An Analysis of the Changing Nature of the Deregulated Trucking Industry

By Southern, R. Neil; Rakowski, James P. | Business Perspectives, Spring 1991 | Go to article overview

An Analysis of the Changing Nature of the Deregulated Trucking Industry


Southern, R. Neil, Rakowski, James P., Business Perspectives


Trucking deregulation became a reality more than a decade ago. As a smiling President Jimmy Carter signed the new Motor Carrier Act of 1980, he referred to the legislation as "a momentous event for our country." After 10 years of restructuring caused by the entry of new carriers, route and service expansions by existing truckers, intense rate competition by almost everyone, and numerous bankruptcies, the industry bears little resemblance to that which existed in the summer of 1980. Deregulation has created not only numerous opportunities for logistical managers, but also many potentially dangerous and costly pitfalls.

The debate preceding the passage of trucking deregulation had been both emotional and vociferous. The proponents of deregulation predicted a future utopian trucking industry where the shipping public would gain both greater carrier choice and lower prices. Many industry observers, however, prophesied that the new law would lead to disaster for both carriers and shippers.

With more than 10 years of hindsight, it seems fairly obvious that we have neither a utopia nor a total disaster in the motor carrier industry. We most definitely have a mixture of results, both positive and negative, depending upon the particular aspect of the business one chooses to analyze.

One major shortcoming during the congressional debates leading to trucking deregulation was that the industry was treated as a very homogeneous entity. There was essentially no differentiation made between the truckload (TL) and less-than-truckload (LTL) sectors of the motor carrier industry. Another problem was that the proponents of deregulation focused primarily on entry and pricing, with little or no regard for service quality issues. Also, the deregulators did not consider the financial health or stability of the industry to be an important consideration. These are the reasons that parties on both sides of the issue can claim that they were "correct" in terms of their suppositions and predictions.

One cannot say that trucking deregulation has been either a success or a failure. There are instances where the projected benefits have materialized very much as promised. Conversely, there have been a number of unexpected and unpleasant surprises in light of all the optimistic predictions.

Truckload deregulation appears to have been fairly successful. However, to the surprise of the deregulators, two vastly different segments have developed within the TL sector. One is the price-sensitive market dominated by small firms, often one-truck operations. Re other TL outcome has been the emergence of sophisticated service-oriented companies, which some observers have labeled Advanced Truckload Carriers." These firms had originally been quite successful, but some are now experiencing difficulties.

Unless a firm is one of the three largest carriers, the situation in the less-than truckload sector may well approximate the disaster" scenario that industry executives predicted. Mere has been a virtual bloodbath in the LTL sector, with a large number of bankruptcies and closures. Related to this is growing concentration in the industry, with the very largest firms commanding an ever-increasing share of LTL freight.

Another result of deregulation has been the rapid, some might even say explosive, growth of truck freight market intermediaries. Brokers have rapidly multiplied to help shippers and carriers alike take advantage of the new transportation marketplace that has been enabled by deregulation.

THE TRUCKLOAD SECTOR

There has been a tremendous amount of entry into the TL portion of the industry. The total number of firms increased from 22,270 in 1981 to 39,602 in 1989, for an increase of 77.8 percent. Compared to the 16,874 carriers in existence in 1978, the 1989 number represents a gain of almost 135 percent.

However, all of this growth has been in the small Class Ill carriers which increased by almost 100 percent between 1981 and 1989. …

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