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TRANSPORTATION
CHAPTER 5: MOTOR CARRIERS
Prepared by: Nguyễn Duy Hồng

Email: Hongnd5@fe.edu.vn
Date: 21 Dec 2022 Ver: 3.0
LEARNING OBJECTIVES
1. Understand the development of motor carriers and their contributions

2. Be familiar with the different types of firms in the motor carrier industry
3. Appreciate the market forces shaping the motor carrier industry
4. Gain knowledge of the service characteristics of motor carriers
5. Identify the different types of vehicles and terminals used in the motor carrier industry
6. Understand the impact of fuel and labor on the motor carrier cost structure
7. Be aware of current issues facing the motor carrier industry
2
Transportation: A Global Supply Chain Perspective (9th Edition), By: Robert A. Novack, Brian Gibson, Yoshinori Suzuki, John J. Coyle.
CHAPTER OUTLINE
NO CONTENTS
1 Introduction
2 Industry Overview
3 Operating and Service
4 Characteristics
5 Cost Structure
6 Current Issues
3
1. 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
4
2. Industry Overview
Industry Significance
• Expenditures for trucking services = $645.6B (83.8% of total expenditures in U.S. for freight transportation in
2006)
• Truck share of freight transport: About 31% of total ton-miles
Types of Carriers
• Several classification schemes
– Legal form of carriage
– Local vs. intercity operators
– Truckload (TL) vs. Less-than-truckload (LTL)
– Classification by type of commodity hauled
5
Number of Carriers
• Large number of relatively small carriers
– 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
6
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
7
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
8
3. Operating and Service Characteristics
General service characteristics
• Trucking has an advantage on most service:

• 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
9
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
10
Types of Vehicles
11
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
12
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
13
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
14
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
15
Terminals
• Relay terminals
– Necessitated by hours-of-service
regulations
– “Slip seat” and sleeper team
alternatives
16
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
17
4. 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 account for 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
18
4. 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
• Driving time regulations

– Federal limits on the maximum hours an individual may drive or do “on-duty” work
– Maximum limits
• 11 hours driving, 14 hours “on-duty”
• No driving after 60 hours 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
19
4. 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
20
4. Cost Structure
Fuel Costs
• Qualified driver shortage
– 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
21
4. 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
22
4. 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
23
4. Cost Structure
Funding
24
5. 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
25
5. 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
26
5. 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
27
5. 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
28
5. 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
29
REVISION
QN=1 Which statement is correct?

a. Line-haul vehicles are most used for long distance transport
b. Line-haul vehicles are most used for medium distance transport
c. Line-haul vehicles are most used for short distance transport
d. None is correct
30
REVISION
QN=2 Line-haul vehicles are most used for long distance transport
a. True
b. False
31
REVISION
QN=3 In transportation, improved safety means improved profitability

a. True
b. False
32
REVISION
QN=4 Break-bulk terminals in LTL operations consolidate and re-sort shipments

a. True
b. False
33
THANK FOR YOUR ATTENTION!

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TRANSPORTATION

CHAPTER 5: MOTOR CARRIERS

Prepared by: Nguyễn Duy Hồng

1. Understand the development of motor carriers and their contributions

3 Operating and Service

– Important role in development of 20th century U.S. economy

– Dominant mode of freight transport today

• Truck share of freight transport: About 31% of total ton-miles

• Several classification schemes

– Legal form of carriage

– Local vs. intercity operators

– Truckload (TL) vs. Less-than-truckload (LTL)

– Classification by type of commodity hauled

• Large number of relatively small carriers

– Numbers vary significantly by sector

• Very large number of TL carriers

– Low capital requirements for entry into TL

• Much smaller number of LTL carriers

Types of Commodities Hauled

• Dominates transport of high-value manufactures

– Food and manufactured products, consumer and

– Most transported relatively short distances (less than one day

• Dominates transport of live animals

– These shipments move very short distances

• Moves substantial quantities of bulk materials

– These shipments move very short distances

• Intense rivalry within trucking sectors and from private carriers

General service characteristics

• Trucking has an advantage on most service:

– 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

– Typically tractor-trailer combination with 3+ axles

– Maximum length and weight can vary by state

– Carrying capacity: function of vehicle dimensions and density of cargo

• City (straight) trucks

– Growing use of 28 foot line haul trailers (pups) for PUD

• Pickup and delivery terminals (satellite or

– Peddle run networks: Peddle time and

– Shipment consolidation and

– Vehicle dispatch operations

• Break-bulk terminals in LTL operations

• Designed to facilitate higher utilization of vehicle capacity

• Disadvantage: slows transport time, adds handling, reduces reliability

– Desired degree of market penetration

– Trade-offs with length of peddle runs and with

– Trend has been to reduce number of

– Influenced by hours-of-service regulations

– Consideration of backhauls between

• 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 account for relatively low % of