34:3 - Hardman, Legal, Practical, and Economic Aspects of Third-Party Motor Carrier Service: An Overview

Introduction: Economic deregulation of the motor carrier industry in 1980 had many effects on the nature of the service performed, the number of carriers and equipment capacity flowing into the marketplace, and also in the growth and importance of third-party providers. Most new motor carriers were single-operator entities or those with limited fleets. Because new grants of Certificates of Public Convenience and Necessity or Permits allowed the carriage of general commodities, with limited exceptions, to points in the United States, carrier management in the new companies, as well as those who were attempting to expand their operations, frequently did not have the resources, such as time, money, or the ability to develop sales staffs to capture the type and volume of freight movements to produce profitable operations. Where trip leasing and interlining/interchange played a significant role in many carrier operations prior to deregulation, these alternative sources of business became less common as carriers could provide the service they either previously trip leased or interlined directly through themselves when authority became available.

Freight brokers fulfilled a role that many carriers needed and desired, i.e., to find freight from shippers throughout the United States and have it available when and where the carriers needed it. They substituted for carriers’ sales and marketing personnel. There were also advantages in dealing with brokers as opposed to trip leasing as it eliminated the need for equipment inspections, leases, and identifying the equipment required under trip leasing regulations and case law.

Shippers, rather than dealing with the multiple carriers now in the market-place, could outsource the costly functions of locating the carriers, investigating them, contracting with them, and otherwise dealing with them by merely working with a broker or minimal number of brokers. Similar advantages existed in terms of using freight forwarders. By assembling less-than-truckload [l-t-l] freight from multiple shippers, the shippers’ freight could be moved by the bulging truckload carrier population at lower costs than shipping on an l-t-l basis where fewer carriers competed and service was frequently higher priced because of union wages and work rules.

Other entities called logistics companies ultimately came into existence with the rise in intermodal services, “just-in-time” service, the demise of tariffs, and technology advances. Shippers were frequently short of individuals who were trained or able to adjust to the new environment or felt that outsourcing was a more reasonable and cost effective method to keep abreast of the change.In the current environment, these third-party intermediaries have established themselves as valuable contributors to the movements of freight and, while growth may not be as rapid as in the past twenty years, there is no reason to believe that they will not be a continuing force in transportation.

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