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Trucking Regulations: Caught in a web

Our top trucking correspondent examines the daunting regulatory hurdles facing trucking—and gives shippers a clearer picture of what they can expect in terms of rates and capacity based on the cumulative effects.

Ever since the Motor Carrier Act of 1935 gave the Interstate Commerce Commission (ICC) the power to economically regulate truckers, the trucking industry has been steeped in regulatory red tape.

The Motor Carrier Act of 1980 theoretically deregulated interstate trucking, helping to create today’s nimble and efficient industry. But that act only covered economic regulation—not safety, truck emissions, driver rules, background checks, and a host of other regulatory areas.

The ICC disappeared in 1995 after 108 years of tariffs and other paperwork burdens. So why is it that, even today, the hue and cry about burdensome regulations has never seemed louder?

Top carrier executives and industry leaders say that “wanton, excessive, impossible-to-comply-with” regulations are strangling industry initiative—on top of zapping profits. Shippers should be aware of this climate as well, carrier executives contend, because they will be the ones bearing the brunt of these extra costs.

“I hope we’re making these regulations based on sound data rather than on heightened emotion,” says Randy Mullett, vice president of government relations and public relations for Con-way Inc., parent of the nation’s second-largest less-than-truckload (LTL) carrier. “We tell the agencies it’s cumulative. These things affect us not just as operators, but they become hassle factors for drivers, and it discourages people from coming into our industry.”

Perhaps the trucking industry never was completely deregulated in the first place. Rules and regulations are as common in the industry as air brakes and Peterbilts. While carriers are now free to charge any rates they choose, truckers never really escaped the regulatory burdens of Washington’s infamous parade of regulators—and their reach is wider than ever.

“This industry has evolved from the days of economic regulation to what today could be considered social regulation,” says Dave Osiecki, executive vice president for advocacy for the American Trucking Associations (ATA).

By this he refers to rules that cover everything from the number of hours a truck driver must rest to the amount of pollution a Class 8 engine emits to tests for sleep apnea.

“It is absolutely a regulatory tsunami,” says U.S. Chamber of Commerce President Thomas Donohue, a former head of the ATA. “Nobody is against regulations that make sense, but some of this stuff is over the top.”

The result of some of these rules and regulations could produce what John Larkin, veteran trucking analyst with Stifel Inc., calls “the mother of all capacity shortages” coming perhaps as early as 2017.

“The laundry list of regulations coming down the pipeline is staggering, and will make life very challenging for small carriers that don’t have the compliance infrastructure in place to cope with the onslaught,” he says.

Others agree. Mike Regan, president of TranzAct and chairman of the advocacy committee for NASSTRAC, says that regulations are “zapping industry capacity and fueling the coming capacity crisis.”

Dr. Mary Holcomb, the Gerald T. Niedert Supply Chain Fellow and professor of supply chain management at University of Tennessee, says that improving safety and reducing pollution “are kind of like Mom and apple pie.” But she adds that the cumulative effect of rules covering hours of service (HOS), the Compliance, Safety, Accountability (CSA) initiative, the coming electronic logbook requirements, reducing pollution, and increasing fuel mileage may have reached a tipping point for some carriers.

“It’s hard to argue against policies and regulations that improve these things,” says Holcomb. “But in my opinion, policy makers didn’t totally account for the cumulative effect, given the other challenges that trucking companies are currently facing.” Specifically, she adds, these rules are exacerbating the current driver shortage, making equipment costs significantly more expensive, and increasing the financial risks that smaller, less well-capitalized fleets are facing.

“My understanding of the situation from a regulatory standpoint is that the small-to-medium trucking firms, and particularly owner-operators, will most likely flee the cumulative impact of regulation the most,” Holcomb predicts. “I think a big percentage of them will either leave the industry or go bankrupt.”

Over the next few pages we’ll closely examine the biggest regulatory hurdles facing trucking and where they stand in the Washington pipeline. We’ll then aim to give shippers a better idea of what they can expect in terms of rates and capacity based on the cumulative effect of the “regulatory tsunami” currently hitting the industry.

HOS: The uncertainty of it all
It seemed like such a worthy goal. The hours of service governing truck drivers had gone largely unchanged from 1935 until the late 1990s when a new agency within the Department of Transportation, the fledgling Federal Motor Carrier Safety Administration (FMCSA), decided it was time to modernize those rules.

Fatigue has been identified in playing a role in perhaps one-third of the roughly 4,000 or so truck-related fatalities on the highway every year. That is a disproportionate number, FMCSA officials say, because that’s about 10 percent of all highway-related deaths—yet heavy trucks make up only about 2 percent of all vehicles on the highway.

Nearly two decades and several lawsuits later, FMCSA is still trying to iron out the wrinkles in its HOS revisions. FMCSA spokesman Duane DeBruyne says the fact that safety advocates feel the revisions don’t go far enough, while the trucking industry says that they are too burdensome, is indicative that the agency probably got it just about right.

However, issues remain. Last December, at the request of the ATA and others, Sen. Susan Collins (R-Maine) inserted language that delays enforcement of the so-called 34-hour re-start provision and a requirement that drivers working overnight hours be required to take at least two 15-minute rest breaks.

Under current rules, truck drivers can work as many as 14 hours a day, including 11 hours of driving. If they average 70 hours in a week, they must rest 34 hours, including two consecutive nights from 1 a.m. to 5 a.m. That rule is temporarily suspended until FMCSA completes a comprehensive, real-world study of how this affects driver alertness. That study, currently being done on roughly 250 drivers, is supposed to be completed this fall by academics at Virginia Tech.

Truckers and drivers say that the mandatory breaks are unnecessary. Operators with millions of miles of safe driving say it’s overkill, adding that they know when they’re fatigued—and that the additional breaks cost them money.

Large truckload (TL) fleets say that the HOS revision costs them between 3 percent and 4 percent in lost productivity. That, in turn, causes them to hire more drivers and use more trucks. In an era of tightening restrictions on drivers and changing demographics in the industry, this latest HOS tweak has the potential to further squeeze productivity.

“My opinion is that HOS has the potential to create the most damage in terms of trucking productivity and business,” says UT’s Holcomb. If nothing else, the decades-long attempts of HOS revisions has caused much uncertainty among carriers and shippers, who now must carefully gauge every shipment to determine how much of a driver’s time it will take to complete routes.

“When you start to have regulation that creates a level of uncertainty in a business, that makes it very difficult to manage the business and invest in the business on a long-term basis,” adds TranzAct’s Regan. “And that’s what’s facing trucking.”

ELBs: Injecting veracity
However, not all the rules coming out of Washington are opposed by the large trucking companies. The rule mandating electronic log books (ELBs)—expected to take effect in 2017—is an example of a rule pushed by ATA that came to fruition despite its expected 5 percent to 8 percent effect on lost productivity.

The rule is the result of more than a decade of heavy lobbying by ATA in order to combat what it views as rampant cheating by owner-operators in recording the number of hours they drive. Currently, most drivers keep track of their hours in paper logs, which are often referred to as “comic books” by some drivers.

In fact, drivers have been known to keep two sets of books. The first, the most accurate one, is used to track their real hours and miles driven so they can get paid. The other, a bit more fictitious, is used when state police or other law enforcement pull a truck over and ask how long the driver has been working.

Requiring tamper-proof electronic logging devices to be installed on trucks in 2017 is expected to inject much-needed veracity into the system. Many large fleets, such as Werner Enterprises, the nation’s fifth-largest TL carrier, already use them. Werner implemented electronic logging in 2004, saying that it improves safety as well as creates back-office efficiencies for payroll and related record keeping.

“Making electronic log books mandatory is not a big issue in my opinion,” says Holcomb. “It’s the small-to-medium carriers that will feel the big pinch.”

Cumulative effect? Higher rates
The trucking industry, already strained by capacity limitations, might not be able to withstand these productivity hits if the economy were get into high gear. That should be the worry of shippers, according to advocates for the industry.

“If we get the economy growing at greater than 2.5 percent a year, that’s going to mean pricing going through the roof for shippers,” says NASSTRAC’s Regan.

Further down the road, the Obama administration has introduced the goal of increasing truck mileage to as high as 10 miles per gallon (mpg)—today the typical loaded 80,000-pound truck gets between 5 mpg and 6 mpg. In the meantime, there’s a proposal to further limit truck emissions while CSA is increasing pressure on carriers to jettison drivers who produce unsafe ratings by a methodology that ATA and many carriers say is flawed.

“I’m not willing to cry gloom and doom, but in the past there has always been enough growth to offset these constraints,” says Con-way’s Mullett. “Today everything is on the constraint side, not on the expansion side. The bottom line is it does impact our capacity and U.S. competitiveness.”

Some analysts say that carriers ought to concentrate on learning to live with the latest regulations instead of wasting time fighting them.

“I’m not in favor of government meddling in business, but I don’t want to fight it either,” says Satish Jindel, principal of SJ Consulting, a firm that advises trucking companies. “I’d rather put my energy into how to put those regulations to work to my advantage in my operations.”

Shippers, on the other hand, are powerless to control what additional regulations may cost their carriers—they just have to live with their effects and try to manage their shipments in the most efficient way possible.

“Many of the federally mandated changes, on the surface, make a great deal of sense and do indeed serve the public good,” says Jeff Brady, director of transportation and logistics for Harry and David, the specialty fruit retailer. “But we can’t have Washington continue to have these knee-jerk responses to this industry.”

Instead of more trucking regulations, Brady says that he would much rather see Washington tackle the long-term issue of deferred maintenance to the Interstate highway system. He calls the infrastructure challenges this country faces one of the major hurdles to the entire freight transportation system.

But instead of facing that problem, Washington appears focused on minutiae affecting trucking industry capacity. “This is foolish and narrow minded,” Brady adds. “This is not a sustainable course of action.”

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