Driver-Owner Vs Co-Ownership of Trucks : Role of technology

Truck ownership from driver-owner to co-ownership of trucks is changing the dynamics of power in negotiations; we will examine this with the help of a brilliant paper by two renowned Economists, George P. Baker and Thomas N. Hubbard.

The ownership of asset question is solved by answering the two questions:

- What bargaining power holds in the contracts?

- What are the best trade-offs?

This paper examined by two economists have solved the ownership question for Trucks.

The driver owner will take enormous care of the truck as it is his prized asset that is depreciating fast and runs a high fixed cost which can only be recovered if operated for more hours. But there are trade- offs involved as driving the vehicle with loads for more hours falls in the contracting environment and the dispatcher who is concerned with only his limited outbound movement would not care for the return loads, which the trucker could be interested in.

When the truck is driven at moderate speeds on long hauls the wear & tear would be less, but that would leave the driver too much at the wheels with less time to rest; left to the driver he would do the opposite thus getting more time for rest. The driver-owner would not do that.

Typically the pre-computer-digital environment solved this by driver-owners opting for long hauls, while short hauls could be left to the pool of trucks owned by trucking companies. But it left the rent seeking behavior of the drivers still at large, thus destroying value.

The introduction of GPS and vehicle tracking and with advent of digital, this problem is solved as possibilities of return loads can be obtained from the application based systems which can capture this information when more demands can be attracted into the network which incentivizes truckers to enroll.

The owner-driver loses his bargaining power as trucking companies who have enrolled themselves into this arrangement of networks have higher bargaining power in their disposal. The rent seeking environment changes for the better.

But more importantly far better economies can be achieved with in-vehicle monitoring systems where fuel economies are found to be better than driver-owned vehicles which do not use such systems. This involves data on acceleration, deceleration, number of breaks applied, number of stops, etc. So trucking company drivers will do better being under the scope of vehicle tracking and monitoring programs.

The contracting environment is very challenging and is always sub-optimal; only just before the haulage program is ready the trucker will be informed as "utilizing capacity efficiently generally implies deferring assignment-setting as much as possible".

The back haul is another area of concern as owner-driver may not be ready to accept back-hauls whereas trucking companies could induce drivers to accept back hauls. When trucking companies do not own trucks and have to depend on two different agencies for such decisions, like driver plus owner, we have a difficult problem in contracting; owner would not agree to a difficult terrain whereas the driver could have strong incentives for choosing one destination over the other. If the owner makes the costly attempt to search for back hauls he could be in a better bargaining position.

This is where the optimal solution in contracting can only be achieved through technology, where all three agencies come on the same platform and the bargaining power shifts.

Where service requirements call for much higher level of attention, like sorting, timeliness of deliveries or faster deliveries, the driver-owner will lose out on the bargaining power as well as the trade-offs involved; cost in such situations could be secondary considerations where service factors increase.

The risk-reward trade offs for the owner-driver is dramatically shifting with the advent of the digital. Large trucking companies and platform providers would hold the advantage over individual owner-drivers if they can utilize the platforms that offer information on back hauls by investing in the network and simultaneously being flexible in the contracting with drivers and truck owners in the case of trucks indented from actual owners.

The trucking community of individual driver-owners without the aid of technology can only survive on rent seeking behavior that is facilitated by unionization and cartels.

Economic theory predicts that such rent seeking behaviors raise the costs to such levels that finally value is restored through self-destruction. But today technology is aiding this process.