CVSA plans soft rollout of ELD mandate, freight demand in transportation sector improves

The Commercial Vehicle Safety Alliance will begin enforcing the electronic logging device (ELD) mandate Dec. 18, but roadside inspectors won’t start enforcing out-of-service violations related to the mandate until April 1.

On Monday (Aug. 28), the safety alliance, which determines out-of-service violations, announced the decision to “start placing commercial motor vehicle drivers out of service if their vehicle is not equipped with the required device.”

Last week, Major Jay Thompson of the Arkansas Highway Police said the executive board for the safety alliance had voted to postpone placing a vehicle out-of-service for not having an ELD until April 1. Thompson said law enforcement would give warnings to drivers operating without an ELD during the grace period, and as long as the driver or vehicle isn’t placed out of service for another violation, drivers would not be put out of service if operating without an ELD.

On Dec. 18, inspectors and roadside enforcement personnel will begin documenting violations of the mandate on roadside inspection reports and “at the jurisdiction’s discretion, will issue citations to commercial motor vehicle drivers operating vehicles without a compliant ELD,” according to the safety alliance. Carriers will still be allowed to use automatic onboard recording devices (AOBRDs) through Dec. 16, 2019.

“While we are disappointed by the soft initial enforcement, we do believe it is a prudent move given the enforcement date coming in the midst of the holiday rush, and it should help prevent public safety concerns as a result of truck congestion around weigh stations,” said Brad Delco, trucking/transportation analyst for Stephens. “In some ways, this validates our thesis that ELDs will drive out capacity, as there are already concerns about the number of trucks that will be out of compliance.”

The safety alliance board consulted with the Federal Motor Carrier Safety Administration and the trucking industry that a “phased-in approach” to the ELD mandate “will help promote a smoother transition” to the mandate.

The enforcement of the out-of-service violations related to the mandate will go into effect at the start of spring peak season, said Delco, adding that it is one of the seasonally tightest periods for truckload capacity. “Bottom line, supply/demand dynamics in the trucking industry are already tight now, and we are not in peak season which supports the idea of a positive inflection in (truckload) earnings well before our view of an ELD driven inflection occurring in (the third quarter of 2018).”

INDUSTRY TRENDS
So far this quarter, the transportation sector has seen strength in freight demand, and looks to be the start of a “sustainable cyclical recovery,” according to Delco and two other Stephens transportation analysts, Jack Atkins and Justin Long.

“We believe this view is supported by a combination of previous inventory de-stocking, inbound port volumes that recently hit record levels, a pick-up in consumer confidence and a gradually improving economy.”

This has led truckload demand to remain “above seasonal levels” in July and August, and the outlook “for peak season is robust and contractual pricing is starting to show signs of improvement across various modes,” according to Delco, Atkins and Long in their note issued before Hurricane Harvey hit critical port and rail infrastructure in south Texas.

“And while it’s tough to pinpoint the impact from recent rail service disruptions and the ELD mandate, these items could only exacerbate the tightness in the freight environments in (the second half of 2017 and) 2018.”

Some of the reasons analysts are expecting a strong peak season is because Lowell-based carrier J.B. Hunt Transport Services doesn’t have any parked intermodal containers, compared to 4,500 parked intermodal containers in May, and a rise in broker turndown levels.

“Bottom-line, we’ve spoke with several channel checks in truckload/intermodal that said it has already felt like peak during the month of August,” said Delco, Atkins and Long. “Combined with July inbound West Coast port volumes being at an all-time high, expectations for e-commerce to keep growing at a rapid pace and recent rail service disruptions, we believe the stage is set for this strong demand environment to persist over the remainder of the year.”

HIGHER RATES, FEWER DRIVERS
The analysts also see that contract rates are starting to firm, between being flat and up 2%, from last year, and might increase from this range in 2018. Intermodal rates have started to improve and are expected to follow truckload rates over the next year. Adding to the supply constraint, carriers have reported the driver shortage is the worst it’s been in the past 25 years, and the ELD mandate could remove from 2%-5% of capacity from the industry.

The American Trucking Associations is working to establish an apprentice program to bring on 18-year-old high school graduates as drivers. But the program could take several years for Congress and regulators to approve it, according to John Larkin, transportation analyst for Stifel.

“In addition, all the talk of autonomous trucks is scaring away many young people from the industry. Why would a young person want to enter a profession that will soon be disrupted by technology?” However, the widespread use of autonomous trucks might be several decades away, “so the industry now is challenged to get that message across to young people that might, at least, consider a career as a professional truck driver.”