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Transportation played key strategic roles in the rise and fall of the great ancient civilizations of Egypt, India, Greece, and Rome. The River Ganges in India, like the River Nile in Egypt, provided the transportation needed to move agricultural produce along the plains of northern India and transformed the nomadic Aryan hunters into domestic agricultural farmers. The restricted

Air Cost $B Road Cost $B Rail Cost $B Water Cost $B Pipe Cost $B Other Costs $B Total Transp. GNP Cost $B U.S. GNP Total/ % 1960 0.4 32.3 9.0 3.4 0.9 1.7 47.8 500 9.0 1970 1.2 62.5 11.9 5.3 1.4 1.8 83.9 1,046 8.0 1980 4.0 155.3 27.9 15.3 7.6 3.5 213.7 2,831 7.6 1990 13.7 270.1 30.0 20.1 8.3 7.7 350.8 5,832 6.0 2000 27.0 481.0 36.0 26.0 9.0 11.0 590.0 9,960 5.9

Source: Adapted from Robert Delaney, “Twelfth Annual State of Logistics Report,” presented to

the National Press Club, Washington, DC, June 4, 2001.

Table 3.1

Air Transportation in Evolving Supply Chain Strategies 29 land transportation across high mountains of the Hindu Kush insulated the prosperous Indian subcontinent from westerners until the sea routes to India were opened by sea explorers like Vasco de Gama in the fi fteenth century.

Due to the signifi cance of the transportation sector to the economy of the United States, for over a century, the U.S. transportation sector was strictly regulated by government with closely controlled rates and delineation of al- lowable routes or geographical areas. These regulations were imposed at the federal, state, and local levels. In the 1970s, the U.S. government started grad- ually deregulating the transportation sector. 5 _{Whereas the economic regula-}

tions have been relaxed, the transportation sector must adhere to increasing safety and environmental regulations. These relate to working conditions, the transportation of hazardous and dangerous goods, and vehicle emissions.

Since the September 11 terrorist attacks on the World Trade Center and the Pentagon in 2001, the governments have imposed higher security standards at airports and seaports. The transportation regulatory policies are being con- tinually assessed, on a day-to-day basis, as new assaults unfold. These have a signifi cant impact on supply chain logistics and transportation operations management.

The U.S. government is deeply vested in the smooth functioning of the transportation network running its economic, food, and defense supplies— both nationally and internationally. Historically, national and state govern- ments closely regulated the transportation carriers in terms of their geographic and business scope, by specifying the prices they could charge for their ser- vices. In the case of the U.S. Postal Service, the government directly provides the transportation service to its citizens instead of relying on private service providers driven by short-term profi t.

For more than a century, the U.S. government regulators, guided by a pol- icy of making transportation stable, economical, and accessible to all, invested heavily in building the transportation infrastructure, such as the Baltimore and Long Beach seaports, the Erie and Ohio canals, the interstate highway system, and airports.

Early transportation in the United States was dominated by the canal and railroad system. Individual states monopolized the legal rights within their borders, and there were no consistent interstate controls by the federal gov- ernment. The U.S. Congress passed the 1870 Act to Regulate Commerce and created the Interstate Commerce Commission (ICC). At the dawn of the twentieth century, transportation carriers exploited their freedom by resort- ing to excessive profi teering, collusive price fi xing, and anticompetitive prac- tices. In 1903, the Elkins Act was passed, followed by the 1906 Hepburn Act, to establish federal regulatory control over pricing, particularly the maximum rate. The Hepburn Act had implicit jurisdiction over oil pipeline carriers. From early on, the Standard Oil Company developed pipeline transportation as a key mode competing with rail transportation. The 1910 Mann-Elkins Act enabled ICC to (a) examine and veto the proposed rates, and (b) remove discriminatory rates by service providers.

The 1920 Transportation Act expanded the power of ICC to include a reasonable minimum rate as well as the maximum rates. The 1887 Act was renamed the Interstate Commerce Act.

The post–World War I experience gave birth to the 1935 Emergency Transportation Act, which set standards for reasonable rates. In addition, as road transportation acquired a signifi cant share of the total transportation market, the 1935 Motor-Carrier Act also expanded ICC regulation of the increasing numbers of for-hire motor carriers.

Water transport in the United States was loosely regulated by the 1940 Transportation Act under ICC for domestic water. Water transport in foreign trade and commerce with the noncontiguous states of Alaska and Hawaii was regulated by the Federal Maritime Commission (FMC).

The 1948 Reed-Bulwinkle Act allowed the transportation service provid- ers to collaborate and jointly set prices, exempting them from the antitrust restrictions of the Clayton, Sherman, and Robinson-Patman acts.

To regulate the emerging airlines and air transportation sector, the 1938 Civil Aeronautics Act established a separate Civil Aeronautics Authority (CAA) to promote the sector’s growth and ensure its safety. In 1940, the CAA was reorganized fi rst as the Civil Aeronautics Board (CAB) and later as the Federal Aeronautics Administration (FAA). In addition, for the emerging aerospace sector, in 1951 the National Advisory Committee on Aeronautics was renamed the National Aeronautics and Space Administration (NASA).

Between 1970 and 1973, the U.S. rail industry started deteriorating. The National Railroad Passenger Cooperation (AMTRAK) was established by the 1970 Rail Passenger Service Act. To provide economic aid to seven major northeastern railroads facing bankruptcy, the Regional Rail Reorganization Act was passed in 1973. Under this act, on April 1, 1976, the Consolidated Rail Corporation (CONRAIL) started operating parts of these seven rail ser- vices. In 1976, the Railroad Revitalization and Regulatory Reform Act (4-R) and the Rail Transportation Improvement Act provided additional resources to AMTRAK and CONRAIL, and started deregulating the transportation sector.

Deregulatory Reforms

In 1966, the Department of Transportation (DOT) was established to over- see the deregulation reforms in the U.S. transportation sector. The dereg- ulation reforms were fi rst introduced in air transportation: air carriers were encouraged to compete over prices, and the restrictions on setting up new air carriers were relaxed under CAB. The entry of and pricing by domestic cargo airlines, shippers’ associations, and freight forwarders were deregulated by 1977. New rivals were allowed to enter the transportation sector provided they were willing, able, and fi t to provide the promised services, rather than because of necessity or public convenience. The 1978 Airline Deregulation Act was passed on October 24, and CAB was shut down on November 30, 1984.

Air Transportation in Evolving Supply Chain Strategies 31 The road and rail transportation sectors were deregulated under the 1980 Motor Carrier Act (MCA) and the Staggers Rail Act (SRA).

The 1980 Motor Carrier Act (MCA) abolished the restrictions on the types of road carriers and the range of transportation services provided, in order to improve productivity and stimulate competition among road transportation service providers. ICC continued to oversee predatory pricing. This dramati- cally transformed the road transportation sector.

The 1980 Staggers Rail Act (SRA) deregulated the U.S. rail transportation sector, allowing vital freedom to the carriers to price competitively in their different market segments. The rail service providers were also free to merge or discontinue poor-performing rail segments. The 1994 Negotiated Rate Act helped further expand the rate freedom.

The 1994 Trucking Industry Reform Act (TIRA) deleted the mandate for the road carriers to fi le their rates with ICC. The 1995 ICC Termination Act abolished ICC, effective January 1, 1996, and appointed a small Surface Transportation Board (STB) to continue deregulation across all transporta- tion modes and carriers.

Interstate Inconsistency

Whereas there is a need for state-by-state consistency, often there was a confl ict of jurisdiction in the United States between the federal and state agen- cies over transportation issues. In 1993, ICC ruled that if goods were shipped from out of state then the in-state shipments from warehouse to markets were also deemed interstate shipments. To avoid the additional cost burden of state regulation, the 1996 Federal Aviation Administration Authorization and Re- authorization Act was passed to facilitate a smoother fl ow of goods. The 1998 Ocean Shipping Reform Act deregulated the need to fi le tariffs with FMC.