Rate regulation and economic efficiency in rural road goods transport

Abstract

The justification for the setting of rate maximums and minimums by the New Zealand Ministry of Transport for the rural road goods transport industry is reviewed in the light of the continuing need for greater efficiency in the farm servicing industries. Doubts are raised as to the validity of the original justifications in today's context. Because the rural road goods transport industry provides an unscheduled service, rate setting by Government is not clearly consistent with economic efficiency. The forces of price competition are not acting to reduce prices. Rather, farmers are paying for the luxury of service competition with rates being fixed by a third party, within a narrow range and on a cost plus criterion. It is suggested that minimum rate controls should be removed, that rates charged should more closely reflect cost differences and that controls over entry to the industry should be relaxed.