Expeditors anticipate growth when ELD mandate hits

Will trucking’s ‘ambulance service’ turn into a staple?

The looming ELD mandate that requires every commercial truck over 10,000 lbs to be equipped with an electronic logging device starting next month is one of the biggest trucking stories of 2017. There has been a huge range of reactions, from livestock shippers who say that the stricter hours-of-service will harm their animals to smaller owner-operators who are worried about how they will get their miles in. 

Expedited carriers, though, are looking forward to increased demand in the post-ELD world. The primary reason is the widespread expectation that overall trucking capacity will shrink by 6-7% percent as small carriers unable to comply with the ELD mandate leave the market. In the current trucking market, where capacity is tight, expeditors have already dealt with plenty of shippers who are willing to pay expedited rates for shipments that are not time sensitive, simply because they cannot find the capacity anywhere else. This trend will gradually gain momentum as more capacity leaves the market post-ELD.

I sat down with Bob Poulos, CEO of V3 Transportation, the 5th largest expedited fleet in the country, to hear what he and his team had to say about what the ELD mandate means for expedited shipping.

“It’s not going to be like the flip of a light switch,” Poulos told me. “[Growth in demand] will be gradual. It will take time for the federal dollars funding the enforcement of the mandate to trickle down to the states, and they all have different strategies. We expect many noncompliant carriers to slide under the radar for 6-7 months.”

But eventually the capacity crunch will come, and it will have several effects. Today, only about 80% of dry vans are completely full—we expect that as capacity supply shrinks, pressure to completely fill those trucks will increase, and smaller loads will continue to migrate to expeditors’ straight trucks, sprinter vans, and cargo vans. Poulos also looks for spot rates to go up 10-15 cents a mile in the near term, and he predicts that expeditors’ average length of haul will increase, as well.

“We think both supply and demand will migrate to under 10,000 lbs,” said Poulos. 

And therein lies a potential problem: as tractor-trailer capacity leaves the market, large expeditor fleets like V3 will see some competition from small, mom-and-pop expedited carriers who are setting up shop to avoid Department of Transportation regulations like the ELD mandate. Many of those small expedited carriers are under-insured or uninsured, especially the multicarriers whose trucks operate for multiple carriers. If capacity does migrate to the underinsured expedited sector, insurance companies’ exposure will go up, and they will raise rates. 

“Insurance costs will go up as much as 200 basis points, from about 3-4% of gross revenue to 6%,” said John Sliter, V3’s President. That increase portends a looming crisis in trucking insurance. Three or four of the biggest players in trucking insurance have recently left the market, and the remaining insurers are still struggling with huge jury verdicts awarded against carriers.

Poulos has some advice for shippers looking to expedite their freight: buyer beware. Shippers need to dig deep into the insurance certifications and auto schedules of the carriers they select, ensuring that they’ll be covered in the event of a costly accident. The largest, most sophisticated expeditors like V3 already employ best practices like team driving in straight trucks and Omnitrax ELDs on all vehicles, but expedited shipping is still considered the unregulated ‘Wild West’ of trucking for a reason, and shippers dipping their toes into the market will need to exercise caution. 

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