“You're just like cross-town traffic
So hard to get through to you
I don't need to run over you
All you do is slow me down
And I'm tryin' to get on the other side of town”
Previously, I wrote about what I called an instantaneous capacity shortage. From what I've seen and heard from others in the industry, this occurred early in 2010. Some of the factors contributing to this rare phenomenon are: shippers paying rates below cost over a sustained period of time (running capacity out of business in the process), the 2007 pre-buy of trucks caused by the EPA, and the shrinking of capacity caused by fleets parking trucks and the cannibalizing of these parked trucks for parts.
Government intervention is progressively reducing capacity further. This will almost certainly continue through 2011 and 2012. Early in 2010 the news filtered through the industry of a new initiative by the government entitled “CSA 2010”. As 2010 progressed, drivers and carriers came to the realization that safety regulations, particularly Hour of Service regulations, had to be strictly adhered to. Many carriers came to find their entire business model (including length of haul, utilization, rates and driver compensation) was based on wrong assumptions, and their drivers that use to find a way to “make it work”, were no longer willing or able to do so. The ones that choose to ignore this new reality will start losing drivers as they flee to companies that “do things by the book”.
It's only a matter of time before insurance companies, the FMCSA, drivers and/or shippers put these carriers out of business. Carriers can now review a driver's CSA violation history prior to making an employment decision and insurance underwriters are chomping at the bit to get a hold of this information to see who carriers are hiring. In the midst of the worst driver shortage the industry has seen, this will render many active drivers unemployable.
The carriers that survived the worst recession in trucking history are smarter and more hard tempered by the experience. Unlike previous recoveries, most industry executives have no plans or inclination to grow their shrunken fleets. Due to additional EPA requirements, new equipment is more expensive, the return on investment is not rationale and they can't fill the empty trucks they already have with qualified drivers. Most have taken the approach that they will hold on size and instead, recapitalize for a while.
One can't talk about CSA 2010 without talking about EOBRs replacing paper logs. Early in 2010, many of my friends in the industry were forced to implement EOBRs after they failed an FMCSA audit of logs to satellite positioning reports. Most drivers and carriers are now aware that an EOBR mandate is on the horizon. As a result, carriers are adopting and drivers are volunteering to adopt the paperless log technology. All these factors have combined to greatly reduce capacity just as demand has picked up. Time is now at a premium.
Recently, the FMCSA sent a new HOS rule to the White House for review prior to publishing a notice of proposed rulemaking. This new rule is the result of years of litigation and the change in administration in 2008. Three things are possible, with two resulting in a reduction of drive time for drivers. Prior to the change in administration, the rule was on President Bush's desk ready for release in its final form. This proposal would have kept things the same. Instead of releasing it, President Obama sent it back to the FMCSA for revision. It is highly unlikely the current HOS rule will remain unchanged. The administration's political backers (unions and trial lawyers) would like the FMCSA to reduce driver time to 8 hours per day from the current 11 and reduce total time to 40 hours per week. This worst case scenario would result in a tremendous reduction in capacity and increase congestion on the nation's highways. The third possibility lies somewhere between those two extreme positions. Most in the industry expect a reduction of some kind in the hours a driver can work in 2011. What that reduction will be is anybody's guess.
It will be the wise shippers, brokers and carriers that incorporate changes in hours, length of haul and driver pay into their strategic planning for next year.