How Will ELDs Impact Freight Costs in 2017 (and Beyond?)
05/17/2017 — Jerry Spelic
In 2015, the Federal Motor Carrier Safety Administration
(FMCSA) established standards for Electronic Logging Devices (ELD). An ELD is electronic
hardware that connects to a truck’s engine to automatically log hours of
service (HOS). Regulating a driver’s hours of service is to prevent accidents
caused by driver fatigue. Fleets and owner-operators have until December 18th,
2017 to implement use of ELDs if they have not already done so.
One of the factors surrounding the ELD mandate is its
impact on freight costs. In this blog post, we’ll look at some of the factors
that will drive freights costs up with use of ELDs. Let’s examine these factors
- Cost of implementing ELD. When electronic logging devices were introduced 20 years ago, a single ELD cost up to $2,500. Today, the FMCSA estimates that the average annual cost of an ELD will be $495 per truck. The cost to implement ELDs will be passed along to shippers but will only marginally drive freight costs up.
- Decreased productivity. Most carriers that have implemented ELDs have reported productivity decreases of approximately 15% with fewer miles driven per day. ELDs track drive-time to the minute so operating logs can’t be “fudged.” A driver can no longer report 300 miles driven when they actually drove 600 miles. Some carriers are charging more to make up for this loss in productivity. 81% of large fleets (more than 250 trucks) have achieved full ELD implementation so their rates have “normalized” by now. For smaller carriers, expect nominal price increases of 5-10% for loads that are booked on the spot market.
- Reduced capacity. Some owner-operators will view the cost to implement ELDs combined with the decrease in productivity as “big brother” meddling in their business and will leave the industry, reducing capacity.
So, what effect will the electronic log mandate have on freight rates? According to transportation economist Noël Perry, truckload rates will increase about 4% this year, with additional capacity pressure caused by the ELD mandate. “The maximum impact will occur in 2018,” says Perry, “and it won’t stop until two to three years afterwards when people finally figure out they have to do it.”
Truckload capacity utilization is expected to remain greater than 100% well into 2017 and Perry puts the chance of a “significant” capacity shortage at 60%, with a 30% chance of a “real whacko” shortage. He also notes that the spot market tends to be much more volatile, with the 4% increase in contract rates translating “easily” to a 15-20% increase in spot pricing.
So, what will electronic logging device regulations mean to shippers?
- As carriers procrastinate to comply with electronic logging device mandate, it will result in fewer available carriers. Consider working with a broker/3PL to offer additional resources to keep your freight moving without any delays.
- Loss of carrier productivity means that shippers will need to better manage their time to ensure on-time delivery. For example, lanes that range from 450-700 miles will be affected as these lanes will turn into two day transit hauls instead of one.
- The truckload capacity crunch could shift some freight that would normally move via truckload to LTL. Working with a broker or 3PL that routinely handles both truckload and LTL will ensure that your business keeps its freight moving!
- Shippers can help drivers become as efficient as possible to decrease time spend on duty, but not driving. Following these suggestions will increase driver efficiency and create additional capacity to drive down your shipping costs:
o Have flexible shipping/receiving times
o Reduce driver wait time
o Quickly and efficiently load drivers
o Provide and offer legal parking at pickup and delivery locations
- Using a broker/3PL will help you fully vet carriers and their ELD compliance.
- Most importantly, as capacity tightens, expect rates to increase. Working with a freight broker or 3PL can help you find the carrier capacity you need and negotiate rates on your behalf.
Working with a freight broker can help you mitigate the costs associated with electronic logging device regulations. Contact PartnerShip at 800-599-2902 or use our contact us form to see how we can help you ship smarter so you can stay competitive.