As cromnibus advances, trucking prepares for regulatory restart

As cromnibus advances, trucking prepares for regulatory restart

WASHINGTON -- Trucking companies hope for an immediate injection of producitivity when President Obama signs the $1 trillion "cromnibus" spending bill, which includes language that will suspend certain hours of service rules for truck drivers for one year.

Drivers will no longer need to spend two consecutive 1 a.m. to 5 a.m. periods off-duty when taking a 34-hour restart. The bill would also suspend restriction limiting drivers to one 34-hour restart within 168 hours or seven days.

These are changes trucking groups, including the American Trucking Associations and Owner-Operator Independent Drivers Association, lobbied hard to get. The 11-hour driving time limit, 14-hour work day and a mandatory half-hour break will stay.

Trucking companies and analysts hope the change will mean more available capacity during one of the year’s busiest shipping periods -- the last few weeks before the winter holidays.

When the 34-hour restart provision of the HOS rules was “hardened” in 2013, truckload carriers in particular lost 3 to 8 percent of their “productivity” as drivers spent more time at home and completed fewer turns during a week, according to multiple trucking sources.

In effect, motor carriers had to hire more drivers and deploy more trucks to do the same amount of work they had accomplished with fewer resources before the rules changed or rethink how they allocated resources and dispatched trucks to improve efficiency.

That contributed to tighter capacity and higher truckload rates throughout 2014, though higher freight demand palyed a large role in price increases.

Analysts predict the change in the rules will give fleets some of that lost productivity back, though it’s hard to say how much. Trucking operators have grown more efficient since the rules were introduced, and freight demand is now much higher than in July 2013.

“Our initial read is that this would add approximately 1 percent to 2 percent more capacity to the market, which could lead to slightly lower rate increases in 2015 before re-accelerating in 2016,” Thomas Albrecht, trucking analyst at equity research firm BB&T Capital Markets.

That additional capacity will come from additional driving time, rather than additional trucks.

The rules change, which will allow drivers to take a 34-hour restart in just 34 hours, will allow more drivers to go off duty early Saturday and start a new work week Sunday afternoon or evening, rather than at 5 a.m. Monday, just as rush hour begins in many urban areas.

That will make it easier for carriers to make customer deliveries early Monday without having to hire more drivers -- a difficult task to begin with -- and buy additional trucks. Truck drivers may find it easier to get more miles, make more turns and in theory make more money.

Truckload carriers are already doing a good job of that. Average truckload revenue per tractor per week among the public truckload carriers tracked by JOC.com increased 7.8 percent year-over-year in the third quarter, thanks largely to higher freight demand and higher rates.

Many carriers, however, also learned to manage their fleets better as the tighter HOS restrictions took effect. Swift Transportation, the largest U.S. truckload carrier, improved loaded miles per truck per week 2.2 percent year-over-year in the third quarter.

Covenant Transportation, the 15th largest U.S. truckload carrier ranked by revenue, according to JOC.com and SJ Consulting Group, increased its average miles per tractor 5.7 percent year-over-year. The carrier’s average freight revenue per loaded mile rose 6.7 percent.

Those figures point to real gains in efficiency since the third quarter of 2013 despite the initial loss in productivity blamed on the tighter 34-hour restart rule. With some additional capacity and flexibility from the pending rule change, motor carriers will build on those results.

“The 2015 productivity benefit will noticeably affect truckload capacity utilization,” transportation research firm FTR Associates said. “This will join an already moderating trend to lower capacity utilization (from about 99 percent) to near 96 percent.  While this is high by historical standards, it is 300 basis points below the critical level of a year ago.”

In other words, carriers and shippers will have a bit more slack. “The industry will have an important reserve of surge capacity to handle seasonal peaks or other issues in 2015.  FTR expects price increases to moderate as a result, especially for spot markets.”

That doesn’t mean rates will drop, but rate increases may not be as aggressive as they were in 2014. BB&T expects on-time pickup and delivery service to improve, but warns that a stronger economy and steady freight demand are likely to keep pressure on rates, as demand quickly fills any trailers or trailer space freed up by the change in HOS rules.

And the HOS rules, BB&T and FTR point out, are bound to change again, after the FMCSA completes a congressionally mandated study on the safety impact of its suspended 34-hour restart requirements. That rule could again affect utilization and productivity, FTR warns.

“This change does not reduce the impending wave of regulatory drag still scheduled for late 2016 and beyond,” Noel Perry, FTR senior consultant and managing director, said.  “Indeed it makes it worse, because the revised regs will hit just when a bunch of other regulatory changes appear as well” -- in 2016 and 2017.


Contact William B. Cassidy at wcassidy@joc.com and follow him on Twitter: @wbcassidy_joc