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Trucking1
ANURADHA NAGARAJAN
JAMES L. BANDER
CHELSEA C. WHITE III
University of Michigan
INTRODUCTION
This chapter examines the technological and non-technological factors that
have influenced recent service and process innovations in the trucking industry.
Intense competition, low margins, and relative ease of entry in the trucking indus-
try motivate firms to develop or adopt many innovations. Unstructured and semi-
structured interviews with trucking industry stakeholders indicate the following:
Technological factors have enabled many process innovations.
Non-technological factors have motivated many service innovations.
· As is typical of other service industries, several service innovations have
been generated from within the industry, by attempting to emulate competition or
through assessment of customer needs.
· Innovations adopted by the trucking industry have extended the business
of moving freight into the realm of managing information.
· Innovations, developed outside the trucking industry, particularly in elec-
tronic commerce and navigation, tracking, and sensing, have been adopted by
specific segments within the industry to enhance customer satisfaction and im-
prove business processes.
Deregulation, globalization, the availability of novel, modern technologies,
and new demands by customers for advanced logistics and other services have
iThe authors gratefully acknowledge the generous grant from the Alfred P. Sloan Foundation pro-
gram on Centers for Study of Industry. We thank Pete Swan for his insightful suggestions and Harish
Krishnan for helping with the data collection.
123
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changed the competitive landscape for trucking firms. The movement of freight
is no longer the single strategic focus of the trucking industry. Trucking firms
are becoming involved in the generation and movement of timely, accurate in-
formation. Customers and trucking firms can use information relating to the
exact location of shipments to enhance operational efficiency. This paper iden-
tifies several significant forces that are driving the development and adoption of
innovations in the trucking industry, and discusses their influence on industry
performance. The significant conclusion of the paper is that innovations in the
trucking industry have addressed two basic issues: the enhancement of value to
customers at an affordable price and the utilization of information to improve
business practices through the application of technology. In general, trucking
firms have invested in technology that is particularly relevant to the key success
factors in their segment in an attempt to enhance productivity and increase com-
petitive advantage.2
Freight activity is increasing worldwide with road transportation and air
freight becoming the dominant modes. OECD countries generally increased
their freight activity at an annual rate of between 1 percent (e.g., France, the
United Kingdom, and the Netherlands) and 4 percent (e.g., Italy, Japan, and
Spain) between 1970 and 1994. In the United States, freight activity increased
annually by about 2 percent. The United States dominates the world in domes-
tic freight activity. In 1994, U.S. domestic freight activity was estimated at 5.13
trillion metric ton kilometers (mtk). In comparison, domestic freight activity in
Western Europe was 1430 billion mtk and in Japan was 557 billion mtk (BTS
1997a). Trucking's modal share of the freight activity has been growing fast at
the expense of other modes. Table 1 provides an international comparison of
domestic freight activity for selected countries and regions with particular at-
tention to freight moved by road.
The trucking industry moved an estimated 27 percent of U.S. freight traffic
in 1996 (measured in ton miles) and accounted for 81 percent of the nation's
freight bill, valued at about $367 billion (Bank of America, 1997~. Competitive
pressures and technological advances have combined to make innovation critical
to the growth and sustainability of the trucking industry. Many of the innovations
created and adopted by the trucking industry extend beyond new products to
include broader processes and activities, as emphasized by Kline and Rosenberg
(1986~. In their view, innovation may be thought of not only as a new product,
but also as:
2Many of the innovations discussed in the paper have been implemented only recently. We there-
fore do not draw any inferences relating to innovation adoption and firm performance based on em-
pirical data. In our judgment, sufficient time has not elapsed to realistically measure the impact of
innovation on the survival and profitability of individual firms. For example, Swan (1997) used a
three year time frame to study the impacts of change on trucking firm survival and performance. Our
conclusions about innovation in the industry are based on our observations, stakeholder interviews,
and popular press articles.
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TRUCKING
TABLE 1 Domestic Freight Activity for Selected Countries and Regions
(billions of mtk)
125
Total Average annual Real average
domestic growth rate in domestic annual GDP
Country/region YearRoad freight freight activity (%) rate (%)
United States 1970602.0 3216.5 2.0 2.8
19941326.0 5130.3
Canada 198443.6 296.6 0.3 2.5
199460.1 305.5
Mexico 198082.2 141.8 2.5 1.6
1993139.7 194.8
Japan 1970135.9 350.5 2.2 4.2
1991281.6 557.0 (1970-1991) (1970-1992)
Western Europe 1970420.6 839.3 2.3 Unavailable
19941010.2 1430.0
China 197013.8 414.6 7.5 7.5
Source: Transportation Annual Statistics (1997).
· a new process of production;
· the substitution of a cheaper material, newly developed for a given task,
in an essentially unaltered product;
· the reorganization of production, internal functions, or distribution, ar-
rangements leading to increased efficiency, better support for a given product, or
lower costs; or
· an improvement in instruments or methods of doing innovation.
For the purposes of this chapter, we embrace this broad definition and apply it to
the study of innovation in the trucking industry.
Figure 1 illustrates the innovation process in the trucking industry showing
how technological and non-technological factors motivate and enable service and
process innovations. Service and process innovations, in turn, may be expected to
improve firm performance. We consider that a service or a process innovation is
motivated by a factor when it is intended to fulfill a need created by the factory
An innovation may be enabled by a factor when the knowledge embodied in its
software and hardware is instrumental to its effective utilization. For example,
the just-in-time manufacturing environment demands that the location of parts be
known at all times. Real time tracking is an innovation that is motivated by the
just-in-time manufacturing environment. Satellite communication has been core
to the development of real time tracking systems and can be considered as an
enabler of the innovation.
Our study reveals that customers are the primary sources of innovation in the
trucking industry, as can be expected in a service industry. Changes in manufac-
turing and retailing practices recognize that significant value is created when
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Non-Technological ~ --| Service | ~ | Increases In
Factors I/1 Innovations | | and Share
/ ~ ~tI
I Technological id/ ~ | Process
Factors | -| Innovations
~ Enables
- - - - - - - ~ Motivates
FIGURE 1 Interactive model of factors, innovations, and outcomes.
Decreases in Cost
inventory levels are reduced and when goods are produced closer in time to the
point when the goods are consumed. Such modern time-sensitive management
practices have drastically altered the role of the trucking service provider in the
economy by altering the size, distance, and frequency of shipments and by in-
creasing the importance of transportation reliability, timeliness, and speed. The
emphasis on customers and their important role in the innovation process is con-
sistent with the current industry dynamic. Loyal customers become critical in a
competitive environment where there are a large number of trucking firms for the
customer to choose from and changes in customer preference entail no significant
switching costs.
Fierce competition compels firms in the trucking industry to develop and
adopt appropriate innovations. Large firms in the trucking industry are often lead
users of new products intended for the industry. Many of the technology-driven
innovations that have been adopted by the trucking industry have been developed
outside the industry. The communications and computer industry have had a
significant stake in the innovations adopted by the trucking industry. The wide-
spread adoption of some of these innovations has been enabled by the close coor-
dination between the user (the trucking industry) and the developer (communica-
tions industry, for example). This is consistent with Von Hippel (1976) who
found that lead users in the scientific instrument industry often play a major role
in the innovation-development process. Smaller trucking firms adopt these inno-
vations in order to achieve competitive parity with their larger rivals in the com-
petition for customers.
In this chapter section 2 presents a brief overview of the trucking industry
and discusses the transformation of the trucking environment through the birth of
3Rogers (1995) defines a need as a state of dissatisfaction or frustration that occurs when one's
desires outweighs one's actualities.
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127
the logistics industry and the transportation services industry. Section 3 discusses
some of the non-technological factors that influence innovation in the trucking
industry, such as the globalization of markets and resources, intermodal transpor-
tation, changing business practices, competitive pressure on price and service,
labor productivity and skill, and environmental and safety considerations. Sec-
tion 4 presents some of the important technological factors that have influenced
innovations in the industry, including telecommunications, computer hardware
and software, navigation and positioning systems, surveillance, sensing and tag-
ging technologies, and data exchange and fusion capabilities (BTS, 1997a). Sec-
tion 5 discusses the relative contribution of technological and non-technological
factors to innovation and firm performance. Section 6 concludes the chapter with
a look at the future of freight and expectations for the trucking industry.
AN OVERVIEW OF THE TRUCKING INDUSTRY
Traditionally, the industry has been segmented into three categories, depend-
ing on the size of the shipments that are carried by each firm: truck load, less-
than-truckload, and package express. Trucking appears to be expanding into a
fourth segment logistics. Recent industry trends indicate significant industry
consolidation, with large firms participating in multiple segments of the industry
through subsidiary relationships. These firms offer a "one stop shop" for a vari-
ety of transportation services.
The Traditional Trucking Industry Segments
Truckload (TL) carriers specialize in hauling large shipments (often weigh-
ing over 10,000 pounds). The average TL shipment weighs about 27,000 pounds.
An owner-operator4 or a driver for a TL firm will pick up the load from the
shipper and carry it directly to the consignee, without transferring the freight
from one trailer to another. Thus, TL carriers do not need a network of terminals.
The TL segment of the industry is highly competitive because there are very low
barriers to entry. Key issues for managers of TL firms are the management of
backhaul routes5 and driver turnover.
Less-Than-Truck Load (LTL) carriers haul shipments that usually weigh be-
tween 150 and 10,000 pounds. The average LTL shipment weighs slightly over
1000 pounds. The key economies of scale and density for an LTL carrier come
from consolidating many shipments going to the same area. Such consolidation
requires a terminal network. Thus, an LTL shipment will typically be picked up
4An owner-operator is a sole proprietorship or other small company whose primary purpose is to
operate one or more trucks for hire.
5Backhaul routes: after a load goes from point A to point B. the firm must either find a shipment
originating near point B or incur the costs of operating an empty truck (deadheading).
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at the shipper' s dock by a pickup and delivery truck and hauled to the trucking
firm's local terminal, where it will be unloaded and placed with other shipments
going to similar destinations. The process of moving groups of shipments from
one city terminal to another is known as line-haul operations. It is usually accom-
plished by large trucks, often with tandem trailers, or by rail or some other mode,
depending on price and service considerations. Once the shipment arrives at its
destination city terminal, it is moved to a pickup and delivery truck at a terminal
and hauled to the consignee. Key issues for managers of LTL firms are increas-
ing density and linehaul network optimization (Swan, 1997~.
Package Express (PE) carriers usually haul shipments that weigh less than
150 pounds. A typical package weighs less than 50 pounds. PE carriers offer at
premium prices time-sensitive or other specialized services such as "air express"
shipments, many of which are carried by truck and not by airplane. The firms in
the PE segment have been experiencing tremendous growth; some of the large
firms have been maintaining higher levels of operating income than firms in ev-
ery other segment of the trucking industry. Cost and competitive pressures are
moderating this success. Key issues for managers of PE firms are increasing
customer density and delivering freight on time.
The Modern Outlook
Globalization, technology, and specialization have combined to bring a new
dimension to the trucking industry: logistics. Logistics can be defined as a con-
cept to guide economic processes and as a tool of rationalization to optimize
purchasing, transport, reshipment, and warehousing (Danckwerts, 1991; Plehwe,
1997~. Logistics uses the right information to move materials to the right place,
at the right time, for the right cost. While logistics once belonged in the realm of
the manufacturing firm, today trucking firms are seizing the initiative and absorb-
ing the logistics function into their value chains.6
As customers focus on cutting costs and developing core competencies, truck-
ing firms are restructuring to offer the total transportation solution by including
logistics and a variety of other transportation options in their corporate portfolio.
The logistics business, almost nonexistent ten years ago, is now approximately a
$20-30 billion industry segment and is projected to grow at about 20 percent a
year (Industry Week, 1997~.
Logistics may not only provide functionality and lower costs to the customer;
it may also improve service and increase the customer's perception of value.
This is especially true because many customers are focusing on ways to reduce
costs and improve quality in response to international competition. Consequently,
many U.S. businesses are steadily reducing their investment in inventory. Manu
6A company's value chain identifies the primary activities that create value for customers and the
related support activities (Thompson and Strickland, 1996).
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facturers are also faced with the need to reduce cycle time. In the past, many
manufacturing firms included inbound and outbound logistics among their man-
agement activities. Competitive pressures are forcing firms to focus all their
energies on their core competencies and primary activities. Support functions to
the manufacturing activity, such as the logistics function, are outsourced to spe-
cialists in transportation.
These specialists might be the firm's transportation provider or a third-party
logistics provider. Cost reduction seems to be the primary motivator for outsourc-
ing logistics, followed closely by customer service, according to the Exel Annual
Third Party Logistics Key Market/ Key Customer survey (Industry Week, 1997~.
Some 60 percent of the nation's largest manufacturers use third-party logistics
providers, according to a study by Mercer Management, Inc., and Northeastern
University (Purchasing, 1996~.
The availability of appropriate technology has facilitated the growth of logis-
tics. Logistics providers are using large databases, complex software and algo-
rithms, supporting hardware, and the latest tracking and communication tech-
nologies to track fleets, organize customers and loads, and provide the most
efficient way to satisfy the customer.
Logistics providers in the trucking industry have unique industry-specific
knowledge that can be applied to enhance the logistics function. Through spe-
cialization, firms achieve learning curve advantages in leveraging technological
and transportation planning knowledge. Typically logistics firms contract with
shippers or consignees to assume responsibilities ranging from transportation and
material handling to warehouse management and the management of inventory
levels and distribution throughout large portions of the value chain.
Further, logistics providers may be in a position to leverage freight volume to
achieve the gains that accrue to network densities. The logistics firm coordinates
information relating to many shippers and consignees in the same geographical
area. The firm is then in a position to optimize freight movement by increasing
the volume carried by each truck carrying loads to or from a certain location.
Firms have used different organizational arrangements to incorporate logis-
tics in their arsenal. Schneider, the nation's largest TL firm, is associated with
logistics provider, Schneider Logistics. The logistics arm of Schneider innovates
and develops products to enable Schneider to compete effectively and efficiently.
In contrast, J.B. Hunt, another TL firm and a close competitor of Schneider, has a
logistics arm, a wholly owned subsidiary called Hunt Logistics, which provides
independent logistics services. J.B. Hunt Transport is but one of the transport
companies that are a part of the portfolio of trucking firms used by Hunt Logistics.
Hunt Logistics, which has been in operation for three years, has customers in the
retail segment, consumer and industrial goods, paper, and automotive industries.
Smaller firms specializing in logistics are usually organizing in one of two
ways: either as dedicated contract carriers or as non-asset based supply chain
management companies. Dedicated Contract Carriers (DCC) are strongly asset
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based. Tractors, trailers, and drivers are their focus, along with the management
of information. Their core objective is better truck transportation, and they tend
to have a trucking perspective. Ryder Integrated Logistics, with a revenue of
nearly $6 billion, is the largest DCC firm.
Supply chain management companies focus on information technology man-
agement through software applications. They emphasize shipment control and
visibility. Ideally, these companies manage every part of the host company's
inventory as tightly as possible to reduce cost and cycle times. Multiple segment
transportation, warehousing, and inventory are their target areas.
Logistics and supply chain management have brought about some restructur-
ing of the trucking industry. Firms are now offering a variety of transportation
services including TL, LTL, logistics, package express, and intermodal as a one-
stop transportation solution. They are accomplishing the feat of "one call, one
carrier" primarily through acquisitions, mergers, and alliances. For the purposes
of this paper we consider the newly restructured firms to be providers of transpor-
tation services (TS).
TS firms are new organizational forms that are emerging in the trucking
industry. They cross traditional boundaries and integrate across segments and
modes of transport. These hybrid forms have emerged in response to changing
competitive conditions. Firms such as CNF Transportation and Caliber Systems,
through mergers and acquisitions, have developed a portfolio of transportation
services. CNF transportation has, among its operating units, a package express
firm (Emery Worldwide), an LTL firm (Con-Way Transportation Services), and
a logistics provider (Menlo Logistics). Caliber Systems7 has in its portfolio of
firms a Package Express firm (RPS), an LTL firm (Viking Freight), and a logis-
tics provider (Caliber Logistics). CRST International has recently restructured
itself into a single transportation services company by combining its six units into
one operating unit. In the past, each unit served customers separately in their
niche markets. Through the restructuring, CRST International combines CRST
in TL, Malone Freight lines and Three 1 Truck line in flat beds, CRST logistics,
and an express LTL service. According to company President John Smith, "It
didn't take a genius to figure out it was better approaching this as one team of
professionals totally focused on the customer and making transportation as easy
as possible as our customers" (Traffic World, 1997a).
Competitively, these organizations have to contend with the challenges posed
in each of the segments in which they participate. Many of the TS firms have yet
to find the synergies they were looking for through restructuring and consolida-
tion. It is expected that the next few months will produce some of the biggest
mergers ever. As more firms present themselves as providing total transportation
services, the formidable task that lies ahead of them is to achieve the close coor-
dination that is required to capture the benefits of being a single entity.
7Federal Express acquired Caliber Systems in 3Q 1997 in a $2.4 billion bid.
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TABLE 2 Non-technological Factors Influencing the Trucking Industry
Non-technological factor
131
Area of focus
Globalization
Intermodalism
Changing business practices
Standard weight limits
Competitive pressures on price and
service
Labor productivity and workforce skill
Environmental and safety considerations
Markets and resources spread throughout the world
Coordination between different modes of freight
transport
Just-in-time, Quick Response, inventory reduction
Standardization of load limits across state and
national boundaries
Lower operating costs and relationship-specific
assets
Training and technology
Sustainable trucking
NON-TECHNOLOGICAL FACTORS INFLUENCING
THE TRUCKING INDUSTRY8
Several non-technological factors have induced innovation and changed the
competitive landscape. These factors include globalization of markets and re-
sources; intermodal transportation; changing business practices; and competitive
pressure on price and service, labor productivity and skill, and environmental and
safety considerations. Table 2 provides the area of focus for the non-technologi-
cal factors.
Globalization
The fundamental nature of the overall business environment is changing.
With the lowering of trade barriers and advances in technology and communica-
tion, the competitive landscape has been transformed into a global economy where
goods, services, people, skills, and ideas move freely across geographic borders
(Hits et al., 1996~. Since 1969, the number of multinational corporations in the
world's 14 richest countries has more than tripled, from 7000 to 24,000. These
companies control one-third of all private sector assets and enjoy worldwide sales
of $6 trillion (Alden, 1997~. International trade now accounts for 24.7 percent of
the U.S. GDP, up from only 11.3 percent in 1970 (BTS, 1997a). Global compe-
tition has increased performance standards in many dimensions, including cost,
quality, new product development, and service.
Globalization increases the range of opportunities for firms in many indus-
tries. The implication for the trucking industry is that there is an advantage for a
trucking firm to be a single source provider in order to meet a global firm' s trans
~Sections 3 & 4 draw upon our findings in our case studies and field work. Archival sources on the
trucking industry are also drawn upon to illustrate innovations and the innovation process. See Ap-
pendix A for details of the study method.
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U.S. INDUSTRYIN2000
portation needs. The emergence of the TS segment of the industry is the industry's
response to the global challenge.
Firms in the trucking industry are providing freight movement through alli-
ances and international operations. Package express firms that have air freight as
a critical component of their transportation portfolio, such as UPS and FedEx,
have extensive international operations. UPS World Wide Logistics was formed
in 1993 and serves North America, Latin America, Asia, and Europe. Logistics
firms are now beginning to venture abroad as their domestic customers expand
their requirements. In 1996, Schneider Logistics, Inc., entered the European lo-
gistics market after being selected to provide inland transportation management
services for Case Corporation' s European manufacturing and service parts opera-
tions. Schneider Logistics is one of the first companies to engineer and imple-
ment a European freight management program to manage across multiple ship-
pers, carriers, transportation modes, and countries, according to the company's
press release. The company uses engineered solutions and systems technology to
perform shipment optimization, electronic date interchange (EDI) with carriers,
freight payment, and reporting. Schneider Logistics provides logistics manage-
ment services for Case' s eight European manufacturing locations. Its European
services mirror the service Schneider Logistics currently provides Case within
North America. These services include management of all ground transportation,
optimization of Case freight, inbound and outbound transportation from manu-
facturing facilities, interplant movements, transportation required for Case's ser-
vice parts operation, and engineered solutions.
Within North America, there has been significant growth in international
trade since the North American Free Trade Agreement (NAFTA) went into effect
in January 1994. In 1995, nearly $274 billion worth of goods moved by land
between Canada and the United States up 10.5 percent from 1994, according to
information from the BTS Transborder Surface Freight Dataset, collected by the
census bureau. By value, 68 percent of this trade moved by truck. Over $97
billion worth of goods moved by land between the United States and Mexico in
1995, up 7.8 percent from 1994. By value, 81 percent of this trade moved by
truck (BTS, 1997b).
To adapt to this new opportunity and to adjust to evolving cabotage9 rules,
trucking firms are now engaged in a new process innovation called "sweeping."
Analogous to a milkrun,~° the trucking firm sweeps a region for exports and moves
9Cabotage rules are laws prohibiting motor carriers from hauling freight between two points outside
of the carrier's home region. For example, Canadian truckers may haul freight from Ontario to
Florida, and may return with freight destined for Ontario. It may be illegal to make deliveries from
Florida to Michigan along the way.
i°Milkrun is a type of less-than-truckload service in which a truck visits several origins in sequence
to pick up freight with a common destination. For example, a truck might visit several auto parts
suppliers to collect parts destined for an assembly plant.
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133
the swept freight to a single terminal or focal point for line haul movement. The
sweep allows a firm to build exports to a critical freight volume and optimize the
mode of transport subsequently.
Intermodalism
Intermodal has been railroads' successful answer to change in the transporta-
tion environment. By offering low cost solutions and innovations such as double
stack service, intermodal has become dominant in certain corridors of freight
movement. In 1993, intermodal shipments exceeded 200 million tons of goods
valued at about $660 billion. The classic intermodal combination of truck and
rail accounted for 41 million tons and $83 billion. In addition to the $660 billion,
about 3 million tons, valued at about $134 billion, is estimated to have moved by
truck and air combination (BTS, 1997a).
Intermodal shipments are higher in value per pound on average than typical
single-mode shipments. The average value of goods shipped by air (including
truck and air) was $22.15 per pound, followed by parcel, postal, and courier ser-
vices ($14.91 per pound) and by truck and rail combination ($1.02 per pound).
Goods shipped only by truck averaged about 34 cents per pound and goods
shipped by rail, water, and pipeline averaged less than 10 cents per pound (BTS
1997a).
Transportation providers have become more capable of substituting one mode
of transportation for another when such a substitution creates an economic advan-
tage. Some of this effect can be explained by recent innovations in containeriza-
tion. JB Hunt has been a pioneer in the use of intermodal double stack containers.
Traditionally, a loaded trailer was put on a flat car, and there was one trailer for
each flat car. By separating the chassis from the container, JB Hunt can stack two
containers on one special rail car. The cost of moving freight decreases dramati-
cally. The use of double stacked containers and other container innovations al-
lows firms to offer as many modal choices as possible to lower total transporta-
tion cost without compromising time sensitivity.
Changing Business Practices
Changes in manufacturing and retailing practices (such as "just-in-time," JIT,
and "quick response," or QR) recognize that significant value is created when
inventory levels are reduced and when goods are produced closer in time to the
point when the goods are consumed. Such modern time-sensitive management
practices have drastically altered the role of the trucking service provider in the
economy by altering the size, distance, and frequency of shipments and by in-
creasing the importance of transportation reliability, timeliness, and speed. In
general, shipping rates (prices) are falling, while trucking firms are providing an
increased level of service to their customers. Trucking firms are becoming more
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built for luxury and comfort, and on their return to the terminal, the cabs are
cleaned thoroughly. Management regularly conducts on-site inspections, often
solicits the driving team's opinion on improvements that could enhance the effec-
tiveness of the process, and takes any needed action. In one case, an on-site
inspection resulted in a negligent supervisor being fired, and this action by man-
agement reinforced the drivers' view of the firm' s commitment to the drivers and
the new sleeper team process.
Truck manufacturers are catering to this new process by making comfort a
top priority. Freightliner Corporation recently introduced the Penthouse sleeper
option, which features a single 50-inch-wide upper bunk, or loft, that can be raised
by an electric motor to the ceiling of the sleeper or lowered to its standard sleep-
ing position. It features a flat panel display, which has several locations available
for use as either a monitor for the built-in computer or as a television screen. The
mounting options allow the screen to be seen from either the bunk or the seating
area. A kitchenette is provided on the driver's side, featuring a sink, refrigerator,
microwave oven, coffee maker, countertop, cutting board, and fluorescent light-
ing. The water system is equipped with a fresh water reservoir, a sink, a water
heater, and a "gray water" tank, so a driver can not only cook a meal, but also
clean up afterwards. Closets, storage drawers, and even a pantry for food storage
are included. Packaged into a new sidewall cabinet, is a novel integrated com-
puter and entertainment package. This system interconnects the stereo, the tele-
vision, and a computer together into a single unit. A modem connection through
a Highway Master communications module allows the driver to make computer
contact with home base or even the Internet while the truck is in operation. A
separate headphone system is provided to allow the user of this system to operate
without interfering with the driver's radio choice or to allow silent operation
when the other partner is sleeping. Products such as the Freightliner Penthouse
improve the work environment for innovations such as sleeper teams.
Larger Trailers
Productivity gains are also being made through the use of longer trailers,
such as 48 foot and 53 foot trailers. Some states allow 57 foot trailers; however,
some firms are reluctant to use them since their operation is restricted by region.
Trucking firms have also begun to use wider 112-inch trailers. These enhance-
ments in length and width increase the volume of freight that can be carried within
the same weight and height limits, increasing productivity without increasing
direct cost significantly.
The use of doubles and triples combinations of two or three 28-foot trail-
ers has also been on the increase. These combinations allow the firm to avoid
the expense of labor and time to load and unload freight since smaller trailers
increase the probability that a trailer can be filled with freight for a single destina-
tion. The volume per driver is also increased by this process. Drivers are using
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145
terminals or meet-and-turn pointsi4 to exchange trailer loads. Reengineering the
freight movement process allows the balance of equipment and trailers while
allowing the drivers the opportunity to get home and improve their quality of life.
According to Don Schneider, president of Schneider National, "As we pay our
drivers more, one of the ways (to cope) is to make them more productive. If the
driver does more on the highway, that benefits the customer and the industry
benefits from those kind of productivity adjustments" (Traffic World, 1997e).
Sixth Axle
To increase productivity, the president of the National Private Truck Coun-
cil, John McQuaid, recommends raising the standard weight from 80,000 to
97,000 pounds per semi-trailer via a sixth axle (Traffic World, 1997f). This ac-
tion could save shippers $2.6 billion annually, according to a 1990 report by the
Transportation Research Board. Adding a sixth axle and increasing the payload
would also better align U.S. truckers with those from Canada and Mexico. Canada
currently has a 107,000-pound weight limit while Mexican truckers are allowed
119,000 pounds.~5
Soft-sided Trailers
The introduction of soft-sided trailers at Trans-National Freight Systems is
an example of an innovation that came about in response to specific customer
needs. The soft-sided trailers are being built to carry vinyl siding and cost nearly
twice as much as regular trailers. However, Trans-National Freight Systems sees
this as a business opportunity. The company is also providing reverse logistics
for its customers by contacting the consignees and picking up empty pallets as
they make deliveries. This provides a win-win situation for the two companies.
The customer does not need to buy more pallets to keep supplying the market,
and Trans-National has the opportunity to capture backhaul without waiting for
uncertain loads. By investing in transaction specific assets and providing value-
added services through pallet management, the company describes itself as not
just a trucking company but an asset to their customer.
In summary, advancements in a variety of technologies have made a plethora
of data available to managers in trucking firms. However, trucking firms need to
i4Meet-and-turn points are another means of keeping the freight moving quickly. At companies
like CCX, two drivers (in two different trucks) will start at origins 500 miles away from one another.
They will meet at a point roughly halfway in the middle, swap trucks, and each return to their origin.
That way, the truck moves 500 miles at a time, but the drivers wind up back at home after a full day's
work.
i5Heavier trailers could impact the highways adversely. However, according to the Federal High
way Cost Allocation study (Department of Transportation, 1997), the more axles a vehicle has, the
lower its cost responsibility at any given weight and the more nearly it comes to paying its share of
highway costs.
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U.S. INDUSTRYIN2000
have the financial and human capital to convert these data into information. The
corporate culture has to become conversant in the strategic use of information
technology. The management of information may be a critical success factor in
the new age of trucking (Bander et al., 1997b). The vast capabilities of computer
and communications technology too often cause companies to lose sight of the
main purpose of innovation and new technology adoption the fulfillment of
business needs. In the successful cases, the innovation push created by emerging
technologies is matched by the innovation pull created by non-technological fac-
tors in the business environment and technological advancements in truck and
trailer production.
RELATIVE CONTRIBUTIONS OF TECHNOLOGICAL AND NON
TECHNOLOGICAL FACTORS TO
FIRM PERFORMANCE
The trucking industry appears to be on the rebound, and the future appears to
be bright. General freight rates were up 3.5 percent in 1997, compared with 2.2
percent in 1996. Table 4 presents some other encouraging data about recent
trends in the industry.
The improved performance of the trucking industry can be attributed, in part,
to the agility and innovative behavior of the firms in the industry. The growing
economy and the rationalization of capacity have also contributed to the trucking
industry gains. Table 5 lists several services and process innovations already
described above. Many of these are responses to recent competitive and environ-
mental challenges. Accordingly, the impact of these innovations will be difficult
to measure with any accuracy until more time has elapsed.
Innovations can create new markets (for example, the soft-sided trailer), cap-
ture additional market share (UPS second day guaranteed delivery), increase cus-
tomer loyalty (QS 9000), increase revenue, and/or reduce costs (the Business
Accelerator System). These innovations can have industry-wide impact, such as
the growth of third-party logistics companies. They may also have impact out-
side the industry, such as the growth of trucking industry-focused information
TABLE 4 Trucking Trends
1997 1996
1995
Increase in LTL rate5.7% 4% 2.5%
IncreaseinTLrate1.0% 0.2% 2.4%
Average operating ratio93.6% 97.1% 96.9%
Collective net profits3.65%a 1.18% 1.54%
aSecond Quarter 1997.
Source: Traffic World (1997a).
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TRUCKING
TABLE 5 Some Innovations in Trucking
147
Innovation
Innovation Category
Next day delivery/time-sensitive delivery
Supply chain management
Customer package tracking
Electronic data interchange (EDI)
Package tracking (within firm)
Service teams (interdisciplinary teams empowered to service important
customers)
Sleeper teams
Redesigned consolidation termunals
Meet-and-turn points
Flexible backhauls (designed to reduce the number of trips a truck makes
empty)
Service
Service
Service
Process and service
Process
Process
Process
Process
Process
Process
technology systems integrators and software houses and an increase in labor pool
skills and wages.
There are complex interactions between the factors that have been presented
in sections 3 and 4 and a large number of innovations. Many factors, both tech-
nological and non-technological, motivate innovations, while other factors en-
able innovations that are motivated for other reasons. Figure 2 presents an illus-
tration of the interactive influence that technological and non-technological
factors have on the innovation process.
Non-technological factors, such as the changing customer and competitive
environment, organizational restructunng, and globalization, are playing an im-
portant role in motivating new service innovations, thereby allowing firms to be
G localization
Changing Business
Practices
Non-Technological
Factors
T.
e~ecommun~cat~ons
Computer Hardware
and Softweare
Technological
Factors
_ _ _ Supply Chain
~ Management
/ ~(Service Innovation)
Network
Optimization
(Process Innovation)
Enables
Motivates
Increases in
Market Size
and Share
Decreases in Cost
FIGURE 2 An illustration of the influence of some technological and non-technological
factors on innovation and firm performance.
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U.S. INDUSTRYIN2000
more responsive to customer needs and specifications. Service innovations, of-
ten motivated by non-technological factors, are enabled through the use of tech-
nology.
Technology plays a dual role in innovation. As an enabler of service innova-
tions that interface with the customer, technology plays a role in enhancing the
revenue stream of the firm. Technology also provides the means to introduce
process improvements that reduce the cost and/or cut the time of providing ser-
vices. Thus technological factors can also enhance firm profitability through
strategic cost management.
Sometimes innovations motivate other innovations. Many of these innova-
tions improve processes within the firm. The robust management of the business
processes within the firm is critical to providing effective and efficient service.
Innovations motivated by other innovations provide a means to this end. More-
over, these innovations are often key to the eventual success of the innovation
that motivated them. For example, in order to provide time-sensitive delivery,
firms have invested in technology to track trucks and packages. The ring scanner
adopted by UPS, and described earlier, is an example of an innovation that was
motivated by the service innovation in time-specific delivery.
To summarize, many factors can motivate and/or enable innovation. Non-
technological factors appear to motivate innovations that improve market share,
while technological factors enable innovations that reduce costs and improve pro-
cesses within the firm. Trucking firms look to technology to differentiate them-
selves. Already many advanced technologies, such as AVL, satellite and cellular
communication, on-board computers, and EDI are becoming commonplace in the
industry. Computer-aided routing and dispatch, automated hubs, and load and
container tracking seem to be on the verge of widespread adoption. While some
of these technologies offer competitive parity at best, they nevertheless offer a
means of survival in the tightly contested industry.
Technology has brought excitement to an industry that acknowledges that
the old way of doing business is no longer feasible. With their low margins and
fickle and demanding customers, firms in the industry innovate so as to provide
value-added services that attract and retain customers. While the influence of
non-technological factors on firm performance appears to be significant in moti-
vating the need for action and response, it is technology that is providing immedi-
ate solutions for some competitive challenges.
Consistent with the findings of Cooper and Merrill (1997), the innovations
enabled by technological factors have come from outside the trucking industry,
but the innovations have been significantly influenced by the trucking industry's
idiosyncratic requirements. For example, Schneider was one of the early adopt-
ers of the Qualcomm communication system and the system's design was greatly
enhanced through the active interaction between user (Schneider) and developer
(Qualcomm). Similarly, the implementation of EDI within a trucking firm is
often driven by the trucking firm's customer specifications. The trucking firm
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TRUCKING
149
has to ensure compatibility between its internal management information systems
and the customer's EDI interface. Often systems integrators are involved in the
development and coordination of the process of implementing EDI.
The development and adoption of innovation has been motivated by the busi-
ness needs of specific segments within the industry. Satellite communication
systems have enabled many adopters to know the location and status of the fleet
at all times. Information about the whereabouts of a specific truck are especially
critical to the TL segment and, to a lesser extent, logistics providers. Many of the
early adopters of the system have come from these two segments of the industry.
In contrast, the LTL segment of the industry emphasizes precise information re-
lating to the contents of the truck and to network optimization. Accordingly,
package tracking and route optimization have been more frequently adopted
within that segment.
The management of information is becoming as important as the manage-
ment of freight for the trucking industry. The ability to provide end-to-end infor-
mation services becomes a critical capability for firms in the trucking industry.
Recent trends indicate that the Internet and Web-enabled software may provide
financial, operational, and structural assistance for shippers and carriers. The
acquisition and processing of operational, financial, and related data should di-
rectly support higher system capacity, greater labor and capital productivity, im-
proved efficiency, more effective resource allocation, and better integration of
processes and activities (BTS, 1997a).
THE FUTURE OF FREIGHT AND EXPECTATIONS FOR THE
TRUCKING INDUSTRY
The trucking industry has seen tremendous growth, and that growth is ex-
pected to continue. Table 6 shows some of the predictions of a study commis-
sioned by the American Trucking Association (ATA). It is expected that trucking
will rise from its 1996 share of 64 percent of the transportation sector to over 66
percent in 2006. The truckload sector is expected to have the largest gains in
TABLE 6 Market Share Forecasts
Mode 1996 share (%)2006 forecast (%)
All trucking 6466.3
Truckload 3034.3
LTL 1.11.3
Private 32.930.7
All rail 1413.5
Intermodal 1.21.4
Note: Totals do not sum to 100%. Remainder is air freight, maritime, and pipeline.
Source: Martin Labbe Associates, ATA.
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U.S. INDUSTRYIN2000
market share, rising from 30 percent in 1996 to 34.3 percent in 2006 (Traffic
World, 1997a).
To sustain growth and improve profitability, firms in the trucking industry
must continue to innovate and adopt innovations. This chapter has presented an
overview of innovation and the innovation process in the current trucking envi-
ronment. As is typical of other service industries, the emphasis on the customer
is a clear imperative for competitive success. Some preliminary evidence sug-
gests that innovation is playing a major role in the rejuvenation of the industry.
The next few years will indicate whether firms' investments in creating new ser-
vices and adopting new technologies will have commensurate payoff. In general,
as new technologies emerge, as the rate of technological change accelerates, and
as the degree of international competition increases, firms must enhance their
ability to develop and introduce new products, services, and processes (Penrose,
1959~. Firms in the trucking industry have had to respond to the challenge of
intense competition and demanding customers with new innovations in order to
survive.
There are several barriers to innovation in trucking. These barriers include
the lack of standards in many new technologies, an inadequately skilled labor
force, and the lack of adequate capital.
When there are multiple technological paths to achieve the same functional-
ity, manufacturing firms have to decide on a particular technology path in order
to commercialize a new product. When firms choose incompatible technology
trajectories, customers are forced to evaluate the relative advantages of each tech-
nology as part of their purchase decision. This can inhibit widespread adoption
of the product since the customers are often not technological experts and have
limited information about the comparative merit of each technology. In an envi-
ronment where network externalities exist, customers benefit from large scale
adoption of a product based on a single technology. Compatibility standards
assure the user that an intermediate product or component can be successfully
incorporated in a larger system of closely specified inputs and outputs (David and
Greenstein, 1990~. The existence of standards enables product development and
innovation diffusion (Nagarajan,1996~. For example, adoption of electronic toll
collection tags might save time for trucks. However, the lack of a common stan-
dard and problems relating to cost allocation have hindered widespread adoption
of this product. For many firms, the competitive circumstances of the trucking
industry has created an environment in which profit margins are small. The deci-
sion to invest in innovation rather than, for example, trucks is often difficult for
trucking firms to make.
The introduction of new technology-based innovations in the trucking indus-
try has increased the need for individuals trained in computer and other technol-
ogy use. The skills required to work in the trucking industry have changed dra-
matically across all ranks of employees. All employees, including drivers,
dispatchers, administrative, and managerial personnel, are exposed to varying
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TRUCKING
151
levels of new technologies. For example, the driver sometimes has an onboard
computer system that tells him his next destination. He is expected to interact
with the system in order to make the entire network optimization process more
efficient. The dispatcher deals with a computer that monitors the status of the
fleet and updates routes in response to changing customer demands. The trucking
industry must look to educational institutions to provide it with a workforce for
the new competitive environment.
According to managers, the key success factors for firms in the industry are
customer satisfaction, cost management, employee retention, and safety. Tech-
nology, such as EDI, GPS, information technology developments, and advanced
communications, have enabled many innovations that directly address the key
success factors. The role of these innovations in firm survival and profitability
requires attention. Our initial conclusion based on the limited information ava~l-
able is that innovations enabled by technological factors often appear to en-
hance profitability by reducing costs through process reengineenng, strategic in-
formation, and cost management. Innovations attributable to non-technological
factors appear to be the competitive weapons motivating new ways of doing busi-
ness that provide strategic advantage.
The growing importance of logistics, as it progresses from being a value-
added service to a critical product in the trucking industry, is evident. Industry
consolidation has become the strategic response to the demands of the competi-
tive environment. Indeed, these are interesting times for firms in the trucking
industry.
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APPENDIX A: THE STUDY METHOD
This study used a multi-pronged approach to studying the innovation process
in the trucking industry. The study began with unstructured interviews with 25
industry stakeholders. Of our 25 initial respondents, 9 were trucking and logis-
tics firms from the different segments of the trucking industry, while 16 were
experts and regulators from outside the industry. We focused on understanding
the changing competitive dimensions of the industry as a context for studying the
innovation processes within the firms. Using the discussions as the basis, we
developed semi-structured questionnaires for trucking firms and for technology
vendors. The questionnaire for the trucking firms consists of three sections. Two
qualitative sections focus on the innovative process and the factors enabling or
hindering the process. The third section seeks to obtain quantitative information
about financial performance and the firm's operational characteristics. Seven
firms drawn from a cross-section of industry segments, were interviewed.
A second semi-structured questionnaire was developed to administer to tech-
nology vendors. This instrument focused on competitive issues in the vendors'
industry and the barriers to proliferation of new, advanced technologies in the
trucking industry. Seven technology vendors were interviewed.
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Representative terms from entire chapter:
trucking firms
