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Aug.21, 2017

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LAND LINES 46 THE JOURNAL OF COMMERCE AUGUST 21.2017 Lawrence J. Gross SOUNDING THE ALARM W H E N I T CO M E S to a potential capacity crunch resulting from the implementation of the ELD mandate in December, shippers are certainly justified in turning a jaundiced eye. After all, there have been a number of "false alarms." Y2K, the Safety of Life at Sea container weight mandate, and the recent "April Fool's Day" ocean alliance reshuffle come to mind as instances where forecasts of disrup- tion and congestion went unfulfilled. Forecasting the future with pre- cision is difficult. Differences of only a few percent in terms of the effect of the ELD mandate on capacity could make a big difference in the truck- ing environment. But even given the uncertainty, it would be a grave error for shippers to assume that warnings of ELD-related disruption are simply another false alarm. There is a very interesting dis- connect occurring in the truckload marketplace. FTR, through its part- nership with loadboard operator, is keeping a close eye on the spot market, and it's booming. One key measure we track is the ratio of loads posted versus trucks posted. In recent weeks, this ratio has been running about twice the level it was this time last year, when the ratio was holding at levels considered normal over the previous five years. The number of loads being posted is up substantially from last year, while the number of trucks looking for loads has barely changed. The result is a substantial increase in pressure. One would expect this pres- sure to affect pricing, and it has. But change is coming slowly to the market. Spot rates are up substan- tially from this time in 2016, when capacity was loose and rates were weak. But even so, rates have barely reached average levels for this sea- son, as measured over the last five years. The data indicate that even in the hyper-responsive spot market, rates trail events. There is always a time lag between when conditions change and rates respond. Further, the effect is even more pronounced when it comes to contract rates. The truckload marketplace has become more clearly segmented between the contract and spot rate sectors. With ever-more efficient tools available to tap into spot market capacity, shippers have been very dis- ciplined with regard to maintaining a stable core of dedicated and contract volume, secure in their capability to handle the excess via the spot mar- ket. This has increased the insulation surrounding contract rates, meaning it will take longer for changes in the spot market to work their way into the contract side of the industry. But if the still-stable contract rate situation is leading shippers to feel complacent, confident of another "false alarm," consider the following. During a recent survey of a repre- sentative sample of truck fleets, Fleet Owner Magazine found that 53.5 percent of the fleets surveyed were fully compliant or in the process of implementing ELDs. At the begin - ning of August, with the mandate due to take effect in just a bit over four months, 46.5 percent of the fleets were not yet underway with implementation. Incredibly, 11 per - cent of the fleet operators surveyed said they weren't even investigating how to comply with the mandate. The likelihood is a good chunk of those fleets won't be ready by Dec. 18 when the mandate takes effect. I'm certain the fleets that are pro- crastinating skew toward the small end of the spectrum in terms of size, so the 11 percent of fleets likely rep- resents a lower percentage in terms of overall industry capacity. But the survey only went to fleets of 10 trucks or more in size. Maybe those fleets represent only 4 or 5 percent of total capacity. FTR's industry-leading truck fleet capacity analysis pegs current total active fleet utilization at somewhere in the 99 percent range. There's not a lot of wiggle room! After the Supreme Court rejected its request for an injunction against the ELD mandate, the Owner Opera- tor Independent Drivers Association is making a last-ditch effort on the political front. Like-minded anti-reg- ulation congressional representatives have introduced two bills to delay implementation of the ELD mandate, in one case, by two years. Although anything is possible in Washington, a clear-eyed view has to conclude that these are real long- shots. Congress will have enough on its plate getting a budget through and raising the debt ceiling without add- ing contentious riders such as these. Keep in mind that the American Trucking Associations, representing the viewpoint of a good portion of the trucking industry, strongly supports the ELD mandate with no delay. The problem is, how many of the smaller carriers are delaying work on implementation in the hope (or expectation) of a last-minute legis - lative reprieve? Assuming the ELD mandate takes effect as scheduled, it looks like a chunk of the industry won't be ready. It's not clear yet how stringent the enforcement regimen will be. If a trucker is inspected after the mandate takes effect, and it's found that the vehicle doesn't have an ELD, will that truck be permitted to continue with just a warning? I wouldn't bet on it. A more likely scenario is that the vehicle will be placed out of service. As a shipper, I'd want assurances that my freight was only placed on compliant trucks. But that could be difficult to control in a spot market context. JOC Lawrence J. Gross is president of Gross Transportation Consulting in Mahwah, New Jersey, and a partner at FTR Transportation Intelligence. A veteran with 34 years in the transportation business, he covers freight transportation, concentrating on the intermodal and trucking sectors from a transportation and equipment perspective. Contact him at and follow him on Twitter: @intermodalist..

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