Deregulation of Air Cargo

Under CAB regulations, air cargo was allowed to be carried by certificated carriers in the belly of any type of aircraft and over any route for which the carrier had passenger authority. As of 1978, more than half of all cargo still moved in the bellies of passenger aircraft. No “all-cargo” commercial car­riers appeared on the scene at all until after World War II. In the 1970s, there were only a few all­cargo certificated carriers, including Flying Tiger and Seaboard World Airlines, and only one air taxi cargo operator. The air taxi was Federal Express, and it had been allowed entry into the cargo field by using the CAB exemption for small airplanes— under 12,500 pounds. Once a cargo plane landed, it was limited to a delivery radius of 25 miles by ICC regulation. The CAB set cargo prices and did not allow higher prices for faster transport.

In June 1976, John Robson proposed to Congress that cargo be treated separately from passenger operations and, going beyond what either Kennedy or Ford had authorized, sug­gested that air cargo be completely freed of regulatory control. At the time, the pending air­line deregulation bill applied to both passenger and cargo carriage, but the main problem with advancing the legislation lay with the passenger side of the legislation. This was due to powerful interest groups on the passenger side who were opposing airline deregulation vociferously. On the cargo side, there were no such interest groups working against the bill; in fact, most all of the interested parties supported complete deregula­tion of air cargo. This was the opening that John Robson saw and was the reason for his proposal to split the legislation and seek full deregulation for air cargo.

Federal Express and Flying Tiger represen­tatives worked closely with Congressional com­mittees to separate the passenger legislation from the cargo legislation, and on October 20, 1977, the cargo bill was signed into law by President Jimmy Carter. By this statute, the cargo carriers were free to use aircraft of any size, to fly them wherever they chose, and to set rates that were justified by market conditions.

The share price for Federal Express on the day of the passage of this law in October was $9.16. By December, it had catapulted to $34.75. Share prices for Flying Tiger also rose. Federal Express began acquiring large jet aircraft, up to seven times larger than those permitted during regulation. Total shipments increased by 38 per­cent in 1978. Overnight shipping was born, with pricing based in part on speed. In the world of air cargo and on the New York Stock Exchange, the name “FedEx” took on new meaning.

The deregulation of cargo also created opportunities for companies engaged solely in surface transportation. In 1981, United Parcel Service (also known as UPS) entered the over­night air delivery business and is today one of the largest cargo airlines in the country. It is an interesting fact that labor relations between UPS management and its employees are governed by the National Labor Relations Act, while FedEx is subject to the Railway Labor Act. This seem­ing contradiction is, of course, due to the fact that UPS was subject to the NLRA from its inception as the American Messenger Company in 1907.

The success of the air cargo carriers due to deregulation was a positive sign for air passen­ger deregulation. Arguments that chaos would follow deregulation of the air carrier industry were to some degree muted by the success of the air cargo carrier experience, but not everybody agreed. [11] [12]