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Regulatory Bottleneck Will Shrink Truck Industry Capacity

Many predict that the trucking industry is headed towards a regulatory bottleneck in 2014 that will continue to negatively impact the industry for years to come. It all started in July 2013 when changes to hours-of-service rules from the U.S. Federal Motor Carrier Safety Administration went into effect. Expectations from these changes is that the industry's capacity and driver pool will continue to shrink. Add to this the additional regulations discussed later in this article and industry experts predict that truckload rates will increase as much as six percent during the first quarter of this year.

By some estimates, maintaining current productivity levels means fleet executives will need to hire at least 1.5 million drivers. What are the looming regulatory changes driving the discontent among industry leaders? The concentration of game-changing regulations include:

  • Tighter emissions in California
  • Greenhouse gases and MPG
  • Electronic logging device
  • Speed limiters

Tightened Emissions Regulations in California

The ever-tightening emissions regulations are driving owner-operator businesses out of service in California. Since 2007, emissions requirements have virtually hijacked the market value of used trucks. Used trucks have become a high dollar capital expenditure, sometimes costing $100,000 even with miles as high as 300,000 miles.

These are egregious expectations placed on owner operators since less than 10 percent can qualify for a traditional loan to cover the used truck cost. Without trucks, they have no business to run in an economy that has negatively affected the credit market for most customers who would otherwise qualify.

Furthermore, a schedule of compliance deadlines has complicated the trade cycle for anyone doing business in the state of California. In an effort to assist operators who could not afford to replace their trucks, the California Air Resource Board included interim deadlines to meet compliance standards.

Owner-operators traveling into California are required to have aerodynamic devices to comply with the new rules. An exception is given to those who have registered with the Board on a phase-in option, which gives them an alternate compliance schedule to follow.

Otherwise, being pulled over for noncompliance can result in a $1,000 per day citation for the trucking company. Additionally, the driver may also receive a $1,000 per day fine. Amounts can increase up to $10,000 per day for repeat offenses.

The gradual phase out allows operators to retrofit their trucks to meet emissions standards. By 2023, trucks older than a 2010 model year will not be allowed to operate in the state. In addition, retrofitted engines will not be permitted by that time.
Regulations on Federal Greenhouse Gas and MPG

The National Highway Traffic Safety Administration and Environmental Protection Agency have corresponding standards for the Heavy Duty National Program. Basically, these standards apply to heavy duty pickup trucks and vans, semi trucks and vocational vehicles. The combined application of these standards expect to not only cut greenhouse gas emissions, but to also cut down on the use of domestic oil. This program is in response to a 2010 request by the Obama administration to establish standards for greenhouse gases and fuel efficiency in the medium and heavy duty vehicle sector.

All seems to be on track, including amendments by the NHTSA and EPA to address standards for these engines and vehicles. In essence, the amendments correct inconsistencies and clarifies current regulatory text used by both agencies. At the same time, duplicative reporting requirements and minor differences between the NHTSA and EPA were eliminated.

Mandate for Electronic Logging Devices

The mandate for FMCSA certified electronic logging devices, is expected to take up to two years to implement. Beginning in October 2013, providers of electronic logging devices were expected to begin making them available to operators. All fleets are required to be in compliance by October 2015.

The two-year timeline is forecasted based on milestones required to fulfill the regulatory process. These devices are expected to replace paper log books that track hours of service records for all carriers that must file a record of duty status. If necessary, the timeline could be pushed out with some process variability for compliance purposes.

Requirements for Speed Limiters

According to the NHTSA, a federal rule is pending that will require the installation of speed limiters on newly manufacturer heavy duty trucks. In addition, big rigs that are currently in service will need to be retrofitted for these devices. The pending regulation is a result various federal studies that show speed limiters can reduce the number of fatal accidents each year and improve fuel economy of trucks.

When the rule was introduced in 2006, the American Trucking Associations and Road Safe America, along with nine motor carriers, filed a petition requesting that the limit be at least 68 mph. Currently, the speed limit has been revised to 65 mph. the use of speed limiters is not the issue; nearly 70 percent of trucks operating in the U.S. already use this self-regulating device. They report that they have reduced the number of accidents while saving on the costs of maintenance and fuel consumption.

There is also opposition from the Owner-Operator Independent Drivers Association in Canada. Basically, OOIDA does not believe that highway accidents and fatalities will decrease because to the speed limiter regulation. They argue that differential speeds among vehicles will increase the likelihood of more crashes – not less. Without uniform highway speeds, there will be more maneuvering and unsafe interactions on the road.
Historical Regulatory Changes

Economists and industry experts declare that the trucking industry is facing the largest concentration of regulatory actions in its history. Changes in hours of service, California emissions, greenhouse gas and mpg, electronic logging devices and speed limiters can have a tremendous impact.

Calculating the effect of these changes have little to do with the type of regulations the industry faces. Rather, the fact that they are happening at the same time is bound to affect industry capacity on some level. Whether it leads to fewer drivers, slower delivery times or some carriers going out of business, the trucking industry will not come out unscathed. These regulations are game-changers in an industry that not only relies on doing business a certain way, but has a customer base that depends on its services.

There is some data that suggests the effects of the regulations may require hiring at least 1.5 more drivers. Other data estimates up to 200,000 more drivers are needed. Either way, without adding more driver current fleets will not be able to maintain current productivity levels and be in compliance with rules that come with a high price tag.

This is only considering current fleet and owner-operators and does not include new fleets. Many industry experts believe that the new regulations will also create barriers to entry. In some cases, mergers between carriers may occur in an effort to efficiently manage all the changes. Small and medium-sized carriers will experience a tougher climate of adjustments; larger carriers may have an easier time to comply with limited interruption to their operations.

Economic indicators are a mixed bag of predictions on what fleet and owner-operators can expect. Non-trucking indicators such as construction and mortgage rates leaves some optimism. However, it is not enough to expect that an exuberant economy will balance out the impact of the regulations. The lack of firm data does not change the responsibilities imposed on the trucking industry by the new regulations.