Section 2: Trucking Industry Background and Structure
Industry Description and Characteristics
Firms in the truck transportation industry provide a link between manufacturers and consumers. Businesses, and occasionally individuals, contract with trucking companies to pick up and deliver a variety of goods. The trucking industry has two parts: the “for-hire” segment and the “in-house trucking” segment. Within the “for-hire” segment, freight movement is characterized by broad service markets of truckload (TL), less-than truckload (LTL), and small package delivery. The trucking industry can also be classified into two segments, according to the nature of the freight being transported: general freight trucking and specialized freight trucking. These parts of the trucking industry are described below.
Truckload (TL) carriers specialize in hauling large shipments for long distances. TL shipments are usually defined as those weighing 10,000 pounds or more. In this segment, a driver employed by a TL firm, or a truck owner-operator, will pick up a load from a shipper and carry the load directly to the consignee, without transferring the freight from one trailer to another. Thus, TL carriers do not need a network of terminals. This segment of the industry involves substantial competition and labor is typically not unionized.
Less than truckload (LTL) carriers consolidate, in one truck, several shipments that are going to the same general geographic area. LTL shipments are usually defined as those shipped in amounts that weigh less than 10,000 pounds. The consolidation of freight requires a network of freight terminals. Consequently, LTL carriers are characterized by networks of consolidation centers and satellite terminals. In this framework, a pickup-and-delivery truck typically transports an LTL shipment from the shipper’s dock to the trucking firm’s local terminal. There, dock workers unload and recombine the shipments with other shipments that are going to similar destinations, typically a destination terminal in another city. This transportation may be accomplished by large trucks or by another transportation mode—e.g., rail or ship—depending on price and service considerations. When the shipment arrives at its destination terminal, the load is processed, moved to a pickup-and-delivery truck, and then transported to the consignee. There are national LTL firms and regional LTL firms.
Besides the TL and LTL service markets, the trucking industry can also be classified into two segments, according to the nature of the freight being transported: general freight trucking and specialized freight trucking. These segments are described below. General freight trucking provides transportation of general commodities; this freight is not specialized. This segment of the industry is further subdivided into local trucking and long distance trucking. Local trucking establishments carry goods within a single metropolitan area and its adjacent non-urban areas. Local trucking transports a range of items such as produce to different grocery stores, lumber from the lumber yard to construction sites, and debris. Long-distance trucking establishments transport goods between distant areas—e.g., from city to city—and sometimes between the United States and Canada or Mexico. The firms in this segment handle a wide variety of commodities.
Specialized freight trucking provides transportation of freight, which requires specialized equipment because of freight characteristics relating to size, weight, shape, etc. Specialized freight includes petroleum products, refrigerated goods, forest products, and dangerous/hazardous materials. The specialized equipment includes flatbeds, tankers, or refrigerated trailers. This segment also includes the furniture-moving industry, which transports used household, institutional, and commercial furniture. Like general freight trucking, specialized freight trucking is subdivided into local and long-distance.
Deregulation of Trucking and Evolution of the Industry
Legislation affected the trucking industry in the 1980s and in the 1990s. The Motor Carrier Act (MCA) of 1980 deregulated the interstate portion of the “for-hire” trucking industry. The Act initiated significant changes at the interstate level by allowing easier entry of trucking firms, providing greater pricing flexibility to firms, eliminating restrictions on how many customers a contract carrier could serve, and reducing restrictions on private fleets.
A number of years after the deregulation of interstate operations, intrastate operations were also deregulated in 1995. Until that year, most States controlled the routes, rates, and services of motor carriers within their borders. One of the outcomes of regulation was empty truck trailers on return trips; this contributed to industry inefficiency. In 1995, the Trucking Industry Regulatory Reform Act (TIRRA) prohibited all states from regulating carriers’ routes, rates, or services. However, states were still allowed to regulate such areas as safety, hazardous material movement, and vehicle size and weight.
Thus, the primary deregulation of the trucking industry took place at the interstate level in 1980, while the intrastate deregulation of the industry, in 1995, completed the deregulation of the trucking industry and made it comprehensive. This deregulation resulted in an increase in the entry of new firms and more flexible carrier rates. Consequently, the industry experienced more competition and a significant restructuring.
Following deregulation, adjustments to the industry took place and they included mergers, acquisitions, and bankruptcies. Acquisitions in the industry involved horizontal or vertical combinations of firms. Horizontal mergers involve the combination of two firms that are engaged in the same industry. These mergers decrease the number of competitors in the industry and increase their size. Vertical mergers involve mergers of transportation firms that provide complementary services.
Another significant development took place in truck transportation from 1980, with interstate deregulation, and which apparently continued after the intrastate deregulation in 1995. This involved a change in the structure of the industry, resulting in a decrease in the relative importance of less-than-truckload (LTL) trucking and a corresponding increase in the relative importance of truckload trucking (TL).
There are important implications of this change for the structure and performance of the trucking industry. LTL operations were more capitalintensive and labor-intensive than TL operations. They were also more heavily unionized. On the other hand, the TL segment has been characterized by a higher degree of competition and by non-unionized labor. Consequently, the cost of transport (per unit of freight) by LTL operations was higher than for TL operations. The change toward more TL operations indicates a decrease in the capital-intensity and labor-intensity of the trucking industry over the period of analysis. Moreover, this change would lead to a lowering in the cost of truck transport.