Chapter 3.transportation Regulation and Public Policy

Transportation
Seventh Edition
Coyle, Novack, Gibson & Bardi
© 2011 Cengage Learning
Chapter 3
Transportation Regulation
and Public Policy
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied 1
or duplicated, or posted to a publicly accessible website, in whole or in part.
Introduction
• Currently many forms of government
influence in private sector business activities
– Establishment of legal foundation for conduct of
business activities and relationships
– Economic, safety, environmental regulations
– Promotion through policies and funding
– Public ownership and/or operation
– Anti-trust law development and enforcement
Introduction
• Chapter purpose
– Examine the principal roles of government in
transportation
– Examine rationale for government involvement
in transport
– Examine changing roles and rationale for
government involvement over time
• Examination begins with role of government
as a regulator of economic activities
Regulation of Transportation
Nature of Regulation
• Why does government become involved in the
activities of private sector companies?
– To protect the public interest when market forces
alone produce undesirable outcomes
• Several approaches to protecting public interest
– Maintain or enforce competition via anti-trust laws
– Use economic regulation to create more competitive
conditions
– Assume ownership and direct control of operations
Nature of Regulation
• All 3 approaches are used, but economic
regulation has been most prevalent
• Regulation seeks to balance concerns for the
public interest within a competitive
framework driven by private enterprise
• What is the legal basis for economically
regulating private sector enterprise?
– Answer begins with common law principles
Common Law
• Law based on judicial precedent, e.g., principles

of law developed from prior court decisions
– Form of law found in English-speaking nations
• Changes and evolves as conditions or
circumstances in society change
• Provides principles guiding development of
statutory laws for regulating transport
Common Law
• Provides initial basis for economic
regulation of transport
– Common law principle: “Businesses affected
with the public interest”
– Foundation for Granger Laws and economic
regulations developed in mid-western states
– Supreme Court decisions – late 1800s
• Upholds rights of states to regulate businesses
affected with public interest
• Establishes new regulatory precedent at Federal level
© 2011Cengage Learning. All Rights Reserved. May not be scanned, copied 7
Common Law
• Statutory or civil law
– In English-speaking countries, tends to evolve from
common law principles
– Statutes (acts) enacted by legislative bodies
– Constitute principal regulatory authority in transport
– Statutes tend to be written in general terms
• Thus, statutes subject to interpretation by administrative
agencies charged with implementing regulations
• Also must be interpreted by courts in legal disputes
Independent Regulatory Commissions
• Administrative agencies in executive branch
– Created to administer federal econ. regulations
• Interstate Commerce Commission (ICC)
– Replaced by Surface Trans. Board in 1995
• Civil Aeronautics Board (CAB)
• Federal Maritime Commission (FMC)
• Federal Energy Regulatory Commission
(FERC)
Role of the Courts
• Reg. agency rulings subject to judicial review
• Courts are authority for final rulings on
– Constitutionality of regulatory statutes
– Interpretation of regulatory statutes
• Reg. agencies are experts and authorities on
matters of fact. Courts are a check on
– Arbitrary or capricious agency actions
– Actions not conforming to regulatory stds/authority
– Unfair procedure or insubstantial evidence
Safety Regulation
• Controls operations, personnel
qualifications, condition of equipment
• Agencies with jurisdiction include:
– Federal Aviation Adm., Federal Railroad Adm.
– Federal Motor Carrier Safety Adm., Coast Guard
– National Highway Traffic Safety Adm.
– National Transportation Safety Board
– Pipeline and Hazardous Materials Safety Adm.
Safety Regulation
• State safety regulations and police powers
– Principally concerned with safe operation of
vehicles
– Speed limits, vehicle size, operating licensing
• State and federal regulations often conflict
– National speed limits
– Truck size and weight standards
Safety Regulation
• National security
– Jurisdiction of
• U.S. Department of Transportation
• Department of Homeland Security
– Aviation and Transportation Security Act (2001)
• Creates Transportation Security Agency (TSA)
– Maritime Transportation Security Act (2002)
– Homeland Security Act of 2002
State Economic Regulation
• Generally patterned on federal regulations
• Power to regulate given to states by
Commerce Clause of U.S. Constitution
• Cannot be stricter than federal regulations
• Limited to intrastate commerce
– Cargo must have origin and destination within
one state
– Many gray areas
Development of Regulation
• Economic regulation began at the state
level in 1860s and at federal level in 1887
– Initially driven by desire to control
monopolistic practices of railroad industry
• Regulation enabled government to
control:
– Entry and exit from the industry
– Entry and exit from markets
– Rates charged
Development of Regulation
• Principal periods or eras of regulation:
– Era of initiation: 1887-1920
• Focused on railroads
– Era of positive regulation: 1920-1935
• Oriented toward promotion of transportation
– Era of intermodal regulation: 1935-1975
• Expands regulation to other modes
– Era of economic deregulation: 1976-present
• Old rationale for regulation no longer as relevant
• Era also saw strengthening of safety and security regs.
Current Economic Regulations
• Deregulation begins with 4R Act in 1976

• Airline Deregulation Act (1977)
• Motor Carrier Act and Staggers Rail Act (1980)
– Major deregulation acts, focused on rate deregulation
• ICC Termination Act of 1995 (ICCTA)
– Further deregulates transport, eliminates most
economic regulations for trucking
– Replaces ICC with Surface Transportation Board
(STB) housed within U.S. DOT.
• STB has jurisdiction for all surface mode

regulation but, most remaining regulations
pertain to railroads
– Railroads subject to common carrier obligations
– 20 day advance notice of rate change
• Rail tariff filing no longer required
– Rail contract filing no longer required except
for agricultural products
• Other modes
– Air carrier industry is deregulated
– Water carriers largely deregulated
– Pipelines regulated by FERC
• Except for railroads, anti-trust laws are principal
approach used to protect public interest
– Common approach used in most industries
– Some regulation remains for railroads due to conditions
fostering monopoly powers in some markets
Antitrust Laws in Transportation
• Begins with Sherman Antitrust Act (1890)
– Makes restraint of trade and monopolistic practices
illegal
• Outlaws price fixing among competitors
• Outlaws business practices that foster monopolies
• Outlaws attempts to prevent sales to certain firms
• Clayton Act (1914)
– Strengthens Sherman Act by specifically prohibiting
• Exclusive dealing arrangements
• Tying contracts
• Federal Trade Commission
– Established in 1914 to administer anti-trust activities
• Robinson-Patman Act of 1936
– Prohibits price discrimination among buyers unless
• Justified by differences in cost
• Necessary to meet competition
• Necessary to adjust to changing market conditions
– Not specific to transport, thus courts will decide if
provisions apply to carrier pricing and contracts
• Two types of antitrust violation:
– Per se violation – illegal regardless of whether
economic harm occurs. Examples include:
• Price fixing, tying contracts, division of markets,
boycotts
– Rule of reason violation – economic harm to
competitors or other parties must be shown.
• Exclusive deals, requirements contracts, joint
bargaining, joint action among affiliates
• Applications in transport are evolving
Transportation Policy
• In addition to regulation and anti-trust activities, federal
government sets national transportation policies
– Composite of laws, regulations, funding programs
– No single federal transport policy statement
• Institutional framework that develops federal trans.
policy includes
– The Executive and Congressional branches
• Office of the President and over 60 federal agencies
• 30 Congressional committees
– Independent regulatory agencies
Why Do We Need a Transport Policy?
• Significance of transportation
– Physical connection fosters social unity
– Transport is fundamental to economic and national
defense
• Capital requirements are very large
• Public ownership sometimes necessary
• Policy: sets framework for allocating resources
– Guides the many federal agencies involved
Declaration of National Transport Policy
Policy Interpretations
• ICCTA contains declaration of federal policy
for STB regulation of modes (except air)
• Principal policy provisions include:
– Recognize and preserve inherent advantage of
each mode
– Safe, adequate, economical, and efficient service
– Fostering sound economic conditions among the
carriers
Policy Interpretations
• Policy provisions continued
– Restatement of common carrier obligations
• Reasonable charges, unjust discrimination, undue
preference, unfair competitive practice
– Encouraging fair wages and working conditions
– Meet needs of commerce, U.S. Postal Service,
and national defense
• Provides more specific policy direction to
STB for rail and motor transport
Who Establishes Policy?
• Executive Branch
– Office of the President
– U.S. Department of Transportation
• Focus is domestic transport (Maritime Adm. is
exception)
– Department of State
• Focus is international air and water transport
– Department of Energy
– Army Corps of Engineers
• Congress and congressional committees
– Principal Senate committees involved in transport
• Committee on Commerce, Science and Transportation
• Committee on Environment and Public Works
– Principal House of Representatives committees
• Transportation and Infrastructure Committee
• Energy and Commerce Committee
– In both houses, appropriations and finance
committees also have great influence
• Regulatory agencies influence policy via
– Interpretation of laws
– Decisions on regulatory proceedings
– Enforcement of decisions
• Judicial system
– Interprets laws
– Reconciles conflicts
• Industry associations lobby in the interest of
member firms and thereby influence policy
– Association of American Railroads (AAR)
– American Trucking Associations (ATA)
– Air Transport Association
– National Industrial Trans. League (NITL)
– National Shippers Strategic Trans. Council (NASSTRAC)
• Other influencers of transport policy
Public Promotion
• In addition to setting policy, federal government
promotes development and growth of transport
– Promotion used when
• Private sector alone supplies too little of desired transport
facilities or services
– Required capital investment may be extraordinarily large
– May be difficult or inefficient to exclude non-payers from using the
facility or service
• There are significant environmental or social externalities
associated with the supply of a transport facility or service
– Promotion is the encouragement or funding for policies,
programs, or planning designed to develop transport
system facilities or services
Public Promotion
Transport Planning and the Public Sector
• Public promotion requires public sector

planning
– Planning determines current performance levels
and future transportation needs and develops
policies and program options to achieve goals
– Different metrics than private sector planning
• Weighs benefits and costs to society rather than just
private financial costs and returns
– e.g. Costs of traffic congestion, costs of pollution, land
value benefits of subway station
Public Promotion
An Approach to Public Project Planning Analysis
• Benefit/cost ratio: a planning tool for
evaluating alternative public projects
Net benefits over project lifetime
Sum of initial project costs

• If B/C > 1, then project produces “profit”
• Issues
– Time value of benefits and costs, discount rate
– Quantification, time horizon for counting benefits
Public Promotion
Air Transport
• Air traffic control system (ATC)
• Operating subsidies, no government ownership
• U. S. Postal Service support
• Air terminal development and construction
• Safety-related promotion
• Military-related research and development
• Home-flag airline designation
• Airport and Airway Trust Fund and user charges
Public Promotion
Motor and Highway
• Nearly all roads provided by public agencies
– Most roads owned by state and local governments
– Federal government owns national park and
military base roads
• Federal Highway Adm. (FHWA) in U.S. DOT
– Administers federal highway programs
• Most federal highway aid directed to 160,000 mile
National Highway System (includes Interstates)
– Conducts/sponsors highway-related research
Public Promotion
Motor and Highway
• National Highway Traffic Safety Adm.

– Responsible for highway and auto safety
• Federal Motor Carrier Safety Adm.
– Responsible for motor carrier vehicle safety
• User charges
– Federal and much of state funding for highways
comes from a system of user charges and fees
– Federal Highway Trust Fund
Public Promotion
Rail Transport
• Freight railroads occasionally receive public
financial aid provided through legislation
– Most such aid has been for capital improvements
– Some limited operating assistance
• Federal Railroad Adm. (FRA) in U.S. DOT
– Created to provide railroad technology and safety
research and development
• Passenger railroad assistance
– Amtrak (not federally owned)
Public Promotion
Domestic Waterway Operations
• Two major forms of federal promotion

– U.S. Army Corps of Engineers
• Construction, maintenance, and operation
– U.S. Coast Guard
• Navigational aids and systems
– System of user charges implemented to cover
portion of federal aid
Public Promotion
International Water Carriage
• Maritime Administration (MARAD)

– Direct financial assistance to U.S. flag carriers
• Ship construction and operating subsidies
• MARAD aid program and decision-making control is unique in
U.S. transport
• Aid justified by need to maintain U.S. owned fleet and ship-
building capacity
– Indirect forms of promotion
• Cabotage laws
• Cargo preference laws
• Planning and facilitating (e.g., promo. export sales)
Public Promotion
International Water Carriage
• Shipping Acts of 1984 and 1998
– Designed to reduce economic regulation and
create a more competitive and market-driven
international shipping industry
• St. Lawrence Seaway Development Corp.
– Charged with operating and providing funding aid
for operating Seaway and Great Lakes systems
• Role of port authorities
Public Promotion
Pipelines and Other Promotion
• Pipelines
– Right of eminent domain, no other financial aid
• Other promotional activities
– Planning and research
• U.S. DOT, Transportation Research Board, National
Science Foundation
• U.S. Dept. of Agriculture
– E.g., handling, packaging, and transport of food
• U.S. Department of Defense
Transport Promotion in Perspective
• User charges
– Reasons for user charges
– Different forms
• Existence charge (1st tier)
• Unit charge (2nd tier)
• Relative use (3rd tier)
• Nationalization
– Rare form of public promotion in U.S.
– Purpose, advantages and disadvantages
Transportation Safety
• Federal role is to ensure safety of traveling and
general public
– Accomplished through safety regulations,
enforcement, and research
• Heightened concerns in econ. deregulation era
• Objective of safety regulations: set minimum
level of safety for providers to maintain
– Providers typically exceed minimums
• Safety regulations cover
– Labor and training standards
• e.g., minimum qualifications for operating personnel
– Equipment standards
• e.g., aircraft design specs, auto safety equipment
– Hazardous materials and waste transportation
• Covered in Code of Fed. Regulations, Titles 40 and 49
• Loading/unloading, routing, packaging, ID, documents.
– Environmental safety
• e.g., auto emissions, tanker loading/unloading
Transportation Security
• Department of Homeland Security (DHS)
– Mission and responsibilities
– Transport-related responsibilities adm. through
• Coast Guard (CG)
• Customs Service (CS)
• Transportation Security Adm. (TSA)
• Impacts on transport system, commercial
carriers, and transport users

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Transportation

• Law based on judicial precedent, e.g., principles

• Deregulation begins with 4R Act in 1976

• STB has jurisdiction for all surface mode

• Public promotion requires public sector

Sum of initial project costs

• National Highway Traffic Safety Adm.

• Two major forms of federal promotion

• Maritime Administration (MARAD)

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