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Then in 1978 the ICC determined, upon inquires by the certificated three, that it had made a ministerial error and should have canceled Sober's authority in 1972 or thereabouts. The Sober Co. was told to stop operating. Well, they are basically a truck operation-auto driveaway was just a sideline for them-and they continued their trucking business. But over 20 local driveaway businesses around the country were stranded, without interstate authority. My son's company was among them. Both his company and our import-export business were immediately jeopardized.
Many of these local companies felt they could not go back to the certificated three, or would rather quit the business than do so. Just the fact that they felt this, alone, should tell you something about the sad state of the industry, with just three dominant companies. The local companies which joined AAS served many customers who were very unhappy with the service of the three nationally certified carriers or had never been served by them. They also believed that if they went out of business their customers would lose service for which there was a substantial, immediate, and continuing need. Two companies, my son's and a firm owned by the Weiner family, Driveaway Service, Inc., in New York, formed a partnership and asked these local businesses and as many customers as could be reached on an emergency basis to file statements with the Commission. The Commission issued an emergency temporary authority. Then a single Commissioner revoked it, on grounds that the certificated three, primarily, could provide the service which the company provided. After an extraordinary appeal to the Commission as a whole, the full Commission reinstated the ETA. AAS has been operating under an ETA, with successive 30-day extensions, while awaiting a decision on a temporary authority. AAS has been operating on the most tenuous of leases, with life given it in 30-day doses. Even on this basis, I am advised, it has gotten many calls from local driveaway firms wanting to join it, in preference to others.
If AAS is given a temporary authority, it can live until there is a hearing on a permanent authority application. However, AAS and over 20 local businesses around the country could be cut off tomorrow if the ICC does not issue a "temporary authority" pending the hearing on permanent authority. We really do believe that this would do a great disservice to many car shippers around the United States. My son and Mrs. Weiner advise that in 6 months of operation people have called on AAS to move over 2,000 cars.
AAS has estimated that it will have to spend over $50,000 to get a permanent authority. Fortunately, its revenues are supporting it— even though it is taking less from its own affiliates than the other companies are taking from theirs. But our family and the Weiner family would never have undertaken the burden of establishing a new interstate carrier-a desperately needed new interstate carrierexcept under threat of immediate extinction, or being forced to submit to people who have been sucking the life out of the local driveaway companies and their customers.
I have seen defenders of the existing system, in effect, suggest that you need only have a few hundred dollars to apply for an ICC authority. Insofar as the mechanical act of applying is concerned, this can be close to correct. But if you apply for any substantial operation,
where you would offer substantial competition to people already in the field, you need enough money to fight with the already established industry.
I give you my own view. Something must be done about the ICC regulations. Minor and cosmetic changes are not enough. The whole certificate system must be drastically streamlined. I believe that all' that needs to be shown is a fitness, willingness, and ability to serve, and people who want your services. In no way should people who now have certificates be allowed to make a Federal case out of the simple act of entering a business. When people get a lock on the business, they become monsters. It is as if they owned the business, the public exists. to feed them, and a new entrant is an alien and subversive influence. Those backing AAS want it to operate, but it should not have this power over other people any more than the ones now having ICC certificates. The system should be opened up for A-1 qualified companies, by law.
How can S. 382 help? To be truthful, I would think it might help very little unless the Commission is directed, very clearly, in this bill or another, that fostering competition means opening the door to qualified entrants, and that this means a major change in the way the ICC does business. Otherwise, the best you can hope for is a very slow ebbing of restrictive policies, at best; and a return to old patterns of operation with lipservice to your bill, at worst.
Senator KENNEDY. That is speaking quite frankly about the current situation and the dangers of the future.
Are you suggesting that ICC policies themselves regarding auto driveaways are actually fostering higher concentration in the industry? Mr. RAPPEPORT. Could you kindly repeat that question?
Senator KENNEDY. Do you think, that ICC regulations are actually fostering a higher concentration in the driveaway industry?
Mr. PEARCE. "Concentration" is a word Mr. Rappeport might not be familiar with. The Senator means a reduction in number of firms, small numbers.
Mr. RAPPEPORT. Absolutely. Because two companies applied for national authority, and they received limited authority, and then eventually they received interstate authority to and from the 50 States with some restrictions. Once those two companies received authority, the doors clanged shut. All future applicants--and there have been many in the last 12 years-have been denied authority, plus they have been harassed by the major companies, and they have actually been sued on various things, and their money just ran out. They just could not get within ICC standards to apply for authority. Senator KENNEDY. Hasn't the effect of the ICC policies been to turn competition on its head? As I understand the insurance industry, for example, agents represent many firms, and this encourages the companies to compete so that agents will sell their insurance. But that is not possible in the driveaways, is it?
Mr. RAPPEPORT. It is very, very hard for a common carrier to get insurance, because this is not the usual form of trucking. The ICC, for some reason, decided that casual driveaways fell within the scope of their authority. When the American Auto Shippers went up November 17, 1978, to get insurance, it took us 4 days to finally come up with an
insurance policy, and the insurance broker that we went to originally represented two of the common carriers, and he stalled us for 4 days before we could finally come up with a policy from a mutual type of insurance broker.
Mr. PEARCE. Mr. Rappeport-excuse me, Senator-Mr. Rappeport came in late last night, and we have been hurried this morning, and he has had a severe cold, so perhaps it is difficult to follow all the questions which might be directed to him. I believe your question related to the question of whether the small number of carriers has worsened the competitive position of the agent who has no choice.
I do not know whether that was your question.
Senator KENNEDY. Yes.
Mr. RAPPEPORT. You mean does the agent have a choice on insurance?
Mr. PEARCE. On auto driveaway companies who
Mr. RAPPEPORT. The agent has no choice; no, sir. If there is an accident to a car, he must turn to the carrier and the carrier must file the claim with the insurance company. All an agent can do is just ship the car, and if there is an accident, he has no say in the claims procedure.
Senator KENNEDY. Senator Baucus?
Senator BAUCUs. I have no questions. Thank you, Mr. Chairman. Senator KENNEDY. There is a vote on.
Just before we recess briefly, Mr. Pearce, Chairman O'Neal told the committee last month that the ICC is now granting more than 96 percent of its entry applications of this size. Does this mean the ICC is effectively promoting competition?
Mr. PEARCE. No; that is like saying that a pipeline 1 inch in diameter is taking care of all of the fluid that may be backed up in a box 3 feet in diameter. Most of what goes in the pipe gets out the other end, but the pipe is nowhere near wide enough to accommodate the needed channel of trade.
I think these people have illustrated that if you are prepared to spend $150,000 to $200,000, maybe you will get results, but there are an awful lot of people who are not in a position to spend $150,000 to $200,000 for one piece. The whole process can be backed up for 1, 2, 3 years while this enormously elaborate and expensive machine grinds through and sometimes grinds people up.
Senator KENNEDY. We are told that the existing court decisions, such as McLean Trucking, adequately instruct the ICC to take competition into account. What is the difference between the court's instruction and the ICC's practice?
Mr. PEARCE. Well, I have had some experience with mergers, which is directly addressed by that court decision, and our experience was that the Commission gave only lipservice to the McLean case, and the other cases bluntly. It is my impression that the Commission listens a little bit more to Congress than to the court. Perhaps it is an act of faith to assume as I do, that if Congress directly changes the statutory mandate under which the Commission works, that the Commission will heed its direction.
Senator KENNEDY. That is what you hope and what I intend that this legislation should accomplish.
Mr. PEARCE. Yes, sir.
Senator KENNEDY. All of your statements, as I mentioned, will be printed in their entirety. We are very grateful for your testimony this morning.
We will recess and vote and come right back.
[The prepared statements of Messrs. Chichilla, Livingston, Person, Pevna, and Rappeport follow:]
PREPARED STATEMENT OF DONALD R. CHICHILLA
My name is Donald R. Chichilla. My business address is 1717 Penn Ave.' suite 900, Pittsburgh, Pa. 15221. I am President of National Agricultural Trans portation Association (NATA).
I am also President of A.C.R. Inc., a broker of truck transportation for agricultural cooperatives exempt from economic regulation under the Interstate Commerce Act. I have been engaged in various phases of transportation (industrial traffic, private and for-hire carriage, and agricultural cooperative transportation broker) for over 26 years.
NATA's purpose is to promote the public interest in the safe, efficient and economic transportation of agricultural products from farm to market and consumer. Our goals are:
To urge and participate in the adoption of a national policy and legislation promoting a sound system of transporting agricultural products from farm to market and consumer;
To bring to the attention of the public and the several governments the agricultural carrier and the importance of agricultural products and their transportation to the welfare of the people of the United States;
To support research in the field of transportation of farm products and supplies; and
To engage in other activities directly related to the transportation of agricultural products from farm to market and consumer.
Membership is open to farmers, owner operators of trucks including those hauling exempt agricultural products, truck brokers, agricultural cooperatives, and many others concerned with getting food to market.
In connection with the Competition Improvement Act (S. 382), we bring to the committee's attention the important matter of getting food to market under the provisions of the Interstate Commerce Act exempting the transportation of agricultural products from economic regulation by the Interstate Commerce Commission (ICC).
The ICC's negative attitude toward the trucking of exempt agricultural products illustrates this point-when an agency feels it has a mandate to regulate and protect a given set of sellers, it seems also to feel that it has a mandate to suppress those whom it does not regulate. The result is that the governmental body is turned against a goodly portion of the community including the consumer.
To give you a broad picture of the motor transportation of exempt agricultural products, I list the participants in the distribution system for getting the products of our farms-for example, fresh fruits and vegetables-from farms to consumers: Shippers:
Jobbers or brokers.
Processors (if the processor does not make a manufactured product).
For-hire exempt carriers, not farmer owned, including fleet owners.
Farm cooperatives and federations of farm cooperatives.
Regulated carriers (to a limited extent).
Wholesale and retail firms and chain stores.
The exempt truck, after delivering its load, must return to its home base near the farm. What alternative does it have for the backhaul? He may return empty for distances up to several thousand miles, a tremendous loss of available truck transportation and really economically not feasible. Truly a waste of a valuable transportation resource.
Or an exempt carrier has the alternative of going to a regulated freight carrier and making a trip lease for the return trip to the home base, but if he elects this alternative, he must pay to the certificate holder the equivalent of 25 percent or more of the gross freight charges for the privilege of operating under the carrier's operating authority. An exempt transportation broker would charge only about 10 percent for a similar service. I call the 15 percent difference "monopoly rent". A third alternative is that the exempt carrier may return with an exempt agricultural load, but such movements are rare.
A fourth alternative, in case of equipment operated by agricultural cooperatives, is to return with regulated traffic under the present provision of the Interstate Commerce Act.1 The return trip must be incidental and necessary. Transportation for nonmembers should in no event exceed 15 percent of the cooperative's total interstate transportation rendered in each fiscal year, measured by tonnage.
The 15 percent limitation is arbitrary. It was derived from a provision in the Internal Revenue Code, (26 U.S.C. § 521 (b)(4)). It provides that cooperative purchases for nonmember nonproducers may not exceed 15 percent of the value of all purchases made for a cooperative in any given year to maintain the tax exempt status of the cooperative. Obviously, this 15 percent rule in terms of handling the tonnage to be handled by a cooperative does not reflect any of the economic realities of operating a cooperative. Rather, it is arbitrarily derived from the tax statute. This means 3 of every 10 units can return loaded, but the other 7 must either trip lease to a regulated carrier or return empty.
In attachment 1,2 we depict how the elements of the distribution system, described above, fit together. For illustrative purposes, we have used the States of California, Florida, Texas and Washington. These four States in recent years account for over 70 percent of the shipments of fresh fruits and vegetables to the United States.
The great bulk of the fresh fruits and vegetables shipped from the West, the Southwest and the South to the North and the East is carried by exempt carriers, usually owner-operators, and farm cooperatives. I emphasize that the rates charged for this exempt transportation are based on competitive marketplace pricing, This hostility is particularly harmful at this time, because the fresh fruit/ vegetable movement from farmer to consumer now depends largely on exempt owner-operator and agricultural cooperative trucking.3 Neither the railroads nor the regulated motor common carriers are really interested in this perishables traffic as may be seen by next two attachments. Attachment 2 tabulated the equipment owned by major transcontinental motor common carriers of general freight in 1977. They owned a total of 60,569 trailers (column H) of which 495 were refrigerated, that is, less than 1 percent of the total.
These 10 transcontinental general freight truckers have prospered magnificently. My next table, attachment 4, shows the increase in total operating revenues and the operating ratios of these carriers for the years 1969 and 1975 to 1978, inclusive. The operating ratios shown at the bottom represent the percent of each dollar of revenue needed to pay operating expenses. The operating ratios are excellent. In columns G and H, the table shows the increase in operating revenues 1978 over 1975 and 1969. For example, Roadway Express (line 7) shows an increase from $211.1 million in 1969 and $497.7 million to $918.1 million in 1978, increases of 335.0 percent and 84.5 percent, respectively. Competitive marketplace pricing would certainly be appropriate for these general freight truckers.
These carriers as a group in 1978 had gross revenues of $3.7 billion, and total operating expenses of $3.4 billion. The group has an operating ratio of 92.4 for 1978, a handsome ratio indeed.
That is, transportation for nonmembers that are not farmers must be limited to transportation incidental to the cooperative's primary transportation operation and necessary for its effective performance.
2 I include in several attachments to my statement tables and charts to support and illustrate our position. The ICC has consistently tried to limit the scope of this exempt transportation, though it brings food to the Nation at competitive marketplace pricing.
My attachment 3 shows by bar graphs the minuscule ownership of refrigerated trailers by the 10 transcontinental truckers.