ELD Impact Could Be Greatest on 450- to 600-Mile Lanes

Assuming that the electronic logging device (ELD) mandate takes effect on December 18, which seems highly likely, all fleets will be forced to install an ELD on every truck by that date.

Many industry experts predict that electronic logging devices (ELDs) will have a 3% to 5% impact on carrier productivity overall, but not all hauls and carriers will be affected equally. The impact will be felt disproportionately on longer, one-day hauls of over 450 miles, and also on short-haul operations that push the current 14-hour limits today. Any time ELD requirements cause trips to spill over into a second day, it means rescheduled appointments, missed reloads, and a host of operational issues.

Photo courtesy of Keep Truckin

ELDs will also have a disproportionate impact on small fleets and owner-operators, who have largely resisted installing the devices until now. Meanwhile, larger fleets have already integrated the devices into their operations and made the necessary adjustments.

Higher rates will likely accompany any situation where delays or stringent requirements compromise future opportunities and/or reduce total revenue. Examples include: challenging service-level agreements, firm appointments, slow loading/unloading times, and/or detention.

Spot market rates are trending up already

The mandate won't be in force for months, but rates in June hit a national average of $1.80 per mile for vans, the most common equipment type. That average mostly held steady in July, losing only a penny per mile. Rates then rose to $1.82 per mile, somewhat unexpectedly, in the first week of August. (That's the total rate, including fuel surcharges, but not accessorials or other fees.) The increase is due primarily to steady economic improvement, with demand for transportation increasing faster than capacity.

Rates may rise further in December

December used to be a relatively quiet month, but spot market freight volume and rates have risen sharply in December in the past two years. So we could see record high rates in December, as the impact of newly adopted ELDs coincides with a last-minute e-commerce rush. Also, reefer rates spiked in December last year, as the temperature-controlled trailers were needed to prevent sensitive cargo from freezing during a severe winter. If that pattern repeats, it will put additional pressure on van capacity, as the two trailers can be used interchangeably for some cargo types.

Return to equilibrium in 2018

Assuming economic conditions are consistent, rates should normalize by the end of 2018. This will be a "new normal" for many reasons, including a shift of some freight to competing modes. Also the trucking industry has an aging workforce with many drivers close to retirement. Those who are unwilling to use ELDs may choose to exit the industry altogether. On the positive side, several large carriers report that ELDs have had only a temporary impact on productivity, and once drivers and dispatchers adjust to the new equipment, they regain or even improve on previous productivity levels.

Selective impact of ELDs on truckload capacity and rates

The aggregate impact on capacity could be in the 3% to 5% range, but it will not be spread evenly across all carriers or trips. Some lengths of haul will cost carriers a 15% to 20% productivity loss, others will not be affected at all.

The driver's 14-hour on-duty cycle will be the limiting factor, and flexibility will be severely curtailed, so anything that wastes the driver's time is going to affect the rate. The shipper will be required to compensate the carrier for delays at the loading dock, and they will need to pay a premium for next-day service or fixed appointments. Rates will also rise because drivers will demand higher pay per mile if their weekly mileage declines. Plus, parking will be even more of an issue when electronic logs remove any flexibility from compliance with mandatory breaks.

Large carriers have already adopted ELDs, and made adjustments in their routes to create new efficiencies, but the smallest fleets and owner-operators will be at a disadvantage until they are able to adjust. In some cases, ELDs will make it even harder for small truckers to compete with the big fleets that can deploy trailer pools and relays. Those tactics can't be accomplished with limited assets.

Owner-operators and small fleets will have the first couple of months of 2018 to figure out which trips work, because that is typically a quiet time of year. If they are still struggling by the beginning of Q2 2018, when demand begins to rise, there will be a capacity crunch on the spot market. Any additional increase in economic activity will exacerbate that imbalance.

Rail intermodal and LTL may gain popularity

I anticipate some shift to intermodal on hauls over 500 miles because rail will have the capacity (fewer coal and oil trains) and won't be affected by the tighter restrictions. One way the trucking industry can get back some capacity is with 33-foot pup (LTL) trailers that take some business away from the truckload segment. That bears close watching.

For more insights on the future impact of ELDs on freight brokers' business, come to the DAT User Conference, October 23-25, in Portland, OR. Learn about truckers' plans for the post-ELD world, as revealed in original research by DAT, with expert analysis from John Seidl, a DOT consultant and former FMCSA inspector.

Until then, stay on top of the current truckload freight trends with DAT RateView, where you'll find the most accurate, timely, lane-by-lane spot market and contract rates, based on $33 billion in real transactions.