Life Before Deregulation

Today, many of the regulations that govern the trucking industry focus on safety, and increasingly, security. Relatively little attention goes to who can carry what and where. But in the 60-year stretch from 1935 until 1995, federal and state authorities imposed restrictive, complicated and inefficient rules around pricing and territory that were originally designed to limit trucking's ability to out-compete the railroads.

Federal regulations began to unravel when the Motor Carrier Act of 1980 deregulated interstate trucking (freight that crossed state lines). And further measures to clean up and decontrol the industry took place in 1995. Gradually, under increased pressure from shippers, the states also amended their laws in the 1980s and 90s to deregulate intrastate trucking (shipping within state borders).

It's easy to take today's largely deregulated business environment for granted. But what was it really like operating a trucking company under the heavy government oversight of years past?

How regulation first affected existing carriers

With the advent of the Motor Carrier Act of 1935, the Interstate Commerce Commission (ICC) essentially determined which companies became interstate motor carriers, what they hauled, where they hauled and the fees they charged. It was a powerful political agency. Shortly thereafter, all of the states also followed suit by enacting similar legislation for intrastate commerce.

Carriers couldn't simply continue doing business as usual. They had to apply for rights —or authority—to carry goods in the territory where they already did business. Carriers had to document their prior service in the specific lane they were applying for. And this wasn't easy since the ICC was very restrictive in their interpretation of proof of service.

Carriers could expand their territories by gaining rights to lanes where no other company already had authority, effectively expanding their territory. But they had to file those requests ahead of time, and other carriers could protest their applications on the grounds that the new service would endanger or impair their own operations.

Carriers could also buy rights from other carriers. But that too was difficult. In a 2005 interview, retired Estes Executive Vice President Thomas Hupp noted that, “When one carrier bought rights from another, they had to come to an agreement and then take it before the appropriate commission to get approval. And you also had to have approval if you wanted to buy another company outright. Essentially everything was controlled by either the appropriate state agency (intrastate) or the ICC (interstate).”

Available lane rights became very expensive. By the 1970s, authority for some routes sold for hundreds of thousands of dollars. And the resulting patchwork of authority often created very inefficient paths that required carriers to go hundreds of miles out of their way.

Thomas Hupp, who worked at Estes from 1959 until 1992, knew firsthand about the inefficiencies of the regulatory environment. He described the complex nature of Estes' Virginia operating authority like this: “It wasn't referred to as ‘territory,' but Estes had a basic triangle in those early days that went from South Boston to Richmond to Norfolk and back to South Boston (and anything in between). We could also go up [U.S. Highway] 301 to Arlington, but we had closed-door authority between Fredericksburg and Arlington” (meaning that Estes couldn't deliver or pick up between the two cities).

Mr. Hupp also noted, “If you had even one shipment, you had to make the haul because you had to agree to regularly service whichever routes you had authority for. Sometimes W.W. would wait a day or two until he had something else to haul, which was realistic, but it was his responsibility to operate regularly. As long as you could keep people from complaining, you were okay.”

The struggle of new carriers

New carriers had an even tougher time. First, they had to seek a general “certificate of public convenience and necessity” from the ICC and prove that a need existed for another carrier in the market. However, it was next to impossible for the new carriers to apply for territory because even if an existing carrier didn't already operate in a particular lane, the ICC would first extend the invitation to already-certified truckers. This had the desired effect of significantly stifling competition.

Price fixing

Carriers were also required to file rates—or tariffs—with the ICC 30 days before they became effective. In that 30-day window, anyone was allowed to inspect the tariffs. If a competitor protested for virtually any reason, the ICC would suspend the rates until completion of a legal investigation.

In 1948, Congress authorized carriers to meet as an association and legally fix prices and terms of service for given regions. They had to establish prices based on a minimum rate, and carriers belonging to the association could not charge less than a certain percentage of the established rate. (That's when an industry-wide discount system
was born.)

Regulatory inefficiencies

In essence, the ICC prevented competition by establishing uniform tariff rates for everyone. It was a complex and highly politically charged business. A 2007 Traffic World article captured the ICC's ironclad hold on the industry in three sentences: “The entire industry was heavily regulated. The Interstate Commerce Commission was one of the most important agencies in Washington. Most surface carriers could hardly turn a wheel without its authority, spelled out in microscopic detail.”

The benefits of deregulation

After the demise of inter- and intrastate regulations in the 1980s and 90s, fallen barriers for new competition meant many more carriers in the marketplace. Increased competition forced LTL and truckload companies to focus on customer needs. The results were major savings for shippers and important strides for those carriers that were able to provide top-notch service. Service became faster and more reliable, which made it easier for manufacturers to eventually operate in a “just-in-time” manner and reduce inventory warehousing.

As for Estes Express Lines, the switch to more of a free-market environment provided it with many opportunities to grow and improve. And since buying authority was no longer required to expand, Estes was able to grow by leaps and bounds—at first to all territory east of the Mississippi—and eventually to all 50 states.

In the end, deregulation allowed us to do what we do best—listen to customers and find a way to get it done. Many of our competitors remained bogged down by corporate, operational and bureaucratic requirements. But the absence of cumbersome and tedious regulations enhanced our ability to deal with customer requests in a much more flexible way. Our longevity speaks for itself. Today, Estes is one of just a handful of carriers that survived government regulation and the turmoil of deregulation—and successfully transitioned into a new age of
freight transportation.

Regulating the Industry

1910s--The railroads began losing significant business to the trucking industry as trucks became more available and reliable.1935--Interstate truckers were brought under ICC control at the railroads' insistence.1937--Virginia (and many other states) began implementing similar regulations for intrastate trucking.1980--The Motor Carrier Act of 1980 sharply curtailed federal regulation.1995--The ICC Termination Act of 1995 lifted most remaining federal motor carrier restrictions.

The process of applying for basic authority went something like this:

1. A company wanting to transport product X from point A to point B had to apply to the ICC or the appropriate
   state authority.
2. The company had to file the request, which was published, and find customers to testify that the market
   was underserved.
3. Existing carriers kept an eye on these publications so they could protest and try to keep the applicant out.
4. If the new carrier received permission, it would often be very restrictive. For example, the carrier could deliver only a certain type of goods within a 50-mile radius, or the carrier could not drop off or pick up any freight in between point A and point B.

Deregulation stimulated innovation in the following ways:

• Modernized management structure
• Increased use of hub-and-spoke systems
• More efficient terminal operations
• Better use of intermodal transportation
• Advanced use of technology
• More carrier specialization and customized services for customers such as expedited and guaranteed products