A return to the bad old days of rate regulation

The Owner-Operator Independent Drivers Association (OOIDA) has linked high fuel costs and carrier failures to the current capacity crunch as one argument to support a provision calling for a federally mandated fuel surcharge in the current Highway Reauthorization Bill before Congress. The OOIDA certainly has some valid issues, but is imposing a form of regulated rate setting really the answer?

Owner-operators and small carriers (six or fewer trucks) don't have the ability to raise rates or establish a fuel surcharge when fuel prices jump, says OOIDA. Fuel represents approximately 40% of their operating expenses, the argument continues. Those small carriers, which OOIDA says comprise 80% of the trucking capacity in the U.S., aren't privy to motor carrier or broker contracts that set rates and establish fuel surcharges to be paid by the shipper or consignee. And, further, says OOIDA, where these surcharges are collected, there is little motivating the carrier or broker who hired the owner-operator to pass along the surcharge it collected.

Attorney Marc Blubaugh, with the firm Benesch Friedlander Coplan & Aronoff LLP, readily admits, "The big winners if the legislation were to go into effect would be people like me — attorneys." Commenting that he hates to turn away business, he doesn't see the type of litigation that would result from a mandatory fuel surcharge as a good thing.

The language of the provision mirrors that of a 2002 Senate bill. Legislators have stated the current provision does not amount to re-regulation of the trucking industry, but we have to apply the "duck test":

"Any contract or agreement providing for truckload transportation or service involving a motor carrier, broker, or freight forwarder ... shall include a requirement that the payer of transportation charges pay a fuel surcharge...."
Quack
"The surcharge required... shall apply during any period in which the Current Diesel Fuel Price surpasses, by $0.05 per gallon of diesel fuel, the Benchmark Price... and shall be calculated] by subtracting the Benchmark Price from the Current Diesel Fuel Price and then multiplying the difference by the number of gallons of diesel fuel used in the transportation service provided."
Quack
The Bill instructs the Secretary of Transportation to adjust the Benchmark Price and to publish that price in the Federal Register. It continues describing the method for calculation and then describes how to determine the amount of fuel used.
Quack

Looking for a means to enforce the surcharge section of the Bill, the legislators quickly recognize there is no longer an Interstate Commerce Commission, so they throw the enforcement authority to the courts. Blubaugh was right about who will benefit from the provision.

If the problem is that the person paying the freight bill pays a surcharge that a carrier or broker does not pass on to a subcontracted owner-operator, shouldn't the subcontractor include the pass-through provision in any agreement with the carrier or broker? Unethical companies that don't pay the pass-through would soon find it difficult to get drivers (or they would only get low-quality drivers), and this would affect their ability to serve their end customer. Some visible court judgments against those companies would establish liability and the market would begin regulating the issue without much need to return to the courts.

If carriers and brokers are required to pass through fuel surcharges to subcontractors, Morgan Stanley's James Valentine suggests, it begins to sound more like an accounting standard. Under the shadow of Sarbanes-Oxley, isn't there more clout for the owner-operators if the rules governing fuel surcharges mandate a pass-through rather than setting a price? No one seems to be clear on what, if any, liability the payer of the freight bill might have if the proposed government-set surcharge is not paid to the owner-operator.

There's plenty of enforcement behind improper accounting, and that fact alone would argue for a pass-through rule to avoid an undercharge crisis similar to the 1980s if owner-operators start going after shippers for the surcharge.