No regulation, no innovation?

When a market gets stuck, key companies operate a cartel and environmental improvements grind to a halt, regulators need to act. It is a fine balance – you don’t want to overburden industry – but smart regulation can also be the catalysts industry needs to start innovating and competing.
That’s exactly what happened in the trucking sector. For nearly 20 years, there was little or no progress on an issue that is extremely important  for business but also for society: the fuel economy and CO2 performance of trucks. That leaves regulators with no other choice than to step in and unlock the situation.

One key area of discussion is whether market forces alone can deliver sufficient CO2 savings or whether additional regulatory intervention is needed. Truckmakers oppose regulation but the European Commission announced that it will introduce truck CO2 standards during this Commission.

To contribute to this debate T&E commissioned a market study surveying 180 SME hauliers in France, Germany, Poland, the UK and Spain. The survey results point to five key reasons why the market alone can’t do the job, and why fuel efficiency standards are needed to strengthen market forces.

1. Trucks aren’t becoming more fuel efficient and fuel saving options are expensive

Since the mid-1990s new truck fuel efficiency has barely improved. The difference in fuel economy between comparable new trucks is also relatively small (ca. 5%). This explains why only 3% of German and French hauliers have ever changed brands to get lower fuel consumption. The fuel saving options that are offered by truckmakers are often expensive and cost thousands of Euros.

2. Lack of competition and cartel behaviour by truck manufacturers

Europe’s truckmakers recently got a record settlement fine for colluding, between 1997 and 2011, by fixing prices and jointly agreeing the pace of introduction for emission reduction technologies. As a result, new truck fuel efficiency has barely improved.

Comparison in Europe of Hauliers changing brands for better fuel efficiency without currently a regulation in place

3. The structure of the haulage market

85% of haulage companies are small companies with one to 10 trucks. These SMEs have limited capacity to monitor, compare and improve fuel efficiency. The road freight sector is also a sector with very small margins and access to finance is a real problem. This discourages additional, ‘unnecessary’ or ‘risky’ investments, especially over longer periods and especially if these options are expensively priced and if fuel prices fluctuate.

4. Split incentives

The fragmented nature of the haulage market leads to split incentives. One example is the fact that trailers which are responsible for a large share of fuel consumption, are often towed and owned by different companies. Similarly, why would a trucker invest in fuel saving technology if the benefit goes to the big shipping company he works for?

5. Lack of credible information about fuel saving technologies

In its 2014 truck CO2 strategy the Commission identified a lack of independent fuel economy information as a key market barrier. However, the Commission’s own studies show truck buyers are well aware of the performance of new vehicles and technologies to reduce fuel burn. Where independent information would make the biggest difference is in certifying aftermarket or retrofit technology such as aerodynamic devices.

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The Truck Cartel