June 6, 2016 4:00 AM, EDT

Brokers Split Over How to Ensure Carrier Compliance With ELD Mandate

Teletrac Inc.

This story appears in the June 6 print edition of Transport Topics.

Freight brokers are sharply divided about how to bring their carriers into line with the upcoming federal electronic logging device mandate.

Based on comments from many of the largest brokers listed in Transport Topics Logistics 50 publication, companies’ plans range from closely scrutinizing ELD compliance to a hands-off posture.

Carrier compliance is emerging as an issue for brokers for several reasons, including shipper pressure, device availability and liability. In addition, brokers anticipate a tightening of freight capacity as high as 10% as fleets that can’t, or won’t, comply with the mandate exit the industry.

Matt Parry, senior vice president of logistics at Werner Enterprises, told TT, “We are actively working to assess our carriers’ adoption and compliance measures.”

“We are also committed to transparency and education about ELDs with our carrier partners,” said Parry, whose company adopted the devices in 1998.

England Logistics President Jason Beardall said, “We have begun work to provide carriers we contract with assistance in the adoption and utilization of ELDs, including purchasing options.”

England Logistics ranks No. 16 on the freight brokerage list, and Werner operates No. 19 Werner Global Logistics.

Other brokers place the compliance burden on either carriers or the federal government.

“Our carrier agreements require carriers to comply with all laws, so that would include ELD requirements as they become effective,” said a spokeswoman for Coyote Logistics, which is owned by UPS Inc.

“It is the responsibility of the federal government, through the DOT and FMCSA, to create the appropriate laws and rules around highway safety and to get unsafe carriers and drivers off the road,” said Tom Sanderson, CEO of No. 15 Transplace, referring to the U.S. Department of Transportation and its Federal Motor Carrier Safety Administration. “A shipper or broker should not take on that duty.”

Shippers also are watching compliance closely, and they largely believe their freight is being moved by ELD-equipped fleets, said Brad Delco, an analyst at Stephens Inc. He emphasized that customers may be unaware of how much brokered freight isn’t being moved by compliant carriers today.

Jim Damman, president of No. 8 Hub Group’s Mode Transportation unit, also cited shipper involvement.

“We also have some customers that are now either requiring ELD compliance or asking us to report on who is and who is not compliant,” he said. “Our policy for now is to monitor how our extensive base of carriers are doing with their plan to move to ELD compliance.”

Robert Voltmann, president of the Transportation Intermediaries Association, raised another issue.

“We are terrified of the unknowns,” Voltmann told TT, such as the uncertain extent of capacity reductions and potential broker liability for accidents if a carrier doesn’t have an ELD after the mandate takes effect.

He believes market dislocations are inevitable, forcing owner-operators and drivers at noncompliant smaller carriers to consider migrating to compliant larger fleets before the noncompliant ones fail.

Compliance-related pressure on brokers also has surfaced from asset-based fleets.

Knight Transportation CEO Dave Jackson said on a conference call in April that large brokers who don’t have assets are pricing aggressively this year, forcing the smaller carriers they rely on to accept lower rates and revenue and therefore putting them at a disadvantage to cope with increased ELD-related costs next year.

“I am not sure that larger brokers have the experience that the larger carriers have had in adopting the ELDs if they would be as aggressive as they [brokers] have been,” said Jackson, whose company also has a brokerage business. “The only thing I can conclude is that these non-asset brokers are underestimating this,” adding that Knight didn’t anticipate the 15% drop-off in capacity that it experienced after adopting ELDs in 2004.

“We already have picked up some business from some shippers who have not invited carriers who have not put a plan in place to become ELD-compliant,” Richard Stocking, president of Swift Transportation Co., said on a conference call. The company runs Swift Logistics, which ranks No. 46 on the Logistics 50 freight brokerage list.

While compliance approaches varied, brokers overall support the mandate.

For example, Transplace’s Sanderson said: “I believe the public safety merits regarding 80,000 pounds moving down the highway at 65 miles per hour justify the requirement. ELDs are widely used today by larger carriers and should remove some of the most unsafe drivers from the road.”

Added Peter Katai, an executive at No. 25 FLS Transportation Services: “As a broker, we support their use. We feel that drivers and carriers will be held more accountable for safety.”

FLS has begun asking carriers to confirm drivers have available hours before tendering a load instead of assuming that carriers and dispatchers monitored that information.

“We are working with our network of carriers as they maneuver through this changing regulatory environment, particularly the smaller players, as the majority of the midsize and larger carriers are ELD-compliant already,” said Kerry Byrne, president of No. 2 Total Quality Logistics.

Not every broker expects extensive effects from the ELD mandate.

ELDs aren’t “something that we necessarily fear or think is going to create any sort of permanent material shifts in the landscape of who’s competitive or what happens,” said John Wiehoff, CEO of No. 1 C.H. Robinson Worldwide, speaking on a conference call. He noted there could be short-term effects, such as capacity reductions during an adjustment period.

Direct effects of ELDs will be limited at No. 7 Worldwide Express, said Senior Vice President Mike Grayson, because 90% of its business is less-than-truckload brokerage that doesn’t face capacity constraints. Worldwide may gain over time, he said, as truckload capacity shrinks and shippers switch to LTL.

The federal electronic logging mandate could reduce freight capacity by 3% to 10%, affecting freight availability and rates, several executives said.

Sanderson gauged the reduction at 3% to 5%.

“That may not seem like much, but it would put us back into the capacity shortage situation of 2014,” he said.

Jeff Tucker, CEO of Tucker Co., agreed.

“That kind of an impact will be very, very widely felt,” Tucker said, “because the industry is teetering near equilibrium [between supply and demand] all the time. The difference between abundant and super-tight capacity today can be upset by a single storm in one area of the country.”

Delco also gauged the reduction at 3% to 5%. He believes the capacity reduction will trigger consolidation among brokers and the exit of noncompliant fleets.

“We think that, over the next two years, the ELD mandate could remove as much as 10% of historical capacity in a mode of transportation that is already suffering from driver shortage issues,” said Damman, of Mode Transportation.

Sanderson said carrier size should make a difference.

“There will be no reduction in capacity among larger carriers,” he said. “They already have ELDs. There will be at least a temporary reduction in small-carrier capacity. Some small carriers may leave the industry because of ‘big brother’ concerns or a decline in truck utilization and earnings.

“Small carriers that implement ELDs will see a decline in truck utilization, which is effectively a reduction in truck capacity. Small carriers are the most entrepreneurial players in our industry, and I think they will find a way to survive.”