Surface Freight Forwarder Deregulation Act of 1986

Last updated October 01, 2019

The Surface Freight Forwarder Deregulation Act of 1986, Public Law 99-521,^[1] is a federal law of the United States which eliminated federal regulation of prices, services and entry as to general commodities surface 'freight forwarders' This Act was a follow on to a sweeping program to free up competitive forces in United States transportation, most but not all of which was accomplished in the 1971-1980 period, as set out in the deregulation topic in this encyclopedia.

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Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a result of new trends in economic thinking about the inefficiencies of government regulation, and the risk that regulatory agencies would be controlled by the regulated industry to its benefit, and thereby hurt consumers and the wider economy.

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Reasoning

'Freight forwarders' aggregate shipments from a variety of sources to be put on common or contract carriers for transportation. Such entities are also commonly called transportation brokers. They perform two basic economic functions. One is making matches between transport demands and transport capacity on a flexible basis, calling on whatever carriers are available at a given time and place instead of being limited to the capabilities on just one or a few carrier organizations. The second function is providing a means of aggregating, or massing, a number of small demands from different entities into shipment sizes which can be efficiently and economically transported. This capacity allows smaller shippers to obtain transport arrangements more nearly equivalent to the arrangements available to larger shippers.

Freight forwarder service company that handles the shipment of goods

A freight forwarder, forwarder, or forwarding agent, also known as a non-vessel operating common carrier (NVOCC), is a person or company that organizes shipments for individuals or corporations to get goods from the manufacturer or producer to a market, customer or final point of distribution. Forwarders contract with a carrier or often multiple carriers to move the goods. A forwarder does not move the goods but acts as an expert in the logistics network. The carriers can use a variety of shipping modes, including ships, airplanes, trucks, and railroads, and often use multiple modes for a single shipment. For example, the freight forwarder may arrange to have cargo moved from a plant to an airport by truck, flown to the destination city and then moved from the airport to a customer's building by another truck.

The capital requirements for this service are not, usually, great. Thus, the field is open to many entrants, and can be highly competitive as among the forwarders or brokers.

A capital requirement is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity as a percentage of risk-weighted assets. These requirements are put into place to ensure that these institutions do not take on excess leverage and become insolvent. Capital requirements govern the ratio of equity to debt, recorded on the liabilities and equity side of a firm's balance sheet. They should not be confused with reserve requirements, which govern the assets side of a bank's balance sheet—in particular, the proportion of its assets it must hold in cash or highly-liquid assets. Capital is a source of funds not a use of funds.

In the era of close economic regulation of transportation in the United States, the interstate Commerce Commission restricted entry into the market forwarders and brokers, allowing them limited access to the transport market, and limiting substantially the extent to which they could perform the services described above.

Law

This Act had the following major components

Interstate Commerce Commission authority to regulate the prices charged by general commodities 'forwarders' and brokers was eliminated.
Interstate Commerce Commission Authority to require a license to conduct general commodities forwarding was eliminated, making entry into this field easy.
Interstate Commerce Commission authority to govern the contracts between general commodities forwarder (and brokers) and carriers was eliminated.

Effects

The 1980 passage of the Staggers Act and the Motor Carrier Act of 1980 substantially freed up both rail and motor carrier markets. The express intent of these Acts was to make carrier transport more flexible, efficient, and competitive. By the time of passage of the Surface Freight Forwarder Deregulation Act, participants in and observers of domestic U.S. transport markets had come to a judgment that there was no need to regulate the transportation intermediaries whose functions contributed to this flexibility and efficiency, and who individually had little 'market power'.

The effect of this Act was to eliminate economic regulation of the general commodities transport forwarder sector. Limited ICC controls as to the entry and practices of household goods forwarders was retained. This regulatory authority related in substantial part to practices which individual citizen household goods shippers had found to be deceptive, rather than being heavily oriented to economic regulation.

Notes

Rose, Seely and Barrett, 'The Best Transportation System in the World,'University of Ohio State Press, a part of an Historical Series on Business Enterprise, edited by Blackford and Kerr.

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References

↑ (PDF) https://web.archive.org/web/20150928194443/http://uscode.house.gov/statutes/pl/99/521.pdf. Archived from the original (PDF) on September 28, 2015. Retrieved February 27, 2016.Missing or empty |title= (help)
↑ Robert Packwood. "Surface Freight Forwarder Deregulation Act of 1986 (1986; 99th Congress S. 1124)". GovTrack.us. Retrieved 2016-02-27.
↑ "S.1124 - 99th Congress (1985-1986): Surface Freight Forwarder Deregulation Act of 1986 | Congress.gov | Library of Congress". Congress.gov. Retrieved 2016-02-27.

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[1] (PDF) https://web.archive.org/web/20150928194443/http://uscode.house.gov/statutes/pl/99/521.pdf. Archived from the original (PDF) on September 28, 2015. Retrieved February 27, 2016.Missing or empty |title= (help)

[2] Robert Packwood. "Surface Freight Forwarder Deregulation Act of 1986 (1986; 99th Congress S. 1124)". GovTrack.us. Retrieved 2016-02-27.

[3] "S.1124 - 99th Congress (1985-1986): Surface Freight Forwarder Deregulation Act of 1986 | Congress.gov | Library of Congress". Congress.gov. Retrieved 2016-02-27.