Motor Carriers Intercity Trucking TonMiles Intercity Trucking Tons

Motor Carriers

Intercity Trucking Ton-Miles

Intercity Trucking Tons

Significance of the Industry • 2. 4 million jobs in 1998 • Average compensation = $ 37, 036 • Trucks logged 353 billion miles for business purposes (does NOT include government and farm) • US paid over $120 billion for highway transportation (1998) – 86% of the nation’s total freight bill.

Types of Motor Carriers • For-hire – Provides services to the public & charges a fee for the service – Local vs. Intercity Operators • Local carriers pick up & deliver freight within the commercial zone of a city • Intercity carriers operate between specifically defined commercial zones. • The two often work in conjunction

Types of Motor Carriers • Private Carriers – Provides a service to the industry or a company that owns or leases the vehicles, but does not charge a fee. – May transport commodities for-hire • In this capacity, the private carrier is really an exempt for-hire carrier.

Types of Motor Carriers • Exempt Carriers – Specifically exempt from economic regulation – Gains this status by • Type of commodity hauled (I. e. , agricultural commodities) • Nature of its operations (incidental to air transportation)

Types of Motor Carriers • Common Carriers – Required to serve the general public upon demand, at reasonable rates, & without discrimination. • Contract Carriers – Service specific shippers with whom the carriers have a continuing contract. – Thus, typically not available for public use

Types of Motor Carriers • Truckload (TL) Carriers – Provide service to shippers who tender sufficient volume to meet the minimum weights required for a full truckload shipment and TL rate (or who will pay the required amount). • Less-than-Truckload (LTL) Carriers – Provide service to shippers who tender shipments lower than minimum truckload quantities, such as 50 to 10, 000 lbs. – Consolidate numerous smaller shipments into TL quantities for Intercity transport – Disaggregate TL shipments at destination for delivery in smaller quantities.

US Distribution of Motor Carriers

Number of Carriers • 458, 634 interstate motor carriers were on file with the Office of Motor Carriers in 1998. • 70% operate with 6 or fewer trucks. • Does not include private fleets.

Industry Structure

General Service Characteristics • Offers highest Accessibility of any mode – Can serve virtually any location – Not constrained by waterways, rail tracks, or airport locations – Almost every shipping & receiving locations is accessible via highways

General Service Characteristics • Speed – For loads traveling less than 500 miles, usually can deliver in less time than any other mode – Even over 500 miles, can be, in the right situation, faster than air – For example, shipment traveling 600 miles • Truck = 12 hours (600 miles @ 50 mph) • Air could take up to 24 hours – Flight time = 1 ½ hours – 3 hours needed for pickup and another 3 for delivery – If only 1 flight per day is scheduled, shipment might have to wait 24 hours before it lifts off.

General Service Characteristics • Cargo-Carrying Capacity – Though smaller than many other modes, shippers can enjoy the TL rate (volume discount) with a lower volume. • Most TL minimums set at 20, 000 – 30, 000 lbs • Rail carload minimums are often set at 40, 000 – 60, 000 lbs. • Barge (water) minimums are set in terms of hundreds of tons – Smaller shipping size provides buyers and sellers with • Lower inventory levels • Lower inventory-carry costs • More frequent services

General Service Characteristics • Smoothness of Transport – Given the suspension system and pneumatic tires used on trucks, motor carriers offer smoother rides than rail or water – Results in less damage to the cargo (though some does occur) – Less damage results in reduced packaging requirements and thus packaging costs • Customer Focus – By it’s very nature, the industry tends to be more customeror marketing-oriented – Due in large part to the small size of most carriers (must offer higher service to compete)

Types of Vehicles • Line-Haul Trucks – Tractor-trailer combination of 3 or more axles – Capacity depends on size (length) and state maximum weight limits • Most states now allow tractor-trailer combos with 5 axles that can haul a maximum of 80, 000 lbs gross weight (110, 000 in Michigan) • Most vehicles weigh (empty) 30, 000 lbs, leaving a maximum net payload of 50, 000 lbs or 25 tons. • Anything over 5 axles generally requires a special permit – Capacity is also affected by the density of the freight • A 53’ x 8’ trailer has 3, 392 cubic feet of space • If the commodity hauled has a density of 10 lbs per cubic foot, the maximum payload for the vehicle would be 33, 920 (3, 392 cubic feet x 10 lbs. /cubic foot)

Types of Vehicles • City Trucks – Normally smaller than line-haulers and are single units – Typically 20 to 25 feet long with a cargo unit 15 to 20 feet long. – There is growing use of small trailers that are 20 to 28 feet long.

Types of Vehicles • Special Vehicles – Dry Van • Standard trailer or straight truck with all sides enclosed – Open Top • Trailer top is open to permit loading of odd-sized freight through the top – Flatbed • Trailer has no top or sides; used extensively to haul steel, lumber, etc. – Tank Trailer • Cylinder trailer used to haul liquids

Types of Vehicles • Special Vehicles – Refrigerated Trailers (Reefers) • Cargo unit with controlled temperatures – High Cube Trailer • Cargo unit has drop-frame design or is higher than normal to increase cubic capacity – Special • Vehicle with a unique design to haul a special commodity; such as liquefied gas or automobiles

Equipment Types

Terminals • Pickup and Delivery (PUD) Terminals – Freight is collected from shippers and brought to the PUD terminal where it is consolidated with other loads going in the same direction or to the same destination. – Consolidated shipments loaded onto a line-hauler for transport to the destination terminal. – At the destination terminal, line-hauler is emptied, and the combined shipments are separated and reloaded unto city trucks. City trucks then deliver the shipments to the ultimate consignee.

Terminals • Pickup and Delivery (PUD) Terminals – PUDs are also used for • Sales, billing, and claim handling • Limited vehicle maintenance • Change freight from one carrier to another – PUDs are also called end-of-line terminals.

Terminals • Break-Bulk Terminals – Basic function is the separation of combined shipments – Freight is unloaded from consolidated truckloads, sorted by destination, and reloaded for dispatch to destination. – Generally, break-bulk terminals are centrally located within the carrier’s operating scope and at the junction of major east-west and north-south highways. Provides greater efficiency.

Terminals • Relay Terminals – Unlike PUDs and Break-Bulk terminals, the freight is never touched at a relay terminal. – Necessitated by the maximum hours-of-service regulation that is imposed on drivers. • 10 hours maximum driving after 8 consecutive hours off-duty. – At the relay terminal, one driver substitutes for another (hence, the term slip seat that is also used for relay terminals) – Relay terminals are normally located within a maximum of 10 hours driving time from the point of origin. – Alternative to the relay terminal is the sleeper team – 2 drivers.

Cost Structure • Approximately 70 to 90 % of motor carrier costs are variable. – Allows the carrier to increase/decrease the number of vehicles used in short periods of time and in small increments of capacity. – Low fixed costs due to • Public financing of the highway system • Terminals are less expensive than those used by other modes • Bulk of the carrier’s cost is associated with daily operating costs – fuel, wages, & maintenance – In 1995, average total cost to operate a tractor-trailer was 130. 2 cents per mile (70% of which was variable costs

Cost of Operating a Tractor-Trailer, 1995

Labor • • Accounts for 29% of total costs per vehicle mile Usually absorb about 50% of a carrier’s revenue dollar. Average annual wage (1997) was $37, 036 Average hourly compensation was $12. 83 Typical over-the-road driver paid 32. 5 cents per mile Local drivers paid by the hour Driving Time Regulations (USDOT) – 15 hours on-duty after 8 hours off-duty – 10 hours driving after 8 hours off-duty – Cannot accumulate more than 60 hours on-duty in 7 consecutive days, or 70 in 8.

Fuel • 130% increase in diesel fuel prices from 1976 to 1985 – 1976: 11. 6 cents/mile (19. 8% of total cost/mile) – 1985: 24. 6 cents/mile (21. 1% of total cost/mile) – 1995: 19. 2 cents/mile (14. 7% of total cost/mile) • Fuel Taxes – Primary reason for growth in fuel costs – Motor carrier industry paid $23. 8 billion in federal and state highway user taxes in 1995 – Federal Fuel Tax is 24. 3 cents per gallon – States tack on anywhere from 2 cents to 24. 5 cents per gallon – Thus, total tax on a gallon can be as high as 48. 8 cents (out of average total cost of $1. 10/gallon)

Federal Highway Trust Fund Tax Rates

Operation Ratio • Measure of operating efficiency used by motor carriers. • Function of operating expenses and operating revenues – Operating expenses are those expenses directly associated with the transportation of freight, excluding non-transportation expenses and interest costs. – Operating revenues are the total operating revenues generated from freight transportation services. • The closer the ratio is to 100, the more indicative of the possible need to raise rates to increase total revenues. – For example, an operation ratio of 94 means that 94 cents of every operating revenue dollar is consumed by operating expenses. – This only leaves 6 cents to cover interest costs and provide a return to the owners. • Operation ratio for most motor carriers generally range between 93 and 96.

Operation Ratio Operating expenses Operation Ratio = Operating revenues X 100