What Do Sears, Nader, Frito Lay, And Bush Have In Common?Elizabeth Lesly
When Procter & Gamble Co. needs to restock Tide on supermarket shelves in San Antonio, it has two choices: The company can truck in the detergent from its plant in Dallas, 270 miles away--or haul it from Alexandria, La., 302 miles away. P&G's pick? Alexandria. The company saves $129--26% of the haul's total cost--by shipping across state lines and avoiding intrastate rates. "It was much more economical to ship interstate than from a base in Texas," says Richard A. French, a P&G transportation manager.
Texas is hardly the only state where that's going on. Similar pricing distortions exist in the 42 states that regulate in-state trucking. The idea is to protect local truckers that promise to serve unpopular rural routes. But regulation also fixes route rates--many of them sky-high. So some shipping giants, such as paper-goods producer Georgia-Pacific Corp., have set up their own private fleets in states where rates are inflated. W. Bruce Allen, a professor at the Wharton School of Finance, estimates that logistical gymnastics used to avoid intrastate tariffs cost an estimated $3 billion annually in fuel consumption and paperwork.
Now, Congress is considering putting the brakes on state rules. "Overregulation is choking American industry," Representative Ron Packard (R-Calif.) declared at a Mar. 24 hearing on trucking regulation. A measure he has introduced to end state trucking regulation boasts the support of one of the more unlikely coalitions in Washington, Americans for Safe & Competitive Trucking. Its members include major corporations such as Sears Roebuck and Frito-Lay; Ralph Nader's liberal litigation group Public Citizen; and supply-side economists at Citizens for a Sound Economy (CSE), a Washington think tank. All of them believe that deregulation would save billions. "The status quo keeps consumer prices artificially inflated," complains Public Citizen attorney Cornish Hitchcock. State regulations "are outmoded and don't make sense." CSE estimates that ending intrastate regulation could save $87 billion over a five-year period.
Yet despite its broad backing, the bill won't pass without a bruising fight. The Teamsters, fearing hotter competition that could cost its members jobs, vow to block the measure. The union will enjoy support from the National Association of Regulatory Utility Commissioners, whose members oversee intrastate trucking. They argue that without regulation, truckers will just abandon rural areas. "It's only because states impose rural service obligations that the service continues to be provided," says Tom Myers, Illinois' chief trucking regulator. Opponents counter that interstate deregulation didn't harm such service--in fact, says the Transportation Dept., which backs deregulation, it saved shippers and consumers $38 billion a year.
The Teamsters have reason to worry. Since Congress pared back federal rules for interstate trucking in 1980, the Interstate Commerce Commission says the number of carriers has jumped 143%, to more than 50,000, many of them nonunion. Yet the cost of shipping freight by truck tumbled from 5.7% of gross national product in 1980 to 4.9% in 1990, according to the Eno Foundation, a Washington transportation research group. Increased competition put inefficient companies mut of business, cutting Teamsters ranks by 25%, to 1.5 million.
The battle against deregulation is nothing new to the Teamsters. Lawmakers ended both federal and state regulation of air, rail, and bus service nationwide a decade ago but got only half the job done on trucking. Former Nevada Senator Howard W. Cannon, a Teamsters supporter and then-chairman of the Commerce Committee, struck a deal in 1980 with the Carter Administration: Federal regulation got the ax, but state rules escaped. Later, after the Teamsters endorsed Ronald Reagan, his deregulation zealots spared the intrastate loophole.
BIG PUNCH. Times have changed, though, boosting prospects for reform. The European Community is set to deregulate cross-border trucking, and supporters of U.S. legislation argue that Washington must follow suit to keep American goods competitive. "We have enough challenges in the world for competition," says John Ficker, trucking specialist at Weyerhaeuser Co., which supports the Packard bill. "We don't have to shoot ourselves in the foot."
The legislation could get even more impetus if it is packaged with a measure to overturn a 1990 Supreme Court decision. The ruling invalidated a raft of cut-rate trucking contracts that were negotiated years ago. Under the decision, trustees for bankrupt trucking companies now can bill their old customers for the difference between discount fees they negotiated and the higher charges the trucking companies had previously filed with the ICC. The agency estimates shippers could get socked with $27 billion in charges unless the back-billing is outlawed.
Hearings before the House surface transportation subcommittee are scheduled to wrap up soon, and the measure could be put to a vote by summer. Until then, the bill's supporters will have to travel a long, bumpy road.