Federal Transportation Officer Training Program: Basic (Level 1)

http://transbasic.knowledgeportal.us/session10/ Page 1 of 29 Federal Transportation Officer Training Program: Basic (Level 1) Freight, Cargo, and Household Goods Session 10: Laws, Rules and Regulations Page 1 of 29

http://transbasic.knowledgeportal.us/session10/p1/ Page 2 of 29 What You Will Learn This session will provide you with a history and overview of how the federal laws, rules, regulations, and policies that cover each of the transportation modes evolved over the last century. While this is not a comprehensive list, it provides information on how many of the modal industries moved from strict government regulation to today's deregulated, market-driven environment. Current laws and regulations are shown as well. As with all laws and regulations, the information presented here may change. As a transportation officer, you should stay current with federal, state, and local laws and regulations to ensure compliance. Page 2 of 29

http://transbasic.knowledgeportal.us/session10/p2/ Page 3 of 29 Session 10 Outline What Are the Laws and Regulations that Address Shipping by Motor Carrier? What Are the Laws and Regulations that Address Shipping by Rail? What Are the Laws and Regulations that Address Shipping by Air? What Are the Laws and Regulations that Address Shipping by Water? What Are Other Regulations Affecting Transportation? Glossary of Terms Knowledge Review Where to Go For More Information Page 3 of 29

http://transbasic.knowledgeportal.us/session10/p3/ Page 4 of 29 What Are the Laws and Regulations that Address Shipping by Motor Carrier? Motor transport is governed by several significant laws: Motor Carrier Act of 1935 Motor Carrier Act of 1980 ICC Termination Act of 1995 Page 4 of 29

http://transbasic.knowledgeportal.us/session10/p4/ Page 5 of 29 What is the Motor Carrier Act (MCA) of 1935? Understanding the history of government regulation and deregulation is important. The MCA of 1935 brought truck and bus carriers under the federal control of the Interstate Commerce Commission (ICC) as "motor carriers," and divided them into two categories: Common carriers offering service to the general public Contract carriers serving specific customers under contract terms. The ICC had the power to set rates, determine what companies could operate as motor carriers, and what services they could offer. It could also specify the geographic regions or areas in which a carrier could operate. In 1948, the Reed-Bulwinkle Act permitted rates to be set by "rate bureaus" which represented groups of motor carriers. The rate bureaus were later rescinded by the Motor Carrier Act of 1980. Source: http://www.enotes.com/motor-carrier-act-1935-reference/motor-carrieract-1935 Page 5 of 29

http://transbasic.knowledgeportal.us/session10/p5/ Page 6 of 29 What is the Motor Carrier Act (MCA) of 1980? The Motor Carrier Act, also known as the Motor Carrier Regulatory Reform and Modernization Act, effectively deregulated the trucking industry. Key aspects were: Rate bureaus were prohibited; each carrier now sets its own rates Elimination of restrictions on commodities that carriers could carry Removal of restrictions on routes and areas that carriers could serve, and Removal of restrictions on carrier entry into the market. The law resulted in more carriers entering the market, particularly low-cost, nonunion carriers. Removing rate bureaus resulted in much higher levels of competition in pricing, and correspondingly lower profit margins for carriers. In conjunction with the deregulation of the railroads under the Staggers Act, multi-mode "piggyback" service also increased greatly. The law also opened the market to transportation brokers who could develop transportation solutions for shippers using a multitude of carriers. Page 6 of 29

http://transbasic.knowledgeportal.us/session10/p6/ Page 7 of 29 What happened to the ICC? In place since 1887, the Interstate Commerce Commission (ICC) was eliminated by the ICC Termination Act in 1995. In its place, the Surface Transportation Board (STB) was established. The STB is an economic regulatory agency that Congress charged with resolving railroad rate and service disputes and reviewing proposed railroad mergers. The STB is decisionally independent, although it is administratively affiliated with the U.S. Department of Transportation. The STB serves as both an adjudicatory and a regulatory body. The agency has jurisdiction over railroad rate and service issues and rail restructuring transactions; certain trucking company, moving van, and non-contiguous ocean shipping company rate matters; certain intercity passenger bus company structure, financial, and operational matters; and rates and services of certain pipelines not regulated by the Federal Energy Regulatory Commission. Page 7 of 29

http://transbasic.knowledgeportal.us/session10/p7/ Page 8 of 29 What Are the Laws and Regulations that Apply to Shipping by Rail? The rail industry was the first to be significantly regulated. After a brief history of the use of unfair railroad practices and the creation of the Interstate Commerce Commission to regulate railroads, we will review the following acts: Hepburn Act 1906 Staggers Rail Act of 1980. Page 8 of 29

http://transbasic.knowledgeportal.us/session10/p8/ Page 9 of 29 What is the early history of the railroads? Railroads became increasingly important to the expanding nation, and unfair railroad practices proliferated. Rail lines extended cheaper rates to large shippers by rebating a portion of the charge, to the disadvantage of small shippers. Also, some railroads charged arbitrarily higher rates to some shippers than to others between certain points, regardless of distance. Moreover, while competition held down freight charges between cities with several rail connections, rates were excessive between points served by only one line. Thus, it cost less to ship goods 1,280 kilometers from Chicago to New York than to places a few hundred kilometers from Chicago. And, by joint action to avoid competition pooling rival companies divided the freight business according to a prearranged scheme that placed the total earnings in a common fund for distribution. Popular resentment of these practices stimulated state efforts at regulation. These had some effect, but the problem was national in character and demanded congressional action. In 1887, President Grover Cleveland signed the Interstate Commerce Act, which forbade excessive charges, pools, rebates, and rate discrimination. It also created an ICC to guard against violations of the Act. In the first decades of its existence, however, the railroads used conservative Supreme Court decisions to thwart virtually all the ICC's efforts at regulation and rate reductions. Page 9 of 29

http://transbasic.knowledgeportal.us/session10/p9/ Page 10 of 29 What is the Hepburn Act of 1906? Prior to 1906, the railroads operating in the U.S. were unregulated in terms of pricing. There was no standardization of rates between customers, and the practices of "rebating" and giving free passes to preferred customers were common. (In order to gain shipper business, the railroad would rebate a percentage of the published rate in effect, a discount system.) The Hepburn Act gave the ICC the power to determine "just and reasonable" maximum rates; and its orders were binding, subject to appeal through the federal court system. Free passes were outlawed and measures were taken to prevent rebating, with stiffer penalties. The ICC also eventually obtained authority to standardize the railroads' accounting systems, require financial reporting from railroads, and to scrutinize the railroads' accounts. This helped in the determination of rates. Page 10 of 29

http://transbasic.knowledgeportal.us/session10/p10/ Page 11 of 29 What is the Staggers Act of 1980? From the 1950s through the 1970s, freight railroads lost business to the motor, air, and pipeline modes. The interstate highway system increased the use of truck transportation, air transportation gained more mail business, and pipelines replaced rail for petroleum products. The Staggers Rail Act was intended to remedy the serious financial troubles experienced by major American Railroads during the 1960s and 1970s. The Act deregulated the railroad industry in the belief that competition should determine freight rates. By restricting the powers and involvement of the Interstate Commerce Commission in determining rates, Congress intended that deregulation would enable the railways to earn adequate revenues. Page 11 of 29

http://transbasic.knowledgeportal.us/session10/p11/ Page 12 of 29 What effect did the Staggers Act have? The Staggers Act was passed to support the increasing demand for deregulation from both railroads and shippers. It was needed because the Railroad Revitalization and Regulatory Reform Act of 1976, an initial attempt to limit the ICC's authority over rail, had few results. The act resulted in the following: Rail carriers could establish their own rates except in areas where there was effectively no competition between carriers for rail service. (Where there was no competition, the ICC would continue to approve rates.) Shippers and rail carriers could now negotiate contracts without ICC oversight, unless the ICC determined that the contract would affect the rail carrier's common carrier service The ability of the ICC to control price discrimination among customers was reduced, allowing railroads to provide varying discounts to larger shippers again Industry-wide rate increases were phased out as a practice Access of one carrier's trains to another carrier's facilities and trackage was required in order to prevent traffic bottlenecks. Sources: http://en.wikipedia.org/wiki/staggers_rail_act. Page 12 of 29

http://transbasic.knowledgeportal.us/session10/p12/ Page 13 of 29 What Are the Laws and Regulations that Address Shipping by Air? Air transport is governed by several significant laws: Airline Deregulation Act of 1978 Fly America Act 1995 Open Skies Agreements/Treaty Page 13 of 29

http://transbasic.knowledgeportal.us/session10/p13/ Page 14 of 29 What is the Airline Deregulation Act? From 1937 to 1978, the Civil Aeronautics Board (CAB) had the authority to control airlines' entry into the domestic interstate market and to set fares. The Airline Deregulation Act of 1978 eliminated CAB's authority to set fares, thus putting the market on a competitive basis. It removed restrictions to market access by carriers, thus increasing competition. U.S.-owned international carriers were allowed to offer domestic services, and carriers were allowed to enter into through-service and joint fare arrangements. Deregulation changed the carrier landscape and put pricing under market control. The CAB was dissolved in 1984, and regulatory authority for the airlines was transferred to the Department of Transportation. Source: http://en.wikipedia.org/wiki/airline_deregulation_act. Page 14 of 29

http://transbasic.knowledgeportal.us/session10/p14/ Page 15 of 29 What is the Fly America Act? The Fly America Act (CFR 49, Section 40118) requires that: "A department, agency, or instrumentality of the United States Government shall take necessary steps to ensure that the transportation of passengers and property by air is provided by an air carrier holding a certificate " (U.S. flag carrier) This applies to U.S. federal government employees, their dependents, consultants, contractors, grantees, and others. However, foreign flag carriers may be used in some cases: " does not preclude the transportation of passengers and property by a foreign air carrier if the transportation is provided under a bilateral or multilateral air transportation agreement to which the Government and the government of a foreign country are parties " Page 15 of 29

http://transbasic.knowledgeportal.us/session10/p15/ Page 16 of 29 Why is the Fly America Act important? A national transportation policy goal is to promote the U.S. transportation industry and its carrier base. The Fly America Act keeps U.S. tax dollars in the hands of participating U.S. flag carriers, ensuring capacity in the system to support national defense readiness, the economy, and contingencies. Foreign flag carriers may consider the Act to be anti-competitive. However, many of these are subsidized by their governments or other means, and would not compete with U.S. carriers on a level playing field. The Act is incorporated into the Federal Acquisition Regulations (FAR) at Subpart 47.4 Air Transportation by U.S.-Flag Carriers and is, therefore, applicable to all U.S. government contracts. This requirement can make U.S. carrier rates significantly higher than foreign flag carriers. Page 16 of 29

http://transbasic.knowledgeportal.us/session10/p16/ Page 17 of 29 What are Open Skies agreements and treaties? Open Skies agreements between the United States and other countries expand international passenger and cargo flights by eliminating government interference in commercial airline decisions about routes, capacity, and pricing. This frees carriers to provide more affordable, convenient, and efficient air service to consumers, promoting increased travel and trade and spurring high-quality job opportunity and economic growth. Open Skies policy rejects the outmoded practice of highly restrictive air services agreements protecting flag carriers. Provisions of the Act allow traffic on those foreign flag carriers which participate in Open Skies agreements. These agreements promote cooperation and expansion of carrier markets worldwide. They allow reciprocal entry of U.S. carriers into foreign markets and vice versa, and establish terms and conditions. Page 17 of 29

http://transbasic.knowledgeportal.us/session10/p17/ Page 18 of 29 What are exceptions to Open Skies agreements and treaties? There are very limited exceptions to this rule. Valid exceptions may include: no U.S. flag air carrier can provide the specific air transportation needed, no U.S. flag air carrier can accomplish the agency's mission, no U.S. flag air carrier can meet the time requirements in cases of emergency, there is a lack of or inadequate U.S. flag air carrier aircraft, or to avoid an unreasonable risk to safety. Page 18 of 29

http://transbasic.knowledgeportal.us/session10/p18/ Page 19 of 29 What Are the Laws and Regulations that Apply to Shipping by Water? Several acts regulate the use of U.S. flag carriers, vessels, and crews in the ocean transportation arena. We will discuss the impacts of the following: Military Cargo Preference Act of 1904 Jones Act of 1920 Cargo Preference Act of 1954 Shipping Act of 1984. Page 19 of 29

http://transbasic.knowledgeportal.us/session10/p19/ Page 20 of 29 What is the Military Cargo Preference Act of 1904? The Military Cargo Preference Act of 1904 (1904 Act), 10 U.S.C. 2631 (2007), requires all items procured for or owned by U.S. military departments and defense agencies be carried exclusively (100 percent) on U.S.-flag vessels available at rates that are not excessive or otherwise unreasonable. These cargoes are generated primarily by DoD contracts with domestic and foreign contractors. Cargo preference applies not only to the end product but also to component parts. Source: http://www.marad.dot.gov/ships_shipping_landing_page/cargo_preference/cargo_laws_and_regulations/laws_regs.htm. Page 20 of 29

http://transbasic.knowledgeportal.us/session10/p20/ Page 21 of 29 What is the Jones Act? The Merchant Marine Act of 1920 (P.L. 66-261) is a United States federal statute that regulates maritime commerce in U.S. waters and between U.S. ports. Section 27, better known as the Jones Act,* deals with sabotage (i.e., coastal shipping) and requires that all goods transported by water between U.S. ports be carried in U.S. flag ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens and U.S. permanent residents. The Jones Act covers U.S. flag waterborne domestic transportation, which includes movements between the continental United States (CONUS) and Alaska, Hawaii, and Puerto Rico. MARAD offers assistance to the shipper community to find carriers that meet Jones Act requirements. U.S. Customs and Border Protection is responsible for enforcing the Jones Act, and may grant waivers only in the interest of national defense. Before granting a waiver, Customs must consult with MARAD, which will try to find a suitable vessel. * Now codified in 46 U.S.C. Sections 55101-55121. Original text here: http://www.upa.pdx.edu/ims/currentprojects/tahv3/content/pdfs/jones_act_1920.pdf. Sources: http://www.marad.dot.gov/ships_shipping_landing_page/domestic_shipping/domestic_shipping.htm and http://en.wikipedia.org/wiki/merchant_marine_act_of_1920. Page 21 of 29

http://transbasic.knowledgeportal.us/session10/p21_/ Page 22 of 29 What is the Military Cargo Preference Act of 1954? The Cargo Preference Act of 1954 amended the Merchant Marine Act of 1936, by adding Section 901(a). This is now codified under 46 U.S.C. 55305, and further amended by Public Law 110-417, Section 3511 National Defense Appropriations Act for Fiscal Year 2009. The law now requires that at least 50 percent of the gross tonnage of all cargo procured, furnished, or financed by the U.S. government be transported on privately-owned, U.S.-flag commercial vessels, to the extent that such vessels are available at fair and reasonable rates. Source: http://www.marad.dot.gov/ships_shipping_landing_page/cargo_preference/cargo_laws_and_regulations/laws_regs.htm. Page 22 of 29

http://transbasic.knowledgeportal.us/session10/p22/ Page 23 of 29 How is cargo preference administered? The authority to oversee compliance with cargo preference is vested in the Maritime Administration (MARAD), an agency of the U.S. Department of Transportation. MARAD has the responsibility and authority to: Track and report U.S. flag use by all government agencies Impose civil penalties (up to $25,000) on agencies for willfully and knowingly violating cargo preference laws by using foreign flag carriers, and Provide oversight and approval authority for agency requests to use foreign flag carriers when U.S. flag service will not meet shipper requirements. MARAD must concur on non-availability determinations. Agencies must report tonnage shipped and U.S. flag use to MARAD on a monthly basis. Page 23 of 29

http://transbasic.knowledgeportal.us/session10/p23/ Page 24 of 29 What is the Shipping Act of 1984? The original Shipping Act of 1916 and subsequent modifications set the rules for commercial ocean shipping in the international trades. Most features of the 1916 law remain today, but the act was substantially amended in 1984. Under the law, the Shipping Act of 1984 is administered by the Federal Maritime Commission (FMC), an independent federal agency. The law obligates ocean carriers and shippers to a set of rules for doing business. Shippers must clearly define their cargoes to the carriers. Carriers may not unreasonably refuse to deal with any shipper, and rules of behavior in dealings are specified. Guidance is also provided for ports, terminal operators, and freight forwarders. FMC regulations provide greater detail. The law gives carriers the right to cooperate in setting rates through conferences.* Theoretically, this ability avoids "rate wars" with the intention of driving competitors out of business. Many shippers believe that this results in artificially higher rates. * Per MARAD, an association of ship owners operating in the same trade route who operate under collective conditions and agree on tariff rates. Sources: http://www.enotes.com/shipping-acts-reference/shipping-acts. Page 24 of 29

http://transbasic.knowledgeportal.us/session10/p24/ Page 25 of 29 What are the roles of the Federal Maritime Commission (FMC)? The FMC's primary role is to review and monitor agreements among ocean common carriers and terminal operators serving U.S. foreign ocean borne trades. The FMC protects the U.S. from substantial increases in transportation costs or reductions in transportation services. The FMC also is responsible for: Ensuring common carriers' tariff rates and charges are published in private, automated tariff systems and electronically available. Monitoring rates, charges, and rules of government-owned or controlled carriers to ensure they are just and reasonable. Taking action to address unfavorable conditions caused by foreign government or business practices in U.S. foreign shipping trades. Investigating and ruling on complaints regarding rates, charges, classifications, and practices of common carriers, maritime terminal operators (MTOs), and Ocean Transportation Intermediaries (OTIs, including forwarders and non-vessel-operating common carriers or NVOCCs) that violate the Shipping Act. Investigating whether laws, rules, regulations, policies, or practices of foreign governments or carriers adversely affect the U.S. ocean trade and discriminate against the U.S. (i.e., do not exist for foreign carriers of that country). Sources: http://www.fmc.gov/about/about_fmc.aspx and http://www.fmc.gov/assets/1/page/foreign%20shipping%20practices%20act% 20of%201988.pdf. Page 25 of 29

http://transbasic.knowledgeportal.us/session10/p25/ Page 26 of 29 What Are Other Regulations Affecting Transportation? In addition to the mode-specific laws, rules, and regulations discussed so far, additional guidance may be found in the following regulations: Federal Management Regulation (FMR) Federal Travel Regulation (FTR) Federal Acquisition Regulation (FAR) Defense Transportation Regulation (DTR), and Defense Federal Acquisition Regulations (DFARS). Page 26 of 29

http://transbasic.knowledgeportal.us/session10/p26/ Page 27 of 29 Glossary of Terms The following terms are those frequently used in federal transportation; however, this is not an inclusive list of terms. You may want to refer to 102-117.25 and 102-118.35 for additional transportation definitions. Cargo preference means cargo reserved by a Nation's laws for transportation only on vessels registered in that nation. Typically, the cargo is moving due to a direct or indirect support or activity of the government. For our purposes, the requirement is to ship government cargoes or freight aboard a U.S. flag carrier. Common carrier is a transportation company which provides service to the general public at published rates. Contract carrier is any transportation company or person not designated as a common carrier who, under special and individual contracts or agreements, transports passengers or property for compensation. Foreign flag vessel is any vessel of foreign registry, including vessels owned by U.S. citizens but registered in a nation other than the United States. Jones Act carrier is a carrier that meets the requirements of the Merchant Marine Act of 1920, Section 27, requiring that all U.S. domestic waterborne trade be carried by U.S.-flag, U.S.-built, and U.S.-manned vessels. Non-vessel operating common carrier (NVOCC) is a cargo consolidator in ocean trades who will buy space from a carrier and sub-sell it to smaller shippers. The NVOCC issues bills of lading, publishes tariffs, and otherwise conducts itself as an ocean common carrier, except that it will not provide the actual ocean or intermodal service. U.S. flag vessel is a commercial vessel, registered and operated under the laws of the U.S., owned and operated by U.S. citizens, and used in commercial trade of the United States. Page 27 of 29

http://transbasic.knowledgeportal.us/session10/kcans Page 28 of 29 Knowledge Review The Civil Aeronautics Board, the Interstate Commerce Commission, and the Federal Maritime Commission have the authority to set rates for air, rail, ocean, and motor carriers. True False True: Sorry, that's not correct. Rates have been deregulated through changes in public law and are now subject to market forces, not government agencies. The ICC and the CAB were disbanded, replaced by the Department of Transportation and the Surface Transportation Board. The FMC oversees ocean carrier agreements, but does not set rates False: Yes, that's correct. Rates have been deregulated through changes in public law and are now subject to market forces, not government agencies. The ICC and the CAB were disbanded, replaced by the Department of Transportation and the Surface Transportation Board. The FMC oversees ocean carrier agreements, but does not set rates Page 28 of 29

http://transbasic.knowledgeportal.us/session10/p27/ Page 29 of 29 Where to Go for More Information In addition to the sites identified in this session, you can find more information from the following: The Federal Maritime Commission is the U.S. governmental regulatory body responsible for administering maritime affairs including the tariff system, freight forwarder licensing, enforcing the conditions of the Shipping Act, and approving conference or other carrier agreements. The U.S. Department of Transportation, Maritime Administration (MARAD) deals with waterborne transportation. MARAD works in many areas involving ships and shipping, shipbuilding, port operations, vessel operations, national security, environment, and safety. The Surface Transportation Board (STB) is the successor agency to the Interstate Commerce Commission. The STB is an economic regulatory agency that Congress charged with resolving railroad rate and service disputes and reviewing proposed railroad mergers. The STB is decisionally independent, although it is administratively affiliated with the Department of Transportation. Federal Register The Federal Register is listed here as a reference where to find any amendments or changes to the regulations listed. Page 29 of 29