When calculating the return on investment of compliance programs, trucking companies often look at the colossal costs that could be incurred after safety protocol has been violated. These costs include nuclear verdicts, insurance hikes from those violations and other repercussions.
In an interview with FreightWaves, Hunter Yaw, co-founder and CEO of trucking compliance software provider LogRock, explained the importance of the framework that compliance costs are presented to trucking company owners and how focusing on what he calls “today costs” can lower overhead and prevent future compliance fallout.
Questions and answers were edited for clarity and length.
FREIGHTWAVES: In trucking, compliance costs are discussed as a consequence of improper regulation protocol. How do you look at compliance costs differently?
YAW: “After speaking with a number of trucking company leaders and safety managers, I realized that trucking company owners are often focused on ‘today dollars.’
“Are audits an issue? Is the risk of getting a conditional safety rating an issue? Yes, we know that. But those are ‘tomorrow dollars’ or ‘maybe costs.’ Those are bills I might have to pay compared to bills I will have to pay.”
FREIGHTWAVES: How did you go about calculating the “today costs” of compliance?
YAW: “We began to focus on the bills that trucking company leaders do have to pay to have a compliance and safety program in place. We started to look into how many physical documents are maintained for every driver and asset you have. What are the costs for authority? What are the costs of a safety manager?
“And what about the productivity of those safety managers? Often safety managers are overloaded with the number of vehicles they need to manage, so what are those costs? How many trucks can one individual handle? After speaking with trucking companies, small to large, we found that one safety manager can effectively manage about 20 trucks.
“Now let’s say you better manage your safety program with better software or structure and you can now double the productivity of that manager. That means you can grow your fleet by 20 trucks without having to hire another safety manager. That’s where we started to find the ‘today’ value of compliance.
“We also knew we would need to include insurance costs because a number of insurance companies we talked to said there tends to be a 8% to 9% difference in costs based off of the trucking company’s safety plan.
“Insurance companies will tell you they base these costs off the nature of the business. They will look at the number of fines and violations incurred but they will also judge the way safety data is sent over to them.
“Next, we decided to dive into some of the less obvious ‘today costs’ and quickly realized that included recruiting and retaining drivers. One trucking company owner pointed out to us that often the best driver candidates he talks to ask him for his [motor carrier authority] number and it’s because they are going to eventually look up his company on the [Federal Motor Carrier Safety Administration] website.
“Why is that important for the driver to check? Because once they hire that driver, those scores are now connected. So if you have a poor safety record, the driver will get inspected more and every time that driver makes a little mistake, it is much more likely that it will go on their record as well.
“After doing research into driver retention, we found a 7% improvement in retention if you had a good safety and compliance program.
“Finally, we dove into the costs of inspections for having poor safety scores. After pulling Department of Transportation data and general compliance and safety scores of trucking companies, we found that you get pulled over 12% less if you have a solid compliance program in place.
“It is interesting because, it may not be obvious, but it turns out that we can actually put a dollar value on compliance.”
FREIGHTWAVES: What does that dollar value end up coming out to?
YAW: “For a fleet of 70 drivers to be compliant with federal regulations, you need to keep track of over 3,010 documents. If you make your compliance operation more efficient with better tools, you can add another 20 drivers to your fleet without having to add another safety manager — saving you $5,417 per month based on an average safety manager’s salary.
“Hiring experienced, fully qualified safety managers is hard, so the longer you can go without having to do this, the better.
“Now insurance companies say that fleets who are best in class at managing safety and compliance can pay on average 8.5% less for liability insurance. That means that by upping your game on compliance you can save $4,463 per month on liability insurance costs.
“Monitoring the same stats that the DOT monitors can help you reduce your risk of inspection. Trucking companies that proactively work on this can reduce inspections by 12%, which saves you on average $1,211 per month in reduced fines, less time spent out of service and fewer driver hours spent in weigh stations.
“Remember, trucking companies that are strong on compliance and safety have 7% better driver retention rates because the best and most loyal drivers want to work for companies that have good safety and compliance records.
“The average cost to replace a driver when you include plane tickets, hotels, background checks and idle equipment while you wait for a new driver to start is $9,500. That means better retention rates can save you $3,879 per month.
“That all adds up to $14,970 in savings per month.”
FREIGHTWAVES: In the current market turbulence that carriers are experiencing, why is it important for trucking company owners to consider these “today costs”?
YAW: “Trucking companies have often put compliance in the pain-in-the-a** bucket of costs. Everybody has to do it, yet nobody is excited about it. The problem, though, is it is a significant part of their cost structure.
“Yet, the difference between the trucking companies that survive this wave and the ones that don’t is going to be the ones that make the right investments in their business, including compliance.
“There is a major financial risk to any trucking company that has received a conditional or unsatisfactory status with the DOT. Access to premium freight dries up when shippers and brokers cut you out and your average rate per mile will likely drop by around 20%, from the research we have done.
“And the difference between today and previous waves of free market contractions is there is more tech available. There are more solutions out there that can help you be proactive rather than reactive and the reason that we are talking about cost when it comes to compliance, the reason that we’re talking about return on investment when it comes to compliance, more than we talk about convenience, lawsuits or anything else is that at the end of the day, we are deeply convinced that these tech solutions are critical to the bottom line of the trucking company.”