r- ~ I \ar 1979 RAJ Pagc 21 Myth S. "Tbe decline {)f tbe railroads is due to fedeml subsidies of the trucking industry . .. Seventy-five years ago railroads carried all the overland freight in the United States; today' thcy carry only 38 percent of it. One of the most widely believed explanations for this decline holds that lrucks have been able to win a disproportionate share of the freight because their rates are artificially low: railroads must pay for their own roadbeds, but trucks have the use of a cheap roadway provided by federal highway subsidies. Is there such a trucking subsidy? One of the earliest academic studies of this question concluded that trucks in general pay about as much in taxes as they incur in highway building costs. The railroads have, of course. maintained that is not true: the United States Railroad Association (USRA) estimates that a diesel semi-trailer of five or more axles actually causes highway costs of about 1.6 ccnts per mile more than the taxes it pays. USRA admits that the magnitude of the figure is subject to some controversy, but I will use it for the moment anyway. Is 1.6 cents per mile an important subsidy? Using a conservative esti mate of $1.40 revenue per truck-mile, the subsidy amounts to only 1.1 percent of truck tariffs. It is difficult to see how an alleged 1.1 percent price subsidy could cause a diversion of freight from railroads to trucks. If trucking is not receiving a significant subsidy', and hence charging artificially low prices, what does explain the diversion of freight from railroads to trucks? The first thing to notice here is that the decline of the railroad freight business began long before therc was any significant federal highway program, and we need look no farther than the method of pricing freight ' to see why this happened. In the early years of railroading, freight tariffs were set on the value-of-service principle: shippers of expensive manufactured goods could afford to pay high tariffs, so the railroads charged them high tariffs; shippers of lnel\."pcnsive bulk goods could afford only low tariffs, so their fees were set low. In essence, the railroads based their rates on 1'he value of the service to the shipper-i.e., the shipper's ability to pay- rather than on the cost of moving the goods. So a manufacturer paid much more for a ton-mile of service than a farmer and provided a greatel' share of the railroad's profits. Whcn the U.S. Interstate Commerce Commission (ICC) was created, it institutionalized this value-of-service concept. During the years' when railroads were the only source of transportation, the relative exploitation of manufacturers worked to the advantage of the railroads. But th is gap between the cost of providing freight service and its sale price was also a tempting opportunity waiting to be exploited by some new fOTm of shipping-which thC" trucking industry was the first to realize. ---~---" ".- Even though it cost trucks more than it cost railroads to move a ton-mile of freight, thc truck's costs were still lower than the artificially high prices charged manufacturers hy the railroads. Trucks cou ld provide. better service-faster delivery with greater flexibility - at the same price as the railroads. Thus. to compensate for the relative difference in the quality of services, the ICC regulations thal had once worked to the advantage of t'he railroads now prevented them from lowering their tariffs in order to charge lower rates than trucks. Naruraliy. the trucking industry prospered and grew, and .as a "reward" for its dynamic economic behavior it was eventually placed under the control of the ICC. Once the trucking industry was under ICC regulation it, in turn, became vulnerable to simple competition. Ironically, the same ICC regulation thal previously had helped rhe rrucking industry then provided the profit opportunity encouraging private, nonregulated trucks. Under the ICC regulation, the common-carrier trl!cks had the same value-of-service pricing as the railroads; thus they als(J were overcharging high-value goods. It was not long before somc manufacturers made the simple calculations to discover that they could operate their own trucking fleets for less money than the artificially high tariffs they were paying the common-carrier trucks:-evcn though their private trucks generally had to return home empty. So private trucking prospered and now accounts for 56 percent of the intercity truck freight. Unfortunately, the ICC was not content to limit its in terference to tariff schedules, but also began making direct allocations of freight runs. Thus, for example, it licensed a particular common-carrier to haul one commodity, frozen hush puppies, between -a few specific cities: no other commodity, no other cities. A truck could not pick up additional cargo as it dropped off part-loads on its outbound trip. and on the way back it returned empty. Obviously such practices were inefficient and cost the freight companies money, but the ICC was not bothered by inefficiency (only by competition. apparently). The ICC simply allowed the freight companies to raise prices so that they could survive despite their inefficient use of resources. Thus everyone pays higher freight prices to satisfy the ICC's goal that these empty trucks be kept profitable. A number of economists have estimated that the net effect of ICC regulation is an enormous underutilization of capacity: only about half of the total capacity of all railroads, comm(Jncarrier trucks, and private trucks is being utilized. A great deal of evidence suggests that inefficient use of transportation reS(Jurces, due to ICC regulation, is the major problem faced by the freight sector of the American transportation industry. These regulations cause a complex web of cross-subsidization that misallocates traffic across modes and produces underutilization of capacity within modes. thomas .-_.--,
RkJQdWJsaXNoZXIy NTc4NTAz