CHAPTER 5: MOTOR CARRIERS truckload shipment and truckload rate, or who are willing to pay the

truckload rate even though their shipment sizes are less than the
Learning Objectives: minimum weights.
 Less-than-truckload carriers – provide service to shippers who
1) Understand the development of motor carriers and their
tender shipments lower than the minimum truckload quantities,
contributions to the U.S. economy. such as 50 to 10,000 pounds.
2) Be familiar with the different types of firms in the motor carrier
industry.
3) Appreciate the market forces shaping the motor carrier industry. TWO CATEGORIES OF MOTOR CARRIERS (BASED ON KIND OF
4) Gain knowledge of the service characteristics of motor carriers. DRIVERS THEY EMPLOY)
5) Identify the different types of vehicles and terminals used in the
 Company Drivers – are hired employees of a specific carrier who
motor carrier industry.
operate trucks owned by the employer. The carrier/employer
6) Understand the impact of fuel and labor on the motor carrier costs
provides all necessary equipment (tractor and trailer), fueling, and
structure.
support systems (like routing software and GPS) thus, covers all
7) Be aware of current issues facing the motor carrier industry
operating costs.
 Owner-Operators – are independent entrepreneurs who own their
INTRODUCTION trucks and operate as contractors for larger carriers. They manage
their own equipment and business operations (maintenance, fuel
Motor Carrier Industry – companies that transport goods or passengers costs, etc.) and may receive some support from contracting carriers,
using motor vehicles, primarily trucks (by which it transports goods for such as routing assistance and fuel optimization services.
other businesses and charge fees for their services and/or transport their
own goods as part of their business operations). It is vital for logistics and
supply chain management, providing essential services that keep TWO (2) SEGEMENTS OF TRUCKING INDUSTRY:
businesses running smoothly.
 General Freight Trucking – provides transportation of general
 The motor carrier industry has significantly shaped the U.S. economy commodities.
since its inception during World War I, primarily through local pickup  Specialized Freight Trucking –provides transportation of freight
and delivery using converted automobiles. It gained prominence after that requires specialized equipment (flatbeds, tankers, refrigerated
World War II, when railroads struggled to compete effectively. From the trailers) because of the nature of freight (size, weight, shape), and
1950s to 1991, as the interstate system expanded, motor carriers hazardous materials.
increasingly became the preferred method for transporting goods, now
dominating U.S. freight movements. The motor carrier industry has
MARKET STRUCTURE & COMPETITION
demonstrated consistent growth over the years, highlighting its crucial
role in the U.S. economy and the dependence of businesses on its  The truckload (TL) market is characterized by monopolistic
services competition due to low barriers to entry, allowing individuals to easily
acquire equipment and operate within specific regions. In contrast, the
less-than-truckload (LTL) market is oligopolistic, as it requires
TYPES OF CARRIERS
significant investment in break-bulk and other facilities, creating
 For Hire Carrier – provides services to public and charges a fee for barriers to entry for new carriers.
the service.  The Motor Carrier Industry is market-oriented, with a strong emphasis
 Private Carrier – provides a service to the industry or company on customer service.
that owns or leases the vehicles, and do not charge a fee but the
service provider incurs cost.
 Truckload Carriers – provide service to shippers who tender OPERATING AND SERVICE CHARACTERISTIC
sufficient volume to meet the minimum weights required for a
GENERAL SERVICE CHARACTERISTICS & EQUIPMENT • High Cube: Cargo unit has drop-frame design or is higher than normal to
increase cubic capacity.
 Motor carriers offer speed, delivering shipments under 800 miles faster • Special: Vehicle has a unique design to haul a special commodity, such
than other modes, as they provide direct service from the shipper's as liquefied gas or automobiles.
door to the consignee's door. Motor carriers have lower minimum
weight requirements, allowing shippers to benefit from volume
discounts with smaller loads. Their vehicles also provide a smoother
ride, reducing cargo damage and packaging costs. These make motor
carriers a preferred choice for businesses seeking efficient and flexible
transportation solutions.
 Motor carriers has significant service advantages due to the technical
features of their vehicles, including high flexibility, a smooth ride, and
smaller carrying capacities. These attributes enhance accessibility,
delivery frequency, cargo safety, and reduce transit times. Unlike
railroads, motor carriers can load cargo quickly and are not constrained
by fixed routes, allowing them to reach virtually any location in the U.S.
Truckload (TL) operations focus on power specifications based on load
size, while Less-Truckload (LTL) carriers must strategically position
various equipment types at terminals to optimize service efficiency.

TYPES OF VEHICLES

Line-Haul Vehicles – The line-haul vehicle is usually a tractor–trailer

combination of three or more axles. The cargo-carrying capacity of these
vehicles depends on the size (length) and the federal/state maximum TERMINALS
weight limits. A tractor–trailer combination with five axles (tandem-axle
tractor and trailer) is permitted on the interstate system to haul a Pickup and Delivery Terminals (PUD) –The most common type of
maximum of 80,000pounds gross vehicle weight (20,000 pounds on a terminal found in the LTL system. Also called satellite or end-of-the-line
single axle or 34,000 pounds on a tandem axle). The net carrying capacity (EOL) terminals. It serves a local area and provides direct contact with
of line-haul vehicles is also affected by the density of the freight. both shippers and receivers. The basic transportation service provided at
this terminal is the pickup and/or delivery of freight on peddle runs.
City Straight Trucks – City vehicles, or “straight trucks,” are normally
smaller than line-haul vehicles and are single units. The city truck has the  Peddle Run – (sometimes called milk run) is a route that is driven
cargo and power unit combined in one vehicle. The typical city truck is daily out of the PUD terminal for the purpose of collecting freight for
approximately 20 to 25 feet long with a cargo unit 15 to 20 feet long. Since outbound moves or delivering freight from inbound moves.
these trailers can also be used for line-haul, this practice can increase the Two Elements Of Peddle Run:
efficiency (shipments can be “loaded to ride,” meaning they will not 1. Stem Time –is the time that elapses from when the driver leaves
require handling at the origin terminal). the terminal until the driver makes the first pickup or delivery; it is
also the time that elapses from when the driver makes the last
Special Vehicles pickup or delivery until returning to the terminal.
• Dry Van: Standard trailer or straight truck with all sides enclosed. 2. Peddle Time – is the time during which the driver is actively
• Open Top: Trailer top is open to permit loading of odd-sized freight involved in the pickup and delivery of freight. This is revenue-
through the top. producing time because it occurs when shipments are handled.
• Flatbed: Trailer has no top or sides; used extensively to haul steel.
• Tank Trailer: Used to haul liquids such as petroleum products.
• Refrigerated Vehicles: Cargo unit that has controlled temperature.
 carriers have their own fuel surcharge schedule that changes from time to
time based on the National Average Diesel Fuel Price published by the
Department of Energy. These schedules typically express the fuel
surcharge as a percent of the line-haul revenue.

Off-Peak Delivery – shifting delivery times of some customers from

normal business (daytime) hours to off-peak hours (nighttime delivery).
Break-Bulk Terminals – This facility performs both consolidation and This offers advantages for motor carriers over daytime delivery, such as
dispersion (or break-bulk) services. The main purpose of this terminal is to the enhanced vehicle utilization factor (because with off-peak delivery,
provide an intermediate point where freight with common destinations trucks can deliver during both daytime and nighttime)
from the PUD terminals is combined in a single trailer for movement to the
delivering PUD terminal. Engine Idling Time – Engine idling time reduction is another technique
widely used by motor carriers to manage fuel cost. While there are certain
idling times that cannot be controlled by carriers (such as those that take
place during traffic congestion), there are idling times that can be reduced
or eliminated by carriers.

Road Speed – Motor carriers are using at least two approaches to slow
down the average cruising speed. The first approach is to convince and/or
Relay Terminals – The relay terminal is necessitated by the maximum reward drivers to drive slower. The second approach is to mechanically
hours of service regulation that is imposed on drivers. At the relay control the maximum speed of trucks.
terminal, one driver substitutes for another who has accumulated the
maximum hours of service. Out-of-Route Miles – many carriers are installing GPS devices to their
 An alternative to the relay terminal is the use of a sleeper team— vehicles, so that they can keep track of the locations of their trucks in real
two drivers (this is often called team driving, too). While one driver time. This allows carriers to not only provide timely information to their
accumulates the off-duty time in the sleeper berth of the tractor, clients (shippers) regarding the present location of their shipments, but
the other driver is driving. The sleeper team has been most also to find out if trucks are following the shortest route at all times.
successful for long trips with many destinations.
Network Truck Stops – Many motor carriers make contracts with a
limited number of truck stop chains to reduce their fuel procurement costs.
 Methods of setting price discounts with truck stop chains:
 Retail Minus Method – This method gives discount to
carriers by subtracting a predetermined amount from the
normal retail price.
 Cost Plus Method – the discounted price is computed by
first estimating the truck stop’s cost of fuel.
TERMINAL MANAGEMENT DECISIONS
 “Best of” Method – which is a hybrid of the above two
 Effective terminal management enhances operational efficiency and
methods, such that the discount price is determined by the
service quality by ensuring that terminals are strategically
lower of the prices given by the two methods.
positioned to meet customer demands while adhering to regulatory
constraints.
Bulk Purchasing – Some carriers claim that if their trucks refuel at these
terminals rather than at truck stop chains, their fuel cost can become
considerably lower, because this will allow them to avoid paying “profits”
FUEL MANAGEMENT
for truck stop chains.
Fuel Surcharge – is commonly used by motor carriers to offset the impact
Equipment Adjustments – One of the most widely used approaches to
of rising fuel cost on their operations. The basic idea is to pass the
enhance fuel efficiency of trucks. These adjustments will improve fuel
increased cost of fuel price to shippers, at least partially. Many motor
consumption rates of trucks via enhancing air drags and low rolling variable costs) in 2015. Between 1994 and 2014, diesel fuel prices
resistance. surged by 251%, from approximately $1.106 to $3.882 per gallon.
 It implies that rising of fuel costs extend beyond immediate financial
Large Fuel Tank – by having large fuel tanks, many trucks can possibly impacts; they influence strategic decisions regarding pricing,
avoid buying fuel in regions where fuel prices are expensive. operational efficiency, and long-term sustainability within the motor
carrier industry.
Prevent Out-of-Fuel Occasions – Some carriers have installed “engine
monitors” to their vehicles, which allow managers to monitor trucks’ engine Economies of Scale – refers to the cost advantages that organizations
conditions, including fuel level, from the headquarters at all times. experience as they increase their level of production. It is relevant in the
motor carrier industry because companies can reduce operational costs by
Prevent Fuel Leakage and Theft – Minimize fuel leakage from tanks by optimizing transportation processes.
performing frequent preventive maintenance of their vehicles, and
minimize driver theft by performing driver education and fuel monitoring Operating Ratio – A measure of operating efficiency used by motor
(ensuring that the fuel spent for a given trip is in agreement with the miles carriers. It measures the percent of operating expenses to operating
driven). revenue.

Fuel Optimizer – are software products widely used by TL carriers to Operating Ratio = (Operating expenses/Operating revenue) × 100
reduce the fuel procurement cost of their fleet at the point of purchase.  Operating expenses are those expenses directly associated with the
The basic concept of the fuel-optimizer products is to take advantage of transportation of freight, excluding non-transportation expenses and
such price variances across locations (truck stops) to reduce the cost of interest costs.
buying fuel.  Operating revenues are the total revenues generated from freight
 Technically, fuel optimizer is a mathematical programming transportation services; non-transportation services are excluded.
(optimization) model that minimizes the cost of buying fuel for a  The closer the operating ratio is to 100, the more indicative of the
given route by selecting the optimal fueling location (truck stops) possible need to raise rates to increase total revenues.
and quantity (gallons).
Funding – The motor carrier incurs a cost for the use of the highway that
COST STRUCTURE is related to its amount of use. This contributes to the high variable cost
Fixed Versus Variable Cost Components structure of the motor carrier.
PRIVATE TRUCKING – also known as “private transportation” is the
Two (2) categories with the largest share of the variable costs: movement of goods owned by a firm that also owns or leases and operates
1. Labor the transportation equipment for the furtherance of its primary business. It
 Driver costs account for 40% of total operating costs per vehicle is an integral segment of the transportation system employed by the
mile, with labor (wages plus benefits) consuming 25-30% of a shipping public in US and most other countries because of its relatively low
carrier’s revenue. Over-the-road drivers are typically paid 42 cents start-up cost and flexibility of operations.
per mile, while local drivers earn hourly wages, with additional pay
for delays.
 A significant challenge for motor carriers, especially truckload (TL)
carriers, is the shortage of qualified drivers. In response, the
industry has increased pay rates, improved scheduling for more
home time, and collaborated with shippers to make freight handling
easier.

2. Fuel
 Since 1974, rising fuel prices have significantly increased the
proportion of fuel costs in the total operating expenses for motor
carriers. For instance, fuel costs rose from 11.6 cents per mile
(19.8% of total costs) in 1976 to 40.3 cents per mile (25.3% of total
 4) Green and Sustainable Operations: Increasing pressure for
environmentally sustainable practices is transforming the motor carrier
industry. Carriers are exploring alternative fuels, fuel-efficient vehicles, and
eco-friendly logistics practices to reduce their carbon footprint. However,
the transition often requires substantial investment and may face
resistance from stakeholders accustomed to traditional methods.

5) Financial Stability: Financial stability is a persistent concern for motor

carriers due to fluctuating fuel prices, tight profit margins, and economic
uncertainties. Many companies struggle to maintain profitability while
managing rising operational costs, including fuel expenses and compliance
with regulatory requirements. This instability can hinder growth and
investment in necessary improvements or innovations.

6) Cybersecurity Risks: As the industry increasingly relies on digital

technologies and data management systems, the threat of cyberattacks
has grown. Motor carriers must invest in robust cybersecurity measures to
Service and Cost – A private truck fleet permits a firm to have greater protect sensitive information and ensure the integrity of their operations
control and flexibility in its transportation system so it can respond to against potential breaches that could disrupt services and compromise
customer needs, both external (for finished goods) and internal (for raw customer data.
materials). The increased responsiveness is derived from the direct control
that the private carrier has over the dispatching, routing, and delivery 7) Cargo Theft: The risk of cargo theft remains a persistent challenge for
schedules of the fleet. Such control means the private carrier can lower motor carriers. With valuable goods in transit, companies must implement
transit times to the customer, lower inventory levels, and possibly lower enhanced security protocols and tracking technologies to safeguard
inventory stock-outs. shipments from theft, which can lead to significant financial losses and
damage to reputation.
CURRENT ISSUES
8) Regulatory Pressures: The trucking industry faces a complex
1) Safety: Safety remains a critical issue for motor carriers, as the industry regulatory environment that includes evolving safety standards, emissions
faces high accident rates and regulatory scrutiny. Companies must invest regulations, and labor laws. Compliance with these regulations requires
in training and safety technology to ensure driver and public safety, which ongoing investment in training, equipment upgrades, and operational
can be costly and complex. High-profile accidents can lead to severe adjustments, which can strain resources and impact profitability.
financial consequences and damage to a company's reputation.
9) Labor Market Dynamics: Beyond the ongoing driver shortage, the
2) Technology: The rapid advancement of technology presents both industry is grappling with broader labor market issues, including wage
opportunities and challenges for motor carriers. While technologies like inflation and the need for workforce diversification. Companies must adapt
GPS tracking, electronic logging devices, and automated driving systems their hiring practices and training programs to attract a younger and more
can enhance efficiency and safety, the initial investment and ongoing diverse talent pool while balancing competitive compensation with
maintenance costs can be burdensome. Therefore, companies must operational efficiency.
continuously train their workforce to adapt to new technologies.
10) Capacity Management: Fluctuations in market demand can lead to
3) Driver Turnover: The motor carrier industry experiences alarmingly challenges in managing fleet capacity. Carriers must make strategic
high driver turnover rates, often exceeding 90%. Factors contributing to decisions about fleet expansion or contraction based on changing
this issue include long hours, time away from home, inadequate pay, and economic conditions and freight volumes, often utilizing data analytics to
lack of job satisfaction. High turnover not only disrupts operations but also optimize operations amid uncertainty
incurs significant costs related to recruitment and training of new drivers.