Assessing the Motor Carrier Industry and Its Segments: Current and Prospective Issues 2006

Corsi, Thomas M.; Fox, Brendon; Zadecky, Loren · 2006 · ROSA P / United States. Department of Transportation. Federal Motor Carrier Safety Administration

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Summary

This report, prepared for the Federal Motor Carrier Safety Administration, assesses the state of the U.S. motor carrier industry in 2005, focusing on major operational challenges and their differential impacts on various firm sizes. The study relies on industry trade journals, annual reports, and surveys to analyze how economic growth, driver shortages, high diesel prices, and increased regulation affected trucking firms. The primary objective is to identify current issues and prospective trends, highlighting how larger carriers with economies of scale fared differently than smaller, independent firms. The analysis reveals that while the U.S. economy grew by an estimated 3.6 percent in 2005, driving increased freight demand, the industry faced significant supply-side constraints. A persistent driver shortage, exacerbated by wage gaps compared to other blue-collar jobs and stricter post-9/11 security screenings, created a capacity imbalance. Driver turnover rates reached up to 136 percent in some sectors, costing the industry approximately $3 billion annually. Simultaneously, diesel prices spiked to an average of $2.41 per gallon, significantly increasing operating costs. Larger carriers, particularly less-than-truckload (LTL) firms, successfully passed these costs to shippers via fuel surcharges, recovering about 75 percent of the increase. In contrast, smaller truckload carriers struggled to impose surcharges due to intense competition, leading to a surge in bankruptcies among small and mid-sized firms. Regulatory changes further strained the industry. New hours-of-service rules, effective in late 2005, reduced effective workdays, causing productivity declines of up to 20 percent for smaller firms, though large carriers adapted with minimal disruption. Additionally, impending Environmental Protection Agency regulations requiring diesel particulate filters in 2007 drove a record rush for new truck purchases in 2005, favoring cash-rich large firms. Local governments also increased road tolls and lowered speed limits for trucks, the latter reducing daily mileage and effectively decreasing industry capacity. The report concludes that the industry is undergoing consolidation, with weaker carriers exiting the market or being acquired by larger entities. While technological solutions like telematics and biodiesel offer potential efficiency gains, they are not immediate remedies. The findings suggest that the structural advantages of large carriers—ability to pass on costs, invest in technology, and absorb regulatory burdens—will continue to widen the gap between market segments. Consequently, the motor carrier industry is becoming more concentrated, with smaller firms facing unsustainable cost pressures and limited capacity to compete.

Key finding

Larger trucking carriers successfully passed increased fuel costs to customers through surcharges, whereas smaller and mid-sized firms suffered disproportionately and experienced higher bankruptcy rates due to their inability to do so.

Methodology

review

Provenance

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Topics

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• truck driver fatigue