ADS Logistics Supply Chain Management Blog

Who Is Happy with the Hours-of-Service Rule?

The new Hours-of-Service Rule has been met with generally negative regard by most trucking companies, and many drivers are not likely to be happy, either. In fact, the American Trucking Association is considering suing over some of the new requirements, as they are expected by many to greatly reduce productivity. Of course, that was not the intent of the Federal Motor Carrier Safety Administration, as those in charge of the changes claim that safety was the number one priority when deciding on the regulations.

The rule requires the following changes:

• 34-hour restart is now limited to once per week
• It includes two required periods of sleep from 1 am to 5 am each week
• A 30-minute break is now required after eight hours of driving

Not surprisingly, these regulations are expected to have some consequences for most trucking companies, with productivity the most likely casualty. Depending on the products transported by the carrier, this change will affect the general population, as important items like food and gasoline may take longer to get to their destination. This, understandably, leaves many carriers worried about the changes.

In addition, driver income may suffer due to the new restart rules since there will be approximately 12 fewer hours of driving time each week. This means drivers can work a maximum of 70 hours per week now, compared with the previous limit of 80. Not only does this affect driver income, but it may also require carriers to adjust their systems and schedules to ensure that they can comply with the rules while also meeting delivery deadlines.

An additional concern is that not all carriers are equally affected, which does not seem fair, as long-haul companies will likely bear the brunt of this decision more so than short-haul carriers. In fact, some carriers are actually happy about the hours of service rules, according to TruckingInfo.com. For example, those in charge of Cardinal Logistics think they may even benefit from the rule since it could weed out the professional, well-managed carriers from the rest, offering an advantage to some companies.

Plus, it is possible that the Federal Motor Carrier Safety Administration is correct in that this new rule could increase safety on the road. After all, a well-rested driver should be more alert, and therefore less prone to cause accidents on the road.  In fact, the administration originally considered reducing the 11-hour driving limit to ten hours, but decided on these changes instead. According to Politico Morning Transportation, House Oversight and Government Reform head Darrell Issa admitted that the changes might not be ideal for everyone, but they represent a good compromise for those advocating some type of change in the trucking industry.

Time will tell if the change is actually good. That is, unless the American Trucking Association officially decides to fight the new hours of service regulations in court. 

ATA Truck Tonnage Posts Large Gain

The American Trucking Associations’ (ATA) advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index:

• Jumped 6.8 percent in December.
• Rose 0.3 percent in November 2011
• Continued to rise into the next month. 

The latest gain put the SA index at 124.5 in December. The index is up from the November level of 116.6. For all of 2011, tonnage rose 5.9 percent; the largest gain in 13 years. Tonnage for December was 10.5 percent higher than it was in 2010. This is the largest year-over-year gain since 1998.

ATA Chief Economist Bob Costello said, “While I’m not surprised that tonnage increased in December, I am surprised at the magnitude of the gain.” He continued, “Not only did truck tonnage increase due to solid manufacturing output in December, but also from some likely inventory restocking. Inventories, especially at the retail level, are exceedingly lean, and I suspect that tonnage was higher than expected as the supply chain did some restocking during the month.”

The American Trucking Associations is the principal trade association for trucking. The ATA has 50 affiliated trucking associations, industry-related conferences, and councils. Every month, the association reports tonnage by asking its members how much tonnage was hauled.  The indexes are calculated based on those responses.

The indexes are important because trucking serves as a gauge of the U.S. economy. The industry represents 67.2 percent of tonnage carried by all modes of domestic freight transportation. In 2010, 9 billion tons of freight was carried by trucks.

The tonnage reports may be a minor announcement in the trucking world, but the numbers can serve as a representation of our country’s economy. 

2012 Oil Price Outlook: Denial, Frustration and Volatility

Since 2005 the average price for a barrel of oil has doubled ($55 per barrel 2005 vs. $111 per barrel 2011). Historically a doubling in price has lead to substantial increased production. Not this time.

Since 2005 production of the conventional crude oil has been stuck at 75 million barrels per day. The world demands about 89 million barrels a day. The gap is being filled by unconventional "oil" - tar sands, ethanol, ultra-deep water, tight oil requiring enhanced oil recovery technologies and natural gas liquids.

None of these unconventional sources are viable without high prices. Taken together they will not offset the annual depletion from existing oil fields, the unrelenting demand increases from the developing world and the decline in net oil exports as exporting countries face both depletion and increasing internal consumption.

Assuming a 3% depletion rate, 1.25% demand growth and a declining net export rate of 1.25%, the world must continually find and produce about 5 million barrels a day just to stay even. Industry analysts estimate that developing fields will add 3.5 million barrels a day per year over each of the next five years.

Simple math can be annoying, but it is hard to argue - production needed 5 million barrels a day minus anticipated production 3.5 million barrels a day equals 1.5 million barrel a day shortfall.

With the developed world stockpiles of about 2.6 billion barrels, plus the new reserves being accumulated in China, this 1.5 million barrel a day shortfall is not a problem yet. But there is no slack and we are one geopolitical event or natural disaster away from an oil shock.

Yet 2011 was a year that saw articles, statements and government actions that point to a naiveté and deep denial about the reality of the world oil situation.

The written barrage started in September with Daniel Yergin's, "There Will Be Oil" in The Wall Street Journal. October was Ed Crooks with, "Pendulum swings on American oil independence" in Financial Times. November saw Edward Luce's, "Look away, Greens: America is entering a new age of plenty" in Financial Times and Mort Zuckerman's, "How America Can Escape the Energy Trap" in The Wall Street Journal.

Read the articles, but do so with the numbers shown above as context. There is nothing in any of these that changes the conclusion that the world is close to another oil shock. Yergin posits that technology and higher prices will bring vast amounts of oil on line quickly. Crooks ignores depletion. Luce takes a cheap shot at clean energy. Zuckerman assets that that shale gas has dramatically reduced oil consumption. They all tout the US energy independence meme.

Art Berman, a geologist and contributor to The Oil Drum, uses our old friend math again to clearly show that crude oil imports - relative to total consumption of crude oil and products - were only 2% lower in 2010 than in 2005.

He also shows that Zuckerman's claim that "...natural gas is already putting downward pressure on oil prices" is untrue. Since early 2009, there has been no relationship whatsoever between natural gas and crude oil prices. In fact, the opposite is true, shale-gas producers have been shifting their drilling to more oil-prone prospects because of the rising price of oil and the falling price and economics of gas.

The publication of clueless articles by The Wall Street Journal and Financial Times is frustrating, but more frustrating and even dangerous is the utterances and actions of our political elites.

On the Republican side, Rep. Michele Bachmann, when she was still a candidate, promised a return to $2/gallon gasoline if she was elected president.

In the November 23 CNN Republican presidential debate, Newt Gingrich stated that the United States could discover and produce enough oil in 2012 to cause a worldwide oil price collapse.

The US imports a net of about 9 million barrels of crude per day. We would need 5 new Gulf of Mexico's in one year to become oil independent and bringing about a collapse in world oil prices would mean increasing production by substantially more.

These statements by supposedly reputable candidates for President of the United States show either total ignorance of our energy reality or dangerous dishonesty and demagoguery.

On the Democrat side, the Obama administration's knee jerk release of 30 million barrels (about 8 hours of world consumption) from Strategic Reserves and putting the Keystone XL pipeline on hold shows again either total ignorance of energy reality or dangerous dishonesty and political expediency.

While there are legitimate environmental concerns with oil sands development, the Canadian tar sands will be developed and current production will grow from 1.5 million barrels per day today to over 5 million in 2030. None of this growth is contingent upon the US approving this pipeline. If we don't build the pipeline, the oil will go to Asia and the US will continue to rely on countries like Saudi Arabia, Venezuela, Nigeria and Iraq and the Straits of Hormuz.

While we play political games, China is laughing and we miss out on securing a secure oil supply and the jobs related to building and maintaining the pipeline. It would be a far better strategy to build the pipeline and use some of the revenues to support demand reduction and renewable alternatives.

So we enter 2012 with tightening supply, increasing demand, no leadership and no vision.

For supply chain professionals, 2012 will be another volatile year. During 2011, in spite of the supposed global slowdown, worldwide demand for diesel surged. The US average price was $3.85 per gallon up from $3.00 in 2010.

This demand will continue and accelerate in 2012 as the US Federal Reserve, China, the European Central Bank and other emerging markets will do everything possible to spur growth. These government actions set the stage for sustained and perhaps higher demand for oil in 2012. As an example, US manufacturing grew in December at its fastest pace in six months showing growth for the 29th consecutive month according to the Institute for Supply Management.

Coupling this demand growth with the continuing low-level short fall in supply mentioned earlier suggest an average oil price of $125 - $130 a barrel in 2012. Diesel is not only a transportation fuel but is increasingly used to generate electricity. Also, natural gas liquids and ethanol two of the unconventional sources used to replace decreasing conventional crude are not commonly used to produce diesel, reducing the quantity of feedstock for diesel production and impacting supply. So expect diesel prices to average $4.65 per gallon.

This forecast assumes no hot wars erupt in the Middle East, the Straits of Hormuz stay open and Iraq, Venezuela and/or Nigeria don't collapse in civil turmoil. It also ignores natural disasters e.g. Katrina and the many other possible Black Swans lurking. If any of these happens, the $125 - $130 will be a minimum price.

In closing, supply chain professionals should understand that Business As Usual will not continue indefinitely. We are reaching a point where a forced transition off oil is not far away. Every supply chain strategy should recognize this and begin planning for much higher oil prices and a moving away from oil.

Conservation, efficiency and natural gas for transportation appear to be the only viable alternatives at this time. It is time to begin all three.

 

Written By: Chuck Taylor- ADS Logistics Co, LLC Employee

Published by: Winter GLobal Trade Best Practices Newsletter

2012: The Year of the Trucker

The National Association for Minority Truckers (NAMT) has declared 2012 the Year of the Trucker to bring national awareness to the importance of the American trucking community and make light of the role truckers play in the lives of all Americans. Consumers don’t always think of the many goods that would not be available to us without the trucker.

Most, if not all goods we purchase and consume are readily available because of the trucking community. NAMT will host trucker appreciation rallies, convoys and cookouts in various cities. The association said the "campaign is an effort to bring national awareness to the importance of Americas' trucking community and the role they play in the lives of all Americans. Many of Americas truck drivers often feel as they're profession is overlooked and not appreciated by their fellow citizens."

The last of the events will be at the Third Annual Memphis Annual Trucking Expo- The Expo will take place on October 13 at the Agricenter International in Memphis, Tennessee and will feature a variety of entertainment including: career fairs, educational seminars, speakers, kid's zone, a healthy trucker's pavilion, trucker's forum and truck showcase.

NAMT also released several reasons truckers should be shown much appreciation for their dedication to their jobs and to the industry:

• Work long hours
• Spend days and weeks away from families
• Work in the most dangerous conditions
• Keep America running

Truckers deserve to be recognized as essential members to a functional community and a successful society. That’s why NAMT is making 2012 all about them. Go truckers!

DOT Announces Funding for Repair from Natural Disasters

The U.S. Department of Transportation (DOT) announced $1.6 billion in funding for the repair of roads and bridges from the Federal Highway Administration (FWHA). Ray LaHood, U.S. Transportation Secretary, made the announcement Monday. The funding will go toward the repair of U.S. roads and bridges that have been damaged by natural disasters. LaHood offered an inspriational explanation, “Communities from coast to coast are still recovering from disasters that have affected the roads they use, their homes and businesses.” He continued, “The Obama Administration stands ready to provide emergency relief and reimburse these communities for the work that has been done to restore their critical transportation needs.”

Costs for debris removal, detours, and any other immediate measures necessary to restore traffic flow are deemed eligible for reimbursement from the fund. States such as Vermont, which faced severe tragedy by Hurricane Irene, will receive $125.6 million; North Dakota will receive $89.1 million for the Devils Lake Basin for damage caused by Spring 2011 runoff; and Iowa will receive $37.5 million to repair damage caused by the May 2011 Missouri River flooding.

The states previously mentioned were among the top recipients of aid from the FHWA. A complete list of states and funding amounts is listed here. 

Cell Phone Rule Officially in Effect

The final cell phone rule officially went into effect this week. Interstate truck and bus drivers are now officially prohibited from using handheld cell phones while driving. The Federal Motor Carrier Safety Administration (FMCSA) started the process of banning cell phone use for truckers in September 2010. They issued a ban on text messaging while operating a commercial truck or bus.

Here are the key changes that will take place in result of the new rule:

• The final joint rule is projected to affect about 4 million commercial drivers.
• First time violators face federal civil penalties of up to $2,750.
• Repeat offenders face disqualification from operating a CMV.
• If an interstate truck or bus driver is caught two or more times for using his or her phone while operating a CMV, states will suspend the driver’s commercial license.
• Companies that allow their drivers to use cell phones while driving will face a maximum penalty of $11,000.

The main reason for this ban is safety. Drivers who so much as reach for a cell phone or any other distraction are 3 times more likely to be involved in a crash. Drivers who are on the phone are 6 times more likely to be involved in a crash. U.S. Transportation Secretary Ray LaHood said, “When drivers of large trucks, buses, and hazardous materials take their eyes off the road for even a few seconds, the outcome can be deadly". Hands-free devices can be wired or wireless headsets or speaker-phone functions built into audio system and operated with steering-wheel controls.

Tolls or Taxes?

A recent Reason-Rupe Transportation Poll surveying over 1,000 Americans found that people would rather pay higher tolls than more gas taxes. With the federal gas tax currently at 18.4 cents a gallon, citizens have started to question how exactly the government is spending this revenue intended for highways and transit.

Seventy-seven percent of respondents accurately reflected this controversial concern through strongly opposing a raise in the gas tax. Additionally, fifty-eight percent expressed their opinion that Americans should be paying for new lanes, highways, and infrastructure improvements via toll revenue versus a tax increase.

Another mutual motivator in these numbers is the interest in time. Fifty-nine percent favored a new toll lane or road with the interest of spending their money to save their time. This also reveals the common interest and value associated with traffic avoidance. If people are going to pay more, they would rather see results by reducing their vehicle hassle.

Here is the comprehensive response for raising the federal gas tax:

• Strongly Favor 8%
• Somewhat Favor 11%
• Somewhat Oppose 21%
• Strongly Oppose 56%
• Don't Know/No Opinion 4%
• Total 100%
• Net Favor 19%
• Net Oppose 77%

For complete survey results, click here to open the Reason Rupe Public Opinion Survey.

Commuter Protection Act Bill

A new senate bill is set to give the U.S. Department of Transportation (DOT) the power to increase tolls. Sen. Frank Lautenberg and Rep. Michael Grimm introduced the bill early this month. If the Commuter Protection Act Bill passes, the DOT would have toll authority for the first time since 1987.

The bill is in response to Response to the Port Authority of New York and New Jersey's plan to:

• Raise tolls between the states from $8 to $15 by 2015.
• For cars with E-Z Pass, the toll will be raised from $8 to $12.50.
• Five-axle trucks that currently pay $40 dollars will have to pay as much as $125.

Rep. Grimm and Sen. Lautenberg noticed how unfair these tolls were and how misused the revenue from the tolls was. Congressional leaders said the legislation is needed to ensure toll revenue is spent on highway infrastructure needs.

Bill Graves, President and CEO of American Trucking Associations (ATA), said, "We applaud Rep. Grimm and Sen. Lautenberg for introducing this vital piece of legislation”. He continued, "Having seen the toll increase proposed by the Port Authority of New York and New Jersey, they are acutely aware of the negative impact of allowing toll agencies unchecked power to raise tolls for whatever reason they want."

Before the DOT lost the ability to regulate tolls, it had the power to deem whether or not a toll was fair. If a toll was determined unfair, the Transportation Secretary could override such hikes and put more “reasonable” maximum tolls in place. The new bill looks to restore this power back to the DOT.

Safe and Efficient Transportation Act

The proposed Safe and Efficient Transportation Act, sponsored by Rep. Michael Michaud, D-Maine, would allow every state to decide how extensively 97,000-pound trucks can travel based on economic need and the condition of its roads and bridges.  Federal legislation is currently allowing Maine and Vermont higher weight limits on their interstate highways, which has inevitably led to statewide curiosity and consideration.

There are 120 companies currently backing the effort include Kraft, MillerCoors LLC and Hershey Co., along with 72 trade associations. These companies are lobbying for the efficiency of the larger trucks despite concerns about deteriorating road conditions.

Harry Haney, associate director of transportation planning with the Northfield, Illinois-based company, said Kraft would:

• Make 66,000 fewer truck trips.

• Drive 33 million fewer miles a year.

• Put 2.1 billion fewer pounds on roads.

Companies are also attributing need for heavier trucks to higher diesel prices. The average U.S. retail price for diesel fuel was $3.93 per gallon as of Dec. 5, according to the Energy Department, up 18 percent from the beginning of the year. Meanwhile, the U.S. is tripling in consumption and demands more. Companies are finding it hard to meet the increasing demand efficiently with the current weight standards.

The bill has also created general concerns and risks including:

• Increased truck-related accident deaths.

• Bridge stability and sustainability.

• Extra fees for overweight trucks.

• Rebuilding bridges that weren’t designed for the weight.

Andrew Herrmann and the American Society of Civil Engineers estimate that 25 percent of U.S. bridges need weight limits or restrictions on traffic because they're not strong enough. Hermann also said the U.S. is spending about $10.5 billion a year to maintain bridges, and $17 billion is needed to keep up with the ongoing damage.

In turn, companies would be required by the bill to add a sixth axle to 97,000-pound trucks on the interstates, which would reduce road wear and improve braking. However, Hermann also stated that the extra axle will not offset the stress on interstate bridges, which were designed for 80,000-pound trucks.

While such changes are certain, for many companies, it’s still too early to determine the degree of impact the act will have. Heavy haulers carrying the current weight limits may find that an increase in restrictions and customer demand will call for a change in their otherwise-adequate equipment. Along with a switch in size would come a decrease in drivers and, while there is no doubt that bigger is more efficient, it is not necessarily safer to have fewer, heavier trucks. Less trucks does not guarantee safer roads, especially if the drivers are not qualified professionals.

Truckers for Troops

Monday December 5^th marked the start of the Fifth Annual Owner Operator Independent Drivers Association (OOIDA) Truckers for Troops campaign. Over 37% of OOIDA members have served in the military. The organization continues to remember and send care packages to troops in Iraq and Afghanistan. Since it started as a telethon in 2007, the annual event has raised close to $230,000. The money goes toward care packages for soldiers. Over the 5 years, about 1,900 of the 50-pound packages have been made and sent to soldiers. The boxes are packed with enough essentials and reminders of home for 12 service members bringing the total troops cared for to 22,000 over the 5 years.

The OOIDA uses truckers’ donations to fund the care packages for the troops. Between 2008 and 2009, there was about $100,000 raised despite the recession and escalated fuel costs. The ultimate goal of the fundraiser is to give the troops a sense of home and remind them that they are in our hearts and thoughts.

There are several ways to be a part of this great new tradition:

• Stop by headquarters during the week
• Call 800-444-5791 and tell the operators you are calling in for Truckers for Troops
• Campaign lasts from December 5- December 12, during normal work hours and up until 7:30 p.m. CST
• Telethon broadcasts held on “Land Line Now” each evening during the campaign from 6 p.m. to 7 p.m. CST on Sirius XM Channel 106

Contact Information

• OOIDA Truckers for Troops, PO Box 1000, Grain Valley, MO, 64029, c/o Nikki Johnson
• E-mail: troops@ooida.com