competition and productivity in the us trucking...
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COMPETITION AND PRODUCTIVITY IN THE US TRUCKING INDUSTRY SINCE DEREGULATION
Veiko Paul Parming. Advised by Dr. Chris Caplice
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Executive Summary
Since deregulation in 1980, the US trucking industry has undergone considerable change. This
project seeks to examine the regulatory transformations that took place, and to explore significant
trends in the industry and developments at the firm level, notably in productivity, since deregulation.
This interim report serves two purposes: it presents findings from the work so far conducted
and outlines the steps that will be taken in the next phase of the project.
Section One explains how the regulatory structure of the trucking industry liberalized with
passage of the Motor Carrier Act of 1980. Particular attention is paid to how the removal of entry
restrictions, reform of the pricing mechanism, and loosening of operational constraints led the industry
toward a greater reliance on market forces. A concise general history of US transportation regulation is
included, to give a sense of the changing philosophies in the industry over time.
Section Two focuses on perhaps the most significant industry development post-‐deregulation:
bifurcation into the truckload (TL) and less-‐than-‐truckload (LTL) sectors. Prior to deregulation, most
large carriers offered a combination of TL and LTL service. Through the 1980s, the number of these
-‐LTL dwindled rapidly; those that survived overwhelmingly oriented toward the LTL market.
In general, carriers came to specialize in either TL or LTL service. This represents the initial analysis of the
large motor carriers of property between the years 1977-‐1992.
Section Three sets up what will be the major focus of the next phase of the project, productivity
analysis. The Form M dataset will be used to perform calculations of multifactor productivity,
supplemented by analysis of other operating and financial dynamics. A further objective will be to link
regulation, competition and productivity, building on frameworks developed by Porter and others.
1 Regulation and Deregulation in the US Motor Car rier Industry
In 1980, Congress undertook deregulation of the interstate motor carrier industry, as part of a
wider movement of deregulation and regulatory reform across the domestic transportation industries.
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The Motor Carrier Act of 1980 transformed core aspects of carrier operations, including entry, contracts,
and ratemaking, and by extension caused substantial changes in industry structure and competition.
Notable contemporary regulatory acts affecting the other transportation industries included the
Railroad Revitalization and Regulatory Reform Act (1976) and the Staggers Rail Act (1980) in railroads;
the Air Cargo Deregulation Act (1977) and the Airline Deregulation Act (1978) in airlines; the Household
Goods Act (1980); and the Bus Regulatory Reform Act (1982).
If it has been a central economic doctrine in America that competition tends to produce the best
compromise between the short-‐run objectives of consumers and the long-‐run needs of firms, then many
analysts of the transportation industry had come to believe that its regulatory structure was more of a
hindrance than a support to competition. As Meyer et al wrote in 1959:
[T]he ideal of regulation is to achieve, at least roughly, the results of
competition in situations that are not entirely competitive. There are, however,
increasing signs that regulation as it is practiced in the United States has resulted
in the actual organization of transportation services departing from that which
would result under competitive circumstances.
The Motor Carrier Act of 1980 was the product of three years of Congressional hearings and
reflected substantial compromise among the stakeholders. Although research had not indicated
substantial shipper dissatisfaction with trucking service, economists and academicians contended that
the existing regulatory structure obstructed entry into the market and encouraged inefficiency. More to
the point, they argued that the motor carrier industry was particularly well suited to reliance upon
market forces (Lieb, 1994).
History of US Transportation Regulation
Transportation regulation was born in the post-‐Civil War period, as rail outpaced water and
wagons and as agricultural shippers successfully lobbied for protection from rail price discrimination.
Supreme Court rulings in the late 19th century established the constitutionality of regulating interstate
business and paved the way for passage of the Interstate Commerce Act (ICA), which created the
Interstate Commerce Commission (ICC) to regulate the railroads.
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Early transportation regulation generally sought to cultivate competition while promoting equity
and accessibility for the shipping public. Transportation regulation very much followed the spirit of the
Sherman Antitrust Act (1890) and the Clayton Act (1914), landmark statutes that became the foundation
of US competition law. The experience with early rail regulation was mixed. Blatant discrimination was
rejected rate increases in the 1910s, leading to severe financial and service
deterioration in the industry (Lieb, 1994). Furthermore, the miserable economic climate of the 1930s
sparked destructive rate wars in the nascent, federally unregulated motor carrier industry.
Over the first half of the 20th century, Congressional philosophy shifted from enforcing
competition toward strengthening and stabilizing the several modes. In 1920 the ICC gained authority
over minimum and actual rail rates, and between 1935 and 1940 ICC control was extended over motor
carriers, water carriers, and freight forwarders. (Air carriage, too, became federally regulated, but under
its own authority.) In this period, Congress also began to invest heavily in road, water, and air
infrastructure.
The construction of the Interstate Highway System in the postwar period helped spur a growing
attractiveness of trucking relative to rail. Congress attempted to revitalize the railroads in 1958,
directing the ICC to arr which had inflated rail rates to
protect the traffic of other modes, and issuing guaranteed loans to cover investments and outlays.
However, railroads continued to realize low earnings and indeed experienced losses on mandated
passenger service (Lieb, 1994). The bankruptcy of seven major railroads in the early 1970s compelled
Congress to re-‐examine its regulatory philosophy. Critics alleged that the entire transportation
regulatory structure discouraged efficiency, inflated rates, and depressed service quality. Lawmakers
came to believe that a fundamental overhaul of the regulatory structure was due.
Within a span of five years, the regulatory structures of the major domestic transportation
industries were substantially reformed. The new guiding philosophy was that competition should
flourish within and between the modes. The ramifications for individual modes were not uniform. In the
rail industry, consolidation was promoted so as to enable railroads to earn rates congruous with their
capital-‐intensive cost structure. Trucking witnessed a bifurcation into truckload (TL) and less-‐than-‐
truckload (LTL) sectors, with low concentration in the former and high concentration in the latter.
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General Congressional satisfaction with the outcomes of deregulation led to continued reforms
into the 1990s, when the ICC was abolished and trucking deregulation was extended to the state level.
The Nature of Motor Carrier Deregulation
In the years preceding 1980, the ICC, cognizant of evolving Congressional sentiment, had already
begun to liberalize entry and operating policies, leading to a rapid increase in ICC-‐regulated motor
carriers. Building on this momentum, the Motor Carrier Act of 1980 (MCA) further opened the industry
to the forces of competition. Although initially vehemently opposed to regulatory reform, the American
Trucking Association, the industry interest group, came to support the final bill (Lieb, 1994).
This section identifies the changes in three central facets of deregulation: pricing controls,
entry/operational freedom, and firm classification.
Pricing Controls (Ratemaking)
Prior to deregulation, the ICC commanded considerable control over trucking rates. In principle,
its task was to ensure rates did not violate its standards of fairness and reflected a reasonable balance
between the interests of the various parties. Upon finding a rate unreasonable or unjust, the ICC could
variously prescribe minimum, maximum, and/or actual rates depending on the category of carriage. The
competition and the protection of small, remote, or otherwise disadvantaged shippers (Lieb, 1994).
carriers belonged to rate bureaus and thereby set rates collectively. Exempted from antitrust laws by
the Reed-‐Bulwinkle Act of 1948, rate bureaus were regional groups that developed freight classifications
was to provide little resistance to decisions reached by rate bureaus (Teske, 1995).
Deregulation had the effect of liberalizing pricing, in an incremental manner. Although
deregulation did not dispossess rate bureaus of their antitrust exemption, it diminished their power.
Rate bureaus were forbidden from voting on single line rates. A zone of pricing freedom was
established, within which rates were to be free of ICC interference and rate bureau involvement. Rates
were still required to be filed with the ICC, but tariff discounts became increasingly common as carriers
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sought to compete with one another. Trucking firms often failed to notify the ICC of rate reductions and
the increasingly marginalized ICC did not aggressively pursue the matter (Teske, 1995). With the
abolition of the ICC in 1995, rate regulations and tariff filing were finally eliminated, with small
exceptions.
Entry and Operational Freedom
Entry controls -‐consuming issue,
demanding 80%-‐ time. The 1935 Motor Carrier Act (not to be confused with the
1980 MCA) had mandated that common carriers hold operating certificates, to be issued according to a
public necessity where existing markets were already served by incumbents (Teske, 1995). The result
was a long-‐term decline in the number of ICC-‐regulated motor carriers.
The certificate system controlled not only entry into the industry but also entry into particular
markets. Operating certificates specifically enumerated the particular commodities that could be carried
and the routes that had to be followed. The certificates were sellable, and by some estimates the
aggregate market value of the certificates had reached $2-‐4 billion in 1977 (Teske, 1995).
Along with the ICC initiatives preceding it, the 1980 MCA substantially loosened entry controls.
The
public
proposed service would not be beneficial. The ICC began to consider competition and rate levels in
approving entry applications. Congress directed the commission to reduce operating burdens, such as
unreasonable or narrow territorial limitations and restrictions on round-‐trip authority and service to
intermediate points on routes (Lieb, 1994).
With the ICC Termination Act of 1995, requirements for operating authority were eliminated
and the states were pre-‐empted from imposing economic control over the industry. Carriers could now
transport virtually any commodities; their only entry requirements were to register with the Federal
Motor Carrier Safety Administration and to furnish proof of insurance (Coyle, 2006).
Firm Classification
One of the most apparent changes in the trucking industry has been the way that carriers are
classified. The pre-‐deregulatory period had spawned a very particular segmentation scheme. To simplify,
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carriers could be for-‐hire (providing services to the public) or private (moving freight belonging to the
owner). Among for-‐ carriers, providing service upon demand; and
engaging shippers in continuing contracts. Most for-‐hire carriers were under the
control of the ICC
managed to obtain freedom from ICC influence: for example, agricultural lobbyists had secured an
exemption for farm commodities as early as 1935 (Lieb, 1994).
Understood within the context of a regulated market, such a classification scheme appeared to
be supported by reason, but it also necessitated a bureaucratic web of restrictions. For example,
common carriers had incentives to sign low-‐rate contracts with favored shippers (at the expense of
disadvantaged shippers), so carriers were forbidden from offering both common and contract service.
Contract carriers, then, might have poached all the favored shippers from common carriers, so contract
R
While the regulatory system distorted the industry, it proved unable to suspend the basic laws
of economics. Private carriers, unencumbered by economic regulation, rose to become the fastest
growing sector of the trucking industry before deregulation (Teske, 1995). The cumulative effects of
regulation on efficiency, prices, and quality in the for-‐hire sector had prompted many shippers to start
their own private trucking operations and transport their own freight.
With the acceptance that Congress no longer needed to protect small and remote shippers from
the forces of competition, the rationale for many of the restrictions -‐
1970s initiatives and the MCA, dual common-‐contract carriers became lawful, the Rule of Eight was
eliminated, private trucking firms were permitted to operate for-‐hire services, and truckers were
authorized to carry regulated and exempt commodities simultaneously in the same vehicle.
During the 1980s, economic rationale replaced bureaucratic rationale in the categorization of
industry sectors. As the distinction between common and contract carriers became increasingly
anachronistic, motor carriers began to be classified more logically as truckload (TL) or less-‐than-‐
truckload (LTL). with
the shipper paying for the entire movement. In contrast, customers wishing to transport smaller
shipments rely on LTL carriers to secure many shipments from diverse shippers and aggregate them for
the intercity haul. Naturally, LTL operations require nontrivial physical infrastructure, including
consolidation terminals and pickup and delivery operations.
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Up until deregulation, it was very common for carriers to offer both TL and LTL services.
However, the trend since that time has been a clear bifurcation into firms that specialize in one or the
other. This trend is further investigated in Section 2.
Intrastate Deregulation
It is important to note that even after federal deregulation in 1980, states continued to exercise
regulatory authority over motor carriers well into the 1990s. In 1994, 41 states continued to regulate
interstate trucking, and 31 states had rate bureaus operating under antitrust immunity. In fact, in 1994
30 states regulated rates not only for common carriers but also for contract carriers, often to protect the
former from price-‐cutting (Teske, 1995).
The large disconnect between federal and state regulatory structures created inefficiencies and
illogical incentives for shippers. Unexpectedly, it was the deregulation of airlines that led to
congressional pre-‐emption of state regulation. Air freight carriers (such as FedEx) had been freed of
state air regulation but became increasingly frustrated with state trucking restrictions that impeded
their burgeoning ground parcel operations. Fearful of losing ground to the parcel carriers, LTL carriers
too became supporters of state deregulation. In 1994, Congress directed
more stringent than ICC rules. The restrictions on state power were retained after the ICC was abolished
a year later (Teske, 1995).
2 Bifurcation into T L and L T L Sectors
Since deregulation, e motor carrier industry: firms have
come to specialize in either truckload (TL) or less-‐than-‐truckload (LTL) operations. Data from the motor
) allow us to track these changes over the years succeeding
deregulation.
Figure 1 bears testament to this massive shift in carrier composition. In relatively short order,
the those that offered a combination of TL and LTL services were almost completely
marginalized. Between 1977 and 1992, the share of the top 100 firms (by revenue) earning between
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20%-‐80% of their revenues from TL operations plummeted from 82% to 10%. Increasingly, motor
carriers were specializing in either TL or LTL.
Figure 1 also draws attention to another important trend: the growing emergence of the
truckload carrier. Successful TL carriers like J.B. Hunt came to rival the traditional heavyweights such as
Roadway, Consolidated, and Yellow in their size. In fact, by the late 1990s, the top 100 carriers were
roughly evenly split between TL and LTL firms.
Figure 1 : Bifurcation of Motor Carriers, 1977-‐1992
What Became of the Mixed Carriers
Who were these new TL firms? And what became of the large mixed TL-‐LTL carriers after
deregulation? Figure 2 offers some insights into these related questions. The chart tracks the top 50
mixed carriers in 1979, the eve of deregulation, over the next 10 years. Carriers either continued
0 20 40 60 80 100
1977197819791980198119821983198419851986198719881989199019911992
Top 100 Carriers Each Year
Mostly LTL (<20% TL)
Mixed (20% -‐ 80% TL)
Mostly TL (>80% TL)
Type of Operation: Share of Revenue from TL vs LTL
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operations as TL, LTL or mixed carriers, or dropped out of the list of top 100 carriers. (the analysis uses
Top 100 Carriers instead of Top 50 Mixed Carriers to avoid ensnaring firms that simply fell a few
positions in the rankings without losing market share).
Immediately apparent is that as these firms specialized, they were far more likely to reorient
themselves as LTL carriers than TL carriers. In fact, only a single Top 50 company went the latter
direction. An even more likely outcome was dropping out a fate that implies acquisition, bankruptcy,
or significant loss of market share.
In short, change was quick in coming to the mixed carriers: the ones that survived the 1980s had
embraced almost exclusively LTL operations. The new emerging truckload firms were not remnants of
the pre-‐deregulatory large companies, but rather a new breed of competitor.
Figure 2: Fate of Large Mixed Carriers in Decade after Deregulation
Reasons for Bifurcation
Financial data for the TL, mixed and LTL carriers help illuminate why the market structure
changed the way it did after deregulation. Figure 3 displays changes in income (profit) over the period
0
5
10
15
20
25
30
35
40
45
50
1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989
DROPPED OUT OF TOP 100
BECAME TL
STAYED MIXED
BECAME LTL
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1977-‐1992. The income shown is net income,
unit of output, in this case ton-‐ As for all financial
Consumer Price Index. For each year, the graph shows the median income for that
carriers (as ranked by revenue).
Figure 3 Median Income per Ton-‐Mile (Top 100 Carriers)
Judging by their unit income, the mixed carriers appear to have fared particularly badly
immediately following deregulation. Notably, both the TL and LTL sectors were, on average,
characterized by positive incomes throughout this period (although some individual carriers were in the
red). The LTL sector experienced more income volatility, but on a ton-‐mile basis its income tended to be
higher than the truckload carriers. However, the mi
low incomes of the TL sector. In fact, in several
years the majority of the mixed carriers were losing money.
-‐0.40¢
-‐0.20¢
0.00¢
0.20¢
0.40¢
0.60¢
0.80¢
1977 1982 1987 1992Real dollars (1
977 levels)
Mostly LTL (<20%TL)
Mixed (20% -‐ 80%TL)
Mostly TL (>80%TL)
Type of Operation: Share of Revenue from TL vs LTL
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1980, the year of deregulation, was particularly challenging for mixed carriers. The average
large mixed carrier lost nearly half a cent (in 1980 dollars) on every ton-‐mile it moved, and of the mixed
carriers in the top 100, fully 62% were money-‐losers. This is striking because, as Figure 1 reminds us, the
carriers that already specialized in either TL or LTL operations appear to have weathered the transition
to market competition with somewhat more success.
The poor financial performance of the mixed carriers can explain the shift of mixed carriers to
the LTL sector and the bifurcation of the trucking industry. But what was behind this poor performance?
Figure 4 -‐mile, again as
the median of the largest 100 carriers.
Figure 4 Median Expense per Ton-‐Mile (Top 100 Carriers)
Whereas truckload carriers reduced their real unit expense by roughly half, and the LTL carriers
by about a quarter, the mixed carriers had a slight but steady rise in their unit expenses. This partly
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
1977 1982 1987 1992
Real dollars (1
977 levels)
Mostly LTL (<20%TL)
Mixed (20% -‐ 80%TL)
Mostly TL (>80%TL)
Type of Operation: Share of Revenue from
TL vs LTL
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reflects a shift toward increased LTL service among mixed carriers, but may also be evidence of
struggling to lower costs.
The expense graph also shows that TL carriers had a strong cost advantage over the LTL carriers,
which is of course unsurprising given that LTL operations are much more labor and capital intensive.( A
cautionary note about the graph: In the early yea
carriers, and in the later years few mixed carriers, so some volatility is related to small sample size.)
Bifurcation Analysis: Conclusions and Next Steps
In this section of the report, the reasons behind the bifurcation will be explored in greater
depth. One question is why the unit expense of the mixed carriers remained high at the same time that
competition (and perhaps other factors) brought down the expenses of specialized firms. Were the
mixed carriers struggling to retain a competitive footing? From a technical standpoint, there could be
several explanations. First, mixed carriers may have struggled to reduce unit input prices, such as wages
to workers or prices for equipment. Second, they may have had a lower physical productivity in
converting labor, fuel and capital into miles of transportation (perhaps due to poor management,
organization, or technology). Third, they may have been deficient in their load factors, or their ability to
convert miles into ton-‐miles. Preliminary analysis suggests that load factors were indeed part of the
story, at least from about 1983 onwards. However, this might be something that compounded rather
than caused the decline of the mixed carriers (i.e., perhaps they struggled to fill trailers and attract
business because they had already gained a reputation for inefficiency). These are questions that will be
sorted out through continued analysis of the Form M data.
Another opportunity for insight is tracking the financial and operating performance of individual
mixed firms, most notably those that morphed into LTL carriers. Did they exhibit an improvement in
? Or was the improved performance in the
LTL sector driven by new competitors, as was more apparently the case on the TL side?
Unfortunately, the Form M data are not as granular as might be ideal; notably, they do not
segment miles or ton-‐miles by TL vs. LTL. Nor does the data segment expenses or income, which
admittedly would have been less intuitive. This means that it is hard to compare the TL operations of the
mixed firms against pure TL firms, and the LTL operations of mixed firms against LTL firms. Another
sely by the structure of the
operation, but rather by the size of the load (loads greater than 10,000 pounds are TL, and those smaller
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are LTL). But while the annual reports may lack an ideal depth of data, it should still be possible to
construct a clear account of what happened to the mixed carriers and why.
The fundamental reason for the bifurcation in the trucking industry is most likely simple
economics. Truckload and less-‐than-‐truckload operations are materially different from one another.
Although both entail movement of freight by motor carrier and both compete for at least a certain
weight range of freight, the physical structure of operations differs substantially. A truckload firm can be
a fairly bare-‐bones business; with the elimination of major regulatory burdens in 1980, little prevents a
small group of people with a few leased trucks from successfully competing for freight. In contrast, LTL
operations demand a physical network of terminals and a greater number of processes (e.g., picking up
freight, aggregating, and sorting).
In economic terms, the bifurcation implies
arrier producing Service X cannot reduce its
unit costs for X by starting to offer (more of) Service Y. Such economies do exist, for example, in the air
passenger industry, where an airline already paying for aircraft, fuel, and crew for the passenger
movement can also carry some freight in the cargo hold at very little marginal expense.
It is intuitively logical that scope economies do not exist for truckload firms: to start providing
LTL service would require TL firms to construct costly terminals and would not in any way reduce TL unit
costs. The argument is a little less intuitive in the case of LTL carriers, which would not seem to confront
major impediments in adding some truckload service. However, the post-‐deregulation history has
shown that while an LTL firm may more readily broaden its offerings, it does not enjoy any particular
economic advantage from doing so.
Thus, it appears that the one-‐time dominance of mixed carriers was an artifact of regulation: an
unnatural outcome of a system that restricted entry, pricing and operations a result that proved
incongruous w .
Beyond the bifurcation, there are several other important industry trends that merit further
attention: the rise of the truckload sector (shown in Figure 1), the steady decline of profitability across
the board (Figure 3), and the reduction of unit costs for specialized carriers (Figure 4). These latter two
trends appear to be the logical and expected outcomes of greater competition. Further analysis will give
greater depth to these observations, determining in particular the effect of productivity (a topic
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addressed in the next section). While it appears that unit profitability has declined, it is possible that
firms have seen total profits rise, if output has increased sufficiently.
A separate data set, covering the years 1999-‐2003, will also be investigated as a means of
controlling whether observed changes were transitory or enduring.
3 Productivity and Prices
A central part of the ongoing analysis involves What role did
productivity play in the post-‐ The following section of the
report provides an introduction to the concept of productivity, a look at preliminary findings, and an
overview of objectives for the next phase of the project, which will explore productivity in greater detail.
Form M data for the years 1977-‐1992 and 1999-‐2003 contain a fairly large number of physical and
financial metrics with which it will be possible to perform single factor and multifactor productivity
analyses of the trucking industry. (Data from the intermediate years 1993-‐1998 could not be
acquired.) The industry will be segmented into the TL and LTL sectors, or alternatively into TL, LTL and
Mixed TL-‐LTL (the approach taken in the previous section).
Productivity as a Concept
Productivity is, most fundamentally, how much output can be obtained from a combination of
inputs. Maximizing productivity is thus about minimizing the amount of inputs required to produce a
product. For a firm, productivity is one of the keys to maintaining profitable operations, while for a
society productivity is a major long-‐term driving force of prosperity. Productivity analysis can be
performed at the firm level, at the industry level, or for entire economies.
by the famous Justice Potter Stewart maxim,
Indeed, classifying a specific initiative as either beneficial or injurious to productivity is frequently
intuitive and subject to general consensus. Yet in quantifying productivity, there may be as many
approaches as there are analysts.
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to mean physical productivity: the relationship between
physical inputs and physical outputs. This is not a universal approach. Sometimes revenue and/or
expenditure are used instead of physical units, perhaps because physical metrics are unavailable or
ambiguous, or because there are a large number of inputs or outputs. The problem with this approach is
that it conflates price effects (and so market dynamics) with true changes in the physical production
process. A pure revenue-‐to-‐expenditure ratio, of course, represents profitability, and so any inclusion of
revenues as outputs or costs as inputs (even if adjusted for general inflation) will push the resulting ratio
away from physical productivity and toward profitability.
Some analysts attempt to overcome the price effects problem by using quantity indexes as
inputs and/or outputs. A quantity index unites dissimilar units in a single metric but while price is used
to weight the constituent inputs (or outputs), any changes in price over time are factored out. Hence,
for example, an increase in the price of a single input does not cause a reduction in productivity. This
feature makes the quantity index approach superior to using revenues or costs. Yet while it is attractive
in cases where there are a large number of dissimilar inputs or outputs, the quantity index approach is
not without limitations. It can be fairly opaque, a problem exacerbated by potential conflation with
quality. Specifically, a quantity index may capture quality changes to differential extents depending on
how the constituent units are defined.
If physical productivity is the ratio of physical outputs (e.g. ton-‐miles of freight) to physical
simplistically
depicted in Figure 5:
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Figure 5
accomplish this in three ways: by obtaining low input prices, by maximizing productivity, and by
obtaining high output prices. It is thus clear that productivity is but one interest of the profitability-‐
maximizing firm. It is also clear that, viewed in a supply chain context, there are conflicts between
vertically adjacent companies: one simultaneously its suppli
contrast, physical productivity gains are beneficial to the firm undertaking them without directly
harming suppliers or customers. This explains the attractiveness of productivity metrics to both firms
and policymakers.
In trucking as in all freight transportation, the fundamental output is the movement of goods
over distance. Defining productivity for the industry, in the simplest terms, involves determining what
quantities of inputs are necessary to accomplish transportation of a given volume of freight between set
origins and destinations. An improvement in productivity, then, is a reduction of these required input
quantities.
Probably the most widely used unit of physical output in freight productivity analysis is ton-‐
miles, a metric computed by multiplying the weight of haul by its distance and summing over all hauls.
(For example, shipping 10 tons over a distance of 200 miles generates 2,000 ton-‐miles.) The most
fundamental inputs to a trucking operation are labor, capital, and fuel. Land and physical structures may
or may not be a significant input, depending on the type of operation. Common metrics are hours
17
worked or number of employees, for labor; number of (various) revenue equipment units, for capital;
and gallons of fuel.
As virtually all production processes entail the conversion of multiple inputs into one or more
outputs, a distinction must be made between single-‐factor (SFP) and multifactor (MFP) productivities.
SFP the ratio of an output to a single input, for example ton-‐miles per hour of
labor. MFP is the ratio of an output to multiple inputs. Since this requires combining inputs with
dissimilar units, a common approach is to measure MFP as a change between two time periods,
whereby the percent changes of all the relevant SFPs are combined using a weighting scheme that gives
greater prominence to more important inputs. In this way, MFP represents the change in the quantity of
outputs in excess of that which is attributable to a change in the quantity of inputs.
interpretive
argued that in trucking there exist multiple types of inputs and outputs that lend themselves to a
convenient linear arrangement, where s a natural extension of the preceding one. Figure
6 displays this concept schematically. Since not all of the desired metrics are available in the Form M
As a
complement to MFP, multistage productivity can help illuminate the ways in which particular
productivity changes have been achieved.
Figure 6 Multiphase Productivity Concept
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Another important dimension that should be considered is quality. The measurement of input or
output quality changes may be infeasible with the Form M data, but it is important to keep in mind that
quality can impact both productivity and prices. In fact, in some cases there may be a trade-‐off between
productivity and output quality, where a firm may willingly accept a productivity level below that which
is technologically and organizationally feasible in order to improve the unit quality of the output.
Quality, most broadly, is any attribute of the product or service other than price. In trucking, quality
dimensions could include speed of service, reliability, and flexibility.
Preliminary Findings on Productivity
The findings on productivity are very preliminary and should be interpreted with a high degree
of caution. The data demand a more in-‐depth look to confirm the validity of the findings.
Figure 7 shows an aspect of multiphase productivity, (loaded) ton-‐miles divided by (total) miles.
s success at fitting a large amount of freight into trucks as well as at
minimizing empty miles. Unfortunately, the Form M data do not provide loaded miles, for which reason
we cannot isolate these effects. The initial analysis suggests that there has not been a productivity gain
associated with this facet of operations. If this is true, it might be explained by the quality-‐productivity
trade-‐off mentioned previously: TL carriers, in particular, do not necessarily value high load factors since
shippers pay by distance, not weight.
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Figure 7 Loaded Ton-‐Miles per Vehicle Mile (Median of Top 100 Carriers)
Figure 8 displays the average mile produced per employee. At first glance, it appears there may
have been an initial decline in this facet, followed by an improvement.. However, it will be necessary to
separate TL from LTL firms and to develop separate productivity analyses for the two sectors: TL firms
are by their nature much less labor-‐intensive than LTL carriers.
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Figure 8 Miles per Employee (Median of Top 50 Carriers)
Next Steps and Conclusions
One of the challenging aspects of analyzing the trucking industry is the sheer number of firms,
particularly in the truckload sector. This makes it difficult to establish a comprehensive picture of the
entire industry. The number of firms returning Form Ms varied over time between a few hundred and a
few thousand because of differences in reporting requirements. Furthermore, the turbulence in the
industry after deregulation resulted in many mergers, acquisitions, bankruptcies, and new entrants; this
complicates tracking individual firms throughout the entire period. Our favored approach in the next
phase of research will be to continue to
companies updated every year. This will be supplemented by computing year-‐to-‐year changes for
individual firms, and taking the median of the change. The second approach identifies changes made by
individual firms, while the first one accounts for the emergence and disappearance of carriers. We also
intend to study change
Table 1 shows the key metrics that are available from the Form M dataset:
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Table 1 Key Metrics Available from Form M
Productivity (Physical) Price Effects Combination (i.e. Financial)
Multifactor Productivity
Ton-‐Miles per Mile
Miles per Employee
Miles per Driver
Miles per Owner-‐Operator
Miles per Tractor
Miles per Trailer
Miles per Gallon of Fuel
Hours per Employee (not available for all categories of employees)
Revenue per Ton-‐mile (LTL)
Revenue per Mile (TL)
Compensation per Employee (can be broken down for several categories of employees; compensation per hour is available for some but not all)
Expenditure per Unit of Revenue Equipment (probably needs to be approximated using amortization/depreciation)
Price per Gallon of Fuel
Unit Revenue (Revenue per ton-‐mile)
Unit Cost (Expenditure per ton-‐mile)
Unit Income (Income per ton-‐mile)
Operating Ratio
The biggest difficulty may be in ascertaining the cost of revenue equipment such as tractors,
trailers, and straight trucks. It will not be possible to determine a unit price for each type of equipment;
the best proxy will be amortization and depreciation divided over the total units of revenue equipment.
Physical measures of land, as for example the number and size of terminals, regrettably will have to be
excluded due to data unavailability. Form M does not provide a physical measure of fuel (i.e. gallons),
but it is likely there will not be major price differences among firms and it should be feasible to obtain a
for the given year.
With these data, the objective for the final study will be to provide a representative picture not
only of multifactor productivity changes, but also changes in the various partial productivities and
accompanying changes in input and output prices.
The final report will also build on Section 1 and seek to investigate the role of regulation on
This work will
. It
is probably fair to say that a threat of substitute products played a large part in spurring deregulation, as
22
railroads lost business to motor carriers and for-‐hire motor carriers were increasingly supplanted by
private carriers. Regulated carriers, losing market share to their private competitors, likely came to
understand that the regulatory structure was protecting them only from each other but harming them
relative to external competitors. No doubt the threat of new entrants too would have pressured carriers
to improve, but of course the system of operating certificates occluded such pressure.
framework, the removal of these artificial entry and operating barriers, as well as pricing freedom, may
well have been the most important deregulatory actions.
It is important to remember that even today the trucking industry is not fully deregulated, in the
and
size limits, and hours of service restrictions. These regulations exist to defend various societal interests.
In crafting regulation, it is critical to pay attention to the impact of the regulation on
competition. The degree of competition can be inferred from several conditions: a) how vigorously
firms are using all of their available levers to maximize their profits; b) how able firms are to annex
-‐fixing. The
s, quality improvements, and
influence over input and output prices.
Regulation can help, hinder, or be neutral toward competition. Where it hinders, negative
unintended consequences are likely to result. This is an important lesson from the trucking industry. The
original intent of the regulation was not to suppress productivity or quality, nor to raise output prices
changes and inadequate as the manager of an entire industry. Meyer et al, writing in 1959 about the
transportation industry in general, noted several common problems with the regulatory structure that,
once in place, were hard to arrest: creation of vested interests, such as large and established
companies; seeking protection from competitors; a convenient means of financing politically desired
transportation services, even at a loss; and a potential passiveness among regulators, who may be
uninterested in dealing with a large number of firms.
History shows that motor carrier regulation prior to 1980 infringed on all three of the
competition conditions listed several paragraphs ago. Because of the operating certificate system,
established firms were protected from new entrants and also found it difficult to expand their market
expense. This, in turn, reduced incentives for innovation and efficiency
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gains. Explicit collaboration on prices via rate bureaus, and ICC control over rates, restricted price
competition.
Of course, there do exist good rationales for regulation. Drawing on Meyer (1959), there are
four possible valid objectives of regulation: a) to restrain exorbitant prices leading to excess earnings,
which may arise when economies of scale create high concentration; b) to ensure sufficient profits for
expansion, which may be a concern in industries with high fixed costs to be recouped; c) to prevent
discrimination where unequal bargaining power prevails, as where there exist captive customers; and d)
to support unprofitable operations that serve a public need. As regards the first three objectives, the
purpose of the regulation is to support competition, and to engender outcomes that would ordinarily be
created in a compet
protect some other public interest perhaps an externality such as the impact of driver safety on other
motorists. In these cases, where the regulation does not exist to support competition, it should be the
means being cognizant of barriers to entry, artificial economies of scale, undue operating restrictions
that restrict firms from expanding their market share, minimum output price controls, undue output
quality controls, and collusive behavior on the part of competitors.
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References
Coyle, J., Bardi, E., and Novack, R. (2006). Transportation. Thomson South-‐western.
Form M (Annual Report) data for motor carriers of property. Thank you to Dr. Stephen Burks, University of Minnesota and Dr. Thomas Corsi, University of Maryland.
Lieb, R. C. (1994). Transportation. Dame Publications.
Meyer, J.R., Peck, M.J., Stenason, J. and Zwick, C. (1959). The Economics of Competition in the Transportation Industries. Harvard University Press.
Porter, M. (1979). How Competitive Forces Shape Strategy. Part I of Porter (1998). On Competition. Harvard Business School Press.
Rothenberg, L. (1994). Regulation, Organizations, and Politics: Motor Freight Policy at the Interstate Commerce Commission. University of Michigan Press.
Teske, P., Best, S. and Mintrom, M. (1995) Deregulating Freight Transportation: Delivering the Goods. The American Enterprise Institute. The AEI Press.
transportation.mit.edu/productivity.php