Competition in Transportation

by NEIL J. CURRY

Chairman, American Trucking Associations, Inc.

As early as 1904 railroads had established a speed record of 115.2 miles per hour. There it remained until 1934, thirty years later, when the Union Pacific achieved the current accepted record of 120 miles per hour for passenger trains. Between 1928 and 1936 the speed of freight trains, not as a record but on the whole, increased 22 per cent.

The significance of these figures is obvious. Not until the auto and airplane became factors in passenger transportation and motor trucks became significant in freight hauling, did the rails have the spur to compel improved performance.

One of the twin gods to which, figuratively, American business builds altars is competition. The other is maximum freedom of action, a notable national credo in all fields of activity, interpreted in business to mean dislike of all but the most essential governmental restraints.

The ideal climate in agriculture, industry and commerce, from the standpoint of the entrepreneur, would be one in which ownership operating through management would have maximum power and discretion to solve any and all problems which arise. Such, at least, would be the impulsive reaction of the entrepreneur, suddenly confronted with an opportunity to state the terms under which he would prefer to function.

Historically, the invasion of the field of management discretion by local, state and federal agencies has seldom been achieved without resistance of varying intensity, whether in the areas of health, insurance and welfare, marketing and trade practices or labor relations. Each such overlay of ordinances, rules, regulations or statutes has seemed to some segments of management a handicap which was unwarranted or costly or an impediment to full development of potential.

Transportation is “Public” Business

What I have been saying is particularly, but not exclusively, applicable to so-called “private" business. Economists recognize the essential difference between a private business, which is one whose activities reflect impact on a relatively limited number of people or a limited area of the economy and a “public" business, if I may use that term, whose operations cut across the whole economy.

An example of a “private" business might be a television manufacturer. However excellent his product, its purchase by anyone is optional, both as to his particular brand of television and as to television as a whole. An example of a “public" business would be an electric light and power company since it would be difficult if not impossible to operate our economy without that facility.

Despite the “private” nature of the great bulk of American agricultural, industrial and commercial activity there has been a steady trend toward intervention in its operation by government, based on the theory that the public interest can be and is affected by the cumulative or total result of certain practices in business or agriculture, indulged in by otherwise “private" business or farming.

In spite of the vigorous devotion which our people as citizens and as entrepreneurs pay to the cult of independence, there is wide acceptance of the necessity and the value of such intervention on behalf of the public - even in private business. For example, whatever may be said about the cost impact of a federal minimum wage law and whatever may be the various opinions as to what that minimum should be. few would disagree with the protective features of such a law both for the worker and for the businessman. The latter knows with certainty at least the minimum terms of the labor cost going into a competitive product or service anywhere in the country.

One of the earliest and most favorably accepted regulatory concepts in American history is that of the regulated public utility. Public control and supervision of the rates and service of certain essential public services long ago passed out of the area of argument. Despite a deep-seated repugnance to monopoly in almost any form, the American people have welcomed and approved the legal creation of certain monopolies when it became evident that only by such device could required services be performed. Telephone service, light and power and local transportation are obvious examples. Public supervision and control as well as the wisdom of management keep these actual or semi-monopolies benevolent.

Public Protected Through Regulation

Against this background of concept and trend of regulation of private and public business, there is about to be fought before the Congress a battle to change the terms under which one public business, interstate transportation of people and property, now operates. In this impending conflict of forces, the battle lines are drawn with railroads on one side and ranged against them all other forms of transportation. Small and large businessmen, farm groups and some communities as a whole can also be expected to oppose the changes.

There should be the widest possible understanding of the issues at stake since transportation is the handmaiden of agriculture, industry and commerce. The final result of this conflict will have a controlling effect upon our economy — there is little disagreement on this point.

In summary, the railroads say this: Our regulation was created when we were a monopoly and there was no significant alternative public transportation of freight or people. That regulation is obsolete today when competition is found on all sides. More than that, we are bound by terms of regulation—our competitors are not. Worse still, we are unable to exercise managerial discretion in fixing our rates in line with our true ability to serve the shipper because the Interstate Commerce Commission now has authority to supersede our judgment. Finally, some of our competitors are actually subsidized by government while we pay the full cost of our operations.

I believe that the above is a fair and accurate statement of the railroad case for a change in terms of federal regulation.

It is difficult to see how anyone reading that statement, and assuming it to be an accurate reflection of prevailing circumstances, could quarrel with proposals to effect some remedy.

Railroad Claims Require Examination

Unfortunately the railroad claims will not stand even perfunctory scrutiny and what is even more unfortunate for the country, their proposals to cure the assumed situation would produce results even more damaging to our economy than their own alleged plight produces.

How accurate is their appraisal?

Convincing proof is afforded in the record of the Cullan Hearings in 1885 prior to enactment of the ACT to Regulate Interstate Commerce, that it was cut-throat competition between railroads rather than monopoly which resulted in regulation. Charles Francis Adams, then president of the Union Pacific was one of many who testified before the Senate committee. Speaking of the dreadful consequences of widespread rate wars between railroads, he said:

“Railroad competition, as necessarily practiced, causes for the time being the wildest discrimination and utmost individual hardship. That is, under its operation, you will always find certain points when there is a war of rates going on, which have enormous advantages conferred upon them, which advantages are not and cannot be extended to other points.

“The point, therefore, which is not influenced by the war of rates suffers terribly. Its business is destroyed. How the business community, under the full working of railroad competition, can carry on its affairs, I cannot understand. I had not been able to understand it before I became president of a railroad and I cannot understand it now. The businessman never knows what railroad rates are going to be at other places, or at different times. He cannot sit down and say, ‘I can count upon such a transportation rate for such a period of time and make my arrangements accordingly.’ He has to say, ‘I cannot tell today what the transportation rate is going to be tomorrow, either for me or for my competitor.’ This must be so just as long as uncontrolled competition exists. It cannot be avoided.”

It was in response to precisely those disruptive conditions, and with the farmers joining the business community in its demand for regulation of transportation, that the Interstate Commerce Commission was created. As successively newer modes of transport came into being — airlines, truck lines, bus lines — they were brought under federal regulation.

Is present regulation obsolete as the railroads claim?

Speaking before the annual meeting of the Association of Interstate Commerce Practitioners in May 1955, the Honorable Kenneth H. Tuggle, member of the Interstate Commerce Commission, disposed completely of that contention in these words:

“More and more frequently it has been publicized that government restraint upon public carriers was initially imposed in 1887, and the impression is conveyed to the uninformed that such regulations have remained static and unchanged for sixty-eight years. Nothing is farther from the truth.

“The original law covered rail carriers, but Parts II, III and IV have been added; and Part I (railroads) alone has been amended 144 times by Congress in order to keep regulation in step with the progress of transportation. In the last annual report of the Commission to Congress, it recommended twenty-one specific changes based upon experience with current problems.”

Where is Today’s Railroad Competition?

When the railroads say they are bound by regulation and their competitors are not, they give the impression of competitors running free. To understand what they mean — not what they imply — one must understand the whole picture of transport. Those public carriers by airline, truck, bus, waterway and pipeline who are in the business of transportation as are the railroads, are regulated just as comprehensively as are the railroads — and in the case of trucks, more so.

But the railroads — and all other public carriers — actually do compete with unregulated carriers. Before you quickly say “Let’s bring them under regulation — these unregulated carriers,” you should know who and what they are.

Your own private automobile is the most costly and troublesome competition facing the regulated railroads—and it competes, too, with regulated bus lines and airlines. So does every other one of the 46,000,000 automobiles in America. Furthermore, trucks which carry their owners’ own goods — farmers for example hauling into market or business houses hauling between plants, or stores hauling from warehouses downtown to retail outlets— these are all unregulated in the sense that railroads or for-hire truck lines are regulated.

No one has yet devised a means of regulating the travel of your automobile as railroad movement is regulated, and no one has yet discovered how to surround with transportation regulations a man carrying his own goods in his own vehicle. Such private carriage accounts for 85 per cent of all the trucks registered. Such automobile travel amounts to 500 billion or half-a-trillion miles a year.

That’s what the railroads factually mean (but not inferentially) when they talk about unregulated competition. They would like to do something about it if they could get around the Constitutional right of every man to move his own goods and his own person as he sees fit — subject only to the requirements of public safety.

Railroads Can Set Rates Now

As to fixing rates. Railroads and all regulated carriers now have the right to set their own rates. A railroad wishing to post a new rate files it with the I.C.C. If there is no protest, the rate becomes effective in thirty days. If protested, it goes to public hearing and is subject to possible suspension by the Commission.

The regulatory body applies certain basic tests, as a result of the hearing. It takes into account such factors as whether or not the rate is fair and reasonably compensatory to the carrier; whether it has been put in below actual cost merely to harm a competitor; what its effect will be on the rest of the rate structure (rates charged by carriers for hauling other items); whether the proposed rate will prove harmful to business or agriculture in other areas; and similar considerations. If the proposal meets these tests — all of them applied in the public interest by an impartial body — the rate goes into effect. If it fails to meet them, the rate is suspended indefinitely. That process the railroads consider an invasion of their managerial discretion. It is the same process, in principle, by which public utility rates of all kinds are established.

As to competitors being subsidized, I shall speak only for trucks. This subject was the target ol exhaustive study by the late Joseph B. Eastman, acting as Federal Co-Ordinator of Transportation. There is a wide field of subjective opinion as to what is the truck’s share of highway costs. Mr. Eastman believed that this fair share could be arrived at by first discovering what highways would cost if there were no trucks, then assigning to trucks their proportionate share of that basic cost plus all additional costs of construction and maintenance made necessary by the specific weight or other requirements of trucks using highways. Using this yardstick, he found that trucks actually pay more than their share, particularly the big trucks. In most states these big trucks now pay thirty to forty and more times as much as a passenger car in annual taxes. Most people would agree that this is a substantial difference . . . enough to accommodate their highway use.

What are the railroads asking Congress to do?

They want the National Transportation Policy law changed and present, court-tested language which protects the inherent advantage of each form of transport altered or removed. They want the rate control power of the I.C.C. limited to approval of minimum or maximum rates. If the proposed minimum rate met merely the actual cost of performing the specific service, hauling the weight the distance with no overhead cost or profit involved, the I.C.C. would have no option but to approve it. On the maximum side, the proposal would set no ceiling beyond fair and reasonable, but it would specifically prevent the I.C.C. from ever forcing or compelling a maximum rate any less than the full cost of performing the service, including all overhead and profit. In the vast area in between, the area of competition, no public power would exist to prevent a cut-throat rate war of the kind mentioned by Mr. Adams back in 1885.

I have referred throughout to the forthcoming proposals as “railroad proposals.” That is what they are. But they have the prestige behind them of Cabinet Committee recommendations. They were actually developed by a group of nongovernment people, assigned the task by the Cabinet Committee. This group held no public hearings, did not consult with people or organizations in air, water, highway or pipeline transport — held no conversations or consultations with staff or officials in any of the present federal or state bodies regulating transport.

Because transportation rates represent the power of economic life or death over communities, commodities and business and agricultural enterprises, as graphically proven once before prior to regulation, the Congress will give intensive study to these “recommendations.”

Such study will benefit immensely from public comment and it is sincerely to be hoped that citizens devoted to our national welfare will give this proposal the attention its importance deserves.