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Congress Acts to Preempt Regulation of Intrastate Transportation of Property

A deregulation bill which preempts state and local trucking restrictions has received a final vote in Congress. President Clinton has vowed to sign it. The legislation, which becomes effective January 1, 1995, deregulates intrastate trucking operations of both motor carriers of property and air cargo carriers. The new law raises a number of policy issues and compliance questions for regulatory authorities, shippers, and motor carriers for which there is little time to react.

Background

Forty-one states currently regulate, in varying degrees, intrastate rates, routes, and services of motor carriers. Typical forms of regulation include: entry controls, service areas, tariff filing and price regulation, and commodity limitations. The controls often serve to protect existing carriers by restricting new applicants from directly competing for a given route or commodity. Such regulation is usually designed to insure not that prices are kept low, but that they are kept high enough to cover a carrier's cost. Not all forty-one states regulate each of these aspects, nor do they all regulate them in the same manner or to the same degree. Shippers are often surprised to learn of their lack of freedom in negotiating rates or selecting motor carriers to move their products within a given state. Effective January 1, 1995, however, shippers, motor carriers of property, and air cargo carriers will compete in a free market given Section 601 of the Airport Improvement Act of 1994. State and local authorities will be prohibited from regulating prices, routes, or services within the transportation industry.

Preemption

Preemption is a doctrine which provides that certain matters are of such a national character that federal laws will take precedence over state or local laws. As such, a state or local authority may not pass a law inconsistent with the federal law. Congress has now determined that preemption of state economic regulation of motor carriers is in the public interest, as well as necessary to facilitate interstate commerce.

Subsection (a) of Section 601 enumerates Congress' findings and purposes in enacting the legislation. Congress declared that state regulation of intrastate transportation of property has:

  • imposed an unreasonable burden on interstate commerce;
  • impeded the free flow of trade, traffic, and transportation of interstate commerce; and
  • placed an unreasonable cost on the American consumers.
The Joint Conference Committee Report summarized its statement of purpose: "Lifting of these antiquated controls will permit our transportation companies to freely compete more efficiently and provide quality service to their customers. Service options will be dictated by the marketplace; and not by an artificial regulatory structure."

State Economic Regulation of Motor Carriers

Subsection (c) of Section 601 preempts state regulation of "prices, routes, and services' of carriers. The preemption provision is identical to language in subsection (b) deregulating air carriers and carriers affiliated with a direct air carrier. The intention is to create a completely level playing field between air carriers and motor carriers.

The term "motor carrier" as used in Section 601 will have broad applications. "Motor carrier" obviously covers contract carriers and common carriers of property. Also included in the term is a courier carrier handling express shipments, tow trucks, livestock carriers, armored car companies, and petroleum carriers. The law also applies to private motor carriers, that is, a company which is transporting its own products to further its own business interests. Most significantly, when a motor carrier of passengers is transporting property in intrastate commerce, the state will lack authority to regulate price, route, or service for any of the transported property. This is true even if the property is being transported in the same vehicle that moves passengers.

The scope of the preemption of states' rights under Section 601 is not without some limitations. States are permitted to continue to exercise regulatory authority in a number of traditional areas: safety, financial fitness and insurance, vehicle size and weight, and highway route controls for hazardous materials. State regulation in those areas is unchanged since it does not involve a "price, route, or service." Moreover, the statute expressly excludes from its scope the transportation of household goods, and by implication, excludes refuse collectors. Under established ICC case law, garbage and refuse is not considered "property." Consequently, refuse collectors are not considered "motor carriers of property" and are thus unaffected by the provisions of Section 601. Between the express and the implied, however, lies the doubtful ability of states to regulate motor carriers transporting recyclable materials.

Section 601 offers an optional form of continued state regulation of certain standard transportation practices. The enumerated areas are uniform cargo liability rules, uniform bills of lading or receipts, uniform cargo credit rules, and anti-trust immunity for interlining, classifications, and mileage guides. The list is not intended to be all-inclusive, but merely to specify some of the matters which are not a "price, route, or service" and which therefore are not preempted. The statute does not confer any new authority to a state, but merely confirms that the four identified areas are not preempted.

This permitted state regulatory authority under Section 601, however, is limited in two significant respects.

  • A state's efforts to regulate within the permitted areas can be no more burdensome than any federal regulation on the same subject matter.
  • None of the state's regulations will apply to any motor carrier which does not wish to be subject to such regulations.
A carrier is free to elect whether to be subject to regulation in the permitted areas. This form of "take away, give a little bit back, but only if. . ." legislation raises a significant policy question for states to determine whether it is beneficial to attempt to continue any form of meaningful regulation within its borders. The Committee Report further issues a strong warning to state and local authorities not to attempt to de facto regulate prices, routes, or services of intrastate trucking through the guise of some form of unaffected regulatory authority.

Conclusion

Effective January 1, 1995, state and local authorities will be prohibited from enacting or enforcing any law, rule, or regulation relating to the price, route, or service of any air carrier, carriers affiliated with a direct air carrier, and any other motor carrier or private motor carrier with respect to the transportation of property. Section 601 neither restricts nor expands the authority of states to regulate such traditional areas relating to safety, vehicle size and weight, insurance, or hazardous materials routing. The reaction by state and local regulatory agencies, shippers, and motor carriers will generate a variety of questions and issues as the industry moves toward this new deregulated environment.

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