Looming digital regulation has U.S. truck industry scrambling

Covenant Logistics

14/10/2016 13:00

By Nick Carey 
    GREEN BAY, Wisc., Oct. 14 (Reuters) - A new regulation that 
will force U.S. trucking companies to electronically log 
employee hours is designed to limit accidents by keeping tired 
drivers off the road. 
    It may also drive smaller trucking firms out of business. 
    A trucking industry survey earlier this year of mostly  
small operators found that 84 percent lacked electronic logs, 
according to load-matching firm truckstop.com. Paper logs allow 
transport companies already facing razor thin margins to fudge 
the books, boosting their hours on the road to help the bottom 
line.      
    But a mandated switch to a digital system by late December 
2017, regulators say, will boost safety by preventing exhausted 
truckers from driving. The Federal Motor Carrier Safety 
Administration (FMCSA) forecasts the regulation would save 26 
lives per year and prevent 562 injuries.  
    An FMCSA cost-benefit analysis found the new rule would cost 
truck firms $1.8 billion across the sector to implement, but 
fewer crashes and less paperwork would save $3 billion. 
    Industry experts argue that whatever those savings, the 
smaller firms and independent owner operators that are the 
backbone of a highly fragmented market will take a productivity 
hit, making it difficult to pay off their trucks that have  
doubled in price since 2000.  
    As a result, small to mid-size trucking outfits will need to 
find more drivers to haul the same amount of freight -- and seek 
other ways to cut costs -- in order to make it.    
    "Some of the smaller (trucking) companies are just not going 
to survive" the change to electronic logs, said Dan Clark, head 
of BMO Transportation Finance, North America's largest truck and 
trailer financing company. 
    The biggest truck firms back the rule and have used 
electronic logs for years. Large outfits like Schneider 
National, Swift Transportation Co  SWFT.N  and Covenant 
Transportation Group Inc  CVTI.O  all say the new logs reduce 
truckers' miles on the road.  
    Cutting down driver miles means higher spending for 
additional drivers to haul freight. That leads to higher prices 
for consumers unless the firms find ways to squeeze more 
productivity out of their trucks.  
    According to an FMCSA analysis, the rules will affect nearly 
3.4 million drivers. Larger firms with better economies of scale 
like Werner Enterprises Inc  WERN.O  have seen their 
productivity cut between 3 and 5 percent by electronic logs. 
Estimates vary up to 15 percent for how much productivity could 
fall at America's small trucking outfits. 
    Industry lobby group the American Trucking Associations 
(ATA) estimates the sector is short about 50,000 drivers. 
Electronic logging could leave the industry short 1 million 
drivers, according to industry tracker FTR Intel. 
    The pending change has U.S. railroads hoping to take market 
share from the sector. CSX Corp  CSX.O  Chief Executive Michael 
Ward said "won't impact the big truck firms because they follow 
the law today, but it will affect small firms." 
    "This will be a positive for us," Ward said. 
     
    "THE ONE THAT HAS THE TRUCK, WINS"     
    Though it does not kick in until the end of next year and is 
being challenged in court by an independent truck driver 
association for violating driver privacy, executives are already 
bracing for the new rule's impact. 
    "This will be the single biggest thing to hit our industry 
since deregulation," in 1980, which reduced government controls 
on trucking rates and routes, says Chris Lofgren, CEO of 
Schneider National, whose customers include Walmart Stores Inc 
 WMT.N  and Home Depot Inc  HD.N . 
    Schneider, the biggest private U.S. trucking company with 
annual revenue of around $4 billion, offers flexible schedules 
for drivers who want weekends at home, or longer routes with 
more money.  
    "I get the routes I want so I can eat up the miles," said 
Bob Wyatt, 68, a Schneider driver who has 4.9 million safe miles 
on the road.  
    Truck makers are racing to make automatic vehicles that are 
easier and more comfortable to drive to help with driver 
retention.  
    Denny Mooney, head of global product development at truck 
maker Navistar  NAV.N  said he has heard from customers that 
say, "'if our drivers don't want to drive your trucks, we won't 
buy your trucks.'" 
    Green Bay-based Schneider is also putting customers under 
more scrutiny. Last year, Schneider rolled out an app for 
drivers to rate customers, enabling Schneider to fix problems or 
drop accounts that consistently chew up driver time. 
    Rival J.B. Hunt Transport Services Inc  JBHT.O  is doing the 
same, after its own report last year found on a good day time 
wasted on picking up and dropping off loads can cost a trucker 
two hours out of a daily limit of 11 hours driving time, or 100 
miles on the road. Drivers get paid by the mile and log an 
average of 7,500 miles per month in 2015. 
    That focus on getting more efficient is one reason why Troy 
Clarke, CEO of truck maker Navistar, said he is not convinced 
electronic logging will lead to truck sale spike. Instead, he 
said, truckers "will address capacity problems through an 
increased focus on productivity." 
    Schneider is focused on building closer relationships with 
thousands of smaller carriers through its brokerage business to 
boost capacity.   
    The company expects more long-term contracts like one it has 
executed with Home Depot  HD.N . Traditionally, pricing power 
seesaws between customers and truckers depending on the economy. 
Schneider's deal with Home Depot keeps rates per mile more 
steady, and guarantees the home improvement chain access to 
trucking capacity. 
    "We believe capacity is going to get tighter and tighter," 
said Erin Van Zeeland, vice president of transportation 
management at Schneider. "We believe the one that has the truck, 
wins." 
 
 (Editing by Joseph White and Edward Tobin) 
 ((Joe.White@thomsonreuters.com;)) 
 
Keywords: USA TRANSPORTATION/TRUCKERS