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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. It 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.

In other words, motor carriers, despite facing higher costs, 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 on a substantial part of those productivity gains on to their customers. 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 million (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 concludes, the regulated taxicab industry is both more expensive and less efficient than it should be.

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 long term? Does it make for an industry economically healthy enough to continue to invest in innovation or their 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.

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


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1 Comment » for The deal on deregulation
  1. Mr. Numbers says:

    The 2.6% annual increase in inputs is actually the CPI increase from 1986 to 2003, which isn’t necessarily the same as the increase in trucking input costs (especially given the volatility of fuel costs), but the point is still well taken.

    And why did the study only go to 2003 anyway? This is 2014!

    The other points are still well made.

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