COLUMBUS, Ind. – September trailer orders, totaling more than 58,000 units, were up 52% from August and 135% year-over-year, according to ACT Research’s State of the Industry: US Trailer Report.
“Following the strongest July and August net orders in industry history, September results were truly epic, posting more than 58,000 trailers,” said Frank Maly, director, commercial vehicle transportation analysis and research at ACT Research. “The strength of the early open of the 2019 orderboard continues to be felt and the pent-up fleet investment intentions were evident in September’s order pace. Our discussions indicate that order negotiations continue, so there may well be further strength remaining in this early-opening order season.”
In September, 30,000 trailers were shipped, setting a new all-time monthly shipment record.
September 21, 2018
FTR reported orders of 35,300 units, exceeding expectations at 27% higher than July and up 141% year-over-year. Fleets are placing 2019 orders a few months ahead of schedule, FTR reports, with large fleets ordering substantial numbers of dry and refrigerated van trailers to reserve production slots for net year. Parts and component availability remain tight.
“Orders should remain sturdy for the rest of the year, with continued steady freight growth and tight industry capacity,” said Don Ake, FTR vice-president of commercial vehicles. “There is strong demand for new trailers, and we expect this to continue well into 2019. It is a good sign that fleets expect a robust year in 2019 and are ordering trailers earlier than normal in anticipation.”
ACT Research announced preliminary orders of 38,200 units.
“Fleets continued to invest at a torrid pace in August, following a robust July,” said Frank Maly, ACT’s director of commercial vehicle transportation analysis and research. “Industry net orders of 38,200 trailers were up more than 30% from July and over 140% better than this time last year. The summer has shown amazing strength, reflecting commercial fleets’ positive outlook in response to solid freight rates, volumes, and capacity challenges. After seeing the strongest July volume in industry history, August followed suit, surpassing the previous record of August 1994 by more than 11,000 orders.”
Maly added, “Year-to-date net orders of more than 238,000 trailers are greater than 40% versus last year. Eight of the 10 trailer categories are in the black year-over-year, with seven of those posting double-digit or better gains. Year-to-date performance is led by reefers, with net orders up 110% versus last year.”
Joe DeLorenzo, director of the Office of Enforcemnt and Compliance for FMCSA, has the inevitable task of attending events such as the Great American Trucking Show last week in Dallas and standing in front of audiences to represent FMCSA’s viewpoint on regulations and enforcement. In the past year, most of the sessions have focused on the electronic logging device (ELD) rule.
While his sessions at GATS this year was not been met with as much anger and finger-pointing as previous sessions have been, it did come with several questions from attendees, even after DeLorenzo spent much of the 60-minute session on Friday going over the common questions and confusion the agency continues to hear from carriers, drivers and law enforcement nearly six months after the hard enforcement date of April 1 and almost 9 months after the first compliance date.
DeLorenzo started the presentation with the common exemptions from the ELD rule, as he noted that drivers continue to use ELDs when they don’t need to. “On at least a weekly basis, I talk to at least one driver or one company that is eligible for an ELD exemption and is not taking advantage of it,” he said.
Those exemptions include:
- Drivers not required to maintain a Record of Duty Status for more than 8 days in a 30-day period
- Drivers operating within 100-air-mile radius
- Drivers operating within a 150-air-mile radius for non-CDL freight drivers
- Drive-away, tow-away operations where the commodity being delivered is the vehicle itself
- On vehicles where the engine was manufactured before model-year 2000 or the vehicle was manufactured before model-year 2000.
“When we did the rule, we needed to have a cutoff at some point, where the technology [is more difficult to integrate] or the engine doesn’t have an ECM,” DeLorenzo said. “We chose 2000.”
There are additional exemptions, such as the ag exemption where drivers operating within 150 air miles of the source for ag commodities are exempt. Because hours-of-service rules don’t kick in until the driver leaves that 150-air mile radius, the ELD rule also doesn’t begin until then.
Once the exemptions were addressed, DeLorenzo moved to the top issue facing drivers and roadside inspectors: AOBRDs. Users of AOBRDs are exempt until Dec. 16, 2019, and therefore not subject to the ELD rules.
“The number-one point of confusion on roadside inspections is whether the driver has an AOBRD or ELD,” he said, noting that drivers sometimes don’t know which device they have installed. “The more you know, the easier the inspection goes. Knowing right off the bat whether you have an AOBRD or ELD will make that inspection go easier.”
Some devices can operate in either AOBRD or ELD mode, DeLorenzo said, but when in ELD mode, it is required to meet the specifications, and that includes the driver maintaining a copy of the instruction book and the data transfer sheet, as well as knowing how to transfer the data if requested by law enforcement.
DeLorenzo also touched on something that many drivers have forgotten about, he said, annotations.
“I think when we moved to ELDs, people forgot how to use annotations,” DeLorenzo said. “Annotations are available, so use them to explain away situations.”
The notations can be a great way to explain why the driver forgot to log into the ELD in the morning, or used the vehicle for personal conveyance, or went over driving time. They explain away “unaccounted for driving,” DeLorenzo said.
He also said fleets should remind drivers to log off and on to ELDs.
“You can save yourself a lot of aggravation … by making sure you log out at the end of the day and log in the next morning,” DeLorenzo said. “And that is why we have annotations to deal with unassigned miles.”
In the Q&A portion of the presentation, he touched on what to do if your ELD-exempt engine doesn’t include a model-year label, as required (“keep a copy of the paperwork FMCSA requires you have to have in the office in the truck”), the ag exemptions and personal conveyance.
On the ag exemption, which FMCSA has tried to clarify several times, DeLorenzo reiterated the 150-air-mile exemption for agricultural commodities moving from their “source.” A source can be the field or the grain elevator, he noted.
Even more confusing has been the personal conveyance rule that allows a driver to operate a commercial motor vehicle in an off-duty status if the reason for the operation is personal in nature. This can include going to get something to eat or shop, or to visit relatives. It doesn’t include, though, trips home after dropping off a load.
“The trip home is not personal conveyance,” DeLorenzo said. “You cannot [drop a load] and head home, that is a continuation of the trip.”
To clarify, he noted that FMCSA considers a load to be a round trip, either back to the original location or to the next location for pickup. A commenter asked why a driver going on vacation after dropping a load, or visiting a relative, can be considered to be personal conveyance but a driver returning home is not. “I can only tell you what the rule says,” DeLorenzo answered, with little agreement from the audience. “Going home is considered part of the return trip.”
While some in the audience didn’t seem satisfied with the official’s answers, the routine has become part of the continuing dialogue and ELD education of the industry that FMCSA, it appears, needs to continue.
First in a series of FreightWaves’ Market Update webinars highlights economic outlook, impact of ELD mandate, and areas of freight strength
While there is a lot of noise surrounding tariffs and potential trade wars, FreightWaves’ Chief Economist Ibrahiim Bayaan isn’t as concerned as some that the noise will result in action that could derail the economy.
“The size of these tariffs and the goods they are being placed on are really not big enough to derail the [overall economy]; they really impact specific industries but [won’t significantly hurt] the broader macro economy,” Bayaan said during the inaugural FreightWaves’ Market Update webinar on Thursday. “What you do worry about is how these tariffs spill over into the rest of the economy. Just thinking about how the growth of the economy is, much of it is driven by how consumers feel about the economy, how businesses feel about the economy.”
Consumer confidence remains strong, but Bayaan, who was joined on the webinar by FreightWaves CEO Craig Fuller, noted that if talk continues, business may start adjusting their plans, particularly as they relate to inventories.
“What you will find is that businesses will start to hedge their bets,” he said. “As long as the tariffs stay where they are now and don’t escalate, I think the overall macroeconomic impact will be small.”
If businesses get concerned, especially about tariffs on goods imported from China, they may adjust tactics. “Companies may start to build up their inventories just in case,” Bayaan said. “If you assume these products you import from China are going to have a 25% tariff on them, you might build up inventory so you have time to figure out where you are going to source them from [in the future].”
The webinar is part of a new monthly series from FreightWaves that will highlight market impacts. This month’s presentation, titled “Market Update: Is this the end of just the beginning? What the data is telling us about the freight market,” focused on data points and what that data is suggesting for the freight markets for the remainder of 2018. The answer: A lot of good for carriers, and not so much for shippers who will continue to be faced with higher prices.
All of the data used was pulled from FreightWaves’ own SONAR platform, which aggregates hundreds of data points into a single intuitive dashboard to help brokers, fleets and shippers better prepare for and navigate the freight markets.
Tariffs were a big topic, but not the only one. Bayaan highlighted many of the positive economic data points that suggest strong second quarter GDP when announced later this month.
“Right now, the economy is kind of firing on all cylinders heading into the third quarter,” he said.
“The second quarter is likely to be the strongest quarter of the year. The third quarter will still be strong, not as strong as the 4.2% GDP [growth] we expect in the second quarter, but still good.”
That strength, pending something unexpected, should continue. The outlook for 2019, though, will be start to “return to normal,” Bayaan noted, pointing out that 2018 has been helped by a number of tailwinds.
“Right now, the economy has a number of things helping it,” he said. “We are still kind of benefiting from the tax cuts and there were a couple of one-off [events] that helped trade [during the second quarter].”
Off of trade, another key topic was capacity. It should remain tight, Fuller added, following up on Bayaan’s answer to a question on whether more drivers were being added to the workforce.
“More drivers are being hired but not enough to ease the capacity crunch,” Bayaan said. “I suspect for the rest of this year we are going to be in this very tight capacity environment.”
That environment has continued to push rates up, with long-distance rates up 9% year-over-year, and forcing shippers to look at possible alternatives to moving freight.
“If you are noting high rates of price inflation in trucking, shippers are beginning to investigate whether they can move freight via other modes of transportation,” Bayaan said. “What this does is it starts to increase the demand for intermodal services and that is having a spillover effect on pricing.”
Intermodal pricing is up over 15% year-over-year, he noted.
The capacity crunch is being driven in part by the lack of drivers. Bayaan pointed out that the industry is now adding jobs at a higher rate than the overall economy, but it just isn’t enough. Finding drivers is also being impacted by the overall low unemployment rate, with many industries, including construction, manufacturing, and warehousing, having trouble finding workers.
Fuller said that warehousing employment “is on fire right now” with employment in that sector up 52% since the end of the Great Recession, according to SONAR data. By comparison, trucking employment is up 10% and retail 7% during that timeframe.
He attributes that warehouse growth to e-commerce as Amazon and other companies selling online have adjusted strategies to move facilities closer to end users and shorten delivery times.
“One of the questions we get often is whether the growth of Amazon is actually increasing or decreasing the amount of freight in the market,” Fuller said. “It actually increases the amount of freight in the system, not detract from it.”
Bayaan agreed, saying that e-commerce freight is adding “an additional leg of transportation because they have to move the goods” closer to the end consumer, and then to the final destination.
The strong labor market is one of the continued reasons for the overall economy growth, Bayaan said. With hiring still happening fast and unemployment, while up in June, remaining at 4%, it continues to provide financial might to consumer pocketbooks. Retail sales were up 6% year-over-year in May after taking an early dip in January/February. They have risen each month since February, and even February was up 4% year-over-year.
Even with all the economic growth, inventories have steadily risen, which is generally a negative for freight outlooks. But, in this case, Bayaan said that inventories have not risen out of line with sales. The inventory-to-sales ratio has been trending down and remains below what would be expected in a high-demand environment, at 1.35.
“The relationship between the two has actually been falling so what this is telling you is that the companies have very lean inventories and when you have lean inventories, that means they are turning over faster and faster and this puts [added] pressure on freight,” Bayaan noted. Strong demand across the board “creates a high demand environment for shipping in the U.S. market.”
Industrial production has recovered nicely from its dip in 2015-2016, Bayaan pointed out, due in part to a “resurgence in oil prices which has helped with drilling,” rising 3% year-over-year.
Fuller noted that each new oil rig added brings online about 1.1 million truck miles. “As oil goes up, to a point … it actually increases demand for trucking services,” he said.
Larger carriers are less affected by this as they pass “along fuel surcharges, so [it’s] the shippers that are picking up the bills.”
The oil and agricultural markets are driving strong freight market demand in the Missouri Valley and Southeast, right now, Fuller said.
While those markets are strong right now, the West Coast has cooled. That should change, according to SONAR data, which tracks container shipments out of China. Fuller explained that container volumes out of China typically are reflected in pricing and volumes on the West Coast about four to six weeks later.
“This week we saw a very violent move up which suggests shippers just don’t care [about higher container prices], they are going to move goods,” he said. “We expect in four to six weeks we will see high demand for trucking services heading into peak season.”
Container prices have spiked to $1,661 on the Freightos Baltic Index.
A few other data points the pair touched on included overall trade, which is up between 8% and 9% year over year, continued improvement in housing numbers, and firming in used truck pricing. With the backlog of new truck orders at eight to ten months right now, Fuller said his team is looking to the used market to see if there is spillover there.
“We’re starting to see a little bit of firming in used truck prices,” Fuller pointed out, noting that a 3-year-old used Class 8 tractor is now going for an average of $62,654. “That’s still below the 2015 numbers and we’re not seeing a large mass of independents adding trucks yet. They are adding trucks, but not at levels that [affect the overall capacity].”
Fuller also noted the impact the hard ELD enforcement date of April 1 has had on capacity. The result is that he doesn’t think it removed the capacity that people expected. What he said SONAR data is indicating is a new reality for carriers and shippers in the types of freight they choose and the rates at which they are willing to haul it which is leading to more drive time for drivers.
“The capacity constraint is less about how many miles the load is going and now how much time it will take,” he said, noting that data shows that beginning in March, the number of hours the average driver is driving starting going up. Prior to March, the average daily driving hours was 6.45 hours per day, according to SONAR data with top-performing drivers averaging 6.8 hours. Starting in March, that daily driving number started creeping up and is now at 7 hours of daily drive time.
By itself, the data may not indicate more effective use of driver time, but Fuller said that correlating the HOS data with FreightWaves’ Tender Reject data (the number of electronically transmitted loads not being accepted by a carrier) shows that carriers are being more selective about what freight they haul, particularly freight in the “tweener” lanes.
The Tweener Tender Reject Index (loads traveling 451 to 800 miles) shows rejections ranging from 27% to as high as 34%. That means that 34% of all loads in this range distance are not being accepted by carriers. What carriers are accepting are more local loads, with the Local Tender Reject Index (1-99 miles) sitting at just 8.5%.
“Now that ELDs [are in effect], it means drivers are much more sensitive to the types of loads they take,” Fuller said. “There is very little pricing pressure in the local, short-haul market and more pressure in [the tweener market]. Where you see high tender rejections, you will see that reflected in the pricing data.”
The impact of more selective freight choices is better driver utilization, as noted in the higher average drive times.
“As we moved into the April 1 hard mandate, we can see that drivers were starting to maximize their hours,” Fuller explained. “What that meant was drivers were being more selective about what freight they were picking.”
Concluding the inaugural webinar, neither man sees any near-time risks, short of an all-out trade war, upsetting the current market. Fuller further suggested that spot rates should remain stable for a bit short of some sort of shock to the system, such as the hurricanes from last year that jolted rates.
“If there is any kind of shock to the system, like we had with the hurricanes last year, that could send spots rates through the roof,” he said, while predicting continued capacity tightness, strong rates and continued economic growth.
Despite national unemployment rates sitting at an “18-year low of 3.8 percent,” the so-called driver squeeze continues to make headlines in 2018, marking it “a pretty rowdy year in wages,” according to Gordon Klemp, president of the National Transportation Institute (FreightWaves, The Washington Post, USA Today, and NPR). Some trucking companies are pushing back against the shortage with announcements of their own: pay increases for their drivers. Klemp calls the phenomenon a “perfect storm of shrinking capacity, growing demand, [and] shrinking experience.” The American Trucking Associations’ 2017 Driver Shortage Reportdescribes the industry’s effort to combat fluctuations in the market:
The natural market reaction to any shortage is that prices rise. In this case, price is driver wages, which are again increasing significantly. Most fleets instituted large pay increases in the summer of 2014 with many repeating the increases again in 2015. Even with the soft freight environment in 2016, many fleets increased pay rates last year as well. Today, sign-on bonuses are used throughout the industry as competition for drivers heats up. Expect driver pay to continue rising as long as the driver shortage continues. Good benefits are also part of a total compensation package in the industry.
As the report above addresses, each company has a different approach to distributing their benefits—some increase their mileage rates, others promise yearly bonuses or guaranteed weekly earnings. The way the companies distributed the information was as varied as the content itself. From pop-up windows to press releases, many of these announcements were front and center on company websites, grabbing the attention of potential new drivers and news agencies alike. May 2018 was a particularly busy month for industry increases, as both Schneider National and C.R. England announced investments in their driver pay rates, each taking effect by the end of the month.
Schneider circulated the news via a series of press releases. A flashy graphic (“Again? Yep.” superimposed on an image of a wallet stuffed with hundred dollar bills) sits in the corner of the article announcing that, as a result of weekly driver pay evaluations, “Schneider is proud to announce a second round of significant team and solo driver pay increases in 2018” right “on the heels of a February pay increase.” The aforementioned February increase boosted van truckload rates by up to $.04 per mile. Additionally, teams have the opportunity to start $.56 per mile, while OTR drivers can start at $.52 per mile, and regional drivers can earn $.50 per mile. Although “pay increase amounts will vary by experience level and geography,” “all Van Truckload drivers of all experience levels have seen one or more market-based mileage rate base pay increases in the last year!” May pay increases continued to rise, averaging $.01-$.02 per mile. Team drivers also saw an increase in base pay ($.56 per mile to $.57 per mile). In the last 20 months, Schneider reports that their rates “have increased by as much as $.10 per mile” in response to market conditions.
C.R. England’s May 25, 2018 press release is vague in its details, but introduces “multi-million dollar investment in our drivers” as a response to the “ever-changing and increasingly competitive marketplace” according to CEO Chad England. Chief Sales Officer Brandon Harrison reports that C.R. England’s drivers are “now among the highest paid in the industry” following an $11 million investment in line haul pay. Dependent on experience level and position, 60% of the driver force will enjoy pay increases anywhere from 5.3% to 25%. Evidently, they have the right idea: in an aggressive market, C.R. England is up over 200 drivers year over year, maintaining “first and foremost a competitive pay package” and adding guaranteed weekly pay, according to Harrison.
In April 2018, Groendyke Transportation announced their “largest driver pay increase in company history,” which went into effect this May. “The raise includes a mileage pay increase across the board of up to 6 cents per mile and an average hourly non-revenue rate increase of 9.4 percent for all drivers. In addition, Groendyke’s chemical drivers will receive a flat-rate increase that will bump their pay significantly.” Groendyke’s president, Greg Hodgen, notes that the organization aims to “have a sustainable pay model that proactively keeps its drivers’ pay competitive in the tank truck industry and in trucking overall.”
No matter the approach, pay has risen across the industry, as evidenced in the graph above provided by the National Transportation Institute. Derek Leathers, CEO of Werner Enterprises, as quoted in NPR’s January 2018 article, notes that “Pay in the industry’s come up considerably. Here at Werner our pay’s up 17 percent over the last couple of years,” while Chad Brueck, Vice President and General Manager for Pegasus Transportation calls it “the most competitive driver market I’ve seen in 15 years.” Schneider, in its January 2018 press release, acknowledges that their “Average solo Van Truckload Over-the-Road mileage rates have increased almost 15 percent in the last two years, with Regional and Team mileage rates close to 10 percent.”
While it’s difficult to make a definitive statement on how to best accommodate the driver squeeze, it’s clear to see that each company will be taking a different approach in keeping the industry aggressive and appealing to drivers.
Imagine the worst boss you’ve ever had looking over your shoulder all day and telling you what to do, and then once 14 hours have elapsed since you drove to work, you have to drop everything, stop work and take a 10-hour break regardless of the time of day. Oh…and by the way, you’re only getting paid for 80% of the hours you work because your company gives away 20% of your time to customers for free.
On top of that you can’t drive home and have to sleep in your vehicle in a parking lot where there are no rest facilities and cameras watching you to make sure you don’t take a bio-break (but your dog can if he/she has the urge). Sounds ludicrous – right? Well, that is something many commercial truck drivers have to live by every day with prescriptive regulations that dictate when they can and can’t work, and to verify compliance, they have to wear the equivalent of an ankle monitor to make sure they’re not trying to drive home even though home is only 30 minutes down the road. Truckers tell FreightWaves that the situation is akin to being under house arrest – or rather “truck arrest” – even when they haven’t done anything wrong.
That is the new reality that drivers face now as the FMCSA’s ELD Mandate is in full effect and the reason why the trucking industry is facing a flexibility crunch of unprecedented proportions. There has been much talk about a “capacity crunch” but the reality is there is a flexibility crunch that is contributing to both the driver turnover and driver shortage crisis. Most over-the-truckers only get paid for the miles they drive within an 11-hour window but generally don’t get paid for the 3 hours allowed for unloading, loading and fueling – a typical 24-hour workday is made up of 11 hours on-duty driving, 3 hours on-duty non-driving (loading, unloading, fueling etc.) and 10 hours off duty. The fact that most truckers’ workday is regulated at 14 hours is alarming, after all, that is 60% longer than the average American worker who works 8.8 hours per day.
On top of this, the long-haul trucking industry still vacillates about how to solve the driver turnover and alleged driver shortage problem yet wonders why drivers quit in great numbers around the 90-day mark after being sleep deprived day in and day out, forced to work long hours and not be paid for at least 20% of the work they do every day. Some of the smarter fleets have already figured this and switched to hourly pay or annual salaries as is the case in Europe.
The “flexibility crunch” arises in part because drivers no longer have the flexibility to go off-duty at docks because the ELD Mandate now requires drivers to record dock time as on-duty despite the fact most don’t get paid for it. Prior to the ELD Mandate, drivers would simply go off-duty, rest in their trucks and catch up on some sleep while their truck is being loaded or unloaded.
At the end of the workday, the flexibility that paper logs afforded drivers meant their hours always added up to 11, 3 and 10 – they would just put them together differently which helps dispel the other big industry myth about drivers cheating on their logs to run more miles and/or hours. Whilst that’s true for the 1% who bend the rules no matter what the industry, the reality is that drivers want the option to put their workday together based on how alert or tired they feel and how the freight is running on any given day of the week. This includes stopping for a nap when tired, without fear of running out of hours at the end of the day – as is the case now with the 14-hour rule enforced by ELD’s, or waiting for traffic to ease off before heading into a city to drop and hook the next load.
This “flexibility” has come at a cost because for far too long, motor carriers have absorbed the inefficiencies in the supply chain where trucks are held at docks for long periods of time generating little to no revenue. Now that we have the ELD mandate in place, every minute of every hour spent on a dock becomes quantifiable in terms of both the opportunity cost to drivers and carriers, but the actual cost of supply chain inefficiencies in rates shippers are charged to haul loads. The flexibility crunch is very real with some shippers seeking to lock in capacity by becoming a “Shipper of Choice” and work with carriers who are beginning to use objective ELD data to demonstrate opportunities for improvements (and establish more accurate rates in the process).
A driver’s weekly work time allotment is linear – the clock keeps ticking until you hit your maximum number of work hours then you stop. Unfortunately, the freight task isn’t linear and oscillates over the course of a week and year, driving the need for flexible regulations that are economically affordable.
At the heart of the flexibility crunch is the FMCSA’s desire to design regulations that cater for every possible scenario i.e. the lowest common denominator in the industry. The problem with this approach is that by default all of the good operators get treated as if they were the worst with no ability to differentiate themselves beyond regulatory exemptions to HOS (hours-of-services) regulations. Performance-Based Regulations (PBR) in countries like Australia have already demonstrated that if regulations are both flexible and economically affordable with financial incentives to comply, industry will not only comply in great numbers, it will lift the overall standard of the industry itself. The FMCSA needs to create an environment whereby good operators can benefit from their higher operating standards and receive regulatory benefits in the process such as multi-tiered HOS framework where the more flexibility required to haul freight, the higher the standards carriers have to meet.
For example, in exchange for exemptions from HOS rules, including the 10-hour continuous off-duty rest break period, split-sleeper and 14-hour rules, carriers would also have to meet higher operating standards ranked in order of priority. They include:
- A minimum of 6-hour continuous sleep every 24 hours at a time of the drivers own choosing
- 2 periods of consecutive night sleep every 7 days (no work between 10pm and 8am)
- Bio-compatible scheduling of drivers start and load appointment times (such that their work and rest hours align with their personal sleep preferences), and
- Sleep education classes for all employees.
PBRs are also a perfect blockchain application and using technology like Blockcerts developed by Learning Machines and MIT via the Universal Driver Passport, drivers and fleets can demonstrate their compliance and qualifications whether it be via roadside enforcement and mobile apps or in-office audits. PBRs are highly dependent on trust between all parties and with that being the foundation of blockchain technologies, Blockcerts would independently verify driver qualifications, compliance to regulations and higher voluntary standards at the click of a button.
The benefit for the FMCSA is that PBRs allow for better use of limited resources. Instead of trying to regulate every single motor carrier, most of whom don’t need to be regulated, those who choose not to voluntarily participate in PBRs and up their game, are by default outside the tent and the focus of targeted enforcement.
Regulation Sleep Instead of Hours Worked
If you were to throw away regulations that focus on hours worked in the vain hope that a driver will be well-rested for the next shift, and instead focused on regulating minimum sleep requirements, what you would end up with are well-rested drivers who run 10% more miles per tractor-week, 30% less likely to quit, have a 30% lower DOT Recordable accident rate and a 60% lower accident severity cost. After all, isn’t this the goal of the HOS regulations – to keep tired drivers off the road and make our roads safer?
On top of all of this, there are dozens of sleep personalities (morning larks, night owls, long and short nappers, no nappers, short sleepers, long sleeper plus many more) which all determine the best time of day to work and rest. Add to this the aging process where the amount of sleep not only declines as we age, but the quality of sleep diminishes also – by the time we hit 50 we’re getting 50% less deep sleep than we did when we were 20.
Take aging body clocks, sleep at different times of the day, sleep disorders, varying sleep personalities and then a one-size-fits-all HOS regulation and ELD Mandate on top, and you end up with a perfect storm resulting in high driver turnover, higher accident rates, low driver productivity levels and an inefficient supply chain.
All of this adds up to the flexibility crunch now facing the global supply chain – as it is that very flexibility that is required to drive supply chain efficiency and road safety, not prescriptive regulations enforced by the ELD Mandate.
This past week, I had the opportunity to visit the lovely state of California, with its thriving tech sector and massive ports that provide the front door to the American retail economy. In speaking with a number of people on the ground, I came away with an impression of a State that is more divided than ever, and if recent political decisions have any indication of what the future holds, this will only get worse.
What do I mean? The optimism and confidence of the venture capital community is remarkable. Firms that dot Silicon Valley believe their technology will make every part of humanity more rewarding and will improve the quality of life for all. Drive from the airport at SFO to downtown and you will pass hundreds of new buildings sporting companies with the obligatory, flashy “tech names.” The area is home to some of the smartest people on the planet that are thinking about every problem that plagues humanity. They are budding with excitement about the future.
But there’s another side of California. The left out part. The blue-collar sector that provides an enormous part of the State’s labor force and makes up two major industries–agriculture and logistics. As a freight publication, we spend our time at the ports and warehouses and not in the fields, but the issues that face transportation and logistics could very well transfer over to the agriculture sector.
The trucking industry is massive in California, employing over 870,170. This is slightly below the tech sector that employs 1,186,471 and far above the 374,000 that are employed in the movie and TV production industries.
The optimism of the folks in the freight sector is far from optimistic. Never mind that the economy is on fire and all sectors of the economy are performing better than they ever have post WW2. Executives and workers (employers and employees) face more and more government interference, taxes, and regulations. They feel strangled by the State, and while they may see less government intrusion at the Federal level, the State has doubled-down.
In the past few months California’s political regime has made a number of decisions which make the State a hostile work environment for carriers and logistics professionals. These include:
- Higher fuel taxes: California passed a $.20/gallon fuel tax on fuel purchases in the state. Politicians pitched as a “green” thing to do and a way of rewarding purchasers of fuel efficient vehicles. This means that for every mile carriers run in the state, they will pay the California treasury $.04/mile. No surprise that the a few sane minds in the State have decided the tax is way too punitive and regressive and have submitted a bill to repeal it.
- CARB citations of out of state freight brokers: The California Air Resources Board (CARB) recently cited two freight brokers for failing to ensure that the carriers they brokered loads to were compliant with CARB regulations. Neither broker was based in the state, but California demonstrated a willingness to go out of state to force their will on any company that touched freight traveling through their state. CARB said the fines weren’t “precedent setting,” but admitted this was the first time the laws had ever been enforced to out of state brokers.
- The Dynamex California Supreme Court ruling: This is pure madness. The State’s highest court ruled that if a company’s core business is related to the product offered through a contractor, those contractors must be classified as employees. While the details are murky, even by legal experts we’ve spoken with, the implications of such a ruling promises to bring lawyers out of the woodwork to sue every company that has independent contractors on staff to change their classification from contractor to employee. Not only does this have the potential of forcing companies to pay for overtime, benefits, and taxes, it also changes the way companies conduct business. One can extrapolate from this that an argument can now be made that every trucking company that has contractors signed up under their operating authority will be forced to either leave the State or convert these contractors to employees. Imagine the impact of freight brokers, agents, and carriers.
California is a state divided between the haves and the have-nots. The “haves” are the pioneers breaking new ground like the ‘49ers used to mine for gold. It’s still a land of opportunity and the Golden Gate Bridge still a symbol for a future filled with hope and grand aspirations. The “have nots” are on the front lines, keeping the mega-economy and population density rolling along in spite of wildfires, droughts, and the occasional earthquake. The question is: Will the powers-that-be feel the tremors in time to save the state from themselves?
Tweeners offer the biggest rate opportunity for carriers
Deregulation had a profound impact on the trucking market that resulted in massive upheaval for the incumbents. If you look at the top 100 trucking companies that existed before deregulation, only about 20% are still around. The rest went away because they couldn’t survive in a free and competitive market.
What we left was a path that would make Joseph Schumpeter proud: creative destruction at its finest. New players were born sporting new business models. The freight broker also became a factor in the market.
The most successful carriers in the LTL sector were non-unionized carriers that were able to optimize their networks and gain density in lanes to a point that they could offer scheduled services and time-definite services. This in turn allowed those carriers to gain network density and offer faster services as a result. Gone were the days of two-week coast-to-coast transit times: from West Coast to East Coast in just five days became the longest transit time most shippers would tolerate. Without the deregulated period’s raised expectations and improved service, Amazon would have never emerged.
A new breed of truckload carriers sprung about. Ditching the need to file tariffs with the ICC, they were able to haul for anyone they wanted at whatever price they could get from the market. The most profitable carriers from the mid 1980s to the early 2000s were the long-haul carriers that were able to haul long distances with expedited transit times. Their service times and utilization couldn’t be matched.
Solo transit times were acceptable, but the best margins were made on teams. In those days, team transit times were priced at the same level as solo transit because of the operational efficiencies that the carriers enjoyed. It’s hard to beat the profits of a truck that can get 6000 miles a week, even at solo rates.
Solos were also profitable. Long distances provided amazing utilization rates and yield optimization for the long-haul carriers.
But around 2005, something changed. The carriers that were in the long-haul sector ended up losing pricing power. The railroads had gotten their act together and started to provide expedited intermodal services that offered solo transit times at a price far below what a long-haul asset-based carrier could offer.
Carriers that had significant exposure to the long-haul market lost almost all pricing power on their solo lanes. They simply couldn’t compete with the intermodal players like Schneider, J.B. Hunt, Hub Group, and Pacer.
They were forced to move to shorter lengths of haul and play in the regional and tweener markets. Unfortunately, most of the long-haul carriers were ill-prepared to compete with the regional carriers that run tight and efficient freight networks (check out Knight Transport if you want to understand what a well-run regional carrier looks like). They ended up staking their claim to the tweener market, where they could keep their trucks running and put a lot of miles on their assets.
In 2003 and revised in late 2005, the government passed a new hours-of-service regulation that restricted how many hours a truck could run. This, in effect, forced the maximum legal amount of miles per day per truck to be around 500. The large carriers are heavily regulated and audited and can not run beyond their available hours, but the independents that were willing to work around the log rules were able to put around 700 miles a day.
This had an interesting outcome: the small operators, with less technology and network density, were able to thrive. Not only could they get more miles per day per truck, but they could also offer faster services than their larger competitors who were not willing to play so liberally with their log books. Brokers found a huge opportunity in this market. They were able to stake out a claim in the tweener market by functioning as a sales agent for the small carrier. Gone were the days of being a backhaul player: brokers went prime-time.
Companies like Transport America, Covenant Transport, CFI, and Celadon were the most profitable carriers in the 1990s, but found the new environment more hostile. They couldn’t compete against the intermodal players on the long haul part of the business, they were not operationally disciplined to be effective regional operators, and couldn’t enjoy pricing power in the tweener market.
A few years ago, Covenant realized how underpriced their team expedited transit services were and quickly fixed this. Companies like Amazon were willing to pay Covenant and carriers with teams high premiums to get expedited services. In turn, Covenant’s stock and profits accelerated. What was once viewed as a likely bankruptcy by Wall Street insiders became the hottest trucking stock in 2014.
The tweener market was still a crappy place to operate. While you could get more miles on a load than a regional carrier, you couldn’t get paid for the inefficiencies in this market. And you had almost no pricing power. But this all changes with ELDs.
If ELDs force hours-of-service compliance among small and independent carriers, the tweener freight will see the most upside in the freight market for the large enterprise fleets. Carriers will have the opportunity to properly price this freight. Shippers that treated 600-700 mile length of haul freight as a single day transit will also desire teams for these loads. That is a bullish thing for carriers that have a lot of them.
Data on producer prices shows continued signs of pressure for overall inflation in the economy as announced tariffs led to a jump in steel prices in March. Trucking prices leveled off in March but remain strong relative to this point last year, and other modes of freight such as intermodal are experiencing rapid gains
The Bureau of Labor Statistics reported that the producer price index (PPI) rose 0.3% in March from February’s levels and is now 3.0% higher than at this point last year. This beats consensus expectations of a 0.1% gain and marks the fastest pace of year-over-year wholesale inflation in over six years.
The recent announcement of tariffs on steel and aluminum imports appeared to have some effect in March, as prices on steel mill output rose nearly 2% during the month. This reinforces some of the responses from national and regional manufacturing surveys, who reported big gains in steel prices in the immediate aftermath of President Trump’s tariff proposal.
Trucking rates are elevated and intermodal is following suit
Details within the trucking industry showed some signs of calming in March after big monthly gains in January and February. The producer price index for general freight trucking services remained unchanged in March from February’s levels, with results in both truckload and LTL registering only small changes in March.
YEARLY INFLATION CLIMBED IN TRUCKING DESPITE MODEST MONTHLY RESULTS
Despite the tame monthly results in March, trucking inflation remains elevated in general in the economy. Year-over-year growth in long distance truckload prices pushed to a fresh six-year high of 6.8% in March. Yearly inflation in the LTL space also climbed during the month, remaining near 8% in March.
In addition, details from the PPI report suggest that other modes of transportation are also beginning to see rising rates. While inflation in rail freight overall has remained fairly tame, intermodal rail freight rates have climbed rapidly. PPI data for intermodal rail has surged over the past couple of months and climbed a whopping 4.5% in March from February’s levels. Intermodal prices are now over 13% higher than at this point last year, in a sign that some of the pricing pressure from the trucking industry might be spilling out into other modes of transportation.
Behind the Numbers:
The surprise in the headline PPI number falls in line with much of the other data from manufacturing in March that showed that tariffs were being felt throughout the sector. This impact may be short-lived however, as the jump in steel prices likely reflected the perceived impact of the steel tariffs upon announcement. The actual steel tariffs were far less impactful, with exemptions given out to most of the US’ major trade partners in steel and aluminum. Still, the data is insightful in that it helps illustrate how these types of tariffs filter into the domestic economy. With threats of many other tariffs on the horizon, these kinds of price jumps may become more common in targeted industries.
On the freight side, the calmness in the month-to-month changes in trucking prices is a sign of some normalcy after a very volatile winter. The industry remains under pressure from many sides however, and the high yearly inflation is unlikely to go anywhere any time soon. The macroeconomy overall looks like it took a bit of a breather during the 1st quarter, but demand is expected to be stronger for freight as the US economy looks to gain some momentum in the 2nd quarter and beyond. The spillovers into intermodal provide some additional evidence that shippers may be looking towards other modes wherever possible to deal with a capacity strapped trucking sector. The typically slower and cheaper intermodal may be an attractive option for some types of freight that would otherwise travel by long distance truck.
Late Thursday evening Texas Rep. (R) Brian Babin introduced a bill in the House that will change the hours of service regulations for American truckers. The bill is intended to modifiy the 14 hour rule and would allow drivers to enjoy a three-hour break without the time counting against the driver’s available hours.
The act, called “The Responsible and Effective Standards for Truckers (REST) Act” would require the Department of Transportation to update Hours of Service regulations to allow a rest break once per 14-hour duty period for up to 3 consecutive hours as long as the driver is off-duty, effectively pausing the 14-hour clock. However, drivers would still need to log ten consecutive hours off duty before the start of their next work shift. It would also eliminate the existing 30-minute rest break requirement.
While Rep. Babin has become a polarizing name in trucking circles with his fight over the ELD mandate, changing the hours of service rules would allow drivers to judge their own bodies and current conditions. It would also be an enormous victory for truckers. We also argue that it will make the industry safer.
FreightWaves’ own Chief Analytics Officer, Dean Croke (who ran data science at the largest ELD provider in North America) argued that the 14 hour rule should be scrapped all together. In his article, Why the 14-hour clock rule is the most dangerous of them all, Croke states that “the idea that by regulating hours worked we somehow magically ensure drivers are well-rested for the next shift is completely flawed.”
He describes that drivers need to have flexibility built into their available hours. Current regulations force drivers to compromise sleep schedules to maximize their earnings.
Drivers are paid on a per mile basis, but their capacity to earn is limited by how many hours they are able to drive. The more time drivers are delayed at docks, the less time they have to drive and earn. When shippers create delays, drivers end up pushing harder to make up for lost time.
Also (and perhaps less appreciated) is the impact of disrupted sleep caused by inconsistencies in the shipper community around loading/unloading schedules.
The politics of this debate will play out over coming months and there will be a lot of arguments here. As an organization that believes the answer lies in data and not in political expediency, we are of the opinion that the REST Act is one where data is on Babin’s side. We get millions of ELD data points daily, which we use to answer all sorts of questions around economics, capacity, pricing, driver behavior and safety. Based on our analysis, the drivers that experience the most volatile dock loading and unloading schedules are also the most prone to incidents or accidents.
Clearly, the irregular pattern at which shippers operate has an enormous impact on driver sleep schedule. Anyone that has traveled on a multi-city business trip with flight delays can relate to how exhausting this is.
In an ironic twist, ELDs that Rep. Babin fought so passionately against will end up proving that his proposed REST bill will make the industry safer. Overhauling the HOS rules and allowing for the driver to take a break without penalty will end up encouraging drivers that need a nap the opportunity to do so.
While ELD data can not prove Rep. Babin’s view that the ELD mandate is the “Dodd-Frank law of the trucking industry,” it can prove that driver fatigue without the opportunity for a break is a recipe for disaster.
As with any regulation change, carriers would want to ensure that this time is not given up to shippers for their own benefit. ELDs, combined with blockchain has the potential to prevent this from happening. ELDs record dock times and with blockchain carriers can find out what average wait times and schedule are at a given stop, prior to accepting a load. They can also hold shippers accountable for having inconsistencies either in the form of detention or refusing to accept their loads to begin with.
At Champion Shavings Corporation we believe that our customers should always come first. Our dedicated employees work hard to ensure that our customer’s needs are met and that their expectations are consistently surpassed. Whether you need help with a general inquiry, quoting, or ensuring a reliable and efficient delivery, our customer service simply cannot be beat.
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