1. Chapter 3 Transportation Regulation and Public Policy
Transportation Seventh Edition Coyle, Novack, Gibson & Bardi © 2011 Cengage Learning
Chapter 3
Transportation Regulation and Public Policy
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2. 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
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3. 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
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4. 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
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5. Regulation of Transportation 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
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6. Regulation of Transportation 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
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7. Regulation of Transportation 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
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8. Regulation of Transportation 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
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9. Regulation of Transportation 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)
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10. Regulation of Transportation 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
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11. Regulation of Transportation 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.
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12. Regulation of Transportation 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
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13. Regulation of Transportation 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
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14. Regulation of Transportation 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
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15. 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
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16. Development of Regulation
Principal periods or eras of regulation:
Era of initiation:
Focused on railroads
Era of positive regulation:
Oriented toward promotion of transportation
Era of intermodal regulation:
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.
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17. 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.
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18. Current Economic Regulations
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
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19. Current Economic Regulations
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
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20. 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
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21. Antitrust Laws in Transportation
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
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22. Antitrust Laws in Transportation
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
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23. 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
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24. 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
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25. 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
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26. Declaration of National Transport Policy 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
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27. Declaration of National Transport Policy 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
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28. Declaration of National Transport Policy Who Establishes Policy?
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
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29. Declaration of National Transport Policy Who Establishes Policy?
Regulatory agencies influence policy via
Interpretation of laws
Decisions on regulatory proceedings
Enforcement of decisions
Judicial system
Interprets laws
Reconciles conflicts
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30. Declaration of National Transport Policy Who Establishes Policy?
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
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31. 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
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32. 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
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33. Public Promotion An Approach to Public Project Planning Analysis
Benefit/cost ratio: a planning tool for evaluating alternative public projects
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
Net benefits over project lifetime
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34. 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
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35. 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
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36. 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
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37. 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)
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38. 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
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39. 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)
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40. 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
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41. Public Promotion Pipelines and Other Promotion
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
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42. 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
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43. 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
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44. Transportation Safety
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
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45. Transportation Safety 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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