Oct 182010

Trucking industry achieves substantial safety improvements

Posted By: Tom Sanderson
Date Posted:  Monday, October 18, 2010  11:33 AM

Congratulations to the trucking industry for dramatically reducing highway fatalities and fatal accidents. Are Washington politicians and bureaucrats paying attention to what the free market is accomplishing on its own? Or are they too busy concocting burdensome new regulations (CSA 2010, hours of service changes) that may or may not improve safety but will surely increase transportation costs and harm the economy?

Highway crash deaths involving large trucks plummeted 20% in 2009 to 3,380 a new all-time low. This data is courtesy of the National Highway Traffic Safety Administration (NHTSA) which began tracking fatal accidents in 1950. Nobody would deny that 3,380 deaths are a tragedy or that we should strive to reduce that number every year, but the fact of the matter is that our everyday tasks of driving, crossing the street, riding a bike, etc. all involve some element of deadly risk that we assume every day in the pursuit of happily living our lives. Despite the recession, all highway miles increased in 2009 although truck highway miles have yet to be determined for 2009. The recession can't be credited for the improvement.

Our first chart shows large truck fatalities and fatalities per 100 million vehicle miles travelled. The data shows that fatalities and the rate of fatalities were rising prior to trucking industry deregulation in 1980, but since then absolute fatalities have trended down while truck miles driven have increased substantially, driving the fatality rate from over 5.5 per 100 million miles driven to less than 2. Bill Graves, President of the ATA, rightly states that "These latest figures illustrate the trucking industry's deep commitment to improving highway safety." The decline in both the number of accidents and the accident rate per mile is quite noticeable since the 2005 revision to the hours of service (HOS) regulation. Graves points to the 2005 HOS changes as a positive factor in improving the work-rest cycle. HOS rules are currently under attack with proposals to reduce driving hours from 11 to 10. There is no data to suggest that this would have any positive impact on safety for existing drivers, but if adopted the change would cut truck utilization meaning more trucks and more drivers on the road which would almost certainly increase accidents and would also increase costs.

The gap between the accident rate for large trucks (10,000 pound GVW and higher) and passenger cars also continues to narrow. In 1979 the gap was 2.39 fatalities per 100 million miles travelled but in 2008 the gap narrowed to 0.56 per 100 million miles travelled. In 2009, passenger car fatal accidents and the fatality rate also declined.

Our heartfelt thanks and congratulations to the trucking industry and to professional truck drivers for a stellar result. To the popular press, we encourage you to stop bashing the trucking industry with your distorted reporting on "killer" trucks. Do your homework and stop using isolated bad apples to paint the industry as dangerous. To the Washington crowd, we implore you to trust the free-market system to deliver better and faster results at a lower cost than you can deliver through legislation and regulation. The 30-year history of safety improvements following 1980 trucking industry deregulation should be all the proof you need.


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Categories: Safety
Oct 182010

TL dry van capacity shows no signs of fourth quarter tightness

Posted By: Tom Sanderson
Date Posted:  Monday, October 18, 2010  11:00 AM

Morgan Stanley's dry van truckload freight index continues at moderate levels, compared to the tighter capacity environment in Q2 2010. While capacity remains tighter than in 2009, the spread between 2009 and 2010 is narrowing and the current index is below the 1995-2008 average. The index measures incremental demand for dry-van truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period. In Q2 it was starting to look like we may see a repeat of the TL capacity shortages of 2004 and 2005, but at this point the graph is tracking very closely to 2006 and 2008 which were strong through Q2 and then plunged toward the end of the year.

Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Green at William.Greene@morganstanley.com


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Categories: Morgan Stanley capacity and demand graphs
Oct 182010

Flatbed capacity is tighter than the seasonal norm

Posted By: Tom Sanderson
Date Posted:  Monday, October 18, 2010  7:52 AM

Morgan Stanley's flatbed freight index is rising again but is far off the pace of Q2 2010 indicating more readily available capacity at this time compared to Q2 but still a somewhat more tight capacity environment than at this time in the most of the previous years. The flatbed market was particularly hard hit by the fall off in housing starts, but has gained some ground with the growth in U. S. manufacturing. The index measures incremental demand for flatbed truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com or Bill Green at William.Greene@morganstanley.com


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Categories: Morgan Stanley capacity and demand graphs
Oct 152010

Refrigerated capacity remains tight, but is not getting tighter

Posted By: Tom Sanderson
Date Posted:  Friday, October 15, 2010  4:45 PM

Morgan Stanley's refrigerated truckload freight index continues to decline somewhat from the pace of Q2 2010 indicating more readily available capacity at this time compared to Q2. Refrigerated capacity continues to be very tight relative to 2009 and to most other recent years. The exception is the hurricane-induced capacity shortages at the end of 2005 and the strong freight market at the end of 2004. The pricing environment in this segment clearly favors the carriers at this point. The index measures incremental demand for refrigerated truckload services compared to incremental supply. The higher the index the tighter is capacity relative to demand when compared to a prior period.

Graph reproduced with permission from Morgan Stanley. For more information contact: Adam Longson at Adam.Longson@morganstanley.com ​or Bill Green at William.Greene@morganstanley.com


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Categories: Morgan Stanley capacity and demand graphs
Oct 142010

Auto sales remain stuck at a mid 11 million unit annual rate

Posted By: Tom Sanderson
Date Posted:  Thursday, October 14, 2010  7:03 AM

Annualized seasonally adjusted U.S. sales of domestic and foreign autos and light trucks totaled 11.714 million in September; a small increase from August. Sales rose 25% from September of 2009, but don't be fooled by that. Cash for clunkers ended in August 2009 and sales immediately dropped from a give-away induced 14.1 million in August of 2009 to 9.3 million the next month. Using our more stable 3-month moving average, sales were flat from the prior year. Sales have remained fairly stable between March and August of this year. Auto sales remain 30% below the average annual sales of 16.7 million from January of 2001 to December of 2007, before sales started to decline in 2008. The low point for sales was the first six months of 2009, when annualized sales averaged 9.621 million as potential buyers tightened their belts and waited for the July launch date of the federal cash for clunkers program. Upon expiration of the handout, sales dropped back below 10 million and have slowly regained some of the lost ground since then. It is clear from the data that the $3 billion cash for clunkers program did nothing but reward people for buying cars later or earlier than they had already planned. Our graph shows a 3-month moving average of seasonally adjusted annual rates to smooth out some of the month-to-month volatility.


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Categories: Auto sales and assemblies
Oct 132010

Diesel prices rise sharply for second straight week

Posted By: Tom Sanderson
Date Posted:  Wednesday, October 13, 2010  12:00 PM

Weekly retail on-highway U.S. diesel prices increased 6.6 cents to $3.066 per gallon from $3.000 in the prior week. In the last two weeks diesel prices are up 11.5 cents per gallon. Prices have been in a fairly tight range since early March with a low of $2.899 and a high of $3.131, which is better illustrated in our second graph. Diesel prices peaked at $4.764 per gallon in July of 2008 and were above $3 per gallon from September 24, 2007 to November 3, 2008. Prices in 2010 continue to fall between pricing levels of the prior two years, but with much lower volatility. That may be changing.


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Categories: Diesel fuel prices
Oct 132010

Two new bills propose increasing diesel fuel taxes

Posted By: Tom Sanderson
Date Posted:  Wednesday, October 13, 2010  9:51 AM

The October 11 issue of Transport Topics reports on two bills introduced in the House proposing to raise the federal diesel tax to improve highways. Full Article A bill introduced by Rep. Laura Richardson (D-CA) would raise the tax by 12 cents per gallon with the money targeted for projects that are freight related. The second bill introduced by Rep Earl Blumenauer (D-OR) is revenue neutral and would replace the excise tax on new truck and trailer purchases with a 7.3 cent increase in the diesel fuel tax. The current federal excise tax is 12% on trucks, trailers and certain tractors.

Blumenauer's bill makes a lot of sense because truck and trailer purchases plummet in recessions and spike in expansions resulting in harmful volatility in the amount of money going into highway repair. Plus lowering the after tax cost of buying new equipment is a great idea at the present time. The ATA supports this bill as a means of stimulating the purchase of cleaner, safer and more efficient vehicles. This would not be "revenue neutral" to shippers who would see an immediate hike in fuel surcharges and only over time would see the offset from the lower cost of equipment purchases.

Richardson's bill is not a clear cut winner. In addition to the 12-cent increase in diesel taxes, the bill proposes to transfer $3 billion from the general fund to create a freight trust fund. That just takes money we have borrowed from China out of one U. S. government pocket and puts it into another. While the ATA also supports this bill, they are quick to point out that this bill is no substitute for a comprehensive new highway bill and will be insufficient on its own to address the infrastructure challenges we face today. The ATA suggests a similar increase in the gasoline tax to put additional resources towards highway and bridge construction and repair.

It is clear to anyone who drives that we need to boost highway infrastructure spending to make our industries more competitive and our commuting lives more sane. It is not as clear that with nearly 10% unemployment, fairly weak consumer spending, and abysmal housing starts and auto sales that we need to raise taxes and take money out of the tax payers' pocket and put it into the government's pocket. We need to pay more if we want more, but is now the right time?

Before we agree to any fuel tax increases we need two things in return. First, repeal the Davis-Bacon Act (prevailing wage law). This 1931 depression era legislation was designed to deprive blacks of good paying construction jobs. It has since become a sop to the unions that harms legal immigrants. Find your own favorite over-priced job and a window into mindless bureaucracy at Davis Bacon. Second, take highway spending prioritization out of congressional hands. For example, the Reason Foundation's Galvin Mobility Project scientifically studies congestion and proposes affordable and effective relief. Perhaps something modeled after the Defense Base Closure and Realignment Commission (BRAC) guided by scientific and mathematical models of congestion and disrepair is an option. We can't afford bridges to nowhere.


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Categories: Highway funding
Oct 122010

CSA 2010

Posted By: Tom Sanderson
Date Posted:  Tuesday, October 12, 2010  2:30 PM

What is it?

CSA 2010 is a new regulatory system that will be fully implemented by mid-2011 and is designed to measure, track, and report driver and carrier safety. CSA stands for Comprehensive Safety Analysis and the program was created by and is managed by the Federal Motor Carrier Safety Administration or FMCSA. It replaces the SafeStat program. The goal of CSA 2010 is noble in shifting the focus of safety audits away from safety audits at carrier facilities (compliance reviews) in favor of many more road-side inspections of drivers and vehicles and a readily accessible database of results. Today, many good small and new carriers never receive a safety audit so are labeled "unrated". They have no rating to provide shippers and 3PLs a comfort level that they are safe operators, but are fully licensed, authorized and insured in accordance with FMCSA regulations. Furthermore only 2% of carriers receive compliance reviews in any year, so the ratings are not timely. With CSA 2010, not only will every carrier be evaluated, but every driver will be evaluated. While drivers do not have scores, carriers can elect to participate in a fee-based Pre-Employment Screening Program that will give the hiring carrier data on the driver including 5 years of crash data and 3 years of inspection data. This will give carriers far better information allowing them to avoid hiring unsafe drivers who leave one carrier today and essentially start with a clean slate at their new carrier. I do not intend to fully explain CSA 2010 but will provide links to articles I find informative and interesting. Fundamentally, CSA 2010 roadside inspections will focus on 7 categories (unsafe driving, fatigued driving – hours of service, driver fitness, alcohol and controlled substances, vehicle maintenance, cargo related, and crash indicator). These 7 areas are called BASIC, or Behavior Analysis and Safety Improvement Categories because no government program is complete without the creation of numerous new acronyms. The Carrier Safety Measurement System (CSMS) score will replace the SafeStat score.

Carriers will have great visibility into specific data within the CSA 2010 database. Beginning in December 2010, shippers will have access to carrier specific CSMS data in much the same way SafeStat data is available today. The score related to crash indicator will likely not be available because even crashes where the driver is not at fault are included. Each carrier will receive a CSMS for each BASIC which will be stated as a percentile indicating the percent of carriers of a similar size that are better on each particular measure. For example as score of 30 means that 30 percent of all carriers have better scores than the subject carrier, so the lower the score the better. The CSMS for every carrier will be updated monthly.

Currently carriers are labeled as "satisfactory", "conditional" or "unsatisfactory". Nobody would, or at least should, use an unsatisfactory carrier and most shippers are quite squeamish about a conditional label, even though that FMCSA rating means that the carrier is still fit for service. Under CSA 2010 there are three new labels; "continue to operate", "marginal" and "unfit". The meanings are roughly comparable. Today the fitness determination follows a Compliance Review, but in the future the FMCSA plans to issue a rulemaking that will incorporate all of the data collected to arrive at a mathematically calculated fitness determination.

A big problem is that for each BASIC a carrier may be labeled as "marginal" or "deficient" based on arbitrary percentiles. For example, for the fatigued driving category, the bottom 35% of carriers in each peer group will be labeled "deficient" in that BASIC. With seven basics, experts expect 68% of all carriers will be labeled "deficient" in at least one BASIC. In comparison, far less than 1% of all motor carriers are determined unfit for service under current compliance reviews. The FMCSA is confusing the public by, on the one hand labeling a carrier as fit for service but on the other hand pejoratively describing the carrier as "marginal" in a critical safety measure.

Why should I care? What is the impact?

Many industry experts think that 5-10% of the TL driver force will be removed from the industry when CSA 2010 is fully implemented. Carriers will expose themselves to unacceptable liability by not utilizing the pre-employment screening option and unsafe drivers will thankfully be driven out of the industry. But with already expected TL capacity shortages in 2011, this will exacerbate the problem and could result in severe capacity shortages, rising TL prices, and challenging TL service levels.

There is no expected impact in the LTL industry, but intermodal and ocean drayage operators will likely be impacted.

TL drivers will be scrutinizing equipment and cargo conditions much more closely as they need to protect their own inspection record history. That means more drivers will refuse to pull a trailer if lights are out, tires are worn, or brakes are questionable. Drivers will also reject a load that is improperly secured or loaded. Intermodal drayage drivers will likewise be taking a hard look at containers and chassis before agreeing to pull a load.

The trial lawyers are probably licking their chops getting ready for CSA 2010. Today, if a carrier does not have a safety rating or has a conditional rating shippers and 3PLs will either not use that carrier or will look at the SafeStat score to see if the carrier has a record of safe driving. If the DOT wanted the carrier off the road they would have given the carrier an "unsatisfactory" rating. But under CSA 2010, if a carrier is "marginal" on one or more BASICs, what combination of CSMS scores is high enough to allow the shipper or 3PL to demonstrate that they have exercised appropriate due diligence in hiring a "safe" carrier. Will every state and every court have their own interpretation of what constitutes negligent entrustment? How can a shipper or 3PL be vicariously liable for using a carrier that the FMCSA confirms is licensed, insured, and authorized to operate?

CSA 2010 could lead more shippers to use 3PLs and high-quality brokers so that there is another layer of protection between the shipper and the party that is suing the carrier along with everyone close to the carrier. While brokers and 3PLs won't have a CSMS, shippers need to be diligent in choosing a 3PL or broker that is really on top of this issue, or there will be no added protection at all.

CSA 2010 will likely reduce highway truck accidents, which have been declining for years even without CSA 2010. There is no free lunch. The cost of moving freight will increase as a result of CSA 2010. How much? It is hard to say how much of the cost increase will be directly attributable to CSA 2010 and how much will be due to other factors causing the TL driver shortage. An over-the-road TL driver makes about $42,000 on average today and the job is terrible. Many people think, and I agree, that another $6,000 to $8,000 will be required to fill all the seats required to get freight delivered. That means an 8 to 10 cent per loaded mile increase in TL rates, and more in shorthaul markets where miles per driver are less. Those cost increases don't just apply to the incremental capacity brought into the industry but to all capacity in the industry.

CSA 2010 could greatly aid the FMCSA in getting unsafe drivers and carriers off the road by providing a better mechanism for identifying carriers that warrant enforcement actions. The mistake is subjecting the shipping public to needless liability. It is the duty of the FMCSA to determine which carriers are fit for use in interstate transportation. The FMSCA should not abdicate its responsibility and allow every state and every court and jury to determine what combination of CSMS scores are necessary to avoid vicarious liability damages when shippers and 3PLs use carriers the FMCSA has deemed fit for service.

What should I do?

Make sure you are getting good legal advice on what carriers you should and should not do business with and on your carrier contracting and record keeping.

Don't count on this posting as your bible on CSA 2010. Read about the topic and talk to knowledgeable people. Click here to access the FMCSA CSA 2010 web site.

Examine your trailer loading processes and your trailer inspection processes if you operate in a shipper-load environment.

CSA 2010 is not ready for prime time and will harm the motor carrier industry and the shipping public. A Motion to Postpone release of CSA 2010 CSMS data has been filed with the Agency. Send a letter supporting this motion to Ann S Ferro, Administrator; Federal Motor Carrier Safety Administration; U.S. Department of Transportation; 1200 New Jersey Avenue SE; Washington, DC 20590 ann.ferro@dot.gov.

The over-the-road TL sector of the industry will be hardest hit and faced with the highest price increases so examine your network strategy regarding how many DCs you use and where they are located to make sure you can take advantage of intermodal, dedicated fleets, multi-shipper dedicated fleets, and regional TL carriers where driver recruiting is less problematic.


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Categories: CSA 2010
Oct 082010

Purchasing Managers Index (PMI) softens but continues to show manufacturing growth

Posted By: Tom Sanderson
Date Posted:  Friday, October 08, 2010  3:08 PM

The Institute of Supply Management reported that the Purchasing Managers' Index (PMI) decreased from 56.3 in August to 54.4 in September. This represents 14 consecutive months of growth but is the first month less than 55 since December 2009. A PMI over 50 indicates growth while a PMI under 50 indicates contraction in the manufacturing sector of the economy. The index reached a low of 32.5 in December 2008 but then recovered more quickly than other areas of the economy and remains one of the brighter spots in the economy today. The vertical bars in the graph represent recessions


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Categories: ISM manufacturing index
Oct 072010

Diesel prices jump 4.9 cents to $3 per gallon

Posted By: Tom Sanderson
Date Posted:  Thursday, October 07, 2010  10:31 AM

Weekly retail on-highway U.S. diesel prices increased 4.9 cents to $3.000 per gallon from $2.951 in the prior week. Prices have been in a fairly tight range since early March with a low of $2.899 and a high of $3.131, which is better illustrated in our second graph. Diesel prices peaked at $4.764 per gallon in July of 2008 and were above $3 per gallon from September 24, 2007 to November 3, 2008. Prices in 2010 continue to fall between pricing levels of the prior two years, but with much lower volatility.


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Categories: Diesel fuel prices
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