If you've ever witnessed a traffic jam start as drivers slow down to look at an accident, you'll understand the wreck that's about to hit the trucking industry.
Complaints about aggressive truck drivers have led not only to a crackdown by state highway patrols, but also the implementation of a driver-safety measurement system intended to weed out drivers who are deemed unfit to sit behind the wheel of a big rig. Known as the Comprehensive Safety Analysis 2010, it will instead cause the industry -- which had been on the road to recovery -- to crash. And there will be a big jam in every corner of the economy as a result.
You're doing a heckuva job ...
Like a lot of government programs, the regulations are well intentioned but will have dire consequences. Trucking companies are having trouble finding qualified drivers, and analysts estimate that the rules will reduce the driver pool by as much as 7%. And now, even though large trucks are involved in just 6% of all accidents nationwide, a rote, just-check-the-boxes rating mentality means that Werner Enterprises (Nasdaq: WERN ) says it will have to let some drivers go even though they have unblemished accident histories.
Many drivers, for example, aren't allowed to supervise the loading of their trucks, but if a load shifts or spills, they're held accountable and will have points counted against them in the rating system. Same with companies that have their own maintenance and repair shops, where drivers are still responsible for any vehicle defects. And any warnings the police issue are held against drivers just as if they'd gotten a ticket.
... but don't come back!
The trucking industry has lost almost 150,000 jobs since 2008, no doubt as the recession exacted its toll. Yet JB Hunt, Con-Way, and YRC Worldwide (Nasdaq: YRCW ) , which saw truck tonnage increase for the eighth straight month in July, will have to dismiss some otherwise safe drivers, ultimately causing what Stifel Nicholas analysts term a "monumental capacity shortage."
The implications for the economy are even worse. Economic recovery means that demand for carriers will heat up, but without sufficient numbers of drivers to move the loads, rates will soar. That might be good for troubled truckers such as YRC Worldwide, which has sagged as a result of falling rates, but truck makers such as Navistar (Nasdaq: NAV ) , which would normally benefit from capacity shortages, will not realize any gain.
Heading into crisis mode
Increased costs will also hit the intermodal carriers that put trains, ships, and trucks to work moving goods around the country. CSX realizes a third of its volume and more than 10% of its revenues from intermodal traffic. Norfolk Southern (NYSE: NSC ) generates almost a fifth of its revenues from its intermodal business. And while United Parcel Service (NYSE: UPS ) uses intermodal shipments, FedEx (NYSE: FDX ) has so far resisted using railroads -- but it might hurry toward a decision in the wake of the new rules.
The jam could back up into shipping fleets, too, as they get stuck in port waiting to offload their cargo. Seaspan (NYSE: SSW ) , which operates a fleet of 53 container ships, won't be able to capitalize on the fact that 90% of non-commodity dry goods crisscross the ocean in container ships. They'll be stacked up in port like their containerized cargo in the ship's hold.
The Foolish takeaway
Beijing recently experienced a monster traffic jam that was 60 miles long and lasted for 10 days! Yet the Law of Unintended Consequences from implementing the new driver-safety rules will make that situation pale in comparison to the trucking-capacity slowdown that's about to spin out of control on our nation's highways.
Truckers such as JB Hunt were looking like good bets on a recovering economy. Trucking accounts for about a third of all commercial freight activity in the U.S., more than rail and air combined. But when the rubber hits the road with these new rules, we might find they're just going to be stuck in the breakdown lane.