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March 14, 2016 4:01 AM, EDT

E-Logging Mandate Will Tighten Capacity, Prompt More Shipper-Fleet Cooperation

Linda Quackenboss/Linda Q Photography

This story appears in the March 14 print edition of Transport Topics.

LAS VEGAS — Shippers that capitalize on today’s looser capacity environment by insisting on rate reductions instead of maintaining long-term carrier relationships can expect difficulty finding trucks when electronic logging devices become mandatory late next year, industry experts said.

“The world is going to change radically” when ELD compliance becomes mandatory, said John Larkin, a Stifel, Nicolaus & Co. analyst. “The supply-demand situation will change because of ELDs and other regulations. This is really going to begin to kick in in late 2017, provided the slow-growth economy continues.”

He was among industry experts to address the annual meeting of the Truckload Carriers Association here.

“There is a good chance we could be back in the same predicament that we were in 2014,” when carriers and shippers had to cooperate to counter the lack of capacity and fleets enjoyed rate increases of 5% or more, Larkin added.

The reason, he said, is that some fleets that can’t afford, or don’t want to install ELDs, will exit the industry or be stopped for noncompliance.

Today, however, the lackluster economy that began to hurt freight markets in the second half of last year has resulted in looser capacity, as reflected by Cass InformationSystems truckload rate indicators that have shown fleets are getting almost no year-over-year increases in recent months.

“Some so-called Neanderthal shippers have chosen to set up an ugly round of ‘Chicken Little,’ suggesting often in letters to carriers that times are tough and it is necessary for them to cut rates across the board by 3%, 5%, or in a few cases, 10%,” Larkin said.

“I’ve been hearing people talk about pretty significant rate reductions,” said Paul Newbourne, senior vice president at Armada Supply Chain Solutions. “Don’t take advantage of our carrier partners. I am not sure that is the smartest long-term play.”

Newbourne said improving efficiency is a more effective approach to reducing costs by looking at issues such as reducing free time that shippers receive for loading and unloading.

Ken Braunbach, vice president of transportation, e-commerce at Wal-Mart Stores Inc., said the world’s largest retailer is continuing to stress long-term partnerships and doesn’t expect any change in that approach.

“The last thing we want to do is disrupt a shipper’s network for a half-penny or two in rates,” he said.

ELDs will change the playing field, speakers said, as shippers become reluctant, for legal and liability reasons, to give freight to noncompliant carriers. They also made it clear they’re expecting compliance and are watching carriers closely to assure it.

“We don’t want to wait until the end of 2017, when a lot of carriers are going to face conversion,” said Amy Mielke, senior supply chain sourcing leader for Owens Corning.

She said ELD compliance will be particularly challenging for her company because most of its carriers are small. Owens Corning, which relies on flatbeds to move products such as shingles, found that only 38% of its carriers are fully compliant now, and 25% are working on compliance.

“We have not put a [compliance] stake in the ground yet,” Mielke said. “Now we have to make decisions about how much more time to give them.”

Armada’s Newbourne said, “We want to work through this [transition] before it becomes critical. There are a lot of driver and technology issues that will affect capacity.

“We want carriers that are ELD compliant or well on their way by the end of this year. If they haven’t been able to give us a plan, we have exited them.”

At Wal-Mart, Braunbach said, its private fleet has had ELDs for five years, and 80% of its core carriers are compliant.

Newbourne acknowledged the negative effect on carrier productivity when ELDs are first installed, noting that nearly all fleets reported that degradation. However, he said that after 12 to 18 months, that initial shock can be reversed.

Todd Amen, president of consulting firm ATBS, questioned whether smaller fleets that lack financial resources will have to find larger strategic partners to survive when the deadline arrives.

Mielke said that could happen, particularly for fleets running shorter distances, such as the 200-mile length-of-haul range.

Braunbach said smaller carriers with a particularly long length of haul would be under the most pressure.

Larkin added that freight capacity today is in much better shape than in 2008 and 2009 and that capacity could tighten quickly, even before the ELD effect, if there is stronger economic growth or inventories become depleted enough to prompt a surge of freight.

If that happens, he said, other freight choices such as intermodal, less-than-truckload and brokerage also could benefit, in addition to truckload.