21st century regulations

For over 40 years, the United States has relied on market forces to “regulate” pricing and service in transportation.

铁路、公路、水和空气运营商被释放f “onerous regulation” under the popular idea that competition will result in better service at lower prices. Indeed, competition led to lower prices in the short term that, in some cases, bankrupted lesser competitors.

The freedom gained also meant that consolidation was now not only allowed, but encouraged. The stronger competitors began to grow by absorbing rivals large and small, and over several decades there has emerged a market in all the deregulated modes with a few players dominating the space.

Some would argue that the truckload sector is an exception. Others note that large brokers, large3PLsand private fleets are rapidly coming to dominate service and pricing even in this large “fractured” market.

TheLTLmarket, rail, air, and international water have seen the most consolidation so far. Carriers in this space have taken on the mantel of “too big to fail,” resulting in government interventions around the globe to prop up major companies.

Recently we’re hearing a chorus of shippers, customers and politicians raising alarms that while the theory of deregulation can help pricing to customers, you can’t ignore the threat of consolidation. Economists will tell you that consolidation results in higher prices. In the meantime, mid-size firms merging to counter mega-size firms still result in fewer competitors who then begin raising prices in lock step.

Only new technologies or innovative disrupters with new technologies can change the game. The disrupters such as on-line brokerage and non-fossil fuels have delayed the mega-companies in some cases from coordinated price inflation, but in transportation markets over the last few years we’ve seen an acceleration of mergers across all modes, and pricing increases higher than general inflation.

While international air carriers have been heavily fined for “price fixing” in Europe, the United States has been slow to challenge prices or co-opetition. Our government has instead encouraged more competitors to enter the market in the hope of satisfying the demand for action.

Unfortunately, there are very few new take-off slots available at major airports. Likewise, there will not likely be many new rail tracks laid given the painful example of the new high-speed rail in California—now estimated to be $1 billion per-mile to construct. And the truckload market has seen more small carriers leaving the field due to new equipment costs, poor working conditions, and larger brokerage operators squeezing operators’ margins.

A former long-haul driver told me that he made more money with his new van doing last-mile work than he did driving insane distances and never getting home to see his family. He noted that local delivery and pick-up services have consolidated as well.

For small- and medium-sized shippers, the traditional successful buying strategies of getting lots of quotes and tendering short-term contracts is running into push back from more sophisticated carrier pricing managers who, in some cases, are the only viable provider.

In a recession, the pressure will be on to cut costs for shippers and to maintain margins for providers. The weaker players with older processes and technology will suffer. This could result in fewer providers dominating markets in the next business cycle.

With this in mind, what’s your plan?