Freight Transportation has never been too popular with business students. For someone aiming at the top of American industry, the choice has usually been clear-cut: Go into manufacturing. To build a product and sell it often seemed more exciting than how to get it from place to place.
That may not be the case much longer. The changes steaming down on a once-routine freight transportation industry promise to make it a more stimulating, competitive, and lively business. By the end of this decade, it will be a business playing by different rules that include greater diversity, less energy, more mixing of the various kinds of transport, new equipment, and fewer -- or at least different -- government regulations.
"If you are the type who can overcome initial resistance and skepticcism," says David H. Maister, an assistant professor at the Harvard Business School, "the potential for success in transportation is gigantic."
Right now, one measure of success in freight transportation will be the ability of an executive to steer a freight company through a recession that has been much harder on the industry than on the economy as a whole.
For the railroads, the economic slump cut carloadings 9 percent in the second quarter of 1980 compared with the same period in 1979.
And in trucking the downturns in the automobile, steel, and related industries have cut common carrier business by almost one-third. And about one-fifth of the Teamsters Union's 300,000 drivers and warehouse workers have been laid off.
The industry is also trying to cope with diesel fuel costs that have doubled in a little over a year.
Finally, the truck deregulation bill signed by President Carter July 1 is already helping larger companies lure traffic from smaller ones, which cannot cut rates as drastically.
"It's certainly bad timing for deregulation," commented Lance M. Bronfman, vice-president and senior economist with A. Gary Shilling & Co., an economic consulting firm in New York. "It's coming out at the same time as a major recession in the trucking industry."
Ironically, the ultimate beneficiaries of deregulation -- the consumers -- may not gain as much as was thought when it was first proposed.
"Deregulation of the transportation industry has been on the agenda of every president since Eisenhower," Dr. Maister says. "It's a long, hoary old debate that's been around a long time. . . . But the benefit for consumers is close to naught." He estimates deregulation will save, at best, 0.25 percent on consumer prices.
Consumers might see some savings as large companies like General Motors and General Electric "Strikes some pretty juicy deals for hauling parts and finished goods" with railroads and bigger trucking companies, says John Pincavage, transportation analyst at Paine Webber, Mitchell & Huskins. These deals involve "contract rates" between a shipper and a carrier. They agree on amounts of freight and the equipment to move it in a specified time.The carriers can do more long-range planning for their equipment and the shipper usually gets a lower rate.
"But will the companies use that savings to increase profits and pay stockholders, or do they pass it on to their customers?" Mr. Pincavage asks. "We'll have to see."
While truckers and other freight managers deal with the recession and energy problems, they must prepare for the increased competition deregulation will bring.
The barge industry will be trying to figure out how it can bring antiquated and inadequate riverway locks up to date so that it can carry the freight it believes will be attracted by its lower costs and greater fuel efficiency.
In railroading, a wave of mergers would leave the nation with six large rail systems (including Conrail), competing in an environment where they have more freedom to set prices and provide faster, long-distance service. Those railroads not included in mergfers will be scrambling to win their share of traffic while examining the options of being included in any future mergers.
The Interstate Commerce Commission has indicated that it will take a more liberal attitude toward mergers. If it had not, Congress is on its way to doing so. A railroad deregulation bill on Capitol Hill would make it easier to set contract rates, abandon branch lines, lay neew track, and expand into new markets. While agreement on these and other points has come fairly easily, the bill was slowed in the House of Representatives this summer on a dispute over the level of rates subject to ICC approval.
Unlike deregulation of airlines and trucking, which is at least partly intended to lower rates, the goal of rail deregulation is to increase revenues and raise the capital needed for expansion, maintenance, and repair. The bill is the first major overhaul of railroad regulations since 1887.
Until now, government regulations over the railroads and other freight carriers have given transport executives a haven from an important competitive decision faced by their colleagues in other industries: setting prices. The rates they charged for their services were set in industry cartels and approved by the government regulators. No more.
"We're going to increase our reliance on the marketplace whereever possible," said ICC Commissioner Thomas A. Trantum.
While "the government is not sitting here with a grand design of what freight transport should look like ten years gets the trucks and railroads and water carriers working more closely together. It's in their economic interest."
There is ample evidence this is already happening. An increasing volume of freight is being moved by truck and train as a result of the growing use of "piggyback" service. The railroads carried over 3 million trailerloads of piggybacks last year and could carry as many as 12 million trailerloads by the end of the decade.
More trailers could be carried on the nationhs 25,000 miles of riverways, again providing that the locks and dams on those routes can be upgraded.
But by far the most dramatic shift in freight transportation this decade will be the reversal -- or at leas the slowing -- of the decades-old pattern of truck tranportation growing at the railroads' expense.
"The tides of history are forcing business back to rails and away from trucks ," Mr. Pincavage says.
In 1947 the railroads carried over 65 percent of the US freight, measured in billions of ton miles, according to the Transportation Association of America. In the same year, trucks carried just 10 percent of the freight.
By last year, the railhs share had fallen to 35.9 percent, while trucks were carrying 24.5 percent. Oil pipelines, Great Lakes shipping, rivers and canals, and air freight divided up the rest. The oil pipelines, in fact, carried almost as many tons as the trucks, moving 23.3 percent.
Measured in dollars, trucks have far surpassed the railroads. The nation's freight bill in 1978 came to $190.7 billion. Of this, trucks were responsible for $147.4 billion, while the railroads carried $21 billion worth of freight. The pipeline's share came to $5.4 billion.
But, Mr. Pincavage argues, the "shifting economics" of more businesses moving to the South and West where longer distances favor the railroads, the growth of Western coal production, and the increasing costs of energy will help bring out the advantages of steel-wheel-on-steel-rail transportation.
And deregulation, he believes, will free the railroads to set rates high enough to cover their costs and embark on long-deferred track and equipment maintenance programs. The Federal Railroad Administration estimated the railroad companies will need $42 billion for capital improvements by 1985.
The railroads would also like more freedom to abandon unprofitable branch lines, put some lines into "storage" until possible later use, and go ahed with some of the end-to-end mergers many railmen have long been anxious to complete. Mergers, rail executives claim, will also help them win business from trucks.
Many shippers also favor these mergers. "We think the rail mergers are very beneficial," said George F. Tidmarsh, senior vice-president for physical distribution at Sears Roebuck & co. "I very much believe the so-called end-to-end mergrs will result in more efficiency . . . as long as we make sure we're not undercutting the competitive environment."
The end-to-end mergers between two lines that connect at end points, would, among other things, permit the railroads to offer more through-train service of commodities without having them stop in large switching yards. One product to benefit from this is fresh food -- long the almost exclusive preserve of trucks.
The changes in the freight industry will also have an important impact on labor. By making it easier for new individuals or firms to enter the business, for instance, truck deregulation opens up wide opportunities for the nonunion side of this industry.
"It is not the end of the line for the Teamsters in trucking," Harvard's Dr. Maister says. "But it's going to be much harder for them." A primary reason for this, he adds, is the likelihood of slower growth in the less-than-truckload (LTL) end of the business. the bigger -- and often nonunion -- companies, with much more money to pay for the network of terminals needed for this business, will be able to win a growing share of the LTL traffic.
The drop in rates could also prompt manufacturers who have their own truck fleets to switch to private carriers, according to a study conducted by A. Gary Shilling for the ICC. Many of the carriers gaining from this may be nonunion.