Rate-cutters, Bottom-feeders, And Economic Reregulation

Having spent two days in Sacramento attending the CARB Board hearing on amendments to the Statewide Truck and Bus regulation, it was disheartening to hear many in attendance basically engage in negative name calling of their fellow truckers. There were many in attendance that expressed their disagreement with those supportive of CARB amendments. Many complained “non-compliant” truckers were the reason rates are so depressed. Well, I guess I could write this op-ed as if I were sitting on a fence-post and want to try and appease all sides – I won’t and I’ll probably torque-off some readers with my observations.

There is a big difference between those who will never comply with CARB mandates – they absolutely exist and those simply needing a little more time. As an association that has members on all sides of this issue, we do have members who are truly struggling to comply for a wide variety of reasons – and not because they are rate-cutters or bottom feeders – phrases used by some attending the meeting. During the CARB Board meeting, the “loan denial” provision created the most division among truckers and mostly, opponents of the provision believe it is rewarding those who “chose” not to comply (a sentiment echoed by a CARB Board member Hector De La Torre) because it allows them to remain in the marketplace and depress rates.

It is understandable that those who invested in newer trucks and technology to comply with CARB’s mandates need extra “juice” to support the added financial burden, but blanketed blame of all fleets – especially owner-operators struggling to comply with CARB’s regulation(s) as the reason for depressed rates in my opinion is attempting to scapegoat a minority for a deeper problem with the entire trucking industry.

Too Many Regulations and Little or No Enforcement

A reality check on that sentiment is that with hundreds of thousands of registered trucks in California only 5,000 truck owners (15,000 nationwide) registered earlier this year for the similar “Good Faith Effort” compliance extension. That is not a sufficient number of trucks statewide to alter the economics of the industry whether it’s in construction or freight hauling. Those who registered with CARB are in fact counted towards the overall compliance numbers – they are on CARB’s radar screen. But what about those not registered for any exemption/extension and not on the radar screen because they are knowingly in violation? CARB claims there is an 80 percent compliance rate with the Statewide Truck and Bus rule – something many rightly scoff at. I suspect the number of truck owners whipping their finger at CARB, who have no intention of ever registering – even for the “loan denial” provision is a much bigger number that those genuinely seeking a compliance pathway they can reasonably meet.

I get calls all the time from freeloaders seeking information from the association who are not members and have never registered in TRUCRS for an available exemption/extension, yet they are in the marketplace competing with everyone, unafraid of CARB enforcement. Often, I find out they have multiple trucks with actual employees and guess what? They are illegally paying those drivers as independent contractors and issuing a 1099 instead of a W-2 for wages paid. No unemployment insurance cost, no workers compensation, no social security match, no tax withholding, no nothing. This practice has gone on forever in the trucking industry. If the industry is looking for scapegoats for the poor economics, it is my “humble” opinion that these types of rogue operators – of which there are untold numbers, are the real culprits in keeping downward pressure on rates.

Level the Playing Field

If I’ve heard it once from truckers, I’ve heard it a million times, “what good are regulations if they are not enforced?” I always thought that was a good question and the unfortunate truth is most regulations are unevenly enforced; it’s called “selective enforcement” and can have serious negative economic consequences on the whole industry. How many times have we all heard the phrase, “Level the playing field?” From Sacramento to Washington D.C. that catch-phrase is typically used as a code for more regulation of the industry – especially focused on smaller entities. The intention of mouthing the “level the playing field” mantra often is to increase the little guy’s costs and make it more difficult for them to compete with their larger competitors in the marketplace. There is no sugar coating the fact – larger, sophisticated, politically savvy, and deep pocketed motor carriers and their association(s) have become very adept at the hidden game of economically reregulating the industry using the rulemaking process – CARB is no different.

From encouraging environmental regulation, mandating electronic logging, increased minimum insurance requirements, the list is endless of regulatory mandates lobbied for and overtly supported by those who would dare preach “market-based” economics to many in trucking. Virtually every one of these “reforms” couched under the guise of “safety” or “good environmental stewards” has virtually no cost for the champions of more regulation. As part of their business model they have already adopted most, if not all of the mandates they want to force-feed down everyone else’s throat. The purpose is simple: raise your cost of operations.

Raising the Bar for Entry

That phrase isn’t just a slogan for FMCSA Administrator Anne Ferro when discussing the agency mission related to motor carrier safety, it is also the desire of many motor carriers that want to limit competition. They support all types of regulation and legislation specifically designed to knee-cap the ability of someone to enter the business. In this new era of record used truck prices and environmental regulations that places a shelf life on the truck you own, it’s not so far off to wonder where all the future new owner-operators and fleet owners will come from.

I was reminded by a member that we all began with “some old piece of crap iron.” Who starts out in the industry with new equipment?

Nobody does.

My first truck was a 1979 GMC Astro with a 6V92 underneath. It wasn’t pretty, but it was cheap and I effectively competed with carriers of all sizes because my cost-of-operations were much less – I guess that made me a “bottom feeder.”

I’m not naïve and think marketplace competitors are ever going to have a “kumbaya” moment where we put on a united face when dealing with regulators. Once someone has complied with a rule or regulation, they rightly want to see it evenly enforced on everyone else. That is a fair sentiment. Unfortunately, I also believe strongly that what I witnessed on April 24th was an orchestrated display of faux anger that misplaced blame for poor industry economics.

There is a huge problem with non-compliance in the market that is costing everyone dearly – even those seeking additional time to comply with CARB’s regulations. Unfortunately, I believe the industry is “tripping over dollar bills to pick up pennies” and missing the larger issues hampering the economics of the entire industry.