A Cloudy Productivity Forecast in 2014

By Mark Montague

In what is supposed to be their quiet season, many of the truckload carriers and 3PLs I know have been incredibly busy. Rates and demand are unseasonably strong, and for the first time in a long time there’s a genuine sense of urgency in the supply chain. 

As encouraging as economic conditions may be, new regulations—two in particular—are creating uneasiness among truckers and freight brokers. Let’s take a look at how they might impact 2014.

Broker Bond Requirements

On Oct. 1, 2013, the surety bond requirement for freight brokers rose from $10,000 to $75,000. This new bond or an equivalent trust applies to freight forwarders as well as for-hire carriers who broker loads even occasionally.

By early December, the FMCSA had revoked the operating authority of 8,180 brokers who failed to meet the requirement. That’s a whopping 38% of the 21,700 brokers that had operating authority at the beginning of that month. The Association of Independent Property Brokers & Agents warned of higher consumer prices and decreases in freight rates “due to the megabrokerages’ new oligopoly.”

While the percentage of brokers losing authority seems high, a sizable number of brokers registered with the FMCSA are what you might call “casual” brokers, companies for whom freight brokerage is not a major source of income. The amount of goods moved by these brokers is only a small percentage of the overall freight moved nationwide each year. At our business, only a handful of brokers who post on DAT load boards failed to meet the $75,000 bond requirement. Going forward, the negative impact on the industry is not likely to be significant.

Hours of Service

Every day since enforcement took effect on July 1, it seems like there’s a new study on how the new hours of service rules are affecting the supply chain. The Transportation Intermediaries Association said its members are reporting a 3% reduction in capacity. The American Transportation Research Institute estimates an annual loss of between $1.6 billion and $3.9 billion in driver wages.

I, too, have been monitoring the effects of HOS on truckload freight rates. Here two notable trends (data are excerpted from the spot market rates database in DAT RateView, which is based on more than $24 billion in actual market transactions):

  1. Rates are up, but not enough to counter lost productivity. Truckload rates have increased nearly 1.7% since July 1, after seasonal adjustments. However, the industry-wide loss of productivity for motor carriers is estimated in the 3 to 5% range. That means they will eat about half the revenue loss due to hours of service until new contract rates kick in for 2014—provided, of course, they negotiated higher rates.
  2. Intermodal gets a competitive edge. On lanes where truckload carriers face the most rail competition, TL rates are down 1.2% since July 1. Rail intermodal increased market share significantly in 2013, and was projected to close 2013 up 4.8%. 

More Regulations Ahead

On top of the productivity losses and competitive pressures carriers are feeling under the new rules, the federal government is poised to add another layer to HOS compliance.

Last month, the FMCSA was expected to publish a proposed rule that would require electronic logging devices (ELDs) in truck cabs to more accurately capture driver duty cycles. Another ELD-related proposal is in the works that’s designed to protect drivers from being coerced into violating safety rules. FMCSA indicated it would be published in March.

Meanwhile, this month the FMCSA plans to submit new rules that would mandate truck speed limiters. 

While 2013 is ending with a flourish in terms of freight to move, motor carriers enter 2014 under greater pressure over regulatory compliance, which continues to challenge their ability to grow and thrive as an industry. We all want to start the year with bang. But if rules push carriers to exit the market, and high capacity demand lead to shortfalls in equipment supply, we may feel a thud instead.

Mark Montague is the industry freight analyst for DAT, which operates the DAT® Network of load boards and facilitates the matching of more than 68 million spot (non-contract) loads and trucks per year. He holds an MBA in Transportation from Indiana University as well as a Bachelor of Science degree in mathematics and has applied his expertise in rates and routing for carriers, 3PLs, and shippers for more than 30 years. He is based in Portland, Ore. For information visit www.dat.com.