DOT's cost analysis for hours-of-service reform is woefully inadequate
The Federal Motor Carrier Safety Administration's (FMSCA) proposal for revising hours-of-service rules was developed as part of an effort to improve highway safety by reducing driver fatigue. This assumes that current regulations are primarily responsible for driver fatigue. While there is research linking some truck/car accidents to fatigue, as well as some fatigue issues to current hours of service rules, a causal relationship between hours of service and accidents has not been established.
For this reason, I'd like to look at the proposal in terms of implementation costs. We're talking about substantial changes here - changes that may or may not actually result in the benefits FMSCA assigns to them.
The agency estimates that the new rules would reduce truck/car fatalities by 2.1%, saving 115 lives a year. But what will it cost to achieve these results? DOT's estimate is about $3.4 billion over 10 years. This is not an insignificant amount of money, given the current state of carrier profit margins. But is it even in the ballpark?
The proposal calls for equipping trucks with black boxes, which provide lots of useful information for accident investigations. But this means another big financial investment for fleets. At about $1,500 each - some run as high as $2,000 - it could cost $3 billion to outfit the 1.5-million Class 7-8 vehicles operating in the U.S.
If we add maintenance costs, the amount would triple over the life of the vehicle. This brings us to $12 billion. One can only imagine the additional staffing that will be needed to analyze the accident data collected by these devices. Can we really justify this kind of expenditure to prove that drivers make mistakes, most of which we're already aware of?
Next comes the cost of adding drivers. If I read the FMSCA report correctly, it estimates that a wage increase of 0.39% will be needed to attract the additional 49,000 drivers. But there's considerable evidence that wage increases closer to 15% are needed just to meet the current demand for drivers.
I know that I'm never 100% right, but I really think there's a serious error in FMCSA's estimate of the wage increase needed to attract more drivers. But even using their numbers - $50,000 per driver for wages and benefits - the additional cost will be $2.45 billion. Should we add the dispatchers and maintenance personnel to support the new drivers? Let's not; we'll assume there won't be a need for any other personnel. This brings us to $14.5 billion.
Now to the logistics of implementing the new rules. In order for fleets to meet the on-duty time constraints, they'd need to have fresh drivers waiting at the location where the first driver has to stop, so a slip-seat operation can occur. This is not realistic.
First of all, the logistics of linehaul and regional carriage can't accommodate this scenario and still make efficient use of all available hours of service. Second, the hours would not allow for a smooth switch even if perfect driver allocation could be achieved.
Translation? The industry will need another 49,000 tractors and 98,000 trailers, given a 2:1 tractor/trailer ratio. So now we've added another $4.8 billion worth of equipment, with no additional technicians to service them. This brings us to $19.3 billion in implementation costs.
I think the FMSCA estimate of 49,000 additional drivers is short by a wide margin. And if my numbers are in the ballpark at all, we're at close to $20 billion in additional costs associated with hours-of-service reform.
If the carriers most affected earn $1 billion per year in net income, it looks like a 20-year payout, assuming no cost of borrowing money. Let's hope that Fed Chairman Alan Greenspan will accommodate us. If he doesn't, it'll be pure inflation for the industry and its clients.