Summary
Logistics Management writer Michael Regan gets it right in raising awareness of the potential pending regulatory costs of legislation under consideration. We will take a stab at real planning costs as they apply to each. In pennies per mile businesses such as trucking, it doesn’t lead to a pretty picture.
Analysis
First of all, I’m a trucker who wants to breathe clean air, not hurt anyone and leave the planet better than I found it. Along the way, I hope to have helped a few folks. Most of the others I have known in feel the same way. Pushing mandates versus normal evolution; the acceleration of all of the noted issues; and the general tax / economic problems has number crunchers sharpening the pencils.
The Cap and Trade (or cap and tax for truckers) ends up being mostly a math issue. If we take a normal trucker running 120,000 per year getting 6MPG, it means they burn about 20,000 gallons of diesel. Each gallon of diesel accounts for about 20 pounds of carbon, so each such a truck produces 200 Tons of Carbon. If Carbon is traded at $10 per ton (today it’s only $0.15 in US but 15 Euros overseas), it’s $2,000 or $0.016 per mile. If it’s at the target price of $20 per ton, it would be $0.03 per mile. There is no real benefit in the trading schemes for truckers for a variety of reasons, but instead the fuel cost savings most are trying to achieve today anyway.
Hours of Service are more about politics than statistics, as the rate of crashes / fatalities have dropped since the latest rules were implemented. Knocking the dust off my old logbook program, the big issues have to do with the number of hours driving (11 versus old 10), the 14-hour daily clock start now, hours in the sleeper (10 continuous with no split time versus old 8 with split) and the 34-hour reset. For most fleets that don’t have trucks that max out hours, a change backwards will not be notable. For those who plan for maximum utilization (i.e. the most productive fleets), it can cost up to 10% in utilization or up to $0.05 per mile, Those running routes (distribution) are also negatively affected. Drivers are unhappy too, as our surveys show that the 11 and 34-hour rules are most popular. Allowing for splitting sleeper time (i.e. no penalty for stopping when tired) is still desired, but will most probably not be addressed.
CSA 2010 has several cost implications. One set has to do with inspections and record keeping. The others have to do with drivers’ qualifying, the repairing of equipment and insurance rates. The planning work we are doing have these costs at $0.02 per mile for inspections and repairs, but up to $0.05+ when there is a driver supply / demand imbalance.
The other hidden costs have to do with other safety technologies on trucks including speed monitoring and G-force meters - with distance monitoring sensors coming fast. Some fleets today have speed bands set, along with parameters for G-forces for assessing roll-over potential and hard braking. If a driver exceeds these numbers in a period of time (like four events in a 12-month calendar), they can be terminated for safety reasons (averting potential lawsuits). Major fleets with an internal speed limit much less than the State speed limits can trigger events like when rolling off a hill. Wasting energy with Jakes or service brakes to stay under company speed limits doesn’t make sense. Some otherwise very good drivers with otherwise no tickets or accidents are being affected with notations on their DAC (industry performance) reports.
These are some of the reasons major fleets will have driver shortages in the future, although attempts are underway to figure out the best approach today. Regardless, it’s another good reason for major fleets to pare back numbers. Like we have seen before, driver shortages dramatically affect wages. When we first had drivers in 1990, we paid $0.22 per mile - now almost 20-years later it’s about $0.40 per mile.
Emissions issues have been written about previously, but the effect on costs varies with the base cost. Within California and at the ports (or railway terminals elsewhere), the fixed cost of new trucks versus the old ones can be $0.15+ per mile. Having traveled California last week, we met with many who see this as a show-stopper. If one is just upgrading from pre-2007 to 2020-compliant engines, the cost of the new technology is $0.04 per mile. We are having difficulty in getting this financed. That is one reason suppliers like Paccar, Navistar, Daimlers / Freightliner and Volvo have flat outlooks. This is another good reason for fleets to pare back their assets, but those like United Parcel Service, Schneider, JB Hunt, YRC Worldwide and other know how to keep trucks much longer.
The other tax issues have to do with State and pending Federal fuel tax increases (and tolls) for infrastructure. The old rule for taxes and fuel price increases follow the same model - a nickel per gallon change in price equals a penny per mile. While surcharges may offset much of this, it’s still a cost for shippers - which may sway the decision whether to do business together. Add $0.05 cents per mile for the $0.25+ being discussed.
Finally on an issue not noted is the effect of logistics providers (3PL, brokers, etc.) in the big scheme of things. While some see this model as a panacea, in reality one still needs trucks to do the work. We have seen and been involved in all of the improvements seen in truckload (and transforming LTL today). The current approach of beating down rates for shippers and to carriers while offering little real value - will come back to equilibrium when demand returns. Shipper’s get it.
We’ll stop here, but just rolling up these costs the potential increases are over $0.20 per mile. If one uses today’s $1.30 per mile base rate (without surcharge), it’s a 15% increase in costs. This does not include the internal operations costs. Regardless, the costs will be passed on - since $0.03 fleet profitability pales in comparison!
