Simplicity Rules

June 18, 2007
[email protected] In an iPod world where whole bookshelves of record albums (remember vinyl?) now fit in your pocket, why do we want to hold

[email protected]

In an iPod world where whole bookshelves of record albums (remember vinyl?) now fit in your pocket, why do we want to hold onto a freight rating system nearly as antiquated as Thomas Edison's wax cylinders?

A few of us who were around in 1980 when the Motor Carrier Act deregulated the trucking industry can remember walking through rooms filled with binders containing motor carrier rate and rules tariffs. Traffic clerks poured over the rate books looking for the lowest applicable rate for their shipment and ensuring the carrier they selected was party to that tariff. In those days, the carriers figured out what it cost to move a particular commodity over a particular lane and, if another carrier wanted to participate in that business, you "joined" the tariff.

Economic deregulation appeared to have wiped out the need for carriers to file tariffs, and shippers were free to negotiate rates. Transportation contracts had to meet certain basic requirements, but it felt like a free market. Then, when carriers started filing for bankruptcy and their accounts were being audited by court-appointed trustees, we learned a valuable lesson. Read the fine print.

The Motor Carrier Act didn't eliminate the requirement for carriers to file and follow tariffs and even though the chairman of the Interstate Commerce Commission interpreted that as the intent of Congress, the US Supreme Court said, as politely as justices can, if Congress wants to eliminate the tariff filing requirement, it can put that in the law. So, eventually it did.

Except for the motor freight classification system, why do we still have carrier tariffs and, if carriers aren't collectively setting rates to be filed in legally required public tariffs, why do they need antitrust immunity?

It seems like someone's fighting pretty hard to keep alive a system that is at least inefficient, if not entirely unnecessary. Taking the basis for the classification system (density, stowability, handling, and risk) can't we simplify even the classification system?

Shippers asked for and then resisted carrier efforts to simplify pricing using a density-based system. Without universal acceptance, any carrier that made the move first would put itself at an instant market disadvantage as others simply discounted from that carrier's rate structure.

If the load characteristics, mileage and operating costs are fairly standard for all carriers, then lane density is one of the few significant variables. Since most base rates are used as a starting point for a negotiated price, and carriers make up for special handling and added risks through accessorial charges, what's the harm in developing a simplified rate structure? It's easier to manage, easier to negotiate from, easier to audit against, and it may even be easier to understand. The armies of rate clerks are long gone (but the freight bill auditors aren't).

A carrier's ability to charge a rate closer to the base rate and actually recover accessorials, then would depend on service performance. Perhaps that's the sticking point.

The deadline removing antitrust immunity from the rate bureaus leaves enough time for a few more meetings to work out the details of a simplified rate structure, I suggest they use that time wisely.

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