Graduate Macroeconomics of Trucking 501

We have posted around 125 blogs and the only thing I have mentioned about trucking is the places we go and occasionally something unusual like a breakdown or weather. One issue that comes up several times a week and is really the basis for how America works is the finances of the trucking industry. Both the mainstream media and politicians have vested interests in deceiving people. This is a small attempt to shed a little light on a very important subject.

Ever since the dawn of large corporations, these corporations want to use logistics to move their product from point A to point B. Logistics goes back to Ancient Greece, Rome and China. In the most basic view, logistics is the flow of control. It began as a military term and emphasizes having the right equipment and manpower at the right place and at the right time. The real control is financial. While logistics includes the people involved, the security along the way, the warehouses where the goods are stored and equipment to move the product, such as a ship, truck, train or airplane, the real issue in the flow of control. The real flow of control is money.

Sears/Kmart, Walmart, Lowes, Target, Home Depot, JC Penney and anyone else with a “big company” mentality use large contracts to ship their products. They demand large shipping companies such as JB Hunt, Schneider, Swift, Werner, etc. These large shipping companies do not bid on individual assignments or “loads.” They fight for huge multimillion-dollar contracts over a period of time, usually between 6 months and 2 years. With a signed contract in hand, they borrow money to buy the trucks, buy new trailers, hire drivers to make the runs, expand or purchase terminals and hire support staff such as planners, dispatchers and mechanics. They make this sound so good. The truth is that new contracts, unless they are for a new plant just opening, undercut someone else already doing the work. Wages are lower for the people actually doing the work. There are also more people to pay and more overhead. The people doing the actual work, that is the drivers and mechanics, are usually paid substantially less.

Not all loads in these jumbo contracts pay the same. Some are easy and pay well. Other loads are very difficult, some are dangerous and some pay very poorly. Companies working on contracts talk about “covering” loads, That means making certain that all loads are delivered, no matter what the conditions or circumstances. This is where the dangerous push to deliver “no matter what” comes from. It isn’t that a $500 load might be an hour late. It’s that the company might loss a $5 million dollar contract.

Often these difficult and dangerous loads are JIT (just-in-time) loads. That is, companies are using the US road system as their warehouse. They finish a subassembly at one plant then load it onto a truck with just enough time to make a delivery in perfect weather to another plant just as it is needed at the second plant. Any problems with weather, breakdowns or construction are not considered and become “the driver’s fault.” This kind of extreme time pressure causes an enormous increase in accidents.

To avoid most of these accidents caused by this time pressure, simply allow the driver to choose the load instead just assigning loads to the driver. This is the system now in place by Landstar.

Not only would the big companies lose control, many intermediate level jobs will no longer be needed. There is no more need for dispatchers or even terminals. Existing noncompany mechanics and drivers will make more money, creating a greater demand for waitresses, video games and whatever else drivers and mechanics want to buy. Individual “bad” loads will have to pay more, increase safety or both. Otherwise they will not be delivered. If there are not enough drivers, then competition for the existing drivers with cause rates to go up. Once rates have gone up enough, more people will want to become drivers.

Once again, the free market, if it is allowed to truly be free, will triumph over central planning. Everyone will win. Everyone, that is, except the central planners.

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