Flagging out As a Popular Strategy of Road Freight Transport Companies. Evidence of Three Consecutive Research Projects in Austria
M Dieplinger, E Fürst, S Lenzbauer, Vienna University of Economics and Business, AT
The flagging out of transport vehicles has become a popular strategy in the Austrian transport industry. The aim of the paper lies in describing and assessing the importance of flagging out and its impact on the Austrian economy.
The flagging out of transport vehicles, which means the licensing of national lorries abroad, has become a popular strategy in the Austrian transport industry following growing cost pressures over the past years. It has become attractive particularly for medium and large companies. Due to the recent changes in cabotage regulations by the European Union the trend seems to persist as the degree of competition in the transport industry remains relevant.
The aim of the paper lies in describing and assessing the importance of flagging out and its impact on the Austrian economy. It shall further contribute to a systematic and rational discussion of the topic. Several publications have shown the significance of the problem - however there is still no study which reviews the related development over an extended period of time and addresses the basic consideration leading to the implementation of these strategies.
Research Design and Methodology:
Flagging out can be reasonably performed by companies with a fleet of more than 20 tractive vehicles only. For smaller companies the related costs for founding and maintaining a subsidiary abroad would probably exceed the attainable cost savings. Therefore the survey was restricted to such companies of the Austrian carrying-trade: The relevant population of these companies in Austria covers a total of 76. A net sample of 25 companies actually participated at all three surveys (2003/2006/2009). Hence the research panel covers 34 percent of the population.
For the purpose of the evaluation of the above described problem a structured questionnaire was developed comprising 20 mostly closed questions including both questions of fact and opinion.
Several hypotheses and research questions have been raised; Moreover behavioral patterns and their respective changes over time have been investigated.
For instance it was assumed that the Austrian transport policy is unable to sustainably influence the cost structure of transport companies in a way, which would stop the process of flagging out vehicles, as cost savings were suggested to remain the predominant motive for flagging out. An indication could be an absolute decline of the stock of vehicles registered in Austria which consequently induces unemployment in the national transport industry. Furthermore the macroeconomic costs were discussed.
In fact data gives evidence that the attempts set by the Austrian government to reduce flagging out tendencies did not have any long-term effect. Therefore flagging out seems to be a dominant and sustainable cost saving strategy. The assumption that companies need to have a critical mass was confirmed as respondents considered flagging out as useful for fleets of 50 vehicles or more. The vehicle stock of lorries with a maximum permissible laden weight of 3.5 tonnes and above shows a permanent decline over the last years which is also reflected by increasing unemployment of drivers.
The most important explanatory variables in all three subsequent surveys are the direct and ancillary labor costs closely followed by the motor vehicle tax. Due to the ongoing integration of national transport markets and the development of a common market within the European Union attaining additional market power in a single country used as destination for flagging out did not remain a stable motive to have cars registered abroad. This finding is supported by the emerging trend to operate with local suppliers instead of mealy relying on ownership.
A way to reduce flagging out could be the reintroduction of subsides which were canceled some time ago. However this support should be restricted to environmental-friendly and save vehicles. Thus there would not only be a an incentive for investments strengthening economic prosperity but would also foster the modernization of the fleet. In addition, a reduction of the ancillary labor costs should be discussed. Eventually further to the fiscal and economical arguments a significant vehicle stock in Austria could be a factor to retain Austria?s attractiveness as a logistical location.
The study revealed that national transport policy basically is not capable of provoking substantial changes of flagging out tendencies. Against this background a standardized European Regulation of vehicle registration taxes could be a starting point, in order to prevent competition among member states.
Flagging out lorries still is a rather uncomplicated procedure in the European Union. Contrarily to the relocation of a manufacturing plants to countries with lower labor costs involving investments risks as well as and complex process reengineering, transport companies wanting to flag out a vehicle only have to register it in a different country, an easy task with substantial effects on transport markets and national economies.
Association for European Transport