Motor Carrier Act (1935)

views updated Jun 27 2018

Motor Carrier Act (1935)

Gary J. Edles

Excerpt from the Motor Carrier Act of 1935

to regulate transportation by motor carriers in such manner as to recognize and preserve the inherent advantages of, and foster sound economic conditions in, such transportation and among such carriers in the public interest; promote adequate, economic, and efficient service ... and reasonable charges ... without unjust discriminations ... and unfair or destructive competitive practices....

The Motor Carrier Act of 1935 (P.L. 74-255, 49 Stat. 543) gave the Interstate Commerce Commission (ICC), a federal government agency, the authority to regulate interstate truck and bus companies, known collectively as "motor carriers." The ICC's new powers with respect to motor carriers were similar to those it had over railroads, which it had regulated since 1887. The ICC could decide which companies could become motor carriers, what services they could offer, and what rates they could charge. The constitutionality of the act rests on Congress's authority to regulate interstate commerce under Article I, section 8 of the U.S. Constitution.

FEATURES OF THE ACT

The act divided motor carriers into two categories: common carriers, which held out their service to the public generally, and contract carriers, which had agreements with one or only a limited number of customers. Applications by new truck or bus companies or applications by existing companies to expand their operations could be granted only if, in the words of the statute, the proposed service was "required by the present or future public convenience and necessity." The ICC had to decide precisely what this very general requirement meant. In an early case, it defined the public convenience and necessity by reference to three factors: whether a proposed operation would "serve a useful public purpose, responsive to a public demand or need," whether such purpose "could be served as well by existing firms or carriers," and whether the applicant could operate the service "without endangering or impairing the operations of existing [companies]." These requirements restricted the ability of new companies to enter the motor carrier business and existing companies to expand to new areas. It also inhibited competition between motor carriers and railroads and between common and contract carriers.

The act also stated that rates charged by motor carriers had to be "just and reasonable" and could not discriminate between customers of similar circumstances. The act required motor carriers to file rates thirty days before they were to become effective and allowed existing companies to protest. In 1948 Congress passed the Reed-Bulwinkle Act, which permitted rates to be set by "rate bureaus" representing groups of motor carriers. These bureaus could agree on uniform rates applicable to all its members. Such rates, when approved by the ICC, were immune from antitrust laws. In 1985 the U.S. Court of Appeals for the Eleventh Circuit noted that ICC regulation of motor carriers under this regime "discouraged rate competition." The Court called the rate-making regulation "rigid" and noted that collective rate making tended to prop up even the least efficient motor carrier companies (Southern Motor Carriers Rate Conference v. United States. )

The Motor Carrier Act specifically exempted certain individuals, companies, and products from regulation—for example, individuals using their own trucks as part of their own business, motor vehicles operated by farmers, and agricultural products.

INCREASED GOVERNMENT REGULATION

The Motor Carrier Act was one of several statutes enacted during the 1930s that brought key elements of American business under government regulation. Many believed that an unregulated marketplace had led to the Great Depression or otherwise harmed the public. Supporters of regulatory statutes argued that these acts could prevent a repetition of disastrous events. The ICC believed that tight control over motor carrier operations and rates was necessary to maintain the stable transportation industry Congress envisioned when it enacted the Motor Carrier Act.

In the 1953 case American Trucking Associations v. United States, the U.S. Supreme Court noted that, before the Motor Carrier Act, the trucking industry "was unstable economically ... with small [companies] unable to satisfy even the most minimal standards of safety or financial responsibility." In another key decision in 1962, United States v. Drum, the Court noted that the licensing requirement is evidence of "congressional concern over diversions of traffic which may harm existing carriers upon whom the bulk of shippers must depend for access to market."

The regulatory system operated with little public notice or debate from 1935 to the 1970s. Nevertheless, regulation was the subject of some academic criticism and political interest. As former federal judge Abner Mikva observed in a 1990 law journal article, President John F. Kennedy as early as 1962 urged "greater reliance on the forces of competition and less reliance on the restraints of regulation." In 1971 President Richard Nixon's Council of Economic Advisers called for deregulation of the transportation industries. Both Gerald Ford and Jimmy Carter during their presidential terms supported a relaxation of regulation. They appointed to the ICC individuals who sought to increase competition under the existing regulatory regime. Over time, Congress also became convinced that regulation had a detrimental effect on the prices and services available to consumers.

FURTHER LEGISLATION: REDUCING REGULATION

In the 1980s Congress decided that less regulation would "promote competitive and efficient transportation services" and "allow a variety of quality and price options to meet changing market demands." The Motor Carrier Act of 1980 significantly reduced the level of ICC regulation of the trucking industry, though it did not eliminate regulation entirely. Congress modified the public convenience and necessity standard so the ICC could no longer consider new entries undesirable simply because they might divert traffic or revenues away from existing companies. The 1980 act modified the distinction between common and contract carriers to foster competition between the two groups. Congress also gave individual motor carriers greater freedom to set rates in response to customer demand with less ICC involvement and banned rate bureaus from discussing rates applicable solely to individual companies. As a result, between 1980 and 1990, the number of trucking companies doubled.

In 1982 Congress substantially reduced regulatory control of bus companies in the Bus Regulatory Reform Act. Despite this change in direction, financial hardships in the bus industry forced the ICC in 1988 to approve the absorption of the Trailways Bus Company by Greyhound, which became the only nationwide bus company. Nevertheless, most major cities and towns receive bus service from regional operators, mostly offering charter or tour service.

Congress finally ended sixty years of motor carrier regulation with the ICC Termination Act of 1995. This act eliminated virtually all economic control of motor carriers and abolished the ICC. Most motor carriers need only register with the Department of Transportation and meet minimum financial, insurance, and safety requirements to exist today.

See also: INTERSTATE COMMERCE ACT OF 1887.

BIBLIOGRAPHY

Dempsey, Paul Stephen. The Social and Economic Consequences of Deregulation. New York: Quorum Books, 1989.

Derthick, Martha, and Paul J. Quirk. The Politics of Deregulation. Washington, DC: Brookings Institution, 1985.

Landis, James M. The Administrative Process. Westport, CN: Greenwood, 1974 [1938].

Meyer, John R., Merton J. Peck, John Stenason, and Charles Zwick. The Economics of Competition in the Transportation Industries. Cambridge, MA: Harvard University Press, 1959.

Mikva, Abner. "Deregulating Through the Back Door: The Hard Way to Fight a Revolution." 57 University of Chicago Law Review 521 (1990).

Moore, Thomas Gale. "Trucking Deregulation." The Concise Encyclopedia of Economics. <http://www.econlib.org/library/Enc/TruckingDeregulation.html>.

Major Acts of Congress Edles, Gary J.

Motor Carrier Act

views updated Jun 27 2018

MOTOR CARRIER ACT

MOTOR CARRIER ACT. On 1 July 1980, President Jimmy Carter signed into law the Motor Carrier Regulatory Reform and Modernization Act (MCA). The act significantly reduced the control of the Interstate Commerce Commission (ICC) over the trucking industry and truckers. The trucking industry had been regulated by the ICC since Congress passed the Motor Carrier Act of 1935. That act required new truckers to seek a certificate of public convenience and necessity from the ICC. The MCA made it considerably easier for a trucker to obtain these certificates, by shifting the burden of proof needed to receive a certificate from the applicant to the party challenging the issuance of the certificate. It also gave the trucking industry greater freedom to set rates, by creating a zone of reasonableness, meaning that truckers could increase or decrease rates from the 1980 levels by 15 percent without challenge. The act forced the ICC to eliminate many of their restrictions on the kinds of goods that could be carried, on the routes that truckers could use, and on the geographic region they could serve. Passage of the MCA was part of a wave a deregulation beginning in 1978 of numerous areas of transportation including air freight, air passengers, and railroads.