January 14, 2013 at 11:49 AM
As a part of a three segment series, I took a look inside the war that is being waged on the American truck driver. Two major issues have forced both national carriers and owner-operators to have concern about the profitability of the trucking industry. We previously spoke about the environmental compliance lurking in the shadows nibbling at the heels of the transportation industry, forcing owner-operators to go for broke. Truckers willing to take a pro-active position on becoming greener in their operations want the freedom of choice of what technology works for their fleet and budget. Many trucking fleets have been taking steps to become sustainable, and they have identified that young consumers take into consideration the environment when chosen to do business with other companies.
But environmental compliance is not the only threat on the horizon. Owner-operators and national carriers are facing monumental regulation that will change what is left of the opportunity in making trucking profitable. Landmark regulation is looming behind the fiscal cliff, which will change the current model in the trucking industry, and the motive behind the proposed regulation is in the name of environmental justice and health care. I am talking of proposed changes to the Hours of Service (HOS) enforced by the Department of Transportation, Federal Motor Carrier Safety Administration that will take effect July 1, 2013. The other is a piece of legislation on the floor of the Senate that will give change owner-operators to be classified as full time employees.
Owner-Operators and critics believe the changes in HOS rules main function is to eliminate independent owner-operator 1099 contractors from the equation, and to get all drivers to become 1040 w-2 employee. By eliminating the 1099 contactor model will force owner-operators to park their trucks and take a job either leasing from a national carrier, or switch careers all together. The argument is that most 1099 owner-operator contractors have older equipment; trucks and trailers which the EPA is working very hard to eliminate from America’s highways. Most of these owner-operators have developed relationships with national carriers and carved out niche market dedicated runs. Other owner-operators that don’t serve national carriers or fortune 500 companies, have developed their own clientele made up of local merchants, manufacturers, and farmers who otherwise could not afford the high price tag of transport from a national carrier. The proposed bill will force over 600,000 plus 1099 contractors and owner-operators to rethink their career in the trucking industry. Performing the math on the effect of the proposed bill will be a big win for government but a huge magnifying loss for the economy.
“The cost of eliminating owner-operators from the road in the name of the environment will push the cost of local and regional manufactured or grown goods through the roof and in the end will force up higher prices on the shelves. In a tough economy, consumers are watching their spending habits with the nation’s economic confidence already weak as America faces the fiscal cliff,” commented Eddie Wiese, Owner-Operator of YZ Enterprises LLC, “As an owner-operator, we have strived to survive and adapt to the laws that have cut most owner-operators that have older trucks from transporting out of the busiest port and terminal areas. Now the EPA and the Senate wants to finish us off by getting rid of us once and for all. But they will allow trucks from Mexico to enter our boarders without being environmentally compliant or have all of the proper insurances, making the roads dangerous for Americans to travel.”
“If anything government should be looking to do whatever it can to keep us on the road. Owner-operators contribute to the economy just as much as a national carrier; we pay highway and fuel usage taxes, purchases services and goods while on the road, and sometimes take on part time help to assist with local deliveries. As owner-operators we still have to pay income taxes (either as small business owners or sole proprietors). I don’t see truckers from out of the country paying their fair share to contribute to the American economy. This whole thing is a result of government getting in the way of business they don’t understand, nor had any experience in. The only thing government knows how to do is tax us to death and create new laws that keep bureaucrats and officials in office. If they had to live six days a week on the road for the meager margins the trucking industry makes, I am sure things would be different,” Wiese continued.
National carriers would benefit in gaining market share and would favor some of the opportunity to capture the void in the industry; however the opportunity is also a double edged sword. National carriers would have the added expense to add pricey trucks and equipment to their fleet. The temporary void would have an effect on how fast goods make it to the shelves of retailers, therefore allowing for the rule of supply and demand to take effect. National carriers would have to also launch major HR campaigns, since hiring a truck driver is more complicated than one would think. There are background checks, drug and alcohol testing, and of course spending time examining abstracts, that have to be conducted. New applicants without a CDL would have to be licensed and trained before setting of into the highway sunset. Hiring 1040 w-2 employees carry a price tag for larger transportation providers. They implement the 1099 owner-operator model to offset the cost of stationary employees. National carriers hire owner-operators to deliver their clients goods in situations where loads would cause a national carrier using conventional methods a loss in profit. National carriers save on providing health care, fuel cost, purchasing of equipment, and maintenance cost when contracting with owner-operators.
One of the largest benefits of hiring owner-operators for a national carrier does not have to pay to health care cost for drivers. The changes in the rules would not only lower the production rate and hours of service in which a driver can operate a vehicle on the road, it would force every owner-operator to have to participate in the Affordable Care Act also known as “Obama Care”. With over 600,000 plus owner-operators having to be classified as employees, would significantly add resources to the pool for Obama Care. The changes would be crippling. Most truck driver’s average gross wages average just $41,000 including hourly wages, overtime, commissions, bonuses, and profit sharing (according to payscale.com). When one calculates the average of taxes one contributes currently, most drivers only see between $26,000 to $32,000 in take home pay. Having to contribute to Obama Care will add an additional burden upwards of an additional 10%-15% in new taxes (depending on their income bracket).
As an owner-operator, one must cover all of the expenses of their replacement and repair of equipment (truck and trailer), fuel and highway usage tax (both state and federal), licensing fees (state and federal), cost of living expenses while on the road, tolls and parking, fines and penalties for not keeping up with all of the regulations, while on top of trying to inch out some profit to make a living. Truckers are responsible for more than just delivering a load to its destination. Today drivers have a massive amount of paperwork in reporting, which burns up valuable production time. The reporting tracks their every move, mile of travel, maintenance schedule and repair, delivery, type of cargo, fuel used, and purchases if business related. By the industry experts, some of the reporting is necessary in the name of national security, in a post 9/11 world. However most truckers lose sleep over the fact that missing any details in their reporting opens the door to fines and penalties when proceeding threw a weight station or DOT stop. Drivers are responsible individually for paying for fines and penalties out of their pocket. Now HOS is proposing mandatory electronic log and reporting equipment in every big rig, which will trigger automatic red flags for regulators, giving them the tools to enlarge their enforcement activities.
"If you move these drivers from independent contractors to full-time employees, the impact is going to be very significant in terms of carrier cost structures”, commented Mike Regan, president of TranzAct Technologies, active member of NASSTRAC, and notable commentator on the freight transportation sector generally, during an interview with Supply Chain Digest.
Facing regulatory threats, many companies have already made moves to prepare to eliminate company drivers (w-2 employees). Many companies have begun to hire more owner-operators to limit the effects of Obama Care and having to deal with the cost of environmental regulation. Seeing the writing on the wall, one company, Wakefern Food Corporation (The parent warehousing and product provider of Shoprite Supermarkets) closed down its Middletown/Wallkill, NY terminal, and moved the warehousing operations to Pennsylvania. This move eliminated over 500 plus jobs, while terminating the influence of the Teamsters Local 445 in the Wakefern workforce. When the terminal’s operations were moved to Pennsylvania, Wakefern’s model for transporting its goods to its Shoprite stores was to hire owner-operators to take over the previous duties once performed by company drivers. The State of NY and then Governor of NY Governor Pataki, offered the company tax incentives and rebates to stay in their current home. Wakefern turned away the offer citing that the incentives were not enough to allow the company’s operations to be sustainable having to deal with current and future looming health care and regulatory expenditures.
Wakefern’s decision to change its business model has been felt throughout the transportation industry, and has the pain has hit a major nerve in the Garden State, where many trucking firms are adopting similar policies that will eliminate company drivers, and add drivers to the owner-operator pool. Other firms in order to combat the environmental regulation, that will cost their company millions of dollars, are moving their vehicle inventory to be housed and registered in other states. New Jersey company National Retail Systems, the parent of National Retail Transportation and Keystone Freight have looked into registering and housing vehicles in states that do not have heavy emissions regulations that have come to cripple the trucking industry. These moves mean the loss of many jobs to states that have already high unemployment figures; especially New Jersey who’s unemployment rates is peaking just above 9.7%, two points higher than the national average.
With the war on trucking in high gear, and the bombs of Obama Care, HOS, and emissions compliance already falling from the sky, national carriers and owner-operators are deep in the trenches, trying to maneuver through the land mines in order to make a profit. The current industry average profit margin is less than 7% for national carriers and half of that for owner-operators (according to CNN’s Fortune 500 industry analytical website). Many agree with all of the mounting concerns in the industry, job growth will not be added into the equation any time soon. For many truckers facing monumental regulation and cannot afford to keep up, they are hanging up their hat and looking to cash out of their equipment or join others on the unemployment line.
“I always thought this was a right-to-work state. I thought you had the right to work and when they take your right to work away, well what do you do? I don't have any way of feeding my family after they take my truck away. I'm 68 years old so I ain't just going to run out and get a new job just anywhere at my age so this totally puts me out of the business and puts me out of work," Ron Lord commented in an interview with KRCR TV, an ABC News Affiliate. Ron Lord is the owner-operator of Lord Trucking out of Red Bluff, CA. Lord, like many owner-operators are facing the regulation that will cost anywhere from $16,000 to $24,000 for a verified soot filter or look to replace their truck altogether. Lord, who has been in business for over 30 years, is making an effort to get other truckers together to find a solution to this issue.
Whether it is national or regional carrier like NRS/NRT or Wakefern, or owner-operators like Wiese and Lord, they fight the same war on trucking. Ultimately the consumer will be the loser and the economy a part of the collateral damage between the sparring of industry and government. The thin line that separates government from the free market is quickly disappearing. There are landmark decisions that have given government agencies with unlimited police powers to flex their regulatory muscle going totally unchecked. What is next for the trucker to do? In the last part of our three part series, we will focus on the key battles of these conflicts, that the trucking industry are taking the liberty of fighting back against the regulations they say are hurting their profitability. We will take a look at the court battles and the organizations that are bringing these concerns to the public eye. And who is winning the war on trucking? Well you be the judge after reading “The Green Lane” entry, “The War on Trucking: Part III-The Battlegrounds.”
Click here to read Part 1.
Samuel K. Burlum. Mr. Burlum is the CEO/President, and Chairman of Extreme Energy Solutions Inc; a company that develops, sells, and services environmental mitigation products and practices. Under his leadership, Extreme Energy Solutions Inc. “Made in the USA Manufacturing Plan” was adopted; thus creating many new jobs in the Northeast. Mr. Burlum has testified on behalf of innovative technology at many US EPA/NJ DEP stakeholders hearings, including hearings on dirty coal fired electric generation facilities, and national diesel pollution reduction campaigns. Mr. Burlum also serves as Vice President of SMART Air Fuel Saver LLC; a Board Director for ESLC Inc; while also serving as Board Secretary for the Spirit of the Arts Foundation (501c3 Non-Profit). Mr. Burlum is involved in Motorsports (Stock Car Racing) industry, as a car/team owner, and driver. Mr. Burlum has been an Entrepreneur for over 20 years, founding his first business in 1992. He graduated from Berkeley College with an Associates Degree in Business Management & Entrepreneurship in 1998. He is an active participant and Member of both Sussex County and NJ State Chamber of Commerce; NJ State Chamber of Commerce Cornerstone Member, NJ Clean Cities Coalition, California Trucking Association, Global Information Network, and UMP Dirt Car. Mr. Burlum has been interviewed on radio and television including on People of Distinction, with CBS Radio's Al Cole, Today in America with Terry Bradshaw, WIBG 1020 am News Hurley in the Morning, NTR Radio's Voice of Success Program, and Cablevision's The Neighborhood Journal, and featured in many articles including in the publication The Taxi Insider, The Alternative Press, and MPG Today Magazine. He has been a featured speaker at the World Green Energy Symposium, and the Sustainability Summit, powered by The Council (NYC) on panels discussing matters on green transportation solutions and innovative green supply chain development.
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