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Certain Implications of the Agricultural

Exemptions

BY RICHARD W. SOUTHGATE The Motor Carrier Act, 1935,1 empowered the Interstate Commerce Commission to regulate interstate trucking, but exempted transportation of agricultural commodities, livestock and fish.? When the Act was some eighteen years old, counsel for the Commission was arguing before a district court in support of ICC regulations which would severely restrict the rural trucker's ability to pick up a load for his return trip. The court asked him whether it would be economical to require a Florida truck, carrying citrus fruit unregulated to New York, to return empty. Counsel admitted that it would not, and added

the difficulty comes, I think, in letting it come up in the first

place. '3

On appeal, the dissenting opinion in the Supreme Court considered counsel's admission a point against the Commission, as well it may have been. Nevertheless, his answer succinctly introduces the subject of this paper.

The exemption has indeed caused difficulty, in what it says and omits to say. In one view it may present the political question of whether Congress has so favored shippers of exempt commodities as to prejudice the fair expectations of other shippers and the carriers they use. This issue is one for Congress to decide. But the more immediate problem, of course relevant to the legislative issue, is the difficulty of implementation of the present law. As to this problem, and indirectly as to the other, consideration of the purposes of the Act and of the administrative and judicial handling of the exemption may suggest some solutions.

History and Purpose of the Motor Carrier Act The Motor Carrier Act, 1935, did not affect an industry theretofore operating free from governmental encouragement or restraint. Growth of automotive transportation had been stimulated by a Congressional investment of more than one billion dollars in the construction of paved highways which, it was estimated, would carry one half of all the nation's highway traffic.5 Rapid, long-distance movement was the

* Graduate, Harvard Law School, Class 1954; Editorial Board, Harvard Law Review.

1 49 Stat. 543 (1935), as amended, 54 Stat. 919 (1940), 49 U.S.C. § 301 (1946). The 1940 amendment changed the name to Part II of the Interstate Commerce Act in conjunction with the addition of Part III (regulation of water carriers), 54 Stat. 929 (1940), 49 U.S.C. § 901 (1946).

2 49 Stat. 545-46 (1935), as amended, 49 U.S.C.A. § 303 (6) (6) (Supp. 1953).

3 Transcript of Record, p. 261 (Vol. 1), American Trucking Ass’ns v. United States, 101 F. Supp. 710 (N.D. Ala. 1951).

4 See: American Trucking Assins v. United States, 344 U.S. 298, 332 (1953) (dissenting opinion). 5 Kauper, Federal Regulation of Motor Carriers, 33 Mich. L. Rev. 1, 2 (1934). federal purpose, for the Secretary of Agriculture was charged with administering the road funds in the interest of an integrated system of interstate highways. Federal power had also been used to limit the activities of motor carriers. Under the National Industrial Recovery Act, the interstate trucking industry had adopted a Code of Fair Competition which established employees' maximum working hours and minimum wages, and, significantly, required filing of minimum rates and tariffs sufficient to meet costs of the operations performed. 8

State regulation, as well as state highway construction, was an additional and important factor in the trucking industry. A variety of controls, through regulations and tax, existed in forty-seven states and the District of Columbia. Under the commerce clause the states could not require that interstate truckers operate within their borders under certificates of convenience and necessity 10 or that they carry liability insurance for shippers or passengers, 11 but the states could

6 In the 1916 Army appropriation, Congress had imposed on the Council of National Defense the duty to supervise and direct investigations and make recommendations to the executive as to "the coordination of military, industrial, and commercial purposes in the location of extensive highways and branch lines of railroads ... 39 Stat. 649-50 (1916). Under the Federal Highway Act of 1921, this duty was transferred to the Secretary of Agriculture. 42 Stat. 212, as amended, 23 U.S.C. § 3 (Supp. 1952) (duty now rests with Secretary of Commerce). The Secretary of Agriculture was also charged with dispersing the highway funds to "expedite the completion of an adequate and connected system of highways, interstate in character." 42 Stat. 213 (1921), as amended, 23 U.S.C. § 6 (Supp. 1952) (power now rests with Secretary of Commerce). The Department of Agriculture's Bureau of Public Roads enjoyed a reputation as expert and authoritative in roadbuilding and highway transportation. Kauper, Federal Regulation of Motor Carriers, 33 Mich. L. Rev. 1, 2-3, (1934).

7 48 Stat. 195 (1933), unconstitutionality noted, 15 U.S.C. § 701 (1946). When S. 1629, 74th Cong., 1st Sess. (1935), which as subsequently modified was adopted as the Motor Carrier Act, left the Senate Committee on Interstate Commerce on April 12th, 1935, the Blue Eagle was still intact, although the Committee report noted the inadequacy of the NRA Code. Sen. Rep. No. 482, 74th Cong., 1st Sess. 3 (1935). By the time S. 1629 came out of the House Committee on Interstate and Foreign Commerce on July 24th, the Supreme Court had ended the Codes in A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935), decided on May 27th.

8 Arts. V and VII, Code of Fair Competition for the Trucking Industry approved Feb. 10, 1934, as amended, Mar. 26, 1934, Sep. 5, 1934, Sep. 12, 1934, May 6, 1935. In the Code, a mild agricultural exemption appeared in Art. II (B) (1) and (2) which brought not-for-hire vehicles under the Code except:

"where a farmer is transporting his own property or produce to primary markets or his own supplies on return, or cooperatively transporting [in the same way] for neighboring farmers for which he does not receive compensation

Bona fide farm cooperatives were also exempted within rather strict limitations.

9 Delaware was the lone non-regulated state. For an analysis of the state laws, see Coordination of Motor Transportation, Appendix F, 182 I.C.C. 263, 410 (1932); Kauper, State Regulation of Motor Carriers, 31 Mich. L. Rev. 920, 1097 (1933).

10 Buck v. Kuykendall, 267 U.S. 307 (1925).
11 See: Sprout v. South Bend, 277 U.S. 163, 172 (1928).

still completely control intrastate trucking, which constituted between seventy-five and eighty per cent of total for-hire truck operations.12 Furthermore, cooperation between NRA officials and state officials was tempering the limitation of the commerce clause 13 At least in part, therefore, the legislation can be considered as no more than “a stopgap in the existing forms of regulation of highway traffic,”:14 as completing control of the trucking industry by empowering the Interstate Commerce Commission in the areas where the states were constitutionally excluded from economic regulation.

But a rounding out of regulation far more significant than regulation of all trucking was regulation of all interstate transportation. Such words as coordination, correlation and national transportation policy were freely used by politicians and economists alike.15 In the case of the interstate motor carrier, coordination was to be achieved with the interstate rail carrier.16 It appeared that there was general agreement among economists that there was a national excess of transportation capacity, even for normal economic conditions. 17 If one took the public interest as being the achievement of the most efficient transportation system possible, and tested efficiency by cost of service, there followed the proposition that such a system was not attainable under existing circumstances. Given the excess of competing facilities, the economist could argue that dominance of any one agency at a particular place and time did not always result from the proper test-cost of service—but might result from one or a combination of at least three extraneous factors.18 The first was government subsidy, an element which the Commission found impossible to measure. The railroads argued that the trucks were not paying for their rights of way. But the railroads had received land grants, although they did have to pay something in return by low mail and military rates, and of course

19

12 Coordination of Motor Transportation, 182 I.C.C. 263, 275 (1932); See Kauper, Federal Regulation of Motor Carriers, 33 Mich. L. Rev. 1, 4 (1934).

13 Kauper, supra, note 12, at 18 (as regards buses).

14 Opening statement of Mr. McManamy, Chairman of the Legislative Committee of the ICC. Hearings before the Committee on Interstate Commerce on S. 1629, S. 1632, S. 1635, 74th Cong., 1st Sess. 116 (1935).

15 See: é.g., Sen. Rep. No. 482, 74th Cong., 1st Sess. 3 (1935); Cunningham, Correlation of Rail and Highway Transportation, 24 Am. Econ. Rev. 47 (Supp. 1934).

16 While regulation of water transportation was also proposed, S. 1632, 74th Cong., Ist Sess. (1935), five years elapsed before enactment of such control. Part III of Interstate Commerce Act, 54 Stat. 929 (1940), 49 U.S.C. § 901 (1946).

17 Coordination of Motor Transportation, 182 1.C.C. 263, 380 (1932).

18 Moulton, Fundamentals of a National Transportation Policy (Brookings Institution Session on the Transportation Problem), 24 Am. Econ. Rev. 33, 34 (Supp. 1934).

19 Although it had been suggested that by its contribution to a national highway system, the government had created a problem which it was obligated to control, Kauper, Federal Regulation of Motor Carriers, 33 Mich. L. Rev. I, 3-4 (1934), the Commission could not conclude that truckers were subsidized in their rights of way. Coordination of Motor Transportation, 182 I.C.C. 263, 357, 413-28 (1932).

they had to maintain their rails.20 Furthermore, the truckers could point to a seventy-five per cent contribution by motor vehicles to current state road funds.2 But whether or not any inequality of subsidy was discoverable, there at least was an uncertain element capable of subverting the standard of cost of service. The second external factor, taxation, was of course interwoven with subsidy.

The truckers' tax bill was at a slightly higher rate than the railroads' (seven to eight percent as against six and a third percent of gross in 1929), but the railroads urged that their burden was far greater, for the tax was in addition to the fixed cost of maintaining their rails.22 Thus this factor, again, was not definitely measurable, although it too served as a possible impetus to less efficient transportation. The third element was a clear one, and the inequality apparent. Regulation of railroad rates and routes 23 was not united with regulation of trucking rates and routes. Such partial regulation had at least two economic consequences. In the first place, the Commission might be forced to abandon certain temporary but desirable policies based on considerations other than cost of service in order to allow railroads to compete with trucks over a given route where railroads might be demonstrably cheaper, For example, development of new productive areas through “postage stamp" rates for producers distant from their market might have to be abandoned by lowering the short haul rates to meet the truckers' competition near the market.24 In the second place, without total regulation, there could not begin to be a balancing of the effects of subsidy and taxation in order to achieve the truly lowest cost of service forms of transportation for particular areas and products when such service, by definition in most cases, would be desirable.

Uncertainty as to what economic factors were in reality controlling the development of transportation facilities furnished a strong argument in favor of expanded federal regulation when viewed in conjunction with the proven growth of truck transportation, in great part at the expense of the large standing investment in railroads. By as early as 1929 the trucks were producing nearly six per cent of the railroads' ton-miles. 25 In 1932, the trucks were carrying ten per cent of the

20 Sen. Doc. No. 152, 73rd Cong., 2d Sess., 4 (1934) (railroad subsidy); Coordinution of Motor Transportation, supra note 19, at 414 (in 1929, railroads spent 25 cents per dollar of revenue on rights of way).

21 Coordination of Motor Transportation, supra note 19, at 418. The Commission noted a trend toward payment for highways by their users rather than from general funds. For an argument against the significance of a reported 1930 contribution of 80% to state highway funds by users, see Parmelee, Correlation of Rail, Highway Transportation-Discussion, 24 Am. Econ. Rev. 62, 63 (Supp. 1934) (city and local operators contribution a significant element).

22 Coordination of Motor Transportation, 182 1.C.C. 263, 414 (1932).

23 Interstate Commerce Act, Part I, 24 Stat. 379 (1887), as amended, 49 U.S.C.A. § ! (Supp. 1953).

24 See: Barriger, Correlation of Rail, Highway Transportation-Discussion, 24 Am. Econ. Rev. 57, 58 (Supp. 1934).

25 Coordination of Motor Transportation, 182 I.C.C. 263, 275 (1932) (5.5%).

30

railroads' ton-miles.26 Rate wars and rate preferences indicated the intensity of the competition.27 Although, on

Although, on whatever standard measured, some, and perhaps a large portion, of the truckers' inroads served the public interest, there probably also existed duplication of services where unjustified, as well as only one transportation facility for an area where unjustified, again on whatever standard of public interest chosen.28 It seems that reversion to free competition was not considered an adequate solution.29 Some economists suggested that efficiency might be achieved through substantial railroad entrance into highway transportation, railroad self-interest to provide a logically patterned supplement to the fixed rail routes.3 But historically it appeared that the opportunity for such expansion had passed with the twenties, 31 and in the early thirties there existed only a small amount of railroad trucking operation, a few railroads furnishing highway service through subsidiaries. 32 Necessarily, it seemed, reliance had to be placed in regulation for the development of the desired transportation plant, although one may freely ponder whether any enlightened body of experts could ever achieve the goal of fitting into its rulings the endlessly interdependent factors of routes, rates, products, services, speed, cost, taxation and subsidy in order to reach the kind of national carrying power most in the public interest. Viewing the unregulated growth of interstate trucking, the Commission rather inarticulately concluded that continued competition was "an impossible solution ... incompatible with the aim of coordination under regulation. ...

1933 But perhaps aware of the complexity of controlling more than one form of transportation in the national interest, the Commission did not recommend that interstate truckers' minimum rates be controlled or even filed.34 However, the Federal Coordinator of Transportation,35 empowered to

26 Sen. Doc. No. 152, 73rd Cong., 2d Sess., 3 (1934).
27 Coordination of Motor Transportation, 182 I.C.C. 263, 331-38 (1932).

28 See: Id. at 300-02 (advantages and disadvantages of trucks as compared to raisroads).

29 Sen. Doc. No. 152, 73rd Cong., 2d Sess., 11-13 (1934); Moulton, supra note 18, at 40-46 (regulation needed to control tax and subsidy variables as well as the monopoly suggested at note 30 infra).

30 Moulton, supra note 18, at 42-43; Cunningham, supra note 15, at 48-50. Suggestion criticized_by Locklin, Correlation of Rail, Highway TransportationDiscussion, 24 Am. Econ. Rev. 64-66 (Supp. 1934) (proposed monopoly might fail to eliminate common carrier vs. private carrier competition; railroads may tend to serve own interests rather than public's).

31 Cunningham, supra note 15.

32 Although there appeared to have been a substantial increase in railroads' pick-up and delivery service by truck, only four railroads (New York, N. H. & H. R. R.; Boston & Maine R. R.; St. Louis-Southwestern R. R.; Chicago, St. P., M. & O. Ry.) carried on highway trucking through subsidiaries on a broad scale. The general railroad view was that "such operations would for the most part merely duplicate present facilities, adding to the existing competition and confusion.” Coordination of Motor Transportation, 182 I.C.C. 263, 341, (1932).

33 Id. at 380.
34 Id. at 386-88 (criticized in Lewis' concurring opinion at 388, 389).

35 Joseph B. Eastman, an ICC Commissioner temporarily relieved from duties there and appointed by the President in accordance with the Emergency Railroad Transportation Act, note 36 infra.

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