The creation of a single market in Europe, coupled with deregulation, has undoubtedly benefited road freight companies in France and Germany. While the productivity of US trucking companies stagnated during much of the 1990s, their French and German counterparts enjoyed growth of about 5 percent a year (Exhibit 1).

But looking down the road, the journey may become more difficult. Falling prices are keeping profit margins low, and Eastern European companies, with their lower-paid workers, eagerly await a chance to capture some of the market following the expected EU expansion in 2004. Customers today are generally more demanding. And after the acquisition spree of the late 1990s, many large French and German road freight companies remain barely more than loose-knit groups of independent distri-bution networks.

The spree had its roots earlier in the decade, when the European Union began relaxing and harmonizing the restrictions on truck capacity, abolishing mandatory prices for domestic and international freight, and liberalizing cross-border market access (Exhibit 2). At the same time, the establishment of the single market increased demand for cross-border transport, and customers began insisting on higher-value-added services such as faster shipments and time-definite deliveries. These developments intensified competition, and road freight companies...