Delivering the Goods
Perhaps more than any other industry, trucking should demonstrate the virtues of capitalism. Almost anyone can become a driver or start a trucking company. Since the federal government’s economic regulation ended in 1980, truckers have been able to drive whatever routes they wish, carry whatever type of freight is available, and charge whatever price the market will bear. Conversely, shippers can hire employees to drive company-owned trucks, can sign long-term contracts with trucking companies, or can hire an independent trucker to haul a single load. With hundreds of thousands of truck operators on the one side and hundreds of thousands of shippers on the other, the price of freight transportation fluctuates constantly based on supply and demand. This is the free market on steroids.
Or downers. Whatever economic theory says it should be, in the real world the trucking market is a mess. Shippers complain about terrible service, and their customers complain about blown schedules. Drivers, who often earn little or nothing when their vehicles are not moving, complain about congested highways and about having to cool their heels at a distribution center that is in no hurry to load or unload their truck. Trucking companies complain they can’t retain drivers. Meanwhile, many of the long-haul trucks on U.S. highways are running empty. Deregulation was supposed to put an end to that problem, but it didn’t. Local drivers now seem to spend much of their time making repeat deliveries to households that ordered online but weren’t at home when the order arrived, hardly a constructive use of capital and labor.
The extraordinary inefficiency of the trucking industry has not escaped notice. I recently spoke at a meeting organized by a company called FreightWaves, which is one of many trying to figure out how to create order out of trucking chaos. In addition to running a news service, it brings entrepreneurs touting solutions to the trucking industry’s problems together with investors who might finance their ventures and truck lines that might purchase their products. Some were selling software. Some were selling hardware. Some were selling services: Uber Trucking, which offers an app that a shipper can use to summon a driver, paid for dinner. Which is to say, Uber’s shareholders paid for dinner, because the company isn’t earning any profits that could cover such a bill.
The common vision of these visionaries is that technology can help squeeze the waste out of trucking. So far, though, their track record isn’t great. Trucking illustrates a paradoxical problem. The very things that economists praise about markets — the jockeying of many buyers and sellers to find the best deal, the constant pressure to innovate in order to eke out a profit, the dynamic benefits that arise from forcing prices down and inefficient players out — mean that there may be few commonalities among the participants. No one is in a position to coordinate or to impose order, so an innovation that may have great benefit overall — for example, a new system for matching drivers with loads or a device for keeping track of drivers’ hours — may not be used widely because it doesn’t serve the purposes of many industry participants.
In fact, once they’re done grousing, neither truckers nor their employers seem all that eager for change. Despite the purported driver shortage, the average weekly pay of long-haul truckers rose a scant 2% last year. After inflation, the year-on-year pay increase was zero. Even so, the number of people employed by general freight trucking firms reached an all-time high in 2018. This suggests the industry may not be quite as ripe for disruption as techno-optimists believe.
And what of the unhappy shippers? There’s an interesting development underway. Companies from WalMart and Amazon to your local furniture store seem to giving up on the industry’s ability to straighten itself out. They are buying more trucks, hiring more drivers as full-time employees, and handling a larger share of their freight transportation needs in-house.
This is a return to the old ways. Back before deregulation, about half of all over-the-road trucks were owned by the manufacturers and retailers who required their services. Even though these “private carriers” usually carried loads only in one direction and returned home empty, they provided cheaper, more reliable service than the regulated truck lines. In today’s environment, it’s likely cheaper for shippers to purchase trucking services than to manage their own truck fleets. They’re paying a premium for protection from a chaotic market that isn’t able to deliver the goods.Tags: logistics, trucking