Last week we discussed the challenges of predicting the future, what parts of predicting the future are easy, what parts are more challenging, and where many predictions go wrong. As we explained, predictions of large disruptions in a marketplace seldom prove to be accurate. Our general rule for this is, “Calamity, well anticipated, seldom is.”
One of the most blatant examples of this in recent history was the Y2K panic. Because the programmers of the 70s and 80s hadn’t planned for the year input field going from 19 “99” to 20 “00,” the entire world’s system of computers and everything that relied on those computers was going to crash. Airplanes were going to fall from the sky and cash could no longer be withdrawn from ATMs after midnight Dec. 31, 1999. Instead, almost everyone in the free world upgraded their hardware and software, or learned to live with systems that told them it was Jan. 1, 1900. Either way, the massive calamity that was widely predicted never happened because it was “well anticipated.” It is at this juncture we feel morally obligated to point out the obvious. Everyone who is even remotely aware of the trucking industry in the U.S. knows that the ELD rule went into effect on Dec. 18. Time will tell, but so far there are not massive numbers of trucks parked on the side of the road, and shippers are actually able to find trucks to move loads, we are not surprised. Why? Because, “calamity well anticipated, seldom is.”
The other way predicting the future is wrong is the failure to consider the law of unintended consequences. Just like everyone else who is familiar with the new regulation and the way that the trucking industry works, we expect that adoption of, and enforcement of, the ELD rule will initially lead to some constraints on trucking capacity. How big will that reduction be and how long will it last is yet to be seen.
There are three basic factors driving the predictions of capacity in trucking:
- Fewer miles per truck – Most of us anticipate some loss of capacity through a reduction in miles that can be run by the trucks that are in service. Said another way, log book cheaters can’t cheat the paper log book anymore and so the number of miles the cheaters gained by cheating will be lost.
- Fewer trucks – Trucking will become less profitable and, as a result, thousands of truckers will go out of business which will idle tens of thousands, even hundreds of thousands of trucks.
- Fewer trucks with fewer miles, but more efficient? – We expect that in the long-term the unintended consequences may have an equal to more powerful effect on the visibility of equipment and the bad behavior of shippers and receivers.
Let’s dissect all of these points:
Fewer miles per truck – This is dependent upon not only how many truckers are cheating but how they are cheating. Estimates vary widely on the number of trucks that are ELD compliant. It is widely understood that all the major fleets are compliant, and have been for some time. It is also widely understood that almost all the small fleets are not compliant. That begs the question, “How many of the small fleets cheat their logs books?” and more importantly “How do cheaters cheat their log books?” At the margin, we suspect/concede most of those still using paper log books were making small ‘mistakes,’ however, we believe that the vast preponderance of those ‘mistakes’ were a result of driving less than 11 hours, but not driving those 11 hours within a 14-hour window. We believe the number of trucks driving more than 11 hours in 24 hours is less than 1% of the nation’s fleet. If the cheating of log books is not a function of driving more than 11 hours a day, and more a function of not driving the 8.0 to 10.9 hours within a 14-hour on-duty window, then the reduction in capacity may not be as great as has been widely predicted.
Fewer trucks – Another one of our long-held rules of this marketplace is, “It takes forever to kill a trucker!” If predictions of dramatic reductions in capacity are correct, then rates will also rise dramatically. A dramatic increase in rates could keep marginal truckers in business, and even encourage some to add capacity. We will closely monitor the trucking company failure rate in the coming weeks and months, but we see more trucks, not less, as a real possibility in the intermediate to long-term. The more dramatic the rise in rates that happens as a result of ELDs, the larger the possibility that more trucks are added to the nation’s fleet. To the extent that capacity is reduced by trucks running fewer miles, there will be a real need for more trucks in the nation’s fleet.
Fewer trucks with fewer miles, but more efficient? – We expect that in the long-term, the unintended consequences may have an equal to more powerful effect on the visibility of equipment and the bad behavior of shippers and receivers. As all trucks adopt ELDs, they become easier to add to technology systems that provide shippers and brokers better visibility of equipment. Those same systems also allow truckers and brokers to more closely monitor and score how fast each shipper and receiver loads and unloads trucks. This data will allow truckers to be more selective in accepting loads and punish bad loading and unloading behavior with “poor reviews” that are based in verifiable data.
Bottom line, we haven’t seen a dramatic drop in capacity or meteoric increase in rates yet. We concede, that it is still too early to tell. That said, the ELD rule was well anticipated and if cheating was more a function of not driving the hours within a 14-hour window, and less a function of driving more than 11 hours, then capacity may not go down as much as was widely predicted. To the extent that rates go up as a result of ELDs, the total number of trucks on the road may go up, not down (as has been widely predicted by others). Lastly, increased use of in-truck technology may result in more equipment visibility by more market participants, many of whom stand to benefit by making the use of that equipment and those driver’s hours more efficient. Only time will tell, but we will keep you informed as events unfold. Stay tuned…
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