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The deal on deregulation

The trucking and taxicab industries, despite the obvious differences in the sizes of vehicles used and the distances travelled, share similar operational challenges: managing capacity, reducing empty miles, and operating across jurisdictional...


The trucking and taxicab industries, despite the obvious differences in the sizes of vehicles used and the distances travelled, share similar operational challenges: managing capacity, reducing empty miles, and operating across jurisdictional borders.

Yet the two industries have travelled two very distinct roads since the 1980s. Trucking was deregulated while the taxicab industry remains very much in the clutch of market supply controls. A recent study from the Conference Board of Canada, We Have Been Here Before: Supply Chain Management in Transportation, pulls no punches in choosing which has proven the better path.

The study concludes that deregulation has proven to be good for both motor carriers and shippers: prices fell while productivity increased. While there are some who argue that the real reason deregulation was ushered in was to break the backs of unions with little or no benefit to the consumer, the study points out that from 1986 (the last year of regulation) to 2003, trucking industry total factor productivity increased by an average 1.7% per year. Prices meanwhile increased by just 0.8% per year on average in nominal terms and actually dropped in real terms. And this took place despite average increases in input prices such as fuel, labour, and the cost of new trucks, of 2.6% per year.

Despite facing higher costs, motor carriers were forced by the competition created by deregulation to innovate to the point that their productivity gains not only helped them overcome rising costs but to pass a substantial part of those productivity gains on to their customers. The Canadian consumer has benefited from this and I think that is evident in the low prices we pay for many goods today. Deregulation was not the only contributor to this but it has played an important part. The study estimates a whopping 87% of productivity gains have been used to hold down output prices in the face of rising costs. And yet deregulation also helped for-hire trucking grow from a $9 billion industry to nearly $30 billion (in nominal terms) over the same period.

By contrast, the consequences of continued stringent market regulation in the taxicab industry include high capitalized values of licences—ultimately paid by higher prices charged to customers—and higher taxicab miles stemming from restrictions on picking up passengers in neighbouring municipalities.

In other words, the study finds the regulated taxicab industry is both more expensive and less efficient than it should be. And that’s where trucking would have been today had deregulation not done away with the inefficiencies of the previous system.

So I agree deregulation was best for the trucking industry. I’m just not sure it’s quite as good as it is made out to be.

Does passing on 87% of productivity gains to hold down prices make for an industry worth investing in for the long term? Does it make for an industry economically healthy enough to continue to invest in innovation or its people? Interestingly, the study itself points out that prior to deregulation truck drivers and their helpers earned wages estimated to be 50% above the competitive level. Not too many drivers these days who will tell you they earn a fair wage.

Deregulation did break the unions, the inefficient practices that went with them, and the higher-than-competitive wage levels. But I don’t think anyone would argue that drivers today make what they should given the difficulty of the work they do. The pendulum has swung too far the other way and the unfortunate side effect has been that fleets are too hard pressed in such a competitive environment to be in a position to really address driver compensation.

I can’t see ever turning back the clock on deregulation. But let’s be clear-eyed about the sacrifices we’ve made and the pitfalls that still lie ahead.


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