Too Bad More People Will Never Read (and Understand) This Column

This might be one of the best, if not the best, column I have ever read.

Cheap Labor is Very Expensive, Expensive Labor Very Cheap

It is tough to understand, but unfortunately necessary.

The End of the Road

A recent story in the USA Today titled Independent Truckers See End of the Road caught my attention as something that sounded very disheartening for many Americans.  The article describes how the independent trucker is being squeezed by the high cost of diesel and that is cutting into the margins they make after being paid for loads that are allocated by freight brokers.

About 1/3 of all truckers are independent and have no logistics function of their own.  Instead, they rely on brokers that arrange for loads to be moved from one place to another then these   brokers contract with independents to move that freight around the country.  Now truckers are complaining that there is no transparency in the brokers' market so they have no idea how much the brokers are making.  As the truckers are being squeezed, it is believe that the brokers are making a very handsome profit at their expense.  So to get that transparency, the brokers are asking for the government to get involved and regulate the market.

Now when I hear the words "government involvement" and "regulation" I immediately get suspicious.  Rarely (if ever) do these two phrases every work out in favor of the consumer.  It usually means there is some special interest involved trying to enrich themselves or engage in some protective practice that drives up the costs for consumers.  I believe this case is no different.

What the independent truckers are experiencing is a process called "creative destruction."  This process was first coined by the 20th century economist Joseph Schumpeter.  The process of creative destruction is one where entrepreneurs find better, faster, and cheaper ways of meeting customer needs and it can mean putting the old ways and old methods out of business.  In this case, the better, faster and cheaper method of moving freight is by companies that have integrated their logistics and hauling functions.  Companies like Yellow, Werner, and JB Hunt have gotten more efficient by being integrated and have capitalized on the benefits of economies of scale.  They buy more trucks which drives down the price for each truck.  This same purchasing power gets leveraged in tires, trailers, fuel, and lubricants.  As a result, their costs per mile are much cheaper than the independent trucker.  Plus the knowledge these integrated trucking companies gain by being in the logistics business enables them to capture a greater share of the freight hauling revenue stream and find ways to move freight even more efficiently.

While this sounds like there is a terrible future in store for the independent trucker, you are right.  The independent trucker will fall by the wayside much as the way the buggy maker in the early 1900s did when the car became the cheaper and more efficient way to get from point A to B.  As bad it is might sound, this is good for society on the whole.  It means cheaper goods for everyone outside the circle of independent trucking.  It also means resources are used more efficiently than before, including the labor of the independent trucker.  These truckers will have to find jobs (maybe with the big trucking firms) that use their capabilities to create more value than they can as independents.  Creative destructions can be brutal, but it is ultimately what makes us a more productive society.