Transportation Regulation vs. Deregulation: Impacts Explained

Introduction

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 compares and contrasts how regulation versus deregulation has impacted transportation and discusses some of the major influences on both regulating and deregulating the transportation industry. It also describes the effects that globalization has had on regulations and shows that consumers can benefit from both regulation and deregulation.

How Regulation Has Shaped Transportation

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, in order 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. Instead, carriers were abandoning proper maintenance protocols and creating unsafe working conditions (Thoms, 1983). Prior to regulation of the trucking industry, consumers benefited from extremely low prices because of extensive competition; however, with regulation came stricter codes that transporters had to meet, which caused prices to rise for consumers. In this way, consumers benefited in terms of pricing from deregulation, while the industry overall benefited from regulation because it enforced safer standards.

The Effects of Deregulation on Transportation

Deregulation, on the other hand, has allowed consumers to benefit by enabling companies to lower prices in order to compete. However, another impact of deregulation has been that some companies have lost leverage. In the transportation sector, some industries — such as railroad — have been regulated, while others — such as naval shipping and trucking — have been largely unregulated. Regulation of the railroad, coupled with deregulation in the trucking and naval shipping industries, led to the bankruptcy of several high-profile railroad companies, like Penn Central. By the 1970s, deregulation came to the broader transportation industry in the U.S., which allowed prices to fall once more for consumers as competition increased (Kahn, 2002).

However, deregulation also caused many carriers to lose leverage both politically and economically. Once more, deregulation seemed to benefit consumers by making prices more competitive, but in terms of the industry's overall efficiency, significant questions emerged regarding safety standards and labor fairness.

Conclusion

Consumers can benefit from both regulation and deregulation: with the former, better working conditions can prevail, monopolies can be broken up, and improved pay, accountability, and equitability can be enforced. With the latter, greater competition can emerge, which drives down prices. Consumers can satisfy their ethical concerns through more regulation, and their financial concerns through deregulation. Each approach, however, comes with its own advantages and disadvantages.

With more regulation in transportation comes the risk of reducing competition and of failing to keep pace with the development of the industry in a globalized world. Deregulation, on the other hand, can result in monopolization or lead to unsafe working conditions and the proliferation of unethical business practices. A balance between regulation and no regulation is therefore important in transportation, as the Jones Act illustrates: regulation can be helpful in certain respects while harmful in others. Finding the right balance — one that protects consumers, supports fair labor, and remains responsive to global economic realities — is crucial for the long-term health of the U.S. transportation industry.

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 International Law Journal, 47, 63.

Thoms, W. E. (1983). Rollin' on… to a free market: Motor carrier regulation 1935–1980. Transportation Law Journal, 13, 43.