The mire of micromanagement

By Max Heine, mheine@rrpub.com

I feel sorry for the regulators who spent countless on-duty, non-driving hours producing the new hours of service rule. They must know better than anyone how hard it is to satisfy all constituencies, confront their endless lawsuits, accommodate the schedules of highly diverse trucking operations, and account for individuals’ varied sleep patterns. Not to mention improve safety, too.

Our coverage by Senior Editor Todd Dills (Page 20) points out a few examples of the regulators’ challenge – hard cases that don’t seem to be addressed by the new rule, interpretations that are difficult, if not impossible, to find. No doubt there are more.

Drivers better feel like working when the rule says it’s time to work, and they better be tired when the rule says it’s time

The ability of electronic onboard recorders to handle such odd scenarios and to accurately incorporate all the new changes could accelerate their adoption. However, even if they go a long way toward keeping logs legit, EOBRs won’t fix all problems with a one-size-fits-all rule that micromanages driver schedules.

Ideally, drivers should work when they’re rested and rest when they’re tired. Instead, they better feel like working when the rule says it’s time to work, and they better be tired when the rule says it’s time to rest.

When feds are telling professional drivers not to drive a minute over eight hours without stopping for a 30-minute break, or putting odd timing restrictions on a break that lasts 34 hours, it resembles instructions to kindergarten students from a teacher who’s lost control of the class.

Perhaps regulators need to produce a simpler hours rule, and balance that change with enforcement based on safety data. Carriers who push drivers too much on hours or who otherwise don’t manage them responsibly get shut down. Drivers with bad safety records lose their CDLs. The safety data is more available than ever, thanks to the Compliance, Safety, Accountability program, which already aims to toss out the industry’s bad apples.

Another route might be to offer alternative regs to encourage alternative compensation models, such as paying hourly. Or to offer carriers and drivers scheduling flexibility that increases in proportion to safety records. If an owner-operator has been a model of safety for more than 20 years, could he not be trusted to manage his own rest needs?

Indeed, there are flaws in those approaches. It would require a lot to work through them. But the system needs something that restores freedom to those who make the free market tick, and quickly removes those who would sacrifice safety to rape the free market.

With the deeper incursions into driver scheduling that have accompanied new versions of the rule, conflicts with operational realities and individual rest cycles become more glaring. It’s time for steps in another direction.

Max Heine, mheine@rrpub.com

You probably didn’t notice any fanfare on Dec. 13 when the Compliance, Safety, Accountability (CSA) enforcement program marked its first anniversary.

This was quite a contrast with the hand-wringing for more than a year that preceded it. The industry was concerned that it would be crippled with excessive penalties, out-of-service drivers and enough red tape to stripe the interstate highway system.

Nothing that dramatic came to pass in CSA’s first year. Nevertheless, carriers have noted structural problems, such as how violations are weighted. For example, requiring a driver to exceed the 11-hour driving limit or the 14-hour on-duty limit has a severity rating of 7, the same rating as not wearing a seatbelt.

Even as the industry wrestles with such problems, there are things to be gleaned for owner-operators, based on data from the first 10 months in 2011. These stats were gathered by Overdrive’s sister magazine Commercial Carrier Journal from the Federal Motor Carrier Safety Administration:

• Lights are a glaring problem. Under the equipment violations, the two most common involve missing, broken or defective lights or reflective devices, for a combined 17 percent of all violations.

• Tread depth is a deeper problem. Following lights/reflectors, the most common equipment violation (5 percent) was having tread depth less than 2/32 of an inch. However, with a severity rating of 8, it’s much more critical than the light-related items, rated at 2 and 3.

Having inoperative headlights or taillights is the top equipment violation.

• Logs are as important as ever. “Form and manner” log violations and “record-of-duty status not current” together account for 28 percent of driver violations.

The first two points can be easily controlled. Turn on your lights, see which ones are out. If you don’t have a tread depth gauge, get one (they’re cheap) and use it.

As for logs, buckle down and keep up with them. If you’re not using an electronic onboard recorder, get ready. Their use probably will become industrywide, whether through formal mandate or practical necessity. Compliance is expected to be daunting under the new hours rule, which was to have been announced by year-end.

Because CSA is so ambitious, many carriers have received little scrutiny. More than two-thirds of carriers had two or fewer inspections during a 24-month period ended in October, according to analysis by Randall-Reilly TruckIntel, owned by Overdrive’s publisher.

Most initial efforts have focused on larger carriers, so thousands of independent owner-operators have yet to experience the long arm of CSA. Its first year might have seemed benign to you, but be prepared for a closer acquaintance in 2012.

You might have noticed the powers that be are not striving to make your work environment more trouble-free next year. For example, a more restrictive hours of service rule was supposed to have been announced in late November.

By Max Heine -- mheine@rpub.com

Carriers are steadily adopting electronic onboard recorders. More emissions-related regulations start in California during 2012. Medical certification will be more closely tied to the CDL. Then there’s the economy, favorable to trucking lately but still showing signs of serious weakness.

What’s an owner-operator to do? You could form an Occupy Trucking movement and protest over-regulation of the 99 percent by the clueless 1 percent in Washington, D.C. And don’t forget those aggressive troopers. What about slimy brokers, pushy dispatchers, rude shippers and receivers, and insane four-wheelers? Then there’s the economy…

Likewise, Occupy Wall Street and its spawns cite a list of ills, with little focus other than general wrongdoing in the financial sector perpetrated by the “1 percent.” But exactly what to do about income inequality or any other grievance is another question.

That was clear when I witnessed an Occupy Birmingham (Ala.) march this fall. Signs reflected themes as diverse as “Moms against bombs” and “Campaign finance reform,” and as vague as “The people united will never be defeated” and “This is a sign.”

The meandering discontent reminded me of the “mad prophet of the airwaves” in the 1976 movie “Network.” He encouraged viewers to scream out their windows: “I’m as mad as hell and I’m not going to take this anymore.”

One of many issues protested during Occupy Birmingham march.

I admire the eagerness of OWS participants to do more than scream out the window to change the system. Owner-operators, of course, have no time for extended camping trips in city parks, and for many, getting involved in local politics or attending a hearing in Washington is as doable as delivering a load to Mars. Still, you could manage small acts of involvement: vote, file a comment on a notice of proposed rulemaking, or serve on a driver council with your carrier.

Closer to home is your business. The successful owner-operators we’ve observed are not blind to pending regulations or other industry challenges. Rather, they focus on each one and work through it. For every trucker who swears he’s going to leave the industry because of onboard recorders, cross-border trucking or California emissions regs, someone else is figuring out the landscape and earning $50,000, $60,000, $70,000 or more a year.

If you’re short on such profits but abounding in frustration, “Occupy” your business in 2012. Count costs in detail and reduce them. Maintain your equipment better. Develop your load-planning skills. Improve relations with your carrier and others.

Instead of yelling vague threats out the window, look in the mirror. Decide precisely what you can do about whatever you’re mad as hell about. Then do it.

mheine@rrpub.com

“If you’re going to have an expense coming, do it now – don’t wait till after New Year’s,” says Mark Miller, tax manager for ATBS of Denver, the nation’s largest owner-operator financial services provider. Tires, a laptop computer, major maintenance work – any eligible business cost made in 2011 reduces your taxable income dollar for dollar.

How much that reduces your tax bill, though, depends on your income bracket. Considering income tax and self-employment tax together, Miller estimates that owner-operators average a federal tax rate of 25 percent. So every $1,000 in costs could mean $250 off your tax bill, plus whatever it saves on your state income tax.

Other tax points to note:

SELF-EMPLOYMENT TAX. Congress is mulling whether to extend two provisions related to this. One is the reduction of the self-employment tax from 15.3 percent to 13.3 percent that’s in effect for 2011. If your taxable income is $50,000, you’re looking at a possible $1,000 tax hike if this 2 percent break gets taken away.

Congress has yet to decide if it will extend a tax break for health insurance premiums.

HEALTH INSURANCE. “Until now, self-employed truck drivers were able to deduct health insurance from income tax only,” Miller says. This year, that was broadened so that those insurance costs could also be deducted from the 13.3 percent self-employment tax. An owner-operator paying $2,500 in health insurance premiums, for example, gets a tax cut of $330 ($2,500 x .133). Whether this gets extended to 2012 is also up to Congress.

DEPRECIATION. Nothing is expected to change here, but make sure you know how to play the game to your advantage. Just because you can buy a new truck and take accelerated depreciation up to $105,000 in the first year to wipe out taxable income doesn’t mean you should.

Miller has seen ATBS clients take that big deduction, then turn around and sell the truck in a year or two when it’s still worth a lot. Problem is it’s worth little or nothing in the eyes of Uncle Sam because the owner shifted its depreciation to the fast lane. That means a big tax on capital gains. Those owner-operators are “making a decision for the moment,” Miller says.

Another reason not to depreciate for the moment is that even if you keep the truck, most owner-operators do better with the stability of taking depreciation over the normal three-year cycle. That cycle usually plays out as a partial year for the first calendar year, then two full years, then another partial year.

If you’re unsure about these or other tax matters, consult your tax partner. There’s no need to leave money on the table when an informed decision can keep it in your pocket.

By Max Heine, mheine@rrpub.com

It’s tragic that these and other Republicans, while overtly backing reduced government and free enterprise, echo just the opposite when they parrot the mantra that government creates jobs. This mind-set would have you believe that government has things under control, including the wildly fluctuating forces of the free market.

Sure, government can take your money and, as they now say in D.C., “invest” it in other people and call it job creation. Whether this is wise policy is another matter.

“I’m on what’s called a beans-and-rice budget.” — Independent hauler Frank Hagwood

Consider the ongoing story of Solyndra. After more than half a billion dollars in loan guarantees from President Obama’s stimulus plan, the solar panel maker laid off nearly all of its 1,100 employees and closed its factory.

Not fair to pick on one bad apple? Then look at the big picture. The stimulus program was supposed to hold unemployment below 8 percent. Yet unemployment has been at least 9 percent in 26 of the 30 months since the stimulus package was approved, notes columnist George Will.

The financial crisis that gripped the world at the recession’s start was complex and years in the making. To think massive deficit spending choreographed by politicians would produce a quick, painless fix was naïve.

Someone who’s experienced his own financial crisis during this period is hot-shot hauler Frank Hagwood, 53, a native of Meridian, Miss., who lives near Tyler, Texas. Around 2006 he got his operating authority to take more control of his specialty, hauling boats and cargo trailers. The costs of additional insurance, a new trailer, and repairing or replacing transmissions and engines choked him with $70,000 in credit card debt before he knew it.

Harwood’s solution was twofold. One was finding a load partner that matched his operation better, which was uShip. The company states all fees clearly with each posting and is “extremely fair” with rates, he says.

The other part was working his tail off. “I’m on what’s called a beans-and-rice budget,” Hagwood says. “I don’t drink, smoke, go bar-hopping. I go home and I service the truck.” Even that is a luxury, given that he spent 221 nights on the road in 2010. “You’ve got to be a working American if you want to pay your bills.”

This working American enjoyed a sweet day in August. That’s when he made a final bank payment, wiping out his credit card debt.

“If I can do this, an old boy from Mississippi, don’t you think we as a nation can do this?” he asks.

That’s a tough question. I’m not sure any of the leading presidential candidates has the right answer.

Truly independent

Look back 50 years at any industry and it’s obvious that much has changed, yet some core elements remain constant. Review Overdrive’s early years and you’ll find echoes of today’s topics: conflicts with carriers and regulators, complaints about truck stops, concerns about the quality of equipment. A blurb on the cover of the first issue, September 1961, perhaps says it all: “OUR READERS GRIPE.”

Even so, I think owner-operators’ tendency to gripe has waned – well, at least a tad – since those days. And for good reason. Truck stops offer more comprehensive services. Communications technology makes life on the road far less lonely. Trucks are far more efficient, comfortable and durable. Many carriers no longer take owner-operators for granted.

Another change, one that’s harder for newer owner-operators to appreciate, is the business-political climate. If you read Todd Dills’ excellent recap of the history of the owner-operator business model (Page 22), you’ll get a better idea. The absurd restrictions that reigned prior to deregulation put owner-operators at extreme disadvantage. Also, unionization pressure from the Teamsters could be high in spite of what little the union could do for a self-employed owner-operator. Resulting conflicts were much nastier than what’s going on today with state and federal initiatives that could undermine the independent contractor status.

Pressure from the Teamsters, as reflected in this December 1969 cover photo of violence involving steel haulers, was one of the early conflicts owner-operators faced.

Those conflicts, along with the pressure of rising fuel prices, occasionally resulted in shutdowns and other protests. Owner-operators still now and then call for shutdowns over various issues. They remember when a large-enough portion of the trucking workforce could do something disruptive enough to make news.

Such calls generally don’t go anywhere today – and that’s not all bad. Since deregulation, owner-operators enjoy a more free environment, with plenty of opportunity to operate independently. Successful owner-operators are very entrepreneurial, largely able to control their own profitability. They can lobby through the same political channels everyone else uses, or through their own trade group (the Owner-Operator Independent Drivers Association) to achieve policy changes or take grievances to court.

This is not to say that trucking has evolved into the nirvana of careers. There are more than enough crooked brokers, stingy carriers, clueless regulators and stupid four-wheelers to make any driver long to find a paycheck somewhere else.

The important thing is that the owner-operator has come into his own as a legitimate self-employed business owner able to deal with such opposition. The owner-operator model is sound, offering great rewards for those who approach it like a business.

Overdrive is proud for the role it played in freeing up the marketplace for drivers who wanted to own their own truck and operate with independence. Overdrive is proud of the role it continues to play in helping owner-operators get ever better at mastering the challenging job they do.

When the lull ends

By the time you read this, Congress will likely have muddled through the Aug. 2 debt-ceiling crisis. Which is not to say the problem is solved. Any owner-operator who’s worked his way out of thousands of dollars of red ink can tell you what it’s like when compounding high-rate interest payments overwhelm you like Nazi gunfire at Omaha Beach. There’s no easy fix.

Still, debt is often part of doing business. So at what level does it become dangerous?

That’s been a key question in the debt ceiling debate. Liberal economists say borrowing is an elastic tool to make things work, especially in a recovery. Yet no one seems to know the tipping point where the nation is so over-committed financially that recovery becomes an illusion.

I read one explanation of the situation comparing the nation’s finances to a household with $50,000 income. That household would be paying almost $10,000 a year in interest on a $325,000 debt. It would expect to borrow $36,000 to cover next year’s spending of $86,000.

Between 1940 and 2010, Congress increased the debt limit more than 70 times.

The last time Overdrive research measured owner-operator debt levels, 2006, single-truck operators had average business debt of $26,600. More than three-fourths of operators had a business debt-to-revenue ratio of 40 percent or less. Those at the upper end might have been OK if a big part of that debt was a relatively new truck loan, and there was enough revenue to steadily pay it off.

The scary subset of those respondents was the one in six with business debt at 50 percent of revenue and higher, especially if a truck loan was not part of that debt. Many of them would be weeded out of owner-operator ranks in normal economic times, yet alone in the recession that began in 2008.

The knee-jerk response for owner-operators in dire straits is to keep borrowing, just as our government has done. Between 1940 and 2010, Congress increased the debt limit more than 70 times.

Granted, our economy has grown and can afford more debt, but $14.3 trillion is overwhelming our ability to make ends meet. Government debt was less than 30 percent of the gross domestic product during part of the 1970s. Now it’s about 98 percent and the sky’s the limit as we continue massive deficit spending ($1 trillion and counting for this fiscal year) and flirt with ruining the nation’s credit rating.

Learn from this. Unless your business is a small fleet experiencing steady growth, you can’t afford to raise your debt ceiling once a year. You can’t afford delinquent debt payments or other sloppy business practices that will trash your credit rating. You can’t afford to buy a truck, no matter the price, without a clear plan to pay it off and to save enough to maintain it.

If you’re not sure what level of debt is safe for your operation, consult with your accountant – not your congressman.

When the lull ends

The recession ended a year ago, economists say, and the trough of the downturn was a year before that. Since then, hiring has improved, the stock market’s up, and manufacturing has expanded for 22 consecutive months. More importantly, the driver shortage is back on the front burner and getting hotter. With that rising demand, it’s easy to see a big green light for seeking higher pay at another carrier, adding a truck or a trailer, or getting your own authority.

Balancing all this is the stumbling economy. We’ve heard for months about a possible “double-dip” recession, a jobless recovery, and a housing market that refuses to get on the bandwagon. While manufacturing is on a hot streak, May’s growth rate was the slowest in 12 months. The stock market’s been plunging since the first of May.

Some specific events contributed to the slowdown, notes economist Noel Perry, of the trucking consulting firm FTR Associates. The tsunami in Japan disrupted auto manufacturing lines, unrest in the Middle East drove up oil prices, and housing continues to lag.

Nevertheless, “Every recovery is uneven,” said Perry, addressing the CCJ Spring Symposium 2011 in Birmingham, Ala., put on by Overdrive’s sister publication Commercial Carrier Journal. “There will be an offset to this slowdown. It will probably happen in the fall.”

“There will be an offset to this slowdown.” — Trucking analyst Noel Perry

Perry warned that trucking companies tend to be shy about raising prices when market conditions dictate they should go up, so they should be prepared to take advantage of a rebound that might well occur this fall. For example, it might be unwise to postpone buying equipment until there is absolutely no doubt the economy has rebounded and stabilized, by which time another recession could be just around the corner.

Owner-operators, too, should keep one eye on the road and the other on emerging opportunities. Independents could be in a sweet spot if bigger competitors don’t have the capacity to handle rising freight demand. Whether you’re independent or leased, stay current with freight and driver rates so you don’t leave money on the table.

As you weigh any possibilities for expansion or changing carriers, consider these current resources to help assess your situation:

• See Max Kvidera’s June cover story, “Adding a truck,” at OverdriveOnline.com.

• Read Dollars & Sense columnist Kevin Rutherford’s two-part series on expanding your operation. The first installment is on Page 24.

• Go online for our Aug. 15 webinar, sponsored by Freightliner Trucks. Gordon Klemp, head of the National Transportation Institute, will share detailed second-quarter compensation data from more than 350 key carriers, and the trends that will affect the industry through year-end. Register at TruckerWebinars.com.

Delivering Relief

It’s said that extreme circumstances bring out the best and worst in people. That’s certainly been the case in Tuscaloosa, Ala., where Overdrive is based.

When tornadoes raked the Southeast in late April, our city was one of the hardest hit. A huge tornado mowed a strip for miles through the center of town, leaving 40-plus dead and thousands displaced.

Looters were among the first to emerge in the stricken areas, and not just after dark on that first day. In broad daylight the next, they mixed with the gawkers who roamed unsecured retail areas.

Two of my sons, helping with distribution of aid, told of a woman who asked to be followed home for help with unloading the baby stroller and other goods she had just packed into her car. Upon arriving, they found a neighborhood untouched by the storm. Such incidents are all too common, I’m told by a friend in the sheriff’s department who’s worked non-stop in relief.

USA Truck’s concern for its drivers based in tornado-ravaged Tuscaloosa “was a blessing of its own,” says Jason Rutledge.

Fortunately, the more common scenario is just the opposite. Community members drop off food, water and other goods for distribution, and others make sure the supplies get where they’re needed. Volunteers work long hours to remove trees and other debris. Scanning one neighborhood from atop a friend’s house while stripping off shingles, I was struck by the sound of so many chainsaws, the sight of so many people and pickups.

Trucks of a much bigger variety, too, have been here. Fleets as large as Mercer Transportation and USA Truck, and as small as two-truck DC Jones Trucking of Dallas, have sent supplies. USA’s load was delivered by Jason Rutledge, for whom the disaster was personal. He lives in Tuscaloosa and was shocked when he got home and saw the damage, which included a tree falling on his house.

Rutledge says USA’s management has shown ongoing concern for him and other drivers based here. “For a company to not only ask about their employees’ families’ health, but to help the community out that you stay in … that was a blessing of its own,” he says.

One heartening thing about the response from truckers and others is that it’s privately motivated, privately executed. No federal bureaucrat had to tell anyone to give money or drive hundreds of miles or drag limbs from backyards. No one needed a grant from FEMA.

Which is not to say FEMA or other publicly funded agencies don’t play an important role in such disasters. They clearly do. But how great it would be if this spirit of volunteerism and self-reliance could extend to meeting social needs 365 days a year, coast to coast. What a difference it could make in solving problems too often relegated to an impersonal, tax-hungry government.

Your EOBR gift to Mexico

The Federal Motor Carrier Safety Administration has won no trucker fans by planning to buy electronic onboard recorders for Mexican trucks. The agency’s intent is to monitor hours of service and make sure the visiting truckers don’t get frisky with unauthorized hauling.

Owner-operators point out that FMCSA isn’t offering to buy them an EOBR. And they didn’t want cross-border trucking to begin with.

The U.S. freely entered into NAFTA, indicating we trusted Mexico and Canada.

FMCSA says NAFTA limitations dictate why we’re footing the $2.5 million bill over the three-year test. From a spokesperson: “The United States cannot impose requirements on Mexico-domiciled motor carriers unless those same requirements apply to U.S. carriers.” So until FMCSA’s proposed EOBR rule for U.S. carriers is final, FMCSA has to pony up for Mexico.

It’s as if the agency is saying, OK, all you worried truckers and protectionist groups (Teamsters, Owner-Operator Independent Drivers Association) that holler about the lack of safety and control, we hear you. We’ll even force the Mexican carriers to install EOBRs, even though we have to pay.

The annoying part of this logic is how it reflects the paternalism and careless spending so rampant in Washington, D.C. Big Government thinks it can fix whatever ails you. Its favorite remedy: your tax dollars.

FMCSA estimates 92 Mexican trucks will participate over three years. A website will post things like the number of border crossings and pre-authorization safety audits. As for the HOS and tracking data, the staffing and systems beyond the hardware apparently are wrapped up in the $2.5 million, since that averages $27,174 per truck. 

More recently there is news about Arizona using federal money to replace mufflers with catalytic converters on 55 Mexican trucks last year to reduce pollution at the border. The Arizona Republic newspaper reports the project continues, at a cost of $1,600 per truck. Our willingness to invest outside the country appears limitless as long as there is some chance of slight payback for us.

Mexico jerked us around with the agricultural tariffs when we nixed the last cross-border pilot program and showed no signs of honoring our NAFTA commitment. Given the extensive protections built in to the new pilot program, why not see how it plays out in the same pre-EOBR regulatory climate that American trucks operate in? If Mexico falls short, then we jerk the chain: Cancel the program or make them buy their own recorders.

The U.S. freely entered into NAFTA, indicating we trusted Mexico and Canada. Now, well, we don’t exactly trust you guys to the south, but we’re so big that we’ll trust expensive gadgets and systems. Public policy isn’t well served by such ambiguity, especially when taxpayers must foot the bill for one of the conflicting messages.