The following is part of JOC.com’s The Industry Speaks series, highlighting new perspectives within the freight shipping industry.
Federal Motor Carrier Safety Administration (FMCSA) chief Ray Martinez last week informed stakeholders to expect a rulemaking change that would allow drivers to pause today’s 14-hour clock by resting for at least 30 minutes.
While Martinez says the flexibility provided in this rule will have a positive impact on drivers, the unfortunate truth is that by disrupting the delicate balance of supply and demand in the trucking market, many carriers and drivers will end up bankrupt as capacity increases and freight rates decrease.
The main issue is today’s oversaturation of the trucking market. Contrary to Washington trade associations’ selectively sharing data claiming a driver shortage, FMCSA data shows a net 723,902 drivers have joined American for-hire fleets since 2012. Interestingly, those drivers have joined smaller fleets of 1-100 trucks in a ratio greater than 2:1, which has confounded larger fleets and their decades-long problem of driver churn, which they falsely label a “shortage.”
In that same time frame, FMCSA data shows 105,166 additional trucking companies have formed, in every size of carrier, but have especially increased in the 1-100 truck fleet size. While those figures grew throughout this economic recovery, they accelerated during the 2017-18 spot market peak as electronic-logging devices (ELDs) were implemented — eliminating phantom capacity. Adding drivers and carriers in these huge numbers is a great thing for the market. Keeping carriers healthy is a great thing for prices and the availability of service.
Bad timing for new rule
The timing of this rule couldn’t be worse. Earlier this year, growth in drivers and trucking companies began to stall and rates have softened, portending a possible freight recession. In July, the Cass Truckload Linehaul Index showed US year-over-year truckload rates decreased for the first time since March 2017. DAT Solutions is reporting that year-over-year spot market rates are down 20 percent, with dry van contract rates trending backward for the third consecutive month after 25 consecutive months of growth.
On the shipper side, a JOC.com analysis indicated that spot market rates are more attractive than contract rates, to the tune of 10 to 20 percent. These trends suggest that putting more drivers on the road would decimate an industry that is already showing signs of recession and lower freight rates.
Full disclosure — I’m a broker, operating the oldest privately held brokerage in the United States. We buy constantly in up and down markets, with plenty of spot and contract pricing exposure. We’ve experienced seven recessions and recoveries since 1960 and have seen what the National Industrial Transportation League (NITL) deemed “shipper-of-choice” mentalities come and go three distinct times in recent decades. We’ve served as leaders in shipper, carrier, and broker trade groups. We play the long game and aspire for industry health. We don’t blame players for market moves. The market does what it wants. What alarms us are FMCSA regulations that threaten to disrupt the market. What’s worse is that this rule was dreamed up by an organization that represents drivers and the smallest of fleets — the very companies and individuals who will suffer the most.
Shippers may view a freight recession favorably, happy to see the balance tip in their favor, but that shortsightedness will deliver another capacity crisis, complete with their core carriers disappearing (again) in the event of the next polar vortex or train speed slowdown.
The best recipe for a strong American economy is a large, diversified trucking industry with burgeoning specialty carriers, and ample niche players to fill the big gaps the big guys notoriously leave behind. The smartest move for every shipper and broker is to keep 2014 and 2017-18 fresh in their minds and make moves now to mitigate the damage the largest carriers will do during the next uptick. That means making strategic (not wholesale) use of the largest carriers, while systematically building capacity with mid-size fleets and/or quality managed brokers who can deliver them. There is no upside for anyone — shipper, small carrier or large, to see a swath of capitalistic, entrepreneurial, and high-performing carriers vanish.
This rule proposal, coming during a week where the Dow Jones Industrial Average and bond markets are signaling a nationwide recession, is a catastrophe waiting to happen for everyone in transportation. If adopted, it will add jet fuel to a freight recession that may already be under way.
A robust transportation marketplace is one of our country’s greatest economic strengths. More choices can only create a better and healthier marketplace for all shippers and brokers and provide longer-term pricing stability. The more players, the more choices, the more competition. As we inch toward our next recession, let’s choose not to swiftly and completely devastate our market with this well-intentioned, but highly dangerous rule.
Jeff Tucker is CEO of Tucker Company Worldwide. He can be contacted at Jeff.Tucker@tuckerco.com.