In six months, we will mark the 50th anniversary of the first National Master Freight Agreement, which brought 450,000 truck drivers into the national Teamster fold and is credited by some with lifting more workers into the middle class than any event in U.S. labor history.
Today, there are about 30,000 workers in the pact, most of them at one company: YRC Worldwide Inc. Archrival ABF Freight System Inc., once a party to the agreement, withdrew last year. In fact, ABF may no longer exist if YRC pursues a proposal to buy it out, further consolidating the less-than-truckload (LTL) market.
Today's topic isn't the travails of organized labor, however. It's something touched on in the last sentence of the previous paragraph: market consolidation in the post-deregulation era.
Deregulation opened up the marketplace to a broader range of services. It gave carriers the freedom to succeed—or fail—based on free-market principles. And the multiyear competitive battles that took place in the airline, railroad, and trucking industries in the decades following deregulation allowed users to get more while paying less.
Naysayers of deregulation warned we would be lulled into a false sense of security about our service options. The day would come, they told us, when we'd wake up to find the marketplace in the hands of a select few providers.
They were right. That day has arrived. Today, the United States has four major airlines, five major railroads, and two major parcel carriers. And if YRC, say, were to acquire ABF, there would be one fewer LTL carrier to choose from. The $50 billion-a-year truck brokerage market, as historically fragmented as they come, is facing a strong consolidation push from XPO Logistics, whose founder, Brad Jacobs, is a master at buying his way into economies of scale. The maritime industry, which thousands of U.S. businesses rely on, is so upside-down in its economics that many think carrier consolidation is the only way out.
All the things opponents of deregulation said would happen do indeed seem to be happening. But at the same time, the naysayers have consistently overlooked the most important aspect of deregulation: Free markets work better. Always have. Always will.
As we saw in the 1980s, the first decade of transportation deregulation, the market will sort itself out. Weaker players may fall by the wayside, but others will step in, innovate, and fill the void. Make no mistake, it's not an easy path. The cost of assets to enter the freight services market is high, and so too are the barriers to entry. It is not a market for the risk-averse. This is a market for the likes of Fred Smith, Don Schneider, J.B. Hunt, and perhaps, Brad Jacobs.
Whether you support or oppose deregulation, a case now before the Surface Transportation Board (STB) is worth watching. Groups representing shippers want the STB to require railroads to implement reciprocal switching practices for captive shippers. Proponents of the proposal maintain it would provide relief to businesses that don't have the option to use a second railroad to move their goods. Railroads argue that a move to mandatory switching would degrade service levels, add unnecessary costs, and be akin to reregulating a now-thriving industry.
Perhaps the most influential rail chieftain, Matt Rose of BNSF, frames the proposal as a property rights issue tantamount to, say, FedEx's being forced to relinquish parcels to UPS. The comparison is apt. Mandates to business are the province of the market, not the government.
A ruling favorable to shippers could ripple across the modes. But any action is still some time off. In the meantime, the landscape narrows, rates and fares rise, and service options change by the minute. Welcome to the present. And perhaps the future.
Gartner, Inc.
