August 11, 2017
With the Dec. 18 deadline for mandatory electronic logging devices (ELDs) quickly approaching, there is concern that a majority of the 3.5 million affected trucks have yet to procure or install the required devices.
While most of the large truckload and less-than-truck fleets have been using these devices for years, shippers should be concerned that smaller fleets and owner-operators are behind the curve on this.
A new report says this delay in compliance is bound to cause a shakeup – and possible capacity crunch-- for the trucking industry and shippers in the coming months.
The mandate is expected to have a “serious, though not devastating effect” on long-distance trucking and shippers, according to a new report by IBISWorld, a Los Angeles-based global industry research firm.
Although many independent operators have threatened to strike or quit if the rule goes into effect, IBISWorld says it doesn’t expect such serious action to pan out, at least on a large scale. Large carriers rely on subcontracted sole proprietors to help move freight. So IBISWorld predicts if drivers quit and the driver shortage grows, trucking companies will start paying more for subcontractors, which will bring owner-operators back into the fray.
In the short term, IBISWorld expects that shipping prices will rise moderately, but much of this increase is not expected to occur until after peak shipping season (October through December).
“In the long-term though, shipping prices will revert to being primarily dictated by fuel costs, according to IBISWorld Procurement Research Analyst Ashley Cruz, who wrote the report.
However, the ELD mandate will help reduce overhead and depreciation costs for carriers, Cruz reports, tempering future price growth.
“The Federal Motor Carrier Safety Administration (FMCSA) insists that ELDs will save trucking companies a collective $1.6 billion per year by limiting paperwork costs and enhancing fuel efficiency,” Cruz told LM. “However, most carriers and independent operators claim that the mandate will increase their compliance costs. This will mean higher prices for businesses procuring trucking services.”
The FMCSA is moving toward the Dec. 18 implementation date in the face of two pieces of legislation now before Congress. On would delay implementation two years. The other would order the Department of Transportation to analyze whether a full or targeted delay in ELD implementation and enforcement would be appropriate.
It is certainly possible Transportation Secretary Elaine Chao could order a delay. Recently, the DOT squashed plans to require sleep apnea screening for truck drivers and train engineers. Those rules were promulgated under the Obama administration. The Trump administration has been cutting or eliminating many of those proposals when it can.
The ELD mandate was specifically exempt from an executive order for federal agencies to freeze new regulations. In June, the Supreme Court declined to hear OOIDA’s petition to strike down the mandate on privacy grounds.
On July 18, a new bill was introduced in the House of Representatives that would extend the deadline for compliance to 2019. However, the bill has not yet made it out of committee and is considered an unlikely path to success for opponents of the mandate, especially before the existing deadline in December. The bill to automatically delay the implementation two years that was introduced by Rep. Brian Babin, R-Texas, who says it has 38 co-sponsors.
Another impediment to full implementation is the fact that it is estimated 70 percent of the commercial motor vehicles that fall under the ELD rule are not equipped with ELDs yet, according to IBISWorld. The American Trucking Associations reports that there are 3.496 million Class 8 tractors on the road today.
In 2015, the FMCSA mandated that all commercial interstate vehicles install an electronic logging device to ensure compliance with hours-of-service laws. The idea was to fight fatigue caused by drivers who work excessively and evade HOS rules through the use of paper logs, often referred to as “comic books” by the drivers themselves.
The FMCSA insists that ELDs will save trucking companies a collective $1.6 billion per year by limiting paperwork costs and enhancing fuel efficiency. However, most carriers and independent operators claim that the mandate will increase their compliance costs.
For example, IBISWorld says ELD provider Omnitracs LLC estimates that new devices will cost carriers between $199 and $2,200 per truck, plus a monthly service fee of $20 to $60 per truck.
For a carrier with a fleet of 10,000 trucks, the service fee alone amounts to between $2.4 million and $7.2 million annually, not including the one-time costs associated with procuring and installing the ELD devices, which must be hard-wired into the trucks’ engines.
IBISWorld says owner-operators, which already generate razor-thin profit margins, “often do not have the capital to purchase a new device outright.” Many ELD providers are offering a financing program for their products, but owner-operators only require one ELD each, and thus “do not meet the quantity threshold” to be given financing options, the report said.
Moreover, owner-operators are often subcontracted by larger trucking companies, and they do not have enough pricing power to increase their rates to cover the higher costs. These drivers fear that electronic devices will allow their contracting companies to exert more pressure and take advantage of independent drivers. This dynamic will likely exacerbate tensions that already exist between these two groups over whether full-time owner-operators should receive employment status and benefits, IBISWorld concluded.
IBISWorld anticipates that the combination of higher costs and stricter oversight will cause some industry operators to exit the market. That would exacerbate the current driver shortage, and force larger carriers to boost driver wages and invest in additional hiring efforts.
Altogether, these trends will increase trucking companies’ operational costs, prompting them to pass these increases on to buyers in the form of higher prices. In fact, IBISWorld estimates that the price of national trucking services will rise 6.2% in 2017 alone. That figure is about twice as high as most Wall Street analysts estimate trucking costs will rise this year.