Economical Implications of The Motor Carrier Act of 1980

What is the Economical Implications of The Motor Carrier Act of 1980?

Jimmy Carter signed the Motor Carrier Act of 1980 into legislation on July 1st, 1980. The objective of the act was to remove government restrictions and red tape in the trucking industry, “reduce unnecessary regulation by the Federal government” as the act states (Carter 1980) (Motor Carrier Act of 1980). The act would come to reform the trucking industry and remove what many considered wasteful and anti-competitive regulation. It would lead to changes in the shipping marketplace and contribute to the American economy.

Previous Red Tape in The Industry.

In 1935 truckers were brought under the control of the Interstate Commerce Commission (ICC) after lobbying from railroads, the ICC, and regulators. In a different Motor Carrier Act in 1935, truckers were required to have a "certificate of public convenience and necessity" in order to operate. Truckers were to receive one if they were a trucker prior to 1935, although it was hard to prove for many. Newer companies especially had a difficult time obtaining one (Moore 1995).

All rates were required to be filed with the ICC thirty days prior to when they were to become effective. Competitors were allowed to look at filed rates and bring up issues questioning their legality. This caused many problems between the competitors. From the 1940’s and on, it was very hard to expand or create a new service. The ICC determined current-trucking companies should be given authority over new ones. The next best option was to purchase a route from an existing trucking company, which sometimes went for hundreds of thousands of dollars. This was a very real barrier to entry and a strong anti-trust aspect to the trucking industry. Limited competition in this aspect kept prices high and shippers in control. Companies weren’t allowed to drive through other routes, and it often added on hundreds of unnecessary miles (Moore 1993). Before the Act had been enacted, only 18,000 truckers had licenses to operate.

Result of The Act.

The Department of Transportation (DOT) estimates the act saved 10 billion annually, while other estimations came around 20 billion and more.After the act was enacted, 45,500 truckers were licensed (Moore 1995). With the act came a drop in cost of storing and maintaining inventory. Truckers had more flexibility in transporting and could bring in supplies to be used right as they needed to be (Moore 1993). Trucks were no longer forced to go out of their way due to restrictions. It was much easier to get started as a trucker or start a new trucking company. The pricing was no longer required to be approved by the ICC and instead placed in a “zone of reasonableness”. Many wasteful and anti-trust aspects of the old laws were changed to make the industry more efficient and competitive (Carter 1980).

An increase in operators quickly made the trucking industry very competitive. Better technology and more innovative ideas were formed to beat the competition. It was not uncommon to see customized contracts between carriers and shippers, which under old regulation would have been unheard of. As a result, better prices for the consumer were found across the market (Schott 1997). Previously, products shipped were inflated because of regulation and the non-competitiveness of the market as a majority of goods were shipped by truck across the continental US. Consumers generally received a lower cost across the board for products shipped by truck because of the lower shipping cost.

It is often viewed that the motor carrier act totally freed up the trucking industry from regulation but many regulations remained. The industry was only partially deregulated but with a more liberal ICC, many of the limitations were removed (Moore 1993). The act also brought along increased jobs for the country, further contributing to economic development.

Effects On The Trucking Industry.

The trucking industry was severely affected by the motor carrier act. Less regulation and removal of anti-trust laws forced companies to consider other options and innovate to beat the competition. Anti-trust laws and regulation often set a price in stone for a specific route. One aspect of this was the increase in smaller operations and even independent truckers. Previously it took resources to get through the regulation to set up a route. It was now viable for a trucker to go into business for himself. Smaller communities were given better shipping options due to the removal of pre-determined routes (Carter 1980).

Removal of the laws and limiting regulation did make operations less resource intensive leading to reduce operating costs. Fuel and time that had gone with inefficient routes were now available. Although many of the trucking companies were forced to compete on price, the lower operating costs made this possible. Companies were forced to lower profit margins as a whole. Especially with new groups and independents coming to the marketplace, lower profit was standard across the industry. No longer were the trucking corporations able to hide behind inefficient anti trust laws.

Lower salaries were often paid to truckers after the deregulation. Before deregulation, many tuckers belonged to Unions and were paid an estimated 50% more than other comparable occupations. After deregulation, about 28% of truckers belonged to a union. Operating rights were now a next to worthless commodity, as they were easy to attain from the ICC (Moore 1993).

Conclusion.

The Motor Carrier Act of 1980 brought deregulation to the trucking industry. The result was more efficient companies that passed the savings onto the consumer. Removal of antitrust aspects leads companies to be more competitive and innovative in the marketplace. Companies were forced to keep a lower profit margin in order to be competitive. With the addition of the act licenses for truckers increased almost three times, bringing more jobs

References.

Jimmy Carter (1980). Motor Carrier Act of 1980 Statement on Signing S. 2245 Into Law. Retrieved from http://www.presidency.ucsb.edu/ws/index?pid=44689.

Thomas John Moore (1995). The Remaining Transport Regulations. Retrieved from http://www.stanford.edu/~moore/TRANSREG.HTML.

Thomas Gale Moore. "Trucking Deregulation." The Concise Encyclopedia of Economics. 1993. Library of Economics and Liberty. Retrieved from http://www.econlib.org/library/Enc1/TruckingDeregulation.html.

Motor Carrier Act of 1980. 96th Congress (1980). Public Law 96-296 – July 1, 1980.

Jeffrey R. Schott (1997). Challenge of Transportation Planning. Retrieved from http://www.almc.army.mil/alog/issues/MarApr97/ms163.htm.