New HOS and Effect on Utilization

Rules limiting the number of hours that commercial drivers can be on the job are resulting in a marked drop in productivity, trucking companies claim.

Schneider National, Inc., one of the nation’s largest truckload carriers, predicted back in February of 2011 a productivity drop of between 3% and 4%. Four months after implementation of the HOS rules, Schneider reported declines of 3.1% on solo shipments and 4.3% on team shipments.

“The Hours of Service changes could not have come at a worse time,” said Dave Geyer, senior vice president and general manager of Schneider’s Van Truckload division. He said the rules make it tougher to recruit new drivers, in a industry that has been suffering from a labor shortage for years.
The HOS rules are exacerbating the situation, critics say. In 2012, the industry was short about 113,000 drivers. That number is expected to climb to 323,000 by 2015, according to the latest forecast by FTR Associates.

Geyer added that there’s no evidence that the new rules have made the roads any safer. “Ongoing feedback from our drivers is consistent,” he said. “They do not feel better rested as a result of the rules change; just less productive.”

Reports by industry analysts indicate similar third-quarter drops in productivity among other major carriers, although not as dramatic as that of Schneider. J.B. Hunt Transport, Inc., Werner Enterprises, Inc., Swift Transportation Co. and Knight Transportation Inc. are among those to have experienced declines of between 2% and 3% as a result of the HOS rules, according to J.P. Morgan Chase & Co.

The biggest impact appears to be on carriers that haul full truckloads for a single customer, as opposed to the less-than-truckload (LTL) operators that service multiple accounts. The reason is truckload’s longer average length of haul, resulting in “a 6% to 7% drag on productivity in its longest haul lanes and a 3% drag overall,” according to Stifel Nicolaus & Co.

Said Armutcuoglu, managing director of investment banker Loeb Partners Corp., said it’s too early to tell whether the HOS rules will have a lasting depressive effect on trucking operations. It’s unclear how or even whether carriers are monitoring drivers’ compliance with the law, he said. “My guess is, it will take a while until this settles in.”

Some carriers are even taking advantage of the stricter environment, according to Armutcuoglu. He cited P.A.M. Transportation Services, Inc., a smaller trucker that reported strong utilization gains in the third quarter. It appears to be picking up some business from rivals that are less well-equipped to withstand the tighter restrictions.

Armutcuoglu believes the new HOS rules, coupled with the chronic driver shortage and a still-weak economy, will drive many smaller carriers out of business. The majority of trucking companies own fewer than five vehicles, he said, and cannot survive a 3% to 5% drop in utilization.

FMCSA is defending the stricter rules. In a statement, it said they are intended “to reduce fatigue-related truck crashes following years of scientific research, safety studies, and consideration of public comments.”

The changes will prevent 1,400 crashes and 560 injuries and save 19 lives per year, “while only impacting the most extreme schedules where drivers are working more than 70 hours per week,” the agency added. “In the long term, [they] will also generate $280 million in savings from fewer crashes and $470 million in savings from improved driver health.”