50 th TRANSPORTATION LAW INSTITUTE The Jubilee Panel! Half-Century - - PDF document
50 th TRANSPORTATION LAW INSTITUTE The Jubilee Panel! Half-Century Game Changers that Rocked the Transpo World! And How They Impact Our Practices Today ______________________________________ DEREGULATION OF NORTH AMERICA Eric R. Benton
TRANSPORTATION LAW INSTITUTE
The Jubilee Panel! Half-Century Game Changers that Rocked the Transpo World! And How They Impact Our Practices Today ______________________________________
DEREGULATION OF NORTH AMERICA Eric R. Benton Lorance & Thompson, P.C. 2900 North Loop West, Suite 500 Houston, Texas 77092 Telephone: (713) 868-5560 Facsimile: (713) 864-4671 E-mail: erb@lorancethompson.com www.loranthompson.com
Introduction: Without a doubt, the biggest game changer in motor carrier transportation in the last fifty years was the passage of the Motor Carrier Act of 19801. This act ushered in the deregulation of the motor carrier industry and changed the way trucking companies operated and the services they provided to their customers. This paper and presentation will chronicle that process and the effect that it had in opening up North America to cross-border transportation between the United States, Canada and Mexico. To understand how the deregulation of the motor carrier industry changed the way freight is moved today, a short course in the history and regulatory landscape prior to 1980 is useful. The history of motor carrier transportation is brief compared to transportation by rail and a flash when compared to transportation by sea. Veterans that served in the army during World War I were introduced to transporting men and supplies by truck. The surplus military trucks that were returned to the United States provided an easy source of affordable equipment. This knowledge and equipment allowed the motor carrier industry to grow, and the advent of semi-trailers and diesel fuel in the 1930s allowed it to prosper. Anyone with a surplus army truck could haul freight; thus the entry costs were much cheaper than the costs to provide a rail service. Unlike a railroad, trucks were not limited by a rail line to the area they could serve. Unfortunately, the recession following the stock market crash of 1929 soon caused a reduction in the freight available to ship and caused the railroads to take notice
undertook a campaign to regulate the industry. The Interstate Commerce Commission (“ICC”) was charged with that responsibility Regulation: Not all carriers were caught up in the regulatory process. Some service providers were able to continue their operations without governmental oversight. Contract carriers are motor carriers that do not offer their services to the public but enter into negotiated agreements with specific customers. The “Rule of Eight” restricted contract carriers to provide service to no more than eight shippers or the carrier be would be considered a common carrier. If the shipper owned the goods, then their equipment could haul the cargo without regulation by the ICC. These type
1 Motor Carrier Act of 1980 (1980 Act), Pub. L. 96-296, 94 Stat. 793, 820 (1980).
agricultural products, could be hauled by independent owner operators without regulation by the ICC as well. The motor carrier that held itself out to the general public and did not ship cargo that it
a common carrier could provide, what routes it could take, the commodities it could haul, and the price it could charge. The ICC approved the rates for every commodity utilizing the rate bureaus. Fifteen different cargo categories with sub-categories classified every type of cargo. Rates were approved establishing an operating ratio of 93 that allowed a profit of seven percent for the common carrier. Congress even granted an anti-trust exemption to rate bureaus for which collective rate agreements. The Reed-Bulwinkle Act granting this exemption was passed even
Whether a common carrier could operate on a given route or serve a particular shipper was dependent upon proving that the service was for “public convenience and necessity.” While Mexico granted concessions to a limited number of carriers to operate on a particular route, both the United States and Canada utilized the public convenience and necessity test to determine whether the service would be permitted. Under the public convenience and necessity standard, a new applicant had the burden to prove the proposed service would satisfy an existing and actual need or demand. Shippers were recruited to serve as witnesses and were required to testify on behalf of the applicant that the existing service was so unsuitable that it could only be remedied by granting the new authority. If the existing carriers could provide the service, then the application for new authority was denied. If the application for authority endangered or impaired the operations of an existing carrier; even if not directly affected, it was denied. Deregulation: In this environment of regulation, the industry and its labor force represented by the International Brotherhood of Teamsters grew and prospered during the forties, fifties and sixties. By the seventies, however, deregulation loomed on the horizon. Subject to much criticism from economists in academia, governmental authorities and repeated assaults by each presidential
2 Pub.L. No. 80-662, 62 Stat. 472 (1948), (current version at 49 U.S.C. Sec. 10706)
administration, deregulation first of the airline industry and then the motor carriers was building
their employees, who were members of the International Brotherhood of Teamsters, had a strong interest in maintaining the status quo because the rates charged and wages paid were included in a set price that practically guaranteed a seven percent profit to the trucking company. New carriers, however, were stymied by the public convenience and necessity standard that the ICC used to determine whether a new competitor would be allowed. In Nashua Motor Express, Inc. v. United States, 230 F. Supp. 646 (D. N.H. 1964), the motor carrier had received certain grandfathered rights in error. Nashua challenged the ICC’s denial of its application for the authority granted in error on the basis of public convenience and necessity. Nashua argued that desirability of competition and greater variety of service should be considered and not just a showing of inadequacy. The court remanded the case back to the ICC, but the arguments raised were pursued in subsequent challenges. The Department of Transportation proposed the Transportation Regulatory Modernization Act of 1971 which would reduce the ICC’s power and allowed a “zone of reasonableness” that permitted carriers and shippers some flexibility in establishing rates. Although the proposed legislation never passed, coupled with the Nashua decision the ICC began to solely rely on adequacy of existing service to the be determining factor in considering applications. The court decisions that followed began to whittle away the public convenience and necessity standard. In Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281 (1974), the Supreme Court held that the ICC did not have to protect carriers from competition. In P. C. White Truck Line, Inc. v. Interstate Commerce Com., 551 F.2d 1326 (D.C. Cir 1977), the Court of Appeals held that the ICC had improperly denied White’s application because the agency had not considered the likelihood of White improving the competition among the carriers serving that area. The public convenience and necessity requirement was dying. Eventually, the ICC discontinued the practice of allowing existing carriers to protest new applicants by showing harm to the existing carrier’s revenue. The new standard switched the burden to showing that the general public would suffer from the entry of the new carrier. Thereafter, the ICC began approving almost all applications without restrictions on routes, commodities or whether the carrier was in the private carriage or contract carriage exemptions.
These actions by the courts led to the passage of Motor Carrier Act of 1980. The Motor Carrier Act required carriers protesting a new competitor to show harm to the public and encouraged existing carriers to apply for route expansion. Before 1980, no carrier had 48 state
the ICC processed more applications for new or expanded authority than there were carriers holding ICC authority prior to the passage of the bill. In 1992, Roadway Express, Inc. withdrew from the rate bureaus and the other major LTL carriers soon followed suit. Discounting soon became prevalent and the weaker carriers fell upon difficult times. In Lifschultz Fast Freight, Inc. v. Consol. Freightways Corp., No. 92-2523, 1993 U.S. App. LEXIS 16974 (4th Cir. July 6, 1993), Lifshultz alleged that the LTL carriers were using predatory pricing to drive the smaller carriers out of business. The Court of Appeals upheld the lower court ruling dismissing the case. Discounted freight rates became the norm and the class rate was the exception. Motor carriers, however, were still required to file their rates with the ICC and prohibited from charging anything other than the filed rate. As the failing carriers desperately negotiated discounts with their customers and cut staff, the new rates often were not filed with the ICC as
go after shippers for the filed rate because the carrier failed to file the negotiated rate with the ICC. In Maislin Industries, U.S., Inc v. Primary Steel, Inc., 497 U.S. 110 (1990), the Supreme Court reversed the Eighth Circuit which had affirmed the ICC’s decision that collecting the differences between the negotiated rate and the field rate was unreasonable. Thus, even when the shipper and carrier agreed that a lower rate had been negotiated, the carrier was obligated to charge the filed
change the law. Congress responded and proposed the Negotiated Rates Act of 1993 (NRA), Pub. L. 103- 180, 167 Stat. 2044-2053 (1993), followed by the Trucking Regulatory Reform Act of 1994 (Reform Act), Pub. L. No. 103-311, 108 Stat. 1683 (1994) and the ICC Transportation Act of 1995.
to file their rates and further reduced the responsibilities and then eliminated the ICC.
Canada: The early history of the motor carrier industry in Canada mirrored that which was occurring in the United States. The two national railways of Canada pursued regulating the motor carrier industry for competitive purposes. As the effects of the Great Depression started to be felt, the Canadian railroads were successful in limiting authority to only those carriers serving areas not served by the railroads. The Motor Vehicle Transport Act, R.S.C (Revised Statutes of Canada), 1985, c.29 (3rd Supp.), granted the federal government authority to regulate the motor carrier industry; however, the federal government transferred that authority back to the provinces. Thus, instead of having a single national regulatory agency, the power belonged to each of the provincial agencies. The Ontario Highway Transport Board lead the way at the direction of the Ontario Trucking Association. While the United States was underway with “complete” deregulation of the motor carrier industry, under the leadership of Prime Minister Trudeau, Canada was seeking to assert its sovereignty and lessen its dependence on the United States. Canadian carriers were receiving the benefit of the ICC allowing and even encouraging Canadian carriers to operate in the United States. Canada’s Foreign Investment Review Agency (“FIRA”), however, was denying similar access to United States carriers. The gap between the ICC encouraging competition among United States and Canadian carriers and FINRA’s denial of foreign investment and the restrictive public convenience and necessity standard being applied in Canada led to the Trucking Wars.3 In retaliation and in support for the deregulation movement, the United States Congress passed the Bus Regulatory Reform Act
§ 10935). The Bus Regulatory Reform Act brought to the forefront the differences between the two governmental agencies and stopped the ICC from granting Canadian carriers access to the US unless the Canadian government, through FIRA, allowed equal access to US carriers. Section 6
3 See, D. Madar, Heavy Traffic, Deregulation, Trade and Transformation, (UBC Press 2000) for an excellent discussion and
documentation of this subject. As the attorney at Roadway Express, Inc. charged with overseeing the carrier’s expansion into Canada, my memory of the events have faded. Mr. Mader, however, has documented and described the broader events and regulations affecting the industry at that time.
foreign country. The President could modify the moratorium in the national interest, but required the ICC to deny operating authority to any foreign motor carrier whose government did not admit US domiciled carriers on the same terms as it applies to its own domestic carriers. Several US carriers at this time were trying to gain access to the Canadian market. Yellow was buying a portion of operating rights in Manitoba. St. Johnsbury and Consolidate Freightways were making applications in Quebec. Harkema Express, an Ontario motor carrier, was purchased by Roadway Express in 1981. Sid Harkema had ceased operations rather that give in to union
gain access to the Canadian market. The Ontario Highway Transport Board ruled against Roadway’s purchase because it allowed the largest of the LTL carriers to divert business away from Canadian carriers. The Executive Vice President of the Ontario Trucking Association in an interview with the Toronto Globe and Mail stated that in an environment that is trending toward deregulation, that he hoped it would be “evolutionary and not revolutionary.” Canadians were concerned that the large US carries would completely close down the Canadian carriers that had come to rely on interlining of freight from the US and operating freely into the US. Eventually, Roadway and other US carriers were allowed into Canada. On September 20, 1982, President Ronald Regan sent notice to Congress to suspend the moratorium as to Canada. In the same notice, President Reagan noted that Mexico had not made sufficient progress to justify modification of the moratorium. Mexico: As referenced above, the Bus Regulatory Reform Act also impacted the ability of Mexican carriers to gain access to the US. Mexico prohibited non-Mexican carriers from operating in
carriers to operate between various points; including to the US border. A concession gave the holder exclusive permission to operate in a certain area or zone. Blue Trucks and Buses were the main transporter of less than truckload shipments between Mexican cities. To access this service, one would go to the bus terminal and utilize the bus service between cities or flag down a Blue Truck that provided general services. The shipper would negotiate the best rate that he could with the transporter as rates were not regulated in Mexico.
In order to increase the number of jobs available to its citizens, the Mexican government was strongly promoting the Maquiladora program. This program allowed US companies to import parts into Mexico for assembly and to export the finished product back into the US or country of
exchange for cheap labor. Moving the parts into Mexico and the assembled products back into the US required a reliable transportation system. US manufacturing companies recruited their US transportation partners to service the cross-border moves. While some US carriers were working with Mexican carriers, Roadway Express started the process of operating under its own name. Roadway originally opened a “Representative Office Without Income.” This allowed Roadway sales representatives to work in Mexico identifying freight for interline when it crossed into or from the US. Roadway was working with the Mexican government on how to regulate and tax a foreign carrier. Roadway was able to interline with a Mexican carrier to terminals operated by Roadway where freight could be cross-docked and local pick up and delivery performed with equipment owned by a Mexican but with Roadway’s name and service marks. Beginning around 1989, the Mexican government expressed a desire to deregulate the transportation industry. NAFTA: The North American Free Trade Agreement’s (NAFTA”) transportation provisions were the supposed culmination of these desires to deregulate transportation between the three countries. After extensive and lengthy bilateral negotiations, NAFTA was signed in 1992 by President Bush, President Carlos Salina de Gortari and Canadian Prime Minister Brian Mulroney. The signing started the clock to allow within three years of that date the ability to haul cargo across the frontier to all points in the state lining the border. US and Canadian citizens were also allowed to acquire up to 49% of Mexican carriers that hulled international cargo. Purely domestic carriers were still excluded. By the year 2000, all restrictions on cross-border trucking were to be lifted. President Bill Clinton in a move that was interpreted by many to appease the International Brotherhood of Teamsters continued the Moratorium against Mexican operation and control of carriers in the United States. The North American Free Trade Agreement Arbitral Panel Established Pursuant to Chapter Twenty in the Matter of Cross-Border Trucking Services found the United States in violation of the its obligations under NAFTA. In the matter of Cross-Border
Trucking Services (secretariat file no. USA-Mex-98-2008-01). In response to the arbitral panel’s finding, President George W. Bush’s administration created a procedure to allow Mexican carriers to operate in the border states and obtain US operating authority. Federal Register, Vol.66, No 86 (May 3, 2001). A Demonstration or Pilot Project was created. Allowing cross-border transportation with Mexico, however, continued to receive political scrutiny resulting in the passage of the Safe American Roads Act of 2007, H.R. 1773, 110th Cong. (2007), which created 22 conditions that had to be met before the Department of Transportation could proceed with the Pilot Program. In March 2009, the US Congress effectively shut down the Pilot Program when it refused to finance the program. In response to pressure not only from the International Brotherhood of Teamsters but also from the Owner-Operator Independent Drivers Association, President Obama announced that he was going to cancel the program. In response to the cancellation of the Pilot Program, Mexico imposed punitive tariffs on US goods. After $2.4 billion in additional tariffs, the Obama administration changed course and replaced the Pilot Program with a new cross-border
governments of Mexico and US resolve the dispute so they could sell their products in Mexico. Accordingly, Congress added language to transportation appropriation bills to establish a new pact in response to Mexico increasing the number of products affected by the punitive tariffs. Twenty-five years later, we were still waiting for the full implementation of NAFTA. After the election of Donald Trump as President of the United States, the attention has turned to renegotiating NAFTA. While the promise of deregulated cross-border movement of freight, at least with Mexico, has yet to be accomplished with the help from the members of the Transportation Lawyer’s Association, however, the motor carriers themselves have found practical solutions to the regulating and political obstacles to cross-border transportation. Where the governments have failed, deregulated businesses have found a solution. ∗
∗ This article was prepared by Eric R. Benton of Lorance & Thompson, P.C. in Houston, Texas. Eric may be
reached at ERB@lorancethompson.com