Deregulation Of Motor Carrier Industry Essay Research

Deregulation Of Motor Carrier Industry Essay, Research Paper

Deregulation of the Motor Carrier Industry:

A Study of LTL Management Size, Structure, and Organization

Congress passed the Motor Carrier Act(MCA) of 1980, to introduce greater competition

in the motor carrier industry through significant reductions in entry barriers and price restrictions.

While there has been lots of research into the impacts of motor carrier deregulation, little attention

has been given to the effects of deregulation on management characteristics and structure. Some

recent work, however, looked at changes in size, structure, and organization of railroad

management, in response to the resulting deregulation from the passage of the Staggers Rail Act

of 1980. That work documented some very specific changes in railroad management, in response

to the new environment. Some of the changes were: a decrease in the size of top executive

management teams and greater decentralization of responsibilities; more emphasis placed on

marketing and sales, with less on traditional operations orientation; and more reliance on younger,

more educated managers, with less industry experience.

Due to the implications of the rail research, there was reason to believe that similar

impacts may have been imposed during the deregulation of the motor carrier industry. To analyze

this effect on motor carrier management characteristics and structure, would be very extensive, so

I will focus on the less-than-truckload(LTL) segment of the industry. The LTL segment is an

appropriate area because the MCA led to a significant environmental change and upheaval within

this segment. 1) Before deregulation, the government-sanctioned rate bureaus formed by LTL

carriers, in conjunction with the Interstate Commerce Commissions(ICC) restrictive entry

(2)

policies, resulted in the absence of effective competition among LTL carriers. Furthermore,

LTL, customers, whose shipments ranged from 70 to 10,000 pounds had no feasible alternatives

to LTL service. Private carriage was not an option, because many LTL dependent shippers had

shipments that were considered too small and they did not move at regular intervals. The U.S.

Postal Service and UPS were not viable competitors, since their shipment size range was too

narrow for the full range of needs required by the LTL. Therefore, the new regulatory regime

provided LTL carriers with substantial protection from competitive forces.

A comprehensive review of the effects of surface freight deregulation confirmed the

significant impact of deregulation on LTL carriers. This report will examine LTL management

teams, in both the pre- and post- MCA periods, in an attempt to assess changes since the

regulatory reform. It will also look at the extent to which management changes influenced the

performance of firms. The highly regulated pre-MCA environment protected carriers from

competitive threats by new market entrants, (by virtue of highly restrictive entry policies imposed

by the ICC). Furthermore, most pricing decisions were made collectively in rate bureaus which

greatly reduced the price competition among carriers. This resulted in the pre-MCA motor carrier

management teams being relatively small with no requirements for a normal range of functional

expertise. However, the LTL firms faced a very complex, competitive environment under

deregulation requiring the management teams to increase in size to meet these complexities.

Some economists argue that the size of top management teams increases during periods of

environmental uncertainty in order to take on new members who can provide the needed

competencies to handle the added challenges. A related theory is that the new members of the

management team added, in response to the new regulatory climate, will increase the total number

(3)

of functions represented on the LTL motor carrier management teams. Again, economists argue

that a competitive environment, dictated that top management teams increase their functional

differentiation.

The skills required of top management team members are quite different in the regulated

versus competitive environment. For example, successful interaction with the regulatory agency,

the ICC, would be an important determent of performance under regulation. Motor carrier

industry profits hinged significantly on the ICC’s decisions in several different areas. But in this

new regulated environment, legal skill in management teams is of paramount importance. 2) A

fiercely competitive market environment would place a premium on marketing and pricing skills.

This argument is supported by evidence from the research done in the railroad industry.

Furthermore, economic strategists have argued that forms faced with an unstable environment

may focus on external function. Such as marketing and product development, while firms with

more stable conditions concentrate more on production and accountin

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