Back to BASICs
Federal truck safety program puts onus on using compliant carriers and drivers.
By Eric Kulisch
An anticipated freight capacity shortage later this year could be more a function of too few drivers rather than a lack of spare trucks to haul goods, trucking industry executives say.
New federal safety regulations targeting unsafe drivers and fatigue prevention, in addition to demographic changes and quality-of-life issues that normally make it difficult to maintain and grow the workforce, are expected to reduce the available driver pool. Nonetheless, shipper concerns about the immediate impact on carriers from the Department of Transportation's Compliance Safety Accountability initiative appear to be diminishing in urgency.
CSA is designed to reduce large truck crashes by changing the enforcement and compliance model so federal inspectors and state police have more accurate, current and accessible data about behavior patterns, and can intervene sooner to get carriers to develop safety improvement plans, issue penalties or shut down operations.
A 2005 study released by the American Transportation Research Institute, the research arm of the American Trucking Associations, stated that crash likelihood increases 56 percent for a driver with a conviction for speeding more than 15 miles over the speed limit, and skyrockets 325 percent if a driver has a reckless driving violation.
The safety monitoring and measurement program was developed in response to statistics showing a leveling off in the decline of fatalities associated with commercial vehicle crashes. Under the legacy safety program, Federal Motor Carrier Safety Administration inspectors conducted on-site compliance reviews to determine a carrier's safety fitness. The reviews took several days, meaning only a fraction of the 700,000 active interstate motor carriers were checked each year, given the agency's limited resources. And the compliance review scores were static, since they were not frequently updated.
The new model measures safety performance using roadside inspections, state-reported crashes and FMCSA carrier profiles to quantify a carrier's performance based on the following Behavior Analysis and Safety Improvement Categories, or BASICs:
' Unsafe driving.
' Compliance with hours-of-services rules intended to prevent fatigued driving.
' Driver qualification and licensing.
' Drug and alcohol violations.
' Vehicle maintenance.
' Proper loading.
' Crash indicators.
Carriers receive a score in each category ranking them against carriers in their peer group with a similar number of inspections. The system is dynamic, meaning a negative event recedes in importance over time as more current data with positive results takes precedence. Five of the seven behavior categories are publicly available online, through the FMCSA Web site or a handful of software providers, to help shippers and insurance companies. Those that fall below a certain threshold in the category only have the word 'alert' next to their name.
The other two BASICs are undergoing additional revision to make sure they are meaningful, and accurately reflect a carrier's safety posture, before being released to the public. Carriers have access to all their own measurement results.
The CSA system went live in December. All motor carrier roadside violations for the last 24 months and driver violations for the previous 36 months have been computed and recorded in the CSA scores. In 2009, the FMCSA and state officials conducted more than 3.5 million roadside inspections of which almost 6 percent resulted in at least one violation placing the vehicle or driver out of service.
The new system for the first time creates a mechanism to track violations and assign scores to individual drivers. Any score above 90 percent receives a red flag.
Under the previous system, many crashes reported to DOT only referred to the carrier involved and not the driver, warnings for speeding and other actions were not entered, and drivers were never held responsible for maintenance issues even though they are supposed to check their vehicles before the start of each day. Different reporting structures in each state also make it difficult for carriers to get a complete picture of a driver's history.
Now all that information will be in one place. That will help prevent drivers from starting out with a clean slate each time they join a new company.
Meanwhile, the driver scores will roll up into the ultimate carrier scores. Carriers, therefore, will be held accountable for the driving records of drivers on their watch, even after a driver leaves their employment, so they have an incentive to select safe drivers.
Freight industry executives say CSA eventually will thin the ranks of drivers and contribute to carrier consolidation, but nobody has any idea how long it will take for those trends to materialize. Drivers with excessive violations will find it hard to find employment while safe drivers will become more marketable, and could command a higher per-mile rate or signing bonus, they say.
Schneider National estimates that 10 percent of motor carrier industry capacity could be lost, 'because there is no doubt the industry has drivers in it that clearly have moved from company to company with driving records that are less than stellar. And you take 10 percent out of any market, even when it has as much surplus today as it does today, it will have an effect,' said Schneider Chief Executive Officer Christopher Lofgren.
The prediction is in line with that of transportation stock analyst Donald Broughton of Avondale Partners, who wrote in a research note that up to 10 percent of the truckload fleet could be sidelined by CSA and new hours-of-service rules.
The impact could be felt in 2012, or sooner, depending on how quickly the full CSA system kicks in, Lofgren said.
Other analysts estimate losses due to CSA ranging from 4 percent to 8 percent of the driver population, with effects not being felt for awhile due to the fledgling nature of the program.
'The improving macro (economic) outlook is likely to be a bigger factor for truckload pricing in 2011 than CSA,' said Morgan Stanley analyst William Greene, in a client note.
Don Osterberg, Schneider's senior vice president of safety, security and driver training, made clear in an American Shipper webinar last fall that CSA will definitely trim the amount of available drivers and lead to carrier consolidation. States don't need to revoke commercial drivers' licenses, he added, because motor carriers will be accountable for purging bad drivers from their fleets.
'There should be no safe haven for unsafe drivers. CSA will help to identify them and the industry will take them out,' he said at the webinar (which is available here).
Driver information will not be publicly available. A carrier will only be able to see the inspection results for its employees, but won't be able to rank them across the industry. FMCSA will closely hold the driver data and provide it to auditors that come to do compliance reviews and to roadside inspectors as part of the new targeted inspection approach. Drivers can choose to grant potential employers access to their records for a fee through a special third-party service as part of the hiring process.
'But knowing that that score exists, proactive carriers will reverse engineer that scoring methodology, and create a driver safety management score for their drivers,' Osterberg said.
Schneider has asked the FMCSA to share the driver scores with carriers because it would create a common view of the driver's performance and help meet the objectives of CSA, Osterberg said in a follow-up interview.
| ' Evaluate your trucking providers to make sure they have satisfactory scores in the FMCSA's system. ' Go a step further and rank your carriers by risk based on the number of negative incidents they have. ' Don't immediately jettison carriers because of a few driving incidents until the CSA system is perfected. ' Request additional data on undisclosed CSA categories from carriers that have had safety violations to see if the problem is isolated or not. ' Use carriers that carry enough insurance to cover most claims in the event of an accident. |
Large companies with strong compliance practices generally favor ' and stand to benefit from ' CSA because it helps get rid of companies that stay in business, or can offer lower rates, by taking shortcuts around driver and vehicle safety rules. Industry officials say they support the CSA's objectives, but are working to improve some aspects of how the system is implemented.
'Based on the estimates we have done, looking at a number of carriers, we think it's safe to assume that 280,000 commercial drivers will have at least one deficient CSA BASICs score as measured by a 90 percent threshold. Not exactly sure how many drivers will lose their commercial drivers license, but they could find themselves unemployable,' Osterberg said.
The figure was extrapolated from a database of 600,000 drivers and their driving histories managed by Vigillo, a transportation software analytics firm.
The estimate is conservative because carriers less concerned about compliance don't use the Vigillo service and probably have higher amounts of drivers with red flags, he explained.
Estimates for the number of commercial truck drivers in the United States vary from 2.8 million to 3.6 million. Osterberg's figure roughly equates to about a 10 percent drop in the driver population based on the lower end of the range.
Inexperienced entrants out of driving school will become more attractive to highway carriers than experienced drivers with some baggage, industry experts say.
Jeffrey Tucker, CEO of Cherry Hill, N.J., freight broker Tucker Company Worldwide, cautioned that CSA is not a rating system, but is intended as a way for FMCSA to prioritize its resources by focusing attention on companies that show signs of accident potential.
Eventually, the basic categories will be used to derive a new carrier fitness determination.
Nonetheless, CSA has caught the attention of many shippers concerned that improved transparency into motor carriers' safety practices could increase their liability in the event of an accident involving their cargo, especially if the carrier doesn't carry sufficient insurance to cover a major claim for a victim's injury or death.
Case law in recent years has gradually extended liability to the owner or receiver of the goods, or the broker that arranged transport, essentially assigning a duty to look into the competency of the carrier even though there is no statutory requirement do so, said Clay Porter on the American Shipper webinar. Porter is a motor carrier defense lawyer and partner at Dennis, Corry, Porter & Smith.
Transportation lawyers and trucking executives are warning shippers that they need to exercise more due diligence in their carrier selection because the CSA scores will make it easier to prove they should have known when a carrier is at higher risk for a crash.
The dynamic nature of the CSA scoring system means shippers may have to devote more resources to keep up with the safety status of their carriers, Osterberg said.
Wal-Mart, which also operates its own fleet, immediately classified every one of its outside carriers as high, medium or low risk when the CSA system went live in December, said Ken Braunbach, senior director of transportation, during a Feb. 16 webinar on freight trends hosted by the Federal Highway Administration.
Half of the retailer's trucking providers have two alerts or less, which is considered acceptable, he said. His staff is having conversations with a few carriers that have four or more alerts and asking them to share the cargo loading and crash indicator scores that are not accessible yet via the CSA site to understand their total risk and performance.
Wal-Mart has yet to determine what safety criteria it will use in the selection of new carriers, Braunbach said. Its contracts, like those of most shippers, still state that a carrier must have a 'satisfactory' rating from FMCSA.
The agency also rates carriers as 'conditional' or 'unsatisfactory' under its legacy system.
Con-way Freight, a less-than-truckload carrier, and sister company Menlo Worldwide Logistics, have run all of the truckload carriers they utilize on behalf of customers through the CSA model to rank them, said Randy Mullett, vice president of government relations and public affairs at parent company Con-way Inc. Speaking on the FHA webinar, he added the operating companies won't take significant action until the last two behavior categories are corrected and there is confidence the data behind the scores is accurate.
'If you're not aligned with an asset-based carrier with a good compliance program and strong commitment to a safety program you're potentially taking on liability exposure, or may be exposed to capacity shortfalls during peak periods of demand,' said Steve Van Kirk, Schneider's vice president of intermodal commercial management.
About 90 percent of Schneider's intermodal shuttle moves are executed by the company's own orange trucks and drivers, which could give the company an advantage when driver capacity gets tight over non-asset-based carriers that outsource the actual haul to independent truck drivers, he said.
Tucker said shippers and third-party logistics providers shouldn't rush to make decisions about their carriers based on CSA because the system is not fully developed and they could prematurely harm themselves.
FMCSA still must train a lot of police officers at the state level who conduct commercial vehicle inspections and enforcement so they know how to input data into the system, and include clean inspection reports to provide a more detailed picture of carriers, he said.
'The toughest part of the training is making sure good data gets captured as often as the violations. But are police officers in the business of citing people for good data? I've never been pulled over and told I'm doing a good job driving. So there's a significant learning curve there,' Tucker said.
In the meantime, a large number of carriers probably will have blank scores in many categories until authorities at the local level get used to filing all their reports to FMCSA, he added.
Also pending is a study by the University of Michigan Transportation Research Institute, looking at whether there is a causal relationship between the behavior categories and crashes. An earlier study showed a correlation between only three BASICs and crashes.
Greene, the Morgan Stanley analyst, concurred that the immediate impact of CSA is overblown. Factors that could slow down full implementation include:
' State budget shortfalls that prevent more aggressive enforcement efforts and training of officers.
' Lack of uniformity in how individual states apply CSA standards.
' Political unwillingness to pressure drivers during a period of high unemployment.
' Administrative delays implementing program details.
' Data integrity issues.
Morgan Stanley's comprehensive analysis of the CSA database in December found that only 2.2 percent of DOT registered for-hire carriers had a severe violation that might require immediate intervention. Greene said that uncertainty about data in the system makes it impossible to quantify how many drivers could be at risk of losing their job.
Douglas Woodrich of Longbow Research said some carriers have already released drivers because of their CSA scores, while other drivers are receiving extra training to reduce their scores.
Hype about the impending capacity crunch due to CSA will likely give carriers more leverage in pricing negotiations despite delay in the actual impact, he added.
Tucker said premature overreaction to BASICS at this point may leave a shipper in the lurch because the handful of carriers they retain may not be able to fill their customers' needs as demand picks up.
For a shipper to void a carrier relationship on the basis of a single BASIC score over the threshold, he said, is 'going way overboard for something that's not a safety rating,' especially considering that scores can change month to month.
'Just because you're over a threshold doesn't mean the worst thing. There are multiple levels of intervention,' from a warning letter to a comprehensive investigation, or even suspension of operating authority, and steps in between, he said.
'To draw so firm a line in the sand this early in the game without the whole picture, you're probably setting yourself up for some harm in the business. It doesn't take much to stress the system to the point that there aren't enough trucks to move the freight and we're paying out the nose.'
It's also hard to retreat from a strict position from a liability standpoint because a plaintiff could point to backsliding on the part of the shipper when it comes to safety.
'I'm not saying be reckless and not care. But before December nobody had a line relative to BASIC scores. So how can any of us, after two months, know that the data is reliable and it's touching enough carriers, what the consequences on our companies and to the economy will be?' Tucker said.
He suggested that if the capacity crisis peaks in the fall, shippers and carriers will be too busy trying to get freight moved to learn about BASICs if evaluating carriers for safety is not already on a company's yearly plan. He estimated that only 10 percent of shippers even considered carrier ratings under the previous SafeStat system.
'CSA's inability to directly terminate drivers leaves open the potential for poor drivers to remain, particularly as pricing (for carriers) improves,' Greene added.
'As we saw in the last cycle, when carriers become desperate for drivers, there is a greater willingness to lower the quality of the driver recruitment pool.'
Most shippers that participated in a Morgan Stanley survey published in early February believed that CSA's impact would be felt over the course of several years, and that it would not lead to a capacity crunch in the near term. Fifty-eight percent of about 500 shippers said CSA is becoming a significant or moderate part of contract negotiations. Nine percent said they will avoid carriers with even a single BASIC alert and 57 percent said they will only avoid carriers with severe alerts.
'We view CSA scores as an indicator to the level of service a new carrier will provide,' one anonymous survey respondent was quoted as saying.
A lot of comments focused on uncertainty and the need to see how things shake out before determining policies relative to carriers.
Insurance. Osterberg predicted that potential legislation or regulation will likely push the minimum insurance requirements for motor carriers from $750,000, which has been in place since 1984, to $2 million to $3 million, factoring for inflation.
The average claim for severe crashes is much higher than the current insurance. Many recent jury awards against motor carriers have been in the $25 million to $30 million range and a private fleet operator recently received a $62.5 million judgment, Osterberg said.
Most large carriers like Schneider carry $50 million to $150 million of insurance coverage, he said.
'The fly in the ointment is that most of the smaller carriers will not be able to afford to self-insure to that level, and most of the insurance underwriters I've talked to will be unwilling to underwrite policies in what they consider the working layer for motor carriers. So when the minimum insurance levels go in, I expect that we'll see fairly significant consolidation w/in our industry,' Osterberg said.
Broughton also anticipates a divergence in insurance costs within the industry over time.
'As larger fleets improve driver quality they may see insurance expenses decline, while the lesser players who attract lower quality operators may experience higher insurance costs. However, it is also possible that insurance rates may go up as CSA scores are interpreted to reveal new data that qualify as a significant change in risk profile, allowing the insurance company an opportunity to cancel or re-price the business with more negotiating leverage,' he wrote.
Compliance requirements and costs will have the greatest impact on owner-operators and small carriers with one to three trucks, Tucker said, but the shakeout could take several years given the incomplete nature of FMCSA's new safety regime. It will take at least 18 months before BASICs and other data start to impact the safety fitness determinations and the change will require the agency to go through the rulemaking process to change the methodology, industry officials say.
Carriers can clean up their scores by retraining drivers and other employees, improving their internal compliance program or getting rid of bad drivers and hiring good ones to raise their score.
That will be a challenge in the short-term, Osterberg said, because many carriers falsely believed the system was starting with a clean slate, and didn't make preparations to get their compliance programs in order.
And, he added, carriers that get in a compliance hole may find it difficult to dig themselves out. That's because scores are reflected as a percentile number. In order to materially improve its score, a carrier will have to reduce violations at roadside at a greater rate than other carriers in the same category.
Over time, though, a carrier should be able to improve its score if its performance gets better, he said.
Trucking executives and analysts say motor carriers inevitably will increase driver pay, and restore recruiting budgets that had been slashed during the downturn, to attract and retain qualified drivers. Several dry van and flatbed carriers have already raised driver pay 2 percent to 3 percent, analysts say.
STI, a multi-service trucking company in Fort Wayne, Ind., that specializes in custom load handling, is giving $5,000 bonuses for any driver that meets its standards and offering bonuses to employees that provide referrals to qualified drivers, Jerry Levy, executive vice president of sales and marketing, said in an interview.
STI, the high-value commercial products division spun off from North American Van Lines in 2004, has different requirements than most carriers because its drivers must be able to install health care devices, high-tech equipment and other goods at customer sites.
Industry experts say they expect the potential shortage of truck drivers from regulatory and other factors will cause shippers, logistics providers and motor carriers themselves to further accelerate the transition to intermodal rail, especially conversions for short-to-midsize lengths of haul, leaving trucks to handle local container pickup and delivery at the rail ramp or customer facility.
Osterberg said growth of private fleets might be another outcome of CSA, but only if a company is confident it could manage the increasingly complex regulatory environment.
Vigillo studied existing CSA data and found that private fleets had higher scores than some of the for-hire carriers, he said.
But Tucker said private fleets aren't the answer because the liability on outside companies is indirect and it is difficult to operate a non-core business in a financially sustainable way while trying to keep one's product competitively priced in stores.
CSA, hours-of-service, and electronic data recorders are part of a tougher regulatory and market environment that includes clean truck mandates at ports, skyrocketing diesel fuel prices and possible insurance increases. Together, these forces have placed a premium on well-capitalized, efficient, technologically advanced motor carriers that have the information systems, maintenance infrastructure, bulk fuel-buying power and expertise necessary to comply with the new rules ' and make it difficult for mom-and-pop operators to stay in business long term.
The gap between companies with qualified drivers will widen as good drivers gravitate towards companies that have invested in newer trucks that are less likely to break down and keep them from earning their mileage pay, Avondale's Broughton said. Large publicly traded carriers like FedEx Freight and Werner Enterprises have fleets that average 2.3 years in age compared to 6.7 years ' the oldest in history ' for the industry at large.
Greene cautioned that CSA could drive faster fleet replacement to appeal to good drivers, creating a risk of supply growth.
'In the end, we envision a world where two classes of truckload carriers emerge: high-end and low-end. The high end will be those that operate with a bench of the safest drivers and command premium pricing for their work. The low end will be carriers that employ second-tier drivers and pick up more price-sensitive freight, as well as some of the freight that ends up being outsourced by the high-end carriers,' Broughton wrote.
The rest will be out of business.