HOS driving trucking rate increases, carriers say

The pending changes in truck driver hours-of-service (HOS) regulations will help drive trucking rates up between 4 and 10 percent in the coming year, analysts and trucking executives predict.
 
John G. Larkin, the long-time respected transportation analyst for Stifel Nicolaus, Baltimore, says the truckload sector “appears to be right on the cusp of a capacity shortfall,” thanks in part to HOS changes coming on July 1.
 
Those changes, the fifth such tweak to HOS regs since 2003, will require drivers to take at least a 30-minute break within eight hours of coming on duty. It also limits the “34-hour restart” provision, unless that time off includes two such breaks between 1 a.m. and 5 a.m.
 
It may not sound like much and Washington bureaucrats within the Federal Motor Carrier Safety Administration say the change is both necessary and slight, but truckers and operations personnel working the day-to-day matrix of building full truckloads with sufficient numbers of drivers say the change is meaningful—and costly.
 
Todd Spencer, executive director of the Owner-Operator Independent Driver Association (OOIDA) said recently that HOS changes could cost the industry between 5 and 10 percent in lost productivity.  Schneider National, the nation’s second-largest TL carrier, is privately forecasting HOS will cost the company between 2 and 4 percent in productivity.
 
Truth is, nobody knows for certain until the impact of the July 1 HOS changes are fully digested by the carriers and shipper community.
 
The changes are coming despite a united front of opposition to the new regs. In a rare show of trucking unity, OOIDA joined forces with the likes of American Trucking Associations, NASSTRAC and the National Industrial Transportation League, among others, in opposing the rules.
 
The ATA recently lost a legal challenge as it sought to delay implementation of the new rules, which it estimated would cost the industry in excess of $350 million just in preparation compliance costs, such as reprogramming computers and load matching software in the industry.
 
“Some things will have to change,” said Mark Rourke, president of transportation services for Schneider National. “Depending on city pairs and destination, some freight will have no impact. There are a lot of different numbers. I would put this at between 2 and 4 percent rate increases. It’s still another rock in ruck set.
 
“It’s a big deal,’ Rourke concluded. “It changes our work configurations.”
 
Long-haul carriers with lengths of haul in excess of 1,000 miles will see more impact from the HOS changes than carriers with more regional freight in their accounts. Dedicated freight operations might suffer slightly more because they were designed with the idea of maximizing the drivers’ 11 hours of driving within a 15-hour work day. Effective July 1, that work day becomes effectively 14 and a-half hours—or less.

Some truckload executives say privately the loss of productivity will mean more than simply a half-hour lost in on duty time. The 30-minute breaks are a mandated minimum; it’s entirely possible some drivers may take longer breaks—costing carriers and shippers even more lost productivity.
 
Richard Mikes, managing general partner of Transport Capital Partners and former executive for Ruan Transport, a leading Iowa-based TL carrier, said recently there is no question “rate increases will accelerate,” at least partially because of the HOS changes.
 
“I look for a bump (in rates),” Mikes said recently. “If there’s going to be a pop in rates, it will come sooner rather than later.”
 
“The reason is tight capacity,” Mikes added. Whether the lost productivity costs is 2 or 4 percent, “That’s a big number when you in as close a balance as we are. In July and August when the normal seasonal pattern kicks up in during the third quarter, we’re going to have more than that normal bump-up.”
 
Mikes said other new regulations coming out of Washington—including FMCSA’s Compliance, Safety Accountability initiative—is causing carriers to pay more for drivers—if they can find them

“Drivers are scarce—independent contractors are scarcer,” Mikes said. “There’s no two ways around that.”
 
But Mikes says it’s more than a driver shortage. The trucking industry, he said, is short of mechanics, operations and front office people. HOS is just exacerbating the driver shortage.
   
When the rate increases start is anyone’s guess. Carriers had trouble with costs outstripping pricing last year. Analysts say if HOS affects the industry as they believe it will, costs will sharply rise for the second half of 2013.
 
FMCSA rule impacts are already noticeable with respect to shrinking the pool of acceptable quality, compliant drivers. The HOS rule changes may not have “teeth” until electronic onboard recorders (EOBRs) are mandated next year. That will make enforcement of HOS that much easier—and tough to cheat.
 
That in turn will affect capacity, which already is basically at full. “On any given day, it’s pretty close to equilibrium,” Scheider’s Rourke says.

Some TL executives say privately the loss of productivity will mean more than simply a half-hour lost in on duty time. The 30-minute breaks are a mandated minimum; it’s entirely possible some drivers may take longer breaks—costing carriers and shippers even more lost productivity.
 
Richard Mikes, managing general partner of Transport Capital Partners and former executive for Ruan Transport, a leading Iowa-based TL carrier, said recently there is no question “rate increases will accelerate,” at least partially because of the HOS changes.
 
“I look for a bump (in rates),” Mikes said recently. “If there’s going to be a pop in rates, it will come sooner rather than later.”
 
“The reason is tight capacity,” Mikes added. Whether the lost productivity costs is 2 or 4 percent, “That’s a big number when you in as close a balance as we are. In July and August when the normal seasonal pattern kicks up in during the third quarter, we’re going to have more than that normal bump-up.”
 
Mikes said other new regulations coming out of Washington—including FMCSA’s Compliance, Safety Accountability initiative—is causing carriers to pay more for drivers—if they can find them

“Drivers are scarce—independent contractors are scarcer,” Mikes said. “There’s no two ways around that.”
 
But Mikes says it’s more than a driver shortage. The trucking industry, he said, is short of mechanics, operations and front office people. HOS is just exacerbating the driver shortage.
   
When the rate increases start is anyone’s guess. Carriers had trouble with costs outstripping pricing last year. Analysts say if HOS affects the industry as they believe it will, then costs will sharply rise for the second half of 2013.
 
FMCSA rule impacts are already noticeable with respect to shrinking the pool of acceptable quality, compliant drivers. The HOS rule changes may not have “teeth” until electronic onboard recorders (EOBRs) are mandated next year. That will make enforcement of HOS that much easier—and tough to cheat.
 
That in turn will affect capacity, which already is basically at full. “On any given day, it’s pretty close to equilibrium,” Scheider’s Rourke says.
 
Rourke admitted because there have been so many changes to HOS in the past decade “there is some fatigue” on this issue. “A lot of shippers are saying, `I’ll just wait and see what happens and figure out from there.’ But all the carriers are assuming it’s going into effect (on July 1). We’re spending the money. We’re all there.”
 
Carrier officials say shippers have to be prepared to eliminate or reduce as much wasteful freight within a carriers’ network. Because time is literally money, few carriers will have the luxury of wasting time at a shippers’ dock once the new HOS regs come on line.
 
“Shippers are being very receptive,” Rourke said. “That’s because they’re finding if it’s wasteful, we’re not going to haul it. I can’t speak for community at large, but others would say the same thing. That mitigates driver availability.”
 
Shippers requiring more time to handle their freight ought to be prepared to may even higher than normal rate increases, carriers say. The market place will penalize those who don’t change, they say.
 
John White, executive vice president sales and marketing for U.S. Xpress, the nation’s fifth-largest TL carrier, said he was hoping the new HOS changes would be halted by either the courts or Congress. But he conceded recently, “It will probably go through.”
 
“We have some concerns about impact but it’s difficult to emphatically state what the overall impact will be,” White told LM. “We’ll be ready to go July 1. We’re running test fleets to see what impact will be. But there isn’t anyone who can say what certain activities will become more expensive after July 1.”
 
A good guess would be that multi-stop freight and that which requires drivers to unload the truck will see the biggest percentage rate increases after July 1.
 
“The biggest issue educating the customer and teaching them how to have empty trailer for us when we arrive,” he said. “Sometimes a trailer is not unloaded in timely fashion. So we have to leave that dock with no trailer. I can’t afford that activity any longer. We can’t afford that on July 2.
 
“Time becomes more critical because we have less of it,” White concluded.