Transportation Best Practices and Trends: Hand of regulation weighs heavy

By far, the biggest regulatory story in trucking is California’s Assembly Bill No. 5 regulation—better known as AB 5—covering independent contractors. Originally designed to benefit “gig” employees who drive for Uber and Lyft, the law has been interpreted by the courts to also affect some of California’s estimated 70,000 independent owner-operators who work in trucking.

David Heller, vice president of government affairs for the Truckload Carriers of America, says that AB 5 is one of those rules whose long-term impact has yet to be determined. In the meantime, the Supreme Court’s early summer decision not to review the California AB5 ruling has left the trucking industry scrambling to be in compliance and still maintain some sort of operating arrangement to use owner-operators—who are vital to supplying capacity when hiring year-round employees is not practical.

“It’s not an overnight thing whose impact will be determined when the first infraction occurs,” says Heller. “This will be played out in the courts. Think oversight and lawsuits.”

And while shippers in and out of California will be facing higher rates in the short term, other initiatives in D.C. and elsewhere are threating the supply of qualified, compliant drivers. With this in mind, let’s take our annual dive into the world of trucking regulations and explore what’s happening and what could lie ahead for both carriers and shippers as they attempt to stay afloat in the jetsam of acronyms and agencies—both state and federal—that aim to regulate large swaths of this $830 billion industry.

What is AB 5?

By far, the newest, most complicated—and far-reaching—truck regulatory rule is what is know as AB 5. It’s a new California law that has been interpreted by the courts in that state to essentially eliminate California-domiciled owner-operators from using traditional contracts with trucking companies.

Trucking executives operating in the Golden State are working to both comply with the new law and operate efficiently using owner-operators. Mostly they’re seeking work-arounds that comply with the law while allowing owner-operators still to work—without being classified as employees.

Already, some California-based trucking companies are examining a so-called “two-check system” to pay formerly independent contractors. Under this methodology, truckers would be hired as employees, but then issued a check to lease the equipment back to the company.

Landstar, the largest group of owner-operator-dominated trucking companies, has informed owner-operators in California that they will need to relocate out of state if they want to remain independent contractors with the carrier.

During a recent earnings call, Landstar vice president and chief safety and operations officer Joe Beacom said that its owner-operators could “relocate out of California, or not haul in California for retaining loads, or they can move to their own operating authorities and continue to haul Landstar loads.”

Similarly, Schneider CEO and president Mark Rourke has informed its owner-operators in California that they must move their domiciles out of the Golden State if they want to continue hauling for the nation’s 5th-largest truckload concern. “It’s an underappreciated story,” he says. “We got in front of this a few years ago and made adjustments to make sure we were prepared. But as an industry, we’re not in a ready state.”

However trucking companies are coping with the issue, the bottom line is that AB 5 is raising carrier costs in California—a state that already has the highest diesel prices and some of the highest operating costs for truckers in the nation.

All trucking entities doing business in the Golden State “are looking at any and every option,” says Heller. “Moving out of state is one of the solutions that’s being discussed. However, the most successful and workable alternatives that allow carriers to still operate with owner-operators while being in compliance of AB 5 will be determined over time.”

Avery Vise, vice president of trucking for the Indianapolis-based research firm FTR, sees AB 5 as yet another economic challenge for carrier executives to manage. “AB 5 is a cost issue rather than a capacity issue,” he says. “Longer term, whatever capacity we lose because some smaller carriers are leaving the market will be replaced by new carriers operating in a broker-type model or the larger TL carriers expanding.”

According to Vise, in the end, it all goes along with his overall theory on trucking regulations: “Regulations usually work themselves out. The market has had four years to think this through. It’s not as if this was a surprise.”

Vise adds that AB 5 is unlikely to financially cripple trucking companies, unless some other states attempt to copycat California’s regulations. “The question remains whether this will spread to every blue state in America. New Jersey and Washington state are already examining this. But unless that happens, I’m confident that the truckload market will find a way around it. At the end of the day, the issue is cost,” he concludes.

Slow down

The Federal Motor Carrier Safety Administration (FMCSA) in April issued an Advance Notice of Supplemental Proposed Rulemaking to proceed with a speed limiter rulemaking. This controversial topic drew more than 16,000 commenters who recently weighed in on the FMCSA website by the time comments closed in July.

The Trucking Alliance (TA), a group of more than a dozen mostly large TL carriers, is showing support of speed limiters on the grounds of safety. The TA says that 98% of their trucks, approximately 62,000 vehicles, already have some sort of speed limiting devices, usually set between 61 miles per hour and 70 miles per hour.

Excessive speed is often cited as a leading factor in large truck crashes. For that reason, TA supports a federal motor carrier safety standard that will require large commercial trucks to not exceed a reasonable maximum highway speed. Large commercial trucks manufactured since 2003 have the technology to easily govern the truck’s maximum speed.

But because owner-operators—and most large TL carriers—are paid by the mile, any attempt to reduce miles driven in a day will result in an economic hit for drivers. The Owner-Operator Independent Driver Association (OOIDA) has long opposed efforts to mandate speed limiting devices because they make roads less safe. OOIDA says that speed limiters increase congestion and speed differentials between trucks and cars, which ultimately lead to more crashes.

Additionally, the association contends that arbitrary speed limits make it difficult for truck drivers to switch lanes to accommodate merging traffic at entrance ramps—or to merge themselves. That was a common thread among many commenters on the FMCSA web site.

“Studies and research have already proven what we were all taught long ago in driver’s education classes—traffic is safest when vehicles travel at the same relative speed,” OOIDA president Todd Spencer said in a statement.

Because of OOIDA’s lobbying clout, this issue has been on FMCSA’s back burner—and some predict it will stay there. “Speed limiters will kick around as an industry issue, but I’m skeptical anything will happen,” says analyst Vise.

Hair follicle testing

Currently there are more than 100,000 truck drivers listed on a national clearinghouse of known drug and alcohol abusers who are no longer allowed to work in the trucking industry. That doesn’t mean that they’re not needed.

The American Trucking Associations (ATA) estimates that the industry is short approximately 80,000 drivers at this point in time. That forecast is expected to exceed 100,000 as soon as the middle of this decade, if not sooner, ATA says.

Currently, urine sampling is the most common form of random drug testing. However, carrier executives know that these tests are not always reliable, and sometimes samples can be doctored. A more reliable form of testing uses hair follicles, which the FMCSA says it’s considering.

To offer a quick glance at what that may meant, a recent study by Doug Voss and Joe Cangelosi at the University of Central Arkansas estimates that mandatory hair follicle testing would disqualify as many as 300,000 additional drivers.

Several large TL carriers such as Schneider, Knight-Swift Transportation, J.B. Hunt Transport, Werner Enterprises, and Maverick already use more stringent hair drug tests for internal use. The Trucking Alliance recently conducted a study comparing pass/fail rates for urine and hair drug screens.

While carriers can do hair follicle testing now, those results are not reported to the national database clearinghouse. However, the internal statistics tell the story.

Using more than 150,000 pre-employment urine and hair drug test results from 15 different trucking companies that belong to the Trucking Alliance, results indicated that 0.6% of applicants failed the urine test while 8.5% failed—or refused the hair test, which is considered a tacit admission of a positive test.

The Trucking Alliance has asked FMCSA to report those positive results into the national database. However, it all falls to the Department of Health and Human Services (HHS), which says it’s currently studying the data.

What’s ahead?

Besides tougher drug and alcohol testing and speed limiters, other proposals that soon could affect the industry include a new medical examiners handbook—recently shortened by FMCSA from 260 pages to 116 pages—for carriers to use while screening entrants into the industry.

Tighter rules for entry-level programs at truck driver training schools, regulations affecting where truck drivers can park overnight, and myriad state regulations covering where heavy trucks can and can’t go are also being proposed.

In the end, any proposed rule limiting access to heavy trucks eventually will have an economic impact. That’s because carrier executives say any reduction in capacity—whether it be trucks or drivers—ultimately affects shippers through higher rates or reduced shipping choices.