals are open during normal business hours, which generally extend from
7:00 a.m. in the morning until about 8:00 p.m. in the evening.
Alvan's current equipment list shows 191 tractors and 519 trailers. Certain of
the tractors are assigned to a pick up and delivery function, while other tractors are
assigned to a linehaul function. The linehaul tractors are utilized between the various
terminals, while the pick up and delivery tractors would be dispatched out of particular
terminals each day to make pick ups and deliveries at areas which are the responsibility
421
Appendix A
Page 3
of each particular terminal.
Alvan provides closed van trailers which range in length between 45 feet and
53 feet. The 53 foot long, 102 inch wide closed van trailers provide the shipping
public with additional loading capacities when compared to the 45 foot 96 inch wide
closed van trailer which was once standard in the industry. Alvan provides the
different lengths of trailers, in order to meet the varying demands of the shipping
public.
At the present time, Alvan employs 365 people. There are pick up and delivery
drivers and helpers, dockworkers, linehaul drivers, administrative and sales people,
and mechanics.
Nearly 53 percent of Alvan's revenue in calendar year 1 992 and .forty percent
of Alvan's revenue in 1993 was derived from intrastate commerce. Alvans total
operating revenue in 1992 was $33,337,748 and its operating ratio was 93.4
percent. Alvan's operating revenue for 1993 was $35,767,710 and its 1993
operating ratio was 95.5 percent.
422
KALAMAZOO .'/ ■! v^&^igSMSff*!
s -i . • : ■ • JACKSON^T^ .T^v .;<•-
' BAPKERSBURG.
W VA
CHARLESTON. W VA.
EVANSVTLLE
LOUISVILLE
SERVING MICHIGAN, ILLINOIS,
!NDIANA,0HI0, WISCONSIN AND CANADA
plus bordering cities in Kentucky & West Virginia
423
ALVAN MOTOR FREIGHT, INC.
3600 ALVAN ROAD
KALAMAZOO, MI
SUMMARY OF EQUIPMENT
February 28, 1994
TRAILERS
217 45' OVERHEAD DOOR
Model Year 1978
Model Year 1981
Model Year 1987
Model Year 1988
Model Year 1990
Model Year 1991
Model Year 1993
85 48* SWING DOOR
Model Year 1984
Model Year 1985
Model Year 1986
Model Year 1987
Model Year 1988
130 50' SWING DOOR
. . 6
Model Year 1984 . .
90
. . 6
Model Year 1988 . .
40
. . 25
. . 30
5
45' TRI-AXLE
. . 50
Model Year 1979 . .
5
. . 50
. . 50
10
50* TRI-AXLE
Model Year 1985 . .
10
. . 1
10
48' OVERHEAD DOOR
. . 4
Model Year 1991 . .
10
. . 69
. . 2
6
28' PUP-OVERHEAD DOOR
. . 9
Model Year 1987 . .
6
50 53' SWING DOOR
Model
Year
1993
TRACTORS
91 THREE
AXLE
Model
Year
1984
Model
Year
1985
Model
Year
1987
Model
Year
1988
Model
Year
1989
Model
Year
1991
Model
Year
1993
6 CITY TRAILERS
50
7
8
10
16
20
15
15
Model Year
1981 .
1
Model Year
1980 .
3
Model Year
1978 .
2
TWO AXLE
Model Year
1985 .
. 11
Model Year
1986 .
. 11
Model Year
1987 .
. 10
Model Year
1988
. 48
Model Year
1991 .
. 20
ALL 45' ARE 96" WIDE
45' TRI-AXLE ARE 96' WIDE
50' TRI-AXLE ARE 102' WIDE
ALL 48', 50', AND 53' ARE 102"
WIDE EXCEPT FOR THE 4 1985 45'
TRAILERS
TOTAL TRAILERS . .
AVERAGE MODEL YEAR
TOTAL TRACTORS . .
AVERAGE MODEL YEAR
519
1983
191
1983
424
ham
National Association
of Manufacturers
TESTIMONY ON BEHALF OF
THE NATIONAL ASSOCIATION OF MANUFACTURERS
ON INTRASTATE DEREGULATION OF MOTOR CARRIERS
By
NORMAN LANGBERG, DIRECTOR OF LOGISTICS
PULP AND PAPER GROUP
GEORGIA-PACIFIC CORPORATION
ATLANTA, GEORGIA
Before the
SUBCOMMITTEE ON SURFACE TRANSPORTATION
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
JULY 20, 1994
1331 Pennsylvania Avenue. NW. Suite 1500-North Tower. Washington. DC20OO4-I790
1202) 637-3000 • Fax (202) 637-3182
425
Manufacturing: Ik Key to Economic Growth
/ U.S. manufacturing's direct share of the Gross Domestic
Product (GDP) has averaged more than 21 percent since
World War n. And nearly half of economic activity
depends indirectly on manufacturing.
/ U.S. manufacturing productivity growth averaged 3
percent during the 1980s compared with almost zero
growth in the rest of the U.S. economy.
/ U.S. manufacturing exports have been the single main
source of strength in the current economy —
—contributing 30 percent to 40 percent of the nation's
economic growth since 1987.
/ Each $1 billion of exports creates 20,000 new jobs.
Since 1985, exports have saved 4 million jobs in
U.S. communities.
/ Manufacturing jobs on average pay 15 percent more
than jobs elsewhere in the economy.
/ Manufacturing provides the bulk of technological
advances and innovation for the economy.
426
TESTIMONY ON BEHALF OF
THE NATIONAL ASSOCIATION OF MANUFACTURERS
ON INTRASTATE DEREGULATION OF MOTOR CARRIERS
By
NORMAN LANGBERG, DIRECTOR OF LOGISTICS
PULP AND PAPER GROUP
GEORGIA-PACD7IC CORPORATION
ATLANTA, GEORGIA
Before the
SUBCOMMITTEE ON SURFACE TRANSPORTATION
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
JULY 20, 1994
Mr. Chairman, members of the subcommittee, thank you for the opportunity to
present the views of the National Association of Manufacturers (NAM) regarding the
intrastate regulation of motor carriers. My name is Norman Langberg. In addition to
serving as chairman of the NAM Transportation Subcommittee, I am director of logistics,
pulp and paper group, Georgia-Pacific Corporation (G-P), and also vice chairman of the
Transportation Committee for the American Forest and Paper Association.
The NAM is a voluntary business association of more than 12,000 companies, large
and small, located in every state. Members range in size from the very large to more than
8,000 smaller manufacturing firms, each with fewer than 500 employees. The NAM is
affiliated with an additional 158,000 businesses through its Associations Council and the
427
2
National Industrial Council. NAM member companies employ 85 percent of all
manufacturing workers and produce more than 80 percent of the nation's manufactured
goods. One of the nation's oldest employer associations, the NAM will celebrate its
centennial anniversary in 1995.
Georgia-Pacific Corporation is one of the world's leading manufacturers and
distributors of building products and pulp and paper. Georgia-Pacific employs approximately
50,000 people at more than 400 facilities in the United States.
The NAM has long advocated federal preemption of intrastate movements of interstate
motor carriers and shipments. Just as the general regulation of trucking companies began as
a method to dampen the industry's competitive position with railroads, so too states started
regulating motor carriers in order to protect in-state trucking interests from out-of-state
competition. This anticompetitive system has created inefficiencies and hindrances to
productivity that spill across state boundaries and serve as a drag on the national economy.
Since the 1991 Ninth Circuit Court of Appeals ruling in Federal Express Corp. v.
California Public Utilities Commission, 936 F.2d 1075, it was only a matter of time before
the various interests sought a national solution such as that found in Section 211 of the
Senate version of H.R. 2739, the Aviation Infrastructure Investment Act (hereafter
"Section 211"). The decision created a disparity in the treatment between intermodal
package carriers dependent on whether the corporation was covered principally by the Motor
428
3
Carrier Act of 1980 or the Airline Deregulation Act. The NAM appreciates that there was
Senate agreement to cover as many intermodal carriers as possible, and supports the current
language of Section 211. The association believes firmly, however, that the conferees should
expand on a good proposal and include all motor carriers, whether or not they ship or
forward any packages by air.
Through numerous oversight and legislative hearings over the past ten years, a solid
record has been established in favor of preempting state regulation of interstate motor
carriers and in-state movements of interstate commerce. I will not take this subcommittee's
time by reporting hundreds of inequities. But I would like to make two important points.
The first point is that these inequities are real and they are still happening. This
causes Georgia-Pacific an estimated $5 million in additional freight charges. One example:
Georgia-Pacific manufactures pulp and tissue products in Bellingham, Washington. The cost
to move our products from Bellingham, Washington, to Yakima, Washington (229 miles), is
$728.00. The price to move the same product from Bellingham, Washington, to Portland,
Oregon (262 miles), is only $428.00. (See attached map on next page.)
The second point I would like to make is that more than 40 states continue to regulate
intrastate trucking. Most have sizeable bureaucratic machinery in place to manage awarding
of operating authorities, rate levels, and various administrative procedures. This entire
429
430
4
process causes enormous inefficiency and cost to manufacturers even when the rate levels are
not discriminatory.
For instance, Georgia-Pacific operates a corrugated box plant in Memphis, Tennessee.
Two years ago, we made the business decision to outsource its small delivery fleet to
Schneider Trucking. Schneider is an outstanding company that operates throughout the
United States. Its reputation for safety and service is beyond question. Schneider had to
hire an attorney and appear before the Tennessee Public Utility Commission with supportive
witnesses to seek authority to haul G-P boxes from Memphis to destinations in Tennessee.
Early this year we made a similar decision at G-P's Lebanon, Tennessee, facility. Once
again, we selected Schneider as our carrier. Operating authority in Tennessee is shipper- and
origin-specific, so Schneider had to repeat the entire process to be awarded the authority to
haul intrastate movements out of our Lebanon plant.
This is not a Tennessee issue, a Georgia-Pacific issue, or a Schneider issue. In
Cincinnati, Ohio, and Circleville, Ohio, we are replacing our private fleet with J.B. Hunt.
We are undergoing a very similar process. Even states that do not have restrictive practices
have the bureaucracies in place that restrict our nation's ability to efficiently and
economically transport its goods in intrastate commerce.
Both Georgia-Pacific and the NAM sympathize with the arguments of public utility
commissioners that they should be able to ensure safe operations of motor carriers under
431
5
their jurisdiction. There has never been, however, any correlation established between
economic regulation and safe operations. Indeed, to the extent that any statistically valid
evidence exists, a November 1987 joint study by the California Highway Patrol and the
California Public Utilities Commission found no relationship. There is, however, a
correlation between state action and safety, as the study provides a stark contrast in the
number of truck accidents to inspections: the higher the number of inspections, the lower the
accident rate and vice versa. The money that states spend on bureaucrats and paper shuffling
would be better used on increasing the number of inspections.
Incidentally, the same argument holds with respect to the current dispute over funding
for motor carrier functions at the Interstate Commerce Commission (ICC). Although the
focus of this hearing is not on the funding issue, in a sense the two efforts are interrelated.
In separate votes on the same day (June 16), both Houses of Congress sent strong messages
expressing a resolve that the motor carrier regulatory scheme is in dire need of reform. On
the House side, debate focused on the oft-repeated "silliness" and "antiquated" ICC
regulations governing trucking. As you know, the NAM has long opposed the continuation
of tariff-filing requirements and entry review of more than financial fitness and safety
considerations. Tariff-filing and other unnecessary ICC requirements are an antediluvian
concept in a post-command-economy world.
The NAM strongly urges support for the efforts of Senator James Exon (D-NE) to
find a reasonable solution for ICC funding. After careful consideration, the NAM
432
6
Transportation Subcommittee recently voted to support any efforts that would eliminate
wasteful and unproductive activities of the ICC, while preserving its ability to carry out
necessary functions. S. 2275, the Trucking Regulatory Reform Act, meets this mandate.
The NAM recognizes the difficulty in making appropriate legal changes with respect to the
Staggers Act and the Negotiated Rates Act that elimination of ICC funding would entail.
These and other functions should be considered thoughtfully, as called for by S. 2275.
The other significant action occurring on June 16 was Senate passage of Section 211.
As I indicated above, the current language of Section 211 is acceptable to the NAM. The
association believes it would contribute greatly to increasing productivity, provide increased
choices for shippers and lower shipping rates. Still, if the language were broadened these
benefits would increase even further.
Given that there is no reason to continue to allow states to protect in-state carriers
from national competition, it would make sense for Congress to create a perfectly level
playing field for all motor carriers regardless of intermodal operations. Not to do so,
however, raises several caution flags that the subcommittee and the conferees should consider
seriously as reasons to broaden the provision.
Of utmost concern to the NAM is the potential effect on small manufacturers. Who
is to say what might happen to a small business in West Virginia or Minnesota several years
from now which dealt with a carrier that should have been regulated because it only made
433
7
14,500 shipments by air in a given year, yet operated on a state-deregulated basis? Or a
carrier that intended to make 20,000 air shipments but for whatever reason ceased operations
prior to meeting the 15,000 air packages threshold? The NAM raised similar concerns about
retention of federal tariff-filing requirements in 1980, and repeatedly asked Congress to
forestall the impending negotiated rate problem before it mushroomed. It took a full-scale
crisis before this issue was resolved, however. Certainly, Congress would not want to repeat
this scenario.
Simple billing could become a nightmare for small businesses as well. Will there be
different types of bills of lading for regulated versus non-regulated carriers in states that
continue to engage in economic regulation of every carrier possible?
In addition, the current language would put small private carriers at a disadvantage.
Many small businesses have operating authorities for vans, trucks and other vehicles for
delivery or servicing purposes. Larger private carriers would be able to lease vehicles and
earn additional revenue through backhauls, but small companies not making 15,000 air
shipments a year would be denied this entrepreneurial opportunity.
The NAM hopes that these questions will not compel members to oppose enactment
of Section 211. Rather, these concerns are mentioned as further reasons for including the
full breadth of motor carrier operations under Section 211. The potential monetary benefits
of the provision becoming law total in the billions. Although the exact amount depends on
85-090 95-15
434
8
which study one uses, there is a strong consensus among scholars who have explored this
issue that the current regulatory scheme wastes resources and should be reformed. The
subcommittee has been presented with a plethora of such studies over the years.
The introduction of numerous bills dealing with motor carrier reform demonstrates a
desire to once and for all finish the job begun in 1980. There is little reason to wait for
another Congress since this subcommittee and committee have repeatedly explored this topic,
support for which gains with each additional hearing. Opposition is limited to those who
believe they benefit from the status quo, the numbers of which are rapidly dwindling as
demonstrated by the recent vote of the American Trucking Associations in favor of
Section 211. The subcommittee should recommend to the conferees that they support
inclusion of Section 211 in the conference report for H.R. 2739, but in a form that provides
as much opportunity for competition as possible. It should also work for adoption of S. 2275
as a compromise on the issue of ICC funding.
435
EXECUTIVE SUMMARY
The National Association of Manufacturers supports inclusion of Section 211 of
H.R. 2739, the Aviation Infrastructure Investment Act, as passed by the Senate. The NAM
strongly urges the subcommittee to work with the conferees to broaden the language to
include all motor carriers, however, in order to avoid unintended consequences. The NAM
also expresses its support for S. 2275, the Trucking Regulatory Reform Act, as a reasonable
compromise on the issue of funding for the Interstate Commerce Commission.
436
Before the
UNITED STATES HOUSE OF REPRESENTATIVES
SURFACE TRANSPORTATION SUBCOMMITTEE
OF
PUBLIC WORKS AND TRANSPORTATION COMMITTEE
HEARINGS ON THE SENATE AMENDMENT
PREEMPTING STATE REGULATION OF
SURFACE TRANSPORTATION (S.1491)
FEDERAL AVIATION ADMINISTRATION
AUTHORIZATION ACT OF 1994 (H.R. 2739)
STATEMENT OF WILLIAM J. LAVELLE
ON BEHALF OF 19 PENNSYLVANIA INTRASTATE
MOTOR CARRIERS IN OPPOSITION TO THE
SENATE AMENDMENT PREEMPTING STATE REGULATION
OF SURFACE TRANSPORTATION (S.1491)
VUONO, LAVELLE & GRAY
2310 Grant Building
Pittsburgh, PA 15219
(412) 471-1800
437
STATEMENT OF WILLIAM J. LAVELLE
ON BEHALF OF 19 PENNSYLVANIA INTRASTATE
MOTOR CARRIERS IN OPPOSITION TO THE
SENATE AMENDMENT PREEMPTING STATE REGULATION
OF SURFACE TRANSPORTATION (S.1491)
I. IDENTITY OF OPPOSING MOTOR CARRIERS
My name is William J. Lavelle. I am a partner in the law
firm of Vuono, Lavelle & Gray, 2310 Grant Building, Pittsburgh,
PA 15219. The firm has represented motor carriers for over 40
years. It has been authorized to submit this statement on
behalf of the following Pennsylvania intrastate motor carriers
(referred to hereafter as "opposing motor carriers") :
Name Location
C. D. Ambrosia Trucking Co. Edinburg, PA
Barber Trucking, Inc. Brookville, PA
Brocious Trucking, Inc. Brockway, PA
Bulk Transportation Services, Inc. Mineral Point, PA
W. F. Burns Trucking, Inc. Ruffs Dale, PA
Reid J. Cavanaugh Connellsville, PA
General Delivery, Inc. Fairmont, WV
John S. Jerich, Jr., Inc. Butler, PA
McClymonds Supply & Transit
Co., Inc. Portersville, PA
McQuaide Trucking, Inc. Johnstown, PA
P & B Transportation, Inc. Apollo, PA
PJAX, Inc. Pittsburgh, PA
Perfetti Trucking, Inc. Blairsville, PA
R & W Transportation, Inc. McKeesport, PA
438
Homer R. Sleek & Sons, Inc. Johnstown, PA
Taylor Services, Inc. Blairsville, PA
David Tesone Trucking, Inc. Gibsonia, PA
Ward Trucking Corp. Altoona, PA
A.D. Weaver Service, Inc. Export, PA
All of the above-listed motor carriers are authorized by
the Pennsylvania Public Utility Commission to transport
property between points in Pennsylvania. They include general
freight and specialized carriers including bulk carriers and
steel haulers. All of the carriers would be considered small
companies by comparison with the companies that are supporting
passage of the Senate Amendment. They request that this
Statement, which has been distributed to the Subcommittee and
other interested parties, be incorporated in the record of
these proceedings.
II. POSITION OF OPPOSING MOTOR CARRIERS
The motor carriers shown above strongly oppose enactment
of the Senate Amendment. The Amendment would totally preempt
state regulation of rates, routes and services of any
"Intermodal all-cargo air carrier" which transports property,
pieces, parcels or packages (except household goods) wholly
within a single state by aircraft or by motor vehicle regardless
of whether or not the property has had or will have a prior or
subsequent movement by air. It would have a devastating effect
on the motor carrier industry generally and more specifically
on these companies, their employees and the many communities in
-2-
439
Pennsylvania which they serve on a daily basis, particularly
small, out-of-the-way villages and towns.
There is no shortage of intrastate motor carrier service
in Pennsylvania. Likewise there is no absence of rate competi-
tion or innovative service. There is, however, a strong and
financially stable intrastate trucking industry due in no small
part to the regulatory efforts of the Pennsylvania Public
Utility Commission (Pa. PUC) during the past 60 years.
This stability is now in grave danger of being undermined
by this Senate Amendment. The negative repercussions if it
becomes law will be felt not only in the motor carrier industry
in Pennsylvania and other states but throughout American society
generally. The opposing motor carriers want to make it clear
that they are not against change and welcome wholeheartedly any
new ideas or methods which will improve the industry and its
capability to provide the highest quality service to the ship-
ping public. Unfortunately, this ••private" legislation spon-
sored by the giants of the motor carrier industry, and hereto-
fore largely cloaked in secrecy, will benefit those few at the
expense of thousands of small to medium-size motor carriers
throughout the nation that provide vital services within each
state .
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440
III. STATE REGULATION OF INTRASTATE TRANSPORTATION
SERVICE SHOULD NOT BE ELIMINATED WITHOUT ADEQUATE HEARINGS
AND THE USE OF EQUITABLE PROCEDURES
The Senate Amendment is ill-conceived, grounded on false
premises and being rushed to judgment with little or no
investigation, deliberation or regard for the consequences.
The opposing motor carriers herein request that the Subcommit-
tee step back from this legislation and allow sufficient time
for a thorough review of all of the issues.
This Amendment was passed by the Senate on June 16, 1994
with no prior notice to the public, no committee or subcommittee
hearings to receive public input and without deliberation or
thorough evaluation of the consequences. Other than those
motor carrier interests that were instrumental in lobbying for
passage of the Senate Amendment, the motor carrier industry was
unaware of this pending legislation. Certainly, no small
intrastate motor carrier would have had any reason to suspect
that continued state regulation of the motor carrier industry
was at stake when the U.S. Senate considered an airport
appropriations bill.
No precipitous action should be taken by Congress which
would so disrupt the intrastate motor carrier industry without
a thorough investigation of all of the issues and ramifications.
The passage of the Senate Amendment and the scheduling of this
hearing before the Surface Transportation Subcommittee have
occurred so unexpectedly and at such a rapid pace that none of
the affected parties including the members of the House and
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441
Senate have had an opportunity to fully evaluate this legisla-
tion. The radical changes in transportation policy which would
result from enactment of the Senate Amendment should not be
pursued without careful deliberation by Congress following
receipt of all available information from the public which will
be affected.
Each of the opposing motor carriers will be directly and
adversely affected by enactment of the Senate Amendment. If
they had been aware of the Amendment they would have submitted
individual statements to the appropriate Senate Subcommittee.
Likewise, had time permitted they would have each presented an
individual statement to this Subcommittee setting forth their
particular concerns. The expedited scheduling of this hearing
has prevented their doing so and they have elected to present a
joint statement expressing their views.
IV. BACKGROUND OF THE SENATE AMENDMENT
In 1991 the Ninth Circuit Court of Appeals, in Federal
Express Corp. v. California Public Utilities Commission, 936
F.2d 1075, held that Federal Express Corp. (FedEx) was not
required to comply with certain state laws and regulations
governing motor carriers since it was an air carrier regulated
by the Federal Aviation Act. The effect of that decision was
to permit FedEx to transport documents and small parcels between
points in the eight states within the jurisdiction' of the Ninth
Circuit without the necessity of observing state laws and
regulations applicable to regulated intrastate motor carriers.
442
United Parcel Service (UPS), the nation's largest motor
carrier which specializes in the transportation of small
parcels, has since waged an aggressive campaign to free itself
of state regulation, purportedly for the purpose of "leveling
the playing field" between it and FedEx. This effort, supported
by the nation's largest general freight motor carriers, has
culminated in the Senate Amendment. This Amendment has the
effect of deregulating all rates, routes and services of
surface transportation companies. As stated above, it was
passed by the Senate without prior notice to the public,
without opportunity for public hearings and without careful
consideration of the many adverse economic and social conse-
quences it will have in both the short and long term. Those
effects are discussed in the following section.
V. THE SENATE AMENDMENT AND ITS IMPROVIDENT PROVISIONS
Earlier this year the U.S. House of Representatives passed
the Federal Aviation Administration Authorization Act of 1994
(H.R. 2739) which is essentially an authorization bill to fund
airport maintenance and construction. As an aviation bill, it
properly does not contain any provision which would preempt
state regulation of wholly intrastate non-air related motor
carrier transportation.
On June 16, 1994 the U.S. Senate passed The Airport and
Airway Improvement Act (S.1491) to which was appended the
Section 211 Amendment. The Senate Amendment preempts entirely
-6-
443
state regulation of rates, routes and services of any
"Intermodal all-cargo air carrier" which transports property,
pieces, parcels or packages (except household goods) wholly
within a single state by aircraft or by motor vehicle,
regardless of whether or not the property has had or will have
a prior or subsequent movement by air. This goes far beyond
leveling the playing field between FedEx and UPS with respect
to the motor carriage of documents and small parcels.
The preemption paragraph of Section 211 does not limit the
exemption to documents and small parcels which is the type of
traffic FedEx and UPS specialize in handling. Nor is it
limited in any way to motor carrier transportation that is
related to air transportation. In its present form, the
exemption has been interpreted to apply to areas of motor
carrier transportation which do not have the slightest
connection with intermodal air transportation such as the
transportation of bulk commodities in dump or tank trucks, and
truckload shipments of steel and machinery on flatbed trucks,
and similar specialized transportation services.
Under the definition paragraph of Section 211, a new
entity to be known as an "Intermodal all-cargo air carrier" is
created. That term is defined to include an "indirect cargo
air carrier" as defined in Section 296.3 of Title 14, Code of
Federal Regulations. It would include an air freight forwarder
which is not regulated, which does not participate directly in
the movement of property by either air carrier or motor
carrier, and which can be established by anyone with relative
444
ease. As a result, a single-state motor carrier could become
qualified as an air freight forwarder/ indirect cargo air
carrier and immediately invoke the preemption provisions in
order to escape state regulation of rates, routes and service
throughout the United States.
The Senate Amendment, which would deregulate all state
regulation of intrastate motor carrier service with the
exception of household goods, has no rational connection to the
airport funding legislation to which it is attached. Moreover,
it goes far beyond addressing the limited problem that
allegedly confronts FedEx and UPS.
VI. ARGUMENT IN SUPPORT OF POSITION
1. Passage of the Senate Amendment Will Create Giant Monopolies
at the Expense of Small to Medium-Sized Trucking Companies
Without Any Discernible Benefits.
Assuming for purposes of this presentation that the
playing field for FedEx and UPS can only be made level by means
of federal preemption of state regulation, there is no
justifiable purpose to be served by destroying the remainder of
the intrastate motor carrier industry in the process.
If the states are no longer able to regulate any aspect of
intrastate motor carrier transportation service other than that
pertaining to the movement of household goods, then the states
will have no ability whatsoever to influence the availability
or quality of such service in order to ensure the satisfaction
-8-
445
of local and regional requirements of shippers and receivers.
And in the absence of any regulation of intrastate rate
structures, the largest motor carriers will be able to invade a
state, target the most profitable and desirable intrastate
traffic, selectively cut rates to levels below their fully
distributed costs and thereby drive out the existing smaller
competitors.
This is not mere theoretical speculation. It has already
occurred during the last 14 years as a result of the partial
deregulation of the interstate motor carrier industry.
Hundreds, if not thousands, of small to medium-sized trucking
companies, and many not so small companies, were driven out of
business and into bankruptcy. These bankruptcies continue
today. As a result there is a concentration of market share
and power in the hands of a relative handful of motor carriers,
which, not coincidentally, happen to be the same carriers that
are supporting this federal preemption effort.
As occurred following partial deregulation on the federal
level, after the initial shake-out the survivors of the first
rate wars will engage in cut-throat competition in a concerted
effort to hold or gain market share. The less profitable and
less attractive traffic, which the major trucking companies
will initially spurn, will not be adequate to support the
continued viability of the small to medium-sized trucking
companies. Small feeder lines, which frequently handle
interstate shipments for large interstate carriers to and from
446
small towns, will disappear. Small shippers and receivers will
then have no effective means of ensuring the continued
availability of essential local trucking service at reasonable
prices. They will be held captive by the major surviving
trucking companies which will be able to charge premium rates
for any service they deign to provide. On the other hand,
price and service discrimination irt^favor of large shippers
will increase at the expense of the smaller shippers that will
already be at a disadvantage. Ultimately, the viability of the
small shippers and receivers will be in jeopardy due to their
inability to compete on the unlevel playing field that will be
slanted in favor of their larger competitors.
It is difficult to understand why the two giants in the
motor carrier industry that specialize in the transportation of
documents and small parcels, as well as the other large general
freight carriers, cannot abide by the rules that apply to all
other intrastate motor carriers of property by applying for and
obtaining operating authority from a state regulatory agency
where required and then complying with the applicable state
regulations. If thousands of carriers nationwide can follow
these rules, including the small to medium-sized Pennsylvania
carriers shown above, there is no reason why FedEx and UPS
cannot do the same. Nor is there any reason why the giant
carriers in the general freight category, some of which already
hold intrastate operating authority in some states, cannot do
likewise.
-10-
447
2. Preemption of State Regulation Will Seriously Impair
Effective Enforcement of Safety Related Laws and
Regulations.
As a result of such unrestrained rate competition the
financial health of the smaller motor carriers will be
seriously and adversely affected, threatening their very
existence. Their marginal financial stability will first be
reflected in their decreased attention to maintenance and
replacement of vehicles, pressure to work drivers and equipment
longer hours and ignoring a host of other safety related
matters. With unsafe, and perhaps underinsured, motor vehicles
on the highways, and with no effective state government
oversight, shippers, receivers and the traveling public
generally will be placed at risk.
There is another important factor that must be considered
in connection with safety related issues. If the states are
preempted from regulating the rates, routes and service of
intrastate motor carriers, their investigative and enforcement
staffs will be substantially reduced. As a direct consequence
there will be no effective regulation or supervision of motor
carrier compliance with safety regulations. The United States
Department of Transportation is already unable to monitor the
safety compliance of interstate motor carriers under its
jurisdiction and has had to recruit state assistance. Those
joint federal/state enforcement programs will be seriously
jeopardized if there is a decrease in the state enforcement
448
staffs. That would appear to be an unavoidable consequence of
enactment of the Senate Amendment.
Although the Senate Amendment states that it does not
restrict the safety regulatory authority of the states, the
practical effect will be just the opposite. This is a matter
of vital importance to the general public and deserves thorough
and deliberate consideration by Congress. Unsafe highways are
far too high a price for the nation to pay for "private
legislation" which goes far beyond resolving a back yard
dispute over a limited issue between FedEx and UPS.
3. The Senate Amendment Will Cause Social Disruptions Which
Have Not Been Given Adequate Consideration.
This Statement has thus far concentrated primarily on the
impact the Senate Amendment will have on the small to
medium-size intrastate motor carriers. There is another aspect
of this which deserves equal attention. It is the effect it
will have on the nation at large beyond the confines of the
trucking industry.
Experience has shown that following the deregulation of
the airline industry many theretofore well-established air
carriers went out of business, resulting in substantial
unemployment with all of the personal hardships that entails
for the displaced workers and their families. The same thing
happened following the 1980 partial deregulation of the
interstate motor carrier industry. There is no reason to
believe that the same results will not occur if the intrastate
motor carrier industry is deregulated.
-12-
449
If the scenario previously described in Section 1 of this
Argument were to take place, and we fully expect that it will,
the employees of the small and medium-sized trucking companies
that are forced out of business will be displaced. Those
employees' means of livelihood will be ended and with it their
privately funded health insurance, pension plans and life
insurance benefits. If they are unable to find other
employment the states will inevitably experience an increase in
unemployment compensation claims.
The disappearance of many trucking companies, some of
which are the primary economic anchor of small communities,
will have a further negative impact on other non-trucking
businesses in the community. It is well known that whenever a
significant employer goes out of business there is a ripple
effect throughout the local community and beyond. The company
itself no longer purchases the equipment, materials and
supplies that were necessary to conduct its business. That
means the loss of sales and income to its suppliers. By the
same token, the displaced employees of the terminated business
have reduced purchasing power which is reflected in the
decreased sales of the countless producers of merchandise and
suppliers of services that previously enjoyed them as
customers. The loss of enough revenue by these non-motor
carrier businesses can in turn affect their continued level of
employment, if not their own existence.
All of the above factors can result in an erosion of the
tax base of the states and local communities. At that point
-13-
450
some decision must be made to either increase taxes and/or
decrease public services, neither of which is desirable.
Attention should also be given to the fact that the states
in various parts of the country have unique geographic and
economic circumstances which require a carefully tailored
transportation system. Over the years the states have
developed transportation policies geared to those unique
conditions. This Senate Amendment has the effect of telling
the legislators in 42 states that their transportation policies
developed over the last 60 years must give way to the parochial
interests of FedEx and UPS.
At this point no adequate consideration has been given to
the numerous economic and social implications of this
legislation. It is imperative that such a far-reaching and
potentially disastrous piece of legislation be studied
thoroughly before becoming the law of this land.
4. The Senate Amendment Preempts State Regulation of Intra-
state Traffic That is Not Even Remotely Connected With Air
Transportation ♦
Certain types of commodities are not susceptible to trans-
portation by air. Yet the Senate Amendment, by preempting the
transportation of " property " , would eliminate state regulation
of the transportation of liquid and dry bulk commodities such
as gasoline, diesel fuel, kerosene, chemicals, acids, coal,
stone, gravel, cement, fertilizer and a host of similar commo-
dities. Those commodities typically are transported in tank
trucks and dump vehicles.
451
In addition, there are a myriad of other commodities which
are not susceptible to movement by air. These include various
iron and steel products, heavy machinery, large appliances,
construction materials, new furniture, etc. Many of these
products are transported on specialized motor vehicle equipment
such as flatbed trailers. Neither air carriers, indirect cargo
air carriers, FedEx nor UPS engage in the transportation of
these types of products.
Extending federal preemption of state regulation to these
types of non-air related commodities is completely unwarranted
in view of the limited nature of the alleged problem involving
FedEx and UPS.
VII. CONCLUSION
There is no factual basis developed in any record before
this Subcommittee or the U.S. Senate which would support the
elimination of all state regulation over rates, routes and
services. Consequently, there is no valid justification for
the broad federal preemption of such state regulation as is
envisioned by the Senate Amendment.
The serious economic and social consequences that will
result if the Senate Amendment becomes law should not be
dismissed liqhtly. This all began as a limited matter
involving FedEx and UPS. It has now virtually spun out of
control overnight into total state deregulation of rates,
routes and service. The opposing motor carriers herein submit
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452
that further consideration of the Senate Amendment should be
withheld until such time as all interested parties have had
ample opportunity to consider this legislation, gather all
pertinent information from as many sources as possible and
evaluate its many and varied consequences. If that complete
investigation discloses a problem between FedEx and UPS which
cannot be resolved other than by some type of federal legisla-
tion, then legislation can be tailored to meet the problem
involving those two carriers without totally disrupting the
entire industry. If that study discloses that some further
reform is in order with respect to federal and/or state trans-
portation regulation, then appropriate legislation can be
formulated to address the specific problems disclosed. To do
otherwise at this time by proceeding with the Senate Amendment,
in view of the many unanswered questions and lack of consider-
ation to the consequences, would not be in the public interest.
Respectfully submitted,
f. (/J2sm^
By ; {y\J ^JUU^L^rs
William J. La\
Attorney for 19 Pennsylvania
Intrastate Motor Carriers
VUONO, LAVELLE & GRAY
2310 Grant Building
Pittsburgh, PA 15219
(412) 471-1800
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453
ES-l
TESTIMONY OF
ALEX LEWANDOWSKI, PRESIDENT
TRANSPORTATION LAWYERS ASSOCIATION
RE: Preemption of State Regulation of Surface Transportation
Under Senate Amendments (S.1491) To the Federal Aviation
Administration Authorization Act of 1994 (H.R. 2739)
EXECUTIVE SUMMARY
The Transportation Lawyers Association (TLA) is a specialized
bar organization whose 700 members represent providers and users of
surface, air and ocean transportation services in matters arising
before all Federal and State courts and administrative agencies.
TLA believes that the current version of section 211 of S. 1491
goes far beyond what is necessary to correct the limited problem
identified by its proponents, i.e. . that certain express carriers
of envelopes and small packages, primarily or substantially by air,
have found it difficult to comply with State regulatory
requirements that were designed principally to regulate intrastate
pricing and market entry by trucking companies providing
conventional all-highway services.
Apparently perceiving difficulty in drawing a line between
over-the-road freight haulers and the integrated package express
carriers, the drafters of section 211 would impose sweeping Federal
preemption on both sectors. As TLA will demonstrate, however,
appropriate lines can be drawn. That being the case, it is at best
premature for the Federal Government to mandate deregulation of
454
ES-2
intrastate trucking in the 41 States which have seen fit to
preserve such regulation, often after intense debate.
TLA submits that State prerogatives to regulate intrastate
commerce should not, in our Federal system, be swept aside without
compelling justification. No such justification exists here.
Indeed, after fourteen years of experience with deregulation of
trucking in interstate markets, the results in terms of safety,
stability and service are mixed at best. Interstate deregulation
of over-the-road freight is not such a clear and shining success as
to justify mandating the same approach for intrastate trucking
under the widely divergent market conditions of Massachusetts and
Montana, Nevada and North Carolina, and the 37 other States that
have opted for varying degrees of continuing regulation.
455
TESTIMONY OF
ALEX LEWANDOWSKI, PRESIDENT
TRANSPORTATION LAWYERS ASSOCIATION
RE: Preemption of State Regulation of Surface Transportation
Under Senate Amendments (S.1491) To the Federal Aviation
Administration Authorization Act of 1994 (H.R. 2739)
I am pleased to have this opportunity to present the views of
the Transportation Lawyers Association (TLA) in connection with the
Committee's hearings to consider Federal preemption of State
regulation of motor carriers.
I. IDENTITY.
TLA's membership is composed of approximately 700 attorneys in
the United States, Canada, Mexico and the United Kingdom who
practice transportation law. Members of the Association represent
a wide variety of interests, including surface, air and water
carriers for hire, private carriers and shippers. Our U.S. members
are actively involved in practice before the Interstate Commerce
Commission, the Department of Transportation, the Federal Maritime
Commission, all of the State regulatory agencies, and of course the
State and Federal courts.
II. BACKGROUND /BASIC POSITION.
As adopted by the Senate on June 16, 1994, section 211 of
S. 1491, an aviation funding bill, imposes sweeping deregulation of
intrastate all-highway freight operations. This measure apparently
was prompted by the complaints of certain intermodal express
carriers about intrastate market entry and pricing regulations in
certain States. As passed, however, section 211 makes no
distinction between express carriers of envelopes and small
packages in integrated air/ground service, on the one hand, and
conventional highway freight haulers on the other hand. Although
everyone in this room knows the difference between these two widely
divergent sectors of the transportation industry, apparently the
drafters of section 211 found it difficult to devise legislative
456
language that would reflect the difference, or would limit
preemption effects to the entry and rate regulations complained of
by the express carriers.
TLA believes appropriate lines can be drawn; we will suggest
how. Moreover, if the lines can be drawn, responsible legislation
should draw them. If it is true that the framers of State entry
and rate regulations for intrastate freight hauling failed to
foresee the development of a package express industry ill-suited to
regulation in that manner, it does not follow that section 211
should be equally blind to the differences between freight hauling
and package express services. Nor does it follow that any
difficulties experienced by package express services with
intrastate entry and rate regulation should be "cured" by sweeping
preemption of State regulation having anything to do with "rates,
routes and services."
To the contrary, there is good reason for caution about
extending section 211 beyond the express carriers and the specific
entry and rate issues they have identified. Before mandating broad
deregulation of intrastate trucking markets, Congress should
consider carefully the results of interstate trucking deregulation
over the past 14 years. Whether examined in terms of safety,
stability or service to the public, interstate deregulation of
over-the-road freight hauling is not such a clear and shining
success as to justify mandating the same approach at the State
level. It is noteworthy that 41 States with widely divergent
market conditions have opted to continue regulating intrastate
trucking, often after intense debate. A backdoor amendment to an
aviation bill is not an appropriate vehicle for substitution of
Washington's judgment on this issue.
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457
III. THE AMENDMENT AND ITS CRITICAL PROVISIONS ARE EXCESSIVELY
BROAD.
Section 211 would amend existing premptive language in section
105(a) of the Federal Aviation Act (49 U.S.C. § 1305(a)) to
preclude all State regulation of rates, routes and services of "any
intennodal all-cargo air carrier" which transports property,
pieces, parcels or packages (except household goods) wholly within
a single State by aircraft or by motor vehicle, regardless of
whether or not the property has had or will have a prior or
subsequent movement by air.
The definition of an "intermodal all-cargo air carrier" in
section 211 includes not only direct air carriers (e.g. Federal
Express) and affiliates or major users of direct air carriers (such
as United Parcel Service) ; it also includes any "indirect cargo air
carrier," i.e. , an air freight forwarder. Under 14 CFR Part 296
(copy attached as Appendix A) , it is apparent that almost anyone
can call himself or herself an air freight forwarder, without
compliance with safety, fitness or registration requirements of any
kind. Once this is done, the motor carrier of which the
"forwarder" is a part, or with which it is affiliated, is exempt
from all State laws relating to rates, routes and service. A motor
carrier could also qualify under the preemption provision if it
utilizes, as principal or as a shipper's agent, an air carrier at
least 15,000 times annually, but this "frequent use" criterion is
moot for any air freight forwarder or its affiliates. These
provisions permit virtually any carrier to qualify as an
"intermodal all-cargo air carrier," regardless of whether the size
or type of freight it handles would ever move by air.
Not only does section 211 cover much more than intermodal
express services; it also preempts much more than entry and rate
regulation by the States. The language of Section 211, which bars
application of State law to the "rates, routes or services" of a
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458
given group of carriers, is extremely broad. Congress should bear
in mind the broad interpretation that the existing language of 49
App. U.S.C. § 1305 already has received in the courts.
In Morales v. Trans World Airlines, U.S. , 112 S.Ct.
2031, 119 L.Ed. 2d 157 (1992), the Supreme Court held that attempts
by several States to enforce State laws prohibiting deceptive
advertising were preempted by Section 1305. Morales drew upon the
broad construction of the phrase "relating to" that it had
developed in cases interpreting ERISA. The phrase means "to stand
in some relation; to have bearing or concern; to pertain, refer; to
bring into association with or connection with." Morales
consequently rejected the argument that Section 1305 preempts only
State laws specifically addressed to the airline industry. Laws of
general application, even those consistent with Federal law, are
preempted if they have an effect upon the carrier's rates, routes
or services. Some State laws may still apply, but only if the
relationship to airline services is "too tenuous, remote or
peripheral."
As a consequence, Section 13 05 has carved out an area in which
airlines are exempt from a wide variety of State law of general
application, including State common law. For example, an airline
obtained dismissal of a tort claim against it where a stewardess
stomped upon the passenger's foot and injured him. Baugh v. Trans
World Airlines, Inc., 915 F.2d 693 (1990). Another tort claim
arising out of an airline's action in permitting several cases of
rum to be stored in an overhead compartment, so as to result in
serious personal injury when they fell on a passenger, was
dismissed under this section. Hodges v. Delta Airlines, Inc., 4
F.3d. 350 (5th Cir. 1993). To be sure, the Federal courts are
split on this application of Section 1305 to personal injury suits
by passengers. Compare Margolis v. United Airlines, Inc., 811
F.Supp. 318 (E.D. Mich. 1993). However, the very existence of the
-4-
459
split of judicial authority illustrates the ambiguity and breadth
of this statutory language.
Section 1305 also has been held to preempt claims against
airlines based upon tortious interference with business relations
and unfair competition. Continental Airlines v. American Airlines ,
824 F.Supp. 689 (S.D. Tex. 1993) . It also has barred State claims
brought by a passenger for false imprisonment. Williams v. Express
Airlines I, Inc., 825 F.Supp. 831 (W.D. Tenn. 1993).
One area of particular concern should be claims relating to
loss or damage of freight. Federal law, specifically the Carmack
Amendment, applies only to shipments moving in interstate commerce.
Shipments moving in intrastate commerce presently are governed by
State law pertaining to shipments via common carriers. There can
be no doubt that the rules governing the carrier's liability for
loss or damage of the cargo entrusted to its care "relate to" its
service. Indeed, the connection is so clear that the Federal rule
is embodied in the Interstate Commerce Act and the ICC has
prescribed rules for processing loss and damage claims.
Section 211, however, would bar application of State law, leaving
no law to apply if a carrier loses or damages an intrastate
shipment!
Finally, Congress should be concerned about the language which
states that no State may enforce any law, regulation or standard
pertaining to the forbidden subjects. That language may well be
construed to mean that the Federal courts are the exclusive
jurisdiction for actions arising out of disputes with carriers
falling within the exempt class. Since there are probably at least
60,000 motor carriers with authority to transport shipments in
intrastate commerce, the impact upon the already overburdened
Federal court system can only be imagined.
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460
In sum, section 211 is overbroad in terms of both the carriers
it covers and the laws it preempts. Its language would preclude
State economic regulation, not only of UPS, but of bulk haulers
using tankers or dump trucks, flatbed haulers of steel and heavy
machinery, and a host of other trucking operations having not the
slightest connection with intermodal express services. Moreover,
section 211 would preempt not only the entry restrictions and
tariff filing requirements which Federal Express finds odious, but
also essential protections for shippers seeking recompense for lost
or damaged cargo.
IV. THE OVERBREADTH CAN BE CORRECTED.
The current language of section 211 apparently results from
difficulties experienced by both courts and the Congress in
defining the intermodal express services provided by Federal
Express, UPS and the like. The definitional problem surfaced in
Federal Express Corp. v. California Public Utilities Commission,
936 F. 2d 1035 (9th Cir. 1991), in which the Court of Appeals held
that section 105(a) of the Federal Aviation Act of 1958 precluded
State regulation of intrastate trucking operations conducted
directly by a certificated air cargo carrier such as Federal
Express. As written, however, the decision did not cover UPS and
certain other intermodal express carriers who conducted their
integrated air and surface operations through multiple corporate
entities. In an effort to include these carriers, section 211 was
drafted in terms of affiliation with, and /or frequent use of direct
or indirect carriers. As will be seen, however, this language goes
far beyond anything necessary to address the underinclusiveness of
the Federal Express decision.
The perceived competitive imbalance between Federal Express
and UPS with respect to the intrastate motor carrier transportation
of documents and small parcels can be easily resolved without
totally disrupting the entire intrastate motor carrier industry.
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461
Only four changes are needed in section 211 to accomplish this
result:
First, revise the definition of the type of traffic that
would be preempted from State regulation to read "transporting
shipments of property each weighing 150 pounds or less" in
proposed new paragraph (4) (A) of Section 105(a) of the Federal
Aviation Act of 1958 (49 App. U.S.C. § 1305(a)). As discussed
later in this statement, a similar approach was utilized by
California legislators in addressing the problems created by
the Federal Express decision.
Second, revise the same paragraph to preempt only State
regulation of "market entry and rate filing by" covered
carriers. We note that this approach is similar to that being
suggested in S. 2275 for the selective paring down of the
Interstate Commerce Commission's regulatory responsibilities
over interstate trucking.
Third, revise the definition of an "intermodal all-cargo
air carrier" in proposed new paragraph (25) to Section 101 of
the Federal Aviation Act of 1958 (49 App. U.S.C. § 1301), so
that "indirect" air cargo carriers would be excluded.
Fourth, rely on freguent use of direct air carriers,
regardless of affiliations, as the benchmark for
including surface operations in the definition of
"intermodal all-cargo air carrier."
Appendix B to this statement provides a "black line" version
of section 211, showing the relatively minor deletions and
insertions necessary to accomplish these refinements.
V. WHY CORRECTION IS NEEDED.
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462
As shown in Appendix B, it is possible for Congress to steer
between the underinclusiveness of Federal Express and the excessive
breadth of section 211 as now written. The remainder of this
statement will address issues of safety, stability, service and
States' rights to show that steering a middle course is not only
possible, but prudent at this time. While it is not the province
of a bar association such as TLA to offer final judgments on the
merits or demerits of economic regulation of intrastate trucking,
we do suggest that total preemption of such regulation should not
be imposed on the States as an afterthought in an aviation bill.
Under our Federal system, such sweeping intrusion into State
prerogatives reguires a compelling case, which its proponents
simply have not made.
A. Safety.
As noted in an annual survey of State law prepared by TLA,
motor common carrier transportation of freight was deregulated in
some States during the 1980 *s, and in other States such
transportation was never regulated.1 We have seen no evidence of
any correlation between deregulation and any State's economic
recovery or economic performance in recent years. Neither is there
any evidence that State trucking regulation exercises an influence
upon the national economy which is so overwhelming as to justify
total Federal preemption of the policies of those States which
continue to exercise some degree of regulation.
In contrast to the absence of economic justification for
Federal preemption, there is an accumulating body of evidence which
suggests that deregulation of motor carriage has adverse side
effects which must be weighed carefully. The issues at stake here
are not purely economic. Important social issues, including
safety, are inevitably intertwined with economic conditions in
1 Unregulated States are Alaska, Arizona, Delaware, Florida,
Maine, Maryland, New Jersey, Vermont and Wisconsin.
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463
transportation, and such effects must be considered. Unrestrained
competition in interstate trucking during the 1980' s created severe
pressure on the LTL common carrier segment of the trucking
industry, leading to thousands of bankruptcies. This economic
pressure also had its consequences for the drivers, whose wages as
a whole remained at 1980 levels or lower, while their cost of
living continued to rise. See D. Waring, "The Downside of Motor
Carrier Deregulation," 21 Transp. L. Journal 409 (1993) (excerpted
in Appendix C) . These pressures created a built in incentive to
drive longer or faster, or both, despite the fact that numerous
studies have established driver fatigue as a major risk factor in
trucking accidents.
A study released in January, 1992, by the Insurance Institute
for Highway Safety was based upon interviews with 1,249 drivers at
locations across the country. The study concluded that 73% of the
drivers regularly violate the Federal Highway Administration hours
of service regulations. Two-thirds of the drivers stated that they
had driven more than was recorded in their log books during the
past year. Nineteen percent admitted having fallen asleep at the
wheel one or more times during the preceding month.
One of the conclusions reached by that study was as follows:
The survey results suggested that economic factors
are a major impetus for violating hours-of-service rules.
Among these economic factors are tight delivery schedules
and being paid $0.3 0 or less per mile. This study was
not able to evaluate whether being an hours-of-service
violator is associated with piecework payments systems
(e.g., per mile payment) because more than 90 percent of
the drivers were paid in this manner. Many other job,
vehicle and driver characteristics were associated with
violation of the rules. Some of these risk-factors were
associated with each other, for example, young age and
low pay rates.
Other reputable studies have reached similar conclusions. In
California the Heavy Commercial Vehicle and Driver Safety Task
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464
Force under the direction of the California Highway Patrol made its
report to the Governor and the Legislature in January, 1991. 2 One
of the conclusions reached by that group was stated as follows:
With the competitive environment that currently
exists in the motor carrier industry, some operators have
cut corners on operating costs in order to survive. Too
often, this involves running trucks and drivers longer
hours in order to meet commitments and to stay
competitive. Unfortunately, the environmental forecast
for the motor carrier industry in the 1990' s is for more
of the same. The economic incentive for a carrier to
operate illegally or unprofessionally is probably going
to increase.
In 1990 the National Transportation Safety Board frankly
observed :
In the last decade, special attention has been
focused on issues of fatigue and hours of service
compliance in the trucking industry. This attention is
partly the result of the Motor Carrier Act of 1980, which
deregulated many aspects of the industry. The effect of
this Act on the industry has been profound. It has
allowed small carriers free entry into commercial areas
previously reserved for large companies, and it has
resulted in generally increased competition and cost
cutting pressures on all commercial carriers. This
increased competition provides economic incentives for
drivers to extend their working hours to a degree that
causes serious fatigue problems.3
In 1989 the House Public Works and Transportation Committee
asked the General Accounting Office to review whether economic
factors could be used as predictors of accident rates in the
trucking industry. The subsequently published GAO study reached a
number of disturbing conclusions. Generally, the data indicated
that carriers with poorer financial positions pose greater safety
risks. Those groups of carriers with the least favorable financial
2 Status Report on Truck and Truck Driver Safety, Jan., 1991.
3 Fatigue, Alcohol, Other Drugs, and Medical Factors in Fatal-
to the Driver Heavy Truck Crashes, p. 76, NTSB report PB90-917002,
Feb. 5, 1990.
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465
positions had the highest group accident rates. The data also
showed that carriers using what GAO termed the "broker" method of
operation, relying heavily upon leased eguipment and drivers as a
device to transfer financial risk, had accident rates 15 to 21
percent above the norm.4
Of course, other studies by deregulation proponents claim that
there is no link between deregulation and reduced safety. In view
of the substantial evidence suggesting such a link, however, we do
not believe that current regulatory and economic conditions in the
interstate transportation of property compel the conclusion that
the States, with their diversity of economic conditions and
policies, should be required to deregulate by Federal fiat.
B. Service and Stability.
Given the track record of interstate deregulation, which is
mixed at best as shown above, we submit that a given State
rationally might opt to retain regulatory tools for improving
stability and service in intrastate trucking markets. As is well
known, many such markets are relatively unattractive to carriers
because they involve small communities, short hauls and limited
volumes of available traffic. While certain studies by
deregulation proponents have suggested that interstate deregulation
had no adverse impact on small -community service, the same carriers
often serve such communities in both interstate and intrastate
commerce. We know of no studies that have even considered the
possible role of intrastate regulation in cushioning the impact of
interstate deregulation on small-community service.
In addition, a new role for State regulation may be emerging
under the North American Free Trade Agreement ("NAFTA"). In
December of 1995, Mexican carriers will be permitted to operate
4 Freight Trucking, Promising Approach for Predicting Carriers'
Safety Risks, GAO/ PEMD-9 1-13, April 1991.
-11-
85-090 95-16
466
throughout California, Arizona, New Mexico and Texas in the
transportation of cross-border traffic. Four years later they will
be permitted to operate throughout the United States. At the
present time, there are more than 4,000 Mexican trucking firms
registered to operate in the commercial zones along the border.
During the debates over NAFTA, it was recognized that Mexican
trucking firms have a huge labor cost advantage over U.S. carriers.
Under NAFTA, Mexican truckers are to haul only cross-border
traffic in the U.S. However, who is to prevent Mexican truckers
from employing their labor cost advantage to engage in illegal
cabotage? The Interstate Commerce Commission, with its meager
enforcement resources, cannot even begin to do so. Federal
authorities must rely upon cooperative agreements with State
authorities in order to carry out any meaningful enforcement in the
motor carrier field. We suggest that dismantling State regulation
by Federal fiat at this time would be the equivalent of unilateral
disarmament in facing competition from Mexican carriers.
C. Federalism.
Section 211 represents a serious departure from accepted
notions of federalism. For example, the Intermodal Surface
Transportation Efficiency Act of 1991 (ISTEA) , a recent major
landmark in legislation relating to surface transportation,
recognizes that States and municipal planning groups are most
qualified to determine the transportation policies and priorities
which will best serve their respective areas. It delegates
authority to States and metropolitan planning organizations to
develop and implement long range transportation planning.
The proposed preemption of State laws relating to
transportation breaks with this tradition and, without rationale,
invades areas of governance traditionally and wisely left to the
States. On October 26, 1987, former President Reagan eloquently
expressed a sound Federal philosophy of governance in Executive
-12-
467
Order 12612 as follows (1987 U.S. Code Cong. & Admin. News at
B-82) :
In most areas of governmental concern, the States
uniquely possess the constitutional authority, the
resources, and the competence to discern the sentiments
of the people and to govern accordingly. In Thomas
Jefferson's words, xthe States are the most competent
administrations for our domestic concerns and the surest
bulwarks against antirepublican tendencies. '
The nature of our constitutional system encourages
a healthy diversity in the public policies adopted by the
people of the several States according to their own
conditions, needs, and desires. In the search for
enlightened public policy, individual States and
communities are free to experiment with a variety of
approaches to public issues.
As shown by TLA's annual surveys of State law (which we will
be happy to furnish on request) , the States have adopted a variety
of different legal frameworks for the transportation of goods by
motor carrier within their respective boundaries. These approaches
range from relatively traditional regulation to complete
deregulation, but a clear majority of States regulate surface
transportation to some degree.
It is particularly significant that this Amendment would
overturn California's more balanced response to the previously
mentioned Federal Express decision. California, following the 9th
Circuit's decision, specifically reestablished a uniform and
consistent approach for the regulation of safe operations by all
for-hire motor carriers in California, including small package
carriers such as UPS and Federal Express. All such carriers must
register with the California PUC. They must participate in the
State's "Pull Notice Program" which monitors driving records of all
commercial drivers, and also in the Biennial Inspection of
Terminals Program (BIT) . Each unit must bear a California Highway
Patrol vehicle identification number. Such carriers also must file
evidence of public liability, property damage and workers'
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468
compensation insurance coverage. These legitimate State concerns
will be annihilated by the Amendment.
The California legislation contains yet other limitations that
would be swept aside by the Amendment. California prohibits
intermodal integrated small package carriers from using subhaulers
or underlying contract carriers for more than 10% of their traffic.
It defines an integrated intermodal small package carrier as a
person or corporation transporting by motor vehicle packages or
articles weighing no more than 150 pounds. Furthermore, the use of
aircraft cannot be merely incidental or occasional. (See
Appendix D for California's definitive language, which provides
further evidence that the problem of "line drawing" in section 211
is not insurmountable.) In view of the action by California, can
it be doubted that the States are fully capable of resolving these
issues for themselves and that it is totally unnecessary for
Congress to impose a Federal solution?
Preemption of State law is a radical cure, which should not be
adopted absent strong evidence that there is a "disease" that
requires it, and that the "cure" will not be worse than the
disease. There is no evidence that conditions exist which would
justify this intrusion into the affairs of the States. Section 211
after all would preempt State laws which apply only to the
transportation of a shipment from one point to another, entirely
within the same State, without passing through another State.
These laws do not apply to the transportation of shipments which
move from or to another State. Under the expansive interpretation
of the term "interstate commerce" adopted by the Interstate
Commerce Commission in the past decade, these State laws likewise
do not apply to shipments which a shipper has moved into a State
with the intention of further distributing from a warehouse or
terminal. Furthermore, by virtue of an exemption contained in the
Motor Carrier Act of 1980, State regulatory laws do not apply to
any shipment having a prior or subsequent movement by air. See 49
469
U.S.C. § 10526(a) (8) (B) . Consequently it is clear that section 211
would preempt State laws that today have application only to
shipments that are clearly and unambiguously intrastate in nature.
Those State laws have been adopted by legislators well
acquainted with local conditions in States as divergent as
Massachusetts and Montana, Nevada and North Carolina. Given the
results of interstate deregulation — including widespread
bankruptcies and the undercharge crisis which Congress recently had
to address through the Negotiated Rates Act of 1993 — surely the
States can be forgiven for suggesting that Washington, D.C. is not
the fount of all wisdom in these matters.
V. CONCLUSION.
The Transportation Lawyers Association continues to support
procedural reforms that are truly designed to promote more
efficient regulation. For example, TLA supported the elimination
of bingo stamps and the provisions concerning State participation
in the International Fuel Tax Agreement which were incorporated
into ISTEA. Those provisions, however, did not interfere with the
policy choices made by the various States in determining their own
fuel tax rates and vehicle registration fee structures.
In contrast, the Amendment represents an unwarranted intrusion
upon State policies, contrary to the guiding principles of
federalism. TLA opposes this measure because there is no
demonstrated need for such meddling in purely intrastate
transportation and because there is strong evidence to suggest that
unwarranted Federal intrusion would have serious unintended
consequences .
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470
APPENDIX A
§294.88
tained in the registrant's applicable
Canadian licenses.
5 294.88 Northwest Ontario restriction.
(a) Except as set forth in §294.60 or
paragraph (b) of this section, reg-
istrants shall not engage in the car-
riage of persons in foreign air transpor-
tation between the United States and
Canada to or from a point in Ontario,
west of a line drawn due north from
Blind River, Ontario (46* 11' North Lati-
tude, 82° 5^ West Longitude) and ex-
tending to the border between Ontario
and Manitoba, unless:
(1) The point is a resort, camp, or
outpost operated by a person duly li-
censed for such purpose by the Govern-
ment of the Province of Ontario, or the
licensed base of a Canadian charter air
carrier, or a Canadian Customs port of
entry;
(2) The registrant Is required on each
flight out of the restricted area to
make a stop at a Canadian Customs
port of entry or at the licensed base of
a Canadian charter air carrier where
officers of the Ontario Ministry of Nat-
ural Resources may be available to
make such Inspection as they consider
desirable; and
(3) The registrant has available on Its
aircraft for Inspection by the U.S. au-
thorities satisfactory evidence that it
has compiled with these conditions.
(b) The prohibition set forth in para-
graph (a) of this section does not apply
to flights performed for medical evacu-
ation or gimiior emergencies.
(c) A registrant shall clearly notify
in writing all persons who contract for
the registrant's service, and are af-
fected by the restrictions of this sec-
tion, of the limitations set forth In
paragraph (a) of this section.
{294.89 Uplift ratio.
Except as set forth in §294.60, the ag-
gregate number of all United States-
originating charter flights performed
by a registrant on or after May 8, 1974.
shall not, at the end of any calendar
quarter, exceed by more than one-third
the aggregate number of all Canadian-
originating charter flights performed
by the registrant on or after May 8,
1974. For the purpose of making such
computation, the following shall apply:
14 CFR Ch. II (1-1-94 Edition)
(a) A charter shall be considered to
originate in the United States (or Can-
ada) if the passengers or property are
first taken on board in that country,
and shall be considered as one flight
whether the charter is one-way, round
trip, circle tour, or open jaw, even if a
separate contract is entered into for a
return portion of the charter trip from
Canada (or the United States).
(b) The computation shall be made
separately for (1) "small aircraft"
flights of persons; and (2) "small air-
craft" flights of property.
(c) In the case of a lease of aircraft
with crew for the performance of a
charter flight on behalf and under the
authority of another carrier, the flight
shall be included in the computation if
the registrant is the lessee, and shall
not be included if the registrant is the
lessor.
(d) There shall be excluded from the
computation:
(1) Flights with aircraft having a
maximum authorized takeoff weight on
wheels (as determined by Canadian
Transport Commission Regulations)
not greater than 18,000 pounds; and
(2) Flights originating at a United
States terminal point on a route listed
In the Air Transport Services Agree-
ment between the United States and
Canada, signed January 17, 1966, as
amended, or any agreement which may
supersede it, or any supplementary
agreement thereto which establishes
obligations or privileges thereundei.
These flights may be excluded from the
computation only if, pursuant to any
such agreement, the .registrant also
holds a foreign air carrier permit au-
thorizing Individually ticketed or Indi-
vidually waybilled service over that
route, and provides some scheduled
service on any route pursuant to any
such agreement, and such flights serve
either (i) a Canadian terminal point on
such route, or (11) any Canadian Inter-
mediate point authorized for service on
the route by the foreign air carrier per-
mit.
PART 296— INDIRECT AIR
TRANSPORTATION OF PROPERTY
*
Subpart A— General
Sec.
'296.1 Purpose.
360
471
Office of the Secretary, DOT
296.2 Applicability.
296.3 Indirect cargo air carrier.
296.4 Joint loading:.
296.5 Agency relationships.
296.6 Public disclosure of cargo liability
limits and Insurance.
Subpart B— Exemption for Indirect Air
Transportation of Property
296.10 Exemption from the Act.
Subpart C— Violations
296.20 Enforcement.
Authority: 49 U.8.C. 1301. 1302. 1324. 1378.
1379. 1386.
SOURCE: 3R-1261. 46 FR 54727. Nov. 4. 1961.
unless otherwise noted.
Subpart A— General
(296.1 Purpose.
This part establishes rules for the In-
direct sir transportation of property. It
creates a class of air carriers to provide
this air transportation and grants ex-
emptions from certain provisions of the
Federal Aviation Act.
J29&2 Applicability.
This part applies to air transpor-
tation of property by Indirect cargo air
carriers, and to persons entering into
control relationships with indirect
cargo air carriers.
§ 29&3 Indirect cargo air carrier.
An indirect cargo air carrier is any
U.S. citizen who undertakes to engage
indirectly in air transportation of
property, and uses for the whole or any
part of such transportation the serv-
ices of an air carrier or a foreign air
carrier that directly engages in the op-
eration of aircraft under a certificate,
regulation, order, or permit Issued by
the Department of Transportation or
the Civil Aeronautics Board, or the
services of its agent, or of another Indi-
rect cargo air carrier.
[ER-1261, 46 FR 54727. Nov. 4. 1961. as amend-
ed by Docket No. 47939, S7 FR 40103. Sept. 2,
1992]
1226.4 Joint loading.
Nothing In this part shall preclude
joint loading, meaning the pooling of
ehipments and their delivery to a di-
§296.10
rect air carrier for transportation as
one shipment, under an agreement be-
tween two or more indirect air carriers
or foreign indirect air carriers.
{■ 296J» Agency relationships.
An indirect cargo air carrier may act
as agent of a shipper, or of a direct air
carrier that has authorized such agen-
cy, rather than as an air carrier, if it
expressly reserves the option to do so
when the shipment is accepted.
S 296.6 Public disclosure of cargo li-
ability limits and insurance.
Every indirect cargo air carrier shall
give notice in writing to the shipper,
when any shipment is accepted, of the
existence or absence of cargo liability
accident insurance, and of the limits
on the extent of its liability, if any.
The notice shall be clear and conspicu-
ously Included on or attached to all of
its rate sheets and alrwaybills.
Subpart B— Exemption for Indirect
Air Transportation of Property
8296.10 Exemption from the Act.
(a) Indirect cargo air carriers are ex-
empted from the provisions of Title IV
of the Act only if and so long as they
comply with the provisions of this part
and its conditions, and to the extent
necessary to permit them to organize
and arrange their air freight shipments
to provide Indirect air transportation,
except for the following sections:
(1) Subsection 403(bX2) (solicitation
of rebates). However, Indirect cargo air
carriers are exempt from section
403{b X2) to the extent necessary to per-
mit them to solicit, accept, or receive
fees from direct air carriers.
(2) Section 404(a) to the extent re-
quired to provide safe service, equip-
ment, and facilities in connection with
air transportation.
(3) Subsection 404(b) (nondiscrimina-
tion) with respect to foreign air trans-
portation.
(4) Section 407(a) (accounts, records,
and reports) and 407(e) (inspection of
accounts and property);
(5) Section 411 (unfair or deceptive
practices or methods of competition);
(6) Section 413 (form of control); and
(7) Section 415 (inquiry into air car-
rier management).
861
472
§296.20
(b>— (c) [Reserved]
(d) Direct air carriers are exempted
from section 403 of the Act to the ex-
tent necessary to permit them to pay,
directly or indirectly, fees to indirect
cargo air carriers.
[ER-1261. 46 FR 54727. Nov. 4, 1981, as amend-
ed by ER-1335. 48 FR 22705. May 20. 1983; ER-
1381. 49 FR 2S226. Jane 20. 1984. SO FR 31142.
July 31. 1985]
Subpart C— Violations
i 296.20 Enforcement.
In case of any violation of any of the
provisions of the Act, or of this part, or
any other rule, regulation, or order is-
sued under the Act, the violator may
be subject to a proceeding under sec-
tion 1002 and 1007 of the Act before the
Department or a U.S. District Court, as
the case may be, to compel compliance.
The violator may also be subject to
civil penalties under the provisions of
section 901(a) of the Act, or other law-
ful sanctions.
(ER-1261. 46 FR 54727. Nov. 4, 1981. as amend-
ed by Docket No. 47939. 67 FR 40103, Sept. 2.
1992]
PART 297-FOREIGN AIR FREIGHT
FORWARDERS AND FOREIGN
COOPERATIVE SHIPPERS ASSO-
CIATIONS
Subpart A— General
Sec.
297.1 Purpose.
297.2 Applicability.
297.3 Definitions.
297.4 Joint loading.
297.5 Foreign air freight forwarder as agent.
297.6 Foreign cooperative shippers associa-
tion as agent.
Subpart B— exemption for Foreign Indirect
Air Transportation of Property
297.10 Exemption from the Act.
297.11 Disclaimer of Jurisdiction.
297.12 General requirements.
Subpart C— Regbtrarion for Foreign Air
Freight Forwarder* and Foreign Coop-
erative Shippers Associations
297.20 Filing for registration.
297.21 Objections to registration applica-
tion.
14 CFR Ch. II (1-1-94 Edition)
297.22 Procedure on receipt of registration
application.
297.23 Waiver of sovereign Immunity.
297.24 Notification to the Department of
change of operations.
297.25 Cancellation or conditioning of reg-
istration.
Subpart 0— General Rules for Foreign
Indirect Air Carriers
297.30 Public disclosure of cargo liability In-
surance.
297.31 Preparation of airwaybills and mani-
fests.
Subpart E— (Reserved)
Subpart F— Violations
297.50 Enforcement.
AUTHOWTT: 49 U.S.C. 1324. 1386.
SOURCE: ER-1159. 44 FR 69635. Dec. 4. 1979,
unless otherwise noted.
Editorial Note: Nomenclature changes to
part 297 appear at 57 FR 40103. Sept. 2, 1992.
Subpart A— General
{297.1 Purpose.
This part establishes registration
procedures and operating rules for for-
eign air carriers that engage indirectly
in interstate, overseas, or foreign air
transportation of property. It relieves
these carriers from certain provisions
of the Act, and establishes simplified
reports for them.
[ER-1294, 47 FR 19684, May 7. 1982]
J 297.2 Applicability.
This part applies to interstate and
overseas air transportation of property
and to foreign air transportation of
property outbound from the United
States by foreign Indirect air carriers.
It also applies to applications for reg-
istration as a foreign indirect air car-
rier of property.
[ER-1294, 47 FR 19684, May 7. 1982]
$297.3 Definitions.
For purpose of this part:
(a) Foreign air freight forwarder means
a foreign indirect air carrier that is re-
sponsible for the transportation of
property from the point of receipt to
point of destination, and utilizes for
the whole or any part of such transpor-
tation the services of a direct air car-
362
473
APPENDIX B
SEC. 211. INTERMODAL ALL-CARGO AIR CARRIERS.
(a) DEFINITIONS. -Section 101 of the Federal
Aviation Act of 1958 (49 App. U.S.C. 1301) is
amended by redesignating paragraphs (25) through
(41) as paragraphs (26) through (42),
respectively; and by inserting immediately after
paragraph (24) the following new paragraph:
"(25) 'Intermodal all-cargo air carrier
means-
"(A) a-n a direct air carrier including an
indirect cargo air carrier, — as defined in section
206.3 of title 14, — Code of Federal Regulations, — as
in effect on March 1, — 1994, that undertakes to
provide the transportation described in section
105(a) (4) ; or
"(B) any other carrier-
"(i) which has authority to provide
transportation ;
"(ii) which -fl-) — is affiliated with an air
carrier described in subparagraph — fA-) — through
common controlling ownership, — e*= — (II) utilizes^, as
principal or as shipper's agent, or is affiliated
through common controlling ownership with
companies that utilise an a direct air carrier
described in subparagraph (A) at least 15,000
times annually; and
"(iii) which undertakes to provide the
transportation described in section 105(a)(4)."
(b) PREEMPTION. -Section 105(a) of the Federal
Aviation Act of 1958 (49 App. U.S.C. 1305(a)), as
amended by this Act, is further amended by adding
at the end the following new paragraph:
"(4) (A) Except as provided in subparagraph
(B) , no State or political subdivision thereof, no
interstate agency of two or more States, and no
other political agency of two or more States shall
enact or enforce any law, rule, regulation,
standard, or other provision having the force and
effect of law relating to rates, — routes f — ea?
services of market entry and rate filing by
any intermodal all-cargo air carrier when such
carrier is transporting shipments of property^-
piceco, — parcels, — or packages each weighing 150
pounds or less between States or wholly within any
single State by aircraft or by motor vehicle
(whether or not such property has had or will have
a prior subsequent air movement) .
"(B) Subparagraph (A)-
474
"(i) does not apply to the transportation of
household goods as defined in section 10102(11) of
title 49, United States Code:
"(ii) shall not restrict safety regulatory
authority; and
"(iii) does not apply to the regulation of
vehicle size and weight.
For purposes of clause (ii) , the authority to
regulate rates, routes, or services shall not be
construed as safety regulatory authority, and the
authority permitted under the Hazardous Materials
Transportation Act (49 App. U.S.C. 1801 et seq.)
to regulate routing shall not be affected.
"(C) For purposes of this paragraph, a person
who is an intermodal all-cargo air carrier in any
one State shall be considered such a carrier in
all States.
"(D) This paragraph shall not in any way
limit the applicability of paragraph (1)".
-2-
475
APPENDIX C
1993] Motor Carrier Deregulation 415
Table I
Year
ROE (%)
ROI (%)
Op. Ratio (%)
1976
15.04
20.25
95.14
1977
17.19
24.55
94.45
1978
15.84
22.17
94.52
1979
11.34
13.76
96.52
1980
9.03
13.48
96.63
1981
6.80
10.93
97.31
1982
1.89
5.51
98.54
1983
11.44
17.08
95.67
1984
9.46
15.34
96.09
1985
7.43
13.73
96.35
1986
13.19
19.37
94.63
1987
5.49
10.47
97.04
1988
15.23
15.50
95.51
1989
8.26
11.92
96.32
1990
8.99
13.20
96.06
1991
7.55
11.81
96.76
1992
11.15
15.26
95.93
In 1964 the ICC declared that 93.0 was a reasonable operating ratio
for the industry. Table I shows that for the years 1976 to 1979 the aver-
age operating ratio was 95.16 which rose to 96.37 for the next 10 years,
a 25% deterioration in operating margin.
It is clear that regardless of which of the three measurements is used,
the carriers were distinctly more profitable prior to the Motor Carrier Act of
1980, or, more to the point, before the ICC administratively loosened reg-
ulation drastically. In this regard, note that there was nothing about the
pre- 1980 period which could properly be called excessive profitibility.
Therefore, the subsequent deterioration in profitibility was from a level
which was already inadequate. Furthermore, the deterioration in profit-
ability becomes more startling when it is realized that the carriers com-
prising the group in the late years are the survivors; the weakest carriers
had been eliminated which should have improved the earnings indicators.
A sadder statistic to contemplate is the business failure rate. Table II
shows the trend in trucking industry failures and the rate per ten thousand
concerns as well as the comparison of that rate to that of All-Industry.
476
416
Transportation Law Journal
Table II
[Vol. 21
Ratio
Trucking Failures
All-Industry
Trucking Rate
Year
Number
Rate
Failure Rate
to All Ind.
1978
162
24.2
24
1.01
1979
186
27.2
28
.97
1980
382
52.9
42
1.26
1981
610
81.2
61
1.33
1982
960
121.3
88
1.38
1983
1228
147.5
110
1.34
1984
1411
180.7
107
1.69
1985
1541
191.1
115
1.66
1986
1561
183.6
120
1.53
1987
1345
151.5
102
1.49
1988
1242
141.8
98
1.45
1989
1263
117.6
65
1.81
1990
1593
137.9
76
1.83
1991
2323
178.3
107
1.67
1992
2259P
173.4P
126P
1.38P
P = Preliminary
Note that in the closing days of pre- 1980 regulation the failure rate of
the trucking industry was virtually identical to that of all industry, but as
deregulation took its toll, through the decade of the 80's, the failure rate of
trucking relative to all industry grew dramatically and continues so. Pre-
liminary data for 1992 suggests the distortion is abating but at best it has
hardly given cause for complacency. This is the inevitable consequence
of the financial deterioration of the industry seen in Table I.
It was stated in the quoted comments that financial distress would
impact the condition of the equipment operated by the carriers. A good
measure of that characteristic can be found in the data maintained by the
Motor Vehicle Manufacturers Association pertaining to the age of trucks.
This is shown in Table III.
477
1993] Motor Carrier Deregulation 417
Table III
Age of Trucks
(numbers of trucks in millions)
Number
Number
Ratio
Age
12 Years
of Trucks
12 Year Olds
Year
All Trucks
and Older
All ages
to Total*
1970
7.3
3.9
17.7
100
1971
7.3
4.0
18.3
99
1972
7.2
4.0
19.7
92
1973
7.0
4.0
21.3
85
1974
7.0
4.1
23.3
81
1975
6.9
4.4
24.8
80
1976
7.0
4.8
26.5
82
1977
6.9
5.1
28.2
82
1978
6.9
5.5
30.5
82
1979
6.9
5.9
32.6
82
1980
7.1
6.5
35.2
84
1981
7.5
7.2
36.1
90
1982
7.8
7.9
37.0
97
1983
8.1
8.5
38.1
101
1984
8.2
9.6
40.1
109
1985
8.1
10.7
42.4
115
1986
8.0
11.5
44.8
117
1987
8.0
11.8
47.3
113
1988
7.9
12.6
50.2
114
1989
7.9
14.0
53.2
119
1990
8.0
15.5
56.0
126
1991
8.1
17.0
58.2
133
1992
8.4
18.3
61.2
136
* Indexed (1970 = 100)
Source: Motor Vehicle Manufacturers Association: Facts & Figures
These figures show that the average age of trucks in use was climb-
ing steadily through the early 80's, whereas it had been dropping through
the 70's, and has resumed its climb currently. The same must be said,
even more emphatically, about the trucks 12 years old and older. Mea-
sured another way, the proportion of the nation's fleet of trucks 12 years
old or older which was dropping through the 70's has been climbing
since the watershed of 1980 — the 1992 ratio was 170% higher than the
trough in 1975!
478
APPENDIX D
CALIFORNIA DEFINITION
CHAPTER 2.7. INTEGRATED INTERMODAL SMALL PACKAGE
CARRIERS
Article 1. General Provision and Definitions
41.20. For purposes of this chapter, "integrated intermodal
small package carrier" means any person or corporation that
transports by motor vehicle packages or articles weighing not more
than 150 pounds and that provides, by itself or through a company
affiliated through common ownership, intermodal air-ground
transportation service for the packages or articles in both
interstate and intrastate commerce. The incidental or occasional
use of aircraft in transporting packages or articles does not
constitute integrated intermodal operation within the meaning of
this section.
ATTACHMENT 1
479
BEFORE
THE
UNITED STATES HOUSE OF REPRESENTATIVES
PUBLIC WORKS AND TRANSPORTATION COMMITTEE
SURFACE TRANSPORTATION SUBCOMMITTEE
HEARINGS ON
PREEMPTION OF INTRASTATE MOTOR CARRIER REGULATION
STATEMENT OF
JOHN V. LUCKADOO
VICE PRESIDENT TRAFFIC
FREDRICKSON MOTOR EXPRESS
3400 NORTH GRAHAM STREET
P.O. BOX 5369 (28225)
CHARLOTTE, NORTH CAROLINA 28206
704/376-2471
480
My name is John V. Luckadoo, Vice President Traffic of
Fredrickson Motor Express, Charlotte, North Carolina.
Fredrickson is vehemently opposed to Section 211 of Senate Bill
S. 1491.
Fredrickson is a motor carrier of general commodities handling
primarily less than truckload shipments. Fredrickson is a
carrier of long standing that has operated continuously since
1919 providing same and next day service for seventy-five years.
It is still owned by the Fredrickson family making it one of the
oldest family owned carriers in existence today.
In this service area, we maintain and staff 31 full service
terminals. We own and operate 575 tractors, 1545 trailers, and
80 straight trucks. This represents an investment of more than
$20,000,000. For seventy-five years Fredrickson has attempted to
tailor its service to meet the needs of it's customers. Next day
service is a necessity in our service area. Individual shipper
needs require same day service in many instances, necessitating
pickup and delivery at all hours of the day and night.
Fredrickson maintains an on-time record of 99.7 percent, one of
the best in the industry.
For the year 1993, our gross operating revenues were $52,669,051.
Forty-two percent of this was derived from handling intrastate
shipments. Needless to say, intrastate commerce is a vital part
of our business, it is also a major contributor to our ability to
481
meet the needs of our thousands of customers.
Fredrickson provides employment to more than 1,300 employees.
This represents approximately 4,500 family members who depend on
us for their livelihood. Their well being as well as that of
Fredrickson will be jeopardized if Section 211 becomes law.
Fredrickson is the largest as well as the oldest intrastate
carrier in the State of North Carolina. We hold Certificate No.
1 from the North Carolina Utilities Commission. In the year
1993, our North Carolina revenues were $23,315,029. I believe
this will rank us near the top of the nation for single state
intrastate revenues. Since North Carolina revenues play such a
large role in our operations, I will discuss in length the
present regulations and their benefits to the shippers and
carriers .
Intrastate Regulation of motor carrier service within the state
of North Carolina has had a beneficial effect on both carriers
and shippers alike, benefitting the people of the State of North
Carolina as a whole. It became obvious that the current scheme
of interstate regulation was adversely affecting intrastate
commerce. The number of available intrastate motor carriers was
declining while the remaining carriers were fighting for
financial stability. This was recognized by the North Carolina
Traffic League, an organization of both large and small shippers
in North Carolina, which saw the steady depletion of available
482
motor carrier service and decided it had to end. Shippers
recognize that motor carrier service is vital to the flow of
their products in commerce. Working with the carrier members of
the North Carolina Intrastate Rate Committee which, through the
State's regulatory scheme, provides antitrust immunity for a
forum for the free flow of ideas between shippers and carriers, a
plan was proposed to the North Carolina Utilities Commission,
which acted as the public advocate. The plan would insure that
the carriers would have reasonable, yet sufficient revenues to
operate, while the shippers could depend upon continuous,
efficient service at reasonable prices.
This process could only have happened under the State's
regulatory scheme which provided a forum for shipper-carrier
interaction while protecting the public interest. Shippers and
carriers were able to work out mutual problems to the
satisfaction of all parties. In this case, the people of North
Carolina were the real winners as goods freely flow in commerce
through a network of financially stable, efficient carriers.
Pricing is reasonable and nondiscriminatory. This could only
happen through the regulatory process.
Without regulation, the system now in place in North Carolina
could not continue and would, in fact, collapse, bringing to
realization the worst fears of the North Carolina Traffic League.
Rates will no longer be cost-related. Rather than attempting to
establish a level playing field for shippers by prohibiting rate
483
discrimination, federal preemption, if implemented, will serve as
a signal that all is fair in negotiating rates. The level of
individual shipper-carrier rates will reflect the economic power
of the individual participants. The North Carolina LTL carriers
will be reduced in number, and those remaining will be constantly
struggling for financial stability.
Who really benefits from these price wars? The loudest voices
demanding federal preemption or deregulation - the big shippers
and the big carriers. The big manufacturers, suppliers, and
retailers will dictate the rates knowing that regardless of the
number of trucking bankruptcies, there will always be another
carrier willing to accept the shipper's freight - albeit on the
shipper's terms. The small, out-of-the-way shipper will pay the
price, and communities will lose service. The big carriers will
take only the best freight, leaving the small shipper with no
service option at reasonable rates.
Regarding the issue of whether some communities will lose service
in a deregulated environment, one need only look at the Bus
Regulatory Reform Act of 1982. The proponents of that Act
ignored the warning of the potential loss of bus service to rural
America and insisted that enough safeguards were built into the
bill so that few rural communities would be affected. However,
once the ICC, through its preemption powers, was allowed to
supplant the authority of the State Public Utility Commissions,
it was another story.
484
Even with those so-called safeguards, the State of North Carolina
saw the number of communities with intercity bus service decline
from over 600 in 1982 to fewer than 125 in 1986. This equates to
an approximate 80 percent decline in communities with intercity
bus service in the first four years after passage of the Act.
Moreover, the two major bus carriers that existed prior to the
Act - Trailways and Greyhound - have merged to form an effective
monopoly that was forced into bankruptcy. The public interest is
not served by these happenings.
Who will be the losers in a deregulated environment if federal
preemption becomes a reality: The small and rural shippers who
either cannot find reliable motor carrier service or when they
do, end up paying the carrier' losses resulting from discounts
given to the big shippers. The carriers who will find themselves
in price wars for the limited amount of freight. The American
public which once again must bear the cost of unemployment,
bankruptcies, debt, and deteriorated safety.
With respect to highway safety, it offends common sense to claim
that the extreme competitive pressures already brought about by
interstate deregulation have not led to cutting corners in the
areas of safety and maintenance, which in turn shows up in higher
accident rates. The facts as reported in a January, 1991, report
of the General Accounting Office noted that the Federal Highway
Administration work load date show that the number of carriers
entering the marketplace in any one month can exceed the number
485
that underwent safety reviews. For those carriers that the
highway agency did inspect, the GAO indicated that 70 percent
received a less-than-satisf actory rating. To avoid further
deterioration, Congress will need to consider additional funding
and manpower for that purpose.
To contend that the federal preemption of State economic
regulation of motor carriers is a positive action is
inappropriate as an al 1 -encompassing general statement. The
State of North Carolina is in the best position to determine what
is best for the people of North Carolina - not the federal
government. It is just plain wrong to contend that what is right
for one State is necessarily right for another. We know that
it's not true for North Carolina.
As I understand the provisions of Section 211 as approved by the
Senate, only carriers meeting certain criteria would be exempt
from state regulations. For instance, a motor carrier that is
affiliated with an air carrier through common ownership would be
exempt. On the other hand, family owned carriers such as
Fredrickson, whose only source of revenue is through their motor
carrier operations, would continue to be regulated. How unlevel
can a playing field be? This would be a big windfall for the
large conglomerates that also operate motor carriers that
aggressively solicit and handle intrastate traffic. In North
Carolina alone there are two such carriers that in 1993 had
revenues in excess of $12, 683,300 from handling intrastate
486
traffic. With the help and financial assistance of their parent
companies, I shudder to thing what is inevitable if Section 211
becomes law.
There is thought in Congress that to level the playing field, all
state economic regulation of trucking should be deregulated or
preempted by the federal government. It is felt that this would
place all carriers on equal terms. Nothing could be further from
the truth. A company like Fredrickson could not compete with the
pricing practices of the large national carriers with deep
pockets. Anyone who thinks that predatory pricing couldn't or
doesn't exist in the motor carrier industry hasn't had any
working experience in the industry. There are already a number
of well run, well managed trucking companies that have been
forced out of business by forces outside their control. Total
deregulation of intrastate motor carrier transportation would
only magnify the problem. Old time family owned companies like
Fredrickson would become an endangered species. That is a plain
fact of life.
We have no objections to the Airport and Airway Improvement
provisions of this bill, but since the Senate chose not to hold
hearings on the Section 211 provisions, we urge the House to move
slowly and cautiously on this. For instance, has it been
ascertained what portion of the Nation's intrastate commerce is
AIR FREIGHT? My estimate, based on more than forty years in the
motor carrier industry, is that it would be less than one
487
percent. This is taking into consideration the fact that a
tremendous portion of so called AIR FREIGHT moves over the road
via truck from point of origin to the consignee's door. The
freight never sees an airplane. Yet, for a select few, the other
ninety-nine percent would be disrupted. If Congress must pass
something, restrict it to shipments weighing 150 pounds or less
and then only when moving all or part way via air.
The intrastate market place is far different from the interstate
marketplace. The demands for service are greater, the shipments
are usually smaller and the piece count per shipment higher.
This result is higher unit cost unless there is sufficient
traffic over each lane to cover the carrier's expense. With the
influx of new carriers and the expansion of the existing carriers
that would be exempt, I see nothing but chaos in the market
place. The little shipper stands a chance of being forgotten in
both service and pricing. There will be excess capacity
resulting in higher operating cost for the carriers competing for
the same traffic. Whatever legislation is enacted into law, if
any, will not generate one single pound of additional freight for
the industry. It will only further dilute the existing traffic.
Fredrickson, for reasons stated herein, is opposed to federal
preemption of state regulations and Congress should not pass
Section 211 unless it is amended as previously outlined above.
Federal preemption is improper and totally unnecessary. The
individual states are in the best position to determine the
488
transportation needs of the intrastate shipping and receiving
public. As we have shown, North Carolina has made changes for
both shippers and carriers. Other states have made or are
considering changes.
The enactment of Section 211, in my opinion, will result in the
loss of many good paying jobs at Fredrickson, as well as the loss
of health care and other benefits. The number of employees that
we are able to sustain, their rate of pay, health care, and other
benefits are contingent upon the volume of business available. I
see nothing but a decrease in business and higher operating cost
for our company. The public interest is not served by such an
occurrence.
Respectfully submitted,
(/(Z^^Z^sd
ohn V. Luckadoo
Vice President Traffic
JVL:pag
489
STATEMENT OF TIMOTHY J. MAY
GENERAL COUNSEL
THE PARCEL SHIPPERS ASSOCIATION
BEFORE THE SURFACE TRANSPORTATION SUBCOMMITTEE OF THE
PUBLIC WORKS AND TRANSPORTATION COMMITTEE
UNITED STATES HOUSE OF REPRESENTATIVES
JULY 20, 1994
My name is Timothy J. May; I am General Counsel of The Parcel Shippers Association, a
group of approximately 200 businesses which sell merchandise by direct mail and deliver that
merchandise to their customers by common carrier or by the Postal Service.
The concern of our Association is the inclusion of Section 211 in the Senate version of
the Federal Aviation Administration Authorization Act of 1994 (the "Bill"). Section 21 1
preempts state regulation of the intra-state trucking operations of what the Bill calls "inter modal
all-cargo air carriers" and their affiliates. That Section further defines that term in such a way
that only United Parcel Service (UPS) and Federal Express Company meet that definition and
therefore would be exempt from state regulation of their intranstate traffic.
The members of our Association are largely dependent upon UPS for the shipment of
their merchandise to their customers. Except for the United States Postal Service's parcel post
service, our members find that there is, as a practical matter, no competition to United Parcel
Service for their business. (Our members also make some use of Federal Express for expedited
or express shipments, but find that, at least, there are a variety of competitors to Federal Express
for that service.) In the most recent survey conducted among our members, less than 1% of the
volume of their shipments were carried by a carrier other than United Parcel Service or the U.S.
Postal Service.
490
-2-
So far as our members are concerned UPS has a monopoly over their business. It has
always been our belief that it was a serious mistake to deregulate UPS in the Motor Carrier Act
of 1980. The premise of that Act was that the protection afforded to consumers by the Interstate
Commerce Commission (ICC) would be more than adequately supplied by competition in the
marketplace if the heavy hand of regulation were removed. It is clear the Congress was unaware
that, as a practical matter, there simply was no competition to UPS, and, despite the free entry
opportunities for -competitors since 1980, there remains no competition to UPS for our business,
except the parcel post service of the United States Postal Service.
UPS had 1993 revenues of almost $18 billion, carried almost 3 billion parcels, and
employs 285,000 people. This monster transportation company, the largest in the world, is, for
most of that revenue and for most of those billions of parcels, free of regulation by any
regulatory authority in the United States, and for much of that traffic has no competition. The
only remaining regulatory power over UPS is that asserted by state public utility commissions
against the minuscule portion of their traffic that is intra-state.
While the ICC maintains some nominal regulatory authority over UPS, it is significant to
note that not once since the enactment of the Motor Carrier Act in 1980 has the ICC investigated
any single tariff filed by UPS. This is so, even though UPS has filed for rate increases year after
year far in excess of the rate of inflation, and in some cases as much as 40% to 50%.
It is perfectly clear that Section 21 1 has no place in a reauthorization of the Federal
Aviation Administration. This Section was added to the Bill only after it was voted out of
Committee. This was simply an attempt by UPS to avoid the burden of proof and the exposure
491
-3-
of this as special legislation favoring one company that public hearings would inevitably bring
out.
While regrettably the state public utility commissions have no authority to examine into
the inter-state movements of UPS traffic, there is some measure of protection against the
monopoly power of UPS by reason of the fact that that portion of their huge volume of business
performed on a purely intra-state basis is subject to some level of scrutiny and review. These
state regulatory proceedings are the only available opportunity for UPS customers to air
grievances and find some impartial body to require accountability from this largest transportation
company in the world.
Section 2 1 1 will provide no relief for the small carriers who are operating intra-state who
will continue to be burdened by state regulation and who, unlike UPS, are regulated as well by
the fierce competition for the kind of business they handle on an intra-state basis.
It is ludicrous for UPS to suggest that the minimal amount of state regulation presently
asserted against their purely intra-state activities constitutes any meaningful burden on inter-state
commerce. The state regulatory activities are, if anything, a minor irritant to this transportation
Goliath.
Our Association completely endorses the testimony of John Medved, the CEO of Current
Inc., a long-time member of our Association. Mr. Medved speaks for all of our members and I
urge that you listen carefully to his testimony about how important to his company it is that
there is some regulatory authority somewhere that can call UPS to account and require them to
demonstrate that their rate increases are fair, reasonable, and nondiscriminatory.
492
-4-
On behalf of our hundreds of members who are completely at the mercy of UPS, we urge
you not to compound the mistake made in the Motor Carrier Act of 1980 by removing the last
remnant of a public authority to which the world's largest unregulated monopoly must answer.
493
STATEMENT OF JON J. MEDVED
PRESIDENT AND CfflEF EXECUTIVE OFFICER OF CURRENT, INC.
BEFORE
THE SURFACE TRANSPORTATION SUBCOMMITTEE OF
THE PUBLIC WORKS AND TRANSPORTATION COMMITTEE
UNITED STATES HOUSE OF REPRESENTATIVES
WEDNESDAY, JULY 20, 1994
My name is Jon J. Medved. I am President and Chief Executive Officer of
Current, Inc. ("Current"). Current is a direct marketing company located in Colorado
Springs employing approximately 2,500 individuals. Annually, Current ships in excess of
19,000,000 parcels to its customers throughout the US Consequently, Current is vitally
interested in any Federal legislation with the potential of upsetting the marketplace for
parcel delivery services, in which marketplace Current routinely shops. Section 21 1 of the
Senate version of the Federal Aviation Administration Authorization Act of 1994 (the
"Bill") has such potential, and for this reason I am pleased on behalf of Current to have
this opportunity to present my views on why your Subcommittee should prevent the
inclusion of Section 21 1 in the final version of the Bill.
1. The Anti-Competitive Effect of Section 211 Section 21 1 of the Senate
version of the Bill would preempt state regulation of the intra-state trucking operations of
certain "inter modal all-cargo air carriers" and their affiliates. Section 21 1 defines "inter
modal all-cargo air carriers" in such a way that for all intents and purposes United Parcel
Services Inc. ("UPS") and Federal Express Co. are the only carriers who would qualify for
the exemption from state regulation. The question arises whether an exemption pushed by
this elite class of two is the proper subject of Federal legislation If enacted, Section 21 1
would place the much smaller competitors of these two giants at a tremendous
disadvantage because the intra-state trucking operations of these smaller competitors
would continue to be subject to state regulation. UPS already controls 80% of the small
494
parcel delivery market nationally. If competition is to be fostered, a level playing field
must be maintained.
2. State Regulation Provides an Important Check Against the Sheer
Market Power of UPS. In Colorado, UPS holds a "certificate of convenience and
necessity" issued by the Public Utilities Commission ("PUC") which has enabled UPS to
build a formidable intra-state parcel delivery business under a system of "managed
competition." In addition to the rights, including the right to be free from destructive or
excessive competition, which UPS enjoys as the holder of its certificate, Colorado imposes
on it certain obligations intended to protect the public interest. One of these obligations is
that UPS establish rates that are "just and reasonable" and that do not unreasonably
discriminate between classes of service. Colorado, like many other States, has
implemented a regulatory process which requires common carriers such as UPS to notify
the public of proposed new tariffs for intra-state services and which provides interested
parties the opportunity to protest the proposed rates on the basis of the "just and
reasonable" standard.
Earlier this year, for the first time ever, Current elected to exercise its right as a
Colorado rate payer to protest the latest rate increases proposed by UPS for intra-state
ground shipments. Current was concerned by the fact that the rates it was required to pay
for the delivery of its typical parcel to Colorado residential customers had increased more
than 80% over a four year time period from 1989 to 1993. Over the same time period
UPS had increased it rates payable for commercial delivery in Colorado of the same size
parcel by only 49%. When UPS proposed new increases in its rates for 1 994, Current
asked that the Colorado PUC suspend the implementation of the new rates and schedule a
hearing to consider the reasonableness of the proposed increases and whether or not any
cross-subsidization was occurring between the residential and commercial delivery
segments of UPS's business.
V
495
Based upon the findings developed at the hearing, the Colorado PUC recently
ruled that UPS has not met its burden of proving that the proposed new rates are just and
reasonable. In its ruling, the PUC expressed its concern that the cost allocation methods
used by UPS do not justify the differences it charges for residential versus commercial
delivery services. The matter has been remanded to an administrative law judge for a
further hearing. Enclosed with this testimony, is a copy of the Colorado PUC's decision
It has come to my attention that UPS may be citing the recent action of the
Colorado PUC as a reason to enact Section 211. Current would argue just the opposite.
The recent action taken by the Colorado PUC is precisely why Section 2 1 1 should not
become law. The regulatory process in Colorado is fair and appropriate It provides
public utilities such as UPS every traditional element of due process and an ample
opportunity to protect its rights and prove the justness of its rates. If UPS cannot prove
that the rates it proposes to charge Colorado consumers for purely intra-state Colorado
services are just and reasonable, it should not be heard to complain to the Federal
Government that it is somehow unfairly burdened.
The argument that UPS should be entitled to impose uniform rates within the
various states should be given little weight. As the chief executive of a multi-state
business, I can attest to the fact that the ideal of uniformity in the US is often sacrificed in
the interest of state sovereignty With respect to taxation, for instance, businesses
engaged in inter-state activities are routinely required to comply with a multitude of
varying tax rates and rules that make the costs of doing business different and unique in
each State. Furthermore, UPS has recently pursued a policy of entering into private
customized agreements with some of its largest customers. By definition, the rates
charged these preferred customers are not uniform with the rates paid by the general
public.
3. Section 211 Encroaches State Sovereignty. Section 2 1 1 would preempt
a State from exercising regulatory authority over the purely intra-state trucking operations
496
of the elite class of "inter modal carriers." The power to regulate intra-state transportation
systems has historically been exercised by the States. In the words of James Madison:
"The powers reserved to the several States will extend to all the objects which, in the
ordinary course of affairs, concern the lives, liberties, and properties of the people, and the
internal order, improvement, and prosperity of the State." The Federalist Papers No. 45.
Promoting an efficient intra-state ground transportation system is such an object.
If the public is denied a state forum to advance legitimate issues regarding critical
local transportation issues how will these issues be resolved? Since the Motor Carrier Act
of 1980 stripped the ICC of authority to regulate these matters, the public will be left to
fend for itself in a market place dominated by companies wielding monopoly power such
as UPS.
In conclusion, I respectfully submit that because of its anti-competitive
implications and the serious questions it raises with respect to the sovereignty of the
States, I urge you to remove Section 21 1 from the final version of the Bill.
497
SENT BY=DENMAN & ASSOCIATE • -, «,.
ulukmliu rJir MULIA,tf,.^.'w7-15;94 ;_4:13PM j
719 531 2666;# 2/11
(Decision No. C94-942)
BEFORE THE PUBLIC UTILITIES COHK18SIOM
OP THE STATE OF COLORADO
INCREASED KATES AND CHARGES FOR
THE TRANSPORTATION OF GENERAL
COMMODITIES BETWEEN ALL POINTS IN
TEE STATE OF COLORADO FILED BY
UNITED PARCEL SERVICE, INC., IN
SUPPLEMENT NO. 10 TO INDIVIDUAL
PARCEL TARIFF NO. 301-K, COLORADO
PUC NO. 9, SCHEDULED TO BECOME
EFFECTIVE FEBRUARY 7, 1994.
DOCKET MO. 948-C60CY
COMMISSION ORDER ON EXCEPTIONS
Mailed Data: July 15, 1994
Adopted Data: July 13, 1994
BY THlt COMKlBBIONt
This . Matter cones before the Colorado Public utilities
commission ("Coasission") on axeaptions filed by Current, Inc.
("Current") , to Reeomaended Decision No. R94-560. For the reaaone
•et forth below, we will remand the docket to tns adainiatr stive
lav judge for further proceedings conelete&t with this Decision.
PXMDXMGB OP FACT AMD CONCLUSIONS OF LAW
X. UPS has not justified its dual rata structure.
On January 4, 1994, United Parcel Service ("UPS") filed with
thie Commission Supplement No. 10 to Individual Parcel Tariff No.
aoi-B, Colorado PUC No. 9, proposing to increase rates end charges
for the transportation of general commodities between points within
the state of Colorado. The proposed tariff contains, among other
85-090 95-17
498
SENT BY:DENMAN & ASSOCIATE . -, .-
,uuU.^.1„J^1™*!, * A^auLlATES __; 7-15-94 ; 4:13PM ;
719 531 2666;# 3/
rates, a rat* differential between commercial and residential
euatemers. UPS arguaa that costs for residential service are
higher than for business customer* because, on average, the number
of paakagea picked up at a raaldanca la lover than for
businesses.1 OPS argues that because most of its packages are
small (i.e., 80 percent are 20 pounds or leea), the number of
packages is the most-end only— important factor for allocating cost
of service.
Current intervened and contests the rate differential proposed
by UPS. Current asserts that the rate differential is
discriminatory, arbitrary, and oapricious because it does not
fairly reflect the coat of these services.2 The shipper asserts,
and ve agree, that in general, differencea in rates should be
supported by differences in costs of services, Mountain otstes
legal foundation v. Public Utilities Camaiemion, 590 P. 2d 496
(Colo. 1979). To support its claim. Current asserta, and UPS
concedes, that the rate differential is not based on any actual
tracking of costs. Moreover, UPS also oonoadee that eemmarcial and
residential packages are picked up, processed, and delivered in the
1 are sahlblt 6, pege 4-a. This ret* differential wee previously asasoaod
In an «neent*at*d epelieetloa filed last year, Th* Oocnolaalon appro* ad that
application after receiving data from ops to eubatantlat* thoa* ooata. However,
tela la th* first tie* OPS'e data he* been eubjeotad to the rlgora of trial
ajcaslnat iea .
* SB egr*e with tb* admlalatratlve law judo* that the lean* befoc* tae le
whether the retee are Juet end reasonable. SO* RaooaBended Daoiaion So. R94-S60,
et t, f9. Bowavsr, to th* axtent tha adainletratlva lew judge eoncludea that th*
quaatlon of whather It la appropriate to have a dual rata ■tractor* la not at
ieaua here, we dlsegrea. Tb* ceaaalaalon baa th* authority to Modify the amount
of tha rat* dlf Beseatial in the dual rate structure that haa baen approved ainoe'
1*91 if the record in the eaa* oontelna competent end parauaelv* evidence.
- 2 -
499
M .WJDBWAN & ASSOCIATES ; 7-15-94 ; 4:14PM ;
719 531 2666 ;# 4/1
mm way. Despite these similarities, UPS proposes that th© rete
for residential deliveries be higher than for businesses primarily
because of the difference in delivery time for eaoh stop.3
Current argues that VPB'b per~package allocation methodology
ignores relevant fact or a that can be used to allocate coats sore
fairly.
For example, current argues that the weight of packages is e
relevant consideration for allocating eoets between businesses and
residential customers. The record establishes that business
packages are, on average, heavier (average weight 11 pounds) than
residential packages (average weight 6 pounds). Heavier business
packages nay be more costly to deliver then residential packages.4
If this ie true, allocating costs only on a par-package basis may
not capture the true cost of service* Current also raises issues
of efficiencies of the residential class that were not adequately
addressed by UPS. Mor were we persuaded that VPB'b sample sites
were statistically valid. These samples were offered to the
Coamission as important justification or its allocations. Vet, ups
had not bothered to determine whether the also waa statistically
valid. This is unacceptable and Is part of the reason that we find
that UPS ham failed to carry its burden of persuasion.
1 stie d»t« used to support thu assertion w»« national average data.
* OPS witness Patrick Bdaonds testified that the heavier a package is, tea
larger it tends to ba. Slven that larger packages utilise aore of ths delivery
track space, it is reasonable to conclude that heavier peekagaa ooat sore and aay
regjaira the driver to use a hand truck in the delivery, thereby using sore tlse.
This analysis "«* .reiterated by staff witness Oary Ceaby who teetlf lad that the
heavier the package is the sore likely it la to cost core to deliver. However,
because of the lack of iaf creation froa UPfi, Mr. Oatnby could no* confine that
this analysis was borne out in practiee.
"- 3 -
500
.^T.ByjDEMJAN & ASSOCIATES _i 7-15-94 ; 4 = 15PM ;
.719.531 2066:1 S/ll
Moreover, ops expert Patrick Edmonds testified that ups has
etxidJ.es which have tracked cost. UPS has performed etudies which,
Cor example, measure the tine it take* to per fore various
accessorial services. Those studies include an analysis of "sash
on delivery" ("C.o.D."} services provided to residences and
businesses. UPA also has performed studies that relate the ales of
the package to Its weight and uaed these stadias to develop ooat
allocations. (Tr. SSf lines 12-19.) Mono of these etudles,
however, wars produced at the hearing, and there was no explanation
why they ware not relied upon In setting rates.
UPS has the burden of persuasion in this proceeding. See
Rule 82 of the commission's Rules of Practice and Procedure,
4 CCS 723*1. The Cowalssion, baaed on lssuea raised by Current but
not adequately addressed by ups, questions the justness and
reasonableness of the rata structure imposed by UPS on the
residential class. We are not persuaded that the rata differential
based on a single factor is fair, just, or reasonable. Thia is
particularly troubling in light of the fact that UPS has apparently
conducted-but not used-cost studies that address son* of the
factors raised by Current. UPS does not explain why the studies
were not used. We are left with only one factor, the nuaber of
packages, agalnat which to allocate costs. While this ultimately
nay be the only appropriate allocator of costs, we are unable to
reach that conclusion based on the evidence in thia record.
Currant does not dlepute that the labor costs Included in the
proposed business rate increase are reasonable.
- 4 -
501
SENT BY--DENMAN & ASSOCIATES • 7 is <m • xisdu .
-ulukmuu rui_ •»»»«i«ica , 7-15-34 . 4:15PM ;
itL.juj-o^-^uj JU1 XmJ ,„"* i^.m!1?, 531^2666;)
Typically, when a utility rails to beet its burden of
persuasion regarding its rate structure , the coaaiesion pemanently
euapends the tariffs. However, in thie case, that remedy is not
appropriate. We cannot determine the amount of the increase end
spread it proportionately over ell rates. Existing rates have e
similar general rate differential that Current objects to here.
Spreading the increase proportionately over existing rates simply
perpetuates a rate structure that we have found has not been
justified at this time.
Finally, we do not believe that the record is sufficient for
eliminating the rate differential. While such a rate design may be
beneficial to residential ratepayers, it aay be unjust and
unreasonable to business customers. Therefore, ve will remand the
ease to the administrative law judge to conduct a hearing to allow
the parties to elaborate on their positions.
We are aware of the fact that UPS is a company operating
worldwide, and that its rate structure and prices have already been
approved in 48 states. Ws do not know whether the ragulatlng
authorities in those 48 statea were faced with a contested
proceeding as we have been. We do not take lightly the
discontinuity created by our decision. However, this fact alone
does not negate our duty to oarefully weigh the evidence before us
according to our Rules of Practice and Procedure and to render a
decision based on that evidence.
- 5 -
502
J^.BYjDENMAN & ASSOCIATES ; 7-15-84 ; 4: 16PM ;
-719 §31 2666; * 7/11
t. OPS'* estimate of mom-labor oosts is mot supportaa by the
»— ori*
Currant also takes issue with the uea of labor ooats as a
proxy for non-labor expenses in setting the revenue requirement.
She record is devoid of any juetif loation for using labor costs to
estimate non- labor expenses. When asked why this method was used,
ops witness Patrick Edmonds responded that there is no harm in such
an approach because he believed non-labor indices show non- labor
costs have increased sore than labor costs. There is no
documentation that establishes this assertion. Moreover, Current
expert witness Janes Cvelioh testified that the year-to-year
compounding growth rate for residential rates is not juetif led when
compared to the Producer Price index.
in addition , the Commission is concerned that the increase in
labor rates falls to account for productivity offsets that may have
occurred. See Mountain states Telephone ft Telegraph Co. v. Public
atllitles Commission, 687 P. 2d 416 (Colo. 1984 r Mountain States
Telephone 6 relegrapa Co, v. Public Utilities Coaaiasion, 576 P. 3d
844 (Colo* 1976) 1 and Mountain States Telephone ft Telegraph Go. v.
Public Utilities commission, SIS P. ad 721 (Colo. 1973) . Therefore,
we find that UPS has failed to carry its burden to persuade us that
the non-labor costs have increased*
As with the rata differential issue, we will remand this issue
to the administrative law judge to allow the parties to develop the
record further on this issue.
- 6 -
503
wSff.5L:SB3"!*S & ASSOCIATES ^ 7-15-84, j 4:16PM
_719 531 2686;*. (
a* VPS'* allocation of aooeeeorial revenues is not *ue tided by
the record.
The last issue raised by Currant concerns UPS 'a accessorial
charges. These are miscellaneous charges for such things ea C.O.D.
delivery, dalivary oonfimation, and address correction. ups
proposes to allocate the revenuaa generated from thaea serviees on
a per package bee is. That Is, ups calculates the total Intrastate
accessorial revenues and divides this by the irastber of intrastate
paokeges. This per package figure is then multiplied by the number
of businesa and residential packages to eatlaate tha revenue
generated for both of these classes of service. UPS does not track
the generation of revenues to either of the two classes of service.
It oould be, for exaaple, that the majority of C.O.D. revenues are
generated by the residential class.* Thus, there is no basis in
this record to determine whether UPS' allocation of revenues
between classes is a fair proxy for how revenues ere actually
generated. Nor are we satisfied that this per package allocation
leads to a fair allocation between intrastate and Interstate
revenues. St may, but the record fails to justify this allocation.
Current argues that residential package delivery actually
generates a higher proportion of accessorial revenue. Therefore,
any proper allocation of revenues to justify e rate differential
between two classes of service must be on the basis of tha real
sources of those revenues. In other words, to determine the net
3 Mr. Edaonde of Cera tb*t the accessorial charge* era uaed by beta baeinaac
and reaidaasiai elaeaee. However, we find th*t. thlt observation is anecdotal.
«hli testimony is not precise, and cannot be ralied upon to eat ratea whleb are
just and reasonable.
- 7 -
504
9U\\ Di-ua\flwii et aoav/uiHico , t-io-oi i *-lftn i -> 713 531 2666;# 9/11
revenue required to be derived froa the residential rates, the
total actual costs of that eorvioe waist, be reduced by the eotual
eooeesorlal revenues from residential sarviee. Me, therefore,
oonoluds that, contrary to witness Patrick Bdaonds' assertion,
there is a valid purpose for allocating aoeessoriel revenues by
Class of service.
Again, we vill remand this lsaue to ths administrative law
judge to allow the parties to develop the record further on this
issue. If , in fact, higher accessorial revenues are generated by
the residential rate class, this higher contribution to revenue
requirement should be offset against the allegedly higher costs.
If the revenues generated by accessorial services are higher for
business customers or, as assumed by UPS, are equal, UPS'a
calculation way be correct. However, the evidence offered by UPS
did not support its conclusion or address Current's rebuttal. He
are left with an inadequate body of evidence upon whiah to base our
decision.
Again, as we have done for the rata differential issue, this
issue will be reaanded to the administrative law Judge for the
parties to further develop their positions in light of ear
discussion here. Further proceedings end consideration on remand
Will be conducted before an administrative law judge of the
commission on August 11, 1094 at 0 a.m. in a Commission Bearing
Beoa, isao Logan street, Offics Level (OX.) 2, Denver, aalorado.
- 8 -
505
-*Si\L.J?.1Jli1J,J'^?y <* "JJVA-llllLO
l-l<J-it* i fi.1
THKRKTORK THE COMMTSSIOW ORDERS THATi
1. The exceptions of Current, Inc., ere granted, In pert.
Reoonaended Decision No. R94-560 ie reversed, in part, end the
aatter ie remanded to the administrative lev judge for proceedings
consistent with this Decision.
3. Further proceedings end consideration on reaand shall be
conducted before an administrative law judge of the Cosnieeion at:
TIKE: 9 a. a.
DATE* August 11, 1994
PlACEi Commission Hearing Rooa, Office Level (OL) 2
15B0 Logan street
Denver , Colorado
This order is effective upon its Mailed Data.
ADOPTED IN OPEN MEETING July 13, 1994.
THE PUBLIC UTILITIES COMMISSION
OP THE STATE OF COLORADO
ROBERT J. HIX
CHRISTINE B. M. ALVABBK
Coaaissioners
COMMISSIONER VINCENT MJUEOMSKI
DISSENTING.
- 9 -
506
no uoi 4UOu.»n/u
fifflniTgBTOIfSS VTMCBMT KAJTKOWBKI DISSB.TIMQS
X respectfully dissent. Z do not concur with »y colleaguee on
this Decision* X support the decision of the adainietrative law
judge and the position of the Staff of this coaaiseion. x aa of
the opinion that UPS's requests were just and reasonable, and in
ths public interest. X would not reaand but totally affira the
adainietrative lav judge decision.
< 1 1 *i )
THE PUBLIC UTELXTJCBS COMMISSION
OF THE 8XATB OF COLORADO
VINCENT KAJKOW8KI
Coanieeioner
UJOtl a TRUE COPT
/5...*. *£-
Bruce M. Saith
Director
- 10 -
507
OREGON TRUCKING ASSOCIATIONS, INC.
5940 N. Basin Ave. • Portland, OR 97217 • (503) 289-6888 • FAX (503) 289-6672
MICHAEL A. MEREDITH TESTIMONY:
SB 1491 and Federal Preemption of State Trucking Regulations
My name is Michael Meredith and I am president of the Oregon Trucking
Associations. I am here today on behalf of my members who have asked me to
represent our state's trucking industry which is comprised of 28-thousand carriers,
providing good family-wage jobs to nearly 89-thousand Oregonians.
The current threat in Congress to preempt a state's right to regulate intrastate
trucking is of grave concern to us for a number of reasons.. .not the least of which is that
we believe states must be able to continue to regulate -- or not regulate - our industry
as best suits their citizens' particular needs.
The current deregulation proposal contained within Senate Bill 1491 will prove
disastrous for small businesses and consumers. Let me explain some of the key
reasons why...
• Small towns and smaller shippers will become the victims of price
discrimination.
As a result of interstate deregulation, off-the-beaten path locations and smaller
shippers who have little clout with carriers now pay premium prices while larger
companies receive heavy discounts - for the same service! With intrastate
deregulation, state regulatory agencies will no longer be able to ensure that all
trucking customers receive fair treatment. Small businesses - which employ almost
90 percent of our state's - and our nation's - workforce will be competitively
disadvantaged as a result of being forced to subsidize large corporations' shipping
discounts.
• Currently-viable small trucking companies will be plunged into
bankruptcy, throwing tens of thousands of Americans out of work.
Interstate deregulation resulted in widespread trucking company failures. In
fact, motor carrier bankruptcies reached an all time high of nearly 1 ,600 in 1990 alone.
The result was thousands of employees losing good, family-wage jobs. Intrastate
deregulation inevitably will result in predatory pricing by the largest carriers which will
drive thousands of small- and medium-sized companies out of business, forcing tens
of thousands of Americans out of work.
• Shoestring trucking operations will become rampant and states
won't be able to ensure that companies are financially stable and safe.
Deregulation of trucking will destablize the marketplace. Both the shoestring
operations intent on undercutting the competition and the existing companies plunged
in financial distress due to that undercutting will have fewer dollars to spend on safety
and maintenance. Companies in dire financial straits also are more inclined to speed
and violate hours-of-service rules in order to stay afloat financially. As a result, the
motoring public will face increased danger on the road. In fact, a 1991 GAO study
revealed that trucking companies in the weakest financial condition have the highest
accidents rates of all trucking operations.
508
Oregon Trucking Associations
Testimony - page 2
• Rural areas will no longer receive adequate shipping and delivery
of critical goods and services.
Two-thirds of Oregon's communities rely solely on trucks for delivery of their
essential goods. With intrastate deregulation, our small towns that are located outside
of the more profitable freight corridors will lose crucial, cost-effective delivery of these
goods. The service that would remain to those areas would cost far more, creating a
financial hardship for residents - particularly for those in already hard-hit,
economically depressed communities. Current intrastate regulations ensure that
Oregon's rural regions receive reliable service at a fair price.
• States will lose the ability to protect their citizens who rely on the
trucking industry for safe, dependable shipping services at a reasonable
cost.
Each state has different needs regarding transportation services and it is only
appropriate for state legislators and other officials to have the right to tailor their
intrastate regulations based on what they deem to be in their citizen's best interests. In
Oregon in recent years, state legislators have debated the issue of economic
regulation three times.. .and all three times, they have reaffirmed their commitment to
maintaining regulation of intrastate trucking. They have determined that regulation is
in the best interest of all Oregonians.
###
In closing, the Oregon Trucking Associations Board of Directors and members
urge you to prevent federal preemption of intrastate trucking regulations. Otherwise,
the toll on our industry, our economy, our small towns and small businesses, and our
highways will be devastating. The price for all of us is simply too high to pay.
Thank you.
Michael A. Meredith, President & CEO
Oregon Trucking Associations
5940 N. Basin Ave.
Portland, OR 97217
(503) 289-6888
509
AAMA
1401 H Street, N.W., Suite 900 • Washington. DC 20005
American Automobile Manufacturers Association Tel No. 202-326-5500 • Fan No 202-326-5567
Andrew H. Card, Jr
President and Chief Executive Officer
July 19, 1994
The Honorable Nick J. Rahall, U
Chairman
Subcommittee on Surface Transportation
Committee on Public Works and Transportation
B-376 Rayburn House Office Building
Washington, DC 20515
Dear Mr. ChaJ^afl:
Re: S. 1491, Section 211, State Economic Regulation of Motor Carriers
The American Automobile Manufacturers Association (AAMA) supports the
provisions in Section 211 of S. 1491, Federal Aviation Administration Authorization
Act of 1993, which would preempt state economic regulation of intermodal all-cargo air
carriers. Further, AAMA would encourage the Subcommittee on Surface Transportation
to endorse the provisions in Section 211, as adopted by the Senate, and expand those
provisions to apply to all federal and state economic regulation of the motor carrier
industry.
The elimination of all federal and state economic regulation of the motor carrier
industry is necessary for U.S. industry to compete effectively in a global market.
Regulatory reform is the avenue by which competitiveness, efficiency and productivity
in the motor carrier industry can be accomplished. The motor carrier industry became
more competitive at the federal or interstate level when the Motor Carrier Act of 1980
became law.
A 1994 Cato Institute study, Intrastate Trucking: Stronghold of the Regulators,
concluded the following regarding the removal of economic regulation at the federal and
state levels:
"Removing federal economic controls on trucking brought an estimated
savings of from $38 billion to $56 billion a year in shipping, merchandising
Chrysler Corporation • Ford Motor Company • General Motors Corporation
510
-2-
and inventory costs. Removing state economic regulation of trucking could
save American businesses and consumers an additional $5 billion to
$12 billion a year."
Further, the Cato Institute study found the following with regard to motor carrier
industry safety and service to small communities after the removal of economic
regulation:
"Opponents contend that service to small communities will decline
drastically and that cutthroat competition will compromise highway safety.
Study after study has proven those charges baseless. Safety standards, not
economic regulation, are the appropriate means of ensuring safe trucking.
Attempts to do so by economic regulation are both ineffective and
expensive."
AAMA urges the Subcommittee on Surface Transportation to endorse the
provisions in Section 211 of S. 1491, as adopted by the Senate, and expand those
provisions to apply to all federal and state economic regulation of the motor carrier
industry.
Sincerely,
Robert E. Moss
Vice President
Government Affairs Division
511
US HOUSE OF REPRESENTATIVES
THE SURFACE TRANSPORTATION SUBCOMMITTEE OF THE
HOUSE PUBLIC WORKS AND TRANSPORTATION COMMITTEE
STATEMENT OF THE OREGON PUBLIC UTILITY COMMISSION
ON
THE AIRPORT AND AIRWAY IMPROVEMENT ACT (S. 1491)
JULY 20, 1994
COMMISSION CHAIRMAN
JOAN H SMITH
COMMISSIONERS
RON EACHUS
ROGER HAMILTON
550 CAPITOL ST NE
SALEM OR 97310
(503)378-6611
512
The Oregon Public Utility Commission expresses its strong
opposition to Section 211 of the Senate amendment to the
Airport and Airway Improvement Act (S. 1491). If this
amendment becomes law, it would destroy much of Oregon's
intrastate motor carrier regulatory system and the benefits it
provides to the citizens of the state.
The Senate amendment creates unfair competition. Sponsors
argue that its purpose is to "level the playing field" between
UPS and FedEx. The amendment may put those two carriers on an
equal competitive footing along with a few large interstate
carriers by virtue of affiliation with intermodal all-cargo air
carriers. The end result, however, is that a majority of
carriers would remain under regulation and would be unfairly
treated. This amendment does not come close to creating an
equitable operating environment for all; rather it creates a
most unfair transportation system.
The decision to economically regulate intrastate commerce is
for the states to make. Each state should be allowed to decide
the type of regulation that meets the needs of its residents.
States are socially and economically diverse and the federal
government should not dictate state policies by preemption.
513
Statement of the Oregon Public Utility Commission
July 20, 1994
Page 2
RATES
Oregon's regulation ensures that trucking companies assess
rates that are reasonable and nondiscriminatory. All shippers
and receivers are charged fairly for intrastate service. The
trucking companies receive fair compensation for their services
ensuring that they can continue to invest in plant and
equipment. This fosters stable and reliable transportation
services that are available to all businesses. Virtually
everything that is transported in this country moves by trucks
somewhere in the distribution chain. Oregon and other states
should be allowed to pursue fair treatment of shippers and
receivers and provide stability in transportation services
through continuation of our regulatory program. The Senate
amendment would clearly not permit this.
SERVICE
Oregon's motor carrier entry policy ensures that all Oregonians
receive satisfactory service. This is an essential ingredient
for balanced economic development. Regulation is especially
critical in Oregon because two-thirds of the state's population
514
Statement of the Oregon Public Utility Commission
July 20, 1994
Page 3
is concentrated in eight metropolitan counties. The remaining
population is scattered throughout 28 other counties. Many
communities are not served by large interstate carriers, so
freight must be interlined with local carriers possessing
intrastate authority. So, in effect both interstate and
intrastate shipments are hauled to these points only by
carriers regulated by the state.
As a result of the state's regulation of routes and service,
intrastate carriers provide good service at reasonable rates to
geographically remote Oregonians. Federally mandated
deregulation would jeopardize the quality of life and economic
viability of Oregon's many small communities. Unquestionably,
the Senate amendment would force Oregon to abandon this
program. It simply would not work to impose regulatory
responsibilities on carriers with intrastate authority that
serve rural Oregonians while their exempt interstate
counterparts selectively capture other profitable business.
Under deregulation, sooner or later carriers would be forced to
reduce or eliminate present service to unprofitable points.
515
Statement of the Oregon Public Utility Commission
July 20, 1994
Page 4
SAFETY
The Commission believes there is a close connection between
economic regulation and safety. Unfettered competition
directly results in reduced safety compliance. Under
deregulation, marginal carriers frequently disobey safety
regulations such as those relating to equipment maintenance and
hours of service. Other carriers, to remain competitive, are
encouraged to do the same. This scenario is a fact of life in
interstate commerce. Oregon wants to prevent similar safety
compliance problems for intrastate trucking companies.
Those promoting deregulation often state there is no connection
between safety and economic regulation. This defies common
sense. A carrier facing bankruptcy will cut expenses where it
can. Safety is the first to go for many such carriers. A 1991
study by the U.S. General Accounting Office found evidence that
financially healthy motor carriers are safer operators than
financially marginal carriers.
516
Statement of the Oregon Public Utility Commission
July 20, 1994
Page 5
If economic regulation is eliminated, it is not an effective
option to promote trucking safety by simply increasing safety
staff. Oregon alone has almost 28,000 carriers registered to
operate in the state. It is far more prudent to promote safety
for all these carriers by creating an atmosphere where carriers
are financially capable of compliance with safety regulations.
In truth, an effective motor carrier safety program depends on
both economic and safety regulation.
TAXATION
Motor carriers in Oregon pay a weight-mile tax for using
Oregon's roads. This taxation is the most fair to the public
because it ensures that everyone pays according to the level of
use and damage caused to the roads. Carriers generally report
their miles operated and resulting tax on a monthly basis. The
Oregon PUC audits carriers for compliance every two years. By
forcing PUC to deregulate motor carrier transportation, the
Senate amendment will create a competitive atmosphere that will
result in some carriers underpaying taxes and thereby avoiding
their fair share of the costs to maintain Oregon's roads.
517
Statement of the Oregon Public Utility Commission
July 20, 1994
Page 6
SUMMARY
In Oregon, we have promoted a stable competitive environment
for regulated carriers so that businesses in all parts of the
state receive safe, adeguate, economical, and efficient service
at reasonable, nondiscriminatory rates. The result has been to
promote economic development and at the same time preserve our
guality of life. Adoption of Section 211 of the Senate
amendment to S. 1491 will destroy this program. We therefore
urge the rejection of this amendment by the House of
Representatives .
nm/2516NN
518
Statement of J. Michael Payne
President and Chief Executive Officer
Truck Renting and Leasing Association
Mr. Chairman, the Truck Renting and Leasing Association appreciates this
opportunity to submit the views of its membership on proposed intrastate motor carrier
deregulation.
TRALA is the national trade association serving the U.S. truck renting and leasing
industry. TRALA represents over 600 member companies engaged in full-service truck
leasing and short-term commercial and consumer truck rental. Collectively, our members
are responsible for almost 40% of all new truck registrations for medium and heavy-duty
commercial trucks. 1993 industry revenue was approximately $15 billion, with 100,000
employees.
Because of the importance of the issue of intrastate motor carrier deregulation to both
our members and our customers, TRALA has been carefully monitoring the progress of
various deregulation proposals considered by Congress. TRALA's customer base is
composed primarily of private motor carriers, who must currently contend with a complex
and confusing array of state regulatory burdens imposed upon their transportation activities.
Therefore, TRALA is deeply concerned over any broad-based federal preemption of
intrastate motor carrier regulation mat does not extend to private carriers.
TRALA is also concerned mat its own members which are engaged in the business
of dedicated contract carriage, and those who may wish to provide this service offering in
519
the future, will be similarly disadvantaged in the marketplace when competing with
companies that are deregulated. Dedicated contract carriage is the process by which a truck
leasing company or other company providing this service, will assume complete
responsibility for the transportation operations of another business, thus freeing that
company to concentrate on other areas of their business operations.
TRALA in no way opposes legislative efforts to eliminate burdensome economic
regulation of motor carriers, including the Senate's current legislation as encompassed in
Section 211 of the Airport Improvement Act, S. 1491. TRALA has long been a proponent
of legislation to eliminate overly restrictive regulation of our industry, most prominently, a
bill sponsored Congressman Pete Geren (H.R. 1077, the Private Carrier Equity Act) to
remove regulatory burdens on private carriage. However, piecemeal deregulation that gives
regulatory relief to some, while leaving others to continue to contend with these
impediments, would create severe competitive disruptions and inequities among private
carriers and others not granted the benefits of deregulation.
As Section 21 1 is currently written, some TRALA member companies would qualify
for deregulation, some companies may have the ability to qualify, and others would not be
able to do so.
Inclusion of motor carrier deregulation within an aviation bill arose from the Senate's
desire to bring about regulatory relief for the air package express industry. The Senate
language was subsequently broadened. If enacted in its present form, the result of Section
211 of the Airport Improvement Act would be complete economic deregulation of those
— 2 —
520
motor carriers which are able to meet certain qualifying standards, as defined by Section 211.
These standards require a company to: (1) hold itself out as an indirect air cargo carrier; (2)
affiliate with an air cargo carrier or an air freight forwarder; or (3) utilize 1 5,000 air-surface
shipments annually or affiliate with a company that does so.
Many have argued that private carriers and others could easily qualify by simply
positioning themselves as indirect air cargo carriers, as those requirements are defined under
14 CFR § 296.3. However, it is impractical for most private carriers or truck leasing
companies to function as "indirect air cargo carriers." More importantly, Tm certain it is
obvious to the members of this subcommittee that in most cases, the only rationale for
offering such a service would be to qualify for deregulated status. The prospect of creating
hundreds, if not thousands, of new air freight forwarding operations solely for this purpose
approaches the absurd.
Another important distinction relating to the ability of private carriers to qualify for
economic deregulation under the provisions of Section 21 1 is their general status as "non-
transportation companies." The Section 211 provisions are directed to "transportation
companies." Most private motor carriers (fully 83%) do not possess operating authority to
provide transportation for others. There is considerable question as to whether private
carriers without operating authority would be eligible for deregulated status, even if they
were to meet the other qualifying requirements.
With the rapid progress and expansion of Section 211 in the Senate, and the
continuing trend toward further motor carrier deregulation among the states, the time may
— 3 —
521
be upon us for federal preemption of intrastate motor carrier regulation. If Section 2 1 1 of
S. 1491 is to be tile vehicle for change, we urge that the scope of its provisions be revised
to insure inclusion of private carriage. The language of Congressman Geren's bill, H.R.
1077, would accomplish this by lifting many of the outdated and unnecessary intrastate
economic regulations on private carriage, but would not preempt the current state regulation
of safety and insurance. Specifically, Congressman Geren's bill would allow private carriers
to: (1) haul goods for related companies; (2) use trucks and drivers leased from a single
source; (3) lease their own trucks and drivers to others carriers; (4) set up transportation
subsidiaries that could operate under die same rules as common and contract carriage; and
(5) use vehicles and personnel provided by another carrier to serve exclusively as a
company's private fleet.
In short, TRALA seeks die same comprehensive relief for its members and its
customers from intrastate economic regulatory burdens as that granted to other carriers
currently able to qualify under the Section 211 provisions. We believe there is no justifiable
rationale to overlook this very significant portion of the motor carrier industry as this
legislation moves forward.
Regulatory relief that discriminates among competitors is a recipe for long-term
business disruption in the motor carrier industry. TRALA urges the Congress to adopt
legislation that preserves a strong, competitive environment for all motor carriers.
# # #
— 4 —
522
My name is Weldon R. Sloan. I am Director of Commerce for TNT REDDAWAY
TRUCK LINE of Portland, Oregon. I have been actively involved in Oregon
intrastate trucking for nearly 50 years. My company is a less-than-truckload
carrier which serves four Western States. It has revenues of $100 million annually
and a heavy concentration of business within the State of Oregon where we
gross approximately $15 million a year. We employ 1,300 people -- of which 550
are domiciled in Oregon. Within the state, our intrastate freight movement is
governed by the Oregon Public Utility Commission,
TNT REDDAWAY vigorously opposes the amendment to the Senate version of
the Federal Aviation Authorization Act of 1993 as it would have the effect of
deregulating intrastate trucking by preempting State regulation. All truck carriers
can, or do, provide interline service in connecting with the many air carriers
serving Oregon. The entry of new, perhaps undercapitalized or irresponsible
operators would destroy the currently stable marketing and distribution system.
Through predatory pricing by these carriers, as well as by very large carriers, the
economic impact would be disastrous to what is now a well-governed and
effective system. There are also very strong concerns about safety issues of
unregulated carriers, as well as their financial responsibility for freight claims,
c.o.d. payments and the payment of highway taxes.
Oregon - outside of Portland, which is the major distribution center - is sparsely
populated. Under regulation, carriers are required to maintain equitable rates and
consistent daily services within the entire area, including service to hundreds of
small communities. Interstate services to these points have been maintained
because of intrastate regulation which requires service. However, this fairly
priced, consistent service would deteriorate rapidly with the proliferation of new
carriers who, like us, would find service to many of these points unprofitable.
Thousands of small shippers and receivers, as well as successful small carriers,
would be harmed by deregulation and this is not in the best interest of Oregon
523
TNTREDDAWAY
Page Two
or many other states.
Our present regulatory system in Oregon is working well... please do not destroy
it with this federal action. Maintaining State regulation is imperative. We
strongly urge your denial of the Senate amendment.
524
Before the
UNITED STATES HOUSE OF REPRESENTATIVES
SURFACE TRANSPORTATION SUBCOMMITTEE
OF
PUBLIC WORKS AND TRANSPORTATION COMMITTEE
HEARINGS ON THE SENATE AMENDMENT
PREEMPTING STATE REGULATION OF
SURFACE TRANSPORTATION (S.1491)
FEDERAL AVIATION ADMINISTRATION
AUTHORIZATION ACT OF 1994 (H.R. 2739)
STATEMENT OF MICHAEL SPURLOCK
ON BEHALF OF
THE OHIO TRANSPORTATION LAWYERS ASSOCIATION
AND 255 MOTOR CARRIERS
REPRESENTED BY MEMBERS OF
THE OHIO TRANSPORTATION LAWYERS ASSOCIATION
IN OPPOSITION TO THE SENATE AMENDMENT PREEMPTING
STATE REGULATION OF SURFACE TRANSPORTATION (S.1491)
Beery & Spurlock Co., L.P.A.
275 East State Street
Columbus, Ohio 43215
(614) 228-8575
525
STATEMENT OF MICHAEL SPURLOCK
ON BEHALF OF
THE OHIO TRANSPORTATION LAWYERS ASSOCIATION
AND 255 MOTOR CARRIERS
REPRESENTED BY MEMBERS OF
THE OHIO TRANSPORTATION LAWYERS ASSOCIATION
IN OPPOSITION TO THE SENATE AMENDMENT PREEMPTING
STATE REGULATION OF SURFACE TRANSPORTATION (S.1491)
I. IDENTITY OF PARTIES.
My name is Michael Spurlock and I am a partner in the law
firm of Beery & Spurlock Co., L.P.A., 275 East State Street,
Columbus, Ohio 43215. The firm has represented motor carriers
in excess of twenty years.
As a member of the Ohio Transportation Lawyers Association
("OTLA"), 2733 West Dublin-Granville Road, Columbus, Ohio
43235-4268, I have been authorized to submit this statement on
behalf of OTLA and the 255 motor carriers listed on Appendix A
("the 255 carriers") who are represented by members of OTLA on
Ohio intrastate commerce matters.
OTLA's membership is comprised of Ohio attorneys who are
actively involved in transportation law. Members of the
Association are involved in practice before the Public
Utilities Commission of Ohio, Interstate Commerce Commission,
Department of Transportation, and other agencies.
The 255 carriers are authorized by the Public Utilities
Commission of Ohio to transport various commodities between
various points in the State of Ohio. The 255 carriers
represent general freight and specialized carriers, including,
but not limited to, bulk carriers, steel haulers and courier
526
services. All of these carriers may be properly characterized
as small carriers in relation to the relatively few large
carriers that are supporting passage of the Senate amendment.
It is respectfully requested that this statement, which
has been distributed to the Subcommittee and other interested
parties, be incorporated in the record of these proceedings.
II. POSITION OF THE PARTIES.
OTLA and the 255 carriers strongly oppose enactment of
§211 of Senate Bill 1491. If enacted, §211 will effectively
preempt the states' ability to regulate motor carrier surface
transportation (except household goods) . Passage of this
Amendment would have a devastating effect on the motor carrier
industry generally and more specifically on the 255 carriers,
their employees and the many communities in Ohio which they
serve on a daily basis.
There is no shortage of intrastate motor carrier service
in Ohio. Ohio motor carriers compete head-to-head on service
and rates and accordingly, Ohio intrastate rates are extremely
competitive. This existing competitive balance would be
totally upset if §211 is enacted.
Many of the 255 carriers have sent letters to their
Congressmen expressing their fear that they will not be able to
continue operations if they are subjected to rate wars and
predatory pricing of the larger and financially stronger motor
carriers. Many other Ohio carriers have only received notice
of this proposed legislation from their OTLA counsel within the
2
527
last few days and have not had time to communicate their
opposition to their Representatives.
III. ARGUMENT.
S211 REPRESENTS EFFECTIVE DEREGULATION OF INTRASTATE
TRUCKING AND HAS MANY UNINTENDED SIDE EFFECTS.
§211 has been sponsored by the giants of the motor carrier
industry and will benefit only a few at the expense of
thousands of small to medium sized motor carriers throughout
the nation that provide vital services within each state.
Without any regulation of intrastate rates or entry, the
largest motor carriers will be able to invade a state, "skim
the cream" off the intrastate traffic by selectively cutting
rates and thereby drive the existing smaller competitors out of
business. §211, if enacted, will have set the stage for this
to occur without any effective notice to the existing
intrastate carriers.
The language of §211 is extremely broad and states as
follows:
No state or political subdivision thereof,
no interstate agency of two or more
states, and no other political agency of
two or more states shall enact or enforce
any law, rule, regulation, standard or
other provision having the force and
effect of law relating to rates, routes or
services of any intermodal all-cargo air
carrier when such carrier is transporting
property, pieces, parcels or packages
between states or wholly within any single
state by aircraft or by motor vehicles,
whether or not such property has had, or
will have a prior or subseguent air
movement . (Emphasis supplied) .
528
When §211 was first proposed, it was allegedly designed to
put UPS and Federal Express on a level playing field. However,
the language of §211 as passed by the Senate would effectively
preempt the states from regulating any aspect of intrastate
trucking (except household goods and safety) . This is true
because the definition of an "intermodal all-cargo air carrier"
includes an "indirect cargo air carrier", i.e., an air freight
forwarder. An air freight forwarder is not regulated and can
be established and qualified with relative ease. A motor
carrier qualifies under §211 if it is merely "affiliated" with
an air freight forwarder. Thus, virtually any motor carrier
may easily qualify as an "intermodal all-cargo air carrier".
Furthermore, §211 does not limit the exemption to
documents and small parcels which is normally the type of
traffic Federal Express and UPS specialize in handling. In
fact, it is not limited in any way to motor carrier
transportation that is related to air transportation. In its
present form, the exemption would apply to all types of
transportation, including the transportation of bulk
commodities in dump or tank trucks, truck load shipments of
steel and machinery, and similar specialized transportation
services .
While deregulation of the trucking industry by a rider
attached to an airport appropriations bill is bad enough, the
inescapable fact is §211 constitutes terrible legislation. The
bill has many unintended side effects. Because the preemption
529
language is so broad, it prevents the states from enforcing any
law "relating to rates, routes or services" of a motor carrier
"affiliated" with an air freight forwarder. This may include,
but is not limited to, laws relating to taxation, consumer
protection, antitrust, tort claims and cargo damage claims.
The federal courts have interpreted similar language relative
to airlines in 49 U.S.C. App. §1305 and have held that it
applies to far more than just regulation of economic matters.
In Morales v. Trans World Air Lines. U.S. , 112
S.Ct. 2031, 119 L.Ed2d 157 (1992), the Supreme Court held that
state laws prohibiting deceptive advertising were preempted by
§1305 and could not be enforced against airlines. Thus, state
laws are preempted if they have an effect on the carrier's
rates, routes or services.
§1305 has carved out an area in which airlines are exempt
from a wide variety of laws, including state common law. For
example, federal courts have dismissed state tort claims
against airlines, based upon the interpretation of §1305. See
Bauah v. Trans World Airlines. Inc.. 915 F.2d 693 (1990); and
Hodaes v. Delta Airlines. Inc.. 4 F.3d 350 (5th Cir. 1993). In
addition, §1305 has been held to preempt claims against
airlines based upon tortious interference with business
relations and unfair competition. Continental Airlines v.
American Airlines. 824 F.Supp. 689 (S.D. Tex. 1993).
State antitrust laws also would be preempted by the
federal legislation. Thus, only the federal antitrust laws
85-090 95-18
530
7
would be available to protect a small carrier from "predatory
pricing" by a larger carrier seeking to move into the
intrastate market as a result of §211's passage. Recent
federal court decisions in the predatory pricing area have
established high burdens of proof for plaintiffs in such cases.
This combined with the high cost and delay associated with
complex antitrust litigation effectively leaves the small
carrier without any protection. Thus, the enactment of §211
would effectively render the small carrier defenseless against
a large carrier's predatory pricing activities to gain
intrastate market share.
Clearly, §211 is ill-conceived, has been largely cloaked
in secrecy and is being rushed to judgment with little or no
investigation, deliberation or regard for the consequences.
OTIA and the 255 carriers respectfully request that the
Subcommittee not enact legislation which preempts state
regulation of trucking and allow sufficient time for a thorough
review of all the issues.
IV. CONCLUSION.
If §211 is enacted in its present form, serious economic,
social and legal consequences will flow. The Senate amendment
is ill-conceived and should be decoupled from the airport
appropriations bill. OTLA and the 255 carriers respectfully
request that further consideration of §211 be withheld until
such time as all interested parties have had an opportunity to
review the legislation and communicate with their
6
531
Representatives. The stakes are too high to allow this bad
legislation to be rushed to judgment. It is urged that this
Committee require S211 to "stand alone" and be scrutinized by
the shipper and carrier communities. To do otherwise in view
of the many unanswered questions and the apparent lack of
consideration for the consequences of the bill, would not be in
the public interest.
The intrastate trucking industry should be given an
adequate chance to be heard. At this point, many intrastate
trucking companies have just learned about the effect of the
bill and are only now beginning to communicate their opposition
to their elected representatives. Indeed, the fact that this
statement is being prepared and submitted at the last minute
bears witness to the fact that Congress has given inadequate
notice to the intrastate trucking industry and their counsel
concerning this very important piece of legislation.
Respectfully submitted,
By:
Michael Spur lock ^Esquire
On behalf of the Ohio
Transportation Lawyers
Association and 255 Motor
Carriers
Beery & Spurlock Co., L.P.A.
275 East State Street
Columbus, OH 43215
(614) 228-8575
532
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of Intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
V. G. Express, Inc.
340 Shoreland Drive
Walton, KY 41094
By. £2M*£1
<,*«&
Fax#: U0t> AtJL (r7/.r
533
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named oelow, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
PGT Trucking, Inc.
One PGT Way
P.O. Box 400
Monaca, PA 15061-0400
By: %h^^C<^j^-
FaX#*. 412-728-1852
534
July 8, 1094
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
JRB, inc.
P.O. Box 1386
Ashland, KY 41105-1386
By: U, 1 m,„l
Fax»: {Ol-JXf-IISO
535
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Customized Transportation, Inc.
P.O. Box 40083
Jacksonville, FL 32203
Fax#fa</) QOLR-/W
536
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Industrial Transport, Inc.
2330 E. 79th Street
Cleveland, OH 44104
Fax#: *.<fr - flf/- «?</?*/
537
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Leach Trucking Co., Inc.
649 Sunnyside Street
P.O. Box 820
Hartvllle, OH 44632
BV: j,r.; ■ i ff CSS*** ■& .C-
Fax#: ^yfr. g»7» 9(,(\
538
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Night Hawk, Inc.
P.O. Box 577
Ross, OH 45061
By:
Fax#: l-5l3-$fcO-<PVe9
539
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Cassandra Watson
P.O. Box 182
Ross, Ohio 45061
Fax#: 5 O %?>* a.Soo
540
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 211 of
U.S. Senate Dill No. 1491 which would preempt the states from
regulating trucking.
Ken's Transport, Inc.
17444 G.A.R. Highway
Montville, OH 44064
By: ^fitm tf fyudty.
Faxtf: gUi>' %g" $£&4
541
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
H.T.J.-Hall Trucking, Inc.
P.O. Box 585
1 308 Trenton Avenue
Findlay, OH 45840
85-090 95-19
542
July 8,1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of Intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the slates from
regulating trucking.
Bradco Trucking Service, Inc.
P.O. Box 160
210 Senate Drive
Monroe, OH 45050
543
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Ground Air Transfer of
Cleveland, Inc.
4350 Glenbrook Road
Wllloughby, Ohio 44094
"S JAME
PRESlDEN.
Fax#:
216-951-8076
544
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Transmobile, Inc.
P.O. Box 621050
Cincinnati, OH 45262
Fax#: SM>Q->\-2>fr-?2.
545
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of Intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Ohio Auto Delivery, Inc.
3509 Jackson Pike
P.O. Box 268
Grove City, OH 43123
*r.fjDfajU^ ft
Fax#: 4>M- 97 I - U?W
546
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Kuhnle Brothers, Inc.
14900 Crosscreek Industrial Pkwy.
Newbury, OH 44065
Bv: &£M~**^L^
Fax#: -2V* ^3^-/^:2.^
547
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Dart Trucking Company, Inc.
61 Railroad Street
P.O. Box 89
Canfield, OK 44406
By: "^w cz^?/ ft LS*ZZ)c£&
Fax#: Zl£-S3J-^Q
548
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of Intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
The Aetna Freight Lines, Inc.
P.O. Box 350
2507 Youngstown Road
Warren, OH 44482
549
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
T.F.I. Transportation, Inc.
10359 West South Range Road
Salem, OH 44460
Bv: , Xrtfr'Mf /yyyrv<rt/f ~
Fax#: j/o 3 37-6 773
550
July 6, 1904
To the U.S. Senate and Mouse of Representatives:
H^„?,1*,behaJf, ?' ?! comPanV earned below, I oppose
deregulation of Intrastate trucking and oppose Section 2 1 I of
%£&££. ,w whlch would preLpl - "^ «-
Herron Transfer Co.
1026 Franklin Street
Salem, OH 44460
fax#'.j£fe ' 332. ~^<>&^
551
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Geauga Courier Services, Inc.
10826 Sherman Road
Chardon, Ohio 44024
552
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of Intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Taubra Corp., d.b.a.
Mercury Service
21 85 Kershner Road
Dayton, Ohio 45414
553
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
J. P. Transportation Co., Inc.
3800 Tytus Avenue, Box 66
Middletown, OH 45042
554
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Iddings Trucking, Inc.
State Route 60, Box 388
Lowell, OH 45744
555
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of Intrastate trucking and oppose Section 21 1 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Sullivan Moving & Storage, Inc.
P.O. Box 605
Toledo, OH 43694
Fax#: ?/$ &/J-6W&'
556
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
deregulation of Intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
Priority Dispatch, Inc.
4665 Malsbary Road
Cincinnati, Ohio 45242-5645
w/4* ~
Fax#: £/3 ?£&~/W<9
557
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, I oppose
!SSSS 1491 whlch wou,d pre*mpt th* states <™
Retail Delivery Service, Inc.
d.b.a. RDS Delivery Service
1029 W. 7th Street
P.O. Box 14749
Cincinnati, Ohio 45250-0749
Fm&:&sj7lf-1VSf
558
July 8, 1994
To the U.S. Senate and House of Representatives:
On behalf of the company named below, S oppose
deregulation of intrastate trucking and oppose Section 211 of
U.S. Senate Bill No. 1491 which would preempt the states from
regulating trucking.
A. J. Welgand, Inc.
P.O. Box 130
Dover, OH 44622
Fax*: ^ -^7^-J-r^^
559
July 8, 1994
To the U.S. Senate and House of Representatives:
£fi*X££ ,491 wWch wouW -^ £M£
Great Lakes Cartage Company
P.O. Box 4704
Youngstown, OH 44515
ByiCfeLy. /? ^.^
Fax#:_^4179J.6505
560
July 12, 1994
To the U.8. S*net» end Houto of Rcproeentativoe:
On behalf of tho company namod betow, I oppose
deregulation of mtraetate trucking and oppoae Section 211 of
U.S. Senate Bill No. 1491 which would preempt the state© from
regulating trucking.
Montgomery Trucking Company
P.O. Box 21
WeHstan.OH 45682
Rw#s ^v<A~ T>x4- C1*(*>
561
July 19, 1994
Representative James D. Hayes
House Public Works and Transportation Committee
Room 2165 RHOB
Washington, D.C. 20515
RE: Federal Aviation Administration Authorization Act of 1994
(H.R. 2739) - Senate Amendment Preempting State Regulation
of Surface Transportation (S.1491)
Honorable Representative Hayes:
Ace Transportation, Inc. would like to submit comments on the
above-referenced bill and specifically address Section 211 of the
Senate amendment to the bill.
Ace Transportation, Inc. is a nationwide carrier of general
commodities with an emphasis on oil field equipment, supplies and
materials; heavy and cumbersome articles and commodities
requiring specialized equipment and/or high speed transportation.
We possess intrastate operating authority in the states of
Louisiana, Texas, Oklahoma, Mississippi, California, Georgia,
Kansas, Utah, Kentucky, Ohio and South Carolina. Our total
operating revenue for 1993 was $77,065,330.00 and our operating
ratio was 99%. We have approximately 1600 employees nationwide
with approximately 600 employees in Louisiana. Our intrastate
operations account for approximately 75% of our total revenue.
The total value of our intrastate certificates and permits is
$383,565.00. Ace Transportation, Inc. has reason to be concerned
with the effect of Section 211 on our industry. The deregulation
of intrastate motor carriage would be detrimental to our
industry and seriously damage our ability to provide adequate
service to the shipping public. What disturbs us the most on
this bill is the apparent attempt to settle a dispute between
United Parcel Service and Federal Express through a bill which,
on the surface, appears to have nothing to do with preempting the
individual states rights to regulate intrastate motor carriage.
Since 1887, the year when the Interstate Commerce Act was passed,
this country has prospered with the most efficient freight
transportation system the world has ever known. Since the
passage of this act (which was specifically designed to curb
railroad abuses) most of the states have passed laws governing
the conduct of transportation companies within the confines of
P. O. BOX 91714
Lafayette, Louisiana 70509-1714
(318) 837-4567
562
the individual state. The regulatory bodies created by these
laws have maintained efficient and effective transportation
industries in their states by controlling rates, entry, insurance
and business practices. By monitoring the financial stability of
the carriers under their jurisdiction, rates have been maintained
at levels that ensure adequate service and reasonable freight
rates to the shipping public. Also certificates of authority are
granted by the regulatory agencies that require carriers to
transport commodities for the public with no allowances or
rebates to any shipper. This provides protection to small
businesses by providing the same freight rates as larger shippers
with the same service levels. Regulations are in place that
require motor carriers to provide adequate insurance coverage,
through adequately capitalized insurance carriers, to ensure the
shipping public protection in the event of an accident. Motor
carrier regulation has provided efficient and responsive
transportation industries in both interstate and intrastate
commerce.
Why would Ace Transportation, Inc. support a regulated
transportation industry? Why would any regulated motor carrier
support regulated transportation? These two questions can be
answered from a historical point of view. The Interstate
Commerce Act and the resulting Interstate Commerce Commission
were created to control the monopolistic practices of the
railroads of the time. In the 1930's, regulation of motor
carriers began in both interstate and intrastate commerce to
ensure the monopolistic tendencies exhibited previously by the
railroads would not happen to the new motor carrier industry.
Since that time, motor carriers have become the largest and most
ubiquitous form of freight transportation. Through rate
regulation and the filing of rate tariffs, carriers had to charge
approved rates to all shippers for a particular class of freight
and those rates were on file and could be inspected by anyone.
This protected both the carrier and the shipper in case of rate
disputes. Entry into the transportation market was controlled to
balance the service levels of existing carriers with the need for
additional carriers. As the states grew and industry expanded,
carriers were required to expand or other carriers would be
allowed to compete, from a service standpoint, for the existing
freight. Since, the rates were regulated, carriers could only
compete by providing better service than their competitors.
"Public convenience and necessity" was required before any new
authority was issued. This system has worked, with
modifications, for the last fifty years. Without this system in
place, the shipping public would be forced to private carriage or
shipping their goods on under-capitalized and under-insured
motor carriers. Laissez-faire economic theory does not go well
with industries in which the initial start up costs are high and
the national interest is involved. That is why the banking and
power generation industries are regulated. Imagine the chaos if
anyone were allowed to open a bank or build a power generation
station without regulations. Further imagine the problem the
563
people would have if power generation and distribution companies
were not regulated and could assess any charge they wished. Our
predecessors saw the need for regulation of certain industries
even though these same people fought vigorously for free
enterprise. Thankfully, pragmatism prevailed over idealism when
this country started growing. Dealing with the regulatory
agencies in all of the states in which we have operating
authorities can be cumbersome but the alternative of no
regulation and the inherent dangers associated with uncontrolled
monopolies is unacceptable and not good for the shipping public.
State regulation of rates and entry seem to be the subject of the
deregulation effort. State economies are micro-economic examples
of the entire American economy. All the individual states have
unique transportation requirements. Factors such as economic
base, population, geography and climate determine what types,
sizes and number of transportation companies will be required by
an individual state. States with an agricultural economy have
different needs than a state that has an petroleum-based economy.
The state regulatory agencies are responsive to the needs of the
shipping public and regulate the rates and practices of the motor
carriers in their states. Rate regulation is important to both
the carriers and shippers. Rate regulation allows for
flexibility and a fair rate of return for the carrier without
discrimination for any class of shipper. As discussed earlier,
entry into a market is also important function of regulation.
There are many reasons why the deregulation of intrastate motor
carriers would be harmful to the economy of Louisiana. These
reasons could also be applied to any other state in which there
is some form of economic regulation. The results of deregulation
in Louisiana would be:
1. The State of Louisiana would not be able to collect the 2%
Transportation and Communication Tax that is presently
being assessed on the revenues on regulated intra-Louisiana
revenue. This amounts to a $5,000,000.00 to $6,000,000.00
per year. reduction to the state treasury. Also, many
states assess charges for trucks registered in that state
which is another source of revenue for the states. In an
age in which states are increasingly having monetary
problems, this lost income looms large.
2. A loss in jobs and reduction of salaries and wages on which
income taxes are based. It is inevitable that if
deregulation occurs, a "rate war" will erupt the likes of
which has never been seen before. Carriers will be forced
to compete for a finite amount of freight and the rates
will be reduced to attract the freight. Carriers will not
be able to afford to cut rates but some revenue is better
than no revenue. The winners in such a "rate war" will be
the large shippers for they alone will have the economic
power to obtain rate concessions and rebates. The losers
will be regulated motor carriers, their employees, small
shippers and rural shippers. Our industry operates on a 2%
to 3% before tax net income based on the existing rate
structure.
564
Ace Transportation, Inc. will be forced to limit service to
less profitable areas and make rate adjustments to maintain
the amount of freight we presently have. Many jobs will be
lost due to the reduction in revenue. The terminated
employees will seek unemployment benefits. Salary
reductions and wage reductions will also be considered.
If implemented, the tax base will be reduced due to
decreased earnings. Depending on the extent of the "rate
war". Ace Transportation, Inc. could lose 20% of our
workforce and salary reductions could be as high as 30%.
Deterioration of the rate structure will force existing
carriers to cease many unprofitable long-haul routes and
will force carriers to become regional where the economies
of scale can be realized through short-haul shipments. The
service of long-haul transportation will be much slower and
much more expensive.
Monopolies or large oligopolies will be created. With the
deterioration of the rate structure, volume will be
increasingly important. The small to medium size motor
carriers will be forced out of business or be made to
combine with larger carriers. The market dominance of
these large carriers will continue to increase. Since
Sherman Act cases are rare, monopolistic trends of these
large carriers will go unchecked. Eventually, the
surviving motor carriers will be able control the
transportation industry in a way rarely seen in history.
Higher rates will eventually result when the surviving
carriers, few in number, exhibit incredible market
dominance. Shippers will be forced to pay the higher rates
as the supply of trucks dwindles and the demand for motor
transportation increases. Shippers will have the option
of private carriage to avoid the higher freight charges but
the immense cost of equipment, insurance and labor will not
make this a viable option. The shippers will be forced to
pay the higher freight charges and will in turn pass these
increases to the consumers.
Truck maintenance will suffer through cost reduction and the
decrease in revenues to fund repairs to equipment. Even
though the Department of Transportation will keep the same
truck maintenance requirements, motor carriers will try to
maintain minimum safety levels but the reduction in
revenues will make this increasingly difficult.
Many motor carriers will look to minimize their insurance
costs. Second only to labor, insurance is the highest cost
facing motor carriers. Carriers will be forced to seek the
least expensive coverages offered. These low cost
insurance packages usually include high deductibles which
are dangerous, especially to the small to medium size
carriers. These carriers will hope that they have
no major cargo or liability losses or claims. Shippers
will not know there is a problem until they file a claim.
565
Presently, shippers have the regulatory agencies to assist
them in collecting unpaid cargo or liability claims.
Without regulation, the shippers will have to seek court
action at great cost in an attempt to have their claims
satisfied.
8. Ace Transportation, Inc. will have to reduce or eliminate
health benefits and employer contributions to the 401-K
plan. Reduced revenue and profit would make this almost
inevitable. I
History has taught us that radical deregulation of an industry
has resulted in economic hardship and reduced service levels.
When the airline industry was deregulated, fares and service were
reduced. Unless you depart from a large city, a airline
passenger has to change planes at least once (usually in a city
farther from the destination than when they began). Airlines
have been compelled to reduce service to remain competitive in
the prevailing "rate wars" that is being waged by competing
airlines. The fares are low between large metropolitan areas but
the fares from Lafayette, Louisiana are as high as they were
under regulation and the service has deteriorated. The airlines
are a good example of a deregulated industry gone bad but a
better example is the motor bus industry. There is only one
major bus company left operating and the service is poor. Motor
bus service is practically non-existent as is passenger rail
service. For a country as great as the United States, we have
practically no mass transit system. Deregulation has
de-stabilized the passenger system in this country. If we have
another oil embargo, I believe you will here a cry for a stable
mass transit system from the people.
In closing. Ace Transportation, Inc. does not support any federal
preemption of state regulation of motor carriers. If the
individual states wish to deregulate the intrastate motor
carriers in their state, the states should make that decision
based on the best interests of the shipping public. If it is the
intent of the United States Congress to deregulate intrastate
motor carriage, please do so on legislation that all interested
parties may participate in. To deregulate intrastate motor
carriage through the Federal Aviation Administration
Authorization Act to resolve a dispute between Federal Express
and United Parcel Service is not fair to the existing intrastate
motor carriers. Deregulation is not a panacea for the nations
ills. The motor carrier industry, in general, is in good shape.
Let the states decide what is best for the shipping public and
the motor carriers in their states.
Thank you for your time and consideration.
Respectfully) Submitt
Savid Stanley
Vice President - Regulatory Affairs
Ace Transportation, Inc.
566
BEFORE THE
UNITED STATES HOUSE OF REPRESENTATIVES
COMMITTEE ON PUBLIC WORKS AND TRANSPORTATION
SURFACE TRANSPORTATION SUB COMMITTEE
JULY 20, 1994
STATEMENT OF DURWOOD YOUNG
EXECUTIVE VICE PRESIDENT, PARKER MOTOR FREIGHT, INC.
GRAND RAPIDS, MICHIGAN
My name is Durwood Young. My business address is 1025 Ken-O-Sha
Industrial Drive, S.E., Grand Rapids, Michigan 49501. I am the Executive Vice
President of Parker Motor Freight, Inc. I have held my present position since starting
my employment with Parker nine years ago. As Executive Vice President, I have
overall responsibility for overseeing all aspects of Parker's operations, which means
I oversee operations, sales and marketing, and finance. I report to Mr. John H. Parker,
the company's President.
A lot of miles have been traveled by Parker Motor Freight, inc. (PMF) trucks
since 1927, when Harry's trucking began rather inauspiciously in Boyne City,
Michigan. Harry Parker started a trucking firm just before the Depression, with one
second-hand truck. The first certificate in PMF's records was issued on August 9,
1 927, by the then, Michigan Public Utilities Commission, authorizing service between
East Jordan and Petoskey, via Boyne City. The equipment listed was one 1 1/2 ton
Ruggles truck.
John Parker is the second generation of the Parker family. He began in his
parents' business while still in high school. A third generation of Parkers are now
1
567
active in Parker Motor Freight.
PMF has grown from its modest Boyne City beginning into a Midwest operation,
including Michigan, the Chicago area, northern Indiana and northern Ohio. Terminal
facilities are located at Petoskey, Traverse City, Cadillac, Grand Rapids, Saginaw,
Jackson and Warren, Michigan; Chicago, Illinois; Cleveland, Ohio; and South Bend
Indiana.
PMF currently employs 210 people and operates a modern fleet of 132
pickup/delivery and highway tractors, 6 straight trucks, 40 service trucks, yard trucks
and cars and 375 semi-trailers.
Parker had gross revenue of $17,475,000 in 1993, up from $15,454,000 in
1992. In 1993 the Michigan intrastate revenues of Parker were $9,383,000.
Michigan intrastate revenue for 1 992 was $8,655,000. Parker's net income in 1 993
was $275,000. In 1992 Parker had a net income of $44,000.
I wish to express my strong opposition to the Section 21 1 amendment to S-
1491, because this is nothing more than special interest legislation that is designed
to help the big carriers get bigger at the expense of smaller carriers like Parker Motor
Freight.
My experience in the industry extends from driver to Executive Vice President.
I now sit on the management side of the table, but earlier sat on the labor side. I saw
firsthand what happened to trucking companies on the federal level when motor
carrier deregulation occurred in 1 980. It was a financial disaster. Companies which
had been in business for years could not survive rate wars which had no logic or
568
reason to them. As their revenues decreased, their safety program deteriorated. A
driver on the road can increase his productivity in two ways -- by driving faster or
driving longer. One of the initial impacts of this proposal will be a rate war to
establish market share, creating an unstable rate structure. An unstable rate structure
puts that kind of pressure on drivers and carriers. Such should not be the case.
Management also has to make choices, when dollars are scarce. It is too easy to take
those dollars out of maintenance programs and safety programs. It is too easy to take
funds which had been allocated for equipment replacement, and use them to pay the
rent or meet the payroll. Having in place a sound rate structure, which provides
adequate return to carriers, prevents these kinds of things from taking place.
Michigan has a class rate system for common carriers that is subject to Public
Service Commission review. This is the general price level that the LTL common
carriers use for both single line and joint line service to all places in Michigan. This
rate scale provides rates that vary according to shipment weight, distance and freight
classification. This system does not discriminate between large shippers and small
shippers, nor between major metropolitan centers and rural areas. Given the same
weight, distance and class, the rates are the same for any two shippers. This non-
discriminating, publicly filed, reasonable class rate system will be destroyed by
complete intrastate deregulation. The few surviving carriers will not be obligated to
serve small businesses and rural areas at the same rates that they give to big
shippers.
This price and service discrimination will adversely impact Michigan's small
569
businesses, especially in outlying communities in the lower peninsula and in the entire
upper peninsula.
Every geographic region has its own characteristics that have to be given
consideration in any transportation debate. Michigan is a two peninsula state
connected by a bridge. Any major east-west thoroughfare has to be abandoned to
enter Michigan and despite its heavy industrial base, Michigan is not a part of the
north-south configuration. The Michigan Legislature has dealt with these issues in
their deliberations resulting in modern regional regulations applicable to Michigan
operations.
If this Section 21 1 provision becomes law, I believe that chaos would prevail.
It would be an end to rational pricing in Michigan. There would be a very real
incentive for the largest, strongest carriers to price at predatory levels the most
attractive traffic, siphoning that traffic away from smaller carriers like Parker. The
resulting rate wars could very well mean the demise of reliable, responsible carriers
such as Parker, which has provided years of commitment to the shipping public in
Michigan. I do not believe that the public would benefit nor would the transportation
policy be furthered by such a result.
I urge Congress not to pass the Section 21 1 amendment. The Michigan Motor
Carrier Act has been amended several times, most recently in 1 993, to meet changing
market conditions. There is no need for the Federal Government to change what the
Michigan Legislature has overwhelmingly approved for our state.
Intrastate deregulation will cause good companies like Parker to lose a rate war
570
with the big carriers, resulting in the loss of good paying jobs that have good
employee benefits.
If this Section 21 1 amendment becomes law, I can say without hesitation that
small trucking companies will lose customers to the big carriers and in many cases
small companies will go out of business. In the 90's, trucking is very competitive in
all segments of the industry. I see no reason why a few large carriers should benefit
by this special interest legislation while thousands of small trucking companies, their
owners, employees and their families suffer the dire consequences.
5
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