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ICC Okays Two Reforms – Trucking Deregulation

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Despite a decidedly lukewarm reaction by fellow commissioners to O'Neal's proposed plan for significant reduction in motor carrier regulation, within the month the Interstate Commerce Commission (ICC) approved two other significant reforms. By a five-to-one vote, the commission abolished a forty-year-old rule barring companies that hauled their own goods--Safeway, for example--from transporting goods for other shippers. "The new policy will provide for increased efficiency in the transportation system by filling up otherwise empty backhauls," said the ruling. While the Private Carrier Conference of the ATA applauded the commission, the ATA itself assailed the decision as "arbitrary, capricious and unreasonable."

Even more disturbing to the regulated industry was a unanimous ICC ruling that truckers would thereafter be held to freight-rate increases that generated no more than a 14 percent rate of return on stockholders' equity--the average return for all manufacturing industries. The decision against the Southern Motor Carriers Rate Conference (SMCRC) meant that regulated firms--whose average return on equity was above 20 percent-- would have to settle for considerably smaller rate increases than they were accustomed to getting from the ICC.

Trucking stocks tumbled following the SMCRC decision. ATA president Bennett Whitlock, Jr., accused the ICC of having "performed open- heart surgery-blindfolded." Trucking executives said the action threatened the financial stability of the industry and began urging members of Congress to rein in the commission. But to add salt to the wound, the ICC tentatively approved still another significant reform that would shift the burden of proof from applicants for new authority to existing carriers.



In response to industry pressure, key congressional leaders sought to halt further ICC reforms, but with only embarrassing results. In a letter to O'Neal, House Public Works Committee chairman Harold (Bizz) Johnson (D-Cal.) and Surface Transportation Subcommittee chairman James Howard (D-N.J.) warned the commission to stop adopting new regulatory policies and let Congress look at the issue first.

To the surprise of many, O'Neal refused to defer. The ICC had acted within its discretion as an independent agency, he told the two congressmen, and he intended for it to continue to act. At the same time, a New York Times editorial rebuked the two House members:
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If the House Public Works and Transportation Committee were more interested in serving the public and less in serving its trucking industry friends, the committee would be applauding the about-face at the (ICC) instead of challenging the agency's independence.

Taken off guard Johnson and Howard backed off from their earlier demand with a conciliatory response, which led one industry newsletter to characterize the exchange as follows:

Johnson and Howard: Stop that!
O'Neal: No / won't!
Johnson and Howard: Thank you, please continue.

The Referral Fight

The second options memo on trucking reform that administration aides prepared, following passage of the airline bill, never reached Carter's desk either. Another legislative goal--railroad deregulation--was accorded first priority. Partly to put pressure on the White House, Senator Kennedy held a crowded press conference in January 1979 to announce legislation to repeal the 1948 law giving truckers immunity from antitrust laws. Kennedy made the announcement surrounded by supporters from opposite ends of the political spectrum. The group included consumerist Ralph Nader, newly appointed White House inflation fighter Alfred Kahn, Carter's consumer adviser Esther Peterson, and representatives from Common Cause, the National Association of Manufacturers, the American Conservative Union, the Independent Truckers Association, and the Contract Carrier Conference of the ATA. Only one other cause--airline deregulation--had previously brought such erstwhile adversaries together.

The press conference caught the administration in an embarrassing position. The morning of the event, Carter had summoned top trucking-industry executives to the White House and assured them he had not yet made up his mind on trucking--deregulation legislation. The president's special trade representative, Robert Strauss, and domestic policy chief, Stuart Eizenstat, specifically told the assembled group that the administration would take no position on the Kennedy bill. Hours later at the press conference, Kennedy announced that he had administration backing, and Kahn told assembled reporters he regarded the bill as an "important plank in the president's campaign to fight inflation."

The White House tried to gloss over the contradictory statements but with little success. A group of trucking-industry executives subsequently wrote Carter that the inconsistent positions represented either "a complete lack of understanding of the import of Senator Kennedy's legislation by some of your advisers or a complete breach of faith with the statements which you and your advisers made to us at our meeting."

The press conference itself touched off a bitter, two-month jurisdictional tug-of-war between the Judiciary Committee, of which Kennedy had recently become chairman, and the Commerce Committee. To many people it seemed that the outcome of the parliamentary fight would decide the fate of trucking regulation itself. Stung by allegations that he was seeking jurisdiction over the trucking legislation in order quietly to bury it, Cannon denied any favoritism. "I have not lost sight of the implication that we won't move on trucking," the Commerce Committee chairman said. "But that's not so; I still have an open mind on this, although Mr. Kennedy appears fully decided."

The referral fight was reported widely by the press. Editorial support for Kennedy was near unanimous, for much the reason given by the Boston Globe:

The public may get an early reading this year on exactly how committed the U.S. Senate is to stemming inflation when that inflation benefits powerful private interests A decision by the Senate to refer the legislation exclusively to the Commerce Committee would be a sign that the Senate is not anxious to make the fight to restore competition to the trucking industry.

But when it came to sheer political clout, Cannon proved the stronger. The Commerce Committee chairman enlisted the help of the truckers and Teamsters in his fight-though they needed little prodding-which only confirmed suspicions that he was friendly to regulated interests. Some Senate offices reported receiving more than 4,000 pieces of mail from union and industry members. Kennedy got support from consumer and shipper groups, but it was no match.

Cannon refused to compromise on joint referral and threatened to take the matter to the Senate floor. After considerable stalling--in part to draw attention to the issue--Kennedy conceded exclusive jurisdiction to Commerce in exchange for sequential referral--the right to review antitrust provisions and offer amendments on the Senate floor--and Cannon's commitment to "diligently and thoroughly" consider Kennedy's bill during that session.

That consideration got underway almost immediately. In an effort to dispel fears that he would bury reform legislation, Cannon had earlier scheduled a day of hearings for the end of March. The jurisdictional dispute wasn't settled until a few days before the scheduled date. Cannon convened the hearing on March 28 and called Kennedy as the lead-off witness.

The Teamster Talks

Noticeably absent from the hearing was a spokesman for the White House. It was no secret that the administration deliberately stayed out of the referral fight and offered no legislation of its own so as not to offend the Teamsters as the March 31 (1979) expiration date for their master-freight contract approached. For months, financial observers had been predicting that the outcome of the negotiations for a new Teamster contract would be the test of Carter's wage-and-price guidelines.

In mid-March, in response to a guideline-busting wage demand by the Teamsters, Alfred Kahn announced that the Carter administration would move swiftly for sweeping deregulation of the trucking industry if the labor union won a new contract "substantially" beyond the president's guidelines. Kahn also told reporters that while the White House remained committed to reducing trucking controls, "political realities" would lead to "more modest" legislative proposals if the guidelines were observed.

The administration was criticized from all sides for its carrot-and-stick strategy toward the labor talks. Senate Majority Leader Robert Byrd (D- W.Va.) said that it was not within the president's domain to use legislation as a bargaining chip. Similar comments from Capitol Hill reflected the shaky status of any trucking-reform bill in Congress. Supporters of reform, like the New York Times, were also miffed: "The Administration made a serious mistake by establishing an ambiguous link between the outcome of the (negotiations) and its plan to deregulate trucking. Trucking deregulation is too important to the long-term fight against inflation to be bargained away for such a contract."

Following a ten-day strike that idled several hundred thousand auto workers when parts weren't delivered, the trucking industry and the Teamsters agreed on a contract. The settlement added up to less in percentage terms than the 35 percent increase the Teamsters had won three years earlier, but by any rational standards it far exceeded the 22.5 percent increase allowed by the president's guidelines. In an effort to keep its wage-and-price program alive, the administration employed creative arithmetic to "clarify" the settlement and declare it in compliance. ("One more damn clarification and we'd have been in the poor house," said the trucking industry's top negotiator.) But U.S. News & World Report called the pay hike a "body blow" for the Carter guidelines. Combined with ICC efforts to reduce truckers' rates of return, the new contract also had serious implications for the ability of unionized firms to compete and seemed almost certain to cause some bankruptcies, mergers, and loss of business to private trucking fleets and other non-Teamster carriers.

Everything but "Motherhood and Apple Pie"

With the contract talks out of the way, regulatory reformers looked to the White House for its long-awaited initiative on trucking. Cannon scheduled two days in June for hearings and dedicated the first to "specific legislative proposals" in an effort to smoke out the administration. To put added pressure on the White House, and to prevent Carter from excluding Kennedy from the reform effort, Kennedy's staff circulated the draft of a trucking-deregulation bill to supporters and to the press.

The Kennedy proposal was the most sweeping piece of trucking reform legislation ever submitted. It called for an end to antitrust immunity for both single and joint-line collective ratemaking in 1981, virtual open entry by 1983, and termination in 1985 of the ICC's role in regulating the trucking industry, with the Departments of Justice and Transportation and the Securities and Exchange Commission to assume former responsibilities relating to mergers, data collection, and securities transactions. (Single-line rates apply to shipments that are handled by a single carrier; joint-line rates apply to interlined shipments-shipments handled by two or more carriers.

Many reformers argued that even if there were a justification for the collective setting of joint-line rates, which involve more than one carrier, no such justification existed for single-line rate setting.) The ATA immediately denounced the Kennedy proposal as "irresponsible and ill-informed" and warned members that Kennedy was attempting "to keep pressure on President Carter to follow through on his promise to submit his own deregulation proposal."

Several weeks later, one day before the Teamsters ratified their master-freight contract, the White House began quietly to circulate its own proposal on Capitol Hill. The administration's sweeping reform plan was contained in a summary paper rather than legislation, indicating a willingness to be flexible on some provisions in order to gain the sponsorship of Kennedy and other congressional supporters of reform. "We think it's a good shot," said a Kennedy aide of the administration proposal. "It's a very, very great contribution."

In early June, after months of goading the White House to act on the trucking issue, Kennedy phoned President Carter to suggest that they team up and introduce a joint reform bill. Staffers from the Judiciary Committee, DOT, and the White House spent the next week ironing out the few differences between the two men's proposals--primarily over the fate of the ICC: Carter was reluctant to go as far as Kennedy and set a date for abolishing ICC authority over the trucking industry.

On the first day of summer, President Carter held a White House press conference with Kennedy at his side. The two men unveiled a proposal for the gradual dismantling of most--but not all--ICC controls on interstate trucking. Surrounded by a large group of deregulation supporters, President Carter said "unnecessary and sometimes absolutely nonsensical" regulations had added billions of dollars in transportation costs to almost every item Americans bought. Alfred Kahn said the bill was being put forward in the name of anti-inflation efforts, energy conservation, competition, regulatory reform, and free enterprise. "Motherhood and apple pie are being taken care of in other legislation," he joked.

The ATA called the bill a "radical approach" and admonished Carter for having "bowed to political pressure from Senator Kennedy." So as not to appear completely negative in its approach the industry group had announced its own bill, which had been kept for months in the making. "Our bill is not a reaction to Kennedy or the administration," ATA president Whitlock told the press. "We've been working up a piece of legislation to benefit the system and the consumer." Whitlock said the bill represented a partial compromise from earlier ATA positions, particularly in that it established a zone of pricing freedom. But the key provisions on entry, rate bureaus, and commodity restrictions led some industry members to refer privately to their proposal as the "Avon bill" because it embraced purely cosmetic changes.

More Hearings

When Carter and Kennedy introduced their bill, S. 1400, Cannon said he saw "an awful lot of problems" getting such a controversial measure through Congress. But he promised to give it "thorough and fair" consideration--recent press reports cited Cannon aides as saying the senator was now open-minded on the subject of reform--and within the week Cannon held two days of hearings on trucking reform.

This time the administration was out in full force. Alfred Kahn, Council of Economic Advisers Chairman Charles Schultze, and even Brock Adams testified in strong support of S. 1400. Kahn told Commerce Committee members that a 10 percent savings in transportation costs that could result from trucking deregulation might reduce the Consumer Price Index for food by 1 percent. "I would easily shed blood for 1 percent on the food CPI," said Kahn.

In his testimony, ATA spokesman C. James McCormick cited the strike of independent truckers that had begun the previous week--largely the result of rising diesel fuel prices and a severe shortage of fuel. McCormick said the strike provided a "frightening preview" of what deregulation would lead to. "The present crisis in the transportation of fresh fruits and vegetables emphasizes what will happen- The exempt area today is the only area of motor carrier transportation where there is rate instability and uncertainty of service."

Teamster president Frank Fitzsimmons testified that deregulation would reduce highway safety by flooding the roads with thousands of heavy-footed independent truckers. He cited a study which showed that the average independent truck driver was an overworked, financially pressed thirty-eight-year-old man who drove fifteen hours a day, six days a week; who used a citizens-band radio to avoid the police and drove "with his foot clear down on the accelerator." "Even if there were some solid basis for deregulation," Fitzsimmons said, "the risk to the lives and livelihood of our members and, for that matter, the lives of anyone using the intercity highways, is so great that deregulation should be rejected."

The ICC's Gauntlet

The Commerce Committee held six more days of hearings on trucking deregulation in the late summer and fall, including three sessions in San Francisco, Reno, and Fallon, Nevada. Representative Howard also chaired hearings before his Public Works subcommittee at locations around the country. The field hearings focused especially on the likely effects of regulatory reform on service to small communities, a major concern of committee members.
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