Chapter 3, p96
Motor Carriers
Industry Overview
Types of Carriers
• The first major division of motor carriers is
between for-hire and private carriers.
• The for-hire carrier provides a service to the
public and charges a fee for the service.
• The private carrier provides a service to the
industry or company that owns or leases the
vehicles, and thus does not charge a fee, but
obviously the service provider incurs the cost.
 For-hire carriers can be either local or
intercity operators.
• Local carriers pick up and deliver freight
within the commercial zone of a city.
• Intercity carriers operate between
specifically defined commercial zones.
• For-hire carriers may be common and/or
contract operators.
• Common carriers are required to serve the
general public upon demand, at reasonable
rates, and without discrimination.
• Contract carriers serve specific shippers with
whom the carrier have a continuing contract;
thus not available for general public use.
Contract carriers also typically adapt their
equipment and service to meet shipper needs.
• Another important distinction is between the truckload
(TL) and the less-than-truckload (LTL) carriers.
• Truckload carriers provide service to shippers who
tender sufficient volume to meet the minimum weight
required for a truckload shipment and truckload rate or
will pay the difference.
• That is, the TL carrier pick up a truckload and delivers
the same truckload at the destination.
• Less-than-truckload carriers provide service to
shippers who tender shipments lower that the minimum
truckload quantities.
• Consequently LTL carrier must consolidate the
numerous smaller shipments into truckload quantities for
the line-haul (intercity) movement and disaggregate the
full truckloads at the city for delivery in smaller quantities.
Number of carriers
• There consist a large number of small carriers,
particularly in the truckload segment of the
industry.
• This is because of the limit capital needed to
enter the TL market in contrast to the LTL
carriers that have terminals that increase the
capital requirements.
• The LTL segment of the motor carrier industry
requires a network of terminals to consolidate
and distribute freight , called a hub-and-spoke
system.
Brief description of an LTL operation:
• Shipper that have small shipping requirements , use LTL carriers
• LTL shipper typically has shipments headed for more than one
destination.
• The LTL carrier collects the shipments at the shipper’s dock with a
pickup and delivery (PUD) vehicle i.e. a vehicle that does the
collection and delivery of all shipments.
• After the PUD vehicle is finished collecting and delivering
shipments, it returns to a consolidation or break-bulk facility.
• Once at the consolidation facility, the packages collected are sorted
by their final destination.
• The next part of the trip is called the line-haul i.e. the trip between
consolidation and break bulk facilities.
• After the line-haul portion of the trip, the trailers are unloaded at
another break-bulk facility and are then sorted and reloaded into a
PUD vehicle to be delivered to the receiver.
Market Structure
• Motor carrier vehicles, both for-hire and private, primarily
transport manufactured, high value products. These
vehicles carry more than a majority of the various
manufactured commodity categories.
• The commodity list includes food products,
manufactured products, consumer goods and industrial
goods.
• Motor carriers transport less of commodities such as
grain, coal, iron ore, primary nonferrous metal products
because such commodities generally must move long
distances and in large volumes (they are usually shipped
by rail and water)
Competition
• The motor carrier industry offers few capital
constraints to entry.
• With a relatively small investment, an individual
can start a motor carrier business and compete
with an existing carrier.
• Thus freedom of entry, discounting, and lack of
regulatory constrains appear to dominate the
industry and suggest that competition between
firms can control the industry.
• The major segment that has extensive capital
requirements for entry is the LTL carrier
• The LTL carrier must invest in terminals and
freight-handling equipment that are simply not
needed by the TL carrier.
• However, the responsiveness to customer
demands for service still dominates all motor
carrier organizations, and shippers expect
carriers to respond to their needs.
Operating and Service
Characteristics
General Service Characteristics
• The motor carrier possesses a distinct advantage over
other modes in the area of accessibility (the ability of
the transportation provider to move freight between a
specific origin and destination p39)
• The motor carrier can provide service to virtually any
location.
• Motor carrier access is not constrained by waterways,
rail tracks or airport locations.
• Therefore, motor carriers have potential access to
almost every origin and destination.
• Motor carriers provide the bridge between the pickup
and delivery point and the facilities of other modes.
(universal coordinator)
• Another service advantage is speed.
• For shipments going under 800km, the
motor carrier vehicle can usually deliver
goods in less time than other modes.
• Although the airplane travels at higher
speed, the problem of getting freight to
and from the airport via motor carrier adds
to the air carrier’s total transit time
• The smaller cargo-carrying capacity of
the motor carrier vehicle enables the
shipper to use the TL rate or volume
discount, with a lower volume.
• The smaller shipping size of the motor
carrier provides the buyer and seller with
the benefits of lower inventory levels,
lower inventory-carrying costs and more
frequent services.
• Another positive service characteristic is the
smoothness of transport.
• Due to the suspensions and motor tyres, the
motor carrier ride is smoother than rail and water
transport and less likely to result in damage to
cargo (cargo damage is still a reality)
• This reduces the package requirements and
thus packaging costs.
• Lastly, the for-hire segment of the motor carrier
industry is customer or market orientated.
• The small size of most carriers has enabled
(forced) the carriers to respond to customer
requirements and service needs.
Equipment
• Many of the motor carrier service advantages emanate
from the technical features of the transportation vehicle.
• The high degree of flexibility, the relatively smooth ride
and the small carrying capacity are the unique
characteristics that result in greater accessibility,
capability, frequency of delivery and pickup, cargo
safety and lower transit time.
• The availability to operate one cargo unit (e.g. a trailer)
eliminates the time needed to collect several cargo units.
• Motor carrier equipment flexibility is added by the lack of
highway constraint (unlike the railroad and water carriers
it is not constrained to fixed railway or waterway)
• There are however gross vehicle weight and axle weight
restrictions on vehicles travelling on roads.
• TL and LTL carriers need to make two types of
equipment decisions: what type of tractor
(power) and what type of trailer?
• Power must be specified to be able to handle the
size and length of the load, along with the terrain
over which it travels.
• Many different specifications for tractors can be
used, including single axle and twin axle, with
different engine and drive combinations.
• Decisions regarding trailers include length,
trailer type (dry van, refrigerated, ragtop,
container, flatbed and carrier capacity.
Types of Vehicles
• Motor carrier vehicles are either line-haul
or city vehicles.
• Line-haul vehicles are used to haul
freight long distances between cities.
(when operated in cities it is not very
efficient)
• City straight trucks are used within a city
to provide pickup and delivery service.
LINE-HAUL VEHICLES
• Usually a tractor-trailer combination of 3 or
more axles. (Fig 3.5)
• Be aware that the net carrying capacity of
line-haul vehicles is also affected by the
density (kg/m^3) of the freight.
CITY STRAIGHT TRUCKS
• City vehicles or straight trucks are usually
smaller and are single units (Fig 3.5).
• Cargo and power unit combined in one
vehicle.
• SPECIAL VEHICLES
• Designed to meet special shipper needs.
• Dry van: Standard trailer or straight truck with all sides
enclosed.
• Open top: trailer top is open to permit loading of oddsized freight.
• Flatbed: Trailer has no top or sides; used extensively to
haul steel.
• Tank trailer: Used to haul liquids petrol or diesel.
• Refrigerated vehicles: Cargo unit has controlled
temperature.
• High cube: cargo unit has drop-frame design or is higher
than normal to increase cubic capacity.
• Special: unique design to haul a special commodity.
Terminals p106
• TL operations might not require terminals
for the movement of freight.
• They use the shipper’s plant for loading
and the receiver’s plant for unloading.
• TL terminals normally provide dispatching,
fuel and maintenance services.
• These terminals are designed primarily to
accommodate drivers and equipment, but
not freight.
• LTL carriers do require terminals where they use
them for loading, consolidation or break-bulk.
• A driver makes deliveries throughout the country
but will always return to his domicile – the
terminal that the driver originally left.
• The terminals used by motor carriers can be
classified as pickup or delivery, break-bulk and
relay.
PICKUP AND DELIVERY TERMINALS
(PUD)
• The terminal is a key facility in the operation of
an LTL hub-and-spoke system.
• The most common type terminal found in the
LTL system is the PUD terminal (Also known as
satellite or end-of-the-line (EOL) terminals).
• The basic transportation service provided at this
terminal is the pickup and/or delivery of freight
on peddle runs.
• A peddle run is a route that is driven daily out of
the PUD terminal for the purposes of collecting
freight for outbound moves or delivering freight
from inbound moves.
• Terminal Peddle Run Example FIG3.6
• The PUD terminal is located at Altoona and
attached to it are four peddle runs.
• A driver will depart from the terminal and deliver
freight to customers located on that driver’s
assigned peddle.
• During and after the deliveries, freight will be
picked up from the customers and returned with
the driver to the terminal.
• At the end of the day the terminal will have
freight to be consolidated and moved outbound
from customers in the 4 peddle run areas to
customers in other areas of the country.
• The basic terminal services performed at these
facilities are consolidation and dispersion.
• Break-bulk e.g. freight moving inbound to
Altoona from other terminals will be “broken”
(passing through a break bulk) into individual
deliveries by peddle run.
• Consolidation e.g. Freight that is brought back
by the peddle drivers for movement inbound
from Altoona will be consolidated into line-haul
trailers for movement to the appropriate breakbulk terminal.
• The dispatch operation provided at the PUD
terminal is critical to the operating efficiency of
the peddle runs.
Customer has 2 ways for freight to be picked up:
1. First, by standing order – a constant repetitive
pickup e.g. every day at 10am or every Tuesday
at 2pm.
2. Second, on demand - where the customer
phones in for a pickup. This is where local
dispatcher gets involved in recording the nature
of the shipment and the required time of pickup
and assigns that shipment to the driver on the
appropriate peddle run.
BREAK-BULK TERMINALS
• Another type of terminal found in an LTL
hub-and-spoke system.
• This facility performs both consolidation
and dispersion (break-bulk) services.
• The main purpose of this terminal is to
provide an intermediate point where freight
with common destinations from the PUD
terminals is combined in a single trailer for
movement to the delivering PUD terminal,
e.g. FIG 3.7
Terminal Management Decisions
p110
NUMBER OF TERMINALS
• How many terminal? “It depends”
• Firstly, the degree of market penetration and
customer service desired by the carrier will help
with this decision.
• The theory is the more terminals, the closer to
the customer, the better the service
• Second, small terminal vs long peddle e.g. FIG
3.9
Example1:
• This network utilizes only one terminal but has extremely
long and expensive stem times for its peddle runs.
• The terminal must also be large to accommodate the
volume of freight that will come from these four peddles.
Example 2:
• This network utilizes 2 terminals, with each having two
peddle runs with significantly shorter stem times.
• Each terminal is also smaller than the one in example 2.
• So then we have double the amount of terminals but
decreased stem times for PUD customers.
 This decision would be based on the service implications
of establishing terminals closer the customers versus the
cost of adding another terminal.
LOCATIONS OF TERMINALS
• Some variables to take into consideration when deciding
the locations of terminals.
• The DOT (USA) limits the amount of time a driver can
continuously operate a vehicle before a rest period is
required. Currently the limit is 11hours, so optimally,
PUD terminals should be located no more that 11hours
away from a break-bulk.
• PUD terminals should be located to minimize the
distance that freight would need to be backhauled to the
break bulk.
• Market penetration and potential will help determine
terminal locations.
COST STRUCTURE p112
Fixed Versus Variable Cost Components
• The cost structure of the motor carrier
industry consists of high levels of variable
costs and relatively low fixed costs.
• The bulk of the motor carrier’s cost then is
associated with daily operating costs – the
variable costs of fuel, wages,
maintenance, and highway user fees (toll).
• E.g FIG 3.10, indicates that in 2001 the
total cost to operate a tractor-trailer was
$2.07/mile (R9/km)
• Fixed costs refers to: vehicle interest;
depreciation and interest on terminals,
garages and offices; management; and
overheads.
• The two categories with the largest share
of variable costs are labour and fuel.
LABOUR
• From Fig 3.10 we can see that the cost of drivers
accounts for about 19% of total costs per vehicle mile.
FUEL
• Since (1974) the higher price of fuel has resulted in a
rise in the relative proportion of fuel cost to total cost.
• Oil are $125 per barrel and economists say that if it
reaches $150 per barrel it could have significant
consequences for the economy.
• From Fig 3.10 we can see the fuel cost is about 8% of
total costs (please note that this is 2001 figures).
Economies of Scale
• Economies of scale – exist when an expanded
level of output results in reduction in the total
unit cost of transport (per ton-kilometre) because
with the increasing output, the fixed cost per unit
of output declines faster than the variable cost
increases per additional unit of output.
• There does not appear to be major economies
of scale for large-scale motor carrier operations.
• Economies of scale are realized through more
extensive use of large-sized plants.
• The large number of small firms, especially in
the TL segment, suggests that small-sized
operations are competitive.
• Certain economies exist in the greater use of
indivisible inputs such as terminals,
management specialists and information
systems.
• The average cost of such inputs will decrease as
output (greater use) increases.
• Carriers that operate over wide geographic
areas require more terminals, elaborate
information systems and more management
specialists than those that operate over narrow
geographic areas and benefit more from
economies of scale.
Operating Ratio
• Is the measure of operating efficiency used by motor
carriers.
• The operating ratio measures the percent of operating
expenses to operating revenue.
Operating ratio = (Operating expenses / Operating revenue) x 100
• Operating expenses – are those expenses directly
associated with the transportation of freight, excluding
non-transportation expenses and interest costs.
• Operating revenue – are the total revenue generated
from freight transportation services (non-transportation
services are excluded)
• Carriers might use this ratio to support a rate increase
request.
• The closer the ratio is to 100, the more indicative of the
possible need to raise rates to increase total revenue’s.
• E.g. – an operating ratio of 94 indicates that for every
operating revenue Rand (100cents), 94 cents is
consumed by operating expenses. Leaving 6 cents of
every operating Rand to cover interest costs and a return
to the owners.
• If the operating ratio is equal or greater than 100, there is
no revenue available to cover fixed or overhead costs or
to return a profit to owners.
• Increasing revenues and/or reducing costs are viable
approaches to resolving the problem of a high operating
ratio.
Funding
• Highway users – motor carrier vehicle
operators – pay for the construction,
maintenance and policing of highways
through fuel tax and toll.
• The more you use the roads the more you
pay for it.
Current Issues
Safety
• Improved safety can mean improved profitability
• Deficiencies in safety can translate into
decreased profitability because of expensive
claims for lost or damaged goods, increased
insurance premiums, accidents and fines.
• A major related concern that we have touched
on is that of alcohol and drug abuse.
• Another area of safety concern are drivers’
hours-of-service and fatigue issues.
• Vehicle size and weight is another safety issue.
There are size limit and weight-carrying
regulations.
Technology
• Global positioning satellites (GPS),
technology are being used to track
vehicles throughout their movement from
origin to destination.
• The use of satellites allows carriers to
pinpoint the location of the vehicle and
relay this information to the customer.
• Satellite communication will continue to
play a role in improved safety and
customer service.
Financial Stability
• When there is a slump in the economy
(recession) it usually involves periods of
overcapacity which lead to severe pricing
pressure. This causes weaker carriers to exit the
market.
• Shipper have become increasingly cognizant of
the failure rate among motor carriers because
when a carrier goes out of business, the
interruption of service could have serious
consequences.
• This is why many shippers have introduced a
financial evaluation of carriers into their overall
decision framework for selecting carriers.
END