How Regulation versus deregulation has impacted Transportation

How Regulation versus Deregulation has impacted Transportation

Every firm requires an effective movement of its good from one place to another and, therefore, its involvement in transportation is a crucial thing. Techniques like JIT and Efficient Consumer Response (ECR) would be possible with a trucking industry that is highly developed. For a smooth movement of goods, transportation must be well operated.  The government uses regulations and deregulations to ensure these operations favour the progress of markets. Regulations are used to correct any perceived market failures, while deregulations are used whenever regulations are falling in some way in order to adjust competition policy (Baldwin & Lodge 2012)

Impacts of regulations and Deregulations in the Transport system

Since the past few centuries, there has been a drastic change in the American transportation industry. The culture of carrying the ever-increasing number of passengers and large amounts of freight has changed in size and form at both domestic and international levels. This change has been fuelled by great demand in the transportation system brought up by the proliferation of population along with steady and strong economic growth. To start with, regulations have always been used to oversee operations of the transportation system. The Interstate Commerce Commission (ICC) was established more than a century ago specially to regulate freight transportation in the railroad industry. Since then, the Railway Regulation has been strengthened many times to adjust to the growing demands leading to stifling price competition between railroads. The regulations removed rebating and discounts and further provided subsidies to make railways profitable (Slack, 2016)

During the Great Depression of the 20th century, earnings plummeted, and the railway and trucking industry was negatively affected. The Congress was urged to restrict competitors and went ahead to control motor carriers and water transportation operations. The restrictions were extreme such that new trucking companies couldn’t get certificates easily. All forms of freight transportation almost found it impossible to secure authority to transport goods. This created a wasteful and inefficient industry as transportation roots were narrowed and carriers were prohibited from carrying goods on the return trip as they travelled between cities. Railways, on the other hand, had so many activities that they couldn’t escape unprofitable businesses leading to their bankruptcy. As Borenstein & Rose (2014) stated, regulation was observed to have significantly increased costs and rates after comparing previous rates which were lower with quality service without regulation.

Deregulation was proposed by economists as a means for eliminating harm caused by the regulatory system in the freight transportation (Berechman, 2013). Following the advocates’ pleas, there were series of rulings that reduced motor carriers’ regulation as well as deregulating trucking and airline industry. This shaped the regulation of transportation system through enforcement of acts like regulatory reform act, the Motor Carriers Act among others. Deregulating tracking, bus service, railways and freight forwarders was a success. The impact of deregulation was the fall of rates by 25% in inflation-adjustment terms in 1982.This success was also enabled by the changes that took place between (1977-1981) where the Congress abolished the Interstate Commerce Commission and the Civil Aeronautics Board regulators. The decision was based on concerns of inflation and market pressures caused by strict regulatory controls.

Passenger and freight transportation were the most regulated sector a few years ago but currently, Federal regulations have been completely removed for air freight while the passenger air controls are being advanced (Fu & Oum, 2014). Deregulations succeeded in protecting the public interests which have been overlooked by the government controls. Regulatory agencies focus on protecting the financial status of industries forgetting they are leaning too much on one side instead of balancing the consumer’s benefits with those of the industries they regulate. This explains the persistent increase of rates and emergence of monopolies. Deregulations of such controls succeed in accommodating consumer’s interests hence benefits them. Shippers too benefit from deregulations. Airfares have reduced, trucking rates fallen, and new railway services are being offered. Regulation continues, but it’s now heavily applied on areas of safety and operations.

Effects of Globalization on regulations

Globalization increased the need for more integrated services, retail, manufacturing, finance, and distribution. One of the outcomes is improved transport operations. The growing economic integration has affected the regulatory standards by pressurising them to adjust controls to fit the economic changes. Strict regulations from the government have been lowering profits by raising costs of products which has forced firms to move to foreign countries with lower standards. In order to secure the tax base, states have lowered their regulatory standards to attract foreign investments and prevent businesses from flying increased costs. According to Larson (2013), globalization has encouraged the spread of new norms causing states to harmonize their regulations even with the ever increasing need for intervention. These structural forces have caused the states to be overwhelmed by their ability to choose a regulatory system and consideration of the economic growth.

The great demand for coordinating the regulations is responsible for the poor international reactions as the need to eliminate traditional barriers have caused friction in the states regulatory agency. Powerful states use inducements and delegation among other preferences to advance their desired outcomes. Distributions of such interests among the powerful states and the differences in the capability between these states and the developing world are the key variables affecting the process of regulatory coordination (Winston, 2013). Globalization has initiated a competition with the regulatory agency. This competition has lifted up standards. For example, regulations favouring domestic producers cause producers in one country to campaign for higher standards when they set a barrier to foreign investors, this, in turn, causes other rich countries to follow suit hence creating a competition race which raises economic standards.

Consumer Benefits of Regulations and deregulations

Regulations and Deregulations had helped in protecting consumer’s interests from deceptive business practices and unfair competition. Customers have benefited from more cost-effective transport services with reduction of own-account operators. Falling tariffs have enabled customers to save costs. On the other hand, stifled competition has pushed costs down and lifted standards of transportation giving the most benefit to consumers. Customers have also had easy access to any type of service they need which has been promoted by aggressive marketing by businesses which have been trying to win a competitive edge.

Conclusion

Considering regulations have had more negative impacts as compared to benefits accrued, the government should continue deregulating any policies that do not allow economic growth. However, any issues regarding safety and operations within the industry should be intervened, and that’s by putting advanced regulatory measures. Both regulations and deregulations are important features in the economy of any state, and should be applied in a standardized manner. This will allow both private and public businesses to compete at the same time maintaining quality and drive the economy to the top. Coupling globalization and regulatory system, there is a challenge in initiating intervention measures. The government should, therefore, devise better means to deal with the diversifying regulatory system and maintain peace with other states.

 

References

Baldwin, R., Cave, M., & Lodge, M. (2012). Understanding regulation: theory, strategy,

and practice. Oxford University Press on Demand.

Berechman, J. (2013). Public transit economics and deregulation policy. Elsevier.

Borenstein, S., & Rose, N. L. (2014). How airline markets work… or do they?

Regulatory reform in the airline industry. In Economic Regulation and Its Reform:

        What Have We Learned? (pp. 63-135). University of Chicago Press.

Fu, X., & Oum, T. H. (2014). Air transport liberalization and its effects on airline c

competition and traffic growth—An overview. Advances in Airline Economics, 4, 11-44.

Larson, P. D. (2013). Deregulation of and mergers among American and Canadian

railroads: A study of four decades. Research in Transportation Business &

       Management, 6, 11-18.

Slack, B. (2016). Intermodal transportation. Sustainable Railway Futures: Issues

       and Challenges, 219.

Winston, C. (2013). On the performance of the US transportation system: Caution

ahead. Journal of Economic Literature, 51(3), 773-824.