Freight costs rising as e-logging becomes reality

by Ron Sterk
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KANSAS CITY, MISSOURI, U.S. — The Electronic Logging Device (ELD) mandate that went into effect for more than 3 million commercial truckers on Dec. 18, 2017, appears to have had a significant impact on truck freight availability and costs. Questions about the new rule remain for the agricultural sector, especially livestock, which has a 90-day exemption that expires March 18.

The impact of ELD is debatable, running the course from those who see the disruptions as temporary while shippers and carriers adjust to the new rules, to those who see it ushering in a new era of logistics, including higher costs, fewer just-in-time deliveries, larger inventories and more. The rule also comes at a time when demand for trucks, which move 70% of the nation’s freight volume by weight, already is stretched because of the strong economy and a well-known and worsening driver shortage, even if January and February typically are light months for truck freight demand.

The two most immediate results of the mandate are higher freight costs and greater demand for trucks, although most agree it is too soon to know the long-term impact. Estimates of cost increases range from about 5% to 15%, although some shippers say they have paid double previous rates for specific spot needs.

“Across all segments, freight costs have escalated as trucking capacity has tightened nationwide,” Thomas P. Hayes, president and chief executive officer of Tyson Foods, Inc., said on a recent earnings conference call. “We expect these costs to continue to rise as carriers compete for drivers and new federal regulations come into play. We estimate this will add more than $200 million to our costs this year.

“We’re going to pass it through, and hopefully the consumer is going to pay for it at some point.”

Matthew J Foulston executive VP CFO of Treehouse Foods
Matthew J. Foulston

Matthew J. Foulston, executive vice-president and chief financial officer at TreeHouse Foods, Inc., said freight presents “a big headwind in 2018,” with consistent freight inflation as a result of tight capacity and strong demand primarily for trucks.

“Anywhere between 10% and 15% is the rate of freight inflation around trucking that seems to be prevailing,” Foulston said on a recent earnings call. He noted very tight spot markets and dramatic variation regionally and across certain lanes. “So in some cases, you can get away pretty lightly and in other, really high-traffic stuff where competition is high, the inflation’s dramatic.”

Steven Oakland president of US Food and Beverage JM Smucker Co
Steven T. Oakland

Steven T. Oakland, president of U.S. Food and Beverage at The J.M. Smucker Co., echoed the spot market issue.

“If you have to get a spot load today, you’re going to pay significantly more than we pay for a contracted load,” Oakland said. “Those charges are coming in at a multiple of what they used to be. So for us to even be able to tell you what that next load is going to cost is sometimes impossible. We can’t predict it.”

In addition to impact on spot deliveries, the mandate appears to have most affected truck routes between 400 and 600 miles, which in the past were considered one-day transit times that are turning into one-and-a-half to two days, according to industry data. There also are ample reports of drivers turning down loads that will reduce their earnings. In either case, the result is that more trucks and drivers are needed to move the same amount of freight as before the mandate.

The Commercial Motor Vehicle Safety Enhancement Act mandated that all commercial motor vehicles replace paper logs with ELDs. The device records driving time and monitors engine hours, vehicle movement, speed, miles driven and location and provides the data to state and federal inspectors. Trucks made before 2000 are exempt because their engines aren’t compatible with the ELDs. Full out-of-service enforcement of the ELD mandate begins April 1. Until then, authorities are practicing “soft” enforcement of the mandate.

Under the Department of Transportation’s Hours-of-Service rules, commercial operators may only drive for 11 hours and can only be on duty for 14 consecutive hours in any 24-hour period. Once the limits are reached, the driver must immediately stop and wait 10 hours before moving again.

When using paper logbooks, some drivers “fudged” somewhat when they weren’t moving, were waiting to be loaded or were otherwise held up, recording only actual driving hours. Under the new mandate, drivers are out of compliance immediately.

Several organizations, including the American Farm Bureau Federation and the National Pork Producers’ Council, among others, are seeking a permanent “limited exemption” for livestock haulers that would provide more flexibility within the rules to address highway safety and specific animal welfare requirements. That request is being considered by the DOC during the 90-day extension period. While most farmers should be exempt from the ELD mandate because they can claim covered farm vehicle status, drivers who haul livestock are likely to fall under the mandate, the AFBF said. For livestock, there is an hours-of-service exemption for shipping within a 150 air-mile radius of the farm where animals were loaded.

The National Grain and Feed Association in late February urged the Federal Motor Carrier Safety Administration (FMCSA) to clarify the agricultural exemption for commercial drivers’ hours-of-service regulations. The NGFA in part is seeking clarification that grain elevators, feed and feed ingredient manufacturers, biofuels companies, grain and oilseed processors and millers, and livestock and poultry integrators are a source of agricultural commodities eligible for the exception.

“It is imperative that U.S. freight laws and regulations accomplish their goals without disadvantaging U.S. agriculture, given the highly competitive global marketplace that exists for agricultural products,” the NGFA said in its statement to the FMCSA. The NGFA said the agricultural exemption should apply to all facility types within the agricultural supply chain to prevent additional financial harm. The NGFA further recommended that drivers transporting agricultural commodities not be required to maintain logs until exceeding the 150 air-mile radius.

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