Assessing the impact of regulation and deregulation on the rail and trucking industries

Abstract

(cont.) Many Class I railroads disappeared and severe competition bankrupted many small carriers in the trucking industry. Larger trucking carriers gained market dominance. Real wages in the trucking industry fell. The size of the railroad labour force decreased while railroad wages remained stagnant. Based on numerous pre-deregulation indicators provided by the government, industry, and academia, this essay shows that deregulation did not fulfill many of the promises made prior to the Staggers Act and the Motor Carrier Reform Act.

The Interstate Commerce Commission successfully implemented its 1887 mandate of reducing the monopolistic powers of the railroads. However, as freight transportation evolved into a competitive system with the emergence of trucking, the ICC effectively adapted its policies. ICC minimum rate regulations and track abandonment procedures kept many Class I railroads competitive. ICC ownership certificate requirements reduced destructive competition in the trucking industry. The blame assigned to the ICC for railroad problems was exaggerated. The Penn Central bankruptcy showed that the railroads had a variety of non-regulation related problems; including rigid management, poor attitudes towards passenger rail services, and inadequate merger planning. This exaggeration was part of a wider misrepresentation as indicated by the attempt to portray Northeast railroad problems as a system-wide problem. This essay shows that there were in fact, many profitable railroads prior to deregulation. Before the passage of the Staggers Act and Motor Carrier Reform Act in 1980, the ICC witnessed the survival of the railroads and truckers through significant economic and political changes, including increased competition, evolving industrial markets, high interest rates, inflation, urbanization, and two World Wars. This was all done while allowing the overall transportation network to evolve into a ubiquitous, competitive system. Deregulation did not achieve several of its stated goals. Freight rail profits were flat and trucking profits fell. The railroads remained unfavourably viewed by Wall Street investors as annual capital investment shortfalls mounted.