Advanced truckload firms are achieving remarkable efficiency gains. These gains threaten to capture important blocks of railroad traffic. The advanced truckload firms are obtaining these results by applying new business strategies, such as the following, to truckload trucking:(a) carefully selecting markets and tailoring service to satisfy these markets,(b) increasing growth to enhance efficiency in the target markets,(c) emphasizing the close integration of operations and marketing, and (d) increasing the use of nonunion company drivers to ensure operational flexibility. The application of these business methods is resulting in the kind of success and growth that indicates rapid future transformation of the truckload sector. One measure of this success is the sharp cutting of almost every category of truck costs. The advanced truckload firms have used their cost advantages so far to expand rapidly, but their ability to continue to grow is finite. Still, large growth potential remains. In the immediate future, continuing growth by these firms will result in improved truckload sector productivity and a change in the sector's composition.

Advanced truckload firms (ATLFs) such as JB HW1t, PAM Transportation, MNX, MS Carriers, Builders' Transport, Werner Enterprises, and BN Transport are using a variety of new business methods (described in the following paragraphs) to enhance efficiency. Their success is encouraging the growth of existing ATLFs and their imitation by other firms. As a consequence, truckload (TL) sector productivity is growing rapidly. Three to four years ago typical TL costs equaled $1.20 to $1.30 per loaded mile. In mid-1986, the typical TL carrier long-run marginal costs were $1.03 per loaded mile as shown in Table 1.[These costs were evaluated using an ongoing survey, the National Motor Transport Data Base (NMTDB) as well as various trade publications and industry sources.] By mid-1986, the typical ATLF had long-run marginal costs of $0.90 per loaded mile, a 12.4 percent reduction (see Table 2). These cost reductions are independent of any future increases in truck size and weight limits. As TL rates fall, rail rates must decline to remain competitive and some rail traffic will be diverted to truck. When fully reflected in railroad rates and traffic, a 12.4 percent TL cost reduction will result in a short-run traffic loss of 14 to 16 billion ton-miles. The long-run traffic losses may exceed this first impact, with the eventual total traffic loss representing 36 to 40 billion ton-miles, or 4.5 to 5.0 percent of total railroad traffic. The Association of American Railroads'(AAR) Intermodal Competition Model (ICM) was used to predict the impact of TL industry-wide ATLF costs on the railroad industry. The