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Jun 17, 2023

Loaded and Rolling: ELD mandate, trailer backlog and softening demand

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Rachel Premack, editorial director at FreightWaves, was interviewed Tuesday about her article on the impact of the ELD mandate five years later. The mandate, which regulators started enforcing on April 1, 2018, requires all drivers who record their hours of service and records-of-duty statuses (RODS) to use an electronic logging device approved by the Federal Motor Carrier Safety Administration.

This requirement heavily impacted smaller carriers and owner-operators who had traditionally used paper logbooks, which could be prone to tampering or falsification. Large enterprise carriers had been using ELDs to record duty statuses since the early 2000s and were proponents of the mandate being extended to all commercial drivers. The mandate continues to be a contentious subject in trucking, with recent research arguing that it has made roads less safe due to increased speeding violations and accidents.

Premack noted her conversations with former members of the FMCSA and highlighted the mandate's impact from interviews with drivers. We also got some insight into how trucking is viewed in the legacy media and how the pandemic-related supply chain disruptions created renewed interest in the freight industry on the media side.

You can find the entire interview here.

Trailer production appears to be improving, according to recent data from ACT Research. A higher trailer build rate reduced the backlog-to-build ratio to 8.5 months in February, 1.4 months lower than January's backlog of 9.9 months. Prior to the pandemic, trailer backlogs frequently hovered between four and six months, but since Q3 2021 the build backlog has remained stubbornly high at around eight months.

The report noted that while demand overall remains robust, there are some conversations among some OEMs that demand may be softening, but not to the extent of slowing orders or cancellations.

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"Other OEMs told us they are seeing a few actual cancellations, but the cancel data is primarily a reflection of spec changes and plant rewrites. Some smaller fleets and owner operators have canceled orders, but large fleets remain eager to fill the void," said Jennifer McNealy, director of CV market research and publications at ACT Research. "OEM conversations also continue to suggest supply-chain constraints are likely to remain a limiting factor to production in 2023, with manufacturers mentioning a renewed fluctuation in materials costs, particularly steel, and continuing long lead times of some components."

Recent survey data from ACT Research suggests that while volumes remain contracting, they are doing so at a lower rate. The ACT For-Hire Trucking Volume Index fell to 41.3 points (seasonally adjusted) from 51.6 points in January. For reference, any number above 50 indicates expansion and a reading below 50 is a contraction.

Less bad news is better than worse news, with the report noting that "roughly two years of growth followed by 12-18 months of retrenchment is a normal trucking freight cycle. Volumes have been soft for nearly a year, so we’re closer to the end than the start of this contraction stage of the cycle."

Low freight volumes lead to lower rates, especially in the spot market, where rates are below operating costs for many carriers. ACT Research's Tim Denoyer said in the report, "Pricing Index weakness continues, decreasing 6.3 points, to 39.3 in February (SA) from 45.6 in January. This is only the fourth time in the index's history that prices have been in the thirties."

Denoyer added, "The cure for low prices is low prices, and we currently estimate spot rates are 16% below fleet operating costs, which should accelerate the bottoming process. If there are no additional major shocks to the economy, a big if, seasonal increases in TL volumes should put the bottom of the freight cycle in the next few months."

Summary: Spot market linehaul rates less fuel appear to have bottomed out while the cost of diesel fuel paid at the pump continues to decline. The National Truckload Index Linehaul Only (NTIL) measures a seven-day moving average of daily spot rates less fuel based on the average retail diesel price divided by a 6.5-mpg fuel efficiency.

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For carriers exposed to the spot market for either headhaul or backhaul needs, falling fuel prices may provide slight relief in the face of higher wages, equipment and insurance. But for carriers negotiating RFPs for dedicated year-round contract freight, falling fuel prices can complicate the pricing strategy, as some carriers will provide a lower linehaul rate and calculate the fuel surcharge with a higher weighted average to win business.

Brokers and carriers are both in a challenging position, with many shippers seeking lower linehaul costs and expecting the incumbent carrier to deal with any fuel surcharge declines. Given current market conditions, both carriers and brokers lack sufficient pricing power to risk losing lanes and precious volumes until enough capacity has left the market. In this particular case, communication and expectations among carriers, brokers and shippers remain key, as shippers that seek an aggressive linehaul cost-cutting strategy may run into issues with service once the market turns. The question that remains is when and if this occurs in the next few months.

Holding the line: Owner-op's playbook to push back on cheap freight (OverDrive)

US Xpress subsidiary will remain separate following Knight-Swift deal (Transport Dive)

California expected to accelerate deadline for zero-emissions trucks (FreightWaves)

Video shows ‘ghost co-driver’ added to trucker's ELD to skirt HOS rules (FreightWaves)

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FMCSA's hours-of-service exemption implicated in fatal truck crash (FreightWaves)

An argument for an hourly-pay standard for truckers (OverDrive)

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