Significance of Interstate Commerce Act of 1887
Did You Know?
The railroad industry was the first to face federal regulations in the US.
After the end of the Civil War in 1865, the US continued with industrialization at a rapid pace. The growth of the railroad industry was one of the main driving factors behind it. However, it was entirely private-controlled, and had no government regulations binding on it. This allowed the railroads to indulge in business malpractices, like offering rebates and charging lower rates for long-haul services, aiming to attract influential shippers. However, such activities severely affected smaller firms, farmers, and merchants, who needed the short-haul services to transport goods from their farms to the markets, and vice versa.

Under fire from many farmer organizations, like the Grange movement, several states in the US formed state commissions, which tried to reduce such malpractices by the railroads. However, a Supreme Court ruling in 1886 said that only Congress had the power to regulate trade across state boundaries, and not the state governments themselves. Realizing that it had to take matters in its own hands, Congress stepped in, and passed the Interstate Commerce Act in 1887. But how did the Interstate Commerce Act affect the railroads? Let us see.

Main Purpose of the Act

The Interstate Commerce Act was a federal law signed by President Stephen Grover Cleveland, on February 4, 1887, which aimed to regulate the powerful railroad industry, and prevent its monopolistic practices by setting up an Interstate Commerce Commission (ICC).

  • The Interstate Commerce Act was initially intended only for railroad industries, and not other carriers like wagons or boats.
  • It ordered all railroads to set 'fair and reasonable' shipping rates.
  • It made charging different rates for a similar service unlawful.
  • The Act forbade railroads from charging more for short-haul services as compared to long-haul services on the same route.
  • It forbade railroads from favoring any individual, corporation, firm, or locality, by offering special rates or rebates.
  • The Act ordered them to publicly display their rates, and forbade them from charging higher or lower prices than these predefined rates.
  • All railroads were required to give a notice period of 10 days before undertaking any rate changes.
  • Pooling, a practice where railroads formed trusts to demand artificially high prices, and then shared revenues, was forbidden.
  • The Act enabled the establishment of a federal regulatory agency, called the Interstate Commerce Commission, to regulate railroad trade.
  • The Commission was supposed to have five members, who had to be appointed by the president in consultation with the senate.
  • The ICC was empowered to register all grievances against railroads, conduct hearings, and give cease-and-desist orders to any violators.
  • The railroads were ordered to submit an annual financial report to the ICC.
  • If any provision of the Act was violated by a railroad, then the ICC was to file a petition against it in a district court.
  • District courts were allowed to levy a maximum fine of five thousand dollars for every offense.

While the Interstate Commerce Act created the ICC, and authorized it to regulate the conduct of railroads, it lacked the sufficient powers to take action against defaulters. The ICC could not take any action by itself; it had to approach a federal court and file a lawsuit against the erring corporation on behalf of the shipper. Most cases took up to 4 years to reach a conclusion, and even then the courts mostly ruled in the favor of the railroads. From 1887 to 1906, 16 cases filed by the ICC against the railroads reached the Supreme Court, out of which it won only one. This reduced the confidence of the shippers, resulting in a sharp decline in the number of appeals.

The Act, in its original form, had little to no effect in reining in the railroads. This had a lot to do with its ambiguous language. While some sections aimed to encourage competition in the market, others penalized it. While it empowered the ICC to demand 'just and reasonable' rates, it did not specify the means for deciding what was reasonable. The Act gave a free run to all railroads who worked in public interest or for charitable purposes, which was again left unexplained. However, the two provisions which had a significant impact were the requirement for annual reports and the prohibition of setting favorable rates to selected shippers. Here again, the Act did not specify the means of deciding what was discriminatory pricing.

Moreover, in the first few years following its enactment, the ICC avoided taking a strong position against the powerful railroad industry, which was also helped by the fact that successive administrations appointed pro-railroad ICC commissioners. The few times that it voiced its opinion in the federal courts, as mentioned before, resulted in the victory of the railroads. In fact, even when the ICC tried to fix rates for all railroads, the Supreme Court said that it did not have the authority to do so.

Owing to these problems, despite the intentions of the Interstate Commerce Act, railroad monopolies continued unabated for another two decades. This changed when President Theodore Roosevelt came to power in 1901. He was in favor of increased regulation of private industries, and under his support the Elkins Act was passed in 1903, which directly fined the practice of giving or taking rebates in the railroad industry. This was followed by the Hepburn Act of 1906 and the Mann-Elkins Act of 1910, which greatly expanded the powers of the ICC, finally clipping the wings of the railroads.

While the Act's initial provisions dealt only with the railroads and other carriers owned by them, this was later expanded by the Elkins, Hepburn, and Mann-Elkins Act, to include other carriers like ferries, sleeping cars, oil pipelines, express services, bridges, and even the telecommunication industry. The Motor Carrier Act was passed in 1935, which further amended the Interstate Commerce Act, allowing the ICC to regulate carrier industries involving automobiles like motor cars, buses, and trucks. The Act was revised thrice, in 1978, '83 and '94, which simplified its language, and reorganized it without any changes.

While automobile carriers were ultimately brought under the ambit of the Act, these industries were never treated with the same stringency as the railroads. These carriers, coupled with the growth of air transport, soon ate into their business. To revive the ailing industry, Congress began deregulating the railroads from 1958 onwards, which culminated in the Staggers Rail Act of 1980, and returned much of the railroads' independence. However, the industry never saw the same success as a century ago. With most of its powers lost, the Interstate Commerce Commission was finally dissolved on January 1, 1996 by Congress, and its remaining functions were transferred to the Surface Transportation Board. The main significance of the Interstate Commerce Act lies in the fact that it established the ICC, which served as a role model for most regulatory agencies that followed.