BEFORE THE
INTERSTATE COMMERCE COMMISSION
POLICY STATEMENT REGARDING
"RULE OF EIGHT" IN CONTRACT
CARRIER APPLICATIONS
EX PARTE NO. MC-119
COMMENTS OF THE
COUNCIL ON WAGE AND PRICE STABILITY l!
The Council on Wage and Price Stability (Council) hereby submits
its comments to the Interstate Commerce Commission (ICC or Commission)
in support of the Commission's policy statement which would eliminate the
so-called "rule of eight" in determining whether to 9rant contract carrier
authority.
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A contract carrier is a trucking firm that hauls only for
those specific shippers identified in its ICC grant of operating authority.
The "rule of eight" refers to the actual or perceived policy of the ICC
to limit contract carriers to servicing no more than eight shippers.
The Council bel i eves
o
contract carriage is a highly efficient form of
transportation which has a clear advantage over
the two other main forms of truck service (common
carriage and private carriage) in performing
certain types of operations;
l! This filing is made on behalf of the Council on Wage and Price Stability,
an organization created by the Council on Wage and Price Stability Act (P.L.
93-387), within the Executive Office of the President. The authority of the
Council to intervene in governmental rulemaking and ratemaking proceedings,
conferred by Section 3(a)(8) of the Act, has been delegated to the Director
of the Council (see 40 FR 52882). The view expressed in this filing are not
necessarily those of the individual members of the Council.
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43 FR 38756.
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the "rule of eight" may arbitrarily and unnecessarily restrict the growth and development of contract carriage;
o
efficiency could be increased by the removal
of a precise limit on the number of shippers
a contract carrier may serve.
Hence, the Council supports the ICC's elimination of the "rule of eight" as
an "inflexible rule for preventing contract carriers from serving more than
eight persons."
l!
The Council's comments follow the position it has expressed in
previous filings with the Commission
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namely that efficiency can be
improved through the lowering of entry barriers and the resulting increase
in service alternatives.
The Advantages of Contract Carriage
Contract carriage can be a highly efficient mode of transportation
since it can be tailored to meet the specific needs of certain shippers.
Contract carriers do not offer their services to the general public; instead,
they operate under contract with a few shippers to supply truck transportation
services that those shippers require.
l! Ibid.
2/ See, e.g., "Procedures in Motor Carrier Application Proceedings where
For-Hire Carriage is substituted for Proprietary Operations," Ex Parte
No. MC 103. September 29, 1976, and "Grant of Motor Carri er Opera ti ng
Authority to an Applicant Who Intends to Use it Primarily as an Incident
to the Carriage of its own Goods and its own Nontransportation Business,"
Ex Parte No. MC 118. September 18, 1978.
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A contract carrier can be distinguished from a common carrier,
on the one hand, which offers its services to the public to haul authorized
commodities over authorized routes, and a private carrier, on the other
hand, which is limited to handling only the shipping needs of its own
firm and is not subject to the ICC's entry and rate regulation.
Contract carriers playa unique role in the nation's transportation
system by bridging the gap between common and private carriage.
By tailoring
their equipment and other service features, such as the timing and method
of handling deliveries, to suit the shipper's needs, a contract carrier
often can offer better service than a common carrier, in the sense that
the shipper can make arrangements as to how the service is conducted.
The common carrier, which serves numerous shippers, simply does not have
the flexibility to tailor its operations to one shipper's needs.
Like contract carriage, private carriage entails service
tailored to the needs of the shipper.
However, other constraints render
it less desirable than contract carriage for many shippers.
Because the
private carrier by definition is primarily involved in non-transportation
business, it may lack the expertise to conduct its own transportation.
Moreover, for many firms the overhead expenses of running a traffic
department are too high to justify such operations for the amount of
shipping that is done.
Still another consideration tending to reduce
the attractiveness of private carriage is the substantial amount of
empty truck mileage that results from not being allowed to increase
capacity utilization, e.g., on backhau1s, by carrying other shippers'
products. 1I
This issue is currently under consideration in Ex Parte No. MC 118,
ln which the Council filed comments supporting the granting of for-hire
authority to private carriers in such cases.
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-4Despite its advantages, contract carriage has been growing at a
much slower pace than common carriage, 1I and, although comparable data
are not available, its growth appears to be surpassed by private carriage
al so. y
Why the "Rule of Eight" Should be Terminated
One factor impeding the growth of contract carriage has been
the actual or perceived ICC policy of limiting contract carriers to
service of not more than eight shippers.
Although last year 85 percent
of the applications for contract carrier permits were approved, at least
in part,
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this figure does not reveal the number of carriers which were
discouraged from applying for additional authority because they already
served eight shippers and, hence, regarded their chance of winning approval
as very s1i ght.
A contract carrier can be most efficient in its operations when
it serves shippers with completely complementary needs, so that maximum
use of equipment and personnel can be attained.
If a carrier needs more
1/ For instance, in the most recent l5-year period for which comparable
data are available, 1959-1974, contract carriage (Class I and II) grew
approximately 91 percent, while for common carriage, general freight grew
241 percent and other-than-general freight grew 263 percent, according to
the ICC, Bureau of Accounts, Transportation Statistics in the United States,
various years.
2/ Because of the nature of private carriage, there is no complete
collection of data concerning it.
3/ According to information supplied by the Contract Carrier Conference,
of the 480 filings for permits, there were 314 grants, 98 partial of
conditional grants, 12 denials, 22 withdrawals, 28 dismissals, and 6
other outcomes.
-5than eight shippers to achieve maximum efficency, it should not be barred
from serving additional shippers.
Hence, the Council supports the
Commission's move away from a rigid limit on the number of shippers
served.
The "rule of eight" as it now stands also has a detrimental
effect on shippers with relatively small or infrequent demands.
They
may find it difficult to secure contract carriage, because contract
carriers may not want to "waste their allowance" of eight shippers on
one which would not buy very much service.
Relaxation of the "rule
of eight" would improve the prospects of this type of shipper to obtain
contract carrier service.
In the proposed policy statement, the ICC lists other factors
to be considered in deciding whether to issue a contract carrier permit.
These are
"the different types of commodities transported, the
number of permits under which the carrier operates,
the territory in which the operation is conducted, ...
"The similarity in services that the carrier performs
under its effective continuing contracts, ... the
degree of specialization required by the nature of
the business of the shippers involved, and the
historical manner in which the carrier's business
has grown and developed." .l!
The Commission does not specify how it intends to weigh these various
factors in arriving at a decision.
Just as the Council supports the
movement away from a rigid numerical standard, it urges the Commission
.l!
43 FR 38757.
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not to substitute equally restrictive guidelines in other areas.
That
is, we urge the Commission to adopt a liberal approach toward granting new contract carrier operating authority. l!
Such an approach
would promote efficiency in truck transportation and would thereby tend
to reduce inflationary pressures.
Conclusion
In conclusion, the Council supports the Commission's elimination
of the unnecessarily rigid "rule of eight" in contract carrier applications.
The Council feels that such action is clearly in the national interest
because of its tendency to increase efficiency and lessen inflationary
pressures.
At the same time, the Council urges that the Commission not
erect other barriers to entry.
l! In particular, a permit should not be denied when a contract carrier
can show that the permit being applied for would enable the carrier to
dovetail the transportation demands of the shippers it serves and/or is
applying for permission to serve. The Council regards this as a sufficient
condition for entry, but not a necessary one. We would not want the ICC
to grant authority ~ under these circumstances.
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Adoption of a 1iberal and flexible pol icy in the consideration of the
other factors involved in applications for contract carrier permits
would facilitate the growth of this highly efficient component of the
trucking industry.
Respectfully submitted,
Elizabeth A. Pinkston
Senior Economist
Government Operations and Research
Hopkins
Assistant Director
Government Operations and Research
Ro~. Nierenberg
7
Assistant General Counsel
Barry P. Bosworth
Director
Date:
October 16, 1978
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