Labbe Details Hours-of-Service Costs

July 1, 2000
If adopted as written, the proposed revisions in the federal hours-of-service rules for truck drivers will have a profound impact on the trucking industry

If adopted as written, the proposed revisions in the federal hours-of-service rules for truck drivers will have a profound impact on the trucking industry and on the US economy as a whole. Productivity gains over the past decade could be virtually erased.

The hours-of-service changes announced by the Federal Motor Carrier Safety Administration would put the trucking industry in an impossible situation, according to Martin Labbe, president of Martin Labbe Associates. He reviewed the potential impact of the proposed changes to the hours-of-service rules during his annual tank truck industry economic report and forecast.

As much as four times more drivers and vehicles would be needed under the proposed new hours of service. The initial cost of compliance for the tank truck industry would be around $1.8 billion just to cover extra equipment and drivers. It would take the industry about 19 years to pay off that investment at current net income levels, margins, and zero interest.

Labbe estimated that the reduced productivity resulting from the proposed new rules would bring an immediate need for more than 9,200 more tractors and 10,000 more tank trailers. Wages are expected to increase as fleets scramble to find new drivers.

Slower Economy Moving on to other areas of his economic forecast, Labbe suggested that consumers will see wage gains through the rest of 2000, but those gains will be offset by inflation. Consumer confidence will be down slightly but will still be strong. The second half of the year will be slower than the first half.

While still good, economic growth is slowing in the United States. Through the first half of the year, economic growth was above 5%. Labbe predicts that it will drop to around 2.4% by the end of the year.

"We had a tremendous ride during the 1990s," he said. "Productivity was a major reason, and the trucking industry had a big role in that. In addition, companies had the liquidity to keep making investments, and record employment levels buoyed consumer attitudes."

Inventory Control Trucking enabled US manufacturing and retail sectors to achieve tremendous inventory reductions in the 1990s. Inventory levels are beginning to flatten out because the most significant improvements were made years ago.

Inventory turns (a measurement of the number of times each year that firms rollover inventory) were at 8.0 in 1995 and had reached 13.2 by 2000. Overall reduction in inventory for the decade was valued at $128.6 billion, and virtually all of that savings went to the bottom line.

"Key benefits of inventory reduction are that less adjustment is required in a recession and shippers have greater capability to isolate distribution alternatives," Labbe said. "Profits are increased, and more funds are available for increased productivity investment."

Truck Capacity Truck fleet capacity was an issue throughout the decade, and it remains a problem today. Compared to the amount of freight that is available, there is a glut of trucks on the road. Almost 2.5 million Class 8 trucks are on the road today.

In recent years, trucking companies adopted shorter trade cycles as part of the strategy to make truck driving more attractive. The market was flooded with used trucks, and used truck prices have virtually collapsed. Labbe estimated that somewhere around $1 billion will be written off used truck prices in the period from 1999 to 2001.

One outfall of the used truck price collapse is that trade cycles seem to be lengthening. It is estimated that the number of Class 8 trucks 11 to 20 years old will grow by more than 12% over the three-year period from 1999 through 2001. Those in the six- to 10-year range will increase by almost 25%.