Demand for transportation services is expected to expand in the coming years, driven by growing global trade and more goods being transported into and around the United States. According to the U.S. Bureau of Labor Statistics, the transportation and warehousing industry is expected to see a 20% increase in employment from 2010 to 2020, adding over 850,000 jobs. Last month alone, 36,000 jobs were added in the industry, with 7,000 of those jobs in truck transportation alone. Fast growth is not the only change coming to the industry. New regulations and changes in fuel options are just some of the issues that the industry is addressing. This article looks at some of the key issues that will affect the transportation and trucking industry in the coming months and years.
Hours of Service Rule
Changes to the Hours of Service rule (HOS) have been in the works for a long time and finally went into effect in February. HOS regulations govern the amount of hours that a driver can operate a truck without taking time off to rest. Many trucking companies are now working to determine what changes they will need to make to comply with the new rule. Though it became effective in February, commercial truck drivers and trucking companies still have until July 1, 2013 to comply with most parts of the rule.
Some companies may have to make significant changes to their delivery schedules and routes that were organized around the previous regulations. This includes physically relocating drivers to make the most of the driving time limits. For this reason, many in the industry see the rule as harmful to productivity as well as the overall economy since changes could potentially cause disruptions in the supply chain.
Whether or not it is convenient, transportation companies should ensure that they are in compliance by next summer, as the Federal Motor Carrier Safety Administration (FMCSA) has shown that it is serious about HOS violations with a recent crackdown on companies found to be out of compliance. Since the beginning of the year, FMCSA has ordered at least five trucking companies with HOS violations to immediately cease all transportation services.
“When commercial truck companies and their drivers disregard the safety rules of the road, they place all motorists at risk,” said U.S. Transportation Secretary Ray LaHood. “We will continue to exhaust every available tool to identify and swiftly shut down unsafe truck companies.”
Compliance Safety Accountability Program
The FMCSA is proposing changes to the Safety Measurement System (SMS), the part of the Compliance Safety Accountability (CSA) program that analyzes all safety-based violations from inspections and crash data to determine a commercial motor carrier’s on-road performance. The proposal includes changes to the methodology that SMS uses to identify higher risk carriers, changes to how SMS results are applied for agency intervention, and more specific displays of results on the SMS Website. The FMCSA is accepting comments on proposed changes to the SMS until the end of July.
Many in the trucking industry are currently lobbying for changes to the CSA, citing concerns over several issues. The American Trucking Association (ATA) said the unreliability of CSA scores, the loose or inverse connection to crash risk, as well as FMCSA’s unwillingness to frankly discuss the program’s weaknesses is very troubling and needs to be addressed.
“We are all concerned with safety and agree that FMCSA should do everything in its power to enforce the rules,” said Dan England, ATA chairman. “However, it is becoming increasingly clear that parts of the program are in need of serious revision – particularly before FMCSA begins using them to generate publicly available fitness scores.”
ATA has identified several areas of CSA that it believes need to be reformed. They include crash accountability, the lack of research proving increased crash risk for all of CSA’s various violation categories and the publication of carriers’ scores in those categories.
“If it were improved, CSA could be a powerful tool to improve trucking’s already impressive safety record,” said Michael Card, ATA first vice chairman. “That is a goal ATA can clearly support, but if FMCSA continues to insist on pressing forward with the program without addressing industry’s concerns, ATA will have no choice but to explore all avenues of ensuring the program is improved to actually meet its stated, and worthy, objectives.”
Highway Bill
The surface transportation reauthorization bill, commonly referred to as the highway bill, that Congress is currently working on could impact the transportation industry in several ways. Different versions of the bill already passed both the Senate and the House, and now a bicameral conference committee is working to resolve the differences.
Congress has approved numerous short-term extensions since the last highway bill expired in 2009. As usual, a number of amendments were added during the process, several of which the transportation and trucking industries would like to see addressed. The ATA is lobbying for several measures to be passed as part of the highway bill. These include:
• A field study of the “restart” provision of the HOS rules. ATA is concerned that the new restart provisions included in the recently released HOS rule, were made on the basis of a one-month lab sleep study. They would like to have a field study conducted that more closely aligns with real-life situations.
• The National Freight Program. This program would focus federal resources on parts of the highway system that carry significant volumes of freight.
• Truck productivity provisions. This would allow for heavier trucks on federal highways – up to 88,000 pounds with five axles and up to 97,000 pounds with 6 axles.
• A full mandate for electronic onboard recorders (EOBRs).
The EOBR mandate continues to be a large point of contention within the trucking industry. The ATA strongly supports it, calling EOBRs a powerful tool to help ensure operator compliance with hourly limitations on driving time and improved safety performance. The Owner-Operator Independent Drivers Association (OOIDA), however, just as strongly opposes it, calling it a burdensome, “big brother” mandate. “It’s exorbitantly expensive while providing no safety benefit whatsoever,” said Todd Spencer, OOIDA executive vice president.
Many think that the conference will not be able to reach a resolution on the highway bill by the time the current extension expires at the end of June. If it does not pass, Speaker of the House John Boehner has suggested that it would be added to the expected post-election lame-duck session.
Fuel Outlook and Changes
Fuel prices this summer are expected to be higher than last year. However, the average is expected to drop next year. The U.S. Energy Information Administration (EIA) projects that diesel fuel will average $4.21 per gallon this summer, compared to last year’s average of $3.94, a 6.9% increase. However, monthly prices are expected to peak at $4.25 per gallon in the middle of the summer. Thanks to falling global crude oil prices, the annual average is expected to be $4.06 per gallon for 2012 and $4.03 in 2013.
EIA’s current forecast of the average U.S. refiner acquisition cost of crude oil in 2012 is $110 per barrel, about $8 per barrel higher than last year’s average. Looking ahead to 2013, crude oil prices are expected to remain relatively flat.
Shale Gas Revolution
Recent scientific advancements have unlocked the potential to extract large amounts of natural gas from shale formations, creating what is being called the shale gas revolution, and causing some significant changes in the natural gas industry.
“By some estimates, there is as much as 1,000 trillion cubic feet of technically recoverable shale gas in North America alone, which is enough to supply the nation’s natural gas needs for the next 45 years,” said a study from the James A. Baker Institute for Public Policy.
This, along with rising oil prices over the past several years, has made natural gas a viable and attractive alternative for diesel in large trucks for the first time. At present, natural gas is more affordable than diesel and many large transportation companies already have plans to switch at least part of their fleets to natural gas powered vehicles.
United Parcel Service (UPS) began testing compressed natural gas (CNG) as an alternative fuel in 1989. Today, UPS has over 1,000 CNG vehicles in its fleet. Starting in 2010, Ryder Systems, Inc. acquired over 200 heavy duty, natural gas-powered vehicles for its short-term rentals, long-term leases and dedicated logistics services fleets.
“We recognize there is a growing need for sustainable transportation solutions, not only as companies search for ways to mitigate fuel costs but also as they work to reduce their carbon footprint,” said Robert Sanchez, Ryder’s president of global fleet management solutions. “We’ve seen great interest from our customers for natural gas vehicles across all markets and will continue to pursue the expansion of our alternative fuel vehicle offering to meet our customers’ needs.”
Concerns over switching to natural gas trucks include the higher cost of trucks, handling hazards and challenges, and access to filling stations. For this reason, Ryder decided to build two natural gas refueling stations as part of its natural gas program.
The impact of shale gas can be seen outside of the transportation sector as well. The EIA expects electricity generation from coal to decline by about 15% in 2012 as generation from natural gas increases by about 24%. The International Energy Agency (IEA) expects a 2.7% average annual growth in global gas demand through 2017, with North America becoming a net liquid natural gas exporter during that time.
“The Golden Age of gas has dawned in North America, but its continued expansion worldwide depends on producing gas and bringing it to the market in a way that is friendly to investors and society as a whole,” said Maria van der Hoeven, IEA’s executive director. “As gas competes against other energy sources in all market segments, notably in the power sector, pricing conditions are a key element to keep it competitive everywhere.”
