[Alexandria, Va., Jan. 23, 2025] — The Transportation Intermediaries Association (TIA) recently commissioned Principal Transport Futures to conduct an economic analysis of the supply chain and consumer impacts if the Federal Motor Carrier Safety Administration (FMCSA) were to proceed with its proposed rate transparency rule.
In the report, Perry concludes that the regulation would have significant negative effects on shipper costs, which in turn would drive increases in consumer costs. These increased costs come at a time when the nation is still trying to recover from record levels of inflation. The analysis also concludes that while the FMCSA’s actions may increase the costs on consumers there is no appreciable positive impact for any segment of the supply chain.
Perry structured his analysis around six questions.
1. Do the proposed regulations fall within the federal government's power and have a legitimate place in the economic regulation of trucking? He concluded that economic theory and U.S. transport history urge great restraint in regulating truck economics, except for the control of externalities like safety and emissions.
2. Without the new regulations, do the carriers have sufficient information to manage their businesses, understanding that no real-world market has the complete perfect information that theorists require? Perry concluded that all a carrier needs to negotiate a successful move is a firm price and an accurate understanding of the service parameters. Brokers routinely provide this information.
When dissatisfied with one broker’s offer, carriers can turn to sufficiently competitive alternatives for their next move. Importantly, much of the information required by the FMCSA's proposed rule is irrelevant to a successful transaction. That information, especially the 'gross margin' requirement is an artifact of a bygone utility-focused era concerned about rebates that no longer exist.
3. If there is some shortfall from that ideal, does it result in widespread, illegal collusion by the brokers? Perry concluded that there is no case for either predation or collusion among brokers. Both practices are practically impossible, especially since brokers’ finances have also suffered the same economic declines as spot carriers. The FMCSA concerns remain a heritage from the pre-deregulatory era.
4. Can the FMCSA promulgate regulations that improve information flow without imposing the negative side effects that ALWAYS accompany governmental regulation of economic matters? The report shows that given the powerful resistance of any regulation that reveals prices, there is little, if any, chance that usable information about broker margins would emerge from the proposed changes.
Although the requirement for a detailed accounting of extra charges would add some modest value, it would necessarily come too late to benefit price negotiations. Its value would be limited to identifying fraudulent brokers unskilled in managing around the regulations.
5. Does the resulting cost-benefit analysis indicate an improvement or degradation of transport services to the consumer public? Perry found that on the critical issue of price negotiation/gross margin, there are substantial increases in information handling costs balanced against NO benefit – a ratio clearly implied by the FMCSA's analysis: some cost against no benefit.
On the secondary issue of dispute resolution, there are minimal theoretical benefits balanced against another trance of informational handling costs – a ratio also supported by FMCSA's analysis. The economics of this issue strongly urge the withdrawal of the regulatory proposal. The proposal would clearly increase transportation costs, which would ultimately increase consumer goods prices.
6. What are the differing effects on the four interested parties: carriers, brokers, shippers and consumers? The report finds that:
Carriers: Would realize no profit increase and could end up potentially under the influence of shippers and brokers, robbing much of their independence.
Brokers: Would feel minimal effects on their bottom line, except in increased IT spending and greater analysis complexity.
Shippers: May experience a short-run burst of price competition but in the long run, shippers will experience the same costs as brokers and carriers, all of which will be passed to the consumer.
Consumers: Would bear the brunt of this proposed rule in two ways. First the costs of goods will increase as shippers, brokers and carriers pass along their extra costs to consumers. The potential of added logistical friction resulting from the workaround will reduce the flexibility of the market. And as a result, during the next crisis, shortages of goods could bid up prices more than before, adding a major risk to such ill-considered influences on supply chains.
Perry emphasized that the high inflation of late 2021 and early 2022 had at least partial roots in logistics, and these regulations will raise the risk of future inflations.
"Given the thorough analysis of this issues, we encourage the FMCSA to give up on this gross overreach and focus on its true mandate: safety," said Chris Burroughs, president & CEO of TIA. "Seventy-six percent of TIA members are small businesses with revenue less than $15 million. These proposed regulations not only threaten to erode the foundations of American capitalism but also will create economic hardship for these companies who are keeping the American supply chain moving."
About TIA:
The Transportation Intermediaries Association (TIA) is the professional organization of the $343 billion third-party logistics industry. TIA is the only organization exclusively representing transportation intermediaries of all disciplines doing business in domestic and international commerce. TIA is the voice of transportation intermediaries to shippers, carriers, government officials, and international organizations. Learn more about TIA at news.tianet.org.
