Decisions 2004 – Legislation

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Legislative change will top the list of carrier concerns for 2004 and it’s expected to have a dramatic effect on carrier productivity and profitability.

Industry insiders here and in the U.S. are warning new hours of service rules above and below the 49th could cause carrier productivity to decline by as much as 25% and lead to the demise of many operations. And the recently released Customs pre-notification standards, expected to come into force sometime in early 2004, have left carriers concerned about their impact on costs and delays on time-sensitive shipments.

First, the outlook on the new hours of service. It’s not a pretty picture.

“The strong will survive and the weak won’t,” summed up Lana Batts, former president of the Truckload Carriers Association, and a board member for Canada’s Mullen Transport. (Batts is also president of Larsen, Batts, Welborn & Co. a consulting firm in Arlington, Va.)

“And when I say strong I don’t necessarily mean big. It will be the carriers who are able to calculate and cover their costs accurately who will make it.”

Her comments were echoed by Canadian carriers, many of whom were represented at the Ontario Trucking Association’s convention held in November.

“There was definitely a consensus among carriers at our fleet session that there will be costs incurred by the new hours of service rules here and in the U.S., and though I hate to say it, some carriers will be forced out of business due to increased costs,” said Canadian Trucking Alliance CEO David Bradley, also president of the Ontario Trucking Association.

A capacity shortage due to productivity loss and carriers going out of business is also likely, Bradley said.

Indeed, at the Hours of Service Productivity Summit held at Georgia Technical Institute in October (which Batts attended as a representative for Mullen), delegates said they expected to see productivity decreases for carriers ranging from two to 19%. Other industry insiders have pegged the productivity decline as high as 25%. And a recent (Wall Street Journal) article appeared to confirm the prediction, adding trucking rates are expected to increase as a result.

Productivity will be lost under the new rules (both north and south of the border) because drivers will have to count more of the time they spend waiting at docks as on duty time, significantly slowing run times.

And Canadian companies stand to fare even worse if a split sleeper berth provision isn’t included when the Canadian HOS kick in next fall.

That’s because, in the U.S., 1) the 10-hour off-duty requirement may be satisfied by two sleeper berth rest periods, neither of which may be less than two hours, and 2) time spent in the sleeper berth, provided that a) it is at least two hours in length, and b) it is used as part of the 10-hour off-duty requirement, does not count toward the 14-hour per day driving limit. So eligible sleeper berth time extends the on-duty window.

But Canada’s new rules, set for implementation Sept. 1, 2004, state drivers must rest for a minimum eight hours at a time, with no sleeper berth splits. They can take the other two hours of off-duty time at their discretion, but everything else counts as on-duty time.

The majority of Canadian players, it appears, want what the U.S. has.

“Canada stands to suffer from an even greater productivity loss if officials here don’t adopt the split sleeper berth provision,” said Leo Van Tuyl, interim president of the Owner-operator’s Business Association of Canada (OBAC).

It is quite likely that Canadian drivers will take advantage of the exception while operating under the U.S. rules, but doing so will force them into border region truck stops by the thousands as they reset their sleeper time to the Canadian clock, said Van Tuyl.

“The transition from one operating system to the other will create horrendous parking problems at those truck stops,” he said. “And the enforcement of the eight-hours-off rule in Canada could initiate a ticket-writing frenzy among Canadian border-region enforcement officials.”

Bison vice president of operations, Rob Penner, wants the sleeper berth exception too:

“Absolutely, for three reasons: one, lost productivity due to the HOS; two, consistency of training — the ability of drivers to be in compliance depends entirely on their comprehension of the rules; and three, competitiveness.”

Penner pointed to a recent internal study by Bison, which found that without the sleeper berth provisions their drivers would lose a full 10 hours on the road per week under the new HOS.

But the freedom of drivers to choose when and how they rest isn’t what the Canadian hours of service regulations are about, said Brian Orrbine, chief of Transport Canada’s Motor Carrier Group Road Safety and Motor Vehicle Regulation Directorate.

“Drivers tell us they know when they’re tired and when they need to take a break, but science tells us that’s not necessarily true,” he said.

The directorate is considering the split sleeper berth provision but had not yet come to a decision at the time of publication.

“It’s something we’re evaluating, in terms of both the economic and safety issues,” Orrbine said, adding the industry could expect to find out whether or not they’ll get the provision by the end of 2003.

“There’s certainly a trade off when it comes to economics versus safety – you can’t look at one without the other.”

Customs pre-notification is raising similar concerns about productivity and the eventual impact on profitability for Canadian carriers.

After missing several of its own deadlines, the Department of Homeland Security finally announced in late November details of its final rules on advance cargo reporting for truck as well as rail, air and ship. The new rules require 30-minute Customs pre-notification for U.S. bound truck shipments that are FAST (Free and Secure Trade) approved and one hour prior to arrival for non-FAST shipments. Outbound from the U.S. the requirement is one hour prior to arrival of the truck at U.S. Customs.

The new rules were finally approved by the U.S. Congress and published in the federal register on December 5.

U.S. Customs and Border Protection (CBP)will process advance cargo information into an automated targeting system linked to various law enforcement and commercial databases. This initial step, CBP claims, will allow it to efficiently identify shipments that pose a potential risk. The Trade Act also provides the Department of Homeland Security with the authority to eliminate antiquated, paper-driven processes for cargo crossing our borders.

“It is a bold but necessary move to better secure our borders against the terrorist threat without delaying the flow of legitimate trade,” said CBP Commissioner Robert C. Bonner.

It may be that but carriers remain concerned about CBP’s actual ability to timely process all the information that will suddenly be coming its way.

“It’s a bit like trying to squeeze an elephant through the eye of a needle,” said Canadian Trucking Alliance CEO David Bradley, explaining that the complex system of processing information from over 36,500 trucks daily could result – at least initially – in border delays. “The new rules may not halt JIT shipments, but they could disrupt them and the potential is there for mass confusion at the busiest border crossings at least in the short-term. What normally would take years to plan and implement is now occurring in a matter of months.”

Moreover, different U.S. government agencies are “bumping into each other trying to implement overlapping programs,” said Bradley. Notably, the U.S. Food and Drug Administration recently announced its own electronic pre-notification rules, which came into force Dec. 12 with different time periods and systems from the Homeland Security rules.

“We have already heard from some of the major border crossings that they are concerned the FDA rules are going to create havoc and long lines of trucks trying to deliver food products to the U.S.,” said Bradley.

Aside from the ability of government to effectively manage the new system, the industry is c
oncerned over the cost of the measures. One of the hardest hit sectors will be less-than-truckload carriers, who will have to provide individual prior notice data on each and every shipment on the truck. The new rules “will be tantamount to economic re-regulation of the cross-border trucking industry,” said Bradley.” The cumulative cost of the myriad U.S. domestic security measures is staggering and will drive smaller carriers or carriers that are not in a financially stable situation out of the transborder marketplace.”

CEOs participating in the Ontario Trucking Association’s recent CEO Forum concurred that carriers must recoup the added costs through rate increases.

“You can’t deny the additional costs; you’ve got to recover them. You cannot incur any costs without finding a way to pass them through to the customer from a pricing perspective – not a surcharge perspective, customers don’t want to hear that,” advised Rick Gaetz, president and CEO of Vitran.

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