Noël Perry | Transport Futures
Remember the Bad Old Days (the Yin)
Two announcements last week reminded us of the state of the industry just four years ago when a tidal wave of new safety regulations was rushing toward us. The Federal Motor Carrier Safety Administration (FMCSA) took another concrete step towards the Jan. 1, 2020 rollout of the Drug and Alcohol Data Base (DADB), and two U.S. senators introduced a bill to set a nationwide 65 mph speed limit for all heavy trucks. Both items were part of the 28 regulatory agendas that I have been following since 2011. Had the momentum, clearly established in 2012 continued, the 2018 ELD crisis would have been but one of an extended series of capacity shocks to the truckload market.
Even Regulatory Trends Can Change (the Yang)
We know now that a combination of regulatory bureaucracy delays and the dramatic change in executive branch policy has ushered in a new momentum, one with the opposite effect. The recent publishing of substantial relaxation of Hours of Service (HOS) regulation is but one example of the new trend. Perhaps it’s time then to step back and review the current regulatory climate with attention of the three items mentioned earlier. I’ll close with a forecast for the next several years.
Hours of Service and ELDs
In 2013, the FMCSA published the second installment of its tightening of HOS rules begun back in 2003. The installment included a major change to the 34-hour restart rule, the imposition of a 30-minute rest break in the 14-hour daily work limit, and the allowance of two hours of non-work time in the truck to count towards the mandatory 10-hour rest period per day. That publication represented the peak of the move toward tighter safety regulations. The peak soon passed when Congress suspended the most important change having to do with the 34-hour restart.
Since then, the FMCSA, encouraged by the Trump Administration since 2017, has progressively relaxed the HOS limitations, principally by adding more flexibility. That latest change proposes to relax limitations on split-sleeper rules and would allow 16-hour days under certain circumstances. The FMCSA is doing the same thing with the recent ELD requirements, principally through broadening the conditions under which an ELD is not required.
New Rules Will Help the Good Guys
In a trucking world of an infinite number of specific trip cycles, it is impossible to estimate precisely how these changes will affect trucking. We can, however, say two important things. The changes will improve productivity by some amount, perhaps, 1%. That, in turn, will ease pressure on capacity already softened well below the levels of but a year ago. Although these changes are applauded by most carriers, they do tend to lower rates. The second effect is more subtle and applies primarily to the good guys: drivers who operate within the boundaries of the law. As with auto drivers, good truckers will occasionally bend the rules to deal with special circumstances. Those circumstances include weather, traffic conditions, shortage of parking or tight delivery windows. For example in my work: a month ago, I extended a 14-hour workday to 15 hours to make it home to sleep in my own bed for a change. The recent changes will give drivers more flexibility in solving such problems without skirting the law.
New Rules Will Not Help the Bad Guys
Importantly, these changes will not help the big-time cheaters whose practices have been put at legal risk by ELDs. Running past the 14-hour duty and 11-hour driving limits are a good example. Prior to the ELD change, a client of mine running teams said that he was getting competition from solo drivers on the overnight L.A. to Denver run. At 15 hours of driving and 20+ hours of duty, there is no way a solo driver can legally make that run without a 10-hour rest break. Yet, solo drivers were competing on that lane, obviously extending their drive and duty times well past the law. We all know anecdotes of such practice. Obviously, the modest relaxation of regulation in the recent changes will not allow a driver to make that kind of timing.
Added Up, These Changes Don’t Mean Much Economically
But they will make a driver’s life easier. I say that, again, because the changes are small, and many drivers were bending the law slightly anyway, ELD or not. But there has been no change that would encourage the big extensions of duty time that used to be fairly frequent. That logic is why I think these changes are worth 1% or less in productivity.
Back to Yin? Slow All the Trucks Down?
Safety advocates and many large carriers have long argued for a nationwide 65 mph speed limit for trucks, with enforcement enhanced through an onboard speed limiting device. The issue appeared dead in the FMCSA due to resistance from carriers and problems with ensuring tamper-proof technology. With the advent of ELD’s, enforcement would become easier, or at least plaintiffs in accident cases would have an easy way to prove possible law violations. The issue is visible again through legislation proposed by two U.S. senators, but passage is unlikely in the near term. However, I mention this issue because its adoption would be a very big deal for two reasons.
First, anyone driving on limited-access highways today knows that the majority of big trucks travel at more than 65 mph with, by my estimation, a median speed of 69 mph, meaning that half of the trucks go that speed or faster. Since roughly half of all truck miles are covered at speeds of greater than 65 mph, a slowdown would have a strong negative productivity effect: about 3% minus any cheating. That would make it the biggest regulatory change since the 2003 HOS changes. Again, it is unlikely over the next several years, but it deserves watching because of its potentially big effect.
How About Truck-only Lanes?
The second objection to such a speed limit for truck has to do with highway capacity. Currently the median speed of cars on limited-access roads with 65 mph speed limits is about 71 mph. If all trucks were limited to 65 mph, on any heavily truck trafficked road, the cars would be constantly in the left-hand lane passing the trucks. That would frequently cause congestion problems in the limited-access lane. It would also limit left-hand land speed to the speed of the slower cars, cars that currently spend most of their time in the right-hand lane. Moreover, the trucks would not be traveling at exactly the same speed. Inevitably, the trucks going slightly faster would pull out to pass; now limiting the left-hand lane to 65 or 66 mph. While operations research tells us that all traffic moving at 65 mph would increase capacity on crowded roads, the same research tells us that major difference in speeds reduces capacity.
January Heralds a New Set of Regulatory Issues (Definite Yin)
There are two new items worthy of 2019 note. They will temporarily, at least, resume the addition of the restrictive regulation environment of the mid-teens. The first item is a new set of training regulations that would, for the first time, require a specific set of training experiences for anyone applying for or upgrading their CDL. The applicant would have to, before taking the CDL test, complete a prescribed program of theory and behind-the-wheel instruction provided by a school or other approved entity. This is not much different than what a person attending a private or carrier-sponsored driving school does now. The problem is that such schools currently have less than half the capacity required to produce the million or so new drivers the industry needs each year. Apparently, most truck drivers learn to handle a big rig like I learned to drive a car in 1964: driving around a parking lot with a family member. The new rule becomes effective, (unless delayed) Feb. 7, 2020; real soon!
Like the speed limiter proposal, this is a big deal that could, at maturity, cause a temporary 10% shortage in drivers. The market, of course, will adjust, but not without a rough spot sometime mid-2020. For the time being, the message is to treat your drivers very well because finding replacements for dropouts will be tough for much of 2020.
Ensuring Drug-free Operation Is About to Get a Lot Easier (More Yin)
As of Jan. 4, 2020, the national CDL Drug and Alcohol Clearing House (DACH) will open. That means the results of all trucking industry drug tests must be submitted to the DACH – AND – carriers will be able to query the database to see if a new hire has failed a drug test with some other agency or carrier. The point is to catch violators who fail a test, wait a week or so and apply with another carrier. Currently about 2 percent of truck driver drug tests are failures. The rate of drug and alcohol disqualification would undoubtedly be significantly higher if previous failures were in a public record, perhaps north of 5%. About 10% of all Americans use illegal drugs.
Unlike the training change, this threat to driver supply will roll in gradually because the data will cover 2020 and onward. Data on failures will collect slowly. The result will be a 1% or so drag on hiring as the data adds up and the applicants adjust.
It’s Recruiting, Stupid!
As with all such regulatory changes, the real issue is the addition of another pressure on driver recruiting. The industry will eventually adapt; it’s just the length and degree of the ‘eventually.’ Hiring is already a challenging task – as we found out in 2018. Every year, the recruiting job gets a little harder for lots of reasons, including regulation – AND – the pace of adjustment gets a little slower. That makes us vulnerable to upswings in driver demand, again, just like in 2018.
As with all such regulatory changes, the real issue is the addition of another pressure on driver recruiting. The industry will eventually adapt; it’s just the length and degree of the ‘eventually.’
Bottom Line on the State of Regulation in September 2019 (Yin or Yang?)
Through the end of 2017, the industry was forced to adjust to a series of increasingly strict safety (and emission) regulations. The effect was a series of capacity crises: 2004; 2013; 2018 when the regulations changed. Since then, the pendulum has swung back. Productivity and drive supply have improved. Sadly for the carriers, prices have fallen. But that’s the way markets work.
Watch out, though,
because, in early 2020, two very important changes will occur, both affecting
driver recruiting. They will create a two-or- three-year window of capacity
vulnerability before everyone adapts to the changes. After that, the next
significant milestone is the November 2020 election. It is well known that the
two parties have different views on regulation as we have seen since the change
in the presidency after the 2016 election. The point is that regulatory change
comes and goes as the yin and the yang of
Noël Perry is Principal with Transport Futures, located in Lebanon, PA. He can be reached at firstname.lastname@example.org.
Photo credit: Sebastian Duda/Shutterstock.com, iStock.com/Suppachok Nuthep