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…
