1. Management of
Transportation
Seventh Edition
Coyle, Novack, Gibson &
Bardi
© 2011 Cengage Learning
Chapter 5
The Motor Carrier
Industry
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Introduction
• Brief 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

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Industry Overview
Measures 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 transport
– About 31% of total ton-miles
• Approx. 8.7M people employed in
trucking industry

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Industry Overview
Types of Carriers
• Several classification schemes
– Legal form of carriage
• For-hire vs. private
• Common, contract or exempt for-hire
– Local vs. intercity operators
– Truckload (TL) vs. Less-than-truckload (LTL)
• Heavy LTL
– Classification by type of commodity hauled

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Industry Overview
Number of Carriers
• Large number of relatively small carriers
– .6M operators, most with 6 or fewer vehicles
– Numbers 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

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Industry Overview
Types of Commodities Hauled
• Dominates transport of high-value manufactures
– Food and manufactured products, consumer and
industrial goods
– Most transported relatively short distances (less than
one day driving time)
• Dominates transport of live animals
– These shipments move very short distances
• Moves substantial quantities of bulk materials
– These shipments move very short distances

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Operating and Service Characteristics
General service characteristics
• Trucking has an advantage on most service-
related characteristics
• Accessibility
– Door-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

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Industry Overview
Competition and Market Structure
• Intense rivalry within trucking sectors and
from private carriers
– Few capital or other constraints on entry
• Exception at national LTL level
• Partial exception for specialty commodities carriers
– Despite capital constraints on entry, national
LTL segment faces intense competition from
other transport segments
• Market structure
– TL is monopolistically competitive
– National LTL is oligopolistic

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Operating and Service Characteristics
Equipment
• Equipment-related advantages
– Technical features enable service advantages
– Flexibility, smoothness, small capacity
– Rapid loading/unloading capability
• Principal equipment decisions
– Type of tractor (power)
– Type of trailer (length and type)
– Where and when to position equipment

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Operating and Service Characteristics
Types of Vehicles
• Line-haul vehicles
– Used for long distance transport
– Typically 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

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12. Operating and Service Characteristics
Types of Vehicles
• City (straight) trucks
– Single 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 vehicles
– e.g., flatbed, tank trailer, refrigerated, high cube
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Operating and Service Characteristics
Terminals
• Pickup and delivery terminals (satellite or
end-of-run terminals) in LTL operations
– Peddle run networks
• Peddle time and stem time
– Shipment consolidation and distribution
operations
– Vehicle dispatch operations
– Other services

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Operating and Service Characteristics
Terminals
• Break-bulk terminals in LTL operations
– Consolidate and re-sort shipments
• Designed to facilitate higher utilization of vehicle
capacity
• Disadvantage: slows transport time, adds handling,
reduces reliability
– Driver domicile
• Relay terminals
– Necessitated by hours-of-service regulations
– “Slip seat” and sleeper team alternatives

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Operating and Service Characteristics
Terminal Management Decisions
• Number of terminals
– Desired degree of market penetration
– Trade-offs with length of peddle runs and with
level of customer service
– Trend has been to reduce number of terminals
• Locations of terminals
– Influenced by hours-of-service regulations
– Consideration of backhauls between terminals

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Cost Structure
Fixed vs. Variable Cost Components
• Cost structure: mix of fixed and variable costs
– Varies depending on the type of trucking operation
– For 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

21. Cost Structure
Labor Costs
• Principal variable cost categories
– Labor
– Fuel
– Maintenance
– Highway user charges
• Note: these are the principal costs
associated with daily operations
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Cost Structure
Labor Costs
• For a long-distance, tractor-trailer operation
– Total 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

23. Cost Structure
Labor Costs
• Driving 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
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Cost Structure
Labor Costs
• Qualified driver shortage
– Major impact on TL carriers
– Contributing 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

25. Cost Structure
Fuel Costs
• Fuel costs in 2006 averaged about 48 cents
per mile of operation
– 12.8% of total operating costs
• Fuel costs include federal and state diesel
fuel taxes imposed as part of highway user
tax structure
– Federal tax is 24.4 cents/gallon
– State diesel fuel taxes average 24.5 cents/gallon
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Cost Structure
Economies of Scale (EOS)
• No major EOS in trucking
– Some purchase economies may be available for
large scale operations
– Large 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 systems
– IT systems requirements also adding to fixed costs
of TL carriers

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Cost Structure
Funding
• System of federal and state highway user taxes
and fees used to fund the provision of highways
– User fees principle: those that benefit most directly
should pay for the system
– Covers 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?

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Current Issues
Safety
• Improved safety means improved profitability
• FMCSA publishes rules for motor carrier
safety fitness inspections
– Carriers classified as satisfactory, conditional, or
unsatisfactory
• If unsatisfactory, carrier given reasonable time to
correct deficiencies
• FMCSA has power to stop operations if improvements
not made
– Fitness findings influence carrier selection process

30. Current Issues
Safety
• Alcohol and drug abuse
– Industry response: substance abuse testing, treatment,
and prevention programs
– Programs 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 fatigue
• Vehicle size and weight concerns
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Current Issues
Technology
• Impact of satellite technology
– GPS 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 customers
– Enhancement of environmental safety in
movement of hazardous materials

32. Current Issues
LTL Rates
• LTL rates are market driven, much discounting
• Limited 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 request
– But rates need not be in writing to be enforceable
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Current Issues
Financial 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 consolidations
• Each year, 1,500+ carriers file for bankruptcy
– Evaluation of carrier financial stability is now an
important aspect of carrier selection process