Load it Up: Economies of Scale, Market Power, and Natural Disasters in Ground Freight Transportation

This paper examines how sudden increases in marginal costs, triggered by natural disasters such as landslides, affect prices and market structure in freight transportation. Leveraging a comprehensive dataset of over 4 million truck movements in Colombia during 2019, combined with more than 1 million detailed route calculations, geolocated landslide occurrences, and weekly diesel prices at origin points, I use the external shock in a staggered difference-in-differences and instrumental variables approach to estimate effects of landslides disruptions on the ground freight transportation. Results reveal that landslides raise shipping prices by 2.9% and reduce total quantities shipped by 4.4%, while the number of trucks operating on affected routes falls by 12.1%. The exit of one additional truck is associated with a 10.9% increase in trip prices and a 14.6% rise in the price per kilogram transported. Economies of scale are shown to be critical, as small and medium trucks cut their presence on disrupted routes by 15%, whereas large fleets reduce theirs by only 6%, leading to a 0.34-ton increase in the average load per truck. Consequently, larger trucks see their market share grow by 1.3%, reflecting a tendency toward concentration and higher markups when marginal costs surge. These findings highlight the need to better understand context with high marginal cost since such environments can foster monopolistic outcomes in ground transportation due to the lack of capacity in the cargo