Q&A: ELDs and the future of truck capacity

Between the electronic logging device mandate and development of autonomous trucks, a brave new world for trucking lies just off the exit. Photo credit: Shutterstock

The following are prepared responses to questions posed to panelists participating on the “Future of Freight” panel organized by the Council for Supply Chain Management Professionals San Francisco Roundtable on Nov. 8 at the Uber headquarters in San Francisco. The responses were developed by the JOC editorial team and include commentary from the lead JOC trucking and surface transportation writer William B. Cassidy.

Do you believe ELD mandate will pass and begin Jan 1?

Yes. the Owner Operator Independent Drivers Association has done its best to delay the rule down to the wire, but it is hard to derail a rule the industry has invested so much in preparing. Members of the American Trucking Associations (ATA), the most powerful US trucking lobby and one that has had at least several meetings with President Donald Trump, are prepared.

It is important to understand that the mandate does not need to “pass.” It is a final regulation that will effectively become the law on its implementation date, Dec. 18. The mandate comes from Congress, not just federal bureaucrats. It was included in the 2012 transportation spending law. So it is harder to stop or reverse than rulemakings that originate just within the Department of Transportation (DOT) or another part of the executive branch. Executive orders cannot negate laws.

Except for a few members of the House, led by Rep. Brian Babin, R-Texas, Congress does not seem willing to take this up. An effort to delay the mandate attached to a federal spending bill also was defeated soundly. There have been trucker protests, but their impact is negligible. So there is a pretty effective roadblock on Capitol Hill for any groups that want to stop the mandate from going forward.

Babin did recently send a letter to Trump asking him to delay the electronic logging device (ELD) rule by executive order, but it is not clear the White House could overturn a congressional requirement (law) through such an order (Babin stressed the rule was written by the Obama administration, but a Republican Congress directed the DOT to do so).

So the mandate takes effect Dec. 18, and truck drivers will have to switch from logging their hours of service (HOS) in paper logbooks to using ELDs to record them. But what will really change by Dec. 19? Carriers that already have ELDs installed will be ready, but those that have not already purchased and installed ELDs and trained drivers and dispatchers are not likely to be ready for compliance by the deadline, and the impact on their productivity is likely to be greater simply because they are trying to get into compliance in a short time.

What can shippers do to prepare?

It is important that shippers prepare for the mandate too. A joint shipper-third-party logistics provider (3PL) survey that the Journal of Commerce released at the JOC Inland Distribution Conference in Atlanta on Nov. 6-8 showed 70 percent of shippers and 82 percent of logistics providers believe the ELD mandate will have a negative impact on truck capacity ranging from slight to heavy. But only 29 percent of the shippers surveyed said they had reviewed lanes, shipping schedules, and detention practices to ensure they will not fall foul of potential reduction in transit times once ELDs are installed and more accurate management of hours cuts the number of miles truckers may drive and the number of turns they can complete in a week. And 20 percent of shippers said they had taken no steps to prepare for the mandate.

Many of the logistics providers the JOC surveyed believe their shipper customers are woefully unprepared and that they will suffer as a result, seeing transit times and service slip while being hit with higher rates and detention charges. One of the logistics providers nailed it when he said, “Shippers will have to remodel their supply chains and become very driver-friendly.” Those that do not do this are likely to be the ones hit with the highest rate increases in 2018 — increases that could reach double digits.

How do you see carriers adapting?

Most of the large truckload carriers, we believe, are already compliant. Carriers such as Werner Enterprises and Schneider National have been using ELDs for years. Mid-sized fleets have been working to catch up; many are compliant and many are on the route to compliance. Smaller trucking companices, by most accounts, have been slowest to adapt and purchase ELDs. They represent a lot of capacity and serve as a “shock absorber” of sorts in the marketplace. When shippers moving high volumes run into tight capacity among their core carriers, they turn to those smaller fleets. We saw what happened in September following the hurricanes, when spot market rates soared to record highs. That may well have been a preview of what we will see if shippers cannot use smaller carriers because they are not ELD-compliant. Many shippers and 3PLs contractually require their carriers to be compliant with all US Federal Motor Carrier Safety Administration regulations. If they use a carrier that is not following the rules, they open themselves to all kinds of liability if there is an accident and they get mired in a lawsuit.

For now, the Commercial Vehicle Safety Alliance, the organization of state police and regulatory officials that enforce federal rules out on the road, says drivers will not be ordered “out of service” for not using an ELD until April 1. That averts a bad situation for shippers, as well as for truckers and third parties, this holiday season. Imagine if state police and inspectors began pulling non-compliant drivers and loads off the road across the United States fewer than 10 days before Christmas. So, drivers will not be stuck and freight will not be stranded, for now. But drivers still will receive citations for not having an ELD, which will affect motor carrier CSA (federal safety program) scores, and that will be costly. Some motor carriers may find their shippers and brokers no longer can use them come spring if their CSA scores shoot up.

We think some disruption is likely in the first half of 2018 as many smaller carriers rush to get ELDs in place, train drivers on how to use them, and get customers to understand how this affects them. And the stronger the economy grows, the bigger the impact will be. Estimates of lost capacity or productivity range from 2 to 8 percent. Even the lower end of that range would hurt, as fleet utilization rates are already in the upper-90 percent range. On a lane-by-lane basis, the productivity crunch could be even worse.

Will carriers and drivers leave the business? Some drivers probably will, especially if other employment opportunities are readily available, in construction, for instance. With the US unemployment rate now at 4.1 percent, they will be in demand. For those companies that only make money by violating HOS rules, the drivers who run hot, and the carriers that order them to or look the other way, no one should feel sorry for them when they are eventually forced out of business. They are a threat to public safety.

How do you see access to big data and deployment of technology for customers/carriers affecting how brokers/carriers approach transportation management?

Big data and digitization are going to drive big changes in surface transportation, but we are more likely to see an evolution than a revolution. The great thing for shippers is they will have more options, especially smaller companies, when it comes to how they move freight, how they negotiate rates or pay for freight services, and provide best-in-class service to customers that previously only the largest companies could provide.

But a lot of things must happen to get us there. First, we have to determine how we are going to really use “big data” and make sure that data are really usable. It has to be up-to-date, uniform, and accurate. Getting huge amounts of data to that point is a major task in itself. However, we are going to have more data to use, thanks to the big increase in near-real-time communications we will get from tracking systems such as ELDs and the Internet of Things.

From what we currently see, real-time tracking or visibility is the key to the next step in the evolution of transportation technology. This is going to provide that big data that we will be able to run through business analytics systems to make better decisions and save money. The goal is to remove inefficiencies, identify savings and opportunities to innovate, and to continuously improve customer service. Keep in mind that raw data need to be validated and prepped.

In addition to understanding how we want to use big data and prepare that data, we have to get systems installed to use that data. A large percentage of shippers do not even have a Transportation Management System (TMS), and many that do have legacy systems are not necessarily ready for real-time data communications and processing. A lot of shippers, brokers, and truckers still use fax machines.

The difficulties in getting companies with no technology up and running on the latest digital offerings and getting companies with legacy systems upgraded are different and substantial. That is why we are likely to see an evolution over the next few years. But we will see change, because the pressure is becoming almost inexorable.

Tracking and service standards will become much more exacting. Getting shipment locations from your carrier once a day does not cut it in the Amazon era. Even low-value shipments are of high value to the customers that ordered them, and Amazon has helped create an increasingly “customer-obsessed” business environment. Shippers will want current, on-demand information, and what they want may vary shipment to shipment.

Will the old-school way of booking trucks disappear?

Eventually, yes, but it will take years. We will see an increasing amount of automation, with TMS software searching for the best truck at the best price and booking it without any intervention by the shipper. That is not transportation science fiction. Transportation is a people business, however, and relationships are important. Those relationships are likely to become more strategic and less transactional as we use more automation.

But the days when shippers need to make scores of phone calls and send scores of e-mails to get a truck are numbered. Shippers cannot be that inefficient and remain competitive.

How do you see customers’ pricing evolving over the next five years?

Rates, for the time being, are rising. We’ve seen pressure on rates as capacity tightens this year, on land and sea. In the surface transportation arena, less-than-truckload (LTL) rates have been rising for some time, truckload contract rates are set to follow spot rates, and intermodal pricing is moving upward. The drivers are economic growth and tightening capacity, partly as a result of the first and also thanks to the difficulty trucking companies have finding and keeping well-qualified truck drivers. We have seen rates rise and fall during this long economic recovery, with real soft patches in 2011 to 2013 and 2015 to 2016. We are now possibly looking at an “inflationary period” that could last until the next economic downturn or recession, which is not on the horizon yet.

How effective is the request for proposal process?

Shippers will have to think hard about how they put freight on the market. Doing things the same old way is not likely to work much longer, or to work well. We have already heard this year that shippers have had to dig deeper into their lists of core carriers and secondary carriers to find trucks at the right price for them. That is not going to change soon. We think shippers will have to work much more closely with their core carrier partners, perhaps going to them with requests for proposal individually and being much more flexible. The goal is going to be getting access to capacity and securing capacity, not getting the lowest rate.

Are customers ready to see real-time pricing and have providers add a thin margin on top?

That depends on who the provider is and how much of a margin. There has been a lot of talk about dynamic, real-time pricing, but it is not clear that shippers and carriers working under contract are really ready for that, except on a limited, perhaps experimental basis. Carriers are going to argue that they need thicker margins if they are going to reinvest in their companies and maintain an adequate level of capacity, let alone create more capacity when it is needed. Many asset based carriers, especially in trucking, have operating ratios in the 90s, which means they make less than 10 cents on every dollar, before taxes, etc.

More intuitive ways to save cost 

One way is flexible pickup and delivery scheduling. Shippers want to be able to call a carrier at 5:30 p.m. and schedule a pickup that day, but they do not want to have someone working at 7 p.m. to receive a delivery. If shippers and carriers work together to schedule shipments when capacity is most available, and do so much earlier, they can find savings. Overall, faster fulfillment cycles, stringent delivery windows, and the ELD mandate sap time and flexibility from supply chains, so we have to look for ways to add some agility back. Shippers that can take “drop and hook” trailers and let drivers get back on the road faster will gain advantage.

How can shippers be better prepared for natural disasters (hurricanes) or seasonal flux?

This is an important topic, and very timely after hurricanes Harvey, Irma, and Maria. Obviously, you need to have a plan. Know what events need to trigger action, whether with your employees or your customers. Have all the appropriate contact information. Have backup plans, alternate suppliers. But really you need to adopt a culture of risk management. Hurricanes do not happen every day, but crises do. It may not be a storm or natural disaster, but a surge in orders for your products or a plant closure.

Shippers really need to look deeper into their supply chains, at multiple tiers of suppliers, to determine whether they need to diversify. Hurricane Harvey’s body blow to Houston really emphasized this because it took out so much manufacturing capacity. There are probably manufacturers who do not realize how much they depend on a component from a fifth-tier supplier in Houston, and that lack of visibility could cause trouble for them months after the hurricane cleanup is complete.

Where do we see last-mile logistics changing?

There is more than one type of last mile and more than one type of last-mile delivery. Everyone is focused on the consumer e-commerce last mile, and that is changing rapidly. Look at Amazon Key. If you purchase Amazon Key, delivery people will actually have access to your home to deliver packages when you are not there. The idea is also to let guests in while you are away, or perhaps a pet sitter, without leaving keys under the mat. But think of how that might affect the growth in grocery and food deliveries via Amazon with its acquisition of Whole Foods.

The idea that we’ are going to give people delivering packages such access to our homes is a pretty big deal. We are not just talking about someone delivering an appliance and installing it while we are home. For Amazon, this is another way of ensuring the customer happiness — not just satisfaction, but happiness — that they obsess about. They even offer an Amazon Key Happiness Guarantee. Eventually, that is going to raise the stakes for everybody involved in last-mile delivery.

We are also seeing the impact of the last-mile focus rippling back up the supply chain to the middle mile and first mile. You cannot have a great last-mile experience if the middle mile fails to deliver on-time. Traditionally, a lot of truckload carriers would have handled what we think of as middle-mile legs to distribution centers, but LTL carriers increasingly are getting in that game, because vendors are shipping more e-commerce quantities: smaller and more frequent shipments that LTL carriers can handle and fewer big truckloads to distribution centers. And sometimes they are going straight to stores.

So we are moving toward an environment where you do not even have to be home to have a last-mile delivery made right to your house. Will this increase demand? And if it does, how does that affect the first-mile and middle-mile leg of the shipment? There is a lot of potential for change here.

Where are the growth opportunities? How is this shifting with transportation network companies expanding (Uber, Lyft, etc.)

At this point, there are lots of growth opportunities, especially in areas that involve providing “secure capacity.” 3PL companies and freight brokers have a boom time coming, as shippers look for new ways to access capacity that has been effectively hidden or unavailable in the past. Think thousands of small trucking companies that can provide good service but are not easily accessible if you are a larger shipper. Those carriers and drivers are the core of Uber Freight’s network. As demand outstrips the capacity the larger carriers can offer, how will shippers that need to move volume find additional capacity.

Anyone who can help there will be busy. Along the same lines, think of dedicated carriage, whether truckload or even “dedicated LTL,” which often involves some level of warehousing and other services. There is plenty of room for innovation. Uber Freight is a good example of that. It brings new technology to the market that helps shippers connect with owner-operators and small carriers they might not reach otherwise. And it will pressure other 3PLs/brokers to innovate in turn. That is good news for shippers.

Will ELDs drive further consolidation in trucking?

Maybe, but even if they do, the impact will be minimal. Trucking is way too fragmented for even the loss of some small carriers because of ELDs to have a big impact. We are seeing some consolidation among large carriers — the Knight-Swift merger is a case in point. That created a holding company that operates two large carriers, without eliminating a carrier. The 50 largest trucking companies had $129 billion in combined revenue in 2016, according to data provided by to SJ Consulting Group. That is about 19 percent of the $676 billion in total 2016 revenue the ATA claims for trucking. What is more, the number of smaller trucking operators is growing faster than large companies, according to trucking risk management specialist QualifiedCarriers. The number of trucking companies with six or fewer trucks rose 4.4 percent in the first half of 2017, and the number of carriers with more than 500 trucks rose just 0.5 percent. There is a real bifurcation in that marketplace.

Speaking of big trends, when do you see autonomous transportation becoming a reality and how will that affect our communities, transportation companies, etc.?

The technology is coming quickly, and we will be able to have autonomous vehicles within a few years. Public acceptance, however, will be much slower. The challenge, like with any technology, is that there is a period where you have to perfect the technology, then you have to have the infrastructure to support it, then you get acceptance of the technology.

There are still issues with the technology itself, such as for snow — will autonomous vehicles be able to function in poor weather conditions? Eventually it will come, sooner rather than later, but then there are the questions about regulations and laws that will need to adapt. These are barriers to implementation. When the truck first came out, you could build the truck but we did not have road networks, so railroads maintained their supremacy for a few more decades.

What we will see in the near term is more autonomous technology being built into trucks to improve safety. Some of the automated braking systems being installed, and forward-looking radar and camera that connects to a computer that will automatically slow or stop the truck are good examples. There has been no noticeable reduction in accidents due to safety technology, as vehicle miles traveled have continued to grow.

Part of the issue with all the talk of “driverless” trucks is that the driver does more than hold the steering wheel. The driver represents the company, the driver ensures paperwork is signed at a consignee’s location. The driver inspects the truck before each trip, and provides a measure of security. The driver sometimes loads and unloads. All of that would all have to be automated, and we are not there yet either. Eventually, a truck will become more like an airplane, with the driver performing fewer actual driving functions than he or she does today, which raises interesting questions such as whether HOS be changed, and could this positively impact capacity?

With the recent Warren Buffett investment into Pilot J, do you agree with Warren that automated vehicles is a long way out and how do you see that program affecting us?

There is a long future ahead for truck driving, whether vehicles are automated or not. People have to realize that trucks deliver basically everything.

How does truck platooning factor into the evolution of autonomous transportation?

It might be a first step, it is part of the whole process, but it is low-level automation, as you still have drivers involved. Platooning is ahead of the United States in Europe, where they are testing mixing truck and cars with platooning. Fuel economy is the main motivator. The trucks are more closely spaced, moving at the same speed, and air resistance is reduced. So you will get fuel economy benefits. Fuel costs have been low the past couple of years, but if they continue to rise and diesel heads back to the $3 to $4 a gallon range, platooning will look better and better to many companies who will see a stronger return on investment.

 

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