FTC Staff Comment Before the Illinois Commerce Commission Concerning Illinois Intrastate Trucking Regulation

s...t. 1437
55 East Monroe St, .. t
Chlcago. lIt"""s 60603
(312) 353-8156
UNITED STATES OF ,\~IERICA
FEDERAL TRADE COMMISSION
CIIICAGO REGIONAL OFFICE
March 18, 1991
V910009
COMMISSION AUTHORIZED
The Honorable Terrence L. Barnich
Chairman
Illinois Commerce Commission
100 West Randolph Street
Suite 9-100
Chicago, Illinois 	60601
Re: 	Illinois Commerce Commission Trucking
Regulation
Dear Chairman Barnich:
The staff of the Federal Trade Commission's Chicago Regional Office and Bureau
of Economics are pleased to respond to your request for comments regarding the Illinois
Commerce Commission's ("Commerce Commission") proposed amendments to its rules
regulating intrastate trucking. l 	In your letter requesting our comments, you reference and
attach a letter to former Governor James R. Thompson from Secretary of Transportation
Samuel K. Skinner, dated January 3, 1991, in which Secretary Skinner urges that the
proposed amendments be rejected to the extent that they make entry into the intrastate
trucking industry more difficult. 	Noting that Illinois intrastate trucking rates are already
higher than interstate rates as a consequence of regulation, Secretary Skinner concludes
that "[t]ighter entry rules will likely lead to even higher prices and greater inefficiency .... "
and suggests that "a better solution would be to totally deregulate trucking in Illinois."
We agree that greater restrictions on entry may have undesirable consequences.
The proposed rules would require that firms seeking authority to act as motor
carriers file additional information with their applications, and would for the first time
delineate the standards which the Commerce Commission must consider in assessing
the public need for new carriers. 2 	This proposal could make entry into the market for
motor carrier services more difficult than it is currently under the authorizing statute.
1 	These comments are the views of the staff of the Chicago Regional Office and
Bureau of Economics of the Federal Trade Commission. 	They are not necessarily the
views of the Commission or any individual Commissioner. 	Inquiries regarding this
comment 	should 	be directed to John 	Hallerud (312-353-5575), 	Attorney, 	Chicago
Regional Office, or to Timothy Daniel (202-326-3520), Assistant Director for Economic
Policy Analysis, Bureau of Economics.
2 	Proposed amendments to III. Admin. Code tit. 92, § 1202, Applications.

The Honorable Terrence L. Barnich - 	Page 2
The staff of the FTC believes that relaxing rather than tightening restrictions on entry into
the trucking industry has benefitted consumers and competition by increasing choices,
improving service and reducing prices for the transportation of goods.3
I. 	INTEREST AND EXPERIENCE OF THE STAFF OF THE FEDERAL TRADE
COMMISSION
The Federal Trade Commission ("FTC") is an independent federal agency charged
with enforcing Section 5 of the Federal Trade Commission Act." 	Section 5 prohibits
unfair methods of competition and unfair or deceptive acts or practices in or affecting
commerce.s 	Under this statutory mandate, the Commission staff seeks to identify
restrictions that impede competition or increase costs without offering countervailing
benefits to consumers. 	In enforcing the FTC Act, the staff of the FTC has gained
substantial 	experience 	in 	analyzing 	the 	impact 	of private 	and 	governmental 	trade
restraints and their effects on consumers and competition. 	The staff of the FTC submits
comments sharing its experience, upon request, to federal, state, and local governmental
bodies to help them assess the implications of proposed legislation and regulations.
The staff of the FTC has studied the deregulation of trucking and the benefits
resulting from an increased reliance on 	market forces at both the federal' and state7
3 	In addition, the proposed rules would expand the fitness standards that applicants
for authority to act as motor carriers must meet. 	Proposed amendments to III. Admin.
Code tit. 92, § 1304, Motor Carrier of Property Fitness Standards. 	We do not address
these proposals.
.. 	See 15 U.S.C. §§ 41-58.
S 	15 U.S.C. § 45.
6 	See Comments of the staff of the FTC on Pricing Practices of Motor Common
Carriers of Property Since the Motor Carrier Act of 1980, Ex Parte No. MC-166, before
the Interstate Commerce Commission (January 1983); Supplementary Comments of the
Bureaus of Competition, 	Consumer 	Protection and 	Economics 	of the 	FTC 	on 	the
Exemption of Motor Contract Carriers from Tariff Filing Requirements, Ex Parte No. MC-
165, before the Interstate Commerce Commission (1983); D. Breen, Bureau of Economics,
FTC, Regulatory Reform and the Trucking Industry: 	An Evaluation of the Motor Carrier
Act of 1980, submitted to the Motor Carrier Ratemaking Study Commission (March 1982).
7 	See letter from C. Steven Baker, Director, Chicago Regional Office, FTC, to Glen
McKay, Assistant Director, Division of State Audit, Tennessee Comptroller of the Treasury
(June 28, 1990); letter from Thomas B. Carter, Director, Dallas Regional Office, FTC, to
(continued ... )

The Honorable Terrence L Barnich - 	Page 3
levels. 	In addition, the Bureau of Economics of the FTC has published a report on
trucking deregulation (including the relaxation of entry restrictions),' and has published
additional studies concerning the effects of regulating the entry of competitors into other
industries.' 	Recently, the FTC ruled that a regional multistate trucking rate bureau vio-
lated the antitrust laws by fixing the rates of its members.10 These activities regarding
trucking regulation and competition policy generally have provided the staff of the FTC
with experience in analyzing the effects of trucking regulation.
II. 	REGULATION OF TRUCKING
If enacted, the proposed rules would affect an important aspect of trucking
regulation in the State of Illinois - entry of new carriers. These rules must be considered
7( ••• continued)
Raymond A. Bennett, Director, Transportation/Gas Utilities Division, Railroad Commission
of Texas (October 2, 1989); letter from Thomas B. Carter, Director, Dallas Regional Office,
FTC, to the Honorable Hugh D. Shine, Texas House of Representatives, concerning tow
truck regulation (April 18, 1989); testimony of James A. Langenfeld, Deputy Director for
Antitrust, Bureau of Economics, FTC, before the Public Utilities Commission of California,
concerning the impact of deregulation on the trucking industry (October 27, 1988); letter
from John Mendenhall, Acting Director, Cleveland Regional Office, FTC, to the Honorable
Frank Sawyer, Ohio House of Representatives, concerning contract carrier motor freight
rates (February 16, 1988); letter from Janet Grady, Director, San Francisco Regional
Office, FTC, to the Honorable Rebecca Morgan, California Senate, on legislation to repeal
the 	Public Utility Commission's authority to set contract motor carrier freight rates
(December 31, 1987); Comments of the staff of the FTC to the Legislative Audit Council
of South Carolina on possible restrictive or anticompetitive practices in South Carolina's
Public Service Commission statutes (September 29, 1987); 	Statement of the staff of the
FTC on economic deregulation of trucking to the House and Senate Transportation
Committees, Washington State Legislature (March 7, 1985).
• 	Diane S. Owen, DeregUlation in the Trucking Industry, FTC Bureau of Economics
Staff Report (May 1988).
, 	See, tl-, A. Mathios & R. Rogers, The Impact of State Price and Entry Regulation
on Intrastate Long Distance Telephone Rates, FTC Bureau of Economics Staff Report
(November 1988); R. Rogers, The Effect of State Entry Regulation on Retail Automobile
Markets, FTC Bureau of Economics Staff Report (January 1986).
10 New England Motor Rate Bureau, Inc., 112 F.T.C. _, FTC Docket 9170, 5 Trade
Reg. Rep. (CCH) 11 22,722 (August 18, 1989), rev'd on other grounds, 1990-2 Trade Cas.
(CCH) 11 69,108 	(1 st Cir. 1990) (decision reversed on state action grounds with respect
to the bureau's activities in Massachusetts).

The Honorable Terrence L. Barnich - Page 4
in light of the applicable Illinois statutes. 	It seems clear that the rules should be judged
in terms of their effects on achieving the goals of the statutory scheme and the public
interest generally. 	It would appear useful to gauge the likely effects of these rules by
considering the underlying rationales that have typically been advanced in support of
trucking regulation and the actual effects observed when entry regulation has been
reduced or removed in other jurisdictions. 	This is done in the following section. 	Our
intent is to provide a context for the subsequent discussion of the proposed rules.
A. 	ARGUMENTS ADVANCED IN SUPPORT OF REGULATION
Trucking regulation, including legal restraints on motor carrier rates and new entry,
originally was partially intended to help protect the regulated railroads from competition
from the then-unregulated, and expanding, trucking industry. 	It also was designed, in
part, to support the trucking industry by restricting competition during the depression of
the 1930'S.11
In our experience, those who support continued regulation of motor carriers
usually advance four major arguments. They argue that regulation will prevent predatory
pricing, forestall destructive competition, maintain safety, and ensure service to small
communities. 	However, a number of empirical studies have concluded that these
common rationales do not provide a significant basis for regulating common motor
carriers. 	In 	fact, 	much 	of 	this 	work 	indicates 	that 	regulation 	has 	undesirable
consequences.1%
1. 	Predatory pricing
A common argument advanced in support of rate regulation is that it is needed
to prevent predatory pricing. 	The principal thrust of this argument is that larger, better
financed companies will attempt to drive out competitors by selling trucking services at
a loss - below their average variable costs. 	The surviving firms, the argument goes, will
then raise their prices above the competitive level, eventually recouping their losses and
increasing their profits. 	This argument is usually applied to industries with high entry
barriers and high "sunk costS.,,13
11 Nelson, The 	Changing 	Economic 	Case for Surface Transport Regulation, 	in
Perspectives on Federal Transportation Policy (James C. Miller III, ed. 1975).
1% See generally Weinstein & Gross, Transportation and Economic Development:
The Case for Reform of Trucking Regulation in Texas, Center for Enterprising, Southern
Methodist University (Feb. 1987); Breen, supra note 6; Diane S. Owen, supra note 8.
13 Sunk costs are those that, once incurred, cannot be recovered should the firm
choose to exit the industry. 	Expenditures on assets that can be easily redeployed to
(continued ... )

The Honorable Terrence L. Barnich - Page 5
The difficulty in attempting predatory pricing - losing money now in the hope of
making more later - is that when firms employ this strategy and later raise their prices
to noncompetitive levels, other firms should enter or re-enter the market, taking business
away from the "predator" and forcing prices back to competitive levels. Predatory pricing
is therefore unlikely to succeed. 	The Supreme Court has stated that "predatory pricing
schemes are rarely tried, and even more rarely successful. d • 	In any event, firms that
attempt to engage in predatory pricing would also be subject to public and private
antitrust enforcement actions.
The conditions usually cited that might aid in making a predatory pricing strategy
workable do not seem to be present in the trucking industry. 	There are two distinct
segments of the trucking industry. 	One involves shipments of 10,000 pounds or more
(truckload, or TL, shipments), and the other involves shipments of less than 10,000
pounds (Iess-than-truckload, or LTL shipments). 	Truckload shipments usually go from
shipper to consignee without intermediate handling; the truck itself is the only equipment
needed. 	Because trucks are highly mobile and can be transferred quickly, sunk costs
are probably minimal in the TL segment.15
The LTL part of the industry also seems unlikely to be amenable to successful
predatory pricing. 	Although LTL shipments often are transported to break-bulk facilities
before reaching their destinations, any sunk capital costs associated with warehousing
can be reduced significantly by leasing, rather than owning, terminal facilities.
Since predation IS unlikely to be profitable or successful, motor carriers are not
likely to 	attempt it. 	In 	1987, the 	General Accounting 	Office joined the 	Interstate
Commerce Commission, the Motor Carrier Ratemaking Study Commission, and the
Department of Justice in concluding that predation is unlikely to occur as a consequence
13 ( ...continued)
alternative uses (such as trucks) would not represent significant sunk costs; expenditures
on assets that cannot be easily redeployed (such as gas pipelines) would be sunk.
1. Matshushita Electrical Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, at 589-
590 (1986), citing 	A. Bork, The Antitrust Paradox, 	149-56 (1978); Areeda & Turner,
Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.
L. Rev. 697, 699 (1975); Easterbrook, Predatory Strategies and Counterstrategies, 48 U.
Chi. L. Rev. 263, 268 (1981); Koller, The Myth of Predatory Pricing - An Empirical Study,
4 Antitrust L. & Econ. Rev. 105 (1971); McGee, Predatory Price Cutting: 	The Standard
Oil (N.J.) Case, 1 J. L. & Econ. 137 (1958); McGee, Predatory Pricing Revisited, 23 J. L.
& Econ. 289, 292-94 (1980).
IS T.E. Keeler, Deregulation and Scale Economies in the U.S. Trucking Industry: 	An
Econometric Extension of the Survivor Principle, 32 J. L. & Econ. 229, 250 (1989).

The Honorable Terrence L. Barnich - 	Page 6
of trucking deregulation. 16 	For these reasons, predat0r.r pricing in the trucking industry
appears to be little more than a theoretical possibility.1
2. 	DESTRUCTIVE COMPETITION
Proponents of trucking regulation also argue that deregulation of motor carriage
rates will 	lead to Mdestructive competition.M 	Destructive competition 	may occur in
industries characterized by fluctuating demand, relatively high sunk costs, and a high
ratio of fixed to total costs. 	These conditions are likely to create excess capacity and
considerable pressure to cut prices when demand falls. 	If price competition exists, prices
may persist below the total cost of providing services because the sunk nature of costs
makes capacity adjustments difficult. 	Firms facing such losses may, as a result, try to
reduce costs by skimping on service, to the detriment of customers.
Conditions conducive for destructive competition are not likely to exist in the
trucking industry. 	Fixed costs comprise only a small percentage of total costs, which
include such variable costs as labor and fuel expenses. Trucks are highly mobile assets,
suggesting that they may be transferred readily and easily from less profitable to more
profitable geographic markets in response to fluctuations in demand, or sold or leased
to other operators. 	Therefore, destructive competition in the trucking industry seems
unlikely.18
3. 	SAFETY
Another argument that has been advanced is that reducing economic regulation
will have an adverse effect on safety in the trucking industry, because carriers facing stiff
competition in rates or service will neglect maintenance, delay replacement of vehicles,
16 U.S. Gen. Acct. Off., Trucking Regulation: Price Competition and Market Structure
in the Trucking Industry, 8-10 (Feb. 1987). 	The positions of the ICC, MCRSC, and DOJ
are discussed in the GAO report.
Although it has been argued that the LTL segment of the trucking industry has
high entry barriers and high sunk costs, the GAO report concluded that entry barriers in
LTL trucking, the most significant of which include sunk costs involved in providing
terminals, financial capital requirements for effective entry, and impediments to entry
imposed by state regulation, are only "moderate." Id. at 18; Diane S. Owen, supra note
8, at 13.
17 For a review of the modern theoretical literature on predatory pricing, see J. Tirole,
The Theory of Industrial Organization, chs. 8 & 9 (Cambridge: 	MIT Press 1988).
18 See A. Kahn III, 2 Economics of Regulation 178 (1971), in which the author states,
"[D]oes trucking have the economic attributes of an industry subject to destructive
competition? 	It would be difficult to find one less qualified."

The Honorable Terrence L. Barnich - Page 7
and overwork drivers. 	This is really a variant of the destructive competition argument,
for safety Is a dimension of service. 	Although opponents of deregulation have cited
statistics showing an increase in the average age of trucks on the road and a greater
frequency in reported accidents involving truckers, other studies have shown that safety
has not been compromised following deregulation.19 For example, a study of truck safety
in California was "unable to prove the hypothesis that CPUC [California Public Utilities
Commission] economic regulation of trucking is significantly and positively linked to
improved highway safety."2O In any case, reduced safety is not a necessary consequence
of price and entry deregulation; nor do regulated motor carriage rates ensure that profits
will be spent to ensure safe truck operations. 	Directly addressing a state's legitimate
safety concerns, through enforcement of safety regulations, may be more effective in
promoting safety than indirectly addressing those concerns through economic regulation.
4. 	PRESERVING SERVICE TO SMALL COMMUNITIES
Some proponents of trucking regulation have argued that without economic
regulation of trucking small communities will lose services because motor carriers will find
it unprofitable to serve small markets unless they are guaranteed a fair return on invest-
ment. 	Studies have 	been 	conducted that have examined 	the 	effects 	of trucking
deregulation at the federal and state levels, however, and they have not revealed any
significant deterioration in service to small communities.
A series of surveys conducted between 1980 and 1985 by the U.S. Department
of Transportation found that a large majority of shippers in rural areas reported either no
change or an improvement in the quality of service after partial deregulation of interstate
trucking by the Motor Carrier Act of 1980. 21 These findings are consistent with those of
a 1982 Interstate Commerce Commission study, which found that federal deregulation
had resulted in lower prices, less damage, and often more service options for shippers
in small communities.22 Similarly, in a survey following deregulation of intrastate trucking
in Florida, 65 percent of respondents in small communities expressed a preference for
19 Diane S. Owen, supra note 8, at 18-21; Weinstein & Gross, supra note 12, at 50-
51.
20 California Public Utilities Commission & California Highway Patrol, AB 2678 Final
Report on Truck Safety, Joint Legislative Report, 3 (Nov. 1987).
21 Pub. L. No. 96-296, 94 Stat. 793 (1980). 	See U.S. Dep't Transp., Third Follow-
Up Study of Shipper-Receiver Mode Choice in Selected Rural Communities, 1982-3
(1986); U.S. Dep't Transp., Fourth Follow-Up StUdy of Shipper-Receiver Mode Choice in
Selected Rural Communities, 1984-5 (1986).
22 Interstate Com. Comm'n, Small Community Service Study (1982).

The Honorable Terrence L. Barnich - Page 8
deregulation, with 30 percent expressing no preference.2J A study of the Texas trucking
market concluded that small Texas communities would not lose service in a deregulated
environment because common carriers have found such service to be profitable.Z4
B. 	EFFECTS OF REGULATION
A recent comprehensive study of the impact of state trucking regulation by the
U.S. Department of Transportation found that current Illinois regulation of trucking costs
approximately $445 million each year.:1S 	This study allows some comparison between
Illinois and states that have relaxed or eliminated regulation of rate levels and made it
easier for new companies to enter and compete. The study estimates the costs of state-
level trucking 	regulations 	by comparing 	deregulated 	interstate rates with 	regulated
intrastate rates.
Nationally; the annual costs of state trucking regulations are approximately $2.8
billion (1988 dollars) according to this study. The approximately $445 million attributable
to the regulations in place in Illinois constituted about 16% of that total. 	Only one other
state - 	Texas with estimated costs of over $750 million - 	imposes more costs on
consumers than Illinois by regulating intrastate trucking more stringently than the federal
government regulates interstate trucking. 26 	.
The 	experiences 	of many 	states 	attest to 	the 	benefits 	to 	consumers 	and
competition from reduced trucking regulation. California, for example, experimented with
partial economic deregulation of trucking from 1980 to 1986. 	During that time entry was
23 Beilock & Freeman, Motor Carrier Deregulation in Florida, 14 Growth and Change
31-41 (1983).
24 Pustay, 	Interstate 	Motor 	Carrier 	Regulation 	in 	Texas, 	The 	Logistics 	and
Transportation Review, vol. 19, no. 2 (1984), quoted in Weinstein & Gross, supra note 12,
at 49. 	Noting individual entry petitions for common carrier operating authority, as well
as a resale market for existing authority, the study found that these indications of
willingness to serve small communities suggested that carriers would provide the service
voluntarily, "even in the absence of regulation."
:1S 	U.S. 	Dep't Transp., 	W. 	Bruce 	Allen 	et aI., 	The 	Impact 	of State 	Economic
Regulation of Motor Carriage on Intrastate and Interstate Commerce, at 294 (May 1990).
26 & at 294.

The Honorable Terrence L Barnich - 	Page 9
virtually free, and rates, though regulated, were f1exible. 27 The result was lower rates
with no loss in service.28
A study of trucking in New Jersey concluded that deregulation worked well in that
state. 29 	According to a study by W. 	Bruce Allen, shippers were satisfied with the
available service, rates were about ten percent lower than they would have been under
regulation, and intrastate carriers have prospered.30
Florida trucking was deregulated so quickly that truckers and shippers had no
opportunity to prepare for it. 	Nonetheless, 	according 	to 	one study, 	a year after
deregulation 88 percent of shippers, as well as 49 percent of truckers, supported it.
Most shippers thought that service levels remained constant and that rate fluctuations
had posed no difficulties: 	Only a few shippers converted to private carriage;31 many
more such shippers' conversions might have been expected if "destructive competition"
had resulted in a large reduction in the number of truckers. 32 Ukewise, a 1982 U.S.
Department of Transportation study 33 found that 90 percent of Florida shippers believed
that post-deregulation service was at least as good as service before deregulation and
30 percent reported improvements. 	A majority of these shippers (58 percent) perceived
that deregulation had held down rates. Finally, economists Blair, Kaserman, and McClave
27 Carriers were permitted to change rates, after a short waiting period, without
having to show the change was cost-justified. 	There was no waiting period to match a
competitor's rate.
28 Cal. Pub. Util. Comm'n, Simmerson, Analysis of The Impact of Deregulation of the
General Freight Trucking Industry, Investigation No. 84-05-048, 20-21 	(Aug. 10, 1984)
(based upon survey by CPUC of 239 general freight carriers and survey by California
State 	University, 	Hayward, 	Institute 	of 	Research 	& 	Business 	Development 	of 	596
shippers.)
29 U.S. Dep't Transp., Allen, Lonergon & Plane, Examination of the UnregUlated
Trucking Experience in New Jersey, 	(July 1979).
30 Allen, Statement Before the National Commission for the Review of Anti-Trust Laws
and Procedures (January 22, 1979).
31 Private carriage refers to those situations where the motor carrier is owned by the
shipper.
32 Freeman, 	A 	Survey 	of 	Motor 	Carrier 	Deregulation 	in 	Florida: 	One 	Year's
Experience, ICC Practitioners Journal, at 51 (Nov.-Dec. 1982).
33 Statement of Matthew V. Scocozza, Assistant Secretary for Policy and International
Affairs, 	U.S. 	Department 	of 	Transportation, 	Before 	the 	Subcommittee 	on 	Surface
Transportation, U.S. House of Representatives (June 20, 1984).

The Honorable Terrence L. Barnich - 	Page 10
found that Florida's deregulation of intrastate trucking led to a 15 percent average
reduction in motor carrier rates. 34
In Maryland, intrastate household goods movers were not regulated. 	A study
conducted in that state in 1973-1974 revealed that the then-regulated interstate household
goods carriers charged 27 percent to 67 percent more than unregulated intrastate carriers
for comparable moves.J5
In sum, the deregulation of intrastate trucking appears not to have had the
adverse impact on competition or consumers that had been predicted by many critics
of deregulation. 	In fact, deregulation has been beneficial both to the industry generally
and to consumers.36
III. 	RULES PROPOSED TO THE IWNOIS COMMERCE COMMISSION
Inasmuch as the proposed new rules regulating entry into the intrastate trucking
industry appear likely to raise prices to consumers and diminish competition, we believe
that the Commerce Commission might wish to consider whether the proposed changes
would serve the interests of the people of Illinois. 	.
The new rules proposed by the Illinois Commerce Commission would affect new
entry by altering the applications that prospective truckers must submit when they seek
authority to act as motor carriers. 37 The Illinois Commerce Commission is required by
statute to issue a certificate of motor carrier authority if the application meets several
requirements. J8 One of these requirements is that a "public need" exists for the issuance
34 Blair, Kaserman & McClave, Motor Carrier Deregulation: 	The Florida Experiment,
68 Rev. Econ. & Stat. 159 (1986).
35 Breen, Regulation and Household Moving Costs, Regulation, 53 (Sept.-Oct. 1978).
36 A recent study of federal deregulation of surface freight transportation (trucking
and railroads) estimated that deregulation benefits shippers, and ultimately consumers,
approximately $20 billion annually through reduced rates and improved service. The net
welfare gain to the economy as a whole is somewhat less - 	$16 billion annually -
because deregulation reduces the profits of some carriers and reduces the wages of
some 	workers. 	Still, 	the 	overwhelming 	conclusion 	is 	that 	deregulation 	provides
substantial, ongoing benefits. 	See, Winston, Corsi, Grimm, and Evans, The Economic
Effects of Surface Freight Deregulation, (Washington: 	The Brookings Institution 1990).
37 Proposed amendments to III. Admin. Code tit. 92, § 1202, Applications.
J8 The standards for motor common carrier and motor contract carrier authority are
(continued ... )

The Honorable Terrence L. Barnich - 	Page 11
of a new certificate. 	The ICTL specifies "standards" that are to be considered by the
Commerce Commission in determining whether such a "public need" exists.39
3I(...continued)
similar. 	The 	Commission must approve an application for motor common carrier
authority:
to the extent that it finds that the application was properly filed; a public
need for the service exists; the applicant is fit, willing and able to provide
the service in compliance with this Chapter, Commission regulations or
orders; and the public convenience and necessity requires issuance of the
certificate. 	III. Rev. Stat. ch. 95 1/2, 11 18c-4202 (2).
The requirements for obtaining motor contract carrier authority are slightly less
rigorous:
The Commission shall grant an application for a motor contract carrier
permit, in whole or in part, to the extent that it finds that the application
was properly filed; supporting shippers need the proposed service; the
applicant is fit, willing and able to provide the service in compliance with
this Chapter, Commission regulations and orders; and issuance of the
permit will be consistent with the public interest. 	III. Rev. Stat. ch. 95 1/2,
11 18c-4203 (2) (a).
39 The 	statute 	defines 	the 	standards 	that 	must 	be 	considered 	when 	issuing
certificates:
(a) The characteristics of the supporting shipper or shippers transportation
needs, including the total volume of shipments, the amounts handled by
existing authorized carriers and others, the amounts which would be
tendered to the applicant, the nature and location of points where traffic
would be picked up and delivered, and any special transportation needs
of the supporting shipper or shippers or their receiver or receivers;
(b) 	The existing authorized carriers' services, including the adequacy of
such services and the effect which issuance of a new certificate or permit
would have on such services;
(c) 	The proposed service, and whether it would meet the needs of the
supporting shipper or shippers;
(d) 	Any evidence bearing on the fitness, willingness, or ability of the
applicant. including but not limited to any past history of violations of this
Chapter, Commission regulations or orders, whether or not such violations
were the subject of an enforcement proceeding; and
(continued ... )

The Honorable Terrence L. Barnich - 	Page 12
The ICTl does not require that the Commerce Commission adopt any additional
standards defining "public need,...w and the existing regulations governing the issuance
of operating certificates to motor carriers do not contain any such standards.41 The
current proposal, however, would add new regulatory provisions defining the "public
need" requirement contained in the statute.42 In addition, the proposed rules would
39( •••continued)
(e) 	The effect which issuing the certificate of permit would have on the
development, maintenance and preservation of the highways of this State
for commercial and other public use. 	III. Rev. Stat. ch. 95 1/2, 11 18c-4204
(1 ).
The statute also defines the standards that the Commission shall not consider:
(a) 	The mere preference of the supporting shipper or shippers or their
receiver or receivers for the applicant's service; or
(b) 	Any illegal operations of the applicant as evidence of shipper need or
the inadequacy of existing carriers' services. 	III. Rev. Stat. ch. 95 1/2, 11
18c-4204 (3).
Public Act 	86-1005, 	effective 	December 28, 	1989, amended 	11 18c-4204 by
changing 	the 	term 	"factors" to be considered by the 	ICC to 	"standards" that the
Commerce Commission must consider (as enumerated above). 	This amendment also
provided that the Commerce Commission is to exercise its discretion in issuing licenses
in accordance with those standards. 	The Illinois Transportation lawyers Association
informs staff that the legislative history of Public Act 86-1005 does not explain why the
term "standards" was substituted for the term "factors."
40 The statute does require that the Commerce Commission adopt standards defining
"fitness." 	III. Rev. Stat. ch. 95 1/2, 11 18c-4204a. 	(Public Act 85-553, effective September
18, 1987.) We are not aware of any legislation requiring that the Commerce Commission
employ any criteria other than those specified in the statute itself in determining "public
need."
41 III. Admin. Code tit. 92, § 1202.
42 The proposed provisions provide:
In determining whether a public need exists for the requested service the
Commission shall consider:
1) 	Whether the applicant has sufficient shipper support to establish
a public need for each commodity and territory requested. 	Any
commodity or territory which is not supported will not be granted.
(continued ... )

The Honorable Terrence L. Barnich - Page 13
change the criteria that the Commerce Commission employs in issuing temporary motor
carrier Iicenses.4J
In an unregulated market, public demand or need for a particular service is shown
through consumers' willingness to pay for the service, and producers are rewarded with
higher sales and greater profits when they meet these needs efficiently. Although Illinois'
statutory scheme requires that the Commerce Commission make a determination of
public need, we caution against requiring too extensive a showing or imposing too rigid
a standard for making that determination. 	To the extent consistent with the statutory
mandate, we believe that the Commerce Commission can rely on the marketplace to
determine which service or bundle of services c.onsumers wish to purchase. 	Determining
public need in its least restrictive context would likely make the market for transportation
services more responsive to consumer demands and enhance consumer choice.....
The proposed rules appear to go beyond the statutory mandate by defining public
need in ways that may unnecessarily impede competitive entry into the market for motor
42( ...continued)
2) 	Whether supporting shippers have made a bona fide attempt to
obtain service from existing authorized carriers.
3) 	Whether supporting shippers have experienced service failures,
within the calendar year preceding application, which warrant the
addition of new service.
Proposed III. Admin. Code tit. 92, § 1202.10 (t).
43 Proposed amendments to III. Admin. Code tit. 92, § 1202.40.
44 Federal trucking regulation has been partially relaxed. 	The Interstate Commerce
Commission (1ICC") is required to issue an interstate motor common carrier certificate if
the applicant is able to provide the service. to comply with ICC law, and, on the basis
of evidence offered in support of issuing the certificate, if the proposed service would
serve a useful public purpose. unless evidence offered against issuance demonstrates
that issuing the certificate is inconsistent with the public convenience and necessity. 	49
U.S.C. § 10922 (b) (1). 	Thus, the burden of proof is placed upon opponents of a
proposed service. 	In fact. federal law prohibits the ICC from finding "the diversion of
revenue or traffic from an existing carrier to be in and of itself inconsistent with the public
convenience and necessity." 	49 U.S.C. § 10922 (b) (2). 	We understand that in practice
federal certificates are rarely denied.

The Honorable Terrence L. Barnich - Page 14
carrier services in Illinois. 4s First, the proposed administrative standards require that the
Commerce Commission deny a certificate for each commodity or territory that is not
supported by a showing of sufficient shipper need. The statute, by contrast, appears to
require only that the Commerce Commission consider the general characteristics of the
supporting shippers' needs. In particular, the statute does not require that the Commerce
Commission consider each commodity and each territory separately. 	Incorporating such
an approach, as contemplated by the proposed rules, would increase the burdens on
firms seeking authority to operate (or to expand their operations) in Illinois. 	Further,
restricting the commodities and territories for which authorized carriers can operate would
inhibit them from responding flexibly to unexpected shifts In shippers' needs. 	Prior to
1980, the Interstate Commerce Commission required interstate truckers to obtain route-
specific 	and 	commodity-specific 	certificates, 	a 	regulatory 	structure 	similar 	to 	that
contained in the proposed regulatory changes. 	At the interstate level, these restrictive
entry requirements were loosened by the Motor Carrier Act of 1980, and studies suggest
that shippers and consumers have benefited from lower shipping rates and more flexible
4S In fact, it appears that the purpose behind the proposed new rules is to limit
entry. 	A memorandum 	of October 	18, 	1990, from 	Tom 	Myers, 	manager 	of the
Transportation Division, to the Commerce Commission, recommending adoption of the
resolution authorizing publication of the proposed new rules, stated that:
[t]he Illinois Commercial Transportation Law has been amended
three 	times 	since 	1986 to 	strengthen 	the 	language 	governing 	initial
licensing. Without adequate administrative standards, however, the hearing
examiners have found it difficult to determine whether sufficient need exists
for a new authority, and have continued to grant virtually all applications.
The result of our laissez-faire approach, we believe, is a marketplace with
an oversupply of carriers to transport a limited amount of freight.
We note here that concerns that an "oversupply" of truckers will ultimately harm shippers
by reducing service and safety have been raised many times before, and the weight of
the evidence suggests that the concerns lack merit. 	See the discussions of "Destructive
Competition" and the "Effects of RegUlation," supra Sections 11.A.2. and II.B., respectively.
That the proposed rules appear designed to impede entry is further evidenced by the
announcement that:
[a]ny person who desires to speak at the hearing will have approximately
ten minutes to state his views on the question of tightened entry and the
wording 	of 	the 	proposed 	rules. 	Illinois 	Commerce 	Commission
Transportation Register, Special Edition, page 1 (January 1991).

The Honorable Terrence L. Barnich - Page 15
service offerings." 	Studies of state-level deregulatory changes have yielded similar
results.'" 	Unless the Illinois trucking industry is fundamentally different from either the
interstate industry or the intrastate industries in states that have experimented with entry
deregulation, the staff believes that these findings strongly suggest that the proposed
changes could well increase shipping costs in Illinois without offering countervailing
benefits.
Second. the proposed rules would require the Commerce Commission to consider
whether shippers on record in applications as supporting a new entrant have "made a
bona fide attempt to obtain service from existing authorized carriers...... 	Nothing in the
statute appears to impose such a requirement. 	Thus, the rules again appear to go
beyond the statute and would, in this case. act to insulate existing carriers from entry.
As discussed earlier, laws and regulations that impede entry have tended to impose net
costs on shippers and ultimately consumers. 	Further. any number of reasons could
explain why a supporting shipper has not made "bona fide attempts" to obtain service
from existing carriers. 	For example. a shipper supporting the prospective carrier may
have been shipping goods itself rather than seeking the services of existing carriers. 	A
shipper in this situation may have concluded that the services of existing carriers did not
adequately suit its needs and decided that it was more efficient to use the services of
the prospective carrier rather than to continue to haul goods itself. 	In essence, the
prospective carrier may be offering a new service which had not been available from
existing carriers. 	Alternatively. a shipper that supports the prospective carrier could be
new to the area or could be expanding its business and seeking to utilize the carrier that
has provided reliable service in other geographic areas or for other commodities.
Third. 	the 	proposed 	rules 	require that the Commerce Commission consider
whether supporting shippers have experienced "service failures" warranting the addition
of new service. 	This provision may be overly restrictive. 	The statute requires only that
the Commerce Commission consider the "adequacy" of existing service. 	Shippers could
conclude that existing service is inadequate for a number of reasons (e.g .• high prices,
uncertain quality, or inconvenient locations) that may not be considered a service failure.
The proposed rules also affect entry by making it more difficult to obtain interim
temporary motor carrier authority. 	The Illinois statute allows the Commerce Commission
to issue certificates for interim authority.49 The proposed administrative rules appear to
46 See. e.g., Diane S. Owen supra note 8, arid Winston et al. supra note 36.
47 See the discussion in section II.B. supra.
48 Proposed III. Admin. Code tit. 92, § 1202.10 (1) (2).
49 III. Rev. Stat. ch. 95 1/2, 11 18c-2107 (2), among other things, provides:
(continued ... )

The Honorable Terrence L. Barnich - 	Page 16
require an applicant for temporary authority to demonstrate more than is required either
by statute or under the current rules. 	For example, the proposed rules would require the
Commerce Commission to consider whether substantial economic harm will result to
supporting shippers if the temporary authority is not granted. so 	In contrast, current rules
focus on the needs of supporting shippers, whether existing carriers are meeting those
needs, and the reasons behind any failure to meet them.51
Establishing that shippers would suffer "substantial economic harm" if entry is
prohibited is likely to be more difficult than establishing that their needs would likely be
better met if entry is permitted. 	The proposed rules appear likely to extend the hiatus
between application for temporary authority and its authorization, or they may deter or
reduce entry. 	The longer an applicant must wait prior to commencing business and
receiving a return on an initial investment the more difficult entry becomes. 	Setting aside
considerations of ''fitness," we believe that temporary certificates should ordinarily be
issued unless strong reasons exist to doubt that an applicant will be issued a permanent
certificate. 	This would ease the entry of new carriers into the marketplace and make
existing carriers more responsive to the demands of shippers.
IV. 	CONCLUSION
The trucking industry has been partially deregulated at both the federal and state
levels. 	Arguments typically advanced against deregulation appear to have been largely
unfounded. Deregulation appears to have brought lower prices and In many instances
4'(...continued)
The Commission may, on request, issue interim orders for temporary
authority 	in 	motor 	carrier 	of 	property 	authority 	proceedings 	making
temporary disposition of issues in a proceeding after notice and review of
verified supporting statements. 	Such orders shall remain in effect pending
final disposition ....
so Proposed III. Admin. Code tit. 92, § 1202.40 (e) (emphasis added). 	Substantial
economic harm would include whether a supporting shipper would face a significant loss
of business or whether a layoff of a supporting shipper's work force would result from
failure to issue temporary authority.
51 III. Admin. 	Code tit. 92, § 1202.40 (b). 	The present rule itself is somewhat
restrictive since it ignores the possibility that new carriers may be able to meet the needs
of shippers less expensively and more efficiently than existing carriers even if existing
carriers are in fact meeting those needs. 	Neither the proposed nor the current rule
places much weight on whether existing carriers are providing the type, quality and price
of service that could most efficiently meet shippers' needs.

The Honorable Terrence L. Barnich - Page 17
better quality service to shippers. 	In particular, relaxing regulations that impede market
entry and that limit rate flexibility appear to benefit consumers and competition.
The rules that have been proposed for adoption by the Commerce Commission
would likely make entry into the intrastate trucking industry in Illinois more difficult. 	We
believe that consumers and competition in Illinois would be best served if these obstacles
could be reduced or, alternatively, if the Commerce Commission can avoid increasing the
barriers to new competition.
We appreciate this opportunity to comment.
C. Steven Baker, Director
Chicago Regional Office
Federal Trade Commission