Transportation Industry Regulation vs. Deregulation

Regulation vs. Deregulation
Transportation regulation has always been an important aspect of business logistics and supply chain management. In the 19th century, the railroads introduced a new mode of transportation that businesses could take advantage of, and in the beginning there was very little regulation of the railroads. Today, regulation exists for all modes of transportation. This paper will compare and contrast how regulation versus deregulation has impacted transportation and discuss some of the major influences on both regulating and deregulating the transportation industry. It will also describe the effects that globalization has had on regulations and show that consumers can benefit from both regulation and deregulation.
Regulation has impacted transportation in a number of different ways. It has enabled monopolies to be broken up, made the industry safer, and given leverage to laborers and unions. The first regulation of the railroads went into effect with the Interstate Commerce Act of 1887, which effectively broke up the railroad monopolies that were strangling competition in the transportation industry (Gilligan, Marshall & Weingast, 1989). The Interstate Commerce Act controlled who could enter and exit the industry and also set caps on rates where competition was light to protect consumers. With trucking transportation in the first half of the 20th century, the problem was the opposite: there was too much competition, which was causing some transporters to slash prices so low that they were not even covering their own costs and instead were abandoning proper maintenance protocols and causing unsafe working conditions to proliferate (Thoms, 1983). Prior to regulation of the trucking industry, consumers benefitted from extremely low prices because of extensive competition; however, with regulation came stricter codes that transporters had to meet, which caused prices to go up for consumers. In this way, consumers benefitted in terms of pricing from deregulation; the industry overall however benefitted from regulation because it enforced safer standards.
Deregulation, on the other hand, has allowed consumers to benefit by allowing companies to lower prices in order to compete. But another impact of deregulation has been that some companies have lost their leverage. In the transportation sector, some industries (like railroad) have been regulated while other industries (like naval shipping and trucking) have been unregulated. Regulation of the railroad, for example, coupled with deregulation in the trucking and naval shipping industries, led to the bankruptcy of several high-profile railroad companies, like Penn Central, and by the 1970s, deregulation came to the transportation industry in the U.S., which allowed prices to come down once more for consumers with an increase in competition (Khan, 2002). However, deregulation also caused many carriers to lose some of the leverage they had in political terms and even in economic terms. Once more, deregulation seemed to benefit consumers by making prices more competitive, but in terms of the industry’s overall efficiency, some big questions emerged, such as safety standards and labor fairness.
Major influences on regulation vs. deregulation include political, economic and social variables. Testing transportation drivers for drug use became a part of regulation when drugs became a problem in society. Political factors included the lobbies of transportation companies and the leverage that various industries were able to accrue in the political process. Economic factors included the costs of shipping, demand, and the voice of consumers and consumer watchdog advocates in the political process.
The effect that globalization has had on regulations is substantial. For example, in the shipping industry, the U.S. has had a piece of legislation in place for many years known as the Jones Act (Grennes, 2017). This Act was meant regulate the U.S. shipping industry and protect it. Any ship leaving a U.S. port for another U.S. port had to be built by Americans, crewed by Americans, and flying the American flag according to the Jones Act. The point of this was to ensure that American shipping was always in demand. The major factor of globalization, however, was not foreseen at the time when the Act was passed. Globalization has made it much easier for ships to sail under flags of convenience and for one set of shippers to deliver goods in a timely fashion to a region in need. When a natural disaster occurs in a region where the ports are American, foreign flagged ships sailing from other American ports could safely reach the region in need, but the Jones Act does not allow them to do so (Grennes, 2017). The fact of globalization has placed pressure upon the transportation industry in the U.S. to change its regulation to be more accommodative towards foreign shipping.
Globalization has impacted regulations in other ways as well. Flags of convenience are now much easier to fly as a result of globalization. States like Panama offer these to shippers so that regulatory arbitrage can be conducted (Riles, 2014). Other forms of regulatory arbitrage include using third parties that are outside the purview of domestic regulation, for example, in the field of ship dismantling, where much of it is conducted in unsafe conditions in states like Bangladesh. Globalization has made it easier for transporters to engage in legally and ethically questionable activities, such as trafficking and employing workers at sub-quality working conditions and with sub-quality pay. Globalization has also made transportation more competitive—but at the same time, it has lined up numerous dominoes so that if there is a recession in one part o the world, the entire supply chain can be negatively impacted and transportation can crash.
In terms of how globalization has impacted regulation, international treaties are constantly being bandied about, some are signed and some are not—but there is always present the idea of regulation among state leaders. Transportation regulations regarding air shipping, sea shipping and land shipping are affected by issues such as safety, especially in the wake of the War on Terror, has global ramifications. Trade issues and tariffs also are part of the global economic system and impact transportation regulation eventually.
In conclusion, consumers can benefit from both regulation and deregulation: with the former, better working conditions can prevail, monopolies can be broken up and better pay, accountability and equitability can be enforced. With the latter, more competition can be allowed, which will drive down prices. Consumers can satisfy their ethical concerns with more regulation and they can satisfy their financial concerns with deregulation. Each comes with its own advantages and disadvantages, however. With more regulation in transportation comes the risk of driving out competition and of failing to keep up with the development of the industry in a globalized world. Deregulation on the other hand can cause the industry to be monopolized or can lead to unsafe working conditions and the flourishing of unethical business practices. A balance between regulation and no regulation is important in transportation, as the Jones Act shows: regulation can be helpful in ways but harmful in others—so finding the right balance is crucial.
References
Gilligan, T. W., Marshall, W. J., & Weingast, B. R. (1989). Regulation and the theory of
legislative choice: The Interstate Commerce Act of 1887. The Journal of Law and Economics, 32(1), 35-61.
Grennes, T. (2017). Does the Jones Act Endanger American Seamen. Regulation, 40, 2-4.
Kahn, A. E. (2002). The deregulatory tar baby: The precarious balance between
regulation and deregulation, 1970–2000 and henceforward. Journal of Regulatory Economics, 21(1), 35-56.
Riles, A. (2014). Managing regulatory arbitrage: A conflict of laws approach. Cornell
Int'l LJ, 47, 63.
Thoms, W. E. (1983). Rollin'on... to a free market motor carrier regulation 1935-
1980. Transp. LJ, 13, 43.