Chapter 5 The Motor Carrier Industry © 2011 Cengage Learning. All Rights Reserved. May not be...

Chapter 5The Motor Carrier

Industry

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

IntroductionBrief history

Important role in development of 20th century U.S. economy Industry emerged at time of WW I Industry greatly benefited by rapid development

of highway system, particularly the Interstate system

Rapid growth of economy following WWII corresponds with rapid growth of trucking industry

Dominant mode of freight transport today

© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

2

Industry OverviewMeasures of Industry Significance

Expenditures for trucking services$645.6B or 83.8% of total expenditures in

U.S. for freight transportation in 2006

Truck share of freight transportAbout 31% of total ton-miles

Approx. 8.7M people employed in trucking industry


Industry OverviewTypes of Carriers

Several classification schemesLegal form of carriage

For-hire vs. private Common, contract or exempt for-hire

Local vs. intercity operatorsTruckload (TL) vs. Less-than-truckload (LTL)

Heavy LTLClassification by type of commodity hauled


Industry OverviewNumber of Carriers

Large number of relatively small carriers.6M operators, most with 6 or fewer

vehiclesNumbers vary significantly by sector

Very large number of TL carriers Low capital requirements for entry into TL

Much smaller number of LTL carriers High capital requirements for LTL due to

terminal network and pick-up and delivery fleet Explanation of LTL operation Yellow dominates national LTL market


Industry OverviewTypes of Commodities Hauled

Dominates transport of high-value manufactures Food and manufactured products, consumer and

industrial goodsMost transported relatively short distances (less

than one day driving time)Dominates transport of live animals

These shipments move very short distancesMoves substantial quantities of bulk materials

These shipments move very short distances


Operating and Service CharacteristicsGeneral service characteristics

Trucking has an advantage on most service-related characteristics

AccessibilityDoor-to-door service

Speed (transit time)Enables lower inventory levels

Connections to other modes: universal connector

Smaller carrying capacity – inventory advantage

Lower damage rates than rail© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

Industry OverviewCompetition and Market StructureIntense rivalry within trucking sectors and

from private carriersFew capital or other constraints on entry

Exception at national LTL level Partial exception for specialty commodities

carriersDespite capital constraints on entry, national

LTL segment faces intense competition from other transport segments

Market structureTL is monopolistically competitiveNational LTL is oligopolistic


Operating and Service CharacteristicsEquipment

Equipment-related advantagesTechnical features enable service

advantagesFlexibility, smoothness, small capacityRapid loading/unloading capability

Principal equipment decisionsType of tractor (power)Type of trailer (length and type)Where and when to position equipment© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

Operating and Service CharacteristicsTypes of Vehicles

Line-haul vehicles Used for long distance transportTypically tractor-trailer combination with 3+

axles Typical trailer lengths are 45, 48, or 53 feet

Maximum length and weight can vary by state Fed. max. gross vehicle weight is 80,000 lbs. Some states have grandfathered rights to allow more Some loads may be more under permit

Carrying capacity: function of vehicle dimensions and density of cargo



11

Operating and Service CharacteristicsTypes of Vehicles

City (straight) trucksSingle units used for pick-up and delivery

(PUD) Typically 15-20 foot cargo unit

Growing use of 28 foot line haul trailers (pups) for PUD Saves multiple handlings of cargo and time

Special vehiclese.g., flatbed, tank trailer, refrigerated, high

cube


12

Operating and Service CharacteristicsTerminals

Pickup and delivery terminals (satellite or end-of-run terminals) in LTL operations Peddle run networks

Peddle time and stem timeShipment consolidation and distribution

operationsVehicle dispatch operationsOther services



14

Operating and Service CharacteristicsTerminals

Break-bulk terminals in LTL operationsConsolidate and re-sort shipments

Designed to facilitate higher utilization of vehicle capacity

Disadvantage: slows transport time, adds handling, reduces reliability

Driver domicileRelay terminals

Necessitated by hours-of-service regulations“Slip seat” and sleeper team alternatives



16

Operating and Service CharacteristicsTerminal Management Decisions

Number of terminalsDesired degree of market penetrationTrade-offs with length of peddle runs and with

level of customer service Trend has been to reduce number of terminals

Locations of terminalsInfluenced by hours-of-service regulationsConsideration of backhauls between terminals



19

Cost StructureFixed vs. Variable Cost Components

Cost structure: mix of fixed and variable costsVaries depending on the type of trucking

operationFor long-distance, tractor-trailer operation

70-90% of total costs are variable Fixed costs relatively low % of total costs

Public investment in highway system Small increments of capacity can be added Few terminals needed

For LTL operation, fixed costs are higher due to terminal system


Cost StructureLabor Costs

Principal variable cost categories Labor Fuel MaintenanceHighway user charges

Note: these are the principal costs associated with daily operations


21


For a long-distance, tractor-trailer operationTotal operating cost: $3.75/mile (2006)Driver cost: 20% of total operating costs

Mileage rate for distance traveled (local delivery drivers paid an hourly rate)

Hourly rate for loading/unloading, operating delays

Total labor costs consume approximately 55% of each dollar of revenue


Cost StructureLabor CostsDriving time regulations

Federal limits on the maximum hours an individual may drive or do “on-duty” work

Maximum limits 11 hrs driving, 14 hours “on-duty” No driving after 60 hrs on-duty in 7 days or 70

hours on-duty in 8 days Drivers must be off for 10 consecutive hours before

working the maximum hour limits


23


Qualified driver shortageMajor impact on TL carriersContributing factors

Federally imposed commercial driver’s license (CDL) requirements Imposed nationally in 1992

Stringent rules on drug and alcohol abuse Demanding, unattractive life-style

Industry efforts to attract drivers


Cost StructureFuel Costs

Fuel costs in 2006 averaged about 48 cents per mile of operation12.8% of total operating costs

Fuel costs include federal and state diesel fuel taxes imposed as part of highway user tax structureFederal tax is 24.4 cents/gallonState diesel fuel taxes average 24.5 cents/gallon


25

Cost StructureEconomies of Scale (EOS)

No major EOS in truckingSome purchase economies may be available for

large scale operationsLarge scale operations may have higher labor

costs i.e. diseconomies of scale, due to unionization

Economies of utilization (use)Present in LTL operations where fixed costs are

higher due to terminals, IT systemsIT systems requirements also adding to fixed costs

of TL carriers


Cost StructureFunding

System of federal and state highway user taxes and fees used to fund the provision of highwaysUser fees principle: those that benefit most

directly should pay for the systemCovers construction and maintenance costs of

most non-local roads Revenues from federal user taxes and fees deposited to

Federal Highway Trust Fund (FHTF) State user fee revenues used to match FHTF

distributions

Debate: does each user category pay fair share?



28

Current IssuesSafety

Improved safety means improved profitabilityFMCSA publishes rules for motor carrier

safety fitness inspectionsCarriers classified as satisfactory, conditional,

or unsatisfactory If unsatisfactory, carrier given reasonable time to

correct deficiencies FMCSA has power to stop operations if

improvements not madeFitness findings influence carrier selection

process


Current IssuesSafety

Alcohol and drug abuse Industry response: substance abuse testing,

treatment, and prevention programsPrograms focus on health and safety dangers,

abstain from moral judgments. Include: Consistent, enforceable policies applicable to all

employees Known policies for violations Counseling and rehabilitation services

Hours-of-service and driver fatigueVehicle size and weight concerns


30

Current IssuesTechnology

Impact of satellite technologyGPS systems for vehicle tracking and onboard

computers for communications Enhance management control Enable more efficient and timely communications

between driver, management and customer Status notification Responsiveness to routing and delivery time

change requests made by customersEnhancement of environmental safety in

movement of hazardous materials


Current IssuesLTL Rates

LTL rates are market driven, much discountingLimited anti-trust immunity

Immunity for commodity classifications, mileage guide rules, and general rate adjustments

No tariff filing requirements Carriers must maintain rates, rules, and commodity

classifications and furnish to shippers on requestBut rates need not be in writing to be enforceable


32

Current IssuesFinancial Stability

Many carriers have high operating ratios, exceeding 95%Industry overcapacity is a recurring problem

Problem worsens during economic downturns Puts much pressure on carriers to discount rates to

maintain market share Alternatively, some carriers try to build market share

through mergers and consolidationsEach year, 1,500+ carriers file for bankruptcy

Evaluation of carrier financial stability is now an important aspect of carrier selection process


Chapter 5 The Motor Carrier Industry © 2011 Cengage Learning. All Rights Reserved. May not be...

Documents

Transcript of Chapter 5 The Motor Carrier Industry © 2011 Cengage Learning. All Rights Reserved. May not be...