Perils of road freight market deregulation: cabotage in the European Union

• DOI: https://doi.org/10.1108/IJLM-12-2018-0321
• Pages: 333-355
• Date: 03 April 2020
• Published date: 03 April 2020
• Author: Henrik S. Sternberg,Erik Hofmann,Robert E. Overstreet
• Subject Matter: Logistics,Management science & operations

Perils of road freight market

deregulation: cabotage in the

European Union

Henrik S. Sternberg

Department of Supply Chain Management, Iowa State University, Ames, Iowa, USA

Erik Hofmann

Institute of Supply Chain Management, University of St. Gallen,

St. Gallen, Switzerland, and

Robert E. Overstreet

Department of Supply Chain Management, Iowa State University, Ames, Iowa, USA

Abstract

Purpose –The purpose of this paper is to examine the impacts of the ongoing freight market deregulation in

the European Union (EU). Specifically, this case study focuses on cabotage penetration rates in Germany, the

largest logistics market in Europe. In light of the upcoming trade barriers, we intend to move this topic forward

by emphasising its interdisciplinary nature.

Design/methodology/approach –Based on the analysis of Eurostat data, expert interviews and a review of

related literature, we elaborate and discuss four propositions related to the factors affecting cabotage

penetration, future cabotage levels and the effects on modal split and empty runs.

Findings –We found that cabotage in Germany plays a more important role than officially reported and has

increased drastically since 2008. Given our analysis, increased cabotage penetration seems to thwart efforts

within the EU to promote a modal shift from road to rail and increased national empty runs are the future

outcome of current regulations. In Germany, the cabotage share is likely to reach 16% in the next five years.

Research limitations/implications –This paper highlights the need for incorporating a more contextual

understanding in freight carrier selection theory development in general as well as country-specific

investigations in particular.

Practical implications –Logistics managers and policymakers looking at future strategies are advised to

take the ongoing deregulation trend into consideration. European freight movement using cabotage operators

may represent significant cost savings; however, these cost savings come at an environmental and social

sustainability price as the modal shift to rail and fill rates suffer.

Originality/value –This paper represents an empirical and unbiased point of view, in contrast to the reports

of the European Commission (pro-deregulation) or the reports of the haulage associations and labour unions

(anti-deregulation).

Keywords Cabotage, European freight market deregulation, Flagging out, Freight transport sustainability

Paper type Research paper

1. Introduction

Economists generally agree that the deregulation of a market, such as the road freight

transport market, leads to increased efficiency and lower prices for consumers (Ying and

Keeler, 1991;Vogelsang, 2002;Lafontaine and Valeri, 2009). Nevertheless, trucking

deregulation in both North America (Belzer, 2000;Belman and Monaco, 2001;Belman

et al., 2005) and Europe (Hilal, 2008;Kummer et al., 2014) have not been without negative

impacts. Investigations of the European Union (EU) deregulation found negative effects on (1)

social sustainability (e.g. adverse working conditions of foreign truck drivers) (Hilal, 2008;AK

Perils of road

freight market

deregulation

333

An early version of this research was presented at the 23rd International Symposium on Logistics (ISL

2018) in Bali, Indonesia.

This paper forms part of a special section “ISL 2018 23rd Symposium on Logistics”, guest edited by

Shams Rahman and Nyoman Pujawan.

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/0957-4093.htm

Received 22 December 2018

Revised 2 October 2019

25 February 2020

Accepted 27 February 2020

The International Journal of

Logistics Management

Vol. 31 No. 2, 2020

pp. 333-355

© Emerald Publishing Limited

0957-4093

DOI 10.1108/IJLM-12-2018-0321

EUROPA, 2014;Broughton et al., 2015;Mabasa, 2018) and (2) the environment (e.g. increased

emissions) (Hendrickx, 2013;Sternberg et al., 2015). Supply chain and sustainability

managers of well-known brands such as IKEA or BRING have been negatively affected by

bad publicity of adverse conditions among their freight service providers, as those have been

given attention in mainstream media (BBC, 2017;Mabasa, 2018). Understanding the

changing freight transport supply is important for logistics managers of international

networks (Olhager et al., 2015) as well as actors such as sustainability managers monitoring a

firm’s network (Marshall et al., 2016;Nakamba et al., 2017).

A focus of the European trucking deregulation has been the debate surrounding cabotage

[1], which is the transport of goods or passengers between two places in the same country by a

transport operator from another country. For years, the discourse about cabotage has been

one of the main concerns for logisticians (Mangan and Lalwani, 2016;Nakamba et al., 2017;

Paix~

ao Casaca and Lyridis, 2018), numerous logistics and trucking associations, as well as

unions who are working to influence cabotage regulation, monitoring and enforcement (e.g.

COWI, 2015;Kummer et al., 2017;Falk and Danielsson, 2018).

The EU road freight market has gradually been deregulated since 1994, when

transportation between the EU countries was deregulated. In 2006, the cabotage market

was opened up to certain member states and in 2009 and 2012 respectively, groupsof EU12

member states [2] were allowedfor the first time to conduct cabotage transportsin the EU. In

May 2010, European Commission (EC) No 1072/2009 marked an end to the country-specific

interpretationsby coordinatingall national cabotage rules. A crucialpoint was the replacement

of the previous directive formulation “temporary basis”with an exact time limit. From that

moment on, the “three-in-seven”rule was in place,i.e. every haulier is entitled to perform up to

three cabotageoperations within a seven-dayperiod, starting the day after the unloadingof the

international transport with which they entered the domesticmarket. The so-called cabotage

directive[3](Schmidt,2006,p.119;Falk and Danielsson,2018) has sparked much public debate

and the opinions on its current and future effects differ (e.g. Finger, 2014;Di Gianni, 2015;

Lewandowski, 2016;Refslund and Th€

ornquist, 2016;

Simurkov

a and Poliak, 2019).

The EC, for example, fosters further deregulation to reduce empty runs and to create a

single European transport market where any haulier, regardless of the EU member state of

origin, can perform transport operations across the EU (European Commission, 2013;

Teleroute, 2018). A further common argument in favour of deregulation is that it strengthens

competition and therefore reduces overall transport costs (Ying and Keeler, 1991;Visser and

Francke, 2010). However, hauliers in EU15 are against further market opening because of the

significant operations costs differences between EU12 and EU15 countries that have led to

wage pressure, flagging out [4] and the bankruptcy of hauliers within EU15 countries

(Kummer et al., 2014). According to Eurostat data from 2008 to 2018 for Code “H”

Transportation and Storage workers, Bulgarian, Czech and Polish drivers earn only a

fraction of what their German counterparts earn –16%, 40%, and 33% on average,

respectively (Eurostat, 2020a,2020b). Clearly, in spite of the intended positive effects of the

road freight market deregulation, negative accompaniments of the current form of European

freight market deregulation seem to be prevalent (Sternberg and Lantz, 2018).

In 2017, most of the goods in the EU28 were transported by road, 76.7% based on

tonne-kilometre (TKM). According to Gleave et al. (2013), four different types of

transportation exist: (1) national transport by domestic hauliers, i.e. national road

freight transport in France undertaken by French hauliers; (2) cabotage, e.g. national road

freight transport in France undertaken by an Italian haulier; (3) cross-trade, e.g. road freight

transport between Poland and Italy undertaken by a haulier registered in France; (4) bilateral

transport, e.g. road freight transport between Italy and France undertaken by a haulier

registered either in France or in Italy (see Figure 1). It should be noted that neither these four

categories nor Eurostat include transports carried out within Council Directive 92/106/EEC

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