Not all regulations are bad for the trucking industry

As the trucking industry prepares for full enforcement of the electronic logging device mandate April 1, carriers and drivers have been financially impacted by regulations, like the ELD mandate, and will continue to face regulations, such as ones established to protect the environment. But some regulations, like tort reform, could protect carriers from rising insurance costs in the wake of big court-ordered payouts.

Brad Delco, equity research analyst focused on the trucking industry for Little Rock-based Stephens Inc., explained the lack of regulation related to tort reform could have greater financial impact on carriers than existing regulations.

A small trucking company might have the minimum required insurance coverage of $750,000, and if it were to face a lawsuit after a crash, the insurance would cover up to that amount in damages. If a court required a higher payout, it might lead the trucking company to file for bankruptcy, and afterward, the company could restart its business.

However, if the company involved in a crash was a larger carrier, with some having as much as $100 million in insurance coverage, juries have tended to award plaintiffs significantly higher payouts — more than $140 million in one case recently. Bottom line is trial attorneys have sought bigger payouts from larger companies.

“That to me is an issue that has greater financial ramifications to the industry and has driven up insurance costs for all carriers, regardless of the size,” Delco said.

Tort reform was one of the legislative priorities trade organization Arkansas Trucking Association focused on in 2017, and the issue is expected to be taken to the voters this November.

Other examples of regulations negatively impacting the industry include states that impose their own rules affecting interstate commerce. In California, laws and regulations have increased the complexity and cost of doing business and interfered with interstate commerce, which should be regulated by federal laws, Delco said. For example, the state has air quality rules that are stricter than those of the U.S. Environmental Protection Agency and make operating in the state more challenging than in other states, especially for interstate freight carriers.

“A solution to the issue,” Delco said, “would be for legislative action to clarify certain federal laws in existence today, that prohibit states from enacting or enforcing policies related to a price, route or service of any motor carriers.”

ELD MANDATE
One of the most discussed regulations in the industry has been the ELD mandate, which went into effect in December. It’s causing a big impact on the industry, affecting capacity and rates in an already tight market, said Shannon Newton, president of the Arkansas Trucking Association.

Recently, the mandate has been a topic for those who transport their horses to the rodeo or haul a vehicle to the races on the weekend. The concern was whether these weekend enthusiasts are exempt from the mandate, and the Federal Motor Carrier Safety Administration has released guidance showing they do not have to comply with the mandate as long as the transportation isn’t business related.

“Electronic logging has been more of a project than we anticipated,” Newton said.

Weekly, CarrierLists.com has released updates of carriers who are compliant with the mandate, and as of March 5, ELD compliance declined six points to 87%, largely as a result of compliance from shorter haul fleets that have lagged behind longer haul fleets by 10%. However, the three-week average rate of compliance remained unchanged at 90%.

“With 10% of fleets still needing to install ELD devices, we’ll likely see another chaotic period involving backorders and confusion in enforcement,” according to CarrierLists. While the mandate went into effect in December, roadside inspectors won’t start placing trucks out of service for not having an ELD until April 1.

The mandate is expected to be a means for the FMCSA to effectively track and enforce the Hours of Service (HOS) regulation, which restricts drivers from driving more than 11 hours per day in a 14-hour period, Delco said. Many in the industry believe drivers have falsified driver paper logs kept, which until the mandate went into effect was how they tracked their hours of service. It’s the FMCSA’s job to improve safety on U.S. highways and prevent fatigued drivers from driving, which should decrease accidents. The hours of service rule was supposed to keep these fatigued drivers off roads, but until now, there wasn’t a way to effectively enforce the regulation.

“It has become a very controversial issue,” Delco said. But it’s been positive for the industry as it “levels the competitive playing field” and removes some “illegal utilization capacity” from the industry. It’s also impacted price to the benefit of carriers. And, the price increases have led owner-operators to be paid more per mile even if they’re driving less than they were previously.

Spot rates have risen 30%, he said. “Everybody in the trucking industry is making more money.”

The mandate is expected to “ignite competition” and “spur investments into technology to drive greater efficiencies” as a result of companies being limited to the same productive hours of service across the industry, according to Delco.

The Owner-Operator Independent Drivers Association has opposed the mandate, and recently, sent a petition to the FMCSA to amend the existing hours of service regulations to allow for up to a three-hour break that would stop the clock for the 14-hour driving period. Once a driver starts driving, the clock starts for that driving period and doesn’t stop. After the 14 hours, drivers must be off duty for 10 consecutive hours before starting their next shift. OOIDA also wants to eliminate the 30-minute rest break requirement.

“There are many operational situations where the 30-minute rest break requires drivers to stop when they simply do not need to,” said Todd Spencer, acting president and CEO of OOIDA. “It’s either impractical or unsafe.”

The existing hours-of-service regulation requires drivers to drive when they are tired, at high traffic times and in bad weather or road conditions, Spencer said. The regulation is putting drivers into unsafe driving situations for themselves and the public.

DRIVER HISTORY DATABASE
Another regulation that could have big implications in the industry is the plan to establish a national drug and alcohol clearinghouse. This would provide carriers with a database to check the criminal history of prospective drivers before they are hired. Now, carriers must check the history of the driver by contacting each state.

“It will clean up the industry,” Delco said.

In the same vein, a regulation to allow carriers to either require prospective drivers to complete a drug test with either a urinalysis or hair test has been a regulation in the works. Now, carriers who complete a hair test on a prospective driver also must do a urinalysis to comply with testing regulations of the U.S. Department of Transportation. The additional test is an added cost carriers must pay, Newton said.

On Jan. 1, the DOT added opioids to the list of drugs for which transportation employees are tested. This includes semi-synthetic opioids hydrocodone, hydromorphone, oxymorphone and oxycodone. The federal agency added these drugs to the test to be consistent with the Department of Health and Human Services mandatory guidelines and “as a response to a national problem that can affect transportation safety.”

The issue of opioid abuse has been widely discussed but not so much in the trucking industry; however, it’s likely just as big of an issue in trucking as it is across the nation, Delco said.

“Drivers are doing very important work on our nation’s highways every day.”

And, they are underpaid. An average over-the-road truckload driver earns about $50,000 annually. He does expect some large pay raises in the short term, but longer-term they should be earning 50% more, or between $75,000 and $80,000.