The year 1980 saw the beginnings of pricing innovations in the railroad and trucking industries, as decades of federal regulation began to crumble:
A major shipper in the Midwest contracted to pay a premium rate for faster service when the railroad guaranteed the delivery schedule and agreed to pay rate penalties if the contract was not kept.
A coal shipper signed a 20-year contract and paid some money up front to get the railroad to upgrade the track used for the service.
A major brewery expanding its market in the West received a reduced rate on westbound beer shipments by guaranteeing a 50 percent increase in volume and permitting its assigned cars -- which usually were returned empty -- to be used for moving California wines and canned goods eastward.
A household moving company in this area threw away the old weight-based pricing method and now charges customers on cubic capacity used in the trucks, enabling the consumer to see -- rather than guess -- if the rate charged is accurate. If the customer contracts for special service, the moving company guarantees delivery on a certain date, or the customer is moved free.
Trucking companies have begun to offer independently filed, freight rates -- arrived at outside the collective apparatus that traditionally has set trucking rates. Some firms have started offering discounts for multiple shipments.
These examples, culled from year-end reports by the Interstate Commerce Commission and the Association of American Railroads, represent the beginning of significant changes in the railroad and trucking industries as companies began to take advantage of liberalization in federal government regulation.
In 1981 -- the first full year the trucking and rail industries operate under new legislative mandates stressing competition -- more changes are expected. Although the ICC had been moving toward liberalization on its own, the new laws codified the changes, quieting -- at least to a degree -- complaints by the trucking industry that the agency was violating its legislative mandate. In contrast to the trucking world, the railroads by and large supported deregulation.
Already, the ICC has begun issuing regulations implementing various provisions of the rail and trucking deregulation-minded laws, and more will follow in the next few months. The rest is up to the carriers.
The Motor Carrier Act of 1980, which was signed into law by President Carter on July 1, pares back 45 years of extensive federal regulation of the trucking industry. It makes it easier for new trucking companies to enter the business and for existing firms to expand their services, gives them more freedom to raise or lower freight rates without government intervention, gradually limits the antitrust immunity that now enables competing truckers to agree on prices they will charge, and it paves the way for the elimination of many route and commodity restrictions that inhibit fuel-saving and efficient operations.
Three weeks ago, the ICC adopted final rules relaxing much of its traditional trucking regulation; the new policies and procedures carry out directives in the law as interpreted by the commission. One set of rules -- which became effective two weeks ago today -- eliminated "gateway restrictions" that required truckers to operate through certain cities, often prohibiting them from using the most direct routes. The rules also abolished the circuitous routing limitations often placed on one trucking company in the past to protect the business of another. Now, a trucker can use any available routing to serve any authorized points.
Authorized points are also easier to come by these days. Under new ICC rules, the agency has greatly simplified procedures for truckers seeking authority to operate interstate.
The Staggers Rail Act of 1980, signed into law Oct. 14, contains similar changes for the railroads. This act trims nearly a century of extensive regulation, giving the railroads significant new pricing and operating flexibility. The act frees a major part of rail rates from ICC regulation altogether; establishes a zone of flexibility within which railroads can raise, without ICC involvement, the rates that remain regulated; curtails over time their collective rate-setting practices; authorizes contract rate agreements with shippers; and eases other regulatory controls.
Despite calls for renewed regulation of the trucking industry by some in the Teamsters union and American Trucking Associations, there appears little likelihood that Congress will go along. In the Senate, the new chairman of the key Commerce Committee is Sen. Bob Packwood (R-Ore.), a cosponsor of trucking deregulation who would have liked to see the industry deregulated even more than it was.
Further, it is unlikely that the new Reagan administration, committed to a free-market philosophy and reduced regulation in principle, could support such a move. Deregulation of transportation was, more than most economic and legislative issues over the past few years, a truly bipartisan effort.
Although Teamsters and ATA officials are hoping, and believe in some cases, that the new president will pick a new ICC chairman who will proceed with trucking deregulation at a slower pace, others believe that a slowdown is not in the cards and that the new administration, like the Carter administration, will opt for a smaller, more efficient commission whose members are committed to a freer marketplace. Although the president legally can appoint 11 to the commission, its current membership is six. Commissioner Charles Clapp's term has just expired, but he can remain on the commission until he is replaced.
"I think that the rhetoric is going to die down in the trucking area," ICC Chairman Darius W. Gaskins Jr. predicts. Noting that the ICC's major decisions in trucking already are made, he said he believed that the trucking companies have begun "settling down to business. . . . I think they are starting to accept the new statute."
So far, there have been fewer pricing innovations in general freight than in household goods, which are quite visible to consumers. Less visible to the consumer are the changes the companies are making in expanding and rationalizing their operations. Gaskins said the industry's support of the ICC proposals to eliminate gateways and remove restrictions was "a good sign. They can see very clearly that elimination of those restrictions would be beneficial to them."
Some of the ICC's efforts in the rail area will continue to be controversial. The ICC is going to bring out a new costing system, which has major implications in ratemaking, and will cause "moaning and groaning from carriers and shippers" alike, Gaskins said.
The agency also will move to exempt major commodities from regulation. It recently has proposed exempting from regulation the intermodal service provided when railroads carry trailers or containers on flatcars, the growing "piggyback service" area.
Some of the more controversial collective rate-making issues in both rail and trucking remain before the commission, but Gaskins thinks the controversy will die down as independent pricing and contracts play a growing role in the carriers' operations.
How will the trucking companies and railroads do this year? For the trucking companies, "it all depends on what happens to the economy," Gaskins says. The trucking industry is pretty closely linked to the shape of the economy, and last year freight volume was off 15 percent from 1979. Total revenue for the industry was up 4 1/2 percent while costs were up 5 percent. "By and large, the carriers have been able to cut back, and earnings were not bad, considering they have had a 15 percent reduction in traffic," Gaskins said. "They'll be in a good position if the economy recovers."
The railroads, except in the Northeast, have done a little better in the downturn, and they are generally optimistic about opportunities in a deregulated environment. Still, the rails have a long way to go, having earned a rate of return on investment so low on the average that needed capital improvements have not been made.
How management in the trucking and rail industries adjust to their new opportunities will be crucial to their future, but years of regulation have put some at structural disadvantages, rhetoric notwithstanding. "Trucking management talk conservative but their organizations are flexible and can move fast," Gaskins points out. "Rail management talk aggressive -- but they have these big bureaucracies to deal with. We still have to question whether they can adjust fast enough."