The Impact of Deregulation in Transportation

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Table of Contents

Abstract
The Impact of Deregulation on the Railroad Industry
The Impact of Deregulation on the Airline Industry
The Impact of Deregulation on the Trucking Industry
Significant Issues Currently Facing the Railroad Industry
Significant Issues Currently Facing the Trucking Industry
The Modern-Day Container Terminals
Summary
References

Abstract

In this paper, issues based on the mode of transportation and the changes taking place in those areas together with the impact of global as well as local factors on the trucking, railroad and airways industries of the world have been discussed. Deregulation of the transport industries pertains to not allowing government interference of any sort in the running of the industry. There are many issues being faced by both the trucking and the railroad industries ranging from both global and international issues to local issues such as the economic issues and the union issues.

The Impact of Deregulation on the Railroad Industry

Deregulating the railroad industry has become significant and necessary because of the near collapse of the re-regulated railroad industries. By the late 1960’s, almost one-third of the railroad industry had either collapsed or gone bankrupt or was nearing bankruptcy. The reasons for such huge collapses in the regulated railroad industry were firstly, government interference and its promotion of other transportation modes such as the airways at the expense of the railroad industry.

Secondly, the accepted economic theories of monopolistic control were being challenged by the contestability theory which was based on the concept of preventing the monopolist from charging high prices if it was facing a threat of entry from other firms. In regulated markets, the regulators prevented this and so these policies were given to the legislators and they decided that a solution based on relaxing the regulatory standards was required and hence the Staggers Rails Act of 1980’s came into being when the deregulation of the rail industry was at its peak (Babcock, 1984).

The Stagger’s Act aimed at granting greater pricing freedom to the railroad industries together with streamlining certain merger timetables, allowing multi-modal ownership, as well as permitting the industry to enter into contracts with other shippers which was not possible in the regulated environment. As soon as the Stagger’s Act and the deregulation came into effect, the railroads immediately shut down their unprofitable commodity and solely began to concentrate on their more profitable core ventures in which they had a competitive edge and so were subject to the least competition from their competitors. Rail traffic increased on such high levels that bigger and better freight carriers were being purchased and bought onto service (Babcock, 1984).

The railroad industry was initially facing high costs as it was the only industry that had to build as well as maintain its own tracks. All those tracks which had been unprofitable earlier were shut down by the deregulated railroad industry leading to saving a major part of their resources from getting further drained. Deregulation led to a decrease in operating costs by allowing the firms to do away with all the extra rail staff that was not required. Also, the workmen were provided with concessions such as feasible working times, overtime, better training which leads to improved and greater productivity.

Consumers have also benefited to a great extent from deregulation as they have been paying lower fares while at the same time getting improved services. Consumer satisfaction leads to an increase in traffic for the railroad industry. Although the industry has not seen a constant growth in profits still, the US railroad industry has gained a lot because of the deregulation and so has saved itself from many major crises (Slack, 2007).

The Impact of Deregulation on the Airline Industry

The Airline Deregulations Act is a federal law act signed by the United States on October 24, 1978. Its main purpose was to deregulate government control over airfares, entry and exit routes for commercial airlines. Through this act, the regulatory powers of the Civil Aeronautics Board were to be slowly finished off while at the same time introducing the market mechanism and bringing the working of the competitive market into force.

Deregulation of airline companies came into being when a foreign company entered the market offering very cheap fares for transatlantic flights and other domestic flights such as through ‘supersaver tickets’. This led other local airlines to try to top that and hence deregulation was slowly introduced. Deregulating the airline industry led to a decline in the monopolistic power of a single company that would charge any price it wanted as the consumers had no other option for other air traveling companies to turn to.

Deregulation led to more airlines entering into the scene and hence driving down prices through rate wars for the benefit of the consumers and customers alike. Secondly, deregulation led to the market deciding for itself which planes should fly on certain routes rather than just having the CAB pick an available plane from the pool irrespective of the plane’s capabilities as well. Because of deregulation, it became possible for airline companies to choose which routes to travel on based on their capabilities (Dempsey, 1989).

Another impact of deregulation on the airline industry was the birth of the “hub-and-spoke” routes in which some major airlines made certain key cities into their main centers of operations where most flights boarded and un-boarded. Delta Air Lines had a major hub in Atlanta while Eastern ran its hub operations from Miami. These airlines made many daily roundtrips hence keeping planes in the air for more hours each day (Davies, 1972).

However, deregulation also had some serious negative consequences for the industry in terms of increased costs of fuel, increasing economic recession, and overexpansion. These problems further increased in dimensions when a nationwide strike by Professional Air Traffic Controllers Organization (PATCO) was observed in 1981. One airline collapsed in 1982. Others continued to expand but at great financial risks to themselves as well as others. Deregulation of the airline industry had both negative and positive consequences but its positive impact definitely exceeds its negative one (Dempsey, 1989).

The Impact of Deregulation on the Trucking Industry

In the United States, the trucking and rail industry owns much of the transport industry. The USA has approximately 40 million trucks and spends about hundred and ten dollars each year to transport different commodities through trucks. The trucking industry’s business is not limited to only carrying commodities from one place to another but also consists of and includes freight carriers, warehouses, distributors, common house brokers, shipping agents and many more.

The deregulation of the trucking industries in the 1980s came about because The Motor Carrier Act which was passed by Congress made the daily operations of the trucking industry easier and also made the process of obtaining the permit somewhat easier. Deregulation allowed the trucking corporations to offer discounts on their rates so as to attract customers. Deregulation helped in solving the union problem for these industries by allowing them to easily file for new rates whenever the demand for higher rates was made by the truckers union. Both of them benefited this way.

However because of the easiness of entry and exit of new businesses and increased competition the profit margins of the companies declined and many of them soon went out of business or became bankrupt. Secondly, the extra benefits payable to these union truck drivers use to costs the companies a lot of money and hence further reduced profits. The union drivers declined comparatively to non-unionized drivers in the trucking industry because the wages they asked for were way higher than their counterparts.

Consumers have also benefited to a great extent from deregulation by having to pay lower rates while at the same time getting improved services and hence leading to an increase in overall demand for services. Although there has not been a stabilized growth in profits as compared to the airline industry the US trucking industry has gained a lot because of the deregulation and hence has saved itself from many major crises.

Significant Issues Currently Facing the Railroad Industry

In the last few years, the railroad industry has seen both a period of boom and prosperity because of increases in traffic growth rates, revenue generation and revenue adequacy through Class 1 closings and stabilized short lines. However, this era of the railroad industry has seen and suffered enough pitfalls as well. This industry has always faced some serious issues which even today can and sometimes do bring about a stop in the growth of the railroad industry.

From the numerous issues facing the railroad industry, the two issues which I have chosen to shed some light on are; firstly, the re-regulations movement and secondly, the need for investment. The Re-regulation movement in short can be defined as an activity designed by shipping co-operations such as the utility industry, the STB and the Congress itself to reintroduce government control on the railroad industry.

The Re-regulation Movement is concerned with bills being passed in the Congress Houses with their agenda being the imposition of increased government control over all operations conducted by the railroad industry together with the imposition of greater anti-trust controls on the industry. All those who wanted the re-regulation movement to come into being had their own interests at heart as their only concern was their local industry to have the lowest rates. In totality, the effect of the re-regulations movement would be a lower return on investment for the railroad industry and we have over the years seen by various national and international examples that government control over the workings of the industries like the railroad and trucking never works.

Congress initially had two choices that were either to nationalize the railroad industry or hence spend millions of dollars to keep it working at a subsidized rate or to allow the free market to have an unrestricted realm over the industry and its operations. The Congress looking at all points of view wisely chose the free market mechanism and passed the Staggers Act 1980 in which the Congress accepted that to survive the railroads needed a deregulated system which allowed the market to set its own prices and routes and to apply differential pricing.

The Stagger’s Act gained momentum in the last few years when the demand for the railroad industry and its operations far outstripped its government’s subsidized supplies and hence lead to a shortfall of such required capacity in commodity markets and also restricted the industry from earning adequate revenues and competing effectively with other freight transportation modes. The Stagger reforms have been quite successful as they have led the railroad industry to upgrade its systems, offer an increased and better level of service than before, improve the industry’s profitability together with its safety, and provide the shippers with lower rates of services helping them to save millions of dollars each year.

Another issue facing the railroad industry which is just as important is the issue of re-regulations is the need for investment issue. The problems faced by our railroad systems are quite well known and hence we are faced with a need to identify and rectify them as soon as possible before they get any worse. Over the past couple of years, the freight traffic has more than doubled for all modes of transportation let it be trucks, shipping companies, airlines or the railroads. The freight traffic has increased from $13 billion annually to almost about $ 28 billion from the late 1990s to the early 2000s (Slack, 2007)

The estimated investments required by the railroad industry are currently between $ 175 billion to $ 195 billion to keep them operational, continuously allowing them to capacitate increased traffic growth and maintain their current market share as opposed to other transportation industries. According to market estimates, the railroad industries would be somehow able to come up with $ 143 billion but the rest it would need to borrow from other credit providers. This issue of investment can be resolved by public participation through the use of tax credits. Two forms or types of tax credit programs have been chosen by Congress to help the railroad industries deal with their investment issues.

Congress proposed a renewal of the railroad three-year tax credit till 2010 together with additional 50% credits given for maintaining and improving the rail tracks. The maximum tax credit granted to the industry was up to $ 3,500.Secondly, apart from the Congress even the class 1’s are willing to provide somewhere about 25% tax credit for the purpose of extending freight capacity for the rail transport. This tax credit was to be availed by anyone who was willing to invest in the industry (Slack, 2007)

A reason why investors are sometimes unwilling to invest in the railroad industry is that sometimes these carriers transport materials that are TIH (toxic inhaling hazards) substances and the costs as well as the dangers associated with these substances are enormous. If by chance someone dies because of inhaling these substances the cost to the company is somewhere about $41 million while the investors face a charge ten times heavier than $ 41 million.

Significant Issues Currently Facing the Trucking Industry

The trucking industry is the bread and blood of the US economy and is one of the main systems that are responsible for supporting the high living standards of the US people. However, in these last few years, we have seen a downfall in the business being conducted by the trucking industry which had led to one feeling somewhat threatened about his/her jobs. Although the trucking industry faces a lot of challenges it still remains the most important economic backup for the economy.

According to Butcher 2008, the trucking industry is faced with a number of issues that all seem to be somehow interrelated to each other hence it becomes important for us to identify, prioritize and rectify these issues as soon as possible for our own good. The two issues that I think are most important from the numerous ones identified by the market in 2008 are fuel costs and economy. In late 2007 and 2008; fuel prices such as diesel prices increased to abnormally high levels which led the already weakened US economy to feel the inflationary pressure. The decline of consumer trust in industries and their manufacturing output also came about as a result of this. The credit crunch and the mortgage crises also led the country and its economy further towards recession.

The proposed strategies to deal with the issue of increased fuel cost were designing initiatives to promote conservation of fuel through restricting the speed limit to a certain level while at the same time providing tax incentives to those industries willing to set up or invest in fuel-saving technologies. Because of these incentives provided to companies, many in 2008, many motor carriers tried and altogether succeeded in reducing their fuel consumption by reducing their motors speed limits through speed governors.

Another strategy proposed was to use other energy forms rather than using fuel. The alternative fuel market and its supplies continue to dramatically expand as an industry, the people still continue to sigh over high fuel costs and other harsh emission requirements. Despite the challenges faced this strategy is ranked the most effective one up till now. Another strategy proposed was an advocate for increased supply through expansion of domestic drilling and refinery capacity.

Another issue facing the trucking industry is the economic issue and it is the second most pressing issue faced by the trucking industry. Because of the rise in fuel prices and hence rising inflationary pressures led to a negative consequence for the US economy, the trucking industry is also somewhat pushed back by the increasing regulations, decreasing demand, excess in supply and increased fixed and marginal costs. All these factors result in a fairly competitive environment and lead to reduced prices and lower revenues.

This economic issue can be resolved either through our supporting freight candidates in both state and federal elections. This strategy is one of its kind as it would lead to the mitigation of the effects of the economic slump and our electing such candidates who understand the trucking business and its effects on the US economy would most likely be in a better position to educate their fellow beings in the decision making processes in the near future.

Secondly, we should try to fully implement the various trade agreements like the NAFTA which is a sort of a bill on a certain pilot program still awaiting the final decision concerning its passing and a bill like this would lead to the government allowing new markets to be opened for the transport business industries and the carriers which would further lead to an increase in the overall trucking industrial sector (Butcher, 2008).

According to the American Transportation Research Institute 2008, another strategy that would mitigate the economic issue facing the trucking industry is the bringing about of such policies which might lead to control healthcare costs for employers by trying to control both its fixed and variable costs and hence trying not to further squeeze the already squeezed profits of the industry. Since such costs continue to increase the industry must endeavor to keep such costs in check. Other issues faced by the trucking industry include government regulations, driver shortage and retention, hours-of-service, congestion, highway funding, environmental issues, on-board truck technologies and tort reforms.

The Modern-Day Container Terminals

The use of containers as a means of transporting bulk supplies of goods from one point to another is an effective mode of transport both in domestic and international service. Container traffic may be carried either by sea, rail, and air or land routes, depending upon the economical and cost factors involved. One prime advantage of container traffic is that it reduces the freight transport costs and terms of delivery. The container is usually a rectangular box-shaped steel object of varying sizes, suitable for mechanized loading, unloading and transshipment from one point to another.

The primary objective of any business is always to stay at the top by innovating, or engaging in new product developments and searching for cost-effective ways to increase profitability without a substantial increase in overhead costs. The same goes true for container terminal industries. The basic facilities offered at a container terminal are classified into core and ancillary facilities. Core facilities include infrastructure (dock, siding, and road), equipment (lifting and storing equipment), storage (yard for storing empty and loaded containers) and management (administration and maintenance). The ancillary services include trade facilitation (trade zones, logistical services), distribution centers (cross-docking and warehousing), storage depot (bulk storage area) and container services (washing, preparing and repair of containers).

According to The American Transportation Research Institute 2008, the world container traffic measured by the number of TEUs handled at ports has grown by 8-10 percent approximately within the few years. With the passage of time, new trends have emerged which demand new techniques to tackle the increasing container traffic. As the volume of trade multiplies, container traffic will increase as well and would therefore require developing new, more efficient ways to use the existing facilities. Recently, a new form of container transfer facility known as the inter-modal container transfer facility was started from the ports of Los Angeles and Long Beach.

This is a multi-user container port and has succeeded in handling more than seven million containers from 1986 to the year 2000. Quick handling of containers is ensured by the handling of around 100 lifts per man-hour.

A recent study is underway to evaluate the use of a “container on barge” cargo traffic system which means that cargo will be transported via flat deck barge over sea routes as compared to the traditional land or rail routes. The flat deck barge will be capable of carrying large numbers of containers (approximately 300 containers per barge) and the ease of being loaded and unloaded quickly at ports.

Since the turnaround time is the most crucial factor in increased freight costs, the earlier the container gets unloaded from the barges; the fewer overhead costs will be incurred. When it comes to fuel economy, the barge container on the barge will prove efficient and cost-effective for moving container traffic.

According to The American Transportation Research Institute 2008, since a typical barge can transport up to 300 containers, there will be reduced labor requirements in terms of haulage and land transportation. Pollution is also one of the key areas of concern in present times, and as the volume of trade keeps multiplying, environmentalists are of the view that carbon monoxide and nitrous oxide emissions are likely to reach alarming levels. This is where the container on the barge will gain appreciation due to its significantly lower emission rates as compared to rail or land transportation.

In order for the barge container transport system to be successful, the container on barge operations must be able to overcome the distance and transit time issues, the usage of port infrastructure to the maximum and the concept of door-to-delivery service as opposed to the traditional port-to-port service should be practiced. Where time is the crucial factor, the service must be both available when and where required and it should be reliable at the same time. Unnecessary delays are not acceptable and lead to the failure of this mode of container transport. Port operations usually result in fixed costs and therefore, the longer the area is to be covered, the more costs could be distributed evenly and result in a lower cost per mile.

However, it is important to note that such a system of container traffic cannot work on its own and would require sophisticated equipment for loading and unloading, such as forklifts, mobile cranes, container storage and staging areas, etc. While the above analysis was pertaining to the benefits to be obtained from the use of containers on barge traffic systems, it is also equally important that the port handling services are adequate for quick loading and discharging of cargo services. This is because unless the port offers state-of-the-art facilities, a fast and efficient transport system will be of no use in enhancing productivity and efficiency.

All modern ports should be equipped with a dedicated customer service center and offer web-based tracking services to enable customers to track their consignments easily. Customer satisfaction should be given the highest priority since a satisfied customer is a lifelong customer. One window operation should be established to facilitate customers in getting their shipments as early as possible without any unnecessary time lag. The Georgia Port Authority in its plans to invest more in customer services came up with the idea of creating a Client relation center that would provide a single line of contact with its customers. So much so, it conceived in providing its clients a web-based real-time cargo information service and an online credit application form. Such a decision would cost Georgia Port Authority nearly 30 million pounds.

The feasibility of such mega projects would only depend upon the size of the port and its handling capacity. Apart from the technically latest equipment available to load and discharge the cargo, customers would need to be taken care of as soon as their shipment arrives. To conclude, container traffic is very much like road traffic. Just as road traffic requires proper control to avoid congestion, container traffic too requires speedy loading and discharging of containers. In order to cope with the rising container traffic due to increased trade all over the world, new means of transporting cargo via barges have come into the limelight. Also, to enable customers to get better services and a one-window operation, dedicated customer services should be provided. Until and unless there is rapid development in the methods of handling container traffic, overhead costs and time cannot be reduced.

Summary

The air cargo system is very scattered. People from all walks of life have to try and adjust to the limitations of the air cargo transportation system. It is interesting to note that the air cargo network is highly fragmented and there are up to 14 different parties that are involved in delivering products like flowers, gold, and silver using their own hired staff members for the same. Mr. Tawari works as a manager in a KML cargo shipment division and his work involves rectifying the mistakes of his subordinates both in terms of quality as well as quantity.

In order to ensure that the cargo is transported in accordance with the set standards, he needs to add value to the existing system by adhering to the existing levels of services, customizing his schedule with the client’s requirements, conditioning the overall transportation regime, keeping a tab on delivery frequencies, labeling multiple shipment size and ensuring timely delivery of the packaged goods. While labeling the product, he needs to ensure that the language is kept in relation with the concerned country. For Example, labeling the Spanish cargo in the Spanish language is done. For shipping technical and pharmaceutical products and hi-tech customization service is used.

Conditioning service involves security and Stability control and temperature control is essential for perishable products like flowers and vegetables. For items like gold and diamond, this service is used. Value addition services are used for shipping products like Nike and HP, as these are fast-moving consumer goods. Global Cargo Carriers generates revenue of 5.1 billion dollars on an annual basis. In this scenario, the top 25% of companies generate 95% of the revenue.

Global Carriers have a global network in Fat-lanes, wherein product diversification, economies of scale, strong focus on e- channels and back-office rationalization, have led to the company generating revenues worth 100 million to a billion dollars. Global Carriers focus on exotic routes, are concerned with big projects, prefer regional carriers and recommend limited point-to-point traffic. Global industrialization, balanced commercial activities and intangible infrastructure drive Global Air Cargo to reap the desired remuneration on a timely basis.

References

Babcock, M. W. (1984). Policy Analysis Efficiency and Adjustment: The Impact of Railroad Deregulation. Retrieved July 6, 2009, from CATO Institute, Individual Liberty, Free Markets and Peace. Web.

Butcher, D. R. (2008). Top 10 Challenges in the Trucking Industry. New York: HarperCollins.

Critical Issues in The Trucking Industry- 2008. (2008). Web.

Davies, R. (1972). Airlines of the United States Since 1914. New York: The Bodley Head Ltd.

Slack, B. (2007). The Geography of Transport Systems. New York: Taylor & Francis.

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