Thanks to reform of the Hours of Service (HOS) rule, shippers can certainly expect to see carriers increase rates, but trucking will be hit hard by a hike in both the shortage of drivers and their turnover rate, per a recent analysis of the impact of the 2013 changes to HOS conducted by The Global Supply Chain Institute of the University of Tennessee’s [UT] College of Business Administration.

The report, co-authored by Dr. Mary C. Holcomb, UT associate professor of Supply Chain Management, and Dean Vavalides logistics analyst for Pilot Flying J, right off points out that along with the highway-safety benefits that have accrued thanks to the HOS regulation, “previous research has shown there have also been some negatives…Because drivers have less hours to accomplish the same amount of work, excess capacity is demanded, which lowers productivity and ultimately leads to higher costs for both the carrier and shipper.

“Therefore,” the authors continue, “when changes to the current HOS rule were passed, shippers and carriers alike anticipated that there would be further negative impacts to productivity.”

Noting that until the UT study was undertaken “the affect has primarily been estimated,” they emphasize the study’s aim was “to quantify the impact of the changes to the HOS rule [that became effective on 07/01/13] to date.”

Conducted in late October— at which point the HOS rule changes had been in place for roughly three months— the results were culled from the input of 417 companies, primarily in the manufacturing sector, that participated.  

The survey data indicates that the type of transportation principally affected by the rule changes has been long-haul moves (40.5%) while the impact to dedicated (23%), short-haul (18.9%) and one-way (17.6%) moves has been much less.

Approximately 54% of the companies studied anticipated making changes to their distribution operations in response to changes in the HOS rule.

The authors point out “a somewhat ‘split jury’” on the hit taken by transportation productivity as some 27% anticipate they will incur less than a 1% productivity loss while almost half expect to suffer between a 1% to a 4% loss.

“We asked survey respondents to indicate what actions they were planning to take to improve operating efficiency in response to the HOS Rule change,” the authors state.

“The results indicate that the number-one action planned was extending the lead time for some customers,” they continue. “Some 55.3% indicated that their companies would be pursuing. This is clearly the primary plan as the second through fourth initiatives (Increasing delivery windows for some customers; Improving shipment consolidation; and Increasing the use of drop and hook) rank lower in priority.”

However, the authors suggest that “Just as interesting is what’s not being planned [re: operating changes]. “That would be implementing multi-company collaborative shipping. Only 4.9% indicated they would pursue this plan of action.

On the other hand, they relate that “a sizeable majority” (65.7%) are currently working with their “core/strategic carriers” to help them continually improve the efficiency of their transportation operations. Yet “only 51.1% believe that these efforts will mitigate the impact of the HOS rule change.

The authors also address the potential role that intermodal could play. “Recalling the survey results which indicated that long-haul moves have been the most impacted, we expected that many firms would seek to move freight volume to intermodal. This is clearly not going to be the case as some 70.1% indicated that they will not shift freight to intermodal.”

Turning to whether carriers will raise rates to help mitigate the impact of HOS compliance, Holcomb and Vavalides contend that shippers will indeed face these albeit how much and how soon remains uncertain.

“As a result of the HOS rule change,” they advise, “47% of the [shipper] companies anticipate an increase in carrier rates. Only 10.6% do not think this will happen, while the remaining 42.4% are not certain about what the future holds in terms of rate increases.

“It is our belief that the latter group is in denial about what’s going to happen,” the authors stress. “Rate increases [by carriers] will be coming. It’s just a matter of how much.”

What’s more, they point out that “Interestingly enough, 57.7% expect to pass the transportation rate increases through to their customers. We feel that this is unrealistic in the current economy. Many companies will work with their core/strategic carriers to ‘offset’ these rate increases to the extent possible, but it obvious that the loss of productivity cannot be absorbed by the carriers. Shippers will have to improve their operations in order to minimize the HOS rule change impact.”

Per Holcomb and Vavalides, the impact of the productivity loss resulting from the HOS changes will be “a need to hire more drivers to accomplish the same amount of work.”

And that need, they point out, is hitting trucking while it is “already experiencing hiring pressure due to an aging driver workforce and the impact of the Compliance, Safety and Accountability (CSA) regulation that arrived in 2010.

“Taken together, the effect [of these regulations] will be an increased shortage of drivers available to transport shipments in 2014 and beyond,” the authors contend.

“This shortage will cause higher driver turnover rates, which will ultimately lead to higher costs for both carriers and shippers,” conclude Holcomb and Vavalides. “The results of this study suggest that indeed will happen.”

The authors note that while this study was conducted “a short time after” the HOS changes went into effect, they are “planning to conduct a follow-up study at the end of June to determine how the new regulation has influenced how carriers and shippers manage transportation."