For years, the global transportation sector has been synonymous with low returns. Even during the past decade of strong economic growth, the sector’s total return on assets hovered at just around 1 percentage point above its cost of capital (Exhibit 1), and many companies—including large, established names, such as the shipping company P&O Nedlloyd Container Line—failed to cover their capital costs. It is a malaise that seems to span the entire sector, from passenger railroads to container-shipping companies. Investors, not surprisingly, have voted with their money. In the United States, while the S&P 500 index rose by 17 percent annually from 1990 to 2000, the transportation index rose by just 8 percent a year.

One standard response to poor financial performance is consolidation, and the transportation sector has had its portion of that. In the 1990s, the combined market share of the top five companies in each of four subsectors—container shipping, parcel and express, airlines, and less-than-truckload transport—increased substantially.¹ Indeed, the economies of scale and tighter performance management that consolidation brings have improved productivity substantially in almost all subsectors.² But most benefits of these cost reductions have been passed on to customers, suppliers, or employees; almost none...