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Commission. There are, however, certain types of motor carrier operations which Congress decided should be excluded from such regulation. Section 203(b)(8) of the Interstate Commerce Act establishes one such area of exempt motor carrier operations by providing

nor, unless and to the extent that the Commission shall from time to time find that such application is necessary to carry out the national transportation policy declared in this Act, shall the provisions of this part, except the provisions of section 204 relative to qualifications and maximum hours of service of employees and safety of operation or standards of equipment apply to: *** (8) the transportation of passengers or property in interstate or foreign commerce wholly within a municipality or between contiguous municipalities or within a zone adjacent to and commercially a part of any such municipality or municipalities, except when such transportation is under common control, management, or arrangement for a continuous carriage or shipment to or from a point without such municipality, municipalities, or zone, and provided that the motor carrier engaged in such transportation of passengers over regular or irregular route or routes in interstate commerce is also lawfully engaged in the intrastate transportation of passengers over the entire length of such interstate route or routes in accordance with the laws of each State having jurisdiction;"

It is apparent that Congress intended to exempt motor carrier transportation in urban areas from regulation by this Commission. While Congress described this transportation as that which is “wholly within a municipality or between contiguous municipalities or within a zone adjacent to and commercially a part of any such municipality or municipalities,” the geographic extent of the "commercial zone" exemption was not specified in the Act. The responsibility for making such a determination was left to this Commission as one of its duties in administering the provisions of the Act. The size of commercial zones became of immediate importance at cities near or straddling State lines or near ports. The early cases dealing with these cities' employed a “single terminal” test in deciding whether a particular transportation movement was of a distinctly local or urban nature and thus within the scope of section 203(b)(8). Interpreting the exemption to apply to “intraterminal” as distinguished from intercity or intercommunity operations, this Commission drew commercial zone boundaries that reflected the geographic extent of intraterminal motor freight movements at particular cities. These boundaries were drawn to conform as closely as possible to the needs and facts of the involved urban area, giving due regard to the practical administration of the exemption. New York, N.Y., Commercial Zone, 2 M.C.C. 191, 193 (1937). These limits normally encompassed local operations performed solely over city streets; however, it was noted that it may frequently be necessary to pass through small areas of unimproved land, or land devoted to agriculture, in order to transport passengers and property between points within a commercial zone. St. Louis, Mo.-East St. Louis, Ni., Commercial Zone, 1 M.C.C. 656, 662 (1937).

'This designation has been used since the earliest case dealing with this exception to Federal economic regulation of motor carrier transportation. The zone adjacent to and commercially a part of a municipality and of contiguous municipalities will for convenience be referred to herein as ihe commercial zone. St. Louis, Mo.-Eası St. Louis, III., Commercial Zone, I M.C.C. 656, 658 (1937).

See, St. Louis, Mo.- Eası St. Louis, III., supra at footnote 1 and 2 M.C.C. 285 (1937); New York, N. Y., Commercial Zone, I M.C.C. 665 (1937); Chicago, III., Commercial Zone, I M.C.C. 673 (1937); Los Angeles, Calif., Commercial Zone, 3 M.C.C. 248 (1937); Washington, D.C., Commercial Zone, 3 M.C.C. 243 (1937); Cincinnari, Ohio, Commercial Zone, 26 M.C.C. 49 (1940), Philadelphia, Pa., Commercial Zone, 17 M.C.Č. 533 (1939); Boston, Mass., Commercial Zone, 31 M.C.C. 405 (1941); Davenpori-Rock Island and Moline Commercial Zone, 41 M.C.C. 557 (1943).

It must be pointed out that the exemption provided for in section 203(b)(8) does not apply to local cartage operations when such transportation is performed under common control, management, or arrangement for the continuous carriage of a shipment to or from a point outside the limits of the particular municipality or commercial zone thereof. In other words, when the local transportation is part of or incidental to a line-haul service, the partial exemption of section 203(b)(8) is withheld. In this context, however, section 202(c) comes into play. This section which was added by amendments to the act in 1940 and 1942, speaks of "terminal areas" and complements the commercial zone exemption by excluding from direct economic regulation the transfer, collection, and delivery performed within the terminal areas of line-haul carriers in connection with line-haul services. The 202(c) exemption allows local cartage

operators to contract with or act as agents for regulated line-haul common carriers-rail, express, motor, water, or freight forwarder-in incidental transfer, collection, and delivery service within terminal areas. Section 202(c) does not permit, however, the local carrier to participate in a through rate or to perform a through service with the line-haul carrier. More specifically, the exact dictates of section 202(c) are as follows:

Norwithstanding any provision of this section or of section 203, the provisions of this part, except the provisions of section 204 relative to qualifications and maximum hours of service of employees and safety of operation and equipment, shall not apply

(1) to transportation by motor vehicle by a carrier by railroad subject to part I, or by a water carrier subject to part III, or by a freight forwarder subject to part IV,

incidental to transportation or service subject to such parts, in the performance within terminal areas of transfer, collection, or delivery services; but such transportation shall be considered to be and shall be regulated as transportation subject to part I when performed by such carrier by railroad, as transportation subject to part III when performed by such water carrier, and as transportation or service subject to part IV when performed by such freight forwarder;

(2) to transportation by motor vehicle by any person (whether as agent or under a contractual arrangement) for a common carrier by railroad subject to part I, an express company subject to part I, a motor carrier subject to this part, a water carrier subject to part III, or a freight forwarder subject to part IV, in the performance within terminal areas of transfer, collection, or delivery service; but such transportation shall be considered to be performed by such carrier, express company, or freight forwarder as part of, and shall be regulated in the same manner as, the transportation by railroad, express, motor vehicle, or water, or the freight forwarder transportation or service, to which such services are incidental.

The significant point is to recognize that "the combined effect of sections 202(c) and 203(b)(8) is partially to exempt from regulation all local motor transportation, in interstate or foreign commerce, within commercial zones or terminal areas.” Commercial Zones and Terminal Areas, 46 M.C.C. 665, 669 (1946).

Ex Parte No. MC-37.-n the mid-1940's the efficacy of using a case-by-case approach to determine the geographic size and meaning of the commercial zone and terminal area exemptions came under scrutiny. Recognizing that a commercial zone exists about every municipality in the United States, Commercial Zones, 46 M.C.C. at 677, the sheer impossibility of specifically defining both the commercial zone limits at every city and the terminal area of each carrier at each of its authorized service points dictated the necessity of formulating some general guidelines in this area. The initial rulemaking proceeding instituted to consider this matter was designated Ex Parte No. MC-37. This proceeding has spawned 23 supplemental reports in the lead dockets and, prior to the instant proceeding, 25 subnumbered proceedings.

The creation of general guidelines in this area involved three primary tasks: (1) developing a general method for establishing commercial zone limits at all municipalities; (2) similarly, defining by general rule the geographic limits of carriers' terminal areas; and (3) construction of motor carrier operating authorities which utilize municipalities in their territorial descriptions. The first undertaking was dealt with in Commercial Zones and Terminal Areas, 46 M.C.C. 665 (1946). The latter two were the subjects of Commercial Zones and Terminal Areas, 48 M.C.C. 418 (1948)' and 54 M.C.C. 21

'Third Supplemental Report, Ex Parie No. MC-37.

(1952).* While many sub-issues necessarily had to be dealt with in those reports, we will focus our attention here on the above three topics only.

The first report enunciated the various factors which establish the limits of commercial zones—“trade practices, the uses to which the area is put, and geographical and political considerations,” Commercial Zones, 46 M.C.C. at 672—and defined certain key terms. "Municipality" was deemed to refer only to cities, towns, villiages, and boroughs which have been created by special legislative acts, or otherwise individually incorporated or chartered pursuant to general laws, or which are recognized as such under the constitution or by the laws of the State in which located, and which have local governments. This definition does not include New England-type towns or unincorporated urban communities. An “unincorporated area” was defined as any area regardless of its urban development not included within an incorporated city, town, villiage, or borough. “Contiguous" municipalities are those which at some place have a common border.

After discussing these and other threshold matters, former Division 5 turned its attention to devising a general rule for determining commercial zone limits. After rejecting several proposed solutions, the Division stated:

It is common knowledge that the urban development at most municipalities extends beyond their corporate limits. For various reasons, such as lower taxes, lower really costs, more spacious sites, trackage facilities, more readily available materials or water, or because they may be objectionable in more crowded areas, industrial plants frequently mark the fringe of such communities. For some of the same, and for other reasons, among them the desire for quiet, lower costs, more attractive sites, the space and freedom to garden and keep fowls and livestock, residential developments also generally overflow corporate boundaries. These industrial and residential developments adjacent to or surrounding an incorporated municipality, though not within its corporate limits are, in fact, an integral part of the business community. Transportation between places within such a community, which is unconnected with any line-haul er intercommunity movement, is that within the exemption provided by section 203(b)(8). The limits of the commercial zone of each municipality should be determined in a manner to include, in addition to the area within its corporate limits, all other places or areas which, whether separately incorporated or not, are integral parts of the same business community, and to exclude all places and areas Transportation between which and the base municipality is intercity in character.

The direction of the urban developmenis beyond the corporate limits of any particular municipality may, of course, be influenced in some instances by geographic considerations which may at some points require individual consideration but,

Sixth Supplemental Repori, Ex Parte No. MC-37.
'These definitions may be found in Commercial Zones, 46 M.C.C. at 679-682.

generally speaking, transportation requirements, the availability of other public utilities, proximity to churches and schools, and similar considerations, tend to distribuie such developments, both industrial and residential, somewhat equally in all direcions about their respective base municipalities. In other words, the commercial cones adjacent to mosi municipalities, contemplated by section 203(b)(8), appear 10 he susceprible of reasonably accurate definition by the delineation of lines varying distances beyond the corporate limits, the distance used in any particular instance being dependent upon the population of the base municipality. (Emphasis added).

This rationale formed the basis for utilizing a population-mileage formula. Based on the evidence submitted concerning the extent of industrial and business activity beyond the corporate limits of municipalities, the following formula was adopted, which remains unchanged to this time:

(1) When the base municipality has a population less than 2,500 all unincorporated areas within 2 miles of its corporate limits and all of any other municipality any part of which is within 2 miles of the corporate limits of the base municipality,

(2) When the base municipality has a population of 2,500 but less than 25,000, all unincorporated areas within 3 miles of its corporate limits and all of any other municipality any part of which is within 3 miles of the corporate limits of the base municipality,

(3) When the base municipality has a population of 25,000 but less than 100,000, all unincorporated areas within 4 miles of its corporate limits and all of any other municipality any part of which is within 4 miles of the corporate limits of the base municipality, and

(4) When the base municipality has a population of 100,000 or more, all unincorporated areas within 5 miles of its corporate limits and all of any other municipality any part of which is within 5 miles of the corporate limits of the base municipality

With respect to the proper description of motor carriers' and freight forwarders' terminal areas, former Division 5, in the Sixth Supplemental Report, reasoned that "Uif commercial zone limits mark the limits of the industrial, business, or residential community, then they also mark the limits of the area which can be served in bona fide collection and delivery service and beyond which any service takes on the character of a line-haul or intercommunity service." Commercial Zones, 54 M.C.C. at 63 and 74. Consequently, it was found that the terminal area of a motor carrier or freight forwarder at a particular municipality is coextensive with the limits of the commercial zone of that municipality, although a carrier's terminal area may not extend beyond the territorial limits of the particular motor carrier's or freight forwarder's operating authority. With respect to the construction of operating authorities, it was held that motor carrier authority to serve a particular municipality unless

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