Changes to truck driver work rules now just a month away will have little to no impact on Landstar System’s existing business, and may even bring the nation’s fourth-largest truckload carrier more freight, Landstar’s top executive says.
Landstar’s non-asset business model, which relies entirely on owner-operators, will give it more operational flexibility under the rules than asset-based competitors, said Henry Gerkens, chairman, president and CEO of the $2.8 billion motor carrier.
“Most truckload companies that own power equipment and employ company drivers expect new hours-of-service rules will reduce productivity and utilization anywhere from 1 to 6 percent,” Gerkens told analysts in a May 29 conference call.
That could create more freight opportunities for Landstar, its 7,850 owner-operators or “business capacity owners” and the more than 20,000 active carriers in the Jacksonville, Fla., transportation company’s brokerage network.
“As carriers cannot fully service their customers loading requirements because of driver availability, it logically should create additional spot market or overflow opportunities, which is right in Landstar’s sweet spot,” Gerkens said.
Landstar will welcome new opportunities, as its core industrial flatbed market is lagging last year's performance in the second quarter. "This overall market segment remains very soft," Gerkens told analysts.
Trucking companies are racing to be ready for the new hours-of-service rules when they take effect July 1. The rules will require drivers to take a 30 minute break after driving seven consecutive hours and limit their ability to restart their weekly clocks.
As Gerkens said, the changes are expected to fall most heavily on asset-based long-haul truckload carriers, though the impact will vary from carrier to carrier, depending on many factors related to each company’s business model.
Derek Leathers, president and COO of Werner Enterprises, is concerned about the net effect the new rules will have on capacity. With tighter hours, an estimated 75,000 additional trucks will be needed just to haul existing freight, he said.
“We don’t have 75,000 extra trucks rolling around out there, folks,” Leathers told the ALK Transportation Technology Summit in Princeton, N.J., May 15. That means available capacity could tighten quickly if freight demand heats up, he said.
The Journal of Commerce Truckload Capacity Index, which measures available capacity at a group of large truckload carriers that includes Werner and Landstar, was stuck at 79.7 in the fourth quarter and first quarter, its lowest level yet.
That indicates truckload capacity at large carriers is down about 20 percent from a 2006 peak., so shippers will be more reliant on third-party logistics providers, freight brokers and smaller carriers when seeking extra capacity.
Leathers also fears tighter daily and weekly work rules will lead more experienced drivers to exit the industry. “We’ve talked to a lot of drivers who say that if this goes through it will be the last straw, ‘I’m going to retire,’” Leathers said at summit.
“How much of that is rhetoric and how much reality? We’ll know soon enough.”
Werner Enterprises, with $2 billion in revenue last year, is the third-largest truckload carrier and ranks 11th on the SJ Consulting Group/JOC list of the Top 50 Trucking Companies. Landstar System ranks eighth on the Top 50 list.