ELDs will drive up rates, increase shortage of drivers

Kenworth

FTR’s Noel Perry says spot rates could jump as much as 20% with an additional 60,000 drivers needed

The truck productivity hit that many have feared from electronic logging devices (ELD) may not be as severe as thought, but the implementation of the devices may hit the industry hard in other ways. Noel Perry, truck and transportation expert for FTR, told a webinar audience yesterday that spot rates could climb 20% or more and fleets may be hard pressed to find drivers in the near term.

Perry made his remarks during FTR’s “State of Freight: Preparing for the ELD Future” webinar.

“What we know is if they take an over-the-road truck that drives a lot of hours and add ELDs and see what the effect is [in terms of productivity] there’s a 5-8% [productivity hit],” Perry said. “Most, and in fact many, trucks in this business don’t run 70 hours a week; they don’t drive 11 hours a day, so therefore ELDs may slow them down a little bit. Our best guess is that about half of the trucks will be affected by ELDs and half of them will not be.”

Perry says that when considering all of these points, he expects the impact to productivity to be spread out over time and not be as severe as first thought.

“What looked like a disaster story when I first heard about the big fleets with 7% productivity impact turns out to be something more manageable like 2%,” he said.

Perry estimated that about 40% of trucks are either running ELDs currently or testing them now. Because of that, many fleets are already in compliance, so the maximum productivity impact could be 2.5% or 2.7% by late 2018.

The biggest impact, in Perry’s view will be on rates and hiring. On the rate side, Perry says spot rates could rise “at least 14%” in early 2018 and perhaps as high as 20% or more. Spot rates are already above their 5-year historical high with this week’s van rate at $1.82 per mile.

Capacity, which is already tight due to “surprisingly good freight growth” this year, could climb above 100% by the second quarter of 2018, Perry said, further driving up rates.

“What 101% or 102% means is not that the loads won’t get moved, but that they will get moved late,” he said. “Or the amount of time it takes to find a carrier will get longer. And if [shipments] get really late, there are penalties.”

The result, especially if retailers are seeing competitors gain a capacity and delivery advantage, could be shippers bidding up rates to secure capacity.

“A lot more of the volatility in the market has moved to the spot market,” Perry noted. “We think 20% is a better number for this coming year because a lot more of that volatility is concentrated in the spot market. We are still [cautious] with the contract market because we have been over-forecasting for the last several years.”

Perry said contract rates have lagged spot rates, but there is some indication they are starting to rise again, although it takes about 9 months for them to adjust to spot rates.

The ELD requirement, despite a series of legal challenges and a renewed push in Congress to force a 2-year delay, is still slated to go into effect on Dec. 18, 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.

There have been a series of efforts to delay the rule, including language inserted into an appropriation bill for the Departments of Transportation, and Housing and Urban Development, that would require FMCSA to determine whether any delay or changes to the ELD rule are warranted.

A second bill from U.S. Rep. Brian Babin (R-TX) quickly followed that would delay the ELD compliance deadline until December 2019 – a two-year delay. Babin's bill is H.R. 3282, the ELD Extension Act of 2017.

The Owner-Operator Independent Drivers Association (OOIDA) has been fighting hard to stop the ELD rule and quickly praised Babin for the bill.

“We thank Rep. Babin for realizing the serious problems associated with implementation that can only be avoided by putting off the mandate,” said Todd Spencer, executive vice president of OOIDA.

Babin’s bill has been referred to committee for evaluation. Perry, though, doesn’t foresee a delay.

“There’s a substantial, not a majority, but a substantial vocal portion of the industry that doesn’t like these things. They have gone to court and been refused. Now they’ve gone to Congress,” he said.
“It’s unlikely that the Senate particularly, or even the House, will do that because there is very strong support for ELDs within the industry. The big guys and the guys who run legally believe they are being cheated out of business by guys running illegally.”

Assuming there are no further delays, the other real impact could be on the driver shortage. Already lacking about 50,000 drivers, the industry could need to hire additional drivers because of ELDs, Perry estimated.

“By the second quarter of 2018, an “additional 60,000 drivers on top of the 20,000 drivers needed because of the other regulations that are slowly coming to life” will be needed, he said. “Under normal circumstances, we have to hire 300,000 people per quarter … to just hold even. Then we are going to add that 80,000 to it, which is a 26% increase. The question is can fleets increase their hiring by a quarter, and at FTR, we don’t think they can, so there is going to be pressure until they can catch up.

“It’s not like this is going to create a capacity shortage forever, the question is what is the pace that it will take the industry to adjust?” Perry asked.