By Clifford F. Lynch
DC Velocity, January 2004
Take the Credit
Back in May when the new truck driver hours-of-service (HOS) rule was
announced, it seemed everybody could agree on one thing at least: it represented
a big improvement over the FMCSA’s first attempt at reform back in 2000. What
they couldn’t agree on, however, was the rule’s probable impact on the
Certainly, the rule, which took effect on Jan.4, seems innocuous enough. It
allows drivers to drive up to 11 hours followed by a 10-hour break (versus 10
hours followed by an eight-hour break under the old system); permits them to
remain on duty for 14 consecutive hours (versus 15); and then mandates that they
go off duty for 10 hours (versus eight). But many believe that even these
seemingly minor changes carry too high a price.
Although the Federal Motor Carrier Safety Commission (FMCSA) projected that
the trucking industry would be able to get by with 48,000 fewer drivers once the
new rule took effect, an impact study by investment banker Stephens Inc.
indicated quite the opposite. Truckers, Stephens said, would need to hire 84,300
more drivers to handle the same traffic.
In the past couple of months, several more signs have emerged that point to
trouble ahead. Investment bankers and carriers alike have looked at the numbers
and drawn some rather alarming conclusions. Consider the following:
· A leading equity research firm,
BB&T Capital Markets, downgraded the stocks of truckload carriers
Heartland Express, Knight Transportation and Swift from "buy" to
"hold," citing pressures on earnings caused by a likely drop in
driver and asset productivity. Although BB&T analysts noted that truckers
might eventually be able to offset the productivity hit by raising rates and
leaning on shippers and consignees to improve operations, they were concerned
enough to downgrade the stocks for the first quarter.
· A November research report from
investment banker Morgan Stanley projected that if productivity were to
decline 5 percent as a result of the new regulation, a driver earning $0.28
per mile would need to make $0.295 per mile to avoid taking a hit in pay.
Morgan Stanley further predicts that motor carriers will raise rates by 3 to 6
percent in 2004 simply to offset the cost of the rule.
· Schneider National, North America’s
largest truckload carrier, has projected productivity losses of 1.0 to 7.4
percent, depending on the length of haul.
Though some will argue the point, we believe there’s ample evidence that
the new HOS rule will raise truckers’ costs significantly. It could also be
the final blow for some small and medium-sized carriers already staggering
under the triple wallop of rising diesel prices, rising insurance premiums and
requirements to use cleaner-burning but less-efficient engines.
What does all this mean for the distribution center manager? If nothing
else, it provides a huge carrot to revamp operations to minimize drivers’
idle time. Admittedly, this might require some contortions, if not an outright
overhaul. But as we suggested in our November column ("watch the
clock," DC VELOCITY), managers can make great strides in cutting
wait time through the following five steps: establishing a drop and hook
system; shipping unitized freight wherever possible; keeping their scheduled
appointments; making sure documentation is ready for drivers when they arrive;
and analyzing multiple-stop programs to make sure they can be completed within
But if you go to the trouble, you should make sure you get credit for your
efforts. When contracting with carriers, negotiate incentives that will reward
you for enhancing carrier productivity. Although the five steps mentioned
above will also improve your own productivity, the biggest benefits will be
found in more efficient carrier and driver operations. There’s no reason why
the distribution center manager shouldn’t share in the savings.