Porter's Five Forces In The Trucking Industry

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Another aspect of Porter’s Five Forces model is the threat of substitution, or how easy it would be for another company to take over the present business by innovating in some way. The threat of substitution is low but still present in the trucking industry. Due to the fact that a large majority of freight moved in the United States is moved by truck, it would be difficult to shift to a different mode of transportation. However, there are still other methods of travel that can be used, for example freight can be moved by airplane or by train within the United States. These alternative modes of transportation tend to be more expensive though, meaning it makes more sense for a company to simply purchase the services of a trucking company. In …show more content…

The threat of new entry can change in the trucking industry depending on the scale you want to implement on. Cross-country trucking, for example, would have a much higher entry cost than trucking within a couple of states, as for the former you would need many more trucks, drivers, and fuel, all of which cost money. While even a small number of trucks and drivers costs a large amount of money, this number is more palatable for many individuals, which leads them to start their own small scale trucking company. It is much easier to enter into the LTL trucking industry than it is to enter the TL trucking industry. For many companies that do both, their profit margins on LTL or VLTL tend to be higher than their profit margins for TL. This is due to the fact that all of the buyers are billed a surcharge, even though all of the collective freight will fit on one truck. For example, if a TL company bills a 20% surcharge on a $2000 job they would make $2400 total, while if a LTL company bills a 20% surcharge to five different companies with orders totaling $2200 they would make $2640. Even though it is more difficult logistically to combine five different orders onto one truck, if you can the profits increase. This idea makes it more alluring for individuals to start an LTL trucking company, and if they focus on small scale deliveries the price of trucks becomes reasonable enough that it makes sense for some

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