Silviase/jgov_v1.4_full_ann huggingface dataset:
created a new category of operation called the special consolidate operation. In this category, carriers operate systematic transport service, for example, a door-to-door trucking service that combines correction and delivery service, truck terminal and line haul transport et al. The special consolidate operations include almost all services that were classified into the former line-haul operation, and some scholars are criticizing the creation of this category as it reduces the effects of the regulatory change.

In sum, the trucking business in Japan underwent a regulatory reform that was accomplished by wholly new legislation. In Japan, there are not so many regulatory reforms that involve legislative change. We can place high value on this change. The reform was directed at introducing more competition, but this deregulation was not complete and the effects of new competition are not clear. We will try to assess these effects in the remainder of this paper.

### 4. Industrial Organization of the Trucking Market

#### 4.1. Market Structure

##### 4.1.1. Number and size of carriers

There are 42,308 motor-trucking companies in Japan. As we saw in Figure 3, the Motor-Trucking Business Law provides three categories of business: general motor-trucking business, contract trucking business and small vehicle freight transport business. Of these three business categories, small vehicle freight transport has different characteristics from other services; its role in freight transport market is not so large, so we will ignore it in this analysis. Figure 4 shows the structure of the other two business categories: general motor-truck business and contract trucking business. General motor-trucking business is divided into special consolidated trucks, hearses and others. Although hearses were a part of the aerial business under the old Road Transport Law, the regulator had dealt with it separately because of its specialty. In Figure 4, carriers other than special consolidated trucking and hearses are called aerial trucks. Under the Motor-Trucking Business Law, there is no category of aerial truck, but hereafter, we make use of this word out of convenience. $ ^{6} $

As shown in Figure 4, about 97 percent of total carriers are general motor-trucking carriers, which are the sum of the aerial, special consolidated and hearses, while contract carriers occupy only 3 percent. Of general motor-trucking carriers, the overwhelming majority (91 percent of the total), is former aerial carriers, and only 290 carriers (less than 1 percent) are categorized in the special consolidated carriers (former line-haul carriers).

Figure 5 shows a comparison of corporate size between special consolidated and aerial carriers. Special consolidated carriers are relatively large, while aerial carriers are small. About 94 percent of aerial carriers have capital stocks totaling less than 30 millions yen. On the other hand, more than half of special consolidated carriers have capital stocks more than 30 millions yen.
General standards in Japan provide that firms with capital stocks less than 100 millions yen are categorized as small and medium-sized business. $ ^{7} $ Following this standard, more than 99 percent of aerial carriers are small and medium-sized businesses, while among special consolidated carriers, about 80 percent of firms are regarded as belonging to this category.

##### 4.1.2. Cost structure

Since there are large numbers of carriers and they are very diversified, it is difficult to grasp the average cost structure of the trucking industry. Table 1 shows the cost structure of trucking carrier, which is the result of a survey of the Japan Council of Motor Transport. Following this survey, the unit cost (cost per vehicle kilometer) of special consolidated trucks is more than double that of aerial trucks. Although there seems to be no structural differences between the two services, we can say that the labor costs of the aerial trucks occupies much share of total than the special consolidated trucks. This follows the expectation that special consolidated operations are more capital intensive, because of their systematic operation.

We cannot obtain financial data by each category since the regulatory change were made. Table 2 shows that unit costs measured by yen per vehicle kilometer from fiscal year 1991 to 93. According to this table, unit costs increased year by year, so we cannot find clear evidence that the policy change made downward impact on the commercial trucking cost as a whole.

##### 4.1.3. Trend of demand

The trucking industry has developed its business steadily as a whole. This is a result of the growth of total freight transport with Gross Domestic Products growth and the decline of freight transport of railways. Figure 6 shows that while the rate of increase of total freight transported was less than that of real GDP growth, freights transported by commercial trucks grew much more rapidly than GDP.

The rapid increase of traffic volume by commercial motor carriers was the result of several factors. First, they deprived the railways of much freight. As noted in Section 2, railways lost their share dramatically from the late 1960s to early 70s. In Figure 6, we can confirm that the traffic volume of commercial trucks increased very quickly in this period. Note that commercial trucks' traffic volume decreased after that steep growth. The reason for this slight decline is the first oil crisis which occurred at the end of 1973. $ ^{8} $
fares, and the number of employees.

##### 4.2.1. Change in market structure

Figure 8 shows the change rates in numbers of trucking carriers. We cannot find explicit effects, negative or positive, of the change from the figure. Since the enactment of the new laws was in 1990, their effects might come in 91 and after, but, unfortunately, we can obtain only two samples from this period. Furthermore, it is often pointed out that structural changes within an industry take a long time. For example, in the United States, the airline industry was wholly deregulated in 1978, and its market structure has fluctuated every three or four years it has been never stable, even 17 years after the policy change. So it is not appropriate to measure the effects from too few data.

Nevertheless, there are some points to be noted in Figure 8. First, as for aerial carriers, their growth rate seems to have accelerated since 1991. Concretely, the number of carriers increased 986 in 1991 and 1,257 in 92. As we saw in Figure 4, aerial truck companies are overwhelming in the industry (about 91 percent), so the increase of companies in this category means expansion of the industry as a whole. Moreover, since the Japanese economy began to decline in 1991, aerial carriers' expansion occurred in spite of the economic downturn. $ ^{11} $ If we admit this, there is possibility that relaxation in regulation might have had some effects on the entry.

Second, on the other hand, the number of special consolidated trucks continued to decrease. Especially, in 1990 it substantially declined and continued to decrease in following years, although the declining rates diminished. As for substantial decline in 1990, there is a possibility that statistical error or rearrangement was responsible. Still it may be possible that relaxation of entry criteria might make the number of companies decrease. Where entries are strictly regulated, once companies exit during a recession, they will face a difficulty to enter the market again during a boom: they may well have incentive to remain there. $ ^{12} $ However, if they expect the entry criteria to be relaxed, they might go out with relative ease. It is not clear that this argument is suitable for special consolidated trucks, but we cannot deny its possibility. As mentioned in Section 3, there was a difference between aerial operations and long-haul operations in administrative treatment.

The second point mentioned above can be accounted for to some extent by the change in the trucking industry's structure by firm size. From Figure 9, we can see that the special consolidated carriers have been shifting to larger ones. Especially, in 1990, shares of relatively small carriers dropped distinctively. Thus, in that year, marginal carriers left the market, leading to a decline in the number of carriers in this category. In any case, it should be noted that, on average, special consolidated carriers tend to grow larger and larger, and that this tendency seems to have
been triggered by the regulatory policy change. On the other hand, as for aerial trucking companies, we cannot recognize clear tendency for them to grow larger (see Figure 10).

##### 4.2.2. Fare trends

The MoT periodically publishes standard fares for each category. According to the MoT's fare table, fares raised about 25 percent in nominal terms from 1980 to 90, and did not change in 91 and 92.

However, the MoT’s fare table stands only for the provisional level. Since in many cases fares are determined through the negotiation between carriers and consignors, it is very likely that fares are less than the standard or even the lower limit of approved tariff bands mentioned in Section 3. For those reasons, it is better to estimate fare trend by something other than this table.

Figure 9 shows the average fare trend, in which average fares are calculated by dividing the total revenue of the trucking industry as a whole by the total ton-kilometers carried. As are these several categories in the trucking business, this is not the best substitute for practical fares, but we cannot obtain detailed data.

From Figure 9, nominal average fares have a long term tendency to rise gradually, but increase rates from 1980 to 90 were less than the published fares (about 10 percent). Regarding real average fares, we may say that fares are rather stable. Unfortunately, in this case also we could not obtain enough data to evaluate the effects of regulatory change, yet it should be noticed that average fare rose sharply in 1991, notwithstanding the government's intention.

##### 4.2.3. Effects on employment and capital investment

In evaluating a deregulation policy or a pro-competitive industrial policy, it is a crucial question whether or not that policy enhances the employment. Because such policies are likely to cause lay off or cut salaries in a particular firm, workers should be compensated by the enlarged chance to be employed as a whole.

Unfortunately, we cannot also obtain enough data to judge whether or not the regulatory policy changes improved employment conditions. Figure 12 shows that, in the past, the number of employees grew as the industry expanded. Concerning recent years, the number expanded in 1990, the peak year of the latest economic boom, while it slightly decreased in 1991, just after the regulatory change, although the number of firms increased.

In Figure 13, recent trends in capital investments are depicted. Generally, capital investments are likely to be influenced by economic ups and downs, and the trucking industry is no exception. Due to slow business, capital investment of the industry is falling off.

#### 4.3. Effects on Social Welfare

In order to judge whether or not a new policy benefits the society from economic point of view, it is necessary to measure the effects brought about by the policy on social welfare. So many studies were made to evaluate the welfare change by deregulations in trucking industry and other
third of the economic rent resulting from the motor carrier regulation were belonged to workers in the trucking industry in United States. Kim [1989] found almost the same evidence in the Canadian case.

As for the economic effects of deregulation in the trucking industry, Winston, Corsi, Grimm and Evans $ [1990] $ estimated welfare gain from policy change as a part of surface freight deregulation. They adopted the counterfactual approach; they measured affected groups' economic welfare during 1977 when the deregulation had not come, predicted what their economic welfare would have been had deregulation occurred in that year, and then compared actual welfare with their hypothetical welfare. Especially, with regard to shippers' welfare, they calculated CVs gain under deregulation, which are the almost same concepts used in Morrison and Winston $ [1986] $ , and concluded that shippers could have obtained about 11 billion dollars (1977 price and 20 dollars in 1985 price), of which about 8 billion dollars had come from the trucking related deregulation.

Next we consider the Japanese case. Unfortunately, in this case again, there are not sufficient data, so we cannot estimate disaggregate demand functions and cost functions such as used in Winston and others' work. Here, we will try to calculate only aggregate hypothetical welfare gain of shippers (consumers' surplus) in case average fare would decrease certain percent.

We suppose aggregate demand function as follows,

$ TTKC = f(RAR, RGDP) $ ,

where,

TTKC: Total Ton-Kilometer Carried,

RAR: Real Average Rates, and

RGDP: Real Gross Domestic Products.

Total ton-kilometer carried data are obtained from the MoT [1995], and real average rates data are total revenue of the trucking industry per total ton-kilometer carried deflated by the consumer price index. Real Gross Domestic Products data are published by the Economic Planning Agency.

We specified the aggregate demand function as log-linear form and estimated it using time series data. Estimating demand function by time series data has some defects because the change in preferences over time might be included in the estimation, even though the income effect factor could be excluded by the real GDP variable. Our main purpose in this estimation, however, is to grasp the reaction of demand to price changes, that is to estimate the price elasticity of demand, so we used time series data. The result of the estimation by ordinary least squared method is as following,

$$ \begin{aligned}&Ln(TTKC)=-11.2315-0.18187Ln(RAR)+1.588103Ln(RGDP)\qquad\overline{R}^{2}=0.995867.\\ &\quad(-15.0558)\quad(-2.753)\quad(44.04908)\\ \end{aligned} $$

Needless to say, the price elasticity of demand is -0.18 which seems to be fairly inelastic.

If the competition in the trucking industry have had worked effectively and forced average price down, how much welfare gain shippers could have obtained? Generally speaking, perfectly competitive markets would lead their prices equal to marginal costs, and the trucking industry
might not have substantial economies of scale, so we can properly measure the welfare gain by comparing the actual welfare and hypothetical welfare which would be brought about in case that the price equal to marginal cost. As noted above, however, since there are not sufficient data to estimate the cost function which informs us the marginal cost level, we cannot take this approach. So here, we try to calculate hypothetical welfare changes, supposing that average fare would decrease several percent.

The results of the simulation are shown in Table 3. If the competition had decreased average fare by 3 percent in 1991, shippers could have had about 356 billion yen (1990 yen and 2.5 billion dollars by 1990's exchange rate). Needless to say, the hypothetical welfare gain increase as the average fare reduction grows. In the case of 5 percent and 10 percent average fare decrease, the welfare gains are 594 billion yen (4.1 billion dollars) and 1,194 billion yen (8.2 billion dollars) respectively.

In our calculation, the magnitude of welfare change depends mainly on the absolute value of price elasticity. As noted above, our demand function is very inelastic to price, and this is one reason why estimated hypothetical welfare gains are small compared with other studies. But it should be kept in mind that the price reduction caused by competition would have potential to improve the economic welfare, although the estimation made here gives us nothing more than a hypothetical value.

### 5. Door-to-door Trucking Service Market

In Japan, a door-to-door or home delivery service was introduced in 1976 by Yamato Transport Co. Ltd.. Until that time, trucking companies transported mainly industrial freight, and small parcels from the home were handled by the postal service of the Postal Bureau. A door-to-door service is very convenient to consumers, because Yamato created a system that collects parcels via a telephone call and delivers next day in principle. Yamato's new service became popular with consumers, and grew rapidly. Several companies entered into the market after Yamato's success.

Door-to-door service is a network business, so constructing a nation-wide network is an essential factor for steady growth and to compete with the Postal Bureau's parcel service. Yamato tried to extend its door-to-door service network quickly, but faced some obstacles. The main difficulty was that the MoT, the regulator of the trucking business, did not welcome this new service, mainly because the MoT thought the new service influenced other trucking companies' operation, although they did not handle much consumer service. In effect, the MoT was very slow in approving the first fare application by Yamato, and retarded Yamato's network expansion by prolonging the examination process of entry applications. Yamato coped with such hindrance by filing an administrative law suit.

In spite of such difficulty, door-to-door services grew rapidly through the 1980s. Figure 14 shows the change of numbers of parcels handled by door-to-door trucking services and the Postal Bureau's service. Door-to-door services surpassed the Bureau's service in 1982, and
continued to increase at a very fast pace. The average growth rate of that service between 1981 and 93 was 22.7 percent. During this period, fares increased only once in 1991, and the long term elasticity of the demand with real GDP was 3.55. $ ^{16} $

Note that since the mid-1980s the Postal Bureau also increased their traffic. The competition with door-to-door trucking services forced the Bureau to be more efficient (for example the Bureau shortened delivery time), and to introduce new services, although prices did not decrease. On the other hand, trucking companies developed new services such as refrigerated delivery service, in which parcels are kept refrigerated from origin to destination, and direct delivery service of perishable foods, in which agricultural producers can send products directly to end customers on their demand. By these delivery services, agricultural producers can develop their business without any distribution channel. Judging from these facts, we may say that there were huge potential demands for the parcel delivery service market, and that consumers gained great benefits from Yamato's innovation of operating system in trucking services and competition between trucking and postal services.

A door-to-door trucking service needs computerized systematic operation and many and large truck terminals for transshipment. With respect to demand side, the wider a company's network, the more attractive its services. So there is likely to exist economies of scale or economies of network in door-to-door services. Figure 15 shows changes of concentration in the door-to-door trucking service market. Market shares of both the top two and the top four are steadily growing, and in 1990, the top two companies' share together exceeded 70 percent. Some researchers express their concern about an oligopolistic market structure, but it is likely that the market performance will be kept at a relatively high level as long as the Postal Bureau's parcel service remains strong competitor to the trucking companies.

The regulatory changes in 1990 did not bring about any practical effect on the door-to-door trucking business. The new law relaxed entry requirements into aerial markets; this means that carriers are able to expand their service network more easily than before. However, major companies, especially the big four, established their nation-wide network by around 1990, so the relaxation of entry conditions seemed to have only marginal effects on them. Since the network size

$$ Ln(DTDS)=-39.0915+3.552635Ln(RGDP)\qquad\overline{R}^{2}=0.891609, $$
is expected to be a crucial element for consumers, the relaxation of entry was favorable to carriers other than the big four, but since these companies are operating in rather small niche markets, so the competitive impacts from these carriers to the big four were limited. $ ^{17} $

### 6. Effects and Consequences of the Policy Change

What was the major purpose of the regulatory reform in the Japanese trucking industry? It is worthwhile to notice that introducing or promoting competition in that industry was never the main aim of the reform. Generally speaking, relaxation of entry and pricing induces more competition into the industry, and drives down average prices. As a result, general economic welfare is improved by deregulation. In the case of the Japanese trucking industry, however, the regulators seem to have thought that there had been enough competition among the trucking carriers before the change, or they did not put much importance on market competition. And so, we can say that the main purpose of the statutory change was to confirm the market reality.

Since the Japanese trucking industry is very complicated and diverse, it is not easy to understand where the competition works and where it does not. It seems to be sure that its structure has been changing, especially as special consolidated business carriers tend to expand their corporate size. The regulatory changes promoted this movement. However, it is too early to evaluate the overall effects of the regulatory changes, for we cannot obtain sufficient post-change data. The door-to-door service, which was introduced at the end of the 1970s, is thought to be one example of entrepreneurs innovating service, even under regulatory constraints, and has brought about great benefits to consumers.
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