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Full text of "Legislation to preempt state motor carrier regulations pertaining to rates, routes, and services : 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"

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- 
ment 1 
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 N OT 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 ISSIUng U 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 ^ 2fr 5HB?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 

Ckarl e .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 
nmUwuV d ogkc 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 Bo d o t e d ii our aaamanentHi memotafldnm from BUI Pollard, one of our motor 

ttM& BODPOmlet iL 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 m n r kote. 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 
depe nd en t to a formidable one, SmpUflrarlon may coma at dm price 
of mu e w iy 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 > **Bp l Bf > 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&ic malfy 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 co mm e nts 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&crni aHt iee. White federal uaa of the 
Int e rs ta te eo uimor ec 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 oc onflnrttH here. 

Beit reyrrti, 



Doutlw N. Janet 
Phoetoi aoJ I Vofc a eoa 

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. W T hich 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. W T e 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 Theo ry (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 Servic e 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 



199 



- 2 - 



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 shipper 1 ? , 
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 



- 3 



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 



202 



- 5 



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 



- 6 - 



This concludes my statement. I will be happy to answ&t 1 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 c arriers 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 RESPONSIBILITIE S 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 



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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 



- 



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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3H Ford Motor Compan, 4T * T 



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 c arriers 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 m a in tai n 
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. 



238 



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 
m ai n te n a nc e, 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 Academ y <~>* S ciences 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 option 2 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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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 Prob lem 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 Re gulation 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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296 



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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297 



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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298 



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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299 



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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300 



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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301 



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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302 



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 Moto r 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 Fre ight 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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303 



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. 



- 13 - 



304 



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. 

- 14 - 



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. 

- 15 - 



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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308 



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 Imp ortant 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 
5 RO 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 IMIIM W 1 *. 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 d r ivers 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 



-3- 
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 



-4- 
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 



-5- 
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 A Hmipis tration 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 UPS 1 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 UPS 9 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, UPS 1 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 UPS 1 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, UPS 1 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 



Driving Harder 

t a & a As UPS Trieste Deliver 
J a S ■ More to Its Customers, 
|1 g * Labor Problems Grow 

3 S S ■ fVork Force Resists Measures 
r ff2 Finn Deems Necessary 
i^sf In a Competitive World 

£• ■ .» packages Go Under Left Arm 

By &1SSZT Pcaks. 
8Wflo««W T*« »«u. «-. wr i lirmi " 
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 
eff kJeoty . 

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. OP S bag- aad ui) tta 

IhfeWJttrSflBHJUfUUl^ fTWflrajTy M thS-IDr* 
ABB. With OBBi RfOBtflr IUS MJtoO, 

of cstee fast of its ensf irssL Phteial 
ri|i M *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 
bea d e d farnssre cunly is sj oii ln wn i 

A erownsj asjaabai oi ctssmsaics abare 
the plight. Paced with taeraascd caeapett- 
ttan, they are Ja sjaejhljt 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 Sa i e i e uuK . 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 

. TbfhaiiiatDPSaregBtac tol 
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 
Hcl n e i, TtBjtnnii asd chief cxBCUBia. 
"We try to be earacsf txstto be uacalr aod 
ask as paspl* to do ssore." 

SOC bears! e ther UPS asa esjtiwa say. 
Oat nacd fer nsare sstshssttflb/ hi \ 
Me. un st9i tt k thdnr i 



aas > ^**n f r 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 ^^** l Tr 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^uU b m . 
especaijy wK& The uiuputy ^ nu nty tb- 
the i 
to ha 
and nssw hna wjay jead a. 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. Year s back* a ke i isu 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 prospe ctor, wha 
Ranssed toe flna as a Mcycteinnnsnarer 
terflea In an. Frees Ma n tanatera. 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 a aaBhjBn hi . 
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. UPSde ll i ety Oil re ta . 



They ere HnVBhsT as rehaL 

nanp h ajno 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 p i n ii u ii m tis mi nr 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, UM a uiu n U e. has besooK tbe 
fdree to the U.S. deDrery bast- 
WH nH* 1 28JM t ruMan d «H air- 
ffaft OtoennspanyoovcrasirBhlinGce than 
thyce^oortltt of the ground-parcel market 
la ass Ui sad ta a groensn; force is 
as KApt e as with about a qsarier of tbe 
IsasaaesB (raufbry half as nsseh as Federal 
sosstecsl. acaxTitng to Csaajrauoy Gross 
lac- an ait ' aleictt rgaharch 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 r i itn s spjrn e a of heated 
QOaVpMzOOO crmn cobcbbb rvuv sues u 
Be*-'»ay Packace Serrate, or 8?S. Thai 
ii amimt— .intmni mea n t f ht r rfri raft 
uutisiaw toadduiialujliasnlearficaai 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 u e li ia jiug 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!!! nB lJi! 
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, tJP SJs 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 inimifmen t 
"shall not tnflmMtit, harass, coerce or 
pretty supervise any enipla yae." 

Worker strife even has extended over- 
scae. «berc UPS ha baa marc t han « 
bUBoa in recent years, la Spain , driv ers 
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"t wnnaea t 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'-r 1 — * 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. W w l uUHtt y 
,£**? 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 
umiuu BB i MOad route, ptwa. More and 
mete pweksea haw special handling and 
Oil lili 1 l e ujihi iii ii il a . a nd 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 o ur la st 
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 T esaumi and a fonaer UPS dr rver: 
•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 Wor taeaal and Smit h 
in the oaspaBya first aaBoaaali mite 

Tie aw da y wattout prevad eoatty. 
UPS m*—*— it hat nmre tha n 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. "When ever I 
ttQ an RPS guy anmadtec' nts ffucc I know 
ttaee are p a Uaga 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 



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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 . 



-3- 



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 



-4- 



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 P ublic 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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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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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 



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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. 



-6- 



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. 



-7- 



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. 

-8- 



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 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. 



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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 

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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, x the 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 1 4 , — Code of Federal Regulations, — as 
in effect on March 1, — 199 4 , 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. 



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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 



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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 legiti