The National Motor Freight Classification (NMFC), asdetermined by the Surface Transportation Board (STB), is the tariff system thathas classification and description of commodities based on four maincharacteristics. These are density of the commodity, liability, handling andstorability of the commodity.
Carrier companies negotiate the rate and terms oftransporting the commodities on the basis of these four characteristics. It isimportant to mention that product density is the dominant factor thatdetermines use of carrier’s vehicle and cost per hundredweight. Higher productdensity results in lower cost per hundredweight but higher capability ofhauling product weight.
A lower density of commodity results in high cost perhundredweight and lower capability of weight haulage. The type of inter-modal and intra-modal opposition in themotor carrier industry has transformed over a certain period over the last fivedecades. The motor carrier industry is composed of truckload (TL) and less thantruckload (LTL) motor carriers.
There has been an increment in theconcentration among LTL carriers (ton miles as concentration measure) butdecrease in number of firms. This means intra-modal competition in LTL motorcarrier segment has increased. The 1980 Motor Carrier Act enhanced thecompetition in the LTL industry. The deregulation of the motor carrier industryincreased as the rate competition between intra-modal motor carriers.Intra-modal competition in both TL and LTL industry segments has resulted infew large firms hauling bulk of the tonnage.
The intra-modal competition has beenrequired for intermodal transport carriers to make specific partnerships tohelp gain industry-wide advantage over the rival firms in the area operatingwith same business plan. With the Inter-modal in place, it has certain partnershipagreements with other railroads that have been signed to help provide betterservices and cost advantages compared to the other intra-modal competitors in themotor carrier industry. During 1980, the TL motor carriers fared quite well. Thesecompanies include J.B. Hunt, MS Carriers and Werner. There was 30% to 40%annual increment in their revenues during 1980s.
For instance, J.B Hunt’srevenues at the start of 1980 was around $25 million but increased to $732million starting 1991. MS Carriers increased from $35 million in 1980 to $152million in 1991. During 1980s, TL segment of the motor-carrier industry rapidlyoutgrew other segments such as LTL, rail boxcars, and long-haul private fleets. The major reason of railroads abandoning significant numberof miles of track (over 260,000) has been the rapid inter-model transportationcompetition.
Since the gradual deregulation of railroad industry, the two majorindustry segments in motor carrier transportation have been truck load (TL) andless-than truck load (LTL) industries. TL and LTL industry segments haverapidly developed after the US government reregulated the transportationindustry. There has been an increasing competition of rail boxcars withtrucking industry.
The improvement of water ways carried out by the engineeringcorps of the U.S army has also led to increased competition between inter-modaltransportation carriers. The trend is likely to continue as TL and LTL industrysegments continue to expand their operations thus making the transportationindustry more competitive for railroad providers. The developing of highwaysand freeways has led to decrease in price structures of TL and LTL industrysegments. Air carriers use all three factors i.e. value of goods,density, and weight of the shipment in order to price their services.
The aircarriers take into consideration both the volume and the weight of the shipmentas measure to determine the relative price of service. Air carriers usedimensional weight, a technique that takes into consideration the length,height and breadth of shipment. This is the general practice because lowdensity (shipment having lower weight compared to their other dimension such asheight and length) cargo becomes unprofitable for air-carriers. Air carriersalso determine transportation price through determination of value of goods.High value goods such as diamonds, consumer electronics, and perishablecommodities have higher rate of transportation because special care fortransportation and timely delivery is required. The water carriers did play an important role during 18thand 19th century because there was strict regulation enforced by thegovernment. There was no inter-modal competition and there were no alternativesavailable for transporting commodities and materials.
During the 20th century,the relative position of water carriers has decreased due to the emergence ofair cargo and trucking industry that can effectively transport with moreefficiency compared to the water carriers. The importance of water carriers isstill vital in the developed and developing economies. Large-scale bulktransportation and long-haul carriage requires the services of bulk carrierssuch as very large crude oil carriers (VLCCs) and ultra large crude oilcarriers (ULCCs). Dry bulk carriers are used to transport large volumes ofgrain and other commodities.
The importance of water carriers in transportationsector will remain primary, as the importance of crude oil and commodities isprimary for the development of economies.