Cause and Effect of Deregulation of the Motor Carrier Industry
Cause and Effect of Deregulation of the Motor Carrier Industry
The motor carrier industry has been regulated since the creation of the Motor Carrier Act of 1935, which was an amendment to the Interstate Commerce Act. The intended purpose of regulation is to restrain exorbitant prices, ensure sufficient profits for expansion, prevent unequal bargaining power, and to protect public interest (Parming, 2012, p. 23). However economists and academicians contend that the motor carrier regulatory structure obstructed entry into the industry and encourage inefficiency. The passage of the Motor Carrier Act of 1980, which deregulated the motor carrier industry, transformed the core aspects of carrier operations, including contracts, ratemaking, industry structure, and competition (Parming, p. 2). The Motor Carrier Act of 1935 was added as an amendment to the Interstate Commerce Act (ICA), which originally created the Interstate Commerce Commission to regulate the railroad industry. Because of the country’s dire economic situation the ICC immediately began to regulate the motor carrier industry in an effort to strengthen and stabilize the industry. The ICC instituted new carrier requirements: certificates, tariffs, and route restrictions. For example, all carriers were required to obtain a "certificate of public convenience and necessity" from the ICC. This was easy for carriers already operating in 1935. They could automatically get certificates if they documented their prior service. However the regulations adversely affected new carrier companies, who often found it extremely difficult to obtain certificate approval (Moore, 1993). Thus, regulations began to immediately cause a restriction in carrier operations. Further competition was stifled under the Act because the ICC had the sole authority to decide which carriers could operate, what services they could offer, and what rates they could charge (Huff, 2010). Heavily regulated by the ICC, new carrier companies
The motor carrier industry has been regulated since the creation of the Motor Carrier Act of 1935, which was an amendment to the Interstate Commerce Act. The intended purpose of regulation is to restrain exorbitant prices, ensure sufficient profits for expansion, prevent unequal bargaining power, and to protect public interest (Parming, 2012, p. 23). However economists and academicians contend that the motor carrier regulatory structure obstructed entry into the industry and encourage inefficiency. The passage of the Motor Carrier Act of 1980, which deregulated the motor carrier industry, transformed the core aspects of carrier operations, including contracts, ratemaking, industry structure, and competition (Parming, p. 2). The Motor Carrier Act of 1935 was added as an amendment to the Interstate Commerce Act (ICA), which originally created the Interstate Commerce Commission to regulate the railroad industry. Because of the country’s dire economic situation the ICC immediately began to regulate the motor carrier industry in an effort to strengthen and stabilize the industry. The ICC instituted new carrier requirements: certificates, tariffs, and route restrictions. For example, all carriers were required to obtain a "certificate of public convenience and necessity" from the ICC. This was easy for carriers already operating in 1935. They could automatically get certificates if they documented their prior service. However the regulations adversely affected new carrier companies, who often found it extremely difficult to obtain certificate approval (Moore, 1993). Thus, regulations began to immediately cause a restriction in carrier operations. Further competition was stifled under the Act because the ICC had the sole authority to decide which carriers could operate, what services they could offer, and what rates they could charge (Huff, 2010). Heavily regulated by the ICC, new carrier companies
References: Huff, A. (2010, November 3). Sowing the seeds of deregulation. Commerical Carrier Journal. Moore, T. G. (1993). Trucking deregulation. The concise Encyclopedia of economics. Library of Economics and Liberty. Retrieved April 11, 2013, from http://www.econlib.org/library/Enc1/TruckingDeregulation.html Parming, V. P. (2012). Competition and productivity in the US trucking industry since deregulation. Cambridge: Massachusetts Institute of Technology.