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ELDs expected to take a bite out of productivity, push rates higher

  The Teletrac Navman in-cab DRIVE suite comes pre-installed on an easy-to-use, 6-in. tablet powering driver communications, compliance, and safety workflow. ( Photo: Teletrac Navman )
The Teletrac Navman in-cab DRIVE suite comes pre-installed on an easy-to-use, 6-in. tablet powering driver communications, compliance, and safety workflow. ( Photo: Teletrac Navman )

As the Federal Motor Carrier Administration’s (FMCSA) electronic logging devices (ELDs) regulation goes into effect later this year, many in the trucking industry are feeling increased angst as the prediction of higher freight volumes and lower productivity may drive rates higher and drivers away.

The rule itself is scheduled to be implemented in December, but it’s impact has been widely discussed – and depending on which side of the argument you are on, debated. Will it give larger carriers an advantage? Will it force smaller carriers out of business? And what of rates, capacity and productivity?

What is the actual rule?

The ELD rule is set to be fully implemented on Dec. 16, 2017. Essentially, the regulation states that any driver currently using a paper log must install an ELD. Fleets using AOBRD devices must be using certified, registered ELDs by December 2019.

More specifically, drivers must use an ELD if the carrier operates across state lines and for any driver who maintains eight or more days’ worth of duty status logs, out of 30 days. There are a few exemptions as well. FMCSA estimates this affects approximately 3.1 million commercial motor vehicles and 3.4 million drivers.

What does this mean for the industry?

Like many regulations, the real answers lie somewhere in the middle. It’s just finding that middle.

For starters, according to Noel Perry, Trucking and Transportation Expert with FTR Intel, the industry may see a significant shortage of drivers.

“The mandate, if executed in December and reasonably enforced, I suspect it will be about a 4% average effect (on productivity),” Perry tells FreightWaves. “But that’s still [a need to hire] 100,000 more drivers a quarter in an industry that hires 250,000 drivers per quarter. That’s a 30-40% increase in driver requirements per quarter if the worst happens.”

And that’s just to maintain current freight levels, Perry maintains.

That’s still [a need to hire] 100,000 more drivers a quarter in an industry that hires 250,000 drivers per quarter. That’s a 30-40% increase in driver requirements per quarter if the worst happens.

— Noel Perry, Trucking and Transportation Expert, FTR Intel

“The potential is for a market upset that will cause people to do things they haven’t done before,” Perry adds. “For instance, what happens if Target, because drivers don’t have enough hours left to make deliveries, doesn’t have product on its shelves and Walmart does? Is that worth more than a 5% rate increase to them? It probably is.”

DAT’s Pat Pitz wrote about the ELD and capacity issue on the Transportation Solutions blog back in December. He spoke with Mike Riccio, CMO for asset-based 3PL Leonard’s Express in Farmington, NY.

“On our asset side, when we switched to ELDs, we knew there would be a temporary loss of productivity,” Riccio told Pitz. “But that loss of productivity was larger than we anticipated and lasted longer than we anticipated. As a broker, I feel that there is going to be a reduction in the amount of available equipment and it’s going to impact our margins because we’re going to have fewer carriers to choose from.”

Rates on the rise

Rates – if carriers haven’t already started adjusting – will rise due to the ELD mandate.

First, driver’s hours will be closely monitored and as a result, some drivers will be forced to park their trucks before running out of hours. “The best example is what if you are within an hour of [drive time limits] and you have to park,” Perry explains. “In the old days, you might just keep driving for another half-hour until you found a spot to park. With an ELD, you now will probably just stop when you find a spot and lose that [drive time].”

Secondly, because the ELD mandate will automatically record a driver’s drive time, any
“fudging” of hours will disappear. How much that occurs in the industry is difficult to know, but Perry says that there is anecdotal evidence that it happens now even within the larger carriers who use paper logs and certainly among smaller carriers and owner-operators.

“The negative is even the disciplined fleets have been cutting corners,” he says. “If you believe the availability of precise records will cause people to stop cutting corners, productivity will fall.”

While DAT Solutions doesn’t prognosticate on future rates, a blog post from Mark Montague in 2014 does serve to illustrate the correlation between productivity declines and rate increases.

When hours-of-service changes were implemented in 2013, he writes, spot market rates and contract rates both rose. However, in general, rate increases were only 1.1% – with up to 3% in lanes where the HOS changes altered transit times.

“Numerous analysts, including the American Transportation Research Institute, Transport Capital Partners and the Transportation Intermediaries Association, have estimated that for-hire carriers have lost as much as 3.3% or more of their productivity due to the new HOS,” he wrote. “So far, rate increases do not appear to be compensating carriers fully for operational losses that can be attributed to the new rules.”

When looking at how ELDs may change productivity levels, those changes that Montague wrote about in 2014 can serve as a warning –carriers who think they will just raise their rates and recoup that lost revenue may be in for a surprise.

In the January FTR State of Freight webinar, Perry told the audience that a 4% rise in contract rates are possible and spot market rates could be even more volatile with 15-20% increases.

“There’s a real exposure if you’ve got a lot of spot business,” Perry said.

John Larkin, managing director of Stifel Nicolaus, notes that truckload rates are expected to rise 1-3% later this year as demand improves and capacity reductions occur. Less-than-truckload rates, he notes, should climb 2%. He made the comments during the 2017 Rate Outlook, which was hosted by Logistics Management.

This blog post from DAT’s Mark Montague does an excellent job in describing how strict adherence to hours-of-service limits and a 34-hour restart can turn some 2-day trips into 3-day trips. Read: How a 2-day trip becomes a 3-day trip

Severe capacity shortages are unlikely until 2018, he predicts. He also said that while the Trump Administration is intent on rolling back the number of regulations in general, that should not affect the implementation of the ELD rule.

The combination of an improving economy and the ELD mandate could squeeze capacity later this year, something that Larkin hinted at. The American Trucking Association’s advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index rose 2.9% in January – that followed a 4.3% decrease in December 2016.

“The freight economy is starting to show some signs of life and January’s truck tonnage numbers are a good step forward,” Bob Costello, ATA chief economist, said, in ATA’s latest tonnage update.

Perry says that the “upside exposure is very substantial, but the [real] impact is probably less. The numbers may be a little overstated,” he adds. In the end, Perry expects most fleets to take a 4-10% hit in productivity, with the average about 7%. The biggest hit will likely be with smaller carriers running truckload and refrigerated freight off the spot market, which is about one-third of the truckload segment, he says, where the productivity hit could be close to 10%.

ELD Upside

Perry does note one particular upside to ELDs, and that is the ability to more accurately route trucks and implement rate changes.

“The other side of it is if you have more precise information, you can dispatch with more precision,” he notes. “The guys with more information have confronted shippers who hold up trucks at the dock [and are charging detention penalties]. They are also raising prices on moves that are not as [profitable]. They used to just charge a single rate for any move, but with this information, they have started [using more dynamic pricing models]. They are getting higher yields.”

Geotab, a provider of ELD and transportation management systems, produced a white paper on the ELD rule and noted several benefits of the devices.

“Adopting ELDs can have great benefits for your fleet. ELDs will dramatically cut down on the amount of time spent on paperwork and inspections. Most importantly, using ELDs will enhance driver safety. With the automation and fleet insight provided by ELDs, motor carriers will also see improvements in overall fleet productivity and efficiency,” the paper’s authors note.

According to Geotab, adding a ELD will result in a paperwork savings and reduce inspection time in addition to fewer logbook violations. All of these, the company notes, result in a cost saving.

Whether those cost savings offset the loss of productivity is greatly in doubt, though.

Brian Straight

Brian Straight leads FreightWaves' Modern Shipper brand as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler. You can reach him at [email protected]