Load It Up: Cost Shocks, Scale Economies, and Variety Loss in Freight Trucking

Sudden transportation disruptions often raise fears of sharp shipping price spikes and lost economic activity; yet policy responses are difficult to establish because the mechanisms of firms’ responses to these shocks are not well understood. This study examines how sudden increases in marginal costs, triggered by natural disasters such as landslides, affect freight transportation prices and market structure. Leveraging a comprehensive dataset of more than four million truck movements, over one million detailed route calculations, and geolocated records of landslides across Colombia in 2019, I treat landslides on key roads as exogenous shocks to marginal costs. The findings indicate that disruptions lead to a notable decline in the number of trucks operating (-21%) and a considerable rise in the price per unit of Kg transported (7.5%). Economies of scale are critical to understand the market response, as evidenced by an increase in the average load per truck and a shift in market share favoring larger vehicles. Price increases are driven primarily by a shift from “economy” services offered by small trucks to “premium” services offered by large trucks, rather than by opportunistic price manipulation. These results suggest that firms in high marginal cost markets continue operating mainly by maintaining positive profit gains through carrying larger loads under “premium” services and leveraging scale efficiencies. A structural consumer-welfare model indicates that 81 percent of the resulting consumer welfare loss comes from reduced variety (fewer low-cost options) and 19 percent from incumbent price increases linked to the cost shock.