Interstate Commerce

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Interstate commerce is the transportation of products and services from one state to geographic points in other states. This involves the transportation of goods and services

across state lines, creating a dependency on transportation modes and making the process subject to state laws regarding the transportation of goods.


Transportation plays an important role in determining the profitability of operating both farm and nonfarm businesses in rural areas. Farms, businesses, and industries in rural areas rely on transportation services to achieve necessary production outputs and to deliver commodities and products to market.

Interstate commerce has its roots in farming. During most of the first decade after the Civil War (18611865), farmers in seven midwestern states were responsible for approximately one-half of the nation's output of corn, wheat, and oats. Illinois farms were the leaders in the production of each of these grains; farmers to the north provided large amounts of the hard varieties of wheat, while those to the south and east produced most of the corn. Based on the presence of abundant feed, these producers established locations for fattening livestock and producing meat products. Given this state of affairs, farmers were in the market for transport services to carry livestock and crops to major produce exchanges located in other states.

Chicago and St. Louis were established as collection centers, but these centers were not the sites of final consumption. By 1870 there were well-established lines of supply between states. The Great Lakes steamers and schooners provided most of the service between Chicago and the northern portions of the Great Lakes area, and the four major railroads provided ground transportation. The two railroads with independent and complete service were the New York Central system and the Pennsylvania system.

Between 1874 and 1919, many laws were enacted that imposed economic regulation on the dominant means of interstate commerce in the United States: the railroad. Federal transportation regulations, however, were not of a sufficient magnitude to justify forming a cabinetlevel department solely for matters of interstate commerce.

Economic conditions between 1874 and 1919 vacillated. Agricultural depression was extensive during the 1870s and 1880s and constituted a factor that ultimately resulted in the economic regulation of interstate railroads in 1887. Furthermore, an international depression occurred in 1893 that sent seventy-four railroad companies into financial distress. Between 1901 and 1919, U.S. society experienced relative prosperity; it was during this period that 145,000 miles of track were constructed to carry goods between states.

Executive and legislative agencies related to transportation functions proliferated between 1874 and 1919; it was during this same period that highway transportation began to increase in importance. Financing and planning of highway development within state lines was primarily the responsibility of each individual state. Nevertheless, the Bureau of Public Roads began to play a significant role. In addition, the airline industry had its beginnings during the early part of the twentieth century.


The Interstate Commerce Commission (ICC), an independent U.S. government agency established in 1887, was responsible for the economic regulation of services of specified carriers engaged in transportation between states. The first regulatory agency formed within the federal government, it was established in response to mounting public indignation against railroad malpractices and abuses. The ICC's effectiveness, however, was limited by the U.S. Congress's failure to give it enforcement power, by the U.S. Supreme Court's narrow interpretation of its powers, and by the vague language of its enabling act.

Beginning with the Hepburn Act of 1906, the ICC's domain was gradually extended beyond railroads to all common carriers (except airplanes) by 1940. It was also given the task of consolidating railroad systems and managing labor disputes in interstate transport. In the 1950s and 1960s, the ICC enforced Supreme Court rulings that required the desegregation of passenger terminal facilities.

Part I of the Interstate Commerce Act grouped together a series of laws that were enacted in the late 1800s and early 1900s. The first of these laws required that railroad carriers publicize their rate schedules and forbade rate changes without due notice to the public. Sub sequent acts increased regulation and extended the ICC's jurisdiction. Part II of the act extended federal authority to motor carriers engaged in interstate commerce. Part III gave the federal government authority to regulate common carriers operating in interstate commerce in the coastal, intercoastal, and inland waters of the United States. Part IV comprised regulations governing the operations of freight operators.

Subsequently, the ICC's jurisdiction expanded to included trucking, bus lines, water carriers, freight forwarders, pipelines (those not already regulated by other agencies), and express-delivery agencies. The ICC controlled rates and enforced federal and local laws against discrimination in these areas. The safety functions of its jurisdiction were transferred to the U.S. Department of Transportation in 1967, and the deregulation of the late 1970s and the 1980s further reduced the ICC's role. Most ICC control over interstate trucking was removed in 1994, and the agency was terminated at the end of 1995. Many of its remaining functions were transferred to the National Surface Transportation Board.


Interstate commerce is supervised by several federal agencies. At one time, this included the Civil Aeronautics Board, created by the Civil Aeronautics Act of 1938 to oversee the airline industry. This act dealt with the airline industry's ability to provide efficient service at reasonable charges without unjust discrimination, undue preferences, or advantages or unfair or destructive competitive practices. Forty years later, President Jimmy Carter signed into law the Airline Deregulation Act of 1978, which phased out the Civil Aeronautics Board and let the airlines determine their own pricing and routes. It was thought that a lack of competition had made the industry unresponsive to consumers. As a result, the industry became deregulated and the pricing wars began.

Many other federal regulatory agencies and laws deal with interstate commerce. The Federal Trade Commission (FTC) was established in 1914 with investigatory powers to be used in preventing unfair methods of competition. The FTC enforces laws and guidelines regarding business practices and takes action to stop false and deceptive advertising, pricing, packaging, and labeling. It assists businesses in complying with both state and federal laws, and it evaluates new business methods each year. It holds conferences on electronic commerce (e-commerce), which is the newest form of interstate commerce. When general sets of guidelines are needed to assist businesses involved in interstate commerce, the FTC encourages firms within that industry to establish a set of trade practices voluntarily.

The Clayton Antitrust Act, passed in the same year that the FTC was created (1914), prohibits specific practices such as price discrimination, exclusive dealer arrangements, and stock acquisitions whose effect may notably lessen competition or tend to create a monopoly.

In addition, the Federal Communications Commission (FCC) has evolved as a crucial regulatory component in e-commerce development. The FCC regulates communication by wire, radio, and television in interstate and foreign commerce. This agency has been undergoing rapid changes as a result of the need for e-commerce regulation.


The transportation environment in the early twenty-first century is much different from that of the twentieth century. The shift from a rural to an urban economic base, policy changes, and technological and organizational innovations have changed the way in which products and services are distributed in the United States. Fewer than 10 percent of the people living in nonmetropolitan areas are employed in farming, forestry, fisheries, or mining. Farms in the 2000s tend to be larger and more capital intensive. Large tractor-trailer trucks are rapidly replacing smaller vehicles in the delivery of production inputs to farms and products to market.

Nonagricultural demands for interstate commerce increased dramatically in the last quarter of the twentieth century. Manufacturing employment in nonmetropolitan areas grew at a rate three times that in metropolitan areas. Approximately 20 percent of nonmetropolitan residents were employed by manufacturing firms at the turn of the twenty-first century.

As a result of these changes, the amount and type of interstate traffic has also changed dramatically. The larger, heavier vehicles on these roads require major investments in bridges and in surfaces of paved roads. A Department of Transportation survey suggested that more than 50 percent of the local road mileage in the United States was structurally inadequate. This problem is one of surface type and condition and even safety deficiencies, such as inadequate lane widths or lack of shoulders.

The increased financial responsibility of local governments for construction and maintenance of rural road systems is a special concern for those rural regions dependent on interstate commerce. Transportation deregulation is another major federal policy change likely to influence the cost and availability of transportation services and facilities needed for interstate commerce. Technological and organizational innovations have accompanied the new deregulated environment. Railroad mergers, for example, have resulted in reduced service on many routes, potentially affecting the relative competitiveness of regions as a location for business or industry. Developments of unittrain facilities and railroad contracts encourage consolidation and growth of processing firms.

Transportation improvements that result in lower operating costs for area enterprises aid rural communities in efforts to attract new business and industry and encourage the expansion of existing firms. Business surveys consistently find that firms rank transportation access, cost, and quality as high-priority considerations in choosing a business location. The availability of highway transportation is particularly important to a wide variety of rural businesses that depend on the ability to deliver their products to other states.

Freight carriers are dependent on the rural road systems, which are financed through a combination of local tax revenues. The shared state-highway user taxes and fees vary from state to state. A faltering local economy can severely limit a local government's ability to raise revenue for road system improvements, and the likely result of this is a cycle of decline in interstate commerce. Without additional revenues, local road systems will continue to deteriorate, thus further reducing the attractiveness of the area for business and industry and thus further eroding the area's tax base.

Interstate commerce involves the transportation of services as well as goods. Of particular importance is the transportation of people between states. Formerly, carriers were partially protected from competition in return for fulfilling public service obligations. Under this arrangement, common carriers were not free to choose customers, nor were they free to eliminate parts of their services without the consent of the public. This obligation placed liabilities for loss and damage with the interstate carriers who were responsible for transportation losses. In addition, common carriers had to serve all customers without discrimination and had to have their rate-change proposals reviewed by regulatory bodies to determine whether these changes were reasonable.

In return for fulfilling these public obligations, common carriers were protected from new competition. When a company proposed to expand service to another state, an existing transportation company could argue that it currently serviced the traffic adequately and could oppose entry of a new interstate carrier. Often, the opposition of existing carriers prevented the entry of new carriers.

In the early 1980s, however, Congress passed major legislation changing the government's role. Policy changes essentially replaced the common carrier system with a market-transaction system similar to that of any other private business. The new market approach allows shippers and carriers to actively negotiate for transport services rather than accept one of a few alternatives offered by carrier consortiums. Deregulation increased economic efficiency in the provision of transportation services because carriers had new flexibility in adjusting to demand.

Highways, railways, and airways are the arteries that enable shoppers and tourists to travel between states. Because of this, passenger transportation plays a key role in rural economic development. Many rural industries draw their workers from surrounding communities up to 50 miles (80.5 km) away. For these industries, the interstate transportation system is a critical link providing them access to the labor force. Policies and investments that reduce the cost of interstate commerce in rural regions are a potential catalyst for rural economic development.

The urgency of finding workable solutions to interstate commerce issues has prompted new ways of thinking. In 1982 the U.S. government appropriated $5 million to provide technical assistance to local agencies through the Rural Technical Assistance Program. The principal delivery system for the program was a network of Technology Transfer Centers. Under the Federal Highway Administration program, the Technology Transfer Centers were designed to provide training and other technology transfer products to local users. One of the primary objectives of the program is to serve as a communications link among the various sources of new technology and the state and local agencies that can apply the technology in daily operations. In 1983 there were ten Technology Transfer Centers. In 2006 there were more than fifty across the United States.


The FCC has recently come to the forefront because of its responsibility to regulate e-commerce. The FCC sought comment on two rule-making dockets in 2000: the Access Charge Reform rulemaking docket and the Complete Detariffing for Competitive Access Providers and Competitive Local Exchange Carriers rulemaking docket, which is involved with the regulatory or market-based approaches that would ensure that competitive local exchange carriers (CLEC) rates for interstate access are reasonable. Many proposals are being discussed at these proceedings, and the FCC invites all interested parties to comment on whether mandatory detariffing of CLEC interstate-access service rates would provide a market-based deterrent to excessive terminating access charges.

In addition, the FTC has been sponsoring workshops throughout the United States that are intended to educate people about how marketplaces work and to explore the anticompetitive scenarios. The FTC will be involved in scrutinizing virtual competition in e-marketplaces. In addition to challenges that e-marketing poses is the tension that exists between a state's authority to tax and the authority of Congress to regulate interstate commerce. For example, foreign businesses are often shocked to learn that while treaties may segregate them from the federal taxation, state taxation can still be imposed, thus putting a real damper on foreign investment.

see also Interstate Commerce Commission


Brierty, Edward, and Reeder, Robert (1991). Industrial marketing, analysis planning and control. Englewood Cliffs, NJ: Prentice Hall.

Brown, W. (2005, January). Outside counsel: Federal Arbitration Act. New York Law Journal, p. 4.

Gillis, William (1989). Profitability and mobility in rural America. University Park: Pennsylvania State University Press.

Miller, Sidney (1953). Inland transportation. New York: McGraw-Hill.

Patricia A. Spirou

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Interstate Commerce

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