Big Regulations for the Big Rigs: Gattuso Op-Ed in Washington Times

Published in the Washington Times

October 18, 2000

For most of this year, American consumers have been battered by record increases in the price of oil–paying more for gasoline at the pump, more for airline tickets, and soon more for home heating oil. But never fear–Congress has finally taken action. Rejecting such common-sense ideas as reducing fuel taxes or easing costly regulations, the House of Representatives last week passed legislation requiring trucking companies to pass on the increased cost of fuel to their customers.

Yep, that's right. After months of deliberation, the House finally zeroed in on the real problem–some companies just aren't charging their customers enough money.

The legislation, authored by Rep. Nick Rahall, West Virginia Democrat, was pushed through the House last Tuesday under suspension of the rules, with significant GOP support. Known as the “Motor Carrier Fuel Cost Equity Act,” the bill requires trucking companies to assess their customers a fuel cost surcharge whenever the price of diesel fuel exceeds its 52-week average. The bill is now before the Senate, which may act on the proposal before it adjourns this week

The proposal is meant to help out small trucking companies and independent owner-operators who've faced a tight squeeze this year as the cost of diesel fuel has gone up (by about 25 percent since January). Unlike the larger companies in the industry, these small players, supporters say, can't negotiate increased payments from shippers on their own.

The urge to help out truckers is understandable. It has in fact been a difficult year for them. Moreover, small truckers have an undeniably positive public image. Who can't be for the fiercely independent owner-operators, the modern-day cowboys toughing it out on the lonely road? And if that's not enough, most members of Congress probably have a deep-seated dread of thousands of big rigs once again descending upon Washington in protest, making their morning commute to Capitol Hill a nightmare.

Nevertheless, this is a bad proposal. It would undermine deregulation, hurt American consumers, and possibly even fail to help truckers themselves.

Since 1980, trucking rates have been free of regulation at the federal level, a policy that most analysts see as resounding success, with consumer benefits estimated at about $20 billion annually. Supporters of the bill adamantly insist this bill does not threaten this successful policy. Yet that is exactly what it does–for the first time in some 20 years, federal law would control what a shipper may or may not pay for trucking services. (And not just the surcharge. Because the bill would prohibit discounting the underlying shipping bill to make up for the surcharge, all shipping charges would come under scrutiny).

True enough, no bureaucracy is set up–the Interstate Commerce Commission is not brought back from the grave. Instead, would be enforceable through private action in the courts. This is hardly of comfort–instead of returning the frying pan of the ICC, shippers would be faced with the fire of the American plaintiff's bar.

How exactly would this provision affect the market? That is hard to say. Despite the warnings of the bill's proponents, markets do eventually respond to price changes, even for little guys. That's why we don't see every hot dog vendor stopping work when the price of beef goes up. Markets don't work that way.

But the proposal is more than just unnecessary, it is likely to be harmful. First, there are real questions regarding how surcharges would be calculated under the bill. Is the proper measure of fuel cost used? Why no negative surcharge when costs go down? Moreover, how would pro-competitive discounts be differentiated from attempts to avoid the surcharge?

Even if these questions could be answered, and “proper” charges adequately calculated, the proposal would reduce or eliminate some positive incentives for truckers. Cost increases in any market, for instance, provide a powerful incentive for providers to look for ways to operate more efficiently. Providers are also rewarded for minimizing price fluctuations for their customers (which is why the price of hot dogs doesn't always change with the price of beef). Those pro-consumer incentives are suppressed if increased costs are automatically passed on as a matter of law.

Ironically, the proposal could even end up hurting its supposed beneficiaries. With many larger trucking firms already imposing surcharges, small companies could lose a price advantage on that front. As Clifford Winston of the Brookings Institution points out [as reported by John Berlau in Investor's Business Daily], shippers also might try to save money by delivering their own goods–leaving less business for small truckers.

James Gattuso is vice president for policy and management at the Competitive Enterprise Institute.

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