C. F. Lynch & Associates

Take the Credit

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 trucking industry.

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 14 hours.

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.



List all publications

Return to Logistics Advice