Following deregulation of the motor carrier industry, there has been a secular decrease in the number of carriers in the less-than-truckload (LTL) general freight portion of the industry. It has been suggested that this increase in LTL industry concentration may be attributed to the presence of economies of scale in this portion of the trucking industry. Policy implications of scale economies include the possibility of re-regulation to protect against exertion of monopoly power. Most studies that have taken place both before and after deregulation, however, have not found evidence of technological economies of scale in LTL trucking. This paper attempts to explain observed increases in concentration in the LTL industry despite evidence documenting constant returns to scale. The hypothesis here is that LTL carriers have the incentive to expand due to economies associated with a larger network system. The paper explores motor carrier use of purchased transportation, intermodal in particular, as a possible source of such networking economies. It is usually argued that line haul costs associated with rail are lower than those for truck when distances over 200 miles are involved. A recent U.S. Department of Transportation study (1990) suggests that distances as long as 725 miles may be necessary before the cost savings is enough for a shipper to use intermodal transport services. Thus, a firm must have an extensive network system to take advantage of the lower line haul costs associated with intermodal movements. Also, most intermodal rail movements involve full containers of freight. Thus, LTL trucking firms must perform consolidation activities if they are to utilize intermodal facilities efficiently. For both these reasons, an LTL trucking firm with a larger network system will be better able to use intermodal service. The larger the network system and the greater the number of shippers served, the easier it will be for the trucking firm to effectively consolidate full containerload shipments for intermodal rail movement. Accordingly, LTL firms have the incentive to increase in size to lower coordination costs.

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  • Accession Number: 00610199
  • Record Type: Publication
  • Report/Paper Numbers: HS-041 177
  • Files: TRIS
  • Created Date: Jun 30 1991 12:00AM