Price Dynamics and Market Structure in Transportation: For-Hire Grain Trucking Along the Alberta- Saskatchewan Border

Inefficiencies in freight transportation can seriously affect industry competitiveness in today's globalized marketplace. Trucking is the most important freight mode when considering value transported, both worldwide and within North America. Canada, with its vast geography and dispersed population, is more economically dependent upon efficient transportation systems, including trucking, than many other industrialized nations. The trucking industry was first regulated in Canada in the 1940s as a result of political pressure to protect the rail industry from this relatively new form of competition. Changes in the political and regulatory atmosphere led to substantial deregulation of the Canadian trucking industry throughout the 1980s (Woudsma et al., 1996). In 2004, trucking represented just under one third of all transportation activity, employed 168,000 people, and contributed $14.8 billion to the economy (Statistics Canada, 2004). For this research, we will focus on an industry that relies heavily on trucking. Agriculture is particularly dependent on trucking with respect to grain movement across Western Canada. Today, virtually all prairie grain is hauled via truck from the farmgate to the elevator or processor before entering the domestic or export supply chain. There have been surprisingly few academic studies of markets and structure in Canadian trucking since deregulation. And in spite of what appears to be the general success of trucking deregulation in many industrial sectors, studies of the relationship between trucking and particular industries it serves in Canada are almost non-existent, including no prior research assessing whether or not the trucking industry serving the large Prairie grain handling sector is competitive. The issue is important because an uncompetitive trucking industry maintains high transportation costs for farmers and helps shrink profits in an already troubled Prairie agricultural sector. Our objective is to empirically assess market structure in the trucking sector serving a crucial part of the Prairie grain handling industry. To this end, a set of free-on-board grain trucking rate records for a canola processor located in Lloydminster, Alberta were assembled. The data in this set are a time series record of trucking rates charged to farmers for delivery to Lloydminster from the numerous origins (farms) in the region. To frame the unique aspects of this issue and the data, we begin by using geographic information systems (GIS) technology to develop freight rate contours for this trucking market through time and space. We speculate as to how these contours might look under different market structures, and then conduct an informal examination of the maps for indications of non-competitive pricing behaviour. Subsequently, we use a significant subset of the data to conduct a more formal econometric estimation of short-run freight rate dynamics in the medium-to-long haul for-hire grain trucking market in this region. We use the time series estimates to test for evidence of non-competitive transportation pricing. A final section concludes.